<PAGE>
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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to ss. 240.14a-11(c)
or ss. 240.14a-12
- --------------------------------------------------------------------------------
Go2Net, Inc.
(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)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(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):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / 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:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
GO2NET, INC.
SPECIAL MEETING OF STOCKHOLDERS
To Our Stockholders:
You are cordially invited to attend a Special Meeting of the Stockholders of
Go2Net, Inc. (the "COMPANY") to be held on Thursday, June 17, 1999, at 9:00 a.m.
Local Time, at The Washington Athletic Club, 1325 Sixth Avenue, The Noble Room,
Seattle, Washington.
The Special Meeting has been called to consider and approve the following
matters:
1. The issuance and sale of 132,493 shares of the Company's Series A
Convertible Preferred Stock, par value $.01 per share (which initially would
be convertible into 2,004,129 shares of Common Stock) at the second closing
(the "SECOND ISSUANCE") pursuant to the Stock Purchase Agreement dated as of
March 15, 1999, as amended (the "STOCK PURCHASE AGREEMENT"), between the
Company and Vulcan Ventures Incorporated ("VULCAN") at a price of $1,000.00
per share in cash and otherwise on the terms and subject to the conditions
set forth in the Stock Purchase Agreement.
2. The sale by the directors of an aggregate of 1,403,312 shares of the
Company's Common Stock, par value $.01 per share (the "MANAGEMENT SALE")
pursuant to the Stock Purchase and Voting Agreements dated as of March 15,
1999 (the "MANAGEMENT AGREEMENTS"), by and between each of the six directors
of the Company and Vulcan at a price of $90.00 per share in cash and
otherwise on the terms and subject to the conditions set forth in the
Management Agreements.
3. The election of five directors of the Company to serve until the next Annual
Meeting of stockholders as more fully described in the accompanying Proxy
Statement.
4. Amending the Company's Restated Certificate of Incorporation to increase the
number of the Company's authorized shares of capital stock from 50,000,000
to 500,000,000 consisting of 499,000,000 shares of Common Stock, par value
$.01 per share, and 1,000,000 shares of Preferred Stock, par value $.01 per
share.
The Board of Directors has carefully reviewed and considered the terms and
conditions of the Second Issuance and the Management Sale (the "Transactions")
and has received the favorable opinion of its financial advisor, Broadview
International LLC, as to the fairness, from a financial point of view, of the
initial price at which the Series A Preferred Stock to be purchased from the
Company by Vulcan is convertible into Common Stock. A copy of the opinion is
attached to the accompanying Proxy Statement as Exhibit C. Details of the
Transactions are also set forth in the accompanying Proxy Statement and attached
exhibits. We urge you to read the Proxy Statement and attached exhibits
carefully. Your vote is important. THE BOARD OF DIRECTORS HAS APPROVED THE STOCK
PURCHASE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH OF THE PROPOSALS TO BE PRESENTED AT
THE SPECIAL MEETING.
In the event that the stockholders of the Company do not approve the Second
Issuance, then either the Company or Vulcan may terminate the Stock Purchase
Agreement. Following any such termination, the Company may be obligated to pay
to Vulcan a fee of $17,500,000. Upon a termination of the Stock Purchase
Agreement, Vulcan has the right to purchase one half of the shares subject to
the Management Agreements between Vulcan and each of the three directors who are
also executive officers of the Company pursuant to the terms of such Agreements.
<PAGE>
The Board of Directors has fixed the close of business on May 7, 1999 as the
record date for the meeting. All stockholders of record on that date are
entitled to notice of and to vote at the meeting. We urge you to attend and
participate in the Special Meeting. Whether or not you expect to attend
personally, please complete, sign, date and return the enclosed proxy card in
the postpaid envelope provided as soon as possible. You may, of course, attend
the Special Meeting and vote in person, even if you have previously returned
your proxy card.
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING IN PERSON.
Sincerely yours,
[LOGO]
ETHAN CALDWELL
SECRETARY
Seattle, Washington
May 12, 1999
<PAGE>
GO2NET, INC.
999 THIRD AVENUE, SUITE 4700
SEATTLE, WASHINGTON 98104
------------------------
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
JUNE 17, 1999
------------------------
INTRODUCTION
The enclosed proxy is solicited on behalf of the Board of Directors (the
"BOARD") of Go2Net, Inc., a Delaware corporation (the "COMPANY"), for use at a
Special Meeting of Stockholders to be held on Thursday, June 17, 1999 at 9:00
a.m. Local Time (the "SPECIAL MEETING"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Special Meeting. The Special Meeting will be held at The Washington Athletic
Club, 1325 Sixth Avenue, The Noble Room, Seattle, Washington. The Company
intends to mail this proxy statement and accompanying proxy card on or about May
17, 1999 to all stockholders entitled to vote at the Special Meeting.
The Special Meeting has been called to consider and approve four matters:
(a) to approve the issuance and sale of 132,493 shares of the Company's Series A
Convertible Preferred Stock, par value $.01 per share (which initially would be
convertible into 2,004,129 shares of Common Stock) at the second closing (the
"SECOND ISSUANCE") pursuant to the Stock Purchase Agreement dated March 15,
1999, as amended (the "STOCK PURCHASE AGREEMENT"), between the Company and
Vulcan Ventures Incorporated ("VULCAN") at a price of $1,000.00 per share in
cash and otherwise on the terms and subject to the conditions set forth in the
Stock Purchase Agreement; (b) to approve the sale by the directors of an
aggregate of 1,403,312 shares of the Company's Common Stock, par value $.01 per
share (the "MANAGEMENT SALE") pursuant to the Stock Purchase and Voting
Agreements dated March 15, 1999 (the "MANAGEMENT AGREEMENTS"), by and between
each of the six directors of the Company and Vulcan at a price of $90.00 per
share in cash and otherwise on the terms and subject to the conditions set forth
in the Management Agreements (together with the Second Issuance, the
"TRANSACTIONS"); (c) to elect five directors of the Company to serve until the
next Annual Meeting of stockholders as more fully described in the accompanying
Proxy Statement; and (d) to approve an amendment to the Company's Restated
Certificate of Incorporation (the "RESTATED CERTIFICATE"), to increase the
number of the Company's authorized shares of capital stock from 50,000,000 to
500,000,000 consisting of 499,000,000 shares of Common Stock, par value $.01 per
share (the "COMMON STOCK") and 1,000,000 shares of Preferred Stock, par value
$.01 per share (the "Preferred Stock"). See "PROPOSAL 1-- APPROVAL OF THE SECOND
ISSUANCE," "PROPOSAL 2--APPROVAL OF THE MANAGEMENT SALE," "PROPOSAL 3--ELECTION
OF DIRECTORS" and "PROPOSAL 4--AMENDMENT TO RESTATED CERTIFICATE."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "COMMISSION"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
following Regional Offices: Suite 1400, Northwest Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661; and 13th Floor, Seven World Trade
Center, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Common
Stock is quoted for trading on the Nasdaq National Market and reports, proxy
statements and other information concerning the Company also may be inspected at
the offices of the National Association of Securities Dealers, 1735 K Street,
N.W., Washington, D.C. 20006. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
is www.sec.gov.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SUMMARY........................................ 1
The Company.................................. 1
Vulcan Ventures.............................. 1
General...................................... 1
Purpose and Effect of the Transactions....... 2
The Special Meeting.......................... 2
The Second Issuance.......................... 3
The Management Sale.......................... 3
Election of Directors........................ 3
Amendment to the Restated Certificate........ 4
Opinion of Financial Advisor................. 4
Risks Associated With Transaction............ 4
RISK FACTORS................................... 5
THE SPECIAL MEETING............................ 6
General...................................... 6
Solicitation................................. 6
Voting Rights and Outstanding Shares......... 6
Vote Required................................ 6
Revocability of Proxies...................... 7
Quorum; Abstentions; Broker Non-Votes........ 7
No Dissenters' Rights........................ 7
BACKGROUND OF THE TRANSACTION.................. 8
RECOMMENDATION OF THE BOARD OF DIRECTORS....... 10
PROPOSAL 1--APPROVAL OF THE SECOND ISSUANCE.... 10
Opinion of Financial Advisor................. 11
Information About Vulcan..................... 16
The Stock Purchase Agreement................. 16
Registration Rights Agreement................ 20
Interests of Certain Persons in the Second
Issuance................................... 21
Regulatory Matters........................... 22
Vote Required................................ 22
PROPOSAL 2--APPROVAL OF THE MANAGEMENT SALE.... 22
Management Agreements........................ 22
Vote Required................................ 23
PROPOSAL 3--ELECTION OF DIRECTORS.............. 24
Nominees..................................... 24
Vote Required................................ 25
Information Concerning the Board of
Directors.................................. 25
PROPOSAL 4--AMENDMENT TO THE RESTATED
CERTIFICATE.................................. 26
General...................................... 26
Increase in the Number of Authorized Shares
of Common Stock............................ 26
<CAPTION>
PAGE
---------
<S> <C>
Appraisal Rights in Respect of the Proposed
Agreement.................................. 27
Vote Required................................ 27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................... 28
Beneficial Ownership Table................... 28
Section 16(a) Beneficial Ownership Reporting
Compliance................................. 29
EXECUTIVE COMPENSATION......................... 29
Summary of Compensation...................... 29
Grants of Stock Options...................... 30
Stock Option Exercises and September 30, 1998
Stock Option Values........................ 30
Acceleration of Stock Options................ 30
Employment Agreements........................ 31
Certain Relationships and Related
Transactions............................... 31
Compensation Committee Report on Executive
Compensation............................... 31
Compensation Committee Interlocks and Insider
Participation.............................. 33
DESCRIPTION OF COMPANY CAPITAL STOCK........... 33
Common Stock................................. 33
Preferred Stock.............................. 34
Certain Corporate Governance Matters......... 35
Limitation of Liability...................... 37
Transfer Agent and Registrar................. 37
PERFORMANCE MEASUREMENT COMPARISON............. 38
TIME FOR SUBMISSION OF STOCKHOLDER PROPOSALS... 38
INFORMATION INCORPORATED BY REFERENCE.......... 39
INDEPENDENT PUBLIC ACCOUNTANTS................. 39
OTHER MATTERS.................................. 39
EXHIBITS
Exhibit A Stock Purchase Agreement, as
amended.............................. A-1
Exhibit B Forms of Stock Purchase and Voting
Agreement............................ B-1
Exhibit C Opinion of Broadview International
LLC.................................. C-1
Exhibit D Registration Rights Agreement........ D-1
Exhibit E Certificate of Designation........... E-1
</TABLE>
i
<PAGE>
SUMMARY
The following is a summary of certain significant matters discussed
elsewhere in this Proxy Statement. This summary should be read in conjunction
with the more detailed information appearing, or incorporated by reference, in
this Proxy Statement and the Exhibits hereto. Stockholders are urged to read
this Proxy Statement (including the documents incorporated by reference) and the
Exhibits hereto in their entirety. Unless otherwise stated herein, the numbers
of shares and percentage thereof set forth herein are as of May 10, 1999.
This Proxy Statement contains forward-looking statements that involve risks
and uncertainties. Actual results could differ materially from those discussed
in the forward-looking statements as a result of certain factors, including
those set forth in the section of this Proxy Statement entitled "RISK FACTORS."
THE COMPANY
Go2Net, Inc. offers through the World Wide Web a network of branded,
technology and community-driven Web sites. The Company's properties available
through the Go2Net Network (www.go2net.com) include: MetaCrawler
(www.metacrawler.com), a metasearch service that combines various existing
search/index guides into one service; PlaySite (www.playsite.com), a Java-based
multiplayer games site; StockSite (www.stocksite.com), a business and finance
site which offers proprietary articles, portfolio tracking tools, company
research and news relating to business and finance; Silicon Investor
(www.siliconinvestor.com), the Web's premier financial discussion community;
HyperMart (www.hypermart.net) and Virtual Avenue (www.virtualave.net), the Web's
leading providers of free business hosting services; Haggle Online
(www.haggle.com), a provider of Web based person to person auction services;
WebMarket (www.webmarket.com), a one-stop comparison shopping service and Web21
(www.100hot.com), an online service which identifies and ranks the most visited
Web sites in such categories as technology, entertainment, business, shopping,
lifestyle, games, sports and news. The Go2Net's Labs division develops
innovative technologies to enhance the features and functionality of the Go2Net
sites and for licensing to other Internet companies. The Company focuses on
utilizing innovative technologies to deliver its content and to enhance the
attractiveness and utility of its product offerings. The principal executive
offices of the Company are located at 999 Third Avenue, Suite 4700, Seattle,
Washington 98104, (206) 447-1595.
VULCAN VENTURES
Vulcan is the principal vehicle through which Microsoft Corp. co-founder and
new media investor Paul G. Allen researches and implements his investments.
Through Vulcan, Mr. Allen invests in, among other things, companies that offer
products, services or technologies that fit his wired world strategy and that he
believes can contribute to or benefit from the technologies and strategies of
other companies that he controls. For the biographies of persons proposed by
Vulcan to serve on the Board, see "PROPOSAL 3--ELECTION OF DIRECTORS."
GENERAL
The Company has agreed to issue and sell to Vulcan, and Vulcan has agreed to
purchase from the Company, 300,000 shares of the Company's Series A Convertible
Preferred Stock, par value $.01 per share (the "SERIES A PREFERRED STOCK") for a
purchase price of $1,000.00 per share, in two separate issuances (the "FIRST
ISSUANCE" and "SECOND ISSUANCE") of 167,507 shares and 132,493 shares. The
Series A Preferred Stock is initially convertible at a conversion price of
$66.11 per share into 4,537,891 shares of Common Stock. The First Issuance was
consummated concurrently with the execution of the Stock Purchase Agreement on
March 15, 1999. Simultaneously with the closing of the First Issuance, the
Company and Vulcan entered into a Registration Rights Agreement (the
"REGISTRATION RIGHTS
1
<PAGE>
AGREEMENT"), and Vulcan entered into a Management Agreement with each director
of the Company pursuant to which Vulcan will purchase 1,403,312 shares of Common
Stock from the directors of the Company, three of whom are executive officers of
the Company, at a price of $90.00 per share.
On March 19, 1999, pursuant to the Stock Purchase Agreement, Vulcan
commenced a tender offer to purchase 3,596,688 shares of the Common Stock for a
purchase price of $90.00 per share, net to the seller, in cash (the "OFFER").
The Offer expired on April 15, 1999, and no shares were purchased pursuant to
the Offer.
PURPOSE AND EFFECT OF THE TRANSACTIONS
The Company's primary purposes for consummating the Transactions are (i)
providing the Company with significant cash resources, (ii) providing the
Company with a beneficial strategic partner and (iii) permitting the Company to
continue to utilize publicly traded stock as consideration in acquisitions of
other businesses, since the Common Stock would continue to trade on The Nasdaq
Stock Market. On March 15, 1999, Vulcan purchased 167,507 shares of the
Company's Series A Preferred Stock from the Company in the First Issuance for an
aggregate purchase price of $167,507,000.
Following the consummation of the Transactions, Vulcan will hold
approximately 33.95% of the outstanding Common Stock (including Common Stock
issuable upon conversion of the Series A Preferred Stock). Such ownership could
be sufficient to enable Vulcan to significantly influence the vote on most
matters submitted to a vote of the public stockholders, including the election
of the Board. In addition, under the Stock Purchase Agreement, Vulcan has the
right to designate at least two directors to serve on the Board of Directors of
the Company. See "PROPOSAL 1--APPROVAL OF THE SECOND ISSUANCE--THE STOCK
PURCHASE AGREEMENT." In addition, if the Second Issuance is consummated, the
affirmative vote of holders of a majority of Series A Preferred Stock would be
required to approve certain corporate transactions. See "DESCRIPTION OF COMPANY
CAPITAL STOCK--PREFERRED STOCK."
In the event that the stockholders of the Company do not approve the Second
Issuance, then either the Company or Vulcan may terminate the Stock Purchase
Agreement. Following any such termination, the Company may be obligated to pay
to Vulcan a fee of $17,500,000. See "PROPOSAL 1-- APPROVAL OF THE SECOND
ISSUANCE--THE STOCK PURCHASE AGREEMENT--TERMINATION." Upon a termination of the
Stock Purchase Agreement, Vulcan has the right to purchase one half of the
shares subject to the Management Agreements between Vulcan and directors who are
also executive officers of the Company pursuant to the terms of such Agreements.
See "PROPOSAL 2--APPROVAL OF THE MANAGEMENT SALE--MANAGEMENT
AGREEMENTS--TERMINATION OF STOCK PURCHASE AGREEMENT." Stockholders will not
receive any payment as a result of the Second Issuance or Management Sale.
Additionally, upon a voluntary or involuntary liquidation, dissolution or
winding up of the Company, the Series A Preferred Stock is entitled to $1,000
per share plus declared and unpaid dividends prior to any payment to the Common
Stock. See "DESCRIPTION OF COMPANY CAPITAL STOCK--PREFERRED STOCK."
THE SPECIAL MEETING
PLACE, TIME AND DATE. The Special Meeting will be held on Thursday, June
17, 1999 at The Washington Athletic Club, 1325 Sixth Avenue, The Noble Room,
Seattle, Washington at 9:00 a.m. Local Time, and at any adjournments or
postponements thereof. See "THE SPECIAL MEETING--GENERAL."
MATTERS TO BE CONSIDERED. At the Special Meeting, holders of record of
shares of Common Stock and the Series A Preferred Stock will vote on the Second
Issuance Proposal, the Management Sale Proposal, the Election Proposal and the
Amendment to the Restated Certificate Proposal. See "PROPOSAL 1--APPROVAL OF THE
SECOND ISSUANCE," "PROPOSAL 2--APPROVAL OF THE MANAGEMENT SALE," "PROPOSAL
3--ELECTION OF DIRECTORS" and "PROPOSAL 4--AMENDMENT TO RESTATED CERTIFICATE."
2
<PAGE>
RECORD DATE; VOTE REQUIRED. Only holders of record at the close of business
on Friday, May 7, 1999 are entitled to notice of and to vote at the Special
Meeting. It is a condition to the Company's obligations under the Stock Purchase
Agreement that the Second Issuance and the Management Sale be approved by the
affirmative vote of the holders of a majority of the Company's voting capital
stock present in person or represented by proxy and voting on such proposals. In
addition, under rules of The Nasdaq Stock Market, the consummation of the Second
Issuance and the Management Sale also requires the affirmative vote of the
holders of a majority of the Company's voting capital stock present in person or
represented by proxy and entitled to vote at the meeting.
With respect to the Election Proposal, under the Delaware General
Corporation Law (the "DGCL"), directors are elected by the affirmative vote of
the holders of a plurality of the votes present in person or represented by
proxy and entitled to vote at the meeting, provided that a quorum is present.
With respect to the Amendment to Restated Certificate Proposal, under the DGCL
and the Certificate of Designation of the Series A Preferred Stock, an amendment
to the Restated Certificate requires the affirmative vote of the holders of a
majority of the voting power of the Company's outstanding capital stock entitled
to vote at the Special Meeting. See "THE SPECIAL MEETING--VOTING RIGHTS AND
OUTSTANDING SHARES" and "VOTE REQUIRED."
PROXIES. Any person giving a proxy pursuant to this solicitation has the
power to revoke it at any time before it is voted. It may be revoked by filing
with the Secretary of the Company at the Company's principal executive office a
written notice of revocation or a duly executed proxy bearing a later date, or
it may be revoked by attending the meeting and voting in person. Attendance at
the meeting will not, by itself, revoke a proxy. See "THE SPECIAL
MEETING--REVOCABILITY OF PROXIES."
THE SECOND ISSUANCE
The stockholders of the Company are being asked to consider and vote upon
the Second Issuance. If the Second Issuance and the Management Sale are
consummated, Vulcan will own approximately 33.95% of the Company's outstanding
Common Stock (including Common Stock issuable upon conversion of the Series A
Preferred Stock). The Stock Purchase Agreement is attached to this Proxy
Statement as Exhibit A. See "RISK FACTORS--RISKS ASSOCIATED WITH TRANSACTION,"
"PROPOSAL 1--APPROVAL OF THE SECOND ISSUANCE" and "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT--BENEFICIAL OWNERSHIP TABLE."
THE MANAGEMENT SALE
The stockholders of the Company are being asked to consider and vote upon
the Management Sale. If the Second Issuance and the Management Sale are
consummated, Vulcan will own approximately 33.95% of the Company's outstanding
Common Stock (including Common Stock issuable upon conversion of the Series A
Preferred Stock). The forms of Management Agreement are attached hereto as
Exhibit B. See "RISK FACTORS--RISKS ASSOCIATED WITH THE TRANSACTION," "PROPOSAL
2--APPROVAL OF THE MANAGEMENT SALE" and "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT--BENEFICIAL OWNERSHIP TABLE."
ELECTION OF DIRECTORS
In May 1999, the size of the Board of Directors was expanded to eight, and
William D. Savoy and Diane Daggett were appointed to fill the new directorships.
Pursuant to the Stock Purchase Agreement, the Company has agreed to set the size
of the Board of Directors at five and to nominate for election at the Special
Meeting a new Board of Directors composed of a slate of five individuals,
including the Company's existing Chief Executive Officer (Russell C. Horowitz),
two individuals designated by Vulcan (William D. Savoy and Diane Daggatt), and
Dennis Cline and William A. Fleckenstein. As of May 1999, Messrs. Horowitz,
Cline and Savoy and Ms. Daggatt were current directors of the Company. The
3
<PAGE>
Board has nominated them for re-election and Mr. Fleckenstein for election to
the Board, and their election is submitted for approval of the stockholders in
Proposal 3. See "RISK FACTORS--RISKS ASSOCIATED WITH TRANSACTION" and "PROPOSAL
3--ELECTION OF DIRECTORS."
AMENDMENT TO THE RESTATED CERTIFICATE
The stockholders of the Company are being asked to consider and vote upon
the adoption of an amendment to the Restated Certificate, which will increase
the authorized shares of capital stock from 50,000,000 to 500,000,000 consisting
of 499,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock.
See "PROPOSAL 4--AMENDMENT TO RESTATED CERTIFICATE."
OPINION OF FINANCIAL ADVISOR
The Board has retained Broadview International LLC ("BROADVIEW") as its
financial advisor in connection with the Stock Purchase Agreement, the
Transactions, the First Issuance and the Offer. On March 15, 1999 Broadview
delivered a written opinion to the Board that as of March 15, 1999, based upon
the facts and circumstances as they existed at that time, and subject to certain
considerations and assumptions stated therein, the initial price at which the
Series A Preferred Stock is convertible into Common Stock (the "CONVERSION
PRICE") and the purchase price of $90 per share to be paid in the Offer (the
"OFFER PRICE") were fair, from a financial point of view, to the holders of the
Common Stock. A copy of the opinion of Broadview is attached to this Proxy
Statement as Exhibit C and is incorporated by reference herein. See "PROPOSAL
1--APPROVAL OF THE SECOND ISSUANCE--OPINION OF FINANCIAL ADVISOR."
RISKS ASSOCIATED WITH THE TRANSACTIONS
The Transactions pose certain risks to the current stockholders of the
Company including, without limitation, the ability of Vulcan and its affiliates
to significantly influence actions taken by the Board and the Company and to
significantly influence the vote on most matters submitted for approval of the
stockholders. Stockholders are urged to consider these risks carefully before
voting. See "RISK FACTORS."
4
<PAGE>
RISK FACTORS
The Transactions pose certain risks to current stockholders of the Company.
These risks, which are described below, should be considered together with the
risks associated with the Company and its business contained under the heading
"FACTORS AFFECTING THE COMPANY'S BUSINESS, OPERATING RESULTS & FINANCIAL
CONDITION" in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998 and Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1998 and March 31, 1999.
RISKS ASSOCIATED WITH THE TRANSACTIONS
INFLUENCE OVER COMPANY ACTIONS. Upon completion of the Transactions, Vulcan
will beneficially own approximately 33.95% of the outstanding Common Stock
(including Common Stock issuable upon conversion of the Series A Preferred
Stock). Additionally, pursuant to the Stock Purchase Agreement, the Company has
agreed that the Board shall continue to nominate at least two individuals
designated by Vulcan for election to the Board so long as Vulcan holds a
requisite amount of Company capital stock, and Vulcan has agreed to vote its
shares of Company capital stock in favor of the election of Russell C. Horowitz
to the Board so long as he is the Chief Executive Officer of the Company. Two of
the five current nominees for election to the Board of Directors are designees
of Vulcan. Accordingly, consummation of the Transactions could permit Vulcan to
significantly influence many actions taken by the Board or the Company and could
limit the ability of the Company's current stockholders to affect or influence
the direction of the Company and the composition of the Board.
In addition, conflicts of interest may arise as a consequence of the
relationship between Vulcan and the Company, including (a) conflicts between
Vulcan, as a stockholder with a significant ownership interest in the Company
and representation on the Company's Board of Directors, and the other
stockholders of the Company, whose interests may differ with respect to, among
other things, the strategic direction of the Company or significant corporate
transactions, (b) conflicts arising in respect of corporate opportunities that
could be pursued by the Company, on the one hand, or by Vulcan and any of its
other affiliated entities, on the other hand, or (c) conflicts arising in
respect of any new contractual relationships between the Company, on the one
hand, and Vulcan and any of its other affiliated entities, on the other hand. To
the extent that conflicts arise as a result of Vulcan's relationship with the
Company, the Board of Directors (including any directors nominated by Vulcan)
would be guided by its fiduciary obligations as directors under the DGCL,
including the directors' duty of loyalty. In addition, Vulcan's beneficial
ownership of approximately 33.95% of the outstanding Common Stock (including
Common Stock issuable upon conversion of the Series A Preferred Stock) will make
it more difficult for a third party to effect a change in management or to
acquire control of the Company without the approval of Vulcan and, therefore,
may delay, prevent or deter a proxy contest for control of the Company or other
changes in management, or discourage bids for a merger, acquisition or tender
offer, in which the Company's stockholders could receive a premium for their
shares.
Although the Stock Purchase Agreement requires Vulcan to enable other
stockholders of the Company to participate in certain types of transactions in
which it might sell its shares of Company capital stock, the Stock Purchase
Agreement does not require Vulcan to sell its block of shares, even if an offer
is made that might be attractive to the other stockholders. In addition, the
consent of the holders of Series A Preferred Stock, voting as a class, is
required to effect certain corporate actions, including without limitation, to
amend the Restated Certificate or By-laws or the Certificate of Designation in
any manner that would adversely affect the powers, preferences or special rights
of the Series A Preferred Stock.
Stockholders should recognize that the consideration to be paid by Vulcan in
the Transactions may not include the type of premium that might be available in
a sale of the Company as a whole nor does
5
<PAGE>
it include any direct payment to the stockholders of the Company. See "PROPOSAL
1--APPROVAL OF THE SECOND ISSUANCE--THE STOCK PURCHASE AGREEMENT."
DISTRIBUTION AGREEMENT. The Stock Purchase Agreement provides that, after
the consummation of the transactions contemplated by the Stock Purchase
Agreement, the Company and certain cable companies that are affiliated with
Vulcan will promptly commence negotiations with respect to the establishment of
a distribution or other relationship to offer the Company's content to the cable
companies' subscribers. The Stock Purchase Agreement also provides that the
parties will negotiate in good faith and use reasonable efforts to establish a
distribution or other relationship, although none of the parties will have any
legal obligation to any other party if such a relationship is not established.
There can be no assurance that an agreement will be reached or, if an agreement
is reached, that it will be profitable to the Company. See "PROPOSAL 1--APPROVAL
OF THE SECOND ISSUANCE--THE STOCK PURCHASE AGREEMENT."
THE SPECIAL MEETING
GENERAL
The proxy enclosed with this Proxy Statement is solicited on behalf of the
Board for use at the Special Meeting, which is to be held on Thursday, June 17,
1999 at 9:00 a.m. Local Time, or at any adjournment or postponement thereof, for
the purposes set forth in this Proxy Statement and in the accompanying Notice of
Special Meeting. The Special Meeting will be held at The Washington Athletic
Club, 1325 Sixth Avenue, The Noble Room, Seattle, Washington. The Company
intends to mail this Proxy Statement and accompanying proxy card on or about May
17, 1999 to all stockholders entitled to vote at the Special Meeting.
SOLICITATION
The Company will bear the entire cost of the solicitation. It is expected
that the solicitation will be made primarily by mail, but directors, director
nominees, officers, employees or other representatives of the Company (none of
whom will receive any extra compensation for their activities) may also solicit
proxies by telephone, telecopier and in person and arrange for brokerage houses
and other custodians, nominees and fiduciaries to send proxies and proxy
materials to their principals at the expense of the Company.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock and Series A Preferred Stock at the
close of business on May 7, 1999, will be entitled to notice of and to vote at
the Special Meeting. At the close of business on May 10, 1999, the Company had
outstanding 167,507 shares of Series A Preferred Stock held by one holder of
record and had outstanding and entitled to vote 13,136,045 shares of Common
Stock held by 243 holders of record.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Special Meeting.
Each share of Series A Preferred Stock will be entitled to one vote for each
share of Common Stock into which it is convertible.
VOTE REQUIRED
It is a condition to the Company's obligations under the Stock Purchase
Agreement that the Second Issuance and the Management Sale be approved by the
affirmative vote of the holders of a majority of the Company's capital stock
present in person or represented by proxy and voting on such proposals. The
rules of The Nasdaq Stock Market also require that the Second Issuance and the
6
<PAGE>
Management Sale be approved by the holders of a majority of the shares present
in person or represented by proxy and voting on such proposals.
With respect to the Election Proposal, under the DGCL, directors are elected
by the affirmative vote of the holders of a plurality of the votes present in
person or represented by proxy and entitled to vote at the Special Meeting. With
respect to the Restated Certificate Proposal, the DGCL and the Certificate of
Designation of the Series A Preferred Stock require the affirmative vote of a
majority of the voting power of the Company's outstanding capital stock entitled
to vote at the Special Meeting.
Pursuant to the Management Agreements, each of the directors of the Company
on March 15, 1999 has agreed to vote all of the shares of Common Stock owned
beneficially or of record by him (i) in favor of the Second Issuance and the
Management Sale and any matter that could reasonably be expected to facilitate
such Transactions and (ii) against any action (a) that would result in a breach
by the Company or him of any covenant, obligation, or representation and
warranty under the Stock Purchase Agreement or the Management Agreements,
respectively or (b) that would interfere with or delay the Second Issuance or
the Management Sale and the other transactions contemplated by such agreements.
Additionally, Vulcan has agreed to vote its shares in favor of the Transactions
and in favor of the election of Russell C. Horowitz, Dennis Cline and William A.
Fleckenstein to the Board. The directors of the Company and Vulcan hold 35.92%
of the shares of Company capital stock entitled to vote at the Special Meeting
(including the Common Stock issuable upon conversion of the Series A Preferred
Stock).
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office at 999
Third Avenue, Suite 4700, Seattle, Washington 98104 a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person. Attendance at the meeting will
not, by itself, revoke a proxy.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
All votes will be tabulated by the inspector of election appointed for the
Special Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes (proxies that are returned by the record
holder, typically a brokerage house, but not voted on a particular matter
because no instructions were received from the beneficial owner). The presence,
in person or by proxy, of a majority of the shares of the Common Stock
(including shares issuable upon conversion of the Series A Preferred Stock)
outstanding on the record date is necessary to constitute a quorum for the
transaction of business at the Special Meeting. Abstentions and, if applicable,
broker non-votes will each be included in determining whether a quorum is
present. Abstentions on a given proposal will have the same effect as a vote
against such proposal, although abstentions will have no effect as to the
election of directors. For purposes of determining whether the amendment to the
Restated Certificate (Proposal 4) has been approved, broker non-votes will be
treated as votes against the proposal. Broker non-votes on all other proposals
will not be counted in determining whether a matter has been approved.
NO DISSENTERS' RIGHTS
The holders of Common Stock will not have any dissenters' rights in
connection with, or as a result of, the matters to be acted upon at the Special
Meeting.
7
<PAGE>
BACKGROUND OF THE TRANSACTION
As part of an on-going strategic effort to expand its business, the Company
has been considering financing alternatives for several months. On January 18,
1999, a meeting was arranged among representatives of Vulcan and Russell C.
Horowitz, Chairman and Chief Executive Officer, and Dino Christofilis, Vice
President of Corporate Development, of the Company to discuss the possibility of
an investment in the Company by Vulcan. At the meeting, Mr. Horowitz expressed
an interest in raising at least $50,000,000 from a strategic investor and stated
that although the Company was not for sale, he was interested in discussing the
merits of a strategic relationship with Vulcan and wished further to explore the
potential benefits of any relationship.
During late January and the first half of February 1999, representatives of
Vulcan held numerous discussions with Messrs. Horowitz and Christofilis, Michael
J. Riccio, Jr., a director and Chief Operating Officer and John Keister, a
director and President of the Company, to discuss a strategic investment by
Vulcan in the Company. During these discussions, the parties considered an
investment by Vulcan of at least $100,000,000 to $200,000,000 to acquire a
significant ownership interest in the Company, and discussed issues relating to
board representation and approval rights for Vulcan.
During middle and late February 1999, Vulcan, together with representatives
of NationsBanc Montgomery Securities LLC, Vulcan's financial advisor, held a
series of meetings and conference calls with the Company for the purpose of,
among other things, conducting financial due diligence regarding the Company.
During this period, Vulcan and the Company discussed various possibilities
for the structure of the proposed transaction. The parties agreed that Vulcan's
investment would be partially or wholly in the form of a new series of
convertible preferred stock. The parties also discussed the potential terms of
the preferred stock, including liquidation and dividend preferences, voting
rights, anti-dilution protection and various negative covenants. In addition,
some of the transaction proposals considered by the parties contemplated that
Vulcan would obtain majority representation on the Company's Board of Directors.
Throughout late February and early March 1999, the parties continued to hold
discussions to address both Vulcan's and the Company's concerns and to evaluate
the feasibility of various structures for the Transactions. On or about February
27, 1999, Vulcan delivered a written proposal to the Company proposing a
$200,000,000 investment by Vulcan in a new series of convertible preferred
stock. Vulcan and the Company thereafter exchanged proposals regarding the
amount of the investment that would be made by Vulcan and the terms of the
preferred stock. Throughout these discussions Vulcan indicated that, depending
on the scope of the strategic investment it might make, it may have to obtain
majority representation on the Board of Directors. The Company requested that
Vulcan agree, in addition to purchasing newly-issued preferred stock from the
Company, to conduct a tender offer for a significant number of shares of the
Company's common stock as part of the transaction structure to provide liquidity
to the Company's existing stockholders and to provide the Company with certain
distribution rights through Vulcan's cable assets. The Company also indicated
that members of the Company's management were prepared to commit to tender a
percentage of their shares in connection with any tender offer.
On or about March 10, 1999, the Company and Vulcan agreed on the basic
structure of the transaction, which would involve the acquisition by Vulcan of
$300,000,000 of a new series of convertible preferred stock, as well as a tender
offer by Vulcan for a portion of the outstanding shares of the Common Stock,
although the conversion price for the preferred stock, the number of shares that
Vulcan would tender for and the tender price were not agreed to at that time.
On March 10, 1999, the Company's Board of Directors held a telephonic
meeting to discuss the benefits of the proposed transaction with Vulcan. The
Board discussed the material components of the
8
<PAGE>
transaction including (i) the sale of Series A Preferred Stock to Vulcan, (ii)
the Offer and (iii) the potential strategic relationship between the Company and
the other entities which Vulcan controls. At the meeting, the Board received the
advice of the Company's legal counsel concerning the legal issues associated
with the proposed Transactions. At such meeting, the Board authorized the
engagement of Broadview to review the fairness of the proposed transaction, from
a financial point of view, to the Company's stockholders. The Board discussed
the benefits of a transaction which would include (i) providing the stockholders
with liquidity while retaining a significant interest in the Company, (ii)
providing the Company with significant cash resources, (iii) providing the
Company with a beneficial strategic partner and (iv) permitting the Company to
continue to utilize publicly traded stock as consideration in acquisitions of
other businesses since the Common Stock would continue to trade on The Nasdaq
Stock Market. The Board authorized Messrs. Horowitz, Riccio, Keister and members
of management to continue negotiations with Vulcan with the assistance of the
Company's financial and legal advisors.
On March 10, 1999, Vulcan's counsel provided the Company and its counsel
with preliminary drafts of the transaction documents. During the next several
days, management with the assistance of their counsel negotiated the terms of
the transaction documents. Vulcan and the Company, together with their
representatives (including legal counsel), proceeded to negotiate the definitive
terms of the stock purchase agreement, the preferred stock and related
agreements. During this process, the parties continued to negotiate the exact
terms of the transaction, including the conversion price and other rights,
preferences and privileges of the preferred stock, the number of shares to be
tendered for, the tender price and the nature of Company management's
participation. Following extensive negotiations, the parties agreed on the terms
of the new series of preferred stock to be purchased by Vulcan, the specifics of
the tender offer to be conducted by Vulcan and the form of Company management's
participation in the transaction.
A meeting of the Board of Directors of the Company was held telephonically
at 4:30 A.M. Pacific Time, on March 15, 1999. The Board received a report on the
status of negotiations with Vulcan from members of management and legal counsel,
which informed the Board that all material issues had been resolved. The Board
had a full discussion of the sale of Series A Preferred Stock, the Offer and the
sale of stock by management and the various possible outcomes of the Offer.
Additionally, the Board reviewed in detail the terms of the proposal embodied in
the various agreements. The Board again discussed the various benefits of a
transaction which would include (i) providing the stockholders with liquidity
while retaining a significant interest in the Company, (ii) providing the
Company with significant cash resources, (iii) providing the Company with a
beneficial strategic partner and (iv) permitting the Company to continue to
utilize publicly traded stock as consideration in acquisitions of other
businesses, since the Common Stock would continue to trade on The Nasdaq Stock
Market. The Board of Directors also discussed the proposed (i) sale to Vulcan by
the executive officers and directors of 36% of their respective stock holdings
including vested options (determined as of April 4, 1999), and (ii) acceleration
of vesting of 35% of all outstanding unvested options held by all optionees. The
Board considered the sale of shares to Vulcan by the executive officers and
directors to be equitable since Vulcan would be making a tender offer to
purchase 36% of the outstanding Common Stock (excluding the shares held by
executive officers and directors) at the same price at which such executives and
directors will sell their shares of Common Stock. The Board considered the
acceleration of a portion of all outstanding options to be equitable in light of
Vulcan's significant cash investment in the Company, and the public
stockholders' opportunity to obtain liquidity for up to 36% of the outstanding
shares of Common Stock in the aggregate. Broadview rendered an oral opinion
(which opinion was subsequently confirmed by delivery of a written opinion dated
March 15, 1999) to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the transactions
contemplated by the Stock Purchase Agreement were fair, from a financial point
of view, to the holders of the Common Stock. The Board voted unanimously to
approve the Stock Purchase Agreement, the Offer, the Registration Rights
Agreement, the Certificate of Designation and
9
<PAGE>
to recommend that the shareholders of the Company approve the Second Issuance
and the Management Sale.
On March 15, 1999, the Company and Vulcan executed and delivered the
transaction agreements, including the Stock Purchase Agreement and the
Registration Rights Agreement, and Vulcan and the Company's directors, including
three directors who are executive officers of the Company, executed and
delivered the Management Agreements.
Pursuant to the Stock Purchase Agreement, on March 19, 1999, Vulcan
commenced a tender offer to purchase 3,596,688 shares of Common Stock for a
purchase price of $90 per share, net to the seller, in cash. Such tender offer
expired on April 15, 1999, and no shares were purchased by Vulcan pursuant to
such offer. On April 30, 1999, Vulcan and the Company executed and delivered a
first Amendment to the Stock Purchase Agreement, which reduced the number of
individuals Vulcan is permitted to designate as nominees for election at the
Special Meeting from three to two.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors, by unanimous vote of all of the directors, has
approved the Stock Purchase Agreement and the transactions contemplated thereby
and recommends approval of the Second Issuance and the Management Sale.
In approving the Stock Purchase Agreement and the Management Agreements and
the transactions contemplated thereby, the Board of Directors considered the
following material factors:
(i) The terms of the Stock Purchase Agreement, the Registration Rights
Agreement, the Certificate of Designation and the Management
Agreements, which were the product of arm's length negotiations
among the parties;
(ii) The Company's increased cash resources as a result of the Company's
cash infusion by Vulcan;
(iii) The opportunity to provide both public and employee stockholders
with an opportunity to obtain liquidity for a portion of their
equity holdings in the Company;
(iv) The oral opinion of Broadview delivered to the Board at the March
15, 1999 meeting (which was subsequently confirmed in writing),
more fully described below; and
(v) The potential strategic benefit to the Company from a distribution
agreement with cable affiliates of Vulcan, which agreement the
parties would negotiate in good faith after the closing of the
Second Issuance.
The Board of Directors did not assign relative weight to the above factors
or determine that any factor was of particular importance. Rather, the Board of
Directors view this position and its recommendations as being based on the
totality of the information presented to it and considered by it.
PROPOSAL 1
APPROVAL OF THE SECOND ISSUANCE
The Company's stockholders are being requested to approve the sale and
issuance to Vulcan of 132,493 shares of the Company's Series A Preferred Stock
in the Second Issuance pursuant to the terms of the Stock Purchase Agreement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE SECOND ISSUANCE.
10
<PAGE>
OPINION OF FINANCIAL ADVISOR
SUMMARY OF OPINION. In March 1999, the Company retained Broadview to render
an opinion to the Board as to the fairness, from a financial point of view, of
the initial price at which the Series A Preferred Stock to be purchased from the
Company by Vulcan is convertible into Common Stock (the "CONVERSION PRICE") and
the purchase price of $90.00 per share to be paid to the stockholders by Vulcan
in the Offer (the "OFFER PRICE").
On March 15, 1999, Broadview delivered its oral opinion (which opinion was
confirmed in writing dated March 15, 1999) to the Board that, as of March 15,
1999, based upon the facts and circumstances as they existed at that time, and
subject to certain considerations and assumptions stated therein, the Conversion
Price and the Offer Price were fair, from a financial point of view, to the
Company and its stockholders.
The full text of the written opinion, which sets forth the assumptions made,
matters considered and scope and limitations of the review undertaken and
procedures followed by Broadview in rendering its opinion, is attached to this
Proxy Statement as Exhibit C. The following description of the Broadview opinion
should be read in conjunction with, and is qualified by reference to, the full
text of the opinion. STOCKHOLDERS ARE URGED TO READ CAREFULLY THE OPINION OF
BROADVIEW IN ITS ENTIRETY.
The opinion is directed only to the Board, addresses only the fairness of
the Conversion Price and the Offer Price from a financial point of view to the
Company and its stockholders, respectively, as of the date of the opinion and
does not constitute a recommendation to any stockholder as to how such
stockholder should vote at the Special Meeting or whether such stockholder
should tender shares pursuant to the Offer. Broadview was not requested to opine
as to, and its opinion does not in any manner address, the Company's underlying
business decision to proceed with or effect the Transactions, any other aspect
of the Transactions or the relative merits of the Transactions as compared to
other potential business strategies the Company could pursue.
In connection with rendering its opinion, Broadview, among other things: (a)
reviewed the terms of the draft Stock Purchase Agreement, the draft Certificate
of Designation and the draft Management Agreements; (b) reviewed the Company's
Form 10-K for its fiscal year ended September 30, 1998; (c) reviewed the
Company's Form 10-Q for the three months ended December 31, 1998; (d) reviewed
certain quarterly financial projections of the Company prepared and furnished to
Broadview by the Company; (e) considered the implications on the Company's
capital structure resulting from the Transactions; (f) reviewed the reported
closing prices and trading activity for the Common Stock; (g) participated in
discussions with members of the senior management of the Company concerning the
operations, business strategy, financial performance and prospects for the
Company; (h) discussed with members of the senior management of the Company
their view of the strategic rationale for the Transactions; (i) discussed with
Vulcan management its view of the strategic rationale for the Transactions; and
(j) conducted such other financial studies, analyses and investigations as it
deemed appropriate for purposes of its opinion.
In rendering its opinion, Broadview relied, without independent
verification, on the accuracy and completeness of all the financial and other
information that was publicly available or furnished to Broadview by the Company
and Vulcan for purposes of the opinion. With respect to the financial
projections examined by Broadview, Broadview assumed that they were reasonably
prepared and reflected the best available estimates and good faith judgments of
the management of the Company as to the future performance of the Company.
Broadview also assumed that the Company was not involved in any material
transaction as of the date of the opinion other than the Transactions and those
activities undertaken in the ordinary course of conducting its business.
Broadview neither made nor obtained an independent appraisal or valuation of any
of the Company's assets.
11
<PAGE>
Broadview's opinion is necessarily based upon market, economic, financial
and other conditions as they existed and could be evaluated as of March 15,
1999, and any change in those conditions since that date may impact Broadview's
opinion. Broadview's opinion did not express any opinion as to the price at
which the Company's common stock will trade at any time.
The following is a summary of some of the sources of information and
valuation methodologies employed by Broadview in rendering its opinion. These
analyses were presented to the Company's board at its meeting on March 15, 1999.
This summary includes the financial analyses used by Broadview and deemed to be
material, but does not purport to be a complete description of analyses
performed by Broadview in arriving at its opinion. This summary of financial
analyses includes information presented in tabular format. In order fully to
understand the financial analyses used by Broadview, the tables must be read
together with the text of each summary. The tables alone do not constitute a
complete description of the financial analyses:
THE COMPANY'S STOCK PERFORMANCE ANALYSIS. Broadview compared the recent
stock performance of the Company with that of the following indices:
- The S&P 500; and
- The Go2Net Comparable Index, consisting of the following publicly traded
companies providing digital media content that Broadview deemed comparable
to the Company:
<TABLE>
<S> <C> <C>
- America Online Inc.;
- Broadcast.com Inc.;
- CNET Inc.;
- EarthWeb Inc.;
- Infoseek Corp.;
- InfoSpace Inc.;
- MarketWatch.com Inc.;
- theglobe.com Inc.;
- SportsLine USA Inc.;
- XOOM.com Inc.; and
- Yahoo! Inc.
</TABLE>
PUBLIC COMPANY COMPARABLES ANALYSIS. Broadview considered ratios of share
price and market capitalization, adjusted for cash and debt when appropriate, to
selected historical and projected operating results in order to derive values
placed on a company in a particular market segment. In order to perform this
analysis, Broadview compared financial information of the Company with publicly
available information for companies comprising the Go2Net Comparable Index.
Broadview reviewed, among other things, each company's: Trailing Twelve Month
("TTM") Revenue; Last Quarter Annualized Revenue ("LQA Revenue"); TTM Revenue
Growth; Projected Calendar Year 1999 ("Projected 1999") Revenue; Projected
Calendar Year 2000 ("Projected 2000") Revenue; Monthly Unique Users (as of
January 1999, reported by Media Metrix); Average Daily Page Views (as of
December 1998); Cash & Equivalents; Equity Market Capitalization; Total Market
Capitalization ("TMC" defined as Equity Market Capitalization plus Total Debt
less Cash & Equivalents); TMC/TTM Revenue ("TTM TMC/R") ratio; TMC/LQA Revenue;
TMC/Projected 2000 Revenue ratio ("Projected 1999 TMC/R"); TMC/Projected 2000
Revenue ratio ("Projected 2000 TMC/R"); TMC/Monthly Unique Users; and
TMC/Average Daily Page Views. For this analysis as well as other analyses,
Broadview
12
<PAGE>
examined publicly available information, as well as a range of estimates based
on securities research analyst reports and financial projections prepared by the
Company's management.
The following table presents, as of March 14, 1999, the median multiples and
the range of multiples for the Go2Net Comparable Index of Total Market
Capitalization, Equity Market Capitalization and share price divided by selected
operating results:
<TABLE>
<CAPTION>
MEDIAN MULTIPLE RANGE OF MULTIPLES
----------------- -------------------------------
<S> <C> <C> <C> <C>
TTM TMC/R................................................................... 93.6 26.8 -- 171.2
TMC/LQA Revenue............................................................. 51.7 23.1 -- 113.9
Projected 1999 TMC/R........................................................ 33.9 16.4 -- 98.0
Projected 2000 TMC/R........................................................ 23.8 8.0 -- 71.8
TMC/Monthly Unique Users.................................................... 389.4 82.8 -- 2,816.7
TMC/Average DailyPage Views................................................. 179.2 88.7 -- 421.8
</TABLE>
The following table presents, as of March 14, 1999, the median implied value
and the range of implied values of the Company's stock price using the multiples
shown above and the appropriate Company operating results. For comparative
purposes, Broadview applied the median multiples of the above metrics to the
Company's respective operating statistics and assumed consummation of the sale
of 300,000 Preferred Shares to Vulcan for $300,000,000, net of $8,000,000
dollars of transaction fees, as specified in the Stock Purchase Agreement, with
appropriate adjustments to the balance sheet and diluted shares:
<TABLE>
<CAPTION>
RANGE OF IMPLIED VALUES
MEDIAN IMPLIED VALUE
-------------------- -------------------------------
<S> <C> <C> <C> <C>
TTM TMC/R............................................................. $ 51.76 $ 24.89 -- $83.01
TMC/LQA Revenue....................................................... 39.26 25.33 -- 69.53
Projected 1999 TMC/R.................................................. 50.58 31.77 -- 119.68
Projected 2000 TMC/R.................................................. 58.97 29.15 -- 149.18
TMC/Monthly Unique Users.............................................. 110.71 34.62 -- 713.02
TMC/Average DailyPage Views........................................... 82.02 47.73 -- 174.02
</TABLE>
No company utilized in the public company comparables analysis as a
comparison is identical to the Company. In evaluating the comparables, Broadview
made numerous assumptions with respect to digital media industry performance and
general economic conditions, many of which are beyond the Company's control.
Mathematical analyses, such as determining the median, average or range, is not
in itself a meaningful method of using comparable company data.
TRANSACTION COMPARABLES ANALYSIS. Broadview considered ratios of equity
purchase price, adjusted for the seller's cash and debt when appropriate, to
selected historical operating results in order to indicate values strategic and
financial acquirers have been willing to pay for companies in a particular
market segment. In order to perform this analysis, Broadview reviewed a number
of transactions it considered similar to the Transactions. Broadview selected
recent transactions involving public sellers in the digital media industry, in
which the buyer announced its intentions to acquire a controlling interest in
the seller. In addition, Broadview examined comparable M&A transactions, with
seller criteria as described above, in which the buyer announced its intentions
to acquire a non-controlling minority interest in the seller. For this analysis,
as well as other analyses, Broadview examined publicly available information, as
well as information from Broadview's proprietary database of published and
confidential merger and acquisition transactions in the information technology,
communication and media industries. These transactions consisted of the
acquisition of:
Controlling interest:
- Excite Inc. by @Home Corp (pending);
- Geocities Inc. by Yahoo! Inc. (pending);
13
<PAGE>
- Lycos Inc. by USA Networks Inc. (pending);
- Moviefone Inc. by America Online Inc.;
- N2K Inc. by CDnow Inc. (pending);
- Netscape Communications Corp. by America Online Inc. (pending); and
- Shopping.com by Compaq Computer Corp.
Non-controlling interest:
- Barnes & Noble Inc. (barnesandnoble.com) by Bertelsmann AG;
- E*TRADE Group Inc. by SOFTBANK Corp. (SOFTBANK Holdings Inc.);
- iMALL Inc. by First Data Merchant Services Corp. (First Data Corp.)
(pending); and
- Yahoo! Inc. by SOFTBANK Holdings Inc.
The following table presents, as of March 14, 1999, the median multiple and
the range of multiples of adjusted price (defined as equity price plus total
debt minus cash and cash equivalents) divided by the seller's revenue in the
last reported twelve months prior to acquisition for the transactions listed
above:
Controlling interest:
<TABLE>
<CAPTION>
RANGE OF MEDIAN MULTIPLES
MEDIAN MULTIPLE
----------------- -------------------------------
<S> <C> <C> <C> <C>
Adjusted Price/Revenue....................................................... 42.9 5.1 -- 244.6
Adjusted Price/Unique Users.................................................. 243.1 187.1 -- 455.2
</TABLE>
Non-controlling interest:
<TABLE>
<CAPTION>
RANGE OF MEDIAN MULTIPLES
MEDIAN MULTIPLE
----------------- -------------------------------
<S> <C> <C> <C> <C>
Adjusted Price/Revenue....................................................... 12.8 6.8 -- 73.8
Adjusted Price/Unique Users.................................................. 271.2 204.3 -- 285.6
</TABLE>
The following table presents, as of March 14, 1999, the median implied value
and the range of implied values of the Company's stock, calculated using the
multiples shown above, the Company's revenues for the twelve months ended
December 31, 1998, and the Company's Unique Users as of January 1999. For
comparative purposes, Broadview applied the median multiples of the above
metrics to the Company's respective operating statistics and assumed
consummation of the sale of 300,000 Preferred Shares to Vulcan for $300,000,000,
net of $8,000,000 dollars of transaction fees, as specified in the Stock
Purchase Agreement, with appropriate adjustments to the balance sheet and
diluted shares:
Controlling interest:
<TABLE>
<CAPTION>
RANGE OF IMPLIED VALUES
MEDIAN IMPLIED VALUE
--------------------- -------------------------------
<S> <C> <C> <C> <C>
Price/Revenue..................................................... $ 31.34 $ 16.14 -- $ 112.56
Price/Unique Users................................................ $ 74.42 $ 60.52 -- $ 127.05
</TABLE>
Non-controlling interest:
<TABLE>
<CAPTION>
RANGE OF IMPLIED VALUES
MEDIAN IMPLIED VALUE
--------------------- -------------------------------
<S> <C> <C> <C> <C>
Price/Revenue...................................................... $ 19.26 $ 16.80 -- $ 43.81
Price/Unique Users................................................. $ 81.38 $ 64.78 -- $ 84.96
</TABLE>
14
<PAGE>
No transaction utilized as a comparable in the transaction comparables
analysis is identical to the Transactions. In evaluating the comparables,
Broadview made numerous assumptions with respect to digital media industry
performance and general economic conditions, many of which are beyond the
control of the Company. Mathematical analysis, such as determining the average,
median or range, is not in itself a meaningful method of using comparable
transaction data.
TRANSACTION PREMIUMS PAID ANALYSIS Broadview considered the premiums paid
above a seller's share price in order to determine the additional value
strategic and financial acquirers, when compared to public shareholders, are
willing to pay for companies in a particular market segment. In order to perform
this analysis, Broadview reviewed 35 transactions involving publicly-held
software and digital media companies. Broadview selected these transactions from
its proprietary database by choosing recent transactions with an equity purchase
price greater than $250 million.
The following table presents, as of March 14, 1998, the median premium and
the range of premiums for these transactions calculated by dividing
(1) the offer price per share minus the closing share price of the seller's
common stock twenty trading days or one trading day prior to the public
announcement of the transaction, by
(2) the closing share price of the seller's common stock twenty trading days or
one trading day prior to the public announcement of the transaction:
<TABLE>
<CAPTION>
MEDIAN MULTIPLE RANGE OF MULTIPLES
----------------- -------------------------------
<S> <C> <C> <C> <C>
Premium Paid to Seller's
Share Price 20 Trading Days
Prior to Announcement................................................. 39.3% (2.8%) -- 203.6%
Premium Paid to Seller's
Share Price 1 Trading Day
Prior to Announcement................................................. 24.4% (21.1%) -- 85.5%
</TABLE>
These comparables imply the following medians and ranges for per share value
for the Company's stock, calculated by using the premiums shown above and the
Company's share price 20 trading days and one trading day prior to March 15,
1999, the date Broadview assumed public announcement of the Transactions was
made:
<TABLE>
<CAPTION>
RANGE OF IMPLIED VALUES
MEDIAN IMPLIED VALUE
-------------------- -------------------------------
<S> <C> <C> <C> <C>
Premium Paid to Seller's
Share Price 20 Trading Days
Prior to Announcement............................................ $ 67.22 $ 46.91 -- $ 146.49
Premium Paid to Seller's
Share Price 1 Trading Day
Prior to Announcement............................................ $ 108.26 $ 68.63 -- $ 161.39
</TABLE>
No transaction utilized as a comparable in the transaction premiums paid
analysis is identical to the Transactions. In evaluating the comparables,
Broadview made numerous assumptions with respect to digital media industry
performance and general economic conditions, many of which are beyond the
control of the Company. Mathematical analysis, such as determining the average,
median or range, is not in itself a meaningful method of using comparable
transaction data.
In connection with the review of the Transactions by the Company's Board,
Broadview performed a variety of financial and comparative analyses. The summary
set forth above does not purport to be a complete description of the analyses
performed by Broadview in connection with the Transactions.
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The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Broadview considered the results of all of its analyses as a
whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Broadview believes that selecting any portion of
its analyses, without considering all analyses, would create an incomplete view
of the process underlying its opinion.
In performing its analyses, Broadview made numerous assumptions with respect
to industry performance and general business and economic conditions and other
matters, many of which are beyond the control of the Company. The analyses
performed by Broadview are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. The consideration to be received by the Company and the
Company's stockholders pursuant to the Stock Purchase Agreement, the Management
Agreements and other terms of the Transactions were determined through arm's
length negotiations between the Company and Vulcan, and were approved by the
Company's Board. Broadview provided advice to the Company's Board during these
negotiations; however, Broadview did not recommend any specific consideration to
the Company's Board or that any specific consideration constituted the only
appropriate consideration for the Transactions. In arriving at its opinion,
Broadview was not authorized to solicit, and did not solicit, interest from any
party with respect to the acquisition, business combination or other
extraordinary transaction involving the Company. In addition, Broadview's
opinion and presentation to the Company's Board was one of many factors taken
into consideration by the Company's Board in making its decision to approve the
Transactions. Consequently, the Broadview analyses as described above should not
be viewed as determinative of the opinion of the Company's Board with respect to
the value of the Company or of whether the Company's Board would have been
willing to agree to different consideration.
TERMS OF ENGAGEMENT. On March 11, 1999, the Company entered into an
engagement letter with Broadview pursuant to which Broadview was engaged to
render a written opinion to the Board as to the fairness, from a financial point
of view, of the Conversion Price and Offer Price to the Company and its
stockholders, respectively. Broadview was selected by the Company's Board based
on Broadview's reputation and experience in the information technology,
communication and media sector and the digital media industry in particular. The
Company agreed to pay Broadview an advisory fee of $450,000 upon delivery by
Broadview of the written opinion described above. In addition, the Company
agreed to reimburse Broadview for its out-of-pocket expenses (including
reasonable legal fees and disbursements) in connection with its services not in
excess of $20,000 and to indemnify Broadview against certain liabilities and
expenses arising out of or in connection with Broadview's engagement.
INFORMATION ABOUT VULCAN
Vulcan is the principal vehicle through which Microsoft Corp. co-founder and
new media investor Paul G. Allen researches and implements his investments.
Through Vulcan, Mr. Allen invests in, among other things, companies that offer
products, services or technologies that fit his wired world strategy and that he
believes can contribute to or benefit from the technologies and strategies of
other companies that he controls. For the biographies of persons proposed by
Vulcan to serve on the Board, see "PROPOSAL 3--ELECTION OF DIRECTORS."
THE STOCK PURCHASE AGREEMENT
The following summary of certain terms of the Stock Purchase Agreement does
not purport to be complete and is qualified in its entirety by reference to the
complete text of the Stock Purchase Agreement, which is attached hereto as
Exhibit A. Capitalized terms used herein and not otherwise defined shall have
the meaning ascribed to them in the Stock Purchase Agreement. STOCKHOLDERS ARE
URGED TO READ CAREFULLY THE STOCK PURCHASE AGREEMENT IN ITS ENTIRETY.
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THE SHARE ISSUANCES. The Company has agreed to issue and sell to Vulcan,
and Vulcan has agreed to purchase from the Company, 300,000 shares of the
Company's Series A Preferred Stock for a purchase price of $1,000.00 per share,
in two separate issuances of 167,507 shares (the "FIRST ISSUANCE SHARES") and
132,493 shares (the "SECOND ISSUANCE SHARES"). The Series A Preferred Stock is
initially convertible at a conversion price of $66.11 per share into 4,537,891
shares of Common Stock. The First Issuance was consummated concurrently with the
execution of the Stock Purchase Agreement on March 15, 1999. Simultaneously with
the closing of the First Issuance, the Company and Vulcan entered into a
Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT"), and Vulcan
entered into a Management Agreement with each person who was a director of the
Company on March 15, 1999.
The closing of the Second Issuance is to occur as soon as practicable (but
not more than three business days) after the satisfaction or waiver of all of
the closing conditions set forth in the Stock Purchase Agreement. These closing
conditions include: (i) the prior approval by the Company's stockholders, at the
Special Meeting, of the Transactions; (ii) the receipt of all necessary
governmental approvals relating to the Transactions, including those required by
the HSR Act (as hereinafter defined); (iii) the election of Vulcan's designees
to the Company's Board of Directors by a vote of the Company's stockholders at
the Special Meeting; (iv) the absence of a material adverse change in the
Company's business, properties, results of operations or financial condition
after March 15, 1999; (v) the truth and accuracy at the closing of the
representations and warranties made by the parties in the Stock Purchase
Agreement; (vi) the parties' material compliance with their respective
obligations under the Stock Purchase Agreement; and (vii) other customary
conditions.
THE OFFER. Under the terms of the Stock Purchase Agreement, Vulcan was
required to commence the Offer no later than five business days after the date
of the Stock Purchase Agreement. The Offer expired on April 15, 1999, and no
shares were purchased in the Offer.
BOARD COMPOSITION. In accordance with the requirements of the Stock
Purchase Agreement, Vulcan shall be entitled to designate two directors to serve
on the Board of Directors of the Company. The Company shall, as soon as
practicable, take all action necessary to cause such individuals to be appointed
to the Board of Directors and to have at least one such individual on each
committee of the Board, including either increasing the size of the Board or
securing the resignations of incumbent directors or both. The Company is also
required to nominate for election at the Special Meeting a new Board comprised
of two candidates designated by Vulcan (the "VULCAN DESIGNEES"), the existing
Chief Executive Officer of the Company (the "MANAGEMENT DESIGNEE") and Dennis
Cline and William A. Fleckenstein (the "Outside Designees") (provided if an
Outside Designee is unable to serve as a director, the Company and Vulcan shall
select a substitute Outside Designee who shall not be an Affiliate or employee
of either Vulcan or the Company and who shall otherwise constitute an
"independent director" under the rules of The Nasdaq Stock Market). Vulcan has
agreed, to the extent permitted under applicable law, to vote its shares at the
Special Meeting in favor of the election of the Outside Designees and the
Management Designee, as well as in favor of the Transactions.
So long as Vulcan owns at least 50% of the total shares of Common Stock
purchased in the First Issuance (assuming conversion of the Series A Preferred
Stock into Shares of Common Stock), the Company's Board of Directors, subject to
its fiduciary duties, will nominate at each stockholder meeting at which the
election of directors is considered at least two Vulcan representatives for
election to the Board. Vulcan has agreed, so long as the current Management
Designee is the Chief Executive Officer of the Company, to vote its shares in
favor of such person's election at each stockholder meeting at which the
election of directors is considered.
THE SPECIAL MEETING. The Stock Purchase Agreement requires the Company to
call and hold, as soon as reasonably practicable, the Special Meeting for the
purpose of voting on the approval of the Transactions and the election to the
Company's Board of Directors of the nominees discussed above.
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<PAGE>
The Company has agreed that the proxy materials for the Special Meeting will
contain the recommendation of the Board of Directors that the stockholders
approve the Transactions.
REPRESENTATIONS AND WARRANTIES. The Stock Purchase Agreement contains
various customary representations and warranties of the parties, including
representations by the Company as to (i) the absence of a material adverse
change to the business or financial condition of the Company, (ii) the absence
of certain other changes or events concerning the Company, and (iii) compliance
with law, litigation, employee benefit plans, intellectual property, taxes and
material contracts.
CONDUCT OF BUSINESS OF THE COMPANY. The Stock Purchase Agreement provides
that until the closing of the Second Issuance, the business of the Company and
each of its subsidiaries will be conducted in the ordinary course of business
and in accordance with past practice. Accordingly, without Vulcan's prior
consent, neither the Company nor any of its subsidiaries may, prior to such
closing, engage or agree to engage in an enumerated list of actions generally
characterized as being outside the ordinary course of business. Such actions
requiring Vulcan's prior approval include, among other things (but subject to
certain exceptions stated in the Stock Purchase Agreement), (i) making new
commitments for capital expenditures in excess of specified levels, (ii)
granting any bonus, severance or termination pay or increasing executive officer
compensation except in the ordinary course of business consistent with past
practice and except severance agreements with up to ten key employees providing
for six months severance and acceleration of options following a termination by
the Company without cause or by the employee for good reason, (iii) granting
stock options, (iv) entering into business combinations, acquiring assets above
specified limits, and selling assets other than in the ordinary course of
business, (v) declaring or paying dividends or redeeming equity securities, or
(vi) issuing equity securities other than under specified circumstances. The
Stock Purchase Agreement permits the Company to accelerate the vesting,
effective as of the closing of the Second Issuance, of up to 35% of the unvested
portion of outstanding stock options.
DISTRIBUTION AGREEMENT. In the Stock Purchase Agreement, the Company and
Vulcan acknowledged that an important consideration for the Company entering
into the Stock Purchase Agreement was the fact that Vulcan, through its
affiliated entities, Marcus Cable and Charter Communications (the "CABLE
COMPANIES"), operates cable systems that serve over 2,000,000 cable subscribers
and that such Cable Companies will provide an opportunity for the Company to
establish a distribution or other relationship with them. The Stock Purchase
Agreement provides that, after the consummation of the transactions contemplated
by the Stock Purchase Agreement, the Company and the Cable Companies will
promptly commence negotiations with respect to the establishment of a
distribution or other relationship to offer the Company's content to the Cable
Companies' subscribers. The Stock Purchase Agreement also provides that the
parties will negotiate in good faith and use reasonable efforts to establish a
distribution or other relationship, although none of the parties will have any
legal obligation to any other party if such a relationship is not established.
OTHER COVENANTS OF THE PARTIES. The Stock Purchase Agreement provides that
if the Company issues any equity securities after March 15, 1999, Vulcan will
have the right (subject to certain exceptions) to acquire shares on comparable
terms in such issuance in order to enable Vulcan to maintain its percentage
interest in the Company. This right expires if Vulcan ceases to own a specified
percentage of the Company's stock or if the Second Issuance is not consummated.
The Stock Purchase Agreement also prohibits Vulcan from selling more than a
specified amount of Company capital stock in a privately-negotiated transaction
for a cash price exceeding the stock market price of the Common Stock, unless
the buyer in such transaction has agreed to make an offer to purchase an
equivalent percentage of the Common Stock held by other stockholders of the
Company.
In addition, the Company has agreed to permit Vulcan and its affiliates (as
well as certain other entities in which Vulcan and its affiliates have an
interest), to use up to 10% of the Company's unsold advertising inventory in
existence from time to time, subject to certain specified conditions. This
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<PAGE>
obligation expires on March 15, 2004, or at any time after March 15, 2000 upon
Vulcan ceasing to own at least 10% of the Company's outstanding stock.
OTHER POTENTIAL BIDDERS AND TRANSACTIONS. The Stock Purchase Agreement
requires the Company and its affiliates and their respective officers,
directors, employees, investment bankers, attorneys, accountants and other
representatives and agents to immediately cease any existing discussions or
negotiations with any third party with respect to (i) any merger, consolidation,
share exchange, business combination or other similar transaction or series of
related transactions involving the Company or a subsidiary, (ii) any sale or
other disposition of more than 20% of the assets of the Company or any
subsidiary, (iii) any acquisition of a substantial equity interest in the
Company or any equity interest in any of its subsidiaries, (iv) any offer to
purchase, tender offer, exchange offer or similar transaction involving the
capital stock of the Company or any subsidiary, and (v) a liquidation or
dissolution of the Company (each a "TRANSACTION PROPOSAL"). Except as provided
in the next paragraph, the Company, its affiliates and their respective
representatives and agents may not directly or indirectly, initiate, solicit,
encourage or participate in discussions relating to, or provide information to a
third party concerning, or otherwise facilitate the making of, any inquiry,
offer or proposal regarding a Transaction Proposal, or agree to approve or
recommend any Transaction Proposal.
The Stock Purchase Agreement permits the Company to participate in
discussions with or furnish information to an unaffiliated third party that
makes an unsolicited bona fide Transaction Proposal in writing, if: (i) the
proposal specifies a price to be paid for the Company's stock or assets that the
Company's Board of Directors has determined, after consultation with the
Company's investment bankers, if such transaction were consummated, would be
financially more favorable to the Company's stockholders than the Offer
(assuming for these purposes that the Offer is for 5,000,000 shares of Common
Stock) (a "SUPERIOR PROPOSAL"); (ii) the Board of Directors has determined,
after consultation with the Company's investment bankers, that such third party
is financially capable of consummating the Superior Proposal and that the
Superior Proposal is at least as likely to be consummated, and is not subject to
materially greater conditions, than the transactions contemplated by the Stock
Purchase Agreement; (iii) the Board of Directors has determined, after
consultation with its outside legal counsel, that the failure to participate in
discussions or negotiations with or furnish information to such third party
would result in a substantial risk of liability to the Board members for a
breach of their fiduciary duties under Delaware law; and (iv) the Company
informs Vulcan in writing of the principal terms of the proposal. The Company is
prohibited from accepting or entering into any agreement concerning a Superior
Proposal for at least 36 hours after the Company notifies Vulcan of the Superior
Proposal, and is required to afford Vulcan an opportunity to discuss Vulcan's
desired response to the proposal.
The Stock Purchase Agreement permits the Company, after the occurrence of
the events discussed above and the satisfaction of certain other conditions, to
(i) change its recommendations concerning the Transactions, (ii) accept the
Superior Proposal, and (iii) enter into an agreement with the third party
concerning the Superior Proposal. In such event, the Company would be required
to pay immediately to Vulcan a $17,500,000 cash fee. Such cash fee would
constitute liquidated damages and, except for fraud in connection with the Stock
Purchase Agreement, would constitute Vulcan's sole and exclusive remedy under
the Stock Purchase Agreement.
TERMINATION. The Stock Purchase Agreement permits either Vulcan or the
Company to terminate its obligations to consummate the Second Issuance if (i)
consummation is prohibited by a final, non-appealable governmental order,
provided that the party seeking to terminate its obligations must have used its
best efforts to prevent entry of and to remove such order, (ii) the Company's
stockholders do not approve the Transactions at the Special Meeting, (iii) the
closing of the Second Preferred Stock Issuance does not occur by August 31, 1999
and the failure to close on or before such date did not result from the failure
by the party seeking termination to perform any obligation required to be
performed by such party prior to such time, or (iv) the party seeking to
terminate has not committed a
19
<PAGE>
material uncured breach of any representation, warranty, covenant or agreement
and there has been a material breach by the other party of any representation,
warranty, covenant or agreement that has not been cured within five days notice
of such breach and causes the failure of a closing condition.
The Company may terminate its obligation to sell and issue the Second
Issuance Shares if (i) the Company's Board of Directors withdraws or modifies in
a manner adverse to Vulcan the Board's approval of the Stock Purchase Agreement,
or (ii) the Board of Directors accepts a Superior Proposal after complying with
the applicable requirements described above.
Vulcan may terminate its obligation to purchase the Second Issuance Shares
if the Company's Board of Directors (i) fails to recommend, or withdraws,
modifies or changes in a manner adverse to Vulcan (or resolves to do so) its
approval or recommendation of the transactions contemplated by the Stock
Purchase Agreement, (ii) submits or recommends to its stockholders or approves a
Transaction Proposal, (iii) accepts or recommends to its stockholders a Superior
Proposal, or (iv) publicly announces its intention to do any of the foregoing.
Vulcan may also terminate its obligation to purchase the Second Issuance Shares
if the Company or its affiliates breach the Company's obligations described
above regarding the non-solicitation of a Transaction Proposal.
Under the Stock Purchase Agreement, the Company will be required to pay to
Vulcan liquidated damages of $17,500,000 in case of a termination by Vulcan for
the Company's uncured material breach, the Company's breach of its
non-solicitation obligations, or for any of the reasons specified in the first
sentence of the immediately preceding paragraph. In addition, these liquidated
damages will be payable in case of a termination by the Company after its Board
has withdrawn or modified in a manner adverse to Vulcan the Board's
recommendation of the Stock Purchase Agreement or has accepted or recommended a
Superior Proposal. These liquidated damages will also be payable if the
Company's stockholders do not approve the Transactions at the Special Meeting
and prior to the meeting a Transaction Proposal was made known to the Company or
was made directly to its stockholders or any person publicly announced an
intention to make a Transaction Proposal.
TRANSACTION EXPENSES. The Company has agreed to pay to Vulcan, upon the
closing of the Second Issuance, $8,000,000 for Vulcan's fees and expenses in
connection with the transactions contemplated by the Stock Purchase Agreement.
Except for such payment and the amount of any liquidated damages that may be
payable in case of a termination as described above, the Company and Vulcan have
agreed that each of the parties will pay its own costs and expenses incurred in
connection with the Transactions.
REGISTRATION RIGHTS AGREEMENT
The following summary of the Registration Rights Agreement does not purport
to be complete and is qualified in its entirety by reference to the complete
text of the Registration Rights Agreement, which is attached hereto as Exhibit
D. Capitalized terms used herein and not otherwise defined shall have the
meaning ascribed to them in the Registration Rights Agreement. STOCKHOLDERS ARE
URGED TO READ CAREFULLY THE REGISTRATION RIGHTS AGREEMENT IN ITS ENTIRETY.
The Registration Rights Agreement was entered into concurrently with the
Stock Purchase Agreement. The Registration Rights Agreement provides, among
other things, that at any time beginning 180 days after March 15, 1999, the
Holders (defined as Vulcan and all of its Affiliates and certain transferees) of
a majority of the shares of Common Stock held by all Holders at the time of any
request for registration shall have the right by written notice (a "DEMAND
NOTICE") to require the Company to file a Registration Statement under the
Securities Act of 1933, as amended (the "SECURITIES ACT"); provided, however,
that this right may be exercised on no more than three occasions. Under the
Registration Rights Agreement, a registration request will not be deemed to have
been made if the
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<PAGE>
Registration Statement does not become effective under the Securities Act or if
an order or an injunction interferes or prevents the contemplated method of
distribution.
Pursuant to the Registration Rights Agreement, the Company has the right to
include a primary offering of additional shares of Common Stock, including
shares held by other stockholders of the Company, in any Registration Statement
filed pursuant to a Demand Notice. If the managing underwriter of such an
offering (the "UNDERWRITER") determines in good faith that if all the shares of
Common Stock that the other stockholders (the "SELLING HOLDERS") and the Company
wish to include in the Registration Statement were included, the success of the
offering would be materially and adversely affected, then the total number of
shares to be included in the Registration Statement shall be reduced to the
amount recommended by the Underwriter. In the event of such a reduction in the
number of shares to be registered, then (i) unless the Registration Statement
includes all of the Common Stock designated for sale by all Selling Holders
participating in the demand registration, the Registration Statement shall not
include any shares to be offered by the Company or sold by other stockholders,
and (ii) if the Registration Statement does not include all of the Common Stock
designated for sale by such Selling Holders, the Common Stock included in the
Registration Statement shall be allocated among such Selling Holders pro rata
(based on the number of shares held by each). The Registration Rights Agreement
provides that if the number of shares requested to be registered is reduced by
15% of more pursuant to the recommendation of the Underwriter, then the Demand
Notice shall not be deemed to have been made.
In addition, the Registration Rights Agreement allows the Company to defer
the filing of a Registration Statement made pursuant to a Demand Notice under
certain circumstances. In addition to registration rights pursuant to a Demand
Notice, the Registration Rights Agreement provides that the Holders shall have
certain incidental or "PIGGY-BACK" registration rights with respect to most
offerings of Common Stock. The Holders' incidental registration rights are,
however, more limited than their registration rights pursuant to a Demand
Notice. The Registration Rights Agreement also includes certain Hold-Back
Agreements, applicable to both the Selling Holders and the Company.
The Registration Rights Agreement provides that expenses relating to the
registration of shares (other than the Selling Holders' legal expenses and
commissions) will be paid by the Company and otherwise contains terms that are
customary to registration rights agreements of its type, including, but not
limited to, rights of indemnification and contribution.
INTERESTS OF CERTAIN PERSONS IN THE SECOND ISSUANCE
ACCELERATION OF STOCK OPTIONS. As permitted by the Stock Purchase
Agreement, the Board of Directors has voted to accelerate 35% of the options
granted under the 1996 Stock Option Plan which are unvested as of the closing of
the Second Issuance upon such closing, including unvested options held by
executive officers and directors of the Company. Additionally, under the Stock
Purchase Agreement, the Company may pay and hold harmless its officers, on an
after-tax basis, for any excise taxes in an aggregate amount not to exceed
$3,000,000 (which amount is based on the Common Stock price as of March 12, 1999
and may increase due to increases in the Common Stock price) incurred by them in
connection with the acceleration of the options.
Pursuant to agreements under the Company's 1996 Stock Option Plan, the
directors and executive officers have been granted options to purchase Common
Stock. As of May 10, 1999, Russell C. Horowitz held options to purchase 510,000
shares of Common Stock of which 337,500 were vested and exercisable, John
Keister held options to purchase 560,000 shares of Common Stock of which 350,000
were vested and exercisable, Michael J. Riccio, Jr. held options to purchase
650,000 shares of Common Stock of which 215,556 were vested and exercisable,
Dennis Cline held options to purchase 20,000 shares of Common Stock all of which
were vested and exercisable, and Dr. Oren Etzioni held options to purchase
200,000 shares of Common Stock of which 60,000 were vested and exercisable.
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REGULATORY MATTERS
Certain acquisition transactions such as the Transactions are reviewed by
the Justice Department or the Federal Trade Commission to determine whether they
comply with applicable antitrust laws. Under the provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), the Transactions may not be consummated until certain information has
been furnished to the Department of Justice and the Federal Trade Commission and
until the waiting period under the HSR Act has expired or been subject to early
termination. On March 22, 1998, both Paul G. Allen (as the sole stockholder of
Vulcan) and the Company filed Premerger Notification and Report Forms pursuant
to the HSR Act with the Justice Department and the Federal Trade Commission. The
Company and Vulcan received notice from the Federal Trade Commission on March
30, 1999 of the early termination of the waiting period under the HSR Act.
The Company is not aware of any other governmental or regulatory approvals
required for consummation of the Transactions, other than compliance with
federal and applicable state securities laws.
VOTE REQUIRED
The rules of The Nasdaq Stock Market require that the holders of a majority
of the shares present in person or represented by proxy and casting votes on the
proposal at the meeting approve the Second Issuance. It is a condition to the
Company's obligations under the Stock Purchase Agreement that such vote be
obtained.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 1.
PROPOSAL 2
APPROVAL OF THE MANAGEMENT SALE
The Company's stockholders are being requested to approve the sale by the
Company's directors on March 15, 1999 (three of whom are executive officers) of
1,403,312 shares of Common Stock in the Management Sale pursuant to the terms of
the Management Agreements. THE BOARD RECOMMENDS A VOTE IN FAVOR OF THE
MANAGEMENT SALE.
MANAGEMENT AGREEMENTS
The following summary of certain terms of the Management Agreements does not
purport to be complete and is qualified in its entirety by reference to the
complete text of the forms of Management Agreements attached hereto as Exhibit
B. Capitalized terms used herein and not otherwise defined shall have the
meaning ascribed to them in the Management Agreements. WE STRONGLY URGE YOU TO
READ CAREFULLY THE FORMS OF MANAGEMENT AGREEMENTS IN THEIR ENTIRETY.
AGREEMENT TO PURCHASE. As a condition to entering into the Stock Purchase
Agreement, Vulcan and each person who was a director of the Company on March 15,
1999, including directors who are executive officers of the Company (each a
"MANAGEMENT STOCKHOLDER"), entered into a Management Agreement with Vulcan.
Under the Management Agreements, on the date of the closing of the Second
Issuance, Vulcan shall purchase from each Management Stockholder a number of
shares equal to 36% of such Management Stockholder's interest in the Company,
which interest is represented by the sum of (i) the number of shares of Common
Stock held by the Management Stockholder on March 15, 1999 and (ii) the number
of Shares that the Management Stockholder has the right to acquire within thirty
days of such date, at a purchase price of $90.00 per share or, if higher, the
purchase price paid by Vulcan in the Offer (the "MANAGEMENT SHARES"). A
Management Stockholder who does not hold a sufficient number of shares of Common
Stock to meet his obligation under his Management
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Agreement must exercise the number of stock options necessary to permit him to
deliver the number of Management Shares required to be delivered under his
Management Agreement.
CONDITIONS TO CLOSING. The Management Agreements provide that the
obligations of each of the Management Stockholders and Vulcan are subject to the
following conditions: (i) the representations and warranties of the other party
to the Management Agreement shall be true and correct on the date of the closing
of the Second Preferred Stock Purchase; (ii) all waiting periods under the HSR
Act shall have either expired or terminated; and (iii) there shall be no
injunction or other order issued by a governmental body and nor statute, rule or
regulation prohibiting or otherwise restraining such sale. Early termination of
the waiting periods under the HSR Act occurred on March 30, 1999. See "PROPOSAL
1--APPROVAL OF THE SECOND ISSUANCE--REGULATORY MATTERS." In addition, Vulcan's
obligations are also conditioned on Vulcan having received all regulatory
approvals required under the Stock Purchase Agreement and on there being no
pending or threatened litigation or proceeding in respect of the Transactions
contemplated by the Management Agreements.
AGREEMENT NOT TO TENDER. Under the Management Agreements, the Management
Stockholders were prohibited from tendering the shares of Common Stock owned
beneficially or of record by them in the Offer.
VOTING AGREEMENT. Under the Management Agreements, each Management
Stockholder has agreed to vote all of the shares of Common Stock owned
beneficially or of record by him (i) in favor of the Second Issuance and the
Management Sale and any matter that could reasonably be expected to facilitate
such Transactions and (ii) against any action that would (a) result in a breach
by the Company or such Management Stockholder of any covenant, obligation, or
representation and warranty under the Stock Purchase Agreement or the Management
Agreements, respectively or (b) that would interfere with or delay the Second
Issuance and the Management Sale and the other Transactions contemplated by the
Stock Purchase Agreement or the Management Agreements. Each Management
Stockholder's voting obligations expire (i) on or after the date of the Second
Issuance or (ii) upon a termination of the Company's and Vulcan's obligations to
consummate the Second Issuance pursuant to the Stock Purchase Agreement.
ADDITIONAL COVENANTS. Subject to the Management Stockholders' fiduciary
duties as directors of the Company, the Management Agreements prohibit the
Management Stockholders from directly or indirectly soliciting, responding, or
proposing a Transaction Proposal. In addition, Vulcan has the right to be
notified in the event that a Transaction Proposal is received by the Company.
TERMINATION OF STOCK PURCHASE AGREEMENT. In the event of a termination of
the Company's and Vulcan's obligations to consummate the Second Issuance
pursuant to the terms of the Stock Purchase Agreement, the obligations of the
Management Stockholders and the Company to consummate the Management Sale will
also terminate. However, in the case of Management Stockholders who are
executive officers of the Company, Vulcan will have a 30-day option to purchase
one-half of their Management Shares for $90.00 per share, unless the termination
of the Second Preferred Stock Purchase was due to Vulcan's breach of the Stock
Purchase Agreement.
The Management Stockholders are Russell C. Horowitz, John Keister, Michael
J. Riccio, Jr., Dennis Cline, Martin L. Schoffstall and Dr. Oren Etzioni, all of
whom are directors of the Company. In May 1999, the number of directors was
expanded to eight, and William D. Savoy and Diane Daggatt were appointed as
directors to fill the new directorships. Messrs. Horowitz, Keister and Riccio
are executive officers of the Company.
VOTE REQUIRED
The rules of The Nasdaq Stock Market require that the holders of a majority
of the shares present in person or represented by proxy and casting votes on the
proposal at the meeting approve the Management Sale.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
23
<PAGE>
PROPOSAL 3
ELECTION OF DIRECTORS
The Board of Directors has fixed the number of directors at five for the
coming year. It is proposed that each of the nominees listed below will be
elected to hold office until the next Annual Meeting of Stockholders and until
his or her successor is duly elected and qualified or until he or she sooner
dies, resigns or is removed. Pursuant to the Stock Purchase Agreement, the
nominees are the existing Chief Executive Officer (Russell C. Horowitz), two
individuals designated by Vulcan (William D. Savoy and Diane Daggatt), and
Dennis Cline and William Fleckenstein.
The persons named in the accompanying proxy will vote, unless authority is
withheld, for the election of the nominees named below. If any nominee should
become unavailable for election, which is not anticipated, the persons named in
the accompanying proxy will vote for such substitute as the Board of Directors
may recommend. No nominee is related to any other executive officer of the
Company.
NOMINEES
The nominees for election as directors, their ages, their positions with the
Company, the period during which they have served as directors and their
principal occupations and other directorships held by them are set forth below.
Russell C. Horowitz, 32 years old, is a founder of the Company and has
served as its Chief Executive Officer, Chief Financial Officer and a director
since its inception in February 1996 and as President from inception through
January 1999. In March 1996, Mr. Horowitz founded Xanthus Capital, L.P., a
Seattle, Washington-based merchant bank that focuses primarily on developing
companies in emerging growth industries or special situations. Mr. Horowitz
serves as the Chief Executive Officer and a director of Xanthus Management,
L.L.C., the general partner of Xanthus Capital, L.P., and of DMR Investments,
L.L.C., the investment advisor to Xanthus Capital, L.P. In July 1992, Mr.
Horowitz was a founder of Active Apparel Group, Inc., a New York-based apparel
supplier. From 1992 until April 1994, Mr. Horowitz served as its Chief Financial
Officer; and from May 1994 until May 1997, Mr. Horowitz served as its Director
of Corporate Development and Investor Relations. Prior to July 1992, Mr.
Horowitz served as a financial advisor to start-up and developing companies. Mr.
Horowitz received a B.A. in Economics from Columbia College of Columbia
University in 1988.
William D. Savoy, 34 years old, has been a director of the Company since May
1999. Currently, Mr. Savoy serves as President of Vulcan Northwest Inc.,
managing the personal finances of Paul G. Allen, and Vice President of Vulcan
Ventures Incorporated, a venture capital fund wholly-owned by Mr. Allen. From
1987 until November 1990, Mr. Savoy was employed by Layered, Inc. and became its
President in 1988. Mr. Savoy serves on the Advisory Board of Dream Works SKG and
also serves as director of USA Networks, Inc., USANi LLC, Ticketmaster
Online-CitySearch, Harbinger Corporation, Metricom, Inc., Telescan, Inc., and
U.S. Satellite Broadcasting Co, Inc.
Diane Daggatt, 38 years old, has been a director of the Company since May
1999. She has served as an investment analyst at Vulcan Northwest Inc. since
July 1998, focusing on new media, e-commerce, and traditional retailing
companies. From May 1996 to June 1998, she was a Vice President and Equity
Research Analyst at Dain Rauscher Wessels where she focused on branded consumer
and specialty retailing companies. From September 1994 to May 1996, Ms. Daggatt
was employed as a consumer analyst for Pacific Crest Securities. From May 1989
to September 1994, she served as a research analyst for Beekman Capital
Management. Prior to joining Beekman, she served for seven years in various
merchandising positions at The Bon Marche, a division of Federated Department
Stores. Ms. Daggatt holds a BA in Business Administration from Washington State
University and is a Chartered Financial Analyst.
24
<PAGE>
Dennis Cline, 38 years old, has served as a director of the Company since
December 1996. Mr. Cline currently serves as the Executive Vice-President of
Worldwide Sales for Network Associates, Inc., formerly known as McAfee
Associates, Inc., a leading provider of network security and management tools
for corporate accounts whose common stock is traded on the Nasdaq National
Market System under the symbol "NETA." Mr. Cline has served in a variety of
executive sales positions for McAfee Associates, Inc. since 1994. From January
1993 to November 1993, Mr. Cline was Vice President of Worldwide Sales for Fifth
Generation Systems, a software utilities company. Prior to 1993, Mr. Cline
worked in sales management for various technology companies including: GCC
Technologies, Inc., a manufacturer of computer printers, Alias Research, a
graphic software company, Claris Corporation, an application software company,
and Microsoft Corp.
William A. Fleckenstein, 45 years old, has been the President of
Fleckenstein Capital, Inc., a registered investment advisor, since 1996. Mr.
Fleckenstein also held that position from 1982, when he originally founded
Fleckenstein Capital, until 1990, when Fleckenstein Capital merged with Olympic
Capital Management, Inc., a registered investment adviser. Mr. Fleckenstein
served as a partner at Olympic Capital from 1990 until 1996, at which time Mr.
Fleckenstein reestablished Fleckenstein Capital. Mr. Fleckenstein also serves as
a director of Pan American Silver Corp. Mr. Fleckenstein has been a regular
commentator on the Company's StockSite since 1996. Mr. Fleckenstein graduated
from the University of Washington in 1976 with a B.A. in mathematics.
VOTE REQUIRED
Under the DGCL, directors are elected by the affirmative vote of a plurality
of the votes present in person or represented by proxy and entitled to vote at
the meeting.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the five nominees named above. In the event
that any nominee is unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as may be proposed in accordance with the Stock Purchase Agreement. Each
person nominated for election has agreed to serve if elected, and the Board has
no reason to believe that any nominee will be unable to serve. See "PROPOSAL
1--APPROVAL OF THE SECOND ISSUANCE--THE STOCK PURCHASE AGREEMENT--BOARD OF
DIRECTORS COMPOSITION."
INFORMATION CONCERNING THE BOARD OF DIRECTORS
During fiscal 1998, Russell C. Horowitz, John Keister, Michael J. Riccio
Jr., Dennis Cline, Martin L. Schoffstall and Dr. Oren Etzioni served as
directors, and there were three meetings of the Board of Directors of the
Company. All of the directors attended at least 75% of the aggregate of (i) the
total number of meetings of the Board of Directors during which they served as
director and (ii) the total number of meetings held by committees of the Board
of Directors on which they served. The Board of Directors does not have a
Nominating Committee. None of the directors received compensation for serving as
directors of the Company, except that each of Messrs. Cline, Riccio, Schoffstall
and Etzioni received options to acquire shares of Common Stock of the Company
under the Company's 1996 Stock Option Plan, and Messrs. Horowitz, Keister and
Riccio received compensation as employees of the Company. Directors are
reimbursed for reasonable out-of-pocket expenses incurred in attending Meetings
of the Board or committees thereof.
The Board of Directors has a Compensation Committee whose members as of May
1999 are Mr. Cline and Ms. Daggatt. The Compensation Committee determines the
compensation to be paid to key officers of the Company and administers the
Company's stock option plans. During fiscal 1998, there was one meeting of the
Compensation Committee.
The Company also has an Audit Committee whose members as of May 1999 are
Messrs. Cline, Schoffstall and Savoy. The Audit Committee reviews with the
Company's independent auditors the scope of the audit for the year, the results
of the audit when completed and the independent auditors'
25
<PAGE>
fee for services performed. The Audit Committee also recommends independent
auditors to the Board of Directors and reviews with management various matters
related to its internal accounting controls. During fiscal 1998, there was one
meeting of the Audit Committee.
In connection with the Stock Purchase Agreement and the Management
Agreements, the Company, Vulcan and the Management Stockholders have entered
into various agreements regarding the nomination of persons to the Board and
voting for members of the Board. See "PROPOSAL 1-- APPROVAL OF THE SECOND
ISSUANCE--STOCK PURCHASE AGREEMENT" and "PROPOSAL 2--APPROVAL OF THE MANAGEMENT
SALE."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
PROPOSAL 4
AMENDMENT TO THE RESTATED CERTIFICATE
GENERAL. On March 26, 1999, the Board of Directors adopted an amendment to
the Restated Certificate (the "CHARTER AMENDMENT"), subject to approval by the
stockholders, to increase the number of authorized shares of capital stock from
50,000,000 shares to 500,000,000. The Board of Directors has determined it is
advisable and in the best interests of the stockholders of the Company to
increase the number of authorized shares of capital stock to accommodate future
corporate Transactions. The Board of Directors also directed that the Charter
Amendment be submitted for action at the Special Meeting of Stockholders to be
held on June 17, 1999.
INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK. The Company's
Restated Certificate currently authorizes the issuance of a total of 50,000,000
shares of capital stock, consisting of 49,000,000 shares of Common Stock, par
value $.01 per share, and 1,000,000 shares of Preferred Stock, par value $.01
per share. The Charter Amendment will increase the total number of authorized
shares to 500,000,000, and the number of shares of Common Stock authorized to
499,000,000. The Charter Amendment will modify the first paragraph of Article
FOURTH of the Restated Certificate to read as follows:
FOURTH: The total number of shares of all classes of capital stock which the
corporation shall have authority to issue is:
500,000,000 shares, consisting of 499,000,000 shares of Common Stock
with a par value of $.01 per share (herein called the "COMMON STOCK"),
and 1,000,000 shares of Preferred Stock with a par value of $.01 per
share (herein called the "PREFERRED STOCK").
The Charter Amendment will not change the currently authorized number of
shares of Preferred Stock, which will remain set at 1,000,000, of which 167,507
shares of Series A Preferred Stock are outstanding. On May 10, 1999, an
aggregate of 13,136,045 shares of Common Stock had been issued. As of May 10,
1999, there were 10,346,010 shares of Common Stock authorized but unissued
shares that are reserved for issuance under the Company's various stock plans
and upon conversion and exercise of the Company's Series A Preferred Stock. On
May 10, 1999, there were 25,517,945 authorized, unissued and unreserved shares
of Common Stock. Upon approval of the Charter Amendment, there will be an
aggregate of 25,517,945 authorized, unissued and reserved shares of Common Stock
and an aggregate of 475,517,945 authorized, unissued and unreserved shares of
Common Stock. Under the Stock Purchase Agreement, the Company has an obligation
to issue and sell an additional 132,493 shares of Series A Preferred Stock in
the Second Issuance.
The additional shares of Common Stock for which authorization is sought
would be identical to the shares of Common Stock now authorized. Adoption of the
proposed amendment and the issuance of Common Stock would not affect the rights
of holders of currently outstanding Common Stock, except for effects incidental
to increasing the number of shares of Common Stock outstanding. Holders
26
<PAGE>
of Common Stock, other than Vulcan, do not have preemptive rights to subscribe
to additional securities that may be issued by the Company, which means that
current stockholders do not have a prior right to purchase any new issue of
capital stock of the Company in order to maintain their proportionate ownership
thereof. Pursuant to the Stock Purchase Agreement, Vulcan has certain pre-
emptive rights with regard to issuances of capital stock of the Company. See
"PROPOSAL 1--APPROVAL OF THE SECOND ISSUANCE--THE STOCK PURCHASE
AGREEMENT--OTHER COVENANTS OF THE PARTIES." If the Charter Amendment is adopted,
it will become effective upon the filing of the Charter Amendment with the
Delaware Secretary of State.
All such additional shares could be issued by the Board of Directors of the
Company, without the necessity of any stockholder action, except to the extent
otherwise required by the DGCL or the rules of The Nasdaq Stock Market. The
rules of The Nasdaq Stock Market, in the case of a merger or other acquisition
transaction, generally require stockholder approval if more than 20% of the
outstanding common stock of a company is to be issued in a single transaction or
group of related transactions. Other than as described in this Proxy Statement,
the management of the Company is not aware of any specific effort to accumulate
the Company's securities or to obtain control of the Company by means of a
merger, tender offer, solicitation in opposition to management or otherwise.
However, the availability of additional, unreserved shares might give the Board
of Directors greater power to take actions in opposition to an actual or
threatened attempt to acquire control of the Company and in certain respects may
have the effect of limiting the ability of a third party to effect a change in
control of the Company. For example, additional shares of Common Stock could be
issued to make attempts to gain control of the Company or the Board of Directors
more difficult or time-consuming.
The Board of Directors of the Company believes that it is in the best
interests of the Company and its stockholders to have available a significant
number of shares of Common Stock, which would be available to be issued in
connection with public and private equity financings, mergers or acquisitions or
other corporate transactions, including benefit programs (such as the 1996 Stock
Option Plan), or stock splits or stock dividends. The Board of Directors intends
to utilize some of the additional authorized shares to effect the previously
announced one hundred percent stock dividend as soon as practicable after the
date of the Special Meeting if Proposal 4 is approved by the stockholders of the
Company.
APPRAISAL RIGHTS IN RESPECT OF THE PROPOSED AMENDMENT. Under the applicable
provisions of the DGCL, the Company's stockholders have no appraisal rights with
respect to the Charter Amendment.
VOTE REQUIRED
Under the DGCL and the Certificate of Designation of the Series A Preferred
Stock, an amendment to the Restated Certificate requires the affirmative vote of
the holders of a majority of the voting power of the Company's outstanding
capital stock entitled to vote at the Special Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4.
27
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP TABLE
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 10, 1999 (i) by each person
who is known by the Company to own beneficially more than five percent (5%) of
the Company's Common Stock, (ii) by each of the Company's directors and each
person named herein as a director nominee, (iii) by each executive officer of
the Company, and (iv) by all directors and executive officers who served as
directors or executive officers at May 10, 1999 as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
- ---------------------------------------------------------------------- ---------------------- -----------------
<S> <C> <C>
Russell C. Horowitz(3)................................................ 2,834,987 17.64%
c/o Go2Net, Inc.
999 Third Avenue
Seattle, Washington 98104
John Keister(4)....................................................... 673,500 4.18%
Dennis Cline(5)....................................................... 186,570 1.19%
Michael J. Riccio, Jr.(6)............................................. 428,667 2.67%
Martin L. Schoffstall(7).............................................. 120,000 *
Dr. Oren Etzioni(8)................................................... 77,350 *
William D. Savoy(9)................................................... 0 *
Diane Daggatt(9)...................................................... 1,200 *
William A. Fleckenstein(10)........................................... 7,550 *
Vulcan Ventures Incorporated(2)....................................... 2,553,761 16.30%
110 110th Avenue N.E., Suite 550
Bellevue, Washington 98004
All executive officers and directors as a group (9 persons)(4)........ 4,329,824 27.00%
</TABLE>
- ------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable, or become exercisable within 60 days from the date
hereof, are deemed outstanding including options to purchase Common Stock
which will be accelerated upon the closing of the Second Issuance. However,
such shares are not deemed outstanding for purposes of computing the
percentage ownership of any other person. Percentage ownership is based on
an aggregate of 15,669,806, which includes 13,136,045 shares of Common Stock
outstanding as of May 10, 1999 and 2,533,761 shares of Common Stock into
which the outstanding Series A Preferred Stock is initially convertible.
(2) Includes 167,507 shares of Series A Preferred Stock, which are initially
convertible into 2,533,761 shares of Common Stock. Also includes 20,000
shares owned directly by Paul G. Allen.
(3) Includes 900,000 shares of Common Stock held by The Porpoise Corporation, a
Washington corporation wholly owned by Mr. Horowitz and 203,828 shares of
Common Stock held by Xanthus Management, LLC, of which Mr. Horowitz is a
director and an executive officer. Mr. Horowitz disclaims beneficial
ownership of the shares held by Xanthus Management, LLC, except to the
28
<PAGE>
extent of his pecuniary interests therein. Also, includes options to
purchase 397,875 shares of Common Stock that are currently exercisable, or
become exercisable within 60 days of the date hereof.
(4) Includes options to purchase 423,500 shares of Common Stock that are
currently exercisable, or become exercisable within 60 days of the date
hereof.
(5) Includes option to purchase 20,000 shares of Common Stock that are currently
exercisable within 60 days of the date hereon.
(6) Includes options to purchase 398,667 shares of Common Stock that are
currently exercisable, or become exercisable within 60 days of the date
hereof.
(7) Includes 75,000 shares of Common Stock held by MLS-I, L.L.C., a limited
liability company of which Mr. Schoffstall is an executive officer.
(8) Includes options to purchase 73,750 shares of Common Stock that are
currently exercisable or become exercisable within 60 days of the date
hereof.
(9) Each of William D. Savoy and Diane Daggatt disclaims beneficial ownership of
the shares held by Vulcan.
(10) Includes options to purchase 2,550 shares of Common Stock that are
currently exercisable or become exercisable within 60 days of the date
hereof.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during fiscal 1998, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with.
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and President for all services
rendered in all capacities to the Company for the Company's fiscal year ended
September 30, 1998 (the "NAMED EXECUTIVE OFFICERS").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
--------------------------------- OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (#) ($)
- -------------------------------------------------------- --------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Russell C. Horowitz..................................... 1998 $ 36,000 $ 0 150,000 $ 15,729
Chief Executive Officer 1997 $ 36,000 $ 0 300,000 $ 17,791
1996 $ 21,000 $ 0 0 $ 5,292
John Keister............................................ 1998 $ 72,000 $ 0 200,000 $ 11,263
President 1997 $ 45,000 $ 0 300,000 $ 9,459
1996 $ 26,250 $ 0 0 $ 4,549
</TABLE>
29
<PAGE>
GRANTS OF STOCK OPTIONS
The following table sets forth certain information with respect to
individual grants of stock options to the Named Executive Officers during the
fiscal year ended September 30, 1998.
1998 OPTION GRANTS(L)
<TABLE>
<CAPTION>
POTENTIAL REALIZATION
VALUE AT ASSUMED ANNUAL
INDIVIDUAL RATES OF STOCK PRICE
GRANTS % OF TOTAL APPRECIATION FOR OPTION
----------- OPTIONS GRANTED TERM
OPTION TO EMPLOYEES IN EXERCISE EXPIRATION ------------------------
NAME GRANTS 1998 PRICE DATE 5% 10%
- ---------------------------------- ----------- ----------------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Russell C. Horowitz............... 150,000 5.62% $ 9.375 4/3/2004 $ 478,259 $ 1,085,008
John Keister...................... 50,000 1.87% $ 4.375 10/24/2003 $ 74,396 $ 168,779
John Keister...................... 150,000 5.62% $ 9.375 4/3/2004 $ 478,259 $ 1,085,008
</TABLE>
- ------------------------
(1) Potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation
only, based on Securities and Exchange Commission rules. Actual gains, if
any, on stock option exercises are dependent on the future performance of
the Common Stock, the timing of such exercises and the option holder's
continued employment through the vesting period. The amounts reflected in
this table may not accurately reflect or predict the actual value of the
stock options.
STOCK OPTION EXERCISES AND SEPTEMBER 30, 1998 STOCK OPTION VALUES
Set forth in the table below is information concerning the value of stock
options held at September 30, 1998 by the Named Executive Officers of the
Company. None of the Named Executive Officers exercised any stock options during
the year ended September 30, 1998.
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND OPTION VALUES AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT SEPTEMBER 30, IN-THE-MONEY OPTIONS AT
1998 SEPTEMBER 30, 1998(1)
SHARES ACQUIRED VALUE -------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- --------------- --------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Russell C. Horowitz.......... -- -- 300,000 150,000 $ 1,050,000 $ 0
John Keister................. -- -- 300,000 200,000 $ 1,089,063 $ 117,188
</TABLE>
- ------------------------
(1) The amounts set forth represent the difference, if positive, between the
fair market value of the Common Stock underlying the options at September
30, 1998 ($15 per share) and the exercise price of the options, multiplied
by the applicable number of options.
ACCELERATION OF STOCK OPTIONS
Pursuant to agreements under the Company's 1996 Stock Option Plan, the
directors and executive officers have been granted options to purchase Common
Stock. As of May 10, 1999, Russell C. Horowitz held options to purchase 510,000
shares of Common Stock of which 337,500 were vested and exercisable, John
Keister held options to purchase 560,000 shares of Common Stock of which 350,000
were vested and exercisable, Michael J. Riccio, Jr. held options to purchase
650,000 shares of Common Stock of which 215,556 were vested and exercisable,
Dennis Cline held options to purchase 20,000 shares of Common Stock all of which
were vested and exercisable, and Dr. Oren Etzioni held options to purchase
200,000 shares of Common Stock of which 60,000 were vested and exercisable.
30
<PAGE>
As permitted by the Stock Purchase Agreement, the Board of Directors has
voted to accelerate 35% of the options granted under the 1996 Stock Option Plan
which are unvested as of the closing of the Second Issuance, including unvested
options held by executive officers and directors of the Company. Additionally,
under the Stock Purchase Agreement, the Company may pay and hold harmless its
officers, on an after-tax basis, for any excise taxes in an aggregate amount not
to exceed $3,000,000 (which amount is based on the Common Stock price as of
March 12, 1999 and may increase due to increases in the Common Stock price)
incurred by them in connection with the acceleration of such options.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Russell C.
Horowitz, Michael J. Riccio and John Keister pursuant to which they serve as
Chief Executive Officer, Chief Operating Officer and President, respectively, of
the Company.
Mr. Horowitz's agreement provides for his employment as Chief Executive
Officer of the Company at an annual base salary of $36,000. Mr. Keister's
agreement provides for his employment as President of the Company at an annual
base salary of $72,000. Mr. Riccio's agreement provides for his employment as
Chief Operating Officer at an annual base salary of $150,000. In addition, each
executive is eligible to receive bonuses upon the achievement by the executive
of specified performance objectives determined by the executive and the
Company's Compensation Committee. Mr. Riccio's agreement also provides for a
one-time $25,000 bonus in consideration of his willingness to relocate to the
Seattle, Washington area. Each of the employment agreements extends until
January 31, 2002, with annual renewals thereafter unless terminated prior
thereto in accordance with their respective terms. In the event that any of the
foregoing agreements are terminated, under certain circumstances, the executive
is entitled to compensation for the longer of the term of the agreement or six
months from the date of termination and to the acceleration of vesting of all
stock options.
Each of the employment agreements described above provides for certain
employee benefits, including, without limitation, participation in the Company's
stock option plan or any other incentive or bonus plan which the Company may
institute in the future, as well as health insurance. Each of the employment
agreements provides for a one-year non-competition period following termination
of the employment agreement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DIRECTWEB AGREEMENT. On March 1, 1999, the Company entered into agreements
with DirectWeb, Inc. ("DIRECTWEB") in which the Company agreed (i) to develop
and license to DirectWeb co-branded start pages and a co-branded version of
PlaySite, (ii) to sell to DirectWeb lifetime subscriptions to Silicon Investor,
one of the Company's branded Web sites which will be offered to users of
DirectWeb services, and (iii) to provide DirectWeb certain advertising on the
Company's Web sites. Pursuant to these agreements DirectWeb will pay the Company
amounts totaling approximately $550,000. Dennis Cline, a director of the
Company, is also a director, the Chief Executive Officer and a significant
stockholder of DirectWeb.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "COMMITTEE") of the Board of Directors for
fiscal 1998 has furnished the following report on executive compensation for
fiscal 1998.
The Company's executive compensation program is administered by the
Committee. The Committee, which is composed of two independent directors,
establishes and administers the Company's executive compensation policies and
plans and administers the Company's stock option and
31
<PAGE>
other equity-related employee compensation plans. The Committee considers
internal and external information in determining officers' compensation.
COMPENSATION PHILOSOPHY
The Company's compensation policies for executive officers are based on the
belief that the interests of executives should be closely aligned with those of
the Company's stockholders. The Compensation policies are designed to achieve
the following objectives:
Offer compensation opportunities that attract highly qualified executives,
reward outstanding initiative and achievement, and retain the leadership and
skills necessary to build long-term shareholder value.
Maintain a significant portion of executives' total compensation at risk,
tied to both the annual and long-term financial performance of the Company
and the creation of shareholder value.
Further the Company's short and long-term strategic goals and values by
aligning compensation with business objectives and individual performance.
COMPENSATION PROGRAM
The Company's executive compensation program has three major integrated
components, base salary, annual incentive awards, and long term incentives.
BASE SALARY. Base salary levels for executive officers are determined
annually by reviewing the competitive pay practices of Internet companies of
similar size and market capitalization, the skills, performance level, and
contribution to the business of individual executives, and the needs of the
Company. Overall, the Company believes that base salaries for its executive
officers are below competitive salary levels for similar positions in these
Internet companies.
ANNUAL INCENTIVE AWARDS. The Company's executive officers may be eligible
to receive annual cash bonus awards designed to motivate executives to attain
short-term and long-term corporate and individual management goals. The
Committee establishes the annual incentive opportunity for each executive
officer in relation to his or her base salary. For fiscal 1998, there was no
formal bonus program established for executives.
LONG-TERM INCENTIVES. The Committee believes that stock options are an
excellent vehicle for compensating its officers and employees. The Company
provides long-term incentives through its 1996 Stock Option Plan, the purpose of
which is to create a direct link between executive compensation and increases in
stockholder value. Stock options are granted at fair market value and vest in
installments generally over one to four years. When determining option awards
for an executive officer, the Committee considers the executive's current
contribution to Company performance, the anticipated contribution to meeting the
Company's long term strategic performance goals, and industry practices and
norms. Long-term incentives granted in prior years and existing levels of stock
ownership are also taken into consideration. Because the receipt of value by an
executive officer under a stock option is dependent upon an increase in the
price of the Company's Common Stock, this portion of the executive's
compensation is directly aligned with an increase in stockholder value.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Horowitz's base salary, annual incentive award and long-term incentive
compensation are determined by the Committee based upon the same factors as
those employed by the Committee for executive officers generally. Mr. Horowitz's
current annual base salary is $36,000 subject to annual review and increase by
the Board of Directors of the Company. During fiscal 1998, Mr. Horowitz was
granted options to purchase 150,000 shares of Common Stock at an exercise price
of $9.375 per share,
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<PAGE>
the fair market value of the Company's Common Stock on the date of the grant.
The options have a six year term and provide that one-quarter of the options
vest on each annual anniversary of the option grant.
SECTION 162(M) LIMITATION
Section 162(m) of the Internal Revenue Code limits the tax deduction to
$1,000,000 for compensation paid to certain executives of public companies.
Historically, the combined salary and bonus of each executive officer has been
well below the $1,000,000 limit. The Committee's present intention is to comply
with Section 162(m) unless the Committee feels that required changes would not
be in the best interest of the Company or its stockholders.
COMPENSATION COMMITTEE
Dennis Cline
Oren Etzioni
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
GENERAL. During fiscal 1998, Messrs. Cline and Etzioni served as members of
the Compensation Committee. Neither Mr. Cline nor Mr. Etzioni was an officer or
employee of the Company or any of its subsidiaries during fiscal 1998.
During fiscal 1998, Mr. Riccio, a director and Chief Operating Officer of
the Company, was a shareholder of the law firm Hutchins, Wheeler & Dittmar,
which is general counsel to the Company.
On November 3, 1998, the Company purchased 13,158 shares of Series D
Preferred Stock of Conducent Technologies, Inc. of which Martin L. Schoffstall,
a director of the Company, is chief executive officer. The terms of the
investment were determined on an arm's length basis, with the purchase price
being established by an independent third party investor.
DESCRIPTION OF COMPANY CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares,
consisting of 49,000,000 shares of Common Stock with $.01 par value per share
and 1,000,000 shares of Preferred Stock with $.01 par value per share (the
"PREFERRED STOCK"). As of May 10, 1999, there were 13,136,045 shares of Common
Stock outstanding held by approximately 243 holders of record and 167,507
outstanding shares of Series A Preferred Stock held by one holder of record. The
following summary is qualified in its entirety by reference to the Certificate
of Designation, which is attached hereto as Exhibit E.
COMMON STOCK
Holders of Common Stock are entitled to receive dividends declared and paid
on the Common Stock from funds lawfully available therefor as and when
determined by the Board of Directors and subject to any preferential dividend
rights of the outstanding Preferred Stock. Except as otherwise required by law
or the Restated Certificate, each holder of Common Stock has one vote in respect
of each share of stock held by him of record on the books of the Company for the
election of directors and on all matters submitted to a vote of stockholders of
the Company. There is no cumulative voting meaning that the holders of a
majority of the shares voting for the election of directors can elect all the
directors if they choose to do so. The voting, dividend and liquidation rights
of the holders of the Common Stock are subject to and qualified by the rights of
holders of the Preferred Stock. In the event of any dissolution, liquidation or
winding up of the affairs of the Company, whether voluntary or
33
<PAGE>
involuntary, the holders of Common Stock are entitled to receive an equal
portion of the net assets of the Company available for distribution to holders
of Common Stock, subject to any preferential rights of any then outstanding
Preferred Stock.
PREFERRED STOCK
The Board of Directors is authorized to provide for the issuance of all or
any shares of the undesignated Preferred Stock in one or more series, each with
such designations, preferences, voting powers (or special, preferential or no
voting powers), relative, participating, optional or other special rights and
privileges and such qualifications, limitations or restrictions thereof as
stated in the resolution or resolutions adopted by the Board of Directors to
create such series, and a certificate of said resolution or resolutions shall be
filed in accordance with the DGCL. The authority of the Board of Directors with
respect to each such series shall include, without limitation of the foregoing,
the right to provide that the shares of each such series may be: (i) subject to
redemption at such time or times and at such price or prices; (ii) entitled to
receive dividends (which may be cumulative or non-cumulative) at such rates, on
such conditions, and at such times, and payable in preference to, or in such
relation to, the dividends payable on any other class or classes or any other
series; (iii) entitled to such rights upon the dissolution of, or upon any
distribution of the assets of, the Company; (iv) convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any other
series of the same or any other class or classes of the Company at such price or
prices or at such rates of exchange and with such adjustments, if any; (v)
entitled to the benefit of such limitations, if any, on the issuance of
additional shares of such series or shares of any other series of Preferred
Stock; or (vi) entitled to such other preferences, powers, qualifications,
rights and privileges, all as the Board of Directors may deem advisable and as
are not inconsistent with law and the provisions of this Restated Certificate.
SERIES A PREFERRED STOCK. The following summary of the terms of Series A
Preferred Stock as set forth in the Certificate of Designation does not purport
to be complete and is qualified in its entirety by reference to the complete
text of the Certificate of Designation, which is attached hereto as Exhibit E.
Capitalized terms used herein and not otherwise defined shall have the meaning
ascribed to them in the Certificate of Designation. WE STRONGLY URGE YOU TO READ
CAREFULLY THE CERTIFICATE OF DESIGNATION IN ITS ENTIRETY.
The Series A Preferred Stock is entitled to the rights, preferences and
privileges set forth in the Certificate of Designation.
NUMBER OF SHARES. The Certificate of Designation designates 300,000 shares
of the Company's authorized Preferred Stock, $.01 par value, to constitute the
Series A Preferred Stock.
DIVIDENDS. Pursuant to the Certificate of Designation (i) the Series A
Preferred Stock is not entitled to receive dividends unless and until, among
other things, the Board of Directors of the Company declares a dividend on the
Common Stock and (ii) the Board of Directors may not declare or pay such a
dividend on the Common Stock unless there shall be simultaneous declaration or
payment, as applicable, of a dividend upon the Series A Preferred Stock and
after the payment of the dividends upon the Common Stock and the Series A
Preferred Stock, the Company's net worth exceeds the aggregate liquidation
preference of the Series A Preferred Stock, and (iii) the dividend which is
declared upon each share of Series A Preferred Stock shall be equal in amount to
the dividend payable upon that number of shares of Common Stock acquirable upon
conversion of a share of Series A Preferred Stock immediately before the
declaration of such dividend on the Series A Preferred Stock.
LIQUIDATION, DISSOLUTION OR WINDING UP. Upon a voluntary or involuntary
liquidation, dissolution or winding up of the Company, (i) the Series A
Preferred Stock shall rank senior to the Common Stock and any other Company
stock that is junior to the Series A Preferred Stock (collectively, the
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<PAGE>
"JUNIOR STOCK"), and (ii) the Series A Preferred Stock shall be entitled to
$1,000 per share (the "LIQUIDATION PREFERENCE") plus declared and unpaid
dividends prior to any payment to Junior Stock. Except as set forth in the
previous sentence, holders of shares of Series A Preferred Stock shall not be
entitled to any distribution in the event of liquidation, dissolution or winding
up of the Company.
VOTING. Each holder of shares of Series A Preferred Stock shall have the
right to one vote for each share of Common Stock into which such holder's shares
of Series A Preferred Stock could then be converted and, except as otherwise
required by law, shall be entitled to vote with respect to any question upon
which holders of Common Stock have the right to vote.
In addition, the consent of the holders of Series A Preferred Stock, voting
as a class, is required to effect certain corporate actions, including without
limitation, to amend or modify the Company's Certificate of Incorporation or
By-Laws or the Certificate of Designation in any manner that would adversely
affect the powers, preferences or special rights of the Series A Preferred
Stock.
Upon the consummation of the Second Issuance, and continuing as long as a
majority of the Series A Preferred Stock remains outstanding, the consent of
holders of a majority of the Series A Preferred Stock is also required for any
of the following corporate actions: (i) any lease, sale or transfer of at least
30% of the Company's assets; (ii) any merger, consolidation or other
reorganization of the Company which would result in the stockholders of the
Company immediately prior to such transaction holding less than 66 2/3% of the
voting securities of the surviving corporation; (iii) the acquisition of another
entity or business by any means where the consideration involved has a value of
at least $100,000,000; (iv) the liquidation, dissolution or winding up of the
Company; (v) the commencement by the Company of any voluntary bankruptcy
proceeding; and (vi) the redemption or repurchase of any Junior Stock or stock
ranking on liquidation on parity with the Series A Preferred Stock other than a
repurchase in connection with the termination of employees of the Company.
CONVERSION RIGHTS. Each share of Series A Preferred Stock is convertible at
any time at the option of the holder into a number of shares of Common Stock
equal to the result of dividing (i) the sum of (A) the aggregate Liquidation
Preference of all the Series A Preferred Stock to be converted plus (B) any
declared but unpaid dividends on such shares, by (ii) the Conversion Price,
which initially is set at $66.11 per share of Common Stock, subject to
adjustment from time to time for stock dividends, subdivisions,
reclassifications or combinations and for certain other events. In addition,
shares of Series A Preferred Stock will automatically be converted on the same
basis into shares of Common Stock if (x) a holder transfers such shares to an
unaffiliated party or (y) the Company consummates a transaction which will
result in the transfer of 50% or greater of the voting securities of the Company
to an unrelated party.
ANTI-DILUTION. The Certificate of Designation includes certain customary
anti-dilution provisions that are triggered if the Company (i) declares a
dividend or makes a distribution on its Common Stock of shares of Common Stock;
(ii) subdivides or reclassifies the outstanding shares of Common Stock into a
greater number of shares; or (iii) combines or reclassifies the outstanding
Common Stock into a smaller number of shares.
NO REDEMPTION RIGHTS. The Series A Preferred Stock is not subject to
mandatory or optional redemption.
CERTAIN CORPORATE GOVERNANCE MATTERS
GENERAL. Certain provisions of the Restated Certificate, the Bylaws and the
DGCL may have the effect of impeding the acquisition of control of the Company
by means of a tender offer, a proxy fight, open market purchases or otherwise in
a transaction not approved by the Board.
The provisions of the Restated Certificate, the Bylaws and the DGCL
described below are designed to reduce, or have the effect of reducing, the
vulnerability of the Company to an unsolicited
35
<PAGE>
proposal for the restructuring or sale of all or substantially all of the assets
of the Company or an unsolicited takeover attempt that is unfair to the Company
stockholders. The summary of such provisions set forth below does not purport to
be complete and is subject to and qualified in its entirety by reference to the
Restated Certificate, Bylaws and the DGCL.
BUSINESS COMBINATIONS. Section 203 of the DGCL restricts a wide range of
the Transactions ("BUSINESS COMBINATIONS") between a corporation and an
interested stockholder. An "INTERESTED STOCKHOLDER" is, generally, any person
who beneficially owns, directly or indirectly, 15% or more of the corporation's
outstanding voting stock. Business combinations are broadly defined to include
(i) mergers or consolidations with, (ii) sales or other dispositions of more
than 10% of the corporation's assets to, (iii) certain transactions resulting in
the issuance or transfer of any stock of the corporation or any subsidiary to,
(iv) certain transactions which would result in increasing the proportionate
share of stock of the corporation or any subsidiary owned by, or (v) receipt of
the benefit (other than proportionately as a stockholder) of any loans, advances
or other financial benefits by, an interested stockholder. Section 203 provides
that an interested stockholder may not engage in a business combination with the
corporation for a period of three years from the time of becoming an interested
stockholder unless (i) the board of directors approved either the business
combination or the transaction which resulted in the person becoming an
interested stockholder prior to the time such person became an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
person becoming an interested stockholder, that person owned at least 85% of the
corporation's voting stock (excluding shares owned by persons who are officers
and also directors and shares owned by certain employee stock plans) or (iii)
the business combination is approved by the board of directors and authorized by
the affirmative vote of at least two-thirds of the outstanding voting stock not
owned by the interested stockholder. The restrictions on business combinations
with interested stockholders contained in Section 203 do not apply to a
corporation whose certificate of incorporation contains a provision expressly
electing not to be governed by the statute. The Restated Certificate does not
contain a provision electing to "OPT-OUT" of Section 203.
Upon consummation of the First Issuance, Vulcan became an interested
stockholder within the meaning of Section 203 of the DGCL pursuant to the Stock
Purchase Agreement. The Board of Directors of the Company approved the Stock
Purchase Agreement and the transactions contemplated thereby prior to the time
that Vulcan became an interested stockholder. Accordingly Section 203 of the
DGCL is inapplicable to the Offer, and the Transactions.
The Company, which has its principal offices in the State of Washington, is
also subject to the Washington takeover statute. RCW 23B.19 contains the
anti-takeover provisions of the Washington Business Corporation Act (the
"WBCA"). In general, "target corporations" (Washington corporations, and foreign
corporations that are qualified to do business in Washington and have a class of
securities registered under Section 12 or 15 of the Exchange Act) are subject,
without any additional corporate action, to the anti-takeover provisions under
the WBCA. In general, RCW 23B.19 prevents a target corporation from engaging in
a merger, share exchange, consolidation, or a significant sale, lease, exchange,
mortgage, or similar "significant business transaction" (as more fully described
in RCW 23B.19.020) for a period of five years following an "acquiring person's"
acquisition of ten percent or more of the target corporation's outstanding
voting stock. A target corporation may engage in a significant business
transaction at any time, however, if either the proposed significant business
transaction or the acquiring person's acquisition of ten percent or more of the
target corporation's outstanding voting stock is approved by the majority of the
target corporation's board of directors prior to the date on which the acquiring
person acquired ten percent or more of the stock. However, unless the
significant business transaction was approved by the target corporation's board
of directors prior to the acquiring person's acquisition of stock, a subsequent
significant business transaction involving a merger, share exchange,
consolidation, liquidation or dissolution will be subject to the provisions of
RCW 23B.19.040 mandating certain minimum consideration that must be paid to the
target corporation's shareholders by the acquiring person in such transaction.
36
<PAGE>
Vulcan became, upon consummation of the First Issuance, an acquiring person
within the meaning of RCW 23B.19. The Board of Directors of the Company approved
the Stock Purchase Agreement and the transactions contemplated thereby prior to
the time that Vulcan became an acquiring person; accordingly, the Company will
be permitted to engage in a significant business transaction with Vulcan.
However, such a transaction involving a merger, share exchange, consolidation or
liquidation might nevertheless be subject to the minimum price provisions of RCW
23B.19.040.
LIMITATION OF LIABILITY
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must exercise
an informed business judgment based on all material information reasonably
available to them. Absent the limitations authorized by Delaware law, directors
are accountable to corporations and their stockholders for monetary damages for
conduct constituting gross negligence in the exercise of their duty of care.
Delaware law enables corporations to limit available relief to equitable
remedies such as injunction or rescission. The Restated Certificate limits the
liability of directors of the Company to the Company or its stockholders (in
their capacity as directors but not their capacity as officers) to the fullest
extent permitted by Delaware law. Specifically, directors of the Company will
not be personally liable for monetary damages for breach of director's fiduciary
duty as a director, except for liability (i) for any breach of director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL, or (iv) for any transaction
from which the director derived an improper personal benefit.
The inclusion of this provision in the Restated Certificate may have the
effect of reducing the likelihood of derivative litigation against directors and
may discourage or deter stockholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though such an action,
if successful, might otherwise have benefited the Company and its stockholders.
The Company's Bylaws also provide indemnification to the Company's officers and
directors and certain other persons with respect to certain matters.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company is Continental Stock
Transfer and Trust Company.
37
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NASDAQ STOCK NASDAQ
<S> <C> <C> <C>
(SIC 7300-7399 US Companies) Stock Market
Business Services (US Companies) Go2Net, Inc.
9/30/93 $43.802 $60.758
10/29/93 $44.641 $62.123
11/30/93 $44.625 $60.272
12/31/93 $44.375 $61.952
1/31/94 $46.770 $63.833
2/28/94 $47.211 $63.237
3/31/94 $45.013 $59.349
4/29/94 $44.975 $58.578
5/31/94 $46.940 $58.722
6/30/94 $44.179 $56.574
7/29/94 $44.430 $57.735
8/31/94 $49.085 $61.416
9/30/94 $49.109 $61.259
10/31/94 $53.926 $62.463
11/30/94 $53.161 $60.391
12/30/94 $53.747 $60.560
1/31/95 $52.709 $60.905
2/28/95 $56.653 $64.126
3/31/95 $60.553 $66.028
4/28/95 $63.455 $68.108
5/31/95 $64.325 $69.865
6/30/95 $71.100 $75.527
7/31/95 $75.410 $81.079
8/31/95 $75.428 $82.723
9/29/95 $77.451 $84.624
10/31/95 $81.323 $84.136
11/30/95 $82.101 $86.111
12/29/95 $81.444 $85.653
1/31/96 $81.076 $86.074
2/29/96 $85.931 $89.350
3/29/96 $86.124 $89.644
4/30/96 $96.202 $97.080
5/31/96 $99.447 $101.538
6/28/96 $96.243 $96.960
7/31/96 $86.806 $88.314
8/30/96 $89.258 $93.262
9/30/96 $98.943 $100.395
10/31/96 $96.770 $99.286
11/29/96 $103.099 $105.423
12/31/96 $101.836 $105.328
1/31/97 $110.450 $112.814
2/28/97 $101.337 $106.574
3/31/97 $93.328 $99.615
4/23/97 $100.000 $100.000 $100.000
4/30/97 $104.223 $102.729 $108.228
5/30/97 $116.243 $114.372 $82.278
6/30/97 $118.831 $117.875 $62.025
7/31/97 $130.700 $130.316 $68.354
8/29/97 $127.315 $130.117 $68.354
9/30/97 $129.736 $137.807 $89.873
10/31/97 $126.862 $130.673 $81.013
11/28/97 $129.868 $131.326 $72.152
12/31/97 $122.473 $129.220 $69.620
1/30/98 $131.442 $133.296 $98.734
2/27/98 $149.034 $145.811 $165.190
3/31/98 $161.440 $151.196 $172.152
4/30/98 $163.105 $153.763 $273.418
5/29/98 $151.606 $145.324 $250.633
6/30/98 $179.854 $155.574 $298.734
7/31/98 $173.755 $153.931 $273.418
8/31/98 $141.267 $123.751 $224.051
9/30/98 $169.317 $140.843 $151.899
</TABLE>
TIME FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Under regulations adopted by the Commission, any proposal submitted for
inclusion in the Company's Proxy Statement relating to the Annual Meeting of
Stockholders to be held in 2000 must be received at the Company's principal
executive offices in Seattle, Washington on or before September 20, 1999.
Receipt by the Company of any such proposal from a qualified stockholder in a
timely manner will not ensure its inclusion in the proxy material because there
are other requirements in the proxy rules for such inclusions.
38
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1998, the Company's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1998 and March 31, 1999 and the Company's Current Reports on Form
8-K filed January 12, 1999, April 12, 1999 and May 3, 1999, each of which has
been filed with the Commission, are incorporated by reference in this Proxy
Statement except as superseded or modified herein. All documents filed by the
Company with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this Proxy Statement and before the Special
Meeting will be deemed to be incorporated herein by reference and to be a part
hereof from the date of filing such documents. Any statement contained in any
document incorporated or deemed to be incorporated by reference herein will be
deemed to be modified or superseded for purposes of this Proxy Statement to the
extent that a statement contained herein or in any other subsequently filed
document that also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
Statements contained in this Proxy Statement as to the contents of any
contract or other document that is included as (or as part of) an Exhibit to
this Proxy Statement are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document included as an
Exhibit to this Proxy Statement.
The information contained in this Proxy Statement with respect to the
business of Vulcan and the persons presently contemplated to be designated by
Vulcan to serve as directors of the Company has been supplied by Vulcan.
THE COMPANY WILL PROVIDE WITHOUT CHARGE, UPON THE WRITTEN OR ORAL REQUEST OF
ANY PERSON TO WHOM THIS PROXY STATEMENT IS DELIVERED, INCLUDING ANY BENEFICIAL
OWNER OF COMMON STOCK, A COPY OF ANY AND ALL OF THE DOCUMENTS (EXCLUDING CERTAIN
EXHIBITS) RELATING TO THE COMPANY THAT HAVE BEEN OR WILL BE INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT. SUCH REQUESTS FOR THE DOCUMENTS SHOULD BE
DIRECTED TO CORPORATE SECRETARY, GO2NET, INC., 999 THIRD AVENUE, SUITE 4700,
SEATTLE, WASHINGTON 98104, (206) 447-1545.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Ernst & Young LLP, independent auditors, are expected to
be present at the Special Meeting, where they will have the opportunity to make
a statement if they desire to do so and will be available to respond to
appropriate questions.
OTHER MATTERS
The Board knows of no other matters that will be presented for consideration
at the Special Meeting. If any other matters are properly brought before the
meeting, it is the intention of the persons named in the accompanying proxy to
vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
[LOGO]
ETHAN CALDWELL
SECRETARY
May 12, 1999
39
<PAGE>
EXHIBIT A
STOCK PURCHASE AGREEMENT
BETWEEN
GO2NET, INC.
AND
VULCAN VENTURES INCORPORATED
MARCH 15, 1999
A-1
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is made as of March 15, 1999 between GO2NET,
INC. (the "COMPANY"), a corporation organized under the laws of the State of
Delaware, and VULCAN VENTURES INCORPORATED, a corporation organized under the
laws of the State of Washington ("PURCHASER").
WHEREAS, the Company wishes to sell to Purchaser 300,000 shares of the
Company's Series A Convertible Preferred Stock, $.01 par value (the "SERIES A
PREFERRED STOCK"), on the terms and conditions hereinafter provided;
WHEREAS, as an inducement to Purchaser to enter into this Agreement, certain
executive officers and directors of the Company (the "MANAGEMENT STOCKHOLDERS")
have entered into agreements with Purchaser (the "MANAGEMENT AGREEMENTS")
pursuant to which, among other things (i) each Management Stockholder has agreed
to sell to Purchaser, and Purchaser has agreed to purchase from him, certain of
his shares of the Company's Common Stock, $.01 par value (the "COMMON STOCK")
(including certain shares of Common Stock issuable pursuant to the exercise of
vested stock options) aggregating a total of 1,403,312 shares of Common Stock
under all the Management Agreements taken together, at $90 per share, and (ii)
each Management Stockholder has agreed to vote all of his shares of Common Stock
in favor of the issuance to Purchaser of the Series A Preferred Stock to be
issued at the Second Closing (as defined below), in each case upon the terms and
subject to the conditions set forth therein; and
WHEREAS, Purchaser will commence, within five (5) business days of the date
hereof, at a price of $90 per share net to the seller in cash, a tender offer
(the "OFFER") for up to 3,596,688 shares of Common Stock (the "OFFER SHARES"),
which shares, together with the maximum number of shares of Series A Preferred
Stock that may be purchased by Purchaser under this Agreement, would equal at
least 51% of the outstanding shares of Common Stock (assuming conversion into
Common Stock, at the initial conversion rate, of all such shares of Series A
Preferred Stock).
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained in this Agreement, the Company and Purchaser agree as follows:
1. PURCHASE AND SALE OF SHARES. On the terms and subject to the conditions set
forth herein, the Company agrees to issue and sell to Purchaser, and Purchaser
agrees to purchase from the Company, (a) at the First Closing (as defined
below), 167,507 shares (the "FIRST ISSUANCE SHARES") of Series A Preferred
Stock, and (b) at the Second Closing (as defined below), an additional 132,493
shares of Series A Preferred Stock (the "SECOND ISSUANCE SHARES," and
collectively with the First Issuance Shares, the "SHARES"), in each case for a
purchase price of One Thousand Dollars ($1,000) per share. The Series A
Preferred Stock shall have the terms designated in the Certificate of
Designation of Series A Convertible Preferred Stock attached hereto as EXHIBIT A
(the "CERTIFICATE OF DESIGNATION").
2. CLOSING; DELIVERIES.
2.1. FIRST CLOSING. The closing of the purchase and sale of the First
Issuance Shares (the "FIRST CLOSING") shall occur at the offices of Irell &
Manella LLP ("I&M"), 1800 Avenue of the Stars, Suite 900, Los Angeles,
California 90067, concurrently with the execution of this Agreement. At the
First Closing, the Company shall deliver to Purchaser one or more stock
certificates evidencing the First Issuance Shares registered in the name of
Purchaser and Purchaser shall pay to the Company the purchase price for the
First Issuance Shares $25,000 by check or wire transfer and the balance in the
form of a promissory note in the form of EXHIBIT B hereto. At the First Closing,
the parties will also duly execute and deliver the Registration Rights Agreement
in the form of EXHIBIT C hereto (the "REGISTRATION RIGHTS AGREEMENT") and the
Purchaser shall receive an opinion from Hutchins, Wheeler & Dittmar as to
certain matters. The date on which the First Closing occurs is hereinafter
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referred to as the "FIRST CLOSING DATE." The First Closing shall occur prior to
any public announcement of the tender offer contemplated hereby.
2.2. SECOND CLOSING. The closing of the purchase and sale of the Second
Issuance Shares (the "SECOND CLOSING") shall occur at the offices of I&M as
soon as practicable (but not more than three (3) business days) after the
satisfaction or waiver of all of the conditions to the Second Closing set forth
herein, or at such other place and time as the Company and Purchaser may agree.
At the Second Closing, the Company shall deliver to Purchaser one or more stock
certificates evidencing the Second Issuance Shares registered in the name of
Purchaser and Purchaser shall pay to the Company the purchase price for the
Second Issuance Shares by check or wire transfer. The date on which the Second
Closing occurs is hereinafter referred to as the "SECOND CLOSING DATE."
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Purchaser as follows (it being agreed that for
purposes of the representations and warranties set forth in this Section 3, the
term the "Company" shall be deemed to refer to the Company and each of its
subsidiaries on a consolidated basis, except where the context reasonably
indicates otherwise):
3.1. ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of its state
of incorporation, has all requisite corporate power and authority to conduct its
business as currently conducted and to enter into and to carry out and perform
its obligations under the Transaction Documents. For purposes of this Agreement,
"TRANSACTION DOCUMENTS" shall mean (a) this Agreement, (b) the Registration
Rights Agreement, and (c) the Certificate of Designation. The Company is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which the failure to be so qualified or in good standing could reasonably be
expected to have a material adverse effect on the business, properties, results
of operations or financial condition of the Company and its subsidiaries taken
as a whole, other than any adverse effect following the date of this Agreement
that the Company shall have demonstrated is substantially attributable to (i)
the transactions contemplated by this Agreement or the announcement of the
transactions contemplated by this Agreement or (ii) any material economic
downturn in the Internet industry generally or any material national economic
downturn (a "MATERIAL ADVERSE EFFECT").
3.2. AUTHORIZED CAPITAL STOCK. As of the date hereof, the authorized
capital stock of the Company consists of (a) 50,000,000 shares of Common
Stock, and (b) 1,000,000 shares of Preferred Stock, $.01 par value per share,
300,000 shares of which are designated as Series A Preferred Stock. As of March
11, 1999, there were 12,732,545 shares of Common Stock outstanding and no shares
of Preferred Stock outstanding. All of the outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable. The Company has reserved for issuance upon conversion of the
Series A Preferred Stock 4,537,891 shares of Common Stock. The Company has
reserved for issuance upon exercise of options granted under its 1996 Stock
Option Plan ("COMPANY OPTION PLAN") and outside such plan an aggregate of
5,182,293 shares of Common Stock. The Company's Board of Directors has
authorized an increase in the number of shares of Common Stock reserved for
issuance under the Company Option Plan from 5,000,000 to 8,000,000 shares of
Common Stock, subject to stockholder approval. The Company also assumed the
outstanding options under the former Silicon Investor and Web21 stock option
plans (the "ASSUMED OPTION PLANS"), the shares under which are in addition to
the shares available under the Company Option Plan. An aggregate of 121,944
shares of Common Stock are reserved for issuance upon exercise of options
pursuant to the Assumed Option Plans. As of March 11, 1999, there were not
outstanding or existing any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock or any securities exercisable for or
convertible into shares of its capital stock, except for options to purchase an
aggregate of 5,304,237 shares of Common Stock outstanding under the Company
Option Plan and the Assumed Option Plans.
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3.3. SUBSIDIARIES. Except as set forth in Schedule 3.3, the Company (a)
owns no equity securities of any other corporation, limited partnership or
similar entity, and (b) is not a participant in any joint venture, partnership
or similar arrangement.
3.4. DUE EXECUTION, DELIVERY AND PERFORMANCE OF THE AGREEMENT; NO
CONFLICT.
3.4.1. Subject only to approval of the issuance and sale to
Purchaser of the Second Issuance Shares by the holders of the Common Stock, the
execution, delivery and performance of the Transaction Documents have been duly
authorized by all necessary corporate action on the part of the Company. The
Company's Board of Directors has approved the Certificate of Designation. This
Agreement has been, and when executed and delivered at the First Closing or the
Second Closing (as the case may be) the other Transaction Documents will be,
duly executed and delivered by the Company and constitutes, or when executed and
delivered at the First Closing or the Second Closing (as the case may be) will
constitute, valid and binding obligations of the Company, enforceable against it
in accordance with their respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws and
equitable principles relating to or limiting creditors' rights generally.
3.4.2. The execution, delivery and, subject to obtaining the
consents set forth in SCHEDULE 3.4, performance by the Company of the
Transaction Documents and the consummation of the transactions contemplated
thereby will not, except in each case where the effect of non-compliance could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, (i) modify, breach or constitute grounds for the occurrence or
declaration of a default under or give rise to a right to terminate any
agreement, license, indenture, undertaking or other instrument to which the
Company is a party or by which it or any of its assets may be bound or affected,
(ii) violate any provision of law or any regulation or any order, judgment, or
decree of any court or other agency of government to which the Company is
subject, (iii) violate any provision of the Restated Certificate of
Incorporation (the "CERTIFICATE OF INCORPORATION") or By-Laws of the Company, or
(iv) result in the creation or imposition of (or the obligation to create or
impose) any liens, mortgages, pledges, charges, claims or other encumbrances
(collectively, "LIENS") on any of the Company's properties.
3.5. STATE TAKEOVER STATUTES. The Board, at a meeting duly called (or
for which notice was duly waived by all directors of the Company) and held
on March 14, 1999, has unanimously approved the terms of this Agreement and the
other Transaction Documents and the consummation of the transactions
contemplated hereby and thereby (including without limitation the sale and
issuance to Purchaser of the Shares pursuant to this Agreement, and Purchaser's
acquisition of shares of Common Stock pursuant to the Management Agreements and
the Offer) and such approval constitutes approval of such transactions by the
Board under the provisions of Section 203 of the Delaware General Corporation
Law (the "DGCL") and Chapter 23B.19 of the Washington Business Corporation Act
(the "WBCA"), and constitutes all actions necessary to ensure that the
restrictions contained in Section 203 of the DGCL and Chapter 23B.19 of the WBCA
will not apply to Purchaser in connection with or following such transactions.
To its knowledge, no other state takeover statute is applicable to the
transactions contemplated by this Agreement and the other Transaction Documents.
3.6. ISSUANCE, SALE AND DELIVERY OF THE SHARES.
3.6.1. When issued in compliance with the provisions of this
Agreement, the Shares will be validly issued, fully paid and nonassessable, and
will be free of any Liens, other than restrictions on transfer under state
and/or federal securities laws. The sale of the Shares is not subject to any
preemptive rights or rights of first refusal that have not been properly waived
or complied with. Upon the filing with the Delaware Secretary of State and
effectiveness of the Certificate of Designation, the rights, privileges and
preferences of the Series A Preferred Stock set forth in the Certificate of
Designation will constitute the valid and binding obligations of the Company,
enforceable against it in accordance with their respective terms, except as may
be limited by bankruptcy, insolvency,
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reorganization, moratorium and other similar laws and equitable principles
relating to or limiting creditors' rights generally.
3.6.2. The shares of Common Stock that are issuable upon
conversion of the Series A Preferred, when so issued, will be validly issued,
fully paid and nonassessable, and will be free of any Liens, other than
restrictions on transfer under state and/or federal securities laws. Issuance of
such shares of Common Stock is not subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with.
3.7. GOVERNMENTAL CONSENT. No consent, approval or authorization of, or
declaration or filing with, any governmental authority on the part of the
Company is required for the execution and delivery of the Transaction Documents
or the sale of the Shares to Purchaser pursuant to this Agreement, except for
the filing of the Certificate of Designation and, to the extent applicable, the
required filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR ACT"), and the expiration or early termination of the
waiting period thereunder.
3.8. SEC REPORTS; FINANCIAL STATEMENTS.
3.8.1. The Company has filed all forms, reports and documents
(except for employment agreements with certain executive officers of the
Company, copies of which have been provided to Purchaser (the "EXECUTIVE
EMPLOYMENT AGREEMENTS")) required to be filed by it with the Securities and
Exchange Commission (the "SEC") since and including the filing date of the
Registration Statement with respect to the Company's initial public offering
(the "SEC REPORTS"). The SEC Reports (x) were prepared in accordance with the
requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT")
and the Exchange Act, as the case may be, and the rules and regulations
thereunder and (y) did not at the time they were filed, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
3.8.2. Each of the financial statements (including, in each case,
any notes thereto) of the Company included in the SEC Reports (the "FINANCIAL
STATEMENTS"), was prepared in accordance with GAAP (subject, in the case of
unaudited statements, to the absence of footnotes thereto and to normal and
recurring year-end adjustments which were not and are not expected to be
material in amount) and each fairly presented the financial position, results of
operations and cash flows of the Company as at the respective dates thereof and
for the respective periods indicated therein (except as may be indicated in the
notes thereto) in all material respects.
3.8.3. Except as set forth in SCHEDULE 3.8 hereto, to the
Company's knowledge, the Company has no liability or obligation (whether
accrued, absolute, contingent or otherwise) other than (a) liabilities and
obligations reflected on the unaudited balance sheet of the Company as of
December 31, 1998 contained in the Financial Statements (the "UNAUDITED BALANCE
SHEET"), and (b) liabilities or obligations incurred since December 31, 1998 in
the ordinary course of business consistent with past practice or that,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
3.9. PROXY STATEMENT; OFFER DOCUMENTS. The Proxy Statement described in
Section 5.3, including any amendments or supplements thereto, shall not, at
the time filed with the SEC, as of the date mailed to the Company's stockholders
or at the time of the Stockholders Meeting (as defined in Section 5.2), contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. Neither the Schedule 14D-9 (as defined in Section 7.8), nor any of
the information supplied by the Company for inclusion in the Offer Documents (as
defined in Section 7.7), shall, at the respective times such Schedule 14D-9, the
Offer Documents or any
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amendments or supplements thereto are filed with the SEC or are first published,
sent or given to shareholders, as the case may be, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. Notwithstanding
the foregoing, the Company makes no representation or warranty with respect to
any information provided by Purchaser specifically for use in the Proxy
Statement or the Schedule 14D-9. The Proxy Statement and the Schedule 14D-9 will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations thereunder.
3.10. ABSENCE OF LITIGATION. Except as set forth on SCHEDULE 3.10
hereto, there is no claim, action, proceeding or investigation pending or,
to the knowledge of the Company, threatened against the Company, any director or
officer of the Company or any property or asset of the Company, before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign that individually or in the aggregate could reasonably
be expected to have a Material Adverse Effect on the Company. Except as set
forth on SCHEDULE 3.10 hereto, neither the Company nor any of its properties or
assets is subject to any order, writ, judgment, injunction, decree,
determination or award that individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect on the Company.
3.11. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
Company's Annual Report on Form 10-K for the fiscal year ending September
30, 1998, the Quarterly Report on Form 10-Q for the period ending December 31,
1998 or in SCHEDULE 3.11, or as specifically contemplated by this Agreement,
since September 30, 1998 there has not been (i) any transaction, commitment,
dispute or other event or condition (financial or otherwise) of any character
(whether or not in the ordinary course of business) individually or in the
aggregate which has had or could reasonably be expected to have a Material
Adverse Effect; (ii) any damage, destruction or loss, whether or not covered by
insurance, which, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect; (iii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the capital stock of the Company; (iv) except for
normal increases in the ordinary course of business and except for the execution
of amended and restated employment agreements entered into with certain
executive officers (copies of which have been provided to Purchaser), any
increases by the Company in the wages, salaries, compensation, pension or other
fringe benefits or perquisites payable to any executive officer or director,
grants by the Company of any severance or termination pay, execution by the
Company of any contract to make or grant any severance or termination pay, or
payments by the Company of any bonus, in each case with respect to any such
executive officer or director, other than pursuant to preexisting agreements or
arrangements; or (v) entry into any commitment or transaction material to the
Company (including, without limitation, any borrowing or sale of assets) except
in the ordinary course of business consistent with past practice.
3.12. COMPLIANCE WITH LAWS; PERMITS. The Company has at all times
complied, and it currently in compliance, with all applicable statutes,
rules, regulations and orders of the United States or any state in which the
Company is engaged in business and has obtained all required licenses, permits
and other approvals of any governmental authority, except where a failure to
comply or obtain such approvals, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
3.13. MATERIAL CONTRACTS. Each of the contracts required to be filed as
material contracts as exhibits to the SEC Reports (the "MATERIAL CONTRACTS")
(including all amendments, modifications and waivers) (a) except for the
Executive Employment Agreements, has been filed with the SEC, (b) has been duly
authorized, executed and delivered by the parties thereto, (c) remains in full
force and effect to the extent of its terms without any amendment, modification
or waiver not reflected in the Material Contracts, (d) is binding on the parties
thereto in accordance with and to the extent of its terms and
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applicable laws, and (e) is not subject to, and the Company has not received any
written notice threatening or declaring, termination as a result of any alleged
uncured breach or default. The Company has performed all material obligations
required to be performed by it to date under each Material Contract, and the
Company is not in material breach or default under any Material Contract. To the
Company's knowledge, without a specific review having been conducted by the
Company, no other party to any Material Contract is in material breach or
default thereunder or in material violation thereof, and no condition exists
that with notice or lapse of time or both would constitute a material violation
thereof or a material default thereunder.
3.14. INTELLECTUAL PROPERTY RIGHTS.
3.14.1. The Company owns or has licenses to use registered
copyrights, copyright registration and copyright applications, trademark
registrations and applications for registration, patents and patent
applications, trademarks, service marks, trade names, Internet domain names and
other intellectual property rights (collectively, "INTELLECTUAL PROPERTY
RIGHTS") which are sufficient to carry on the business of the Company as
presently conducted, except where a failure to own or license Intellectual
Property Rights could not, either individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on the Company.
3.14.2. To the Company's knowledge, the operation of the business
of the Company does not, and except as identified on SCHEDULE 3.14, the Company
has not received any notice from any person claiming that the business of the
Company does infringe or misappropriate the Intellectual Property Rights of any
person, violate any export control law or regulation, violate the rights of any
person (including rights to privacy or publicity), or constitute unfair
competition or trade practices under any applicable laws.
3.14.3. Except as set forth on SCHEDULE 3.14, to the knowledge of
the Company, no person is infringing or misappropriating any Intellectual
Property Rights owned or licensed by the Company or engaging in other conduct
that may diminish or undermine such Intellectual Property Rights, such as the
disclosure of Company confidential information, except for any such
infringements that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
3.14.4. The Company has taken all reasonable steps to protect the
Company's rights in confidential information and trade secrets of the Company or
provided by any other person to the Company subject to a duty of
confidentiality. Without limiting the foregoing, the Company has, and enforces,
a policy requiring each of its executive officers and research and development
personnel to execute proprietary information, confidentiality and invention and
copyright assignment agreements, and all such individuals have executed such an
agreement.
3.15. CERTAIN MATTERS REGARDING EMPLOYEES. To the best knowledge of the
Company, no officer or key employee of the Company is subject to any
contract, agreement, undertaking, commitment or instrument (including any no
hire or non-competition agreements) which would impair his or her ability to
perform the services on behalf of Company contemplated to be performed by such
officers or key employee.
3.16. TAX MATTERS.
3.16.1. The Company (i) has timely filed all material Tax Returns
required to be filed by it as of the date hereof, (ii) has used its commercially
reasonable efforts to maintain all required records with respect to any
liability for Taxes for taxable years with respect to which the statute of
limitations has not yet expired, regardless of whether such liability has been
previously assessed in whole or in part or is assessed in whole or in part after
the date of this Agreement, and (iii) has timely paid, or has made appropriate
provision on its balance sheet (in accordance with GAAP) for, all Taxes due or
claimed to be due from it by any Governmental Body with respect to any liability
for Taxes
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except where such failure, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Company. All Tax
Returns described in clause (i) are true, correct and complete in all material
respects. With respect to periods commencing on or after September 30, 1996, the
Company has not incurred any liability for Taxes which could reasonably be
expected to have a Material Adverse Effect other than (i) as set forth on
SCHEDULE 3.16, (ii) as reflected on the audited balance sheet of the Company as
of September 30, 1998 contained in the Financial Statements (the "AUDITED
BALANCE SHEET") or the Unaudited Balance Sheet, or (iii) federal and state
income taxes payable on the Company's income after December 31, 1998. There are
no material Liens with respect to Taxes upon any of the Company's properties or
assets, except for current Taxes not yet due.
3.16.2. Except as set forth in Schedule 3.16, to the Company's
knowledge, none of the Tax Returns of the Company have been or is currently
being audited or examined by the Internal Revenue Service (the "IRS"). Except to
the extent reserved for in the Audited Balance Sheet, no material issue of which
the Company has received notice has been raised by a Governmental Body in any
audit or examination which reasonably could be expected to result in a proposed
deficiency, penalty or interest for any other period, which could reasonably be
expected to have a Material Adverse Effect on the Company.
3.16.3. There are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any Tax Returns required to be
filed by, or which include or are treated as including, the Company.
3.16.4. The Company is not involved in or subject to any joint
venture, partnership or other arrangement or contract which is treated as a
partnership for federal, state, local or foreign income tax purposes.
3.16.5. All material elections with respect to Taxes affecting the
Company as of the date hereof are set forth in SCHEDULE 3.16. No consent to the
application of section 341(f)(2) of the Code (as defined below) has been filed
with respect to any property or assets held, acquired, or to be acquired by the
Company.
3.16.6. There are no tax sharing agreements or similar arrangements
with respect to or involving the Company.
3.16.7. The Company was not included and is not includible in any
consolidated or unitary Tax Return with any corporation other than such a return
of which the Company is the common parent corporation.
3.16.8. The Company has not agreed to and is not required to make
any material adjustment under section 481(a) of the Internal Revenue Code of
1986, as amended (the "CODE").
3.16.9. "TAX" or "TAXES", as the context may require, include: (i)
any income, alternative or add-on minimum tax, gross income, gross receipts,
franchise, profits, sales, use, ad valorem, business license, withholding,
payroll, employment, excise, stamp, transfer, recording, occupation, premium,
property, value added, custom duty, severance, windfall profit or license tax,
including estimated taxes relating to any of the foregoing, or other similar tax
or other like assessment or charge of similar kind whatsoever together with any
interest and any penalty, addition to tax or additional amount imposed by any
Governmental Body responsible for the imposition of any such Tax; or (ii) any
liability of a Person for the payment of any taxes, interest, penalty, addition
to tax or like additional amount resulting from the application of Treas. Reg.
Section 1.1502-6 or comparable provisions of any Governmental Body in respect of
a consolidated or combined return.
3.16.10. "TAX RETURN" means any return (including any information
return), report, statement, schedule, notice, form, or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the
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determination, assessment, collection, or payment of any Tax or in connection
with the administration, implementation, or enforcement of or compliance with
any Law relating to any Tax.
3.17. TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. The Company has good
and marketable title to all of its material owned properties and assets and
such properties and assets are not subject to any Liens, except for (a) Liens
under the line of credit between the Company and Imperial Bank, (b) immaterial
Liens which arise in the ordinary course of business (including without
limitation Liens from current taxes not yet due and payable), and (c) Liens
which individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect on the Company or its material properties. All
material leases, subleases, conditional sale contracts and other agreements
pursuant to which the Company leases or otherwise uses real or personal property
(collectively, "LEASES") are in good standing and are valid and effective in
accordance with their respective terms. The Company has performed its
obligations in all material respects to date under all such Leases.
3.18. EMPLOYEE BENEFIT PLANS. Except as listed in SCHEDULE 3.18 or as
described in the SEC Reports or as could not, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, the Company
does not maintain, sponsor, or contribute to any program or arrangement that is
an "employee welfare benefit plan," as that term is defined in Section 3(1) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
any similar employment, severance or other arrangement or policy of the Company
(whether written or oral) providing for insurance coverage (including
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, fringe benefits or for
deferred compensation, bonuses, stock options, stock appreciation or other forms
of incentive compensation or post-retirement insurance, compensation or benefits
(a "PLAN"). Neither the Company nor or any member of the same controlled group
of businesses as the Company within the meaning of Section 4001(a)(14) of ERISA
(an "ERISA AFFILIATE") maintains or is obligated to contribute to, or has ever
maintained or been obligated to contribute to, any "pension plan" within the
meaning of Section 3(2) of ERISA, or any "multiemployer plan" within the meaning
of Section 3(37) of ERISA (a "PENSION PLAN"). Each Plan which is subject to
ERISA is in substantial compliance with ERISA. None of the Plans provides or
provided post-retirement medical or health benefits. None of the Plans is or was
a "welfare benefit fund," as defined in Section 419(e) of the Code, or an
organization described in Sections 501(c)(9) or 501(c)(20) of the Code. The
Company is not and never has been a party to any collective bargaining
agreement. Except as disclosed in the SEC Reports, the Company has not announced
or otherwise made any commitment to create or amend any Plan, and neither the
Company nor any ERISA Affiliate has announced or otherwise made any commitment
to create or begin contributing to any Pension Plan. All contributions required
to be made under the terms of each Plan have been timely made. Each Plan which
is required to comply with the provisions of Sections 4980B and 4980C of the
Code, or with the requirements referred to in Section 4980D(a) of the Code, has
complied in all material respects. Each Plan intended to meet the requirements
for tax-favored treatment under Subchapter B of Chapter 1 of the Code meets such
requirements. Except as provided in Section 5.4(e), the execution and
performance of this Agreement will not (i) result in any obligation or liability
(with respect to accrued benefits or otherwise) of the Company to any Plan, or
any present or former employee of the Company, (ii) be a trigger event under any
Plan that will result in any payment (whether of severance pay or otherwise)
becoming due to any present or former employee, officer, director, stockholder,
contractor, or consultant, or any of their dependents, or (iii) except as
otherwise expressly contemplated by this Agreement, accelerate the time of
payment or vesting, or increase the amount, of compensation due to any employee,
officer, director, stockholder, contractor, or consultant of the Company.
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3.19. YEAR 2000 COMPLIANCE. The Company has completed its assessment of
all current versions (including products and services currently operating or
under development) of its information technology systems (including systems
utilized in the operation of its Internet sites) and believes they are year 2000
compliant. The Company has made appropriate inquiries of its key vendors and
suppliers and has been assured that such persons have also taken appropriate
actions to assure that there shall be no material adverse change to its business
and electronic systems related to year 2000 issues. Based upon the information
provided to the Company and its own internal assessment, the Company does not
believe that its year 2000 issues will have a Material Adverse Effect on the
Company.
3.20. FAIRNESS OPINION. The Company has received the opinion of
Broadview International LLC (the "COMPANY FINANCIAL ADVISOR") that the
transactions contemplated hereby, including the issuance of the Class A
Preferred Stock [and the acquisition by Purchaser of shares of Common Stock
pursuant to the Offer,] are fair to the Company's stockholders from a financial
point of view.
3.21. FINDERS' FEES. There is no investment banker, broker, finder or
other intermediary that has been retained by or is authorized to act on
behalf of Company who might be entitled to any fee or commission upon
consummation of the transactions contemplated by this Agreement and each of the
other Transaction Documents other than the Company Financial Advisor.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby represents
and warrants to the Company as follows:
4.1. ORGANIZATION AND QUALIFICATION. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Washington. Purchaser has all requisite corporate power and authority to
conduct its business as currently conducted and to enter into and to carry out
and perform its obligations under the Transaction Documents.
4.2. DUE EXECUTION, DELIVERY AND PERFORMANCE OF THE AGREEMENT. The
execution, delivery and performance of the Transaction Documents have been
duly authorized by all necessary corporate action on the part of Purchaser. This
Agreement has been, and when executed and delivered at the First Closing or the
Second Closing (as the case may be) the other Transaction Documents will be,
duly executed and delivered by Purchaser and constitutes, or when executed and
delivered at the First Closing or the Second Closing (as the case may be) will
constitute, valid and binding obligations of Purchaser, enforceable against it
in accordance with their respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws and
equitable principles relating to or limiting creditors' rights generally.
4.3. EVALUATION; PURCHASE FOR INVESTMENT, ILLIQUID
INVESTMENT. Purchaser has been furnished any and all materials relating to
the Company and its Affiliates (as defined below) and the offering of the Shares
that Purchaser has requested and Purchaser has been afforded the opportunity to
obtain any additional information necessary to verify the accuracy of any such
information. Purchaser is a sophisticated investor capable of evaluating the
merits and risks of the purchase of the Shares. Purchaser is purchasing the
Shares for its own account as principal, for investment and not with a view to
the resale or distribution of all or any part thereof. Purchaser recognizes that
the Shares being purchased pursuant to this Agreement have not been registered
under applicable Federal or State securities laws, and that such Shares are
being offered and sold in reliance upon the exemptions from registration
provided in the Securities Act and applicable exemptions under State securities
laws. Purchaser is an accredited investor (as that term is defined in Regulation
D under the Securities Act) and has the economic ability to maintain its
investment in such Shares for an indefinite period of time. For purposes of this
Agreement, "AFFILIATE" shall have the meaning set forth in Rule 501(d) under the
Securities Act.
4.4. PROXY STATEMENT; OFFER DOCUMENTS. All information included in the
Proxy Statement (as defined in Section 5.3) furnished by Purchaser will not,
at the date of mailing of the Proxy Statement
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to the stockholders of the Company, contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which made, not misleading. Neither
the Offer Documents (as defined in Section 7.7) nor any of the information
supplied by Purchaser for inclusion in the Schedule 14D-9 shall, at the
respective times such Offer Documents and Schedule 14D-9 are filed with the SEC
or are first published, sent or given to shareholders, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Notwithstanding the foregoing, Purchaser makes
no representation or warranty with respect to any information supplied by the
Company or any of its representatives which is contained in the Offer Documents.
The Schedule 14D-1 will comply in all material respects as to form with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder.
4.5. FINDERS' FEES. Except for NationsBanc Montgomery Securities LLC,
there is no investment banker, broker, finder or other intermediary that has
been retained by or is authorized to act on behalf of Purchaser who might be
entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement and each of the other Transaction Documents.
4.6. FINANCIAL CONDITION. As of the date hereof, Purchaser has
sufficient resources to fulfill its financial obligations under this
Agreement and the transactions contemplated hereby.
4.7. CABLE SUBSCRIBERS. As of the date hereof, Purchaser controls,
directly or indirectly, cable television companies which have an aggregate
number of subscribers of not less than 2,000,000.
4.8. OWNERSHIP. As of the date hereof, Purchaser and its Affiliates are
the record and beneficial owner of not more than 40,000 shares of Common
Stock in the aggregate.
4.9. INTERESTED STOCKHOLDER. In each case within the meaning of Section
203 of the Delaware General Corporation Law:
(a) at no time since immediately prior to the time the Company's
Board of Directors approved the transactions contemplated by this Agreement
through the time of the signing hereof, has Purchaser or any "affiliate" or
"associate" of Purchaser "owned" fifteen percent (15%) or more of the Company's
"voting stock"; and
(b) there are no facts known to Purchaser or any "affiliate" or
"associate" of Purchaser, that have not been disclosed to the Company that
relate to whether Purchaser or any "affiliate" or "associate" of Purchaser,
directly or indirectly, through one or more intermediaries, "controls" or
"controlled" or is or was "controlled by" or is or was "under common control
with" the Company.
4.10. ACQUIRING PERSON. At no time since immediately prior to the time
the Company's Board of Directors approved the transactions contemplated by
this Agreement through the time of the signing hereof, has Purchaser or any
group of which Purchaser is a part become an "acquiring person" under Section
23B.19 of the Washington Business Corporation Act.
5. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees with
Purchaser as follows:
5.1. ACCESS. At all times through the Second Closing, the Company will
permit Purchaser and its authorized representatives, at reasonable times
during ordinary business hours and upon reasonable advance notice, access to all
of the books, records, personnel and properties of the Company and its
subsidiaries for the purpose of verifying the accuracy of the Company's
representations and warranties contained herein and the satisfaction of
Purchaser's conditions to the Second Closing and the Offer contained in Section
8.1 and Annex A, respectively.
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5.2. STOCKHOLDERS MEETING. The Company shall cause a meeting of its
stockholders to be duly called and held as soon as reasonably practicable
for the purpose of voting on the approval of the issuance and sale to Purchaser
of the Second Issuance Shares and the acquisition of Common Stock pursuant to
the Management Agreements and the election of directors pursuant to this
Agreement (the "STOCKHOLDERS MEETING"). The proxy materials relating to such
meeting shall (i) contain the recommendation of the Board that the stockholders
approve the issuance and sale to Purchaser of the Second Issuance Shares
pursuant to this Agreement and Purchaser's acquisition of Common Stock pursuant
to the Management Agreement (collectively, the "PURCHASER ACQUISITIONS"), and
(ii) state that the Company is neutral with respect to or recommends the Offer.
5.3. PROXY STATEMENT. As promptly as practicable after the date of this
Agreement, the Company shall prepare and cause to be filed with the SEC a
Proxy Statement in connection with the transactions contemplated hereby (the
"PROXY STATEMENT"), and the Company shall respond promptly to any comments of
the SEC or its staff with respect thereto. The Company will afford Purchaser a
reasonable opportunity to review and comment on the proposed form of Proxy
Statement prior to its filing with the SEC. Purchaser shall promptly furnish to
the Company all information concerning Purchaser and its stockholders as may be
required or reasonably requested in connection with any action contemplated by
this Section 5.3. The Company shall (a) notify Purchaser promptly of the receipt
of any comments from the SEC or its staff and of any request by the SEC or its
staff for amendments or supplements to the Proxy Statement or for additional
information and (b) supply Purchaser with copies of all correspondence with the
SEC or its staff with respect to the Proxy Statement. Whenever any event occurs
that should be set forth in an amendment or supplement to the Proxy Statement,
Purchaser or the Company, as the case may be, shall promptly inform the other of
such occurrence and shall cooperate in filing with the SEC or its staff, and, if
appropriate, mailing to stockholders of the Company, such amendment or
supplement.
5.4. CONDUCT OF BUSINESS. From the date hereof through the Second
Closing, the Company shall and shall cause each of its subsidiaries to,
except as contemplated by this Agreement, or as consented to by Purchaser in
writing, operate its businesses in the ordinary course of business and in
accordance with past practice and not take any action inconsistent with this
Agreement or with the consummation of the Second Closing. Without limiting the
generality of the foregoing, the Company shall not and shall cause each of its
subsidiaries not to, except as specifically contemplated by this Agreement or as
consented to by Purchaser in writing:
(a) change or amend the Certificate of Incorporation or By-Laws
of the Company;
(b) enter into, extend, materially modify, terminate or renew
any Material Contract, except in the ordinary course of business;
(c) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any assets, or any interests therein, except in
the ordinary course of business;
(d) make new commitments for capital expenditures in excess of
$2,000,000 in any one quarter;
(e) take any action with respect to the grant of any bonus,
severance or termination pay or with respect to any increase of benefits payable
(including the grant of stock options) under its severance or termination pay
policies or agreements in effect on the date hereof or increase in any manner
the compensation or benefits of any executive officer except in the ordinary
course of business consistent with past practice or pay any benefit not required
by any existing employee benefit plan or policy (except that the Company shall
not be permitted to grant stock options or accelerate the vesting of stock
options except as permitted by the following proviso); PROVIDED, HOWEVER, that
the Company shall be permitted (i) to accelerate, effective on the Second
Closing, the vesting of up to 35% of the unvested portion (determined as of the
Second Closing) of the shares issuable upon exercise of all
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outstanding options; provided that (a) the Company accelerates the vesting of
the options that would otherwise vest closest in time to the date of the Second
Closing and (b) the Company receives written waivers prior to any such
acceleration from any officer or employee (including the Company's Chief
Executive Officer, President and Chief Operating Officer) of any right they may
have under any agreement or arrangement with the Company which would otherwise
require that, as a result of such acceleration, a greater percentage of their
unvested options be accelerated than the percentage of options that the Company
proposes to accelerate for other employees generally, (ii) grant options to bona
fide new employees hired after the date hereof (provided that the Company shall
consult with Purchaser regarding the hiring or appointment of any executive
officer of the Company who would have the title of Vice President or higher) in
the ordinary course of business, but in no event covering more than the number
of shares of Common Stock set forth in SCHEDULE 5.3(E) hereto for the position
of such new employee, (iii) grant options covering up to 5,000 shares of Common
Stock to an employee as part of his or her normal review, (iv) adopt the 1999
Employee Stock Purchase Plan as described in the Proxy Statement for the annual
meeting of Stockholders dated February 22, 1999, (v) to pay to and hold harmless
its officers, on an after-tax basis, for any excise taxes (including any
"gross-up" payments) in an aggregate amount not to exceed $3,000,000 incurred by
them in connection with the acceleration of options under (i) above (which
amount the Company represents is based on the stock price of the Company's
Common Stock as of March 12, 1999, and which amount the parties understand may
increase due to increases in the Common Stock price), so long as such payments
are not made prior to the time such tax payments are actually due; and (vi) the
Company will be permitted to enter into severance agreements with certain key
employees (not to exceed 10 persons) providing for six months severance and the
acceleration of all options currently held by such a key employee in the event
of a termination of such key employee's employment by the Company "without
cause" or by the employee for "good reason" (as such terms are defined in the
Company's currently existing employment agreements with its executive officers);
(f) make any change in the key management structure, including,
without limitation, the hiring of additional executive officers or the
termination of existing executive officers;
(g) acquire by merger or consolidation with, or merge or
consolidate with, or purchase substantially all of the assets of, or otherwise
acquire any material assets or business of any corporation, partnership,
association or other business organization or division thereof; PROVIDED,
HOWEVER, that the Company shall be permitted to consummate any such transaction
involving the payment by the Company of cash or the issuance by the Company of
shares of Common Stock with an aggregate value per transaction not to exceed
$10,000,000 and on an aggregate basis not to exceed $100,000,000;
(h) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock, other than a split of the Common
Stock or a dividend payable in shares of Common Stock pro rata to all holders of
the Common Stock;
(i) fail to comply in all material respects with all legal
requirements applicable to it, its assets and its business;
(j) intentionally do any other act which would cause any
representation or warranty of the Company in this Agreement to be or become
untrue in any material respect;
(k) issue, repurchase or redeem or commit to issue, repurchase
or redeem, any shares of its capital stock, any options or other rights to
acquire such stock or any securities convertible into or exchangeable for such
stock, other than the following: (i) issuance of shares in connection with the
consummation of a Superior Proposal (as defined in Section 5.5.2) or in
connection with stock issuances permitted under Section 5.4(g) (subject to the
provisions of Section 5.6), (ii) issuance of shares by employees, consultants
and directors of the Company pursuant to stock options existing as of the date
hereof and those permitted to be granted by Section 5.4(e) above, (iii)
repurchases of shares
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from employees or consultants in connection with the termination of their
employment or consultancy with the Company, and (iv) the issuance of up to an
aggregate of $10,000,000 in value of shares of the Company's capital stock
(subject to the provisions of Section 5.6);
(l) fail to use its reasonable best efforts to (i) retain its
key employees and (ii) maintain existing relationships with material suppliers,
customers and others having business dealings with it and (iii) otherwise
preserve the goodwill of its business so that such relationships and goodwill
will be preserved on and after the Second Closing Date; or
(m) enter into any agreement, or otherwise become obligated, to
do any action prohibited under this Section 5.4.
5.5. NO SOLICITATION.
5.5.1. Subject to Section 5.5.3 the Company shall not, and the
Company shall cause its Affiliates and the respective officers, directors,
employees, investment bankers, attorneys, accountants and other representatives
and agents (collectively, "REPRESENTATIVES") of the Company and its Affiliates
not to, directly or indirectly, initiate, solicit, encourage or participate in
negotiations or discussions relating to, or provide any information to any
person concerning, or take any action to facilitate the making of, any offer or
proposal which constitutes or is reasonably likely to lead to any Transaction
Proposal (as defined below), or any inquiry with respect thereto, or agree to
approve or recommend any Transaction Proposal. The Company shall, and shall
cause its Affiliates and the respective Representatives of the Company and its
Affiliates to, immediately cease and cause to be terminated all existing
activities, discussions and negotiations, if any, with any parties conducted
heretofore with respect to any of the foregoing.
5.5.2. For purposes of this Agreement, "TRANSACTION PROPOSAL"
shall mean any proposal (other than any proposal by Purchaser or its Affiliates)
regarding (i) any merger, consolidation, share exchange, business combination or
other similar transaction or series of related transactions involving the
Company or a subsidiary of the Company (other than a merger involving a
newly-formed subsidiary of the Company in order to effect an acquisition
permitted under Section 5.4(g)); (ii) any sale, lease, exchange, transfer or
other disposition of more than twenty percent (20%) of the assets of the Company
or any subsidiary of the Company; (iii) any acquisition of a substantial equity
interest in the Company or any equity interest in any of its subsidiaries (with
"substantial equity interest" meaning (a) in the case of an institutional
investor acquiring such interest for investment purposes only, equity interests
representing at least 20% of the Company's outstanding capital stock (by voting
power or otherwise) prior to such investment and (b) in any other case, at least
10% of the Company's outstanding capital stock (by voting power or otherwise)
prior to such investment); (iv) any offer to purchase (whether from the Company
or otherwise), tender offer, exchange offer or similar transaction involving the
capital stock of the Company or any subsidiary of the Company; and (v) a
liquidation or dissolution of the Company.
5.5.3. Notwithstanding anything to the contrary contained in this
Section 5.5 or elsewhere in this Agreement, the Company may, in response to an
unsolicited bona fide Transaction Proposal from an unaffiliated third party,
participate in discussions or negotiations with or furnish information to the
third party making such Transaction Proposal, if all of the following events
have occurred: (a) such third party has made a written proposal to the Board of
Directors of the Company to consummate a Transaction Proposal which proposal
identifies a price to be paid for the capital stock or assets of the Company
that the Board has determined, after consultation with the investment bankers
for the Company, if such transaction is consummated, would be financially more
favorable than the Offer (assuming for these purposes that the Offer is for
5,000,000 shares of Common Stock) to the stockholders of the Company (a
"SUPERIOR PROPOSAL"); (b) the Board has determined, after consultation with the
Company's investment bankers, that such third party is financially capable of
consummating such Superior Proposal and that such Superior Proposal is at least
as likely to be
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consummated, and is not subject to materially greater conditions, than the
transactions contemplated by this Agreement; (c) the Board shall have
determined, after consultation with its outside legal counsel, that the failure
to participate in discussions or negotiations with or furnish information to
such third party would result in a substantial risk of liability for a breach of
the fiduciary duties of the members of such Board under applicable Delaware law;
and (d) Purchaser shall have been notified in writing of such Transaction
Proposal, including its principal financial and other material terms and
conditions, including the identity of the person and its Affiliates (if
relevant) making such Transaction Proposal.
Notwithstanding the foregoing, the Company shall not provide any non-public
information to such third party unless (a) it has prior to the date thereof
provided such information to Purchaser or its Representatives, and (b) it has
provided such non-public information pursuant to a non-disclosure agreement with
terms which are at least as restrictive as the nondisclosure agreement
heretofore entered into between the Company and Purchaser. In addition to the
foregoing, the Company shall not accept or enter into any agreement concerning a
Superior Proposal nor issue any securities or agree to pay a termination or
break-up fee in connection with a Superior Proposal for a period of not less
than 36 hours after Purchaser's receipt of the notification in clause (d) of the
preceding paragraph, and the Company will afford Purchaser an opportunity to
discuss with the Company what, if any, response Purchaser may desire to make
with to such Transaction Proposal. Upon the occurrence of all of the events in
the preceding paragraph and this paragraph, the Company shall be entitled to (1)
change its recommendations concerning the Purchaser Acquisitions, (2) accept
such Superior Proposal, and (3) enter into an agreement with such third party
concerning a Superior Proposal provided that the Company shall immediately make
payment in full to Purchaser of the cash fee provided for in Section 10.2.
Company will promptly communicate to Purchaser the principal terms of any
proposal or inquiry, including the identity of the person and its Affiliates
making the same, that it may receive in respect of any such Transaction
Proposal, or of any such information requested from it or of any such
negotiations or discussions being sought to be initiated with it regarding a
Transaction Proposal.
5.5.4. Notwithstanding anything to the contrary contained in this
Section 5.4.3 or elsewhere in the Agreement, at any time after the date hereof,
the Company may file with the Commission a Current Report on Form 8-K with
respect to this Agreement and may file a copy of this Agreement and any related
agreement as an exhibit to such Report.
5.6. ADDITIONAL ISSUANCES.
5.6.1. At any time after the date hereof, so long as Purchaser
(together with its Affiliates) holds of record or beneficially owns at least
fifteen percent (15%) of the outstanding Common Stock of the Company (measured
as of the date of this Agreement if the Additional Issuance is prior to the
Second Closing and measured as of the date of the Additional Issuance if
occurring after the Second Closing) (the "MINIMUM PERCENTAGE") (assuming
conversion into Common Stock, at the conversion rate then in effect, of all
shares of Series A Preferred Stock held of record or beneficially owned by
Purchaser and its Affiliates), in the event the Company shall issue (an
"ADDITIONAL ISSUANCE") any capital stock, including securities of any type that
are, or may become, convertible into or exercisable or exchangeable for capital
stock of the Company (the "ADDITIONAL SECURITIES"), Purchaser shall have the
right to subscribe for and to purchase that number of Additional Securities such
that Purchaser holds the same percentage of the Company's outstanding capital
stock immediately prior to and immediately following the Additional Issuance
(the "PRO RATA SHARE"); PROVIDED, HOWEVER, that this Section 5.6 shall not apply
to shares issued:
(a) to employees, officers or directors of, or consultants
or advisors to the Company or any subsidiary, pursuant to stock purchase,
Company Option Plans, Assumed Option Plans or other option plans or arrangements
approved by the Board;
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(b) pursuant to any options, warrants, conversion rights or
other rights or agreements outstanding as of the date of this Agreement or
pursuant to the conversion of the shares of Series A Preferred Stock
contemplated to be issued pursuant to this Agreement;
(c) in connection with any stock split, stock dividend or
recapitalization by the Company;
(d) pursuant to a Superior Proposal if this Agreement is
terminated in connection therewith;
(e) in any Additional Issuance that reduces the Purchaser's
equity percentage by less than 10% of its holdings, so long as at the time of an
Additional Issuance which either solely or considered together with prior
Additional Issuances that reduced the Purchaser's equity percentage by less than
10% is an Additional Issuance of greater than 10%, the Purchaser has the right
to purchase common stock in order to retain the percentage ownership it had at
the time of the first Additional Issuance which did not exceed 10%; or
(f) pursuant to any equipment leasing arrangement or debt
financing from a bank or similar financial institution, not to exceed 100,000
shares of Common Stock in the aggregate;
provided further, Purchaser's rights under this Section 5.6 shall terminate if
the Second Closing is not consummated.
5.6.2. If the Company proposes an Additional Issuance, the Company
shall, at least five (5) business days prior to the proposed closing date of
such issuance, give written notice to Purchaser and offer to sell to Purchaser
its Pro Rata Share of the Additional Securities at the lowest price per share,
and otherwise on the same terms and conditions (or, if the nature of the
transaction involves an exchange of assets or securities which cannot be
delivered by Purchaser, then for cash on the same economic terms), offered to
other investors. Such notice shall describe the type of Additional Securities
which the Company is offering to Purchaser, the price of the Additional
Securities and the general terms upon which the Company will issue same.
Purchaser shall have five (5) business days from the date of mailing of any such
notice to agree to purchase its Pro Rata Share of such Additional Securities for
the price and upon the general terms specified in the notice by giving written
notice to the Company and stating therein the quantity of Additional Securities
to be purchased. Sale and issuance of the Additional Securities which Purchaser
has elected to purchase shall be effected concurrently with the closing of the
issuance of securities which gave rise to Purchaser's right to buy such
securities, but only after compliance with all governmental regulations,
including but not limited to the expiration or early termination of the
applicable waiting periods under the HSR Act, if applicable.
5.6.3. In the event that, at any time, the percentage of the
outstanding Common Stock held of record or beneficially owned by Purchaser and
its affiliates (assuming conversion into Common Stock, at the conversion rate
then in effect, of all shares of Series A Preferred Stock held of record or
beneficially owned by Purchaser and its affiliates) shall be decreased as a
result of (i) any transfer by Purchaser or any of its affiliates to one or more
transferees that are not affiliates of Purchaser of any Shares or other
securities held of record or beneficially owned by Purchaser or its affiliates,
or (ii) Purchaser's not purchasing the full amount of Additional Securities
offered for purchase pursuant to this Section 5.6, a new percentage ownership
level shall be established based on the percentage ownership of Purchaser and
its affiliates in effect immediately following such transfer or Additional
Issuance (the "REDUCED PERCENTAGE OWNERSHIP"), and thereafter the Company shall
be required to offer to Purchaser only such number of Additional Securities
pursuant to this Section 5.6 as would permit Purchaser to maintain the Reduced
Percentage Ownership.
5.7. TAG ALONG. From and after the Second Closing, Purchaser shall not
consummate a Tag-Along Sale (as defined below) unless, in connection
therewith, the buying parties in such Tag-Along Sale shall have agreed to make,
as soon as practicable after the closing of the Tag-Along Sale, an offer
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to purchase from each other stockholder of the Company (by merger, tender offer
or otherwise) an Equivalent Percentage (as defined below) of the shares of
Common Stock held by such other stockholder (including, in the case of Company
employees, shares of Common Stock purchasable upon exercise of vested employee
stock options), on terms no less favorable than those received by Purchaser in
the Tag-Along Sale. "TAG-ALONG SALE" shall mean a sale for cash by Purchaser, in
a privately negotiated transaction (other than to an Affiliate of Purchaser
(with a person or entity to be deemed to be an Affiliate of Purchaser for
purposes of this Section 5.7, Section 7.9 and Section 12.4 only if the control
relationship involves direct or indirect ownership of at least a majority of the
outstanding voting interests of the applicable entity, it being understood that
any entity that is majority owned (directly or indirectly) by a person or entity
that directly or indirectly owns a majority of the outstanding voting interests
of Purchaser shall be an Affiliate of Purchaser for these purposes)), in which
(a) Purchaser's sale price per share of Common Stock (assuming conversion into
Common Stock of any Series A Preferred Stock included in the Tag-Along Sale)
exceeds the average closing trading price of the Common Stock for the ten
consecutive trading days prior to the date of announcement of the proposed
Tag-Along Sale, and (b) the number of shares of Common Stock sold by Purchaser
(assuming conversion into Common Stock of any Series A Preferred Stock included
in the Tag-Along Sale) represents greater than twenty-five percent (25%) of the
sum of (i) the total number of shares of Common Stock acquired by Purchaser
pursuant to the Management Agreements and the Offer and (ii) the total number of
shares of Common Stock underlying the shares of Series A Preferred Stock that is
purchased by Purchaser in the First Closing and the Second Closing. "EQUIVALENT
PERCENTAGE" shall mean the percentage the number of shares of Common Stock sold
by Purchaser in the Tag-Along Sale bears to Purchaser's total holdings of Common
Stock immediately prior to such sale (assuming conversion into Common Stock,
prior to the Tag-Along Sale, of the Series A Preferred Stock).
6. COVENANTS OF PURCHASER. Purchaser hereby covenants and agrees with the
Company as follows:
6.1. TRANSFER RESTRICTIONS. Purchaser agrees that it will not sell or
otherwise transfer any Shares unless such sale or transfer is made under an
effective Securities Act registration statement or pursuant to an available
exemption from the registration requirements of the Securities Act and Purchaser
shall have delivered to the Company an opinion of securities counsel to
Purchaser, in form and substance reasonably satisfactory to the Company, to the
forgoing effect. Each certificate representing any Shares shall contain a legend
to the following effect:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS MADE UNDER
AN EFFECTIVE SECURITIES ACT REGISTRATION STATEMENT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT.
Notwithstanding the foregoing, certificates issued after the date hereof and
representing Shares shall not contain the foregoing legend to the extent that
Purchaser shall have delivered to the Company an opinion of securities counsel
to Purchaser, in form and substance reasonably satisfactory to the Company, to
the effect that the statements made in such legend are no longer relevant.
6.2. DISTRIBUTION ARRANGEMENT. The Company and Purchaser acknowledge
that an important consideration for the Company entering into this Agreement
is the fact that the Purchaser, through its affiliated entities Marcus Cable and
Charter Communications (the "Cable Companies"), operates cable systems that
serve over 2 million cable subscribers and that such Cable Companies will
provide an opportunity for the Company to establish a distribution or other
relationship with them. Accordingly, after the consummation of the transactions
contemplated by this Agreement, the Company shall promptly commence negotiations
with the Cable Companies, and Purchaser shall cause the Cable Companies to
commence such negotiations, with respect to the establishment of a distribution
or other
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relationship to offer the Company's content to their subscribers. The parties
will negotiate in good faith and use reasonable efforts to establish such
distribution or other relationship, but neither Purchaser nor the Cable
Companies, on the one hand, or the Company, on the other hand, shall have any
legal obligation to the other if such a relationship is not established.
7. ADDITIONAL COVENANTS OF THE PARTIES.
7.1. CONDITIONS TO THE SECOND CLOSING. The Company and Purchaser agree
to use their respective best efforts to ensure that the conditions set forth
in Section 8 are satisfied, insofar as such matters are within their respective
control.
7.2. BOARD COMPOSITION.
7.2.1. Immediately upon expiration or early termination of the
waiting period under the HSR Act applicable to the transactions contemplated
hereby, Purchaser shall be entitled to designate two (2) directors to serve on
the Board of Directors of the Company. The Company shall, as soon as practicable
after such time, take all action necessary to cause such individuals to be
appointed to the Board and to have at least one such individual on each
committee of the Board, including either increasing the size of the Board or
securing the resignations of incumbent directors or both.
7.2.2. In connection with the Stockholders Meeting, the Company
shall (i) set the size of its Board at five directors and (ii) nominate for
election at the Stockholders Meeting a slate of director candidates reasonably
acceptable to Purchaser, which shall include three candidates designated by
Purchaser ("PURCHASER DESIGNEES"), the existing Chief Executive Officer (the
"MANAGEMENT DESIGNEE") and one candidate selected by the Purchaser and the
Company who shall not be an Affiliate or employee of either the Purchaser or the
Company and shall otherwise constitute an "independent director" under the rules
of the The Nasdaq Stock Market (the "OUTSIDE DESIGNEE"), and the Company shall,
at such time, promptly take all action necessary to cause the Purchaser
Designees, the Management Designee and the Outside Designee to be so elected,
including either increasing the size of the Board or securing the resignations
of incumbent directors or both. To the extent that Purchaser is otherwise
permitted to vote in the election of directors at the Stockholders Meeting,
Purchaser agrees to vote any shares of the Series A Preferred Stock or Common
Stock it owns in favor of the election of the Outside Designee and the
Management Designee at the Stockholders Meeting. To the extent that the
Purchaser Designees and the Management Designee are elected as directors, the
Company will use its reasonable best efforts to cause the number of Purchaser
Designees and Management Designee, respectively, to constitute the same
percentage as they represent on the Board of each committee of the Board.
Nothing in this Section 7.2.2 shall be deemed to constitute an admission that
any of the Purchaser Designees are not "independent directors" for purposes of
the rules of The Nasdaq Stock Market. In connection with the Stockholders
Meeting, Purchaser agrees to vote all shares of the Series A Preferred Stock and
Common Stock owned by it in favor of the Purchaser Acquisitions.
7.2.3. If the Company terminates the Second Issuance Agreements
pursuant to Section 9.1.4, then to the extent that three Purchaser Designees
have been elected to the Company's Board of Directors at the Stockholders
Meeting, then Purchaser agrees to cause such number of Purchaser Designees to
resign from the Company's Board of Directors so as to reflect a reallocation of
board seats (based on a five-person Board of Directors) proportionate to
Purchaser's economic interest in the Company, rounded down to the nearest whole
number of directors; PROVIDED HOWEVER, that in no event shall Purchaser have
fewer than two Purchaser Designees on the Company's Board of the Directors
following such reallocation.
7.2.4. At each annual or other meeting after the Stockholders
Meeting at which the election of directors is considered, so long as Purchaser
owns not less than one-half of the aggregate shares of Common Stock (including
those issuable upon conversion of the Series A Preferred Stock)
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purchased in the Offer and in the First Closing, the Board of Directors of the
Company, subject to its fiduciary duties, shall continue to nominate at least
two representatives of Purchaser for election to the Board. Purchaser agrees
that, so long as the current Management Designee is the Chief Executive Officer,
Purchaser will vote its shares in favor of such person's election at each annual
or other meeting after the Stockholders Meeting at which the election of
directors is considered.
7.3. TRANSACTION DOCUMENTS. At the Second Closing, each party shall,
and shall cause each of its Affiliates to, execute and deliver to the other
party the Transaction Documents that are to be delivered at the Second Closing.
7.4. REGULATORY APPROVAL. The Company and Purchaser shall use
commercially reasonable efforts to file, as soon as practicable after the
date of this Agreement, all notices, reports and other documents required to be
filed with any federal, state, local, municipal, foreign or other governmental
body ("GOVERNMENTAL BODY") with respect to the transactions contemplated by this
Agreement, and to submit promptly any additional information requested by any
such Governmental Body. Without limiting the generality of the foregoing, the
Company and Purchaser shall, promptly after the date of this Agreement, prepare
and file the notifications required under the HSR Act in connection with the
transactions contemplated by this Agreement. The Company and Purchaser shall
respond as promptly as practicable to (i) any inquiries or requests received
from the Federal Trade Commission or the Department of Justice for additional
information or documentation and (ii) any inquiries or requests received from
any state attorney general or other Governmental Body in connection with
antitrust or related matters. Each of the Company and Purchaser shall (A) give
the other party prompt notice of the commencement of any action, suit,
litigation, arbitration, preceding or investigation ("LEGAL PROCEEDING") by or
before any Governmental Body with respect to the transactions contemplated by
this Agreement, (B) keep the other party informed as to the status of any such
Legal Proceeding, and (C) promptly inform the other party of any communication
to or from the Federal Trade Commission, the Department of Justice or any other
Governmental Body regarding the transactions contemplated by this Agreement.
7.5. AMENDMENT OF CERTIFICATE OF INCORPORATION OR BY-LAWS. The Company
shall take all steps reasonably necessary to amend the Certificate of
Incorporation and By-Laws to implement the rights and obligations of the parties
contained herein to the extent necessary or appropriate under Delaware law.
7.6. DISCLOSURE; PUBLIC ANNOUNCEMENTS. At all times at or before the
Second Closing, no party hereto will issue or make any reports, statements
or releases to the public with respect to this Agreement or the transactions
contemplated hereby without the consent of the other party hereto, which consent
shall not be unreasonably withheld. If either party hereto is unable to obtain,
after reasonable effort, the approval of its public report, statement or release
from the other party hereto and such report, statement or release is, in the
opinion of legal counsel to such party, required by law in order to discharge
such party's disclosure obligations, then such party may make or issue the
legally required report, statement or release and promptly furnish the other
parties with a copy thereof. Each party hereto will also obtain the prior
approval of the other party hereto of any press release to be issued announcing
the consummation of the transactions contemplated by this Agreement; PROVIDED,
HOWEVER, no such press release shall be issued prior to consummation of the
First Closing.
7.7. TENDER OFFER.
7.7.1. Within five (5) business days after the date hereof,
Purchaser shall commence the Offer to purchase up to 3,596,688 shares of the
Company's Common Stock (the "MAXIMUM TENDER NUMBER") at $90 per share in cash
(the "OFFER PRICE"), subject only to the conditions set forth in ANNEX A hereto.
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7.7.2. On the date of commencement of the Offer, Purchaser shall
file with the SEC a Tender Offer Statement on Schedule 14D-1 (together with all
amendments and supplements thereto, the "SCHEDULE 14D-1") with respect to the
Offer. The Schedule 14D-1 shall contain or shall incorporate by reference an
offer to purchase (the "OFFER TO PURCHASE") and forms of the related letter of
transmittal and any related summary advertisement (the Schedule 14D-1, the Offer
to Purchase and such other documents, together with all supplements and
amendments thereto, being referred to herein collectively as the "OFFER
DOCUMENTS"). Purchaser and the Company agree to promptly correct any information
provided by either of them for use in the Offer Documents which shall have
become false or misleading, and Purchaser further agrees to take all steps
necessary to cause the Schedule 14D-1 as so corrected to be filed with the SEC
and the other Offer Documents as so corrected to be disseminated to holders of
shares of Common Stock, in each case as and to the extent required by applicable
federal securities laws. Purchaser agrees to provide the Company with a written
copy of any comments it or its counsel may receive from time to time from the
SEC or its staff with respect to the Schedule 14D-1 promptly after receipt of
such comments.
7.7.3. Purchaser shall not, without the prior written consent of
the Company, (i) terminate the Offer other than in accordance with its terms,
(ii) extend the Expiration Date to a date later than August 31, 1999, or (iii)
amend the Offer, other than as permitted in ANNEX A; PROVIDED, HOWEVER, it is
understood that (i) Purchaser shall have the right to close the Offer and accept
and pay for tendered shares of Common Stock at any time it may be permitted to
under applicable law, (ii) Purchaser is not obligated to keep the Offer open
until the Stockholders Meeting occurs and (iii) in the event that the Second
Issuance Agreements are terminated, Purchaser may elect, in its sole discretion,
to continue to conduct the Offer and may increase the Maximum Tender Number to
5,000,000 shares of Common Stock.
7.7.4. The Company's obligations hereunder shall not be
conditioned on the number of shares tendered to Purchaser. Purchaser shall
purchase all shares of Common Stock tendered pursuant to the Offer up to the
Maximum Tender Number. Purchaser shall not have any right hereunder to acquire
the Second Issuance Shares if Purchaser fails to acquire in contravention of the
terms of ANNEX A all shares of Common Stock tendered pursuant to the Offer up to
the Maximum Tender Number.
7.8. COMPANY ACTION.
7.8.1. The Company shall use its reasonable best efforts to cause
the Company Financial Adviser to permit the inclusion of the fairness opinion
referred to in Section 3.21 (or a reference thereto) in the Schedule 14D-9
referred to below and the Proxy Statement referred to in Section 5.3 and a
reference to such opinion in the Offer Documents. The Company hereby consents to
the inclusion in the Offer Documents of the recommendations of the Board
described in Section 5.2.
7.8.2. The Company shall file with the SEC, contemporaneously with
the commencement of the Offer pursuant to Section 7.7, a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the "SCHEDULE 14D-9") containing the
statements of the Board described in Section 5.2, and shall promptly mail the
Schedule 14D-9 to the shareholders of the Company. The Schedule 14D-9 and all
amendments thereto will comply in all material respects with the Exchange Act
and the rules and regulations promulgated thereunder. The Company and Purchaser
each agrees promptly to correct any information provided by it for use in the
Schedule 14D-9 that shall have become false or misleading in any material
respect, and the Company further agrees to take all steps necessary to cause the
Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to
holders of shares of Common Stock, in each case as and to the extent required by
applicable federal securities laws.
7.8.3. In connection with the Offer, the Company shall promptly
furnish Purchaser with mailing labels, security position listings, any
non-objecting beneficial owner lists and any available listings or computer
files containing the names and addresses of the record holders of shares of
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Common Stock, each as of a recent date, and shall promptly furnish Purchaser
with such additional information (including but not limited to updated lists of
shareholders, mailing labels, security position listings and non-objecting
beneficial owner lists) and such other assistance as Parent, Purchaser or their
agents may reasonably require in communicating the Offer to the record and
beneficial holders of shares of Common Stock. Subject to the requirements of
applicable law, and except for such steps as are appropriate to disseminate the
Offer Documents and any other documents necessary to consummate the Preferred
Stock Sale, Purchaser and its affiliates, associates, agents and advisors shall
use the information contained in any such labels, listings and files only in
connection with the Offer and the Preferred Stock Sale, and, if this Agreement
shall be terminated, will deliver to the Company all copies of such information
then in their possession.
7.9. ADVERTISING. As an inducement to Purchaser to enter into this
Agreement, the Company agrees that, Purchaser shall have the right to use up
to ten percent of the Company's unsold advertising inventory in existence from
time to time. Purchaser shall have such right for a period of five years from
the date hereof, provided that, following the first anniversary of the date
hereof, Purchaser shall have such right for the balance of such five-year period
only so long as Purchaser (together with its Affiliates) holds of record or
beneficially owns at least ten percent (10%) of the outstanding Common Stock of
the Company (assuming conversion into Common Stock, at the conversion rate then
in effect, of all shares of Series A Preferred Stock held of record or
beneficially by Purchaser and its Affiliates). The Company and Purchaser shall
cooperate in establishing procedures to implement this agreement, including the
provision of reasonable advance notice by the Company to Purchaser of the
advertising space available. Purchaser agrees to comply with all of the
Company's generally-applicable advertising guidelines, as they may be in effect
from time to time. The Company agrees that Purchaser may allocate some or all of
the advertising space to which it may become entitled to any entity in which it
or an Affiliate (as defined in Section 5.7) has at least a five percent voting
or economic equity interest, provided that neither Purchaser nor any such entity
may commercially resell any of such advertising space. The parties agree that
advertising space that the Company trades for goods and services or other
promotions in "barter" transactions shall not be deemed to be unsold for
purposes of this Section. Notwithstanding any provision to the contrary in this
Agreement, this covenant will survive any termination of this Agreement or the
Second Issuance Agreements. In no event will Purchaser or any other entity that
is permitted to use advertising under this Section 7.9 be entitled to use
advertising that the Company reasonably determines conflicts or competes with
the Company's products or services or the Company's contractual arrangements
with third parties.
8. CONDITIONS TO THE SECOND CLOSING.
8.1. CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE SECOND
CLOSING. Purchaser's obligations to purchase the Second Issuance Shares at
the Second Closing are subject to the satisfaction (or waiver by Purchaser), at
or prior to the Second Closing, of the following conditions:
8.1.1. REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of the Company set forth in Section 3 hereof shall be
true and correct (determined without regard to any materiality qualifiers,
including without limitation "Material Adverse Effect," contained in the
specific representation or warranty) (i) as of the date hereof and (ii) as of
the Second Closing Date as if made on such date (provided that in the cases of
clauses (i) and (ii) any such representation and warranty made as of a specific
date shall be true and correct as of such specific date), except for such
inaccuracies in the cases of clauses (i) and (ii) that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
8.1.2. PERFORMANCE OF OBLIGATIONS. The Company shall have
performed in all material respects all covenants and obligations
herein required to be performed or observed by it on or prior to the Second
Closing.
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8.1.3. CONSENTS, PERMITS, AND WAIVERS. On or prior to the Second
Closing Date, Purchaser and the Company shall have obtained any and
all consents, permits and waivers necessary for consummation of the transactions
contemplated by this Agreement and the other Transaction Documents (except for
such as may be properly obtained subsequent to the Second Closing) unless the
failure to obtain such consents, permits or waivers is a result of a breach by
Purchaser or would not have a Material Adverse Effect. All waiting periods under
the HSR Act shall have expired or terminated.
8.1.4. ABSENCE OF RESTRAINT. No order to restrain, enjoin or
otherwise prevent the consummation of the transactions contemplated
hereby shall have been entered by any court or other governmental authority and
not rescinded or overturned. No litigation instituted by any governmental body
or other regulatory authority shall be pending to restrain or invalidate any
material part of the transactions contemplated by this Agreement.
8.1.5. ABSENCE OF MATERIAL ADVERSE CHANGE. There shall not have
occurred after the date hereof any material adverse change in the
business, properties, results of operation or financial condition of the Company
and its subsidiaries taken as a whole, other than any adverse change following
the date of this Agreement that the Company shall have demonstrated is
substantially attributable to (i) the transactions contemplated by this
Agreement or the announcement of the transactions contemplated by this Agreement
or (ii) any material economic downturn in the Internet industry generally or any
material national economic downturn.
8.1.6. STOCKHOLDER APPROVAL. On or prior to the Second Closing
Date, the Purchaser Acquisitions shall have been approved by the
affirmative vote of the holders of a majority of the capital stock of the
Company represented and voting on such matters (the "REQUISITE VOTE").
8.1.7. BOARD OF DIRECTORS. As of the Second Closing, all of the
Purchaser Designees shall have been duly elected to the Board by a
vote of the Company's stockholders and shall constitute a majority of the entire
Board.
8.1.8. COMPLIANCE CERTIFICATE. The Company shall have delivered to
Purchaser or its counsel a Compliance Certificate, executed by the
President and the Chief Financial Officer of the Company, dated as of the
Closing Date, to the effect that the conditions specified in Sections 8.1.1
through 8.1.7 have been satisfied.
8.1.9. LEGAL OPINION. Purchaser shall have received from Hutchins,
Wheeler & Dittmar an opinion addressed to it, dated as of the Second
Closing date, covering the matters set forth in Exhibit D and otherwise in form
and substance satisfactory to Purchaser.
8.1.10. MANAGEMENT AGREEMENTS. Each Management Agreement executed as
of the date hereof shall be in full force and effect and no breach shall
have occurred on the part of any Management Stockholder under such agreement.
8.2. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation
to issue and sell the Second Issuance Shares at the Second Closing is
subject to the satisfaction (or waiver by the Company), on or prior to the
Second Closing, of the following conditions:
8.2.1. REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Purchaser set forth in Section 4 hereof shall be true and
correct in all material respects (i) as of the date hereof and (ii) as of the
Second Closing Date as if made on such date (provided that in the cases of
clauses (i) and (ii) any such representation and warranty made as of a specific
date shall be true and correct in all material respects as of such specific
date).
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8.2.2. PERFORMANCE OF OBLIGATIONS. Purchaser shall have performed in
all material respects all covenants and obligations herein required to
be performed or observed by it on or prior to the Second Closing.
8.2.3. CONSENTS, PERMITS, AND WAIVERS. On or prior to the Second
Closing Date, Purchaser and the Company shall have obtained any and all
consents, permits and waivers necessary or appropriate for consummation of the
transactions contemplated by this Agreement and the other Transaction Documents
(except for such as may be properly obtained subsequent to the Second Closing)
unless the failure to obtain such consents, permits or waivers is a result of a
breach by the Company. All waiting periods under the HSR Act shall have expired
or terminated.
8.2.4. ABSENCE OF RESTRAINT. No order to restrain, enjoin or otherwise
prevent the consummation of the transactions contemplated hereby shall
have been entered by any court or other governmental authority.
8.2.5. STOCKHOLDER APPROVAL. On or prior to the Second Closing Date,
the issuance and sale to Purchaser of the Second Issuance Shares and the
purchase of Common Stock pursuant to the Management Agreements shall have been
approved by the Requisite Vote of the Company's stockholders.
8.2.6. TENDER OFFER. The Purchaser shall have made the Offer and shall
not have terminated such Offer except in accordance with its terms, and
shall have purchased all shares tendered thereby in accordance with the Offer up
to the Maximum Tender Number.
8.2.7. LEGAL OPINION. The Company shall have received from Irell &
Manella LLP an opinion addressed to it, dated as of the Second Closing
date, covering the matters set forth in Exhibit E and otherwise in form and
substance satisfactory to the Company.
9. TERMINATION.
9.1. TERMINATION. The obligations of the parties contained herein
relating to the sale and purchase of the Second Issuance Shares (including
without limitation the agreements contained in Sections 1(b), 2.2, 5.1, 5.2,
5.3, 5.4, 5.5, 7.3, 7.4 (relating to the Second Issuance only, but not to
approvals under the HSR Act and other regulatory approvals in connection with
the First Issuance, the Offer or the Management Agreements), 7.7 (relating to
Purchaser's obligation to conduct the Offer only, but not its right to conduct
the Offer) and 7.8 (the "SECOND ISSUANCE AGREEMENTS") may be terminated at any
time prior to the Second Closing Date:
9.1.1. By mutual agreement of the Company and Purchaser;
9.1.2. By either the Company or Purchaser if:
(a) this Agreement shall not have been consummated by August
31, 1999, unless extended by mutual agreement or unless the failure to
consummate the Agreement is attributable to a failure on the part of the party
seeking to terminate this Agreement to perform any obligation required to be
performed by such party at or prior to the Closing Date;
(b) the Requisite Vote of the Company's stockholders shall not
have been obtained at the Stockholders Meeting duly convened and finally
adjourned;
(c) any Governmental Body shall have issued an injunction,
order or decree (a "RESTRAINT") or taken any other action permanently enjoining,
restraining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement and such Restraint or other action shall become
final and non-appealable, provided the party seeking to terminate this Agreement
shall have used its best efforts to prevent entry of and to remove such
Restraint.
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9.1.3. By Purchaser if:
(a) the Board (i) shall have failed to recommend, or shall
have withdrawn, modified or changed in a manner adverse to Purchaser its
approval or recommendation, of the Transaction Documents, the Purchaser
Acquisitions or the other transactions contemplated thereby, or the Board or any
committee thereof shall have resolved to take any of the foregoing actions, (ii)
shall have submitted or recommended to the stockholders of the Company or shall
have approved a Transaction Proposal, (iii) shall have accepted or recommended
to its stockholders a Superior Proposal, or (iv) shall have publicly announced
its intention to do any of the foregoing;
(b) the Company shall have breached or failed to perform in
any material respect any of its representations or warranties (with respect to
materiality, in a manner such that the condition in Section 8.1.1 would not be
satisfied), or covenants or other agreements contained in this Agreement, which
breach or failure to perform cannot be or has not been cured within five days
after the giving of written notice to the Company of such breach and which, as a
result of such breach, considered either individually or in the aggregate, any
condition to Purchaser's obligations to consummate the Second Closing set forth
in Section 8.1 would not at that time be satisfied (a "COMPANY MATERIAL BREACH")
(provided that Purchaser is not then in Purchaser Material Breach (as defined
below) of any representation, warranty, covenant or other agreement contained in
this Agreement); or
(c) the Company shall have breached or failed to perform in
any respect any of its obligations under Section 5.5; PROVIDED the Company shall
be deemed to have breached its obligations under Section 5.5 if any Affiliate of
the Company, or any Representative of the Company and its Affiliates, shall have
engaged in any activities prohibited by Section 5.5.
9.1.4. By the Company, if (i) Purchaser shall have breached or failed
to perform in any material respect any of its representations or warranties
(with respect to materiality, in a manner such that the condition in Section
8.2.1 would not be satisfied), or covenants or other agreements contained in
this Agreement, which breach or failure to perform cannot be or has not been
cured within five days after the giving of written notice to Purchaser of such
breach and which, as a result of such breach, considered either individually or
in the aggregate, any condition to the Company's obligations to consummate the
Second Closing set forth in Section 8.2 would not at that time be satisfied (a
"PARENT MATERIAL BREACH") (provided that the Company is not then in Company
Material Breach of any representation, warranty, covenant or other agreement
contained in this Agreement), (ii) Purchaser has failed to commence the Offer
within five (5) business days following the date hereof, (iii) any change is
made to the Offer in contravention of Section 7.7.3 or the provisions of ANNEX
A, (iv) the Board of Directors shall have withdrawn or modified in a manner
adverse to Purchaser the Board's approval of the Transaction Documents or (v)
the Board has accepted a Superior Proposal in accordance with the provisions of
Section 5.5 hereof. Notwithstanding anything in this Agreement to the contrary,
following any such termination by the Company hereunder Purchaser may continue
to pursue the Offer in accordance with Section 7.7.3.
9.2. EFFECT OF TERMINATION. In the event of the termination of the Second
Issuance Agreements pursuant to Section 9.1, the Second Issuance Agreements
shall become void and have no effect, without any liability on the part of any
party or its directors, officers or stockholders, except as set forth in Section
10. Notwithstanding the foregoing, nothing in this Section 9.2 or in Section 10
shall relieve any party to this Agreement of liability for fraud in connection
with this Agreement.
10. FEES AND EXPENSES.
10.1. Except as contemplated by Sections 10.2 or 10.3, all costs and
expenses incurred in connection with this Agreement and the consummation of the
transactions contemplated hereby shall be paid by the party incurring such
expenses.
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10.2. The Company shall pay or cause to be paid to Purchaser a cash fee in
an amount equal to $17,500,000 if:
(a) the Company or Purchaser shall terminate the Second Issuance
Agreements pursuant to Section 9.1.2(b) hereof and prior to the Stockholders
Meeting, a Transaction Proposal shall have been made known to the Company or
shall have been made directly to its stockholders or any person shall have
publicly announced an intention (whether or not conditional) to make a
Transaction Proposal;
(b) Purchaser shall terminate the Second Issuance Agreements
pursuant to Section 9.1.3(a) or (c) or the Company shall terminate the Second
Issuance Agreements pursuant to clauses (iv) or (v) of Section 9.1.4; or
(c) Purchaser shall terminate the Second Issuance Agreements
pursuant to Section 9.1.3(b) for a Company Material Breach.
10.3. Upon the Second Closing, the Company will pay to Purchaser the sum of
$8,000,000 on account of Purchaser's fees and expenses in connection with the
transactions contemplated by this Agreement.
10.4. Except as provided in Section 5.5.3, any payments to which Purchaser
may become entitled pursuant to this Section 10 shall be payable by the Company
within two (2) business days after the relevant triggering event.
10.5. The parties agree that it would be speculative, impractical and
extremely difficult to determine or estimate the damages that would be suffered
by Purchaser in the event the Second Closing is not consummated. The parties
hereby agree that the cash fee specified in Section 10.2 is a reasonable
estimate of the total net detriment that Purchaser would suffer as a result of
any failure to consummate the Second Closing. Such fee shall constitute
liquidated damages and, except for fraud in connection with this Agreement,
shall constitute Purchaser's sole and exclusive remedy hereunder. This
liquidated damages provision shall not limit and shall be in addition to
Purchaser's rights to obtain injunctive and other equitable relief against the
Company.
11. [INTENTIONALLY OMITTED.]
12. MISCELLANEOUS.
12.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENT. Notwithstanding any investigation made by any party to this
Agreement, the representations and warranties made by the Company and Purchaser
in connection with the First Closing and the Second Closing shall not survive
the First Closing and Second Closing, respectively (other than the
representations and warranties of the Company set forth in Sections 3.4.1,
3.4.2(iii), 3.5 and 3.6, which shall survive indefinitely), and shall thereafter
be of no further force or effect, except in the case of fraud in connection with
this Agreement. All covenants and agreements contained in this Agreement (except
to the extent the Second Issuance Agreements are terminated pursuant to Section
10) shall survive the First Closing Date and Second Closing Date in accordance
with their terms.
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12.2. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be in writing, shall be mailed by
first-class registered or certified airmail, or nationally recognized overnight
express courier postage prepaid, and shall be deemed given when so mailed and
shall be delivered as follows:
if to the Company, to:
Go2Net, Inc.
999 Third Avenue, Suite 4700
Seattle, WA 98104
Attention: Russell C. Horowitz
with a copy so mailed to:
Hutchins Wheeler & Dittmar, A Professional Corporation
101 Federal Street
Boston, MA 02110
Attention: Thomas M. Camp, Esq.
if to Purchaser,
Vulcan Ventures Incorporated
110 110(th) Avenue, N.E., Suite 550
Bellevue, WA 98004
Attention: William D. Savoy
with a copy so mailed to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, CA 90067
Attention: Al Segel, Esq.
12.3. ADJUSTMENTS. In the event of any change in the Common Stock by
reason of a stock dividend, split-up, recapitalization, combination,
conversion, exchange of shares or other similar change in the corporate or
capital structure of the Company, the type and number of shares or securities
subject to various provisions of this Agreement (and the per share price of such
shares or securities) shall, where applicable, be adjusted appropriately, so
that Purchaser's rights under this Agreement shall be preserved as nearly as
practicable. Without limiting the generality of the foregoing, any such change
in the Common Stock shall cause a proportionate change in the Maximum Tender
Number and the Offer Price.
12.4. ASSIGNABILITY AND ENFORCEABILITY. This Agreement shall be binding on
and enforceable by the parties and their respective successors and permitted
assigns. No party may assign any of its rights, benefits or obligations under
this Agreement to any person without the prior written consent of the other
party; PROVIDED, HOWEVER, that Purchaser may assign its rights, benefits or
obligations under this Agreement, without the prior consent of the Company, to
an Affiliate (as defined in Section 5.7). No such assignment shall relieve the
Purchaser of its obligations under this Agreement.
12.5. AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Agreement shall be binding on any party unless consented to in writing
by such party. No waiver of any provision of this Agreement shall be construed
as a waiver of any other provision nor shall any waiver constitute a continuing
waiver unless otherwise expressly provided. No provision of this Agreement shall
be deemed waived by a course of conduct including the act of Closing unless such
waiver is in writing signed by all parties and stating specifically that it was
intended to modify this Agreement.
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12.6. ENTIRE AGREEMENT. This Agreement and the other Transaction
Documents, including the Schedules and Exhibits and any agreements or
documents referred to herein or therein or executed contemporaneously herewith
or therewith, constitutes the entire agreement among the parties with respect to
the subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether written or oral. There are no conditions,
covenants, agreements, representations, warranties or other provisions, express
or implied, collateral, statutory or otherwise, relating to the subject matter
hereof except as herein provided.
12.7. HEADINGS. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed
to be part of this Agreement.
12.8. SEVERABILITY. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
12.9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware as to matters between the
Company and its stockholders and other matters of corporate governance and, as
to all other matters, with the laws of the State of Washington, without regard
to the choice of law provisions thereof, and the federal law of the United
States of America.
12.10. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other parties.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
<TABLE>
<S> <C> <C>
GO2NET, INC.
By:
-----------------------------------------
Name:
Title:
VULCAN VENTURES INCORPORATED
By:
-----------------------------------------
William D. Savoy, Vice President
</TABLE>
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<PAGE>
ANNEX A
CONDITIONS TO THE TENDER OFFER
Notwithstanding any other provision of the Offer or the Stock Purchase
Agreement, and in addition to (and not in limitation of) Purchaser's rights to
extend and amend the Offer at any time in its sole discretion (subject to the
provisions of the Agreement and this Annex A), and subject to any applicable
rules and regulations of the SEC, including Rule 14e1(c) relating to the
Purchaser's obligation to pay for or return tendered shares of Common Stock
("Offer Shares") after termination of the Offer, the Purchaser's obligation to
accept for payment or pay for any Common Shares tendered pursuant to the Offer
is subject to the condition that the Second Issuance Agreements (as defined in
the Stock Purchase Agreement) shall not have been terminated and to the
satisfaction of the following conditions (together, the "OFFER CONDITIONS"):
(a) there shall not have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on The Nasdaq Stock
Market for at least one full trading day, (ii) any decline, measured from
the close of business on March 12, 1999, in the Nasdaq Composite Index by
an amount in excess of 15% at any time during any three trading days in a
ten consecutive trading day period, (iii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the
United States (whether or not mandatory), (iv) a declaration of a war or
other international or national calamity directly or indirectly involving
the United States, or (v) in the case of any of the foregoing matters
described in clauses (iii) through (v) existing at the time of
commencement of the Offer, a material acceleration or worsening thereof;
(b) no statute, rule, regulation, judgment, order, decree, ruling,
injunction, litigation or other action shall have been entered,
promulgated, enforced, initiated or threatened by any governmental,
quasi- governmental, judicial, or regulatory agency or entity or
subdivision thereof with jurisdiction over the Company or the Purchaser
or any of their subsidiaries or the purchase and sale of the Offer Shares
or Second Issuance Shares or any of the other transactions contemplated
by the Stock Purchase Agreement that purports, seeks, or threatens to (i)
prohibit, restrain, enjoin, or restrict in a material manner, the
purchase and sale of any Offer Shares or the Second Issuance Shares as
contemplated by the Stock Purchase Agreement, or (ii) impose material
adverse terms or conditions (not set forth in the Stock Purchase
Agreement) upon the purchase and sale of any Second Issuance Shares or
the Offer Shares as contemplated by the Stock Purchase Agreement;
(c) the Purchaser and the Company shall have obtained any and all consents,
permits and waivers necessary for consummation of the transactions
contemplated by the Stock Purchase Agreement and the other Transaction
Documents (except for such as may be properly obtained subsequent to the
consummation of the Offer) unless the failure to obtain such consents,
permits or waivers is a result of a breach by the Purchaser or would not
have a Material Adverse Effect; all waiting periods under the HSR Act
shall have expired or terminated;
(d) the representations and warranties of the Company set forth in the
Agreement hereof shall be true and correct (determined without regard to
any materiality qualifiers, including without limitation "Material
Adverse Effect," contained in the specific representation or warranty)
(i) as of the date hereof and (ii) as of the date of consummation of the
Offer if made on such date (provided that in the cases of clauses (i) and
(ii) any such representation and warranty made as of a specific date
shall be true and correct as of such specific date), except in the case
of clauses (i) and (ii), for such inaccuracies that individually or in
the aggregate would not reasonably be expected to have a Material Adverse
Effect;
A-29
<PAGE>
(e) the Company shall have performed in all material respects all covenants
and obligations herein required to be performed or observed by it on or
prior to the Second Closing;
(f) There shall not have occurred after the date hereof any material adverse
change in the business, properties, results of operation or financial
condition of the Company and its subsidiaries taken as a whole, other
than any adverse change following the date of the Stock Purchase
Agreement that the Company shall have demonstrated is substantially
attributable to (i) the transactions contemplated by the Stock Purchase
Agreement or the announcement of the transactions contemplated by the
Stock Purchase Agreement or (ii) any material economic downturn in the
Internet industry generally or any material national economic downturn;
(g) the Company shall have appointed to its Board of Directors two persons
designated by the Purchaser in accordance with Section 7.2.1 of the Stock
Purchase Agreement, and the Company shall have complied with all of its
other obligations under Section 7.2 of the Stock Purchase Agreement;
(h) the Company shall have delivered to the Purchaser or its counsel a
Compliance Certificate, executed by the President and the Chief Financial
Officer of the Company, dated as of the consummation of the Offer, to the
effect that the conditions specified in clauses (c) through (h) have been
satisfied;
(i) the Purchaser shall have received from Hutchins, Wheeler & Dittmar, A
Professional Corporation, an opinion addressed to it, dated as of the
consummation of the Offer, covering the items listed in EXHIBIT D in form
and substance satisfactory to the Purchaser;
(j) Each Management Agreement executed as of the date of the Agreement shall
be in full force and effect and no breach shall have occurred on the part
of any Management Stockholder under such agreement.
The Purchaser may delay acceptance for payment of or, subject to the
restrictions referred to above, the payment for, any tendered Shares, and may
terminate the Offer as to any Shares not then paid for, if such Offer Conditions
are not satisfied.
The foregoing conditions are for the sole benefit of the Purchaser and may
be asserted by the Purchaser regardless of the circumstances giving rise to any
such condition (including without limitation any action or inaction by the
Purchaser, other than actions Purchaser is required to take under Section 7.1 of
the Stock Purchase Agreement), or may be waived by the Purchaser, in whole or in
part at any time and from time to time, in the Purchaser's sole discretion. The
Purchaser is not obligated to keep the Offer open until the Stockholders Meeting
occurs. In the event that the Second Issuance Agreements are terminated, the
Purchaser may elect, in its sole discretion, to continue to conduct the Offer.
The failure by the Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such rights and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time. Any determination (which shall be made in good faith) by the Purchaser
with respect to any of the foregoing conditions (including without limitation
the satisfaction of such conditions) will be final and binding on all parties.
The Purchaser may increase the Offer Price and may make any other changes in
the terms and conditions of the Offer; PROVIDED, HOWEVER, that, except as
permitted under Section 7.7.3 of this Agreement or unless previously approved by
the Company in writing, the Purchaser may not (i) decrease the Offer Price, (ii)
change the form of consideration payable in the Offer, (iii) increase or
decrease the maximum number of Shares sought pursuant to the Offer, (iv) add to
or modify the Offer Conditions, or (v) otherwise amend the Offer in any manner
adverse to the Company's stockholders.
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<PAGE>
The Purchaser may, without the Company's consent, (i) extend the Offer if at
the scheduled Expiration Date of the Offer if any of the conditions to the
Purchaser's obligation to accept for payment, and pay for, the Offer Shares
shall not have been satisfied or waived, until such time as such conditions are
satisfied or waived, (ii) extend the Offer for any period required by any rule,
regulation, interpretation or position of the SEC or the staff thereof
applicable to the Offer and (iii) extend the Offer for any reason on one or more
occasions for an aggregate period of not more than ten business days beyond the
latest Expiration Date that would otherwise be permitted under clauses (i) or
(ii) of this sentence. As used herein, "business day" means any day other than a
Saturday, Sunday or United States federal holiday and consists of the time
period from 12:01 a.m. through 12:00 midnight, New York City time.
A-31
<PAGE>
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
This FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (the "Amendment") is made
this 30th day of April, 1999, between GO2NET, INC., a Delaware corporation (the
"Company"), and VULCAN VENTURES INCORPORATED, a Washington corporation
("Purchaser"), with reference to the following facts:
A. The Company and Purchaser have entered into that certain Stock Purchase
Agreement dated as of March 15, 1999 (the "Stock Purchase Agreement") pursuant
to which, among other things, Purchaser has agreed to purchase from the Company,
and the Company has agreed to sell to Purchaser, up to 300,000 shares of the
Company's Series A Convertible Preferred Stock. Capitalized terms used herein
and not otherwise defined herein shall have the respective meanings ascribed to
them in the Stock Purchase Agreement.
B. The Company and Purchaser wish to amend the Stock Purchase Agreement in
the manner provided herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereby agree as follows:
1. AMENDMENT TO SECTION 7.2.2. Section 7.2.2 of the Stock Purchase
Agreement is hereby amended and restated in its entirety to read as
follows:
7.2.2 In connection with the Stockholders Meeting, the Company
shall: (i) set the size of its Board at five directors; (ii) nominate for
election at the Stockholders Meeting a slate of director candidates
comprised of (A) two candidates designated by Purchaser ("PURCHASER
DESIGNEES"), (B) the existing Chief Executive Officer of the Company (the
"MANAGEMENT DESIGNEE"), and (C) Dennis Cline and William A. Fleckenstein
(the "OUTSIDE DESIGNEES") (provided if an Outside Designee is unable to
serve as a director, Purchaser and the Company shall select a substitute
Outside Designee who shall not be an Affiliate or employee of either
Purchaser or the Company and who shall otherwise constitute an
"independent director" under the rules of The Nasdaq Stock Market); and
(iii) take all commercially reasonable actions (including, without
limitation, soliciting proxies to the extent necessary) to obtain the
requisite stockholder vote to elect such nominees as directors of the
Company. To the extent that Purchaser is otherwise permitted to vote in
the election of directors at the Stockholders Meeting, Purchaser agrees
to vote any shares of the Series A Preferred Stock or Common Stock it
owns in favor of the election of the Outside Designees and the Management
Designee at the Stockholders Meeting. To the extent that the Purchaser
Designees and the Management Designee are elected as directors, the
Company will use its reasonable best efforts to cause the number of
Purchaser Designees and Management Designee, respectively, to constitute
the same percentage as they represent on the Board of each committee of
the Board. Nothing in this Section 7.2.2 shall be deemed to constitute an
admission that any of the Purchaser Designees are not "independent
directors" for purposes of the rules of The Nasdaq Stock Market. In
connection with the Stockholders Meeting, Purchaser agrees to vote all
shares of the Series A Preferred Stock and Common Stock owned by it in
favor of the Purchaser Acquisitions.
2. DELETION OF SECTION 7.2.3. Section 7.2.3 of the Stock Purchase Agreement
is hereby deleted in its entirety.
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<PAGE>
3. AMENDMENT TO SECTION 8.1.7. Section 8.1.7 of the Stock Purchase
Agreement is hereby amended and restated in its entirety to read as
follows:
8.1.7 BOARD OF DIRECTORS. As of the Second Closing, all of the
Purchaser Designees and the Outside Designees shall have been duly
elected to the Board by a vote of the Company's stockholders.
4. AUTHORITY. Each of the parties hereto represents and warrants that the
execution, delivery and performance of this Amendment has been duly
authorized by all required corporate action, and that this Amendment is
the legal, valid and binding obligation of such party, enforceable in
accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws and
equitable principles relating to or limiting creditors' rights generally.
5. REFERENCE TO AND EFFECT ON STOCK PURCHASE AGREEMENT. On and after the
effective date of this Amendment, each reference in the Stock Purchase
Agreement to "this Agreement," "hereunder," "hereof," "herein" or any
other expression of like import referring to the Stock Purchase Agreement
shall mean and be a reference to the Stock Purchase Agreement as amended
by this Amendment. Except as expressly amended hereby, the Stock Purchase
Agreement shall remain in full force and effect in accordance with its
original provisions.
6. HEADINGS. The headings contained in this Amendment are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Amendment.
7. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware as to matters between
the Company and its stockholders and other matters of corporate
governance and, as to all other matters, with the laws of the State of
Washington, without regard to the choice of law provisions thereof, and
the federal law of the United States of America.
8. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which independently shall be deemed to be an
original and all of which taken together shall constitute one instrument.
A-33
<PAGE>
SIGNATURE PAGE TO
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, the Company and Purchaser have caused this Amendment to
be executed by their duly authorized representatives as of the day and year
first above written.
<TABLE>
<S> <C> <C>
GO2NET, INC.
By:
-----------------------------------------
Russell C. Horowitz
Chief Executive Officer
VULCAN VENTURES INCORPORATED
By:
-----------------------------------------
William D. Savoy
Vice President
</TABLE>
A-34
<PAGE>
EXHIBIT B
FORM OF STOCK PURCHASE AND VOTING AGREEMENT
(EXECUTIVE OFFICERS)
This Stock Purchase and Voting Agreement (the "AGREEMENT") is made as of
March 15, 1999 between Vulcan Ventures Incorporated, a Washington corporation
("PURCHASER"), and , an individual ("SELLER"), with reference to the
following facts:
Concurrently herewith Purchaser is entering into an agreement (the "STOCK
PURCHASE AGREEMENT") with Gordon, Inc., a Delaware corporation (the "COMPANY")
to purchase shares of the Company's Series A Convertible Preferred Stock (the
"SERIES A PREFERRED STOCK") in two issuances (the "FIRST ISSUANCE" and "SECOND
ISSUANCE," respectively).
Purchaser would be unwilling to enter into the Stock Purchase Agreement
without the agreements of Seller contained herein.
As an inducement to cause Purchaser to enter into the Stock Purchase
Agreement, Seller has agreed to enter into this Agreement.
In consideration of the foregoing premises and the mutual covenants and
promises contained herein, Purchaser and Seller hereby agree as follows:
1. PURCHASE AND SALE OF SHARES.
1.1. AGREEMENT TO PURCHASE; OPTION.
(a) On the terms and subject to the conditions set forth herein,
Seller agrees to sell to Purchaser, and Purchaser agrees to purchase from
Seller, at the Closing (as defined in Section 1.1(d)), shares (the
"SHARES") of the Company's Common Stock, $.01 par value (the "COMMON STOCK"), at
a purchase price per share (the "PURCHASE PRICE") equal to the greater of $90.00
or the price paid by the Company in the Offer (as defined below).
Notwithstanding the foregoing, in the event of a termination of the Second
Issuance Agreements (as defined in the Stock Purchase Agreement) pursuant to
Section 9 of the Stock Purchase Agreement (other than on account of Purchaser's
breach), Purchaser shall instead have the option (the "OPTION") (but not the
obligation) in its sole and absolute discretion to purchase from Seller, at the
Closing, one-half of the Shares for the Purchase Price. The Option shall be
exercisable in whole or in part by Purchaser by written notice to Seller (the
"EXERCISE NOTICE"), specifying the total number of Shares Purchaser intends to
purchase pursuant to such exercise, within thirty (30) days after such
termination of the Second Issuance Agreements. In the event of a termination of
the Second Issuance Agreements on account of Purchaser's breach, all obligations
of the parties under this Section 1 will immediately terminate and Purchaser
shall not be entitled to exercise the Option.
(b) The obligation of Seller to close the sale of Shares
pursuant to this Section 1 is subject to the following conditions, any of which
may be waived by Seller in his or her sole discretion: (i) the representations
and warranties of Purchaser in Section 4 of this Agreement shall be true and
correct in all material respects on the Closing Date with the same effect as if
made on and as of such date; (ii) all waiting periods under the Hart Scott
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), shall
have expired or been terminated; and (iii) there shall be no preliminary or
permanent injunction or other order, decree or ruling issued by any governmental
body, nor any statute, rule, regulation or order promulgated or enacted by any
governmental body prohibiting, or otherwise restraining, such sale.
(c) The obligation of Purchaser to close the purchase of the
Shares pursuant to this Section 1 is subject to the following conditions, any of
which may be waived by Purchaser in its sole discretion: (i) the representations
and warranties of Seller in Section 3 of this Agreement shall be true
B-1
<PAGE>
and correct on the Closing Date with the same effect as if made on and as of
such date; (ii) at the Closing, there shall not be in effect any injunction,
writ or temporary restraining order or any other order of any nature issued by a
court or agency of competent jurisdiction directing that the transaction
provided for herein not be consummated as herein provided nor shall there by any
litigation or proceeding pending or threatened in respect of the transactions
contemplated hereby; and (iii) Purchaser shall have received all regulatory
approvals under the Stock Purchase Agreement, including the expiration or
termination of the waiting period under the HSR Act.
(d) The closing of the purchase of Shares pursuant to this
Section 1 (the "CLOSING") shall take place (i) concurrently with, and at the
same place as, the "Second Closing" under the Stock Purchase Agreement if such
Second Closing occurs, or (ii) if Purchaser exercises the Option, on the date
and at the time and place specified in the Exercise Notice; PROVIDED, HOWEVER,
that if as of the Second Closing or the date for Closing specified in the
Exercise Notice (as applicable) any of the conditions specified in Section
1.1(c) hereof shall not have been satisfied or waived, Purchaser may postpone
the Closing until a date within two business days after such conditions are
satisfied or waived; PROVIDED FURTHER, the Closing shall not precede the
Company's public release of its financial results for its fiscal quarter ending
March 31, 1999, and the Closing shall be postponed until such date if necessary;
PROVIDED FURTHER, upon consummation of the Second Closing and the Offer, the
conditions to the Closing set forth in Sections 1.1(b)(i) and 1.1(c)(i) above
shall be deemed to be satisfied, other than with respect to Seller's
representations and warranties contained in Section 3.1. The date of the Closing
is hereinafter referred to as the "CLOSING DATE."
At the Closing, Seller will deliver to Purchaser the certificates representing
the Shares being purchased pursuant to this Section 1.1, without restrictive
legends (other than with regard to the registration requirements under the
Securities Act of 1933, as amended) and duly endorsed or accompanied by stock
powers duly executed in blank. At such Closing, Purchaser shall either (i) wire
transfer to the account designated by Seller or (ii) deliver to Seller a
certified or bank cashier's check payable to or upon the order of Seller, in
either case in an amount equal to the sum of the number of Shares being
purchased from Seller at such Closing multiplied by the Purchase Price in
immediately available funds.
(e) In the event of any change in the Common Stock by reason of
a stock dividend, split-up, recapitalization, combination, conversion, exchange
of shares or other similar change in the corporate or capital structure of the
Company, the type and number of shares or securities subject to this Section 1,
and the Purchase Price, shall be adjusted appropriately, and proper provision
shall be made in the agreements governing such transaction, so that Purchaser
shall receive at the Closing the same class and number of outstanding shares or
other securities or property that Purchaser would have received in respect of
the Common Stock if the Closing had occurred immediately prior to such event, or
the record date therefor, as applicable.
1.2. AGREEMENT NOT TO TENDER. If Purchaser commences a tender offer
(the "OFFER") for the Common Stock pursuant to the Stock Purchase Agreement,
Seller shall not tender any shares of Common Stock that he owns beneficially or
of record in such Offer.
1.3. COVERED OPTION SHARES. The parties acknowledge and agree that the
Shares subject to this Section 1 include shares of Common Stock
(the "COVERED OPTION SHARES") that Seller has the right to acquire within thirty
(30) days of the date hereof through exercise of vested options to purchase
Common Stock ("STOCK OPTIONS"). Seller agrees to exercise a sufficient number of
Stock Options sufficiently in advance of the Closing, and to take all action
necessary to have certificates issued with respect to the shares issuable upon
exercise of such Stock Options, to permit Seller to deliver the number of
Covered Option Shares to Purchaser pursuant to this Agreement at such Closing.
B-2
<PAGE>
2. VOTING AGREEMENT.
2.1. Except as provided in Section 2.2, Seller agrees that at every
meeting of the stockholders of the Company called with respect to any of the
following, and at every adjournment or postponement thereof, and on every action
or approval by written consent of the stockholders of the Company with respect
to any of the following, Seller will vote (or cause to be voted) all of the
shares of the Company owned beneficially or of record by Seller (including,
without limitation, any shares as to which Seller becomes the record or
beneficial owner after the date hereof) (a) in favor of approval of (i)
Purchaser's acquisition of the Company's capital stock pursuant to the Second
Issuance, the Offer, and this Agreement and similar agreements with other
officers, directors and employees of the Company (together, the "PURCHASER
ACQUISITIONS"), and (ii) any matter that could reasonably be expected to
facilitate the Purchaser Acquisitions and the other transactions contemplated by
the Stock Purchase Agreement (including the election of a Board of Directors of
the Company consistent with the provisions of the Stock Purchase Agreement); (b)
against any action or agreement that would result in a breach in any respect of
any covenant, representation or warranty or any other obligation or agreement of
the Company under the Stock Purchase Agreement or of Seller under this
Agreement; and (c) against any action or agreement that is intended, or might
reasonably be expected, to impede, interfere with, delay, postpone or attempt to
discourage or adversely affect the Purchaser Acquisitions and the other
transactions contemplated by this Agreement and the Stock Purchase Agreement.
2.2. EXCEPTIONS. Notwithstanding anything herein to the contrary,
Seller shall not be obligated to vote any Shares or any other capital stock
in the manner described in Section 2.1 on or after the first to occur of the
Closing or a termination of the parties' obligations under Section 1.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. As a material inducement to
Purchaser to enter into this Agreement, Seller represents and warrants to
Purchaser that as of the date hereof and as of the Closing Date:
3.1. SOLE OWNERSHIP OF SHARES; NO ENCUMBRANCES. On the date hereof,
Seller is the record owner of (a) shares of Common Stock (the
"EXISTING SHARES"), and (b) Stock Options to purchase shares of Common
Stock (the "EXISTING OPTIONS"), which Stock Options will be vested as to
shares of Common Stock within 30 days of the date hereof. On the date hereof,
such shares and Stock Options constitute all of the shares of Common Stock and
Stock Options owned of record and beneficially by Seller. Seller has sole voting
power, sole power of disposition and sole power to agree to all of the matters
set forth in this Agreement with respect to the Existing Shares and the shares
of Common Stock purchasable upon exercise of the Existing Options, with no
limitations, qualifications or restrictions on such rights, and Seller does not
possess such powers over any other shares of Common Stock. The Existing Shares
and the certificates representing such shares are now, and at all times during
the term hereof the Existing Shares and any shares of Common Stock that Seller
acquires through the exercise of Stock Options will be, held by Seller free and
clear of all liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements or any other encumbrances whatsoever
and, in connection with the transfer of Shares to Purchaser in the Offer, Seller
shall transfer to and unconditionally vest in Purchaser good and valid title to
such Shares, free and clear of all claims, liens, restrictions, security
interests, pledges, limitations and encumbrances whatsoever.
3.2. VALIDITY; BINDING EFFECT; NO CONFLICT. This Agreement has been
duly and validly executed by Seller and constitutes the valid and binding
obligation of Seller enforceable against Seller in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and the
availability of equitable remedies may be limited by equitable principles of
general applicability. The execution and delivery of this Agreement does not and
the consummation of the transactions contemplated hereby will not, (i) violate
or conflict with any law, ordinance, rule, regulations, orders, judgment, or
decree to which Seller is
B-3
<PAGE>
subject or by which Seller is bound; or (ii) violate or conflict with or
constitute a default (or an event which, with notice or the lapse of time, or
both, would constitute a default) under, or will result in the termination of,
or accelerate the performance required by or result in the creation of any lien,
security interest, change or encumbrance upon any of the properties or assets
under, any term or provision of any contract, commitment, understanding,
arrangement, agreement or restriction of any kind or character to which Seller
is a party or by which any of her assets may be bound or affected. Except for
required approvals under the HSR Act, no consent, approval, authorization or
action by or any filings with any federal, state or local governmental agency or
any other third party are required in connection with the execution and delivery
by Seller of this Agreement or the consummation by Seller of the transactions
contemplated hereby.
3.3. BROKERAGE. No investment banker, broker, financial advisor, finder
or other person is entitled to a commission or fee from Seller in respect of
this Agreement or the transactions contemplated hereby based upon any
arrangement or agreement made by or on behalf of Seller.
3.4. RELIANCE BY PURCHASER. Seller understands and acknowledges that
Purchaser is entering into the Stock Purchase Agreement in reliance upon
Seller's execution and delivery of this Agreement and the representations,
warranties and covenants of Seller set forth herein.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. As a material inducement to
Seller to enter into this Agreement, Purchaser represents and warrants to Seller
that as of the date hereof and as of the Closing Date:
4.1. VALIDITY; BINDING EFFECT; NO CONFLICT. This Agreement has been
duly and validly executed by Purchaser and constitutes the valid and binding
obligation of Purchaser enforceable against Purchaser in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally and the
availability of equitable remedies may be limited by equitable principles of
general applicability. The execution and delivery of this Agreement does not and
the consummation of the transactions contemplated hereby will not, (i) violate
or conflict with any law, ordinance, rule, regulations, orders, judgment, or
decree to which Purchaser is subject or by which Purchaser is bound; or (ii)
violate or conflict with or constitute a default (or an event which, with notice
or the lapse of time, or both, would constitute a default) under, or will result
in the termination of, or accelerate the performance required by or result in
the creation of any lien, security interest, change or encumbrance upon any of
the properties or assets under, any term or provision of any contract,
commitment, understanding, arrangement, agreement or restriction of any kind or
character to which Purchaser is a party or by which any of her assets may be
bound or affected. Except for required approvals under the HSR Act, no consent,
approval, authorization or action by or any filings with any federal, state or
local governmental agency or any other third party are required in connection
with the execution and delivery by Purchaser of this Agreement or the
consummation by Purchaser of the transactions contemplated hereby.
4.2. BROKERAGE. Except for NationsBanc Montgomery Securities LLC, no
investment banker, broker, financial advisor, finder or other person is
entitled to a commission or fee from Purchaser in respect of this Agreement or
the transactions contemplated hereby based upon any arrangement or agreement
made by or on behalf of Purchaser.
5. ADDITIONAL COVENANTS.
5.1. NO SOLICITATION. Seller shall not, and shall direct and use
Seller's best efforts to cause his or her agents and representatives not to,
directly or indirectly solicit (including by way of furnishing information) or
respond to any inquiries or the making of any proposal by any person or entity
(other than Purchaser) concerning any Transaction Proposal (as defined in the
Stock Purchase Agreement); PROVIDED, HOWEVER, nothing herein shall preclude
Seller, in his capacity as a director of the Company, from exercising his
fiduciary duties in accordance with Section 5.5 of the Stock Purchase Agreement.
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If Seller receives any such inquiry or proposal with respect to the sale of
Shares, then Seller shall promptly inform Purchaser in the same manner as set
forth in Section 12.2 of the Stock Purchase Agreement. Seller shall immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing.
5.2. NOTICE OF ADDITIONAL SHARES. Seller hereby agrees to promptly
notify Purchaser in writing of the number of shares of Common Stock that may
be acquired by Seller, if any, after the date hereof.
5.3. FURTHER ASSURANCES. From time to time, at the other party's
request and without further consideration, each party hereto shall execute
and deliver such additional documents and take all such further action as may be
necessary or desirable to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement.
5.4. RESTRICTIONS ON TRANSFERS. Prior to the first to occur of the
Closing or a termination of the parties' obligations under Section 1, Seller
shall not sell, transfer, encumber or otherwise dispose of any of the Shares,
and shall not take any action inconsistent with his or her obligations
hereunder.
5.5. RIGHT OF FIRST REFUSAL.
(a) Except for Permitted Transfers, so long as Purchaser owns
beneficially or of record shares of Common Stock (including shares of Common
Stock issuable upon the conversion of Series A Preferred Stock) representing at
least 15% of the outstanding Common Stock, Seller shall not Transfer after
consummation of the Second Closing any shares of the Common Stock (whether owned
as of the date hereof or acquired thereafter) (such shares of Common Stock are
hereinafter referred to as the "SUBJECT SHARES"), or any right or interest
therein, unless Seller shall have first given at least two full business days'
advance written notice (the "RIGHT OF FIRST REFUSAL NOTICE") to Purchaser of
Seller's intent to do so and such Transfer is thereafter completed in accordance
with this Section 5.5. The Right of First Refusal Notice shall specify the terms
of the proposed Transfer, including without limitation the number of Subject
Shares proposed to be Transferred, the consideration per share, the timing of
the transaction, and the name of the proposed transferee if Seller has received
a bona fide offer to acquire Subject Shares. Purchaser shall have the right,
exercisable by written notice to Seller ("PURCHASER'S NOTICE") within such two
business day period, to purchase from Seller such number of the Subject Shares
Seller proposes to Transfer as described in Purchaser's Notice on the terms set
forth in the Right of First Refusal Notice (provided that if the proposed
Transfer is not for cash, then Purchaser may deliver cash equal to the fair
market value of such non-cash consideration); PROVIDED, HOWEVER, that if Seller
proposes to Transfer Subject Shares pursuant to a bona fide written offer which
is disclosed in the Right of First Refusal Notice, then Purchaser may not
exercise its right of first refusal with respect to less than all of the Subject
Shares Seller proposes to Transfer pursuant to such bona fide written offer. In
the event that Purchaser does not exercise its right of first refusal with
respect to a proposed Transfer described in a Right of First Refusal Notice,
Seller shall have the right, for a period of ninety (90) days from the date of
the Right of First Refusal Notice, to Transfer such number of Subject Shares
described in such Right of First Refusal Notice at the price and on the terms
set forth in such Right of First Refusal Notice. No Transfer of the Subject
Shares specified in the Right of First Refusal Notice shall be made after the
expiration of such 90-day period, nor shall any change in the terms of Transfer
or change in the transferee (if specified) be made, without a new Right of First
Refusal Notice and compliance with the terms of this Section 5.5.
(b) The term "PERMITTED TRANSFER" for purposes of this Section
5.5 shall mean (i) any Transfer of Subject Shares pursuant to a merger or other
reorganization which would be tax-free to Seller (without regard to the amount
of the gain or loss), provided that Purchaser's right of first refusal shall,
with respect to such Subject Shares, be applicable to the securities or other
consideration acquired in such merger or other reorganization, (ii) any sales
pursuant to the manner of sale restrictions and unsolicited broker's transaction
provisions of Rule 144(f) and (g) under the Securities Act of 1933, as amended,
(iii) bona fide gifts of no more than an aggregate of 5% of the Subject
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Shares in any 360-day period, (iv) Transfers to trusts for the benefit of Seller
or his immediate family for estate planning purposes where the transferee has
agreed in writing to be bound by Seller's obligations under this Section 5.5.
The term "TRANSFER" shall mean any sale, transfer, assignment, hypothecation,
encumbrance or other disposition, whether voluntary or involuntary, whether by
gift, bequest or otherwise, of any interest in the Subject Shares.
(c) Purchaser's rights under this Section 5.5 shall terminate
180 days after the date on which Seller ceases to be an officer of the Company.
6. MISCELLANEOUS.
6.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements made by Seller or Purchaser
pursuant hereto shall survive Closing.
6.2. BINDING AGREEMENT; ASSIGNMENTS; THIRD-PARTY BENEFICIARIES. This
Agreement shall be binding on and enforceable by the parties and their
respective successors and permitted assigns. No party may assign any of its
rights, benefits or obligations under this Agreement to any person without the
prior written consent of the other party; PROVIDED, HOWEVER, that Purchaser may
assign its rights, benefits or obligations under this Agreement, without the
prior consent of the Company, to an Affiliate of Purchaser (as defined in
Section 5.7 of the Stock Purchase Agreement). No such assignment shall relieve
the Purchaser of its obligations under this Agreement. Nothing contained in this
Agreement shall confer any rights or remedies upon any other person, firm or
corporation.
6.3. WAIVER OF PROVISIONS. The terms, covenants, representations,
warranties and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision of this Agreement
shall in no manner affect the right at a later date to enforce the same. No
waiver by any party of any condition or the breach of any provision, term,
covenant, representation or warranty contained in this Agreement, whether by
conduct or otherwise, in any one or more instances shall be deemed to be or
construed as further or continuing waiver of any such condition or of the breach
of any other provision, term, covenant, representation or warranty of this
Agreement.
6.4. SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
6.5. NOTICES. Any notice or other communication required or permitted
hereunder shall be expressed in writing and delivered in person or sent by
certified or registered mail, return receipt requested, or sent by overnight
courier service such as Federal Express and confirmed by certified or registered
mail, return receipt requested, or sent by facsimile (receipt confirmed) to (a)
Purchaser at its address specified in the Stock Purchase Agreement, and (b) to
Seller at the addresses set forth on the signature page hereof, or at such other
addresses as the parties shall designate by written notice to the other. All
notices shall be deemed received on the third business day after mailing or the
first business day after delivery to the overnight courier service or the same
business day if personally delivered or sent by facsimile.
6.6. COOPERATION. Each party shall cooperate and use its best efforts
to consummate the transaction contemplated herein. In addition, each party
shall cooperate and take such action and execute such other and further
documents as reasonably may be requested by any other party from time to time
after the consummation of the transactions contemplated herein to carry out the
terms and provisions and intent of this Agreement.
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6.7. SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
6.8. ENTIRE AGREEMENT; MODIFICATION. This Agreement contains the entire
agreement between the parties and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof. This Agreement may be amended, modified and supplemented
in any and all respects by written agreement of the parties hereto.
6.9. GOVERNING LAW. The Agreement shall be governed by and construed
under the laws of the State of Washington.
6.10. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one instrument.
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SIGNATURE PAGE TO
STOCK PURCHASE AND VOTING AGREEMENT
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above set forth.
PURCHASER:
VULCAN VENTURES INCORPORATED
By: __________________________________
Name:
Title:
SELLER:
Signature: ___________________________
Print Name: __________________________
Address: _____________________________
_____________________________
Facsimile: ___________________________
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EXHIBIT B
FORM OF STOCK PURCHASE AND VOTING AGREEMENT
(NON-EXECUTIVE DIRECTORS)
This Stock Purchase and Voting Agreement (the "AGREEMENT") is made as of
March 15, 1999 between Vulcan Ventures Incorporated, a Washington corporation
("PURCHASER"), and , an individual ("SELLER"), with reference to the
following facts:
Concurrently herewith Purchaser is entering into an agreement (the "STOCK
PURCHASE AGREEMENT") with Gordon, Inc., a Delaware corporation (the "COMPANY")
to purchase shares of the Company's Series A Convertible Preferred Stock (the
"SERIES A PREFERRED STOCK") in two issuances (the "FIRST ISSUANCE" and "SECOND
ISSUANCE," respectively).
Purchaser would be unwilling to enter into the Stock Purchase Agreement
without the agreements of Seller contained herein.
As an inducement to cause Purchaser to enter into the Stock Purchase
Agreement, Seller has agreed to enter into this Agreement.
In consideration of the foregoing premises and the mutual covenants and
promises contained herein, Purchaser and Seller hereby agree as follows:
1. PURCHASE AND SALE OF SHARES.
1.1. AGREEMENT TO PURCHASE.
(a) On the terms and subject to the conditions set forth herein,
Seller agrees to sell to Purchaser, and Purchaser agrees to purchase from
Seller, at the Closing (as defined in Section 1.1(d)), shares (the
"SHARES") of the Company's Common Stock, $.01 par value (the "COMMON STOCK"), at
a purchase price per share (the "PURCHASE PRICE") equal to the greater of $90.00
or the price paid by the Company in the Offer (as defined below). The parties'
obligations under this Section 1 shall terminate concurrently with a termination
of the Second Issuance Agreements (as defined in the Stock Purchase Agreement)
pursuant to Section 9 of the Stock Purchase Agreement.
(b) The obligation of Seller to close the sale of Shares
pursuant to this Section 1 is subject to the following conditions, any of which
may be waived by Seller in his or her sole discretion: (i) the representations
and warranties of Purchaser in Section 4 of this Agreement shall be true and
correct in all material respects on the Closing Date with the same effect as if
made on and as of such date; (ii) all waiting periods under the Hart Scott
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), shall
have expired or been terminated; and (iii) there shall be no preliminary or
permanent injunction or other order, decree or ruling issued by any governmental
body, nor any statute, rule, regulation or order promulgated or enacted by any
governmental body prohibiting, or otherwise restraining, such sale.
(c) The obligation of Purchaser to close the purchase of the
Shares pursuant to this Section 1 is subject to the following conditions, any of
which may be waived by Purchaser in its sole discretion: (i) the representations
and warranties of Seller in Section 3 of this Agreement shall be true and
correct on the Closing Date with the same effect as if made on and as of such
date; (ii) at the Closing, there shall not be in effect any injunction, writ or
temporary restraining order or any other order of any nature issued by a court
or agency of competent jurisdiction directing that the transaction provided for
herein not be consummated as herein provided nor shall there by any litigation
or proceeding pending or threatened in respect of the transactions contemplated
hereby; and (iii) Purchaser shall have received all regulatory approvals under
the Stock Purchase Agreement, including the expiration or termination of the
waiting period under the HSR Act.
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(d) The closing of the purchase of Shares pursuant to this
Section 1 (the "CLOSING") shall take place concurrently with, and at the same
place as, the "Second Closing" under the Stock Purchase Agreement if such Second
Closing occurs; PROVIDED, HOWEVER, that if as of the Second Closing any of the
conditions specified in Section 1.1(c) hereof shall not have been satisfied or
waived, Purchaser may postpone the Closing until a date within two business days
after such conditions are satisfied or waived; PROVIDED FURTHER, the Closing
shall not precede the Company's public release of its financial results for its
fiscal quarter ending March 31, 1999, and the Closing shall be postponed until
such date if necessary; PROVIDED FURTHER, upon consummation of the Second
Closing and the Offer, the conditions to the Closing set forth in Sections
1.1(b)(i) and 1.1(c)(i) above shall be deemed to be satisfied, other than with
respect to Seller's representations and warranties contained in Section 3.1. The
date of the Closing is hereinafter referred to as the "CLOSING DATE."
At the Closing, Seller will deliver to Purchaser the certificates representing
the Shares being purchased pursuant to this Section 1.1, without restrictive
legends (other than with regard to the registration requirements under the
Securities Act of 1933, as amended) and duly endorsed or accompanied by stock
powers duly executed in blank. At such Closing, Purchaser shall either (i) wire
transfer to the account designated by Seller or (ii) deliver to Seller a
certified or bank cashier's check payable to or upon the order of Seller, in
either case in an amount equal to the sum of the number of Shares being
purchased from Seller at such Closing multiplied by the Purchase Price in
immediately available funds.
(e) In the event of any change in the Common Stock by reason of
a stock dividend, split-up, recapitalization, combination, conversion, exchange
of shares or other similar change in the corporate or capital structure of the
Company, the type and number of shares or securities subject to this Section 1,
and the Purchase Price, shall be adjusted appropriately, and proper provision
shall be made in the agreements governing such transaction, so that Purchaser
shall receive at the Closing the same class and number of outstanding shares or
other securities or property that Purchaser would have received in respect of
the Common Stock if the Closing had occurred immediately prior to such event, or
the record date therefor, as applicable.
1.2. AGREEMENT NOT TO TENDER. If Purchaser commences a tender offer
(the "OFFER") for the Common Stock pursuant to the Stock Purchase Agreement,
Seller shall not tender any shares of Common Stock that he owns beneficially or
of record in such Offer.
1.3. COVERED OPTION SHARES. The parties acknowledge and agree that the
Shares subject to this Section 1 include shares of Common Stock
(the "COVERED OPTION SHARES") that Seller has the right to acquire within thirty
(30) days of the date hereof through exercise of vested options to purchase
Common Stock ("STOCK OPTIONS"). Seller agrees to exercise a sufficient number of
Stock Options sufficiently in advance of the Closing, and to take all action
necessary to have certificates issued with respect to the shares issuable upon
exercise of such Stock Options, to permit Seller to deliver the number of
Covered Option Shares to Purchaser pursuant to this Agreement at such Closing.
2. VOTING AGREEMENT.
2.1. Except as provided in Section 2.2, Seller agrees that at every
meeting of the stockholders of the Company called with respect to any of the
following, and at every adjournment or postponement thereof, and on every action
or approval by written consent of the stockholders of the Company with respect
to any of the following, Seller will vote (or cause to be voted) all of the
shares of the Company owned beneficially or of record by Seller (including,
without limitation, any shares as to which Seller becomes the record or
beneficial owner after the date hereof) (a) in favor of approval of (i)
Purchaser's acquisition of the Company's capital stock pursuant to the Second
Issuance, the Offer, and this Agreement and similar agreements with other
officers, directors and employees of the Company (together, the "PURCHASER
ACQUISITIONS"), and (ii) any matter that could reasonably be expected to
facilitate the Purchaser Acquisitions and the other transactions contemplated by
the Stock Purchase Agreement (including the election of a Board of Directors of
the Company consistent with
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<PAGE>
the provisions of the Stock Purchase Agreement); (b) against any action or
agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Stock Purchase Agreement or of Seller under this Agreement; and (c)
against any action or agreement that is intended, or might reasonably be
expected, to impede, interfere with, delay, postpone or attempt to discourage or
adversely affect the Purchaser Acquisitions and the other transactions
contemplated by this Agreement and the Stock Purchase Agreement.
2.2. EXCEPTIONS. Notwithstanding anything herein to the contrary,
Seller shall not be obligated to vote any Shares or any other capital stock
in the manner described in Section 2.1 on or after the first to occur of the
Closing or a termination of the parties' obligations under Section 1.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. As a material inducement to
Purchaser to enter into this Agreement, Seller represents and warrants to
Purchaser that as of the date hereof and as of the Closing Date:
3.1. SOLE OWNERSHIP OF SHARES; NO ENCUMBRANCES. On the date hereof,
Seller is the record owner of (a) shares of Common Stock (the
"EXISTING SHARES"), and (b) Stock Options to purchase shares of Common
Stock (the "EXISTING OPTIONS"), which Stock Options will be vested as to
shares of Common Stock within 30 days of the date hereof. On the date hereof,
such shares and Stock Options constitute all of the shares of Common Stock and
Stock Options owned of record and beneficially by Seller. Seller has sole voting
power, sole power of disposition and sole power to agree to all of the matters
set forth in this Agreement with respect to the Existing Shares and the shares
of Common Stock purchasable upon exercise of the Existing Options, with no
limitations, qualifications or restrictions on such rights, and Seller does not
possess such powers over any other shares of Common Stock. The Existing Shares
and the certificates representing such shares are now, and at all times during
the term hereof the Existing Shares and any shares of Common Stock that Seller
acquires through the exercise of Stock Options will be, held by Seller free and
clear of all liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements or any other encumbrances whatsoever
and, in connection with the transfer of Shares to Purchaser in the Offer, Seller
shall transfer to and unconditionally vest in Purchaser good and valid title to
such Shares, free and clear of all claims, liens, restrictions, security
interests, pledges, limitations and encumbrances whatsoever.
3.2. VALIDITY; BINDING EFFECT; NO CONFLICT. This Agreement has been
duly and validly executed by Seller and constitutes the valid and binding
obligation of Seller enforceable against Seller in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors= rights generally and the
availability of equitable remedies may be limited by equitable principles of
general applicability. The execution and delivery of this Agreement does not and
the consummation of the transactions contemplated hereby will not, (i) violate
or conflict with any law, ordinance, rule, regulations, orders, judgment, or
decree to which Seller is subject or by which Seller is bound; or (ii) violate
or conflict with or constitute a default (or an event which, with notice or the
lapse of time, or both, would constitute a default) under, or will result in the
termination of, or accelerate the performance required by or result in the
creation of any lien, security interest, change or encumbrance upon any of the
properties or assets under, any term or provision of any contract, commitment,
understanding, arrangement, agreement or restriction of any kind or character to
which Seller is a party or by which any of her assets may be bound or affected.
Except for required approvals under the HSR Act, no consent, approval,
authorization or action by or any filings with any federal, state or local
governmental agency or any other third party are required in connection with the
execution and delivery by Seller of this Agreement or the consummation by Seller
of the transactions contemplated hereby.
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3.3. BROKERAGE. No investment banker, broker, financial advisor, finder
or other person is entitled to a commission or fee from Seller in respect of
this Agreement or the transactions contemplated hereby based upon any
arrangement or agreement made by or on behalf of Seller.
3.4. RELIANCE BY PURCHASER. Seller understands and acknowledges that
Purchaser is entering into the Stock Purchase Agreement in reliance upon
Seller's execution and delivery of this Agreement and the representations,
warranties and covenants of Seller set forth herein.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. As a material inducement to
Seller to enter into this Agreement, Purchaser represents and warrants to Seller
that as of the date hereof and as of the Closing Date:
4.1. VALIDITY; BINDING EFFECT; NO CONFLICT. This Agreement has been
duly and validly executed by Purchaser and constitutes the valid and binding
obligation of Purchaser enforceable against Purchaser in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally and the
availability of equitable remedies may be limited by equitable principles of
general applicability. The execution and delivery of this Agreement does not and
the consummation of the transactions contemplated hereby will not, (i) violate
or conflict with any law, ordinance, rule, regulations, orders, judgment, or
decree to which Purchaser is subject or by which Purchaser is bound; or (ii)
violate or conflict with or constitute a default (or an event which, with notice
or the lapse of time, or both, would constitute a default) under, or will result
in the termination of, or accelerate the performance required by or result in
the creation of any lien, security interest, change or encumbrance upon any of
the properties or assets under, any term or provision of any contract,
commitment, understanding, arrangement, agreement or restriction of any kind or
character to which Purchaser is a party or by which any of her assets may be
bound or affected. Except for required approvals under the HSR Act, no consent,
approval, authorization or action by or any filings with any federal, state or
local governmental agency or any other third party are required in connection
with the execution and delivery by Purchaser of this Agreement or the
consummation by Purchaser of the transactions contemplated hereby.
4.2. BROKERAGE. Except for NationsBanc Montgomery Securities LLC, no
investment banker, broker, financial advisor, finder or other person is
entitled to a commission or fee from Purchaser in respect of this Agreement or
the transactions contemplated hereby based upon any arrangement or agreement
made by or on behalf of Purchaser.
5. ADDITIONAL COVENANTS.
5.1. NO SOLICITATION. Seller shall not, and shall direct and use
Seller's best efforts to cause his or her agents and representatives not to,
directly or indirectly solicit (including by way of furnishing information) or
respond to any inquires or the making of any proposal by any person or entity
(other than Purchaser) concerning any Transaction Proposal (as defined in the
Stock Purchase Agreement); PROVIDED, HOWEVER, nothing herein shall preclude
Seller, in his capacity as a director of the Company, from exercising his
fiduciary duties in accordance with Section 5.5 of the Stock Purchase Agreement.
If Seller receives any such inquiry or proposal with respect to the sale of
Shares, then Seller shall promptly inform Purchaser in the same manner as set
forth in Section 12.2 of the Stock Purchase Agreement. Seller shall immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing.
5.2. NOTICE OF ADDITIONAL SHARES. Seller hereby agrees to promptly
notify Purchaser in writing of the number of shares of Common Stock that may
be acquired by Seller, if any, after the date hereof.
5.3. FURTHER ASSURANCES. From time to time, at the other party's
request and without further consideration, each party hereto shall execute
and deliver such additional documents and take all such further action as may be
necessary or desirable to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement.
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5.4. RESTRICTIONS ON TRANSFERS. Prior to the first to occur of the
Closing or a termination of the parties' obligations under Section 1, Seller
shall not sell, transfer, encumber or otherwise dispose of any of the Shares,
and shall not take any action inconsistent with his or her obligations
hereunder.
6. MISCELLANEOUS.
6.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements made by Seller or Purchaser
pursuant hereto shall survive Closing.
6.2. BINDING AGREEMENT; ASSIGNMENTS; THIRD-PARTY BENEFICIARIES. This
Agreement shall be binding on and enforceable by the parties and their
respective successors and permitted assigns. No party may assign any of its
rights, benefits or obligations under this Agreement to any person without the
prior written consent of the other party; PROVIDED, HOWEVER, that Purchaser may
assign its rights, benefits or obligations under this Agreement, without the
prior consent of the Company, to an Affiliate of Purchaser (as defined in
Section 5.7 of the Stock Purchase Agreement). No such assignment shall relieve
the Purchaser of its obligations under this Agreement. Nothing contained in this
Agreement shall confer any rights or remedies upon any other person, firm or
corporation.
6.3. WAIVER OF PROVISIONS. The terms, covenants, representations,
warranties and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision of this Agreement
shall in no manner affect the right at a later date to enforce the same. No
waiver by any party of any condition or the breach of any provision, term,
covenant, representation or warranty contained in this Agreement, whether by
conduct or otherwise, in any one or more instances shall be deemed to be or
construed as further or continuing waiver of any such condition or of the breach
of any other provision, term, covenant, representation or warranty of this
Agreement.
6.4. SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
6.5. NOTICES. Any notice or other communication required or permitted
hereunder shall be expressed in writing and delivered in person or sent by
certified or registered mail, return receipt requested, or sent by overnight
courier service such as Federal Express and confirmed by certified or registered
mail, return receipt requested, or sent by facsimile (receipt confirmed) to (a)
Purchaser at its address specified in the Stock Purchase Agreement, and (b) to
Seller at the addresses set forth on the signature page hereof, or at such other
addresses as the parties shall designate by written notice to the other. All
notices shall be deemed received on the third business day after mailing or the
first business day after delivery to the overnight courier service or the same
business day if personally delivered or sent by facsimile.
6.6. COOPERATION. Each party shall cooperate and use its best efforts
to consummate the transaction contemplated herein. In addition, each party
shall cooperate and take such action and execute such other and further
documents as reasonably may be requested by any other party from time to time
after the consummation of the transactions contemplated herein to carry out the
terms and provisions and intent of this Agreement.
6.7. SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
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6.8. ENTIRE AGREEMENT; MODIFICATION. This Agreement contains the entire
agreement between the parties and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof. This Agreement may be amended, modified and supplemented
in any and all respects by written agreement of the parties hereto.
6.9. GOVERNING LAW. The Agreement shall be governed by and construed
under the laws of the State of Washington.
6.10. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one instrument.
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SIGNATURE PAGE TO
STOCK PURCHASE AND VOTING AGREEMENT
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above set forth.
PURCHASER:
VULCAN VENTURES INCORPORATED
By: __________________________________
Name:
Title:
SELLER:
Signature: ___________________________
Print Name: __________________________
Address: _____________________________
_____________________________
Facsimile: ___________________________
March 26, 1999
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EXHIBIT C
BROADVIEW
March 15, 1999
CONFIDENTIAL
Board of Directors
Go2Net, Inc.
999 3rd Avenue
Suite 4700
Seattle, WA 98104
Dear Members of the Board:
We understand that Go2Net, Inc. ("Go2Net" or the "Company") and Vulcan Ventures
Inc. ("Vulcan") propose to enter into a Stock Purchase Agreement (the
"Agreement") pursuant to which Go2Net agrees to issue and sell to Vulcan 300,000
shares of Go2Net's Series A Preferred Stock ("Preferred Shares") for a purchase
price of $1,000 per share (the "Stock Purchase"), payable in cash and a
short-term promissory note. Vulcan shall have the right, at its option, at any
time, to convert, subject to the terms of the Certificate of Designation of
Series A Convertible Preferred Stock (the "Certificate") all or any portion of
its Preferred Shares into that number of shares of Go2Net common stock equal to
(i) the sum of (A) the purchase price of all Preferred Shares to be converted
plus (B) any declared but unpaid dividends on such shares, divided by (ii)
$66.11 (the "Conversion Price"), subject to adjustment according to the
Certificate. The issuance and sale of 132,493 of the Preferred Shares pursuant
to the Stock Purchase (the "Second Issuance") is conditioned upon, among other
things (i) Vulcan's purchase of all common shares tendered (the "Tender Offer")
up to 3,574,278 shares of Go2Net's Common Stock at a purchase price of $90.00
per share (the "Tender Price") in cash, and (ii) the election of a number of
candidates designated by Vulcan that would constitute a majority of the
directors of Go2Net's Board. In addition, Go2Net management has agreed to sell
1,425,722 shares of Go2Net common stock to Vulcan for $90.00 per share. The
terms and conditions of the Stock Purchase and Tender Offer (together, the
"Transaction") are more fully described in the Agreement.
You have requested our opinion as to whether the Conversion Price and Tender
Price are fair, from a financial point of view, to Go2Net shareholders.
Broadview International LLC focuses on providing merger and acquisition advisory
services to information technology ("IT"), communications and media companies.
In this capacity, we are continually engaged in valuing such businesses, and we
maintain an extensive database of IT, communications and media mergers and
acquisitions for comparative purposes. We will receive a fee from Go2Net upon
the delivery of this opinion.
In rendering our opinion, we have, among other things:
1) reviewed the terms of the Agreement, the Certificate and the Stock
Purchase and Voting Agreement in the form of drafts dated March 14, 1999
furnished to us by Go2Net's legal counsel on March 14, 1999, which, for the
purposes of this opinion, we have assumed, with your permission, to be identical
in all material respects to the agreements and certificate to be executed,
except that we have been informed by Go2Net management that the agreements to be
executed will provide for:
(a) the sale of 300,000 Preferred Shares with 167,507 sold at the First
Closing (as defined in the Agreement), and 132,493 being sold at the Second
Closing (as defined in the Agreement);
(b) a Conversion Price of $66.11 per share;
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(c) a Maximum Tender Number (as defined in the Agreement) of 3,574,278
and a Tender Price of $90.00 per share;
(d) the sale of 1,425,722 shares of Go2Net common stock by Go2Net
management to Vulcan for $90.00 per share; and
(e) payment of $8 million of transaction fees by Go2Net pursuant to
Section 10.3 of the Agreement;
2) reviewed Go2Net's Form 10-K for its fiscal year ended September 30, 1998,
including the audited financial statements included therein, and Go2Net's Form
10-Q for the three months ended December 31, 1998, including the unaudited
financial statements included therein;
3) reviewed quarterly financial projections for Go2Net for its fiscal years
ending September 30, 1999 through September 30, 2001 prepared and provided to us
by Go2Net management;
4) participated in discussions with Go2Net management concerning the
operations, business strategy, financial performance and prospects for Go2Net;
5) discussed with Go2Net management its view of the strategic rationale for
the Transaction;
6) discussed with Vulcan management its view of the strategic rationale for
the Transaction;
7) reviewed recent equity analyst reports covering Go2Net;
8) reviewed the reported closing prices and trading activity for Go2Net
Common Stock;
9) compared certain aspects of the financial performance of Go2Net with
public companies we deemed comparable;
10) considered the implications on the Company's capital structure resulting
from the Transaction, including the accelerated vesting of existing options to
purchase Go2Net common stock;
11) analyzed available information, both public and private, concerning
other mergers and acquisitions we believe to be comparable in whole or in part
to the Transaction;
12) conducted other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification, on
the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Agreement) that was publicly available or furnished to us by Go2Net. With
respect to the financial projections examined by us, we have assumed that they
were reasonably prepared and reflected the best available estimates and good
faith judgments of the management of Go2Net as to the future performance of
Go2Net. We have neither made nor obtained an independent appraisal or valuation
of any of Go2Net's assets.
Based upon and subject to the foregoing, we are of the opinion that
theConversion Price and Tender Price are fair, from a financial point of view,
to Go2Net shareholders.
For purposes of this opinion, we have assumed that Go2Net is not currently
involved in any material transaction other than the Transaction and those
activities undertaken in the ordinary course of conducting its business. Our
opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of the date of this opinion,
and any change in such conditions may impact this opinion. We express no opinion
as to the price at which Go2Net Common Stock will trade at any time.
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of Go2Net in connection
with its consideration of the Transaction and does not
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constitute a recommendation to any Go2Net shareholder as to how such shareholder
should vote on the Second Issuance or as to whether such shareholder should
tender pursuant to the Tender Offer. This opinion may not be published or
referred to, in whole or part, without our prior written permission, which shall
not be unreasonably withheld. Broadview International LLC hereby consents to
references to and the inclusion of this opinion in its entirety in the Proxy
Statement and Schedule 14D-9 to be distributed to Go2Net shareholders in
connection with the Transaction.
Sincerely,
/s/ Broadview International LLC
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Broadview International LLC
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EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is entered into this
15(th) day of March, 1999, by and among GO2NET, INC., a Delaware corporation
(the "COMPANY"), and VULCAN VENTURES INCORPORATED, a Washington corporation
("VULCAN").
A. Concurrently with the execution of this Agreement, Vulcan is purchasing
167,507 shares of the Company's Series A Convertible Preferred Stock, $.01 par
value (the "SERIES A PREFERRED STOCK"), pursuant to that certain Stock Purchase
Agreement dated March 15, 1999, between the Company and Vulcan (the "STOCK
PURCHASE AGREEMENT"). The Stock Purchase Agreement also contemplates Vulcan's
acquisition of additional shares of the Series A Preferred Stock and certain
shares of the Company's Common Stock, $.01 par value (the "COMMON STOCK").
B. The parties hereto desire to set forth the respective rights of the
Company and Vulcan with respect to the registration of the shares of the
Company's Common Stock that Vulcan may acquire.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises contained herein, the parties hereto agree as follows:
1. DEFINITIONS.
1.1. AS USED IN THIS AGREEMENT, THE FOLLOWING CAPITALIZED TERMS SHALL
HAVE THE FOLLOWING MEANINGS:
AFFILIATE: A Person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, Vulcan; provided that such control relationship involves direct or
indirect ownership of at least a majority of the outstanding voting interests of
the applicable Person. Without limiting the generality of the foregoing, it is
understood that any entity that is majority owned (directly or indirectly) by a
Person that directly or indirectly owns a majority of the outstanding voting
interests of Vulcan shall be an Affiliate of Vulcan.
COMMON STOCK: All shares now or hereafter authorized of any class
of common stock of the Company, and any other equity securities of the Company,
howsoever designated, which have the right (subject always to prior rights of
any class or series of preferred shares) to participate in the distribution of
the assets and the earnings of the Company without limit as to per share amount.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended from
time to time.
HOLDERS: Vulcan, all of its Affiliates (including without
limitation Paul G. Allen), any Person to which Common Stock is transferred by
Vulcan and its Affiliates for purposes of Paul G. Allen's estate planning, and
any Person to which Common Stock is transferred by Vulcan and its Affiliates
that has registration rights pursuant to Section 10 below.
MAJORITY HOLDERS: Holders of a majority of the Registrable
Securities held by all Holders at the time of any request for registration
pursuant to Section 2.1(a).
PERSON: An individual, corporation, partnership, limited liability
company, trust, unincorporated organization or a government or any agency or
political subdivision thereof.
PROSPECTUS: The definitive prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by the Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
REGISTRABLE SECURITIES: Those shares of Common Stock now or
hereafter owned of record or beneficially by the Holders (including, without
limitation, any shares of Common Stock acquired by
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the Holders upon conversion of the Series A Preferred Stock) plus any shares
received from the Company with respect to or in replacement of such shares by
reason of splits, dividends and recapitalizations and other changes in the
Company's capital structure, but excluding any shares which may be then
immediately sold to the public without registration pursuant to Rule 144 under
the Securities Act.
REGISTRATION EXPENSES: See Section 6 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company
filed under the Securities Act which covers Registrable Securities pursuant to
the provisions of this Agreement, including the Prospectus, amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended from time to
time.
SELLING HOLDERS: Holders of Registrable Securities who seek to sell
such securities under any Registration Statement.
2. REGISTRATION RIGHTS.
2.1. REGISTRATION UPON REQUEST.
(a) At any time beginning 180 days after the date hereof, the
Majority Holders may request by written notice (a "DEMAND NOTICE") to the
Company that the Company effect the registration under the Securities Act of a
number of Registrable Securities at least equal to 5% of the shares of the
Common Stock then outstanding, stating the intended method of disposition of
such shares. The registration rights contemplated by this Section 2.1 may be
exercised only three (3) times by the Majority Holders during the term of this
Agreement; PROVIDED, HOWEVER, the request for registration shall not be deemed
made if either (i) the Registration Statement does not become effective under
the Securities Act (including without limitation if the Selling Holders withdraw
the Registration Statement, provided in case of such withdrawal the request for
registration will be deemed made unless the Selling Holders reimburse the
Company for its reasonable expenses in connection with such Registration
Statement) or a stop order, injunction or other order interferes or prevents the
contemplated method of distribution or (ii) the number of Registrable Securities
requested to be included in the registration is reduced by 15% or more pursuant
to Section 2.1(c). Within five (5) business days after receipt of a Demand
Notice, the Company shall notify all other Holders and offer to them the
opportunity to include their Registrable Securities in such registration.
(b) Upon receipt of such request, the Company shall, as soon as
practicable, prepare and file a Registration Statement with the SEC on an
appropriate form under the Securities Act with respect to all of the Registrable
Securities that Holders of such securities have requested that the Company
register, and use its best efforts to cause such Registration Statement to
become effective.
(c) In connection with any Registration Statement filed in
response to such request, the Company, at its option, may include a primary
offering of additional shares of Common Stock and/or may include shares to be
sold by other stockholders of the Company; PROVIDED, HOWEVER, that if the
managing underwriter of such offering reasonably determines in good faith and
delivers to the Selling Holders a written opinion that the number of shares
otherwise to be included in the Registration Statement is such that the success
of the underwritten offering would be materially and adversely affected and,
accordingly, the total number of shares to be included in the Registration
Statement is reduced to the amount recommended by such underwriter, then (i)
unless the Registration Statement includes all of the Registrable Securities
designated for sale by all Selling Holders participating in the demand
registration pursuant to Section 2.1(a), the Registration Statement shall not
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include any shares to be offered by the Company or sold by other stockholders
(including other Holders exercising incidental registration rights pursuant to
Section 2.2), and (ii) if the Registration Statement does not include all of the
Registrable Securities designated for sale by such Selling Holders, the number
of Registrable Securities included in the Registration Statement shall be
allocated among such Selling Holders pro rata (based on the number of
Registrable Securities held by each).
(d) Notwithstanding the foregoing, upon delivery of written
notice (deliverable no later than 10 days after delivery of the Demand Notice)
to the person(s) who delivered the Demand Notice, the Company shall be entitled
to postpone filing of the Registration Statement, and may withhold efforts to
cause the Registration Statement to become effective, for a reasonable period of
time (not to exceed the shorter of 90 days or the Company's termination of
consideration of a Company Offering (as defined below) or completion of any
Transaction (as defined below), as the case may be) if (i) the Company is
contemplating filing a registration statement in connection with the offering of
its securities (a "COMPANY OFFERING") within 90 days of delivery of the Demand
Notice, or (ii) the Company determines in good faith that a registration
pursuant to the Demand Notice might interfere with or adversely affect the
negotiations or completion of any transaction that is being contemplated by the
Company at the time the right to delay is exercised (a "TRANSACTION").
2.2. INCIDENTAL REGISTRATION.
(a) If at any time after the date hereof the Company proposes to
register any shares of Common Stock under the Securities Act (except pursuant to
a registration statement filed on Form S-8 or Form S-4 or such other form as
shall be prescribed under the Securities Act for the same purposes, or a
registration statement filed on Form S-3 covering exclusively shares issued in
acquisitions pursuant to Section 4(2) under the Securities Act), or if any other
stockholder is being afforded an opportunity to register shares of Common Stock
(including pursuant to Section 2.1(a)), the Company will at each such time give
written notice to the Holders (other than Holders participating in a demand
registration pursuant to Section 2.1(a)) as provided in Section 11.4 hereof of
its intention to do so. Within twenty (20) days after receipt of such notice,
such Holders may request that the Company register all or part of the
Registrable Securities, stating in such request the intended method of
distribution of such securities (the "DESIGNATED SECURITIES"). Upon receipt of
such request, the Company shall use its best efforts to effect the registration
of the Designated Securities by including the Designated Securities in such
Registration Statement.
(b) In the event that securities of the same class as the
Registrable Securities are being registered by the Company in such Registration
Statement and such securities as well as any of the Designated Securities are to
be distributed in an underwritten offering, such Designated Securities shall be
included in such underwritten offering on the same terms and conditions as the
securities being issued by the Company for distribution pursuant to such
underwritten offering; PROVIDED, HOWEVER, that if the managing underwriter of
such underwritten offering reasonably determines in good faith and advises the
parties that the inclusion in such underwritten offering of all the Designated
Securities would materially and adversely affect the success of the underwritten
offering, then the number of Designated Securities to be included in the
Registration Statement shall be reduced to the amount recommended in good faith
by and set forth in the opinion of such managing underwriter; PROVIDED, FURTHER,
that as to the Selling Holders exercising incidental registration rights
pursuant to this Section 2.2, such reduction shall be pro rata (based on the
number of shares held by each) with respect to the Designated Securities with
other Persons holding contractual incidental or "piggy-back" registration rights
in such underwritten offering.
(c) No registration effected under this Section 2.2 shall
relieve the Company of its obligations to effect registrations at the request of
the Holders under Section 2.1.
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3. HOLD-BACK AGREEMENTS.
3.1. RESTRICTIONS ON PUBLIC SALE BY HOLDERS. Each Selling Holder whose
Registrable Securities are covered by a Registration Statement filed
pursuant to Section 2 hereof agrees, if requested by the managing underwriters
in an underwritten offering, not to effect any public sale or distribution of
securities of the Company of the same class as the securities included in such
Registration Statement during a period, not to exceed 90 days, beginning on the
closing date of each underwritten offering made pursuant to such Registration
Statement, to the extent timely notified in writing by the managing
underwriters.
3.2. RESTRICTIONS ON PUBLIC SALE BY THE COMPANY AND OTHERS. The Company
agrees not to effect any public sale or distribution of its Common Stock,
during a period, not to exceed 45 days, beginning on the closing date of an
underwritten offering made pursuant to a Registration Statement filed under
Section 2 hereof to the extent timely notified in writing by the managing
underwriters (except as part of such underwritten registration or pursuant to
registrations on Forms S-4 or S-8 or any successor form to such Forms).
4. REGISTRATION PROCEDURES. In connection with the Company's registration
obligations pursuant to Section 2 hereof, the Company will use its best efforts
to effect such registration to permit the sale of such Registrable Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company will:
4.1. PREPARATION OF REGISTRATION STATEMENT. Prepare and file with the
SEC, within the time periods specified in Section 2, a Registration
Statement on such form as may be appropriate under the Securities Act, and use
its best efforts to cause such registration Statement to become effective.
4.2. MAINTAINING EFFECTIVENESS. Promptly prepare and file with the SEC
such amendments to the Registration Statement as may be necessary to keep
such Registration Statement effective for a period of not more than 180 days
(or, in the case of an underwritten offering, no more than 5 business days), or
such shorter period which will terminate when all Registrable Securities covered
by such Registration Statement have been sold.
4.3. NOTIFICATION. Immediately notify the Selling Holders and the
managing underwriters, if any, and (if requested by any such Person) confirm
such advice in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of the issuance by the SEC of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceeding for that
purpose, (iii) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, and (iv) of the happening of any event which makes any statement
made in the Registration Statement, the Prospectus or any document incorporated
therein by reference untrue or which requires the making of any changes in the
Registration Statement, the Prospectus, or any document incorporated therein by
reference so that they will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statement therein not misleading.
4.4. STOP ORDERS. Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of a Registration Statement or the
qualification of any Registrable Securities for sale in any jurisdiction at the
earliest possible moment.
4.5. CONSULTATION WITH HOLDERS. Prior to the filing of any Registration
Statement or amendment thereto, provide copies of such document to the
Selling Holders and to the managing underwriters, if any, make the Company's
representatives and the Company's counsel available for discussion of such
document and make such changes in such document relating to the Selling Holders
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prior to the filing thereof as such Selling Holders, counsel for such Selling
Holders, or underwriters may reasonably request.
4.6. COPIES OF REGISTRATION STATEMENTS. Furnish to each Selling Holder
and each managing underwriter, if any, without charge, at least one
originally executed copy of the Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those incorporated
by reference).
4.7. PROSPECTUSES. Deliver to each Selling Holder and the underwriters,
if any, without charge, as many copies of the Prospectus (and each
preliminary prospectus) and any amendment or supplement thereto as such Persons
may reasonably request so long as the Registration Statement to which such
Prospectus or any amendment or supplement thereto relates is effective.
4.8. BLUE SKY LAWS. Prior to any public offering of Registrable
Securities, use its best efforts to register or qualify or cooperate with
the Selling Holders, the underwriters, if any, and their respective counsel in
connection with the registration or qualification of such Registrable Securities
for offer and sale under the securities or blue sky laws of such jurisdictions
within the United States as any Selling Holder or underwriter reasonably
requests, and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the Registration Statement; PROVIDED, HOWEVER, that the Company will
not be required to qualify generally to do business in any jurisdiction where it
is not then so qualified or to take any action which would subject it to general
service of process or taxation in any such jurisdiction where it is not then so
subject.
4.9. AMENDMENTS UPON CHANGES. Upon the occurrence of any event
contemplated by Sections 4.3(ii), (iii) or (iv) or 4.4 above, prepare, as
promptly as practicable, a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document incorporated
therein by reference, or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold thereunder,
such Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading.
4.10. UNDERWRITING AGREEMENTS. Enter into such customary agreements
(including an underwriting agreement) and take all such other actions
reasonably required in connection therewith in order to expedite or facilitate
the disposition of such Registrable Securities.
4.11. COMPLIANCE WITH LAWS; SECTION 11(A). Otherwise use its best
efforts to comply with all applicable federal and state securities laws
(including without limitation the rules and regulations of the SEC), and make
generally available to its security holders earning statements satisfying the
provisions of Section 11(a) of the Securities Act no later than 45 days after
the end of each 12-month period (or within 90 days after the end of a fiscal
year).
4.12. OPINIONS. At the request of any Selling Holder, use its best
efforts to furnish on the date that the Registrable Securities are delivered
to that Holder and any underwriter for sale in connection with a registration
pursuant to this Agreement (i) an opinion of the counsel representing the
Company for the purposes of such registration, and (ii) a letter from the
independent certified public accountants of the Company, each dated such date
and in form and substance as is customarily given by counsel and independent
certified public accountants to underwriters in an underwritten public offering,
addressed to any Selling Holders' underwriter and to the Selling Holders.
5. SELLING HOLDERS' OBLIGATIONS.
5.1. PROVISION OF INFORMATION. The Company may require each Selling
Holder of Registrable Securities as to which any registration is being
effected to furnish to the Company such information regarding the distribution
of such securities by, and such other information relevant to, the Selling
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Holder for inclusion in such Registration Statement, as the Company may from
time to time reasonably request in writing.
5.2. DISCONTINUED USE OF PROSPECTUS. Each Holder of Registrable
Securities agrees by execution of this Agreement that, upon receipt of any
written notice from the Company of the happening of any event of the kind
described in clauses (ii), (iii) or (iv) of Section 4.3 or Section 4.4 hereof,
such Holder will forthwith discontinue disposition of Registrable Securities
until such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 4.9 hereof, or until it is advised in writing
(the "ADVICE") by the Company that the use of the Prospectus may be resumed, and
has received copies of any additional or supplemental filings which are
incorporated by reference in such Prospectus, and, if so directed by the Company
such Holder will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such Holder's possession, of the
Prospectus covering such Registrable Securities current at the time of receipt
of such notice. In the event the Company shall give any such notice, the time
period mentioned in Section 4.2 hereof shall be extended by the number of days
during the period from and including the date of the giving of such notice to
and including the date when each Selling Holder shall have received the copies
of the supplemental or amended Prospectus contemplated by Section 4.9 hereof or
the Advice.
5.3. UNDERWRITING AGREEMENT. Each Selling Holder participating in an
underwritten offering pursuant to Section 2.1 or 2.2 will enter into a
customary underwriting agreement on terms reasonably satisfactory to the
managing underwriter.
6. REGISTRATION EXPENSES. The Company shall bear all expenses other than
Selling Holder Expenses (defined below) incurred in connection with any
Registration Statement, including without limitation all registration and filing
fees, fees with respect to any filings required to be made with the National
Association of Securities Dealers, listing fees relative to any stock exchange
or national market system, fees and expenses of compliance with state securities
or blue sky laws (including reasonable fees and expenses of counsel for the
underwriters in connection therewith), printing expenses, fees and disbursements
of counsel for the Company, and fees and disbursements of all independent public
accountants of the Company. Each Selling Holder shall bear his or its pro rata
share of any Selling Holder Expenses. "SELLING HOLDER EXPENSES" shall consist of
and be limited to (i) the Selling Holder's legal costs, including the fees and
expenses of any counsel selected by the Selling Holder to represent him or it,
and (ii) the proportionate share of brokerage or underwriting commissions
attributable to the Selling Holder's shares.
7. INDEMNIFICATION.
7.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless each Holder of Registrable Securities, each Person who
controls such Holder (within the meaning of the Securities Act or the Exchange
Act) (a "CONTROLLING PERSON"), and each officer, director, employee and agent of
such Holder and each controlling person and each underwriter or selling agent
(the "INDEMNIFIED PARTIES") from and against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged untrue statement of a
material fact contained in any Registration Statement, Prospectus or preliminary
prospectus or any amendment or supplement thereto or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as (i)
the Company has demonstrated that the same are caused by or contained in any
information furnished to the Company by such Holder, expressly for use therein,
or (ii) the Company has advised such Holders' Representative in writing of a
Section 4.3(iv) event and the Holder has sold Registrable Securities
notwithstanding receipt of such notice prior to receipt of a supplement or
amended Prospectus pursuant to Section 4.9 herein; PROVIDED, HOWEVER, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or expense arises out of or is based upon an untrue
statement or alleged untrue
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statement or omission or alleged omission made in any preliminary prospectus if
(i) such Holder failed to send or deliver a copy of the Prospectus with or prior
to the delivery of written confirmation of the sale of Registrable Securities
and (ii) the Prospectus would have corrected such untrue statement or omission;
PROVIDED, FURTHER, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or expense arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the Prospectus, if such untrue statement or alleged untrue
statement, omission or alleged omission is corrected in an amendment or
supplement to the Prospectus and if, having previously been furnished by or on
behalf of the Company with copies of the Prospectus as so amended or
supplemented, such Holder thereafter fails to deliver such Prospectus as so
amended or supplemented, prior to or concurrently with the sale of a Registrable
Security to the Person asserting such loss, claim, damage, liability or expense
who purchased such Registrable Security which is the subject thereof from such
Holder. The indemnity provided herein shall remain in full force and effect
regardless of any investigation made by or on behalf of an indemnified party and
shall survive the transfer of Registrable Securities by the Selling Holder.
7.2. INDEMNIFICATION BY HOLDERS. In connection with the Registration
Statements hereunder, each Selling Holder agrees to indemnify, to the full
extent permitted by law, the Company, and each Person who controls the Company
(within the meaning of the Securities Act or the Exchange Act) and each
director, officer, employee and agent of each such Person from and against any
losses, claims, damages, liabilities and expenses caused by any untrue statement
of a material fact or any omission of a material fact required to be stated in
any Registration Statement or Prospectus or preliminary prospectus or necessary
to make the statements therein not misleading, to the extent, but only to the
extent, that the Company has demonstrated that such untrue statement or omission
is contained in any information or affidavit so furnished by such Holder to the
Company specifically for inclusion in such Registration Statement or Prospectus.
In no event, however, shall the liability of any Selling Holder hereunder be
greater in amount than the dollar amount of the proceeds (net of underwriters'
discounts and commissions) received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation. The
Company shall be obligated to give to, and shall be entitled to receive from,
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution customary indemnities.
7.3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and (ii)
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; PROVIDED, HOWEVER, that any
person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Person unless (a)
the indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assume within a reasonable period of
time the defense of such claim and employ counsel reasonably satisfactory to
such person or (c) in the reasonable judgment of any such Person, based upon
written advice of its counsel, a conflict of interest may exist between such
Person and the indemnifying party with respect to such claims or such Person may
have separate or additional defenses (in which case, if the Person notifies the
indemnifying party in writing that such Person elects to employ separate counsel
at the expense of the indemnifying party, the indemnifying party shall not have
the right to assume the defense of such claim on behalf of such Person). If such
defense is not assumed by the indemnifying party, the indemnifying party will
not be subject to any liability for any settlement made without its consent (but
such consent will not be unreasonably withheld). No indemnifying party will
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation. An indemnifying party who is not entitled to, or elects not
to, assume the defense of a claim will not be obligated to pay the fees and
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expenses of more than one principal and one local counsel for all parties
indemnified by such indemnifying party with respect to such claim.
7.4. CONTRIBUTION. If the indemnification provided for in Sections 7.1
or 7.2 is unavailable to the indemnified parties in respect of any losses,
claims, damages or liabilities referred to herein, then each such indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (i) as between the Company and the Selling
Holders on the one hand and the underwriters on the other hand, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Holders on the one hand and the underwriters on the
other hand from the offering of all of the securities sold in the offering, or
if such allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the relative
fault of the Company and the Selling Holders on the one hand and of the
underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations and (ii) as between the Company on the
one hand and each Selling Holder on the other hand, in such proportion as is
appropriate to reflect the relative fault of the Company and of each Selling
Holder in connection with such statements or omissions, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Selling Holders on the one hand and the underwriters on the other hand
shall be deemed to be in the same proportion as the total proceeds from the
offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and the Selling Holders bear to the total
underwriting discounts and commissions received by the underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company and the Selling Holders on the one hand and of the
underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and the Selling Holders or by the underwriters. The
relative fault of the Company on the one hand and of each Selling Holder on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7.4 were determined by pro
rata allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7.4, no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Common Stock underwritten by it and distributed to the public
was offered to the public exceeds the amount of any damages which such
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Selling Holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the securities of such Selling Holder were offered to the
public exceeds the amount of any damages which such Selling Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Selling Holders' obligations to contribute pursuant to
this Section 7.4 are several in proportion to the
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proceeds of the offering received by each Selling Holder bears to the total
proceeds of the offering received by all the Selling Holders and not joint.
8. SELECTION OF UNDERWRITERS. In connection with any request for registration
under Section 2.1 hereof, the Company shall be entitled to select the managing
underwriter if it is also registering shares on its own behalf. The Selling
Holders, however, shall be entitled to select the co-managing underwriter. If
the Registration Statement covers only shares being sold by the Selling Holders,
then the Selling Holders shall be entitled to select the managing underwriter,
subject to approval by the Company, which approval shall not be unreasonably
withheld. In connection with any registration under Section 2.2, the Selling
Holders shall have no right to select underwriters.
9. RULE 144 The Company covenants that, after it has filed a registration
pursuant to Section 12 of the Exchange Act or a registration statement under the
Securities Act becomes effective, it will file the reports required to be filed
by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder, and it will take such further action
as may be reasonably and customarily requested by any Holder of Registrable
Securities, all to the extent required from time to time to enable such Holder
to sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of any
Holder of Registrable Securities, the Company will deliver to such Holder a
written statement as to whether it has complied with such information and
requirements.
10. TRANSFER OF REGISTRATION RIGHTS. The registration rights granted pursuant
to this Agreement shall be available to a transferee of any Registrable
Securities if (i) the transferring Holder gives the Company written notice of
such transfer, identifying the name and address of the transferee and the
securities involved; (ii) the transferee agrees in writing to be bound by the
provisions of this Agreement; and (iii) as a result of such transfer, the
transferee holds at least 5% (or, if the "Second Closing" under the Stock
Purchase Agreement shall have been consummated, 10%) of the shares of Common
Stock outstanding as of the date of the transfer.
11. MISCELLANEOUS.
11.1. REMEDIES. In the event of a breach by the Company of its
obligations under this Agreement, each Holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby waives the defense in any action
for specific performance that a remedy at law would be adequate.
11.2. NO INCONSISTENT AGREEMENTS. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its
securities which is inconsistent with or limits or impairs the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
11.3. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company will not
take any action, or permit any change to occur, with respect to the
Registrable Securities which would adversely affect the ability of the Holders
of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement.
11.4. NOTICES. All notices or other communications hereunder shall be in
writing and shall be given by (i) personal delivery, (ii) courier or other
delivery service which obtains a receipt evidencing delivery, (iii) registered
or certified mail (postage prepaid and return receipt requested), or (iv)
facsimile or similar electronic device, to such address as may be designated
from time to time by the relevant party, and which shall initially be: (i) in
the case of the Company, 999 Third Avenue,
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Seattle, Washington 98004, Attention: Russell C. Horowitz, facsimile (206)
447-1646, with a copy to Hutchins, Wheeler & Dittmar, A Professional
Corporation, 101 Federal Street, Boston, MA 02110, Attn: Thomas M. Camp, Esq.,
facsimile (617) 951-1295; and (ii) in the case of Vulcan, 110 110(th) Avenue
N.E., Suite 550, Bellevue, Washington 98004, attention: William D. Savoy,
facsimile (425) 453-1985, with a copy to Irell & Manella LLP, 1800 Avenue of the
Stars, Suite 900, Los Angeles, CA 90067, Attn: Alvin G. Segel, Esq., facsimile
(310) 203-7199. All notices and other communications shall be deemed to have
been given (i) if delivered by the United States mail, three business days after
mailing (five business days if delivered to an address outside of the United
States), (ii) if delivered by a courier or other delivery service, one business
day after dispatch (two business days if delivered to an address outside of the
United States), and (iii) if personally delivered or sent by facsimile or
similar electronic device, upon receipt by the recipient or its agent or
employee (which, in the case of a notice sent by facsimile or similar electronic
device, shall be the time and date indicated on the transmission confirmation
receipt). No objection may be made by a party to the manner of delivery of any
notice actually received in writing by an authorized agent of such party.
11.5. COMPLETE AGREEMENT; MODIFICATIONS. This Agreement and any
documents referred to herein or executed contemporaneously herewith
constitute the parties' entire agreement with respect to the subject matter
hereof and supersede all agreements, representations, warranties, statements,
promises and understandings, whether oral or written, with respect to the
subject matter hereof. This Agreement may be amended, altered or modified only
by a writing signed by the Company, the Majority Holders.
11.6. SUCCESSORS AND ASSIGNS. Except as provided herein to the contrary,
this Agreement shall be binding upon and inure to the benefit of the
parties, their respective successors and permitted assigns, including without
limitation and without the need for an express assignment, subsequent Holders of
Registrable Securities.
11.7. GOVERNING LAW. All questions with respect to the Agreement and the
rights and liabilities of the parties shall be governed by the laws of the
State of Delaware, regardless of the choice of laws provisions of Delaware or
any other jurisdiction.
11.8. ATTORNEYS' FEES. Should any litigation be commenced (including any
proceedings in a bankruptcy court) between the parties hereto or their
representatives concerning any provision of this Agreement or the rights and
duties of any Person or entity hereunder, the party or parties prevailing in
such proceeding shall be entitled, in addition to such other relief as may be
granted, to the reasonable attorneys' fees and court costs incurred by reason of
such litigation.
11.9. HEADINGS. The Article and Section headings in this Agreement are
inserted only as a matter of convenience, and in no way define, limit,
extend or interpret the scope of this Agreement or of any particular Article or
Section.
11.10. SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
11.11. GENDER. Throughout this Agreement, as the context may require, the
masculine gender includes the feminine and neuter; and the neuter gender
includes the masculine and feminine.
11.12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
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SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth hereinabove.
GO2NET, INC.
By: __________________________________
Its: _________________________________
VULCAN VENTURES INCORPORATED
By: __________________________________
Its: _________________________________
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EXHIBIT E
CERTIFICATE OF DESIGNATION OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
GO2NET, INC.
Go2Net, Inc., (hereinafter called the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify:
1. The name of the Corporation is Go2Net, Inc.
2. The certificate of incorporation of the Corporation authorizes the
issuance of 1,000,000 shares of Preferred Stock, $.01 par value, and expressly
vests in the Board of Directors of the Corporation the authority provided
therein to provide for the issuance of said shares in series and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations, or restrictions
thereof.
3. The Board of Directors of the Corporation, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a "Series A Convertible" issue of Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock of the
Corporation be and hereby is created, and that the designation and amount
thereof and the voting powers, preferences and relative participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
SERIES A CONVERTIBLE PREFERRED STOCK
1. DESIGNATION AND AMOUNT. The shares of such series shall be designated
"Series A Convertible Preferred Stock" (the "Series A Preferred Stock") and the
number of shares constituting such series shall be 300,000.
2. DIVIDENDS.
(a) The Series A Preferred Stock shall not be entitled to receive dividends
unless and until the Board of Directors declares a dividend in respect of the
Common Stock out of legally available funds therefor; PROVIDED, HOWEVER, that no
dividends shall be declared or paid upon the Common Stock (other than dividends
payable upon the Common Stock solely in additional shares of Common Stock,
provided that an appropriate adjustment in the Conversion Price is made under
Section 6(a) hereof) or any other stock ranking on liquidation junior to the
Series A Preferred Stock (such stock being referred to hereinafter collectively
as "Junior Stock") unless (i) after the payment of the dividend on the Common
Stock and Junior Stock (and the simultaneous dividend on the Series A Preferred
Stock) the Corporation's net worth exceeds the aggregate liquidation preference
of the Series A Preferred Stock (provided that this clause (i) shall not apply
if the dividend is approved by the holders of a majority of the outstanding
shares of Series A Preferred Stock) and (ii) there shall be simultaneous
declaration or payment, as applicable, of a dividend upon the Series A Preferred
Stock.
(b) In the case of any dividend being declared upon the Common Stock, the
dividend which shall be declared upon each share of Series A Preferred Stock as
a condition to such dividend upon the Common Stock shall be equal in amount to
the dividend payable upon that number of shares of Common Stock acquirable upon
conversion of a share of Series A Preferred Stock immediately before the
declaration of such dividend, with such conversion being based on the then
applicable Conversion
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Price determined in accordance with Section 6 as of the record date for the
declaration of such dividend on the Common Stock.
(c) In the case of any dividend being declared upon any class of Junior
Stock that is convertible into Common Stock, the amount of the dividend which
shall be declared upon each share of Series A Preferred Stock as a condition to
such dividend on Junior Stock, divided by the number of shares of Common Stock
acquirable upon conversion of a share of Series A Preferred Stock, shall equal
the amount of the dividend declared upon each share of such class of Junior
Stock, divided by the number of shares of Common Stock acquirable upon
conversion of a share of such class of Junior Stock, in each case assuming such
conversion occurred immediately before the declaration of such dividend.
(d) No dividend shall be declared or paid upon any class of Junior Stock
(other than Common Stock) that is not convertible into Common Stock without the
consent of holders of at least a majority of the outstanding shares of Series A
Preferred Stock.
(e) Holders of shares of Series A Preferred Stock shall be entitled to share
equally, share for share, in all such dividends declared upon the Series A
Preferred Stock.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of shares of Series A Preferred Stock
then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, after and subject to
the payment in full of all amounts required to be distributed to the holders of
any Preferred Stock of the Corporation ranking on liquidation prior and in
preference to the Series A Preferred Stock (such Preferred Stock that is senior
to the Series A Preferred Stock being referred to hereinafter as "Senior Stock")
upon such liquidation, dissolution or winding up, but before any payment shall
be made to the holders of Common Stock or other Junior Stock, an amount equal to
the sum of (i) $1,000 per share (the "Liquidation Preference") (subject to
adjustment in the event of any stock dividend, stock split, stock distribution
or combination with respect to such shares), and (ii) the amount of all declared
but unpaid dividends on the Series A Preferred Stock. If upon any such
liquidation, dissolution or winding up of the Corporation, the remaining assets
of the Corporation available for the distribution to its stockholders after
payment in full of amounts required to be paid or distributed to holders of any
other Senior Stock shall be insufficient to pay the holders of shares of Series
A Preferred Stock the full amount to which they shall be entitled, the holders
of shares of Series A Preferred Stock, and any class of stock ranking on
liquidation on a parity with the Series A Preferred Stock (such Preferred Stock
ranking on liquidation on parity with the Series A Preferred Stock being
referred to as "Parity Stock"), shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable with respect to the shares held by them
upon such distribution if all amounts payable on or with respect to said shares
were paid in full. Except as set forth in this clause (a), holders of shares of
Series A Preferred Stock shall not be entitled to any distribution in the event
of liquidation, dissolution or winding up of the Corporation.
(b) The merger or consolidation of the Corporation with or into any other
corporation or entity, or the sale or conveyance of all or substantially all the
assets of the Corporation, shall not be deemed to be a liquidation, dissolution
or winding up of the Corporation for purposes of this Section 3.
4. VOTING.
(a) Each holder of shares of Series A Preferred Stock shall have the right
to one vote for each share of Common Stock into which such holder's shares of
Series A Preferred Stock could then be converted, and with respect to such vote,
such holder shall have full voting rights and powers equal to the voting rights
and powers of the holders of Common Stock, except as otherwise provided in
Sections 4(b) and 4(c) hereof, or as required by law, and shall be entitled,
notwithstanding any
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provision hereof, to notice of any shareholders' meeting in accordance with the
Bylaws of the Corporation, and shall be entitled to vote, together with holders
of Common Stock, with respect to any question upon which holders of Common Stock
have the right to vote; PROVIDED, HOWEVER, that the shares of Series A Preferred
Stock shall not have any voting power with respect to the election of directors
unless and until the making of any necessary filings required by, and the
expiration or termination of any applicable waiting periods under, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act").
(b) The consent of holders of at least a majority of the outstanding shares
of Series A Preferred Stock, voting separately as a single class, in person or
by proxy, either in writing without a meeting or at a special or annual meeting
of stockholders called for such purpose, shall be necessary to amend, modify or
repeal any provision of the Certificate of Incorporation (including any
provision of the Certificate of Designation of Series A Convertible Preferred
Stock) or Bylaws of the Corporation in any manner which would adversely affect
the powers, preferences or special rights of the Series A Preferred Stock. The
authorization or creation of any shares of any class or series of Senior Stock
or Parity Stock of the Corporation or the reclassification of any authorized
stock of the Corporation into any such Senior Stock or Parity Stock, or the
creation or authorization of any obligation or security convertible into or
evidencing the right to purchase shares of any such Senior Stock or Parity Stock
shall be deemed to adversely affect the Series A Preferred Stock. The
authorization or creation of any shares of any class or series of Junior Stock
of the Corporation or the reclassification of any authorized stock of the
Corporation into any such Junior Stock, or the creation or authorization of any
obligation or security convertible into or evidencing the right to purchase
shares of any such Junior Stock shall be deemed not to adversely affect the
powers, preferences or special rights of the Series A Preferred Stock.
(c) Unless the vote or consent of the holders of a greater number of shares
shall then be required by law and so long as there is outstanding at least 50%
of the Series A Preferred Stock, the consent of the holders of at least a
majority of the outstanding shares of Series A Preferred Stock, voting together
as a separate class, in person or proxy, either in writing without a meeting or
at a special or annual meeting of stockholders called for such purpose, shall be
necessary to authorize or effect (i) any sale, lease, transfer or other
disposition of assets (including without limitation by merger) having a fair
market value of at least 30% of the fair market value of the assets of the
Corporation and its subsidiaries on a consolidated basis; (ii) any merger or
consolidation or other reorganization of the Corporation with or into another
corporation in one transaction or a series of related transactions pursuant to
which the stockholders of the Corporation immediately prior to consummation of
such transaction would hold less than 66 2/3% of the voting securities of the
entity surviving the transaction; (iii) the acquisition by the Corporation or
any subsidiary thereof of another entity or business whether by means of a
purchase of equity interests or the purchase of all or substantially all of the
assets of such entity or merger, consolidation, reorganization, issuance or
exchange of securities or otherwise where the consideration involved (including
non-cash consideration) has a value of at least $100,000,000; (iv) a
liquidation, winding up or dissolution of the Corporation or adoption of any
plan of the same; (v) the commencement by the Corporation of a voluntary case or
proceeding under applicable bankruptcy laws or any other insolvency,
receivership, reorganization, moratorium or similar laws providing relief to
debtors; and (vi) any redemption or repurchase by the Corporation of any Junior
Stock or Parity Stock or any securities convertible into Junior Stock or Parity
Stock, other than the repurchase of shares in connection with the termination of
employees of the Corporation pursuant to rights under written agreements;
PROVIDED, HOWEVER, except to the extent provided by law, the holders of the
Series A Preferred Stock shall not have any consent rights under this Section
4(c) until the Second Closing (as defined in that certain Stock Purchase
Agreement dated March 15, 1999, between this Corporation and Vulcan Ventures
Incorporated) shall have occurred, but this proviso shall not in any way impair
or restrict the voting rights of the holders of the Series A Preferred Stock in
any other
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respect, including without limitation, the right to vote together with the
holders of the Common Stock pursuant to Section 4(a) or the voting rights under
Section 4(b).
5. CONVERSION RIGHTS.
(a) EXERCISE OF CONVERSION RIGHTS. Subject to compliance with the HSR Act,
each holder of Series A Preferred Stock shall have the right, at its option, at
any time, to convert, subject to the terms and provisions of this Section 5, all
or any portion of its Series A Preferred Stock then outstanding into such number
of fully paid and non-assessable shares of Common Stock as results from dividing
(i) the sum of (A) the aggregate Liquidation Preference of all shares of Series
A Preferred Stock to be converted plus (B) any declared but unpaid dividends on
such shares, by (ii) the applicable Conversion Price (as defined in Section 6
below) on the Conversion Date (as defined below). Such conversion shall be
deemed to have been made at the close of business on the date that the
certificate or certificates for shares of Series A Preferred Stock shall have
been surrendered for conversion and written notice shall have been received as
provided in Section 5(b) (the "Conversion Date"), so that the person or persons
entitled to receive the shares of Common Stock upon conversion of such shares of
Series A Preferred Stock shall be treated for all purposes as having become the
record holder or holders of such shares of Common Stock at such time and such
conversion shall be at the Conversion Price in effect at such time. Upon
conversion of any shares of Series A Preferred Stock pursuant to this Section 5,
the rights of the holder of such shares upon the Conversion Date shall be the
rights of a holder of Common Stock only, and each such holder shall not have any
rights in its former capacity as a holder of shares of Series A Preferred Stock.
(b) NOTICE TO THE CORPORATION. In order to convert all or any portion of
its outstanding Series A Preferred Stock into shares of Common Stock, the holder
of such Series A Preferred Stock shall deliver the shares of Series A Preferred
Stock to be converted to the Corporation at its principal office, together with
written notice that it elects to convert those shares of Series A Preferred
Stock into shares of Common Stock in accordance with the provisions of this
Section 5. Such notice shall specify the number of shares of Series A Preferred
Stock to be converted and the name or names in which the holder wishes the
certificates for shares of Common Stock to be registered, together with the
address or addresses of the person or persons so named, and, if so required by
the Corporation, shall be accompanied by a written instrument or instruments of
transfer in form reasonably satisfactory to the Corporation, duly executed by
the registered holder of the shares of Series A Preferred Stock to be converted
or by its attorney duly authorized in writing.
(c) DELIVERY OF CERTIFICATE. As promptly as practicable after the surrender
as hereinabove provided of shares of Series A Preferred Stock for conversion
into shares of Common Stock, the Corporation shall deliver or cause to be
delivered to the holder, or the holder's designees, certificates representing
the number of fully paid and non-assessable shares of Common Stock into which
the shares of Series A Preferred Stock are entitled to be converted, together
with a cash adjustment in respect of any fraction of a share to which the holder
shall be entitled as provided in Section 5(d), and, if less than the entire
number of shares of Series A Preferred Stock represented by the certificate or
certificates surrendered is to be converted, a new certificate for the number of
shares of Series A Preferred Stock not so converted. So long as any shares of
Series A Preferred Stock remain outstanding, the Corporation shall not close its
Common Stock transfer books. The issuance of certificates for shares of Common
Stock upon the conversion of shares of Series A Preferred Stock shall be made
without charge to the holder for any tax in respect of the issuance of such
certificates (other than any transfer, withholding or other tax if the shares of
Common Stock are to be registered in a name different from that of the
registered holder of Series A Preferred Stock).
(d) FRACTIONAL SHARES. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issued upon any
conversion of any shares of Series A Preferred Stock, but, in lieu thereof,
there shall be paid an amount in cash equal to the same fraction of the
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Market Price of a whole share of Common Stock as of the Conversion Date. The
"Market Price" of a share of Common Stock on or with respect to any day shall
mean (i) the closing sales price on the immediately preceding trading day of a
share of Common Stock on the principal national securities exchange or automated
quotation system on which the shares of Common Stock are listed or admitted to
trading or, if not listed or admitted to trading on any national securities
exchange or automated quotation system, the average of the last reported bid and
asked prices on such immediately preceding trading day in the over-the-counter
market as furnished by the National Association of Securities Dealers, Inc., or,
if such firm is not then engaged in the business of reporting such prices, as
furnished by any similar firm then engaged in such business selected in good
faith by the Company or, if there is no such firm, as furnished by any member of
the National Association of Securities Dealers, Inc., selected in good faith by
the Company, or (ii) if the shares of Common Stock are not then traded on any
such exchange or system, the amount determined in good faith by the Board to
represent the fair value of a share of Common Stock.
(e) RESERVATION OF SHARES. The Corporation shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of shares of Series A Preferred
Stock, the full number of whole shares of Common Stock then deliverable upon the
conversion of all shares of Series A Preferred Stock then outstanding. The
Corporation shall take at all times such corporate action as shall be necessary
in order that the Corporation may validly and legally issue fully paid and
non-assessable shares of Common Stock upon the conversion of shares of Series A
Preferred Stock in accordance with the provisions of this Section 5.
(f) REGISTRATION. If any shares of Common Stock to be reserved for the
purpose of conversion of Series A Preferred Stock require registration or
listing with, or approval of, any governmental authority, stock exchange or
other regulatory body under any federal or state law or regulation or otherwise,
before such shares may be validly issued or delivered upon conversion, the
Corporation shall, in good faith and as expeditiously as possible, endeavor to
secure such registration, listing or approval, as the case may be.
(g) SHARES VALIDLY ISSUED AND NON-ASSESSABLE. All shares of Common Stock
that may be issued upon conversion of the Series A Preferred Stock shall upon
issuance by the Corporation be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance thereof.
(h) RETIREMENT OF SHARES. Any shares of Series A Preferred Stock converted
pursuant to the provisions of this Section 6 shall be retired and given the
status of authorized and unissued Preferred Stock, undesignated as to series,
subject to reissuance by the Corporation as shares of Preferred Stock of one or
more series, as may be determined from time to time by the Board.
(i) Automatic Conversion.
(i) TRANSFER OF SHARES. In the event that a holder of shares of Series
A Preferred Stock desires to transfer some or all of such shares to an
unaffiliated party, each share of Series A Preferred Stock so transferred
shall be converted into the number of fully paid and non-assessable shares
of Common Stock into which such share is then convertible pursuant to
Section 5 hereof automatically and without further action, immediately upon
the transfer of such shares.
(ii) TRANSACTION. In the event that the Corporation enters into a
transaction which will result in the transfer of 50% or greater of the
voting securities of the Company to an unrelated party, then each share of
Series A Preferred Stock outstanding shall be converted into the number of
fully paid and non-assessable shares of Common Stock into which such share
is then convertible pursuant to Section 6 hereof automatically and without
further action, immediately upon the transfer of such shares.
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<PAGE>
(iii) MECHANICS OF AUTOMATIC CONVERSION. Upon any automatic conversion
of shares of Series A Preferred Stock into shares of Common Stock pursuant
to this Section 5(i), the holders of such converted shares shall surrender
the certificates formerly representing such shares at the office of the
Corporation or of any transfer agent for Common Stock. Thereupon, there
shall be issued and delivered to each such holder, promptly at such office
and in his, her or its name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of
Common Stock into which such shares of Series A Preferred Stock were so
converted and cash as provided in Section 5(d) above in respect of any
fraction of a share of Common Stock issuable upon such conversion. The
Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless and until
certificates formerly evidencing the converted shares of Series A Preferred
Stock are either delivered to the Corporation or its transfer agent, as
hereinafter provided, or the holder thereof notifies the Corporation or such
transfer agent that such certificates have been lost, stolen, or destroyed
and executes and delivers an agreement to indemnify the Corporation from any
loss incurred by it in connection therewith.
6. CONVERSION PRICE. As used herein, the "Conversion Price" shall initially be
$66.11 per share of Common Stock, subject to adjustment as set forth below. The
Conversion Price shall be subject to adjustment from time to time as follows:
(a) STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS OR COMBINATIONS. If
the Corporation shall (i) declare a dividend or make a distribution on its
Common Stock in shares of its Common Stock, (ii) subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify the outstanding Common Stock into a smaller number of
shares, the Conversion Price in effect at the time of the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be proportionately adjusted so that the holder of any
shares of Series A Preferred Stock surrendered for conversion after such date
shall be entitled to receive the number of shares of Common Stock which he would
have owned or been entitled to receive had such shares of Series A Preferred
Stock been converted immediately prior to such date. Successive adjustments in
the Conversion Price shall be made whenever any event specified above shall
occur.
(b) OTHER DISTRIBUTIONS. In case the Corporation shall fix a record date
for the making of a distribution to all holders of shares of its Common Stock
(i) of shares of any class other than its Common Stock, (ii) of evidence of
indebtedness of the Corporation or any subsidiary of the Corporation, (iii) of
assets, or (iv) of rights or warrants, in each such case all holders of shares
of its Series A Preferred Stock shall receive a distribution (i) of shares of
any class other than its Common Stock, (ii) of evidence of indebtedness of the
Corporation or any subsidiary of the Corporation, (iii) of assets, or (iv) of
rights or warrants, as applicable, equal in amount to the distribution which
they would have received had such holders converted their shares of Series A
Preferred Stock into Common Stock immediately prior to the distribution.
(c) CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE OR RECLASSIFICATIONS OR
REORGANIZATIONS. In case of any consolidation with or merger of the Corporation
with or into another corporation or other entity, or in case of any sale, lease
or conveyance to another entity of the assets of the Corporation as an entirety
or substantially as an entirety, or in the event of any reclassification,
recapitalization or other change of the Common Stock in which the Common Stock
is changed into the same or a different number of shares of any class or classes
of stock, then each share of Series A Preferred Stock shall after the date of
such consolidation, merger, sale, lease or conveyance or such reclassification,
reorganization or other change be convertible into the number of shares of stock
or other securities or property (including cash) to which the Common Stock
issuable (at the time of such consolidation, merger, sale, lease or conveyance
or such reclassification, recapitalization or other change) upon conversion of
such share of Series A Preferred Stock would have been entitled upon such
E-6
<PAGE>
consolidation, merger, sale, lease or conveyance or such reclassification,
recapitalization or other change; and in any such case, if necessary, the
provisions set forth herein with respect to the rights and interests thereafter
of the holders of the shares of Series A Preferred Stock shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to any shares
of stock or other securities or property thereafter deliverable on the
conversion of the shares of Series A Preferred Stock.
(d) NOTICE TO HOLDERS. In the event the Corporation shall propose to take
any action of the type described in subsections (a), (b) and (c) of this Section
6, the Corporation shall give notice to each holder of shares of Series A
Preferred Stock, which notice shall specify the record date, if any, with
respect to any such action and the approximate date on which such action is to
take place. Such notice shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action on the
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable upon conversion of shares of Series A
Preferred Stock. In the case of any action which would require the fixing of a
record date, such notice shall be given at least 15 days prior to the date so
fixed, and in the case of all other action, such notice shall be given at least
20 days prior to the taking of such proposed action.
(e) STATEMENT REGARDING ADJUSTMENTS. Upon the occurrence of each adjustment
or readjustment of the Conversion Price of the Series A Preferred Stock pursuant
to this Section 6, the Corporation shall compute such adjustment or readjustment
in accordance with the terms hereof and prepare and furnish to each holder a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. Each such
statement shall be signed by the Corporation's public accountants.
(f) TREASURY STOCK. For the purposes of this Section 6, the sale or other
disposition of any Common Stock theretofore held in the Corporation's treasury
shall be deemed to be an issuance thereof.
(g) GOOD FAITH. The Corporation shall not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but shall at
all times in good faith assist in the carrying out of all the provisions of this
Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
shares of Series A Preferred Stock shares against impairment of any kind.
7. NO REDEMPTION RIGHTS. The Series A Preferred Stock shall not be subject to
redemption, whether at the option of either the Corporation or any holder of the
Series A Preferred Stock.
FURTHER RESOLVED, that the statements contained in the foregoing resolutions
creating and designating the said Series A Convertible issue of Preferred Shares
and fixing the number, powers, preferences and relative, optional,
participating, and other special rights and the qualifications, limitations,
restrictions, and other distinguishing characteristics thereof shall, upon the
effective date of said series, be deemed to be included in and be a part of the
certificate of incorporation of the Corporation pursuant to the provisions of
Sections 104 and 151 of the General Corporation Law of the State of Delaware.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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<PAGE>
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by its Chief Executive Officer, this 15th day of March, 1999. The
signature below shall constitute the affirmation or acknowledgment of the
signatory, under penalties of perjury, that the instrument is the act and deed
of the Corporation and that the facts stated herein are true.
______________________________________
Russell C. Horowitz
CHIEF EXECUTIVE OFFICER
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<PAGE>
PROXY
GO2NET, INC.
SPECIAL MEETING OF STOCKHOLDERS
JUNE 17, 1999
The undersigned hereby appoints Russell C. Horowitz and John Keister, and each
of them, with full power and substitution, proxies to represent the undersigned
at the Special Meeting of Stockholders of Go2Net, Inc. (the "COMPANY") to be
held on June 17, 1999, at 9:00 a.m., at The Washington Athletic Club, 1325 Sixth
Avenue, The Noble Room, Seattle, Washington, and at any adjournment or
adjournments thereof, to vote in the name and place of the undersigned, with all
powers which the undersigned would possess if personally present, all the shares
of Go2Net, Inc. standing in the name of the undersigned upon such business as
may properly come before the meeting.
1. To approve the issuance and sale of 132,493 shares of the Company's Series A
Convertible Preferred Stock, par value $.01 per share (which initially would be
convertible into 2,004,129 shares of Common Stock) at the second closing
pursuant to the Stock Purchase Agreement dated as of March 15, 1999 as amended
(the "STOCK PURCHASE AGREEMENT"), between the Company and Vulcan Ventures
Incorporated ("VULCAN") at a price of $1,000.00 per share in cash and otherwise
on the terms and subject to the conditions set forth in the Stock Purchase
Agreement.
<TABLE>
<S> <C>
FOR AGAINST
/ / / /
<CAPTION>
FOR ABSTAIN
<CAPTION>
/ / / /
</TABLE>
2. To approve the sale by the directors of the Company of an aggregate of
1,403,312 shares of the Company's Common Stock, par value $.01 per share
pursuant to the Stock Purchase and Voting Agreements dated as of March 15, 1999
(the "MANAGEMENT AGREEMENTS"), by and between each of the six directors of the
Company on March 15, 1999 and Vulcan at a price of $90.00 per share in cash and
otherwise on the terms and subject to the conditions set forth in the Management
Agreements.
<TABLE>
<S> <C>
FOR AGAINST
/ / / /
<CAPTION>
FOR ABSTAIN
<CAPTION>
/ / / /
</TABLE>
3. Election of Directors:
<TABLE>
<S> <C> <C>
FOR WITHHOLD
/ / / /
<CAPTION>
FOR FOR ALL EXCEPT (STRIKE A LINE THROUGH NOMINEE NAME)
<CAPTION>
/ / / /
</TABLE>
Russell C. Horowitz, William D. Savoy, Diane Daggatt, Dennis Cline, William A.
Fleckenstein
4. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the number of the Company's authorized shares of
capital stock, par value $.01 per share from 50,000,000 to 500,000,000.
<TABLE>
<S> <C>
FOR AGAINST
/ / / /
<CAPTION>
FOR ABSTAIN
<CAPTION>
/ / / /
</TABLE>
5. In their discretion, the proxies are authorized to vote upon such business as
may properly come before the meeting.
<TABLE>
<S> <C>
FOR AGAINST
/ / / /
<CAPTION>
FOR ABSTAIN
<CAPTION>
/ / / /
</TABLE>
<PAGE>
<TABLE>
<C> <S>
HAS YOUR ADDRESS CHANGED? I plan to attend in person / /
- ------------------------------------------------------------------------ I do not plan to attend in person / /
- ------------------------------------------------------------------------ Mark box at right if comments or address change have been
- ------------------------------------------------------------------------ noted on the reverse side of this card / /
</TABLE>
THIS PROXY IS SOLICITED ON BEHALF OF DIRECTORS. THE BOARD RECOMMENDS AN
AFFIRMATIVE VOTE ON ALL PROPOSALS SPECIFIED. SHARES WILL BE VOTED AS SPECIFIED.
IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED WILL BE VOTED FOR THE
ELECTION OF THE DIRECTORS AND FOR PROPOSALS 1, 2, 4 AND 5 AS SET FORTH IN THE
PROXY STATEMENT.
PLEASE VOTE, DATE, AND SIGN AND RETURN PROMPTLY IN ENCLOSED ENVELOPE
DO YOU HAVE COMMENTS?
-------------------------------------
-------------------------------------
-------------------------------------
Date: , 1999
-------------------------------------
Stockholder sign here
-------------------------------------
Co-owner sign here
Please sign exactly as your name(s)
appear(s) on the Proxy. When shares
are held by joint tenants, both
should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation,
please sign in full corporate name by
President or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.
