<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 2000
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
SHOPNOW.COM INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
WASHINGTON 7374 91-1628103
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
411 FIRST AVENUE SOUTH
SUITE 200 NORTH
SEATTLE, WASHINGTON 98104
(206) 223-1996
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
--------------------------
DWAYNE M. WALKER
CHIEF EXECUTIVE OFFICER
411 FIRST AVENUE SOUTH, SUITE 200 NORTH
SEATTLE, WASHINGTON 98104
(206) 223-1996
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
Copies to:
<TABLE>
<S> <C>
EDMUND O. BELSHEIM MICHAEL BROWN
S. PAUL SASSALOS DORSEY & WHITNEY LLP
PERKINS COIE LLP 1420 5TH STREET, SUITE 400
1201 THIRD AVENUE, 40TH FLOOR SEATTLE, WASHINGTON 98101
SEATTLE, WASHINGTON 98101 (206) 903-8820
(206) 583-8888
</TABLE>
--------------------------
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS AMOUNT TO BE PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) AGGREGATE OFFERING PRICE(2) REGISTRATION FEE(3)
<S> <C> <C> <C>
Common Stock, $0.001 par value per
share................................ 2,593,876 $33,359,715 $8,807
</TABLE>
(1) Represents maximum number of shares of ShopNow.com common stock estimated to
be issuable in the merger.
(2) Based on 7,735,586 shares of common stock of Ubarter.com, which is the
estimated maximum number of shares of Ubarter.com common stock that may be
outstanding immediately prior to the consummation of the transaction.
(3) Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act of 1933, as
amended, the registration fee has been calculated based on a price of
$4.3125 per share of common stock of Ubarter.com (the average of the high
and low price per share of common stock of Ubarter.com as reported on the
over-the-counter market on March 8, 2000, and the estimated maximum number
of shares of such common stock that may be outstanding immediately prior to
the consummation of the transactions contemplated hereby as set forth in
footnote 2 above.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
2815 2ND AVENUE, SUITE 500
SEATTLE, WASHINGTON 98121
Dear Shareholder:
We cordially invite you to attend a special meeting of our stockholders, which
will be held on , , 2000, at 10:00 a.m. local time, at our
headquarters at 2815 2nd Avenue, Suite 500, Seattle, Washington. At the meeting,
you will be asked to approve a merger agreement that will combine our company
with ShopNow.com Inc.
Whether or not you plan to attend the meeting, we urge you to complete, sign and
date the enclosed proxy card and return it in the enclosed postage-paid envelope
to ensure that your shares are represented at the meeting. If you attend the
meeting, you may vote in person if you wish, even though you have previously
returned your proxy card.
YOUR VOTE IS VERY IMPORTANT. The merger cannot be completed unless the holders
of at least a majority of the outstanding shares of Ubarter.com common stock as
of the record date approve the merger agreement. Your vote is important because
failing to vote will have the effect of voting against the merger agreement.
Only holders of Ubarter.com common stock at the close of business on March 31,
2000 will be entitled to vote at the special meeting.
Ubarter.com's board of directors has determined that the merger is advisable and
fair to, and in the best interests of, Ubarter.com and its stockholders. The
board of directors has approved the merger agreement and unanimously recommends
that you vote "FOR" approval of the merger agreement.
Attached is a notice of special meeting to stockholders and a proxy
statement/prospectus, which describes the merger in detail. For your
convenience, the first three pages of the proxy statement/prospectus contain
frequently asked questions and related answers about the proposed merger. Please
review the proxy statement/prospectus carefully. In particular, you should
carefully consider the discussion in the section entitled "Risk Factors" on
page .
If you would like assistance in completing your proxy card, or if you have any
questions about the procedure for voting your shares described in the attached
proxy statement/prospectus, please contact Robert Benson at Ubarter.com at
(206) 239-2728.
Sincerely,
Steven M. White
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Seattle, Washington
, 2000
<PAGE>
[LOGO]
2815 2ND AVENUE, SUITE 500
SEATTLE, WASHINGTON 98121
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
------------------------
To the stockholders of Ubarter.com Inc.:
We will hold a special meeting of stockholders of Ubarter.com Inc. on ,
, 2000, at 10:00 a.m. local time, at our headquarters at 2815 2nd
Avenue, Suite 500, Seattle, Washington, for the following purpose:
To consider and vote upon a proposal to approve the Agreement and Plan of
Merger, dated as of January 20, 2000, among ShopNow.com, Inc., Shamu
Acquisition, Inc., a wholly owned subsidiary of ShopNow.com, and Ubarter.com.
Under the merger agreement, Ubarter.com will become a wholly owned subsidiary of
ShopNow.com and outstanding shares of Ubarter.com common stock (other than
dissenters' shares) will be converted into the right to receive shares of
ShopNow.com common stock in the manner set forth in the merger agreement. This
proposal is more fully described in the attached proxy statement/prospectus,
which you should read carefully.
We will conduct no other business at the Ubarter.com stockholders' special
meeting, except business that may be properly brought before the special meeting
and that is within the purpose of the special meeting described above.
We cannot complete the merger unless the holders of at least a majority of the
shares of Ubarter.com common stock outstanding on the record date vote to
approve the merger agreement. Holders of Ubarter.com common stock are entitled
to assert dissenters' rights with respect to the merger under chapter 92A of the
Nevada General Corporation Law.
Only holders of record of Ubarter.com common stock at the close of business on
March 31, 2000, the record date, are entitled to vote at the special meeting or
any adjournment or postponement of the meeting. This notice and the attached
proxy statement/prospectus are being sent to Ubarter.com's stockholders on or
about , 2000.
By Order of the Board of Directors
of Ubarter.com Inc.
Richard L. Mayer
SECRETARY
Seattle, Washington
, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE POSTAGE-PAID ENVELOPE
PROVIDED. YOU CAN REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED OF THE SHOPNOW.COM COMMON STOCK TO BE
ISSUED IN CONNECTION WITH THE MERGER OR DETERMINED IF THIS PROXY
STATEMENT/PROSPECTUS IS TRUTHFUL OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
PROXY STATEMENT/PROSPECTUS
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE SHOPNOW.COM/
UBARTER.COM MERGER............................. 1
SUMMARY OF THIS PROXY STATEMENT/PROSPECTUS......... 4
The Companies.................................. 4
Summary of the transaction..................... 6
Selected financial data of ShopNow.com and
Ubarter.com.................................. 11
RISK FACTORS....................................... 16
Risks Related to the Merger.................... 16
Risk Factors Relating to the Combined
Company...................................... 18
Risk Factors Relating to Ubarter.com........... 26
COMPARATIVE STOCK PRICE AND DIVIDEND INFORMATION... 32
THE UBARTER.COM SPECIAL MEETING.................... 34
Date, time, place and purpose of Ubarter.com's
special meeting.............................. 34
Record date; outstanding shares; shares
entitled to vote............................. 34
Quorum; vote required.......................... 34
Voting of proxies.............................. 34
Recommendation of Ubarter.com's board of
directors.................................... 34
Share ownership of management, New Horizons,
L.P. and voting agreements................... 34
How to revoke your proxy....................... 35
Expenses of proxy solicitation................. 35
Dissenters' rights.............................
Accountants.................................... 35
THE MERGER......................................... 36
Background of the merger....................... 36
Ubarter.com's reasons for the merger........... 37
Recommendation of Ubarter.com's board of
directors.................................... 37
ShopNow.com's reasons for the merger........... 38
Structure of the merger; completion and
effectiveness of the merger.................. 38
Merger consideration; conversion of Ubarter.com
common stock................................. 38
Treatment of options and warrants.............. 39
Interest of Ubarter.com's directors and
executive offices in the merger.............. 40
Restrictions on sales by affiliates of
Ubarter.com and ShopNow.com.................. 40
Material United States federal income tax
consequences of the merger................... 41
Accounting treatment of the merger............. 42
Regulatory filings and approvals required to
complete the merger.......................... 42
Exchange of Ubarter.com stock certificates for
ShopNow.com stock certificates............... 43
Listing of ShopNow.com common stock;
deregistration of Ubarter.com common stock... 43
Operations after the merger.................... 43
THE MERGER AGREEMENT............................... 44
Conditions to completion of the merger......... 44
Representations and warranties................. 45
Conduct of business before closing of the
merger....................................... 46
Exclusivity.................................... 48
Termination of the merger agreement............ 48
Termination fee................................ 49
Extension; waiver.............................. 49
Amendment of Merger Agreement.................. 49
RELATED AGREEMENTS................................. 50
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Call option agreement.......................... 50
Voting agreements.............................. 50
Employment and consulting agreements........... 50
Lock-up agreements............................. 51
Convertible notes.............................. 51
Agreements with Astra Ventures and Momentous... 51
Agreement with AXC............................. 52
DESCRIPTION OF SHOPNOW.COM CAPITAL STOCK........... 53
COMPARISON OF RIGHTS OF HOLDERS OF UBARTER.COM
COMMON STOCK AND SHOPNOW.COM COMMON STOCK...... 56
RIGHTS OF DISSENTING UBARTER.COM SHAREHOLDERS...... 65
BUSINESS OF SHOPNOW.COM............................ 67
MANAGEMENT OF SHOPNOW.COM.......................... 78
SHOPNOW.COM EXECUTIVE COMPENSATION, EMPLOYMENT
CONTRACTS AND EMPLOYEE BENEFITS................ 81
Executive compensation......................... 81
Fiscal Year-End Option Values.................. 82
Employment contracts, termination of employment
and change-in-control arrangements........... 83
Employee Benefit Plans......................... 83
CERTAIN SHOPNOW.COM TRANSACTIONS................... 87
PRINCIPAL SHAREHOLDERS OF SHOPNOW.COM.............. 90
SHOPNOW.COM MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................... 92
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS........... 101
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.................................... 101
BUSINESS OF UBARTER.COM............................ 102
MANAGEMENT OF UBARTER.COM.......................... 109
UBARTER.COM EXECUTIVE COMPENSATION AND EMPLOYMENT
CONTRACTS...................................... 111
CERTAIN UBARTER.COM TRANSACTIONS................... 114
SHARE OWNERSHIP OF PRINCIPAL SHAREHOLDERS,
MANAGEMENT AND DIRECTORS OF UBARTER.COM........ 116
UBARTER.COM'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................... 118
CHANGES IN CERTIFYING ACCOUNTANTS.................. 122
WHERE YOU CAN FIND MORE INFORMATION................ 122
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION... 123
LEGAL MATTERS...................................... 123
EXPERTS............................................ 123
SHAREHOLDER PROPOSALS.............................. 124
INDEX TO FINANCIAL STATEMENTS...................... F-1
ANNEXES
ANNEX A--Agreement and Plan of Merger
ANNEX B--Call Option Agreement
ANNEX C--Voting Agreement
ANNEX D--Employment Agreement With Liad Meidar
ANNEX E--Consulting Agreement With Steven White
ANNEX F--Lock-Up Agreement with Steven White
ANNEX G--Lock-Up Agreement with New Horizons, L.P.
ANNEX H-- Dissenters' Rights Statute
</TABLE>
i
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE SHOPNOW.COM/UBARTER.COM MERGER
Q: HOW WILL THE TWO COMPANIES MERGE?
A: In the merger, Ubarter.com Inc. will merge with a wholly owned subsidiary of
ShopNow.com Inc. and become a wholly owned subsidiary of ShopNow.com.
Q: WHY ARE SHOPNOW.COM AND UBARTER.COM PROPOSING TO MERGE?
A: The merger will offer Ubarter.com greater access to potential members and
products for its online barter business. For Ubarter.com's stockholders, the
merger offers the opportunity to receive a premium over the market price that
existed for shares of Ubarter.com common stock before the public announcement of
the merger. The merger also offers Ubarter.com's stockholders the opportunity to
continue to participate in the growth of the business conducted by ShopNow.com
and Ubarter.com following the merger and to benefit from the potential
appreciation in value of ShopNow.com common stock.
The merger offers ShopNow.com business-to-business barter services that it
expects will be a natural complement to its other e-commerce services.
ShopNow.com does not have similar barter exchange services and in ShopNow.com's
opinion such services will enable businesses on the ShopNow Network to exchange
goods and services on a global scale.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: In the merger, your shares of Ubarter.com common stock will convert into a
right to receive ShopNow.com common stock. The number of shares of ShopNow.com
common stock you will have the right to receive will be equal to the product of
the number of shares of Ubarter.com common stock you own multiplied by the
quotient of (a) the number of shares ShopNow.com will issue in the merger
divided by (b) the number of shares of Ubarter.com common stock outstanding
immediately prior to the completion of the merger on a fully diluted basis.
The merger agreement provides that ShopNow.com will issue 2,593,876 shares in
the merger. However, this number will be reduced by an amount equal to the
aggregate dollar amount of liabilities, debts or obligations of Ubarter.com
existing as of the date the merger takes place (other than up to $225,000 in
liabilities, debts or obligations incurred in the ordinary course of business)
divided by $17.31. The total dollar amount of such debts, liabilities and
obligations will be reduced by any amounts received by Ubarter.com from option
holders and warrant holders as a result of the cash exercise of options and
warrants. As of March , 2000, the amount of such debts, liabilities and
obligations, less cash that would have been received by Ubarter.com if all
options and warrants outstanding on March , 2000 were exercised on that date on
a cash basis, was approximately $ . However, the actual number of such
liabilities, debts or obligations as of the date of the merger could vary
significantly from this amount.
The number of shares of Ubarter.com common stock outstanding will vary depending
on whether holders of options and warrants to purchase Ubarter.com common stock
choose to exercise their options and warrants on a cash or cashless basis prior
to the completion of the merger. Assuming all options and warrants are exercised
on a cash basis prior to the completion of the merger and Ubarter.com issues no
additional stock, the number of shares of Ubarter.com common stock outstanding
immediately prior to the merger will be shares.
As an example, if immediately prior to the completion of the merger Ubarter.com
has $ in liabilities, debts or obligations that will result in a reduction
of the purchase price and there are shares of Ubarter.com common stock
outstanding, then ShopNow.com will issue an aggregate of shares of
ShopNow.com common stock in the merger, and you would receive 0. of a share of
ShopNow.com common stock for each share of Ubarter.com common stock you own. If
you own 100 shares of Ubarter.com common stock, you would receive shares of
ShopNow.com common stock under this example.
ShopNow.com will not issue fractional shares of its common stock. Instead of any
fractional share, the number of shares of ShopNow.com common stock you are
entitled to receive will be rounded to the nearest whole number, with .5 being
rounded up.
1
<PAGE>
Q: WHAT VOTE IS REQUIRED TO APPROVE THE MERGER?
A: The holders of at least a majority of the outstanding shares of Ubarter.com
common stock must approve the merger agreement. ShopNow.com shareholders are not
required to approve the merger and will not vote on the merger. Steven White,
Ubarter.com's, Chief Executive Officer, and New Horizons, L.P., a significant
stockholder, who collectively hold approximately 34% of Ubarter.com's
outstanding shares, have agreed to vote their shares in favor of the merger.
You are entitled to cast one vote per share of Ubarter.com common stock you
owned at the close of business on March 31, 2000, the record date.
Q: DOES THE BOARD OF DIRECTORS OF UBARTER.COM RECOMMEND VOTING IN FAVOR OF THE
MERGER AGREEMENT?
A: Yes. After careful consideration, Ubarter.com's board of directors has
determined that the terms of the merger are fair to, and in the best interests
of, Ubarter.com and its stockholders and unanimously recommends that you vote in
favor of the merger agreement.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE MERGER?
A: Yes. For example, Ubarter.com stockholders will receive a fixed number of
shares of ShopNow.com common stock for each share of Ubarter.com common stock
they own, regardless of the market price of either ShopNow.com common stock or
Ubarter.com common stock at the effective time of the merger. The market value
of ShopNow.com common stock is likely to fluctuate, and no one can accurately
predict what the market value will be either at the effective time of the merger
or after the merger. In evaluating the merger, you should carefully consider
this and other factors discussed in the section entitled "Risk Factors" on
page .
Q: WHAT DO I NEED TO DO NOW?
A: You should cast your vote on the merger agreement by completing, signing and
dating your proxy card. You should return your completed proxy card as soon as
possible in the enclosed postage-paid envelope. If you return your signed proxy
card but do not include instructions on how to vote, your shares will be voted
"FOR" approval of the merger agreement. You can also attend the special meeting
and vote in person.
If you abstain from voting or do not vote, it will have the effect of voting
against approval of the merger agreement.
THE BOARD OF DIRECTORS OF UBARTER.COM UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: You may change your vote at any time before your proxy is voted at the
special meeting, in one of three ways. First, you may send a written notice to
Ubarter.com stating that you would like to revoke your proxy. Second, you may
complete and send a later-dated signed proxy card to Ubarter.com. Third, you may
attend the special meeting and vote in person. However, if you elect to vote in
person at the special meeting and your shares are held by a broker, bank or
other nominee, you must bring to the special meeting a letter from the broker,
bank or other nominee confirming your beneficial ownership.
Q: IF MY UBARTER.COM SHARES ARE HELD IN "STREET NAME" BY MY BROKER, 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 fill out the voter instruction form sent to you by your broker
with this proxy statement/prospectus. If you do not give instructions to your
broker, your shares will not be voted, which will have the effect of voting
against the merger.
2
<PAGE>
Q: SHOULD I SEND IN MY UBARTER.COM STOCK CERTIFICATES NOW?
A: No. After the merger is completed, ShopNow.com or its exchange agent will
send you written instructions for exchanging your Ubarter.com stock certificates
for ShopNow.com stock certificates. Please do not send in your stock
certificates with your proxy card.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. We hope
to complete the merger by the end of , if conditions to closing and
other required matters are satisfied or completed at that time.
Q: WILL I RECOGNIZE A TAXABLE GAIN OR LOSS ON THE TRANSACTION?
A: We expect that if the merger is completed, you will not recognize a gain or
loss for United States federal income tax purposes as a result of the merger
(unless you perfect your dissenters' rights). However, we urge you to consult
your own tax advisor to determine the tax consequences particular to your
situation.
Q: AM I ENTITLED TO DISSENTERS' RIGHTS?
A: Yes, Ubarter.com stockholders will be entitled to dissenters' rights in
connection with the merger. Any Ubarter.com stockholder contemplating exercising
dissenters' right should carefully review the provisions of the Nevada Revised
Statutes attached as Annex H to this proxy statement/prospectus.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you have any questions about the merger or if you need additional copies
of the proxy statement/prospectus, you should contact:
Robert Benson
Ubarter.com Inc.
2815 2nd Avenue, Suite 500
Seattle, Washington 98121
(206) 239-2728
You may also obtain additional information about ShopNow.com and Ubarter.com
from documents we file with the Securities and Exchange Commission by following
the instructions in the section entitled "Where you can find more information"
on page .
3
<PAGE>
SUMMARY OF THIS PROXY STATEMENT/PROSPECTUS
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT
TO YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF
THE LEGAL TERMS OF THE MERGER, YOU SHOULD CAREFULLY READ THIS ENTIRE PROXY
STATEMENT/PROSPECTUS AND THE OTHER DOCUMENTS TO WHICH WE REFER YOU. WE HAVE
INCLUDED PAGE REFERENCES IN PARENTHESES TO DIRECT YOU TO A MORE COMPLETE
DESCRIPTION OF SOME OF THE TOPICS PRESENTED IN THIS SUMMARY.
THE COMPANIES
[LOGO]
SHOPNOW.COM INC.
411 First Avenue South
Suite 200 North
Seattle, Washington 98104
ShopNow.com provides an end-to-end solution that enables businesses to engage in
e-commerce with other businesses, merchants and shoppers. ShopNow.com offers
access to online marketplaces and a comprehensive suite of e-commerce enabling
products and services. These products and services include secure payment and
order processing, fraud prevention, hosting and maintenance, custom application
and online store development, marketing and customer acquisition and order
fulfillment.
The ShopNow.com online marketplace aggregates merchants and shoppers over a
distributed network of web sites. With access to the ShopNow.com marketplace,
merchants can reach concentrated and targeted groups of shoppers at the
ShopNow.com portal site and at our more than 4,000 affiliate and syndication
shopping sites. There are currently over 45,000 merchants offering more than
five million products on the ShopNow marketplace. In the quarter ended
December 31, 1999, there were more than 20 million visits to the ShopNow
marketplace.
ShopNow was incorporated in Washington in January 1994. Its executive offices
are located at 411 First Avenue South, Suite 200 North, Seattle, Washington
98104. Its telephone number is (206) 223-1996 and its main web site is located
at http://www.shopnow.com. The information on ShopNow.com's web site is not part
of this proxy statement/ prospectus.
4
<PAGE>
[LOGO]
UBARTER.COM INC.
2815 2nd Avenue, Suite 500
Seattle, Washington 98121
Ubarter.com is a business-to-business e-commerce company utilizing the Ubarter
Dollar-TM- as payment for products and services. Ubarter.com manages
transactions for retail, professional, media and other corporate businesses
seeking to maximize efficiencies by accepting Ubarter Dollars-TM- for excess
inventory, surplus production or services on a multilateral basis for other
needed products and services.
Ubarter.com Inc. was incorporated in Nevada in September 1996. Ubarter.com's
executive offices are located at 2815 2nd Avenue, Suite 500, Seattle, Washington
98121. Ubarter.com's telephone number is (206) 239-2728 and its web site is
located at http://www.ubarter.com. The information on Ubarter.com's web site is
not part of this proxy statement/prospectus.
5
<PAGE>
SUMMARY OF THE TRANSACTION
THE MERGER (page )
In the merger, Ubarter.com and a wholly owned subsidiary of ShopNow.com will
merge and Ubarter.com will become a wholly owned subsidiary of ShopNow.com.
The merger agreement is attached to this proxy statement/prospectus as Annex A.
We encourage you to carefully read the merger agreement and the discussion of
the merger and merger agreement in this proxy statement/prospectus.
UBARTER.COM'S REASONS FOR THE MERGER; RECOMMENDATION OF UBARTER.COM'S BOARD OF
DIRECTORS (pages , )
Ubarter.com's board of directors believes the merger will provide several
benefits to Ubarter.com's stockholders, including:
- the availability of greater resources to enable Ubarter.com to expand its
member and product base and further capitalize on its first mover
advantage in the online barter business;
- the opportunity to access merchants and products using the ShopNow.com
marketplace;
- the opportunity for Ubarter.com's stockholders to receive a premium over
the market price for shares of Ubarter.com common stock existing before
the public announcement of the merger; and
- the ability of Ubarter.com's stockholders to continue to participate in
the growth of the business conducted by ShopNow.com and Ubarter.com
following the merger and to benefit from the potential appreciation in
value of shares of ShopNow.com common stock.
These potential benefits, however, may not be achieved. In addition, there are
potential risks related to the merger, including:
- the possibility that the market value of ShopNow.com common stock might
decrease, causing less aggregate value to be paid to Ubarter.com's
stockholders;
- the risk that the merger may not be consummated and that Ubarter.com will
not be able to obtain financing on acceptable terms in order to repay
currently outstanding indebtedness, or to finance Ubarter.com's operations
and growth strategy; and
- the risk that the merger may not be consummated and the effect of the
public announcement of the merger on Ubarter.com's barter business and
operating results and Ubarter.com's ability to attract and retain key
management, marketing, technical, sales and other personnel.
After careful consideration, Ubarter.com's board of directors approved the
merger agreement and unanimously recommends that you vote "FOR" approval of the
merger agreement.
MERGER CONSIDERATION (page )
The number of ShopNow.com shares you receive in the merger will be equal to the
product of the number of shares of Ubarter.com common stock you own multiplied
by the quotient of (a) the number of shares ShopNow.com will issue in the merger
divided by (b) the number of shares of Ubarter.com common stock outstanding
immediately prior to the completion of the merger on a fully diluted basis. The
number of shares Shopnow.com will issue in the merger will be reduced as a
result of liabilities, debts and obligations of Ubarter.com outstanding as of
the date of the merger.
TREATMENT OF OPTIONS AND WARRANTS (page )
None of Ubarter.com's options will be assumed by ShopNow.com. Ubarter.com will
accelerate the vesting of all outstanding options prior to the effective time of
the merger. Unless otherwise exercised by the option holders, the
6
<PAGE>
options will, without further action on the part of the option holders, be
converted into shares of Ubarter.com common stock immediately prior to the
effective time of the merger. Shares of Ubarter.com common stock issuable upon
the exercise or conversion of outstanding options will be converted into a right
to receive ShopNow.com common stock on the same basis described above under
"Merger Consideration."
Shares of ShopNow.com common stock are expected to be issued to the holders of
outstanding warrants to purchase Ubarter.com common stock assuming the exercise
of all outstanding warrants prior to the effective time of the merger on a
cashless basis or, if holders of the warrants elect to exercise such warrants
for shares of Ubarter.com common stock, warrantholders will receive shares of
ShopNow.com common stock at the effective time of the merger on the same basis
as described above under "Merger Consideration."
UBARTER.COM SPECIAL MEETING (page )
The special meeting of Ubarter.com's stockholders will be held on ,
, 2000, at 10:00 a.m. local time, at Ubarter.com's headquarters,
located at 2815 Second Avenue, Suite 500, Seattle, Washington. At the meeting,
you will be asked to approve a merger agreement that will cause Ubarter.com to
become a wholly owned subsidiary of ShopNow.com. You can vote at the special
meeting only if you owned shares of Ubarter.com common stock at the close of
business on March 31, 2000, the record date.
VOTES REQUIRED FOR APPROVAL (pages , )
The holders of at least a majority of the outstanding shares of Ubarter.com
common stock must approve the merger agreement. Ubarter.com's stockholders are
entitled to cast one vote for each share of Ubarter.com common stock they owned
as of the record date. Steven White, Ubarter.com's chief executive officer, and
New Horizons, L.P., who collectively held approximately 34% of Ubarter.com's
outstanding common stock as of the record date, have agreed to vote their shares
in favor of the merger. Ubarter.com's officers and directors, other than
Mr. White as a group held less than 1% of Ubarter.com's outstanding common stock
as of the record date. Those officers and directors have indicated their
intention to vote their shares in favor of the proposal to approve the merger
agreement.
ShopNow.com's shareholders are not required to approve the merger and will not
vote on the merger.
CONDITIONS TO COMPLETION OF THE MERGER (pages , )
ShopNow.com's and Ubarter.com's obligations to effect the merger are subject to
the prior satisfaction or waiver of specific conditions. The conditions that
must be satisfied or waived before completion of the merger include the
following, subject to exceptions and qualifications:
- ShopNow.com's and Ubarter.com's respective representations and warranties
are accurate in all material respects, except for changes contemplated by
the merger agreement;
- Ubarter.com's stockholders approve the merger agreement as required by
Nevada law;
- no material adverse change in Ubarter.com's business condition, financial
condition, operations, properties of prospects since September 30, 1999;
- receipt by each of Ubarter.com and ShopNow.com of a legal opinion from
legal counsel, including opinions that the merger will qualify as a
reorganization for federal income tax purposes;
- Ubarter.com obtains the termination, exercise or conversion of all
outstanding stock purchase rights, and accelerates the vesting of options
issued under its option plan; and
- not more than 5% of the holders of Ubarter.com common stock deliver notice
to ShopNow.com of their intent to demand payment as dissenting
stockholders.
7
<PAGE>
NO OTHER NEGOTIATIONS INVOLVING UBARTER.COM (page )
Until the merger is completed or the merger agreement is terminated, Ubarter.com
has agreed not to take any of the following actions with any party other than
ShopNow.com:
- solicit, initiate or encourage the submission of any proposal relating to
the acquisition of all, or any material portion of all, the assets or
equity interest in Ubarter.com or any business combination with
Ubarter.com;
- enter into any agreement related to such an acquisition; or
- furnish any information or otherwise facilitate or encourage any effort or
attempt to make such an acquisition.
However, Ubarter.com's board of directors may recommend to stockholders that
they tender their shares in connection with a bona fide offer by an acquiror
other than ShopNow.com if the board determines in good faith that its fiduciary
duty to its stockholders requires such a recommendation. ShopNow.com would have
a right to match any such offer or proposal. In the event Ubarter.com accepts an
offer by an acquiror other than ShopNow.com, Ubarter.com would be required to
pay the termination fee to ShopNow.com that is described below.
TERMINATION OF THE MERGER AGREEMENT (page )
Even if Ubarter.com's stockholders approve the merger agreement, the merger
agreement may be terminated by the mutual agreement of the parties at any time
before the effective time of the merger. In addition, the merger agreement may
be terminated by either Ubarter.com or ShopNow.com under any of the following
circumstances:
- as a result of a material breach of a representation, warranty, covenant
or agreement by the other party, if the breach has not been cured or is
not curable by June 22, 2000;
- if the merger has not been consummated before June 22, 2000, provided that
the right to terminate is not available to the party whose failure to
fulfill any obligation caused or resulted in failure to consummate the
merger by June 22, 2000;
- if Ubarter.com stockholders have voted on but not approved the merger
agreement; or
- if any law or regulation makes consummation of the merger illegal, or if
any permanent injunction or other order preventing the merger has become
final and nonappealable.
TERMINATION FEE (page )
In the event a third party other than ShopNow.com consummates an acquisition of
Ubarter.com on or before the one-year anniversary of the termination date, then
Ubarter.com must pay ShopNow.com a termination fee of 20% of the aggregate cash
and noncash acquisition consideration in excess of $45 million if the merger
agreement was terminated for one of the following reasons:
- Ubarter.com failed or was unable to satisfy the conditions to the merger;
- Ubarter.com breached its obligation to conduct its business as agreed upon
between the signing of the merger agreement and closing of the merger; or
- Ubarter.com entered into an alternative agreement to be acquired or to
combine with a party other than ShopNow.com.
THE CALL OPTION AGREEMENT (page ; Annex B)
Steven White has given ShopNow.com the option to buy up to 1,337,896 shares of
his Ubarter.com common stock, or approximately 22% of Ubarter.com's issued and
outstanding shares as of the record date. The exercise price of the option is
$6.00 per share.
8
<PAGE>
The option is exercisable, in whole or in part, at any time but not later than
April 30, 2000. The option is intended to increase the likelihood that the
merger between ShopNow.com and Ubarter.com will be completed. The option may
have the effect of discouraging persons who might now or in the future be
interested in acquiring all of, or a significant interest in, Ubarter.com's
securities or its assets before the completion of the merger between ShopNow.com
and Ubarter.com.
VOTING AGREEMENTS (page ; Annex C)
As a condition to the merger, ShopNow.com required Steven White and New
Horizons, L.P., who collectively held approximately 34% of Ubarter.com's
outstanding common stock as of March 31, 2000, the record date, to enter into
voting agreements with ShopNow.com. The voting agreements require Steven White
and New Horizons, L.P. to vote all the shares of Ubarter.com common stock
beneficially owned by them (a) in favor of the merger agreement with ShopNow.com
and (b) against any proposal by a party other than ShopNow.com to (i) merge or
consolidate with Ubarter.com or any of its subsidiaries or (ii) to sell all or
substantially all of the assets or equity interest of Ubarter.com or any of its
subsidiaries.
INTERESTS OF UBARTER.COM'S DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
(page )
In considering the recommendation of the Ubarter.com board of directors, you
should be aware that certain of Ubarter.com's executive officers and directors
have interests in the merger that are in addition to the interests of
stockholders of Ubarter.com generally.
RESTRICTIONS ON THE ABILITY TO SELL SHOPNOW.COM STOCK (page ; Annex F and
Annex G)
All shares of ShopNow.com common stock received by you in connection with the
merger will be freely transferable unless you are considered an affiliate of
either Ubarter.com or ShopNow.com under the Securities Act of 1933. Shares of
ShopNow.com common stock held by affiliates may be sold only under a
registration statement or an exemption from registration under the Securities
Act.
Steven White, Ubarter.com's Chief Executive Officer, and New Horizons, L.P., a
significant stockholder of Ubarter.com, have agreed to certain restrictions with
respect to the ShopNow.com shares they receive in the merger.
TAX CONSEQUENCES OF THE MERGER (page )
ShopNow.com intends the merger to qualify as a reorganization under the Internal
Revenue Code. It is a condition to the completion of the merger that both
parties receive an opinion from their tax counsel that the merger will so
qualify. We expect that none of Ubarter.com's stockholders (except for
stockholders of Ubarter.com who perfect dissenters' rights) will recognize a
gain or loss for United States federal income tax purposes with respect to the
ShopNow.com common stock exchanged for Ubarter.com common stock in the merger.
Because tax matters are complicated, however, we urge you to consult your own
tax advisor to understand fully how the merger will affect you, including how
any state, local or foreign tax laws may apply to you.
ACCOUNTING TREATMENT OF THE MERGER (page )
ShopNow.com and Ubarter.com intend to account for the merger under the purchase
method of accounting.
REGULATORY APPROVALS
In the event Steven White or New Horizons, L.P. receive over $15 million of
ShopNow.com common stock in the merger, notification and report forms will need
to be filed under the Hart-Scott-Rodino Antitrust Improvement Act. Based on the
expected maximum number of shares ShopNow.com will issue in the merger and other
estimates, neither ShopNow.com nor Ubarter.com believe that such a filing will
be required.
9
<PAGE>
DISSENTERS' RIGHTS (page ; Annex H)
Under the Nevada Revised Statutes, dissenting Ubarter.com stockholders are
entitled to certain dissenters' rights with respect to the merger. In order for
any Ubarter.com stockholder to exercise dissenters' rights, a notice must be
sent by such stockholders and received by Ubarter.com on or before the date of
the special meeting, and any such stockholder must vote against the approval of
the merger. Failure to send such notice and vote against the merger will result
in a waiver of such stockholder's dissenters' rights.
DIFFERENCES IN RIGHTS OF UBARTER.COM AND SHOPNOW.COM SHAREHOLDERS (page )
Upon consummation of the merger, Ubarter.com stockholders will become
ShopNow.com shareholders. As a result, their rights as shareholders, which are
now governed by Nevada state law and by the articles of incorporation and bylaws
of Ubarter.com, will be governed by Washington state law and the articles of
incorporation and bylaws of ShopNow.com, which is a Washington corporation.
COMPARATIVE MARKET PRICE INFORMATION (page )
Shares of ShopNow.com common stock are listed on the Nasdaq National Market. On
December 20, 1999, the last full trading day before the public announcement of
the proposed merger, ShopNow.com's common stock closed at $18.75 per share. On
, 2000, the last full trading day for which closing prices were
available at the time of the printing of this proxy statement/prospectus,
ShopNow.com's common stock closed at $ per share.
Shares of Ubarter.com common stock are listed on the Over-the-Counter Bulletin
Board. On December 20, 2000, the last full trading day before the public
announcement of the proposed merger, Ubarter.com's common stock closed at
$3.4375 per share. On , 2000, the last full trading day for which
closing prices were available at the time of the printing of this proxy
statement/prospectus, Ubarter.com's common stock closed at $ per share.
We urge you to obtain current market quotations.
10
<PAGE>
SELECTED FINANCIAL DATA OF SHOPNOW.COM AND UBARTER.COM
The following tables provide selected financial data of ShopNow.com and
Ubarter.com, which were derived from the audited financial statements of
ShopNow.com and Ubarter.com for the indicated years for which audited financial
statements have been prepared. The data should be read in conjunction with the
financial statements, related notes and other financial information of
ShopNow.com and Ubarter.com that are included in this proxy statement/
prospectus. The Ubarter.com table also provides selected financial data of
Ubarter.com as of December 31, 1999, and for the nine months ended December 31,
1999 and 1998, which were derived from unaudited financial statements of
Ubarter.com. In Ubarter.com's opinion, the unaudited financial statements
include all adjustments necessary for the fair presentation of Ubarter.com's
financial position and results of operations for those periods. The historical
results for the nine-month periods may not be indicative of the results of
operations for a full year.
The tables also provide selected pro forma combined financial data of
ShopNow.com and Ubarter.com, which is derived from the unaudited pro forma
condensed consolidated financial statements. The pro forma financial information
does not purport to represent what the combined company's financial position or
results of operations would actually have been had the merger occurred at the
beginning of the earliest period presented or to project the combined company's
financial position or results of operations for any future date or period. In
addition, it does not incorporate any benefits from cost savings or synergies of
operations of the combined company.
11
<PAGE>
SELECTED FINANCIAL DATA OF SHOPNOW.COM
The statements of operations data for the years ended December 31, 1997, 1998
and 1999 are derived from ShopNow.com's audited consolidated financial
statements appearing elsewhere in this proxy statement/prospectus. The
statements of operations data for the period from January 20, 1994 (inception)
to December 31, 1994 and for the years ended December 31, 1995 and 1996 are
derived from audited consolidated financial statements not included in this
proxy statement/prospectus. The pro forma as adjusted balance sheet data give
effect to the sale of the 7,913,607 shares of common stock that ShopNow.com sold
on February 18, 2000 at the public offering price of $14.50 per share and after
deducting underwriting discounts and commissions and estimated expenses payable
by ShowNow.com. Due to the acquisitions in 1998 and in 1999, ShopNow.com
believes that period-to-period comparisons are not meaningful, and you should
not rely on them as indicative of ShopNow.com's future performance. You should
read the following selected consolidated financial data in conjunction with
"ShopNow.com Management's Discussion and Analysis of Financial Condition and
Results of Operations," the Unaudited Pro Forma Combined Financial Information
and the Consolidated Financial Statements and related Notes appearing elsewhere
in this proxy statement/prospectus.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
JANUARY 20,
1994 PRO FORMA
(INCEPTION) TO YEARS ENDED DECEMBER 31, YEAR ENDED
DECEMBER 31, ---------------------------------------------------- DECEMBER 31,
1994 1995 1996 1997 1998 1999 1999(1)
-------------- -------- -------- -------- -------- -------- ------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:.................................. $ 279 $ 727 $ 993 $ 604 $ 7,154 $ 36,955 $ 32,588
Cost of revenues:.......................... 127 323 430 515 5,849 27,329 17,285
------------ ------ ------ ------- -------- -------- ------------
Gross profit............................. 152 404 563 89 1,305 9,626 15,303
------------ ------ ------ ------- -------- -------- ------------
Operating expenses:
Sales and marketing...................... 116 163 610 1,201 12,183 55,072 53,932
General and administrative............... 216 347 656 918 3,549 8,342 13,853
Research and development................. -- -- 25 2,436 4,370 8,885 10,247
Amortization of intangible assets........ -- -- 32 136 730 8,805 61,483
Stock-based compensation................. -- -- -- -- 182 7,216 7,216
Unusual item - write-off of acquired
technology............................. -- -- -- -- 5,207 -- --
------------ ------ ------ ------- -------- -------- ------------
Total operating expenses................. 332 510 1,323 4,691 26,221 88,320 146,731
------------ ------ ------ ------- -------- -------- ------------
Loss from operations................... (180) (106) (760) (4,602) (24,916) (78,694) (131,428)
Nonoperating income (expense), net......... (1) (7) (50) (164) 171 2,751 2,505
------------ ------ ------ ------- -------- -------- ------------
Net loss............................... $ (181) $ (113) $ (810) $(4,766) $(24,745) $(75,943) $ (128,923)
============ ====== ====== ======= ======== ======== ============
Basic and diluted net loss per share(2).... $ (0.11) $(0.06) $(0.40) $ (1.83) $ (7.01) $ (5.80)
============ ====== ====== ======= ======== ========
Basic and diluted pro forma net loss per
share(2)................................. $ (6.07)
============
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------
DECEMBER 31, 1999
------------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA(3) ADJUSTED(4)
DOLLARS IN THOUSANDS ------------ ------------ ------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 10,660 $ 12,506 $ 120,304
Working capital........................................... 43,431 43,064 150,862
Total assets.............................................. 274,174 338,878 446,676
Total liabilities......................................... 44,961 65,780 65,780
Total shareholders' equity................................ 229,213 273,098 380,896
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------
AS OF AND FOR THE THREE MONTHS ENDED
------------------------------------------
JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
OTHER DATA(5):
Number of advertising and merchandising clients on the
ShopNow marketplace....................................... 181 336 514
Number of merchants listed on the ShopNow marketplace....... 33,841 37,099 45,522
Number of shopper visits to the ShopNow marketplace......... 6,422,000 7,485,000 21,461,497
</TABLE>
(1) ShopNow.com acquired GO Software in June 1999, SpeedyClick in November 1999
and WebCentric in December 1999. In January 2000, ShopNow.com entered into a
definitive agreement to acquire Ubarter.com and expects to close this
acquisition in the second quarter of 2000. In June 1999, ShopNow.com ceased
operations of its BuySoftware.com business. The pro forma statement of
operations data reflect consolidation of the operations results from these
businesses and the cessation of BuySoftware.com as if they had occurred on
January 1, 1999.
(2) See Note 1 to the Consolidated Financial Statements of ShopNow.com for a
description of the method used to compute basic and diluted net loss per
share. In addition, see Note 2(h) to the Unaudited Pro Forma Combined
Financial Information for a description of the method used to compute basic
and diluted pro forma net loss per share.
(3) The pro forma consolidated balance sheet data gives effect to the proposed
acquisition of Ubarter.com.
(4) The pro forma as adjusted balance sheet data gives effect to the sale of the
7,913,607 shares of common stock that ShopNow.com sold on February 18, 2000
at the public offering price of $14.50 per share, after deducting
underwriting discounts, commissions and estimated expenses payable by
ShopNow.com upon closing of the offering.
(5) The number of advertising and merchandising clients represents the number of
clients that purchased an advertising/merchandising package during the
applicable quarter; the number of merchants listed represents the number of
merchants as of the last day of the applicable quarter; the number of
shopper visits represents the total number of shopper visits to the ShopNow
marketplace during the applicable quarter.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF UBARTER.COM
<TABLE>
<CAPTION>
--------------------------------------------------------------------
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------------ -----------------------
1996 1997 1998 1999 1998(1) 1999(1)
-------- -------- -------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Revenue........................................... $298,000 $453,000 $586,100 $ 504,500 $ 476,400 $ 2,670,000
Operating income.................................. 31,000 (61,000) 29,800 (841,000) (238,900) (2,818,400)
Net income (loss)................................. 21,000 (63,000) 32,500 (798,000) (211,900) (3,013,200)
Basic earnings (loss) per share................... 2.13 (0.14) 0.01 (0.14) (0.04) (0.50)
Diluted earnings (loss) per share................. 2.13 (0.14) 0.01 (0.14) (0.04) (0.50)
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
MARCH 31, DEC. 31
------------------------------------------------- -----------
1996 1997 1998 1999 1999(2)
---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments........................ $ 5,000 $ 162,000 $ 382,600 $ 492,700 $1,846,400
Total assets........................................... 136,000 290,000 525,100 4,389,700 5,503,400
Debt................................................... 49,000 33,000 32,200 183,200 3,262,800
Shareholders' equity (deficit)......................... (73,000) 139,000 470,500 1,732,700 (422,900)
Historical book value per share(1)..................... (0.04) 0.06 0.12 0.29 (0.07)
Shares used in computing book value per share(2)....... 2,000,000 2,500,000 3,832,900 5,926,400 6,076,233
</TABLE>
- ------------------------------
(1) Unaudited.
(2) Historical book value per share is computed by dividing total shareholders'
equity by the number of common shares outstanding at the end of the period.
14
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following tables reflect (1) the historical net income (loss) and book value
per share of ShopNow.com common stock and the historical net loss and book value
per share of Ubarter.com common stock in comparison with the unaudited pro forma
net loss and book value per share after giving effect to the proposed merger and
(2) the equivalent historical net loss and book value per share price
attributable to the fractional share of ShopNow.com common stock which will be
received for each share of Ubarter.com common stock. The tables below assume an
exchange ratio of 0. . The actual exchange ratio could vary significantly from
this number. See the section entitled "The Merger -- Merger Consideration;
conversion of Ubarter.com common stock" on page . The information presented in
the following tables should be read in conjunction with the unaudited pro forma
condensed combined consolidated financial statements included elsewhere in this
document and the historical financial statements and related notes of
ShopNow.com and Ubarter.com which are included in this document.
<TABLE>
<CAPTION>
EQUIVALENT
HISTORICAL PRO FORMA PRO FORMA
------------------------------- -------------- --------------
SHOPNOW.COM(1) UBARTER.COM(2) SHOPNOW.COM(1) UBARTER.COM(3)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Book value per share at December 31,
1999................................ $8.90 $(0.07) $9.79 $
Basic and diluted net loss per share,
for the year ended December 31,
1999................................ (2.95) (0.64) (3.53) $
Dividends per share(4)................ -- -- -- --
</TABLE>
- ------------------------
(1) The book value per share and basic and diluted net loss per share data for
ShopNow.com has been calculated assuming that all of ShopNow.com's
convertible preferred stock had been outstanding as common stock on an as-if
converted basis from the original issuance date of the preferred stock.
(2) The historical financial statements for Ubarter.com have been prepared based
on a fiscal year-end of March 31. The Ubarter financial information used to
complete this table is based on actual historical financial information for
Ubarter.com based on a calendar year-end, similar to ShopNow.com's
historical financial data.
(3) The pro forma combined per equivalent Ubarter.com share data is calculated
by multiplying the pro forma combined net loss and book value per
ShopNow.com share by the exchange ratio. The table above assumes an exchange
ratio of 0. . The actual exchange ratio could vary significantly from this
number. See the section entitled "The Merger -- Merger Consideration;
conversion of Ubarter.com common stock" on page .
(4) Neither ShowNow.com nor Ubarter.com have paid dividends to their common
shareholders.
15
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS AND IN THE DOCUMENTS TO WHICH WE REFER YOU, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN DECIDING WHETHER TO VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
RISKS RELATED TO THE MERGER
THE EXCHANGE RATIO FOR UBARTER.COM COMMON STOCK TO BE RECEIVED IN THE MERGER IS
FIXED AND WILL NOT BE ADJUSTED IN THE EVENT OF ANY CHANGE IN STOCK PRICE.
Regardless of the market prices of ShopNow.com and Ubarter.com common stock at
the effective time of the merger, Ubarter.com stockholders will receive a fixed
number of shares of ShopNow.com common stock for the shares of Ubarter.com
common stock they own. The market value of ShopNow.com common stock is likely to
change, both before and after the merger, and no one can accurately predict what
the market value will be at any given time. Market prices of ShopNow.com and
Ubarter.com common stock may vary for many reasons, including changes in the
business, operations or prospects of ShopNow.com or Ubarter.com, market
assessments of the likelihood that the merger will be completed, the timing of
regulatory considerations and general market and economic conditions. The stock
market has experienced significant price and volume fluctuations, and the market
prices of Internet-related companies such as ShopNow.com have been particularly
volatile. Because the merger will be completed after the special meeting, the
prices of ShopNow.com and Ubarter.com common stock on the date of the special
meeting may not be indicative of their prices on the date the merger is
completed. Ubarter.com cannot "walk away" from the merger or resolicit the vote
of its stockholders based solely on changes in the value of ShopNow.com common
stock. We urge you to obtain current market quotations for the ShopNow.com and
Ubarter.com common stock.
UBARTER.COM'S DIRECTORS AND EXECUTIVE OFFICERS HAVE CONFLICTS OF INTEREST THAT
MAY INFLUENCE THEM TO SUPPORT THE MERGER.
The directors and officers of Ubarter.com participate in arrangements that
provide them with interests in the merger that are different from, or in
addition to, yours, including the following:
- as of March 6, 2000, the executive officers and directors of Ubarter.com
had stock options to purchase an aggregate of 485,000 shares of
Ubarter.com common stock, of which 286,250 are unvested. If the merger is
completed, all of the unvested options will accelerate and become
immediately exercisable;
- officers of Ubarter.com are entitled to certain benefits, including
substantial severance packages under their employment agreements with
Ubarter.com upon termination of such agreements as a result of
Ubarter.com's change of control, such as in the merger;
- upon completion of the merger, ShopNow.com will enter into an employment
agreement with Liad Meidar, a consultant to Ubarter.com who currently
serves as Ubarter.com's Vice President of Strategic Development, and
Mr. Meidar will be granted options to purchase 250,000 shares of
ShopNow.com common stock;
- Astra Ventures, a consulting firm owned by Mr. Meidar, will enter into an
agreement with ShopNow.com, effective as of the effective time of the
merger, which will provide that in exchange for the termination of all
obligations to or agreements with Astra Ventures, ShopNow.com will pay
Astra Ventures $675,000 in cash and 38,995 shares of ShopNow.com common
stock;
- Momentous Inc. Pension and Trust, which is owned by Mr. Meidar's father,
will receive a warrant to purchase 20,000 shares of ShopNow.com common
stock in exchange for the cancellation of approximately $100,000 of
financing Momentous had provided to Ubarter.com in December 1999;
- Steven White, Chief Executive Officer of Ubarter.com, has agreed with
ShopNow.com to vote his shares, which represent approximately 22% of the
shares entitled to vote at the special meeting, in favor of the merger;
16
<PAGE>
- upon the completion of the merger, Mr. White will enter into a consulting
agreement with ShopNow.com; and
- Ubarter.com executive officers who are employed by ShopNow.com following
the merger will receive options to purchase ShopNow.com common stock.
The officers and directors of Ubarter.com may therefore have been more likely to
vote to approve the merger agreement and the merger than if they did not have
these interests. Ubarter.com stockholders should consider whether these
interests may have influenced these directors and officers to support or
recommend the merger. You should read more about these interests under "The
Merger--Interests of Executive Officers and Directors of Ubarter.com in the
Merger" on page .
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT UBARTER.COM'S STOCK PRICE
AND FUTURE BUSINESS AND OPERATIONS.
If the merger is not completed for any reason, Ubarter.com may be subject to a
number of material risks, including:
- Ubarter.com will not be able to obtain financing on acceptable terms in
order to repay currently outstanding indebtedness, or to finance
Ubarter.com's operations and growth strategy;
- the effect of the public announcement of the merger on Ubarter.com's
barter business and operating results and Ubarter.com's ability to attract
and retain key management, marketing, technical, sales and other
personnel;
- ShopNow.com has the right to purchase all of the shares of Ubarter.com
held by Steven White (approximately 22% of Ubarter.com's outstanding
voting stock), which would give ShopNow.com certain ability to influence
the management and operation of Ubarter.com; and
- costs related to the merger, such as legal and accounting fees, must be
paid even if the merger is not completed.
THE PRICE OF SHOPNOW.COM COMMON STOCK MAY BE AFFECTED BY FACTORS DIFFERENT FROM
THOSE AFFECTING THE PRICE OF UBARTER.COM COMMON STOCK.
Upon completion of the merger, the holders of Ubarter.com common stock will
become holders of ShopNow.com common stock. ShopNow.com's business differs from
that of Ubarter.com, and ShopNow.com's results of operations and the price of
ShopNow.com common stock may be affected by factors different from those that
affected Ubarter.com's results of operations and the price of Ubarter.com common
stock before the merger.
SHOPNOW.COM MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE UBARTER.COM AND ACHIEVE
THE BENEFITS EXPECTED TO RESULT FROM THE MERGER.
The acquisition of Ubarter.com is intended to expand ShopNow.com's capability to
enable businesses to exchange products and services. If ShopNow.com is unable to
successfully complete the acquisition of Ubarter.com and successfully integrate
Ubarter.com's businesses, technologies and personnel, its ability to increase
product and service offerings will be reduced. This could cause ShopNow.com to
lose business to its competitors, and ShopNow.com's operating results could
suffer.
The acquisition of Ubarter.com may involve numerous risks, including:
- diverting management's attention from other business concerns;
- being unable to maintain uniform standards, controls, procedures and
policies;
- entering markets in which ShopNow.com has no direct prior experience;
- improperly evaluating new services and technologies or otherwise being
unable to fully exploit the anticipated opportunity; and
- being unable to successfully integrate the acquired businesses,
technologies and other assets.
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If ShopNow.com inaccurately assessed Ubarter.com's businesses or technologies,
its business could suffer. In addition, this acquisition may involve the
assumption of obligations or large one-time write-offs and amortization expenses
related to goodwill and other intangible assets. Any of the factors listed above
would adversely affect ShopNow.com's results of operations.
RISKS RELATING TO THE COMBINED COMPANY
SHOPNOW.COM'S RAPID GROWTH AND EVOLUTION MAY MAKE IT DIFFICULT TO EVALUATE ITS
BUSINESS AND PROSPECTS.
ShopNow was incorporated in January 1994 and operated initially as a computer
services company. In 1996, ShopNow.com began to change the focus of its business
to conducting commerce over the Internet. In August 1998, ShopNow.com launched
its first online marketplace, ShopNow.com. In recent months, particularly with
the launch of b2bNow.com, ShopNow.com's business-to-business marketplace,
ShopNow.com has increasingly focused on developing and providing products and
services to enable businesses to conduct online commerce. The recent shifts in
ShopNow.com's business focus may make it difficult for you to evaluate its
business and prospects. When making your decision whether to vote to approve the
merger, you should also consider the risks, expenses and difficulties that
ShopNow.com may encounter as a young company in a rapidly evolving market.
SHOPNOW.COM HAS A HISTORY OF LOSSES AND EXPECTS FUTURE LOSSES.
ShopNow.com incurred net losses of $24.7 million for the year ended
December 31, 1998 and $75.9 million for the year ended December 31, 1999. At
December 31, 1999, ShopNow.com had an accumulated deficit of $105.3 million.
ShopNow.com has historically invested heavily in sales and marketing, technology
infrastructure and research and development and expects to continue to do so in
the future. As a result, ShopNow.com must generate significant revenues to
achieve and maintain profitability. ShopNow.com expects that its sales and
marketing expenses, research and development expenses and general and
administrative expenses will continue to increase in absolute dollars and may
increase as a percentage of revenues. In addition, ShopNow.com may incur
substantial expenses in connection with future acquisitions.
SHOPNOW.COM'S FUTURE REVENUES ARE UNPREDICTABLE AND IT EXPECTS ITS OPERATING
RESULTS TO FLUCTUATE FROM PERIOD TO PERIOD.
ShopNow.com's business model has only been applied to the Internet since the
mid-1990s and continues to evolve. Therefore ShopNow.com has limited experience
in planning the financial needs and operating expenses of its business. It is
difficult for ShopNow.com to accurately forecast its revenues in any given
period. ShopNow.com may not be able to sustain its recent revenue growth rates
or obtain sufficient revenues to achieve profitability. If its revenues in a
particular period fall short of its expectations, ShopNow.com will likely be
unable to quickly adjust its spending in order to compensate for that revenue
shortfall.
ShopNow.com's operating results are likely to fluctuate substantially from
period to period as a result of a number of factors, such as:
- declines in the number of businesses and merchants to which ShopNow.com
provides its products and services;
- the amount and timing of operating costs and expenditures relating to
expansion of its operations; and
- the mix of products and services that ShopNow.com sells.
In addition, factors beyond its control may also cause its operating results to
fluctuate, such as:
- the announcement or introduction of new or enhanced products or services
by its competitors and
- the pricing policies of its competitors.
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Period-to-period comparisons of ShopNow.com's operating results are not a good
indicator of its future performance. It is likely that ShopNow.com's operating
results in some quarters may not meet the expectations of stock market analysts
and investors and this could cause its stock price to decline.
SHOPNOW.COM'S BUSINESS MODEL IS UNPROVEN AND CHANGING.
ShopNow.com's business model consists of providing businesses and merchants with
e-commerce enabling solutions. It has limited experience as a company and,
additionally, the Internet, on which its business model relies, is still
unproven as a business medium. Accordingly, ShopNow.com's business model may not
be successful, and ShopNow.com may need to change it. Its ability to generate
sufficient revenues to achieve profitability will depend, in large part, on its
ability to successfully market its e-commerce products and services to
businesses and merchants that may not be convinced of the need for an online
presence or may be reluctant to rely upon third parties to develop and manage
their e-commerce offerings and marketing efforts.
SHOPNOW.COM'S FUTURE GROWTH WILL DEPEND ON ITS ABILITY TO MAKE AND SUCCESSFULLY
INTEGRATE ADDITIONAL ACQUISITIONS.
ShopNow.com's success depends on its ability to continually enhance and expand
its e-commerce enabling products and services and its online marketplaces in
response to changing technologies, customer demands and competitive pressures.
Consequently, ShopNow.com has acquired complementary technologies or businesses
in the past, and intends to do so in the future. If ShopNow.com is unable to
identify suitable acquisition targets, or if it is unable to successfully
complete acquisitions and successfully integrate the acquired businesses,
technologies and personnel, its ability to increase product and service
offerings will be reduced. This could cause ShopNow.com to lose business to its
competitors, and its operating results could suffer.
ACQUISITIONS INVOLVE A NUMBER OF RISKS.
ShopNow.com actively seeks to identify and acquire companies with attributes
complementary to its e-commerce products and services. Since October 1, 1999, it
has acquired five companies. In addition, as described above, acquisitions may
involve numerous risks.
If ShopNow.com is unable to accurately assess any newly acquired businesses or
technologies, its business could suffer. For example, in June 1998 ShopNow.com
acquired e-Warehouse and CyberTrust. These companies had developed
payment-processing technologies that ShopNow.com planned to utilize as part of
its e-commerce products and services. However, ShopNow.com is not currently
utilizing the acquired technologies, and it has determined that the technologies
have no other use or value to it. Because it is not using the acquired
technologies, it wrote off substantially all of the $5.4 million aggregate
purchase price for e-Warehouse and CyberTrust in 1998. Future acquisitions may
involve the assumption of obligations or large one-time write-offs and
amortization expenses related to goodwill and other intangible assets. Any of
the factors listed above would adversely affect its results of operations.
In addition, in order to finance any future acquisition, ShopNow.com may need to
raise additional funds through public or private financings. In this event, it
could be forced to obtain equity or debt financing on terms that are not
favorable to it and that may result in dilution to its shareholders.
SHOPNOW.COM'S SUCCESS DEPENDS ON ACHIEVING ADEQUATE MARKET SHARE TO INCREASE ITS
REVENUES AND BECOME PROFITABLE.
ShopNow.com's success depends upon achieving significant market penetration and
acceptance of its e-commerce enabling products and services. ShopNow.com has
only recently begun to expand its business-to-business initiatives designed to
enable businesses to maximize their e-commerce opportunities, and ShopNow.com's
online marketplaces have achieved only limited market acceptance to date.
ShopNow.com may not currently have adequate market share to successfully execute
its business plan. If it is unable to reach and retain substantial numbers of
businesses, merchants and shoppers, its business model may not be sustainable.
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To successfully market and sell its e-commerce enabling products and services,
ShopNow.com must
- become recognized as a leading provider of end-to-end enabling solutions;
- enhance existing products and services;
- add new products and services;
- complete projects on time;
- increase the number of businesses and merchants using its e-commerce
products and services and online marketplaces; or
- continue to increase the attractiveness of the ShopNow marketplace to
shoppers.
IF SHOPNOW.COM DOES NOT INCREASE BRAND AWARENESS, ITS SALES MAY SUFFER.
Due in part to the emerging nature of the markets for e-commerce enabling
products and services and online marketplaces, together with the substantial
resources available to many of its competitors, ShopNow.com's opportunity to
achieve and maintain a significant market share may be limited. Developing and
maintaining awareness of the ShopNow.com and b2bNow.com brand names are critical
in achieving widespread acceptance of its e-commerce enabling products and
services and its online marketplaces. ShopNow.com launched the ShopNow
marketplace in August 1998 and it has only recently begun to expand its
business-to-business initiatives designed to enable businesses to maximize their
e-commerce opportunities. The importance of brand recognition will increase as
competition in its markets increases. Successfully promoting and positioning its
brands will depend largely on the effectiveness of its marketing and sales
efforts and its ability to develop reliable and useful products and services at
competitive prices. If its planned marketing and sales efforts are ineffective,
ShopNow.com may need to increase its financial commitment to creating and
maintaining brand awareness among businesses, merchants and shoppers, which
could divert financial and management resources from other aspects of its
business, or cause its operating expenses to increase disproportionately to its
revenues. This could cause its business and operating results to suffer.
SHOPNOW.COM FACES SIGNIFICANT COMPETITION.
The market for e-commerce enabling products and services and online marketplaces
is highly competitive, and ShopNow.com expects competition to intensify in the
future. Barriers to entry are not significant. ShopNow.com's failure to compete
effectively could result in the following:
- fewer businesses and merchants relying upon its enabling solutions;
- the obsolescence of the technology underlying its products and services;
- fewer businesses and merchants listed in its directories;
- a decrease in shopper traffic on its web sites; and
- a reduction in the prices of or profits on its products and services.
The number of companies providing e-commerce enabling products and services is
large and increasing at a rapid rate. ShopNow.com expects that additional
companies which to date have not had a substantial commercial presence on the
Internet or in its markets will offer competing products and services. Although
ShopNow.com believes no one company currently offers a range of e-commerce
enabling solutions as comprehensive as its suite of products and services,
companies such as InfoSpace, Go2Net, Yahoo! and Cybersource offer alternatives
to one or more of ShopNow.com's products and services.
Many of ShopNow.com's competitors and potential competitors have substantial
competitive advantages as compared to it, including:
- larger customer or user bases;
- the ability to offer a wider array of e-commerce products and solutions;
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- greater name recognition and larger marketing budgets and resources;
- substantially greater financial, technical and other resources;
- the ability to offer additional content and other personalization
features; and
- larger production and technical staffs.
These advantages may enable ShopNow.com's competitors to adapt more quickly to
new technologies and customer needs, devote greater resources to the promotion
or sale of their products and services, initiate or withstand substantial price
competition, take advantage of acquisition or other opportunities more readily
or develop and expand their product and service offerings more quickly.
In addition, as the use of the Internet and online products and services
increases, larger well-established and well-financed entities may continue to
acquire, invest in or form joint ventures with providers of e-commerce enabling
solutions, and existing providers may continue to consolidate. Providers of
Internet browsers and other Internet products and services who are affiliated
with providers of web directories and information services that compete with
ShopNow.com's products and services may more tightly integrate these affiliated
offerings into their browsers or other products or services. Any of these trends
would increase the competition ShopNow.com faces.
IF SHOPNOW.COM FAILS TO MAINTAIN ITS STRATEGIC BUSINESS RELATIONSHIPS AND ENTER
INTO NEW RELATIONSHIPS ITS BUSINESS WILL SUFFER.
An important element of ShopNow.com's strategy involves entering into business
relationships with other companies. ShopNow.com's success is dependent on
maintaining its current contractual relationships and developing new strategic
relationships. These contractual relationships typically involve joint
marketing, licensing or promotional arrangements. For example, ShopNow.com has
entered into a licensing and co-marketing agreement with Chase Manhattan Bank, a
marketing agreement with About.com, a cross promotion agreement with 24/7 Media
and a software license agreement with HNC Software. Although these relationships
are an important factor in ShopNow.com's strategy because they enable it to
enhance its product and service offerings, the parties with which ShopNow.com
contracts may not view their relationships with ShopNow.com as significant to
their own businesses. To date, ShopNow.com has not derived material revenue from
these relationships, and some of these relationships impose substantial
obligations on ShopNow.com. It is not certain that the benefits to ShopNow.com
will outweigh its obligations. For example, its relationship with 24/7 Media
requires it to refer to them any business that would benefit from the
advertising services offered by 24/7 Media and makes 24/7 Media the only third
party authorized to sell advertising on ShopNow.com's web site. Several of its
significant business arrangements do not establish minimum performance
requirements but instead rely on contractual best efforts obligations of the
parties with which ShopNow.com contracts. In addition, most of these
relationships may be terminated by either party with little notice. Accordingly,
in order to maintain its strategic business relationships ShopNow.com will need
to meet its partners' specific business objectives, including incremental
revenue, brand awareness and implementation of specific e-commerce applications.
If its strategic business relationships are discontinued for any reason, or if
it is unsuccessful in entering into new relationships in the future,
ShopNow.com's business and results of operations may be harmed.
IF SHOPNOW.COM FAILS TO EFFECTIVELY MANAGE THE RAPID GROWTH OF ITS OPERATIONS,
ITS BUSINESS WILL SUFFER.
ShopNow.com's ability to successfully offer e-commerce enabling products and
services and implement its business plan in a rapidly evolving market requires
an effective planning and management process. ShopNow.com is increasing the
scope of its operations domestically and internationally, and ShopNow.com has
recently increased its headcount substantially. From December 31, 1997 to
December 31, 1999, its total number of employees increased from less than 50 to
476. This growth has placed and will continue to place a significant strain on
its management systems, infrastructure and resources. ShopNow.com will need to
continue to improve its financial and managerial controls and reporting systems
and procedures, and will need to continue to expand, train and manage its
workforce worldwide. Furthermore, ShopNow.com expects that it will be required
to manage an increasing number of relationships with
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various customers and other third parties. Any failure to expand any of the
foregoing areas efficiently and effectively could cause its business to suffer.
SHOPNOW.COM DEPENDS ON ITS KEY MANAGEMENT PERSONNEL FOR SUCCESSFUL OPERATION OF
ITS BUSINESS.
ShopNow.com's success depends on the skills, experience and performance of its
senior management and other key personnel. Its key personnel include Dwayne
Walker, its Chairman and Chief Executive Officer, Joe Arciniega, its President
and Chief Operating Officer, Alan Koslow, its Chief Financial Officer, and
Dr. Ganapathy Krishnan, its Chief Technology Officer. Only Mr. Walker has an
employment agreement with ShopNow.com. Many of its executive officers have
joined ShopNow.com within the past three years. If it does do not quickly and
efficiently integrate these new personnel into its management and culture, its
business could suffer. Its business could also suffer if ShopNow.com does not
retain its key personnel.
SHOPNOW.COM MUST HIRE ADDITIONAL PERSONNEL TO EXPAND ITS OPERATIONS.
ShopNow.com's future success depends on its ability to identify, hire, train,
retain and motivate highly skilled executive, technical, managerial, sales and
marketing, business development and administrative personnel. ShopNow.com
intends to hire a significant number of personnel during the next year, and as
of December 31, 1999 it had openings for 67 job positions. Competition for
qualified personnel is intense, particularly in the technology and Internet
markets. If ShopNow.com fails to successfully attract and retain a sufficient
number of qualified executive, technical, managerial, sales and marketing,
business development and administrative personnel, its ability to manage and
expand its business could suffer.
SHOPNOW.COM'S ABILITY TO DEVELOP AND INTEGRATE E-COMMERCE TECHNOLOGIES IS
SUBJECT TO UNCERTAINTIES.
ShopNow.com has limited experience delivering its e-commerce products and
services and operating online marketplaces. In order to remain competitive, it
must regularly upgrade its e-commerce products and services to incorporate
current technology, which requires it to integrate complex computer hardware and
software components. If ShopNow.com does not successfully integrate these
components, the quality and performance of its online offerings may be reduced.
In addition, the ability of its online marketplaces to accommodate an increasing
number of businesses, merchants and shoppers would suffer. While these
technologies are generally commercially available, ShopNow.com may be required
to expend considerable time and money in order to successfully integrate them
into its products and services and this may cause its business to suffer.
ShopNow.com must also maintain an adequate testing and technical support
infrastructure to ensure the successful introduction of products and services.
SHOPNOW.COM'S COMPUTER SYSTEMS MAY BE VULNERABLE TO SYSTEM FAILURES.
ShopNow.com's success depends on the performance, reliability and availability
of the technology supporting its e-commerce products and services and its online
marketplaces. ShopNow.com's revenues depend, in large part, on the number of
businesses and merchants that use its products and services and the number of
shoppers that access the ShopNow marketplace. This depends, in part, upon its
actual and perceived reliability and performance. Any inability to provide its
products and services or any slowdown or stoppage of its online marketplaces
could cause ShopNow.com to lose clients and therefore lose revenue.
Substantially all of its computer and communications hardware is located at
leased and third-party facilities in Seattle, Washington and Sterling, Virginia.
ShopNow.com's systems and operations are vulnerable to damage or interruption
from fire, flood, power loss, telecommunications failure, break-in, earthquake
and similar events. Because ShopNow.com presently does not have fully redundant
systems or a formal disaster recovery plan, a systems failure could adversely
affect its business. ShopNow.com's computer systems are vulnerable to computer
viruses, physical or electronic break-ins and similar disruptions, which may
lead to interruptions, delays, loss of data or inability to process online
transactions for its clients. ShopNow.com may be required to expend considerable
time and money to correct any system failure. If it is unable to fix a problem
that arises, it may lose clients or be unable to conduct its business at all.
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SHOPNOW.COM'S BUSINESS MAY BE HARMED BY DEFECTS IN ITS SOFTWARE AND SYSTEMS.
ShopNow.com has developed custom software for its network servers and has
licensed additional software from third parties. This software may contain
undetected errors or defects. Although ShopNow.com has not suffered significant
harm from any errors or defects to date, it may discover significant errors or
defects in the future that it may be unable to fix in a timely or cost-effective
manner.
SHOPNOW.COM WILL NEED TO EXPAND AND UPGRADE ITS SYSTEMS IN ORDER TO MAINTAIN
CUSTOMER SATISFACTION.
ShopNow.com must expand and upgrade its technology, transaction processing
systems and network infrastructure if the number of businesses and merchants
using its e-commerce products and services and online marketplaces, or the
volume of traffic on its web sites or its clients' web sites, increases
substantially. ShopNow.com could experience periodic capacity constraints, which
may cause unanticipated system disruptions, slower response times and lower
levels of customer service. It may be unable to accurately project the rate or
timing of increases, if any, in the use of its products or services or its web
sites or when it must expand and upgrade its systems and infrastructure to
accommodate these increases in a timely manner. Any inability to do so could
harm its business.
SHOPNOW.COM'S INTERNATIONAL OPERATIONS INVOLVE RISKS.
ShopNow.com is subject to risks specific to Internet-based companies in foreign
markets. These risks include:
- delays in the development of the Internet as a commerce medium in
international markets;
- restrictions on the export of encryption technology; and
- increased risk of piracy and limits on its ability to enforce its
intellectual property rights.
In addition, ShopNow.com intends to begin developing business opportunities in
Japan in the first half of 2000. ShopNow.com may be unable to develop sufficient
relationships in Japan to take advantage of business opportunities there. In
recent periods, the Japanese economy has experienced weakness. If the Japanese
economy continues to exhibit weakness, ShopNow.com's efforts to develop business
opportunities in Japan and its ability to grow in that market could be impaired.
In addition, the failure to succeed in the Japanese market could impair its
ability to enter other international markets.
SHOPNOW.COM MAY REQUIRE ADDITIONAL FUNDING TO SUCCESSFULLY OPERATE AND GROW ITS
BUSINESS.
Although ShopNow.com believes that its cash reserves and cash flows from
operations will be adequate to fund its operations for at least the next
12 months, these resources may be inadequate. Consequently, ShopNow.com may
require additional funds during or after this period. Additional financing may
not be available on favorable terms or at all. If ShopNow.com raises additional
funds by selling stock, the percentage ownership of its then current
shareholders will be reduced. If ShopNow.com cannot raise adequate funds to
satisfy its capital requirements, it may have to limit its operations
significantly. ShopNow.com's future capital requirements depend upon many
factors, including, but not limited to:
- the rate at which ShopNow.com expands its sales and marketing operations
and its product and service offerings;
- the extent to which ShopNow.com develops and upgrades its technology and
data network infrastructure; and
- the occurrence, timing, size and success of acquisitions.
SHOPNOW.COM MAY BE UNABLE TO ADEQUATELY PROTECT ITS INTELLECTUAL PROPERTY AND
PROPRIETARY RIGHTS.
ShopNow.com regards its intellectual property rights as critical to its success,
and it relies on trademark and copyright law, trade secret protection and
confidentiality and license agreements with its employees, customers and
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others to protect its proprietary rights. Despite its precautions, unauthorized
third parties might copy portions of its software or reverse engineer and use
information that it regards as proprietary. ShopNow.com currently has five
patents pending in the United States Patent and Trademark Office covering
different aspects of its product architecture and technology. However,
ShopNow.com does not currently own any issued patents and there is no assurance
that any pending patent application will result in an issued patent, or that any
future patent will not be challenged, invalidated or circumvented, or that the
rights granted under any patent will provide ShopNow.com with a competitive
advantage. The laws of some countries do not protect proprietary rights to the
same extent as do the laws of the United States, and ShopNow.com's means of
protecting its proprietary rights abroad may not be adequate. Any
misappropriation of its proprietary information by third parties could adversely
affect its business by enabling third parties to compete more effectively with
it.
SHOPNOW.COM'S TECHNOLOGY MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS.
Although ShopNow.com has not received notice of any alleged infringement by it,
it cannot be certain that its technology does not infringe issued patents or
other intellectual property rights of others. In addition, because patent
applications in the United States are not publicly disclosed until the patent is
issued, applications may have been filed which relate to its software.
ShopNow.com may be subject to legal proceedings and claims from time to time in
the ordinary course of its business, including claims of alleged infringement of
the trademarks and other intellectual property rights of third parties.
Intellectual property litigation is expensive and time-consuming, and could
divert the attention of ShopNow.com's management away from running its business.
IF THE SECURITY PROVIDED BY SHOPNOW.COM'S E-COMMERCE SERVICES IS BREACHED,
SHOPNOW.COM MAY BE LIABLE TO ITS CLIENTS AND ITS REPUTATION COULD BE HARMED.
A fundamental requirement for e-commerce is the secure transmission of
confidential information of businesses, merchants and shoppers over the
Internet. Among the e-commerce services ShopNow.com offers to merchants are
security features such as:
- secure online payment services;
- secure order processing services; and
- fraud prevention and management services.
Third parties may attempt to breach the security provided by ShopNow.com's
e-commerce products and services or the security of its clients' internal
systems. If they are successful, they could obtain confidential information
about businesses and shoppers using ShopNow.com's online marketplaces, including
their passwords, financial account information, credit card numbers or other
personal information. ShopNow.com may be liable to its clients or to shoppers
for any breach in security. Even if it is not held liable, a security breach
could harm its reputation, and the mere perception of security risks, whether or
not valid, could inhibit market acceptance of its products and services.
ShopNow.com may be required to expend significant capital and other resources to
license additional encryption or other technologies to protect against security
breaches or to alleviate problems caused by these breaches. In addition, its
clients might decide to stop using its e-commerce products and services if their
customers experience security breaches.
PROBLEMS RELATED TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT SHOPNOW.COM'S
BUSINESS.
Prior to January 1, 2000, ShopNow.com devoted substantial resources in an effort
to ensure that its proprietary software, the third-party software on which it
relies, and the underlying systems and protocols did not contain errors or
defects associated with Year 2000 date functions. Since January 1, 2000,
ShopNow.com has not experienced any disruption to its business as the result of
any Year 2000 problems or otherwise. If problems do arise, they could adversely
affect its business.
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SHOPNOW.COM'S SUCCESS DEPENDS ON CONTINUED INCREASES IN THE USE OF THE INTERNET
AS A COMMERCIAL MEDIUM.
ShopNow.com depends on the growing use and acceptance of the Internet by
businesses, merchants and shoppers as a medium of commerce. Rapid growth in the
use of and interest in the Internet and online products and services is a recent
development. No one can be certain that acceptance and use of the Internet and
online products and services will continue to develop or that a sufficiently
broad base of businesses, merchants and shoppers will adopt and continue to use
the Internet and online products and services as a medium of commerce.
The Internet may fail as a commercial marketplace for a number of reasons,
including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies, including
security technology and performance improvements. For example, if technologies
such as software that stops advertising from appearing on a web user's computer
screen gain wide acceptance, the attractiveness of the Internet to advertisers
would be diminished, which could harm ShopNow.com's business.
RAPID TECHNOLOGICAL CHANGE COULD NEGATIVELY AFFECT SHOPNOW.COM'S BUSINESS.
Rapidly changing technology, evolving industry standards, evolving customer
demands and frequent new product and service introductions characterize the
market for e-commerce products and services and online marketplaces.
ShopNow.com's future success will depend in significant part on its ability to
improve the performance, content and reliability of its products and services in
response to both the evolving demands of the market and competitive product and
service offerings. Its efforts in these areas may not be successful. If a large
number of its clients adopt new Internet technologies or standards, ShopNow.com
may need to incur substantial expenditures modifying or adapting its e-commerce
products and services to remain compatible with their systems.
SHOPNOW.COM RELIES ON THE INTERNET INFRASTRUCTURE PROVIDED BY OTHERS TO OPERATE
ITS BUSINESS.
ShopNow.com's success depends in large part on other companies maintaining the
Internet infrastructure. In particular, ShopNow.com relies on other companies to
maintain a reliable network backbone that provides adequate speed, data capacity
and security and to develop products that enable reliable Internet access and
service. If the Internet continues to experience significant growth in the
number of users, frequency of use and amount of data transmitted, the Internet
infrastructure of thousands of computers communicating via telephone lines,
coaxial cable and other telecommunications systems may be unable to support the
demands placed on it, and the Internet's performance or reliability may suffer
as a result of this continued growth. If the performance or reliability of the
Internet suffers, Internet users could have difficulty obtaining access to the
Internet. In addition, data transmitted over the Internet, including information
and graphics contained on web pages, could reach Internet users much more
slowly. This could result in frustration of Internet users, which could decrease
online traffic and cause advertisers to reduce their Internet expenditures.
FUTURE GOVERNMENTAL REGULATION AND PRIVACY CONCERNS COULD ADVERSELY AFFECT
SHOPNOW.COM'S BUSINESS.
ShopNow.com is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on the Internet. However, due to the increasing popularity and use of the
Internet, a number of legislative and regulatory proposals are under
consideration by federal, state, local and foreign governmental organizations,
and it is possible that a number of laws or regulations may be adopted with
respect to the Internet relating to issues such as user privacy, taxation,
infringement, pricing, quality of products and services and intellectual
property ownership. The adoption of any laws or regulations that have the effect
of imposing additional costs, liabilities or restrictions relating to the use of
the Internet by businesses or consumers could decrease the growth in the use of
the Internet, which could in turn decrease the demand for ShopNow.com's products
and services, decrease traffic on its online marketplaces, increase its cost of
doing business, or otherwise have a material adverse effect on its business.
Moreover, the applicability to the Internet of existing laws governing issues
such as property ownership, copyright, trademark,
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<PAGE>
trade secret, obscenity, libel and personal privacy is uncertain and developing.
Any new legislation or regulation, or application or interpretation of existing
laws, could have a material adverse effect on ShopNow.com's business.
The Federal Communications Commission is currently reviewing its regulatory
positions on the privacy protection given to data transmissions over
telecommunications networks and could seek to impose some form of
telecommunications carrier regulation on telecommunications functions of
information services. State public utility commissions generally have declined
to regulate information services, although the public service commissions of
some states continue to review potential regulation of such services. Future
regulation or regulatory changes regarding data privacy could have an adverse
effect on ShopNow.com's business by requiring it to incur substantial additional
expenses in order to comply with this type of regulation.
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 over the
Internet and certain states have taken measures to tax Internet-related
activities. Foreign countries also may tax Internet transactions. The taxation
of Internet-related activities could have the effect of imposing additional
costs on companies, such as ShopNow.com, that conduct business over the
Internet. This, in turn, could lead to increased prices for products and
services, which could result in decreased demand for ShopNow.com's solutions.
SHOPNOW.COM COULD FACE LIABILITY FOR MATERIAL TRANSMITTED OVER THE INTERNET BY
OTHERS.
Because material may be downloaded from web sites hosted by ShopNow.com and
subsequently distributed to others, there is a potential that claims will be
made against ShopNow.com for negligence, copyright or trademark infringement or
other theories based on the nature and content of this material. Negligence and
product liability claims also potentially may be made against ShopNow.com due to
its role in facilitating the purchase of some products, for example, firearms.
Although ShopNow.com carries general liability insurance, its insurance may not
cover claims of these types, or may not be adequate to indemnify it against this
type of liability. Any imposition of liability, and in particular liability that
is not covered by its insurance or is in excess of its insurance coverage, could
have a material adverse effect on its reputation and its operating results, or
could result in the imposition of criminal penalties on it.
SHOPNOW.COM DOES NOT CURRENTLY COLLECT SALES TAX FROM ALL TRANSACTIONS.
ShopNow.com does not currently collect sales or other similar taxes on products
sold by it and delivered into states other than Washington, California, Georgia,
Arizona, Kansas, New York, Tennessee and Kentucky. However, one or more states
or foreign countries may seek to impose sales tax collection obligations on
out-of-state or foreign companies engaging in e-commerce. In addition, any new
operation in states outside the states for which ShopNow.com currently collects
sales tax could subject shipments into these states to state or foreign sales
taxes. A successful assertion by one or more states or any foreign country that
ShopNow.com should collect sales or other similar taxes on the sale of
merchandise or services could result in liability for penalties as well as
substantially higher expenses incurred by its business.
RISKS RELATING TO UBARTER.COM
UBARTER.COM MAY FACE DIFFICULTIES IN ACHIEVING ITS GROWTH STRATEGY IN ITS
MARKETS.
You should consider the risks and difficulties Ubarter.com expects to encounter
as it attempts to execute its business strategy, including the rapidly evolving
nature of the commercial barter market and the Internet market. These risks
include uncertainties about its ability to
- attract a larger number of members to execute barter transactions on its
offline trade exchange and on its e-commerce barter web site launched in
September 1999;
- increase awareness of the benefits of bartering in general and the
specific services Ubarter.com can provide;
- continue to develop and upgrade its technology;
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<PAGE>
- respond effectively to competitive pressures;
- attract, integrate, retain and motivate qualified personnel;
- strengthen the loyalty of its existing members; or
- respond effectively to increased business operation demands.
Ubarter.com may be unable to accomplish one or more of the above, which could
cause its business to suffer. In addition, accomplishing one or more of the
above could be very costly, which could harm its financial results.
FUNDS MAY BE INSUFFICIENT TO FINANCE ITS PLANS FOR GROWTH AND ITS OPERATIONS.
Ubarter.com's existing working capital and cash from financing activities will
not be sufficient to allow it to execute its business plan, including the
further development and implementation of its e-commerce barter web site and
acquisition of other barter exchanges or to meet the demands for its services
during 2000. If the merger with ShopNow.com is not completed, Ubarter.com will
have to secure additional financing. There is no assurance that Ubarter.com will
be able to secure such financing on terms acceptable to it. Ubarter.com believes
a portion of its capital resources, up to approximately $1.4 million, will come
from the exercise of outstanding warrants. Some of these warrants have an
exercise price of $1.50 and expire in June 2000 and some have an exercise price
of $2.00 and expire in September 2004. The perceived value of these warrants at
any given time is related to the market price of Ubarter.com's common stock,
which trades over the counter through the Over-the-Counter Bulletin Board. If
Ubarter.com is unable to obtain the expected portion of its financing through
the exercise of warrants or other financings, Ubarter.com may not be able to
successfully implement its short-term or long-term plans for expansion or meet
its working capital requirements. In addition, if Ubarter.com is unable to repay
the $1 million of short-term financing it received in August 1999 by June 1,
2000, the lender would have the right to convert the loan into 1,333,333 shares,
or approximately 22% of its common stock based on the number of shares
outstanding at December 31, 1999. Excluding accrued interest owing on the loan
at the time of conversion, the conversion price per share of common stock would
be $.75. Accordingly, Ubarter.com current stockholders would, in the event of
such a conversion, experience significant dilution of their investment in
Ubarter.com. In addition, if Ubarter.com is unable to repay approximately
$2,340,000 of short-term financing it received from ShopNow.com by June 22,
2000, the loans would be converted into the right to receive shares of
Ubarter.com stock. See the section entitled "Related Agreements -- convertible
notes" on page .
Ubarter.com does not have current commitments for additional financing.
Ubarter.com might not succeed in raising additional equity capital or in
negotiating and obtaining additional and acceptable financing when Ubarter.com
needs it. Ubarter.com's ability to obtain additional capital may depend on
market conditions (including the market for Internet stocks), national and
global economies and others factors beyond its control.
UBARTER.COM FACES COMPETITION FROM NUMEROUS BARTER EXCHANGES AND OTHER
COMPANIES.
There are hundreds of independent barter exchanges in the United States and
Canada, some of which may have similar plans for international expansion and
development of online e-commerce barter sites. Some of the established entities
in the barter industry may have more operating experience, larger member bases
or greater financial, marketing, technical and other resources. It is possible
that a group of independent barter exchanges could join forces to create a large
national or international barter company with an online e-commerce barter site.
Consequently, Ubarter.com will encounter competition in its efforts to expand
its business and to acquire desirable independent trade exchanges.
Similarly, Ubarter.com expects to face competition in its efforts to develop
Ubarter.com into a premier e-commerce barter web site. The market for
Internet-based services and products is relatively new, intensely competitive,
rapidly evolving and subject to rapid technological change. A number of
companies that have expertise in developing online commerce and in facilitating
person-to-person or business-to-business interaction, could be potential
competitors if they elected to enter the barter business. Certain Internet-based
companies with unique purchasing or sales models such as eBay, FreeMarkets.com
and Priceline.com have significant technical, financial and marketing resources
and
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<PAGE>
could be potential competition for Ubarter.com. These companies would be strong
competitors if they decided to enter the barter business.
Ubarter.com faces the risk that existing or new competitors may develop
technologies or services or strategic alliances and affiliations that make its
services less marketable or less useful or desirable. Furthermore, Ubarter.com
may not be able to successfully enhance its services, develop new services or
lower costs when and as it needs them. In addition, Ubarter.com faces the risk
that increased competition will place pressure on its transaction fee structure.
Any reduction in transaction fees that Ubarter.com charges for its services
would adversely impact its ability to run its operations on a profitable basis.
A KEY COMPONENT OF UBARTER.COM'S FUTURE REVENUE GROWTH DEPENDS ON ITS ABILITY TO
CONTINUE TO DEVELOP AND SUCCESSFULLY IMPLEMENT A QUALITY E-COMMERCE BARTER WEB
SITE.
Ubarter.com intends to develop into a premier e-commerce barter web site where
businesses can buy and sell products and services. Ubarter.com may not be
successful in its plans to implement, maintain and develop usage of the web
site. Ubarter.com's web site may encounter technical difficulties in
implementation. Technical problems may cause delays or require additional
expenditures. For Ubarter.com's web site to be perceived as a viable marketplace
and a replacement for or supplement to current trade exchanges, the web site
must provide accurate and timely information on a consistent, easy-to-use and
reliable basis. Other measures of quality of Ubarter.com's web site include:
- the level of representative member participation;
- a sufficient range and availability of products and services offered on
its web site;
- its ability to service high response rates for members; and
- timely posting of changes and modifications to the inventory of members
and products and services offered over its web site.
Ubarter.com expects to derive revenues in the near term from the Ubarter.com web
site. The success of Ubarter.com's business will depend, in part, on end-user
acceptance of its online services. Ubarter.com's success will also depend on its
ability to design, develop, test and support new services and enhancements on a
timely basis that meet changing customer needs and its ability to respond to
technological developments and emerging industry standards. Ubarter.com may be
unable to maintain adequate quality control procedures, develop and market new
services and enhancements that meet changing customer needs, or respond to
technological developments and emerging industry standards.
IN UBARTER.COM'S EFFORT TO DEVELOP NEW AND ENHANCED SERVICES AND FEATURES FOR
ITS WEB SITE, UBARTER.COM MAY ALIENATE CURRENT USERS OR EXPERIENCE TECHNICAL
DIFFICULTIES.
Ubarter.com believes its web site will be more beneficial to members by allowing
members to access products and services online 24 hours a day, seven days a
week, and execute transactions online. Accordingly, Ubarter.com intends to
introduce additional or enhanced services and features designed to attract new
members to its web site while retaining current members. If Ubarter.com
introduces services or features that do not function properly or that its
current members do not perceive favorably, they may not continue to visit its
web site. Members may also choose a competitor's site over Ubarter.com's.
Ubarter.com may also experience difficulties that could delay or prevent it from
introducing new services or features. Furthermore, these services or features
may contain errors or problems that Ubarter.com discovers after Ubarter.com has
already introduced them. Ubarter.com may need to modify significantly the design
of these services or features on its web site to correct these errors. Errors
could lead to significant dissatisfaction of members and result in adverse
publicity.
UBARTER.COM'S GROWTH AND SUCCESS DEPEND ON CONTINUED GROWTH IN THE BARTER
INDUSTRY.
Industry sources, as well as Ubarter.com's experience, indicate that for the
last several years the commercial barter industry has experienced a steady
growth. These sources have attributed the growing appeal of the barter industry
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among business owners to increasing competitive pressures, the existence of
surplus inventory, unproductive assets, excess capacity and the ability to
generate new sales and reach new customers while conserving cash. Nevertheless,
Ubarter.com believes there has been low penetration by the barter industry into
the market of potential business customers. Although Ubarter.com is aware of no
factors that would lead it to conclude that the commercial barter industry will
not continue to grow at a steady rate, it is possible this growth will not
continue. If the growth of the barter industry were to decline, however,
Ubarter.com would expect to face heightened competition with weakened
profitability and a reduced share of the barter market, which could materially
adversely affect its business, results of operations and financial condition.
UBARTER.COM MAY BE UNABLE TO EFFECTIVELY MANAGE ITS GROWTH OR TO HIRE AND RETAIN
KEY PERSONNEL.
As Ubarter.com continues to expand its level of operations, Ubarter.com will
need an effective planning and management process to implement its business plan
successfully. In addition, Ubarter.com will need to hire and retain key
personnel. With its web site, Ubarter.com may experience periods of significant
expansion of its business. Depending on the amount and timing of any increase in
business, this expansion could place a strain on Ubarter.com's management,
operational and financial resources. Ubarter.com's failure to attract and retain
the key personnel necessary may limit its ability to support such increased
business. Some areas that could be put under strain by growth include customer
support, customer billing and web site support and maintenance. Ubarter.com has
management, operating and financial systems in place, and Ubarter.com intends to
continue its efforts to improve these systems. There is a risk, however, that
such systems may be inadequate to support its existing and future operations or
that hiring, training and managing new employees will be more difficult than
Ubarter.com anticipates.
UBARTER.COM HAS HISTORICAL LOSSES AND ANTICIPATES FUTURE LOSSES IN THE
IMPLEMENTATION OF ITS BUSINESS STRATEGY.
Ubarter.com is incurring losses from its operating activities. As of
December 31, 1999, Ubarter.com had an accumulated deficit of $3,164,700.
Ubarter.com expects to increase its operating expenses in an effort to expand
its marketing, and Ubarter.com expects to increase its level of expenditures to
further develop online barter capability. These anticipated increases in
operating expense levels and developmental costs will adversely affect operating
results. Ubarter.com expects that it will continue to incur losses during fiscal
year 2000 and beyond.
UBARTER.COM IS DEPENDENT ON KEY PERSONNEL.
The successful implementation of Ubarter.com's business plan and the overall
success of its business will depend on the skills and efforts of its management
personnel and, to a large extent, the active participation of Steven White, its
Chief Executive Officer and President, as well as its other executive officers
and key employees. Ubarter.com has employment agreements in place with certain
key employees and management. Ubarter.com also has key-man insurance covering
the life of Mr. White in the amount of $1 million. Ubarter.com does not have
key-man life insurance on other executives. Ubarter.com's future success will
depend on its ability to attract, train, retain and motivate technical,
managerial, marketing and customer support personnel. Competition for these
personnel may be intense, particularly for individuals with e-commerce
experience. Ubarter.com nevertheless faces the risk that Ubarter.com will be
unable to attract, integrate, retain and motivate qualified employees.
UBARTER.COM WILL DEPEND ON THE CONTINUED UTILITY OF THE INTERNET AND TECHNOLOGY
FOR ITS E-COMMERCE BARTER SITE.
The performance of the Ubarter.com web site will be dependent on the successful
operation of the Internet and on certain third parties and services (such as
Internet service providers, Internet backbone providers and Web browsers). Users
may experience difficulties resulting from system failures unrelated to its
internal systems and services. If the Internet were to become regularly
unavailable for many hours at a time, or if its ability to handle traffic loads
were to deteriorate enough to cause frequent unavailability or slow response
times, there would be less traffic to Ubarter.com's web site. Furthermore, the
perception of the quality of Ubarter.com's services could suffer. To date, the
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<PAGE>
Internet has proven highly resilient and responsive to rapid growth in its use,
and many of the world's telecommunications, software and hardware companies are
continually investing in capacity and improvements.
Ubarter.com's Internet services will be designed around certain standards,
including, for example, Internet security standards. Current and future success
of Ubarter.com's services may become subject to additional industry standards as
Internet commerce rapidly evolves. As a result Ubarter.com's business may incur
additional costs of unknown proportions as it is confronted with new technology
standards. In addition, Ubarter.com may not be successful in its efforts to
enhance existing services and to develop, introduce and market new services.
Furthermore, Ubarter.com's enhancements and new services may not adequately meet
the requirements of the marketplace and achieve market acceptance. As the
Internet develops, it is possible that incompatibility or lack of appropriate
features could impact Ubarter.com's business.
Ubarter.com expects sales of its services will depend in large part on a robust
industry and infrastructure for providing Internet access and carrying the
rapidly increasing Internet traffic. Certain critical issues concerning the
commercial use of the Internet (including capacity to handle projected increases
in traffic, security, reliability, cost, ease of use, access and quality of
service) remain unresolved and may impact the growth of Internet use. The
Internet may not prove to be a viable commercial marketplace because of
inadequate development of the necessary infrastructure, such as a reliable
network backbone or timely development of complementary products, such as high
speed modems. Because global commerce and on-line exchange of information on the
Internet and other similar open wide area networks are new and evolving,
Ubarter.com cannot predict with any assurance whether the infrastructure or
complementary products necessary to make the Internet a viable commercial
marketplace will continue to be developed. Even if the necessary infrastructure
and complementary products are developed, Ubarter.com cannot predict whether the
Internet will remain a viable commercial marketplace. In addition, the
widespread adoption of new Internet or telecommunications technologies or
standards could require Ubarter.com to make substantial expenditures to modify
or adapt Ubarter.com's services. In this case, the new Internet or
telecommunications services or enhancements that Ubarter.com offers could
contain design flaws or other defects. Although Ubarter.com expects to be
responsive to changes in the Internet and technology, Ubarter.com may not be
successful in achieving widespread acceptance of its services before competitors
offer services with speed and performance equal to or greater than
Ubarter.com's.
SECURITY AND PRIVACY CONCERNS COULD SUBJECT UBARTER.COM TO LIABILITY OR
OTHERWISE DETER CONSUMERS FROM USING UBARTER.COM'S WEB SITE.
Ubarter.com's members are now able to conduct online barter transactions and
Ubarter.com could be subject to litigation and liability if third parties were
able to penetrate its network security or otherwise misappropriate its users'
personal information. This liability could include claims for unauthorized
barter transactions, impersonation or other similar fraud claims. It could also
include claims for other misuses of personal information, such as for
unauthorized marketing purposes. In addition, the Federal Trade Commission and
certain states have been investigating certain Internet companies regarding
their use of personal information. Ubarter.com could incur additional expenses
if new regulations regarding the use of personal information are adopted or
should government agencies choose to investigate its privacy practices.
The need to securely transmit confidential information over the Internet has
been a significant barrier to electronic commerce and communications over the
Internet. Any well-publicized compromise of security could deter more people
from using the Internet or from using it to conduct transactions that involve
transmitting confidential information, such as barter transactions and personal
information. Internet security concerns could frustrate its efforts to grow its
member base. Ubarter.com may also incur significant costs to protect against the
threat of security breaches or to alleviate problems caused by such breaches.
UBARTER.COM FACES RISKS FROM POTENTIAL GOVERNMENT REGULATION OF THE BARTER
INDUSTRY AND OF THE INTERNET.
The barter industry is not currently subject to direct regulation by any
government agency, other than regulations generally applicable to businesses.
Certain tax regulations require U.S. barter exchanges to file with the Internal
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Revenue Service, on an annual basis, the totals of the barter sales of their
members. Similarly, there are currently few laws or regulations governing usage
of the Internet. It is possible that a number of laws and regulations may be
adopted with respect to the Internet, covering issues such as user privacy,
taxes and the pricing, quality and other characteristics of products and
services. The adoption of laws or regulations applicable to Ubarter.com's
business could hinder the growth of the barter industry or the Internet. As a
result, these regulations could cause a decrease in the demand for Ubarter.com's
services and an increase in Ubarter.com's cost of doing business or otherwise
have a material adverse effect on Ubarter.com's business, prospects, financial
condition and results of operations. Furthermore, the applicability to the
Internet of existing laws in various jurisdictions governing issues such as
property ownership, sales and other taxes, libel and personal privacy is
uncertain and may take years to resolve.
UBARTER.COM'S SYSTEMS MAY BE SUBJECT TO YEAR 2000 PROBLEMS.
Prior to January 1, 2000, Ubarter.com devoted resources in an effort to ensure
that its proprietary software, the third-party software on which Ubarter.com
relies, and the underlying systems and protocols did not contain errors
associated with Year 2000 date functions. Since January 1, 2000, Ubarter.com has
not experienced any disruption as a result of any Year 2000 problems or
otherwise.
UBARTER.COM'S QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND
SEASONALITY.
Ubarter.com's revenue and operating results may vary significantly from quarter
to quarter as a result of a number of factors, some of which are outside of its
control. These factors include:
- the commitment of members to the general concept of bartering and to the
concept of bartering online through its web site;
- the budget cycles of its members;
- the attractiveness to members of its bartering services;
- changes in costs that Ubarter.com incurs to attract and retain members;
- changes in its fees or the fees of its competitors for bartering services;
- the introduction of new services by Ubarter.com or by its competitors;
- unexpected costs and delays relating to the expansion of its operations;
- the occurrence of technical difficulties and system downtime; and
- general economic and market conditions.
Ubarter.com does not believe its revenue will be subject to seasonal
fluctuations as a result of general patterns of retail advertising and direct
marketing, which are typically higher during the fourth calendar quarter.
Expenditures by Ubarter.com's members, though, may tend to be cyclical,
reflecting overall economic conditions, member buying patterns and changing
marketing strategies.
As a result of the above factors, revenues and operating results are difficult
to forecast, and you should not rely on period-to-period comparisons of results
of operations as an indication of Ubarter.com's future performance.
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COMPARATIVE STOCK PRICE AND DIVIDEND INFORMATION
Ubarter.com common stock has been traded on the Over-the-Counter Bulletin Board
under the symbol UBTR since February 12, 1998. ShopNow.com common stock has been
traded on the Nasdaq National Market under the symbol SPNW since September 28,
1999, the date of ShopNow.com's initial public offering.
The following table lists, for the calendar quarters indicated, the high and low
sales prices per share of Ubarter.com common stock as published by the
Over-the-Counter Bulletin Board and ShopNow.com common stock as reported on the
Nasdaq National Market. The Over-the-Counter Bulletin Board quotations merely
reflect the prices at which transactions were proposed, and do not necessarily
represent actual transactions. The Over-the-Counter Bulletin Board constitutes a
limited and sporadic trading market and does not constitute an "established
trading market." Prices do not include retail markup, markdown or commissions
and may not represent actual transactions. The trading prices have been adjusted
to give effect to the 2-for-1 stock split of Ubarter.com shares effective
July 24, 1998.
<TABLE>
<CAPTION>
-----------------------------------------
SHOPNOW.COM UBARTER.COM
COMMON STOCK COMMON STOCK
------------------- -------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Calendar year ended December 31, 1998:
First quarter............................................. -- -- $0.94 $0.50
Second quarter............................................ -- -- 3.31 0.69
Third quarter............................................. -- -- 6.50 0.94
Fourth quarter............................................ -- -- 2.50 0.90
Calendar year ended December 31, 1999:
First quarter............................................. -- -- 3.25 1.75
Second quarter............................................ -- -- 5.56 2.25
Third quarter............................................. -- -- 4.38 2.69
Fourth quarter............................................ $25.13 $10.94 5.00 3.78
Calendar year ending December 31, 2000:
First quarter (through , 2000).......................
</TABLE>
The following table lists the closing prices per share of ShopNow.com common
stock and Ubarter.com common stock as reported on the Nasdaq National Market and
the Over-the-Counter Bulletin Board on (a) December 20, 2000, the last full
trading day preceding the public announcement of the proposed merger, and
(b) , 2000, the last full trading day for which closing prices were
available at the time of the printing of this proxy statement/ prospectus. The
table also lists the equivalent per share price of Ubarter.com common stock on
those dates. The equivalent per share price is equal to the closing price of a
share of ShopNow.com common stock on that date multiplied by the exchange ratio.
The table below assumes an exchange ratio of 0. , which will be the case if
ShopNow.com issues shares of ShopNow.com common stock in the merger and
there are shares of Ubarter.com common stock outstanding immediately prior
to the completion of the merger. The actual exchange ratio could vary
significantly from this number. See the section entitled "The Merger -- Merger
consideration; conversion of Ubarter.com common stock" on page .
<TABLE>
<CAPTION>
---------------------------------------------
EQUIVALENT
SHOPNOW.COM UBARTER.COM PER
COMMON STOCK COMMON STOCK SHARE PRICE
------------ ------------ -----------
<S> <C> <C> <C>
December 20, 1999........................................... $18.75 $3.44
, 2000.................................................
</TABLE>
We advise you to obtain current market quotations for ShopNow.com common stock
and Ubarter.com common stock. The market prices of ShopNow.com common stock and
Ubarter.com common stock at any time before the merger,
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and the market price of ShopNow.com common stock at any time after the merger,
may fluctuate. The exchange ratio will not be adjusted for any increases or
decreases in the market price of ShopNow.com common stock that occur before the
merger becomes effective. If the market price of ShopNow.com common stock
decreases or increases before the merger, the value of the ShopNow.com common
stock to be received in the merger in exchange for Ubarter.com common stock will
correspondingly decrease or increase.
Neither Ubarter.com nor ShopNow.com has ever paid cash dividends on its shares
of common stock. Ubarter.com has agreed not to pay cash dividends before the
merger without ShopNow.com's written consent. If the merger is not completed,
Ubarter.com presently intends that it would continue to retain all earnings to
finance the expansion of its business. Similarly, ShopNow.com has no present
intention to pay cash dividends on its common stock before or after the merger.
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THE UBARTER.COM SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE OF UBARTER.COM'S SPECIAL MEETING
The special meeting of Ubarter.com's stockholders will be held at 10:00 a.m.
local time on , 2000, at Ubarter.com's headquarters, located at 2815
2nd Avenue, Suite 500, Seattle, Washington. At the meeting, Ubarter.com's
stockholders as of the record date will be asked to approve the merger agreement
with ShopNow.com.
RECORD DATE; OUTSTANDING SHARES; SHARES ENTITLED TO VOTE
Only holders of record of Ubarter.com common stock at the close of business on
the record date, March 31, 2000, are entitled to notice of and to vote at the
special meeting. As of the record date, there were shares of
Ubarter.com common stock outstanding, held of record by approximately
stockholders. Each holder of Ubarter.com common stock is entitled to
one vote for each share of Ubarter.com common stock he or she owned as of the
record date. If you do not vote, either in person or by proxy, it will have the
same effect as voting against the merger agreement.
QUORUM; VOTE REQUIRED
The required quorum for the transaction of business at the special meeting is a
majority of the shares of Ubarter.com common stock outstanding on the record
date, represented in person or by proxy. For this purpose, abstentions and
broker nonvotes will count toward establishment of a quorum.
The affirmative vote of the holders of at least a majority of the outstanding
shares of Ubarter.com common stock is required to approve the merger agreement.
VOTING OF PROXIES
The Ubarter.com board of directors requests that you return the proxy card
accompanying this proxy statement/ prospectus for use at the meeting. Please
complete, date and sign the proxy card and promptly return it to Ubarter.com in
the enclosed envelope. All properly signed proxies received by Ubarter.com and
not revoked before the vote at the meeting will be voted at the meeting
according to the instructions indicated on the proxies or, if no instructions
are given, to approve the merger agreement.
We do not expect that any matter other than approval of the merger agreement
will be brought before the special meeting. If other matters are properly
presented and are within the purpose of the special meeting, however, the
persons named as proxies will vote in accordance with their judgment with
respect to those matters.
If you have questions or need assistance in completing or submitting your proxy
card, please contact Robert Benson at:
Ubarter.com Inc.
2815 2nd Avenue, Suite 500
Seattle, Washington 98121
Attention: Robert Benson
(206) 239-2728
RECOMMENDATION OF UBARTER.COM'S BOARD OF DIRECTORS
UBARTER.COM'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT.
SHARE OWNERSHIP OF MANAGEMENT, NEW HORIZONS, L.P. AND VOTING AGREEMENTS
As of the record date for the special meeting, Steven White, chief executive
officer of Ubarter.com, and New Horizons, L.P. owned an aggregate of
approximately 34% of the outstanding shares of Ubarter.com common stock entitled
to
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vote at the meeting. Steven White and New Horizons have each entered into a
voting agreement with ShopNow.com dated January 20, 2000. They have agreed in
the voting agreements to vote all shares of Ubarter.com common stock owned by
them as of the record date in favor of the proposal to approve the merger
agreement. They also granted ShopNow.com irrevocable proxies to vote their
shares of Ubarter.com common stock in favor of the proposal to approve the
merger agreement. Other than Mr. White, Ubarter.com's executive officers and
directors owned less than 1% of the outstanding shares of Ubarter.com common
stock as of the record date. Those officers and directors have indicated their
intention to vote their shares in favor of the proposal to approve the merger
agreement.
HOW TO REVOKE YOUR PROXY
You may revoke your proxy at any time by taking any of the following actions
before your proxy is voted at the meeting:
- delivering to Ubarter.com a written notice bearing a date later than the
date of the proxy card, stating that you revoke the proxy;
- signing and delivering to Ubarter.com a proxy card relating to the same
shares and bearing a later date; or
- attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy.
Please note, however, that if your shares are held of record by a broker, bank
or other nominee and you wish to vote at the meeting, you must bring to the
meeting a letter from the broker, bank or other nominee confirming your
beneficial ownership of the shares.
EXPENSES OF PROXY SOLICITATION
The enclosed proxy is solicited by and on behalf of Ubarter.com's board of
directors. Ubarter.com will pay the expenses of soliciting proxies to be voted
at the meeting. Following the original mailing of the proxies and other
soliciting materials, Ubarter.com and its agents also may solicit proxies by
mail, telephone, facsimile or in person. Ubarter.com intends to reimburse
persons who hold Ubarter.com stock of record but not beneficially, such as
brokers, custodians, nominees and fiduciaries, for their reasonable expenses in
forwarding copies of proxies and other soliciting materials to, and requesting
authority for the exercise of proxies from, the persons for whom they hold the
shares.
DISSENTERS' RIGHTS
Under the Nevada Revised Statutes, dissenting Ubarter.com stockholders are
entitled to certain dissenters' rights with respect to the merger. In order for
any Ubarter.com shareholder to exercise dissenters' rights, a notice must be
sent by such stockholders and received by Ubarter.com on or before the date of
the Special Meeting, and any such shareholder must vote against the approval of
the merger. Failure to send such notice and vote against the merger will result
in a waiver of such shareholder's dissenters' rights. See "Rights of dissenting
Ubarter.com stockholders," on page .
ACCOUNTANTS
Representatives of Moss Adams, LLP, Ubarter.com's accountants, are expected to
be present at the special meeting. Moss Adams, LLP will have the opportunity to
make a statement and will be available to respond to appropriate questions.
YOU SHOULD NOT SEND IN ANY CERTIFICATES REPRESENTING UBARTER.COM COMMON STOCK.
FOLLOWING THE EFFECTIVE TIME OF THE MERGER, YOU WILL RECEIVE INSTRUCTIONS FOR
THE SURRENDER AND EXCHANGE OF YOUR UBARTER.COM STOCK CERTIFICATES.
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THE MERGER
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS DESCRIBES THE PROPOSED MERGER.
WHILE WE BELIEVE THAT THIS DESCRIPTION COVERS THE MATERIAL TERMS OF THE MERGER,
THIS SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. YOU
SHOULD CAREFULLY READ THIS ENTIRE PROXY STATEMENT/PROSPECTUS AND THE OTHER
DOCUMENTS TO WHICH WE REFER FOR A MORE COMPLETE UNDERSTANDING OF THE MERGER.
BACKGROUND OF THE MERGER
The terms and conditions of the merger agreement and the merger are the result
of arm's length negotiations between representatives of ShopNow.com and
Ubarter.com. Set forth below is a summary of the background of these
negotiations.
On December 6, 1999, at the initiation of Dain Rauscher Wessels, a financial
advisor to ShopNow.com, Steven White, Ubarter.com's Chief Executive Officer, and
Liad Meidar, who serves as Ubarter.com's Vice President of Strategic
Development, met with representatives of Dain Raucher Wessels. At the meeting,
Ubarter.com provided a standard presentation of the Ubarter.com business model.
The parties discussed possible strategic relationships between Ubarter.com and
ShopNow.com.
On December 10, 1999, Mr. White received a voicemail from Dain Rauscher Wessels
requesting that Mr. White meet with Dwayne Walker, Chief Executive Officer of
ShopNow.com, to discuss business development opportunities for the two
companies.
On December 17, 1999, Mr. White and Mr. Meidar met with Mr. Walker and Alan
Koslow, Chief Financial Officer and general counsel of ShopNow.com, and
representatives of Dain Rauscher Wessels. The parties discussed their respective
business models and possible synergies between the companies, and strategic
alliances between the two companies other than an acquisition. During the
December 17, 1999 meeting, Mr. White and Mr. Meidar toured the ShopNow.com
facilities and met several of the senior staff members and employees of
ShopNow.com. These discussions led to consideration of the possibility of
ShopNow.com acquiring Ubarter.com.
During the December 17, 1999 meeting, Mr. Walker proposed to Mr. White and
Mr. Meidar that ShopNow.com acquire Ubarter.com for approximately $35 million in
ShopNow.com common stock and provide Ubarter.com with a $2 million bridge loan.
Mr. White and Mr. Meidar contacted Ubarter.com's legal counsel, Dorsey & Whitney
LLP, to discuss Mr. Walker's offer. Mr. White telephoned Eric Best and John
Wade, Ubarter.com's other directors, to report on the discussions with
ShopNow.com.
Later in the day on December 17, 1999, the parties further discussed and
negotiated the terms of the purchase price, the bridge financing to be provided
by ShopNow.com and the number of options to purchase ShopNow.com common stock
that would be granted to Ubarter.com management and employees that were retained
by ShopNow.com.
On December 18, 1999, Mr. White telephoned Joseph MacDonald of New Horizons,
L.P. to discuss the proposal from ShopNow.com and to inquire whether New
Horizons would be willing to enter a voting agreement with ShopNow.com and to
agree to a restriction on the transfer of ShopNow.com's shares it might receive
in the Merger. Later in the day on December 18, 1999, Mr. White and Mr. Meidar
met with Ubarter.com's counsel, Dorsey & Whitney LLP, to discuss the proposal
from ShopNow.com. Mr. White, Mr. Meidar, and Dorsey & Whitney LLP participated
in several conference calls with Mr. Koslow and Bill Bromfield, associate
general counsel of ShopNow.com, to negotiate the terms of the lock-up agreements
and other terms to the merger.
On December 19, 1999, Mr. White, Mr. Meidar and Ubarter.com's counsel, Dorsey &
Whitney LLP, participated in a conference call with Mr. Koslow and
Mr. Bromfield to discuss and negotiate the terms of a letter of intent.
Later in the day on December 19, 1999, a telephonic meeting of the board of
directors of Ubarter.com was convened to discuss the form of letter of intent
which had been circulated to all the directors. After considerable discussion of
the terms of the proposed transaction, the board of directors unanimously agreed
to authorize Mr. White to execute and deliver the letter of intent on behalf of
Ubarter.com.
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On December 20, 1999, the letter of intent was executed by ShopNow.com and
Ubarter.com.
On December 21, 1999, ShopNow.com issued a press release announcing the
execution of the letter of intent with Ubarter.com.
On December 22, 1999, ShopNow.com provided a $2 million bridge loan to
Ubarter.com.
During the period from December 23, 1999 to January 20, 2000, the date the
merger agreement was signed, ShopNow.com, Ubarter.com and their respective
counsels had negotiations and discussions regarding the terms of the merger
agreement.
On January 20, 2000, Ubarter.com's board of directors held a meeting to consider
and approve the merger and the merger agreement. Mr. White provided an overview
of the transaction documents and the negotiations relating to the merger
agreement. The board of directors unanimously determined that the transactions
contemplated by the merger agreement are fair from a financial point of view to
and in the best interests of the stockholders of Ubarter.com and authrozied the
execution of the merger agreement.
On January 20, 2000, the two companies executed and delivered the merger
agreement and related agreements.
UBARTER.COM'S REASONS FOR THE MERGER
Ubarter.com's board of directors has determined that the merger is in the best
interests of Ubarter.com and its stockholders. In reaching its determination,
Ubarter.com's board of directors considered the following factors:
- information with regard to Ubarter.com's financial condition, results of
operation, liquidity, business and prospects, as well as the risks
involved in achieving those prospects;
- information with regard to the ability of Ubarter.com to secure adequate
financing to repay outstanding indebtedness and to finance its growth
strategy;
- the merger will represent a significant step forward in Ubarter.com's
strategy of becoming the leading online barter company;
- the historical market prices of and recent trading activity in
Ubarter.com's common stock, particularly the fact that the merger will
enable stockholders of Ubarter.com to realize a premium over the prices at
which Ubarter.com's common stock traded prior to the public announcement
of the proposed merger;
- Ubarter.com's ability and prospects to compete effectively in a rapidly
changing industry and the potential to increase Ubarter.com's ability to
compete;
- the increased trading liquidity for Ubarter.com's stockholders by
receiving ShopNow.com's common stock;
- Ubarter.com's ability and prospects to significantly increase members and
products and services and the greater opportunity to access ShopNow.com's
marketplace to significantly add to the members and products and services
of Ubarter.com; and
- the depth of ShopNow.com's technology and marketing departments which
could be leveraged by Ubarter.com following the merger.
RECOMMENDATION OF UBARTER.COM'S BOARD OF DIRECTORS
After carefully evaluating these factors, both positive and negative,
Ubarter.com's board of directors has determined that the merger is fair to, and
in the best interests of, Ubarter.com and its stockholders. Ubarter.com's board
of directors unanimously recommends that you vote "FOR" approval of the merger
agreement.
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SHOPNOW.COM'S REASONS FOR THE MERGER
ShopNow.com's board of directors has determined that the merger is in the best
interests of ShopNow.com and its shareholders. ShopNow.com's board of directors
has approved the merger and the issuance of shares of ShopNow.com common stock
in the merger.
In reaching its determination, ShopNow.com's board of directors identified the
following reasons, among others, for entering into the merger agreement:
- Ubarter.com has built a strong business and has developed a transaction
process for businesses, merchants, and media companies that achieves
efficiency through business-to-business online bartering and ShopNow.com
does not have a similar product offering;
- the nature of Ubarter.com's business-to-business online bartering and its
customers creates a natural complement to ShopNow.com's
business-to-business e-commerce services, in particular, b2bNow.com; and
- in ShopNow.com's opinion, the merger will allow it to grow its
business-to-business revenues by including Ubarter.com's online exchange
service, which will enable businesses on the ShopNow Network to exchange
goods and services on a global scale.
STRUCTURE OF THE MERGER; COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger agreement provides for the merger of Ubarter.com with and into Shamu
Acquisition, Inc., a wholly owned subsidiary of ShopNow.com. Before the
effective time of the merger, ShopNow.com, Shamu Acquisition, Inc. and
Ubarter.com will be separate entities.
The merger will be completed when all of the conditions to completion of the
merger are satisfied or waived, including approval of the merger agreement by
Ubarter.com's stockholders.
At the effective time of the merger, which occurs the day that articles of
merger and an agreement and plan of merger are filed with the Secretary of State
of the State of Washington and the Secretary of State of the State of Nevada,
Shamu Acquisition, Inc. and Ubarter.com will merge. Shamu Acquisition, Inc. will
survive the merger as a wholly owned subsidiary of ShopNow.com and will change
its name to Ubarter.com.
MERGER CONSIDERATION; CONVERSION OF UBARTER.COM COMMON STOCK
In the merger, your shares of Ubarter.com common stock will convert into a right
to receive ShopNow.com common stock. The number of shares of ShopNow.com common
stock you will have the right to receive will be equal to the product of the
number of shares of Ubarter.com common stock you own multiplied by the quotient
of (a) the number of shares ShopNow.com will issue in the merger divided by
(b) the number of shares of Ubarter.com common stock outstanding immediately
prior to the completion of the merger on a fully diluted basis.
The merger agreement provides that ShopNow.com will issue 2,593,876 shares in
the merger. However, this number will be reduced by an amount equal to the
aggregate dollar amount of liabilities, debts or obligations of Ubarter.com
existing as of the date the merger takes place (other than up to $225,000 in
liabilities, debts or obligations incurred in the ordinary course of business)
divided by $17.31. The liabilities that will reduce the purchase price include
all outstanding liability to:
- Astra Ventures LLC (approximately $1,350,000),
- employees of Ubarter.com based on change of control provisions in such
employees' employment agreements (approximately $798,000),
- Alpine Capital LLC (approximately $ as of March , 2000),
- earn-out payments made to Ubarter.com's former Chief Operating Officer
($236,570),
- Momentous Inc. Pension and Trust (approximately $100,000),
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- various lessors, lenders and vendors created in connection with the
execution of leases and other agreements (approximately $ as of
March , 2000), and
- $220,000, representing an adjustment agreed to by the parties following
the completion of ShopNow.com's financial and tax due diligence of
Ubarter.com.
The following liabilities will not reduce the purchase price:
- any outstanding indebtedness and accrued interest payable to ShopNow.com
pursuant to the convertible promissory notes dated December 22, 1999 and
February 28, 2000,
- any payables or accrued expenses incurred in the ordinary course of
business (provided such payables and accrued expenses do not exceed in the
aggregate $225,000), and
- any noncash or barter trade dollar liabilities.
In addition, the total dollar amount of such debts, liabilities and obligations
will be reduced by any amounts received by Ubarter.com from option holders and
warrant holders as a result of the cash exercise of options and warrants. As of
March , 2000, the amount of such debts, liabilities and obligations, less cash
that would have been received by Ubarter.com if all options and warrants
outstanding on March , 2000 were exercised on that date on a cash basis, was
approximately $ . However, the actual number of such liabilities, debts or
obligations as of the date of the merger could vary significantly from this
amount.
The number of shares of Ubarter.com common stock outstanding will vary depending
on whether holders of options and warrants to purchase Ubarter.com common stock
choose to exercise their options and warrants on a cash or cashless basis prior
to the completion of the merger. Assuming all options and warrants are exercised
on a cash basis prior to the completion of the merger and Ubarter.com issues no
additional stock, the number of shares of Ubarter.com common stock outstanding
immediately prior to the merger will be shares.
ShopNow.com will not issue fractional shares of its common stock. Instead of any
fractional share, the number of shares of ShopNow.com common stock you are
entitled to receive will be rounded to the nearest whole number, with .5 being
rounded up. The exchange ratio was determined through arm's-length negotiations
between ShopNow.com and Ubarter.com.
The conversion of Ubarter.com common stock into the right to receive ShopNow.com
common stock will occur automatically at the effective time of the merger. At
that time, all shares of Ubarter.com common stock will no longer be outstanding,
will automatically be canceled and will cease to exist. Subject to the
dissenters' rights described elsewhere in this proxy statement/prospectus, each
holder of a certificate representing shares of Ubarter.com common stock will
cease to have any rights as a shareholder except the right to receive the
ShopNow.com common stock into which those shares were converted in the merger.
TREATMENT OF OPTIONS AND WARRANTS
None of Ubarter.com's options will be assumed by ShopNow.com. Ubarter.com will
accelerate the vesting of all outstanding options prior to the effective time of
the merger. Unless otherwise exercised by the option holders, the options will,
without further action on the part of the option holders, be converted into
shares of Ubarter.com common stock immediately prior to the effective time of
the merger. Shares of Ubarter.com common stock issuable upon the exercise or
conversion of outstanding options will be converted into a right to receive
ShopNow.com common stock on the same basis described above under "Merger
Consideration."
Shares of ShopNow.com common stock are expected to be issued to the holders of
outstanding warrants to purchase Ubarter.com common stock assuming the exercise
of all outstanding warrants prior to the effective time of the merger on a
cashless basis or, if holders of the warrants elect to exercise such warrants
for shares of Ubarter.com common stock, warrantholders will receive shares of
ShopNow.com common stock at the effective time of the merger on the same basis
as described above under "Merger Consideration."
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INTERESTS OF UBARTER.COM'S DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
In considering the recommendation of the Ubarter.com board of directors, you
should be aware of the interests that Ubarter.com executive officers and
directors have in the merger. These include the following:
- as of February 15, 2000, the executive officers and directors of
Ubarter.com held stock or options to purchase an aggregate of 485,000
shares of Ubarter.com common stock, of which 286,250 are unvested. If the
merger is completed, all of the unvested options will accelerate and
become immediately exercisable;
- officers of Ubarter.com are entitled to certain benefits, including
substantial severance packages under their employment agreements with
Ubarter.com upon termination of such agreements as a result of
Ubarter.com's change of control, such as in the merger;
- upon completion of the merger, ShopNow.com will enter into an employment
agreement with Liad Meidar, who now serves as Ubarter.com's Vice President
of Strategic Development and Mr. Meidar will be granted options to
purchase 250,000 shares of ShopNow.com common stock--See the section
entitled "Related Agreements--Employment and consulting agreements" on
page ;
- Astra Ventures, a consulting firm owned by Mr. Meidar, will enter into an
agreement with ShopNow.com effective as of the effective time of the
merger which will provide that in exchange for the termination of all
obligations to or agreements with Astra Ventures, ShopNow.com will pay
Astra Ventures $675,000 in cash and 38,995 shares of ShopNow.com common
stock--See the section entitled "Related Agreements--Agreements with Astra
Ventures and Momentous" on page ;
- Momentous Inc. Pension and Trust, which is owned by Mr. Meidar's father,
will receive a warrant to purchase 20,000 shares of ShopNow.com common
stock in exchange for the cancellation of the financing Momentous provided
to Ubarter.com in December 1999--See the section entitled "Related
Agreements--Agreements with Astra Ventures and Momentous" on page ;
- Steven White, Chief Executive Officer of Ubarter.com, has agreed with
ShopNow to vote his shares, which represent approximately 22% of the
shares entitled to vote at the special meeting, in favor of the merger--
See the section entitled "Related Agreements--Employment and consulting
agreements" on page ;
- upon the completion of the merger, Mr. White will enter into a consulting
agreement with ShopNow.com--See the section entitled "Related
Agreements--Agreements with Astra Ventures and Momentous" on page and
- the merger agreement requires ShopNow.com to issue options to acquire an
aggregate of 600,000 shares of ShopNow.com common stock to Ubarter.com
executive officers and employees who have been offered and accepted
employment with ShopNow.com and commence employment after the completion
of the merger. The options will have an exercise price of $15.58 per
share. The options will be allocated among the retained executive officers
and employees in a manner that is mutually acceptable to ShopNow.com, Liad
Meidar and Steven White.
RESTRICTIONS ON SALES BY AFFILIATES OF UBARTER.COM AND SHOPNOW.COM
All shares of ShopNow.com common stock received by you in connection with the
merger will be freely transferable unless you are considered an affiliate of
either Ubarter.com or ShopNow.com under the Securities Act of 1933.
Each Ubarter.com affiliate agreed that he or she will sell, offer to sell or
otherwise dispose of any ShopNow.com common stock issued in connection with the
merger only under an effective registration statement or in compliance with
Rule 145 or other exemption from registration under the Securities Act.
ShopNow.com agreed to use its reasonable efforts to permit affiliate sales under
Rule 145 and Rule 144 and to file all reports required to be filed under the
Securities Exchange Act of 1934.
In addition, Steven White, who held approximately 22% of Ubarter.com's common
stock as of the record date, has agreed not to sell more than 50% of the
ShopNow.com shares he receives in the merger until the one-year anniversary of
the completion of the merger and will not sell any of his ShopNow.com shares
until the six-month
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anniversary of the completion of the merger. New Horizons, L.P., which held
approximately 12% of Ubarter.com's outstanding common stock as of the record
date, has agreed not to sell more than 10% of the ShopNow.com shares it receives
in the merger for the first 180 days following the completion of the merger.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material United States federal income
tax consequences to Ubarter.com and Ubarter.com's stockholders in connection
with the merger. This summary does not purport to be a complete analysis or
listing of all of the potential tax effects of the merger. It does not deal with
all federal income tax considerations that may be relevant to some Ubarter.com
stockholders in light of their particular circumstances, such as dealers in
securities, banks, insurance companies, stockholders who do not hold their
Ubarter.com common stock as capital assets, foreign persons, tax-exempt
entities, persons who hold their shares as part of hedging, straddle conversion
or other risk reduction transactions or persons who are subject to the
alternative minimum tax provisions of the Internal Revenue Code. This discussion
does not address the tax consequences under section 1045 and 1202 of the
Internal Revenue Code with respect to shares of "qualified small business stock"
or under section 1244 of the Internal Revenue Code with respect to
"section 1244 stock." Furthermore, it does not address the tax consequences
particular to Ubarter.com stockholders who acquired their shares in connection
with stock options or stock purchase plans or in other compensatory
transactions, and does not address the effects of the merger on holders of
Ubarter.com stock options. In addition, this summary does not address the tax
consequences of the merger to any holders of any debt instruments of
Ubarter.com. Moreover, it does not address the tax consequences of the merger
under foreign, state or local tax laws.
It is a condition to the completion of the merger that Ubarter.com receive an
opinion from Dorsey & Whitney LLP that the merger will constitute a
reorganization under section 368 of the Internal Revenue Code. ShopNow.com will
receive a similar opinion from its counsel. The tax opinions will be based on
and subject to certain assumptions and limitations as well as truth and accuracy
of factual representations received from Ubarter.com and ShopNow.com, as of the
effective time of the merger (or afterward, if relevant) as discussed below. An
opinion of counsel represents only counsel's best legal judgment and has no
binding effect or official status of any kind, and contrary positions may be
taken by the Internal Revenue Service or a court considering the issues. Neither
Ubarter.com nor ShopNow.com has requested or will request a ruling from the IRS
with regard to any of the United States federal income tax consequences of the
merger. The tax opinion and this discussion are based on currently existing
provisions of the Internal Revenue Code, existing and proposed Treasury
regulations and current administrative rulings and court decisions. Future
legislative, judicial or administrative changes or interpretations may adversely
affect the accuracy of the tax opinion or of the statements and conclusions in
this discussion. Any such changes or interpretations could be applied
retroactively and could affect the tax consequences of the merger.
Assuming the merger qualifies as a reorganization for purposes of the Internal
Revenue Code, then the merger will result in the following federal income tax
consequences:
- NATURE OF THE MERGER. Ubarter.com, ShopNow.com and Shamu Acquisition will
each be "a party to a reorganization" within the meaning of
section 368(b) of the Internal Revenue Code if the merger is carried out
in the manner provided in the merger agreement.
- CONSEQUENCES TO UBARTER.COM'S STOCKHOLDERS. No gain or loss will be
recognized by Ubarter.com's stockholders upon their receipt in the merger
of ShopNow.com common stock in exchange for their Ubarter.com common
stock.
The aggregate tax basis of ShopNow.com common stock you receive in the merger
will be the same as the aggregate tax basis of the Ubarter.com common stock you
surrendered in exchange for the ShopNow.com common stock. The holding period of
each share of ShopNow.com common stock you receive in the merger will include
the period during which you held your Ubarter.com common stock. Ubarter.com
stockholders will be required to file certain information with their federal
income tax returns and to retain certain records with regard to the merger.
If you receive solely cash for your Ubarter.com common stock by exercising
dissenters' rights, you will be obligated to report either (a) capital gain or
loss equal to the difference between the cash you received and your basis in
your
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Ubarter.com common stock or (b) ordinary dividend income, depending on whether
the deemed redemption resulting from the exercise of dissenters' rights
qualifies for sale or exchange treatment under the tests set forth in
section 302(b) of the Internal Revenue Code. Under those tests, most Ubarter.com
stockholders who exercise their dissenters' rights should receive capital gain
or loss treatment, rather than dividend treatment, if the deemed redemption of
their Ubarter.com common stock constitutes a "complete redemption" of their
interests in Ubarter.com (and ShopNow.com, after the merger). To the extent that
persons related to any such shareholder continue to hold stock in ShopNow.com
after the merger, the rules of section 318 of the Internal Revenue Code may
require dividend treatment unless section 302 of the Internal Revenue Code
permits those rules to be waived in a particular instance. Amounts received as
interest pursuant to the exercise of dissenters' rights with respect to a share
of Ubarter.com common stock will be treated as ordinary income. Shareholders who
exercise dissenters' rights in the merger are urged to consult their own tax
advisors in regard to the consequences of such dissent from the merger,
including, but not limited to, the potential application of section 302 of the
Internal Revenue Code.
INFORMATION REPORTING AND BACKUP WITHHOLDING. Payments related to Ubarter.com
common stock may be subject to information reporting to the IRS and to a 31%
backup withholding tax. Backup withholding will not apply, however, to a payment
to you, or another payee, if you or the payee completes and signs the substitute
Form W-9, Request for Taxpayer Identification Number and Certification, that we
will include as part of the transmittal letter, or otherwise proves to
ShopNow.com and the exchange agent that you or the payee is exempt from backup
withholding.
LIMITATIONS ON OPINION AND DISCUSSION. A successful challenge by the IRS to the
tax-free reorganization status of the merger would result in Ubarter.com's
stockholders recognizing a taxable gain or loss for each share of Ubarter.com
common stock surrendered, equal to the difference between the shareholder's
basis in that share and the fair market value, as of the effective date of the
merger, of the ShopNow.com common stock received in exchange for the Ubarter.com
share, plus any cash received. This gain or loss would be treated as capital
gain or loss for each shareholder. In that event, a shareholder's aggregate
basis in ShopNow.com common stock received would equal its fair market value at
the effective date of the merger and the holding period for the stock would
begin on the day after the effective date of the merger.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. THUS,
UBARTER.COM STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING
REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER
APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE LAW.
ACCOUNTING TREATMENT OF THE MERGER
ShopNow.com and Ubarter.com intend to account for the merger under the purchase
method of accounting in accordance with U.S. generally accepted accounting
principles. After the merger, the results of operations of Ubarter.com will be
included in the consolidated financial statements of ShopNow.com. ShopNow.com
intends to allocate a portion of the purchase price to the market value of the
assets acquired and the liabilities assumed as of the closing date. The excess
of the purchase price over the fair market value of the acquired assets and
assumed liabilities of Ubarter.com has been preliminarily allocated to acquired
customer lists, assembled workforce, technology and goodwill and other
intangible assets. These intangible assets will be amortized over a period of 3
years, the estimated expected period of the benefit. This allocation is
preliminary and may be subject to change upon the evaluation of the fair value
of the acquired assets and liabilities of Ubarter.com at the date of
acquisition, final outcome of valuations and appraisals as well as the potential
identification of certain intangible assets.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
Under the Hart-Scott-Rodino Antitrust Improvements Act certain transactions may
not be completed until required information and materials are filed with the
Premerger Notification Office of the Federal Trade Commission and the Antitrust
Division of the Department of Justice and the waiting period under the
Hart-Scott-Rodino Act expires or is terminated. In the event that Steven White
or New Horizons, L.P. receive shares of ShopNow.com common stock in
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the merger that are valued at more than $15 million, then notification and
report forms will need to be filed under the Hart-Scott-Rodino Act, which could
result in a significant delay to the completion of the merger. Based on the
estimated maximum number of shares Steven White and New Horizons, L.P. will
receive in the merger, the date by which the merger is expected to be completed
and the value of those shares as calculated under the rules promulgated under
Hart-Scott-Rodino Act, neither ShopNow.com nor Ubarter.com believe that such a
filing will be required. However, should these estimates and expectations prove
incorrect, a filing may be required.
EXCHANGE OF UBARTER.COM STOCK CERTIFICATES FOR SHOPNOW.COM STOCK CERTIFICATES
After the closing of the merger, ShopNow.com will send a letter of transmittal
to all former Ubarter.com stockholders. In order to exchange Ubarter.com common
stock for ShopNow.com common stock, you must deliver the letter of transmittal
to the exchange agent, Continental Stock Transfer & Trust. To be effective, the
letter of transmittal must be properly completed, signed and submitted to the
exchange agent in the return envelope mailed with the letter of transmittal and
accompanied by (a) the certificates as to which the exchange is proposed to be
made or (b) an appropriate guarantee of delivery of the certificates from a firm
that is a member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., or a commercial bank or trust company
having an office or correspondent in the United States, provided that you do in
fact deliver the certificates to the exchange agent within three Nasdaq trading
days after the date you executed the guarantee of delivery.
ShopNow.com has the reasonable discretion, which it may delegate in whole or in
part to the exchange agent, to determine whether any letter of transmittal has
been properly completed, signed and submitted or revoked and to disregard
immaterial defects in the form of election or letter of transmittal. The
exchange agent will make all computations contemplated by the merger agreement,
and, in the absence of manifest error, all such computations will be conclusive
and binding on the holders of Ubarter.com common stock.
As soon as practicable after receipt of your properly completed letter of
transmittal, the exchange agent will deliver to you a certificate representing
the appropriate number of shares of ShopNow.com common stock.
LISTING OF SHOPNOW.COM COMMON STOCK; DEREGISTRATION OF UBARTER.COM COMMON STOCK
If the merger is completed, ShopNow.com is obligated to cause the shares of
ShopNow.com common stock that will be issued in connection with the merger to be
quoted on the Nasdaq National Market. Ubarter.com common stock will be
deregistered under the Securities Exchange Act of 1934.
OPERATIONS AFTER THE MERGER
After the merger, Ubarter.com will operate as a wholly owned subsidiary of
ShopNow.com.
Steven White, Ubarter.com's president and chief executive officer, will provide
consulting services to ShopNow.com as needed pursuant to a consulting agreement.
Liad Meidar, who now serves as Ubarter.com's Senior Vice President of Strategic
Development, will become a vice president of ShopNow.com, reporting to an
Executive Vice President of ShopNow.com. Mr. Meidar will oversee the integration
and implementation of Ubarter.com's online exchange service, which will be
offered to businesses on the ShopNow Network.
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THE MERGER AGREEMENT
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS DESCRIBES THE MERGER AGREEMENT.
WHILE WE BELIEVE THAT THE DESCRIPTION COVERS THE MATERIAL TERMS OF THE MERGER
AGREEMENT, THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT
TO YOU. WE URGE YOU TO CAREFULLY READ THE MERGER AGREEMENT, WHICH IS ATTACHED TO
THIS PROXY STATEMENT/ PROSPECTUS AS ANNEX A AND INCORPORATED IN THIS PROXY
STATEMENT/PROSPECTUS BY REFERENCE.
CONDITIONS TO COMPLETION OF THE MERGER
The obligations of each of ShopNow.com and Ubarter.com to effect the merger are
subject to the satisfaction before the closing date of specific conditions, any
or all of which may be waived, including:
- the accuracy of the other party's representations and warranties in the
agreement in all material respects, except for changes contemplated by the
merger agreement, and the receipt by each party of a certificate to that
effect from a designated executive officer of the other party;
- the performance in all material respects by both parties of their
obligations under the merger agreement, and the receipt by each party of a
certificate to that effect from a designated executive officer of the
other party;
- the transferring of all licenses and permits and the obtaining of all
legally required consents and approvals, including, if applicable,
expiration of the applicable waiting period under the Hart-Scott-Rodino
Act, which is necessary for the consummation of the merger;
- the approval by Ubarter.com's stockholders of the merger agreement as
required by Nevada law;
- the effectiveness of the registration statement relating to the
ShopNow.com common stock to be issued in connection with the merger;
- the absence of any rule, regulation, order, decree or injunction from any
court or administrative agency prohibiting the merger and the absence of
litigation, investigation, or administrative proceeding, which is
threatened or pending that would restrain, condition or prevent the
consummation of the merger;
- the absence of any laws and regulations to which each of ShopNow.com and
Ubarter.com and its stockholders are subject that would legally prohibit
the effectiveness of the merger and the performance of the obligations
contemplated by the merger agreement;
- the absence of any material adverse change with respect to Ubarter.com's
business, financial condition, operations, properties of prospects since
September 30, 1999;
- receipt by each of Ubarter.com and ShopNow.com of an opinion from its tax
counsel that the merger will qualify as a reorganization for federal
income tax purposes;
- receipt by each of Ubarter.com and ShopNow.com of a legal opinion from the
other party's legal counsel;
- the termination of any and all rights of refusal, co-sale rights and
registration rights for the benefit of the holders of Ubarter.com common
stock, including the termination of all outstanding share purchase
agreements, notes and warrants between Ubarter.com and third parties,
including various employees of Ubarter.com, and the withdrawal of
Ubarter.com's Registration Statement on Form SB-2, as amended;
- the termination, exercise or conversion of all outstanding rights to
purchase Ubarter.com stock, including options to purchase Ubarter.com
common stock and securities and notes convertible into shares of
Ubarter.com common stock, whether vested or unvested, and regardless of
restrictions on exercise or conversion;
- the termination of all employment agreements with current Ubarter.com
employees;
- the acceleration of vesting under Ubarter.com's option plan, provided that
Ubarter.com makes all tax withholdings for the exercise of options as
required by law, and any amendment to the option plan as reasonably
requested by ShopNow.com; and
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- delivery of notice from not more than 5% of the holders of Ubarter.com
common stock of the holders' intent to demand payment as dissenting
stockholders.
In addition, Ubarter.com shall deliver to ShopNow.com the following documents:
- all consents or waivers required by agreements, leases, notes and other
arrangements between Ubarter.com and various third parties;
- resignations of all officers and directors of Ubarter.com;
- Foreign Investment in Real Property Tax Act Affidavit;
- a certificate from the Secretary of Ubarter.com as to the authenticity and
effectiveness of actions taken by Ubarter.com's board of directors and
stockholders with respect to the merger;
- release of liens with respect to Ubarter.com's assets, except for those
liens incurred in the ordinary course of Ubarter.com's business and not
material;
- tax clearance certificates from all states in which Ubarter.com is engaged
in business;
- letters from all affiliates as defined by Rule 145 of the rules and
regulations promulgated under the Securities Act; and
- evidence that all corporate action reflected in Ubarter.com's minutes and
all stock and option issuances have been duly authorized by Ubarter.com's
board of directors.
The following agreements must be executed:
- Agreement between Astra Ventures and ShopNow.com pursuant to which
Ubarter.com's obligations to Astra Ventures are terminated in exchange for
cash and shares to be paid by ShopNow.com;
- Consulting Agreement between Steven White and ShopNow.com;
- Employment Agreement between Liad Meidar and ShopNow.com; and
- Lock-Up Agreements between ShopNow.com and Steven White, Liad Meidar and
New Horizons, L.P.
If ShopNow.com elects to postpone the closing date once these conditions are
satisfied, the obligations of each party to effect the merger will no longer be
subject to any of the conditions. See the section entitled "Structure of the
merger; completion and effectiveness of the merger" on page .
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties of each
of Ubarter.com and ShopNow.com relating to, among other things:
- organization and related matters;
- capital structure;
- authorization, execution, delivery, performance and enforceability of the
merger agreement related matters;
- an absence of defaults and violations under charter documents, instruments
and laws;
- documents filed by the parties with the SEC and the accuracy of the
information contained in those documents and compliance of accompanying
financial statements with applicable accounting requirements;
- the accuracy of information supplied by the parties for inclusion in
filings and other documents contemplated by the merger agreement; and
- an absence of undisclosed material facts.
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Ubarter.com has made additional customary representations and warranties
relating to, among other things:
- litigation;
- an absence of questionable payments;
- ownership in subsidiaries and affiliates;
- an absence of defaults under any obligations;
- an absence of undisclosed material adverse changes;
- an absence of violations of any applicable law, rule, regulation,
judgment, decree or order of any governmental entity;
- employee benefit plans;
- major contracts;
- taxes;
- interests of officers, directors and stockholders of Ubarter.com;
- intellectual property;
- the vote required for approval of the merger agreement and the
consummation of the transactions contemplated by the merger agreement;
- leases; and
- environmental matters.
CONDUCT OF BUSINESS BEFORE CLOSING OF THE MERGER
ShopNow.com and Ubarter.com have each agreed that until the earlier of the
termination of the merger agreement or the effective time of the merger, except
as expressly contemplated by the merger agreement or with the prior written
consent of the other party, it will take specified actions and decline to take
specified actions, as described below.
Each of ShopNow.com and Ubarter.com has agreed that it will, among other things:
- not take any action that would breach its respective representations and
warranties under the merger agreement, and promptly notify the other party
of any event or occurrence that is material and adverse to its business
condition;
- use its commercially reasonable efforts to effectuate the transactions
contemplated by the merger agreement and fulfill the conditions to the
closing of the merger, subject to certain exceptions;
- use its commercially reasonable efforts to obtain all consents and
approvals required for the consummation of the transactions contemplated
by the merger agreement;
- not issue any press release or statement to any third party regarding the
merger agreement or the transactions contemplated by the merger agreement,
except as required by law, in which event, the party required to make a
public statement shall provide the other party with advance disclosure;
and
- execute all documents required to be executed by the merger agreement at
or prior to the closing of the merger.
Ubarter.com has agreed that it will carry on its business in the ordinary course
and consistent with past practice, and use all reasonable best efforts
consistent with past practice to preserve intact their business organizations,
keep their present officers, consultants and employees and preserve their
relationships with customers, suppliers and others
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having business with them. Ubarter.com has agreed that, except with
ShopNow.com's prior written consent, it will not:
- amend its corporate charter documents;
- issue or agree to issue any capital stock, options, warrants, calls,
conversion rights or other similar securities, subject to certain
exceptions;
- dispose of any assets, except in the ordinary course of business and
consistent with past practice;
- declare or pay any dividends or make any other distributions with respect
to its capital stock, split or reclassify its capital stock, issue or
authorize the issuance of any other securities in respect of or in
substitution for its capital stock, or acquire any of its capital stock;
- acquire or agree to acquire any corporation, partnership or other business
organization or assets that are material to Ubarter.com's business
condition;
- incur material indebtedness, except in the ordinary course of business and
consistent with past practice;
- authorize any single capital expenditure in excess of $50,000 or capital
expenditures, which are in excess of $200,000 in aggregate;
- enter into or amend any agreement in which Ubarter.com's obligation
exceeds $50,000 or which will not terminate or is not terminable at the
parties' convenience within 30 days;
- enter into or amend any agreement, other than in the ordinary course of
business and consistent with past practice;
- transfer to any person or entity any license or other rights to
Ubarter.com's intellectual property;
- enter into or amend any employment, consulting or agency agreement or
grant any severance pay to any officer, director or employee, except in
the ordinary course of business and consistent with past practice;
- take any action, other than in the ordinary course of business and
consistent with past practice, with respect to accounting methods,
policies or procedures;
- pay, discharge or satisfy any claim, liability or obligation, except in
the ordinary course of business and consistent with past practice,
including making a tax election or settling any tax liability;
- enter into or materially amend employee benefit plans, except in the
ordinary course of business, for the benefit of any director, officer or
employee; or
- take any action that that would or is reasonably likely to result in any
of the representations or warranties in being untrue in any material
respect, or result in the breach of any covenant.
In addition, Ubarter.com has agreed that it will:
- call a special meeting of Ubarter.com stockholders for the consideration
and approval of the merger agreement and the transactions contemplated by
the merger agreement;
- provide ShopNow.com with such information for inclusion in this proxy
statement/prospectus and the related registration statement as ShopNow.com
may reasonably request;
- provide ShopNow.com access at all reasonable times access to Ubarter.com's
officers, employees, properties, books and records, and furnish financial
statements to ShopNow.com as they become available; and
- provide ShopNow.com with an updated capitalization schedule no later than
three days prior to the closing of the merger.
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ShopNow.com has agreed that it will:
- use its commercially reasonable best efforts to cause the shares of
ShopNow.com common stock to be issued in connection with the merger to be
quoted at the effective time on the Nasdaq National Market or listed on
the same national exchange as ShopNow.com common stock is listed and
- pay off all outstanding indebtedness Ubarter.com owes to Alpine Capital.
EXCLUSIVITY
Ubarter.com has agreed that it will not, directly or indirectly, through any of
its officers, directors, agents or otherwise, take or cause to take any of the
following actions with any party other than ShopNow.com:
- solicit, initiate or encourage the submission of any proposal relating to
the acquisition of all, or any material portion of all, the assets or
equity interest in Ubarter.com or any business combination with
Ubarter.com;
- enter into any agreement related to such an acquisition; or
- furnish any information or otherwise facilitate or encourage any effort or
attempt to make such an acquisition.
However, Ubarter.com's board of directors may recommend to stockholders that
they tender their shares in connection with a bona fide offer by an acquiror
other than ShopNow.com if the board determines in good faith and after
consultation with legal counsel that its fiduciary duty to its stockholders
requires such a recommendation. Ubarter.com's acceptance of another offer or
proposal is a breach for which a termination fee must be paid to ShopNow.com.
Ubarter.com has agreed to promptly inform ShopNow.com of any inquiry or proposal
that it receives with respect to an acquisition transaction. Prior to accepting
another offer or proposal, Ubarter.com has agreed to provide ShopNow.com with
the material facts relating to any such offer or proposal, including the
identity of the third party making the inquiry or proposal, and offer to enter
into an agreement with ShopNow.com on substantially the same terms and
conditions of the other offer or proposal. ShopNow.com will then have ten days
to inform Ubarter.com in writing that it accepts the terms of the other offer or
proposal. Ubarter.com has agreed that it will not accept or enter into a
definitive agreement with respect to the other offer or proposal during this
ten-day period. If ShopNow.com accepts the terms and conditions of the other
offer or proposal prior to the expiration of the ten-day period, ShopNow.com and
Ubarter.com will have 20 days to enter into a definitive agreement, the final
terms and conditions to be negotiated in good faith.
TERMINATION OF THE MERGER AGREEMENT
Even if Ubarter.com's stockholders approve the merger agreement, the merger
agreement may be terminated by the mutual agreement of the parties at any time
before the effective time of the merger. In addition, the merger agreement may
be terminated by either Ubarter.com or ShopNow.com under any of the following
circumstances:
- as a result of a material breach of a representation, warranty, covenant
or agreement by the other party, if the breach has not been cured or is
not curable by June 22, 2000;
- if the merger has not been consummated before June 22, 2000, provided that
the right to terminate is not available to the party whose failure to
fulfill any obligation caused or resulted in failure to consummate the
merger by June 22, 2000;
- if Ubarter.com stockholders have voted on but not approved the merger
agreement; or
- if any law or regulation makes consummation of the merger illegal, or if
any permanent injunction or other order preventing the merger has become
final and nonappealable.
In the event of termination, neither ShopNow.com nor Ubarter.com has further
obligations, except that each of ShopNow.com and Ubarter.com is subject to
liability for willful and material breaches of its respective representations,
warranties, covenants or agreements and except that a termination fee may be
payable by Ubarter.com to ShopNow.com under certain circumstances.
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TERMINATION FEE
In the event a third party other than ShopNow.com consummates an acquisition of
Ubarter.com on or before the one-year anniversary of the termination date, then
Ubarter.com must pay ShopNow.com a termination fee of 20% of the aggregate cash
and noncash acquisition consideration in excess of $45 million if the merger
agreement was terminated for one of the following reasons:
- Ubarter.com failed or was unable to satisfy the conditions to the merger;
- Ubarter.com breached its obligation to conduct its business as agreed upon
between the signing and closing of the merger; or
- Ubarter.com entered into an alternative agreement to be acquired or to
combine with a party other than ShopNow.com.
The termination fee may increase the likelihood of the completion of the merger
in accordance with the terms of the merger agreement. The termination fee may
also discourage persons from making an offer to acquire all of or a significant
interest in Ubarter.com by increasing the cost of an acquisition.
EXTENSION; WAIVER
At any time before 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 other party's obligations under the merger agreement, waive
any inaccuracies in the representations and warranties of any other party in the
merger agreement or related documents, and waive compliance with any of the
agreements, conditions or covenants in the merger agreement that are for the
benefit of the waiving party.
AMENDMENT OF MERGER AGREEMENT
The merger agreement may be further amended by ShopNow.com and Ubarter.com at
any time before or after approval by Ubarter.com's stockholders, except that,
after shareholder approval, Ubarter.com and ShopNow.com may not make any
amendment that by law requires the further approval of Ubarter.com's
stockholders without obtaining that approval.
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RELATED AGREEMENTS
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS DESCRIBES AGREEMENTS RELATED TO
THE MERGER AGREEMENT, INCLUDING THE CALL OPTION AGREEMENT, THE VOTING
AGREEMENTS, LOCK-UP AGREEMENTS, THE CONVERTIBLE NOTES, AND THE AGREEMENTS WITH
ASTRA VENTURES AND MOMENTOUS. WHILE WE BELIEVE THAT THESE DESCRIPTIONS COVER THE
MATERIAL TERMS OF THESE AGREEMENTS, THESE SUMMARIES MAY NOT CONTAIN ALL OF THE
INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD READ THE RELATED AGREEMENTS,
WHICH ARE ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS OR FILED AS AN EXHIBIT TO
THE REGISTRATION STATEMENT FILED BY SHOPNOW.COM WITH THE SEC, OF WHICH THIS
PROXY STATEMENT/PROSPECTUS IS A PART.
CALL OPTION AGREEMENT
Pursuant to a Call Option Agreement, Steven White has given ShopNow.com the
option to buy up to 1,337,896 shares of his Ubarter.com common stock, or
approximately 22% of Ubarter.com's issued and outstanding shares as of the
record date. The exercise price of the option is $6.00 per share. The option is
exercisable, in whole or in part, at any time but not later than April 30, 2000.
The option is intended to increase the likelihood that the merger between
ShopNow.com and Ubarter.com will be completed. The option may have the effect of
discouraging persons who might now or in the future be interested in acquiring
all of, or a significant interest in, Ubarter.com's securities or its assets
before the completion of the merger between ShopNow.com and Ubarter.com.
The call option agreement is attached to this proxy statement/prospectus as
Annex B.
VOTING AGREEMENTS
As a condition to the merger, ShopNow.com required Steven White and New
Horizons, L.P., who collectively held approximately 34% of Ubarter.com's
outstanding common stock as of March 31, 2000, the record date, to enter into
voting agreements with ShopNow.com.
The voting agreements require Steven White and New Horizons, L.P. to vote all
the shares of Ubarter.com common stock beneficially owned by them (a) in favor
of the merger agreement with ShopNow.com and (b) against any proposal by a party
other than ShopNow.com to (i) merge or consolidate with Ubarter.com or any of
its subsidiaries or (ii) to sell all or substantially all of the assets or
equity interest of Ubarter.com or any of its subsidiaries.
Steven White and New Horizons, L.P. also agreed that they will not deposit any
of the Ubarter.com shares owned by them, or any entity controlled by each of
them, respectively, into a voting trust that will vote in any manner
inconsistent with the voting agreements. They also agreed not to sell or
otherwise dispose of any shares of Ubarter.com, except to ShopNow.com, during
the term of the voting agreements and waived any dissenters' rights and any
similar rights related to the merger between ShopNow.com and Ubarter.com by
virtue of their ownership of the outstanding shares.
The form of voting agreement is attached to this proxy statement/prospectus as
Annex C.
EMPLOYMENT AND CONSULTING AGREEMENTS
On the date of the merger, ShopNow.com will enter into an employment agreement
with Liad Meidar and a consulting agreement with Steven White.
The employment agreement will have a one year term and require ShopNow.com to
pay Mr. Meidar a base salary of $125,000. In addition, ShopNow.com has agreed to
grant to Mr. Meidar options to purchase 250,000 shares of ShopNow.com common
stock at an exercise price of $15.58 per shares, which options will vest over a
period of three years unless Mr. Meidar is terminated for cause or resigns for
good reason, in which case the options become immediately vested and
exercisable.
The consulting agreement will require ShopNow.com to pay Mr. White a fee of
$5,000 per month for so long as Mr. White provides consulting services for
ShopNow.com. It can be terminated by either party on 30 days notice.
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The employment agreement with Liad Meidar is attached to this proxy
statement/prospectus as Annex D and the consulting agreement with Steven White
is attached to this proxy statement/prospectus as Annex E.
LOCK-UP AGREEMENTS
Steven White, who held approximately 22% of Ubarter.com's outstanding common
stock as of the record date, has agreed not to sell more than 50% of the
ShopNow.com shares he receives in the merger until the one-year anniversary of
the completion of the merger and will not sell any of his ShopNow.com shares
until the six-month anniversary of the completion of the merger. New Horizons,
L.P., which held approximately 12% of Ubarter.com's outstanding common stock,
has agreed not to sell more than 10% of the ShopNow.com shares it receives in
the merger for the first 180 days following the completion of the merger.
The form of lock-up agreement for Steven White and the form of lock-up agreement
for New Horizons are attached to this proxy statement/prospectus as Annex F and
Annex G, respectively.
CONVERTIBLE NOTES
On December 22, 1999, prior to the execution of the merger agreement,
ShopNow.com provided Ubarter.com with a $2 million short-term bridge loan in the
form of a convertible promissory note due upon demand at any time after
June 22, 2000. If the merger does not take place for any reason (other than as a
result of the closing conditions of Ubarter.com not being satisfied on or prior
to such date due to an omission or affirmative act of ShopNow.com) within three
days after the later to occur of (a) the date the registration statement on
Form S-4 (of which this proxy/ statement prospectus is a part) is declared
effective by the SEC and (b) the date the stockholders of Ubarter.com approve
the merger, then the unpaid principal balance of the note will convert into
shares of Ubarter.com common stock at a conversion price of $2.15 per share and
Ubarter.com will issue ShopNow.com a warrant to purchase a number of shares of
Ubarter.com common stock equal to 125% of the shares issued upon the conversion
of the note at a per share exercise price of $2.15. If the merger does not take
place because the closing conditions of Ubarter.com are not satisfied due to an
omission or affirmative act of ShopNow.com, then the unpaid principal balance of
the note will convert into shares of Ubarter.com common stock at a conversion
price of $3.58 per share and Ubarter.com will issue ShopNow.com a warrant to
purchase a number of shares of Ubarter.com common stock equal to 50% of the
shares issued upon the conversion of the note at a per share exercise price of
$3.58.
On February 28, 2000, ShopNow.com provided Ubarter.com with a $338,389
short-term bridge loan in the form of a convertible promissory note containing
substantially the same terms and conditions as the December 1999 note.
AGREEMENTS WITH ASTRA VENTURES AND MOMENTOUS
It is a condition to ShopNow.com's obligations under the merger agreement that
ShopNow.com enter into agreements with Astra Ventures LLC and Momentous Inc.
Pension and Trust.
The agreement with Astra Ventures will provide that in exchange for the
termination of all obligations of the Company with Astra Ventures, ShopNow.com
will pay to Astra Ventures $675,000 in cash and 38,995 shares of ShopNow.com
Common Stock.
The agreement with Momentous will provide that ShopNow.com will issue to
Momentous a warrant to purchase 20,000 shares of ShopNow.com common stock in
exchange for the cancellation and retirement of all indebtedness of Ubarter.com
to Momentous. Such warrant will have a one-year term and an exercise price equal
to the closing sales price of ShopNow.com common stock as reported on Nasdaq on
the trading day immediately prior preceding the day on which the merger is
completed.
Astra Ventures is a consulting firm owned by Liad Meidar and Momentous is owned
by Mr. Meidar's father. The amounts paid to Astra Ventures and any outstanding
indebtedness of Ubarter.com to Momentous will result in a reduction of the
purchase price paid by ShopNow.com for Ubarter.com.
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AGREEMENT WITH AXC
In December 1999, Ubarter.com retained AXC Interactive, a Seattle-based Internet
software development and consulting firm, to develop the next phase of the
Ubarter.com web site. AXC was acquired by ShopNow.com in January 2000. The
expected cost of this development phase is approximately $1.2 million. Upon
execution of the agreement with AXC, Ubarter.com paid AXC $150,000 (consisting
of 33,333 shares of Ubarter.com common stock and $50,000 in cash) and later made
an additional cash payment of $100,000 as a retainer against the final AXC
invoice.
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DESCRIPTION OF SHOPNOW.COM CAPITAL STOCK
ShopNow.com's authorized capital stock consists of 200,000,000 shares of common
stock, $0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par
value. The following description of ShopNow.com's capital stock does not purport
to be complete and is subject to and qualified in its entirety by its articles
of incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the provisions of
applicable Washington law.
COMMON STOCK
As of February 20, 2000, there were outstanding 51,677,590 shares of common
stock held of record by approximately 805 shareholders of record and options to
purchase 11,814,253 shares of common stock.
The holders of common stock are entitled to one vote on each matter submitted to
a vote of the shareholders. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock shall be entitled to receive ratably dividends at such times and in
such amounts as may be determined by the board of directors. In the event of any
dissolution, liquidation or winding up, the holders of common stock are entitled
to share ratably in all of the assets remaining after payment or provision for
payment of the debts and other liabilities and the liquidation preference of any
outstanding shares of preferred stock. The holders of common stock have no
preemptive or subscription rights. There are no conversion rights, redemption
rights, sinking fund provisions or fixed dividend rights with respect to the
common stock. The holders of common stock are not entitled to cumulative voting
at any election of directors. All outstanding shares of common stock are fully
paid and nonassessable, and the shares of common stock to be issued in the
offering will be fully paid and nonassessable.
PREFERRED STOCK
The board of directors has authority, pursuant to ShopNow.com's articles of
incorporation and without further action by the shareholders, to issue up to
5,000,000 shares of preferred stock in one or more series. The board of
directors may also determine or alter for each series such voting powers,
designations, preferences, and special rights, qualifications, limitations or
restrictions as permitted by law. The board of directors may authorize the
issuance of preferred stock with voting or conversion rights that could
adversely affect the voting power or other rights of the holders of the common
stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, have the effect of delaying, deferring or preventing a change in
control of ShopNow.com and may adversely affect the market price of the common
stock and the voting and other rights of the holders of common stock. There
presently are no shares of preferred stock outstanding, and ShopNow.com has no
current plans to issue any shares of preferred stock.
COMMON STOCK WARRANTS
As of December 31, 1999, ShopNow.com had warrants outstanding to purchase an
aggregate of 3,806,281 shares of common stock at exercise prices ranging from
$1.25 to $18.93 per share. These warrants contain anti-dilution provisions
providing for adjustments to the exercise price and the number of shares of
common stock underlying these warrants upon the occurrence of specified events,
including any recapitalization, reclassification, stock dividend, stock split,
stock combination or similar transaction.
OTHER EQUITY-BASED AGREEMENTS
From time to time in connection with the negotiation of material agreements,
ShopNow.com may use equity-based arrangements, including warrants to purchase
shares of common stock, as an incentive for a party with which ShopNow.com has a
business relationship to enter into an agreement with ShopNow.com.
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REGISTRATION RIGHTS
As of December 31, 1999, the holders of 15,062,453 shares of outstanding common
stock and 1,735,771 shares issuable upon exercise of ShopNow.com's outstanding
warrants will be entitled to certain rights with respect to the registration of
such shares under the Securities Act of 1933. Under the terms of ShopNow.com's
registration rights agreement, the holders of more than 50% of the registrable
securities issued and issuable may request, by written notice nine months after
September 28, 1999, the effective date of ShopNow.com's initial public offering
of securities, that ShopNow.com register any registrable securities specified in
the notice in a public offering with a public offering price of at least $5.00
per share of common stock and the anticipated aggregate proceeds of which would
exceed $4 million. Also under the terms of ShopNow.com's registration rights
agreement, the holders of more than 50% of the registrable securities issued and
issuable may require that ShopNow.com register their shares for public resale on
Form S-2, Form S-3 or similar short-form registration statement, provided that
ShopNow.com is a registrant entitled to use such a form and that the value of
the securities to be registered is at least $750,000. ShopNow.com is not
obligated to effect any such short-form registration at any time more than three
years after the initial public offering or if it has effected one such
registration during the immediately preceding 12-month period. In addition, the
agreement requires it to provide 60 days' notice to holders of registrable
securities of its intention to register its securities. A holder may then elect
to include his or her shares in the proposed registration. ShopNow.com has
obtained written waivers of this notice and registration provision from each
shareholder subject to the provision. These registration rights are subject to
the right of the managing underwriter to reduce the number of shares proposed to
be registered in view of market conditions. All expenses in connection with any
registration will be borne by ShopNow.com. A holder's registration rights will
terminate if the holder is entitled to immediately sell all of its shares under
Rule 144 of the Securities Act during any 90-day period and the holders of the
registrable stock own less than 1% of the outstanding common stock.
WASHINGTON ANTITAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Washington law and ShopNow.com's articles of incorporation
and bylaws could make more difficult the acquisition of ShopNow.com by means of
a tender offer, a proxy contest or otherwise and the removal of incumbent
officers and directors. These provisions, summarized below, are expected to
discourage certain types of coercive takeover practices and inadequate takeover
bids and to encourage persons seeking to acquire control of ShopNow.com to first
negotiate with it. ShopNow.com believes that the benefits of increased
protection of its potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure ShopNow.com
outweigh the disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals could result in an improvement of their
terms.
ELECTION AND REMOVAL OF DIRECTORS. ShopNow.com's articles of incorporation
provide for the division of its board of directors into three classes, as nearly
equal in number as possible, with the directors in each class serving for a
three-year term, and one class being elected each year by ShopNow.com's
shareholders. The initial term of the Class I directors expires at ShopNow.com's
annual meeting of shareholders to be held in 2000; the initial term of the
Class II directors expires at ShopNow.com's annual meeting of shareholders to be
held in 2001; and the initial term of the Class III directors expires at
ShopNow.com's annual meeting of shareholders to be held in 2002. Thereafter, the
term of each class of directors will be three years. This system of electing and
removing directors generally makes it more difficult for shareholders to replace
a majority of the members of ShopNow.com's board of directors and may tend to
discourage a third party from making a tender offer or otherwise attempting to
gain control of ShopNow.com and may have the effect of maintaining the
incumbency of ShopNow.com's board of directors.
SHAREHOLDER MEETING. ShopNow.com's bylaws provide that, except as otherwise
required by law or by its articles of incorporation, special meetings of the
shareholders may only be called pursuant to a resolution adopted by its board of
directors, the chairman of its board of directors or its president. These
provisions of ShopNow.com's articles of incorporation and bylaws could
discourage potential acquisition proposals and could delay or prevent a change
of control. ShopNow.com's intent in using these provisions is to enhance the
likelihood of continuity and stability in the composition of its board of
directors and in the policies formulated by them and to discourage certain types
of transactions that may involve an actual or threatened change of control.
These provisions are designed to reduce its
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vulnerability to an unsolicited acquisition proposal and to discourage certain
tactics that may be used in proxy fights. However, these provisions could have
the effect of discouraging others from making tender offers for its shares and,
as a consequence, they could inhibit fluctuations in the market price of
ShopNow.com's shares that could result from actual or rumored takeover attempts.
Such provisions could have the effect of preventing changes in ShopNow.com's
management.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF SHAREHOLDER NOMINATIONS AND
PROPOSALS. ShopNow.com's bylaws contain advance notice procedures with respect
to shareholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.
WASHINGTON ANTITAKEOVER LAW. Washington law imposes restrictions on some
transactions between a corporation and certain significant shareholders. Chapter
23B.19 of the Washington Business Corporation Act prohibits a "target
corporation," with some exceptions, from engaging in certain significant
business transactions with an "acquiring person," which is defined as a person
or group of persons that beneficially owns 10% or more of the voting securities
of the target corporation, for a period of five years after such acquisition,
unless the transaction or acquisition of shares is approved by a majority of the
members of the target corporation's board of directors prior to the acquisition.
Such prohibited transactions include, among others things:
- a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from the acquiring person;
- termination of 5% or more of the employees of the target corporation as a
result of the acquiring person's acquisition of 10% or more of the shares;
or
- allowing the acquiring person to receive any disproportionate benefit as a
shareholder. After the five-year period, a "significant business
transaction" may occur, as long as it complies with certain "fair price"
provisions of the statute. A corporation may not opt out of this statute.
This provision may have the effect of delaying, deterring or preventing a
change in control of ShopNow.com.
SHAREHOLDER ACTION BY WRITTEN CONSENT. ShopNow.com's articles of incorporation
permit shareholders to act by written consent without a meeting only with the
written consent of all shareholders entitled to vote on the subject matter.
ELIMINATION OF CUMULATIVE VOTING. ShopNow.com's articles of incorporation and
bylaws do not provide for cumulative voting in the election of directors.
UNDESIGNATED PREFERRED STOCK. The authorization of undesignated preferred stock
makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of ShopNow.com. These and other provisions may have
the effect of deferring hostile takeovers or delaying changes in control or
management of ShopNow.com.
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COMPARISON OF RIGHTS OF HOLDERS OF UBARTER.COM COMMON STOCK AND SHOPNOW.COM
COMMON STOCK
Ubarter.com is incorporated under the laws of the State of Nevada. The rights of
Ubarter.com stockholders are currently governed by the Nevada Revised Statutes
and the articles of incorporation and bylaws of Ubarter.com. ShopNow.com is
incorporated under the laws of the State of Washington. The rights of
ShopNow.com stockholders are currently governed by the Washington Business
Corporation Act (WBCA) and the articles of incorporation and bylaws of
ShopNow.com. After the merger, Ubarter.com's stockholders will become
stockholders of ShopNow.com and Ubarter.com's stockholders' rights will cease to
be defined and governed by the Nevada Revised Statutes and the articles of
incorporation and bylaws of Ubarter.com, and instead will be defined and
governed by the WBCA and the articles of incorporation and bylaws of
ShopNow.com.
While the rights and privileges of stockholders of a Washington corporation
(such as ShopNow.com) are, in many instances, comparable to those of
stockholders of a Nevada corporation (such as Ubarter.com), there are
differences. The following is a summary of certain material differences between
the rights of holders of Ubarter.com common stock and the rights of holders of
ShopNow.com common stock at the date of this proxy statement/prospectus. This
summary is not intended to be complete and is qualified in its entirety by
reference to the relevant provisions of the articles of incorporation and bylaws
of Ubarter.com, the certificate of incorporation and bylaws of ShopNow.com, and
Nevada and Washington law. Ubarter.com's articles of incorporation and bylaws
and ShopNow.com articles of incorporation and bylaws are filed as exhibits to
SEC filings that are incorporated by reference in the registration statement of
which this proxy statement/prospectus is a part.
The laws of Nevada and Washington provide that some of the statutory provisions
as they affect various rights of holders of shares may be modified by provisions
in the articles or certificate of incorporation or bylaws of the relevant
corporation. The following summary of provisions contained in Nevada law is
subject to modification by provisions contained in the articles of incorporation
and bylaws of Ubarter.com and the following summary of provisions contained in
Washington law is subject to modification by provisions contained in the
articles of incorporation and bylaws of ShopNow.com.
ADOPTING, AMENDING OR REPEALING BYLAWS
Subject to the bylaws, if any, adopted by the stockholders, Nevada law permits
the directors to make the bylaws of the corporation. Even if the bylaws confer
this power on the board of directors, the stockholders also have the power to
adopt, amend or repeal bylaws. Ubarter.com Inc.'s bylaws state that new bylaws
may be adopted, and the current bylaws may be amended or repealed, only by a
vote of the stockholders entitled to exercise a majority of the voting power of
the corporation.
The WBCA vests the authority to amend the bylaws of a Washington corporation in
the hands of the board of directors, unless the articles of incorporation
reserve this power exclusively for the shareholders. The WBCA also grants
shareholders the right to amend the bylaws and provides that the board may not
amend or repeal a bylaw adopted by the shareholders that expressly provides that
it may not be amended or repealed.
ShopNow.com's articles grant the board and the shareholders the power to amend
the bylaws. The ShopNow.com bylaws provide that shareholders holding a majority
of ShopNow.com's outstanding voting stock and the board of directors may each
adopt, amend or repeal the bylaws, provided that the board may not adopt or
repeal any bylaw that the shareholders have expressly provided may not be
amended or repealed by the board.
SIZE OF THE BOARD OF DIRECTORS
Under Nevada law, a corporation must have at least one director, and a
corporation may provide in its articles of incorporation or in its bylaws for a
fixed number of directors or a variable number of directors within a fixed
minimum and maximum and for the manner in which the number of directors may be
increased or decreased. If the articles or bylaws so provide, Nevada law permits
a corporation's board of directors to change the initial number or range of
directors by amendment of the corporation's bylaws or by resolution.
Ubarter.com's articles of incorporation
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provide that the number of directors of Ubarter.com may be increased or
decreased in the manner set forth in Ubarter.com's bylaws provided that the
number of directors shall never be less than one. Ubarter.com's bylaws state
that the number of directors shall be no fewer than one nor more than nine and
that the number of directors may be increased or decreased by a resolution of
the board of directors duly adopted by 75% of all directors. Ubarter.com
currently has three directors.
The WBCA provides that the board of directors of a Washington corporation shall
consist of one or more directors as fixed by the corporation's articles of
incorporation or bylaws.
ShopNow.com's bylaws provide that the specific number of directors shall be set
by board resolution.
ELECTION OF DIRECTORS
Nevada law permits directors to be divided into separate classes with staggered
terms of office. However, at least one-fourth in number must be elected
annually. The board of directors of Ubarter.com is currently not classified and
the terms of directors are not staggered. All directors hold office until their
respective successors are elected or until their resignation, death or removal.
The WBCA permits classification of a Washington corporation's board of directors
and for staggered terms if authorized by the articles of incorporation. The WBCA
provides for cumulative voting for directors, unless a corporation' articles of
incorporation provide otherwise.
ShopNow.com's articles and bylaws provide that the board is divided into three
classes as nearly equal in number as possible, with each director elected to a
staggered three-year term. ShopNow.com's articles expressly state that no
cumulative voting exists with respect to shares of ShopNow.com capital stock.
REMOVAL OF DIRECTORS
Under Nevada law, any director may be removed by the vote of the holders of not
less than two-thirds of the voting stock, subject to specific provisions
concerning the vote needed to remove individual directors of a Nevada
corporation having cumulative voting, or classes or series of shares entitled to
elect one or more directors. Currently, none of these exceptions apply.
The WBCA provides that a corporation's shareholders at a special meeting called
expressly for that purpose may remove one or more directors with or without
cause unless the articles of incorporation provide that directors may be removed
only for cause.
ShopNow.com's articles of incorporation do not provide specific restrictions on
the rights of shareholders to remove directors. The ShopNow.com bylaws provide
that at a meeting of the shareholders called expressly for that purpose, any
director or the entire board of directors may be removed by the holders of
shares entitled to elect the director or directors whose removal is sought if
the number of votes cast to remove the director exceeds the number of votes cast
not to remove the director.
FILLING NEW SEATS OR VACANCIES ON THE BOARD OF DIRECTORS
Under Nevada law, all vacancies, including those caused by an increase in the
number of directors, may be filled by a majority of the remaining directors,
even though less than a quorum. Ubarter.com's bylaws provide that the
Ubarter.com board may fill all vacancies created by reason of death, resignation
or removal, or if the authorized number of directors is increased or otherwise,
by a majority vote of the remaining directors, although less than a quorum, or
by a sole remaining director. Furthermore, the stockholders of Ubarter.com may
elect a director or directors at anytime to fill any vacancy or vacancies not
filled by the directors.
The WBCA provides that a vacancy occurring on a board of directors may be filled
by the shareholders, the board of directors and, if the remaining directors are
less than a quorum, by a majority of the remaining directors.
The ShopNow.com bylaws provide that vacancies may be filled by the shareholders
or by a majority of the remaining directors even if less than a quorum.
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LIMITATION OF PERSONAL LIABILITY
Under Nevada law, a corporation may include in its articles of incorporation a
provision that would, subject to the limitations described below, limit or
eliminate the personal liability of directors and officers to the corporation
and its stockholders for damages for breaches of their fiduciary duty. Under
Nevada law, a provision in the articles of incorporation may not, however,
eliminate or limit the liability of a director or officer for acts or omissions
that involve intentional misconduct, fraud or a knowing violation of law or of
distributions in violation of Section 78.300 of the Nevada Revised Statutes. The
Ubarter.com articles of incorporation state that no director or, to the extent
specified by the board of directors, officer will be liable to Ubarter.com or
its stockholders for damages for breach of fiduciary duty as a director or
officer, except for (a) acts or omissions that involve intentional misconduct,
fraud or a knowing violation of law or (b) the unlawful payment of dividends.
The WBCA provides that a corporation's articles of incorporation may include
provisions that eliminate or limit the personal liability of a director to the
corporation or its shareholders for monetary damages for conduct as a director.
However, the provisions may not eliminate or limit the liability of a director
for acts or omissions that involve intentional misconduct by the director or a
knowing violation of law by the director, unlawful distributions, or any
transaction from which the director will personally receive a benefit in money,
property or services to which the director is not legally entitled.
ShopNow.com's articles of incorporation authorize ShopNow.com to limit or
eliminate the liability of directors to the fullest extent permitted by the
WBCA.
INDEMNIFICATION
Nevada law provides that a corporation may indemnify any person against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement, other than in an action by or in the right of the corporation, by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
in any such capacity for another enterprise; provided that he or she acted in
good faith and in a manner that he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to a
criminal action or proceeding, had no reasonable cause to believe that his or
her conduct was unlawful. For actions or suits by or in the right of the
corporation, Nevada law provides that a person may be indemnified if he or she
acted in good faith and in a manner that he or she reasonably believed to be in
or not opposed to the best interests of the corporation, except that in such an
action or suit by or in the right of the corporation, the corporation may not
indemnify a person for any claim, issue or matter as to which the person has
been adjudged by a court, after exhaustion of all appeals, to be liable to the
corporation or for amounts paid in settlement to the corporation, unless and
only to the extent that the court determines that in view of all of the
circumstances of the case, the person is fairly and reasonably entitled to
indemnification. To the extent a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of the
matter or any claim, issue or matter therein, the corporation must indemnify him
or her against all expenses, including attorneys' fees actually and reasonably
incurred in the defense. Nevada law provides that the determination of whether
indemnification is proper must be made by the stockholders; the board of
directors by a vote of a of directors who were not parties to the action, suit
or proceeding; by independent legal counsel if a majority of a quorum of
directors who were not parties so orders or if a quorum of directors who were
not parties cannot be obtained.
Ubarter.com's bylaws require the corporation to provide indemnification to the
fullest extent permitted by law.
Under the WBCA, if authorized by the articles of incorporation or a bylaw
adopted or ratified by the shareholders or by a resolution adopted or ratified
by the shareholders, a corporation has the power to indemnify a director or
officer made a party to a proceeding, or advance or reimburse expenses incurred
in a proceeding under any circumstances except that no indemnification is
allowed on account of:
- acts or omissions of a director or officer finally adjudged to be an
intentional misconduct or a knowing violation of the law;
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- conduct of a director or officer finally adjudged to be an unlawful
distribution; and
- any transaction with respect to which it was finally adjudged that the
director or officer personally received a benefit in money, property or
services to which the director or officer was not legally entitled.
ShopNow.com's articles of incorporation and bylaws provide a right to
indemnification to directors and officers of ShopNow.com to the fullest extent
permitted under the WBCA. Advancement of expenses may be made to a director upon
an undertaking by the director to repay the expenses if it is later determined
that the director was not entitled to indemnification. The bylaws provide that
the right to indemnification is a contract right. The bylaws provide that
ShopNow.com may maintain insurance to protect any director or officer against
any loss, liability or expense whether or not ShopNow.com would have the power
to indemnify such person against such loss, liability or expense under the WBCA.
ShopNow.com's bylaws also authorize ShopNow.com to enter into contracts with any
director or officer in furtherance of the provisions of the bylaws regarding
indemnification.
Unless limited by the corporation's articles of incorporation, Washington law
requires indemnification if the director or officer is wholly successful on the
merits of the action or otherwise. Any indemnification of a director in a
derivative action must be reported to the shareholders in writing with or before
notice of the next shareholders meeting. ShopNow.com's articles of incorporation
do not limit indemnification if the director or officer is wholly successful on
the merits of the action or otherwise.
TRANSACTIONS INVOLVING DIRECTORS AND OFFICERS
Under Nevada law, there is no specific provision concerning or prohibition
against loans or guarantees made by a corporation for the benefit of a director
or officer of the corporation.
A contract or transaction between a Nevada corporation and one or more of its
directors or officers, or between a Nevada corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, is not void or voidable solely for that reason, or solely because the
common or interested director or officer was present, participates or votes at
the board or board committee meeting or joins in the execution of the written
consent that authorizes the contract or transaction, if any one of the following
circumstances exists:
- the fact of the common directorship, office or financial interest is known
to the board or committee, and the board or committee authorizes, approves
or ratifies the contract or transaction in good faith by a vote sufficient
for the purpose without counting the vote of the common or interested
director;
- the fact of the common directorship, office or financial interest is known
to the stockholders, and they approve or ratify the contract or
transaction in good faith by a majority vote of stockholders holding a
majority of the voting power;
- the fact of the common directorship, office or financial interest is not
known to the director as of the time the transaction is brought before the
board of directors for action; or
- the contract or transaction is fair as to the corporation at the time that
it is authorized or approved.
Ubarter.com's bylaws state that Ubarter.com shall not enter into any contract or
other transaction with any corporation, firm or association or entity of which
one of the directors is an employee, officer or financially interested, unless
such contract or transaction has been approved by a majority of the
disinterested directors or the stockholders.
The WBCA generally provides that a transaction by a corporation in which a
director has a conflicting interest may not be enjoined, set aside or result in
damages or other sanctions in a shareholder's proceeding or derivative
proceeding if:
- any transaction with respect to which it was finally adjudged that the
director or officer personally received a benefit in money, property or
services to which the director or officer was not legally entitled.
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- a majority of the disinterested directors on the board voted for the
transaction after disclosure to them of the director's conflicting
interest and related material facts to the extent this information was not
known to the disinterested directors;
- a majority of votes entitled to be cast (other than votes relating to
shares beneficially owned, or the voting of which is controlled, by the
director with the conflicting interest or a related person or entity of
that director) were cast in favor of the transaction after notice to the
shareholders describing the director's conflicting interest transaction
and disclosure of the director's conflicting interest an related material
facts to the extent this information was not known to the shareholders; or
- the transaction is established to have been fair to ShopNow.com.
INSPECTION OF STOCKHOLDERS' LIST AND OTHER CORPORATE DOCUMENTS
Nevada law allows any person who has been a stockholder of record for at least
six months or who holds an aggregate of 5% or more of the corporation's
outstanding shares to inspect and copy the stockholders' list, articles and
bylaws. The corporation may deny inspection if the stockholder refuses to
furnish an affidavit that the inspection is not desired for a purpose which is
the business or object other than the business of the corporation and that he or
she has not at any time sold or offered for sale any stockholders' list of any
corporation or aided or abetted any person in procuring a list for that purpose.
A Nevada corporation must allow stockholders of record who own or represent at
least 15% of a corporation's shares the right, upon at least five days written
demand, to inspect the books of account and financial records of the
corporation, to make copies from them and to conduct an audit of those records,
except that any corporation listed and traded on any recognized stock exchange
or any corporation that furnishes to a detailed, annual financial statement is
exempt from this requirement. The corporation may deny inspection to any
stockholder who refuses to furnish an affidavit that the inspection or audit is
not desired for any purpose not related to his or her interest as a stockholder.
Ubarter.com's bylaws state that its stockholders have the right to inspect such
corporate records at such times and based upon the limitations of such rights as
may be set forth in the Nevada Revised Statutes from time to time.
Under the WBCA, there is no minimum time period for which shares must be held
before a shareholder can demand inspection of a corporation's books and records,
nor is there a statutory limitation tied to a minimum number of shares, or
percentage of shareholdings of the corporation. A shareholder must provide
written notice to the corporation at least five business days prior to the date
of inspection. The WBCA provides access to two types of records: the first
category is core records, to which the shareholder has automatic access,
regardless of good faith or proper purpose. The second category, consisting of
the corporation's shareholders records and relevant excerpts from minutes of
both board and shareholder meetings, can be inspected only in good faith ad for
a proper purpose directly connected to the requested records.
POWER TO CALL SPECIAL MEETINGS OF STOCKHOLDERS
Nevada law does not specify who may call special meetings of stockholders.
Ubarter.com's bylaws provide that special meetings of stockholders may be called
by the President or the board of directors or by the President at the request of
the holders of not less than a majority of the outstanding shares of Ubarter.com
entitled to vote at the meeting.
Under the WBCA, a special meeting of shareholders may be called by a
corporation's board of directors or other persons authorized by the
corporation's articles of incorporation or bylaws, or, unless limited by the
articles of incorporation, on written demand by holders of at least 10% of all
votes entitled to be cast on any issue proposed to be considered at the proposed
special meeting.
The ShopNow.com bylaws provide that special meetings of the shareholders may be
called only by the chairman of the board, a majority of the board of directors
or the president of ShopNow.com.
The ShopNow.com bylaws require that notice of each special meeting of the
shareholders be provided at least ten days and not more than 60 days prior to
such meeting, provided that notice of a meeting to act on an amendment
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to the articles of incorporation, a plan of merger or share exchange, the sale,
lease, exchange or other disposition of all or substantially all of the
corporation's assets other than in the regular course of business or the
dissolution of the corporation shall be given not less than 20 nor more than
60 days before such meeting.
DISTRIBUTIONS
Under Nevada law, no distribution to or for the benefit of stockholders to their
shares may be made if after giving effect to the distribution either of the
following two conditions are met: (a) the corporation would not be able to pay
its debts as they become due in the usual course of business; or (b) the sum of
the corporation's assets would be less than the sum of its total liabilities
plus any amount that would be needed to satisfy the preferential rights upon
dissolution of stockholders whose preferential rights are superior to those
receiving the distribution, if the corporation were to be dissolved at the time
of the distribution. Under Nevada law a distribution includes the payment of a
dividend, a distribution of indebtedness and the repurchase or the redemption of
shares.
Under the WBCA, a corporation may make a distribution in case or in property to
its shareholders upon the authorization of its board of directors and subject to
its articles of incorporation unless, after giving effect to that distribution,
(i) the corporation would be unable to pay its debts as they become due in the
usual course of business or (ii) the corporation's total assets would be less
than the sum of its total liabilities plus the amount that would be needed, if
the corporation were to be dissolved at the time of the distribution, to satisfy
the preferential rights of shareholders whose preferential rights are superior
to those receiving the distribution.
Nevada and Washington law contain other differences with respect to
distributions, including differences relating to the time at which a
distribution is deemed to have been made.
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
In recent years, a number of states have adopted special laws designed to make
certain kinds of "unfriendly" corporate takeovers, or other transactions
involving a corporation and one or more of its significant stockholders, more
difficult. Certain of these laws that have been adopted in Nevada and Washington
are summarized below.
Sections 78.411 to 78.444 of the Nevada Revised Statutes restrict the ability of
a Nevada corporation having at least 200 stockholders of record to engage in any
"combination" with an "interested stockholder" for three years after the
interested stockholder's date of acquiring the shares that cause the stockholder
to become an interested stockholder, unless the combination or the purchase of
shares by the interested stockholder is approved by the board of directors
before that date. Under these statutes:
- an "interested stockholder" means (i) the "beneficial owner," as defined
in the Revised Nevada Statutes, of 10% or more of the voting power of the
corporation, or (ii) an affiliate or associate of the corporation who at
any time within three years immediately before the date in question was
the beneficial owner, directly or indirectly, of 10% or more of the voting
power of the corporation and
- a "combination" is broadly defined to include a merger or consolidation of
the corporation or any subsidiary of the corporation with the interested
stockholder; any sale, mortgage or other disposition of assets to or with
the interested stockholder exceeding certain amounts; the issuance or
transfer of shares of the corporation or its subsidiaries to the
interested stockholder exceeding a specified market value; the adoption of
any plan or proposal for the liquidation or dissolution of the corporation
proposed by the interested stockholder; transactions that would have the
effect of increasing the proportionate share of outstanding shares of the
corporation owned by the interested stockholder; or the receipt of any
benefit, except proportionately as a stockholder, of any loans, advances
or other financial benefits by an interested stockholder. A combination
also generally includes any of the foregoing transactions with an
affiliate or associate of the interested stockholder.
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If the combination was not previously approved, the interested stockholder may
effect the combination after the three-year period only if the combination is
either:
- approved by the holders of stock representing a majority of the
outstanding shares not beneficially owned by the interested stockholder at
a meeting called for that purpose no earlier than three years after the
date of acquiring shares or
- the combination meets statutory fair price criteria.
The above provisions do not apply to any business combination involving a
corporation:
- whose original articles of incorporation expressly elect not to be
governed by such provisions;
- which does not, as of the date of acquiring shares, have a class of voting
shares registered with the SEC under Section 12 of the Exchange Act,
unless the corporation's articles of incorporation provide otherwise;
- whose articles of incorporation were amended to provide that the
corporation is subject to the above provisions and which did not have a
class of voting shares registered with the SEC under Section 12 of the
Exchange Act on the effective date of that amendment, if the combination
is with an interested stockholder whose date of acquiring shares is before
the effective date of such amendment; or
- that amends its articles of incorporation, as approved by a majority of
the disinterested shares, to expressly elect not to be governed by the
above provisions. This type of amendment, however, would not become
effective until 18 months after its passage and would apply only to stock
acquisitions occurring after the effective date of the amendment.
In addition, the above provisions will not apply to any combination with an
interested stockholder on January 1, 1991 or who became an interested
stockholder inadvertently and satisfies certain other conditions.
The Ubarter.com's articles of incorporation do not exempt Ubarter.com from the
restrictions imposed by Sections 78.411 to 78.444 of the Nevada Revised
Statutes.
Nevada's Control Share Acquisition Law, Nevada Revised Statutes 78.378 through
78.3793, generally prohibits an acquirer from voting shares of a Nevada
corporation's stock after crossing certain threshold ownership percentages,
unless the acquirer obtains the approval of the corporation's stockholders. The
Control Share Acquisition Law only applies to Nevada corporations doing business
directly or through an affiliated corporation in Nevada with at least 200
stockholders of record, at least 100 of whom have addresses in Nevada.
Ubarter.com currently does/does not have at least 100 stockholders of record in
Nevada and/or does not do business in Nevada. The ownership thresholds are at
least one-fifth but less than one-third, at least one-third but less than a
majority, and a majority or more of all of the outstanding voting power.
Once an acquirer crosses one of these thresholds, a special meeting of
stockholders may be called at the acquirer's request to consider the voting
rights of its shares. If the acquirer does not make a request, consideration of
the voting rights must be taken at the next special or annual meeting of
stockholders. If the corporation's articles or bylaws provide, the corporation
may call for redemption certain of the acquirer's shares if the stockholders do
not grant full voting rights or the acquirer fails to timely deliver information
to the corporation. Ubarter.com's articles of incorporation and bylaws do not
currently provide for redemption of an acquirer's shares in such circumstances.
If an acquirer's shares are accorded full voting rights and the acquirer has
acquired control shares with at least a majority of all the voting power, any
stockholder of record who has not voted for approval of voting rights is
entitled to demand payment for the fair value of his or her shares, which is
generally not less than the highest price per share paid in the transaction
subjecting the acquirer to the Control Share Acquisition Law. The Control Share
Acquisition Law does not apply if the articles of incorporation or bylaws in
effect on the tenth day following the crossing the thresholds described above
provide that the law does not apply to the corporation or to the acquisition
specifically by types of existing or future stockholders, whether or not
identified. Neither the articles of incorporation or bylaws of Ubarter.com
currently include such a provision.
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Chapter 23B.19 of the WBCA, which applies to Washington corporations which have
a class of voting stock registered with the SEC under the Exchange Act,
prohibits a "target corporation," with certain exceptions, from engaging in
certain "significant business transactions" with an acquirer which beneficially
owns 10% or more of the voting securities of the target corporation for a period
of five years after the acquisition, unless the transaction or acquisition of
shares is approved by a majority of the members of the target corporation's
board of directors prior to the time of acquisition. These prohibited
transactions include, among other things, a merger, share exchange or
consolidation with, disposition of assets to, or issuance or redemption of stock
to or from, the acquirer, termination of 5% or more of the employees of the
target corporation employed in Washington as a result of the acquirer's
acquisition of 10% or more of the shares, or allowing the acquirer to receive
any disproportionate benefit as a shareholder. After the five-year period, a
"significant business transaction" may take place if it complies with certain
"fair price" provisions of the statute. A public corporation may not "opt out"
of this statute, and ShopNow.com is subject to it.
MERGERS
Nevada law requires that certain extraordinary corporate actions, such as most
mergers, share exchanges and sales of all of a corporation's assets, be approved
by the affirmative vote of a majority of the corporation's outstanding shares.
Nevada law does not require a stockholder vote of the surviving corporation in a
merger if (a) the articles of incorporation of the surviving corporation will
not differ from its articles before the merger, (b) each stockholder of the
surviving corporation whose shares were outstanding before the merger holds an
identical number of shares with identical characteristics after the merger, and
(c) the number of voting shares (shares that entitle their holders to vote
unconditionally in elections of directors) and participating shares (shares that
entitle their holders to participate without limitation in distributions) to be
issued by the surviving corporation in the merger plus in each case the number
of voting or participating shares issued or issuable, as the case may be, as a
result of the merger either by conversion of securities issued pursuant to the
merger or the exercise of rights or warrants issued pursuant to the merger does
not exceed by more than 20% such voting and participating shares outstanding
immediately before the merger.
The WBCA generally provides that a merger or share exchange, or sale of
substantially all of a corporation's assets other than in the regular course of
business, must be approved by the board of directors and by two-thirds of all
votes entitled to be cast by each voting group entitled to vote as a separate
group, unless another percentage, but not less than a majority of all votes
entitled to be cast, is specified in the articles of incorporation. The WBCA
also specifies some limited exceptions where shareholder approval of a merger is
not required, such as a merger where among other things, each shareholder of the
surviving corporation of the merger whose shares were outstanding immediately
before the merger will hold the same number of shares, with identical rights and
preferences, immediately after the merger.
ShopNow.com's articles provide that the affirmative vote of a majority of all
the votes entitled to be cast by the voting group shall be sufficient to approve
a merger or share exchange, or sale of substantially all of a corporation's
assets other than in the regular course of business.
DISSOLUTION
Under Nevada law, the board of directors of a corporation that has issued stock
must recommend dissolution to the stockholders and the stockholders must approve
dissolution. Under Washington law, a dissolution must be approved by
stockholders holding 100% of the total voting power or the dissolution must be
initiated by the board of directors and approved by the holders of a majority of
the outstanding voting shares of the corporation. The procedures contained in
Nevada law relating to the dissolution and liquidation of a corporation differ
somewhat from the procedures contained in Washington law.
AUTHORIZED CAPITAL STOCK
Ubarter.com's articles of incorporation authorize Ubarter.com to issue up to
25,000,000 shares of common stock, $.001 par value, and 10,000,000 shares of
preferred stock, $.001 par value. With respect to Ubarter.com's undesignated
preferred stock, the Ubarter.com board is authorized, without stockholder
approval, to designate one or
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more series of preferred stock and to determine the number of shares included in
any series and the designation, preferences, limitations and relative rights of
the shares of any series.
ShopNow.com's articles of incorporation authorize ShopNow.com to issue up to
200,000,000 shares of common stock, $.001 par value, and 5,000,000 shares of
preferred stock, $.001 par value. With respect to ShopNow.com's undesignated
preferred stock, the ShopNow.com board is authorized, without shareholder
approval, to designate one or more series of preferred stock and to determine
the number of shares included in any series and the designation, preferences,
limitations and relative rights of the shares of any series.
DISSENTERS' RIGHTS
For a discussion of dissenters' rights under Nevada law, please see the section
entitled "Rights of Dissenting Ubarter.com Stockholders" on page .
Under the WBCA, a shareholder of a Washington corporation may exercise
dissenters' rights in connection with:
- a plan of merger providing for a shareholder vote;
- a plan of exchange involving the acquisition of the corporation's shares
providing for a shareholder vote;
- a sale or exchange of all, or substantially all, the property of the
corporation other than in the usual and regular course of business, if a
shareholder is entitled to vote on the sale or exchange;
- a reverse stock split that results in the shareholder owning a fractional
share if that fractional share is to be acquired for cash; and
- any other corporate action taken by shareholder vote for which the
articles of incorporation, bylaws, or resolution of the board of directors
provide for dissenters' rights.
THIS SUMMARY OF CERTAIN MATERIAL DIFFERENCES IN THE CORPORATION LAWS OF NEVADA
AND WASHINGTON, THE UBARTER.COM ARTICLES AND THE SHOPNOW.COM ARTICLES, AND THE
UBARTER.COM BYLAWS AND THE SHOPNOW.COM BYLAWS DOES NOT PURPORT TO BE A COMPLETE
LISTING OF DIFFERENCES IN THE RIGHTS AND REMEDIES OF HOLDERS OF SHARES OF
NEVADA, AS OPPOSED TO WASHINGTON, CORPORATIONS, OR STOCKHOLDERS OF UBARTER.COM
AND SHOPNOW.COM IN PARTICULAR. THE DIFFERENCES CAN BE DETERMINED IN FULL BY
REFERENCE TO NEVADA LAW AND WASHINGTON LAW, TO THE UBARTER.COM ARTICLES OF
INCORPORATION AND THE SHOPNOW.COM ARTICLES OF INCORPORATION, AND TO THE
UBARTER.COM BYLAWS AND THE SHOPNOW.COM BYLAWS. IN ADDITION, THE LAWS OF NEVADA
AND WASHINGTON PROVIDE THAT SOME OF THE STATUTORY PROVISIONS AS THEY AFFECT
VARIOUS RIGHTS OF HOLDERS OF SHARES MAY BE MODIFIED BY PROVISIONS IN THE
ARTICLES OF INCORPORATION OR BYLAWS OF THE CORPORATION.
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RIGHTS OF DISSENTING UBARTER.COM STOCKHOLDERS
The following is a brief summary of the rights of holders of Ubarter.com common
stock to dissent from the merger and receive cash equal to the fair value of
their Ubarter.com common stock instead of receiving shares of ShopNow.com common
stock. This summary is not exhaustive, and you should read the applicable
sections of chapter 92A of the Nevada Revised Statutes, which are attached to
this proxy statement/prospectus as Annex H.
IF YOU ARE CONTEMPLATING THE POSSIBILITY OF DISSENTING FROM THE MERGER, YOU
SHOULD CAREFULLY REVIEW THE TEXT OF ANNEX H, PARTICULARLY THE PROCEDURAL STEPS
REQUIRED TO PERFECT DISSENTERS' RIGHTS, WHICH ARE COMPLEX. YOU SHOULD ALSO
CONSULT YOUR LEGAL COUNSEL. IF YOU DO NOT FULLY AND PRECISELY SATISFY THE
PROCEDURAL REQUIREMENTS OF THE NEVADA REVISED STATUTES, YOU WILL LOSE YOUR
DISSENTERS' RIGHTS.
Under the Nevada Revised Statutes, the holders of Ubarter.com common stock are
entitled to certain dissenters' rights with respect to the merger. The following
is a summary of the rights of Ubarter.com stockholders who dissent from the
merger. It does not purport to be complete and is qualified in its entirety by
reference to Sections 92A.300 through 92A.500 of the Nevada Revised Statutes
(the Dissenters' Rights Statute, a copy of which is attached as Annex E to this
proxy statement/prospectus).
Any Ubarter.com shareholder may, as an alternative to receiving a consideration
specified in the merger agreement, dissent from the merger and obtain payment of
the fair value of such shareholder's Ubarter.com common stock pursuant to the
Dissenters' Rights Statute. Ubarter.com stockholders will be bound by the terms
of the merger unless they dissent by complying with all the requirements of the
Dissenters' Rights Statute. Any Ubarter.com shareholder contemplating exercising
the right to demand such payment should carefully review the Dissenters' Rights
Statute, a copy of which is included as Annex to this proxy
statement/prospectus and in particular the required procedural steps. A
UBARTER.COM SHAREHOLDER WHO FAILS TO COMPLY WITH THESE PROCEDURAL REQUIREMENTS
MAY LOSE THE RIGHT TO DISSENT.
Set forth below, to be read in conjunction with the full text of the Dissenters'
Rights Statute, is a summary of the procedures relating to the exercise of
dissenters' rights by Ubarter.com stockholders.
Any Ubarter.com shareholder who wishes to dissent must deliver to Ubarter.com,
prior to the vote on the merger agreement, a written notice of intent to demand
payment for such shareholder's shares if the merger is effectuated. In addition,
such shareholder must not vote their shares of Ubarter.com common stock in favor
of the merger agreement. A Ubarter.com shareholder who fails to deliver the
notice on time or who votes in favor of the merger agreement will not have any
dissenters' rights. If a Ubarter.com shareholder returns a signed proxy but does
not specify a vote AGAINST approval of the merger agreement or a direction to
abstain, the proxy will be voted for approval of the merger agreement, which
will have the effect of waiving such shareholder's dissenters' rights.
If the merger agreement is approved by Ubarter.com stockholders, Ubarter.com is
required to deliver a written dissenters' notice to all Ubarter.com stockholders
who gave a timely notice of intent to demand payment and who did not vote in
favor of the merger agreement. The notice must be sent no later than ten days
after the merger agreement is approved and must (a) state where the payment
demand must be sent and where and when certificates for certificated shares must
be deposited, (b) inform stockholders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment is received,
(c) supply a form for demanding payment that includes the date of the first
announcement to the news media or to stockholders of the terms of the proposed
corporate action and that requires the person asserting dissenters' rights to
certify whether or not such shareholder acquired beneficial ownership of the
shares before that date, (d) set a date by which Ubarter.com must receive the
payment demand, which may not be fewer than 30 or more than 60 days after the
date the required dissenters' notice is delivered, and (e) be accompanied by a
copy of the Dissenters' Rights Statute.
A shareholder who is sent the dissenters' notice described above must
(i) demand payment, (ii) certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice, and (iii) deposit such shareholder's certificates in
accordance with the terms of the notice. A shareholder who demands payment and
deposits the shareholder's certificates of Ubarter.com common stock as requested
by the dissenters' notice retains all other rights of a Ubarter.com shareholder
until such rights are canceled by the
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consummation of the merger. A shareholder who does not demand payment or deposit
the shareholder's certificates of Ubarter.com common stock where required, each
by the date set forth in the dissenters' notice, is not entitled to payment.
Ubarter.com may restrict the transfer of uncertificated shares from the date of
the demand for payment until the merger is consummated; however, the holder of
uncertificated shares retains all other rights of a shareholder until those
rights are canceled by the consummation of the merger.
Except for shares of Ubarter.com common stock acquired by a dissenter after the
date set forth in the dissenters' notice as the date of first announcement to
stockholders or the news media of the terms of the merger, as soon as the merger
is effectuated or upon receipt of the payment demand, Ubarter.com must pay each
dissenter who complied with the foregoing requirements the amount Ubarter.com
estimates to be the fair value of the dissenters' share of Ubarter.com common
stock plus accrued interest. The payment must be accompanied by certain
financial information concerning Ubarter.com, a statement of Ubarter.com's
estimate of the fair value of the shares, an explanation of how the interest was
calculated, a statement of the dissenter's right to demand payment if the
dissenter is dissatisfied with the payment offer, and a copy of the Dissenters'
Rights Statute.
A dissenter may notify Ubarter.com in writing of the dissenter's own estimate of
the fair value of the dissenter's shares and the amount of interest due with
respect thereto and may demand payment of the dissenter's estimate, by following
the procedures set forth in the Dissenters' Rights Statute.
Ubarter.com stockholders considering exercising dissenters' rights should bear
in mind that the fair value of their Ubarter.com common stock determined under
the Dissenters' Rights Statute could be more than, the same as or less than the
value of the consideration they will receive pursuant to the merger agreement if
they do not exercise dissenters' rights.
Any Ubarter.com shareholder contemplating the exercise of dissenters' rights is
urged to review the full text of the Dissenters' Rights Statute.
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BUSINESS OF SHOPNOW.COM
OVERVIEW
ShopNow.com offers businesses a tailored end-to-end solution that addresses the
challenges associated with implementing a successful e-commerce strategy. It
offers access to the ShopNow network and a comprehensive suite of products and
services ranging from custom application and online store development to online
and traditional sales and marketing services and transaction processing. The
ShopNow marketplace, which includes the ShopNow.com portal and its affiliate and
syndication sites, allows merchants to target specific groups of shoppers.
ShopNow.com's recently launched business-to-business marketplace, b2bNow.com,
allows businesses to buy, sell and exchange goods and services with one another.
This combination of products, services and marketplace access enables businesses
to create online stores and custom web sites, access customers and transact
business efficiently.
INDUSTRY BACKGROUND
RAPID GROWTH OF THE INTERNET AND E-COMMERCE
The Internet has grown in less than a decade from a limited research tool into a
global network consisting of millions of computers and users. The Internet is an
increasingly significant medium for communication, information and commerce.
International Data Corporation, or IDC, estimates that at the end of 1998 there
were over 62 million web users in the United States and over 142 million web
users worldwide and that by the end of 2003 the number of web users will
increase to 177 million in the United States and to over 502 million worldwide.
The rapid growth of the Internet has given businesses, merchants and shoppers
the opportunity to conduct an increasing amount of commerce online. ShopNow.com
believes that e-commerce offers numerous advantages to businesses, merchants and
shoppers. Shoppers receive increased selection, competitive prices and the
convenience of being able to shop on the Internet 24 hours a day, 7 days a week
from the location of their choice. The Internet enables merchants to reach a
global audience and operate with limited infrastructure, reduced overhead and
greater economies of scale. Merchants can customize web site content to match
the needs and preferences of individual shoppers by transparently personalizing
content for each shopper. By facilitating access to information, the Internet
enables merchants to give customers more detailed product information while
affording merchants the opportunity to obtain detailed information about the
purchasers of their products. In addition, online merchants can reduce selling
costs by reducing or eliminating investments in physical retail locations and
automating much of the interaction with their customers. These advantages are
resulting in a dramatic increase in the amount of commerce conducted over the
Internet and the number of businesses and merchants advertising and selling
goods and services online. According to IDC, worldwide transactions on the
Internet are expected to increase from approximately $111 billion in 1999 to
approximately $1.3 trillion in 2003, with the total number of users who purchase
products and services online increasing from approximately 48 million to
approximately 182 million worldwide during the same period.
CHALLENGES TO CONDUCTING COMMERCE OVER THE INTERNET
Businesses and merchants increasingly are determining that they need an online
presence to take advantage of the rapid growth and benefits of e-commerce. To
conduct commerce online effectively and efficiently, however, businesses and
merchants must address a number of challenges:
- WEB SITE PLANNING AND STOREFRONT DESIGN. Businesses and merchants must
design and implement the look and feel of their online stores and custom
web sites in a way that provides a rich, easy-to-use and generally
satisfying end-user experience that fosters buying and repeat visits.
Storefront design must promote the merchants' brands, identities and
product information through the use of graphics, images and text content.
- VISIBILITY AND CUSTOMER ACQUISITION. Merchants need to effectively
communicate with their targeted online audience to maximize the number of
visits to, and purchases from, their web sites. Both online merchants
seeking to establish a brand and traditional merchants with established
brands need to create visibility online and to distinguish themselves from
the significant number of competitors selling products and services on the
Internet. Achieving widespread brand recognition and customer loyalty in a
crowded market where consumers
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are inundated with Internet-related advertising requires a comprehensive
and focused marketing strategy to reach the desired audience. These
efforts require a broad range of both online and traditional techniques
ranging from banner and hyperlink advertisements or e-mail communications
to traditional methods, such as direct mail. In order to attract the
highest number of desired online shoppers, merchants need to employ
creative marketing solutions that position their products and services
more effectively than those of their many competitors.
- TRANSACTION PROCESSING. Businesses and merchants must implement solutions
that enable them to efficiently and effectively process orders once they
are placed. Online transaction processing is complex and involves a number
of elements including secure, dependable, automated real-time payment
authorization, calculation of tax and shipping charges, order tracking and
customer service. Online orders for physical goods must be transmitted to
fulfillment centers, distributors or merchant-owned distribution centers
for shipment of the goods.
In light of these challenges, businesses and merchants who choose to internally
develop and maintain an e-commerce presence must invest a significant amount of
capital and technical resources. E-commerce technology evolves rapidly,
necessitating timely implementation and upgrades. The lengthy and often
cost-prohibitive nature of in-house development and maintenance has caused an
increasing number of businesses and merchants to outsource some or all of their
e-commerce capability development to third-party service providers. Outsourced
solutions offer convenience and savings, but most service providers specialize
in specific, limited aspects of an Internet merchant's business. Merchants who
outsource their e-commerce capability development typically must devote
significant technical expertise and other resources to coordinate multiple
vendors and integrate the various components.
As e-commerce solutions evolve and online businesses and merchants proliferate,
need and demand increase for outsourced e-commerce solutions that seamlessly
integrate every aspect of an online business from storefront development to
marketing services, transaction processing and fulfillment.
THE SHOPNOW SOLUTION
ShopNow.com is an end-to-end developer and provider of e-commerce enabling
solutions for businesses and merchants. It provides a comprehensive suite of
products and services that enable businesses and merchants to create, support
and grow an efficient, scaleable and reliable online presence. ShopNow.com's
marketing services use both traditional and online methods to bring businesses,
merchants and shoppers together, while its other e-commerce products and
services enable businesses and merchants to develop and complete online
transactions. ShopNow.com's e-commerce platform includes custom application and
online store development and design, hosting and maintenance, fraud prevention,
payment processing and order fulfillment. ShopNow.com provides customers with a
wide variety of supporting technologies in order to meet their specific needs.
Its sales and marketing services include merchant and product listing on its
online marketplaces, advertisements and e-mail promotions and other creative
services. ShopNow.com also operates the ShopNow.com marketplace, a distributed
network of web sites comprised of the ShopNow.com portal and more than 4,000
affiliate and syndication shopping sites, which together provide access to more
than 45,000 merchants offering over 5 million products. In addition, ShopNow.com
operates b2bNow.com, its business-to-business portal and online marketplace.
Key benefits of ShopNow.com's solution include:
- END-TO-END INTEGRATED SOLUTION. ShopNow.com believes that it provides all
the critical capabilities required to enable businesses and merchants to
conduct commerce online. It offers businesses and merchants a
comprehensive suite of e-commerce products and services and access to
online marketplaces. Its marketing services include advertising,
merchandising and e-mail services on its ShopNow marketplace and on its
b2bNow.com marketplace. Its end-to-end solution minimizes the time,
complexity, inconvenience and cost ordinarily associated with a
multivendor or internally developed solution.
- QUICK TIME TO MARKET. The pace of change and the rate of growth of the
Internet require greater speed in implementing e-commerce solutions.
ShopNow.com's extensive experience in web site planning and storefront
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development allows it to create commerce-enabled web sites for its clients
- ranging from the basic to the highly customized - in less time than such
tasks typically require of an in-house developer.
- IMMEDIATE AND LONG-TERM SAVINGS. ShopNow.com enables businesses and
merchants to improve their return on investment by allowing them to avoid
the significant diversion or investment of resources required to develop
and maintain e-commerce capabilities internally or to integrate a
multivendor solution. Because ShopNow.com regularly reevaluates and
updates its merchant services and network offerings, its clients can
easily keep pace with rapidly evolving e-commerce technology.
- FACILITATE CUSTOMER ACQUISITION. ShopNow.com allows merchants to market
their products and services in an established online marketplace where
shoppers congregate for the specific purpose of making purchases.
ShopNow.com enables shoppers to search for products and services in an
organized manner and to evaluate offerings from numerous merchants based
on a variety of criteria. Unlike content and community-oriented portals,
ShopNow.com is focused principally on, and identified with, shopping. As a
result, it can attract visitors who are more likely to buy a product or
service at its clients' sites. Its ability to utilize detailed demographic
and shopper preference data enables it to offer targeted marketing
services to its merchant customers. The ShopNow.com marketplace, together
with ShopNow.com's merchant marketing services, allows merchants to
quickly and efficiently attract a targeted group of customers.
- COMPREHENSIVE TECHNOLOGY PLATFORM. ShopNow.com provides a flexible
scaleable technology platform from which it can tailor solutions to meet
the changing needs of its clients. Its platform is a combination of third-
party technologies and technologies that it has developed. ShopNow.com
also has serving and hosting capabilities that enable its clients to
outsource the storage and transmission functions of their e-commerce
operations. This technology provides merchants a high level of
reliability, 24 hours a day, 7 days a week. Using data centers with
redundant servers, continuous monitoring and high speed Internet
connections, ShopNow.com can provide clients with the performance they
require for uninterrupted e-commerce operations.
STRATEGY
ShopNow.com's goal is to be the leading e-commerce enabling company for
businesses and merchants. ShopNow.com plans to achieve this goal through the
following strategies:
- EXPAND ITS BUSINESS-TO-BUSINESS PORTAL. Through its recently launched
business-to-business portal and online marketplace, b2bNow.com,
ShopNow.com provides e-commerce enabling solutions for businesses and
merchants seeking to transact business with one another online. Currently,
b2bNow.com includes the following features: a request for
quotation/request for proposal search engine, a business directory, online
store building tools, sales and marketing services and information and
content relevant to businesses. ShopNow.com intends to further expand
b2bNow.com by adding features such as a procurement system, by entering
into additional key relationships and by encouraging merchants on the
ShopNow marketplace to participate in b2bNow.com. Upon completion of the
acquisition of Ubarter.com, ShopNow.com plans to integrate Ubarter.com's
online barter marketplace into b2bNow.com. In addition, ShopNow.com plans
to offer its suite of merchant services on b2bNow.com.
- EXPAND THE SHOPNOW.COM MARKETPLACE. ShopNow.com intends to aggressively
expand the ShopNow.com marketplace primarily by using the technology and
services acquired through its recent acquisitions to broaden the range of
features available to listed merchants. ShopNow.com will continue to
promote a high volume of shopper traffic on its network and attempt to
increase the number of quality customer leads generated for listed
merchants. ShopNow.com plans to rapidly expand the number of new
ShopNow.com affiliate and syndication shopping sites to increase revenues
and make the ShopNow.com marketplace more visible and accessible. In
addition, ShopNow.com is currently exploring the use of technologies and
applications relating to commerce transactions over wireless communication
devices. ShopNow.com also intends to enrich shoppers' experiences on the
ShopNow.com marketplace through applications that take advantage of
broadband technologies.
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- ENHANCE AND EXTEND SHOPNOW.COM'S SUITE OF E-COMMERCE ENABLING PRODUCTS AND
SERVICES. ShopNow.com intends to continue to add new features to its
suite of e-commerce enabling solutions. ShopNow.com believes that, for
little incremental cost, it can easily integrate into its suite new
features that will contribute additional revenues from lead generation,
advertising, upselling merchant services and licensing and syndication.
For example, it is attempting to expand its merchant marketing services by
updating its technology to increase the quality and amount of data
provided by shoppers on the ShopNow marketplace. To provide additional and
better quality leads to merchants, it recently expanded the tools
available to shoppers to include price search engines and merchant rating
systems.
- PROMOTE BRAND VISIBILITY. ShopNow.com will continue to promote the
ShopNow.com and b2bNow.com brands as the best means for conducting
business on the Internet. To accelerate the acceptance and penetration of
its brands among businesses, merchants and shoppers, ShopNow.com will
continue to advertise its brands through both online and traditional
channels such as radio and newspapers. Online efforts include placing
banner and other hyperlink advertisements on portal and other destination
web sites. To reach a mass audience, ShopNow.com will continue to conduct
national advertising campaigns in traditional media. ShopNow.com will also
expand its efforts to promote its brands through trade publication
advertisements, direct mail and promotional activities, trade shows and
media events.
- PURSUE ACQUISITIONS AND STRATEGIC BUSINESS RELATIONSHIPS. ShopNow.com
intends to make acquisitions and enter into business relationships that
enhance the effectiveness of its products and services and the quality of
its online marketplaces. To date, it has focused on acquisitions and
strategic business relationships that provide it access to improved
technology, new domestic and international markets and prospective
clients. In the future, it expects to focus principally on acquisitions
and strategic business relationships that will enhance and grow
b2bNow.com.
- EXPAND INTERNATIONALLY. ShopNow.com will seek to leverage the anticipated
global growth in e-commerce by expanding its online marketplaces
internationally. ShopNow.com plans to commence its international expansion
with the development of business opportunities in Japan in the first half
of 2000. It intends to accelerate its international expansion by entering
into strategic alliances with foreign businesses. ShopNow.com also plans
to register its web sites on international search engines, seek
relationships with foreign portal web sites and develop foreign-language
user interfaces. It believes that these features will enable international
shoppers to more easily access its online marketplaces, thereby increasing
the number of participants on the ShopNow.com network.
SHOPNOW.COM'S PRODUCTS AND SERVICES
MERCHANT SERVICES
ShopNow.com offers businesses and merchants a wide variety of enabling
products and services, including:
- SECURE PAYMENT AND ORDER PROCESSING. ShopNow.com provides online payment
and order processing software and services. Its software and services
assist its merchant clients with credit card authorization, address
verification, automated tax and shipping calculations, order tracking and
customer service. Its payment processing system currently interacts with
21 credit card processors. For security, ShopNow.com uses advanced
encryption methods. To exchange information with merchants and shoppers on
its web sites, its network servers use software that complies with the
Secure Sockets Layer specification, the predominant method for managing
the security of transmissions over a network.
- FRAUD PREVENTION. ShopNow.com's fraud prevention services use artificial
intelligence programs, a database of historical transactions and
validation by an authorized financial institution to confirm shoppers'
identities and to assess their credit status. ShopNow.com can adjust the
stringency of the fraud screening process based on a merchant's
requirements and the nature of the transaction to assist the merchant in
maximizing sales opportunities. Under an agreement with HNC Software,
ShopNow.com has licensed the right to use their eFalcon fraud management
system.
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- E-COMMERCE HOSTING AND MAINTENANCE. ShopNow.com provides services to
operate and maintain online stores on behalf of its listed merchants. It
uses data centers with redundant servers, 24-hour monitoring and support
and high speed Internet connections to provide customers with continuous
e-commerce operations. ShopNow.com also provides merchants with detailed
electronic and hard copy reports summarizing visits to and transactions
made on their online stores.
- CUSTOM APPLICATION AND ONLINE STORE DEVELOPMENT. ShopNow.com provides
businesses and merchants with design and technical development services
for their web sites and online stores, including design and advertisement
copy services and image management and production. It creates
commerce-enabled web sites ranging from the basic to the highly
customized.
- MARKETING AND CUSTOMER ACQUISITION SERVICES. ShopNow.com's marketing
services are designed to enable merchants to enhance their visibility on
the ShopNow.com marketplace, facilitate customer acquisition and retention
and increase sales. ShopNow.com offers a range of online advertising and
listing services, e-mail promotions and lead delivery programs for
merchants. It offers merchants a variety of listing positions in its
merchant database, which shoppers access through ShopNow.com. The merchant
listing positions differ by length of store description, number of search
engine keywords that refer to the merchant's products, order in which the
merchant is listed within a product category and availability of certain
promotional listings. Advertisements can be prominently displayed on
ShopNow.com or on the web site networks of ShopNow.com's marketing
affiliate, 24/7 Media. From these advertisements, shoppers can hyperlink
directly to an advertiser's web site, enabling the advertiser to directly
interact with an interested shopper. Merchants can also reach a more
focused audience by sponsoring a specific product category or,
alternatively, a wider audience by marketing to visitors on ShopNow.com's
affiliate and syndication shopping sites. ShopNow.com's e-mail promotions
enable merchants to alert shoppers registered with ShopNow.com to special
merchant product or service offerings. ShopNow.com also offers a lead
delivery program that provides merchants with a specific number of visits
by shoppers to the merchants' web sites over a given period of time. If
ShopNow.com fails to deliver the specified number of visits, the
contractual term is extended until ShopNow.com has delivered the required
number of leads.
- CUSTOMER ORDER FULFILLMENT AND CALL CENTER MANAGEMENT. ShopNow.com has
preferred supplier agreements with several companies that specialize in
providing customer order fulfillment services for merchants that lack such
capabilities. These services include warehousing, packaging and
distribution and call center services. ShopNow.com's preferred supplier
agreements allow it to obtain pricing discounts and other favorable terms
from these companies by aggregating several of its clients' order
fulfillment and call center activities under one contract that ShopNow.com
enters into and manages on behalf of its clients. ShopNow.com also has
relationships with several vendors whose warehouses it uses to fill orders
that it takes on behalf of its clients through its web sites and to
deliver the purchased merchandise directly to shoppers. ShopNow.com has
integrated its order processing, payment processing and fraud prevention
systems with those of its preferred suppliers to provide its merchants
with an integrated e-commerce platform.
ShopNow.com's various merchant services can be purchased as an integrated suite
or individually, which allows businesses and merchants to tailor their service
package to their particular needs. Fee arrangements are based on the specific
service purchased and may be computed on a project basis, a monthly fee basis, a
per transaction basis or a combination thereof.
THE SHOPNOW.COM MARKETPLACE
The ShopNow.com marketplace aggregates merchants and shoppers over a distributed
network of web sites. The ShopNow.com marketplace consists of ShopNow.com, its
shopping portal, and more than 4,000 affiliate and syndication sites. Its
marketplace aggregates more than 5 million products and services offered by more
than 45,000 merchants, including retailers, catalog companies, manufacturers and
individuals. The ShopNow.com directory lists merchants under 28 different
product categories. ShopNow.com's web site provides shoppers with multiple ways
to search its merchant database. To reach a specific merchant's web site, a
shopper clicks on the hyperlink to that site. Shoppers complete transactions
directly at a merchant's web site, allowing merchants to conduct e-commerce
under
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their own brand names. In some cases, ShopNow.com acts as the merchant-of-record
and offers products directly to consumers from the ShopNow.com marketplace.
These products usually are shipped directly from the manufacturer or
distributor. ShopNow.com principally offers these products to drive traffic to
the ShopNow.com marketplace.
During the last quarter of 1999, ShopNow.com completed three acquisitions to
enhance the ShopNow.com marketplace. They were the acquisition of the
SpeedyClick community web site, the bottomdollar.com comparison shopping engine
and the Cortix merchant rating system. The acquired businesses also provide
additional means for shoppers to access the web sites of ShopNow.com's
merchants. ShopNow.com believes that these enhancements will generate additional
consumer traffic on the ShopNow.com marketplace, which in turn will attract
additional participating merchants to whom ShopNow.com can cross-sell its
e-commerce enabling products and services.
ShopNow.com recently launched eBuy, ShopNow.com's proprietary transactional
banner service. eBuy allows a shopper to click on a banner advertisement from
within any web site and purchase the product or service in the banner
advertisement without leaving the site where the shopper originally saw the
banner advertisement. ShopNow.com has licensed the eBuy technology to 24/7
Media, GiftSpot.com, AthleteNow.com, ChickClick.com and ArtGalleryLive.com. The
private label version of eBuy for 24/7 Media is marketed as Click2Buy.
b2bNow.com is a global business-to-business portal that enables businesses to
buy, sell and promote their products and services to other businesses in a
single online marketplace. Launched in January 2000, b2bNow.com's e-commerce
features currently include a request for quotation/request for proposal search
engine, enhanced business listings and placements, business web hosting,
business web store building tools, business headlines, financial news, targeted
newsletters, stock quotes, site traffic reports and other sales and marketing
services. In addition, following completion of ShopNow.com's proposed
acquisition of Ubarter.com, ShopNow.com plans to integrate Ubarter.com's online
barter marketplace into b2bNow.com. ShopNow.com believes barter provides a
valuable and flexible alternative to cash transactions for businesses wishing to
exchange goods and services without disadvantaging their distribution partners.
The availability of an online barter marketplace will allow ShopNow.com's
clients to better manage sales of business assets, excess inventory, surplus
production and other goods and services.
CUSTOMERS
The following is a list of ShopNow.com's top ten customers in terms of revenues
from merchant services and revenues from its top ten advertising and
merchandising customers on the ShopNow.com marketplace for the year ended
December 31, 1999:
<TABLE>
<CAPTION>
MERCHANT SERVICES SHOPNOW MARKETPLACE
- ----------------- -------------------
<S> <C>
ArtGalleryLive.com Accounting.net
AthleteNow.com AuctioNet.com
Birkenstock Damark
Hallmark Cards eBay
The Nature Company ephones.com
Palm Computing FashionMall.com
SelfCare iWin.com
Service Merchandise MVP.com
Snowball.com Perfumania.com
Sony Social Net
</TABLE>
ShopNow.com's top ten merchant services customers accounted for 19% of its total
revenues for the year ended December 31, 1999. Its top ten advertising and
merchandising customers on the ShopNow.com marketplace accounted for 8% of its
total revenues for the year ended December 31, 1999.
RECENT ACQUISITIONS
ShopNow.com has acquired a number of businesses that expand the range of its
e-commerce enabling products and services, enhance its technology and facilitate
its international expansion. ShopNow.com intends to continually
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evaluate acquisition opportunities. In the future, it expects to focus
principally on acquisitions that will enhance and grow b2bNow.com.
Since January 1999, ShopNow.com has acquired seven companies that possess
attributes complementary to its products and services for an aggregate
consideration of approximately $132 million in common stock (valued as of the
date of each acquisition) and $19 million in cash. The companies acquired
include:
SPEEDYCLICK. On November 12, 1999, ShopNow.com acquired SpeedyClick, Corp., one
of the fastest growing web communities for women. SpeedyClick is highly
targeted, with a special focus on creating a fun, interactive and
commerce-oriented community for women. Of the sites specifically targeted to
women, SpeedyClick has had the first or second largest number of hits from women
Internet users in each of the seven months between June and December 1999,
according to PC Data Online. SpeedyClick is headquartered in Glendale,
California.
CORTIX (20-20CONSUMER.COM). On December 3, 1999, ShopNow.com acquired
Cortix Inc., an operator of comparison-shopping services, which include online
reviews and ratings of commerce-oriented businesses, merchants and products.
Cortix's independent and unbiased online comparison-shopping service saves
online shoppers time and money and generates qualified leads for merchants. The
service tracks prices and information on thousands of products. Shoppers can
comparison shop and retrieve and post ratings of Internet merchants using Cortix
technology. ShopNow.com believes that this technology will enhance the shopping
experience on ShopNow.com.
WEBCENTRIC (BOTTOMDOLLAR.COM). On December 17, 1999, ShopNow.com acquired
WebCentric, Inc., a developer of e-commerce integration technology and
applications, including bottomdollar.com. Bottomdollar.com is a comparison
shopping engine that provides shoppers with comparisons of products offered by
Internet merchants in the United States, the United Kingdom, France and Canada.
The bottomdollar.com shopping engine also provides comparison services on
affiliate web sites.
In addition, in January 2000, ShopNow.com entered into a definitive agreement to
acquire Ubarter.com Inc., as described in this proxy statement/prospectus.
STRATEGIC BUSINESS RELATIONSHIPS
ShopNow.com has entered into strategic business relationships with the following
companies:
PRIVASEEK. On January 5, 2000, ShopNow.com announced a strategic alliance with
PrivaSeek, Inc., a developer of permission marketing and privacy management
solutions. ShopNow.com intends to jointly launch Persona, PrivaSeek's suite of
identity and permission management tools, by the end of 2000. Persona will allow
shoppers and merchants to conveniently exchange and effectively manage shopper
information, permissioning and usage online across the ShopNow marketplace.
Currently, an online shopper's personal information is stored on individual web
sites, and use of the information is determined by the web sites' operators.
After ShopNow.com launches Persona, shoppers visiting the ShopNow marketplace
will experience personalized advertisements or special offers relevant to their
interests or personal life events.
TRADEX TECHNOLOGIES. On January 27, 2000, ShopNow.com entered into a strategic
relationship with TRADEX Technologies, Inc., a platform provider for
business-to-business marketplaces that enables businesses to exchange goods,
services and information over the Internet. ShopNow.com intends to integrate the
TRADEX platform on b2bNow.com to enable the businesses using its
business-to-business portal to simplify their procurement and trading processes.
ShopNow.com expects to receive transaction fees from businesses that buy or sell
products or services in the b2bNow marketplace using this and other online
trading technologies. ShopNow.com expects that this integration will be complete
by the end of the second quarter of 2000. On December 16, 1999, TRADEX and
Ariba Inc. announced the execution of a definitive agreement for Ariba's
acquisition of TRADEX. ShopNow.com believes that its strategic relationship with
TRADEX and Ariba will allow the businesses on b2bNow.com to satisfy their
procurement needs in a competitive e-commerce marketplace while enabling such
businesses to buy and sell more efficiently.
ESCROW.COM. On October 25, 1999, ShopNow.com entered into a three-year
agreement to serve as the exclusive payment processing service provider to
escrow.com, Inc., a developer of e-commerce processing and fulfillment for
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buyer and seller sites, including online auctions, online business-to-business
sites and online business-to-consumer sites. As part of the agreement,
ShopNow.com will receive a fee for each escrow transaction processed by
escrow.com through ShopNow.com's payment processing technology.
CHASE MANHATTAN BANK. In July 1999, ShopNow.com entered into an agreement with
Chase Manhattan Bank, through one of its affiliates, to launch an Internet
shopping site featuring Chase and ShopNow.com. This site, ChaseShop.com, was
launched in October 1999 and is part of Chase's online banking site. It
possesses the same core functionality as ShopNow.com with the design, color
scheme and branding of Chase.com. Similar to ShopNow.com, visitors can shop at
the sites of over 45,000 merchants, as well as shop for particular products and
brands. ShopNow.com jointly sells advertising and merchandising on the site.
Pursuant to this agreement, Chase pays ShopNow.com a licensing fee to use the
technology underlying the site. Chase is a preferred provider of financial
services for ShopNow.com and the exclusive marketer of credit cards featuring
the ShopNow.com brand. Each party shares in the revenues of the other based on
the amount of business generated through the agreement. The agreement has an
initial term of 27 months, with a three-year renewal at Chase's option.
ABOUT.COM. In July 1999, ShopNow.com entered into an agreement with
About.com, Inc., a leading Internet network of commerce communities. Under this
agreement, ShopNow.com became the exclusive generalized shopping directory
service on About.com, obtained designated placement on About.com of a hyperlink
to the ShopNow.com site and is guaranteed to receive a minimum number of banner
ads annually from About.com. This shopping section gives ShopNow.com access to
all visitors to the About.com network, which ShopNow.com believes will attract
additional visitors to its online marketplaces. The agreement has a five-year
term, and each party has the right to terminate upon 90 days' notice after
April 1, 2000.
HNC SOFTWARE. In May 1999, ShopNow.com entered into a three-year agreement with
HNC Software, Inc. Under the agreement, HNC will provide ShopNow.com with a
number of e-commerce products including marketing, fraud detection and customer
support software at preferential prices. Integration of these products with
ShopNow.com's technology platform will allow ShopNow.com to provide merchants
with better tools to manage their customer relationships.
24/7 MEDIA. In April 1999, ShopNow.com entered into a three-year cross
promotion agreement with 24/7 Media, Inc., an online advertising network. Under
the agreement, 24/7 Media promotes ShopNow.com's e-commerce and marketing
services to 24/7 Media's network of affiliated web sites in exchange for
ShopNow.com's promotion of 24/7 Media's advertising, representation and e-mail
management services to ShopNow.com's merchant customers. 24/7 Media is primarily
a point of distribution for advertising campaigns that serve banner
advertisements on web sites or by e-mail. ShopNow.com's marketing services are
oriented toward strategic planning and creative implementation of the online
marketing or advertising campaigns distributed by companies such as 24/7 Media.
Although ShopNow.com views its business relationships as an important factor in
its overall business strategy, the other parties to these relationships may
reassess their significance at any time. These relationships generally do not
establish minimum performance requirements but instead rely on the contractual
best efforts of the parties. In addition, several of ShopNow.com's strategic
business relationships may be terminated with little notice.
SALES AND MARKETING
SALES
ShopNow.com's sales strategy is designed to increase market awareness of the
ShopNow.com and b2bNow.com brands, expand the ShopNow.com and b2bNow
marketplaces, and develop additional revenue opportunities by cross-selling and
upselling additional e-commerce and marketing services to ShopNow.com's existing
clients.
ShopNow.com sells its merchant services primarily through its direct sales
force. Its sales organization targets businesses and merchants seeking online
marketing services and custom e-commerce services. These employees are currently
located at ShopNow.com's headquarters in Seattle, Washington. ShopNow.com
intends to increase its sales
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presence by opening field sales offices. Its success in doing so will depend on
its ability to attract additional qualified sales personnel.
MARKETING
ShopNow.com currently employs a variety of traditional and online marketing
programs, business development and promotional activities as part of its
marketing strategy. ShopNow.com places advertisements on high-profile third-
party web sites and on its own web sites. ShopNow.com also relies on
relationship marketing, including word-of-mouth advertising by merchants and
shoppers, indirect promotions by merchants with links to ShopNow.com's web sites
and indirect advertising arising through use of ShopNow.com's services. Although
ShopNow.com has reduced its reliance on traffic promotion agreements as
awareness of the ShopNow.com brand has increased, it believes that relationship
marketing will continue to generate a substantial number of new merchant
customers and additional shopper traffic. ShopNow.com intends to introduce a
number of other brand awareness and customer loyalty programs through its web
sites.
To augment its online marketing efforts, ShopNow.com has initiated an aggressive
brand promotion campaign using traditional media, including print, radio,
billboard and television advertising. ShopNow.com also relies on public
relations activities, attendance at industry trade shows and direct mail
programs to increase merchant awareness of its products and services and to
generate additional sales. ShopNow.com intends to continue to participate in
joint promotions using online and traditional advertising media.
TECHNOLOGY AND INFRASTRUCTURE
ShopNow.com's e-commerce enabling products and services and online marketplaces
require the development and deployment of advanced e-commerce technologies and
methodologies. Consequently, ShopNow.com has invested heavily in licensing
advanced technologies and in developing a core set of technologies. Its
third-party vendors provide relational databases, such as Oracle and Microsoft
SQL server, search technologies, ad servers, catalog engines and various
back-end automation technologies. ShopNow.com's proprietary technologies include
interfaces to customer order fulfillment systems and payment systems.
ShopNow.com provides fraud prevention software through a proprietary interface
with HNC Software.
ShopNow.com's software runs on system hardware that is hosted in leased and
third-party data centers located in Seattle, Washington and Sterling, Virginia.
These data centers are connected to ShopNow.com's headquarters in Seattle,
Washington through high speed networks. These data centers, as well as the
system hardware located at ShopNow.com's headquarters, are connected to back-up
generators to maintain uninterrupted electrical service and to the Internet
through multiple Internet service providers to avoid connectivity problems.
ShopNow.com's systems are redundant, and ShopNow.com maintains multiple
clustered high speed routers, multiple clustered load balancing hardware,
multiple web servers and multiple application and database servers. Data for
ShopNow.com's networks is stored on dedicated, high speed and redundant disk
appliances that provide continuous access to the data even if individual disk
drives, computers and power supplies fail. Data is backed up regularly and is
stored off site at the third-party data centers to provide for data recovery in
the event of a disaster. ShopNow.com employs extensive automated and manual
monitoring to maintain a high level of network uptime.
ShopNow.com employs several relational databases to collect product stock
keeping unit transaction data and to track multiple resellers or affiliates. Its
databases have been designed for high levels of performance and scaleability.
Shopper data is maintained in a profile database that is used for targeted
shopper relationship management. The software architecture has been designed to
accommodate ShopNow.com's expected growth over the next 24 months.
ShopNow.com believes that its future success will depend in part on its ability
to license, develop and maintain advanced e-commerce technologies. Consequently,
ShopNow.com expects to invest heavily in developing new technologies and to
continue to make strategic acquisitions to increase its direct control and
ownership of proprietary technology.
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INTELLECTUAL PROPERTY
Intellectual property is critical to ShopNow.com's success, and ShopNow.com
relies upon patent, trademark, copyright and trade secret laws in the United
States and other jurisdictions to protect its proprietary rights and
intellectual property. However, patent, trademark, copyright and trade secret
protection may not be available in every country in which ShopNow.com's products
and services are distributed or made available. Its proprietary software,
documentation and other written materials are provided limited protection by
international and United States copyright laws. In addition, ShopNow.com
protects its proprietary rights through the use of confidentiality and license
agreements with employees, consultants and affiliates.
ShopNow.com currently has five pending United States patent applications. It
does not have any issued patents.
ShopNow.com has registered the trademark "ShopNow." It has applied for United
States trademark registrations for the marks "ShopNow.com" and "b2bNow.com."
These marks may also be protected in other jurisdictions.
ShopNow.com's transaction processing and advertisement serving technology
collects and uses data derived from user activity on its web sites and those of
its merchant customers that it maintains. This data is intended to be used for
targeted marketing and for predicting advertisement performance. Although it
believes that it has the right to use such data, trade secret, copyright or
other protection may not be available for such information or others may claim
rights to such information.
In December 1999, ShopNow.com acquired WebCentric, operator and creator of
bottomdollar.com, a proprietary search engine capable of aggregating large
amounts of product data and information (i.e., price, delivery times) from
participating web sites.
RESEARCH AND DEVELOPMENT
ShopNow.com's research and development efforts are directed toward improving the
design and functionality of its online marketplaces, improving its network
systems and enhancing the technology underlying the features of its e-commerce
products and services. Research and development expenses were $2.4 million in
1997, $4.4 million in 1998 and $8.9 million in 1999.
COMPETITION
The market for e-commerce enabling solutions and online marketplaces is new,
intensely competitive, highly fragmented and rapidly changing. Barriers to entry
are not significant, and ShopNow.com expects competition to intensify in the
future. Although ShopNow.com believes no one company currently offers a range of
e-commerce enabling solutions as comprehensive as its suite of products and
services, many companies offer alternatives to one or more of ShopNow.com's
products and services. These companies include InfoSpace, Go2Net, Yahoo! and
Cybersource.
The number of companies providing products and services that compete with
ShopNow.com's is large and increasing at a rapid rate. Many of ShopNow.com's
competitors and potential competitors have substantially greater financial,
technical, marketing and other resources. ShopNow.com expects that additional
companies that to date have not had a substantial commercial presence on the
Internet or in ShopNow.com's markets will offer competing products and services.
In addition, as the use of the Internet and online products and services
increases, larger well-established and well-financed entities may continue to
acquire, invest in or form joint ventures with providers of e-commerce products
and services, and existing providers of e commerce solutions may continue to
consolidate. Providers of Internet browsers and other Internet products and
services who are affiliated with providers of web directories and information
services may more tightly integrate these affiliated offerings into their
browsers or other products or services. Any of these trends would increase the
competition ShopNow.com faces.
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EMPLOYEES
At December 31, 1999, ShopNow.com had 476 employees, including 208 in merchant
services and b2bNow.com, 229 in the ShopNow.com marketplace, and 39 in general
and administrative functions. ShopNow.com is not subject to any collective
bargaining agreements and believes that its employee relations are good.
FACILITIES
ShopNow.com's principal executive offices are located in Seattle, Washington,
where it leases approximately 57,000 square feet under a lease that expires in
August 2001. It also leases space in various geographic locations for sales and
marketing personnel and for its servers. ShopNow.com also leases space in San
Francisco and Glendale, California; Phoenix, Arizona; Savannah, Georgia; and
Wichita, Kansas for the operations of various subsidiaries. ShopNow.com believes
that its current facilities are adequate to meet its needs through the end of
2000, at which time it may need to lease additional space. In December 1999,
ShopNow.com executed a new lease for its principal executive offices in Seattle,
Washington. This lease covers approximately 100,000 square feet and has a
ten-year term. ShopNow.com expects to move into its new offices in February
2001. This move could cause a disruption in its operations and unexpected costs,
which would adversely affect its business.
LEGAL PROCEEDINGS
From time to time ShopNow.com has been, currently is and expects to continue to
be subject to legal proceedings and claims in the ordinary course of business.
It does not believe that any of its currently pending litigation is material.
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MANAGEMENT OF SHOPNOW.COM
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the executive
officers and directors of ShopNow.com as of January 20, 2000.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
NAME AGE POSITION
- ------------------------------------------- -------- -------------------------------------------
<S> <C> <C>
Dwayne M. Walker........................... 38 Chairman of the Board and Chief Executive
Officer
Joe E. Arciniega, Jr....................... 41 President, ShopNow.com USA and Chief
Operating Officer
Alan D. Koslow............................. 42 Executive Vice President, Chief Financial
Officer, General Counsel and Secretary
Ganapathy Krishnan, Ph.D................... 39 Executive Vice President and Chief
Technology Officer
Othniel D. Palomino........................ 36 Executive Vice President
William D. Pittman......................... 38 Executive Vice President and Chief
Technical Architect
Anne-Marie K. Savage....................... 35 Executive Vice President
Jacob I. Friesel........................... 50 Director
Eytan J. Lombroso.......................... 48 Director
David M. Lonsdale.......................... 46 Director
Bret R. Maxwell............................ 40 Director
Mark C. McClure............................ 49 Director
John R. Snedegar........................... 50 Director
Mark H. Terbeek............................ 29 Director
</TABLE>
DWAYNE M. WALKER has been ShopNow.com's Chairman of the Board since March 1996,
its Chief Executive Officer since August 1996 and a director since August 1995.
Mr. Walker was ShopNow.com's President from March 1996 to January 2000. From
April 1995 to April 1996, he was President and Chief Executive Officer of
Integra Technologies, a wireless communications company. From September 1989 to
March 1995, he was a Director for Microsoft Windows NT and Networking Products
and a General Manager of Microsoft Corporation, a software company.
JOE E. ARCINIEGA, JR. has been the President of ShopNow.com USA since January
2000 and its Chief Operating Officer since November 1998. From May 1996 to
November 1998, he was Vice President of Operations for GT Interactive Software,
an entertainment software company. From November 1994 to May 1996, he was Vice
President of Operations of Humongous Entertainment, a children's software
company. From September 1994 to October 1994, he was the Operations Consultant
for Humongous Entertainment. From October 1991 to July 1994, he served as
Director at the Pritikin Longevity Center, a cardio-health facility.
ALAN D. KOSLOW has been ShopNow.com's Executive Vice President, Chief Financial
Officer, General Counsel and Secretary since June 1998. From May 1997 to June
1998, he was of counsel to Graham & James LLP/Riddell Williams P.S., a law firm.
From February 1990 to April 1997, he was an attorney at Foster Pepper &
Shefelman PLLC, a law firm. Mr. Koslow received a B.A. in Economics and
Accounting from Rutgers University and a J.D. from Rutgers Law School.
Mr. Koslow is a certified public accountant.
GANAPATHY KRISHNAN, PH.D. has been ShopNow.com's Executive Vice President and
Chief Technology Officer since January 1997. From March 1996 to December 1996,
he was Chief Executive Officer of Web Solutions, an e-commerce software company.
From September 1991 to December 1996, he was Chief Executive Officer of
Intelligent Software Solutions, an e-commerce software company. Dr. Krishnan
received a B.S. in Technology, Chemical Engineering from IIT Madras in India, an
M.S. in Chemical Engineering from the University of Louisville and an M.S. and
Ph.D. in Computer Science from the State University of New York/Buffalo.
OTHNIEL D. PALOMINO has been an Executive Vice President since April 1997.
Mr. Palomino manages e-commerce services and the b2bNow.com portal. From
September 1991 to March 1997, he was a Group Manager for Microsoft. He received
a B.S. in Engineering from Princeton University and an M.B.A. from Stanford
University.
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WILLIAM D. PITTMAN has been ShopNow.com's Executive Vice President and Chief
Technical Architect since June 1999. From 1993 to June 1999, he was founder and
Chief Technical Officer of GO Software, a developer of e-commerce payment
processing technologies. Mr. Pittman received a B.S. in Chemical Engineering
from the University of Southern Florida and an M.B.A. from Georgia Southern
University.
ANNE-MARIE K. SAVAGE has been an Executive Vice President since June 1999.
Ms. Savage has primary responsibility for the ShopNow.com marketplace. From
February 1998 to June 1999, she was ShopNow.com's Senior Vice President,
Marketing and Business Development. From March 1997 to February 1998, she was
ShopNow.com's Vice President of Online Stores, and from July 1996 to March 1997,
she was ShopNow.com's Director of Marketing. From April 1995 to April 1996, she
was the Director of Marketing of Integra Technologies. From April 1994 to April
1995, she was an independent marketing consultant. Ms. Savage received a B.A. in
Hotel and Restaurant Administration from Washington State University.
JACOB I. FRIESEL has served as a director since November 1999. Since February
1998, he has been the Executive Vice President-Sales and Marketing and a
director of 24/7 Media, an Internet advertising and direct marketing firm. From
1997 to 1998, he was President of Katz Millennium Marketing, the Internet media
sales division of Katz Media Group, Inc. From 1994 to 1997, he was Vice
President, Strategic Planning for the Katz Television Group. From 1993 to 1994,
he was a Vice President and General Sales Manager of Katz American Television,
an advertising representative of major market television stations. Mr. Friesel
was elected as one of ShopNow.com's directors pursuant to a provision of
ShopNow.com's cross promotion agreement with 24/7 Media. Mr. Friesel received a
B.A. from the City University of New York.
EYTAN J. LOMBROSO has served as a director since October 1999. Since May 1998,
he has been Senior Vice President-Card Member Services at Chase Manhattan Bank.
From September 1996 to May 1998, he was Senior Vice President-International
Consumer at Chase. From August 1995 to September 1996, he was Senior Vice
President-Merger Integration at Chase. From January 1993 to August 1995, he was
Senior Vice President-Retail Bank Transformation at Chase. Mr. Lombroso was
elected as one of ShopNow.com's directors pursuant to its agreement with Chase
Manhattan Bank. Mr. Lombroso received a B.S. from Technion-Israel Institute of
Technology and an M.B.A. from Pepperdine University.
DAVID M. LONSDALE has served as a director since October 1998. Since December
1998, he has been President and Chief Executive Officer of Uppercase, a Xerox
subsidiary and software development company. From November 1996 to November
1998, he was the Chief Executive Officer and President of Major Connections, a
software distribution company. From April 1995 to November 1996, he was Vice
President of Worldwide Sales at Integrated Micro Products, a computer
manufacturer. From May 1990 to April 1995, he was President and Chief Executive
Officer of A.C. Nielsen Software and Systems, a direct marketing software
company delivering software and solutions for direct marketing. Mr. Lonsdale
received a B.S. in Physics and a B.S. in Mathematics from the University of
Leeds in England and an M.B.A. from Cornell University.
BRET R. MAXWELL has served as a director since February 1997. Since June 1982,
he has been co-Chief Executive Officer of First Analysis, a venture capital
firm. He also serves on the board of directors and is a member of the
compensation committee of Dynamic Healthcare Technologies, a healthcare
information systems company. Mr. Maxwell received a B.S. in Engineering and an
M.B.A. from Northwestern University.
MARK C. MCCLURE has served as a director since August 1998. From January 1979 to
November 1997, he was President and Chief Executive Officer of Cobra Golf, a
golf club manufacturer.
JOHN R. SNEDEGAR has served as a director since September 1998. Since April
1999, he has been President and Chief Executive Officer of Micro General, a
telecommunications and commerce service provider. From September 1991 to March
1999, he was the President of United Digital Network, a long-distance telephone
company. He also serves on the boards of directors of StarBase Corporation, a
software configuration management company, STAR Telecommunications, a
multinational telecommunications company, and Micro General, an information
technology and telecommunications company. Mr. Snedegar received a B.A. from
Kansas State University.
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MARK H. TERBEEK has served as a director since February 1997. Since July 1999 he
has been Vice President, Corporate Development at Vitaltone, Inc. From August
1997 to July 1999, he was an independent management consultant. From May 1995 to
August 1997, he was an associate for First Analysis Corporation, a venture
capital firm. From August 1993 to May 1995, he was a business analyst at
McKinsey & Co., a management consulting company. He received a B.A. from DePauw
University and an M.B.A. from Stanford University.
BOARD OF DIRECTORS
ShopNow.com's articles of incorporation provide for nine directors.
ShopNow.com's board currently consists of eight directors with one vacancy. Its
board of directors is divided into three classes. Class I consists of
Messrs. Friesel, McClure and Terbeek, whose terms will expire at the annual
meeting of shareholders to be held in 2000; Class II consists of
Messrs. Maxwell, Lombroso and Snedegar, whose terms will expire at the annual
meeting of shareholders to be held in 2001; and Class III consists of
Messrs. Lonsdale and Walker, whose terms will expire at the annual meeting of
shareholders to be held in 2002. At each annual meeting of shareholders,
successor directors are elected to replace those whose terms have expired.
Directors serve from the time of election and qualification until the third
annual meeting following election and until their successors have been duly
elected and qualified. Any additional directorships resulting from an increase
in the number of directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of an equal number of directors.
This classification of the board of directors may have the effect of delaying or
preventing a change in control or management. Pursuant to ShopNow.com's
agreements with 24/7 Media and Chase Manhattan Bank, each company has the right
to nominate one director. ShopNow.com's officers serve at the discretion of the
board of directors. There are no family relationships among any of ShopNow.com's
directors or executive officers.
BOARD COMMITTEES
The board has an audit committee and a compensation committee.
The audit committee reviews ShopNow.com's financial controls and its accounting,
audit and reporting activities. The audit committee also makes recommendations
to ShopNow.com's board of directors regarding the selection of independent
auditors, reviews the results and scope of audit and other services provided by
ShopNow.com's independent auditors and reviews the accounting principles and
auditing practices and procedures to be used for ShopNow.com's financial
statements. Messrs. Lonsdale, Maxwell and McClure constitute the audit
committee.
The compensation committee reviews and recommends to the board of directors the
compensation and benefits for ShopNow.com's officers, directors and employees.
The compensation committee also administers ShopNow.com's stock option plans and
its employee stock purchase plan. Messrs. Lonsdale, McClure and Snedegar
constitute the compensation committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1999, Mr. Walker served both as ShopNow.com's President and Chief
Executive Officer and as a member of the compensation committee. Currently, no
member of the compensation committee is an officer or employee of ShopNow.com.
No member of the compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of ShopNow.com's board of directors or compensation
committee.
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SHOPNOW.COM EXECUTIVE COMPENSATION, EMPLOYMENT CONTRACTS AND EMPLOYEE BENEFITS
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by ShopNow.com to its Chief
Executive Officer, other executive officers whose salary and bonus for fiscal
1999 exceeded $100,000 and certain other highly compensated employees:
SUMMARY COMPENSATION TABLE
<TABLE>
---------------------------------------------
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
- ------------------------------------------------------ -------- -------- -------- ------------
<S> <C> <C> <C> <C>
Dwayne M. Walker...................................... 1999 $321,923 $101,566 950,175
Chairman and 1998 187,092 50,000 335,475
Chief Executive Officer 1997 97,778 -- 461,458
Joe E. Arciniega, Jr.................................. 1999 173,672 1,566 50,175
President, ShopNow.com USA and 1998 21,875 -- 250,100
Chief Operating Officer
Alan D. Koslow........................................ 1999 173,654 26,566 160,175
Executive Vice President, 1998 95,996 -- 190,475
Chief Financial Officer,
General Counsel and
Secretary
Othniel D. Palomino................................... 1999 134,263 26,566 50,175
Executive Vice President 1998 80,000 12,000 40,475
Corporate Development 1997 23,282 -- 368,000
Anne-Marie K. Savage.................................. 1999 134,263 26,566 122,850
Executive Vice President 1998 84,167 14,000 43,475
1997 68,750 -- 48,750
Jeffrey B. Haggin..................................... 1999 173,654 1,566 300,175
Former Executive Vice President 1998 29,167 -- 220,100
</TABLE>
- ------------------------
(1) Includes commission of $151,546 and bonus of $7,166.
(2) Includes commission only.
(3) Includes commission of $126,958 and bonus of $3,703.
OPTION GRANTS. During fiscal 1999, ShopNow.com granted options to purchase a
total of 7,409,430 shares of common stock both outside of and under its stock
option plans to its employees, directors and consultants, including the
individuals listed in the Summary Compensation Table. No stock appreciation
rights were granted during fiscal 1999.
The following table sets forth certain information with respect to stock options
granted to each of the individuals listed in the Summary Compensation Table in
fiscal 1999. In accordance with Securities and Exchange Commission rules,
potential realizable values for the following table are:
- net of exercise price before taxes;
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- based on the assumption that ShopNow.com's common stock appreciates at the
annual rates shown, compounded annually, from the date of grant until the
expiration of the term; and
- based on the assumption that the option is exercised at the exercise price
and sold on the last day of its term at the appreciated price.
These numbers are calculated based on Securities and Exchange Commission
requirements and do not reflect ShopNow.com's projection or estimate of future
stock price growth. Actual gains, if any, on stock option exercises will depend
on the future performance of ShopNow.com's common stock.
OPTION GRANTS IN FISCAL 1999
<TABLE>
-----------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
----------------------------------- POTENTIAL REALIZABLE
% OF TOTAL FAIR VALUE AT ASSUMED
NUMBER OF OPTIONS MARKET ANNUAL RATES OF
SECURITIES GRANTED TO VALUE ON STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE THE DATE FOR OPTION TERM
OPTIONS IN LAST PRICE OF GRANT* EXPIRATION -------------------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) ($/SHARE) DATE 0% 5% 10%
- --------------------- ----------- ----------- --------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dwayne M. Walker..... 450,000 6.46% $ 10.00 $ 8.54 6/18/09 $ -- $1,759,842 $5,467,752
175 ** 9.00 9.50 8/11/09 88 1,133 2,737
500,000 7.18 12.00 9.50 9/27/09 -- 1,737,249 6,320,277
Joe E. Arciniega,
Jr................. 50,000 ** 10.00 8.54 6/18/09 -- 195,538 607,528
175 ** 9.00 9.50 8/11/09 88 1,133 2,737
Alan D. Koslow....... 110,000 1.58 10.00 8.54 6/18/09 -- 430,184 1,336,562
175 ** 9.00 9.50 8/11/09 88 1,133 2,737
50,000 ** 2.00 11.63 10/1/09 481,250 846,795 1,407,613
Othniel D.
Palomino........... 50,000 ** 10.00 8.54 6/18/09 -- 195,538 607,528
175 ** 9.00 9.50 8/11/09 88 1,133 2,737
Anne-Marie K.
Savage............. 122,675 1.76 10.00 8.54 6/18/09 -- 479,752 1,490,570
175 ** 9.00 9.50 8/11/09 88 1,133 2,737
Jeffrey B. Haggin.... 300,000 4.31 2.00 7.22 9/15/08 1,566,000 2,760,177 4,507,315
175 ** 9.00 9.50 8/11/09 88 1,133 2,737
</TABLE>
- ------------------------
* Prior to ShopNow.com's initial public offering, fair market value was
established in good faith by ShopNow.com's board of directors based on
several factors; subsequent to ShopNow.com's initial public offering, fair
market value is based on the closing price for the common stock as reported
by the Nasdaq National Market on the date of grant.
** Less than 1% of total options granted to employees in 1999.
FISCAL YEAR-END OPTION VALUES
The following table presents information about options held by the executive
officers named in the Summary Compensation Table and the value of those options
as of December 31, 1999. The value of in-the-money options is based on the
closing price on December 31, 1999, net of the option exercise price.
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AGGREGATED OPTION EXERCISES IN 1999 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
--------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES DECEMBER 31, 1999 AT DECEMBER 31, 1999
ACQUIRED ON VALUE --------------------------- ------------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ------------ -------------- ------------ ------------ ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Dwayne M. Walker....... 25,650 $ 203,588 704,792 1,016,666 $ 11,976,342 $ 8,736,446
Joe E. Arciniega,
Jr................... -- -- 83,575 216,700 1,247,527 2,936,956
Alan D. Koslow......... 127,200 1,003,700 93,450 130,000 1,589,397 1,321,875
Othniel D. Palomino.... 52,510 463,845 341,140 65,000 6,246,321 700,938
Anne-Marie K. Savage... 10,000 97,500 95,736 144,339 1,718,183 1,473,338
Jeffrey B. Haggin...... -- -- 262,775 257,500 4,586,827 4,443,906
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
ShopNow.com has entered into a written employment agreement with Mr. Walker
effective as of July 1, 1999. This agreement may be terminated by either
Mr. Walker or ShopNow.com at any time, upon written notice to the other. The
agreement provides for an initial annual salary of $400,000 and a yearly bonus
of up to $200,000 based on the achievement of performance criteria specified by
the compensation committee. Mr. Walker's salary is to be reviewed at the end of
each calendar year by the compensation committee and adjusted at the board's
sole discretion; provided, however, that Mr. Walker's salary may not be adjusted
downward without his consent. Pursuant to the agreement, Mr. Walker received, as
of September 27, 1999, an option to purchase 500,000 shares of common stock at
an exercise price equal to $12.00, which option will vest in four equal
semiannual installments subject to Mr. Walker's continued employment with
ShopNow.com. After the first year of the agreement, ShopNow.com will grant
Mr. Walker during each of the next eight quarters an option to purchase up to
125,000 shares of common stock at an exercise price equal to the closing price
of ShopNow.com's common stock on the Nasdaq National Market on the date of
grant, which option will vest in four equal semiannual installments subject to
Mr. Walker's continued employment with ShopNow.com. Mr. Walker receives a
$400 monthly car allowance and life insurance of $2,000,000. If Mr. Walker is
terminated by ShopNow.com at any time without cause, or if he terminates his
employment for "good reason" after ShopNow.com has received 30 days' notice and
has failed to cure or leaves within six months after a change in control of
ShopNow.com, ShopNow.com will pay him a lump-sum amount equal to his annual base
salary and his salary for a period of 24 months following termination and all
options granted to him under this agreement shall vest. In addition, upon such
termination Mr. Walker may elect to borrow up to $2 million from ShopNow.com to
finance the exercise of those options. For purposes of the agreement, "good
reason" means and includes the occurrence without Mr. Walker's consent of a
material reduction in his title, authority, status or responsibilities or
ShopNow.com's material breach of the agreement.
EMPLOYEE BENEFIT PLANS
401(K) PLAN. In November 1996, ShopNow.com established a discretionary
401(k) tax-qualified employee savings and retirement plan covering all employees
who satisfy certain eligibility requirements relating to minimum age. Pursuant
to ShopNow.com's 401(k) plan, eligible employees may elect to reduce their
current compensation by up to the lesser of 15% of their base compensation or
the statutorily prescribed annual limit, currently $10,500, and have the amount
of such reduction contributed to the 401(k) plan. ShopNow.com's 401(k) plan is
intended to qualify under Section 401 of the Internal Revenue Code of 1986, so
that contributions, and income earned on the contributions, are not taxable
until withdrawn. The 401(k) plan permits ShopNow.com to make discretionary
contributions based on compensation. To date, ShopNow.com has not made any
contributions to the 401(k) plan.
STOCK OPTION PLAN. In October 1996, ShopNow.com's board and shareholders
adopted ShopNow.com's stock option plan. The board of directors amended and
restated the stock option plan in June 1999, and, in July 1999, the amendment
was approved by ShopNow.com's shareholders. The stock option plan provides for
the grant to employees of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986 and for the grant to employees,
directors and consultants of nonstatutory stock options and stock purchase
rights. Unless
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sooner terminated, the stock option plan will automatically terminate in 2009. A
total of 8,000,000 shares of common stock are reserved for issuance pursuant to
the stock option plan. In addition, the stock option plan provides for automatic
annual increases equal to the least of
- 750,000 shares,
- 3% of the outstanding shares under the plan on such date, or
- an amount determined by the board of directors. As of December 31, 1999,
options to purchase 538,776 shares of common stock had been exercised and
options to purchase 7,390,900 shares of common stock were outstanding
under the stock option plan with a weighted-average exercise price of
$6.24 per share.
The stock option plan is administered by the board of directors. The board has
the power to determine the terms of the options granted, including the exercise
price, the number of shares subject to the option, and the exercisability
thereof, and the form of consideration payable upon such exercise. In addition,
the board of directors has the authority to amend, suspend or terminate the
stock option plan, provided that no such action may affect any share of common
stock previously issued and sold or any option previously granted under the
stock option plan without the option holder's consent.
The exercise price of all incentive stock options granted under the stock option
plan must be at least equal to the fair market value of the common stock on the
date of grant. The exercise price of nonstatutory stock options granted under
the stock option plan is determined by the board of directors. The term of all
options granted under the stock option plan may not exceed ten years.
Options and stock purchase rights granted under the stock option plan are not
generally transferable by the optionee, and each option and stock purchase right
is generally exercisable during the lifetime of the optionee only by such
optionee. Options granted under the stock option plan must generally be
exercised within three months following termination of an optionee's status as
an employee, director or consultant of ShopNow.com or within 12 months following
termination of an optionee by death or disability, but in no event later than
the expiration of the option's the year term. In the case of stock purchase
rights, unless the administrator determines otherwise, a restricted stock
purchase agreement shall grant ShopNow.com a repurchase option that lapses at a
rate determined by the plan administrator. The purchase price for shares
repurchased pursuant to a restricted stock purchase agreement will be the
original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to ShopNow.com.
The stock option plan provides that in the event of ShopNow.com's merger with or
into another corporation or a sale of all or substantially all of its assets,
each option and stock purchase right will be assumed or substituted for by the
successor corporation. In the event the successor corporation refuses to assume
or substitute for the option or stock purchase right, the optionee will have the
right to exercise all the optioned stock, including shares as to which it would
not otherwise be exercisable, for a period of 15 days from the date of notice
from the administrator, after which date the option or stock purchase right will
terminate.
1999 EMPLOYEE STOCK PURCHASE PLAN. ShopNow.com's employee stock purchase plan
was adopted by the board of directors in June 1999, and approved by its
shareholders in July 1999. A total of 2,000,000 shares of common stock is
reserved for issuance under the employee stock purchase plan. Additionally, the
employee stock purchase plan provides for an automatic annual increase in the
number of shares reserved for issuance beginning on the first day of
ShopNow.com's fiscal year 2002 equal to the least of
- 600,000 shares,
- 2% of the reserved shares, or
- an amount determined by the board of directors.
The employee stock purchase plan, which is intended to qualify under
Section 423 of the Internal Revenue Code of 1986, will be administered by the
board of directors or by a committee appointed by the board. ShopNow.com's
employees, including officers and employee directors, are eligible to
participate in the employee stock purchase plan if they are employed for at
least 20 hours per week and for more than five months in any calendar year. The
employee
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stock purchase plan will be implemented with consecutive offering periods,
generally six months in duration. However, the initial offering period under the
employee stock purchase plan began on September 28, 1999, the effective date of
ShopNow.com's initial public offering, and will terminate on April 30, 2000. The
board of directors may change the timing or duration of the future offering
periods.
The employee stock purchase plan permits eligible employees to purchase shares
of common stock through payroll deductions at 85% of the lesser of the fair
market value per share of the common stock on the first day of the offering
period or on the purchase date. Participants generally may not purchase shares
if, immediately after the grant, the participant would own stock or options to
purchase shares of common stock totaling 5% or more of the total combined voting
power of all of ShopNow.com's capital stock, or more than $25,000 of
ShopNow.com's capital stock in any calendar year. In addition, a participant may
not purchase more than 5,000 shares during any offering period. In the event of
a sale of all or substantially all of ShopNow.com's assets or the merger of
ShopNow.com with or into another corporation, the board of directors may
accelerate the exercise date of the current purchase period to a date prior to
the change in control.
1999 NONOFFICER EMPLOYEE STOCK OPTION PLAN. On December 8, 1999, ShopNow.com's
board of directors adopted the 1999 nonofficer employee stock option plan. The
purposes of the plan are to attract and retain personnel, to provide additional
incentive to ShopNow.com's employees and consultants and to promote the success
of its business. The plan permits the issuance of nonqualified stock options and
shares of common stock or units denominated in common stock, all of which may be
subject to restrictions determined by the plan administrator. All employees and
consultants who are not directors or Section 16 officers of ShopNow.com at the
time of grant of an award are eligible to participate in the plan.
ShopNow.com's board has reserved a total of (a) 2,000,000 shares of common stock
plus (b) an automatic increase to be added on the first day of each fiscal
quarter beginning on January 1, 2000 equal to 10,000 shares multiplied by the
number of individuals who began employment or services with ShopNow.com in the
preceding fiscal quarter in connection with ShopNow.com's acquisition of another
corporation or business entity. The aggregate maximum number of shares available
for issuance under the plan cannot exceed 4,000,000 shares, and no more than 30%
of the shares authorized for issuance may be issued to officers of ShopNow.com
who are not subject to Section 16 of the Securities Exchange Act of 1934.
The compensation committee of the board of directors administers the plan and
determines the individuals to whom awards are granted. In addition,
ShopNow.com's board has authorized Mr. Walker to grant options to new and
current employees, up to an aggregate maximum of 50,000 shares of common stock
per employee in any calendar year. Unless the plan administrator permits
otherwise, awards may not be assigned or transferred by the holder other than by
will or by the applicable laws of descent and distribution, and, during the
holder's lifetime, awards generally may be exercised only by the holder. The
board may suspend, amend or terminate the plan at any time, provided that no
action may affect any share of common stock previously issued and sold or any
option previously granted without the holder's consent.
The plan administrator has the authority to specify the terms and conditions of
each option granted under the plan, including the vesting schedule, the term and
the exercise price. Options granted under the plan generally must be exercised
within three months following termination of employment or consulting services
at ShopNow.com or within 12 months following termination by death or disability,
but in no event later than the expiration of the option's term.
The plan administrator may also award stock awards subject to terms and
conditions determined by the plan administrator, including conditions on how the
shares subject to restrictions must be held while restricted and the
circumstances under which a holder will forfeit the shares if services with
ShopNow.com are terminated. Holders of restricted stock are shareholders of
ShopNow.com and have, subject to certain restrictions, all the rights of
shareholders with respect to their shares.
In the event of ShopNow.com's merger with or into another corporation or a sale
of all or substantially all of its assets, each outstanding award will be
assumed or substituted for by the successor corporation. In the event the
successor corporation refuses to assume or substitute for the award, the
forfeiture restrictions applicable to stock
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awards will lapse and outstanding options will become fully exercisable for a
period of 15 days from the date of notice from the plan administrator, after
which date the options will terminate and no longer be exercisable.
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
ShopNow.com's articles of incorporation limit the liability of directors to the
fullest extent permitted by the Washington Business Corporation Act as it
currently exists or as it may be amended in the future. Consequently, subject to
the Washington Business Corporation Act, no director will be personally liable
to ShopNow.com or its shareholders for monetary damages resulting his or her
conduct as a director of ShopNow, except liability for
- acts or omissions involving intentional misconduct or knowing violations
of law,
- unlawful distributions, or
- transactions from which the director personally receives a benefit in
money, property or services to which the director is not legally entitled.
Any repeal of or modification to ShopNow.com's articles of incorporation may not
adversely affect any right or protection of a director of ShopNow who is or was
a director at the time of such repeal or modification.
In addition, Shopnow.com's bylaws provide that ShopNow.com will indemnify any
individual who was, is or is threatened to be made a party to or is otherwise
involved in any threatened, pending or completed action, suit, claim or
proceeding by reason of the fact that he or she is or was a director or officer
of ShopNow. This right to indemnification will continue as to an individual who
has ceased to be a director or officer. ShopNow.com's bylaws will provide that
it may indemnify its other officers and employees and other agents. ShopNow.com
has obtained and maintain directors' and officers' liability insurance, under
which ShopNow.com's directors and officers may be indemnified against liability
they incur for serving in their capacities as directors and officers.
ShopNow.com understands that the current position of the Securities and Exchange
Commission is that any indemnification of ShopNow.com's directors and officers
for liabilities arising under the Securities Act of 1933 is against public
policy and is, therefore, unenforceable.
ShopNow.com believes that the limitation of liability provision in its articles
of incorporation, the indemnification provisions in its bylaws and its liability
insurance will facilitate its ability to continue to attract and retain
qualified individuals to serve as directors and officers.
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CERTAIN SHOPNOW.COM TRANSACTIONS
In connection with ShopNow.com's acquisition of Media Assets in September 1998,
Jeff Haggin, the sole shareholder of Media Assets, joined ShopNow.com as an
executive officer and he received 600,000 shares of ShopNow.com's common stock
based upon an agreed-upon value of $6.00 per share, $300,000 in cash, a
convertible promissory note in the aggregate principal amount of $1,050,000 and
options to purchase an aggregate of 1,120,000 shares of ShopNow.com's common
stock. These options included an option to purchase 220,000 shares at an
exercise price of $1.00 per share and performance-based options to purchase
900,000 shares of common stock at an exercise price of $2.00 per share. The
total value of the package Mr. Haggin received at the time of the acquisition
equaled $4,941,500. In May 1999, Mr. Haggin exchanged his performance-based
options for options to purchase 300,000 shares of common stock at an exercise
price of $2.00 per share.
In April 1999, ShopNow.com issued to 24/7 Media 4,300,000 shares of Series G
convertible preferred stock at $7.00 per share in exchange for $30.1 million in
consideration, consisting of cash, 466,683 shares of 24/7 Media common stock and
24/7 Media's majority interest in CardSecure. A portion of the shares of
Series G convertible preferred stock were placed in escrow pending consummation
of ShopNow.com's acquisition of CardSecure, which occurred on June 15, 1999.
24/7 Media also received warrants to purchase 860,000 shares of common stock at
$7.00 per share. As of December 31, 1999, 24/7 Media beneficially owned 11.8% of
ShopNow.com's outstanding common stock. In connection with the acquisition of
CardSecure, ShopNow.com acquired an additional 9,727 shares of 24/7 Media common
stock. As of December 31, 1999, ShopNow.com owned 476,410 shares of 24/7 Media
common stock. In connection with this purchase, ShopNow.com also entered into
both a cross promotion agreement and a mutual promotion agreement with
24/7 Media.
Under the cross promotion agreement, 24/7 Media promotes ShopNow.com's
e-commerce and direct marketing services to its network of over 2,500 affiliated
web sites in exchange for ShopNow.com's promotion of 24/7 Media's advertising,
representation and e-mail management services to merchants. This agreement
entitles each party to share in the revenues of the other party based on the
amount of business generated through this relationship. The agreement prohibits
24/7 Media from engaging other specifically identified providers of e-commerce
services as co-marketing partners for e-commerce technologies that ShopNow.com
offers. ShopNow.com also has a right of first refusal on any partnership with
24/7 Media for e-commerce technology or services from other third parties,
assuming ShopNow.com provides similar products and services. 24/7 Media is the
only third party authorized to sell advertising on ShopNow.com's web sites.
Under this agreement, ShopNow.com is obligated to purchase at least
$1.0 million annually in shopping traffic from 24/7 Media. In connection with
24/7 Media's investment in ShopNow.com, 24/7 Media has the right to nominate a
director of ShopNow.com. 24/7 Media has designated Jacob Friesel as that
nominee.
Under the mutual promotion agreement, ShopNow.com jointly brands 24/7 Media's
Click2Buy transactional banner service with the ShopNow.com name and receives
fees for processing all Click2Buy transactions. Click2Buy is the process whereby
a shopper can click on a banner advertisement from within a specific web site
and purchase the product or service in the banner advertisement without having
to leave the web site where the shopper originally saw the banner advertisement.
In connection with ShopNow.com's acquisition of GO Software in June 1999,
William Pittman joined ShopNow.com as an executive officer and he received, in
exchange for his shares of capital stock in GO Software, 814,688 shares of
ShopNow.com's common stock, $2.0 million in cash, and options to purchase an
aggregate of 100,000 shares of ShopNow.com's common stock at an exercise price
of $7.00 per share. The total value of the package Mr. Pittman received at the
time of the acquisition equaled $8,517,504.
In June 1999, ShopNow.com entered into a stock purchase agreement with CB
Capital Investors pursuant to which ShopNow.com issued 2,100,000 shares of
Series I convertible preferred stock at $9.00 per share in exchange for
$18.9 million in cash. CB Capital Investors also received warrants to purchase
555,556 shares of common stock. As of December 31, 1999, CB Capital Investors
beneficially owned 6.1% of ShopNow.com's shares of common stock. In July 1999,
ShopNow.com entered into a licensing agreement with Chase Manhattan Capital, an
affiliate of CB Capital Investors, which agreement has been assigned to Chase
Manhattan Bank. Pursuant to this agreement, Chase
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paid ShopNow.com a licensing fee to use the technology underlying the site. As
part of the agreement, Chase is a preferred provider of financial services for
ShopNow.com and the exclusive marketer of credit cards featuring the ShopNow.com
brand. The agreement provides that each party shares in the revenues of the
other party based on the amount of business generated through this relationship.
As part of the agreement, ShopNow.com participates equally with Chase in a
cooperative marketing fund to promote the services being offered under this
agreement. ShopNow.com's marketing obligations to Chase include placing an
advertisement on the ShopNow.com home page, making direct mailings regarding
Chase's merchant services to merchants on the ShopNow.com network and mentioning
Chase's merchants in ShopNow.com's own advertising. ShopNow.com's obligation to
the fund is to contribute at least $3.0 million annually. The agreement has an
initial term of 27 months, with a three-year renewal period at Chase's option.
In connection with Chase's investment in ShopNow.com, Chase has the right to
designate one nominee to serve as a director of ShopNow.com. Chase has
designated Eytan Lombroso as its nominee.
On various occasions during fiscal 1999 and fiscal 1998, ShopNow.com granted the
following options to purchase shares of its common stock to the following
executive officers and directors:
- On January 1, 1998, August 1, 1998, November 30, 1998 and December 11,
1998, ShopNow.com granted Mr. Walker options to purchase 25,000, 310,000,
375 and 100 shares of common stock, respectively, with exercise prices of
$2.00, $4.00, $2.50 and $4.00, respectively;
- On September 15, 1998, September 30, 1998 and December 11, 1998,
ShopNow.com granted Mr. Haggin options to purchase 300,000, 220,000 and
100 shares of common stock, respectively, with exercise prices of $2.00,
$1.00 and $4.00, respectively; the 300,000 options granted to Mr. Haggin
on September 15, 1998 were regranted on May 15, 1999 with the same
exercise price and vesting terms;
- On June 8, 1998, November 30, 1998, December 11, 1998 and December 31,
1998, ShopNow.com granted Mr. Koslow options to purchase 150,000, 375, 100
and 40,000 shares of common stock, respectively, with exercise prices of
$1.75, $2.50, $4.00 and $2.00, respectively;
- On March 18, 1998, June 1, 1998, November 30, 1998 and December 11, 1998,
ShopNow.com granted Dr. Krishnan options to purchase 10,000, 100,000, 375
and 100 shares of common stock, respectively, with exercise prices of
$2.00, $2.00, $2.50 and $4.00, respectively;
- On January 1, 1998, November 30, 1998, December 11, 1998 and December 31,
1998, ShopNow.com granted Mr. Palomino options to purchase 10,000, 375,
100 and 30,000 shares of common stock, respectively, with exercise prices
of $2.00, $2.50, $4.00 and $2.00, respectively;
- On January 1, 1998, November 30, 1998, December 11, 1998 and December 31,
1998, ShopNow.com granted Ms. Savage options to purchase 13,000, 375, 100
and 30,000 shares of common stock, respectively, with exercise prices of
$2.00, $2.50, $4.00 and $2.00, respectively;
- On November 16, 1998 and December 11, 1998, ShopNow.com granted
Mr. Arciniega options to purchase 250,000 and 100 shares of common stock,
respectively, with an exercise price of $4.00;
- On both September 30, 1998 and May 3, 1999, ShopNow.com granted
Mr. Lonsdale options to purchase 50,000 shares of common stock with
exercise prices of $4.00 and $7.00, respectively;
- On May 3, 1999, ShopNow.com granted Mr. Maxwell options to purchase 50,000
shares of common stock with an exercise price of $7.00;
- On both September 30, 1998 and May 3, 1999, ShopNow.com granted
Mr. McClure options to purchase 50,000 shares of common stock with
exercise prices of $4.00 and $7.00, respectively;
- On both September 30, 1998 and May 3, 1999, ShopNow.com granted
Mr. Snedegar options to purchase 50,000 shares of common stock with
exercise prices of $4.00 and $7.00, respectively;
- On May 3, 1999, ShopNow.com granted Mr. Terbeek options to purchase 50,000
shares of common stock with an exercise price of $7.00;
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- In June 1999, ShopNow.com granted Mr. Walker, Mr. Koslow, Dr. Krishnan,
Mr. Palomino, Ms. Savage and Mr. Arciniega options to purchase 450,000,
110,000, 35,525, 50,000, 122,675 and 50,000 shares of common stock,
respectively, at an exercise price of $10.00 per share;
- On August 11, 1999, ShopNow.com granted each of Mr. Arciniega,
Mr. Haggin, Mr. Koslow, Mr. Krishnan, Mr. Palomino, Ms. Savage and
Mr. Walker options to purchase 175 shares of common stock with exercise
prices of $9.00;
- On October 1, 1999, ShopNow.com granted Mr. Koslow options to purchase
50,000 shares of common stock with an exercise price of $2.00; and
- On September 27, 1999, ShopNow.com granted Mr. Walker options to purchase
500,000 shares of common stock with an exercise price of $12.00.
On October 28, 1999, ShopNow.com entered into a Stock Purchase Agreement with
escrow.com, Inc., pursuant to which ShopNow.com purchased 500,000 of
escrow.com's common stock and 2,000,000 shares of its Series A Preferred Stock,
representing in the aggregate approximately 11.9% of the outstanding equity
securities of escrow.com. Dwayne Walker, ShopNow.com's Chief Executive Officer
and Chairman of the Board, is a director of escrow.com. John Snedegar, a member
of ShopNow.com's board of directors, is the Chief Executive Officer and a
director of escrow.com. Mr. Walker and Mr. Snedegar also beneficially own
approximately 1.9% and 2.8%, respectively, of the outstanding common stock of
escrow.com. In connection with the share purchase, ShopNow.com and escrow.com
also entered into a Services Agreement, pursuant to which ShopNow.com agreed to
serve as the exclusive provider of payment processing services for all escrow
transactions effected by escrow.com. In addition, under the Services Agreement,
escrow.com agreed to serve as the exclusive provider of escrow services for
transactions via the ShopNow.com Network. Under the agreement, ShopNow.com will
receive 9% of escrow.com's net revenues and will receive monthly payments in the
amount of $100,000 per month for a period of at least 12 months commencing on
October 25, 1999, which may be extended by ShopNow.com for an additional six
months upon the satisfaction of certain criteria. In addition, ShopNow.com
received the right to acquire warrants to purchase an additional 500,000 shares
of escrow.com's common stock by introducing escrow.com to partnering Internet
sites for affiliation.
On September 28, 1999, ShopNow.com entered into a Promissory Note in the
principal amount of $212,500 with Alan Koslow, ShopNow.com's Executive Vice
President, Chief Financial Officer, General Counsel and Secretary. The execution
of the promissory note in favor of ShopNow.com was made pursuant to the exercise
of Mr. Koslow's stock options. The promissory note is secured by the shares of
common stock issued pursuant to such stock options, matures on the earlier of
September 28, 2001 or the sale of the shares subject to the security interest,
and bears interest at 6.25% per annum.
ShopNow.com believes that all of these transactions were made on terms as
favorable to ShopNow.com as it would have received from unaffiliated third
parties. Any future transactions between ShopNow.com and its officers, directors
and greater than 5% shareholders and their affiliates will be approved by a
majority of the board of directors, including a majority of ShopNow.com's
disinterested, nonemployee directors.
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PRINCIPAL SHAREHOLDERS OF SHOPNOW.COM
The following table sets forth information known to ShopNow.com with respect to
the beneficial ownership of its common stock as of December 31, 1999 by
(a) each shareholder known by ShopNow.com to own beneficially more than 5% of
its common stock, (b) each of the individuals listed on the Summary Compensation
Table, (c) each director of ShopNow.com, and (d) all directors and executive
officers as a group.
The percentage ownership in the table below is based on 42,923,035 shares
outstanding as of December 31, 1999. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. Shares of
common stock subject to options currently exercisable or exercisable within
60 days of December 31, 1999 are deemed outstanding for the purpose of computing
the percentage ownership of the person holding the options but are not deemed
outstanding for computing the percentage ownership of any other person. Unless
otherwise indicated below, the persons and entities named in the table have sole
voting and sole investment power with respect to all shares beneficially owned
subject to community property laws where applicable.
The post-merger percentage ownership includes shares of ShopNow.com common
stock that would be issued to Ubarter.com stockholders based on an assumed
exchange ratio of 0. . The actual exchange ratio could vary significantly from
this number. See the section entitled "Merger consideration; conversion of
Ubarter.com common stock."
<TABLE>
------------------------------------ ------------------------------------
PRE-MERGER POST-MERGER
------------------------------------ ------------------------------------
NUMBER OF SHARES PERCENT OF NUMBER OF SHARES PERCENT OF
OF SHOPNOW.COM SHOPNOW.COM OF SHOWNOW.COM SHOPNOW.COM
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWNERS(1) OWNED OWNED OWNED OWNED
- --------------------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
NAMED EXECUTIVE OFFICERS, DIRECTORS AND
5% SHAREHOLDERS
24/7 Media, Inc.(2).................... 5,168,500 11.80%
Jacob I. Friesel(3).................... 5,168,500 11.80
Bret R. Maxwell(4)..................... 2,937,130 6.84
Mark H. Terbeek(5)..................... 2,937,130 6.84
Eytan Lombroso(6)...................... 2,655,556 6.11
Chase Manhattan Capital, L.P.(7)....... 2,655,556 6.11
Dwayne M. Walker(8).................... 2,660,465 6.09
Jeffrey B. Haggin(9)................... 904,797 2.09
Othniel Palomino(10)................... 756,986 1.75
Mark C. McClure(11).................... 161,056 *
Anne-Marie K. Savage(12)............... 107,868 *
Alan D. Koslow(13)..................... 213,450 *
Joe E. Arciniega, Jr.(14).............. 83,575 *
John R. Snedegar(14)................... 33,345 *
David M. Lonsdale(14).................. 33,345 *
All directors and executive officers as
a group(15)(15 persons).............. 17,460,684 37.76
</TABLE>
- ------------------------------
* Less than 1% of the outstanding shares of common stock.
(1) The address of 24/7 Media, Inc. and Mr. Friesel is 1250 Broadway, 28th
Floor, New York, New York 10001. The address of Messrs. Maxwell and Terbeek
is c/o First Analysis Corporation, the Sears Tower, Suite 950, 233 South
Wacker Drive, Chicago, Illinois 60606. The address of Chase Manhattan
Capital, L.P. and Mr. Lombroso is 2 Chase Manhattan Plaza, 16th Floor, New
York, New York 10081. The address of Messrs. Walker, Arciniega, Pittman,
Palomino, Haggin, Koslow, McClure, Lonsdale and Snedegar and Dr. Krishnan
and Ms. Savage is c/o ShopNow.com, Inc., 411 First Avenue South, Suite 200
North, Seattle, Washington 98104.
(2) Includes 860,000 shares issuable pursuant to warrants held by
24/7 Media, Inc. that are currently exercisable.
(3) Represents 4,308,500 shares held by 24/7 Media, Inc. and 860,000 shares
issuable pursuant to warrants held by 24/7 Media, Inc. that are currently
exercisable. Mr. Friesel is a director and an Executive Vice President of
24/7 Media, Inc. Mr. Friesel disclaims beneficial ownership of all shares
held by 24/7 Media, Inc.
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(4) Includes 1,456,065 shares held by each of Environmental Private Equity Fund
II, L.P. and The Productivity Fund III, L.P. Also includes 6,250 shares
issuable pursuant to warrants held by each of Environmental Private Equity
Fund II, L.P. and The Productivity Fund III, L.P. that are currently
exercisable. Also includes 12,500 shares issuable pursuant to options held
by Mr. Maxwell that are currently exercisable or are exercisable within
60 days of December 31, 1999. Mr. Maxwell is Chief Executive Officer of
First Analysis Corporation, which is the manager of Environmental Private
Equity Fund II, L.P. and The Productivity Fund III, L.P. Mr. Maxwell
disclaims beneficial ownership of all shares held by Environmental Private
Equity Fund II, L.P. and The Productivity Fund III, L.P. except to the
extent of his pro rata pecuniary interest therein.
(5) Includes 1,456,065 shares held by each of Environmental Private Equity Fund
II, L.P. and The Productivity Fund III, L.P. Also includes 6,250 shares
issuable pursuant to warrants held by each of Environmental Private Equity
Fund II, L.P. and The Productivity Fund III, L.P. that are currently
exercisable. Also includes 12,500 shares issuable pursuant to options held
by Mr. Terbeek that are currently exercisable or are exercisable within
60 days of December 31, 1999. Mr. Terbeek was formerly an associate with
First Analysis Corporation, which is the manager of Environmental Private
Equity Fund II, L.P. and The Productivity Fund III, L.P. Mr. Terbeek
disclaims beneficial ownership of all shares held by Environmental Private
Equity Fund II, L.P. and the Productivity Fund III, L.P., except to the
extent of his pro rata pecuniary interest therein. The shares listed under
"Shares Being Offered" are those of Environmental Private Equity Fund II,
L.P. and The Productivity Fund III, L.P.
(6) Represents 2,100,000 shares held by Chase Manhattan Capital, L.P. and
555,556 shares issuable pursuant to a warrant held by Chase Manhattan
Capital, L.P. that is currently exercisable. Mr. Lombroso is an executive
officer of Chase Manhattan Bank, an affiliate of Chase Manhattan Capital,
L.P.
(7) Represents 2,100,000 shares held by Chase Manhattan Capital, L.P. and
555,556 shares issuable pursuant to a warrant held by Chase Manhattan
Capital, L.P. that is currently exercisable.
(8) Includes 6,400 shares owned by family members of Mr. Walker over which
Mr. Walker holds voting power and 75,000 shares held by various trusts over
which Mr. Walker has voting power. Also includes 771,458 shares issuable
pursuant to options held by Mr. Walker that are currently exercisable or
exercisable within 60 days of December 31, 1999.
(9) Includes 113,500 shares held by Mr. Haggin as trustee of various trusts.
Also includes 284,375 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of December 31, 1999.
(10) Includes 341,140 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of December 31, 1999.
(11) Represents 127,711 shares held jointly with Mr. McClure's wife, and 33,345
shares issuable pursuant to options held by Mr. McClure that are currently
exercisable or exercisable within 60 days of December 31, 1999.
(12) Includes 97,868 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of December 31, 1999.
(13) Includes 93,450 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of December 31, 1999.
(14) Represents shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of December 31, 1999.
(15) Includes 1,784,516 shares issuable pursuant to options and 1,428,056 shares
issuable pursuant to warrants that are currently exercisable or exercisable
within 60 days of December 31, 1999.
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SHOPNOW.COM MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ShopNow.com provides an end-to-end solution that enables businesses to engage in
e-commerce with other businesses, merchants and shoppers. ShopNow.com's
end-to-end solution consists of access to online marketplaces combined with a
comprehensive suite of e-commerce enabling products and services. These products
and services include custom application and online store development and design,
hosting and maintenance, sales and marketing services and transaction
processing. The ShopNow.com marketplace aggregates merchants and shoppers over a
distributed network of web sites. ShopNow.com's recently launched
business-to-business portal and marketplace, b2bNow.com, is designed to enable
businesses to conveniently engage in online transactions with one another.
ShopNow.com was incorporated in January 1994 and initially operated as a
computer services company. In 1996, ShopNow.com began to change the focus of its
business to conducting commerce over the Internet. In May 1997, ShopNow.com
launched BuySoftware.com, an online computer products store. During 1998,
ShopNow.com completed three acquisitions, including the acquisition of Media
Assets, Inc., a direct marketing company, launched ShopNow.com and began
offering merchants e-commerce enabling products and services. In April 1999,
ShopNow.com changed its name from TechWave Inc. to ShopNow.com, Inc. In
June 1999, ShopNow.com ceased operation of BuySoftware.com because ShopNow.com
determined it was inconsistent with ShopNow.com's evolving strategy. ShopNow.com
consummated three acquisitions in the fourth quarter of 1999 and two
acquisitions in January 2000, and it recently launched its business-to-business
portal, b2bNow.com.
ShopNow.com currently derives substantially all of its revenues from merchant
services and the ShopNow.com marketplace. With the recent launch of b2bNow.com,
ShopNow.com expects to derive additional revenues from the purchase, sale and
exchange of goods and services through that portal.
Revenues from merchant services are generated principally through development
fees, hosting fees and sales and marketing services. ShopNow.com's merchant
services can be purchased as a complete end-to-end suite of services or
separately, allowing businesses and merchants to select only those services they
desire. ShopNow.com recognizes revenues from development of custom applications
and online stores and marketing projects on a percentage of completion basis
over the period of development or the period of the marketing project. These
projects generally range from two to five months. Hosting contracts typically
have a term of one year, with fees charged on a monthly basis.
Revenues from the ShopNow.com marketplace, exclusive of BuySoftware.com, are
generated primarily from advertising and merchandising fees paid by merchants,
leads and orders delivered to merchants, as well as transaction processing and
licensing fees. Advertising consists of the sale of impressions on the
ShopNow.com site and merchandising consists of the sale of specific positions or
category sponsorships on the site. These agreements typically have a term of one
to four months. ShopNow.com generates transaction processing and licensing fees
from its payment processing and fraud prevention products and services.
In limited circumstances, ShopNow.com offers products directly to shoppers on
the ShopNow.com marketplace. ShopNow.com principally offers these products to
increase the number of leads it generates for merchants on the ShopNow.com
marketplace. In these instances where ShopNow.com acts as merchant-of-record,
ShopNow.com records as revenues the full sales price of the product sold and
records the full cost of the product to ShopNow.com as its cost of revenues.
These sales revenues represented approximately 20% of ShopNow.com's pro forma
(excluding BuySoftware.com) revenues in 1999, and ShopNow.com anticipates that
this percentage will decrease in 2000 and thereafter. ShopNow.com's gross profit
on the products it sells is generally lower than the gross profit on its other
revenues.
ShopNow.com expects to derive revenues from transactions, advertising,
merchandising and services fees from b2bNow.com, its business-to-business portal
and online marketplace. In addition, in January 2000, ShopNow.com entered into a
definitive agreement to acquire Ubarter.com, which operates an online
business-to-business barter
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marketplace. ShopNow.com plans to incorporate the barter marketplace as an
additional feature of b2bNow.com to provide businesses with an alternative way
to conduct transactions with each other. As of December 31, 1999, ShopNow.com
had not recorded any revenues from b2bNow.com.
Cost of revenues generated from merchant services includes all direct labor
costs incurred in connection with the provision of services, as well as fees
charged by third-party vendors that have directly contributed to the design,
development and implementation of ShopNow.com's merchant services. Cost of
revenues generated from the ShopNow.com marketplace consists primarily of the
portion of ShopNow.com's Internet telecommunications connections that are
directly attributable to traffic on the ShopNow.com marketplace and the direct
labor costs incurred in maintaining and enhancing its network infrastructure. In
order to fulfill its obligations under its lead and order delivery programs,
ShopNow.com occasionally purchases shopping traffic from third parties by
placing on their web sites advertisements that, when clicked on by a visitor,
send the visitor to the ShopNow.com marketplace. Any shopping traffic that
ShopNow.com purchases from a third party that is used to fulfill these
obligations is included as cost of revenues. Cost of revenues on the products
that ShopNow.com sells as merchant-of-record includes the cost of the product,
credit card fees and shipping costs.
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES
Revenues for the year ended December 31, 1999 were $37.0 million compared to
$7.2 million for the year ended December 31, 1998, an increase of
$29.8 million. The increase in revenues was due primarily to the expansion of
the ShopNow.com marketplace and increased demand for merchant services,
including the services of Media Assets, which ShopNow.com acquired in
September 1998. The BuySoftware.com portion of revenues for the year ended
December 31, 1999 was $9.9 million compared to $4.5 million for the year ended
December 31, 1998, an increase of $5.4 million, or 18.3% of the total increase
in revenues for the year.
SHOPNOW.COM MARKETPLACE AND TRANSACTION PROCESSING. The ShopNow.com marketplace
and transaction processing portion of revenues for the year ended December 31,
1999 was $25.8 million compared to $4.2 million for the year ended December 31,
1998, an increase of $21.6 million. The BuySoftware.com portion of these
revenues was 37.7% for the year ended December 31, 1999, compared to 93.4% for
the year ended December 31, 1998. During 1999, ShopNow.com experienced a
significant increase in its merchant listings, shopper traffic and affiliate and
syndication shopping sites, which resulted in an increase in merchandising and
advertising revenues, transaction processing fees and sales of products to
shoppers, exclusive of BuySoftware.com.
MERCHANT SERVICES. The merchant services portion of revenues for the year ended
December 31, 1999 was $11.1 million compared to $2.9 million for the year ended
December 31, 1998, an increase of $8.2 million. The increase in ShopNow.com's
merchant services revenues was due primarily to increased demand for merchant
services, including the services of Media Assets.
COST OF REVENUES
The cost of revenues for the year ended December 31, 1999 was $27.3 million
compared to $5.8 million for the year ended December 31, 1998, an increase of
$21.5 million. The increase in ShopNow.com's cost of revenues was due primarily
to increased product sales from the ShopNow marketplace and cost of revenues for
merchant services, including the services of Media Assets. The BuySoftware.com
portion of cost of revenues for the year ended December 31, 1999 was
$11.2 million compared to $4.5 million for the year ended December 31, 1998, an
increase of $6.7 million, or 31.4% of the total increase in the cost of
revenues.
SHOPNOW.COM MARKETPLACE AND TRANSACTION PROCESSING. The ShopNow.com marketplace
and transaction processing portion of cost of revenues for the year ended
December 31, 1999 was $20.2 million compared to $4.5 million for the year ended
December 31, 1998, an increase of $15.7 million. The BuySoftware.com portion of
these cost of
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revenues was 55.3% for the year ended December 31, 1999, compared to 96.8% for
the year ended December 31, 1998. The increase in ShopNow.com's ShopNow.com
marketplace and transaction processing cost of revenues, exclusive of
BuySoftware.com, was due primarily to increased merchandising revenues and
product sales from the ShopNow.com marketplace.
MERCHANT SERVICES. The merchant services portion of cost of revenues for the
year ended December 31, 1999 was $7.2 million compared to $1.4 million for the
year ended December 31, 1998, an increase of $5.8 million. The increase in
ShopNow.com's merchant services cost of revenues was due primarily to increased
demand for merchant services, including the services of Media Assets.
GROSS PROFIT. Gross profit for the year ended December 31, 1999 was
$9.6 million, compared to a gross profit of $1.3 million for the year ended
December 31, 1998, an increase of $8.3 million. This increase in gross profit
was due primarily to the increase in revenues from advertising and merchandising
over the ShopNow.com marketplace and merchant services, which contribute greater
gross profits than revenues generated on the sales of products over the
ShopNow.com marketplace. Discontinuing the BuySoftware.com business in
June 1999 also had a positive effect on ShopNow.com's overall gross profit. The
BuySoftware.com business had historically operated with minimal or negative
gross profits. ShopNow.com expects that any future sales of products on the
ShopNow marketplace will be sold at minimal or negative gross profits.
SALES AND MARKETING. Sales and marketing expenses consist primarily of costs
associated with marketing programs such as advertising and public relations, as
well as salaries and commissions. Sales and marketing expenses for the year
ended December 31, 1999 were $55.1 million compared to $12.2 million for the
year ended December 31, 1998, an increase of $42.9 million. This increase was
due primarily to increased spending as a result of the expansion of ShopNow.com
merchant services and of the ShopNow.com marketplace, including additional
personnel and nationwide print, radio and television advertisements. ShopNow.com
expects to continue to increase its sales and marketing expenses in 2000 to
promote its merchant services offerings and the ShopNow.com network.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and other personnel-related costs for executive,
financial, human resources, information services and other administrative
personnel, as well as legal, accounting and insurance costs. General and
administrative expenses for the year ended December 31, 1999 were $8.3 million,
compared to $3.5 million for the year ended December 31, 1998, an increase of
$4.8 million. This increase was due primarily to an increase in personnel from
internal growth and acquisitions. ShopNow.com anticipates continued growth in
its general and administrative expenses at least through 2000. In
September 1999, ShopNow.com settled a lawsuit brought by a party with which
ShopNow.com had entered into a contract. As a result of the terms of this
settlement, in the quarter ended September 30, 1999, ShopNow.com recognized
additional general and administrative expenses in the amount of $1.5 million.
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily
of salaries and related costs associated with the development of new products
and services, the enhancement of existing products and services, and the
performance of quality assurance and documentation activities. Research and
development expenses for the year ended December 31, 1999 were $8.9 million,
compared to $4.4 million for the year ended December 31, 1998, an increase of
$4.5 million. This increase was due primarily to the development and enhancement
of ShopNow.com's technology platform and to an increase in technology personnel.
These employees focus on developing ShopNow.com's technology platform as well as
building the overall infrastructure that supports its merchant services and the
ShopNow.com marketplace. ShopNow.com anticipates continued growth in its
research and development expenses at least through 2000.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets resulting
from acquisitions is primarily related to the amortization of customer lists,
domain names, acquired technology, proprietary concepts and goodwill.
Amortization of intangible assets expense for the year ended December 31, 1999
was $8.8 million, compared to $730,000 for the year ended December 31, 1998, an
increase of $8.1 million. This increase was due primarily to the increase in
intangible assets and related amortization expenses from business acquisitions
completed during 1999,
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including the acquisitions of GO Software, Inc., SpeedyClick, Corp.,
Cortix, Inc. and WebCentric, Inc. ShopNow.com expects continued growth in its
amortization of intangible assets expense resulting from future business
acquisitions.
STOCK-BASED COMPENSATION. Stock-based compensation expense is related to the
amortization of deferred compensation resulting from stock option grants to
employees with an option exercise price below the estimated fair market value of
ShopNow.com's common stock as of the date of grant. Stock-based compensation
expense for the year ended December 31, 1999 was $7.2 million, compared to
$182,000 for the year ended December 31, 1998, an increase of $7.0 million. The
amount of deferred compensation resulting from these grants is generally
amortized over a three-year vesting period. During the fourth quarter of 1999,
the contingent performance criteria relating to a stock option grant for 310,000
shares of the Company's common stock with an exercise price of $4.00 were
satisfied. Accordingly, a stock-based compensation charge of approximately
$3.3 million was recognized in the fourth quarter of 1999.
GAIN ON SALE OF MARKETABLE EQUITY SECURITIES. Gain on sale of marketable equity
securities consists primarily of the gains recognized from the sale of
ShopNow.com's investment in 110,000 shares of common stock of FreeShop.com in
the fourth quarter of 1999. There were no gains on sales of marketable equity
securities in 1998.
OTHER INCOME (EXPENSE), NET. Other income (expense), net consists primarily of
interest income on cash and cash equivalents and interest expense on
ShopNow.com's outstanding debt obligations. Other expense, net for the year
ended December 31, 1999 was $127,000, compared to other income, net of $171,000
for the year ended December 31, 1998, a decrease of $298,000. Although interest
income in 1999 increased due to the increase in ShopNow.com's cash and
short-term investments realized from its initial public offering, the amount of
additional interest charges from ShopNow.com's notes and leases payable, as well
as the amortization of debt financing costs incurred during 1999, resulted in an
overall other expense, net position for the year ended 1999.
NET LOSS. Net loss for the year ended December 31, 1999 was $75.9 million,
compared to a net loss of $24.7 million for the year ended December 31, 1998, an
increase of $51.2 million. This increase was due primarily to an increase in
ShopNow.com's operating expenses, most significantly sales and marketing
expenses, partially offset by ShopNow.com's increase in gross profit during the
same period. ShopNow.com expects to incur additional net losses in 2000.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES
Revenues for the year ended December 31, 1998 were $7.2 million compared to
$604,000 for the year ended December 31, 1997, an increase of $6.6 million. The
increase in revenues was due primarily to increased product sales from the
BuySoftware.com business and revenues generated by Media Assets, which
ShopNow.com acquired in September 1998. The BuySoftware.com portion of revenues
for the year ended December 31, 1998 was $4.5 million compared to $69,000 for
the year ended December 31, 1997, an increase of $4.4 million, or 67.0% of the
total increase in revenues for the year.
SHOPNOW.COM MARKETPLACE AND TRANSACTION PROCESSING. The ShopNow.com marketplace
and transaction processing portion of revenues for the year ended December 31,
1998 was $4.2 million compared to $69,000 for the year ended December 31, 1997,
an increase of $4.1 million. The increase in ShopNow.com's ShopNow.com
marketplace and transaction processing revenues was due primarily to increased
product sales from the BuySoftware.com business.
MERCHANT SERVICES. The merchant services portion of revenues for the year ended
December 31, 1998 was $2.9 million compared to $535,000 for the year ended
December 31, 1997, an increase of $2.4 million. The increase in ShopNow.com's
merchant services revenues was due primarily to revenues generated from Media
Assets. Revenues in 1997 were generated from ShopNow.com's previous business of
providing computer services to clients, which was completely phased out in early
1998. These computer services consisted primarily of providing computer
training, consulting and Internet site design to businesses.
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COST OF REVENUES
The cost of revenues for the year ended December 31, 1998 was $5.8 million
compared to $515,000 for the year ended December 31, 1997, an increase of
$5.3 million. The increase in ShopNow.com's cost of revenues was due primarily
to increased product sales from the BuySoftware.com business and cost of
revenues incurred by Media Assets. The BuySoftware.com portion of cost of
revenues for the year ended December 31, 1998 was $4.4 million compared to
$124,000 for the year ended December 31, 1997, an increase of $4.3 million, or
81.2% of the total increase in cost of revenues.
SHOPNOW.COM MARKETPLACE AND TRANSACTION PROCESSING. The ShopNow.com marketplace
and transaction processing portion of cost of revenues for the year ended
December 31, 1998 was $4.5 million compared to $159,000 for the year ended
December 31, 1997, an increase of $4.3 million. The increase in ShopNow.com's
ShopNow.com marketplace and transaction processing cost of revenues was due
primarily to increased product sales from the BuySoftware.com business.
MERCHANT SERVICES. The merchant services portion of cost of revenues for the
year ended December 31, 1998 was $1.4 million compared to $356,000 for the year
ended December 31, 1997, an increase of $1.0 million. The increase in
ShopNow.com's merchant services cost of revenues was due primarily to cost of
revenues incurred by Media Assets. Cost of revenues for 1997 was comprised of
direct labor and related costs to provide computer services to clients.
GROSS PROFIT. Gross profit for the year ended December 31, 1998 was
$1.3 million compared to $89,000 for the year ended December 31, 1997, an
increase of $1.2 million. This increase in gross profit was due primarily to the
positive gross profit contributed from Media Assets.
SALES AND MARKETING. Sales and marketing expenses for the year ended
December 31, 1998 were $12.2 million compared to $1.2 million for the year ended
December 31, 1997, an increase of $11.0 million. The increase was due primarily
to increased spending as a result of the development and expansion of the
ShopNow.com marketplace. Substantially all of the selling expenses incurred in
1997 were in support of ShopNow.com's previous computer services business, which
was discontinued in early 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the year
ended December 31, 1998 were $3.5 million compared to $918,000 for the year
ended December 31, 1997, an increase of $2.6 million. The increase was due
primarily to an increase in personnel from internal growth and acquisitions.
RESEARCH AND DEVELOPMENT. Research and development expenses for the year ended
December 31, 1998 were $4.4 million compared to $2.4 million for the year ended
December 31, 1997, an increase of $2.0 million. The increase was due primarily
to the development of ShopNow.com's technology platform, an increase in
ShopNow.com's technology personnel and expansion of the overall infrastructure
that supports the ShopNow.com marketplace.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets expense
for the year ended December 31, 1998 was $730,000 compared to $136,000 for the
year ended December 31, 1997, an increase of $594,000. The acquisition of Media
Assets and The Internet Mall resulted in $387,000 of this increase. The
remainder of this increase resulted from other purchases of intangible assets,
including domain names and customer lists.
STOCK-BASED COMPENSATION. Stock-based compensation expense for the year ended
December 31, 1998 was $182,000 compared to no expense for the same period ended
December 31, 1997. The expenses are related to employee stock option grants with
option exercise prices below the estimated fair market value of ShopNow.com's
common stock as of the date of grant. The amount of deferred compensation
resulting from these grants is generally amortized over a three-year period.
UNUSUAL ITEM--IMPAIRMENT OF ACQUIRED TECHNOLOGY. In June 1998, ShopNow.com
acquired e-Warehouse and CyberTrust with the intent of integrating the acquired
technologies with its own e-commerce product and service offerings. The amount
it paid for these acquisitions was $5.4 million. It is presently not utilizing
the acquired technologies and has determined that they have no alternative
future use or value to it, as its technology platform
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provides superior functionality. As a result, ShopNow.com wrote off
$5.2 million of the purchase price during the fourth quarter of 1998.
OTHER INCOME (EXPENSE), NET. Other income, net for the year ended December 31,
1998, was $171,000, compared to $164,000 of other expense, net for the year
ended December 31, 1997, an increase of $335,000. The increase was due primarily
to an increase in interest income earned by ShopNow.com's increased cash
reserves as a result of its financing activities during 1998 as compared to
1997.
NET LOSS. Net loss for the year ended December 31, 1998 was $24.7 million,
compared to a net loss of $4.8 million for the year ended December 31, 1997, an
increase of $19.9 million. This increase was due primarily to an increase in
ShopNow.com's operating expenses, most significantly sales and marketing
expenses, partially offset by its increase in gross profit during the same
period.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1999, ShopNow.com had net operating loss carryforwards of
approximately $76.4 million. If not used, the net operating loss carryforwards
will expire at various dates beginning in 2012. The Tax Reform Act of 1986
imposes restrictions on the use of net operating losses and tax credits in the
event that there has been an ownership change of a corporation since the periods
in which the net operating losses were incurred. ShopNow.com's ability to use
net operating losses incurred prior to July 1999 is limited to an aggregate of
approximately $14.3 million per year due to sales of Series D and Series E
convertible preferred stock to third parties in April 1998 and the sale of
Series I convertible preferred stock to Chase Manhattan Bank in July 1999, which
resulted in ownership changes. ShopNow.com has provided a full valuation
allowance on its deferred tax assets because of the uncertainty regarding their
realization. ShopNow.com's accounting for deferred taxes involves the evaluation
of a number of factors concerning the realizability of its deferred tax assets.
In concluding that a full valuation allowance was required, management
considered such factors as ShopNow.com's history of operating losses, potential
future losses and the nature of its deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, ShopNow.com has experienced net losses and negative cash flows
from operations. As of December 31, 1999, ShopNow.com had an accumulated deficit
of $105.3 million. ShopNow.com has financed its activities largely through
issuances of common stock and preferred stock, from the issuance of short-term
and long-term obligations and from capital leasing transactions for certain of
its fixed asset purchases. Through December 31, 1999, its aggregate net proceeds
have been $161.4 million from issuing equity securities and $21.8 million from
issuing debt securities. As of December 31, 1999, ShopNow.com had $62.8 million
in cash and short-term investments. During the fourth quarter of 1999, it closed
its initial public offering of 8,337,500 shares of common stock and received net
proceeds of $91.1 million.
Net cash used in operating activities was $48.0 million for the year ended
December 31, 1999, compared to $16.0 million for the year ended December 31,
1998. The increase was due primarily to the increase in ShopNow.com's net loss
for the year ended December 31, 1999, to $75.9 million compared to
$24.7 million for the year ended December 31, 1998.
Net cash used in investing activities was $82.0 million for the year ended
December 31, 1999, compared to $5.3 million for the year ended December 31,
1998. The increase was due primarily to the net increase in purchases of
short-term investments of $52.0 million during 1999, compared to $150,000 during
1998, and due to the increase in purchases of property and equipment of
$13.5 million during 1999, compared to $2.2 million during 1998.
Net cash provided by financing activities was $130.8 million for the year ended
December 31, 1999, compared to $30.8 million for the year ended December 31,
1998. The increase was due primarily to net proceeds from the issuance of common
stock of $92.8 million during 1999, compared to $25,000 during 1998, and to the
increase in the amount of proceeds from issuances of debt of $12.4 million
during 1999, compared to $3.7 million during 1998.
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In March 1999 ShopNow.com entered into a loan and security agreement with
Transamerica Business Credit Corporation for a term loan and line of credit. In
May 1999, the agreement was amended and restated allowing ShopNow.com to borrow
up to $8.5 million at any one time, consisting of a $3.5 million term loan, a
$4.0 million bridge loan and a line of credit of up to $2.5 million, initially
capped at $1.0 million until the bridge loan was repaid. The line of credit
bears interest at Transamerica Business Credit Corporation's base rate plus 2%,
is secured by substantially all of ShopNow.com's assets and was amended in
January 2000 to expire on March 31, 2001. The term loan bears interest at 12%,
is secured by substantially all of ShopNow.com's assets and matures in
March 2002. The bridge loan bore interest at 12% and was repaid in October 1999
after the closing of ShopNow.com's initial public offering.
ShopNow.com's capital requirements depend on numerous factors, including the
rate of expansion of the b2bNow.com and ShopNow.com marketplaces, the
investments ShopNow.com makes in its technology platform, the number of
acquisitions that are completed and the composition of the consideration between
cash, debt and stock for any future acquisitions, and the resources it devotes
to expansion of its sales, marketing and branding programs. ShopNow.com has also
entered into agreements with Chase Manhattan Bank, About.com and 24/7 Media,
which together require it to make aggregate advertising and marketing
expenditures of approximately $6.0 million in 2000, decreasing annually to
$1.0 million in 2004. ShopNow.com believes that existing cash balances and cash
generated from operations, together with the net proceeds from its initial
public offering and the net proceeds from this offering, will be sufficient to
meet its anticipated cash needs for working capital and capital expenditures in
the short-term (the next 12 months), and at least through the next 18 months.
After that time, it may be required to raise additional financing. It cannot be
sure that the assumed levels of revenues and expenses underlying its anticipated
cash needs will prove to be accurate. The sale of additional equity or
convertible debt securities could result in additional dilution to its
shareholders. ShopNow.com cannot be sure that financing will be available in
amounts or on terms acceptable to it, if at all.
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SELECTED CONSOLIDATED PRO FORMA QUARTERLY FINANCIAL DATA
The following table sets forth selected consolidated quarterly financial data on
a pro forma basis for 1999. The financial data presented below excludes
ShopNow.com's BuySoftware.com business for all periods presented and includes
the operations of GO Software, SpeedyClick and WebCentric as if it had acquired
them on January 1, 1999. The financial data below does not include the
operations of Ubarter.com. ShopNow.com believes that the pro forma information
below provides a better reflection of its existing business than the historical
data provided elsewhere in this prospectus. All data is unaudited, has been
prepared on the same basis as the audited financial statements and, in the
opinion of management, includes all adjustments, consisting only of normal
recurring adjustments, considered necessary for a full presentation of such
information when read in conjunction with the financial statements and
accompanying notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
-----------------------------------------------------------------
THREE MONTHS ENDED
-----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
DOLLARS IN THOUSANDS
Consolidated Statements of Operations
Data:
Revenues:
ShopNow.com marketplace and
transaction processing.............. $ 995 $ 2,305 $ 5,105 $ 10,678
Merchant services..................... 1,729 2,447 3,189 3,573
-------------- -------------- -------------- --------------
Total revenues...................... 2,724 4,752 8,294 14,251
-------------- -------------- -------------- --------------
Cost of revenues:
ShopNow.com marketplace and
transaction processing.............. 419 844 2,762 5,630
Merchant services..................... 969 1,538 2,250 2,402
-------------- -------------- -------------- --------------
Total cost of revenues.............. 1,388 2,382 5,012 8,032
-------------- -------------- -------------- --------------
Gross profit...................... 1,336 2,370 3,282 6,219
-------------- -------------- -------------- --------------
Operating expenses:
Sales and marketing................... 4,712 11,555 15,965 21,984
General and administrative............ 1,421 1,554 3,273 3,098
Research and development.............. 1,741 1,525 2,611 3,621
Amortization of intangible assets..... 13,687 13,811 14,027 14,335
Stock-based compensation.............. 133 1,822 592 4,669
-------------- -------------- -------------- --------------
Total operating expenses............ 21,694 30,267 36,468 47,707
-------------- -------------- -------------- --------------
Loss from operations.............. $ (20,358) $ (27,897) $ (33,186) $ (41,488)
============== ============== ============== ==============
</TABLE>
The growth in total revenues for each quarter in the year ended December 31,
1999 is attributable to increased advertising and merchandising revenues from
the expansion of the ShopNow.com marketplace as well as increased revenues from
merchant services, particularly from increased development and hosting revenues.
Although ShopNow.com has experienced significant growth in revenues from its
current operations and increases in the number of advertisers, merchants and
shoppers on the ShopNow.com network, these historical growth rates are not
sustainable and are not indicative of future growth rates that it may achieve.
ShopNow.com believes that period-to-period comparisons of its operating results
are not meaningful and that you should not rely on the performance of any period
as an indication of future performance.
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SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
The following table sets forth ShopNow.com's unaudited selected consolidated
quarterly financial data for the years ended December 31, 1998 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1998 THREE MONTHS ENDED 1999
------------------------------------------------ -------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA
Revenues................... $ 399 $ 740 $ 1,858 $ 4,157 $ 7,568 $ 8,414 $ 7,555 $ 13,418
Cost of revenues........... 431 753 1,629 3,036 7,140 7,543 4,811 7,835
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit............. (32) (13) 229 1,121 428 871 2,744 5,583
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing...... 1,345 3,133 3,212 4,493 5,472 12,808 15,265 21,527
General and
administrative......... 509 699 1,069 1,272 960 1,521 3,012 2,849
Research and
development............ 459 983 1,560 1,368 1,600 1,334 2,433 3,518
Amortization of
intangible assets...... 57 61 223 389 558 1,080 2,096 5,071
Stock-based
compensation........... -- 2 35 145 133 1,822 592 4,669
Unusual item--write-off
of acquired
technology............. -- -- -- 5,207 -- -- -- --
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses............... 2,370 4,878 6,099 12,874 8,723 18,565 23,398 37,634
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Loss from operations... (2,402) (4,891) (5,870) (11,753) (8,295) (17,694) (20,654) (32,051)
Nonoperating income
(expense), net........... 12 97 68 (6) 15 (260) (360) 3,356
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss............... $(2,390) $(4,794) $(5,802) $(11,759) $(8,280) $(17,954) $(21,014) $(28,695)
========= ========== ========== ========== ========== ========== ========== ==========
Basic and diluted pro forma
net loss per share(1).... $ (0.28) $ (0.37) $ (0.41) $ (0.75) $ (0.48) $ (0.80) $ (0.82) $ (0.77)
========= ========== ========== ========== ========== ========== ========== ==========
Weighted average shares
used to calculate pro
forma basic and diluted
net loss per share(1).... 8,639,544 13,022,436 14,017,673 15,661,418 17,168,592 22,538,696 25,776,927 37,313,691
========= ========== ========== ========== ========== ========== ========== ==========
</TABLE>
(1) Basic and diluted pro forma net loss per share is computed based on the
weighted average number of shares outstanding, giving effect to the
conversion of convertible preferred stock on an as-if converted basis from
the original issuance date.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998 the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE." Statement of Position 98-1 is effective
for financial statements for years beginning after December 15, 1998. Statement
of Position 98-1 provides guidance on accounting for computer software developed
or obtained for internal use, including the requirement to capitalize specified
costs and amortization of such costs. The implementation of Statement of
Position 98-1 did not have a material impact on ShopNow.com's financial position
or operating results.
In April 1998 the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "REPORTING ON THE COSTS OF START-UP ACTIVITIES."
Statement of Position 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. As ShopNow.com has expensed these
costs historically, the implementation of Statement of Position 98-5 did not
have a material effect on its financial condition or operating results.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101, "REVENUE RECOGNITION IN FINANCIAL
STATEMENTS," to provide guidance on the recognition, presentation and disclosure
of revenues in financial statements. ShopNow.com believes that its revenue
recognition practices are in conformity with the guidelines prescribed in SAB
No. 101.
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SEASONALITY
ShopNow.com believes that its advertising and merchandising revenues on the
ShopNow.com marketplace are subject to seasonality changes as retail
transactions and advertising sales in traditional media, such as television and
radio, generally are lower in the first and third calendar quarters of each
year. In addition, Internet usage typically declines during the summer and
certain holiday periods. If ShopNow.com's market makes the transition from an
emerging to a more developed market, seasonal and cyclical patterns may develop
in its industry and in the usage of, and transactions on, its web sites and
those of its merchants. Seasonal and cyclical patterns in online transactions
and advertising would affect its revenues. Those patterns may also develop on
its web sites. Given the early stage of the development of the Internet and the
company, however, ShopNow.com cannot predict to what extent, if at all, its
operations will prove to be seasonal.
IMPACT OF THE YEAR 2000 COMPUTER PROBLEM
Prior to January 1, 2000, ShopNow.com devoted substantial resources in an effort
to ensure that its proprietary software, the third-party software on which it
relies, and the underlying systems and protocols did not contain errors
associated with Year 2000 date functions. Since January 1, 2000, ShopNow.com has
not experienced any disruption as a result of any Year 2000 problems or
otherwise.
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS
ShopNow.com's board of directors has selected Arthur Andersen LLP to serve as
independent public accountants. Arthur Andersen LLP has served as ShopNow.com's
independent public accountants since August 1998. On August 7, 1998, ShopNow.com
dismissed Ernst & Young LLP as its independent accountants. Ernst & Young LLP's
report on ShopNow.com's consolidated financial statements for the two years
ended December 31, 1997 does not cover the consolidated financial statements
included in this proxy statement/prospectus. Ernst & Young LLP's reports on the
financial statements for the years ended December 31, 1996 and 1997 did not
contain any adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principle. The decision to
change independent accountants was approved by the board of directors. During
the years ended December 31, 1996 and 1997 and through August 1998, there were
no reportable events, as defined in regulations of the Securities and Exchange
Commission, or disagreements with Ernst & Young LLP on any matters of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure. Prior to retaining Arthur Andersen LLP, ShopNow.com had not consulted
with Arthur Andersen LLP regarding accounting principles.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ShopNow.com currently has instruments sensitive to market risk relating to
exposure to changing interest rates and market prices. ShopNow.com does not
enter into financial instruments for trading or speculative purposes and does
not currently utilize derivative financial instruments. Its operations are
conducted primarily in the United States and as such are not subject to material
foreign currency exchange rate risk.
The fair value of ShopNow.com's investment portfolio or related income would not
be significantly impacted by either a 100 basis point increase or decrease in
interest rates due mainly to the short-term nature of the major portion of its
investment portfolio. All the potential changes noted above are based on
sensitivity analysis performed on ShopNow.com's balances as of December 31,
1999.
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BUSINESS OF UBARTER.COM
OVERVIEW
Ubarter.com provides business-to-business barter services for retail,
professional, media and other corporate members. Currently, Ubarter.com offers
services primarily through its offices in Seattle, Washington, and Toronto,
Ontario. Ubarter.com has developed a technologically advanced
business-to-business barter system which includes an Internet web site at
http://www.ubarter.com, to provide its members an e-commerce solution to barter
over the Internet. With the launch of its web site in September 1999,
Ubarter.com is developing a web-based barter community in which buyers and
sellers are brought together in an efficient and convenient manner. Ubarter.com
believes a Web-based barter community will offer the opportunity to
significantly expand the number of members and products and services offered
through its barter system.
Ubarter.com's revenue is derived primarily from transaction fees. Ubarter.com
charges a cash transaction fee to both the seller and buyer in each barter
transaction. Ubarter.com currently has approximately 4,000 members who offer
products and services.
Ubarter.com manages a private barter currency, "Ubarter Dollars," to enable its
members to sell their products or services to other members for Ubarter Dollars.
In turn, these members use their Ubarter Dollars to purchase products and
services for which they would otherwise spend cash. Ubarter.com markets products
and services offered by its members on the Ubarter.com web site and via e-mails,
faxes, trade strategists and other means. Sales are generally conducted by
members directly with other members, but can be facilitated by Ubarter.com's
trade strategists. Generally, sales are made at or near prevailing retail
prices.
By using Ubarter.com's services, businesses have the potential to increase sales
and market share, decrease cash expenditures, reduce surplus inventory, take
advantage of underutilized capacity and increase cash flow. Barter is especially
useful to businesses where the variable costs of products or services are low
such as hospitality and professional businesses.
Ubarter.com engages in barter to pay for some of its operating costs, such as
printing, advertising and employee incentives. Ubarter.com also occasionally
engages in consignment and sells acquired merchandise to other members for
Ubarter Dollars. For example, Ubarter.com acquires merchandise for its own
account and then remarkets and trades the merchandise to other members for
Ubarter Dollars. Typically, Ubarter.com does this to establish or maintain
member relationships, to take advantage of favorable opportunities and to
facilitate and enhance its barter business for members.
Through Ubarter.com's data processing system, it acts as a third party record
keeper of member barter transactions and account balances. When members make
barter purchases and sales, Ubarter.com debits Ubarter Dollars from the buyer's
account and credits the seller's account. Members receive a monthly account
statement showing all activity for the period. Ubarter.com also provides a
direct payment system by charging its members' credit cards or through automatic
withdrawals from their bank accounts. Ubarter.com encourages members to use the
direct payment system by offering lower transaction fees if they elect direct
payment.
Ubarter Dollars are based on the U.S. dollar in the United States and the
Canadian dollar in Canada. Ubarter.com will expand this "currency conversion" to
other countries as it moves into other markets. Ubarter.com uses the Ubarter
Dollar as an accounting unit to record the value of transactions as established
by the parties to the transactions. Ubarter.com does not redeem Ubarter Dollars
for cash.
Ubarter.com was incorporated in Nevada in September 1996 under the name
International Barter Corp. for the purpose of assuming the operations of Cascade
Trade Association, a Seattle-based trade exchange, in Nevada. Cascade Trade,
founded in 1983 by Steven White, Ubarter.com's President and Chief Executive
Officer, had approximately 500 members in the Seattle area at the time of the
acquisition. In March 1999, Ubarter.com acquired all of the outstanding stock of
BBE, a large trade exchange in Canada. In April 1999, International Barter
Corp.'s name was changed to Ubarter.com Inc. to reflect its change to an
Internet-based business model.
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BUSINESS STRATEGY
Ubarter.com's goal is to be the leading online hub for business-to-business
barter transactions. Ubarter.com seeks to accomplish this goal by expanding the
range and availability of products and services offered through Ubarter.com, by
increasing the number of its members, by expanding geographically, by offering
an efficient and easy-to-use e-commerce barter site for members, and by focusing
on customer service.
DEVELOP TECHNOLOGICALLY ADVANCED MULTICHANNEL BARTER SYSTEM, INCLUDING AN ONLINE
BARTER SYSTEM. Ubarter.com is in the process of further developing front- and
back-end technology systems to enhance its technologically advanced barter
system. Ubarter.com's members are able to execute barter transactions through
any of the following three channels:
- electronically through Ubarter.com's Internet site,
- by speaking with a trade strategist located at one of Ubarter.com's
offices, or
- directly with another member using a Ubarter.com card.
CREATE STRATEGIC MARKETING ALLIANCES. Ubarter.com has and will pursue strategic
marketing alliances in order to obtain access to thousands of businesses that do
not engage in bartering and/or may be unaware of the advantages of bartering.
Ubarter.com has agreements in place, and intends to enter into more agreements,
to create strategic relationships with online and offline companies with
numerous business clients to which Ubarter.com will obtain access. Since these
types of alliances are critical to the growth of its member base, Ubarter.com is
spending significant time and resources developing these opportunities and
working to build its brand recognition.
ACQUIRE OR ESTABLISH STRATEGIC RELATIONSHIPS WITH BARTER COMPANIES IN THE BARTER
INDUSTRY. Ubarter.com intends to continue expanding its business by acquiring
or establishing strategic relationships with other barter exchanges in the
United States and Canada. In considering acquisitions of or strategic
relationships with barter exchanges Ubarter.com intends to look for candidates
with the following attributes:
- regional presence complimenting Ubarter.com's presence,
- significant member base offering a wide variety of products and services,
- sound credit management, and
- positive cashflow.
These acquisitions and strategic relationships would provide Ubarter.com's with
the critical mass of products and services in particular regions and, therefore,
would support its online growth plans.
INTERNET SITE
In September 1999, Ubarter.com launched its business-to-business e-commerce site
for its barter business. Ubarter.com's web site allows new members to register
for membership, all members to post and update product or service offerings and
anyone with access to the Internet to browse through its directory of items,
24 hours a day, 7 days a week.
In December 1999, Ubarter.com retained AXC Interactive, a Seattle-based Internet
software development and consulting firm, to develop the next phase of the
Ubarter.com web site. The next phase will include additional functionality for
major applications, such as the membership and trading systems, and back-end
enhancements. The next version of the web site is expected to be released in
2000. The expected cost of this development phase is approximately
$1.2 million. Upon execution of the agreement with AXC, Ubarter.com paid AXC
$150,000 (consisting of 33,333 shares of Ubarter.com common stock and $50,000 in
cash) and later made an additional cash payment of $100,000 in December 1999 as
a retainer against the final AXC invoice. In January 2000, ShopNow.com acquired
AXC Interactive.
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MEMBERS
Ubarter.com currently has approximately 4,000 active members in North America.
These members are in businesses such as media and advertising, travel and
entertainment, printing, hospitality, professional services, construction and
trade services and healthcare.
Ubarter.com's members may engage in barter activity for a number of reasons
including their desire to accomplish the following goals:
- generate new sales, add new channels of distribution and increase market
share,
- decrease cash expenditures,
- reduce slow moving inventory,
- exchange unproductive assets and excess capacity for useful products or
services,
- reduce need for financing, and
- maximize efficiencies.
Ubarter.com's members earn Ubarter Dollars which they are able to spend on
products or services offered by other members in any denomination. The following
is a representative example of a barter transaction: A dentist needs to have her
office remodeled. Through Ubarter.com, she hires a contractor who agrees to
perform the remodeling work for $500 in Ubarter Dollars. The dentist has Ubarter
Dollars in her account to spend because she had previously provided dental work
to the owner of a vacation resort, a restaurant and a lawyer, all members of
Ubarter.com, in exchange for Ubarter Dollars. The other members originally
acquired Ubarter Dollars by providing services for other Ubarter.com members.
Barter is especially useful to those businesses where the variable costs of
products or services are low such as hotels, media and other travel-related
businesses. For example, a hotel that has not filled its rooms by the end of the
day has lost potential revenue but still has the same overhead associated with
owning and maintaining its facility. A radio station or newspaper that has not
filled available advertising space has lost the opportunity to generate revenue
but still has incurred virtually the same costs. In short, businesses can
leverage their low variable cost products and services into more purchasing
dollars. For example, America Online Canada, a Ubarter.com member, sells
Internet services to new accounts for Ubarter Dollars. Their marginal cost of
providing these services is minimal; however, they are able to use the Ubarter
Dollars they receive from the sale of Internet service to purchase printing and
other promotional materials.
In order to facilitate trading, creditworthy members may be granted Ubarter
Dollar lines of credit. Ubarter.com issues the credit lines under its own
guidelines. These guidelines include the financial stability of the member and
the demand for the member's product or service by other members. Eventually,
Ubarter.com intends to process online credit applications and offer immediate
lines of credit based on past credit records of the member applying.
SALES, MARKETING AND TRADING
SALES
The primary function of Ubarter.com's sales department is to grow its member
base. Ubarter.com uses standardized marketing and support materials,
advertising, ongoing training, promotion and support to expand its member base.
The sales effort is led by Ubarter.com Account Executives (AE). Ubarter.com had
4 AEs as of December 31, 1999. Ubarter.com anticipates hiring additional AEs in
the near future. AEs contact prospective members and strategic partners to
market the benefits of barter and participation as a member in Ubarter.com.
MARKETING
Ubarter.com's marketing strategy is to promote its brand and attract buyers and
sellers to its barter system. Among other things, Ubarter.com markets the
company through online banner ads, promotions and hyperlinks, print
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advertising, radio spots and e-mail campaigns. To promote its services to
members, Ubarter.com markets products and services of existing members on its
web site and via e-mails, faxes, trade strategists and other means. In addition,
Ubarter.com is actively pursuing strategic affiliations with companies with
access to large numbers of potential members. Ubarter.com also has agreements
with a number of search engines on the web, such as Yahoo, Excite, America
Online and Lycos, for keyword searches using the word "barter."
TRADING
The trading department is responsible for facilitating and maximizing barter
transactions between members. Trading and ongoing customer service are handled
by Trade Strategists (TS) and Customer Service Representatives (CSR).
Ubarter.com has 14 people in the trading department including TSs and CSRs as of
December 31, 1999. Certain TSs are assigned to specific industries such as
travel or media.
The trading department facilitates trading between members by searching to
fulfill member needs or making members aware of products that have become
available within the system. Ubarter.com's trading staff takes a proactive
approach to marketing products and services. Staff in the trading department
have goals set by management relating to trading volume as well as cash
collection.
The duties of the TSs and CSRs will change significantly as Ubarter.com's web
site gains acceptance by members. TSs and CSRs will focus more on customer
service and support and managing key accounts. Members on the Internet will have
access to an online directory of products and services and, as needed, will be
able to get support from TSs and CSRs.
SYSTEMS AND TECHNOLOGIES
Ubarter.com currently relies on one software vendor to supply the software
necessary for the centralized processing of its trade transactions. Ubarter.com
uses TradeWorks-Registered Trademark- and TradeWorks
Online-Registered Trademark-, products and services of DWW Software. This vendor
also supplies its software as a stand-alone product to other barter exchanges.
Ubarter.com believes that software and other materials are generally available
for its systems and services and that it could locate replacement software and
materials in the event it had to replace products of its vendors.
INDUSTRY OVERVIEW AND COMPETITION
GENERAL
The modern commercial barter industry developed along with the development of an
accepted index of valuation for establishing barter credits and debits. The
accepted index of valuation in the industry is the "trade dollar." Barter
exchanges act as third party record keepers for the exchange of products and
services among their members. For every transaction, barter exchanges debit and
credit trade dollars to the buyer's and seller's trade account. Members can
transact business directly with other members or use the services of a trade
strategist who helps match buyers and sellers.
BARTER STATISTICS
The International Reciprocal Trade Association (IRTA), a trade association that
prepares annual estimates of commercial bartering in the United States and
Canada, estimates that $600 billion of products and services are bartered or
traded annually worldwide, $200 billion of which occurs in North America. These
figures include products and services that are traded directly between companies
or countries as well as those traded through organized trade companies. In 1996,
the last year for which IRTA provides statistical information, IRTA estimated
that $9 billion of sales in North America were transacted through
business-to-business barter companies.
IRTA also estimates that in 1996 approximately 400,000 firms in North America
were members of retail trade exchanges and that there were approximately 400
retail trade exchanges in North America and another 200 worldwide. Most of these
trade exchanges are smaller companies with several hundred members and several
hundred thousand dollars of annual revenues.
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Ubarter.com believes the commercial barter industry has significant growth
potential and that barter exchanges can capitalize on this growth potential.
Because only a relatively small percentage of businesses in the United States
and Canada currently use the services of a barter exchange, Ubarter.com believes
there are significant growth opportunities for well-positioned barter exchange
companies in the commercial barter market.
THE INTERNET
The Internet has emerged as a mass communications and commerce medium enabling
millions of people worldwide to share information, create community among
individuals with similar interests and conduct business electronically. The
Internet Industry Almanac projects that the number of Internet users will grow
from approximately 100 million in 1997 to over 300 million by year end 2000. In
addition to its emergence as a mass communications medium, the Internet has
features and functions that are unavailable in traditional media, which enable
online merchants to communicate effectively with customers and advertisers to
target users with specific needs and interests. As a result, the Internet has
emerged as an attractive medium for electronic commerce as well as for barter.
Along with the overall growth of the Internet, business-to-business usage is
also growing rapidly, as businesses are increasingly leveraging the Internet's
ability to reach customers globally, deliver personalized content and open new
distribution channels. According to Forrester Research, business-to-business
electronic commerce is projected to grow from $109 billion in 1999 to $1.3
trillion by 2003.
COMPETITION
Ubarter.com's online bartering business model competes with other business
models, including online business-to-consumer or consumer-to-consumer auctions,
such as eBay and Yahoo!Auctions; business-to-business auctions/liquidators such
as FreeMarkets.com and TradeOut.com; and name your price services such as
Priceline.com. In addition, Ubarter.com competes with other barter companies for
traditional offline barter business. Ubarter.com expects the competition with
competing business models and other barter companies which do business online
will continue to intensify in the future.
Certain Internet-based companies with unique purchasing or sales models such as
eBay and Priceline.com have significant technical, financial and marketing
resources and could be potential competition for Ubarter.com. These companies
would be strong competitors if they decided to enter the business-to-business
sector and compete with barter companies. Since Ubarter.com members are able to
sell their products or services without discounting their regular prices for
Ubarter Dollars, Ubarter.com believes the Ubarter.com private currency system
may be able to compete favorably with online liquidators or auction sites.
The current barter industry is fragmented with over 400 barter exchanges in
North America. Ubarter.com believes ITEX Corporation (ITEX) of Portland, Oregon
is the largest barter exchange in North America with over 30,000 members and
approximately 120 affiliated broker offices in North America. ITEX's strategy
has been to use license or similar arrangements in opening their regional
offices as opposed to its strategy of owning and operating all of its regional
offices. Other competing barter companies in North America include
BarterTrust.com, BarterCard, BarterCorp, Barter Network Inc., Illinois Trade
Association, Trade Exchange America and ValueCard. For the most part, these
companies are regional barter companies which have not experienced significant
growth in recent years. Ubarter.com is aware of two exchanges that have
attempted international expansion, ITEX and Business Exchange International
Corp. (BXI). In July 1998, ITEX acquired BXI.
Ubarter.com believes it competes primarily on the basis of service, including
the number of available products and services and the liquidity of Ubarter
Dollars. Ubarter.com also competes on price to a lesser extent. Some of the
existing competitors in the barter industry are larger or have greater financial
resources than Ubarter.com. Ubarter.com expects to encounter competition in its
efforts to expand its barter business and to acquire desirable independent trade
exchanges. Similarly, Ubarter.com expects to encounter competition in its
efforts to develop Ubarter.com into a premier online e-commerce barter web site.
Ubarter.com expects competition to increase in the future, as there are no
substantial barriers to initial entry. Ubarter.com believes, though, that the
more market penetration it achieves, the higher the barrier to entry will become
for others contemplating a similar system.
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Ubarter.com believes there are only a few companies that have attempted to
establish an online trade exchange, including companies such as Bartertrust.com,
Bigvine.com and BarterExpress.com. Also, ITEX has a service that it has made
available only to its members on the Internet called "ITEX Online." Ubarter.com
believes a major shortcoming of these online barter exchanges has been their
inability to develop the critical mass of product or services offerings to have
significant sales or purchases made on their sites. Ubarter.com believes it may
have an advantage over these companies, since Ubarter.com launched its online
exchange with over 3,500 members.
Customer demands for wider availability of products and services, stronger
customer service, better computer servicing technology and the emergence of the
Internet as a medium for communication and business have resulted in a more
competitive industry. Ubarter.com believes the introduction of a global barter
marketplace on the Internet will encourage new members to incorporate barter
into their business plans. Ubarter.com believes that in order to capture greater
market share, barter companies will need to expand into larger regional or
national organizations that possess the ability to offer a wider selection of
products and services, service a more diverse and dispersed clientele and have
greater access to growth capital.
REGULATORY
The barter industry is not currently subject to direct regulation by any U.S. or
Canadian government agency, other than regulations generally applicable to
businesses. Certain tax regulations require U.S. barter exchanges to report to
the Internal Revenue Service the totals of the barter sales of their members on
an annual basis, since trade dollars received are taxable in the year received.
Similarly, there are currently few laws or regulations that directly apply to
access to, or commerce on, the Internet. It is possible that governing bodies
may adopt a number of laws and regulations governing such issues as user privacy
on the Internet and the pricing, characteristics and quality of products and
services offered over the Internet. It is also possible that government
authorities will adopt sales or other taxes involving Internet business.
PROPRIETARY RIGHTS
Ubarter.com relies on a combination of copyright and trademark laws, trade
secrets, software security measures, license agreements and nondisclosure and
confidentiality agreements to protect its proprietary rights and software
products. Much of Ubarter.com's proprietary information may not be patentable.
Ubarter.com does not have any patents. Ubarter.com also relies on certain
technology that it licenses from third parties, including software Ubarter.com
uses to perform key functions in delivering its services.
Ubarter.com has registered the Internet domain name "ubarter.com" and other
related domain names and intends to file trademark applications for the word
"a-commerce" (alternative commerce), "Quick Sale," "Ubarter Dollars" and
"Udollars." Ubarter.com also has federal service mark applications pending for
"Ubarter.com."
RESEARCH AND DEVELOPMENT
During the year ended March 31, 1999, Ubarter.com incurred product development
expenses of $216,300, primarily related to compensation for product development
staff and payments to outside contractors related to web site development.
During the year ended March 31, 1998, Ubarter.com incurred product development
expenses of $29,900, primarily related to web site development. Ubarter.com
expects to spend approximately $750,000 in product development costs in fiscal
2000 as the web site is further developed, launched and the e-commerce barter
site is expanded.
EMPLOYEES
At December 31, 1999, Ubarter.com had 45 full-time employees. From time to time,
Ubarter.com may employ independent consultants or contractors to support its
research and development, marketing, sales and support and administrative
organizations. No collective bargaining units represent its employees.
Ubarter.com believes its relations with its employees are good.
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LEGAL MATTERS
In December 1999, Ubarter.com received a letter from a party with whom it had
previously worked in connection with certain financing alternatives considered
by Ubarter.com. No such financings were ever concluded. The letter demands
reimbursement for out-of-pocket expenses (not to exceed $125,000) incurred by
the third party, the issuance of 300,000 shares of Ubarter.com common stock, and
the right to act as exclusive financial advisor in connection with the proposed
acquisition of Ubarter.com by ShopNow.com as a result of Ubarter.com's
termination of the relationship. Ubarter.com believes the allegations made in
the letter are without merit. Ubarter.com intends to vigorously defend itself
against the allegations being made. The parties have agreed to submit the matter
to nonbinding mediation in March 2000.
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MANAGEMENT OF UBARTER.COM
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information as of March 6, 2000 concerning
Ubarter.com directors and executive officers.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
NAME AGE POSITION
- --------------------------------------- -------- ----------------------------------------------
<S> <C> <C>
Steven M. White........................ 41 Chief Executive Officer, President, Director
and Chairman of the Board
Richard L. Mayer....................... 60 Vice President, Chief Credit Officer,
Secretary
Alan N. Zimmelman...................... 55 Vice President
Kevin R. Andersen...................... 48 Chief Financial Officer
Eric T. Best........................... 28 Director
John A. Wade........................... 37 Director
</TABLE>
Following is a discussion of the business background of each of Ubarter.com's
directors and executive officers.
STEVEN M. WHITE has been a member of the Board of Directors and has served as
President and Chief Executive Officer since September 1996. From July 1983 until
its acquisition by Ubarter.com in November of 1996, Mr. White served as
President of Cascade Trade Association, a private company involved in the barter
business. He has over nineteen years' experience in sales and management,
including over fifteen years affiliated with companies involved in the barter
business. He served as Chairman of the Board of Directors of the National
Association of Trade Exchanges for the 1999-2000 term and served as its
President for the 1998-1999 term. See "Certain Relationships and Related
Transactions--Merger with Cascade Trade Association."
RICHARD L. MAYER joined Ubarter.com as a Vice President in November 1996 and was
appointed Corporate Secretary in November 1998 and Chief Credit Officer in
March 1999. From November 1995 until its merger with Ubarter.com, he was Vice
President of Marketing for Cascade Trade Association, a private company involved
in the barter business. He has over thirty years' experience in sales and
management, including over six years affiliated with companies involved in the
barter business. Mr. Mayer was a member of the Board of Directors from
September 1996 to September 1999. From April 1989 to November 1995, he was the
owner of Money Mailer of the Sound, a private company involved in direct mail.
From 1960 until 1989, he was employed by General Electric Capital Corp.
ALAN N. ZIMMELMAN joined Ubarter.com as its Vice President of Operations in
November 1997. Mr. Zimmelman was a member of the Board of Directors from
November 1997 to September 1999. From November 1987 to August 1996, he was
President of BXI West Los Angeles, a private company involved in the barter
business. He has over 26 years' experience in sales and management, including
over ten years affiliated with companies involved in the barter business,
12 years affiliated with companies in the hotel industry and five years
affiliated with companies in hospital administration.
KEVIN R. ANDERSEN has served as Chief Financial Officer since joining
Ubarter.com in August 1998. Mr. Andersen has been a partner with the firm of
Andersen Andersen & Strong L.C. since 1990. He was formerly with the national
accounting firm of Laventhol & Horwath where he served in the Las Vegas, Nevada
office and in the firm's national tax office in Washington, D.C. Mr. Andersen
was on the Laventhol & Horwath Teaching Faculty and has been a Professor of
Taxation at the Washington College of Law. Mr. Andersen received a B.S. degree
in Accounting from the University of Utah in 1977, a Master of Accountancy
(Taxation) from UNLV in 1988, and has been a CPA since 1980.
ERIC T. BEST was elected as a director on September 30, 1999. Mr. Best has
served as Group Category Manager for Amazon.com since October 1999, and manages
all aspects of Amazon.com's Auctions and zShops for a selected group of vertical
markets. Mr. Best was co-founder and Chief Officer Sales & Marketing of
MindCorps, Inc., a company specializing in enterprise-scale Internet projects
from October 1996 to September 1999. MindCorps provided development services for
Ubarter.com's web site, www.ubarter.com until MindCorps' acquisition by
Amazon.com.
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Mr. Best was a Professional Consultant to Microsoft in Internet development,
business operations and marketing for The Microsoft Network from June 1995 to
October 1996. Prior to that, Mr. Best served as Technical Advisor, Rural
Telemedicine Network at the University of Washington School of Medicine from
June 1994 to June 1995.
JOHN A. WADE was elected as a director on September 30, 1999. Mr. Wade is
currently Secretary, Vice President, Finance and Chief Financial Officer for
FreeShop.com. FreeShop.com is a leading provider of direct marketing services on
the Internet. Prior to joining FreeShop.com in May 1998, Mr. Wade served six
years as the Chief Financial Officer/Chief Operating Officer for Buzz Oates
Enterprises, a real estate development company. Prior to that, Mr. Wade served
as the controller for A&A Properties, an asset management corporation, the
controller for Labels West, a manufacturing concern, and as an auditor and
taxation specialist at McGladrey and Pullen, an international accounting firm.
SIGNIFICANT EMPLOYEES AND CONSULTANTS
Ubarter.com employs several administrative, technical, sales and support
personnel who perform various day-to-day tasks and conduct operations. In
addition, Ubarter.com from time to time uses consultants or consulting firms to
assist it in developing its business plan and operations. The following
individuals are significant employees or consultants of Ubarter.com.
LIAD Y. MEIDAR, 25, is President of Astra Ventures LLC and since October 1998
has performed the duties of Ubarter.com's Vice President, Strategic Development.
Ubarter.com retained Astra Ventures in October 1998 to advise the Chief
Executive Officer and Board of Directors on corporate planning, mergers and
acquisitions. From July 1997 to September 1998, Mr. Meidar was an investment
banker in the Financial Sponsors Group at BT Alex. Brown Incorporated where he
served financial sponsor members in transactions involving high yield debt
issuances, senior debt underwriting and syndication and international
acquisitions. Mr. Meidar received a B.A. degree in Economics from Princeton
University in June 1997. See the section entitled "Certain Ubarter.com
Transactions--Relationship with Laid Meidar" on page
DAN C. SCHNEIDER, 46, has served as Chief Technology Officer since joining
Ubarter.com in August 1998. From 1985 to 1998, he worked at Darigold Inc. as
manager of its PC-related activities. He was responsible for the deployment of
UNIX-based, DOS-based, and Windows-based systems and networks, and managed
hardware and software support. In 1997, he developed the corporate web site for
Darigold, and established a password-protected database allowing milk producers
to check daily quality control testing data. Mr. Schneider received a B.A.
degree in Business Administration from Central Washington University in 1977.
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UBARTER.COM EXECUTIVE COMPENSATION AND EMPLOYMENT CONTRACTS
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid to or earned by
Ubarter.com's President and Chief Executive Officer. None of Ubarter.com's
executive officers received total annual salary, bonus and other compensation in
excess of $100,000 in the fiscal year ended March 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
-------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL ---------------------
COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
- --------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
Steven M. White,.......................................... 1999 $85,000
President and CEO 1998 $75,000 45,000
</TABLE>
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
STEVEN M. WHITE. Pursuant to an Employment Agreement effective as of
November 24, 1998, Ubarter.com employs Steven White as President and Chief
Executive Officer. His term of employment commenced on December 1, 1998 and
continues for a period of three years. Mr. White's salary is $85,000 per annum,
which may be increased annually at the discretion of the Board of Directors.
RICHARD L. MAYER. Pursuant to an Employment Agreement effective as of
November 24, 1998, Ubarter.com employs Richard Mayer as Vice President and Chief
Credit Officer. His term of employment commenced on December 1, 1998, and
continues for a period of three years. Mr. Mayer's initial salary is $50,000 per
annum, which may be increased annually at the discretion of the Board of
Directors.
ALAN N. ZIMMELMAN. Pursuant to an Employment Agreement effective as of
November 24, 1998, Ubarter.com employs Alan Zimmelman as a Vice President. His
term of employment commenced on December 1, 1998, and continues for a period of
three years. Mr. Zimmelman's initial salary is $50,000 per annum, which may be
increased annually at the discretion of the Board of Directors.
KEVIN R. ANDERSEN. Pursuant to an Employment Agreement effective as of
August 1, 1998, Ubarter.com employs Kevin Andersen on a part-time basis as Chief
Financial Officer. His term of employment commenced on August 1, 1998, and
continues for a period of three years. Mr. Andersen's base salary is $75,000 per
annum, which may be increased on a temporary basis for additional
project-related accounting duties, or increased annually at the discretion of
the Board of Directors.
Each of the agreements for Messrs. White, Zimmelman, Mayer and Andersen entitle
them to receive options to purchase 40,000 shares of common stock for each year
of employment, which will vest 50% on the first anniversary of the date of
grant, 75% on the date which is 18 months from the grant date and be fully
vested on the second anniversary of the grant date. Mr. Andersen's initial grant
of 40,000 options were fully vested as of their date of grant. All agreements
contain a change of control provision in the event of a merger, acquisition of
Ubarter.com or sale of substantially all of Ubarter.com's assets. Upon the
change of control event the agreements provide that in addition to any
individuals will receive additional payments as follows: $150,000 each for
Messrs. White, Mayer and Zimmelman, and $50,000 for Mr. Andersen.
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STOCK OPTIONS
The following tables summarize option grants made by Ubarter.com to its Chief
Executive Officer during the fiscal year ended March 31, 1999, and the value of
options granted during fiscal 1999 and held by such person at March 31, 1999. No
stock options were exercised during fiscal 1999.
OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF TOTAL STOCK PRICE APPRECIATION
SECURITIES OPTIONS GRANTED TO FOR OPTION TERM
UNDERLYING EMPLOYEES IN EXERCISE OR BASE -------------------------
NAME OPTIONS GRANTED FISCAL YEAR 1998 PRICE ($/SHARE) EXPIRATION DATE 5% 10%
- ---- --------------- ------------------ ---------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Steven M. White, President
and CEO................. 45,000(1) 14.4% $0.8125 June 1, 2003 $ 124,031 $ 129,938
</TABLE>
- ------------------------------
(1) The options become fully vested upon completion of the merger, which has
been assumed in the above calculation.
AGGREGATED OPTION EXERCISES DURING FISCAL YEAR ENDED
MARCH 31, 1999 AND VALUE OF OPTIONS AT MARCH 31, 1999
<TABLE>
-----------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES MARCH 31, 1999(1) AT MARCH 31, 1999(1)(2)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ----------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Steven M. White.............. -- -- -- 45,000 -- $ 75,960
</TABLE>
- ------------------------
(1) Ubarter.com will accelerate the vesting of all outstanding options,
including Mr. White's options, prior to the effective time of the merger.
(2) "Value" has been determined based upon the difference between the per share
exercise price ($0.8125) and the market value ($2.50 per share) of the
Common Stock at March 31, 1999. Based on a price of $ per share on
, 2000 (the last full trading day for which closing prices were
available at the time of the printing of this proxy statement/prospectus),
the "Value" would be approximately $ .
LIMITATION OF LIABILITY
Ubarter.com's bylaws provide for the indemnification of officers and directors
to the fullest extent possible under Nevada Law, against expenses (including
attorney's fees), judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding, arising because such
person is or was an agent of the Company. Ubarter.com's bylaws also allow it, to
the maximum extent and in the manner permitted by the Nevada Revised Statutes,
to indemnify each of its employees and agents (other than directors and
officers) against expenses (including attorneys' fees), judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding, arising because such person is or was an agent of the
Company.
Ubarter.com's Articles of Incorporation limit or eliminate the personal
liability of officers and directors for damages resulting from breaches of their
fiduciary duty, except for damages resulting from acts or omissions that involve
intentional misconduct, fraud, a knowing violation of the law or the payment of
dividends in violation of the Nevada Revised Statutes.
Ubarter.com's four executive officers have entered into employment agreements
which provide that, in addition to all other rights of indemnification they may
have as officers of the Company, Ubarter.com will indemnify them for all
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reasonable expenses and liabilities of any type or nature, including attorneys'
fees, incurred in connection with any action, suit or proceeding to which they
may be a party by reason of, or in connection with their positions as
Ubarter.com's officers. Ubarter.com has also indemnified these officers against
all amounts they might pay in settlement of these legal proceedings provided
that independent legal counsel selected by it approve the settlement.
Ubarter.com has not, however, indemnified these officers for expenses relating
to matters for which they are adjudged to be liable for willful misconduct.
Ubarter.com maintains director and officer liability insurance with an aggregate
coverage amount of $1,000,000.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, Ubarter.com has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
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CERTAIN UBARTER.COM TRANSACTIONS
CASCADE TRADE ASSOCIATION OPERATIONS
Prior to the November 1996 transfer of Cascade Trade Association's business to
Ubarter.com, Steven White and Richard Mayer were executive officers of Cascade
Trade Association. In November 1996, Mr. White and Mr. Mayer were appointed
directors of Ubarter.com and Mr. White was appointed an officer. Mr. White was
the principal shareholder of Cascade Trade Association. In connection with such
transaction, Mr. White was issued 1,800,000 shares of common stock of
Ubarter.com.
RELATIONSHIP WITH LIAD MEIDAR
Ubarter.com has entered into a consulting agreement with Astra Ventures LLC, of
which Liad Meidar is president and owner. Astra Ventures has agreed to serve as
Ubarter.com's advisor through December 31, 2001, focusing on potential
acquisitions, strategic planning and business development. As a part of the
consulting arrangement with Astra Ventures, Mr. Meidar acts as Ubarter.com's
Vice President, Strategic Development. For their services, Astra Ventures will
receive cash compensation of $100,000 per year and an aggregate total of 630,000
stock options on a fully diluted basis. All such options were fully vested as of
their date of grant and terminate on October 1, 2003. Of these options, 50,000
are exercisable at the price of $4.00; 40,000 at $6.00; 60,000 at $8.00; 80,000
at $10.00; 160,000 at $12.00; and 240,000 at $14.00. If Ubarter.com consummates
a merger or acquisition transaction during the term of the agreement or within
one year thereafter, Astra Ventures will receive a fee equal to 3% of the
consideration paid by Ubarter.com, payable in cash or, at Astra Ventures'
option, in shares of Ubarter.com common stock valued at fair market value. In
connection with Ubarter.com's acquisition of Barter Business Exchange Inc. in
March 1999, Astra Ventures elected to receive options to purchase 40,000 shares
of Ubarter.com common stock at an exercise price of $2.75 per share in lieu of
cash compensation. These options become 50% vested on March 2, 2000, 75% vested
on September 2, 2000 and fully vested on March 2, 2001. The options expire upon
the earlier of (i) March 2, 2004 or (ii) in the event the consulting agreement
with Astra Ventures is terminated or not renewed, on the expiration of 90 days
from the date of termination of such agreement.
In December 1999, Ubarter.com issued a $100,000 8% convertible promissory note
to Momentous Inc. Pension and Trust, which is owned by Mr. Meidar's father.
Momentous had the right to convert the note into a future round of financing
completed by Ubarter.com prior to repayment or conversion or the note, upon the
same terms and conditions as other investors participating in such financings.
If the Note was not repaid by March 1, 2000, Momentous had the option to convert
the note into shares of Ubarter.com common stock equal to the lower of $1.50 per
share or 50% of the average closing price of the common stock on the ten days
prior to March 1, 2000. Ubarter.com repaid the note, in full, on February 29,
2000.
RELATIONSHIP WITH NEW HORIZONS L.P.
New Horizons L.P. is one of Ubarter.com's significant stockholders. The general
partner of New Horizons LP is Sors Inc., which is managed by Joseph MacDonald.
The spouse of Mr. MacDonald, Mary Martin, entered into a consulting agreement
with Ubarter.com in August 1998. In exchange for investor relations and
consulting services rendered and for reimbursement of expenses, Ubarter.com paid
Ms. Martin $2,000 per month and granted her 40,000 options, which were fully
vested as of their grant date, and are exercisable at $.8125 per share. The
agreement was terminated in April 1999.
In July 1998, New Horizons L.P. purchased 400,000 units, consisting of one share
of common stock and one warrant, offered by Ubarter.com in a private placement
for $1.25 per unit. The warrants entitle New Horizons, L.P. to purchase 400,000
shares of common stock at a price of $1.50 per share.
LOANS WITH CERTAIN PERSONS
In July and August 1999, Steve White, Alan Zimmelman and New Horizons, L.P. made
non-interest bearing loans to Ubarter.com. All of the loans were repaid, in
full, on September 1, 1999. Mr. White's loan was in the amount of
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approximately $131,000. Mr. Zimmelman's loan was in the amount of approximately
$18,300. New Horizon's loan was in the amount of approximately $16,300.
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SHARE OWNERSHIP OF PRINCIPAL STOCKHOLDERS,
MANAGEMENT AND DIRECTORS OF UBARTER.COM
The following table provides information concerning the beneficial ownership of
the Ubarter.com common stock as of March 31, 2000, the record date, for the
following:
- each person or entity who is known by Ubarter.com to beneficially own more
than 5% of the outstanding shares of Ubarter.com common stock;
- each of Ubarter.com's current directors;
- Ubarter.com's chief executive officer and its four other executive
officers; and
- all of Ubarter.com's directors and executive officers as a group.
This table includes percentage ownership data reflecting ownership both before
and after consummation of the merger with ShopNow.com. The pre-merger percentage
ownership is based on 6,077,253 shares of Ubarter.com common stock outstanding
as of the record date. The post-merger percentage ownership includes only the
shares of ShopNow.com common stock that would be issued to
Ubarter.com stockholders based on the estimated shares of Ubarter.com
common stock outstanding as of the date of the merger. All shares subject to
options exercisable within 60 days after January 31, 2000 are deemed to be
beneficially owned by the person or entity holding that option and to be
outstanding solely for calculating that person's or entity's percentage
ownership.
Unless otherwise indicated below, the persons and entities named in the table
have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
PRE-MERGER POST-MERGER
--------------------------------------- ------------------------------------------
NUMBER OF SHARES PERCENT OF NUMBER OF SHARES OF PERCENT OF
OF UBARTER.COM UBARTER.COM SHOPNOW.COM SHOPNOW.COM
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED(1) BENEFICIALLY OWNED
- ------------------------------------ ------------------ ------------------ --------------------- ------------------
<S> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS
Steven M. White(2)................. 1,371,646 22.4%
ShopNow.com Inc.(3)................ 1,337,896 22%
New Horizons LP(4)................. 1,121,100 17.3%
Astra Ventures LLC(5).............. 631,500 9.4%
DIRECTORS
Eric T. Best(6).................... -- --
John A. Wade(6)(7)................. 2,250 *
EXECUTIVE OFFICERS
Kevin Andersen(8).................. 40,000 *
Richard L. Mayer(9)................ 47,750 *
Steven M. White(2)................. 1,371,646 22.4%
Alan N. Zimmelman(10).............. 60,650 *
All directors and officers as
group(11)........................ 1,522,296 24.5%
</TABLE>
- ------------------------
* Less than one percent.
(1) Assumes an exchange ratio of 0. share of ShopNow.com common stock for each
share of Ubarter.com common stock. The actual exchange ratio could vary
significantly from this number. See the section entitled "The Merger --
Merger Consideration; conversion of Ubarter.com common stock" on page .
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(2) The business address of Steven White and all other officers and directors
is 2815 2(nd) Ave., Suite 500, Seattle, WA 98121. Includes 33,750 shares
issuable pursuant to options that are currently exercisable or exercise
within 60 days of December 31, 1999.
(3) Represents shares issuable upon the exercise of the Call Option which is
described in the section entitled "Related Agreements--Call Option" on
page . ShopNow.com disclaims beneficial ownership of such shares.
Shopnow.com's address is 411 First Avenue South, Suite 200 North, Seattle,
WA 98104.
(4) Sors Inc., as general partner, is also deemed the beneficial owner of the
shares of the common stock owned by New Horizons LP because of its power to
vote and dispose of those shares. Includes 400,000 shares that could be
acquired through the exercise of outstanding warrants. New Horizons LP's
address is 248 West Park Avenue, Long Beach, NY 11561.
(5) Includes 630,000 shares issuable pursuant to options that are currently
exercisable or excising within 60 day of December 31, 1999. Liad Meidar,
President and controlling equity owner of Astra Ventures LLC, is also
deemed the beneficial owner of the options. See the section entitled
"Certain Ubarter.com Transactions--Relationship with Liad Meidar" on
page . The address of Astra Ventures, LLC is 2440 Western Avenue,
Apt 804, Seattle, WA 98121.
(6) Messrs. Best and Wade were elected as directors. The business addresses of
Messrs. Best and Wade are c/o Amazon.com--c/o Pac. Med. Office 3302, PO Box
81226, Seattle WA 98108 and c/o Freeshop.com, 95 So. Jackson Street, Ste.
300, Seattle, WA 98104, respectively.
(7) Represents 2,250 shares of common stock owned by Mr. Wade's wife, which he
is deemed to beneficially own.
(8) Represents shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days if December 31, 1999.
(9) Includes 33,750 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of December 31, 1999.
(10) Includes 33,750 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of December 31, 1999.
(11) Includes 141,250 shares issuable pursuant to options that were currently
exercisable or exercisable within 60 days of December 31, 1999.
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UBARTER.COM'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Ubarter.com provides business-to-business barter services for retail,
professional, media and other corporate members primarily through its offices in
Seattle, Washington and Toronto, Ontario. It manages a private barter currency,
Ubarter Dollars, to enable its members to sell their products or services to
other members for Ubarter Dollars. Ubarter.com currently has approximately 4,000
members who offer products and services. In September 1999, Ubarter.com launched
the initial phase of its e-commerce solution to barter over the Internet.
Substantially all cash revenues are derived from transaction fees paid in cash
by buyers and sellers in a barter transaction. Ubarter.com currently charges a
5% cash fee on both sides (i.e. to both the seller and buyer) of most barter
transactions. Ubarter.com has also derived revenues from monthly and set-up fees
charged to members. Ubarter.com does not anticipate charging set-up or monthly
fees for members doing business over the Internet. Revenues from transaction
fees are billed on a monthly basis. Ubarter.com recognizes revenue equal to the
cash to be received from its commission earned when the buyer has made an
unconditional commitment to pay and the earnings process has been completed by
the finalization of a transaction commission. Revenue is recognized for monthly
fees after the fees have been earned and collected.
A Ubarter Dollar is an accounting unit used to record the value of transactions
as determined by the buying and selling parties in barter transactions. Ubarter
Dollars denote the right to receive goods or services available from other
members or the obligation to provide products or services to other members.
Ubarter Dollars may not be redeemed for cash. When Barter Business
Exchange, Inc. (BBE) was acquired, all of the BBE Trade Dollars were converted
to Ubarter Dollars.
Ubarter.com uses the ratio of one Ubarter Dollar to one local currency dollar
(currently, United States or Canadian) in measuring and accounting for purchases
and sales. This one-to-one ratio is consistent with industry standards.
Ubarter.com does not recognize any accounting implications if differences are
noted between Ubarter Dollars and the applicable local currency dollar prices
that are within reasonable ranges that might exist between prices of similar
U.S. dollar or Canadian dollar transactions.
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THE NINE MONTHS ENDED
DECEMBER 31, 1998
Total revenue in the first nine months of fiscal 2000 was $2,670,800 compared
with total revenue of $476,400 in the first nine months of fiscal 1999. This was
a 560% increase in fiscal 2000 from fiscal 1999. Revenue increased primarily as
a result of the acquisition of BBE effective March 1, 1999. Excluding revenues
from BBE, revenues decreased in the nine months ended December 31, 1999 compared
with the comparable period in 1998 as a result of concentrating a large portion
of its financial and labor resources on the development of its
business-to-business e-commerce site for barter. Much of the effort, which in
prior years focused on increasing transaction fees from barter transactions, was
shifted to its web site development and to e-commerce strategic development
activities in the first quarter of fiscal 2000.
COSTS AND OPERATING EXPENSES
Cost of revenue consists of the cost of inventories acquired for resale and sold
during the period. The cost of revenue for the first nine months of fiscal 2000
was $475,300. These costs were all incurred by BBE. No costs were incurred by
Ubarter.com because inventory sales were made on consignment, as described
above. In the first nine months of fiscal 1999, the cost of revenue was $68,200.
Other costs and operating expenses (including depreciation) increased to
$5,013,900 in the first nine months of fiscal 2000 from $647,100 in the first
nine months of fiscal 1999. The increase in operating expenses related primarily
to
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recurring operating expenses incurred by BBE, significant increases in product
development and general administrative expenses and an increase in sales and
marketing expense in the first six months of fiscal 2000.
Product development expense increased to $598,600 in the first nine months of
fiscal 2000 compared with minimal expenses in the first nine months of fiscal
1999. Product development expenses consist primarily of payments to outside
contractors related to web site development and, to a lessor extent, of
depreciation on equipment used for development and overhead costs. Ubarter.com's
policy is to expense product development costs as they are incurred. The
increase in the first nine months of fiscal 2000 was primarily attributable to
development efforts, including retaining outside consultants related to
technologies necessary to support an e-commerce barter site.
General and administrative expenses increased to $4,116,900 in the first nine
months of fiscal 2000 from $647,100 in the first nine months of fiscal 1999.
This increase was primarily due to recurring operating expenses incurred by BBE,
the addition of several key personnel and additional employees hired to work on
developing Ubarter.com's web site. In addition, Ubarter.com incurred
substantially greater legal and other professional fees, such as accounting and
investor/public relations, as a result of its public company status and to
assist it in executing its business strategy. Other significant noncash expenses
in the first nine months of fiscal 2000 related to the amortization of the cost
of goodwill resulting from the acquisition of BBE and amortization of interest
expense on the note payable to Alpine Capital Group. Amortization expense of
$1,184,000 was recognized during the first nine months of fiscal 2000 from these
two items. Goodwill resulting from the acquisition of BBE was estimated by
management to be primarily associated with the acquired workforce,
infrastructure and technological expertise. As a result of the rapid
technological changes occurring in the Internet industry and the intense
competition for qualified professionals, goodwill is amortized on a
straight-line basis over the estimated life of the benefit of 24 months.
COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1999 TO FISCAL YEAR ENDED MARCH 31,
1998
REVENUE
Total revenue in fiscal 1999 was $504,500 compared with total revenue of
$586,100 in fiscal 1998, a 14% decrease in fiscal 1999 from fiscal 1998. Revenue
decreased primarily as a result of Ubarter.com concentrating a large portion of
its financial and labor resources on the development of its business-to-business
e-commerce barter site. Much of the effort, which in prior years focused on
increasing transaction fees from barter transactions, was shifted to web site
development and to e-commerce strategic development activities in fiscal 1999.
Corporate trade revenue is included as a separate component of total revenue.
Corporate trade revenue consists primarily of sales of inventories Ubarter.com
has purchased from trade exchange members. There is typically little or no
profit markup on such items. The revenue and corresponding expense for fiscal
1999 and 1998 were $43,900 and $45,500, respectively.
The acquisition of BBE significantly impacted gross revenues in fiscal 2000. For
its year ended February 28, 1999, BBE reported gross revenues of $2,732,000.
COSTS AND OPERATING EXPENSES
Costs and operating expenses (including depreciation) increased to $1,345,500 in
fiscal 1999 from $556,300 in fiscal 1998. The increase in operating expenses
related primarily to significant increases in product development and general
administrative expenses and a modest increase in sales and marketing expense in
fiscal 1999.
Product development expense increased to $216,300 in fiscal 1999 compared with
$29,900 in fiscal 1998. Product development expenses consist primarily of
payments to outside contractors related to web site development and, to a lessor
extent, of depreciation on equipment used for development and overhead costs.
The Company's policy is to expense product development costs as they are
incurred. The increase in fiscal 1999 was primarily attributable to development
efforts, including retaining outside consultants related to technologies
necessary to support an e-commerce barter site.
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General and administrative expenses increased to $990,600 in fiscal 1999 from
$407,000 in fiscal 1998. This increase was primarily due to the addition of
several key personnel and staff in fiscal 1999, including a Chief Financial
Officer, Chief Technology Officer and several new staff members in the trading
department and additional employees hired to work on developing the web site. In
addition, Ubarter.com incurred substantially greater legal and other
professional fees, such as accounting and investor/public relations, as a result
of its public company status and to assist it in executing its business
strategy. Another significant noncash expense in fiscal 1999 related to the
recognition of stock-based compensation as a result of issuance of stock options
to non-employees and certain issuance costs related to employees. The value of
the options at the time of issuance (as estimated by Ubarter.com) totaled
$379,000, of which $173,000 was recognized as an operating expense during fiscal
1999. The audited consolidated financial statements contain a material
adjustment to the results of operation for the second quarter of fiscal 1999
relating to stock-based compensation as a result of the issuance of stock
options to non-employees and certain issuance costs related to employees.
Sales and marketing expense primarily consists of advertising and other
promotional costs. Ubarter.com expects sales and marketing expense to increase
significantly in fiscal 2000 primarily related to the launch of its web site. At
December 31, 1999, Ubarter.com had $135,000 of prepaid advertising which
Ubarter.com expects to utilize in the future promotion and marketing of its web
site.
COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1998 TO FISCAL YEAR ENDED MARCH 31,
1997
REVENUE
Total revenue in fiscal 1998 was $684,100 compared with total revenue of
$452,700 in fiscal 1997, a 51% increase in fiscal 1998 from fiscal 1997. Revenue
increased primarily as a result of Ubarter.com's increased focus on marketing
and sales which resulted in bringing additional members into the trading system.
Efforts were also focused on increasing transaction fees from barter
transactions. Corporate trade revenue, which consists primarily of sales of
inventories, also increased during fiscal 1998.
COSTS AND OPERATING EXPENSES
Costs and operating expenses (including depreciation) increased to $654,200 in
fiscal 1998 from $513,200 in fiscal 1997. Cost of sales increased from $108,800
in fiscal 1997 to $143,400 in fiscal 1998 due to increased sales of inventories.
General and administrative expenses increased to $510,800 in fiscal 1998 from
$404,400 in fiscal 1997. This increase was primarily due to the addition of
staff in fiscal 1998, increased marketing and advertising costs, and greater
legal and other professional fees, such as accounting and investor/public
relations, as a result of the public company status and to assist Ubarter.com in
executing its business strategy. Product development expense increased to
$27,300 in fiscal 1998 compared with no related expense in fiscal 1997. Product
development expenses consist primarily of payments to outside contractors
related to web site development. Ubarter.com's policy is to expense product
development costs as they are incurred.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1996, Ubarter.com has financed its operations primarily
from the sale of common stock and warrants and proceeds from the exercise of
those warrants.
At December 31, 1999, Ubarter.com had a working capital (deficit) of $2,366,700.
Working capital was $1,190,600 at December 31, 1998. The decrease in working
capital resulted primarily from a $2,255,000 (deficit) balance of Ubarter
Dollars issued in excess of earned that existed on the books of BBE as of
August 31, 1999. Excluding the deficit balance of Ubarter Dollars, Ubarter.com
had working capital of $145,300 at December 31, 1999.
In accordance with the guidelines established by the International Reciprocal
Trade Association, Ubarter.com has the right to borrow from its exchange and
spend within its exchange system. Such a practice is commonly used by barter
exchanges, worldwide, to cover inventory purchases, capital purchases, operating
expenses and to control the supply of trade dollars. Ubarter.com engages in
barter to pay for some of its operating costs. Ubarter.com is ultimately
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obligated to provide products and services to clients to offset any amount of
Ubarter Dollars issued in excess of earned. BBE also engaged in barter to pay
for some of its operating costs. At December 31, 1999, Ubarter.com had expended
$2,221,400 of Ubarter Dollars in excess of the amount of Ubarter Dollars earned
by it compared with $18,130 Ubarter Dollars earned in excess of issued at
December 31, 1998. Ubarter.com considers the current level manageable.
The cash provided by financing activities was $3,218,300 in the first nine
months of fiscal 2000 compared with $1,154,100 in the first nine months of
fiscal 1999. Net cash provided by financing activities in the first nine months
of 2000 and 1999 resulted primarily from the exercise of warrants and proceeds
from notes payable. In August 1999, funds totaling $1,000,000 were loaned to
Ubarter.com by Alpine Capital Group, LLC. In December 1999, funds totaling
$2,000,000 and $100,000 were loaned to Ubarter.com by ShopNow.com and
Momentous Inc. Pension and Trust, respectively. Ubarter.com currently has a
$67,000 revolving note payable with a bank. The note payable is subject to
annual renewal. There was a balance of $26,000 at December 31, 1999. Borrowings
under the note require security deposits of cash and cash equivalents with the
bank. Ubarter.com did not have any credit facility in the first nine months of
fiscal 1999.
The net cash used by operating activities was $1,543,200 in the first nine
months of fiscal 2000 and $368,200 in the first nine months of fiscal 1999. For
the nine months ended December 31, 1999, Ubarter.com had a net loss of
$3,013,200. The primary adjusting items were $1,433,400 in depreciation and
amortization of goodwill and interest, $84,300 in noncash charges for stock
issued for services and option grants, and $29,400 net expenditure in Ubarter
Dollars. During the first nine months of fiscal 2000, there were decreases in
accounts receivable of $17,000, decreases in other assets of $136,300, and
increases in accounts payable and other liabilities of $116,200. In
December 1999, Ubarter.com entered into an agreement with ACX Corporation to
retain future services with the firm to provide Internet-related
software-consulting. Ubarter.com paid $150,000 in cash and issued 33,333 shares
of common stock valued at $3.00 per share as a retainer to be applied against
future invoices. Total Internet related software-consulting costs of $250,000
have been classified as prepaid expenses. The cash used in operating activities
of $368,200 for the nine months ended December 31, 1998, reflected a net loss of
$211,900. The increase in cash used in operations was primarily attributable to
increased personnel and product development costs in the first nine months of
fiscal 2000 compared with the first nine months of fiscal 1999. In the first
nine months of fiscal 2000, Ubarter.com used net cash of $272,200 for the
acquisition of property, equipment and leaseholds, compared to $27,100 in the
first nine months of fiscal 1999.
Ubarter.com maintains its major U.S. cash balances at two financial institutions
located in Las Vegas, Nevada and Seattle, Washington and maintains its major
Canadian cash balances at one financial institution located in Toronto, Canada.
Funds not required for our immediate needs may be invested in certificates of
deposit, short-term government obligations, or money market funds.
As of December 31, 1999, Ubarter.com had no material commitments for capital
expenditures. Ubarter.com leases its U.S. office facilities in Seattle,
Washington and leases its Canadian office facilities in Toronto, Vancouver and
Windsor. Future minimum rental commitments as of December 31, 1999 pursuant to
these leases are approximately $348,000.
Ubarter.com expects to complete the merger with ShopNow.com in the second
quarter of 2000. Ubarter.com believes its existing working capital and cash from
financing activities will be sufficient to fund our operating activities through
the end of fiscal year 2000. Unless Ubarter.com is successful in raising
additional capital, it may not be able to achieve its expansion goals, including
further development of its web site. There is no assurance that Ubarter.com will
have or be able to access sufficient capital or other resources. Ubarter.com
believes that a portion of its short-term capital resources, up to $1,059,000
may be provided through the exercise of outstanding E Warrants. The E Warrants
are exercisable at a price of $1.50 and expire in June 2000. The perceived value
of these warrants at any given time is related to the market price of
Ubarter.com's common stock, which trades over the counter on the OTC Bulletin
Board. In addition, Ubarter.com will likely seek to raise additional capital in
the near term through additional equity issuances. If Ubarter.com is unable to
obtain financing through the exercise of warrants or other means, it may be
unable to meet its working capital requirements or implement its short-term
plans for expansion. Additionally, under the terms of certain outstanding notes,
if Ubarter.com is unable to repay such borrowings, the lenders would have the
ability to convert such notes into shares of Ubarter.com's common stock. See
Note 6 to the financial statements.
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If Ubarter.com does not complete the proposed merger with ShopNow.com, Inc., it
anticipates having to raise additional capital by equity issuance during the
next several years, as it expects to grow at rates that will require more funds
than will be generated by its operations. Ubarter.com's ability to obtain
additional capital may be dependent on market conditions, the national and
international economies and other factors outside its control. If adequate funds
are not available or are not available at acceptable terms, Ubarter.com's
long-term ability to finance its expansion, develop or enhance services or
respond to competitive pressures would be significantly limited.
In December 1999, Ubarter.com received a letter from a party with whom
Ubarter.com had previously worked in connection with certain financing
alternatives considered by Ubarter.com. No such financings were ever concluded.
The letter demands reimbursement for out-of-pocket expenses (not to exceed
$125,000) incurred by the third party, the issuance of 300,000 shares of
Ubarter.com's common stock, and the right to act as exclusive financial advisor
in connection with the proposed acquisition of Ubarter.com by ShopNow.com as a
result of Ubarter.com's termination of the relationship. Ubarter.com believes
the allegations made against it are without merit. Ubarter.com intends to
vigorously defend itself against the allegations being made. The parties have
agreed to submit the matter to nonbinding mediation in March 2000.
IMPACT OF THE YEAR 2000 COMPUTER PROBLEM
Prior to January 1, 2000, Ubarter.com devoted resources in an effort to ensure
that its proprietary software, the third-party software on which Ubarter.com
relies, and the underlying systems and protocols did not contain errors
associated with Year 2000 date functions. Since January 1, 2000, Ubarter.com has
not experienced any disruption as a result of any Year 2000 problems or
otherwise.
CHANGES IN CERTIFYING ACCOUNTANTS
Andersen Andersen & Strong L.C. audited Ubarter.com's financial statements
annually since fiscal 1996. Subsequent to the completion of the 1998 fiscal year
audit, Ubarter.com retained a partner of Andersen Andersen & Strong L.C. to
serve as its Chief Financial Officer. Because it could no longer serve
Ubarter.com as an independent accounting firm for the 1999 fiscal year, the
former accounting firm declined to stand for re-election at the 1998 Annual
Meeting of Stockholders. During January 1999, Ubarter.com engaged the firm of
Moss Adams LLP, as its independent accountants for the fiscal year ended
March 31, 1999.
The reports of Andersen Andersen & Strong L.C. for prior fiscal years have not
contained an adverse opinion or disclaimer of opinion, nor were they modified as
to uncertainty, audit scope or accounting principles. There were no
disagreements with the former accountants on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure.
WHERE YOU CAN FIND MORE INFORMATION
ShopNow.com and Ubarter.com file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information filed by
either company at the Commission's public reference rooms 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. ShopNow.com's and Ubarter.com's filings with the Commission 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.
ShopNow.com filed a registration statement to register the shares of ShopNow.com
common stock to be issued to Ubarter.com stockholders pursuant to the merger.
This proxy statement/prospectus is a part of that registration statement and
constitutes a prospectus of ShopNow.com in addition to being a proxy statement
of Ubarter.com for use at its special meeting of stockholders.
ShopNow.com has supplied all information contained in this proxy
statement/prospectus relating to ShopNow.com, and Ubarter.com has supplied all
information contained in this proxy statement/prospectus relating to
Ubarter.com.
122
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/
PROSPECTUS TO VOTE ON THE MERGER AGREEMENT AND THE MERGER. NEITHER SHOPNOW.COM
NOR UBARTER.COM HAS AUTHORIZED ANYONE TO PROVIDE INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. THIS PROXY
STATEMENT/PROSPECTUS IS DATED , 2000. STOCKHOLDERS SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE AS OF ANY OTHER DATE, AND NEITHER THE MAILING OF THIS PROXY
STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE ISSUANCE OF SHOPNOW.COM COMMON
STOCK PURSUANT TO THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
If you have any questions about the merger, please call Robert Benson at
Ubarter.com at (206) 239-2728.
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This proxy statement/prospectus and the documents incorporated by reference into
this proxy statement/prospectus contain forward-looking statements within the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
All forward-looking statements involve risks and uncertainties. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks" and
"estimates" and similar expressions identify forward-looking statements, and any
statements regarding the benefits of the merger and ShopNow.com's and
Ubarter.com's financial condition, results of operations and business are
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks, contingencies and uncertainties
that could cause actual results to differ materially from the results
contemplated by the forward-looking statements.
Factors that may affect such forward-looking statements include:
- the ability to retain Ubarter.com's key employees after the consummation
of the merger;
- competitive factors in the businesses in which ShopNow.com and Ubarter.com
compete;
- changes in governmental regulation; and
- overall economic and business conditions.
For a description of some of the factors or uncertainties in Ubarter.com's and
ShopNow.com's respective operations and business environment that could cause
actual results to differ from those discussed in forward-looking statements, see
ShopNow.com's Annual Report on Form 10-K for the fiscal year ended December 31,
1999, other documents ShopNow.com has subsequently filed with the SEC,
Ubarter.com's Annual Report on Form 10-KSB for the fiscal year ended March 31,
1999 and other documents Ubarter.com has subsequently filed with the SEC.
LEGAL MATTERS
The validity of the ShopNow.com common stock to be issued to Ubarter.com
stockholders in the merger will be passed upon by Perkins Coie LLP, Seattle,
Washington. It is a condition to the completion of the merger that Ubarter.com
receive an opinion from Dorsey & Whitney LLP, and that ShopNow.com receive an
opinion from Perkins Coie LLP, with respect to the tax treatment of the merger.
EXPERTS
The audited financial statements for ShopNow.com, Inc. and SpeedyClick, Corp.
and schedule included in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The audited financial statements for WebCentric, Inc. have been audited by KPMG
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
123
<PAGE>
The financial statements of GO Software, Inc. at December 31, 1998 and 1997, and
for each of the two years in the period ended December 31, 1998, appearing in
the prospectus and registration statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The audited financial statements for Ubarter.com for the fiscal year ended
March 31, 1999 have been audited by Moss Adams LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
in reliance upon the authority of said firm as experts in giving said report.
The audited financial statements for Ubarter.com for the fiscal years ended
March 31, 1998 and 1997 have been audited by Andersen Andersen & Strong L.C.,
independent public accountants, as indicated in their report with respect
thereto, and are included in reliance upon the authority of said firm as experts
in giving said report.
SHAREHOLDER PROPOSALS
Although it is expected that the closing of the merger with ShopNow.com will
occur promptly after the special meeting of stockholders, in the event the
closing of the merger is delayed and Ubarter.com is required to hold an annual
meeting in 2000, it is expected that such annual meeting will be held on or
about September 30, 2000. In such event, shareholder proposals for inclusion in
the proxy materials for Ubarter.com's annual meeting of stockholders should be
submitted to the secretary of Ubarter.com in writing and received at the
executive offices of Ubarter.com a reasonable time before Ubarter.com begins to
print and mail its proxy materials for the 2000 annual meeting, which printing
and mailing date is expected to be on or about August 30, 2000. Such proposals
must also have met the other requirements of the rules of the Securities and
Exchange Commission relating to stockholder proposals.
124
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Unaudited Pro Forma Combined Financial Information
Unaudited Pro Forma Combined Balance Sheet................ F-3
Unaudited Pro Forma Combined Statement of Operations...... F-4
Notes to Unaudited Pro Forma Combined Financial
Statements.............................................. F-5
ShopNow.com Inc.
Report of Independent Public Accountants.................. F-7
Consolidated Balance Sheets............................... F-8
Consolidated Statements of Operations..................... F-9
Consolidated Statements of Comprehensive Loss............. F-10
Consolidated Statements of Shareholders' Equity........... F-11
Consolidated Statements of Cash Flows..................... F-13
Notes to Consolidated Financial Statements................ F-15
Ubarter.com Inc.
Unaudited Interim Consolidated Balance Sheet.............. F-36
Unaudited Interim Consolidated Statement of Operations.... F-37
Unaudited Interim Consolidated Statement of Cash Flows.... F-38
Notes to Unaudited Interim Consolidated Financial
Statements.............................................. F-39
Independent Auditor's Report by Moss Adams, LLP........... F-43
Report of Independent Certified Public Accountants by
Andersen Andersen & Strong, L.C......................... F-44
Consolidated Balance Sheet................................ F-45
Consolidated Statement of Operations...................... F-46
Consolidated Statement of Stockholders' Equity............ F-47
Consolidated Statement of Cash Flows...................... F-48
Notes to Consolidated Financial Statements................ F-49
GO Software, Inc.
Report of Independent Auditors............................ F-60
Balance Sheets............................................ F-61
Statements of Operations.................................. F-62
Statements of Shareholders' Equity (Deficit).............. F-63
Statements of Cash Flows.................................. F-64
Notes to Financial Statements............................. F-65
WebCentric, Inc.
Independent Auditor's Report.............................. F-70
Balance Sheets............................................ F-71
Statements of Operations.................................. F-72
Statements of Shareholders' Equity (Deficit).............. F-73
Statements of Cash Flows.................................. F-74
Notes to Financial Statements............................. F-75
SpeedyClick, Corp.
Report of Independent Public Accountants.................. F-79
Balance Sheets............................................ F-80
Statements of Operations.................................. F-81
Statements of Cash Flows.................................. F-82
Statements of Stockholders' Equity (Deficit).............. F-83
Notes to Financial Statements............................. F-84
</TABLE>
F-1
<PAGE>
SHOPNOW.COM INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined balance sheet as of December 31, 1999 gives
effect to the proposed acquisition of Ubarter.com Inc. as if this transaction
had occurred on December 31, 1999. The unaudited pro forma combined statement of
operations for the year ended December 31, 1999 gives effect to the acquisitions
of GO Software, Inc., SpeedyClick, Corp., WebCentric, Inc., the proposed
acquisition of Ubarter.com Inc. and the disposition of BuySoftware.com as if
these transactions had occurred January 1, 1999.
The pro forma combined financial statements are presented for illustrative
purposes only and should not be construed to be indicative of the actual
combined results of operations as may exist in the future. The pro forma
adjustments are based on the cash and common stock consideration exchanged by
ShopNow.com Inc. for the fair value of the assets acquired and liabilities
assumed.
F-2
<PAGE>
SHOPNOW.COM INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------------------------------
SHOPNOW.COM UBARTER.COM
INC. INC. ADJUSTMENTS(G) TOTAL
------------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 10,660 $ 1,846 $ -- $ 12,506
Short-term investments.................................... 52,172 -- -- 52,172
Accounts receivable, net.................................. 6,591 321 -- 6,912
Unbilled services......................................... 2,102 -- -- 2,102
Prepaid expenses and other................................ 5,559 621 -- 6,180
------------- ----------- ------------- --------
Total current assets.................................... 77,084 2,788 -- 79,872
Property and equipment, net................................. 19,385 406 -- 19,791
Goodwill and other intangible assets, net................... 128,573 2,150 (2,150) 189,924
61,351
Investments in marketable equity securities................. 30,884 -- -- 30,884
Other assets, net........................................... 18,248 159 -- 18,407
------------- ----------- ------------- --------
Total assets............................................ $ 274,174 $ 5,503 $ 59,201 $338,878
============= =========== ============= ========
Current Liabilities:
Accounts payable.......................................... $ 8,330 $ 93 $ -- $ 8,423
Accrued liabilities....................................... 8,778 349 -- 9,127
Current portion of notes and leases....................... 8,565 2,492 (2,000) 9,057
Customer deposits......................................... 2,194 -- -- 2,194
Deferred revenue and trade dollars........................ 5,786 2,221 -- 8,007
------------- ----------- ------------- --------
Total current liabilities............................... 33,653 5,155 (2,000) 36,808
Notes and leases payable, less current portion.............. 5,409 771 -- 6,180
Put warrant liability....................................... 1,388 -- -- 1,388
Deferred tax liability...................................... 4,511 -- 16,893 21,404
Shareholders' Equity (Deficit):
Common stock.............................................. 325,502 3,483 40,402 369,387
Common stock warrants..................................... 8,260 -- -- 8,260
Deferred compensation..................................... (6,713) -- -- (6,713)
Accumulated other comprehensive income.................... 7,470 17 (17) 7,470
Accumulated deficit....................................... (105,306) (3,923) 3,923 (105,306)
------------- ----------- ------------- --------
Total shareholders' equity (deficit).................... 229,213 (423) 44,308 273,098
------------- ----------- ------------- --------
Total liabilities and shareholders' equity (deficit).... $ 274,174 $ 5,503 $ 59,201 $338,878
============= =========== ============= ========
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-3
<PAGE>
SHOPNOW.COM INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
(1/1/99 TO (1/1/99 TO (1/1/99 TO (1/1/99 TO
6/15/99) 11/12/99) 12/17/99) 12/31/99)
SHOPNOW.COM GO SOFTWARE, SPEEDYCLICK, WEBCENTRIC, UBARTER.COM PRO FORMA COMBINED
INC. INC. CORP. INC. INC. ADJUSTMENTS TOTAL
------------- ------------ ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 36,955 $ 728 $ 646 $ 1,661 $ 2,671 $ (10,073)(c)(e) $ 32,588
Cost of Revenues........ 27,329 45 -- 626 475 (11,190)(c) 17,285
------------- ------------ ----------- ----------- ----------- ----------- ----------
Gross profit.......... 9,626 683 646 1,035 2,196 1,117 15,303
------------- ------------ ----------- ----------- ----------- ----------- ----------
Operating Expenses:
Sales and marketing... 55,072 172 914 512 298 (3,036)(c)(e) 53,932
General and
administrative...... 8,342 514 405 559 4,117 (84)(c)(f) 13,853
Research and
development......... 8,885 182 186 405 599 (10)(c) 10,247
Amortization of
intangible assets... 8,805 -- -- -- -- 52,678 (a) 61,483
Stock-based
compensation........ 7,216 -- -- -- -- -- 7,216
------------- ------------ ----------- ----------- ----------- ----------- ----------
Total operating
expenses, net..... 88,320 868 1,505 1,476 5,014 49,548 146,731
------------- ------------ ----------- ----------- ----------- ----------- ----------
Loss from operations.... (78,694) (185) (859) (441) (2,818) (48,431) (131,428)
Nonoperating income
(expense), net........ 2,751 12 (3) (10) (195) (50)(b) 2,505
------------- ------------ ----------- ----------- ----------- ----------- ----------
Loss before provision
for income taxes...... (75,943) (173) (862) (451) (3,013) (48,481) (128,923)
Provision for income
taxes................. -- 12 -- 151 -- (163)(d) --
------------- ------------ ----------- ----------- ----------- ----------- ----------
Net loss.............. $ (75,943) $ (161) $ (862) $ (300) (3,013) $ (48,644) $ (128,923)
============= ============ =========== =========== =========== =========== ==========
Basic and diluted net
loss per share (h).... $ (5.80) $ (6.07)
============= ==========
Weighted average shares
outstanding used to
compute basic and
diluted net loss per
share................. 13,095,893 21,225,153
============= ==========
Basic and diluted pro
forma net loss per
share (h)............. $ (2.95) $ (3.80)
============= ==========
Weighted average shares
used to compute basic
and diluted pro forma
net loss per share.... 25,754,882 33,884,142
============= ==========
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-4
<PAGE>
SHOPNOW.COM INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1. BASIS OF PRESENTATION:
The unaudited pro forma combined balance sheet as of December 31, 1999 gives
effect to the proposed acquisition of Ubarter.com Inc. as if this transaction
had occurred on December 31, 1999. The unaudited pro forma combined statement of
operations for the year ended December 31, 1999 gives effect to the acquisitions
of GO Software, Inc., SpeedyClick, Corp., and WebCentric, Inc., and the proposed
acquisition of Ubarter.com Inc. and the cessation of BuySoftware.com as if these
transactions had occurred January 1, 1999.
The pro forma combined financial statements are presented for illustrative
purposes only and should not be construed to be indicative of the actual
combined results of operations as may exist in the future. The pro forma
adjustments are based on the cash and common stock consideration exchanged by
ShopNow.com Inc. for the fair value of the assets acquired and liabilities
assumed.
NOTE 2. PRO FORMA ADJUSTMENTS:
(a) To record amortization of intangible assets based on the excess purchase
price. As GO Software, Inc., SpeedyClick, Corp. and WebCentric, Inc. were
acquired prior to December 31, 1999, amortization is based on the actual
purchase price allocations and is computed for the period from January 1, 1999
to the respective dates of acquisition. As the proposed acquisition of
Ubarter.com Inc. is to occur after December 31, 1999, amortization is based on
the estimated purchase price allocation and is computed for the year ended
December 31, 1999. Intangible assets acquired are assumed to have a three-year
life.
<TABLE>
<CAPTION>
-------------------
YEAR ENDED
DECEMBER 31, 1999
DOLLARS IN THOUSANDS -------------------
<S> <C>
Five months of GO Software, Inc............................. $ 1,998
Eleven months of SpeedyClick, Corp.......................... 16,984
Twelve months of WebCentric, Inc............................ 13,248
Twelve months of Ubarter.com Inc............................ 20,448
-------------------
Total pro forma amortization................................ $ 52,678
===================
</TABLE>
(b) To record five months of interest expense associated with the GO
Software, Inc. convertible promissory note of $50,000.
(c) To eliminate the results of operations of BuySoftware.com. Given the
Company's continued involvement in certain retailing activities, the results of
BuySoftware.com have been reflected in the historical continuing operations of
ShopNow.com Inc. through June 1999. However, the Company believes that it is
meaningful to present the disposal as if it had occurred as of January 1, 1999.
As BuySoftware.com was run as a separate business segment, the revenues, cost of
revenues and operating expenses directly attributable to the business segment
were removed.
(d) To eliminate tax benefits recorded by GO Software, Inc. and
WebCentric, Inc., which may not be realized by the Company.
(e) To eliminate revenues recognized by SpeedyClick, Corp. of $25,000 and
WebCentric, Inc. of $125,000 related to cash received from ShopNow.com Inc. for
advertising on these companies' web sites. As the pro forma statements of
operations are prepared as if the merger had occurred on January 1, 1999, these
revenues and the related marketing expense have been eliminated.
F-5
<PAGE>
SHOPNOW.COM INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 2. PRO FORMA ADJUSTMENTS: (CONTINUED)
(f) To record compensation of SpeedyClick, Corp. executives of $352,000 per
employment agreements for the period from January 1, 1999 through November 12,
1999, the date of acquisition. This amount represents compensation above
historical levels.
(g) To record the proposed acquisition of Ubarter.com Inc. for $60.8
million. The acquisition assumes the issuance of 2,250,000 shares of ShopNow.com
Inc. common stock valued at $20.00 per share, reduced by certain debt
obligations of Ubarter.com Inc. of approximately $1.3 million, to be assumed by
ShopNow.com Inc. Also, Ubarter.com Inc.'s historical balance sheet has been
adjusted to eliminate Ubarter.com Inc.'s existing goodwill and to eliminate the
note payable to/note receivable from Ubarter.com Inc. and ShopNow.com Inc.,
respectively. Approximately $16.9 million of additional goodwill is also
reflected relating to the recognition of deferred tax liabilities assumed by
ShopNow.com Inc. as a result of this proposed acquisition. The excess purchase
price of this acquisition has been determined as follows:
<TABLE>
<CAPTION>
------------
UBARTER.COM
INC.
DOLLARS IN THOUSANDS ------------
<S> <C>
Stock consideration issued, reduced by certain
debt obligations assumed.................................. $ 43,884
Additional goodwill resulting from recognition of deferred
taxes..................................................... 16,894
Net liabilities assumed..................................... 573
------------
Excess purchase price....................................... $ 61,351
============
</TABLE>
(h) Basic and diluted net loss per share is computed by dividing net loss by
the weighted average number of shares outstanding during the period assuming
that shares issued for acquisitions were outstanding for the entire period. Pro
forma basic and diluted net loss per share is computed based on the weighted
average number of shares outstanding, giving effect to both shares issued in
acquisitions as if they were outstanding for the entire period and to conversion
of convertible preferred stock on an as-if converted basis from the original
issuance date.
NOTE 3. RECONCILIATION OF HISTORICAL WEIGHTED AVERAGE SHARES TO PRO FORMA
WEIGHTED AVERAGE SHARES:
<TABLE>
<CAPTION>
--------------
DECEMBER 31,
1999
--------------
<S> <C>
Historical.................................................. 13,095,893
GO Software, Inc., January 1, 1999 - June 14, 1999.......... 511,076
SpeedyClick, Corp., January 1, 1999 - November 11, 1999..... 3,289,202
WebCentric, Inc., January 1, 1999 - December 16, 1999....... 2,078,982
Ubarter.com Inc., January 1, 1999 - December 31, 1999....... 2,250,000
--------------
Pro forma................................................... 21,225,153
==============
</TABLE>
F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ShopNow.com Inc.:
We have audited the accompanying consolidated balance sheets of ShopNow.com Inc.
(a Washington corporation) and subsidiaries as of December 31, 1998 and 1999,
and the related consolidated statements of operations, comprehensive loss,
shareholders' equity and cash flows for each of the years in the three year
period ended December 31, 1999. 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 these 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 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 ShopNow.com Inc. and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Seattle, Washington,
January 19, 2000
F-7
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
---------------------------
AS OF DECEMBER 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 9,849 $ 10,660
Short-term investments.................................... 150 52,172
Accounts receivable, net of allowance for doubtful
accounts of $230 in 1998 and $291
in 1999................................................. 2,266 6,591
Unbilled services......................................... 1,448 2,102
Prepaid expenses and other................................ 709 5,559
------------ ------------
Total current assets.................................... 14,422 77,084
Property and equipment, net................................. 4,185 19,385
Goodwill, net............................................... 515 23,860
Other intangible assets, net................................ 3,944 104,713
Investments in marketable equity securities................. -- 30,884
Other assets, net........................................... 717 18,248
------------ ------------
Total assets............................................ $ 23,783 $ 274,174
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 3,551 $ 8,330
Accrued liabilities....................................... 1,132 8,778
Line of credit............................................ 238 --
Current portion of notes and leases....................... 1,133 8,565
Customer deposits......................................... 2,155 2,194
Deferred revenue.......................................... 535 5,786
------------ ------------
Total current liabilities............................... 8,744 33,653
Notes and leases payable, less current portion.............. 1,837 5,409
Put warrant liability....................................... -- 1,388
Deferred tax liabilities.................................... -- 4,511
------------ ------------
Total liabilities....................................... 10,581 44,961
------------ ------------
Commitments (Note 11)
Shareholders' Equity:
Convertible preferred stock, $0.001 par value: Authorized
shares - 20,000,000 in 1998 and 5,000,000 in 1999;
issued shares - 12,299,896 in 1998 and none in 1999,
preference in liquidation of $41,753 in 1998............ 35,070 --
Common stock, $0.001 par value: Authorized
shares - 200,000,000; issued shares - 4,602,573 in 1998
and 42,923,035 in 1999.................................. 6,559 325,502
Common stock warrants..................................... 1,866 8,260
Deferred compensation..................................... (930) (6,713)
Accumulated other comprehensive income.................... -- 7,470
Accumulated deficit....................................... (29,363) (105,306)
------------ ------------
Total shareholders' equity................................ 13,202 229,213
------------ ------------
Total liabilities and shareholders' equity................ $ 23,783 $ 274,174
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-8
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
ShopNow marketplace and transaction processing........ $ 69 $ 4,211 $ 25,841
Merchant services..................................... 535 2,943 11,114
------------ ------------ ------------
Total revenues...................................... 604 7,154 36,955
------------ ------------ ------------
Cost of Revenues:
ShopNow marketplace and transaction processing........ 159 4,493 20,169
Merchant services..................................... 356 1,356 7,160
------------ ------------ ------------
Total cost of revenues.............................. 515 5,849 27,329
------------ ------------ ------------
Gross profit............................................ 89 1,305 9,626
------------ ------------ ------------
Operating Expenses:
Sales and marketing................................... 1,201 12,183 55,072
General and administrative............................ 918 3,549 8,342
Research and development.............................. 2,436 4,370 8,885
Amortization of intangible assets..................... 136 730 8,805
Stock-based compensation.............................. -- 182 7,216
Unusual item - impairment of acquired technology...... -- 5,207 --
------------ ------------ ------------
Total operating expenses............................ 4,691 26,221 88,320
------------ ------------ ------------
Loss from operations.............................. (4,602) (24,916) (78,694)
------------ ------------ ------------
Nonoperating Income (Expense):
Gain on sale of marketable equity securities.......... -- -- 2,878
Interest income (expense), net........................ (164) 171 (127)
------------ ------------ ------------
Total nonoperating income (expense)................. (164) 171 2,751
------------ ------------ ------------
Net loss................................................ $ (4,766) $ (24,745) $ (75,943)
============ ============ ============
Basic and diluted net loss per share.................... $ (1.83) $ (7.01) $ (5.80)
============ ============ ============
Weighted average shares outstanding used to compute
basic and diluted net loss per share.................. 2,608,398 3,532,054 13,095,893
============ ============ ============
Basic and diluted pro forma net loss per share.......... $ (2.95)
============
Weighted average shares outstanding used to compute
basic and diluted pro forma net loss per share........ 25,754,882
============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-9
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net loss................................................ $ (4,766) $ (24,745) $ (75,943)
Unrealized gain on marketable equity securities......... -- -- 7,470
------------ ------------ ------------
Comprehensive loss...................................... $ (4,766) $ (24,745) $ (68,473)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-10
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED
STOCK COMMON STOCK COMMON
---------------------- ---------------------- STOCK SUBSCRIPTION DEFERRED
SHARES AMOUNT SHARES AMOUNT WARRANTS RECEIVABLE COMPENSATION
----------- -------- ---------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996....... -- $ -- 1,995,722 $ 275 $ -- $ -- $ --
Net loss January 1, 1997 through
February 25, 1997............. -- -- -- -- -- -- --
Conversion from S Corporation to
C Corporation................. -- -- -- (1,252) -- -- --
Conversion of shareholder notes
into Series A preferred
stock......................... 699,612 350 -- -- -- -- --
Issuance of Series B preferred
stock......................... 2,334,079 1,800 -- -- -- -- --
Issuance of common stock........ -- -- 600,000 90 -- -- --
Repurchase of common stock...... -- -- (10,000) (10) -- -- --
Conversion of shareholder notes
into Series C preferred
stock......................... 835,205 1,253 -- -- -- -- --
Conversion of shareholder notes
into common stock............. -- -- 177,333 89 -- -- --
Net loss, February 26, 1997
through December 31, 1997..... -- -- -- -- -- -- --
----------- -------- ---------- -------- -------- ----------- ------------
Balances, December 31, 1997....... 3,868,896 3,403 2,763,055 (808) -- -- --
Issuance of Series D preferred
stock......................... 4,250,000 13,461 -- -- 673 -- --
Common stock, options and
warrants issued for businesses
acquired...................... -- -- 1,744,692 6,105 -- -- --
Issuance of Series E preferred
stock and warrants to acquire
common stock.................. 2,125,000 7,672 -- -- 328 -- --
Issuance of Series F preferred
stock and warrants to acquire
common stock.................. 2,056,000 10,534 -- -- 865 -- --
Exercise of common stock
options....................... -- -- 32,499 25 -- -- --
Issuance of common stock in
consideration for professional
services...................... -- -- 62,327 125 -- -- --
Issuance of compensatory stock
options....................... -- -- -- 1,112 -- -- (1,112)
Compensation attributable to
stock options vesting......... -- -- -- -- -- -- 182
Net loss........................ -- -- -- -- -- -- --
----------- -------- ---------- -------- -------- ----------- ------------
Balances, December 31, 1998....... 12,299,896 35,070 4,602,573 6,559 1,866 -- (930)
<CAPTION>
-------------------------------------------
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED SHAREHOLDERS'
INCOME DEFICIT EQUITY
------------- ----------- -------------
<S> <C> <C> <C>
Balances, December 31, 1996....... $ -- $ (1,104) $ (829)
Net loss January 1, 1997 through
February 25, 1997............. -- (148) (148)
Conversion from S Corporation to
C Corporation................. -- 1,252 --
Conversion of shareholder notes
into Series A preferred
stock......................... -- -- 350
Issuance of Series B preferred
stock......................... -- -- 1,800
Issuance of common stock........ -- -- 90
Repurchase of common stock...... -- -- (10)
Conversion of shareholder notes
into Series C preferred
stock......................... -- -- 1,253
Conversion of shareholder notes
into common stock............. -- -- 89
Net loss, February 26, 1997
through December 31, 1997..... -- (4,618) (4,618)
------------- ----------- ------------
Balances, December 31, 1997....... -- (4,618) (2,023)
Issuance of Series D preferred
stock......................... -- -- 14,134
Common stock, options and
warrants issued for businesses
acquired...................... -- -- 6,105
Issuance of Series E preferred
stock and warrants to acquire
common stock.................. -- -- 8,000
Issuance of Series F preferred
stock and warrants to acquire
common stock.................. -- -- 11,399
Exercise of common stock
options....................... -- -- 25
Issuance of common stock in
consideration for professional
services...................... -- -- 125
Issuance of compensatory stock
options....................... -- -- --
Compensation attributable to
stock options vesting......... -- -- 182
Net loss........................ -- (24,745) (24,745)
------------- ----------- ------------
Balances, December 31, 1998....... -- (29,363) 13,202
</TABLE>
F-11
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED
STOCK COMMON STOCK COMMON
---------------------- ---------------------- STOCK SUBSCRIPTION DEFERRED
SHARES AMOUNT SHARES AMOUNT WARRANTS RECEIVABLE COMPENSATION
----------- -------- ---------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuances of Series F preferred
stock and warrants to acquire
common stock.................. 280,000 $ 1,400 -- $ -- $ -- $ -- $ --
Issuance of Series G preferred
stock and warrants to acquire
common stock.................. 5,014,286 33,200 -- -- 1,900 -- --
Issuance of Series H preferred
stock and warrants to acquire
common stock.................. 333,334 2,840 -- -- 160 -- --
Issuance of Series I preferred
stock and warrants to acquire
common stock.................. 2,100,000 16,621 -- -- 2,188 -- --
Exercise of Series C preferred
stock warrants................ 161,545 220 -- -- -- -- --
Preferred stock converted to
common stock upon closing of
initial public offering....... (20,189,061) (89,351) 20,189,061 89,351 -- -- --
Common stock issued upon closing
of initial public offering,
net of issuance costs......... -- -- 8,337,500 91,084 -- -- --
Common stock issued for
businesses acquired........... -- -- 8,039,363 116,345 -- -- --
Issuance of warrants for loan
origination fees.............. -- -- -- -- 588 -- --
Issuance of options and warrants
to marketing partners......... -- -- -- 46 2,041 -- --
Exercise of common stock
options....................... -- -- 800,347 1,541 -- (390) --
Exercise of common stock
warrants...................... -- -- 576,156 994 (483) -- --
Issuance of common stock in
consideration for professional
services...................... -- -- 7,000 4 -- -- --
Issuance of common stock in
consideration for investing
activities.................... -- -- 500,263 7,669 -- -- --
Repurchase of common stock...... -- -- (129,228) (46) -- -- --
Issuance of compensatory stock
options....................... -- -- -- 12,345 -- -- (12,183)
Compensation attributable to
stock options vesting......... -- -- -- -- -- -- 6,400
Unrealized gain on
investments................... -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- --
----------- -------- ---------- -------- -------- ----------- ------------
Balances, December 31, 1999....... -- $ -- 42,923,035 $325,892 $ 8,260 $ (390) $ (6,713)
=========== ======== ========== ======== ======== =========== ============
<CAPTION>
-------------------------------------------
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED SHAREHOLDERS'
INCOME DEFICIT EQUITY
------------- ----------- -------------
<S> <C> <C> <C>
Issuances of Series F preferred
stock and warrants to acquire
common stock.................. $ -- $ -- $ 1,400
Issuance of Series G preferred
stock and warrants to acquire
common stock.................. -- -- 35,100
Issuance of Series H preferred
stock and warrants to acquire
common stock.................. -- -- 3,000
Issuance of Series I preferred
stock and warrants to acquire
common stock.................. -- -- 18,809
Exercise of Series C preferred
stock warrants................ -- -- 220
Preferred stock converted to
common stock upon closing of
initial public offering....... -- -- --
Common stock issued upon closing
of initial public offering,
net of issuance costs......... -- -- 91,084
Common stock issued for
businesses acquired........... -- -- 116,345
Issuance of warrants for loan
origination fees.............. -- -- 588
Issuance of options and warrants
to marketing partners......... -- -- 2,087
Exercise of common stock
options....................... -- -- 1,151
Exercise of common stock
warrants...................... -- -- 511
Issuance of common stock in
consideration for professional
services...................... -- -- 4
Issuance of common stock in
consideration for investing
activities.................... -- -- 7,669
Repurchase of common stock...... -- -- (46)
Issuance of compensatory stock
options....................... -- -- 162
Compensation attributable to
stock options vesting......... -- -- 6,400
Unrealized gain on
investments................... 7,470 -- 7,470
Net loss........................ -- (75,943) (75,943)
------------- ----------- ------------
Balances, December 31, 1999....... $ 7,470 $ (105,306) $ 229,213
============= =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-12
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Operating Activities:
Net loss.............................................. $ (4,766) (24,745) $ (75,943)
Adjustments to reconcile net loss to net cash used in
operating activities -
Unusual item - impairment of acquired
technology...................................... -- 5,207 --
Depreciation and amortization..................... 277 1,602 13,180
Write down of long-term investments............... 34 -- --
Amortization of deferred compensation............. -- 182 6,562
Operating expenses paid in stock and warrants..... -- 125 2,041
Changes in operating assets and liabilities,
excluding effect of businesses acquired:
Accounts receivable............................. (51) 2,107 (3,389)
Prepaid expenses and other current assets....... (189) (77) (4,640)
Other assets.................................... -- -- (1,559)
Unbilled services and customer deposits, net.... -- (3,713) (615)
Accounts payable................................ 831 2,303 4,453
Accrued liabilities............................. 417 521 7,222
Deferred revenue................................ -- 535 4,676
------------ ------------ ------------
Net cash used in operating activities................... (3,447) (15,953) (48,012)
------------ ------------ ------------
Investing Activities:
Purchases of property and equipment................... (481) (2,189) (13,457)
Purchase of short-term investments.................... -- (150) (101,734)
Sale of short-term investments........................ -- -- 49,712
Sale of marketable equity securities.................. -- -- 112
Investments in equity securities and other assets..... (943) (147) (7,251)
Acquisition of businesses, net of cash acquired of
$2,850 in 1998 and $711 in 1999..................... (250) (2,851) (9,387)
------------ ------------ ------------
Net cash used in investing activities................... (1,674) (5,337) (82,005)
------------ ------------ ------------
</TABLE>
F-13
<PAGE>
SHOPNOW.COM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Financing Activities:
Borrowings under bank line of credit.................. $ 200 $ 38 $ 1,000
Principal payments under bank line of credit.......... (78) -- (1,238)
Proceeds from convertible subordinated notes.......... 1,253 -- --
Proceeds from debt obligations........................ 2,562 3,700 12,410
Payments on debt obligations.......................... (242) (6,034) (7,544)
Proceeds from sale of preferred stock and warrants,
net of issuance costs............................... 1,800 33,034 33,429
Proceeds from sale of common stock, net of issuance
costs............................................... -- 25 92,817
Common stock repurchased.............................. (10) -- (46)
------------ ------------ ------------
Net cash provided by financing activities............... 5,485 30,763 130,828
------------ ------------ ------------
Net increase in cash and cash equivalents............... 364 9,473 811
Cash and cash equivalents at beginning of period........ 12 376 9,849
------------ ------------ ------------
Cash and cash equivalents at end of period.............. $ 376 $ 9,849 $ 10,660
============ ============ ============
Supplementary disclosure of cash flow information:
Cash paid during the period for interest.............. $ 11 $ 232 $ 962
============ ============ ============
Non-cash investing and financing activities:
Conversion of note payable and convertible
subordinated debt to preferred stock.............. $ 1,603 $ 500 $ --
============ ============ ============
Conversion of note payable to common stock.......... $ 89 $ -- $ --
============ ============ ============
Preferred stock issued as part of investment in
marketable equity securities...................... -- -- 25,100
============ ============ ============
Common stock, options and warrants issued and
liabilities
assumed as part of business and technology
acquisitions...................................... $ 90 $ 6,105 $ 129,825
============ ============ ============
Assets acquired under capital leases................ $ 125 $ 2,092 $ 4,607
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-14
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1. ORGANIZATION AND BACKGROUND:
THE COMPANY
ShopNow.com Inc. (the Company), formerly TechWave, Inc., provides an end-to-end
solution that enables businesses to engage in e-commerce with other businesses,
merchants and shoppers. The Company's end-to-end solution consists of access to
online marketplaces combined with a suite of e-commerce enabling products and
services, referred to as merchant services. These merchant services include
custom application and online store development and design, hosting and
maintenance, sales and marketing services and transaction processing. The
Company also maintains an online marketplace, referred to as the ShopNow
marketplace, which aggregates merchants and shoppers over a distributed network
of web sites. In January 2000, the Company launched a business-to-business
portal and marketplace, located at b2bNow.com, which is designed to enable
businesses to engage in online transactions with other businesses.
In June, 1999 the Company ceased operating its BuySoftware.com business. Given
the Company's continued involvement in certain retailing activities over the
ShopNow marketplace, the results of BuySoftware.com have been reflected in
continuing operations until the date operations ceased, as the disposal did not
meet the criteria for discontinued operations under Accounting Principles Board
(APB) No. 30 "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions".
The Company is subject to the risks and challenges associated with other
companies at a similar stage of development, including dependence on key
management personnel, successful development and marketing of its products and
services, the continued acceptance of the Internet as a medium for electronic
commerce, competition from substitute products and services from companies with
greater financial, technical management and marketing resources and risks
associated with recent acquisitions. Further, during the period required to
develop or enhance commercially viable products, services and sources of
revenues, the Company may require additional funds that may not be readily
available.
INITIAL PUBLIC OFFERING
On October 4, 1999, the Company closed its initial public offering (IPO) of
7,250,000 shares of common stock at $12.00 per share, for proceeds net of
underwriters' fees and commissions of $80.9 million. At closing, all of the
Company's issued and outstanding shares of convertible preferred stock were
converted into shares of common stock on a one-for-one basis. On November 2,
1999, the underwriters of the IPO exercised their over-allotment option and sold
an additional 1,087,500 shares at $12.00 per share, for proceeds net of
underwriters' fees and commissions of $12.1 million. The combined net proceeds
to the Company, less additional offering costs of approximately $1.9 million,
were $91.1 million. In addition, a $1 million promissory note in connection with
the Company's acquisition of GO Software, Inc. (GO) and a $4 million bridge loan
with a financial institution plus accrued interest were repaid.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The Company's consolidated financial statements include 100% of the assets,
liabilities and results of operations of all subsidiaries in which the Company
has a controlling ownership interest of greater than 50%. Equity investments in
which the Company holds less than a 20% ownership interest are recorded at cost
and are included in other assets,
F-15
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
net in the accompanying consolidated balance sheets. All significant
intercompany transactions and balances have been eliminated.
Pro forma basic and diluted net loss per share is computed based on the weighted
average number of shares of common stock outstanding giving effect to the
conversion of convertible preferred stock outstanding that automatically
converted upon completion of the Company's initial public offering (using the
if-converted method from the original issuance date) during the fourth quarter
of 1999 (See Note 2). Pro forma diluted net loss per share excludes the impact
of stock options and warrants as the effect of their inclusion would be
antidilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the 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.
REVENUE RECOGNITION
The Company derives substantially all of its revenues from the ShopNow
marketplace and from providing merchant services to businesses.
Revenues from the ShopNow marketplace are generated from advertising and
merchandising paid by merchants, leads and orders delivered to merchants, as
well as transaction processing and licensing fees. Advertising consists of the
sale of impressions on one or more of the Company's network of web sites;
merchandising consists of the sale of specific positions or category
sponsorships on the sites. These agreements typically have a term of one to four
months. Advertising and merchandising revenues are recognized ratably over the
term of the applicable agreement. The Company generates transaction processing
and licensing fees from its payment processing and fraud prevention products and
services. In these cases, the merchant bears the full credit risk and the
Company recognizes a transaction fee upon the consummation of the sale. In
addition, the Company offers products directly to shoppers over the ShopNow
marketplace. In these instances where the Company acts as merchant-of-record,
the Company records as revenue the full sales price of the product sold and
records the full cost of the product to the Company as cost of revenues, upon
shipment of the product. Revenues generated from the Company's BuySoftware.com
business are included in ShopNow marketplace and transaction processing revenues
in the accompanying consolidated statements of operations through June 1999, at
which point management ceased operations of BuySoftware.com.
Revenues from merchant services are generated principally through development
fees, hosting fees and sales and marketing services. Merchant services can be
purchased as a complete end-to-end suite of services or separately. The Company
recognizes revenues from development of custom applications and online stores
and marketing projects on a percentage of completion basis over the period of
development or the period of the marketing project. These projects generally
range from two to five months. Hosting contracts typically have a term of one
year, with fees charged on a monthly basis. The Company bears full credit risk
with respect to these sales. Anticipated losses on these contracts are recorded
when identified. To date, losses have not been significant. Contract costs
include all direct labor, material, subcontract and other direct project costs
and certain indirect costs related to contract performance. Changes in job
performance, job conditions and estimated profitability, including those arising
from contract penalty provisions and final contract settlements that may result
in revision to costs and income, are recognized in the period in which the
revisions are determined. Unbilled services typically represent amounts earned
under the Company's
F-16
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
contracts not billed due to timing or contract terms, which usually consider
passage of time, achievement of certain milestones or completion of the project.
Where billings exceed revenues earned on contracts, the amounts are included in
the accompanying consolidated balance sheets as customer deposits, as the
amounts typically related to ancillary services, whereby the Company is acting
in an agency capacity. Fee revenue from ancillary services provided by the
merchant services division is recognized upon completion of the related job by
the applicable third party vendor. Deferred revenue consists primarily of
prepaid licensing fees which are being amortized over their contract life (see
Note 13).
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
SHORT-TERM INVESTMENTS AND MARKETABLE EQUITY SECURITIES
The Company classifies these securities as available for sale and are stated at
fair value in accordance with SFAS No. 115 "Accounting for Certain Investments
in Debt and Equity Securities." This statement specifies that available for sale
securities are reported at fair value with changes in unrealized gains and
losses recorded directly to shareholders' equity, which are reflected in
accumulated other comprehensive income in the accompanying consolidated balance
sheets. Fair value is based on quoted market prices. The Company's short-term
investments consist of corporate notes and bonds, commercial paper, municipal
notes and bonds, auction preferreds and US government securities and are stated
at cost, which approximates fair value. Marketable equity securities consist
solely of investments in the common stock of publicly-traded companies and are
recorded at fair value. Unrealized holding gains and losses, net of tax effect,
on available-for-sale securities are excluded from earnings and are reported as
a separate component of other comprehensive income until realized. Realized
gains and losses from the sale of available-for-sale securities are determined
on a specific identification basis. Dividend and interest income are recognized
as earned.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Assets purchased under capital leases
are recorded at cost (based on the present value of future minimum lease
payments discounted at the contractual interest rates). Depreciation is computed
using the straight-line method over the assets' estimated useful lives of two to
seven years, or in the case of leasehold improvements, three years or the life
of the lease, whichever is shorter. Betterments are capitalized. Repairs and
maintenance expenditures are expensed as incurred.
GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consist primarily of acquired technology, proprietary
concepts, customer lists, domain names and goodwill related to acquisitions
accounted for under the purchase method of accounting. Amortization of these
purchased intangibles is provided on the straight-line basis over the respective
useful lives of the assets, primarily three years. The Company identifies and
records impairment losses on intangible and other assets when events and
circumstances indicate that such assets might be impaired. The Company considers
factors such as significant changes in the regulatory or business climate and
projected future cash flows from the respective asset. Impairment losses are
measured as the amount by which the carrying amount of the asset exceeds the
fair value of the asset (see Note 3).
F-17
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
COST-BASIS INVESTMENTS
The Company's cost-based equity investments, which consist primarily of
investments in the equity securities of certain early-stage technology
companies, were approximately $43,000 and $14.6 million at December 31, 1998 and
1999, respectively, and are classified as other assets, net in the accompanying
consolidated balance sheets. The Company monitors its cost-basis investments for
impairment. There can be no assurance that the Company's investments in these
early-stage technology companies will be realized.
ADVERTISING COSTS
The cost of advertising is expensed as incurred. For the years ended
December 31, 1997, 1998 and 1999, the Company incurred advertising and direct
marketing expenses of approximately $470,000, $5.7 million and $29.1 million,
respectively.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and consist primarily of
salaries, supplies and contract services.
The Company's accounting policy is to capitalize eligible computer software
development costs upon the establishment of technological feasibility, which the
Company has defined as a completion of a working model. For the years ended
December 31, 1997, 1998 and 1999, the amount of eligible costs to be capitalized
has not been significant, and accordingly, the Company has charged all software
development costs to research and development in the accompanying consolidated
statements of operations.
STOCK COMPENSATION
The Company has adopted the disclosure-only provisions of the SFAS No. 123,
"Accounting for Stock-Based Compensation", and instead applies APB No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the market price of the Company's common stock over the stock option
exercise price at the date of grant. Options and warrants issued to
non-employees are accounted for using the fair value method of accounting as
prescribed by SFAS No. 123.
INCOME TAXES
The shareholders of the Company elected to be treated as an S Corporation under
the Internal Revenue Code until February 26, 1997. As a result, taxable income
until that date was included in the taxable income of the individual
shareholders, and no income tax provision was recorded. In addition, in
accordance with Staff Accounting Bulletin Topic 4B, the Company has reclassified
accumulated losses incurred prior to the date of conversion to C Corporation
status from retained earnings to common stock.
The Company terminated its S Corporation status on February 26, 1997
(Termination) and implemented SFAS No. 109, "Accounting for Income Taxes," upon
becoming a taxable entity. Under SFAS No. 109, deferred tax assets and
liabilities are determined based on the differences between financial reporting
and tax bases of assets and liabilities and are measured using the tax rates
that will be in effect when the differences are expected to reverse. Deferred
taxes were not recorded at Termination as the temporary differences between
recognition of income and expense for financial reporting and tax purposes were
not significant.
F-18
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
NET LOSS PER SHARE
In accordance with Statement of Financial Accounting Standards (SFAS) No. 128,
"Computation of Earnings Per Share," basic earnings per share is computed by
dividing net loss by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is computed by
dividing net loss by the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the shares of common stock issuable upon the conversion of the
convertible preferred stock (using the if-converted method) and shares issuable
upon the exercise of common stock options and warrants (using the treasury stock
method); common equivalent shares are excluded from the calculation if their
effect is antidilutive. The Company has not had any issuances or grants for
nominal consideration as defined under Staff Accounting Bulletin 98. Diluted net
loss per share for all periods shown does not include the effects of the
convertible preferred stock and shares issuable upon the exercise of stock
options and warrants as the effect of their inclusion is antidilutive during
each period.
STATEMENTS OF COMPREHENSIVE LOSS
There were no reclassification adjustments as defined in SFAS 130, "Reporting
Comprehensive Income" or income tax provision related to the unrealized gain on
investments during the year ended December 31, 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The implementation of SOP 98-1 did not have a
material impact on the Company's financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up
Activities." SOP 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. The implementation of SOP 98-5
did not have a material impact on the company's financial position or results of
operations.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," to provide guidance on the recognition, presentation and disclosure
of revenues in financial statements. The Company believes its revenue
recognition practices are in conformity with the guidelines prescribed in SAB
No. 101.
RECLASSIFICATIONS
Certain information reported in previous periods has been reclassified to
conform to the current period presentation.
NOTE 3. ACQUISITIONS:
In January 1997, the Company formed a wholly owned subsidiary, TechWave
Acquisition, Inc. (TechWave Acquisition). In January 1997, Web Solutions, Inc.
(Web Solutions) and Intelligent Software Solutions, Inc. (Intelligent Software)
F-19
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 3. ACQUISITIONS: (CONTINUED)
merged with and into TechWave Acquisition in exchange for 600,000 shares of the
Company's common stock valued at approximately $90,000, a convertible note
payable for $250,000 ($226,000 in principal and $24,000 in interest), and
$25,000 in cash, aggregating a total purchase price of $341,000. The acquisition
was accounted for in accordance with the purchase method of accounting. The
excess purchase price was principally allocated to acquired technology, which is
amortized over a five-year life. In November 1997, the unpaid principal balance
of $89,000 was converted into 177,333 shares of common stock. Both Web Solutions
and Intelligent Software were software development companies with core
technologies that were incorporated into the Company's electronic software
distribution products. Additionally, the sole shareholder of Web Solutions and
Intelligent Software became an officer of the Company.
In June 1998, the Company acquired e-Warehouse, Inc. and CyberTrust, Inc.,
wholly owned subsidiaries of a publicly traded Canadian company. The sellers had
developed certain payment processing technologies that the Company had planned
to utilize in their e-commerce offerings. Consideration for these acquisitions
consisted of $4.0 million in cash and 422,710 shares of the Company's common
stock (valued at $3.30 per share), with a total value of approximately
$5.4 million. The acquisition was recorded using the purchase method of
accounting. The Company never fully utilized the acquired technology and had
determined that it had no alternative future use or value in the Company's
transaction processing systems, as the Company's existing technology platform
provided the enhanced functionality needed in the Company's business operations.
Due to the impairment of the acquired technology, the Company wrote off all of
the excess purchase price, except for value assigned to domain names, in the
accompanying 1998 consolidated statement of operations. As a result of the
impairment, the Company commenced legal proceedings in December 1998 against two
of the executives associated with the acquired companies. In January 1999, the
two executives filed a counterclaim against the Company. On August 10, 1999, all
legal proceedings were settled, resulting in an insignificant charge to the
Company.
In August 1998, the Company completed its acquisition of The Internet Mall,
which was doing business as ShopNow, Inc. (ShopNow). The Internet Mall, Inc.
operated a shopping aggregation Web site and provided the Company with
technology and merchant relationships to assist in the development of an online
shopping portal. In connection with this acquisition, the Company issued 719,915
shares of common stock, valued at $3.30 per share, and warrants to purchase
common stock for a total purchase price of approximately $2.6 million. The
acquisition was accounted for using the purchase method of accounting. Of the
total excess purchase price of $2.6 million, approximately $1.5 million was
allocated to customer lists and domain names, which are amortized over a
three-year life, with the remainder being allocated to acquired technology,
workforce and goodwill, which are amortized over three-year lives.
In September 1998, the Company entered into a purchase and merger agreement with
Media Assets, Inc. (doing business as The Haggin Group). The Haggin Group is a
creative design and direct marketing firm with offices in California. The
Company paid The Haggin Group consideration including $300,000 in cash, a
promissory note for $1.0 million, 600,000 shares of the Company's common stock,
valued at $3.30 per share, and options to acquire common stock for a total
purchase price of approximately $3.3 million. The terms of the promissory note
require payments, by the Company, of eight equal quarterly installments of
approximately $113,000 on the first day of each quarter commencing January 1,
1999 until fully paid on October 1, 2000. The acquisition was accounted for
using the purchase method of accounting. The excess purchase price of
approximately $1.7 million was allocated to customer lists and domain names and
is being amortized over a three-year life. In connection with this acquisition,
three employees were granted a total of 1.2 million options at exercise prices
between $2.00 and $3.00 per share to acquire the Company's common stock. The
vesting of these options was dependent upon the achievement of certain
F-20
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 3. ACQUISITIONS: (CONTINUED)
performance measures related to business unit revenue and customer growth as
defined in the stock option agreements. The performance measures initially
established were well beyond the historical financial results achieved during
prior periods. As such, during the period these options were outstanding, the
thresholds established to trigger vesting were not considered achievable and
were not achieved. As no measurement date for the options occurred and since the
price of the options was fixed, the number of shares to be ultimately issued was
not known. Since these thresholds were not considered achievable, these options
were cancelled in May of 1999. The three employees were granted fixed-price
options to purchase 405,000 shares of the Company's common stock with time
vesting provisions not dependent upon performance. These options had the same
strike prices and vesting terms as the original grants. As the grant of the new
options created a new measurement date, the Company recorded $1.9 million of
deferred compensation for the difference between the strike price and the
underlying fair market value of the common stock at May 1999, which was
determined to be $7.22 per share. The Company also recognized a compensation
charge of $831,000 for the immediately vested portion of these grants in the
accompanying consolidated December 31, 1999 financial statements.
In June 1999, the Company acquired GO Software, Inc. (GO). GO develops and
markets transaction processing software for personal computers that can function
on a stand-alone basis or can interface with core corporate accounting systems.
The Company paid GO $4.7 million in cash, issued a $1 million promissory note
bearing interest at 10%, and issued 1,123,751 shares of common stock, valued at
$8.54 per share, for a total purchase price of $15.4 million. The acquisition
was accounted for using the purchase method of accounting. Of the excess
purchase price of approximately $14.4 million, $13.8 million was allocated to
acquired technology and $556,000 was allocated to goodwill, which are both being
amortized over a three-year life. The note bore interest at 10% and was repaid
in full upon completion of the Company's IPO.
Also in June 1999, the Company acquired CardSecure, Inc. (CardSecure) for a
purchase price of approximately $3.5 million. CardSecure is a developer of
e-commerce enabled Web sites. The acquisition was accounted for using the
purchase method of accounting. The excess purchase price of approximately
$3.5 million was allocated to acquired technology and is being amortized over a
three-year life (see Note 3).
On November 12, 1999, the Company acquired SpeedyClick, Corp. (SpeedyClick), a
California corporation, for $55.6 million of cash, common stock and common stock
options. SpeedyClick, a privately held company, maintains an Internet web site
that focuses on entertainment and interactivity. Upon effectiveness of the
acquisition, a total of 3,799,237 shares of common stock valued at $13.31 per
share were issued to the owners of SpeedyClick. Options to purchase SpeedyClick
common stock were assumed by the Company and converted into 157,537 options to
purchase the Company's common stock. The Company also paid cash consideration of
$3.0 million to the owners of SpeedyClick. The Company accounted for this
transaction as a purchase. Of the $55.6 million in consideration paid,
approximately $27.9 was allocated to proprietary concepts, $14.7 million to
customer lists and $13.0 million to goodwill. These intangible assets are being
amortized over a three-year life.
On December 3, 1999, the Company acquired Cortix, Inc. (Cortix), an Arizona
corporation doing business as 20-20Consumer.com, for $14.4 million of cash and
common stock. Cortix, a privately held company, is an operator of comparison
shopping services including online reviews and ratings for commerce-oriented
businesses, merchants and products. Upon effectiveness of the acquisition,
711,435 shares of common stock valued at $18.81 per share were issued to the
owners of Cortix. The Company also paid cash consideration of $1.0 million to
the owners of Cortix. The Company accounted for this transaction as a purchase.
Of the $14.4 million in consideration paid, approximately $11.4 million was
allocated to acquired technology, $1.6 million to customer lists and
$1.3 million to goodwill. These intangible assets are being amortized over a
three-year life.
F-21
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 3. ACQUISITIONS: (CONTINUED)
On December 17, 1999, the Company acquired WebCentric Inc., (WebCentric) a
Kansas corporation doing business as bottomdollar.com, for $40.2 million of
common stock, common stock options and including approximately $1.4 million of
cash. WebCentric, a privately held company, develops e-commerce integration
technology and applications, including a comparison shopping engine that allows
consumers to search and compare the products and services of several leading
Internet merchants. Upon effectiveness of the acquisition, a total of 2,161,904
shares of common stock valued at $16.89 per share were issued to the owners of
WebCentric. In addition, the Company issued replacement stock options to
purchase an aggregate of 121,544 shares of the Company's common stock to certain
employees and owners of WebCentric. The Company accounted for this transaction
as a purchase. Of the $40.2 million in consideration paid, approximately
$31.8 million was allocated to acquired technology, $3.3 million to customer
lists and $4.6 million to goodwill. These intangible assets are being amortized
over a three-year life.
In January 2000, the Company entered into a definitive agreement to acquire
Ubarter.com, Inc. (Ubarter), for approximately $45 million of common stock,
common stock options and common stock warrants. Ubarter, a publicly traded
company, is an e-commerce company specializing in online business-to-business
barter exchange. The acquisition is expected to close in the second quarter of
2000 subject to the Company's effectiveness of a registration statement on
Form S-4 with the Securities and Exchange Commission and the approval of the
shareholders of Ubarter.
UNAUDITED PRO FORMA COMBINED RESULTS
The following summarizes the unaudited pro forma results of the Company's
operations for the years ended December 31, 1997, 1998 and 1999, assuming the
Media Assets, Inc., and The Internet Mall, Inc. transactions occurred as of
January 1, 1997 and the GO, CardSecure, SpeedyClick, Cortix and WebCentric
transactions occurred as of January 1, 1998. Pro forma information for the
e-Warehouse, Inc. and CyberTrust, Inc. transactions is not presented, as it is
not considered meaningful. The pro forma results are presented for the purposes
of additional analysis only and do not purport to present the results of
operations that would have occurred for the periods presented or that may occur
in the future.
<TABLE>
<CAPTION>
-------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
-------- -------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues.................................................... $ 6,426 $ 14,202 $ 40,144
Net loss.................................................... $(4,917) $(61,542) $(114,209)
Net loss per share.......................................... $ (0.98) $ (4.88) $ (5.79)
</TABLE>
F-22
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 4. SHORT-TERM INVESTMENTS:
Short-term investments are summarized as follows (in thousands):
<TABLE>
<CAPTION>
-------------------
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Auction preferreds.......................................... $ -- $14,647
Municipal notes and bonds................................... -- 13,453
Commercial paper............................................ -- 11,452
Corporate notes and bonds................................... -- 6,298
U.S. government securities.................................. -- 6,172
Certificate of deposit...................................... 150 150
---- -------
Total short-term investments................................ $150 $52,172
==== =======
</TABLE>
Included in the U.S. government securities category is $2.6 million pledged as a
letter of credit for certain of the Company's office facilities.
NOTE 5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
-------------------
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Equipment................................................... $ 3,313 $11,065
Software.................................................... 759 10,645
Furniture and fixtures...................................... 568 1,618
Leasehold improvements...................................... 548 817
------- -------
5,188 24,145
Less - Accumulated depreciation and amortization............ (1,003) (4,760)
------- -------
Property and equipment, net................................. $ 4,185 $19,385
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $186,000, $816,000 and $3.6 million, respectively.
Property and equipment shown above include assets under capital leases of
approximately $2.2 million and $6.9 million at December 31, 1998 and 1999, with
corresponding accumulated amortization of approximately $270,000 and
$1.0 million at December 31, 1998 and 1999, respectively.
F-23
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 6. OTHER INTANGIBLE ASSETS:
Other intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
-------------------
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Acquired technology......................................... $ 840 $ 61,297
Proprietary concept......................................... -- 27,910
Customer lists.............................................. 1,978 22,297
Domain names................................................ 1,533 1,775
Other....................................................... 386 402
------ --------
4,737 113,681
Less - Accumulated amortization............................. (793) (8,968)
------ --------
$3,944 $104,713
====== ========
</TABLE>
NOTE 7. INVESTMENTS IN MARKETABLE EQUITY SECURITIES:
At December 31, 1999, the Company held 476,410 shares of 24/7 Media and 85,122
shares of FreeShop.com, Inc. (FreeShop), both of which are publicly traded
companies subject to the reporting requirements of the Securities and Exchange
Commission. During the fourth quarter of 1999, the Company sold 110,000 of its
original 195,122 shares of FreeShop for a recognized gain of $2.4 million. The
Company's cost basis in these investments was $200,000 and $23.4 million as of
December 31, 1998 and 1999, respectively, resulting in net unrealized holding
gains of zero and $7.5 million, for the years ended December 31, 1998 and 1999,
respectively.
NOTE 8. ACCRUED LIABILITIES:
Accrued liabilities consists of the following (in thousands):
<TABLE>
<CAPTION>
-------------------
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Accrued compensation and benefits........................... $ 576 $4,422
Accrued marketing expenses.................................. -- 2,145
Other accrued liabilities................................... 556 2,211
------ ------
$1,132 $8,778
====== ======
</TABLE>
NOTE 9. LINE OF CREDIT:
The Company had a line of credit with a financial institution with a maximum
balance of $300,000. The line of credit bore interest at prime plus 2% (9.75% at
December 31, 1998), with interest payable monthly. The line of credit expired
and the principal balance was paid in February 1999. The line of credit was
secured by assets of the Company.
F-24
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 9. LINE OF CREDIT: (CONTINUED)
In March 1999, the Company entered into a loan and security agreement
(agreement) with a financial institution for a term loan and line of credit. In
May 1999, the agreement was amended and restated allowing the Company to borrow
up to $8.5 million at any one time, consisting of a $3.5 million term loan (term
loan), a $4.0 million bridge loan (bridge loan) and a line of credit of up to
$2.5 million, initially capped at $1.0 million until the bridge loan was repaid.
The line of credit bears interest at the financial institution's base rate plus
2%, is secured by substantially all assets of the Company and was amended in
January 2000 to expire on March 31, 2001. The term loan bears interest at 12%,
is secured by substantially all assets of the Company and matures in
March 2002. The bridge loan bore interest at 12% and was repaid in October 1999
after the closing of the Company's initial public offering. In conjunction with
the agreement, the Company issued warrants to acquire 72,000 shares of common
stock at an exercise price of $6.25 per share. The warrants are exercisable
immediately and expire in March 2006. In May 1999 in connection with the
modification, the Company issued additional warrants to acquire 70,000 shares of
common stock at an exercise price of $7.00 per share. The warrants are
exercisable immediately and expire in June 2006.
NOTE 10. NOTES AND LEASES PAYABLE:
Notes and leases payable consist of the following (in thousands):
<TABLE>
<CAPTION>
-------------------
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Convertible note payable to shareholder, interest at
applicable short-term federal rate, quarterly principal
and interest payments totaling $113,000; final payment due
in October 2000. The note is convertible to common stock
at $8.00 per share........................................ $ 859 $ 437
Term note payable bearing interest at 12% per year,
principal and interest payments payable monthly, final
payment due in March 2002................................. -- 3,086
Capital lease obligations and other notes payable, interest,
and principal payable monthly, interest at rates from 6%
to 18% with maturity dates between 2000 and 2005.......... 2,111 10,451
------- -------
2,970 13,974
Less - current portion...................................... (1,133) (8,565)
------- -------
$ 1,837 $ 5,409
======= =======
</TABLE>
In September 1997, the Company issued 9% Subordinated Demand Notes totaling
$500,000 to each of two shareholders. In January 1998, the principal amount of
these Demand Notes was converted to 125,000 shares of Series D preferred stock
and interest of approximately $13,000 was paid in cash.
In November 1997, the Company completed a bridge financing with individual
investors and executed Promissory Notes with principal totaling $1.8 million.
The interest on this principal was 12% per year, increasing by 1% per year each
30 days to a maximum of 18% per year. In connection with the closing of the
Company's Series D equity placement in January 1998, the $1.8 million plus
interest of approximately $61,000 was paid in full. The placement agent and the
holders of the Promissory Notes also received warrants to purchase 177,500 and
62,125 shares of the Company's common stock, respectively, at $1.50 per share.
The warrants are exercisable immediately and expire in October 2000.
In October 1998, the Company completed a bridge financing with individual
investors and executed Promissory notes with principal totaling $3.7 million.
The interest on this principal was 13% per year. In connection with the
F-25
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 10. NOTES AND LEASES PAYABLE: (CONTINUED)
Company's Series F equity placement in December 1998, the $3.7 million plus
interest of approximately $12,000 was paid in full. The placement agent and the
holders of the promissory notes also received 129,500 and 129,500 warrants,
respectively, to purchase a total of 259,000 shares of the Company's common
stock at $4.00 per share. The warrants are exercisable immediately and expire in
October 2001.
Notes and leases payable mature as follows for the periods ending December 31,
1999 (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 8,565
2001........................................................ 4,115
2002........................................................ 1,204
2003........................................................ 82
2004........................................................ 6
Thereafter.................................................. 2
-------
$13,974
=======
</TABLE>
Based on the borrowing rates currently available to the Company for loans with
similar terms and average maturities, the fair market value of long-term debt
approximates the carrying amount at December 31, 1999.
NOTE 11. COMMITMENTS:
The Company is obligated under capital and operating leases for various
equipment leases and its office facilities. The leases expire through 2011.
Future minimum lease payments under these leases are as follows for the period
ending December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
--------------------
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
2000........................................................ $ 7,498 $ 2,968
2001........................................................ 3,064 6,219
2002........................................................ 925 5,694
2003........................................................ 98 5,609
2004........................................................ 9 5,453
Thereafter.................................................. 2 32,785
------- -------
11,596 $58,728
=======
Less - Amounts representing interest........................ (1,200)
-------
Net present value of minimum lease payment.................. $10,396
=======
</TABLE>
In 1999, the Company issued 62,400 warrants to purchase common stock at $6.25
per share to two financial institutions in conjunction with certain leases
included above. The warrants are exercisable immediately and expire between
June 2004 and April 2006.
Rental expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $127,000, $225,000 and $1.3 million, respectively.
F-26
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 11. COMMITMENTS: (CONTINUED)
The Company has commitments under various business agreements to purchase
advertising totaling approximately $6.0 million in 2000, decreasing to
$1.0 million in 2004.
NOTE 12. INCOME TAXES:
The Company did not provide any current or deferred United States federal, state
or foreign income tax provision or benefit for any of the periods presented
because it has experienced operating losses since inception, and has
historically provided full valuation allowances on deferred tax assets because
of uncertainty regarding their realizability. In December 1999, the Company's
valuation allowance was reduced to zero due to the increase in deferred tax
liabilities recognized from business acquisitions, which as of December 31,
1999, exceed the amount of deferred tax assets recognized by the Company.
Deferred tax assets consist primarily of net operating loss carryforwards,
stock-compensation expense not recognized for tax purposes and deferred revenue
recognized immediately for tax purposes during 1999. Deferred tax liabilities
consist primarily of intangible assets not recognized for tax purposes and
accelerated tax depreciation deductions exceeding the amounts recognized by the
Company in its consolidated financial statements.
The difference between the expected income tax rate of 38% (federal statutory
rate of 34% plus a blend of state income tax rates, net of the federal benefit)
and the tax provision of zero recorded by the Company is primarily due to the
Company's full valuation allowance against its deferred tax assets through the
end of 1999.
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $76.4 million related to U.S. federal, foreign and state
jurisdictions. Utilization of net operating loss carryforwards are subject to
certain limitations under Section 382 of the Internal Revenue Code of 1986, as
amended. Our ability to use net operating losses incurred prior to July 1999 is
limited to an aggregate of approximately $14.3 million per year due to sales of
Series D and Series E convertible preferred stock to third parties in April 1998
and the sale of Series I convertible stock to Chase Manhattan Bank in July 1999,
which resulted in ownership changes. These carryforwards will begin to expire at
various times commencing in 2012.
F-27
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 12. INCOME TAXES: (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred taxes were as follows (in thousands):
<TABLE>
<CAPTION>
-------------------
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 7,500 $ 29,021
Stock-based compensation.................................. 62 2,730
Deferred revenue.......................................... -- 1,889
Other..................................................... 138 311
Valuation allowance for deferred tax assets............... (6,400) --
------- --------
Total deferred assets....................................... 1,300 33,951
------- --------
Deferred tax liabilities:
Intangible assets......................................... (1,281) (38,398)
Property and equipment.................................... (19) (64)
------- --------
Total deferred liabilities.................................. (1,300) (38,462)
------- --------
Net deferred tax liabilities................................ $ -- $ (4,511)
======= ========
</TABLE>
NOTE 13. SHAREHOLDERS' EQUITY:
CONVERTIBLE PREFERRED STOCK
At December 31, 1999, the Company had authorized 200,000,000 shares of common
stock and 5,000,000 shares of convertible preferred stock. Shares of convertible
preferred stock may be issued from time to time in one or more series, with
designations, preferences and limitations established by the Company's board of
directors. As of
F-28
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 13. SHAREHOLDERS' EQUITY: (CONTINUED)
December 31, 1999, the Company had designated nine series of convertible
preferred stock (designated Series A through I). Amounts outstanding were as
follows:
<TABLE>
<CAPTION>
-----------------------
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Series A preferred stock: Issued 699,612 shares in 1997,
aggregate liquidation preference $350,000................. $ 350 $ --
Series B preferred stock: Issued 2,334,079 shares in 1997,
aggregate liquidation preference $1,800,000............... 1,800 --
Series C preferred stock: Issued 996,748 shares in 1997,
aggregate liquidation preference $1,473,000............... 1,253 --
Series D preferred stock: Issued 4,250,000 shares in 1998,
aggregate liquidation preference $17,000,000.............. 13,461 --
Series E preferred stock: Issued 2,125,000 shares in 1998,
aggregate liquidation preference $8,500,000............... 7,672 --
Series F preferred stock: Issued 2,056,000 shares in 1998
and 2,336,000 in 1999, aggregate liquidation preference
$12,850,000............................................... 10,534 --
--------- ---------
$ 35,070 $ --
========= =========
</TABLE>
Shareholders of convertible preferred stock have the right to one vote for each
share of common stock into which the preferred stock could be converted. In the
event of liquidation, preferred shareholders are entitled to a per-share
distribution in preference to common shareholders equal to the original issue
price. In the event the funds are insufficient to make a complete distribution
to the preferred shareholders, then all of the funds available shall be
distributed ratably based on their respective liquidation preferences among the
holders of preferred stock. All series of the Company's outstanding preferred
stock were converted into common stock on a one-for-one basis upon completion of
the Company's IPO during the fourth quarter of 1999.
During the period from January 23, 1998 through April 15, 1998, the Company
completed a $25.5 million private equity placement. The Company issued
4.25 million shares of Series D and 2.125 million shares of Series E preferred
stock each at $4.00 per share, for a total of 6.375 million shares. In
conjunction with this sale, the Company issued 637,500 warrants to purchase
common stock at $5.00 per share. The warrants are currently exercisable and
expire on their third anniversary. In addition, the Company issued to the
placement agent 625,000 warrants to purchase common stock at $4.40 per share.
The warrants are exercisable immediately and expire on their third anniversary.
During the fourth quarter of 1998 and the first quarter of 1999, the Company
completed a $14.6 million private equity placement. The Company issued 2,336,000
shares of Series F preferred stock at $6.25 per share. In conjunction with this
sale, the Company issued 233,600 warrants to purchase common stock at $7.50 per
share. The warrants are exercisable on the first anniversary of their issuance
and expire on their third anniversary. In addition, the Company issued to the
placement agent 233,600 warrants to purchase common stock at $6.25 per share.
The warrants are exercisable immediately and expire on their third anniversary.
As a condition to the commencement of the Series D private equity placement
described above, the holders of the Series A, Series B, and Series C stock
agreed to an amended and restated Articles of Incorporation that amended and
F-29
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 13. SHAREHOLDERS' EQUITY: (CONTINUED)
deleted certain rights of the Series A, Series B, and Series C stock, including
redemption and preferential dividend rights.
In March and April 1999, the Company completed a $5 million private equity
placement. The Company issued 714,286 shares of Series G preferred stock at
$7.00 per share and 35,715 warrants to purchase common stock at $7.50 per share.
The warrants are exercisable immediately and expire on their third anniversary.
In April 1999, the Company entered into a cross promotion agreement and equity
exchange agreement with 24/7 Media. As a part of the equity exchange agreement,
24/7 Media acquired 4.3 million shares of the Company's Series G preferred stock
at $7.00 per share and 860,000 warrants to acquire common stock at $7.00 per
share in exchange for consideration valued at $30.1 million. The warrants are
exercisable immediately and expire on their third anniversary. The purchase
price consists of three parts: $5.0 million in cash, 466,683 shares of
24/7 Media's common stock, and the right to acquire 24/7 Media's interest in
CardSecure. In June, 1999, the Company acquired 24/7 Media's interest in
CardSecure and also acquired the remaining minority interest from CardSecure's
founders and received 9,727 additional shares of 24/7 Media's common stock by
issuing 243,036 shares of the Company's common stock valued at $8.54 per share.
In May 1999, the Company completed a $3 million private equity placement. The
Company issued 333,334 shares of Series H preferred stock at $9.00 per share and
50,000 warrants to purchase common stock at $9.00 per share. The warrants are
exercisable immediately and expire on their third anniversary.
In July 1999 the Company closed an $18.9 million private equity placement with a
financial institution pursuant to the terms of a stock purchase agreement which
had been entered into on June 17, 1999. The Company issued 2,100,000 shares of
Series I preferred stock at $9.00 per share and 555,556 warrants to purchase
common stock at $9.00 per share. The warrants are exercisable immediately and
expire on their third anniversary. The Series I preferred stock contains
substantially the same rights and preferences as the previous series of
preferred stock. In conjunction with the Series I preferred stock, the Company
entered into an agreement with the financial institution and received
$6.1 million in cash, which represents prepaid licensing fees. These prepaid
fees are being recognized as revenue over a 27-month period on a straight-line
basis, which represents the term of the agreement.
STOCK OPTION PLANS
The Company adopted a combined incentive and nonqualified stock option plan (the
Plan) to provide incentive to employees, directors, consultants and advisors.
The Company originally reserved 5,000,000 shares of common stock for issuance
under the Plan. During 1999, the Company amended the Plan and increased the
shares reserved for issuance under the Plan to 8,000,000. The Company has
granted options to purchase 2,331,733 shares to Company executives outside the
Plan. In December 1999, the Company adopted a nonexecutive officer stock option
plan (the NOE Plan) to provide incentive to certain employees and consultants.
The Company reserved 1,000,000 shares of common stock for issuance under the NOE
Plan, which also allows for automatic increases in the number of shares issuable
based on certain events, up to a maximum number of 4,000,000 shares. In
December 1999, in connection with our acquisition of SpeedyClick, Corp., the
Company assumed the SpeedyClick 1999 Stock Incentive Plan (the SpeedyClick
Plan). The SpeedyClick Plan was designed to provide incentive to employees,
directors, consultants and advisors. The Company has reserved 157,537 shares of
common stock for issuance under the SpeedyClick Plan. There are 375,000 shares
of common stock reserved for issuance under the SpeedyClick Plan, however the
Company does not intend to make further grants of options under this Plan.
F-30
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 13. SHAREHOLDERS' EQUITY: (CONTINUED)
Options under the Plan, the NOE Plan, the SpeedyClick Plan and options granted
outside of the Plan (the Plans) generally expire 10 years from the date of
grant. The Board of Directors determines the terms and conditions of options
granted under the Plans, including the exercise price. Options are generally
granted at fair market value on the date of grant and generally vest ratably
over a three-year period from the date of grant.
Under APB No. 25, the Company records compensation expense over the vesting
period for the difference between the exercise price and the deemed fair market
value for financial reporting purposes of stock options granted. Prior to the
Company's IPO, the fair value of common stock had been based on factors
including, but not limited to, preferred stock sales, milestones achieved in the
development of the Company, comparisons to competitive public companies and
general market conditions. Subsequent to the IPO, fair value has been determined
using the Company's closing stock price as quoted in the public market. In
conjunction with grants made in 1997, 1998 and 1999, the Company recorded zero,
$182,000 and $6.6 million as stock compensation expense in the accompanying
December 31, 1997, 1998 and 1999 consolidated statements of operations,
respectively.
The Company has adopted the disclosure-only provisions of SFAS No. 123. Had
compensation expense been recognized on stock options issued based on the fair
value of the options at the date of grant and recognized over the vesting
period, the Company's net loss would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
------------------------------
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported............................................... $(4,766) $(24,745) $(75,943)
Pro forma................................................. (4,766) (25,067) (83,443)
Basic and diluted net loss per share:
As reported............................................... $ (1.83) $ (7.01) $ (5.80)
Pro forma................................................. (1.83) (7.10) (6.37)
</TABLE>
The fair value of each option is estimated using the Black-Scholes option
pricing model that takes into account: (1) the fair value stock price at the
grant date, (2) the exercise price, (3) estimated lives ranging from two to
three years, (4) no dividends, (5) risk-free interest rates ranging from 5.3% to
6.5% and (6) volatility ranging from 0% through June 18, 1999, 72.0% subsequent
to June 18, 1999 through September 30, 1999, and 88.3% subsequent to
September 30, 1999. The initial impact on pro forma net loss may not be
representative of compensation expense in future years when the effect of the
amortization of multiple awards would be reflected in results from operations.
F-31
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 13. SHAREHOLDERS' EQUITY: (CONTINUED)
A summary of activity related to stock option grants under the Plans follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------------------------------
1997 1998 1999
-------------------- -------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period........ 145,500 $0.47 1,793,515 $0.54 4,333,566 $1.91
Granted................................. 1,813,482 0.55 3,087,379 2.60 7,409,430 6.83
Exercised............................... -- -- (27,499) 0.77 (672,004) 2.09
Canceled................................ (165,467) 0.60 (519,829) 2.28 (758,009) 4.06
--------- --------- ----------
Outstanding at end of period.............. 1,793,515 0.54 4,333,566 1.91 10,312,983 5.28
========= ========= ==========
Exercisable at the end of the period...... 436,653 0.68 1,681,026 1.06 3,231,952 2.17
========= ========= ==========
</TABLE>
The following information is provided for all stock options outstanding and
exercisable at December 31, 1999:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
OUTSTANDING EXERCISABLE
------------------------------------------ --------------------------
WEIGHTED
AVERAGE
WEIGHTED REMAINING WEIGHTED
NUMBER OF AVERAGE CONTRACTUAL NUMBER OF AVERAGE
EXERCISE PRICE RANGE OPTIONS EXERCISE PRICE LIFE (YEARS) OPTIONS EXERCISE PRICE
- -------------------- ---------- -------------- ------------ --------- --------------
<S> <C> <C> <C> <C> <C>
$0.00 to $2.24...................... 2,993,280 $ 1.07 6.9 2,190,418 $ 0.97
$2.25 to $6.73...................... 2,513,008 3.81 8.8 826,637 3.79
$6.74 to $8.96...................... 1,159,460 7.00 9.3 144,733 7.00
$8.97 to $11.21..................... 2,292,946 9.58 9.6 54,678 9.04
$11.22 to $17.93.................... 1,078,289 12.97 9.8 10,236 13.41
$17.94 to $22.42.................... 276,000 21.25 10.0 5,250 21.25
---------- ---------- ---- --------- ----------
10,312,983 $ 6.08 8.6 3,231,952 $ 2.17
========== ========== ==== ========= ==========
</TABLE>
During the fourth quarter of 1999, the contingent performance criteria relating
to a stock option grant made outside of the Plan for 310,000 shares of the
Company's common stock with an exercise price of $4.00 were satisfied.
Accordingly, a stock-based compensation charge of approximately $3.3 million was
recognized in the accompanying December 31, 1999 consolidated statement of
operations.
At December 31, 1999, 1,554,974 shares of common stock were available for future
grants under the Plans. Also, 11,867,957 shares of common stock were authorized
but unissued relating to outstanding and available stock option grants under the
Plans.
WARRANTS AND OPTIONS ISSUED TO BUSINESS PARTNERS
On April 29, 1999, pursuant to a distribution and marketing agreement with a
telecommunications company, the Company issued warrants to purchase 100,000
shares of the Company's common stock at $10 per share. The warrants are
exercisable immediately and expire in April 2002. Simultaneously, the Company
entered into a put
F-32
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 13. SHAREHOLDERS' EQUITY: (CONTINUED)
agreement, which allows the telecommunications company to put the shares back to
the Company for $25.00 per share during the period from June 2001 to
August 2001. The number of shares subject to the put warrant declines over time
as the Company generates revenue under the marketing and distribution agreement.
In accordance with EITF 96-13, the Company recorded the fair value of the put
warrant in the accompanying consolidated balance sheet as of December 31, 1999.
On May 19, 1999, the Company entered into a distribution agreement with a
software manufacturer. As part of this agreement, the Company issued warrants to
purchase 100,000 shares of common stock at $9.00 per share, options to purchase
300,000 shares of common stock at $4.80 per share and 200,000 shares of common
stock valued at $9.00 per share.
During the third and fourth quarters of 1999, the Company granted warrants to
purchase 183,782 shares of the Company's common stock to certain marketing
partners at exercise prices ranging from $9.50 to $18.94. These warrants were
immediately exercisable when granted and expire between 1 and 5 years from the
date of grant.
EMPLOYEE STOCK PURCHASE PLAN
During 1999, the Company's Board of Directors and shareholders approved and
adopted an employee stock purchase plan (the ESPP). A total of 2,000,000 shares
of common stock have been reserved for issuance under the ESPP, which allows for
future increases. During two six-month purchase periods each year, eligible
employees may withhold up to 10% of their salary, plus commissions, to purchase
common stock at a price equal to 85% of the lesser of the fair market value of
the Company's common stock on the first or the last day of the applicable six
month purchase period. The ESPP will continue for a term of 10 years, unless
terminated earlier by the Company's Board of Directors. As of December 31, 1999,
no shares had been sold to employees under the ESPP. The first sale of shares to
employees is scheduled to occur on April 30, 2000.
The following shares of common stock were reserved at December 31, 1999:
<TABLE>
<S> <C>
Convertible preferred stock................................. --
Stock options............................................... 11,867,957
Common stock warrants....................................... 3,806,281
Employee stock purchase plan................................ 2,000,000
----------
17,674,238
==========
</TABLE>
NOTE 14. SEGMENT INFORMATION:
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," during the first quarter of 1998. SFAS No. 131
established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available, evaluated regularly by
the chief operating decision makers, or a decision making group, in deciding how
to allocate resources and in assessing performance. The Company's chief
operating decision making group is comprised of the chief executive officer and
various executive vice presidents and general managers of the Company. The
Company has identified three distinct reportable segments: merchant services,
the ShopNow
F-33
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 14. SEGMENT INFORMATION: (CONTINUED)
marketplace and transaction processing and retail product sales through the
BuySoftware.com Web site. While the decision making group evaluates results in a
number of different ways, the line of business management structure is the
primary basis for which it assesses financial performance and allocates
resources. The accounting policies of the line of business operating segments
are the same as those described in the summary of significant accounting
policies.
The following table represents the Company's segment information for the years
ended December 31, 1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
------------------------------
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
ShopNow marketplace and transaction processing (excluding
BuySoftware.com).......................................... $ 35 $ 280 $ 16,094
Merchant services (excluding BuySoftware.com)............... 500 2,416 10,938
BuySoftware.com............................................. 69 4,458 9,923
------- -------- --------
604 7,154 36,955
------- -------- --------
Cost of revenues:
ShopNow marketplace and transaction processing (excluding
BuySoftware.com).......................................... 35 142 9,016
Merchant services (excluding BuySoftware.com)............... 356 1,255 7,123
BuySoftware.com............................................. 124 4,452 11,190
------- -------- --------
515 5,849 27,329
------- -------- --------
Gross profit:
ShopNow marketplace and transaction processing (excluding
BuySoftware.com).......................................... -- 138 7,078
Merchant services (excluding BuySoftware.com)............... 144 1,161 3,815
BuySoftware.com............................................. (55) 6 (1,267)
------- -------- --------
$ 89 $ 1,305 $ 9,626
======= ======== ========
Profit reconciliation:
Gross profit for reportable segments........................ $ 89 $ 1,305 $ 9,626
Operating expenses.......................................... (4,691) (26,221) (88,320)
Nonoperating expenses, net.................................. (164) 171 2,751
------- -------- --------
Net loss.................................................... $(4,766) $(24,745) $(75,943)
======= ======== ========
</TABLE>
The Company does not track assets by operating segments. Consequently is it not
practicable to show assets by operating segments.
NOTE 15. RELATED PARTY TRANSACTIONS:
During 1999, the Company purchased approximately $3.5 million in marketing and
advertising from 24/7 Media, a significant shareholder of the Company. Also
during 1999, the Company recognized approximately $539,000 in merchant services
revenues from Art Gallary Live (AGL), in which the Company also owns a minority
investment.
F-34
<PAGE>
SHOPNOW.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
NOTE 16. SUBSEQUENT EVENTS:
On January 18, 2000, the Company acquired AXC Corporation, (AXC) a Washington
corporation, for $16.0 million of total consideration, including common stock,
common stock options, approximately $1.5 million of cash and $3.7 million in
deferred tax liabilities. AXC, a privately held company, provides e-commerce
consulting services to businesses. Upon effectiveness of the acquisition, a
total of 540,296 shares of common stock valued at $17.60 per share were issued
to the owners of AXC. In addition, the Company issued replacement stock options
to purchase an aggregate of 72,089 shares of the Company's common stock to
certain employees and owners of AXC. The Company accounted for this transaction
as a purchase. Of the $16.0 million in consideration paid, approximately
$7.2 million was allocated to assembled workforce, $4.9 million to customer
lists and $3.8 million to goodwill. These intangible assets are being amortized
over a three-year life.
On January 13, 2000, the Company, through its wholly owned subsidiary 3037952
Nova Scotia Company, a Nova Scotia Company, acquired Pronet Enterprises Ltd., a
Canadian company, for approximately $3.2 million in cash and $9.1 million in
common stock and common stock options. Pronet, a privately held company,
operates a business-to-business portal and marketplace that aggregates
businesses that seek to transact with one another. Upon effectiveness of the
acquisition, a total of 162,508 shares of common stock, valued at $17.60 per
share, were issued to the shareholders Pronet. In addition, the Company issued
options to purchase 351,666 shares of common stock to the two principals of
Pronet. The Company accounted for this transaction as a purchase. Allocations of
the excess purchase price of this acquisition has not yet been determined. All
intangible assets acquired in the purchase are expected to be amortized over a
three-year estimated useful life.
F-35
<PAGE>
UBARTER.COM INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
-------------
DECEMBER 31,
1999
-------------
(UNAUDITED)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $1,846,400
Accounts receivable, net.................................. 321,200
Inventory................................................. 347,700
Other current assets...................................... 273,200
----------
Total current assets.................................... 2,788,500
----------
EQUIPMENT AND LEASEHOLDS, net............................... 406,200
----------
OTHER ASSETS
Goodwill.................................................. 2,150,000
Prepaid advertising....................................... 135,000
Notes receivable -- noncurrent............................ 22,700
Other assets.............................................. 1,000
2,308,700
----------
$5,503,400
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 92,800
Accrued liabilities....................................... 349,300
Trade dollars issued in excess of earned.................. 2,221,400
Note payable to shareholder............................... 302,800
Current portion of long-term obligations.................. 2,188,900
----------
Total current liabilities............................... 5,155,200
----------
LONG-TERM OBLIGATIONS....................................... 771,100
----------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock.............................................. 6,100
Additional paid-in capital................................ 3,477,600
Accumulated deficit....................................... (3,922,700)
Treasury stock............................................ (1,200)
Accumulated other comprehensive income.................... 17,300
----------
(422,900)
----------
$5,503,400
==========
</TABLE>
See accompanying notes.
F-36
<PAGE>
UBARTER.COM INC.
CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
-----------------------------
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUE
Trade exchange revenue.................................... $ 476,400 $ 2,015,200
Corporate trading revenue................................. -- 655,600
---------- -----------
476,400 2,670,800
---------- -----------
COSTS AND OPERATING EXPENSES
Cost of corporate trading revenue......................... 68,200 475,300
Sales and marketing....................................... -- 298,400
Product development....................................... -- 598,600
General and administrative................................ 647,100 4,116,900
---------- -----------
715,300 5,489,200
---------- -----------
LOSS FROM OPERATIONS........................................ (238,900) (2,818,400)
---------- -----------
OTHER INCOME (EXPENSE)
Interest income........................................... 29,200 (203,500)
Interest expense.......................................... (2,800) 8,700
---------- -----------
26,400 (194,800)
---------- -----------
Income tax expense........................................ 600 --
---------- -----------
NET LOSS.................................................... $ (211,900) $(3,013,200)
========== ===========
AVERAGE COMMON AND EQUIVALENT SHARES
Basic..................................................... 5,421,400 6,013,526
========== ===========
Diluted................................................... 5,421,400 6,013,526
========== ===========
NET LOSS PER COMMON SHARE
Basic..................................................... $ (0.04) $ (0.50)
========== ===========
Diluted................................................... $ (0.04) $ (0.50)
========== ===========
</TABLE>
See accompanying notes.
F-37
<PAGE>
UBARTER.COM INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
-----------------------------
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $ (211,900) $(3,013,200)
Adjustments to reconcile net loss to net cash provided by
operating activities Depreciation....................... 9,800 1,433,400
Deferred income taxes................................... (600) --
Write-off of bad debts.................................. 1,100 1,500
Non-cash charges related to stock option grants......... -- 56,200
Non-cash charges related to stock issuance.............. -- 28,100
Foreign currency loss................................... -- 17,300
Net trade dollars expended/(earned)..................... (161,400) (29,400)
Change in operating assets and liabilities
Accounts receivable..................................... (1,300) (17,000)
Contracts receivable.................................... 6,200 --
Prepaid advertising and other assets.................... (20,000) (136,300)
Accounts payable and other liabilities.................. 9,800 116,200
----------- -----------
(368,300) (1,543,200)
----------- -----------
CASH FROM INVESTING ACTIVITIES
Acquisition of equipment and leaseholds................... (27,100) (272,200)
Notes receivable collections.............................. -- 800
----------- -----------
(27,100) (271,400)
----------- -----------
CASH FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock.................... 1,493,900 124,300
Increase in notes receivable.............................. (328,400) --
Proceeds from notes payable............................... -- 3,327,900
Repayment of notes payable................................ (11,500) (233,900)
----------- -----------
1,154,000 3,218,300
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 758,600 1,403,700
CASH AND CASH EQUIVALENTS
Beginning of period....................................... 382,600 442,700
----------- -----------
End of period............................................. $ 1,141,200 $ 1,846,400
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:............................
Interest................................................ $ 2,800 $ --
=========== ===========
</TABLE>
See accompanying notes.
F-38
<PAGE>
UBARTER.COM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal, recurring adjustments)
considered necessary for fair presentation have been included. The results of
operations for the three and nine month periods ended December 31, 1999 and 1998
are not necessarily indicative of the results to be expected for the full year.
The consolidated financial statement combines the Company's balance sheet as of
December 31, 1999 with the balance sheet of Barter Business Exchange, Inc.
("BBE") as of November 30, 1999. The consolidated statement of operations
presents the results of operations of the Company for the three and nine months
ended December 31, 1999, however, due to the differing year-ends, the results of
operations of BBE from March 1, 1999 (the date of purchase) through
November 30, 1999 are consolidated with the Company's results of operations for
the third quarter of 1999. Certain prior year amounts have been reclassified to
conform with current year presentation. For further information, refer to the
financial statements and footnotes included in the company's report on Form
10-KSB for the year ended March 31, 1999.
NOTE 2 -- TRADE DOLLARS
In accordance with the guidelines established by the International Reciprocal
Trade Association, the Company has the right to borrow from the exchange and
spend within the exchange systems. Such a practice is used by barter exchanges,
worldwide, to cover inventory purchases, capital purchases, operating expenses
and to control the supply of trade dollars in the exchange economy. The Company
is obligated to provide goods and services to clients to offset any amounts of
Ubarter Dollars TM (trade dollars) issued in excess of earned. At December 31,
1999, the Company had expended $2,221,400 Ubarter Dollars respectively, in
excess of the amount of Ubarter Dollars earned by the Company.
NOTE 3 -- CAPITAL STOCK
In October 1999, the Company received approximately $2,000 from the exercise of
stock options to purchase 2,500 shares of common stock. Also in October of 1998,
10,980 shares were repurchased for approximately $13,000 and classified as
treasury stock and subsequently, in December of 1999, 10,000 of these shares
were issued as payment for services, valued at $2.81 per share. Also in December
of 1999, 33,333 shares of common stock, valued at $3.00 per share, were issued
as part of a retainer against future invoices related to software-consulting
services. At December 31, 1999, the Company had 6,076,233 shares (including
treasury shares) of common stock issued and outstanding at a par value of $.001
per share, with total authorized shares of 25,000,000.
On July 9, 1998, the Board of Directors authorized a 2-for-1 split of its common
stock to be distributed to stockholders of record at the close of business on
July 24, 1998. All per-share and shares outstanding data in the accompanying
consolidated financial statements have been restated to reflect the stock split.
F-39
<PAGE>
UBARTER.COM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
NOTE 4 -- INCOME (LOSS) PER SHARE
Following, is a reconciliation of the numerators of the basic and diluted income
(loss) per share for the three and nine months ended December 31, 1998 and 1999:
<TABLE>
<CAPTION>
------------------------
NINE MONTHS ENDED
------------------------
12/31/1998 12/31/1999
---------- -----------
<S> <C> <C>
Net income (loss) available to common shareholders.......... $ (211,900) $(3,013,200)
========== ===========
Weighted average shares..................................... 5,421,400 6,013,526
Effect of dilutive securities
Options................................................... -- --
Warrants.................................................. -- --
---------- -----------
5,421,400 6,013,526
========== ===========
Basic income (loss) per share (based on weighted average
shares)................................................... $ (0.04) $ (0.50)
========== ===========
Diluted income (loss) per share............................. $ (0.04) $ (0.50)
========== ===========
</TABLE>
Options and warrants to purchase shares of common stock were excluded from the
computation in 1999 and 1998 because their effect would be antidilutive.
NOTE 5 -- STOCK OPTIONS
The Company adopted a Stock Option Plan ("the Plan") effective June 1, 1998
whereby, nonqualified and incentive stock options for shares of common stock may
be granted to Directors, Officers, Employees and Consultants. Options granted
under the Plan are not to have a life in excess of five years from the date of
grant and vest 50% after 12 months, 75% after 18 months, and 100% after 24
months from the date grant. The provisions of the Plan allow the administrators
to determine the vesting period of options granted.
In October through December of 1999, the Company granted options under the Plan
to purchase 12,000 shares of common stock at exercise prices ranging from $2.63
per share to $3.13 per share.
NOTE 6 -- NOTES PAYABLE
ALPINE CAPITAL GROUP -- In August 1999, funds totaling $1,000,000 ("the Note")
were loaned to the Company by Alpine Capital Group, LLC. The Note is payable on
September 1, 2002, with interest accruing at the rate of 5 1/2% per annum on the
unpaid principal amount. If the Company closes a financing or financings in the
aggregate amount of at least $2,500,000 through public or private sale of its
debt or equity securities on or before June 1, 2000, the Company must repay any
unpaid principal and interest within 5 business days of such closing. If, on
June 1, 2000, there remains unpaid principal on the Note, the Payee shall have
the option exercisable at any time thereafter, but not later than September 1,
2002, to convert such unpaid principal into 1,333,333 shares of common stock at
the rate of $.75 per share. After June 1, 2000, the holder of the note may
exercise the conversion option any time prior to the maturity date of the note.
Alpine Capital Group, Inc. also received 183,333 warrants to purchase common
shares at $2.00 per share. Accordingly, the Company has allocated $451,700 of
the proceeds to the warrants and is amortizing this amount of interest expense
from the period of issuance to June 1, 2000. The effective rate of the note
payable is 20.5%. The warrants may be exercised from September 1, 1999 through
September 1, 2004.
F-40
<PAGE>
UBARTER.COM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
NOTE 6 -- NOTES PAYABLE (CONTINUED)
CONVERTIBLE NOTE PAYABLE -- In December 1999, the Company issued a $2,000,000
8.5% convertible promissory note to ShopNow.com Inc. which matures June 22,
2000. Upon the occurrence of certain events, the note will automatically be
converted into common stock of the Company. The note may be converted at $2.15
per share or $3.58 per share, depending upon the event causing the conversion.
In addition, warrants to purchase up to 1,200,000 common shares of the Company
will be issued upon conversion. The warrants shall have a term of 7 years and an
exercise price equal to the conversion price. (See Note 9.)
MOMENTOUS NOTE PAYABLE -- In December 1999, the Company issued a $100,000
convertible promissory note, to an entity related to a vice-president of the
Company, which matures March 1, 2000. The holder of the note has the right to
convert the note into a future round of financing that the Company completes
prior to repayment or conversion of the note, upon the same terms and conditions
as other investors participating in such future financings. If the note is not
repaid by March 1, 2000, the holder of the note shall have the option to convert
the note into shares of common stock of the Company equal to the lower of $1.50
per share or 50% of the average closing price of the common stock through the
OTC Bulletin Board on the 10 days prior to March 1, 2000. If the note is not
paid or converted by March 1, 2000, the note will remain outstanding and bear
interest at 16% per annum until paid in full.
NOTE 7 -- REVENUE
The following table summarizes the cash and trade (consisting of Ubarter.com
Trade Dollars) components of revenue for the three and nine months ended
December 31, 1998 and 1999:
<TABLE>
<CAPTION>
-----------------------
NINE MONTHS ENDED
-----------------------
12/31/1998 12/31/1999
---------- ----------
<S> <C> <C>
Trade....................................................... $257,200 $1,461,400
Cash........................................................ 219,200 1,209,400
-------- ----------
$476,400 $2,670,800
======== ==========
</TABLE>
NOTE 8 -- COMPREHENSIVE INCOME
As of April 1, 1999, the Company adopted SFAS No. 130, Reporting Comprehensive
Income, which established standards for the reporting and display of
comprehensive loss and its components in the financial statements. Comprehensive
loss for the nine month period ended December 31, 1999 was $3,905,400 which
consisted of net loss and foreign currency translation adjustments. There was no
difference between comprehensive income (loss) and net income (loss) in the
periods prior to the nine months ended December 31, 1999.
NOTE 9 -- CONSULTING AGREEMENT
In December 1999, the Company entered into an agreement with AXC Corporation
("AXC") to retain future services with the firm to provide Internet related
software-consulting. The Company paid AXC $250,000 ($100,000 in stock and
$150,000 in cash) as a retainer against future invoices. The Company issued
33,333 shares of its common stock at $3.00 per share; such shares having
"piggyback" registration rights that AXC may exercise in the event of a
subsequent public offering of Company shares. The Company further agreed that in
the event the price of Company shares at the close of market shall be less than
$2.50 per share on the earlier of two events following (i) the one year
F-41
<PAGE>
UBARTER.COM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
NOTE 9 -- CONSULTING AGREEMENT (CONTINUED)
anniversary of the transfer of these shares to AXC or (ii) the day immediately
prior to a subsequent public offering of the Company shares; then the Company
shall transfer to AXC sufficient additional shares of its common stock to
compensate for the difference between $3.00 per share and the closing price on
the dates mentioned in (i) and (ii).
NOTE 10 -- SUBSEQUENT EVENT
On January 20, 2000, the Company entered into a merger agreement with
ShopNow.com Inc. ("ShopNow"). The agreement provides for ShopNow to acquire all
of the Company's equity for approximately $45 million of ShopNow common stock.
The purchase price will be reduced by certain adjustments, including an
adjustment for the Company's outstanding liabilities at the closing of the
merger. The merger is subject to satisfaction of conditions and receipt of
applicable approvals, including approval of the Company's shareholders. The
ShopNow common stock is to be exchanged at a price of $17.31 per share. The
Company expects the transaction to close in the second quarter of 2000.
NOTE 11 -- LEGAL MATTER
In December 1999, the Company received a letter from a party with whom the
Company had previously worked in connection with certain financing alternatives
considered by the Company. No such financings were ever concluded. The letter
demands reimbursement for out-of-pocket expenses (not to exceed $125,000)
incurred by the third party, the issuance of 300,000 shares of the Company's
common stock, and the right to act as exclusive financial advisor in connection
with the proposed acquisition of the Company by ShopNow.com as a result of the
Company's termination of the relationship. The Company believes the allegations
made against it are without merit. The Company intends to vigorously defend
itself against the allegations being made. The parties have agreed to submit the
matter to non-binding mediation in March 2000.
F-42
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
of Ubarter.com Inc.
We have audited the consolidated balance sheet of Ubarter.com Inc. and
subsidiary as of March 31, 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ubarter.com Inc.
and subsidiary as of March 31, 1999, and the results of their operations and
their cash flows for the year then ended, in accordance with generally accepted
accounting principles.
/s/ Moss Adams LLP
Seattle, Washington
June 16, 1999
F-43
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Ubarter.com Inc. (formerly International Barter Corp.) and Subsidiary
Seattle, Washington
We have audited the consolidated balance sheet of Ubarter.com (formerly
International Barter Corp.) and subsidiary as of March 31, 1998 and the
statement of operations, stockholders' equity and cash flows for the years ended
March 31, 1998 and 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of International
Barter Corp. and subsidiary as of March 31, 1998 and the results of their
operations and their cash flows for the years ended March 31, 1998 and 1997, in
accordance with generally accepted accounting principles.
/s/ Andersen Andersen & Strong L.C.
June 19, 1998
Salt Lake City, Utah
F-44
<PAGE>
UBARTER.COM INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998 AND 1999
<TABLE>
<CAPTION>
---------------------
1998 1999
-------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $382,600 $ 442,700
Accounts receivable, net.................................. 63,300 305,700
Inventory................................................. -- 310,400
Other current assets...................................... 2,900 9,200
-------- ----------
Total current assets.................................... 448,800 1,068,000
-------- ----------
EQUIPMENT AND LEASEHOLDS, net............................... 42,300 383,600
-------- ----------
OTHER ASSETS
Goodwill.................................................. -- 2,750,900
Prepaid advertising....................................... -- 135,000
Notes receivable.......................................... 32,800 23,500
Other assets.............................................. 1,200 28,700
-------- ----------
34,000 2,938,100
-------- ----------
$525,100 $4,389,700
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 9,300 $ 111,400
Accrued liabilities....................................... 7,700 28,200
Unearned revenue.......................................... -- 186,300
Trade dollars issued in excess of earned.................. 5,400 2,147,900
Note payable to shareholder............................... -- 66,200
Current portion of long-term obligations.................. 13,100 35,400
-------- ----------
Total current liabilities............................... 35,500 2,575,400
-------- ----------
LONG-TERM OBLIGATIONS....................................... 19,100 81,600
-------- ----------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY
Common stock.............................................. 3,800 5,900
Additional paid-in capital................................ 540,700 2,649,300
Subscribed stock.......................................... 37,500 --
Accumulated deficit....................................... (111,500) (909,500)
Treasury stock............................................ -- (13,000)
-------- ----------
470,500 1,732,700
-------- ----------
$525,100 $4,389,700
======== ==========
</TABLE>
See accompanying notes.
F-45
<PAGE>
UBARTER.COM INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
----------------------------------
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
REVENUE
Trade exchange revenue.................................... $452,700 $ 540,600 $ 460,600
Corporate trading revenue................................. -- 45,500 43,900
-------- ---------- ----------
452,700 586,100 504,500
-------- ---------- ----------
COSTS AND OPERATING EXPENSES
Cost of corporate trading revenue......................... 108,900 45,500 43,900
Sales and marketing....................................... -- 73,900 94,700
Product development....................................... -- 29,900 216,300
General and administrative................................ 404,400 407,000 990,600
-------- ---------- ----------
513,300 556,300 1,345,500
-------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS............................... (60,600) 29,800 (841,000)
-------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income........................................... 4,000 8,800 45,700
Interest expense.......................................... (6,000) (4,900) (2,700)
-------- ---------- ----------
(2,000) 3,900 43,000
-------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES........................... (62,600) 33,700 (798,000)
INCOME TAXES................................................ 100 1,200 --
-------- ---------- ----------
NET INCOME (LOSS)........................................... $(62,700) $ 32,500 $ (798,000)
======== ========== ==========
AVERAGE COMMON AND EQUIVALENT SHARES
Basic..................................................... 875,000 2,632,424 5,521,583
======== ========== ==========
Diluted................................................... 875,000 2,949,942 5,521,583
======== ========== ==========
NET INCOME (LOSS) PER COMMON SHARE
Basic..................................................... $ (0.07) $ 0.01 $ (0.14)
======== ========== ==========
Diluted................................................... $ (0.07) $ 0.01 $ (0.14)
======== ========== ==========
</TABLE>
See accompanying notes.
F-46
<PAGE>
UBARTER.COM INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL TREASURY STOCK
-------------------- PAID-IN SUBSCRIBED ACCUMULATED -------------------
SHARES AMOUNT CAPITAL STOCK DEFICIT SHARES AMOUNT TOTAL
--------- -------- ---------- ---------- ----------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1996......... 20,000 $ 8,100 $ -- $ -- $ (81,300) -- $ -- $ (73,200)
Exchange of 1 share of CTA for
100 shares of
Ubarter.com, Inc.; change
from no par to $.001 per
share par................... 1,980,000 (6,000) 6,000 -- -- -- -- --
Issuance of stock for
services.................... 500,000 500 124,500 -- -- -- -- 125,000
Shares subscribed............. -- -- -- 150,000 -- -- -- 150,000
Net loss...................... -- -- -- -- (62,700) -- -- (62,700)
--------- ------- ---------- --------- --------- ------ -------- ----------
BALANCE, March 31, 1997......... 2,500,000 2,600 130,500 150,000 (144,000) -- -- 139,100
Issuance of subscribed
stock....................... 600,000 600 149,400 (150,000) -- -- -- --
Exercise of A and B
warrants.................... 492,900 400 189,000 37,500 -- -- -- 226,900
Issuance of stock............. 240,000 200 71,800 -- -- -- -- 72,000
Net income.................... -- -- -- -- 32,500 -- -- 32,500
--------- ------- ---------- --------- --------- ------ -------- ----------
BALANCE, March 31, 1998......... 3,832,900 3,800 540,700 37,500 (111,500) -- -- 470,500
Issuance of subscribed
stock....................... 100,000 100 37,400 (37,500) -- -- -- --
Exercise of B warrants........ 563,500 500 278,000 -- -- -- -- 278,500
Exercise of C and D
warrants.................... 480,000 500 228,300 -- -- -- -- 228,800
Issuance of stock............. 800,000 800 999,200 -- -- -- -- 1,000,000
Issuance of stock in
connection with
acquisition................. 150,000 200 374,800 -- -- -- -- 375,000
Stock options granted......... -- -- 190,900 -- -- -- -- 190,900
Treasury stock acquired....... -- -- -- -- -- 10,980 (13,000) (13,000)
Net loss...................... -- -- -- -- (798,000) -- -- (798,000)
--------- ------- ---------- --------- --------- ------ -------- ----------
BALANCE, March 31, 1999......... 5,926,400 $ 5,900 $2,649,300 $ -- $(909,500) 10,980 $(13,000) $1,732,700
========= ======= ========== ========= ========= ====== ======== ==========
</TABLE>
See accompanying notes.
F-47
<PAGE>
UBARTER.COM INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
---------------------------------
1997 1998 1999
-------- --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $(62,700) $ 32,500 $ (798,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation............................................ 9,100 10,800 18,400
Stock issued for services............................... 125,000 -- --
Non-cash charges related to stock option grants......... -- -- 172,800
Net trade dollars earned................................ (39,600) (106,600) (3,700)
Accrued interest on notes receivable.................... -- -- (2,400)
Change in operating assets and liabilities
Accounts receivable..................................... (6,100) (2,400) 38,700
Prepaid advertising and other assets.................... 200 4,800 (133,100)
Accounts payable and other liabilities.................. (4,200) 12,900 7,300
-------- --------- ----------
21,700 (48,000) (700,000)
-------- --------- ----------
CASH FROM INVESTING ACTIVITIES
Acquisition of equipment and leaseholds................... -- (13,900) (84,800)
Purchase of Barter Business Exchange Inc. stock........... -- -- (647,300)
Notes receivable collections.............................. -- -- 11,700
-------- --------- ----------
-- (13,900) (720,400)
-------- --------- ----------
CASH FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock.................... 150,000 298,900 1,507,300
Treasury stock acquired................................... -- -- (13,000)
Repayment of notes payable................................ (14,400) (16,700) (13,800)
-------- --------- ----------
135,600 282,200 1,480,500
-------- --------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 157,300 220,300 60,100
CASH AND CASH EQUIVALENTS
Beginning of period....................................... 5,000 162,300 382,600
-------- --------- ----------
End of period............................................. $162,300 $ 382,600 $ 442,700
======== ========= ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest................................................ $ 5,800 $ 5,100 $ 2,700
======== ========= ==========
Income taxes............................................ $ -- $ -- $ --
======== ========= ==========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Furniture purchased with trade dollars.................... $ -- $ 13,700 $ --
======== ========= ==========
See Note 3 for additional disclosure of noncash
transaction
</TABLE>
See accompanying notes.
F-48
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
NOTE 1 -- DESCRIPTION OF BUSINESS AND ORGANIZATION
Ubarter.com Inc., formerly International Barter Corp., was incorporated on
September 18, 1996, in the State of Nevada. Ubarter.com Inc. ("the Company")
operates a trade exchange offering bartering services for retail, professional,
media and corporate clients. Operations are primarily transacted in the State of
Washington. Operations of the Company's subsidiary, Barter Business Exchange
Inc. (see Note 3), are primarily transacted in the Canadian provinces of Ontario
and British Columbia. The Company acts as a third-party record-keeper of
clients' transactions and balances, which are denominated in Trade Dollars. A
Trade Dollar is an accounting unit used to record the value of trades as
determined by the buying and selling parties in barter transactions. Trade
Dollars denote the right to receive goods or services available from other
clients or the obligation to provide goods or services to other clients. Trade
Dollars may not be redeemed for cash. Trade Dollars are not legal tender,
securities, or commodities. Clients pay cash and Trade Dollar fees and
commissions to the Company. The Company typically receives a cash commission on
all transactions charging both the buyer and seller 5% on the purchase and sale.
On November 15, 1996, Ubarter.com Inc. acquired the operations of Cascade Trade
Association (CTA) wherein Ubarter.com Inc. issued 1,000,000 shares of stock in
exchange for the 100% of the issued and outstanding stock of CTA. For accounting
purposes, the acquisition has been treated as a reverse acquisition of
Ubarter.com Inc. by CTA and as a recapitalization of CTA. The historical
financial statements prior to November 15, 1996 are those of CTA.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the
accounts of the Company and, effective March 31, 1999, the balance sheet of its
wholly-owned subsidiary, Barter Business Exchange Inc. (BBE). The Company's
fiscal year end is March 31. BBE's fiscal year end is February 28. For purposes
of consolidation the difference in fiscal year-ends is not significant. All
significant intercompany accounts and transactions have been eliminated.
STOCK SPLIT -- On July 9, 1998 the Board of Directors authorized a 2-for-1 split
of its common stock to be distributed to stockholders of record at the close of
business on July 24, 1998. All per-share and shares outstanding data in the
accompanying consolidated financial statements have been restated to reflect the
stock split.
FOREIGN CURRENCY TRANSLATION -- Financial statements of the Company's Canadian
subsidiary, BBE, are translated into U.S. dollars using the exchange rate at the
balance sheet date for assets and liabilities. The functional currency of BBE is
the local currency, the Canadian dollar. Translation adjustments, if necessary,
are recorded as a separate component of Stockholders' Equity. There were no
translation adjustments required as of March 31, 1999 and 1998.
COMPREHENSIVE INCOME -- In 1999, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "REPORTING COMPREHENSIVE INCOME". This
statement establishes rules for the reporting of comprehensive income and its
components. The adoption of SFAS No. 130 had no impact on total stockholders'
equity as of March 31, 1999.
REVENUE RECOGNITION -- The Company recognizes revenue equal to the cash to be
received from the commission earned when the buyer has made an unconditional
commitment to pay and the earnings process has been completed by the
finalization of a trade transaction. Revenue is recognized for monthly dues
after the fees have been earned. Initiation and annual renewal fees are
nonrefundable, and are deferred and included in income over a twelve month
period.
PRODUCT DEVELOPMENT COSTS -- Product development costs include expenses incurred
by the Company to develop, enhance, monitor and operate the Company's website.
Product development costs are expensed as incurred.
F-49
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1999
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRADE DOLLAR TRANSACTIONS -- The Company uses the ratio of one Trade Dollar to
one local currency dollar (United States or Canadian) in measuring and
accounting for purchases and sales. This one-for-one ratio is the pervasive
standard with the Company and throughout the barter industry. The Company does
not recognize any accounting implications if differences are observed between
trade dollar and the applicable local currency dollar prices that are within
reasonable ranges that might exist between prices of similar U.S. dollar or
Canadian dollar transactions.
The negative Trade Dollar balance of the Company is shown as a liability in the
balance sheet. This occurs as a result of the Company "borrowing" trade dollars
through the issuance of Trade Dollars in excess of the amounts earned by the
Company.
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
INVENTORY -- At times, the Company acquires inventory for resale from clients of
the barter exchange. Inventory is stated at lower of cost (first-in, first-out
basis) or market.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS -- The Company provides an allowance for
accounts receivable which are doubtful of collection. The allowance is based
upon management's periodic analysis of receivables, evaluation of current
economic conditions, and other pertinent factors. Ultimate losses may vary from
the current estimates and, as additions to the allowance become necessary, are
charged against earnings in the period in which they become known. Losses are
charged and recoveries are credited to the allowance. At March 31, 1999 and
1998, the allowance for doubtful accounts was $129,400 and $2,000, respectively.
DEPRECIATION AND AMORTIZATION -- Equipment and leaseholds are stated at cost.
Depreciation is computed on the straight-line method over the estimated useful
lives of the assets, generally five to seven years. Leasehold improvements are
amortized on a straight-line basis over the shorter of the estimated useful
lives or the term of the lease.
GOODWILL -- Goodwill resulting from the acquisition of BBE was estimated by
management to be primarily associated with the acquired workforce,
infrastructure and technological expertise. As a result of the rapid
technological changes occurring in the Internet industry and the intense
competition for qualified professionals, goodwill is amortized on a
straight-line basis over the estimated life of the benefit of 24 months (see
Note 3).
INCOME TAXES -- Income taxes are computed using the asset and liability method.
Under this method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using the currently enacted tax rates and laws.
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, requires a valuation allowance against deferred tax assets if, based on
the weight of available evidence, it is more likely than not that some or all of
its deferred tax assets will not be realized.
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE -- Basic net income (loss) per
share is computed using the weighted average number of shares outstanding during
the period. Diluted net income (loss) per share is computed using the weighted
average number of common shares and common equivalent shares outstanding during
the period. Common equivalent shares consist of shares issuable upon the
exercise of stock options and stock warrants.
F-50
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1999
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK -- Financial instruments that potentially subject
the Company to significant concentration of credit risk consists primarily of
cash and accounts receivable. Cash is deposited with high credit, quality
financial institutions. Accounts receivable are typically unsecured and are
derived from revenues earned from customers primarily located in the Pacific
Northwest and the Canadian provinces of Ontario and British Columbia. The
Company performs ongoing credit evaluations of its customers and maintains
reserves for potential credit losses; historically, such losses have been within
management's expectations. At March 31, 1999 and 1998, no one customer accounted
for 10% or more of the accounts receivable balance.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company's financial instruments,
including cash, accounts receivable, accounts payable, notes payable and
long-term obligations are carried at cost, which approximates their fair value
because of the short-term maturity of these instruments.
ADVERTISING -- The Company recognizes advertising expenses in accordance with
Statement of Position 93-7, "REPORTING ON ADVERTISING COSTS". As such, the
Company expenses the cost of communicating advertising in the period in which
the advertising space or airtime is used. Advertising expenses amounted to
$51,700 and $22,800 for the years ended March 31, 1999 and 1998, respectively.
STOCK-BASED EMPLOYEE COMPENSATION -- The Company accounts for stock-based
employee compensation arrangements in accordance with the provisions of
Accounting Principles Board Opinion (APB) No. 25, "ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES", and complies with the disclosure provisions of SFAS No. 123,
"ACCOUNTING FOR STOCK-BASED COMPENSATION". Under APB 25, compensation cost is
recognized over the vesting period based on the difference, if any, on the date
of grant between the fair value of the Company's stock and the amount an
employee must pay to acquire the stock.
IMPAIRMENT OF LONG-LIVED ASSETS -- The Company evaluates the recoverability of
long-lived assets in accordance with "SFAS" No. 121, "ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF". SFAS No. 121 requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets.
RECENT ACCOUNTING PRONOUNCEMENTS -- In March 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-1 (SOP 98-1),
"ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE". This standard requires companies to capitalize qualifying
computer software costs which are incurred during the application development
stage and amortize them over the software's estimated useful life. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. The Company does
not expect that the adoption of SOP 98-1 will have a material impact on its
consolidated financial statements.
In April 1998, the American Institute of Certified Public Accountants issued SOP
98-5, "REPORTING ON THE COSTS OF START-UP ACTIVITIES." SOP 98-5 is effective for
the Company's fiscal year ending March 31, 2000. SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred. Adoption
is not expected to have a material effect on the Company's consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES." SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 requires that all derivative
F-51
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1999
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction and, if it is, the type of hedge transaction. The Company does
not expect that the adoption of SFAS No. 133 will have a material impact on its
consolidated financial statements because the Company does not currently hold
any derivative instruments.
RECLASSIFICATIONS -- Certain prior year balances have been reclassified to
conform to the current year presentation.
NOTE 3 -- ACQUISITION
ACQUISITION OF BARTER BUSINESS EXCHANGE, INC. -- On March 2, 1999, the Company
entered into a stock purchase agreement to acquire all of the outstanding
capital stock of Barter Business Exchange Inc. (BBE), a privately-held Canadian
corporation which presently operates a trade exchange in the Canadian Provinces
of Ontario and British Columbia. The total purchase price of approximately
$1,270,200 is comprised of cash in the amount of $663,300; a promissory note in
the principal amount of $66,200 (Note 7); Ubarter.com Trade Dollars in the
amount of $165,700; the issuance of 150,000 shares of Ubarter.com common stock
which had a value of $375,000 at the acquisition date. In addition, the purchase
agreement provides for contingent consideration. The terms of the note payable
provide for additional payments of up to $500,000 dependent upon attainment of
certain operating results. Additionally, if 10% of the cash revenues, as defined
in the agreement, exceed $500,000, the Company will be required to pay the
amount exceeding $500,000 in common shares of the Company.
The purchase has been accounted for under the purchase method of accounting.
Under the purchase method of accounting, the purchase price is allocated to the
assets acquired and liabilities assumed based on their estimated fair values at
the date of the acquisition. The excess purchase price over the estimated fair
value of the assets acquired and liabilities assumed has been allocated to
goodwill. The Company estimated the economic useful life of the goodwill to be
two years.
The consolidated financial statement combines the Company's balance sheet as of
March 31, 1999 with the balance sheet of BBE as of February 28, 1999. The
consolidated statement of operations presents the results of operations of the
Company and excludes the results of operations of BBE. Results of operations of
BBE will be consolidated with the Company from the date of purchase, March 1,
1999. However, due to the differing year-ends, the results of operations of BBE
for the fiscal year from March 1, 1999 through February 28, 2000 will be
consolidated with the Company's results of operations for the fiscal year ended
March 31, 2000.
STATEMENT OF CASH FLOWS -- The acquisition of BBE resulted in a non-cash
transactions which increased assets in the amount of $3,069,700 and liabilities
in the amount of $2,610,400. Non-cash consideration included 150,000 shares of
the Company's common stock, trade dollars, and a note payable (Note 7).
F-52
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1999
NOTE 3 -- ACQUISITION (CONTINUED)
UNAUDITED PRO FORMA DISCLOSURES OF SIGNIFICANT ACQUISITION -- The following
unaudited pro forma consolidated results of operations give effect to the
acquisition of BBE as if it had occurred as of the beginning of the period.
<TABLE>
<CAPTION>
-------------------------
YEAR ENDED MARCH 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenue..................................................... $ 3,289,900 $ 3,219,900
Net loss.................................................... $(2,682,100) $(1,739,800)
Net loss per share - basic.................................. $ (0.49) $ (0.66)
Net loss per share - diluted................................ $ (0.49) $ (0.66)
Shares used in per share calculation - basic and diluted.... 5,521,583 2,632,424
</TABLE>
NOTE 4 -- NOTES RECEIVABLE
At March 31, 1999 and 1998, the Company had notes receivable amounting to
$23,500 and $32,800 which bear interest ranging from 10% to 10.75%. Although the
Company periodically receives payments, the notes are currently in default. The
notes are collateralized by real estate.
NOTE 5 -- EQUIPMENT AND LEASEHOLDS
At March 31, 1999 and 1998, equipment and leaseholds consisted of the following:
<TABLE>
<CAPTION>
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Computer equipment.......................................... $ 183,100 $ 13,900
Equipment................................................... 121,800 81,200
Furniture and fixtures...................................... 141,500 29,000
Leasehold improvements...................................... 57,100 19,700
Automobile.................................................. 25,600 25,600
--------- ---------
529,100 169,400
Less: accumulated depreciation.............................. (145,500) (127,100)
--------- ---------
$ 383,600 $ 42,300
========= =========
</TABLE>
NOTE 6 -- EXCESS OF TRADE DOLLARS ISSUED OVER TRADE DOLLARS EARNED
In accordance with the guidelines established by the International Reciprocal
Trade Association, the Company has the right to borrow from the exchange and
spend within the exchange systems. Such a practice is used by barter exchanges,
worldwide, to cover inventory purchases, capital purchases, operating expenses
and to control the supply of trade dollars in the exchange economy. The Company
is obligated to provide goods and services to clients to offset any amounts of
Trade Dollars issued in excess of earned. At March 31, 1999 and 1998, the
Company had expended $2,147,900 and $5,400 Trade Dollars respectively, in excess
of the amount of Trade Dollars earned by the Company.
F-53
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1999
NOTE 7 -- NOTES PAYABLE
The Company has a $44,700 revolving note payable with a Canadian bank. The note
payable is subject to annual renewal. There were no borrowings outstanding as of
March 31, 1999. Borrowings on the line of credit are secured by cash and cash
equivalents on deposit with the bank.
In connection with the acquisition of BBE (Note 3), the Company has a $66,200
note payable to a shareholder. The non-interest bearing note is due on March 1,
2000.
NOTE 8 -- LONG-TERM OBLIGATIONS
At March 31, 1999 and 1998, long-term obligations consisted of the following:
<TABLE>
<CAPTION>
-------------------
1999 1998
-------- --------
<S> <C> <C>
Note payable to Financial Services, Inc. at $800 per month,
including interest at 10% per annum (collateralized by
real estate), due 2002.................................... $ 18,400 $ 26,300
Note payable to bank, interest at prime plus 2 1/2%, payable
in monthly installments of $1,400 plus interest, maturing
July 2004, partially guaranteed by a stockholder and
collateralized by equipment............................... 73,800 --
Capital lease for leasehold improvements, due in monthly
installments of $900, including imputed interest of 19%,
due December 2001......................................... 21,800 --
Note payable to bank, paid in full in 1999.................. -- 5,900
Other....................................................... 3,000 --
-------- --------
117,000 32,200
Less current portion........................................ (35,400) (13,100)
-------- --------
$ 81,600 $ 19,100
======== ========
</TABLE>
Maturities of long-term obligations for future years ending March 31 are as
follows:
<TABLE>
<CAPTION>
---------------------------------
CAPITAL
PRINCIPAL LEASE
PAYMENTS OBLIGATION TOTAL
--------- ---------- --------
<S> <C> <C> <C>
2000........................................................ $28,400 $10,800 $ 39,200
2001........................................................ 25,400 10,800 36,200
2002........................................................ 17,800 7,600 25,400
2003........................................................ 16,700 -- 16,700
2004 6,900 -- 6,900
------- ------- --------
95,200 29,200 124,400
Amount representing interest................................ -- (7,400) (7,400)
------- ------- --------
$95,200 $21,800 $117,000
======= ======= ========
</TABLE>
F-54
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1999
NOTE 9 -- COMMITMENTS
The Company leases office space under non-cancelable operating leases expiring
in May 2003. Future minimum lease payments under the leases are as follows for
the years ending March 31:
<TABLE>
<CAPTION>
<S> <C>
2000........................................................ $119,100
2001........................................................ 91,400
2002........................................................ 79,300
2003........................................................ 75,500
2004........................................................ 18,900
--------
$384,200
========
</TABLE>
Rent expense amounted to $23,500 and $20,900 for the years ended March 31, 1999
and 1998, respectively.
NOTE 10 -- STOCKHOLDERS' EQUITY
The Company is authorized to issue 25,000,000 shares of $.001 par value common
stock. As of March 31, 1999 and 1998, the Company has 5,915,420 and 3,832,900
shares of common stock outstanding, respectively.
During fiscal 1997, the Company completed a private placement (Offering) of its
common stock pursuant to which 600,000 shares were subscribed for $150,000.
Under the terms of the Offering, one "A" warrant and one "B" warrant were issued
with each issued share of common stock issued. During fiscal 1998, "A" and "B"
warrants were exercised for 492,900 shares of common stock for $226,800. During
the fiscal year 1999, the remaining outstanding "B" warrants were exercised for
563,500 shares of common stock with proceeds totaling $278,500.
During fiscal 1998, the Company completed a private placement (Placement) of its
common stock pursuant to which 240,000 shares of common stock were issued for
$72,000. Under the terms of the Placement, one "C" warrant and one "D" warrant
was issued with each one share of common stock issued. During fiscal 1999, all
outstanding "C" and "D" warrants were exercised for 480,000 shares of common
stock with proceeds totaling $228,800.
During fiscal 1999, the Company received cash for common stock and warrants
through a private placement whereby, 800,000 units were sold at $1.25 per unit.
Each unit consists of one share of common stock and one "E" warrant exercisable
at $1.50 per share. The warrants expire June 20, 2000. At March 31, 1999, there
were 800,000 "E" warrants issued and outstanding.
During fiscal 1999, a brokerage account was opened and funded for the sole
purpose of repurchasing up to 250,000 shares of the Company's common stock in
the open market. In October of 1998, 10,980 shares were repurchased for
approximately $13,000 and classified as treasury stock.
NOTE 11 -- STOCK OPTIONS
The Company adopted a Stock Option Plan ("the Plan") effective June 1, 1998
whereby, non-qualified and incentive stock options for up to 1,155,040 shares of
common stock may be granted to Directors, Officers, Employees and Consultants.
Options granted under the Plan are not to have a life in excess of five years
from the date of grant and vest 50% after 12 months, 75% after 18 months, 100%
after 24 months from the date of grant. The provisions of the Plan allow the
administrators to determine the vesting period of options granted.
F-55
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1999
NOTE 11 -- STOCK OPTIONS (CONTINUED)
In June 1998, the Company granted options under the Plan to purchase 55,000
shares of common stock at an exercise price of $0.82 per share to the Company's
non-employee Director and to certain consultants. The options granted to the
non-employee Director vest 100% in November 1999, and the options granted to the
consultants are fully vested. The options expire five years from the date of
grant and were valued at $11,400, which was recognized as expense in 1999.
In October 1998, the Company granted options to purchase 630,000 shares of
common stock to a consultant. The options are fully vested and expire five years
from the date of grant. The exercise prices of the options range from $4.00 to
$14.00 per share and have a weighted average exercise price of $11.11 per share.
The options were valued at $243,800. The Company is recognizing consulting
expense related to these options granted over the consultant's contractual
period of 39 months. In 1999, the Company recognized consulting expense of
$37,500 related to the stock options. The consulting agreement also contains an
anti-dilutive provision whereby the consultant will be granted additional
options from time to time so that the options will equal approximately 10.4% of
common stock outstanding on a fully diluted basis.
In November 1998, the Company granted options under the Plan to purchase 25,000
shares of common stock at $2.00 per share to other service providers. The
options vest over one year and expire five years from the date of grant. The
options were valued at $11,400, which was recognized as consulting expense
during 1999.
The following table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
---------------------
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Balance, April 1, 1998...................................... -- $ --
Options granted........................................... 1,069,000 7.80
Options forfeited......................................... (1,000) 2.75
Options exercised......................................... -- --
--------- -----
Balance, March 31, 1999..................................... 1,068,000 $7.17
========= =====
</TABLE>
The following table summarizes information about options outstanding and
exercisable at March 31, 1999:
<TABLE>
<CAPTION>
---------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------------------ ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.8125-$2.75............................. 438,000 4.5 years $ 1.49 277,000 $ 0.83
$4.00-$6.00............................... 90,000 4.5 years 4.89 90,000 4.89
$8.00-$10.00.............................. 140,000 4.5 years 9.14 140,000 9.14
$12.00-$14.00............................. 400,000 4.5 years 13.20 400,000 13.20
--------- --------- ------ ------- ------
1,068,000 4.5 years $ 7.17 907,000 $ 7.97
========= ========= ====== ======= ======
</TABLE>
F-56
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1999
NOTE 11 -- STOCK OPTIONS (CONTINUED)
The Company applies Accounting Principles Board Opinion No. 25 (APB No. 25) in
accounting for stock options. Accordingly, no compensation cost is recognized
from options issued under the Company stock option plan if the exercise price
equals the fair value at the date of grant. During 1999, 40,000 options were
granted to one employee that were fully vested and had an exercise price less
than the fair value of the common stock on the date of grant. Using the
intrinsic value method required by APB No. 25 the Company has recorded
compensation expense in the amount of $112,500 in 1999.
An alternative method of accounting for stock options is SFAS No. 123 (Note 2).
Under SFAS No. 123, employee stock options are valued at grant date using the
Black-Scholes option-pricing model and compensation cost is recognized ratably
over the vesting period. Had compensation cost for the Company's stock option
plan been determined based on the Black-Scholes value at the grant dates for
awards as prescribed by SFAS No. 123, pro forma statement of operations for
fiscal 1999 would have been as follows:
<TABLE>
<CAPTION>
--------------------------
YEAR ENDED MARCH 31, 1999
--------------------------
<S> <C>
Net loss
As Reported............................................... $(798,000)
Pro forma................................................. $(836,800)
Net loss per common share
As Reported............................................... $ (0.14)
Pro forma................................................. $ (0.15)
</TABLE>
The effects of applying SFAS No. 123 for the pro forma disclosures are not
representative of the effects expected on reported net earnings and earnings per
share in future years. In addition, valuations are based on highly subjective
assumptions about the future, including stock price volatility and exercise
patterns.
The weighted average fair market value of an option granted during 1999 was
$1.69 using the Black-Scholes option-pricing model. The following assumptions
were applied in determining the pro forma compensation cost:
<TABLE>
<CAPTION>
--------------------------
YEAR ENDED MARCH 31, 1999
--------------------------
<S> <C>
Interest rate............................................... 6.0%
Dividend yield.............................................. 0.0%
Expected volatility......................................... 122.8%
Expected useful life in years............................... 5
</TABLE>
NOTE 12 -- INCOME TAXES
The components of the provision for income taxes at March 31, 1999 and 1998 are
as follows:
<TABLE>
<CAPTION>
--------------------
1999 1998
--------- --------
<S> <C> <C>
Current - Federal........................................... $ -- $ --
Deferred - Federal.......................................... -- 1,200
--------- --------
Income tax provision........................................ $ -- $ 1,200
========= ========
</TABLE>
F-57
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1999
NOTE 12 -- INCOME TAXES (CONTINUED)
A reconciliation of the consolidated income tax provision to the amount expected
using the U.S. Federal statutory rate follows:
<TABLE>
<CAPTION>
--------------------
1999 1998
--------- --------
<S> <C> <C>
Expected amount using U.S. Federal statutory rate........... $ -- $ --
Non-deductible expenses..................................... -- --
Depreciation and bad debts allowance........................ -- 1,200
--------- --------
Effective tax............................................... $ -- $ 1,200
========= ========
</TABLE>
Deferred tax assets (liabilities) consisted of the following at March 31, 1999
and 1998:
<TABLE>
<CAPTION>
--------------------
1999 1998
--------- --------
<S> <C> <C>
Deferred tax assets
Bad debt allowance........................................ $ 11,900 $ 700
Stock options............................................. 58,800 --
Net operating loss carryforwards.......................... 746,100 10,100
--------- --------
816,800 10,800
Deferred tax liability
Property and equipment.................................... (500) (300)
--------- --------
816,300 10,500
Valuation allowance......................................... (816,300) (10,500)
--------- --------
$ -- $ --
========= ========
</TABLE>
As of March 31, 1999, the Company has domestic net operating loss carryforwards
of approximately $646,000 and Canadian net operating loss carryforwards of
approximately $1,212,200. The domestic carryforwards begin to expire in fiscal
year 2012. The Canadian carryforwards begin to expire in fiscal year 2000.
Deferred tax assets have been reduced by a valuation allowance because of
uncertainties as to future recognition of taxable income to assure realization.
F-58
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1999
NOTE 13 -- INCOME (LOSS) PER SHARE
Following is a reconciliation of the numerators of the basic and diluted income
(loss) per share for the years ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Net income (loss) available to common stockholders.......... $ (798,000) $ 32,500
========== ==========
Weighted average shares..................................... 5,521,583 2,632,424
Effect of dilutive securities:
Options................................................... -- --
Warrants.................................................. -- 317,518
---------- ----------
5,521,583 2,949,942
========== ==========
Basic income (loss) per share (based on weighted average
shares)................................................... $ (.14) $ .01
========== ==========
</TABLE>
1,028,000 options and 800,000 warrants to purchase shares of common stock were
excluded from the computation in 1999 because their effect would be
anti-dilutive.
NOTE 14 -- GEOGRAPHIC SEGMENT INFORMATION
<TABLE>
<CAPTION>
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Assets
U.S. operations........................................... $ 700,700 $ 525,100
Canadian subsidiary....................................... 3,689,000 --
---------- ----------
$4,389,700 $ 525,100
========== ==========
</TABLE>
NOTE 15 -- REVENUE
The following table summarizes the cash and trade dollars components of revenue
for the years ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Trade....................................................... $ 263,900 $ 279,100
Cash........................................................ 240,600 307,000
---------- ----------
$ 504,500 $ 586,100
========== ==========
</TABLE>
F-59
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
GO Software, Inc.
We have audited the accompanying balance sheets of GO Software, Inc. (the
Company) as of December 31, 1997 and 1998, the related statements of operations,
shareholder's equity (deficit), and cash flows for the years then ended. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
from 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 GO Software, Inc. at December
31, 1997 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States.
/s/ Ernst & Young LLP
Jacksonville, Florida
June 11, 1999
F-60
<PAGE>
GO SOFTWARE, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
------------------------------------------
DECEMBER 31,
--------------------------- JUNE 15,
1997 1998 1999
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 1,047 $ 766 $ 640
Accounts receivable, net of allowance of $55 in 1997, $49
in 1998 and $62 in 1999 (unaudited).................... 56 137 236
Refundable income taxes.................................. -- 33 33
Inventory................................................ 5 11 9
Prepaid expenses and other current assets................ 13 36 19
------------ ------------ ------------
Total current assets....................................... 1,121 983 937
------------ ------------ ------------
Property and equipment, at cost:
Computer equipment....................................... 47 106 123
Office equipment......................................... 22 32 35
------------ ------------ ------------
69 138 158
Accumulated depreciation................................. (20) (50) (68)
------------ ------------ ------------
Net property and equipment................................. 49 88 90
------------ ------------ ------------
Capitalized software development costs..................... -- 28 28
Deferred income tax asset.................................. 2 7 20
------------ ------------ ------------
Total assets............................................... $ 1,172 $ 1,106 $ 1,075
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable and accrued expenses.............. $ 26 $ 66 $ 88
Income taxes payable..................................... 20 -- 3
Other taxes payable...................................... 5 2 --
Deferred revenue......................................... 9 21 128
------------ ------------ ------------
Total current liabilities.................................. 60 89 219
------------ ------------ ------------
Deferred income tax liability.............................. 17 24 24
Series A redeemable preferred stock, $1.39167 par value per
share, 700,597 and 664,671 shares authorized and
outstanding (liquidation value).......................... 1,043 1,194 1,293
Shareholders' equity (deficit):
Common stock, no par value, 10,000,000 shares authorized
and 1,000,000 shares outstanding....................... 10 10 10
Paid-in capital.......................................... 211 211 211
Retained earnings (deficit).............................. (169) (422) (682)
------------ ------------ ------------
Total shareholders' equity (deficit)....................... 52 (201) (461)
------------ ------------ ------------
Total liabilities and shareholders' equity................. $ 1,172 $ 1,106 $ 1,075
============ ============ ============
</TABLE>
See accompanying notes.
F-61
<PAGE>
GO SOFTWARE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------
YEARS ENDED
DECEMBER 31, JANUARY 1, 1999
--------------------------- TO JUNE 15,
1997 1998 1999
------------ ------------ ----------------
(UNAUDITED)
<S> <C> <C> <C>
Net revenues.......................................... $ 793 $ 1,346 $ 728
Cost of goods sold.................................... 21 55 45
------------ ------------ ------------
Gross profit.......................................... 772 1,291 683
Selling, general and administrative expenses.......... 410 1,149 686
Research and development.............................. 130 253 182
------------ ------------ ------------
Operating (loss) income............................... 232 (111) (185)
Interest income....................................... 17 41 12
------------ ------------ ------------
(Loss) income before income taxes..................... 249 (70) (173)
Benefit (provision) for income taxes.................. (34) 17 12
------------ ------------ ------------
Net (loss) income..................................... $ 215 $ (53) $ (161)
============ ============ ============
</TABLE>
See accompanying notes.
F-62
<PAGE>
GO SOFTWARE, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------------------------------
RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996................ $ 10 $ -- $ 62 $ 72
Net income prior to conversion to C
Corporation............................... -- -- 141 141
Conversion from S Corporation to C
Corporation............................... -- 203 (203) --
Accretion of Series A redeemable preferred
stock dividends........................... -- -- (68) (68)
Distributions to shareholders............... -- -- (175) (175)
Issuance of options......................... -- 8 -- 8
Net income.................................. -- -- 74 74
------------ ------------ ------------ ------------
Balance at December 31, 1997................ 10 211 (169) 52
Net loss.................................... -- -- (53) (53)
Accretion of Series A redeemable preferred
stock dividends........................... -- -- (200) (200)
------------ ------------ ------------ ------------
Balance at December 31, 1998................ 10 211 (422) (201)
Net loss (unaudited)........................ -- -- (161) (161)
Accretion of Series A redeemable preferred
stock dividends (unaudited)............... -- -- (99) (99)
------------ ------------ ------------ ------------
Balance at June 15, 1999 (unaudited)........ $ 10 $ 211 $ (682) $ (461)
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-63
<PAGE>
GO SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------
YEARS ENDED DECEMBER 31 JANUARY 1, 1999
--------------------------- TO JUNE 15,
1997 1998 1999
------------ ------------ ----------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income..................................... $ 215 $ (53) $ (161)
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization....................... 14 29 18
Issuance of options................................. 8 -- --
Changes in operating assets and liabilities:
Increase in accounts receivable, net.............. (38) (81) (99)
Increase in refundable income taxes............... -- (33) --
Increase (decrease) in inventory.................. (5) (6) 2
Increase (decrease) in prepaid expenses and other
current assets.................................. (13) (23) 17
Increase (decrease) in deferred income tax
liabilities, net................................ 15 2 (13)
Increase in deferred revenue...................... 6 12 107
Increase in accounts payable and accrued
expenses........................................ 23 17 22
Increase in income and other taxes payable........ 25 -- 1
------------ ------------ ------------
Net cash (used in) provided by operating activities... 250 (136) (106)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment................... (40) (67) (20)
Capitalized software development costs................ -- (28) --
------------ ------------ ------------
Net cash used in investing activities................. (40) (95) (20)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholders......................... (175) -- --
Proceeds from issuance of Series A redeemable
preferred stock..................................... 1,000 -- --
Repurchase of preferred stock......................... (25) (50) --
------------ ------------ ------------
Net cash (used in) provided by financing activities... 800 (50) --
------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents......................................... 1,010 (281) (126)
Cash and cash equivalents, beginning of year.......... 37 1,047 766
------------ ------------ ------------
Cash and cash equivalents, end of year................ $ 1,047 $ 766 $ 640
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for taxes................... $ -- $ 33 $ --
============ ============ ============
NONCASH FINANCING ACTIVITIES:
Accretion of Series A redeemable preferred stock.... $ 68 $ 200 $ 99
============ ============ ============
</TABLE>
See accompanying notes.
F-64
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1. ORGANIZATION AND NATURE OF BUSINESS
GO Software, Inc. (the Company) was incorporated in Georgia in 1994. Initially,
the sole shareholder, in exchange for his knowledge in the fields of software
development and credit card processing, along with the rights to certain
software products, received 1,000,000 shares of common stock of the Company
after adjustment for the stock dividend (Note 3). The Company develops and
markets transaction processing software for personal computers that can function
on a stand-alone basis or can interface with core corporate accounting systems.
The Company currently sells its products to businesses in the United States and
Canada.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL DATA
The unaudited interim financial statements as of June 15, 1999 and for the five
and one-half month period then ended have been prepared on the same basis as the
audited financial statements and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial information set forth therein, in accordance with
generally accepted accounting principles.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures 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.
REVENUE RECOGNITION
The Company licenses software under license agreements that include multiple
elements including software and maintenance and support services. In accordance
with SOP 97-2, license agreement revenues are allocated to the various elements
based on "vendor-specific objective evidence of fair value." Revenues for the
software element are recognized when a license agreement has been signed,
delivery has occurred, the fee is fixed or determinable and collectibility is
probable. Revenues from maintenance agreements are recognized ratably over the
maintenance period.
The Company may bill resellers under which no shipment is made until sales are
made by the reseller to a third-party end user. Revenues from these arrangements
are deferred and recognized upon shipment to the third-party end user.
INVENTORY
Inventory, consisting of software media, manuals, and related packaging
materials, is stated at the lower of cost, determined on the first-in, first-out
basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, generally
three years.
F-65
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments with maturities
of three months or less when purchased to be cash equivalents.
SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development costs in accordance with Statement
of Financial Accounting Standards (SFAS) No. 86. Costs incurred prior to
establishment of technological feasibility are expensed as incurred. Software
development costs of $0 and $28 were capitalized as of December 31, 1997 and
1998, respectively.
Amortization of capitalized software costs commences when the software is
available for general release to customers. Amortization is based on the
straight-line method over the estimated economic life of the product, which may
range from three to five years. No amortization was recorded in 1998 as none of
the products for which costs were capitalized were available for general release
by the end of the year.
DEFERRED REVENUE
Deferred revenue represents license fees and maintenance and support which have
been sold and payment received but not earned at year end.
During August 1997, the Company changed its income tax status from a Subchapter
S Corporation, which generally does not provide for income taxes at the
corporate level, to a C Corporation, which does provide for income taxes at the
corporate level. Accordingly, as of 1997, the accompanying financial statements
include a provision for income taxes.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. SFAS No. 109 requires
income taxes to be recognized using the liability method. Specifically, deferred
tax assets and liabilities are determined based on estimated future tax effects
attributable to temporary differences between the amount of assets and
liabilities recognized for financial reporting and income tax purposes.
CREDIT RISK
The Company extends credit to certain customers, generally resellers. Exposure
to losses on receivables is principally dependent on each customer's financial
condition. The Company monitors its exposure for credit losses and maintains
allowances for anticipated losses.
ADVERTISING AND PROMOTION
All costs associated with advertising and promoting products are expensed when
incurred. Advertising expense was $69 in 1997 and $143 in 1998.
F-66
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 3. SHAREHOLDER'S EQUITY
Effective January 2, 1997, the Company amended its Articles of Incorporation to
increase the number of authorized shares of no par common stock from 10,000 to
10,000,000. In connection with the recapitalization, the Company issued a stock
dividend of 999 shares of common stock for every 1 share of common stock
outstanding.
NOTE 4. SERIES A REDEEMABLE PREFERRED STOCK
On August 22, 1997 (the Closing Date), the Company executed an agreement with
certain private investors (the Investors) to issue 718,563 shares of convertible
preferred stock (the Preferred Stock) to the Investors for cash consideration of
$1,000. During 1997 and 1998, the Company acquired and retired $25 and $50,
respectively, of the outstanding preferred stock at the initial purchase price
(par value) plus a 4% return. The Preferred Stock is convertible initially on a
one-to-one basis into shares of common stock. The Preferred Stock is
automatically convertible into common stock upon an initial public offering of
the Company's common stock meeting certain conditions. The Preferred Stock has
certain anti-dilution features, has voting rights for the number of common
shares into which it is convertible, and has certain demand registration rights.
The Investors may put the Preferred Stock back to the Company at the initial
purchase price plus a 20% rate of return, compounded annually and cumulatively
from the Closing Date, beginning one-third on June 30, 2001, one-third on
June 30, 2002, and one-third on June 30, 2003. The Preferred Stock has a
liquidation preference equal to the face value of the Preferred Stock plus a
return compounded annually and cumulatively at 20% per year for the first two
years and 40% per year thereafter to the earlier of June 30, 2003 or the date
the Company liquidates, dissolves, or winds up its affairs. As of December 31,
1997 and 1998, returns related to the defined redemption price, which are
included in preferred stock on the accompanying balance sheets were $68 and
$269, respectively.
NOTE 5. EMPLOYEE STOCK OPTION PLAN
Effective January 2, 1997, the Company adopted the 1997 Stock Incentive Plan
(the Plan). Under the terms of the Plan, the Company may grant incentive stock
options, nonqualified stock options, and restricted stock grants to employees
and other key persons, as defined. The total number of shares of common stock
reserved under the Plan is 277,445. Options are exercisable for a maximum of 10
years from the date of grant and must be granted at an exercise price at least
equal to fair value. Options generally vest on a pro rata basis over four years
from the date of grant.
In accordance with APB 25, the Company records no compensation expense for its
stock options when the exercise price equals or exceeds the fair value of common
stock on the date of grant. Pro forma information regarding net income is
required by FASB Statement 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for the options
were estimated at the date of grant using the minimum value method with the
following weighted-average assumptions for 1998 and 1997: risk-free interest
rate of 5.60%; dividend yield of 0%; and a weighted-average expected life of the
options of 10 years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The per share weighted
average fair value of options granted during the year ended
F-67
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5. EMPLOYEE STOCK OPTION PLAN (CONTINUED)
December 31, 1997 and 1998 was $.00 and $.61, respectively. The Company's 1997
and 1998 pro forma information follows:
<TABLE>
<CAPTION>
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
(Loss) income before pro forma effect of stock options...... $ 215 $ (53)
Pro forma compensation expense from stock options:
1997 grant................................................ -- --
1998 grants............................................... -- 19
------------ ------------
Pro forma net (loss) income................................. $ 215 $ (72)
============ ============
</TABLE>
Because options vest over several years and additional option grants are
expected, the effects of these pro forma calculations are not likely to be
representative of similar future calculations.
The following table summarizes option activity for the Company's stock option
plan for the years ended December 31, 1997 and 1998. During 1997, an employee
holding 199,601 options under the Plan resigned from the Company and forfeited
all options held, including vested and unvested options.
<TABLE>
<CAPTION>
----------------------------------------------
WEIGHTED
EXERCISE PRICE AVERAGE
SHARES PER SHARE EXERCISE PRICE
------------ -------------- --------------
<S> <C> <C> <C>
Granted............................................... 208,801 $.26 to $3.00 $ .38
Exercised............................................. -- -- --
Canceled.............................................. 199,601 $.26 $ .26
------------
Balance, December 31, 1997............................ 9,200 $3.00 $ 3.00
Granted............................................... 215,581 $1.39 to $2.00 $ 1.41
Exercised............................................. -- -- --
Canceled.............................................. -- -- --
------------
Balance, December 31, 1998............................ 224,781 $1.39 to $3.00 $ 1.49
============
</TABLE>
No options are exercisable at December 31, 1998. Subsequent to December 31,
1998, 39,920 options granted in 1988 were canceled. The pro forma compensation
expense from these options is not included in the pro forma information above.
NOTE 6. COMMITMENT
LEASE
The Company leases office space under a lease which expired in March 1999 and is
continuing on a month-to-month basis. The lease requires 60 days notice prior to
vacating the space. Future lease payments under this lease at December 31, 1998
are approximately $7. Lease expense for 1997 and 1998 was $12 and $22,
respectively.
F-68
<PAGE>
GO SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 7. INCOME TAXES
The provision for income tax (expense) benefit consists of the following:
<TABLE>
<CAPTION>
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
Current:
Federal................................................... $ (15) $ 15
State..................................................... (5) 5
------------ ------------
(20) 20
------------ ------------
Deferred:
Federal................................................... (12) (2)
State..................................................... (2) (1)
------------ ------------
(14) (3)
------------ ------------
$ (34) $ 17
============ ============
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
---------------------------
DECEMBER 31
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses.......................................... $ 2 $ 3
NOL carryforward.......................................... -- 4
------------ ------------
Total deferred tax assets................................... 2 7
------------ ------------
Deferred tax liabilities:
Capitalized software development costs.................... -- 7
Accelerated depreciation.................................. 17 17
------------ ------------
Total deferred tax liabilities.............................. 17 24
------------ ------------
Net deferred tax liabilities................................ $ 15 $ 17
============ ============
</TABLE>
As of December 31, 1998, the Company has net operating loss carryforwards of
approximately $16, which expire in 2013, if not utilized.
Utilization of the net operating loss may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating loss before utilization.
NOTE 8. SALE OF BUSINESS
On June 15, 1999, the Company was acquired by ShopNow.com Inc.
F-69
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
WebCentric, Inc.:
We have audited the accompanying balance sheet of WebCentric, Inc. as of
December 31, 1998 and the related statements of operations, stockholders' equity
(deficit) and cash flows for the period August 15, 1997 (date of inception) to
December 31, 1997 and the year ended December 31, 1998. 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 WebCentric, Inc. as of
December 31, 1998 and the results of their operations and their cash flows for
the period August 15, 1997 (date of inception) to December 31, 1997 and the year
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Omaha, Nebraska
November 5, 1999, except as
to Note 6 which is as
of February 2, 2000
F-70
<PAGE>
WEBCENTRIC, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND DECEMBER 16, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------
DECEMBER 31, DECEMBER 16,
1998 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 46,795 $ 62,418
Trade accounts receivable, net of allowance of $8,500 and
$2,500 for 1998 and 1999, respectively.................. 94,460 665,477
Other current assets...................................... -- 2,494
Income taxes recoverable.................................. -- 150,796
------------ ------------
Total current assets.................................... 141,255 881,185
Certificate of deposit...................................... 30,000 31,469
Property and equipment, net................................. 26,828 363,324
------------ ------------
Total assets............................................ $ 198,083 $ 1,275,978
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable.................................... $ 49,680 $ 177,874
Accrued liabilities....................................... 12,394 48,795
Capital lease - current portion........................... 5,627 67,702
Long-term debt - current installments..................... 6,853 18,563
------------ ------------
Total current liabilities............................... 74,554 312,934
Capital lease, net of current portion....................... 18,150 108,850
Long-term debt, net of current installments................. 123,081 134,904
------------ ------------
Total liabilities....................................... 215,785 556,688
------------ ------------
Preferred stock............................................. -- 1,046,466
Stockholders' Deficit:
Common stock, $.01 par value; 1,000,000 shares authorized;
276,000 shares issued and outstanding as of
December 16, 1999 and December 31, 1998, respectively... 2,760 2,760
Additional paid-in capital................................ 110,028 --
Retained deficit:
Stockholders............................................ (130,490) --
Corporate............................................... -- (329,756)
------------ ------------
(17,702) (326,996)
Treasury stock............................................ -- (180)
------------ ------------
Total stockholders' deficit............................. (17,702) (327,176)
------------ ------------
Total liabilities and stockholders' deficit............. $ 198,083 $ 1,275,978
============ ============
</TABLE>
See accompanying notes to financial statements.
F-71
<PAGE>
WEBCENTRIC, INC.
STATEMENTS OF OPERATIONS
PERIOD AUGUST 15, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997,
THE YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD
JANUARY 1, 1999 TO DECEMBER 16, 1999
<TABLE>
<CAPTION>
---------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 16,
1997 1998 1999
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Retailer referral compensation............................ $ -- $ 288,882 $ 815,157
Advertising sales......................................... -- 98,467 735,517
International licensing/royalties......................... -- -- 100,000
Other..................................................... 248 1,654 10,432
------------ ------------ ------------
248 389,003 1,661,106
Costs of services........................................... -- 184,703 625,819
------------ ------------ ------------
Gross profit............................................ 248 204,300 1,035,287
------------ ------------ ------------
Operating Expenses:
Sales and marketing....................................... 12,985 44,499 512,237
General and administrative................................ 14,426 129,512 558,629
Research and development.................................. -- 83,698 405,301
------------ ------------ ------------
Total operating expenses................................ 27,411 257,709 1,476,167
------------ ------------ ------------
Operating loss.......................................... (27,163) (53,409) (440,880)
Net interest expense........................................ -- 6,775 9,965
------------ ------------ ------------
Loss before income taxes................................ (27,163) (60,184) (450,845)
Income tax benefit.......................................... -- -- 150,796
------------ ------------ ------------
Net loss................................................ $ (27,163) $ (60,184) $ (300,049)
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-72
<PAGE>
WEBCENTRIC, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD AUGUST 15, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997,
THE YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD JANUARY 1, 1999 TO DECEMBER 16,
1999 (UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
TOTAL
ADDITIONAL RETAINED DEFICIT STOCKHOLDERS'
COMMON PAID-IN ------------------------- TREASURY EQUITY
STOCK CAPITAL STOCKHOLDERS CORPORATE STOCK (DEFICIT)
-------- ---------- ------------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 15, 1997 (date of
inception)............................ $ -- $ -- $ -- $ -- $ -- $ --
Issuance of 20,000 shares of common
stock, $.01 par value................. 2,620 (620) -- -- -- 2,000
Additional capital contributed by
stockholders.......................... -- 30,000 -- -- -- 30,000
Net loss................................ -- -- (27,163) -- -- (27,163)
-------- --------- --------- --------- -------- ------------
Balance at December 31, 1997............ 2,620 29,380 (27,163) -- -- 4,837
Issuance of 1,053 shares of common
stock, $.01 par value................. 140 648 -- -- -- 788
Additional capital contributed by
stockholders.......................... -- 80,000 -- -- -- 80,000
Distributions to stockholders........... -- -- (43,143) -- -- (43,143)
Net loss................................ -- -- (60,184) -- -- (60,184)
-------- --------- --------- --------- -------- ------------
Balance at December 31, 1998............ 2,760 110,028 (130,490) -- -- (17,702)
Acquisition of treasury stock........... -- 180 -- -- (180) --
Officer's compensation expense.......... -- 50,000 -- -- -- 50,000
Distributions to stockholders........... -- -- (12,959) -- -- (12,959)
Elimination of stockholders' retained
deficit............................... -- (160,208) 177,427 (17,219) -- --
Accumulation of dividends for preferred
stock................................. -- -- -- (46,466) -- (46,466)
Net loss................................ -- -- (33,978) (266,071) -- (300,049)
-------- --------- --------- --------- -------- ------------
Balance at December 16, 1999
(unaudited)........................... $ 2,760 $ -- $ -- $(329,756) $ (180) $ (327,176)
======== ========= ========= ========= ======== ============
</TABLE>
See accompanying notes to financial statements.
F-73
<PAGE>
WEBCENTRIC, INC.
STATEMENTS OF CASH FLOWS
PERIOD AUGUST 15, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997,
THE YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD JANUARY 1, 1999 TO DECEMBER 16,
1999
<TABLE>
<CAPTION>
---------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 16,
1997 1998 1999
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (27,163) $ (60,184) $ (300,049)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 42 1,060 22,382
Officer's compensation expense.......................... -- -- 50,000
(Increase) decrease in:
Trade accounts receivable............................. (228) (94,232) (571,017)
Other current assets.................................. -- -- (2,494)
Income taxes recoverable.............................. -- -- (150,796)
(Increase) decrease in:
Trade accounts payable................................ -- 49,680 128,194
Accrued liabilities................................... 3,436 8,958 31,245
------------ ------------ ------------
Total adjustments..................................... 3,250 (34,534) (492,486)
------------ ------------ ------------
Net cash used in operating activities................. (23,913) (94,718) (792,535)
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of equipment.................................. (1,000) (1,859) (189,024)
Certificate of deposit.................................... -- (30,000) (1,469)
------------ ------------ ------------
Net cash used in investing activities................. (1,000) (31,859) (190,493)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt.............................. -- 132,000 34,941
Payments on long-term debt and capital leases............. -- (3,360) (23,331)
Proceeds from issuance of capital......................... 32,000 80,788 1,000,000
S Corporation distributions............................... -- (43,143) (12,959)
------------ ------------ ------------
Net cash provided by financing activities............. 32,000 166,285 998,651
------------ ------------ ------------
Net increase in cash.................................. 7,087 39,708 15,623
Cash at beginning of period................................. -- 7,087 46,795
------------ ------------ ------------
Cash at end of period....................................... $ 7,087 $ 46,795 $ 62,418
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest.................. $ -- $ 8,426 $ 19,876
============ ============ ============
Capital lease obligations incurred........................ $ -- $ 25,071 $ 172,189
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-74
<PAGE>
WEBCENTRIC, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
WebCentric, Inc. (the "Company") has developed proprietary data integration
technology and an application of that technology through its Bottom Dollar
shopping search engine capability. It is one of the first firms to deploy what
is known as "agent" or "bot" virtual search assistant technology. This
technology offers a comprehensive, easy to use and accessible way for consumers
to shop the Web, enabling them to quickly and easily compare key decision
factors, such as price and availability, on an extensive selection of products
from top Internet merchants. They access the Bottom Dollar shopping search
engine capability by the Company's web site at "http://www.bottomdollar.com" or
by visiting one of the 1,000+ partner sites that have implemented the Bottom
Dollar shopping search engine capabilities on their sites.
UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
contain all adjustments, consisting of normal recurring adjustments, necessary
to fairly present the financial information included therein.
The Company suggests that this financial data be read in conjunction with the
audited financial statements and notes. Results for the interim period presented
are not necessarily indicative of results to be expected for the entire year.
PROPERTY AND EQUIPMENT
The Company's equipment is depreciated using primarily the straight-line method.
The Company has various items of equipment under capital lease that are more
specifically identified in note 4. The leased property under capital lease is
amortized over the expected useful life of the property.
REVENUE RECOGNITION
Retailer referral compensation revenue is earned over the terms of the contract,
which is generated on a "click-thru" or commission basis. Advertising sales
revenue is earned each time an advertisement is displayed on a web site.
International licensing/royalties revenues are recognized as earned under the
terms of the contract.
ADVERTISING COSTS
The Company expenses advertising costs as they are incurred. Advertising
expenses for the period August 15, 1997 (date of inception) to December 31, 1997
and year ended December 31, 1998 were $6,221 and $28,377, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred and amounted
to $0 for the period August 15, 1997 (date of inception) to December 31, 1997
and $83,698 for the year ended December 31, 1998.
INCOME TAXES
The Company had elected to be taxed as an "S Corporation" under Code Section
1362 of the Internal Revenue Code. Consequently, with limited exceptions, the
Company is not taxed at the corporate level. The Company does not anticipate any
of the limited exceptions to create a corporate-level tax and, therefore, no
income taxes have been accrued for the Company.
F-75
<PAGE>
WEBCENTRIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and reported amounts of
revenues and expenses to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
NOTE 2. EQUIPMENT AND LEASED PROPERTY UNDER CAPITAL LEASE
Equipment and leased property under capital lease consist of the following at
December 31, 1998:
<TABLE>
<S> <C>
Furniture and fixtures...................................... $ 1,788
Equipment................................................... 1,071
Computer equipment.......................................... 25,071
----------
27,930
Accumulated depreciation and amortization................... (1,102)
----------
$ 26,828
==========
</TABLE>
NOTE 3. DEBT
The Company's long-term debt consists of the following at December 31, 1998:
<TABLE>
<S> <C>
Variable notes payable carrying an interest rate of 2.25%
over prime (10.5% at September 30, 1999), interest only
payable monthly and is due in one lump sum payment of all
outstanding principal plus all accrued interest at
March 1, 2003............................................. $ 100,000
9.75% note payable, due in monthly installments of $312.96,
including interest, final payment plus interest due
August 2003............................................... 13,982
9.75% note payable, due in monthly installments of $328.25,
including interest, final payment plus interest due
August 2001............................................... 9,164
9.25% note payable, due in monthly installments of $145.60,
including interest, final payment plus interest due
October 2003.............................................. 6,788
----------
Total long-term debt...................................... 129,934
Less current installments of long-term debt................. 6,853
----------
Long-term debt, excluding current installments............ $ 123,081
==========
</TABLE>
The $100,000 note is secured by a real estate mortgage on property owned by two
of the Company's shareholders and a $30,000 certificate of deposit. This note is
insured by the Small Business Administration.
The remaining three notes, above, are secured by all inventory, chattel paper,
accounts, equipment, and general intangibles.
F-76
<PAGE>
WEBCENTRIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. DEBT (CONTINUED)
The following is a summary of principal maturities of long-term debt during the
next five years:
<TABLE>
<S> <C>
1999........................................................ $ 6,853
2000........................................................ 7,358
2001........................................................ 7,715
2002........................................................ 4,765
2003........................................................ 103,095
2004........................................................ 148
------------
$ 129,934
============
</TABLE>
NOTE 4. COMMITMENTS
The Company leases computer equipment under a capital lease. The economic
substance of the lease is that the Company is financing the acquisition of the
asset through the lease, and accordingly, it is recorded in the Company's assets
and liabilities. The Company also leases facilities under operating lease
agreements. The following is a summary of future minimum lease payments under
capitalized leases and under operating leases that have initial or remaining
noncancelable lease terms in excess of one year at December 31, 1998:
<TABLE>
<CAPTION>
---------------------------
CAPITALIZED OPERATING
LEASES LEASES
------------ ------------
<S> <C> <C>
Year ending December 31:
1999...................................................... $ 7,379 $ 6,661
2000...................................................... 9,839 1,651
2001...................................................... 9,839 413
2002...................................................... 1,166 --
------------ ------------
Total minimum lease payments............................ 28,223 $ 8,725
============
Inputed interest, at rates ranging from 10.0% to 17.1%...... (4,446)
------------
Present value of minimum capitalized lease payments..... 23,777
Current portion............................................. 5,627
------------
Long-term capitalized lease obligations................. $ 18,150
============
</TABLE>
Assets recorded under capital leases are included in property and equipment at
December 31, 1998 are as follows:
<TABLE>
<S> <C>
Computer equipment.......................................... $ 25,071
Accumulated depreciation.................................... (835)
----------
$ 24,236
==========
</TABLE>
Rental expense for operating leases amounted to $0, and $7,176, for the period
August 15, 1997 (date of inception) to December 31, 1997 and year ended
December 31, 1998, respectively.
F-77
<PAGE>
WEBCENTRIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. CONCENTRATION OF CREDIT RISK
The Company's customers, while concentrated in the United States, are spread
across diverse market sectors. For the year ended December 31, 1998, sales to
three customers accounted for 38% of sales, with accounts receivable balances
totaling $5,004 and no customers meeting the 10% threshold for the period
August 15, 1997 (date of inception) to December 31, 1997. The Company's accounts
receivable are unsecured and the Company is at risk to the extent such amounts
become uncollectible. The Company establishes its allowance for doubtful
accounts based upon the credit risk of specific customers, historical trends,
and other information.
NOTE 6. SUBSEQUENT EVENTS
Effective May 1, 1999, the Company became a "C Corporation" in which the Company
uses the asset and liability method to account for income taxes.
On May 19, 1999, the Company effected a 13.12-to-1 stock split, which has been
given retroactive effect in the accompanying financial statements.
During May, 1999, 24,000 shares of preferred stock with a par value of $.01 were
authorized, issued, and outstanding. The cumulative preferred stock pays 8%
preferential dividends and is convertible to common stock at the holder's option
at a price of $41.66. The preferred stock is redeemable after five years at
either the holder's or Company's option. The holder can redeem the stock at a
price per share equal to the original cost plus all accumulated dividends plus a
default premium. The Company can redeem at the original cost plus all accrued
and unpaid dividends. Accumulated dividends are immediately due and payable upon
conversion into common stock or if the Company is sold.
During May 1999, the Company adopted a stock option plan (the "Plan"). A total
of 18,000 shares of common stock have been reserved for issuance pursuant to the
Plan. In September 1999, the Company's shareholders granted options to employees
of the Company with an exercise price of $1.00, which was below the fair value
of the common stock on the date of grant. The related compensation expense was
minimal and not recorded for these grants. Had compensation cost for the stock
option grants been determined using the fair value method, the Company's net
loss would have been unaffected.
During November, the Company arranged for the purchase of additional computer
equipment totaling approximately $128,200, with payments being made over a three
year period. The financing arrangement is guaranteed by two shareholders of the
Company.
Effective December 16, 1999, the Company was acquired in a stock purchase by
ShopNow.com, Inc.
F-78
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ShopNow.com Inc.:
We have audited the accompanying balance sheet of SpeedyClick, Corp. (a
California corporation) as of December 31, 1998, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the period from
inception (September 1, 1998) to December 31, 1998. 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 audit.
We conducted our audit 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 audit provides 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 SpeedyClick, Corp. as of
December 31, 1998, and the results of its operations and its cash flows for the
period from inception (September 1, 1998) to December 31, 1998 in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Seattle, Washington,
November 24, 1999
F-79
<PAGE>
SPEEDYCLICK, CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
----------------------------
DECEMBER 31, NOVEMBER 12,
1998 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 4,272 $ 19,863
Accounts receivable, net of allowance of $0 and $13,900... -- 217,247
------------ ------------
Total current assets.................................... 4,272 237,110
Property and equipment, at cost, net of $0 and $27,137 of
accumulated depreciation.................................. -- 158,054
Other assets................................................ 2,477 18,714
------------ ------------
Total assets............................................ $ 6,749 $ 413,878
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ -- $ 131,503
Accrued compensation and benefits......................... 10,558 94,631
Accrued expenses.......................................... -- 50,000
Deferred revenue.......................................... -- 29,404
Current portion of notes payable and other long-term
liabilities............................................. -- 36,858
------------ ------------
Total current liabilities............................... 10,558 342,396
Notes payable and other long-term liabilities, net of
current portion........................................... -- 19,782
------------ ------------
Total liabilities........................................... 10,558 362,178
------------ ------------
Stockholders' equity (deficit):
Preferred stock, no par value; 0 and 1,000,000 shares
authorized; 0 and 535,000 shares issued and outstanding;
preference in liquidation of $535,000 at November 12,
1999.................................................... -- 535,000
Common stock and paid-in capital, $0.01 par value;
10,000,000 and 7,000,000 shares authorized; 4,999,995
and 5,378,020 issued and outstanding, respectively...... 31,000 413,803
Accumulated deficit......................................... (34,809) (897,103)
------------ ------------
Total stockholders' equity (deficit)........................ (3,809) 51,700
------------ ------------
Total liabilities and stockholders' deficit................. $ 6,749 $ 413,878
============ ============
</TABLE>
The accompanying notes are an integral part of these sheets.
F-80
<PAGE>
SPEEDYCLICK, CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
----------------------------------------
PERIOD FROM
INCEPTION
(SEPTEMBER 1, 1998) JANUARY 1, 1999
TO TO
DECEMBER 31, 1998 NOVEMBER 12, 1999
-------------------- -----------------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $ -- $ 646,870
-------------------- -----------------
Operating expenses:
Sales and marketing....................................... 4,188 913,849
General and administrative................................ 2,490 405,231
Research and development.................................. 28,131 186,722
-------------------- -----------------
Total operating expenses................................ 34,809 1,505,802
-------------------- -----------------
Loss from operations........................................ (34,809) (858,932)
Interest expense, net....................................... -- (3,362)
-------------------- -----------------
Net loss.................................................... $ (34,809) $ (862,294)
==================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
F-81
<PAGE>
SPEEDYCLICK, CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-----------------------------------------
PERIOD FROM INCEPTION JANUARY 1, 1999
(SEPTEMBER 1, 1998) TO
TO DECEMBER 31, 1998 NOVEMBER 12, 1999
--------------------- -----------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (34,809) $ (862,294)
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation.............................................. -- 27,137
Changes in operating assets and liabilities:..............
Accounts receivable....................................... -- (217,247)
Other assets.............................................. (2,477) (16,237)
Accounts payable.......................................... -- 131,503
Accrued compensation, benefits and expenses............... 10,558 134,073
Deferred revenue.......................................... -- 29,404
-------------------- -----------------
Net cash used in operating activities..................... (26,728) (773,661)
-------------------- -----------------
Cash flows from investing activities:
Purchases of property and equipment....................... -- (114,258)
-------------------- -----------------
Net cash used in investing activities..................... -- (114,258)
-------------------- -----------------
Cash flows from financing activities:
Sales of common stock..................................... 9,000 114,500
Sales of Series A preferred stock......................... -- 435,000
Exercise of common stock options.......................... -- 8,303
Capital contributions by founders......................... 22,000 60,000
Borrowings on notes payable............................... -- 300,000
Repayments of notes payable............................... -- (14,293)
-------------------- -----------------
Net cash provided by financing activities................. 31,000 903,510
-------------------- -----------------
Net increase in cash........................................ 4,272 15,591
Cash, beginning of period................................... -- 4,272
-------------------- -----------------
Cash, end of period......................................... $ 4,272 $ 19,863
==================== =================
Supplemental disclosure of cash flow information and noncash
activities:
Cash paid for interest.................................... $ -- $ 3,362
Conversion of notes payable into Series A preferred
stock................................................... $ -- $ 100,000
Conversion of notes payable into common stock............. $ -- $ 200,000
Property and equipment acquired under notes payable....... $ -- $ 70,933
</TABLE>
The accompanying notes are an integral part of these statements.
F-82
<PAGE>
SPEEDYCLICK, CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
SERIES A PREFERRED
COMMON STOCK STOCK TOTAL
----------------------- --------------------- ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT EQUITY (DEFICIT)
---------- ---------- -------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balances at inception............... -- $ -- -- $ -- $ -- $ --
Issuance of founders stock in
exchange for cash and services
rendered........................ 4,999,995 31,000 -- -- -- 31,000
Net loss.......................... -- -- -- -- (34,809) (34,809)
--------- -------- ------- -------- ----------- --------------
Balances, December 31, 1998......... 4,999,995 31,000 -- -- (34,809) (3,809)
Additional founders capital
contribution.................... -- 60,000 -- -- -- 60,000
Sales of preferred stock.......... -- -- 435,000 435,000 -- 435,000
Sales of common stock............. 195,000 114,500 -- -- -- 114,500
Exercise of common stock options.. 83,025 8,303 -- -- -- 8,303
Conversion of notes payable....... 100,000 200,000 100,000 100,000 -- 300,000
Net loss.......................... -- -- -- -- (862,294) (862,294)
--------- -------- ------- -------- ----------- --------------
Balances, November 12, 1999
(unaudited)....................... 5,378,020 $413,803 535,000 $535,000 $ (897,103) $ 51,700
========= ======== ======= ======== =========== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-83
<PAGE>
SPEEDYCLICK, CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE PERIOD ENDED NOVEMBER 12, 1999 IS UNAUDITED.)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS:
SpeedyClick, Corp., a California corporation, (the Company) was founded in
September 1998 in Glendale, California. The Company operates a website offering
various games and entertainment targeted toward women. The website went live in
January 1999.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED INTERIM FINANCIAL DATA
The unaudited interim financial statements as of September 30, 1999 and for the
nine-month period then ended have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial information set forth therein, in accordance with generally
accepted accounting principles.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the 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.
REVENUE RECOGNITION
Revenues are generated primarily from click-through payments, interactive game
sponsorships and e-mailings. The Company uses outside advertising agencies to
obtain a significant portion of its advertising revenues. Revenues are
recognized net of commissions paid to advertising agencies ratably over the term
of the advertising contract or over the course of the sponsorship.
CASH
Cash consists of deposits in checking and savings accounts. The Company has no
cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and accounts receivable.
To date, accounts receivable have been derived from revenues earned from
customers located in the United States. Historically, credit losses have been
minor and within management's expectations.
PROPERTY AND EQUIPMENT
Property and equipment consists primarily of computer equipment and furniture
and is stated at cost. Depreciation is computed using the straight-line method
over estimated useful lives, which are estimated to be three years.
F-84
<PAGE>
SPEEDYCLICK, CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE PERIOD ENDED NOVEMBER 12, 1999 IS UNAUDITED.)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
SOFTWARE DEVELOPMENT
Under the criteria set forth in Statement of Financial Accounting Standards
(SFAS) No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed," capitalization of software development costs
begins upon the establishment of technological feasibility of the product, which
the Company has defined as the completion of beta testing of a working product.
The establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs require considerable judgment by management with
respect to certain external factors, including, but not limited to, anticipated
future gross product revenues, estimated economic life and changes in software
and hardware technology. Amounts that could have been capitalized under this
statement after consideration of the above factors were immaterial and,
therefore, no software development costs have been capitalized by the Company to
date.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and consist primarily of
salaries, travel, materials, supplies and contract services.
STOCK COMPENSATION
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
In accordance with the provisions of SFAS No. 123, the Company applies
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its employee stock
benefits.
NOTE 3. INCOME TAXES:
At December 31, 1998, a valuation allowance was recognized to offset the related
deferred tax asset of approximately $10,200 due to the uncertainty of realizing
the benefit of the Company's net operating loss carryforward. The need for this
valuation allowance is subject to periodic review. If it is determined in a
future period that it is more likely than not that the tax benefit of the
carryforward will be realized, the reduction of the valuation allowance will be
recorded as a reduction of the Company's income tax expense.
At December 31, 1998, the Company had a net operating loss carryforward of
approximately $27,000, which expires in 2012. Under current tax law, net
operating loss carryforwards available in any given year may be limited upon the
occurrence of certain events, including significant changes in ownership
interests.
NOTE 4. COMMITMENTS:
The Company operated in space provided to it by a related party for the period
from inception to December 31, 1998, and accordingly, no rent expense was
recorded in the accompanying financial statements. Had such expense been
recorded, the effects on the accompanying financial statements would have been
immaterial.
F-85
<PAGE>
SPEEDYCLICK, CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE PERIOD ENDED NOVEMBER 12, 1999 IS UNAUDITED.)
NOTE 5. RELATED PARTY TRANSACTIONS:
Since formation, the founders did not receive salaries. Accordingly, no
compensation expense was recorded by the Company. Additionally, certain
operating expenses of the Company were paid on its behalf by the founders and
certain related parties. No amounts funded by related parties have been recorded
in the accompanying financial statements. The amounts funded related to
operating expenses are not estimable and will not be repaid by the Company to
the funding parties.
NOTE 6. SUBSEQUENT EVENTS:
AMENDMENT OF ARTICLES OF INCORPORATION
On April 19, 1999, the Company restated its articles of incorporation approving,
among other things:
- STOCK SPLIT - a 5.55555 for one stock split, which has been reflected in
the accompanying financial statements as if it had occurred at inception.
- STOCK INCENTIVE PLAN - the SpeedyClick, Corp. 1999 Stock Incentive Plan
(Plan) was approved and a number of awards of stock options were granted
to vest retroactive to the original hiring date of the employee. 375,000
shares are reserved for issuance under the Plan.
- AUTHORIZED STOCK - The Company was authorized to issue two classes of
stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the Company was authorized to
issue is 7,000,000 shares of Common Stock and 1,000,000 shares of
Preferred Stock.
BRIDGE LOAN FINANCING
On April 2, 1999, the Company issued a $100,000 convertible promissory note to
an outside investor. The note accrued interest at the rate of five percent per
year until the note was converted into 100,000 shares of Series A preferred
stock on May 10, 1999.
SALE OF SERIES A PREFERRED STOCK
On May 10, 1999, the Company issued 535,000 shares of Series A Preferred Stock,
of which 100,000 shares were issued upon conversion of a bridge loan, while the
remaining were sold for cash. Dividends are payable at a rate of $.08 per share
when declared and are non-cumulative. The holders of these shares were entitled
to receive a preference in liquidation equal to the original issuance price plus
any declared but unpaid dividends.
SALE OF COMMON STOCK
On May 10, 1999, the Company issued 145,000 shares of common stock to investors
at $0.10 per share. These shares have the same rights and preferences as the
previously issued common shares granted at inception.
NOTES PAYABLE
The Company obtained a $200,000 loan from an outside investor and a $100,000
loan from one of the founders during August and September 1999. The $200,000
loan was subsequently converted into 100,000 shares of common
F-86
<PAGE>
SPEEDYCLICK, CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF AND FOR THE PERIOD ENDED NOVEMBER 12, 1999 IS UNAUDITED.)
NOTE 6. SUBSEQUENT EVENTS: (CONTINUED)
stock prior to the acquisition by ShopNow.com Inc. (ShopNow) on November 12,
1999 as discussed below. The $100,000 loan was repaid by ShopNow in conjunction
with the acquisition.
CAPITAL LEASES
Subsequent to year-end, the Company obtained a number of computers under capital
leases. As of September 30, 1999, the Company's other long-term liabilities
consist of capital lease obligations. Total capital lease commitments of the
Company as of December 31, 1998 including interest were as follows:
<TABLE>
<S> <C>
2000........................................................ $ 52,800
2001........................................................ 14,000
2002........................................................ 8,000
2003 and thereafter......................................... --
---------
$ 74,800
=========
</TABLE>
ACQUISITION BY SHOPNOW.COM
On November 12, 1999, the Company was acquired by ShopNow.
F-87
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
SHOPNOW.COM INC.
SHAMU ACQUISITION, INC.
AND
UBARTER.COM INC.
DATED AS OF JANUARY 20, 2000
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I -- THE MERGER.................................................. A-1
1.1 The Merger.................................................. A-1
1.2 The Closing................................................. A-1
1.3 Effective Date and Time..................................... A-1
1.4 Articles of Incorporation of the Surviving Corporation...... A-2
1.5 Bylaws of the Surviving Corporation......................... A-2
1.6 Directors and Officers...................................... A-2
1.7 Conversion of Shares........................................ A-2
1.7.1 Exchange Ratio........................................ A-2
1.7.2 Exchange of Certificates.............................. A-4
1.7.3 No Fractional Shares.................................. A-4
1.7.4 No Further Transfers.................................. A-5
1.8 Amendment to Provide for Alternative Merger Structures...... A-5
1.9 Option Grants............................................... A-5
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............. A-5
2.1 Organization................................................ A-6
2.2 Enforceability.............................................. A-6
2.3 Capitalization.............................................. A-6
2.4 Subsidiaries and Affiliates................................. A-7
2.5 No Approvals; No Conflicts.................................. A-7
2.6 SEC Documents; Financial Statements......................... A-8
2.7 Absence of Certain Changes or Events........................ A-9
2.8 Taxes....................................................... A-10
2.9 Property.................................................... A-11
2.10 Contracts................................................... A-12
2.10.1 Material Contracts................................... A-12
2.10.2 Required Consents.................................... A-13
2.11 Claims and Legal Proceedings................................ A-13
2.12 Labor and Employment Matters................................ A-13
2.13 Employee Benefit Plans...................................... A-14
2.13.1 Employee Benefit Plan Listing........................ A-14
2.13.2 Documents Provided................................... A-14
2.13.3 Compliance........................................... A-15
2.13.4 Qualification........................................ A-15
2.13.5 Contributions and Premium Payments................... A-15
2.13.6 Related Employers.................................... A-15
2.13.7 Certain Pension Plans................................ A-15
2.13.8 Post-Termination Benefits............................ A-15
2.13.9 Parachute Payments................................... A-16
2.13.10 Suits, Claims and Investigations.................... A-16
2.13.11 Payments Resulting from Transactions................ A-16
2.13.12 Definitions......................................... A-16
2.14 Intellectual Property....................................... A-17
2.14.1 General.............................................. A-17
2.14.2 Company Technology................................... A-17
2.14.3 Third Party Technology............................... A-17
2.14.4 Trademarks........................................... A-18
2.14.5 Intellectual Property Rights......................... A-18
2.14.6 Maintenance of Rights................................ A-18
2.14.7 Third Party Claims................................... A-18
</TABLE>
A-i
<PAGE>
<TABLE>
<S> <C> <C>
2.14.8 Infringement by the Company.......................... A-18
2.14.9 Confidentiality...................................... A-19
2.14.10 Warranty Against Defects............................ A-19
2.14.11 Domain Names........................................ A-19
2.14.12 Year 2000........................................... A-19
2.14.13 Participating Developers............................ A-20
2.15 Corporate Books and Records................................. A-20
2.16 Licenses, Permits, Authorizations, etc...................... A-20
2.17 Compliance With Laws........................................ A-20
2.18 Insurance................................................... A-21
2.19 Brokers or Finders.......................................... A-21
2.20 Absence of Questionable Payments............................ A-21
2.21 Bank Accounts............................................... A-21
2.22 Customers and Suppliers..................................... A-21
2.23 Accounts Receivable......................................... A-22
2.24 Creditors' List............................................. A-22
2.25 Insider Interests........................................... A-22
2.26 Compliance With Environmental Laws.......................... A-22
2.27 Information Supplied by the Company......................... A-23
2.28 Full Disclosure............................................. A-23
2.29 Hart-Scott-Rodino........................................... A-23
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF SHOPNOW.COM AND MERGER
SUB...................................................................... A-23
3.1 Organization................................................ A-23
3.2 Enforceability.............................................. A-23
3.3 Securities.................................................. A-24
No Approvals or Notices Required; No Conflicts With
3.4 Instruments............................................... A-24
3.5 Information Supplied by ShopNow.com or Merger Sub........... A-24
3.6 Full Disclosure............................................. A-24
3.7 Capitalization.............................................. A-25
3.8 SEC Documents; Financial Statements......................... A-25
3.9 Compliance With Laws........................................ A-25
3.10 Tax Matters................................................. A-26
ARTICLE IV -- CONDITIONS PRECEDENT TO OBLIGATIONS OF SHOPNOW.COM AND
MERGER SUB............................................................... A-26
4.1 Accuracy of Representations and Warranties.................. A-26
4.2 Performance of Agreements................................... A-26
4.3 Opinion of Counsel for the Company.......................... A-26
4.4 Compliance Certificate...................................... A-26
4.5 Material Adverse Change..................................... A-27
4.6 Approvals and Consents...................................... A-27
4.7 Proceedings and Documents; Secretary's Certificate.......... A-27
4.8 Non-U.S. Real Property Holding Corporation Affidavit........ A-27
4.9 Compliance With Laws........................................ A-27
4.10 Legal Proceedings........................................... A-27
4.11 Noncompetition Arrangements................................. A-27
4.12 Termination of Certain Agreements........................... A-28
Exercise or Termination of Stock Purchase Rights; Conversion
4.13 of Convertible Securities................................. A-28
4.14 Company Option Plan......................................... A-28
4.15 Consents to Merger.......................................... A-28
4.16 Resignations................................................ A-28
4.17 Tax Clearance Certificates.................................. A-28
4.18 Releases of Liens........................................... A-28
4.19 Stockholder Approval........................................ A-29
</TABLE>
A-ii
<PAGE>
<TABLE>
<S> <C> <C>
4.20 Affiliate Letters........................................... A-29
4.21 Voting Agreements........................................... A-29
4.22 S-4......................................................... A-29
4.23 Agreements With Certain Stockholders of the Company......... A-29
4.24 Employment and Consulting Agreements........................ A-29
4.25 Lock-Up Agreements.......................................... A-29
4.26 Tax Opinion................................................. A-29
4.27 No Dissenters Rights........................................ A-30
4.28 Board Actions............................................... A-30
ARTICLE V -- CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.......... A-30
5.1 Accuracy of Representations and Warranties.................. A-30
5.2 Performance of Agreements................................... A-30
5.3 Compliance Certificate...................................... A-30
5.4 Legal Proceedings........................................... A-30
5.5 Material Adverse Change..................................... A-30
5.6 Approvals and Consents...................................... A-31
5.7 Compliance With Laws........................................ A-31
5.8 Opinion of Counsel.......................................... A-31
5.9 S-4......................................................... A-31
5.10 Tax Opinion................................................. A-31
ARTICLE VI -- COVENANTS.................................................. A-31
6.1 Conduct of Business by the Company Pending the Merger....... A-31
6.2 Access to Information; Confidentiality...................... A-32
6.3 No Alternative Transactions................................. A-33
6.4 Notification of Certain Matters............................. A-34
6.5 Further Action; Commercially Reasonable Efforts............. A-34
6.6 Publicity................................................... A-34
6.7 Bring-Down Capitalization Schedule.......................... A-34
6.8 Execution of All Operative Documents........................ A-34
6.9 Stockholder Approval........................................ A-34
6.10 Preparation of S-4.......................................... A-35
6.11 ShopNow.com Common Stock.................................... A-35
6.12 Retirement of Indebtedness.................................. A-35
ARTICLE VII -- TERMINATION, AMENDMENT AND WAIVER......................... A-35
7.1 Termination................................................. A-35
7.2 Effect of Termination....................................... A-36
ARTICLE VIII -- GENERAL.................................................. A-36
8.1 Survival.................................................... A-36
8.2 Tax Matters -- Reorganization Treatment..................... A-36
8.3 Expenses.................................................... A-36
8.4 Notices..................................................... A-37
8.5 Severability................................................ A-37
8.6 Entire Agreement............................................ A-38
8.7 Assignment.................................................. A-38
8.8 Parties in Interest......................................... A-38
8.9 Governing Law; Venue........................................ A-38
8.10 Headings.................................................... A-38
8.11 Counterparts................................................ A-38
8.12 Waiver of Jury Trial........................................ A-38
8.13 Amendment................................................... A-38
8.14 Waiver...................................................... A-38
</TABLE>
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EXHIBITS
<TABLE>
<C> <C> <S>
2 -- Company Disclosure Memorandum
4.3 -- Form of Opinion of Counsel for the Company
4.8 -- FIRPTA Affidavit
4.11 -- Form of Confidentiality, Invention Assignment and
Non-Raiding Agreement
4.20 -- Form of Affiliate Letter
4.21 -- Form of Voting Agreement
4.24A -- Form of Employment Agreement
4.24B -- Form of Consulting Agreement
4.25A -- Form of Lock-Up Agreement between ShopNow.com and White
4.25B -- Form of Lock-Up Agreement between ShopNow.com and New
Horizons, LP
5.8 -- Form of Opinion of Perkins Coie
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger ("AGREEMENT") dated as of January 20, 2000, by and
among ShopNow.com Inc., a Washington corporation ("SHOPNOW.COM"), Shamu
Acquisition, Inc., a Washington corporation and wholly owned subsidiary of
ShopNow.com ("MERGER SUB") and Ubarter.com Inc., a Nevada corporation (the
"COMPANY").
RECITALS
A. The Company ShopNow.com and Merger Sub believe it advisable and in their
respective best interests to effect a merger of the Company and Merger Sub
pursuant to this Agreement (the "MERGER").
B. The Board of Directors of the Company have approved this Agreement and
the Merger as required by applicable law.
C. The Boards of Directors of ShopNow.com and Merger Sub have approved this
Agreement and the Merger as required by applicable law.
D. It is intended that the Merger will qualify as a reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "CODE").
AGREEMENT
In consideration of the terms hereof, the parties hereto agree as follows:
ARTICLE I -- THE MERGER
1.1 THE MERGER
Upon the terms and subject to the conditions hereof, (a) at the Effective Time
(as defined in Section 1.3) the separate existence of the Company shall cease
and the Company shall be merged with and into Merger Sub (Merger Sub as the
surviving corporation after the Merger is sometimes referred to herein as the
"SURVIVING CORPORATION") and (b) from and after the Effective Time, the Merger
shall have all the effects of a merger under the laws of the state of Washington
and the state of Nevada and other applicable law.
1.2 THE CLOSING
Subject to the terms and conditions of this Agreement, the closing of the Merger
(the "CLOSING") shall take place on the earliest practicable business day (the
"CLOSING DATE") after the satisfaction or waiver of the conditions set forth in
Articles IV and V at 10 a.m. local time at the offices of Perkins Coie LLP, 1201
Third Avenue, 48th Floor, Seattle, Washington, or such other date, time or
location as ShopNow.com and the Company shall agree.
1.3 EFFECTIVE DATE AND TIME
On the Closing Date and subject to the terms and conditions hereof, articles of
merger and a certificate of merger (the "ARTICLES OF MERGER"), complying with
the applicable provisions of the Washington Business Corporation Act
("WASHINGTON LAW") and the Nevada General Corporation Law ("NEVADA LAW") and in
such form and executed in such manner as required by Washington Law and Nevada
Law, shall be delivered for filing with the Secretary of State of the state of
Washington (the "WASHINGTON SECRETARY") and the Secretary of State of the state
of Nevada (the "NEVADA SECRETARY"). The Merger shall become effective on the
date (the "EFFECTIVE DATE") and at the time (the "EFFECTIVE TIME") of filing of
the Articles of Merger or at such other time as may be specified in the Articles
of Merger as filed. If the Washington Secretary or the Nevada Secretary requires
any changes in the Articles of Merger as a condition to filing or issuing its
certificate to the effect that the Merger is effective, ShopNow.com, Merger Sub
and the Company will execute any necessary revisions incorporating such changes,
provided such changes are not inconsistent with and do not result in any
material change in the terms of this Agreement.
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1.4 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION
At the Effective Time, the Articles of Incorporation of Merger Sub shall be the
Articles of Incorporation of the Surviving Corporation; provided, however, that
Article I thereof shall be amended to read as follows: "The name of this
corporation is Ubarter.com Inc." Thereafter, the Articles of Incorporation of
the Surviving Corporation may be amended in accordance with their terms and as
provided by law.
1.5 BYLAWS OF THE SURVIVING CORPORATION
At the Effective Time, the Bylaws of Merger Sub as in effect immediately prior
to the Effective Time shall become the Bylaws of the Surviving Corporation.
Thereafter, the Bylaws may be amended or repealed in accordance with their terms
and the Articles of Incorporation of the Surviving Corporation and as provided
by law.
1.6 DIRECTORS AND OFFICERS
At the Effective Time, the directors and officers of the Company shall resign
and the directors of Merger Sub shall continue in office as the directors of the
Surviving Corporation and the officers of Merger Sub shall continue in office as
the officers of the Surviving Corporation, and such directors and officers shall
hold office in accordance with and subject to the Articles of Incorporation and
Bylaws of the Surviving Corporation.
1.7 CONVERSION OF SHARES
1.7.1 EXCHANGE RATIO
As of the Effective Time, by virtue of the Merger and without any action on
the part of the holders thereof:
(a) All shares of any class of capital stock of the Company held by the
Company as treasury shares shall be canceled.
(b) Each issued and outstanding share of common stock, par value $.001
per share, of the Company (the "COMPANY COMMON STOCK") that is issued and
outstanding immediately prior to the Effective Time shall be converted into
the right to receive from ShopNow.com a number of shares of ShopNow.com
common stock, par value $.001 per share (the "SHOPNOW.COM COMMON STOCK"),
determined by dividing (a) the ShopNow.com Base Shares (as defined below) by
(b) the Fully Diluted Common Stock Number (as defined below). The quotient
derived in Section 1.7.1(b) shall be rounded to three decimal points and
shall be referred to herein as the "EXCHANGE RATIO." The "SHOPNOW.COM BASE
SHARES" shall mean the total number of shares of ShopNow.com Common Stock to
be issued in the Merger, which shall be equal to the number of shares
determined by dividing (a) $44,900,000 by (b) $17.31 (the "BASE PRICE"). The
"FULLY DILUTED COMMON STOCK NUMBER" shall mean the total number of shares of
Company Common Stock outstanding immediately prior to the Effective Time on
a fully diluted basis, as set forth on SCHEDULE 2.3 to the Company
Disclosure Memorandum, which calculation assumes (x) the exercise on a cash
or cashless basis, as the case may be, of all outstanding rights, warrants
or options, vested or unvested, to acquire Company Common Stock, regardless
of restrictions on exercise or conversion and (y) the conversion of all
outstanding securities and notes convertible at any time into Company Common
Stock (such rights, warrants, notes, options and convertible securities
referenced in clauses (x) and (y) being referred to herein as "STOCK
PURCHASE RIGHTS"); provided, however, that the term "Fully Diluted Common
Stock Number" shall not include (i) the convertible note referenced in that
certain letter agreement dated December 9, 1999 between Momentous Inc.
Pension and Trust ("MOMENTOUS") and the Company (the "MOMENTOUS NOTE"),
(ii) that certain Convertible Promissory Note in favor of Alpine Capital LLC
("ALPINE CAPITAL") dated August 27, 1999 (the "ALPINE CAPITAL NOTE"),
(iii) that certain Convertible Promissory Note, dated December 22, 1999 (the
"SHOPNOW.COM NOTE"), and any (iv) options granted pursuant to that stock
option agreement dated Jul 26, 1999, between Astra Ventures LLC ("ASTRA
VENTURES") and the Company that are unexercised as of the Effective Time,
provided that such options terminate as of the Effective Time by their terms
or by later agreement of Astra Ventures. The shares of ShopNow.com Common
Stock so issued shall be referred to herein as the "CLOSING SHARES." The
number of shares of ShopNow.com Common Stock to be
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issued at the Closing to each stockholder under this Section 1.7.1(b) shall
be calculated by aggregating all shares of Company Common Stock held by each
such stockholder, so that such number of shares of ShopNow.com Common Stock
to be issued shall be equal to the number of shares of Company Common Stock
held by such stockholder multiplied by the Exchange Ratio, with fractional
shares rounded up to the nearest whole number pursuant to Section 1.7.3
hereof.
(c) The aggregate number of Closing Shares shall be subject to
adjustment as follows:
(i) In the event that any Company Liability (as defined below)
exists as of the date that is immediately prior to the Closing Date, the
aggregate number of Closing Shares shall be reduced by that number of
shares of ShopNow.com Common Stock determined by dividing the dollar
amount of the Company Liability by the Base Price. "COMPANY LIABILITY"
shall mean all liabilities, debts or obligations, contingent or
otherwise, existing as of the Closing Date immediately prior to the
Effective Time, the value of which shall not exceed the value of the
ShopNow.com Base Shares (as measured by multiplying the Base Price by the
number of ShopNow.com Base Shares), including without limitation, all
outstanding liability to (1) Astra Ventures, (2) employees of the Company
based on change of control provisions in such employees' respective
employment agreements, (3) Alpine Capital, (4) Bob Bagga, as an earn-out
under a Share Purchase Agreement among Bob Bagga, International Barter
Corp. and Barter Business Exchange Inc., dated February 28, 1999 and
promissory note dated Marc 2, 1999 (the "BBE PURCHASE AGREEMENT AND
NOTE"), (5) Momentous and (6) various lessors, lenders and vendors
created in connection with the execution of miscellaneous leases and
other agreements; provided, however, that Company Liability shall not
include, in each case existing at the Closing, (x) any outstanding
indebtedness and accrued interest payable to ShopNow.com pursuant to the
ShopNow.com Note, (y) any payables or accrued expenses incurred in the
ordinary course of business (provided such payables and accrued expenses
do not exceed in the aggregate $225,000) and (z) any non-cash or barter
trade dollar liabilities. Any outstanding liability referenced in
(1) through (6) above shall be deemed a Company Liability in the event
such liability is retired or paid off prior to the Effective Time. The
dollar amount of Company Liability shall be reduced by any amounts
received by the Company from option holders or warrant holders as a
result of the cash exercise of stock options or warrants between the date
hereof and the Effective Date. The Company shall cause to be prepared and
delivered to ShopNow.com, on the date that is two days immediately prior
to the Closing Date, a schedule, certified by the Company's Chief
Financial Officer and in form and substance satisfactory to ShopNow.com,
as to the dollar amount of the Company Liability, which schedule shall
include a break down of the dollar amounts of each liability, debt and
obligation comprising the Company Liability.
(ii) In the event ShopNow.com reasonably determines between the date
hereof and March 1, 2000 as a result of its financial due diligence
investigation and tax assessment of the Company that the Company and its
subsidiaries, taken as a whole, have liabilities or obligations (whether
absolute, accrued or contingent) that are not (a) accrued or reserved
against in the Company Balance Sheet (as defined in Section 2.6) or
reflected in the notes thereto, (b) disclosed in the financial statements
of the Company filed as a part of the Company SEC Documents (as defined
in Section 2.6) or (c) disclosed in the Company Disclosure Memorandum (as
defined in the preamble to Article II) (an "UNDISCLOSED LIABILITY"), then
the aggregate number of Closing Shares shall be reduced by that number of
shares of ShopNow.com Common Stock determined by dividing the aggregate
dollar amount of such Undisclosed Liabilities (up to $1,000,000) by the
Base Price. In the event that ShopNow.com's accountants and the Company's
accountants disagree as to whether a liability or obligation is an
Undisclosed Liability (a "DISPUTED LIABILITY"), then ShopNow.com and the
Company shall cause such accountants to promptly choose an independent
financial expert mutually agreeable to the Company's accountants and
ShopNow.com's accountants, and such independent financial expert shall
determine whether the Disputed Liability is an Undisclosed Liability. The
fees of such independent financial expert shall be paid by ShopNow.com,
provided, however, that if such independent financial expert determines
that the Disputed Liability is an Undisclosed Liability, the amount of
such fees shall reduce the number of Closing Shares by treating such
amount as if it were an Undisclosed Liability. Undisclosed payables and
expenses incurred in the ordinary
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<PAGE>
course of business shall not be deemed Undisclosed Liabilities, provided
that such payables and expenses do not exceed $225,000.
(d) Holders of shares of Company Common Stock who have complied with all
the requirements for perfecting dissenters' rights, as required under Nevada
Law, shall be entitled to their rights under Nevada Law with respect to such
shares (the "DISSENTING SHARES"). Notwithstanding the foregoing, if any
holder of Dissenting Shares shall effectively withdraw or lose (through
failure to perfect or otherwise) the right to dissent, then, as of the later
of the Effective Time and the occurrence of such event, such holder's shares
shall automatically be converted into and represent the right to receive the
shares of ShopNow.com Common Stock to which such holder is then entitled
under this Agreement and Nevada Law, without interest thereon and upon
surrender of the certificate representing such shares. Notwithstanding any
provision of this Agreement to the contrary, any Dissenting Shares held by a
Shareholder who has perfected dissenters' rights for such shares in
accordance with Nevada Law shall not be converted into ShopNow Common Stock
pursuant to this Section 1.7.1.
1.7.2 EXCHANGE OF CERTIFICATES
(a) As soon as practicable after the Effective Time, ShopNow.com shall
cause Continental Stock Transfer & Trust (the "EXCHANGE AGENT") to mail to
each holder of record of Company Common Stock as of the Effective Time
(i) a letter of transmittal (which shall be in customary form and specify
that delivery shall be effected, and risk of loss and title to the
certificates of Company Common Stock shall pass, only upon delivery of such
certificates to the Exchange Agent) and (ii) instructions for use in
effecting the surrender of such certificates in exchange for certificates
representing ShopNow.com Common Stock. Upon surrender of a certificate of
Company Common Stock for cancellation to the Exchange Agent, together with a
duly executed letter of transmittal and such other documents as the Exchange
Agent shall require, the holder of such certificate shall be entitled to
receive in exchange therefor the number of whole shares of ShopNow.com
Common Stock to which the holder of Company Common Stock is entitled
pursuant to Section 1.7.1 hereof. The certificate so surrendered shall
forthwith be canceled. Notwithstanding any other provision of this
Agreement, until holders of certificates of Company Common Stock have
surrendered them for exchange as provided herein, (i) no dividends or other
distributions shall be paid with respect to any shares represented by such
certificates, and (ii) without regard to when such certificates are
surrendered for exchange as provided herein, no interest shall be paid on
any dividends or other distributions. Upon surrender of a certificate of
Company Common Stock, there shall be paid to the holder of such certificate
the amount of any dividends or other distributions which theretofore became
payable, but which were not paid by reason of the foregoing, with respect to
the number of whole shares of ShopNow.com Common Stock represented by the
certificate or certificates issued upon such surrender. If any certificate
for ShopNow.com Common Stock is to be issued in a name other than in which
the certificate of Company Common Stock surrendered in exchange therefore is
registered, it shall be a condition of such exchange that the person
requesting such exchange pay any transfer or other taxes required by reason
of the issuance of certificates for such shares of ShopNow.com Common Stock
in a name other than that of the registered holder of the certificate
surrendered, or establish to the satisfaction of the Surviving Corporation
that such tax has been paid or is not applicable. In connection with its
undertakings pursuant to this Section 1.7.2, the Exchange Agent shall be
entitled to withhold any income taxes as required by the Code.
(b) The shares of ShopNow.com Common Stock that each stockholder shall
be entitled to receive pursuant to the Merger shall be deemed to have been
issued at the Effective Time, and no interest shall accrue on any of the
Closing Shares.
1.7.3 NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of ShopNow.com
Common Stock shall be issued by virtue of the Merger. The aggregate number
of shares of ShopNow.com Common Stock a stockholder is entitled to receive
pursuant to Section 1.7.1(b) shall be rounded to the nearest whole number of
shares, with .5 being rounded up.
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1.7.4 NO FURTHER TRANSFERS
After the Effective Time, there shall be no transfers of any shares of
Company Common Stock on the stock transfer books of the Surviving
Corporation. Any ShopNow.com Common Stock made available to the Exchange
Agent and not exchanged for certificates of Company Common Stock within one
year after the Effective Time and any dividends and distributions held by
the Exchange Agent for payment or delivery to the holders of unsurrendered
certificates representing Company Common Stock and unclaimed at the end of
such one year period shall be redelivered or repaid by the Exchange Agent to
ShopNow.com, after which time any holder of certificates of Company Common
Stock who has not theretofore delivered or surrendered such certificates to
the Exchange Agent, subject to applicable law, shall look as a general
creditor only to ShopNow.com for payment of the ShopNow.com Common Stock and
any such dividends or distributions. Notwithstanding any provision of this
Agreement, none of ShopNow.com, the Exchange Agent, the Surviving
Corporation or any other party hereto shall be liable to any holder of
Company Common Stock for any ShopNow.com Common Stock or dividends or
distributions delivered to a public official pursuant to applicable
abandoned property, escheat or similar law.
1.8 AMENDMENT TO PROVIDE FOR ALTERNATIVE MERGER STRUCTURES
If at any time prior to the Closing Date, ShopNow.com elects to have the Company
be the Surviving Corporation or elects to have the Company merge directly into
ShopNow.com or to have a different subsidiary of ShopNow.com merge with the
Company in a forward or reverse triangular merger, the parties shall promptly
enter into an amendment to this Agreement to so provide, so long as such action
does not result in a breach of a representation or warranty set forth in
Article II, or the inability to satisfy any of the conditions set forth in
Articles IV and V hereof.
1.9 OPTION GRANTS
No later than thirty days after the Effective Time, ShopNow.com will act to
grant nonqualified stock options (the "NEW OPTIONS") under its Amended and
Restated 1999 Non-Officer Stock Option Plan, or such other plan having
substantially similar terms as ShopNow.com shall determine in its sole
discretion, to acquire an aggregate of 600,000 shares of ShopNow.com Common
Stock in the numbers specified and to the members of the management of the
Company immediately prior to the Effective Time (the "MANAGEMENT MEMBERS") and
to employees of the Company immediately prior to the Effective Time (the
"RETAINED EMPLOYEES"), who have been offered and accepted employment with
ShopNow.com or the Surviving Corporation and commence employment with
ShopNow.com or the Surviving Corporation after the Effective Time (with the
allocation of such grants among such Management Members and Retained Employees
to be mutually acceptable to ShopNow.com and Liad Meidar and Steven White,
except that 250,000 of such New Options shall be allocated to Liad Meidar). Such
New Options shall have an exercise price of $15.58 per share. One-third of the
New Options shall be vested upon the one-year anniversary of the Closing Date,
and the remaining balance of the New Options shall vest on a quarterly basis
over a period of two years following the one-year anniversary of the Closing
Date.
ARTICLE II -- REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
Except as is otherwise set forth with appropriate Section references in the
Company Disclosure Memorandum attached as EXHIBIT 2 (the "COMPANY DISCLOSURE
MEMORANDUM"), each of which exceptions shall specifically identify or
cross-reference the provision of this Article II to which such exception
relates, and in order to induce ShopNow.com and Merger Sub to enter into and
perform this Agreement and the other agreements and documents attached hereto as
exhibits that are required to be completed and/or executed pursuant to this
Agreement (collectively, the "OPERATIVE DOCUMENTS"), the Company represents and
warrants to ShopNow.com and Merger Sub as of the date of this Agreement and as
of the Closing Date as follows in this Article II. For the purposes of Sections
2.7 through 2.29 of this Article II, the term "Company" shall refer to the
Company and all of its subsidiaries.
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2.1 ORGANIZATION
The Company is a corporation duly organized and validly existing under the laws
of the state of Nevada. The Company's subsidiaries are duly organized and
validly existing under the laws of the jurisdictions in which they are
organized. The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and the
Operative Documents delivered by the Company or to which the Company is a party,
and to consummate, subject to the approval of the Merger by the stockholders of
the Company, the transactions contemplated hereby and thereby. The Company and
its subsidiaries are duly qualified and licensed as a foreign corporations to do
business and are in good standing in each jurisdiction in which the character of
the properties occupied, owned or held under lease or the nature of the business
conducted by the Company and its subsidiaries makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not have a material adverse effect on the financial condition, property,
business or results of operations of the Company and its subsidiaries, taken as
a whole.
2.2 ENFORCEABILITY
All corporate action on the part of the Company and its directors and
stockholders necessary for the authorization, execution, delivery and
performance of this Agreement and the Operative Documents delivered by the
Company or to which the Company is a party, the consummation of the Merger, and
the performance of all the Company's obligations under this Agreement and the
Operative Documents delivered by the Company or to which the Company is a party,
has been taken, subject to the approval of the Merger by the stockholders of the
Company. This Agreement and each of the Operative Documents to which the Company
is a party, has been duly executed and delivered by the Company and this
Agreement is, and each of the Operative Documents delivered by the Company or to
which the Company is a party is, a legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms.
2.3 CAPITALIZATION
(a) The authorized capital stock of the Company consists of 25,000,000
shares of Company Common Stock, par value $.001 per share and 10,000,000 shares
of Preferred Stock, none of which shares of Preferred Stock are issued and
outstanding.
(b) The issued and outstanding capital stock of the Company consists solely
of 6,077,253 shares of Company Common Stock (collectively, the "OUTSTANDING
SHARES"). The Outstanding Shares are, and immediately prior to the Closing will
be, duly authorized and validly issued, fully paid and nonassessable, and issued
in compliance with all applicable federal and state securities laws. True and
correct copies of the stock records of the Company showing all issuances of
capital stock of the Company since inception have been delivered to ShopNow.com
or its counsel.
(c) As of the date of this Agreement and as of the Closing Date, and except
as contemplated by this Agreement, there are no outstanding rights of first
refusal or offer, preemptive rights, Stock Purchase Rights or other agreements,
either directly or indirectly, for the purchase or acquisition from the Company
or any stockholder of any shares of Company Common Stock or any securities
convertible into or exchangeable for shares of Company Common Stock other than
(i) options to purchase up to (A) 679,000 shares of Company Common Stock that
have been granted under the Company's 1998 Stock Option Plan (the "COMPANY
OPTION PLAN"), (B) 630,000 shares of Company Common Stock that have been granted
pursuant to a stock option agreement dated July 26, 1999, between Astra Ventures
and the Company, (C) 40,000 shares of Company Common Stock that have been
granted pursuant to a stock option agreement between Kevin Andersen and the
Company, (ii) 1,333,333 shares of Company Common Stock issuable upon conversion
of that certain Convertible Promissory Note dated August 27, 1999 in favor of
Alpine Capital LLC (the "ALPINE CAPITAL NOTE"), (iii) 183,333 shares of Company
Common Stock issuable upon exercise of that certain warrant dated Augus 27, 1999
issued to Alpine Capital LLC (the "ALPINE CAPITAL WARRANT"), (iv) 706,000 shares
of Company Common Stock issuable upon exercise of outstanding E Warrants and
(v) shares of Company Common Stock issuable upon conversion of the Momentous
Note. Set forth on SCHEDULE 2.3 to the Company Disclosure Memorandum is a
spreadsheet accurately reflecting the number of options and other Stock
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Purchase Rights outstanding, the grant or issue dates, vesting schedules and
exercise or conversion prices thereof and, in each case, the identities of the
holders and an indication of their relationships to the Company (if any exist
other than a security holder). The Company has delivered to ShopNow.com or its
counsel true and correct copies of the Company Option Plan, all stock option
agreements, board resolutions and exercise documentation relating to options
granted thereunder and granted to Astra Ventures and Kevin Anderson and all
agreements with respect to Stock Purchase Rights. SCHEDULE 2.3 to the Company
Disclosure Memorandum also identifies all options, warrants or other Stock
Purchase Rights that have been offered in connection with any employee or
consulting agreement but that, as of the date hereof, have not been issued or
granted.
(d) Except as contemplated by this Agreement, the Company is not a party or
subject to any agreement or understanding and there is no agreement or
understanding between any Persons (as defined in Section 2.5) that affects or
relates to the voting or giving of written consents with respect to any
securities of the Company or the voting by any director of the Company. No
stockholder or any affiliate thereof is indebted to the Company, and the Company
is not indebted to any stockholder or any affiliate thereof. The Company is not
under any contractual or other obligation to register any of its presently
outstanding securities or any of its securities that may hereafter be issued.
(e) All rights of refusal, co-sale rights and registration rights granted by
the Company with respect to the Company Common Stock or Stock Purchase Rights of
the Company are described on SCHEDULE 2.3 to the Company Disclosure Memorandum.
(f) All options, Stock Purchase Rights and shares of Company Common Stock
have been granted or issued at fair market value, as determined by the Company's
Board of Directors at the date of grant or issuance.
2.4 SUBSIDIARIES AND AFFILIATES
The Company does not own, directly or indirectly, any ownership, equity, or
voting interest in, any corporation, partnership, joint venture or other entity,
and has no agreement or commitment to purchase any such interest.
2.5 NO APPROVALS; NO CONFLICTS
The execution, delivery and performance of this Agreement and the Operative
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby will not
(a) constitute a violation (with or without the giving of notice or
lapse of time, or both) of any provision of law or any judgment, decree,
order, regulation or rule of any court or other governmental authority
applicable to the Company;
(b) require any consent, approval or authorization of, or declaration,
filing or registration with, any person, corporation, partnership, joint
venture, association, organization, other entity or governmental or
regulatory authority (a "PERSON"), except for (i) approval by the
stockholders of the Company, (ii) the filing of all documents necessary to
consummate the Merger with the Washington Secretary and the Nevada
Secretary, (iii) the filing of a premerger notification report and all other
required documents by ShopNow.com and the Company, and the expiration of all
applicable waiting periods, under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), and (iv) any filings
with the Securities and Exchange Commission (the "SEC") including such
reports and information as may be required under the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), the Securities Act and the
rules and regulations promulgated by the SEC under the Exchange Act or the
Securities Act and the declaration of the effectiveness of the S-4 (as
defined in Section 2.27) by the SEC;
(c) result in a default under (with or without the giving of notice or
lapse of time, or both), or acceleration or termination of, or the creation
in any party of the right to accelerate, terminate, modify or cancel, any
agreement, lease, note or other restriction, encumbrance, obligation or
liability to which the Company is a party or by which it is bound or to
which its assets are subject;
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(d) result in the creation of any liens, mortgages, pledges, deeds of
trust, security interests, charges, encumbrances or other adverse claims of
interest of any kind (each, an "ENCUMBRANCE") upon any assets of the Company
or the Outstanding Shares;
(e) conflict with or result in a breach of or constitute a default under
any provision of the Company's Articles of Incorporation or Bylaws, or
(f) invalidate or adversely affect any permit, license or authorization
or status used in the conduct of the Company's business.
2.6 SEC DOCUMENTS; FINANCIAL STATEMENTS
(a) The Company has filed all forms, reports and documents required to be
filed by it with the SEC since June 8, 1998 (the date the Company first became a
reporting Company under the Exchange Act) through the date of this Agreement
(collectively, the "COMPANY SEC DOCUMENTS"). As of their respective filing
dates, the Company SEC Documents complied in all material respects with the
requirements of the Exchange Act or the Securities Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such Company SEC
Documents, and none of the Company SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
filing dates, the financial statements of the Company included in the Company
SEC Documents (the "COMPANY FINANCIAL STATEMENTS") complied as to form in all
material respects with all applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto and were
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied (except as may be indicated in the notes thereto) and
fairly presented, in all material respects, the consolidated financial position
of the Company and its subsidiaries as at the dates thereof and the results of
their operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal, recurring audit adjustments not material in
scope or amount). There has been no change in the Company's accounting policies
or the methods of making accounting estimates or changes in estimates that are
material to the Company Financial Statements, except as described in the notes
thereto. The balance sheet of the Company as of September 30, 1999 is herein
referred to as the "COMPANY BALANCE SHEET".
(b) The Company has delivered to ShopNow.com copies of the Company's
unaudited consolidated balance sheet as of September 30, 1999, and income
statement and statement of cash flows for the period ended September 30, 1999.
Such financial statements: (i) are in accordance with the books and records of
the Company; (ii) fairly present in all material respects the Company's
financial condition at the date therein indicated and the results of operations
for the period therein indicated and the results of operations for the period
therein specified; and (iii) have been prepared in accordance with GAAP applied
on a consistent basis (except for the absence of any footnotes required by
GAAP).
(c) The Company has heretofore furnished to ShopNow.com a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by the Company with the SEC
pursuant to the Securities Act or the Exchange Act.
(d) The Company and its subsidiaries, taken as a whole, have no liabilities
or obligations (whether absolute, accrued or contingent) except (i) liabilities,
obligations or contingencies that are accrued or reserved against in the Company
Balance Sheet or reflected in the notes thereto or disclosed in the financial
statements of the Company filed as a part of the Company SEC Documents,
(ii) liabilities, obligations or contingencies that would not have a material
adverse effect on the business, operations, prospects or financial condition of
the Company, or (iii) additional liabilities, obligations or contingencies
reserved against since the date of the Company Balance Sheet that (x) have
arisen in the ordinary course of business and (y) are accrued or reserved
against on the books and records of the Company and its subsidiaries.
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(e) Except as disclosed in the Company SEC Documents as filed and amended
before the date hereof and as contemplated by this Agreement, since
September 30, 1999, no material adverse change in the business, financial
condition, results of operations or prospects of Company has occurred.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except for transactions specifically contemplated in this Agreement, since the
date of the Company Balance Sheet, neither the Company nor any of its officers
or directors in their representative capacities on behalf of the Company have:
(a) taken any action or entered into or agreed to enter into any
transaction, agreement or commitment other than in the ordinary course of
business;
(b) forgiven or canceled any indebtedness or waived any claims or rights
of material value (including, without limitation, any indebtedness owing by
any stockholder, officer, director, employee or affiliate of the Company);
(c) granted any increase in the compensation of directors, officers,
employees or consultants;
(d) suffered any change having a material adverse effect on the
Company's business operations, assets, liabilities (absolute, accrued,
contingent or otherwise), condition (financial or otherwise) or prospects;
(e) borrowed or agreed to borrow any funds, incurred or become subject
to, whether directly or by way of assumption or guarantee or otherwise, any
obligations or liabilities (absolute, accrued, contingent or otherwise) in
excess of $10,000 individually or in excess of $20,000 in the aggregate,
except liabilities and obligations that are incurred in the ordinary course
of business and consistent with past practice, or increased, or experienced
any change in any assumptions underlying or methods of calculating, any bad
debt, contingency or other reserves;
(f) paid, discharged or satisfied any material claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of claims, liabilities and obligations
reflected or reserved against in the Company Balance Sheet or incurred in
the ordinary course of business and consistent with past practice since the
date of the Company Balance Sheet, or prepaid any obligation having a fixed
maturity of more than 90 days from the date such obligation was issued or
incurred;
(g) knowingly permitted or allowed any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any
Encumbrance;
(h) purchased or sold, transferred or otherwise disposed of any of its
material properties or assets (real, personal or mixed, tangible or
intangible);
(i) disposed of or permitted to lapse any rights to the use of any
trademark, trade name, patent or copyright, or disposed of or disclosed to
any Person without obtaining an appropriate confidentiality agreement from
any such Person any trade secret, formula, process or know-how not
theretofore a matter of public knowledge;
(j) made any single capital expenditure or commitment in excess of
$10,000 for additions to property, plant, equipment or intangible capital
assets or otherwise or made aggregate capital expenditures in excess of
$20,000 for additions to property, plant, equipment or intangible capital
assets or otherwise;
(k) made any change in accounting methods or practices or internal
control procedure;
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(l) issued any capital stock or other securities, or declared, paid or
set aside for payment any dividend or other distribution in respect of its
capital stock, or redeemed, purchased or otherwise acquired, directly or
indirectly, any shares of capital stock or other securities of the Company,
or otherwise permitted the withdrawal by any of the holders of Company
Common Stock of any cash or other assets (real, personal or mixed, tangible
or intangible), in compensation, indebtedness or otherwise, other than
payments of compensation in the ordinary course of business and consistent
with past practice;
(m) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed, tangible or
intangible) to any of the stockholders or any of the Company's officers,
directors or employees or any affiliate of any of the stockholders of the
Company or of the Company's officers, directors or employees, except
compensation paid to officers and employees at rates not exceeding the rates
of compensation paid during the fiscal year last ended and except for
advances for travel and other business-related expenses; or
(n) agreed, whether in writing or otherwise, to take any action
described in this Section 2.7.
2.8 TAXES
(a) (i) All Tax Returns (as defined below) required to be filed by or on
behalf of the Company have been timely filed and all such Tax Returns were (at
the time they were filed) and are true, correct and complete in all respects;
(ii) all Taxes (as defined below) of the Company (whether or not reflected on
any Tax Return) have been fully and timely paid; (iii) no waivers of statutes of
limitation have been given or requested with respect to the Company in
connection with any Tax Returns covering the Company with respect to any Taxes
payable by it; (iv) no taxing authority in a jurisdiction where the Company does
not file Tax Returns has made a claim, assertion or threat to the Company that
the Company is or may be subject to taxation by such jurisdiction, and the
Company has never been subject to state taxes (other than payroll taxes that
were fully and timely withheld and paid) in any state other than Washington;
(v) the Company has duly and timely withheld from employee salaries, wages and
other compensation and paid over to the appropriate governmental authority all
amounts required to be so withheld and paid over for all periods under all
applicable laws; (vi) there are no liens with respect to Taxes on any of the
Company's property or assets other than liens for current Taxes not yet payable;
(vii) there are no Tax rulings, requests for rulings, or closing agreements
relating to the Company that could affect the liability for Taxes or the amount
of taxable income of the Company for any period (or portion of a period) after
the date hereof; and (viii) any adjustment of Taxes of the Company made by the
IRS (as defined below) in any examination that is required to be reported to the
appropriate state, local or foreign taxing authorities has been reported, and
any additional Taxes due with respect thereto have been paid.
(b) Neither the Company nor any other Person on behalf of the Company
(i) has filed a consent pursuant to 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 such term is defined in Section 341(f)(4) of the Code) owned by the Company;
(ii) has executed or entered into a closing agreement pursuant to Section 7121
of the Code or any predecessor provision thereof or any similar provision of
state, local or foreign law; or (iii) has agreed to or is required to make any
adjustments pursuant to Section 481(a) of the Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by the Company or has notice that a governmental authority has proposed any such
adjustment or change in accounting method.
(c) There is no outstanding dispute or claim concerning any Tax liability of
the Company, nor to the knowledge of the Company is any such claim or dispute
pending. SCHEDULE 2.8 to the Company Disclosure Memorandum lists all Tax Returns
filed with respect to the Company for taxable periods ended on or after the
Company's inception or the inception of any predecessor that have been audited,
and indicates those Tax Returns that currently are the subject of audit. The
Company has delivered to ShopNow.com correct and complete copies of all Tax
Returns, examination reports and statements of deficiencies assessed against or
agreed to by the Company since the Company's inception.
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(d) The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(e) The Company is not a party to any Tax allocation or sharing agreement.
The Company (i) has not been a member of a Tax Group (as defined below) filing a
consolidated income Tax Return under Section 1501 of the Code (or any similar
provision of state, local or foreign law) and (ii) does not have any liability
for Taxes of any Person under Treasury Regulations Section 1.1502-6 (or any
similar provision of state, local or foreign law) or by operation of law or as a
transferee or successor by contract or otherwise.
(f) The unpaid Taxes of the Company (i) did not, as of December 31, 1999,
exceed the reserve for Tax liability set forth on the face (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) of the Company Balance Sheet and (ii) do not exceed that
reserve as adjusted for the passage of time and operations in the ordinary
course of business through the Closing Date.
(g) The aggregate net income tax losses (including net operating losses) of
the Company have exceeded its taxable income for all periods and there has been
no ownership change, as defined in Section 382(g) of the Code (or any comparable
provision of state or local or foreign law), with respect to the Company during
or after any taxable period in which the Company incurred a net operating loss.
The Company has no liability for unpaid income taxes. (including any liability
for penalties or interest with respect to such taxes). The Company has never
owed income taxes for any tax year (including the portion of the tax year ending
on the date hereof).
(h) All options that the Company has treated as incentive stock options
under Section 421 of the Code meet the requirements of Section 422 of the Code.
As used in this Agreement, the following terms shall have the following
meanings:
"TAXES" means all foreign, federal, state, county or local taxes, charges,
fees, levies, imposts, duties and other assessments, including, but not
limited to, any income, alternative minimum or add-on, estimated, gross
income, gross receipts, sales, use, transfer, transactions, intangibles, ad
valorem, value-added, franchise, registration, title, license, capital,
paid-up capital, profits, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, real property, recording, personal
property, federal highway use, commercial rent, environmental (including,
but not limited to, taxes under Section 59A of the Code) or windfall profit
tax, custom, duty or other tax, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest, penalties or
additions to tax; and "TAX" means any of the foregoing Taxes.
"TAX GROUP" means any federal, state, local or foreign consolidated,
affiliated, combined, unitary or other similar group of which the Company is
now or was formerly a member.
"TAX RETURNS" means any return, declaration, report, claim or refund,
information return, statement or other similar document relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
2.9 PROPERTY
(a) The Company owns no real property other than the leasehold interests
described on SCHEDULE 2.9(A) to the Company Disclosure Memorandum (the "REAL
PROPERTY"). The Company has delivered to ShopNow.com or its counsel true and
complete copies of all written leases, subleases, rental agreements, contracts
of sale, tenancies or licenses relating to the Real Property and written
summaries of the terms of any oral leases, subleases, rental agreements,
contracts of sale, tenancies or licenses to which the Real Property is subject.
(b) SCHEDULE 2.9(B) to the Company Disclosure Memorandum contains a complete
and accurate list of each item of personal property having a value in excess of
$10,000 that is owned, leased, rented or used by the Company (the "PERSONAL
PROPERTY"); provided that such list need not describe the Technology or the IP
Rights (as defined in Sections 2.14.2 and 2.14.5, respectively), listed on
SCHEDULE 2.14 to the Company Disclosure Memorandum. The Company has delivered to
ShopNow.com true and complete copies of all leases, subleases, rental
agreements, contracts of sale, tenancies or licenses to which the Personal
Property is subject. The gross value of the Company's
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assets (including the assets of Cascade Trade Association) at the time of the
Company's reincorporation as a Nevada corporation did not exceed $500,000.
(c) The Real Property and the Personal Property include all the properties
and assets (whether real, personal or mixed, tangible or intangible) (other
than, in the case of the Personal Property, property rights with an individual
value of less than $10,000 and the Technology and IP Rights) reflected in the
Company Balance Sheet. The Real Property and the Personal Property include all
material property used in the business of the Company, other than the Technology
and IP Rights. The Company's offices and other structures and its Personal
Property are in good operating condition and repair, normal wear and tear
excepted, are adequate for the uses to which they are being put, and, to the
Company's knowledge, comply in all material respects with applicable safety and
other laws and regulations.
(d) The Company's leasehold interest in each parcel of the Real Property is
free and clear of all Encumbrances. To the Company's knowledge, each lease of
any portion of the Real Property is valid, binding and enforceable in accordance
with its terms against the parties thereto and against any other Person with an
interest in such Real Property, the Company has performed in all material
respects all obligations imposed on it thereunder, and neither the Company nor,
to the knowledge of the Company, any other party thereto is in default
thereunder, nor is there any event that with notice or lapse of time, or both,
would constitute a default thereunder by the Company or, to the knowledge of the
Company, by any other party. The Company has not granted any lease, sublease,
tenancy or license of, or entered into any rental agreement or contract of sale
with respect to, any portion of the Real Property.
(e) The Personal Property is free and clear of all Encumbrances, and, other
than leased Personal Property that is so noted on the list supplied pursuant to
Section 2.9(b), the Company owns such Personal Property. To the Company's
knowledge, each lease, license, rental agreement, contract of sale or other
agreement to which the Personal Property is subject is valid, binding and
enforceable in accordance with its terms against the parties thereto, the
Company has performed in all material respects all obligations imposed on it
thereunder, and neither the Company nor, to the knowledge of the Company, any
other party thereto is in default thereunder, nor is there any event that with
notice or lapse of time, or both, would constitute a default by the Company or,
to the knowledge of the Company, any other party thereunder. The Company has not
granted any lease, sublease, tenancy or license of any portion of the Personal
Property, except in the ordinary course of business.
2.10 CONTRACTS
2.10.1 MATERIAL CONTRACTS
As of the date of this Agreement, all of the Company's "material contracts"
as such term is defined under Item 601 of Regulation S-K, have been filed
under the Exchange Act. Except to the extent that such agreements have
expired by their own terms, each agreement disclosed by the Company under
the Exchange Act is in full force and effect, except where the failure to be
in full force and effect would not have a material adverse affect on the
business condition of the Company. None of the parties to any of such
agreements have terminated, except when such agreements have expired under
their own terms. The Company has provided to ShopNow.com lease documents for
any real or personal property in which the amount of payments that the
Company is required to make on an annual basis exceeds $20,000 and that have
not been filed as an exhibit to any Company SEC Documents. Except as set
forth on SCHEDULE 2.10.1 to the Company Disclosure Memorandum and the
Company SEC Documents, the Company has no
(a) contracts with directors, officers, stockholders, employees, agents,
consultants, advisors, salespeople, sales representatives, distributors or
dealers that cannot be canceled by the Company within 30 days' notice
without liability, penalty or premium, any agreement or arrangement
providing for the payment of any bonus or commission based on sales or
earnings, or any compensation agreement or arrangement affecting or relating
to former employees of the Company;
(b) employment agreement, whether express or implied, or any other
agreement for services that contains severance or termination pay
liabilities or obligations;
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(c) noncompetition agreement or other arrangement that would prevent the
Company from carrying on its business anywhere in the world;
(d) notice that any party to any material contract intends to cancel,
terminate or refuse to renew such contract (if such contract is renewable)
or materially modify such contract;
(e) material dispute with any of its suppliers, material customers,
distributors, OEM resellers, licensors or licensees;
(f) product distribution agreement, development agreement or license
agreement as licensor or licensee (except for standard nonexclusive software
licenses granted to end-user customers in the ordinary course of business,
the form of which has been provided to ShopNow.com, or standard licenses
purchased by the Company for off-the-shelf software);
(g) joint venture contract or arrangement or any other agreement that
involves a sharing of profits with other persons;
(h) instrument evidencing indebtedness for borrowed money by way of a
direct loan, sale of debt securities, purchase money obligation, conditional
sale or guarantee, or otherwise, except for trade indebtedness incurred in
the ordinary course of business, and except as disclosed in the Company
Financial Statements; and
(i) agreements or commitments to provide indemnification, except as
provided in the Company's Articles of Incorporation, Bylaws and under Nevada
Law.
2.10.2 REQUIRED CONSENTS
The execution and delivery of this Agreement and the performance of the
obligations of the Company hereunder will not constitute a default under any
material contracts or agreements to which the Company is currently a party
or by which the Company currently is bound and do not require the consent or
waiver of any other party to any such contract or agreement, except for
those consents and/or waivers listed on SCHEDULE 2.10.2 to the Company
Disclosure Memorandum, all of which will be obtained on or prior to the
Closing.
2.11 CLAIMS AND LEGAL PROCEEDINGS
Except as set forth on SCHEDULE 2.11 and SCHEDULE 2.14 to the Company Disclosure
Memorandum, there are no claims, actions, suits, arbitrations, mediations,
investigations or proceedings pending or, to the knowledge of the Company,
threatened against the Company before or by any court or governmental or
nongovernmental department, commission, board, bureau, agency or
instrumentality, or any other Person. To the knowledge of the Company, except as
set forth on SCHEDULE 2.11 and SCHEDULE 2.14 to the Company Disclosure
Memorandum, there is no valid basis for any claim, action, suit, arbitration,
proceeding or investigation before or by any Person. There are no outstanding or
unsatisfied judgments, orders, decrees or stipulations to which the Company is a
party. SCHEDULE 2.11 to the Company Disclosure Memorandum sets forth a
description of any material disputes that have been settled or resolved by
litigation or arbitration since the Company's inception.
2.12 LABOR AND EMPLOYMENT MATTERS
There are no material labor disputes, employee grievances or disciplinary
actions pending or, to the knowledge of the Company, threatened against or
involving the Company or any of its present or former employees. The Company has
complied in all material respects with all provisions of law relating to
employment and employment practices, terms and conditions of employment, wages
and hours. The Company is not engaged in any unfair labor practice and has no
liability for any arrears of wages or Taxes or penalties for failure to comply
with any such provisions of law.
There is no labor strike, dispute, slowdown or stoppage pending or, to the
knowledge of the Company, threatened against or affecting the Company, and the
Company has not experienced any work stoppage or other labor difficulty since
its incorporation. No collective bargaining agreement is binding on the Company.
The Company has no knowledge of any organizational efforts presently being made
or threatened by or on behalf of any labor union with
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respect to employees of the Company. Each employee, officer and consultant of
the Company has executed a nondisclosure agreement in the form provided to
ShopNow.com. To the knowledge of the Company, no employee (or person performing
similar functions) of the Company is in violation of any such agreement or any
employment agreement, noncompetition agreement, patent disclosure agreement,
invention assignment agreement, proprietary information agreement or other
contract or agreement relating to the relationship of such employee with the
Company or any other party.
SCHEDULE 2.12 to the Company Disclosure Memorandum lists (a) the names and
current compensation amounts of all directors and officers of the Company;
(b) the wage rates for non-salaried and non-officer salaried employees of the
Company by classification, and all union contracts (if any); (c) all group
insurance programs in effect for employees of the Company; and (d) the names and
current compensation packages of all independent contractors and consultants of
the Company. The Company is not in default with respect to any of its
obligations referred to in clause (b) above and has no, and will not incur any,
obligation or liability for severance or back pay owed through or by virtue of
the Merger. Except as disclosed on SCHEDULE 2.12 to the Company Disclosure
Memorandum, all employees of the Company are employed on an "at will" basis, and
are eligible to work and are lawfully employed in the United States.
2.13 EMPLOYEE BENEFIT PLANS
2.13.1 EMPLOYEE BENEFIT PLAN LISTING
SCHEDULE 2.13.1 to the Company Disclosure Memorandum contains a complete and
accurate list of all Employee Benefit Plans (as defined below). The Company
does not have any agreement, arrangement, commitment or obligation to
create, enter into or contribute to any additional Employee Benefit Plan or
to modify any existing Employee Benefit Plan. There has been no amendment,
interpretation or other announcement or communication (written or oral) by
the Company (or any other Person) relating to, or change in participation or
coverage under, any Employee Benefit Plan that, either alone or together
with other such occurrences or events, could materially increase the expense
of maintaining the Employee Benefit Plans above the level of expense
incurred with respect thereto for the most recent fiscal year included in
the Company Financial Statements. The terms of each Employee Benefit Plan
permit the Company to amend or terminate such Employee Benefit Plan at any
time and for any reason without penalty or material expense.
2.13.2 DOCUMENTS PROVIDED
The Company has delivered to ShopNow.com true, correct and complete copies
(or, in the case of unwritten Employee Benefit Plans, descriptions) of all
Employee Benefit Plans (and all amendments thereto), along with, to the
extent applicable to the particular Employee Benefit Plan, copies of the
following: (a) the last three annual reports (Form 5500 series) filed with
respect to such Employee Benefit Plan; (b) all summary plan descriptions,
summaries of material modifications and material employee manuals and
communications filed or distributed with respect to such Employee Benefit
Plan during the last three years; (c) all contracts and agreements (and any
amendments thereto) relating to such Employee Benefit Plan, including,
without limitation, all trust agreements, investment management agreements,
annuity contracts, insurance contracts, bonds, indemnification agreements
and service provider agreements; (d) all written communications relating to
the amendment, creation or termination of such Employee Benefit Plan, or an
increase or decrease in benefits, acceleration of payments or vesting or
other events that could result in liability to the Company sent or received
during the last three years; (e) all correspondence to or from any
governmental entity or agency relating to such Employee Benefit Plan sent or
received during the last three years; (f) all COBRA (as defined below) and
HIPAA (as defined below) forms and notices currently in use; and (g) all
coverage and nondiscrimination tests performed with respect to such Employee
Benefit Plan for the last three years.
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2.13.3 COMPLIANCE
With respect to each Employee Benefit Plan: (a) such Employee Benefit Plan
is, and at all times since inception has been, maintained, administered,
operated and funded in all respects in accordance with its terms and in
material compliance with all applicable requirements of all applicable laws,
statutes, orders, rules and regulations, including, without limitation,
ERISA (as defined below), COBRA, HIPAA and the Code; (b) the Company, each
fiduciary of such Employee Benefit Plan and all other Persons have, at all
times, properly performed all obligations in all material respects, whether
arising by operation of law or by contract, required to be performed by any
of them in connection with such Employee Benefit Plan; (c) all reports, Tax
Returns, information returns and other information and returns relating to
such Employee Benefit Plan required to be filed with any governmental entity
or agency have been accurately completed and timely and properly filed;
(d) all notices, statements, reports and other disclosure required to be
given or made to participants in such Employee Benefit Plan or their
beneficiaries have been accurately completed and timely and properly
disclosed or provided; (e) neither the Company nor any fiduciary of such
Employee Benefit Plan has engaged in any transaction or acted or failed to
act in a manner that violates the fiduciary requirements of ERISA or any
other applicable law; (f) no transaction or event has occurred or is
threatened or about to occur (including, without limitation, any of the
transactions contemplated in or by this Agreement or any of the other
Operative Documents) that constitutes or could constitute a "prohibited
transaction," as defined in Section 4975 of the Code or Section 406 or 407
of ERISA; and (g) the Company has not incurred, and there exists no
condition or set of circumstances in connection with which the Company,
ShopNow.com, Merger Sub or any of their affiliates could incur, directly or
indirectly, any material liability or expense (except for routine
contributions and benefit payments) under ERISA, the Code or any other
applicable law, statute, order, rule or regulation with respect to such
Employee Benefit Plan or pursuant to any indemnification or similar
agreement related to such Employee Benefit Plan.
2.13.4 QUALIFICATION
No Employee Benefit Plan is intended to be qualified under Section 401(a)
2.13.5 CONTRIBUTIONS AND PREMIUM PAYMENTS
All contributions, premiums and other payments due or required to be paid to
(or with respect to) each Employee Benefit Plan have been timely paid, or,
if not yet due, have been fully reserved for, and specifically identified
in, the Closing Balance Sheet.
2.13.6 RELATED EMPLOYERS
The Company is not, and has never been, a member of (a) a controlled group
of corporations, within the meaning of Section 414(b) of the Code, (b) a
group of trades or businesses under common control, within the meaning of
Section 414(c) of the Code, (c) an affiliated service group, within the
meaning of Section 414(m) of the Code, or (d) any other group of Persons
treated as a single employer under Section 414(o) of the Code.
2.13.7 CERTAIN PENSION PLANS
The Company does not maintain or contribute to, and has never maintained or
contributed to (or been obligated to contribute to), any multiemployer plan
as defined in Section 3(37) or Section 4001(a)(3) of ERISA or 414(f) of the
Code, any multiple employer plan within the meaning of Section 4063 or 4064
of ERISA or Section 413(c) of the Code or any employee benefit plan, fund,
program, contract or arrangement that is subject to Section 412 of the Code,
Section 302 of ERISA or Title IV of ERISA.
2.13.8 POST-TERMINATION BENEFITS
Neither the Company nor any Employee Benefit Plan provides or has any
obligation to provide (or contribute toward the cost of) post-employment or
post-termination benefits of any kind, including, without limitation,
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death and medical benefits, with respect to any current or former officer,
employee, agent, director or independent contractor of the Company, other
than (a) continuation coverage mandated by Sections 601 through 608 of ERISA
and Section 4980B(f) of the Code, and (b) deferred compensation that is
accrued as a current liability on the Closing Balance Sheet.
2.13.9 PARACHUTE PAYMENTS
The Company has not made any payments, is not obligated to make any payments
and is not a party to any agreement that could obligate it to make any
payments that would not be deductible under Section 280G of the Code (or any
similar provision of state, local or foreign law).
2.13.10 SUITS, CLAIMS AND INVESTIGATIONS
There are no actions, suits or claims (other than routine claims for
benefits) pending or, to the knowledge of the Company, threatened with
respect to (or against the assets of) any Employee Benefit Plan, nor, to the
knowledge of the Company, is there a basis for any such action, suit or
claim. No Employee Benefit Plan is currently under investigation, audit or
review, directly or indirectly, by the IRS, the DOL (as defined below) or
any other governmental entity or agency, and, to the knowledge of the
Company, no such action is contemplated or under consideration by the IRS,
the DOL or any other governmental entity or agency.
2.13.11 PAYMENTS RESULTING FROM TRANSACTIONS
Except as set forth on Schedule 2.13.11 to the Company Disclosure
Memorandum, either the execution and delivery of this Agreement or the other
Operative Documents nor the consummation of the transactions contemplated in
(or by) this Agreement or the other Operative Documents (either alone or
together with any other transaction or event) will (a) entitle any
individual to severance pay, unemployment compensation or any other payment
from the Company, ShopNow.com, Merger Sub, any of their affiliates or any
Employee Benefit Plan, (b) increase the amount of compensation due to any
individual, (c) result in any benefit or right becoming established or
increased, or accelerate the time of payment or vesting of any benefit,
under any Employee Benefit Plan, or (d) require the Company, ShopNow.com,
Merger Sub or any of their affiliates to transfer or set aside any assets to
fund or otherwise provide for any benefits for any individual.
2.13.12 DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
(a) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
(b) "DOL" means the United States Department of Labor.
(c) "EMPLOYEE BENEFIT PLAN" means any retirement, pension, profit
sharing, deferred compensation, stock bonus, savings, bonus, incentive,
cafeteria, medical, dental, vision, hospitalization, life insurance,
accidental death and dismemberment, medical expense reimbursement, dependent
care assistance, tuition reimbursement, disability, sick pay, holiday,
vacation, severance, change of control, stock purchase, stock option, stock
appreciation rights, fringe benefit or other employee benefit plan, fund,
policy, program, contract, arrangement or payroll practice (including,
without limitation, any "employee benefit plan," as defined in Section
3(3) of ERISA) or any employment, consulting or personal services contract,
whether written or oral, qualified or nonqualified, or funded or unfunded,
(i) sponsored, maintained or contributed to by the Company or to which the
Company is a party, (ii) covering or benefiting any current or former
officer, employee, agent, director or independent contractor of the Company
(or any dependent or beneficiary of any such individual), or (iii) with
respect to which the Company has (or could have) any obligation or
liability.
(d) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(e) "HIPAA" means the Health Insurance Portability and Accountability
Act of 1997, as amended.
(f) "IRS" means the United States Internal Revenue Service.
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2.14 INTELLECTUAL PROPERTY
2.14.1 GENERAL
The Company owns or is licensed and has all rights that are required to
conduct its business as now conducted and as proposed to be conducted in and
to the following: (a) all products, tools, computer programs,
specifications, source code, object code, graphics, devices, techniques,
algorithms, methods, processes, procedures, packaging, trade dress,
formulae, drawings, designs, improvements, discoveries, concepts, user
interfaces, development and other tools, content, inventions (whether or not
patentable or copyrightable and whether or not reduced to practice),
designs, logos, themes, know-how, concepts and other technology that are
now, or during the two years prior to the date of this Agreement have been,
or currently are proposed to be, developed, produced, used, marketed or sold
by the Company (collectively, the "TECHNOLOGY-RELATED ASSETS"); and (b) all
intellectual property and other proprietary rights in the Technology-Related
Assets, including, without limitation, all trade names, trademarks, domain
names, service marks, logos, brand names and other identifiers, trade
secrets, copyrights and domestic and foreign letters patent, and the
registrations, applications, renewals, extensions and continuations (in
whole or in part) thereof, all goodwill associated therewith and all rights
and causes of action for infringement, misappropriation, misuse, dilution or
unfair trade practices associated therewith.
2.14.2 COMPANY TECHNOLOGY
SCHEDULE 2.14.2 to the Company Disclosure Memorandum sets forth a list of
all products and tools developed, produced, used, marketed or sold by the
Company during the two years prior to the date of this Agreement, together
with all prior versions, predecessors or precursors to such products or
tools (collectively, the "PRODUCTS"). Except for the Third Party
Technologies (as defined in Section 2.14.3 hereof), the Company owns all
right, title and interest in and to the following (collectively, the
"TECHNOLOGY"), free and clear of all Encumbrances: (a) the Products,
together with any and all codes, techniques, software tools, formats,
designs, user interfaces, content related thereto; (b) any and all updates,
enhancements, corrections, modifications, improvements and new releases
related to the items set forth in clause (a) above; (c) any and all
technology and work in progress related to the items set forth in clauses
(a) and (b) above; and (d) all inventions, discoveries, processes, designs,
trade secrets, know-how and other confidential or proprietary information
related to the items set forth in clauses (a), (b), and (c) above. The
Technology, excluding the Third Party Technologies (as defined below), is
sometimes referred to herein as the "COMPANY TECHNOLOGY."
2.14.3 THIRD PARTY TECHNOLOGY
SCHEDULE 2.14.3 to the Company Disclosure Memorandum sets forth a list of
all Technology used in the Company's business for which the Company does not
own all right, title and interest (collectively, the "THIRD PARTY
TECHNOLOGIES"), and all license agreements or other contracts pursuant to
which the Company has the right to use (in the manner used by the Company,
or intended or necessary for use with the Company Technology) the Third
Party Technologies (the "THIRD PARTY LICENSES"), indicating, with respect to
each of the Third Party Technologies listed therein, the owner thereof and
the Third Party License applicable thereto. The Company has the lawful right
to use (free of any material restriction) (a) all Third Party Technology
that is incorporated in or used in the development or production of the
Company Technology and (b) all other Third Party Technology necessary for
the conduct of the Company's business as now conducted and as proposed to be
conducted. To the Company's knowledge, all Third Party Licenses are valid,
binding and in full force and effect; the Company and, to the knowledge of
the Company, each other party thereto has performed in all material respects
his, her or its obligations thereunder; and neither the Company nor, to the
knowledge of the Company, any other party thereto is in material default
thereunder, nor to knowledge of the Company has there occurred any event or
circumstance that with notice or lapse of time or both would constitute a
default or event of default on the part of the Company or, to the knowledge
of the Company, any other party thereto or give to any other party thereto
the right to terminate or modify any Third Party License. The Company has
not
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received notice that any party to any Third Party License intends to cancel,
terminate or refuse to renew such Third Party License or to exercise or
decline to exercise any option or right thereunder.
2.14.4 TRADEMARKS
SCHEDULE 2.14.4 to the Company Disclosure Memorandum sets forth a list of
all trademarks, trade names, brand names, service marks, logos or other
identifiers for the Products or otherwise used by the Company in its
business (the "MARKS"). The Company has full legal and beneficial ownership,
free and clear of any Encumbrances, of all rights conferred by use of the
Marks in connection with the Products or otherwise in the Company's business
and, as to those Marks that have been registered in the United States Patent
and Trademark Office, by federal registration of the Marks.
2.14.5 INTELLECTUAL PROPERTY RIGHTS
SCHEDULE 2.14.5 to the Company Disclosure Memorandum sets forth all patents,
patent applications, copyright registrations (and applications therefor) and
trademark registrations (and applications therefor) (collectively, the "IP
REGISTRATIONS") associated with the Company Technology and the Marks. The
Company owns all right, title and interest, free and clear of any
Encumbrances, in and to the IP Registrations, together with any other rights
in or to any copyrights (registered or unregistered), rights in the Marks
(registered or unregistered), trade secret rights and other intellectual
property rights (including, without limitation, rights of enforcement)
contained or embodied in the Company Technology and the Marks (collectively,
the "IP RIGHTS").
2.14.6 MAINTENANCE OF RIGHTS
Except as set forth on SCHEDULE 2.14.6 to the Company Disclosure Memorandum,
the Company has not conducted its business, and has not used or enforced
(or, to the knowledge of the Company, failed to use or enforce) the IP
Rights, in a manner that would result in the abandonment, cancellation or
unenforceability of any item of the IP Rights or the IP Registrations, and
the Company has not taken (or, to the knowledge of the Company, failed to
take) any action that would result in the forfeiture or relinquishment of
any IP Rights or IP Registrations. Except as set forth in SCHEDULE 2.14.6 to
the Company Disclosure Memorandum, the Company has not granted to any third
party any rights or permissions to use any of the Technology or the IP
Rights. To the knowledge of the Company, except pursuant to reasonably
prudent safeguards, (a) no third party has received any confidential
information relating to the Technology or the IP Rights and (b) the Company
is not under any contractual or other obligation to disclose to any third
party any Company Technology.
2.14.7 THIRD PARTY CLAIMS
Except as set forth on SCHEDULE 2.14.7 to the Company Disclosure Memorandum,
(a) the Company has not received any notice or claim (whether written, oral
or otherwise) challenging the Company's ownership or rights in the Company
Technology or the IP Rights or claiming that any other person or entity has
any legal or beneficial ownership with respect thereto; (b) all the IP
Rights are legally valid and enforceable without any material qualification,
limitation or restriction on their use, and the Company has not received any
notice or claim (whether written, oral or otherwise) challenging the
validity or enforceability of any of the IP Rights; and (c) to the knowledge
of the Company, no other person or entity is infringing or misappropriating
any part of the IP Rights or otherwise making any unauthorized use of the
Company Technology.
2.14.8 INFRINGEMENT BY THE COMPANY
Except as set forth on SCHEDULE 2.14.8 to the Company Disclosure Memorandum,
(a) the use of any of the Technology in the Company's business as now
conducted and as currently planned to be conducted does not and will not
infringe, violate or interfere with or constitute an appropriation of any
right, title or interest (including, without limitation, any patent,
copyright or trade secret right) held by any other person or entity, and
there have been no claims made with respect thereto; (b) the use of any of
the Marks and other IP Rights
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in the Company's business will not infringe, violate or interfere with or
constitute an appropriation of any right, title or interest (including,
without limitation, any patent, copyright, trademark or trade secret right)
held by any other person or entity, and there have been no claims made with
respect thereto; and (c) the Company has not received any notice or claim
(whether written, oral or otherwise) regarding any infringement,
misappropriation, misuse, abuse or other interference with any third party
intellectual property or proprietary rights (including, without limitation,
infringement of any patent, copyright, trademark or trade secret right of
any third party) by the Company, the Technology or the Marks or other IP
Rights, or claiming that any other entity has any claim of infringement with
respect thereto.
2.14.9 CONFIDENTIALITY
Except as set forth on SCHEDULE 2.14.9 to the Company Disclosure Memorandum,
(a) the Company has not disclosed any source code regarding the Technology
to any person or entity other than an employee or consultant of the Company
who is under a written nondisclosure agreement; (b) the Company has at all
times maintained and diligently enforced commercially reasonable procedures
to protect all confidential information relating to the Technology;
(c) neither the Company nor any escrow agent is under any contractual or
other obligation to disclose the source code or any other proprietary
information included in or relating to the Technology; and (d) the Company
has not deposited any source code relating to the Technology into any source
code escrows or similar arrangements. If, as disclosed on SCHEDULE 2.14.9 to
the Company Disclosure Memorandum, the Company has deposited any source code
to the Technology into source code escrows or similar arrangements, no event
has occurred that has or could reasonably form the basis for a release of
such source code from such escrows or arrangements.
2.14.10 WARRANTY AGAINST DEFECTS
Except as set forth in SCHEDULE 2.14.10 to the Company Disclosure
Memorandum, the Technology is free from known material defects and
substantially conforms to the applicable specifications, documentation and
samples of such Technology.
2.14.11 DOMAIN NAMES
SCHEDULE 2.14.11 to the Company Disclosure Memorandum sets forth a list of
all Internet domain names used by the Company in its business (collectively,
the "DOMAIN NAMES"). The Company has, and at the Effective Time the
Surviving Corporation will have, a valid registration and all material
rights (free of any material restriction) in and to the Domain Names,
including, without limitation, all rights necessary to continue to conduct
the Company's business as it is currently conducted and proposed to be
conducted following the Effective Time.
2.14.12 YEAR 2000
Each hardware, software and firmware product used by the Company in its
business (collectively, the "SOFTWARE") accurately processes date data
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the twentieth and twenty-first centuries, including,
without limitation, leap year calculations, without a material decrease in
the functionality of the Software. The Software is designed to be used prior
to, during and after the calendar year 2000 A.D. and will operate during
each such time period without material error relating to date data,
specifically including any error relating to, or the product of, date data
that represents or references different centuries or more than one century.
Without limiting the generality of the foregoing, the Software (a) will not
abnormally end or provide invalid or incorrect results as a result of date
data, specifically including date data that represents or references
different centuries or more than one century; (b) has been designed to
ensure material year 2000 compatibility, including, but not limited to, date
data century recognition, calculations that accommodate same century and
multi-century formulas and date values, and date data interface values that
reflect the century; and (c) includes "YEAR 2000 CAPABILITIES," meaning that
the Software (i) will manage and manipulate data involving dates, including
single century formulas and
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multicentury formulas, and will not cause an abnormally ending scenario
within the application or generate incorrect values or invalid results
involving such dates; (ii) provides that all date-related user interface
functionalities and data fields include the indication of century; and
(iii) provides that all date-related data interface functionalities include
the indication of century.
2.14.13 PARTICIPATING DEVELOPERS
SCHEDULE 2.14.13 to the Company Disclosure Memorandum contains a complete
list of all Participating Developers (as defined below), specifying for each
relationship between the Participating Developer and the Company (e.g.,
employee, contractor, etc.), all dates during which the relationship was in
effect and a list of any documents or other items relating to such
relationship. The Company has furnished to ShopNow.com or its counsel full
and complete copies of such documents and other items identified in SCHEDULE
2.14.13. "PARTICIPATING DEVELOPER" means any person or entity that has, at
any time and in any way, participated or contributed to the Development of
any IP Rights or any of the Company Technology. "DEVELOPMENT" means create,
author, design, engineer, invent, modify, discover, reduce to practice or
develop. Each Participating Developer has signed a nondisclosure agreement
in the form provided to ShopNow.com, and such agreement transfers to the
named transferee any and all right, title and interest which the named
Participating Developer may have or acquire in and to the IP Rights and the
Technology.
2.15 CORPORATE BOOKS AND RECORDS
The Company has furnished to ShopNow.com or its representatives for their
examination true and complete copies of (a) the Articles of Incorporation and
Bylaws of the Company as currently in effect, including all amendments thereto,
(b) the minute books of the Company, and (c) the stock transfer books of the
Company. Such minutes reflect all meetings of the Company's stockholders, Board
of Directors and any committees thereof since the Company's inception, and such
minutes accurately reflect in all material respects the events of and actions
taken at such meetings. Such stock transfer books accurately reflect all
issuances and transfers of shares of capital stock of the Company since its
inception.
2.16 LICENSES, PERMITS, AUTHORIZATIONS, ETC.
Except as identified on SCHEDULE 2.16 to the Company Disclosure Memorandum, the
Company has received all currently required material governmental approvals,
authorizations, consents, licenses, orders, registrations and permits of all
agencies, whether federal, state, local or foreign (the "PERMITS"). The Company
is in compliance in all material respects with the terms of all Permits, and all
the Permits are valid and in full force and effect, and no proceeding is
pending, or to the knowledge of the Company, threatened, the object of which is
to revoke, limit or otherwise affect any of the Permits. The Company has not
received any notifications of any asserted present failure by it to have
obtained any Permit, or any past and unremedied failure to obtain such items.
2.17 COMPLIANCE WITH LAWS
Except as described on SCHEDULE 2.17 to the Company Disclosure Memorandum, the
business and operations of the Company have been conducted in compliance in all
material respects with all federal, state, local and foreign laws, rules,
regulations, ordinances, decrees and orders applicable to it, to its employees
or to the Real Property and the Personal Property, including, without
limitation, all such laws, rules, regulations, ordinances, decrees and orders
relating to intellectual property protection, antitrust matters, consumer
protection, currency exchange, environmental protection, equal employment
opportunity, health and occupational safety, pension and employee benefit
matters, securities and investor protection matters, labor and employment
matters and trading-with-the-enemy matters, except where the failure to so
conduct its business and operations would not be reasonably likely to have a
material adverse effect on the business or financial condition of the Company
and its subsidiaries, taken as a whole. The Company has not received any
notification of any asserted present or past unremedied failure by the Company
to comply with any of such laws, rules, regulations, ordinances, decrees or
orders.
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2.18 INSURANCE
The Company Disclosure Memorandum sets forth a true and correct list of all
insurance policies maintained by the Company and includes the policy number,
amount of coverage and contact information for each such policy. The Company
maintains commercially reasonable levels of (a) insurance on its property
(including leased premises) that insures against loss or damage by fire or other
casualty and (b) insurance against liabilities, claims and risks of a nature and
in such amounts as are normal and customary in the Company's industry for
companies of similar size and financial condition. All insurance policies of the
Company are in full force and effect, all premiums with respect thereto covering
all periods up to and including the date this representation is made have been
paid, and no notice of cancellation or termination has been received with
respect to any such policy or binder. Such policies or binders are sufficient
for compliance with all requirements of law currently applicable to the Company
and of all agreements to which the Company is a party, will remain in full force
and effect through the respective expiration dates of such policies or binders
without the payment of additional premiums, and will not in any way be affected
by, or terminate or lapse by reason of, the transactions contemplated by this
Agreement. The Company has not been refused any insurance with respect to its
assets or operations, nor has its coverage been limited, by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance.
2.19 BROKERS OR FINDERS
The Company has not incurred, and will not incur, directly or indirectly, as a
result of any action taken by or on behalf of the Company, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Merger, this Agreement or any transaction contemplated
hereby.
2.20 ABSENCE OF QUESTIONABLE PAYMENTS
Neither the Company nor, to the Company's knowledge, any director, officer,
agent, employee or other Person acting on behalf of the Company has used any
Company funds for improper or unlawful contributions, payments, gifts or
entertainment, or made any improper or unlawful expenditures relating to
political activity to domestic or foreign government officials or others. The
Company has reasonable financial controls to prevent such improper or unlawful
contributions, payments, gifts, entertainment or expenditures. Neither the
Company nor, to the Company's knowledge, any current director, officer, agent,
employee or other Person acting on behalf of the Company has accepted or
received any improper or unlawful contributions, payments, gifts or
expenditures. The Company has at all times complied, and is in compliance, in
all respects with the Foreign Corrupt Practices Act and all foreign laws and
regulations relating to prevention of corrupt practices and similar matters.
2.21 BANK ACCOUNTS
SCHEDULE 2.21 to the Company Disclosure Memorandum sets forth the names and
locations of all banks, trust companies, savings and loan associations and other
financial institutions at which the Company maintains safe deposit boxes or
accounts of any nature and the names of all Persons authorized to draw thereon,
make withdrawals therefrom or have access to such safe deposit boxes or
accounts.
2.22 CUSTOMERS AND SUPPLIERS
SCHEDULE 2.22 to the Company Disclosure Memorandum sets forth (a) a complete and
accurate list of the customers of the Company accounting for 5% or more of the
Company's revenues during the fiscal year last ended and the period ended
December 31, 1999, showing the approximate total revenues from each such
customer during the fiscal year last ended and the period ended December 31,
1999 and (b) a complete and accurate list of the suppliers of the Company from
whom the Company has purchased 5% or more of the goods or services purchased by
the Company in the fiscal year last ended and the period ended December 31,
1999. The Company has not received any notice from its customers or suppliers
that would cause it, in its reasonable judgment, to expect any material
modification to its relationship with any customer or supplier named on such
SCHEDULE 2.22 to the Company Disclosure Memorandum.
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2.23 ACCOUNTS RECEIVABLE
All accounts receivable of the Company reflected in the Company Balance Sheet
("ACCOUNTS"), or existing at the Effective Time, represent sales actually made
in the ordinary course of business and were recorded in the Company's books
consistent with the presentation applied in the Company Financial Statements for
the year ended March 31, 1999. Except as described on SCHEDULE 2.23 to the
Company Disclosure Memorandum, the bad debt reserves and sales return allowances
reflected in the Company Balance Sheet are adequate. Set forth on SCHEDULE 2.23
to the Company Disclosure Memorandum are a full and complete list and aging
study of all Accounts. To the knowledge of the Company, all Accounts existing
and remaining unpaid at the Effective Time will be collectible by the Surviving
Corporation in the ordinary course of business, consistent with past practice.
2.24 CREDITORS' LIST
SCHEDULE 2.24 to the Company Disclosure Memorandum sets forth a full, complete
and accurate list of all creditors of Company, with the amount payable to each
such creditor as of the date hereof.
2.25 INSIDER INTERESTS
Except as set forth on SCHEDULE 2.25 to the Company Disclosure Memorandum, no
stockholder or officer or director of the Company has any interest (other than
as a stockholder of the Company) (a) in any Real Property, Personal Property,
Technology or IP Rights used in or directly pertaining to the business of the
Company, including, without limitation, inventions, patents, trademarks or trade
names, or (b) in any agreement, contract, arrangement or obligation relating to
the Company, its present or prospective business or its operations. Except as
set forth on SCHEDULE 2.25 to the Company Disclosure Memorandum or as
contemplated by this Agreement, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
stockholders, affiliates or any affiliate thereof. The Company and its officers
and directors have no interest, either directly or indirectly, in any entity,
including, without limitation, any corporation, partnership, joint venture,
proprietorship, firm, licensee, business or association (whether as an employee,
officer, director, stockholder, agent, independent contractor, security holder,
creditor, consultant or otherwise), other than ownership of capital stock
comprising less than 1% of any publicly held company, that presently
(i) provides any services, produces and/or sells any products or product lines,
or engages in any activity that is the same, similar to or competitive with any
activity or business in which the Company is now engaged or proposes to engage;
(ii) is a supplier, customer or creditor; or (iii) has any direct or indirect
interest in any asset or property (real or personal, tangible or intangible) of
the Company or any property (real or personal, tangible or intangible) that is
necessary or desirable for the present or currently anticipated future conduct
of the Company's business.
2.26 COMPLIANCE WITH ENVIRONMENTAL LAWS
Neither the Company nor, to the knowledge of the Company, any other Person
(including, without limitation, any previous owner, lessee or sublessee) has
treated, stored or disposed of any material amounts of petroleum products,
hazardous waste, hazardous substances, pollutants or contaminants on the Real
Property, or any real property previously owned, leased, subleased or used by
the Company in the operation of its business, in violation of any applicable
foreign, federal, state or local statutes, regulations or ordinances, or common
law, in each case as in existence at or prior to the Closing. To the knowledge
of the Company, there have been no releases of any material amounts of
petroleum, petroleum products, hazardous waste, hazardous substances, pollutants
or contaminants on, at or from any assets or properties, including, without
limitation, the Real Property, owned, leased, subleased or used by the Company
in the operation of its business during the time such assets or properties were
owned, leased, subleased or used by the Company (or, to the knowledge of the
Company, prior to such time), including, without limitation, any releases of any
material amounts of petroleum, petroleum products, hazardous waste, hazardous
substances, pollutants or contaminants in violation of any law.
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2.27 INFORMATION SUPPLIED BY THE COMPANY
None of the information supplied or to be supplied by the Company or its
subsidiaries, auditors, attorneys, financial advisors or other consultants or
advisors for inclusion in (i) the registration statement on Form S-4, and any
amendment thereto, to be filed under the Securities Act with the SEC by
ShopNow.com in connection with the issuance of the ShopNow.com Common Stock in
or as a result of the Merger (the "S-4"), or (ii) the proxy statement and any
amendment or supplement thereto to be distributed in connection with Company's
meetings of stockholders to vote upon this Agreement and the transactions
contemplated hereby (the "PROXY STATEMENT" and, together with the prospectus
included in the S-4, the "PROXY STATEMENT/PROSPECTUS") will, in the case of the
Proxy Statement and any amendment or supplement thereto, at the time of the
mailing of the Proxy Statement and any amendment or supplement thereto, and at
the time of the meeting of stockholders of the Company to vote upon this
Agreement and the transactions contemplated hereby, or, in the case of the S-4,
as amended or supplemented, at the time it becomes effective and at the time of
any post-effective amendment thereto and at the time of the meeting of
stockholders of the Company, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they are
made, not misleading or necessary to correct any statement in any earlier filing
with the SEC of such Proxy Statement/ Prospectus or any amendment or supplement
thereto or any earlier communication (including the Proxy Statement/ Prospectus)
to stockholders of the Company with respect to the transactions contemplated by
this Agreement.
2.28 FULL DISCLOSURE
Neither this Agreement or the Operative Documents (including, but not limited
to, the Company Financial Statements and all information in the Company
Disclosure Memorandum and the other Exhibits hereto) contains any untrue
statement by the Company of a material fact or omits to state a material fact
necessary in order to make the statements so made or information so delivered
not misleading.
2.29 HART-SCOTT-RODINO
The Company is its own ultimate parent entity as defined under the rules and
regulations promulgated under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HART-SCOTT-RODINO ACT"). The Company is not a $10
million person as defined thereunder. The Company is not "engaged in
manufacturing" for purposes of the Hart-Scott-Rodino Act.
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF
SHOPNOW.COM AND MERGER SUB
In order to induce the Company to enter into and perform this Agreement and the
Operative Documents, ShopNow.com and Merger Sub jointly and severally represent
and warrant to the Company as follows in this Article III:
3.1 ORGANIZATION
ShopNow.com is a corporation duly organized and validly existing under the laws
of the state of Washington. Merger Sub is a corporation duly organized and
validly existing under the laws of the state of Washington. Each of ShopNow.com
and Merger Sub has all requisite corporate power and authority to execute,
deliver and perform its obligations under this Agreement and the Operative
Documents to which it is a party and to consummate the transactions contemplated
hereby and thereby. All the issued and outstanding shares of capital stock of
Merger Sub are held of record and beneficially by ShopNow.com.
3.2 ENFORCEABILITY
All corporate action on the part of ShopNow.com and Merger Sub and their
respective officers, directors and shareholders necessary for the authorization,
execution, delivery and performance of this Agreement and the Operative
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Documents, the consummation of the Merger and the performance of all their
respective obligations under this Agreement and the Operative Documents has been
taken or will be taken prior to the Effective Time. This Agreement and each of
the Operative Documents has been duly executed and delivered by each of
ShopNow.com and Merger Sub, as applicable, and this Agreement and each of the
Operative Documents is a legal, valid and binding obligation of each of
ShopNow.com and Merger Sub, as applicable, enforceable against each of them in
accordance with its terms.
3.3 SECURITIES
The Closing Shares to be issued pursuant to this Agreement have been, or will be
prior to the Effective Time, duly authorized for issuance, and such Closing
Shares, when issued and delivered pursuant to this Agreement, shall be validly
issued, fully paid and nonassessable.
3.4 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS
The execution, delivery and performance of this Agreement and the Operative
Documents by Merger Sub and ShopNow.com, as applicable, and the consummation by
them of the transactions contemplated hereby and thereby will not
(a) constitute a violation (with or without the giving of notice or lapse of
time, or both) of any provision of law or any judgment, decree, order,
regulation or rule of any court or other governmental authority applicable to
ShopNow.com or Merger Sub;
(b) require any consent, approval or authorization of, or declaration,
filing or registration with, any Person, except (i) compliance with applicable
securities laws; (ii) the filing of all documents necessary to consummate the
Merger with the Washington Secretary and the Nevada Secretary; (iii) the filing
of a premerger notification report and all other required documents by
ShopNow.com and the Company, and the expiration of all applicable waiting
periods, under the HSR Act; and (iv) any filings with the SEC including such
reports and information as may be required under the Exchange Act, the
Securities Act and the rules and regulations promulgated by the SEC under the
Exchange Act or the Securities Act and the declaration of the effectiveness of
the S-4 by the SEC; or
(c) conflict with or result in a breach of or constitute a default under any
provision of the Articles of Incorporation or Bylaws of ShopNow.com or Merger
Sub.
3.5 INFORMATION SUPPLIED BY SHOPNOW.COM OR MERGER SUB
None of the information supplied or to be supplied by ShopNow.com or its
subsidiaries, auditors, attorneys, financial advisors, other consultants or
advisors or Merger Sub for inclusion in the S-4 or the Proxy
Statement/Prospectus, will, in the case of the Proxy Statement and any amendment
or supplement thereto, at the time of the mailing of the Proxy Statement and any
amendment or supplement thereto, and at the time of any meeting of stockholders
of the Company to vote upon this Agreement and the transactions contemplated
hereby, or in the case of the S-4, as amended or supplemented, at the time it
becomes effective and at the time of any post-effective amendment thereto and at
the time of the meeting of stockholders of the Company, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading or necessary to correct any
statement in any earlier filing with the SEC of such Proxy Statement/Prospectus
or any amendment or supplement thereto or any earlier communication (including
the Proxy Statement/Prospectus) to stockholders of the Company with respect to
the transactions contemplated by this Agreement.
3.6 FULL DISCLOSURE
Neither this Agreement or the Operative Documents contains any untrue statement
by ShopNow.com or Merger Sub of a material fact or omits to state a material
fact necessary in order to make the statements so made or information so
delivered not misleading.
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3.7 CAPITALIZATION
(a) The authorized capital stock of ShopNow.com consists of 200,000,000
shares of ShopNow.com Common Stock, par value $.001 per share, 42,923,035 of
which are issued and outstanding as of December 31, 1999, and 5,000,000 shares
of Preferred Stock, $.001 par value per shares, none of which are issued and
outstanding as of December 31, 1999. As of December 31, 1999, there are
7,586,112 shares of ShopNow.com Common Stock reserved for issuance upon the
exercise of outstanding stock options under the ShopNow.com 1999 Non-Officer
Stock Option Plan and 1996 Combined Incentive and Nonqualified Stock Option
Plan. The Shares of ShopNow.com Common Stock to be issued pursuant to the Merger
in accordance with Section 1.7.1 and the shares of ShopNow.com Common Stock
which will be issued upon exercise of the options granted in accordance with
Section 1.9 have been duly and validly authorized, have been reserved for
issuance and upon issuance in accordance with the terms hereof or thereof, will
be duly authorized, validly issued, fully paid and nonassessable.
3.8 SEC DOCUMENTS; FINANCIAL STATEMENTS
(a) ShopNow.com has filed all forms, reports and documents required to be
filed by it with the SEC since September 28, 1999 through the date of this
Agreement (collectively, the "SHOPNOW.COM SEC DOCUMENTS"). As of their
respective filing dates, the ShopNow.com SEC Documents complied in all material
respects with the requirements of the Exchange Act or the Securities Act, as the
case may be, and the rules and regulations of the SEC thereunder applicable to
such ShopNow.com SEC Documents, and none of the ShopNow.com SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective filing dates, the financial statements of
ShopNow.com included in the ShopNow.com SEC Documents (the "SHOPNOW.COM
FINANCIAL STATEMENTS") complied as to form in all material respects with all
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto and were prepared in accordance with GAAP
consistently applied (except as may be indicated in the notes thereto) and
fairly presented, in all material respects, the consolidated financial position
of ShopNow.com and its subsidiaries as at the dates thereof and the results of
their operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal, recurring audit adjustments not material in
scope or amount). There has been no change in ShopNow.com's accounting policies
or the methods of making accounting estimates or changes in estimates that are
material to the ShopNow.com Financial Statements, except as described in the
notes thereto.
(b) Except as disclosed in the ShopNow.com SEC Documents as filed and
amended before the date hereof and as contemplated by this Agreement, since
September 30, 1999, no material adverse change in the business, financial
condition, results of operations or prospects of ShopNow.com has occurred.
Changes in the trading prices of ShopNow.com Common Stock or a public offering
of ShopNow.com Common Stock shall not be deemed material adverse changes under
this Agreement.
3.9 COMPLIANCE WITH LAWS
The business and operations of ShopNow.com have been conducted in compliance in
all material respects with all federal, state, local and foreign laws, rules,
regulations, ordinances, decrees and orders applicable to it, to its employees
or to its property, including, without limitation, all such laws, rules,
regulations, ordinances, decrees and orders relating to intellectual property
protection, antitrust matters, consumer protection, currency exchange,
environmental protection, equal employment opportunity, health and occupational
safety, pension and employee benefit matters, securities and investor protection
matters, labor and employment matters and trading-with-the-enemy matters, except
where the failure to so conduct its business and operations would not be
reasonably likely to have a material adverse effect on the business or financial
condition of ShopNow.com and its subsidiaries, taken as a whole. ShopNow.com has
not received any notification of any asserted present or past unremedied failure
by ShopNow.com to comply with any of such laws, rules, regulations, ordinances,
decrees or orders.
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3.10 TAX MATTERS
Solely for tax purposes, ShopNow represents the following:
(a) It has no present plan or intention to cause Merger Sub to issue,
after the Merger, additional shares of Merger Sub stock (or rights to
acquire shares of Merger Sub stock) or take any other action that would
result in ShopNow.com losing control of Merger Sub, as defined in Section
368(c) of the Code.
(b) ShopNow.com has no present plan or intention to directly or
indirectly (including through a party related to ShopNow.com within the
meaning of Treasury Regulation 1.368-1(e)(3)) reacquire any of its stock
issued pursuant to the Merger such that the Merger would fail the
"continuity of proprietary interest" requirement set forth in Treasury
Regulation Section 1.368-1(e).
(c) It has no present plan or intention to: (i) cause Merger Sub to
sell, transfer or otherwise dispose of any of its assets or of any of the
assets acquired from the Company except for dispositions made in the
ordinary course of business or for the payment of expenses incurred by the
Company in connection with the Merger; (ii) liquidate Merger Sub;
(iii) merge Merger Sub with or into another corporation including ShopNow or
any of its affiliates; or (iv) to sell, distribute or otherwise dispose of
the stock of Merger Sub, other than as would be allowed by Section
368(a)(2)(C) of the Code or the corresponding Treasury Regulations.
(d) It is ShopNow's present plan or intention to cause Merger Sub to
continue the Company's historic business or use a significant portion of the
Company's historic business assets in a business within the meaning of
Treasury Regulation 1.368-1(d).
ARTICLE IV -- CONDITIONS PRECEDENT TO OBLIGATIONS
OF SHOPNOW.COM AND MERGER SUB
The obligations of ShopNow.com and Merger Sub to perform and observe the
covenants, agreements and conditions hereof to be performed and observed by them
at or before the Closing shall be subject to the satisfaction of the following
conditions, which may be expressly waived only in writing signed by ShopNow.com
and Merger Sub:
4.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Company contained herein (including
applicable Exhibits or Schedules to the Company Disclosure Memorandum) and in
the Operative Documents shall have been true and correct in all material
respects when made and, except (a) for changes contemplated by this Agreement
and the Operative Documents, (b) for representations and warranties qualified by
materiality which shall be correct in all respects and (c) to the extent that
such representations and warranties speak as of an earlier date, shall be true
and correct in all material respects as of the Closing Date, as though made on
that date.
4.2 PERFORMANCE OF AGREEMENTS
The Company shall have performed in all material respects all obligations and
agreements and complied with all covenants contained in this Agreement or any
Operative Document to be performed and complied with by it at or prior to the
Closing.
4.3 OPINION OF COUNSEL FOR THE COMPANY
ShopNow.com shall have received the opinion letter of Dorsey & Whitney LLP,
counsel for the Company, dated the Closing Date in the form attached hereto as
EXHIBIT 4.3.
4.4 COMPLIANCE CERTIFICATE
ShopNow.com shall have received a certificate of the President and the Chief
Financial Officer of the Company, dated the Closing Date, in form and substance
reasonably satisfactory to ShopNow.com, (a) certifying that the conditions to
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the obligations of ShopNow.com and Merger Sub in Sections 4.1, 4.2, 4.5, 4.6,
4.12, and 4.13 have been fulfilled, and (b) verifying the accuracy of the
information contained in the Option Consideration Spreadsheet (as defined
below).
4.5 MATERIAL ADVERSE CHANGE
Since the date of the Company Balance Sheet and through the Closing, there shall
not have occurred any change that is or is reasonably likely to be materially
adverse to the Company's business, financial condition, operations, properties
or prospects. Changes in the trading prices of the Company Common Stock shall
not be deemed a material adverse change.
4.6 APPROVALS AND CONSENTS
All transfers of permits or licenses and all approvals of or notices to public
agencies, federal, state, local or foreign, the granting or delivery of which is
necessary for the consummation of the transactions contemplated hereby,
including, if applicable, approvals or notices required by the Hart-Scott-Rodino
Act, or for the continued operation of the Company, shall have been obtained,
and all waiting periods specified by law shall have passed. All other consents,
approvals and notices referred to in this Agreement shall have been obtained or
delivered.
4.7 PROCEEDINGS AND DOCUMENTS; SECRETARY'S CERTIFICATE
ShopNow.com shall have received a certificate of the Secretary of the Company,
in form and substance reasonably satisfactory to ShopNow.com, as to the
authenticity and effectiveness of the actions of the Board of Directors of the
Company and the stockholders authorizing the Merger and the transactions
contemplated by this Agreement and the Operative Documents. Copies of (a) the
Company's Articles of Incorporation, certified by the Nevada Secretary, (b) the
Company's Bylaws, certified by the Secretary of the Company, and (c) the
resolutions of the Board of Directors of the Company and the stockholders
relating to the transactions contemplated by this Agreement and the Operative
Documents shall be attached to such certificate.
4.8 NON-U.S. REAL PROPERTY HOLDING CORPORATION AFFIDAVIT
ShopNow.com shall have received from the Company, pursuant to Section 1445 of
the Code, a Foreign Investment in Real Property Tax Act Affidavit in the form
attached hereto as EXHIBIT 4.8.
4.9 COMPLIANCE WITH LAWS
The effectiveness of the Merger and the performance by ShopNow.com, Merger Sub,
and the Company of their respective obligations pursuant to this Agreement and
the Operative Documents shall be legally permitted by all laws and regulations
to which ShopNow.com, Merger Sub, the Company and the stockholders of the
Company are subject.
4.10 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect that enjoins,
restrains, conditions or prohibits consummation of this Agreement or any
Operative Document, and no litigation, investigation or administrative
proceeding shall be pending or threatened that would enjoin, restrain, condition
or prevent consummation of this Agreement or any Operative Document.
4.11 NONCOMPETITION ARRANGEMENTS
Each of the Management Members and Retained Employees who has been offered and
has accepted employment with ShopNow.com shall have executed the ShopNow.com
standard form of Intellectual Property Agreement (Confidentiality, Invention
Assignment, Non-raiding and Noncompetition) in the form attached hereto as
EXHIBIT 4.11 and each such agreement shall be in full force and effect on the
Closing Date.
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4.12 TERMINATION OF CERTAIN AGREEMENTS
Any and all rights of refusal, co-sale rights and registration rights for the
benefit of the holders of Company Common Stock, or Stock Purchase Rights set
forth in the Company Disclosure Memorandum, shall have terminated. The Company
shall also terminate the following agreements: (i) the BBE Purchase Agreement
and Note, (ii) the Share Pledge Agreement Among International Barter Corp., Bob
Bagga and Barter Business Exchange Inc., dated March 2, 1999, (iii) all
employment agreements with current Ubarter employees (including, without
limitation, those employment agreements with Steven White, Dan Schneider, Dick
Mayer, Alan Zimmelman, Kevin Andersen, Robert Benson, Eric Silver, Bob Bagga,
Patricia Falus and Cameron Herold and Barbara Ryan), (iii) the Alpine Capital
Note and Alpine Capital Warrant (as to registration rights) (iv) the Share
Purchase Agreement, dated May 12, 1999, among Mark Thomas, Susan Thomas, the
Company and Barter Business Exchange (Windsor), Inc. (as to registration rights)
and (v) all agreements with Astra Ventures and Momentous. In addition, the
Company shall withdraw its Registration Statement on Form SB-2, as amended.
4.13 EXERCISE OR TERMINATION OF STOCK PURCHASE RIGHTS; CONVERSION OF CONVERTIBLE
SECURITIES
Any and all Stock Purchase Rights (including all options to purchase shares of
the Company's Common Stock) and any and all securities and notes convertible at
any time into Company Common Stock, vested and unvested, and regardless of
restrictions on exercise or conversion, shall have been exercised or converted
(for cash or on a cashless basis) for shares of Company Common Stock, or shall
have been terminated, as the case may be, immediately prior to the Effective
Time.
4.14 COMPANY OPTION PLAN
The Company shall accelerate the vesting of all options issued and outstanding
under the Company Option Plan and shall make such amendments to the Company
Option Plan as are reasonably requested by ShopNow.com. The Company shall make
all tax withholdings with respect to the exercise of options following such
acceleration as required by law and prior to the Effective Time.
4.15 CONSENTS TO MERGER
SCHEDULE 2.10.2 to the Company Disclosure Memorandum lists certain agreements,
leases, notes or other documents identified in the schedules to the Company
Disclosure Memorandum that, by their terms require consent or waiver to
consummate the Merger. Unless otherwise set forth in SCHEDULE 2.10.2 to the
Company Disclosure Memorandum, the Company shall have received and shall have
delivered to ShopNow.com or its counsel written consents to the Merger or
waivers, as applicable, from each of the parties (other than the Company) to
such agreements, leases, notes or other documents, which consents or waivers, as
the case may be, shall be reasonably satisfactory in all respects to
ShopNow.com.
4.16 RESIGNATIONS
ShopNow.com and Merger Sub shall have received copies of the resignations,
effective as of the Effective Time, of all the directors and officers of the
Company.
4.17 TAX CLEARANCE CERTIFICATES
The Company shall provide to ShopNow.com tax clearance certificates from those
states, including but not limited to Nevada, in which the Company is engaged in
business.
4.18 RELEASES OF LIENS
Prior to the Effective Time, except as agreed to in writing by ShopNow.com, the
Company shall obtain the release of any and all Encumbrances with respect to any
of the Company's assets except for such Encumbrances that are incurred in the
ordinary course of the Company's business and are not material.
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4.19 STOCKHOLDER APPROVAL
This Agreement and the Merger shall have been approved by the Company's
stockholders as required by the Company's Articles of Incorporation and
applicable law.
4.20 AFFILIATE LETTERS
The Company shall have delivered or caused to be delivered to ShopNow.com an
Affiliate Letter substantially in the form of EXHIBIT 4.20 from each of those
Persons who were, on the date on which the requisite number of consents or votes
has been obtained to approve the Merger, "affiliates" of the Company within the
meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act.
4.21 VOTING AGREEMENTS
Steven White and New Horizons, LP (the "KEY STOCKHOLDERS") shall have executed,
concurrently with the execution of this Agreement, and have fulfilled the terms
of, voting agreements in the form of EXHIBIT 4.21.
4.22 S-4
The S-4 shall have become effective under the Securities Act and shall not be
the subject of any stop order or proceedings seeking a stop order and the Proxy
Statement shall not be at the Effective Time subject to any proceedings
commenced or threatened by the SEC.
4.23 AGREEMENTS WITH CERTAIN STOCKHOLDERS OF THE COMPANY
ShopNow.com and Astra Ventures shall have entered into an agreement wherein at
the Closing, in exchange for the termination of all obligations of the Company
to or agreements with Astra Ventures, ShopNow.com shall pay to Astra Ventures
$675,000 in cash and that number of shares of ShopNow.com Common Stock
determined by dividing $675,000 by $17.31. ShopNow.com and Momentous shall have
entered into an agreement wherein at the Closing ShopNow.com shall issue to
Momentous a warrant to purchase 20,000 shares of ShopNow.com Common Stock in
exchange for the cancellation and retirement of all indebtedness under the
Momentous Note. Such warrant shall have a one-year term and an exercise price
equal to the closing sales price of ShopNow.com Common Stock as reported on the
Nasdaq National Market on the trading day immediately preceding the Effective
Time.
4.24 EMPLOYMENT AND CONSULTING AGREEMENTS
ShopNow.com and Liad Meidar shall have entered into an Employment Agreement in
substantially the form attached hereto as EXHIBIT 4.24A. ShopNow.com and Steven
White shall have entered into a Consulting Agreement substantially in the form
attached hereto as EXHIBIT 4.24B.
4.25 LOCK-UP AGREEMENTS
ShopNow.com shall have entered into Lock-Up Agreements in substantially the form
attached hereto as EXHIBIT 4.25A with Steven White and Liad Meidar. ShopNow.com
and New Horizons LP shall have entered into the Lock-Up Agreement in
substantially the form attached hereto as EXHIBIT 4.25B.
4.26 TAX OPINION
ShopNow.com shall have received an opinion from Perkins Coie LLP to the effect
that the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code. In rendering such opinion, Perkins Coie LLP shall be
entitled to rely upon customary representation letters signed by the Company,
ShopNow.com and Merger Sub.
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4.27 NO DISSENTERS RIGHTS
Holders of not more than 5% of the outstanding shares of Company Common Stock
shall have delivered before the Effective Time timely written notice of such
holders' intent to demand payment as dissenting shareholders for such shares in
accordance with Nevada Law.
4.28 BOARD ACTIONS
The Company shall provide ShopNow.com or its counsel with evidence reasonably
satisfactory to ShopNow.com or its counsel that all corporate actions reflected
in the minutes of the Company and all stock issuances and options grants have
been duly authorized by the board of directors of the Company.
ARTICLE V -- CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE COMPANY
The obligations of the Company to perform and observe the covenants, agreements
and conditions hereof to be performed and observed by it at or before the
Closing shall be subject to the satisfaction of the following conditions, which
may be expressly waived only in writing signed by the Company.
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of ShopNow.com and Merger Sub contained
herein and in the Operative Documents shall have been true and correct in all
material respects when made and, except (a) for changes contemplated by this
Agreement and the Operative Documents and (b) to the extent that such
representations and warranties speak as of an earlier date, shall be true and
correct as of the Closing Date as though made on that date.
5.2 PERFORMANCE OF AGREEMENTS
ShopNow.com and Merger Sub shall have performed in all material respects all
obligations and agreements and complied with all covenants contained in this
Agreement or any Operative Document to be performed and complied with by them at
or prior to the Closing.
5.3 COMPLIANCE CERTIFICATE
The Company shall have received a certificate of an officer of ShopNow.com,
dated the Closing Date, in form and substance reasonably satisfactory to the
Company, certifying that the conditions to the obligations of the Company in
Sections 5.1, 5.2, 5.5 and 5.6 have been fulfilled.
5.4 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect that enjoins,
restrains, conditions or prohibits consummation of this Agreement or any
Operative Document, and no litigation, investigation or administrative
proceeding shall be pending or threatened which would enjoin, restrain,
condition or prevent consummation of this Agreement or any Operative Document.
5.5 MATERIAL ADVERSE CHANGE
Since the date of this Agreement and through the Closing, there shall not have
occurred any material change in the business, financial condition, operations,
properties or prospects of ShopNow.com. Changes in the trading prices of
ShopNow.com Common Stock or a public offering of ShopNow.com Common Stock shall
not be deemed material adverse changes under this Agreement.
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5.6 APPROVALS AND CONSENTS
All transfers of permits or licenses and all approvals of or notices to public
agencies, federal, state, local or foreign, the granting or delivery of which is
necessary on the part of ShopNow.com and Merger Sub for the consummation of the
transactions contemplated hereby, shall have been obtained, and all waiting
periods specified by law shall have passed. All other consents, approvals and
notices on the part of ShopNow.com and Merger Sub referred to in this Agreement
shall have been obtained or delivered.
5.7 COMPLIANCE WITH LAWS
The effectiveness of the Merger and the performance by ShopNow.com, Merger Sub
and the Company of the obligations hereunder and under the Operative Documents
shall be legally permitted by all laws and regulations to which ShopNow.com,
Merger Sub and the Company are subject.
5.8 OPINION OF COUNSEL
The Company shall have received the opinion letter of Perkins Coie LLP, counsel
for ShopNow.com and Merger Sub, dated the Closing Date, in the form of
EXHIBIT 5.8.
5.9 S-4
The S-4 shall have become effective under the Securities Act and shall not be
the subject of any stop order or proceedings seeking a stop order and the Proxy
Statement shall not be at the Effective Time subject to any proceedings
commenced or threatened by the SEC.
5.10 TAX OPINION
The Company shall have received an opinion from Dorsey & Whitney LLP to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. In rendering such opinion, Dorsey & Whitney LLP
shall be entitled to rely upon customary representation letters signed by the
Company, ShopNow.com and Merger Sub.
ARTICLE VI -- COVENANTS
Between the date of this Agreement and the Effective Time, the parties covenant
and agree as set forth in this Article VI.
6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER
Unless ShopNow.com shall otherwise agree in writing, the Company covenants and
agrees to conduct the Company's business between the date of this Agreement and
the Effective Time in and only in, and the Company shall not take any action
except in, the ordinary course of business and in a manner consistent with past
practice and in accordance with applicable law; and the Company shall use its
reasonable best efforts to preserve intact the business organization of the
Company, to keep available the services of the current officers, employees and
consultants of the Company and to preserve the current relationships of the
Company with, and the goodwill of, customers, suppliers and other Persons with
which the Company has significant business relations. By way of amplification
and not limitation, except as otherwise contemplated by this Agreement, the
Company shall not, between the date of this Agreement and the Effective Time,
directly or indirectly do, or propose to do, any of the following without the
prior written consent of ShopNow.com:
(a) amend or otherwise change the Company's Articles of Incorporation or
Bylaws;
(b) except for the issuance of shares of Company Common Stock upon the
exercise or conversion of currently outstanding Stock Purchase Rights,
issue, sell, contract to issue or sell, pledge, dispose of, grant, encumber
or authorize the issuance, sale, pledge, disposition, grant or Encumbrance
of (i) any shares of capital
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stock of any class of the Company, (ii) any assets of the Company, except in
the ordinary course of business and in a manner consistent with past
practice or (iii) any options, warrants, convertible securities or other
rights of any kind to acquire any shares of such capital stock, or any other
ownership interest (including, without limitation, any phantom interest) of
the Company;
(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock or other securities, property or otherwise, with
respect to any of its capital stock;
(d) reclassify, combine, split, subdivide, redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock or other
securities;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation,
partnership, other business organization or division thereof or any material
amount of assets; (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any Person, or make
any loans or advances, except in the ordinary course of business and
consistent with past practice; (iii) enter into any contract or agreement
other than in the ordinary course of business, consistent with past
practice; (iv) authorize any single capital expenditure which is in excess
of $50,000 or capital expenditures which are, in the aggregate, in excess of
$200,000 for the Company taken as a whole; (v) enter into any agreement in
which the obligation of the Company exceeds $50,000 or which shall not
terminate or be subject to termination for convenience within 30 days
following execution; (vi) license any Technology or IP Rights; or
(vii) enter into or amend any contract, agreement, commitment or arrangement
with respect to any matter set forth in this subsection (e);
(f) enter into or amend any employment, consulting or agency agreement,
or increase the compensation payable or to become payable to its officers,
employees, agents or consultants, or grant any severance or termination pay
to, or enter into any employment or severance agreement with, any director,
officer or other employee of the Company, or establish, adopt, enter into or
amend any Employee Benefit Plan, collective bargaining, bonus,
profit-sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance, benefit or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee;
(g) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect
to accounting methods, policies or procedures (including, without
limitation, procedures with respect to the payment of accounts payable and
collection of accounts receivable);
(h) make any Tax election or settle or compromise any Tax liability;
(i) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice;
(j) take any action that would or is reasonably likely to result in any
of the representations or warranties of the Company set forth in this
Agreement being untrue in any material respect, or in any covenant of the
Company set forth in this Agreement being breached, or in any of the
conditions to the Merger specified in Article IV not being satisfied; or
(k) agree to do any of the foregoing.
6.2 ACCESS TO INFORMATION; CONFIDENTIALITY
From the date hereof to the Effective Time, the Company shall, and shall cause
the officers, directors, employees and agents of the Company to, afford the
officers, employees and agents of ShopNow.com access at all reasonable times to
the officers, employees, agents, properties, offices, plants and other
facilities, books and records of the Company and shall furnish ShopNow.com with
all financial, operating and other data and information as ShopNow.com, through
its officers, employees or agents, may reasonably request. From the date hereof
until the Effective Time, the Company shall provide ShopNow.com with monthly and
other financial statements of the Company as they become
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available internally at the Company, all of which financial statements shall
fairly present the financial position and results of operations of the Company
as of the dates and for the periods therein specified. No investigation pursuant
to this Section 6.2 shall affect any representation or warranty in this
Agreement of any party hereto or any condition to the obligations of the parties
hereto. The parties shall continue to comply with and to perform their
respective obligations under the Mutual Nondisclosure Agreement between
ShopNow.com and the Company entered into as of December 17, 1999.
6.3 NO ALTERNATIVE TRANSACTIONS
(a) Unless this Agreement shall have been terminated in accordance with its
terms, the Company shall not, directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage the submission of
any proposal or offer from any Person relating to any acquisition or purchase of
all or (other than in the ordinary course of business) any material portion of
the assets of, or any equity interest in, the Company or any business
combination with the Company (an "ALTERNATIVE TRANSACTION"), or participate in
any negotiations regarding, or furnish to any other Person any information with
respect to, or otherwise cooperate or negotiate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
Person to do or seek any of the foregoing. The Company shall notify ShopNow.com
promptly if any such proposal or offer, or any inquiry or contact with any
Person with respect thereto, is made and shall, in any such notice to
ShopNow.com, indicate in reasonable detail the identity of the Person making
such proposal, offer, inquiry or contact and the terms and conditions of such
proposal, offer, inquiry or contact. The Company agrees not to release any third
party from, or waive any provision of, any confidentiality or standstill (e.g.,
agreement not to invest in or seek change of control of the Company) agreement
to which the Company is a party. Notwithstanding the foregoing, in the event the
Company receives a bona fide offer or proposal from any third party regarding an
Alternative Transaction (an "OFFER") the Company may accept such Offer (after
complying with Section 6.3(b) below) if the board of directors of the Company
reasonably determines after due consideration of the factual basis and the
advice of counsel experienced in such matters that such action is required by
law; provided, however, that any such action by the Company shall be deemed a
breach of this Section 6.3 for purposes of determining whether the Company must
pay the Termination Fee described in Section 7.2.
(b) In the event the Company receives an Offer as described in the last
sentence of Section 6.3(a), then the Company shall, prior to accepting such
Offer or entering into any definitive agreement with respect to the Offer,
notify ShopNow.com in writing of: (a) all of the terms and conditions of such
Offer (which notice shall include a copy of any term sheets and proposed
definitive agreements reflecting such terms and conditions and include the
identity of the third party or parties making the Offer); (b) the Company's
intention of accepting the Offer on such terms and conditions; and (c) the
Company's agreement to enter into a proposed Alternative Transaction with
ShopNow.com on terms and conditions substantially similar to those set forth in
the Offer (a "Notice of Offer"). ShopNow.com will have 10 days from the receipt
of such Notice of Offer (the "Exclusivity Period") to deliver written notice to
the Company of ShopNow.com's acceptance of the Company's offer to enter into an
agreement with the Company providing for a Alternative Transaction on terms and
conditions substantially similar to those set forth in the Notice of Offer (a
"Notice of Acceptance"); provided, however, that to the extent that the
consideration being offered to the Company in the Offer consists of property
other than cash or securities, then ShopNow.com's acceptance shall, in lieu of
such noncash property or securities, provide for the payment of other
consideration to the Company of substantially equivalent fair market value. The
Company agrees that it will not accept any Offer, enter into any definitive
agreement providing for, or otherwise consummate any Alternative Transaction
with any third party other than ShopNow.com until the expiration of the
Exclusivity Period. If ShopNow.com delivers a Notice of Acceptance to the
Company prior to the expiration of the Exclusivity Period, then ShopNow.com and
the Company shall, within 20 days following receipt of the Notice of Acceptance,
enter into an agreement, on final terms and conditions to be negotiated in good
faith between them, providing for a Alternative Transaction on the terms and
conditions provided for in the Notice of Offer and Notice of Acceptance.
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<PAGE>
6.4 NOTIFICATION OF CERTAIN MATTERS
Each party shall give prompt notice to the other parties of (a) the occurrence
or nonoccurrence of any event that would be reasonably likely to cause any
representation or warranty made by such party contained in this Agreement to be
untrue or inaccurate in any material respect and (b) any material failure by
such party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 6.4 shall not limit or otherwise affect
the remedies available to the parties hereunder.
6.5 FURTHER ACTION; COMMERCIALLY REASONABLE EFFORTS
Upon the terms and subject to the conditions hereof, each of the parties hereto
shall use commercially reasonable efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated hereby, including, without limitation,
using commercially reasonable efforts to obtain all waivers, licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company as are necessary for the
consummation of the transactions contemplated hereby and to fulfill the
conditions to the Merger. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or the Operative Documents, each party to this Agreement shall use
commercially reasonable efforts to promptly take all such action. After the
Closing, each party hereto, at the request of and without any further cost or
expense to the other parties, shall take any further actions reasonably
necessary or desirable to carry out the purposes of this Agreement or any
Operative Document, to vest in the Surviving Corporation full title to all
properties, assets and rights of the Company and to effect the issuance of the
Closing Shares pursuant to the terms and conditions hereof.
6.6 PUBLICITY
No party hereto shall issue any press release or otherwise make any statements
to any third party with respect to this Agreement or the transactions
contemplated hereby other than the issuance by ShopNow.com of a press release
announcing this Agreement and the transactions contemplated hereby or as
required by law. Any party who is required by law to make any such disclosure
must provide notice in advance of the disclosure to all other parties. Such
notice shall contain (a) the contents of the proposed disclosure; (b) the
reasons that the party contemplating disclosure believes that disclosure is
required by law; and (c) the proposed time and place of such disclosure.
6.7 BRING-DOWN CAPITALIZATION SCHEDULE
No later than three days prior to the Closing, the Company shall deliver to
ShopNow.com an updated version of SCHEDULE 2.3 to the Company Disclosure
Memorandum (Capitalization). The updated SCHEDULE 2.3 shall be deemed an
amendment to SCHEDULE 2.3 attached hereto.
6.8 EXECUTION OF ALL OPERATIVE DOCUMENTS
Each party shall execute at or prior to the Closing each Operative Document to
which he, she or it is a party.
6.9 STOCKHOLDER APPROVAL
The Company will call a special Stockholders Meeting as soon as practicable but
in no event later than 30 days after the Form S-4 is declared effective by the
SEC to submit this Agreement, the Merger and related matters for the
consideration and approval of the Company's Stockholders ("COMPANY STOCKHOLDERS
MEETING"). Such approval will be recommended by the Company's Board of
Directors, subject to the fiduciary obligations of its directors. Such meeting
will be called, held and conducted, and any proxies will be solicited, in
compliance with applicable law.
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<PAGE>
6.10 PREPARATION OF S-4
The Company will as promptly as practicable provide to ShopNow.com and its
counsel for inclusion within the Proxy Statement/Prospectus and the S-4 in a
form reasonably satisfactory to ShopNow.com and its counsel, such information
concerning the Company, its operations, capitalization, technology, share
ownership and other information as ShopNow.com or its counsel may reasonably
request. By February 15, 2000, or as soon as practicable thereafter, ShopNow.com
and the Company shall prepare and file with the SEC the Proxy Statement and any
other documents required by the Exchange Act in connection with the Merger, and
ShopNow.com shall prepare and file with the SEC the S-4, in which the Proxy
Statement will be included as a part of the prospectus. Each of ShopNow.com and
the Company shall use its commercially reasonable best efforts to have the S-4
declared effective under the Securities Act as promptly as practicable after
such filing. Prior to the effective date of the S-4, ShopNow.com shall also take
any action required to be taken under any applicable federal or state securities
or blue sky laws in connection with the issuance of the ShopNow.com Common Stock
in the Merger. The Company agrees that the Proxy Statement/ Prospectus will
comply as to form in all material respects with the provisions of all applicable
laws, including the provisions of the Exchange Act and the rules and regulations
of the SEC thereunder, except that no representation is made by the Company with
respect to information supplied by ShopNow.com specifically for inclusion
therein. ShopNow.com agrees that the S-4 and the Proxy Statement/Prospectus will
comply as to form in all material respects with the provisions of all applicable
laws including the provisions of the Securities Act and the Exchange Act and the
rules and regulations of the SEC thereunder, except that no representation is
made by ShopNow.com with respect to information supplied by the Company
specifically for inclusion therein.
6.11 SHOPNOW.COM COMMON STOCK
ShopNow.com agrees to authorize for listing on the Nasdaq National Market the
shares of ShopNow.com Common Stock comprising the Closing Shares by filing with
the Nasdaq National Market a Notification of Listing of Additional Shares (or
such other form as may be required by the Nasdaq National Market) as soon as
reasonably practicable after the Closing or otherwise in accordance with the
rules and regulations of the Nasdaq National Market.
6.12 RETIREMENT OF INDEBTEDNESS
Immediately prior to the Effective Time, ShopNow.com agrees to pay off all
outstanding indebtedness of the Company under the Alpine Capital Note.
ARTICLE VII -- TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION
This Agreement may be terminated and the Merger may be abandoned at any time
prior to the Effective Time (notwithstanding approval of this Agreement by the
stockholders):
(a) by mutual written consent of the Company and ShopNow.com;
(b) by either the Company or ShopNow.com, if the Merger has not been
consummated by June 22, 2000; provided, however, that the right to terminate
this Agreement under this subsection (b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before such date;
(c) by either the Company or ShopNow.com, if there shall be any law or
regulation that makes consummation of the Merger illegal or if any judgment,
injunction, order or decree enjoining ShopNow.com, Merger Sub or the Company
from consummating the Merger is entered and such judgment, injunction, order
or decree shall become final and non-appealable; provided, however, that the
party seeking to terminate this Agreement pursuant to this subsection
(c) shall have used all reasonable efforts to remove such judgment,
injunction, order or decree;
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<PAGE>
(d) by the Company, in the event of a material breach by ShopNow.com or
Merger Sub of any representation, warranty or agreement contained herein
that has not been cured or is not curable by June 22, 2000; or
(e) by ShopNow.com, in the event of a material breach by the Company of
any representation, warranty or agreement contained herein that has not been
cured or is not curable by June 22, 2000.
(f) by either ShopNow.com or the Company upon written notice to the
other party, in the event that the Undisclosed Liability as determined in
accordance with Section 1.7.1(c)(ii) exceeds $1,000,000 and the parties are
unable to agree within 15 days after the date such Undisclosed Liability is
determined to any adjustment to the Closing Shares.
7.2 EFFECT OF TERMINATION
(a) Except as specifically provided in this Section 7.2, in the event of the
termination of this Agreement pursuant to Section 7.1 hereof, there shall be no
further obligation on the part of any party hereto, except that nothing herein
shall relieve any party from liability for any willful breach hereof.
(b) If ShopNow.com shall terminate this Agreement pursuant to (i) Section
7.1(b) by reason of the Company's failure or inability to satisfy the conditions
to the Merger or (ii) Section 7.1(e) by reason of the Company's breach of the
covenants contained in Sections 6.1, 6.3 or 6.6 (a "BREAKUP TERMINATION"), and
the Company consummates an Alternative Transaction on or before the one-year
anniversary of such termination, the Company shall: (i) pay to ShopNow.com upon
the closing of the Alternative Transaction a termination fee (the "TERMINATION
FEE"), equal to 20% of the aggregate value of cash and non-cash consideration
(including the assumption of any liabilities of the Company) received and to be
received by the Company and/or its stockholders in respect of such Alternative
Transaction in excess of $45 million.
ARTICLE VIII -- GENERAL
8.1 SURVIVAL
All representations and warranties contained in this Agreement or in the
Operative Documents or in any certificate delivered pursuant hereto or thereto
shall terminate upon the Effective Time. The covenants and agreements contained
in this Agreement shall survive and continue until all obligations with respect
thereto shall have been performed or satisfied or shall have been terminated in
accordance with their terms.
8.2 TAX MATTERS -- REORGANIZATION TREATMENT
Solely for tax purposes and except as otherwise required by law, ShopNow.com
shall, and shall cause Merger Sub and the Company to: (a) report the Merger as a
reorganization under Section 368(a)(1) of the Code on all applicable U.S.
federal, state and local Tax Returns (as defined in Section 2.8) and (b) keep
records and file in connection with their respective U.S. federal and state Tax
Returns all such information as may be required by Treasury Regulation Section
1.368-3.
8.3 EXPENSES
If the transactions contemplated by this Agreement are not consummated, each
party shall pay its own fees and expenses incident to the negotiation,
preparation and execution of this Agreement and the Operative Documents
(including legal and accounting fees and expenses); provided, however, that the
attorneys' fees and expenses of the prevailing party in any action brought
hereunder shall be paid by the other party to such action. If the transactions
contemplated by this Agreement are consummated, ShopNow.com will pay the
reasonable fees and expenses of the Company and the Key Stockholders incident to
the negotiation, preparation and execution of this Agreement and the Operative
Documents (other than the costs and expenses of the attorneys, accountants and
other representatives of the Key Stockholders in excess of $10,000, which excess
expenses shall remain the responsibility of the Key
A-36
<PAGE>
Stockholders). The stockholders of the Company shall pay any and all brokerage
or finders' fees or agents' commissions or any similar charges incurred in
connection with the Merger and set forth on Schedule 2.19 to the Company
Disclosure Memorandum.
8.4 NOTICES
Any notice, request or demand desired or required to be given hereunder shall be
in writing given by personal delivery, confirmed facsimile transmission or
overnight courier service, in each case addressed as respectively set forth
below or to such other address as any party shall have previously designated by
such a notice. The effective date of any notice, request or demand shall be the
date of personal delivery, the date on which successful facsimile transmission
is confirmed or the date actually delivered by a reputable overnight courier
service, as the case may be, in each case properly addressed as provided herein
and with all charges prepaid.
TO SHOPNOW.COM OR MERGER SUB:
ShopNow.com Inc.
411 First Avenue South, Suite 200 North
Seattle, Washington 98101
Fax: (206) 223-2324
Attention: Alan D. Koslow
with a copy to:
Perkins Coie LLP
1201 Third Avenue, 48th Floor
Seattle, Washington 98101-3099
Fax: (206) 583-8500
Attention: Edmund Belsheim
TO THE COMPANY:
Ubarter.com Inc.
2815 2nd Avenue Suite 500
Seattle, WA 98121
Fax: (206)239-2729
Attention: Steven M. White
with a copy to:
Dorsey & Whitney LLP
U.S. Bank Building Center
1420 Fifth Avenue, Suite 400
Seattle, WA 98101
Fax: (206) 903-8820
Attention: Michael Brown
8.5 SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.
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<PAGE>
8.6 ENTIRE AGREEMENT
This Agreement, the Operative Documents, that certain Non-Disclosure Agreement
dated on or about December 17, 1999, and the ShopNow.com Note, constitute the
entire agreement among the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof and thereof (including, without limitation, the Letter of Intent, dated
December 20, 1999, between ShopNow.com, the Company, and the Key Stockholders).
8.7 ASSIGNMENT
This Agreement shall not be assigned by operation of law or otherwise; provided,
however, that Merger Sub's rights and obligations may be assigned to and assumed
by ShopNow.com or any other corporation wholly owned (directly or through
intermediate wholly owned subsidiaries) by ShopNow.com.
8.8 PARTIES IN INTEREST
This Agreement shall be binding upon and inure solely to the benefit of the
parties hereto and their respective successors, heirs, legal representatives and
permitted assigns, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
8.9 GOVERNING LAW; VENUE
This Agreement shall be governed by, and construed in accordance with, the laws
of the state of Washington applicable to contracts executed in and to be
performed in that state. The parties irrevocably consent to the jurisdiction and
venue of the state and federal courts located in King County, Washington in
connection with any action relating to this Agreement (except to the extent
provisions of Nevada Law apply to the Merger).
8.10 HEADINGS
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.11 COUNTERPARTS
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement.
8.12 WAIVER OF JURY TRIAL
Each of ShopNow.com, the Company 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,
the transactions contemplated hereby or the actions of such parties in the
negotiation, administration, performance and enforcement hereof.
8.13 AMENDMENT
This Agreement may not be amended except by an instrument in writing signed by
ShopNow.com, Merger Sub and the Company.
8.14 WAIVER
At any time prior to the Effective Time, any party hereto may (a) extend the
time for the performance of any obligation or other act of any other party
hereto, (b) waive any inaccuracy in the representations and warranties
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<PAGE>
contained herein or in any document delivered pursuant hereto, or (c) waive
compliance with any agreement or condition contained herein. Any such extension
or waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
[Signature Page Follows]
A-39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement and Plan of Merger as of the date and year first above written.
SHOPNOW.COM INC.
/s/ ALAN KOSLOW
--------------------------------------
Name
--------------------------------------
Its
--------------------------------------
SHAMU ACQUISITION, INC.
/s/ ALAN KOSLOW
--------------------------------------
Name
--------------------------------------
Its
--------------------------------------
UBARTER.COM INC.
/s/ STEVEN M. WHITE
--------------------------------------
Name
--------------------------------------
Its CEO
--------------------------------------
A-40
<PAGE>
ANNEX B
CALL OPTION
THIS IS TO CERTIFY that, for $1,000 and other value received and subject to
these terms and conditions, ShopNow.com Inc. ("HOLDER"), is entitled to exercise
this Call Option to purchase 1,337,896 fully paid and nonassessable shares (the
"SHARES") of the Common Stock (the "COMMON STOCK") of Ubarter.com Inc., a Nevada
corporation (the "COMPANY"), from Steven White (the "SHAREHOLDER") at a price
per share of $6.00.
This Call Option may be exercised by the Holder, at any time after the date of
issuance, but not later than April 30, 2000, in whole or in part, by delivering
to the Shareholder (a) this Call Option, (b) a certified or cashier's check
payable to the Shareholder in the amount of the Exercise Price multiplied by the
number of shares for which this Call Option is being exercised (the "PURCHASE
PRICE"), and (c) the Notice of Exercise attached as EXHIBIT A duly completed and
executed by the Holder. Upon exercise, the Holder shall be entitled to receive
from the Company a stock certificate in proper form representing the number of
shares of Common Stock so purchased. Notwithstanding the foregoing, this Call
Option shall immediately terminate if (i) Holder terminates the binding
provisions of that certain Letter of Intent, dated December 20, 1999, among
Holder, the Company, the Shareholder and New Horizons LLC (the "LOI"), pursuant
to Paragraph J(iii), J(iv) or J(v) thereof or (ii) the Company and Holder
terminate the binding provisions of the LOI pursuant to
Paragraph J(i) thereof.
Within 10 days after the payment of the Purchase Price following the exercise of
this Call Option (in whole or in part), the Shareholder shall (a) cause the
Company, at Holder's expense, to issue in the name of and deliver to the Holder
a certificate or certificates for the number of fully paid and nonassessable
shares of Common Stock to which the Holder shall be entitled upon such exercise,
and (b) grant a new Call Option of like tenor to purchase up to that number of
shares of Common Stock, if any, as to which this Call Option has not been
exercised if this Call Option has not expired. The Holder shall for all purposes
be deemed to have become the holder of record of such shares of Common Stock on
the date this Call Option was exercised, irrespective of the date of delivery of
the certificate or certificates representing the Common Stock; provided that, if
the date such exercise is made is a date when the stock transfer books of the
Company are closed, such person shall be deemed to have become the holder of
record of such shares of Common Stock at the close of business on the next
succeeding date on which the stock transfer books are open.
The Shareholder hereby represents and warrants to the Holder that (i) the
Shareholder owns beneficially and of record the Shares, free and clear of any
liens, mortgages, pledges, deeds of trust, security interests, charges,
encumbrances or other adverse claims of interest of any kind; (ii) the
Shareholder has the necessary power and capacity (as the case may be) and
authority to execute this Call Option, to make the representations, warranties
and covenants herein and to perform the obligations hereunder; (iii) this Call
Option is duly executed and is a legal, valid and binding obligation of the
Shareholder, enforceable in accordance with its terms; and (iv) the execution,
delivery and performance of this Call Option by the Shareholder will not
(a) constitute a violation (with or without the giving of notice or lapse of
time or both) of any provision of any law applicable to the Shareholder,
(b) require any consent, approval or authorization of, or notice to, any person,
corporation, partnership, domestic or foreign governmental authority or other
organization or entity or (c) result in a default under, an acceleration or
termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel, any material agreement, lease, note or other
restriction, encumbrance, obligation or liability to which the Shareholder is a
party or by which the Shareholder is bound or (d) result in the creation or
imposition of any lien on any of the Shares held by the Shareholder.
This Call Option shall be governed by and construed under the laws of the state
of Washington without regard to principles of conflict of laws. The parties
irrevocably consent to the jurisdiction and venue of the state and federal
courts located in King County, Washington in connection with any action relating
to this Call Option.
[The remainder of this page is intentionally left blank.]
B-1
<PAGE>
IN WITNESS WHEREOF, the Shareholder and the Holder have caused this Call Option
to be duly executed by its duly authorized officers, effective as of the date
written above.
<TABLE>
<S> <C> <C>
SHAREHOLDER: /s/ STEVEN WHITE
---------------------------------------------
Steven White
HOLDER:
ShopNow.com Inc.
By: /s/ ALAN D. KOSLOW
---------------------------------------
Name: Alan D. Koslow
---------------------------------------
Title: Executive Vice President, Chief
Financial Officer, Secretary, General
Counsel
---------------------------------------
</TABLE>
B-2
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: Steven White
The undersigned hereby irrevocably elects to purchase shares of
shares of the Common Stock (the "COMMON STOCK") Ubarter.com Inc., a Nevada
corporation (the "COMPANY"), issuable upon the exercise of the attached Call
Option and requests that Steven White cause the Company to issue certificates
for such shares in the name of and delivered to the address of the undersigned,
at the address stated below and, if said number of shares shall not be all the
shares that may be purchased pursuant to the attached Call Option, that a new
Call Option evidencing the right to purchase the balance of such shares be
executed in the name of, and delivered to, the undersigned at the address stated
below.
<TABLE>
<S> <C>
Payment enclosed in the amount of
$ .
Dated:
Name of Holder of Call Option: ShopNow.com Inc.
411 First Avenue S, Suite 200N
Address: Seattle, WA 98104
</TABLE>
<TABLE>
<S> <C>
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
</TABLE>
B-3
<PAGE>
ANNEX C
VOTING AGREEMENT
VOTING AGREEMENT, dated as of January , 2000 (the "VOTING AGREEMENT"), by and
between ShopNow.com Inc. ("PARENT") and (THE "SHAREHOLDER").
WHEREAS, Parent, Shamu Acquisition, Inc. ("MERGER SUB"), and Ubarter.com Inc.
(the "COMPANY") are entering into an Agreement and Plan of Merger of even date
herewith (the "MERGER AGREEMENT") which provides (subject to the conditions set
forth therein) for the merger of Merger Sub with and into the Company (the
"MERGER").
WHEREAS, this Voting Agreement is required to be executed and delivered by the
Shareholder to Parent and Parent would not enter into the Merger Agreement
without the execution and delivery of this Voting Agreement;
WHEREAS, the Shareholder owns the shares of Company Common Stock (the "COMMON
STOCK") and the options and/or warrants to purchase shares of Common Stock as
identified on Annex I hereto (such shares, together with all shares of Common
Stock and capital stock of the Company, if any, subsequently acquired by the
Shareholder during the term of this Voting Agreement, being referred to as the
"SHARES"); and
WHEREAS, in order to induce Parent to enter into the Merger Agreement, the
Shareholder has agreed to enter into and perform his, her or its obligations
under this Voting Agreement.
NOW, THEREFORE, in consideration of the agreements and covenants contained
herein, the Shareholder and Parent agree as follows:
I. AGREEMENT TO VOTE SHARES
The Shareholder shall vote or cause to be voted, or execute a written consent
with respect to, the Shares (a) in favor of adoption and approval of the Merger
Agreement and all transactions relating thereto or contemplated thereby at every
meeting of the shareholders of the Company at which such matters are considered
and at every adjournment thereof and in connection with every proposal to take
action by written consent with respect thereto, and (b) against any proposal by
a party other than Parent to merge or consolidate with the Company or any
subsidiary of the Company or to sell all or substantially all the assets of or
any sales of equity interest in the Company or any subsidiary of the Company at
every meeting of the shareholders of the Company at which such matters are
considered and at every adjournment thereof and in connection with every
proposal to take action by written consent with respect thereto.
II. NO VOTING TRUSTS
The Shareholder agrees that the Shareholder will not, nor will the Shareholder
permit any entity under the Shareholder's control to, deposit any Shares in a
voting trust or subject the Shares to any agreement, arrangement or
understanding with respect to the voting of the Shares inconsistent with this
Voting Agreement.
III. LIMITATION ON SALES
During the term of this Voting Agreement, the Shareholder agrees not to sell,
assign, transfer, pledge, encumber or otherwise dispose of any of the Shares
except to Parent.
IV. LETTER OF TRANSMITTAL
At the Effective Time (as defined in the Merger Voting Agreement), the
Shareholder shall execute and deliver the letter of transmittal sent to
Shareholder by the Exchange Agent (as that term is defined in the Merger
Agreement) along with a certificate or certificates representing the Shares to
Parent or the Exchange Agent.
C-1
<PAGE>
V. WAIVER OF DISSENTER'S RIGHTS
The Shareholder hereby irrevocably and unconditionally waives, and agrees to
cause to be waived and to prevent the exercise of, any rights of appraisal, any
dissenters' rights and any similar rights relating to the Merger that the
Shareholder may have by virtue of the ownership of any outstanding Shares.
VI. TAX MATTERS
(a) The Shareholder shall timely pay all transfer, documentary, sales, use,
stamp, registration and other taxes arising from or relating to the transactions
contemplated by the Merger Agreement, to the extent they relate specifically to
the issuance of shares of Parent Common Stock to Shareholder, and Shareholder
shall, at his or its own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration, and other taxes.
(b) The Shareholder shall not take a position on any tax returns
inconsistent with the treatment of the Merger for tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, unless compelled by any taxing authority. Neither Parent nor Merger Sub
makes any representation or warranty with respect to any tax consequences to the
Shareholder arising under the Merger Agreement or as a result of the Merger.
VII. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
The Shareholder represents and warrants to Parent as follows:
A. AUTHORITY; NO APPROVALS; NO CONFLICTS; NO LIENS
The Shareholder has the necessary power or capacity (as the case may be) and
authority to execute this Voting Agreement, to make the representations,
warranties and covenants herein and to perform the obligations hereunder.
This Voting Agreement is duly executed and is a legal, valid and binding
obligation of the Shareholder, enforceable in accordance with its terms.
The execution, delivery and performance of this Voting Agreement by the
Shareholder will not (a) constitute a violation (with or without the giving of
notice or lapse of time or both) of any provision of any law applicable to the
Shareholder, (b) require any consent, approval or authorization of, or notice
to, any person, corporation, partnership, domestic or foreign governmental
authority or other organization or entity or (c) result in a default under, an
acceleration or termination of, or the creation in any party of the right to
accelerate, terminate, modify or cancel, any material agreement, lease, note or
other restriction, encumbrance, obligation or liability to which the Shareholder
is a party or by which the Shareholder is bound or (d) result in the creation or
imposition of any lien on any of the Shares of Company Capital Stock held by the
Shareholder.
B. OWNERSHIP OF SHARES
Annex I hereto correctly sets forth, as of the date of this Voting
Agreement, the number of shares of Common Stock owned beneficially and of
record by the Shareholder and the number of options or warrants to purchase
shares of Common Stock held by the Shareholder. The Shareholder owns
beneficially and of record the Shares set forth opposite such Shareholder's
name on Annex I free and clear of any lien, encumbrance, preemptive right,
right of first offer or refusal, or other prior claim, and delivery by the
Shareholder to Merger Sub of the certificates representing the Shares at the
Closing (as defined in the Merger Agreement) will transfer to Merger Sub
good and valid title to the Shares and Merger Sub will acquire record and
beneficial ownership of the Shares, free and clear of any lien, encumbrance,
preemptive right, right of first offer or refusal, or other prior claim.
C. CLAIMS AGAINST THE COMPANY
The Shareholder does not have any past, present or contemplated claims
against the Company or any of its officers and directors.
C-2
<PAGE>
D. HART-SCOTT-RODINO
The Shareholder is his, her or its own ultimate parent entity as defined
under the rules and regulations promulgated under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976. The Shareholder either (i) is not a
$10 million person as defined under the Hart-Scott-Rodino Act or (ii) is a
$10 million person but is acquiring the Parent Common Stock solely for the
purpose of investment within the meaning of 16 C.F.R. 802.9.
E. ACCURACY OF REPRESENTATIONS
The representations and warranties contained in this Voting Agreement are
accurate in all respects as of the date of this Voting Agreement and will be
accurate in all respects at all times through the Effective Time.
VIII. SPECIFIC PERFORMANCE
The Shareholder acknowledges that in the event of any breach of this Voting
Agreement by the Shareholder, Parent would be irreparably harmed, no adequate
remedy at law or in damages would exist and damages would be difficult to
determine. Accordingly, the Shareholder agrees that injunctive relief or other
equitable remedy, in addition to all remedies at law or in damages, is the
appropriate remedy for any such failure and will not oppose the granting of such
relief on the basis that Parent has an adequate remedy at law. The Shareholder
agrees that it will not seek, and agrees to waive any requirement for, the
securing or posting of a bond in connection with the seeking or obtaining of
such equitable relief by Parent. In addition to all other rights or remedies to
which Parent may be entitled, in the event of a default in the Shareholder's
performance of the Shareholder's obligations under this Voting Agreement, the
Shareholder shall be liable to Parent for all litigation costs and attorneys'
fees incurred by Parent in connection with the enforcement of any of its rights
or remedies against the Shareholder.
IX. NON-EXCLUSIVITY
The rights and remedies of Parent under this Voting Agreement are not exclusive
of or limited by any other rights or remedies which it may have, whether at law,
in equity, by contract or otherwise, all of which shall be cumulative (and not
alternative).
X. TERM OF VOTING AGREEMENT; TERMINATION
The term of this Voting Agreement shall commence on the date hereof and
terminate upon the earlier to occur of (i) the Effective Time (as defined in the
Merger Agreement), or (ii) the date on which the Merger Agreement is terminated
in accordance with its terms. Upon such termination, no party shall have any
further obligations or liabilities hereunder; PROVIDED, HOWEVER, such
termination shall not relieve any party from liability for any breach of this
Voting Agreement prior to such termination.
XI. ENTIRE VOTING AGREEMENT
This Voting Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements and
understandings between the parties with respect thereto.
XII. ASSIGNMENT; BINDING EFFECT
Except as provided herein, neither this Voting Agreement nor any of the
interests or obligations hereunder may be assigned or delegated by the
Shareholder and any attempted or purported assignment or delegation of any of
such interests or obligations shall be void. Subject to the preceding sentence,
this Voting Agreement shall be binding upon the Shareholder and his, her or its
heirs, estate, executors, personal representatives, successors and assigns, and
shall inure to the benefit of Parent and its successors and assigns. This Voting
Agreement shall be binding upon any person or entity to whom any Shares are
transferred.
C-3
<PAGE>
XIII. INDEMNIFICATION
The Shareholder shall hold harmless and indemnify Parent from and against, and
shall compensate and reimburse Parent for, any loss, damage, claim, liability,
fee (including reasonable attorneys' fees), demand, cost or expense (regardless
of whether or not such loss, damage, claim, liability, fee, demand, cost or
expense relates to a third-party claim) that is directly or indirectly suffered
or incurred by Parent, or to which Parent becomes subject, and that arises
directly or indirectly from, or relates directly or indirectly to, any
inaccuracy in or breach of any representation, warranty, covenant or obligation
of the Shareholder contained in this Voting Agreement.
XIV. EXPENSES
All costs and expenses incurred in connection with the transactions contemplated
by this Voting Agreement shall be paid by the party incurring such costs and
expenses.
XV. NOTICES
Any notice or other communication required or permitted to be delivered to
Parent or the Shareholder under this Voting Agreement shall be in writing and
shall be deemed properly delivered, given and received when delivered (by hand,
by registered mail, by courier or express delivery service or by facsimile
confirmation obtained) to the address or facsimile number set forth beneath the
name of such party below (or to such other address or facsimile number as such
party shall have specified in a written notice given to the other party):
IF TO THE SHAREHOLDER:
At the address or facsimile number set forth on the signature page.
WITH A COPY TO:
IF TO PARENT:
ShopNow.com Inc.
411 First Avenue South, suite 200 North
Seattle, WA 98101
Fax: (206) 223-2324
Attention: Alan D. Koslow
WITH A COPY TO:
Perkins Coie LLP
1201 Third Avenue, 48(th) Floor
Seattle, WA 98101-3099
Attention: Edmund Belsheim
Fax: (206) 583-8500
XVI. MISCELLANEOUS
A. TERMINATION OF RIGHTS
Effective upon, and subject to the consummation of, the Merger, any past,
present or future rights that the Shareholder may have pursuant to any
agreement, contract or understanding relating to corporate governance,
registration rights, rights of first refusal or first offer and similar
rights shall terminate.
C-4
<PAGE>
B. SEVERABILITY
If any provision of this Voting Agreement or the application of such
provision to any person or circumstances shall be held invalid or
unenforceable by a court of competent jurisdiction, such provision or
application shall be unenforceable only to the extent of such invalidity or
unenforceability, and the remainder of this Voting Agreement shall not be
affected.
C. CAPACITY
The covenants contained herein shall apply to the Shareholder solely in his
or her capacity as a shareholder of the Company, and no covenant contained
herein shall apply to the Shareholder in his or her capacity as an officer
and/or director of the Company.
D. COUNTERPARTS
This Voting Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
E. HEADINGS
All Section headings herein are for convenience of reference only and are
not part of this Voting Agreement, and no construction or reference shall be
derived therefrom.
F. CHOICE OF LAW
This Voting Agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the laws of the State of
Washington, without reference to its conflicts of law principles.
G. WAIVER OF JURY TRIAL
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
VOTING AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
H. AMENDMENT OR MODIFICATION
This Voting Agreement may be amended, modified and supplemented only by
written agreement of all parties.
C-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Voting
Agreement as of the date first written above.
<TABLE>
<S> <C> <C>
SHAREHOLDER
-----------------------------------------------
By:
Address:
-----------------------------------------
-----------------------------------------
Fax:
SHOPNOW.COM INC.
-----------------------------------------------
NAME:
-----------------------------------------
TITLE:
-----------------------------------------
</TABLE>
C-6
<PAGE>
ANNEX I
<TABLE>
<CAPTION>
NUMBER OF SHARES OF OPTIONS/WARRANTS TO PURCHASE
NAME OF SHAREHOLDER STATE OF RESIDENCY COMMON STOCK OWNED SHARES OF COMMON STOCK D
- ------------------- -------------------------- -------------------------- ----------------------------
<S> <C> <C> <C>
</TABLE>
C-7
<PAGE>
SPOUSAL CONSENT
I am the spouse of the Shareholder named in the Voting Agreement. I understand
that I may consult independent legal counsel as to the effect of this Voting
Agreement and the consequences of my execution of this Voting Agreement and, to
the extent I felt it necessary, I have discussed such matters with legal
counsel. I hereby confirm this Voting Agreement and agree that it shall bind my
interest in the Shares, if any.
- --------------------------------------
Shareholder's Spouse's Name
C-8
<PAGE>
ANNEX D
FORM OF
EMPLOYMENT AGREEMENT
BETWEEN
SHOPNOW.COM INC.
AND
LIAD Y. MEIDAR
DATED AS OF , 2000
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), dated as of , 2000, is
made between ShopNow.com Inc., a Washington corporation ("Employer"), and Liad
Y. Meidar ("Employee").
W I T N E S S E T H:
WHEREAS, Employer, Shamu Acquisition, Inc., a Washington Corporation (the
"Merger Sub"), and Ubarter.com Inc., a Nevada corporation (the "Company"), and
certain principal shareholders of the Company have entered into an Agreement and
Plan of Merger (the "Merger Agreement"), pursuant to which the Company will
merge with and into Merger Sub, with Merger Sub being the surviving corporation
(the "Merger");
WHEREAS, Employer desires to retain the services of Employee upon the terms and
conditions set forth herein;
WHEREAS, Employee is willing to provide services to Employer upon the terms and
conditions set forth herein; and
WHEREAS, the execution of this Agreement by the parties hereto is a condition to
the effectiveness of the Merger.
A G R E E M E N T S:
NOW, THEREFORE, for and in consideration of the foregoing premises and for other
good and valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, Employer and Employee hereby agree as follows:
1. EMPLOYMENT
Employer shall employ Employee and Employee shall accept employment by Employer
as a Senior Vice President of Employer. Employee shall report directly to an
Executive Vice President of Employer.
2. ATTENTION AND EFFORT
Employee shall devote all of his entire productive time, ability, attention and
effort to Employer's business and shall skillfully serve its interests during
the term of this Agreement; PROVIDED, HOWEVER, that Employee may devote
reasonable periods of time to (a) engaging in personal investment activities,
(b) serving in an advisory capacity and/or on the Board of Directors of other
corporations, if such service would not otherwise be prohibited by the
Inventions Agreement (as defined below) and (c) engaging in charitable or
community service activities, so long as none of the foregoing additional
activities materially interfere with Employee's duties under this Agreement.
3. TERM
Employee's employment by Employer will be "at will," and either Employee or
Employer may terminate the employment relationship at any time with or without
Cause or Good Reason (each as defined in Section 8 hereof). Unless earlier
terminated pursuant to Section 7, the term of this Agreement shall commence on
the date hereof and terminate one year from the date hereof.
4. COMPENSATION
During the term of this Agreement, Employer agrees to pay or cause to be paid to
Employee, and Employee agrees to accept in exchange for the services rendered
hereunder by him, the following compensation:
4.1 BASE SALARY
Employee's compensation shall consist of an annual base salary of One
Hundred Twenty-Five Dollars ($125,000) before all customary payroll
deductions. Such annual base salary shall be paid in substantially equal
installments and at the same intervals as other employees of Employer are
paid. The Board of Directors or
D-1
<PAGE>
Chief Executive Officer of Employer shall determine any increases in the
amount of the annual base salary in future years.
4.2 BONUS
Employee shall be eligible to receive bonuses according to the standard
terms and consistent with the practices by which bonuses payable to other
executives of Employer are determined.
4.3 STOCK OPTIONS
Employee shall be granted options to purchase 250,000 shares of Employer's
common stock at an exercise price of $15.58 per share pursuant to Employer's
1999 Nonofficer Employee Stock Option Plan, or any successor plan that may
be adopted by Employer (the "Options"). Subject to Section 8, one-third of
such options shall vest on the one-year anniversary of the Closing (as
defined in the Merger Agreement), with the remaining balance of such options
vesting on a quarterly basis over the remaining two-year period. Such option
grant shall be subject to the execution by Employee of a stock option letter
agreement, which shall be in the form of Employer's standard stock option
agreement except that it shall contain a provision whereby all options shall
automatically and fully vest upon the termination of Employee by Employer
without Cause (as defined below) or if Employee terminates employment for
Good Reason (as defined below).
4.4 EXPENSES
Employer shall reimburse Employee for reasonable business expenses incurred
on behalf of Employer upon presentation of appropriate receipts in
accordance with Employer's written policies with respect thereto.
4.4 WITHHOLDING
Employer may withhold from any amounts payable under this Agreement such
federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
5. INVENTIONS AGREEMENT
Concurrent herewith, Employee shall execute and deliver to Employer the
Employer's standard form of Intellectual Property Agreement (Confidentiality,
Invention Assignment, Nonraiding and Noncompetition), substantially in the form
attached hereto as Exhibit A (the "Inventions Agreement.")
6. BENEFITS
During the Term of this Agreement, Employee shall be entitled to participate on
a basis no less favorable than other employees of Employer in similar position
and authority, subject to and in accordance with applicable eligibility
requirements, in fringe benefit programs made available to similarly situated
employees of Employer, as those programs may currently exist or be modified from
time to time. Employee shall be entitled to annual paid vacation accruing at the
rate of four weeks per year of employment and otherwise consistent with
Employer's existing vacation policy, and as amended from time to time; provided,
however, that Employee shall not be entitled to take more than two consecutive
weeks of vacation, nor more than two weeks of vacation in any three month
period.
D-2
<PAGE>
7 TERMINATION
Employment of Employee pursuant to this Agreement may be terminated as follows,
but in any case, the provisions of section 7 hereof and Section 8.1(b) shall
survive the termination of this Agreement and the termination of Employee's
employment hereunder:
7.1 BY EMPLOYER
With or without Cause, Employer may terminate the employment of Employee at
any time during the term of employment upon giving Notice of Termination (as
defined below).
7.2 BY EMPLOYEE
Employee may terminate his employment at any time, for any reason, upon
giving Notice of Termination.
7.3 AUTOMATIC TERMINATION
This Agreement and Employee's employment hereunder shall terminate
automatically upon the death or total disability of Employee. The term
"total disability" as used herein shall mean Employee's inability to perform
the duties set forth in section 1 hereof for a period or periods aggregating
120 calendar days in any 12-month period as a result of physical or mental
illness, loss of legal capacity or any other cause beyond Employee's
control, unless Employee is granted a leave of absence by the Board of
Directors of Employer. Employee and Employer hereby acknowledge that
Employee's ability to perform the duties specified in section 1 hereof is of
the essence of this Agreement. Termination hereunder shall be deemed to be
effective (a) at the end of the calendar month in which Employee's death
occurs or (b) immediately upon a determination by the Board of Directors of
Employer of Employee's total disability, as defined herein.
7.4 NOTICE
The term "Notice of Termination" shall mean at least 5 days' written notice
of termination of Employee's employment, during which period Employee's
employment and performance of services shall continue; PROVIDED, HOWEVER,
that Employer may, upon notice to Employee and without reducing Employee's
compensation during such period, excuse Employee from any or all of his
duties during such period. The effective date of the termination of
Employee's employment hereunder shall be the date on which such 5-day period
expires.
8. TERMINATION PAYMENTS
In the event of termination of the employment of Employee, all compensation and
benefits set forth in this Agreement shall terminate except as specifically
provided in this Section 8:
8.1 TERMINATION BY EMPLOYER
(A) If Employer terminates Employee's employment with or without Cause,
Employee shall be entitled to receive any unpaid annual base salary
and fringe benefits which have accrued for services already performed
as of the date termination of Employee's employment becomes
effective.
(B) If Employer terminates Employee's employment without Cause, then the
Options to which Employee is entitled to receive pursuant to
Section 4.3 shall automatically and fully vest.
8.2 TERMINATION BY EMPLOYEE
In the case of the termination of Employee's employment by Employee other
than for Good Reason, Employee shall not be entitled to any payments or
benefits hereunder, other than those set forth in section 8.1(a) hereof. In
the case of termination of Employee's employment by Employee for Good
Reason, Employee shall be entitled to all payments and benefits set forth in
Sections 8.1(a) and (b).
D-3
<PAGE>
8.3 TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY
In the event of a termination of Employee's employment because of his death
or total disability, Employee or his personal representative shall receive
the payments and benefits set forth in section 8.1(a).
8.4 PAYMENT SCHEDULE
All payments under this section 8 shall be made to Employee at the same
interval as payments of salary were made to Employee immediately prior to
termination.
8.5 GOOD REASON
"Good Reason" means without Employee's express written consent:
(A) a change in the Employee's status, title, position or
responsibilities (including reporting responsibilities) that
represents a substantial reduction in the status, title, position or
responsibilities as in effect immediately prior thereto; or any
removal of the Employee from or failure to reappoint or reelect the
Employee to any of such positions, except in connection with the
termination of the Employee's employment for Cause, as a result of
his or her total disability or death, or by the Employee other than
for Good Reason;
(B) a material reduction in the Employee's annual base salary;
(C) failure by the Employer to timely pay, or reduction by the Employer
of, Employee's benefits under Section 6 of this Agreement;
(D) the breach of any material provision of this Agreement by the
Employer, including, without limitation, failure by the Employer to
cause any successor to the Employer to expressly agree to and assume
the terms and provisions of this Agreement.
8.6 CAUSE
Wherever reference is made in this Agreement to termination being with or
without Cause, the term "Cause" shall mean (i) any act of fraud or
embezzlement by Employee; (ii) any breach by Employee of the Inventions
Agreement entered into with Employer; (iii) the conviction of Employee of a
misdemeanor or felony involving an act of dishonesty, moral turpitude,
deceit or fraud; (iv) current use by Employee of illegal substances,
(v) any act of deception, fraud, misrepresentation or dishonesty by
Employee, (vi) any material misconduct by Employee in connection with his or
her responsibilities as an employee or otherwise which materially impairs
Employer's business, good will or reputation or which materially compromises
Employee's ability to represent Employer with the public; (vii) Employee's
willful and material failure to perform his or her lawful duties as an
employee of Employer as determined by one or more senior executives of
Employer in good faith and the failure to "cure" such misconduct within a
period of five days following Employee's receipt of written notice of such
misconduct; or (viii) any other material violation of any provision of this
Agreement.
9. REPRESENTATIONS AND WARRANTIES
In order to induce Employer to enter into this Agreement, Employee represents
and warrants to Employer as follows:
9.1 NO VIOLATION OF OTHER AGREEMENTS
Neither the execution nor the performance of this Agreement by Employee will
violate or conflict in any way with any other agreement by which Employee
may be bound, or with any other duties imposed upon Employee by corporate or
other statutory or common law.
D-4
<PAGE>
9.2 PATENTS, ETC.
Employee has prepared and attached hereto as Schedule 1 a list of all
inventions, patent applications and patents made or conceived by Employee
prior to the date hereof which are subject to prior agreement or which
Employee desires to exclude from the Inventions Agreement, or, if no such
list is attached, Employee hereby represents and warrants to Employer that
there are no such inventions, patent applications or patents.
10. NOTICE AND CURE OF BREACH; BOARD OF DIRECTORS
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, before such action is taken, the party asserting the breach
of this Agreement shall give the other party at least 5 days' prior written
notice of the existence and the nature of such breach before taking further
action hereunder and shall give the party purportedly in breach of this
Agreement the opportunity to correct such breach during the 5-day period.
11. FORM OF NOTICE
All notices given hereunder shall be given in writing, shall specifically refer
to this Agreement and shall be personally delivered or sent by telecopy or other
electronic facsimile transmission or by registered or certified mail, return
receipt requested, at the address set forth below or at such other address as
may hereafter be designated by notice given in compliance with the terms hereof:
<TABLE>
<S> <C>
If to Employee: Liad Y. Meidar
2440 Western Avenue,
804 Seattle, WA 98121Fax: 206/443-1760
Copy to: Lasher, Holzapfel, Sperry & Ebberson PLLC
2600 Two Union Square
601 Union Street
Seattle, WA 98101
Fax: 206/340-2563
Attention: George S. Holzapfel
If to Employer: ShopNow.Com Inc.
411 First Avenue South, Suite 200 North
Seattle, Washington 98104
Fax: (206) 223-2324
Attention: Alan D. Koslow
Copy to: Perkins Coie LLP
1201 Third Avenue, 48(th) Floor
Seattle, Washington 98101-3099
Attn: Edmund O. Belsheim, Jr.
</TABLE>
If notice is mailed, such notice shall be effective upon mailing, or, if notice
is personally delivered or sent by telecopy or other electronic facsimile
transmission, it shall be effective upon receipt.
12. ASSIGNMENT
This Agreement is personal to Employee and shall not be assignable by Employee.
Employer may assign its rights hereunder to (a) any corporation resulting from
any merger, consolidation or other reorganization to which Employer is a party
or (b) any corporation, partnership, association or other person to which
Employer may transfer all or substantially all of the assets and business of
Employer existing at such time. All the terms and provisions of this
D-5
<PAGE>
Agreement shall be binding on and shall inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns.
13. WAIVERS
No delay or failure by any party hereto in exercising, protecting or enforcing
any of its rights, titles, interests or remedies hereunder, and no course of
dealing or performance with respect thereto, shall constitute a waiver thereof.
The express waiver by a party hereto of any right, title, interest or remedy in
a particular instance or circumstance shall not constitute a waiver thereof in
any other instance or circumstance. All rights and remedies shall be cumulative
and not exclusive of any other rights or remedies.
14. ARBITRATION
Any controversies or claims arising out of or relating to this Agreement shall
be fully and finally settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect (the
"AAA Rules"), conducted by one arbitrator either mutually agreed upon by
Employer and Employee or chosen in accordance with the AAA Rules, except that
the parties thereto shall have any right to discovery as would be permitted by
the Federal Rules of Civil Procedure for a period of 90 days following the
commencement of such arbitration and the arbitrator thereof shall resolve any
dispute which arises in connection with such discovery. The prevailing party
shall be entitled to costs, expenses and reasonable attorneys' fees, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof.
15. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any provision of
this Agreement, or consent to any departure therefrom by either party hereto,
shall in any event be effective unless the same shall be in writing,
specifically identifying this Agreement and the provision intended to be
amended, modified, waived, terminated or discharged and signed by Employer and
Employee, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by Employer and Employee.
16. APPLICABLE LAW
This Agreement shall in all respects, including all matters of construction,
validity and performance, be governed by, and construed and enforced in
accordance with, the laws of the state of Washington, without regard to any
rules governing conflicts of laws.
17. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, including, without
limitation, the duration of such provision, its geographical scope or the extent
of the activities prohibited or required by it, then, to the full extent
permitted by law (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
18. HEADINGS
All headings used herein are for convenience only and shall not in any way
affect the construction of, or be taken into consideration in interpreting, this
Agreement.
D-6
<PAGE>
19. COUNTERPARTS
This Agreement, and any amendment or modification entered into pursuant to
section 15 hereof, may be executed in any number of counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to be an original
and all of which counterparts, taken together, shall constitute one and the same
instrument.
20. ENTIRE AGREEMENT
This Agreement, the Merger Agreement and the Operative Documents (as defined in
the Merger Agreement) and the Inventions Agreement, on and as of the date
hereof, constitute the entire agreement between Employer and Employee with
respect to the subject matter hereof, and all prior or contemporaneous oral or
written communications, understandings or agreements between Employer and
Employee with respect to such subject matter are hereby superseded and nullified
in their entireties.
D-7
<PAGE>
IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on
the date set forth above.
EMPLOYEE:
--------------------------------------
Liad Y. Meidar
EMPLOYER:
SHOPNOW.COM INC.
By
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
D-8
<PAGE>
SCHEDULE 1
1. A provisional patent application filed October 12, 1999 for a system which
recommends web sites that would be of interest to the user based on a
complex pattern matching algorithm which takes into account the past
navigating behavior of the user and that of others with a similar background
who have demonstrated interests in the same concepts and future improvements
thereto.
2. A provisional patent application filed on November 15, 1999 for an
alternative payments system and future improvements thereto.
D-9
<PAGE>
ANNEX E
SHOPNOW.COM
INDEPENDENT SERVICES AGREEMENT
(LIMITED ENGAGEMENT)
This Agreement dated as of , 2000, is made by ShopNow.com (the "COMPANY")
and Steven White ("CONTRACTOR"). The Company and Contractor agree as follows:
1. SERVICES
Contractor will provide consulting services to the Company on an as needed basis
as mutually agreed upon from time to time by the parties (the "SERVICES").
2. PERFORMANCE
Contractor shall perform the Services in a prompt and efficient manner in
accordance with the terms and conditions set forth in this Agreement. Contractor
shall comply with all applicable laws, regulations and other requirements of any
applicable governmental authority in Contractor's performance of the Services.
Upon request, Contractor shall furnish the Company with written progress reports
regarding the status of the Services being performed. Contractor shall not
delegate or subcontract performance of the Services to any other person or
entity without the Company's prior written consent.
3. COMPENSATION
The Company shall pay Contractor $5,000 per month, provided that Contractor work
at least 100 hours per month, a portion of which (to be determined by mutual
agreement between Contractor and the Company) shall be in the Company's Seattle
offices.
The Company shall remit compensation owed to Contractor upon submission of a
reasonably detailed invoice, describing the hours worked and the Services
performed.
4. NONCOMPETITION AND CONFIDENTIALITY
(a) Contractor and the Company agree that the Services to be performed by
Contractor have a unique value to the Company and, if used in competition with
the Company, could cause serious and irreparable harm to the Company. Contractor
will likely develop goodwill for the Company through personal contact with
customers, suppliers, strategic partners or others who have business
relationships with the Company. This goodwill, which is a proprietary asset of
the Company, may follow Contractor after his or her engagement with the Company
terminates. Accordingly, Contractor agrees that, for a period of nine (9) months
following termination of his or her engagement with the Company for any reason,
Contractor will not, without securing the prior written permission of the
Company, directly or indirectly:
(1) be employed by, act as an agent for, or consult with or otherwise
perform Services for a Competitor (as defined below);
(2) own any equity interest in, manage or participate in the management
(as an officer, director, partner, member or otherwise) of, or be connected
in any other manner with, a Competitor (except that this shall not restrict
Contractor from owning less than one percent (1%) of the equity interests of
any publicly held entity); or
(3) induce, attempt to induce or assist others to induce any employee,
officer, director, agent, independent contractor, consultant, customer,
strategic partner, licensor, licensee, supplier or other service provider of
the
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Company to terminate a relationship with, cease providing services or
products to, or purchasing products or services from, the Company.
For purposes of this Agreement, a "COMPETITOR" means any individual or entity
that is directly or indirectly engaged, or is preparing to engage, in any
business which is competitive with any business in which the Company is engaged,
or is preparing to engage, at the time Contractor's engagement with the Company
terminates. Contractor agrees that the duration of the restrictions in this
paragraph shall be extended by the duration of any period during which
Contractor is in violation of the restrictions.
(b) Contractor acknowledges that, due to the nature of the business of the
Company, there is no geographical limitation on the restrictions in the
preceding paragraph. the Company and Contractor agree and stipulate that, in
light of all of the facts and circumstances relating to the relationship that
exists and is expected to exist between the Company and Contractor, these
restrictions (including but not limited to the scope of the restricted
activities and the duration and lack of geographic extent of the restrictions)
are fair and reasonably necessary for the protection of the goodwill and other
protectable interests of the Company. If a court of competent jurisdiction
should decline to enforce any of these restrictions, Shopnow.com and Contractor
agree that the restrictions shall be deemed to be reformed to restrict
Contractor's ability to compete with Shopnow.com to the maximum extent, in time,
scope of activities, and geography, that the court shall find enforceable.
(d) Contractor shall keep confidential and not disclose, without the
Company's prior written consent, any information received or otherwise learned
from the Company including, without limitation, information regarding the
Services or the Company's finances, plans, marketing, customers, vendors,
products, technology, research and know how (collectively, the "CONFIDENTIAL
INFORMATION"). Contractor will use the Confidential Information solely for the
performance of the Services. Upon the Company's request or in any event upon
completion of the Services, Contractor will return to the Company all notes,
data, documents, media and other items containing, or relating in any way to the
Confidential Information and any copies in Contractor's possession or control.
5. OWNERSHIP
5.1 All materials accumulated, authored, developed or first reduced to
practice by Contractor in performance of the Services (collectively the
"RESULTS"), together with all proprietary rights associated with ownership of
the Results, shall be the exclusive property of the Company and shall be
promptly disclosed and furnished to the Company by Contractor. The Company and
Contractor expressly agree that the Results are part of a collective work and,
to the extent legally permissible, constitute "work made for hire"; and that the
Company shall be considered the "author" of the Results for purposes of 17 USC.
Sections 101 and 201 and the other applicable copyright laws. If any Result is
not part of a collective work or otherwise does not constitute "work made for
hire," Contractor irrevocably assigns to the Company, without separate
compensation, all right, title and interest in and to such Result together with
all associated United States and foreign patent, copyright, trade secret and
other proprietary rights including the rights of registrations and renewal.
5.2 Contractor shall take, at the Company's expense, all actions during or
after the performance of the Services reasonably requested by the Company for
the implementation of this Section 5 or to evidence, perfect or protect the
Company's ownership of the Results and associated proprietary rights (including
the execution, acknowledgment and delivery of instruments of conveyance, patent,
copyright, trademark or other proprietary right registration applications or
other documents).
6. TERMINATION
Either party may terminate the Services at any time, with or without cause, by
providing 30 days prior written notice of termination to the other party..
Except for termination by the Company as a result of Contractor's breach of this
Agreement, upon termination the Company shall pay Contractor at the agreed rate
for the Services performed prior to such termination in complete satisfaction of
the Company's obligations under this Agreement. Contractor shall deliver to the
Company the Results in their then current condition. This Agreement shall
survive the completion of any work performed and/or the termination of the
Services under this Agreement.
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7. THIRD PARTY INTELLECTUAL PROPERTY
Contractor will not disclose to the Company or use in performance of the
Services any trade secrets, inventions, works of authorship or other
intellectual property of a third party which Contractor is not lawfully entitled
to disclose or use. Contractor agrees to indemnify and hold harmless the Company
from and against any and all claims, losses, costs, liabilities, damages and
expenses (including, but not limited to, reasonable attorneys' fees) arising out
of or in connection with any breach by Contractor of this Section.
8. INDEPENDENT CONTRACTOR
Contractor shall be and act as an independent contractor (and not as an
employee, agent or representative of the Company) in the performance of the
Services for the Company. Contractor shall: (a) not be entitled to any worker's
compensation, pension, retirement, insurance or other benefits afforded to
employees of the Company; (b) provide for all federal income tax and other
withholding relating to Contractor's compensation; (c) pay all social security,
unemployment and other employer taxes relating to Contractor's employment or
compensation; (d) provide all worker's compensation and other insurance relating
to Contractor's employment; and (e) perform all reporting, recordkeeping,
administrative and similar functions relating to Contractor's employment or
compensation. Upon request, Contractor shall provide the Company evidence of
compliance with the foregoing. Contractor shall not be entitled to, and shall
not attempt to, create or assume any obligation, express or implied, on behalf
of the Company. This Agreement shall not be construed as creating an
association, joint venture, partnership or franchise relationship between the
parties.
9. INJUNCTIVE RELIEF; COSTS
Contractor acknowledges that any breach by Contractor of Section 2, 4, 5, 8, 10
or 11 of this Agreement will cause irreparable injury to the Company for which
financial recovery would be incomplete. In the event of such breach, the Company
shall be entitled to injunctive relief or other equitable remedy. The rights and
remedies of the Company under this Section are in addition to all other
remedies.
Further, in any legal action or proceeding in connection with this Agreement
(e.g., to recover damages or other relief), the prevailing party will be
entitled to recover its reasonable attorneys' fees and other costs incurred.
10. ASSIGNMENT
Contractor shall not assign all or any part of this Agreement or any work
performed, by operation of law or otherwise, without the prior written consent
of the Company.
11. GOVERNING LAW; JURISDICTION; VENUE
This Agreement will be governed by the laws of the state of Washington without
regard to principles of conflicts of law. Contractor irrevocably consents to the
jurisdiction and venue of the state and federal courts located in King County,
Washington in connection with any action relating to this Agreement. Contractor
will not bring any action relating to this Agreement in any other court.
12. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement, and supersedes all prior
agreements of the Company and Contractor, relating to the Services.
<TABLE>
<S> <C> <C> <C>
ShopNow.com Inc. Steven White
By: By:
---------------------------------------- ----------------------------------------
Its: Its:
---------------------------------------- ----------------------------------------
</TABLE>
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<PAGE>
ANNEX F
LOCK-UP AGREEMENT
This Lock-Up Agreement (this "Agreement") is dated as of , 2000,
between ShopNow.com Inc., a Washington corporation ("ShopNow.com"), and
(the "Shareholder").
RECITALS
WHEREAS, ShopNow.com, Shamu Acquisition, Inc. ("Merger Sub") and Ubarter.com Inc
(the "Company") entered into an Agreement and Plan of Merger, dated January 20,
2000, (the "Merger Agreement") which provides (subject to the conditions set
forth therein) for the merger of Merger Sub with and into the Company (the
"Merger").
WHEREAS, this Agreement is required to be executed and delivered by Shareholder
to ShopNow.com and ShopNow.com would not enter into the Merger Agreement without
the execution and delivery of this Agreement;
WHEREAS, as a result of the Merger, ShopNow.com will issue to Shareholder
shares of common stock of ShopNow.com ("ShopNow.com Common Stock") in
exchange for all the shares of common stock of the Company held by Shareholder
(such shares of ShopNow.com Common Stock, as adjusted for stock splits,
consolidations and the like, being referred to as the "Shares"); and
WHEREAS, in order to induce ShopNow.com to enter into the Merger Agreement, the
Shareholder has agreed to enter into and perform his, her or its obligations
under this Agreement.
NOW, THEREFORE, in consideration of the agreements and covenants contained
herein, the Shareholder and ShopNow.com agree as follows:
1. RESTRICTION ON SALE OF SHARES
Shareholder shall not directly or indirectly sell, convey, pledge, offer or
otherwise transfer or dispose of, voluntarily or involuntarily, any of the
Shares held by Shareholder until after the six-month anniversary of the
Effective Date (as that term is defined in the Merger Agreement). After the
six-month anniversary of the Effective Date, 50% of the Shares shall be free
from the transfer restrictions of this Section 1 and may be transferred by
Shareholder to the extent permitted by applicable law, and the balance of such
Shares shall remain subject to the transfer restrictions of this Section. After
the one year anniversary of the Effective Date, the balance of the Shares shall
be free from the transfer restrictions of this Section 1 and may be transferred
to the extent permitted by applicable law. The share certificates representing
the Shares shall bear legends indicating that such Shares are subject to the
provisions of this Agreement. Such legends shall only be removed after such
provisions have expired. The foregoing legends shall be removed by ShopNow.com
as promptly as practicable after receipt of notice from Shareholder that the
foregoing restriction periods have expired. Shareholder agrees and consents to
the entry of stop transfer instructions with ShopNow.com's transfer agent
against the transfer of Shares subject to the transfer restrictions of this
Section 1.
2. SALES OF UP TO $1 MILLION
Notwithstanding the restrictions on transfer set forth in Section 1, during the
period between the Effective Date and the one-year anniversary of the Effective
Date, Shareholder shall be entitled to transfer that number of Shares having an
aggregate gross sales price (as measured at the time of the sale) of not more
than $1 million (the "De Minimus Exception"). Such transfers shall only be made
only through unsolicited brokers' transactions and to the extent permitted by
applicable law. In event a portion of the Shares are not subject to the
restrictions on transfer set forth in Section 1, then Shareholder shall first be
required to sell Shares not subject to transfer restrictions in calculating the
$1 million De Minimus Exception.
F-1
<PAGE>
3. GENERAL PROVISIONS
3.1 GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Washington applicable to contracts executed in and to
be performed entirely in such State, without reference to any rules
governing conflict of laws.
3.2 HEADINGS
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
3.3 COUNTERPARTS
This Agreement may be executed and delivered (including by facsimile
transmission) in counterparts, each of which when executed shall be deemed
to be an original but all of which taken together shall constitute one
agreement.
IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement as of the date and year first above written.
SHOPNOW.COM INC.:
By
--------------------------------------
Title:
--------------------------------------
SHAREHOLDER:
Name:
--------------------------------------
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<PAGE>
ANNEX G
LOCK-UP AGREEMENT
This Lock-Up Agreement (this "Agreement") is dated as of , 2000,
between ShopNow.com Inc., a Washington corporation ("ShopNow.com"), and New
Horizons L.P. (the "Shareholder").
RECITALS
WHEREAS, ShopNow.com, Shamu Acquisition, Inc. ("Merger Sub") and Ubarter.com Inc
(the "Company") entered into an Agreement and Plan of Merger, dated January 20,
2000, (the "Merger Agreement") which provides (subject to the conditions set
forth therein) for the merger of Merger Sub with and into the Company (the
"Merger").
WHEREAS, this Agreement is required to be executed and delivered by Shareholder
to ShopNow.com and ShopNow.com would not enter into the Merger Agreement without
the execution and delivery of this Agreement;
WHEREAS, as a result of the Merger, ShopNow.com will issue to Shareholder
shares of common stock of ShopNow.com ("ShopNow.com Common Stock") in
exchange for all the shares of common stock of the Company held by Shareholder
(such shares of ShopNow.com Common Stock being referred to as the "Shares"); and
WHEREAS, in order to induce ShopNow.com to enter into the Merger Agreement, the
Shareholder has agreed to enter into and perform his, her or its obligations
under this Agreement.
NOW, THEREFORE, in consideration of the agreements and covenants contained
herein, the Shareholder and ShopNow.com agree as follows:
1. RESTRICTION ON SALE OF SHARES
Until after the date that is 180 days after the Effective Date (as that term is
defined in the Merger Agreement), Shareholder shall not directly or indirectly
sell, convey, pledge, offer or otherwise transfer or dispose of, voluntarily or
involuntarily, in any 30 day period that number of Shares equal to more than 10%
of the Shares issued to Shareholder in the Merger (as adjusted for stock splits,
consolidations and the like). After the date that is 180 days after the
Effective Date, the Shares shall be free from the transfer restrictions of this
Section 1 and may be transferred to the extent permitted by applicable law. The
share certificates representing the Shares shall bear legends indicating that
such Shares are subject to the provisions of this Agreement. Such legends shall
only be removed after such provisions have expired. The foregoing legends shall
be removed by ShopNow.com as promptly as practicable after receipt of notice
from Shareholder that the foregoing restriction period has expired. Shareholder
agrees and consents to the entry of stop transfer instructions with
ShopNow.com's transfer agent against the transfer of Shares subject to the
transfer restrictions of this Section 1.
2. GENERAL PROVISIONS
2.1 GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Washington applicable to contracts executed in and to
be performed entirely in such State, without reference to any rules
governing conflict of laws.
2.2 HEADINGS
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
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2.3 COUNTERPARTS
This Agreement may be executed and delivered (including by facsimile
transmission) in counterparts, each of which when executed shall be deemed
to be an original but all of which taken together shall constitute one
agreement.
IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement as of the date and year first above written.
SHOPNOW.COM INC.:
By:
--------------------------------------
Title:
--------------------------------------
NEW HORIZONS L.P.:
Name:
--------------------------------------
Title:
--------------------------------------
G-2
<PAGE>
ANNEX H
DISSENTER'S RIGHTS
SECTION 92A.300. DEFINITIONS.
As used in NRS 92A.300 to 92A.500, inclusive, unless the context otherwise
requires, the words and terms defined in NRS 92A.305 to 92A.335, inclusive, have
the meanings ascribed to them in those sections.
SECTION 92A.305. "BENEFICIAL STOCKHOLDER" DEFINED.
"Beneficial stockholder" means a person who is a beneficial owner of shares held
in a voting trust or by a nominee as the stockholder of record.
SECTION 92A.310. "CORPORATE ACTION" DEFINED.
"Corporate action" means the action of a domestic corporation.
SECTION 92A.315. "DISSENTER" DEFINED.
"Dissenter" means a stockholder who is entitled to dissent from a domestic
corporation's action under NRS 92A.380 and who exercises that right when and in
the manner required by NRS 92A.400 to 92A.480, inclusive.
SECTION 92A.320. "FAIR VALUE" DEFINED.
"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which he
objects, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable.
SECTION 92A.325. "STOCKHOLDER" DEFINED.
"Stockholder" means a stockholder of record or a beneficial stockholder of a
domestic corporation.
SECTION 92A.330. "STOCKHOLDER OF RECORD" DEFINED.
"Stockholder of record" means the person in whose name shares are registered in
the records of a domestic corporation or the beneficial owner of shares to the
extent of the rights granted by a nominee's certificate on file with the
domestic corporation.
SECTION 92A.335. "SUBJECT CORPORATION" DEFINED.
"Subject corporation" means the domestic corporation which is the issuer of the
shares held by a dissenter before the corporate action creating the dissenter's
rights becomes effective or the surviving or acquiring entity of that issuer
after the corporate action becomes effective.
SECTION 92A.340. COMPUTATION OF INTEREST.
Interest payable pursuant to NRS 92A.300 to 92A.500, inclusive, must be computed
from the effective date of the action until the date of payment, at the average
rate currently paid by the entity on its principal bank loans or, if it has no
bank loans, at a rate that is fair and equitable under all of the circumstances.
SECTION 92A.350. RIGHTS OF DISSENTING PARTNER OF DOMESTIC LIMITED PARTNERSHIP.
A partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership
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interest of a dissenting general or limited partner of a domestic limited
partnership are available for any class or group of partnership interests in
connection with any merger or exchange in which the domestic limited partnership
is a constituent entity.
SECTION 92A.360. RIGHTS OF DISSENTING MEMBER OF DOMESTIC LIMITED-LIABILITY
COMPANY.
The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
SECTION 92A.370. RIGHTS OF DISSENTING MEMBER OF DOMESTIC NONPROFIT CORPORATION.
1. Except as otherwise provided in subsection 2 and unless otherwise
provided in the articles or bylaws, any member of any constituent domestic
nonprofit corporation who voted against the merger may, without prior notice,
but within 30 days after the effective date of the merger, resign from
membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his resignation
and is thereby entitled to those rights, if any, which would have existed if
there had been no merger and the membership had been terminated or the member
had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1.
SECTION 92A.380. RIGHT OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE ACTIONS
AND TO OBTAIN PAYMENT FOR SHARES.
1. Except as otherwise provided in NRS 92A.370 to 92A.390, a stockholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation
is a party:
(1) If approval by the stockholders is required for the merger by NRS
92A.120 to 92A.160, inclusive, or the articles of incorporation and he is
entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged with
its parent under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic corporation
is a party as the corporation whose subject owner's interests will be
acquired, if he is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders to
the event that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting stockholders are
entitled to dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to him
or the domestic corporation.
SECTION 92A.390. LIMITATIONS ON RIGHT OF DISSENT: STOCKHOLDERS OF CERTAIN
CLASSES OR SERIES; ACTION OF STOCKHOLDERS NOT REQUIRED FOR PLAN OF MERGER.
1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities
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exchange, included in the national market system by the National Association of
Securities Dealers, Inc., or held by at least 2,000 stockholders of record,
unless:
(a) The articles of incorporation of the corporation issuing the shares
provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan of
merger or exchange, were either listed on a national securities exchange,
included in the national market system by the National Association of
Securities Dealers, Inc., or held of record by a least 2,000 holders of
owner's interests of record; or
(2) A combination of cash and owner's interests of the kind described in
sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130.
SECTION 92A.400. LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS ONLY
TO SHARES REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL STOCKHOLDER.
1. A stockholder of record may assert dissenter's rights as to fewer than
all of the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the subject corporation
in writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares held
on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
SECTION 92A.410. NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
SECTION 92A.420. PREREQUISITES TO DEMAND FOR PAYMENT FOR SHARES.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, a stockholder who wishes to assert
dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
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2. A stockholder who does not satisfy the requirements of subsection 1 and NRS
92A.400 is not entitled to payment for his shares under this chapter.
SECTION 92A.430. DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDERS ENTITLED TO ASSERT
RIGHTS; CONTENTS.
1. If a proposed corporate action creating dissenters' rights is authorized
at a stockholders' meeting, the subject corporation shall deliver a written
dissenter's notice to all stockholders who satisfied the requirements to assert
those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to what
extent the transfer of the shares will be restricted after the demand for
payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of
the proposed action and requires that the person asserting dissenter's
rights certify whether or not he acquired beneficial ownership of the shares
before that date;
(d) Set a date by which the subject corporation must receive the demand
for payment, which may not be less than 30 nor more than 60 days after the
date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
SECTION 92A.440. DEMAND FOR PAYMENT AND DEPOSIT OF CERTIFICATES; RETENTION OF
RIGHTS OF STOCKHOLDER.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of
the notice.
2. The stockholder who demands payment and deposits his certificates, if
any, before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are canceled or modified by the taking of the
proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter.
SECTION 92A.450. UNCERTIFICATED SHARES: AUTHORITY TO RESTRICT TRANSFER AFTER
DEMAND FOR PAYMENT; RETENTION OF RIGHTS OF STOCKHOLDER.
1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
SECTION 92A.460. PAYMENT FOR SHARES: GENERAL REQUIREMENTS.
1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
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estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:
(a) Of the county where the corporation's registered office is located;
or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement
of income for that year, a statement of changes in the stockholders' equity
for that year and the latest available interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair value
of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
SECTION 92A.470. PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF
DISSENTER'S NOTICE.
1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480.
SECTION 92A.480. DISSENTER'S ESTIMATE OF FAIR VALUE: NOTIFICATION OF SUBJECT
CORPORATION; DEMAND FOR PAYMENT OF ESTIMATE.
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of
his shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within
30 days after the subject corporation made or offered payment for his shares.
SECTION 92A.490. LEGAL PROCEEDING TO DETERMINE FAIR VALUE: DUTIES OF SUBJECT
CORPORATION; POWERS OF COURT; RIGHTS OF DISSENTER.
1. If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and petition the
court to determine the fair value of the shares and accrued interest. If the
subject corporation does not commence the proceeding within the 60-day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
H-5
<PAGE>
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject
corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment
pursuant to NRS 92A.470.
SECTION 92A.500. LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS
AND FEES.
1. The court in a proceeding to determine fair value shall determine all of
the costs of the proceeding, including the reasonable compensation and expenses
of any appraisers appointed by the court. The court shall assess the costs
against the subject corporation, except that the court may assess costs against
all or some of the dissenters, in amounts the court finds equitable, to the
extent the court finds the dissenters acted arbitrarily, vexatiously or not in
good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if
the court finds the subject corporation did not substantially comply with
the requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith
with respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may assess
costs against all or some of the dissenters who are parties to the proceeding,
in amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115.
H-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 23B.08.500 through 23B.08.600 of the Washington Business Corporation
Act (the "WBCA") authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Section 5 of the registrant's Amended and Restated Bylaws
(Exhibit 3.2 hereto) provides for indemnification of the registrant's directors,
officers, employees and agents to the maximum extent permitted by Washington
law. The directors and officers of the registrant also may be indemnified
against liability they may incur for serving in that capacity pursuant to a
liability insurance policy maintained by the registrant for such purpose.
Section 23B.08.320 of the WBCA authorizes a corporation to limit a director's
liability to the corporation or its shareholders for monetary damages for acts
or omissions as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or illegal corporate loans or
distributions, or any transaction from which the director personally receives a
benefit in money, property or services to which the director is not legally
entitled. Section 10 of the registrant's Amended and Restated Articles of
Incorporation (Exhibit 3.1 hereto) contains provisions implementing, to the
fullest extent permitted by Washington law, such limitations on a director's
liability to the registrant and its shareholders.
ITEM 21. LIST OF EXHIBITS.
The exhibits to this registration statement are listed in the Index to Exhibits
on page II-5.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) (i) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(ii) The registrant undertakes that every prospectus (a) that is filed
pursuant to II-2 paragraph (b)(i) immediately preceding, or (b) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities At of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
II-1
<PAGE>
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities At and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within on business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
[Reminder of Page Intentionally Left Blank]
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Seattle, State of
Washington on March 14, 2000.
<TABLE>
<S> <C>
SHOPNOW.COM INC.
/s/ DWAYNE M. WALKER
---------------------------------------------
Chief Executive Officer
</TABLE>
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Dwayne M. Walker and Alan D. Koslow, and each of them, with full power
of substitution and resubstitution and full power to act without the other, as
his true and lawful attorney-in-fact and agent to act in his name, place and
stead and to execute in the name and on behalf of each person, individually and
in each capacity stated below, and to file, any and all amendments to this
Registration Statement, including any and all post-effective amendments and
amendments thereto and any registration statement relating to the same offering
as this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities At of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing, ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their and his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated below on the 14th day of March, 2000.
<TABLE>
<CAPTION>
<C> <S>
/s/ DWAYNE M. WALKER Chief Executive Officer and Chairman of the
------------------------------------------- Board (Principal Executive Officer)
Dwayne M. Walker
/s/ ALAN D. KOSLOW Executive Vice President, Chief Financial
------------------------------------------- Officer, General Counsel and Secretary
Alan D. Koslow (Principal Financial and Accounting Officer)
/s/ JACOB I. FRIESEL Director
-------------------------------------------
Jacob I. Friesel
/s/ DAVID M. LONSDALE Director
-------------------------------------------
David M. Lonsdale
/s/ BRET R. MAXWELL Director
-------------------------------------------
Bret R. Maxwell
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
/s/ MARK C. MCCLURE Director
-------------------------------------------
Mark C. McClure
/s/ JOHN R. SNEDEGAR Director
-------------------------------------------
John R. Snedegar
/s/ MARK H. TERBEEK Director
-------------------------------------------
Mark H. Terbeek
/s/ EYTAN J. LOMBROSO Director
-------------------------------------------
Eytan J. Lombroso
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
2.1* Agreement and Plan of Merger, dated as of January 20, 2000,
between the registrant, Shamu Acquisition Inc. and
Ubarter.com Inc. (attached as Annex A to the proxy
statement/prospectus).
2.2* Call Option between registrant and Steven White (attached as
Annex B to the proxy statement/ prospectus).
2.3* Form of Voting Agreement between the registrant and Steven
White and the registrant and New Horizons, L.P. (attached as
Annex C to the proxy statement/prospectus).
2.4* Convertible Promissory Note and Form of Warrant, dated
December 22, 1999 from Ubarter.com to the registrant.
2.5* Convertible Promissory Note and Form of Warrant, dated
February 28, 2000, from Ubarter.com to the registrant.
2.6* Form of Lock-up Agreement between the registrant and
Shareholder (attached as Annex F to the proxy
statement/prospectus).
2.7* Form of Lock-up Agreement between the registrant and New
Horizons, L.P. (attached as Annex G to the proxy
statement/prospectus).
3.1++ Amended and Restated Articles of Incorporation of the
registrant.
3.2++ Amended and Restated Bylaws of the registrant.
4.1++ Second Amended and Restated Registration Rights Agreement
dated as of November 30, 1998.
4.2++ Amendment No. 1 to Second Amended and Restated Registration
Rights Agreement dated as of June 15, 1999.
4.3++ Amendment No. 2 to Second Amended and Restated Registration
Rights Agreement dated as of June 16, 1999.
5.1* Opinion of Perkins Coie LLP as to the legality of the
shares.
8.1###### Opinion of Perkins Coie LLP regarding certain tax aspects of
the merger.
8.2###### Opinion of Dorsey & Whitney LLP regarding certain tax
aspects of the merger.
10.1++ Amended and Restated 1999 Employee Stock Purchase Plan and
form of agreement thereunder.
10.2++ Amended and Restated 1996 Combined Incentive and
Nonqualified Stock Option Plan and form of agreement
thereunder.
10.3*# Amended and Restated 1999 Nonofficer Employee Stock Option
Plan.
10.4+ ++ Electronic Distributor Agreement dated as of May 19, 1999,
between Corel Corporation and the registrant.
10.5+ ++ Addendum No. 1 Project Agreement to Strategic Alliance
Agreement between HNC Software and the registrant, dated
May 4, 1999.
10.6+ ++ Distributor/Marketing Agreement dated as of April 29, 1999,
between Qwest Communications Corporation and the registrant.
10.7++ Strategic Alliance Agreement dated as of May 4, 1999,
between HNC Software Inc. and the registrant.
10.8++ Consortium Membership Agreement dated as of May 4, 1999,
between HNC Software and the registrant.
10.9++ Cross Promotion Agreement dated April 5, 1999, between 24/7
Media, Inc. and the registrant.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.10++ Loan and Security Agreement dated as of March 4, 1999,
between Transamerica Business Credit Corporation and the
registrant.
10.11++ Letter of Intent Agreement dated March 24, 1999, between the
ZERON Group and the registrant.
10.12++ Employment Agreement effective as of July 1, 1999, between
Dwayne M. Walker and the registrant.
10.13++ Corporate Master Agreement effective as of February 10,
1999, between Vignette Corporation and the registrant.
10.14+ ++ Agreement dated July 7, 1999, between About.com, Inc. and
the registrant.
10.15+ ++ Agreement effective as of July 12, 1999, between Chase
Manhattan Capital, L.P. and the registrant.
10.16# Agreement and Plan of Merger dated as of November 10, 1999,
among Racer Acquisition, Inc., SpeedyClick, Corp., the
Principal Shareholders of SpeedyClick, Corp. and the
registrant.
10.17# Employment Agreement, dated as of November 12, 1999, between
Farid Tabibzadeh and the registrant.
10.18# Employment Agreement, dated as of November 12, 1999, between
Shahab Emrani and the registrant.
10.20## Agreement and Plan of Merger dated as of December 16, 1999,
among Chiefs Acquisition, Inc., WebCentric, Inc., the
Stockholders of WebCentric, Inc. and the registrant.
10.21#### Office Building Lease, dated September 21, 1999, between CEP
Investors XII LLC and the registrant.
10.22*** Office Lease, dated December 13, 1999, between Benaroya
Capital Company, LLC and the registrant.
10.23*** Promissory Note, dated September 28, 1999, from Alan Koslow
to the registrant.
21.1*# List of Subsidiaries.
23.1* Consent of Ernst & Young LLP, Independent Accountants.
23.2* Consent of Arthur Andersen LLP, Independent Accountants.
23.3* Consent of KPMG LLP, Independent Accountants.
23.4* Consent of Moss Adams LLP, Independent Accountants.
23.5* Consent of Andersen, Andersen & Strong L.C.
23.6* Consent of Perkins Coie LLP (contained in the opinions filed
as Exhibit 5.1 and Exhibit 8.1).
23.7* Consent of Dorsey & Whitney (contained in the opinion filed
as Exhibit 8.2).
24.1* Power of Attorney (contained on signature page).
27.1* Financial Data Schedule.
99.1* Form of Proxy card for special meeting of Ubarter.com.
</TABLE>
- ------------------------
* Filed herewith
+ Portions of these exhibits have been omitted based upon a request for
confidential treatment. The omitted portions of the exhibits have been filed
separately with the Securities and Exchange Commission.
++ Incorporated by reference to the Registration Statement on Form S-1
(No. 333-80981) filed by the registrant on September 28, 1999, as amended.
II-6
<PAGE>
*** Incorporated by reference to the Registration Statement on Form S-1
(No. 333-95085 filed by the registrant on January 20, 2000.
# Incorporated by reference to the Current Report on Form 8-K (File
No. 000-26707) filed by the registrant on November 24, 1999, as amended.
## Incorporated by reference to the Current Report on Form 8-K (File
No. 000-26707) filed by the registrant on December 29, 1999, as amended.
### Incorporated by reference to the Current Report on Form 8-K (File
No. 000-26707) filed by the registrant on December 30, 1999.
#### Incorporated by reference to Quarterly Report on Form 10-Q (File
No. 000-26707) filed by the registrant on November 9, 1999.
##### Incorporated by reference to Registration Statement on Form S-8 (File
No. 333-92533) filed by the registrant on December 10, 1999.
*# Incorporated by reference to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, filed by the registrant on February 10, 2000.
###### To be filed by Amendment.
II-7
<PAGE>
SHOPNOW.COM INC.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO COSTS BALANCE AT
DESCRIPTION BEGINNING OF PERIOD AND EXPENSES DEDUCTIONS(1) END OF PERIOD
----------- ------------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999.................... $ 230 $ 678 $ (617) $ 291
================= =============== ============= ============
Year ended December 31, 1998.................... $ 23 $ 591 $ (384) $ 230
================= =============== ============= ============
Year ended December 31, 1997.................... $ 3 $ 20 $ -- $ 23
================= =============== ============= ============
</TABLE>
- ------------------------
(1) Write-offs, net of bad debt recovery.
<PAGE>
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
CONVERTIBLE PROMISSORY NOTE
$2,000,000.00 December 22, 1999
Seattle, Washington
For value received, Ubarter.com, Inc., a Nevada corporation (the
"COMPANY"), promises to pay to ShopNow.com Inc., a Washington corporation
(the "HOLDER"), the principal sum of Two Million Dollars ($2,000,000.00).
Interest shall accrue from the date of this Note on the unpaid principal
amount at a rate equal to eight and one-half percent (8.5%) per annum, simple
interest. Interest will be computed on the basis of a 360-day year of twelve
30-day months. This Note is subject to the following terms and conditions.
1. MATURITY. Subject to Section 2, principal and all accrued and
unpaid interest under this Note shall be due and payable upon demand by the
Holder at any time after June 22, 2000 (the "MATURITY DATE"). Notwithstanding
the foregoing, the entire unpaid principal sum of this Note, together with
all accrued and unpaid interest thereon, shall become immediately due and
payable in the event of any Event of Default (as defined below).
2. CONVERSION.
(a) TERMINATION OF LOI. The entire principal amount of and
accrued and unpaid interest on this Note shall automatically be converted
into fully paid and nonassessable shares of the Company's common stock
("COMMON STOCK") upon the earlier to occur of (1) the termination of the
binding provisions (the "BINDING PROVISIONS") of that certain Letter of
Intent, dated December 20, 1999, among Holder, the Company, Steven M. White
and New Horizons LP (the "LOI"), by Holder pursuant to Paragraph J(ii) of the
LOI, (2) the termination of the Binding Provisions by the Company pursuant to
Paragraphs J(iii) of the LOI, (3) the acceptance by the Company of a proposal
to effect an Alternative Transaction (as defined in the LOI), (4) the failure
of the transaction contemplated in the LOI to be consummated on or before the
date designated for the Closing (as defined in the LOI) for any reason other
than the Company's closing conditions not being satisfied on or prior to such
date due to any omission or affirmative act of Holder, (5) the termination of
the Binding Provisions by the Company and Holder pursuant to Paragraph J(i)
of the LOI, (6) the termination of the Binding Provisions by the Company
pursuant to Paragraph J(ii) of the LOI, (7) termination of the Binding
Provisions by Holder pursuant to Paragraphs J(iii), J(iv) or J(v) of the LOI,
or (8) the failure of the Company's closing conditions to the transaction
proposed in the LOI to be satisfied on or prior to the date designated for
the Closing due to any omission or affirmative act of Holder.
-1-
<PAGE>
(b) NUMBER OF SHARES ISSUED UPON TERMINATION BY THE COMPANY. Upon
the conversion of this Note due to the occurrence of an event represented by
clauses (1), (2), (3) or (4) of Section 2(a) above, the number of shares of
Common Stock to be issued upon such conversion shall be equal to the quotient
obtained by dividing (x) the entire principal amount of this Note plus
accrued and unpaid interest by (y) $2.15 (the "COMPANY TERMINATION CONVERSION
PRICE"), rounded to the nearest whole share.
(c) NUMBER OF SHARES ISSUED UPON TERMINATION BY HOLDER. Upon the
conversion of this Note due to the occurrence of an event represented by
clauses (5), (6), (7) or (8) of Section 2(a) above, the number of shares of
Common Stock to be issued upon such conversion shall be equal to the quotient
obtained by dividing (x) the entire principal amount of this Note plus
accrued and unpaid interest by (y) $3.58 (the "HOLDER TERMINATION CONVERSION
PRICE"), rounded to the nearest whole share.
(d) WARRANT COVERAGE.
(i) In the event of a conversion of this Note pursuant to
clauses (1), (2), (3) or (4) of Section 2(a) above, the Company shall issue
to Holder a warrant to purchase a number of shares of Common Stock equal to
the quotient of (A) 125% times the entire principal amount of this Note plus
accrued and unpaid interest divided by (B) the Company Termination Conversion
Price. Such warrant shall have a term of 7 years and an exercise price equal
to the Company Termination Conversion Price, rounded to the nearest whole
share. The form of warrant is attached as Appendix A hereto.
(ii) In the event of a conversion of this Note pursuant to
clauses (5), (6), (7) or (8) of Section 2(a) above, the Company shall issue
to Holder a warrant to purchase a number of shares of Common Stock equal to
the quotient of (i) 50% times the entire principal amount of this Note plus
accrued and unpaid interest divided by (ii) the Holder Termination Conversion
Price. Such warrants shall have a term of 7 years and an exercise price equal
to the Holder Termination Conversion Price, rounded to the nearest whole
share. The form of warrant is attached as Appendix A hereto.
(e) MECHANICS AND EFFECT OF CONVERSION. No fractional shares of
the Company's capital stock will be issued upon conversion of this Note. In
lieu of any fractional share to which the Holder would otherwise be entitled,
the Company will pay to the Holder in cash the amount of the unconverted
principal and interest balance of this Note that would otherwise be converted
into such fractional share. Upon conversion of this Note pursuant to this
Section 2, the Holder shall surrender this Note, duly endorsed, at the
principal offices of the Company or any transfer agent of the Company. At its
expense, the Company will, as soon as practicable thereafter, issue and
deliver to such Holder, at such principal office, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock to which such Holder is entitled upon such conversion, together with
any other securities and property to which the Holder is entitled upon such
conversion under the terms of this Note, including a check payable to the
Holder for any cash amounts payable as described herein. Upon conversion of
this Note, the Company will be forever released from all of its obligations
and liabilities under this
-2-
<PAGE>
Note with regard to that portion of the principal amount and accrued interest
being converted including without limitation the obligation to pay such
portion of the principal amount and accrued interest.
3. PAYMENT. All payments shall be made in lawful money of the United
States of America at such place as the Holder hereof may from time to time
designate in writing to the Company. Payment shall be credited first to the
accrued interest then due and payable and the remainder applied to principal.
Prepayment of this Note may not be made prior to the Maturity Date, unless
agreed to in writing by the Holder.
4. TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of
this Note shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Notwithstanding the foregoing, (i) the
Holder may not assign, pledge, or otherwise transfer this Note without the
prior written consent of the Company, except for transfers to affiliates and
(ii) the Company may not assign, pledge, or otherwise transfer this Note
without the prior written consent of the Holder. Subject to the preceding
sentence, this Note may be transferred only upon surrender of the original
Note for registration of transfer, duly endorsed, or accompanied by a duly
executed written instrument of transfer in form satisfactory to the Holder.
Thereupon, a new note for the same principal amount and interest will be
issued to, and registered in the name of, the transferee. Interest and
principal are payable only to the registered holder of this Note.
5. GOVERNING LAW. This Note and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State
of Washington, without giving effect to principles of conflicts of law.
6. NOTICES. Any notice required or permitted by this Note shall be
in writing and shall be deemed sufficient upon delivery, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS), or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, addressed to the
party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
7. AMENDMENTS AND WAIVERS. Any term of this Note may be amended or
waived only with the written consent of the Company and the Holder. Any
amendment or waiver effected in accordance with this Section 7 shall be
binding upon the Company, the Holder and each transferee of the Note.
8. SHAREHOLDERS, OFFICERS AND DIRECTORS NOT LIABLE. In no event
shall any shareholder, officer or director of the Company be liable for any
amounts due or payable pursuant to this Note.
9. NOTICE AND PRESENTMENT. The Company hereby waives demand, notice,
presentment, protest and notice of dishonor.
-3-
<PAGE>
10. SEVERABILITY. If one or more provisions of this Note are held to
be unenforceable under applicable law, such provision shall be excluded from
this Note, and the balance of this Note shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
11. ATTORNEYS' FEES. The Company and all endorsers of this Note
agree to pay the Holder's reasonable expenses and costs in collecting and
enforcing this Note, including reasonable attorneys' fees.
12. HOLDER AS OWNER. The Company may deem and treat the holder of
record of this Note as the absolute owner for all purposes regardless of any
notice to the contrary.
13. EVENTS OF DEFAULT. If any of the events specified in this
Section 13 shall occur (an "EVENT OF DEFAULT"), the Holder may, so long as
such condition exists, declare the outstanding principal and accrued but
unpaid interest immediately due and payable by notice in writing to the
Company:
(a) The institution of proceedings by the Company to be
adjudicated as bankrupt or insolvent, the filing of a petition or answer or
consent seeking reorganization or release under the federal Bankruptcy Act,
or any other applicable federal or state law, the appointment of a receiver,
liquidator or trustee, an assignment for the benefit of creditors, or the
taking of corporate action by the Company in furtherance of any such action;
(b) If, within 60 days after the commencement of an action
against the Company (and service of process on the Company) seeking any
bankruptcy, insolvency, reorganization, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, such action
shall not have been resolved in favor of the Company or all orders or
proceedings thereunder affecting the operations or the business of the
Company stayed, or if the stay of any such order or proceeding shall
thereafter be set aside, or if, within 60 days after the appointment without
the consent or acquiescence of the Company of any trustee, receiver or
liquidator of the Company, such appointment shall not have been vacated;
(c) Failure to pay the principal of and interest on this Note
when due;
(d) The adoption of any plan of liquidation, dissolution or
winding up of the Company, or the involuntary occurrence thereof; or
(e) Material breach by the Company of any provision of this Note
(other than the payment obligations described in clause (c) above), where
such breach is not cured within ten (10) days after the Company receives
written notice of the same from the Holder.
14. COVENANTS OF THE COMPANY. For so long as any principal remains
outstanding under the Note, the Company shall not, without first obtaining
the consent of Holder:
-4-
<PAGE>
(a) issue equity securities or options, warrants, rights or
convertible securities; other than for customary grants of options to new
hires not to exceed in the aggregate 50,000
(b) amend the Company's Articles of Incorporation or Bylaws in
any manner adverse to Holder;
(c) lease, sell, license or otherwise transfer all or
substantially all of its assets;
(d) create or assume any indebtedness for borrowed money that is
pari passu or senior in right of payment to the obligations under the Note;
(e) pay any dividends or other distributions on the capital
stock of the Company, or repurchase or redeem any Common Stock, other than
pursuant to vesting or repurchase provisions under equity incentive programs
maintained by the Company;
(f) grant any unusual or extraordinary bonuses, benefits or
other forms of direct or indirect compensation to any employee, officer,
director or consultant if the direct or indirect result of such action would
be likely to result in (i) the insolvency or bankruptcy of the Company or
(ii) an Event of Default;
(g) directly or indirectly make any payments on existing
indebtedness other than regularly scheduled installments of principal and
interest nor make any payment on any existing indebtedness which would
violate the terms of such indebtedness or any agreement related thereto; or
(h) cause the net loss on the Company's income statement to
increase by more than $500,000 in any individual month.
15. COMPANY REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants that:
(a) It is a corporation duly incorporated, validly existing and
in good standing under the laws of the state of Nevada. The Company has all
requisite corporate power and authority to carry on its business as presently
conducted, and to carry out the transactions contemplated in this Note. The
Company is duly qualified to transact business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so
qualified would have a material adverse effect on the Company's financial
condition, business, operations or property.
(b) The execution, delivery and performance by the Company of
this Note has been duly authorized by all requisite action of the Company and
its directors and shareholders. This Note has been duly executed and
delivered by the Company, and this Note constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
-5-
<PAGE>
(c) No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Company is required in connection with the consummation of the transactions
contemplated by this Note, except for filings pursuant to the federal
securities laws and to applicable state Blue Sky laws.
(d) The Company is not in default (i) under its Articles of
Incorporation or its Bylaws; (ii) under any material contract, agreement or
instrument to which the Company is a party or by which it or any of its
property is bound or affected, including without limitation any material
indenture, mortgage, lease, license or purchase or sales order, other than
any default arising from the failure to the Company to register the shares of
the Company's common stock in accordance with section 1.9 of that certain
Share Purchase Agreement dated February 28, 1999, among the registrant,
Barter Business Exchange Inc. and Bob Bagga; or (iii) with respect to any
order, writ, injunction or decree of any court or of any federal, state,
municipal or other domestic or foreign governmental department, commission,
board, bureau, agency or instrumentality. To the knowledge of the Company,
there presently exists no material default by any party other than the
Company to any of the foregoing, and no condition, event or act which
constitutes, or which after notice, lapse of time or both would constitute, a
material default by the Company or any other party under any of the foregoing.
[SIGNATURE PAGE FOLLOWS]
-6-
<PAGE>
COMPANY:
UBARTER.COM, INC.
By: /s/ Steven White
-------------------------------
Name: Steven White
-----------------------------
(print)
Title: President
----------------------------
Address: 21400 International Blvd., #207
--------------------------
Seattle, WA 98198
AGREED AND ACCEPTED:
SHOPNOW.COM INC.
By: /s/ Alan D. Koslow
-----------------------------
Name: Alan D. Koslow
---------------------------
(print)
Title: Executive Vice President,
Chief Financial Officer,
Secretary, General Counsel
--------------------------
Address: 411 First Avenue S., Suite 200N
Seattle, WA 98104
[SIGNATURE PAGE TO CONVERTIBLE SUBORDINATED PROMISSORY NOTE]
-7-
<PAGE>
SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH
A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933, AS AMENDED.
UBARTER.COM, INC.
STOCK PURCHASE WARRANT
Date:
----------------------
This certifies that ShopNow.com Inc. or its assigns (the "HOLDER"),
for value received, is entitled to purchase from Ubarter.com, Inc., a Nevada
corporation (the "COMPANY"), a number of fully paid and nonassessable shares
of the Company's common stock (the "COMMON STOCK") equal to the Warrant
Amount (as defined below) divided by the Stock Purchase Price (as defined
below) (such number of shares, the "WARRANT SHARES"). For purposes of the
foregoing, the following definitions apply:
(A) The "WARRANT AMOUNT" shall be [one hundred twenty five
percent (125%)][fifty percent (50%)] of the outstanding principal
balance of and any accrued but unpaid interest under that certain
Convertible Promissory Note, dated as of December 22, 1999, issued to
Holder by the Company (the "NOTE").
(C) The "STOCK PURCHASE PRICE" shall be [$2.15][$3.58].
(D) The "FULLY DILUTED NUMBER" shall mean at any given time
the total number of shares of Common Stock outstanding on a fully
diluted basis, which calculation assumes (x) the exercise of all then
outstanding rights, warrants or options, vested or unvested, to acquire
the Company's common stock, regardless of restrictions on exercise or
conversion and (y) the conversion of all then outstanding securities
(including, without limitation, any preferred stock) and notes
convertible at any time into the Company's common stock (other than the
Note).
This Warrant may be exercised at any time or from time to time up to
and including the earliest to occur of (i) 5:00 p.m. Pacific time on
[seven years from issuance] or (ii) the consummation of a firm commitment
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933, as amended (the "EXPIRATION DATE"), upon surrender to
the Company at its principal office (or at such other location as the Company
may advise Holder in writing) of this Warrant properly endorsed with the Form
of Subscription attached hereto duly filled in and signed and upon payment in
cash or by check of the aggregate Stock Purchase Price for the number of
Warrant Shares for which this Warrant is being exercised
<PAGE>
determined in accordance with the provisions hereof. The Stock Purchase Price
and the number of Warrant Shares are subject to adjustment as provided in
Section 4 below.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. This
Warrant is exercisable at the option of the Holder of record hereof, at any
time or from time to time, up to the Expiration Date for all and any part of
the Warrant Shares (but not for a fraction of a share). The Company agrees
that the Warrant Shares purchased under this Warrant shall be and are deemed
to be issued to the Holder hereof as the record owner of such shares as of
the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares. Certificates for the Warrant
Shares so purchased, together with any other securities or property to which
the Holder hereof is entitled upon such exercise, shall be delivered to the
Holder hereof by the Company at the Company's expense within a reasonable
time after the rights represented by this Warrant have been so exercised. In
case of a purchase of less than all the Warrant Shares, the Company shall
cancel this Warrant and execute and deliver a new Warrant or Warrants of like
tenor for the balance of the Warrant Shares purchasable under the Warrant
surrendered upon such purchase to the Holder hereof within a reasonable time,
not exceeding fifteen (15) days after the date of such surrender. Each stock
certificate so delivered shall be in such denominations as may be requested
by the Holder hereof and shall be registered in the name of such Holder or
such other name as shall be designated by such Holder.
2. CONVERSION OF WARRANT.
2.1 RIGHT TO CONVERT. In addition to, and without limiting, the
other rights of the Holder hereunder, the Holder shall have the right (the
"CONVERSION RIGHT") to convert this Warrant or any part hereof into Warrant
Shares at any time and from time to time during the term hereof. Upon
exercise of the Conversion Right, the Company shall deliver to the Holder,
without payment by the Holder of any Stock Purchase Price or any cash or
other consideration, that number of Warrant Shares computed using the
following formula:
x = y (a-b)
-------
a
Where: x = the number of Warrant Shares to be issued to the Holder
y = the number of Warrant Shares purchasable pursuant to this Warrant
a = the Fair Market Value of one Warrant Share as of the Conversion Date
b = the Stock Purchase Price
2.2 METHOD OF EXERCISE. The Conversion Right may be exercised by
the Holder by the surrender of this Warrant to the Company, together with a
written notice specifying that the Holder intends to exercise the Conversion
Right and indicating the number of Warrant Shares to be acquired upon
exercise of the Conversion Right. Such conversion shall be effective upon the
Company's receipt of this Warrant, together with the conversion notice, or on
such later
-2-
<PAGE>
date as is specified in the conversion notice (the "CONVERSION DATE") and, at
the Holder's election, may be made contingent upon the closing of the
Company's initial public offering of any securities pursuant to a
registration statement under the Securities Act of 1933, as amended (the
"SECURITIES ACT"); provided that the foregoing shall not create any
obligation on the part of the Company to undertake any public offering of
securities. Certificates for the Warrant Shares so acquired shall be
delivered to the Holder within a reasonable time, not exceeding fifteen (15)
days after the Conversion Date. If applicable, the Company shall, upon
surrender of this Warrant for cancellation, deliver a new Warrant evidencing
the rights of the Holder to purchase the balance of the Warrant Shares which
Holder is entitled to purchase hereunder.
2.3 FAIR MARKET VALUE. "FAIR MARKET VALUE" of a share of Warrant
Shares as of a particular date means: (i) if traded on an exchange or quoted
on The Nasdaq National Market, then the prior trading day's closing price,
(ii) if conversion is effective as of the closing of the Company's initial
public offering of any securities pursuant to a registration statement under
the Securities Act, the "price to public" specified for such shares in the
final prospectus for such public offering, (iii) if actively traded
over-the-counter, then the average of the most-recently reported bid and ask
prices and (IV) otherwise, the price as determined in good faith by the Board
of Directors of the Company.
3. RESERVATION OF SHARES. The Company covenants and agrees that the
Company will use its best efforts to cause a sufficient number of shares of
authorized but unissued Common Stock to be authorized when and as required to
provide for the exercise or conversion of the rights represented by this
Warrant. The Company will further take all such action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein
without violation of any applicable securities law or regulation.
4. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The
Stock Purchase Price and the number of shares purchasable upon the exercise
or conversion of this Warrant shall be subject to adjustment from time to
time upon the occurrence of certain events described in this Section 4. Upon
each adjustment of the Stock Purchase Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Stock Purchase Price resulting
from such adjustment, the number of shares obtained by multiplying the Stock
Purchase Price in effect immediately prior to such adjustment by the number
of shares purchasable pursuant hereto immediately prior to such adjustment,
and dividing the product thereof by the Stock Purchase Price resulting from
such adjustment.
4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide any of its outstanding shares of the same class
and series as the Warrant Shares into a greater number of shares, the Stock
Purchase Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case any outstanding shares of
the same class and series as the Warrant Shares shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately
prior to such combination shall be proportionately increased.
4.2 DIVIDENDS, RECLASSIFICATION. If at any time or from time to
time any holders of securities of the same class and series as the Warrant
Shares shall have received or become entitled to receive, without payment
thereof,
-3-
<PAGE>
(A) any shares of the Company's Preferred Stock, Common Stock
or any shares of stock or other securities which are at any time directly or
indirectly convertible into or exchangeable for Common Stock (collectively,
"COMPANY STOCK"), or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other
distribution;
(B) any cash paid or payable otherwise than as a regular
periodic cash dividend at a rate which is substantially consistent with past
practice (or, in the case of an initial dividend, at a rate which is
substantially consistent with industry practice); or
(C) any shares of the Company's Preferred Stock, Common Stock
or other or additional stock or other securities or property (including cash)
by way of spinoff, split-up, reclassification, combination of shares or
similar corporate rearrangement; (other than shares of the same class and
series as the Warrant Shares issued as a stock split, adjustments in respect
of which shall be covered by the terms of Section 4.1 above),
then and in each such case, the Holder hereof shall, upon
the exercise or conversion of this Warrant, be entitled to receive, in
addition to the number of shares of such capital stock receivable thereupon,
and without payment of any additional consideration thereof, the amount of
stock and other securities and property (including cash in the cases referred
to in clauses (B) and (C) above) which such Holder would hold on the date of
such exercise or conversion had he or it been the Holder of record of such
capital stock as of the date on which holders of such capital stock received
or became entitled to receive such shares and/or all other additional stock
and other securities and property.
4.3 CONVERSION OR REDEMPTION. Should all of the Company's capital
stock of the same class and series as the Warrant Shares be, or if
outstanding would be, at any time prior to the expiration of this Warrant or
any portion thereof, redeemed or converted into shares of Company Stock, then
this Warrant shall immediately become exercisable or convertible for that
number of shares of Common Stock equal to the number of shares of the Common
Stock that would have been received if this Warrant had been exercised in
full and the capital stock received thereupon had been simultaneously
converted immediately prior to such event, and the Stock Purchase Price shall
be immediately adjusted to equal the quotient obtained by dividing (x) the
aggregate Stock Purchase Price of the maximum number of shares of capital
stock for which this Warrant was exercisable or convertible immediately prior
to such conversion or redemption, by (y) the number of shares of Common Stock
for which this Warrant is exercisable or convertible immediately after such
conversion or redemption.
4.4 ANTIDILUTION. In case the Company shall at any time prior to
the expiration of this Warrant, issue any shares of Common Stock (other than
(i) shares issued as a stock dividend or stock split as provided in Section
4.2 or (ii) options to purchase equity securities of the Company pursuant to
the Company's stock incentive plans) for a consideration per share that is
less than the Stock Purchase Price, then on the date of such issue the Stock
Purchase Price shall be reduced to a price (calculated to the nearest cent)
equal to the quotient of (a) the sum of (i) the per share consideration
received by the Company in such issue plus (ii) the product of the Fully
Diluted Number immediately prior to the issuance times the Stock Purchase
Price divided by (b) the Fully Diluted Number immediately after the issuance.
-4-
<PAGE>
In the case of the issuance of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights to subscribe
for such convertible or exchangeable securities, other than options to
purchase equity securities of the Company pursuant to the Company's stock
incentive plans, the following provisions shall apply:
(i) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe
for Common Stock shall be deemed to have been issued at the time such options
or rights were issued for a consideration equal to the consideration received
by the Company upon the issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the Common Stock
covered thereby, but no further adjustment to the Stock Purchase Price shall
be made for the actual issuance of Common Stock upon the exercise of such
options or rights in accordance with their terms;
(ii) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the
time such securities were issued or such options or rights were issued for a
consideration equal to the consideration received by the Company for any such
securities and related options or rights, plus the additional consideration,
if any, to be received by the Company upon the conversion or exchange of such
securities or the exercise of any related options or rights, but no further
adjustment to the Stock Purchase Price shall be made for the actual issuance
of Common Stock upon the conversion or exchange of such securities in
accordance with their terms;
(iii) if such options, rights or convertible or exchangeable
securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Company, or decrease in the
number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Stock Purchase Price computed upon the original issue
thereof, and any subsequent adjustments based thereon, shall, upon such
increase or decrease becoming effective, be recomputed to reflect such
increase or decrease with respect to such options, rights and securities not
already exercised, converted or exchanged prior to such increase or decrease
becoming effective, but no further adjustment to the Stock Purchase Price
shall be made for the actual issuance of Common Stock upon the exercise of
any such options or rights or the conversion or exchange of such securities
in accordance with their terms;
(iv) upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable securities,
the Stock Purchase Price shall promptly be readjusted to such Stock Purchase
Price as would have been obtained had the adjustment which was made upon the
issuance of such options, rights or securities or options or rights related
to such securities been made upon the basis of the issuance of only the
number of shares of Common Stock actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities.
-5-
<PAGE>
4.5 CALCULATION OF CONSIDERATION. In the case of an issue of
additional shares of Common Stock for cash, the consideration received by the
Company shall be deemed to be the net cash proceeds received for such shares.
In the case of an issue of additional shares of Common Stock for noncash
consideration, the Company's Board of Directors shall determine the value of
such consideration and such determination, unless shown by the Holder to have
been made other than in good faith, shall be conclusive.
4.6 OTHER NOTICES. If at any time:
(A) the Company shall declare any cash dividend upon its
shares of the same class and series as the Warrant Shares;
(B) the Company shall declare any dividend upon its shares of
the same class and series as the Warrant Shares payable in stock or make any
special dividend or other distribution to the holders of its shares of the
same class and series as the Warrant Shares;
(C) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or any merger in which
shareholders of the Company prior to such merger hold less than 50% of the
voting power of the capital stock of the surviving corporation after such
merger, or the sale of all or substantially all of the Company's assets, or a
transaction, whether effected in a single transaction or a series of related
transactions, in which 50% or more of the voting power of the capital stock
of the Company is transferred (an "ACQUISITION");
(D) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(E) the Company shall take or propose to take any other
action, notice of which is actually provided to or is required to be
provided, pursuant to any written agreement, to holders of its shares of the
same class and series as the Warrant Shares,
then, in any one or more of said cases, the Company shall give,
by first class mail, postage prepaid, addressed to the Holder of this Warrant
at the address of such Holder as shown of the books of the Company, (i) at
least 20 days prior written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividends or
distribution rights or for determining rights to vote in respect of any such
reorganization, reclassification, Acquisition, dissolution, liquidation or
winding-up, and (ii) in the case of any such reorganization,
reclassification, Acquisition, dissolution, liquidation or winding-up, at
least 20 days prior written notice of the date when the same shall take
place. Any notice given in accordance with the foregoing clause (i) shall
also specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of shares of the same class and series
as the Warrant Shares shall be entitled thereto. Any notice given in
accordance with the foregoing clause (ii) shall also specify the date on
which the holders of shares of the same class and series as the Warrant
Shares shall be entitled to exchange their stock for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, Acquisition, dissolution, liquidation or
winding-up, as the case may be.
-6-
<PAGE>
5. ISSUE TAX. The issuance of certificates for shares of the Warrant
Shares shall be made without charge to the Holder of the Warrant for any
issue tax in respect thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of the then Holder of the Warrant being transferred.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder
in respect of meetings of shareholders for the election of directors of the
Company or any other matters or any rights whatsoever as a shareholder of the
Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised or converted.
7. UNREGISTERED SECURITY. Each holder of this Warrant acknowledges
that this Warrant and the Warrant Shares have not been registered under the
Securities Act, and agrees not to sell, pledge, distribute, offer for sale,
transfer or otherwise dispose of this Warrant, any Warrant Shares issued upon
its exercise in the absence of (i) an effective registration statement under
the Securities Act as to this Warrant or such Warrant Shares and registration
or qualification of this Warrant or such Warrant Shares under any applicable
federal or state securities law then in effect, or (ii) an opinion of
counsel, satisfactory to the Company, that such registration and
qualification are not required. Each certificate or other instrument for
Warrant Shares issued upon the exercise of this Warrant shall bear a legend
substantially to the foregoing effect.
8. TRANSFERABILITY. Subject to the provisions of Section 7 hereof,
this Warrant and all rights hereunder are not transferable, in whole or in
part, except for transfers to affiliates upon surrender of the Warrant with a
properly executed assignment (in the form attached hereto) at the principal
office of the Company.
9. MODIFICATION AND WAIVER. This Warrant and any provision hereof
may be amended, waived or modified upon written consent of the Company and
the Holder.
10. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall
be delivered or shall be sent by certified or registered mail, postage
prepaid, to each such Holder at its address as shown on the books of the
Company or to the Company at its principal executive offices.
11. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections and paragraphs of this Warrant are inserted for convenience only and
do not constitute a part of this Warrant.
12. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of Washington, without giving effect to the conflict of laws
principles thereof.
-7-
<PAGE>
13. LOST WARRANTS OR STOCK CERTIFICATES. The Company represents and
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company at its expense
will make and deliver a new Warrant or stock certificate, of like tenor, in
lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.
14. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay the Holder entitled to such fraction a sum in cash
equal to such fraction multiplied by the then effective Stock Purchase Price.
[Signature Page Follows.]
-8-
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused this
Warrant to be duly executed by its duly authorized officers, effective as of
the date written above.
COMPANY: Ubarter.com, Inc.
By: ______________________________________
Name: ____________________________________
Title: _____________________________________
HOLDER: ShopNow.com Inc.
By: _______________________________________
Name: ____________________________________
Title: _____________________________________
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To:
The undersigned, the Holder of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, _____________ ____________________________
(_____________) shares of ____________ Stock of Ubarter.com, Inc. and
herewith makes payment of ____________________ Dollars ($__________) thereof,
and requests that the certificates for such shares by issued in the name of,
and delivered to ________________________________, whose address is
____________________________________________.
The undersigned represents that it is acquiring such ________________
Stock for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times by within its control).
DATED: ___________________
___________________________________________
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant)
___________________________________________
___________________________________________
(Address)
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the Holder of the within
Warrant, hereby sells, assigns and transfers all of the rights of the
undersigned under the within Warrant, with respect to the number of shares of
________________ Stock covered thereby set forth herein below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
DATED: ___________________
____________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the Warrant)
<PAGE>
Exhibit 2.5
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
CONVERTIBLE PROMISSORY NOTE
$338,389.00 February 28, 2000
Seattle, Washington
For value received, Ubarter.com, Inc., a Nevada corporation (the
"COMPANY"), promises to pay to ShopNow.com Inc., a Washington corporation (the
"HOLDER"), the principal sum of Three Hundred Thirty-Eight Thousand Eighty-Nine
Dollars ($338,389.00). Interest shall accrue from the date of this Note on the
unpaid principal amount at a rate equal to eight and one-half percent (8.5%) per
annum, simple interest. Interest will be computed on the basis of a 360-day year
of twelve 30-day months. This Note is subject to the following terms and
conditions.
1. MATURITY. Subject to Section 2, principal and all accrued and unpaid
interest under this Note shall be due and payable upon demand by the Holder at
any time after June 22, 2000 (the "MATURITY DATE"). Notwithstanding the
foregoing, the entire unpaid principal sum of this Note, together with all
accrued and unpaid interest thereon, shall become immediately due and payable in
the event of any Event of Default (as defined below).
2. CONVERSION.
(a) FAILURE TO CLOSE MERGER. The entire principal amount of
and accrued and unpaid interest on this Note shall automatically be converted
into fully paid and nonassessable shares of the Company's common stock ("COMMON
STOCK") upon the earlier to occur of (1) the failure of the transaction
contemplated in that certain Agreement and Plan of Merger, dated as of January
20, 2000, among Holder, the Company and Shamu Acquisition, Inc. (the "MERGER
AGREEMENT") to be consummated on or before June 22, 2000 for any reason other
than the Company's closing conditions not being satisfied on or prior to such
date due to any omission or affirmative act of Holder or (2) the failure of the
Company's closing conditions set forth in Section 5 of the Merger Agreement to
be satisfied on or prior to June 22, 2000 due to any omission or affirmative act
of Holder.
(b) NUMBER OF SHARES ISSUED UPON TERMINATION BY THE COMPANY.
Upon the conversion of this Note due to the occurrence of an event represented
by clause (1) of Section 2(a) above, the number of shares of Common Stock to be
issued upon such conversion shall be equal to the quotient obtained by dividing
(X) the entire principal amount of this Note plus accrued and unpaid interest by
(Y) $2.15 (the "COMPANY TERMINATION CONVERSION PRICE"), rounded to the nearest
whole share.
<PAGE>
(c) NUMBER OF SHARES ISSUED UPON TERMINATION BY HOLDER. Upon
the conversion of this Note due to the occurrence of an event represented by
clause (2) of Section 2(a) above, the number of shares of Common Stock to be
issued upon such conversion shall be equal to the quotient obtained by dividing
(X) the entire principal amount of this Note plus accrued and unpaid interest by
(Y) $3.58 (the "HOLDER TERMINATION CONVERSION PRICE"), rounded to the nearest
whole share.
(d) WARRANT COVERAGE.
(i) In the event of a conversion of this Note pursuant
to clause (1) of Section 2(a) above, the Company shall issue to Holder a warrant
to purchase a number of shares of Common Stock equal to the quotient of (A) 125%
times the entire principal amount of this Note plus accrued and unpaid interest
divided by (B) the Company Termination Conversion Price. Such warrant shall have
a term of 7 years and an exercise price equal to the Company Termination
Conversion Price, rounded to the nearest whole share. The form of warrant is
attached as Appendix A hereto.
(ii) In the event of a conversion of this Note
pursuant to clause (2) of Section 2(a) above, the Company shall issue to Holder
a warrant to purchase a number of shares of Common Stock equal to the quotient
of (i) 50% times the entire principal amount of this Note plus accrued and
unpaid interest divided by (ii) the Holder Termination Conversion Price. Such
warrants shall have a term of 7 years and an exercise price equal to the Holder
Termination Conversion Price, rounded to the nearest whole share. The form of
warrant is attached as Appendix A hereto.
(e) MECHANICS AND EFFECT OF CONVERSION. No fractional shares
of the Company's capital stock will be issued upon conversion of this Note. In
lieu of any fractional share to which the Holder would otherwise be entitled,
the Company will pay to the Holder in cash the amount of the unconverted
principal and interest balance of this Note that would otherwise be converted
into such fractional share. Upon conversion of this Note pursuant to this
Section 2, the Holder shall surrender this Note, duly endorsed, at the principal
offices of the Company or any transfer agent of the Company. At its expense, the
Company will, as soon as practicable thereafter, issue and deliver to such
Holder, at such principal office, a certificate or certificates for the number
of fully paid and nonassessable shares of Common Stock to which such Holder is
entitled upon such conversion, together with any other securities and property
to which the Holder is entitled upon such conversion under the terms of this
Note, including a check payable to the Holder for any cash amounts payable as
described herein. Upon conversion of this Note, the Company will be forever
released from all of its obligations and liabilities under this Note with regard
to that portion of the principal amount and accrued interest being converted
including without limitation the obligation to pay such portion of the principal
amount and accrued interest.
3. PAYMENT. All payments shall be made in lawful money of the United
States of America at such place as the Holder hereof may from time to time
designate in writing to the Company. Payment shall be credited first to the
accrued interest then due and payable and the
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<PAGE>
remainder applied to principal. Prepayment of this Note may not be made prior to
the Maturity Date, unless agreed to in writing by the Holder.
4. TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of this
Note shall inure to the benefit of and be binding upon the respective successors
and assigns of the parties. Notwithstanding the foregoing, (i) the Holder may
not assign, pledge, or otherwise transfer this Note without the prior written
consent of the Company, except for transfers to affiliates and (ii) the Company
may not assign, pledge, or otherwise transfer this Note without the prior
written consent of the Holder. Subject to the preceding sentence, this Note may
be transferred only upon surrender of the original Note for registration of
transfer, duly endorsed, or accompanied by a duly executed written instrument of
transfer in form satisfactory to the Holder. Thereupon, a new note for the same
principal amount and interest will be issued to, and registered in the name of,
the transferee. Interest and principal are payable only to the registered holder
of this Note.
5. GOVERNING LAW. This Note and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of
Washington, without giving effect to principles of conflicts of law.
6. NOTICES. Any notice required or permitted by this Note shall be in
writing and shall be deemed sufficient upon delivery, when delivered personally
or by a nationally-recognized delivery service (such as Federal Express or UPS),
or forty-eight (48) hours after being deposited in the U.S. mail, as certified
or registered mail, with postage prepaid, addressed to the party to be notified
at such party's address as set forth below or as subsequently modified by
written notice.
7. AMENDMENTS AND WAIVERS. Any term of this Note may be amended or
waived only with the written consent of the Company and the Holder. Any
amendment or waiver effected in accordance with this Section 7 shall be binding
upon the Company, the Holder and each transferee of the Note.
8. SHAREHOLDERS, OFFICERS AND DIRECTORS NOT LIABLE. In no event shall
any shareholder, officer or director of the Company be liable for any amounts
due or payable pursuant to this Note.
9. NOTICE AND PRESENTMENT. The Company hereby waives demand, notice,
presentment, protest and notice of dishonor.
10. SEVERABILITY. If one or more provisions of this Note are held to be
unenforceable under applicable law, such provision shall be excluded from this
Note, and the balance of this Note shall be interpreted as if such provision
were so excluded and shall be enforceable in accordance with its terms.
11. ATTORNEYS' FEES. The Company and all endorsers of this Note agree
to pay the Holder's reasonable expenses and costs in collecting and enforcing
this Note, including reasonable attorneys' fees.
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<PAGE>
12. HOLDER AS OWNER. The Company may deem and treat the holder of
record of this Note as the absolute owner for all purposes regardless of any
notice to the contrary.
13. EVENTS OF DEFAULT. If any of the events specified in this Section
13 shall occur (an "EVENT OF DEFAULT"), the Holder may, so long as such
condition exists, declare the outstanding principal and accrued but unpaid
interest immediately due and payable by notice in writing to the Company:
(a) The institution of proceedings by the Company to be
adjudicated as bankrupt or insolvent, the filing of a petition or answer or
consent seeking reorganization or release under the federal Bankruptcy Act, or
any other applicable federal or state law, the appointment of a receiver,
liquidator or trustee, an assignment for the benefit of creditors, or the taking
of corporate action by the Company in furtherance of any such action;
(b) If, within 60 days after the commencement of an action against
the Company (and service of process on the Company) seeking any bankruptcy,
insolvency, reorganization, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such action shall not have been
resolved in favor of the Company or all orders or proceedings thereunder
affecting the operations or the business of the Company stayed, or if the stay
of any such order or proceeding shall thereafter be set aside, or if, within 60
days after the appointment without the consent or acquiescence of the Company of
any trustee, receiver or liquidator of the Company, such appointment shall not
have been vacated;
(c) Failure to pay the principal of and interest on this Note when
due;
(d) The adoption of any plan of liquidation, dissolution or
winding up of the Company, or the involuntary occurrence thereof; or
(e) Material breach by the Company of any provision of this Note
(other than the payment obligations described in clause (C) above), where such
breach is not cured within ten (10) days after the Company receives written
notice of the same from the Holder.
14. COVENANTS OF THE COMPANY. For so long as any principal remains
outstanding under the Note, the Company shall not, without first obtaining the
consent of Holder:
(a) issue equity securities or options, warrants, rights or
convertible securities; other than for customary grants of options to new hires
not to exceed in the aggregate 50,000
(b) amend the Company's Articles of Incorporation or Bylaws in any
manner adverse to Holder;
(c) lease, sell, license or otherwise transfer all or
substantially all of its assets;
(d) create or assume any indebtedness for borrowed money that is
pari passu or senior in right of payment to the obligations under the Note;
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<PAGE>
(e) pay any dividends or other distributions on the capital stock
of the Company, or repurchase or redeem any Common Stock, other than pursuant to
vesting or repurchase provisions under equity incentive programs maintained by
the Company;
(f) grant any unusual or extraordinary bonuses, benefits or other
forms of direct or indirect compensation to any employee, officer, director or
consultant if the direct or indirect result of such action would be likely to
result in (i) the insolvency or bankruptcy of the Company or (ii) an Event of
Default;
(g) directly or indirectly make any payments on existing
indebtedness other than regularly scheduled installments of principal and
interest nor make any payment on any existing indebtedness which would violate
the terms of such indebtedness or any agreement related thereto; or
(h) cause the net loss on the Company's income statement to
increase by more than $500,000 in any individual month.
15. COMPANY REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants that:
(a) It is a corporation duly incorporated, validly existing and in
good standing under the laws of the state of Nevada. The Company has all
requisite corporate power and authority to carry on its business as presently
conducted, and to carry out the transactions contemplated in this Note. The
Company is duly qualified to transact business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have a material adverse effect on the Company's financial condition,
business, operations or property.
(b) The execution, delivery and performance by the Company of
this Note has been duly authorized by all requisite action of the Company and
its directors and shareholders. This Note has been duly executed and delivered
by the Company, and this Note constitutes a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
(c) No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Company is required in connection with the consummation of the transactions
contemplated by this Note, except for filings pursuant to the federal securities
laws and to applicable state Blue Sky laws.
(d) The Company is not in default (i) under its Articles of
Incorporation or its Bylaws; (ii) under any material contract, agreement or
instrument to which the Company is a party or by which it or any of its property
is bound or affected, including without limitation any material indenture,
mortgage, lease, license or purchase or sales order, other than any default
arising from the failure to the Company to register the shares of the Company's
common stock in accordance with section 1.9 of that certain Share Purchase
Agreement dated February 28, 1999,
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<PAGE>
among the registrant, Barter Business Exchange Inc. and Bob Bagga; or (iii) with
respect to any order, writ, injunction or decree of any court or of any federal,
state, municipal or other domestic or foreign governmental department,
commission, board, bureau, agency or instrumentality. To the knowledge of the
Company, there presently exists no material default by any party other than the
Company to any of the foregoing, and no condition, event or act which
constitutes, or which after notice, lapse of time or both would constitute, a
material default by the Company or any other party under any of the foregoing.
16. USE OF PROCEEDS. The Company shall use the principal amount under
this Note to pay all amounts due to (a) Bob Bagga as an earn-out under that
certain Share Purchase Agreement among Bob Bagga, International Barter Corp. and
Barter Business Exchange Inc., dated February 28, 1999 and promissory note dated
March 2, 1999 and (b) Momentous Inc. Pension and Trust ("MOMENTOUS") pursuant to
a convertible note referenced in that certain letter agreement, dated December
9, 1999, between Momentous and the Company.
17. CONSENT. By agreeing and accepting this Note, Holder hereby (a)
consents, in accordance with Section 14(d) of that certain Convertible
Promissory Note in principal amount of $2,000,000, dated December 22, 1999,
executed by the Company for the benefit of Holder (the "PRIOR NOTE"), to the
creation of the indebtedness evidenced by this Note and (b) agrees that the
execution of this Note by the Company will not constitute a breach of Section
14(d) of the Prior Note. The Company acknowledges and agrees that by consenting
to the creation of pari passu indebtedness resulting from the execution of this
Note and waiving the provisions of Section 14(d) of the Prior Note, Holder is
not consenting to or waiving any further transactions related to the Prior Note
and that the provisions of the Prior Note, including, without limitation,
Section 14(d) thereof, remain in full force and effect notwithstanding the
consent and waiver herein given and the creation of such indebtedness.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
COMPANY:
UBARTER.COM, INC.
By: /s/ Steven White
------------------------------------
Name: Steven White
----------------------------------
(print)
Title: President
---------------------------------
Address: 2815 Second Avenue, Suite 500
Seattle, WA 98121
-------------------------------
AGREED AND ACCEPTED:
SHOPNOW.COM INC.
By: /s/ Alan D. Koslow
----------------------------------
Name: Alan D. Koslow
--------------------------------
(print)
Title: Executive Vice President,
Chief Financial Officer,
Secretary General Counsel
-------------------------------
Address: 411 First Avenue S., Suite 200N
Seattle, WA 98104
[SIGNATURE PAGE TO CONVERTIBLE SUBORDINATED PROMISSORY NOTE]
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<PAGE>
SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
UBARTER.COM, INC.
STOCK PURCHASE WARRANT
Date:
----------------
This certifies that ShopNow.com Inc. or its assigns (the "HOLDER"), for
value received, is entitled to purchase from Ubarter.com, Inc., a Nevada
corporation (the "COMPANY"), a number of fully paid and nonassessable shares of
the Company's common stock (the "COMMON Stock") equal to the Warrant Amount (as
defined below) divided by the Stock Purchase Price (as defined below) (such
number of shares, the "WARRANT SHARES"). For purposes of the foregoing, the
following definitions apply:
(A) The "WARRANT AMOUNT" shall be [one hundred twenty five
percent (125%)][fifty percent (50%)] of the outstanding principal
balance of and any accrued but unpaid interest under that certain
Convertible Promissory Note, dated as of February 28, 2000, issued to
Holder by the Company (the "NOTE").
(C) The "STOCK PURCHASE PRICE" shall be [$2.15][$3.58].
(D) The "FULLY DILUTED NUMBER" shall mean at any given time
the total number of shares of Common Stock outstanding on a fully
diluted basis, which calculation assumes (X) the exercise of all then
outstanding rights, warrants or options, vested or unvested, to acquire
the Company's common stock, regardless of restrictions on exercise or
conversion and (Y) the conversion of all then outstanding securities
(including, without limitation, any preferred stock) and notes
convertible at any time into the Company's common stock (other than the
Note).
This Warrant may be exercised at any time or from time to time up to
and including the earliest to occur of (I) 5:00 p.m. Pacific time on [seven
years from issuance] or (II) the consummation of a firm commitment underwritten
public offering pursuant to a registration statement under the Securities Act of
1933, as amended (the "EXPIRATION DATE"), upon surrender to the Company at its
principal office (or at such other location as the Company may advise Holder in
writing) of this Warrant properly endorsed with the Form of Subscription
attached hereto duly filled in and signed and upon payment in cash or by check
of the aggregate Stock Purchase Price for the number of Warrant Shares for which
this Warrant is being exercised
<PAGE>
determined in accordance with the provisions hereof. The Stock Purchase Price
and the number of Warrant Shares are subject to adjustment as provided in
Section 4 below.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. This Warrant
is exercisable at the option of the Holder of record hereof, at any time or from
time to time, up to the Expiration Date for all and any part of the Warrant
Shares (but not for a fraction of a share). The Company agrees that the Warrant
Shares purchased under this Warrant shall be and are deemed to be issued to the
Holder hereof as the record owner of such shares as of the close of business on
the date on which this Warrant shall have been surrendered and payment made for
such shares. Certificates for the Warrant Shares so purchased, together with any
other securities or property to which the Holder hereof is entitled upon such
exercise, shall be delivered to the Holder hereof by the Company at the
Company's expense within a reasonable time after the rights represented by this
Warrant have been so exercised. In case of a purchase of less than all the
Warrant Shares, the Company shall cancel this Warrant and execute and deliver a
new Warrant or Warrants of like tenor for the balance of the Warrant Shares
purchasable under the Warrant surrendered upon such purchase to the Holder
hereof within a reasonable time, not exceeding fifteen (15) days after the date
of such surrender. Each stock certificate so delivered shall be in such
denominations as may be requested by the Holder hereof and shall be registered
in the name of such Holder or such other name as shall be designated by such
Holder.
2. CONVERSION OF WARRANT.
2.1 RIGHT TO CONVERT. In addition to, and without limiting,
the other rights of the Holder hereunder, the Holder shall have the right (the
"CONVERSION RIGHT") to convert this Warrant or any part hereof into Warrant
Shares at any time and from time to time during the term hereof. Upon exercise
of the Conversion Right, the Company shall deliver to the Holder, without
payment by the Holder of any Stock Purchase Price or any cash or other
consideration, that number of Warrant Shares computed using the following
formula:
x = y (a-b)
-------
a
Where: x = the number of Warrant Shares to be issued to the
Holder
y = the number of Warrant Shares purchasable pursuant to
this Warrant
a = the Fair Market Value of one Warrant Share as of the
Conversion Date
b = the Stock Purchase Price
2.2 METHOD OF EXERCISE. The Conversion Right may be exercised
by the Holder by the surrender of this Warrant to the Company, together with a
written notice specifying that the Holder intends to exercise the Conversion
Right and indicating the number of Warrant Shares to be acquired upon exercise
of the Conversion Right. Such conversion shall be effective upon the Company's
receipt of this Warrant, together with the conversion notice, or on
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<PAGE>
such later date as is specified in the conversion notice (the "CONVERSION DATE")
and, at the Holder's election, may be made contingent upon the closing of the
Company's initial public offering of any securities pursuant to a registration
statement under the Securities Act of 1933, as amended (the "SECURITIES ACT");
provided that the foregoing shall not create any obligation on the part of the
Company to undertake any public offering of securities. Certificates for the
Warrant Shares so acquired shall be delivered to the Holder within a reasonable
time, not exceeding fifteen (15) days after the Conversion Date. If applicable,
the Company shall, upon surrender of this Warrant for cancellation, deliver a
new Warrant evidencing the rights of the Holder to purchase the balance of the
Warrant Shares which Holder is entitled to purchase hereunder.
2.3 FAIR MARKET VALUE. "FAIR MARKET VALUE" of a share of
Warrant Shares as of a particular date means: (i) if traded on an exchange or
quoted on The Nasdaq National Market, then the prior trading day's closing
price, (ii) if conversion is effective as of the closing of the Company's
initial public offering of any securities pursuant to a registration statement
under the Securities Act, the "price to public" specified for such shares in the
final prospectus for such public offering, (iii) if actively traded
over-the-counter, then the average of the most-recently reported bid and ask
prices and (iv) otherwise, the price as determined in good faith by the Board of
Directors of the Company.
3. RESERVATION OF SHARES. The Company covenants and agrees that the
Company will use its best efforts to cause a sufficient number of shares of
authorized but unissued Common Stock to be authorized when and as required to
provide for the exercise or conversion of the rights represented by this
Warrant. The Company will further take all such action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein without
violation of any applicable securities law or regulation.
4. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise or
conversion of this Warrant shall be subject to adjustment from time to time upon
the occurrence of certain events described in this Section 4. Upon each
adjustment of the Stock Purchase Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Stock Purchase Price resulting from
such adjustment, the number of shares obtained by multiplying the Stock Purchase
Price in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment, and dividing
the product thereof by the Stock Purchase Price resulting from such adjustment.
4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide any of its outstanding shares of the same class and
series as the Warrant Shares into a greater number of shares, the Stock Purchase
Price in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case any outstanding shares of the same class and
series as the Warrant Shares shall be combined into a smaller number of shares,
the Stock Purchase Price in effect immediately prior to such combination shall
be proportionately increased.
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<PAGE>
4.2 DIVIDENDS, RECLASSIFICATION. If at any time or from time
to time any holders of securities of the same class and series as the Warrant
Shares shall have received or become entitled to receive, without payment
thereof,
(A) any shares of the Company's Preferred Stock,
Common Stock or any shares of stock or other securities which are at any time
directly or indirectly convertible into or exchangeable for Common Stock
(collectively, "COMPANY STOCK"), or any rights or options to subscribe for,
purchase or otherwise acquire any of the foregoing by way of dividend or
other distribution;
(B) any cash paid or payable otherwise than as a
regular periodic cash dividend at a rate which is substantially consistent with
past practice (or, in the case of an initial dividend, at a rate which is
substantially consistent with industry practice); or
(C) any shares of the Company's Preferred Stock,
Common Stock or other or additional stock or other securities or property
(including cash) by way of spinoff, split-up, reclassification, combination of
shares or similar corporate rearrangement; (other than shares of the same class
and series as the Warrant Shares issued as a stock split, adjustments in respect
of which shall be covered by the terms of Section 4.1 above),
then and in each such case, the Holder hereof shall,
upon the exercise or conversion of this Warrant, be entitled to receive, in
addition to the number of shares of such capital stock receivable thereupon, and
without payment of any additional consideration thereof, the amount of stock and
other securities and property (including cash in the cases referred to in
clauses (B) and (C) above) which such Holder would hold on the date of such
exercise or conversion had he or it been the Holder of record of such capital
stock as of the date on which holders of such capital stock received or became
entitled to receive such shares and/or all other additional stock and other
securities and property.
4.3 CONVERSION OR REDEMPTION. Should all of the Company's
capital stock of the same class and series as the Warrant Shares be, or if
outstanding would be, at any time prior to the expiration of this Warrant or any
portion thereof, redeemed or converted into shares of Company Stock, then this
Warrant shall immediately become exercisable or convertible for that number of
shares of Common Stock equal to the number of shares of the Common Stock that
would have been received if this Warrant had been exercised in full and the
capital stock received thereupon had been simultaneously converted immediately
prior to such event, and the Stock Purchase Price shall be immediately adjusted
to equal the quotient obtained by dividing (x) the aggregate Stock Purchase
Price of the maximum number of shares of capital stock for which this Warrant
was exercisable or convertible immediately prior to such conversion or
redemption, by (y) the number of shares of Common Stock for which this Warrant
is exercisable or convertible immediately after such conversion or redemption.
4.4 ANTIDILUTION. In case the Company shall at any time prior
to the expiration of this Warrant, issue any shares of Common Stock (other than
(i) shares issued as a stock dividend or stock split as provided in Section 4.2
or (ii) options to purchase equity securities of the Company pursuant to the
Company's stock incentive plans) for a consideration per share that is less than
the Stock Purchase Price, then on the date of such issue the Stock Purchase
Price
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<PAGE>
shall be reduced to a price (calculated to the nearest cent) equal to the
quotient of (a) the sum of (i) the per share consideration received by the
Company in such issue plus (ii) the product of the Fully Diluted Number
immediately prior to the issuance times the Stock Purchase Price divided by (b)
the Fully Diluted Number immediately after the issuance.
In the case of the issuance of options to purchase or rights
to subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights to subscribe for
such convertible or exchangeable securities, other than options to purchase
equity securities of the Company pursuant to the Company's stock incentive
plans, the following provisions shall apply:
(i) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued for a consideration equal to the consideration received by
the Company upon the issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the Common Stock covered
thereby, but no further adjustment to the Stock Purchase Price shall be made for
the actual issuance of Common Stock upon the exercise of such options or rights
in accordance with their terms;
(ii) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued for a
consideration equal to the consideration received by the Company for any such
securities and related options or rights, plus the additional consideration, if
any, to be received by the Company upon the conversion or exchange of such
securities or the exercise of any related options or rights, but no further
adjustment to the Stock Purchase Price shall be made for the actual issuance of
Common Stock upon the conversion or exchange of such securities in accordance
with their terms;
(iii) if such options, rights or convertible or exchangeable
securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Company, or decrease in the
number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Stock Purchase Price computed upon the original issue
thereof, and any subsequent adjustments based thereon, shall, upon such increase
or decrease becoming effective, be recomputed to reflect such increase or
decrease with respect to such options, rights and securities not already
exercised, converted or exchanged prior to such increase or decrease becoming
effective, but no further adjustment to the Stock Purchase Price shall be made
for the actual issuance of Common Stock upon the exercise of any such options or
rights or the conversion or exchange of such securities in accordance with their
terms;
(iv) upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Stock Purchase Price shall promptly be readjusted to such Stock Purchase Price
as would have been obtained had the adjustment which was made
-5-
<PAGE>
upon the issuance of such options, rights or securities or options or rights
related to such securities been made upon the basis of the issuance of only the
number of shares of Common Stock actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities.
4.5 CALCULATION OF CONSIDERATION. In the case of an issue of
additional shares of Common Stock for cash, the consideration received by the
Company shall be deemed to be the net cash proceeds received for such shares. In
the case of an issue of additional shares of Common Stock for noncash
consideration, the Company's Board of Directors shall determine the value of
such consideration and such determination, unless shown by the Holder to have
been made other than in good faith, shall be conclusive.
4.6 OTHER NOTICES. If at any time:
(A) the Company shall declare any cash dividend
upon its shares of the same class and series as the Warrant Shares;
(B) the Company shall declare any dividend upon its
shares of the same class and series as the Warrant Shares payable in stock or
make any special dividend or other distribution to the holders of its shares of
the same class and series as the Warrant Shares;
(C) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or any merger in which
shareholders of the Company prior to such merger hold less than 50% of the
voting power of the capital stock of the surviving corporation after such
merger, or the sale of all or substantially all of the Company's assets, or a
transaction, whether effected in a single transaction or a series of related
transactions, in which 50% or more of the voting power of the capital stock of
the Company is transferred (an "ACQUISITION");
(D) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company; or
(E) the Company shall take or propose to take any
other action, notice of which is actually provided to or is required to be
provided, pursuant to any written agreement, to holders of its shares of the
same class and series as the Warrant Shares,
then, in any one or more of said cases, the Company shall give, by
first class mail, postage prepaid, addressed to the Holder of this Warrant at
the address of such Holder as shown of the books of the Company, (i) at least 20
days prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividends or distribution rights or
for determining rights to vote in respect of any such reorganization,
reclassification, Acquisition, dissolution, liquidation or winding-up, and (ii)
in the case of any such reorganization, reclassification, Acquisition,
dissolution, liquidation or winding-up, at least 20 days prior written notice of
the date when the same shall take place. Any notice given in accordance with the
foregoing clause (i) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of shares of
the same class and series as the Warrant Shares shall be entitled thereto. Any
notice given in accordance with the
-6-
<PAGE>
foregoing clause (ii) shall also specify the date on which the holders of
shares of the same class and series as the Warrant Shares shall be entitled
to exchange their stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale,
Acquisition, dissolution, liquidation or winding-up, as the case may be.
5. ISSUE TAX. The issuance of certificates for shares of the Warrant
Shares shall be made without charge to the Holder of the Warrant for any issue
tax in respect thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
then Holder of the Warrant being transferred.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder in
respect of meetings of shareholders for the election of directors of the Company
or any other matters or any rights whatsoever as a shareholder of the Company.
No dividends or interest shall be payable or accrued in respect of this Warrant
or the interest represented hereby or the shares purchasable hereunder until,
and only to the extent that, this Warrant shall have been exercised or
converted.
7. UNREGISTERED SECURITY. Each holder of this Warrant acknowledges that
this Warrant and the Warrant Shares have not been registered under the
Securities Act, and agrees not to sell, pledge, distribute, offer for sale,
transfer or otherwise dispose of this Warrant, any Warrant Shares issued upon
its exercise in the absence of (i) an effective registration statement under the
Securities Act as to this Warrant or such Warrant Shares and registration or
qualification of this Warrant or such Warrant Shares under any applicable
federal or state securities law then in effect, or (ii) an opinion of counsel,
satisfactory to the Company, that such registration and qualification are not
required. Each certificate or other instrument for Warrant Shares issued upon
the exercise of this Warrant shall bear a legend substantially to the foregoing
effect.
8. TRANSFERABILITY. Subject to the provisions of Section 7 hereof, this
Warrant and all rights hereunder are not transferable, in whole or in part,
except for transfers to affiliates upon surrender of the Warrant with a properly
executed assignment (in the form attached hereto) at the principal office of the
Company.
9. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be amended, waived or modified upon written consent of the Company and the
Holder.
10. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such Holder at its address as shown on the books of the Company or to the
Company at its principal executive offices.
11. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections and paragraphs of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant.
-7-
<PAGE>
12. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Washington, without giving effect to the conflict of laws
principles thereof.
13. LOST WARRANTS OR STOCK CERTIFICATES. The Company represents and
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
14. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the Holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.
[Signature Page Follows.]
-8-
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant
to be duly executed by its duly authorized officers, effective as of the date
written above.
COMPANY: Ubarter.com, Inc.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
HOLDER: ShopNow.com Inc.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To:
-------------------------
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _____________ ____________________________ (_____________)
shares of ____________ Stock of Ubarter.com, Inc. and herewith makes payment of
____________________ Dollars ($__________) thereof, and requests that the
certificates for such shares by issued in the name of, and delivered to
________________________________, whose address is______________________________
__________________________________________.
The undersigned represents that it is acquiring such __________________
Stock for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times by within its control).
DATED:
--------------------
------------------------------------------
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant)
-------------------------------------------
-------------------------------------------
(Address)
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the Holder of the within Warrant,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of ________________
Stock covered thereby set forth herein below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
DATED:
------------------------------------
------------------------------------------
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant)
-3-
<PAGE>
Exhibit 5.1
[Letterhead of Perkins Coie LLP]
March 14, 2000
ShopNow.com Inc.
411 First Avenue S., Suite 200N
Seattle, Washington 98104
Ladies and Gentlemen:
We have acted as counsel to ShopNow.com Inc., a Washington corporation
(the "Company"), in connection with the preparation of a Registration Statement
on Form S-4 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Act"), which you are filing with the Securities and Exchange
Commission relating to the issuance of such number of shares of common stock,
$.001 par value per share, of the Company (the "Common Stock"), as shall be
required pursuant to the terms of the Agreement and Plan of Merger, dated as of
January 20, 2000, among the Company, Shamu Acquisition, Inc. and Ubarter.com
Inc. (the "Merger Agreement"). These shares are to be issued as a result of the
conversion of shares of common stock of Ubarter.com Inc. ("Ubarter.com")
pursuant to the Merger Agreement, and the issuance of these shares is subject to
satisfaction or waiver of all conditions to the Merger Agreement. We have
examined the Registration Statement and such documents and records of the
Company and other documents as we have deemed necessary for the purpose of this
opinion.
Based on and subject to the foregoing, we are of the opinion that,
following the effectiveness of the Registration Statement, in accordance with
the terms of the Merger Agreement, the Common Stock, when issued, will be
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and any amendment thereto, including any and all
post-effective amendments and any registration statement relating to the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act, and to the reference to our firm in the Prospectus of the
Registration Statement under the
<PAGE>
ShopNow.com Inc.
March 14, 20000
Page 2
heading "Legal Matters." In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act.
Very truly yours,
Perkins Coie LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated June 11, 1999, with respect to the 1998 and 1997
financial statements of GO Software, Inc. included in the Registration
Statement (Form S-4) and related Prospectus of ShopNow.com Inc. for the
registration of 2,593,876 shares of its common stock.
Ernst & Young LLP
March 10, 2000
Jacksonville, Florida
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of
this registration statement.
/s/ Arthur Andersen LLP
Seattle, Washington
March 13, 2000
<PAGE>
[KPMG LOGO]
Two Central Park Plaza Telephone 402 348 1450
Suite 1501 Fax 402 348 0152
Omaha, NE 68102
233 South 13th Street, Suite 1600 Telephone 402 476 1216
Lincoln, NE 68508-2041 Fax 402 476 1944
ACCOUNTANTS' CONSENT
The Board of Directors
ShopNow.com Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Omaha, Nebraska
March 13, 2000
<PAGE>
MOSS ADAMS LLP
- -------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use, in the Prospectus constituting part of this
Registration Statement on Form S-4 of ShopNow.com Inc., of our report dated
June 16, 1999, on the consolidated financial statements of Ubarter.com Inc.
as of and for the year ended March 31, 1999, which appear in the
Prospectus. We also consent to the reference to our Firm under the heading
"Experts" in the Prospectus.
/s/ Moss Adams LLP
Seattle, Washington
March 13, 2000
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use, in the Prospectus constituting part of this
Registration Statement on Form S-4 of ShopNow.com Inc., of our report dated
June 19, 1998, on the consolidated financial statements of Ubarter.com Inc.
as of March 31, 1998 and for the year ended March 31, 1998 and 1997, which
appear in the Prospectus. We also consent to the reference to our Firm under
the heading "Experts" in the Prospectus.
/s/ Andersen Andersen & Strong L.C.
Andersen Andersen & Strong L.C.
Seattle, Washington
March 13, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<CASH> 0 9,849 10,660
<SECURITIES> 0 150 52,172
<RECEIVABLES> 0 2,496 6,882
<ALLOWANCES> 0 (230) (291)
<INVENTORY> 0 59 825
<CURRENT-ASSETS> 0 14,422 77,084
<PP&E> 0 5,188 24,145
<DEPRECIATION> 0 1,063 4,760
<TOTAL-ASSETS> 0 23,783 274,174
<CURRENT-LIABILITIES> 0 8,744 33,653
<BONDS> 0 1,837 5,409
0 0 0
0 35,070 0
<COMMON> 0 6,559 325,502
<OTHER-SE> 0 (28,427) (96,289)
<TOTAL-LIABILITY-AND-EQUITY> 0 23,783 274,174
<SALES> 604 4,458 15,486
<TOTAL-REVENUES> 604 7,154 36,955
<CGS> 515 4,452 18,883
<TOTAL-COSTS> 515 5,849 27,329
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 384 617
<INTEREST-EXPENSE> 164 211 127
<INCOME-PRETAX> (4,766) (24,745) (75,943)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (4,766) (24,745) (75,943)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (4,766) (24,745) (75,943)
<EPS-BASIC> (1.83) (7.01) (5.80)
<EPS-DILUTED> (1.83) (7.01) (5.80)
</TABLE>
<PAGE>
<TABLE>
<S><C>
- -----------------------------------------------------------------------------------------------------------------------------------
[FORM OF PROXY]
UBARTER.COM INC.
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS ____________________, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Steven M. White and Richard L. Mayer, and each of them, with full power to appoint a
substitute, to vote all shares the undersigned is entitled to vote at the Special Meeting of Stockholders of Ubarter.com Inc. to
be held on _________________________, 2000, and at all adjournments thereof, as specified below on the matters referred to, and,
in their discretion, upon any other matters which may be brought before the meeting:
- -----------------------------------------------------------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
</TABLE>
<PAGE>
<TABLE>
<S><C>
- -----------------------------------------------------------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED "FOR" THE PROPOSALS. Please mark
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. your votes as /X/
indicated in
this example
FOR AGAINST
THE THE
MERGER MERGER ABSTAIN FOR AGAINST ABSTAIN
1. To approve the Agreement and / / / / / / 2. To vote with discretionary / / / / / /
Plan of Merger dated authority on any other
January 20, 2000 among business as may properly
Ubarter.com Inc., ShopNow.com be presented at the meeting.
Inc. and ShopNow Acquisition,
Inc.
This Proxy, when properly executed, will be voted in the
manner directed herein by the undersigned shareholder. If no
direction is made, this proxy will be voted "FOR" Item 1.
When shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President
or other authorized officer. If a partnership, please sign
in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY.
Signature(s)__________________________________________________________________________ Dated_______________________________, 2000
PLEASE COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE
- -----------------------------------------------------------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
</TABLE>
