<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, For Use of the Commission Only (as Permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
GEOCITIES
- --------------------------------------------------------------------------------
(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):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
GeoCities common stock, $0.001 par value per share
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
32,034,826
-----------------------------------------------------------------------
(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):
$85.0625
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$2,724,962,387 (based on the average of the intra-day high and low
sales prices of GeoCities common stock on February 19, 1999)
-----------------------------------------------------------------------
(5) Total fee paid:
$544,993.00
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials. N/A
/ / 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>
PRELIMINARY COPY
FILED FEBRUARY 25, 1999
[GEOCITIES LOGO]
, 1999
Dear GeoCities Stockholder:
I am pleased to forward this proxy statement/prospectus for a special
meeting of the stockholders of GeoCities to be held on May , 1999, at
10:00 a.m. local time, at , California.
At the special meeting, you will be asked to vote upon the proposed merger
of GeoCities with Yahoo! Inc. The merger will be effected under the Agreement
and Plan of Merger, dated as of January 27, 1999, among Yahoo!, Inc., Home Page
Acquisition Corp. and GeoCities. In the merger, each outstanding share of common
stock of GeoCities will be converted into the right to receive 0.6768 shares of
Yahoo! common stock. If the merger is approved and consummated, GeoCities will
become a wholly-owned subsidiary of Yahoo!. The merger is described more fully
in this proxy statement/ prospectus.
GeoCities' board of directors has carefully reviewed and considered the
terms and conditions of the merger agreement and the proposed merger and has
concluded that they are fair to, and in the best interests of, GeoCities and its
stockholders. In reaching this determination, GeoCities' board of directors
received the oral opinion of Goldman, Sachs & Co., subsequently confirmed in
writing, that the exchange ratio was fair, from a financial point of view, to
you on the day Yahoo! and GeoCities signed the merger agreement. Such opinion
was provided for the information and assistance of GeoCities' board of directors
in connection with the merger and does not constitute a recommendation as to how
any holder of shares of GeoCities common stock should vote with respect to such
merger. The full text of the written opinion of Goldman, Sachs & Co., which sets
forth assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached as Appendix B to this
proxy statement/prospectus. Holders of shares of GeoCities common stock are
urged to read such opinion in its entirety. GEOCITIES' BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE
CONSUMMATION OF THE MERGER.
The merger agreement and the consummation of the merger must be approved by
the holders of a majority of the outstanding shares of common stock of GeoCities
entitled to vote at the special meeting. You should note that five stockholders
of GeoCities who collectively own approximately 62.4% of GeoCities' outstanding
common stock have already agreed to vote their shares in favor of the merger
agreement and the merger. Therefore, approval of the merger is assured. However,
you should still carefully read this proxy statement/prospectus in its entirety
and vote your shares as you desire. IN PARTICULAR, YOU SHOULD REVIEW THE MATTERS
REFERRED TO UNDER "RISK FACTORS" STARTING ON PAGE .
We have included a proxy card which you may use to vote your shares if you
are not able to attend the special meeting in person.
Sincerely,
GEOCITIES
Thomas R. Evans
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION AND THE SECURITIES
BEING OFFERED BY YAHOO! OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We are first mailing this proxy statement/prospectus dated , 1999 and
the form of proxy on or about , 1999.
2
<PAGE>
GEOCITIES
4499 GLENCOE AVENUE
MARINA DEL REY, CALIFORNIA 90292
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MAY , 1999
---------------------
To the Stockholders of GeoCities:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of
GeoCities, a Delaware corporation, will be held at 10:00 a.m., local time, on
May , 1999, at , California for the following purposes:
1. To consider and vote upon a proposal to approve (a) the Agreement
and Plan of Merger, dated as of January 27, 1999, among Yahoo! Inc., a
California corporation, Home Page Acquisition Corp., a Delaware corporation,
and GeoCities, and (b) the merger of Home Page Acquisition Corp, a
wholly-owned subsidiary of Yahoo!, with and into GeoCities whereby, among
other things, each outstanding share of GeoCities capital stock will be
converted into the right to receive 0.6768 shares of Yahoo! common stock, as
more fully described in this proxy statement/prospectus. In addition, each
outstanding option to purchase shares of GeoCities common stock will be
assumed by Yahoo! and converted into an option to purchase shares of Yahoo!
common stock, as more fully described in this proxy statement/prospectus;
2. To grant GeoCities' board of directors discretionary authority to
adjourn, if necessary, the special meeting in order to solicit additional
votes for approval of the merger agreement and the merger; and
3. To transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof.
GeoCities' board of directors has determined that the merger agreement and
the merger are in your best interests and recommends that you vote to approve
the merger agreement.
Each of the foregoing items of business is more fully described in this
proxy statement/prospectus, which we urge you to read carefully.
Stockholders of record at the close of business on , 1999, are
entitled to notice of and to vote at the special meeting and any adjournment or
postponement thereof. Approval of the merger agreement and the merger will
require the affirmative vote of the holders of GeoCities capital stock
representing a majority of the outstanding shares of GeoCities capital stock
entitled to vote.
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. ANY EXECUTED BUT UNMARKED PROXY CARDS WILL BE VOTED FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. YOU MAY REVOKE
YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED AT THE SPECIAL
MEETING. ANY STOCKHOLDER ATTENDING THE SPECIAL MEETING MAY VOTE IN PERSON EVEN
IF SUCH STOCKHOLDER HAS RETURNED A PROXY.
PLEASE DO NOT SEND ANY GEOCITIES STOCK CERTIFICATES IN YOUR PROXY ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
----------------------------------------
David C. Bohnett
SECRETARY
Marina del Rey, California
, 1999
3
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................................................... 7
SUMMARY.................................................................................................... 8
The Companies............................................................................................ 8
GeoCities' Reasons for the Merger; Recommendation of GeoCities' Board.................................... 8
Opinion of Financial Advisor to GeoCities................................................................ 8
The Special Meeting...................................................................................... 9
Record Date for Voting on the Merger; Stockholders Entitled to Vote...................................... 9
Stockholder Vote Is Required to Approve the Merger....................................................... 9
Voting Agreements........................................................................................ 9
The Merger............................................................................................... 9
When the Merger Will Occur............................................................................... 9
Interests of Certain Persons in the Merger............................................................... 9
What GeoCities' Stockholders Will Receive in the Merger.................................................. 10
Governmental and Regulatory Matters...................................................................... 10
Federal Income Tax Consequences.......................................................................... 10
Anticipated Accounting Treatment......................................................................... 10
Conditions to the Merger................................................................................. 10
No Solicitation.......................................................................................... 10
Yahoo! Stock Option...................................................................................... 10
Termination of the Merger Agreement...................................................................... 11
Termination Fee; Expenses................................................................................ 11
Rights of Holders of GeoCities Stock Following the Merger................................................ 11
No Appraisal Rights...................................................................................... 11
Forward-Looking Statements May Prove Inaccurate.......................................................... 11
Who Can Help Answer Your Questions....................................................................... 12
GEOCITIES SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA.................................................. 13
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA............................................. 15
YAHOO! AND GEOCITIES SELECTED UNAUDITED PRO FORMA FINANCIAL DATA........................................... 15
COMPARATIVE PER SHARE DATA................................................................................. 16
RISK FACTORS............................................................................................... 17
Risks Related to the Merger.............................................................................. 17
Risks Related to Yahoo! and GeoCities as a Combined Company.............................................. 18
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE............................................................ 36
TRADEMARKS................................................................................................. 36
MARKET PRICE AND DIVIDEND INFORMATION...................................................................... 37
Recent Share Prices...................................................................................... 37
Dividend Information..................................................................................... 38
Number of Stockholders................................................................................... 38
THE SPECIAL MEETING........................................................................................ 39
Date, Time and Place of the Special Meeting.............................................................. 39
Matters to Be Considered at the Special Meeting.......................................................... 39
Record Date for Voting on the Merger; Stockholders Entitled to Vote...................................... 39
Voting and Revocation of Proxies......................................................................... 39
Stockholder Vote Is Required to Approve the Merger....................................................... 39
Board Recommendation..................................................................................... 40
THE MERGER................................................................................................. 41
General.................................................................................................. 41
Background of the Merger................................................................................. 41
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Reasons for the Merger................................................................................... 43
Opinion of Goldman, Sachs & Co., Financial Advisor to GeoCities.......................................... 46
Exchange Ratio History................................................................................... 47
Comparison of Selected Internet Companies................................................................ 48
Pro Forma Transaction Analysis........................................................................... 49
Contribution Analysis.................................................................................... 49
Pro Forma Merger Analysis................................................................................ 49
Pro Forma Revenue Per Share Analysis..................................................................... 50
Transaction Multiple Analysis............................................................................ 50
Comparable Transaction Premium Analysis.................................................................. 51
Interests of Certain Persons in the Merger............................................................... 52
Governmental and Regulatory Matters...................................................................... 54
Federal Income Tax Considerations........................................................................ 54
Anticipated Accounting Treatment......................................................................... 55
No Appraisal Rights...................................................................................... 56
Delisting and Deregistration of GeoCities Common Stock................................................... 56
Listing of Yahoo! Common Stock to Be Issued in the Merger................................................ 56
Restriction on Resales of Yahoo! Common Stock............................................................ 56
THE MERGER AGREEMENT....................................................................................... 57
The Merger............................................................................................... 57
Effective Time........................................................................................... 57
Directors and Officers................................................................................... 57
Conversion of Shares in the Merger....................................................................... 57
GeoCities Stock Option and Stock Purchase Plan........................................................... 57
Exchange Agent........................................................................................... 58
Exchange Procedures...................................................................................... 58
Distributions with Respect to Unexchanged Shares......................................................... 59
No Fractional Shares..................................................................................... 59
Representations and Warranties........................................................................... 59
Conduct of Business of GeoCities Pending the Merger...................................................... 60
Conduct of Business of Yahoo! Pending the Merger......................................................... 61
No Solicitation.......................................................................................... 61
Director and Officer Indemnification..................................................................... 62
Yahoo! Stock Option...................................................................................... 62
Conditions to the Merger................................................................................. 63
Termination.............................................................................................. 65
Termination Fee; Expenses................................................................................ 65
Amendment; Waiver........................................................................................ 66
VOTING AND AFFILIATE AGREEMENTS............................................................................ 67
Voting Agreements........................................................................................ 67
GeoCities Affiliate Agreements........................................................................... 67
Yahoo! Affiliate Agreements.............................................................................. 68
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS................................................ 69
DESCRIPTION OF YAHOO! COMMON STOCK......................................................................... 76
COMPARISON OF RIGHTS OF SHAREHOLDERS OF YAHOO! AND STOCKHOLDERS OF GEOCITIES............................... 77
INFORMATION REGARDING YAHOO!............................................................................... 88
INFORMATION REGARDING GEOCITIES............................................................................ 89
BUSINESS OF GEOCITIES...................................................................................... 89
Overview................................................................................................. 89
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
The GeoCities Solution................................................................................... 89
The GeoCities Strategy................................................................................... 90
Homesteading on GeoCities................................................................................ 92
How Homesteaders Join.................................................................................... 93
Participating in the GeoCities Community................................................................. 93
How to Surf the GeoCities Community...................................................................... 93
Advertising, Commerce and Premium Services............................................................... 93
Web Rings................................................................................................ 95
Distribution Agreement with Yahoo!....................................................................... 95
Infrastructure and Operations............................................................................ 95
Competition.............................................................................................. 96
Intellectual Property and Proprietary Rights............................................................. 97
Employees................................................................................................ 98
Facilities............................................................................................... 99
Legal Proceedings........................................................................................ 99
GEOCITIES' MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 102
Results of Operations.................................................................................... 104
Liquidity and Capital Resources.......................................................................... 106
Year 2000 Readiness...................................................................................... 107
GEOCITIES STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................... 108
DESCRIPTION OF GEOCITIES CAPITAL STOCK..................................................................... 110
FUTURE STOCKHOLDER PROPOSALS............................................................................... 111
EXPERTS.................................................................................................... 111
LEGAL MATTERS.............................................................................................. 111
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 111
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
Appendix A -- Agreement and Plan of Merger dated as of January 27, 1999 by and among Yahoo! Inc., Home Page
Acquisition Corp. and GeoCities............................................................... A-1
Appendix B -- Opinion of Goldman, Sachs & Co............................................................... B-1
</TABLE>
6
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING THE MERGER? HOW WILL I BENEFIT?
A: This merger will combine two of the largest and most popular services on
the Internet. Following the merger, you will have a stake in one of the world's
leading global branded web networks. Overall, both Yahoo! and GeoCities believe
that the merger will provide added value to all of their respective
stockholders. However, both Yahoo! and GeoCities note that their goals in the
merger are subject to the risks discussed in this proxy statement/prospectus in
the section labelled "Risk Factors."
Q: PLEASE EXPLAIN WHAT I WILL RECEIVE IN THE MERGER.
A: In the merger, you will receive 0.6768 shares of Yahoo! common stock for
each share of GeoCities common stock that you own. For example, if you own 100
shares of GeoCities common stock, you will receive 67 shares of Yahoo! common
stock in exchange for your shares.
Q: WILL YAHOO! ISSUE FRACTIONAL SHARES TO GEOCITIES' STOCKHOLDERS?
A: No, Yahoo! will not issue fractional shares to GeoCities' stockholders
in the merger. Instead, GeoCities' stockholders will receive a cash payment for
any fractional shares they would otherwise be entitled to receive. The cash
payment will be based on the average closing sale price of Yahoo! common stock
for the five most recent trading days ending immediately prior to the completion
of the merger multiplied by the fraction represented by each such fractional
share.
Q: IF I HAVE OPTIONS TO PURCHASE GEOCITIES COMMON STOCK, WHAT WILL I
RECEIVE IN THE MERGER?
A: Each option to purchase GeoCities common stock will be assumed by Yahoo!
and convert into an option to purchase 67.68% as many shares of Yahoo! common
stock at an adjusted exercise price. The adjusted exercise price is calculated
by dividing the original exercise price by 0.6768. For example, if you have an
option to purchase 1,000 shares of GeoCities common stock at an exercise price
of $10.00 per share, after the merger you will have an option to purchase 676
shares of Yahoo! common stock at an exercise price of $14.78 per share.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting of GeoCities' stockholders will take place on May
, 1999. The meeting will be held at California at 10:00 a.m.
Q: WHAT VOTE IS REQUIRED?
A: To approve the merger, an affirmative vote reflecting a majority of the
shares entitled to vote at the special meeting is required.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope as soon
as possible, so that your shares may be represented at the special meeting.
GeoCities' board of directors recommends voting in favor of the approval of the
merger agreement and the merger.
Q: IF MY BROKER HOLDS MY SHARES IN "STREET NAME," WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on
how to vote. You should instruct your broker to vote your shares according to
your directions. Without instructions, your broker will not vote your shares.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Just send in a later-dated letter or a later-dated, signed proxy card to
the Secretary of GeoCities before the meeting, or attend the special meeting in
person and vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Yahoo! will send you written
instructions for exchanging your stock certificates.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO GEOCITIES' STOCKHOLDERS?
A: We expect that for U.S. federal income tax purposes, the exchange of
shares will be tax-free to GeoCities' stockholders, except for taxes with
respect to cash received for any fractional shares of Yahoo! common stock.
7
<PAGE>
SUMMARY
The following summary highlights information which is provided in greater
detail elsewhere in this document. Even though we have highlighted what we feel
is the most important information for you, Yahoo! and GeoCities encourage you to
read this document in its entirety for a complete understanding of the
transaction.
THE COMPANIES (PAGES 88 AND 89)
YAHOO! INC.
3420 Central Expressway
Santa Clara, California 95051
Attention: Investor Relations
(408) 731-3300
Yahoo! is a global internet media company that offers a branded network of
comprehensive information, communication and shopping services to millions of
users daily. As the first online navigational guide to the web, www.yahoo.com is
a leading guide in terms of traffic, advertising and household and business user
reach, and is one of the most recognized brands associated with the Internet.
GEOCITIES
4499 Glencoe Avenue
Marina del Rey, California 90292
Attention: Investor Relations
(310) 827-3700
GeoCities is the world's largest and one of the fastest growing web-based
communities for Internet users to express themselves, share ideas, interests and
expertise, and publish personal content accessible to other users with common
interests. Homesteaderssm comprise the main part of GeoCities' community.
Homesteaders are Internet users who create their own personal web sites or
"homesteadssm" in themed "neighborhoods" on the GeoCities web site. These
neighborhoods provide:
- - a context for web users to publish content, to share experiences and ideas
with other users and to access a centralized and easy-to-navigate destination
for user-published content; and
- - a compelling and attractive environment for advertisers, sponsors and
e-commerce merchants.
GEOCITIES' REASONS FOR THE MERGER; RECOMMENDATION OF GEOCITIES' BOARD (PAGE 44)
GeoCities' board of directors has determined that the terms of the merger and
the merger agreement are fair to, and in the best interests of, GeoCities and
its stockholders. In reaching its decision, GeoCities' board of directors
identified several potential benefits of the merger, including:
- the strategic benefits of the combination, including the potential to
greatly enhance the size, functionality and performance of, and increase
the traffic to, the GeoCities web site for the benefit of GeoCities'
homesteaders, web visitors, advertisers and sponsors;
- the Yahoo! common stock that GeoCities' stockholders will receive from
Yahoo! and the relative interests of Yahoo! and GeoCities' stockholders
in the equity of the combined company; and
- the larger market capitalization of Yahoo! compared to GeoCities and the
corresponding higher trading liquidity of Yahoo! common stock compared to
GeoCities common stock.
GeoCities' board of directors also considered that GeoCities' stockholders would
have the opportunity to participate in the potential growth of the combined
company following the merger.
GEOCITIES' BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
MERGER AGREEMENT AND THE CONSUMMATION OF THE MERGER.
OPINION OF FINANCIAL ADVISOR TO GEOCITIES (PAGE 46 AND APPENDIX B)
In deciding to approve the merger, GeoCities' board of directors considered the
opinion of Goldman, Sachs & Co., its financial advisor, that, as of the date
Yahoo! and GeoCities signed
8
<PAGE>
the merger agreement, the exchange ratio was fair, from a financial point of
view, to the holders of GeoCities common stock. Such opinion was provided for
the information and assistance of GeoCities' board of directors in connection
with the merger and does not constitute a recommendation as to how any holder of
shares of GeoCities common stock should vote with respect to the merger. The
full text of the written opinion of Goldman, Sachs & Co., which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached as Appendix B. You are urged to read
such opinion in its entirety.
THE SPECIAL MEETING (PAGE 39)
The special meeting will be held at , California on May , 1999, at
10:00 a.m. California time. At the special meeting, GeoCities will ask you to
approve the merger agreement and the merger.
RECORD DATE FOR VOTING ON THE MERGER; STOCKHOLDERS ENTITLED TO VOTE (PAGE 39)
You are entitled to vote at the special meeting if you owned shares of GeoCities
common stock as of the close of business on , 1999. At the close of
business on the record date, shares of GeoCities common stock were
outstanding and entitled to vote. Of this number, shares were held by
directors and officers of GeoCities or by entities affiliated with the directors
and officers.
STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE MERGER (PAGE 39)
Approval of the merger agreement and the consummation of the merger requires the
affirmative vote of a majority of the outstanding shares of GeoCities common
stock entitled to vote. Abstentions and broker non-votes are not affirmative
votes and, therefore, will have the same effect as votes against approval of the
merger agreement. In addition, the required vote of GeoCities' stockholders is
based upon the number of outstanding shares of GeoCities common stock, rather
than the shares actually voted in person or by proxy at the special meeting.
Therefore, if the holders of GeoCities common stock fail to either submit a
proxy or vote in person at the special meeting, such failure will have the same
effect as a vote against approval of the merger agreement.
VOTING AGREEMENTS (PAGE 67)
On the same day that the merger agreement was signed, five stockholders of
GeoCities who collectively own approximately 62.4% of GeoCities' outstanding
common stock entered into voting agreements with Yahoo! under which each of
these stockholders agreed to vote all of their shares of GeoCities' common stock
for approval of the merger agreement. Therefore, approval of the merger is
assured.
THE MERGER (PAGE 41)
The merger of GeoCities and a wholly-owned subsidiary of Yahoo! will be
consummated in accordance with the terms of the Agreement and Plan of Merger
dated as of January 27, 1999. This merger agreement is attached as Appendix A at
the back of this document. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT AS IT
IS THE LEGAL DOCUMENT THAT GOVERNS THE PROPOSED MERGER.
WHEN THE MERGER WILL OCCUR (PAGE 57)
Assuming that Yahoo! and GeoCities satisfy or waive all of the conditions of the
merger agreement, we anticipate that the merger will occur within a few days
following the special meeting.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
(PAGE 52)
In considering GeoCities' board of directors' recommendation that you vote to
approve the merger agreement, you should note that certain officers and
directors of GeoCities have interests in the merger that are different from, or
in addition to, your interests. These interests relate to accelerated vesting of
stock options, potential severance payments and indemnification rights. As a
result, directors and officers may be more likely to vote to approve the merger
agreement than GeoCities' stockholders generally.
9
<PAGE>
WHAT GEOCITIES' STOCKHOLDERS WILL RECEIVE IN THE MERGER (PAGE 57)
If GeoCities' stockholders approve the merger agreement and the merger is
consummated, each outstanding share of GeoCities common stock will be converted
into the right to receive 0.6768 shares of Yahoo! common stock.
You will have to surrender your GeoCities stock certificates to receive your new
Yahoo! stock certificates. DO NOT SURRENDER YOUR STOCK CERTIFICATES UNTIL YOU
HAVE RECEIVED THE WRITTEN INSTRUCTIONS THAT WILL BE SENT TO YOU AFTER THE MERGER
HAS BEEN COMPLETED.
GOVERNMENTAL AND REGULATORY MATTERS (PAGE 54)
U.S. antitrust laws prohibit Yahoo! and GeoCities from completing the merger
until they have furnished information to the Antitrust Division of the U.S.
Department of Justice and the Federal Trade Commission and a required waiting
period has ended. Both Yahoo! and GeoCities have furnished the required
information and the waiting period is expected to expire on , 1999.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 54)
Yahoo! and GeoCities expect that the merger will qualify as a tax-free
reorganization for federal income tax purposes. If the merger qualifies as a
tax-free reorganization, GeoCities' stockholders will not recognize any gain or
loss for federal income tax purposes upon the exchange of their GeoCities common
stock for Yahoo! common stock, except with respect to any cash received in lieu
of a fractional share interest of Yahoo! common stock.
ANTICIPATED ACCOUNTING TREATMENT (PAGE 55)
Yahoo! and GeoCities expect that the merger will qualify to be accounted for as
a pooling of interests, which means that Yahoo! and GeoCities will be treated as
if they had always been combined for accounting and financial reporting
purposes. The availability of this accounting treatment is a condition to the
merger.
CONDITIONS TO THE MERGER (PAGE 63)
Yahoo! and GeoCities will complete the merger only if a number of conditions
specified in the merger agreement are either satisfied or waived, some of which
include:
- - the representations and warranties of the respective parties made in the
merger agreement, subject to certain limitations, are accurate;
- - the parties perform their respective covenants and obligations in the merger
agreement in all material respects;
- - the GeoCities stockholders approve the merger;
- - there are no restraining orders, injunctions or administrative actions or
proceedings preventing completion of the merger;
- - the waiting periods under the federal antitrust laws expire;
- - the parties each receive a written opinion from their respective tax counsel
regarding the merger; and
- - Yahoo! receives letters from PricewaterhouseCoopers LLP as to the
appropriateness of pooling of interests accounting for the merger.
If any material condition is waived, Yahoo! and GeoCities will amend this
document and resolicit the vote of GeoCities' stockholders.
NO SOLICITATION (PAGE 61)
GeoCities has agreed, subject to certain exceptions contained in the merger
agreement, not to initiate or engage in discussions with another party regarding
a business combination with that party while the merger is pending.
YAHOO! STOCK OPTION (PAGE 62)
In connection with the execution of the merger agreement, GeoCities granted
Yahoo! a stock option to purchase up to 6,370,000 shares of GeoCities common
stock at a price of $113.66 per share. If the merger agreement is terminated
because the required approval of GeoCities' stockholders is not obtained or if
certain events
10
<PAGE>
relating to third party acquisition proposals occur, Yahoo! will be able to
exercise the stock option subject to certain conditions.
TERMINATION OF THE MERGER AGREEMENT (PAGE 65)
The boards of directors of both companies may mutually agree to terminate the
merger agreement at any time without completing the merger. Either company may
terminate the merger agreement if:
- - the merger is not completed by September 30, 1999;
- - a governmental authority or legal action permanently prohibits the merger;
- - the GeoCities stockholders do not approve the merger; or
- - the other party's representations and warranties are inaccurate, or the other
party fails to comply with its obligations under the merger agreement, in
each case resulting in the inability of the party to satisfy a condition to
the completion of the merger.
In addition, Yahoo! may terminate the merger agreement if:
- - GeoCities' board of directors withdraws its recommendation of the merger;
- - GeoCities' board of directors fails to affirm its recommendation of the
merger following the public announcement of a third party acquisition
proposal;
- - GeoCities' board of directors approves any other acquisition proposal by a
third party;
- - a tender or exchange offer for GeoCities common stock is commenced and
GeoCities' board of directors fails to recommend rejection of the offer; or
- - GeoCities intentionally breaches its obligations under the "no solicitation"
section of the merger agreement.
TERMINATION FEE; EXPENSES (PAGE 65)
If Yahoo! terminates the merger agreement because GeoCities has taken or failed
to take certain actions specified in the merger agreement, GeoCities will be
required to pay Yahoo! $100 million. In addition, if either Yahoo! or GeoCities
terminates the merger agreement because the required GeoCities' stockholder vote
is not obtained, GeoCities may be required to pay Yahoo! all of the expenses
incurred by Yahoo! in connection with the merger. GeoCities may also be required
to pay a termination fee if the GeoCities stockholders fail to approve the
merger and GeoCities enters into an acquisition transaction with another party
within nine months of the date of termination.
RIGHTS OF HOLDERS OF GEOCITIES STOCK FOLLOWING THE MERGER (PAGE 77)
At the time that the merger is completed, GeoCities' stockholders will become
Yahoo! shareholders. There are important differences between the rights of
stockholders of GeoCities and shareholders of Yahoo! .
NO APPRAISAL RIGHTS (PAGE 56)
Under Delaware law, GeoCities' stockholders do not have any right to an
appraisal of the value of their GeoCities common stock in connection with the
merger.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 36)
Each of Yahoo! and GeoCities has made forward-looking statements in this
document that are subject to risks and uncertainties. Forward-looking statements
include expectations concerning matters that are not historical facts. Words
such as "believes," "expects," "anticipates" or similar expressions, indicate
forward-looking statements. For more information regarding factors that could
cause actual results to differ from these expectations, you should refer to
"Risk Factors" on page 17.
You should note that the merger and an investment in securities of Yahoo!
involve risks and uncertainties that could affect the future financial results
of Yahoo!. Some of these risks include:
- - risks related to the integration of Yahoo! and GeoCities;
- - risks associated with a fixed exchange ratio;
11
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- - risks relating to the respective businesses of Yahoo! and GeoCities; and
- - other risks and uncertainties discussed under "Risk Factors" and elsewhere in
this document and in the documents Yahoo! incorporates by reference.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have questions about the merger, you should contact:
GeoCities
4499 Glencoe Avenue
Marina del Rey, California 90292
Telephone: (310) 827-3700
Attention: Investor Relations
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<PAGE>
GEOCITIES
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data should be read
in conjunction with GeoCities' consolidated financial statements and related
notes thereto and GeoCities "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this document. The
consolidated statement of operations data for each of the three years ended
December 31, 1998, and the consolidated balance sheet data at December 31, 1998
and 1997, are derived from the consolidated financial statements of GeoCities
which have been audited by PricewaterhouseCoopers LLP, independent accountants,
and are included elsewhere in this document. The balance sheet data at December
31, 1996, are derived from audited financial statements of GeoCities not
included in this document. Historical results are not necessarily indicative of
the results to be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues................................................ $ 18,359 $ 4,582 $ 314
Cost of revenues............................................ 9,696 3,789 788
-------- -------- -------
Gross profit (loss)....................................... 8,663 793 (474)
-------- -------- -------
Operating expenses:
Sales and marketing....................................... 17,486 5,837 764
Product development....................................... 4,093 1,045 475
General and administrative................................ 9,156 2,930 1,252
-------- -------- -------
Total operating expenses................................ 30,735 9,812 2,491
-------- -------- -------
Loss from operations........................................ (22,072) (9,019) (2,965)
Other income (expense), net................................. 2,314 117 (40)
-------- -------- -------
Loss before provision for income taxes...................... (19,758) (8,902) (3,005)
Provision for income taxes.................................. (1) (1) (1)
-------- -------- -------
Net loss.................................................... $(19,759) $ (8,903) $(3,006)
-------- -------- -------
-------- -------- -------
Historical basic and diluted net loss per share applicable
to common stockholders(2)................................. $ (1.42) $ (3.72) $ (1.19)
Historical weighted average shares outstanding used in basic
and diluted net loss per share calculation(2)............. 15,001(1) 2,620 2,617
Pro forma basic and diluted net loss per share(2)........... $ (0.71) $ (0.36)
Pro forma weighted average shares outstanding used in basic
and diluted net loss per share calculation(2)............. 27,969(1) 24,850
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.............. $ 84,811 $ 3,785 $ 33
Working capital (deficiency)................................... 79,504 26,451 (1,642)
Total assets................................................... 130,382 32,868 1,448
Debt and capital lease obligations, less current portion....... 2,327 834 437
Mandatory redeemable convertible preferred stock............... -- 38,137 2,168
Total stockholders' equity (deficiency)........................ $ 116,999 $ (10,046) $ (3,151)
</TABLE>
13
<PAGE>
- ------------------------
(1) This information is based on the number of shares of common stock
outstanding as of December 31, 1998. It excludes (1) approximately 8,307,000
shares of common stock issuable upon the exercise of stock options under
GeoCities' 1997 Stock Option Plan, GeoCities' 1998 Stock Incentive Plan and
pursuant to written agreements with certain officers, directors,
consultants, founders and employees of GeoCities outstanding at December 31,
1998, with a weighted average exercise price of $7.97 per share; (2)
approximately 1,277,000 shares of common stock reserved for future issuance
under GeoCities' 1997 Stock Option Plan and GeoCities' 1998 Stock Incentive
Plan; (3) approximately 215,000 shares of common stock issuable upon the
exercise of stock options granted under GeoCities' 1998 Starseed, Inc. 1998
Stock Option/Stock Issuance Plan, with a weighted average exercise price of
$6.39 per share and (4) 300,000 shares of common stock reserved for future
issuance under GeoCities' employee stock purchase plan. See
"Capitalization", "Management -- Employee Benefit Plans", "Description of
Capital Stock" and Notes 2, 7, 10, and 12 of notes to consolidated financial
statements.
(2) Historical basic and diluted net loss per share is computed using the
weighted average number of common shares outstanding during the period.
Common equivalent shares were excluded as their effect was antidilutive.
Historical basic and diluted net loss per share takes into consideration the
accretion of mandatory redeemable preferred stock. Pro forma basic and
diluted net loss per share assumes that the common stock issuable upon
conversion of the outstanding mandatory redeemable convertible preferred
stock had been outstanding during each such period as such shares converted
to common shares upon the closing of GeoCities' initial public offering in
August 1998. Other common equivalent shares were excluded as their effect
was antidilutive (see Note 2 of notes to the GeoCities consolidated
financial statements included herein).
14
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The selected unaudited pro forma combined financial data give effect to the
proposed merger on a pooling of interests basis. The unaudited pro forma
combined financial data are based on the respective historical consolidated
financial statements and the notes thereto, which are incorporated by reference
or included elsewhere in this document. The unaudited pro forma combined balance
sheet data assume that the merger took place on December 31, 1998, 1997 and 1996
and combines the Yahoo! consolidated balance sheet with GeoCities' consolidated
balance sheet as of each respective date. The unaudited pro forma combined
statements of operations data assume that the merger took place as of the
beginning of the periods presented and combine Yahoo!'s consolidated statements
of operations for the years ended December 31, 1998, 1997 and 1996 with
GeoCities' consolidated results of operations for the years ended December 31,
1998, 1997 and 1996, respectively. This presentation is consistent with the
years expected to be combined after the date of the closing of the merger.
The unaudited pro forma combined financial data are presented for
illustrative purposes only and are not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had the entities been a single entity
during these periods. The unaudited pro forma combined financial data as of
December 31, 1998 and for each of the three years in the period ended December
31, 1998 are derived from the unaudited pro forma condensed combined financial
statements included elsewhere herein and should be read in conjunction with
those statements and notes thereto. See "Unaudited Pro Forma Condensed Combined
Financial Statements."
YAHOO! AND GEOCITIES
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA:
Net revenues............................................................... $ 221,747 $ 75,032 $ 21,804
Gross profit............................................................... 181,993 60,358 16,294
Total operating expenses................................................... 189,697 100,159 30,193
Net loss applicable to common stockholders................................. (10,248) (35,255) (9,538)
Net loss per share -- basic and diluted.................................... $ (0.05) $ (0.20) $ (0.06)
Shares used in per share calculation -- basic and diluted.................. 195,282 176,445 159,071
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1998 1997 1996
------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Cash, cash equivalents, and short-term and long-term investments in
marketable debt securities............................................. $ 572,331 $ 111,830 $ 106,728
Working capital.......................................................... 466,760 110,501 91,148
Total assets............................................................. 729,609 171,280 117,653
Shareholders' equity..................................................... $ 630,552(1) $ 103,212 $ 102,765
</TABLE>
- ------------------------
(1) Excludes charge for costs resulting from the proposed merger which is yet to
be determined.
15
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables reflect (a) the historical net income (loss) and book
value per share of Yahoo! and GeoCities common stock in comparison with the
unaudited pro forma net loss and book value per share after giving effect to the
proposed merger of Yahoo! and GeoCities on a "pooling of interests" basis and
(b) the equivalent historical net loss and book value per share attributable to
0.6768 of a share of Yahoo! common stock which will be received for each share
of GeoCities. The information presented in the following tables should be read
in conjunction with the unaudited pro forma condensed combined financial
statements included in this document and the historical consolidated financial
statements and related notes of Yahoo! and GeoCities which are incorporated by
reference or included elsewhere in this document.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
YAHOO! PER SHARE DATA 1998 1997 1996
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
YAHOO! HISTORICAL PER COMMON SHARE:
Net income (loss) per common share -- basic (2)..................................... $ 0.14 $ (0.15) $ (0.04)
Net income (loss) per common share -- diluted (2)................................... $ 0.11 $ (0.15) $ (0.04)
Book value per share (1)............................................................ $ 2.69
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
GEOCITIES PER SHARE DATA 1998 1997 1996
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
GEOCITIES HISTORICAL PER COMMON SHARE:
Net (loss) per common share -- basic and diluted (2)................................ $ (1.42) $ (3.72) $ (1.19)
Book value per share (1)............................................................ $ 3.65
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
PRO FORMA COMBINED PER SHARE DATA 1998 1997 1996
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
PRO FORMA COMBINED PER COMMON SHARE:
Per Yahoo! share -- basic and diluted............................................... $ (0.05) $ (0.20) $ (0.06)
Per equivalent GeoCities share -- basic and diluted (3)............................. $ (0.03) $ (0.14) $ (0.04)
Book value per Yahoo! share (1)(4).................................................. $ 2.86
Book value per equivalent GeoCities share (3)(4).................................... $ 1.94
</TABLE>
- ------------------------
(1) The historical book value per share is computed by dividing shareholders'
equity by the number of shares of common stock outstanding at December 31,
1998. The pro forma combined book value per share is computed by dividing
pro forma shareholders' equity by the pro forma number of shares of Yahoo!
common stock outstanding as of December 31, 1998, assuming the merger had
occurred as of that date.
(2) Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares consist of
the incremental common shares issuable upon conversion of the convertible
preferred stock (using the if-converted method) and shares issuable upon the
exercise of stock options and warrants (using the treasury stock method).
Common equivalent shares are excluded from the computations if their effect
is antidilutive.
(3) The equivalent pro forma combined per GeoCities share is calculated by
multiplying the pro forma combined share amounts by the exchange ratio of
0.6768 shares of Yahoo! common stock for each share of GeoCities common
stock.
(4) Excludes effect of charge for costs resulting from the proposed merger which
is yet to be determined.
16
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER THESE RISK FACTORS IN EVALUATING WHETHER TO APPROVE THE
MERGER AGREEMENT AND THE CONSUMMATION OF THE MERGER AND THEREBY BECOME HOLDERS
OF YAHOO! COMMON STOCK. THESE FACTORS SHOULD BE CONSIDERED IN CONJUNCTION WITH
THE OTHER INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, THE
APPENDICES AND EXHIBITS HERETO AND THE DOCUMENTS INCORPORATED BY REFERENCE IN
THIS PROXY STATEMENT/ PROSPECTUS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, THE BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS OF EITHER OR BOTH OF YAHOO! AND GEOCITIES MAY
BE SERIOUSLY HARMED. IN SUCH CASE, THE TRADING PRICE OF YAHOO! COMMON STOCK MAY
DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. ALL NUMBERS RELATING
TO YAHOO! HAVE BEEN ADJUSTED TO REFLECT THE 2-FOR-1 SPLIT OF YAHOO! COMMON STOCK
ON FEBRUARY 8, 1999.
RISKS RELATED TO THE MERGER
FAILURE TO INTEGRATE YAHOO! AND GEOCITIES MAY LIMIT BENEFITS OF MERGER
In order to realize the benefits of the merger, Yahoo! and GeoCities will
have to effectively integrate their operations and their management, engineering
and sales and marketing personnel. If they are not successful in accomplishing
this integration, then the benefits of the merger, including the operating
results of the combined entity and the retention of key personnel, will not be
realized. A key benefit of the merger is perceived to be an enhancement of
Yahoo!'s personal publishing capabilities and community membership base.
However, if the integration is not successful, including if the combined company
is not able to retain GeoCities' homesteaders-SM-, the combined company will not
realize these benefits. In addition, the attention and effort devoted to the
integration of the two companies will have significantly diverted management's
attention from other important issues, and could have a material adverse impact
on the combined company, whether or not the integration is successful.
COMBINED FINANCIAL RESULTS COULD BE ADVERSELY AFFECTED BY MERGER; COSTS OF THE
MERGER ARE DIFFICULT TO ESTIMATE
The business and financial model of GeoCities is different from the Yahoo!
model. If the benefits of the merger to Yahoo! stockholders do not exceed the
costs associated with the merger, including the integration costs which are
difficult to calculate and the dilution to Yahoo!'s stockholders resulting from
the issuance of shares in connection with the merger, then Yahoo!'s financial
results, including earnings per share, of Yahoo! could be adversely affected.
Specifically, Yahoo! expects to incur a one-time charge of approximately $
million related to the merger during the second quarter of 1999.
THE MARKET PRICE OF YAHOO! COMMON STOCK MAY DECLINE AS A RESULT OF THE MERGER
The market price of Yahoo! common stock may decline as a result of the
merger if:
- - the integration of Yahoo! and GeoCities is unsuccessful;
- - the combined company does not achieve the perceived benefits of the merger as
rapidly or to the extent anticipated by financial analysts; or
- - the effect of the merger on the combined company's financial results is not
consistent with the expectations of financial analysts.
THE MERGER IS INTENDED TO QUALIFY AS A POOLING OF INTERESTS AND FINANCIAL
RESULTS WOULD BE NEGATIVELY AFFECTED BY THE FAILURE TO SO QUALIFY
The pro forma combined financial results in this proxy statement/prospectus
are based on the merger being treated as a pooling of interest under accounting
and financial reporting rules. To qualify the merger as a pooling of interests
for accounting purposes, Yahoo! and GeoCities and their respective affiliates
must meet the criteria for pooling of interests accounting established in
opinions published by the Accounting Principles Board and interpreted by the
Financial Accounting Standards Board and the Commission. These opinions are
complex and the interpretation of them is subject to change. Consummation of the
merger is
17
<PAGE>
conditioned, among other things, upon the receipt by Yahoo! of letters from its
independent accountants and GeoCities' independent accountants that, subject to
customary qualifications, they concur with management's conclusion that no
conditions exist that would preclude Yahoo! and GeoCities from being parties to
a business combination that would be accounted for as a pooling of interests.
However, the availability of pooling of interests accounting treatment for
the merger depends in part, upon circumstances and events occurring after the
effective time of the merger. For example, there must be no significant changes
in the business of the combined company, including significant dispositions of
assets, for a period of two years following the effective time. Further,
affiliates of Yahoo! and GeoCities must not sell, or otherwise reduce their risk
with respect to, any shares of either Yahoo! or GeoCities capital stock, except
for a de minimus number as defined by certain Commission rules and regulations,
during the period beginning 30 days before the effective time of the merger and
continuing until the day that Yahoo! publicly announces financial results
covering at least 30 days of combined operations of Yahoo! and GeoCities after
the merger. If the effective time of the merger occurs during May 1999, Yahoo!
expects that such combined financial results would be published in July 1999. If
affiliates of Yahoo! or GeoCities sell their shares of Yahoo! common stock prior
to that time despite a contractual obligation not to do so, the merger may not
qualify for accounting as a pooling of interests for financial reporting
purposes. The failure of the merger to qualify for pooling of interests
accounting treatment for financial reporting purposes for any reason would
materially and adversely affect Yahoo!'s reported earnings and likely, the price
of Yahoo!'s common stock.
FIXED EXCHANGE RATIO MAY ADVERSELY IMPACT VALUE OF YAHOO! COMMON STOCK BEING
RECEIVED
Each outstanding share of GeoCities common stock will be converted into the
right to receive 0.6768 shares of Yahoo! common stock at the effective time of
the merger. The exchange ratio will not be adjusted in response to any
fluctuations in the price of either Yahoo! common stock or GeoCities common
stock. Consequently, the value of the equivalent per share price that you expect
to receive for each share of GeoCities common stock exchanged in the merger may
decrease from the date that you submit your proxy and the effective date of the
merger. If the market price for Yahoo! common stock decreases before the
effective time of the merger, the market value at the effective time of
GeoCities' common stock will correspondingly decrease and, as noted above,
GeoCities' stockholders will not be compensated for decreases in the market
price of Yahoo! common stock. GeoCities' stockholders voting on the merger are
urged to obtain recent market quotations for Yahoo! common stock and GeoCities
common stock. We cannot predict or give any assurances as to the market price of
Yahoo! common stock or GeoCities common stock at any time before or after the
effective time of the merger.
FAILURE TO CLOSE MERGER
If the merger does not close, the business, operating results and financial
condition of Yahoo! and GeoCities will be seriously harmed because the
announcement of the merger and efforts to close the merger have:
- - disrupted the sales and marketing efforts of Yahoo! and GeoCities;
- - diverted the attention of the management of Yahoo! and GeoCities; and
- - delayed numerous strategic initiatives of Yahoo! and GeoCities.
RISKS RELATED TO YAHOO! AND GEOCITIES AS A COMBINED COMPANY
YAHOO!'S COMMON STOCK PRICE IS VOLATILE
The trading price of Yahoo!'s stock has been and may continue to be subject
to wide fluctuations. During 1998, the closing sale prices of Yahoo!'s common
stock on The Nasdaq National Market ranged from $14.52 to $137.75. As of
, 1999, the closing sale price was $ . Yahoo!'s stock price may
fluctuate following the merger in response to a number of events and factors,
such as quarterly variations in
18
<PAGE>
operating results, announcements of technological innovations or new products
and media properties by Yahoo! or its competitors, changes in financial
estimates and recommendations by securities analysts, the operating and stock
price performance of other companies that investors may deem comparable, and
news reports relating to trends in its markets. In addition, the stock market in
general, and the market prices for Internet-related companies in particular,
have experienced extreme volatility that often has been unrelated to the
operating performance of such companies. These broad market and industry
fluctuations may adversely affect the price of Yahoo! common stock, regardless
of the combined company's operating performance.
YAHOO! AND GEOCITIES HAVE LIMITED OPERATING HISTORIES; RISKS OF IMPLEMENTING
GROWTH STRATEGY
Yahoo! was incorporated in March 1995 and did not begin generating
advertising revenues until August 1995. GeoCities was incorporated in December
1994 and has not achieved profitability on a quarterly or annual basis to date.
Therefore, Yahoo! and GeoCities have limited operating histories, and their
prospects are subject to the risks, expenses and uncertainties frequently
encountered by young companies that operate exclusively in the new and rapidly
evolving markets for Internet products and services. Successfully achieving the
combined company's growth plan depends on, among other things, the combined
company's:
- - ability to continue to develop and extend the Yahoo! and GeoCities brands;
- - ability to develop new media properties;
- - ability to maintain and increase the levels of traffic on Yahoo! properties
and the GeoCities web site;
- - development or acquisition of services or products equal or superior to those
of the combined company's competitors;
- - ability to effectively generate revenues through sponsored services and
placements in Yahoo! properties and the GeoCities web site;
- - ability to effectively integrate the technology and operations of businesses
or technologies acquired by the combined company;
- - ability to successfully develop and offer personalized web-based services,
such as e-mail services, to consumers without errors or interruptions in
service; and
- - ability to continue to identify, attract, retain and motivate qualified
personnel.
Furthermore, the success of the combined company's growth plan depends on
factors outside the combined company's control including, among other things:
- - the adoption by the market of the web as an advertising medium;
- - the successful sale of web-based advertising by the combined company's sales
force; and
- - the relative price stability for web-based advertising, despite competition
and other factors that could reduce market prices for advertising.
The combined company may not be successful in implementing its growth plan
or continuing to operate its business as anticipated.
YAHOO! ANTICIPATES INCREASED OPERATING EXPENSES AND MAY EXPERIENCE LOSSES
As of December 31, 1998, Yahoo! had an accumulated deficit of $8.4 million
and GeoCities had an accumulated deficit of $32.2 million. Because of Yahoo!'s
and GeoCities' limited operating histories and the uncertain nature of the
rapidly-changing markets they serve, the accurate prediction of future results
of operations is difficult or impossible. In addition, Yahoo! believes that
period-to-period comparisons of operating results are not meaningful. The
results for any period should not be relied upon as an indication of future
performance. In particular, although Yahoo! experienced strong revenue growth
during 1998, Yahoo! does not believe that this level of revenue growth will be
sustained in future periods. Yahoo! currently expects that the combined
company's operating expenses will continue to increase significantly as the
sales and marketing operations are expanded and the
19
<PAGE>
combined company continues to develop and extend the Yahoo! and GeoCities
brands, fund greater levels of product development, develop and commercialize
additional media properties, and acquire complementary businesses and
technologies. As a result, the combined company may experience significant
losses on a quarterly and annual basis.
QUARTERLY OPERATING RESULTS MAY FLUCTUATE; ADVERTISING REVENUE IS SEASONAL;
RELIANCE ON SHORT-TERM ADVERTISING CONTRACTS
Yahoo! and GeoCities derive the majority of their revenues from the sale of
advertisements under short-term contracts, which are difficult to forecast
accurately. Their expense levels are based in part on their expectations
concerning future revenue and, to a large extent, are fixed. The combined
company may be unable to adjust spending quickly enough to compensate for any
unexpected revenue shortfall. Accordingly, the cancellation or deferral of
advertising or sponsorship contracts could have a material adverse effect on its
financial results. As noted above, Yahoo! expects the combined company's
operating expenses to increase significantly over the near term. To the extent
its expenses increase but its revenues do not, its business, operating results,
and financial condition will be materially and adversely affected.
Operating results of the combined company may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside the
control of Yahoo! or GeoCities. These factors include:
- - the level of usage of the Internet;
- - demand for Internet advertising;
- - the addition or loss of advertisers;
- - the level of user traffic on Yahoo! online media properties and GeoCities'
web site;
- - the advertising budgeting cycles of individual advertisers;
- - the mix of types of advertising the combined company sells, given that
targeted advertising generally has higher rates;
- - the amount and timing of capital expenditures and other costs relating to the
expansion of the combined company's operations;
- - the introduction of new products or services by the combined company or its
competitors;
- - pricing changes for Internet-based advertising;
- - the timing of initial set-up, engineering or development fees that may be
paid in connection with larger advertising and distribution arrangements;
- - technical difficulties with respect to the online media properties that the
combined company may develop;
- - costs incurred with respect to acquisitions;
- - negative general economic conditions and resulting effects on media spending;
and
- - economic conditions specific to the Internet and online media.
As a strategic response to changes in the competitive environment, the
combined company may from time to time make certain pricing, service or
marketing decisions that may adversely affect its profitability in a given
quarterly or annual period.
Advertising revenue is subject to seasonal fluctuations. Historically,
advertisers have spent less in the first and third calendar quarters. The level
of advertising on Yahoo!'s online properties is also seasonal. User traffic on
Yahoo!'s online media properties has historically been lower during the summer
and during year-end vacation and holiday periods.
A key element of Yahoo!'s strategy is to generate advertising revenues
through sponsored services and placements by third parties in its online media
properties in addition to banner advertising. In connection with these
arrangements, the combined company may receive sponsorship fees as well as a
portion of transaction revenues received by the sponsor from business originated
through the Yahoo! placement, in return for minimum levels of user impressions
to be provided by the combined company. These arrangements expose the
20
<PAGE>
combined company to potentially significant financial risks, including:
- - the risk that the combined company fails to deliver required minimum levels
of user impressions or "click throughs" in which case, these agreements
typically provide for adjustments to the fees payable thereunder or "make
good" periods;
- - the risk that sponsors do not renew the agreements at the end of their term
or that they renew at lower rates; and
- - the risk that the arrangements do not generate anticipated levels of shared
transaction revenue, or that sponsors default on the payment commitments in
such agreements.
As a result of these financial risks, Yahoo! cannot guarantee that the
combined company will achieve significant revenue from these sponsorship
arrangements. In addition, because Yahoo! has limited experience with these
arrangements, Yahoo! is unable to determine what effect they will have on gross
margins and results of operations. Although transaction-based fees have not to
date represented a material portion of its net revenues, if and to the extent
such revenues become significant, there could be greater variations in its
quarterly operating results.
Due to these factors, in some future quarters, the combined company's
operating results may fall below the expectations of securities analysts and
investors. In such an event, the trading price of the combined company's common
stock would likely be materially and adversely affected.
YAHOO!'S AND GEOCITIES' MARKETS ARE HIGHLY COMPETITIVE
The market for Internet products and services is highly competitive. There
are no substantial barriers to entry in these markets, and Yahoo! expects that
competition will continue to intensify. Negative competitive developments could
have a material adverse effect on the combined company's business and the
trading price of its stock.
MULTIPLE PROVIDERS OF COMPETITIVE SERVICES; RECENT ACQUISITIONS RESULTING IN
CONSOLIDATION. Yahoo! competes with many other providers of online navigation,
information and community services. As Yahoo! expands the scope of its Internet
services, Yahoo! will compete directly with a greater number of Internet sites
and other media companies across a wide range of different online services.
Yahoo! also competes in vertical markets where competitors may have advantages
in expertise, brand recognition, and other factors. In addition, Yahoo! competes
with metasearch services and software applications that allow a user to search
the databases of several directories and catalogs simultaneously. Yahoo! also
competes indirectly with database vendors that offer information search and
retrieval capabilities with their core database products. Many companies offer
directly competitive products or services addressing web navigation, information
and community services, including, among others:
- - America Online, Inc. (NetFind);
- - CNET, Inc. (Snap);
- - Compaq/Digital Equipment Corporation (AltaVista);
- - Excite, Inc. (including WebCrawler);
- - Infoseek Corporation (including Go network);
- - Inktomi Corporation;
- - Lycos, Inc. (including HotBot and Tripod);
- - Microsoft Corporation (msn.com); and
- - Netscape Communications Corporation (Netcenter).
In the past several months, there have been a number of significant
acquisitions and strategic plans announced among and between these companies.
These include:
- - The Walt Disney Company acquiring a significant interest in Infoseek;
- - AOL acquiring Netscape;
- - @Home Networks, Inc., a provider of high speed internet access serving the
cable television infrastructure and the largest
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shareholder of which is AT&T, acquiring Excite, Inc.;
- - NBC acquiring an interest in Snap, a subsidiary of CNET;
- - USA Networks and Ticketmaster Online -- Citysearch, Inc. announcing that they
intend to combine their services with Lycos, Inc.; and
- - Compaq, a computer manufacturer, announcing that it intends to spin-off
AltaVista into a separate independent entity through an initial public
offering.
The effect of these completed and pending acquisitions and strategic plans on
Yahoo! cannot be predicted with certainty, but all of these competitors are
aligned with companies that are significantly larger or more well established
than Yahoo!. As a result, each of them will have access to significantly greater
financial, marketing and, in certain cases, technical resources than Yahoo!. For
example, assuming that its acquisition by @Home Networks is approved, Excite
will significantly enhance its access to knowledge about broadband transmission
technology.
These acquisitions, if consummated, will also result in many of these
companies gaining access to significantly greater marketing resources. For
example, the combination of Lycos with USA Networks and Ticketmaster
Online-CitySearch, Inc. will permit Lycos to access significant television
resources for marketing and other purposes. In addition, Infoseek and The Walt
Disney Company recently entered into an agreement whereby Disney gains a
significant interest in Infoseek. The parties have introduced a portal and
navigation service entitled Go.com, which is supported by Disney's substantial
promotional and media resources. Similarly, Snap, by virtue of its relationship
with NBC, has been and will continue to be supported by NBC's substantial
promotional and media resources. Several large media companies, including both
Time-Warner, Inc. and CBS, have announced that they are contemplating Internet
navigation services and are attempting to become "gateway" sites for web users.
These and other competitors are expected to continue to make substantial
marketing expenditures to promote their online properties. The combined company
may be required to increase its sales and marketing expenditures significantly
in response to these efforts, which may materially impair its operating results
and may not be successful.
The recent announcements of the proposed acquisitions listed above will
result in greater competition as they consolidate more users of the Internet on
a single service and incorporate search and retrieval features other than
Yahoo!'s into their offerings. In addition, providers of software and other
Internet products and services are incorporating search and retrieval features
into their offerings. For example, web browsers offered by Netscape and
Microsoft increasingly incorporate prominent search buttons that direct search
traffic to competing services. These features could make it more difficult for
Internet users to find Yahoo!'s products and services. Netscape announced an
agreement with Excite under which Excite will be the most prominent navigational
service within the Netcenter web site. In the future, Netscape, Microsoft and
other browser suppliers may also more tightly integrate products and services
similar to Yahoo!'s into their browsers or their browsers' pre-set home pages.
In addition, entities that sponsor or maintain high-traffic web sites or that
provide an initial point of entry for Internet users, such as the Regional Bell
Operating Companies, long-distance providers and cable companies such as AT&T/
TCI through @Home Networks and Excite, Inc., or Internet Service Providers
("ISPs") such as Microsoft and AOL, currently offer and could further develop,
acquire or license Internet search and navigation functions and community and
communications services that compete with those that Yahoo! offers. Another
example is the recently announced arrangement that will result in Compaq
including prominent links to Alta Vista with many of the computers which it
sells. Any of these companies could take actions that would make it more
difficult for consumers to find and use Yahoo! services. For example, Microsoft
recently announced that it will feature and promote Internet search services
provided by Alta Vista and signed a long term partnership
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with LookSmart to provide directory services in the Microsoft Network and other
Microsoft online properties. Yahoo! expects that such search services may be
tightly integrated into future versions of the Microsoft operating system, the
Internet Explorer browser, and other software applications, and that Microsoft
will promote such services within the Microsoft Network or through other
Microsoft affiliated end-user services such as MSNBC or WebTV Networks, Inc.
Compaq and Microsoft may have a competitive advantage because their Internet
navigational offerings are more conveniently accessed by users.
A large number of web sites and online services, such as the Microsoft
Network, AOL, and Netscape (Netcenter); other web navigation companies such as
Excite, Lycos, and Infoseek; and high-traffic e-commerce merchants such as
Amazon.com, Inc. also offer or are expected to offer informational and community
features such as news, stock quotes, sports coverage, Yellow Pages and email
listings, weather news, chat services, message boards, email, personal
calendaring and online store hosting services that may be competitive with the
services Yahoo! offers. For example, Netscape recently significantly enhanced
its Netcenter service as a "gateway" web site through commercial relationships
with certain of its competitors, including Excite. A number of companies,
including Hotmail (acquired by Microsoft) and WhoWhere? Inc. (acquired by
Lycos), offer web-based email service similar to those offered by Yahoo!. These
companies are expected to continue to provide such services in tandem with
larger navigational sites and online services. AOL recently acquired Mirabilis,
a provider of "ICQ" instant Internet messaging software and services that
compete with Yahoo!'s Yahoo! Pager service. The ICQ user base will provide AOL
with an additional platform for distribution of AOL's other navigation,
information and communications services that compete with Yahoo!. Several
companies, including Microsoft and AOL, also are developing or currently offer
online information services for local markets, which compete with Yahoo!'s
regional online properties. As a result of its acquisition of Viaweb Inc.,
Yahoo! faces competition in the market for hosting online merchant stores,
including companies such as iCat Corporation and Open Market, Inc. Yahoo! also
faces intense competition in international markets, including from U.S.
companies, media and online companies, and Internet service providers and
telecommunications companies that are already well established in those foreign
markets and in some cases are monopolies. In order to effectively compete, the
combined company may need to expend significant internal engineering resources
or acquire other technologies and companies to provide such capabilities. Any of
these efforts could be dilutive to Yahoo! shareholders.
COMPETITION FOR ADVERTISING EXPENDITURES. Yahoo! competes with online services,
other web site operators and advertising networks, as well as traditional
offline media such as television, radio and print for a share of advertisers'
total advertising budgets. Yahoo! believes that the number of companies selling
web-based advertising and the available inventory of advertising space has
recently increased substantially. Accordingly, the combined company may face
increased pricing pressure for the sale of advertisements, which could reduce
its advertising revenues. In addition, its sales may be adversely affected to
the extent that its competitors offer superior advertising services that better
target users or provide better reporting of advertising results.
PRINCIPAL COMPETITIVE FACTORS. Yahoo! believes that the principal competitive
factors in its markets are:
- - brand recognition;
- - ease of use;
- - comprehensiveness;
- - personalization;
- - independence;
- - quality and responsiveness of search results and other services;
- - the availability of high-quality, targeted content and focused value-added
products and services;
- - access to end users; and
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- - with respect to advertisers and sponsors, the number of users, duration and
frequency of visits, and user demographics.
Competition among current and future suppliers of Internet navigation and
information services, high-traffic web sites and ISPs, as well as competition
with other media for advertising placements, could result in significantly lower
prices for advertising and reductions in advertising revenues. Yahoo! also faces
competition with respect to the acquisition of strategic businesses and
technologies.
Many of its existing competitors, as well as a number of potential new
competitors, have significantly greater financial, technical, marketing and
distribution resources than Yahoo! does. In addition, providers of Internet
tools and services may be acquired by, receive investments from, or enter into
other commercial relationships with larger, well-established and well-financed
companies, such as Microsoft and AOL. For example, a version of the Excite
service (AOL NetFind) has been designated as the exclusive Internet search
service for use by AOL's subscribers. It is difficult to predict with certainty
what the effects will be of the proposed acquisition of Netscape by AOL or
Excite by @Home Networks, but it will likely increase competitive pressures on
Yahoo! and the combined company in several respects, including their additional
access to end users and the ability to provide a more comprehensive offering to
advertisers and sponsors. In addition, well-established traditional media
companies may acquire, invest or otherwise establish commercial relationships
with the combined company's competitors, such as NBC's recent investment in
CNET's Snap service, Disney's investment in Infoseek or USA Networks' and
Ticketmaster Online-CitySearch's combination of their services with Lycos. These
larger companies may use their substantial media resources to promote and
enhance their own services. Greater competition resulting from such
relationships could have a material adverse effect on the combined company's
business, operating results, and financial condition.
DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET; TECHNOLOGICAL CHANGE
The combined company's future success is dependent upon continued growth in
the use of the Internet and the web in order to support the sale of advertising
on its online media properties. Web-based advertising is relatively new, and it
is difficult to predict the extent of further growth, if any, in web advertising
expenditures. The Internet may not prove to be a viable commercial marketplace
for a number of reasons, including lack of acceptable security technologies,
potentially inadequate development of the necessary infrastructure, or timely
development and commercialization of performance improvements. To the extent
that the Internet continues to experience significant growth in the number of
users and level of use, the Internet infrastructure may not be able to support
the demands placed upon it by such growth and the performance or reliability of
the web may be adversely affected.
The market for Internet products and services is characterized by rapid
technological developments, evolving industry standards and customer demands,
and frequent new product introductions and enhancements. To the extent that
higher bandwidth Internet access becomes more widely available through cable
modems or other technologies, the combined company may be required to make
significant changes to the design and content of its online properties in order
to compete effectively. Failure to effectively adapt to these or any other
technological developments could adversely affect its business, operating
results, and financial condition.
YAHOO!'S MARKET IS STILL DEVELOPING; UNPROVEN ACCEPTANCE OF YAHOO!'S PRODUCTS
AND MEDIA PROPERTIES
The markets for Yahoo!'s products and media properties have only recently
begun to develop, are rapidly evolving, and are increasingly competitive. Demand
and market acceptance for recently introduced products and services are subject
to a high level of uncertainty and risk. It is difficult for Yahoo! to predict
whether, or how fast, these markets will grow. Yahoo! cannot guarantee either
that the market
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for its products and media properties will continue to develop or that demand
for its products or media properties will be sustainable. If the market develops
more slowly than expected or becomes saturated with competitors, or if its
products and media properties do not sustain market acceptance, its business,
operating results, and financial condition will be materially and adversely
affected.
RISKS ASSOCIATED WITH BRAND DEVELOPMENT
Yahoo! and GeoCities believe that establishing and maintaining the Yahoo!
and GeoCities brands are critical aspects of their efforts to attract and expand
their user and advertiser bases. Yahoo! and GeoCities also believe that the
importance of brand recognition will increase due to the growing number of
Internet sites and the relatively low barriers to entry. Promotion and
enhancement of the Yahoo! and GeoCities brands will depend largely on the
combined company's success in providing high-quality products and services. In
order to attract and retain Internet users and to promote and maintain the
Yahoo! and GeoCities brands, the combined company may find it necessary to
increase expenditures devoted to creating and maintaining brand loyalty. In the
event of any breach or alleged breach of security or privacy involving its
services, or if any third party undertakes illegal or harmful actions utilizing
its community, communications or commerce services, the combined company could
suffer substantial adverse publicity and impairment of its brand and reputation.
If the combined company is unable to provide high-quality products and services
or otherwise fails to promote and maintain its brands, or if the combined
company incurs excessive expenses in an attempt to improve its products and
services or promote and maintain its brands, its business, operating results,
and financial condition will be materially and adversely affected.
RELIANCE ON ADVERTISING REVENUES AND UNCERTAIN ADOPTION OF THE WEB AS AN
ADVERTISING MEDIUM
Yahoo! derives a majority of its revenues from the sale of advertisements on
its web pages under short-term contracts. Most of its advertising customers have
limited experience with the web as an advertising medium. The combined company's
continuing ability to generate significant advertising revenues will depend
upon, among other things:
- - advertisers' acceptance of the web as an effective and sustainable
advertising medium;
- - the development of a large base of users of its services possessing
demographic characteristics attractive to advertisers; and
- - its ability to continue to develop and update effective advertising delivery
and measurement systems.
No standards have yet been widely accepted for the measurement of the
effectiveness of web-based advertising. Yahoo! cannot be certain that such
standards will develop sufficiently to support web-based advertising as a
significant advertising medium. In addition, adverse economic conditions can
significantly impact advertisers ability and willingness to spend additional
amounts on advertising generally, and on web-based advertising specifically. Nor
can Yahoo! be certain that the advertisers will determine that banner
advertising, which comprises the majority of its revenues, is an effective
advertising medium. Yahoo! has begun to implement permission-based direct
advertising. Failure to successfully implement such direct advertising could
have an adverse effect on the combined company's business, operating results and
financial position. Further, the combined company may not be able to effectively
transition to any other forms of web-based advertising, should such other forms
prove more popular. Certain advertising filter software programs are available
that limit or remove advertising from an Internet user's desktop. Such software,
if generally adopted by users, may have a materially adverse effect upon the
viability of advertising on the Internet. The combined company's advertising
customers may not accept the internal and third-party measurements of
impressions received by advertisements on Yahoo! online media properties and
such measurements may contain errors. Yahoo! relies primarily on its internal
advertising sales force for domestic advertising sales, which involves
additional risks and uncertainties, including risks associated with the
recruitment, retention, management, training, and motivation of sales personnel.
As a result of these factors, the combined company may not be able to sustain or
increase current advertising sales levels. Failure to do so will have a material
adverse effect on its business, operating results, and financial position.
YAHOO! DEPENDS SUBSTANTIALLY ON THIRD PARTIES
Yahoo! depends substantially upon third parties for several critical
elements of its business including, among others, technology and infrastructure,
content development, and distribution activities.
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TECHNOLOGY AND INFRASTRUCTURE. In May 1998, Yahoo! entered into an agreement
with Inktomi under which Inktomi provides text-based web search results to
complement Yahoo!'s directory and navigational guide. The combined company will
depend substantially upon ongoing maintenance and technical support from Inktomi
to ensure accurate and rapid presentation of such search results to its
customers. If Inktomi were to prematurely terminate its agreement with Yahoo! or
fail to renew it, the combined company would have to make substantial
expenditures to develop or license replacement technology. This also could
result in lower levels of use of its navigational services. Yahoo! relies on a
private third-party provider, Frontier GlobalCenter, Inc., for its principal
Internet connections. Email and other service Internet connections are provided
by GTE. Any disruption in the Internet access provided by these third-party
providers or any failure of these third-party providers to handle current or
higher volumes of use could have a material adverse effect on the combined
company's business, operating results, and financial condition. Yahoo! licenses
technology and related databases from third parties for certain elements of
Yahoo! properties, including, among others, technology underlying the delivery
of news, stock quotes and current financial information, street mapping,
telephone listings, and similar services. Yahoo! has experienced and expects to
continue to experience interruptions and delays in service and availability for
such elements, including recent interruptions in its mail services. Furthermore,
Yahoo! is dependent on hardware suppliers for prompt delivery, installation, and
service of servers and other equipment to deliver its products and services. Any
errors, failures, or delays experienced in connection with these third-party
technologies and information services could negatively impact its relationship
with users and adversely affect its brand and its business, and could expose the
combined company to liabilities to third parties.
CONTENT DEVELOPMENT. A key element of its strategy involves the implementation
of Yahoo!-branded media properties targeted for interest areas, demographic
groups, and geographic areas. In these efforts, Yahoo! relies on content
development and localization efforts of third parties. For example, Yahoo! has
entered into an agreement with Ziff-Davis under which Ziff-Davis publishes an
online publication and a print magazine under the Yahoo! brand. Yahoo! also
expects to rely on third-party affiliates, including SOFTBANK in Japan and
Korea, to localize, maintain, and promote these services and to sell advertising
in local markets. Yahoo! cannot guarantee that its current or future third-party
affiliates will effectively implement these properties, or that their efforts
will result in significant revenue to the combined company. Any failure of these
parties to develop and maintain high-quality and successful media properties
also could hurt the Yahoo! brand. Certain of these arrangements also require
Yahoo! to integrate third parties' content with its services, which can require
significant programming and design efforts. In addition, Yahoo! has granted
exclusivity provisions to certain third parties, and may in the future grant
additional exclusivity provisions. While they are in force, such exclusivity
provisions may have the effect of preventing the combined company from accepting
advertising or sponsorship arrangements within a particular subject matter with
respect to portions of its network of media properties.
DISTRIBUTION RELATIONSHIPS. In order to create traffic for its online
properties and make them more attractive to advertisers and consumers, Yahoo!
has certain distribution agreements and informal relationships with leading web
browser providers such as Microsoft, operators of online networks and leading
web sites, and computer manufacturers, such as Hewlett Packard and Gateway 2000.
Yahoo! believes that these arrangements are important to the promotion of its
online media properties, particularly among new web users who may first access
the web through these browsers, services, web sites, or computers. Its business
relationships with these companies are intended to increase the use and
visibility of Yahoo!. These distribution arrangements typically are not
exclusive, and may be terminated upon certain conditions with little or no
notice. Success of its online
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properties in international markets may require the combined company to
establish relationships with ISPs and other telecommunications companies in
various countries and regional markets, many of which have a dominant market
share in their territories. In addition, in the future the combined company may
be required to establish relationships with providers of broad-band service.
Even if sufficient distribution opportunities are available to the combined
company in the U.S. or abroad, third parties that provide distribution may
assess fees or otherwise impose additional conditions on the listing of Yahoo!
or its other online properties. Any failure to cost-effectively obtain
distribution could have a material adverse effect on the combined company's
business, operating results, and financial condition.
Yahoo! recently announced a co-branding and distribution arrangement with
AT&T (which replaced Yahoo!'s previous agreement with MCI Internet) under which
Yahoo! will provide
a web-based online service in conjunction with dial-up Internet access provided
by AT&T WorldNet Service. In this arrangement, Yahoo! will depend on AT&T for,
among other things, effective marketing and promotion efforts and the provision
of competitive Internet access service to customers. Any failure by AT&T in
these respects could materially impair the benefits Yahoo! expects to receive
from this arrangement, and could negatively affect the Yahoo! brand. In
addition, the acquisition of Excite by @Home Networks (a company whose largest
stockholder will be AT&T upon consummation of AT&T's acquisition of TCI) could
adversely impact this arrangement.
THE COMBINED COMPANY MAY NOT BE ABLE TO SUCCESSFULLY ENHANCE ITS PROPERTIES OR
DEVELOP NEW PROPERTIES
To remain competitive, the combined company must continue to enhance and
improve the functionality, features, and content of the Yahoo! main site, as
well as its other branded media properties. The combined company may not be able
to successfully maintain competitive user response times or implement new
features and functions, which will involve the development of increasingly
complex technologies. Personalized information services, such as its web-based
e-mail services, message boards, stock portfolios and Yahoo! Clubs community
features, require significantly greater expenses than its general services.
Yahoo! cannot guarantee that these additional expenses will be offset by
additional revenues from personalized services.
The combined company's future success also depends in part upon the timely
processing of web site listings submitted by users and web content providers,
which have increased substantially in recent periods. Yahoo! has, from time to
time, experienced significant delays in the processing of submissions. Further
delays could have a material adverse effect on the combined company's goodwill
among web users and content providers, and on its business.
A key element of Yahoo!'s business strategy is the development and
introduction of new Yahoo!-branded online properties targeted for specific
interest areas, user groups with particular demographic characteristics, and
geographic areas. The combined company may not be successful in developing,
introducing, and marketing such products or media properties and such properties
may not achieve market acceptance, enhance its brand name recognition, or
increase user traffic. Furthermore, enhancements of or improvements to Yahoo! or
new media properties may contain undetected errors that require significant
design modifications, resulting in a loss of customer confidence and user
support and a decrease in the value of its brand name. The combined company's
ability to successfully develop additional targeted media properties depends on
use of Yahoo! to promote such properties. If use of Yahoo! does not continue to
grow, its ability to establish other targeted properties would be adversely
affected. If Yahoo! fails to effectively develop and introduce such new
properties, or such properties fail to achieve market acceptance, the combined
company's business, operating results, and financial condition could be
adversely affected.
RISKS OF EQUITY INVESTMENTS IN OTHER COMPANIES
Yahoo! has made equity investments in affiliated companies that are involved
in complementary businesses, including the commercialization of Yahoo!-branded
online
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properties, such as versions of Yahoo! localized for foreign markets. These
affiliated companies typically are in an early stage of development and may be
expected to incur substantial losses. Any investments in such companies may not
result in any return, nor can there be any assurance as to the timing of any
such return, or that Yahoo! may lose its entire investment. As a result, Yahoo!
has recorded and expects to continue to record a share of the losses in such
affiliates attributable to its ownership. Yahoo!'s investment in non-affiliated
companies involved in the development of technologies or services that are
complementary or related to the company's business include GeoCities,
broadcast.com, CDnow, E-LOAN and Impulse! BuyNetwork. Yahoo! intends to continue
to make significant additional investments in such companies in the future.
Losses resulting from such investments could have a material adverse effect on
its operating results.
MANAGEMENT OF POTENTIAL GROWTH AND INTEGRATION OF ACQUISITIONS
Yahoo!'s recent growth has placed a significant strain on its managerial,
operational, and financial resources. To manage its growth, Yahoo! must continue
to implement and improve its operational and financial systems and to expand,
train, and manage its employee base. The process of managing advertising within
large, high traffic web sites such as those in the Yahoo! network is an
increasingly important and complex task. Yahoo! relies on both internal and
licensed third-party advertising inventory management and analysis systems. To
the extent that Yahoo! does not have the appropriate advertising inventory or
any extended failure of its advertising management system results in incorrect
advertising insertions, the combined company may be exposed to "make good"
obligations with its advertising customers, which, by displacing advertising
inventory, could defer advertising revenues. Failure of its advertising
management systems to effectively scale to higher levels of use or to
effectively track and provide accurate and timely reports on advertising results
also could negatively affect its relationships with advertisers. The combined
company's systems, procedures, or controls may not be adequate to support its
operations, particularly with regard to support and service. The combined
company's management may not be able to achieve the rapid execution necessary to
fully exploit its market opportunity. Any inability to effectively manage growth
could have a material adverse effect on the combined company's business,
operating results, and financial condition.
As part of its business strategy, Yahoo! has completed several acquisitions
and expects to enter into additional business combinations and acquisitions.
Acquisition transactions are accompanied by a number of risks, including:
- - the difficulty of assimilating the operations and personnel of the acquired
companies;
- - the potential disruption of its ongoing business and distraction of
management;
- - the difficulty of incorporating acquired technology or content and rights
into its products and media properties;
- - the correct assessment of the relative percentages of in-process research and
development expense which can be immediately written off as compared to the
amount which must be amortized over the appropriate life of the asset;
- - the failure to successfully develop an acquired in-process technology could
result in the impairment of amounts currently capitalized as intangible
assets;
- - unanticipated expenses related to technology integration;
- - the maintenance of uniform standards, controls, procedures and policies;
- - the impairment of relationships with employees and customers as a result of
any integration of new management personnel; and
- - the potential unknown liabilities associated with acquired businesses.
The combined company may not be successful in addressing these risks or any
other problems encountered in connection with such acquisitions.
RISK OF CAPACITY CONSTRAINTS AND SYSTEMS FAILURES
Yahoo! is dependent on its ability to effectively serve a high volume of use
of its
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online media properties. Accordingly, the performance of its online media
properties is critical to its reputation, its ability to attract advertisers to
its web sites, and to achieve market acceptance of its products and media
properties. Any system failure that causes an interruption or an increase in
response time of its products and media properties could result in less traffic
to its web sites and, if sustained or repeated, could reduce the attractiveness
of its products and media properties to advertisers and licensees. An increase
in the volume of queries conducted through its products and media properties
could strain the capacity of the software or hardware Yahoo! has deployed, which
could lead to slower response time or system failures. In addition, as the
number of web pages and users increase, its products and media properties and
infrastructure may not be able to scale accordingly. Personalized information
services, such as web-based email and calendaring services and posting of
photographs, as well as the provision of homepage hosting and other services the
combined company will offer, involve increasingly complex technical and
operational challenges that may strain its development and operational
resources. The combined company may not be able to successfully implement and
scale such services to the extent required by any growth in the number of users
of such services. Failure to do so may affect the goodwill of users of these
services, or negatively affect its brand and reputation.
Yahoo! is dependent on third parties for much of its technology and
infrastructure. See "Yahoo! Depends Substantially on Third Parties" above.
The combined company's operations are susceptible to outages due to fire,
floods, power loss, telecommunications failures, break-ins, and similar events.
In addition, substantially all of its network infrastructure is located in
Northern California, an area susceptible to earthquakes. Yahoo! does not have
multiple-site capacity in the event of any such occurrence. Despite its
implementation of network security measures, its servers are vulnerable to
computer viruses, break-ins, and similar disruptions from unauthorized tampering
with its computer systems. Yahoo! does not carry sufficient business
interruption insurance to compensate Yahoo! for losses that may occur as a
result of any of these events. Such events could have a material adverse effect
on the combined company's business, operating results, and financial condition.
TRADEMARKS AND PROPRIETARY RIGHTS
Yahoo! regards its copyrights, trademarks, trade dress, trade secrets, and
similar intellectual property as critical to its success. Yahoo! relies upon
trademark and copyright law, trade secret protection and confidentiality or
license agreements with its employees, customers, partners and others to protect
its proprietary rights. Yahoo! has obtained the registration for certain of its
trademarks, including "Yahoo!" and "Yahooligans!." Effective trademark,
copyright, and trade secret protection may not be available in every country in
which its products and media properties are distributed or made available
through the Internet. Yahoo! has licensed in the past, and may license in the
future, elements of its distinctive trademarks, trade dress, and similar
proprietary rights to third parties. While Yahoo! attempts to ensure that the
quality of its brand is maintained by its licensees, its licensees may take
actions that could materially and adversely affect the value of its proprietary
rights or the reputation of its products and media properties. Yahoo! is aware
that third parties have, from time to time, copied significant portions of
Yahoo! directory listings for use in competitive Internet navigational tools and
services. The distinctive elements of Yahoo! may not be protectible under
copyright law. Yahoo! cannot guarantee that the steps Yahoo! has taken to
protect its proprietary rights will be adequate.
Many parties are actively developing search, indexing, e-commerce and other
web-related technologies. Yahoo! believes that such parties will continue to
take steps to protect these technologies, including seeking patent protection.
As a result, Yahoo! believes that disputes regarding the ownership of such
technologies are likely to arise in the future. For example, Yahoo! is aware
that a number of patents have been issued in the areas of electronic commerce,
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online auctions, web-based information indexing and retrieval (including patents
recently issued to one of its direct competitors), online direct marketing,
fantasy sports, common web graphics formats and mapping technologies. Yahoo!
anticipates that additional third-party patents will be issued in the future.
From time to time, parties assert patent infringement claims against Yahoo! in
the form of letters, lawsuits and other forms of communication. In these
situations, to the extent that Yahoo! determines that licensing such patents is
appropriate, Yahoo! cannot guarantee that it would be able to license such
patents on reasonable terms. Yahoo! may incur substantial expenses in defending
against third-party patent claims regardless of the merit of such claims. In the
event that there is a determination that Yahoo! has infringed such third party
patent rights, Yahoo! could incur substantial monetary liability and be
prevented from using the rights in the future.
In addition to patent claims, third parties may assert claims against Yahoo!
alleging infringement of copyrights, trademark rights, trade secret rights or
other proprietary rights or alleging unfair competition. From time to time,
Yahoo! receives letters, lawsuits and other communications from third parties
alleging such claims. If Yahoo! determines that licensing of any such
proprietary rights is appropriate, Yahoo! cannot guarantee that Yahoo! will be
able to license such proprietary rights on reasonable terms or at all. Yahoo!
may incur substantial expenses in defending against any such third party
infringement claims regardless of the merit of such claims. If there is a
determination that Yahoo! has infringed such third-party proprietary rights,
Yahoo! may incur substantial monetary liability and be prevented from using the
rights in the future. In addition, Yahoo! is aware of lawsuits filed against two
of its competitors regarding the presentment of advertisements in response to
search requests on "keywords" that may be trademarks of third parties. It is not
clear what, if any, impact an adverse ruling in these recently filed lawsuits
would have on Yahoo!.
DEPENDENCE ON KEY PERSONNEL
Yahoo! is substantially dependent on the continued services of its key
personnel. Yahoo! expects that it will need to hire additional personnel in all
areas. The competition for such personnel in its industry is intense,
particularly in the San Francisco Bay Area, where its corporate headquarters are
located. At times, Yahoo! has experienced difficulties in hiring personnel with
the right training or experience, particularly in technical areas. Yahoo! does
not maintain key person life insurance for any of its personnel. If the combined
company does not succeed in attracting new personnel, or retaining and
motivating existing personnel, its business will be adversely affected.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
There are currently few laws or regulations directly applicable to access to
or commerce on the Internet. Due to the increasing popularity and use of the
Internet, it is possible that laws and regulations may be adopted, covering
issues such as user privacy, defamation, pricing, taxation, content regulation,
quality of products and services, and intellectual property ownership and
infringement. Such legislation could expose the combined company to substantial
liability. Such legislation could also dampen the growth in use of the web,
decrease the acceptance of the web as a communications and commercial medium, or
require the combined company to incur significant expense in complying with any
new regulations. Other nations, including Germany, have taken actions to
restrict the free flow of material deemed to be objectionable on the web. The
European Union has recently adopted privacy and copyright directives that may
impose additional burdens and costs on its international operations. In
addition, several telecommunications carriers, including America's Carriers'
Telecommunications Association, are seeking to have telecommunications over the
web regulated by the FCC in the same manner as other telecommunications
services. Because the growing popularity and use of the web has burdened the
existing telecommunications infrastructure and many areas with high web use have
begun to experience interruptions in phone service, local telephone carriers,
such as Pacific
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Bell, have petitioned the FCC to regulate ISPs and OSPs and to impose access
fees. Increased regulation or the imposition of access fees could substantially
increase the costs of communicating on the web, potentially decreasing the
demand for its products and media properties. A number of proposals have been
made at the federal, state and local level that would impose additional taxes on
the sale of goods and services through the Internet. Such proposals, if adopted,
could substantially impair the growth of electronic commerce, and could
adversely affect the combined company's opportunity to derive financial benefit
from such activities. Also, Congress recently passed (and the President has
signed into law) the Digital Millenium Copyright Act, which is intended to
reduce the liability of online service providers for listing or linking to
third-party web sites that include materials that infringe copyrights. Congress
also recently passed (and the President has signed into law) the Children's
Online Protection Act and the Children's Online Privacy Act, which will restrict
the distribution of certain materials deemed harmful to children and impose
additional restrictions on the ability of online services to collect user
information from minors. Further, Congress recently passed (and the President
has signed into law) the Protection of Children from Sexual Predators Act, which
mandates that electronic communication service providers report facts or
circumstances from which a violation of child pornography laws is apparent.
Yahoo! is currently reviewing these pieces of legislation, and cannot currently
predict the effect, if any, that such legislation will have on its business.
There can be no assurance that such legislation will not impose significant
additional costs on its business or subject Yahoo! to additional liabilities. In
addition, a number of other countries have announced or are considering
additional regulation. For example, a recent European Commission privacy
directive restricts the use of personal information without the consent of both
the individual and that individual's government. Such restrictions could
jeopardize the future of e-commerce in and with the European Union. In addition,
the European Commission is expected in the near future to propose a directive
concerning the liability of online service providers for activities that take
place using their services. Such laws and regulations could fundamentally impair
its ability to provide Internet navigation or other services, or substantially
increase the cost of doing so. Moreover, the applicability to the Internet of
existing laws governing issues such as property ownership, copyright,
defamation, obscenity, and personal privacy is uncertain. Yahoo! may be subject
to claims that its services violate such laws. Any such new legislation or
regulation in the United States or abroad or the application of existing laws
and regulations to the Internet could have a material adverse effect on its
business, operating results, and financial condition.
Due to the global nature of the web, it is possible that the governments of
other states and foreign countries might attempt to regulate its transmissions
or prosecute Yahoo! for violations of their laws. Yahoo! might unintentionally
violate such laws. Such laws may be modified, or new laws enacted, in the
future. Any such developments could have a material adverse effect on its
business, operating results, and financial condition.
LIABILITY FOR THE COMPANY'S SERVICES
Yahoo! hosts a wide variety of information, community, communications and
commerce services that enable individuals to exchange information, generate
content, conduct business and engage in various online activities, including the
homesteading and other services currently offered by GeoCities which will
continue to be offered by the combined company. The laws relating to the
liability of providers of these online services for activities of their users is
currently unsettled. Claims could be made against Yahoo! for defamation,
negligence, copyright or trademark infringement, personal injury or other
theories based on the nature and content of information that may be posted
online by its users. Such claims have been brought, and sometimes successfully
pressed, against online service providers in the past. In addition, Yahoo! could
be exposed to liability with respect to the selection of listings that may be
accessible through its Yahoo!-branded products and media properties, or through
content and materials that may be posted by
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users in classifieds, message board, clubs, chat room, member homepages or other
interactive community-building services. Such claims might include, among
others, that by providing hypertext links to web sites operated by third
parties, Yahoo! is liable for copyright or trademark infringement or other
wrongful actions by such third parties through such web sites, or that Yahoo! is
responsible for legal injury caused by statements made to, actions taken by or
content generated by, participants in its message board services, Yahoo! Clubs,
member homepages or other community building services. It is also possible that
if any information provided through its services, such as stock quotes, analyst
estimates or other trading information, contains errors, third parties could
make claims against Yahoo! for losses incurred in reliance on such information.
Yahoo! offers web-based e-mail services, which expose Yahoo! to potential risks,
such as liabilities or claims resulting from unsolicited e-mail (spamming), lost
or misdirected messages, illegal or fraudulent use of e-mail, or interruptions
or delays in email service. Investigating and defending such claims is
expensive, even to the extent such claims do not result in liability.
Yahoo! also periodically enters into arrangements to offer third-party
products and services under the Yahoo! brand or via distribution on Yahoo!
properties. Yahoo! recently announced an arrangement with broadcast.com, an
Internet-based broadcast network, whereby links to broadcast.com's site and
content will be distributed via Yahoo! properties. These business arrangements
involve additional legal risks, such as potential liabilities for content posted
by free home page users or made available by other third-party providers. Yahoo!
may be subject to claims concerning such services or content by virtue of its
involvement in marketing, branding or providing access to such services, even if
Yahoo! does not itself host, operate, or provide such services. While its
agreements with these parties often provide that Yahoo! will be indemnified
against such liabilities, such indemnification may not be adequate.
In October 1998, Yahoo! acquired Yoyodyne Entertainment, Inc., a direct
marketing firm. Yoyodyne's business involves substantial use of sweepstakes,
contests and similar promotional events in order to solicit user registration
and involvement in direct marketing relationships. Sweepstakes and contests are
subject to extensive government regulation throughout the world, including
different regulatory programs under states and territories in the United States,
and may be subject to laws governing lotteries and gambling. Although Yahoo!
intends to operate these events to fall within exemptions from such laws, such
exemptions may not be available. In addition, Yahoo! anticipates that in the
near future substantial additional federal, state and international regulations
may be adopted relating to user privacy and the collection and utilization of
user information. To the extent that Yahoo! does not effectively comply with
such regulations, or if such regulations materially impair its ability to
effectively utilize direct marketing, its business, operating results, and
financial condition could be materially and adversely affected.
POTENTIAL COMMERCE-RELATED LIABILITIES AND EXPENSES
As part of its business, Yahoo! enters into agreements with sponsors,
content providers, service providers, and merchants under which Yahoo! is
entitled to receive a share of revenue from the purchase of goods and services
by users of its online properties. Such arrangements may expose Yahoo! to
additional legal risks and uncertainties, including potential liabilities to
consumers of such products and services. Although Yahoo! carries general
liability insurance, its insurance may not cover potential claims of this type
or may not be adequate to indemnify Yahoo! for all liability that may be
imposed.
Yahoo! recently began offering a Yahoo!-branded VISA credit card, which
includes a "rewards" program entitling card users to receive points that may be
redeemed for merchandise, such as books or music. This arrangement exposes
Yahoo! to certain additional risks and expenses, including those relating to
compliance with consumer protection laws, loss of customer data, disputes over
redemption procedures and rules, products
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liability, sales taxation and liabilities associated with any failure in
performance by participating merchants.
In June 1998, Yahoo! completed the acquisition of Viaweb Inc., a provider of
software and reporting tools for the operation of online commerce web sites.
Yahoo! uses the Viaweb technology to host and promote online stores on behalf of
third-party merchants, the operation and maintenance of which will be largely
under the independent control of such merchants. These activities expose Yahoo!
to a number of additional risks and uncertainties, including:
- - potential liabilities for illegal activities that may be conducted by
participating merchants;
- - products liability or other tort claims relating to goods or services sold
through hosted commerce sites;
- - consumer fraud and false or deceptive advertising or sales practices;
- - breach of contract claims relating to merchant transactions;
- - claims that materials included in merchant sites or sold by merchants through
these sites infringe third-party patents, copyrights, trademarks or other
intellectual property rights, or are libelous, defamatory or in breach of
third-party confidentiality or privacy rights;
- - claims relating to any failure of merchants to appropriately collect and
remit sales or other taxes arising from e-commerce transactions; and
- - claims that may be brought by merchants as a result of their exclusion from
its commerce services or losses resulting from any downtime or other
performance failures in its hosting services.
Although Yahoo! maintains liability insurance, insurance may not cover these
claims or may not be adequate. Even to the extent such claims do not result in
material liability, investigating and defending such claims is expensive.
Yahoo! intends to significantly expand its online stores in the future, as
well as the services it offers to online store merchants, and to the extent that
it fails to do so successfully, its overall business will be adversely affected.
In September 1998, Yahoo! launched Yahoo! Auctions, a free service that
hosts online auctions for a wide variety of goods and services. Auction services
expose Yahoo! to a number of significant additional risks. For example, while
Yahoo! does not pre-screen the types of goods offered on Yahoo! Auctions, Yahoo!
is aware that certain goods, such as alcohol, tobacco, firearms, adult material
and other goods that may be subject to regulation by local, state or federal
authorities may be traded on Yahoo! Auctions. Yahoo! might not be able to
prevent the unlawful exchange of goods on its service, and may be subject to
civil or criminal liability for unlawful activities carried out by users through
its service. In addition, while Yahoo! takes no responsibility for delivery of
payment or goods to any user of Yahoo! Auctions, Yahoo! anticipates that users
who did not receive the purchase price or the goods that were to have been
exchanged may register complaints with Yahoo! or seek to hold Yahoo! liable.
Yahoo! also anticipates that it will receive complaints from buyers as to the
quality of the goods purchased through Yahoo! Auctions, as well as complaints
alleging that comments posted by participants of the service concerning other
participants are unfair or defamatory. Any claims or litigation arising from
Yahoo! Auctions could be costly. Any negative publicity generated as a result of
fraudulent or deceptive conduct by users of Yahoo! Auctions could damage its
reputation and diminish the value of its brand name. Yahoo! has also received in
the past, and anticipates that it will receive in the future, communications
alleging that certain items sold through Yahoo! Auctions, or text and images
posted by users in auction listings, infringe third-party copyrights, trademarks
or other intellectual property rights. While its user policies prohibit the sale
of goods and posting of materials which may infringe third-party intellectual
property rights, an allegation of infringement may result in costly litigation.
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YEAR 2000 IMPLICATIONS
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates and, as a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements. Yahoo! is in the process of
assessing the Year 2000 issue and expects to complete the program by the spring
of 1999. Yahoo! has not incurred material costs to date in this process, and
currently does not believe that the cost of additional actions will have a
material effect on its results of operations or financial condition. Although
Yahoo! currently believes that its systems are Year 2000 compliant in all
material respects, its current systems and products may contain undetected
errors or defects with Year 2000 date functions that may result in material
costs. Although Yahoo! is not aware of any material operational issues or costs
associated with preparing its internal systems for the Year 2000, Yahoo! may
experience serious unanticipated negative consequences (such as significant
downtime for one or more Yahoo! media properties) or material costs caused by
undetected errors or defects in the technology used in its internal systems. In
addition, Yahoo! utilizes third-party equipment, software and content, including
non-information technology systems ("non-IT systems"), such as its security
system, building equipment and non-IT systems embedded microcontrollers that may
not be Year 2000 compliant. Yahoo! is in the process of developing a plan to
assess whether these third parties are adequately addressing the Year 2000 issue
and whether any of its non-IT systems have material Year 2000 compliance
problems. Failure of such third-party equipment, software or content to operate
properly with regard to the year 2000 and thereafter could require Yahoo! to
incur unanticipated expenses to remedy any problems, which could have a material
adverse effect on its business, operating results, and financial condition.
Yahoo! is in the process of developing a comprehensive contingency plan to
address situations that may result if Yahoo! is unable to achieve Year 2000
readiness of its critical operations. Finally, Yahoo! is also subject to
external forces that might generally affect industry and commerce, such as
utility or transportation company Year 2000 compliance failures and related
service interruptions. Furthermore, the purchasing patterns of advertisers may
be affected by Year 2000 issues as companies expend significant resources to
correct their current systems for Year 2000 compliance. Yahoo! does not
currently have any information about the Year 2000 status of its advertising
customers. However, these expenditures may result in reduced funds available for
web advertising or sponsorship of web services, which could have a material
adverse effect on its business, operating results, and financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSION
A key part of its strategy is to develop Yahoo!-branded online properties in
international markets. Yahoo! has developed and operates, through joint ventures
with SOFTBANK and related entities, versions of Yahoo! localized for Japan,
Germany, France, the United Kingdom, and Korea. Yahoo! operates localized or
mirror versions of Yahoo! through wholly-owned subsidiaries in Australia,
Denmark, Italy, Norway, Singapore, Spain and Sweden. Yahoo! also offers Yahoo!
guides in Spanish and Mandarin Chinese.
To date, Yahoo! has only limited experience in developing localized versions
of its products and marketing and operating its products and services
internationally. Yahoo! relies on the efforts and abilities of its foreign
business partners in such activities. Yahoo! also believes that, in light of
substantial anticipated competition, Yahoo! will need to move quickly into
international markets in order to effectively obtain market share, and may not
be able to do so. Yahoo! expects to continue to experience higher costs as a
percentage of revenues in connection with international online properties.
International markets Yahoo! has selected may not develop at a rate that
supports its level of investment. In particular, international markets may be
slower in adoption of the Internet as an
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advertising and commerce medium. Yahoo! may experience difficulty in managing
international operations as a result of distance as well as language and
cultural differences. Yahoo! or its partners may not be able to successfully
market and operate its products and services in foreign markets. In addition, in
a number of international markets, Yahoo! faces substantial competition from
ISPs or other entrenched telecommunications companies, some of which have a
dominant market share in their territories and which may be monopolies, that
offer or may offer their own navigational service, impairing Yahoo!'s ability to
compete in such markets.
In addition to uncertainty about Yahoo!'s ability to continue to generate
revenues from its foreign operations and expand its international presence,
there are certain risks inherent in doing business on an international level,
including:
- - unexpected changes in regulatory requirements;
- - trade barriers;
- - difficulties in staffing and managing foreign operations;
- - longer payment cycles;
- - currency exchange rate fluctuations;
- - problems in collecting accounts receivable;
- - political instability;
- - export restrictions;
- - export controls relating to encryption technology;
- - seasonal reductions in business activity in certain other parts of the world;
and
- - potentially adverse tax consequences.
One or more of these factors could have a material adverse effect on
Yahoo!'s future international operations and, consequently, on Yahoo!'s
business, operating results, and financial condition.
CONCENTRATION OF STOCK OWNERSHIP
As of December 31, 1998, Yahoo!'s directors and executive officers, and
their affiliates beneficially owned approximately 57% of the outstanding stock.
As of December 31, 1998, SOFTBANK owned approximately 30% of Yahoo!'s
outstanding stock. It is expected that as a result of their ownership after the
merger, the directors, executive officers, and significant shareholders
(including SOFTBANK) collectively will continue to be able to control all
matters requiring shareholder approval, including the election of directors and
approval of significant corporate transactions. Such concentration of ownership
may also have the effect of delaying or preventing a change in control of
Yahoo!.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
Yahoo!'s board of directors has the authority to issue up to 10,000,000
shares of preferred stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the shareholders. The rights of the holders of
common stock may be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future. The
issuance of preferred stock may have the effect of delaying, deferring or
preventing a change of control of Yahoo! without further action by the
shareholders and may adversely affect the voting and other rights of the holders
of common stock. Yahoo! has no present plans to issue shares of preferred stock.
Further, certain provisions of its charter documents, including provisions
eliminating the ability of shareholders to take action by written consent and
limiting the ability of shareholders to raise matters at a meeting of
shareholders without giving advance notice, may have the effect of delaying or
preventing changes in control or management of Yahoo!, which could have an
adverse effect on the market price of the stock. In addition, its charter
documents do not permit cumulative voting and provide that, at such time as
Yahoo! has at least six directors, its board of directors will be divided into
two classes, each of which serves for a staggered two-year term, which may make
it more difficult for a third-party to gain control of the board of directors.
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FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This document, including information incorporated by reference, contains
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements relate to expectations concerning matters that are not historical
facts. Words such as "projects," "believes," "anticipates," "plans," "expects,"
"intends," and similar words and expressions are intended to identify
forward-looking statements. Although each of Yahoo! and GeoCities believes that
such forward-looking statements are reasonable, neither can assure you that such
expectations will prove to be correct. Important language regarding factors that
could cause actual results to differ materially from such expectations are
disclosed herein including, without limitation, in the "Risk Factors" beginning
on page 17. All forward-looking statements attributable to Yahoo! or GeoCities
are expressly qualified in their entirety by such language. Neither Yahoo! nor
GeoCities undertakes any obligation to update any forward-looking statements.
TRADEMARKS
This document contains trademarks of Yahoo! and GeoCities and may contain
trademarks of others.
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MARKET PRICE AND DIVIDEND INFORMATION
Yahoo!'s common stock is traded on The Nasdaq National Market under the
symbol "YHOO." The following table sets forth the range of high and low
intra-day sales prices reported on The Nasdaq National Market for Yahoo! common
stock for the periods indicated, adjusted to reflect the 2-for-1 stock split
that occurred in February 1999, the 2-for-1 stock split that occurred in August
1998, and the 3-for-2 stock split that occurred in September 1997.
<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
FISCAL 1997
First Quarter....................................................... $ 6.231 $ 2.793
Second Quarter...................................................... 6.563 4.125
Third Quarter....................................................... 14.500 5.582
Fourth Quarter...................................................... 17.750 8.532
FISCAL 1998
First Quarter....................................................... $ 23.563 $ 14.407
Second Quarter...................................................... 39.938 22.719
Third Quarter....................................................... 67.313 29.500
Fourth Quarter...................................................... 143.000 48.750
FISCAL 1999
First Quarter (through February 8, 1999)............................ $ 222.500 $ 119.844
</TABLE>
GeoCities' common stock has traded on The Nasdaq National Market under the
symbol "GCTY" since August 1998. The following table sets forth the range of
high and low intra-day sales prices reported on The Nasdaq National Market for
GeoCities common stock for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
---------- ---------
<S> <C> <C>
FISCAL 1998
Third Quarter........................................................ $ 51.375 $ 16.250
Fourth Quarter....................................................... 47.375 13.250
FISCAL 1999
First Quarter (through February 8, 1999)............................. $ 117.375 $ 33.000
</TABLE>
RECENT SHARE PRICES
The following table sets forth the closing sales prices per share of Yahoo!
common stock on The Nasdaq National Market and the closing sales prices per
share of the GeoCities common stock on The Nasdaq National Market, on (i)
January 27, 1999, the last full trading date prior to the public announcement of
the merger, and (ii) , 1999, the latest practicable trading day before
the printing of this proxy statement/prospectus.
<TABLE>
<CAPTION>
YAHOO! GEOCITIES EQUIVALENT
COMMON COMMON GEOCITIES PER
STOCK STOCK SHARE PRICE(1)
---------- ----------- ---------------
<S> <C> <C> <C>
January 27, 1999..................................... $ 167.938 $ 75.00 $ 113.66
, 1999....................................... $ $ $
</TABLE>
- ------------------------
(1) The equivalent GeoCities per share price represents 0.6768 of the price of
one share of Yahoo! common stock.
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No assurance can be given as to the market prices of Yahoo! common stock or
GeoCities common stock at any time before the closing of the merger or as to the
market price of Yahoo! common stock at any time thereafter. The exchange ratio
is fixed and will not be adjusted to compensate GeoCities' stockholders for
decreases in the market price of Yahoo! common stock which could occur before
the merger becomes effective. If the market price of Yahoo! common stock
decreases or increases prior to the effective time of the merger, the market
value of the Yahoo! common stock to be received in the merger in exchange for
GeoCities common stock will correspondingly decrease or increase. STOCKHOLDERS
OF GEOCITIES ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS OF GEOCITIES COMMON
STOCK AND YAHOO! COMMON STOCK.
DIVIDEND INFORMATION
Neither Yahoo! nor GeoCities has ever paid any cash dividends on their
stock, and both anticipate that they will continue to retain any earnings for
the foreseeable future for use in the operation of their respective businesses.
NUMBER OF STOCKHOLDERS
As of , 1999 there were stockholders of record who held
shares of GeoCities capital stock.
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THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting will be held on May , 1999, at 10:00 a.m., local time,
at , California.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, stockholders of GeoCities will be asked to consider
and vote upon proposals to approve and adopt the merger agreement and to approve
the consummation of the merger and to transact such other business as may
properly come before the special meeting or any postponements or adjournments
thereof.
RECORD DATE FOR VOTING ON THE MERGER; STOCKHOLDERS ENTITLED TO VOTE
Only stockholders of record of GeoCities common stock at the close of
business on , 1999, are entitled to notice of and to vote at the special
meeting. As of the close of business on that record date, there were
shares of GeoCities common stock outstanding and entitled to vote, held of
record by stockholders. The affirmative vote of a majority will be necessary
to approve and adopt the merger agreement and approve the consummation of the
merger. Each GeoCities stockholder is entitled to one vote for each share of
GeoCities common stock held as of the record date.
VOTING AND REVOCATION OF PROXIES
The GeoCities proxy accompanying this document is solicited on behalf of
GeoCities' board of directors. Stockholders are requested to complete, date and
sign the accompanying proxy and promptly return it in the accompanying envelope
or otherwise mail it to GeoCities. All properly executed proxies received by
GeoCities prior to the special meeting that are not revoked, will be voted at
the special meeting in accordance with the instructions indicated on the proxies
or, if no direction is indicated, to approve the merger agreement and the
consummation of the merger. GeoCities' board of directors does not presently
intend to bring any other business before the special meeting and, so far as is
known as of the date of this document, no other matters are to be brought before
the special meeting. As to any other business that may properly come before the
special meeting, however, it is intended that proxies, in the form enclosed,
will be voted in respect thereof in accordance with the judgment of the persons
voting such proxies. A GeoCities stockholder who has given a proxy may revoke it
at any time before it is exercised at the special meeting by (1) delivering to
the Secretary of GeoCities a written notice, bearing a date later than the date
of the proxy, stating that the proxy is revoked, (2) signing and delivering a
proxy relating to the same shares and bearing a later date than the date of the
previous proxy prior to the vote at the special meeting, or (3) attending the
special meeting and voting in person.
STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE MERGER
Approval of the merger agreement and the consummation of the merger by
GeoCities' stockholders are required by the California General Corporation Law
and the Delaware General Corporation Law. Such approval requires the affirmative
vote of the holders of a majority of the shares of GeoCities common stock
outstanding and entitled to vote at the special meeting. Abstentions and broker
non-votes are not affirmative votes and, therefore, will have the same effect as
votes against approval of the merger. IN ADDITION, THE REQUIRED VOTE OF THE
STOCKHOLDERS OF GEOCITIES IS BASED UPON THE NUMBER OF OUTSTANDING SHARES OF
GEOCITIES COMMON STOCK RATHER THAN UPON THE SHARES ACTUALLY VOTED IN PERSON OR
BY PROXY AT THE SPECIAL MEETING. THEREFORE, IF THE HOLDERS OF ANY SUCH SHARES
FAIL TO EITHER SUBMIT A PROXY OR VOTE IN PERSON AT THE SPECIAL MEETING, SUCH
FAILURE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST APPROVAL OF THE MERGER. See
"Voting and Affiliate Agreements -- Voting Agreements."
As of the record date and the date of this proxy statement/prospectus,
Yahoo! owned 673,796 shares of GeoCities common stock. In addition, on the same
day that the merger
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agreement was signed, five stockholders of GeoCities who collectively own
approximately 62.4% of GeoCities' outstanding common stock entered into voting
agreements with Yahoo!, granting Yahoo! a proxy to vote all of their shares of
GeoCities' stock for approval of the merger agreement and the merger. Due to the
existence of these voting agreements GeoCities is assured of receiving the
requisite votes at the special meeting to approve the merger agreement and the
merger.
BOARD RECOMMENDATION
GEOCITIES' BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND THE
MERGER AND BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND THAT
THE MERGER IS IN THE BEST INTERESTS OF, GEOCITIES AND ITS STOCKHOLDERS AND
THEREFORE RECOMMENDS THAT THE HOLDERS OF GEOCITIES CAPITAL STOCK VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE CONSUMMATION OF THE
MERGER. Eric C. Hippeau, a member of GeoCities' board of directors, is also a
member of Yahoo!'s board of directors. Because of the conflict of interest
presented by this situation, Mr. Hippeau did not participate in the vote of
GeoCities' board of directors approving the merger.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF GEOCITIES. ACCORDINGLY, GEOCITIES' STOCKHOLDERS ARE URGED
TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS DOCUMENT, AND
TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGER
GENERAL
This section of the document describes certain aspects of the proposed
merger. The discussion of the merger in this document and the description of the
principal terms of the merger agreement are subject to and qualified in their
entirety by reference to the merger agreement, a copy of which is attached to
this document as Appendix A. You are encouraged to read the merger agreement and
the other appendices to this document in their entirety.
BACKGROUND OF THE MERGER
On or about December 10, 1998, Jeffrey Mallett, President and Chief
Operating Officer of Yahoo!, contacted Stephen L. Hansen, Chief Financial and
Chief Operating Officer of GeoCities, to set up a mutually convenient time to
contact Mr. Hansen and Thomas R. Evans, President and Chief Executive Officer of
GeoCities, to discuss potential ways in which Yahoo! and GeoCities could work
together in 1999.
On December 16, 1998, Timothy K. Koogle, Chairman and Chief Executive
Officer of Yahoo!, Mr. Mallett, and Jerry C. Yang, Chief Yahoo of Yahoo!,
contacted Messrs. Evans and Hansen to discuss the potential of Yahoo! and
GeoCities entering into a comprehensive strategic relationship beyond their
relationship under the existing co-distribution agreement between the parties.
Mr. Koogle also requested certain financial and business information regarding
GeoCities as well as information relating to potential synergies between Yahoo!
and GeoCities.
On December 17, 1998, Yahoo! and GeoCities executed a mutual non-disclosure
agreement. On this date, Messrs. Koogle, Mallett and Yang, and John J. Healy,
Director, Corporate Development of Yahoo!, also met with Messrs. Evans and
Hansen, Steven D. Bardack, Vice President, Strategic and Business Development of
GeoCities, William E. Losch, Vice President, Finance of GeoCities, and Jeffrey
Stoddard, Director of Sales and Marketing Strategy of GeoCities, to discuss the
financial and business information regarding GeoCities previously requested by
Yahoo!. In addition to discussing certain performance data relating to the
GeoCities web site, these representatives continued to discuss the possibility
of entering into some type of comprehensive strategic relationship and potential
synergies between GeoCities and Yahoo!.
On December 18, 1998, Messrs. Mallett and Healy contacted Mr. Hansen to
request additional web site performance information and more detailed financial
and business information on GeoCities.
On December 21, 1998, Messrs. Koogle, Mallett, Yang and Healy contacted
Messrs. Evans and Hansen to inform GeoCities that Yahoo! would continue to
evaluate the materials that had been previously provided, but that such
evaluation would be on hold during the upcoming holidays.
On January 15, 1999, Mr. Hansen contacted Harry D. Lambert and Peter H.
Mills, members of GeoCities' board of directors, to discuss management's
preliminary discussions with Goldman, Sachs & Co. and whether to engage that
firm to provide strategic investment banking services to GeoCities. Messrs.
Hansen, Lambert and Mills determined that engaging Goldman Sachs was premature
and declined to formally engage Goldman Sachs at that time.
On the morning of January 21, 1999, Messrs. Mallett and Yang and Gary
Valenzuela, Chief Financial Officer of Yahoo!, contacted Messrs. Evans and
Hansen of GeoCities and informed them that Yahoo! was preliminarily interested
in a possible acquisition of GeoCities. Messrs. Mallet, Yang and Valenzuela did
not propose any specific terms, but indicated that, if the parties were to
proceed with the negotiation of a transaction, it was Yahoo!'s objective to sign
a definitive agreement and announce the transaction simultaneously with
GeoCities' scheduled fourth-quarter earnings release on January 28, 1999. Later
that day, Messrs. Evans and Hansen briefed GeoCities' board of directors on the
status of their discussions with
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Yahoo! at a regularly scheduled board meeting. Eric C. Hippeau, a director of
GeoCities who is also a member of the board of directors of Yahoo!, excused
himself from the meeting during the discussions regarding Yahoo!.
Representatives of Goldman Sachs participated in a portion of the meeting during
the discussion of Yahoo!. GeoCities' board of directors then authorized
management to proceed with negotiations with Yahoo! and approved the engagement
of Goldman Sachs to advise GeoCities during such negotiations.
On January 22, 1999, GeoCities formally engaged Goldman Sachs to act as its
financial advisor. On that day, Messrs. Evans and Hansen and representatives of
Goldman Sachs also met with Messrs. Koogle, Mallett, Valenzuela and Healy to
discuss preliminary terms of the proposed acquisition. While preliminary terms
were discussed, no agreement was reached on an exchange ratio or other principal
terms. Messrs. Evans and Hansen instructed the representatives of Goldman Sachs
to prepare information to provide them with a basis for discussing a potential
exchange ratio with Yahoo!.
On January 24, 1999, Messrs. Koogle, Mallett, Yang, Valenzuela and Healy,
together with representatives of Thomas Weisel Partners LLC, financial advisor
to Yahoo!, met with Messrs. Evans and Hansen and representatives of Goldman
Sachs to make an offer to acquire GeoCities in a stock-for-stock merger using an
exchange ratio of 0.34 shares of Yahoo! common stock for each outstanding share
of GeoCities common stock (or 0.68 following the completion of Yahoo!'s
then-pending two-for-one stock split) less any fee that GeoCities was obligated
to pay as a result of the merger to a third-party investment banking firm with
which it had a previous arrangement. The parties also discussed certain of the
other principal terms of the proposed acquisition. Yahoo! conditioned its offer
on GeoCities and certain of its stockholders entering into exclusive negotiation
agreements with Yahoo! and satisfactory completion of Yahoo!'s due diligence
review of GeoCities. During this meeting with Yahoo!, the representatives of
Goldman Sachs also presented the information that they had prepared at the
request of Messrs. Evans and Hansen. This meeting ended without definitive
agreement on the exchange ratio or other material terms of the proposed merger.
Later that day, and again on the morning of January 25, 1999, Messrs. Evans and
Hansen and representatives of Goldman Sachs briefed GeoCities' board of
directors at a special two-part telephonic meeting on the proposed merger terms
and the status of the negotiations with Yahoo!, including the proposed exchange
ratio and the prohibition on shopping the financial terms to third parties. On
January 25, 1999, GeoCities' board of directors authorized management to proceed
with negotiating a definitive merger agreement based on the proposed terms
presented by Yahoo!. GeoCities' board of directors also directed management to
proceed with conducting an in-depth due diligence investigation of Yahoo!. Mr.
Hippeau did not participate in either part of this meeting.
From January 25 through January 27, 1999, Yahoo! and GeoCities, together
with their respective legal, financial and accounting advisors, conducted due
diligence reviews and negotiated the terms of the definitive merger agreement
and the other agreements providing for the merger.
On January 27, 1999, GeoCities' board of directors met with senior
management and GeoCities' legal, financial and accounting advisors at a special
telephonic meeting to discuss the status of the negotiations with Yahoo!,
GeoCities' due diligence review of Yahoo! and the directors' comments on the
draft of the merger agreement. After management provided its view of the
proposed merger, Goldman Sachs presented its analysis of various information to
serve as the basis for evaluating the proposed exchange ratio and orally
informed GeoCities' board of directors of its opinion (subsequently confirmed in
writing) that the exchange ratio was fair, from a financial point of view, to
the holders of GeoCities common stock. Goldman Sachs also responded to questions
raised by members of GeoCities' board of directors regarding its analysis and
opinion. This discussion was followed by a presentation by members of Brobeck,
Phleger & Harrison LLP, GeoCities' outside legal counsel, of the proposed
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terms of the merger agreement and related documents. A representative of
PricewaterhouseCoopers LLP then discussed the accounting treatment of the
proposed merger. Following these presentations, the board engaged in a full
discussion of the terms of the proposed merger, including the strategic benefits
of the combination, the terms and conditions of the proposed merger agreement,
and the analysis and opinion of Goldman Sachs. GeoCities' board of directors
concluded that the merger agreement was fair to GeoCities' stockholders and that
the proposed merger was in the best interests of GeoCities and its stockholders.
Accordingly, GeoCities' board of directors approved the merger and the merger
agreement and related documents and authorized management to proceed with the
execution of the merger documents. Mr. Hippeau participated in this meeting, but
abstained from voting on the resolution approving the merger.
On January 27, 1999, Yahoo!'s board of directors met with senior management
and Yahoo!'s financial advisors and in-house legal counsel at a special meeting
of the board to review the status of the negotiations with GeoCities, the terms
of the draft merger agreement and Yahoo!'s due diligence review of GeoCities.
Given Mr. Hippeau's relationship with GeoCities, he excused himself from this
meeting. At this meeting, representatives of Thomas Weisel Partners LLC reviewed
the financial terms of the transaction. Yahoo!'s management reviewed the other
terms of the merger with the board. Following these presentations, the board
engaged in a full discussion of the terms of the proposed transaction and its
advisability. At the conclusion of this meeting, Yahoo!'s board of directors
approved the merger and the terms of the merger agreement and authorized
management to proceed with the execution of the transaction documents.
During the evening of January 27, 1999, the parties executed the merger
agreement and the related transaction documents. In connection with executing
the merger agreement, the fee payable to the third-party investment banking firm
was agreed upon and, as a result, the merger agreement reflected a final
exchange ratio of 0.6768.
The merger was jointly announced by Yahoo! and GeoCities on the morning of
January 28, 1999.
REASONS FOR THE MERGER
YAHOO!'S REASONS FOR THE MERGER
Yahoo!'s board of directors and management believe that the merger will
benefit Yahoo! and its shareholders for the following reasons:
- - CREATION OF WORLD'S LARGEST WEB COMMUNITY. The merger of Yahoo! and GeoCities
will combine two of the web's leading brands to form the world's largest web
community. Yahoo! believes that this will strengthen and accelerate Yahoo!'s
leadership position as a comprehensive, global branded network of properties.
- - EXPANSION OF PERSONAL PUBLISHING TOOLS ACROSS YAHOO! Over the past year,
Yahoo! has seen increasing demand across its network for personal publishing
and editing tools. In response to this, Yahoo! has continued to expand areas
on the Yahoo! network where users can create and publish personal information
and content -- including Yahoo! Auctions, Chat, Classifieds, Clubs, Message
Boards and Shopping. Yahoo! believes that the aggressive expansion of these
services is a key feature in its plan to provide the best online experience
to its users worldwide. The merger of Yahoo! and GeoCities will permit Yahoo!
to immediately integrate GeoCities' proven and scalable personal publishing
and editing tools and services across the Yahoo! platform.
- - POWER OF THE GEOCITIES BRAND, SERVICE, MEMBERSHIP AND USER BASE. Over the
past year, Yahoo! and GeoCities have had a cross-distribution relationship,
and Yahoo! has been an equity investor in GeoCities. This pre-existing
relationship has given Yahoo! an excellent vantage point to observe
GeoCities' business, the growth of its services, and the potential synergies
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between the two companies. GeoCities pioneered and defined the web community
experience, and has maintained its position as the leading online community
and brand. As of December 1998, GeoCities had over 3.2 million active
homesteaders, and over 19 million unique monthly visitors consuming over 1.6
billion pages of content. According to Media Metrix, GeoCities was one of the
top three individual web sites in December 1998 and the combined Yahoo!/
GeoCities network would have unduplicated home/work reach in excess of 58%,
making it the second largest network of properties on the web.
- - ABILITY TO DISTRIBUTE YAHOO! SERVICES ACROSS GEOCITIES' PLATFORM. Yahoo! also
believes that it will benefit significantly from its ability to distribute
Yahoo! communities (Chat, Clubs, Message Boards), communications (Mail and
Pager and Mail) and commerce (Auctions, Shopping and Store) services across
the GeoCities platform, significantly expanding its user base and generating
additional revenue opportunities.
- - INTERNATIONAL EXPANSION AND INCREASED DISTRIBUTION. With 15 international
sites across Europe, Asia, Central and South America, Yahoo! believes that it
will be able to rapidly integrate GeoCities' personal publishing tools across
its product offerings in these markets and help GeoCities to expand its
homesteader and visitor base in these international markets.
- - ADDITIONAL FINANCIAL BENEFITS. Yahoo! believes that there are significant
opportunities to cross-sell advertising, sponsorship and direct marketing
programs across the expanded Yahoo!/GeoCities network.
GEOCITIES' REASONS FOR THE MERGER
GeoCities' board of directors has determined that the terms of the merger
and the merger agreement are fair to, and in the best interests of, GeoCities
and its stockholders. Accordingly, GeoCities' board of directors has approved
the merger agreement and the consummation of the merger and recommends that you
vote for approval of the merger agreement and the merger.
In reaching its decision, GeoCities' board of directors identified several
potential benefits of the merger including:
- - COMBINATION WITH A LEADING INTERNET GLOBAL MEDIA COMPANY. Yahoo! is a global
internet media company that offers a branded network of information,
communication and shopping services. The combination of Yahoo! and GeoCities
provides the potential to greatly enhance the functionality and performance
of, and increase traffic to, GeoCities which would benefit GeoCities'
homesteaders, visitors to GeoCities' web site and advertisers and sponsors.
As a result of the merger, homesteaders will have direct access to more
services and a greater selection of enhanced utilities and tools to help
build their web sites, including well-developed community, communication and
commerce services, thereby offering homesteaders the potential to create
more compelling content and have more successful commercial sites.
GeoCities' homesteaders should also benefit from the increasing size of the
community, which will provide a larger pool of members with common interests
with which to interact. The combination of Yahoo! and GeoCities also has the
potential to increase commercial partners for purposes of affiliation.
Visitors to GeoCities' web site will find it easier to locate more of the
content they are looking for on GeoCities' web site due to the enhancement
of GeoCities' directory structure, including the integration of the Yahoo!
directory within GeoCities. Increasing the integration of the two sites also
has the potential to make it easier for visitors to locate and purchase a
wider array of goods and services.
Advertisers and sponsors will have access to newer ad formatting and
delivery mechanisms as well as enhanced ad
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performance reporting tools and services. Advertisers should also enjoy
access to a larger and more diverse network of affiliates, larger audience
sizes and better performing ad buys due to increased use of enhanced ad
targeting technology.
- - RAPID EXPANSION OF THE GEOCITIES BUSINESS MODEL INTERNATIONALLY. GeoCities
expects to rapidly roll out its web community model across Europe, Asia and
Central and South America by leveraging Yahoo!'s existing reach in these
areas. By doing so, GeoCities expects to expand its homesteader and visitor
bases and obtain new advertising customers in these international markets.
- - THE PREMIUM TO BE PAID BY YAHOO! AND OWNERSHIP PERCENTAGE OF COMBINED ENTITY.
GeoCities' board of directors also focused on the substantial premium that
Yahoo! was willing to pay in the merger. Based on the closing sale price of
Yahoo! common stock on The Nasdaq National Market on January 27, 1999, the
day prior to the public announcement of the merger, the exchange ratio
represented a 51.6 % premium over the closing price of GeoCities common stock
on that day. Moreover, the board of directors estimated that the shares of
Yahoo! common stock to be issued to the GeoCities stockholders in the merger
will represent approximately 9.8% of the outstanding Yahoo! common stock
immediately after the merger.
- - LARGER MARKET CAPITALIZATION OF YAHOO! AND HIGHER CORRESPONDING TRADING
LIQUIDITY. Based on the closing prices of Yahoo! common stock and GeoCities
common stock on January 27, 1999, the day prior to the public announcement of
the merger, Yahoo! had a market capitalization of $33.6 billion, compared to
GeoCities' market capitalization of $2.4 billion. Accordingly, by combining
with Yahoo!, GeoCities' stockholders will be afforded substantially increased
trading liquidity for their investment.
GeoCities' board of directors consulted with GeoCities' senior management as
well as its legal counsel, independent accountants and financial advisers in
reaching its decision to approve the merger. Among the factors considered by
GeoCities' board in its deliberations were the following:
- - historical information concerning Yahoo!'s and GeoCities' respective
financial performance, results of operations, assets, liabilities,
operations, technology, brand development, management and competitive
position, including public reports covering the most recent fiscal year and
fiscal quarter for each company filed with the Commission;
- - GeoCities' management's view of the financial condition, results of
operations, assets, liabilities, businesses and prospects of Yahoo! and
GeoCities after giving effect to the merger;
- - current market conditions and historical trading information with respect to
Yahoo! and GeoCities common stock;
- - the fact that Yahoo! conditioned its offer on GeoCities and certain of its
stockholders entering into exclusive negotiation agreements with Yahoo!;
- - comparable merger transactions in the Internet market;
- - the terms and conditions of the merger agreement, including the expected
tax-free treatment to GeoCities and its stockholders;
- - the other information presented by Goldman, Sachs & Co. to GeoCities' board
of directors and the oral opinion of Goldman Sachs, subsequently confirmed in
writing, that the exchange ratio was fair, from a financial point of view, to
GeoCities' stockholders, as described more fully in the text of the entire
opinion attached as Appendix B to this document;
- - Yahoo!'s track record, which clearly demonstrated an ability to compete
effectively in the Internet market; and
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- - the ability of GeoCities' board of directors to enter into discussions with
another party in response to an unsolicited superior offer to the merger if
GeoCities' board of directors believed in good faith, after consultation with
its legal counsel, that such action was required in order to comply with its
fiduciary obligations.
GeoCities' board of directors also identified and considered a variety of
potential negative factors in its deliberations concerning the merger,
including, but not limited to:
- - the risk to GeoCities' stockholders that the value to be received in the
merger could decline significantly due to the fixed exchange ratio;
- - the loss of control over the future operations of GeoCities following the
merger;
- - the impact of the loss of GeoCities' status as an independent company on
GeoCities' stockholders, employees, homesteaders, web visitors, advertisers
and sponsors;
- - the risk that the potential benefits sought in the merger might not be fully
realized;
- - the possibility that the merger might not be consummated and the potential
adverse effects of the public announcement of the merger on:
- GeoCities' sales and operating results;
- GeoCities' ability to attract and retain key employees;
- the progress of certain strategic initiatives; and
- GeoCities' overall competitive position;
- - the risk that, despite the efforts of Yahoo! and GeoCities, key technical,
sales and management personnel might not remain employees of Yahoo! or
GeoCities following the closing of the merger; and
- - the transaction costs expected to be incurred in connection with the merger
and the other risks described under "Risk Factors -- Risks Related to the
Merger" beginning on page 17.
After due consideration, GeoCities' board of directors concluded that the
risks associated with the proposed merger were outweighed by the potential
benefits of the merger.
The foregoing discussion of the information and factors considered by
GeoCities' board of directors is not intended to be exhaustive but is believed
to include all material factors considered by GeoCities' board of directors. In
view of the complexity and wide variety of information and factors, both
positive and negative, considered by GeoCities' board of directors, it did not
find it practical to quantify or otherwise assign relative or specific weights
to the specific factors considered. However, after taking into consideration all
of the factors set forth above, GeoCities' board of directors concluded that the
merger agreement and merger were fair to, and in the best interests of,
GeoCities and its stockholders and that GeoCities should proceed with the
merger.
OPINION OF GOLDMAN, SACHS & CO., FINANCIAL ADVISOR TO GEOCITIES
On January 27, 1999, Goldman Sachs delivered its opinion, subsequently
confirmed in writing, to GeoCities' board of directors that, as of such date,
the exchange ratio pursuant to the merger agreement was fair from a financial
point of view to the holders (other than Yahoo! and its affiliates) of GeoCities
common stock.
The full text of the written opinion of Goldman Sachs, dated January 27,
1999, which sets forth, among other things, assumptions made, matters considered
and limitations on the review undertaken in connection with the opinion, is
attached hereto as Appendix B and is incorporated herein by reference. Holders
of GeoCities common stock are urged to, and should, read such opinion in its
entirety. Goldman Sachs' opinion is directed to GeoCities' board of directors
and addresses only the fairness of the exchange ratio pursuant to the merger
agreement from a financial point of view to the holders of GeoCities common
stock (other than Yahoo! and its affiliates) as of the date of the opinion, and
does not address any other aspect of the merger and does not constitute a
recommendation to any holder of
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GeoCities common stock as to how to vote at the special meeting.
In connection with its opinion, Goldman Sachs reviewed, among other things:
(i) the merger agreement; (ii) the registration statement of GeoCities on Form
S-1 dated August 10, 1998, related to the initial public offering of GeoCities
common stock, including the prospectus therein; (iii) the registration statement
of Yahoo! on Form S-1 dated April 12, 1996, related to the initial public
offering of Yahoo! common stock, including the prospectus therein; (iv) annual
reports to stockholders and annual reports on Form 10-K of Yahoo! for the two
years ended December 31, 1997; (v) certain interim reports to stockholders and
quarterly reports on Form 10-Q of GeoCities and Yahoo!; (vi) certain other
communications from GeoCities and Yahoo! to their respective stockholders; (vii)
certain internal financial analyses and forecasts for GeoCities prepared by its
management, including certain estimates of cost savings and operating synergies
expected to result from the merger (the "Synergies"); and (viii) certain
estimates of pro forma financial performance of GeoCities prepared by the
management of Yahoo!. Goldman Sachs also held discussions with members of the
senior management of GeoCities and Yahoo! regarding the strategic rationale for,
and the potential benefits of, the transaction contemplated by the merger
agreement and the past and current business operations, financial condition and
future prospects of their respective companies. Goldman Sachs reviewed the
reported price and trading activity for GeoCities common stock and Yahoo! common
stock, compared certain financial and stock market information for GeoCities and
Yahoo! with similar information for certain other companies the securities of
which are publicly traded, reviewed the financial terms of certain recent
business combinations in the internet industry specifically and in other
industries generally and performed such other studies and analyses as Goldman
Sachs considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information discussed with or reviewed by it and has assumed
such accuracy and completeness for purposes of rendering its opinion. In that
regard, Goldman Sachs assumed with the consent of GeoCities' board of directors
that the Synergies had been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of GeoCities, and that the Synergies
would be realized in the amounts and time periods contemplated thereby.
Furthermore, Yahoo! did not make available its forecasts of future financial
performance and Goldman Sachs, with the consent of GeoCities, relied on the
estimates of certain research analysts for Yahoo! for purposes of its analysis.
In addition, Goldman Sachs did not make an independent evaluation or appraisal
of the assets and liabilities of GeoCities or Yahoo! or any of their
subsidiaries, and Goldman Sachs was not furnished with any such evaluation or
appraisal. Goldman Sachs was not requested to solicit, and did not solicit,
interest from other parties with respect to an acquisition of, or other business
combination involving, GeoCities. The advisory services described, and the
opinion expressed in, the opinion of Goldman Sachs were provided for the
information and assistance of GeoCities' board of directors in connection with
its consideration of the transaction contemplated by the merger agreement, and
such opinion does not constitute a recommendation as to how any holder of
GeoCities common stock should vote with respect to the merger.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its opinion to GeoCities' board of
directors.
EXCHANGE RATIO HISTORY
RELATIVE TRADING HISTORY
Goldman Sachs reviewed the implied market exchange ratio for shares of
GeoCities common stock and Yahoo! common stock for the period from August 10,
1998, to January 26, 1999, determined by dividing the per share closing price
for GeoCities common stock by the per share closing price for Yahoo! common
stock for each day during the period. The daily implied market exchange ratio
over this period ranged from approximately 0.12 to 0.48 with an
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average exchange ratio of 0.22 over the same period.
TRANSACTION PREMIUM ANALYSIS
Goldman Sachs reviewed the historical trading prices for GeoCities common
stock and Yahoo! common stock. Goldman Sachs compared the historical stock
prices of GeoCities common stock and Yahoo! common stock on the basis of the
respective closing prices per share on January 26, 1999, and the respective
closing stock prices and period averages for the prior five days, 10 days, 20
days, 30 days, 60 days and the period since GeoCities' initial public offering
on August 10, 1998 (collectively, the "Premium Analysis Periods"). This analysis
indicated that the implied stock price premium paid for GeoCities common stock
at the exchange ratio would have been 82.9%, 51.7%, 212.3%, 262.9%, 303.8% and
218.6%, respectively, based on the closing prices for GeoCities common stock and
Yahoo! common stock, respectively, for the Premium Analysis Periods and would
have been 67.4% on January 26, 1999. This analysis also indicated that the
implied stock price premium paid for GeoCities common stock at the exchange
ratio would have been 85.7%, 79.3%, 119.7%, 145.8%, 180.7% and 250.6%,
respectively, based on the average closing prices for GeoCities common stock and
Yahoo! common stock for the Premium Analysis Periods.
Additionally, this analysis indicated that the implied exchange ratio
premium paid for GeoCities common stock at the exchange ratio would have been
49.5%, 80.5%, 144.1%, 96.3%, 58.8% and (17.5)%, respectively, based on the
closing prices for GeoCities common stock and the Yahoo! common stock,
respectively, for the Premium Analysis Periods. This analysis also indicated
that the implied exchange ratio premium paid for GeoCities common stock at the
exchange ratio would have been 53.9%, 66.0%, 92.3%, 98.5%, 82.1% and 55.7%,
respectively, based on the average closing prices for GeoCities common stock and
Yahoo! common stock for the Premium Analysis Periods.
COMPARISON OF SELECTED INTERNET COMPANIES
Goldman Sachs compared certain financial information of GeoCities and Yahoo!
with publicly available information of a group of Internet commerce companies
including Amazon.com, Inc., Beyond.com Corporation, Cdnow, Inc., Cyberian
Outpost, Inc., Digital River Incorporated, eBay Inc., E*trade Securities, Inc.,
Harbinger Corporation, N2K Inc., OnSale, Inc., Preview Travel, Inc. and Sterling
Commerce, Inc. (collectively, the "Internet Commerce Companies"). Goldman Sachs
also compared certain financial information of GeoCities and Yahoo! with
publicly available information of a group of internet content/portal companies
including America Online, Inc., At Home Corporation, broadcast.com inc., CNET,
Inc., Excite Inc., theglobe.com, inc., Infoseek Corporation, Intuit Inc., Lycos,
Inc., MarketWatch.com, Inc., SportsLine USA, Inc., Ticketmaster Online-
CitySearch, Inc. and XOOM.com, Inc. (collectively, the "Internet Content/Portal
Companies"). Such analysis shows that as of January 26, 1999, GeoCities common
stock and Yahoo! common stock prices were 86.5% and 78.9% of their 52-week
highs, respectively, compared to a median of 56.0% and 74.2% for the Internet
Commerce Companies and the Internet Content/Portal Companies, respectively.
GeoCities' and Yahoo!'s growth in last quarter revenue from a year ago was
316.2% and 187.4%, respectively, compared to a median of 175.3% and 144.2% for
the Internet Commerce Companies and the Internet Content/Portal Companies,
respectively. Revenue multiples for GeoCities and Yahoo! for projected calendar
year 1999 revenues, were 56.5 and 118.0 times, respectively, compared to a
median of 4.7 and 24.1 times, based on median estimates from securities research
analysts, for the Internet Commerce Companies and the Internet Content/ Portal
Companies, respectively.
No company utilized in the Comparison of Selected Internet Companies
analysis above is identical to GeoCities or Yahoo!. In evaluating the Internet
Commerce Companies and Internet Content/Portal Companies, Goldman Sachs made
judgments and assumptions with regard to industry performance, general business,
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economic, market and financial conditions and other matters, many of which are
beyond the control of GeoCities or Yahoo!, such as the impact of competition on
the business of GeoCities or Yahoo! and the industry generally, industry growth
and the absence of any material change in the financial condition and prospects
of GeoCities or Yahoo! or the industry or in the financial markets in general.
Mathematical analysis (such as determining the average or median) is not in
itself a meaningful method of using selected internet company data.
PRO FORMA TRANSACTION ANALYSIS
Goldman Sachs prepared pro forma analyses of the financial impact of the
merger. The analyses were prepared using five different sets of financial
projections for 1999 and 2000: (i) Goldman Sachs published research revenue
estimates plus estimates by GeoCities' management of the Synergies (the
"Research plus Synergies Case") for 1999 and 2000, (ii) estimates by GeoCities'
management (the "Base Case") for 1999, (iii) the Base Case plus estimates by
GeoCities' management of the Synergies (the "Base Case Plus Synergies") for
1999, (iv) estimates by Yahoo!'s management of GeoCities' performance (the
"Yahoo! Estimate") for 1999 and (v) an extrapolation of the Yahoo! Estimate by
Goldman Sachs for 2000. Goldman Sachs compared the revenue per share and the
earnings per share ("EPS") of each of GeoCities and Yahoo! common stock, on a
stand-alone basis, to the revenue per share and EPS of the combined company on a
pro forma basis. Goldman Sachs performed this analysis based on the exchange
ratio of 0.3384 shares of Yahoo! common stock for each share of GeoCities common
stock on a diluted basis. Based on such analyses, the merger's effect on revenue
per share would be (i) 9.1% accretive in 1999 based on the Research plus
Synergies Case, (ii) 5.5% accretive in 1999 based on the Base Case, (iii) 12.4%
accretive in 1999 based on the Base Case Plus Synergies and (iv) 4.7% accretive
in 1999 based on the Yahoo! Estimate. In addition, based on such analyses
(assuming that the merger would be treated as a pooling-of-interests) the
merger's effect on EPS would be (i) 7.8% accretive in 1999 based on the Research
plus Synergies Case, (ii) (22.6)% dilutive in 1999 based on the Base Case, (iii)
10.8% accretive in 1999 based on the Base Case Plus Synergies, (iv) (11.4)%
dilutive in 1999 based on the Yahoo! Estimate, (v) 15.6% accretive in 2000 based
on the Research plus Synergies Case and (vi) 5.6% accretive in 2000 based on the
extrapolation of the Yahoo! Estimate.
CONTRIBUTION ANALYSIS
Goldman Sachs performed a contribution analysis using estimates of revenue
and net income from the prior quarter's run rate extrapolated for a full year
("Last Quarter Annualized"), Goldman Sachs published research for 1999 and 2000,
the Base Case for 1999 and the Yahoo! Estimate for 1999. The contribution
analyses indicated that GeoCities would contribute (i) 9.0%, 11.8%, 14.6% and
11.1% of estimated revenues in 1999 based on the Last Quarter Annualized revenue
(for GeoCities, based on GeoCities's management estimates of fourth quarter 1998
revenue), Goldman Sachs published research, the Base Case and the Yahoo!
Estimate, respectively and (ii) 16.6% of estimated revenues in 2000 according to
Goldman Sachs published research. The contribution analyses further indicated
that GeoCities would contribute (i) (44.1)%, (43.7)%, (27.9)% and (1.9%) of
estimated net income in 1999 based on Last Quarter Annualized net income,
Goldman Sachs published research, the Base Case and the Yahoo! Estimate,
respectively, and (ii) (12.6)% of estimated net income in 2000 according to
Goldman Sachs published research. The contribution analysis performed by Goldman
Sachs also indicated that the current GeoCities common stock would represent
10.0% of the combined market capitalization of Yahoo! pro forma for the merger.
PRO FORMA MERGER ANALYSIS
Goldman Sachs performed pro forma analyses of the impact on EPS, revenue per
share and seller ownership in the new entity of an acquisition of GeoCities by
each of several potential purchasers (assumed to be a pooling-of-interests),
based on the nominal price per share of GeoCities common stock of $118.86
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(implied by the exchange ratio and the closing price of Yahoo! common stock on
January 26, 1999).
PRO FORMA EPS ANALYSIS
The first pro forma analysis calculated the effect on EPS of such an
acquisition, the required pre-tax Synergies for breakeven of such an acquisition
and the pro forma ownership after such an acquisition of the new entity by the
former owners of GeoCities common stock. Under the Base Case, the effect on EPS
would be (73.2)% dilutive, (9.9)% dilutive, (160.6)% dilutive, (268.8)%
dilutive, (1.2)% dilutive and (22.6)% dilutive in 1999 based on acquisitions of
GeoCities by the entity formed by the acquisition of Excite Inc. by At Home
Corporation (the "Excite Acquisition"), by the entity formed by the acquisition
of Netscape Communications Corporation by America Online, Inc. (the "Netscape
Acquisition"), eBay Inc., Lycos, Inc., Microsoft Corporation and Yahoo!,
respectively. Under the Base Case Plus Synergies, the effect on EPS would be
67.9% accretive, 2.5% accretive, 171.7% accretive, 302.1% accretive, (0.7)%
dilutive and 10.8% accretive in 1999, respectively. Under the Base Case, the
required pre-tax Synergies to breakeven of such an acquisition would be $17.8
million, $27.4 million, $16.6 million, $16.1 million, $131.1 million and $37.4
million in 1999, respectively. Under the Base Case Plus Synergies, the required
pre-tax Synergies to breakeven would be $0.0 million, $0.0 million, $0.0
million, $0.0 million, $78.3 million and $0.0 million in 1999, respectively.
Under both the Base Case and the Base Case Plus Synergies, the pro forma
ownership of the sellers of GeoCities common stock after such an acquisition
would be 18.9%, 5.1%, 34.0%, 46.6% 0.9% and 10.0% in 1999, respectively.
PRO FORMA REVENUE PER SHARE ANALYSIS
The second pro forma analysis calculated (i) the effect on revenue per share
of such an acquisition and (ii) the pro forma ownership in the entity resulting
from the combination of GeoCities and Yahoo! by current GeoCities stockholders
("NewCo Ownership") based on hypothetical premiums paid to the current market
price of GeoCities common stock ranging from 40% to 100%. Under the Base Case,
the effect on revenue per share ranged from (4.0)% dilution to (10.2)% dilution,
(3.2)% dilution to (5.0)% dilution, 9.6% accretion to (9.2)% dilution, 20.7%
accretion to 6.9% accretion, (19.1)% dilution to (31.5)% dilution, (0.5)%
dilution to (0.8)% dilution and 7.2% accretion to 3.5% accretion for At Home
Corporation/Excite Inc., America Online, Inc./ Netscape Communications
Corporation, Ticketmaster Online-CitySearch, Inc., eBay Inc., Lycos, Inc.,
Microsoft Corporation and Yahoo! (collectively, the "Revenue Analysis
Companies"), respectively. Under the Base Case with Synergies, the effect on
revenue per share ranged from 1.6% accretion to (5.0)% dilution, (2.7)% dilution
to (4.5)% dilution, 35.8% accretion to 12.5% accretion, 43.6% accretion to 27.2%
accretion, (8.6)% dilution to (22.6)% dilution, (0.4)% dilution to (0.7)%
dilution and 14.3% accretion to 10.3% accretion for the Revenue Analysis
Companies, respectively. Under both cases, NewCo Ownership ranged from 16.3% to
21.8%, 4.3% to 6.1%, 48.4% to 57.3%, 30.1% to 38.1%, 42.2% to 51.1%, 0.8% to
1.1% and 8.4% to 11.6% for the Revenue Analysis Companies, respectively.
TRANSACTION MULTIPLE ANALYSIS
Goldman Sachs performed two sets of analysis comparing the merger to the
Excite Acquisition. The first analysis compared the implied transaction values
in the merger and the Excite Acquisition to both historical and projected
revenues for GeoCities and Excite, respectively. Such analysis indicated that
the revenue multiples based on the implied transaction values were (i) 30.8x and
28.4x for Excite based on Last Quarter Annualized and investment analyst reports
for 1999, respectively, and (ii) 154.8x, 97.1x, 50.4x and 76.2x for GeoCities
based on Last Quarter Annualized, Goldman Sachs published research for 1999,
Goldman Sachs published research for 2000 and the Base Case for 1999,
respectively. The second analysis compared the exchange ratio premium to be paid
in the merger to that of the Excite Acquisition. Such analysis indicated that
the exchange ratio premium to be paid would be
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57.3%, 47.4% and 41.6% for Excite based on current market prices, prior 30 day
average and prior 60 day average, respectively, and 67.4%, 98.5% and 82.1% for
GeoCities, respectively.
COMPARABLE TRANSACTION PREMIUM ANALYSIS
Goldman Sachs reviewed a number of technology industry transactions that
have been announced since June 1998. These transactions included the Excite
Acquisition, the Netscape Acquisition, CDNow, Inc./N2K Inc., USWeb/ CKS
Corporation, Softbank Corporation/Yahoo!, Walt Disney Company/Infoseek
Corporation and National Broadcasting Corporation/CNET, Inc. (collectively, the
"Selected Transactions"). Such analysis indicated that, for the Selected
Transactions, the premiums paid per share over the market price ranged from (i)
(4.2)% to 57.3% with a mean of 19.9% versus the closing price the day before the
transaction was announced, (ii) (22.2)% to 41.2% with a mean of 14.5% over the
closing price five days prior to the announcement, (iii) (29.9)% to 112.0% with
a mean of 34.2% over the closing price 20 days prior to the announcement and
(iv) (82.0)% to 27.3% with a mean of (24.0)% over the 52-week high prior to the
announcement. Such analysis also indicated that, for the Selected Transactions,
(i) the multiple of latest twelve month revenues ranged from 0.9x to 88.5x with
a mean of 28.2x and (ii) the multiple of projected twelve month revenues ranged
from 0.2x to 49.5x with a mean of 16.8x.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
GeoCities or Yahoo! or the merger. The analyses were prepared solely for
purposes of Goldman Sachs providing its opinion to the GeoCities' board of
directors as to the fairness from a financial point of view of the exchange
ratio pursuant to the merger agreement to the holders (other than Yahoo! and its
affiliates) of GeoCities common stock and do not purport to be appraisals or
necessarily reflect the prices at which the business or securities actually may
be sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors, none of GeoCities, Yahoo!,
Goldman Sachs or any other person assumes responsibility if future results are
materially different from those forecast. As described above, Goldman Sachs'
opinion to GeoCities' board of directors was one of many factors taken into
consideration by the GeoCities' board of directors in making its determination
to approve and adopt the merger agreement. The foregoing summary describes
material financial analyses used by Goldman Sachs in connection with providing
its opinion to GeoCities' board of directors on January 27, 1999, but does not
purport to be a complete description of the analysis performed by Goldman Sachs
in connection with such opinion and is qualified by reference to the written
opinion of Goldman Sachs set forth in Appendix B hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. GeoCities selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions similar
to the merger.
Goldman Sachs is familiar with GeoCities having provided certain investment
banking services to GeoCities from time to time, including having acted as
managing underwriter of the initial public offering of GeoCities common stock in
August 1998 and having acted as its financial advisor in connection with, and
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having participated in certain of the negotiations leading to, the merger
agreement. Goldman Sachs also has provided certain investment banking services
to Yahoo! from time to time, including having acted as managing underwriter of
the initial public offering of Yahoo! common stock in April 1996 and having
acted as financial advisor in various strategic advisory assignments including,
but not limited to, the acquisition of Four11 Corp. in October 1997. We also
have provided other brokerage services to certain affiliates of Yahoo!. Goldman
Sachs may provide investment banking services to Yahoo! and its affiliates in
the future. Goldman Sachs provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions in and hold securities, including
derivative securities, of GeoCities or Yahoo! for its own account and for the
accounts of customers. As of January 27, 1999, Goldman Sachs had accumulated a
short position of 2,211 shares of GeoCities common stock. In addition, as of
January 27, 1999, Goldman Sachs had accumulated a long position of 151,070
shares of Yahoo! common stock against which Goldman Sachs was short 200 shares
of Yahoo! common stock.
Pursuant to a letter agreement which became effective on January 22, 1999,
GeoCities engaged Goldman Sachs to act as its financial advisor in connection
with a potential transaction involving Yahoo! or a third party. Pursuant to the
terms of this engagement letter, GeoCities has agreed to pay Goldman Sachs upon
consummation of the merger a customary fee in connection therewith. GeoCities
has agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses,
including attorney's fees and disbursements plus any sales, use or similar
taxes, and to indemnify Goldman Sachs against certain liabilities, including
certain liabilities under the federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of GeoCities' board of directors with
respect to the merger agreement, you should be aware that members of GeoCities'
board of directors and management have interests in the merger that are in
addition to your interests as a holder of GeoCities common stock generally.
GeoCities' board of directors was aware of these interests and considered them
in approving the merger agreement and the merger.
STOCK OPTIONS ACCELERATED UPON MERGER
As a result of the merger, stock options held by David C. Bohnett, Chairman
and Secretary, and John C. Rezner, Chief Technical Officer and Vice President,
Research and Development, will fully accelerate and stock options held by Edward
J. Pierce, Vice President, Legal Affairs and General Counsel, and James G.
Glicker, Vice President, Marketing, will partially accelerate as set forth
below:
<TABLE>
<CAPTION>
OPTION SHARES EXERCISE
NAME ACCELERATED PRICE
- ----------------------- --------------- -------------
<S> <C> <C>
David Bohnett.......... 300,000 $ 0.8850
John Rezner............ 100,000 0.8850
Edward Pierce.......... 10,000 0.3125
Edward Pierce.......... 20,000 0.7500
James Glicker.......... 50,000 3.0000
</TABLE>
All of the foregoing acceleration arrangements were pursuant to the terms of
pre-existing agreements with such parties.
STOCK OPTIONS ACCELERATED UPON TERMINATION OF EMPLOYMENT FOLLOWING MERGER
In addition, Stephen L. Hansen, Chief Operating and Chief Financial Officer,
and Michael G. Barrett, Senior Vice President, Sales and Strategic Partnerships,
hold stock options to purchase GeoCities common stock that are subject to
partial acceleration following the merger if the employment of either of them is
terminated without cause within certain prescribed periods of time following the
consummation of the merger. The acceleration feature applies for a period of 18
months following the consummation of the merger for Mr. Hansen and for a period
of 12 months following the consummation of the merger for Mr. Barrett. If the
employment of either Mr. Hansen or Mr. Barrett is terminated without cause
during such periods, each of them would receive vesting credit for the portion
of the year through the month during which the termination
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occurs, plus an additional 12 months of vesting on a majority of the options
that they currently hold. Mr. Hansen holds 450,000 options which are subject to
this feature with an exercise price of $0.825 per share, and Mr. Barrett holds
280,000 options which are subject to this feature with an exercise price of
$0.75 per share. The actual number of option shares that would be accelerated
for Messrs. Hansen and Barrett will depend on the timing of the termination
without cause.
In addition, all options granted by GeoCities under its 1998 Stock Incentive
Plan, other than certain performance options relating to an aggregate of 300,000
shares of GeoCities common stock granted by GeoCities in connection with its
acquisition of Starseed, Inc. in December 1998, contain provisions that provide
for full acceleration of such options if the employment of any option holder is
involuntarily terminated within 18 months following the merger. GeoCities' 1998
Stock Incentive Plan was adopted by GeoCities in connection with its initial
public offering in August 1998. Mr. Barrett, Steven D. Bardack, Vice President,
Strategic and Business Development, Michael McConachie, Vice President,
Engineering, David Codiga, Senior Vice President, Operations and Development,
and Bruce Zanca, Vice President, Communications, have all received option grants
under the 1998 Stock Incentive Plan which include this special acceleration
provision, as set forth below:
<TABLE>
<CAPTION>
OPTION SHARES EXERCISE
NAME ACCELERATED PRICE
- ----------------------- --------------- -------------
<S> <C> <C>
Michael Barrett........ 50,000 $ 29.375
Steven Bardack......... 75,000 29.375
Michael McConachie..... 75,000 26.563
David Codiga........... 175,000 40.875
Bruce Zanca............ 100,000 20.875
</TABLE>
The acceleration of the vesting of options upon the merger for Messrs.
Rezner, Pierce and Glicker, together with any severance payments made to Mr.
Pierce, will result in "excess parachute payments" as defined in Section 280G of
the Internal Revenue Code of 1986, as amended. In addition, accelerated vesting
of the options held by Messrs. Hansen, Barrett, Bardack, McConachie, Codiga and
Zanca due to a termination of employment following the merger, together with any
severance payments received by Messrs. Hansen and Barrett, will also result in
"excess parachute payments". Excess parachute payments are not deductible in
accordance with Section 280G. As a result, Yahoo! will not be entitled to a tax
deduction for the amounts determined to be excess parachute payments. The amount
of the lost deduction will depend upon the value of the shares at the time of
the merger and the number of option shares being accelerated.
EMPLOYEE STOCK PURCHASE PLAN
The terms of GeoCities' employee stock purchase plan provide that all
outstanding purchase rights under the plan will be exercised immediately prior
to the effective time of the merger, and that each participant in the plan will
be issued shares of GeoCities common stock at that time pursuant to the terms of
the plan. Each share of GeoCities common stock so issued shall by virtue of the
merger be converted into the right to receive 0.6768 shares of Yahoo! common
stock. Some of GeoCities' management participate in the employee stock purchase
plan and may purchase up to $5,000 of GeoCities common stock each purchase
period at the purchase price available under the plan.
SEVERANCE ARRANGEMENTS
Messrs. Hansen, Barrett, and Pierce are eligible to receive salary
continuation severance benefits pursuant to their employment or other agreements
with GeoCities if their employment is terminated without cause within certain
prescribed time periods following the merger as set forth in their individual
agreements. In addition, Mr. Pierce is eligible to receive such severance
benefits if he voluntarily leaves GeoCities after the merger. The salary
continuation obligations of GeoCities are more particularly set forth below:
<TABLE>
<CAPTION>
SEVERANCE PAY
-------------------------
NAME MONTHS TOTAL
- -------------------------------- ------------- ----------
<S> <C> <C>
Stephen Hansen.................. 6 $ 100,000
Michael Barrett................. 6 100,000
Edward Pierce................... 6 80,000
</TABLE>
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None of such agreements was entered into in connection with the negotiation
of the merger.
INDEMNIFICATION ARRANGEMENTS
Under the merger agreement, Yahoo! has agreed that, from and after the
effective time of the merger, Yahoo! will cause GeoCities to fulfill and honor
in all respects the obligations of GeoCities under (1) any indemnification
agreements that exist between GeoCities and its officers and directors at the
effective time of the merger and (2) any indemnification provisions under
GeoCities' certificate of incorporation or bylaws that are in effect on the date
of the merger agreement. The merger agreement also provides that the certificate
of incorporation and bylaws of GeoCities following the effective time will
contain provisions regarding exculpation and indemnification that are at least
as favorable to the indemnified parties as those contained in GeoCities'
certificate of incorporation and bylaws on the date of the merger agreement. In
addition, the merger agreement provides that, for a period of at least three
years after the effective time of the merger, such exculpation and
indemnification provisions will not be amended, repealed or otherwise modified
in any manner that would adversely affect the rights of individuals who,
immediately prior to the effective time of the merger, were directors, officers,
employees or agents of GeoCities, unless such modification is required by law.
Yahoo! has also agreed to cause GeoCities to use commercially reasonable efforts
to maintain directors' and officers' liability insurance for a period of three
years after the effective time of the merger, subject to certain limitations on
the maximum amount of premiums payable by Yahoo! for such insurance.
GOVERNMENTAL AND REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules
of the Federal Trade Commission promulgated thereunder, the merger may not be
consummated until notifications have been given and certain information has been
furnished to the FTC and the Antitrust Division of the United States Department
of Justice and specified waiting period requirements have been satisfied. Yahoo!
and GeoCities each filed notification and report forms with the FTC and the
Department of Justice on February , 1999. The specified waiting period expired
on March , 1999.
At any time before or after the consummation of the merger, the FTC, the
Department of Justice or any state could take such action under applicable
antitrust laws as it deems necessary or desirable. Such action could include
seeking to enjoin the consummation of the merger or seeking divestiture of
particular assets or businesses of Yahoo! or GeoCities. Private parties may also
initiate legal actions under the antitrust laws under certain circumstances.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations of the merger that are generally applicable to holders of
GeoCities common stock. This discussion does not deal with all income tax
considerations that may be relevant to particular GeoCities stockholders in
light of their particular circumstances, such as stockholders who are dealers in
securities, foreign persons, banks, insurance companies or tax-exempt entities,
stockholders who acquired their shares in connection with previous mergers
involving GeoCities or an affiliate, stockholders who hold their shares as part
of a hedging, straddle, conversion or other risk reduction transaction, or
stockholders who acquired their shares in connection with stock option or stock
purchase plans or in other compensatory transactions. In addition, the following
discussion does not address the tax consequences of transactions effectuated
prior to or after the merger (whether or not such transactions are in connection
with the merger), including without limitation transactions in which shares of
GeoCities common stock were or are acquired or shares of Yahoo! common stock
were or are disposed of. Furthermore, no foreign, state or local tax
considerations are addressed in this proxy statement/prospectus. The discussion
is based on federal income tax law in effect as of the date of this proxy
statement/prospectus, which could change at any time, possibly with retroactive
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effectiveness. ACCORDINGLY, GEOCITIES' STOCKHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING
THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE
MERGER AND APPLICABLE TAX RETURN REPORTING REQUIREMENTS.
Subject to the limitations and qualifications referred to in this document,
and based upon and assuming (a) the receipt prior to the effective time of
certificates containing certain representations and covenants of the management
of Yahoo!, Merger Sub and GeoCities and (b) the merger is consummated in
accordance with the terms of the merger agreement, Venture Law Group, A
Professional Corporation, counsel to Yahoo!, and Brobeck, Phleger & Harrison
LLP, counsel to GeoCities, are of the opinion that the merger will constitute a
"reorganization" within the meaning of Section 368 of the Internal Revenue Code
of 1986. If the merger qualifies as a reorganization, the following federal
income tax consequences will result:
- - No gain or loss will be recognized by holders of GeoCities common stock
solely upon their receipt of Yahoo! common stock in the merger, except to the
extent of cash received in lieu of a fractional share of Yahoo! common stock;
- - The aggregate tax basis of the Yahoo! common stock received in the merger by
a GeoCities stockholder, including any fractional share not actually
received, will be the same as the aggregate tax basis of GeoCities common
stock surrendered in exchange for such Yahoo! common stock;
- - The holding period of the Yahoo! common stock received in the merger by a
GeoCities stockholder will include the period during which the stockholder
held the GeoCities common stock surrendered in exchange for such Yahoo!
common stock, provided that the GeoCities common stock is held as a capital
asset at the time of the merger;
- - Cash payments received by holders of GeoCities common stock in lieu of a
fractional share of Yahoo! common stock will be treated as if the fractional
share of Yahoo! common stock had been issued in the merger and then
repurchased by Yahoo!. A GeoCities stockholder receiving such cash will
generally recognize gain or loss upon such payment, equal to the difference
between such stockholder's basis in the fractional share and the amount of
cash received; and
- - None of Yahoo!, Merger Sub or GeoCities will recognize gain or loss solely as
a result of the merger.
The parties are not requesting a ruling from the Internal Revenue Service in
connection with the merger. The opinions of counsel referred to above do not
bind the IRS or prevent the IRS from adopting a contrary position. In addition,
the opinions are subject to certain assumptions and qualifications and are based
on the truth and accuracy of certain representations and covenants made by
Yahoo!, Merger Sub and GeoCities, including representations and covenants in
certificates to be delivered to counsel prior to the effective time by the
respective management of Yahoo!, Merger Sub and GeoCities.
A successful IRS challenge to the "reorganization" status of the merger
would result in a GeoCities stockholder recognizing gain or loss with respect to
each share of GeoCities common stock surrendered equal to the difference between
the stockholder's basis in such share and the fair market value, as of the
effective time of the merger, of the Yahoo! common stock received in exchange
therefor. In such event, a stockholder's aggregate basis in the Yahoo! common
stock so received would equal its fair market value and his holding period for
such stock would begin the day after the merger.
ANTICIPATED ACCOUNTING TREATMENT
The merger is intended to qualify as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting principles.
Consummation of the merger is conditioned upon receipt by Yahoo! and GeoCities
of letters from their independent accountants, PricewaterhouseCoopers LLP,
regarding that firm's concurrence with Yahoo!
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management's and GeoCities management's conclusions as to the appropriateness of
pooling of interest accounting for the merger under APB No. 16, and the related
interpretations of the American Institute of Certified Public Accountants, the
Financial Accounting Standards Board and the rules and regulations of the
Commission.
NO APPRAISAL RIGHTS
Delaware law provides appraisal rights to stockholders of Delaware
corporations in certain situations. However, such appraisal rights are not
available to stockholders of a corporation, such as GeoCities:
- - whose securities are listed on a national securities exchange or are
designated as a national market security on an interdealer quotation system
by the National Association of Securities Dealers, Inc.; and
- - whose stockholders are not required to accept in exchange for their stock
anything other than (A) stock in another corporation listed on a national
securities exchange or an interdealer quotation system by the NASD, and (B)
cash in lieu of fractional shares.
Due to the following factors, stockholders of GeoCities will not have
appraisal rights with respect to the merger:
- - GeoCities common stock is traded on The Nasdaq National Market;
- - GeoCities' stockholders are being offered stock of Yahoo!, which is also
traded on The Nasdaq National Market; and
- - GeoCities' stockholders are being offered cash in lieu of fractional shares.
Delaware law does not provide appraisal rights to stockholders of a
corporation, such as Yahoo!, that issues shares in connection with a merger but
is not itself a constituent corporation in the merger.
DELISTING AND DEREGISTRATION OF GEOCITIES COMMON STOCK
If the merger is consummated, GeoCities common stock will be delisted from
The Nasdaq National Market and will be deregistered under the Securities
Exchange Act of 1934.
LISTING OF YAHOO! COMMON STOCK TO BE ISSUED IN THE MERGER
It is a condition to the consummation of the merger that the shares of
Yahoo! common stock to be issued in the merger and the shares of Yahoo! common
stock to be reserved for issuance in connection with the assumption of
outstanding GeoCities stock options be approved for listing on The Nasdaq
National Market.
RESTRICTION ON RESALES OF YAHOO! COMMON STOCK
The Yahoo! common stock to be issued in the merger will have been registered
under the Securities Act, thereby allowing such shares to be freely traded
without restriction by all former holders of GeoCities common stock who are not
"affiliates" of GeoCities at the time of the special meeting and who do not
become "affiliates" of Yahoo! after the merger. Persons who may be deemed to be
affiliates of Yahoo! or GeoCities generally include individuals or entities that
control, are controlled by, or are under common control with, such party and may
include certain officers and directors of Yahoo! and GeoCities, as well as
significant stockholders.
Shares of Yahoo! common stock received by those stockholders of GeoCities
who are deemed to be affiliates of GeoCities may be resold without registration
under the Securities Act only as permitted by Rule 145 under the Securities Act
or as otherwise permitted under the Securities Act. The merger agreement
requires GeoCities to use commercially reasonable efforts to cause its
affiliates to enter into agreements not to make any public sale of any Yahoo!
common stock received in the merger, except in compliance with the Securities
Act and the rules and regulations thereunder.
This document does not cover resales of Yahoo! common stock received by any
person who may be deemed to be an affiliate of Yahoo! or GeoCities.
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THE MERGER AGREEMENT
THE FOLLOWING IS A BRIEF SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT/PROSPECTUS AND INCORPORATED HEREIN BY REFERENCE. SUCH SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT. STOCKHOLDERS OF
GEOCITIES ARE URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY FOR A MORE
COMPLETE DESCRIPTION OF THE MERGER. IN THE CASE OF ANY DISCREPANCY BETWEEN THE
TERMS OF THE MERGER AGREEMENT AND THE FOLLOWING SUMMARY, THE MERGER AGREEMENT
WILL CONTROL.
THE MERGER
Following the approval and adoption of the merger agreement by the
stockholders of GeoCities and the satisfaction or waiver of the other conditions
to the merger, Merger Sub will be merged with and into GeoCities, with GeoCities
continuing as the surviving corporation and becoming a wholly-owned subsidiary
of Yahoo!.
EFFECTIVE TIME
As soon as practicable on or after the closing of the merger, the parties
will cause the merger to be effective by filing a certificate of merger with the
Secretary of State of the State of Delaware.The parties anticipate that this
will occur in the second quarter of 1999.
DIRECTORS AND OFFICERS
The initial directors of GeoCities following the merger will be the
directors of Merger Sub immediately prior to the effective time. The initial
corporate officers of GeoCities following the merger will be the corporate
officers of Merger Sub immediately prior to the effective time.
CONVERSION OF SHARES IN THE MERGER
Upon consummation of the merger, each share of GeoCities common stock will
be canceled and converted automatically into the right to receive 0.6768 shares
of Yahoo! common stock, except that shares of GeoCities common stock held by
GeoCities or owned by Yahoo! or any wholly-owned subsidiary of GeoCities or
Yahoo! immediately prior to the effective time shall be canceled. The 0.6768
exchange ratio takes into consideration Yahoo!'s 2-for-1 stock split on February
8, 1999, and shall be further adjusted to reflect the effect of any stock split,
stock dividend, reorganization, recapitalization, reclassification or other like
change with respect to Yahoo! common stock or GeoCities common stock occurring
on or after the date of this proxy statement/prospectus.
GEOCITIES STOCK OPTION AND STOCK PURCHASE PLAN
At the effective time, each outstanding option to purchase shares of
GeoCities common stock under GeoCities' 1997 Stock Option Plan, 1998 Stock
Incentive Plan, GeoCities' Starseed, Inc. 1998 Stock Option/Stock Issuance Plan,
and pursuant to written agreements with certain officers, directors,
consultants, founders and employees of GeoCities, whether or not exercisable,
will be assumed by Yahoo!. Each GeoCities stock option so assumed by Yahoo! will
continue to have, and be subject to, the same terms and conditions set forth in
the applicable GeoCities stock option plan immediately prior to the effective
time, except that:
- - each GeoCities stock option will be exercisable or will become exercisable
for that number of whole shares of Yahoo! common stock equal to the product
of the number of shares of GeoCities common stock that were subject to such
GeoCities stock option immediately prior to the effective time multiplied by
the exchange ratio, rounded down to the nearest whole number of shares of
Yahoo! common stock; and
- - the per share exercise price for the shares of Yahoo! common stock issuable
upon exercise of such assumed GeoCities stock options will be equal to the
quotient determined by dividing the exercise price per share of GeoCities
common stock at which such GeoCities stock option was exercisable immediately
prior to the
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effective time by the exchange ratio, rounded up to the nearest whole cent.
The parties intend the GeoCities stock options assumed by Yahoo! to qualify
as incentive stock options as defined in Section 422 of the Internal Revenue
Code to the extent such stock options qualified as incentive stock options
immediately prior to the effective time.
The purchase date of the purchase period under GeoCities' 1998 Employee
Stock Purchase Plan will accelerate under the terms of the plan so that the new
purchase date will occur prior to the effective time. This change will allow
participants to purchase shares of GeoCities common stock under the plan prior
to the effective time. This accelerated purchase period shall expire immediately
following such new purchase date, and the plan will terminate immediately prior
to the effective time.
Yahoo! has agreed to file a registration statement on Form S-8 for the
shares of Yahoo! common stock issuable with respect to assumed GeoCities stock
options within 30 days after the effective time, and intends to maintain the
effectiveness of such registration statement for so long as any of such options
or other rights remain outstanding.
EXCHANGE AGENT
Promptly after the effective time, Yahoo! is required to deposit with a bank
or trust company designated by Yahoo! and acceptable to GeoCities, certificates
representing the shares of Yahoo! common stock to be exchanged for shares of
GeoCities common stock, and cash in an amount sufficient for payment for
fractional shares and any dividends or distributions to which holders of shares
of GeoCities common stock may be entitled pursuant to the merger agreement.
EXCHANGE PROCEDURES
Promptly after the effective time, Yahoo! will cause the exchange agent to
mail to the holders of record of GeoCities stock certificates, (1) a letter of
transmittal specifying that delivery will be effected, and risk of loss and
title to the certificates will pass, only upon delivery of the certificates to
the exchange agent and (2) instructions on how to surrender certificates in
exchange for certificates representing shares of Yahoo! common stock, cash for
fractional shares and any dividends or other distributions pursuant to the
merger agreement. HOLDERS OF GEOCITIES COMMON STOCK SHOULD NOT SURRENDER THEIR
GEOCITIES STOCK CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FROM
THE EXCHANGE AGENT.
Upon surrendering their GeoCities stock certificates for cancellation to the
exchange agent, together with the letter of transmittal and any other documents
required by the exchange agent, the holders of such GeoCities stock certificates
will be entitled to receive in exchange therefor a certificate representing that
number of whole shares of Yahoo! common stock which such holder has the right to
receive pursuant to the merger agreement, cash for fractional shares of Yahoo!
common stock and any dividends or other distributions to which such holder is
entitled. Until surrendered, outstanding GeoCities stock certificates will be
deemed from and after the effective time to evidence only the ownership of the
number of full shares of Yahoo! common stock into which such shares of GeoCities
common stock have converted into and the right to receive an amount in cash for
any fractional shares and any dividends or distributions payable pursuant to the
merger agreement.
If any certificate for shares of Yahoo! common stock are to be issued to a
person other than the person in whose name the certificates so surrendered are
registered, such certificates must be properly endorsed or otherwise be in
proper form for transfer and the person requesting such exchange must pay to
Yahoo! or any agent designated by Yahoo! any transfer or other taxes required by
reason of the issuance of certificates representing shares of Yahoo! common
stock in any name other than that of the registered holder of the certificates
surrendered, or established to the satisfaction of Yahoo! or any agent
designated by Yahoo! that such tax has been paid or is not payable.
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DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES
No dividends or other distributions declared or made after the effective
time with respect to Yahoo! common stock with a record date after the effective
time will be paid to the holders of any unsurrendered certificates with respect
to the shares of Yahoo! common stock represented thereby until the holders of
record surrender such certificates. Following surrender of any such
certificates, the exchange agent shall deliver to the record holders thereof,
without interest, certificates representing whole shares of Yahoo! common stock
along with payment for fractional shares and the amount of any such dividends or
other distributions with a record date after the effective time payable with
respect to such shares of Yahoo! common stock.
NO FRACTIONAL SHARES
No fractional shares of Yahoo! common stock will be issued by virtue of the
merger. Instead, each holder of shares of GeoCities common stock who would
otherwise be entitled to a fractional share of Yahoo! common stock shall receive
an amount of cash equal to the product of such fraction multiplied by the
average closing sale price of one share of Yahoo! common stock over the five
trading days immediately prior to the effective time.
REPRESENTATIONS AND WARRANTIES
The merger agreement includes a number of representations and warranties by
GeoCities in favor of Yahoo! and Merger Sub relating to a number of matters,
including:
- - due organization and good standing;
- - capital structure and rights or obligations relating to capital stock;
- - authorization, execution, delivery, and enforceability of the merger
agreement;
- - absence of conflict with or violation of any agreement, law, or charter or
bylaw provision and the absence of the need for filings, consents, approvals
or actions;
- - documents filed with the Commission;
- - accuracy of information supplied by GeoCities;
- - absence of certain material changes, events, litigation or investigations;
- - filing of tax returns and payment of taxes;
- - title to, or valid leasehold interests in, material properties and assets;
- - disclosure of material contracts;
- - compliance with laws;
- - employee benefit plans and labor relations;
- - change of control payments to officers and directors;
- - ownership of or right to use, and non-infringement of others' rights to
intellectual property;
- - board approval;
- - broker's or advisor's fees;
- - receipt of a fairness opinion of Goldman, Sachs & Co.; and
- - pooling of interests accounting treatment for the merger.
The merger agreement also includes representations and warranties by Yahoo!
and Merger Sub in favor of GeoCities relating to a number of matters, including
the following:
- - organization and good standing;
- - capital structure;
- - authorization, execution, delivery, and enforceability of the merger
agreement;
- - absence of conflict with or violation of any agreement, law, or charter or
bylaw provision and the absence of the need for filings, consents, approvals
or actions;
- - documents filed with the Commission;
- - accuracy of information supplied by Yahoo! or Merger Sub;
- - absence of material changes or events;
- - absence of material litigation or investigations;
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- - pooling of interests accounting treatment for the merger; and
- - valid issuance of Yahoo! common stock in the merger.
The representations and warranties of GeoCities, Yahoo! and Merger Sub will
terminate at the effective time.
CONDUCT OF BUSINESS OF GEOCITIES PENDING THE MERGER
GeoCities has agreed that, during the period from the date of the merger
agreement until the earlier of the termination of the merger agreement or the
effective time, it will carry on its business in the usual, regular and ordinary
course, consistent with prior conduct and in compliance with all applicable laws
and regulations. GeoCities is required to preserve intact its current business
organization, keep available the services of its present officers and employers
and preserve its relationships with customers, suppliers, licensors, licensees,
and others having business dealings with it. GeoCities has also agreed that,
prior to the effective time or the termination of the merger agreement, without
Yahoo!'s consent, it will not, among other things:
- - waive any stock repurchase rights, accelerate, amend or change the period of
exercisability of options or restricted stock, or reprice options or
authorize cash payments in exchange for options;
- - grant severance or termination pay, except pursuant to written agreements in
effect, or policies existing, on the date of the merger agreement, or adopt
any new severance plan;
- - transfer, license, extend, amend or modify in any material respect any rights
to its intellectual property, other than non-exclusive licenses in the
ordinary course of business and consistent with past practice;
- - declare, set aside or pay any dividends on or make any other distributions in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock;
- - purchase, redeem or otherwise acquire any shares of capital stock of
GeoCities or its subsidiaries, except repurchases of an employee's unvested
shares in connection with such employee's termination of employment;
- - issue, deliver, sell, authorize, pledge or otherwise encumber any shares of
capital stock or any securities convertible into shares of capital stock
other than pursuant to the exercise of stock options or pursuant to
GeoCities' 1998 Employee Stock Purchase Plan;
- - cause, permit or propose any amendments to its certificate of incorporation,
bylaws or other charter documents (or similar governing instruments of any of
its subsidiaries);
- - acquire, merge or consolidate with any business or corporation, or otherwise
acquire any material assets or enter into any material joint ventures,
strategic partnerships or alliances;
- - sell, lease, license, encumber or otherwise dispose of any material
properties or assets;
- - incur any indebtedness or guarantee any such indebtedness of another person,
issue or sell any debt securities or options, warrants, calls or other rights
to acquire any debt securities of GeoCities;
- - adopt or amend any employee benefit plan or enter into any employment
contract or collective bargaining agreement other than offer letters and
agreements entered into in the ordinary course of business consistent with
past practice with employees who are terminable "at will";
- - pay any special bonus or special remuneration to any director or employee, or
increase the salaries or wage rates or fringe benefits of its directors,
officers, employees or consultants other than in the ordinary course of
business, consistent with past practice;
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- - modify, amend or terminate any material contract or agreement or waive,
release or assign any material rights or claims thereunder;
- - enter into any licensing, distribution, sponsorship, advertising, merchant
program or other similar contracts which may not be canceled without penalty
by GeoCities or which include over $50,000 in payments by or to GeoCities;
- - revalue any of its assets or make any change in accounting methods,
principles or practices;
- - interfere with Yahoo!'s ability to account for the merger as a pooling of
interests;
- - fail to make timely filings with the Commission; or
- - engage in any action with the intent to adversely impact any of the
transactions contemplated by the merger agreement.
CONDUCT OF BUSINESS OF YAHOO! PENDING THE MERGER
Yahoo! has agreed that, during the period from the date of the merger
agreement until the earlier of the termination of the merger agreement or the
effective time, it will not do any of the following:
- - cause, permit or propose any amendments to its articles of incorporation or
bylaws or other charter documents in a manner that would have an adverse
impact on GeoCities' stockholders; PROVIDED that the foregoing will not
restrict the ability of Yahoo! to reincorporate in another jurisdiction; or
- - take any action that would be reasonably likely to interfere with Yahoo!'s
ability to account for the merger as a pooling of interests.
All of GeoCities' and Yahoo!'s covenants will terminate at the effective
time, except those that by their terms, survive the effective time.
NO SOLICITATION
The merger agreement provides that GeoCities will not authorize or permit
any of its officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by it to:
- - solicit or induce the making or announcement of any acquisition proposal;
- - participate in any discussions regarding, or furnish to any person any
non-public information with respect to, or make any proposal that constitutes
or may reasonably be expected to lead to, any acquisition proposal;
- - engage in discussions with any person with respect to any acquisition
proposal;
- - approve or recommend any acquisition proposal; or
- - enter into any letter of intent or similar document or any contract relating
to any acquisition proposal.
However, prior to the approval of the merger agreement by the required
GeoCities stockholder vote, the merger agreement does not prohibit GeoCities
from furnishing nonpublic information to, entering into a confidentiality
agreement with or entering into discussions with, any person or group in
response to a more favorable offer submitted by such person or group if:
- - GeoCities has not violated any of the restrictions set forth above;
- - GeoCities' board concludes that such action is required to comply with its
fiduciary obligations to GeoCities' stockholders;
- - prior to furnishing any such nonpublic information to, or entering into
discussions with, such person or group, GeoCities gives Yahoo! written notice
of the identity of such person or group and of GeoCities' intention to
furnish nonpublic information to, or enter into discussions with, such person
or group and GeoCities receives from such person or group an executed
confidentiality agreement containing customary limitations on the use and
disclosure of all nonpublic written and oral information furnished to such
person or group by or on behalf of GeoCities; and
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- - contemporaneously with furnishing any such nonpublic information to such
person or group, GeoCities furnishes such nonpublic information to Yahoo!.
In addition, GeoCities has agreed to provide Yahoo! with prior written
notice of any meeting of GeoCities' board of directors at which the board is
expected to recommend a more favorable offer to its stockholders.
The merger agreement defines an "acquisition proposal" as any bona fide
offer or proposal (other than an offer or proposal by Yahoo!) relating to any
transaction other than the transactions contemplated by the merger agreement
involving:
- - any acquisition or purchase from GeoCities of more than a 15% interest in the
total outstanding voting securities of GeoCities or any tender offer or
exchange offer that, if consummated, would result in any person or group
beneficially owning 15% or more of the total outstanding voting securities of
GeoCities or any merger, consolidation, business combination or similar
transaction involving GeoCities pursuant to which the stockholders of
GeoCities immediately preceding such transaction hold less than 85% of the
equity interest in the surviving or resulting entity of such transaction;
- - any sale, lease (other than in the ordinary course of business), exchange,
transfer, license (other than in the ordinary course of business),
acquisition or disposition of more than 50% of the assets of GeoCities; or
- - any liquidation or dissolution of GeoCities.
GeoCities has agreed to promptly advise Yahoo! of any request for non-public
information or any inquiry which GeoCities believes would lead to an acquisition
proposal, the material terms and conditions of such acquisition proposal, and
the identity of the person or group making any such request, acquisition
proposal or inquiry.
DIRECTOR AND OFFICER INDEMNIFICATION
From and after the effective time of the merger, Yahoo! will cause the
surviving corporation to fulfill and honor GeoCities' obligations pursuant to
any indemnification agreements with its directors and officers that existed as
of the effective time of the merger and any indemnification provisions under
GeoCities' organizational documents as in effect on the date of the merger
agreement.
The certificate of incorporation and bylaws of GeoCities following the
merger will contain provisions with respect to exculpation and indemnification
that are at least as favorable to the indemnified directors and officers as
those contained in GeoCities' organizational documents as in effect on the date
of the merger agreement. These indemnification provisions will not be amended,
repealed or otherwise modified for a period of three years from the effective
time of the merger in any manner that would adversely affect the rights of
individuals who were directors, officers, employees or agents of GeoCities
immediately prior to the effective time of the merger, unless such modification
is required by law.
For a period of three years after the effective time of the merger, Yahoo!
will cause the surviving corporation to use its commercially reasonable efforts
to maintain in effect, if available, directors' and officers' liability
insurance covering those persons who are currently covered by GeoCities'
directors' and officers' liability insurance policy, on comparable terms to such
policy; provided, however, neither Yahoo! nor the surviving corporation shall be
required to expend more than 125% of the annual premium currently paid by
GeoCities for such coverage.
YAHOO! STOCK OPTION
GeoCities has granted Yahoo! an irrevocable option to purchase up to
6,370,000 shares of GeoCities common stock at a cash exercise price of $113.66
per share. The option was granted to Yahoo! for no additional consideration.
Yahoo! may exercise this option, in whole or in part, at any time from the day
on which one of the triggering events described below occurs or on which the
merger agreement is terminated by either GeoCities or Yahoo! because the
required approval of GeoCities'
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stockholders was not obtained. Yahoo!'s right to exercise the stock option
terminates on the earlier of (1) the effective time or (2) nine months after the
termination of the merger agreement.
Under the merger agreement, a "triggering event" has occurred if:
- - GeoCities' board withdraws, amends or modifies in a manner adverse to Yahoo!
its recommendation in favor of the adoption and approval of the merger
agreement or the merger;
- - GeoCities' board fails to reaffirm its recommendation in favor of the
approval of the merger agreement after Yahoo! requests that such
recommendation be reaffirmed at any time following the public announcement of
another acquisition proposal;
- - GeoCities' board approves or publicly recommends any other acquisition
proposal;
- - GeoCities enters into any letter of intent, agreement or commitment accepting
any other acquisition proposal;
- - a tender or exchange offer relating to securities of GeoCities in excess of
15% of its outstanding voting securities is commenced by a person
unaffiliated with Yahoo! and GeoCities does not send to its stockholders a
statement disclosing that GeoCities recommends rejection of such tender or
exchange offer; or
- - GeoCities intentionally breaches its obligations under the "no solicitation"
section of the merger agreement.
Yahoo! may purchase shares of GeoCities common stock pursuant to its stock
option only if, at the time of purchase, all of the following conditions are
satisfied:
- - Yahoo! is not in material breach of its obligations under the merger
agreement;
- - no preliminary or permanent injunction or other order, decree or ruling
against the sale or delivery of the shares of GeoCities common stock issued
by any federal or state court is in effect; and
- - any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 has expired or terminated.
If a change in GeoCities' capital stock dilutes or changes Yahoo!'s rights
under the merger agreement, the number and kind of shares of GeoCities common
stock subject to the stock option and the purchase price per share will be
adjusted so that, upon exercise of the stock option, Yahoo! will receive the
number and class of shares of GeoCities common stock that Yahoo! would have
received if the option had been exercised immediately prior to such event.
At any time after the date on which the option becomes exercisable, Yahoo!
may, upon two days' notice to GeoCities, surrender all or a part of the stock
option to GeoCities, in which event GeoCities will pay to Yahoo!, on the day of
each such surrender, an amount in cash per share of GeoCities common stock equal
to (1) the closing sale price of the GeoCities' common stock on The Nasdaq
National Market on the date of surrender over (2) the exercise price. Upon
exercise of its right to surrender its stock option or any portion thereof and
the receipt by Yahoo! of cash as set forth in this proxy statement/prospectus,
all rights of Yahoo! to purchase shares of GeoCities common stock with respect
to the portion of the stock option so surrendered shall be terminated.
CONDITIONS TO THE MERGER
The obligations of Yahoo! and GeoCities to effect the merger are subject to
the satisfaction, at or prior to the closing date of the merger, of the
following conditions:
- - GeoCities' stockholders adopt and approve the merger agreement and the
merger;
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- - the Commission declares the registration statement effective and no stop
order suspending the effectiveness of the registration statement shall have
been issued and no proceeding for that purpose, and no similar proceeding in
respect of this proxy statement/prospectus, shall have been initiated or
threatened in writing by the Commission;
- - no governmental entity enacts, issues, promulgates, enforces or enters any
statute, rule, regulation, executive order, decree, injunction or other order
which is in effect and which makes the merger illegal or otherwise prohibits
consummation of the merger;
- - all waiting periods, if any, under the Hart-Scott-Rodino Act relating to the
merger expire or terminate early and all material foreign antitrust approvals
required to be obtained prior to the merger are obtained;
- - Yahoo! and GeoCities receive written opinions from tax counsel, to the effect
that the merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and such opinions shall not have
been withdrawn;
- - Yahoo! receives letters from PricewaterhouseCoopers LLP, stating its
concurrence with Yahoo!'s management's and GeoCities' management's
conclusions as to the appropriateness of pooling of interest accounting for
the merger; provided, however, that this condition shall be deemed waived by
GeoCities in the event that any action taken by, or omitted to be taken by,
GeoCities or any of its stockholders, employees or affiliates is the
proximate cause of Yahoo!'s inability to account for the merger as a pooling
of interests; and
- - the shares of Yahoo! common stock to be issued in the merger are approved for
listing on The Nasdaq National Market.
In addition, the obligation of GeoCities to consummate and effect the merger
shall be subject to the satisfaction, at or prior to the closing date, of the
following conditions, any of which may be waived by GeoCities:
- - the representations and warranties of Yahoo! and Merger Sub contained in the
merger agreement (a) shall have been true and correct in all material
respects as of the date of the merger agreement and (b) shall be true and
correct on and as of the closing date of the merger as if made on such date
except:
- in each case, or in the aggregate, as does not constitute a material
adverse effect on Yahoo! and Merger Sub;
- those representations and warranties which address matters only as of a
particular date, which representations shall have been true and correct
as of such particular date or which do not constitute a material adverse
effect on Yahoo! and Merger Sub; and
- for changes contemplated by the merger agreement.
- - Yahoo! and Merger Sub shall have performed or complied in all material
respects with all agreements and covenants required by the merger agreement
to be performed or complied with by them on or prior to the closing of the
merger.
Further, the obligations of Yahoo! and Merger Sub to consummate and effect
the merger shall be subject to the satisfaction at or prior to the closing date
of the following conditions, any of which may be waived by Yahoo!:
- - the representations and warranties of GeoCities contained in the merger
agreement (a) shall have been true and correct in all material respects as of
the date of the merger agreement, and (b) are true and correct on and as of
the closing date as if made on and as of the closing date except:
- in each case, or in the aggregate, as does not constitute a material
adverse effect on GeoCities;
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- for changes contemplated by the merger agreement; and
- for those representations and warranties which address matters only as
of a particular date, which representations shall have been true and
correct as of such particular date or which do not constitute a material
adverse effect on GeoCities.
- - GeoCities performs or complies in all material respects with all agreements
and covenants required by the merger agreement to be performed or complied
with by it, and Yahoo! receives a certificate to such effect signed on behalf
of GeoCities by the Chief Executive Officer and the Chief Financial Officer
of GeoCities; and
- - each affiliate of GeoCities enters into an agreement with Yahoo! pursuant to
which such affiliate agrees to restrict (a) its transfer of Yahoo! stock that
it receives in the merger and (b) its ability to take actions which would
adversely affect Yahoo!'s ability to account for the merger as a pooling of
interest transaction. Each such agreement will be in full force and effect as
of the effective time of the merger.
If any material condition is waived, Yahoo! and GeoCities will amend this
proxy statement/ prospectus and resolicit the vote of GeoCities' stockholders.
TERMINATION
The merger agreement may be terminated at any time prior to the effective
time of the merger, whether before or after the requisite
approval of the stockholders of GeoCities has been obtained:
- - by mutual consent authorized by the boards of directors of Yahoo! and
GeoCities;
- - by either GeoCities or Yahoo! if the merger is not consummated by September
30, 1999; provided, however, such right to terminate the merger agreement
shall not be available to any party whose action or failure to act has been a
principal cause of or resulted in the failure of the merger to occur on or
before such date;
- - by either GeoCities or Yahoo! if a governmental entity shall have issued an
order, decree or ruling or taken any other action which permanently
restrains, enjoins or otherwise prohibits the merger, which order, decree or
ruling is final and nonappealable;
- - by either GeoCities or Yahoo! if the required approval of GeoCities'
stockholders is not obtained at the special meeting or at any adjournment,
provided that such right to terminate the merger agreement shall not be
available to GeoCities if the failure to obtain such approval shall have been
caused by GeoCities' action or failure to act and such action or failure to
act constitutes a material breach by GeoCities of the merger agreement;
- - by Yahoo! if any triggering event occurs;
- - by GeoCities, upon a breach of any representation, warranty, covenant or
agreement on the part of Yahoo! set forth in the merger agreement, or if any
representation or warranty of Yahoo! becomes untrue, provided that Yahoo! is
entitled to a 20-day cure period, if such 20-day period does not extend
beyond September 30, 1999; or
- - by Yahoo!, upon GeoCities' breach of any representation, warranty, covenant
or agreement set forth in the merger agreement, or if any representation or
warranty of GeoCities becomes untrue, provided that GeoCities is entitled to
a 20-day cure period, if such cure period does not extend beyond September
30, 1999. Furthermore, Yahoo! may not terminate the merger agreement if it
materially breaches the merger agreement.
TERMINATION FEE; EXPENSES
Except as set forth below, all fees and expenses incurred in connection with
the merger agreement and the merger shall be paid by the party incurring such
expenses, whether or not
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the merger is consummated; provided, however, that Yahoo! and GeoCities shall
share equally all fees and expenses, other than attorneys' and accountants fees
and expenses, incurred in relation to the printing and filing with the
Commission of the proxy statement/prospectus and the registration statement and
any amendments or supplements to such documents.
If Yahoo! terminates the merger agreement because a triggering event has
occurred, GeoCities shall, within one day after the date of such termination,
pay Yahoo! a fee equal to $100 million in immediately available funds. In
addition, if either Yahoo! or GeoCities terminates the merger agreement because
the required GeoCities stockholder vote is not obtained and prior to the vote of
GeoCities' stockholders at the special meeting, an alternative acquisition
proposal was publicly announced, GeoCities shall, within one day after the date
of such termination, pay Yahoo! an amount equal to Yahoo!'s documented expenses
incurred in connection with the transactions contemplated by the merger
agreement. Furthermore, in the event that, within nine months following such
termination GeoCities enters into a definitive agreement with respect to another
acquisition transaction or consummates an acquisition transaction with a third
party, GeoCities shall contemporaneously with such execution or consummation, as
the case may be, pay Yahoo! a fee equal to the fee described above.
Notwithstanding any provision of the merger agreement to the contrary, the
total proceeds that Yahoo! shall be permitted to realize in respect of the fees
described above and its stock option shall not exceed $140 million. If Yahoo!'s
total proceeds would exceed such amount, Yahoo! shall, at its sole election,
- - reduce the number of shares of GeoCities common stock subject to Yahoo!'s
stock option;
- - deliver shares of GeoCities common stock received upon an exercise of the
Yahoo! stock option to GeoCities for cancellation;
- - pay cash to GeoCities; or
- - do any combination of the foregoing so that Yahoo!'s actual realized total
proceeds do not exceed $140 million.
Yahoo's "total proceeds" means the aggregate, before taxes, of:
- - any amount received pursuant to GeoCities' repurchase of the Yahoo! stock
option;
- - any amount received pursuant to GeoCities' repurchase of the shares of
GeoCities common stock from Yahoo!;
- - any net cash received by Yahoo! from any third party pursuant to the sale of
shares of GeoCities common stock received by Yahoo! pursuant to any exercise
of the Yahoo! stock option;
- - any amounts received on transfer of the Yahoo! stock option or any portion of
such option to a third party;
- - any equivalent amounts received with respect to the Yahoo! stock option
adjusted pursuant to Section 5.14(f) of the merger agreement; and
- - the termination fee actually paid.
Payment of the fees described above shall not be in lieu of damages incurred
in the event of a willful or intentional breach of the merger agreement.
AMENDMENT; WAIVER
Subject to applicable law, the merger agreement may be amended by the
parties to the merger agreement at any time by execution of an instrument in
writing signed on behalf of Yahoo!, Merger Sub and GeoCities. At any time prior
to the effective time of the merger, any party to the merger agreement may, to
the extent legally allowed:
- - extend the time for the performance of any of the obligations or other acts
of the other parties to the merger agreement;
- - waive any inaccuracies in the representations and warranties made to such
party contained in the merger agreement or in any document delivered pursuant
to the merger agreement; and
- - waive compliance with any of the agreements or conditions for the benefit of
such party contained in the merger agreement.
66
<PAGE>
VOTING AND AFFILIATE AGREEMENTS
VOTING AGREEMENTS
Concurrently with the execution of the merger agreement, two SOFTBANK
entities, two CMG Ventures entities, and David C. Bohnett, who collectively own
62.4% of the outstanding common stock of GeoCities, entered into a voting
agreement with Yahoo! whereby such parties agreed to:
- - appear, or cause the holder of record to appear for the purpose of obtaining
a quorum at any annual meeting or special meeting of the stockholders of
GeoCities held for the purpose of voting on the merger; and
- - vote, or cause the record holder to vote, in person or by proxy, all of the
shares of GeoCities common stock owned, controlled by or subsequently
acquired by, such stockholder in favor of the merger, merger agreement and
the transactions contemplated by the merger agreement.
In addition, with respect to all shares owned of record or all shares
acquired by such stockholders at any time prior to the effective time of the
merger, such stockholders have appointed Yahoo! as their irrevocable proxy and
lawful attorney to demand that the Secretary of GeoCities call a special meeting
of the stockholders of GeoCities for the purpose of considering any action
related to the merger agreement and to vote each of such shares as its proxy, in
favor of the merger, merger agreement and the transactions contemplated by the
merger agreement. The voting agreements terminate upon the earlier of the
termination of the merger agreement or the effective time of the merger.
The voting stock agreements also prohibit each of the signing stockholders
from soliciting additional acquisition proposals from third parties on behalf of
GeoCities and from engaging in any discussions with third parties regarding any
such acquisition proposal. This prohibition continues for so long as the voting
agreements remain effective.
GEOCITIES AFFILIATE AGREEMENTS
Concurrently with or following the execution of the merger agreement, David
C. Bohnett, SOFTBANK Holdings Inc., CMG@Ventures I, LLC, and CMG@Ventures II,
LLC entered into affiliate agreements with Yahoo! pursuant to which such
affiliates agreed to restrict their transfer of any Yahoo! common stock they
receive in the merger and to refrain from taking actions which would adversely
affect Yahoo!'s ability to account for the merger as a pooling of interests
transaction. Specifically, the GeoCities affiliate agreements provide, among
other things, that such affiliates will not sell, transfer or otherwise dispose
of the Yahoo! common stock issued to such affiliates in connection with the
merger other than:
- - in compliance with Rule 145 of the Securities Act;
- - if such sale, transfer or other disposition is effected pursuant to an
effective registration statement under the Securities Act; or
- - if an authorized representative of the Commission has rendered written advice
to the effect that the Commission would take no action, or that the staff of
the Commission would not recommend that the Commission take action with
respect to the proposed sale, transfer or other disposition, and a copy of
such written advice is provided to Yahoo!.
The GeoCities affiliate agreements also generally provide, among other
things, that, pursuant to Commission Staff Bulletin No. 65, until the earlier of
Yahoo!'s public announcement of financial results covering at least 30 days of
combined operations of Yahoo! and GeoCities or the merger agreement's
termination, such affiliate will not sell, exchange, transfer, pledge,
distribute, or otherwise dispose of or grant any option, establish any "short"
or put equivalent position, or enter into any similar transaction which is
intended to, or has the effect of, reducing its risk relative to (a) any shares
of GeoCities common stock, except pursuant to and in connection with the
67
<PAGE>
consummation of the merger; or (b) any shares of Yahoo! common stock received by
such affiliate in the merger or upon exercise of options assumed by Yahoo! in
connection with the merger. In addition, GeoCities has agreed to use
commercially reasonable efforts to deliver or cause to be delivered to Yahoo!,
as promptly as practicable on or following the date of the merger agreement,
from each additional GeoCities affiliate, a similarly executed agreement which
will be in full force and effect as of the effective time of the merger.
YAHOO! AFFILIATE AGREEMENTS
Yahoo! has agreed to use commercially reasonable efforts to deliver or cause
to be delivered, as promptly as practicable following the date of the merger
agreement, from each Yahoo! affiliate, an executed affiliate agreement, which
will be in full force and effect as of the effective time of the merger.
The Yahoo! affiliate agreements provide, among other things, that pursuant
to Commission Staff Bulletin No. 65, such affiliate will not sell, exchange,
transfer, pledge, distribute, or otherwise dispose of or grant any option,
establish any "short" or put equivalent position with respect to or enter into
any similar transaction which is intended to, or has the effect of, reducing its
risk relative to any Yahoo! common stock until the earlier of Yahoo!'s public
announcement of financial results covering at least 30 days of combined
operations of Yahoo! and GeoCities or the merger agreement's termination.
68
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On January 27, 1999, Yahoo! Inc. entered into an agreement to merge with
GeoCities in a transaction to be accounted for as a pooling of interests. Under
the terms of the agreement, each issued and outstanding common share of
GeoCities will be exchanged for 0.6768 shares of Yahoo! common stock.
Additionally, the Company will convert approximately 8,894,000 GeoCities stock
options into approximately 6,019,000 Yahoo! stock options. During the year ended
December 31, 1998, Yahoo! and GeoCities acquired Viaweb Inc. ("Viaweb") and
Starseed, Inc. ("Starseed"), respectively, in transactions accounted for as
purchases (referred to herein as the "Acquired Entities"). The aggregate
purchase price of the Acquired Entities was approximately $73,400,000. (See
Yahoo! and GeoCities historical consolidated financial statements incorporated
by reference or included elsewhere in this document.)
The following unaudited pro forma condensed combined financial statements
present the effect of the proposed merger between Yahoo! and GeoCities to be
accounted for as a pooling of interests. The unaudited pro forma condensed
combined balance sheet presents the combined financial position of Yahoo! and
GeoCities as of December 31, 1998, assuming that the proposed merger had
occurred as of December 31, 1998. Such pro forma information is based upon the
historical consolidated balance sheet data of Yahoo! and GeoCities as of that
date. The unaudited pro forma condensed combined statements of operations give
effect to the proposed merger of Yahoo! and GeoCities by combining the results
of operations of Yahoo! for each of the three years ended December 31, 1998,
with the results of operations of GeoCities for each of the three years in the
period ended December 31, 1998, respectively, on a pooling of interests basis.
Additionally, the unaudited pro forma condensed combined statements of
operations reflect the acquisition by Yahoo! and GeoCities of the Acquired
Entities as if such acquisitions had occurred on January 1, 1998.
The unaudited pro forma condensed combined financial statements are based on
the estimates and assumptions set forth in the notes to such statements, which
are preliminary and have been made solely for purposes of developing such pro
forma information. The unaudited pro forma condensed combined financial
statements are not necessarily an indication of the results that would have been
achieved had such transactions been consummated as of the dates indicated or
that may be achieved in the future.
Yahoo! and GeoCities estimate that they will incur direct transaction costs
of approximately million in connection with the proposed merger, which will
be charged to operations in the quarter in which the merger is consummated. This
amount is a preliminary estimate and is therefore subject to change. There can
be no assurance that Yahoo! will not incur additional charges in subsequent
quarters to reflect costs associated with the proposed merger.
These unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical consolidated financial statements and
notes thereto of Yahoo! and GeoCities and other financial information pertaining
to Yahoo! and GeoCities including "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Risk Factors" incorporated
by reference or included herein.
69
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------- ----------------------------------
YAHOO! GEOCITIES ADJUSTMENTS COMBINED
---------- -------------- ----------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 125,474 $ 51,014 $ $ 176,488
Short-term investments in marketable
securities.......................... 308,025 33,797 341,822
Accounts receivable, net.............. 24,831 4,296 29,127
Other current assets.................. 8,909 1,453 10,362
---------- -------------- -------- ----------
Total current assets................ 467,239 90,560 -- 557,799
Long-term investments in marketable
securities............................ 90,266 5,094 (22,657)(B) 72,703
Property and equipment, net............. 15,189 8,706 23,895
Other assets............................ 49,190 26,022 75,212
---------- -------------- -------- ----------
Total assets........................ $ 621,884 $ 130,382 $ (22,657) $ 729,609
---------- -------------- -------- ----------
---------- -------------- -------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 6,504 $ 2,269 $ $ 8,773
Accrued expenses and other current
liabilities......................... 35,178 8,452 (C) 43,630
Deferred revenue...................... 38,301 335 38,636
---------- -------------- -------- ----------
Total current liabilities........... 79,983 11,056 -- 91,039
Other long term obligations............. 5,691 2,327 8,018
Shareholders' equity:
Common stock and other................ 523,020 149,159 (11,599)(B) 660,580
Accumulated deficit................... (8,442) (32,160) (C) (40,602)
Accumulated other comprehensive
income.............................. 21,632 -- (11,058)(B) 10,574
---------- -------------- -------- ----------
Total shareholders' equity.......... 536,210 116,999 (22,657) 630,552
---------- -------------- -------- ----------
Total liabilities and shareholders'
equity............................ $ 621,884 $ 130,382 $ (22,657) $ 729,609
---------- -------------- -------- ----------
---------- -------------- -------- ----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
70
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ---------------------------------------------------
--------------------------- ACQUIRED
YAHOO! GEOCITIES ENTITIES ADJUSTMENTS COMBINED
---------- -------------- -------------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues............................ $ 203,270 $ 18,359 $ 729 $ (611)(A) $ 221,747
Cost of revenues........................ 26,742 9,696 143 3,173(D) 39,754
---------- -------------- -------------- -------- ----------
Gross profit.......................... 176,528 8,663 586 (3,784) 181,993
---------- -------------- -------------- -------- ----------
Operating expenses:
Sales and marketing................... 92,380 17,486 1,053 (611)(A) 110,936
628(E)
Product development................... 22,742 4,093 1,416 (300)(E) 27,951
General and administrative............ 11,210 9,156 565 (1,228)(E) 19,703
Amortization of intangibles........... 2,028 -- -- 8,779(D) 11,407
600(E)
Other -- non-recurring costs.......... 19,400 -- -- 300(E) 19,700
---------- -------------- -------------- -------- ----------
Total operating expenses............ 147,760 30,735 3,034 8,168 189,697
---------- -------------- -------------- -------- ----------
Income (loss) from operations........... 28,768 (22,072) (2,448) (11,952) (7,704)
Net interest income (expense) and
other................................. 14,647 2,314 (281) 16,680
---------- -------------- -------------- -------- ----------
Income (loss) before income taxes....... 43,415 (19,758) (2,729) (11,952) 8,976
Provision for income taxes.............. 17,827 1 -- 17,828
---------- -------------- -------------- -------- ----------
Net income (loss)....................... 25,588 (19,759) (2,729) (11,952) (8,852)
Accretion of mandatory redeemable
convertible preferred stock........... -- (1,604) -- 208(F) (1,396)
---------- -------------- -------------- -------- ----------
Net income (loss) applicable to common
stockholders.......................... $ 25,588 $ (21,363) $ (2,729) $ (11,744) $ (10,248)
---------- -------------- -------------- -------- ----------
---------- -------------- -------------- -------- ----------
Net income (loss) per share -- basic.... $ 0.14 $ (1.42) $ (0.05)
---------- -------------- ----------
---------- -------------- ----------
Net income (loss) per share --
diluted............................... $ 0.11 $ (1.42) $ (0.05)
---------- -------------- ----------
---------- -------------- ----------
Shares used in per share calculation --
basic................................. 184,060 15,001 195,282
---------- -------------- ----------
---------- -------------- ----------
Shares used in per share calculation --
diluted............................... 224,100 15,001 195,282
---------- -------------- ----------
---------- -------------- ----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
71
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------- ----------------------------------
YAHOO! GEOCITIES ADJUSTMENTS COMBINED
---------- -------------- ----------------- ----------
<S> <C> <C> <C> <C>
Net revenues............................ $ 70,450 $ 4,582 $ $ 75,032
Cost of revenues........................ 10,885 3,789 14,674
---------- -------------- -------- ----------
Gross profit.......................... 59,565 793 -- 60,358
---------- -------------- -------- ----------
Operating expenses:
Sales and marketing................... 45,778 5,837 98(E) 51,713
Product development................... 12,082 1,045 13,127
General and administrative............ 7,392 2,930 (98)(E) 10,224
Other -- non-recurring costs.......... 25,095 -- 25,095
---------- -------------- -------- ----------
Total operating expenses............ 90,347 9,812 -- 100,159
---------- -------------- -------- ----------
Loss from operations.................... (30,782) (9,019) -- (39,801)
Net interest income (expense) and
other................................. 5,262 117 5,379
---------- -------------- -------- ----------
Loss before income taxes................ (25,520) (8,902) -- (34,422)
Provision for income taxes.............. -- 1 1
---------- -------------- -------- ----------
Net loss................................ (25,520) (8,903) -- (34,423)
Accretion of mandatory redeemable
convertible preferred stock........... -- (832) (832)
---------- -------------- -------- ----------
Net loss applicable to common
stockholders.......................... $ (25,520) $ (9,735) $ -- $ (35,255)
---------- -------------- -------- ----------
---------- -------------- -------- ----------
Net loss per share -- basic............. $ (0.15) $ (3.72) $ (0.20)
---------- -------------- ----------
---------- -------------- ----------
Net loss per share -- diluted........... $ (0.15) $ (3.72) $ (0.20)
---------- -------------- ----------
---------- -------------- ----------
Shares used in per share calculation --
basic................................. 174,672 2,620 176,445
---------- -------------- ----------
---------- -------------- ----------
Shares used in per share calculation --
diluted............................... 174,672 2,620 176,445
---------- -------------- ----------
---------- -------------- ----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
72
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- -----------------------
YAHOO! GEOCITIES ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues.............................................. $ 21,490 $ 314 $ $ 21,804
Cost of revenues.......................................... 4,722 788 5,510
---------- ---------- ----------- ----------
Gross profit............................................ 16,768 (474) -- 16,294
---------- ---------- ----------- ----------
Operating expenses:
Sales and marketing..................................... 16,168 764 16,932
Product development..................................... 5,700 475 6,175
General and administrative.............................. 5,834 1,252 7,086
---------- ---------- ----------- ----------
Total operating expenses.............................. 27,702 2,491 -- 30,193
---------- ---------- ----------- ----------
Loss from operations...................................... (10,934) (2,965) -- (13,899)
Net interest income (expense) and other................... 4,507 (40) 4,467
---------- ---------- ----------- ----------
Loss before income taxes.................................. (6,427) (3,005) -- (9,432)
Provision for income taxes................................ -- 1 1
---------- ---------- ----------- ----------
Net loss.................................................. (6,427) (3,006) -- (9,433)
Accretion of mandatory redeemable convertible preferred
stock................................................... -- (105) (105)
---------- ---------- ----------- ----------
Net loss applicable to common stockholders................ $ (6,427) $ (3,111) $ -- $ (9,538)
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Net loss per share -- basic............................... $ (0.04) $ (1.19) $ (0.06)
---------- ---------- ----------
---------- ---------- ----------
Net loss per share -- diluted............................. $ (0.04) $ (1.19) $ (0.06)
---------- ---------- ----------
---------- ---------- ----------
Shares used in per share calculation -- basic............. 157,300 2,617 159,071
---------- ---------- ----------
---------- ---------- ----------
Shares used in per share calculation -- diluted........... 157,300 2,617 159,071
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
73
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1
The unaudited pro forma condensed combined financial statements of Yahoo!
and GeoCities give retroactive effect to the proposed merger, which is being
accounted for as a pooling of interests and, as a result, the unaudited pro
forma condensed combined balance sheets and statements of operations are
presented as if Yahoo! and GeoCities had been combined for all periods
presented. The accompanying unaudited pro forma combined statements of
operations give effect to the acquisition by Yahoo! and GeoCities of Viaweb and
Starseed on June 10, 1998 and December 4, 1998, respectively, as if such
acquisitions occurred on January 1, 1998. For pro forma purposes, Starseed's
results of operations for the year ended September 30, 1998 were used to
approximate the results of operations for the period January 1, 1998 through
December 4, 1998. The unaudited pro forma condensed combined financial
statements, including the notes thereto, should be read in conjunction with the
historical consolidated financial statements and related notes of Yahoo! and
GeoCities incorporated by reference or included elsewhere in this document.
All share numbers in these unaudited pro forma condensed combined financial
statements for all periods presented have been adjusted to reflect the Yahoo!
2-for-1 stock splits that occurred in February 1999 and August 1998, the Yahoo!
3-for-2 stock split that occurred in September 1997, and the GeoCities 2-for-1
stock split that occurred in July 1998.
NOTE 2
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income (loss)
per share is computed using the weighted average number of common and dilutive
common equivalent shares outstanding during the period. Dilutive common
equivalent shares consist of the incremental common shares issuable upon
conversion of the convertible preferred stock (using the if-converted method)
and shares issuable upon exercise of stock options and warrants (using the
treasury stock method). Common equivalent shares are excluded from the
computations if their effect is anti-dilutive.
NOTE 3
The provision for income taxes does not reflect the benefit of GeoCities'
consolidated net losses due to certain limitations and uncertainty surrounding
realization.
NOTE 4
The following pro forma adjustments have been made to the historical
financial statements of Yahoo! and GeoCities. These adjustments are based upon
preliminary estimates and assumptions made by management for purposes of
preparing the unaudited pro forma condensed combined financial statements:
A. To record the elimination of the effects of transactions between Yahoo! and
GeoCities pursuant to a one-year distribution and commerce agreement.
B. To record the elimination of Yahoo!'s common stock investment in GeoCities
of $22,657,000. This amount includes an unrealized gain of $11,058,000, net
of tax of $6,495,000, which was recorded as a separate component of
shareholders' equity (see Note 1 to Yahoo! consolidated historical financial
statements). The related tax effect has been eliminated as a reduction to
additional paid-in capital as it results in an increase in the valuation
allowance on deferred tax assets generated from the exercise of stock
options.
74
<PAGE>
C. To record the accrual of estimated costs resulting from the proposed merger
of Yahoo! and GeoCities. It is anticipated that Yahoo will incur charges to
operations related to the proposed merger, which are currently estimated to
be $ million, principally in the quarter in which the proposed merger is
consummated. These charges include direct transaction costs that consist
primarily of legal, printing, accounting, financial advisory services and
other merger related expenses. The estimated charge is reflected in the
unaudited pro forma condensed combined balance sheet data, but is not
reflected in the unaudited pro forma condensed combined statement of
operations data. This charge is a preliminary estimate only and is subject
to change.
D. To record the amortization of purchased technology and other intangible
assets to reflect the acquisitions of Viaweb and Starseed as if the
transactions had occurred on January 1, 1998. For information concerning
purchased technology and other intangible assets, see the notes to the
Yahoo! and GeoCities historical consolidated financial statements
incorporated by reference or included elsewhere in this document.
E. To record reclassifications of GeoCities operating expenses to conform with
Yahoo! historical classifications.
F. To reduce accretion on GeoCities mandatory redeemable convertible preferred
stock related to shares held by Yahoo!.
75
<PAGE>
DESCRIPTION OF YAHOO! COMMON STOCK
Yahoo! is authorized to issue up to 900,000,000 shares of common stock, par
value $0.00017 per share. Holders of shares of Yahoo! common stock are entitled
to one vote per share on all matters to be voted on by stockholders. The holders
of Yahoo! common stock are entitled to receive such dividends, if any, as may be
declared from time to time by the Yahoo! board of directors out of funds legally
available therefor. Upon liquidation or dissolution of Yahoo!, the holders of
Yahoo! common stock are entitled to share ratably in the distribution of assets,
subject to the rights of the holders of Yahoo! preferred stock, if any. Holders
of Yahoo! common stock have no preemptive rights, subscription rights or
conversion rights. There are no redemption or sinking fund provisions with
respect to the Yahoo! common stock. As of , 1999, there were approximately
shares of Yahoo! common stock outstanding, held by approximately
holders of record.
In addition, Yahoo! is authorized to issue 10,000,000 shares of preferred
stock, $0.001 par value per share, in one or more series as determined by the
Yahoo! board of directors. No shares of Yahoo! preferred stock are currently
issued or outstanding. The Yahoo! board of directors may, without further action
by the stockholders of Yahoo!, issue a series of Yahoo! preferred stock and fix
the rights and preferences of those shares, including the dividend rights,
dividend rates, conversion rights, exchange rights, voting rights, terms of
redemption, redemption price or prices, liquidation preferences, the number of
shares constituting any series and the designation of such series. The rights of
the holders of Yahoo! common stock will be subject to, and may be adversely
affected by, the rights of the holders of any Yahoo! preferred stock issued by
Yahoo! in the future.
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<PAGE>
COMPARISON OF RIGHTS OF SHAREHOLDERS
OF YAHOO! AND STOCKHOLDERS OF GEOCITIES
The rights of Yahoo!'s shareholders are governed by Yahoo!'s amended and
restated articles of incorporation, its amended and restated bylaws and the laws
of the State of California. The rights of GeoCities' stockholders are governed
by GeoCities' amended and restated certificate of incorporation, its amended and
restated bylaws and the laws of the State of Delaware. After the close of the
merger, GeoCities' stockholders will become Yahoo! shareholders and their rights
will be governed by the Yahoo! articles of incorporation, Yahoo! bylaws and the
laws of the State of California.
While the rights and privileges of stockholders of GeoCities are, in many
instances, comparable to those of shareholders of Yahoo!, there are certain
differences. The following is a summary of the material differences between the
rights of holders of GeoCities common stock and the rights of holders of Yahoo!
common stock as of the date of this proxy statement/prospectus. It is not
practical to summarize all such differences here or to cover all of the respects
in which California law may differ from Delaware law. You are advised to review
Yahoo!'s articles of incorporation and bylaws and GeoCities' certificate of
incorporation and bylaws, which are available as described under "Where You Can
Find More Information" on page .
<TABLE>
<CAPTION>
DELAWARE LAW AND GOVERNING CALIFORNIA LAW AND GOVERNING
DOCUMENTS OF GEOCITIES DOCUMENTS OF YAHOO!
<C> <S> <C>
SIZE OF THE - Under GeoCities' bylaws, the - Under Yahoo!'s bylaws, the
BOARD OF number of directors must be at number of directors must be at
DIRECTORS least five and no more than least four and no more than
ten. seven.
- Currently, GeoCities has six - Currently, Yahoo! has six
directors. directors.
CLASSIFIED - GeoCities has only one class - Yahoo! has two classes of
BOARD OF of directors. directors with terms of two
DIRECTORS - All of GeoCities' directors years each.
are elected annually. - Yahoo!'s articles of
- GeoCities' certificate of incorporation and bylaws
incorporation does not provide provide for a classified
for a classified board of board of directors with
directors. directors elected on a
- Delaware law permits a rotating basis each year.
classified board of directors, This method of electing
with staggered terms under directors makes a change in
which the directors are the composition of the board
elected for terms of two or of directors, and a
three years. potential change in control
of Yahoo!, a potentially
lengthier and more difficult
process.
- California law permits a
classified board of directors
for corporations with
outstanding shares listed on
a national stock exchange,
including Nasdaq.
NOMINATING - GeoCities' bylaws require - Yahoo!'s bylaws also require
DIRECTORS advance notice of director advance notice of director
nominations by stockholders. nominations by shareholders
Such notice must contain all and require the same type of
information regarding each information. However, such
nominee which would be notice must also be
required to be set forth in delivered in writing to
a definitive proxy statement Yahoo!'s principal executive
filed with the Commission office no less than 20 days
pursuant to Section 14 of and no more than 90 days
the Exchange Act. In prior to the date of the
addition, such notice must meeting. If, however, the
be delivered in writing to shareholders are given less
than
</TABLE>
77
<PAGE>
<TABLE>
<C> <S> <C>
GeoCities' principal 30-days' notice of the date
executive office no less of the shareholders'
than 120 days and no more meeting, then advance notice
than 150 days prior to the of a director nomination
first anniversary of the must be received by the
date of the notice of annual close of business on the
meeting provided by 10th day following the day
GeoCities for the previous on which notice of the date
year's annual meeting of of the meeting was mailed or
stockholders. publicly disclosed.
CUMULATIVE - GeoCities' certificate of - Yahoo!'s articles of
VOTING incorporation does not permit incorporation also do not
cumulative voting for the permit cumulative voting for
election of directors. the election of directors.
REMOVING - GeoCities' certificate of - California law provides that
DIRECTORS incorporation states that a any director or the entire
director may be removed from board of directors may be
office only for cause. removed, without cause, with
the approval of a majority
of the outstanding shares
entitled to vote thereon;
provided however, that if a
corporation has a classified
board of directors, no
director may be removed if
the number of shares voted
against the removal would be
sufficient to elect the
director under cumulative
voting.
- In addition, California law
provides that shareholders
holding at least 10% of the
outstanding shares in any
class may sue in superior
county court to remove from
office any director for
fraud, dishonest acts or
gross abuse of authority or
discretion.
- Neither Yahoo!'s articles of
incorporation nor its bylaws
address the removal of
directors.
FILLING - Delaware law provides that, - Under California law,
VACANCIES ON unless otherwise provided in vacancies on the board of
THE BOARD OF the certificate of directors other than ones
DIRECTORS incorporation or bylaws, created by removal of a
vacancies may be filled by a director may be filled by
majority of the directors the board of directors,
then in office, although unless otherwise provided in
they constitute less than a the articles or bylaws. If
quorum, or by a sole the number of directors is
remaining director. Also, less than a quorum, a
if, at the time of filling vacancy may be filled by:
any vacancy, the directors 1.the unanimous written
then in office shall consent of the directors then
constitute less than a in office,
majority of the whole board, 2.the affirmative vote of a
then any stockholder or majority of the directors at a
stockholders who hold at meeting, or
least 10% of the total 3.a sole remaining director.
number of shares outstanding - A vacancy created by removal
at the time and who have the of a director can only be
right to vote for such filled by the shareholders
directors may apply to the unless board approval is
Court of Chancery, which may authorized by a
order an election to be held corporation's articles
to fill any
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such vacancies or newly of incorporation or by a
created directorships, or to bylaw approved by the
replace the directors chosen corporation's shareholders.
by the directors then in - Yahoo!'s bylaws state that
office. vacancies may be filled by a
- GeoCities' bylaws authorize majority of the remaining
its board of directors to fill directors, even if less than
a vacancy created by the a quorum, or by a sole
removal of a director. remaining director; however,
if a vacancy is created when
the shareholders vote to
remove a director or when a
court so orders, then the
vacancy may be filled only
by the affirmative vote of
the holders of a majority of
the shares of outstanding
voting stock.
SPECIAL - GeoCities' bylaws provide - Under both California law
MEETINGS OF that the chairman of the and Yahoo!'s bylaws, a special
STOCKHOLDERS/ board, if any, or a majority meeting of shareholders may
SHAREHOLDERS of the board of directors be called by the board of
may call special meetings of directors, the chairman of
stockholders. the board, the president,
- Under Delaware law, a the holders of shares
special meeting of entitled to cast not less
stockholders may be called then 10% of the votes at
by the board of directors or such meeting, and such other
any other person authorized persons as are authorized to
to do so in the do so in the articles of
corporation's certificate of incorporation or bylaws.
incorporation or bylaws.
AMENDING THE - Delaware law provides that, - California law provides
CHARTER unless otherwise specified in that, unless otherwise
DOCUMENTS a corporation's certificate specified in a corporation's
of incorporation, an articles of incorporation
amendment to the certificate and except for certain
of incorporation requires amendments such as stock
the approval of the board of splits, an amendment to the
directors and the articles of incorporation
affirmative vote of a requires the approval of the
majority of the outstanding board of directors and the
shares entitled to vote. affirmative vote of a
- GeoCities' certificate of majority of the outstanding
incorporation states that shares entitled to vote.
provisions regarding - Yahoo!'s articles of
directors, stockholder incorporation do not require a
meetings, limitations on greater level of approval
liability, indemnification for an amendment to such
and amendments to the articles than required under
certificate of California law.
incorporation, may not be
amended without the
affirmative vote of at least
66.67% of the outstanding
shares entitled to vote
generally in the election of
directors.
AMENDING THE - Under Delaware law, - Under California law and
BYLAWS stockholders hold the power to subject to certain
adopt, amend or repeal the limitations, a corporation's
bylaws of a corporation. bylaws may be adopted,
- Delaware law also allows a amended or repealed either
corporation to, in its by the board of directors or
certificate of the shareholders of the
incorporation, confer such corporation.
power on the board of - Yahoo!'s bylaws may be
directors in addition to the adopted, amended or repealed
stockholders. either by the
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- GeoCities' certificate of vote of the holders of a
incorporation expressly majority of the outstanding
authorizes the board of shares entitled to vote or
directors to adopt, amend or by the board of directors;
repeal GeoCities' bylaws. provided, however, that the
- In addition, GeoCities' board of directors may not
bylaws may not be repealed by amend the bylaws in order to
its stockholders and no change the authorized number
bylaw provision inconsistent of directors.
with a bylaw provision
adopted by the board of
directors may be adopted
without the affirmative vote
of at least 66.67% of the
outstanding shares of stock
entitled to vote generally
in the election of
directors.
STOCKHOLDER - GeoCities' certificate of - Yahoo!'s articles of
CONSENT IN LIEU incorporation does not permit incorporation and bylaws do
OF MEETING its stockholders to act by not permit its shareholders
written consent; stockholder to act by written consent;
actions may only be taken shareholder actions may only
upon the vote of be taken upon the vote of
stockholders at a meeting. shareholders at a meeting.
SPECIAL - Delaware law requires the - California law requires that
TRANSACTIONS affirmative approval of a the principal terms of a
majority of the outstanding merger be approved by the
shares of stock entitled to affirmative vote of a
vote to authorize any merger majority of the outstanding
or consolidation of a shares of stock entitled to
corporation, except that, vote on the merger, except
unless required by its that no shareholder vote is
certificate of required of a corporation
incorporation, no that is to be the surviving
stockholder vote is required corporation in the merger,
of a corporation surviving a as long as the shareholders
merger if: of such corporation own,
1.such corporation's immediately after the
certificate of incorporation merger, more than
is not amended by the five-sixths of the voting
merger; power of the surviving
2.each share of stock of such corporation.
corporation outstanding - California law further
immediately prior to the requires the affirmative vote
effective date of the merger of a majority of the
will be an identical outstanding shares entitled
outstanding or treasury to vote on the merger if:
share of the surviving 1.the surviving corporation's
corporation after the articles of incorporation will
merger; and be amended and would
3.the number of shares to be otherwise require
issued in the merger does not shareholder approval; or
exceed 20% of such 2.shareholders of the
corporation's common stock surviving corporation will
outstanding immediately receive shares of a
prior to the merger. non-California corporation
- GeoCities' certificate of or shares of the surviving
incorporation does not require corporation having different
a greater percentage vote rights, preferences,
for special actions than privileges or restrictions
required under Delaware law. than the shares surrendered.
- Stockholder approval is also - Yahoo!'s articles of
not required under Delaware incorporation do not require a
law for mergers or greater percentage vote than
consolidations in which a required under California
parent corporation merges or law.
consolidates with a - Shareholder approval is not
subsidiary of which required under California law
for mergers or
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it owns at least 90% of the consolidations in which a
outstanding shares of each parent corporation merges or
class of stock. consolidates with a
subsidiary of which it owns
at least 90% of the
outstanding shares of each
class of stock.
STOCKHOLDER - GeoCities' bylaws provide - Yahoo!'s bylaws provide that
PROPOSALS that no proposal by any person shareholders may propose
other than the board of business to be brought
directors may be submitted before a meeting of
for the approval of shareholders only if they
GeoCities' stockholders at deliver notice to the
any regular or special principal executive offices
meeting of stockholders, no less than 20 days and no
unless the person advancing more than 90 days prior to
the proposal is a record the first anniversary of the
stockholder and has preceding year's annual
delivered a written notice meeting of shareholders. If
to the secretary of the date of the annual
GeoCities no less than 120 meeting is more than 30 days
days and no more than 150 prior to or more than 60
days prior to the first days after the anniversary
anniversary of the date on date of the preceding year's
which initial notice of the meeting, notice of the
previous year's annual shareholder's proposal must
meeting of stockholders was be delivered not earlier
given to the stockholders. than the 90th day prior to
such annual meeting and not
later than the close of
business on the later of the
20th day prior to such
annual meeting or the 10th
day following the day on
which notice of the date of
the meeting was publicly
announced.
TRANSACTIONS - Delaware law states that any - California law treats
INVOLVING contract or transaction transactions involving
DIRECTORS between a corporation and directors in the same
any of its directors, or a manner.
second corporation in which
a director has a material
financial interest is not
void or voidable if either
(a) the material facts as to
the transaction and as to
the director's interest are
fully disclosed and a
majority of the
disinterested stockholders
approve or ratify the
transaction, (b) after full
disclosure the transaction
is approved by the board or
a committee and the
transaction is just and
reasonable to the
corporation, or (c) the
person asserting the
validity of the contract or
transaction sustains the
burden of proving that the
contract or transaction was
just and reasonable as to
the corporation at the time
it was authorized, approved
or ratified.
APPRAISAL/ - Under Delaware law, - Under California law, if
DISSENTERS' stockholders who do not vote shareholder approval is
RIGHTS in favor of a merger or required for a merger or
consolidation have certain reorganization, each
appraisal shareholder who
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rights pursuant to which was entitled to vote on the
they can demand payment in transaction, but did not
cash for their shares equal vote in favor of the
to the fair value, excluding reorganization may require
any appreciation or the corporation to purchase
depreciation as a for cash at their fair
consequence or in market value the shares
expectation of the owned by such shareholder.
transaction, of such shares. - Appraisal rights are not
- Appraisal rights are not available for shares listed on
available for shares of any any national securities
class or series listed on a exchange certified by the
national securities exchange Commissioner of Corporations
or designated as a national or listed on the list of OTC
market system security on margin stocks issued by the
The Nasdaq National Market Board of Governors of the
or held of record by more Federal Reserve Systems,
than 2,000 stockholders, unless:
unless the agreement of 1.there exists with respect to
merger or consolidation such shares any restriction on
converts such shares into transfer imposed by the
anything other than: corporation or by any law or
1.stock of the surviving regulation; or
corporation; 2.demands for payment are made
2.stock of another corporation with respect to 5% or more
which is either listed on a of the outstanding shares of
national securities exchange that class.
or designated as a national - Because Yahoo! is listed on
market system security on a national securities
The Nasdaq National Market exchange, Yahoo!
or held of record by more shareholders will not have
than 2,000 stockholders; dissenters' rights, unless
3.cash in lieu of fractional the provisions described in
shares; or the immediately preceding
4.some combination of the paragraph exist at the time
above. of a merger or
- Appraisal rights are not reorganization to which
available for any shares of Yahoo! is a party.
the surviving corporation if
the merger did not require
the vote of the stockholders
of the surviving
corporation.
FIDUCIARY - Under Delaware law, - California law also places
DUTIES OF directors have fiduciary fiduciary obligations on
DIRECTORS obligations to the directors; however, such
corporation and its obligations may differ from
stockholders. Pursuant to Delaware law. The duty of
these fiduciary obligations, loyalty requires directors
directors have a duty of to perform their duties in
care and loyalty to the good faith in a manner that
corporation and its the directors reasonably
stockholders. The duty of believe to be in the bests
care requires that directors interests of the corporation
act in an informed and and its shareholders. The
deliberative manner and duty of care requires that
inform themselves, prior to the directors act with such
making a business decision, care, including reasonable
of all material information inquiry, as an ordinarily
reasonably available to prudent person in a like
them. The duty of loyalty position would exercise
generally means the duty to under similar circumstances.
act in good faith, not out
of self-interest and in a
manner that directors
reasonably believe to be in
the best interests of the
corporation.
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INDEMNIFICATION - Under Delaware law, a - Under California law, a
corporation has the power to corporation has the power to
indemnify present and former indemnify present and former
directors, officers, directors, officers,
employees and agents against employees and agents against
expenses, judgments, fines, expenses, judgments, fines,
settlements and other settlements and other
amounts if that person acted amounts (other than in
in good faith and in a connection with actions by
manner the person reasonably or in the right of the
believed to be not opposed corporation) if that person
to the best interests of the acted in good faith and in a
corporation and, in the case manner the person reasonably
of a criminal proceeding, believed to be in the best
had no reasonable cause to interests of the corporation
believe such conduct was and, in the case of a
unlawful. criminal proceeding, had no
- The indemnification reasonable cause to believe
authorized by Delaware law is such conduct was unlawful.
not exclusive, and a - In addition, California law
corporation may grant its allows a corporation to
directors, officers, indemnify, with certain
employees or other agents exceptions, any person who
certain additional rights to is a party to any action by
indemnification. or in the right of the
- GeoCities' certificate of corporation, against
incorporation provides that expenses actually and
GeoCities may indemnify any reasonably incurred by that
person who, because such person in connection with
person was a director, the defense or settlement of
officer, employee or agent the action if the person
of GeoCities, is a party or acted in good faith and in a
threatened to be made a manner the person believed
party to any litigation or to be in the best interests
proceeding. GeoCities may of the corporation and its
indemnify any person who shareholders.
served, or agreed to serve, - The indemnification
at the request of GeoCities authorized by California law
as a director, officer or is not exclusive, and a
trustee of another entity. corporation may grant its
- Indemnification may include directors, officers,
payment by GeoCities of employees or other agents
expenses, including certain additional rights to
attorneys' fees, incurred in indemnification.
defending an action or - California law also allows a
proceeding prior to the corporation to advance
final disposition of the payment of an indemnitee's
matter, so long as the expenses prior to the final
person being indemnified disposition of an action,
agrees to repay GeoCities if provided that the indemnitee
that person is determined undertakes to repay any such
not to be entitled to amount advanced if it is
indemnification under later determined that the
GeoCities' certificate of indemnitee is not entitled
incorporation. to indemnification with
- GeoCities will not indemnify regard to the action for
any person who seeks which the expenses were
indemnification in advanced.
connection with a lawsuit or - Yahoo!'s articles of
proceeding that was incorporation and bylaws
initiated by such person, provide for the
unless the board of indemnification of its
directors authorized the directors, officers,
bringing of the lawsuit or employees and agents in
proceeding. excess of what is permitted
by California law.
- Under California law,
however, Yahoo! may still not
indemnify any person for
certain wrongs, such as
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acts, omissions or
transactions that involve:
1.intentional misconduct;
2.a knowing and culpable
violation of law; or
3.an improper personal benefit
to that person.
DIRECTOR - Delaware law provides that a - California law provides that
LIABILITY corporation's charter a corporation's charter
documents may include documents may include
provisions which limit or provisions which limit or
eliminate the liability of eliminate the liability of
directors to the corporation directors to the corporation
or its stockholders for or its shareholders for
monetary damages for breach monetary damages for breach
of fiduciary duty as a of fiduciary duty as a
director, as long as such director. However,
liability does not arise California law specifically
from certain prohibited provides different forms of
conduct, such as breach of prescribed conduct than
the director's duty of Delaware law. These forms
loyalty to the corporation, include:
acts or omissions not in - intentional misconduct or
good faith or which involve knowing and culpable
intentional misconduct or a violation of law;
knowing violation of law, - acts or omissions that a
the payment of unlawful director believes to be
dividends or expenditure of contrary to the best
funds for unlawful stock interests of the corporation
purchases or redemptions or or its shareholders or that
transactions from which such involve the absence of good
director derived an improper faith on the part of the
personal benefit. director;
- Under GeoCities' certificate - the receipt of an improper
of incorporation, no director personal benefit;
shall be personally liable - acts or omissions that show
to GeoCities as a director reckless disregard for the
so long as the director's director's duty to the
liability does not arise corporation or its
from certain prohibited shareholders;
conduct enumerated under - where the director in the
Delaware law. ordinary course of performing
a director's duties should
be aware of a risk of
serious injury to the
corporation or its
shareholders;
- acts or omissions that
constitute an unexcused
pattern of inattention that
amounts to an abdication of
the director's duty to the
corporation and its
shareholders;
- interested transactions
between the corporation and a
director in which a director
has a material financial
interest; and
- liability for improper
distributions, loans or
guarantees.
- Under Yahoo!'s articles of
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incorporation, the liability
of directors of Yahoo! for
damages is eliminated to the
fullest extent permissible
under California law.
ANTI-TAKEOVER - GeoCities' bylaws provide
PROVISIONS AND that a special meeting of the
INTERESTED stockholders may be called
STOCKHOLDER by the chairman of the board
TRANSACTIONS or a majority of the board
of directors and shall be
called by the secretary or,
in certain circumstances,
the assistant secretary or
some other officer.
- Delaware law prohibits, in - Yahoo!'s bylaws provide
certain circumstances, a that, in addition to the board
"business combination" of directors, the chairman
between the corporation and of the board and the
an "interested stockholder" president, one or more
within three years of the shareholders holding not
stockholder becoming an less than 10% of the voting
"interested stockholder." An power of the corporation may
"interested stockholder" is call a special meeting of
a holder who, directly or the shareholders.
indirectly, controls 15% or - California law does not
more of the outstanding contain a comparable provision
voting stock or is an regarding business
affiliate of the corporation combinations with interested
and was the owner of 15% or shareholders. However,
more of the outstanding California law does provide
voting stock at any time that, subject to certain
within the prior year exceptions, if the surviving
period. A "business corporation or its parent
combination" includes a corporation owns, directly
merger or consolidation, a or indirectly, shares of the
sale or other disposition of target corporation
assets having an aggregate representing more than 50%
market value equal to 10% or of the voting power of the
more of the consolidated target corporation prior to
assets of the corporation or the merger, the
the aggregate market value nonredeemable common stock
of the outstanding stock of of a target corporation may
the corporation and certain be converted only into
transactions that would nonredeemable common stock
increase the interested of the surviving corporation
stockholder's proportionate or its parent corporation,
share ownership in the unless all of the
corporation. This provision shareholders of the class
does not apply where: consent.
- either the business
combination or the transaction
which resulted in the
stockholder becoming an
interested stockholder is
approved by the
corporation's board of
directors prior to the date
the interested stockholder
acquired such 15% interest;
- upon the consummation of the
transaction which resulted
in the stockholder becoming
an interested stockholder,
the interested stockholder
owned at least 85% of
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the outstanding voting stock
of the corporation excluding
for the purposes of
determining the number of
shares outstanding shares
held by persons who are
directors and also officers
and by employee stock plans
in which participants do not
have the right to determine
confidentiality whether
shares held subject to the
plan will be tendered;
- the business combination is
approved by a majority of
the board of directors and
the affirmative vote of
two-thirds of the
outstanding votes entitled
to be cast by disinterested
stockholders at an annual or
special meeting;
- the corporation does not
have a class of voting stock
that is listed on a national
securities exchange,
authorized for quotation on
an inter-dealer quotation
system of a registered
national securities
association, or held of
record by more than 2,000
stockholders unless any of
the foregoing results from
action taken, directly or
indirectly, by an interested
stockholder or from a
transaction in which a
person becomes an interested
stockholder;
- the stockholder acquires a
15% interest inadvertently and
divests itself of such
ownership and would not have
been a 15% stockholder in
the preceding three years
but for the inadvertent
acquisition of ownership;
- the stockholder acquired the
15% interest when these
restrictions did not apply;
or
- the corporation has opted
out of this provision.
GeoCities has not opted out
of this provision.
ADVANCE NOTICE - Delaware law requires that - California law requires that
OF RECORD DATE stockholders be provided shareholders be provided
prior written notice no more prior written notice no more
than 60 days nor less than than 60 days nor less than
10 days of the record date 10 days of the record date
for determining the right to for determining the
vote at any meeting of shareholders entitled to
stockholders. Delaware law notice of any meeting or to
further states that vote or entitled to receive
stockholders be provided payment of any dividend or
prior written notice no more other distribution or
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than 60 days prior to the allotment of any rights or
record date to determine the entitled to exercise any
stockholders entitled to rights in respect of any
receive payment of any other lawful action.
dividend or other
distribution or allotment of
any rights or the
stockholders entitled to
exercise any rights in
respect of any change,
conversion or exchange of
stock, or for the purpose of
any other lawful action.
INSPECTION OF - Delaware law allows any - California law also provides
BOOKS AND stockholder to inspect the shareholders with similar
RECORDS accounting books and records inspection rights.
and minutes of proceedings Additionally, California law
of the stockholders and the provides an absolute right
board and to inspect the to inspect and copy the
stockholders' list at any corporation's shareholder
reasonable time during usual list by a shareholder or
business hours, for a shareholders holding at
purpose reasonably related least 5% in the aggregate of
to such holder's interests the corporation's
as a stockholder. outstanding voting shares,
or any shareholder or
shareholders holding 1% or
more of such shares who have
filed a Schedule 14A with
the Commission.
DERIVATIVE - Derivative actions may be - California law provides that
ACTIONS brought in Delaware by a a shareholder bringing a
stockholder on behalf of, derivative action on behalf
and for the benefit of, the of the corporation need not
corporation. have been a shareholder at
- Delaware law provides that a the time of the transaction
stockholder must state in in question, provided that
the complaint that he or she certain tests are met
was a stockholder of the concerning the fairness of
corporation at the time of allowing the action to go
the transaction of which he forward.
or she complains. - The shareholder must make a
- Delaware law requires a demand that the board take
stockholder to first make a action before the
demand on the corporation shareholder files suit.
that it bring suit and have - California law also provides
such demand refused, before that the corporation or the
filing a derivative action, defendant in a derivative
unless it is shown that such suit may make a motion to
demand would have been the court for an order
futile. requiring the plaintiff
shareholder to furnish a
security bond.
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The foregoing discussion of certain similarities and material differences
between the rights of Yahoo! shareholders and the rights of GeoCities'
stockholders under their respective articles/certificate of incorporation and
bylaws is only a summary of certain provisions and does not purport to be a
complete description of such similarities and differences, and is qualified in
its entirety by reference to California law, Delaware law, the common law
thereunder and the full text of the articles/certificate of incorporation and
bylaws of each of Yahoo! and GeoCities.
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INFORMATION REGARDING YAHOO!
The following is a brief description of the business of Yahoo!. Additional
information regarding Yahoo! is contained in its filings with the Commission.
See "Where You Can Find More Information."
Yahoo! is a global Internet media company that offers a branded network of
comprehensive information, communication and shopping services to millions of
users daily. As the first online navigational guide to the web, www.yahoo.com is
a leading guide in terms of traffic, advertising, household and business user
reach, and is one of the most recognized brands associated with the Internet.
Under the Yahoo! brand, Yahoo! provides broadcast media, personal communications
and direct services. In December 1998, Internet users viewed an average of 167
million web pages per day in Yahoo!-branded properties.
Yahoo! makes its properties available without charge to users and generates
revenue primarily through the sale of advertising. Advertising on Yahoo!
properties is sold through an internal advertising sales force. During the
fourth quarter of 1998, approximately 2,225 advertisers purchased advertising on
Yahoo! properties.
Yahoo!'s principal executive offices are located at 3420 Central Expressway,
Santa Clara, California 95051, and its telephone number is (408) 731-3300.
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INFORMATION REGARDING GEOCITIES
BUSINESS OF GEOCITIES
OVERVIEW
GeoCities offers the world's largest and one of the fastest growing
communities of personal web sites on the Internet. GeoCities pioneered the first
large-scale, web-based community for Internet users to express themselves, share
ideas, interests and expertise, and publish content accessible to other users
with common interests. The mainstay of GeoCities' community is its
"homesteaders," Internet users who create their own personal web sites or
"homesteads" in themed "neighborhoods" on the GeoCities web site. These
neighborhoods provide:
- - a context for web users to publish content, to share experiences and ideas
with other users and to access a centralized and easy-to-navigate destination
for user-published content; and
- - a compelling and attractive environment for advertisers, sponsors and
e-commerce merchants.
THE GEOCITIES SOLUTION
GeoCities pioneered the first large-scale, web-based community for Internet
users to express themselves, share ideas, interests and expertise and publish
content accessible to other users with common interests. GeoCities was founded
on the belief that affinity to the web occurs when users relate personally to
their online experience, and the more active users are in the creation of that
experience, the more personal the experience becomes. To attract members to its
community, GeoCities established a service enabling Internet users to create
their own web sites in themed "neighborhoods" within GeoCities' web site.
Since its inception, GeoCities has become the world's largest and fastest
growing communities of personal web sites on the Internet. With thousands of
homesteaders joining each day, the GeoCities community has grown from
approximately 10,000 homesteads in October 1995 to over 3.2 million in December
1998. Homesteaders have created an estimated 32 million pages of personalized
content, attracting over approximately 19 million unique visitors to, and
generating over 1.6 billion page views on, the GeoCities community, according to
Media Metrix and Nielson I/Pro in December 1998 reports prepared for GeoCities.
GeoCities was the third most trafficked web site on the Internet in December
1998, according to Media Metrix and, based on this information, GeoCities
believes it was the most popular community of personal web sites on the Internet
in 1998.
GeoCities believes that its success to date is attributable to its focus on
four distinct constituents: (a) homesteaders, (b) web visitors, (c) advertisers
and sponsors, and (d) e-commerce partners and merchants. This focus is
highlighted by the following distinguishing characteristics of the GeoCities
community:
LARGE WEB-BASED COMMUNITY WITH BROAD RANGE OF
NEIGHBORHOODS
Homesteaders are able to join one of 41 themed GeoCities neighborhoods,
which are organized topically, based on themes associated with well-known
places. By providing this broad range of neighborhoods for homesteaders,
GeoCities fosters a virtual "greenhouse" for a wide range of individual
self-expression and interaction. Web users interested in finance and investing,
for example, homestead in and create content for WallStreet, and those
interested in politics homestead in and support CapitolHill. Moreover, as the
Internet's largest community of personal web sites, GeoCities offers on average
over 80,000 homesteads within each of its neighborhoods, providing homesteaders
with the critical mass and platform to interact with and be recognized by
others.
ACTIVE OWNERSHIP AND COMMUNITY PARTICIPATION
GeoCities encourages active participation in its community and offers a
number of programs
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to increase levels of participation. When homesteaders first apply to join a
GeoCities neighborhood, they agree to abide by the GeoCities community
guidelines. Homesteaders also agree to begin creation of their web sites within
three weeks of joining a GeoCities neighborhood or relinquish their homesteads.
Additionally, GeoCities welcomes suggestions from its homesteaders and
implements those ideas that it believes will improve the community. As a result,
GeoCities' homesteaders develop a keen sense of personal involvement in and
ownership of the GeoCities community, and actively encourage others to join and
participate.
Homesteaders seeking greater involvement in their neighborhoods are given
the opportunity to join the active ranks of 41 community liaisons and over 1,800
community leaders. The community liaison and community leaders within each
neighborhood welcome new homesteaders, provide assistance to other homesteaders,
and actively provide GeoCities with suggestions for improvements and monitor
sites. GeoCities believes that the greater the involvement of GeoCities'
homesteaders, the greater the loyalty and affinity of those homesteaders to the
GeoCities site, and the more successful the GeoCities community.
FOCUS ON CONTINUALLY IMPROVING THE MEMBER EXPERIENCE
GeoCities continually strives to improve the online experience of its
members. Homesteaders are provided free of charge with disk space for personal
web sites, web-page publishing and communication tools to create their own fully
customized, multimedia-rich content and e-mail, chat and bulletin board
services. Members are offered a variety of opportunities to participate in
commercial activities, including GeoCities' affiliates program with major
merchants. GeoCities also offers premium memberships for homesteaders who want
more utilities, disk space and a personal URL (Uniform Resource Locator that
determines the particular location of a web page on the Internet). GeoCities
holds a monthly conference call with its community liaisons in order to
proactively determine what improvements and suggestions are important to the
community. By supplementing this call with a weekly newsletter for community
leaders, GeoCities maintains close interaction with its community on issues and
suggestions of a broader group of homesteaders. In addition, GeoCities offers a
comprehensive online help function and encourages volunteerism among its
community leaders and liaisons and other homesteaders in helping their GeoCities
neighbors.
INTUITIVE MEANS OF FINDING PERSONALIZED CONTENT
While Internet users can generally find web content aggregated by subject
area, aggregated user-created content is much more challenging to find.
GeoCities' topical categorization of user-created content provides visitors with
a central online site for quickly accessing a critical mass of an estimated 32
million pages of personalized content. Given their strong affinity for their
homesteads and the GeoCities community, homesteaders actively promote their web
sites throughout the Internet with hyperlinks located on other individual sites
as well as through listings on Internet directories and search engines, thereby
resulting in millions of visitors from the Internet at large.
UNIQUE PERSONALIZED COMMUNITY ENVIRONMENT FOR ADVERTISING AND COMMERCE
Online communities of members with common interests and demographics
constitute attractive opportunities for advertisers and e-commerce merchants
seeking to promote and sell their products and services online. The combination
of GeoCities' unique community context, intuitive topical organization, high
volumes of traffic and homesteaders' desire for commerce opportunities and
acceptance of the role of advertising in the community provides an attractive
platform for targeted and cost-effective web advertising and web commerce.
THE GEOCITIES STRATEGY
GeoCities' objective is to be the world's leading member-created online
community for
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people on the web. GeoCities' strategies to achieve this objective include:
FOCUS ON HOMESTEADER GROWTH AND AFFINITY
GeoCities intends to continue to increase the number of its homesteaders and
concentrate on member affinity to maintain its position as a leading community
of personal web sites. GeoCities intends to continue to grow its membership base
by:
- - introducing additional classes of membership that appeal to a broader range
of Internet users;
- - offering easier-to-use web-page publishing tools;
- - allowing homesteaders to easily create and enhance personal web sites,
including the integration of e-commerce opportunities and GeoCities'
affiliates program;
- - promoting GeoCities as a destination point on the web by augmenting its
existing distribution alliances; and
- - launching brand-name promotional campaigns to drive both growth in membership
and traffic to its members' personal web sites.
In addition, GeoCities intends to introduce more value-added member services
and strengthen and expand the number of affinity programs and affiliate
management tools that it offers, including GeoCities' GeoRewards affinity
program. Similar to airline frequent-flyer bonus point programs, the GeoRewards
affinity program is designed to reward homesteaders with points based on their
level of participation, which they can later redeem for discounts on purchases
within the GeoCities community. GeoCities believes that its focus on the needs
of its homesteaders and enhancing their experience within the GeoCities
community will produce continued growth in, and foster loyalty among, its
membership base. GeoCities believes that a large and growing base of committed
homesteaders organized on a contextual basis provides advertisers and e-commerce
merchants with an attractive market to target promotion and sales of their
products and services, thereby creating advertising and commerce revenue
opportunities for GeoCities.
CONTINUE TO ENHANCE SITE FUNCTIONALITY AND PERFORMANCE
GeoCities believes continually providing homesteaders and visitors with
greater functionality and performance is critical to its continued leadership.
GeoCities continually improves its user interface to facilitate the presentation
of member-generated content in an intuitive topical format. In 1998, GeoCities
integrated third-party news and editorial content into its site, allowing
side-by-side interaction of personal and professionally published content. In
January 1999, GeoCities entered into an agreement with Be Free, Inc. to provide
affiliate management tools and services to homesteaders who participate in
GeoCities' affiliates program. GeoCities will also continue to provide its
members with web-page publishing and communication tools to enhance the
community experience. GeoCities believes that continually-enhancing site
functionality and performance foster homesteader and visitor growth and affinity
to the GeoCities community, thereby providing GeoCities with a platform to
attract more advertisers and revenue sharing relationships and to expand
GeoCities' fee-generating premium membership services.
ESTABLISH NEW STRATEGIC ALLIANCES
GeoCities has formed a number of strategic relationships intended to
increase traffic and memberships of both partners. GeoCities has also formed
four premier commerce relationships with Amazon.com for books, CDnow for compact
discs, First USA for credit cards and Surplus Direct/Egghead for software and
computer hardware, making the products and services of these leading Internet
vendors available throughout the GeoCities community. These relationships
provide an opportunity for GeoCities to receive monthly payments and share in
any ongoing revenue streams from sales of products and services by these
partners. GeoCities intends to seek additional strategic relationships with
commerce and distribution partners in the future.
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EXPAND GLOBALLY
GeoCities believes that the anticipated growth of Internet usage
internationally presents significant opportunities to extend GeoCities globally.
GeoCities is focused on establishing the GeoCities community and brand in Japan,
a market which, according to Jupiter Communications, is second only to the
United States in terms of Internet use. Accordingly, GeoCities has entered into
a joint venture with SOFTBANK to form GeoCities Japan, which is 40% owned by
GeoCities. GeoCities intends to pursue additional opportunities for
international expansion. GeoCities believes that the introduction of localized
GeoCities web communities in international markets will present many of the same
opportunities for advertising and commerce revenue as those in the United
States.
BUILD MULTIPLE REVENUE STREAMS
GeoCities' large and growing web community offers a scaleable business
platform from which it plans to generate revenue from multiple sources,
including advertising, commerce and premium membership service fees. GeoCities
intends to achieve its revenue objectives by:
- - increasing its advertising revenues through expansion of its customer base,
increasing the rates GeoCities charges advertisers by continuing to improve
its ability to contextually target advertisements, increasing its page views,
increasing the average size and length of its advertising contracts,
increasing the number of its direct sales representatives and continuing to
invest in improving ad serving and ad targeting technology;
- - expanding its revenue-sharing commerce relationships and GeoCities'
relationships with third-party content providers that pay GeoCities for
access to the GeoCities web site;
- - offering its GeoShops program, which is designed to provide an effective
means for small and home business owners to leverage the reach of the
Internet through a commercial presence within the GeoCities community;
- - expanding the number and scope of its fee-based premium membership services;
and
- - developing a program that will allow merchants to sell their products through
homesteaders who select the products and earn commissions from sales that
occur via such homesteaders' web sites.
HOMESTEADING ON GEOCITIES
GeoCities distinguishes itself from other web sites by offering homesteaders
a diverse range of neighborhoods and a critical mass of neighbors with whom to
interact. GeoCities also promotes active homesteader participation through its
member-focused editorial philosophy -- millions of personal web pages created
and maintained by the community members themselves -- providing Internet users
with a platform for contributing their talents and ideas, meeting and
interacting with others with similar interests and creating their own "home on
the web". Supporting the editorial efforts of its homesteaders are approximately
74 GeoCities employees dedicated exclusively to community organization, content
management and community interaction. GeoCities provides disk space, powerful
web-page publishing tools, customer support, high-speed, high-quality site
performance and e-mail, chat and bulletin-board services, all free of charge.
GeoCities emphasizes a sense of responsibility among community members by
leveraging the characteristics of the web that users find most attractive --
connection, expression, communication, entertainment and utility. GeoCities'
homesteaders abide by the community values -- respect for the individual, open
and honest communication, encouragement of ethical behavior and respect for
diverse points of view -- reflected in GeoCities' content guidelines and rules
of conduct. GeoCities appeals to people's interest in others by inviting users
to move in, meet their neighbors, share ideas, communicate, shop, check e-mail
and join its growing community.
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HOW HOMESTEADERS JOIN
GeoCities' 41 themed neighborhoods -- virtual communities of people with
common interests -- are based on familiar themes and provide web users with a
place to connect on the Internet. Homesteading is analogous to moving to a new
community, picking a neighborhood to live in and designing and building a new
home to reflect one's own style and tastes. Each homesteader is able to join the
neighborhood that most closely matches his or her interests. For example,
homesteaders interested in music join and contribute to SunsetStrip and those
interested in wine support NapaValley. Homesteading in the GeoCities community
is designed to be easy and fun. After choosing a neighborhood, homesteaders find
a vacant address, fill out an application, move-in and commence developing their
personal web site. Homesteaders agree to abide by the community guidelines and
begin construction of their home within three weeks of moving into a
neighborhood. The homesteading experience makes a user's online experience
expressive, interactive and personal.
PARTICIPATING IN THE GEOCITIES COMMUNITY
After joining a neighborhood, homesteaders are encouraged to become active
in the community. Members can interact with their neighbors, support community
building initiatives, participate in chat sessions with their neighbors and
collaborate on editorial content. GeoCities believes that the more homesteaders
participate, the more attachment they feel to the community and the higher the
quality of their content. Homesteaders seeking greater involvement apply to
become community leaders and community liaisons. GeoCities currently has over
1,800 community leaders, who are elected by homesteaders, and 41 community
liaisons, who represent a neighborhood and are elected by community leaders. The
community leaders and community liaisons are highly valued community builders
who greet and assist new homesteaders, mentor other homesteaders, coordinate
neighborhood activities, interface with GeoCities' in-house editorial staff and
work to foster core community values. GeoCities intends to introduce additional
community leadership positions in the future to increase levels of community
participation. GeoCities also encourages greater homesteader involvement through
its GeoRewards affinity program. Homesteaders accrue bonus points based on their
level of participation which they can later redeem for discounts on purchases
within the GeoCities community.
HOW TO SURF THE GEOCITIES COMMUNITY
GeoCities believes that it provides users surfing the web with a
comprehensive, high-quality concentration of personal web sites on the Internet.
GeoCities strives to improve its site for such users by continually upgrading
the look and feel of its web site to provide easier navigation of and to direct
greater levels of traffic to homesteaders' web sites. GeoCities' user interface
presents the GeoCities web site to visitors in a topical format to facilitate
the aggregation of categories of interests. This format allows easier and more
intuitive access to content on the GeoCities web site and enhances the
integration of homesteaders' content with GeoCities' e-mail, chat,
bulletin-board services and selected third-party content such as news and
editorial feeds from Reuters, Women.com and ZDNet.
ADVERTISING, COMMERCE AND PREMIUM SERVICES
ADVERTISING
GeoCities has built a direct sales organization located in New York, San
Francisco and Los Angeles, which is dedicated to maintaining close relationships
with top advertisers and leading advertising agencies nationwide. GeoCities'
direct sales organization is organized regionally and is focused solely on
selling advertising on the GeoCities web site. GeoCities' sales organization
consults regularly with advertisers and agencies on design and placement of
their web-based advertising, provides customers with advertising measurement
analysis and focuses on providing a high level of customer service and
satisfaction.
Currently, advertisers and advertising agencies enter into short-term
agreements, on average two to three months, pursuant to which
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they receive a guaranteed number of impressions for a fixed fee. Advertising in
GeoCities currently consists primarily of banner-style advertisements that are
prominently displayed at the top of pages on a rotating basis throughout the
GeoCities community, including members' personal web sites. From each banner
advertisement, viewers can hyperlink directly to the advertiser's own web site,
thus providing the advertiser an opportunity to directly interact with an
interested customer. GeoCities' standard cost per thousand impressions ("CPM")
for banner advertisements currently ranges from $25 to $50, depending upon
location of the advertisement and the extent to which it is targeted for a
particular audience. Discounts from standard CPM rates may be provided for
higher volume, longer-term advertising contracts.
GeoCities intends to increase its advertising revenues by focusing on a
number of key strategies, including expanding its advertising customer base,
increasing the CPM it charges advertisers by continuing to improve its ability
to contextually target advertisements, increasing page views, increasing the
average size and length of its advertising contracts, increasing the number of
its direct sales representatives and continuing to invest in improving ad
serving and ad targeting technology.
GeoCities also offers special sponsorship and promotional advertising
programs, such as contests, sampling and couponing opportunities to build brand
awareness, generate leads and drive traffic to an advertiser's site. GeoCities
also sells sponsorships of special interest pages where topically focused
content is aggregated on a permanent area within a neighborhood. GeoCities has
also recently entered into relationships with third-party Internet content
providers, many of whom pay GeoCities for integrating their content within the
GeoCities community. GeoCities will also seek to expand its third-party
content-provider relationships.
GeoCities has derived a substantial majority of its revenues to date from
the sale of advertisements. For the years ended December 31, 1997 and 1998
advertising revenues represented 90.6% and 89.6%, respectively, of GeoCities'
net revenues.
During 1997 and 1998, GeoCities' four largest customers accounted for
approximately 29% and 23%, respectively, of GeoCities' net revenues. No customer
accounted for more than 10% of GeoCities' net revenues during 1998. One customer
accounted for 12% of GeoCities' net revenues during 1997.
COMMERCE PARTNERS
GeoCities believes web commerce fits naturally into GeoCities' community
model. Through web commerce, GeoCities partners with merchants and service
providers to integrate their products and services into the GeoCities community,
making them available for sale to GeoCities' homesteaders and visitors. In its
premier commerce arrangements, GeoCities generally receives a fixed monthly fee
and a share of the proceeds from any online sales. In addition, certain of
GeoCities' premier commerce partners pay GeoCities fees for homesteader
participation in vendor-sponsored sales programs after a minimum level of
participation has been achieved. To date, GeoCities has entered into four
premier alliances with commerce partners that are given access to GeoCities'
community platform and are provided with premier banner and other space in
permanent locations on select community web pages. These premier commerce
arrangements typically have one-year terms and, subject to the payment of
certain fees, are renewable at the option of GeoCities' commerce partners.
GeoCities has established premier commerce relationships with the following
entities:
- - Amazon.com -- providing GeoCities' homesteaders and visitors with the
opportunity to purchase books throughout GeoCities' web site;
- - CDnow -- providing GeoCities' homesteaders and visitors with the opportunity
to purchase compact discs and other music-related items;
- - Surplus Direct/Egghead -- providing GeoCities' members and visitors with the
opportunity to purchase software and computer hardware; and
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- - First USA -- providing GeoCities' members and visitors with an opportunity to
apply for a First USA credit card.
GEOSHOPS
In March 1998, GeoCities introduced GeoShops, its member-focused web
commerce solution designed to provide a range of services which commerce-enable
homesteaders' personal web sites. Homesteaders are able to choose between two
GeoShops options: (1) for a $24.95 monthly fee, GeoShops allows GeoCities
members to sell products and services from their personal web sites within the
GeoCities community and (2) for a set-up fee of $195, a $0.55 per transaction
fee and an additional monthly fee of $99.95, GeoCities provides homesteaders
with a transaction authentication and processing solution for their web-based
businesses. With its GeoShops program, GeoCities enables home-based businesses
to leverage a fast, effective, easy-to-use program for commerce, and GeoCities
intends to actively promote this service in the future.
GEOPLUS
In addition to its free services, GeoCities offers a fee-based premium
service for its homesteaders. For a fee of $4.95 per month, GeoCities' GeoPlus
service provides enhanced web-page publishing tools for creating more robust
content, a personalized URL and up to 25 megabytes of disk space for
homesteaders' personal web sites. GeoCities intends to introduce additional
features and premium service levels to appeal to a broader range of
homesteaders. GeoCities does not generate revenues from general Internet access
or subscription fees.
WEB RINGS
In December 1998, GeoCities acquired Starseed, Inc., and has since operated
Starseed's business through a wholly-owned subsidiary named WebRing, Inc. Web
rings permit people with personal web sites to create topically specific groups.
New members join a web ring by placing navigation bars on their pages that allow
visitors to click from site to site within the ring. Ringmasters oversee the
recruiting of new web ring members and maintain the ring's coherence. GeoCities
is currently undertaking certain improvements to the WebRing technology to
enhance its engineering capabilities and scalability.
DISTRIBUTION AGREEMENT WITH YAHOO!
In December 1997, GeoCities entered into a one-year distribution
relationship with Yahoo! which was renewed for a subsequent one-year term,
subject to the right of either party to terminate the relationship at the end of
any one-year term upon 90-days' notice. In connection with the distribution
agreement, Yahoo! also made a minority equity investment in GeoCities. As of
December 31, 1998, Yahoo! held 2.1% of GeoCities' outstanding capital stock.
This agreement was designed to increase traffic and memberships of both parties
in addition to offering GeoCities' homesteaders an array of free personalized
member services on Yahoo!. Under the terms of the agreement, GeoCities agreed to
provide its community-based, web services for free to registered users of
Yahoo!. In addition, Yahoo! agreed to market GeoCities' branded personal
publishing programs on select areas throughout Yahoo!, as well as provide a
GeoCities-specific programming module on My Yahoo! for GeoCities' homesteaders.
There are no minimum marketing or advertising requirements for either GeoCities
or Yahoo! under the agreement.
INFRASTRUCTURE AND OPERATIONS
GeoCities has developed an open standard hardware and software system that
is designed to be reliable and responsive. GeoCities' third-generation
architecture is a scaleable system which includes over nine terabytes of raw
disk space and supports over 290 million hits per day, has a peak bandwidth of
over 550 megabits per second and transfers 3.0 terabytes of data each day.
GeoCities provides its homesteaders and visitors with a robust content platform
containing an estimated 32 million pages of user-created content that generated
over 1.6 billion page views in December 1998, according to Nielson I/PRO.
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GeoCities provides an efficient, responsive user experience through network
servers housed in Santa Clara, California, third-party and public domain server
software optimized internally by GeoCities and internally developed tools and
utilities. Requests for files to GeoCities are distributed to the appropriate
servers using Resonate Dispatch load distribution and balancing software.
Member-generated content is stored on a redundant array of independent disks, is
backed up to long-term tape storage devices on a daily basis and copied on a
weekly basis to be stored offsite. User profile information is stored on
multiple disk arrays using Informix Dynamic Server database software and backed
up to long-term tape storage devices on a semi-hourly basis. GeoCities will
continue to upgrade and expand its server and networking infrastructure in an
effort to enhance its functionality and scalability.
Site connectivity to the Internet is provided via multiple DS-3 and OC-3
links on a 24 hour-a-day, seven days per week basis by Exodus. Exodus also
provides and manages power and environmentals for GeoCities' networking and
server equipment. GeoCities manages and monitors its servers and network
remotely from its headquarters in Marina del Rey, California. GeoCities strives
to rapidly develop and deploy high-quality tools and features into its system
without interruption or degradation in service. Any disruption in the Internet
access provided by Exodus, or any interruption in the service that Exodus
receives from other providers, or any failure of Exodus to handle higher volumes
of Internet users to the GeoCities' site could have a material adverse effect on
GeoCities' business, operating results, and financial condition.
COMPETITION
The market for members, visitors and Internet advertising and e-commerce
opportunities is new and rapidly evolving, and competition for members, visitors
and advertisers is intense and is expected to increase significantly in the
future. Barriers to entry are relatively insubstantial. GeoCities believes that
the principal competitive factors for companies seeking to create community on
the Internet are critical mass, functionality, brand recognition, member
affinity and loyalty, broad demographic focus and open access to visitors. Other
companies that are primarily focused on creating web-based community on the
Internet are America Online, Inc., Excite, Inc., Disney, Tripod, Inc., Angelfire
Communications, Xoom, Inc. and theglobe.com.
GeoCities will likely also face competition in the future from web
directories, search engines, shareware archives, content sites, commercial
online services, sites maintained by Internet service providers and other
entities that attempt to or establish communities on the Internet by developing
their own or purchasing one of GeoCities' competitors. In addition, GeoCities
may face competition in the future from traditional media companies, a number of
which, including Disney, CBS and NBC, have recently made significant
acquisitions of or investments in Internet companies. Further, there can be no
assurance that GeoCities' competitors and potential competitors will not develop
communities that are equal or superior to those of GeoCities or that achieve
greater market acceptance than GeoCities' community.
GeoCities also competes for visitors with many Internet content providers
and Internet service providers, including web directories, search engines,
shareware archives, content sites, commercial online services and sites
maintained by Internet service providers, as well as thousands of Internet sites
operated by individuals and government and educational institutions. These
competitors include free information, search and content sites or services, such
as America Online, Inc., CNET, Inc., CNN/ Time Warner, Inc., Excite, Inc.,
Infoseek Corporation, Lycos, Inc., Netscape Communications Corporation,
Microsoft Corporation and Yahoo!, some of which, such as Yahoo! and Disney,
owner of a significant interest in Infoseek, also have relationships with
GeoCities. GeoCities also competes with the foregoing companies, as well as
traditional forms of media such as newspapers, magazines, radio and television,
for advertisers and advertising revenue. GeoCities believes that the principal
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competitive factors in attracting advertisers include the amount of traffic on
its web site, brand recognition, customer service, the demographics of
GeoCities' members and viewers, GeoCities' ability to offer targeted audiences
and the overall cost-effectiveness of the advertising medium offered by
GeoCities. GeoCities believes that the number of Internet companies relying on
web-based advertising revenue will increase greatly in the future. In the past
several months, a number of significant acquisitions of Internet companies have
been announced, including:
- - Disney's acquisition of a significant interest in Infoseek;
- - AOL's acquisition of Netscape;
- - @Home Networks, Inc.'s acquisition of Excite, Inc.; and
- - USA Networks' and Ticketmaster Online-CitySearch, Inc.'s combination of
services with Lycos, Inc.
Accordingly, GeoCities will likely face increased competition, which will
increase pricing pressures on its advertising rates, which could in turn have a
material adverse effect on GeoCities' business, results of operations and
financial condition.
Many of GeoCities' existing and potential competitors, including web
directories and search engines and large traditional media companies, have
longer operating histories in the web market, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than GeoCities. Such competitors are able to undertake more extensive
marketing campaigns for their brands and services, adopt more aggressive
advertising pricing policies and make more attractive offers to potential
employees, distribution partners, commerce companies, advertisers and third
party content providers. There can be no assurance that Internet content
providers and Internet service providers, including web directories, search
engines, shareware archives, sites that offer professional editorial content,
commercial online services and sites maintained by Internet service providers
will not be perceived by advertisers as having more desirable web sites for
placement of advertisements. In addition, substantially all of GeoCities'
current advertising customers and strategic partners also have established
collaborative relationships with certain of GeoCities' competitors or potential
competitors, and other high-traffic web sites. Accordingly, there can be no
assurance that GeoCities will be able to grow its memberships, traffic levels
and advertiser customer base at historical levels or retain its current members,
traffic levels or advertiser customers, or that competitors will not experience
greater growth in traffic than GeoCities as a result of such relationships which
could have the effect of making their web sites more attractive to advertisers,
or that GeoCities' strategic partners will not sever or will elect not to renew
their agreements with GeoCities. There can also be no assurance that GeoCities
will be able to compete successfully against its current or future competitors
or that competition will not have a material adverse effect on GeoCities'
business, results of operations and financial condition.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
GeoCities regards its technology as proprietary and attempts to protect it
by relying on trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. GeoCities
currently has no patents or patents pending and does not anticipate that patents
will become a significant part of GeoCities' intellectual property in the
foreseeable future. GeoCities also generally enters into confidentiality or
license agreements with its employees and consultants, and generally controls
access to and distribution of its documentation and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use GeoCities' proprietary information without
authorization or to develop similar technology independently. GeoCities pursues
the registration of its service marks in the United States and internationally,
and has applied for and obtained the registration in the United States for a
number of its service marks, including "GeoCities". Effective trademark, service
mark, copyright and trade secret protection may not be available in every
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country in which GeoCities' services are distributed or made available through
the Internet, and policing unauthorized use of GeoCities' proprietary
information is difficult.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any proprietary rights of GeoCities or other companies
within this market. There can be no assurance that the steps taken by GeoCities
will prevent misappropriation or infringement of its proprietary information.
Any such infringement or misappropriation, should it occur, might have a
material adverse effect on GeoCities' business, results of operations and
financial condition. In addition, litigation may be necessary in the future to
enforce GeoCities' intellectual property rights, to protect GeoCities' trade
secrets or to determine the validity and scope of the proprietary rights of
others. Such litigation might result in substantial costs and diversion of
resources and management attention and could have a material adverse effect on
GeoCities' business, results of operations and financial condition.
Furthermore, there can be no assurance that GeoCities' business activities
will not infringe upon the proprietary rights of others, or that other parties
will not assert infringement claims against GeoCities. From time to time,
GeoCities has been, and expects to continue to be, subject to claims in the
ordinary course of its business including claims of alleged infringement of the
copyrights, trademarks, service marks and other intellectual property rights of
third parties by GeoCities and the content generated by its members. Although
such claims have not resulted in significant litigation or had a material
adverse effect on GeoCities' business to date, such claims and any resultant
litigation, should it occur, might subject GeoCities to significant liability
for damages and might result in invalidation of GeoCities' proprietary rights
and even if not meritorious, could be time consuming and expensive to defend and
could result in the diversion of management time and attention, any of which
might have a material adverse effect on GeoCities' business, results of
operations and financial condition.
GeoCities currently licenses from third parties certain technologies
incorporated into GeoCities' web site, including a site license for its database
software. GeoCities relies on the licensed software under this site license to
manage the storage and retrieval of homesteader information, including
homesteader names, e-mail addresses, passwords and usage information. This site
license remains in effect until it is terminated by either party. The site
license also terminates in certain other circumstances, including in the event
of a breach by either party. Although GeoCities believes that it could obtain an
alternative site license for its database software should this site license
terminate for any reason, any such termination would have a disruptive effect on
GeoCities' ability to manage the storage and retrieval of homesteader
information for a period of time.
As GeoCities continues to introduce new services that incorporate new
technologies, it may be required to license additional technology from others.
There can be no assurance that these third-party technology licenses will
continue to be available to GeoCities on commercially reasonable terms, if at
all. The inability of GeoCities to obtain any of these technology licenses could
result in delays or reductions in the introduction of new services or could
adversely affect the performance of its existing services until equivalent
technology could be identified, licensed and integrated.
EMPLOYEES
As of December 31, 1998, GeoCities had 281 full-time employees, including 70
in marketing and sales, 40 in editorial, 38 in finance and administration and
133 in operations and support. GeoCities' future success will depend, in part,
on its ability to continue to attract, retain and motivate highly qualified
technical and management personnel, for whom competition is intense. From time
to time, GeoCities also employs independent contractors to support its research
and development, marketing, sales and support and administrative organizations.
GeoCities' employees are not
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represented by any collective bargaining unit, and GeoCities has never
experienced a work stoppage. GeoCities believes its relations with its employees
are good.
FACILITIES
GeoCities' headquarters are currently located in a leased facility in Marina
del Rey, California, consisting of approximately 24,000 square feet of office
space. The facility is under a five-year lease and has two renewal options, each
for an additional three years. In January 1999, GeoCities entered into an
18-month lease to rent approximately 20,000 square feet of office space in
Marina del Rey adjacent to its headquarters. GeoCities has also leased (a)
approximately 13,000 square feet of office space in Santa Monica, California,
and (b) approximately 25,000 square feet of office space in New York, New York,
and approximately 1,700 square feet of office space in San Francisco, California
for its East and West Coast sales offices, respectively.
WebRing, Inc., a wholly-owned subsidiary of GeoCities, leases two adjacent
facilities located in Ashland, Oregon consisting of 2,600 and 900 square feet of
office space under three-year and eighteen-month lease terms, respectively.
LEGAL PROCEEDINGS
In September 1997, GeoCities received a letter from the FTC requesting that
GeoCities voluntarily produce certain information regarding GeoCities'
collection and use of personal identifying information. GeoCities produced the
requested information, as well as certain supplemental information in late 1997.
In February 1998, the FTC staff sent a draft complaint and draft consent order
to GeoCities. At that time, the FTC staff indicated that, if approved by the
FTC, an administrative suit would be brought against GeoCities alleging that it
had violated Section 5(a) of the Federal Trade Commission Act (the "FTC Act") by
engaging in unfair and deceptive practices in connection with GeoCities'
collection and use of personal identifying information obtained from
individuals, including children. The FTC staff also offered to settle the matter
under the terms contained in the draft consent order.
After receiving the draft complaint and draft consent order, GeoCities and
the FTC staff engaged in settlement discussions. As a result of these
discussions, on June 11, 1998, GeoCities and FTC staff attorneys executed a
proposed Agreement Containing Consent Order (the "proposed consent order").
Following a period of public comment, the proposed consent order was amended so
that GeoCities' compliance with the terms of the Children's Online Privacy
Protection Act of 1998 would be permitted under the order. The amended version
of the Agreement Containing Consent Order (the "consent order") was issued by
the FTC on February 5, 1999. The consent order resolves the FTC's allegations,
which are contained in a complaint filed by the FTC with the consent order, that
GeoCities:
- - disclosed to third parties personal identifying information collected in its
member application process contrary to what had been represented to consumers
by GeoCities;
- - implied that there was an affiliation between GeoCities and a children's club
operated by a GeoCities community leader such that children provided personal
identifying information to the club believing they were disclosing the
information to GeoCities; and
- - failed to disclose to consumers, including the parents of children, how
GeoCities would use the personal identifying information it collected from
those consumers and children.
Under the consent order, GeoCities is required to:
- - cease and desist from the allegedly deceptive practices in the future and
- - establish certain procedures to:
- give adequate notice to consumers regarding GeoCities' information
collection and disclosure practices;
- provide consumers with the ability to have GeoCities delete their
personal
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identifying information from GeoCities' database;
- more clearly identify its affiliation (or lack thereof) with third
parties which may collect information or sponsor activities on GeoCities;
and
- obtain express parental consent prior to collecting and using personal
identifying information obtained from children under 13 years of age.
By the terms of the consent order, GeoCities did not admit any of the
allegations contained in the complaint, nor was it required to make any monetary
payment to the FTC or consumers.
Although the consent order requires that GeoCities take specific actions,
including those outlined above, GeoCities has been and remains committed to
protecting the privacy rights of all consumers (and, in particular children) on
the Internet. As part of its ongoing efforts to enhance the protection of the
privacy of its members, GeoCities has consulted and worked with industry
self-regulation groups and has implemented or intends to implement programs
designed to enhance the protection of the privacy of its members, including
children. Such programs include:
- - publishing a comprehensive, multi-screen, privacy statement that is
accessible from many places on GeoCities' web site, including the GeoCities
home page and new member application form;
- - revamping the new member application form to make the questions clearer to
consumers;
- - enhancing its training program for community leaders;
- - suspending certain e-mail marketing programs of an affiliate and confirming
that the affiliate had never sent e-mails to individuals based on the
representation included in the application form;
- - altering its rules to expressly forbid third parties from collecting
information in connection with promotions for any purpose other than to
fulfill the promotion;
- - instructing companies that received information from GeoCities regarding
children under 13 to cease use of such information;
- - making changes to the content that appears on GeoCities' web site, such as
warnings to children not to give out personal information, and removing
inappropriate advertising and promotions from GeoCities' children and
family-oriented "Enchanted Forest" neighborhood; and
- - requiring that individuals under 13 involve their parents in the process of
applying for a free membership in GeoCities.
To confirm the adequacy of its disclosure practices in the area of
information collection and use, GeoCities submitted its privacy statement to
TRUSTe, an industry self-regulation group. TRUSTe has certified such statement
as an accurate representation to consumers of GeoCities' information collection
practices. GeoCities has also joined the Online Privacy Alliance.
In August 1998, a lawsuit was filed against GeoCities in Los Angeles County
Superior Court involving GeoCities' collection and use of personal identifying
information (HYATT V. GEOCITIES). The complaint in this case follows the FTC
draft complaint without alleging any new facts. This case involves a single
cause of action for the alleged violation of California Business and Professions
Code Section 17200 and seeks an injunction, disgorgement of any profits obtained
as a result of the alleged improper activity and attorneys' fees. GeoCities
filed an answer to this lawsuit in September 1998.
In September 1998, an additional case was filed against GeoCities in Los
Angeles County Superior Court related to the same activity (WORMLEY V.
GEOCITIES, ET. AL.). The complaint in this case also followed the FTC draft
complaint and alleged no new facts. This suit purported to be a class action and
alleged causes of action for the violation of California Business and
Professions Code Sections 17200 and 17500
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fraud, unjust enrichment, negligent misrepresentation and invasion of privacy.
This suit sought disgorgement of any profits obtained as a result of the alleged
improper activity, unspecified damages, and attorneys' fees. In November 1998,
GeoCities filed a demurrer to and motion to strike portions of the WORMLEY
complaint. In December 1998, in response to GeoCities' demurrer and motion to
strike, the plaintiff filed an amended complaint. The amended complaint, like
the original complaint, purports to be a class action and alleges causes of
action for the violation of Sections 17200 and 17500, the Consumers Legal
Remedies Act ("CLRA"), fraud, unjust enrichment, negligent misrepresentation,
and invasion of privacy. The plaintiffs are seeking the same remedies as in the
original complaint. In January 1999, GeoCities filed a demurrer to and motion to
strike portions of the amended complaint. In January 1999, the court in the
WORMLEY matter determined that the HYATT matter (discussed above) is related to
the WORMLEY matter, and ordered the HYATT matter transferred to the department
where the WORMLEY matter is pending. In February 1999, a hearing was held on
GeoCities' demurrer to and motion to strike portions of the amended WORMLEY
complaint. At that hearing, the court dismissed the Section 17500, CLRA, and
invasion of privacy causes of action. The court also set a joint case-management
conference and a class-certification hearing for later this year.
Based on GeoCities' analysis of these lawsuits and given the fact that they
involve the same set of circumstances that are covered in the FTC matter,
GeoCities believes that the allegations contained in the two complaints are
without merit and intends to defend these actions vigorously. GeoCities intends
to contest class certification as inappropriate in light of the claims alleged
in the WORMLEY matter. GeoCities also plans to assert various factual and legal
defenses to these matters by way of summary judgment and any other appropriate
means.
GeoCities, in the normal course of business, is subject to various other
legal matters. While the results of litigation and claims cannot be predicted
with certainty, GeoCities believes that the final outcome of these other matters
will not have a material adverse effect on GeoCities' business, results of
operations or financial condition.
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GEOCITIES' MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of GeoCities should be read in conjunction with the consolidated
financial statements and the related notes to such financial statements included
elsewhere in this document. This discussion contains forward-looking statements
that involve risks and uncertainties. GeoCities' actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, but not limited to, those set forth under
"Risk Factors" and elsewhere in this document.
OVERVIEW
To date, GeoCities' revenues have been derived principally from the sale of
advertisements. GeoCities sells banner advertisements, event sponsorships and
premium site locations within the GeoCities' web site. GeoCities also receives
advertising revenues from select premier commerce partners in return for
preferred banner advertising locations on, and integration into, the GeoCities
web site. GeoCities also recently began receiving advertising revenues from
third-party content providers who pay GeoCities to display their content on the
GeoCities web site. Currently, the duration of GeoCities' banner advertising
arrangements averages between two to three months. Advertising rates are
dependent on whether the impressions are for general rotation throughout the
GeoCities web site or for targeted audiences and properties within specific
areas of the GeoCities site. All advertising revenues are recognized ratably in
the period in which the advertisement is displayed, provided that no significant
obligations remain on GeoCities' part and collection of the resulting receivable
is probable. GeoCities' advertising obligations typically include guarantees of
a minimum number of "impressions" or times that an advertisement appears in page
views downloaded by users. Payments received from advertisers prior to
displaying their advertisements on the site are recorded as deferred revenues
and are recognized as revenue ratably when the advertisement is displayed.
In addition to advertising revenues, GeoCities derives other revenues
primarily from its GeoPlus program, and, to a lesser extent, from its GeoShops
program. GeoCities also began to derive revenues in the fourth quarter of 1998
from licensing fees for e-mail services provided to its homesteaders. GeoCities'
GeoPlus program offers premium services for a monthly fee, providing
homesteaders additional disk space and enhanced publishing tools for their web
pages. In March 1998, GeoCities introduced the GeoShops program, a commerce
service that, for a monthly fee, allows homesteaders to sell products and
services on their personal web sites, and, for an additional fee, provides
homesteaders with transaction authorization and processing capabilities.
Revenues from the GeoPlus and GeoShops programs are recognized in the month that
the service is provided. License fees for maintenance and support of the
Company's products are deferred and recognized ratably over the service period.
GeoCities has incurred significant losses since its inception, and as of
December 31, 1998, had an accumulated deficit of approximately $32.2 million.
Also, in connection with the grant of certain stock options to employees during
1997 and the year ended December 31, 1998, GeoCities recorded unearned deferred
compensation of approximately $8.0 million, representing the difference between
the deemed value of GeoCities' common stock for accounting purposes and the
exercise price of such options at the date of grant. At December 31, 1998, the
unearned deferred compensation balance was $6.8 million. Such amount is
presented as a reduction of stockholders' equity and amortized over the vesting
period of the applicable options. As a result, GeoCities currently expects to
amortize the following amounts of deferred compensation annually: 1999 -- $1.5
million; 2000 -- $1.8 million; 2001 -- $2.0 million; 2002 -- $.9 million; 2003
- -- $.4 million and 2004 -- $.2 million. Amortization of deferred compensation
was $1.1 million and $24,000 for
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the years ended December 31, 1998 and 1997, respectively.
GeoCities, FTC staff attorneys and the Director of Consumer Protection for
the FTC executed the consent order in June 1998, in connection with the FTC's
investigation into certain of GeoCities' past business practices. The consent
order was given final approval by the FTC on February 5, 1999. Based on the
scope of the consent order, GeoCities does not believe that its compliance with
the consent order will have a material adverse effect on its business, results
of operations or financial condition.
In December 1998, GeoCities completed the acquisition of Starseed, Inc. for
a total consideration of approximately $24.8 million. Under the terms of the
agreement, GeoCities issued 545,527 shares of common stock, forgave $600,000 in
debt and paid $2.0 million in cash in exchange for all the outstanding stock and
stock options of Starseed. The acquisition closed in December 1998 and was
accounted for as a purchase. Starseed, now known as WebRing, Inc. is a
wholly-owned subsidiary of GeoCities.
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RESULTS OF OPERATIONS
The following table sets forth the results of operations for GeoCities
expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
------- ------- -------
(AS A PERCENTAGE OF NET
REVENUES)
Net revenues............................ 100% 100% 100%
Cost of revenues........................ 53 83 251
------- ------- -------
Gross profit (loss)................... 47 17 (151)
Operating expenses:
Sales and marketing................... 95 127 243
Product development................... 22 23 151
General and administrative............ 50 64 399
------- ------- -------
Total operating expenses............ 167 214 793
Loss from operations.................... (120) (197) (944)
Other income (expense), net............. 12 3 (13)
------- ------- -------
Loss before provision for income
taxes................................. (108) (194) (957)
Provision for income taxes.............. -- -- --
------- ------- -------
Net loss................................ (108) (194) (957)
------- ------- -------
------- ------- -------
</TABLE>
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NET REVENUES
Net revenues were $18.4 million, $4.6 million and $314,000 for 1998, 1997
and 1996, respectively. The absolute dollar increases from year to year were due
primarily to an increase in the number of advertisers, increase in traffic on
GeoCities' web site and, to a lesser extent, an increase in revenues from
expansion of GeoPlus memberships, product licensing fees and the deployment of
GeoShops. Advertising revenues accounted for approximately 89.6%, 90.6% and
89.7%, of net revenues in 1998, 1997 and 1996, respectively. GeoCities' four
largest advertising customers accounted for 23%, 29% and 40% of net revenues for
the years ended 1998, 1997 and 1996, respectively. For 1998, 1997 and 1996,
GeoCities' other sources of net revenues, which included revenues from premium
services, barter transactions and licensing fees for the provision of e-mail
services to its homesteaders, were individually insignificant as a percentage of
net revenues. GeoCities anticipates that advertising revenues will continue to
comprise a substantial share of its net revenues in the foreseeable future.
COST OF REVENUES
Cost of revenues were $9.7 million or 53% of net revenues, $3.8 million or
83% of net revenues and $788,000 or 251% of net revenues in 1998, 1997 and 1996
respectively. Cost of revenues in 1998, 1997 and 1996 related to other sources
of GeoCities' net revenues were individually insignificant. The absolute dollar
increases from year to year in cost of revenues were primarily due to the costs
of building GeoCities' server and networking infrastructure in response to the
growth in homesteader membership, increasing costs of serving banner
advertisements due to increasing page views and amortization of purchase
technology costs. Cost of revenues as a percentage of net revenues has decreased
because of the growth in net revenues. GeoCities anticipates that its Internet
connection, web site equipment and related operating costs will continue to grow
in absolute dollars for the foreseeable future.
OPERATING EXPENSES
SALES AND MARKETING EXPENSES
Sales and marketing expenses were $17.5 million or 95% of net revenues, $5.8
million or 127% of net revenues and
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$764,000 or 243% of net revenues for 1998, 1997 and 1996, respectively. The
absolute dollar increases from year to year in sales and marketing expenses were
primarily attributable to GeoCities' continued efforts to build a direct sales
force and increased expenses associated with promotion and marketing efforts.
Sales and marketing expenses as a percentage of net revenues have decreased
because of the growth in net revenues. GeoCities expects that sales and
marketing expenses will continue to grow in absolute dollars for the foreseeable
future as it proceeds with building the direct sales force and marketing new
products and services.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses were $4.1 million or 22% of net revenue, $1.0
million or 23% of net revenues and $475,000 or 151% of net revenues for 1998,
1997 and 1996, respectively. The absolute dollar increases from year to year in
product development expenses were primarily attributable to increases in the
number of personnel and related costs to support enhancement to and development
of GeoCities' products. Product development expenses as a percentage of net
revenues have decreased because of the growth in net revenues. GeoCities
believes that significant investments in product development are required to
remain competitive. Therefore, GeoCities expects that its product development
expenses will continue to increase in absolute dollars for the foreseeable
future.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $9.2 million or 50% of net
revenues, $2.9 million or 64% of net revenues and $1.3 or 399% of net revenues
1998, 1997, and 1996, respectively. The absolute dollar increases from year to
year in general and administrative expenses were primarily due to increases in
the number of general and administrative personnel, professional services and
facility expenses to support the growth of GeoCities' operations and
amortization of intangible assets expense in 1998 in connection with the
Starseed acquisition. General and administrative expenses as a percentage of net
revenues have decreased because of the growth in net revenues. GeoCities
anticipates that it will incur additional administrative expenses in absolute
dollars to sustain the growth of the business.
OTHER INCOME (EXPENSE), NET
Other income, net was $2.3 million and $117,000 for the years ended December
31, 1998 and 1997, respectively. Other expense, net was $40,000 for the year
ended December 31, 1996. The increase in other income (expense), net for the
year ended December 31, 1998 was primarily due to a higher average investment
balance as a result of the proceeds received from GeoCities' initial public
offering in August 1998.
INCOME TAXES
As of December 31, 1998, GeoCities had approximately $28.2 million and $27.6
million of federal and state net operating loss carryforwards, respectively, for
tax reporting purposes available to offset future taxable income. GeoCities'
federal and state net operating loss carryforwards expire beginning 2010 and
2002, respectively. Due to the change in GeoCities' ownership interests in 1996,
1997 and 1998, future utilization of GeoCities' net operating loss carryforwards
will be subject to certain limitations or annual restrictions under the tax
laws. See Note 10 of Notes to Consolidated Financial Statements.
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LIQUIDITY AND CAPITAL RESOURCES
GeoCities invests predominantly in instruments that are highly liquid, of
quality investment grade, and predominantly have maturities of less than one
year with the intent to make such funds readily available for operating
purposes. As of December 31, 1998, GeoCities had approximately $51.0 million in
cash and cash equivalents and $38.9 million in short-term and long-term
investments. GeoCities regularly invests excess funds in short-term money market
funds, government securities and commercial paper.
Net cash used in operating activities was $14.3 million, $7.2 million, and
$2.8 million for the years ended December 31, 1998, 1997 and 1996, respectively.
The increase in net cash used resulted primarily from increases in net losses,
accounts receivable, and prepaid expenses partially offset by increases in
accounts payable and accrued expenses.
Net cash used in investing activities increased to $47.2 million from $1.3
million and $130,000 for the years ended December 31, 1998 and 1997 and 1996,
respectively, primarily due to increased purchases of property and equipment,
purchases of securities with the proceeds derived from GeoCities' initial public
offering in August 1998, and payments of $2.9 million in connection with the
acquisition of Starseed, Inc.
Net cash provided by financing activities increased to $108.7 million for
the year ended December 31, 1998 compared to $12.3 million and $2.9 million for
the years ended December 31, 1997 and 1996, respectively resulting primarily
from the $84.3 million in net proceeds received from the sale of shares of
GeoCities' common stock in connection with the consummation of GeoCities'
initial public offering. Furthermore, the receivable of approximately $25.0
million of cash proceeds was received in January 1998 in connection with the
sale of shares of GeoCities' preferred stock for $38.0 million in December 1997.
GeoCities has a bank line of credit for $10.0 million. To date there have
been no borrowings under this line of credit. This credit facility includes a
$7.0 million revolving facility for working capital and a $3.0 million lease
facility. This facility bears interest at the bank's prime rate for the
revolving facility and the bank's prime rate plus 0.75% for the lease facility.
Any borrowings under this line of credit will be collateralized by substantially
all of GeoCities' assets.
GeoCities' capital requirements depend on numerous factors, including market
acceptance of GeoCities' services, the amount of resources GeoCities devotes to
investments in the GeoCities community, the resources GeoCities devotes to
marketing and selling its services and its brand promotions and other factors.
GeoCities has experienced a substantial increase in its capital expenditures and
operating lease arrangements since its inception consistent with the growth in
its operations and staffing, and anticipates that this will continue for the
foreseeable future. Additionally, GeoCities will continue to evaluate possible
investments in products and technologies, and plans to expand its sales and
marketing programs. GeoCities currently anticipates that its existing line of
credit and available funds will be sufficient to meet its anticipated needs for
working capital and capital expenditures for at least the next 12 months.
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YEAR 2000 READINESS
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates at the turn of this
century and, as a result, many companies' software and computer systems may need
to be upgraded or replaced in order to comply with such "Year 2000"
requirements.
STATE OF READINESS
GeoCities has made a comprehensive evaluation of the year 2000 readiness of
the information technology systems used in its operations ("IT Systems") and its
non-IT Systems, such as building security, voice mail and other systems.
GeoCities' evaluation covered the following phases: (1) identification of
GeoCities-owned and third-party IT Systems and non-IT Systems; (2) assessment of
repair or replacement requirements; (3) repair or replacement; (4) testing; (5)
implementation; and (6) creation of contingency plans in the event of year 2000
failures. GeoCities completed its initial evaluation in October 1998. GeoCities
is continuing to monitor all of the new IT Systems and non-IT Systems that it
acquires or accesses in the normal course of its business.
Based on this evaluation, GeoCities identified two database tables whose
date of birth field is stored as a character string and therefore is not year
2000 compliant. All programs affected by the aforementioned noncompliance have
been identified and will convert to a year 2000 compliant system prior to the
end of the second quarter of 1999. In addition, as a result of the preliminary
evaluation, all production server operating systems are undergoing an upgrade to
Solaris 2.6, which is certified year 2000 compliant by the manufacturer. Other
than the foregoing, based on its preliminary evaluation, GeoCities believes it
is year 2000 compliant.
In addition to the IT Systems and non-IT Systems within its direct control,
GeoCities relies, both domestically and internationally, upon various vendors,
governmental agencies, utility companies, telecommunications service companies,
delivery service companies and other service providers who are outside of
GeoCities' control. We cannot assure you that these parties will not suffer a
year 2000 business disruption, which could have a material adverse effect on
GeoCities' business, results of operations and financial condition.
COSTS
To date, GeoCities has not incurred any material expenditures in connection
with identifying or evaluating year 2000 compliance issues. Most of its expenses
have related to the opportunity cost of time spent by employees of GeoCities
evaluating its IT Systems and non-IT Systems, year 2000 compliance matters
generally, and repairing existing IT Systems and non-IT Systems, based on the
findings of its preliminary evaluation.
CONTINGENCY PLAN AND MONITORING
GeoCities is continuing to monitor its operations for year 2000 readiness,
including developing its contingency plan to be year 2000 compliant. If
additional year 2000 compliance issues are discovered, GeoCities will evaluate
the need for repair or replacement or contingency plans relating to such issues.
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GEOCITIES STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of GeoCities' common stock as of December 31, 1998, by (1) each person
or group of affiliated persons known by GeoCities to own beneficially more than
5% of the outstanding shares of GeoCities' common stock, (2) the chief executive
officer of GeoCities and each of the three most highly compensated executive
officers of GeoCities, (3) each of GeoCities' directors, and (4) all directors
and executive officers of GeoCities as a group. Unless otherwise indicated, the
address for each of the following stockholders is 4499 Glencoe Avenue, Marina
del Rey, California 90292.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
-------------------------- PERCENTAGE
EXERCISABLE OF
NAME OF BENEFICIAL OWNER COMMON STOCK OPTIONS(2) OWNERSHIP(3)
- ---------------------------------------------------------------------- ------------ ------------ -----------------
<S> <C> <C> <C>
CMG@Ventures, Inc.(4)................................................. 8,772,356 1,000,000 29.6%
Peter H. Mills
David S. Wetherell
SOFTBANK Holdings Inc.(5)(6).......................................... 8,932,460 -- 27.9%
Eric C. Hippeau
David C. Bohnett(6)................................................... 2,325,850 300,000 8.1%
Chase Venture Capital Associates, L.P.(7)............................. 1,749,736 -- 5.5%
John C. Rezner(8)..................................................... 702,398 174,602 2.7%
Jerry D. Colonna(9)................................................... 171,924 -- *
Thomas R. Evans(10)................................................... -- -- *
Stephen L. Hansen(11)................................................. -- 75,000 *
Michael G. Barrett(12)................................................ -- 40,000 *
All directors and executive officers as a group (13 persons).......... 20,356,780 1,415,000 65.1%
</TABLE>
- ------------------------
* Less than one percent
(1) The shares beneficially owned and percentage of ownership are based on
32,019,000 shares of GeoCities common stock outstanding as of December 31,
1998.
(2) Includes shares of GeoCities common stock issuable upon exercise of options
which are exercisable within 60 days of December 31, 1998.
(3) Shares of GeoCities common stock subject to options which are currently
exercisable or exercisable within 60 days of December 31, 1998, are, in
accordance with the rules of the Commission, deemed outstanding for
computing the percentages of the person holding such options, but are not
deemed outstanding for computing the percentages of any other person.
Unless otherwise indicated, the persons named in the table have sole voting
and sole investment control with respect to all shares beneficially owned.
(4) Includes 8,267,888 shares of GeoCities common stock and an option currently
exercisable for 1,000,000 shares of common stock held by CMG@Ventures I,
LLC, and 504,468 shares of GeoCities common stock held by CMG@Ventures II,
LLC, each of which are affiliates of CMG@Ventures, Inc. The address of
CMG@Ventures, Inc., CMG@Ventures I, LLC and CMG@Ventures II, LLC is 2420
Sand Hill Road, Suite 101, Menlo Park, CA 94025. Messrs. Mills and
Wetherell are each profit members of CMG@Ventures I, LLC, and directors of
GeoCities. Messrs. Mills and Wetherell disclaim beneficial ownership of
such shares except to the extent of their pecuniary interest therein.
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(5) Includes (a) 1,838,848 shares of GeoCities common stock held by SOFTBANK
Technology Ventures IV L.P., an affiliate of SOFTBANK Holdings Inc. (which
number includes (i) 100,000 shares of GeoCities common stock held by
SOFTBANK Holdings Inc. and subject to an option held by Mr. Hippeau to
purchase such shares from SOFTBANK Holdings Inc., which option vests over a
three-year period commencing in January 1998 and (ii) 50,000 shares of
GeoCities common stock held by SOFTBANK Holdings Inc. and subject to an
option held by Ronald D. Fisher, Vice Chairman of SOFTBANK Holdings Inc.
and SOFTBANK America Inc.) and (b) 37,526 shares of Geo Cities common stock
held by SOFTBANK Technology Advisors Fund L.P., an affiliate of SOFTBANK
Holdings Inc. The address of SOFTBANK Holdings Inc. and the entities
associated with SOFTBANK Holdings Inc. is 10 Langley Road, Newton Center,
MA 02159-1972. Mr. Hippeau, Chairman of the Board and Chief Executive
Officer of Ziff-Davis, a subsidiary of SOFTBANK Holdings Inc., is a
director of GeoCities.
(6) Excludes options to purchase an additional 300,000 shares of GeoCities
common stock which are not currently exercisable or exercisable within 60
days of December 31, 1998.
(7) Includes 171,924 shares of GeoCities common stock held by the Flatiron
Fund. The Flatiron Fund is a venture investment program affiliated with
Chase Capital Partners, an affiliate of Chase Venture Capital Associates,
L.P., and SOFTBANK Holdings Inc. The address of Chase Venture Capital
Associates, L.P. and the entities associated with Chase Venture Capital
Associates, L.P. is Chase Capital Partners, 380 Madison Avenue, New York,
NY 10017.
(8) Excludes options to purchase a total of 120,000 shares of GeoCities common
stock that were issued to Mr. Rezner in connection with his employment and
which are not currently exercisable or exercisable within 60 days of
December 31, 1998.
(9) Consists of 171,924 shares of GeoCities common stock held by the Flatiron
Fund, of which Mr. Colonna is a partner. Mr. Colonna disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.
(10) Excludes options to purchase up to 1,632,760 shares of GeoCities common
stock that were issued to Mr. Evans in connection with his employment and
which are not currently exercisable or exercisable within 60 days of
December 31, 1998. On April 9, 1999, 244,914 of these options will become
exercisable in accordance with the terms of Mr. Evans' option agreement.
(11) Excludes options to purchase an additional 525,000 shares of GeoCities
common stock that were issued to Mr. Hansen in connection with his
employment and which are not currently exercisable or exercisable within
60 days of December 31, 1998. On May 21, 1999, an additional 37,500 of
these options will become exercisable in accordance with the terms of Mr.
Hansen's option agreement.
(12) Excludes options to purchase an additional 290,000 shares of GeoCities
common stock that were issued to Mr. Barrett in connection with his
employment and which are not currently exercisable or exercisable within
60 days of December 31, 1998.
109
<PAGE>
DESCRIPTION OF GEOCITIES CAPITAL STOCK
As of the date of this document, the authorized capital stock of GeoCities
consists of 60,000,000 shares of common stock, $.001 par value and 5,000,000
shares of preferred stock, $.001 par value. The following description of
GeoCities' capital stock is subject to and qualified in its entirety by
GeoCities' certificate of incorporation and bylaws and by the provisions of
applicable Delaware law.
COMMON STOCK
As of , there were shares of common stock outstanding and
held of record by stockholders.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and the certificate of incorporation
provides that they do not have cumulative voting rights. Accordingly, holders of
a majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared by the board of directors out of funds legally available therefor,
subject to any preferential dividend rights of any outstanding preferred stock.
Upon the liquidation, dissolution or winding up of GeoCities, the holders of
common stock are entitled to receive ratably the net assets of GeoCities
available after the payment of all debts and other liabilities and subject to
the prior rights of any outstanding preferred stock. Holders of the common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which GeoCities may designate and issue in the future without
further stockholder approval. No shares of preferred stock are currently
outstanding.
PREFERRED STOCK
Upon the closing of the initial public offering, the board of directors was
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of 5,000,000 shares of preferred stock in one or more series and
to fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. GeoCities has no present plan to issue any shares
of preferred stock. See "-- Anti-Takeover Effects of Certain Provisions of
Delaware Law and GeoCities' Certificate of Incorporation and Bylaws".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for GeoCities' common stock is U.S. Stock
Transfer Corporation. Its telephone number is (818) 502-1404.
110
<PAGE>
FUTURE STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, GeoCities' stockholders may
present proper proposals for inclusion in GeoCities' proxy statement and for
consideration at the next annual meeting of its stockholders by submitting such
proposals to GeoCities in a timely manner. In order to be so included for the
1999 annual meeting, in the event the merger has not been consummated prior
thereto, stockholder proposals must be received by GeoCities no later than
, 1999, and must otherwise comply with the requirements of Rule
14a-8.
EXPERTS
The consolidated financial statements of Yahoo! incorporated in this
document by reference to Yahoo!'s Annual Report on Form 10-K for the year ended
December 31, 1998, have been so incorporated in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of GeoCities included in this document
have been so included in reliance upon the report of PricewaterhouseCoopers LLP,
independent accountants, given upon the authority of said firm as experts in
auditing and accounting.
The financial statements of Starseed, Inc. as of September 30, 1998 and
1997, and for the year ended September 30, 1998 and for the period from October
8, 1996 (date of inception) to September 30, 1997, have been included in this
document in reliance upon the report of KPMG Peat Marwick LLP, independent
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Yahoo!
common stock offered hereby and certain tax matters with respect to the merger
will be passed upon for Yahoo! by Venture Law Group, A Professional Corporation,
Menlo Park, California. Certain tax matters with respect to the merger will be
passed upon for GeoCities by Brobeck, Phleger & Harrison LLP, Irvine,
California.
WHERE YOU CAN FIND MORE INFORMATION
Yahoo! and GeoCities file annual, quarterly and special reports, proxy
statements and other information with the Commission. You may read and copy any
reports, statements or other information filed by either company at the
Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.,
20549, or at any of the Commission's other public reference rooms in New York,
New York and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Yahoo!'s and GeoCities'
Commission filings are also available to the public from commercial document
retrieval services and at the web site maintained by the Commission at
http://www.sec.gov.
Yahoo! filed a registration statement to register the Yahoo! common stock to
be issued to GeoCities' stockholders in the merger. This proxy
statement/prospectus is a part of that registration statement and constitutes a
prospectus of Yahoo! in addition to being a proxy statement of GeoCities for the
meeting of GeoCities' stockholders. As allowed by the Commission's rules, this
proxy statement/ prospectus does not contain all the information you can find in
the Yahoo! registration statement or the exhibits to the registration statement.
The Commission allows Yahoo! to "incorporate by reference" information into
this proxy statement/prospectus, which means important information may be
disclosed to you by referring you to another document filed separately with the
Commission. The information of Yahoo! incorporated by reference is deemed to be
part of this proxy statement/prospectus, except for information superseded
111
<PAGE>
by information in (or incorporated by reference in) this proxy
statement/prospectus. This proxy statement/prospectus incorporates by reference
the documents set forth below that have been previously filed with the
Commission. The following documents contain important information about Yahoo!
and its finances and are hereby incorporated by reference:
1. Yahoo!'s Annual Report on Form 10-K for the year ended December 31,
1998;
2. Yahoo!'s Current Report on Form 8-K dated January 29, 1999;
3. Yahoo!'s Current Report on Form 8-K dated January 13, 1999; and
4. The description of Yahoo!'s common stock set forth in its Registration
Statement on Form 8-A, filed with the Commission on March 12, 1996.
Yahoo! is also incorporating by reference additional documents that it may
file with the Commission pursuant to the Exchange Act between the date of this
proxy statement/prospectus and the date of the special meeting.
Yahoo! has supplied all information contained or incorporated by reference
in this proxy statement/prospectus relating to Yahoo!, and GeoCities has
supplied all information contained in this proxy statement/prospectus relating
to GeoCities.
If you are a shareholder of Yahoo! you may have been sent some of the
documents incorporated by reference, but you can obtain any of them through
Yahoo! or the Commission. Documents incorporated by reference are available from
Yahoo! without charge, excluding any exhibits which are not specifically
incorporated by reference an exhibit in this proxy statement/prospectus.
GeoCities' stockholders may obtain documents incorporated by reference in this
proxy statement/prospectus by requesting them in writing or by telephone from
the appropriate party at the following address:
<TABLE>
<S> <C>
Yahoo! Inc. GeoCities
3420 Central Expressway 4499 Glencoe Avenue
Santa Clara, California 95051 Marina del Rey, California 90292
Tel: (408) 731-3300 Tel: (310) 827-3700
Attention: Attention:
WEB SITE: HTTP://WWW.YAHOO.COM WEB SITE: HTTP://WWW.GEOCITIES.COM
</TABLE>
If you would like to request documents from either company, please do so by
, 1999 (10 days prior to the special meeting), to receive them
before the special meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE APPROVAL OF THE
MERGER AGREEMENT. NEITHER YAHOO! NOR GEOCITIES HAS AUTHORIZED ANYONE TO PROVIDE
YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED ,
1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE, AND NEITHER
THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO GEOCITIES' STOCKHOLDERS NOR
THE ISSUANCE OF YAHOO! COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION
TO THE CONTRARY.
112
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
GEOCITIES CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets at December 31, 1998 and 1997.................................................. F-3
Consolidated Statements of Operations for each of the three years in the period ended December 31, 1998.... F-4
Consolidated Statements of Stockholders' Equity (Deficiency) for each of the three years in the period
ended December 31, 1998.................................................................................. F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1998.... F-6
Notes to Consolidated Financial Statements................................................................. F-8
STARSEED, INC. FINANCIAL STATEMENTS
Independent Auditors' Reports.............................................................................. F-26
Balance Sheets at September 30, 1998 and 1997.............................................................. F-27
Statements of Operations for the year ended September 30, 1998 and for the period from October 8, 1996
(inception) to September 30, 1997........................................................................ F-28
Statement of Shareholders' Deficit for the year ended September 30, 1998 and for the period from October 8,
1996 (inception) to September 30, 1997................................................................... F-29
Statement of Cash Flows for the year ended September 30, 1998 and for the period from October 8, 1996
(inception) to September 30, 1997........................................................................ F-30
Notes to Financial Statements.............................................................................. F-31
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of GeoCities
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficiency) and
of cash flows present fairly, in all material respects, the financial position
of GeoCities and its subsidiary (the "Company") at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2, the accompanying consolidated financial statements
for 1997 and 1996 have been restated to reflect accretion on the Company's
mandatory redeemable convertible preferred stock.
PRICEWATERHOUSECOOPERS LLP
Woodland Hills, California
January 27, 1999, except for Note 8
as to which the date is February 11, 1999
and the restatement portion of
Note 2 as to which the date is
February 19, 1999
F-2
<PAGE>
GEOCITIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 51,014,000 $ 3,785,000
Short-term investments in marketable securities................................... 33,797,000 --
Accounts receivable, less allowance for doubtful accounts of $726,000 and $98,000
for 1998 and 1997, respectively................................................. 4,296,000 1,206,000
Prepaids and other current assets................................................. 1,453,000 403,000
Subscription receivable........................................................... -- 25,000,000
------------- -------------
Total current assets............................................................ 90,560,000 30,394,000
Long-term investments in marketable securities...................................... 5,094,000 --
Property and equipment, net......................................................... 8,706,000 1,216,000
Goodwill and other intangibles, net................................................. 24,482,000 --
Deposits............................................................................ 970,000 613,000
Other assets........................................................................ 570,000 645,000
------------- -------------
Total assets.................................................................... $ 130,382,000 $ 32,868,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.................................................................. $ 2,269,000 $ 1,036,000
Accrued expenses and other current liabilities.................................... 6,745,000 2,289,000
Deferred revenue.................................................................. 335,000 225,000
Capital lease obligations, current portion........................................ 1,707,000 393,000
------------- -------------
Total current liabilities....................................................... 11,056,000 3,943,000
Capital lease obligations, net of current portion................................... 1,641,000 183,000
Related party note payable.......................................................... 686,000 651,000
------------- -------------
13,383,000 4,777,000
Commitments and contingencies (Note 8)
Series A, B, C, D, E and F mandatory redeemable convertible preferred stock, $0.001
par value; authorized 26,526,000 shares in 1997: issued and outstanding,
22,230,000 shares in 1997; liquidation preference of approximately $39,129,000 at
1997.............................................................................. -- 38,137,000
Stockholders' equity (deficiency):
Preferred stock, par value $0.001; authorized 5,000,000 shares in 1998; issued and
outstanding 0 shares at 1998.................................................... -- --
Common stock, par value $0.001; authorized 60,000,000 shares for 1998 and 1997;
issued and outstanding 32,019,000 and 2,641,000 shares at 1998 and 1997,
respectively.................................................................... 32,000 49,000
Additional paid-in capital........................................................ 155,972,000 2,966,000
Unearned compensation............................................................. (6,845,000) (660,000)
Accumulated deficit............................................................... (32,160,000) (12,401,000)
------------- -------------
Total stockholders' equity (deficiency)......................................... 116,999,000 (10,046,000)
------------- -------------
Total liabilities and stockholders' equity (deficiency)......................... $ 130,382,000 $ 32,868,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
GEOCITIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Net revenues........................................................ $ 18,359,000 $ 4,582,000 $ 314,000
Cost of revenues.................................................... 9,696,000 3,789,000 788,000
-------------- ------------- -------------
Gross profit (loss)............................................. 8,663,000 793,000 (474,000)
Operating expenses:
Sales and marketing............................................... 17,486,000 5,837,000 764,000
Product development............................................... 4,093,000 1,045,000 475,000
General and administrative........................................ 9,156,000 2,930,000 1,252,000
-------------- ------------- -------------
Loss from operations................................................ (22,072,000) (9,019,000) (2,965,000)
Other income (expense):
Interest income................................................... 2,597,000 238,000 19,000
Interest and other expense........................................ (283,000) (121,000) (59,000)
-------------- ------------- -------------
Loss before provision for income taxes.............................. (19,758,000) (8,902,000) (3,005,000)
Provision for income taxes.......................................... (1,000) (1,000) (1,000)
-------------- ------------- -------------
Net loss............................................................ $ (19,759,000) $ (8,903,000) $ (3,006,000)
-------------- ------------- -------------
-------------- ------------- -------------
Historical basic and diluted net loss per share applicable to common
stockholders...................................................... $ (1.42) $ (3.72) $ (1.19)
Historical weighted average shares outstanding used in basic and
diluted per share calculation..................................... 15,001,000 2,620,000 2,617,000
Pro forma basic and diluted net loss per share...................... $ (0.71) $ (0.36)
Pro forma weighted average shares outstanding used in basic and
diluted per share calculation..................................... 27,969,000 24,850,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
GEOCITIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- -------------------------- PAID-IN UNEARNED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
----------- --------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995........... 1,200,000 $ 386,000 2,617,000 $ 43,000 $ 23,000
Accretion of mandatory redeemable
convertible preferred stock.......... -- -- -- -- (105,000)
Net loss............................... -- -- -- -- --
----------- --------- ------------ ------------ ------------- --------------
Balance at December 31, 1996........... 1,200,000 386,000 2,617,000 43,000 (82,000)
Additional paid-in capital related to
issuance of Series E mandatory
redeemable convertible preferred
stock for cash....................... -- -- -- -- 3,196,000
Conversion of Series C convertible
preferred stock to mandatory
redeemable convertible preferred
stock................................ (1,200,000) (386,000) -- -- --
Exercise of stock options.............. -- -- 24,000 6,000 --
Unearned compensation related to stock
options granted...................... -- -- -- -- 684,000 $ (684,000)
Compensation related to stock options
vesting.............................. -- -- -- -- -- 24,000
Accretion of mandatory redeemable
convertible preferred stock.......... -- -- -- -- (832,000) --
Net loss...............................
----------- --------- ------------ ------------ ------------- --------------
Balance at December 31, 1997........... -- -- 2,641,000 49,000 2,966,000 (660,000)
Repurchase of common stock............. -- -- (10,000) (19,000) -- --
Exercise of stock options.............. -- -- 1,079,000 223,000 25,000 --
Unearned compensation related to stock
options granted...................... -- -- -- -- 7,321,000 (7,321,000)
Compensation related to stock options
vesting.............................. -- -- -- -- -- 1,136,000
Accretion of mandatory redeemable
convertible preferred stock.......... -- -- -- -- (1,604,000) --
Conversion of mandatory redeemable
convertible preferred stock.......... -- -- 22,230,000 42,937,000 (3,196,000) --
Delaware reincorporation and change in
par value of common stock............ -- -- -- (43,164,000) 43,164,000 --
Issuance of common stock pursuant to
initial public offering.............. -- -- 5,463,000 5,000 84,320,000 --
Issuance of common stock pursuant to
exercise of warrant.................. -- -- 20,000 95,000 --
Issuance of common stock to community
leaders.............................. -- -- 16,000 258,000 --
Issuance of common stock to Compu-Trak,
Inc.................................. -- -- 35,000 729,000 --
Issuance of common stock pursuant to
the acquisition of Starseed, Inc.
(net of acquisition costs)........... -- -- 545,000 1,000 21,894,000 --
Net loss............................... -- -- -- -- -- --
----------- --------- ------------ ------------ ------------- --------------
Balance at December 31, 1998........... -- -- 32,019,000 $ 32,000 $ 155,972,000 $ (6,845,000)
----------- --------- ------------ ------------ ------------- --------------
----------- --------- ------------ ------------ ------------- --------------
<CAPTION>
TOTAL
STOCKHOLDERS'
ACCUMULATED EQUITY
DEFICIT (DEFICIENCY)
------------- -------------
<S> <C> <C>
Balance at December 31, 1995........... $ (492,000) $ (40,000)
Accretion of mandatory redeemable
convertible preferred stock.......... -- (105,000)
Net loss............................... (3,006,000) (3,006,000)
------------- -------------
Balance at December 31, 1996........... (3,498,000) (3,151,000)
Additional paid-in capital related to
issuance of Series E mandatory
redeemable convertible preferred
stock for cash....................... -- 3,196,000
Conversion of Series C convertible
preferred stock to mandatory
redeemable convertible preferred
stock................................ -- (386,000)
Exercise of stock options.............. -- 6,000
Unearned compensation related to stock
options granted...................... -- --
Compensation related to stock options
vesting.............................. -- 24,000
Accretion of mandatory redeemable
convertible preferred stock.......... -- (832,000)
Net loss............................... (8,903,000) (8,903,000)
------------- -------------
Balance at December 31, 1997........... (12,401,000) (10,046,000)
Repurchase of common stock............. -- (19,000)
Exercise of stock options.............. -- 248,000
Unearned compensation related to stock
options granted...................... -- --
Compensation related to stock options
vesting.............................. -- 1,136,000
Accretion of mandatory redeemable
convertible preferred stock.......... -- (1,604,000)
Conversion of mandatory redeemable
convertible preferred stock.......... -- 39,741,000
Delaware reincorporation and change in
par value of common stock............ -- --
Issuance of common stock pursuant to
initial public offering.............. -- 84,325,000
Issuance of common stock pursuant to
exercise of warrant.................. -- 95,000
Issuance of common stock to community
leaders.............................. -- 258,000
Issuance of common stock to Compu-Trak,
Inc.................................. -- 729,000
Issuance of common stock pursuant to
the acquisition of Starseed, Inc.
(net of acquisition costs)........... -- 21,895,000
Net loss............................... (19,759,000) (19,759,000)
------------- -------------
Balance at December 31, 1998........... $ (32,160,000) $ 116,999,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GEOCITIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
-------------- ------------- -------------
Cash flows from operating activities:
Net loss.......................................................... $ (19,759,000) $ (8,903,000) $ (3,006,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................... 2,746,000 431,000 188,000
Write-off of acquired in-process technology..................... 300,000 -- --
Issuance of common stock to community leaders................... 258,000 -- --
Issuance of warrant related to note payable..................... -- 51,000 --
Deferred compensation earned.................................... 1,136,000 24,000 --
Bad debt reserve................................................ 628,000 98,000 --
Changes in operating assets and liabilities:
Accounts receivable........................................... (3,670,000) (1,042,000) (255,000)
Prepaids and other current assets............................. (943,000) (346,000) (56,000)
Deposits and other assets..................................... (282,000) (396,000) (214,000)
Accounts payable.............................................. 1,041,000 639,000 309,000
Accrued expenses and other liabilities........................ 4,123,000 2,095,000 162,000
Deferred revenue.............................................. 110,000 115,000 110,000
-------------- ------------- -------------
Net cash used in operating activities....................... (14,312,000) (7,234,000) (2,762,000)
-------------- ------------- -------------
Cash flows from investing activities:
Purchase of property and equipment................................ (5,422,000) (674,000) (130,000)
Payments in connection with acquisition........................... (2,887,000) -- --
Investment in affiliate........................................... -- (645,000) --
Redemption of held-to-maturity securities......................... 1,500,000 -- --
Purchases of held-to-maturity securities.......................... (40,391,000) -- --
-------------- ------------- -------------
Net cash used in investing activities....................... (47,200,000) (1,319,000) (130,000)
-------------- ------------- -------------
Cash flows from financing activities:
Issuance of common stock pursuant to initial public offering...... 84,325,000 -- --
Payments under capital-lease obligations.......................... (808,000) (143,000) (239,000)
Proceeds from exercise of common stock options.................... 248,000 6,000 --
Proceeds from exercise of warrant................................. 95,000 -- --
Repurchase of common stock........................................ (19,000) -- --
Proceeds from issuance of mandatory redeemable convertible
preferred stock................................................. -- 37,897,000 2,063,000
Subscription receivable........................................... 25,000,000 (25,000,000) --
Proceeds from related-party note payable (receivable)............. (100,000) 645,000 --
Proceeds from note payable........................................ -- -- 1,100,000
Repayment on note payable......................................... -- (1,100,000) --
-------------- ------------- -------------
Net cash provided by financing activities................... 108,741,000 12,305,000 2,924,000
-------------- ------------- -------------
Increase in cash and cash equivalents....................... 47,229,000 3,752,000 32,000
Cash and cash equivalents, beginning of year........................ 3,785,000 33,000 1,000
-------------- ------------- -------------
Cash and cash equivalents, end of year.............................. $ 51,014,000 $ 3,785,000 $ 33,000
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
F-6
<PAGE>
GEOCITIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Supplemental disclosure of cash-flow information:
Cash paid during the period for:
Interest........................................................ $ 163,000 $ 89,000 $ 71,000
Income taxes.................................................... 1,000 1,000 1,000
Schedule of non-cash investing and financing activities:
Equipment under capital leases.................................... 3,580,000 94,000 844,000
Conversion of Series C convertible preferred stock to mandatory
redeemable convertible preferred stock.......................... -- 386,000 --
Conversion of series A, B, C, D, E and F mandatory redeemable
convertible preferred stock to common stock..................... 39,741,000 -- --
Issuance of common stock in connection with purchased
technology...................................................... 729,000 -- --
Issuance of common stock in connection with acquisition........... 21,895,000 -- --
Assets and liabilities recognized in connection with acquisition:
Accounts receivable............................................... 48,000 -- --
Other current assets.............................................. 7,000 -- --
Property and equipment............................................ 106,000 -- --
Goodwill and other intangibles.................................... 23,992,000 -- --
Purchased technology.............................................. 1,189,000 -- --
Accounts payable.................................................. 192,000 -- --
Accrued expenses.................................................. 368,000 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
GeoCities (the "Company") was incorporated as a California corporation on
December 16, 1994, and began operations in 1995. In June 1998, the Board of
Directors approved the reincorporation of the Company in the State of Delaware
and changed the par value of the Company's common stock. The Company offers a
community of personal web sites on the Internet within 41 themed neighborhoods.
The Company's main source of revenue is from advertising, along with other
revenue streams, including fee-based premium services, licensing fees and
commerce. The Company conducts its business within one industry segment. The
Company's business is characterized by rapid technological change, new product
development and evolving industry standards.
The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany accounts and transactions have
been eliminated. Certain items shown in December 31, 1997 and 1996, financial
statements have been reclassified to conform with the current period
presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
RESTATEMENT
In February 1999, the Company restated its financial statements for the
years ended December 31, 1997 and 1996 to reflect the accretion on its mandatory
redeemable convertible preferred stock (see Note 10 of Notes to the Consolidated
Financial Statements). The effect of this restatement was to increase the
previously reported historical basic and diluted net loss per share applicable
to common stockholders from $(3.40) to $(3.72) and $(1.15) to $(1.19) for the
years ended December 31, 1997 and 1996, respectively. The restatement had no
effect on the previously reported net loss in the Company's statements of
operations and cash flows for any period presented and has no impact on the
previously reported pro forma net loss per share for the year ended December 31,
1997. This restatement also had the following effects:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
--------------------- --------------
<S> <C> <C>
Series A, B, C, D, E, and F mandatory redeemable convertible preferred
stock.................................................................... $ 37,200,000 $ 38,137,000
--------------------- --------------
Additional paid-in capital................................................. $ 3,903,000 $ 2,966,000
--------------------- --------------
Total Stockholders' Equity (deficiency).................................... $ (9,109,000) $ (10,046,000)
--------------------- --------------
</TABLE>
This restatement does not affect previously reported cash flows for each
year ended December 31, 1997 or 1996. Upon the closing of the Company's initial
public offering in August 1998, all of the mandatory redeemable preferred stock
converted into common stock and ceased accruing a dividend; no previously
accrued dividend was required to be paid.
USE OF ESTIMATES
In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
At December 31, 1998 and 1997, certificates of deposit totaling
approximately $125,000 and $255,000, respectively, were used to collateralize
certain of the Company's lease obligations, and have been included in deposits
on the balance sheet.
SHORT AND LONG-TERM INVESTMENTS
The Company invests its excess cash in debt instruments of the U.S.
government and its agencies, and in high-quality corporate debt securities.
Those securities with original maturities greater than three months and maturing
within twelve months from the balance sheet date are considered short-term
investments; those maturing greater than twelve months from the balance sheet
date are considered long-term investments. The Company classifies its
investments as held-to-maturity. At December 31, 1998, 87% of the Company's
securities will mature in one year or less and 13% will mature between one and
two years. At December 31, 1998, the carrying value of the Company's investments
approximated fair value.
The Company's investments in held-to-maturity securities are categorized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
TYPE OF SECURITY 1998
- ------------------------------------------------------------------------------- -------------
<S> <C>
Corporate debt securities with maturities less than one year................... $ 18,688,000
U.S. government and its agencies debt securities with maturities less than one
year......................................................................... 15,109,000
-------------
Total short-term investments................................................. 33,797,000
-------------
Corporate debt securities with maturities between one and two years............ 2,086,000
U.S. government and its agencies debt securities with maturities between one
and two years................................................................ 3,008,000
-------------
Total long-term investments.................................................. 5,094,000
-------------
Total short and long-term investments...................................... $ 38,891,000
-------------
-------------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method based upon
the estimated useful lives of the assets, ranging from three to five years.
Leasehold improvements and equipment under capital leases are amortized over the
shorter of the estimated useful life or the life of the lease. Useful lives are
evaluated regularly by management in order to determine recoverability in light
of current technological conditions. Maintenance and repairs are charged to
expense as incurred while renewals and improvements are capitalized. Upon the
sale or retirement of property and equipment, the accounts are relieved of the
cost and the related accumulated depreciation or amortization, with any
resulting gain or loss included in the Consolidated Statement of Operations.
F-9
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
LONG-LIVED ASSETS
The Company identifies and records impairment losses on long-lived assets
when events and circumstances indicate that such assets might be impaired. The
Company periodically evaluates the recoverability of its long-lived assets based
on expected undiscounted cash flows and recognizes impairments, if any, based on
expected discounted cash flows.
INTANGIBLE ASSETS
Intangible assets consisting of an assembled work-force and goodwill are
amortized over an estimated useful life of three years using the straight-line
method.
COMPUTATION OF HISTORICAL NET LOSS PER SHARE AND PRO FORMA NET LOSS PER
SHARE
The Company calculates net loss per share in accordance with SFAS No. 128,
"Earnings Per Share." In accordance with SFAS No. 128, basic earnings per share
is computed using the weighted average number of common shares outstanding
during the period. Diluted earnings per share is computed using the weighted
average number of common and common equivalent shares outstanding during the
period. Common equivalent shares consist of the incremental common shares
issuable upon the conversion of the mandatory redeemable convertible preferred
stock (using the if-converted method) and shares issuable upon the exercise of
stock options and warrants (using the treasury stock method); common equivalent
shares are excluded from the calculation if their effect is anti-dilutive.
Pursuant to SEC Staff Accounting Bulletin No. 98, common stock and convertible
preferred stock issued for nominal consideration, prior to the effective date of
the IPO, are required to be included in the calculation of basic and diluted net
loss per share, as if they were outstanding for all periods presented. To date,
the Company has not had any issuances or grants for nominal consideration.
Diluted net loss per share for the years ended December 31, 1998, 1997, and
1996, does not include the effect of options to purchase 8,522,000, 4,605,000,
and 1,113,000 shares of common stock, respectively, and 0, 20,304 and 0 common
stock warrants, respectively.
Historical net loss per share for the years ended December 31, 1997 and
1996, does not include 22,230,000 and 6,008,000 shares of mandatory redeemable
convertible preferred stock on an "if converted" basis, respectively.
F-10
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Net loss............................................................ $ (19,759,000) $ (8,903,000) $ (3,006,000)
Accretion of mandatory redeemable convertible preferred stock....... (1,604,000) (832,000) (105,000)
-------------- ------------- -------------
Net loss applicable to common stockholders.......................... $ (21,363,000) $ (9,735,000) $ (3,111,000)
-------------- ------------- -------------
-------------- ------------- -------------
Weighted average shares........................................... 15,001,000 2,620,000 2,617,000
Basic and diluted net loss per share applicable to common
stockholders.................................................... $ (1.42) $ (3.72) $ (1.19)
-------------- ------------- -------------
-------------- ------------- -------------
Pro forma Presentation:
Net loss applicable to common stockholders.......................... $ (21,363,000) $ (9,735,000)
Accretion of mandatory redeemable convertible preferred stock....... 1,604,000 832,000
-------------- -------------
Net loss.......................................................... $ (19,759,000) $ (8,903,000)
-------------- -------------
-------------- -------------
Shares used above................................................... 15,001,000 2,620,000
Pro forma adjustment to reflect weighted effect of assumed
conversion of mandatory redeemable convertible preferred stock.... 12,968,000 22,230,000
-------------- -------------
Shares used in computing pro forma basic and diluted net loss per
share............................................................. 27,969,000 24,850,000
-------------- -------------
-------------- -------------
Pro forma basic and diluted net loss per share...................... $ (0.71) $ (0.36)
-------------- -------------
-------------- -------------
</TABLE>
Pro forma net loss per share for all periods presented assumes that the
common stock issuable upon conversion of the outstanding mandatory redeemable
convertible preferred stock had been outstanding during each such period. The
effect of outstanding stock options is excluded from the calculation of diluted
net loss per share as their inclusion would be antidilutive.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation." Under
APB No. 25, compensation cost, if any, is recognized over the respective vesting
period based on the difference, on the date of grant, between the fair value of
the Company's common stock and the grant price.
F-11
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and the tax bases of assets and
liabilities using enacted tax rates in effect for the period in which the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
REVENUE RECOGNITION
The Company's revenues are derived principally from the sale of banner
advertisements under short-term contracts; advertising rates are dependent on
whether the impressions are for general rotation throughout the Company's web
site or premier targeted audiences and properties within specific areas of the
Company's web site. To date, the duration of the Company's advertising
commitments has generally averaged from two to three months. In December 1997,
the Company also began selling a combination of sponsorship and banner
advertising campaign contracts to select premier commerce partners. In general,
these premier commerce partner contracts have longer terms than standard banner
advertising contracts (generally up to one year) and involve some integration
with the Company's web site. Advertising revenues on both banner and premier
commerce partner contracts are recognized ratably in the period in which the
advertisement is displayed, provided that no significant Company obligations
remain and collection of the resulting receivable is probable. Company
obligations typically include the guarantee of a minimum number of "impressions"
or times that an advertisement appears in pages viewed by the users of the
Company's online properties. To the extent that minimum guaranteed impressions
are not met, the Company defers recognition of the corresponding revenue until
the remaining impressions are delivered.
In addition to advertising revenues, the Company derives revenues from its
GeoPlus program, a premium service for its members (introduced in late 1996) and
GeoShops, a commerce service for its members (introduced in March 1998). These
services require the payment of monthly fees by the customers; revenues are
recognized on a monthly basis as the fees become due. In the fourth quarter of
1998, the Company also began to generate revenues from licensing fees for e-mail
services provided to its Homesteaders. These revenues are deferred and
recognized ratably over the service period. The Company also has revenue sharing
agreements with its premier commerce partners. These revenues are recognized by
the Company upon notification by the premier commerce partners of revenues
earned by the Company, and to date, have not been significant. To date, these
sources of revenues have not been significant.
Revenues from barter transactions are recognized during the period in which
the advertisements are displayed. Barter transactions are recorded at the fair
value of the goods or services provided or received, whichever is more readily
determinable in the circumstances. To date, barter transactions have not been
significant.
PRODUCT DEVELOPMENT
Product development costs are expensed as incurred. Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed," requires capitalization of certain
software development costs subsequent to the establishment of
F-12
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
technological feasibility. Based upon the Company's product development process,
technological feasibility is established upon completion of a working model.
Costs incurred by the Company between completion of the working model and the
point at which the product is ready for general release have been insignificant
ADVERTISING COSTS
Advertising production costs are recorded as expense the first time an
advertisement appears. The Company does not incur any direct-response
advertising costs. All other advertising costs are expensed as incurred.
Advertising expense totaled approximately $2,578,000, $1,742,000 and $196,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income generally represents all changes in
stockholders' equity during the period except those resulting from investments
by, or distributions to, stockholders. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997 and requires restatement of earlier
periods presented. Management determined that SFAS No. 130 had no significant
impact on the Company's financial statements through December 31, 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that a public enterprise reports information about operating segments in
its annual financial statements, and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to stockholders. SFAS No. 131 is effective for fiscal years beginning
after December 15, 1997 and requires restatement of earlier periods presented.
Management determined that SFAS No. 131 had no impact on the Company's
consolidated financial statements through December 31, 1998.
STOCK SPLIT
In July 1998, the Company authorized and implemented a two-for-one stock
split. The share information in the accompanying financial statements has been
retroactively restated to reflect the effect of this stock split.
3. CONCENTRATION OF CREDIT RISK:
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents, short-term and long-term
investments and trade accounts receivable. The Company maintains cash and cash
equivalents with various domestic financial institutions. The Company performs
periodic evaluations of the relative credit standing of these institutions. From
time to time, the Company's cash balances with any one financial institution may
exceed Federal Deposit Insurance Corporation insurance limits.
The Company's customers are concentrated in the United States. The Company
performs ongoing credit evaluations, generally does not require collateral and
establishes an allowance for doubtful
F-13
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. CONCENTRATION OF CREDIT RISK: (CONTINUED)
accounts based upon factors surrounding the credit risk of customers, historical
trends and other information; to date, such losses have been within management's
expectations.
For the year ended December 31, 1998, no one customer accounted for 10% of
all revenues generated by the Company and no one customer accounted for 10% of
accounts receivable at December 31, 1998.
For the year ended December 31, 1997, one customer accounted for 12% of all
revenues generated by the Company, and 12% of accounts receivable at December
31, 1997.
For the year ended December 31, 1996, two customers accounted for
approximately 14% and 10%, respectively, of all revenues generated by the
Company.
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Computer equipment, including assets under capital leases of
$4,085,000 and $766,000 for 1998 and 1997, respectively....... $ 8,460,000 $1,399,000
Furniture and fixtures, including assets under capital leases of
$401,000 and $172,000 for 1998 and 1997, respectively......... 1,289,000 292,000
Leasehold improvements.......................................... 1,630,000 151,000
------------- ------------
11,379,000 1,842,000
Less, accumulated depreciation and amortization, including
amounts related to assets under capital leases of $1,073,000
and $459,000 for 1998 and 1997, respectively.................. (2,673,000) (626,000)
------------- ------------
Total....................................................... $ 8,706,000 $1,216,000
------------- ------------
------------- ------------
</TABLE>
5. ACQUISITIONS:
ACQUISITION OF STARSEED, INC.
In December 1998, GeoCities completed the acquisition of Starseed, Inc.
("Starseed"), for a total consideration of $24,782,000, including $2,000,000 in
cash, $16,200,000 million in common stock valued at $29.63 per share, $6,000,000
related to assumed outstanding options to purchase common stock, and forgiveness
of $600,000 in debt. In exchange for the consideration given, GeoCities acquired
all of the outstanding shares of Starseed common stock and assumed all
outstanding options to purchase Starseed common stock. Starseed was merged with
and into a subsidiary of GeoCities ("WebRing"), which was the surviving
corporation in the merger and will remain a wholly-owned subsidiary of
GeoCities.
Under the terms of the merger agreement and related escrow agreement, an
aggregate of 128,881 shares of common stock of the Company will be held in
escrow for the purpose of indemnifying the
F-14
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITIONS: (CONTINUED)
Company against certain liabilities of Starseed and its stockholders. The escrow
will expire in June 2000.
The acquisition was accounted for as a purchase with the excess purchase
price over the fair value of net assets acquired being recorded as goodwill and
other intangibles. The purchase price was allocated to the assets acquired and
the liabilities assumed based on their estimated fair values as follows:
<TABLE>
<S> <C>
Purchased technology.............................. $ 1,189,000
Goodwill and other intangible assets.............. 23,992,000
Other assets...................................... 161,000
Liabilities assumed............................... (560,000)
------------
Total purchase price.............................. $ 24,782,000
------------
------------
</TABLE>
The results of operations for WebRing are included in the Company's
consolidated financial statements for the period subsequent to the date of
acquisition. The purchased technology is being amortized on a straight-line
basis over one year. The goodwill and other intangibles are being amortized on a
straight-line basis over three years. At December 31, 1998, accumulated
amortization of purchased technology and goodwill and other intangible assets is
$99,000 and $600,000, respectively.
GeoCities filed a Form 8-K with the Securities and Exchange Commission
summarizing the terms of the acquisition.
PURCHASED TECHNOLOGY FROM COMPU-TRAK, INC.
In August 1998, the Company completed the purchase of certain Web-page
development technology for a total consideration of $1,580,000, including
$850,000 in cash and $729,000 in unregistered shares of common stock valued at
$20.65 per share. GeoBuilder, the Web-page development technology, was launched
to market in October 1998. During the year ended December 31, 1998, $300,000 was
recorded as purchased in-process research and development. The purchased
technology is classified as property and equipment and is being amortized over
one year.
6. RELATED-PARTY TRANSACTIONS:
In November 1997, the Company and SOFTBANK Corporation of Japan
("SOFTBANK"), the parent company of an investor in the Company, formed a joint
venture called GeoCities Japan Corporation ("GeoCities Japan") to create and
manage a Japanese version of GeoCities. In accordance with the joint venture
agreement ("Agreement"), the Company purchased 40% of GeoCities Japan for
approximately $645,000 and licensed certain intellectual properties for the
purpose of localizing the Japanese version of GeoCities to GeoCities Japan. The
Agreement remains in effect perpetually, provided that, if as of April 1, 2001,
or any April 1 thereafter; (i) GeoCities Japan has sustained net losses for the
four consecutive fiscal quarters, and (ii) GeoCities and SOFTBANK differ with
respect to the future business plan of GeoCities Japan, then each party shall
have the right to terminate the Joint Venture with 90-days notice.
F-15
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. RELATED-PARTY TRANSACTIONS: (CONTINUED)
The Company's investment of approximately $645,000 was funded through a loan
from SOFTBANK. Pursuant to the terms of the loan agreement, the loan bears
interest at 5.5% per annum and is repayable upon occurrence of a Significant
Financing Event, which is defined as a non-U.S. IPO or private placement that
raises at least 1.5 billion yen for GeoCities Japan. In the event that GeoCities
Japan does not have a Significant Financing Event on or prior to March 31, 2000,
SOFTBANK will forgive the repayment of the loan. Interest expense and accrued
interest for the years ended December 31, 1998 and 1997, were each $35,000 and
$6,000, respectively.
In consideration of the licenses granted, GeoCities Japan is required to pay
the Company an amount equal to 3% of total revenue obtained by GeoCities Japan
within 30 days of the end of each quarter. The license expires 20 years from the
date of the Agreement, unless the Agreement is terminated earlier. Upon
termination, GeoCities Japan will cease to use and distribute all licensed
properties. Royalty payments for the years ended December 31, 1998 and 1997,
were approximately $9,000 and $0, respectively.
The investment is being accounted for under the equity method and is
included in other assets at December 31, 1998. The loss on affiliate recorded
for the years ended December 31, 1998 and 1997, was approximately $138,000 and
$0, respectively.
Advertising revenues at December 31, 1998 and 1997, include $124,000 and
$107,000, respectively, in revenues received from an entity that is controlled
by a significant stockholder of the Company. At December 31, 1998 and 1997,
$9,000 and $0, respectively, of these amounts are included in accounts
receivable.
Advertising revenues at December 31, 1998 and 1997, include $89,000 and $0,
respectively, in revenues received from an entity that is a subsidiary of
Yahoo!, Inc. ("Yahoo!"), (see Note 14). At December 31, 1998 and 1997, $16,000
and $0, respectively, of these amount were included in accounts receivable.
In July 1998, the Company loaned $100,000 to an officer/director of the
Company. This loan bears an annual interest rate of 5.56%, and is due in April
1999. At December 31, 1998, the loan was included in prepaids and other current
assets.
In December 1997, in conjunction with its financing activities, the Company
entered into a one-year distribution and commerce agreement ("Agreement") with
Yahoo!, which is automatically renewable for subsequent one-year terms, subject
to the right of either party to terminate the relationship at the end of any
term with up to 90-days' notice. In connection with the Agreement, Yahoo! also
made a minority equity investment in the Company. The Agreement was designed to
increase traffic and memberships of both parties in addition to offering
GeoCities' Homesteaders an array of free personalized member services on Yahoo!.
Under the terms of the Agreement, GeoCities agreed to provide its
community-based, Web site and other services for free to registered users of
Yahoo!. In addition, Yahoo! agreed to market GeoCities-branded personal
publishing programs on select areas throughout Yahoo!, as well as provide a
GeoCities-specific programming module on My Yahoo! for GeoCities' Homesteaders.
The Agreement did not involve any cash consideration; any revenues related to
the Agreement are accounted for in accordance with the Company's barter revenue
recognition policy, as appropriate. To date, such barter revenues have not been
significant.
F-16
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LINE OF CREDIT:
In August 1997, the Company executed a $2,000,000 revolving line of credit
(the "Line") with a commercial bank. Pursuant to the agreement, the Line matured
on December 1, 1998, bears interest at the bank's prime rate of interest, plus
0.50%, and is collateralized by substantially all of the Company's assets. The
Company is required to comply with certain financial covenants, as defined in
the agreement, which include tangible effective net-worth and quick-ratio
covenants. In connection with the Line, the Company issued a warrant to the bank
to purchase up to 20,304 shares of the Company's common stock at the exercise
price of $4.925, which was higher than the then estimated fair market value of a
share of the Company's common stock, which was exercised in August 1998.
In May 1998, the Company negotiated an increase of the Line to $10,000,000,
including a $7,000,000 revolving facility for working capital and $3,000,000
lease facility, extended the maturity to December 31, 1999, and reduced the
interest rate to prime for the revolving facility (7.75% at December 31, 1998)
and prime plus 0.75% (8.5% at December 31, 1998) for the lease facility; all
other terms substantially remained the same. In addition, the commitment letter
also includes a non-revolving line of credit for $3,000,000, which bears
interest at the bank's prime rate plus 0.75% per year, and matures on May 12,
1999, if not renewed. At December 31, 1998 and 1997, there were no borrowings
under either agreement.
8. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases its facilities and certain computer and office equipment
under noncancelable leases for varying periods through 2009. The Company's lease
obligations are collateralized by $1,688,000 in standby letters of credit and
certain assets of the Company at December 31, 1998. The following are the
minimum lease obligations under these leases at December 31, 1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------ -------------
<S> <C> <C>
1999........................................................... $ 1,946,000 $ 2,553,000
2000........................................................... 1,097,000 1,933,000
2001........................................................... 769,000 1,444,000
2002........................................................... -- 1,241,000
2003........................................................... -- 1,131,000
Thereafter..................................................... -- 4,443,000
------------ -------------
Minimum lease payments........................................... 3,812,000 $ 12,745,000
-------------
-------------
Less: Amount representing interest............................... (464,000)
------------
Present value of minimum lease payments.......................... 3,348,000
Less: Current portion............................................ 1,707,000
------------
Long-term portion................................................ $ 1,641,000
------------
------------
</TABLE>
Rent expense pertaining to operating leases for the years ended December 31,
1998, 1997 and 1996, was approximately $2,478,000, $1,100,000, and $229,000,
respectively.
F-17
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
EMPLOYMENT AGREEMENTS
The Company maintains employment agreements with certain of its executive
officers. The employment agreements provide for minimum salary levels, incentive
compensation and severance benefits, among other items.
GEOREWARDS PROGRAM
During 1996, the Company created a marketing program to reward members of
the Company's online community ("Homesteaders") for various activities, allowing
them to earn GeoPoints. Homesteaders may redeem GeoPoints to upgrade their web
site or purchase goods from the Company's GeoStore. At December 31, 1998 and
1997, the Company had accrued $709,000 and $463,000 for probable future
redemption of GeoPoints; these amounts are included in accrued expenses.
CONTINGENCIES
The Company and the Federal Trade Commission ("FTC") staff attorneys
executed a Consent Order in February 1999 in connection with certain past
business practices of the Company related to disclosure of personal identifying
information to third parties. Based on the scope of the Consent Order, the
Company does not believe that its compliance with the Consent Order will have a
material adverse effect on the Company's business, results of operation,
financial condition, or cash flows.
On August 14, 1998, a lawsuit was filed against GeoCities in Los Angeles
County Superior Court involving GeoCities' collection and use of personal
identifying information (Hyatt v. GeoCities). The complaint in this case follows
the FTC draft complaint without alleging any new facts. This case involves a
single cause of action for the alleged violation of California Business and
Professions Code Section 17200 and seeks an injunction, disgorgement and any
profits obtained as a result of the alleged improper activity, and attorneys'
fees. GeoCities filed an answer to this lawsuit on September 17, 1998.
On September 30, 1998, an additional case was filed against the Company in
Los Angeles County Superior Court related to the same activity (Wormley v.
GeoCities et al.). The complaint in this case also followed the FTC draft
complaint and alleged no new facts. This suit purported to be a class action and
alleged causes of action for the violation of Section 17200 and California
Business and Professions Code Section 17500 ("Section 17500"), fraud, unjust
enrichment, negligent misrepresentation and invasion of privacy. This suit
sought disgorgement of any profits obtained as a result of the alleged improper
activity, unspecified damages, and attorneys' fees. On November 16, 1998, the
Company filed a demurrer to and motion to strike portions of the Wormley
complaint. On December 11, 1998, in response to the Company's demurrer and
motion to strike, the plaintiff filed an amended complaint. The amended
complaint, like the original complaint, purports to be a class action and
alleges causes of action for the violation of Sections 17200 and 17500, the
Consumers Legal Remedies Act ("CLRA"), fraud, unjust enrichment, negligent
misrepresentation, and invasion of privacy. This suit seeks disgorgement of any
profits obtained as a result of the alleged improper activity, unspecified
damages, and attorneys' fees. On January 15, 1999, the Company filed a demurrer
to and motion to strike portions of the amended complaint. On January 29, 1999,
the court determined that the Hyatt matter (discussed above) is related to the
Wormley matter, and ordered the Hyatt matter transferred to the department where
the Wormley matter is pending. On February 11, 1999, a hearing was held on the
Company's demurrer to and motion to strike portions of the amended Wormley
F-18
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
complaint. At that hearing, the court dismissed the Section 17500, CLRA, and
invasion of privacy causes of action. The court also set a joint case management
conference and a class certification hearing for later in 1999. GeoCities
intends to contest class certification as inappropriate in light of the claims
alleged in the Wormley matter.
Based on the Company's analysis of these lawsuits and given that they
involve the same set of circumstances that are covered in the FTC matter, the
Company believes that the allegations contained in the two complaints are
without merit and intends to defend these actions vigorously.
From time to time, the Company has been party to various other litigation
and administrative proceedings relating to claims arising from its operations in
the normal course of business. Management believes that the resolution of these
other matters will not have a material adverse effect on the Company's business,
results of operations, financial condition or cash flows.
9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
At December 31, 1998 and 1997, the Company had accrued expenses and other
current liabilities consisting of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Vacation, wages and other employee benefits............. $ 2,140,000 $ 419,000
Advertising and marketing expenses...................... 1,751,000 563,000
Professional service expenses........................... 720,000 --
Ad-serving expenses..................................... 546,000 --
Employee stock purchase plan payable.................... 323,000 --
Internet connectivity expenses.......................... 239,000 296,000
Offering expenses....................................... -- 808,000
Other accrued and current liabilities................... 1,026,000 203,000
------------ ------------
Total accrued expenses and other current liabilities.... $ 6,745,000 $ 2,289,000
------------ ------------
------------ ------------
</TABLE>
10. CAPITALIZATION:
In August 1998, the Company completed an initial public offering in which it
sold 5,463,000 shares of common stock, including 712,500 shares in connection
with the exercise of the underwriters' over-allotment option, at $17.00 per
share. The Company's authorized capital consists of 60,000,000 shares of common
stock of which approximately 32,019,000 shares were outstanding at December 31,
1998.
The Board of Directors is authorized, without further stockholder approval,
to issue from time to time up to an aggregate of 5,000,000 shares of Preferred
Stock in one or more series and to fix or alter the designations, preferences,
rights and any qualifications, limitations or restrictions of the shares of each
such series thereof, including the dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. At December 31, 1998, no
such shares were issued.
F-19
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITALIZATION: (CONTINUED)
The Company had six series of mandatory redeemable convertible preferred
stock (collectively "Preferred Stock") authorized and outstanding. The holders
of the various series of Preferred Stock generally had the same rights and
privileges; significant differences are discussed below.
The holders of the Preferred Stock were entitled to a discretionary
noncumulative dividend as specified below which is mandatory in the event of a
liquidation (not included in the liquidation preference below), and were
entitled to the number of votes equal to the number of shares of common stock
that could be converted on the date of the vote. Upon liquidation, the holders
of the Preferred Stock would have received, prior and in preference to the
holders of common stock, their liquidation preference plus accrued dividends at
the stated rate, from the date of issuance to the date payment was made
available. Redemption, at the option of the holders of Preferred Stock, could be
elected beginning on January 1, 2001 at which time, the redemption preference
equal to the original issue price plus seven percent per annum, on a compounded
cumulative basis would be due. At the option of the holders of Preferred Stock,
each share of Preferred Stock was convertible at the stated conversion price per
share, subject to adjustment as defined in the Certificate of Incorporation.
Upon the closing of the Company's initial public offering in 1998, all of the
Company's mandatory redeemable convertible preferred stock (and accrued
dividends) converted to common stock on a one-for-one basis.
During the year ended December 31, 1996, the Company issued 3,108,000 and
2,900,000 shares of Series A Stock and Series B Stock for $1,000,000 and
$1,100,000, respectively. During January and February 1997, the Company issued
10,169,492 shares of Series D Stock for approximately $9,000,000. In October and
December 1997, the Company issued 1,428,564 and 814,270 shares of Series E Stock
at $3.50 and $7.4254 per share, respectively, for total cash consideration of
$9,750,000 and 20,242 shares of Yahoo! stock valued at approximately $1,300,000,
which resulted in the recording of a subscription receivable for approximately
$6,000,000 at December 31, 1997. The subscription receivable was collected in
January 1998, and the Yahoo! stock was sold in January 1998.
In December 1997, the Company sold 2,552,576 shares of Series F Stock for
approximately $19,000,000 which resulted in the recording of a subscription
receivable at December 31, 1997. The subscription receivable was collected in
January 1998.
In August 1998, approximately 16,000 shares of common stock were issued by
the Company to its Community Leaders and Liaisons valued at $17.00 per share
under the 1998 Stock Incentive Plan. The Company recorded expense of $258,000.
WARRANTS
In connection with the Series D Preferred Stock issuance, the Company issued
a warrant to a bank to purchase 64,972 of the Company's Series D Preferred Stock
at $0.885 per share, exercisable at any time prior to January 12, 2002. On
December 31, 1997, the bank converted this warrant (on a net basis), and the
Company issued 57,226 shares of Series D Preferred Stock. The Bank immediately
sold these shares in connection with the Series E and F Preferred Stock
issuances. Also see Notes 7 and 12 of Notes to Financial Statements for a
warrant issued in connection with a line of credit, and options issued to a
Series D Preferred stockholder and others pursuant to stock option agreements.
F-20
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES:
The primary components of temporary differences which gave rise to deferred
taxes at December 31 are:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................................................... $ 11,582,000 $ 4,639,000
Bad debt expense................................................................... 298,000 40,000
Accrued expenses................................................................... 614,000 321,000
Other.............................................................................. 1,000 1,000
------------- ------------
Total deferred tax assets........................................................ 12,495,000 5,001,000
Valuation allowance................................................................ (12,452,000) (4,958,000)
------------- ------------
Net deferred tax assets.......................................................... 43,000 43,000
------------- ------------
Deferred tax liabilities:
Depreciation and amortization...................................................... (43,000) (43,000)
------------- ------------
Total deferred tax liabilities................................................... (43,000) (43,000)
------------- ------------
Net.............................................................................. $ -- $ --
------------- ------------
------------- ------------
</TABLE>
As a result of the Company's loss history, management believes a valuation
allowance for the entire net deferred tax assets, after considering deferred tax
liabilities, is required. The change in the valuation allowance was an increase
of $7,494,000 in 1998. As of December 31, 1998, the Company had federal and
state net operating loss carryforwards of approximately $28,245,000 and
$27,644,000, respectively. Federal and state net operating loss expirations
begin in 2010 and 2002, respectively. Due to changes in ownership (see Note 10),
the Company will be limited in the annual utilization of its net operating loss
carryforwards.
12. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN:
In 1998, the Company adopted the 1998 Stock Option Plan (the "Plan"). The
Plan supercedes the 1997 Stock Option Plan (the "Predecessor Plan") and provides
for issuance of both non-statutory and incentive stock options to employees,
officers, directors and consultants of the Company. At December 31, 1998, the
Company had authorized 10,688,000 shares of common stock for issuance. Incentive
stock options may be granted at no less than 100% of the fair market value of
the Company's common stock on the date of grant as determined by the Board of
Directors (110% if granted to an employee who owns 10% or more of the common
stock). Options granted to date generally vest ratably over a four-year period
from the date of grant and are generally exercisable for a period of no longer
than seven years from the date of grant (five years if granted to an individual
who owns 10% or more of the common stock). Options granted under the Plan, other
than certain performance options granted in connection with the acquisition of
Starseed representing an aggregate of 300,000 shares of the Company's common
stock (see Note 5), contain certain provisions that provide for full
acceleration if the holder of the option is involuntarily terminated within 18
months following a change in control.
In connection with its Series D stock offering in early 1997, the Company
granted options to purchase 1,000,000 shares of its common stock at an exercise
price of $0.885 per share to CMG@Ventures; these options vested immediately and
are exercisable by January 13, 2004. The
F-21
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN: (CONTINUED)
exercise price was in excess of the then estimated fair market value of a common
share. The Company has no obligation to repurchase the option from CMG@Ventures.
At that time, the Company also granted an option to purchase 1,000,000 shares of
its common stock at an exercise price of $0.885 per share to certain officers,
directors and consultants to the Company. These options generally vest over a
four-year period from the date of grant and are generally exercisable by January
13, 2004. In certain circumstances, the vesting of these options may accelerate,
and there are certain participation rights in the event of a liquidation.
A summary of the status of the Company's stock options, as of December 31,
1998, 1997 and 1996, and the changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ----------- ---------- ----------- ---------- -----------
Outstanding at beginning of year................. 4,605,000 $ 0.66 1,113,000 $ 0.16 777,000 $ 0.01
Granted--price equals fair value............... 2,305,000 $ 24.07 2,648,000 $ 0.74 364,000 $ 0.25
Granted--less than fair value.................. 3,154,000 $ 3.47 1,307,000 $ 0.81 -- --
Exercised...................................... (1,079,000) $ 0.23 (25,000) $ 0.25 -- --
Canceled....................................... (678,000) $ 4.26 (438,000) $ 0.35 (28,000) $ 0.25
----------- ---------- ----------
Outstanding at year-end.......................... 8,307,000 $ 7.97 4,605,000 $ 0.66 1,113,000 $ 0.16
----------- ---------- ----------
----------- ---------- ----------
Options exercisable at year-end.................. 1,562,000 $ 0.84 $ 0.52
Options available for future grant............... 1,277,000
</TABLE>
At December 31, 1998 and 1997, the Company had reserved a total of 9,584,000
and 5,530,000 shares of common stock for issuance to its stock option holders.
In connection with its grants of options, the Company has recorded unearned
compensation of approximately $7,321,000, $684,000 and $0 for the years ended
December 31, 1998, 1997 and 1996, respectively. These amounts will be amortized
over the vesting periods, ranging from 48 to 72 months, from the date of grant;
$1,136,000 and $24,000 was expensed during the years ended December 31, 1998 and
1997, respectively.
F-22
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN: (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
- --------------------- ----------- --------------- ----------- ----------- -----------
$0.01 75,000 3.99 $ 0.01 75,000 $ 0.01
$0.25--$0.44 404,000 5.18 $ 0.32 73,000 $ 0.32
$0.75--$1.38 2,845,000 5.35 $ 0.88 1,386,000 $ 0.89
$1.82--$3.00 2,307,000 6.91 $ 2.30 28,000 $ 1.82
$3.90 122,000 6.25 $ 3.90 -- --
$9.00--$17.00 1,046,000 6.54 $ 12.03 -- --
$18.25--$35.44 1,303,000 6.91 $ 28.46 -- --
$37.00--$43.31 205,000 6.95 $ 39.76 -- --
----------- -----------
8,307,000 1,562,000
----------- -----------
----------- -----------
</TABLE>
1998 STARSEED STOCK OPTION PLAN
In connection with the acquisition of Starseed, the Company assumed the 1998
Starseed Stock Option Plan under which nonqualified stock options to purchase
common stock may be granted to directors, officers, key employees and advisors.
A portion of these options are fully vested and are exercisable over a 10-year
period from the date of grant. The remaining options granted vest over a
four-year period and are exercisable over a 10-year period from the date of
grant.
<TABLE>
<CAPTION>
1998
----------------------
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
--------- -----------
<S> <C> <C>
Outstanding at December 4, 1998............. 215,000 $ 6.39
Granted................................... -- --
Exercised................................. -- --
Canceled.................................. -- --
--------- -----
Outstanding at year-end..................... 215,000 $ 6.39
--------- -----
--------- -----
Options exercisable at year-end............. 118,000 $ 2.48
Options available for future grant.......... -- --
</TABLE>
F-23
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN: (CONTINUED)
The following table summarizes information about stock options outstanding under
the 1998 Starseed Stock Option plan at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
- ------------------------------ ----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$2.24 115,000 9.43 $ 2.24 115,000 $ 2.24
$11.19 100,000 9.42 $ 11.19 3,000 $ 11.19
----------- -----------
215,000 118,000
----------- -----------
----------- -----------
</TABLE>
The fair value of options granted during 1998, 1997 and 1996, is estimated
as $38,635,000, $993,000, and $12,000, respectively, on the dates of grants
using the Black-Scholes option pricing model for grants in the year ended 1998
and the minimum value method for grants in the years ended 1997 and 1996 with
the following assumptions: (i) dividend yield of 0%, (ii) expected volatility of
61.4% for 1998 and 0% for 1997 and 1996, respectively, (iii) weighted-average
risk-free interest rate ranging from 4.1% to 5.7% for 1998, 5.8% to 6.5% for
1997 and 6.04% to 6.8% for 1996 (iv) weighted-average expected life of five
years for 1998, 1997 and 1996, and (v) assumed forfeiture rate of 0% for 1998,
and 10% for 1997 and 1996.
The Company applies APB No. 25 in accounting for its stock based
compensation plans and accordingly, no compensation expense has been recognized
in the financial statements (except for those options issued with exercise
prices at less than fair market value at date of grant). Had the Company
determined compensation costs for its options and purchase plans based upon the
methodology prescribed under SFAS No. 123, the Company's net loss would have
been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss applicable to common stockholders.......... As reported $ (21,363,000) $ (9,735,000) $ (3,111,000)
-------------- ------------- -------------
-------------- ------------- -------------
Pro forma $ (25,422,000) $ (9,782,000) $ (3,111,000)
-------------- ------------- -------------
-------------- ------------- -------------
Basic net loss per share applicable to common
stockholders...................................... As reported $ (1.42) $ (3.72) $ (1.19)
-------------- ------------- -------------
-------------- ------------- -------------
Pro forma $ (1.69) $ (3.73) $ (1.19)
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
The effects of applying SFAS No. 123 in the pro forma disclosure above are
not indicative of future amounts. Additional awards in future years are
anticipated.
On July 6, 1998, the Company's Board of Directors adopted the Employee Stock
Purchase Plan (the "ESPP"), which provides for the issuance of a maximum of
300,000 shares of common stock. Eligible employees can have up to 10% of their
earnings withheld, up to certain maximums, to be used to purchase shares of the
Company's common stock on the last business day of every January and July. The
first issuance of shares of common stock under the ESPP occurred on January 29,
1999. The price
F-24
<PAGE>
GEOCITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN: (CONTINUED)
of the common stock purchased under the ESPP will be equal to 85% of the lower
of the fair market value of the common stock on the commencement date of each
six-month offering period or the specified purchase date. During 1998, the
grant-date fair value of options granted was $5.46. There were no shares issued
under the ESPP during 1998. On January 29, 1999, 25,635 shares were purchased at
$14.45 per share.
13. RETIREMENT PLAN
The Company has a qualified 401(k) Profit Sharing Plan (the "Plan")
available to all employees who meet the Plan's eligibility requirements.
Employees may elect to contribute from 1% to 18% of their eligible earnings to
the Plan. This defined contribution plan provides that the Company will, at its
discretion, make contributions to the Plan on a periodic basis. Additionally,
the employer may match 33 1/3% of the first 6% of the employees' contributions,
which amounts vest over five years. Terminations and forfeitures from the Plan
are allocated to Plan participants at year-end. The Company made contributions
to the Plan of approximately $39,000 and $10,000 in 1998 and 1997, respectively.
14. SUBSEQUENT EVENTS
MERGER WITH YAHOO!
In January 1999, the Company entered into an agreement with Yahoo! whereby
the Company will become a wholly-owned subsidiary of Yahoo!
Under the terms of the agreement, Yahoo! will issue .6768 shares of Yahoo!
common stock in exchange for each share of the Company's common stock. In
addition, all options to purchase the Company's common stock will be converted
into options to purchase Yahoo! common stock at the same conversion rate. The
acquisition is intended to be accounted for as a pooling of interests and is
expected to be completed in May of 1999.
The merger agreement contains provisions under which either Yahoo! or the
Company may terminate the agreement. If Yahoo! terminates the merger agreement
because the Company has taken or failed to take certain actions specified in the
merger agreement, the Company will be required to pay Yahoo! $100 million. In
addition, if either Yahoo! or the Company terminates the merger agreement
because the required shareholder vote for the Company was not obtained, the
Company may be required to pay Yahoo! all of the expenses incurred by Yahoo! in
connection with the merger agreement.
In addition, the Company granted Yahoo! an option to purchase up to
6,370,000 shares of the Company's common stock at a price of $113.66 per share.
This option is exercisable by Yahoo! at anytime, in whole or in part, if certain
events take place or if the merger agreement is terminated. Yahoo!'s right to
exercise this option expires on the earlier of the effective date of the
contemplated merger or nine months after the termination of the merger
agreement.
LEASED OFFICE SPACE
In January 1999, the Company entered into an eighteen-month lease agreement
to rent approximately 20,000 square feet of office space in Marina del Rey
adjacent to the Company's worldwide headquarters. Monthly lease payments of
$32,000 commence January of 1999.
F-25
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Starseed, Inc.:
We have audited the accompanying balance sheets of Starseed, Inc. (the
"Company") as of September 30, 1998 and 1997, and the related statements of
operations, shareholders' deficit, and cash flows for the year ended September
30, 1998 and for the period from October 8, 1996 (date of inception) to
September 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Starseed, Inc. as of
September 30, 1998 and 1997, and the results of its operations and its cash flow
for the year ended September 30, 1998 and for the period from October 8, 1996
(date of inception) to September 30, 1997 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 9 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in note 9. The financial statements do not include any
adjustment that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Portland, Oregon
October 8, 1998, except as to note 9,
which is as of October 23, 1998.
F-26
<PAGE>
STARSEED, INC.
BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................ $ 47,810 $ 3,227
Accounts receivable, net........................ 42,493 1,722
Prepaid expenses................................ 3,721 458
------------ ------------
Total current assets........................ 94,024 5,407
Property and equipment, net....................... 105,604 64,101
Other assets, net................................. 3,420 86,350
------------ ------------
Total assets................................ $ 203,048 $ 155,858
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses........... $ 210,505 $ 174,762
Current portion of notes payable................ 426,000 18,000
Current portion of capital lease obligations.... 15,091 --
Other current liabilities....................... 130,000 --
------------ ------------
Total current liabilities................... 781,596 192,762
Notes payable (including notes to related
parties), net of current portion................ 41,700 45,200
Capital lease obligations, net of current
portion......................................... 29,643 --
------------ ------------
Total liabilities........................... 852,939 237,962
------------ ------------
Commitments and contingencies
Shareholders' deficit:
Common stock, no par value; 10,000,000 shares
authorized; 1,201,175 and 1,100,042 shares
issued and outstanding on September 30, 1998
and 1997, respectively........................ 2,192,059 410,834
Unearned compensation........................... (261,374) --
Accumulated deficit............................. (2,580,576) (492,938)
------------ ------------
Total shareholders' deficit................. (649,891) (82,104)
------------ ------------
Total liabilities and shareholders'
deficit................................... $ 203,048 $ 155,858
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
STARSEED, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE
PERIOD FROM OCTOBER 8, 1996 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues, net..................................... $ 155,651 $ 6,669
Cost of revenues.................................. 107,598 28,000
------------ ------------
Gross profit (loss)......................... 48,053 (21,331)
------------ ------------
Operating costs and expenses:
Sales and marketing............................. 452,475 97,259
Product development............................. 1,016,400 139,793
General and administrative...................... 497,763 215,478
------------ ------------
1,966,638 452,530
------------ ------------
Loss from operations........................ 1,918,585 473,861
Other expense:
Interest expense................................ 151,408 --
Other expense................................... 17,645 19,077
------------ ------------
Loss before provision for income taxes...... 2,087,638 492,938
Provision for income taxes........................ -- --
------------ ------------
Net loss.................................... $ 2,087,638 $ 492,938
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
STARSEED, INC.
STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE
PERIOD FROM OCTOBER 8, 1996 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ ACCUMULATED UNEARNED SHAREHOLDERS'
SHARES AMOUNT DEFICIT COMPENSATION DEFICIT
---------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, October 8, 1996
(date of inception)..................... -- $ -- $ -- $ -- $ --
Issuance of common stock in exchange for
fixed assets............................ 1,000,000 49,624 -- -- 49,624
Issuance of common stock.................. 75,042 248,100 -- -- 248,100
Issuance of common stock for acquisition
of purchased technology................. 25,000 100,000 -- -- 100,000
Additional capital contributions.......... -- 13,110 -- -- 13,110
Net loss.................................. -- -- (492,938) -- (492,938)
---------- ------------ ------------- ------------ -------------
Balance, September 30, 1997............... 1,100,042 410,834 (492,938) -- (82,104)
Issuance of common stock.................. 101,133 386,500 -- -- 386,500
Unearned compensation on stock option
grants.................................. -- 348,499 -- (348,499) --
Amortization of unearned compensation..... -- -- -- 87,125 87,125
Compensation and consulting expense on
stock option grants..................... -- 1,046,226 -- -- 1,046,226
Net loss.................................. -- -- (2,087,638) -- (2,087,638)
---------- ------------ ------------- ------------ -------------
Balance, September 30, 1998............... 1,201,175 $ 2,192,059 $ (2,580,576) $ (261,374) $ (649,891)
---------- ------------ ------------- ------------ -------------
---------- ------------ ------------- ------------ -------------
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
STARSEED, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE
PERIOD FROM OCTOBER 8, 1996 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1998 1997
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $ (2,087,638) $ (492,938)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization..................................................... 131,370 51,955
Non-cash compensation and consulting expense on stock option grants............... 1,046,226 --
Amortization of unearned compensation............................................. 87,125 --
Changes in assets and liabilities:................................................
Accounts receivable............................................................. (40,771) (1,722)
Prepaid expenses................................................................ (3,263) (458)
Accounts payable and accrued expenses........................................... 35,743 174,762
Other current liabilities....................................................... 130,000 --
------------- -----------
Net cash used in operating activities......................................... (701,208) (268,401)
------------- -----------
Cash flows from investing activities:
Purchase of equipment............................................................... (36,614) (38,432)
Cash paid for purchased technology.................................................. -- (12,000)
------------- -----------
Net cash used in investing activities......................................... (36,614) (50,432)
------------- -----------
Cash flows from financing activities:
Proceeds from notes payable......................................................... 426,000 63,200
Proceeds from issuance of common stock.............................................. 386,500 248,100
Capital contributions............................................................... -- 13,110
Increase in other assets............................................................ (1,070) (2,350)
Repayment of notes payable.......................................................... (21,500) --
Repayment of capital leases......................................................... (7,525) --
------------- -----------
Net cash provided by financing activities..................................... 782,405 322,060
------------- -----------
Increase in cash.............................................................. 44,583 3,227
Cash at beginning of year............................................................. 3,227 --
------------- -----------
Cash at end of year................................................................... $ 47,810 $ 3,227
------------- -----------
------------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.......................................................................... $ -- $ --
Income taxes...................................................................... -- --
Supplemental disclosures of non-cash transactions:
Issuance of common stock for acquisition of purchased technology.................... $ -- $ 100,000
Issuance of common stock in exchange for fixed assets............................... -- 49,624
Equipment acquired under capital leases............................................. 52,259 --
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Starseed, Inc. (Starseed or the Company) was incorporated in Louisiana on
October 8, 1996, and began operations in Ashland, Oregon October 15, 1996. The
Company's focus revolves around innovations in internet communications and
information access.
In June 1997, the Company acquired "WebRing", an internet technology which
offers access to hundreds of thousands of member websites organized by related
interests into easy-to-travel rings.
Inherent in the Company's business are various risks and uncertainties,
including its limited operating history and the limited history of commerce on
the internet. Future revenues from online services are dependent on the
continued growth and acceptance of the internet, use of the internet for
information, publication, distribution and commerce, and acceptance of the
internet as an effective advertising medium.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company's revenues are derived primarily from advertising revenue based
on the number of visits to the Company's WebRing web-sites. Revenue is
recognized monthly as it is earned.
During 1998, the Company derived a portion of their revenues from assembling
computers from parts and selling them to a computer reseller.
Effective January 1, 1998, the Company adopted the Statement of Position
97-2, "Software Revenue Recognition," ("SOP 97-2"). SOP 97-2 generally requires
revenue earned on software arrangements involving multiple elements to be
allocated to each element based on the relative fair values of the elements. The
revenue allocated to software products generally is recognized upon delivery of
the products. The revenue allocated to post-contract customer support generally
is recognized ratably over the term of the support and revenue allocated to
service elements generally is recognized as the services are performed. The
adoption of SOP 97-2 did not have a significant impact on the Company's
financial statements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method based upon
the estimated useful lives of the assets, ranging from three to five years.
Equipment under capital leases are amortized over the shorter of the estimated
useful life or the life of the lease. Useful lives are evaluated regularly by
management in order to determine recoverability in light of current
technological conditions. Maintenance and repairs are charged to expense as
incurred while renewals and improvements are capitalized. Upon the
F-31
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
sale or retirement of property and equipment, the accounts are relieved of the
cost and the related accumulated depreciation or amortization, with any
resulting gain or loss included in the Statement of Operations.
LONG-LIVED ASSETS
The Company identifies and records impairment losses on long-lived assets
when events and circumstances indicate that such assets might be impaired. To
date, no such impairment has been recorded.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences of events that have been included in the financial statements and
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to be recovered or settled. Valuation
allowances are established to reduce deferred tax assets to the amount expected
to be realized.
CAPITALIZED SOFTWARE
Under Statement of Financial Accounting Standards No. 86, software
development costs are to be capitalized beginning when a product's technological
feasibility has been established and ending when a product is made available for
general release to customers. The establishment of technological feasibility of
the Company's products has occurred shortly before general release and,
accordingly, no costs have been capitalized.
OTHER ASSETS
Other assets consisted of the WebRing Technology purchased in July 1997.
This asset is amortized using the straight-line method over an estimated useful
life of one year. For the year ended September 30, 1998 and for the period from
October 8, 1996 (date of inception) to September 30, 1997 amortization for the
WebRing Technology was $84,000 and $28,000. At September 30, 1998 and 1997
accumulated amortization was $112,000 and $28,000, respectively.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the Financial
Accounting Standard Board's Statement of Financial Accounting Standards No. 123
(SFAS 123), Accounting for Stock-Based Compensation. This statement permits a
company to choose either a fair-value based method of accounting for its
stock-based compensation arrangements or to comply with the current Accounting
Principles Board Opinion 25 (APB Opinion 25) intrinsic-value-based method adding
pro forma disclosures of net loss computed as if the fair-value-based method had
been applied in the financial statements. The Company applies SFAS No. 123 by
retaining the APB Opinion 25 method of accounting for stock-based compensation
for employees with annual pro forma disclosures of net loss. Stock-based
compensation for non-employees is accounted for using the fair-value-based
method.
F-32
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
The Company expenses the costs of advertising when the costs are incurred.
Advertising expense was approximately $200 and $-0- for the year ended September
30, 1998 and for the period from October 8, 1996 (date of inception) to
September 30, 1997, respectively.
PRODUCT DEVELOPMENT
Expenditures for research and development are expensed as incurred.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130), which establishes
requirements for disclosure of comprehensive income. The objective of SFAS 130
is to report all changes in equity that result from transactions and economic
events other than transactions with owners. Comprehensive income is the total of
net income and all other non-owner changes in equity. SFAS 130 is effective for
fiscal years beginning after December 15, 1997. Reclassification of earlier
financial statements for comparative purposes is required. The Company does not
expect implementation to have a significant impact on its financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." SFAS 131 requires public companies to
report certain information about their operating segments in a complete set of
financial statements to shareholders. It also requires reporting of certain
enterprise-wide information about the Company's products and services, its
activities in different geographic areas and its reliance on major customers.
The basis for determining the Company's operating segments is the manner in
which management operates the business. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. The Company does not expect implementation to
have a significant impact on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 standardizes the accounting for
derivative instruments by requiring that an entity recognize those items as
assets or liabilities in the financial statements and measure them at fair
value. SFAS 133 is required to be adopted for fiscal years beginning after June
15, 1999. Since the Company does not hold any derivative instruments, SFAS 133
is not expected to impact the Company.
F-33
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Computer equipment, including assets under capital leases of $52,259 and $-0- for
1998 and 1997, respectively....................................................... $ 167,045 $ 80,242
Furniture and fixtures.............................................................. 9,884 7,814
------------- -------------
176,929 88,056
Less accumulated depreciation and amortization, including amounts related to assets
under capital leases of $8,632 and $-0- for 1998 and 1997, respectively........... (71,325) (23,955)
------------- -------------
Total............................................................................. $ 105,604 $ 64,101
------------- -------------
------------- -------------
</TABLE>
(3) INCOME TAXES
The Company incurred a loss for both financial reporting and tax return
purposes and, as such, there was no current or deferred tax provision for the
year ended September 30, 1998 and for the period from October 8, 1996 (date of
inception) through September 30, 1997.
The difference between the expected tax expense, computed by applying the
federal statutory rate of 34% to loss before taxes, and the actual tax expense
of $-0- is primarily due to the increase in the valuation allowance for deferred
tax assets.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liability at September 30,
1998 is approximately as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Deferred tax assets:
Federal and state operating loss carryforwards.................................... $ 432,000 $ 169,500
Research and experimentation credits.............................................. 52,000 11,000
Unearned compensation............................................................. 501,500 --
Property and equipment, due to differences in depreciation and amortization....... 42,500 12,500
------------- -------------
1,028,000 193,000
Less valuation allowance.......................................................... (1,028,000) (193,000)
------------- -------------
Net deferred tax assets......................................................... $ -- $ --
------------- -------------
------------- -------------
</TABLE>
The total valuation allowance for deferred tax assets as of September 30,
1998 and 1997 was $1,028,000 and $193,000, respectively. The net change in the
total valuation allowance for the year ended September 30, 1998 was an increase
of $835,000.
At September 30, 1998, the Company has federal and state net operating loss
and research and experimentation credit carryforwards of approximately $432,000
and $52,000, respectively. These carryforwards will expire between 2002 and 2012
if not used by the Company to reduce income taxes payable in future periods.
These carryforwards will be subject to further limitations upon closing of the
proposed transaction discussed in note 9.
F-34
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) 1998 STOCK OPTION PLAN
In 1998, the Company adopted the 1998 Stock Option/Stock Issuance Plan (the
Plan) whereby a total of 525,000 shares of common stock have been reserved for
the grant of stock options to selected employees, officers, directors,
consultants and advisors. Options granted pursuant to the Plan are non-qualified
stock options.
Under the Plan, options generally vest annually over four years. Options
granted under the Plan must be exercised within ten years of the date of the
grant. Option prices are generally not less than the fair market value of the
shares at the date of grant. At the time of the exercise of the option, all
optionee's must grant the Company or its designee a right of first refusal with
respect to all transfers.
During 1998, the Company granted to certain key employees and consultants
options to purchase 258,500 shares of the Company's common stock for $1.00 per
share. These options were fully-vested on the grant date and were issued at a
price below the fair market value of the Company's stock on the date of grant.
The difference between the stock option grant price and the fair market value on
the date of grant has been included as compensation or consulting expense in the
accompanying statement of operations.
The Company has elected to account for its stock-based compensation plans
under APB Opinion 25; however, the Company has computed, for proforma disclosure
purposes, the value of all options granted during 1998 using the minimum value
option-pricing model as prescribed by SFAS 123 using the following assumptions
used for grants:
<TABLE>
<CAPTION>
<S> <C>
Risk-free interest rate........................................................... 6.50%
Expected dividend yield........................................................... $ --
Expected lives.................................................................... 5 years
Weighted average grant date fair value per option................................. $ 5
</TABLE>
If the Company had accounted for these options in accordance with SFAS 123,
the Company's net loss for the year ended September 30, 1998 would have
increased to the following pro forma amounts:
<TABLE>
<CAPTION>
<S> <C>
Net loss:
As reported.................................................................. $ (2,087,638)
Proforma..................................................................... (2,181,902)
</TABLE>
A summary of the status of the Company's Plan at September 30, 1998 and
changes during the year then ended is presented in the following table:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
--------- -----------
<S> <C> <C>
Outstanding September 30, 1997.......................................... -- $ --
Granted................................................................. 475,000 2.89
Exercised............................................................... -- --
Canceled................................................................ -- --
--------- -----
Outstanding September 30, 1998.......................................... 475,000 $ 2.89
--------- -----
--------- -----
</TABLE>
F-35
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) 1998 STOCK OPTION PLAN (CONTINUED)
The outstanding stock options have a weighted average remaining contractual
life of 10 years. At September 30, 1998, a total of 295,000 non-qualified stock
options were exercisable at a weighted average exercise price of $1.86 share and
with a weighted average remaining contractual live in years of 10.
(5) COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its facilities and certain computer and office equipment
under noncancelable leases for varying periods through 2002. The Company's lease
obligations are collateralized by certain assets at September 30, 1998. The
following are the minimum lease obligations under these leases at September 30,
1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- -----------
<S> <C> <C>
1999................................................................... $ 19,188 $ 11,136
2000................................................................... 18,595 11,136
2001................................................................... 9,980 6,392
2002................................................................... 4,020 --
---------- -----------
51,783 $ 28,664
-----------
-----------
Less: amount representing interest..................................... (7,049)
----------
Present value of minimum lease payments................................ 44,734
Less: current portion.................................................. (15,091)
----------
Long-term portion...................................................... $ 29,643
----------
----------
</TABLE>
Rental expense pertaining to operating leases for the year ended September
30, 1998 and the period October 8, 1996 (date of inception) to September 30,
1997 was approximately $35,000 and $46,000, respectively.
CONSULTING AGREEMENT
The Company has entered into a consulting agreement with an individual
through June 1999. Under this agreement, the Company is to pay a consulting fee
of $2,000 a month.
CONTINGENCIES
From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising from its operations in the
normal course of business. Management believes that the resolution of these
matters will not have a material adverse effect on the Company's business,
results of operations, financial condition and cash flows.
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually
F-36
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) COMMITMENTS AND CONTINGENCIES (CONTINUED)
every computer operation will be affected in some way by the rollover of the
two-digit year value to 00. The issue is whether computer systems will properly
recognize date sensitive information when the year changes to 2000. Systems that
do not properly recognize such information could generate erroneous data or
cause a system to fail.
The Company has conducted a review of the Company's exposure to the year
2000 problem, including working with computer systems and software vendors to
assure that they are prepared for the year 2000. Based on this review and
discussions with such vendors, the Company currently believes that its internal
systems are year 2000 compliant. The Company does not expect to incur any
significant operating expenses or invest in additional computer systems to
resolve issues relating to the year 2000 problem, with respect to both its
information technology and product and service functions.
(6) NOTES PAYABLE
At September 30, 1998 and 1997 notes payable consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Notes payable to GeoCities, payable in a lump-sum plus accrued interest at 9% per annum
payable upon the earlier of January 29, 1999 or upon the Company obtaining equity
financing in excess of $1,000,000........................................................ $ 200,000 $ --
Note payable to Keyline Investments, payable in a lump-sum November 1998................... 226,000 --
Notes payable to shareholders, payable in a lump-sum plus accrued interest at 12% per annum
due October 1, 2000...................................................................... 41,700 45,200
Note payable to individual payable in a lump-sum no interest, due December 31, 1997........ -- 18,000
---------- ---------
467,700 63,200
Less-current portion....................................................................... 426,000 18,000
---------- ---------
$ 41,700 $ 45,200
---------- ---------
---------- ---------
</TABLE>
The Note payable to shareholders is payable upon the earlier of October 1,
2000 or upon a corporate transaction. Corporate transaction means any of the
following: (1) a merger or consolidation in which the Company is not the
surviving entity; (2) the sale, transfer or other disposition of all or
substantially all of the assets of the Company and (3) any reverse merger in
which the Company is the surviving entity but in which fifty percent or more of
the Company's outstanding voting stock is transferred to holders different from
those who held the stock immediately prior to such merger.
The combined aggregate amount of debt maturities for the five years
subsequent to September 30, 1998 follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending September 30:
1999............................................................................ $ 426,000
2000............................................................................ 41,700
----------
$ 467,700
----------
----------
</TABLE>
F-37
<PAGE>
STARSEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) CUSTOMER INFORMATION
The Company had three significant customers in 1998 that each account for
greater than 10% of the Company's revenues. These customers accounted for 97% of
the Company's accounts receivable at September 30, 1998.
(8) WARRANTS
During 1998, the Company issued warrants to purchase 92,105 shares of the
Company's common stock at $11.43 per share exercisable at anytime until
September 1, 2000, in connection with the note payable to GeoCities. The
warrants will terminate by mutual agreement upon the closing of GeoCities
purchasing the Company. (See note 9)
(9) SUBSEQUENT EVENTS
The Company obtained an additional note payable from GeoCities of $100,000
payable in a lump-sum plus accrued interest at 9% per annum, payable upon the
earlier of January 29, 1999 or upon the Company obtaining equity financing in
excess of $1,000,000.
In October 1998, the Company entered into a non-binding letter of intent
with GeoCities. Pursuant to the agreement; among other things all the issued and
outstanding shares of the Company shall be converted into the right to receive
shares of common stock of GeoCities and cash. Additionally, all outstanding
options under the Company's 1998 stock option/stock issuance plan, whether
vested or unvested, will be assumed by GeoCities.
This acquisition is expected to provide the Company with the additional
financial resources to continue operations. If the acquisition is not completed,
there is substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The Company entered into a settlement agreement with Keyline Investments.
The agreement requires the repayment of the outstanding loan to the Company of
$226,000 and the issuance of 20,000 shares. The fair market value of the 20,000
shares is $130,000 which has been accrued as other current liabilities in the
balance sheet at September 30, 1998.
F-38
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
YAHOO! INC.
HOME PAGE ACQUISITION CORP.
AND
GEOCITIES
Dated as of January 27, 1999
A-i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I THE MERGER...................................................................................... A-1
1.1 The Merger................................................................................... A-1
1.2 Effective Time; Closing...................................................................... A-1
1.3 Effect of the Merger......................................................................... A-2
1.4 Certificate of Incorporation................................................................. A-2
1.5 Directors and Officers....................................................................... A-2
1.6 Effect on Capital Stock...................................................................... A-2
1.7 Surrender of Certificates.................................................................... A-3
1.8 No Further Ownership Rights in Company Common Stock.......................................... A-4
1.9 Lost, Stolen or Destroyed Certificates....................................................... A-4
1.10 Restricted Stock............................................................................. A-4
1.11 Tax and Accounting Consequences.............................................................. A-5
1.12 Taking of Necessary Action; Further Action................................................... A-5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY...................................................... A-5
2.1 Organization of Company...................................................................... A-5
2.2 Company Capital Structure.................................................................... A-6
2.3 Obligations With Respect to Capital Stock.................................................... A-6
2.4 Authority.................................................................................... A-7
2.5 SEC Filings; Company Financial Statements.................................................... A-8
2.6 Absence of Certain Changes or Events......................................................... A-8
2.7 Taxes........................................................................................ A-9
2.8 Title to Properties; Absence of Liens and Encumbrances....................................... A-11
2.9 Intellectual Property........................................................................ A-11
2.10 Compliance; Permits; Restrictions............................................................ A-13
2.11 Litigation................................................................................... A-13
2.12 Employee Benefit Plans....................................................................... A-14
2.13 Environmental Matters........................................................................ A-17
2.14 Agreements, Contracts and Commitments........................................................ A-18
2.15 Pooling of Interests......................................................................... A-19
2.16 Change of Control Payments................................................................... A-19
2.17 Statements; Proxy Statement/Prospectus....................................................... A-19
2.18 Board Approval............................................................................... A-19
2.19 Brokers' and Finders' Fees................................................................... A-19
2.20 Fairness Opinion............................................................................. A-19
2.21 Affiliates................................................................................... A-19
2.22 Section 203 Not Applicable................................................................... A-19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB....................................... A-20
3.1 Organization of Parent and Merger Sub........................................................ A-20
3.2 Parent and Merger Sub Capital Structure...................................................... A-20
3.3 Authority.................................................................................... A-20
3.4 SEC Filings; Parent Financial Statements..................................................... A-21
3.5 Absence of Certain Changes or Events......................................................... A-22
3.6 Proxy Statement/Prospectus................................................................... A-22
3.7 Litigation................................................................................... A-22
3.8 Pooling of Interests......................................................................... A-22
3.9 Affiliates................................................................................... A-22
3.10 Valid Issuance............................................................................... A-22
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................................................ A-22
4.1 Conduct of Business by Company............................................................... A-22
4.2 Conduct of Business by Parent................................................................ A-24
ARTICLE V ADDITIONAL AGREEMENTS........................................................................... A-24
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings; Board Recommendations..... A-24
5.2 Meeting of Company Stockholders.............................................................. A-25
5.3 Confidentiality: Access to Information....................................................... A-26
5.4 No Solicitation.............................................................................. A-27
5.5 Public Disclosure............................................................................ A-28
5.6 Reasonable Efforts; Notification............................................................. A-28
5.7 Third Party Consents......................................................................... A-29
5.8 Stock Options and ESPP....................................................................... A-29
5.9 Form S-8..................................................................................... A-30
5.10 Indemnification.............................................................................. A-30
5.11 Nasdaq Listing............................................................................... A-30
5.12 Affiliate Agreements......................................................................... A-30
5.13 [Reserved]................................................................................... A-31
5.14 GeoCities Stock Option....................................................................... A-31
5.15 Letter of Company's Accountants.............................................................. A-33
ARTICLE VI CONDITIONS TO THE MERGER....................................................................... A-34
6.1 Conditions to Obligations of Each Party to Effect the Merger................................. A-34
6.2 Additional Conditions to Obligations of Company.............................................. A-34
6.3 Additional Conditions to the Obligations of Parent and Merger Sub............................ A-35
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER............................................................. A-36
7.1 Termination.................................................................................. A-36
7.2 Notice of Termination Effect of Termination.................................................. A-37
7.3 Fees and Expenses............................................................................ A-37
7.4 Amendment.................................................................................... A-38
7.5 Extension; Waiver............................................................................ A-38
ARTICLE VIII GENERAL PROVISIONS........................................................................... A-39
8.1 Non-Survival of Representations and Warranties............................................... A-39
8.2 Notices...................................................................................... A-39
8.3 Interpretation; Certain Defined Terms........................................................ A-40
8.4 Counterparts................................................................................. A-40
8.5 Entire Agreement; Third Party Beneficiaries.................................................. A-40
8.6 Severability................................................................................. A-41
8.7 Other Remedies; Specific Performance......................................................... A-41
8.8 Governing Law................................................................................ A-41
8.9 Rules of Construction........................................................................ A-41
8.10 Assignment................................................................................... A-41
8.11 Waiver of Jury Trial......................................................................... A-41
</TABLE>
A-iii
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of GeoCities Voting Agreement
Exhibit B Form of GeoCities Affiliate Agreement
Exhibit C Form of Yahoo! Affiliate Agreement
</TABLE>
A-iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of January 27,
1999 (this "AGREEMENT"), among Yahoo! Inc., a California corporation ("YAHOO!"),
Home Page Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Yahoo! ("MERGER SUB"), and GeoCities, a Delaware corporation
("GEOCITIES").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law ("DELAWARE LAW"), Yahoo!,
Merger Sub and GeoCities intend to enter into a business combination
transaction.
B. The Board of Directors of GeoCities (i) has determined that the Merger
(as defined in Section 1.1) is consistent with and in furtherance of the
long-term business strategy of GeoCities and advisable and fair to, and in the
best interests of, GeoCities and its stockholders, (ii) has approved this
Agreement, the Merger and the other transactions contemplated by this Agreement
and (iii) has determined to recommend that the stockholders of GeoCities adopt
and approve this Agreement and approve the Merger.
C. The Board of Directors of Yahoo! (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Yahoo!
and advisable and fair to, and in the best interests of, Yahoo! and its
shareholders and (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement.
D. Concurrently with the execution of this Agreement, and as a condition and
inducement to Yahoo!'s willingness to enter into this Agreement, certain
stockholders of GeoCities are entering into Voting Agreements in substantially
the form attached hereto as EXHIBIT A (the "GEOCITIES VOTING AGREEMENTS") and
certain persons or entities who may be deemed to be affiliates of GeoCities are
entering into Affiliate Agreements in substantially the form attached hereto as
EXHIBIT B (the "GEOCITIES AFFILIATE AGREEMENTS").
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").
F. It is also intended by the parties hereto that the Merger shall qualify
for accounting treatment as a pooling of interests.
NOW, THEREFORE, in consideration of the covenants, agreements,
representations and warranties set forth herein, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time and subject to and upon the terms
and conditions of this Agreement and the applicable provisions of Delaware Law,
Merger Sub shall be merged with and into GeoCities (the "MERGER"), the separate
corporate existence of Merger Sub shall cease and GeoCities shall continue as
the surviving corporation. GeoCities as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "SURVIVING CORPORATION."
1.2 EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger, in such appropriate form as determined by the parties,
with the Secretary of State of the State of Delaware in accordance with the
relevant provisions of Delaware Law (the "CERTIFICATE OF MERGER") (the time of
such filing (or such later time as may be agreed in writing by GeoCities and
Yahoo! and specified in the Certificate of Merger) being the
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"EFFECTIVE TIME") as soon as practicable on or after the Closing Date (as herein
defined). The closing of the Merger (the "CLOSING") shall take place at the
offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park, California, at a
time and date to be specified by the parties, which shall be no later than the
second business day after the satisfaction or waiver of the conditions set forth
in Article VI, or at such other time, date and location as the parties hereto
agree in writing (the "CLOSING DATE").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, at the Effective Time all
the property, rights, privileges, powers and franchises of GeoCities and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of GeoCities and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Certificate of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation of the
Surviving Corporation; PROVIDED, HOWEVER, that at the Effective Time Article
I of the Certificate of Incorporation of the Surviving Corporation shall be
amended to read: "The name of the corporation is GeoCities."
(b) At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial corporate officers of the Surviving Corporation shall
be the corporate officers of Merger Sub immediately prior to the Effective Time,
until their respective successors are duly appointed.
1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, GeoCities or the
holders of any of the following securities:
(a) CONVERSION OF GEOCITIES COMMON STOCK. Each share of common stock,
par value $0.001 per share, of GeoCities ("GEOCITIES COMMON STOCK") issued
and outstanding immediately prior to the Effective Time, other than any
shares of GeoCities Common Stock to be canceled pursuant to Section 1.6(b),
will be canceled and extinguished and automatically converted (subject to
Sections 1.6(d) and (e)) into the right to receive .3384 of a share (the
"EXCHANGE RATIO") of common stock, par value $0.00033 per share ($0.00017
per share following the pending two-for-one stock split), of Yahoo! ("YAHOO!
COMMON STOCK") upon surrender of the certificate representing such share of
GeoCities Common Stock in the manner provided in Section 1.7. The parties
acknowledge that following completion of Yahoo!'s pending two-for-one stock
split the Exchange Ratio shall be adjusted to equal .6768 of a share of
Yahoo! Common Stock, subject to potential further adjustment as contemplated
by subsection (d) below.
(b) CANCELLATION OF GEOCITIES-OWNED AND YAHOO!-OWNED STOCK. Each share
of GeoCities Common Stock held by GeoCities or owned by Merger Sub, Yahoo!
or any direct or indirect wholly owned subsidiary of GeoCities or of Yahoo!
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(c) CAPITAL STOCK OF MERGER SUB. Each share of common stock, $0.0l par
value per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into one validly issued, fully paid
and nonassessable share of common stock, $0.01 par value per share, of the
Surviving Corporation. Each certificate evidencing ownership of shares of
the common stock of Merger Sub shall evidence ownership of such shares of
capital stock of the Surviving Corporation.
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(d) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect appropriately the effect of any stock split, reverse
stock split, stock dividend (including any dividend or distribution of
securities convertible into Yahoo! Common Stock or GeoCities Common Stock),
reorganization, recapitalization, reclassification or other like change with
respect to Yahoo! Common Stock or GeoCities Common Stock occurring on or
after the date hereof and prior to the Effective Time.
(e) FRACTIONAL SHARES. No fraction of a share of Yahoo! Common Stock
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of GeoCities Common Stock who would otherwise be entitled to a
fraction of a share of Yahoo! Common Stock (after aggregating all fractional
shares of Yahoo! Common Stock that otherwise would be received by such
holder) shall receive from Yahoo! an amount of cash (rounded to the nearest
whole cent) equal to the product of (i) such fraction, multiplied by (ii)
the average closing sale price of one share of Yahoo! Common Stock for the
five (5) most recent days that Yahoo! Common Stock has traded ending on the
trading day immediately prior to the Effective Time, as reported on the
Nasdaq Stock Market.
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Yahoo! shall select a bank or trust company
reasonably acceptable to GeoCities to act as the exchange agent (the
"EXCHANGE AGENT") in the Merger.
(b) YAHOO! TO PROVIDE COMMON STOCK. Promptly after the Effective Time,
Yahoo! shall make available to the Exchange Agent for exchange in accordance
with this Article I, the shares of Yahoo! Common Stock issuable pursuant to
Section 1.6 in exchange for outstanding shares of GeoCities Common Stock,
and cash in an amount sufficient for payment in lieu of fractional shares
pursuant to Section 1.6(e) and any dividends or distributions to which
holders of shares of GeoCities Common Stock may be entitled pursuant to
Section 1.7(d).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, Yahoo!
shall cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "CERTIFICATES"), which
immediately prior to the Effective Time represented outstanding shares of
GeoCities Common Stock, whose shares were converted into shares of Yahoo!
Common Stock pursuant to Section 1.6 (i) a letter of transmittal in
customary form (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent and shall contain such other
customary provisions as Yahoo! may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
certificates representing shares of Yahoo! Common Stock, cash in lieu of any
fractional shares pursuant to Section 1.6(e) and any dividends or other
distributions pursuant to Section 1.7(d). Upon surrender of Certificates for
cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by Yahoo!, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto,
the holders of such Certificates shall be entitled to receive in exchange
therefor certificates representing the number of whole shares of Yahoo!
Common Stock into which their shares of GeoCities Common Stock were
converted at the Effective Time, payment in lieu of fractional shares which
such holders have the right to receive pursuant to Section 1.6(e) and any
dividends or distributions payable pursuant to Section 1.7(d), and the
Certificates so surrendered shall forthwith be canceled. Until so
surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, to evidence only the ownership
of the number of full shares of Yahoo! Common Stock into which such shares
of GeoCities Common Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares
in accordance with Section 1.6(e) and any dividends or distributions payable
pursuant to Section 1.7(d).
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(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the date of this Agreement with
respect to Yahoo! Common Stock with a record date after the Effective Time
will be paid to the holders of any unsurrendered Certificates with respect
to the shares of Yahoo! Common Stock represented thereby until the holders
of record of such Certificates shall surrender such Certificates. Subject to
applicable law, following surrender of any such Certificates, the Exchange
Agent shall deliver to the record holders thereof, without interest,
certificates representing whole shares of Yahoo! Common Stock issued in
exchange therefor along with payment in lieu of fractional shares pursuant
to Section 1.6(e) hereof and the amount of any such dividends or other
distributions with a record date after the Effective Time payable with
respect to such shares of Yahoo! Common Stock.
(e) TRANSFERS OF OWNERSHIP. If certificates representing shares of
Yahoo! Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have paid to Yahoo! or any agent
designated by it any transfer or other taxes required by reason of the
issuance of certificates representing shares of Yahoo! Common Stock in any
name other than that of the registered holder of the Certificates
surrendered, or established to the satisfaction of Yahoo! or any agent
designated by it that such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, neither the Exchange Agent, Yahoo!, the Surviving Corporation
nor any party hereto shall be liable to a holder of shares of Yahoo! Common
Stock or GeoCities Common Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
1.8 NO FURTHER OWNERSHIP RIGHTS IN GEOCITIES COMMON STOCK. All shares of
Yahoo! Common Stock issued in accordance with the terms hereof (including any
cash paid in respect thereof pursuant to Section 1.6(e) and 1.7(d)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of GeoCities Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of GeoCities
Common Stock which were outstanding immediately prior to the Effective Time. If
after the Effective Time Certificates are presented to the Surviving Corporation
for any reason, they shall be canceled and exchanged as provided in this Article
I.
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Yahoo! Common Stock into which the shares of
GeoCities Common Stock represented by such Certificates were converted pursuant
to Section 1.6, cash for fractional shares, if any, as may be required pursuant
to Section 1.6(e) and any dividends or distributions payable pursuant to Section
1.7(d); PROVIDED, HOWEVER, that Yahoo! may, in its discretion and as a condition
precedent to the issuance of such certificates representing shares of Yahoo!
Common Stock, cash and other distributions, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum and with
customary provisions as it may reasonably direct as indemnity against any claim
that may be made against Yahoo!, the Surviving Corporation or the Exchange Agent
with respect to the Certificates alleged to have been lost, stolen or destroyed.
1.10 RESTRICTED STOCK. Shares of GeoCities Common Stock that are subject
to repurchase by GeoCities in the event a GeoCities employee ceases to be
employed by GeoCities ("GEOCITIES RESTRICTED STOCK") shall be converted into the
right to receive Yahoo! Common Stock on the same basis as provided in Section
1.6. Shares of GeoCities Restricted Stock shall be replaced with shares of
Yahoo! Common Stock, subject to the same restrictions as the original GeoCities
Restricted Stock. Such
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replacement shares of Yahoo! Common Stock shall be issued to and registered in
the name of the holder, but shall be held by Yahoo! pending satisfaction of the
applicable vesting schedules pursuant to existing agreements in effect at the
Effective Time. GeoCities hereby assigns to the Surviving Corporation all
repurchase rights relating to the GeoCities Restricted Stock, effective at the
Effective Time. A listing of the holders of GeoCities Restricted Stock, together
with the number of shares of GeoCities Restricted Stock held by each, is set
forth on Schedule 1.10 of the GeoCities Schedules (as defined in Article II
below).
1.11 TAX AND ACCOUNTING CONSEQUENCES.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Code.
The parties hereto adopt this Agreement as a "plan of reorganization" within
the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax Regulations.
(b) It is intended by the parties hereto that the Merger shall qualify
for accounting treatment as a pooling of interests.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of GeoCities and Merger Sub, the officers and directors of
GeoCities and Merger Sub will take all such lawful and necessary action. Yahoo!
shall cause Merger Sub to perform all of its obligations relating to this
Agreement and the transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF GEOCITIES
GeoCities represents and warrants to Yahoo! and Merger Sub, subject to the
exceptions specifically disclosed in writing in the disclosure letter delivered
by GeoCities to Yahoo! dated as of the date hereof and certified by a duly
authorized officer of GeoCities (the "GEOCITIES SCHEDULES"), as follows:
2.1 ORGANIZATION OF GEOCITIES.
(a) GeoCities and each of its subsidiaries (i) is a corporation or other
legal entity duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is organized; (ii) has the corporate or
other power and authority to own, lease and operate its assets and property
and to carry on its business as now being conducted; and (iii) except as
would not be material to GeoCities, is duly qualified or licensed to do
business in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary.
(b) GeoCities has delivered to Yahoo! a true and complete list of all of
GeoCities' subsidiaries as of the date of this Agreement, indicating the
jurisdiction of organization of each subsidiary and GeoCities' equity
interest therein. Except as set forth on such list, neither GeoCities nor
any of its subsidiaries owns any equity interest in any corporation,
partnership or joint venture arrangement or other business entity that is
material to GeoCities.
(c) GeoCities has delivered or made available to Yahoo! a true and
correct copy of the Certificate of Incorporation and Bylaws of GeoCities and
similar governing instruments of each of its subsidiaries (other than the
subsidiary of GeoCities organized under the laws of United Kingdom), each as
amended to date, and each such instrument is in full force and effect.
Neither GeoCities nor any of its subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent
governing instruments.
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2.2 GEOCITIES CAPITAL STRUCTURE. The authorized capital stock of GeoCities
consists of 60,000,000 shares of Common Stock, par value $0.001 per share, of
which there were 32,034,826 shares issued and outstanding as of January 27, 1999
(none of which were held by GeoCities in its treasury), and 5,000,000 shares of
Preferred Stock, par value $0.001 per share, none of which are issued or
outstanding. All outstanding shares of GeoCities Common Stock are duly
authorized, validly issued, fully paid and nonassessable and are not subject to
preemptive rights created by statute, the Certificate of Incorporation or Bylaws
of GeoCities or any agreement or document to which GeoCities is a party or by
which it is bound. As of January 27, 1999, GeoCities had reserved an aggregate
of (i) 2,670,940 shares of GeoCities Common Stock for issuance pursuant to
GeoCities' 1998 Stock Incentive Plan, 4,759,310 shares of GeoCities Common Stock
for issuance pursuant to GeoCities' 1997 Stock Option Plan, and (iii) 215,090
shares of GeoCities Common Stock for issuance pursuant to GeoCities' Starseed,
Inc. 1998 Stock Option/Stock Issuance Plan. As of January 27, 1999, there were
options outstanding to purchase an aggregate of (u) 1,664,500 shares of
GeoCities Common Stock pursuant to GeoCities' 1998 Stock Incentive Plan, (v)
4,759,310 shares of GeoCities Common Stock pursuant to GeoCities' 1997 Stock
Option Plan, (w) 215,090 shares of GeoCities Common Stock pursuant to GeoCities'
Starseed, Inc. 1998 Stock Option/Stock Issuance Plan, and (x) 2,306,054 shares
of GeoCities Common Stock pursuant to written agreements with certain officers,
directors, consultants, founders and employees of GeoCities. GeoCities' 1998
Stock Incentive Plan, GeoCities' 1997 Stock Option Plan, Starseed, Inc. 1998
Stock Option/Stock Issuance Plan and the aforementioned written agreements
granting options are collectively referred to in this Agreement as the
"GEOCITIES STOCK OPTION PLANS." There are no warrants outstanding to purchase
any shares of GeoCities Common Stock. As of January 27, 1999, GeoCities had
reserved an aggregate of 300,000 shares of GeoCities Common Stock for issuance
pursuant to GeoCities' 1998 Employee Stock Purchase Plan (the "ESPP"). All
shares of GeoCities Common Stock subject to issuance as aforesaid, upon issuance
on the terms and conditions specified in the instruments pursuant to which they
are issuable, would be duly authorized, validly issued, fully paid and
nonassessable. The GeoCities Schedules list for each person who held options or
warrants to acquire shares of GeoCities Common Stock as of January 26, 1999, the
name of the holder of such option or warrant, the exercise price of such option
or warrant, the number of shares as to which such option or warrant had vested
at such date, the vesting schedule for such option or warrant and whether the
exercisability of such option or warrant will be accelerated in any way by the
transactions contemplated by this Agreement, and indicates the extent of
acceleration, if any.
2.3 OBLIGATIONS WITH RESPECT TO CAPITAL STOCK. Except as set forth in
Section 2.2, there are no equity securities, partnership interests or similar
ownership interests of any class of GeoCities equity security, or any securities
exchangeable or convertible into or exercisable for such equity securities,
partnership interests or similar ownership interests, issued, reserved for
issuance or outstanding. Except for securities GeoCities owns free and clear of
all claims and encumbrances, directly or indirectly through one or more
subsidiaries, and except for shares of capital stock or other similar ownership
interests of certain subsidiaries of GeoCities that are owned by certain nominee
equity holders as required by the applicable law of the jurisdiction of
organization of such subsidiaries, there are no equity securities, partnership
interests or similar ownership interests of any class of equity security of any
subsidiary of GeoCities, or any security exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except as set
forth in Section 2.2, there are no subscriptions, options, warrants, equity
securities, partnership interests or similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any character to
which GeoCities or any of its subsidiaries is a party or by which it is bound
obligating GeoCities or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause the repurchase, redemption or acquisition of, any shares of
capital stock, partnership interests or similar ownership interests of GeoCities
or any of its subsidiaries or obligating GeoCities or any of its subsidiaries to
grant, extend, accelerate the vesting of or enter into any such subscription,
option, warrant, equity
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security, call, right, commitment or agreement. Except as contemplated by this
Agreement, there are no registration rights and thre is no voting trust, proxy,
rights plan, antitakeover plan or other agreement or understanding to which
GeoCities is a party or by which it is bound with respect to any equity security
of any class of GeoCities or with respect to any equity security, partnership
interest or similar ownership interest of any class of any of its subsidiaries.
Stockholders of GeoCities will not be entitled to dissenters' rights under
applicable state law in connection with the Merger.
2.4 AUTHORITY.
(a) GeoCities has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of GeoCities, subject only to the approval and
adoption of this Agreement and the approval of the Merger by GeoCities'
stockholders and the filing of the Certificate of Merger pursuant to
Delaware Law. A vote of the holders of a majority of the outstanding shares
of the GeoCities Common Stock is sufficient for GeoCities' stockholders to
approve and adopt this Agreement and approve the Merger. This Agreement has
been duly executed and delivered by GeoCities and, assuming the due
execution and delivery by Yahoo! and Merger Sub, constitutes a valid and
binding obligation of GeoCities, enforceable against GeoCities in accordance
with its terms, except as enforceability may be limited by bankruptcy and
other similar laws and general principles of equity. The execution and
delivery of this Agreement by GeoCities does not, and the performance of
this Agreement by GeoCities will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws of GeoCities or the equivalent
organizational documents of any of its subsidiaries, (ii) subject to
obtaining the approval and adoption of this Agreement and the approval of
the Merger by GeoCities' stockholders as contemplated in Section 5.2 and
compliance with the requirements set forth in Section 2.4(b) below, conflict
with or violate any law, rule, regulation, order, judgment or decree
applicable to GeoCities or any of its subsidiaries or by which GeoCities or
any of its subsidiaries or any of their respective properties is bound or
affected, or (iii) result in any material breach of or constitute a material
default (or an event that with notice or lapse of time or both would become
a material default) under, or impair GeoCities' rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a material lien or encumbrance on any of the material properties
or assets of GeoCities or any of its subsidiaries pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise, concession, or other instrument or obligation, in each case that
is material to GeoCities, to which GeoCities or any of its subsidiaries is a
party or by which GeoCities or any of its subsidiaries or its or any of
their respective assets are bound or affected. The GeoCities Schedules list
all consents, waivers and approvals under any of GeoCities' or any of its
subsidiaries' agreements, contracts, licenses or leases required to be
obtained in connection with the consummation of the transactions
contemplated hereby, which, if individually or in the aggregate not
obtained, would result in a loss of benefits to GeoCities, Yahoo! or the
Surviving Corporation as a result of the Merger that would be reasonably
likely to result in a Material Adverse Effect with respect to GeoCities,
Yahoo! or the Surviving Corporation.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental authority or instrumentality, foreign or domestic
("GOVERNMENTAL ENTITY"), is required to be obtained or made by GeoCities in
connection with the execution and delivery of this Agreement or the
consummation of the Merger, except for (i) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (ii) the filing
of the Proxy Statement/Prospectus (as defined in Section 2.17) with the
Securities and Exchange Commission ("SEC"), (iii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal,
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foreign and state securities (or related) laws and the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and the
securities or antitrust laws of any foreign country, and (iv) such other
consents, authorizations, filings, approvals and registrations which if not
obtained or made would not be material to GeoCities or Yahoo! or have a
material adverse effect on the ability of the parties hereto to consummate
the Merger.
2.5 SEC FILINGS; GEOCITIES FINANCIAL STATEMENTS.
(a) GeoCities has filed all forms, reports and documents required to be
filed by GeoCities with the SEC since August 1, 1998, and has made available
to Yahoo! such forms, reports and documents in the form filed with the SEC.
All such required forms, reports and documents (including those that
GeoCities may file subsequent to the date hereof) are referred to herein as
the "GEOCITIES SEC REPORTS." As of their respective dates, the GeoCities SEC
Reports (i) were prepared in accordance with the requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), or the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as the case may be,
and the rules and regulations of the SEC thereunder applicable to such
GeoCities SEC Reports and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then
on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. None of GeoCities' subsidiaries
is required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the GeoCities SEC Reports (the
"GEOCITIES FINANCIALS"), including each GeoCities SEC Reports filed after
the date hereof until the Closing, (i) complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, (ii) was prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may be
permitted by the SEC on Form 10-Q under the Exchange Act) and (iii) fairly
presented the consolidated financial position of GeoCities and its
subsidiaries as at the respective dates thereof and the consolidated results
of GeoCities' operations and cash flows for the periods indicated, except
that the unaudited interim financial statements may not contain footnotes
and were or are subject to normal and recurring year-end adjustments. The
balance sheet of GeoCities contained in GeoCities SEC Reports as of
September 30, 1998 is hereinafter referred to as the "GEOCITIES BALANCE
SHEET." Except as disclosed in the GeoCities Financials, since the date of
the GeoCities Balance Sheet neither GeoCities nor any of its subsidiaries
has any liabilities required under GAAP to be set forth on a balance sheet
(absolute, accrued, contingent or otherwise) which are, individually or in
the aggregate, material to the business, results of operations or financial
condition of GeoCities and its subsidiaries taken as a whole, except for
liabilities incurred since the date of the GeoCities Balance Sheet in the
ordinary course of business consistent with past practices and liabilities
under this Agreement or incurred in connection with the transactions
contemplated hereby.
(c) GeoCities has heretofore furnished to Yahoo! a complete and correct
copy of any amendments or modifications, which have not yet been filed with
the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by GeoCities with the SEC
pursuant to the Securities Act or the Exchange Act.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the GeoCities
Balance Sheet there has not been: (i) any Material Adverse Effect (as defined in
Section 8.3(c)) with respect to GeoCities and its subsidiaries, taken as a
whole, (ii) any declaration, setting aside or payment of any dividend on, or
other distribution (whether in cash, stock or property) in respect of, any of
GeoCities' capital stock,
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or any purchase, redemption or other acquisition by GeoCities of any of
GeoCities' capital stock or any other securities of GeoCities or any options,
warrants, calls or rights to acquire any such shares or other securities except
for repurchases from employees following their termination pursuant to the terms
of their pre-existing stock option or purchase agreements, (iii) any split,
combination or reclassification of any of GeoCities' capital stock, (iv) any
granting by GeoCities or any of its subsidiaries of any increase in compensation
or fringe benefits to any of their officers, directors or managers or employees
who earn more than $100,000 per year, or any payment by GeoCities or any of its
subsidiaries of any bonus to any of their officers, directors or managers or
employees who earn more than $100,000 per year, or any granting by GeoCities or
any of its subsidiaries of any increase in severance or termination pay or any
entry by GeoCities or any of its subsidiaries into, or material modification or
amendment of, any currently effective employment, severance, termination or
indemnification agreement or any agreement the benefits of which are contingent
or the terms of which are materially altered upon the occurrence of a
transaction involving GeoCities of the nature contemplated hereby, (v) any
material change or alteration in the policy of GeoCities relating to the
granting of stock options to its employees and consultants, (vi) entry by
GeoCities or any of its subsidiaries into, or material modification, amendment
or cancellation of, any licensing, distribution, sponsorship, advertising,
merchant program or other similar agreement or which either is not terminable by
GeoCities or its subsidiaries, as the case may be, without penalty upon no more
than 45 days' prior notice or provides for payments by or to GeoCities or its
subsidiaries in an amount in excess of $50,000 over the term of the agreement,
(vii) any material change by GeoCities in its accounting methods, principles or
practices, except as required by concurrent changes in GAAP, or (viii) any
revaluation by GeoCities of any of its assets, including, without limitation,
writing off notes or accounts receivable other than in the ordinary course of
business.
2.7 TAXES.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "TAX" or
"TAXES" refers to (i) any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and
liabilities relating to taxes, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value added,
ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest, penalties
and additions imposed with respect to such amounts, (ii) any liability for
payment of any amounts of the type described in clause (i) as a result of
being a member of an affiliated consolidated, combined or unitary group, and
(iii) any liability for amounts of the type described in clauses (i) and
(ii) as a result of any express or implied obligation to indemnify another
person or as a result of any obligations under any agreements or
arrangements with any other person with respect to such amounts and
including any liability for taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS.
(i) GeoCities and each of its subsidiaries have timely filed all
material federal, state, local and foreign returns, estimates,
information statements and reports ("RETURNS") relating to Taxes required
to be filed by or on behalf of GeoCities and each of its subsidiaries
with any Tax authority, such Returns are true, correct and complete in
all material respects, and GeoCities and each of its subsidiaries have
paid (where required by law or otherwise accrued) all Taxes shown to be
due on such Returns.
(ii) GeoCities and each of its subsidiaries have withheld with
respect to its employees all federal and state income Taxes, Taxes
pursuant to the Federal Insurance Contribution Act ("FICA"), Taxes
pursuant to the Federal Unemployment Tax Act ("FUTA") and other Taxes
required to be withheld.
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(iii) There is no material Tax deficiency outstanding, proposed or
assessed against GeoCities or any of its subsidiaries, nor has GeoCities
or any of its subsidiaries executed any unexpired waiver of any statute
of limitations on or extending the period for the assessment or
collection of any Tax that is still in effect.
(iv) No audit or other examination of any Return of GeoCities or any
of its subsidiaries by any Tax authority is presently in progress, nor
has GeoCities or any of its subsidiaries been notified of any request for
such an audit or other examination.
(v) No adjustment of Tax relating to any Returns filed by GeoCities
or any of its subsidiaries has been proposed in writing formally or
informally by any Tax authority to GeoCities or any of its subsidiaries
or any representative thereof.
(vi) Neither GeoCities nor any of its subsidiaries has any liability
for unpaid Taxes which has not been accrued for or reserved on the
GeoCities Balance Sheet, whether asserted or unasserted, contingent or
otherwise, which is material to GeoCities, other than any liability for
unpaid Taxes that may have accrued since the date of the GeoCities
Balance Sheet in connection with the operation of the business of
GeoCities and its subsidiaries in the ordinary course.
(vii) There is no contract, agreement, plan or arrangement to which
GeoCities is a party, including but not limited to the provisions of this
Agreement and the agreements entered into in connection with this
Agreement, covering any employee or former employee of GeoCities or any
of its subsidiaries that, individually or collectively, would be
reasonably likely to give rise to the payment of any amount that would
not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
(viii) Neither GeoCities nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as defined in Section 341(f)(4) of the Code) owned by
GeoCities.
(ix) Neither GeoCities nor any of its subsidiaries is party to or
has any obligation under any tax-sharing, tax indemnity or tax allocation
agreement or arrangement.
(x) Except as may be required as a result of the Merger, GeoCities
and its subsidiaries have not been and will not be required to include
any material adjustment in Taxable income for any Tax period (or portion
thereof) pursuant to Section 481 or Section 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Closing.
(xi) GeoCities has made available to Yahoo! or its legal or
accounting representatives copies of all foreign, federal and state
income tax and all state sales and use tax Returns for the GeoCities and
each of its subsidiaries filed for all periods since December 31, 1993.
(xii) There are no liens, pledges, charges, claims, restrictions on
transfer, mortgages, security interests or other encumbrances of any sort
(collectively, "LIENS") on the assets of the GeoCities or any of its
subsidiaries relating to or attributable to Taxes, other than Liens for
Taxes not yet due and payable.
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2.8 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) GEOCITIES OWNS NO REAL PROPERTY INTERESTS. The GeoCities Schedules
list all real property leases to which GeoCities is a party and each
amendment thereto that is in effect as of the date of this Agreement. All
such current leases are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or event which with notice
or lapse of time, or both, would constitute a default) that would give rise
to a claim against GeoCities in an amount greater than $50,000.
(b) GeoCities has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in the GeoCities
Financials and except for Liens for Taxes not yet due and payable and such
Liens or other imperfections of title and encumbrances, if any, which are
not material in character, amount or extent, and which do not materially
detract from the value, or materially interfere with the present use, of the
property subject thereto or affected thereby.
2.9 INTELLECTUAL PROPERTY. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, arising out of or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations
and continuations-in-part thereof; (ii) all inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and
customer lists, and all documentation relating to any of the foregoing;
(iii) all copyrights, copyrights registrations and applications therefor,
and all other rights corresponding thereto throughout the world; (iv) all
industrial designs and any registrations and applications therefor
throughout the world; (v) all trade names, logos, common law trademarks
and service marks, trademark and service mark registrations and
applications therefor throughout the world; (vi) all databases and data
collections and all rights therein throughout the world; (vii) all moral
and economic rights of authors and inventors, however denominated,
throughout the world; and (viii) any similar or equivalent rights to any
of the foregoing anywhere in the world.
"GEOCITIES INTELLECTUAL PROPERTY" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, GeoCities or one of its
subsidiaries.
"REGISTERED INTELLECTUAL PROPERTY" means all United States, international
and foreign: (i) patents and patent applications (including provisional
applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or
applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; and (iv) any other Intellectual
Property that is the subject of an application, certificate, filing,
registration or other document issued, filed with, or recorded by any
state, government or other public legal authority.
"GEOCITIES REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, GeoCities or one
of its subsidiaries.
(a) No GeoCities Intellectual Property or product or service of
GeoCities is subject to any proceeding or outstanding decree, order,
judgment, agreement, or stipulation restricting in any manner the use,
transfer, or licensing thereof by GeoCities, or which may affect the
validity, use or enforceability of such GeoCities Intellectual Property,
which in any such case would be reasonably likely to have a Material Adverse
Effect on GeoCities.
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(b) Each material item of GeoCities Registered Intellectual Property is
valid and subsisting. All necessary registration, maintenance and renewal
fees currently due in connection with such Registered Intellectual Property
have been made and all necessary documents, recordations and certificates in
connection with such Registered Intellectual Property have been filed with
the relevant patent, copyright, trademark or other authorities in the United
States or foreign jurisdictions, as the case may be, for the purposes of
maintaining such Registered Intellectual Property, except where the failure
to do so would not be reasonably likely to have a Material Adverse Effect on
GeoCities.
(c) GeoCities or one of its subsidiaries owns and has good and exclusive
title to, or has license (sufficient for the conduct of its business as
currently conducted and as proposed to be conducted) to, each material item
of GeoCities Intellectual Property used in connection with the conduct of
its business as currently conducted and as proposed to be conducted free and
clear of any lien or encumbrance (excluding licenses and related
restrictions); and GeoCities or one of its subsidiaries is the exclusive
owner of all trademarks and trade names used in connection with and material
to the operation or conduct of the business of GeoCities and its
subsidiaries, including the sale of any products or the provision of any
services by GeoCities and its subsidiaries.
(d) GeoCities or one of its subsidiaries owns exclusively, and has good
title to, all copyrighted works that are GeoCities products or which
GeoCities otherwise expressly purports to own.
(e) To the extent that any material Intellectual Property has been
developed or created by a third party for GeoCities or any of its
subsidiaries, GeoCities or its subsidiaries, as the case may be, has a
written agreement with such third party with respect thereto and GeoCities
or its subsidiary thereby either (i) has obtained ownership of and is the
exclusive owner of, or (ii) has obtained a license (sufficient for the
conduct of its business as currently conducted and as proposed to be
conducted) to all such third party's Intellectual Property in such work,
material or invention by operation of law or by valid assignment, to the
fullest extent it is legally possible to do so.
(f) The GeoCities Schedules list all material contracts, licenses and
agreements to which GeoCities is a party (i) with respect to GeoCities
Intellectual Property licensed or transferred to any third party (other than
end-user licenses in the ordinary course); or (ii) pursuant to which a third
party has licensed or transferred any material Intellectual Property to
GeoCities.
(g) All material contracts, licenses and agreements relating to the
GeoCities Intellectual Property are in full force and effect. The
consummation of the transactions contemplated by this Agreement will neither
violate nor result in the breach, modification, cancellation, termination,
or suspension of such contracts, licenses and agreements in accordance with
its terms, the effect of which would have a Material Adverse Effect on
GeoCities. GeoCities is in material compliance with, and has not materially
breached any term of any of such contracts, licenses and agreements and, to
the knowledge of GeoCities, all other parties to such contracts, licenses
and agreements are in compliance in all material respects with, and have not
materially breached any term of, such contracts, licenses and agreements.
Following the Closing Date, the Surviving Corporation will be permitted to
exercise all of GeoCities' rights under such contracts, licenses and
agreements to the same extent GeoCities would have been able to had the
transactions contemplated by this Agreement not occurred and without the
payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which GeoCities would otherwise be required to pay.
(h) The operation of the business of GeoCities as such business
currently is conducted, including GeoCities' design, development, marketing
and sale of the products or services of GeoCities (including with respect to
products currently under development) has not, does not and will not
infringe or misappropriate in any material manner the Intellectual Property
of any third
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party or, to the knowledge of GeoCities, constitute unfair competition or
trade practices under the laws of any jurisdiction.
(i) GeoCities has not received written notice from any third party, and
to the knowledge of GeoCities, no other pending overt threat from any third
party, that the operation of the business of GeoCities or any act, product
or service of GeoCities, infringes or misappropriates the Intellectual
Property of any third party or constitutes unfair competition or trade
practices under the laws of any jurisdiction.
(j) To the knowledge of GeoCities, no person has or is infringing or
misappropriating any GeoCities Intellectual Property.
(k) GeoCities and its subsidiaries have taken reasonable steps to
protect GeoCities' and its subsidiaries' rights in GeoCities' and such
subsidiaries' confidential information and trade secrets that they wish to
protect or any trade secrets or confidential information of third parties
provided to GeoCities or such subsidiaries, and, without limiting the
foregoing, GeoCities and its subsidiaries have and enforce a policy
requiring each employee and contractor to execute a proprietary
information/confidentiality agreement in substantially the form provided to
Yahoo!, and except under confidentiality obligations, there has been not
disclosure by GeoCities or one of its subsidiaries of any such trade secrets
or confidential information.
2.10 COMPLIANCE WITH LAWS; PERMITS; RESTRICTIONS.
(a) Neither GeoCities nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or in violation of (i) any law,
rule, regulation, order, judgment or decree applicable to GeoCities or any
of its subsidiaries or by which GeoCities or any of its subsidiaries or any
of their respective properties is bound or affected, or (ii) any material
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which GeoCities or
any of its subsidiaries is a party or by which GeoCities or any of its
subsidiaries or its or any of their respective properties is bound or
affected, except for conflicts, violations and defaults that (individually
or in the aggregate) would not be reasonably likely to result in a Material
Adverse Effect on GeoCities. No investigation or review by any Governmental
Entity is pending or, to GeoCities' knowledge, has been threatened in a
writing delivered to GeoCities against GeoCities or any of its subsidiaries,
nor, to GeoCities' knowledge, has any Governmental Entity indicated an
intention to conduct an investigation of GeoCities or any of its
subsidiaries. There is no material agreement, judgment, injunction, order or
decree binding upon GeoCities or any of its subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of GeoCities or any of its subsidiaries, any
acquisition of material property by GeoCities or any of its subsidiaries or
the conduct of business by GeoCities as currently conducted.
(b) GeoCities and its subsidiaries hold, to the extent legally required,
all permits, licenses, variances, exemptions, orders and approvals from
governmental authorities that are material to and required for the operation
of the business of GeoCities as currently conducted (collectively, the
"GEOCITIES PERMITS"). GeoCities and its subsidiaries are in compliance in
all material respects with the terms of the GeoCities Permits.
2.11 LITIGATION. There are no claims, suits, actions or proceedings
pending or, to the knowledge of GeoCities, threatened against, relating to or
affecting GeoCities or any of its subsidiaries, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
singularly or in the aggregate with all such claims, actions or proceedings, to
have a Material Adverse Effect on GeoCities or the Surviving Corporation
following the Merger or have a material adverse effect on the ability of the
parties hereto to
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consummate the Merger. No Governmental Entity has at any time challenged or
questioned in a writing delivered to GeoCities the legal right of GeoCities to
design, offer or sell any of its products in the present manner or style
thereof.
2.12 EMPLOYEE BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of "Affiliate"
set forth in Section 2.12(a)(i) below (which definition shall apply only to
this Section 2.12), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity under common
control with GeoCities within the meaning of Section 414(b), (c), (m) or
(o) of the Code and the regulations issued thereunder;
(ii) "GEOCITIES EMPLOYEE PLAN" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit
plan," within the meaning of Section 3(3) of ERISA which is or has been
maintained, contributed to, or required to be contributed to, by
GeoCities or any Affiliate for the benefit of any Employee and pursuant
to which GeoCities or any Affiliate has any material liability;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
(v) "EMPLOYEE" shall mean any current, former, or retired employee,
officer, or director of GeoCities or any Affiliate;
(vi) "EMPLOYEE AGREEMENT" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas,
work permit or similar agreement or contract between GeoCities or any
Affiliate and any Employee or consultant;
(vii) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
(ix) "INTERNATIONAL EMPLOYEE PLAN" shall mean each GeoCities
Employee Plan that has been adopted or maintained by GeoCities, whether
informally or formally, for the benefit of Employees outside the United
States;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA;
(xii) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and
(xiii) "PENSION PLAN" shall mean each GeoCities Employee Plan which is
an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
(b) SCHEDULE. The GeoCities Schedules contain an accurate and complete
list of each GeoCities Employee Plan and each Employee Agreement. GeoCities
does not have any plan or commitment to establish any new GeoCities Employee
Plan, to modify any GeoCities Employee Plan or Employee Agreement (except to
the extent required by law or to conform any such GeoCities Employee Plan or
Employee Agreement to the requirements of any applicable law, in
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each case as previously disclosed to Yahoo! in writing, or as required by
this Agreement), or to enter into any GeoCities Employee Plan or Employee
Agreement, nor does it have any intention or commitment to do any of the
foregoing. The GeoCities Schedules also contain a list of all GeoCities
employees as of the date hereof, each such person's date of hire and each
such person's annual compensation.
(c) DOCUMENTS. GeoCities has provided to Yahoo!: (i) correct and
complete copies of all material documents embodying to each GeoCities
Employee Plan and each Employee Agreement including all amendments thereto
and written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each GeoCities Employee Plan; (iii) the
three (3) most recent annual reports (Form Series 5500 and all schedules and
financial statements attached thereto), if any, required under ERISA or the
Code in connection with each GeoCities Employee Plan or related trust; (iv)
if the GeoCities Employee Plan is funded, the most recent annual and
periodic accounting of GeoCities Employee Plan assets; (v) the most recent
summary plan description together with the summary of material modifications
thereto, if any, required under ERISA with respect to each GeoCities
Employee Plan; (vi) all IRS determination, opinion, notification and
advisory letters, and rulings relating to GeoCities Employee Plans and
copies of all applications and correspondence to or from the IRS or the DOL
with respect to any GeoCities Employee Plan; (vii) all material written
agreements and contracts relating to each GeoCities Employee Plan,
including, but not limited to, administrative service agreements, group
annuity contracts and group insurance contracts; (viii) all communications
material to any Employee or Employees relating to any GeoCities Employee
Plan and any proposed GeoCities Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events
which would result in any material liability to GeoCities; and (ix) all
registration statements and prospectuses prepared in connection with each
GeoCities Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. (i) GeoCities has performed in all
material respects all obligations required to be performed by it under, is
not in default or violation of; and has no knowledge of any material default
or violation by any other party to each GeoCities Employee Plan, and each
GeoCities Employee Plan has been established and maintained in all material
respects in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA or the Code; (ii) each GeoCities Employee Plan intended to qualify
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code has either received a favorable determination
letter from the IRS with respect to each such Plan as to its qualified
status under the Code or has remaining a period of time under applicable
Treasury regulations or IRS pronouncements in which to apply for such a
determination letter and make any amendments necessary to obtain a favorable
determination and no event has occurred which would adversely affect the
status of such determination letter or the qualified status of such Plan;
(iii) no "prohibited transaction," within the meaning of Section 4975 of the
Code or Sections 406 and 407 of ERISA, and not otherwise exempt under
Section 408 of ERISA, has occurred with respect to any GeoCities Employee
Plan; (iv) there are no actions, suits or claims pending, or, to the
knowledge of GeoCities, threatened or reasonably anticipated (other than
routine claims for benefits) against any GeoCities Employee Plan or against
the assets of any GeoCities Employee Plan; (v) each GeoCities Employee Plan
can be amended, terminated or otherwise discontinued after the Effective
Time in accordance with its terms, without liability to Yahoo!, GeoCities or
any of its Affiliates (other than ordinary administration expenses typically
incurred in a termination event); (vi) there are no audits, inquiries or
proceedings pending or, to the knowledge of GeoCities, threatened by the IRS
or DOL with respect to any GeoCities Employee Plan; and (vii) neither
GeoCities nor any Affiliate is subject to any penalty or tax with respect to
any GeoCities Employee Plan under Section 402(i) of ERISA or Sections 4975
through 4980 of the Code.
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(e) PENSION PLANS. GeoCities does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the
Code.
(f) MULTIEMPLOYER PLANS. At no time has GeoCities contributed to or
been requested to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. No GeoCities Employee Plan
provides, or has any liability to provide, retiree life insurance, retiree
health or other retiree employee welfare benefits to any person for any
reason, except as may be required by COBRA or other applicable statute, and
GeoCities has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a
group) or any other person that such Employee(s) or other person would be
provided with retiree life insurance, retiree health or other retiree
employee welfare benefit, except to the extent required by statute.
(h) COBRA; FMLA. Neither GeoCities nor any Affiliate has, prior to the
Effective Time, and in any material respect, violated any of the health care
continuation requirements of COBRA, the requirements of FMLA or any similar
provisions of state law applicable to its Employees.
(i) EFFECT OF TRANSACTION.
(i) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any GeoCities Employee Plan, Employee Agreement, trust or loan that
will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any Employee.
(ii) No payment or benefit which will or may be made by GeoCities or
its Affiliates with respect to any Employee as a result of the
transactions contemplated by this Agreement will be characterized as an
"excess parachute payment," within the meaning of Section 280G(b)(1) of
the Code or will be treated as a nondeductible expense within the meaning
of Section 162 of the Code.
(j) EMPLOYMENT MATTERS. GeoCities: (i) is in compliance in all
material respects with all applicable foreign, federal, state and local
laws, rules and regulations respecting employment, employment practices,
terms and conditions of employment and wages and hours, in each case, with
respect to Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
Employees; (iii) is not liable in any material respect for any arrears of
wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) is not liable for any material payment to any trust or
other fund or to any governmental or administrative authority, with respect
to unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
There are no pending, or, to GeoCities' knowledge, threatened or reasonably
anticipated claims or actions against GeoCities under any worker's
compensation policy or long-term disability policy which would be reasonably
likely to have a Material Adverse Effect on GeoCities. To GeoCities'
knowledge, no Employee of GeoCities has violated any employment contract,
nondisclosure agreement or noncompetition agreement by which such Employee
is bound due to such Employee being employed by GeoCities and disclosing to
GeoCities or using trade secrets or proprietary information of any other
person or entity.
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(k) LABOR. No work stoppage or labor strike against GeoCities is
pending, threatened or reasonably anticipated. GeoCities does not know of
any activities or proceedings of any labor union to organize any Employees.
There are no actions, suits, claims, labor disputes or grievances pending,
or, to the knowledge of GeoCities, threatened or reasonably anticipated
relating to any labor, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices
or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to
GeoCities. Neither GeoCities nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations
Act. GeoCities is not presently, nor has it been in the past, a party to, or
bound by, any collective bargaining agreement or union contract with respect
to Employees and no collective bargaining agreement is being negotiated by
GeoCities.
(l) INTERNATIONAL EMPLOYEE PLAN. Each International Employee Plan has
been established, maintained and administered in material compliance with
its terms and conditions and with the requirements prescribed by any and all
statutory or regulatory laws that are applicable to such International
Employee Plan. Furthermore, no International Employee Plan has unfunded
liabilities, that as of the Effective Time, will not be offset by insurance
or fully accrued.
2.13 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. Except as would not result in material
liability to GeoCities, no underground storage tanks and no amount of any
substance that has been designated by any Governmental Entity or by
applicable federal, state or local law to be radioactive, toxic, hazardous
or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as
a hazardous waste pursuant to the United States Resource Conservation and
Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws, but excluding office and janitorial supplies, (a "HAZARDOUS
MATERIAL") are present, as a result of the actions of GeoCities or any of
its subsidiaries or any affiliate of GeoCities, or, to GeoCities' knowledge,
as a result of any actions of any third party or otherwise, in, on or under
any property, including the land and the improvements, ground water and
surface water thereof that GeoCities or any of its subsidiaries has at any
time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. Except as would not result in a
material liability to GeoCities (in any individual case or in the aggregate)
(i) neither GeoCities nor any of its subsidiaries has transported, stored,
used, manufactured, disposed of released or exposed its employees or others
to Hazardous Materials in violation of any law in effect on or before the
Closing Date, and (ii) neither GeoCities nor any of its subsidiaries has
disposed of; transported, sold, used, released, exposed its employees or
others to or manufactured any product containing a Hazardous Material
(collectively "HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity in
effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) PERMITS. GeoCities and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"GEOCITIES ENVIRONMENTAL PERMITS") material to and necessary for the conduct
of GeoCities' and its subsidiaries' Hazardous Material Activities and other
businesses of GeoCities and its subsidiaries as such activities and
businesses are currently being conducted.
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2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as otherwise set forth
in the GeoCities Schedules, neither GeoCities nor any of its subsidiaries is a
party to or is bound by:
(a) any employment agreement, contract or commitment with any employee
or member of GeoCities' Board of Directors, other than those that are
terminable by GeoCities or any of its subsidiaries on no more than thirty
days notice without liability or financial obligation, except to the extent
general principles of wrongful termination law may limit GeoCities' or any
of its subsidiaries' ability to terminate employees at will, or any
consulting agreement;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any agreement of indemnification or any guaranty;
(d) any agreement, contract or commitment containing any covenant
limiting in any respect the right of GeoCities or any of its subsidiaries to
engage in any line of business or to compete with any person or granting any
exclusive distribution rights;
(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition by GeoCities or any of its subsidiaries after
the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which GeoCities has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than GeoCities' subsidiaries;
(f) any licensing, distribution, sponsorship, advertising, merchant
program or other similar agreement to which GeoCities or one of its
subsidiaries is a party which may not be canceled by GeoCities or its
subsidiaries, as the case may be, without penalty in excess of $50,000 upon
notice of 45 days or less or which provides for payments by or to GeoCities
or its subsidiaries in an amount in excess of $50,000 over the term of the
agreement;
(g) any agreement, contract or commitment currently in force to provide
source code to any third party for any product or technology; or
(h) any other agreement, contract or commitment currently in effect that
is material to GeoCities' business as presently conducted and proposed to be
conducted.
Neither GeoCities nor any of its subsidiaries, nor to GeoCities' knowledge
any other party to a GeoCities Contract (as defined below), is in breach,
violation or default under, and neither GeoCities nor any of its subsidiaries
has received written notice (or to its knowledge, any other form of notice) that
it has breached, violated or defaulted under, any of the material terms or
conditions of any of the agreements, contracts or commitments to which GeoCities
or any of its subsidiaries is a party or by which it is bound that are required
to be disclosed in the GeoCities Schedules pursuant to clauses (a) through (h)
above or pursuant to Section 2.9 hereof (any such agreement, contract or
commitment, a "GEOCITIES CONTRACT") in such a manner as would permit any other
party to cancel or terminate any such GeoCities Contract the effect of which
would have a Material Adverse Effect on GeoCities, or would permit any other
party to seek material damages or other remedies (for any or all of such
breaches, violations or defaults, in the aggregate).
2.15 POOLING OF INTERESTS. To the knowledge of GeoCities, based on
consultation with its independent accountants, neither GeoCities nor any of its
directors, officers, affiliates or stockholders has taken or agreed to take any
action which would preclude Yahoo!'s ability to account for the Merger as a
pooling of interests.
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2.16 CHANGE OF CONTROL PAYMENTS. The GeoCities Schedules set forth each
plan or agreement pursuant to which any amounts may become payable (whether
currently or in the future) to current or former officers and directors of
GeoCities as a result of or in connection with the Merger.
2.17 STATEMENTS; PROXY STATEMENT/PROSPECTUS. The information supplied by
GeoCities for inclusion in the Registration Statement (as defined in Section
3.3(b)) shall not at the time the Registration Statement is filed with the SEC
and at the time it becomes effective under the Securities Act contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The information
supplied by GeoCities for inclusion in the proxy statement/prospectus to be sent
to the stockholders of GeoCities in connection with the meeting of GeoCities'
stockholders to consider the approval and adoption of this Agreement and the
approval of the Merger (the "GEOCITIES STOCKHOLDERS' MEETING") (such proxy
statement/prospectus as amended or supplemented is referred to herein as the
"PROXY STATEMENT/PROSPECTUS") shall not, on the date the Proxy
Statement/Prospectus is first mailed to GeoCities' stockholders or at the time
of the GeoCities Stockholders' Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the GeoCities
Stockholders' Meeting which has become false or misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Securities Act, the Exchange Act and the rules and regulations
thereunder. If at any time prior to the Effective Time any event relating to
GeoCities or any of its affiliates, officers or directors should be discovered
by GeoCities which is required to be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement/Prospectus,
GeoCities shall promptly inform Yahoo!. Notwithstanding the foregoing, GeoCities
makes no representation or warranty with respect to any information supplied by
Yahoo! or Merger Sub which is contained in any of the foregoing documents.
2.18 BOARD APPROVAL. The Board of Directors of GeoCities has, as of the
date of this Agreement, determined (i) that the Merger is advisable and fair to,
and in the best interests of GeoCities and its stockholders and (ii) to
recommend that the stockholders of GeoCities approve and adopt this Agreement
and approve the Merger.
2.19 BROKERS' AND FINDERS' FEES. Except for fees payable to Goldman, Sachs
& Co., GeoCities has not incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby. A copy of the Goldman, Sachs & Co. engagement letter with
GeoCities has been previously provided to Yahoo!.
2.20 FAIRNESS OPINION. GeoCities' Board of Directors has received an
opinion from Goldman, Sachs & Co. as of the date hereof, to the effect that, as
of the date hereof, the Exchange Ratio is fair from a financial point of view to
GeoCities' stockholders (other than Yahoo! and its affiliates).
2.21 AFFILIATES. Set forth on the GeoCities Schedules is a list of those
persons who may be deemed to be, in GeoCities' reasonable judgment, affiliates
of GeoCities within the meaning of Rule 145 promulgated under the Securities Act
(each a "GEOCITIES AFFILIATE").
2.22 SECTION 203 NOT APPLICABLE. The Board of Directors of GeoCities has
taken all actions so that the restrictions contained in Section 203 of the
Delaware General Corporation Law applicable to a "business combination" (as
defined in such Section 203) will not apply to the execution, delivery or
performance of this Agreement or to the consummation of the Merger or the other
transactions contemplated by this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF YAHOO! AND MERGER SUB
Yahoo! and Merger Sub represent and warrant to GeoCities, subject to the
exceptions specifically disclosed in writing in the disclosure letter delivered
by Yahoo! to GeoCities dated as of the date hereof and certified by a duly
authorized officer of Yahoo! (the "YAHOO! SCHEDULES"), as follows:
3.1 ORGANIZATION OF YAHOO! AND MERGER SUB.
(a) Each of Yahoo! and Merger Sub (i) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is organized; (ii) has the corporate or other power and authority
to own, lease and operate its assets and property and to carry on its
business as now being conducted; and (iii) except as would not be material
to Yahoo!, is duly qualified or licensed to do business in each jurisdiction
where the character of the properties owned, leased or operated by it or the
nature of its activities makes such qualification or licensing necessary.
(b) Yahoo! has delivered or made available to GeoCities a true and
correct copy of the Certificate of Incorporation and Bylaws of Yahoo!, each
as amended to date, and each such instrument is in full force and effect.
Neither Yahoo! nor any of its subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent
governing instruments.
3.2 YAHOO! AND MERGER SUB CAPITAL STRUCTURE. The authorized capital stock
of Yahoo! consists of 225,000,000 shares of Yahoo! Common Stock, of which there
were 99,956,023 shares issued and outstanding as of January 26, 1999, and
10,000,000 shares of Preferred Stock, none of which are issued and outstanding.
All outstanding shares of Yahoo! Common Stock are duly authorized, validly
issued, fully paid and nonassessable and are not subject to preemptive rights
created by statute, the Certificate of Incorporation or Bylaws of Yahoo! or any
agreement or document to which Yahoo! is a party or by which it is bound. As of
January 25, 1999, there were options outstanding to purchase an aggregate of
25,836,093 shares of Yahoo! Common Stock under Yahoo!'s stock option plans. The
authorized capital stock of Merger Sub consists of 1,000 shares of Common Stock,
$0.01 par value, all of which, as of the date hereof, are issued and outstanding
and are held by Yahoo!. Merger Sub was formed for the purpose of consummating
the Merger and has no material assets or liabilities except as necessary for
such purpose.
3.3 AUTHORITY.
(a) Each of Yahoo! and Merger Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Yahoo! and
Merger Sub, subject only to the filing of the Certificate of Merger pursuant
to Delaware Law. This Agreement has been duly executed and delivered by each
of Yahoo! and Merger Sub and, assuming the due authorization, execution and
delivery by GeoCities, constitutes the valid and binding obligation of
Yahoo! and Merger Sub, enforceable against Yahoo! and Merger Sub in
accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement by each of Yahoo! and Merger Sub
does not, and the performance of this Agreement by each of Yahoo! and Merger
Sub will not, (i) conflict with or violate the Certificate of Incorporation
or Bylaws of Yahoo! or Merger Sub, (ii) conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Yahoo! or Merger
Sub or by which any of their respective properties is bound or affected, or
(iii) result in any material breach of or constitute a material default (or
an event that with notice or lapse of time or both would become a material
default) under, or impair Yahoo!'s rights or alter the rights or obligations
of any third party under, or give to others any rights of termination,
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amendment, acceleration or cancellation of; or result in the creation of a
material lien or encumbrance on any of the material properties or assets of
Yahoo! or Merger Sub pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation, in each case that is material to Yahoo!, to which Yahoo! or
Merger Sub is a party or by which Yahoo! or Merger Sub or any of their
respective properties are bound or affected.
(b) No consent, approval, order or authorization of; or registration,
declaration or filing with any Governmental Entity is required to be
obtained or made by Yahoo! or Merger Sub in connection with the execution
and delivery of this Agreement or the consummation of the Merger, except for
(i) the filing of a Form S-4 (or any similar successor form thereto)
Registration Statement (the "REGISTRATION STATEMENT") with the SEC in
accordance with the Securities Act, (ii) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (iii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal, foreign and state
securities (or related) laws and the HSR Act and the securities or antitrust
laws of any foreign country, and (v) such other consents, authorizations,
filings, approvals and registrations which if not obtained or made would not
be material to Yahoo! or GeoCities or have a material adverse effect on the
ability of the parties hereto to consummate the Merger.
3.4 SEC FILINGS; YAHOO! FINANCIAL STATEMENTS.
(a) Yahoo! has filed all forms, reports and documents required to be
filed by Yahoo! with the SEC since January 1, 1997, and has made available
to GeoCities such forms, reports and documents in the form filed with the
SEC. All such required forms, reports and documents (including those that
Yahoo! may file subsequent to the date hereof) are referred to herein as the
"YAHOO! SEC REPORTS." As of their respective dates, the Yahoo! SEC Reports
(i) were prepared in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such Yahoo! SEC Reports, and (ii) did not
at the time they were filed (or if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of Yahoo!'s subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Yahoo! SEC Reports (the
"YAHOO! FINANCIALS"), including any Yahoo! SEC Reports filed after the date
hereof until the Closing, (i) complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto,
(ii) was prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may be
permitted by the SEC on Form 1O-Q under the Exchange Act) and (iii) fairly
presented the consolidated financial position of Yahoo! and its subsidiaries
as at the respective dates thereof and the consolidated results of Yahoo!'s
operations and cash flows for the periods indicated, except that the
unaudited interim financial statements may not contain footnotes and were or
are subject to normal and recurring year-end adjustments. The balance sheet
of Yahoo! contained in Yahoo! SEC Reports as of September 30, 1998 is
hereinafter referred to as the "YAHOO! BALANCE SHEET."
(c) Yahoo! has heretofore furnished to GeoCities a complete and correct
copy of any amendments or modifications, which have not yet been filed with
the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Yahoo! with the SEC
pursuant to the Securities Act or the Exchange Act.
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3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Yahoo!
Balance Sheet there has not been any Material Adverse Effect with respect to
Yahoo! and its subsidiaries, taken as a whole.
3.6 PROXY STATEMENT/PROSPECTUS. The information supplied by Yahoo! for
inclusion in the Registration Statement shall not at the time the Registration
Statement is filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The information supplied by Yahoo! for inclusion in the Proxy
Statement/Prospectus shall not, on the date the Proxy Statement/Prospectus is
first mailed to GeoCities' stockholders or at the time of the GeoCities
Stockholders' Meeting contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the GeoCities Stockholders' Meeting which has become
false or misleading. If at any time prior to the Effective Time, any event
relating to Yahoo! or any of its affiliates, officers or directors should be
discovered by Yahoo! which is required to be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement/Prospectus, Yahoo!
shall promptly inform GeoCities. Notwithstanding the foregoing, Yahoo! makes no
representation or warranty with respect to any information supplied by GeoCities
which is contained in any of the foregoing documents.
3.7 LITIGATION. There are no claims, suits, actions or proceedings pending
or, to the knowledge of Yahoo!, threatened against, relating to or affecting
Yahoo! or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seeks
to restrain or enjoin the consummation of the transactions contemplated by this
Agreement.
3.8 POOLING OF INTERESTS. To the knowledge of Yahoo!, based on
consultation with its independent accountants, neither Yahoo! nor any of its
directors, officers, affiliates or stockholders has taken or agreed to take any
action which would preclude Yahoo!'s ability to account for the Merger as a
pooling of interests.
3.9 AFFILIATES. Set forth on the Yahoo! Schedules is a list of those
persons who may be deemed to be, in Yahoo!'s reasonable judgment, affiliates of
Yahoo! within the meaning of Rule 145 promulgated under the Securities Act (each
a "YAHOO! AFFILIATE").
3.10 VALID ISSUANCE. The Yahoo! Common Stock to be issued in the Merger,
when issued in accordance with the provisions of this Agreement, will be validly
issued, fully paid and nonassessable.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS BY GEOCITIES. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, GeoCities and each of its
subsidiaries shall, except to the extent that Yahoo! shall otherwise consent in
writing, carry on its business in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and in compliance in all
material respects with all applicable laws and regulations, pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, pay or
perform other material obligations when due, and use its commercially reasonable
efforts consistent with past practices and policies to (i) preserve intact its
present business organization, (ii) keep available the services of its present
officers and employees and (iii) preserve its relationships with customers,
suppliers, licensors, licensees, and others with which it has business dealings.
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In addition, except as permitted by the terms of this Agreement, and
except as provided in Schedule 4.1 of the GeoCities Schedules, without the
prior written consent of Yahoo!, during the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, GeoCities shall not
do any of the following and shall not permit its subsidiaries to do any of
the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of
such plans;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements in effect, or policies existing, on
the date hereof and as previously disclosed in writing to Yahoo!, or adopt
any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the GeoCities
Intellectual Property, other than non-exclusive licenses in the ordinary
course of business and consistent with past practice;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of GeoCities or its subsidiaries, except repurchases
of unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or
purchase agreements in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber any
shares of capital stock or any securities convertible into shares of capital
stock, or subscriptions, rights, warrants or options to acquire any shares
of capital stock or any securities convertible into shares of capital stock,
or enter into other agreements or commitments of any character obligating it
to issue any such shares or convertible securities, other than the issuance
delivery and/or sale of (i) shares of GeoCities Common Stock pursuant to the
exercise of stock options therefor, and (ii) shares of GeoCities Common
Stock issuable to participants in the ESPP consistent with the terms
thereof;
(g) Cause, permit or propose any amendments to its Certificate of
Incorporation, Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof; or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to the business of GeoCities or enter into any material joint
ventures, strategic partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate,
to the business of GeoCities;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
GeoCities, enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the
economic effect of any of the foregoing other than (i) in connection with
the financing of ordinary course trade payables consistent with past
practice or (ii) pursuant to existing credit facilities in the ordinary
course of business;
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(k) Adopt or amend any employee benefit plan or employee stock purchase
or employee stock option plan, or enter into any employment contract or
collective bargaining agreement (other than offer letters and letter
agreements entered into in the ordinary course of business consistent with
past practice with employees who are terminable "at will"), pay any special
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates or fringe benefits (including rights to severance or
indemnification) of its directors, officers, employees or consultants other
than in the ordinary course of business, consistent with past practice;
(l) Modify, amend or terminate any material contract or agreement to
which GeoCities or any subsidiary thereof is a party or waive, release or
assign any material rights or claims thereunder;
(m) Enter into any licensing, distribution, sponsorship, advertising,
merchant program or other similar contracts, agreements, or obligations
which may not be canceled without penalty by GeoCities or its subsidiaries
upon notice of 45 days or less or which provide for payments by or to
GeoCities or its subsidiaries in an amount in excess of $50,000 over the
term of the Agreement;
(n) Revalue any of its assets or, except as required by GAAP, make any
change in accounting methods, principles or practices;
(o) Take any action, or omit to take any action, that would be
reasonably likely to interfere with Yahoo!'s ability to account for the
Merger as a pooling of interests, whether or not otherwise permitted by the
provisions of this Article IV;
(p) Fail to make in a timely manner any filings with the SEC required
under the Securities Act or the Exchange Act or the rules and regulations
promulgated thereunder;
(q) Engage in any action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement; or
(r) Agree in writing or otherwise to take any of the actions described
in Section 4.1 (a) through (q) above.
4.2 CONDUCT OF BUSINESS BY YAHOO!. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, without the prior written consent
of GeoCities, Yahoo! shall not do any of the following and shall not permit its
subsidiaries to do any of the following:
(a) Cause, permit or propose any amendments to its Articles of
Incorporation or Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries) in a manner that would have an
adverse impact on GeoCities' stockholders; PROVIDED that the foregoing shall
not restrict the ability of Yahoo! to reincorporate in another jurisdiction
prior to the termination of this Agreement or the Effective Time; or
(b) Take any action that would be reasonably likely to interfere with
Yahoo!'s ability to account for the Merger as a pooling of interests,
whether or not otherwise permitted by this Article IV.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; OTHER FILINGS;
BOARD RECOMMENDATIONS.
(a) As promptly as practicable after the execution of this Agreement,
GeoCities and Yahoo! will prepare, and file with the SEC, the Proxy
Statement/Prospectus and Yahoo! will prepare and file with the SEC the
Registration Statement in which the Proxy Statement/Prospectus will be
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included as a prospectus. Each of GeoCities and Yahoo! will respond to any
comments of the SEC, will use its respective commercially reasonable efforts
to have the Registration Statement declared effective under the Securities
Act as promptly as practicable after such filing and GeoCities will cause
the Proxy Statement/Prospectus to be mailed to its stockholders at the
earliest practicable time after the Registration Statement is declared
effective by the SEC. As promptly as practicable after the date of this
Agreement, each of GeoCities and Yahoo! will prepare and file any other
filings required to be filed by it under the Exchange Act, the Securities
Act or any other Federal, foreign or Blue Sky or related laws relating to
the Merger and the transactions contemplated by this Agreement (the "OTHER
FILINGS"). Each of GeoCities and Yahoo! will notify the other promptly upon
the receipt of any comments from the SEC or its staff or any other
government officials and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the Registration
Statement, the Proxy Statement/Prospectus or any Other Filing or for
additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC or its staff or any other government officials, on the
other hand, with respect to the Registration Statement, the Proxy
Statement/Prospectus, the Merger or any Other Filing. Each of GeoCities and
Yahoo! will cause all documents that it is responsible for filing with the
SEC or other regulatory authorities under this Section 5.1(a) to comply in
all material respects with all applicable requirements of law and the rules
and regulations promulgated thereunder. Whenever any event occurs which is
required to be set forth in an amendment or supplement to the Proxy
Statement/Prospectus, the Registration Statement or any Other Filing,
GeoCities or Yahoo!, as the case may be, will promptly inform the other of
such occurrence and cooperate in filing with the SEC or its staff or any
other government officials, and/or mailing to stockholders of GeoCities,
such amendment or supplement.
(b) Each of Yahoo! and GeoCities shall use commercially reasonable
efforts to cause its respective independent accountants to deliver as
promptly as practicable following the date hereof audited financial
statements for the year ended December 31, 1998.
5.2 MEETING OF GEOCITIES STOCKHOLDERS.
(a) Promptly after the date hereof, GeoCities will take all action
necessary in accordance with the Delaware Law and its Certificate of
Incorporation and Bylaws to convene the GeoCities Stockholders' Meeting to
be held as promptly as practicable after the declaration of effectiveness of
the Registration Statement, for the purpose of voting upon this Agreement
and the Merger. GeoCities will use its commercially reasonable efforts to
solicit from its stockholders proxies in favor of the adoption and approval
of this Agreement and the approval of the Merger and will take all other
action necessary or advisable to secure the vote or consent of its
stockholders required by the rules of the NASD or Delaware Law to obtain
such approvals. Notwithstanding anything to the contrary contained in this
Agreement, GeoCities may adjourn or postpone GeoCities Stockholders' Meeting
to the extent necessary to ensure that any necessary supplement or amendment
to the Prospectus/Proxy Statement is provided to GeoCities' stockholders in
advance of a vote on the Merger and this Agreement or, if as of the time for
which GeoCities Stockholders' Meeting is originally scheduled (as set forth
in the Prospectus/Proxy Statement) there are insufficient shares of
GeoCities Common Stock represented (either in person or by proxy) to
constitute a quorum necessary to conduct the business of the GeoCities'
Stockholders' Meeting. GeoCities shall ensure that the GeoCities
Stockholders' Meeting is called, noticed, convened, held and conducted, and
subject to Section 5.2(c) that all proxies solicited by the GeoCities in
connection with the GeoCities Stockholders' Meeting are solicited, in
compliance with the Delaware Law, its Certificate of Incorporation and
Bylaws, the rules of the NASD and all other applicable legal requirements.
GeoCities' obligation to call, give notice of, convene and hold the
GeoCities Stockholders' Meeting in accordance with this Section 5.2(a) shall
not be limited to or
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otherwise affected by the commencement, disclosure, announcement or
submission to GeoCities of any Acquisition Proposal, or by any withdrawal,
amendment or modification of the recommendation of the Board of Directors of
GeoCities with respect to the Merger.
(b) Subject to Section 5.2(c): (i) the Board of Directors of GeoCities
shall recommend that GeoCities' stockholders vote in favor of and adopt and
approve this Agreement and the Merger at the GeoCities Stockholders'
Meeting; (ii) the Prospectus/Proxy Statement shall include a statement to
the effect that the Board of Directors of the GeoCities has recommended that
GeoCities' stockholders vote in favor of and adopt and approve this
Agreement and the Merger at the GeoCities Stockholders' Meeting; and (iii)
neither the Board of Directors of GeoCities nor any committee thereof shall
withdraw, amend or modify, or propose or resolve to withdraw, amend or
modify in a manner adverse to Yahoo!, the recommendation of the Board of
Directors of GeoCities that GeoCities' stockholders vote in favor of and
adopt and approve this Agreement and the Merger.
(c) Nothing in this Agreement shall prevent the Board of Directors of
GeoCities from withholding, withdrawing, amending or modifying its
recommendation in favor of the Merger if (i) a Superior Offer (as defined
below), or an offer reasonably believed by the Board of Directors of
GeoCities to be a Superior Offer, is made to the GeoCities and is not
withdrawn, (ii) neither GeoCities nor any of its representatives shall have
violated any of the restrictions set forth in Section 5.4, and (iii) the
Board of Directors of GeoCities or any committee thereof concludes in good
faith, after consultation with its outside counsel, that, in light of such
Superior Offer, the withholding, withdrawal, amendment or modification of
such recommendation is required in order for the Board of Directors of
GeoCities or any committee thereof to comply with its obligations to
GeoCities' stockholders under applicable law. Nothing contained in this
Section 5.2(c) shall limit GeoCities' obligation to hold and convene the
GeoCities Stockholders' Meeting (regardless of whether the recommendation of
the Board of Directors of the GeoCities shall have been withdrawn, amended
or modified). For purposes of this Agreement ("SUPERIOR OFFER") shall mean
an unsolicited, bona fide written offer made by a third party to consummate
any of the following transactions: (i) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving GeoCities pursuant to which the stockholders of
GeoCities immediately preceding such transaction hold less than 50% of the
equity interest in the surviving or resulting entity of such transaction;
(ii) a sale or other disposition by GeoCities of assets representing in
excess of 50% of the fair market value of GeoCities' business immediately
prior to such sale, or (iii) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or issuance by
GeoCities), directly or indirectly, of beneficial ownership or a right to
acquire beneficial ownership of shares representing in excess of 50% of the
voting power of the then outstanding shares of capital stock of the
GeoCities, on terms that the Board of Directors of GeoCities determines, in
its reasonable judgment, after consultation with its financial advisor, to
be more favorable, or is reasonably likely to be more favorable, to
GeoCities stockholders than the terms of the Merger; PROVIDED, HOWEVER, that
any such offer shall not be deemed to be a "Superior Offer" if any financing
required to consummate the transaction contemplated by such offer is not
committed and is not likely in the judgment of GeoCities' Board of Directors
to be obtained by such third party on a timely basis.
5.3 CONFIDENTIALITY; ACCESS TO INFORMATION.
(a) The parties acknowledge that GeoCities and Yahoo! have previously
executed a Confidentiality Agreement (the "CONFIDENTIALITY AGREEMENT"),
which Confidentiality Agreement will continue in full force and effect in
accordance with its terms.
(b) GeoCities will afford Yahoo! and its accountants, counsel and other
representatives reasonable access during normal business hours to the
properties, books, records and personnel of GeoCities during the period
prior to the Effective Time to obtain all information concerning the
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business, including the status of product development efforts, properties,
results of operations and personnel of GeoCities, as Yahoo! may reasonably
request. Yahoo! will afford GeoCities and its representatives reasonable
access to information concerning Yahoo!'s business that GeoCities may
reasonably request in order to permit, and solely for the purpose of
permitting, GeoCities to confirm the accuracy of the representations and
warranties made by Yahoo! in Article III. No information or knowledge
obtained by Yahoo! or GeoCities in any investigation pursuant to this
Section 5.3 will affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the
parties to consummate the Merger.
5.4 NO SOLICITATION.
(a) From and after the date of this Agreement until the Effective Time
or termination of this Agreement pursuant to Article VII, GeoCities and its
subsidiaries will not, nor will they authorize or permit any of their
respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by any of them
to, directly or indirectly, (i) solicit, initiate, encourage or induce the
making, submission or announcement of any Acquisition Proposal (as
hereinafter defined), (ii) participate in any discussions or negotiations
regarding, or furnish to any person any non-public information with respect
to, or take any other action to facilitate any inquiries or the making of
any proposal that constitutes or may reasonably be expected to lead to, any
Acquisition Proposal, (iii) engage in discussions with any person with
respect to any Acquisition Proposal, except as to the existence of these
provisions, (iv) subject to Section 5.2(c), approve, endorse or recommend
any Acquisition Proposal or (v) enter into any letter of intent or similar
document or any contract, agreement or commitment contemplating or otherwise
relating to any Acquisition Transaction; PROVIDED, HOWEVER, that prior to
the approval of this Agreement by the required GeoCities stockholder vote,
this Section 5.4(a) shall not prohibit GeoCities from furnishing nonpublic
information regarding GeoCities and its subsidiaries to, entering into a
confidentiality agreement with or entering into discussions with, any person
or group in response to a Superior Offer submitted by such person or group
(and not withdrawn) if (1) neither GeoCities nor any representative of
GeoCities and its subsidiaries shall have violated any of the restrictions
set forth in this Section 5.4, (2) the Board of Directors of GeoCities
concludes in good faith, after consultation with its outside legal counsel,
that such action is required in order for the Board of Directors of
GeoCities to comply with its fiduciary obligations to GeoCities'
stockholders under applicable law, (3) prior to furnishing any such
nonpublic information to, or entering into discussions with, such person or
group, GeoCities gives Yahoo! written notice of the identity of such person
or group and of GeoCities' intention to furnish nonpublic information to, or
enter into discussions with, such person or group and the GeoCities receives
from such person or group an executed confidentiality agreement containing
customary limitations on the use and disclosure of all nonpublic written and
oral information furnished to such person or group by or on behalf of the
GeoCities, and (4) contemporaneously with furnishing any such nonpublic
information to such person or group, GeoCities furnishes such nonpublic
information to Yahoo! (to the extent such nonpublic information has not been
previously furnished by the GeoCities to Yahoo!). GeoCities and its
subsidiaries will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any Acquisition Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding
two sentences by any officer, director or employee of GeoCities or any of
its subsidiaries or any investment banker, attorney or other advisor or
representative of GeoCities or any of its subsidiaries shall be deemed to be
a breach of this Section 5.4 by GeoCities. In addition to the foregoing, the
GeoCities shall provide Yahoo! with at least two (2) business days or
forty-eight (48) hours prior written notice of a meeting of GeoCities' Board
of Directors at which GeoCities' Board of Directors is reasonably expected
to recommend a Superior Offer to its stockholders and together with such
notice a copy of the documentation relating to such Superior Offer that
exists at such time.
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For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any bona
fide offer or proposal (other than an offer or proposal by Yahoo!) relating
to any Acquisition Transaction. For the purposes of this Agreement,
"ACQUISITION TRANSACTION" shall mean any transaction or series of related
transactions other than the transactions contemplated by this Agreement
involving: (A) any acquisition or purchase from the GeoCities by any person
or "group" (as defined under Section 13(d) of the Exchange Act and the rules
and regulations thereunder) of more than a 15% interest in the total
outstanding voting securities of the GeoCities or any of its subsidiaries or
any tender offer or exchange offer that if consummated would result in any
person or "group" (as defined under Section 13(d) of the Exchange Act and
the rules and regulations thereunder) beneficially owning 15% or more of the
total outstanding voting securities of the GeoCities or any of its
subsidiaries or any merger, consolidation, business combination or similar
transaction involving the GeoCities pursuant to which the stockholders of
the GeoCities immediately preceding such transaction hold less than 85% of
the equity interests in the surviving or resulting entity of such
transaction; (B) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than 50% of the assets of the
GeoCities; or (C) any liquidation or dissolution of the GeoCities.
(b) In addition to the obligations of GeoCities set forth in paragraph
(a) of this Section 5.4, GeoCities as promptly as practicable shall advise
Yahoo! orally and in writing of any request for non-public information which
GeoCities reasonably believes would lead to an Acquisition Proposal or of
any Acquisition Proposal, or any inquiry with respect to or which GeoCities
reasonably should believe would lead to any Acquisition Proposal, the
material terms and conditions of such Acquisition Proposal (to the extent
known), and the identity of the person or group making any such request,
Acquisition Proposal or inquiry. GeoCities will keep Yahoo! informed in all
material respects of any material amendments or proposed amendments to any
such Acquisition Proposal.
5.5 PUBLIC DISCLOSURE. Yahoo! and GeoCities will consult with each other,
and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Merger, this Agreement
or an Acquisition Proposal and will not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law or any listing agreement with a national securities exchange. The parties
have agreed to the text of the joint press release announcing the signing of
this Agreement.
5.6 REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including using reasonable efforts to
accomplish the following: (i) the taking of all reasonable acts necessary to
cause the conditions precedent set forth in Article VI to be satisfied, (ii)
the obtaining of all necessary actions or nonactions, waivers, consents,
approvals, orders and authorizations from Governmental Entities and the
making of all necessary registrations, declarations and filings (including
registrations, declarations and filings with Governmental Entities, if any)
and the taking of all reasonable steps as may be necessary to avoid any
suit, claim, action, investigation or proceeding by any Governmental Entity,
(iii) the obtaining of all necessary consents, approvals or waivers from
third parties, (iv) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions
contemplated hereby, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated
or reversed, and (v) the execution or delivery of any additional instruments
necessary to consummate the
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transactions contemplated by, and to fully carry out the purposes of, this
Agreement. In connection with and without limiting the foregoing, GeoCities
and its Board of Directors shall, if any state takeover statute or similar
statute or regulation is or becomes applicable to the Merger, this Agreement
or any of the transactions contemplated by this Agreement, use all
reasonable efforts to ensure that the Merger and the other ransactions
contemplated by this Agreement may be consummated as promptly as practicable
on the terms contemplated by this Agreement and otherwise to minimize the
effect of such statute or regulation on the Merger, this Agreement and the
transactions contemplated hereby. Notwithstanding anything herein to the
contrary, nothing in this Agreement shall be deemed to require Yahoo! or any
of its affiliates to make proposals, execute or carry out agreements or
submit to orders providing for the sale or other disposition or holding
separate (through the establishment of a trust or otherwise) of any assets
or categories of assets of Yahoo!, any of its affiliates or GeoCities or the
holding separate of the shares of GeoCities Common Stock or imposing or
seeking to impose any limitation on the ability of Yahoo! or any of its
subsidiaries or affiliates to conduct their business or own such assets or
to acquire, hold or exercise full rights of ownership of the shares of
GeoCities Common Stock.
(b) GeoCities shall give prompt notice to Yahoo! of any representation
or warranty made by it contained in this Agreement becoming untrue or
inaccurate, or any failure of GeoCities to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, in each case, such that the conditions
set forth in Section 6.3(a) or 6.3(b) would not be satisfied; PROVIDED,
HOWEVER, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
(c) Yahoo! shall give prompt notice to GeoCities of any representation
or warranty made by it or Merger Sub contained in this Agreement becoming
untrue or inaccurate, or any failure of Yahoo! or Merger Sub to comply with
or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case, such
that the conditions set forth in Section 6.2(a) or 6.2(b) would not be
satisfied; PROVIDED, HOWEVER, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.7 THIRD PARTY CONSENTS. As soon as practicable following the date
hereof, Yahoo! and GeoCities will each use its commercially reasonable efforts
to obtain any consents, waivers and approvals under any of its or its
subsidiaries' respective agreements, contracts, licenses or leases required to
be obtained in connection with the consummation of the transactions contemplated
hereby.
5.8 STOCK OPTIONS AND ESPP.
(a) At the Effective Time, each outstanding option to purchase shares of
GeoCities Common Stock (each a "GEOCITIES STOCK OPTION") under the GeoCities
Stock Option Plans, whether or not exercisable, will be assumed by Yahoo!.
Each GeoCities Stock Option so assumed by Yahoo! under this Agreement will
continue to have, and be subject to, the same terms and conditions set forth
in the applicable GeoCities Stock Option Plan immediately prior to the
Effective Time (including, without limitation, any repurchase rights or
vesting provisions), except that (i) each GeoCities Stock Option will be
exercisable (or will become exercisable in accordance with its terms) for
that number of whole shares of Yahoo! Common Stock equal to the product of
the number of shares of GeoCities Common Stock that were issuable upon
exercise of such GeoCities Stock Option immediately prior to the Effective
Time multiplied by the Exchange Ratio, rounded down to the nearest whole
number of shares of Yahoo! Common Stock and (ii) the per share exercise
price for the shares of Yahoo! Common Stock issuable upon exercise of such
assumed GeoCities Stock Option will be equal to the quotient determined by
dividing the exercise price per share of GeoCities Common Stock at which
such GeoCities Stock Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
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(b) It is intended that GeoCities Stock Options assumed by Yahoo! shall
qualify following the Effective Time as incentive stock options as defined
in Section 422 of the Code to the extent GeoCities Stock Options qualified
as incentive stock options immediately prior to the Effective Time and the
provisions of this Section 5.8 shall be applied consistent with such intent.
(c) GeoCities shall take all actions necessary pursuant to the terms of
the ESPP in order to accelerate the purchase date of the purchase period
under such plan which includes the Effective Time (the "CURRENT PURCHASE
PERIOD") such that a new purchase date for such purchase period shall occur
prior to the Effective Time and shares shall be purchased by ESPP
participants prior to the Effective Time. The Current Purchase Period shall
expire immediately following such new purchase date, and the ESPP shall
terminate immediately prior to the Effective Time. Subsequent to such new
purchase date, GeoCities shall take no action, pursuant to the terms of the
ESPP, to commence any new purchase period.
5.9 FORM S-8. Yahoo! agrees to file a registration statement on Form S-8
for the shares of Yahoo! Common Stock issuable with respect to assumed GeoCities
Stock Options as soon as is reasonably practicable after the Effective Time, and
in any event within 30 days after the Effective Time, and intends to maintain
the effectiveness of such registration statement thereafter for so long as any
of such options or other rights remain outstanding.
5.10 INDEMNIFICATION.
(a) From and after the Effective Time, Yahoo! will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of
GeoCities pursuant to any indemnification agreements between GeoCities and
its directors and officers as of the Effective Time (the "INDEMNIFIED
PARTIES") and any indemnification provisions under GeoCities' Certificate of
Incorporation or Bylaws as in effect on the date hereof. The Certificate of
Incorporation and Bylaws of the Surviving Corporation will contain
provisions with respect to exculpation and indemnification that are at least
as favorable to the Indemnified Parties as those contained in the
Certificate of Incorporation and Bylaws of GeoCities as in effect on the
date hereof, which provisions will not be amended, repealed or otherwise
modified for a period of three years from the Effective Time in any manner
that would adversely affect the rights thereunder of individuals who,
immediately prior to the Effective Time, were directors, officers, employees
or agents of GeoCities, unless such modification is required by law.
(b) For a period of three years after the Effective Time, Yahoo! will
cause the Surviving Corporation to use its commercially reasonable efforts
to maintain in effect, if available, directors' and officers' liability
insurance covering those persons who are currently covered by GeoCities'
directors' and officers' liability insurance policy on terms comparable to
those applicable to the current directors and officers of GeoCities;
PROVIDED, HOWEVER, that in no event will Yahoo! or the Surviving Corporation
be required to expend in excess of 125% of the annual premium currently paid
by GeoCities for such coverage (or such coverage as is available for such
125% of such annual premium).
(c) This Section 5.10 shall survive the consummation of the Merger, is
intended to benefit GeoCities, the Surviving Corporation and each
indemnified party, shall be binding on all successors and assigns of the
Surviving Corporation and Yahoo!, and shall be enforceable by the
indemnified parties.
5.11 NASDAQ LISTING. Yahoo! agrees to authorize for listing on the Nasdaq
Stock Market the shares of Yahoo! Common Stock issuable, and those required to
be reserved for issuance, in connection with the Merger, upon official notice of
issuance
5.12 AFFILIATE AGREEMENTS. In addition to those GeoCities Affiliate
Agreements executed and delivered to Yahoo! concurrently with the execution of
this Agreement, GeoCities will use its
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commercially reasonable efforts to deliver or cause to be delivered to Yahoo!,
as promptly as practicable on or following the date hereof, from each additional
GeoCities Affiliate an executed GeoCities Affiliate Agreement, each of which
will be in full force and effect as of the Effective Time. Yahoo! will use its
commercially reasonable efforts to deliver or cause to be delivered, as promptly
as practicable following the date hereof, from each Yahoo! Affiliate an executed
affiliate agreement in substantially the form attached hereto as EXHIBIT C (the
"YAHOO! AFFILIATE AGREEMENT"), each of which will be in full force and effect as
of the Effective Time. Yahoo! will be entitled to place appropriate legends on
the certificates evidencing any Yahoo! Common Stock to be received by a
GeoCities Affiliate pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Yahoo!
Common Stock, consistent with the terms of the GeoCities Affiliate Agreement.
5.13 [RESERVED]
5.14 GEOCITIES STOCK OPTION.
(a) GRANT OF GEOCITIES STOCK OPTION. Subject to the terms of Section
7.3(d), GeoCities hereby grants to Yahoo! an irrevocable option (the
"GEOCITIES STOCK OPTION") to purchase for $113.66 per share (the "EXERCISE
PRICE") in cash up to 6,370,000 shares of GeoCities Common Stock.
(b) TERM OF GEOCITIES STOCK OPTION. Yahoo! may exercise the GeoCities
Stock Option, in whole or in part, at any time or from time to time from the
day (the "EXERCISE COMMENCEMENT DATE") on which a Triggering Event (as such
term is defined in Section 7.1) shall have occurred or on which this
Agreement shall be terminated in the circumstances contemplated by Section
7.1(d), until the day (the "OPTION TERMINATION DATE") which is the earlier
of (i) the Effective Time or (ii) nine months after the termination of this
Agreement.
(c) CONDITIONS TO PURCHASE. Yahoo! may purchase shares of GeoCities
Common Stock pursuant to the GeoCities Stock Option only if all of the
following conditions are satisfied: (i) Yahoo! is not at the time of
purchase in material breach of its obligations under this Agreement, (ii) no
preliminary or permanent injunction or other order, decree or ruling against
the sale or delivery of the shares of GeoCities Common Stock issued by any
federal or state court of competent jurisdiction in the United States is in
effect at such time, and (iii) any applicable waiting period under the HSR
Act shall have expired or been terminated at or prior to such time.
(d) EXERCISE OF STOCK OPTION. If Yahoo! wishes to exercise the
GeoCities Stock Option, it shall do so by giving the GeoCities notice to
such effect, specifying the number of Shares to be purchased and a place and
date not earlier than one business day nor later than ten business days from
the date such notice is given for the closing of the purchase. If any such
closing cannot be consummated on the date specified by Yahoo! in its notice
of election to exercise the GeoCities Stock Option because any condition to
the purchase of shares of GeoCities Common Stock has not been satisfied or
as a result of any restriction arising under any applicable law or
regulation, the date for such closing shall be on such date within five days
following the satisfaction of all such conditions and the cessation of all
such restrictions as Yahoo! may specify.
(e) PAYMENT AND DELIVERY OF SHARES. At any closing in connection with
the GeoCities Stock Option, (i) Yahoo! shall make payment to the GeoCities
of the aggregate purchase price for the shares of GeoCities Common Stock to
be purchased by delivery to the GeoCities of a certified, cashier's or bank
check payable to the order of the GeoCities or, if mutually agreed, by wire
transfer of funds to an account designated by the GeoCities, and (ii) the
GeoCities shall deliver to Yahoo! a certificate or certificates representing
the shares so purchased, registered in the name of Yahoo! or its designee.
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(f) CERTAIN ADJUSTMENTS. In the event of any change in the GeoCities'
capital stock by reason of stock dividends, stock splits, mergers,
consolidations, recapitalizations, combinations, conversions, exchanges of
shares, extraordinary or liquidating dividends, or other changes in the
corporate or capital structure of the GeoCities which would have the effect
of diluting or changing Yahoo!'s rights hereunder, the number and kind of
shares of GeoCities Common Stock subject to the GeoCities Stock Option and
the purchase price per Share (but not the total purchase price) shall be
appropriately and equitably adjusted so that Yahoo! shall receive upon
exercise of the GeoCities Stock Option the number and class of shares of
GeoCities Common Stock or other securities or property that Yahoo! would
have received in respect of the shares purchasable upon exercise of the
GeoCities Stock Option if the GeoCities Stock Option had been exercised
immediately prior to such event.
(g) SURRENDER RIGHT. At any time or from time to time after the
Exercise Commencement Date, Yahoo! may, at its election, upon two days'
notice to the GeoCities, surrender all or a part of the GeoCities Stock
Option to GeoCities, in which event GeoCities shall pay to Yahoo!, on the
day of each such surrender and in consideration thereof, against tender by
Yahoo! of an instrument evidencing such surrender, an amount in cash per
share of GeoCities Common Stock the rights to which are surrendered equal to
(i) the closing sale price of the GeoCities' Common Stock on the Nasdaq
Stock Market on the date of surrender (or the closing price as reported by
any other applicable securities exchange if not listed on the Nasdaq Stock
Market), or if not actively traded, the fair market value as determined by
investment bankers chosen by Yahoo over (ii) the Exercise Price. Upon
exercise of its right to surrender the GeoCities Stock Option or any portion
thereof and the receipt by Yahoo! of cash pursuant to this Section 5.14(g),
any and all rights of Yahoo! to purchase shares of GeoCities Common Stock
with respect to the portion of the GeoCities Stock Option surrendered
pursuant to this Section shall be terminated.
(h) LISTING AND RESERVATION OF SHARES; NOTIFICATION OF RECORD DATES.
(i) Promptly after the date hereof, and from time to time thereafter
if necessary, GeoCities will apply to list all of the shares of GeoCities
Common Stock subject to the GeoCities Stock Option on the Nasdaq Stock
Market and will use its best efforts to obtain approval of such listing
as soon as practicable.
(ii) GeoCities has taken all necessary corporate and other action to
authorize and reserve and to permit it to issue, and at all times from
the date hereof until such time as the obligation to deliver shares of
GeoCities Common Stock upon the exercise of the GeoCities Stock Option
terminates, will have reserved for issuance, upon any exercise of the
GeoCities Stock Option, the number of shares of GeoCities Common Stock
subject to the GeoCities Stock Option (less the number of shares
previously issued upon any partial exercise of the GeoCities Stock Option
or as to which the GeoCities Stock Option may no longer be exercised).
(iii) GeoCities shall give Yahoo! at least ten days' prior written
notice before setting the record date for determining the holders of
record of shares of GeoCities Common Stock entitled to notice of, or to
vote on, any matter, to receive any dividend or distribution or to
participate in any rights offering or other matter, or to receive any
other benefit or right, with respect to shares of GeoCities Common Stock.
(i) REGISTRATION OF THE SHARES.
(i) If Yahoo! requests GeoCities in writing to register under the
Securities Act any of the shares of GeoCities Common Stock owned by
Yahoo!, GeoCities will use its best efforts to cause the offering of the
shares so specified in such request to be registered as soon as
practicable so as to permit the sale or other distribution by Yahoo! of
the shares specified in
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its request (and to keep such registration in effect for a period of at
least 90 days), and in connection therewith prepare and file as promptly
as reasonably possible (but in no event later than 60 days from receipt
of Yahoo!'s request) a registration statement under the Securities Act to
effect such registration on an appropriate form, which would permit the
sale of the shares of GeoCities Common Stock by Yahoo! in the manner
specified by Yahoo! in its request. GeoCities shall not be obligated to
make effective more than three registration statements pursuant to the
foregoing sentence. Upon written notice to Yahoo!, GeoCities may postpone
effecting a registration pursuant to this Section 5.14 on one occasion
during any period of six consecutive months for a reasonable time
specified in the notice but not exceeding 90 days (which period may not
be extended or renewed) if (1) an investment banking firm of recognized
national standing shall advise GeoCities and Yahoo! in writing that
effecting the registration would materially and adversely affect an
offering of securities of GeoCities the preparation of which had then
been commenced, or (2) GeoCities is in possession of material non-public
information the disclosure of which during the period specified in such
notice GeoCities believes, in its reasonable judgment, would not be in
the best interests of GeoCities. The obligations of GeoCities under this
Section 5.14 (i)(i) shall terminate at such time as Yahoo! may sell all
shares of GeoCities Common Stock without restriction under Rule 144 (k).
(ii) GeoCities shall notify Yahoo! in writing not less than ten days
prior to filing a registration statement under the Securities Act (other
than a filing on Form S-4 or S-8) with respect to any shares of GeoCities
Common Stock of GeoCities' intention so to file. If Yahoo! wishes to have
any portion of its shares of GeoCities Common Stock included in such
registration statement, it shall advise GeoCities in writing to that
effect within two business days following receipt of such notice, and
GeoCities will thereupon include the number of shares of GeoCities Common
Stock indicated by Yahoo! under such Registration Statement. If such
registration involves an underwritten public offering and the managing
underwriter shall advise GeoCities and Yahoo! that in its view the number
of shares of GeoCities Common Stock requested to be included in such
registration (including any securities which the GeoCities proposes to be
included) exceeds the largest number of shares which can be sold without
having an adverse effect on such offering, including the price at which
such shares can be sold (the "MAXIMUM OFFERING SIZE"), GeoCities will
include in such registration, up to the Maximum Offering Size, first, all
securities proposed to be registered by GeoCities, and second, shares of
GeoCities Common Stock requested to be registered by Yahoo!.
(iii) GeoCities shall pay all fees and expenses in connection with
any registration pursuant to this Section 5.14 other than underwriting
discounts and commissions to brokers or dealers and shall indemnify
Yahoo!, its officers, directors, agents, other controlling persons and
any underwriters retained by Yahoo! in connection with such sale of such
shares of GeoCities Common Stock in the customary way, and agree to
customary contribution provisions with such persons, with respect to
claims, damages, losses and liabilities (and any expenses relating
thereto) arising (or to which Yahoo!, its officers, directors, agents,
other controlling persons or underwriters may be subject) in connection
with any such offer or sale under the federal securities laws or
otherwise, except for information furnished in writing by Yahoo! or its
underwriters to GeoCities. Yahoo! and its underwriters, respectively,
shall indemnify GeoCities to the same extent with respect to information
furnished in writing to GeoCities by Yahoo! and such underwriters.
5.15 LETTER OF GEOCITIES' ACCOUNTANTS. GeoCities shall use all reasonable
efforts to cause to be delivered to Yahoo! a letter of PricewaterhouseCoopers
LLP, dated no more than two (2) business days before the date on which the
Registration Statement becomes effective (and reasonably satisfactory in form
and substance to Yahoo!), that is customary in scope and substance for letters
delivered by
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independent public accountants in connection with registration statements
similar to the Registration Statement.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) GEOCITIES STOCKHOLDER APPROVAL. This Agreement shall have been
approved and adopted, and the Merger shall have been duly approved, by the
requisite vote under applicable law, by the stockholders of GeoCities.
(b) REGISTRATION STATEMENT EFFECTIVE; PROXY STATEMENT. The SEC shall
have declared the Registration Statement effective. No stop order suspending
the effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose, and no similar
proceeding in respect of the Proxy Statement/Prospectus, shall have been
initiated or threatened in writing by the SEC.
(c) NO ORDER; HSR ACT. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger. All waiting periods, if any, under the HSR Act relating to the
transactions contemplated hereby will have expired or terminated early and
all material foreign antitrust approvals required to be obtained prior to
the Merger in connection with the transactions contemplated hereby shall
have been obtained.
(d) TAX OPINIONS. Yahoo! and GeoCities shall each have received
written opinions from their respective tax counsel (Venture Law Group, A
Professional Corporation, and Brobeck, Phleger & Harrison LLP,
respectively), in form and substance reasonably satisfactory to them, to the
effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code and such opinions shall not have been
withdrawn; PROVIDED, HOWEVER, that if the counsel to either Yahoo! or
GeoCities does not render such opinion, this condition shall nonetheless be
deemed to be satisfied with respect to such party if counsel to the other
party renders such opinion to such party. The parties to this Agreement
agree to make reasonable representations as requested by such counsel for
the purpose of rendering such opinions.
(e) NASDAQ LISTING. The shares of Yahoo! Common Stock to be issued in
the Merger shall have been approved for listing on the Nasdaq Stock Market.
(f) OPINION OF ACCOUNTANTS. Yahoo! shall have received letters from
PricewaterhouseCoopers LLP, dated within two (2) business days prior to the
Effective Time, regarding that firm's concurrence with Yahoo!'s management's
and GeoCities' management's conclusions as to the appropriateness of pooling
of interest accounting for the Merger under Accounting Principles Board
Opinion No. 16, if the Merger is consummated in accordance with this
Agreement; PROVIDED, HOWEVER, that this condition shall be deemed waived by
GeoCities in the event that any action taken by, or omitted to be taken by,
GeoCities or any of its shareholders, employees or affiliates shall have the
been the proximate cause of the inability of Yahoo! to account for the
Merger as a pooling of interests.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF GEOCITIES. The obligation
of GeoCities to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing
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Date of each of the following conditions, any of which may be waived, in
writing, exclusively by GeoCities:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and warranty
of Yahoo! and Merger Sub contained in this Agreement (i) shall have been
true and correct in all material respects as of the date of this Agreement,
and (ii) shall be true and correct on and as of the Closing Date with the
same force and effect as if made on the Closing Date except (A) in each
case, or in the aggregate, as does not constitute a Material Adverse Effect
on Yahoo! and Merger Sub, (B) for changes contemplated by this Agreement,
and (C) for those representations and warranties which address matters only
as of a particular date (which representations shall have been true and
correct except as does not constitute a Material Adverse Effect on Yahoo!
and Merger Sub as of such particular date) (it being understood that, for
purposes of determining the accuracy of such representations and warranties
for purposes of clause (ii), (1) all "Material Adverse Effect"
qualifications and other qualifications based on the word "material" or
similar phrases contained in such representations and warranties shall be
disregarded, and (2) any update of or modification to the Yahoo! Schedules
made or purported to have been made after the date of this Agreement shall
be disregarded). GeoCities shall have received a certificate with respect to
the foregoing signed on behalf of Yahoo! by an authorized officer of Yahoo!.
(b) AGREEMENTS AND COVENANTS. Yahoo! and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing Date, and GeoCities shall have received a
certificate to such effect signed on behalf of Yahoo! by an authorized
officer of Yahoo!.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF YAHOO! AND MERGER SUB. The
obligations of Yahoo! and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Yahoo!:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and warranty
of GeoCities contained in this Agreement (i) shall have been true and
correct in all material respects as of the date of this Agreement, and (ii)
shall be true and correct on and as of the Closing Date with the same force
and effect as if made on and as of the Closing Date except (A) in each case,
or in the aggregate, as does not constitute a Material Adverse Effect on
GeoCities, (B) for changes contemplated by this Agreement, and (C) for those
representations and warranties which address matters only as of a particular
date (which representations shall have been true and correct except as does
not constitute a Material Adverse Effect on GeoCities as of such particular
date) (it being understood that, for purposes of determining the accuracy of
such representations and warranties, (1) all "Material Adverse Effect"
qualifications and other qualifications based on the word "material" or
similar phrases contained in such representations and warranties shall be
disregarded, and (2) any update of or modification to the GeoCities
Schedules made or purported to have been made after the date of this
Agreement shall be disregarded). Yahoo! shall have received a certificate
with respect to the foregoing signed on behalf of GeoCities by an authorized
officer of GeoCities.
(b) AGREEMENTS AND COVENANTS. GeoCities shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it at or prior to the
Closing Date, and Yahoo! shall have received a certificate to such effect
signed on behalf of GeoCities by the Chief Executive Officer and the Chief
Financial Officer of GeoCities.
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(c) AFFILIATE AGREEMENTS. Each of the GeoCities Affiliates shall have
entered into the GeoCities Affiliate Agreement and each of such agreements
will be in full force and effect as of the Effective Time.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approvals of the
stockholders of GeoCities or Yahoo!:
(a) by mutual written consent duly authorized by the Boards of Directors
of Yahoo! and GeoCities;
(b) by either GeoCities or Yahoo! if the Merger shall not have been
consummated by September 30, 1999, for any reason; PROVIDED, HOWEVER, that
the right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Merger to occur on or before such
date;
(c) by either GeoCities or Yahoo! if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree, ruling or other action is final
and nonappealable;
(d) by either GeoCities or Yahoo! if the required approval of the
stockholders of GeoCities contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting
of GeoCities stockholders duly convened therefor or at any adjournment
thereof (provided that the right to terminate this Agreement under this
Section 7.1(d) shall not be available to GeoCities where the failure to
obtain GeoCities stockholder approval shall have been caused by the action
or failure to act of GeoCities and such action or failure to act constitutes
a breach by GeoCities of this Agreement);
(e) by Yahoo! if a Triggering Event (as defined below) shall have
occurred.
(f) by GeoCities, upon a breach of any representation, warranty,
covenant or agreement on the part of Yahoo! set forth in this Agreement, or
if any representation or warranty of Yahoo! shall have become untrue, in
either case such that the conditions set forth in Section 6.2(a) or Section
6.2(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, PROVIDED that
if such inaccuracy in Yahoo!'s representations and warranties or breach by
Yahoo! is curable by Yahoo! through the exercise of its commercially
reasonable efforts, then GeoCities may not terminate this Agreement under
this Section 7.1(f) for twenty (20) days after delivery of written notice
from GeoCities to Yahoo! of such breach, provided Yahoo! continues to
exercise commercially reasonable efforts to cure such breach (it being
understood that GeoCities may not terminate this Agreement pursuant to this
Section 7.1(f) if it shall have materially breached this Agreement or if
such breach by Yahoo! is cured during such 20-day period and PROVIDED that
such 20-day period does not extend beyond September 30, 1999); or
(g) by Yahoo!, upon a breach of any representation, warranty, covenant
or agreement on the part of GeoCities set forth in this Agreement, or if any
representation or warranty of GeoCities shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED that if such
inaccuracy in GeoCities' representations and warranties or breach by
GeoCities is curable by GeoCities through the exercise of its commercially
reasonable efforts, then Yahoo! may not terminate this Agreement under this
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Section 7.1(g) for twenty (20) days after delivery of written notice from
Yahoo! to GeoCities of such breach, provided GeoCities continues to exercise
commercially reasonable efforts to cure such breach (it being understood
that Yahoo! may not terminate this Agreement pursuant to this Section 7.1(g)
if it shall have materially breached this Agreement or if such breach by
GeoCities is cured during such 20-day period and PROVIDED that such 20-day
period does not extend beyond September 30, 1999).
For the purposes of this Agreement, a "TRIGGERING EVENT" shall be deemed to
have occurred if: (i) the Board of Directors of GeoCities or any committee
thereof having authority to bind the Board shall for any reason have
withdrawn or shall have amended or modified in a manner adverse to Yahoo!
its recommendation in favor of the adoption and approval of the Agreement or
the approval of the Merger; (ii) GeoCities shall have failed to include in
the Proxy Statement/ Prospectus the recommendation of the Board of Directors
of GeoCities in favor of the adoption and approval of the Agreement and the
approval of the Merger; (iii) the Board of Directors of GeoCities fails to
reaffirm its recommendation in favor of the adoption and approval of the
Agreement and the approval of the Merger within ten (10) business days after
Yahoo! requests in writing that such recommendation be reaffirmed at any
time following the public announcement of an Acquisition Proposal; (iv) the
Board of Directors of GeoCities or any committee thereof having authority to
bind the Board shall have approved or publicly recommended any Acquisition
Proposal; (v) GeoCities shall have entered into any letter of intent of
similar document or any agreement, contract or commitment accepting any
Acquisition Proposal; (vi) a tender or exchange offer relating to securities
of GeoCities in excess of 15% of its outstanding voting securities shall
have been commenced by a person unaffiliated with Yahoo! and GeoCities shall
not have sent to its securityholders pursuant to Rule 14e-2 promulgated
under the Securities Act, within ten (10) business days after such tender or
exchange offer is first published sent or given, a statement disclosing that
GeoCities recommends rejection of such tender or exchange offer; or (vii)
GeoCities shall have intentionally breached its obligations under Section
5.4.
7.2 NOTICE OF TERMINATION EFFECT OF TERMINATION. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in this Section 7.2, Section 7.3 and Article VIII (Miscellaneous), each of which
shall survive the termination of this Agreement, and (ii) nothing herein shall
relieve any party from liability for any willful or intentional breach of this
Agreement. No termination of this Agreement shall affect the obligations of the
parties contained in the Confidentiality Agreement, all of which obligations
shall survive termination of this Agreement in accordance with their terms.
7.3 FEES AND EXPENSES.
(a) GENERAL. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses
whether or not the Merger is consummated; provided, however, that Yahoo! and
GeoCities shall share equally all fees and expenses, other than attorneys'
and accountants fees and expenses, incurred in relation to the printing and
filing with the SEC of the Proxy Statement/Prospectus (including any
preliminary materials related thereto) and the Registration Statement
(including financial statements and exhibits) and any amendments or
supplements thereto.
(b) GEOCITIES PAYMENTS. In the event that this Agreement is terminated
by Yahoo! pursuant to Section 7.1(e), GeoCities shall promptly, but in no
event later than one day after the date of such termination, pay Yahoo! a
fee equal to $100 million in immediately available funds (the "TERMINATION
FEE"). In addition, in the event that this Agreement is terminated by Yahoo!
or
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GeoCities, as the case may be, pursuant to Section 7.1(d) and prior to the
vote of GeoCities stockholders at the GeoCities Stockholders' Meeting an
Acquisition Proposal shall have been publicly announced, GeoCities shall
promptly, but in no event later than one day after the date of such
termination, pay Yahoo! a amount equal to Yahoo!'s documented expenses
incurred in connection with the transactions contemplated by this Agreement,
and furthermore, in the event that within nine months following such
termination GeoCities shall enter into a definitive agreement with respect
to an Acquisition Transaction or shall consummate an Acquisition Transaction
with a third party, GeoCities shall contemporaneously with such execution or
consummation, as the case may be, pay Yahoo! a fee equal to the Termination
Fee. GeoCities acknowledges that the agreements contained in this Section
7.3(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Yahoo! would not enter into
this Agreement; accordingly, if GeoCities fails promptly to pay the amounts
due pursuant to this Section 7.3(b), and, in order to obtain such payment,
Yahoo! commences a suit which results in a judgment against GeoCities for
the amounts set forth in this Section 7.3(b), GeoCities shall pay to Yahoo!
its reasonable costs and expenses (including attorneys' fees and expenses)
in connection with such suit, together with interest on the amounts set
forth in this Section 7.3(b) at the prime rate of The Chase Manhattan Bank
in effect on the date such payment was required to be made.
(c) Payment of the fees described in Section 7.3(b) above shall not be
in lieu of damages incurred in the event of a willful or intentional breach
of this Agreement.
(d) Notwithstanding any provision of this Agreement to the contrary, the
"Total Proceeds" (as hereinafter defined) that Yahoo! shall be permitted to
realize in respect of the Termination Fee and the GeoCities Stock Option
shall not exceed $140 million. In the event Yahoo!'s Total Proceeds would
exceed such amount, Yahoo! shall, at its sole election, (a) reduce the
number of shares of GeoCities Common Stock subject to the GeoCities Stock
Option, (b) deliver shares of GeoCities Common Stock received upon an
exercise of the GeoCities Stock Option to the GeoCities for cancellation,
(c) pay an amount of cash to the GeoCities, or (d) do any combination of the
foregoing so that Yahoo!'s actual realized Total Proceeds shall not exceed
$140 million. "TOTAL PROCEEDS" shall mean the aggregate (before taxes) of
(i) any amount received pursuant to the GeoCities' repurchase of that
GeoCities Stock Option (or any portion thereof), (ii) any amount received
pursuant to the GeoCities' repurchase of the shares of GeoCities Common
Stock (less the purchase price for such shares), (iii) any net cash received
pursuant to the sale of shares of GeoCities Common Stock received by Yahoo!
in any exercise of the GeoCities Stock Option to any third party (less the
purchase price of such shares), (iv) any amounts received on transfer of the
GeoCities Stock Option or any portion thereof to a third party, (v) any
equivalent amounts received with respect to the GeoCities Stock Option
adjusted pursuant to Section 5.14(f), and (vi) the Termination Fee actually
paid.
7.4 AMENDMENT. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Yahoo!, Merger Sub and GeoCities.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of GeoCities, Yahoo! and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Yahoo! or Merger Sub, to:
Yahoo! Inc.
3420 Central Expressway
Santa Clara, California 95051
Attention: Chief Executive Officer
Telephone No.: (408) 731-3300
Telecopy No.: (408) 731-3510
with a copy at the same address to the attention of
the General Counsel and Secretary and with a copy to:
Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, California 94025
Attention: Steven J. Tonsfeldt
Telephone No.: (650) 854-4488
Telecopy No.: (650) 233-8386
(b) if to GeoCities, to:
GeoCities
4499 Glencoe Avenue
Marina Del Rey, California 90292
Attention: General Counsel
Telephone No.: (310) 827-3700
Telecopy No.: (310) 827-8177
with a copy to:
Brobeck, Phleger & Harrison LLP
38 Technology Drive
Irvine, California 92618
Attention: Richard A. Fink
Telephone No.: (949) 790-6300
Telecopy No.: (949) 790-6301
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8.3 INTERPRETATION; CERTAIN DEFINED TERMS.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise
indicated. When a reference is made in this Agreement to Sections, such
reference shall be to a Section of this Agreement unless otherwise
indicated. The words "INCLUDE," "INCLUDES" and "INCLUDING" when used herein
shall be deemed in each case to be followed by the words "WITHOUT
LIMITATIONS." The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. When reference is made herein to "THE
BUSINESS OF" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference
to the subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity.
(b) For purposes of this Agreement the term "KNOWLEDGE" means with
respect to a party hereto, with respect to any matter in question, that any
of the executive officers of such party has actual knowledge of such matter.
(c) For purposes of this Agreement, the term "MATERIAL ADVERSE EFFECT"
when used in connection with a party hereto means any change, event,
circumstance or effect that is materially adverse to the business, assets
(including intangible assets), capitalization, financial condition or
results of operations of such party and its subsidiaries taken as a whole,
except (i) any continued or increased operating losses (provided the
obligations of GeoCities set forth in Section 4.1 are complied with) or (ii)
to the extent that any such change, event or effect is attributable to or
results from (w) the direct effect of the public announcement or pendency of
the transactions contemplated hereby on current or prospective customers or
revenues of GeoCities, (x) changes in general economic conditions or changes
affecting the industry generally in which such party operates, (y) changes
in trading prices for such party's capital stock, or (z) stockholder class
action litigation arising from allegations of a breach of fiduciary duty of
the GeoCities Board of Directors relating to this Agreement; PROVIDED,
HOWEVER, that with respect to clause (ii)(w) of this sentence, GeoCities
shall bear the burden of proof in any proceeding with regard to establishing
that any change, event, circumstance or effect is attributable to or results
from the direct effect of the public announcement or pendency of the
transactions contemplated hereby.
(d) For purposes of this Agreement, the term "PERSON" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, GeoCities (including any limited liability GeoCities
or joint stock GeoCities), firm or other enterprise, association,
organization, entity or Governmental Entity.
(e) For purposes of this Agreement, "SUBSIDIARY" of a specified entity
will be any corporation, partnership, limited liability GeoCities, joint
venture or other legal entity of which the specified entity (either alone or
through or together with any other subsidiary) owns, directly or indirectly,
fifty percent (50%) or more of the stock or other equity or partnership
interests the holders of which are generally entitled to vote for the
election of the Board of Directors or other governing body of such
corporation or other legal entity.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by facsimile, all of which shall be considered one and the
same agreement and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other party, it being
understood that all parties need not sign the same counterpart.
8.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the GeoCities Schedules and the
Yahoo! Schedules (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
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understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and shall survive any
termination of this Agreement; and (b) are not intended to confer upon any other
person any rights or remedies hereunder, except as specifically provided in
Section 5.10.
8.6 SEVERABILITY. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
8.7 OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
8.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 ASSIGNMENT. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 WAIVER OF JURY TRIAL. EACH OF YAHOO!, GEOCITIES AND MERGER SUB HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF YAHOO!, GEOCITIES OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
* * * * *
A-41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
<TABLE>
<S> <C> <C>
YAHOO! INC.
By: /s/ TIMOTHY K. KOOGLE
-----------------------------------------
Name: Timothy K. Koogle
Title: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
HOME PAGE ACQUISITION CORP.
By: /s/ TIMOTHY K. KOOGLE
-----------------------------------------
Name: Timothy K. Koogle
Title: PRESIDENT
GEOCITIES
By: /s/ THOMAS R. EVANS
-----------------------------------------
Name: Thomas R. Evans
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
**** MERGER AGREEMENT ****
A-42
<PAGE>
APPENDIX B
OPINION OF GOLDMAN, SACHS & CO.
PERSONAL AND CONFIDENTIAL
January 27, 1999
Board of Directors
GeoCities
4499 Glencoe Avenue
Marina del Rey, CA 90292
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders (other than Yahoo! Inc. ("Parent") and its affiliates) of
the outstanding shares of Common Stock, par value $0.001 per share (the "Company
Shares"), of GeoCities (the "Company") of the Exchange Ratio (as defined below)
pursuant to the Agreement and Plan of Merger, dated as of January 27, 1999,
among Parent, Home Page Acquisition Corp., a wholly-owned subsidiary of Parent
("Merger Sub"), and the Company (the "Agreement"). Pursuant to the Agreement,
Merger Sub shall be merged with and into the Company (the "Merger") and each
outstanding Company Share will be converted into the right to receive 0.3384
(the "Exchange Ratio") of a share of Common Stock, par value $0.00033 per share,
of Parent (the "Parent Shares").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as managing underwriter of
the initial public offering of Company Shares in August 1998 and having acted as
its financial advisor in connection with, and having participated in certain of
the negotiations leading to, the Agreement. We also have provided certain
investment banking services to Parent from time to time, including having acted
as managing underwriter of the initial public offering of Parent Shares in April
1996, and having acted as financial advisor in various strategic advisory
assignments including, but not limited to, the acquisition of Four11 Corp. in
October 1997. We also have provided other brokerage services to certain
affiliates of Parent. Goldman, Sachs & Co. may provide investment banking and
brokerage services to Parent and its affiliates in the future.
Goldman, Sachs & Co. provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including derivative
securities, of the Company or Parent for its own account and for the accounts of
customers. As of the date hereof, Goldman, Sachs & Co. accumulated a short
position of 2,211 Company Shares. Additionally, as of the date hereof, Goldman,
Sachs & Co. accumulated a long position of 151,070 Parent Shares against which
Goldman, Sachs & Co. is short 200 Parent Shares.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement of the Company on Form S-1 dated August
10, 1998 related to the initial public offering of Company Shares, including the
Prospectus therein; the Registration Statement of Parent on Form S-1 dated April
12, 1996 related to the initial public offering of Parent Shares, including the
Prospectus therein; Annual Reports to Stockholders and Annual Reports on Form
10-K of Parent for
B-1
<PAGE>
the two years ended December 31, 1997; certain interim reports to stockholders
and Quarterly Reports on Form 10-Q of the Company and Parent; certain other
communications from the Company and Parent to their respective stockholders;
certain internal financial analyses and forecasts for the Company prepared by
its management, including certain estimates of cost savings and operating
synergies expected to result from the Merger (the "Synergies"); and certain
estimates of pro forma financial performance of the Company prepared by the
management of Parent. We also have held discussions with members of the senior
management of the Company and Parent regarding the strategic rationale for, and
the potential benefits of, the transaction contemplated by the Agreement and the
past and current business operations, financial condition and future prospects
of their respective companies. In addition, we have reviewed the reported price
and trading activity for the Company Shares and the Parent Shares, compared
certain financial and stock market information for the Company and Parent with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the internet industry specifically and in other industries
generally and performed such other studies and analyses as we considered
appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In that
regard, we have assumed with your consent that the Synergies have been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the Company and that the Synergies will be realized in the
amounts and time periods contemplated thereby. As you are aware, Parent did not
make available its forecasts of future financial performance. Instead, for
purposes of our analysis, we have relied, with your consent, on the estimates of
certain research analysts for Parent. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the Company
or Parent or any of their subsidiaries and we have not been furnished with any
such evaluation or appraisal. We were not requested to solicit, and did not
solicit, interest from other parties with respect to an acquisition of, or other
business combination involving, the Company. Our advisory services and the
opinion expressed herein are provided for the information and assistance of the
Board of Directors of the Company in connection with its consideration of the
transaction contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any holder of the Company Shares should vote with
respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
holders (other than Parent and its affiliates) of the Company Shares.
Very truly yours,
- ---------------------------------------------
(GOLDMAN, SACHS & CO.)
B-2
<PAGE>
GEOCITIES
SPECIAL MEETING OF STOCKHOLDERS, MAY , 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
GEOCITIES
The undersigned hereby revokes all previous proxies, acknowledges receipt of
the Notice of Special Meeting of Stockholders to be held on May , 1999 and the
Proxy Statement/Prospectus, each dated , 1999, and hereby appoints
Thomas R. Evans and Stephen L. Hansen, and each of them, as the Proxy of the
undersigned, each with full power of substitution, to vote on behalf of the
undersigned at the Special Meeting of Stockholders of GeoCities ("the Company")
to be held at California , on
, May , 1999, at 10:00 a.m. (the "Special Meeting"), and at any
adjournment or postponement thereof, with the same force and effect as the
undersigned might or could do if personally present thereat. The shares
represented by this Proxy shall be voted in the following manner:
1. Proposal to approve (a) the Agreement and Plan of Merger, dated as of
January 27, 1999 (the "Merger Agreement"), among Yahoo! Inc., a California
corporation, Home Page Acquisition Corp., a Delaware corporation, and
GeoCities, and (b) the merger (the "Merger") of Home Page Acquisition Corp,
a wholly-owned subsidiary of Yahoo!, with and into GeoCities whereby, among
other things, each outstanding share of GeoCities common stock will be
converted into the right to receive 0.6768 shares of Yahoo! common stock.
/ / FOR / / AGAINST / / ABSTAIN
2. Proposal to grant GeoCities' Board of Directors discretionary authority to
adjourn, if necessary, the Special Meeting in order to solicit additional
votes for approval of the Merger Agreement and the Merger.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to vote or otherwise represent the shares on such other business as
may properly come before the Special Meeting or any adjournment or
postponement thereof.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
The Board of Directors recommends a vote FOR each of the proposals listed
above. This Proxy, when properly executed, will be voted as specified above. THE
PROXY WILL BE VOTED FOR THE PROPOSALS LISTED ABOVE IF NO SPECIFICATION IS MADE.
Please print the name(s) appearing
on each share certificate(s) over
which you have voting authority:
___________________________________
(Print name(s) on certificate(s)
___________________________________
Please sign your name
___________________________________
(Authorized Signature(s))
Date:______________________________
