<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STYLECLICK, INC.
<TABLE>
<S> <C> <C>
DELAWARE 5961 13-4106745
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
------------------------------
152 W. 57TH STREET
NEW YORK, NEW YORK 10019
(212) 314-7300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
THOMAS J. KUHN, ESQ.
SECRETARY
STYLECLICK, INC.
C/O USA NETWORKS, INC.
152 W. 57TH STREET
NEW YORK, NEW YORK 10019
(212) 314-7300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C> <C>
ROBERT B. SCHUMER, ESQ. MAURIZIO VECCHIONE JOHN A. ST. CLAIR, ESQ.
Paul, Weiss, Rifkind, Wharton & Garrison Styleclick.com Inc. Coudert Brothers
1285 Avenue of the Americas 3861 Sepulveda Boulevard 950 17th Street, Suite 1800
New York, New York 10019 Culver City, California 90230 Denver, Colorado 80202
(212) 373-3000 (310) 751-2100 (303) 607-0888
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective and the
effective time of the merger discussed in this registration statement.
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 of an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration 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, 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 PROPOSED MAXIMUM
OF SECURITIES AMOUNT TO BE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C>
Class A common stock, par value $0.01 per share 7,980,000 shares $92,268,750 $24,359.00
</TABLE>
(1) Based on the maximum number of shares of Styleclick Class A common stock to
be delivered pursuant to the merger agreement.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f)(1) under the Securities Act of 1933, as amended.
The proposed maximum aggregate offering price is based upon the sum of
(a) the product of (1) $11.5625 (the average of the high and low prices of
shares of Styleclick.com Inc. common stock on March 22, 2000 on the Nasdaq
National Market) times (2) 7,750,000 (the total number of outstanding shares
of Styleclick.com Inc. common stock and the number of shares of
Styleclick.com Inc. common stock issuable prior to the effective time of the
merger) and (b) the product of (1) $11.5625 (the average of the high and low
prices of shares of Styleclick.com Inc. common stock on March 22, 2000 on
the Nasdaq National Market) times (2) 0.601 (the conversion ratio of the
limited liability company units of Internet Shopping Network LLC) times
(iii) 382,696 (the total number of outstanding limited liability company
units of Internet Shopping Network LLC convertible into Styleclick, Inc.
Class A common stock and the number of limited liability company units of
Internet Shopping Network LLC convertible into Styleclick, Inc. Class A
common stock issuable prior to the effective time of the merger).
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
STYLECLICK.COM INC
3861 SEPULVEDA BOULEVARD
CULVER CITY, CALIFORNIA 90230
PROXY STATEMENT/PROSPECTUS
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
Dear Styleclick.com Inc. Shareholder:
As a shareholder of Styleclick.com Inc., you are being asked to approve a
merger and merger agreement. If the merger is completed, each of your shares of
Styleclick.com Inc. will be converted into the right to receive one share of
Class A Common stock of Styleclick, Inc., a newly-formed Delaware corporation
that will be an indirect subsidiary of USA Networks, Inc.
In the accompanying proxy statement/prospectus, the existing Styleclick.com
in which you hold shares is referred to as Old Styleclick, and the new entity
Styleclick, Inc. is referred to as New Styleclick. The indirect subsidiary of
USA Networks, Inc. that will be the majority shareholder of New Styleclick is
USANi Sub LLC, referred to as USANi Sub. An additional party to the merger
agreement is Internet Shopping Network LLC, referred to as ISN.
Under the terms of the merger agreement, following the merger New Styleclick
will include both Old Styleclick and ISN as wholly-owned subsidiaries, and USANi
Sub will be the majority shareholder of New Styleclick. USAi will contribute
approximately $40 million in cash and agree to provide $10 million in
advertising and promotional services to New Styleclick in exchange for an
issuance of approximately 2,700,000 shares of New Styleclick Class B common
stock to USANi Sub. Class B common stock of New Styleclick will be convertible
into Class A common stock and will have 10 votes per share. Class A common stock
will have one vote per share.
The Board of Directors of Old Styleclick has unanimously approved the merger
agreement; however, the merger cannot be completed without the approval of the
holders of a majority of the outstanding shares of Old Styleclick. The Old
Styleclick Board unanimously recommends that you vote in favor of the merger. In
arriving at its decision, the Board considered several factors that are
described in detail in the accompanying proxy statement/prospectus, which you
are urged to read carefully.
There is no existing public market for any class of New Styleclick common
stock, but New Styleclick has applied to have its shares of Class A common stock
approved for listing on the Nasdaq National Market under the symbol "IBUY,"
which is the ticker symbol currently used by Old Styleclick.
BEFORE YOU MAKE A DECISION, YOU SHOULD CAREFULLY CONSIDER THE ACCOMPANYING
PROXY STATEMENT/PROSPECTUS, WHICH GIVES YOU MORE DETAILED INFORMATION CONCERNING
THE MERGERS AND THE RELATED TRANSACTIONS. IN PARTICULAR, YOU SHOULD CAREFULLY
CONSIDER THE DISCUSSION IN THE "RISK FACTORS" SECTION, BEGINNING ON PAGE 12 OF
THIS PROXY STATEMENT/PROSPECTUS.
Sincerely,
Joyce Freedman
Chairman and Co-Chief Executive
Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated [ ], 2000, and was first mailed to
Old Styleclick's shareholders on or about [ ], 2000.
<PAGE>
STYLECLICK.COM INC.
3861 SEPULVEDA BOULEVARD
CULVER CITY, CALIFORNIA 90230
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [ ], 2000
[ ], 2000
TO SHAREHOLDERS OF STYLECLICK.COM INC.:
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of
Styleclick.com Inc., referred to as Old Styleclick, will be held on [ ],
2000, at [ ] p.m., Pacific Standard Time, at Old Styleclick's principal
executive offices at 3861 Sepulveda Boulevard, Culver City, California 90230,
for the following purposes, each as more fully described in the attached proxy
statement/prospectus:
1. To approve the Amended and Restated Agreement and Plan of Merger
entered into by Old Styleclick, Internet Shopping Network LLC, referred to
as ISN, and USANi Sub LLC, referred to as USANi Sub, as of March 21, 2000
and the transactions contemplated by the merger agreement, including the
merger of a subsidiary of Styleclick, Inc., a newly formed Delaware
corporation and a wholly-owned subsidiary of USANi Sub, referred to as New
Styleclick, with and into Old Styleclick. Following the merger, each
outstanding share of common stock of Old Styleclick will be converted into
one share of Class A common stock of New Styleclick, par value $0.01 per
share, and Old Styleclick will become a wholly-owned subsidiary of New
Styleclick.
2. To act upon any other matters which may properly be brought before
the special meeting and any adjournments or postponements of the meeting.
The close of business on [ ], 2000 has been fixed by the Board of
Directors of Old Styleclick as the record date for determining shareholders
entitled to notice of and to vote at the special meeting or at any
adjournment(s) of the meeting.
All shareholders are cordially invited to attend the special meeting in
person. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, IN
ORDER TO ENSURE YOUR REPRESENTATION AND THE PRESENCE OF A QUORUM AT THE SPECIAL
MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY
AS POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. Any
shareholder attending the special meeting may vote in person even if such
shareholder has returned a proxy.
Please do not send your Old Styleclick common stock certificates at this
time. If the proposed transactions are approved, you will be given instructions
on how to exchange your certificates.
By Order of the Board of Directors
Joyce Freedman
Chairman and Co-Chief Executive
Officer
Your vote is important. Please complete, date and sign the enclosed proxy card
and return it in the accompanying postage paid envelope, even if you plan to
attend the special meeting. If you attend the special meeting, you may vote in
person even if you have previously returned your proxy card. Failure to return
the proxy card or vote in person will be the same as a vote against the proposed
transactions.
<PAGE>
WHERE TO FIND ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about Old Styleclick from documents that are not included
in or delivered with this proxy statement/prospectus. This information is
available to you without charge upon your written or oral request. You can
obtain documents incorporated by reference in this proxy statement/prospectus by
requesting them in writing or by telephone from Old Styleclick at 3861 Sepulveda
Blvd., Culver City, California 90230, Attention: Investor Relations, (310)
751-2100.
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY [ ], 2000 IN
ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Questions and Answers About the Merger...................... 1
Who Can Help Answer Your Questions.......................... 3
Summary..................................................... 4
New Styleclick Summary Unaudited Pro Forma Financial Data... 9
Old Styleclick Selected Historical Financial Data........... 10
ISN Selected Historical Financial Data...................... 11
Risk Factors................................................ 12
Special Note Regarding Forward-Looking Statements........... 19
New Styleclick Unaudited Pro Forma Combined Condensed
Financial Statements...................................... 20
New Styleclick Unaudited Pro Forma Combined Condensed
Balance Sheet............................................. 21
New Styleclick Unaudited Pro Forma Combined Condensed
Statement of Operations................................... 22
New Styleclick Notes to Unaudited Pro Forma Combined
Condensed Financial Statements............................ 23
New Styleclick Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 24
Old Styleclick Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 25
ISN Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 32
Market Price and Dividend Information....................... 35
Special Meeting of Old Styleclick Shareholders.............. 36
The Proposed Transactions................................... 39
The Merger Agreement........................................ 58
Description of Related Agreements........................... 64
New Styleclick's Business................................... 67
Management of New Styleclick Following Transactions......... 73
Security Ownership of Management and Principal Stockholders
of New Styleclick......................................... 76
Old Styleclick Business..................................... 78
ISN Business................................................ 82
Comparison of the Rights of New Styleclick Shareholders and
Old Styleclick Shareholders............................... 86
Future Shareholder Proposals................................ 95
Experts..................................................... 95
Where You Can Find More Information......................... 96
Index to Financial Statements............................... F-1
Appendices to the Proxy Statement/Prospectus................ A-1
</TABLE>
i
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT ARE THE PROPOSED TRANSACTIONS?
A: Styleclick.com Inc., referred to as Old Styleclick, is proposing to merge
with a wholly-owned subsidiary of Styleclick, Inc., a newly formed
Delaware corporation, referred to as New Styleclick, with Old Styleclick
surviving the transaction. At the same time and as part of the proposed
transactions, Internet Shopping Network, referred to as ISN, also will
merge with a wholly-owned subsidiary of New Styleclick with ISN surviving
the transaction. Following the mergers, Old Styleclick and ISN will be
separate wholly-owned subsidiaries of New Styleclick.
Q: WHAT ARE OLD STYLECLICK SHAREHOLDERS VOTING ON?
A: Old Styleclick shareholders are voting on the proposed merger between Old
Styleclick and a wholly-owned subsidiary of New Styleclick. In order to
complete the mergers, Old Styleclick needs to obtain the approval of
holders of a majority of its common stock.
Q: WHAT WILL OLD STYLECLICK SHAREHOLDERS RECEIVE IF THE PROPOSED MERGERS ARE
COMPLETED?
A: For each share of Old Styleclick common stock par value $0.01 per share,
Old Styleclick shareholders will receive one share of New Styleclick
Class A common stock par value $0.01 per share.
Q: WHAT WILL UNITHOLDERS OF ISN RECEIVE IF THE PROPOSED MERGERS ARE COMPLETED?
A: All holders of limited liability company units of ISN, other than USANi
Sub LLC, referred to as USANi Sub, will receive 0.601 shares of New
Styleclick Class A common stock for each unit they hold. USANi Sub will
receive 0.601 shares of New Styleclick Class B common stock par value
$0.01 per share for each limited liability company unit of ISN that it
holds. ISN and USANi Sub are indirect subsidiaries of USA Networks, Inc.,
referred to as USAi.
Q: WHAT ARE USAI AND ITS AFFILIATES CONTRIBUTING IN CONNECTION WITH THE
TRANSACTION?
A: Immediately prior to the mergers, USAi, or its affiliates, will
contribute approximately $40 million in cash and will agree to provide
$10 million of advertising and promotional services over a three year
period to New Styleclick in exchange for an issuance of approximately
2,700,000 shares of New Styleclick Class B common stock to USANi Sub.
Q: WHAT WILL THE NEW STYLECLICK BUSINESS BE AFTER THE TRANSACTION?
A: New Styleclick will continue to be in the Internet e-commerce business.
Immediately following the closing of the mergers, New Styleclick will
have:
- Old Styleclick's business, including its web services business and
websites: Styleclick.com and Fashiontrip.com.
- ISN's business, including its websites: FirstJewelry.com and
FirstAuction.com.
- Syndication relationships with approximately 13 websites, including
AOL, iVillage.com, Women.com, Oxygen.com, Excite@Home and
CollegeBroadcast.com.
- Relationships with more than 750 manufacturers and vendors representing
approximately 500 brands.
- Relationships with more than 5,000 affiliate websites.
- Access to USAi's fulfillment and customer service operations.
See "New Styleclick's Business."
1
<PAGE>
Q: ARE OLD STYLECLICK SHAREHOLDERS ENTITLED TO DISSENTERS' APPRAISAL RIGHTS?
A: You will only be entitled to dissenters' appraisal rights if you vote
against the merger proposal and a demand for appraisal is filed by
holders of 5% or more of Old Styleclick's outstanding common stock on or
before the special meeting. However, if holders of more than 10% of Old
Styleclick's shares exercise their dissenters' appraisal rights, ISN and
USANi Sub each have the right to terminate the proposed transactions.
Q: WHAT DO OLD STYLECLICK SHAREHOLDERS NEED TO DO NOW?
A: After carefully reading the information contained in this document,
simply vote your shares. To vote, follow the instructions in this
document and the proxy card included with it. By voting, your shares will
be represented at the special meeting. If you do not vote your shares in
connection with the proposed transactions, it will have the same effect
as voting against the proposed merger and related transactions.
Q: IF OLD STYLECLICK SHARES ARE HELD IN STREET NAME BY A BROKER, WILL THE BROKER
VOTE THOSE SHARES?
A: No. Your broker can vote your shares only if you provide the broker with
instructions on how to vote. You should instruct your broker on how to
vote your shares following the directions provided by your broker. Your
failure to instruct your broker on how to vote your shares will be the
equivalent of voting against the proposed merger and related
transactions.
Q: WHEN DO YOU EXPECT THE TRANSACTIONS TO BE COMPLETED?
A: New Styleclick, Old Styleclick and ISN are working toward completing the
mergers as soon as possible and expect to complete them shortly after the
Old Styleclick special meeting if Old Styleclick's shareholders approve
the proposed merger. However, it is possible that delays in satisfying
other conditions to closing could postpone completion of the proposed
transactions.
Q: SHOULD OLD STYLECLICK SHAREHOLDERS SEND IN THEIR STOCK CERTIFICATES NOW?
A: No. If the proposed transactions are approved, you will receive
instructions for exchanging your stock certificates for certificates
representing shares of New Styleclick Class A common stock after the
merger of Old Styleclick with a subsidiary of New Styleclick is complete.
Q: CAN OLD STYLECLICK SHAREHOLDERS CHANGE THEIR VOTE AFTER THEY HAVE MAILED THE
PROXY CARD OR
PROVIDED INSTRUCTIONS TO THEIR BROKERS?
A: Yes. You can change your vote at any time before your proxy is voted at
the special meeting. This document contains instructions on how to change
your vote. If you have instructed your broker to vote your shares, you
must follow the directions provided by your broker to change those
instructions. See "Special Meeting of Old Styleclick Shareholders."
Q: DO OLD STYLECLICK SHAREHOLDERS NEED TO ATTEND THE OLD STYLECLICK SPECIAL
MEETING IN PERSON?
A: No. It is not necessary for you to attend the special meeting to vote
your shares, although you are welcome to attend.
Q: WHEN AND WHERE IS THE OLD STYLECLICK SPECIAL MEETING?
A: The special meeting will take place on [ ], 2000 at
[ ] p.m., Pacific Standard Time, at Old Styleclick's principal executive
offices at 3861 Sepulveda Boulevard, Culver City, California 90230. See
"Special Meeting of Old Styleclick Shareholders."
2
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS
If Old Styleclick shareholders have more questions about the proposed
transactions after reading this document, they should contact:
<TABLE>
<S> <C>
Styleclick.com Inc. MacKenzie Partners, Inc.
3861 Sepulveda Boulevard 156 Fifth Avenue
Culver City, California 90230 New York, New York 10010
Attention: Investor Relations Telephone: (800) 322-2885 or (212) 929-5500
Telephone: (310) 751-2100 Facsimile: (212) 929-0308
Facsimile: (310) 751-2120 Email: [email protected]
Email: [email protected]
</TABLE>
3
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE PROPOSED TRANSACTIONS FULLY, AND FOR A MORE
COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE TRANSACTIONS, YOU SHOULD
CAREFULLY READ THIS ENTIRE DOCUMENT. REFER TO "WHO CAN HELP ANSWER YOUR
QUESTIONS" FOR ADDITIONAL SOURCES OF INFORMATION.
THE COMPANIES (SEE PAGES 67, 78, AND 82)
New Styleclick
c/o USA Networks, Inc.
152 W. 57(th) Street
New York, New York 10019
(212) 314-7300
New Styleclick is a newly formed Delaware corporation that will, upon
completion of the proposed transactions, have two e-commerce marketing and
merchandising companies, ISN and Old Styleclick, as operating subsidiaries.
Old Styleclick
3861 Sepulveda Boulevard
Culver City, California 90230
(310) 751-2100
Old Styleclick is a publicly traded California corporation founded in
February 1988. Old Styleclick develops and sells products and services that
enable e-commerce. Old Styleclick has developed technologies designed to manage,
search and display digital content, enabling advanced product visualization for
e-commerce. These technologies enable the creation of intelligent shopping
agents, allowing compatible search engines to become aware of, and match content
against, user searches. Furthermore, Old Styleclick has developed methods of
visually displaying such content in graphically rich environments designed to
increase user perception of visual details. Old Styleclick also operates two
principal websites: Styleclick.com launched in April 1999 and Fashiontrip.com
established in August 1998. Each of the websites features a wide variety of name
brand apparel, shoes, health and beauty products and lifestyle-related
merchandise. Styleclick.com is targeted at female consumers, while
Fashiontrip.com focuses on the female teen market.
ISN
500 Macara Avenue
Sunnyvale, California 94086
(408) 617-7400
ISN is a Delaware limited liability company and a majority-owned subsidiary
of USANi Sub. Each of ISN and USANi Sub are controlled by USA Networks, Inc., a
publicly traded Delaware corporation, referred to as USAi. ISN is an Internet
e-commerce retailer that operates two websites: FirstAuction.com and
FirstJewelry.com. FirstAuction.com was established in June 1997 and features
home and leisure merchandise, including jewelry, gourmet food, apparel and
consumer electronics, in an online auction format targeted at value-conscious
female consumers. FirstJewelry.com was launched in October 1999 and is an online
jewelry retailer that offers a broad assortment of jewelry from popular new
designers.
RECORD DATE; VOTING POWER (SEE PAGE 36)
Old Styleclick shareholders are entitled to vote at the special meeting if
they owned shares of Old Styleclick common stock as of the close of business on
the record date of [ ], 2000. There were [ ] shares of Old Styleclick
common stock outstanding on the record date. Each Old Styleclick
4
<PAGE>
shareholder will have one vote at the special meeting for each share of Old
Styleclick common stock owned on the record date.
VOTE REQUIRED TO APPROVE THE MERGER (SEE PAGES 37)
The affirmative vote of the holders of a majority of the outstanding shares
of Old Styleclick common stock on the record date is required to approve the
merger agreement and the merger of Old Styleclick with a subsidiary of New
Styleclick. Certain principal shareholders of Old Styleclick who collectively
hold approximately 32.6% of the currently outstanding shares have executed a
voting agreement with USANi Sub agreeing to vote in favor of the merger. Your
failure to vote or to tell your broker how to vote on your behalf will have the
effect of a vote against the proposed transactions.
The affirmative vote of the holders of a majority of the outstanding limited
liability company units of ISN is required to approve the merger of ISN with a
subsidiary of New Styleclick. USANi Sub, the holder of more than 95% of ISN's
currently outstanding limited liability company units, has approved the proposed
merger of ISN with a subsidiary of New Styleclick. Therefore, no further vote of
ISN unitholders is required.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS OF OLD STYLECLICK IN THE
TRANSACTIONS (SEE PAGE 51)
Certain executive officers and members of the Board of Directors of Old
Styleclick have interests in the proposed transaction that are different from,
or in addition to, the interests of the shareholders of Old Styleclick
generally. These include provisions in the merger agreement relating to
indemnification, the assumption by New Styleclick of certain Old Styleclick
employment, warrant and stock option agreements and the acceleration and/or
payout of benefits under some of those agreements. The Board of Directors of Old
Styleclick was aware of these interests and considered them, among other
matters, in unanimously approving the merger agreement and the transactions
contemplated by the merger agreement.
RECOMMENDATION OF OLD STYLECLICK'S BOARD (SEE PAGES 37 AND 41)
The Old Styleclick Board of Directors believes that the merger agreement is
fair to, and in the best interests of, the shareholders of Old Styleclick. The
Old Styleclick Board unanimously recommends that you vote "FOR" the proposal to
approve the merger agreement. In reaching its decision to adopt the merger
agreement, Old Styleclick's Board of Directors considered a number of factors,
including Old Styleclick's financial situation, the strategic plans of Old
Styleclick in the Internet e-commerce marketplace and the anticipated strategic
and other benefits offered by being part of the USAi corporate group. These and
other factors are more fully described under "Recommendation of Old Styleclick
Board of Directors."
OPINIONS OF FINANCIAL ADVISORS TO OLD STYLECLICK (SEE PAGES 42 AND 47)
In deciding to adopt the merger agreement, Old Styleclick's Board of
Directors considered opinions from its financial advisors, ING Barings LLC and
PaineWebber Incorporated. These opinions stated that, subject to the conditions
set forth in the opinions, the merger consideration to be received by the Old
Styleclick shareholders is fair from a financial point of view. These opinions
are attached as Annex B to this proxy statement/prospectus. The Old Styleclick
Board encourages you to read these opinions in their entirety.
5
<PAGE>
THE MERGER (SEE PAGE 58)
The proposed transactions are the merger of each of Old Styleclick and ISN
with separate subsidiaries of New Styleclick. The proposed transaction will
involve the following steps:
- New Styleclick will incorporate two merger subsidiaries.
- One merger subsidiary will merge with and into Old Styleclick, with each
outstanding share of common stock of Old Styleclick being converted into
the right to receive one share of Class A common stock of New Styleclick.
- The other merger subsidiary will merge with and into ISN, with each
limited liability company unit of ISN other than units held by USANi Sub
being converted into 0.601 shares of Class A common stock of New
Styleclick, and each limited liability company unit of ISN held by USANi
Sub being converted into the right to receive 0.601 shares of Class B
common stock of New Styleclick.
- Immediately prior to the mergers, USAi will contribute approximately
$40 million in cash and agree to provide $10 million in advertising and
promotional services to New Styleclick in exchange for an issuance of
approximately 2,700,000 shares of New Styleclick Class B common stock to
USANi Sub.
- At the time of the mergers, Old Styleclick will issue a warrant to USAi to
purchase approximately 12,800,000 shares of New Styleclick Class B common
stock for a purchase price of $11.50 per share.
On a fully diluted basis following the mergers, USANi Sub will own
approximately 35,500,000 shares of New Styleclick Class B common stock, and the
other ISN unitholders will own approximately 2,000,000 shares of Class A common
stock of New Styleclick. The shares of New Styleclick issued to USANi Sub and
the other unitholders of ISN will represent approximately 75% of the outstanding
shares of New Styleclick. On a fully diluted basis following the mergers, the
shareholders of Old Styleclick will own approximately 12,600,000 shares of
Class A common stock of New Styleclick, representing approximately 25% of New
Styleclick's outstanding shares.
The primary difference between Class A common stock of New Styleclick and
Class B common stock of New Styleclick is that Class A common stock has one vote
per share and Class B common stock has 10 votes per share. This means that USANi
Sub will have approximately 96% voting power over New Styleclick. See
"Comparison of the Rights of New Styleclick Shareholders and Old Styleclick
Shareholders."
The merger agreement is attached to this proxy statement/prospectus as
Annex A. You are encouraged to read the merger agreement in its entirety as it
is the legal document that governs the merger.
CONDITIONS PRECEDENT TO THE MERGER (SEE PAGE 60)
The merger will be completed if the following conditions are met:
- the Old Styleclick shareholders approve the merger of Old Styleclick with
a subsidiary of New Styleclick;
- the holders of no more than 10% of outstanding Old Styleclick common stock
demand appraisal rights for their shares;
- New Styleclick and Mr. Maurizio Vecchione execute an employment agreement;
and
6
<PAGE>
- the Class A common stock of New Styleclick is authorized for quotation on
the Nasdaq National Market or any other national securities exchange or
automated quotation system approved by Old Styleclick, ISN and USANi Sub.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 62)
The merger agreement may be terminated at any time prior to the completion
of the mergers by mutual written consent of Old Styleclick, ISN and USANi Sub,
or by one or other of the parties under certain conditions. See "The Merger
Agreement--Termination" for a more complete description.
TERMINATION FEE AND EXPENSES (SEE PAGE 62)
Old Styleclick must pay ISN a termination fee of approximately $5.5 million
if the merger agreement is terminated under certain circumstances. See "The
Merger Agreement--Termination Fee and Expenses" for a more complete description.
OPTION TO PURCHASE OLD STYLECLICK SHARES AND ISN UNITS (SEE PAGE 63)
Old Styleclick has entered into an option agreement with USANi Sub. This
agreement grants USANi Sub an option to purchase up to 19.9% of the common stock
of Old Styleclick at $17.50 per share in cash. The option is exercisable at any
time following certain events which may adversely affect the merger. The option
agreement terminates on the earlier of the completion of the merger or
12 months following the termination of the merger agreement. See "Description of
Related Agreements--Option Agreement."
LISTING OF NEW STYLECLICK COMMON STOCK (SEE PAGE 56)
New Styleclick has applied for listing of its Class A common stock on the
Nasdaq National Market under the symbol "IBUY," which is the symbol currently
used by Old Styleclick.
MANAGEMENT OF NEW STYLECLICK FOLLOWING TRANSACTIONS (SEE PAGE 73)
Following the merger, New Styleclick will be governed by a Board of
Directors initially consisting of 11 people. Under an agreement among the
principal shareholders of New Styleclick, referred to as the stockholders
agreement, USANi Sub, Ms. Joyce Freedman, Mr. Maurizio Vecchione and Mr. Lee
Freedman agree to vote their shares of New Styleclick common stock in favor of
six directors designated by USANi Sub, two directors designated collectively by
Ms. Freedman, Mr. Vecchione and Mr. Freedman and three independent directors
designated by the Board of Directors of New Styleclick. New Styleclick's
officers will include: Mr. Maurizio Vecchione, Chief Executive Officer;
Mr. Bill Lane, President and Vice Chairman; Mr. Edward Zinser, Executive Vice
President and Chief Operating Officer; Mr. Barry Hall, Executive Vice President
and Chief Financial Officer; and Mr. Bruce Goldstein, Executive Vice President,
Business Development.
GOVERNMENTAL AND REGULATORY MATTERS (SEE PAGE 53)
The closing of the merger is conditioned upon the expiration or termination
of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended. Early termination of the applicable waiting period was granted
on March 10, 2000.
The respective obligations of Old Styleclick, ISN and USANi Sub to close the
merger are subject to the condition that no court or other government entity
having jurisdiction over Old Styleclick, ISN or USANi Sub, or any of their
respective subsidiaries, enter any injunction or other order (whether temporary,
preliminary or permanent) restraining, enjoining or otherwise prohibiting the
closing of the merger. See "The Merger Agreement--Conditions Precedent to the
Merger."
7
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 53)
The merger is intended to be tax-free to you. However, you should consult
with your own tax advisors for a full understanding of the tax consequences of
the merger.
ANTICIPATED ACCOUNTING TREATMENT (SEE PAGE 54)
The merger will be accounted for under the purchase method of accounting,
with ISN treated as the acquiring entity for accounting purposes. For purposes
of preparing New Styleclick's consolidated financial statements, New Styleclick
will establish a new accounting basis for Old Styleclick's assets acquired and
liabilities assumed based upon their fair market values.
APPRAISAL RIGHTS (SEE PAGE 91)
You may be entitled to dissenters' appraisal rights if you vote against the
proposed transactions, demand appraisal rights and demands for appraisal are
filed by holders of 5% or more of Old Styleclick's outstanding common stock on
or before the date of the special meeting. If you become entitled to appraisal
rights, Old Styleclick will offer to purchase your shares for cash at fair
market value. Fair market value will be determined as of the day prior to the
announcement of the merger, but excluding any increase in the share price due to
speculation about this merger. If you and Old Styleclick cannot agree on fair
market value, the court will determine the fair market value. If holders of more
than 10% of Old Styleclick's shares exercise their dissenters' appraisal rights,
ISN and USANi Sub each have the right to terminate the proposed transactions.
COMPARISON OF THE RIGHTS OF NEW STYLECLICK SHAREHOLDERS AND OLD STYLECLICK
SHAREHOLDERS (SEE PAGE 86)
The rights of Old Styleclick shareholders are governed by California
corporate law and Old Styleclick's charter documents. If the merger is approved,
you will become a shareholder of New Styleclick and your rights will be governed
by Delaware corporate law and New Styleclick's charter documents. As a result,
your rights will be different after the merger.
For a discussion of the differences, see the section entitled "Comparison of
the Rights of New Styleclick Shareholders and Old Styleclick Shareholders."
8
<PAGE>
NEW STYLECLICK
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following table presents summary unaudited pro forma financial data of
New Styleclick. The unaudited pro forma combined condensed statement of
operations data gives effect to the mergers as if they had occurred on January
1, 1999. The unaudited pro forma combined condensed balance sheet data gives
effect to the mergers as if they had occurred on December 31, 1999. Pro forma
earnings per share data is presented based on the approximately 7.7 million
shares of New Styleclick to be issued to Old Styleclick shareholders and the
approximately 23.1 million shares of New Styleclick to be issued to ISN
unitholders. The information in this table should be read in conjunction with
the financial statements and accompanying notes and other financial data
pertaining to Old Styleclick and ISN as well as "New Styleclick Management's
Discussion and Analysis of Financial Condition and Results of Operations," "Old
Styleclick Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "ISN Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this proxy
statement/prospectus. For a further discussion of the pro forma adjustments, see
"Unaudited Pro Forma Combined Condensed Financial Statements".
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
(IN THOUSANDS)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................................ $ 30,864
Cost of sales............................................... 24,513
--------
Gross profit.......................................... 6,351
Operating costs and expenses:
Selling, general and administrative....................... 43,122
Product development and research costs.................... 11,136
Write-off of capitalized software costs................... 4,489
Depreciation and amortization of software costs........... 5,847
Amortization of goodwill.................................. 28,277
--------
Total operating costs and expenses.................... 92,871
--------
Operating loss........................................ (86,520)
Interest income (expense), net.............................. 278
Miscellaneous............................................... (3)
--------
Loss before income taxes and minority interest.............. (86,245)
Income tax (expense) benefit................................ --
--------
NET LOSS.................................................... $(86,245)
--------
Basic and diluted net loss per share........................ ($ 2.79)
========
Basic and diluted weighted average shares outstanding....... 30,868
========
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
-----------------
<S> <C>
BALANCE SHEET DATA:
Cash and short-term investments............................. $ 40,505
Working capital............................................. 53,193
Goodwill and other intangibles.............................. 141,386
Total assets................................................ 233,654
Stockholders' equity........................................ 219,737
</TABLE>
9
<PAGE>
OLD STYLECLICK
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data are derived from the
financial statements of Old Styleclick. The financial statements as of and for
the year ended December 31, 1999 have been audited by Ernst & Young LLP,
independent auditors, and the financial statements as of and for the years ended
December 31, 1995, 1996, 1997 and 1998 have been audited by Singer Lewak
Greenbaum and Goldstein LLP. The data should be read in conjunction with the
financial statements, related notes and other financial information pertaining
to Old Styleclick, as well as "Old Styleclick Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this proxy statement/prospectus.
<TABLE>
<CAPTION>
OLD STYLECLICK
--------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................. $ 1,905 $ 3,370 $ 4,450 $ 6,681 $ 6,174
Cost of sales............................ 224 115 87 82 668
---------- ---------- ---------- ---------- ----------
Gross profit......................... 1,681 3,255 4,363 6,599 5,506
Operating costs and expenses:
Selling, general and administrative.... 1,036 2,338 3,394 8,291 13,362
Research and development............... 249 78 172 3,541 6,054
Amortization of software development
costs................................ 80 295 774 4,890 1,842
Merger related costs................... -- -- -- -- 405
---------- ---------- ---------- ---------- ----------
Total operating costs and expenses... 1,365 2,711 4340 16,722 21,663
---------- ---------- ---------- ---------- ----------
Operating profit (loss).............. 316 544 23 (10,123) (16,157)
Other income (expense)................... (308) 102 331 435 278
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes........ 8 646 354 (9,688) (15,879)
Income tax expense....................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss).................... $ 8 $ 646 $ 354 $ (9,688) $ (15,879)
========== ========== ========== ========== ==========
Basic income (loss) per share............ 0.00 0.20 0.07 (1.59) (2.24)
Diluted income (loss) per share.......... 0.00 0.20 0.06 (1.59) (2.24)
Weighted average shares outstanding...... 2,594,816 3,307,288 4,800,918 6,088,247 7,092,374
BALANCE SHEET DATA:
Net working capital (deficit)............ $ (873) $ 3,115 $ 14,864 $ 6,753 $ 3,114
Total assets............................. 1,864 7,182 21,404 13,050 15,047
Net stockholders' equity................. 3,960 6,661 20,939 12,310 13,071
</TABLE>
10
<PAGE>
ISN
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data are derived from audited
and unaudited (where indicated) financial statements of ISN and its predecessor.
The financial statements as of and for the years ended December 31, 1997, 1998
and 1999 have been audited by Ernst & Young LLP, independent auditors. The data
should be read in conjunction with the financial statements, related notes and
other financial information pertaining to ISN and its predecessor company, as
well as "ISN Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this proxy statement/prospectus.
The operating results for the years ended December 31, 1995 and 1996 and the
balance sheet data as of December 31, 1995 represents the predecessor to ISN.
USAi acquired ISN on December 20, 1996 in conjunction with its acquisition of
Home Shopping Network. USAi accounted for the transaction using the purchase
method of accounting and the assets and liabilities of ISN were adjusted as of
December 31, 1996 to reflect their respective fair values.
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY ISN
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------------- -------- --------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................. $ 6,853 $11,022 $ 12,954 $ 21,288 $ 24,690
Cost of sales............................. 6,561 11,287 12,987 20,216 23,845
------- ------- -------- -------- --------
Gross profit.......................... 292 (265) (33) 1,072 845
Operating costs and expenses:
Selling and marketing................... 1,347 1,314 1,176 5,193 10,793
Product development costs............... 912 1,290 1,580 3,334 5,520
General and administrative.............. 2,538 3,779 5,869 8,231 19,283
Write-off of capitalized software
costs................................. -- -- -- -- 4,489
Depreciation and amortization........... 1,856 2,070 2,018 1,436 3,251
------- ------- -------- -------- --------
Total operating costs and expenses.... 6,653 8,453 10,643 18,194 43,336
------- ------- -------- -------- --------
Operating profit (loss)............... (6,361) (8,718) (10,676) (17,122) (42,491)
Other income (expense).................... -- 1 -- 198 (3)
------- ------- -------- -------- --------
Earnings (loss) before income taxes....... (6,361) (8,717) (10,676) (16,924) (42,494)
Income tax expense........................ -- -- -- -- --
------- ------- -------- -------- --------
NET EARNINGS (LOSS)................... $(6,361) $(8,717) $(10,676) $(16,924) $(42,494)
======= ======= ======== ======== ========
BALANCE SHEET DATA:
Net working capital (deficit)............. $(1,862) $(1,654) $ 1,002 $ 3,150 $ 979
Total assets.............................. 3,840 2,233 3,554 12,659 28,121
Net stockholders'/members' equity
(deficiency)............................ (2,688) 248 3,593 7,249 16,180
</TABLE>
11
<PAGE>
RISK FACTORS
NEW STYLECLICK MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE OLD STYLECLICK AND ISN.
The success of New Styleclick will require the technological integration of
the Styleclick.com, Fashiontrip.com, FirstAuction.com and FirstJewelry.com
websites and the coordination of the sales, operations, content, creative,
marketing, fulfillment, merchandising and research and development efforts of
Old Styleclick and ISN. If our management is not able to successfully integrate
the operations of Old Styleclick and ISN, it may have a material adverse effect
upon the business, operating results and financial condition of New Styleclick,
the benefits of the transactions may not be realized and the market price of New
Styleclick shares could be adversely affected.
Some of the factors that may contribute to the integration risks faced by
New Styleclick are:
- difficulties and expenses of integrating operations, technology and
personnel into New Styleclick's operations while preserving the goodwill
of Old Styleclick and ISN's existing businesses;
- the potential disruption caused to the businesses of Old Styleclick and
ISN by the need to dedicate management and other resources to completing
the proposed transaction;
- the difficulty of creating and maintaining uniform standards, controls,
procedures and policies;
- the ability of New Styleclick's management to manage the substantial
expansion of New Styleclick's employee base and the integration of teams
that have not previously worked together while dealing with the potential
loss of any key employees of Old Styleclick or ISN; and
- the relocation of some ISN employees to Old Styleclick's corporate
headquarters.
NEW STYLECLICK MAY NOT EARN ENOUGH MONEY TO COVER ITS COSTS AND NEEDS FOR
WORKING CAPITAL.
New Styleclick will incur additional operating expenses as it expands its
sales and marketing operations, develops and extends its brands, funds greater
levels of product development, develops and commercializes additional media
properties and acquires complementary businesses and technologies. To do this,
New Styleclick will need to increase revenues or raise additional capital in
order to maintain its business. However, it is expecting to incur significant
losses in the short term and to generate a negative cash flow. Based on current
plans and assumptions relating to operations, New Styleclick anticipates that
contribution from USANi Sub and cash generated from operations should be
sufficient to satisfy our contemplated cash requirements through March 2001. If
New Styleclick's actual revenue is lower than predicted, it may be unable to
adjust its operating expenses accordingly and there could be a material adverse
effect on New Styleclick business, operating results and financial condition.
Even if New Styleclick does achieve profitability at a future date, it may not
be able to sustain profitability. New Styleclick's quarterly results of
operations will be substantially affected by factors such as its ability to
achieve sufficient sales volume and advertising revenues to realize economies of
scale, research and development expenditures, the timing of receipt of software
license fees, customer acceptance of new products and product enhancements and
product promotions by New Styleclick or its competitors. New Styleclick's
quarterly results of operations will also be affected by changes in pricing
policies by New Styleclick or its competitors, changes in general economic
conditions and other factors.
NEW STYLECLICK IS A NEW COMPANY WITH AN UNPROVEN BUSINESS MODEL, NO HISTORY OF
PROFITS AND NO EXPECTATION OF MAKING PROFITS IN THE FORESEEABLE FUTURE.
New Styleclick was organized in March 2000 and has no operating history. The
companies and properties comprising New Styleclick have a limited operating
history and a history of losses. Old Styleclick was founded in February 1988 and
has a limited operating history in the Internet e-commerce
12
<PAGE>
market. ISN's predecessor was founded in May 1993, and FirstAuction.com and
FirstJewelry.com websites were launched in June 1997 and October 1999,
respectively. In addition, the evolving business model to be employed by New
Styleclick makes the prediction of future operating results difficult, and New
Styleclick expects to incur net losses for the foreseeable future. New
Styleclick's prospects are subject to the risks, expenses and uncertainties
frequently encountered by companies that operate in the new and rapidly evolving
markets for Internet products and services. Successfully achieving its growth
plan in the e-commerce industry depends on, among other things, New Styleclick's
ability to:
- increase website development for customers to generate fees and
commissions on product sales;
- establish, develop and successfully market the Styleclick.com,
Fashiontrip.com, FirstAuction.com and FirstJewelry.com websites and other
brands used in connection with its e-commerce business;
- handle increased volumes of e-commerce sales conducted through its
websites without errors or interruptions in service;
- provide superior product search capabilities compared to other shopping
websites on the Internet;
- develop enhancements for its websites and third party websites;
- acquire or develop services and products equal or superior to those of its
competitors;
- create and maintain relationships with a significant number of vendors
whose products are marketable on the Internet;
- keep pace with changing technological developments affecting e-commerce
and the Internet generally; and
- identify, attract, retain and motivate qualified personnel.
NEW STYLECLICK'S BUSINESS COULD BE HARMED IF IT IS UNABLE TO RESPOND EFFECTIVELY
TO SEASONAL FLUCTUATIONS IN THE PRODUCTS IT SELLS, CHANGES IN CONSUMER TASTES OR
CHANGES IN THE OVERALL ECONOMY.
New Styleclick's products and services, including its Internet shopping
websites, are focused on the jewelry, online auction, apparel, textile, home
furnishings and home design industries, which historically have been subject to
seasonal variations. Any downturn, whether real or perceived, in economic
conditions or prospects of the economy generally and of the jewelry, online
auction, apparel, textile, home furnishings and home design industries in
particular, could adversely affect consumer spending habits and New Styleclick's
business. Additionally, fashion and shopping trends can change rapidly, and New
Styleclick's business may be sensitive to those changes. New Styleclick may not
accurately anticipate shifts in fashion or shopping trends and adjust its
merchandise mix or presentation format to appeal to changing consumer tastes in
a timely manner. If it misjudges the product market, or if it is unsuccessful in
responding to changes in fashion or shopping trends or in market demand, New
Styleclick's business, financial condition and operating results could be
materially adversely affected.
THE INTERNET AND E-COMMERCE FIELD ARE HIGHLY COMPETITIVE AND RAPIDLY CHANGING,
AND TRADITIONAL RETAILING IS HIGHLY COMPETITIVE, AND NEW STYLECLICK MAY NOT BE
ABLE TO COMPETE EFFECTIVELY.
The e-commerce market is new, rapidly evolving and intensely competitive.
Barriers to entry are minimal, and current and new competitors can launch new
websites at a relatively low cost. In addition, the traditional retail shopping
industry generally is intensely competitive. Vendors competing to sell products
to consumers through e-commerce or otherwise include: online vendors such as
Amazon.com, traditional retailers such as J. Crew and The Gap, mail order
operators such as Eddie Bauer and traditional shopping forums such as shopping
malls.
13
<PAGE>
NEW STYLECLICK'S SUCCESS DEPENDS ON THE CONTINUED GROWTH OF E-COMMERCE AND
INTERNET USE.
New Styleclick's success is dependent upon continued growth in the use of
the Internet as a shopping venue and continued development of the necessary
Internet infrastructure. e-commerce is relatively new, and it is difficult to
predict the rate or extent of further growth, if any, in e-commerce,
particularly by customers in the jewelry, online auction, apparel, textile, home
furnishings and home design industries. Lack of tactile experience in Internet
e-commerce may limit or cause growth to be slower in New Styleclick's markets.
In addition, to the extent that the Internet continues to experience significant
growth in the number of users and level of use, the Internet infrastructure may
not be able to support the demands placed upon it by such growth, and the
performance or reliability of the Internet as an e-commerce marketplace may be
adversely affected. Delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet and e-commerce
activity could slow the growth of Internet use and e-commerce. If use of the
Internet and e-commerce does not continue to grow or grows more slowly than
expected, or if the Internet and e-commerce experience infrastructure failure or
other problems, New Styleclick's business, financial condition and operating
results will be materially adversely affected.
NEW STYLECLICK'S BUSINESS WILL BE HARMED IF IT DOES NOT RESPOND TO TECHNOLOGICAL
CHANGES.
The e-commerce Internet markets for shopping and related services are
characterized by rapid changes in technology, customer needs and preferences and
evolving industry standards. The Internet e-commerce industry is relatively
young and unpredictable. Consequently, it may encounter rapid product
obsolescence and the necessity for frequent new and enhanced product and service
introductions. New Styleclick's success will depend significantly on its ability
to forecast the future needs and preferences of customers and clients, to
enhance its current products and services, to develop new products and services
that meet changing customer needs on a timely and cost-effective basis and to
respond to emerging industry standards and other technological changes. If New
Styleclick fails to anticipate or respond adequately to changes in technology
and customer requirements and preferences, or if it encounters any significant
delays in developing or enhancing its products and services, such failure or
delays may have a material adverse effect on New Styleclick's business,
financial condition and operating results.
IF NEW STYLECLICK'S SECURITY SYSTEM IS BREACHED, ITS BUSINESS AND REPUTATION
COULD SUFFER.
A significant issue in online commerce and communications is the need for
secure transmission of confidential information over public networks. Merchants
on the Internet are subject to the risk of credit card fraud and other types of
theft and fraud perpetrated by hackers and online thieves and may be held fully
responsible for certain fraudulent purchases. New Styleclick relies on
encryption and authentication technology licensed from third parties to provide
the security and authentication necessary to effect secure transmission of
confidential information. Any breach of security could have a material adverse
effect on Styleclick's business, financial condition and operating results.
NEW STYLECLICK'S BUSINESS MAY BE HARMED IF TECHNOLOGICAL PROBLEMS CAUSE
INTERRUPTIONS IN SERVICE WITH ISN'S FIRSTAUCTION WEBSITE.
ISN's FirstAuction website has experienced intermittent service
interruptions caused by technological problems, and systems downtime is likely
to continue until a solution is in place. New Styleclick's business may be
harmed before a solution is implemented. Additionally, the transition to a new
technological platform using New Styleclick technology may result in additional
downtime and lost functionality and could have a material adverse effect.
14
<PAGE>
LEGAL LIABILITIES ARISING FROM THE SALE OF PRODUCTS BY NEW STYLECLICK OR BY
OTHER BUSINESSES IT WORKS WITH COULD HARM NEW STYLECLICK'S BUSINESS.
Agreements with sponsors, content providers, service providers and merchants
which entitle New Styleclick, Old Styleclick or ISN to receive a share of
revenues and/or act as merchant of record with respect to sales of certain
merchandise may generate exposure to legal risks and uncertainties, including
potential liabilities to consumers of such products and services. Indemnities
from manufacturers and general liability insurance may not cover all claims.
Other potential risks include: potential liabilities for illegal activities that
may be conducted by participating vendors; claims that materials included in
websites infringe third-party patents, copyrights, trademarks or other
intellectual property rights, or are libelous, defamatory or in breach of
third-party confidentiality or privacy rights; claims of consumer fraud and
false or deceptive advertising or sales practices; and claims that may be
brought resulting from any downtime or other performance failures in hosting
services.
CHANGES IN GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES MAY HARM NEW
STYLECLICK'S BUSINESS.
Substantive federal, state and international regulations may be adopted in
the future relating to user privacy and the collection and utilization of user
information through the Internet. The recently enacted Children's Online
Protection Act and the Children's Online Privacy Act restrict the distribution
of certain materials deemed harmful to children and impose additional
restrictions on the ability of online services to collect user information from
minors, and similar regulations are in force in many European countries. In
addition, a number of other countries and the European Commission have announced
or are considering additional regulation concerning, among other things, the
liability of online service providers for activities that take place using their
services. The recently enacted Digital Millennium Copyright Act is intended to
reduce the liability of online service providers for listing or linking to
third-party websites that include materials that infringe copyrights or other
rights of others, but there can be no assurance that its enforcement will be
successful. Furthermore, because the growing popularity and use of the Internet
has burdened the existing telecommunications infrastructure, local telephone
carriers have sought increased regulation of the Internet and e-commerce
including the imposition of certain access and other fees. Increased regulation
or the imposition of access fees could substantially increase the costs of
communicating on the Internet, potentially decreasing the demand for our
products and services.
CHANGES IN TAX LAWS THAT WILL HARM NEW STYLECLICK'S BUSINESS MAY OCCUR.
New Styleclick's websites will not be required under present law to collect
sales and other similar taxes with respect to shipments of goods to consumers in
most states. However, such states may seek to impose sales tax collection
obligations on out-of-state companies that engage in e-commerce. An assertion of
taxation authority by any state or foreign country could have a material adverse
effect on New Styleclick's business, financial condition and operating results.
NEW STYLECLICK RELIES ON THIRD PARTIES TO PROVIDE SYSTEMS AND SERVICES ESSENTIAL
TO ITS BUSINESS, AND ITS BUSINESS WOULD BE HARMED IF IT WERE UNABLE TO OBTAIN
THESE SYSTEMS AND SERVICES.
New Styleclick will rely on third parties for Internet connections, computer
hardware content development and shipping and fulfillment services. Any
disruption in the goods and services provided by such parties could have a
material adverse effect on New Styleclick's business, financial condition and
operating results.
15
<PAGE>
NEW STYLECLICK RELIES ON THIRD PARTIES TO PROVIDE MERCHANDISE AND SERVICES
ESSENTIAL TO ITS BUSINESS, AND ITS BUSINESS WOULD BE HARMED IF IT IS UNABLE TO
OBTAIN THESE PRODUCTS AND SERVICES.
The success of New Styleclick's products and services is dependent upon the
continued support of manufacturers, vendors and suppliers, particularly Home
Shopping Network. New Styleclick, Old Styleclick and ISN do not have long-term
contracts or arrangements with their respective manufacturers, vendors or
shippers that guarantee the availability of merchandise, the continuation of
particular payment terms or the extension of credit limits.
NEW STYLECLICK'S BUSINESS WILL BE HARMED IF IT IS UNABLE TO ACCESS LEADING
PORTAL WEBSITES.
In order to create traffic for New Styleclick's online properties, it will
seek to maintain and develop agreements and informal relationships with leading
portal websites. These arrangements with portals typically are not exclusive and
may be terminated upon little or no notice. Any failure to obtain access to
large numbers of Internet users in a cost-effective manner could have a material
adverse effect on New Styleclick's business, financial condition and operating
results.
NEW STYLECLICK MAY NOT BE ABLE TO PREVENT OTHERS FROM USING OUR TECHNOLOGY IN
WAYS THAT WILL HARM OUR BUSINESS.
All of Old Styleclick's products are based on or use a common core
technology encompassing proprietary algorithms, which is covered by three issued
United States patents and has received notice of allowances for two additional
pending patent applications. New Styleclick's ability to compete effectively
depends in large part on developing and maintaining the essential components of
that technology as proprietary. However, there can be no assurance that patent
and other intellectual property protection will be available or be enforceable
in any particular instances or that financial resources will be available to
enforce those rights.
OTHERS MAY SUE NEW STYLECLICK FOR ALLEGEDLY USING THEIR INTELLECTUAL PROPERTY.
The law relating to use of copyrighted information and trademarks posted on
the Internet is in the process of development, and many legal issues in the
intellectual property area remain unsettled. Old Styleclick has agreed to defend
and indemnify some of its licensees against certain infringement, unfair
competition and similar claims relating to the products and components it
developed. ISN is currently involved in litigation over its continued ability to
use the domain name Firstjewelry.com. The successful assertion of this and other
such claims would have a material adverse effect on New Styleclick's business,
financial condition and operating results. See "New Styleclick's
Business--Intellectual Property and Proprietary Rights," "ISN's Business" and
"Old Styleclick's Business."
NEW STYLECLICK WILL BE CONTROLLED BY USAI AND AS A RESULT OTHER SHAREHOLDERS
WILL HAVE LITTLE OR NO INFLUENCE OVER SHAREHOLDERS' DECISIONS.
New Styleclick is currently a wholly-owned subsidiary of USANi Sub, which is
controlled by USAi. On a fully diluted basis following the mergers, USANi Sub
will own approximately 35,500,000 shares of New Styleclick Class B common stock,
which has ten votes per share. Consequently, USANi Sub will have approximately
96% of the total voting power of New Styleclick common stock and, therefore,
USAi will have the right to control the outcome of any matter submitted for the
vote or consent of New Styleclick's shareholders, unless a separate class vote
is required under Delaware law. USANi Sub will have the voting power to control
the election of the New Styleclick Board of Directors and it will be able to
cause the amendment of New Styleclick's certificate of incorporation or bylaws.
USANi Sub also may be able to cause changes in our business without seeking the
approval of any other party. These changes may not be to the advantage of New
Styleclick or in the best interest of New Styleclick's other shareholders. For
example, USANi Sub will have the power to prevent, delay or cause a change
16
<PAGE>
in control and could take other actions that might be favorable to USANi Sub,
but not necessarily to other shareholders. Similarly, USAi has the voting power
to exercise a controlling influence over USANi Sub's business and affairs and
has the ability to make decisions concerning such things as:
- mergers or other business combinations;
- purchases or sales of assets;
- offerings of securities;
- indebtedness that New Styleclick may incur; and
- payments of any dividends.
New Styleclick cannot assure you that USANi Sub's ownership of New
Styleclick common stock or its relationship with New Styleclick will not have a
material adverse effect on the business, financial condition, operating results
or on the market price of the Class A common stock.
USANi Sub could elect to sell all or a substantial portion of its equity
interest in New Styleclick to a third party, which would represent a controlling
or substantial interest, without offering to New Styleclick's other shareholders
the opportunity to participate in this transaction. If another party acquires
USANi Sub's interest in New Styleclick, that third party may be able to control
New Styleclick in the same manner that USANi Sub is able to control New
Styleclick. A sale to a third party also may adversely affect the market price
of New Styleclick's class A common stock because the change in control may
result in a change in management decisions, business policy and New Styleclick's
attractiveness to future investors. See "Risk Factors--USANi Sub may sell its
shares of New Styleclick's common stock which may depress New Styleclick's share
price."
NEW STYLECLICK MAY FACE POTENTIAL CONFLICTS OF INTEREST WITH USAI WHICH MAY HARM
ITS BUSINESS.
Conflicts of interest may arise between New Styleclick, on the one hand, and
USANi Sub and its affiliates including USAi, on the other hand, in areas
relating to past, ongoing, and future relationships, corporate opportunities,
indemnity agreements, tax and intellectual property matters, potential
acquisitions or financing transactions, sales or other dispositions by USANi Sub
of shares of New Styleclick's common stock and the exercise by USANi Sub of its
ability to control our management and affairs. For example, affiliates of USANi
Sub that engage in a diverse range of media and entertainment-related
businesses, including businesses engaged in e-commerce, fulfillment and customer
service such as Home Shopping Network, Ticketmaster Online-CitySearch, Hotel
Reservations Network, MXGonline and USAi Interactive. These businesses may have
interests that conflict or compete in some manner with New Styleclick's
business. USANi Sub is under no obligation to share any future business
opportunities with New Styleclick, unless Delaware law requires New Styleclick
to do so, and New Styleclick's certificate of incorporation specifically
includes provisions which release USANi Sub from this obligation and any
liability that would result from a breach of this obligation. New Styleclick
cannot assure you that any conflicts that may arise between New Styleclick and
USANi Sub or its affiliates, any loss of a corporate opportunity to USANi Sub or
its affiliates that may otherwise be available to New Styleclick, or any
engagement by USANi Sub or its affiliates in any activity that is similar to our
business, will not harm our business or negatively impact our financial
condition or results of operations because these conflicts of interest or a loss
of a corporate opportunity could result is a loss of customers and, therefore,
business. See "Comparison of the Rights of Old Styleclick Shareholders and New
Styleclick Shareholders."
17
<PAGE>
USANI SUB MAY SELL IS SHARES OF NEW STYLECLICK'S COMMON STOCK WHICH MAY DEPRESS
NEW STYLECLICK'S SHARE PRICE.
Subject to applicable federal securities laws, USANi Sub may at any time
convert each of its shares of Class B common stock into a share of Class A
common stock. USANi Sub also may transfer its stock in a privately-negotiated
transaction or to its affiliates or shareholders. In addition, 18 months
following completion of the mergers, USANi Sub may convert its Class B common
stock, demand registration of its Class A common stock and sell the Class A
common stock into the public market. Any sales or distributions by USANi Sub of
a substantial amount of New Styleclick's Class A common stock in the
marketplace, or to its shareholders, or the perception that these transfers,
sales or distributions could occur, could adversely affect the prevailing market
prices for our Class A common stock.
We cannot assure you that in any transfer by USANi Sub of its controlling
interest in our company, you or any other holders of our common stock will be
able to participate in this transaction or will realize any premium or high
price with respect to the sale.
18
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains "forward-looking statements" within
the meaning of the securities laws. New Styleclick has based these
forward-looking statements on its current expectations and projections about
future events, based on the information currently available to it. These
forward-looking statements are principally contained in the sections "Risk
Factors," the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" sections for New Styleclick, Old Styleclick and ISN and
the "Business" sections for New Styleclick, Old Styleclick and ISN. The
forward-looking statements include, among other things, statements relating to
New Styleclick's anticipated financial performance, business prospects, new
developments, new strategies and similar matters.
These forward-looking statements are subject to risks, uncertainties and
assumptions, that may affect the operations, performance, development and
results of New Styleclick's business and include, but are not limited to, the
risk factors described under the section "Risk Factors" in this prospectus and
the following:
- material adverse changes in economic conditions in New Styleclick's
markets;
- future regulatory actions and conditions in New Styleclick's operating
areas;
- competition from others;
- successful integration of New Styleclick's management and structure;
- product demand and market acceptance;
- the ability to protect proprietary information and technology or to obtain
necessary licenses on commercially reasonable terms; and
- obtaining and retaining key executives and employees.
New Styleclick undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or any other reason. In light of these risks, uncertainties and
assumptions, the forward-looking statements discussed in this proxy statement/
prospectus may not prove correct.
19
<PAGE>
NEW STYLECLICK
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect to the merger of ISN and Old Styleclick with
separate wholly-owned subsidiaries of New Styleclick. ISN will be treated as the
acquiring entity for accounting purposes, and the assets and liabilities of Old
Styleclick will be recorded at their respective fair values under the purchase
method of accounting.
The unaudited pro forma combined condensed financial statements reflect
certain assumptions regarding the proposed transaction and are based on the
historical financial statements of ISN and Old Styleclick. The combined
condensed financial statements, including the notes accompanying them, are
qualified in their entirety by reference to, and should be read in conjunction
with, the audited financial statements of ISN and Old Styleclick, including the
notes accompanying them, which are included elsewhere in this proxy
statement/prospectus.
The unaudited pro forma combined condensed balance sheet as of December 31,
1999 gives effect to the merger of ISN and Old Styleclick with separate
wholly-owned subsidiaries of New Styleclick as if the merger had occurred on
December 31, 1999.
The unaudited pro forma combined condensed statement of operations for the
year ended December 31, 1999 gives effect to the merger of ISN and Old
Styleclick with separate wholly-owned subsidiaries of New Styleclick as if the
merger had occurred on January 1, 1999.
New Styleclick is in the process of evaluating the fair value of assets to
be acquired and liabilities to be assumed in order to make a final allocation of
the excess purchase price, including allocation to intangibles other than
goodwill. Accordingly, the purchase accounting information is preliminary and
has been made solely for the purpose of developing the unaudited pro forma
combined condensed financial information.
The pro forma combined condensed statement of operations is presented for
illustrative purposes only. It is not necessarily indicative of the results of
operations or financial position which actually would have been reported had
these transactions occurred on December 31, 1999 or on January 1, 1999, nor are
they necessarily indicative of future financial results of operations.
20
<PAGE>
NEW STYLECLICK
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ISN OLD STYLECLICK ADJUSTMENTS COMBINED
-------- -------------- ----------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................... $ 9 $ 1,396 $ 39,100 (1) $ 40,505
Accounts receivable, net....................... 679 800 -- 1,479
Inventories, net............................... 11,319 -- -- 11,319
Prepaid expenses and other current assets...... 913 2,894 10,000(1) 13,807
------- ------- -------- --------
Total current assets..................... 12,920 5,090 49,100 67,110
Property and equipment, net.................... 15,121 4,895 -- 20,016
Goodwill....................................... -- -- 141,386 141,386
Other assets................................... 80 5,062 -- 5,142
------- ------- -------- --------
Total Assets............................. 28,121 15,047 190,486 233,654
======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accrued and other current
liabilities.................................. 11,941 1,779 -- 13,720
Deferred income................................ -- 197 -- 197
------- ------- -------- --------
Total current liabilities................ 11,941 1,976 -- 13,917
203,557 (1)
Stockholders' equity........................... 16,180 13,071 (13,071)(2) 219,737
------- ------- -------- --------
Total Liabilities And Stockholders' Equity..... $28,121 $15,047 $190,486 $233,654
======= ======= ======== ========
</TABLE>
21
<PAGE>
NEW STYLECLICK
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
OLD PRO FORMA PRO FORMA
ISN STYLECLICK ADJUSTMENTS COMBINED
--------------- ---------- ----------- ----------------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues....................................... $ 24,690 $ 6,174 -- $ 30,864
Cost of sales...................................... 23,845 668 -- 24,513
--------------- --------- --------- ----------------
Gross profit................................. 845 5,506 -- 6,351
Operating costs and expenses:
Selling, general and administrative.............. 30,076 13,046 -- 43,122
Product development and research costs........... 5,520 5,616 -- 11,136
Write-off of capitalized software costs.......... 4,489 -- -- 4,489
Depreciation and amortization of software
costs.......................................... 3,251 2,596 -- 5,847
Merger related costs............................. -- 405 (405)(3) --
Amortization of goodwill......................... -- -- 28,277 (4) 28,277
--------------- --------- --------- ----------------
Total operating costs and expenses............. 43,336 21,663 27,872 92,871
--------------- --------- --------- ----------------
Operating loss................................. (42,491) (16,157) (27,872) (86,520)
Interest income, net............................. -- 278 -- 278
Miscellaneous.................................... (3) -- -- (3)
--------------- --------- --------- ----------------
Loss before income taxes and minority interest..... (42,494) (15,879) (27,872) (86,245)
Income tax (expense) benefit....................... -- -- -- --
--------------- --------- --------- ----------------
NET LOSS........................................... $ (42,494) $ (15,879) $ (27,872) $ (86,245)
=============== ========= ========= ================
Net earnings (loss) per common share
Basic............................................ $ (1.25) $ (2.24) $ (2.79)
Diluted.......................................... $ (1.25) $ (2.24) $ (2.79)
Weighted average shares outstanding................ 34,043 7,092 30,868
Weighted average diluted shares outstanding........ 34,043 7,092 30,868
</TABLE>
22
<PAGE>
NEW STYLECLICK
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. Acquisition costs and the preliminary determination of the unallocated
excess of merger costs over net assets to be acquired are set forth below:
<TABLE>
<S> <C>
Value of portion of Old Styleclick acquired in the
merger.................................................. $121,781
Additional cash and promotional investment by USAi........ 50,000
Fair value of outstanding "in the money options" and
warrants of Old Styleclick.............................. 31,026
Estimated transaction costs............................... 750
--------
Total acquisition costs................................... 203,557
Less: Net assets acquired................................. 62,171
--------
Unallocated excess of acquisition cost over net assets
acquired preliminarily allocated to goodwill............ $141,386
========
</TABLE>
The fair value of the non-cash exchange between New Styleclick and Old
Styleclick was valued by New Styleclick based on the fair value of the 75%
of Old Styleclick acquired in the transaction by the contribution of ISN,
including the contribution of $40 million in cash and $10 million in
advertising and promotional services to New Styleclick immediately prior to
the merger. The fair value of Old Styleclick before the merger was $121.8
million based on the fair value of its shares. Fair value of the shares was
determined by taking an average of the opening and closing price of Old
Styleclick common stock for the period just before and just after the terms
of the transaction were agreed to by the parties and announced to the
public. Net assets acquired is net of $0.9 million that Old Styleclick will
pay its investment advisors upon the closing of the merger.
2. Reflects elimination of the Old Styleclick historical equity.
3. Reflects elimination of costs directly related to the merger incurred by the
acquiree, Old Styleclick.
4. Reflects additional amortization expense resulting from the increase in
goodwill and other intangible assets due to the transaction. The unallocated
excess of acquisition costs over net assets acquired has been preliminarily
allocated to goodwill, which is being amortized over five years. In
connection with finalizing the purchase price allocation, New Styleclick is
currently evaluating the fair value of assets to be acquired and liabilities
to be assumed. Using this information, New Styleclick will make a final
allocation of the excess purchase price, including allocation to intangibles
other than goodwill. Accordingly, the purchase accounting information is
preliminary.
23
<PAGE>
NEW STYLECLICK
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
New Styleclick will provide services that enable other businesses to engage
in e-commerce and also will sell products directly through websites it owns and
operates. New Styleclick will sell digital content development services and
merchandising services and will facilitate fulfillment and customer services.
New Styleclick will provide the technological platform to distribute products
through other affiliated websites. Products will be sold directly to customers
through FirstAuction.com, FirstJewelry.com, Styleclick.com and FashionTrip.com.
LIQUIDITY AND CAPITAL RESOURCES
Upon completion of the mergers, New Styleclick will have cash of $40 million
less any amounts borrowed under the $10 million bridge loan from USAi
($5 million at March 20, 2000). Additionally, New Styleclick will have a
commitment valued at $10 million for advertising and promotional services to be
provided over a three year period on USAi's controlled subsidiaries. New
Styleclick's management anticipates that the combined cash on hand and media
value should be sufficient to fund New Styleclick's operating activities through
the first quarter of 2001. However, New Styleclick does not anticipate that it
will be profitable nor generating positive cash flow. Consequently, New
Styleclick believes that it will be necessary to obtain additional capital prior
to April 2001. New Styleclick's management anticipates that new funding will be
generated by either the sale of additional common stock, exercise of media
warrants by USA Networks or a combination of both. Should New Styleclick be
unable to generate additional capital prior to that time it may be necessary to
reduce the level of its operations, including terminating certain employees,
substantially reducing its product development initiatives and cutting back on
its sales and marketing efforts. New Styleclick's management believes that
taking such actions would seriously impair the long-term viability and value of
New Styleclick.
DISCLOSURES ABOUT MARKET RISK
New Styleclick expects to invest in equity securities of privately held
companies for business and strategic purposes although no specific investment
opportunities have been identified at this time. For investments in which no
public market exists, it will regularly review the operating performance,
financing transactions and cash flow forecasts for such companies in assessing
the net realizable values of the securities of these companies. New Styleclick
will identify and record impairment losses on long-lived assets when events and
circumstances indicate that such assets might be impaired.
24
<PAGE>
OLD STYLECLICK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this proxy
statement/prospectus.
GENERAL
Old Styleclick is in the business of developing, marketing, and supporting
e-commerce Internet websites, Internet enabled applications and business and
consumer software products based on its proprietary technology for content
management, including modeling and rendering technology. Old Styleclick has
three principal product groups: e-commerce Internet websites, software including
CD-ROM products and applications including CAD and electronic merchandising
products, referred to as business software products.
Since 1998, Old Styleclick has divested many of its products in the business
and consumer software product groups and has shifted its primary business focus
to the emerging Internet e-commerce market. Old Styleclick is focusing its
technology on building and deploying e-commerce Internet sites, such as
comparative search and shopping solutions aimed at facilitating businesses' use
of e-commerce to reach consumers in the apparel, footwear, accessories,
cosmetics and home furnishings industries.
Revenues generated from Old Styleclick's e-commerce Internet websites
include revenues received in connection with (1) website development and
maintenance fees for services provided to customers in the development and
maintenance of their websites, (2) project participation fees for vendor
participation in Old Styleclick's on-line shopping Internet websites,
(3) on-line advertising revenue for advertising on Old Styleclick's on-line
shopping websites, (4) transactional revenue from Old Styleclick's fulfillment
services provided to Old Styleclick's on-line shopping Internet website
participant vendors and (5) product referral fees from referral of vendor
products to Internet consumers through Old Styleclick's on-line shopping
Internet websites. Revenues from project participation fees are recognized based
upon the accomplishment of contractual milestones in a manner that matches
revenue with the related cost. Web-site development and maintenance fees and
on-line advertising revenue are recognized over the terms of the corresponding
contracts. Transactional revenue and product referral fees are recognized based
on a percentage of gross revenues from the related transactions. Transactional
revenue is recognized upon notification of shipment of the vendors' products by
Old Styleclick's fulfillment warehouse or the participant vendors. Product
referral fees are recognized based upon notification of the sales information by
Old Styleclick's vendors, the independent Internet traffic tracking companies or
Old Styleclick's on-line tracking reports.
Revenues generated from Old Styleclick's consumer CD-ROM products include
revenues received in connection with sales of Old Styleclick's developed
consumer CD-ROM products and vendor participation in Old Styleclick's developed
CD-ROM applications. Sales of the products are recognized at the time of
shipment. Revenues from CD-ROM participation fees are recognized based upon the
accomplishment of contractual milestones in a manner that matches revenue with
the related cost.
Revenues generated from Old Styleclick's business software products include
revenues received in connection with sales and licenses of Old Styleclick's
developed business software products and software maintenance revenues. Sales
and licenses of the products are recognized at the time of shipment. Revenue
generated from software maintenance is recognized on a straight-line basis over
the term of the corresponding contract, which is generally twelve months.
25
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth selected items from Old Styleclick's
statement of operations for the years ended 1999, 1998 and 1997 and the
percentages that such items bear to net revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues.......................... $ 6,174 100.0% $ 6,681 100.0% $4,450 100.0%
Cost of sales......................... 668 10.8 82 1.2 87 1.9
-------- ------- -------- ------- ------ -----
Gross profit.......................... 5,506 89.2 6,599 98.8 4,363 98.1
Operating costs and expenses:
Selling, general and administrative... 13,362 216.4 8,291 124.1 3,394 76.3
Research and development.............. 6,054 98.1 3,541 53.0 172 3.9
Merger related costs.................. 405 6.6 -- -- -- --
Amortization of software development
costs............................... 1,842 29.8 4,890 73.2 774 17.4
-------- ------- -------- ------- ------ -----
Total operating costs and
expenses.......................... 21,663 350.9 16,722 250.3 4,340 97.6
-------- ------- -------- ------- ------ -----
Loss from operations.................. (16,157) (261.7) (10,123) (151.5) 23 0.5
Investment and other income, net...... 278 4.5 435 6.5 331 7.5
-------- ------- -------- ------- ------ -----
Net loss.............................. $(15,879) (257.2%) $ (9,688) (145.0%) $ 354 8.0%
======== ======= ======== ======= ====== =====
</TABLE>
1999 COMPARED WITH 1998
NET REVENUES. Revenues in the amount of $4.8 million, or 78% of total
revenues for the year ended December 31, 1999, were earned from three sources
which can not be expected to reoccur, including product development fees
($.4 million, or 8%), web-site development fees ($.9 million, or 19%) and the
sale of Old Styleclick's business software product line ($3.5 million, or 57% of
revenues). Net revenues decreased $0.5 million, or 8%, to $6.2 million in 1999
from $6.7 million in 1998. The decrease was primarily due to (1) a decrease of
$4.4 million in revenues from Old Styleclick's consumer CD-ROM products, (2) a
decrease of $0.054 million in revenues from training services and (3) a decrease
of $0.1 million in maintenance fees. These decreases were offset by an increase
of $1.9 million in sales of Old Styleclick's business software products, an
increase of $1.6 million in revenues generated from Old Styleclick's e-commerce
Internet websites and an increase of $0.5 million in revenues from consulting
services.
Revenues generated from Old Styleclick's e-commerce Internet web-sites were
$1.6 million in 1999 as compared to no such revenue generated in 1998. The
$1.6 million in revenues primarily consisted of revenues generated from website
development and maintenance fees, project participation fees, on-line
advertising revenue, digital content generation fees, transactional revenues and
product referral fees.
Revenues generated from consumer CD-ROM products decreased $4.4 million, or
88%, to $0.6 million in 1999 from $5 million in 1998 primarily due to
$2 million of revenue generated in 1998 from the one-time license of Old
Styleclick's 3-D HOME INTERIORS product to its publisher and $0.4 million of
revenue generated in connection with consumer product developing services
provided to one of Old Styleclick's major customers in 1998. These revenues were
not repeated in 1999 as Old Styleclick has shifted its primary business focus to
the emerging consumer Internet e-commerce market. Additionally, revenue
generated in connection with Old Styleclick's developing CD-ROM applications
decreased $1.2 million to $0.4 million in 1999 from $1.6 million in 1998. The
$0.4 million in revenue generated in 1999 resulted from the completion of
development of one of the CD-ROM applications which had been in development
since 1998. Finally, $0.8 million of the decrease was due to lower CD-ROM
participation revenue generated from Old Styleclick's consumer CD-ROM
applications in 1999 as compared to 1998. The decrease in CD-ROM participation
revenues resulted from Old Styleclick's strategy to shift its marketing focus to
Internet e-commerce during 1999.
26
<PAGE>
Sales of business software products increased $1.9 million, or 135%, to
$3.3 million in 1999 from $1.4 million in 1998 primarily due to the sale of two
of Old Styleclick's business software product lines and the license of certain
related technologies for an up-front fee of $3 million in 1999. In March 1999,
Old Styleclick entered into an agreement with one of its major competitors.
Under the agreement, Old Styleclick sold two of its business software product
lines and licensed its cataloging software to the buyer for an up-front fee of
$3 million, additional support fees of up to $1 million, and a contingent
payment of up to $1 million depending on future sales over the next 24 months
generated from the product lines sold to the buyer. Except for support services,
Old Styleclick has no further obligations to this buyer (including further
development of the products sold or the software licensed, as all development
has been completed on such products and software). The sale of these product
lines was part of the overall shift in Old Styleclick's primary business focus
from the business software product marketplace to the emerging consumer Internet
e-commerce market. As such, the revenues recognized from the sale did not arise
from, and are not necessarily representative of Old Styleclick's ongoing
business. As a result of the sale, Old Styleclick generated less revenue from
its business software products in the remaining period of 1999 as compared to
the comparable period in 1998.
Revenues from consulting services were $0.5 million in 1999 and $50,000 in
1998.
Revenues from training services decreased $50,000, or 73%, to $20,000 in
1999 from $70,000 in 1998, and maintenance fees decreased $130,000, or 56%, to
$100,000 in 1999 from $230,000 in 1998, primarily due to Old Styleclick's
overall shift in its primary business focus away from business software
products, as discussed above, from which most training and maintenance fees,
generated.
COST OF SALES. Costs of sales are comprised primarily of product
fulfillment costs, credit card processing fees, direct shipping material and
product royalties associated with the respective revenues. Cost of sales
increased $0.6 million to $0.7 million in 1999 from $0.08 million in 1998
primarily due to $0.1 million in cost of sales incurred in connection with the
$3 million sale and license of certain of Old Styleclick's business software
products in 1999, and a $0.5 million non-cash charge to royalty expense. Old
Styleclick issued stock and warrants to Intel, Old Styleclick's project
co-developer, valued at approximately $5.5 million in exchange for future
royalties through December 2007. Such amount was recorded as prepaid royalties
and will be continuously amortized at $0.2 million per quarter until
December 2007). No such costs of sales were incurred in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $5.1 million, or 61%, to $13.4 million in 1999
from $8.3 million in 1998 due to the following factors. Personnel costs
increased $1.6 million, or 58%, to $4.4 million in 1999 from $2.8 million in
1998. The increase in personnel costs resulted primarily from the hiring of
additional personnel in late 1998 to support Old Styleclick's increased
operating activities, increasing the total number of employees from 121 as of
December 31, 1998 to 157 as of December 31, 1999, and $0.2 million of bonuses
paid to Old Styleclick's executives in 1999. Additionally, certain related costs
including travel, marketing, telephone, office supplies expenses, taxes and
licenses, repair and maintenance and depreciation expense increased
$3.6 million, or 102%, to $7.1 million in 1999 from $3.5 million in 1998. Of
that increase, $3.5 million was related to an increase in Old Styleclick's
marketing activities in 1999 to support its new e-commerce products.
Additionally, professional services including accounting, legal and consulting
services increased $0.7 million, or 75%, to $1.6 million in 1999 from
$0.9 million in 1998. The increase in professional services was primarily due to
Old Styleclick's increased requirements for these services in 1999 compared to
1998, resulting from Old Styleclick's increased operating activities in the
emerging e-commerce market and support of its new e-commerce products and
dispositions of certain Old Styleclick's business software product lines.
Finally, bad debt expense decreased $0.8 million, or 93%, to $60,000 in 1999
from $0.9 million in 1998. Such decrease was primarily attributable to the
additional bad debt reserve in the amount of $0.9 million recorded by Old
Styleclick during 1998 upon Old Styleclick's review of certain specific
accounts. No such additional reserve was recorded in 1999.
27
<PAGE>
RESEARCH AND DEVELOPMENT. Old Styleclick incurred $7.2 million of research
and development expenditures in 1999, of which $1.1 million was capitalized and
$6.1 million was expensed, compared to $6.6 million in 1998, of which
$3.1 million was capitalized and $3.5 million was expensed. The 9% increase in
research and development expenditures from 1998 to 1999 was primarily due to the
hiring of additional personnel in connection with the further development of Old
Styleclick's Internet application projects.
MERGER RELATED COSTS. Old Styleclick incurred $0.4 million of expense in
connection with its merger plan with USANi Sub in the fourth quarter of 1999. No
such expense was incurred in 1998. The $0.4 million expense was primarily
related to legal and accounting services. Costs related to the merger are
expected to increase significantly in the first and second quarters of 2000.
AMORTIZATION OF SOFTWARE DEVELOPMENT COSTS. The amortization of software
development costs decreased $3.1 million, or 62%, to $1.8 million in 1999 from
$4.9 million in 1998 due primarily to a $3.4 million write-off of capitalized
software cost in 1999 as compared to 1998. Approximately $1.0 million of the
total write-off was related to the exclusive license of Old Styleclick's 3D HOME
INTERIORS product to its publisher. The remaining $2.4 million was primarily
attributable to the software capitalized prior to 1998 in relation to certain
business software products which Old Styleclick is exiting as a result of its
new business strategy to target the emerging e-commerce market. In 1999, Old
Styleclick wrote-off a total of $0.3 million of capitalized software cost. The
write-off was related to the product lines sold to one of Old Styleclick's
competitors in the first quarter of 1999.
INVESTMENT INCOME. Investment income decreased $0.1 million, or 36%, to
$0.3 million in 1999 from $0.4 million in 1998 due to the decrease in income
generated from a money market account in which Old Styleclick's funds are
maintained. The decrease resulted from a lower average cash balance maintained
in this account in 1999 as compared 1998.
INCOME TAXES. Old Styleclick recorded no provision for income taxes in 1999
and 1998 due to net operating losses in both years.
1998 COMPARED WITH 1997
NET REVENUES. Net revenues increased $2.2 million, or 50%, to $6.7 million
in 1998 from $4.5 million in 1997. The increase was primarily due to (1) an
increase in the revenues from Old Styleclick's consumer CD-ROM products, (2) an
increase of $0.005 million in revenue from training services, and (3) an
increase of $0.07 million in maintenance fees. The increase was offset by a
decrease of $0.9 million in sales of Old Styleclick's business software products
and a decrease of $0.1 million in revenues from consulting services.
Revenue generated from consumer CD-ROM products increased $3.2 million or
176%, to $5 million in 1998 from $1.8 million in 1997. The increase was
primarily due to (1) $2 million of revenue generated from the exclusive license
of Old Styleclick's 3D HOME INTERIORS product to its publisher,
(2) $1.6 million of revenue generated in connection with Old Styleclick's
developing two CD-ROM applications, (3) $0.4 million of revenue generated in
connection with consumer product developing services provided to one of Old
Styleclick's major customers and (4) $1 million CD-ROM participation revenue
generated form Old Styleclick's consumer CD-ROM applications in 1998. No such
revenues were generated in 1997. The increase was offset by a total of
$1.8 million revenues generated in 1997 which were not repeated in 1998,
including a one-time payment of $1.5 million in connection with Old Styleclick's
fulfillment of certain obligations under an agreement with Intel in connection
with the co-development of consumer software.
Sales of business software products decreased $0.9 million, or 39%, to
$1.4 million in 1998 from $2.3 million in 1997 primarily due to $0.4 million in
foreign sales generated by two of Old Styleclick's major customers in Europe in
1997, which sales were not repeated in 1998. The remaining decrease resulted
from Old Styleclick's strategy to shift its focus to Internet e-commerce.
28
<PAGE>
COST OF SALES. Cost of sales associated with Old Styleclick's CD-ROM
consumer products does not have a major impact on the total cost of sales since
an insignificant amount of cost of sales was incurred in connection with the
CD-ROM consumer products in 1998 and no such cost of sales was incurred in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $4.9 million, or 144%, to $8.3 million in 1998
from $3.4 million in 1997. Personnel costs increased $1.2 million, or 78%, to
$2.8 million in 1998 from $1.6 million in 1997. The increase in personnel costs
resulted from the hiring of additional personnel in late 1997 and 1998 to
support Old Styleclick's increased operating activities, increasing the total
number of employees from 86 as of December 31, 1997 to 121 as of December 31,
1998. Additionally, certain related costs including travel, marketing,
telephone, office supplies expenses, taxes and licenses, repair and maintenance
and depreciation expense increased $2.3 million, or 180%, to $3.5 million in
1998 from $1.3 million in 1997. $1.4 million of such increase was related to Old
Styleclick's increasing marketing activities in 1998 to support its new
e-commerce products. Also, professional services including accounting, legal and
consulting services increased $0.5 million, or 108%, to $1 million in 1998 from
$0.4 million in 1997. The increase in professional services was primarily due to
Old Styleclick's increased requirements for these services in 1998 compared to
1997 resulting from Old Styleclick's increased operating activities. Finally,
bad debt expense increased $0.9 million, or 1,663%, to $0.9 million in 1998 from
$52,000 in 1997 due to Old Styleclick's decision in 1998 to increase its bad
debt reserve by $0.9 million due to Old Styleclick's increasing sales volume,
and based on a review of specific accounts.
RESEARCH AND DEVELOPMENT. Old Styleclick incurred $6.6 million of research
and development costs in 1998, as compared to $3.1 million in 1997. In 1997,
$3.1 million of such costs were capitalized as software development costs, while
in 1998, $2.8 million of such costs were capitalized as software development
costs. The remaining $3.5 million of research and development costs in 1998 were
expensed, compared to $0.2 million in 1997. The 102% increase in research and
development expenditure from 1997 to 1998 was primarily due to the hiring of
additional personnel to perform software programming services in connection with
the further development of Old Styleclick's business software, consumer software
and Internet products. A lower percentage of research and development
expenditures were capitalized in 1998 as compared to 1997 due primarily to Old
Styleclick's completion of two major projects at the beginning of 1998. A
significant portion of the research and development expenses incurred prior to
the completion of those two major projects was capitalized as software
development costs.
AMORTIZATION OF SOFTWARE DEVELOPMENT COSTS. The amortization of software
development costs increased $4.1 million, or 532%, to $4.9 million in 1998 from
$0.8 million in 1997 partially because Old Styleclick began marketing and
amortizing development costs associated with several new versions of software
products in late 1997 and in 1998. In addition, Old Styleclick took a one-time
charge to write off a total of $3.4 million of its research and development cost
in 1998. Of the total write-off $1 million was related to the exclusive license
of Old Styleclick's 3D HOME INTERIORS product to its publisher. The remaining
$2.4 million write-off was primarily attributable to the software capitalized
prior to 1998 in relation to certain products in the business software market
which Old Styleclick is exiting as a result of its new business strategy to
target the emerging e-commerce market.
INVESTMENT INCOME. Investment income increased $0.1 million, or 31%, to
$0.4 million in 1998 from $0.3 million in 1997. This increase is due to the
increase in income generated from a money market account in which the proceeds
received in July 1997 upon the exercise by warrant holders of Old Styleclick's
public warrants after notice of redemption was given in June 1997, along with
other amounts, are maintained.
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<PAGE>
INCOME TAXES. Old Styleclick recorded no provision for income taxes in 1998
and 1997 due to net operating losses in 1998 and the utilization of net
operating loss carryforwards in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Old Styleclick's ratio of current assets to current liabilities on
December 31, 1999 decreased to 2.6 from 10.12 on December 31, 1998. The decrease
was primarily due to a 32% decrease in Old Styleclick's current assets balance
and a 167% increase in its current liabilities balance from December 31, 1998 to
December 31, 1999. The 32% decrease in current assets balance was primarily due
to a $4.95 million decrease in cash. The decrease was offset by a $0.2 million
increase in accounts receivable, a $1.4 million increase in prepaid expenses and
other current assets, a $0.6 million increase in deferred royalties and a
$0.5 million increase in deferred advertising and promotion. The 167% increase
in current liabilities was primarily due to a $1 million increase in accounts
payable and accrued expenses.
Old Styleclick's cash balance decreased $4.9 million, or 78%, to
$1.4 million at December 31, 1999 from $6.3 million at December 31, 1998
primarily due to a decrease of $13.5 million resulting from cash used by Old
Styleclick in its operating activities and a decrease of $0.9 million resulting
from cash used for the purchase of fixed assets. Such decreases were offset by
an increase of $0.4 million in cash received by Old Styleclick in connection
with stock options exercised by Old Styleclick's employees in 1999, $6,000
received by Old Styleclick in connection with warrants exercised by its IPO
principal underwriter, $1.3 million received by Old Styleclick in connection
with warrants exercised by one of its outside consultants and net proceeds of
$7.8 million received by Old Styleclick in connection with the issuance of
776,827 shares of its common stock in April 1999.
Old Styleclick's accounts receivable balance increased $0.1 million, or 18%,
to $1 million at December 31, 1999 from $0.9 million at December 31, 1998. This
increase was primarily due to a $0.5 million receivable balance at December 31,
1999, which was related to the revenue generated in late 1999 from one of Old
Styleclick's major customers. The increase was offset by a decrease resulting
from the collection during 1999 from two of Old Styleclick's major customers of
approximately $0.3 million in accounts receivable from such customers at
December 31, 1998.
Old Styleclick's prepaid expenses and other current assets balance increased
$1.4 million to $1.8 million on December 31, 1999 from $0.4 million on
December 31, 1998 primarily due to a $3.4 million prepayment recorded in 1999 in
connection with a two-year e-commerce marketing agreement entered into by Old
Styleclick with an Internet portal company as a prepayment of future marketing
expense. Of this amount, $1.9 million was expensed in 1999.
Old Styleclick had $5.1 million in deferred royalties at December 31, 1999
compared to none at December 31, 1998. In April 1999, Old Styleclick recorded
$5.5 million in deferred royalties in connection with the issuance of 455,218
shares of Old Styleclick's common stock and warrants to purchase a total of
538,674 shares of Old Styleclick's common stock to Intel, its project
co-developer. $0.5 million of this amount was expensed in 1999.
Old Styleclick had $1.0 million in deferred advertising and promotion
expense at December 31, 1999 compared to none at December 31, 1998. In 1999, Old
Styleclick recorded $1.4 million in deferred advertising and promotion expenses
related to the issuance of warrants to purchase a total of 250,000 shares of
common stock in consideration of business promotion services to be provided to
Old Styleclick. Of this amount, $0.4 million was expensed in 1999.
On December 31, 1999 Old Styleclick's accounts payable and accrued expenses
balance increased $1.3 million to $1.8 million from $0.5 million at
December 31, 1998 primarily due to a $0.2 million increase in accrued legal
service fees from December 31, 1998 to December 31, 1999 and a $0.3 million
increase in accrued bonus primarily due to $0.2 million in bonuses accrued for
Old Styleclick's executive officers at December 31, 1999. Finally, the total
balance from the year-end outstanding bills increased $0.7 million from
December 31, 1998 to December 31, 1999 primarily due to advertising bills
30
<PAGE>
in a total amount of $0.6 million recorded in late 1999 and paid subsequent to
December 31, 1999. No such bills were recorded at December 31, 1998.
Old Styleclick's total shareholders' equity balance increased $0.8 million,
or 6%, to $13.1 million at December 31, 1999 from $12.3 million at December 31,
1998 primarily due to $7.8 million in net proceeds received from the issuance of
a total of 776,827 shares of Old Styleclick's common stock to four of its
investors in April 1999, $0.4 million in proceeds received from the exercise of
stock options to purchase a total of 44,500 shares of Old Styleclick's common
stock by 18 employees during 1999, $6,000 in proceeds received from the exercise
of warrants to purchase a total of 1,000 shares of Old Styleclick's common stock
by the principal underwriter of its initial public offering and $1.3 million
received by Old Styleclick in connection with warrants exercised by an outside
consultant. Additionally, an increase of $5.5 million resulted from Old
Styleclick's issuance to Intel in April 1999 of 455,218 shares of the its common
stock and warrants to purchase a total of 538,674 shares of Old Styleclick's
common stock. Finally, an increase of $1.7 million resulted from Old
Styleclick's issuance of warrants to purchase 466,667 shares of common stock in
1999 in consideration of business promotion and consulting services provided (or
to be provided) to Old Styleclick. The increase was offset by a net operating
loss in the amount of $15.9 million in 1999.
As of December 31, 1999, employee stock options to purchase a total of
946,286 shares with a weighted average exercise price of $11.11 per share and
warrants to purchase a total of 2,225,969 shares of Old Styleclick's common
stock with a weighted average exercise price of $13 per share were exercisable.
Approximately $40 million will be received if all of such stock options and
warrants are exercised in the future. However, the exercise of these stock
options and warrants is subject to various conditions, including Old
Styleclick's stock market price, the option/warrant holders' willingness to
exercise and certain restrictive trading regulations.
In January 2000, Old Styleclick and USAi announced an agreement to merge.
Under the agreement, Old Styleclick will merge with a wholly-owned subsidiary of
New Styleclick and ISN, an indirect wholly owned subsidiary of USAi will merge
with another wholly-owned subsidiary of New Styleclick. The new company will own
and operate the combined properties of Old Styleclick and ISN. Under the terms
of the agreement, USAi will also invest $40 million in cash, contribute
$10 million in advertising and promotional services and will receive warrants to
purchase additional shares of the new company. Upon both the closing of the
transaction and on a fully diluted basis, USAi will own approximately 75% of the
new company and Old Styleclick's shareholders will own approximately 25%. In the
interim, USAi has extended a $10 million credit line to Old Styleclick.
Consummation of the merger is subject to various conditions, including approval
by Old Styleclick's shareholders and the receipt of required regulatory
approvals.
Old Styleclick anticipates continuing to use its capital primarily to fund
the activities related to the design, development, marketing, sales and support
of its e-commerce websites. Together with its existing capital, the $10 million
credit line provided by USAi and anticipated funds from operations, Old
Styleclick believes that its capital resources will be sufficient to provide its
anticipated cash needs for working capital and capital expenditures for at least
the next 12 months. Old Styleclick expects the merger to be completed in the
third quarter of 2000. If the merger is not completed and cash generated from
operations is insufficient to satisfy capital requirements, Old Styleclick may
have to sell additional equity or debt securities or obtain credit facilities,
assuming it can do so on acceptable terms.
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ISN MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
ISN is engaged in electronic commerce business transacted over the Internet
through its two websites, FirstAuction.com and FirstJewelry.com.
FirstAuction.com was launched in June of 1997 and is an online real time
business-to-consumer diversified auction retailer. FirstJewelry.com was launched
in October 1999 and is an online retailer of jewelry offering a broad
merchandise assortment across 9-10 categories with over 30 subcategories.
On December 20, 1996, USAi acquired ISN in connection with its acquisition
of Home Shopping Network, Inc. and on February 12, 1998 USAi contributed its
interest in ISN to USANi LLC, a company formed in connection with USAi's
acquisition of certain cable networks and television production businesses from
Universal Studios, Inc., a subsidiary of The Seagram Company Ltd.
RESULTS OF OPERATIONS
The following table sets forth ISN's statement of operations for the years
ended 1999, 1998 and 1997:
<TABLE>
<CAPTION>
ISN
---------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................................ $ 12,954 $ 21,288 $ 24,690
Cost of sales............................................... 12,987 20,216 23,845
-------- -------- --------
Gross profit (loss)..................................... (33) 1,072 845
Operating costs and expenses:
Selling and marketing..................................... 1,176 5,193 10,793
Product development costs................................. 1,580 3,334 5,520
General and administrative................................ 5,869 8,231 19,283
Write-off of capitalized software......................... -- -- 4,489
Depreciation and amortization............................. 2,018 1,436 3,251
-------- -------- --------
Total operating costs and expenses...................... 10,643 18,194 43,336
-------- -------- --------
Operating loss.......................................... (10,676) (17,122) (42,491)
Other income (expense)...................................... -- 198 (3)
-------- -------- --------
Loss before income taxes.................................... (10,676) (16,924) (42,494)
Income tax expense.......................................... -- -- --
-------- -------- --------
NET LOSS................................................ $(10,676) $(16,924) $(42,494)
======== ======== ========
</TABLE>
1999 COMPARED WITH 1998
GROSS PROFIT (LOSS). For the year ended December 31, 1999, net revenues
increased $3.4 million, or 16.0%, to $24.7 million from $21.3 million compared
to 1998 primarily due to increased sales from FirstAuction.com and to a lesser
extent FirstJewelry.com, which was launched at the beginning of the fourth
quarter of 1999. These increases were partially offset by the shut down of the
Computer Superstore business in October 1998. Total units shipped increased by
96.4% to 1.0 million units compared to 0.5 million units in 1998 as the product
mix shifted away from higher priced electronics and computers to lower priced
home and leisure products. Gross profit decreased by $0.2 million, to
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$0.8 million (3.4%) from $1.1 million (5.0%) in 1998 due primarily to increased
costs of shipping product as FirstAuction.com offered free shipping to expand
the business.
OPERATING COSTS AND EXPENSES. For the year ended December 31, 1999, total
operating costs and expenses increased $25.1 million, or 138.2%, to
$43.3 million from $18.2 million compared to 1998, primarily due to increased
general and administrative costs of $11.1 million, $5.6 million in selling and
marketing and $2.2 million of product development expenses. The increase in
general and administrative expenses was primarily personnel expenses of $6.5
million due to increased staffing needs, and the product development cost
increase was for the launch of FirstJewelry.com and to expand and enhance the
FirstAuction business. The increase in selling and marketing costs resulted
primarily from advertising and promotion of $3.0 million for the FirstJewelry
launch. Also, in 1999, ISN wrote off $4.5 million of costs associated with the
FirstOutlet website, which were incurred in 1999, when management determined not
to launch the website.
Depreciation expense increased $1.8 million due to hardware, software
licenses and software development purchases to support the operations of
FirstAuction.com and for the launch of FirstJewelry.com.
As a limited liability company, ISN is not subject to federal or state
income taxes, but rather the LLC partners are responsible for taxes related to
the earnings attributable to each partner.
1998 COMPARED WITH 1997
GROSS PROFIT (LOSS). For the year ended December 31, 1998, net revenues
increased $8.3 million, or 64.3%, to $21.3 million from $13.0 million in 1997
due to increased sales of $14.4 million from FirstAuction.com which launched in
June of 1997, partially offset by the shutdown of the Computer Superstore in
October 1998. Gross profit increased by $1.1 million, to $1.1 million (5.0%)
from a loss of $30,000 million in 1998 due primarily to the increase in revenue.
OPERATING COSTS AND EXPENSES. For the year ended December 31, 1998, total
operating costs and expenses increased by $7.6 million, or 70.9%, to
$18.2 million from $10.6 million in 1997, primarily due to increased selling and
marketing costs of $4.1 million, $2.4 million in general and administrative
expenses and $1.8 million of product development expenses. The increase in
selling and marketing costs resulted primarily from a full year of promotional
spending for FirstAuction.com. The increase in general and administrative
expenses was due to the expansion of staff to support general business growth
and the sourcing of products from beyond the Home Shopping Network. Product
development increases were for increased functionality and website enhancements
for FirstAuction.com.
Depreciation expense increased $0.6 million due to assets placed in service
to support the operations of FirstAuction.com. Amortization of goodwill
decreased by $1.1 million due to goodwill associated with the acquisition of
Computer Superstore being fully amortized in 1997.
As a limited liability Company, Old Styleclick is not subject to federal or
state income taxes, but rather the LLC members are responsible for taxes related
to the earnings attributable to each member. In 1997, Old Styleclick was
included in the consolidated tax return of USAi, but no tax expense was incurred
due to the operating loss.
LIQUIDITY AND CAPITAL RESOURCES
The continuing operations and capital resources and liquidity requirements
of ISN are dependent on USAi and USANi LLC, as the operating losses and capital
expenditures of ISN have been funded through December 31, 1999 by capital
contributions by USAi.
Net cash used in operating activities was $33.7 million, $18.0 million and
$11.4 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Cash used primarily resulted from
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operating losses in each period. ISN made capital expenditures of
$17.7 million, $2.6 million and $2.6 million in the years ended December 31,
1999, 1998 and 1997, respectively. USAi made capital contributions of $51.4
million, $20.6 million and $14.0 million in the years ended December 31, 1999,
1998 and 1997, respectively, to fund operations and the capital expenditures.
On February 12, 1998, USAi and USANi LLC, as borrower, entered into the
credit agreement, which provides for a $1.6 billion credit facility. The credit
facility was used to finance the proposed transactions and to refinance USAi's
then-existing $275.0 million revolving credit facility. The credit facility
consists of (1) a $600.0 million revolving credit facility with a $40.0 million
sub-limit for letters of credit, (2) a $750.0 million Tranche A Term Loan and,
(3) a $250.0 million Tranche B Term Loan. The Tranche A Term Loan and the
Tranche B Term Loan have been permanently repaid as of December 31, 1999, as
described below. The revolving credit facility expires on December 31, 2002. As
of December 31, 1999, there was $598.7 million available for borrowing after
taking into account outstanding letters of credit.
Since December 31, 1999, USANi LLC has continued to fund the operations of
ISN through a demand note, which bears interest at USANi LLC's borrowing rate
under the existing credit agreement. ISN anticipates that USANi LLC will have to
continue to fund its operations until the mergers are completed.
On January 25, 2000, USAi and Styleclick.com Inc., a leading enabler of
e-commerce for manufacturers and retailers, announced an agreement to form a new
company by merging ISN and Old Styleclick. Under the terms of the agreement,
USAi and USANi LLC will also invest $40 million in cash, contribute $10 million
in advertising and promotional services, and will receive warrants to purchase
additional shares of the new company. In the interim, USAi has agreed to extend
a $10 million line of credit to Old Styleclick. The proposed transaction is
expected to close in the third quarter of 2000.
OTHER MATTERS
In late 1999, ISN completed its remediation and testing of systems. As a
result of those planning and implementation efforts, ISN experienced no
significant disruptions in mission critical information technology and
non-information technology systems and believes those systems successfully
responded to the Year 2000 date change. ISN is not aware of any material
problems resulting from Year 2000 issues, either with its products, its internal
systems, including the systems of Home Shopping Network on which certain
applications are run, or the products and services of third parties. ISN will
continue to monitor its mission critical computer applications and those of its
suppliers and vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
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<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Since July 19, 1999, Old Styleclick's common stock has traded on the Nasdaq
National Market under the symbol "IBUY." From March 1996 until July 19, 1999,
Old Styleclick's common stock traded on the Nasdaq National Market under the
symbol "MODA." The following table sets forth the high and low sales prices for
Old Styleclick's common stock for the fiscal years ended December 31, 1998 and
1999, as reported by Nasdaq:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1998
1st Quarter............................................... 20 1/4 11
2nd Quarter............................................... 24 7/8 13 3/4
3rd Quarter............................................... 23 5/8 10 7/8
4th Quarter............................................... 24 3/4 6
FISCAL YEAR ENDED DECEMBER 31, 1999
1st Quarter............................................... 21 1/2 11 5/8
2nd Quarter............................................... 15 1/8 8 3/8
3rd Quarter............................................... 12 1/4 6 3/4
4th Quarter............................................... 15 6 1/4
</TABLE>
On March 22, 2000, the last reported sale price for the day of Old
Styleclick common stock was $11.5 per share. On January 24, 2000, the last full
trading date prior to the public announcement of the signing of the merger
agreement, the last reported sale price for the day of Old Styleclick common
stock was $17.50 per share.
New Styleclick has applied to have its shares of Class A common stock
approved for listing on the Nasdaq National Market under the symbol "IBUY."
There is no established trading market for the limited liability company
units of ISN.
DIVIDEND INFORMATION
To date, neither Old Styleclick nor ISN has declared or paid dividends. New
Styleclick anticipates that it also will not declare or pay dividends on any
class of stock, and will retain any earnings for the foreseeable future for use
in its operating activities.
NUMBER OF SHAREHOLDERS
As of [ ], 2000, there were approximately [ ] holders of
record of Old Styleclick common stock.
If the mergers are completed, each share of common stock of Old Styleclick
will be converted into one share of Class A common stock of New Styleclick. Each
unit of ISN, other than units held by USANi Sub, will be coverted into
0.601 shares of class A common stock of New Styleclick and each unit of ISN held
by USANi Sub will be converted into 0.601 shares of Class B common stock of New
Styleclick. In addition, options and warrants to purchase shares of common stock
of Old Styleclick, will be converted into options or warrants to purchase the
same number of shares of Class A common stock of New Styleclick, on the same
terms and conditions and at the same per share exercise price that applied
before the merger. See "The Proposed Transactions--Interests of Executive
Officers and Directors of Old Styleclick in the Transactions".
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<PAGE>
SPECIAL MEETING OF OLD STYLECLICK SHAREHOLDERS
GENERAL
New Styleclick is furnishing this proxy statement/prospectus to the
shareholders of Old Styleclick in connection with the solicitation of proxies by
the Old Styleclick Board of Directors for use at the special meeting of Old
Styleclick shareholders.
DATE, TIME AND PLACE
The special meeting of Old Styleclick shareholders will be held on [ ],
2000, at [ ] p.m., Pacific Standard Time, at Old Styleclick's principal
executive offices at 3861 Sepulveda Boulevard, Culver City, California 90230.
MATTERS TO BE CONSIDERED
At the special meeting, the shareholders of Old Styleclick will be asked to
consider and vote upon:
1. The approval of the merger agreement and the transactions
contemplated by the merger agreement, including the merger of a wholly-owned
subsidiary of New Styleclick with and into Old Styleclick; and
2. Other matters which may properly be brought before the special
meeting and any adjournments or postponements of the meeting.
RECORD DATE FOR VOTING ON THE MERGER; SHAREHOLDERS ENTITLED TO VOTE
The Old Styleclick Board has fixed the close of business on [ ], 2000,
as the record date for determination of Old Styleclick shareholders entitled to
notice of and to vote at the special meeting. As of the close of business on the
record date, there were [ ] shares of Old Styleclick common stock
outstanding and entitled to vote, held of record by [ ] shareholders.
VOTING PROCEDURES
The proxy accompanying this document is solicited on behalf of Old
Styleclick's Board of Directors. A majority of the outstanding shares of Old
Styleclick common stock issued and outstanding on the record date must be
present or represented by proxy at the special meeting in order to have a
quorum. Abstentions are counted as shares that are present and entitled to vote
for purposes of determining the presence of a quorum, but not as voting for
purposes of determining the approval of any matter submitted to the shareholders
for a vote.
On all matters, each share of Old Styleclick common stock has one vote. The
affirmative vote of a majority of the outstanding shares is required to approve
the merger. If your shares are held in street name, you must instruct your
broker how to vote your shares. See "Questions and Answers About The Merger." If
a broker indicates on the proxy that it does not have discretionary authority to
vote on a particular matter as to certain shares, those shares will not be
considered as voting with respect to that matter. Such a proxy, however, will be
counted for purposes of determining a quorum.
Old Styleclick shareholders are requested to complete, date, sign and return
the accompanying proxy in the enclosed envelope or otherwise mail it to Old
Styleclick. Whether or not you are able to attend the special meeting, you are
urged to vote your proxy. All properly completed proxies received by Old
Styleclick prior to the special meeting that are not revoked will be voted at
the special meeting in accordance with the instructions indicated on the proxies
or, if no direction is indicated, will be voted "FOR" approval of the merger
agreement and the merger of Old Styleclick with a wholly-owned subsidiary of New
Styleclick. Old Styleclick's Board of Directors does not intend to bring any
other
36
<PAGE>
business before the special meeting, and, so far as Old Styleclick's Board
knows, no other matters are to be brought before the special meeting. If any
other business properly comes before the special meeting, the proxies will be
voted in accordance with the judgment of the person voting such proxies.
REVOCATION OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time prior to the time the proxy is to be voted at the special
meeting by attending the special meeting and voting in person or by delivering
to Old Styleclick a written notice or a duly executed proxy, each bearing a date
later than the date of the proxy, stating that the proxy is revoked prior to the
special meeting.
VOTE REQUIRED TO APPROVE THE MERGER
The affirmative vote of the holders of a majority of the outstanding shares
of Old Styleclick common stock is required to approve and adopt the merger
agreement and approve the merger of Old Styleclick with a wholly-owned
subsidiary of New Styleclick. Abstentions and broker non-votes are not
affirmative votes and will have the same effect as votes cast against the
proposed transactions.
Ms. Freedman, Mr. Vecchione, Mr. Freedman and Intel Corporation have each
agreed to vote in favor of the proposed transactions. These principal
shareholders hold approximately 2,519,036 shares of Old Styleclick common stock
representing approximately 32.6% of the outstanding voting shares of Old
Styleclick.
RECOMMENDATION OF OLD STYLECLICK'S BOARD OF DIRECTORS
After careful consideration of the merger agreement and proposed merger of
Old Styleclick with a wholly-owned subsidiary of New Styleclick, the Board of
Directors of Old Styleclick has determined that the merger is fair to, and in
the best interests of, Old Styleclick and its shareholders. Accordingly, the
Board of Directors of Old Styleclick unanimously approved the merger agreement
and the merger and unanimously recommends that the Old Styleclick shareholders
vote for approval and adoption of the merger agreement and approval of the
merger.
The matters to be considered at the special meeting are of great importance
to Old Styleclick and its shareholders. Accordingly, you are urged to read and
carefully consider the information presented in this document, and to complete,
date, sign and promptly return the enclosed proxy card in the enclosed
postage-paid envelope.
EXCHANGE OF STOCK CERTIFICATES
Do not send any stock certificates now. A transmittal form with instructions
for the surrender of certificates for Old Styleclick common stock will be mailed
after completion of the merger to holders of Old Styleclick common stock.
SOLICITATION OF PROXIES
Old Styleclick, ISN and USANi Sub each will bear its own expenses in
connection with the preparation and filing of this proxy statement/prospectus
and the solicitation of proxies from Old Styleclick shareholders. In addition to
solicitation by mail, Old Styleclick's directors, officers and employees may
solicit proxies by telephone, telegram, telecopier, electronic mail or
otherwise. The directors, officers and employees of Old Styleclick will not
receive compensation for such solicitation but may receive reimbursement from
Old Styleclick for out-of-pocket expenses incurred in connection with the
solicitation. Old Styleclick will request that brokerage firms, fiduciaries and
other custodians forward copies of the solicitation materials to the beneficial
owners of shares of Old Styleclick common stock held of
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record by them and Old Styleclick will reimburse them for reasonable expenses
incurred in forwarding the material. Old Styleclick has retained a proxy
solicitation firm, MacKenzie Partners, Inc., to aid it in the solicitation.
SHARE OWNERSHIP OF MANAGEMENT
On the record date, directors and executive officers of Old Styleclick,
including Ms. Freedman, Mr. Vecchione, and Mr. Freedman, and their affiliates
owned and had the right to vote an aggregate of 2,063,818 shares of Old
Styleclick common stock, constituting approximately 26.7% of the shares of Old
Styleclick common stock.
Each of Ms. Freedman, Mr. Vecchione and Mr. Freedman has agreed, pursuant to
separate voting agreements with USANi Sub, to vote all of the shares of Old
Styleclick common stock that they have the right to vote for approval and
adoption of the merger agreement and approval of the merger of Old Styleclick
with a wholly-owned subsidiary of New Styleclick.
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THE PROPOSED TRANSACTIONS
This section of the proxy statement/prospectus describes the material
aspects of the proposed transactions. The discussion relating to the merger
agreement and the other documents is a summary and is not complete. For more
detailed information, you should review the merger agreement, the option
agreement, the stockholder agreement and the other agreements referred to in
this discussion, which are attached to this proxy statement/prospectus as
annexes and which are incorporated herein by reference.
BACKGROUND
During 1999, as the management of Old Styleclick attempted to develop and
expand its Internet e-commerce businesses through its Styleclick.com and
Fashiontrip.com websites, management recognized Old Styleclick's need for
substantially greater capital and marketing resources in order for its business
to compete effectively. At meetings of Old Styleclick's Board of Directors
during 1998 and 1999, the Board considered various ways for Old Styleclick to
obtain the capital and marketing and merchandising resources necessary to expand
its business. The Board requested Old Styleclick's officers to investigate
opportunities for growth through strategic alliances and ventures with other
companies in the commerce arena. In 1998 and during the first three quarters of
1999, Old Styleclick's executives explored several potential opportunities for
growth through strategic alliances or joint ventures and investigated the
availability of substantial new capital through one or more equity offerings.
Although Old Styleclick was able to secure $8.5 million of new capital through a
privately-placed financings in April 1999, the Board determined that additional
capital was still necessary to promote Old Styleclick's continued growth and
development.
In August 1999, Old Styleclick was recommended to ISN as a company that
could provide Internet development and technical services for companies engaging
in Internet-based e-commerce. A meeting was held on September 3, 1999 between
representatives of the Old Styleclick and ISN where Old Styleclick presented its
technology to ISN's senior management. During September and October of 1999,
representatives of ISN met with representatives of Old Styleclick. In the course
of discussions about how the technical expertise of Old Styleclick could be made
available to ISN to develop and improve its websites and how the
merchandising/e-commerce expertise of ISN could help Old Styleclick, the
possibility of a strategic alliance between Old Styleclick and ISN was raised.
The representatives of both parties expressed an interest in investigating
possible synergies that an alliance might present and agreed to future
discussions after raising the proposal with their respective senior management
and, in the case of ISN, with its parent company, USAi.
Following a discussion in September, Old Styleclick, ISN and USAi,
investigated the public information available about the other respective
companies and businesses and independently concluded that further consideration
of some form of strategic alliance or business combination appeared to be
justified. Old Styleclick and USAi signed a confidentiality and non-disclosure
agreement on October 4, 1999 in order for their executives to investigate and
evaluate considerations related to an alliance or business combination of their
companies.
On October 14, 1999, senior management of ISN brought representatives from
USAi to meet with representatives of Old Styleclick and discuss Old Styleclick's
business and technology. On the following day, Mr. Dara Khosrowshahi, President
of USA Networks Interactive, a division of USAi responsible for evaluating
interactive opportunities on behalf of the parent company, met with Old
Styleclick senior management to discuss the possibility of a business
combination with ISN and the potential advantages that could be realized by both
companies.
Based on the view of Old Styleclick's executives that significant strategic
benefits could be realized by some form of alliance or business combination of
Old Styleclick, ISN and USAi, Old Styleclick's
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Board of Directors directed Mr. Vecchione to continue discussions with ISN, with
the goal of determining the basis and structure for such an alliance or business
combination.
On November 30, 1999, a telephone conference was held between executives of
Old Styleclick, executives of ISN and USAi and their respective financial and
legal advisors. The parties and their advisors discussed the potential terms of
a merger between ISN and Old Styleclick, including potential structures for a
transaction and the business and strategic goals that might be realized by a
transaction. Following the telephone conference on November 30, 1999, drafts of
a term sheet for a business combination of Old Styleclick and ISN were exchanged
and negotiated between representatives of Old Styleclick, ISN, and USAi, and
representatives of Old Styleclick, ISN and USAi conducted due diligence
investigations and discussed financial information and projections. During
negotiations it was recognized that an important condition to ISN's willingness
to proceed with discussions was that Old Styleclick obtain (1) waivers from the
investors in its April 1999 private placement, referred to as the Investors, of
several material terms of their warrants and investment agreements and (2)
voting, waiver and lock-up agreements from Ms. Freedman, Mr. Vecchione, Mr.
Freedman and Intel Corporation, significant Old Styleclick shareholders. In
December 1999, Old Styleclick retained PaineWebber Incorporated and ING Barings
LLC to advise Old Styleclick about the financial considerations of a merger with
USAi or one of its subsidiaries and the fairness from a financial point of view
of the terms of such a transaction.
From November 30, 1999 through December 31, 1999, representatives of Old
Styleclick, ISN and USANi Sub, and their respective legal and financial
advisors, continued their due diligence investigations and conducted further
negotiations regarding the principal terms of a merger of the two companies. On
December 21, 1999, Mr. Vecchione, co-CEO of Old Styleclick, met with Mr. Barry
Diller, Chairman and Chief Executive Officer of USAi, at Mr. Diller's offices in
New York City to discuss the proposed transaction. In addition, preliminary
discussions were held with the Investors regarding the waivers required by USANi
Sub. The Investors requested additional information about the proposed
transaction, and in late December 1999 Old Styleclick entered into
confidentiality and non-disclosure agreements with two principal Investors,
Castle Creek Technology Partners LLC and Marshall Capital Management Inc..
Negotiations then continued with the Investors regarding the waivers required by
USANi Sub.
On January 20, 2000, a special meeting of the Board of Directors of USAi and
the Board of Managers of USANi Sub LLC was held at which Mr. Dara Khosrowshahi
presented the terms and conditions of the proposed transactions. The Boards
discussed and unanimously approved the proposed transactions and authorized
Mr. Khosrowshahi and other senior executives of USAi to reach final agreement
with Old Styleclick.
On January 23, 2000, a special meeting of the Board of Directors of Old
Styleclick was held at which all the directors were present as well as Old
Styleclick's counsel and financial advisors. At the meeting, the Board reviewed
and discussed the terms and conditions of the proposed merger with ISN,
including the terms and conditions of the related transactions and agreements,
heard reports from representatives of PaineWebber and ING Barings as to the
fairness from a financial point of view of the proposed terms and engaged in a
full discussion of the proposed merger and related transactions. At the
conclusion of the meeting, Old Styleclick's Board of Directors tentatively
approved the terms and conditions of the proposed merger with ISN and related
transactions and agreements, and authorized Old Styleclick's executives and
advisors to reach final agreement with ISN and USANi Sub on all terms of the
merger and related transactions, and to obtain the waivers and agreements from
the Investors.
Following the January 23, 2000 meeting, negotiations continued among the
representatives of ISN, USANi Sub, Old Styleclick and the Investors. A special
meeting of the Old Styleclick Board of Directors was held on January 24, 2000,
with all the directors and Old Styleclick's counsel and financial
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advisors present. The Board reviewed and considered the final terms of the
proposed merger and related agreements which had been negotiated with ISN and
USANi Sub, reviewed and considered the terms of the voting and waiver agreements
which had been negotiated with the principal Old Styleclick shareholders and the
Investors and discussed various financial and strategic considerations related
to the merger. PaineWebber and ING Barings, in separate presentations to, and
discussions with the Board, reviewed their respective analyses of the fairness
of the merger transaction and rendered their respective oral opinions that the
merger was fair from a financial point of view to Old Styleclick and its
shareholders, both before and after the issuance of shares to USANi Sub upon the
exercise of the option provided in the merger and related agreements. Following
the presentations of PaineWebber and ING Barings, Old Styleclick's Board engaged
in a full discussion of the advisability of entering into the merger agreement
and related transactions with ISN and USANi Sub. At the conclusion of the
meeting, Old Styleclick's Board approved the terms of all of the agreements,
determined that the merger and related transactions were advisable and fair to,
and in the best interests of, Old Styleclick and its shareholders and authorized
the executives of Old Styleclick to proceed with execution of the documents.
In the early morning of January 25, 2000, the parties executed the merger
agreement and the related documents. The merger was jointly announced by Old
Styleclick and USAi later that morning.
In early March 2000, the parties agreed to amend and restate the merger
agreement to provide that ISN will merge with a wholly-owned subsidiary of New
Styleclick. This change does not affect the value to be received by Old
Styleclick shareholders in New Styleclick because New Styleclick will have the
same assets following the merger and the aggregate percentage of New Styleclick
common stock held by former Old Styleclick shareholders will remain the same.
RECOMMENDATION OF OLD STYLECLICK BOARD OF DIRECTORS
In reaching its decision to adopt the merger agreement, Old Styleclick's
Board of Directors considered a number of factors, including the following:
- the one-to-one ratio at which shares of Old Styleclick common stock would
be converted into shares of New Styleclick Class A common stock;
- the strategic plans of Old Styleclick in the Internet e-commerce
marketplace, including the necessity for Old Styleclick to increase the
scope and volume of its business to succeed in that marketplace;
- the difficulty Old Styleclick had finding additional sources of capital,
including strategic partners, prior to receiving the merger proposal;
- the strategic benefits anticipated from the greater capital, financial,
operational and expansion opportunities offered by USAi and its
affiliates, including the $40 million in cash and $10 million in
advertising and promotional services across USAi's controlled subsidiaries
that USANi Sub would contribute to ISN in connection with the merger
transaction;
- the availability of greater capital, personnel and other resources to
develop and implement a successful business plan in the developing
international e-commerce marketplace;
- the benefits from access to USAi and its affiliates for advertising of New
Styleclick's services following the merger;
- the potential benefits of having access to USAi's Electronic Commerce
Services Division for product fulfillment and customer service;
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- the financial analyses and conclusions presented to Old Styleclick by each
of ING Barings and PaineWebber that the valuation of Old Styleclick
reflected in the merger is fair to the shareholders of Old Styleclick from
a financial point of view; and
- the advantages of the $10 million line of credit which USAi offered to
extend to Old Styleclick upon signing of the merger agreement as opposed
to several alternate interim financing sources which Old Styleclick had
investigated and which had been previously reported to the Board of Old
Styleclick.
In addition, the Old Styleclick Board considered the continued operation of
Old Styleclick as an independent company, but in light of the favorable factors
considered above, it decided that the merger agreement provided a more advisable
alternative. The Old Styleclick Board also considered the terms and conditions
of the merger agreement, the option agreement and the other related agreements
in light of the foregoing factors and concluded that those agreements should be
entered into by Old Styleclick. Following the amendment and restatement of the
merger agreement, the Old Styleclick Board considered the amendments and
determined that they did not affect the substance of the merger proposal. The
Old Styleclick Board approved the amended and restated merger agreement and
concluded that it should be entered into by Old Styleclick.
The foregoing discussion of the factors considered by the Old Styleclick
Board is not intended to be exhaustive but it is believed to include all
material factors considered by Old Styleclick Board in approving the merger. In
view of the wide variety of factors considered, the Old Styleclick Board did not
find it practical to, and did not, assign any relative or specific weights to
the foregoing factors. Individual directors may have given different weights to
different factors. For a discussion of the interests of members of Old
Styleclick's management and Board of Directors in the merger, see "Interests of
Executive Officers and Directors of Old Styleclick in the Transactions." The Old
Styleclick Board recognized these interests and determined that they neither
supported nor detracted from the advisability of the merger to Old Styleclick
shareholders.
FOR THE REASONS DISCUSSED ABOVE, OLD STYLECLICK'S BOARD OF DIRECTORS HAS
DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT AND THE CONTEMPLATED
TRANSACTIONS ARE FAIR TO, AND IN THE BEST INTERESTS OF, OLD STYLECLICK AND ITS
SHAREHOLDERS. ACCORDINGLY, OLD STYLECLICK'S BOARD RECOMMENDS THAT YOU VOTE FOR
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
OPINION OF PAINEWEBBER--FINANCIAL ADVISOR TO OLD STYLECLICK
Old Styleclick engaged PaineWebber in connection with the proposed
transaction solely for an opinion as to whether the proposed consideration to be
received by the shareholders of Old Styleclick in the merger, taken as a whole,
is fair to the shareholders from a financial point of view. PaineWebber was
selected by the Old Styleclick Board of Directors based on PaineWebber's
qualifications, expertise and reputation, as well as PaineWebber's historical
investment banking relationship and familiarity with Old Styleclick. PaineWebber
reviewed the proposed transaction and discussed the valuation methodologies it
employed with the Old Styleclick Board of Directors on January 23, 2000.
PaineWebber then rendered its oral opinion, which was subsequently confirmed in
writing on January 24, 2000, to the effect that, as of that date, the proposed
consideration to be received by the shareholders of the Old Styleclick in the
merger, taken as a whole, is fair to the shareholders from a financial point of
view. Although, since the date its opinion was issued, the form of the proposed
transaction has been amended, in part, from a contribution of units in ISN to a
merger, PaineWebber has determined not to revise its opinion and its opinion
therefore reflects the transaction in its proposed structure as of January 24,
2000. The following is a summary of the report presented by PaineWebber to the
Old Styleclick Board of Directors in connection with the rendering of its
opinion.
THE FULL TEXT OF THE OPINION DELIVERED BY PAINEWEBBER TO THE OLD STYLECLICK
BOARD OF DIRECTORS, DATED JANUARY 24, 2000, WHICH SETS FORTH THE ASSUMPTIONS
MADE, GENERAL PROCEDURES FOLLOWED, MATTERS
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CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY PAINEWEBBER IN
RENDERING ITS OPINION, IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS
AND IS INCORPORATED BY REFERENCE. THE PAINEWEBBER OPINION IS TO THE EFFECT THAT
THE PROPOSED CONSIDERATION TO BE RECEIVED BY THE SHAREHOLDERS OF OLD STYLECLICK
IN THE MERGER, TAKEN AS A WHOLE, IS FAIR TO THE SHAREHOLDERS FROM A FINANCIAL
POINT OF VIEW. THE PAINEWEBBER OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY OLD STYLECLICK SHAREHOLDER AS TO HOW THE SHAREHOLDER SHOULD VOTE WITH
RESPECT TO THE MERGER AGREEMENT. THE SUMMARY OF THE PAINEWEBBER OPINION SET
FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY THE REFERENCE TO THE FULL TEXT OF
THE FAIRNESS OPINION. OLD STYLECLICK SHAREHOLDERS ARE URGED TO READ THE OPINION
CAREFULLY IN ITS ENTIRETY.
In arriving at its opinion, PaineWebber, among other things:
- Reviewed Old Styleclick's Annual Reports on Form 10-K and the related
financial information for the two fiscal years ended December 31, 1998,
and Old Styleclick's Quarterly Reports on Form 10-Q and the related
unaudited financial information for the nine months ended September 30,
1999;
- Reviewed information, including financial forecasts and historical
financial statements, relating to the business and prospects of Old
Styleclick and ISN, furnished to PaineWebber by Old Styleclick and ISN;
- Conducted discussions with members of senior management of Old Styleclick
and ISN concerning their respective businesses and prospects;
- Reviewed the historical market prices and trading activity for the common
stock of Old Styleclick and compared them with that of publicly traded
companies which PaineWebber deemed to be relevant;
- Compared the financial position and results of operations of Old
Styleclick and ISN with that of companies which PaineWebber deemed
relevant;
- Compared the proposed financial terms of the transactions contemplated by
the merger agreement with the financial terms of other mergers and
acquisitions which PaineWebber deemed to be relevant;
- Reviewed a draft of the merger agreement, dated January 24, 2000;
- Reviewed a draft of the stockholders agreement among New Styleclick, USANi
Sub, USAi, Old Styleclick, Joyce Freedman, Lee Freedman and Maurizio
Vecchione, dated January 21, 2000;
- Reviewed a draft of the voting and waiver agreements among USANi Sub and
certain Investors and principal shareholders, dated January 22, 2000;
- Reviewed a draft of the waiver agreement between Spinner Asset Management
Co. and USANi Sub, dated January 24, 2000;
- Reviewed a draft of the credit agreement between Old Styleclick and USAi,
Inc., dated January 21, 2000;
- Reviewed a draft of the option agreement between Old Styleclick and USANi
Sub, dated January 19, 2000;
- Reviewed a draft of the media warrant agreement between USAi and New
Styleclick, dated January 21, 2000; and
- Reviewed other financial studies and analyses and performed other
investigations and took into account other matters as PaineWebber deemed
necessary, including its assessment of general economic, market and
monetary conditions.
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In preparing its opinion, PaineWebber relied on the accuracy and
completeness of all information publicly available, supplied or otherwise
communicated or made available to PaineWebber by Old Styleclick and ISN, and
PaineWebber did not assume any responsibility to independently verify such
information. With respect to the financial forecasts examined, PaineWebber
assumed, with Old Styleclick's and ISN's consent, that they were reasonably
prepared on bases reflecting the best currently available estimates and good
faith judgments of the management of Old Styleclick and ISN, respectively, as to
the future performance of Old Styleclick and ISN, respectively. PaineWebber also
relied upon assurances of the management of Old Styleclick and ISN,
respectively, that they were unaware of any facts that would make the
information or financial forecasts provided to PaineWebber incomplete or
misleading. PaineWebber was not engaged to make, and did not make, any
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Old Styleclick or ISN nor was PaineWebber furnished with any such
evaluations or appraisals. PaineWebber assumed, with the consent of Old
Styleclick, that:
- ISN will account for the merger under the purchase method of accounting;
- The transactions will be tax-free transactions to Old Styleclick; and
- Any material liabilities (contingent or otherwise, known or unknown) of
Old Styleclick and ISN were as set forth in the financial information
provided by such entities.
PaineWebber's opinion is based upon economic, monetary and market conditions
existing on the date of the PaineWebber opinion. Furthermore, PaineWebber
expressed no opinion as to the price or trading range at which the securities to
be issued in the merger to the shareholders of Old Styleclick may trade at any
time.
PaineWebber's opinion does not address the relative merits of the merger and
any other transactions or business strategies that may have been discussed by
the Old Styleclick Board of Directors as alternatives to the merger, or the
decision of the Old Styleclick Board of Directors to proceed with the merger.
Old Styleclick did not place any limitations upon PaineWebber with respect to
the procedures followed or factors considered in rendering its opinion.
The following is a summary of the significant financial analyses performed
by PaineWebber in connection with providing its written opinion to the Old
Styleclick Board of Directors on January 24, 2000. In performing the various
financial analyses, PaineWebber valued the combined company assuming
consummation of the transactions contemplated by the merger agreement. This
summary includes information presented in tabular format and the tables should
be read together with the text of each summary.
CONTRIBUTION ANALYSIS
PaineWebber observed that, after giving effect to the issuance of New
Styleclick common stock in the merger, USANi Sub (including its affiliates) and
the shareholders of Old Styleclick would receive 75.0% and 25.0%, respectively,
of New Styleclick's common stock on a primary basis and 75.6% and 24.4%,
respectively, of New Styleclick's common stock on a fully diluted basis.
PaineWebber analyzed the relative revenue contributions of Old Styleclick and
observed that for fiscal years 1999, 2000, 2001
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and 2002, Old Styleclick would contribute 9.5%, 16.6%, 16.8% and 12.2%,
respectively, of the combined entity's total revenues, excluding synergies, and
9.5%, 15.6%, 14.2% and 8.8%, respectively, of the combined entity's total
revenues, including synergies.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 2000 2001 2002
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Old Styleclick Revenue Contribution (excl.
synergies).................................. 9.5% 16.6% 16.8% 12.2%
Old Styleclick Revenue Contribution (incl.
synergies).................................. 9.5% 15.6% 14.2% 8.8%
</TABLE>
PRO FORMA ANALYSIS
PaineWebber analyzed pro forma effects to revenue per share, cash earnings
per share and earnings per share for fiscal years 2000 through 2002 using
forecasts prepared by ISN and Old Styleclick management that included synergies.
In addition, PaineWebber analyzed pro forma revenue per share, cash earnings per
share and earnings per share projected by ISN and Old Styleclick management
without giving any effect to synergies. The analysis indicated that the merger
would be accretive on a pro forma basis in all cases for 2000, 2001 and 2002
except for fiscal years 2001 and 2002 earnings per share under the no-synergy
scenario and fiscal year 2002 earnings per share under the synergy scenario.
PREMIUM ANALYSIS
PaineWebber compared the implied premium of the offer as of January 24, 2000
to similar premiums for (1) six completed public company e-commerce transactions
announced on or after January 1, 1998, (2) 34 completed or pending Internet
transactions with transaction values greater than or equal to $35 million that
were announced on or after January 1, 1998, and (3) 526 acquisitions of a
majority interest in non-financial, domestic and completed transactions with
values greater than $50 million announced on or after January 1, 1998.
PaineWebber compared the median premiums paid for these three groups of
transactions to the implied premium paid to Old Styleclick's stock price on
January 24, 2000 and the implied premium to the unaffected stock price on
October 13, 1999. The date selected for the unaffected stock price was one day
prior to the date of ISN's initial overture regarding a merger between Old
Styleclick and ISN.
<TABLE>
<CAPTION>
ONE DAY ONE WEEK FOUR WEEKS
PRIOR TO PRIOR TO PRIOR TO
ANALYSIS ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
-------- ------------- ------------ ------------
<S> <C> <C> <C>
Comparable Public E-commerce
Transactions...................................... 24.5% 29.2% 69.6%
Internet Transactions............................... 23.8% 30.8% 56.1%
All Transactions.................................... 25.6% 33.3% 39.8%
</TABLE>
<TABLE>
<CAPTION>
FOUR WEEKS
ONE DAY PRIOR ONE WEEK PRIOR PRIOR
------------------- ------------------- -------------------
ANALYSIS LOW HIGH LOW HIGH LOW HIGH
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Implied Premium to Old Styleclick stock price on
January 24, 2000................................. (18.5)% (1.6)% 0.0% 20.7% 23.5% 49.1%
Implied Premium to Old Styleclick stock price on
October 13, 1999................................. 105.1% 147.6% 116.1% 160.8% 68.1% 102.9%
</TABLE>
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VALUATION ANALYSIS OF ISN CONTRIBUTED ASSETS
In addition to the above analyses pertaining to Old Styleclick, PaineWebber
presented to the Old Styleclick Board of Directors certain financial analyses
regarding the assets of ISN.
ANALYSIS OF PUBLICLY TRADED COMPANIES COMPARABLE TO ISN
Using PaineWebber research and published Wall Street estimates, PaineWebber
compared, among other things, the equity values, revenues for the last quarter
annualized and projected revenues for calendar years 1999, 2000 and 2001 of
companies PaineWebber considered comparable to ISN. PaineWebber determined that
the following companies were comparable to ISN.
Alloy Online, Inc.
Amazon.com, Inc.
Ashford.com, Inc.
Barnesandnoble.com, Inc.
Bluefly, Inc.
CDnow, Inc.
Cyberian Outpost, Inc.
Drugstore.com, Inc.
Egghead.com, Inc.
eToys, Inc.
Fashionmall.com, Inc.
ftd.com, Inc.
Garden.com, Inc.
iTurf, Inc.
PlanetRx, Inc.
ShopNow.com, Inc.
Value America, Inc.
VitaminShoppe.com, Inc.
PaineWebber determined average revenue multiples for the companies
considered comparable to ISN and applied these multiples to projected calendar
year 1999, 2000 and 2001 revenues supplied by ISN management. Based on the
foregoing, PaineWebber determined a range of implied equity values of ISN of
$268.5 million to $385.4 million.
ANALYSIS OF COMPARABLE PUBLIC E-COMMERCE ACQUISITIONS
PaineWebber reviewed and analyzed the publicly available financial terms of
six selected acquisition transactions comparable to the proposed merger, and
compared the financial terms of such transactions to those of the proposed
transaction.
PaineWebber noted that none of the comparable transactions were identical to
the proposed transaction and that, accordingly, any analysis of the comparable
public E-commerce acquisitions necessarily involved complex considerations and
judgements concerning the differences in financial and operating characteristics
and other factors that would necessarily affect the acquisition values.
PaineWebber reviewed the prices paid in such transactions and analyzed
various operating and financial information and imputed valuation multiples and
ratios. Specifically, PaineWebber reviewed the target's equity value as a
multiple of last quarter annualized, one-year and two-year forward revenues at
the time of the announcement of each transaction. PaineWebber's analysis of the
comparable public E-commerce acquisitions was inconclusive and was therefore not
included in its valuation.
OTHER ANALYSES
PaineWebber conducted other analyses it deemed necessary, including
reviewing historical and projected financial and operating data for Old
Styleclick and ISN and selected investment research reports on Old Styleclick,
including information pertaining to the estimated revenues for Old Styleclick.
PaineWebber also assessed future acquisition and growth opportunities for ISN
and Old Styleclick.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses and
the application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Accordingly, PaineWebber believes that its analysis must be
considered as a whole
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and that considering any portion of such analysis and of the factors considered,
without considering all analyses and factors, could create a misleading or
incomplete view of the process underlying the PaineWebber opinion. In its
analysis, PaineWebber made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond control of Old Styleclick and ISN. Any estimates contained in
these analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable than
as set forth therein. In addition, analyses relating to the value of businesses
do not purport to be appraisals or to reflect the prices at which businesses can
be actually sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty and neither PaineWebber, Old Styleclick nor
ISN assume responsibility for the accuracy of such analyses and estimates.
FEE ARRANGEMENTS
Pursuant to an engagement letter between Old Styleclick and PaineWebber
dated December 21, 1999, PaineWebber earned a fee of $450,000 for rendering the
opinion and will also be reimbursed for certain of its related expenses.
PaineWebber's compensation for its services in rendering the opinion was not
contingent upon the results of the opinion. Old Styleclick also agreed, under a
separate agreement, to indemnify PaineWebber, its affiliates and each of its
directors, officers, agents and employees and each person, if any, controlling
PaineWebber or any of its affiliates against certain liabilities, including
liabilities under the federal securities laws.
In the past, PaineWebber and/or its affiliates have provided investment
banking and other financial services to Old Styleclick and have received fees
for rendering these services. PaineWebber currently holds warrants to purchase
7,768 shares of common stock of Old Styleclick which it received for acting as
placement agent for Old Styleclick in connection with an April 1999 private
placement of Old Styleclick common stock to certain investors. PaineWebber may
receive additional warrants and additional fees if some of those investors
exercise warrants that they currently hold that were issued in the private
placement. PaineWebber, Old Styleclick and USANi Sub have entered into an
agreement whereby PaineWebber has waived certain of its rights as a warrant
holder in order to permit the proposed transactions to proceed.
In the ordinary course of business, PaineWebber and its affiliates may trade
the securities of Old Styleclick for their own accounts and for the accounts of
their customers and, accordingly, may at any time hold long or short positions
in such securities.
OPINION OF ING BARINGS--FINANCIAL ADVISOR TO OLD STYLECLICK
At the January 24, 2000 meeting of Old Styleclick's Board of Directors, ING
Barings delivered an opinion that the consideration to be received by the
holders of common stock of Old Styleclick in the proposed transactions was fair,
from a financial point of view, to the holders. Although the form of the
proposed transaction has been amended, in part, from a contribution of units in
ISN to a merger, ING Barings has concluded that the change in form was not
material to its opinion and has consequently issued its opinion reflecting the
transaction in its current proposed structure including a merger between ISN and
a subsidiary of New Styleclick. On March 21, 2000, ING Barings delivered a
revised fairness opinion to the Old Styleclick Board of Directors reflecting the
current proposed structure.
The full text of the opinion of ING Barings, which sets forth the
assumptions made, matters considered and qualifications and limitations on the
reviews undertaken by ING Barings, is attached as Annex B to this proxy
statement/prospectus and is incorporated by reference. This summary of the
opinion of ING Barings is qualified in its entirety by reference to the full
text of its opinion. Old Styleclick shareholders are urged to read carefully the
opinion in its entirety.
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In conducting its analysis and arriving at its opinion, ING Barings reviewed
and analyzed, among other things, the following:
- draft forms of the merger agreement, including the exhibits, and the
credit agreement, including the exhibits (both dated January 21, 2000) and
other documents relating to the proposed transactions;
- Old Styleclick's Annual Reports on Form 10-K for each of the fiscal years
in the two year period ended December 31, 1998, Old Styleclick's Quarterly
Reports on Form 10-Q for the quarters ended March 31, June 30 and
September 30, 1998 and 1999, and Old Styleclick's Form 8-K's dated March
26, 1999, April 9, 1999, April 14, 1999, April 20, 1999, July 2, 1999, and
July 19, 1999;
- other publicly available information concerning Old Styleclick and the
trading market for the common stock of Old Styleclick;
- internal information and other data relating to Old Styleclick, its
business and prospects, including financial forecasts and projections,
provided to ING Barings by management of Old Styleclick;
- non-public information and other data relating to the business and
prospects of ISN, including historical financial statements and financial
projections, provided to ING Barings by management of ISN;
- publicly available financial data, stock market performance data and
valuation parameters of companies which ING Barings deemed generally
comparable to Old Styleclick, to the businesses of ISN and to the combined
company on a pro-forma basis giving effect to the merger; and
- the financial terms of certain recent business combinations involving
Internet companies which ING Barings believed to be relevant.
ING Barings also met with certain officers and employees of Old Styleclick
and ISN concerning their businesses and operations, assets, present conditions
and prospects and undertook such other studies, analyses and investigations as
ING Barings deemed appropriate.
In arriving at its opinion, ING Barings assumed and relied upon the accuracy
and completeness of the financial and other information used by ING Barings and
it did not attempt independently to verify the information, nor did it assume
any responsibility to do so. With respect to the projected financial results
provided to them, ING Barings assumed that they had been reasonably prepared
based on the best current estimates and judgment of the senior management of Old
Styleclick and ISN as to the expected future financial condition and results of
operations of Old Styleclick and ISN. ING Barings also assumed that the business
plan of New Styleclick, as presented to them by the management of Old Styleclick
and ISN, is based on reasonable assumptions and is reasonably obtainable under
current and reasonably foreseeable market conditions. ING Barings visited but
did not conduct a physical inspection of the properties and facilities of Old
Styleclick or ISN, nor did ING Barings make or obtain any independent evaluation
or appraisal of such properties, facilities or liabilities. ING Barings also
took into account its assessment of general economic, market and financial
conditions and its experience in similar transactions, as well as its experience
in the valuation of securities and business in general. ING Barings' opinion
necessarily is based upon economic, market, financial and other conditions as
they exist and can be evaluated on the date of such opinion and ING Barings
assumed no responsibility to update or revise its opinion based upon events or
circumstances occurring after the date of the opinion.
The opinion of ING Barings is for the use of the Board of Directors of Old
Styleclick. The opinion does not address Old Styleclick's underlying business
decision to approve the proposed transactions or constitute a recommendation to
the shareholders of Old Styleclick as to how such shareholders
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should vote or as to any other action such shareholders should take regarding
the proposed transactions. Furthermore, ING Barings recognized that the market
prices for Internet related companies such as Old Styleclick (and, on a proforma
basis, New Styleclick) have been the subject of significant speculation and
movement in recent months and the opinion was not intended to predict or
otherwise guarantee the trading price of Old Styleclick or New Styleclick
following the announcement or consummation of the proposed transactions. ING
Barings was requested to prepare its opinion in connection with the proposed
transactions and was directed not to, and did not, seek or pursue alternative
transactions to the proposed transactions, including the possible sale of Old
Styleclick as a whole.
In connection with preparing and rendering the opinion, ING Barings
performed a variety of valuation, financial and comparative analyses. The
summary of the analyses, as set forth below, is not a complete description of
the analyses underlying the ING Barings opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to summary
description. ING Barings believes that its analyses must be considered as a
whole, and that selecting portions of its analyses and the factors considered by
it, without considering all the factors and analyses, could create an incomplete
view of the processes underlying the opinion. Moreover, the estimates contained
in the analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable than
those suggested by the analyses. In addition, analyses relating to the value of
the businesses or securities do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Accordingly, the estimates are inherently subject to substantial uncertainties.
The following is a summary of the material valuation, financial and
comparative analyses considered by ING Barings in arriving at its opinion. Such
summary is not a complete description of the analyses underlying the ING Barings
opinion and is qualified in its entirety by reference to the full text of the
ING Barings opinion, but does summarize the material analyses considered by ING
Barings in rendering its opinion.
OLD STYLECLICK "HAS-GETS" ANALYSIS
Based on projections provided by management of Old Styleclick and ISN, ING
Barings conducted a "Has-Gets" analysis of the impact of the proposed
transactions on the shareholders of Old Styleclick. A "Has-Gets" analysis is a
comparison of what shareholders of Old Styleclick have prior to the consummation
of the proposed transactions in terms of financial ratios (and thus would have
absent consummation of such proposed transactions) to what such shareholders
will get upon consummation of the proposed transactions. Such financial ratios
included fully-diluted revenues per share, loss per share before goodwill
amortization, cash and cash equivalents per share and tangible book value per
share. The proforma financial projections provided by the management of Old
Styleclick and ISN did not take into account goodwill amortization or other
merger adjustments in accordance with GAAP. Therefore of the financial ratios
below are not in accordance with GAAP. This analysis indicated that:
- fully-diluted revenues per share was estimated to increase in 1999 from
$0.21 per share for Old Styleclick to $0.54 per share for New Styleclick,
and in 2000 from $0.82 per share for Old Styleclick to $1.31 per share for
New Styleclick;
- loss per share before goodwill amortization was estimated to decrease in
1999 from $(2.79) per share for Old Styleclick to $(2.00) per share for
New Styleclick, and in 2000 from $(2.86) per share for Old Styleclick to
$(1.48) per share for New Styleclick;
- cash and cash equivalents per share was estimated to increase as of
September 30, 1999, from $0.58 per share for Old Styleclick to $1.89 per
share for New Styleclick; and
- tangible book value per share was estimated to increase as of September
30, 1999, from $6.08 per share for Old Styleclick to $6.41 per share for
New Styleclick.
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COMPARABLE PUBLIC COMPANY ANALYSIS
ING Barings compared operating, financial, trading and valuation information
for the operations of New Styleclick to publicly available operating, financial,
trading and valuation information for nine selected companies (comprised of
retail e-commerce, Internet services, e-commerce graphic providers, jewelry and
business-to-consumer online auction companies) which, in ING Barings' judgement,
were comparable to the operations of New Styleclick. A comparable company
analysis estimates a stock market trading value for a company based on its
operating performance and outlook relative to a group of publicly-traded
comparable companies and their stock market valuation and corresponding
multiples. As is industry practice in Internet related companies, ING Barings
used enterprise value, calculated as a multiple of calendar year 1999, 2000 and
2001 projected revenues, as the appropriate valuation measure. The companies
included:
<TABLE>
<CAPTION>
E-TAILING INTERNET SERVICES E-COMMERCE GRAPHIC PROVIDERS
- --------- ----------------- ----------------------------
<S> <C> <C>
Fashionmall.com Modem Media Poppe Tyson Metacreations
Iturf Razorfish
Cybershop.com
</TABLE>
<TABLE>
<CAPTION>
JEWELRY E-TAILING BUSINESS-TO CONSUMER ONLINE AUCTION
- ----------------- -----------------------------------
<S> <C>
Ashford Ubid
OnSale
</TABLE>
ING Barings noted that none of the comparable companies listed above were
exactly identical to the corresponding constituent of Old Styleclick or New
Styleclick and that, accordingly, any analysis of comparable companies
necessarily involved complex considerations and judgements concerning
differences in financial and operating characteristics and other factors that
would necessarily affect the relative trading and acquisition values. Based on
such analysis, ING Barings arrived at the following valuation for New
Styleclick:
<TABLE>
<CAPTION>
NEW STYLECLICK
VALUATION RANGE
-------------------------------
<S> <C>
Implied Equity Value (fully diluted)................ $583.0-$698.0 million
Implied Equity Value per Share (fully diluted)...... $11.54-$13.81 per Share
</TABLE>
ING Barings noted that this valuation range represented a 34.1% to 21.1%
discount to Old Styleclick's stock price one day prior to announcement of the
proposed transaction, a 23.7% to 8.7% discount to Old Styleclick's stock price
one week prior to announcement of the proposed transaction, and a 34.1% discount
to a 12.8% premium to Old Styleclick's stock price four weeks prior to
announcement of the proposed transaction.
COMPARABLE M&A TRANSACTION ANALYSIS
ING Barings reviewed and analyzed the publicly available financial terms of
six selected acquisition transactions in the Internet sector which, in ING
Barings' judgement, were reasonably comparable to the proposed transactions, and
compared the financial terms of such transactions to those of the proposed
transactions. A comparable acquisition analysis provides a valuation range based
upon financial information of companies which have been acquired in selected
recent acquisitions and which are in the similar industries as the business
being evaluated. The six transactions included:
- Excite@Home's acquisition of iMall
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- CDNow's acquisition of N2K
- Yahoo's acquisition of Broadcast.com
- America Online's acquisition of MovieFone
- America Online's acquisition of Netscape
- @Home's acquisition of Excite
ING Barings reviewed the prices paid in these transactions and analyzed
various operating and financial information and imputed valuation multiples and
ratios. Specifically, ING Barings reviewed for each transaction the target
company's enterprise value calculated as a multiple of last twelve months and
one-year forward revenues at the time of the announcement of each transaction.
ING Barings also looked at the implied premium one week and four weeks prior to
the announcement date that was paid to the shareholders of the target company.
ING Barings concluded that none of the target companies listed above were
directly comparable to Old Styleclick and therefore such merger and acquisition
transactions were not directly used to evaluate the fairness of the proposed
transactions.
FEE ARRANGEMENTS
Pursuant to an engagement letter between Old Styleclick and ING Barings
dated December 21, 1999, ING Barings earned a fee of $450,000 for rendering the
opinion and will also be reimbursed for certain related expenses. ING Barings'
compensation for its services in rendering the opinion was not contingent upon
the results of the opinion. Old Styleclick also agreed, under a separate
agreement, to indemnify ING Barings, its affiliates and each of its directors,
officers, agents and employees and each person, if any, controlling ING Barings
or any of its affiliates against certain liabilities, including liabilities
under the federal securities laws.
In the past, ING Barings and/or its affiliates have provided investment
banking and other financial services to Old Styleclick and have received fees
for rendering these services. ING Barings currently holds warrants to purchase
7,768 shares of common stock of Old Styleclick which it received for acting as
placement agent for Old Styleclick in connection with an April 1999 private
placement of Old Styleclick common stock to certain investors. ING Barings may
receive additional warrants and additional fees if some of those investors
exercise warrants that they currently hold that were issued in the private
placement. ING Barings and USANi Sub have entered into an agreement whereby ING
Barings has waived certain of its rights as a warrant holder in order to permit
the proposed transactions to proceed.
In the ordinary course of business, ING Barings and its affiliates may trade
the securities of Old Styleclick for their own accounts and for the accounts of
their customers and, accordingly, may at any time hold long or short positions
in such securities.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS OF OLD STYLECLICK IN THE
TRANSACTIONS
Some of the executive officers and members of the Board of Directors of Old
Styleclick have interests in the proposed transaction that are different from,
or in addition to, the interests of the shareholders of Old Styleclick
generally. These include provisions in the merger agreement relating to
indemnification and the acceleration or payout of benefits under existing
agreements. The Board of Directors of Old Styleclick was aware of these
interests and considered them in approving the merger agreement and the
contemplated transactions.
As discussed below, the merger agreement provides that, following the
merger, USANi Sub will cause New Styleclick to assume and honor certain existing
employment, warrant and stock option agreements between Old Styleclick and its
executive officers and directors.
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INDEMNIFICATION AND INSURANCE
The merger agreement provides that, following the merger, USANi Sub will
cause New Styleclick to indemnify (including the payment of any expenses,
settlements or judgments) each present and former director of Old Styleclick to
the fullest extent permitted under applicable law or Old Styleclick's articles
of incorporation or bylaws for acts or omissions occurring prior to the merger.
The merger agreement also provides that USANi Sub will cause New Styleclick
to maintain Old Styleclick's current policies of directors' and officers'
liability insurance for six years after the date of the merger on terms no less
favorable than the policies currently in effect. However, New Styleclick is not
obligated to pay for any annual premium that is greater than 150% of the
combined annual premiums of Old Styleclick and ISN during the twelve-month
period ended November 30, 1999.
OPTIONS AND WARRANTS
Old Styleclick has granted a number of options and warrants to purchase
shares in Old Styleclick. Under the terms of the merger agreement, these options
and warrants will be assumed by New Styleclick upon completion of the merger.
This means existing warrants and options to purchase shares of Old Styleclick
will become warrants or options to purchase shares of New Styleclick Class A
common stock. The terms, conditions and number of shares purchasable under the
options and warrants will remain otherwise unchanged.
Additionally, the following persons have options or warrants to purchase
common stock of Old Styleclick that become immediately exercisable upon a change
of control (which includes the proposed merger):
<TABLE>
<CAPTION>
NUMBER OF SHARES
PURCHASABLE IF
OPTIONS OR
WARRANTS
INDIVIDUAL EXERCISED
- ---------- ----------------
<S> <C>
Maurizio Vecchione.......................................... 133,334
Barry Hall.................................................. 150,000
Joyce Freedman.............................................. 133,334
Chris Conahan............................................... 50,000
F. Stephen Wyle*............................................ 15,000
Leslie Saleson*............................................. 15,000
Peter Frank*................................................ 15,000
</TABLE>
- ------------------------
* a non-employee director of Old Styleclick
EMPLOYMENT AGREEMENTS AND SEVERANCE PAYMENTS
As a condition to USANi Sub's obligation to close the merger, Mr. Vecchione
will enter into a new employment agreement with New Styleclick.
Mr. Freedman and Ms. Freedman have employment agreements with Old Styleclick
that provide for substantial severance payments to be made to each of them by
Old Styleclick upon a change of control if their employment agreements are not
assumed by the acquiring company. In the stockholders agreement that will be
entered into concurrently with the closing of the merger, Mr. Freedman and Ms.
Freedman each agree to automatic termination of their employment agreements on
the six-month anniversary of the closing of the merger without any severance or
other payments due.
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GOVERNMENTAL AND REGULATORY MATTERS
Filings with, notifications to and authorizations and approvals of various
governmental agencies with respect to the transactions contemplated by the
merger agreement must be made and received prior to the closing of the merger.
The closing of the merger is conditioned upon the expiration or termination
of the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. Early termination of the applicable
waiting period was granted on March 10, 2000.
At any time before or after the closing time of the merger, the FTC or the
Department of Justice may take action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to stop the
closing of the merger or ordering the sale of assets of New Styleclick or Old
Styleclick. Similarly, at any time before or after the closing of the merger,
any state could take any action under the antitrust laws as it deems necessary
or desirable in the public interest.
The respective obligations of Old Styleclick, ISN and USANi Sub to close the
merger are subject to the condition that no court or other governmental entity
having jurisdiction over Old Styleclick, ISN, USANi Sub or any of their
respective subsidiaries enters any injunction or other order (whether temporary,
preliminary or permanent) which restrains, enjoins or otherwise prohibits the
closing of the merger. See "The Merger Agreement--Conditions Precedent to the
Merger."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
TAX OPINION. Upon execution of the merger agreement, Old Styleclick
received an opinion from its counsel, Coudert Brothers, and USANi Sub received
an opinion from its counsel, Paul, Weiss, Rifkind, Wharton & Garrison, to the
effect that, for U.S. federal income tax purposes, the merger will qualify as a
tax-free reorganization under Section 368(a) of the Internal Revenue Code, and
that each of Old Styleclick, New Styleclick and USANi Sub will be a party to the
tax-free reorganization within the meaning of Section 368(b) of the Internal
Revenue Code. Closing of the merger is conditioned upon nothing occurring that
would prevent each counsel from delivering an opinion to the same effect at the
closing of the merger.
CONSEQUENCES OF REORGANIZATION STATUS. If the merger constitutes a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, and New Styleclick, Old Styleclick, ISN and the merger subsidiaries are
each a party to the reorganization within the meaning of Section 368(b) of the
Internal Revenue Code, then for U.S. federal income tax purposes:
- no gain or loss will be recognized by Old Styleclick shareholders or ISN
unitholders except with respect to any cash received for fractional share
interests;
- the tax basis of Old Styleclick shareholders and ISN unitholders in the
shares of New Styleclick common stock received in the merger will be equal
to their tax basis in the shares of Old Styleclick common stock or ISN
limited liability company units exchanged therefor;
- for purposes of determining whether gain or loss on the subsequent
disposition of New Styleclick common stock received in the merger is
long-term or short-term, the holding period of New Styleclick common stock
received by Old Styleclick shareholders and ISN unitholders will include
the holding period of the shares of Old Styleclick common stock or limited
liability company units exchanged, if the shares of Old Styleclick common
stock or limited liability company units were held as a capital asset.
Individual long-term capital gains, i.e. gains derived in respect of
capital assets held for more than one year, are eligible for reduced rates
of taxation;
- no gain or loss will be recognized by New Styleclick, Old Styleclick, ISN
or the merger subsidiaries as a result of the merger.
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You will be required to retain records and file a statement setting forth
certain facts relating to the merger with your U.S. federal income tax returns.
No information is provided herein with respect to the tax consequences, if
any, of the merger under applicable foreign, state, local or other tax laws.
THE OPINIONS OF COUDERT BROTHERS AND PAUL, WEISS, RIFKIND, WHARTON &
GARRISON ARE NOT BINDING ON THE INTERNAL REVENUE SERVICE. BECAUSE OF THE
COMPLEXITY OF THE TAX LAWS, AND BECAUSE THE TAX CONSEQUENCES OF THE MERGER TO
YOU MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN, YOU ARE URGED TO CONSULT
YOUR OWN TAX ADVISOR WITH RESPECT TO YOUR OWN PARTICULAR CIRCUMSTANCES,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS,
ESTATE TAX LAW AND PROPOSED CHANGES IN APPLICABLE TAX LAWS.
ANTICIPATED ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting,
with ISN treated as the acquiring entity for accounting purposes. For purposes
of preparing New Styleclick's consolidated financial statements, New Styleclick
will establish a new accounting basis for Old Styleclick's assets acquired and
liabilities assumed based upon their fair market values.
LIMITED APPRAISAL RIGHTS FOR OLD STYLECLICK SHAREHOLDERS
The following is a summary of the statutory procedure to be followed by a
dissenting shareholder of Old Styleclick in order to exercise his, her or its
dissenters' appraisal rights under Chapter 13 of the California Corporations
Code (CCC). This summary is not a complete statement of the law relating to
dissenters' appraisal rights and is qualified in its entirety by reference to
the full text of Chapter 13 of the CCC and any other relevant provisions of
California law. THIS DISCUSSION AND CHAPTER 13 OF THE CCC SHOULD BE REVIEWED
CAREFULLY BY ANY OLD STYLECLICK SHAREHOLDER WHO WISHES TO EXERCISE STATUTORY
DISSENTERS' APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO, SINCE
FAILURE TO COMPLY WITH THE PROCEDURES SET FORTH IN CHAPTER 13 OF THE CCC WILL
RESULT IN THE LOSS OR WAIVER OF DISSENTERS' APPRAISAL RIGHTS.
UNDER CALIFORNIA LAW, YOU ARE ONLY ENTITLED TO DISSENT FROM THE MERGER AND
SEEK THE FAIR VALUE OF YOUR OLD STYLECLICK COMMON STOCK IF YOU VOTED AGAINST THE
MERGER AND DEMANDS FOR APPRAISAL ARE FILED ON OR BEFORE THE MEETING WITH RESPECT
TO 5% OR MORE OF THE OUTSTANDING OLD STYLECLICK COMMON STOCK.
If the merger is approved by the holders of a majority of Old Styleclick's
outstanding common stock and 5% or more holders filed demands for appraisal on
or before the special meeting, each Old Styleclick shareholder who voted against
the merger and who follows the procedures set forth in Chapter 13 of the CCC
will be entitled to exercise dissenters' appraisal rights under the CCC and
thereby require Old Styleclick to purchase its shares for cash at fair market
value. Any Old Styleclick shares as to which dissenters' appraisal rights are
exercised will not be converted into the right to receive shares of New
Styleclick Class A common stock but instead will be converted into the right to
receive the fair market value of Old Styleclick shares. The fair value of the
shares will be determined as of the date before the first announcement of the
terms of the proposed merger, excluding any appreciation or depreciation in
consequence of the proposed merger (i.e., valuing Old Styleclick shares as if
the merger had not occurred) but adjusted for any stock split, reverse stock
split or stock dividend that becomes effective thereafter.
Shares of Old Styleclick common stock must satisfy each of the following
requirements to qualify as dissenting shares under California law:
- the shares of Old Styleclick common stock must have been outstanding on
the record date;
- the shares of Old Styleclick common stock must have been voted against the
merger;
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- the holder of the shares of Old Styleclick common stock must make a
written demand that Old Styleclick repurchase the shares of Old Styleclick
common stock at fair market value which must be received by Old Styleclick
before the special meeting; and
- the holder of the shares of Old Styleclick common stock must submit the
share certificates for endorsement.
Within 10 days after the date of the approval of the merger, Old Styleclick
must mail a notice of the approval of the merger to each shareholder who holds
dissenting shares, together with a statement of the price determined by Old
Styleclick to represent the fair market value of Old Styleclick shares, a brief
description of the procedure to be followed in order for the shareholder to
pursue dissenters' appraisal rights, and a copy of Sections 1300 to 1304 of
Chapter 13 of the CCC. The statement of price by Old Styleclick constitutes an
offer by Old Styleclick to purchase all properly dissenting shares at the stated
amount.
In order to exercise rights as a dissenting shareholder, within 30 days
after the date on which notice of the approval of the merger is mailed to
dissenting shareholders, Old Styleclick must receive a dissenting shareholder's
written demand that Old Styleclick repurchase such shareholder's dissenting
shares. This demand must set forth (1) the number and class of dissenting shares
held of record by such shareholder that the shareholder demands that Old
Styleclick purchase and (2) a statement of what the shareholder claims to be the
fair market value of the dissenting shares as of the day before the announcement
of the proposed merger. The statement of fair market value set forth in demand
by the dissenting shareholder constitutes an offer by the shareholder to sell
the dissenting shares at such price to Old Styleclick. The dissenting
shareholder must also submit to Old Styleclick, within 30 days after the date on
which notice of the approval of the merger was mailed to shareholders, share
certificates representing any dissenting shares that the shareholder demands
that Old Styleclick purchase, so that these dissenting shares may be either
endorsed with the statement that they are dissenting shares or exchanged for
certificates stamped with a similar endorsement.
If the shareholder and Old Styleclick agree that the shares qualify as
dissenting shares and agree upon the price of the shares, the shareholder will
be entitled to the agreed upon price plus the legal rate of interest on
judgments from the date of the agreement. This amount is to be paid to the
shareholder within the later of 30 days after the date of the agreement or 30
days after any statutory or contractual conditions to the closing of the merger
are satisfied or waived upon the shareholder's surrender of certificates
representing the dissenting shares to Old Styleclick.
If the shareholder and Old Styleclick fail to agree upon the fair market
value of the dissenting shares or whether the shares qualify as dissenting
shares, the shareholder may file a complaint in California superior court within
six months after the date on which notice of the approval of the merger is
mailed requesting that the court determine the fair market value of the
dissenting shares and/ or whether the shares qualify as dissenting shares.
California law provides that a shareholder may not withdraw the demand for
payment of the fair market value of dissenting shares unless Old Styleclick
consents to such request for withdrawal.
Under the provisions of Section 500 and Section 1306 of the CCC, a
California corporation is legally prohibited from purchasing shares of stock
through the payment of cash or other property, even if all dissenters' appraisal
rights conditions are fulfilled, unless the corporation satisfies specified
financial conditions. Due to these legal restrictions, Old Styleclick may not
legally be able to repurchase all or any dissenting shares for cash following
the merger.
To the extent that the provisions of the CCC prohibit cash payments to
holders of dissenting shares, the dissenting shareholders will become creditors
of Old Styleclick for an amount equal to the fair market value of their shares
plus accrued interest until the date of payment. The rights of the
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<PAGE>
dissenting shareholders, however, will be subordinate to the rights of all other
creditors of Old Styleclick in any liquidation proceeding.
Dissenting shareholders considering seeking appraisal should be aware that
the fair market value of their shares of common stock, as determined under
Chapter 13 of the CCC, could be more than, the same as or less than the value of
the consideration they would receive pursuant to the merger agreement. The costs
and expenses of the appraisal proceeding will be determined by the court and
assessed against Old Styleclick. However, if a court determines that the
dissenting shareholder did not act in good faith in demanding payment, the court
may assess the costs and expenses against the dissenting shareholder.
If any Old Styleclick shareholder who demands the purchase of his, her or
its shares under Chapter 13 of the CCC fails to perfect, or effectively
withdraws or loses his, her or its right to the purchase, the shares of the
holder will be converted into a right to receive the merger consideration.
Dissenting shares lose their status as dissenting shares and the holders of
dissenting shares cease to be dissenting shareholders and cease to be entitled
to require Old Styleclick to purchase their shares if:
- the merger is abandoned;
- the shares are transferred prior to their submission for the required
endorsement;
- the dissenting shareholder and Old Styleclick do not agree upon the status
of the shares as dissenting shares or do not agree on the purchase price,
but neither Old Styleclick nor the shareholder files a complaint or
intervenes in a pending action within six months after the mailing of the
notice of approval of the merger; or
- with Old Styleclick's consent, the shareholder delivers to New Styleclick
a written withdrawal of such shareholder's demand for purchase of his, her
or its shares.
Except as expressly limited by provisions of California law pertaining to
dissenters' rights, holders of dissenting shares continue to have all the rights
and privileges incident to their shares until the fair market value of their
shares is agreed upon or determined.
FAILURE TO FOLLOW THE STEPS REQUIRED BY CHAPTER 13 OF THE CCC FOR PERFECTING
DISSENTERS' APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH
EVENT A SHAREHOLDER WILL BE ENTITLED TO RECEIVE THE MERGER CONSIDERATION WITH
RESPECT TO THE DISSENTING SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT). IN
VIEW OF THE COMPLEXITY OF THE PROVISIONS OF CHAPTER 13, OLD STYLECLICK
SHAREHOLDERS WHO ARE CONSIDERING OBJECTING TO THE MERGER SHOULD CONSULT THEIR
OWN LEGAL ADVISORS.
LISTING OF NEW STYLECLICK COMMON STOCK
It is a condition to closing of the merger that the Class A common stock of
New Styleclick be authorized for quotation on the Nasdaq National Market or any
other national securities exchange or automated quotation system approved by Old
Styleclick, ISN and USANi Sub. New Styleclick has applied to have its Class A
common stock listed on the Nasdaq National Market.
DELISTING AND DEREGISTRATION OF OLD STYLECLICK COMMON STOCK
If the merger is completed, Old Styleclick common stock will be delisted
from the Nasdaq National Market and will be deregistered under the Securities
Exchange Act of 1934 prior to the closing of the merger.
RESALES OF NEW STYLECLICK COMMON STOCK
New Styleclick Class A common stock to be issued under the merger agreement
will be registered under the Securities Act. This registration allows these
shares to be freely traded without restriction by
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all former Old Styleclick shareholders and ISN unitholders who are not
"affiliates" of Old Styleclick or ISN, respectively, at the time that the
shareholders or unitholders approve the merger and who do not become
"affiliates" of New Styleclick after the merger. Persons who may be deemed to be
affiliates of New Styleclick, Old Styleclick or ISN generally include
individuals or entities that control, are controlled by, or are under common
control with, New Styleclick, Old Styleclick or ISN and may include officers and
directors of New Styleclick, Old Styleclick and ISN, as well as significant
shareholders.
Shares of New Styleclick Class A common stock received by those Old
Styleclick shareholders or ISN unitholders who are deemed to be affiliates of
Old Styleclick or ISN may be resold without registration under the Securities
Act only as permitted by Rule 145 under the Securities Act or as otherwise
permitted under the Securities Act.
This proxy statement/prospectus does not cover resales of New Styleclick
Class A common stock received by any person who may be deemed to be an affiliate
of New Styleclick, Old Styleclick or ISN.
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THE MERGER AGREEMENT
This section of the proxy statement/prospectus describes the material
provisions of the merger agreement. While New Styleclick believes that the
description covers the material terms of the merger agreement, this summary is
necessarily incomplete and may not contain all of the information that is
important to you. For more detailed information, you should review the merger
agreement, which is attached to this proxy statement/prospectus as Annex A and
incorporated by reference in this proxy statement/prospectus.
THE MERGER
The merger agreement provides for New Styleclick, a newly-formed subsidiary
of USANi Sub, to form two wholly-owned subsidiaries: Styleclick Merger Sub, a
California corporation, and ISN Merger Sub, a Delaware limited liability
company. Following the approval and adoption by the shareholders of Old
Styleclick of the merger agreement and the merger and the satisfaction or waiver
of the other conditions to the merger, Styleclick Merger Sub and ISN Merger Sub
will be merged with and into Old Styleclick and ISN, respectively. As a result
of the mergers, Old Styleclick and ISN will become wholly owned subsidiaries of
New Styleclick.
Immediately prior to the mergers, USAi or its affiliates will contribute
approximately $40 million in cash and agree to provide $10 million in
advertising and promotional services to New Styleclick in exchange for an
issuance of approximately 2,700,000 shares of New Styleclick Class B common
stock to USANi Sub. In addition, at the time of the mergers, Old Styleclick will
issue a warrant to USAi to purchase approximately 12,800,000 shares of New
Styleclick Class B common stock for a purchase price of $11.50 per share.
The merger will become effective upon both the filing of an agreement of
merger with the Secretary of State of the State of California relating to the
Styleclick merger and the filing of a certificate of merger with the Secretary
of State of the State of Delaware relating to the ISN merger.
CONVERSION OF OLD STYLECLICK COMMON STOCK
Upon the merger's effectiveness, each share of common stock of Old
Styleclick will be converted into one share of Class A common stock of New
Styleclick. The Class A common stock of New Styleclick will have the rights
described in "Comparison of the Rights of New Styleclick Shareholders and Old
Styleclick Shareholders."
CONVERSION OF ISN UNITS
Each limited liability company unit of ISN (other than units held by USANi
Sub) will be converted into 0.601 shares of Class A common stock of New
Styleclick, and each limited liability company unit of ISN held by USANi Sub
will be converted into 0.601 shares of Class B common stock of New Styleclick.
The Class A common stock of New Styleclick and the Class B common stock of New
Styleclick will have the rights described in "Comparison of the Rights of New
Styleclick Shareholders and Old Styleclick Shareholders."
EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF CERTIFICATES
USANi Sub will select an exchange agent for the purpose of effecting the
exchange of New Styleclick shares for Old Styleclick shares and ISN units. As of
the effective time of the merger, New Styleclick will deposit shares of New
Styleclick Class A common stock with the exchange agent to be delivered in
exchange for shares of Old Styleclick common stock and ISN units. After the
effective time of the merger, New Styleclick also will deposit with the exchange
agent any dividends or distributions payable on New Styleclick Class A common
stock to cover any dividends or distributions payable on
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shares of Old Styleclick common stock that have not yet been exchanged for
shares New Styleclick Class A common stock.
As soon as practicable after the effective time of the merger, a letter of
transmittal will be mailed to you. The letter of transmittal must be used in
forwarding certificates evidencing Old Styleclick common stock and ISN units for
exchange for certificates evidencing New Styleclick Class A common stock and, if
applicable, any unpaid dividends. The letter of transmittal will be accompanied
by instructions specifying details of the exchange. After receipt of the letter
of transmittal, you should surrender your certificates to the exchange agent in
accordance with the instructions accompanying the letter of transmittal. In
exchange for your Old Styleclick certificates and ISN units, you will receive a
new certificate evidencing the whole number of shares of New Styleclick Class A
common stock to which you are entitled and any unpaid dividends and
distributions which you have the right to receive pursuant to the merger
agreement, after deducting any required withholding tax.
After the effective time of the merger, each certificate evidencing Old
Styleclick common stock, until surrendered and exchanged, will be deemed to
represent only the right to receive, upon surrender, a certificate representing
shares of New Styleclick Class A common stock and any unpaid dividends and
distributions as provided above.
YOU SHOULD NOT FORWARD YOUR OLD STYLECLICK OR ISN CERTIFICATES WITH THE
ENCLOSED PROXY CARD, NOR SHOULD YOU SEND IN YOUR OLD STYLECLICK CERTIFICATES TO
THE EXCHANGE AGENT, UNTIL YOU HAVE RECEIVED A TRANSMITTAL LETTER.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary mutual representations and
warranties by each of Old Styleclick, ISN and New Styleclick, including:
- organization, good standing, qualification, corporate power and similar
corporate matters;
- the charter documents of Old Styleclick and ISN;
- capitalization;
- authorization, execution, delivery, performance and enforceability of the
merger agreement;
- required filings with governmental entities in connection with the
mergers;
- the absence of conflicts, violations and defaults under charter documents
and certain other agreements and documents;
- documents and reports filed by Old Styleclick with the SEC and the
accuracy and completeness of the information contained in the documents
and reports;
- the absence of certain changes in Old Styleclick and ISN's respective
businesses, properties, results of operations and financial conditions;
- the absence of certain litigation and liabilities;
- compliance with laws and permits;
- environmental and tax matters; and
- brokers and finders' fees.
In addition, the merger agreement contains additional representations and
warranties of Old Styleclick relating to, among other things:
- employee matters;
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- intellectual property; and
- takeover defense mechanisms.
All representations and warranties of Old Styleclick, ISN and New Styleclick
expire at the effective time of the merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Under the terms of the merger agreement, Old Styleclick has agreed that from
the date of the merger agreement through the effective time of the merger, it
will, and will cause its subsidiaries to, conduct its business in the ordinary
and usual course and use all reasonable efforts to preserve its business
organization intact. Old Styleclick also has agreed to maintain its existing
relationships with customers, suppliers, contractors, distributors, licensors,
licensees and others having business dealings with them to the end that Old
Styleclick's goodwill and ongoing businesses shall not be impaired in any
material respect at the closing date.
NO SOLICITATION BY OLD STYLECLICK
Under the terms of the merger agreement, Old Styleclick has agreed not to
solicit or encourage any alternative business combination transaction, including
a merger, recapitalization, sale of assets or sale of 15% or more of the equity
of Old Styleclick. However, Old Styleclick is permitted to furnish information
to third parties who make a transaction proposal which the Board of Old
Styleclick believes after receipt of an opinion from a financial advisor, is
more favorable than the transaction contemplated by this proxy
statement/prospectus. In addition, the Old Styleclick Board may engage in
discussions or negotiations with those third parties and make disclosures of the
Board's position with respect to the third parties required under the Securities
Exchange Act of 1934, as amended, after it receives an opinion from a financial
advisor that the transaction proposed by a third party is more favorable than
the transactions contemplated in this proxy statement/prospectus and an opinion
from legal counsel that failure to do so would constitute a failure to comply
with its fiduciary duties.
CONDITIONS PRECEDENT TO THE MERGER
The respective obligations of New Styleclick, Old Styleclick and ISN to
effect the mergers are subject to the fulfillment or waiver of the following
conditions at or prior to the mergers:
- approval of the merger agreement by Old Styleclick shareholders;
- listing on the Nasdaq National Market of the shares of New Styleclick
common stock you will receive in connection with the merger;
- expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 as amended;
- receipt of all required consents or approvals of, or the making of all
required filings with, any governmental entity;
- absence of any law, statute, ordinance, rule, regulation, judgment,
decree, injunction or other order restraining, enjoining or otherwise
prohibiting the merger;
- effectiveness of the registration statement and the absence of any stop
order suspending the effectiveness of the registration statement; and
- receipt by New Styleclick of all necessary state securities and "blue sky"
approvals.
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The obligations of USANi Sub to effect the mergers are also subject to the
fulfillment or waiver at or prior to the mergers of the following additional
conditions:
- each of the representations and warranties of Old Styleclick being true
and correct in all material respects when made and at and as of the
closing date as if they were made at and as of the closing date;
- performance in all material respects by Old Styleclick of its obligations
under the merger agreement and the other transaction documents;
- there is no change in circumstances that would cause Paul, Weiss, Rifkind,
Wharton & Garrison not to be able to issue an opinion to the effect that
the mergers will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the
Code and that each of Old Styleclick, New Styleclick and the merger
subsidiaries will be a party to the reorganization within the meaning of
Section 368(b) of the Code; and
- there is no material adverse change to with respect to the business of Old
Styleclick;
- no more than 10% of the shareholders of Old Styleclick shall have demanded
appraisal rights for their shares;
- an employment agreement between New Styleclick and Maurizio Vecchione
shall have been executed;
- the receipt of waiver agreements from certain warrant holders of Old
Styleclick.
The obligation of Old Styleclick to effect the merger is also subject to the
fulfillment or waiver at or prior to the effective time of the merger of the
following additional conditions:
- each of the representations and warranties of USANi Sub being true and
correct in all material respects when made and at and as of the closing
date as if they were made at and as of the closing date;
- performance in all material respects by USANi Sub of its obligations under
the merger agreement and the other transaction documents;
- there is no change in circumstances that would cause Coudert Brothers not
to be able to issue an opinion to the effect that the merger will be
treated for federal income tax purposes as a reorganization qualifying
under the provisions of Section 368(a) of the Code and that each of Old
Styleclick, New Styleclick and the merger subsidiaries will be a party to
the reorganization within the meaning of Section 368(b) of the Code;
- New Styleclick owning 100% of the capital stock of the merger
subsidiaries; and
- the execution and delivery of all other transaction documents by each
party.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
Old Styleclick will indemnify and hold harmless, to the fullest extent
permitted under applicable law, each present and former director and officer of
Old Styleclick and of ISN and their subsidiaries against any costs or expenses,
including reasonable attorneys' fees, judgments, fines, losses, claims, damages
or liabilities incurred in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or investigative,
arising out of pertaining to matters existing or occurring at or prior to the
merger, including the transactions contemplated by the merger agreement.
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Old Styleclick also will advance expenses to the indemnified parties as
incurred to the fullest extent permitted under applicable law if the person to
whom expenses are advanced provides a commitment to repay the advances if it is
ultimately determined that the indemnified party is not entitled to
indemnification.
For a period of six years after the effective time of the merger, New
Styleclick will use its best efforts to maintain officers' and directors'
liability insurance covering those persons in both Old Styleclick and ISN who
are currently covered by such policies if the annual premium for the insurance
is not in excess of 150% of the combined premiums of Old Styleclick and ISN for
the 12 months ended November 30, 1999.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the completion
of the merger by mutual written consent of Old Styleclick and USANi Sub, or by:
- either USANi Sub or Old Styleclick, if there is a material breach of any
representation, warranty, covenant or agreement by the other party and
that breach has not been cured, if capable of being cured, within 20
business days after receipt of written notice of the breach;
- either USANi Sub or Old Styleclick, if the merger has not been completed
by July 31, 2000, but neither USANi Sub nor Old Styleclick can terminate
if the reason that the merger has not been completed is its own breach;
- either USANi Sub or Old Styleclick, if the shareholders of Old Styleclick
fail to approve the merger agreement at the special meeting or any
adjournment of the meeting;
- either USANi Sub or Old Styleclick, if a court or other governmental
entity issues a final and nonappealable injunction, order, decree or
ruling, or takes other similar action, prohibiting either Old Styleclick
or USANi Sub from completing the merger;
- USANi Sub, if Old Styleclick's Board of Directors changes its
recommendation to its shareholders in a manner adverse to USANi Sub or
recommends an alternate transaction or fails to recommend opposition to an
alternate transaction;
- Old Styleclick, if Old Styleclick's Board of Directors determines in good
faith that an alternative transaction proposal by a third party is a
superior proposal, receives an opinion from its counsel that if it does
not recommend the alternate proposal it would be a breach of their
fiduciary duties, receives an opinion from its financial advisers that the
alternative transaction proposal is superior financially for the
shareholders of Old Styleclick, New Styleclick does not adjust the terms
of the proposed transaction within five business days of notice of the
superior proposal and Old Styleclick executes a definitive agreement with
respect to the superior proposal.
TERMINATION FEE AND EXPENSES
Old Styleclick must pay ISN a termination fee of approximately $5.5 million
if the merger agreement is terminated under any of the following circumstances:
- Old Styleclick's shareholders do not approve the merger at the special
meeting and an alternate transaction with a third party was announced
before the special meeting or is consummated within one year of the date
of the special meeting or any adjournment of the special meeting; or
- the Board of Directors of Old Styleclick withdraws its recommendation of
the merger and recommends an alternate transaction with a third party or
resolves to terminate the merger agreement in order to enter into an
alternate transaction with a third party which it regards as superior,
from a financial point of view, to the merger.
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An alternate transaction is any business combination or similar transaction
which:
- would impede the merger;
- any sale or other disposition of 15% or more of the assets of Old
Styleclick; or
- the acquisition by any person of 15% or more of the issued shares of Old
Styleclick.
A superior alternate transaction is any proposal to acquire 75% or more of
the outstanding shares of Old Styleclick that the Board of Directors of Old
Styleclick determines is more favorable from a financial point of view to Old
Styleclick shareholders than the present proposed transaction.
The merger agreement provides that each of Old Styleclick, ISN and USANi Sub
will pay its own costs and expenses in connection with the merger agreement and
the related transactions, whether or not the merger is completed.
AMENDMENT
At any time prior to the merger, the parties to the merger agreement may
modify or amend the merger agreement.
WAIVER
The conditions to each party's obligations to close the merger may be waived
by such party in whole or in part. If a material condition is waived by Old
Styleclick, Old Styleclick will notify Old Styleclick shareholders by
resoliciting a proxy statement.
OPTIONS TO PURCHASE OLD STYLECLICK SHARES AND ISN UNITS
At the effective time of the merger, each outstanding Old Styleclick stock
option that has not been exercised will become and represent an option to
purchase one share of New Styleclick Class A common stock. The exercise price
per share of New Styleclick common stock will be equal to the exercise price per
share of Old Styleclick common stock immediately prior to the merger. After the
merger, each New Styleclick option will be exercisable upon the same terms,
conditions and restrictions as were applicable to the Old Styleclick options
immediately prior to the merger.
At the effective time of the merger, each outstanding option to purchase a
limited liability company unit of ISN that has not been exercised will become
and represent an option to purchase 0.601 shares of New Styleclick Class A
common stock. The exercise price per share of New Styleclick Class A common
stock shall be the exercise price per ISN unit immediately prior to the merger
times 1.664. After the merger, each substitute option will be exercisable upon
the same terms, conditions and restrictions as were applicable to the related
ISN option immediately prior to the merger.
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DESCRIPTION OF RELATED AGREEMENTS
It is a condition to the closing of the merger agreement that specified
related transaction documents are executed and delivered. The following are
summaries of the material provisions of those documents. These summaries are not
complete. For more detailed information you should review the agreements in
their entirety. The agreements are incorporated herein by reference.
CREDIT AGREEMENT AND RELATED DOCUMENTS
In order to provide Old Styleclick with short-term working capital funds,
and in connection with the merger, USAi has made available to Old Styleclick a
one-year line of credit in the aggregate principal amount of $10 million. The
terms and conditions of the bridge loan are set forth in the credit agreement,
dated January 24, 2000, between USAi and Old Styleclick. The loan is evidenced
by a promissory note issued by Old Styleclick to USAi and secured by the
collateral agreement between USAi and Old Styleclick. The loan bears interest at
7.5% per year for amounts outstanding. In connection with the collateral
agreement, Old Styleclick has entered into a bridge loan warrant agreement with
USAi and delivered to USAi a warrant for 328,084 shares of Old Styleclick's
common stock at an exercise price of $19.05. The loan is to be repaid on the
earlier of (1) closing of the merger or (2) January 24, 2001, subject to early
termination in some circumstances.
MEDIA WARRANTS
In connection with the proposed transactions, New Styleclick will issue USAi
a warrant to purchase the number of shares of Class B common stock of New
Styleclick, at $11.50 per share such that, immediately following the effective
time of mergers, on a fully diluted basis, the former ISN unitholders and
optionholders will hold 75% of the common stock of New Styleclick, which will be
approximately 12,800,000 shares. Under the terms of the agreement, USAi may
exercise the warrant without payment of cash by electing to receive only the
number of shares equal to the increase in the value of the warrant divided by
the market price of the shares at the time of exercise. USAi may pay up to 50%
of the exercise price of the warrant in the form of advertising and promotional
services provided to New Styleclick. The agreement also contains provisions
designed to protect the warrant from being diluted, or otherwise diminishing in
value, and prohibits New Styleclick from entering into other transactions which
may have an adverse impact on the rights of USAi.
LICENSE AGREEMENT
Under the license agreement, New Styleclick, Old Styleclick and ISN each
grants to USAi a perpetual non-exclusive worldwide license to use all of their
proprietary technology, including rights to sub-license the intellectual
property where it is necessary for USAi to sell products or services
incorporating the licensed technology. The royalty fees for any licensed
technology not licensed to third parties are to be determined by the parties
based on the fair market value of the license. The royalty fees for any licensed
technology licensed to third parties are to be the lower of the lowest fee
payable by any comparable third party and the fair market value of the license.
While New Styleclick is a controlled subsidiary of USAi, USAi agrees to provide
business services to New Styleclick, including fulfillment, teleservices,
commercials, database marketing, call center operations, customer care and other
services that USAi provides to third parties. The terms on which these services
will be offered will be negotiated between the parties and shall be no less
favorable than the terms provided by USAi to any comparable third party.
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STOCKHOLDERS AGREEMENT
Under the stockholders agreement, New Styleclick, USAi, USANi Sub, Joyce
Freedman, Lee Freedman and Maurizio Vecchione will agree:
- to take all reasonable actions within each of the parties' control to
elect a Board of Directors of New Styleclick comprised of six directors
nominated by USANi Sub, two directors nominated by Joyce Freedman, Lee
Freedman and Maurizio Vecchione, collectively, and three outside directors
appointed by the Board of New Styleclick;
- that New Styleclick will not dispose of substantially all its assets, or
enter into any business combination, reorganization or other extraordinary
transaction without the approval and recommendation of a special committee
of the New Styleclick Board of Directors comprised solely of directors
other than directors appointed by USANi Sub and only after the special
board committee has obtained an opinion from a nationally recognized
investment banking firm to the effect that the extraordinary transaction
is fair to shareholders from a financial point of view;
- that, with some exceptions, USANi Sub or its affiliates will not transfer
their shares in New Styleclick to any third party for 18 months following
the merger and that principle shareholders Joyce Freedman, Lee Freedman
and Maurizio Vecchione will not transfer their shares in New Styleclick to
any third party for six months following the merger. The exceptions relate
to sales between the principal shareholders, sales by parties with the
consent of the other principal shareholders and some private sales where
the transferee agrees to be bound by the transfer restrictions in the
Stockholders Agreement;
- to register the shares held by Joyce Freedman and Lee Freedman if New
Styleclick proposes to file a registration statement with respect to an
offering of securities by New Styleclick within six months of the merger;
and
- to the termination of the employment agreements between each of Joyce
Freedman and Lee Freedman and Old Styleclick.
REGISTRATION RIGHTS AGREEMENT
Under the registration rights agreement, New Styleclick will grant
registration rights to USAi and USANi Sub, or any of their permitted
transferees, with respect to the New Styleclick securities they hold, in the
following circumstances:
- at any time after 18 months from the date of the merger, if USAi, USANi
Sub or their transferees requests registration of its Class B Common Stock
under the Securities Act. However, New Styleclick will not be required to
file a registration between the effective date of a registration statement
filed by New Styleclick and the end of any lock-up period in connection
with that registration statement; and
- at any time after 18 months from the close of the merger, if New
Styleclick proposes to file a registration statement under the Securities
Act with respect to an offering of capital stock by New Styleclick other
than a registration statement in connection with a business combination or
an employee benefits plan. New Styleclick must give 30 days notice to
USAi, USANi Sub and their permitted transferees of the proposed
registration and must use reasonable best efforts to include their
securities in the offering if requested.
OPTION AGREEMENT
Under the terms of the option agreement entered into on the date of the
merger agreement, Old Styleclick granted to USANi Sub an irrevocable option to
purchase up to 19.9% of the shares of
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common stock of Old Styleclick at a price of $17.50 per share. The option is
exercisable at any time following:
- the acquisition by any person of 15% or more of the outstanding common
stock of Old Styleclick;
- the commencement or announcement of a tender offer for 15% or more of the
outstanding common stock of Old Styleclick;
- the withdrawal or modification of the Old Styleclick Board of Directors'
recommendation of the proposed merger in a manner adverse to ISN or USANi
Sub, the failure of Old Styleclick's Board to recommend against a
transaction proposal by a third party or its recommendation of a superior
transaction proposal by a third party; or
- the failure of the shareholders of Old Styleclick to approve the merger at
the special meeting and prior to the meeting a transaction proposal by a
third party has been announced or, within 12 months following termination
of the merger agreement, Old Styleclick definitively agrees to a
transaction proposal by a third party.
In connection with the grant of the option, Old Styleclick also granted
registration rights to USANi which may be exercised at any time within three
years of USANi Sub exercising the option. USANi Sub may request registration of
the shares underlying the option no more than twice during this period. The
total profit that USANi is permitted to make on the exercise of the option, when
combined with any termination fee payable under the merger agreement, is limited
to $5.5 million.
The option agreement was entered into by Old Styleclick and USANi Sub
concurrently with the execution of the merger agreement in a effort to increase
the likelihood that the merger will be completed in accordance with the terms
set forth in the merger agreement. Consequently, the option agreement may have
the effect of discouraging persons who are now, or prior to the merger may be,
interested in merging with or acquiring a significant equity interest in Old
Styleclick or proposing an acquisition. In addition, the grant of the option to
USANi Sub may make it impossible for any third party to close a transaction with
Old Styleclick on a pooling of interests basis.
VOTING AND FIRST OFFER AGREEMENTS
Each of Joyce Freedman, Maurizio Vecchione, Lee Freedman and Intel
Corporation have entered into voting and first offer agreements with USANi Sub
agreeing to certain transfer restrictions and to vote their shares in favor of
the merger. As of January 24, 2000, the date the voting and first offer
agreements were executed Ms. Freedman, Mr. Vecchione, Mr. Freedman and Intel
Corporation hold 2,519,036 shares of Old Styleclick common stock, representing
approximately 32.6% of outstanding Old Styleclick common stock.
WAIVER AGREEMENTS
Some of Old Styleclick's shareholders who had purchased Old Styleclick
securities in a private placement in April 1999 entered into agreements with
USANi Sub agreeing to waive or modify provisions of the agreement executed in
connection with the private placement and their warrant agreements.
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NEW STYLECLICK'S BUSINESS
CORPORATE OVERVIEW
New Styleclick was incorporated in Delaware on March 22, 2000 by USANi Sub
in connection with the mergers. New Styleclick will be the parent company for
Old Styleclick and ISN, each of which will merge into a wholly-owned subsidiary
of New Styleclick in separate merger transactions. New Styleclick has applied
for listing on the Nasdaq National Market under the symbol "IBUY," which is
currently used by Old Styleclick.
BUSINESS OVERVIEW
New Styleclick plans to leverage the strengths and expertise of Old
Styleclick, ISN and USAi and its affiliates to seize upon opportunities created
by the rapid growth in, and evolution of, e-commerce. New Styleclick will be a
broad based Internet merchandising solutions company that provides technology
and services to run merchandise websites and also will sell products directly
through websites it owns and operates. Specifically, New Styleclick will sell
website and digital content development services and merchandising services and
will facilitate fulfillment and customer services. New Styleclick will provide
the technological platform to distribute products through other affiliated
websites. New Styleclick will sell "lifestyle" products such as apparel,
jewelry, accessories, cosmetics, footwear, home decorating and home improvement
products. Sales of products in these fashion-related target markets already
constitute substantial industries which should continue to grow on the Internet
as e-commerce evolves to encompass a fuller range of goods than has been typical
of existing e-commerce traffic in books, music CDs, software and computer
equipment. New Styleclick expects to benefit from cross marketing and tie-ins
with USA Network, Home Shopping Network, Ticketmaster Online City Search and
other USAi affiliates.
INDUSTRY BACKGROUND
The Internet is a highly interactive medium enabling the merchandiser to
customize online stores and advertising and promotional materials and to target
specific consumer groups and individuals. Jupiter Communications, an independent
Internet market research organization, estimates that the number of people
shopping on the Internet will increase from 10 million in 1997 to 61 million in
2002. Jupiter estimates that shoppers will increase their spending on products
offered on the Internet from $2.6 billion in 1997 to $41 billion in 2002.
According to Jupiter, apparel now ranks among the top five product categories
for Internet sales. The management of New Styleclick believes that the volume of
online sales of apparel, jewelry, accessories and other lifestyle-related
products will grow quickly as the Internet develops as a commercial platform,
and the management of New Styleclick believes that it is well positioned to
capitalize on this market opportunity. The management of New Styleclick believes
that the Internet is particularly well-suited for promoting, marketing and
selling merchandise such as apparel, jewelry and related accessories and
lifestyle products.
COMPETITIVE ADVANTAGES
New Styleclick will be able to offer a complete e-merchandising solution to
outside third parties, affiliates of USAi and its own e-commerce websites. These
capabilities include the following:
TECHNOLOGY PLATFORM. Old Styleclick has developed and deployed a technology
platform that it uses to manage website content and to place that content in a
targeted location with related products and editorial and descriptive
information in a real-time fashion. New Styleclick refers to this technology as
contextual merchandising. It uses this technology in the websites that it
manages and for its syndication network.
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MERCHANDISING EXPERTISE. The employees of ISN are experienced merchants who
understand merchandising, inventory control and product sourcing. They use
contextual merchandising to create immediacy in the purchasing process and
create opportunities for up-selling and cross-selling (e.g., multiple related
purchases).
PROMOTIONAL CAPABILITIES. As a majority-owned subsidiary of USAi, New
Styleclick will be affiliated with a diversified media and e-commerce company
that reaches millions of consumers through a variety of direct and indirect
marketing methods. New Styleclick intends to leverage this relationship into
contractual arrangements that will allow it to efficiently reach USAi's broad
customer base.
LOGISTICAL CAPABILITIES. Through ISN and Old Styleclick, New Styleclick
will have contractual relationships with USAi's Electronic Commerce and Services
division and the systems to interface with independent third parties for
fulfillment and customer service.
REVENUES FROM BUSINESS-TO-BUSINESS SERVICES
New Styleclick will generate revenue by enabling manufacturers and retailers
to establish an e-commerce presence on the Internet and utilize our
e-merchandising strategy. The services to be provided include website
development and management, development and maintenance of digital content in
the form of e-catalogs and distribution and management of products to our
network of distributed e-commerce affiliates. Revenues are earned directly for
services performed and/or from commissions on the sales of products through the
website.
WEBSITE DEVELOPMENT. New Styleclick will be able to build highly customized
websites via a new proprietary technology called "servlet explosion," which
allows it to use templates that can be customized quickly and efficiently with
minimum programming. As a result of this technology, New Styleclick's costs in
developing websites are expected to be below the industry norm.
DEVELOPMENT AND MAINTENANCE OF DIGITAL CONTENT. New Styleclick will own
technology for content creation that allows it to build and manage complex
electronic catalogs efficiently. This process is often a major bottleneck in the
implementation of e-commerce websites.
COMMISSIONS FROM E-COMMERCE TRANSACTIONS. New Styleclick will manage and
operate third party websites on behalf of its customers' brands and will build
on its current customer base which includes Cindy Crawford's Cindystore.com
(fashion and fan information), Daisyfuentesstore.com (fashion and fan
information), Hunterdouglas.com (window fashions), jennalanegroup.com (women's
apparel), Pingcollectionstore.com (golfwear), Susandunn.com (robes and spa
wear), Pjsalvage.com (sleepwear), and Freestyleusa.com (sports watches).
E-COMMERCE MANAGEMENT. New Styleclick will manage the entire transaction
with the customer, including merchandising, billing, fulfillment and customer
service. Fulfillment and customer service will be outsourced to either a
division of USAi or an independent third party.
DISTRIBUTED E-COMMERCE. New Styleclick will have a strong network of
partner websites, referred to as the syndication network, including major
portals such as AOL, Excite, Netscape, iVillage, Women.com and Oxygen Media and
will continue to build these relationships and this network. Arrangements with
partner websites will allow New Styleclick to manage e-commerce venues inside
those portals, which can be merchandised with products from New Styleclick's
customers. As a result, New Styleclick can provide its customers with prime
placement in some of the most valuable locations on the Internet, effectively
extending the consumer reach of any website that it manages. Furthermore, by
distributing content in the form of e-merchandising to its syndication network,
the portals can sell merchandise and earn commissions without the customer
leaving the website portal.
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REVENUES FROM BUSINESS-TO-CONSUMER TRANSACTIONS
New Styleclick will sell products through its e-commerce websites:
FirstAuction.com, FirstJewelry.com, Styleclick.com and Fashiontrip.com. The
products sold on these websites will be targeted at the online female shopper.
New Styleclick's management believes that this is a growing yet underserved
market for e-commerce on the Internet.
FIRSTAUCTION.COM. FirstAuction.com is a business-to-consumer Internet
auction website targeted at women. Its goal is to deliver an engaging and
entertaining buying experience in which women can find bargains and purchase
from a wide assortment of general merchandise. FirstAuction.com sells a variety
of new and unique products in an engaging and opportunistic deal format that is
designed for women. It also provides a "Satisfaction Guarantee" with any
purchase.
FIRSTJEWELRY.COM. FirstJewelry.com is a business-to-consumer Internet
e-commerce website that offers a broad assortment of jewelry by popular jewelry
designers as well as more traditional gold and silver products. FirstJewelry.com
specializes in selling accessible jewelry (generally less than $750) to the
style-conscious woman.
STYLECLICK.COM. Styleclick.com is a business-to-consumer Internet
e-commerce website that offers fashion and accessories from a large selection of
in-style brands. Styleclick.com is positioned as an easy way for today's busy
woman to shop and gives the consumer the flexibility of shopping by brand, by
category or by specialty shop.
FASHIONTRIP.COM. Fashiontrip.com is a teen-oriented website that features
articles of interest to teenage girls. At the website, teenagers can read about
and share views on social, global and environmental issues through a variety of
formats, including articles and online chats. Fashiontrip.com also incorporates
Old Styleclick's proprietary e-commerce and e-merchandising platform.
Following the closing of the merger, all existing websites of ISN and Old
Styleclick will be integrated and linked, allowing visitors access across all of
our websites.
TECHNOLOGY AND INFRASTRUCTURE
Old Styleclick has developed key technologies and infrastructures to support
New Styleclick's business strategy. These technologies provide New Styleclick
with key capabilities in conducting e-commerce over the Internet, including:
Website Management--for managing the creation of Internet websites and
programming these websites with contextually merchandised content and product
information which is updateable dynamically via a proprietary technology called
Java Servlet Explosion.
Content Management--for managing the rapid creation and merchandising of
product information for use across affiliated websites.
Presentation--designed to manage, search and display digital content,
enabling advance product visualization and the creation of intelligent shopping
agents that allow compatible search engines to become aware of, and match
content against, user searches.
Distributed e-commerce--designed to deliver product information and conduct
e-commerce transactions within self-contained third party websites.
The website management technologies will be used by New Styleclick in its
business-to-business strategy and will allow for the rapid creation of websites
on behalf of third party brands as well as forming a common integrated
architecture to serve all of the websites owned by New Styleclick.
The distributed e-commerce technologies enable New Styleclick to pursue a
strategy of delivering content in self-contained e-commerce vehicles to third
parties and affiliate websites, a strategy
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described as e-commerce syndication. New Styleclick believes that this strategy
provides it with a major competitive differentiation.
Most of Old Styleclick's proprietary technology is covered by two United
States patents: one related to rendering and modeling technology and the second
related to 3-D modeling techniques. Old Styleclick also has received a notice of
allowance of its pending patent application covering the ability to create an
interactive digital dressing room that allows apparel to be fitted to specific
body dimensions and pending patent application for the delivery of 3D scenes
based upon servlet architecture. In addition to patent protection and patents
under development for site management and data harvesting, Old Styleclick relies
on a combination of (1) trade secret, copyrighted sourcecode and trademark laws,
(2) confidentiality and nondisclosure agreements and (3) other contractual and
technical measures to protect its proprietary rights.
Hardware architecture is characterized by a scaleable cluster architecture
deployed across multiple points world-wide in partnership with Verio Networks,
one of the largest Internet service providers in the world. This architecture is
highly scaleable and redundant.
It is expected that within six months of completion of the merger all of
ISN's e-commerce websites will be serviced from a common New Styleclick
technology platform. New Styleclick believes that this will provide an enhanced
user experience, improved website performance, enhanced merchandising and access
to Old Styleclick's distributed e-commerce syndication capabilities.
RELATIONSHIP WITH USAI
Through relationships with USAi and its affiliates, New Styleclick hopes to
attract new visitors, build a large family of repeat, loyal customers and
develop cross-marketing and joint fulfillment capabilities that will place its
websites among the fastest-growing e-commerce venues. Through its relationship
with USAi, New Styleclick expects to be able to access merchandise suppliers and
customer databases to leverage USA Network's extensive and highly developed
customer solicitation, retention and cross-marketing capabilities and
relationships in the television medium to capitalize on synergies between
television and Internet media.
By using Old Styleclick's core technologies, New Styleclick expects that its
existing e-commerce websites can continue to be developed and enhanced to
include (1) a richer variety of visitor experiences, (2) wider product and
services selection and new promotional benefits and (3) broader product
categories with increased depth of items in each product category.
COMPETITION
BACKGROUND
The market for New Styleclick's products and services continues to develop,
is rapidly evolving and is characterized by an increasing number of market
entrants with competing products and services. The market for Internet products
and services is highly competitive with no substantial barriers to entry. The
management of New Styleclick expects that competition will continue to intensify
with brand name recognition becoming an increasingly important competitive
factor.
Many of New Styleclick's existing and potential competitors have
significantly greater financial, technical and marketing resources than New
Styleclick will have. New Styleclick may also be adversely affected by
competition from licensees of its products and technology, and current and
future advertisers, as well as from its current, future and former content
providers. There can be no assurance that its competitors will not develop
Internet products and services that are superior or achieve greater market
acceptance than New Styleclick's offerings. Moreover, a number of its
competitors, future advertising customers, licensees and licensors may establish
similar relationships. These restrictions may limit its ability to compete for
users by limiting the services it can offer to meet users' needs. New Styleclick
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also competes with online services and other website operators. There can be no
assurance that New Styleclick will be able to compete successfully against its
current or future competitors or that competition will not have a material
adverse effect on its business, financial conditions or operating results. See
"Risk Factors."
BUSINESS-TO-BUSINESS COMPETITION
Providing distributed e-commerce, business-to-business and other e-commerce
services is a developing industry with new entrants constantly emerging. The
complexities of delivering all of the integrated services and tools that are in
our competency are significant and involve tremendous technology investment. As
a result, New Styleclick has no direct competitor today, positioned as an
e-merchandising services company.
In website development services, New Styleclick will compete with website
development companies such as US Web but will likely also be viewed as a service
provider to those companies. Old Styleclick has recently become a subcontractor
for many of the leading domestic Internet companies and agencies.
BUSINESS-TO-CONSUMER COMPETITION
FIRST AUCTION--COMPETITION
There are many competitors in the business-to-consumer market and new
competitors are constantly emerging. To date, none of these auction websites are
focused on female consumers like FirstAuction.com. However, New Styleclick
expects more competitors specifically targeting female consumer to emerge. New
Styleclick's current major competitors in this market include Egghead.com, uBid
and bid.com.
FIRST JEWELRY--COMPETITION
There are currently a number of competitors selling jewelry over the
Internet. New Styleclick's current major competitors in this market include
Miadora, Mondera.com, Ashford.com and adornis.com.
STYLECLICK.COM--COMPETITION
The competition is divided into four segments: (1) online outlets, which
primarily sell seconds or grey-market goods, such as www.bluefly.com (2) online
department stores, which usually offer some, but rarely all, of the selection of
their brick-and-mortar counterparts and at generally higher prices, such as
www.macys.com or www.nordstrom.com; (3) brand websites, which are typically
catalogers and basic retailers and offer only their own brand, such as
www.gap.com or www.landsend.com; and (4) aggregators, which typically pass
consumers through to third party websites, such as www.fashionmall.com and malls
online.
FASHIONTRIP.COM--COMPETITION
Fashiontrip.com has the same competition as Styleclick.com. Additionally,
there are currently a number of teen-oriented websites on the Internet,
including MXGonline.com. USAi is an investor in MXGonline.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
New Styleclick will maintain Old Styleclick's technology as proprietary and
will try to protect it under existing United States and international laws
relating to the protection of intellectual property. New Styleclick intends to
integrate existing internal procedures of ISN and Old Styleclick to control
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access and dissemination of its proprietary information. Despite precautions,
third parties may succeed in misappropriating New Styleclick's intellectual
property or independently developing similar intellectual property. Protecting
Old Styleclick's intellectual property against infringement could result in
substantial legal and other costs and could divert limited management resources
and attention. Some of the technology that will be incorporated in New
Styleclick's websites is based on technology licensed from third parties. As new
services are introduced, it may be necessary to license additional technology,
although New Styleclick expects to develop most of the required proprietary
technology internally. If it is unable to develop or license needed technology
on a timely basis and on commercially reasonable terms, New Styleclick could
experience delays and reductions in the quality of its services, all of which
could adversely affect its business and results of operations. If someone
asserts a claim relating to proprietary technology or information against New
Styleclick or its subsidiaries, New Styleclick may seek licenses to use this
proprietary technology. There can be no assurance that such licenses could be
obtained on commercially reasonable terms, if at all. The failure to obtain the
necessary licenses or other rights could have a material adverse effect on
business financial condition and operating results.
From time to time, New Styleclick's businesses have been subject to claims
of alleged infringement of intellectual property rights of others. These claims,
whether or not meritorious, could result in litigation and become a drain on New
Styleclick's management and financial resources. If successful, claims of this
nature could subject it to liability, injunctive relief restricting its use of
intellectual property important to its operations and could cause it to lose
rights to some of its intellectual property. Any of these events could have a
material adverse effect on New Styleclick's business financial condition and
operating results.
LEGAL PROCEEDINGS
As a newly formed company, New Styleclick does not have any pending or
threatened litigation. Our operations and financial performance, however, may be
affected by pending litigation against ISN. See pages and "Risk Factors."
EMPLOYEES
As of December 31, 1999, Old Styleclick and ISN had a total of 304 full-time
employees, including 24 in sales and marketing, 82 in development and systems,
94 in product-related activities and fulfillment, 69 in content and creative
areas and 35 in general and administration areas. Following the merger, New
Styleclick expects to have approximately 280 employees. The future success of
New Styleclick will depend, in part, on its ability to continue to attract,
retain and motivate highly qualified technical and management personnel, for
whom competition is intense. From time to time, New Styleclick will employ
independent contractors to support its research and development, marketing,
sales and support and administrative operations. New Styleclick's employees are
not covered by any collective bargaining agreement.
PROPERTY
Following the merger, the current operations of Old Styleclick and ISN will
be located at facilities in Culver City, California; Northern California; New
York, New York and High Point, North Carolina. New Styleclick's headquarters
will be located at 3861 Sepulveda Boulevard, Culver City, California 90230.
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MANAGEMENT OF NEW STYLECLICK FOLLOWING TRANSACTIONS
Immediately following the closing of the proposed transactions, the New
Styleclick Board of Directors will consist of eleven directors. Initially, USANi
Sub will have the right to designate six directors and the former principal
shareholders of Old Styleclick will have the right to designate two directors.
Three independent directors will be designated by the directors. The executive
officers, directors and key employees of New Styleclick following the closing of
the merger and their respective ages are set forth below:
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------------------------------------------
<S> <C> <C>
Maurizio Vecchione.......................... 37 Chief Executive Officer and Class A Director
Bill Lane................................... 49 President and Vice Chairman
Edward Zinser............................... 42 Executive Vice President and Chief Operating
Officer
Barry Hall.................................. 51 Executive Vice President and Chief Financial
Officer
Bruce Goldstein............................. 51 Executive Vice President, Business
Development
</TABLE>
Maurizio Vecchione will be the Chief Executive Officer of New Styleclick.
From May 1999 to the present Mr. Vecchione has served as Co-Chief Executive
Officer of Old Styleclick of which he was a founder. From January 1998 to April
1999 he was the Chief Operating Officer of Old Styleclick and from February 1988
to December 1997 he was Executive Vice President of Old Styleclick. Prior to co-
founding Old Styleclick Mr. Vecchione held various executive, technical and
marketing positions with CAECO a developer of CAD/CAM software, Tektronix
Corporation a computer graphics and instrumentation manufacturer, and
Photomatrix and Proprietary Software, developers of imaging and computer
graphics software.
Bill Lane is the President and Vice-Chairman of New Styleclick. From May
1998 to the present, Mr. Lane has served as Chief Operating Officer of ISN. From
November 1994 to August 1997 he was Vice President for New Markets of QVC, Inc.,
a cable television shopping network. Prior to that Mr. Lane was Vice President
for Merchandising and Marketing for The Joan Rivers Can We Shop TV Program and
previously spent 10 years at Bloomingdale's Department Stores where he held
various positions in merchandising, marketing and operations.
Edward Zinser is the Executive Vice President, Chief Operating Officer of
New Styleclick. From July 1999 to the present he has served as Senior Vice
President and Chief Financial Officer of ISN. From June 1998 to June 1999
Mr. Zinser was Executive Vice President, Chief Financial Officer of Chromium
Graphics, Inc., a developer, manufacturer and marketer of premium print
products. From June 1993 to May 1998 he was Vice President, Chief Financial
Officer of Disney Publishing, the book, magazine and licensed publishing
division of The Walt Disney Company. Prior to that Mr. Zinser was an executive
with The Franklin Mint a manufacturer and direct marketer of sculpture, die cast
cars, dolls, plates and jewelry. During that time he held the positions of Vice
President Finance, Vice President Advertising and Vice President Product
Development.
Barry Hall will be Executive Vice President, Chief Financial Officer of New
Styleclick. From October 1999 he has held the same position at Styleclick.com
Inc. From May 1998 until August 1999 he was Chief Operating Officer of
Interactive Light, Inc. a developer and marketer of digital interactive
entertainment systems and platforms. From January 1998 to April 1998 Mr. Hall
was Chief Financial
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Officer of Apparel Technologies, Inc. a developer of digital printing
technologies for the apparel industry. From January 1996 to September 1997 he
was Executive Vice President, Chief Financial Officer of EarthLink Networks,
Inc. a nationwide Internet Services Provider. Prior to that Mr. Hall was
Chairman and Chief Executive Officer of California Amplifier, a developer,
manufacturer and marketer of electronic components used in the reception of
microwave and satellite television signals.
Bruce Goldstein will be Executive Vice President of Business Development of
New Styleclick. From September 1998 he has held the position of Vice President,
Senior Product and Planning Officer of ISN and since September 1999 he has acted
as Interim Vice President Marketing. From June 1997 to August 1998
Mr. Goldstein was Senior Vice President, Worldwide Marketing and Licensing of
MY-CD.com, an online distributor of custom compiled compact disks. From March
1994 to May 1997, he was President and Chief Executive Officer of Universal
Management, Inc., a merchandising and new media consulting company. Prior to
that Mr. Goldstein was President and Chief Executive Officer of Worldwide Thai
LTD, a merchandiser and marketer of Thai food and housewares under the brand
name "Thai Chef."
BOARD COMMITTEES
Following the closing of the proposed transactions, New Styleclick's Board
of Directors will be comprised of 11 directors and will have a compensation
committee and an audit committee. The compensation committee will make
recommendations to the Board of Directors concerning salaries and incentive
compensation for New Styleclick's officers and employees, including equity
compensation for senior executives. The audit committee will review and monitor
New Styleclick's corporate financial reporting and audits, as well as any other
accounting-relating matters. After the independent directors are elected to the
Board of Directors, they will be appointed to serve on the audit and
compensation committees.
DIRECTOR COMPENSATION
All nonemployee directors will receive options to purchase 5,000 shares of
New Styleclick Class A common stock upon the director's election to office, and
thereafter annually on the date of the annual meeting of Old Styleclick
shareholders at which the director is re-elected to office, at an exercise price
equal to the fair market value of the shares on the trading date immediately
preceding the date of grant. In addition, the directors will be reimbursed for
all costs and expenses of attending meetings.
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EXECUTIVE COMPENSATION
The following table sets forth summary information concerning the
compensation to be paid to New Styleclick's Chief Executive Officer and our
other executive officers, who are expected to earn in excess of $100,000 in
compensation during the year. The options described below have already been
granted to the named executive officers in their current positions with Old
Styleclick or ISN, as applicable. These options will be converted into shares of
New Styleclick Class A common stock upon completion of the proposed transactions
and will be considered part of the executive officer's annual compensation from
New Styleclick.
<TABLE>
<CAPTION>
ANNUAL STOCK
POSITION COMPENSATION OPTIONS
-------- ------------ --------
<S> <C> <C> <C>
Maurizio Vecchione................ Chief Executive Officer 250,000 387,227
Bill Lane......................... President 300,000 151,279
Edward Zinser..................... Executive Vice President and Chief 200,000 123,205
Operating Officer
Barry Hall........................ Executive Vice President and Chief 185,000 250,000
Financial Officer
Bruce Goldstein................... Executive Vice President 155,000 105,175
</TABLE>
STOCK INCENTIVE PLAN
Immediately prior to the completion of the mergers, New Styleclick will
adopt an employee stock option plan. The plan will provide that options to
purchase shares of New Styleclick Class A common stock may be granted to any
employee, officer or director of New Styleclick or its subsidiaries. New
Styleclick's Board of Directors or its Compensation Committee will select the
persons to whom options will be granted and determine the type of option
(incentive or non-statutory) and number of shares subject to each option. Under
the plan, options to purchase [ ] shares of New Styleclick Class A
common stock will be reserved for issuance. All options to purchase Old
Styleclick common stock and ISN units outstanding immediately prior to
completion of the mergers will be converted into options governed by the New
Styleclick employee stock option plan.
401(K) PLAN
In connection with the proposed transactions, New Styleclick expects to
establish an employee benefit plan pursuant to Section 401(k) of the Internal
Revenue Code covering most of the full-time employees of New Styleclick and its
subsidiaries. New Styleclick's share of the matching employer contributions will
be set at the discretion of New Styleclick's Board of Directors or its
Compensation Committee.
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SECURITY OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDERS OF NEW STYLECLICK
The following tables set forth certain beneficial ownership information with
respect to New Styleclick.
CLASS A COMMON STOCK
The following table sets forth, as of the date of this proxy
statement/prospectus, certain pro forma information regarding the beneficial
ownership of Class A common stock after giving effect to the mergers by (a) each
person or entity who, to the knowledge of New Styleclick, would own beneficially
5% or more of outstanding Class A common stock; (b) each director of New
Styleclick; (c) each named executive officer; and (d) all directors and officers
as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
VOTING POWER
(OF ALL CLASSES)
-------------------
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF SHARES BEFORE AFTER
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1) OFFERING OFFERING
- ------------------- --------------------- --------------------- -------- --------
<S> <C> <C> <C> <C>
USANi Sub...............................
152 West 57(th) Street, 42(nd) Floor
New York, NY 10019
Maurizio Vecchione(2)...................
Bill Lane(3)............................
Edward Zinser(3)........................
Barry Hall(2)...........................
Bruce Goldstein(3)......................
Dara Khosrowshahi(4)....................
All executive officers and directors as
a group (6 persons)...................
</TABLE>
- ------------------------
(1) All numbers shown give effect to the issuance of shares of our Class A
common stock in the proposed transactions. Prior to the closing of the
mergers, no shares of Class A common stock will be issued or outstanding,
and no shares of Class A common stock will be beneficially owned. Under New
Styleclick's certificate of incorporation, shares of Class B common stock
are convertible at any time into an equal number of shares of Class A common
stock. The percentage of shares beneficially owned assumes the conversion of
all shares of Class B common stock beneficially owned by USANi Sub.
Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Class A
common stock shown as beneficially owned by them.
(2) The address for Mr. Vecchione and Mr. Hall is c/o Old Styleclick, 3861
Sepulveda Boulevard, Culver City, CA 90230.
(3) The address for Mr. Lane, Mr. Zinser and Mr. Goldstein is c/o ISN, 500
Macara Avenue, Sunnyvale, CA 94086.
(4) Mr. Khosrowshahi's address is c/o USAi, 152 W. 57th Street, New York, NY
10019.
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CLASS B COMMON STOCK
The following table sets forth, as of the date of this proxy
statement/prospectus, certain pro forma information regarding the beneficial
ownership of Class B common stock after giving effect to the mergers by (a) each
person or entity who, to the knowledge of New Styleclick, would own beneficially
5% or more of outstanding Class B common stock; (b) each director of New
Styleclick; (c) each named executive officer; and (d) all directors and officers
as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY PERCENTAGE OF
OF BENEFICIAL OWNER OWNED(1) CLASS(1)
- ------------------- ---------------- -------------
<S> <C> <C>
USANi Sub................................................... 100%
152 West 57(th) Street, 42(nd) Floor
New York, NY 10019
Maurizio Vecchione(2)....................................... -- --
Bill Lane(3)................................................ -- --
Edward Zinser(3)............................................ -- --
Barry Hall(2)............................................... -- --
Bruce Goldstein(3).......................................... -- --
Dara Kosrowshahi(4)......................................... -- --
All executive officers and directors as a group (6 -- --
persons)..................................................
</TABLE>
- ------------------------
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. Except as otherwise indicated by footnote, and subject to
community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all shares of
Class B common stock shown as beneficially owned by them. Shares of Class B
common stock are convertible at any time into an equal number of shares of
our Class A common stock.
(2) The address for Mr. Vecchione and Mr. Hall is c/o Old Styleclick, 3861
Sepulveda Boulevard, Culver City, CA 90230.
(3) The address for Mr. Lane, Mr. Zinser and Mr. Goldstein is c/o ISN, 500
Macara Avenue, Sunnyvale, CA 94086.
(4) Mr. Khosrowshahi's address is c/o USAi, 152 W. 57th Street, New York, NY
10019.
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OLD STYLECLICK'S BUSINESS
DESCRIPTION OF BUSINESS
Old Styleclick is an enabler of electronic commerce in
merchandising-intensive categories of commerce, including the fashion,
accessories, footwear, cosmetics, home furnishing, decorating and improvement
industries. By leveraging its technology platform, Old Styleclick provides
e-merchandising, online sales and services to manufacturers and retailers. Old
Styleclick has developed technologies designed to manage, search and display
digital content, enabling advanced product visualization for e-commerce. These
technologies enable the creation of intelligent shopping agents, allowing
compatible search engines to become aware of, and match content against, user
searches. Furthermore, Old Styleclick has developed visual methods of displaying
such content in graphically rich environments designed to increase user
perception of visual details.
PRODUCTS AND SERVICES
Old Styleclick's products and services are divided into three major classes:
(1) a business-to-business unit which utilizes Old Styleclick's core electronic
merchandising, content management and visualization technologies to provide
Internet solutions to retailers and manufacturers; (2) Internet based e-
commerce websites intended to search and manage digital content and facilitate
Internet commerce targeted at the consumer marketplace; and (3) consumer
software applications on CD-ROM for e-commerce.
BUSINESS-TO-BUSINESS
Old Styleclick's business-to-business unit offers its manufacturers and
retailers the following services and products: website development, creation and
maintenance of e-catalogs, merchandising of website, website management,
including coordination with out-source fulfillment and tele-service logistics,
and efficient reach of consumers via a distributed network of affiliates,
referred to as the syndication network.
Old Styleclick builds highly customized websites via a proprietary
technology called "servlet explosion." This technology allows Old Styleclick to
use templates that can be customized with minimum programming and developed with
high efficiency.
Old Styleclick also owns technology for content management, allowing it to
build complex electronic catalogs of products efficiently.
In addition, Old Styleclick manages e-commerce venues inside portals such as
America Online, Excite, iVillage, and Women.com, which it merchandises with
products from its customers. Through this product syndication network, Old
Styleclick provides its vendors with prime real estate in various valuable
locations across the Internet, extending the consumer reach of its participating
vendors.
INTERNET APPLICATIONS
Old Styleclick's flagship consumer website, Styleclick.com, offers consumers
an easy and convenient way to find and buy apparel, accessories, and related
products online. The website offers one of the largest online selections of
designer brand original items for men, women, and children of all ages and
sizes. The website features state-of-the-art navigation and content search
technology, enabling consumers to make highly informed purchasing decisions.
Additionally, the website enables consumers to view high resolution product
images with the ability to pan and zoom to inspect details such as fabric
texture and stitching.
Fashiontrip.com is Old Styleclick's teen-oriented website. Old Styleclick
has incorporated its proprietary e-commerce and e-merchandising platform into
Fashiontrip.com enabling the website to deliver a
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state-of-the-art online shopping and lifestyle environment catering to the
teenage consumer market. Fashiontrip.com offers a comprehensive selection of
apparel, shoes, accessories, bath & beauty products, and style related
merchandise aimed at the teen market.
In addition, Old Styleclick also manages a variety of websites on behalf of
its customers' brands. These websites currently include: Cindy Crawford's
Cindystore.com (fashion and fan information), Daisyfuentesstore.com (fashion and
fan information), Freestyleusa.com (sports watches), Hunterdouglas.com (window
fashions), Jennalanegroup.com (women's apparel), Pingcollectionstore.com
(golfwear), Pjsalvage.com (sleepwear) and Susandunn.com (robes and spa wear).
CONSUMER SOFTWARE, CD-ROM APPLICATIONS
The precursor to Old Styleclick's Internet e-commerce strategy was a series
of consumer software applications which Old Styleclick developed beginning in
1996. Old Styleclick developed the software known as the 3D Home Interiors
product line, under a Software Development and Publishing Agreement with
Broderbund, for which Broderbund was the publisher. This product line was
extended in 1997 with the publication of 3D Home Suite. These products offer
consumer home design and decorating tools, including shopping and reference
materials for actual products of various participating vendors. Old Styleclick
amended its agreement with Broderbund in 1998 to provide for the grant of
exclusive rights to these products to Broderbund in consideration of a one-time
royalty payment.
Fashion Trip and iStyle were jointly developed by Old Styleclick and Intel
Corporation pursuant to a development agreement entered into in late 1997. The
Sierra Division of Cendant Software Corporation which was subsequently purchased
by Havas Interactive of France published the Fashion Trip and iStyle CD-ROM's
and, pursuant to its agreement with Old Styleclick, distributes portions of
Fashion Trip and iStyle as shrink-wrapped software applications through its
distribution channels.
RESEARCH AND DEVELOPMENT
Old Styleclick believes that its success will depend primarily on its
ability to develop new products, maintain technological competitiveness and
fulfill an expanding range of customer requirements. To date, Old Styleclick has
designed and developed all of its key products internally.
TECHNOLOGY
Old Styleclick believes that it has completed most of the development of the
core technologies necessary to deploy Old Styleclick's websites. These core
technologies include the search engine, the data harvesting engine, the
visualization engines, the data streaming engine, and the intelligent shopping
agents. Currently Old Styleclick's product development efforts focus on the
creation of the user interface for its websites, art creation and content
acquisition, optimizing the user experience for fast access from low bandwidth
Internet access, load balancing traffic for optimal handling of concurrent
transactions, expanding Old Styleclick's content acquisition technology to
include higher degrees of automation, developing data streaming technologies to
increase delivery of rich content through low bandwidth environments, and
expanding the intelligent nature of shopping agents for smart searches and
personal advice.
Old Styleclick's development teams are working towards new extensions and
enhancements to its core rendering engine in an on-going effort to enhance this
technology. Old Styleclick also maintains research and development in a variety
of advanced technical areas, including object-oriented technology, data
management technology, expert systems and rule-based systems, rendering and
other evolving imaging technologies.
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PATENTS AND PROPRIETARY RIGHTS
Old Styleclick holds three United States patents. The first covers Old
Styleclick's core rendering and modeling technology. The second covers 3-D
modeling techniques. The third relates to business software products which have
become a less important part of New Styleclick's business. Additionally, Old
Styleclick also has received notices of allowance of two pending patent
application covering the ability to create an interactive digital dressing room
that allows apparel to be fitted to specific body dimensions. In addition to
patent protection, Old Styleclick relies on a combination of (1) trade secret,
copyright and trademark laws, (2) confidentiality and nondisclosure agreements
and (3) other contractual and technical measures to protect its proprietary
rights. There is no assurance that these measures will deter misappropriation of
Old Styleclick's proprietary rights. Old Styleclick employs a "lock and key"
system with respect to the proprietary information underlying its software. This
system is designed to ensure that only certain key employees have access to such
information, all of whom have signed confidentiality and nondisclosure
agreements. Old Styleclick has nine registered trademarks, including the mark
ModaCAD. Old Styleclick believes that its products, trademarks and other
proprietary rights do not infringe on the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims against Old Styleclick in the future with respect to current
or future products or that any such asserted claims may not result in costly
litigation.
EMPLOYEES
As of December 31, 1999, Old Styleclick employed 157 full-time employees,
including 18 in sales and marketing, 55 in development and systems, 31 in
product-related activities and fulfillment, 38 in content and creative areas and
15 in general and administrative areas. None of Old Styleclick's employees are
represented by a labor union, and Old Styleclick has never experienced a work
stoppage.
PROPERTY
In 1998, Old Styleclick moved its executive headquarters to a three-story
office building with approximately 23,000 square feet of office space in Culver
City, California, under a lease that will expire in 2006, with an option to
extend the lease term for additional ten years. Old Styleclick anticipates that
it may require additional space in Los Angeles in the first half of 2000 to
handle the expected increased levels of its business activities. Old Styleclick
believes it can readily acquire any needed additional space when and as needed
on commercially reasonable terms. Old Styleclick has sub-leased its other Los
Angeles property under a sub-lease that will expire in 2002, the same expiration
date of the original lease.
Old Styleclick leases approximately 4,800 square feet in High Point, North
Carolina, under a lease that expires in 2004, for production and customer
service activities, directed primarily at electronic merchandising customers and
consumer product lines. The facility was necessary to accommodate Old
Styleclick's recent growth in its personnel in this office. Old Styleclick
acquired this additional space on commercially reasonable terms. Old Styleclick
leases approximately 1,500 square feet in New York primarily for facilitating
sales and marketing support activities in the Northeast region under a lease
that expires in August 2000. Old Styleclick anticipates that it may require
additional space in New York in the first half of 2000 to handle the expected
increased levels of its business activities.
LEGAL PROCEEDINGS
Old Styleclick is not currently involved in any material legal proceedings.
EFFECT ON OLD STYLECLICK IF CONTEMPLATED TRANSACTIONS ARE NOT APPROVED OR DO NOT
OCCUR
If Old Styleclick shareholders do not approve the proposed merger of Old
Styleclick with a subsidiary of New Styleclick and Old Styleclick enters into a
business combination transaction with a third
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party or a third party acquires 15% or more of the assets or outstanding
securities of Old Styleclick, then:
- USANi Sub may exercise its option to purchase 19.9% of Old Styleclick's
common stock at $17.50 per share;
- Old Styleclick must repay any outstanding portion of the $10 million loan
to USAi within 45 days; and
- Old Styleclick must pay ISN a termination fee of $5.5 million.
In addition, should the merger not be consummated for any reason, Old
Styleclick would be required to seek additional capital either through the sale
of equity or through the sale of convertible debentures, both of which would
dilute existing stockholders ownership of Old Styleclick. Additionally Old
Styleclick may be forced to cut back on operations including laying off
employees, decreasing marketing programs and eliminating certain development
activities.
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ISN'S BUSINESS
OVERVIEW
ISN was one of the first e-commerce retailers in the world when it launched
its original online store in April 1994 and is a true pioneer of e-commerce. ISN
is not aware of any retail company that was using the Internet as its sole means
of transacting business. Before that time, through its FirstAuction.com and
FirstJewelry.com websites, ISN believes it is situated to be one of the leading
electronic retailers.
FIRST AUCTION. FirstAuction.com continued ISN's pioneering role in
e-commerce when, in June 1997, it launched FirstAuction.com, the first real-time
online auction website on the Internet. First Auction features home and leisure
merchandise, including jewelry, gourmet food, apparel, cosmetics, furniture,
consumer electronics and computers. ISN's goal is to become the top
business-to-consumer diversified auction retailer on the Internet. ISN is
committed to give consumers the widest and most desirable assortment of
merchandise available from any auction retailer and to become the place to find
the unexpected.
FIRST JEWELRY. In October 1999, ISN launched FirstJewelry.com. ISN believes
that the opportunity exists to redefine the manner in which jewelry is marketed
and sold over the Internet. By focusing on merchandising, both in terms of
quality and breadth of selection, as well as in terms of quality and
sophistication of product presentation and by de-emphasizing the commodity-like
quality present in jewelry retail business, ISN perceives an opportunity to be
the premier online fashion authority for accessible jewelry, offering inside
access to the newest and hottest designers. Furthermore, as with
FirstAuction.com, ISN leverages substantial selling and direct marketing
knowledge and experience of the USAi management and the fulfillment and consumer
service skills of Home Shopping Network. ISN believes it will bring a powerful
blend of experience, insight and resources to the
e-commerce jewelry trade that few can replicate.
RELATIONSHIP WITH USAI AND HOME SHOPPING NETWORK
Because it is an indirect subsidiary of USAi, ISN believes it can continue
to assure its consumers efficient service, product delivery and reliability from
one of the largest and best-known retailers in the world. ISN is committed to
continually improving the way consumers shop for and purchase products on the
Internet. ISN believes that its relationship with USAi and Home Shopping Network
gives it meaningful advantages relative to other online retailers, including:
- The use of Home Shopping Network's distribution center for our warehouse
and product fulfillment functions, which enables us to offer over 15,000
in-stock items for fast delivery;
- The enterprise value of Home Shopping Network and USAi, which provides
significant advantages in negotiating with online portals, distribution
partners, content and media companies as well as with other strategic
partners;
- The ability to conduct cross-marketing, co-promotion and consumer
acquisition programs across the many media and commerce assets of USAi
such as Home Shopping Network, SCI-FI.com, Ticketmaster and USA Network
which will provide ISN with: (1) access to millions of established buyers;
(2) the opportunity to directly promote our online auction and jewelry
websites to this vast audience of proven buyers; and (3) a potential new
stream of consumers that it will be able to acquire at a significantly
lower acquisition cost as compared to consumers acquired via our other
marketing channels;
- Ongoing access to the substantial selling and direct marketing knowledge
and experience of the management of Home Shopping Network and USAi.
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FIRST AUCTION BUSINESS
FirstAuction.com's online auctions provide an exciting sales format that
leverages the unique characteristics of the Internet, such as interactivity and
a sense of community. The auction format enables ISN's targeted female consumer
to bid against one another in a freely competitive market liberated from the
constraints of less flexible pricing that typically characterize traditional
retailing. ISN believes that the consumer enthusiasm generated by this format,
the emergence of the Internet as an effective new sales medium and its highly
automated infrastructure combine to create a significant retailing opportunity.
Thousands of new auctions are being added to FirstAuction.com each day to
accommodate the expanded selection. New departments on FirstAuction.com include
Lifestyles--with toys, music and entertainment, golf, tennis, footwear, luggage
and pet accessories; The Home Shop--with bed & bath, dining and entertaining,
home improvement and gourmet food; Collectibles; Designer Dolls; Healthy
Living--with nutritional and personal care products; Furniture; and Women's
Apparel.
FirstAuction.com's consumer base increased by over 200,000 members in 1999.
ISN believes that it is continuing to appeal to a female consumer influenced
both by its product offerings and the way in which the products are presented.
FirstAuction.com has sold approximately $55 million of merchandise and
approximately 1.7 million units since its first auction in June 1997. In the
fourth quarter of 1999 alone, First Auction.com sold $6.2 million of merchandise
across 300,000 units to 41,000 unique bidders.
The website design highlights ISN's unique Flash Auctions, the only 30
minute auctions with overtime on the Internet. Flash Auctions, which start at
one dollar and last just thirty minutes, offer consumers the thrill of a
fast-paced auction and the opportunity to get great deals on home and leisure
merchandise, jewelry and consumer electronics. Every day there is a Daily Buy
which features unique products at low prices available for a maximum of 24
hours.
FirstAuction.com also offers a members-only newsletter, which informs
members via e-mail of upcoming auction and special promotions. Additionally,
most of the merchandise sold by ISN carries a warranty from the vendor.
FIRST JEWELRY BUSINESS
FirstJewelry.com attempts to differentiate itself from its competitors by
taking a unique, more emotional approach to interacting with its consumers. In
both interface design and merchandising, the website approaches its visitors
with the goal of satisfying their individual shopping needs. The website has the
ability to search for product in a number of distinct and innovative ways that
will complement the manner in which a consumer wants to shop. Our ability to
search and cross merchandise by lifestyles, categories, promotions, points of
view, emotional state and general search provides us tools to help identify and
suggest products to each individual consumer.
The website currently offers an assortment of the best, young designers who
have limited distribution of their products. Additionally, FirstJewelry.com
offers a large assortment of fine fashion jewelry with exceptional value pricing
below the standard prices at department stores and competitive with other
jewelry websites. ISN intends to make FirstJewelry.com the fashion jewelry
authority for the style conscious woman by offering access to the newest and
hottest designers and trends. Additionally, ISN will help the consumer create
unique fashion statements through real-time expert advice and product
recommendations. This will make FirstJewelry.com the best place to buy fashion
jewelry with access to style, quality, assortment and perceived value while
receiving expert advice and excellent customer service.
ISN purchases most of its jewelry product directly from manufacturers,
unlike a substantial portion of existing websites that sell grey market product.
In addition to building long-term relationships with important resources,
purchasing directly from manufacturers will provide its consumers with a broader
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assortment of individual manufacturers' products; will provide exclusive product
for First Jewelry; will provide the most current fashion groups, as well as the
basics, from leading brands; and will offer closeouts at compelling prices as
goods are available.
The strength and distinction of ISN's merchandising mix is fundamental to
its strategy of redefining jewelry retailing on the Internet. Its merchandising
assortment consists of 4,000 unique items merchandised into 9-10 categories with
30 subcategories. Categories include a large breadth of basics like Gold,
Silver, Diamonds, Platinum and Gemstones, Men's Jewelry, Watches, Wedding &
Bridal, Seasonal/Spiritual, and an extensive assortment of Fashion Jewelry and
Accessories. In addition to these categories, FirstJewelry.com has lifestyle
shops and specialized designer boutiques to highlight its unique designer and
one-of-a kind products. The website contains a complete assortment ranging from
moderately priced to limited edition pieces. To further differentiate it from
its competitors, ISN will be able to develop its proprietary or branded labels
by leveraging its purchasing power through its affiliations with the Home
Shopping Network and First Auction.
ISN establishes both trust and credibility at FirstJewelry.com by offering
high-quality, defective-free products that are returnable if consumers are not
satisfied. The majority of its products come with manufacturers or industry
standard certifications such as GIA. ISN also solicits the support and
endorsements of trade and industry organizations to enhance the educational
experience for consumers.
MERCHANDISE FULFILLMENT, CUSTOMER SERVICE AND SUPPORT
Home Shopping Network acts as the fulfillment and consumer service provider
for ISN's websites. Home Shopping Network is responsible for warehousing,
picking, packing and shipping from its Salem, Virginia; Roanoke, Virginia and
Waterloo, Iowa facilities. For jewelry, the fulfillment facility processes
multi-line orders and specialty packaging requests. The customer service is
handled by Home Shopping Network from their Clearwater, Florida, offices. For
drop shipment suppliers, similar information is transmitted to the drop shipper
electronically. The systems and procedures that support both HSN and drop ship
vendors focus on efficiency while maintaining strict internal controls. These
controls provide for accurate tracking of merchandise available for sale, and
provide ISN with the ability to capture all transactions that comprise cost of
merchandise sold, product returns from customers, liquidated products and
products returned to vendors.
PROPRIETARY RIGHTS
Proprietary rights are important to ISN's success and competitive position.
Although ISN seeks to protect its proprietary rights, its actions may be
inadequate to protect any trademarks and other proprietary rights or to prevent
others from claiming violations of their trademarks and other proprietary
rights. Effective copyright and trademark protection may be unenforceable or
limited in certain countries, and the global nature of the Internet makes it
impossible to control the ultimate destination of ISN content. Any of these
claims, with or without merit, could subject ISN to costly litigation and the
diversion of our technical and management personnel.
EMPLOYEES
As of December 31, 1999, ISN employed 147 full-time employees, including 6
in sales and marketing, 27 in development and systems, 63 in product-related
activities and fulfillment, 31 in content and creative areas and 20 in general
and administrative areas.
PROPERTY
ISN's headquarters are located in Sunnyvale, California, where it currently
leases approximately 32,000 square feet under a lease expiring in August 2000.
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LEGAL PROCEEDINGS
ISN is currently involved in two material litigations which will involve New
Styleclick:
In February 1999, ISN filed a demand for arbitration against former ISN
President Mr. Kirk Loevner under the terms of the arbitration provision in his
employment agreement. In response,
Mr. Loevner filed a complaint against ISN in Superior Court for Santa Clara
County, California. The Superior Court decided not to enforce the arbitration
provision of Mr. Loevner's employment agreement, and the Court's ruling is
currently on appeal. Mr. Loevner's employment with ISN ceased in August 1998.
Mr. Loevner alleges that ISN breached his employment agreement and its stock
option plan. He is seeking declaratory relief that he did not breach his
employment agreement by accepting employment with his new and current employer
FreeShop International, Inc. and, consequently, that his options for 250,000
shares of ISN's predecessor Internet Shopping Network, Inc. (with an exercise
price of $1.75 per share) are entitled to vest. Additionally, Mr. Loevner is
seeking penalties and attorneys fees under the California Labor Code. In
December 1999, Mr. Loevner filed a complaint in U.S. District for Northern
District of California against Home Shopping Network, Barry Diller and Mr. Jed
Trosper, seeking declaratory and injunctive relief, and damages relating to his
alleged entitlement to shares of ISN stock. USAi believes that this suit is
duplicative of the above state action against ISN, and intends to file a motion
to dismiss or stay the federal action and seek sanctions for Mr. Loevner's
multiplication of the legal proceedings.
On November 10, 1999, First Jewelry Company of Canada, Inc. and its
affiliate A&A Jewelers, Inc. filed a complaint against ISN and USAi in U.S.
District Court for the Southern District of New York, claiming that ISN's use of
the "First Jewelry" name and URL infringes on plaintiffs' claimed "First
Jewellery" and "1(st) Jewellery" trademarks. Plaintiffs also filed a domain name
challenge with Network Solutions, Inc. On December 14, 1999, a hearing was held
on plaintiffs' preliminary injunction motion. On January 31, 2000 and February
17, 2000, the Court issued two orders granting the preliminary injunction
motion, ordering ISN to cease using the name "First Jewelry" in connection with
ISN's jewelry business commencing on April 17, 2000, unless used to announce a
name change, and ordering ISN until such name change to prominently display next
to the "First Jewelry" logo on the FirstJewelry.com home page a statement
disclaiming any affiliation with plaintiffs, but permitting ISN throughout the
duration of the litigation to use the "www.firstjewelry.com" URL provided the
web page at such URL is only used to announce the new name and provide consumers
a link to a new URL under which the website operates with its new name.
EFFECT ON ISN IF CONTEMPLATED TRANSACTIONS ARE NOT APPROVED OR DO NOT OCCUR
Old Styleclick's e-commerce operating systems and technology platform are
assets that will enable ISN to execute its vision and business strategies. If
the proposed transactions do not occur, ISN will need to pursue other
acquisitions, strategic partnerships and/or significant internal development
efforts to address these important business requirements.
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COMPARISON OF THE RIGHTS OF NEW STYLECLICK SHAREHOLDERS
AND OLD STYLECLICK SHAREHOLDERS
The following is a summary of some of the material differences between the
rights of the holders of Old Styleclick common stock and the rights of the
holders of New Styleclick Class A common stock. This summary is not complete.
For a full understanding of the rights of the holders of Old Styleclick common
stock and New Styleclick Class A common stock, refer to California Law, Delaware
Law, Old Styleclick's articles of incorporation and bylaws, and New Styleclick's
certificate of incorporation and bylaws. See "Where You Can Find More
Information".
The rights of New Styleclick's shareholders are governed by Delaware law,
including the Delaware General Corporation Law (DGCL), and by New Styleclick's
certificate of incorporation and bylaws. The rights of Old Styleclick's
shareholders are governed by California Law, including the California
Corporation Code (CCC), and by Old Styleclick's articles of incorporation and
bylaws. The rights of ISN's unitholders are governed by Delaware Law, including
the Delaware Limited Liability Company Act, and by ISN's operating agreement.
Upon completion of the merger, holders of Old Styleclick common stock and ISN
units will become holders of New Styleclick Class A common stock, and
accordingly, their rights will be governed by Delaware law and New Styleclick's
certificate of incorporation and bylaws.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
NEW STYLECLICK. The certificate of incorporation currently authorizes the
issuance of 150 million shares of Class A common stock, par value $0.01 per
share, 112.5 million shares of Class B common stock, par value $0.01 per share,
and 25 million shares of preferred stock, par value $.01 per share. As of
[ ], 2000, there are no shares of Class A common stock and one share of
Class B common stock outstanding. The shares of Class B common stock are
convertible at any time at the option of the holders into shares of Class A
common stock on a share-for-share basis. Each share of Class B common stock will
convert automatically into a share of Class A common stock upon any sale,
conveyance, foreclosure upon, assignment or other transfer or disposition of the
share unless the share is transferred to USAi or any of its affiliates. In
connection with the mergers, warrants and options, to purchase approximately
2,300,000 shares of Old Styleclick common stock will convert one for one into
warrants and options, respectively, to purchase an equal number of shares of New
Styleclick Class A common stock, and options to purchase approximately 3,000,000
units of ISN will convert into options to purchase approximately 1,800,000
shares of New Styleclick Class A Common Stock. In addition, New Styleclick will
issue a warrant to purchase approximately 12,800,000 shares of New Styleclick
Class B Common Stock to USAi. See "Description of Related Agreements."
OLD STYLECLICK. The articles of incorporation currently authorize the
issuance of 15 million shares of common stock, par value $0.01 per share. As of
[ ], 2000, there are [ ] shares of common stock outstanding.
VOTING RIGHTS
NEW STYLECLICK. The shares of Class A common stock are entitled to one vote
per share and the shares of Class B common stock are entitled to 10 votes per
share. The Class A common stock and the Class B common stock will vote together
as a single class on all matters submitted to a vote or for the consent of
shareholders unless Delaware law requires otherwise. The holders of one-third of
all outstanding shares of stock entitled to vote at any meeting constitute a
quorum and all matters are decided by the affirmative vote of a majority of the
votes cast, unless Delaware law or New Styleclick's certificate of incorporation
requires a greater number of votes. The New Styleclick Board of Directors will
determine the terms and conditions of the preferred stock if and when it is
issued.
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OLD STYLECLICK. The holders of a majority of the shares entitled to vote at
any meeting constitute a quorum, and all matters are decided by the affirmative
vote of a majority of the votes cast, unless California law or Old Styleclick's
articles of incorporation require a greater number of votes.
SPECIAL MEETING OF SHAREHOLDERS
NEW STYLECLICK. The New Styleclick bylaws permit a special meeting of
shareholders (other than a special meeting for the election of directors) to be
called by the New Styleclick Board of Directors, the President or the Secretary.
OLD STYLECLICK. The Old Styleclick bylaws permit a special meeting of
shareholders to be called for any reason by the Old Styleclick Board of
Directors, the Chairman of the Board, the President or by the holders of shares
entitled to cast not less than 10 percent of the Old Styleclick voting stock.
SHAREHOLDER CONSENT IN LIEU OF MEETING
Under Delaware law and California law, unless otherwise provided in the
certificate or articles of incorporation, any action required to be taken or
which may be taken at an annual or special meeting of shareholders may be taken
without a meeting and without prior notice if a consent in writing is signed by
the holders of outstanding stock having at least the minimum number of votes
required to authorize such action. If an action is taken without the unanimous
written consent of all shareholders entitled to vote on the action, notice of
the action shall be given promptly to the shareholders who did not consent.
California law does not allow directors to be elected by less than the unanimous
written consent of all shares entitled to vote for the election of directors.
NUMBER AND ELECTION OF DIRECTORS
NEW STYLECLICK. The New Styleclick bylaws provide for a Board of Directors
consisting of one or more directors, each serving a one year term or until his
or her earlier death, resignation or removal. The number of directors may be
changed by the shareholders or the Board of Directors. Directors need not be
elected by written ballot, and are to be elected annually by the shareholders.
Directors are elected by a plurality of the votes cast by the holders of shares
entitled to vote in the election, present in person or by proxy. Some
shareholders of New Styleclick have agreed to vote in favor of the election of
Directors nominated by certain groups of shareholders. See "Stockholders
Agreement."
OLD STYLECLICK. The Old Styleclick bylaws provide that the Board of
Directors shall consist of no less than four and no more than seven directors,
each serving a one year term or until his or her successor is elected and
qualified. The number of directors may be changed by the shareholders or the
Board of Directors subject to some limitations. See "Amendment of Bylaws."
Directors are to be elected annually by the shareholders. Each shareholder
entitled to vote at any election of directors may cumulate its votes and give
one candidate for director a number of votes equal to (a) the number of
directors to be elected, multiplied by (b) the number of votes to which the
individual shareholder's shares are entitled. Alternatively, the shareholder may
distribute its votes among candidates at its discretion. The candidates
receiving the highest number of votes shall be elected. Old Styleclick's Board
of Directors currently consists of six directors.
FILLING VACANCIES
NEW STYLECLICK. Vacancies on the New Styleclick Board of Directors may be
filled by the majority vote of the remaining directors or a plurality of the
votes cast by the shareholders entitled to vote in the election.
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OLD STYLECLICK. Unless caused by the removal of a director, vacancies on
the Old Styleclick Board of Directors may be filled by the Board of Directors,
and shareholders may fill any vacancy not filled by the Board of Directors.
REMOVAL OF DIRECTORS
NEW STYLECLICK. Directors of New Styleclick may be removed, with or without
cause, by the affirmative vote of the holders of a majority of the shares of
stock entitled to vote in an election of directors.
OLD STYLECLICK. The Old Styleclick Board of Directors may declare vacant
the office of a director who has been declared of unsound mind by a court or who
has been convicted of a felony. Any director or the entire Board of Directors
may be removed, with or without cause, by a majority of the outstanding shares
entitled to vote at an election of directors. However, no director may be
removed, unless the entire Board is removed, if the number of votes cast against
the removal would be sufficient to elect the director if voted cumulatively at
an election where the same total number of votes cast were cast. Under
California law, shareholders holding at least 10% of the outstanding shares in
any class may sue in superior county court to remove from office any director or
officer for fraud, dishonest acts or gross abuse of authority or discretion.
FIDUCIARY DUTIES OF DIRECTORS
NEW STYLECLICK. Under Delaware law, directors are charged with fiduciary
duties of loyalty and care to both the corporation and the shareholders. The
duty of care requires that directors act in an informed and deliberative manner
and that they inform themselves, prior to making a business decision, of all
material information reasonably available to them. The duty of loyalty requires
that directors act in good faith, not out of self-interest, and in a manner that
the directors reasonably believe to be in the best interests of the corporation.
A party challenging the decision of a board of directors generally bears the
burden of rebutting the applicability of the so-called "business judgment rule"
(a presumption that, in making a business decision, directors acted on an
informed basis, in good faith and with the honest belief that the action was
taken in the best interests of the corporation). Unless this presumption is
rebutted, the business judgment exercised by directors in making their decisions
is not subject to judicial review. To rebut this presumption, a party must
demonstrate that, in reaching their decision, the directors breached one or more
of their fiduciary duties. If the presumption is rebutted, the directors bear
the burden of demonstrating the entire fairness of the relevant transaction.
Notwithstanding the foregoing, Delaware courts may subject directors' defensive
actions taken in response to a threat to corporate control or their approval of
a change-of-control transaction to greater scrutiny.
OLD STYLECLICK. Under California Law, a director is obligated to perform
his or her duties in good faith, in a manner that the director reasonably
believes to be in the best interests of the corporation and its shareholders and
with such care, including reasonable inquiry, as an ordinarily prudent person in
a like position would exercise under similar circumstances. In performing the
duties of a director, a director is entitled to rely on information, opinions,
reports or statements, including financial statements and other financial data,
prepared or presented by officers or employees of the corporation, the
corporation's counsel or independent accountant or a committee of the board upon
which the director does not serve, so long as, in any such case, the director
acts in good faith, after reasonable inquiry when the need is indicated by the
circumstances and without knowledge that would cause such reliance to be
unwarranted.
LIABILITY OF DIRECTORS
NEW STYLECLICK. Delaware law permits a corporation to include in its
certificate of incorporation a provision that limits or eliminates the liability
of its directors for monetary damages for breach of
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fiduciary duty to the corporation or its shareholders, except under certain
circumstances. These circumstances are (a) a breach of the duty of loyalty to
the corporation or its shareholders, (b) any acts or omission not in good faith
or which involve intentional misconduct or a knowing violation of law, (c) an
unlawful payment of a dividend or repurchase or redemption of stock or (d) any
transaction from which the director derived an improper personal benefit. The
New Styleclick certificate of incorporation eliminates director liability to the
fullest extent permitted by Delaware law.
OLD STYLECLICK. California law permits a corporation to include in its
articles of incorporation provisions that limit or eliminate the liability of
its directors to the corporation or its shareholders, except in certain
circumstances. These circumstances are (a) intentional misconduct or knowing and
culpable violation of law, (b) acts or omissions that a director believes to be
contrary to the best interests of the corporation or its shareholders or that
involve the absence of good faith on the part of the director, (c) receipt of an
improper personal benefit, (d) acts or omissions that show reckless disregard
for the director's duty to the corporation or its shareholders where a director
in the ordinary course of performing a director's duties should be aware of a
risk of serious injury to the corporation or its shareholders, (e) acts or
omissions that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation and its shareholders,
(f) interested transactions between the corporation and a director in which a
director has a material financial interest and (g) liability for improper
distributions, loans or guarantees. The Old Styleclick articles of incorporation
contain a provision limiting the liability of its directors to the fullest
extent provided by California law.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
NEW STYLECLICK. Delaware law permits Old Styleclick to indemnify a director
or officer of the corporation against costs, expenses (including attorneys'
fees), judgments, fines, penalties and settlement amounts incurred in a civil,
administrative or criminal action, suit, investigation or proceeding, including
a derivative action, by reason of being a director or officer or having been a
representative of, or serving at the request of, the corporation. New
Styleclick's bylaws provide for the indemnification of directors to the fullest
extent permitted by law, and permits the New Styleclick Board of Directors to
indemnify additional persons. However, these provisions are not exclusive and
directors and officers may be provided with additional rights under New
Styleclick's certificate of incorporation, or by agreement, vote of shareholders
or otherwise. Under the New Styleclick bylaws, New Styleclick is required to
advance a director or officer the expenses incurred in defending any action, if
New Styleclick receives a commitment from the director or officer to repay the
amount advanced if it is ultimately determined that the person is not entitled
to indemnification. Despite these indemnification provisions, no indemnification
for expenses in a derivative action is permitted under Delaware law if the
person is found to be liable to the corporation, unless a court finds him or her
entitled to such indemnification. If however, that person is successful, on the
merits or otherwise, in defending a third party or derivative action,
indemnification for expenses incurred is mandatory. Moreover, in the opinion of
the SEC indemnification for various liabilities under the Securities Act is
against public policy and is unenforceable.
OLD STYLECLICK. Under California law, the corporation has the power to
indemnify present and former directors, officers and agents against expenses,
judgments, fines, settlements or other amounts actually and reasonably incurred
by the person in connection with any proceeding. The Old Styleclick bylaws
require Old Styleclick to advance a director, officer or agent the expenses
incurred in defending any action, if it receives a commitment from the director,
officer or agent to repay the amount advanced if it is ultimately determined
that the person is not entitled to indemnification. California law permits the
indemnification of officers and directors in excess of that provided in the
provisions of the CCC, for breach of duty to the corporation or its
shareholders, if it is provided in the bylaws or articles of incorporation.
Directors cannot, however, be relieved of liability for acts, omissions or
transactions expressly prohibited by California law.
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DIVIDEND RIGHTS
NEW STYLECLICK. The holders of New Styleclick Class A common stock and New
Styleclick Class B common stock may receive dividends if and when they are
declared by the New Styleclick Board of Directors. No dividends may be paid in
stock unless all shares of New Styleclick Class A common stock and New
Styleclick Class B common stock then outstanding are treated equally and
identically. Under Delaware law, a corporation may pay dividends out of surplus
or, if no surplus exists, out of net profits for the fiscal year in which the
dividends are declared and/or its preceding fiscal year. However, dividends may
not be declared out of net profits if the capital of the corporation is less
than the aggregate amount of capital represented by any issued and outstanding
preferred stock.
OLD STYLECLICK. California law provides that a corporation may make a
distribution to its shareholders if the corporation's retained earnings equal at
least the amount of the proposed distribution. In the event that sufficient
retained earnings are not available for the proposed distribution, a corporation
may nevertheless make a distribution to its shareholders if it meets two
conditions: (a) the corporation's assets equal at least 1 1/4 times its
liabilities and (b) the corporation's current assets equal at least its current
liabilities, or, if the average of the corporation's earnings before taxes on
income and before interest expense for two preceding fiscal years was less than
the average of the interest expense for the corporation for such fiscal years,
then the corporation's current assets must equal at least 1 1/4 times its
current liabilities.
AMENDMENT OF BYLAWS
NEW STYLECLICK. The New Styleclick certificate of incorporation and bylaws
provide that the New Styleclick Board of Directors or the shareholders can
adopt, amend or repeal the bylaws. Any bylaw adopted by or amended by the New
Styleclick Board of Directors may be amended or repealed by the shareholders.
OLD STYLECLICK. The Old Styleclick bylaws provide that they may be adopted,
amended or repealed either by the shareholders or the Old Styleclick Board of
Directors. An amendment dealing with a change to the fixed number of directors,
or a change from a fixed number of directors to a variable number, or vice
versa, may only be made with the approval majority of the outstanding shares
entitled to vote and changes to the minimum or the maximum number are subject to
additional voting requirements.
AMENDMENTS TO CERTIFICATE OR ARTICLES OF INCORPORATION
NEW STYLECLICK. Under Delaware law, amendments to the certificate of
incorporation generally require the affirmative vote of holders of a majority of
the outstanding stock of each class entitled to vote on the amendment unless a
greater level of approval is required by the certificate of incorporation.
Delaware law also requires that if an amendment would increase or decrease the
aggregate number of authorized shares of a particular class, increase or
decrease the par value of shares of a particular class or alter or change the
powers, preferences or special rights of a particular class or series of stock
so as to affect them adversely, the class or series effected must be given the
power to vote as a class.
OLD STYLECLICK. Under California law, unless otherwise specified in the
articles of incorporation, an amendment to the articles of incorporation
requires the approval of the corporation's board of directors and the
affirmative vote of a majority of the outstanding shares entitled to vote,
either before or after the board approval, although certain minor amendments,
such as amendments changing Old Styleclick's name or address given in the
articles, may be made by the board of directors acting alone.
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Under California law, the holders of the outstanding shares of a class of
stock are entitled to vote as a class if a proposed amendment to the articles of
incorporation would:
- increase or decrease the aggregate number of authorized shares of such
class;
- effect an exchange, reclassification or cancellation of all or part of the
shares of such class, other than a stock split;
- effect an exchange, or create a right of exchange, of all of part of the
shares of another class into the shares of such class;
- change the rights, preferences, privileges or restrictions of the shares
of such class;
- create a new class of shares having rights, preferences or privileges
prior to the shares of such class, or increase the rights, preferences or
privileges or the number of authorized shares having rights, preference or
privileges prior to the shares of such class;
- in the case of preferred shares, divide the shares of any class into
series having different rights, preferences, privileges or restrictions or
authorize the board of directors to do so; or
- cancel or otherwise affect dividends on the shares of such class which
have accrued but have not been paid.
DERIVATIVE ACTION
NEW STYLECLICK. Derivative actions may be brought in Delaware by a
shareholder on behalf of, and for the benefit of, the corporation. Delaware law
requires that a shareholder must have been a shareholder of the corporation at
the time of the event giving rise to the action. A shareholder may not sue
derivatively unless he or she first makes demand on the corporation that it
bring suit and such demand has been refused, unless it is shown that such demand
would have been futile.
OLD STYLECLICK. California law provides that a shareholder bringing a
derivative action on behalf of the corporation need not have been a shareholder
at the time of the event in question, provided that certain tests are met
concerning the fairness of allowing the action to go forward. The shareholder
must make a demand on the board before filing suit. California law also provides
that the corporation or the defendant in a derivative suit may make a motion to
the court for an order requiring the plaintiff shareholder to furnish a security
bond.
APPRAISAL RIGHTS
NEW STYLECLICK. Under Delaware law, holders of shares of any class or
series, who do not vote in favor of the merger or consolidation or consent to
the transaction in writing, have the right, in certain circumstances, to dissent
from a merger or consolidation by demanding payment in cash for their shares
equal to the fair value (excluding any appreciation or depreciation as a
consequence or in expectation of the transaction) of their shares. Delaware law
grants dissenters' appraisal rights only in the case of mergers or
consolidations and not in the case of a sale or transfer of assets or a purchase
of assets for stock regardless of the number of shares being issued. Further, no
dissenters' appraisal rights are available for shares of any class or series
listed on a national securities exchange or designated as a national market
system security on the Nasdaq National Market or held of record by more than
2,000 shareholders, unless the agreement of merger or consolidation converts
shares into anything other than (a) stock of the surviving corporation, (b)
stock of another corporation which is either listed on a national securities
exchange or designated as a national market system security on the Nasdaq
National Market or held of record by more than 2,000 shareholders, (c) cash in
lieu of fractional shares or (d) some combination of the above. In addition,
dissenters' appraisal rights are not available for any shares of the surviving
corporation if the merger did not require the vote of the shareholders of the
surviving corporation.
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OLD STYLECLICK. Under California law, if the approval of the outstanding
shares of the corporation is required for a merger or reorganization, each
shareholder entitled to vote on the transaction, who did not vote in favor of
the reorganization, may require the corporation to purchase for cash at their
fair market value the shares owned by such shareholder. The fair value of the
shares is determined as of the day before the first announcement of the proposed
reorganization or merger (excluding any appreciation or depreciation as a
consequence or in expectation of the transaction). No appraisal rights are
available for shares listed on any national securities exchange certified by the
Commissioner of Corporations or listed on the list of OTC margin stocks issued
by the Board of Governors of the Federal Reserve Systems, unless (a) there
exists, with respect to such shares, any restriction on transfer imposed by the
corporation or by any law or regulation or (b) if demands for payment are filed
with respect to 5% or more of the outstanding shares of that class. See "The
Merger and Related Transactions-- Dissenters' Appraisal Rights."
APPROVAL OF MERGERS AND ASSET SALES
NEW STYLECLICK. Under Delaware law, the affirmative vote of a majority of
the outstanding shares of all classes of stock entitled to vote on a transaction
is required to approve a merger or consolidation or the sale, lease or exchange
of all or substantially all of the corporation's assets. No vote is required,
however, in connection with a merger in which the corporation is the surviving
corporation and (a) the merger agreement does not amend the corporation's
certificate of incorporation, (b) each share of outstanding capital stock before
the merger is to be outstanding, with the same rights, after the merger, and (c)
the number of shares of capital stock to be issued in the merger is less than
20% of the outstanding capital stock before the merger.
OLD STYLECLICK. California law generally requires a vote by the
shareholders of (a) each constituent corporation to a merger, (b) a corporation
selling all or substantially all of its assets, (c) the acquiring corporation in
either a share-for-share exchange or a sale of assets reorganization and (d) a
parent corporation (even though it is not a constituent corporation) whose
equity securities are being issued in connection with a corporate reorganization
such as a triangular merger. California law does not require shareholder
approval in the case of any corporation in a merger as to which a corporation
and/or its shareholders will hold five-sixths or more of the voting power of the
surviving or acquiring corporation after consummation of the merger (unless the
shares acquired in the merger have different rights, preferences, privileges or
restrictions than those surrendered).
CORPORATE OPPORTUNITIES
NEW STYLECLICK. New Styleclick's certificate of incorporation provides that
USAi, its affiliates, and their respective officers, directors, agents,
shareholders, members, partners or affiliates, do not have a fiduciary duty or
any other obligation to share any business opportunities with New Styleclick and
releases them from any liability that could result from a breach of this kind of
obligation. Business opportunities include investments, business opportunities
or prospective economic advantages in which New Styleclick otherwise could have
an interest or expectancy.
OLD STYLECLICK. Old Styleclick's articles of incorporation do not contain a
comparable provision.
TRANSACTIONS WITH INTERESTED STOCKHOLDERS
NEW STYLECLICK. Under Delaware law, a corporation is prohibited from
engaging in any "business combination" with an "interested stockholder" (i.e., a
person who, together with affiliates or associates, owns or within the prior
three year period did own, 15% or more of the corporation's outstanding voting
stock for a period of three years following the date on which the shareholder
became an interested stockholder), unless:
- the original certificate of incorporation provides otherwise;
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- prior to the date on which the person became an interested stockholder,
the board of directors either approved the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder;
- the interested stockholder owned 85% or more of the voting stock of the
corporation (excluding specified shares) upon completion of the
transaction as the result of which he or she became an interested
stockholder;
- on or after the date on which such person became an interested
stockholder, the business combination is approved by the board of
directors and the affirmative vote, at as special meeting and not by
written consent, of at least 66 2/3% of the outstanding voting shares of
the corporation (excluding shares held by such interested stockholder); or
- the corporation does not have a class of voting stock that is listed on a
national securities exchange, authorized for quotation on an inter-dealer
quotation system of a registered national securities association, or held
of record by more than 2,000 shareholders unless any of the foregoing
results from action taken, directly or indirectly, by an interested
stockholder or from a transaction in which a person becomes an interested
stockholder.
A business combination includes:
- mergers, consolidations and sales or other dispositions of 10% or more of
the assets of a corporation to or with an interested stockholder;
- certain transactions resulting in the issuance or transfer to an
interested stockholder of any stock of such corporation or its
subsidiaries; and
- other transactions resulting in a disproportionate financial benefit to an
interested stockholder.
New Styleclick will be governed by this provision. However, this provision
would not apply to USANi Sub because the transaction by which it became an
interested stockholder was approved by the New Styleclick Board of Directors.
OLD STYLECLICK. There is no comparable provision under California law.
However, California law does provide that, except where the fairness of the
terms and conditions of the transaction have been approved by the California
Commissioner of Corporations and except in a "short-form" merger (the merger of
a parent corporation with a subsidiary in which the parent owns at least 90% of
the outstanding shares of each class of the subsidiary's stock), if the
surviving corporation or its parent corporation owns, directly or indirectly,
shares of the target corporation representing more than 50% of the voting power
of the target corporation prior to the merger, the nonredeemable common stock of
a target corporation may be converted only into nonredeemable common stock of
the surviving corporation or its parent corporation, unless all of the
shareholders of the class consent. The effect of this provision is to prohibit a
cash-out merger of minority shareholders, except where the majority shareholders
already own 90% or more of the voting power of the target corporation and,
therefore, could effect a short-form merger to accomplish such a cash-out of
minority shareholders.
INTERESTED DIRECTOR TRANSACTIONS
Under both California and Delaware law, certain contracts or transactions in
which one or more of a corporation's directors have an interest are not void or
voidable because of such interest if certain conditions are met. With certain
exceptions, the conditions are similar under California and Delaware law. Under
California and Delaware law, (a) either the shareholders or the board of
directors must approve any such contract or transaction after full disclosure of
the material facts, and, in the case of board approval, the contract or
transaction must also be "just and reasonable" (in California) or "fair" (in
Delaware) to the corporation, or (b) the contract or transaction must have been
"just and reasonable" or "fair" (as applicable) as to the corporation at the
time it was approved. In the latter case,
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California law explicitly places the burden of proof on the interested director.
Under California law, if shareholder approval is sought, the interested director
is not entitled to vote his shares at a shareholder meeting with respect to any
action regarding such contract or transaction. If board approval is sought, the
contract or transaction must be approved by a majority vote of a quorum of the
directors, without counting the vote of any interested directors (except that
interested directors may be counted for purposes of establishing a quorum).
Under Delaware law, if shareholder approval is sought generally, the contract or
transaction must be approved in good faith by a majority of disinterested
shareholders. If board approval is sought, the contract or transaction must be
approved by a majority of the disinterested directors (even though less than a
majority of quorum). Therefore, certain transactions that the Old Styleclick
Board of Directors might not be able to approve because of the number of
interested directors could be approved by a majority of the disinterested
directors of New Styleclick, although less than a majority of a quorum.
LOANS TO OFFICERS AND EMPLOYEES
NEW STYLECLICK. Under Delaware law, a corporation may make loans to,
guaranty the obligations of, or otherwise assist its officers or other employees
and those of its subsidiaries (including directors who are also officers or
employees) when such action, in the judgment of the directors, may reasonably be
expected to benefit the corporation.
OLD STYLECLICK. Under California law, a corporation cannot make any loan or
guaranty to or for the benefit of a director or officer of the corporation or
its parent corporation unless such loan or guaranty, or a plan providing for
such loan or guaranty, is approved by shareholders owning a majority of the
outstanding shares of the corporation. However, under California law, any
corporation with 100 or more shareholders of record may authorize the board of
directors to approve loans or guaranties to or on behalf of officers (whether or
not such officers are directors) if the board determines that any such loan or
guaranty may reasonably be expected to benefit the corporation. Old Styleclick's
bylaws do not authorize the Old Styleclick Board of Directors to approve such
loans or guaranties.
NOTICE PROVISIONS
NEW STYLECLICK. New Styleclick's bylaws require that shareholders entitled
to vote be provided written notice of any meeting no more than 60 days nor less
than 10 days prior to the date of the meeting. In the case of special meetings,
the notice must state the purpose or purposes for which the meeting is called.
OLD STYLECLICK. California law requires that shareholders entitled to vote
be provided written notice no more than 60 days nor less than 10 days prior to
the date of any meeting. In the case of special meetings, the notice must state
the purpose or purposes for which the meeting is called.
INSPECTION OF BOOKS AND RECORDS
NEW STYLECLICK. New Styleclick's bylaws permit the New Styleclick Board of
Directors to determine if, when and under what conditions shareholders may
inspect New Styleclick's books and records.
OLD STYLECLICK. California law allows any shareholder to inspect the
accounting books and records and minutes of proceedings of the shareholders and
the board of directors and to inspect the shareholders' list at any reasonable
time during usual business hours, for a purpose reasonably related to such
holder's interests as a shareholder. California law also provides for an
absolute right to inspect and copy the corporation's shareholders list by a
shareholder or shareholders holding at least 5% in the aggregate of the
corporation's outstanding voting shares, or any shareholder or shareholders
holding 1% or more of the shares who have filed a Schedule 14A with the
Commission.
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FUTURE SHAREHOLDER PROPOSALS
If the merger is not consummated, Old Styleclick will hold an annual meeting
of shareholders. If such meeting is held, any proposals of shareholders of Old
Styleclick that are intended to be presented at Old Styleclick's 2000 annual
meeting had to be received by Old Styleclick no later than December 31, 1999 to
be included in the proxy statement and form of proxy relating to that meeting.
EXPERTS
Ernst & Young LLP, independent auditors, have audited Old Styleclick
financial statements at and for the year ended December 31, 1999 as contained in
their report. We have included these financial statements in the proxy
statement/prospectus and elsewhere in the registration statement in reliance on
Ernst & Young LLP's report given their authority as experts in accounting and
auditing.
Singer Lewak Greenbaum & Goldstein LLP, independent certified public
accountants, have audited Old Styleclick financial statements at December 31,
1998 and for the years ended December 31, 1998 and 1997 as contained in their
report. We have included these financial statements in the proxy
statement/prospectus and elsewhere in the registration statement in reliance on
Singer Lewak Greenbaum and Goldstein LLP's report given their authority as
experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited ISN financial
statements at December 31, 1999 and 1998, and for each of the three years in the
period ended December 31, 1999 as contained in their report. We have included
these financial statements in the proxy statement/prospectus and elsewhere in
the registration statement in reliance on Ernst & Young LLP's report given their
authority as experts in accounting and auditing.
Certain legal matters in connection with the issuance of New Styleclick
common stock under the merger agreement and other transaction documents and the
federal income tax consequences of the merger will be passed upon for ISN, USANi
Sub and USAi by Paul, Weiss, Rifkind, Wharton, & Garrison and for Old Styleclick
by Coudert Brothers.
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WHERE YOU CAN FIND MORE INFORMATION
Old Styleclick files annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information filed by Old Styleclick at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
The public reference room at the SEC's office in Washington, D.C. is located at
450 Fifth Street, N.W. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Old Styleclick's SEC filings are also
available to the public from commercial document retrieval services and at the
website maintained by the SEC at "http://www.sec.gov."
New Styleclick has filed a registration statement on Form S-4 to register
with the SEC New Styleclick Class A common stock to be delivered to Old
Styleclick shareholders in the merger. This proxy statement/prospectus is a part
of that registration statement and constitutes a prospectus of New Styleclick in
addition to being a proxy statement of Old Styleclick for the special meeting.
As permitted by SEC rules, this proxy statement/prospectus does not contain all
of the information you can find in the registration statement or the exhibits to
the registration statement.
The federal securities laws allow New Styleclick and Old Styleclick to
"incorporate by reference" information into this proxy statement/prospectus,
which means important information may be disclosed to you by referring you to
another document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this proxy statement/prospectus, except for
any information superseded by information in, or incorporated by reference in,
this proxy statement/prospectus. This proxy statement/prospectus incorporates by
reference the documents set forth below that have been previously filed with the
SEC. These documents contain important information about the companies and their
finances.
<TABLE>
<CAPTION>
OLD STYLECLICK SEC FILINGS (FILE NO. 33-3116) PERIOD
- --------------------------------------------- ------
<S> <C>
Annual Report on Form 10-KSB/A Year ended December 31, 1998.
Quarterly Report on Form 10-Q Quarter ended September 30, 1999.
Quarterly Report on Form 10-Q Quarter ended March 31, 1999.
Quarterly Report on Form 10-Q Quarter ended June 30, 1999.
Current Report on Form 8-K Dated February 9, 2000.
</TABLE>
New Styleclick and Old Styleclick are also incorporating by reference
additional documents that Old Styleclick may file with the SEC between the date
of this proxy statement/prospectus and the date of the special meeting. If any
document Old Styleclick files with the SEC during that time period changes in
any way a statement made in any earlier document, including this document, you
should consider the most recently reported information to be the correct
information making the earlier statements invalid to the extent they are
modified.
New Styleclick has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to New Styleclick, Old
Styleclick has supplied all the information relating to Old Styleclick, and ISN
has supplied all the information relating to ISN.
If you are an Old Styleclick shareholder, Old Styleclick may have sent you
some of Old Styleclick's documents incorporated by reference. You also may
obtain any of them through either Old Styleclick or the SEC. Documents
incorporated by reference are available from any of the companies without
charge, excluding all exhibits unless specifically incorporated by reference in
this proxy statement/prospectus. Shareholders may obtain free copies of
documents incorporated by reference in this proxy statement/
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prospectus or those that are exhibits to the Form S-4 by requesting them in
writing or by telephone from the appropriate party at the following address:
For Old Styleclick Documents:
Styleclick.com Inc.
3861 Sepulveda Blvd.
Culver City, California 90230
Tel: (310) 751-2100
Fax: (310) 751-2120
Attention: Investor Relations
Website: www.styleclickinc.com
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM ANY OF THE COMPANIES, PLEASE DO
SO BY [ , 2000] TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus to vote on the approval of the
merger agreement. This proxy statement/prospectus is dated
[ ], 2000. You should not assume that the information
contained in the proxy statement/prospectus is accurate as of any date other
than such date, and neither the mailing of this proxy statement/prospectus to
shareholders nor the delivery of New Styleclick Class A common stock in the
merger shall create any implication to the contrary.
NEW STYLECLICK, OLD STYLECLICK AND ISN HAVE NOT AUTHORIZED ANYONE TO GIVE
YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATION ABOUT THE PROPOSED MERGER OR
THE COMPANIES THAT DIFFERS FROM OR ADDS TO THE INFORMATION CONTAINED IN THIS
DOCUMENT OR IN THE DOCUMENTS NEW STYLECLICK, OLD STYLECLICK AND ISN HAVE
PUBLICLY FILED WITH THE SEC. THEREFORE, IF ANYONE SHOULD GIVE YOU ANY DIFFERENT
OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
IF YOU LIVE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE OR
SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
DOCUMENT, OR TO ASK FOR PROXIES, OR, IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL
TO DIRECT SUCH ACTIVITIES, THEN THE OFFER PRESENTED BY THIS DOCUMENT DOES NOT
EXTEND TO YOU.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STYLECLICK, INC.
Report of Independent Auditors............................ F-2
Balance Sheet at March 21, 2000........................... F-3
Notes to Financial Statement.............................. F-4
STYLECLICK.COM INC.
Report of Independent Auditors............................ F-5
Report of Independent Certified Public Accountants........ F-6
Balance Sheets at December 31, 1999 and 1998.............. F-7
Statements of Operations for the years ended December 31,
1999, 1998 and 1997..................................... F-8
Statement of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997........................ F-9
Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997..................................... F-10
Notes to Financial Statements............................. F-12
INTERNET SHOPPING NETWORK LLC
Report of Independent Auditors............................ F-24
Balance Sheets at December 31, 1999 and 1998.............. F-25
Statements of Operations for the years ended December 31,
1999, 1998 and 1997..................................... F-26
Statement of Stockholders'/Members' Equity for the years
ended December 31, 1999, 1998 and 1997.................. F-27
Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997..................................... F-28
Notes to Financial Statements............................. F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholder of
Styleclick, Inc.
We have audited the accompanying balance sheet of Styleclick, Inc. (the
"Company") as of March 21, 2000. This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit 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 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 provide a reasonable basis for
our opinion.
In our opinion, the financial statement referred to above present fairly, in
all material respects, the financial position of Styleclick, Inc. as of
March 21, 2000, in conformity with accounting principles generally accepted in
the United States.
/s/ Ernst & Young LLP
New York, New York
March 21, 2000
F-2
<PAGE>
STYLECLICK, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 21,
2000
---------
<S> <C>
Assets
Cash...................................................... $ 1
--------
Total current assets........................................ 1
========
Total assets................................................ $ 1
========
Shareholder's equity
Preferred stock--$.01 par value; 25,000,000 shares
authorized, none issued and outstanding:
Class A common stock--$.01 par value, 150,000,000 shares
authorized, none issued and outstanding.................
Class B common stock--$.01 par value; 112,500,000 shares
authorized; 1 shares issued and outstanding............. --
Additional paid-in capital................................ 1
--------
Total shareholder's equity.................................. $ 1
========
</TABLE>
See accompanying notes.
F-3
<PAGE>
STYLECLICK, INC.
NOTES TO FINANCIAL STATEMENTS
DESCRIPTION OF BUSINESS
Styleclick, Inc. (the "Company") was incorporated in the State of Delaware
on March 21, 2000 as a wholly owned subsidiary of USANi LLC and an indirect
non-wholly subsidiary of USA Networks, Inc. The Company does not have any
operations.
SHAREHOLDER'S EQUITY
COMMON STOCK
Class A common stock has 150,000,000 shares authorized and none are issued
and outstanding. Class B common stock has 112,500,000 shares authorized and one
share is issued and outstanding. All common stock has a $0.01 par value.
Class A common stock has one vote per share and Class B common stock has ten
votes per share.
PREFERRED STOCK
Preferred stock has 25,000,000 shares authorized with a par value of $0.01
and none are issued and outstanding.
F-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
of Styleclick.com Inc.
We have audited the accompanying balance sheet of Syleclick.com Inc. as of
December 31, 1999 and the related statements of operations, stockholders'
equity, and cash flows for the year then ended. Our audit also included the
financial statement schedule listed in the Index at Item 21(b). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit.
We conducted our audit 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 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 Styleclick.com Inc. at
December 31, 1999, and the results of its operations and its cash flows for the
year ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Los Angeles, California
February 21, 2000
F-5
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Styleclick.com Inc. (formerly ModaCAD, Inc.)
We have audited the accompanying balance sheet of Styleclick.com Inc. (formerly
ModaCAD, Inc.) as of December 31, 1998, and the related statements of
operations, stockholders' equity and cash flows for each of the two years in the
period 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 Styleclick.com Inc. (formerly
ModaCAD, Inc.) as of December 31, 1998, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1998
in conformity with generally accepted accounting principles.
/s/ Singer Lewak Greenbaum & Goldstein
- --------------------------------------------------
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
March 16, 1999
F-6
<PAGE>
STYLECLICK.COM INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,395,991 $ 6,343,599
Accounts receivable, net of allowance for doubtful
accounts of $242,229 and $132,500 at December 31, 1999
and 1998, respectively.................................. 799,862 752,487
Deferred royalties........................................ 632,988 --
Deferred advertising and promotion........................ 467,496 --
Prepaid expenses and other current assets................. 1,793,181 397,101
------------ ------------
Total current assets........................................ 5,089,518 7,493,187
Capitalized computer software development costs, net of
accumulated amortization of $7,880,904 and $6,039,105 at
December 31, 1999 and 1998, respectively.................. 2,294,914 3,014,043
Fixed assets, net of accumulated depreciation of $1,823,850
and $1,069,832 at December 31, 1999 and 1998,
respectively.............................................. 2,600,458 2,459,656
Deferred royalties, non-current............................. 4,430,942 --
Deferred advertising and promotion, non-current............. 545,421 --
Other assets................................................ 85,663 83,055
------------ ------------
Total assets................................................ $ 15,046,916 $ 13,049,941
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 1,778,728 $ 503,198
Deferred income........................................... 196,718 237,052
------------ ------------
Total current liabilities................................... 1,975,446 740,250
Commitments (Note 3)
Stockholders' equity:
Common stock; No par value; 15,000,000 shares authorized,
7,673,515 shares and 6,143,374 shares issued and
outstanding at December 31, 1999 and 1998,
respectively............................................ 43,216,747 26,575,627
Accumulated deficit....................................... (30,145,277) (14,265,936)
------------ ------------
Total stockholders' equity.................................. 13,071,470 12,309,691
------------ ------------
Total liabilities and stockholders' equity.................. $ 15,046,916 $ 13,049,941
============ ============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
STYLECLICK.COM INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
------------ ------------ ----------
<S> <C> <C> <C>
Net revenues.......................................... $ 6,173,924 $ 6,681,280 $4,449,857
Cost of sales......................................... 667,701 82,135 87,470
------------ ------------ ----------
Gross profit.......................................... 5,506,223 6,599,145 4,362,387
Operating costs and expenses:
Selling, general and administrative................... 13,361,980 8,290,979 3,393,765
Research and development.............................. 6,054,105 3,541,300 171,769
Merger related costs.................................. 405,333 -- --
Amortization of software development costs............ 1,841,798 4,889,986 774,135
------------ ------------ ----------
Total operating costs and expenses.................... 21,663,216 16,722,265 4,339,669
------------ ------------ ----------
Operating profit (loss)............................... (16,156,993) (10,123,120) 22,718
------------ ------------ ----------
Other income (expense):
Loss in equity investment........................... -- (55,324) --
Other income........................................ -- 2,067 11,190
Investment income................................... 277,652 488,738 320,367
------------ ------------ ----------
Total other income (expense).......................... 277,652 435,481 331,557
------------ ------------ ----------
Net income (loss)..................................... $(15,879,341) $ (9,687,639) $ 354,275
============ ============ ==========
Basic income (loss) per share......................... $ (2.24) $ (1.59) $ 0.07
============ ============ ==========
Diluted income (loss) per share....................... $ (2.24) $ (1.59) $ 0.06
============ ============ ==========
Weighted average shares outstanding................... 7,092,374 6,088,247 4,800,918
============ ============ ==========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
STYLECLICK.COM INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997................. 3,865,790 $11,593,905 $ (4,932,572) $ 6,661,333
Issuance of common stock for stock
options exercised...................... 29,000 149,376 -- 149,376
Warrants exercised....................... 2,128,184 13,369,126 -- 13,369,126
Warrant redemption cost.................. -- (167,055) -- (167,055)
Issuance of warrants for services........ -- 572,000 -- 572,000
Net income............................... -- -- 354,275 354,275
--------- ----------- ------------ ------------
Balance at December 31, 1997............... 6,022,974 25,517,352 (4,578,297) 20,939,055
Issuance of common stock for stock
options exercised...................... 94,000 837,875 -- 837,875
Warrants exercised....................... 26,400 158,400 -- 158,400
Issuance of warrants for services........ -- 62,000 -- 62,000
Net loss................................. -- -- (9,687,639) (9,687,639)
--------- ----------- ------------ ------------
Balance at December 31, 1998............... 6,143,374 26,575,627 (14,265,936) 12,309,691
Issuance of common stock................. 779,423 7,761,196 -- 7,761,196
Issuance of common stock for stock
options exercised...................... 44,500 422,750 -- 422,750
Issuance of common stock for services.... 455,218 5,000,000 -- 5,000,000
Warrants exercised....................... 251,000 1,256,000 -- 1,256,000
Issuance of warrants for services........ -- 2,201,174 -- 2,201,174
Net loss................................. -- -- (15,879,341) (15,879,341)
--------- ----------- ------------ ------------
Balance at December 31, 1999............... 7,673,515 $43,216,747 $(30,145,277) $ 13,071,470
========= =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE>
STYLECLICK.COM INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................................... $(15,879,341) $ (9,687,639) $ 354,275
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities
Depreciation..................................... 754,018 292,671 65,665
Amortization of capitalized software development
costs.......................................... 1,841,797 4,889,986 774,135
Capitalized computer software development
costs.......................................... (1,122,668) (2,895,512) (2,682,956)
Amortization of deferred costs for services
rendered....................................... 974,327 62,000 12,000
Fixed assets acquired in exchange for sales...... -- (275,000) --
Loss in equity investment........................ -- 55,324 --
Changes in operating assets and liabilities:
Accounts receivable, net....................... (47,375) 1,408,665 (818,299)
Prepaid expenses and other current assets...... (1,246,080) 350,675 (34,343)
Other assets................................... (2,608) 8,593 (69,208)
Accounts payable and accrued expenses.......... 1,275,530 142,477 (10,022)
Deferred income................................ (40,334) 132,772 29,501
------------ ------------ -----------
Net cash used in operating activities................ (13,492,734) (5,514,988) (2,379,252)
INVESTING ACTIVITIES
Purchase of fixed assets............................. (894,820) (1,557,680) (616,166)
------------ ------------ -----------
Net cash used in investment activities............... (894,820) (1,557,680) (616,166)
FINANCING ACTIVITIES
Payments on officers/stockholders note payable....... -- -- (75,000)
Stock options exercised.............................. 422,750 837,875 149,376
Warrants exercised................................... 1,256,000 158,400 13,369,126
Issuance of common stock............................. 7,761,196 -- (167,055)
------------ ------------ -----------
Net cash provided by financing activities............ 9,439,946 996,275 13,276,447
Net (decrease) increase in cash and cash
equivalents........................................ (4,947,608) (6,076,393) 10,281,029
------------ ------------ -----------
Cash and cash equivalents at beginning of year....... 6,343,599 12,419,992 2,138,963
------------ ------------ -----------
Cash and cash equivalents at end of year............. $ 1,395,991 $ 6,343,599 $12,419,992
============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE>
STYLECLICK.COM INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
During 1999, the Company recorded deferred royalties and deferred
advertising and promotion costs of $7,141,174 due to the issuance of 455,218
shares of the Company's common stock, warrants to purchase a total of 538,674
shares of the Company's common stock to a project co-developer, and the issuance
of warrants to purchase a total of 350,000 shares of the Company's common stock
in consideration of business promotional services to be provided for the
Company. During 1999, $914,327 of such costs were expensed.
During the years ended December 31, 1999, 1998 and 1997, the Company paid no
income taxes or interest.
See accompanying notes to financial statements.
F-11
<PAGE>
STYLECLICK.COM INC.
NOTES TO FINANCIAL STATEMENTS
1. LINE OF BUSINESS AND BASIS OF PRESENTATION
Styleclick.com Inc. ("Styleclick" or the "Company"), formerly known as
Modacad, Inc., was incorporated in California on February 4, 1988. The Company
is in the business of developing, marketing, and supporting electronic commerce
("E-commerce") Internet web-sites; Internet enabled applications; and business
and consumer software products, based on its proprietary technology for content
management, including modeling and rendering technology.
Beginning in 1999, the Company shifted its primary business focus from the
business-to-business marketplace to the emerging consumer Internet E-commerce
market. In connection with this shift in focus, the Company divested many of its
products in the business-to-business and consumer software product groups. The
Company is focusing its technology to build and deploy E-commerce Internet
sites, such a comparative search and shopping solutions aimed at facilitating
businesses' use of electronic commerce to reach consumers in the apparel,
footwear, accessories, cosmetics and home furnishings industries.
The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
As shown in the accompanying financial statements, the Company incurred
significant operating losses and negative cash flows from operations, for the
last two years and is currently being advanced funds by USA Networks, Inc.
("USAi") pursuant to USAi's $10 million bridge loan to the Company in
contemplation of the Company's merger with the Internet Shopping Network (see
Note 11).
The Company's continuation as a going concern is dependent upon the success
of its merger with the Internet Shopping Network or the raising of additional
debt or equity financing. The Company believes that the proceeds from USAi's
investment, in addition to revenue generated from expansion of the Company's
services in the market place will support the Company's operations through 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investments purchased with original
maturities of three months or less to be cash equivalents.
SOFTWARE DEVELOPMENT COSTS
Prior to 1999, software development costs were capitalized in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Cost of Computer Software to Be Sold, Leased, or Otherwise Marketed ("SFAS
No. 86")". Under SFAS No. 86, software development costs were capitalized upon
the establishment of technological feasibility and discontinued when the product
was available for sale. Capitalized software development costs were comprised
primarily of direct overhead, payroll costs and consultants' fees of individuals
working directly on the development of specific software products.
On January 1, 1999, the Company adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use ("SOP 98-1")". SOP 98-1 identifies three stages of a typical
software development project: preliminary project stage, application development
stage, and the post- implementation stage. As required by SOP 98-1, the Company
capitalizes
F-12
<PAGE>
STYLECLICK.COM INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
certain qualifying costs incurred during the application development stage. All
other internal use development costs are expensed as incurred.
The carrying value of software and development costs is periodically
reviewed, and a loss is recognized when the value of estimated undiscounted cash
flow benefit related to the asset falls below the unamortized cost, consistent
with the Company's policy regarding long-lived assets. Costs capitalized for the
years ended December 31, 1999 and 1998 were $1,122,668 and $3,050,471,
respectively.
Amortization of capitalized software development costs is provided on a
project-by-project basis on the straight-line method over the estimated economic
life of the products (not to exceed three years).
In March 2000, Emerging Issues Task Force 00-2 (EITF 00-2), ACCOUNTING FOR
WEBSITE DEVELOPMENT COSTS was issued. EITF 00-2 is effective prospectively for
all costs incurred for quarters beginning after June 30, 2000 and addresses how
an entity should account for costs incurred to develop a website, specifically
which of four stages of costs are expensed and capitalized. The Company does not
expect adoption of EITF 00-2 to have a material impact, if any, on its financial
position or results of operations.
FIXED ASSETS
Furniture and equipment are recorded at cost. Depreciation is computed by
using the straight-line method over an estimated useful life of five years.
Maintenance and minor replacements are charged to expense as incurred. Gains and
losses on disposals of furniture and equipment are included in the results of
operations.
REVENUE RECOGNITION
The Company recognizes revenues generated from vendor participation in the
Company's CD-ROM applications ("CD-ROM participation fees") and the Company's
on-line shopping Internet web-sites ("project participation fees") based upon
the accomplishment of contractual milestones in a manner that matches revenue
with the related costs. Revenue generated from services provided to customers in
the development and maintenance of their Internet web-sites ("web-site
development and maintenance fees") is recognized based on the accomplishment of
contractual milestones in a manner that matches revenue with the related costs.
Generally, the terms of contracts that generate CD-ROM participation fees,
project participation fees, and web-site development and maintenance fees are
short term in nature (twelve months or less).
To date, the Company has entered into several barter transaction
arrangements where by it receives certain non-monetary benefits. To date, the
Company has not recognized any revenue under these contracts because it does not
have a history of receiving cash for similar transactions.
Revenue generated from the Company's fulfillment services provided to the
Company's on-line shopping Internet web-site participant vendors ("transactional
revenue") is recognized based on a percentage of gross revenues from the related
transactions upon notification of shipment of the vendors' products by the
Company's fulfillment warehouse or the participant vendors.
Revenue generated from referral of vendors' products to Internet consumers
through the Company's on-line shopping Internet web-sites ("product referral
fees") are recognized based on a percentage of gross revenues from the related
transactions based upon notification of the respective sales
F-13
<PAGE>
STYLECLICK.COM INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
information by the Company's vendors, the independent Internet traffic tracking
companies or the Company's on-line tracking reports.
Revenue generated from advertising on the Company's on-line shopping
web-sites ("on-line advertising revenue") is recognized over the terms of the
corresponding contracts on a straight-line basis. The Company recognizes
revenues related to software licenses and software maintenance in accordance
with the SOP 97-2, "Software Revenue Recognition." Product revenue is recorded
at the time of shipment, net of estimated allowances and returns. Revenue
generated from post contract customer support is recognized on a straight-line
basis over the term of the corresponding contract, which is generally twelve
months.
COST OF SALES
Costs of sales are comprised primarily of product fulfillment costs, credit
card processing fees, direct shipping material and product royalties associated
with the respective revenues.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 121. "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of" the Company
periodically reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows (on an
undiscounted basis) expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Advertising expense for the
years ended December 31, 1999, 1998 and 1997 was $4,513,918, $992,217 and
$19,629, respectively and is included in the statement of operations as selling,
general and administrative expense.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred. These
costs consist primarily of salaries, consulting fees and direct overhead.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation arrangements in accordance
with the provisions of Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123 (SFAS
No. 123), "Accounting for Stock-Based Compensation." The Company accounts for
equity securities issued to non-employees in accordance with the provisions of
SFAS No. 123. All stock options are issued at an exercise price at or above the
deemed fair value of the Company's stock.
F-14
<PAGE>
STYLECLICK.COM INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes under the liability method, and
deferred tax assets and liabilities are recognized for the future tax
consequences attributed to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share excludes dilution and is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding during the reported period. Diluted net income (loss) per share
reflects the potential dilution that could occur if stock options and other
commitments to issue common stock were exercised using the treasury stock
method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. The Company's financial instruments
include cash and cash equivalents and accounts receivable and their carrying
amounts approximate fair value.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and trade receivables. The Company
places its cash with high quality financial institutions. Amounts of $1,106,074
and $6,026,869 held in a money market account were fully insured at
December 31, 1999 and 1998, respectively. The Company extends credit based on an
evaluation of the customer's financial condition, generally without requiring
collateral. 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.
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.
F-15
<PAGE>
STYLECLICK.COM INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FIXED ASSETS
Fixed assets at December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Computer equipment and software............................. $3,365,275 $2,607,578
Office equipment............................................ 318,204 233,652
Furniture and fixtures...................................... 268,969 255,510
Leasehold improvements...................................... 471,860 432,748
---------- ----------
4,424,308 3,529,488
Less accumulated depreciation............................... 1,823,850 1,069,832
---------- ----------
$2,600,458 $2,459,656
========== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1999, 1998 and 1997
was $754,018, $447,628 and $210,712, respectively, of which $0, $154,957 and
$145,047, was capitalized as software development costs during 1999, 1998 and
1997 respectively.
4. COMMITMENTS
LEASES
The Company leases certain facilities for its corporate and operations
offices under long-term, non-cancelable operating lease agreements which expire
through April 30, 2006.
Future minimum aggregate lease payments under non-cancelable operating
leases with initial or remaining terms of one year or more at December 31, 1999
were as follows:
<TABLE>
<CAPTION>
YEARS ENDING SUB-LEASE RENTAL
DECEMBER 31, OPERATING LEASES INCOME TOTAL
--------------------- ---------------- ---------------- ----------
<S> <C> <C> <C>
2000 $ 559,135 $ 105,000 $ 454,135
2001 528,375 105,000 423,375
2002 487,259 52,500 434,759
2003 446,142 -- 446,142
2004 406,891 -- 406,891
Thereafter..... 541,326 -- 541,326
---------- ---------- ----------
$2,969,128 $ 262,500 $2,706,628
========== ========== ==========
</TABLE>
Rent expense for the years ended December 31, 1999, 1998 and 1997 was
approximately $468,557, $451,253 and $120,000, respectively.
EMPLOYMENT AGREEMENTS
In 1998, the Company entered into two new employment agreements, expiring on
December 31, 2005, with two key officers of the Company. Under the agreements,
these officers receive aggregate annual salaries of $400,000 and monthly
aggregate automobile allowances of $1,200. In addition, these officers received
aggregate signing bonuses of $200,000. Further, the Company shall pay an annual
performance bonus to each officer for each calendar year of the employment term
in an amount determined by the Compensation Committee of the Board of the
Directors. In 1999, the Company
F-16
<PAGE>
STYLECLICK.COM INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. COMMITMENTS (CONTINUED)
amended these two employment agreements to increase annual salaries paid to
these officers to an aggregate amount of $460,000 effective January 1, 2000 and
awarded $200,000 performance bonuses to these officers.
In connection with the employment agreements, the same key officers were
granted five-year options to purchase up to an aggregate of 400,000 shares of
the Company's common stock at an exercise price of $15.88. Such options vest and
become exercisable over the next three years and contain accelerated vesting and
exercisability criteria based on achieving certain operating results. Options to
purchase 133,332 shares are vested and became exercisable as of December 31,
1999 and options to purchase 133,334 and 133,334 shares will be vested and
become exercisable as of December 31, 2000 and 2001, respectively.
In July 1999, the Company entered into a new employment agreement with a key
officer of the company that expires on June 30, 2002. Under the agreement, the
officer receives an annual salary of $125,000 and a monthly automobile allowance
of $400.
E-COMMERCE MARKETING AGREEMENT
In June 1999, the Company entered into a two-year interactive marketing
agreement with an Internet Portal company (the "Portal"). Under the agreement,
the Portal will promote the Company's E-commerce Internet web-site in several
areas of the Portal's Internet web-sites. In consideration of such promotion,
the Company will make payments to the Portal totaling up to $7.5 million in cash
through January 2001. As of December 31, 1999, the Company had paid $3,214,286
in cash to the Portal under this agreement. In addition, in June 1999, the
Company issued warrants to the Portal to purchase 100,000 shares of the
Company's common stock at an exercise price of $12.34 that expire in
December 2001. The fair value of such warrants was $200,000 based on the fair
value of the consideration received. This cash and the value of the warrant was
deferred and is included in prepaid expenses and other current assets at
December 31, 1999, net amount of amortization of $1,925,000 in 1999. The entire
amount of $7.7 million is being amortized to expense over the two-year term of
the marketing agreement.
F-17
<PAGE>
STYLECLICK.COM INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCKHOLDERS' EQUITY
COMMON STOCK AND WARRANTS
In November 1997, the Company issued a warrant to purchase 126,316 shares of
common stock to its project co-developer ("Co-developer") for services provided
to the Company. The warrant expires in November 2002 and has an exercise price
of $19.00 per share of common stock. Under the Project Development Agreement,
the Company had an obligation to the Co-developer for certain royalty payments
in the form of cash and common stock purchase warrants.
In April 1999, the Company entered into a Stock and Warrant Purchase and
Investor Rights Agreement ("Purchase Agreement") with the Co-developer. Under
the Purchase Agreement, the Company issued 455,218 shares of common stock to the
Co-developer. Further, in return for termination of the Company's royalty
obligation to the Co-developer, the Company issued warrants to purchase an
aggregate of 538,674 shares of common stock with exercise prices ranging from
$10.98 to $13.18. The warrants expire as follows: 189,674 shares in April 2000,
189,674 shares in July 2000 and 159,326 shares in April 2004. The value of the
common stock and warrants of approximately $5.5 million has been based on the
expected future royalty obligation and will be amortized over the original
royalty term through December 2007.
Concurrent with the Purchase Agreement, the Company entered into a
Securities Purchase Agreement with each of four investors. Under the Securities
Purchase Agreement, the investors purchased an aggregate of 776,827 shares of
the Company's common stock and warrants to purchase an aggregate of 919,243
shares of common stock with exercise prices ranging from $13.18 to $13.73 that
expire as follows: 323,677 shares in April 2000, 323,677 shares in July 2000 and
271,889 shares in April 2004.
As a result of this offering, the Company received net proceeds of
$7,721,510 after paying costs associated with the offering. The Company issued
warrants to purchase 15,536 shares of common stock at an exercise price of
$10.98 per share to two placement agents in connection with the Purchase
Agreement and the Securities Purchase Agreement. The warrants expire in
April 2004.
WARRANTS
In connection with the Company's initial public offering ("IPO") in
March 1996, the Company issued to the principal underwriter unit purchase
warrants to purchase 140,000 units at a per unit exercise price of $6.00. Each
unit consisted of one share of common stock and one redeemable warrant
exercisable to purchase one share of common stock at an exercise price of $9.10
per share. Such unit purchase warrants are exercisable for a four-year period,
which began March 27, 1997. In 1997, the underwriter (or assignees of the
underwriter) exercised a portion of the warrants to purchase an aggregate of
88,300 shares of the Company's common stock and 88,300 redeemable common stock
purchase warrants for an aggregate exercise price of $529,800. The underwriter
(or its assignees) further exercised redeemable common stock purchase warrants
to purchase 30,800 shares of the Company's common stock for $280,280. In 1998,
the underwriter (or its assignees) exercised redeemable common stock purchase
warrants to purchase an aggregate of 26,400 shares of the Company's common stock
for $158,400. In 1999, the underwriter (or its assignees) exercised redeemable
common stock purchase warrants to purchase an aggregate of 1,000 shares of the
Company's common stock for $6,000.
In December 1996, the Company issued warrants to purchase 250,000 shares of
common stock to an outside consultant for services provided to the Company. The
warrants had an exercise price of
F-18
<PAGE>
STYLECLICK.COM INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
$5.00 per share and were to expire in December 1999. In 1999, the warrant holder
exercised its warrants to purchase 250,000 shares of the Company's common stock
for $1,250,000.
In July 1997, the Company issued warrants to purchase 100,000 shares of
common stock to a financial advisor for services provided to the Company. The
warrants expire in July 2002 and have an exercise price of $14.38 per common
share. In accordance with SFAS No. 123, the Company valued these warrants at
$36,000, which was the current market value of the services rendered by the
warrant holder. Such amount was recognized as consulting expense during 1998. As
of December 31, 1999, these warrants had not been exercised.
In June 1998, the Company issued warrants to purchase 50,000 shares of
common stock to an outside promotion agency for services provided to the
Company. The warrants expire in May 2003 and have an exercise price of $17.75
per common share. In December 1998, the Company issued warrants to purchase
8,333 shares of commons stock to the same agency for services provided to the
Company. The warrants expire in November 2003 and have an exercise price of
$20.00 per common share. During 1999, the Company issued warrants to purchase an
aggregate of 41,667 shares of common stock with exercise prices ranging from
$11.56 to $20.00 that expire in January 2004 to May 2004. In accordance with
SFAS No. 123, the Company valued these warrants at $15,000, which was the
current market value of the services rendered by the warrant holder. During 1999
and 1998, the Company recognized $15,000 and $21,000, respectively, of
promotional expense related to these warrants. As of December 31, 1999, these
warrants had not been exercised.
In March 1999, the Company issued warrants to a third party to purchase
250,000 shares of common stock at an exercise price of $16.80 per share. Such
warrants were issued in consideration of business promotion services to be
provided to the Company and were fully vested and immediately exercisable on the
grant date, and expire in March 2004. In October 1999, the Company changed the
exercise price to $10.86 per share of common stock, which was 110% of the
then-current market value. In accordance with SFAS No. 123, the Company valued
these warrants using an option pricing model and recorded $1,402,500 as deferred
advertising and promotion services to be amortized over the three-year term of
the advertising and promotion services, of which $389,583 was expensed during
1999. As of December 31, 1999, these warrants had not been exercised.
In June, July and August 1999, the Company issued warrants to purchase an
aggregate of 30,000 shares of common stock to a financial advisor for services
provided to the Company. The warrants had an exercise price of $13.00 per common
share and expire in June, July and August 2002. In accordance with SFAS
No. 123, the Company valued these warrants at $45,000 which was the current
market value of the services rendered by the warrant holder. Such amount was
recognized as consulting expense during 1999. As of December 31, 1999, these
warrants had not been exercised.
The Company has granted non-employee directors warrants to purchase an
aggregate of 77,000 shares of common stock at exercise prices ranging from $4.25
to $9.50 that expire at various times from May 2001 through October 2009.
Warrants to purchase 4,000 common shares were canceled in July 1999 when one of
the directors was not re-elected during the Company's 1999 annual shareholders
meeting. These warrants have been accounted for under the provisions of APB 25
as allowed under SFAS No. 123.
F-19
<PAGE>
STYLECLICK.COM INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTION PLAN
In 1995, the Company adopted the 1995 Stock Option Plan (the "Plan") which
expires in 2006. The Plan provides for options for 2,500,000 shares that may be
granted to any employee, officer and director of the Company. The Board of
Directors or its committee selects the optionees and determines the type of
option (incentive or non-statuatory) and number of shares subject to each
option.
A summary of changes in outstanding options under the Plan and warrants
issued outside of the plan follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
STOCK AVERAGE AVERAGE
OPTIONS EXERCISE OTHER EXERCISE
OUTSTANDING PRICE WARRANTS PRICE
----------- -------- ---------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1996........................ 204,000 $ 4.96 2,202,000 $ 6.07
Granted........................................... 733,454 $16.29 528,616 $11.58
Exercised......................................... (29,000) $ 5.15 (2,128,184) $ 6.28
Canceled.......................................... (6,000) $ 9.50 (916) $(6.50)
--------- ------ ---------- ------
Balance at December 31, 1997........................ 902,454 $14.10 601,516 $10.16
Granted........................................... 840,000 $ 8.92 100,733 $13.47
Exercised......................................... (94,000) $ 6.03 (26,400) $ 6.00
Canceled.......................................... (181,000) $15.70 -- --
--------- ------ ---------- ------
Balance at December 31, 1998........................ 1,467,454 $11.47 675,849 $10.99
Granted........................................... 725,000 $ 8.90 1,941,120 $12.62
Exercised......................................... (44,500) $ 9.50 (251,000) $ 5.00
Canceled.......................................... (181,500) $ 9.47 (4,000) $ 9.50
--------- ------ ---------- ------
Balance at December 31, 1999........................ 1,966,454 $10.95 2,361,969 $12.94
========= ====== ========== ======
Exercisable at December 31, 1999.................... 946,286 $11.11 2,225,969 $13.00
========= ====== ========== ======
Shares available for future grant................... 366,046
=========
</TABLE>
The weighted-average remaining contractual lives of the options are 7.6 and
9.2 years at December 31, 1999 and 1998, respectively. The weighted-average
remaining contractual lives of the warrants are 3.8 and 3.3 years at
December 31, 1999 and 1998, respectively.
SFAS No. 123 requires disclosure of pro forma net loss and pro forma basic
and diluted loss per share based upon the fair value of the options issued. The
Company calculated the fair value of each option grant on the date of the grant
using an option pricing model as prescribed by SFAS No. 123 using the following
assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate..................................... 5.6% 4.8% 5.7%
Expected life (in years).................................... 5 4.7 4.1
Dividend yield.............................................. 0% 0% 0%
Volatility.................................................. 70% 80% 65%
</TABLE>
This option valuation model requires the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options have characteristics
F-20
<PAGE>
STYLECLICK.COM INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTION PLAN (CONTINUED)
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing model does not necessarily provide a reliable
single measure of the fair value of its employee stock options.
During the year ended December 31, 1998, outstanding options granted to
employees in 1997 were repriced in December 1998. The Company has included
additional compensation cost for the excess of the fair value of the modified
options issued over the value of the original options at the date of the
exchange in its pro forma disclosure and recognized the total amount over the
remaining life of the options. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options'
vesting period. The Company's pro forma information follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Pro forma net loss................................... $(19,779,296) $(15,251,331) $(1,365,274)
Pro forma loss per share
Basic and diluted.................................. $ (2.79) $ (2.51) $ (0.28)
</TABLE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years.
7. SALES
MAJOR CUSTOMERS
During 1999, the Company conducted business with two customers whose sales
comprised approximately 56% and 13% of net sales.
During 1998, the Company conducted business with two customers whose sales
comprised approximately 30% and 24% of net sales.
During 1997, the Company conducted business with one customer whose sales
comprised approximately 34% of net sales.
EXPORT SALES
For the year ended December 31, 1999, the Company's export sales were
approximately $507,740, principally comprised of $464,396 in Asia and $43,344 in
other geographic regions.
For the year ended December 31, 1998, the Company's export sales were
approximately $627,422, principally comprised of $586,725 in Europe and $40,697
in other geographic regions.
For the year ended December 31, 1997, the Company's export sales were
approximately $957,000, principally comprised of $761,000 in Europe, $91,000 in
Asia, and $105,000 in other geographic regions.
F-21
<PAGE>
STYLECLICK.COM INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. DEFERRED CONTRIBUTION PLAN
In 1996, the Company adopted the Styleclick 401(k) Plan, formerly known as
the Modacad 401(k) Plan, (the "401(k) Plan"). The 401(k) Plan is available to
substantially all employees who meet service and years of employment
requirements. Employees who participate in the 401(k) Plan may elect to
contribute from 3% to 15% of their annual compensation. The 401(k) Plan has a
Company discretionary contribution provision in which the Company may contribute
up to 5% of income before taxes. The amount of the contribution is determined
each year by the Company. For the years ended December 31, 1999, 1998 and 1997,
employer contributions under the 401(k) Plan were approximately $0, $0 and
$22,000, respectively.
9. INCOME TAXES
The following is a reconciliation of the statutory federal income tax rate
to the Company's effective income tax rate.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income tax computed at federal statutory tax rate........... 34% 34% 34%
State taxes (net of federal benefit)........................ 3 6 6
Valuation allowance......................................... (37) (40) (40)
--- --- ---
Total....................................................... --% --% --%
=== === ===
</TABLE>
As of December 31, 1999, the Company has federal net operating loss
carryforwards of approximately $29,900,000 which expire through 2019.
Significant components of the Company's deferred tax assets and liabilities
consist of the following:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards.......................... $11,314,485 $4,740,810
Warrants issued for services.............................. 589,350 253,600
Capitalized research and development cost for tax......... 211,171 133,861
Research credits.......................................... 1,023,565 798,565
Other..................................................... 238,789 96,037
----------- ----------
13,377,360 6,022,873
Valuation allowance for deferred tax assets................. (12,724,477) (5,748,785)
----------- ----------
652,883 274,088
Deferred tax liabilities
Furniture and equipment................................... (156,697) (109,942)
Deferred state taxes...................................... (496,186) (164,146)
----------- ----------
Net deferred tax asset...................................... $ -- $ --
=========== ==========
</TABLE>
Due to the uncertainty surrounding the timing of realizing the net deferred
tax assets in future tax returns, the Company has placed a valuation allowance
equal to its net deferred tax assets.
F-22
<PAGE>
STYLECLICK.COM INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
The net change in the valuation allowance for the year ended December 31,
1999 and 1998 was an increase of $6,975,692 and $3,920,450, respectively.
$887,200 of the valuation allowance relates to warrants issued for services
which, if realized, will not reduce tax expense.
10. EARNINGS PER SHARE
Earnings per share for the years ended December 31, 1999, 1998, and 1997
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
------------ ----------- ----------
<S> <C> <C> <C>
Net income (loss)...................................... $(15,879,341) (9,687,639) $ 354,275
Weighted average shares................................ 7,092,374 6,088,247 4,800,918
------------ ----------- ----------
Basic income (loss) per share.......................... $ (2.24) $ (1.59) $ 0.07
============ =========== ==========
Weighted average shares including the dilutive effect
of stock options and other equity securities......... 7,092,374 6,088,247 5,507,582
Diluted income (loss) per share........................ $ (2.24) $ (1.59) $ 0.06
============ =========== ==========
</TABLE>
11. SUBSEQUENT EVENT
MERGER OF STYLECLICK.COM AND INTERNET SHOPPING NETWORK
On January 25, 2000, the Company and USA Network, Inc. announced an
agreement to form a new company by merging the Company and Internet Shopping
Network ("ISN"), an indirect wholly owned subsidiary of USAi. The new company,
which will be named Styleclick Inc., will own and operate the combined
properties of the Company and ISN. Under the terms of the agreement, USANi LLC,
a subsidiary of USAi, will also invest $40 million in cash, contribute
$10 million in dedicated media and will receive warrants to purchase additional
shares of the new company. Upon both the closing of the transaction and on a
fully diluted basis, USANi LLC will own approximately 75% of the new company and
the Company's stockholders will own approximately 25%. In the interim, USAi has
agreed to extend a $10 million bridge loan commitment to the Company. The
transaction is expected to close in the second quarter of 2000.
F-23
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Members of Internet Shopping Network LLC
We have audited the accompanying balance sheets of Internet Shopping Network
LLC as of December 31, 1999 and 1998, and the related statements of operations,
stockholders'/members' equity, and cash flows for each of the three years in the
period ended December 31,1999. Our audits also included the financial statement
schedule listed in the Index at Item 21(b). These financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards 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 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 Internet Shopping Network
LLC at December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31,1999, in
conformity with generally accepted accounting principles in the United States.
Also in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
New York, New York
March 2, 2000
F-24
<PAGE>
INTERNET SHOPPING NETWORK LLC
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................... $ 9 $ 3
Accounts receivable, net of allowance of $42 and $41,
respectively.............................................. 679 609
Inventories, net............................................ 11,319 7,831
Prepaid assets.............................................. 913 117
-------- --------
Total current assets.................................... 12,920 8,560
PROPERTY AND EQUIPMENT
Computer equipment and software costs....................... 17,184 5,068
Leasehold improvements...................................... 601 487
Furniture and other equipment............................... 1,198 814
Projects in progress........................................ 2,158 471
-------- --------
21,141 6,840
Less accumulated depreciation and amortization............ (6,020) (2,821)
-------- --------
15,121 4,019
Other assets................................................ 80 80
-------- --------
$ 28,121 $ 12,659
======== ========
</TABLE>
LIABILITIES AND MEMBERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable............................................ $ 2,876 $ 2,321
Accrued liabilities......................................... 8,736 2,760
Due to Home Shopping........................................ 329 329
-------- --------
Total current liabilities............................... 11,941 5,410
MEMBERS' EQUITY
Class A (34,043,444 and 24,432,362 units, respectively)..... 103,418 51,993
Class B (no units outstanding).............................. -- --
Accumulated deficit......................................... (87,238) (44,744)
-------- --------
Total members' equity................................... 16,180 7,249
-------- --------
$ 28,121 $ 12,659
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
INTERNET SHOPPING NETWORK LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
NET REVENUES................................................ $ 24,690 $ 21,288 $ 12,954
Cost of sales............................................... 23,845 20,216 12,987
-------- -------- --------
Gross profit (loss)................................... 845 1,072 (33)
Operating costs and expenses:
Selling and marketing..................................... 10,793 5,193 1,176
Product development costs................................. 5,520 3,334 1,580
General and administrative................................ 19,283 8,231 5,869
Write-off of capitalized software costs................... 4,489 -- --
Depreciation and amortization............................. 3,251 1,436 2,018
-------- -------- --------
Total operating costs and expenses.................... 43,336 18,194 10,643
-------- -------- --------
Operating loss........................................ (42,491) (17,122) (10,676)
Other income (expense), net................................. (3) 198 --
-------- -------- --------
Loss before income taxes.................................... (42,494) (16,924) (10,676)
Income tax expense.......................................... -- -- --
-------- -------- --------
NET LOSS.................................................... $(42,494) $(16,924) $(10,676)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
INTERNET SHOPPING NETWORK LLC
STATEMENT OF STOCKHOLDERS'/MEMBERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDERS'/
COMMON LLC PAID-IN ACCUMULATED MEMBERS'
STOCK UNITS CAPITAL DEFICIT EQUITY
-------- -------- ---------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY AT JANUARY 1,
1997................................. $ 68 $ 17,324 $(17,144) $ 248
Issuance of common stock............... 63 13,958 -- 14,021
Net loss for the year ended December
31, 1997............................. -- -- (10,676) (10,676)
----- -------- -------- --------
STOCKHOLDERS' EQUITY AT DECEMBER 31,
1997................................. 131 31,282 (27,820) 3,593
----- -------- -------- --------
Reclassification of equity upon
contribution of ISN assets to ISN
LLC.................................. (131) $ 31,413 (31,282) -- --
LLC units issued....................... -- 20,580 -- -- 20,580
Net loss for the year ended December
31, 1998............................. -- -- -- (16,924) (16,924)
----- -------- -------- -------- --------
MEMBERS' EQUITY AT DECEMBER 31, 1998... $ -- 51,993 $ -- (44,744) 7,249
===== ========
LLC units issued....................... 51,425 -- 51,425
Net loss for the year ended December
31, 1999............................. -- (42,494) (42,494)
-------- -------- --------
MEMBERS' EQUITY AT DECEMBER 31, 1999... $103,418 $(87,238) $ 16,180
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
INTERNET SHOPPING NETWORK LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(42,494) $(16,924) $(10,676)
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization........................... 3,251 1,436 2,018
Write-off of capitalized software costs................. 4,489 -- --
Changes in current assets and liabilities:
Accounts receivable................................... (70) (359) 45
Inventories........................................... (3,488) (5,207) (2,624)
Accounts payable...................................... 555 1,379 (112)
Accrued liabilities................................... 4,875 1,640 128
Other, net.............................................. (796) 34 (173)
-------- -------- --------
Net cash used in operating activities............... (33,678) (18,001) (11,394)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures...................................... (17,741) (2,579) (2,626)
-------- -------- --------
Net cash used in investing activities............... (17,741) (2,579) (2,626)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of LLC units....................... 51,425 20,580 14,021
-------- -------- --------
Net cash provided by financing activities........... 51,425 20,580 14,021
-------- -------- --------
Net increase in cash and cash equivalents................... 6 -- 1
Cash and cash equivalents at beginning of period.......... 3 3 2
-------- -------- --------
Cash and cash equivalents at end of period.................. $ 9 $ 3 $ 3
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-28
<PAGE>
INTERNET SHOPPING NETWORK LLC
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
Internet Shopping Network LLC (the "Company" or "ISN"), a Delaware limited
liability company, was formed on January 29, 1998, and offers home and leisure
merchandise, apparel, gourmet food and consumer electronics in an online auction
format over its website FirstAuction.com and jewelry over its website
FirstJewelry.com.
The Company is a subsidiary of USANi LLC, which is a direct, non-wholly
owned subsidiary of Home Shopping Network, Inc. ("Home Shopping"), which is an
indirect non-wholly owned subsidiary of USA Networks, Inc. ("USAi"). USAi
acquired the predecessor to the Company, Internet Shopping Network, Inc., on
December 20, 1996 in conjunction with its acquisition of Home Shopping. USAi
accounted for the transaction using the purchase method of accounting and the
assets and liabilities of Internet Shopping Network, Inc. were adjusted as of
December 31, 1996 to reflect their respective fair values. At ISN's formation,
Home Shopping contributed substantially all of the operating assets and
liabilities of Internet Shopping Network, Inc., at USAi's historical cost basis
to ISN in exchange for 100 units in the Company. The financial results of
Internet Shopping Network, Inc. for the year ended December 31, 1997 are based
on its historical basis of accounting. On December 1, 1999, the Company declared
a 189,695 to 1 unit split effective as of January 29, 1998. All share amounts
presented have been adjusted to reflect this split.
The following is a summary of the significant accounting policies of the
Company consistently applied in the preparation of the accompanying consolidated
financial statements.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUES
Revenues primarily consist of merchandise sales and are reduced by incentive
discounts and sales returns to arrive at net revenue. Revenues are recognized
upon shipment. ISN's sales policy allows jewelry sold over the FirstJewelry.com
website to be returned at the customer's discretion within 30 days of the date
of receipt and merchandise sold on the FirstAuction.com website to be returned
if it is damaged or defective within 30 days of the date of receipt. Allowances
for returned merchandise and other adjustments are provided based upon past
experience.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and short-term investments.
INVENTORIES, NET
Inventories are valued at the lower of cost or market, cost being determined
using the first-in, first-out method. Cost includes freight and certain other
related costs. Market is determined on the basis of net realizable value, giving
consideration to obsolescence and other factors. All inventories are finished
goods. Inventories are presented net of an inventory carrying adjustment of
$1.7 million and $1.4 million at December 31, 1999 and 1998, respectively.
PROPERTY AND EQUIPMENT
Property and equipment, including significant improvements, are recorded at
cost. Costs incurred for computer software and websites developed or obtained
for internal use during the application
F-29
<PAGE>
INTERNET SHOPPING NETWORK LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
development stage are capitalized and classified as computer equipment and
software costs. Repairs and maintenance and any gains or losses on dispositions
are included in operations.
Depreciation and amortization is provided for on a straight-line basis to
allocate the cost of depreciable assets to operations over their estimated
service lives.
<TABLE>
<CAPTION>
DEPRECIATION/
ASSET CATEGORY AMORTIZATION PERIOD
- -------------- -------------------
<S> <C>
Computer equipment and software costs...................... 3 to 7 Years
Leasehold improvements..................................... 4 Years
Furniture and other equipment.............................. 3 to 10 Years
</TABLE>
LONG-LIVED ASSETS INCLUDING INTANGIBLES
The Company's accounting policy regarding the assessment of the
recoverability of the carrying value of long-lived assets, including property,
plant and equipment, is to review the carrying value of the assets if the facts
and circumstances suggest that they may be impaired. If this review indicates
that the carrying value will not be recoverable, as determined based on the
undiscounted future cash flows of the assets, the carrying value is reduced to
its estimated fair value. ISN wrote off $4.5 million of costs associated with
the First Outlet website, which were incurred in 1999, when management
determined not to launch the website. The costs were charged to write-off of
capitalized software costs.
FAIR VALUE FINANCIAL INSTRUMENTS
The carrying amounts for the Company's cash, prepaid assets, other assets,
accounts payable and accrued liabilities approximate fair value.
INCOME TAXES
The Company was formed as a limited liability company. As a limited
liability company, the Company is treated as a partnership for income tax
purposes and all income/(loss) is reflected on the member's tax returns. As
such, the Company is not subject to Federal and state income taxation.
For the year ended December 31, 1997, the Company's predecessor was included
in the consolidated tax return of USAi and accounted for income taxes in
accordance with Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" ("SFAS 109). Under SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled.
PRODUCT DEVELOPMENT COSTS
Product development costs include expenses incurred by the Company to
develop, enhance, manage, monitor and operate the Company's websites. Product
development costs are expensed as incurred.
F-30
<PAGE>
INTERNET SHOPPING NETWORK LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
Advertising costs are expensed in the period incurred. Advertising expense
was $9.9 million, $4.6 million and $0.8 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
STOCK-BASED COMPENSATION
ISN is subject to Statement of Financial Accounting Standards No. 123
"Accounting and Disclosure of Stock-Based Compensation" ("SFAS 123"). As allowed
by SFAS 123, ISN accounts for stock-based compensation in accordance with APB
25, "Accounting for Stock Issued to Employees." In cases where exercise prices
are less than fair value as of the grant date, compensation is recognized over
the vesting period.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
footnotes thereto. Actual results could differ from those estimates.
Significant estimates underlying the accompanying consolidated financial
statements and notes include the inventory carrying adjustment, sales return
accrual, allowance for doubtful accounts and other long-lived assets.
NOTE 3--COMMITMENTS AND CONTINGENCIES
ISN leases office space and equipment used in connection with its operations
under various operating leases and contracts, many of which contain escalation
clauses.
Future minimum payments under non-cancellable agreements are $0.6 million in
2000.
Expenses charged to operations under these agreements were $1.0 million,
$1.0 million, and $0.8 million the years ended December 31, 1999, 1998 and 1997,
respectively.
NOTE 4--LITIGATION
In February 1999, ISN filed a demand for arbitration against former ISN
President Kirk Loevner under the terms of the arbitration provision in his
employment agreement. In response, Loevner filed a complaint against ISN in
Superior Court for Santa Clara County, California. The Superior Court decided
not to enforce the arbitration provision of Mr. Loevner's employment agreement,
and the court's ruling is currently on appeal. Mr. Loevner's employment with ISN
ceased in August 1998. Mr. Loevner alleges that ISN breached his employment
agreement and its stock option plan. He is seeking declaratory relief that he
did not breach his employment agreement by accepting employment with his new and
current employer FreeShop International, Inc. and, consequently, that his
options for 250,000 shares of ISN's predecessor, International Shopping Network,
Inc. (with an exercise price of $1.75 per share) are entitled to vest.
Additionally, Mr. Loevner is seeking penalties and attorneys fees under the
California Labor Code. In December 1999, Loevner filed a complaint in U.S.
District for the Northern District of California against Home Shopping Network,
and certain executive officers of Home Shopping Network, seeking declaratory and
injunctive relief, and damages relating to his alleged entitlement to shares of
ISN stock. USAi believes that this suit is duplicative of the above stated
action
F-31
<PAGE>
INTERNET SHOPPING NETWORK LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LITIGATION (CONTINUED)
against ISN, and intends to file a motion to dismiss or stay the federal action
and seek sanctions for Mr. Loevner's multiplication of the legal proceedings.
On November 10, 1999, First Jewelry Company of Canada, Inc. and its
affiliate A&A Jewelers, Inc., filed a complaint against ISN and USAi in U.S.
District Court for the Southern District of New York, claiming that ISN's use of
the "First Jewelry" name and URL infringes on plaintiffs' claimed "First
Jewellery" and "1(st) Jewellery" trademarks. The plaintiffs also filed a domain
name challenge with Network Solutions, Inc. On December 14, 1999, a hearing was
held on the plaintiff's preliminary injunction motion. On January 31, 2000 and
February 17, 2000, the court issued two orders granting the preliminary
injunction motion, ordering ISN to cease using the name "First Jewelry" in
connection with ISN's jewelry business commencing on April 17, 2000, unless used
to announce a name change, and ordering ISN until such name change to
prominently display next to the "First Jewelry" logo on the FirstJewelry.com
home page a statement disclaiming affiliation with plaintiffs, but permitting
ISN throughout the duration of the litigation to use the "www.firstjewelry.com"
URL provided the web page at such URL is only used to announce the new name and
provide consumers a link to a new URL under which the website operates with its
new name.
In the ordinary course of business, ISN is engaged in various other
lawsuits. In the opinion of management, the ultimate outcome of the various
lawsuits should not have a material impact on the liquidity, results of
operations or financial condition of ISN.
NOTE 5--BENEFIT PLAN
ISN offers a plan pursuant to Section 401(k) of the Internal Revenue Code
covering substantially all full-time employees who are not party to collective
bargaining agreements. ISN's matching contributions are set at the discretion of
the Board of Directors or the applicable committee thereof. Expense under this
plan was $0.2 million, $0.1 million and less than $0.1 million in the years
ended December 31, 1999, 1998 and 1997, respectively.
NOTE 6--ADVANCES FROM USAI AND FINANCING
USANi LLC provides funds as needed to ISN for operations. ISN is required to
transfer excess cash to USANi LLC no less frequently than monthly. To date ISN
has not transferred any funds to USANi LLC. USANi LLC has elected to receive
equity interests in ISN in consideration of all funding provided through
December 31, 1999.
NOTE 7--RELATED PARTY TRANSACTIONS
Home Shopping provides warehouse, teleservices, accounting and other
administrative services to ISN based upon an oral agreement. The services are
charged on a monthly basis. Expenses charged to operations under these services
were $5.4 million, $2.6 million, and $1.6 million the years ended December 31,
1999, 1998 and 1997, respectively.
NOTE 8--STOCK OPTION PLANS
The Company has a stock option plan (the "Plan") under which options to
purchase share units may be granted to employees of the Company. The plan
authorizes the Company to issue options to acquire 10,000,000 Class B units. To
date, no shares have been issued. The options under the Plan vest
F-32
<PAGE>
INTERNET SHOPPING NETWORK LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCK OPTION PLANS (Continued)
ratably, generally over a period of four years from the date of grant and
generally expire not more than 10 years from the date of grant. The Plan has
options available for future grants. There are also options outstanding under
another plan, from which the Company is not allowed to grant shares under this
plan.
A summary of changes in outstanding options under the stock option plans
with respect to employees and/or directors of the Company are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------
1999 1998 1997
------------------------ ----------------------- --------------------
PRICE PRICE PRICE
SHARES RANGE SHARES RANGE SHARES RANGE
---------- ----------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period.................... 1,357,500 $1.75-4.27 1,356,000 $ 1.75 1,522,000 $1.75
Granted................... 1,244,000 $ 5.35 774,000 $1.75-4.27 566,000 $1.75
Exercised................. -- -- -- -- -- --
Cancelled................. (1,500,321) $1.75-5.35 (772,500) $ 1.75 (732,000) $1.75
---------- --------- ---------
Outstanding at end of
period.................... 1,101,179 $1.75-5.35 1,357,500 $1.75-4.27 1,356,000 $1.75
========== ========= =========
Options exercisable......... 223,012 63,626 4,750
========== ========= =========
Available for grant......... 8,756,000 244,000 242,500
========== ========= =========
</TABLE>
The weighted average exercise prices during the year ended December 31, 1999
was $5.35 and $3.31 for options granted and cancelled. The weighted average fair
value of options granted during the year was $5.35.
The weighted average exercise prices during the year ended December 31,
1998, were $2.71 and $1.75 for options granted and cancelled, respectively. The
weighted average fair value of options granted during the year was $2.79.
The weighted average exercise prices during the year ended December 31, 1997
was $1.75 for options granted and cancelled. The weighted average fair value of
options granted during the year was $1.75.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- -------------------------------
OUTSTANDING AT WEIGHTED WEIGHTED EXERCISABLE AT WEIGHTED
DECEMBER 31, AVERAGE REMAINING AVERAGE DECEMBER 31, AVERAGE
RANGE OF EXERCISE PRICE 1999 CONTRACTUAL LIFE EXERCISE PRICE 1999 EXERCISE PRICE
- ----------------------- -------------- ----------------- -------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$1.00 to $5.00........... 388,179 8.1 $2.58 205,012 $2.41
$5.01 to $10.00.......... 713,000 9.5 5.35 18,000 5.35
--------- ----- ----- ------- -----
1,101,179 9.0 $4.37 223,012 $2.64
========= ===== ===== ======= =====
</TABLE>
The Company has issued options at times to employees and/or directors with
an exercise price below fair market value. Accordingly, in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees," the difference between the fair market value and the
F-33
<PAGE>
INTERNET SHOPPING NETWORK LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCK OPTION PLANS (Continued)
exercise price has been recognized as compensation cost and is being amortized
over the vesting period.
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation." The information is determined as if the Company has
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair market value method. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for all periods: risk-free interest
rate of 5.8%; a dividend yield of zero; a volatility factor of 100%, based on
historical trends of comparable companies; and a weighted-average expected life
of the options of five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair market value of traded options which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair market value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
YEARS ENDED DEC. 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Pro forma net loss............................. $(43,232) $(17,113) $(10,721)
</TABLE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period and additional options may be granted in future years.
NOTE 9--GUARANTEE OF NOTES
USAi issued $500.0 million 6 3/4% Senior Notes due 2005 (the "Notes"). USANi
LLC is a co-issuer and co-obligor of the Notes. The Notes are jointly,
severally, fully and unconditionally guaranteed by certain subsidiaries of USAi,
including Home Shopping and all of the subsidiaries of USANi LLC, including the
Company (other than subsidiaries that are, individually and in the aggregate,
inconsequential to USANi LLC on a consolidated basis) (collectively, the
"Subsidiary Guarantors"). All of the Subsidiary Guarantors (other than Home
Shopping) (the "Wholly Owned Subsidiary Guarantors") are wholly owned, directly
or indirectly, by USAi or USANi LLC, as the case may be.
NOTE 10--INCOME TAXES
The Company was formed as a limited liability company. As a limited
liability company, the Company is treated as a partnership for income tax
purposes. As such, the Company is not subject to Federal and state income
taxation. For the year ended December 31, 1997, the Company's predecessor was
included in the consolidated tax return of USAi. The Company's financial
statements for the year
F-34
<PAGE>
INTERNET SHOPPING NETWORK LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)
ended December 31, 1997 does not reflect any income tax benefit computed on a
stand-alone basis as the benefits related to net operating loss carryover were
utilized by USAi.
NOTE 11--SUBSEQUENT EVENT (UNAUDITED)
On January 25, 2000, USAi and Old Styleclick, a leading enabler of
e-commerce for manufacturers and retailers, announced an agreement to form a new
company by merging ISN and Old Styleclick. The new company, which will be named
Styleclick, Inc., will own and operate the combined properties of Old Styleclick
and ISN, which include ISN's FirstAuction.com, FirstJewelry.com and Old
Styleclick's network of branded e-commerce web sites. Under the terms of the
agreement, USANi Sub LLC and its affiliates will also invest $40 million in
cash, contribute $10 million in dedicated media, and will receive warrants to
purchase additional shares of the new company. Upon both the closing of the
transaction and on a fully diluted basis, USANi Sub LLC will own approximately
75% of the new company and Old Styleclick stockholders will own approximately
25%. In the interim, USAi has agreed to extend a $10 million bridge loan to Old
Styleclick. The transaction is expected to close in July 2000 and is subject to
regulatory and Old Styleclick stockholder approval. The new company is expected
to trade on Nasdaq under the symbol "IBUY."
F-35
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
STYLECLICK.COM INC.,
INTERNET SHOPPING NETWORK LLC
AND
USANI SUB LLC
DATED AS OF MARCH 23, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1 THE MERGERS................................................. 11
1.1 Formation of Newco and Merger Subs.......................... 11
1.2 The ISN Merger.............................................. 12
1.3 The Company Merger.......................................... 12
1.4 Closing..................................................... 13
1.5 Effective Time.............................................. 13
1.6 Articles of Incorporation; By-laws and LLC Agreement........ 13
1.7 Directors and Officers...................................... 14
1.8 Calculation of Specified Number; Anti-Dilution Adjustment... 14
ARTICLE 2 EFFECT OF THE MERGERS ON THE EQUITY OF THE CONSTITUENT
ENTITIES; EXCHANGE OF CERTIFICATES.......................... 15
2.1 Effect of Company Merger.................................... 15
2.2 Effect of ISN Merger........................................ 16
2.3 Exchange of Certificates.................................... 17
2.4 Appraisal Rights............................................ 20
2.5 Treatment of Stock Options and Warrants..................... 21
2.6 Adjustments................................................. 23
2.7 Lost Certificates........................................... 23
2.8 Withholding Rights.......................................... 23
2.9 Additional Shares Payable to Parent......................... 23
ARTICLE 3 REPRESENTATIONS AND WARRANTIES.............................. 24
3.1 Representations and Warranties of the Company............... 24
3.2 Representations and Warranties of ISN and Parent............ 41
ARTICLE 4 COVENANTS................................................... 55
4.1 Covenants of the Company.................................... 55
4.2 Covenants of ISN and Parent................................. 56
ARTICLE 5 ADDITIONAL COVENANTS........................................ 57
5.1 No Solicitation............................................. 57
5.2 Directors and Officers Indemnification and Insurance........ 59
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
5.3 Notification of Certain Matters............................. 60
5.4 Tax Treatment............................................... 60
5.5 Company Stockholder Meeting................................. 60
5.6 Registration Statement, Proxy Statement/Prospectus.......... 61
5.7 Further Action, Reasonable Efforts.......................... 62
5.8 Public Announcements........................................ 62
5.9 Blue Sky.................................................... 63
5.10 NASDAQ...................................................... 63
5.11 Affiliates.................................................. 63
5.12 Tax Matters................................................. 63
ARTICLE 6 CONDITIONS PRECEDENT........................................ 64
6.1 Conditions to the Obligations of each Party................. 64
6.2 Conditions to the Obligations of ISN and Parent............. 65
6.3 Conditions to the Obligations of the Company................ 66
6.4 Frustration of Closing Conditions........................... 67
ARTICLE 7 TERMINATION AND AMENDMENT................................... 68
7.1 Termination................................................. 68
7.2 Effect of Termination....................................... 69
ARTICLE 8 GENERAL PROVISIONS.......................................... 69
8.1 Notices..................................................... 69
8.2 Waivers and Amendments...................................... 71
8.3 Expenses and Other Payments................................. 71
8.4 Newco Common Stock.......................................... 72
8.5 Assignment.................................................. 73
8.6 Non-Survival of Representations and Warranties.............. 73
8.7 Headings.................................................... 73
8.8 Interpretation.............................................. 73
8.9 Severability of Provisions.................................. 73
8.10 Entire Agreement; No Third Party Beneficiaries.............. 73
8.11 Governing Law............................................... 74
8.12 Submission To Jurisdiction; Waivers......................... 74
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
8.13 WAIVERS OF JURY TRIAL....................................... 74
8.14 Counterparts................................................ 74
</TABLE>
Exhibit A--Form of Stockholders Agreement
Exhibit B--Form of Registration Rights Agreement
Exhibit C--Form of Agreement of Merger
Exhibit D--Form of Newco Charter and By-laws
Exhibit E--Media Warrant
Exhibit F--License Agreement
Exhibit G--Form of Rule 145 Affiliate Agreement
Exhibit H--Form of Certificate of Merger
iii
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated
as of March 23, 2000, by and among Styleclick.com Inc., a California corporation
(the "COMPANY"), Internet Shopping Network LLC, a Delaware limited liability
company ("ISN"), and USANi Sub LLC, a Delaware limited liability company
("PARENT").
WHEREAS, the Company and Parent are parties to the Merger Agreement, dated
as of January 24, 2000 (the "ORIGINAL MERGER AGREEMENT"), subject to the terms
and conditions of which, the parties approved certain business combination
transactions;
WHEREAS, upon the terms and subject to the conditions of this Agreement, ISN
and a Delaware limited liability company and a wholly owned Subsidiary of Newco
(as defined below) to be formed by Newco prior to the Effective Time (as defined
below) ("ISN MERGER SUB") will enter into a business combination transaction
pursuant to which ISN Merger Sub will merge with and into ISN (the "ISN
MERGER"), whereby each outstanding ISN Unit (as defined below) will be converted
into the right to receive 0.601 shares of Newco Common Stock (as defined below);
WHEREAS, upon the terms and subject to the conditions of this Agreement, the
Company and a California corporation and a wholly owned Subsidiary of Newco to
be formed by Newco prior to the Effective Time ("COMPANY MERGER SUB" and,
collectively with ISN Merger Sub, the "MERGER SUBS"), will enter into a business
combination transaction pursuant to which Company Merger Sub will merge with and
into the Company (the "COMPANY MERGER" and, collectively with the ISN Merger,
the "MERGERS"), whereby each issued and outstanding share of common stock of the
Company, no par value ("COMPANY COMMON STOCK") (other than shares of Company
Common Stock that are owned by the Company or any subsidiary of the Company),
will be converted into the right to receive one share of Class A Common Stock,
par value $.01 per share, of Newco ("NEWCO CLASS A COMMON STOCK");
WHEREAS, (a) Newco, Parent and certain individuals named therein (each such
individual, a "PRINCIPAL COMPANY STOCKHOLDER") will, prior to the Effective
Time, enter into a Stockholders Agreement, substantially in the form of
Exhibit A attached hereto (the "STOCKHOLDERS AGREEMENT"), providing for, among
other things, certain transfer restrictions on the shares of Newco Common Stock
owned by the parties as a result of the Mergers, and (b) Newco, USA
Networks, Inc. ("USA") and Parent will enter into a Registration Rights
Agreement substantially in the form of Exhibit B attached hereto (the
"REGISTRATION RIGHTS AGREEMENT");
WHEREAS, the Board of Directors of the Company has determined that the
Company Merger is fair to, and in the best interests of, the Company's
stockholders and has adopted, authorized and approved the execution and delivery
of this Agreement and the other agreements and instruments contemplated hereby
and the consummation of the Company Merger and the other transactions
contemplated hereby;
WHEREAS, concurrently with the execution of the Original Merger Agreement
and as a condition to the willingness of the parties to enter into the Original
Merger Agreement, (i) USA provided a term loan facility (the "TERM LOAN
FACILITY") to the Company in the principal amount of $10 million pursuant to a
Credit Agreement, dated as of January 24, 2000, between the Company and USA (the
"CREDIT AGREEMENT"); (ii) Parent entered into separate Voting Agreements (the
"VOTING AGREEMENTS") with certain stockholders of the Company, pursuant to which
each such stockholder agrees to, among other things, vote its shares of Company
Common Stock in favor of the Company Merger and/or waive certain contractual and
other rights in connection with the Transactions (as defined below);
(iii) Parent entered into separate Waiver Agreements (the "WAIVER AGREEMENTS")
with certain warrantholders of the Company, pursuant to which each such
warrantholder agrees to waive certain contractual and other rights in connection
with the Transactions; and (iv) the Company and Parent executed an Option
A-1
<PAGE>
Agreement (the "OPTION AGREEMENT") granting Parent the irrevocable right to
purchase shares of Company Common Stock on the terms and subject to the
conditions contained therein;
WHEREAS, for federal income tax purposes, it is intended that the Mergers
shall qualify as tax-free events under either or both of Section 351 and
Section 368 of the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the "CODE");
WHEREAS, the Company, ISN and Parent wish to make certain representations,
warranties and agreements in connection with the consummation of the
Transactions and to prescribe various conditions to the Transactions; and
WHEREAS, the Company and Parent wish to amend and restate the Original
Merger Agreement in order to restructure the business combination transactions
contemplated thereby and make ISN and Newco a party thereto.
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree to amend and restate the Original Merger Agreement
so that, as amended and restated, it reads in its entirety as follows:
DEFINITIONS
Definitions shall apply equally to both the singular and plural forms of the
terms defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. All references herein to
Articles, Sections, Exhibits, Annexes and Schedules shall be deemed to be
references to Articles and Sections of, and Exhibits, Annexes and Schedules to,
this Agreement unless the context shall otherwise require. All Exhibits, Annexes
and Schedules attached hereto shall be deemed incorporated herein as if set
forth in full herein and, unless otherwise defined therein, all terms used in
any Exhibit, Annex or Schedule shall have the meaning ascribed to such term in
this Agreement. The words "INCLUDE," "INCLUDES" and "INCLUDING" shall be deemed
to be followed by the phrase "WITHOUT LIMITATION." The words "HEREOF," "HEREIN"
and "HEREUNDER" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Unless otherwise expressly provided herein, any agreement, plan,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, plan, instrument or
statute as from time to time amended, modified or supplemented, including (in
the case of agreements or instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes and references to all
attachments thereto and instruments incorporated therein. For the purposes of
this Agreement, the following terms have the following meanings:
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, such first Person. The term "CONTROL" means possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"AGENTS" means, with respect to any Person, such Person's officers,
directors, employees, attorneys, accountants, investment bankers, financial
advisors or other representatives or agents.
"AGREEMENT OF MERGER" means the Agreement of Merger, conforming to the
provisions of Section 1101 of California Law, substantially in the form attached
as Exhibit C hereto.
"ALTERNATE TRANSACTION" means (i) a merger, consolidation, share exchange,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company or any of its Subsidiaries or any other
material corporate transaction (other than the Transactions), the consummation
of which could reasonably be expected to impede, interfere with, prevent or
materially delay the
A-2
<PAGE>
consummation of the Transactions; (ii) a sale, lease, exchange, transfer or
other disposition of 15% or more of the assets of the Company and its
Subsidiaries taken as a whole, in a single transaction or series of transactions
(other than the Transactions); or (iii) the acquisition by any Person or "group"
(as defined in Section 13(d) of the Exchange Act), other than USA or Parent or
any of their respective controlled Affiliates, of "beneficial ownership" of 15%
or more of the issued and outstanding Equity Securities of the Company whether
by tender offer or exchange offer or otherwise and including a self tender
offer.
"APRIL 1999 WARRANTS" means the warrants identified as such in
Section 3.1(c) of the Company Disclosure Schedule.
"BUSINESS DAY" means any day other than a day on which (i) banks in the
State of New York are authorized or obligated to be closed or (ii) the New York
Stock Exchange is closed.
"CERTIFICATE OF MERGER" means the Certificate of Merger, conforming to the
provisions of Section 18-209 of the Delaware LLC Act, substantially in the form
attached as Exhibit H hereto.
"COMPANY DISCLOSURE SCHEDULE" means the disclosure letter delivered to
Parent by the Company concurrently with the execution of the Original Merger
Agreement.
"COMPANY OPTION PLAN" means the Company's 1995 Stock Option Plan, a copy of
which was made available to Parent.
"COMPANY STOCK OPTION" means an option to purchase Company Common Stock
granted by the Company and listed in Section 3.1(c) of the Company Disclosure
Schedule.
"COMPANY WARRANT" means a warrant to purchase Company Common Stock granted
pursuant to a Warrant Agreement and listed in Section 3.1(c) of the Company
Disclosure Schedule.
"CONTRACT" means any note, bond, mortgage, indenture, contract, agreement,
commitment, lease, license, permit, franchise, arrangement or other instrument
or obligation whether or not in writing.
"DEBT" of any Person means, without duplication, (i) all indebtedness of
such Person for borrowed money; (ii) all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments; (iii) all obligations of
such Person as a lessee under a lease that has been or should be, in accordance
with GAAP, recorded as a capital lease; (iv) all obligations, contingent or
otherwise, of such Person under acceptance, letter of credit or similar
facilities; (v) all Debt of others referred to in clauses (i) through
(iv) above guaranteed directly or indirectly in any manner by such Person; and
(vi) all Debt of others referred to in clauses (i) through (v) above secured by
(or for which the holder of such Debt has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Debt.
"EQUITY SECURITIES" has the meaning ascribed to such term in Rule 405
promulgated under the Securities Act as in effect on the date hereof, and in any
event includes any limited partnership interest, any limited liability company
interest and any other interest or security having the attendant right to vote
for directors or similar representatives.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"FINANCIAL STATEMENTS" with respect to the Company, means the Company's
(i) audited balance sheet as of December 31, 1998; (ii) statement of cash flows
and statement of changes in shareholders' equity for the year ended
December 31, 1998; (iii) unaudited balance sheet as of September 30, 1999; and
(iv) unaudited statement of operations for the three month period ended
September 30, 1999, in each case which were provided by the Company to Parent on
or prior to the date of the Original
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Merger Agreement; and, with respect to ISN, means ISN's (x) audited balance
sheet as of November 30, 1999 and (y) audited statement of cash flows and
statement of operations for the eleven month period ended November 30, 1999, in
each case which were provided by Parent to the Company on or prior to the date
of the Original Merger Agreement.
"GAAP" means generally accepted accounting principles in the United States
of America.
"GOVERNMENTAL ENTITY" means any foreign, federal, state, municipal or other
governmental or regulatory department, commission, board, bureau, agency or
instrumentality.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.
"INTELLECTUAL PROPERTY" means all of the following as they exist in all
jurisdictions throughout the world: (i) patents, patent applications and other
patent rights (including any divisions, continuations, continuations-in-part,
substitutions or reissues thereof, whether or not patents are issued on any such
applications and whether or not any such applications are modified, withdrawn or
resubmitted); (ii) trademarks, service marks, trade dress, trade names, brand
names, Internet domain names, designs, logos or corporate names, whether
registered or unregistered, and all registrations and applications for
registration thereof; (iii) copyrights, including all renewals and extensions
thereof, copyright registrations and applications for registration thereof and
non-registered copyrights; (iv) trade secrets, concepts, ideas, designs,
research, processes, procedures, techniques, methods, know-how, data, mask
works, discoveries, inventions, modifications, extensions, improvements and
other proprietary rights (whether or not patentable or subject to copyright,
mask work or trade secret protection) (collectively, "TECHNOLOGY"); and
(iv) computer software programs, including all source code, object code and
documentation related thereto (the "SOFTWARE").
"IRS" means the Internal Revenue Service of the United States of America.
"ISN OPTION PLAN" means the ISN 1999 Stock Option Plan, a copy of which was
made available to the Company.
"ISN STOCK OPTION" means an option to purchase ISN Units granted pursuant to
the ISN Option Plan that is listed in Section 3.2(c) of the Parent Disclosure
Schedule.
"ISN UNITS" means all of the issued and outstanding limited liability
interests of ISN.
"KNOWLEDGE" means, with respect to a natural Person, the actual knowledge of
such Person and, with respect to a non-natural Person, the actual knowledge of
such Person's officers and directors (or similar representatives).
"LAWS" means any applicable law, statute, rule, regulation or code of any
Governmental Entity.
"LIABILITIES" means any Debt, liability, claim, loss, or obligation of any
kind, whether accrued or unaccrued, liquidated or unliquidated, secured or
unsecured, absolute, contingent, inchoate or otherwise.
"MATERIAL ADVERSE CHANGE" means, with respect to any Person, a change,
development or effect that, together with all such other changes, developments
or effects, individually or in the aggregate, has had, or is reasonably likely
to have, a Material Adverse Effect on such Person.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, any
circumstance (i) that is, or is reasonably likely to be, materially adverse to
the financial condition, business, assets or results of operations of such
Person and its Subsidiaries taken as a whole, or (ii) that adversely affects the
ability of such Person to perform its obligations under this Agreement or to
consummate the Transactions, but in each of clauses (i) and (ii) excluding any
circumstance, fact, change, development, effect, affect or impairment resulting
primarily from (x) events adversely affecting the industry in which such Person
is
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involved or (y) circumstances, matters or events described on the disclosure
letter delivered by such Person concurrently with execution of this Agreement.
"MEDIA VALUE" means advertising time on the Network computed on a net basis
at fair market value rates, which shall be determined by taking into account
recent sales by the Network of comparable size, volume and desired times in
similar product categories.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"NETWORK" means the network of media properties of USA, including USA
Network, SciFi Channel, USA Broadcasting, Ticketmaster, Home Shopping Network,
Sci-Fi.com, USA Networks.com, USA Studios.com and USA Films.com and others as
they may exist from time to time.
"NEWCO CLASS B COMMON STOCK" means the Class B Common Stock, par value $0.01
per share, of Newco.
"NEWCO COMMON STOCK" means the Newco Class A Common Stock and the Newco
Class B Common Stock.
"OFFICER'S CERTIFICATE" means a certificate executed by a duly authorized
officer of Company Merger Sub or the Company, as the case may be, certifying to
the information, and otherwise conforming, to the provisions of Section 1103 of
California Law.
"ORDER" means any applicable order, judgment, injunction, writ or decree.
"PARENT DISCLOSURE SCHEDULE" means the disclosure letter delivered to the
Company by Parent concurrently with the execution of the Original Merger
Agreement.
"PERSON" means any individual, corporation, partnership, firm, group (as
such term is used in Section 13(d)(3) of the Exchange Act), joint venture,
association, trust, limited liability company, unincorporated organization,
estate, trust or other entity.
"PROPORTIONATE NUMBER" means, with respect to any holder of ISN Units, a
fraction, the numerator of which is the number of shares of Newco Common Stock
issued to such holder pursuant to Section 2.2(b), and the denominator of which
is the total number of shares of Newco Common Stock issued pursuant to
Section 2.2(b).
"PROPRIETARY RIGHTS ASSIGNMENT AND NON-DISCLOSURE AGREEMENT" means the form
of Employee Confidentiality and Invention Assignment Agreement of the Company,
and any revised versions thereof, in the form provided by the Company to Parent
on or prior to the date of the Original Merger Agreement, pursuant to which,
among other things, each employee or consultant that is a signatory thereto
agrees (i) to irrevocably assign all right title and interest in any work,
invention or technology developed by such employee or consultant during the term
of his employment or consultancy to the Company, (ii) that any work created by
such employee or consultant during the term of his employment or consultancy to
the Company are work-for-hire and any authorship shall vest in the Company,
(iii) that the employee shall execute any documents necessary for the Company to
perfect its ownership in such works, inventions, or technology, including
without limitation, any patent application, patent assignment forms or copyright
assignment forms and (iv) that they shall not disclose any confidential
information to any third party outside of the Company without the prior written
consent of the Company, except confidential information that is already publicly
disclosed, independently developed, or if so directed by legal process.
"QUALIFIED ALTERNATE TRANSACTION PROPOSAL" means a bona fide written
proposal made by a Third Party to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger, consolidation, business
combination, recapitalization, reorganization, liquidation, dissolution or
similar transaction, in exchange for cash and/or securities, at least 75% of the
outstanding shares of Company Common Stock on terms which the Board of Directors
of the Company determines in good faith (after
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receipt of a written opinion of a nationally recognized independent financial
advisor, and after taking into account all legal, financial and regulatory
aspects of such proposal, the identity of the Third Party making the proposal,
the strategic benefits to be derived from the Transactions and the long-term
prospects of Newco and its Subsidiaries) to be (a) more favorable to the
Company's stockholders than the Transactions from a financial point of view,
(b) reasonably capable of being financed and (c) not subject to any material
contingencies relating to financing.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"SEC" means the Securities and Exchange Commission.
"SUBSIDIARY" of any Person means any corporation, partnership, joint venture
or other legal entity of which such Person (either directly or through or
together with any other Subsidiary of such Person), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or similar governing body of such corporation, partnership, joint venture or
other legal entity.
"THIRD PARTY" means any Person other than USA, ISN, Parent or the Company or
any of their respective controlled Affiliates.
"TRANSACTION DOCUMENTS" shall mean this Agreement and each of the agreements
and instruments contemplated hereby or thereby, including the Agreement of
Merger, the Officer's Certificates, the Stockholders Agreement, the Registration
Rights Agreement, the Media Commitment, the Media Warrants, the License
Agreement, the Credit Agreement, the Option Agreement and all documents,
instruments or agreements attached to or contemplated by any of the foregoing.
"TRANSACTIONS" means, collectively, the transactions contemplated by this
Agreement and the other Transaction Documents.
"WARRANT AGREEMENTS" means any agreement pursuant to which a Company Warrant
was issued that is listed in Section 3.1(c) of the Company Disclosure Schedule,
in each case in the form provided by the Company to Parent on or prior to the
date of the Original Merger Agreement.
CROSS-REFERENCES
Each of the following terms shall have the meaning ascribed thereto in the
Section set forth opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
- ---- ----------------
<S> <C>
Agreement................................................... Recitals, 1.1(b)
Appraisal Rights............................................ 2.3(a)
Black Scholes Option........................................ 1.8(a)
California Law.............................................. 1.1(a)
Cash Out Elections.......................................... 1.8(a)
Certificates................................................ 2.2(b)
Claim....................................................... 5.2(a)
Closing..................................................... 1.4
Closing Date................................................ 1.4
Code........................................................ Recitals
Company..................................................... Recitals
Company Benefit Plans....................................... 3.1(l)(i)
Company Certificates........................................ 2.1(b)
Company Common Stock........................................ Recitals
Company Governmental Approvals.............................. 3.1(g)(i)
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
- ---- ----------------
<S> <C>
Company Merger.............................................. Recitals
Company Merger Securities................................... 2.1(b)
Company Merger Sub.......................................... Recitals
Company Merger Sub Common Stock............................. 2.1
Company Permits............................................. 3.1(f)
Company Required Consents................................... 3.1(g)(ii)
Company SEC Documents....................................... 3.1(d)
Confidentiality Agreement................................... 8.9
Covered Person.............................................. 5.2(a)
Credit Agreement............................................ Recitals
DGCL........................................................ 1.1(a)
Delaware LLC Act............................................ 1.1(a)
Dissenting Shareholders..................................... 2.3
Dissenting Shares........................................... 2.3
Effective Time.............................................. 1.5
Environmental Laws.......................................... 3.1(o)
ERISA....................................................... 3.1(l)(i)
Exchange Agent.............................................. 2.2(a)
Exchange Fund............................................... 2.2(a)
Infoseek Litigation......................................... 4.2(g)
IP Licenses................................................. 3.1(m)(i)(B)
ISN......................................................... Recitals
ISN Benefit Plans........................................... 3.2(l)(i)
ISN Certificates............................................ 2.2(b)
ISN Class A Merger Securities............................... 2.2(b)
ISN Class B Merger Securities............................... 2.2(b)
ISN Merger.................................................. Recitals
ISN Merger Securities....................................... 2.2(b)
ISN Merger Sub.............................................. Recitals
ISN Merger Sub Units........................................ 2.2
ISN Permits................................................. 3.2(f)
ISN Stock Options........................................... 3.2(c)
Key Employee................................................ 3.1(y)
License Agreement........................................... 4.2(e)
Liens....................................................... 3.1(a)
Losses...................................................... 5.2(a)
Maximum Premium............................................. 5.2(c)
Measurement Time............................................ 2.3(a)
Media Commitment............................................ 4.2(d)
Media Warrant............................................... 4.2(d)
Mergers..................................................... Recitals
Merger Subs................................................. Recitals
Newco....................................................... 1.1(a)
Newco Class A Common Stock.................................. Recitals
Option Agreement............................................ Recitals
Original Merger Agreement................................... Recitals
Parent...................................................... Recitals
Parent Governmental Approvals............................... 3.2(g)(i)
Parent Required Consents.................................... 3.2(g)(ii)
Payment..................................................... 3.1(w), 3.2(u)
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
- ---- ----------------
<S> <C>
Principal Company Stockholder............................... Recitals
Proposed Intellectual Property Agreements................... 3.1(m)(i)(D)
Proxy Statement/Prospectus.................................. 3.1(t)
Recommendation.............................................. 3.1(q)
Registration Rights Agreement............................... Recitals
Registration Statement...................................... 3.1(t)
Required Shareholder Approval............................... 3.1(e)
Rule 145 Affiliate Agreement................................ 5.11
Rule 145 Affiliates......................................... 5.11
SARs........................................................ 3.1(c)
Software.................................................... Recitals
Specified Number............................................ 1.8(c)
Stockholders Agreement...................................... Recitals
Stockholders' Meeting....................................... 5.5
Surviving Corporation....................................... 1.3
Surviving LLC............................................... 1.2
Systems..................................................... 3.1(m)(vii)
Tax......................................................... 3.1(j)(i)
Tax Return.................................................. 3.1(j)(ii)
Technology.................................................. Recitals
Term Loan Facility.......................................... Recitals
Termination Fee............................................. 8.3(b)(ii)
USA......................................................... Recitals
Voting Agreement............................................ Recitals
Waiver Agreement............................................ Recitals
WARN........................................................ 3.1(l)(xiii)
Year 2000 Compliant......................................... 3.1(m)(vii)
</TABLE>
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ARTICLE 1
THE MERGERS
Section 1.1 FORMATION OF NEWCO AND MERGER SUBS.
(a) As promptly as practicable following the execution of this
Agreement, Parent shall cause a corporation ("NEWCO") to be organized under
the Delaware General Corporation Law (the "DGCL"), shall cause Company
Merger Sub to be organized as a corporation under the California General
Corporation Law ("CALIFORNIA LAW") and shall cause ISN Merger Sub to be
organized as a limited liability company under the Delaware Limited
Liability Company Act (the "DELAWARE LLC ACT"). The Certificate of
Incorporation and By-laws of Newco shall be substantially in the forms
attached hereto as Exhibit D and the Articles of Incorporation and By-laws
of Company Merger Sub and Certificate of Formation and the Limited Liability
Company Agreement of ISN Merger Sub shall be as reasonably agreed to by
Parent and the Company prior to the Effective Time. The officers and
directors of Newco and Company Merger Sub as of the Effective Time and the
officers of ISN Merger Sub will be determined by Parent subject, with
respect to Newco, to the provisions of the Stockholders Agreement.
(b) As promptly as practicable following the execution of this Agreement
and the organization of Newco and the Merger Subs pursuant to
Section 1.1(a), Parent shall take all steps necessary (i) to cause the
directors of Newco and Company Merger Sub to ratify and approve this
Agreement, the Agreement of Merger, the Mergers and the other Transactions,
(ii) to cause Newco, as the sole member of ISN Merger Sub, to ratify and
approve this Agreement, the Certificate of Merger, the Mergers and the other
Transactions, (iii) to cause the Agreement of Merger to be executed on
behalf of Newco and Company Merger Sub, (iv) to cause the Certificate of
Merger to be executed on behalf of Newco and ISN Merger Sub, (v) to cause
Newco, as the sole stockholder of Company Merger Sub, to adopt and approve
this Agreement, the Agreement of Merger, the Mergers and the other
Transactions and (vi) to approve, as the sole stockholder of Newco, the
issuance of Newco Common Stock in connection with the Mergers. Unless the
context otherwise requires, the term "AGREEMENT" as used herein refers
collectively to this Agreement, the Agreement of Merger and the Certificate
of Merger.
Section 1.2 THE ISN MERGER. Upon the terms and subject to the conditions
set forth in this Agreement and in accordance with the Delaware LLC Act, ISN
Merger Sub shall be merged with and into ISN at the Effective Time. Upon and
after the Effective Time, the separate existence of ISN Merger Sub shall cease
and ISN shall be the surviving entity in the ISN Merger (the "SURVIVING LLC").
In accordance with the Delaware LLC Act, all of the rights, privileges, powers,
immunities, purposes and franchises of ISN and ISN Merger Sub shall vest in the
Surviving LLC and all of the Liabilities and duties of ISN and ISN Merger Sub
shall become the Liabilities and duties of the Surviving LLC.
Section 1.3 THE COMPANY MERGER. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with California Law,
Company Merger Sub shall be merged with and into the Company at the Effective
Time. Upon and after the Effective Time, the separate corporate existence of
Company Merger Sub shall cease and the Company shall be the surviving
corporation in the Company Merger (the "SURVIVING CORPORATION"). In accordance
with California Law, all of the rights, privileges, powers, immunities, purposes
and franchises of the Company and Company Merger Sub shall vest in the Surviving
Corporation and all of the Liabilities and duties of the Company and Company
Merger Sub shall become the Liabilities and duties of the Surviving Corporation.
Section 1.4. CLOSING. The closing of the Mergers (the "CLOSING") shall
take place at the offices of Paul, Weiss, Rifkind, Wharton & Garrison at
10:00 a.m. on the first Business Day on which each of the conditions set forth
in Article 5 (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the fulfillment or waiver of those
conditions) have been satisfied or waived by the party entitled to the benefit
of such conditions or at such other place, time and date as the
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Company and Parent may agree. The time and date upon which the Closing occurs is
referred to herein as the "CLOSING DATE."
Section 1.5. EFFECTIVE TIME. On the Closing Date (or on such other date as
the Company, Parent and ISN may agree), the Company, Parent and ISN (a) shall
cause the Company Merger to be consummated by executing, delivering and filing
(or by causing the execution, delivery and filing of) the Agreement of Merger
and a duly executed Officer's Certificate of each of Company Merger Sub and the
Company (accompanied by a certificate of satisfaction of the California
Franchise Tax Board (if required) for Company Merger Sub), with the Secretary of
State of the State of California in accordance with the relevant provisions of
California Law and shall make all other filings or recordings required in
connection herewith under California Law and (b) shall cause the ISN Merger to
be consummated by executing, delivering and filing (or by causing the execution,
delivery and filing of) the Certificate of Merger with the Secretary of State of
the State of Delaware in accordance with the relevant provisions of the Delaware
LLC Act and shall make all other filings or recordings required in connection
herewith under the Delaware LLC Act. The Mergers shall become effective at such
time as both the Agreement of Merger and the Certificate of Merger are duly
filed, or at such later time as is specified in the Certificate of Merger and
the Agreement of Merger and the Officer's Certificate and in accordance with the
Delaware LLC Act and California Law (the "EFFECTIVE TIME").
Section 1.6. ARTICLES OF INCORPORATION; BY-LAWS AND LLC AGREEMENT. The
Articles of Incorporation of Company Merger Sub in effect at the Effective Time
shall be the Articles of Incorporation of the Surviving Corporation until
amended in accordance with its terms and applicable Law; PROVIDED, HOWEVER, that
at the Effective Time, Article I of such Articles of Incorporation shall be
amended by virtue of this Agreement to read as follows: "THE NAME OF THE
CORPORATION IS STYLECLICK.COM INC." The By-laws of Company Merger Sub in effect
at the Effective Time shall be the By-laws of the Surviving Corporation until
amended in accordance with its terms and applicable law. The Certificate of
Formation of ISN Merger Sub in effect at the Effective Time shall be the
Certificate of Formation of the Surviving LLC until amended in accordance with
its terms and applicable law; PROVIDED, HOWEVER, that at the Effective Time,
Article I of such Certificate of Formation shall be amended by virtue of this
Agreement to read as follows: "The name of the limited liability company
(hereinafter called the "limited liability company") is Internet Shopping
Network LLC." The Limited Liability Company Agreement of ISN Merger Sub in
effect at the Effective Time shall be the Limited Liability Company Agreement of
the Surviving LLC until amended in accordance with its terms and applicable Law.
Section 1.7. DIRECTORS AND OFFICERS. The directors and officers of Company
Merger Sub immediately prior to the Effective Time shall be the directors and
officers, respectively, of the Surviving Corporation as of the Effective Time
and until their successors are duly elected or appointed and qualified in
accordance with applicable Law. The officers of ISN Merger Sub immediately prior
to the Effective Time shall be the officers of the Surviving LLC as of the
Effective Time and until their successors are duly elected or appointed and
qualified in accordance with applicable Law.
Section 1.8. CALCULATION OF SPECIFIED NUMBER; ANTI-DILUTION ADJUSTMENT.
(a) If on or prior to the Effective Time, any holder of an April 1999
Warrant has exercised its right (each a "BLACK SCHOLES OPTION") to receive
cash in exchange for such April 1999 Warrant as a result of the
Transactions, then the Company shall promptly (and in any event prior to the
Effective Time) notify Parent in writing of each such exercise (the "CASH
OUT ELECTIONS"), which notice shall include the amount of cash payable to
each such holder. At Closing, each holder of ISN Units (other than Parent)
shall be entitled to receive a number of shares of Class A Common Stock
equal to the Specified Number multiplied by such holder's Proportionate
Number and Parent shall be entitled to receive a number of shares of
Class B Common Stock equal to the Specified Number multiplied by Parent's
Proportionate Number. Any issuance pursuant to the
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preceding sentence shall be in addition to any other shares issuable to such
holders pursuant to this Agreement.
(b) If at any time following the Effective Time, Newco or the Surviving
Corporation becomes obligated to pay any cash in respect of any exercise of
a Black Scholes Option as a result of the Transactions that was not
reflected in the calculation of the Specified Number pursuant to
Section 1.8(a), then the Specified Number shall be calculated in accordance
with the formula set forth in Section 1.8(c) and Newco shall issue to
holders of ISN Units such additional number of shares of Newco Common Stock
calculated as follows: each holder of ISN Units (other than Parent) shall be
entitled to receive a number of shares of Class A Common Stock equal to the
Specified Number multiplied by such holder's Proportionate Number and Parent
shall be entitled to receive a number of shares of Class B Common Stock
equal to the Specified Number multiplied by Parent's Proportionate Number.
Any issuance pursuant to the preceding sentence shall be in addition to any
other shares issuable to such holders pursuant to this Agreement.
(c) S = (CD/$11.50) * 3
Where, as of any date:
S = the Specified Number as of such date
CD = the aggregate amount of cash paid or payable on or prior to such
date by the Company (and, after the Mergers, Newco or the Surviving
Corporation) to holders of April 1999 Warrants in respect of any
Black Scholes Option, which, in the case of any determination made
at or prior to the Effective Time, shall be the aggregate amounts
set forth in all Cash Out Elections received by Parent on or prior
to the Effective Time.
(d) The parties shall take all reasonable action necessary to cause
Newco to reserve for issuance a sufficient number of shares of Newco Common
Stock for deliveries required pursuant to this Section 1.8.
ARTICLE 2
EFFECT OF THE MERGERS ON THE EQUITY OF
THE CONSTITUENT ENTITIES; EXCHANGE OF CERTIFICATES
Section 2.1. EFFECT OF COMPANY MERGER. At the Effective Time, by virtue of
the Company Merger and without any action on the part of the holder of any
shares of Company Common Stock or any shares of Common Stock of Company Merger
Sub ("COMPANY MERGER SUB COMMON STOCK"):
(a) EFFECT OF COMPANY MERGER ON SHARES OF COMPANY MERGER SUB COMMON
STOCK. Each issued and outstanding share of Company Merger Sub Common Stock
shall be converted into and become one fully paid and nonassessable share of
Common Stock of the Surviving Corporation and, as converted, shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation.
(b) CONVERSION OF SHARES OF COMPANY COMMON STOCK. Each share of
Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares of Company Common Stock that are owned by
the Company or any Subsidiary of the Company) shall be converted into the
right to receive one share of Newco Class A Common Stock (the "COMPANY
MERGER SECURITIES"). At the Effective Time, all shares of Company Common
Stock shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate that
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (collectively, the "COMPANY CERTIFICATES") shall cease
to have any rights with respect thereto, except the right to receive the
Company Merger Securities to be issued
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in consideration therefor upon surrender of such certificate in accordance
with Section 2.3, without interest.
(c) CANCELLATION OF COMPANY-OWNED STOCK. Each share of Company Common
Stock that is owned by the Company or any of its Subsidiaries immediately
prior to the Effective Time shall automatically be canceled and retired and
shall cease to exist, and no consideration shall be delivered in exchange
therefor.
Section 2.2. EFFECT OF ISN MERGER. At the Effective Time, by virtue of the
ISN Merger and without any action on the part of the holder of any ISN Units or
any limited liability company interests of ISN Merger Sub (the "ISN MERGER SUB
UNITS"):
(a) EFFECT OF ISN MERGER ON ISN MERGER SUB UNITS. All of the issued
and outstanding ISN Merger Sub Units shall be converted into and become all
of the issued and outstanding limited liability company interests of the
Surviving LLC.
(b) CONVERSION OF ISN UNITS. Each ISN Unit issued and outstanding
immediately prior to the Effective Time (other than ISN Units that are owned
by Parent) shall be converted into the right to receive 0.601 shares of
Newco Class A Common Stock (the "ISN CLASS A MERGER SECURITIES"). Each ISN
Unit owned by Parent immediately prior to the Effective Time shall be
converted into the right to receive 0.601 shares of Newco Class B Common
Stock plus, in the aggregate, the number of shares of Newco Class B Common
Stock payable pursuant to Section 2.9 (the "ISN CLASS B MERGER SECURITIES"
and, collectively with the ISN Class A Merger Securities, the "ISN MERGER
SECURITIES"). At the Effective Time, all ISN Units shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate that immediately prior to the
Effective Time represented outstanding ISN Units (collectively, the "ISN
CERTIFICATES"and collectively with the Company Certificates, the
"CERTIFICATES") shall cease to have any rights with respect thereto, except
the right to receive the applicable ISN Merger Securities with respect
thereto and any cash in lieu of fractional shares of applicable Newco Common
Stock with respect thereto to be issued in consideration therefor and any
dividends or other distributions to which holders of ISN Units become
untitled upon surrender of such Certificate in accordance with Section 2.3,
without interest.
Section 2.3. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Parent shall
designate a bank or trust company reasonably acceptable to the Company to
act as exchange agent in the Mergers (the "EXCHANGE AGENT") for purposes of
effecting the exchange for the Company Merger Securities and the ISN Merger
Securities. At the Effective Time, Parent shall cause Newco to deposit with
the Exchange Agent, for the benefit of the holders of Certificates, the
number of shares of Newco Common Stock issuable pursuant to Section 2.1(b)
and 2.2(b). Parent agrees to cause Newco to make available to the Exchange
Agent from time to time as needed, cash sufficient to pay cash in lieu of
factional shares pursuant to Section 2.3(e) and any dividends or other
distributions pursuant to this Section 2.3(b). For purposes of this
Agreement, shares of Newco Common Stock comprising the Company Merger
Securities and the ISN Merger Securities, any cash in lieu of fractional
shares with respect thereto and any dividends or distributions with respect
thereto are hereinafter referred to as the "EXCHANGE FUND." The Exchange
Agent shall, pursuant to irrevocable instructions, deliver the shares of
Newco Common Stock comprising the Company Merger Securities and the ISN
Merger Securities in accordance with Section 2.3(b).
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation and the Surviving LLC shall
instruct the Exchange Agent to mail to each holder of record of a
Certificate or Certificates whose Company Common Stock or ISN Units were
converted into the right to receive the Company Merger Securities or the ISN
Merger Securities
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pursuant to Section 2.1(b) or 2.2(b) (i) a letter of transmittal specifying
that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent, in such form and with other provisions as the Surviving
Corporation and the Surviving LLC may reasonably specify and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing the shares of Newco Common Stock
comprising the Company Merger Securities and the ISN Merger Securities,
together with any dividends and other distributions with respect thereto and
any cash in lieu of fractional shares. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, and such other documents as reasonably may be
required by the Exchange Agent, and acceptance thereof by the Exchange
Agent, each holder of a Certificate shall be entitled to receive in exchange
therefor (A) a certificate representing the shares of Newco Common Stock
comprising the Company Merger Securities and the ISN Merger Securities that
such holder has the right to receive pursuant to the provisions of this
Article 2 and (B) a check in the amount equal to the cash that such holder
has the right to receive pursuant to the provisions of this Article 2,
including cash in lieu of fractional shares pursuant to Section 2.3(e) and
dividends and other distributions pursuant to this Section 2.3(b). The
Exchange Agent shall accept such Certificates upon compliance with such
reasonable terms and conditions as the Exchange Agent may impose to effect
an orderly exchange thereof in accordance with normal exchange practices,
and the Certificate so surrendered shall forthwith be canceled. After the
Effective Time, there shall be no further transfer of Certificates on the
books and records of the Company or its transfer agent or ISN and, if such
Certificates are presented to the Company or its transfer agent or ISN for
transfer, they shall be canceled against delivery of certificates
representing the shares of Newco Common Stock comprising the Company Merger
Securities or the ISN Merger Securities and any cash payable pursuant to
this Section 2.3(b) or Section 2.3(e) that such holder has the right to
receive pursuant to the provisions of this Article 2, and the Certificate so
surrendered shall forthwith be canceled. If any certificates for shares of
Newco Common Stock are to be issued in a name other than that in which the
Certificate surrendered for exchange is registered, it shall be a condition
of such exchange that the Certificate so surrendered shall be properly
endorsed, with the signature guaranteed, or otherwise in proper form for
transfer and that the Person requesting such exchange shall pay to Newco or
its transfer agent any transfer or other taxes required by reason of the
issuance of certificates representing such shares of Newco Common Stock in a
name other than that of the registered holder of the Certificate
surrendered, or establish to the satisfaction of Newco or its transfer agent
that such tax has been paid or is not required to be paid under applicable
Law. Until surrendered as contemplated by this Section 2.3, each Certificate
shall be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender certificates representing the shares of
Newco Common Stock to which such holder is entitled and cash and other
dividends, distributions or payments as contemplated by this Article 2.
Subject to applicable Law, following surrender of any such Certificate,
there shall be paid to the record holder thereof, the certificates
representing the shares of Newco Common Stock issued in exchange therefor,
as well as, (x) at the time of such surrender, the amount of cash payable in
lieu of fractional shares pursuant to Section 2.3(e), (y) at the time of
such surrender, the amount of dividends or other distributions or payments
with a record date after the Effective Time theretofore paid with respect to
such shares of Newco Common Stock, and (z) at the appropriate payment date,
the amount of dividends or other distributions or payments with a record
date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of Newco
Common Stock. In no event shall Persons entitled to receive such dividends,
distributions or payments be entitled to receive any interest thereon.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions or payments declared or made after the Effective Time
with respect to Newco Common Stock, with a record date after the Effective
Time, and no cash payment in lieu of fractional shares shall be paid
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to the holder of any unsurrendered Certificate with respect to the shares of
Newco Common Stock represented thereby until the holder of record of such
Certificate has surrendered such Certificate.
(d) NO FURTHER OWNERSHIP RIGHTS. The shares of Newco Common Stock
comprising the Company Merger Securities and the ISN Merger Securities
issued upon the surrender for exchange of Certificates in accordance with
the terms of this Article 2, together with any dividends, distributions or
payments contemplated by Section 2.3(b) shall be deemed to have been issued
(and paid) in full satisfaction of all rights in respect of the shares of
Company Common Stock or ISN Units theretofore represented by such
Certificates. If, after the Effective Time, Certificates are presented to
the Surviving Corporation, the Surviving LLC or the Exchange Agent for any
reason, they shall be canceled and exchanged as provided in this Article 2.
(e) NO FRACTIONAL SHARES OF NEWCO COMMON STOCK.
(i) No certificates or scrip or shares of Newco Common Stock
representing fractional shares of Newco Common Stock shall be issued upon
the surrender for exchange of Certificates and such fractional share
interests will not entitle the owner thereof to vote or to have any
rights of a stockholder of Newco or a holder of shares of Newco Common
Stock.
(ii) Notwithstanding any other provision of this Agreement, each
holder of ISN Units exchanged pursuant to the ISN Merger who would
otherwise have been entitled to receive a fraction of a share of Newco
Common Stock (determined after taking into account all ISN Certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to the product of (A) such fractional part
of a share of Newco Common Stock, multiplied by (B) the closing bid price
for a share of Newco Class A Common Stock as reported on NASDAQ on the
first trading day following the date on which the Effective Time occurs.
As promptly as practicable after the determination of the amount of cash,
if any, to be paid to holders of fractional interests, the Exchange agent
shall so notify Newco, and Newco shall deposit such amount with the
Exchange Agent and shall cause the Exchange Agent to forward payments to
such holders of fractional interests subject to and in accordance with
the terms hereof.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund,
including any shares of Newco Class A Common Stock attributable to
Dissenting Shares, which remains undistributed for six months after the
Effective Time shall be delivered to Newco, upon demand, and any former
stockholders of the Company or former unitholders of ISN who have not
theretofore complied with this Article 2 shall thereafter look only to Newco
for payment of their claim for any Company Merger Securities or ISN Merger
Securities and any cash in lieu of fractional shares of Newco Common Stock
to which such holders are entitled pursuant to Section 2.3(e) any dividends
or distributions or other payments with respect to shares of Newco Common
Stock to which such holders are entitled pursuant to Section 3.3(b). If any
Certificates have not been surrendered prior to five years after the
Effective Time (or immediately prior to such earlier date on which any
Company Merger Securities or ISN Merger Securities in respect of such
Certificate would otherwise escheat to or become the property of any
Governmental Entity), any amounts payable in respect of such Certificate
shall, to the extent permitted by applicable Law, become the property of
Newco, free and clear of all claims or interests of any Person previously
entitled to such amounts.
(g) NO LIABILITY. None of Newco, the Surviving Corporation, the
Surviving LLC, the Exchange Agent or any other Person shall be liable to any
Person in respect of any shares of Newco Common Stock comprising the Company
Merger Securities or ISN Merger Securities delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(h) INVESTMENT OF THE EXCHANGE FUND. The Exchange Agent shall invest
any cash included in the Exchange Fund as directed by Newco on a daily
basis; provided that no such investment or loss
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thereon shall affect the amount payable to holders of Company Common Stock
or ISN Units pursuant to this Article 2. Any interest or other income
resulting from such investments shall be promptly paid to Newco.
Section 2.4 APPRAISAL RIGHTS.
(a) Notwithstanding anything in this Agreement to the contrary, shares
("DISSENTING SHARES") of Company Common Stock outstanding immediately prior
to the Effective Time and held by any holder who is entitled to demand, and
who properly demands, appraisal for such shares in accordance with
Section 1300 et seq. of California Law and is otherwise entitled to the
protections afforded a "dissenting shareholder" as such term is used in such
sections of California Law (collectively, the "DISSENTING SHAREHOLDERS"),
shall not be converted as provided in Section 2.1, unless such holder fails
to perfect or otherwise loses any rights to appraisal of such Dissenting
Shares under, and shall otherwise cease to be a "dissenting shareholder" as
provided in, such sections of California Law. If, after the Effective Time,
such holder fails to perfect or loses any such right to appraisal, such
Dissenting Shares shall be treated as if they had been converted as of the
Effective Time into the right to receive Company Merger Securities. The
Company shall give ISN (i) prompt written notice of any demands for
appraisal or payment, and any withdrawals of such demands, received by the
Company and any other related instruments served pursuant to California Law
and received by the Company, and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for payment under
California Law. The Company shall not, except with the prior written consent
of ISN, enter into any agreement or settlement with any Dissenting
Shareholder or otherwise make any payment with respect to any demands for
appraisal or payment or negotiate, offer to settle or settle any such
demands.
(b) If at any time (the "MEASUREMENT TIME") following the Effective
Time, Newco or the Surviving Corporation becomes obligated to pay any cash
in respect of any exercise by a Dissenting Shareholder of its appraisal
rights under California Law in respect of any Dissenting Shares as a result
of the Transactions ("APPRAISAL RIGHTS"), then the Appraisal Number shall be
calculated in accordance with the formula set forth in Section 2.4(c) and
Newco shall issue (i) to Parent, the number of shares of Class B Common
Stock as is equal to the Appraisal Number multiplied by Parent's
Proportionate Number and (ii) to ISN unitholders other than Parent, the
number of shares of Class A Common Stock as is equal to the Appraisal Number
multiplied by such holder's Proportionate Number.
(c) A = [(CD/$11.50)-S] * 3
Where, as of a Measurement Time:
A = the Appraisal Number as of such time
CD = the aggregate amount of cash paid or payable as of the Measurement
Time by Newco or the Surviving Corporation to Dissenting
Shareholders by reason of the exercise of any Appraisal Right in
respect of Dissenting Shares.
S = the aggregate number of shares purchased from Dissenting
Shareholders.
(d) The parties shall take all reasonable action to cause Newco to
reserve for issuance a sufficient number of shares of Newco Common Stock for
delivery pursuant to Section 2.4(c).
Section 2.5 TREATMENT OF STOCK OPTIONS AND WARRANTS.
(a) The Company and ISN shall take such actions as are necessary to
provide that at the Effective Time each outstanding Company Stock Option and
Company Warrant that is not canceled in accordance with its terms as a
result of the Mergers shall be assumed by Newco and converted into an option
or warrant, as the case may be, to purchase the same number of shares
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of Newco Class A Common Stock at the same per share exercise price as
applied to the Company Stock Option or Company Warrant, as the case may be,
prior to such conversion. Following the Effective Time, each Company Stock
Option and Company Warrant shall continue to have, and shall be subject to,
the same terms and conditions as set forth in the Company Option Plan, the
Warrant Agreements and any other agreement pursuant to which such Company
Stock Option or Company Warrant was subject immediately prior to the
Effective Time, as the case may be.
(b) The Company and ISN shall take such actions as are necessary to
provide that at the Effective Time each outstanding ISN Stock Option that is
not canceled in accordance with its terms as a result of the Mergers shall
be assumed by Newco and converted into an option to purchase .601 shares of
Newco Class A Common Stock at a per share exercise price equal to the
product of 1.664 and the per share exercise price of the ISN Stock Option
prior to such conversion. Following the Effective Time, each ISN Stock
Option shall continue to have, and shall be subject to, the same terms and
conditions as set forth in the ISN Option Plan, and any other agreement
pursuant to which such ISN Stock Option was subject immediately prior to the
Effective Time, as the case may be, and as the same may be amended or waived
from time to time in accordance therewith.
(c) As soon as practicable following the date of the Original Merger
Agreement, the Company shall deliver to the holders of the Company Stock
Options and holders of the Company Warrants appropriate notices setting
forth such holders' rights after giving effect to the Company Merger and the
provisions set forth above. At or prior to the Effective Time, the Company
shall make such amendments and take such other actions, if any, to the
Company Option Plan, the Warrant Agreements or such other agreements
pursuant to which the Company Stock Options or the Company Warrants were
issued as shall be necessary to permit the assumption and adjustment
referred to in this Section 2.5, subject in each case to the approval of
Parent.
(d) As soon as practicable following the date of the Original Merger
Agreement, ISN shall deliver to the holders of the ISN Stock Options
appropriate notices setting forth such holders' rights after giving effect
to the ISN Merger and the provisions set forth above. At or prior to the
Effective Time, ISN shall make such amendments and take such other actions,
if any, to the ISN Option Plan or any agreements pursuant to which the ISN
Stock Options were issued as shall be necessary to permit the assumption and
adjustment referred to in this Section 2.5.
(e) It is the intention of the parties that, to the extent any Company
Stock Option or ISN Stock Option constituted an incentive stock option
immediately prior to the Effective Time, such option shall continue to
qualify as an incentive stock option to the maximum extent permitted by
Section 422 of the Code, and that the assumption of the Company Stock
Options and ISN Stock Options provided by this Section 2.5 satisfy the
conditions set forth in Section 424(a) of the Code. Newco shall comply with
the terms of the Company Option Plan and ensure, to the extent required by,
and subject to the provisions of such Company Option Plan, that the Company
Stock Options and ISN Stock Options that qualified as incentive stock
options prior to the Effective Time continue to qualify as incentive stock
options after the Effective Time.
(f) Newco shall take all corporate action necessary to establish a stock
option plan and to reserve for issuance thereunder a sufficient number of
shares of Newco Class A Common Stock for delivery upon exercise of the
Company Stock Options, the Company Warrants and the ISN Stock Options at and
after the Effective Time and such additional shares for future option grants
as shall be determined by the Board of Directors of Newco.
Section 2.6 ADJUSTMENTS. If, prior to the Effective Time, any change in
the number of outstanding shares of Company Common Stock or ISN Units shall
occur, including by reason of any reclassification, recapitalization, stock
dividend, stock split or combination, exchange or readjustment of shares of
Company Common Stock or ISN Units, or any stock dividend thereon with a record
date prior to the Effective Time, the Company Merger Securities and the ISN
Merger Securities and any other amounts payable pursuant to this Agreement, as
the case may be, shall be appropriately adjusted.
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Section 2.7 LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation or the Surviving LLC, the posting by such Person of a
bond, in such reasonable amount as the Surviving Corporation or the Surviving
LLC may direct, as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will pay, in exchange for such
affidavit claiming such Certificate is lost, stolen or destroyed, the Company
Merger Securities or the ISN Merger Securities, to be paid in respect of the
shares of Company Common Stock or ISN Units represented by such Certificate, any
cash in lieu of fractional shares of Newco Common Stock and any unpaid dividends
and distributions on shares of Newco Common Stock deliverable in respect
thereof, each as contemplated by this Article 2.
Section 2.8 WITHHOLDING RIGHTS. Each of Newco, the Surviving Corporation,
the Surviving LLC and the Exchange Agent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any holder of shares of Company Common Stock or ISN Units such amounts as Newco,
the Surviving Corporation, the Surviving LLC or the Exchange Agent are required
to deduct and withhold with respect to the making of such payment under the Code
or any provision of state, local or foreign tax law. To the extent that amounts
are so withheld by Newco, the Surviving Corporation, the Surviving LLC or the
Exchange Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of a Certificate in respect of which
such deduction and withholding was made by Newco, the Surviving Corporation, the
Surviving LLC or the Exchange Agent.
Section 2.9 ADDITIONAL SHARES PAYABLE TO PARENT. The parties acknowledge
that the conversion ratios set forth in Section 2.2(b) contemplate issuances of
ISN Units to certain holders of options to purchase stock in ISN's predecessor
company. If any such holder elects to receive cash in lieu of the ISN Units
offered to such holder, Parent shall make such cash payment on behalf of ISN and
shall be entitled to receive a number of shares of Class B Common Stock equal to
the product of 0.601, multiplied by the number of ISN Units to which such holder
would otherwise be entitled.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to ISN and Parent that, as of the date of the Original
Merger Agreement:
(a) ORGANIZATION, STANDING AND CORPORATE POWER; SUBSIDIARIES. The
Company and each of its Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California, has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, and is
duly qualified or licensed and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or leasing
of its properties makes such qualification or licensing necessary, other
than in such jurisdictions where the failure so to qualify would not have a
Material Adverse Effect with respect to the Company. Section 3.1(a) of the
Company Disclosure Schedule sets forth, as of the date of the Original
Merger Agreement, a true and complete list of all of the Company's
Subsidiaries, including (x) the jurisdiction of incorporation of each such
Subsidiary and (y) the percentage of each such Subsidiary's outstanding
capital stock, and the nature of such capital stock, owned by the Company
and/or another Subsidiary of the Company, as the case may be. All of the
outstanding shares of capital stock in each of the Subsidiaries of the
Company are duly authorized, validly issued, fully paid and nonassessable
and, except as set forth in Section 3.1(a) of the Company Disclosure
Schedule, are owned (of record and beneficially) by the Company and/or by
another Subsidiary of the Company, as the case may be, free and clear of all
pledges, claims, options, rights
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of first refusal, liens, charges, encumbrances and security interests of any
kind or nature whatsoever (collectively, "LIENS"), and are not subject to
preemptive rights created by statute, such Subsidiary's Articles of
Incorporation or By-laws (or similar constituent documents) or any agreement
to which such Subsidiary is a party or by which such Subsidiary is bound.
Other than as set forth in Section 3.1(a) of the Company Disclosure
Schedule, the Company does not directly or indirectly own any Equity
Securities in any Person.
(b) ARTICLES OF INCORPORATION AND BY LAWS. Complete and correct copies
of the Articles of Incorporation and By-laws, each as amended to the date of
the Original Merger Agreement, of the Company and each of its Subsidiaries
have been delivered to Parent. The Articles of Incorporation and By-laws of
the Company and each of its Subsidiaries are in full force and effect.
Neither the Company nor any of its Subsidiaries is in violation of any
provision of its Articles of Incorporation or By-laws.
(c) CAPITALIZATION. As of the date of the Original Merger Agreement,
the authorized capital stock of the Company consists of 15,000,000 shares of
Company Common Stock, of which (i) 7,716,930 shares were issued and
outstanding, all of which were duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights, whether created by
statute, the Articles of Incorporation or By-Laws of the Company or any
agreement to which the Company is party or bound or otherwise,
(ii) 2,500,000 shares were reserved for future issuance pursuant to the
Company Option Plan, (iii) 2,386,269 shares were reserved for future
issuance pursuant to the Warrant Agreements; and (iv) no shares were held in
the treasury of the Company or by its Subsidiaries.
Section 3.1(c) of the Company Disclosure Schedule sets forth, (v) the
Persons to whom Company Stock Options or Company Warrants have been granted,
(w) the exercise price for the Company Stock Options or the Company Warrants
held by each such Person, (x) whether such the Company Stock Options or the
Company Warrants are subject to vesting and, if subject to vesting, the dates on
which each such Company Stock Option or the Company Warrant vest, (y) the
agreement pursuant to which such Company Stock Option or Company Warrant was
issued and (z) whether any such Company Stock Options or Company Warrants are
subject to adjustment in the exercise price thereof or subject to rights of the
holders thereof to receive any property (including cash) other than (A) prior to
the Effective Time, shares of Company Common Stock and (B) following the
Effective Time, shares of Newco Class A Common Stock. Section 3.1(c) of the
Company Disclosure Schedule also identifies which Company Warrants are
April 1999 Warrants. Except as set forth in Section 3.1(c) of the Company
Disclosure Schedule, none of the Company Stock Options or the Company Warrants
which are subject to vesting will vest as a result of the consummation of the
Transactions. Except as described in this Section 3.1(c) of the Company
Disclosure Schedule, no shares of capital stock or other Equity Securities of
the Company are authorized, issued or outstanding, or reserved for any other
purpose, and there are no options, warrants or other rights (including
Registration rights), agreements, arrangements or commitments of any character
to which the Company or any of its Subsidiaries is a party relating to the
issued or unissued capital stock or other Equity Securities or ownership
interests of the Company or any of its Subsidiaries or with respect to any stock
appreciation right or similar derivative security or instrument ("SARS"), or
obligating the Company or any of its Subsidiaries to grant, issue or sell any
Equity Securities or any SARs of the Company or any of its Subsidiaries, by
sale, lease, license or otherwise. Other than pursuant to or as contemplated by
the Credit Agreement, there is no outstanding Debt of the Company, except up to
$0.5 million of Debt incurred in the ordinary course of business, and none of
the Debt provides the holders with the right to vote or is otherwise convertible
into or exercisable for securities having the right to vote with the
stockholders of the Company on any matter. Other than as contemplated by this
Agreement or as set forth in Section 3.1(c) of the Company Disclosure Schedule,
there are no outstanding contractual obligations, commitments, understandings or
arrangements of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire or
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make any payment in respect of any shares of capital stock or other equity
securities or ownership interests or SARs of the Company or any of its
Subsidiaries.
(d) SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has made
available to Parent a true and complete copy of each form, report, schedule,
registration statement and definitive proxy statement filed by the Company
with the SEC since January 1, 1997 (as such documents have since the time of
their filing been amended or supplemented, the "COMPANY SEC DOCUMENTS"),
which are all of the documents that the Company was required to file with
the SEC since January 1, 1997. Except as set forth in Section 3.1(d) of the
Company Disclosure Schedule, as of their respective dates, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as applicable, and none of the Company
SEC Documents (including all financial statements included therein and all
exhibits and schedules thereto and documents incorporated by reference
therein) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The Financial Statements delivered by the Company to
Parent comply as to form in all material respects with applicable accounting
requirements and with the rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited Financial Statements, as permitted
by Exchange Act Form 10-Q) and fairly present (subject, in the case of the
unaudited Financial Statements, to normal, recurring audit adjustments that,
individually and in the aggregate, were not material) the financial position
of the Company and its Subsidiaries as at the dates thereof and the results
of each of their operations and cash flows for the periods then ended. There
are no Liabilities of any kind required to be disclosed under GAAP that are
not disclosed, reflected or reserved against in the Financial Statements of
the Company, except for such Liabilities incurred in the ordinary course of
business consistent with past practice since the date of the Company's most
recent audited Financial Statements or as set forth in Section 3.1(d) of the
Company Disclosure Schedule or as would not have a Material Adverse Effect
with respect to the Company.
(e) AUTHORITY. The Company has all requisite corporate power and
authority to enter into this Agreement and each of the other Transaction
Documents to which it is party, to perform its obligations hereunder and
thereunder and to consummate the Transactions. The execution and delivery of
this Agreement and each of the other Transaction Documents to which it is
party and the consummation of the Transactions have been duly and validly
authorized by all necessary corporate action on the part of the Company and
no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or the other Transaction Documents to which the
Company is party or to consummate the Transactions, subject, in the case of
the Company Merger, to the approval thereof by the shareholders of a
majority of the issued and outstanding Company Common Stock (the "REQUIRED
SHAREHOLDER APPROVAL") and the filing and recordation of the Agreement of
Merger, in each case in accordance with the requirements of California Law.
This Agreement and each of the other Transaction Documents to which the
Company is party have been duly and validly executed and delivered by the
Company and constitute a valid and binding obligation of the Company
enforceable against the Company in accordance with their terms, subject, in
the case of the Company Merger, to the Required Shareholder Approval and the
filing and recordation of the Agreement of Merger, in each case in
accordance with the requirements of California Law. To the Knowledge of the
Company, as of the date of the Original Merger Agreement, the Principal
Company Stockholders and Intel Corporation collectively owned of record
32.65% of the issued and outstanding shares of Company Common Stock.
(f) COMPLIANCE WITH APPLICABLE LAWS. Each of the Company and its
Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities, except where any such failure so to
hold, individually and in the aggregate, would not have a Material
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Adverse Effect with respect to the Company (the "COMPANY PERMITS"). The
Company and its Subsidiaries are in compliance with the terms of the Company
Permits in all material respects. The businesses of the Company and its
Subsidiaries are not being conducted in violation of any material Law. No
investigation or review by any Governmental Entity with respect to the
Company or any of its Subsidiaries is pending or, to the Knowledge of the
Company, threatened, nor, to the Knowledge of the Company, has any
Governmental Entity indicated an intention to conduct the same.
(g) GOVERNMENT APPROVALS; REQUIRED CONSENTS.
(i) No consent, approval, authorization or action of, declaration or
filing with, or notice to, any Governmental Entity on the part of the
Company is required in connection with the execution or delivery by the
Company of this Agreement or any of the other Transaction Documents to
which the Company is party, the consummation by the Company of the
Transactions or compliance by the Company with the terms hereof or
thereof, other than (A) filing the Agreement of Merger in accordance with
the requirements of California Law, (B) filing the Certificate of Merger
in accordance with the requirements of the Delaware LLC Act, (C) filings
with the SEC and NASDAQ, (D) filings under state securities or "BLUE SKY"
laws, (E) filings under the HSR Act, (any such consents, approvals,
authorizations, declarations, filings or notices specified in clauses
(A) through (E) being referred to as the "COMPANY GOVERNMENTAL
APPROVALS") and (F) such consents, approvals, authorizations,
declarations, filings or notices that, individually and in the aggregate,
would not have a Material Adverse Effect with respect to the Company.
(ii) No consent, approval, authorization or action of, filing with,
or notice to, any Person (other than a Governmental Entity) shall be
required in connection with the execution or delivery by the Company of
this Agreement or any of the other Transaction Documents to which the
Company is party, consummation by the Company of the Transactions or
compliance by the Company with the terms hereof or thereof, other than
(A) as set forth in Section 3.1(g)(ii) or Section 3.1(h) of the Company
Disclosure Schedule (the "COMPANY REQUIRED CONSENTS") or (B) such
consents, approvals, actions, filings or notices that, individually and
in the aggregate, would not have a Material Adverse Effect with respect
to the Company.
(h) NON-CONTRAVENTION. The execution, delivery and performance by the
Company of this Agreement and the other Transaction Documents to which the
Company is party and the consummation of the Transactions do not and will
not (i) contravene or conflict with or result in any violation or breach of
any provision of the Articles of Incorporation or By-laws of the Company or
any of its Subsidiaries, (ii) assuming all Company Governmental Approvals
and Company Required Consents have been made or obtained, contravene or
conflict with or result in a violation or breach of any provision of any Law
or order binding upon or applicable to the Company or any of its
Subsidiaries or any of their respective assets, (iii) require any consent or
other action by any Person under, constitute a default under or give rise to
a right of termination, cancellation, change of any right or obligation, or
acceleration of any right or obligation or to the loss of any benefit or
adverse modification of the effect (including an increase in the price paid
by, or cost to, the Company or any of its Subsidiaries) of, or under any
provision of any agreement or other instrument to which the Company is a
party or that is binding upon the Company or any of its Subsidiaries or
their properties or assets or any license, franchise, permit or other
similar authorization held by the Company or any of its Subsidiaries or
(iv) result in the creation or imposition of any Lien on any asset of the
Company or any of its Subsidiaries, except with respect to clauses
(iii) and (iv) as set forth in Section 3.1(h) of the Company Disclosure
Schedule; PROVIDED, HOWEVER, that clauses (ii) through (iv) above address
only those matters that, individually or in the aggregate, would have a
Material Adverse Effect with respect to the Company.
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(i) LITIGATION. As of the date of the Original Merger Agreement,
except as set forth in Section 3.1(i) of the Company Disclosure Schedule,
there was no suit, claim, action or proceeding pending, or, to the Knowledge
of the Company, threatened against the Company or any of its Affiliates
that, individually or in the aggregate, would have a Material Adverse Effect
with respect to the Company, nor was there any Order of any Governmental
Entity outstanding against the Company or any of its Affiliates that,
individually or in the aggregate, would have a Material Adverse Effect with
respect to the Company.
(j) TAXES AND RELATED TAX MATTERS.
(i) Other than Taxes that individually and in the aggregate are not
material (A) all federal, state, county, local, foreign and other taxes
(including, without limitation, income, profits, premium, estimated,
excise, sales, use, occupancy, gross receipts, franchise, ad valorem,
severance, capital levy, production, transfer, withholding, employment,
unemployment compensation, payroll related and property taxes, import
duties and other governmental charges and assessments), whether or not
measured in whole or in part by net income, and including deficiencies,
interest, additions to tax or interest, penalties with respect thereto
and expenses associated with contesting any proposed adjustment related
to any of the foregoing (hereinafter "TAXES" or, individually, a "TAX")
required to be paid on or before the date of the Original Merger
Agreement by or with respect to the Company and its Subsidiaries (or any
of them) have been timely paid, and (B) any Taxes required to be paid by
or with respect to the Company and its Subsidiaries (or any of them)
after the date of the Original Merger Agreement and on or before the
Effective Time shall be timely paid.
(ii) All material returns and reports required to be filed
(hereinafter "TAX RETURNS" or, individually, a "TAX RETURN") by or with
respect to the Company and its Subsidiaries (or any of them) with respect
to Taxes on or before the date of the Original Merger Agreement have been
timely filed. All material Tax Returns required to be filed by or with
respect to the Company and its Subsidiaries (or any of them) after the
date of the Original Merger Agreement and on or before the Effective Time
shall be prepared and timely filed, in a manner consistent with prior
years and applicable laws and regulations. No penalties or other charges
in a material amount are or will become due with respect to the late
filing of any Tax Return of the Company or any of its Subsidiaries or
payment of any Tax of the Company or any of its Subsidiaries, required to
be filed or paid on or before the Effective Time.
(iii) With respect to all Tax Returns filed by or with respect to the
Company and any of its Subsidiaries, except as set forth in
Section 3.1(j) of the Company Disclosure Schedule, (A) the statute of
limitations for the assessment of Taxes has expired with respect to all
periods ending on or before August 31, 1995; (B) no audit is in progress
and no extension of time has been executed with respect to any date on
which any Tax Return was or is to be filed and no waiver or agreement has
been executed for the extension of time for the assessment or payment of
any Tax; and (C) there is no unassessed deficiency proposed or threatened
against the Company or any of its Subsidiaries.
(iv) Neither the Company, nor any of its Subsidiaries or Affiliates
(or any of them) has taken, or agreed to take any action, that would
prevent the Mergers from qualifying as tax-free events under Section 351
or Section 368 of the Code.
(v) Except as set forth in Section 3.1(j) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries has been or is
a party to any tax sharing agreement or similar arrangement.
(vi) Except as set forth in Section 3.1(j) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries has been part
of a group of affiliated corporations that has filed a consolidated
federal income tax return.
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(k) CERTAIN AGREEMENTS. Except for this Agreement and as set forth in
Section 3.1(k) and/or Section 3.1(l) of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries is a party to any oral or
written (i) union or collective bargaining agreement, (ii) agreement with
any executive officer or other key employee of the Company or any of its
Subsidiaries the benefits of which are contingent, or the terms of which
would be materially altered, upon the consummation of the Transactions,
(iii) agreement with respect to any executive officer of the Company
providing any term of employment or compensation guarantee extending beyond
December 31, 2000 or for the payment of in excess of $200,000 per annum
(excluding any signing bonuses, performance-based or other discretionary
bonuses or expense reimbursements provided under a plan disclosed in
Section 3.1(l) of the Company Disclosure Schedule) or (iv) plan, including
any stock option plan, stock appreciation rights plan, restricted stock plan
or stock purchase plan, any of the benefits of which will be increased, or
the vesting of the benefits of which would be accelerated, by the occurrence
of any of the Transactions or the value of any of the benefits of which will
be calculated on the basis of any of the Transactions.
(l) EMPLOYEE BENEFIT PLANS; EMPLOYEE RELATIONS. The following
representations and warranties contained in this Section 3.1(l) are
qualified by such exceptions which, individually and in the aggregate, would
not have a Material Adverse Effect with respect to the Company:
(i) Section 3.1(l)(i) of the Company Disclosure Schedule contains a
true and complete list of each "EMPLOYEE BENEFIT PLAN" (within the
meaning of section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), including multiemployer plans within the
meaning of ERISA section 3(37)), stock purchase, stock option, severance,
employment, change-in-control, fringe benefit, welfare benefit,
collective bargaining, bonus, incentive, deferred compensation and all
other employee benefit plans, agreements, programs, policies or other
arrangements, whether or not subject to ERISA (including any funding
mechanism therefor now in effect or required in the future as a result of
the Transactions contemplated by this Agreement or otherwise), whether
formal or informal, oral or written, legally binding or not, under which
any employee or former employee of the Company has any present or future
right to benefits or under which the Company has any present or future
liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "COMPANY BENEFIT
PLANS."Where appropriate all references to the "COMPANY" in this
Section 3.1(l) refer to the Company and any member of its "CONTROLLED
GROUP" within the meaning of Section 414 of the Code.
(ii) The Company has, with respect to each Company Benefit Plan, if
applicable, delivered or made available to the Purchaser true and
complete copies of: (i) all plan texts and agreements and related trust
agreements (or other funding vehicles); (ii) the most recent summary plan
descriptions and material employee communications; (iii) the most recent
annual report (including all schedules thereto); (iv) the most recent
annual audited financial statement and opinion; (v) if the plan is
intended to qualify under Code section 401(a), the most recent
determination letter received from the IRS; and (vi) all material
communications with any governmental entity or agency (including the PBGC
and the IRS) given or received within the past three years.
(iii) Except as set forth in Section 3.1(l)(iii) of the Company
Disclosure Schedule, all amounts properly accrued as liabilities to or
expenses of any Company Benefit Plan have been properly reflected on the
Company's most recent financial statements to the extent required by
GAAP. Since the date of the Company's most recent financial statements,
there has been no amendment or change in interpretation by the Company
relating to any Company Benefit Plan which would materially increase the
cost thereof.
(iv) No Company Benefit Plan is subject to either Code section 412 or
Title IV of ERISA.
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(v) Each Company Benefit Plan is in material compliance with all
applicable Laws. Each Company Benefit Plan which is intended to qualify
under Code section 401(a) has been issued a favorable determination
letter by the IRS and has not been amended in a manner, and no event has
occurred since such date, which would cause any such plan to fail to
remain so qualified. Each Company Benefit Plan that requires registration
with a relevant government body has been so registered.
(vi) Except as set forth in Section 3.1(l)(vi) of the Company
Disclosure Schedule, there are no actions, liens, suits or claims pending
or, to Company's Knowledge, threatened (other than routine claims for
benefits) with respect to any Company Benefit Plan as to which the
Company has or could reasonably be expected to have any direct or
indirect actual or contingent material liability.
(vii) Each Company Benefit Plan which is a "GROUP HEALTH PLAN" (as
defined in ERISA section 607(1)) is in material compliance with the
provisions of COBRA (within the meaning of Code section 4980B), Health
Insurance Portability and Accountability Act and any other applicable
federal, state or local Law.
(viii) There are no (i) Company Benefit Plans maintained by the
Company pursuant to which welfare benefits are provided to current or
former employees beyond their retirement or other termination of service,
other than coverage mandated by COBRA, the cost of which is fully paid by
the current or former employees or their dependents; or (ii) unfunded
Company Benefit Plan obligations with respect to any employee of the
Company which are not fairly reflected by reserves shown on the Financial
Statements of the Company.
(ix) Except as set forth in Section 3.1(l)(ix) of the Company
Disclosure Schedule, the consummation of the Transactions will not
(i) entitle any current or former employee of the Company to severance
pay, unemployment compensation or any similar payment or (ii) accelerate
the time of payment or vesting, or increase the amount of any
compensation due to, any current or former employee of the Company.
(x) No Company Benefit Plan is a "MULTIEMPLOYER PLAN" or "MULTIPLE
EMPLOYER PLAN" within the meaning of the Code or ERISA or the regulations
promulgated thereunder.
(xi) Neither the Company nor any Company Benefit Plan, or to the
Company's Knowledge any "DISQUALIFIED PERSON" (as defined in Code
section 4975) or any "PARTY IN INTEREST" (as defined in ERISA
section 3(18)), has engaged in any non-exempt prohibited transaction
(within the meaning of Code section 4975 or ERISA section 406) which
could reasonably be expected to result in any material liability to any
of the Company.
(xii) None of the Company's employees is represented by a union, and
to Company's Knowledge no union organizing efforts have been conducted
within the last five years or were being conducted as of the date of the
Original Merger Agreement. As of the date of the Original Merger
Agreement, the Company did not have, nor to Company's Knowledge, was
there threatened, a strike, picket, work stoppage, work slowdown or other
organized labor dispute. As of the date of the Original Merger Agreement,
the Company had not incurred any liability or obligation under the Worker
Adjustment and Retraining Notification Act, as it may have been amended
from time to time ("WARN") or any similar state law.
(m) INTELLECTUAL PROPERTY.
(i) Disclosure.
(A) Section 3.1(m)(i)(A) or Section 3.1(m)(i)(B) of the Company
Disclosure Schedule sets forth all United States and foreign patents
and patent applications, trademark and service mark registrations and
applications, Internet domain name registrations and
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applications and copyright registrations and applications owned or
licensed by the Company or any of its Subsidiaries specifying as to
each item, as applicable; the nature of the item, including the
title; the owner of the item; the jurisdictions in which the item is
issued or registered or in which an application for issuance or
registration has been filed; and the issuance, registration, or
application numbers and dates.
(B) Section 3.1(m)(i)(B) of the Company Disclosure Schedule sets
forth all material licenses, sublicenses and other agreements or
permissions ("IP LICENSES") under which the Company or any of its
Subsidiaries is a licensor or licensee or otherwise is authorized to
use or practice any Intellectual Property.
(C) Except as set forth in Section 3.1(m)(i)(C) of the Company
Disclosure Schedule, all Intellectual Property that is material to
the business or development of the Company has been developed by
employees of the Company and all such employees have executed a
Proprietary Rights Assignment and Non-Disclosure Agreement.
(D) Section 3.1(m)(i)(D) of the Company Disclosure Schedule sets
forth and describes the status of any material agreements involving
Intellectual Property that were in negotiation or proposed ("PROPOSED
INTELLECTUAL PROPERTY AGREEMENTS") by the Company or any of its
Subsidiaries as of the date of the Original Merger Agreement.
(ii) Ownership. The Company and its Subsidiaries own, free and clear
of all Liens, and have the unrestricted right to use, sell or license,
all Intellectual Property in their possession, except for failures to own
free and clear or to have the unrestricted right to use, sell, or license
that, individually and in the aggregate, would not have a Material
Adverse Effect with respect to the Company and except for technology
licensed to the Company and listed on Section 3.1(m)(i)(B) of the Company
Disclosure Schedule. Notwithstanding the foregoing and as of the date of
the Original Merger Agreement, the Company possessed free and clear of
all liens or assignments, all Intellectual Property rights necessary in
order for the Company to operate its business.
(iii) Claims. Except as set forth in Section 3.2(m)(ii) of the
Company Disclosure Schedule, the Company and its Affiliates have not been
a party to any Claim, nor, to the Company's Knowledge, is any such Claim
threatened, that challenges the validity, enforceability, ownership, or
right to use, sell or license, any Intellectual Property in the
possession of the Company or any of its Subsidiaries. To the Company's
Knowledge, no third party is infringing upon any such Intellectual
Property.
(iv) Administration and Enforcement. The Company and its Subsidiaries
have taken all necessary and desirable actions to maintain and protect
each item of Intellectual Property owned by the Company or its
Subsidiaries, as the case may be, except for failures to take such
actions that, individually and in the aggregate, would not have a
Material Adverse Effect with respect to the Company.
(v) Protection of Trade Secrets and Technology. The Company and its
Subsidiaries have taken all reasonable precautions to protect the
secrecy, confidentiality and value of their respective trade secrets and
the proprietary nature and value of their respective Technology,
including requiring all employees and contractors to execute a
Proprietary Rights Assignment and Non-Disclosure Agreement.
(vi) Software. All material Software used by the Company and its
Subsidiaries performs in conformance with its documentation, except for
failures to perform that, individually and in the aggregate, would not
have a Material Adverse Effect with respect to the Company. The
Transactions will not require any third party consents under the terms of
the documentation related to the Software other than (A) as set forth in
Section 3.1(m)(vi) of the Company
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Disclosure Schedule or (B) such consents that, individually and in the
aggregate, would not have a Material Adverse Effect with respect to the
Company.
(vii) Year 2000 Compliance. All Software, hardware, databases and
embedded control systems (collectively, the "SYSTEMS") used by the
Company and its Subsidiaries are Year 2000 Compliant, except for failures
to be Year 2000 Compliant that, individually and in the aggregate, would
not have a Material Adverse Effect with respect to the Company. As used
herein, the term "YEAR 2000 COMPLIANT" means that the Systems
(i) accurately process date and time data (including calculating,
comparing and sequencing) from, into and between the twentieth and
twenty-first centuries, the years 1999 and 2000 and leap year
calculations and (ii) operate accurately with other software and hardware
that use standard date format (4 digits) for representation of the year.
(viii) Effect of Transaction. The Company and its Subsidiaries are
not, nor, as a result of the execution and delivery of this Agreement,
the consummation of the Transactions or the performance of the Company's
obligations hereunder, will be, in violation of any agreement relating to
any Intellectual Property, except for violations that, individually and
in the aggregate, would not have a Material Adverse Effect with respect
to the Company. Upon consummation of the transactions, the Surviving
Corporation will own all right, title and interest in and to or have a
license to use all Intellectual Property on identical terms and
conditions as the Company or its Subsidiaries, as the case may be,
enjoyed immediately prior to such Transactions, except for failures to
own or have available for use that would not have a Material Adverse
Effect with respect to the Company.
(n) CONTRACTS. Except as set forth on Section 3.1(n) of the Company
Disclosure Schedule, all material Contracts of the Company and its
Subsidiaries have been filed with the SEC (whether or not required to have
been filed) and the Company is not, and to the Knowledge of the Company no
other parties thereto are, in default, breach or violation of any such
Contracts, except for such defaults, breaches or violations that,
individually and in the aggregate, would not have a Material Adverse Effect
with respect to the Company. Except as set forth in Section 3.1(n) of the
Company's Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party to or bound by any Contract (i) restricting the
ability of the Company or any of its Subsidiaries (or after the Mergers,
Newco or any of its Subsidiaries) to compete in or conduct any line of
business or to engage in any business in any geographic area,
(ii) containing any covenants of any other person not to compete in any
material respect with the Company or any of its Subsidiaries,
(iii) containing any so-called "MOST FAVORED NATION" provisions or any
similar provision requiring the Company or any of its Subsidiaries (or after
the Mergers, Newco or any of its Subsidiaries) to offer a third party terms
or concessions at least as favorable as offered to one or more other
parties.
(o) ENVIRONMENTAL MATTERS. (i) the Company and each of its
Subsidiaries has obtained and is in material compliance with the terms and
conditions of all permits, licenses and other authorizations required under
applicable federal, state, local and foreign laws, regulations and codes as
currently in effect relating to pollution and protection of the environment
("ENVIRONMENTAL LAWS"); (ii) no asbestos in a friable condition or equipment
containing polychlorinated biphenyls or leaking underground or above-ground
storage tanks are contained in or located at any facility owned, leased or
controlled by the Company or any of its Subsidiaries; (iii) the Company and
each of its Subsidiaries is in material compliance with all applicable
Environmental Laws, and has fully disclosed all known material past and
present non-compliance with Environmental Laws, and all known past
discharges, emissions, leaking or releases known to the Company of any
substance or waste regulated under or defined by Environmental Laws that
could reasonably be expected to form the basis of any claim, action, suit,
proceeding, hearing or investigation under any applicable Environmental
Laws; and (iv) neither the Company nor any of its Subsidiaries has received
notice of any past or present events, conditions, circumstances, activities,
practices, incidents, actions or
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plans that have resulted in or threaten to result in any common law or legal
liability, or otherwise form the basis of any claim, action, suit,
proceeding, hearing or investigation under any applicable Environmental
Laws; provided, however, that clauses (i) through (iv) above address only
those matters that, individually or in the aggregate, would have a Material
Adverse Effect with respect to the Company.
(p) ABSENCE OF CERTAIN CHANGES. Except as disclosed in Section 3.1(p)
of the Company Disclosure Schedule, since the date of the Company's most
recent audited Financial Statements:
(i) there has not been any Material Adverse Change with respect to
the Company;
(ii) there has not been any declaration, setting aside or payment of
any dividend or other distribution with respect to any shares of capital
stock of the Company, or any repurchase, redemption or other acquisition
by the Company or any of its Subsidiaries of any outstanding shares of
capital stock or other securities of, or other ownership interests in,
the Company or any of its Subsidiaries or any split, combination or
reclassification of any of the Company's capital stock or issuance or
authorization relating to the issuance of any other securities in respect
of, in lieu of or in substitution for shares of the Company's capital
stock;
(iii) there has not been any amendment to, or change in, the Articles
of Incorporation or By-laws of the Company or any of its Subsidiaries or
modification through merger, liquidation, reorganization, restructuring
or in any other fashion to the corporate structure or ownership of any
Subsidiary of the Company;
(iv) there has not been any incurrence, creation or assumption by the
Company or any of its Subsidiaries of any Debt or any Lien on any
material asset, and the Company has not issued or sold any debt
securities or warrants or other rights to acquire any debt securities of
the Company or entered into any "KEEP WELL" or other agreement to
maintain any financial statement condition of another Person or entered
into any arrangement having the economic effect of any of the foregoing;
(v) there has not been any change in any method of accounting or
accounting practice by the Company or any of its Subsidiaries, except for
any such change required by reason of a concurrent change in GAAP or to
conform a Subsidiary's accounting policies and practices to those of the
Company;
(vi) there has not been any sale or transfer by the Company of any of
material assets of the Company or any of its Subsidiaries, cancellation
of any Debt or claims or waiver of any material rights by the Company or
any of its Subsidiaries;
(vii) the Company has not made any loans, advances or capital
contributions to or investments in, any other Person, other than travel
and entertainment advances to employees of the Company in the ordinary
course of business consistent with past practices;
(viii) except for this Agreement and any other Transaction Documents,
the Company has not entered into any material transaction or incurred any
material expenditure other than in the ordinary course of business
consistent with past practice;
(ix) there has not been any adverse change in a material customer or
material supplier relationship, including any cancellation or termination
or written notice of cancellation or termination by any material customer
or material supplier of its relationship or a material portion of its
relationship with the Company or any of its Subsidiaries or any material
decrease in the usage or purchase of the products or services of the
Company or any of its Subsidiaries by any such customer or any material
decrease or limitation of services or supplies of the products or
services to the Company or any of its Subsidiaries by any such supplier
which would have, individually or in the aggregate, a Material Adverse
Effect with respect to the Company;
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(x) there has not been any waiver or release of any material right of
claim of the Company or any of its Subsidiaries, including any write-off
or other compromise of any account receivable of the Company or any
Subsidiary, other than in the ordinary course of business and consistent
with past practices;
(xi) there has not been, to the Knowledge of the Company, any
assertion by any advertiser, subscriber and/or customer of the Company,
or any of its Subsidiaries, which, if substantiated, would have a
Material Adverse Effect with respect to the Company;
(xii) there has not been any material change in the policies under
which the Company or any of its Subsidiaries extends discounts, credits
or warranties to customers or otherwise deals with its customers;
(xiii) there has not been any grant of exclusive promotion or
sponsorship with respect to any portion of any website of the Company or
any of its Subsidiaries;
(xiv) the Company has not authorized for issuance, issued, delivered,
sold or agreed or committed to issue, sell or deliver (whether through
the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), pledge or otherwise
encumber any shares of capital stock or other Equity Securities of the
Company or any of its Subsidiaries;
(xv) except with respect to annual bonuses made in the ordinary
course of business consistent with past practice, the Company has not
adopted or amended in any material respect any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation
right, pension, retirement, employment or other employee benefit
agreement, trust, plan or other arrangement for the benefit or welfare of
any director, officer or employee of the Company or any of its
Subsidiaries or increase in any manner the compensation or fringe
benefits of any director, officer or employee of the Company or any of
its Subsidiaries or pay any benefit not required by any existing
agreement or place any assets in any trust for the benefit of any
director, officer or employee of the Company or any of its Subsidiaries
(in each case, except with respect to employees in the ordinary course of
business consistent with past practice);
(xvi) there has not been any grant or transfer of any rights of value
or modify or change in any material respect any existing material
license, lease, Contract or other document;
(xvii) the Company has not adopted a plan of complete or partial
liquidation or resolutions providing for or authorizing such a
liquidation or a dissolution, merger, consolidation, restructuring,
recapitalization or reorganization other than as is necessary in order to
effect the Transactions;
(xviii) the Company has not settled or compromised any shareholder
derivative suits arising out of the transactions contemplated hereby or
any other litigation (whether or not commenced prior to the date of this
Agreement) or settled, paid or compromised any claims not required to be
paid, individually in an amount in excess of $100,000 and in the
aggregate in an amount in excess of $1,000,000, other than in
consultation and cooperation with Parent, and, with respect to any such
settlement, with the prior written consent of Parent;
(xix) the Company has not entered into any transaction or series of
transactions with any Affiliate of the Company (other than a wholly owned
Subsidiary of the Company) or otherwise that would be required to be
disclosed pursuant to Item 404 of Regulation S-K other than on terms and
conditions substantially as favorable to the Company or such Subsidiary
as would be obtainable by the Company or such Subsidiary at the time of
such transaction with a Person that is not an Affiliate of the Company;
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(xx) there has not been any acquisition or agreement to acquire
(x) by merging or consolidating with, or by purchasing a substantial
portion of the stock or assets of, or by any other manner, any business
or any other Person or (y) any assets that are material, individually or
in the aggregate, to the Company and its Subsidiaries taken as a whole,
except purchases of inventory in the ordinary course of business
consistent with past practice; and
(xxi) there has been no agreement by the Company, whether written or
oral, to do any of the foregoing.
(q) RECOMMENDATION OF BOARD OF DIRECTORS; VOTE REQUIRED. The Board of
Directors of the Company has unanimously approved this Agreement and the
other Transaction Documents to which the Company is party and the
consummation of the Company Merger and the other Transactions and has
recommended that the stockholders of the Company vote in favor of the
adoption and approval of this Agreement and consummation of the Company
Merger (the "RECOMMENDATION"). The Required Stockholder Approval is the only
vote of the holders of any Equity Securities of the Company necessary to
approve the Company Merger and the other Transactions.
(r) ANTI-TAKEOVER PLAN; STATE TAKEOVER STATUTES. Neither the Company
nor any of its Subsidiaries has in effect any shareholder rights plan or
similar device or arrangement, commonly or colloquially known as a "poison
pill" or "anti-takeover" plan or any similar plan, device or arrangement and
the Board of Directors of the Company has not adopted or authorized the
adoption of such a plan, device or arrangement. To the best of the Company's
Knowledge, no state takeover or "fair price" or "interested party" statute
or similar statute or regulation applies or purports to apply to the
Mergers, this Agreement or any of the Transactions.
(s) OPINION OF FINANCIAL ADVISOR. The Company has received the
opinions of Paine Webber Incorporated and ING Baring Furman Selz LLC, dated
the date of the Original Merger Agreement, to the effect that, as of such
date, the consideration to be paid in the Company Merger is fair to the
Company's stockholders from a financial point of view, a copy of which
opinion has been delivered to Parent.
(t) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in
(i) the registration statement on Form S-4 to be filed with the SEC by Newco
in connection with the issuance of the Company Merger Securities and the ISN
Merger Securities (together with any amendments thereof or supplements
thereto, the "REGISTRATION STATEMENT") and (ii) the proxy statement to be
filed with the SEC by the Company in connection with the Stockholders'
Meeting (together with any amendments thereof or supplements thereto, the
"PROXY STATEMENT/PROSPECTUS") will, at the time the Registration Statement
is filed with the SEC, at any time it is amended or supplemented, or at the
time it becomes effective under the Securities Act or at the time the Proxy
Statement/Prospectus is mailed to the Company's stockholders, as the case
may be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(u) BROKERS OR FINDERS. No agent, broker, investment banker, financial
advisor or other Person retained by or on behalf of the Company is or will
be entitled to any broker's or finder's fee or any other commission or
similar fee in connection with any of the Transactions, except PaineWebber
Incorporated and ING Baring Furman Selz LLC, whose fees and expenses will be
paid by the Company in accordance with the Company's agreement with such
firm (a copy of which agreement has been delivered by the Company to Parent
prior to the date of this Agreement).
(v) INSURANCE. The Company maintains, and has maintained, without
interruption, during its existence, policies or binders of insurance
covering such risk and events, including personal injury,
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property damage and general liability, in amounts the Company reasonably
believes adequate for its business and operations and, except as set forth
in Section 3.1(v) of the Company Disclosure Schedule, such policies shall
not terminate as a result of the consummation of the Transactions.
(w) ABSENCE OF SENSITIVE PAYMENTS. To the Company's Knowledge, none of
the Company, or any of its Subsidiaries or Affiliates, acting alone or
together, has performed any of the following acts: (i) the making of any
contribution, payment, remuneration, gift or other form of economic benefit
(a "PAYMENT") to or for the private use of any governmental official,
employee or agent where the Payment or the purpose of the Payment was
illegal under the laws of the United States or the jurisdiction in which
such payment was made, (ii) the establishment or maintenance of any
unrecorded fund, asset or liability for any purpose or the making of any
false or artificial entries on its books, (iii) the making of any Payment to
any Person or the receipt of any Payment with the intention or understanding
that any part of the Payment was to be used for any purpose other than that
described in the documents supporting the Payment, or (iv) the giving of any
Payment to, or the receipt of any Payment from, any Person who was or could
have been in a position to help or hinder the business of the Company or any
of its Subsidiaries in connection with any actual or proposed transaction
which (A) would reasonably have been expected to subject the Company or any
of its Subsidiaries or Affiliates to any damage or penalty in any civil,
criminal or governmental litigation or proceeding, (B) if not given in the
past, would have had a Material Adverse Effect on the Company or (C) if it
had not continued in the future, would have had a Material Adverse Effect
with respect to the Company.
(x) AFFILIATE TRANSACTIONS. Except to the extent disclosed in any
Company SEC Report, there are no other transactions, agreements,
arrangements or understandings between the Company or any of its
Subsidiaries, on the one hand, and the Company's Affiliates (other than
wholly-owned Subsidiaries of the Company) or other Persons, on the other
hand, that would be required to be disclosed under Item 404 of
Regulation S-K under the Securities Act.
Section 3.2 REPRESENTATIONS AND WARRANTIES OF ISN AND PARENT. ISN and
Parent represents and warrants to the Company that, as of the date of the
Original Merger Agreement:
(a) ORGANIZATION, STANDING AND POWER; SUBSIDIARIES. Each of Parent and
ISN is a limited liability company duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
limited liability company power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. ISN is duly
qualified and in good standing to do business in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties
makes such qualification necessary, other than in such jurisdictions where
the failure so to qualify would not have a Material Adverse Effect with
respect to ISN. ISN has no Subsidiaries. As of the Effective Time, each of
Newco and Company Merger Sub will be a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, will have all requisite corporate (or similar) power and
authority to own, lease and operate its properties and to carry on its
business as then being conducted and will be duly qualified and in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties make such
qualification necessary, other than in such jurisdictions where the failure
so to qualify would not have a Material Adverse Effect with respect to such
entity. As of the Effective Time, ISN Merger Sub will be a limited liability
company duly organized, validly existing and in good standing under the laws
of the State of Delaware, will have all requisite limited liability company
power and authority to own, lease and operate its properties and to carry on
its business as then being conducted and will be duly qualified and in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties make such
qualification necessary, other than in such jurisdictions where the failure
so to qualify would not have a Material Adverse Effect with respect to ISN
Merger Sub.
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(b) CERTIFICATE OF FORMATION AND LIMITED LIABILITY COMPANY
AGREEMENT. Complete and correct copies of the Certificate of Formation and
Limited Liability Company Agreement, each as amended to date, of ISN have
been delivered to the Company. The Certificate of Formation and Limited
Liability Company Agreement of ISN are in full force and effect. ISN is not
in violation of any provision of its Certificate of Formation or Limited
Liability Company Agreement. Complete and correct copies of the Certificate
of Incorporation or Articles of Incorporation (as applicable) and By-laws of
Newco and Company Merger Sub and the Certificate of Formation and Limited
Liability Company Agreement of ISN Merger Sub will be delivered to the
Company as soon as they are available but in no event later than ten
(10) Business Days prior to the Effective Time. As of the Effective Time,
such Certificate of Incorporation or Articles of Incorporation (as
applicable) and By-laws and such Certificate of Formation and Limited
Liability Company Agreement of ISN Merger Sub will be in full force and
effect and Newco, Company Merger Sub and ISN Merger Sub will not be in
violation of any provision thereof.
(c) CAPITALIZATION. Section 3.2(c) of the Parent Disclosure Schedule
sets forth the number of outstanding ISN Units as of the date of this
Agreement. At the Effective Time, all of the issued and outstanding capital
stock of Company Merger Sub and ISN Merger Sub will be owned by Newco.
Section 3.2(c) of the Parent Disclosure Schedule sets forth, (i) the Persons
to whom ISN Stock Options have been granted, (ii) the exercise price for the ISN
Stock Options held by each such Person, (iii) whether the ISN Stock Options are
subject to vesting and, if subject to vesting, the dates on which each such ISN
Stock Option vest and (iv) the agreement pursuant to which each such ISN Stock
Option was issued. None of the ISN Stock Options are subject to being cashed-out
or will vest as a result of the transactions contemplated hereby. Except as
described in this Section 3.2(c) or in Section 3.2(c) of the Parent Disclosure
Schedule, no ISN Units or other equity securities of ISN are authorized, issued
or outstanding, or reserved for any other purpose, and there are no options,
warrants or other rights (including registration rights), agreements,
arrangements or commitments of any character to which ISN is a party relating to
the issued or unissued ISN Units or with respect to any SAR or obligating ISN to
grant, issue or sell any ISN Units, by sale, lease, license or otherwise. Except
as set forth in Section 3.2(c) of the Parent Disclosure Schedule, ISN has no
share purchase agreements, rights plans or agreements containing similar
provisions and no agreements containing anti-dilution provisions. No
anti-dilution provisions will be triggered as a result of any of the
transactions contemplated under this Agreement. ISN has no outstanding bonds,
debentures, notes or other obligations the holders of which have the right to
vote or which are convertible into or exercisable for securities having the
right to vote with the members of ISN on any matter. The only outstanding Debt
of ISN is listed in Section 3.2(c) of the Parent Disclosure Schedule, all of
which will be satisfied and discharged prior to the Effective Time. Other than
as contemplated by this Agreement or as set forth in Section 3.2(c) of the
Parent Disclosure Schedule, there are no outstanding contractual obligations,
commitments, understandings or arrangements of ISN to repurchase, redeem or
otherwise acquire or make any payment in respect of any ISN Units or SARs of
ISN. At the Effective Time, Newco, ISN Merger Sub and Company Merger Sub will
not have conducted any business or have any assets or liabilities other than
pursuant to this Agreement or in connection with such entity's formation or
qualification.
(d) FINANCIAL STATEMENTS. The Financial Statements of ISN have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto), and
fairly present the financial position of ISN as at the dates thereof and the
results of its operations and cash flows for the periods then ended. There
are no Liabilities of any kind required to be disclosed under GAAP that are
not disclosed, reflected or reserved against in the Financial Statements of
ISN, except for such Liabilities incurred in the ordinary course of business
consistent with past practice since the date of ISN's most recently
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audited Financial Statements, or as set forth in Section 3.2(d) of the ISN
Disclosure Schedule or as would not have a Material Adverse Effect with
respect to ISN.
(e) AUTHORITY. Each of ISN and Parent has all requisite limited
liability company power and authority to enter into this Agreement and each
of the other Transaction Documents to which it is party, to perform its
obligations hereunder and thereunder and to consummate the Transactions. The
execution and delivery of this Agreement and each of the other Transaction
Documents to which it is party and the consummation of the Transactions
hereunder and thereunder have been duly and validly authorized by all
necessary action on the part of each of ISN and Parent and no other
proceedings on the part of ISN or Parent are necessary to authorize this
Agreement or the other Transaction Documents to which ISN or Parent is party
or to consummate the Transactions subject, in the case of the ISN Merger, to
the filing and recordation of the Certificate of Merger in accordance with
the requirements of the Delaware LLC Act. This Agreement and each of the
other Transaction Documents to which ISN or Parent is party have been duly
and validly executed and delivered by ISN or Parent, as applicable, and
constitute a valid and binding obligation of ISN or Parent, as applicable,
enforceable against ISN or Parent in accordance with their terms.
(f) COMPLIANCE WITH APPLICABLE LAWS. ISN holds all permits, licenses,
variances, exemptions, orders and approvals of all Governmental Entities,
except where any such failure so to hold, individually and in the aggregate,
would not have a Material Adverse Effect with respect to ISN (the "ISN
PERMITS"). ISN is in compliance with the terms of the ISN Permits in all
material respects. The business of ISN is not being conducted in violation
of any material Law. Except as set forth in Section 3.2(f) of the Parent
Disclosure Schedule, no investigation or review by any Governmental Entity
with respect to ISN is pending or, to the Knowledge of Parent, threatened,
nor, to the Knowledge of ISN or Parent, has any Governmental Entity
indicated an intention to conduct the same.
(g) GOVERNMENT APPROVALS; REQUIRED CONSENTS.
(i) No consent, approval, authorization or action of, declaration or
filing with or notice to, any Governmental Entity on the part of ISN or
Parent is required in connection with the execution or delivery by ISN
and Parent of this Agreement or any of the other Transaction Documents to
which ISN or Parent is party, the consummation by ISN or Parent of the
Transactions or compliance with the terms hereof or thereof, other than
(A) filing the Agreement of Merger in accordance with the requirements of
California Law, (B) filing the Certificate of Merger in accordance with
the requirements of the Delaware LLC Act, (C) filings with the SEC and
NASDAQ, (D) filings under state securities or "Blue Sky" laws,
(E) filings under the HSR Act, (F) as otherwise set forth in
Section 3.2(g)(i) of the Parent Disclosure Schedule (any such consents,
approvals, authorizations, declarations, filings or notices specified in
clauses (A) through (E) being referred to as the "PARENT GOVERNMENTAL
APPROVALS") and (F) such consents, approvals, authorizations,
declarations, filings or notices that, individually and in the aggregate,
would not have a Material Adverse Effect with respect to ISN.
(ii) No consent, approval, authorization or action of, filing with or
notice to, any Person (other than a Governmental Entity) shall be
required in connection with the execution or delivery by ISN and Parent
of this Agreement or any of the other Transaction Documents to which ISN
or Parent is party, the consummation by ISN or Parent of the Transactions
or compliance by ISN or Parent with the terms hereof or thereof other
than (A) as set forth in Section 3.2(g)(ii) or Section 3.1(h) of the
Parent Disclosure Schedule (the "PARENT REQUIRED CONSENTS") or (B) such
consents, approvals, actions, filings or notices that, individually and
in the aggregate, would not have a Material Adverse Effect on ISN.
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(h) NON-CONTRAVENTION. The execution, delivery and performance by ISN
and Parent of this Agreement and the other Transaction Documents to which
ISN or Parent is party and the consummation of the Transactions do not and
will not (i) contravene or conflict with or result in any violation or
breach of any provision of the Certificate of Formation or Limited Liability
Company Agreement of ISN or Parent or, as of the Effective Time, any
provision of the Certificate of Incorporation or Articles of Incorporation
(as applicable) or By-laws of Newco or Company Merger Sub or, as of the
Effective Time, any provision of the Certificate of Formation or Limited
Liability Company Agreement of ISN Merger Sub; (ii) assuming all Parent
Governmental Approvals and Parent Required Consents have been made or
obtained, contravene or conflict with or result in a violation or breach of
any provision of any Law, order or decree binding upon or applicable to ISN
or Parent or any of their respective assets, (iii) require any consent or
other action by any Person under, constitute a default under or give rise to
a right of termination, cancellation, change of any right or obligation, or
acceleration of any right or obligation or to the loss of any benefit or
adverse modification of the effect (including an increase in the price paid
by, or cost to, ISN) of, or under any provision of any agreement or other
instrument to which ISN is a party or that is binding upon ISN or its
properties or assets or any license, franchise, permit or other similar
authorization held by ISN or (iv) result in the creation or imposition of
any Lien on any assets of ISN, except with respect to clauses (iii) and
(iv) as set forth in Section 3.2(h) of the Parent Disclosure Schedule;
PROVIDED, HOWEVER, that clauses (ii) through (iv) above address only those
matters that, individually or in the aggregate, would have a Material
Adverse Effect with respect to ISN.
(i) LITIGATION. As of the date of the Original Merger Agreement,
except as set forth in Section 3.2(i) of the Parent Disclosure Schedule,
there was no suit, claim, action or proceeding pending, or, to the Knowledge
of ISN or Parent, threatened against ISN or any Affiliate of ISN that,
individually or in the aggregate, would have a Material Adverse Effect on
ISN, nor was there any Order of any Governmental Entity outstanding against
ISN or an Affiliate of ISN that, individually or in the aggregate, would
have a Material Adverse Effect with respect to ISN.
(j) TAXES AND RELATED TAX MATTERS.
(i) Other than Taxes that, individually and in the aggregate, are not
material (A) all Taxes required to be paid on or before the date of the
Original Merger Agreement by ISN have been timely paid, and (B) any Taxes
required to be paid by ISN after the date of the Original Merger
Agreement and on or before the Effective Time shall be timely paid.
(ii) All Tax Returns required to be filed by or with respect to ISN
with respect to Taxes on or before the date of the Original Merger
Agreement have been timely filed. All material Tax Returns required to be
filed by or with respect to ISN after the date of the Original Merger
Agreement and on or before the Effective Time shall be prepared and
timely filed, in a manner consistent with prior years and applicable laws
and regulations. No penalties or other charges in a material amount are
or will become due with respect to the late filing of any Tax Return of
ISN or payment of any Tax required to be paid by ISN or required to be
filed or paid on or before the Effective Time.
(iii) With respect to all Tax Returns filed by or with respect to
ISN, except as set forth in Section 3.2(j) of the Parent Disclosure
Schedule, (A) the statute of limitations for the assessment of Taxes has
expired with respect to all periods ending on or before August 31, 1995;
(B) no audit is in progress and no extension of time has been executed
with respect to any date on which any Tax Return was or is to be filed
and no waiver or agreement has been executed for the extension of time
for the assessment or payment of any Tax; and (C) there is no unassessed
deficiency proposed or threatened against ISN.
(iv) Neither Parent, ISN, nor any of their respective Affiliates has
taken, or agreed to take, any action that would prevent the Mergers from
qualifying as tax-free events under Section 351 or Section 368 of the
Code.
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(v) Except as set forth in Section 3.2(j) of the Parent Disclosure
Schedule, neither ISN nor Parent is or has been a party to any tax
sharing agreement or similar arrangement.
(vi) Except as set forth in Section 3.2(j) of the Parent Disclosure
Schedule, neither ISN nor Parent has been a part of a group of affiliated
corporations that has filed a consolidated federal income tax return.
(k) CERTAIN AGREEMENTS. Except for this Agreement and as set forth in
Section 3.2(k) and/or Section 3.2(l) of the Parent Disclosure Schedule, ISN
is not a party to any oral or written (i) union or collective bargaining
agreement, (ii) agreement with any executive officer or other key employee
of ISN the benefits of which are contingent, or the terms of which would be
materially altered, upon the consummation of the Transactions,
(iii) agreement with respect to any executive officer of ISN providing any
term of employment or compensation guarantee extending for a period longer
than two years after the Closing Date and for the payment of in excess of
$200,000 per annum or (iv) plan, including any stock option plan, stock
appreciation right plan, restricted stock plan or stock purchase plan, any
of the benefits of which will be increased, or the vesting of the benefits
of which would be accelerated, by the occurrence of any of the Transactions
or the value of any of the benefits of which will be calculated on the basis
of any of the Transactions.
(l) EMPLOYEE BENEFIT PLANS; EMPLOYEE RELATIONS. The following
representations and warranties contained in this Section 3.2(l) are
qualified by such exceptions which, individually and in the aggregate, would
not have a Material Adverse Effect with respect to ISN.
(i) Section 3.2(l)(i) of the Parent Disclosure Schedule contains a
true and complete list of each "employee benefit plan" (within the
meaning of section 3(3) of ERISA, including multiemployer plans within
the meaning of ERISA section 3(37)), stock purchase, stock option,
severance, employment, change-in-control, fringe benefit, welfare
benefit, collective bargaining, bonus, incentive, deferred compensation
and all other employee benefit plans, agreements, programs, policies or
other arrangements, whether or not subject to ERISA (including any
funding mechanism therefor now in effect or required in the future as a
result of the transaction contemplated by this Agreement or otherwise),
whether formal or informal, oral or written, legally binding or not,
under which any employee or former employee of ISN has any present or
future right to benefits or under which ISN has any present or future
liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "ISN BENEFIT
PLANS." Where appropriate all references to the "ISN" in this
Section 3.2(l) refer to ISN and any member of its "controlled group"
within the meaning of Section 414 of the Code.
(ii) ISN has, with respect to each ISN Benefit Plan, if applicable,
delivered or made available to the Company true and complete copies of:
(i) all plan texts and agreements and related trust agreements (or other
funding vehicles); (ii) the most recent summary plan descriptions and
material employee communications; (iii) the most recent annual report
(including all schedules thereto); (iv) the most recent annual audited
financial statement and opinion; (v) if the plan is intended to qualify
under Code section 401(a), the most recent determination letter received
from the IRS; and (vi) all material communications with any governmental
entity or agency (including the PBGC and the IRS) given or received
within the past three years.
(iii) Except as set forth in Section 3.2(l)(iii) of the Parent
Disclosure Schedule, all amounts properly accrued as liabilities to or
expenses of any ISN Benefit Plan have been properly reflected on ISN's
Financial Statements to the extent required by GAAP. Since the date of
ISN's Financial Statements to the date of the Original Merger Agreement,
there has been no amendment or change in interpretation by ISN relating
to any ISN Benefit Plan which would materially increase the cost thereof.
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(iv) No ISN Benefit Plan is subject to either Code section 412 or
Title IV of ERISA.
(v) Each ISN Benefit Plan is in material compliance with all
applicable laws and regulations. Each ISN Benefit Plan which is intended
to qualify under Code section 401(a) has been issued a favorable
determination letter by the IRS and has not been amended in a manner, and
no event has occurred since such date, which would cause any such plan to
fail to remain so qualified. Each ISN Benefit Plan that requires
registration with a relevant government body has been so registered.
(vi) Except as set forth in Section 3.2(l)(vi) of the Parent
Disclosure Schedule, there are no actions, liens, suits or claims pending
or, to ISN's Knowledge, threatened (other than routine claims for
benefits) with respect to any ISN Benefit Plan as to which ISN has or
could reasonably be expected to have any direct or indirect actual or
contingent material liability.
(vii) Each ISN Benefit Plan which is a "group health plan" (as
defined in ERISA section 607(1)) is in material compliance with the
provisions of COBRA (within the meaning of Code section 4980B), Health
Insurance Portability and Accountability Act and any other applicable
federal, state or local Law.
(viii) There are no (i) ISN Benefit Plans maintained by ISN pursuant
to which welfare benefits are provided to current or former employees
beyond their retirement or other termination of service, other than
coverage mandated by COBRA, the cost of which is fully paid by the
current or former employees or their dependents; or (ii) unfunded ISN
Benefit Plan obligations with respect to any employee of ISN which are
not fairly reflected by reserves shown on the Financial Statements.
(ix) Except as set forth in Section 3.2(l)(ix) of the Parent
Disclosure Schedule, the consummation of the Transactions will not
(i) entitle any current or former employee of ISN to severance pay,
unemployment compensation or any similar payment or (ii) accelerate the
time of payment or vesting, or increase the amount of any compensation
due to, any current or former employee of ISN.
(x) Neither ISN nor any ISN Benefit Plan, nor to ISN's Knowledge any
"disqualified person" (as defined in Code section 4975) or any "PARTY IN
INTEREST" (as defined in ERISA section 3(18)), has engaged in any
non-exempt prohibited transaction (within the meaning of Code
section 4975 or ERISA section 406) which could reasonably be expected to
result in any material liability to ISN.
(xi) None of ISN's employees is represented by a union, and to ISN's
Knowledge no union organizing efforts have been conducted within the last
five years or were being conducted as of the date of the Original Merger
Agreement. As of the date of the Original Merger Agreement, ISN did not
have, nor to ISN's Knowledge, was there threatened, a strike, picket,
work stoppage, work slowdown or other organized labor dispute. As of the
date of the Original Merger Agreement, ISN had not incurred any liability
or obligation under WARN or any similar state law.
(m) INTELLECTUAL PROPERTY.
(i) DISCLOSURE.
(A) Section 3.2(m)(i)(A) or Section 3.2(m)(i)(B) of the Parent
Disclosure Schedule sets forth all United States and foreign patents
and patent applications, trademark and service mark registrations and
applications, Internet domain name registrations and applications and
copyright registrations and applications owned or licensed by ISN
specifying as to each item, as applicable; the nature of the item,
including the title; the owner of the item; the jurisdictions in
which the item is issued or registered or in which an application
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for issuance or registration has been filed; and the issuance,
registration, or application numbers and dates.
(B) Section 3.2(m)(i)(B) of the Parent Disclosure Schedule sets
forth all IP Licenses under which ISN is a licensor or licensee or
otherwise is authorized to use or practice any Intellectual Property.
(C) Section 3.2(m)(i)(C) of the Parent Disclosure Schedule sets
forth and describes the status of any Proposed Intellectual Property
Agreements of ISN.
(ii) OWNERSHIP. ISN owns, free and clear of all Liens, and has the
unrestricted right to use, sell or license, all Intellectual Property in
its possession, except for failures to own free and clear or to have the
unrestricted right to use, sell, or license that would not, individually
or in the aggregate, have a Material Adverse Effect on ISN, and except
for technology licensed to Parent and listed on Section 3.2(m)(i)(B) of
the Parent Disclosure Schedule. Notwithstanding the foregoing and as of
the date of the Original Merger Agreement, ISN possessed free and clear
of all Liens or assignments, all Intellectual Property rights necessary
in order for ISN to operate its business.
(iii) CLAIMS. Except as set forth in Section 3.2(m)(iii) of the
Parent Disclosure Schedule, neither ISN nor any of its Affiliates has
been a party to any such Claim, nor, to Parent's Knowledge, is any Claim
threatened, that challenges the validity, enforceability, ownership, or
right to use, sell or license, any Intellectual Property in ISN's
possession. Except as set forth in Section 3.2(m)(iii) of the Parent
Disclosure Schedule, to Parent's Knowledge, no third party is infringing
upon any such Intellectual Property.
(iv) ADMINISTRATION AND ENFORCEMENT. Except as set forth in
Section 3.2(m) (iv) of the Parent Disclosure Schedule, ISN has taken all
reasonably necessary and desirable actions to maintain and protect each
item of Intellectual Property owned by ISN, except for failures to take
such actions that, individually or in the aggregate, would not have a
Material Adverse Effect with respect to ISN.
(v) PROTECTION OF TRADE SECRETS AND TECHNOLOGY. ISN has taken all
reasonable precautions to protect the secrecy, confidentiality, and value
of its respective trade secrets and the proprietary nature and value of
their respective Technology, except for failures to take such precautions
that would not have a Material Adverse Effect on ISN.
(vi) SOFTWARE. Except as set forth in Section 3.2(m)(vi) of the
Parent Disclosure Schedule, all material Software used by ISN performs in
conformance with its documentation, except for failures to perform that
would not have a Material Adverse Effect with respect to ISN. The
transactions contemplated by this Agreement will not require any third
party consents under the terms of the documentation related to the
Software other than (A) as set forth in Section 3.2(m)(vi) of the Parent
Disclosure Schedule or (B) such consents that, individually and in the
aggregate, would not have a Material Adverse Effect on ISN.
(vii) YEAR 2000 COMPLIANCE. All Systems used by ISN are Year 2000
Compliant, except for failures to be Year 2000 Compliant that,
individually or in the aggregate, would not have a Material Adverse
Effect with respect to ISN.
(viii) EFFECT OF TRANSACTION. ISN and Parent are not, nor, as a
result of the execution and delivery of this Agreement, the consummation
of the Transactions or the performance of ISN and Parent's obligations
hereunder, will be, in violation of any agreement relating to any
Intellectual Property, except for violations that, individually or in the
aggregate, would not have a Material Adverse Effect on ISN. Upon
consummation of the Transactions, the Surviving LLC will own all right,
title and interest in and to or have a license to use all Intellectual
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Property on identical terms and conditions as ISN enjoyed immediately
prior to such Transactions, except for failures to own or have available
for use that, individually or in the aggregate, would not have a Material
Adverse Effect with respect to ISN.
(n) CONTRACTS. Except as set forth in Section 3.2(i) of the Parent
Disclosure Schedule, ISN is not, and to the knowledge of ISN and Parent, no
other parties thereto are, in default, breach or violation of any material
Contracts of ISN, except for such defaults, breaches or violations that,
individually or in the aggregate, would not have a Material Adverse Effect
with respect to ISN. Except as set forth in Section 3.2(n) of Parent's
Disclosure Schedule, ISN is not a party to or bound by any Contract
(i) restricting the ability of ISN (or after the Mergers, Newco or any of
its Subsidiaries) to compete in or conduct any line of business or to engage
in any business in any geographic area, (ii) containing any covenants of any
other person not to compete in any material respect with ISN,
(iii) containing any so-called "most favored nation" provisions or any
similar provision requiring ISN (or after the Mergers, Newco or any of its
Subsidiaries) to offer a third party terms or concessions at least as
favorable as offered to one or more other parties.
(o) ENVIRONMENTAL MATTERS. (i) ISN has obtained and is in material
compliance with the terms and conditions of all permits, licenses and other
authorizations required under applicable Environmental Laws; (ii) no
asbestos in a friable condition or equipment containing polychlorinated
biphenyls or leaking underground or above-ground storage tanks is contained
in or located at any facility owned, leased or controlled by ISN; (iii) ISN
is in material compliance with all applicable Environmental Laws, and has
fully disclosed all known material past and present non-compliance with
Environmental Laws, and all known past discharges, emissions, leaking or
releases known to ISN of any substance or waste regulated under or defined
by Environmental Laws that could reasonably be expected to form the basis of
any claim, action, suit, proceeding, hearing or investigation under any
applicable Environmental Laws; and (iv) ISN has not received notice of any
past or present events, conditions, circumstances, activities, practices,
incidents, actions or plans that have resulted in, or threaten to result in,
any common law or legal liability, or otherwise form the basis of any claim,
action, suit, proceeding, hearing or investigation under any applicable
Environmental Laws; PROVIDED, HOWEVER, that clauses (i) through (iv) above
address only those matters that, individually or in the aggregate, would
have a Material Adverse Effect with respect to ISN.
(p) ABSENCE OF CERTAIN CHANGES. Except as disclosed in Section 3.2(p)
of the Parent Disclosure Letter, since the date of ISN's most recent audited
Financial Statements:
(i) there has not been any Material Adverse Change with respect to ISN;
(ii) there has not been any declaration, setting aside or payment of any
non-cash dividend or other non-cash distribution with respect to any ISN
Units (except as provided under Section 4.2(g)) or any repurchase,
redemption or other acquisition by ISN of any outstanding ISN Units or any
split, combination or reclassification of any ISN Units or issuance or
authorization relating to the issuance of any ISN Units, in lieu of or in
substitution for ISN Units;
(iii) there has not been any amendment to, or change in, the Certificate
of Formation or Limited Liability Company Agreement of ISN;
(iv) there has not been any incurrence, creation or assumption by ISN of
any Debt or any Lien on any material asset, and ISN has not issued or sold
any debt securities or warrants or other rights to acquire any debt
securities of ISN or entered into any "KEEP WELL" or other agreement to
maintain any financial statement condition of another Person or entered into
any arrangement having the economic effect of any of the foregoing, except,
in each case, to the extent that such Debt or other obligation is satisfied
or discharged prior to the Closing;
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(v) there has not been any change in any method of accounting or
accounting practice by ISN;
(vi) there has not been any sale or transfer by ISN of any of its
material assets, cancellation of any Debt or claims or waiver of any
material rights by ISN;
(vii) ISN has not made any loans, advances or capital contributions to
or investments in, any other Person, other than travel and entertainment
advances to employees of ISN in the ordinary course of business consistent
with past practices;
(viii) except for this Agreement and any other Transaction Documents,
ISN has not entered into any material transaction or incurred any material
expenditure other than in the ordinary course of business consistent with
past practice;
(ix) there has not been any adverse change in a material customer or
material supplier relationship, including any cancellation or termination or
written notice of cancellation or termination by any material customer or
material supplier of its relationship or a material portion of its
relationship with ISN or any material decrease in the usage or purchase of
the products or services of ISN by any such customer or any material
decrease or limitation of services or supplies of the products or services
to ISN by any such supplier that, individually or in the aggregate, would
have a Material Adverse Effect with respect to ISN;
(x) there has not been any waiver or release of any material right of
claim of ISN, including any write-off or other compromise of any account
receivable of ISN, other than in the ordinary course of business and
consistent with past practices;
(xi) there has not been, to the Knowledge of ISN or Parent, any
assertion by any advertiser, subscriber and/or customer of ISN, that, if
substantiated, would have a Material Adverse Effect with respect to ISN;
(xii) there has not been any material change in the policies under which
ISN extends discounts, credits or warranties to customers or otherwise deals
with its customers;
(xiii) there has not been any grant of exclusive promotion or
sponsorship with respect to any portion of any website of ISN;
(xiv) ISN has not authorized for issuance, issued, delivered, sold or
agreed or committed to issue, sell or deliver (whether through the issuance
or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise), pledge or otherwise encumber any ISN Units or any
other Equity Securities of ISN;
(xv) except with respect to annual bonuses made in the ordinary course
of business consistent with past practice, ISN has not adopted or amended in
any material respect any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, pension, retirement,
employment or other employee benefit agreement, trust, plan or other
arrangement for the benefit or welfare of any director, officer or employee
of ISN or increase in any manner the compensation or fringe benefits of any
director, officer or employee of ISN or pay any benefit not required by any
existing agreement or place any assets in any trust for the benefit of any
director, officer or employee of ISN (in each case, except with respect to
employees in the ordinary course of business consistent with past practice);
(xvi) there has not been any grant or transfer of any rights of value or
modification or change in any material respect any existing material
license, lease, Contract or other document;
(xvii) ISN has not adopted a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization other than as is necessary in order to effect the
Transactions;
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(xviii) Except with respect to the Infoseek Litigation, ISN has not
settled or compromised any shareholder derivative suits arising out of the
transactions contemplated hereby or any other litigation (whether or not
commenced prior to the date of this Agreement) or settled, paid or
compromised any claims not required to be paid, individually in an amount in
excess of $100,000 and in the aggregate in an amount in excess of
$1,000,000, other than in consultation and cooperation with the Company,
and, with respect to any such settlement, with the prior written consent of
the Company;
(xix) ISN has not entered into any transaction or series of transactions
with any Affiliate of ISN (other than a wholly-owned Subsidiary of ISN) or
otherwise that would be required to be disclosed pursuant to Item 404 of
Regulation S-K other than on terms and conditions substantially as favorable
to ISN as would be obtainable by ISN at the time of such transaction with a
Person that is not an Affiliate of ISN;
(xx) there has not been any acquisition or agreement to acquire (x) by
merging or consolidating with, or by purchasing a substantial portion of the
stock or assets of, or by any other manner, any business or any other Person
or (y) any assets that are material, individually or in the aggregate, to
ISN and its Subsidiaries taken as a whole, except purchases of inventory in
the ordinary course of business consistent with past practice; and
(xxi) there has been no agreement by ISN, whether written or oral, to do
any of the foregoing.
(q) ANTI-TAKEOVER PLAN; STATE TAKEOVER STATUTES. ISN does not have in
effect any shareholder rights plan or similar device or arrangement,
commonly or colloquially known as a "poison pill" or "anti-takeover" plan or
any similar plan, device or arrangement and ISN has not adopted or
authorized the adoption of such a plan, device or arrangement. To the best
of ISN and Parent's Knowledge, no state takeover or "fair price" of
"interested party" statute or similar statute or regulation applies or
purports to apply to the Mergers, this Agreement or any of the Transactions.
(r) INFORMATION SUPPLIED. The information supplied or to be supplied
by ISN or Parent for inclusion or incorporation by reference in (i) the
Registration Statement and (ii) the Proxy Statement/Prospectus will, at the
time the Registration Statement is filed with the SEC, at any time it is
amended or supplemented, or at the time it becomes effective under the
Securities Act or at the time the Proxy Statement/Prospectus is mailed to
the Company's stockholders, as the case may be, not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not materially
misleading.
(s) BROKERS OR FINDERS. No agent, broker, investment banker, financial
advisor or other Person retained by or on behalf of ISN or Parent is or will
be entitled to any broker's or finder's fee or any other commission or
similar fee in connection with any of the Transactions.
(t) INSURANCE. ISN maintains, and has maintained, without
interruption, during its existence, policies or binders of insurance
covering such risk and events, including personal injury, property damage
and general liability, in amounts that ISN reasonably believes adequate for
its business and operations and, except as set forth in Section 3.2(t) of
the Parent Disclosure Schedule, such policies shall not terminate as a
result of the consummation of the Transactions.
(u) ABSENCE OF SENSITIVE PAYMENTS. To ISN and Parent's Knowledge, none of
ISN or any of its Affiliates, acting alone or together, has performed any of the
following acts: (i) the making of any contribution, payment, remuneration, gift
or other form of economic benefit (a "PAYMENT") to or for the private use of any
governmental official, employee or agent where the Payment or the purpose of the
Payment was illegal under the laws of the United States or the jurisdiction in
which such payment was made, (ii) the establishment or maintenance of any
unrecorded fund, asset or liability for any purpose or the making of any false
or artificial entries on its books, (iii) the making of any Payment to any
Person or the receipt of any Payment with the intention or understanding that
any part of the
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Payment was to be used for any purpose other than that described in the
documents supporting the Payment, or (iv) the giving of any Payment to, or the
receipt of any Payment from, any Person who was or could have been in a position
to help or hinder the business of ISN in connection with any actual or proposed
transaction which (A) would reasonably have been expected to subject ISN or any
of its Affiliates to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (B) if not given in the past, would have
had a Material Adverse Effect on ISN or (C) if it had not continued in the
future, would have had a Material Adverse Effect on ISN.
(v) AFFILIATE TRANSACTIONS. Except in the ordinary course of business
or as disclosed elsewhere herein and except for the Media Commitment, there
were no transactions, agreements or arrangements that created any continuing
obligation or liability of ISN, on the one hand, to Parent or any of its
Affiliates, on the other hand, that will be in effect following the ISN
Merger. Upon consummation of the ISN Merger at the Closing, ISN will owe no
Debt to Parent or any Affiliate of Parent.
ARTICLE IV.
COVENANTS
Section 4.1 COVENANTS OF THE COMPANY. During the period from the date of
this Agreement and continuing until the Closing Date, the Company agrees that,
except as expressly contemplated or permitted by this Agreement or to the extent
that ISN and Parent shall otherwise consent in writing (which consent may not be
unreasonably withheld or delayed):
(a) ACCESS TO INFORMATION. Upon reasonable notice, the Company shall,
and shall cause its Subsidiaries to, afford to ISN and Parent and each of
their respective Agents, access, during normal business hours during the
period prior to the Closing Date, to all properties, books, Contracts,
commitments and records of the Company and its Subsidiaries and, during such
period, the Company shall, and shall cause its Subsidiaries to, promptly
furnish or otherwise make available to ISN and Parent (i) a copy of each
report, schedule, registration statement and other document filed or
received by the Company or any of its Subsidiaries during such period
pursuant to the requirements of Federal securities laws and (ii) all other
information concerning the business, properties and personnel of the Company
or any of its Subsidiaries as ISN or Parent may reasonably request.
(b) ORDINARY COURSE. The Company shall, and shall cause its
Subsidiaries to, carry on their respective businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted
and use commercially reasonable efforts to preserve intact their current
business organizations, keep available the services of their current
officers, directors and employees and preserve their relationships with
customers, suppliers, contractors, distributors, licensors, licensees and
others having business dealings with them to the end that their goodwill and
ongoing businesses shall not be impaired in any material respect at the
Closing Date. Without limiting the generality of the foregoing, and except
or as contemplated by this Agreement or as otherwise required by law,
neither the Company nor any of its Subsidiaries shall take any action or
omit to take any action that, if taken or omitted immediately prior to the
execution hereof, would have been required to have been disclosed in the
Company Disclosure Schedule pursuant to Section 3.1(p); PROVIDED that the
Company shall be allowed to issue Company Common Stock to holders of Company
Stock Options upon exercise of such Company Stock Options.
(c) COMPLIANCE WITH LAWS. The Company agrees to conduct its business
and cause the businesses of its Subsidiaries to be conducted in compliance
with all Laws.
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(d) TRANSACTION DOCUMENTS. The Company shall execute all Transaction
Documents to be executed by the Company, and shall cause the Principal
Company Stockholders and any warrantholder of the Company to execute all
Transaction Documents to which they are parties, prior to the Effective
Time.
Section 4.2 COVENANTS OF ISN AND PARENT. During the period from the date
of this Agreement and continuing until the Closing Date, ISN and Parent agree
that, except as expressly contemplated or permitted by this Agreement, or to the
extent that the Company shall otherwise consent in writing (which consent may be
withheld in its sole discretion):
(a) ACCESS TO INFORMATION. Upon reasonable notice, ISN and Parent
shall afford to the Company and its Agents access, during normal business
hours during the period prior to the Closing Date, to all properties, books,
Contracts, commitments and records of ISN and, during such period, ISN and
Parent shall promptly furnish or otherwise make available to the Company
(i) a copy of each report, schedule, registration statement and other
document filed or received by ISN or Parent during such period pursuant to
the requirements of Federal securities laws and (ii) all other information
concerning the businesses, properties and personnel of ISN as the Company
may reasonably request.
(b) ORDINARY COURSE. ISN shall carry on its business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and use commercially reasonable efforts to preserve intact its
current business organizations, keep available the services of its current
officers and employees and preserve its relationships with customers,
suppliers, contractors, distributors, licensors, licensees and others having
business dealings with it to the end that its goodwill and ongoing
businesses shall not be impaired in any material respect at the Closing
Date. Without limiting the generality of the foregoing, and except as
required by law, ISN shall not take any action or omit to take any action
that, if taken or omitted immediately prior to the execution hereof would
have been required to be disclosed in the Parent Disclosure Schedule
pursuant to Section 3.2(p); PROVIDED that ISN shall be allowed to issue ISN
Units to holders of ISN Stock Options upon exercise of such ISN Stock
Options and to holders of options to purchase stock in ISN's predecessor
company.
(c) COMPLIANCE WITH LAWS. ISN agrees to conduct its business in
compliance with all applicable Laws.
(d) MEDIA COMMITMENT. At or prior to the Effective Time, USA will
enter into a definitive agreement ("MEDIA COMMITMENT") with Newco pursuant
to which USA will commit to provide to Newco $10 million of Media Value from
the Network in exchange for an issuance of 538,721 shares of Class B Common
Stock to Parent. The Media Commitment will terminate on the third
anniversary of the Closing Date and, to the extent reasonably practical, be
made available in equal annual amounts over the term. The Media Commitment
shall require USA to use its reasonable best efforts to place the
advertising to the satisfaction of Newco; PROVIDED, HOWEVER, that USA will
determine, in its sole discretion, the actual placement of all commercial
advertising time purchased by Newco, based on, among things, available
inventory. The Media Commitment shall remain in effect following the
Mergers.
(e) LICENSE AGREEMENT. On the Closing Date, Newco, the Company, ISN
and USA shall enter into a license agreement substantially in the form of
EXHIBIT F hereto (the "LICENSE AGREEMENT").
(f) TRANSACTION DOCUMENTS. ISN and Parent shall execute all
Transaction Documents to which it is a party, and shall cause USA to execute
all Transaction Documents to which it is a party, prior to the Effective
Time.
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(g) INFOSEEK LITIGATION. ISN shall distribute or otherwise transfer to
Parent or an Affiliate of Parent the rights associated with the litigation
captioned INTERNET SHOPPING NETWORK LLC V. INFOSEEK CORPORATION (the
"INFOSEEK LITIGATION") (including the right to any awards received), and
Parent or an Affiliate of Parent shall assume all liabilities associated
with such litigation (including all of ISN's costs related thereto).
(h) PARENT CONTRIBUTION. Prior to the Effective Time, Parent or an
Affiliate of Parent shall contribute $40 million in cash or cash equivalents
to Newco in exchange for an issuance of 2,154,882 shares of Class B Common
Stock to Parent.
(i) MEDIA WARRANT. At the Effective Time, Newco shall issue a warrant
substantially in the form of EXHIBIT E hereto (the "MEDIA WARRANT") to USA
to purchase 12,867,606 shares of Class B Common Stock, such number to be
adjusted such that, in the aggregate on a fully diluted basis, the
percentage of Newco Common Stock to be held by former holders of ISN Units
and ISN Options immediately after the Effective Time shall equal 75% of
outstanding Newco Common Stock immediately after the Effective Time, on a
fully diluted basis.
ARTICLE V.
ADDITIONAL COVENANTS
Section 5.1 NO SOLICITATION.
(a) From the date of the Original Merger Agreement until the termination
of this Agreement in accordance herewith, the Company shall not, and shall
cause its Subsidiaries and Agents not to, directly or indirectly,
(i) solicit, initiate, encourage (including by way of furnishing
information, except as required by applicable Law) or take any other action
to facilitate, any inquiry or the making of any proposal which constitutes,
or may reasonably be expected to lead to, any Alternate Transaction or agree
to or endorse any Alternate Transaction, (ii) propose, enter into or
participate in any discussions or negotiations regarding any of the
foregoing or, except as required by applicable Law, furnish any information
relating to the Company or any of its Subsidiaries or their respective
assets or businesses, or (iii) otherwise cooperate in anyway 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 (including, without
limitation, through the grant of waivers in respect of any obligations to
the Company). The Company will immediately notify ISN and Parent after
receipt of any inquiry or proposal for an Alternate Transaction or any
indication that any Person is considering making any such inquiry or
proposal or any request for nonpublic information relating to the Company or
any of its Subsidiaries or for access to the properties, books or records of
the Company or any of its Subsidiaries by any Person that may be considering
making, or has made, any such inquiry or proposal or that the Company
intends to engage in negotiations with, or to provide information to any
such Person. The Company shall immediately provide ISN and Parent with the
identity of such Person and a reasonable description of such inquiry or
proposal and, if available, a copy of such inquiry or proposal. The Company
shall, and shall cause its Subsidiaries and Agents to, immediately cease and
cause to be terminated, any existing solicitation, activity, discussions or
negotiations with any Third Parties conducted heretofore by the Company or
any of its representatives with respect to any proposal for an Alternate
Transmission.
(b) Notwithstanding the foregoing, nothing contained in this Agreement
shall prevent the Company from (x) furnishing information pursuant to an
appropriate confidentiality letter concerning the Company and its
businesses, properties or assets to any Third Party who has made a Qualified
Alternate Transaction Proposal, (y) engaging in discussions or negotiations
with such Third Party, or (z) following receipt of such a Qualified
Alternate Transaction Proposal, taking and disclosing to the Company's
stockholders a position contemplated by Rule 14e-2(a) under the Exchange
Act, but in each case referred to in the foregoing clauses (x) through
(z) only after the
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Board of Directors of the Company concludes in good faith, which with
respect to clauses (y) and (z) is made following receipt of an opinion from
the Company's outside counsel, that such action is reasonably necessary for
the Board of Directors of the Company to comply with its fiduciary
obligations to the Company's stockholders under California Law and, in each
case referred to in clauses (x) through (z), only following written notice
to ISN and Parent. If the Board of Directors of the Company receives any
inquiry or proposal for an Alternate Transaction, then the Company shall
immediately inform ISN and Parent of the terms and conditions of such
inquiry or proposal and the identity of the Person making such inquiry or
proposal and shall keep ISN and Parent fully informed of the status and
details of any such inquiry or proposal and of all steps the Company is
taking in response to such inquiry or proposal.
(c) The Company's Board of Directors will not withdraw or modify (or
propose to withdraw or modify) in any manner adverse to ISN or Parent, or
otherwise fail to make the Recommendation and will not approve, recommend,
or propose to approve or recommend, or fail to oppose, an Alternate
Transaction, in each case except in response to a Qualified Alternate
Transaction Proposal, and then only upon or after termination of this
Agreement pursuant to Section 7.1(f).
Section 5.2 DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE.
(a) From and after the Effective Time, Newco shall cause the Surviving
Corporation and the Surviving LLC to, and the Surviving Corporation and the
Surviving LLC, shall indemnify, defend and hold harmless the present and
former officers, directors, employees and agents of the Company and ISN,
respectively (each a "COVERED PERSON"), against all losses, expenses,
claims, damages, liabilities or amounts ("LOSSES") that are paid in
settlement (provided that, with respect to amounts paid in settlement, such
settlement has been approved by Newco, such approval not to be unreasonably
withheld or delayed) of, or otherwise in connection with, any claim, action,
suit, proceeding or investigation (a "CLAIM") based in whole or in part on
the fact that such person is or was a director, officer, employee or agent
of the Company or ISN, as applicable, and arising out of actions or
omissions occurring at or prior to the Effective Time, in each case to the
full extent permitted under applicable Law and the Company's Articles of
Incorporation and By-laws or ISN's Certificate of Formation and Limited
Liability Company Agreement, as applicable, as in effect on the date of this
Agreement. The Surviving Corporation or the Surviving LLC, as applicable,
shall pay, when and as such expenses are incurred by a Covered Person, any
expenses in advance of the final disposition of any such Claim to each
Covered Person to the fullest extent permitted under applicable Law upon
receipt from the Covered Person to whom expenses are advanced of any
undertaking to repay such advances required under applicable Law. The
Surviving Corporation or the Surviving LLC, as applicable, shall cooperate
in the defense of any such matter.
(b) Newco shall cause the Surviving Corporation and the Surviving LLC to
keep in effect provisions in their respective Articles of Incorporation and
By-Laws and Certificate of Formation and Limited Liability Company Agreement
providing for exculpation of director liability, advancement of expenses
prior to disposition of any Claim and indemnification of the Covered
Persons, in each case to the fullest extent permitted under applicable Law,
which provisions shall not be amended except as required by applicable Law
or except to make changes permitted by Law that would enlarge the right of
indemnification of the Covered Persons.
(c) For a period of six (6) years after the Effective Time, Newco shall
cause the Surviving Corporation and the Surviving LLC to maintain in effect
the current policies of directors and officers liability insurance (or
similar policies) maintained by the Company and ISN covering persons who are
currently covered by any such policies with respect to actions or omissions
occurring at or prior to the Effective Time to the extent that such policies
are available; PROVIDED, that policies of at least the same coverage
containing terms and conditions which are no less advantageous to the
insureds may be substituted therefor, PROVIDED, FURTHER, that in no event
shall the
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Surviving Corporation or the Surviving LLC be required to expend amounts for
premiums per annum in excess of 150% of the annual premiums of the Company
and ISN, as applicable, prevailing during the twelve-month period ended
November 30, 1999 (such annual premiums, the "MAXIMUM PREMIUM") to maintain
or procure insurance coverage pursuant to this Section 5.2, or, if the cost
of such coverage exceeds the Maximum Premium, the maximum amount of coverage
that can be purchased for the Maximum Premium.
(d) The provisions of this Section 5.2 shall survive the consummation of
the Mergers and are expressly intended to benefit each of the Covered
Persons.
Section 5.3 NOTIFICATION OF CERTAIN MATTERS. ISN and Parent shall give
prompt notice to the Company, and the Company shall give prompt notice to ISN
and Parent, of (a) the occurrence or nonoccurrence of any event, the occurrence
or nonoccurrence of which would be reasonably likely to cause any covenant,
condition or agreement contained in this Agreement not to be complied with or
satisfied, (b) any failure of ISN or the Company, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder and (c) the commencement of any litigation or claim
against such party; PROVIDED, HOWEVER, that the delivery of any notice pursuant
to this Section 5.3 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
Section 5.4 TAX TREATMENT. Each of ISN, Parent, the Company and their
Affiliates shall take such actions, or refrain from taking such actions, as may
be reasonably necessary so that the Mergers will qualify as tax-free events
under either or both of Section 351 or Section 368 of the Code and the
conditions to closing described in Sections 6.2(d) and 6.3(e) will be met.
Section 5.5 COMPANY STOCKHOLDER MEETING. The Company shall, as promptly as
practicable following the date of this Agreement, duly call, give notice of and
convene and hold a meeting of its stockholders (the "STOCKHOLDER MEETING") for
the purpose of considering and voting upon the adoption of this Agreement and
obtaining the Required Stockholder Approval. Without limiting the generality of
the foregoing, the Company agrees that, unless this Agreement is terminated in
accordance with Section 7.1(f), its obligations pursuant to the first sentence
of this Section 5.5 shall not be affected by the commencement, public proposal,
public disclosure or communication to the Company of any Alternate Transaction
(including any Qualified Alternate Transaction Proposal). The Company will,
through its Board of Directors, recommend to its stockholders the adoption of
this Agreement, except to the extent that the Board of Directors of the Company
shall have withdrawn or modified its approval or recommendation of this
Agreement or the Company Merger and terminated this Agreement in accordance with
Sections 5.1(c) and 7.1(f).
Section 5.6 REGISTRATION STATEMENT, PROXY STATEMENT/PROSPECTUS.
(a) As promptly as practicable after the execution of this Agreement,
(i) the Company shall prepare and file the Proxy Statement/Prospectus with
the SEC and (ii) Parent shall cause Newco to prepare and file the
Registration Statement with the SEC in which the Proxy Statement/Prospectus
shall be included as a prospectus, in connection with the registration under
the Securities Act of the shares of Newco Class A Common Stock to be issued
pursuant to the Mergers. Each of ISN, Parent and the Company (i) shall cause
the Proxy Statement/Prospectus and the Registration Statement to comply as
to form in all material respects with the applicable provisions of the
Securities Act, the Exchange Act and the rules and regulations thereunder,
(ii) shall use commercially reasonable efforts to have or cause the
Registration Statement to become effective as promptly as practicable and
(iii) shall take any and all action required under any applicable federal or
state securities laws in connection with the issuance of shares of Newco
Class A Common Stock in connection with the Mergers. The Company, ISN, and
Parent shall furnish to the other parties all information concerning the
Company, Parent, ISN and Newco as the other parties may reasonably request
in connection with the preparation of the documents referred to herein. As
promptly as
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practicable after the Registration Statement shall have become effective,
ISN, Parent and the Company shall mail the Proxy Statement/Prospectus to
stockholders of the Company and the unitholders of ISN.
(b) The information supplied by each of the Company, ISN, and Parent for
inclusion in the Registration Statement and the Proxy Statement/Prospectus
shall not, at (i) the time the Registration Statement is declared effective,
(ii) the time the Proxy Statement/Prospectus (or any amendment thereof or
supplement thereto) is first mailed to the stockholders of the Company and
the unitholders of ISN, (iii) the time of the Stockholders Meeting, or
(iv) the Effective Time, contain any untrue statement of material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein not materially misleading. If, at
any time prior to the Effective Time, any event or circumstance relating to
the Company, Parent, ISN, or their respective Subsidiaries or officers or
directors, should be discovered by such party which should be set forth in
an amendment or a supplement to the Registration Statement or Proxy
Statement/Prospectus, such party shall promptly inform the other parties
thereof and take appropriate action in respect thereof.
(c) Each party shall confer on a regular and frequent basis with the
other, report on operational matters and promptly advise the other orally
and in writing of (i) any material notice or other communication from any
Third Party alleging that the consent of such Third Party is or may be
required in connection with the Transactions; (ii) any material notice or
other communication from any regulatory authority, NASDAQ or national
securities exchange in connection with the Transactions; (iii) any claims,
actions, proceedings or investigations commenced or, to the best of such
party's Knowledge, threatened, involving or affecting such party or any of
its Subsidiaries, or any of its property or assets, or, to the best of such
party's Knowledge, any employee, consultant, director or officer, in his or
her capacity as such, which, if pending on the date of the Original Merger
Agreement, would have been required to have been disclosed in the Company
Disclosure Schedule or the Parent Disclosure Schedule, as the case may be,
or which relates to the consummation of the Transactions; and (iv) any
change or event that would have a Material Adverse Effect with respect to
such party. Each party shall promptly provide the other party (or its
counsel) copies of all filings made by such party with any Governmental
Entity in connection with this Agreement and the Transactions.
Section 5.7 FURTHER ACTION, REASONABLE EFFORTS.
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use commercially reasonable efforts to (i) promptly
make its respective filings, and thereafter make any other required
submissions, under the HSR Act with respect to the transactions contemplated
hereby, and (ii) 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 in the most expeditious manner practicable, including using
commercially reasonable efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental
Entities, making all filings and required submissions with Governmental
Entities, including foreign filings and submissions, obtaining all consents
and approvals from Third Parties to Contracts with the Company, ISN, Parent
or their respective Subsidiaries as are necessary for the consummation of
the Mergers and the other Transactions and defending any lawsuit or legal
challenges, whether judicial or administrative, challenging this Agreement
or the transactions contemplated hereby. In case at any time after the
Effective Time any other action is necessary or desirable to carry out the
purposes of this Agreement, each party to this Agreement shall use their
reasonable efforts to take all such action.
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(b) Without limiting any covenant or agreement herein, each party shall
use reasonable commercial efforts not to take any action, or enter into any
transaction, which would result in a breach of any covenant made by such
party in this Agreement.
Section 5.8 PUBLIC ANNOUNCEMENTS. The Company, ISN and Parent shall, and
shall cause their respective Affiliates to, consult with each other before
issuing any press release or otherwise making any public statements with respect
to this Agreement or any of the transactions contemplated hereby and shall not
issue any such press release or make any such public statement without the prior
consent of the other parties, which consent shall not be unreasonably withheld
or delayed; PROVIDED, HOWEVER, that a party or its Affiliates may, without the
prior consent of the other party, issue such press release or make such public
statement as may be required by Law or any listing agreement or arrangement to
which the Company, ISN or Parent, or any of their respective Affiliates, is a
party with NASDAQ or a national securities exchange if it has used all
reasonable efforts to consult with the other party and to obtain such party's
consent but has been unable to do so in a timely manner.
Section 5.9 BLUE SKY. Parent shall cause Newco to use its best efforts to
obtain prior to the Effective Time all approvals or permits required to carry
out the transactions contemplated hereby under applicable "Blue Sky" laws in
connection with the issuance of shares of Newco Class A Common Stock in
connection with the Mergers and as contemplated by this Agreement; PROVIDED,
HOWEVER, that with respect to such qualifications neither ISN, Parent, Newco nor
the Company shall be required to register or qualify as a foreign corporation or
to take any action which would subject it to general service of process or
taxation in any jurisdiction where any such entity is not now so subject.
Section 5.10 NASDAQ. Parent shall cause Newco to promptly prepare and
submit to the NASDAQ National Market System, NASD applications covering the
shares of Newco Class A Common Stock to be issued in connection with the Mergers
and the Newco Class A Common Stock issuable upon conversion of the Newco
Class B Common Stock issued in connection with the ISN Merger (including
pursuant to Sections 1.8 and 2.4), and shall use commercially reasonable efforts
to cause such shares to be approved for listing on the NASDAQ prior to the
Effective Time, subject to official notice of issuance.
Section 5.11 AFFILIATES. As soon as reasonably practicable after the date
of this Agreement, (a) the Company shall deliver to ISN and Parent a letter
identifying all persons who may be deemed to be affiliates of the Company under
Rule 145 of the Securities Act as of the record date for the Stockholders
Meeting, including, without limitation, all of its directors and executive
officers (the "RULE 145 AFFILIATES") and (b) the Company shall advise the
persons identified in such letter of the resale restrictions imposed by
applicable securities laws and shall obtain from each person identified in such
letter a written agreement, substantially in the form of Exhibit G hereto (a
"RULE 145 AFFILIATE AGREEMENT").
Section 5.12 TAX MATTERS. The parties hereto agree to (i) prepare or cause
to be prepared all Tax Returns or other governmental filings, reports,
applicable books and records in accordance with the treatment of the Mergers as
tax-free events under either or both of Section 351 and Section 368 of the Code,
unless otherwise required by Law, and (ii) take such other actions, or refrain
from taking any action, as may be reasonably necessary so that the Mergers will
qualify for such treatment; PROVIDED, HOWEVER, that such actions or inactions
must be consistent with the terms of this Agreement. Parent agrees to indemnify
Newco from and against any Material Adverse Effect that Newco may suffer
resulting from, arising out of, relating to, in the nature of, or caused by any
Liability of ISN for Taxes of any Person other than ISN under Reg. 1-1502-6
promulgated under the Code.
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ARTICLE 6
CONDITIONS PRECEDENT
Section 6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The respective
obligations of each party to effect the Mergers and to consummate the other
Transactions shall be subject to the satisfaction, on or prior to the Closing
Date, of the following conditions:
(a) STOCKHOLDER APPROVAL. The Required Stockholder Approval shall have
been obtained and be in full force and effect and ISN and Parent shall have
received reasonably satisfactory evidence of same.
(b) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings seeking a stop order.
(c) BLUE SKY LAWS. Newco shall have received all state securities or
"Blue Sky" permits and other authorizations necessary to issue in the shares
of Newco Class A Common Stock.
(d) LISTING. The Newco Class A Common Stock to be issued in connection
with the Mergers and the Newco Class A Common Stock issuable upon conversion
of Newco Class B Common Stock issued in connection with the ISN Merger
(including pursuant to Sections 1.8 and 2.4) shall have been authorized for
quotation on the NASDAQ listing or on any other national securities exchange
or automated quotation system approved by the Company, ISN and Parent,
subject to official notice of issuance.
(e) NO INJUNCTIONS OR RESTRAINTS. No Law or Order shall have been
enacted, entered, promulgated or enforced (and not repealed, superseded,
lifted or otherwise made inapplicable), by any court of competent
jurisdiction or Government Entity which restrains, enjoins or otherwise
prohibits the consummation of the Transactions.
(f) HSR ACT. All HSR Act waiting periods applicable to the
transactions contemplated under this Agreement shall have expired or been
terminated.
(g) GOVERNMENTAL AND REGULATORY CONSENTS. All filings required to be
made prior to the Effective Time with, and all consents, approvals, permits
and authorizations required to be obtained prior to the Effective Time from,
Governmental Entities in connection with the execution and delivery of this
Agreement and the consummation of the Transactions shall have been made or
obtained.
Section 6.2 CONDITIONS TO THE OBLIGATIONS OF ISN AND PARENT. The
obligations of ISN and Parent under this Agreement to consummate the
Transactions are subject to the satisfaction of the following conditions on or
prior to Closing, the imposition of which is solely for the benefit of ISN and
Parent and any one of more of which may be expressly waived by ISN and Parent,
in their sole discretion, except as otherwise required by Law:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company contained herein shall have been true and
correct (except that any representation or warranty qualified by materiality
shall be true and correct in all respects taking into account such
qualification) as of the date of the Original Merger Agreement and as of the
Closing Date (except to the extent that any such representation and warranty
is by its terms made as of a specific date in which case such representation
and warranty shall have been true and correct (or true and correct in all
material respects, as applicable) as of such specific date).
(b) PERFORMANCE OF AGREEMENTS. The Company shall have performed in all
material respects all obligations and agreements and complied in all
material respects with all covenants contained
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in this Agreement or any other Transaction Document to be performed and
complied with by the Company at or prior to the Closing Date.
(c) NO MATERIAL ADVERSE CHANGE. Since the date of the Original Merger
Agreement, there shall have been no Material Adverse Change with respect to
the Company.
(d) APPRAISAL RIGHTS. Holders of not more than 10% of the shares of
Company Common Stock outstanding immediately prior to the Effective Time
shall have demanded appraisal rights for their shares of Company Common
Stock.
(e) TAX OPINION. Concurrently with the execution of this Agreement,
ISN and Parent received an opinion of Paul, Weiss, Rifkind, Wharton &
Garrison, counsel to Parent, to the effect that the Mergers should qualify
as tax-free events under Section 351 or Section 368 of the Code. Nothing has
occurred since the date of that opinion that would prevent such counsel from
delivering an opinion to substantially the same effect on the Closing Date.
(f) AFFILIATE LETTERS. ISN and Parent shall have received from each
Rule 145 Affiliate of the Company an executed copy of a Rule 145 Affiliate
Agreement from each Rule 145 Affiliate as contemplated by Section 5.11
hereof.
(g) TRANSACTION DOCUMENTS. Each of the Transaction Documents shall
have been executed and delivered by each party thereto (other than USA, ISN
or Parent).
(h) VECCHIONE EMPLOYMENT AGREEMENT. An employment agreement between
Maurizio Vecchione and Newco shall have been executed in form and substance
satisfactory to ISN and Parent, and such employment agreement shall be valid
and binding on the Closing Date. Maurizio Vecchione shall be a full-time
employee of the Company immediately prior to the Closing Date and of Newco
as of the Closing Date.
(i) FREEDMAN SECURITY INTERESTS. Joyce Freedman and Lee Freedman shall
have released all of the security interests they hold in the assets of the
Company and shall have filed appropriate documentation of such release with
the United States Patent and Trademark Office.
(j) CERTIFICATE. ISN and Parent shall have received a certificate,
dated as of the Closing Date, executed by an officer of the Company
certifying as to the satisfaction of the conditions in Section 6.2(a), (b),
(c) and (d).
Section 6.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate the Transactions are subject to the satisfaction of
the following conditions on or prior to Closing, the imposition of which is
solely for the benefit of the Company and any one or more of which may be
expressly waived by the Company, in its sole discretion, except as otherwise
required by Law:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Parent contained herein shall have been true and correct
(except that any representation or warranty qualified by materiality shall
be true and correct in all respects taking into account such qualification)
as of the date of the Original Merger Agreement and as of the Closing Date
(except to the extent that any such representation and warranty is by its
terms made as of a specific date, in which case such representation and
warranty shall have been true and correct (or true and correct in all
material respects, as applicable) as of such specific date).
(b) PERFORMANCE OF AGREEMENTS. Each of ISN and Parent shall have
performed in all material respects all obligations and agreements and
complied in all material respects with all covenants contained in this
Agreement or any other Transaction Document to be performed and complied
with by ISN or Parent at or prior to the Closing Date, and the Required
Stockholder Approval shall have been obtained and be in full force and
effect.
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(c) NO MATERIAL ADVERSE CHANGE. Since the date of the Original Merger
Agreement, there shall have been no Material Adverse Change with respect to
ISN.
(d) OWNERSHIP OF NEWCO AND MERGER SUBS. Immediately prior to the
Effective Time, (i) 100% of the issued and outstanding capital stock of
Newco shall be owned by Parent, (ii) 100% of the outstanding limited
liability company interests of ISN Merger Sub shall be owned by Newco,
(iii) 100% of the issued and outstanding capital stock of Company Merger Sub
shall be owned by Newco and (iv) except as contemplated by this Agreement or
the other Transaction Documents (x) there shall be no options, warrants or
other rights (including registration rights), agreements, arrangements or
commitments of any character relating to the capital stock of Newco, ISN
Merger Sub, or Company Merger Sub or obligating Newco, ISN Merger Sub, or
Company Merger Sub to grant, issue or sell any shares of its capital stock
or other equity securities, other than pursuant to the Transactions
(including the Media Warrants) and (y) there shall be no outstanding
Contracts requiring Newco, ISN Merger Sub, or Company Merger Sub to
repurchase, redeem or otherwise acquire or make any payment in respect of
shares of its capital stock.
(e) TAX OPINION. Concurrently with the execution of the Original
Merger Agreement, the Company received an opinion of Coudert Brothers,
counsel to the Company, to the effect that the Company Merger should qualify
as a tax-free event under Section 351 or Section 368 of the Code. Nothing
has occurred since the date of that opinion that would prevent such counsel
from delivering an opinion to the same effect on the Closing Date.
(f) TRANSACTION DOCUMENTS. Each of the Transaction Documents shall
have been executed and delivered by each party thereto (other than the
Company).
(g) CERTIFICATE. The Company shall have received a certificate, dated
as of the Closing Date, executed by an officer of each of ISN and Parent,
certifying as to the satisfaction of the conditions in Section 6.3(a),
(b) and (c).
Section 6.4 FRUSTRATION OF CLOSING CONDITIONS. Neither ISN, Parent nor the
Company may rely on the failure of any condition set forth in Section 6.1, 6.2
or 6.3, as the case may be, to be satisfied if such failure is due to the
failure of such party to perform or observe its covenants hereunder, including
its obligations to use reasonable best efforts to consummate the Transactions.
ARTICLE 7
TERMINATION AND AMENDMENT
Section 7.1 TERMINATION. This Agreement may be terminated and the Mergers
contemplated hereby may be abandoned at any time prior to the Effective Time
whether before or after approval by the stockholders of the Company:
(a) by mutual written consent of ISN, Parent and the Company;
(b) by any of ISN, Parent or the Company if there has been a material
breach of any representation, warranty or covenant in this Agreement on the
part of the Company, on the one hand, or ISN or Parent, on the other hand,
as the case may be, which breach has not been cured within twenty
(20) Business Days following receipt by the party committing such breach of
written notice of such breach; PROVIDED that the terminating party has not
materially breached any of its representations, warranties or covenants
herein;
(c) by any of ISN, Parent or the Company if the Closing shall not have
occurred on or before July 31, 2000 (or such later date as may be agreed to
by Parent and the Company); PROVIDED, however, that no party may terminate
this Agreement under this Section 7.1(c) if such failure has been caused by
such party's material breach of its obligations under this Agreement;
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(d) by any of ISN, Parent or the Company, if this Agreement shall fail
to receive the Required Stockholder Approval at the Stockholders' Meeting or
any adjournment thereof.
(e) by ISN and Parent, if (i) the Board of Directors of the Company
shall withdraw, modify or change the Recommendation in a manner adverse to
ISN or Parent or shall have resolved to do any of the foregoing or (ii) the
Board of Directors of the Company shall have recommended to the stockholders
of the Company any Alternate Transaction, or failed to recommend opposition
to any such Alternate Transaction, or shall have resolved to do any of the
foregoing; PROVIDED that a termination by ISN and Parent pursuant to this
Section 7.1(e) shall not affect the right of ISN to receive payments from
the Company under Section 8.3;
(f) by the Company, if the Board of Directors of the Company shall,
following advice of outside counsel (who may be the Company's regularly
engaged independent legal counsel), determine that failure to so terminate
would cause the Board of Directors of the Company to breach its fiduciary
duties under California Law and, on or prior to such date, the Company has
executed a definitive agreement with respect to a Qualified Alternate
Transaction Proposal; PROVIDED, HOWEVER, that the Company may not terminate
this Agreement pursuant to this Section 6.1(f) until five Business Days have
elapsed following delivery to ISN and Parent of written notice of such
determination of the Company (which written notice will inform ISN and
Parent of the material terms and conditions of the Qualified Alternate
Transaction Proposal) and the Company has offered ISN and Parent the
opportunity during such period to alter the terms and conditions of the
Transactions to prevent the Qualified Alternate Transaction Proposal from
qualifying as such; PROVIDED, FURTHER, that such termination under this
Section 7.1(f) shall not be effective until the Company has made payment to
ISN of the amounts required to be paid pursuant to Section 8.3; or
(g) by ISN, Parent or the Company if a court or other Governmental
Entity of competent jurisdiction shall have issued an Order or taken any
other action restraining, enjoining or otherwise prohibiting the
consummation of the Mergers or any other Transaction and such Order or other
action shall have become final and nonappealable.
Section 7.2 EFFECT OF TERMINATION. In the event this Agreement is
terminated pursuant to Section 7.1, all further obligations of the parties
hereunder shall terminate except that the obligations set forth in this
Section 7.2 and Article 8 shall survive; PROVIDED that, if this Agreement is so
terminated by a party because one or more of the conditions to such party's
obligations hereunder is not satisfied as a result of the other party's willful
or knowing failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies for breach of contract or
otherwise, including damages relating thereto, shall also survive such
termination unimpaired.
ARTICLE 8
GENERAL PROVISIONS
Section 8.1 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given when delivered personally, upon a
receipt of a transmittal confirmation if sent by facsimile or like transmission,
and on the next Business Day when sent by Federal Express, Express Mail or
similar overnight courier service to the parties at the following addresses or
facsimile numbers (or at such other address or facsimile number for a party as
shall be specified by like notice):
(i) If to the Company, to:
Styleclick.com Inc.
3861 Sepulveda Blvd.
Culver City, CA 90230
Attention: Maurizio Vecchione
Facsimile: (310) 751-2122
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with a copy to:
Coudert Brothers
950 17th St., 18th Fl.
Denver, CO 80202
Attention: John A. St. Clair
Facsimile: (303) 607-1080
(ii) If to ISN, to:
Internet Shopping Network LLC
500 Macara Avenue
Sunnyvale, CA 94086
Attention: Bill Lane
Facsimile: (408) 617-7415
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Robert B. Schumer
Facsimile: (212) 757-3990
(c) If to Parent, to:
USANi Sub LLC
Carnegie Hall Tower
152 West 57th Street, 42nd Floor
New York, NY 10019
Attention: Tom Kuhn
Facsimile: 212-314-7329
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Robert B. Schumer
Facsimile: (212) 757-3990
Section 8.2 WAIVERS AND AMENDMENTS. This Agreement may be amended,
superseded, canceled, renewed or extended, and the terms hereof may be waived,
only by written instruments signed by the parties to this Agreement, or in the
case of a waiver, by the party waiving compliance. Except where a specific
period for action or inaction is provided herein, no delay on the part of a
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof. Neither any waiver on the part of a party of any such right,
power or privilege, nor any single or partial exercise of any such right, power
or privilege, shall preclude any further exercise thereof or the exercise of any
other such right, power or privilege.
Section 8.3 EXPENSES AND OTHER PAYMENTS.
(a) The parties to this Agreement shall, except as otherwise
specifically provided herein, bear their respective costs expenses incurred
in connection with the preparation, execution and performance of this
Agreement and the consummation of the Transactions, including, without
limitation, all fees and expenses of their respective Agents.
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(b) The Company agrees that if this Agreement shall be terminated
pursuant to:
(i) Section 7.1(d) and either (A) an Alternate Transaction was
publicly announced prior to such termination or (B) an Alternate
Transaction is consummated, or a definitive agreement with respect
thereto is executed, by the Company or any of its Affiliates following
such termination and on or prior to the 12 month anniversary of such
termination; or
(ii) Section 7.1(e) or 7.1(f);
then the Company shall pay to ISN $5,545,809 (the "TERMINATION FEE") and
shall reimburse each of ISN, Parent and its Affiliates for all of their
respective costs and expenses incurred in connection with the preparation,
execution and performance of this Agreement, the other Transaction Documents
and the Transactions, including all fees and expenses of each of their
respective Agents.
(c) Any payment required to be made pursuant to Section 8.3(b) shall be
made concurrently with the termination of this Agreement and shall be made
by wire transfer of immediately available funds to an account designated by
ISN, except that any payment to be made solely as the result of
Section 8.3(b)(i)(B) shall be made upon the earlier to occur of the
consummation of the Alternate Transaction or the execution of the definitive
agreement providing for the Alternate Transaction. The Company acknowledges
that the agreements contained in Section 8.3 are an integral part of the
transaction contemplated by this Agreement, and that, without these
agreements, ISN and Parent would not have entered into this Agreement.
Accordingly, if the Company fails to pay promptly any amounts due pursuant
to Section 8.3 and, in order to obtain such payment, ISN or Parent commences
a suit which results in a judgment against the Company for the fee or
expense reimbursement set forth in this Section 8.3, the Company shall pay
to ISN and Parent their respective costs and expenses (including attorneys'
fees) in connection with such suit, together with interest from the date of
termination of this Agreement on the amounts so owed at the prime rate of
Chase Manhattan Bank in effect from time to time during such period plus
four percent (4%).
Section 8.4 NEWCO COMMON STOCK. If the Nasdaq Stock Market, Inc. ("NSMI")
does not approve the listing of Newco Class A Common Stock, or if the NSMI or
SEC commence or threaten to commence an action seeking to delist the Company
Common Stock, in each case, as a result of the dual class structure of Newco
Common Stock contemplated hereby, all reference to Newco Class A Common Stock,
Newco Class B Common Stock and Newco Common Stock contained herein and terms of
similar meaning contained in the Transaction Documents or in any Exhibit hereto,
including without limitation Exhibit D, shall automatically be deemed to mean
one class of common stock, par value $.01 per share, of Newco. In such event,
(x) the parties shall negotiate expeditiously and agree in good faith to such
changes to this Agreement and the Transaction Documents and Exhibits hereto to
enable the parties to achieve the benefits of the dual class structure
contemplated hereby, without any material harm to the other benefits intended to
be provided hereunder to the parties hereto and (y) if alternative arrangements
satisfactory to Parent are not effected prior to or at the Closing, the parties
shall amend Exhibit D to provide that if Newco issues any shares of Newco Common
Stock or securities convertible into shares of Newco Common Stock (an
"ISSUANCE"), Newco shall concurrently offer Parent the right to purchase an
amount of Newco Common Stock at its then fair market value to enable Parent to
maintain an equity ownership position in Newco equal to the equity ownership
position prior to the completion of such issuance (taking into account such
issuance and any exercise by Parent of its rights under this clause (y));
PROVIDED, that the right contained in this clause (y) will not be made available
to Parent upon the issuance of employee stock options approved by the Board of
Directors of Newco or any committee thereof or the issuance of Newco Common
Stock upon exercise of such employee stock options.
Section 8.5 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by either of the parties
hereto (whether by operation of law or otherwise)
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without the prior written consent of the other parties; PROVIDED, that, from and
after the Effective Time, Parent shall be permitted to assign its rights under
Section 1.8 or 2.4 to USA or any of its controlled Affiliates. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and permitted
assigns.
Section 8.6 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made in this Agreement or in any instrument
delivered pursuant to this Agreement shall not survive Closing.
Section 8.7 HEADINGS. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.
Section 8.8 INTERPRETATION. The parties acknowledge and agree that:
(a) each party and its counsel reviewed and negotiated the terms and provisions
of this Agreement and have contributed to its revision; (b) the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement;
and (c) the terms and provisions of this Agreement shall be construed fairly as
to all parties hereto, regardless of which party was generally responsible for
the preparation of this Agreement.
Section 8.9 SEVERABILITY OF PROVISIONS. The provisions of this Agreement
shall be deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceability or the other
provisions of this Agreement. If any provision of this Agreement, or the
application of that provision to any person or any circumstance, is invalid or
unenforceable, 1. a suitable and equitable provision shall be substituted for
that provision in order to carry out, so far as may be valid and enforceable,
the intent and purpose of the invalid or unenforceable provision and 2. the
remainder of this Agreement and the application of the provision to other
persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of the provision, or the application of that
provision, in any other jurisdiction.
Section 8.10 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement (including the documents and the instruments referred to herein) and
the Confidentiality Agreement, dated October 4, 1999 between the Company and
Parent (the "CONFIDENTIALITY AGREEMENT") (a) constitute the entire agreement,
and supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof and (b) other than
Sections 1.8, 2.4(b), 2.4(d), 4.2(d), 4.2(e) and 5.2 of this Agreement, are not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder. The Confidentiality Agreement shall survive execution of
this Agreement and shall terminate upon the earlier of expiration of such
agreement by its terms and the Effective Time.
Section 8.11 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such state.
Section 8.12 SUBMISSION TO JURISDICTION; WAIVERS. Each of the parties
hereto hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Transaction Documents to
which it is a party, or for recognition and enforcement of any judgement in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in
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any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, in accordance with
Section 8.1; and
(d) agrees that nothing herein shall affect the right to effect service
of process in any other manner permitted by law or shall limit the right to
sue in any other jurisdiction.
SECTION 8.13 WAIVERS OF JURY TRIAL. THE PARTIES HERETO HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
Section 8.14 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one and the same instrument.
A-53
<PAGE>
IN WITNESS WHEREOF, the Company, ISN, and Parent have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first above written.
STYLECLICK.COM INC.
By:
--------------------------------------
Name:
Title:
INTERNET SHOPPING NETWORK LLC
By:
--------------------------------------
Name:
Title:
USANI SUB LLC
By:
--------------------------------------
Name:
Title:
A-54
<PAGE>
ANNEX B
January 24, 2000
Confidential
Board of Directors
Styleclick.com, Inc.
3861 Sepulveda Blvd.
Culver City, CA 90230
Ladies and Gentlemen:
Styleclick.com, Inc. (the "Company") and USA Networks Interactive Sub LLC
(the "Purchaser"), an affiliate of USA Networks, Inc. (the "Acquiring Company"),
propose to enter into an agreement and plan of merger (the "Agreement") pursuant
to which a wholly-owned subsidiary ("Merger Sub") of a newly formed company
("Newco") will merge with and into the Company (the "Merger"). In connection
with the Merger, the Purchaser will contribute to Newco all of the outstanding
limited liability company interests of Internet Shopping Network LLC ("ISN") and
$40 million in cash in exchange for Class B Common Stock of Newco. Upon the
consummation of the Merger, each share of the Company's Common Stock will be
converted into the right to receive one share of Newco Class A Common Stock (the
"Proposed Consideration") such that the Acquiring Company and its affiliates
will own approximately 75% of Newco's issued and outstanding Class A Common
Stock and Class B Common Stock (collectively "Newco Common Stock") and the
Company's former stockholders will own approximately 25% of Newco Common Stock
immediately after the Merger. Each share of Class A Common Stock is entitled to
one vote per share and each share of Class B Common Stock is entitled to fifteen
votes per share. Additionally, (i) concurrent with the execution of the
Agreement, an affiliate of the Acquiring Company will provide a collateralized
term loan facility in the principal amount of $10 million to the Company in
exchange for a warrant to purchase shares of the Company's Common Stock in
accordance with the terms set forth in the credit agreement, the collateral
agreement and the bridge loan warrant agreement between the Company and the
Acquiring Company (collectively the "Credit Agreements"), (ii) at or prior to
the closing of the Merger, the Acquiring Company will enter into a definitive
media commitment agreement with ISN pursuant to which the Acquiring Company will
commit to provide $10 million of media promotion over a period of three years
from the closing and, in exchange, Newco will grant the Acquiring Company
certain warrants to purchase Class B Common Stock of Newco, in accordance with
the terms set forth in the media warrant agreement (the "Media Warrant
Agreement").
Simultaneous with the execution of the Agreement, (i) Newco, the Purchaser,
the Acquiring Company, the Company and certain stockholders of the Company will
enter into a stockholders agreement (the "Stockholders Agreement") providing
for, among other things, certain transfer restrictions on the common stock of
Newco received by the parties as a result of the transaction contemplated by the
Agreement, (ii) the Purchaser and certain holders of equity securities of the
Company holding in the aggregate approximately 37% of the Company's Common Stock
will enter into one or more voting and first offer agreements (collectively the
"Voting Agreements") pursuant to which such holders agree, among other things,
to vote their shares of Company Common Stock in favor of the Merger and to waive
certain contractual and other rights in connection with the transaction
contemplated by the Agreement, (iii) the Purchaser and certain holders of
warrants of the Company, including PaineWebber
B-1
<PAGE>
Incorporated, will enter into waiver agreements (the "Waiver Agreements")
pursuant to which each such warrant holder agrees to waive certain contractual
and other rights in connection with the transactions contemplated by the
Agreement, and (iv) the Company and the Purchaser will enter into an option
agreement (the "Option Agreement") pursuant to which the Company will grant the
Acquiring Company an option to acquire shares of Company Common Stock, which, if
issued, would represent approximately 19.9% of the Company's total outstanding
shares.
You have asked us whether or not, in our opinion, the Proposed Consideration
to be received by the stockholders of the Company pursuant to the Merger is fair
to such stockholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) reviewed the Company's Annual Reports, Forms 10-K and the related
financial information for the two fiscal years ended December 31, 1998,
and the Company's Form 10-Q and the related unaudited financial
information for the nine months ended September 30, 1999;
(2) reviewed certain information, including financial forecasts and
historical financial statements, relating to the business and prospects
of the Company and ISN, furnished to us by the Company and ISN;
(3) conducted discussions with members of senior management of the Company
and ISN concerning their respective businesses and prospects;
(4) reviewed the historical market prices and trading activity for the
Common Stock of the Company and compared them with that of certain
publicly traded companies which we deemed to be relevant;
(5) compared the financial position and results of operations of the Company
and ISN with that of certain companies which we deemed relevant;
(6) compared the proposed financial terms of the transactions contemplated
by the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(7) reviewed a draft of the Agreement dated January 24, 2000;
(8) reviewed a draft of the Stockholders Agreement dated January 21, 2000;
(9) reviewed drafts of the Voting Agreements dated January 22, 2000;
(10) reviewed drafts of the Waiver Agreements dated January 24, 2000;
(11) reviewed a draft of the Credit Agreement dated January 21, 2000;
(12) reviewed a draft of the Option Agreement dated January 19, 2000;
(13) reviewed a draft of the Media Warrant Agreement dated January 21, 2000;
and
(14) reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information publicly available, and all information supplied or otherwise
communicated or made available to us by the Company and ISN, and we have not
assumed any responsibility to independently verify such information. With
respect to the financial forecasts examined by us, we have assumed that they
were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments
B-2
<PAGE>
of the management of the Company and ISN, respectively, as to the future
performance of the Company and ISN, respectively. We have also relied upon
assurances of the management of the Company and ISN, respectively, that they are
unaware of any facts that would make the information or financial forecasts
provided to us incomplete or misleading. We have not been engaged to make, and
have not made, any independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company or ISN nor have we been
furnished with any such evaluations or appraisals. We have also assumed with
your consent, that (i) the Merger will be accounted for under the purchase
method of accounting, (ii) the Merger and the contribution of the LLC interests
of ISN to Newco will be tax-free transactions and (iii) any material liabilities
(contingent or otherwise, known or unknown) of the Company and ISN are as set
forth in the consolidated financial statements of the Company and ISN,
respectively. No opinion is expressed herein as to the price at which the
securities to be issued in the Merger to the stockholders of the Company may
trade at any time. Our opinion is based on economic, monetary and market
conditions existing on the date hereof.
Our opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any stockholder of the Company as to how any
such stockholder should vote on the Merger. This opinion does not address the
relative merits of the Merger and any other transactions or business strategies
discussed by the Board of Directors of the Company as alternatives to the Merger
or the decision of the Board of Directors of the Company to proceed with the
Merger. We were not requested to, and did not, solicit third party indications
of interest in acquiring all or any portion of the Company.
In the ordinary course of business, PaineWebber Incorporated may trade in
the securities of the Company and the Acquiring Company for our own account and
for the accounts of our customers and, accordingly, may at any time hold long or
short positions in such securities.
PaineWebber Incorporated will be receiving a fee in connection with the
rendering of this opinion. In the past, PaineWebber Incorporated and its
affiliates have provided investment banking and other financial services to the
Company and have received fees for rendering these services. PaineWebber
Incorporated currently holds 7,768 warrants to purchase Common Stock of the
Company and, as noted above, will enter into the Waiver Agreement in connection
with the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that
the Proposed Consideration to be received by the stockholders of the Company
pursuant to the Merger, taken as a whole, is fair to such stockholders from a
financial point of view.
This opinion has been prepared for the information of the Board of Directors
of the Company in connection with the Merger and shall not be reproduced,
summarized, described or referred to, provided to any person or otherwise made
public or used for any other purpose without the prior written consent of
PaineWebber Incorporated, provided, however, that this letter may be reproduced
in full in the Proxy Statement/Prospectus related to the Merger.
Very truly yours,
PAINEWEBBER INCORPORATED
B-3
<PAGE>
March 21, 2000
Board of Directors
Styleclick.com Inc.
3861 Sepulveda Blvd.
Culver City, CA 90230
Ladies and Gentlemen:
We understand that Styleclick.com Inc. (the "Company") proposes to enter
into an Agreement and Plan of Merger (the "Merger Agreement") whereby a
wholly-owned subsidiary of a newly-formed company ("Newco") organized by USA
Networks, Inc. ("USA Networks") will merge with and into the Company, and
another wholly-owned subsidiary of Newco will merge with and into Internet
Shopping Network LLC ("ISN"), an indirect wholly-owned subsidiary of USA
Networks (the "Merger Transaction"). ISN will have $40 million in cash and no
material liabilities upon consummation of the Merger Transaction. Upon the
consummation of the Merger Transaction each share of the Company's common stock
will be converted into the right to receive one share of Newco common stock, and
the Company's former shareholders (including option holders and warrant holders)
and USA Networks and its affiliates will own 24.8% and 75.2%, respectively, of
Newco's common stock on a fully-diluted basis including the Media Warrants and
Bridge Warrants, each as defined below. We understand that Newco will include
the businesses of the Company and ISN, including FirstAuction.com and
FirstJewelry.com, plus $40 million in cash contributed by Parent. In addition,
we understand that (i) concurrent with the execution and delivery of the Merger
Agreement, USA Networks or an affiliate will make a $10 million loan available
to the Company in accordance with the terms set forth in the Credit Agreement
(the "Credit Agreement") for which it will receive certain warrants to purchase
additional common stock of Newco (the "Bridge Warrants"), (ii) prior to closing,
USA Networks will enter in a definitive agreement with ISN pursuant to which USA
Networks will commit to provide $10 million of advertising time on the media
properties of USA Networks at fair market rates over a period ending three years
from closing, and (iii) USA Networks will receive certain warrants (the "Media
Warrants") to purchase additional common stock of Newco (these transactions,
including the Merger Transaction, are collectively referred to herein as the
"Proposed Transactions").
You have asked us to render our opinion as to whether the consideration to
be received by the holders of the Common Stock of the Company in the Proposed
Transactions is fair, from a financial point of view, to such holders. We have
acted as financial advisor to the Board of Directors of the Company in
connection with the Proposed Transactions and will receive a customary fee for
our services. We have also performed other investment banking services for the
Company in the past 12 months for which we received customary fees. In addition,
in the ordinary course of our business, we may trade or otherwise effect
transactions in the securities of the Company for our own account and for the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities.
In conducting our analysis and arriving at our opinion as expressed herein,
we have reviewed and analyzed, among other things, the following:
(i) the Merger Agreement, including the exhibits thereto, and the Credit
Agreement, including the exhibits thereto (both dated January 24, 2000) and
certain other documents relating to the Proposed Transactions;
(ii) the Company's Annual Reports on Form 10-K for each of the fiscal
years in the two year period ended December 31, 1998, the Company's
Quarterly Reports on Form 10-Q for the
B-4
<PAGE>
Board of Directors
Styleclick.com Inc.
Page 2
quarters ended March 31, June 30 and September 30, 1998 and 1999, and the
Company's Form 8-K's dated March 26, 1999, April 9, 1999, April 14, 1999,
April 20, 1999, July 2, 1999, and July 19, 1999;
(iii) certain other publicly available information concerning the
Company and the trading market for the Common Stock;
(iv) certain internal information and other data relating to the
Company, its business and prospects, including financial forecasts and
projections, provided to us by management of the Company;
(v) certain non-public information and other data relating to the
business and prospects of ISN, including certain historical financial
statements and financial projections, provided to us by management of ISN;
(vi) certain publicly available financial data, stock market performance
data and valuation parameters of companies which we deemed generally
comparable to the Company, to the businesses of ISN, and to the combined
company on a pro-forma basis giving effect to the Proposed Transactions; and
(vii) the financial terms of certain recent business combinations
involving companies which we believe to be relevant.
We have also met with certain officers and employees of the Company and ISN
concerning their businesses and operations, assets, present conditions and
prospects and undertook such other studies, analyses and investigations as we
deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us and have not
attempted independently to verify such information, nor do we assume any
responsibility to do so. With respect to the projected financial results
provided to us, we have assumed that they have been reasonably prepared based on
the best current estimates and judgment of the senior management of the Company
and ISN as to the expected future financial condition and results of operations
of the Company and ISN. We also assume that the business plan of Newco, as
presented to us by the management of the Company and ISN, is viable. We have
visited but have not conducted a physical inspection of the properties and
facilities of the Company or ISN, nor have we made or obtained any independent
evaluation or appraisal of such properties, facilities or liabilities. We have
also taken into account our assessment of general economic, market and financial
conditions and our experience in similar transactions, as well as our experience
in the valuation of securities and businesses in general. Our opinion
necessarily is based upon economic, market, financial and other conditions as
they exist and can be evaluated on the date hereof and we assume no
responsibility to update or revise our opinion based upon events or
circumstances occurring after the date hereof.
This letter and the opinion expressed herein are for the use of the Board of
Directors of the Company. This opinion does not address the Company's underlying
business decision to approve the Proposed Transactions or constitute a
recommendation to the shareholders of the Company as to how such shareholders
should vote or as to any other action such shareholders should take regarding
the Proposed Transactions. Furthermore, we recognize that the market prices for
Internet related companies such as the Company (and, on a pro forma basis,
Newco) have been the subject of significant speculation and movement in recent
months and this opinion is not intended to predict or
B-5
<PAGE>
Board of Directors
Styleclick.com Inc.
Page 3
otherwise guarantee the trading price of the Company or Newco following the
announcement or consummation of the Proposed Transactions. We were requested to
prepare this opinion in connection with the Proposed Transactions and were
directed not to, and did not, seek or pursue alternative transactions to the
Proposed Transactions, including the possible sale of the Company as a whole.
This opinion may not be reproduced, summarized, excerpted from or otherwise
publicly referred to or disclosed in any manner without our prior written
consent except the Company may include this opinion in its entirety in any proxy
statement or information statement relating to the Proposed Transactions sent to
the Company's shareholders.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that as of January 24, 2000, the date which we completed our review, the
consideration to be received by the holders of the Common Stock of the Company
in the Proposed Transactions is fair, from a financial point of view, to such
holders. This letter replaces and supercedes our prior letter dated January 24,
2000.
Very truly yours,
ING BARINGS LLC
B-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a corporation
to indemnify its directors, officers, employees and agents against certain
liabilities they may incur in such capacities, including liabilities under the
Securities Act, provided they act in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation. The
registrant's Certificate of Incorporation and Bylaws require the registrant to
indemnify its officers and directors to the full extent permitted by Delaware
law.
Section 102 of the Delaware General Corporation Law authorizes a corporation
to limit or eliminate its directors' liability to the corporation or its
stockholders for monetary damages for breaches of fiduciary duties, other than
for (i)breaches of the duty of loyalty, (ii)acts or omissions not in bad faith
that involve intentional misconduct or knowing violations of law, (iii)unlawful
payments of dividends, stock purchases or redemptions, or (iv)transactions from
which a director derives an improper personal benefit. The registrant's
Certificate of Incorporation contains provisions limiting the liability of the
directors to the registrant and to its stockholders to the full extent permitted
by Delaware law.
Section 145 of the Delaware General Corporation Law authorizes a corporation
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such. The registrant's Certificate of
Incorporation and Bylaws provide that the registrant may, to the full extent
permitted by law, purchase and maintain insurance on behalf of any director,
officer, employee or agent of the registrant against any liability that may be
asserted against him or her and the registrant currently maintains such
insurance. The registrant will obtain liability insurance covering its directors
and officers for claims asserted against them or incurred by them in such
capacity, including claims brought under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The Exhibit Index is hereby incorporated by reference.
(b) The financial statement schedules are included as Exhibits 99.3 and 99.4
and are incorporated herein by reference.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Exchange 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) Insofar as indemnification for liabilities arising under the Securities
Act 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
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of
II-1
<PAGE>
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 Act and will be governed by
the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item4 of this Form, within one 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.
(d) 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.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on March 24, 2000.
<TABLE>
<S> <C> <C>
STYLECLICK, INC.
By: /s/ DEIRDRE STANLEY
-----------------------------------------
Name: Deirdre Stanley
Title: Vice President
</TABLE>
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints
Thomas J. Kuhn and Deirdre Stanley, or either of them, his true and lawful
agent, proxy and attorney-in-fact, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to (i) act on, sign and file with the Securities and Exchange
Commission any and all amendments (including post-effective amendments) to this
registration statement and any subsequent registration statement filed pursuant
to Rule462(b) under the Securities Act together with all schedules and exhibits
thereto, (ii) act on, sign and file such certificates, instruments, agreements
and other documents as may be necessary or appropriate in connection therewith,
(iii) act on and file any supplement to any prospectus included in this
registration statement or any such amendment or any subsequent registration
statement filed pursuant to Rule462(b) under the Securities Act, and (iv) take
any and all actions which may be necessary or appropriate in connection
therewith, granting unto such agent, proxy and attorney-in-fact full power and
authority to do and perform each and every act and thing necessary or
appropriate to be done, as fully for all intents and purposes as he might or
could do in person, hereby approving, ratifying and confirming all that such
agents, proxies and attorneys-in-fact or any of their substitutes may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BILL LANE President, Vice Chairman
- ------------------------------ (Principal Executive March 24, 2000
Bill Lane Officer)
Executive Vice President,
/s/ EDWARD ZINSER Chief Operating Officer
- ------------------------------ (Principal Financial March 24, 2000
Edward Zinser Officer, Principal
Accounting Officer)
/s/ DARA KHOSROWSHAHI
- ------------------------------ Director March 24, 2000
Dara Khosrowshahi
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- --------------------- -----------
<C> <S> <C>
2.1** Amended and Restated Agreement and Plan of Merger (attached
as Annex A to this proxy statement/prospectus and
incorporated herein by reference)
2.2** Form of Agreement of Merger of Merger Sub and Styleclick.com
Inc.
2.3** Form of Certificate of Merger Merging ISN Merger Sub LLC
Into Internet Shopping Network LLC
3.1** Certificate of Incorporation of Styleclick, Inc.
3.2** Form of Bylaws of Styleclick, Inc.
4.1* Specimen class A common stock certificate
4.2** Form of Stockholders Agreement among Styleclick, Inc., USANI
Sub LLC, USA Networks, Inc., Styleclick.com Inc. and the
stockholders named therein
4.3** Form of Registration Rights Agreement among USANI Sub LLC
and Styleclick, Inc.
5.1** Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
8.1** Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
8.2** Opinion of Coudert Brothers
9.1** Voting and First Offer Agreement between Maurizio Vecchione
and USANi Sub LLC
9.2** Voting and First Offer Agreement between Intel Corporation
and USANi Sub LLC
10.1** Form of Media Warrant Agreement between Styleclick, Inc. and
USA Networks, Inc.
10.2** Form of License Agreement by and among Styleclick, Inc.,
Styleclick.com, Inc., Internet Shopping Network LLC and
USA Networks, Inc.
10.3** Option Agreement by and between USANI Sub LLC and
Styleclick.com Inc.
10.4** Waiver Agreements between Castle Creek Technology Partners,
LLC, Styleclick.com Inc. and USANi Sub LLC
10.5** Credit Agreement between Styleclick.com Inc. and USA
Networks, Inc.
10.6** Bridge Loan Warrant Agreement between Styleclick.com Inc.
and USA Networks, Inc.
10.7** Warrant to purchase 328,084 Shares of common stock of
Styleclick.com Inc. issued to USA Networks, Inc.
10.8** Collateral Agreement between Styleclick.com Inc. and USA
Networks, Inc.
10.9** Promissory Note in a principal amount not to exceed
$10 million Issued by Styleclick.com Inc. to USA Networks,
Inc.
21.1** Subsidiaries of registrant
23.1** Consent of Ernst & Young LLP
23.2** Consent of Singer Lewak Greenbaum and Goldstein LLP
23.3** Consent of Ernst & Young LLP
23.4** Consent of Coudert Brothers
23.5** Consent of Paul, Weiss, Rifkind, Wharton & Garrison
(included in Exhibit 5.1)
24.1** Powers of Attorney (contained on signature page)
27.1** Financial Data Schedule--Internet Shopping Network LLC (for
SEC use only)
27.2** Financial Data Schedule--Styleclick.com Inc. (for SEC use
only)
99.1** Fairness Opinion of PaineWebber Incorporated (attached as
Annex B to this proxy statement/prospectus and
incorporated herein by reference)
99.2** Fairness Opinion of ING Barings LLC (attached as Annex B to
this proxy statement/ prospectus and incorporated herein
by reference)
99.3** Valuation and qualifying accounts schedules
99.4** Valuation and qualifying accounts schedules
</TABLE>
- ------------------------
* To be filed by amendment.
** Filed herewith.
<PAGE>
EXHIBIT 2.2
AGREEMENT OF MERGER
OF
MERGER SUB
AND
THE COMPANY
This Agreement of Merger, dated as of , 2000 ("MERGER AGREEMENT"), by
and between MERGER SUB, a California corporation ("MERGER SUB"), and a wholly
owned subsidiary of NEWCO, a Delaware corporation ("NEWCO"), and
Styleclick.com, Inc., a California corporation (the "COMPANY" or the "SURVIVING
CORPORATION").
R E C I T A L S
A. The Company was incorporated in the State of California on February [ ],
1988, and as of the date hereof has shares of its Common Stock, no
par value, outstanding (the "COMPANY COMMON STOCK").
B. Merger Sub was incorporated in the State of California on [ ],
and as of the date hereof has [ ] shares of its Common Stock, par value
$0.01 per share, outstanding, all of which are owned by Newco.
C. The Company and USANi L.L.C., a Delaware limited liability company
("PARENT"), have entered into the Agreement and Plan of Merger, dated as of
January 24, 2000 (the "AGREEMENT"), providing for certain representations,
warranties, covenants and agreements in connection with the transactions
contemplated thereby. This Merger Agreement and the Agreement are intended to be
construed together to effectuate their purpose.
D. The shareholders of the Company and Merger Sub and the Board of Directors
of Newco deem it advisable and in their mutual best interests and in the best
interests of the shareholders of the Company and Merger Sub, respectively, that
Merger Sub be merged with and into the Company (the "MERGER").
E. The Boards of Directors of the Company, Newco and Merger Sub and the
shareholders of Merger Sub and the Company have approved the Merger. The
shareholders of Newco have approved the issuance of shares of Class A Common
Stock, par value $0.01 per share, of Newco (the "NEWCO CLASS A COMMON STOCK") by
virtue of the Merger.
AGREEMENTS
The parties hereto hereby agree as follows:
1. Merger Sub shall be merged with and into the Company, and the Company
shall be the surviving corporation.
2. The Merger shall become effective on such date (the "EFFECTIVE TIME") as
this Merger Agreement and the Officers' Certificates (as defined in the
Agreement) of each of Newco and Merger Sub (and a certificate of satisfaction of
the California Franchise Tax Board (if required) for Merger Sub) are filed with
the Secretary of State of the State of California.
3. As of the Effective Time of the Merger, each issued and outstanding share
of Common Stock, par value $0.01 per share, of Merger Sub ("MERGER SUB COMMON
STOCK") shall be converted into and become one fully paid and nonassessable
share of Common Stock, par value $0.01 per share, of the Surviving Corporation
and, as converted, shall constitute the only outstanding shares of capital stock
of the Surviving Corporation.
1
<PAGE>
4. Upon the Effective Time of the Merger, each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares of Company Common Stock that are owned by the Company or any Subsidiary
of the Company) shall be converted into the right to receive one share of Newco
Class A Common Stock (the "MERGER SECURITIES").
5. Upon the Effective Time of the Merger, all such shares of Company Common
Stock shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate that
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (collectively, the "CERTIFICATES") shall cease to have any
rights with respect thereto, except the right to receive the Merger Securities
to be issued in consideration therefor upon surrender of such certificate in
accordance with Section 2.2 of the Agreement, without interest.
6. Any shares ("DISSENTING SHARES")of Company Common Stock outstanding
immediately prior to the Effective Time and held by any holder who is entitled
to demand, and who properly demands, appraisal for such shares in accordance
with Section 1300 et. seq. of the California General Corporation Law
("CALIFORNIA LAW") and is otherwise entitled to the protections afforded a
"dissenting shareholder" as such term is used in such sections of California Law
(collectively, the "DISSENTING SHAREHOLDERS"), shall not be converted as
provided in Section 2.1 of the Agreement, unless such holder fails to perfect or
otherwise loses any rights to appraisal of such Dissenting Shares under, and
shall otherwise cease to be a "dissenting shareholder" as provided in such
sections of California Law. If, after the Effective Time, such holder fails to
perfect or loses any such right to appraisal, such Dissenting Shares shall be
treated as if they had been converted as of the Effective Time into the right to
receive Merger Securities.
7. The conversion of the Company Common Stock as provided by this Merger
Agreement shall occur automatically at the Effective Time of the Merger without
action by the holders thereof. Each holder of the Company Common Stock shall
thereupon be entitled to receive the Merger Securities in accordance with
Section 4 hereof. Promptly after the Effective Time, such shareholder shall be
entitled to receive certificates that represent the number of shares of Newco
Class A Common Stock issuable to such shareholder under this Merger Agreement
upon surrender as set forth in the Agreement of such shareholder's certificates
which immediately prior to the Effective Time represented outstanding shares of
the Company Common Stock.
No dividends or other distributions on Newco Class A Common Stock declared
or made after the Effective Time shall be paid to the holder of any
unsurrendered certificate until the holder of record of such certificate shall
surrender such certificate. Subject to the effect, if any, of applicable laws,
following surrender of any certificate, there shall be delivered to the person
entitled thereto, without interest, the amount of dividends theretofore paid
with respect to the Newco Class A Common Stock so withheld as of any date
subsequent to the Effective Time of the Merger and prior to such date of
delivery.
All Merger Securities delivered upon the surrender for exchange of shares of
the Company Common Stock in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such the
Company Common Stock. If, after the Effective Time of the Merger, certificates
are presented to the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Section 7.
8. At the Effective Time of the Merger, the separate existence of Merger Sub
shall cease, and the Company shall succeed, without other transfer, to all of
the rights and properties of Merger Sub and shall be subject to all the debts
and liabilities thereof in the same manner as if the Company had itself incurred
them.
9. Upon the Merger becoming effective, the Articles of Incorporation of
Merger Sub in effect at the Effective Time shall be Articles of Incorporation of
the Surviving Corporation until amended in
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accordance with its terms and applicable law; PROVIDED, HOWEVER, that at the
Effective Time, Article I of such articles shall be amended by virtue of this
Merger Agreement and the Agreement to read as follows: "The name of the
corporation is [ ]."
10. Upon the Merger becoming effective, the By-laws of Merger Sub in effect
at the Effective Time shall be the By-laws of the Surviving Corporation until
amended in accordance with its terms and applicable law.
11. Upon the Merger becoming effective, the directors and officers of Merger
Sub immediately prior to the Effective Time shall be the directors and officers,
respectively, of the Surviving Corporation as of the Effective Time and until
their successors are duly elected or appointed and qualified in accordance with
applicable law and the Stockholders Agreement, dated as of [ ], 2000,
between Newco, Parent and the stockholders named therein.
12. (a) Notwithstanding the approval of this Merger Agreement by the
shareholders of the Company and Merger Sub, this Merger Agreement may be
terminated at any time prior to the Effective Time of the Merger by mutual
agreement of the Boards of Directors of Newco and the Company.
(b) Notwithstanding the approval of this Merger Agreement by the
shareholders of the Company and Merger Sub, this Merger Agreement shall
terminate forthwith in the event that the Agreement shall be terminated as
therein provided.
(c) In the event of the termination of this Merger Agreement as provided
above, this Merger Agreement shall forthwith become void and there shall be
no liability on the part of the Company, Newco or Merger Sub or their
respective officers or directors, except as otherwise provided in the
Agreement.
(d) This Merger Agreement may be signed in one or more counterparts,
each of which shall be deemed an original and all of which shall constitute
one agreement.
(e) This Merger Agreement may be amended by the parties hereto any time
before or after approval hereof by the shareholders of the Company and
Merger Sub, but, after such approval, no amendments shall be made which by
law require the further approval of such shareholders without first
obtaining such approval. This Merger Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto.
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IN WITNESS WHEREOF, the parties have executed this Merger Agreement as of
the date first written above.
[MERGER SUB]
--------------------------------------
[ ]
--------------------------------------
Secretary
[THE COMPANY]
--------------------------------------
[ ]
--------------------------------------
Secretary
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EXHIBIT 2.3
CERTIFICATE OF MERGER
MERGING
ISN MERGER SUB LLC
INTO
INTERNET SHOPPING NETWORK LLC
FIRST: The name and state of each of the constituent entities in the merger are
as follows:
<TABLE>
<CAPTION>
NAME STATE OF DOMICILE
- ---- -----------------
<S> <C>
ISN MERGER SUB LLC Delaware
INTERNET SHOPPING NETWORK LLC Delaware
</TABLE>
SECOND: An Agreement and Plan of Merger has been approved and executed by each
of the limited liability companies in accordance with Section 18-209 of the
Delaware Limited Liability Company Act.
THIRD:The name of the surviving Delaware limited liability company is:
INTERNET SHOPPING NETWORK LLC
FOURTH: The merger shall be effective upon the filing of this Certificate of
Merger in the Office of the Secretary of State of the State of Delaware:
FIFTH: The executed Agreement and Plan of Merger is on file at a place of
business of the surviving Limited Liability Company and the address is:
SIXTH: A copy of the Agreement will be provided by the surviving Limited
Liability Company, on request and without cost, to any member or other person
holding an interest in any other limited liability company which is to merge.
IN WITNESS WHEREOF, INTERNET SHOPPING NETWORK LLC has caused this
Certificate to be duly executed in its name this [ ] day of [ ], 2000.
INTERNET SHOPPING NETWORK LLC
By:
-----------------------------------
Name:
Title:
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EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
STYLECLICK, INC.
The undersigned incorporator, in order to form a corporation under the
General Corporation Law of the State of Delaware (the "General Corporation
Law"), certifies as follows:
ARTICLE I.
NAME
The name of the corporation is Styleclick, Inc.
ARTICLE II.
ADDRESS; REGISTERED OFFICE AND AGENT
The address of the Corporation's registered office is 9 East Loockerman
Street, Suite 214, City of Dover, County of Kent, State of Delaware. The name of
its registered agent at such address is National Corporate Research, Ltd.
ARTICLE III.
NAME AND ADDRESS OF INCORPORATOR
The name and mailing address of the incorporator are: Cheryl L. Vinall, 1285
Avenue of the Americas, New York, New York 10019-6064.
ARTICLE IV.
PURPOSES
Subject to the provisions of Article VI hereof, the purpose of the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law.
ARTICLE V.
CAPITAL STOCK
The Corporation is authorized to issue three classes of stock to be
designated "Class A Common Stock," "Class B Common Stock" (the Class A Common
Stock and Class B Common Stock hereinafter being sometimes referred to
collectively as the "Common Stock"), and "Preferred Stock," all of which shall
have a par value of $0.01 per share. The total number of shares that the
Corporation is authorized to issue is: 287.5 million (287,500,000) shares, of
which 150 million (150,000,000) shall be shares of Class A Common Stock,
112.5 million (112,500,000) shall be shares of Class B Common Stock, and
25 million (25,000,000) shall be shares of Preferred Stock.
A. COMMON STOCK.
The rights, preferences, restrictions and other matters relating to the
Common Stock are as follows:
1. DIVIDENDS. The holders of the Class A Common Stock and the Class B
Common Stock shall be entitled to receive, on a share-for-share basis, such
dividends if, as and when declared from time to time by the Board of Directors
of the Corporation.
2. LIQUIDATION. In the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding-up of the Corporation, the
holders of the Class A Common Stock and the Class B
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Common Stock shall be entitled to receive, on a share-for-share basis, all of
the assets of the Corporation of whatever kind available for distribution to
stockholders.
3. VOTING RIGHTS. Except as otherwise provided herein or required by
applicable law, (i) each holder of Class A Common Stock shall be entitled to one
(1) vote for each share of Class A Common Stock held as of the applicable record
date on any matter that is submitted to a vote or for the consent of the
stockholders of the Corporation, and (ii) each holder of Class B Common Stock
shall be entitled to ten (10) votes for each share of Class B Common Stock held
as of the applicable record date on any matter that is submitted to a vote or
for the consent of the stockholders of the Corporation. Holders of Common Stock
shall be entitled to receive notice of any stockholders' meeting in accordance
with the Bylaws of the Corporation. Except as otherwise required by applicable
law, the Class A Common Stock and the Class B Common Stock shall vote together
as a single class on all matters submitted to a vote or for the consent of the
stockholders of the Corporation. Holders of Common Stock shall not be entitled
to cumulate their votes for the election of directors or any other matter
submitted to a vote of the stockholders.
4. CONVERSION. (a) Each share of Class B Common Stock shall be convertible
into one fully paid and non-assessable share of Class A Common Stock at the
option of the holder thereof at any time.
(b) Each share of Class B Common Stock shall automatically be converted
into one fully paid and non-assessable share of Class A Common Stock upon
any sale, conveyance, foreclosure upon, assignment or other transfer or
disposition (a "Transfer") of such share, whether or not for value, by the
holder thereof, other than any Transfer by such holder to USA
Networks, Inc., a Delaware corporation ("USA Networks"), or any of its
Affiliates (as defined below).
(c) The one-to-one conversion ratio for the conversion of the Class B
Common Stock into Class A Common Stock in accordance with Sections 4(a) and
4(b) above shall in all events be equitably preserved in the event of any
merger, consolidation or other reorganization of the Corporation.
(d) The Corporation shall at all times reserve and keep available, and
free from any preemptive rights, out of its authorized but unissued shares
of Class A Common Stock, solely for the purpose of effecting conversions of
shares of Class B Common Stock, such number of its shares of Class A Common
Stock as shall from time to time be sufficient to effect the conversion of
all outstanding shares of Class B Common Stock.
(e) Any conversion of shares of Class B Common Stock into shares of
Class A Common Stock shall be deemed to have been effected at the close of
business on the date when such the shares to be converted are delivered to
the Corporation or the transfer agent of the shares to be converted.
(f) If any shares of Class B Common Stock are converted pursuant to this
Section 4, the shares so converted shall be canceled and shall not be
subject to reissue by the Corporation. From time to time, this Certificate
of Incorporation shall be appropriately revised to reflect the corresponding
reduction in the Corporation's authorized capital stock. The secretary of
the Corporation shall be, and hereby is, authorized and directed to file
with the Secretary of State of the State of Delaware one or more
certificates to record any such decrease in the number of authorized shares
of Class B Common Stock.
(g) As used in this Certificate of Incorporation, the following terms
shall have the following meanings:
(1) "Affiliate" shall mean any Person controlling, controlled by or
under common control with such Person. For the purposes of this
definition of "Affiliate," "control," when used with respect to any
specified Person, shall mean the power to direct or cause the direction
of the management and policies of such Person, directly or indirectly,
whether through ownership of
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voting securities or partnership or other ownership interests, by
contract or otherwise; and the terms "controlling" and "controlled" shall
have correlative meanings. For purposes of this definition of
"Affiliate."
(2) "PERSON" shall mean any individual, corporation, partnership,
firm, group (as such term is used in Section 13(d)(3) of the Exchange Act
of 1934, as amended), joint venture, association, trust, limited
liability company, unincorporated organization, estate, trust or other
entity.
5. STOCK DIVIDENDS OR STOCK SPLITS OR COMBINATIONS. In no event shall any
stock dividends or stock splits or combinations of stock be declared or made in
Class A Common Stock or Class B Common Stock unless all shares of Class A Common
Stock and Class B Common Stock then outstanding are treated equally and
identically.
B. PREFERRED STOCK.
The Board of Directors is authorized, subject to limitations prescribed by
Delaware law, to determine the terms and conditions of the Preferred Stock,
including whether the shares of Preferred Stock will be issued in one or more
series, the number of shares to be included in each series and the powers,
designations, preferences and rights of the shares. The Board of Directors is
also authorized to designate any qualifications, limitations or restrictions on
the shares without any further vote or action by the stockholders. In case any
shares of Preferred Stock shall be redeemed or converted pursuant to the terms
thereof, the shares so converted or redeemed shall be canceled and shall not be
issuable by the Corporation. From time to time this Certificate of Incorporation
shall be appropriately revised to reflect the corresponding reduction in the
Corporation's authorized capital stock.
ARTICLE VI.
CONDUCT OF CERTAIN AFFAIRS OF THE CORPORATION
A. DEFINITIONS. As used in this Article VI, the following terms shall have
the following meanings:
1. "CORPORATE OPPORTUNITY" shall mean an investment or business opportunity
or prospective economic advantage in which the Corporation could, but for the
provisions of this Article VI, have an interest or expectancy.
2. "PARENT" shall mean USA Networks and its Affiliates.
3. "SUBSIDIARY" shall mean any corporation, partnership, joint venture or
other legal entity of which such Person (either directly or through or together
with any other Subsidiary of such Person), owns, directly or indirectly, 50% or
more of the stock or other equity interests the holders of which are generally
entitled to vote for the election of the board of directors or similar governing
body of such corporation, partnership, joint venture or other legal entity.
B. COMPETING ACTIVITIES. Except as otherwise expressly provided in an
agreement between the Corporation and any stockholder or among the Corporation
and any two or more stockholders, (i) the stockholders of the Corporation,
including, without limitation, Parent and its officers directors, agents,
stockholders, members, partners and Affiliates, may engage or invest in,
independently or with others, any business activity of any type or description,
including without limitation those that might be the same as or similar to the
Corporation's business or the business of any Subsidiary of the Corporation;
(ii) neither the Corporation, any Subsidiary of the Corporation nor any
stockholder of the Corporation shall have any right in or to such business
activities or ventures or to receive or share in any income or proceeds derived
therefrom; and (iii) to the extent required by applicable law in order to
effectuate the purpose of this provision, the Corporation shall have no interest
or expectancy, and specifically renounces any interest or expectancy, in any
such business activities or ventures.
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C. CORPORATE OPPORTUNITIES.
1. If Parent (or, as set forth below, any of its officers, directors,
agents, stockholders, members, partners or Affiliates) acquires knowledge of a
potential transaction or matter which may be a Corporate Opportunity or
otherwise is then exploiting any Corporate Opportunity, the Corporation shall
have no interest in such Corporate Opportunity and no expectancy that such
Corporate Opportunity be offered to the Corporation, any such interest or
expectancy being hereby renounced, so that, as a result of such renunciation,
and for the avoidance of doubt, such Person (i) shall have no duty to
communicate or present such Corporate Opportunity to the Corporation,
(ii) shall have the right to hold any such Corporate Opportunity for its (and/or
its officers', directors', agents', stockholders', members', partners' or
Affiliates') own account or to recommend, sell, assign or transfer such
Corporate Opportunity to Persons other than the Corporation or any Subsidiary of
the Corporation, and (iii) shall not breach any fiduciary duty to the
Corporation, in such Person's capacity as a stockholder of the Corporation or
otherwise, by reason of the fact that such Person pursues or acquires such
Corporate Opportunity for itself, directs, sells, assigns or transfers such
Corporate Opportunity to another Person, or does not communicate information
regarding such Corporate Opportunity to the Corporation.
2. Notwithstanding the provisions of clause (c)(1) of this Article VI the
Corporation does not renounce any interest or expectancy it may have in any
Corporate Opportunity that is offered to any person who is an officer of the
Corporation and who is also a director, but not an officer or employee, of
Parent if such opportunity is expressly offered to such person in his or her
capacity as an officer of the Corporation.
3. For purposes of this Article VI only, (i) a director of the Corporation
who is Chairman of the Board of Directors of the Corporation or of a committee
thereof shall not be deemed to be an officer of the Corporation by reason of
holding such position (without regard to whether such position is deemed an
office of the corporation under the Bylaws of the Corporation), unless such
person is a full-time employee of the Corporation; and (ii) the term
"Corporation" shall mean the Corporation and all corporations, partnerships,
joint ventures, associations and other entities in which the Corporation
beneficially owns (directly or indirectly) 50% or more of the outstanding voting
stock, voting power, partnership interests or similar voting interests.
4. Anything in this Certificate of Incorporation to the contrary
notwithstanding, (i) clause C of this Article VI shall expire on the date that
Parent ceases to beneficially own Common Stock representing at least 20% of the
total voting power of all classes of outstanding capital stock of the
Corporation entitled to vote in the election of directors and no person who is a
director or officer of the Corporation is also a director or officer of Parent;
and (ii) in addition to any vote of the stockholders required by law, until the
time that Parent ceases to beneficially own Common Stock representing at least
20% of the total voting power of all classes of outstanding capital stock of the
Corporation entitled to vote in the election of directors, the affirmative vote
of the holders of more than 80% of the total voting power of all such classes of
outstanding capital stock of the Corporation shall be required to alter, amend
or repeal in a manner adverse to the interests of Parent or adopt an provision
adverse to the interests of Parent and inconsistent with, any provision of this
Article VI. Neither the alteration, amendment or repeal of this Article VI nor
the adoption of any provision of this Certificate of Incorporation inconsistent
with this Article VI shall eliminate or reduce the effect of this Article VI in
respect of any matter occurring, or any cause of action, suit or claim that, but
for this Article VI, would accrue or arise prior to such alteration, amendment,
repeal or adoption.
D. NOTICE TO HOLDERS. Any person purchasing or otherwise acquiring any
interest in shares of the capital stock of the Corporation shall be deemed to
have notice of and to have consented to the provision s of this Article VI.
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ARTICLE VII.
ELECTION OF DIRECTORS
Election of directors need not be by written ballot except and to the extent
provided in the Bylaws of the Corporation.
ARTICLE VIII.
BYLAWS
Except as set forth in the Bylaws of the Corporation, the Board of Directors
is expressly authorized to adopt, amend or repeal the Bylaws of the Corporation,
and the stockholders may adopt additional Bylaws and may alter or repeal any
Bylaw whether adopted by them or otherwise.
ARTICLE IX.
INDEMNIFICATION
Each person who is or was or had agreed to become a director or officer of
the Corporation, or each such person who is or was serving or who had agreed to
serve at the request of the Board of Directors or an officer of the Corporation
as an employee or agent of the Corporation or as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise (including the heirs, executors, administrators or estate of such
person), shall be indemnified by the Corporation, in accordance with the Bylaws
of the Corporation, to the full extent permitted by the General Corporation Law
as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment) or any other applicable laws as presently or
hereinafter in effect. Without limiting the generality or the effect of the
foregoing, the Corporation may enter into one or more agreements with any person
that provide for indemnification greater or different than that provided in this
Article IX. Any amendment or repeal of this Article IX shall not adversely
affect any right or protection existing hereunder immediately prior to such
amendment or repeal.
ARTICLE X.
LIMITATION OF LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law or
(iv) for any transaction from which the director derived any improper personal
benefit. Any amendment or repeal of this Article X shall not adversely affect
any right or protection of a director of the Corporation existing immediately
prior to such amendment or repeal. The liability of a director shall be further
eliminated or limited to the full extent permitted by Delaware law, as it may
hereafter be amended.
ARTICLE XI.
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation in the manner now or
hereafter prescribed by the General Corporation Law, and all rights conferred
upon stockholders herein are granted subject to this reservation.
5
<PAGE>
WITNESS the signature of this Certificate of Incorporation this day of
January, 2000.
--------------------------------------
[Incorporator]
6
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EXHIBIT 3.2
BY-LAWS
of
[NEWCO, INC.]
A Delaware Corporation
ARTICLE 1
DEFINITIONS
As used in these By-laws, unless the context otherwise requires, the term:
1.1 "Assistant Secretary" means an Assistant Secretary of the Corporation.
1.2 "Assistant Treasurer" means an Assistant Treasurer of the Corporation.
1.3 "Board" means the Board of Directors of the Corporation.
1.4 "By-laws" means the initial by-laws of the Corporation, as amended from
time to time.
1.5 "Certificate of Incorporation" means the initial certificate of
incorporation of the Corporation, as amended, supplemented or restated from time
to time.
1.6 "Chairman" means the Chairman of the Board of Directors of the
Corporation.
1.7 "Corporation" means [NEWCO, INC].
1.8 "Directors" means directors of the Corporation.
1.9 "DGCL" means the General Corporation Law of the State of Delaware, as
amended from time to time.
1.10 "Entire Board" means all directors of the Corporation in office,
whether or not present at a meeting of the Board, but disregarding vacancies.
1.11 "Office of the Corporation" means the executive office of the
Corporation, anything in Section 131 of the DGCL to the contrary
notwithstanding.
1.12 "President" means the President of the Corporation.
1.13 "Secretary" means the Secretary of the Corporation.
1.14 "Stockholders" means stockholders of the Corporation.
1.15 "Treasurer" means the Treasurer of the Corporation.
1.16 "Vice President" means a Vice President of the Corporation.
ARTICLE 2
STOCKHOLDERS
2.1 PLACE OF MEETINGS. Every meeting of stockholders shall be held at the
office of the Corporation or at such other place within or without the State of
Delaware as shall be specified or fixed in the notice of such meeting or in the
waiver of notice thereof.
2.2 ANNUAL MEETING. A meeting of stockholders shall be held annually for
the election of Directors and the transaction of other business at such hour and
on such business day in [SPECIFY MONTH] or
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[SPECIFY SUCCEEDING MONTH] or as may be determined by the Board and designated
in the notice of meeting.
2.3 DEFERRED MEETING FOR ELECTION OF DIRECTORS, ETC. If the annual meeting
of stockholders for the election of Directors and the transaction of other
business is not held within the months specified in Section 2.2 hereof, the
Board shall call a meeting of stockholders for the election of Directors and the
transaction of other business as soon thereafter as convenient.
2.4 OTHER SPECIAL MEETINGS. A special meeting of stockholders (other than
a special meeting for the election of Directors), unless otherwise prescribed by
statute, may be called at any time by the Board or by the President or by the
Secretary. At any special meeting of stockholders only such business may be
transacted as is related to the purpose or purposes of such meeting set forth in
the notice thereof given pursuant to Section 2.6 hereof or in any waiver of
notice thereof given pursuant to Section 2.7 hereof.
2.5 FIXING RECORD DATE. For the purpose of (a) determining the
Stockholders entitled (i) to notice of or to vote at any meeting of Stockholders
or any adjournment thereof, (ii) unless otherwise provided in the Certificate of
Incorporation to express consent to corporate action in writing without a
meeting or (iii) to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock; or (b) any other lawful action, the
Board may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date was adopted by the Board and which
record date shall not be (x) in the case of clause (a)(i) above, more than sixty
nor less than ten days before the date of such meeting, (y) in the case of
clause (a)(ii) above, more than 10 days after the date upon which the resolution
fixing the record date was adopted by the Board and (z) in the case of
clause (a)(iii) or (b) above, more than sixty days prior to such action. If no
such record date is fixed:
2.5.1 the record date for determining Stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held;
2.5.2 the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting (unless otherwise
provided in the Certificate of Incorporation), when no prior action by the
Board is required under the DGCL, shall be the first day on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the
State of Delaware, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded; and when prior action by the Board is
required under the DGCL, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall
be at the close of business on the date on which the Board adopts the
resolution taking such prior action; and
2.5.3 the record date for determining stockholders for any purpose
other than those specified in Sections 2.5.1 and 2.5.2 shall be at the close
of business on the day on which the Board adopts the resolution relating
thereto.
When a determination of Stockholders entitled to notice of or to vote at any
meeting of Stockholders has been made as provided in this Section 2.5, such
determination shall apply to any adjournment thereof unless the Board fixes a
new record date for the adjourned meeting. Delivery made to the Corporation's
registered office in accordance with Section 2.5.2 shall be by hand or by
certified or registered mail, return receipt requested.
2.6 NOTICE OF MEETINGS OF STOCKHOLDERS. Except as otherwise provided in
Sections 2.5 and 2.7 hereof, whenever under the provisions of any statute, the
Certificate of Incorporation or these By-laws,
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Stockholders are required or permitted to take any action at a meeting, written
notice shall be given stating the place, date and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by any statute, the Certificate of
Incorporation or these By-laws, a copy of the notice of any meeting shall be
given, personally or by mail, not less than ten nor more than sixty days before
the date of the meeting, to each Stockholder entitled to notice of or to vote at
such meeting. If mailed, such notice shall be deemed to be given when deposited
in the United States mail, with postage prepaid, directed to the Stockholder at
his or her address as it appears on the records of the Corporation. An affidavit
of the Secretary or an Assistant Secretary or of the transfer agent of the
Corporation that the notice required by this Section 2.6 has been given shall,
in the absence of fraud, be prima facie evidence of the facts stated therein.
When a meeting is adjourned to another time or place, notice need not be given
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken, and at the adjourned meeting any
business may be transacted that might have been transacted at the meeting as
originally called. If, however, the adjournment is for more than thirty days, or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each Stockholder of record
entitled to vote at the meeting.
2.7 WAIVERS OF NOTICE. Whenever the giving of any notice is required by
statute, the Certificate of Incorporation or these By-laws, a waiver thereof, in
writing, signed by the Stockholder or Stockholders entitled to said notice,
whether before or after the event as to which such notice is required, shall be
deemed equivalent to notice. Attendance by a Stockholder at a meeting shall
constitute a waiver of notice of such meeting except when the Stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting has
not been lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Stockholders need be
specified in any written waiver of notice unless so required by statute, the
Certificate of Incorporation or these By-laws.
2.8 LIST OF STOCKHOLDERS. The Secretary shall prepare and make, or cause
to be prepared and made, at least ten days before every meeting of Stockholders,
a complete list of the Stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each Stockholder and the number
of shares registered in the name of each Stockholder. Such list shall be open to
the examination of any Stockholder, the Stockholder's agent, or attorney, at the
Stockholder's expense, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any Stockholder who is present. The Corporation shall maintain the
Stockholder list in written form or in another form capable of conversion into
written form within a reasonable time. Upon the willful neglect or refusal of
the Directors to produce such a list at any meeting for the election of
Directors, they shall be ineligible for election to any office at such meeting.
The stock ledger shall be the only evidence as to who are the Stockholders
entitled to examine the stock ledger, the list of Stockholders or the books of
the Corporation, or to vote in person or by proxy at any meeting of
Stockholders.
2.9 QUORUM OF STOCKHOLDERS; ADJOURNMENT. Except as otherwise provided by
any statute, the Certificate of Incorporation or these By-laws, the holders of
one-third of all outstanding shares of stock entitled to vote at any meeting of
Stockholders, present in person or represented by proxy, shall constitute a
quorum for the transaction of any business at such meeting. When a quorum is
once present to organize a meeting of Stockholders, it is not broken by the
subsequent withdrawal of any Stockholders. The holders of a majority of the
shares of stock present in person or represented by proxy at any meeting of
Stockholders, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. Shares of its own
stock belonging to the
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Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of the Corporation to vote stock, including but not limited to its own
stock, held by it in a fiduciary capacity.
2.10 VOTING; PROXIES. Unless otherwise provided in the Certificate of
Incorporation, every Stockholder of record shall be entitled at every meeting of
Stockholders to one vote for each share of capital stock standing in his or her
name on the record of Stockholders determined in accordance with Section 2.5
hereof. If the Certificate of Incorporation provides for more or less than one
vote for any share on any matter, each reference in the By-laws or the DGCL to a
majority or other proportion of stock shall refer to such majority or other
proportion of the votes of such stock. The provisions of Sections 212 and 217 of
the DGCL shall apply in determining whether any shares of capital stock may be
voted and the persons, if any, entitled to vote such shares; but the Corporation
shall be protected in assuming that the persons in whose names shares of capital
stock stand on the stock ledger of the Corporation are entitled to vote such
shares. Holders of redeemable shares of stock are not entitled to vote after the
notice of redemption is mailed to such holders and a sum sufficient to redeem
the stocks has been deposited with a bank, trust company, or other financial
institution under an irrevocable obligation to pay the holders the redemption
price on surrender of the shares of stock. At any meeting of Stockholders (at
which a quorum was present to organize the meeting), all matters, except as
otherwise provided by statute or by the Certificate of Incorporation or by these
By-laws, shall be decided by a majority of the votes cast at such meeting by the
holders of shares present in person or represented by proxy and entitled to vote
thereon, whether or not a quorum is present when the vote is taken. All
elections of Directors shall be by written ballot unless otherwise provided in
the Certificate of Incorporation. In voting on any other question on which a
vote by ballot is required by law or is demanded by any Stockholder entitled to
vote, the voting shall be by ballot. Each ballot shall be signed by the
Stockholder voting or the Stockholder's proxy and shall state the number of
shares voted. On all other questions, the voting may be viva voce. Each
Stockholder entitled to vote at a meeting of Stockholders or to express consent
or dissent to corporate action in writing without a meeting may authorize
another person or persons to act for such Stockholder by proxy. The validity and
enforceability of any proxy shall be determined in accordance with Section 212
of the DGCL. A Stockholder may revoke any proxy that is not irrevocable by
attending the meeting and voting in person or by filing an instrument in writing
revoking the proxy or by delivering a proxy in accordance with applicable law
bearing a later date to the Secretary.
2.11 VOTING PROCEDURES AND INSPECTORS OF ELECTION AT MEETINGS OF
STOCKHOLDERS. The Board, in advance of any meeting of Stockholders, may appoint
one or more inspectors to act at the meeting and make a written report thereof.
The Board may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate has been appointed
or is able to act at a meeting, the person presiding at the meeting may appoint,
and on the request of any Stockholder entitled to vote thereat shall appoint,
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall (a) ascertain the number of
shares outstanding and the voting power of each, (b) determine the shares
represented at the meeting and the validity of proxies and ballots, (c) count
all votes and ballots, (d) determine and retain for a reasonable period a record
of the disposition of any challenges made to any determination by the
inspectors, and (e) certify their determination of the number of shares
represented at the meeting and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of their duties. Unless otherwise provided by the
Board, the date and time of the opening and the closing of the polls for each
matter upon which the Stockholders will vote at a meeting shall be determined by
the person presiding at the meeting and shall be announced at the meeting. No
ballot, proxies or votes,
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or any revocation thereof or change thereto, shall be accepted by the inspectors
after the closing of the polls unless the Court of Chancery of the State of
Delaware upon application by a Stockholder shall determine otherwise.
2.12 ORGANIZATION. At each meeting of Stockholders, the President, or in
the absence of the President, the Chairman, or if there is no Chairman or if
there be one and the Chairman is absent, a Vice President, and in case more than
one Vice President shall be present, that Vice President designated by the Board
(or in the absence of any such designation, the most senior Vice President,
based on age, present), shall act as chairman of the meeting. The Secretary, or
in his or her absence, one of the Assistant Secretaries, shall act as secretary
of the meeting. In case none of the officers above designated to act as chairman
or secretary of the meeting, respectively, shall be present, a chairman or a
secretary of the meeting, as the case may be, shall be chosen by a majority of
the votes cast at such meeting by the holders of shares of capital stock present
in person or represented by proxy and entitled to vote at the meeting.
2.13 ORDER OF BUSINESS. The order of business at all meetings of
Stockholders shall be as determined by the chairman of the meeting, but the
order of business to be followed at any meeting at which a quorum is present may
be changed by a majority of the votes cast at such meeting by the holders of
shares of capital stock present in person or represented by proxy and entitled
to vote at the meeting.
2.14 WRITTEN CONSENT OF STOCKHOLDERS WITHOUT A MEETING. Unless otherwise
provided in the Certificate of Incorporation, any action required by the DGCL to
be taken at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered (by hand
or by certified or registered mail, return receipt requested) to the Corporation
by delivery to its registered office in the State of Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Every
written consent shall bear the date of signature of each stockholder who signs
the consent and no written consent shall be effective to take the corporate
action referred to therein unless, within 60 days of the earliest dated consent
delivered in the manner required by this Section 2.14, written consents signed
by a sufficient number of holders to take action are delivered to the
Corporation as aforesaid. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
Stockholders who have not consented in writing.
ARTICLE 3
DIRECTORS
3.1 GENERAL POWERS. Except as otherwise provided in the Certificate of
Incorporation, the business and affairs of the Corporation shall be managed by
or under the direction of the Board. The Board may adopt such rules and
regulations, not inconsistent with the Certificate of Incorporation or these
By-laws or applicable laws, as it may deem proper for the conduct of its
meetings and the management of the Corporation. In addition to the powers
expressly conferred by these By-laws, the Board may exercise all powers and
perform all acts that are not required, by these By-laws or the Certificate of
Incorporation or by statute, to be exercised and performed by the Stockholders.
3.2 NUMBER; QUALIFICATION; TERM OF OFFICE. The Board shall consist of one
or more members. The number of Directors shall be fixed initially by the
incorporator and may thereafter be changed from
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time to time by action of the stockholders or by action of the Board. Directors
need not be stockholders. Each Director shall hold office until a successor is
elected and qualified or until the Director's death, resignation or removal.
3.3 ELECTION. Directors shall, except as otherwise required by statute or
by the Certificate of Incorporation, be elected by a plurality of the votes cast
at a meeting of stockholders by the holders of shares entitled to vote in the
election.
3.4 NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Unless otherwise provided
in the Certificate of Incorporation, newly created Directorships resulting from
an increase in the number of Directors and vacancies occurring in the Board for
any other reason, including the removal of Directors without cause, may be
filled by the affirmative votes of a majority of the entire Board, although less
than a quorum, or by a sole remaining Director, or may be elected by a plurality
of the votes cast by the holders of shares of capital stock entitled to vote in
the election at a special meeting of stockholders called for that purpose. A
Director elected to fill a vacancy shall be elected to hold office until a
successor is elected and qualified, or until the Director's earlier death,
resignation or removal.
3.5 RESIGNATION. Any Director may resign at any time by written notice to
the Corporation. Such resignation shall take effect at the time therein
specified, and, unless otherwise specified in such resignation, the acceptance
of such resignation shall not be necessary to make it effective.
3.6 REMOVAL. Subject to the provisions of Section 141(k) of the DGCL, any
or all of the Directors may be removed with or without cause by vote of the
holders of a majority of the shares then entitled to vote at an election of
Directors.
3.7 COMPENSATION. Each Director, in consideration of his or her service as
such, shall be entitled to receive from the Corporation such amount per annum or
such fees for attendance at Directors' meetings, or both, as the Board may from
time to time determine, together with reimbursement for the reasonable
out-of-pocket expenses, if any, incurred by such Director in connection with the
performance of his or her duties. Each Director who shall serve as a member of
any committee of Directors in consideration of serving as such shall be entitled
to such additional amount per annum or such fees for attendance at committee
meetings, or both, as the Board may from time to time determine, together with
reimbursement for the reasonable out-of-pocket expenses, if any, incurred by
such Director in the performance of his or her duties. Nothing contained in this
Section 3.7 shall preclude any Director from serving the Corporation or its
subsidiaries in any other capacity and receiving proper compensation therefor.
3.8 TIMES AND PLACES OF MEETINGS. The Board may hold meetings, both
regular and special, either within or without the State of Delaware. The times
and places for holding meetings of the Board may be fixed from time to time by
resolution of the Board or (unless contrary to a resolution of the Board) in the
notice of the meeting.
3.9 ANNUAL MEETINGS. On the day when and at the place where the annual
meeting of stockholders for the election of Directors is held, and as soon as
practicable thereafter, the Board may hold its annual meeting, without notice of
such meeting, for the purposes of organization, the election of officers and the
transaction of other business. The annual meeting of the Board may be held at
any other time and place specified in a notice given as provided in
Section 3.11 hereof for special meetings of the Board or in a waiver of notice
thereof.
3.10 REGULAR MEETINGS. Regular meetings of the Board may be held without
notice at such times and at such places as shall from time to time be determined
by the Board.
3.11 SPECIAL MEETINGS. Special meetings of the Board may be called by the
Chairman, the President or the Secretary or by any two or more Directors then
serving on at least one day's notice to each Director given by one of the means
specified in Section 3.14 hereof other than by mail, or on at least
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three days' notice if given by mail. Special meetings shall be called by the
Chairman, President or Secretary in like manner and on like notice on the
written request of any two or more of the Directors then serving.
3.12 TELEPHONE MEETINGS. Directors or members of any committee designated
by the Board may participate in a meeting of the Board or of such committee by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 3.12 shall constitute
presence in person at such meeting.
3.13 ADJOURNED MEETINGS. A majority of the Directors present at any
meeting of the Board, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. At least one day's
notice of any adjourned meeting of the Board shall be given to each Director
whether or not present at the time of the adjournment, if such notice shall be
given by one of the means specified in Section 3.14 hereof other than by mail,
or at least three days' notice if by mail. Any business may be transacted at an
adjourned meeting that might have been transacted at the meeting as originally
called.
3.14 NOTICE PROCEDURE. Subject to Sections 3.11 and 3.17 hereof, whenever,
under the provisions of any statute, the Certificate of Incorporation or these
By-laws, notice is required to be given to any Director, such notice shall be
deemed given effectively if given in person or by telephone, by mail addressed
to such Director at such Director's address as it appears on the records of the
Corporation, with postage thereon prepaid, or by telegram, telex, telecopy or
similar means addressed as aforesaid.
3.15 WAIVER OF NOTICE. Whenever the giving of any notice is required by
statute, the Certificate of Incorporation or these By-laws, a waiver thereof, in
writing, signed by the person or persons entitled to said notice, whether before
or after the event as to which such notice is required, shall be deemed
equivalent to notice. Attendance by a person at a meeting shall constitute a
waiver of notice of such meeting except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Directors or a committee of Directors
need be specified in any written waiver of notice unless so required by statute,
the Certificate of Incorporation or these By-laws.
3.16 ORGANIZATION. At each meeting of the Board, the Chairman, or in the
absence of the Chairman, the President, or in the absence of the President, a
chairman chosen by a majority of the Directors present, shall preside. The
Secretary shall act as secretary at each meeting of the Board. In case the
Secretary shall be absent from any meeting of the Board, an Assistant Secretary
shall perform the duties of secretary at such meeting; and in the absence from
any such meeting of the Secretary and all Assistant Secretaries, the person
presiding at the meeting may appoint any person to act as secretary of the
meeting.
3.17 QUORUM OF DIRECTORS. The presence in person of a majority of the
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business at any meeting of the Board, but a majority of a smaller
number may adjourn any such meeting to a later date.
3.18 ACTION BY MAJORITY VOTE. Except as otherwise expressly required by
statute, the Certificate of Incorporation or these By-laws, the act of a
majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board.
3.19 ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if all Directors or members of such committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
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ARTICLE 4
COMMITTEES OF THE BOARD
The Board may, by resolution passed by a vote of a majority of the entire
Board, designate one or more committees, each committee to consist of one or
more of the Directors of the Corporation. The Board may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of such committee. If a member of a committee
shall be absent from any meeting, or disqualified from voting thereat, the
remaining member or members present and not disqualified from voting, whether or
not such member or members constitute a quorum, may, by a unanimous vote,
appoint another member of the Board to act at the meeting in the place of any
such absent or disqualified member. Any such committee, to the extent provided
in the resolution of the Board passed as aforesaid, shall have and may exercise
all the powers and authority of the Board in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
impressed on all papers that may require it, but no such committee shall have
the power or authority of the Board in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation under
section 251 or section 252 of the DGCL, recommending to the stockholders
(a) the sale, lease or exchange of all or substantially all of the Corporation's
property and assets, or (b) a dissolution of the Corporation or a revocation of
a dissolution, or amending the By-laws of the Corporation; and, unless the
resolution designating it expressly so provides, no such committee shall have
the power and authority to declare a dividend, to authorize the issuance of
stock or to adopt a certificate of ownership and merger pursuant to Section 253
of the DGCL. Unless otherwise specified in the resolution of the Board
designating a committee, at all meetings of such committee a majority of the
total number of members of the committee shall constitute a quorum for the
transaction of business, and the vote of a majority of the members of the
committee present at any meeting at which there is a quorum shall be the act of
the committee. Each committee shall keep regular minutes of its meetings. Unless
the Board otherwise provides, each committee designated by the Board may make,
alter and repeal rules for the conduct of its business. In the absence of such
rules each committee shall conduct its business in the same manner as the Board
conducts its business pursuant to Article 3 of these By-laws.
ARTICLE 5
OFFICERS
5.1 POSITIONS. The officers of the Corporation shall be a President, a
Secretary, a Treasurer and such other officers as the Board may appoint,
including a Chairman, one or more Vice Presidents and one or more Assistant
Secretaries and Assistant Treasurers, who shall exercise such powers and perform
such duties as shall be determined from time to time by the Board. The Board may
designate one or more Vice Presidents as Executive Vice Presidents and may use
descriptive words or phrases to designate the standing, seniority or areas of
special competence of the Vice Presidents elected or appointed by it. Any number
of offices may be held by the same person unless the Certificate of
Incorporation or these By-laws otherwise provide.
5.2 APPOINTMENT. The officers of the Corporation shall be chosen by the
Board at its annual meeting or at such other time or times as the Board shall
determine.
5.3 COMPENSATION. The compensation of all officers of the Corporation
shall be fixed by the Board. No officer shall be prevented from receiving a
salary or other compensation by reason of the fact that the officer is also a
Director.
5.4 TERM OF OFFICE. Each officer of the Corporation shall hold office for
the term for which he or she is elected and until such officer's successor is
chosen and qualifies or until such officer's earlier death, resignation or
removal. Any officer may resign at any time upon written notice to the
Corporation. Such resignation shall take effect at the date of receipt of such
notice or at such later time as is
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therein specified, and, unless otherwise specified, the acceptance of such
resignation shall not be necessary to make it effective. The resignation of an
officer shall be without prejudice to the contract rights of the Corporation, if
any. Any officer elected or appointed by the Board may be removed at any time,
with or without cause, by vote of a majority of the entire Board. Any vacancy
occurring in any office of the Corporation shall be filled by the Board. The
removal of an officer without cause shall be without prejudice to the officer's
contract rights, if any. The election or appointment of an officer shall not of
itself create contract rights.
5.5 FIDELITY BONDS. The Corporation may secure the fidelity of any or all
of its officers or agents by bond or otherwise.
5.6 CHAIRMAN. The Chairman, if one shall have been appointed, shall
preside at all meetings of the Board and shall exercise such powers and perform
such other duties as shall be determined from time to time by the Board.
5.7 PRESIDENT. The President shall be the Chief Executive Officer of the
Corporation and shall have general supervision over the business of the
Corporation, subject, however, to the control of the Board and of any duly
authorized committee of Directors. The President shall preside at all meetings
of the Stockholders and at all meetings of the Board at which the Chairman (if
there be one) is not present. The President may sign and execute in the name of
the Corporation deeds, mortgages, bonds, contracts and other instruments except
in cases in which the signing and execution thereof shall be expressly delegated
by the Board or by these By-laws to some other officer or agent of the
Corporation or shall be required by statute otherwise to be signed or executed
and, in general, the President shall perform all duties incident to the office
of President of a corporation and such other duties as may from time to time be
assigned to the President by the Board.
5.8 VICE PRESIDENTS. At the request of the President, or, in the
President's absence, at the request of the Board, the Vice Presidents shall (in
such order as may be designated by the Board, or, in the absence of any such
designation, in order of seniority based on age) perform all of the duties of
the President and, in so performing, shall have all the powers of, and be
subject to all restrictions upon, the President. Any Vice President may sign and
execute in the name of the Corporation deeds, mortgages, bonds, contracts or
other instruments, except in cases in which the signing and execution thereof
shall be expressly delegated by the Board or by these By-laws to some other
officer or agent of the Corporation, or shall be required by statute otherwise
to be signed or executed, and each Vice President shall perform such other
duties as from time to time may be assigned to such Vice President by the Board
or by the President.
5.9 SECRETARY. The Secretary shall attend all meetings of the Board and of
the Stockholders and shall record all the proceedings of the meetings of the
Board and of the stockholders in a book to be kept for that purpose, and shall
perform like duties for committees of the Board, when required. The Secretary
shall give, or cause to be given, notice of all special meetings of the Board
and of the stockholders and shall perform such other duties as may be prescribed
by the Board or by the President, under whose supervision the Secretary shall
be. The Secretary shall have custody of the corporate seal of the Corporation,
and the Secretary, or an Assistant Secretary, shall have authority to impress
the same on any instrument requiring it, and when so impressed the seal may be
attested by the signature of the Secretary or by the signature of such Assistant
Secretary. The Board may give general authority to any other officer to impress
the seal of the Corporation and to attest the same by such officer's signature.
The Secretary or an Assistant Secretary may also attest all instruments signed
by the President or any Vice President. The Secretary shall have charge of all
the books, records and papers of the Corporation relating to its organization
and management, shall see that the reports, statements and other documents
required by statute are properly kept and filed and, in general, shall perform
all duties incident to the office of Secretary of a corporation and such other
duties as may from time to time be assigned to the Secretary by the Board or by
the President.
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5.10 TREASURER. The Treasurer shall have charge and custody of, and be
responsible for, all funds, securities and notes of the Corporation; receive and
give receipts for moneys due and payable to the Corporation from any sources
whatsoever; deposit all such moneys and valuable effects in the name and to the
credit of the Corporation in such depositaries as may be designated by the
Board; against proper vouchers, cause such funds to be disbursed by checks or
drafts on the authorized depositaries of the Corporation signed in such manner
as shall be determined by the Board and be responsible for the accuracy of the
amounts of all moneys so disbursed; regularly enter or cause to be entered in
books or other records maintained for the purpose full and adequate account of
all moneys received or paid for the account of the Corporation; have the right
to require from time to time reports or statements giving such information as
the Treasurer may desire with respect to any and all financial transactions of
the Corporation from the officers or agents transacting the same; render to the
President or the Board, whenever the President or the Board shall require the
Treasurer so to do, an account of the financial condition of the Corporation and
of all financial transactions of the Corporation; exhibit at all reasonable
times the records and books of account to any of the Directors upon application
at the office of the Corporation where such records and books are kept; disburse
the funds of the Corporation as ordered by the Board; and, in general, perform
all duties incident to the office of Treasurer of a corporation and such other
duties as may from time to time be assigned to the Treasurer by the Board or the
President.
5.11 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. Assistant Secretaries
and Assistant Treasurers shall perform such duties as shall be assigned to them
by the Secretary or by the Treasurer, respectively, or by the Board or by the
President.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
6.1 EXECUTION OF CONTRACTS. The Board, except as otherwise provided in
these By-laws, may prospectively or retroactively authorize any officer or
officers, employee or employees or agent or agents, in the name and on behalf of
the Corporation, to enter into any contract or execute and deliver any
instrument, and any such authority may be general or confined to specific
instances, or otherwise limited.
6.2 LOANS. The Board may prospectively or retroactively authorize the
President or any other officer, employee or agent of the Corporation to effect
loans and advances at any time for the Corporation from any bank, trust company
or other institution, or from any firm, corporation or individual, and for such
loans and advances the person so authorized may make, execute and deliver
promissory notes, bonds or other certificates or evidences of indebtedness of
the Corporation, and, when authorized by the Board so to do, may pledge and
hypothecate or transfer any securities or other property of the Corporation as
security for any such loans or advances. Such authority conferred by the Board
may be general or confined to specific instances, or otherwise limited.
6.3 CHECKS, DRAFTS, ETC. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation and all evidences of
indebtedness of the Corporation shall be signed on behalf of the Corporation in
such manner as shall from time to time be determined by resolution of the Board.
6.4 DEPOSITS. The funds of the Corporation not otherwise employed shall be
deposited from time to time to the order of the Corporation with such banks,
trust companies, investment banking firms, financial institutions or other
depositaries as the Board may select or as may be selected by an officer,
employee or agent of the Corporation to whom such power to select may from time
to time be delegated by the Board.
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ARTICLE 7
STOCK AND DIVIDENDS
7.1 CERTIFICATES REPRESENTING SHARES. The shares of capital stock of the
Corporation shall be represented by certificates in such form (consistent with
the provisions of Section 158 of the DGCL) as shall be approved by the Board.
Such certificates shall be signed by the Chairman, the President or a Vice
President and by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, and may be impressed with the seal of the Corporation or a
facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles, if the certificate is countersigned by a transfer agent or registrar
other than the Corporation itself or its employee. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon any certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may, unless
otherwise ordered by the Board, be issued by the Corporation with the same
effect as if such person were such officer, transfer agent or registrar at the
date of issue.
7.2 TRANSFER OF SHARES. Transfers of shares of capital stock of the
Corporation shall be made only on the books of the Corporation by the holder
thereof or by the holder's duly authorized attorney appointed by a power of
attorney duly executed and filed with the Secretary or a transfer agent of the
Corporation, and on surrender of the certificate or certificates representing
such shares of capital stock properly endorsed for transfer and upon payment of
all necessary transfer taxes. Every certificate exchanged, returned or
surrendered to the Corporation shall be marked "Cancelled," with the date of
cancellation, by the Secretary or an Assistant Secretary or the transfer agent
of the Corporation. A person in whose name shares of capital stock shall stand
on the books of the Corporation shall be deemed the owner thereof to receive
dividends, to vote as such owner and for all other purposes as respects the
Corporation. No transfer of shares of capital stock shall be valid as against
the Corporation, its stockholders and creditors for any purpose, except to
render the transferee liable for the debts of the Corporation to the extent
provided by law, until such transfer shall have been entered on the books of the
Corporation by an entry showing from and to whom transferred.
7.3 TRANSFER AND REGISTRY AGENTS. The Corporation may from time to time
maintain one or more transfer offices or agents and registry offices or agents
at such place or places as may be determined from time to time by the Board.
7.4 LOST, DESTROYED, STOLEN AND MUTILATED CERTIFICATES. The holder of any
shares of capital stock of the Corporation shall immediately notify the
Corporation of any loss, destruction, theft or mutilation of the certificate
representing such shares, and the Corporation may issue a new certificate to
replace the certificate alleged to have been lost, destroyed, stolen or
mutilated. The Board may, in its discretion, as a condition to the issue of any
such new certificate, require the owner of the lost, destroyed, stolen or
mutilated certificate, or his or her legal representatives, to make proof
satisfactory to the Board of such loss, destruction, theft or mutilation and to
advertise such fact in such manner as the Board may require, and to give the
Corporation and its transfer agents and registrars, or such of them as the Board
may require, a bond in such form, in such sums and with such surety or sureties
as the Board may direct, to indemnify the Corporation and its transfer agents
and registrars against any claim that may be made against any of them on account
of the continued existence of any such certificate so alleged to have been lost,
destroyed, stolen or mutilated and against any expense in connection with such
claim.
7.5 RULES AND REGULATIONS. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these By-laws or with the
Certificate of Incorporation, concerning the issue, transfer and registration of
certificates representing shares of its capital stock.
7.6 RESTRICTION ON TRANSFER OF STOCK. A written restriction on the
transfer or registration of transfer of capital stock of the Corporation, if
permitted by Section 202 of the DGCL and noted conspicuously on the certificate
representing such capital stock, may be enforced against the holder of the
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restricted capital stock or any successor or transferee of the holder, including
an executor, administrator, trustee, guardian or other fiduciary entrusted with
like responsibility for the person or estate of the holder. Unless noted
conspicuously on the certificate representing such capital stock, a restriction,
even though permitted by Section 202 of the DGCL, shall be ineffective except
against a person with actual knowledge of the restriction. A restriction on the
transfer or registration of transfer of capital stock of the Corporation may be
imposed either by the Certificate of Incorporation or by an agreement among any
number of stockholders or among such stockholders and the Corporation. No
restriction so imposed shall be binding with respect to capital stock issued
prior to the adoption of the restriction unless the holders of such capital
stock are parties to an agreement or voted in favor of the restriction.
7.7 DIVIDENDS, SURPLUS, ETC. Subject to the provisions of the Certificate
of Incorporation and of law, the Board:
7.7.1 may declare and pay dividends or make other distributions on the
outstanding shares of capital stock in such amounts and at such time or
times as it, in its discretion, shall deem advisable giving due
consideration to the condition of the affairs of the Corporation;
7.7.2 may use and apply, in its discretion, any of the surplus of the
Corporation in purchasing or acquiring any shares of capital stock of the
Corporation, or purchase warrants therefor, in accordance with law, or any
of its bonds, debentures, notes, scrip or other securities or evidences of
indebtedness; and
7.7.3 may set aside from time to time out of such surplus or net profits
such sum or sums as, in its discretion, it may think proper, as a reserve
fund to meet contingencies, or for equalizing dividends or for the purpose
of maintaining or increasing the property or business of the Corporation, or
for any purpose it may think conducive to the best interests of the
Corporation.
ARTICLE 8
INDEMNIFICATION
8.1 INDEMNITY UNDERTAKING. To the extent not prohibited by law, the
Corporation shall indemnify any person who is or was made, or threatened to be
made, a party to any threatened, pending or completed action, suit or proceeding
(a "Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a Director or
officer of the Corporation, or, at the request of the Corporation, is or was
serving as a director or officer of any other corporation or in a capacity with
comparable authority or responsibilities for any partnership, joint venture,
trust, employee benefit plan or other enterprise (an "Other Entity"), against
judgments, fines, penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees, disbursements and other
charges). Persons who are not directors or officers of the Corporation (or
otherwise entitled to indemnification pursuant to the preceding sentence) may be
similarly indemnified in respect of service to the Corporation or to an Other
Entity at the request of the Corporation to the extent the Board at any time
specifies that such persons are entitled to the benefits of this Article 8.
8.2 ADVANCEMENT OF EXPENSES. The Corporation shall, from time to time,
reimburse or advance to any Director or officer or other person entitled to
indemnification hereunder the funds necessary for payment of expenses, including
attorneys' fees and disbursements, incurred in connection with any Proceeding,
in advance of the final disposition of such Proceeding; provided, however, that,
if required by the DGCL, such expenses incurred by or on behalf of any Director
or officer or other person may be paid in advance of the final disposition of a
Proceeding only upon receipt by the Corporation of an undertaking, by or on
behalf of such Director or officer (or other person indemnified hereunder), to
repay any such amount so advanced if it shall ultimately be determined by final
judicial decision from
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which there is no further right of appeal that such Director, officer or other
person is not entitled to be indemnified for such expenses.
8.3 RIGHTS NOT EXCLUSIVE. The rights to indemnification and reimbursement
or advancement of expenses provided by, or granted pursuant to, this Article 8
shall not be deemed exclusive of any other rights to which a person seeking
indemnification or reimbursement or advancement of expenses may have or
hereafter be entitled under any statute, the Certificate of Incorporation, these
By-laws, any agreement, any vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
8.4 CONTINUATION OF BENEFITS. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 shall continue as to a person who has ceased to be a Director or
officer (or other person indemnified hereunder) and shall inure to the benefit
of the executors, administrators, legatees and distributees of such person.
8.5 INSURANCE. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of an Other Entity, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify such person against such liability
under the provisions of this Article 8, the Certificate of Incorporation or
under section 145 of the DGCL or any other provision of law.
8.6 BINDING EFFECT. The provisions of this Article 8 shall be a contract
between the Corporation, on the one hand, and each Director and officer who
serves in such capacity at any time while this Article 8 is in effect and any
other person entitled to indemnification hereunder, on the other hand, pursuant
to which the Corporation and each such Director, officer or other person intend
to be, and shall be legally bound. No repeal or modification of this Article 8
shall affect any rights or obligations with respect to any state of facts then
or theretofore existing or thereafter arising or any proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
8.7 PROCEDURAL RIGHTS. The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Article 8
shall be enforceable by any person entitled to such indemnification or
reimbursement or advancement of expenses in any court of competent jurisdiction.
The burden of proving that such indemnification or reimbursement or advancement
of expenses is not appropriate shall be on the Corporation. Neither the failure
of the Corporation (including its Board of Directors, its independent legal
counsel and its stockholders) to have made a determination prior to the
commencement of such action that such indemnification or reimbursement or
advancement of expenses is proper in the circumstances nor an actual
determination by the Corporation (including its Board of Directors, its
independent legal counsel and its stockholders) that such person is not entitled
to such indemnification or reimbursement or advancement of expenses shall
constitute a defense to the action or create a presumption that such person is
not so entitled. Such a person shall also be indemnified for any expenses
incurred in connection with successfully establishing his or her right to such
indemnification or reimbursement or advancement of expenses, in whole or in
part, in any such proceeding.
8.8 SERVICE DEEMED AT CORPORATION'S REQUEST. Any Director or officer of
the Corporation serving in any capacity (a) another corporation of which a
majority of the shares entitled to vote in the election of its directors is
held, directly or indirectly, by the Corporation or (b) any employee benefit
plan of the Corporation or any corporation referred to in clause (a) shall be
deemed to be doing so at the request of the Corporation.
8.9 ELECTION OF APPLICABLE LAW. Any person entitled to be indemnified or
to reimbursement or advancement of expenses as a matter of right pursuant to
this Article 8 may elect to have the right to
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indemnification or reimbursement or advancement of expenses interpreted on the
basis of the applicable law in effect at the time of the occurrence of the event
or events giving rise to the applicable Proceeding, to the extent permitted by
law, or on the basis of the applicable law in effect at the time such
indemnification or reimbursement or advancement of expenses is sought. Such
election shall be made, by a notice in writing to the Corporation, at the time
indemnification or reimbursement or advancement of expenses is sought; provided,
however, that if no such notice is given, the right to indemnification or
reimbursement or advancement of expenses shall be determined by the law in
effect at the time indemnification or reimbursement or advancement of expenses
is sought.
ARTICLE 9
BOOKS AND RECORDS
9.1 BOOKS AND RECORDS. There shall be kept at the principal office of the
Corporation correct and complete records and books of account recording the
financial transactions of the Corporation and minutes of the proceedings of the
stockholders, the Board and any committee of the Board. The Corporation shall
keep at its principal office, or at the office of the transfer agent or
registrar of the Corporation, a record containing the names and addresses of all
stockholders, the number and class of shares held by each and the dates when
they respectively became the owners of record thereof.
9.2 FORM OF RECORDS. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible written
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
9.3 INSPECTION OF BOOKS AND RECORDS. Except as otherwise provided by law,
the Board shall determine from time to time whether, and, if allowed, when and
under what conditions and regulations, the accounts, books, minutes and other
records of the Corporation, or any of them, shall be open to the stockholders
for inspection.
ARTICLE 10
SEAL
The corporate seal shall have inscribed thereon the name of the Corporation,
the year of its organization and the words "Corporate Seal, Delaware." The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
otherwise reproduced.
ARTICLE 11
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and may be changed, by
resolution of the Board.
ARTICLE 12
PROXIES AND CONSENTS
Unless otherwise directed by the Board, the Chairman, the President, any
Vice President, the Secretary or the Treasurer, or any one of them, may execute
and deliver on behalf of the Corporation proxies respecting any and all shares
or other ownership interests of any Other Entity owned by the Corporation
appointing such person or persons as the officer executing the same shall deem
proper to represent and vote the shares or other ownership interests so owned at
any and all meetings of holders of shares or other ownership interests, whether
general or special, and/or to execute and deliver consents respecting such
shares or other ownership interests; or any of the aforesaid officers may attend
any meeting of the holders of shares or other ownership interests of such Other
Entity and thereat vote
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or exercise any or all other powers of the Corporation as the holder of such
shares or other ownership interests.
ARTICLE 13
EMERGENCY BY-LAWS
Unless the Certificate of Incorporation provides otherwise, the following
provisions of this Article 13 shall be effective during an emergency, which is
defined as when a quorum of the Corporation's Directors cannot be readily
assembled because of some catastrophic event. During such emergency:
13.1 NOTICE TO BOARD MEMBERS. Any one member of the Board or any one of
the following officers: Chairman, President, any Vice President, Secretary, or
Treasurer, may call a meeting of the Board. Notice of such meeting need be given
only to those Directors whom it is practicable to reach, and may be given in any
practical manner, including by publication and radio. Such notice shall be given
at least six hours prior to commencement of the meeting.
13.2 TEMPORARY DIRECTORS AND QUORUM. One or more officers of the
Corporation present at the emergency Board meeting, as is necessary to achieve a
quorum, shall be considered to be Directors for the meeting, and shall so serve
in order of rank, and within the same rank, in order of seniority. In the event
that less than a quorum of the Directors are present (including any officers who
are to serve as Directors for the meeting), those Directors present (including
the officers serving as Directors) shall constitute a quorum.
13.3 ACTIONS PERMITTED TO BE TAKEN. The Board as constituted in
Section 13.2, and after notice as set forth in Section 13.1 may:
13.3.1 prescribe emergency powers to any officer of the Corporation;
13.3.2 delegate to any officer or Director, any of the powers of the
Board;
13.3.3 designate lines of succession of officers and agents, in the
event that any of them are unable to discharge their duties;
13.3.4 relocate the principal place of business, or designate successive
or simultaneous principal places of business; and
13.3.5 take any other convenient, helpful or necessary action to carry
on the business of the Corporation.
ARTICLE 14
AMENDMENTS
These By-laws may be amended or repealed and new By-laws may be adopted by a
vote of the holders of shares entitled to vote in the election of Directors or
by the Board. Any By-laws adopted or amended by the Board may be amended or
repealed by the Stockholders entitled to vote thereon.
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EXHIBIT 4.2
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STOCKHOLDERS AGREEMENT
DATED AS OF , 2000
AMONG
[NEWCO],
USANI SUB LLC,
USA NETWORKS, INC.,
STYLECLICK.COM INC.
and
THE STOCKHOLDERS NAMED HEREIN
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- --------------------------------------------------------------------------------
<PAGE>
STOCKHOLDERS AGREEMENT ("AGREEMENT"), dated as of , 2000, by and among
[NEWCO], a Delaware corporation (the "COMPANY"), USANi Sub LLC, a Delaware
limited liability company ("PARENT"), USA Networks, Inc., a Delaware corporation
("USA"), Styleclick.com Inc., a California corporation ("STYLECLICK"), and Joyce
Freedman, Lee Freedman and Maurizio Vecchione (each, an "INDIVIDUAL STOCKHOLDER"
and, collectively with Parent and USA, the "PRINCIPAL STOCKHOLDERS").
WHEREAS, the Company and Parent have entered into an Agreement and Plan of
Merger, dated as of January 24, 2000 (the "MERGER AGREEMENT"), which provides
for, among other things, the merger (the "MERGER") of Styleclick with a wholly
owned subsidiary of Newco and the concurrent contribution by Parent to Newco of
all of the outstanding limited liability interests of Internet Shopping Network
LLC, a Delaware limited liability company ("ISN");
WHEREAS, after giving effect to the Closing (as defined in the Merger
Agreement), (i) Parent will own shares of Common Stock, par value $.01 per
share, of the Company (the "COMMON STOCK"), (ii) USA will own warrants
exercisable for shares of Common Stock and (iii) each Individual Stockholder
will own that number of shares of Common Stock and options and warrants
convertible into Common Stock; and
WHEREAS, the parties desire to establish certain terms and conditions
concerning the corporate governance of the Company after the Closing and the
disposition of Equity Securities (as defined below) held by each party.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
following meanings:
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, such first Person. The term "control" means possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"BENEFICIAL OWNERSHIP" shall have the meaning ascribed to such term in
Rule 13d-3, as in effect on the date hereof, promulgated under the Exchange Act;
"BENEFICIALLY OWNED," "OWNED BENEFICIALLY" and like terms shall have correlative
meanings.
"BOARD OF DIRECTORS" means the Board of Directors of the Company as
constituted from time to time.
"BUSINESS DAY" means any day other than a day on which (i) banks in the
State of New York are authorized or obligated to be closed or (ii) the New York
Stock Exchange is closed.
"CLOSING PRICE" means for any trading day, the last sale price of shares of
Common Stock as reported by the NASDAQ or by the principal national securities
exchange on which the Common Stock is then traded, or if no such sale takes
place on such day, the average of the highest reported bid and lowest reported
asked prices for such day.
"BY-LAWS" means the By-Laws of the Company as in effect after giving effect
to the Closing, as such By-Laws may be amended from time to time.
"EXCHANGE ACT" means the Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
"EXTRAORDINARY TRANSACTION" means (i) any sale or other disposition of all
or substantially all of the assets of the Company to Parent or any Affiliate of
Parent other than to one or more wholly-owned subsidiaries of the Company,
(ii) any merger or similar business combination with or into Parent or any
Affiliate of Parent other than a merger in which the outstanding Common Stock of
the Company is not
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affected thereby and (iii) any corporate reorganization or similar transaction
which would have the effect of causing the Common Stock of the Company either to
be held of record by less than 300 Persons, or to be neither listed on any
national securities exchange nor authorized to be quoted on an inter-dealer
quotation system.
"EQUITY SECURITIES" means the Common Stock and any options or warrants to
acquire Common Stock.
"FULLY-DILUTED BASIS" means, with respect to any Individual Stockholder, the
aggregate number of shares of Common Stock that would be beneficially owned by
such Individual Stockholder assuming all Equity Securities beneficially owned by
such Individual Stockholder were converted, exercised or exchanged into or for
Common Stock in accordance with the terms of such Equity Security, without
regard to restrictions as to the date or time at which such Equity Security may
be converted, exercised or exchanged.
"MAJORITY VOTE OF THE INDIVIDUAL STOCKHOLDERS" means, as of any date, the
approval of the Individual Stockholders owning Equity Securities representing at
least a majority of the combined voting power of all outstanding Equity
Securities of the Company ordinarily entitled to vote in the election of
directors that are held by all of the Individual Stockholders determined on a
Fully-Diluted Basis.
"NON-EMPLOYEE DIRECTOR" means a "Non-Employee Director" within the meaning
of Rule 16b-3 promulgated under the Exchange Act.
"PERMITTED TRANSFER" means any Transfer pursuant to Section 3.2 or
Section 3.3.
"PERMITTED TRANSFEREE" means any transferee in a Permitted Transfer.
"PERSON" means any individual, corporation, partnership, firm, group (as
such term is used in Section 13(d)(3) of the Exchange Act), joint venture,
association, trust, limited liability company, unincorporated organization,
estate, trust or other entity.
"REGISTRATION EXPENSES" means all expenses (other than underwriting
discounts and commissions) arising from or incident to the performance of, or
compliance with, Section 3.3(c) of this Agreement, including (a) SEC, stock
exchange and NASD registration and filing fees, (b) all fees and expenses
incurred in complying with securities or blue sky laws (including reasonable
fees, charges and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (c) all printing, messenger and
delivery expenses, (d) the fees, charges and disbursements of counsel to the
Company and of its independent public accountants and any other accounting and
legal fees, charges and expenses incurred by the Company.
"REGISTRABLE SECURITIES" means each of the following: (a) any shares of
Common Stock held of record by the Freedmans and (b) any shares of Common Stock
issued or issuable in respect of shares of Common Stock issued, issuable or held
pursuant to clause (a) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"SIGNIFICANT STOCKHOLDER" means any stockholder of the Company that,
together with its Affiliates, beneficially owns Equity Securities representing
more than 50% of the combined voting power of all outstanding Equity Securities
of the Company ordinarily entitled to vote in the election of directors.
"SUBSIDIARY" of any Person means any corporation, partnership, joint venture
or other legal entity of which such Person (either directly or through or
together with any other Subsidiary of such Person), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or similar governing body of such corporation, partnership, joint venture or
other legal entity.
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"TRANSFER" means any transfer, sale, assignment, pledge, lease,
hypothecation, mortgage, gift or creation of security interest, lien or trust
(voting or otherwise) or other encumbrance or other disposition of any
interests; provided that a conversion or exercise of Equity Securities into or
in exchange for Common Stock shall not be deemed to be a Transfer; "TRANSFEROR"
and "TRANSFEREE" have correlative meanings.
"VECCHIONE" means Maurizio Vecchione.
"VECCHIONE EMPLOYMENT AGREEMENT" means the Employment Agreement, dated as of
[ ], 2000, between Vecchione and the Company.
ARTICLE I
BOARD OF DIRECTORS
Section 1.1 REPRESENTATION. From and after the Closing, each Principal
Stockholder shall vote or act by written consent with respect to all Equity
Securities that it is entitled to vote and shall use its best efforts to, and
the Company shall take all reasonable actions within its control to, cause
(i) the authorized number of directors of the Board of Directors (the
"AUTHORIZED NUMBER") to be established at eleven (11) or such other number of
directors as may be agreed to by Parent and a Majority Vote of the Individual
Stockholders and (ii) the election to the Board of Directors of (A) six
(6) directors, each designated by Parent (collectively, the "PARENT DIRECTORS"
and each an "PARENT DIRECTOR") (B) two (2) directors, each designated by a
Majority Vote of the Individual Stockholders (collectively, the "STOCKHOLDER
DIRECTORS" and each a "STOCKHOLDER DIRECTOR") and (C) three (3) directors, who
shall be Non-Employee Directors appointed by the Board of Directors
(collectively, the "OUTSIDE DIRECTORS" and each an "OUTSIDE DIRECTOR").
Section 1.2 INITIAL COMPOSITION; REMOVAL AND APPOINTMENT OF
DIRECTORS. Effective at the Closing, the persons designated as such by Parent
shall become the initial Parent Directors; the persons designated as such by the
Individual Stockholders shall be the initial Stockholder Directors and the
persons designated as such by Parent shall become the initial Outside Directors.
Parent shall be entitled at any time and for any reason (or for no reason) to
designate one or more Parent Directors for removal, and a Majority Vote of the
Individual Stockholders shall be entitled at any time and for any reason (or for
no reason) to designate one or more Stockholder Directors for removal. Outside
Directors may only be removed in accordance with the By-laws. If, at any time, a
vacancy is created on the Board of Directors by reason of the death, removal or
resignation of any Parent Director, Stockholder Director or Outside Director,
each party shall, as promptly as practicable, take such action as is reasonably
necessary, including the voting of its Equity Securities, to elect a director or
directors designated in accordance with Section 1.1 hereof to fill such vacancy
or vacancies. Each party agrees that it will vote or execute a written consent
with respect to all Equity Securities as to which it is entitled to vote to
effectuate the intent of this Section 1.2.
ARTICLE II
EXTRAORDINARY TRANSACTIONS
From and after the Closing, the Company shall not effect any Extraordinary
Transaction unless, prior to the consummation of such Extraordinary Transaction,
a special committee (the "SPECIAL COMMITTEE") of the Board of Directors
comprised solely of directors other than the Parent Directors shall have
(a) approved the terms and conditions of the Extraordinary Transaction and shall
have recommended that the stockholders of the Company vote in favor thereof and
(b) received from a nationally recognized investment banking firm a written
opinion addressed to the Special Committee, for inclusion in the proxy statement
to be delivered to the stockholders, substantially to the effect that the
Extraordinary Transaction is fair to the Company's stockholders (other than any
Significant Stockholder) from a financial point of view.
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ARTICLE III
RESTRICTIONS ON
TRANSFER OF EQUITY SECURITIES
Section 3.1 GENERAL RESTRICTIONS. Except as otherwise permitted in this
Article III, (i) Parent and USA shall not directly or indirectly Transfer any
Equity Securities of the Company for a period of 18 months following the Closing
and (ii) none of the Individual Stockholders shall directly or indirectly
Transfer any Equity Securities of the Company for a period of six months
following the Closing. Any attempt to Transfer Equity Securities or any rights
thereunder in violation of this Section 3.1 shall be null and void AB INITIO and
the Company shall not register any such Transfer. Without limiting the
generality of the foregoing, the rights of the parties hereunder are personal to
them and, other than pursuant to a Permitted Transfer in compliance with the
provisions of this Agreement, no party shall enter (and such party shall prevent
its Affiliates from entering) into any agreement, arrangement or understanding,
written or oral, pursuant to which it shall transfer, or otherwise grant to or
provide any Person, directly or indirectly, any of its rights or interests under
this Agreement. Prior to any Permitted Transfer pursuant to Section 3.2(b),
Section 3.2(d) or Section 3.3(b), the Permitted Transferee thereof shall execute
and deliver to the Company an agreement by which it shall become a party to and
be bound by the applicable terms and provisions of this Agreement, in form and
substance reasonably satisfactory to the Company.
Section 3.2 PERMITTED TRANSFERS. Except as otherwise specified herein, the
provisions of Section 3.1 shall not apply to the following Transfers:
(a) any Transfer of Equity Securities of the Company by Parent, USA or
any of their respective controlled Affiliates (each a "USA PARTY") other
than pursuant to open-market brokered transactions pursuant to Rule 144 of
the Securities Act or registered public secondary offerings; PROVIDED that
any transferee that becomes a Significant Stockholder shall execute and
deliver to the Company an agreement by which it shall become bound by the
applicable terms and provisions of Article III;
(b) any Transfer by any USA Party to or among another USA Party;
(c) any Transfer by a Principal Stockholder to another Principal
Stockholder;
(d) any Transfer of Equity Securities by an Individual Stockholder to a
member of such Individual Stockholder's immediate family, which shall
include his or her spouse, siblings, children or grandchildren ("FAMILY
MEMBERS") or to a trust, corporation, partnership or limited liability
company all of Equity Securities of which are beneficially and exclusively
owned by such Individual Stockholder or one or more Family Members of such
Individual Stockholder; PROVIDED, THAT, if any Permitted Transferee of an
Individual Stockholder to whom Equity Securities have been transferred
pursuant to this clause (d) ceases to be a Permitted Transferee of such
Individual Stockholder pursuant to this clause (d), then prior to any event,
circumstance or occurrence causing such cessation such Equity Securities
shall be transferred to such Individual Stockholder (or a Person that would
otherwise be a Permitted Transferee of such Individual Stockholder pursuant
to this Section 3.2(d) following such event, circumstance or occurrence);
(e) any Transfer by an Individual Stockholder with respect to which
Parent has provided its express written consent, or any Transfer by a USA
Party which has been expressly approved by a Majority Vote of the Individual
Stockholders.
(f) any Transfer by Vecchione following termination of his employment
(i) by the Company without Cause (as defined in the Vecchione Employment
Agreement) or (ii) by Vecchione with Good Reason (as defined in the
Vecchione Employment Agreement).
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<PAGE>
Section 3.3 FREEDMAN TRANSFERS AND OTHER MATTERS.
(a) PUBLIC SALES. Except as otherwise specified herein, the provisions
of Section 3.1 shall not apply to any Transfer by Joyce Freedman or Lee
Freedman (collectively, the "FREEDMANS") that:
(i) is made pursuant to Rule 145 of the Securities Act;
(ii) has an aggregate sale price that, when combined with all other
Transfers by the Freedmans pursuant to this Article III, does not exceed
$5 million;
(iii) has a sale price per share that is not less than 102% of the
average Closing Price for the five trading days immediately preceding the
date of the Transfer;
(iv) when combined with all other Transfers by the Freedmans pursuant
to this Article III (other than pursuant to Section 3.3(b)) during the 20
trading days immediately preceding the date of the Transfer, does not
exceed 200,000 shares of Common Stock; and
(v) when combined with all other Transfers by the Freedmans pursuant
to this Article III (other than pursuant to Section 3.3(b)) during the
same trading day, does not exceed 25,000 shares of Common Stock; PROVIDED
that this clause (v) shall only apply if the sales price with respect to
such Transfer is less than the Closing Price on the previous trading day.
(b) PRIVATE SALES. Except as otherwise specified herein, the provisions
of Section 3.1 shall not apply to any privately-negotiated Transfer by the
Freedmans; PROVIDED that the Permitted Transferee thereof shall execute and
deliver to the Company an agreement by which it shall become a party to and
be bound by the applicable terms and provisions of this Article III, in form
and substance reasonably satisfactory to the Company.
(c) REGISTRATION RIGHTS. If, at any time prior to the six month
anniversary of the Closing, the Company proposes to file a registration
statement under the Act with respect to an offering by the Company of any
class of security (other than a registration statement on Form S-4 or
otherwise in connection with a business combination or S-8 (or any successor
form thereto)) under the Act, then the Company shall give written notice of
such proposed filing to the Freedmans at least ten (10) days before the
anticipated filing date, and such notice shall describe in detail the
proposed registration and distribution (including those jurisdictions where
registration under the securities or blue sky laws is intended) and offer
the Freedmans the opportunity to register the number of Registrable
Securities as they may request. If the Freedmans request to participate in
such offering, the Company shall use its reasonable best efforts to cause
the managing underwriter or underwriters of an underwritten offering
proposed by the Company (the "COMPANY UNDERWRITER") to permit them to
include the Registrable Securities held by them in such offering on the same
terms and conditions as the securities of the Company included therein.
Notwithstanding the foregoing, (i) if the Company Underwriter determines
that the total amount of securities which are proposed to be included in
such offering (the "TOTAL SECURITIES") is sufficiently large so as to have a
material adverse effect on the distribution of the Total Securities, then
the Company will include in such registration, to the extent of the number
which the Company is so advised can be sold in (or during the time of) such
offering, FIRST all securities of the Company to be sold for its own account
and SECOND such Registrable Securities requested by any stockholder of the
Company who has requested that such shares be included in such registration
as part of a demand or piggy-back registration PRO RATA (based on the number
of Registrable Securities owned by such stockholders). The Company shall
bear all Registration Expenses in connection with any registration pursuant
to this Section 3.3. Participation by the Freedmans in any registration
effected pursuant to Section 3.3(c) shall be subject to the Freedmans
agreeing to enter into customary underwriting agreements and shall be
subject to such other terms and conditions of the type to which USA and
Parent are subject to pursuant to the Registration Rights Agreement between
Newco and such parties.
5
<PAGE>
(d) CONFIDENTIALITY OBLIGATIONS. The Freedmans hereby agree that any
and all information regarding any Transfer by them, or any intent to
Transfer, shall be kept confidential and not publicly disclosed, except as
may be required under applicable law.
(e) EMPLOYMENT AGREEMENTS. On the sixth month anniversary of the
Closing, all employment agreements between Styleclick and/or any of its
affiliates, on the one hand, and Joyce Freedman or Lee Freedman, on the
other hand, shall automatically terminate and be of no force and effect
without any obligation or liability on the part of Styleclick and/or its
affiliates notwithstanding the terms of such agreements.
Section 3.4 PERMITTED VECCHIONE TRANSFERS. Except as otherwise specified
herein, the provisions of Section 3.1 shall not apply to any Transfer by
Vecchione that:
(i) is made pursuant to Rule 145 of the Securities Act; and
(ii) when combined with all other Transfers by Vecchione pursuant to
this Article III, does not exceed 50,000 shares of Common Stock.
Section 3.5 HOLDBACK. If and to the extent requested by the managing
underwriter in an underwritten public offering of Equity Securities by the
Company, each Principal Stockholder agrees not to effect any public sale or
distribution of any Equity Securities of the Company during the 90-day period
(or such other period as may reasonably be requested by the Company's
underwriters) beginning on the effective date of the registration statement in
respect of such underwritten offering by the Company (except as part of such
registered offering).
ARTICLE IV
MISCELLANEOUS
Section 4.1 NOTICES. All notices, requests and other communications to any
party hereunder (including notices to directors pursuant to Article I) shall be
in writing and shall be given (and shall be deemed to have been given upon
receipt) if delivered in person or sent by facsimile, telegram, telex, by
registered or certified mail (postage prepaid, return receipt requested) or by
reputable overnight courier to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 5.1):
if to the Company, to:
Attention: [
-------------------------]
Facsimile: [
-------------------------]
if to Parent, to:
Attention: [
-------------------------]
Facsimile: [
-------------------------]
if to USA, to:
if to an Individual Stockholder, to such Individual Stockholder's last
known address, as reflected on the records of the Company.
Section 4.2 AMENDMENTS; NO WAIVERS.
(a) Any provision of this Agreement may be amended or waived if, and
only if, such amendment or waiver is in writing and signed, in the case of
an amendment, by Parent, USA and a Majority Vote of the Individual
Stockholders, or in the case of a waiver, by (i) Parent if the waiver is to
be effective against Parent, (ii) USA if the waiver is to be effective
against USA or (iii) a Majority Vote of the Individual Stockholders if the
waiver is to be effective against the Individual Stockholders.
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<PAGE>
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or
the exercise of any right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
Section 4.3 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective permitted successors and assigns. No party may assign, delegate or
otherwise transfer any of its rights or obligations under this Agreement;
PROVIDED that each of Parent and USA may assign, delegate or transfer any of
their respective rights or obligations under this Agreement in connection with a
transfer of Equity Securities permitted hereunder.
Section 4.4 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
Section 4.5 JURISDICTION. Each party to this Agreement hereby irrevocably
agrees that any legal action proceeding arising out of or relating to this
Agreement or any agreements or transactions contemplated hereby shall be brought
in the courts of the State of New York and hereby expressly submits to the
personal jurisdiction and venue of such courts for the purposes thereof and
expressly waives any claim of improper venue and any claim that such courts are
an inconvenient forum.
Section 4.6 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signature thereto and hereto were upon the same instrument.
Section 4.7 SPECIFIC PERFORMANCE. The parties hereto (and any person who
agrees to be bound hereby pursuant to the terms hereof) acknowledge and agree
that their respective remedies at law for a breach or threatened breach of any
of the provisions of this Agreement would be inadequate and, in recognition of
that fact, agree that, in the event of a breach or threatened breach by any
other party (or any of such persons) of the provisions of this Agreement, in
addition to any remedies at law, they shall, respectively, without posting any
bond, be entitled to obtain equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction
or any other equitable remedy which may then be available.
Section 4.8 NO THIRD PARTY BENEFICIARIES. Nothing contained in this
Agreement, express or implied, is intended to or shall confer upon anyone other
than the parties hereto (and their permitted successors and assigns) any right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 4.9 TERMINATION. This Agreement shall terminate on the earlier of
(a) the third anniversary of the date hereof, (b) the date on which the
Individual Stockholders (together with any transferees in accordance with
Sections 3.2(c) and (d)) collectively cease to beneficially own, on a
Fully-Diluted Basis, at least 66 2/3% of the Equity Securities of the Company
beneficially owned, on a Fully-Diluted Basis, by all Individual Stockholders at
the Effective Time of the Merger or (c) the date on which Parent and USA
(together with any transferees in accordance with Section 3.2(b)) collectively
cease to beneficially own, on a Fully Diluted Basis, at least 66 2/3 of the
Equity Securities owned, on a Fully Diluted Basis, by USA and Parent at the
Effective Time of the Merger.
Section 4.10 SEVERABILITY. If any provision of this Agreement or the
application of any provision hereof to any party hereto or set of circumstances
is held invalid, the remainder of this Agreement and the application of such
provision to the other parties hereto or sets of circumstances shall not be
affected, unless the provisions held invalid shall substantially impair the
benefits of the remaining portions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the date first above
written.
7
<PAGE>
<TABLE>
<S> <C> <C>
[NEWCO]
By:
-----------------------------------------
Name:
Title:
USANi SUB LLC
By:
-----------------------------------------
Name:
Title:
USA NETWORKS, INC.
By:
-----------------------------------------
Name:
Title:
STYLECLICK.COM INC.
By:
-----------------------------------------
Name:
Title:
---------------------------------------------
Joyce Freedman
---------------------------------------------
Maurizio Vecchione
---------------------------------------------
Lee Freedman
</TABLE>
8
<PAGE>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
AMONG
USANI SUB LLC
AND
[NEWCO]
---------------------
DATED AS OF [ ]
---------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of [ ], (the "AGREEMENT"),
between [Newco], a Delaware corporation (the "COMPANY"), USA Networks, Inc., a
Delaware corporation ("USA") and USANi Sub LLC, a Delaware limited liability
company ("PARENT").
This Agreement is made in connection with the Agreement and Plan of Merger
(the "MERGER AGREEMENT"), dated as of [ ] between Parent and
Styleclick.com Inc., a California corporation, pursuant to which Parent will
receive shares of Common Stock, par value $0.01 per share, of the Company (the
"COMMON STOCK"). In order to induce Parent to execute the Merger Agreement, and
USA to execute the Credit Agreement (as defined therein) the Company has agreed
to provide registration rights with respect to the Registrable Securities (as
hereinafter defined) as set forth in this Agreement.
The parties hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, and unless the context requires
a different meaning, the following terms have the meanings indicated:
"APPROVED UNDERWRITER" has the meaning assigned such term in Section 3(f).
"APPROVED UNDERWRITER AMOUNT" has the meaning assigned such term in
Section 3(d).
"BUSINESS DAY" means any day other than a day on which (i) banks in the
State of New York are authorized or obligated to be closed or (ii) the New York
Stock Exchange is closed.
"COMPANY UNDERWRITER" has the meaning assigned such term in Section 4(a).
"DEMAND REGISTRATION" has the meaning assigned such term in Section 3(a).
"DESIGNATED HOLDER" means USA, Parent and any of their respective
transferees to whom Registrable Securities have been transferred other than a
transferee to whom such securities have been transferred pursuant to a
registration statement under the Act or Rule 144 under the Act.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"HOLDER" has the meaning assigned such term in Section 2(b).
"HOLDERS' COUNSEL" means (a) with respect to any Demand Registration that
has been requested pursuant to Section 3, counsel selected by the Initiating
Holders holding more than 50% of the Registrable Securities held by all
Initiating Holders being registered in such registration, and (b) with respect
to a request for registration of Registrable Securities pursuant to Section 4,
counsel selected by the Holders holding more than 50% of the Registrable
Securities being registered in such registration.
"INDEMNIFIED PARTY" has the meaning assigned such term in Section 8(c).
"INDEMNIFYING PARTY" has the meaning assigned such term in Section 8(c).
"INITIATING HOLDERS" has the meaning assigned to such term in Section 3(a).
"INSPECTOR" has the meaning assigned such term in Section 6(a)(viii).
"NASD" has the meaning assigned such term in Section 6(a)(xv).
"PERSON" means any individual, corporation, partnership, firm, group (as
such term is used in Section 13(d)(3) of the Exchange Act), joint venture,
association, trust, limited liability company, unincorporated organization,
estate, trust, or other entity.
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<PAGE>
"REGISTRABLE SECURITIES" means each of the following: (a) any shares of
Common Stock held of record by any party hereto on or after the date hereof and
(b) any shares of Common Stock issued or issuable in respect of shares of Common
Stock issued, issuable or held pursuant to clause (a) above by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
"REGISTRATION EXPENSES" has the meaning assigned such term in Section 7.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement, dated the date
hereof, between the Company, Parent and the other parties named therein, as the
same may be amended from time to time in accordance with its terms.
"TOTAL SECURITIES" has the meaning assigned such term in Section 4(a).
"UNDERWRITERS" has the meaning assigned such term in Section 6(d).
2. SECURITIES SUBJECT TO THIS AGREEMENT.
(a) REGISTRABLE SECURITIES. For the purposes of this Agreement,
Registrable Securities will cease to be Registrable Securities when (i) a
registration statement covering such Registrable Securities has been declared
effective under the Securities Act by the SEC and such Registrable Securities
have been disposed of pursuant to such effective registration statement or
(ii) the entire amount of Registrable Securities proposed to be sold in a single
sale are or, in the opinion of counsel satisfactory to the Company and the
Holder, each in their reasonable judgment, may, be distributed to the public
pursuant to Rule 144 (or any successor provision then in effect) under the
Exchange Act.
(b) HOLDERS OF REGISTRABLE SECURITIES. A Person is deemed to be a holder
of Registrable Securities (a "HOLDER") whenever such Person (i) is a Designated
Holder and (ii) owns of record Registrable Securities, or holds an option to
purchase, or a security convertible into or exercisable or exchangeable for,
Registrable Securities, whether or not such purchase or conversion has actually
been effected and disregarding any legal restrictions upon the exercise of such
rights. If the Company receives conflicting instructions, notices or elections
from two or more persons with respect to the same Registrable Securities, the
Company may act upon the basis of the instructions, notice or election received
from the registered owner of such Registrable Securities. Registrable Securities
issuable upon exercise of an option or upon conversion of another security shall
be deemed outstanding for the purposes of this Agreement.
3. DEMAND REGISTRATION.
(a) REQUEST FOR DEMAND REGISTRATION. At any time after 18 months from the
date of the Effective Date (as defined in the Merger Agreement), the Designated
Holders holding more than 50% of the Registrable Securities held by all of the
Designated Holders (the "INITIATING HOLDERS") may request the registration of
Registrable Securities under the Act, and under the securities or blue sky laws
of any jurisdiction designated by such holder or holders (each such registration
under this Section 3(a) that satisfies the requirements set forth in
Section 3(b) is referred to herein as a "DEMAND REGISTRATION"). Notwithstanding
the foregoing, (i) the Company will not be required to effect a Demand
Registration within the period beginning on the effective date of a registration
statement filed by the Company on its behalf and ending on the expiration of any
lock-up period reasonably required by the underwriters, if any, in connection
therewith. Each such request for a Demand Registration by the Initiating Holders
in respect thereof shall specify the amount of the Registrable Securities
proposed to be sold, the
2
<PAGE>
intended method of disposition thereof and the jurisdictions in which
registration is desired. Upon a request for a Demand Registration, the Company
shall promptly take such steps as are necessary or appropriate to prepare for
the registration of the Registrable Securities to be registered. Within fifteen
(15) days after the receipt of such request, the Company shall give written
notice thereof to all other Designated Holders holding Registrable Securities
and include in such registration all Registrable Securities held by a Designated
Holder holding Registrable Securities from whom the Company has received a
written request for inclusion therein at least ten (10) days prior to the filing
of the registration statement. Each such request will also specify the number of
Registrable Securities to be registered, the intended method of disposition
thereof and the jurisdictions in which registration is desired. The Company,
subject to Sections 3(d) and 3(e), shall be entitled to include in any
registration statement and offering made pursuant to a Demand Registration,
authorized but unissued shares of Common Stock, shares of Common Stock held by
the Company as treasury shares or shares of Common Stock held by stockholders
other than the Designated Holders holding Registrable Securities; provided that
such inclusion shall be permitted only to the extent that it is pursuant to and
subject to the terms of the underwriting agreement or arrangements, if any,
entered into by the Initiating Holders exercising the Demand Registration
rights.
(b) EFFECTIVE DEMAND REGISTRATION. The Company shall use its best efforts
to cause any such Demand Registration to become effective not later than ninety
(90) days after it receives a request under Section 3(a). A registration
requested pursuant to Section 3(a) hereof shall not count as one of the four
Demand Registrations to which the Designated Holders are entitled hereunder
unless Registrable Securities are sold pursuant to such demand or such
registration statement remains effective for at least one hundred and twenty
(120) days under Section 3(a).
(c) EXPENSES. In any registration initiated as a Demand Registration, the
Company shall pay all Registration Expenses in connection therewith, whether or
not such requested Demand Registration becomes effective.
(d) UNDERWRITING PROCEDURES. If the Initiating Holders holding more than
50% of the Registrable Securities held by all Initiating Holders to which the
requested Demand Registration relates so elect, the offering of such Registrable
Securities pursuant to such requested Demand Registration shall be in the form
of a firm commitment underwritten offering and the managing underwriter or
underwriters selected for such offering shall be the Approved Underwriter
selected in accordance with Section 3(f). In such event, if the Approved
Underwriter advises the Company in writing that, in its opinion, the aggregate
amount of such Registrable Securities requested to be included in such offering
is sufficiently large to have a material adverse effect on the success of such
offering, then the Company shall include in such registration only the aggregate
amount of Registrable Securities that in the opinion of the Approved Underwriter
may be sold without any such effect on the success or pricing of such offering
(the "APPROVED UNDERWRITER AMOUNT"), and each Designated Holder shall be
entitled to have included in such registration Registrable Securities equal to
its pro rata portion of the Approved Underwriter Amount, as based on the amounts
of Registrable Securities sought to be registered by the Designated Holders in
their requests for participation in the requested Demand Registration. To the
extent that the number of Registrable Securities to be included by the
Designated Holders is less than the Approved Underwriter Amount, securities that
the Company proposes to register may, subject to the limitations contained in
Section 3(e), also be included.
(e) PRORATION. In any case in which an offering is in the form of a firm
commitment underwritten offering and the number of Registrable Securities to be
included by the Designated Holders is less than the Approved Underwriter Amount,
if the managing underwriter or underwriters of such offering advise the Company
in writing that in its or their opinion the number of securities proposed to be
sold in such offering by Persons (including the Company) other than the
Designated Holders exceeds the number thereof that can be sold in such offering
without any effect on the success or pricing of such offering, the Company will
include in such registration all of the Registrable Securities requested to be
3
<PAGE>
sold by the Designated Holders. Thereafter, the Company may include, to the
extent the Approved Underwriter Amount is not exceeded, the number of securities
to be offered for the account of the Company and the number of securities, if
any, to be offered for the account of the stockholders of the Company other than
the Designated Holders.
(f) SELECTION OF UNDERWRITERS. If any requested Demand Registration is in
the form of an underwritten offering, the Initiating Holders holding more than
50% of the Registrable Securities held by all Initiating Holders to be included
in the requested Demand Registration shall select and obtain an investment
banking firm of national reputation to act as the managing underwriter of the
offering (the "APPROVED UNDERWRITER").
4. PIGGY-BACK REGISTRATION.
(a) PIGGY-BACK RIGHTS. If, at any time after 18 months from the Effective
date (as defined in the Merger Agreement), the Company proposes to file a
registration statement under the Act with respect to an offering by the Company
of any class of security (other than a registration statement on Form S-4 or S-8
(or any successor form thereto)) under the Act, then the Company shall give
written notice of such proposed filing to each of the Holders at least thirty
(30) days before the anticipated filing date, and such notice shall describe in
detail the proposed registration and distribution (including those jurisdictions
where registration under the securities or blue sky laws is intended) and offer
such Holders the opportunity to register the number of Registrable Securities as
each such Holder may request. The Company shall use its reasonable best efforts
(within ten (10) days of the notice provided for in the preceding sentence) to
cause the managing underwriter or underwriters of an underwritten offering
proposed by the Company (the "COMPANY UNDERWRITER") to permit the Holders who
have requested to participate in the registration for such offering to include
such Registrable Securities in such offering on the same terms and conditions as
the securities of the Company included therein. Notwithstanding the foregoing,
(i) if the Company Underwriter delivers a written opinion to the Holders of
Registrable Securities that the total amount of securities which they and the
Company intend to include in such offering (the "TOTAL SECURITIES") is
sufficiently large so as to have a material adverse effect on the distribution
of the Total Securities, then the securities proposed to be included in such
registration by all Holders shall be reduced pro rata based on the number of
Registrable Securities held by all Holders participating in such registration to
the extent necessary to reduce the Total Securities to the amount recommended by
the Company Underwriter.
(b) PRIORITY OF REGISTRATIONS. If the Company proposes to register
securities pursuant to Section 4(a) hereof on or prior to the same day that the
Designated Holders request a registration pursuant to Section 3(a) hereof, then
the Company's proposed registration shall be given priority.
(c) EXPENSES. The Company shall bear all Registration Expenses in
connection with any registration pursuant to this Section 4.
5. HOLDBACK AGREEMENTS.
(a) RESTRICTIONS ON PUBLIC SALE BY HOLDERS. To the extent not inconsistent
with applicable law, each Holder agrees not to effect any public sale or
distribution of any Registrable Securities being registered or of any securities
convertible into or exchangeable or exercisable for such Registrable Securities,
including a sale pursuant to Rule 144 under the Securities Act, during the
ninety (90) day period beginning on the effective date of any Demand
Registration or Piggy-Back Registration or other underwritten offering (except
as part of such registration), if and to the extent requested by any other
Holder, in the case of a non-underwritten public offering, or if and to the
extent requested by the Approved Underwriter or the Company Underwriter, in the
case of an underwritten public offering.
(b) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company agrees not to
effect any public sale or distribution of any of its securities for its own
account (except pursuant to registrations on Form S-4 or S-8 (or any successor
form thereto) under the Securities Act) during the ninety (90) day
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<PAGE>
period beginning on the later of (i) the effective date of any registration
statement in which the Holders are participating and (ii) the commencement of a
public distribution of Registrable Securities pursuant to such registration
statement.
6. REGISTRATION PROCEDURES.
(a) OBLIGATIONS OF THE COMPANY. Whenever registration of Registrable
Securities has been requested pursuant to Section 3 or 4 of this Agreement, the
Company shall use its reasonable best efforts to effect the registration and
sale of such Registrable Securities in accordance with the intended method of
distribution thereof as quickly as practicable, and in connection with any such
request, the Company shall, as expeditiously as possible:
(i) prepare and file with the SEC (in any event not later than thirty
(30) Business Days after receipt of a request to file a registration
statement with respect to Registrable Securities) a registration statement
on any form on which registration is requested for which the Company then
qualifies, which counsel for the Company and Holders' Counsel shall deem
appropriate and which shall be available for the sale of such Registrable
Securities in accordance with the intended method of distribution thereof,
and use its best efforts to cause such registration statement to become
effective; PROVIDED, HOWEVER, that before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company shall
(A) provide Holders' Counsel and any other Inspector with an adequate and
appropriate opportunity to participate in the preparation of such
registration statement and each prospectus included therein (and each
amendment or supplement thereto) to be filed with the SEC, which documents
shall be subject to the review of Holders' Counsel, and (B) notify Holders'
Counsel and each seller of Registrable Securities pursuant to such
registration statement of any stop order issued or threatened by the SEC and
take all reasonable action required to prevent the entry of such stop order
or to remove it if entered;
(ii) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a
period of not less than 120 days, and comply with the provisions of the Act
with respect to the disposition of all Registrable Securities covered by
such registration statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement;
(iii) as soon as reasonably possible, furnish to each seller of
Registrable Securities, prior to filing a registration statement, copies of
such registration statement as it is proposed to be filed, and thereafter
such number of copies of such registration statement, each amendment and
supplement thereto (in each case including all exhibits thereto), the
prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as each such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
(iv) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such
jurisdictions as any seller of Registrable Securities may request, and to
continue such qualification in effect in each such jurisdiction for as long
as is permissible pursuant to the laws of such jurisdiction, or for as long
as any such seller requests or until all of such Registrable Securities are
sold, whichever is shortest, and do any and all other acts and things which
may be reasonably necessary or advisable to enable any such seller to
consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller; PROVIDED, HOWEVER, that the Company shall
not be required to (A) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this
Section 6(a)(iv), (B) subject itself to taxation in any such jurisdiction or
(C) consent to general service of process in any such jurisdiction;
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(v) use its best efforts to obtain all other approvals, covenants,
exemptions or authorizations from such governmental agencies or authorities
as may be necessary to enable the sellers of such Registrable Securities to
consummate the disposition of such Registrable Securities;
(vi) notify each seller of Registrable Securities at any time when a
prospectus relating thereto is required to be delivered under the Act, upon
discovery that, or upon the happening of any event as a result of which, the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they were made, and the Company
shall promptly prepare a supplement or amendment to such prospectus and
furnish to each such seller a reasonable number of copies of a supplement to
or amendment of such prospectus as may be necessary so that, after delivery
to the purchasers of such Registrable Securities, such prospectus shall not
contain an 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 not misleading in light of the circumstances under which they were
made;
(vii) enter into and perform customary agreements (including an
underwriting agreement in customary form with the Approved Underwriter or
Company Underwriter, if any, selected as provided in Section 3 or 4) and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of such Registrable Securities;
(viii) make available for inspection by any seller of Registrable
Securities, any managing underwriter participating in any disposition
pursuant to such registration statement, Holders' Counsel and any attorney,
accountant or other agent retained by any such seller or any managing
underwriter (each, an "INSPECTOR" and, collectively, the "INSPECTORS"), all
financial and other records, pertinent corporate documents and properties of
the Company and any subsidiaries thereof as may be in existence at such time
(collectively, the "RECORDS") as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the Company's
and any subsidiaries' officers, directors and employees, and the independent
public accountants of the Company, to supply all information reasonably
requested by any such Inspector in connection with such registration
statement.
(ix) obtain a "cold comfort" letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by "cold comfort" letters, as Holders' Counsel or the
managing underwriter reasonably request;
(x) furnish, at the request of any seller of Registrable Securities on
the date such securities are delivered to the underwriters for sale pursuant
to such registration or, if such securities are not being sold through
underwriters, on the date the registration statement with respect to such
securities becomes effective, an opinion, dated such date, of counsel
representing the Company for the purposes of such registration, addressed to
the underwriters, if any, and to the seller making such request, covering
such legal matters with respect to the registration in respect of which such
opinion is being given as such seller may reasonably request and as are
customarily included in such opinions;
[(xi) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable but no later than fifteen (15) months after
the effective date of the registration statement, an earnings statement
covering a period of twelve (12) months beginning after the effective date
of the registration statement, in a manner which satisfies the provisions of
Section 11(a) of the Act;]
(xii) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are
then listed, subject to the satisfaction of the applicable listing
requirements of each such exchange;
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<PAGE>
(xiii) keep each seller of Registrable Securities advised in writing as
to the initiation and progress of any registration under Section 3 or 4
hereunder;
(xiv) provide officers' certificates and other customary closing
documents;
(xv) cooperate with each seller of Registrable Securities and each
underwriter participating in the disposition of such Registrable Securities
and their respective counsel in connection with any filings required to be
made with the National Association of Securities Dealers, Inc. (the "NASD");
and
(xvi) use its best efforts to take all other steps necessary to effect
the registration of the Registrable Securities contemplated hereby.
(b) SELLER INFORMATION. The Company may require each seller of Registrable
Securities as to which any registration is being effected to furnish to the
Company such information regarding the distribution of such securities as the
Company may from time to time reasonably request in writing.
(c) NOTICE TO DISCONTINUE. Each Holder agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 6(a)(vi), such Holder shall forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 6(a)(vi) and, if so
directed by the Company, such Holder shall deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Securities
which is current at the time of receipt of such notice. If the Company shall
give any such notice, the Company shall extend the period during which such
registration statement shall be maintained effective pursuant to this Agreement
(including the period referred to in Section 6(a)(ii)) by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section 6(a)(vi) to and including the date when the Holder shall
have received the copies of the supplemented or amended prospectus contemplated
by and meeting the requirements of Section 6(a)(vi).
7. REGISTRATION EXPENSES. The Company shall pay all expenses (other than
underwriting discounts and commissions) arising from or incident to the
performance of, or compliance with, this Agreement, including (a) SEC, stock
exchange and NASD registration and filing fees, (b) all fees and expenses
incurred in complying with securities or blue sky laws (including reasonable
fees, charges and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (c) all printing, messenger and
delivery expenses, (d) the fees, charges and disbursements of counsel to the
Company and of its independent public accountants and any other accounting and
legal fees, charges and expenses incurred by the Company (including any expenses
arising from any special audits incident to or required by any registration or
qualification) and (e) any liability insurance or other premiums for insurance
obtained (which insurance the Company agrees to use its best efforts to obtain
upon the reasonable request of any seller of Registrable Securities) and the
reasonable fees, charges and expenses of any special experts (provided that a
seller of Registrable Securities shall give notice to the Company, as soon as
practicable, of the retention of any such special experts) retained in
connection with any requested Demand Registration or Piggy-Back Registration
pursuant to the terms of this Agreement, regardless of whether the registration
statement filed in connection with such registration is declared effective. In
connection with each registration hereunder, the Company shall reimburse the
Holders of Registrable Securities being registered in such registration for the
reasonable fees, charges and disbursements of not more than one Holders'
Counsel. All of the expenses described in this Section 7 are referred to in this
Agreement as "REGISTRATION EXPENSES."
8. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless each Holder, its directors, officers, partners, employees,
advisors and agents, and each Person who controls
7
<PAGE>
(within the meaning of the Act or the Exchange Act) such Holder, to the extent
permitted by law, from and against any and all losses, claims, damages, expenses
(including reasonable costs of investigation and fees, disbursements and other
charges of counsel) or other liabilities resulting from or arising out of or
based upon any untrue, or alleged untrue, statement of a material fact contained
in any registration statement, prospectus or preliminary prospectus or
notification or offering circular (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such Holder expressly for use
therein. The Company shall also indemnify any underwriters of the Registrable
Securities, their officers, directors and employees, and each Person who
controls any such underwriter (within the meaning of the Act and the Exchange
Act) to the same extent as provided above with respect to the indemnification of
the Holders of Registrable Securities.
(b) INDEMNIFICATION BY HOLDERS. In connection with any registration in
which a Holder is participating pursuant to Section 3 or 4 hereof, each such
Holder shall furnish to the Company in writing such information with respect to
such Holder as the Company may reasonably request or as may be required by law
for use in connection with any registration statement or prospectus to be used
in connection with such registration and each Holder agrees to indemnify and
hold harmless the Company, any underwriter retained by the Company and their
respective directors, officers, employees and each Person who controls (within
the meaning of the Act and the Exchange Act) the Company or such underwriter to
the same extent as the foregoing indemnity from the Company to the Holders
(subject to the proviso to this sentence and applicable law), but only with
respect to any such information furnished in writing by such Holder expressly
for use therein; PROVIDED, HOWEVER, that the liability of any Holder under this
Section 8(b) shall be limited to the amount of the net proceeds received by such
Holder in the offering giving rise to such liability.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder (the "INDEMNIFIED PARTY") agrees to give prompt
written notice to the indemnifying party (the "INDEMNIFYING PARTY") after the
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement; PROVIDED, that, the failure so to notify the
Indemnifying Party shall not relieve the Indemnifying Party of any liability
that it may have to the Indemnified Party hereunder. If notice of commencement
of any such action is given to the Indemnifying Party as above provided, the
Indemnifying Party shall be entitled to participate in and, to the extent it may
wish, jointly with any other Indemnifying Party similarly notified, to assume
the defense of such action at its own expense, with counsel chosen by it and
satisfactory to such Indemnified Party. The Indemnified Party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the Indemnified Party unless
(i) the Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party
fails to assume the defense of such action with counsel satisfactory to the
Indemnified Party in its reasonable judgment, (iii) the named parties to any
such action (including any impleaded parties) have been advised by such counsel
that either (A) representation of such Indemnified Party and the Indemnifying
Party by the same counsel would be inappropriate under applicable standards of
professional conduct or (B) there may be one or more legal defenses available to
it which are different from or additional to those available to the Indemnifying
Party. In either of such cases the Indemnifying Party shall not have the right
to assume the defense of such action on behalf of such Indemnified Party. No
Indemnifying Party shall be liable for any settlement entered into without its
written consent, which consent shall not be unreasonably withheld. The rights
accorded to any Indemnified Party hereunder shall be in addition to any rights
that such Indemnified Party may have at common law, by separate agreement or
otherwise.
8
<PAGE>
(d) CONTRIBUTION. If the indemnification provided for in Section 8(a) from
the Indemnifying Party is unavailable to an Indemnified Party in respect of any
losses, claims, damages, expenses or other liabilities referred to therein, then
the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, expenses or other liabilities in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions which resulted in
such losses, claims, damages, expenses or other liabilities, as well as any
other relevant equitable considerations. The relative faults of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, was made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the Indemnifying Party's and
Indemnified Party's relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable by a
party as a result of the losses, claims, damages, expenses or other liabilities
referred to above shall be deemed to include, subject to the limitations set
forth in Sections 8(a), 8(b) and 8(c), any legal or other fees, charges or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution pursuant
to this Section 8(d).
9. RULE 144; OTHER EXEMPTIONS. The Company covenants that it shall file
any reports required to be filed by it under the Exchange Act and the rules and
regulations adopted by the SEC thereunder, and that it shall take such further
action as each Holder may reasonably request (including providing any
information necessary to comply with Rules 144 and 144A under the Exchange Act),
all to the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Exchange Act within the
limitation of the exemptions provided by (a) Rule 144 or Rule 144A under the
Exchange Act, as such rules may be amended from time to time, or (b) any other
similar rules or regulations hereafter adopted by the SEC. The Company shall,
upon the request of any Holder, deliver to such Holder a written statement as to
whether the Company has complied with such requirements.
10. MISCELLANEOUS.
(a) RECAPITALIZATIONS, EXCHANGES, ETC. The provisions of this Agreement
shall apply, to the full extent set forth herein with respect to the Registrable
Securities, to any and all shares of capital stock of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in exchange for or in
substitution of, the Registrable Securities and shall be appropriately adjusted
for any stock dividends, splits, reverse splits, combinations, recapitalizations
and the like occurring after the date hereof.
(b) NO INCONSISTENT AGREEMENTS; OTHER REGISTRATION RIGHTS. The Company
will not hereafter enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders of Registrable Securities
in this Agreement. Without limiting the generality of the foregoing, the Company
will not hereafter enter into any agreement with respect to its securities that
grants, or modify any existing agreement with respect to its securities to
grant, to any holder of its securities (x) a right to demand registration of
such securities or (y) "piggyback" registration rights with priority equal to or
greater than the rights granted to the Designated Holders under Section 4(a).
(c) REMEDIES. The Holders, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, shall be entitled to
specific performance of their rights under this Agreement. The Company agrees
that monetary damages would not be adequate compensation for any
9
<PAGE>
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive in any action for specific performance the defense
that a remedy at law would be adequate.
(d) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions of such section may not be
given unless the Company has obtained the prior written consent of (i) Parent
and (ii) the Holders holding more than 50% of the Registrable Securities.
(e) NOTICES. All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(i) if to Parent:
[ ]
[ ]
[ ]
Telecopier No.: (212) 757-3990
Attention: [ ]
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telephone No.: (212) 373-3117
Telecopier No.: (212) 757-3990
Attention: Robert B. Schumer
(ii) if to Newco:
[ ]
[ ]
Telephone No.:
Telecopier No.:
(iii) if to any Holder, to its, his or her address as it appears on the
record books of the Company.
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; when delivered by courier, if
delivered by commercial overnight courier service; five Business Days after
being deposited in the mail, postage prepaid, if mailed; and when receipt is
acknowledged, if telecopied.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of the parties hereto.
Notwithstanding any transfer of such rights, all of the obligations of the
Company hereunder shall survive any such transfer and shall continue to inure to
the benefit of all transferees.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
principles of conflicts of law of such State.
10
<PAGE>
(j) JURISDICTION. Each party to this Agreement hereby irrevocably agrees
that any legal action or proceeding arising out of or relating to this Agreement
or any agreements or transactions contemplated hereby may be brought in the
courts of the State of New York or of the United States of America for the
Southern District of New York and hereby expressly submits to the personal
jurisdiction and venue of such courts for the purposes thereof and expressly
waives any claim of improper venue and any claim that such courts are an
inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 10(e), such service to
become effective 10 days after such mailing.
(k) SEVERABILITY. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, it being intended that all
of the rights and privileges of the Holders shall be enforceable to the fullest
extent permitted by law.
(l) ENTIRE AGREEMENT. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings in respect of the subject matter contained herein,
other than those set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
(m) FURTHER ASSURANCES. Each of the parties shall execute such documents
and perform such further acts as may be reasonably required or desirable to
carry out or to perform the provisions of this Agreement.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
USANi SUB LLC
By
------------------------------------------------------------------
Name:
Title:
NEWCO
By
------------------------------------------------------------------
Name:
Title:
11
<PAGE>
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 Avenue of the Americas
New York, New York 10019-6064
(212) 373-3000
March 24, 2000
Styleclick, Inc.
152 West 57th Street
New York, New York 10019
Styleclick, Inc.
Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
In connection with the above-captioned Registration Statement
on Form S-4 (the "Registration Statement") filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act"),
and the rules and regulations under the Act (the "Rules"), we have been
requested by Styleclick, Inc., a Delaware corporation (the "Company"), to
furnish our opinion as to the legality of up to 7,980,000 shares of the
Company's class A common stock, par value $0.01 per share (the "Class A
Shares"), registered for sale under the Registration Statement.
<PAGE>
2
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of the following
documents (collectively, the "Documents"): (i) the Registration Statement, (ii)
the Company's Certificate of Incorporation and Bylaws, and (iii) records of
certain of the Company's corporate proceedings. In addition, we have made those
other examinations of law and fact as we deemed relevant and necessary in order
to form a basis for our opinions.
In our examination of the Documents, we have assumed, without
independent investigation, the genuineness of all signatures, the enforceability
of the Documents against each party to them, the legal capacity of all
individuals who have executed any of the Documents, the authenticity of all
documents submitted to us as originals, the conformity to the original documents
of all documents submitted to us as certified, photostatic, reproduced or
conformed copies of valid existing agreements or other documents and the
authenticity of all the latter documents. As to certain matters of fact, we have
relied on representations, statements or certificates of officers of the
Company.
Based on the foregoing, and subject to the stated assumptions,
we are of the opinion that (i) the Class A Shares have been duly authorized for
issuance and (ii) the Class A Shares, when issued and delivered and paid for as
contemplated in the Documents, will be validly issued, fully paid and
non-assessable.
Our opinions expressed above are limited to the federal laws
of the United States and the General Corporation Law of the State of Delaware.
Please be advised that no member of this firm is admitted to practice in the
State of Delaware. Our opinions are rendered
<PAGE>
3
only with respect to the laws, and the rules, regulations and orders under them,
which are currently in effect.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the captions
"Legal Matters" and "Material Federal Income Tax Consequences" in the prospectus
included in the Registration Statement. In giving this consent, we do not agree
or admit that we come within the category of persons whose consent is required
by the Act or the Rules.
Very truly yours,
/s/ PAUL, WEISS, RIFKIND, WHARTON & GARRISON
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
Exhibit 8.1
January 22, 2000
USANi Sub, LLC
Carnegie Hall Tower
152 West 57th Street
42nd Floor
New York, NY 10019
Ladies and Gentlemen:
You have requested our opinion as to whether (i) the proposed
contribution of cash and of all the outstanding limited liability interests in
INTERNET SHOPPING NETWORK, LLC, a Delaware limited liability company ("Iota")
and a subsidiary of USANi SUB, LLC, a Delaware limited liability company ("Iota
Parent"), to NEWCO, a Delaware corporation wholly owned by Iota Parent and
formed in contemplation of the Contribution and Merger ("Newco"), in exchange
for stock in Newco (the "Contribution") and (ii) the proposed merger of MERGER
SUB, a California corporation ("Merger Sub") and a wholly-owned subsidiary of
Newco formed in contemplation of the Contribution and the Merger, with and into
STYLECLICK.COM, INC., a California corporation ("Styleclick"), with Styleclick
being the surviving corporation (the "Merger") should be treated for United
States federal income tax
<PAGE>
USANi Sub, LLC 2
purposes as exchanges governed by the provisions of Section 351 of the Internal
Revenue Code of 1986, as amended (the "Code"). You have also requested our
opinion as to whether the Merger should be treated as a reorganization under the
provisions of Section 368(a) of the Code.
In reaching the opinions expressed below, we have reviewed and relied
on (i) the Agreement and Plan of Merger (the "Merger Agreement"), dated as of
January 24, 2000, by and between Iota Parent and Styleclick, (ii) the
representation letters dated today addressed to us in connection with the
opinion set forth below from Iota Parent and Styleclick and (iii) such other
information and materials as we have deemed appropriate.
We have assumed, without any independent investigation, that the Merger
Agreement has been duly authorized, executed and delivered by the parties to it
and constitutes the valid and legally binding obligation of the parties, that
the Merger Agreement has not been and will not be further amended or modified,
that the representations and warranties in the Merger Agreement are and will
continue to be accurate, that parties to the Merger Agreement will act in
accordance with it, and that there are and will be no other agreements or
understandings among the parties in connection with the subject matter of the
Merger Agreement, other than the agreements or understandings referenced in the
Merger Agreement.
We have examined those corporate records, certificates and other
documents as we have considered necessary or appropriate for the purposes of
this opinion. In this examination, we have assumed the genuineness of all
signatures, the authenticity of all
<PAGE>
USANi Sub, LLC 3
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies, and the legal capacity of all individuals
who have executed any of the documents reviewed by us. In rendering our opinion
set forth below, we have relied as to factual matters upon information obtained
from Iota Parent and Styleclick, their officers and representatives and public
officials.
Based upon and subject to the foregoing, it is our opinion that the
Contribution and Merger should be treated for United States federal income tax
purposes as exchanges governed by the provisions of Section 351 of the Code, to
the extent that the Contribution consists of property within the meaning of
Section 351(a) of the Code.
Based upon and subject to the foregoing, it is our opinion that the
Merger should qualify for United States federal income tax purposes as a
reorganization under the provisions of Section 368(a) of the Code.
We express no opinion concerning any United States, state, local or
foreign tax matter relating to the Contribution and the Merger and the other
transactions described in the Merger Agreement, except as expressly set forth
above.
The above opinion is based on the current provisions of the Code and
the regulations under it, and on current interpretations of the Code and the
regulations. The Code, the regulations and the interpretations described above
are subject to change at any time, possibly with retroactive effect. Any change
could affect the continuing validity of the opinion set forth above. We assume
no responsibility to advise you of any subsequent changes in
<PAGE>
USANi Sub, LLC 4
existing law or facts, nor do we assume any responsibility to update this
opinion with respect to any matters expressly set forth and no opinions are to
be implied or may be inferred beyond the matters expressly so stated. No ruling
has been (or will be) sought from the Internal Revenue Service (the "IRS") as to
the federal income tax consequences of any aspect of the Merger or the
Contribution, and there can be no assurance that the IRS or any court of
competent jurisdiction will not disagree with the opinions expressed herein.
This letter is furnished by us solely for your benefit and the benefit
of holders of outstanding Iota Parent limited liability company interests and
may not be relied on in any manner or for any purpose by any other person or
entity without our prior written consent.
Very truly yours,
/s/ Paul, Weiss, Rifkind, Wharton & Garrison
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
Exhibit 8.2
January 24, 2000
PRIVILEGED AND CONFIDENTIAL
ATTORNEY WORK PRODUCT
Styleclick.Com, Inc.
3861 Sepulveda Blvd.
Culver City, California 90230
RE: MERGER PURSUANT TO THE AGREEMENT AND PLAN OF MERGER DATED
JANUARY 24, 2000 (THE "AGREEMENT") BETWEEN USANI SUB LLC
("NEWCO") AND STYLECLICK.COM, INC. ("TARGET")
---------------------------------------------------------
Dear Sirs:
You have requested our opinion in connection with the proposed merger
(the "Merger") of Merger Sub, a California corporation, with and into Target
pursuant to the terms of the Agreement. As a result of the Merger, each issued
and outstanding share of Target common stock shall be converted into the right
to receive one share of the common stock of Newco.(1) Specifically, this opinion
letter considers whether the Merger should qualify for U.S. Federal income tax
purposes as a tax-free reorganization under Sections 368(a)(1)(A) and
368(a)(2)(E).(2)
Our opinion represents and is based upon our best judgment regarding
the application of the Code and the Treasury Regulations applicable thereunder,
existing judicial decisions, administrative regulations, published rulings and
procedures, and current administrative practice
- --------
(1) Capitalized terms not expressly defined herein shall have the meanings
ascribed thereto in the Agreement.
(2) Hereinafter the provisions of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"), and the applicable Treasury Regulations thereunder will be
cited by Section only.
<PAGE>
January 24, 2000
Page 2
of the U.S. Internal Revenue Service (the "IRS") as of this date and such other
laws and facts as we have deemed relevant and necessary. Furthermore, no
assurance can be given that future legislative, judicial or administrative
changes, on either a prospective or retroactive basis, would not adversely
affect the accuracy of the conclusions stated herein. Nevertheless, we undertake
no responsibility to advise you of any new developments in the application or
interpretation of the U.S. Federal income tax laws.
No ruling will be obtained from the IRS on the issues to which this
opinion is addressed. Unlike such a ruling, an opinion of counsel has no binding
effect on the IRS or the courts. In the absence of a ruling there can be no
assurance that the IRS will not disagree with, or challenge in court, the
opinion set forth herein, or that such challenge will not prevail. If the IRS
were successful in challenging the conclusions reached in this opinion, certain
tax consequences expected by Target, Newco or any other party to the Merger may
not be achieved.
This opinion is provided solely for your benefit and is not to be used,
circulated, quoted, or otherwise referred to for any purpose without our express
written permission. Without exception, this opinion is not being provided as
legal or other advice to any persons and does not create an attorney-client
relationship with any person, other than Target.
I. OPINION
Based upon the representation letters attached hereto as Exhibit A and
Exhibit B, and subject to the assumptions, exceptions, limitations and
qualifications set forth herein, we are of the opinion that:
a. The Merger should qualify as a tax-free reorganization under
Sections 368(a)(1)(A) and 368(a)(2)(E).
b. Since the Merger should qualify as a tax-free reorganization,
(i) the holders of common stock of Target ("Target Common Stock")
will recognize no gain or loss as a result of the exchange of
such shares for shares of Newco common stock, with par value
$.01 ("Newco Common Stock") pursuant to the Merger. However,
gain or loss will be recognized on the receipt by such
shareholders of cash, if any, in exchange for the April 1999
Warrants. Any gain or loss recognized as a result of the
receipt of cash by a shareholder of Target in exchange for an
April 1999 Warrant will be treated as capital gain or loss
equal to the difference between the cash received and the
shareholder's basis in such Warrant;
(ii) the tax basis of the shares of Newco Common Stock received by
each shareholder
<PAGE>
January 24, 2000
Page 3
of Target will equal the tax basis of such shareholder's
shares of Target Common Stock exchanged in the Merger;
(iii) the holding period for the shares of Newco Common Stock
received by each shareholder of Target will include the
holding period for the shares of Target Common of such
shareholder exchanged in the Merger;
(iv) Merger Sub will recognize no gain or loss as a result of the
Merger, and
(v) Target will recognize no gain or loss as a result of the
Merger.
II. GENERAL
For the purpose of rendering this opinion, we have examined (or will
examine on or prior to the Effective Time of the Merger) and are relying (or
will rely) upon (without any independent investigation or review thereof) the
truth and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents:(3)
1. The Agreement and any other agreements associated therewith;
2. Representations made to us by Target in a letter, a copy of which is
attached hereto as Exhibit A;
3. Representations made to us by Parent in a letter, a copy of which is
attached hereto as Exhibit B;
4. Such other instruments and documents related to the formation,
organization and operation of Merger Sub, Newco, Parent or Target, to the
consummation of the Merger and the contemplated transactions as we have deemed
necessary or appropriate.
In connection with rendering this opinion, we have assumed or
obtained representations (and are relying thereon, without any independent
investigation or review thereof) that each of the representations made by
Parent and Target, and any other documents or agreements associated therewith
is and will be true, correct and complete.
- --------
(3) We shall assume that, original documents (including signatures) are
authentic, documents submitted to us as copies conform to the original
documents, and there has been (or will be by the Effective Time of the Merger)
due execution and delivery of all documents where due execution and delivery are
prerequisites to effectiveness thereof. We shall further assume that the Merger
will be effective under the laws of the states of Delaware and California, and
that the Parent and Target are and will be solvent.
<PAGE>
January 24, 2000
Page 4
Our opinion addresses only the qualification of the Merger as a
reorganization under Section 368(a) of the Code and does not address any other
legal or tax implications that might be raised from the Merger, any other
contemplated transactions, or any other activities and transactions relating to
the Parties.
No opinion is expressed as to any transaction whatsoever, including the
Merger, if all the contemplated transactions are not consummated in accordance
with the terms of the Agreement and without waiver or breach of any provision
thereof or if all of the representations, warranties, statements or assumptions
upon which we relied are not true and accurate at all relevant times.
Very truly yours,
/s/ Coudert Brothers
Coudert Brothers
Attachments: Exhibit A
Exhibit B
<PAGE>
EXHIBIT 9.1
VOTING AND FIRST OFFER AGREEMENT
VOTING AND FIRST OFFER AGREEMENT, dated as of January 24, 2000 (this
"AGREEMENT"), between Maurizio Vecchione (the "PRINCIPAL STOCKHOLDER") and USANi
Sub LLC, a Delaware limited liability company ("PARENT").
WHEREAS, Styleclick.com Inc., a California corporation (the "COMPANY"), and
Parent propose to enter into an Agreement and Plan of Merger, dated as of the
date hereof (the "MERGER AGREEMENT"), which provides for, among other things,
the merger of the Company (the "MERGER") with a wholly owned subsidiary of a
newly formed Delaware corporation ("NEWCO") and the concurrent contribution by
Parent to Newco of all of the outstanding limited liability interests of
Internet Shopping Network LLC, a Delaware limited liability company ("ISN");
WHEREAS, the Principal Stockholder is the owner of one or more of the
following securities: (a) shares of common stock of the Company, no par value
("COMPANY COMMON STOCK") and (b) options to acquire Company Common Stock; and
WHEREAS, in order to induce Parent to enter into the Merger Agreement, the
Principal Stockholder has agreed to enter into this Agreement with respect to
all the shares of Company Common Stock now owned, whether beneficially or of
record, and which may hereafter be acquired by the Principal Stockholder and any
shares of Company Common Stock over which the Principal Stockholder has
investment power or voting power, each within the meaning of Rule 13d-3(a) of
the Securities Exchange Act of 1934, as amended (the "SHARES"), and all options
to acquire Shares now owned and which may hereafter be acquired (the "OPTIONS").
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE 1
Section 1.1 VOTING AGREEMENT. The Principal Stockholder hereby agrees that
during the Restricted Period (as defined below) at any meeting of the
stockholders of the Company, however called, and in any action by consent of the
stockholders of the Company, the Principal Stockholder shall vote his Shares or
shall cause his Shares to be voted: (a) in favor of the Merger, the Merger
Agreement (as amended from time to time) and the transactions contemplated by
the Merger Agreement (the "PROPOSED TRANSACTIONS") and (b) against any proposal
(other than in respect of the Proposed Transaction) for any: (i) merger,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any
other material corporate transaction, the consummation of which could reasonably
be expected to impede, interfere with, prevent or materially delay the Proposed
Transactions; (ii) a sale, lease, exchange, transfer or other disposition of 20%
or more of the assets of the Company in a single transaction or series of
transactions; or (iii) the acquisition by any person or "group" (as defined in
Section 13(d) of the Exchange Act) other than Parent or its affiliates (herein,
a "THIRD PARTY"), of "beneficial ownership" of 15% or more of the Company's
voting stock whether by tender offer or exchange offer or otherwise and
including a self tender offer, merger, sale of assets or other business
combination between the Company and any person or entity or any other action or
agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of the Company under the Merger
Agreement or which could result in any of the conditions to the Company's
obligations under the Merger Agreement not being fulfilled. For purposes of this
Agreement, the term "RESTRICTED PERIOD" shall mean the time during which the
Merger Agreement remains in effect and for 12 months thereafter.
1
<PAGE>
Section 1.2 ACKNOWLEDGMENT. The Principal Stockholder acknowledges receipt
and review of a copy of the Merger Agreement.
Section 1.3 WAIVER OF DISSENTERS' RIGHTS. The Principal Stockholder hereby
irrevocably and forever waives any rights the Principal Stockholder may have, as
a result of the Merger, to demand payment for any Shares beneficially owned by
the Principal Stockholder pursuant to Section 1300 et. seq. of California Law or
to otherwise qualify as a "dissenting shareholder" as such term is used in such
sections of California Law.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE PRINCIPAL STOCKHOLDER
The Principal Stockholder hereby represents and warrants to Parent as
follows:
Section 2.1 AUTHORITY RELATIVE TO THIS AGREEMENT. The Principal Stockholder
has all necessary power and authority to execute and deliver this Agreement, to
perform his obligations hereunder and to consummate the transactions
contemplated hereby and no other proceedings on the part of the Principal
Stockholder are necessary to authorize this Agreement or to consummate such
transactions. This Agreement has been duly and validly executed and delivered by
the Principal Stockholder and, assuming the due authorization, execution and
delivery by Parent, constitutes a legal, valid and binding obligation of the
Principal Stockholder, enforceable against the Principal Stockholder in
accordance with its terms.
Section 2.2 NO CONFLICT. (a) The execution and delivery of this Agreement by
the Principal Stockholder do not, and the performance of this Agreement by the
Principal Stockholder will not, (i) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Principal Stockholder or
by which the Shares or the Options are bound or affected or (ii) result in any
breach of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien (as defined below) on any of the Shares or the Options
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Principal Stockholder is a party or by which the Principal Stockholder or the
Shares or the Options are bound or affected, except for any such conflicts,
violations, breaches, defaults or other occurrences which would not prevent or
delay the performance by the Principal Stockholder of his obligations under this
Agreement.
(b) The execution and delivery of this Agreement by the Principal
Stockholder do not, and the performance of this Agreement by the Principal
Stockholder will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any court or arbitrator or any
governmental body, agency or official except for applicable requirements, if
any, of the Securities Exchange Act of 1934, as amended, and except where
the failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, would not prevent or delay the
performance by the Principal Stockholder of his obligations under this
Agreement.
Section 2.3 TITLE TO THE SHARES. As of the date hereof, the Principal
Stockholder is the record and beneficial owner of, or has voting power or
investment power over, the Shares, and is the record and beneficial owner of the
Options, listed on Schedule 1. Such Shares and Options are all the securities of
the Company owned, either of record or beneficially, by the Principal
Stockholder or in which the Principal Stockholder has voting or investment power
and the Principal Stockholder owns no other rights or interests exercisable for
or convertible into any securities of the Company. Except as identified on
Schedule 2, all of the Shares and Options referred to above are owned free and
clear of all security
2
<PAGE>
interests, liens, claims, pledges, options, rights of first refusal, agreement,
limitations on the Principal Stockholder's voting rights, charges and other
encumbrances of any nature whatsoever (collectively, "Liens") except, with
respect to the Options, the Company Option Plan and any agreements executed
pursuant thereto pursuant to which such Options were issued. The Principal
Stockholder has not appointed or granted any proxy, which appointment or grant
is still effective, with respect to the Shares.
ARTICLE 3
COVENANTS OF THE PRINCIPAL STOCKHOLDER
Section 3.1 NO INCONSISTENT AGREEMENT. The Principal Stockholder hereby
covenants and agrees that he shall not enter into any agreement or grant a proxy
or power of attorney with respect to the Shares or Options which is inconsistent
with this Agreement.
Section 3.2 TRANSFER RESTRICTION.
(a) The Principal Stockholder hereby covenants and agrees that he shall
not sell, give, assign, hypothecate, pledge, encumber, grant a security
interest in or otherwise dispose of, whether by operation of law or by
agreement or otherwise (each a "TRANSFER"), from the date hereof until the
termination of the Merger Agreement, any Shares or Options, or any right,
title or interest therein or thereto.
(b) Notwithstanding the foregoing, the Principal Stockholder may
Transfer any Shares or Options, or any right, title or interest therein or
thereto, to any trust which is established, and which remains, solely for
the benefit of the Principal Stockholder or his spouse, siblings, children
or grandchildren (a "TRUST"), provided, that, prior to such Transfer, the
Trust shall execute and deliver an agreement by which it shall become a
party to and be bound by the applicable terms and provisions of this
Agreement, in form and substance reasonably satisfactory to Parent.
(c) Notwithstanding the foregoing, if Parent permits any stockholder
that is a party to an agreement containing restrictions on transfer of the
type contained herein (the "TRANSFERRING STOCKHOLDER") to Transfer any
Shares, Options or warrants to purchase Company Common Stock (the
"WARRANTS") after the date hereof and prior to the termination of the Merger
Agreement, which Transfer would otherwise be prohibited by such agreement,
then Parent shall permit the Principal Stockholder, upon his request, to
Transfer a number of Shares or Options equal to the product of (i) the
number of Shares, Options or Warrants Transferred by the Transferring
Stockholder divided by the number of Shares, Options or Warrants owned by
the Transferring Stockholder as of the date of such Transfer, and (ii) the
number of Shares or Options owned by the Principal Stockholder as of the
date of such Transfer, in each case, treating all Options and Warrants as
Shares on an as-converted basis (without giving effect to restrictions or
limitations on the exercise of such Options or Warrants).
Section 3.3 RIGHT OF FIRST OFFER. The Principal Stockholder hereby covenants
and agrees that, following the termination of the Merger Agreement and during
the remainder of the Restricted Period, the Principal Stockholder shall not
Transfer any Shares or Options except pursuant to the following provisions:
(a) OFFERING NOTICE. If the Principal Stockholder wishes to Transfer
(other than pursuant to the Merger) all or any portion of his Shares or
Options to any person or entity (a "THIRD PARTY PURCHASER"), the Principal
Stockholder shall first offer such Shares or Options to Parent, by sending
written notice (an "OFFERING NOTICE") to Parent, which shall state (i) the
number of Shares or Options proposed to be transferred (the "OFFERED
SECURITIES"); (ii) whether such sale (with respect to Shares only) will be
effected in an open market transaction that complies with Rule 144(f) of
3
<PAGE>
the Securities Act of 1933 (a "PUBLIC SALE") or otherwise (a "PRIVATE
SALE"), (iii) the proposed purchase price for the Offered Securities, which
price must be in cash and, with respect to a Public Sale, may not be at a
per share price in excess of the closing price of shares of Company Common
Stock on the NASDAQ for the trading day immediately prior to the date on
which the Offering Notice is given (the "OFFER PRICE"); and (iv) with
respect to a Private Sale, the terms and conditions of such sale, which
terms and conditions must be customary and reasonable for a transaction of
such type. Upon delivery of the Offering Notice, such offer shall be
irrevocable unless and until the rights of first offer provided for herein
shall have been waived or shall have expired;
(b) PARENT OPTION. For a period of five days after the giving of the
Offering Notice pursuant to Section 3.3(a) (the "OPTION PERIOD"), Parent
shall have the right (the "OPTION") but not the obligation to purchase all
(but not less than all) of the Offered Securities at a purchase price equal
to the Offer Price and, with respect to a Private Sale, upon the terms and
conditions set forth in the Offering Notice. The right of Parent to purchase
any or all of the Offered Securities under this Section 3.3(b) shall be
exercisable by delivering written notice of the exercise thereof (the
"ACCEPTANCE"), prior to the expiration of the Option Period, to the
Principal Stockholder, which notice shall state the number of Offered
Securities proposed to be purchased by Parent. The failure of Parent to
respond within the Option Period shall be deemed to be a waiver of the
Option; PROVIDED that Parent may waive its rights under this Section 3.3(b)
prior to the expiration of the Option Period by giving written notice to the
Principal Stockholder (the date any such written waiver is received by the
Principal Stockholder or, if no notice is given, the last date of the Option
Period is referred to as the "WAIVER DATE");
(c) CLOSING. The closing of the purchase of Offered Securities
subscribed for by Parent under Section 3.3(b) shall be held at the executive
offices of Parent at 11:00 a.m., local time, on the later of (i) the 10th
day after the Acceptance pursuant to Section 3.3(b) and (ii) two days
following the date on which all governmental or regulatory approvals
(including the expiration of any waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act) with respect to such transaction, if any, have
been obtained or at such other time and place as the parties to the
transaction may agree. At such closing, the Principal Stockholder shall
deliver certificates representing the Offered Securities, duly endorsed for
transfer and accompanied by all requisite transfer taxes, if any, and such
Offered Securities shall be free and clear of any Liens (other than those
arising hereunder) and the Principal Stockholder shall so represent and
warrant, and shall further represent and warrant that he is the sole
beneficial and record owner of such Offered Securities. Parent shall deliver
at the closing payment in full in immediately available funds for the
Offered Securities purchased. In connection with such sale the parties to
the transaction shall execute such additional documents and take all
reasonable steps as are otherwise necessary or appropriate to effectuate
such transaction; and
(d) SALE TO A THIRD PARTY PURCHASER. If Parent does not elect to
purchase all of the Offered Securities under Section 3.3(b), the Principal
Stockholder may sell all, but not less than all, of the Offered Securities
that Parent elected not to purchase (i) with respect to a Private Sale to a
Third Party Purchaser on terms and conditions no less favorable to the
Principal Stockholder than those set forth in the Offering Notice;
PROVIDED,HOWEVER, that such sale is bona fide and not undertaken for the
purpose of avoiding the Principal Stockholder's obligations hereunder and
made pursuant to a contract entered into within 10 days after the Waiver
Date and (ii) with respect to a Public Sale, such sale is effected within
five days following the Waiver Date at the market price in effect at the
time of such sale. If such sale is not consummated within five days after
the Waiver Date with respect to a Public Sale or 45 days after the Waiver
Date with respect to a Private Sale, then the restrictions provided for
herein shall again become effective, and no transfer of such Offered
Securities may be made thereafter by the Principal Stockholder without again
offering the same to Parent in accordance with this Section 3.3.
4
<PAGE>
Section 3.4 STOCKHOLDERS AGREEMENT. Prior to the Closing of the Merger, the
Principal Stockholder hereby agrees to execute the Stockholders Agreement,
substantially in the form attached as Exhibit A to the Merger Agreement.
Section 3.5 EMPLOYMENT AGREEMENT. Prior to the Closing of the Merger, the
Principal Stockholder hereby agrees to execute an employment agreement, between
the Principal Stockholder and Newco, substantially in the form agreed to by the
Principal Stockholder and Parent prior to the execution hereof.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT
Section 4.1 AUTHORITY RELATIVE TO THIS AGREEMENT. Parent has full right,
power and authority to enter into and perform this Agreement and this Agreement
has been duly authorized, executed and delivered by Parent and is a valid and
binding agreement of Parent and enforceable against Parent in accordance with
its terms.
Section 4.2 NO CONFLICT. (a) The execution and delivery of this Agreement by
Parent do not, and the performance of this Agreement by Parent will not,
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to Parent.
(b) The execution and delivery of this Agreement by Parent do not, and
the performance of this Agreement by Parent will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
court or arbitrator or any governmental body, agency or official except for
applicable requirements, if any, of the Securities Exchange Act of 1934, as
amended, and except where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would
not prevent or delay the performance by Parent of its obligations under this
Agreement.
ARTICLE 5
MISCELLANEOUS
Section 5.1 TERMINATION. This Agreement shall terminate upon the earliest to
occur of (i) the Closing, (ii) the 12-month anniversary following termination of
the Merger Agreement and (iii) the termination of the Merger Agreement by Parent
pursuant to Section 7.1(c) of such Agreement; provided that the representations
and warranties contained herein shall survive the termination hereof.
Section 5.2 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with the terms hereof and that the parties
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy at law or in equity.
Section 5.3 DEFINITIONS. Unless otherwise defined herein, all capitalized
terms shall have the definitions assigned to such terms in the Merger Agreement.
Section 5.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among Parent and the Principal Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
Section 5.5 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
5
<PAGE>
Section 5.6 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule or 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
this Agreement is not affected in any manner materially 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 to the fullest extent permitted by applicable law in a
mutually acceptable manner in order that the terms of this Agreement remain as
originally contemplated.
Section 5.7 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
Section 5.8 JURISDICTION. Each party to this Agreement hereby irrevocably
agrees that any legal action or proceeding arising out of or relating to this
Agreement or any agreements or transactions contemplated hereby shall be brought
in the courts of the State of New York and hereby expressly submits to the
personal jurisdiction and venue of such courts for the purposes thereof and
expressly waives any claim of improper venue and any claim that such courts are
an inconvenient forum.
IN WITNESS WHEREOF, Parent and the Principal Stockholder have caused this
Agreement to be duly executed as of the date first above written.
<TABLE>
<S> <C> <C>
USANI SUB LLC
By: /s/ DARA KHOSROWSHAHI
-----------------------------------------
Dara Khosrowshahi
VICE PRESIDENT
/s/ MAURIZIO VECCHIONE
-----------------------------------------
Maurizio Vecchione
</TABLE>
6
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OWNED BENEFICIALLY NUMBER OF
OR OF RECORD(1) OPTIONS OWNED
------------------ -------------
<S> <C> <C>
417,619 237,227
</TABLE>
- ------------------------
(1) Other than Shares issuable upon exercise of Options, which are listed in the
next column.
7
<PAGE>
SCHEDULE 2
LIENS
None.
8
<PAGE>
SCHEDULE TO EXHIBIT 9.1
Joyce Freedman and Lee Freedman also executed a Voting and First Offer
Agreement substantially similar to the foregoing, except that Joyce Freedman
holds 1,506,247 shares of Old Styleclick common stock and options to purchase
237,227 shares of Old Styleclick common stock and Lee Freedman holds 139,952
shares of Old Styleclick common stock and options to purchase 75,000 shares of
Old Styleclick common stock.
9
<PAGE>
EXHIBIT 9.2
VOTING AND FIRST OFFER AGREEMENT
VOTING AND FIRST OFFER AGREEMENT, dated as of January 24, 2000 (this
"AGREEMENT"), among Intel Corporation, a Delaware corporation (the "PRINCIPAL
STOCKHOLDER"), USANi Sub LLC, a Delaware limited liability company ("PARENT")
and Styleclick.com Inc., a California corporation (the "Company").
WHEREAS, the Company and Parent propose to enter into an Agreement and Plan
of Merger, dated as of the date hereof (the "MERGER AGREEMENT"), which provides
for, among other things, the merger of the Company (the "MERGER") with a wholly
owned subsidiary of a newly formed Delaware corporation ("NEWCO") and the
concurrent contribution by Parent to Newco of all of the outstanding limited
liability interests of Internet Shopping Network LLC, a Delaware limited
liability company;
WHEREAS, the Principal Stockholder is (a) the owner of one or more of the
following securities: (i) shares of common stock of the Company, no par value
("COMPANY COMMON STOCK") and (ii) warrants to acquire Company Common Stock, in
each case listed on Schedule 1, and (b) party to certain agreements with the
Company identified on Schedule 2 (the "COMPANY AGREEMENTS"); and
WHEREAS, in order to induce Parent to enter into the Merger Agreement, the
Principal Stockholder has agreed to enter into this Agreement with respect to
(a) all the shares of Company Common Stock now owned, whether beneficially or of
record, and which may hereafter be acquired by the Principal Stockholder and any
shares of Company Common Stock over which the Principal Stockholder has
investment power or voting power, each within the meaning of Rule 13d-3(a) of
the Securities Exchange Act of 1934, as amended (the "SHARES"), and all warrants
to acquire Shares now owned and which may hereafter be acquired (the
"WARRANTS"), and (b) the Company Agreements to which the Principal Stockholder
is a party.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE 1
Section 1.1 VOTING AGREEMENT. The Principal Stockholder hereby agrees that
during the Restricted Period (as defined below) at any meeting of the
stockholders of the Company, however called, and in any action by consent of the
stockholders of the Company, the Principal Stockholder shall vote its Shares or
shall cause its Shares to be voted: (a) in favor of the Merger, the Merger
Agreement (as amended from time to time) and the transactions contemplated by
the Merger Agreement (the "PROPOSED TRANSACTIONS") and (b) against any proposal
(other than in respect of the Proposed Transaction) for any: (i) merger,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any
other material corporate transaction, the consummation of which could reasonably
be expected to impede, interfere with, prevent or materially delay the Proposed
Transactions; (ii) a sale, lease, exchange, transfer or other disposition of 20%
or more of the assets of the Company in a single transaction or series of
transactions; or (iii) the acquisition by any person or "group" (as defined in
Section 13(d) of the Exchange Act) other than Parent or its affiliates (herein,
a "THIRD PARTY"), of "beneficial ownership" of 15% or more of the Company's
voting stock whether by tender offer or exchange offer or otherwise and
including a self tender offer, merger, sale of assets or other business
combination between the Company and any person or entity or any other action or
agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of the Company under the Merger
Agreement or which could result in any of the conditions to the Company's
obligations under the Merger Agreement not being fulfilled. For purposes of this
Agreement, the term "RESTRICTED
1
<PAGE>
PERIOD" shall mean the time during which the Merger Agreement remains in effect
and for 12 months thereafter.
Section 1.2 ACKNOWLEDGMENT. The Principal Stockholder acknowledges receipt
and review of a copy of the Merger Agreement.
Section 1.3 WAIVER OF COMPANY AGREEMENTS. Subject to the terms and
conditions hereof, the Principal Stockholder hereby irrevocably and forever
waives, and agrees to the modifications of its rights under, the provisions of
the Company Agreements identified on Schedule 2 and as limited and qualified by
Schedule 2 and Schedule 4 which are incorporated herein by reference.
Section 1.4 WAIVER OF DISSENTERS' RIGHTS. The Principal Stockholder hereby
irrevocably and forever waives any rights the Principal Stockholder may have, as
a result of the Merger, to demand payment for any Shares beneficially owned by
the Principal Stockholder pursuant to Section 1300 et. seq. of California Law or
to otherwise qualify as a "dissenting shareholder" as such term is used in such
sections of California Law.
Section 1.5 TERMINATION OF WAIVERS. Notwithstanding the foregoing, the
waivers and modifications effected in Sections 1.3 and 1.4 shall be of no
further force and effect and shall be treated as if they had never been granted
if: (a) the Merger Agreement is not executed prior to February 15, 2000;
(b) the Merger is not consummated prior to July 31, 2000; (c) the Merger
Agreement is amended in a manner materially adverse to the Principal
Stockholder; (d) any party materially breaches its obligations under the Merger
Agreement and such breach has a material adverse effect on the Principal
Stockholder; or (e) the Merger Agreement is otherwise terminated pursuant to its
terms prior to the consummation of the Merger.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE PRINCIPAL STOCKHOLDER
The Principal Stockholder hereby represents and warrants to Parent as
follows:
Section 2.1 AUTHORITY RELATIVE TO THIS AGREEMENT. The Principal
Stockholder has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby and no other proceedings on the part of the
Principal Stockholder are necessary to authorize this Agreement or to consummate
such transactions. This Agreement has been duly and validly executed and
delivered by the Principal Stockholder and, assuming the due authorization,
execution and delivery by Parent and the Company, constitutes a legal, valid and
binding obligation of the Principal Stockholder, enforceable against the
Principal Stockholder in accordance with its terms.
Section 2.2 NO CONFLICT. (a) The execution and delivery of this Agreement
by the Principal Stockholder do not, and the performance of this Agreement by
the Principal Stockholder will not, (i) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Principal Stockholder or
by which the Shares or the Warrants are bound or affected or (ii) result in any
breach of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien (as defined below) on any of the Shares or the Warrants
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Principal Stockholder is a party or by which the Principal Stockholder or the
Shares or the Warrants are bound or affected, except for any such conflicts,
violations, breaches, defaults or other occurrences which would not prevent or
delay the performance by the Principal Stockholder of its obligations under this
Agreement.
2
<PAGE>
(b) The execution and delivery of this Agreement by the Principal
Stockholder do not, and the performance of this Agreement by the Principal
Stockholder will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any court or arbitrator or any governmental
body, agency or official except for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended, and except where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay the performance by the
Principal Stockholder of its obligations under this Agreement.
Section 2.3 TITLE TO THE SHARES. As of the date hereof, the Principal
Stockholder is the record and beneficial owner of, or has voting power or
investment power over, the Shares, and is the record and beneficial owner of the
Warrants, listed on Schedule 1. Such Shares and Warrants are all the securities
of the Company owned, either of record or beneficially, by the Principal
Stockholder or in which the Principal Stockholder has voting or investment power
and the Principal Stockholder owns no other rights or interests exercisable for
or convertible into any securities of the Company. Except as identified on
Schedule 3, all of the Shares and Warrants referred to above are owned free and
clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreement, limitations on the Principal Stockholder's voting
rights, charges and other encumbrances of any nature whatsoever, in each case as
imposed by or through the Principal Stockholder but excluding standard margin
rules applicable to the Shares (collectively, "LIENS") except, with respect to
the Warrants, the Warrant Agreements pursuant to which such Warrants were
issued. The Principal Stockholder has not appointed or granted any proxy, which
appointment or grant is still effective, with respect to the Shares.
Section 2.4 OTHER COMPANY AGREEMENTS. To the best knowledge of Intel's
management, the Principal Stockholder is not, as of the date hereof, a party to
any agreement or arrangement with the Company containing provisions similar to
those described on Schedule 2 other than the agreements listed on Schedule 2.
ARTICLE 3
COVENANTS OF THE PRINCIPAL STOCKHOLDER
Section 3.1 NO INCONSISTENT AGREEMENT. The Principal Stockholder hereby
covenants and agrees that it shall not enter into any agreement or grant a proxy
or power of attorney with respect to the Shares or Warrants which is
inconsistent with this Agreement.
Section 3.2 TRANSFER RESTRICTION.
(a) The Principal Stockholder hereby covenants and agrees that it shall not
sell, give, assign, hypothecate, pledge, encumber, grant a security interest in
or otherwise dispose of, whether by operation of law or by agreement or
otherwise (each a "TRANSFER"), from the date hereof until the termination of the
Merger Agreement, any Shares or Warrants, or any right, title or interest
therein or thereto; PROVIDED, HOWEVER, that, notwithstanding the foregoing, the
Principal Stockholder may engage in ordinary course hedging transactions.
(b) Notwithstanding the foregoing, the Principal Stockholder may Transfer
any Shares or Warrants, or any right, title or interest therein or thereto, to
any of its subsidiaries or controlled affiliates; PROVIDED that, prior to such
Transfer, any transferee thereof shall execute and deliver an agreement by which
it shall become a party to and be bound by the applicable terms and provisions
of this Agreement, in form and substance reasonably satisfactory to Parent.
(c) Notwithstanding the foregoing, if Parent permits Joyce Freedman,
Maurizio Vecchione, Lee Freedman, Castle Creek Partners, L.L.C., Marshall
Capital Management, Inc., or Winfield Capital Corp. (each, a "TRANSFERRING
STOCKHOLDER") to Transfer any Shares, Warrants or options to purchase Company
Common Stock (the "OPTIONS") after the date hereof and prior to the termination
of the Merger Agreement, which Transfer would otherwise be prohibited by an
agreement between such
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<PAGE>
Transferring Stockholder and Parent containing transfer restrictions similar to
the restrictions contained herein, then Parent shall permit the Principal
Stockholder, upon its request to Transfer a number of Shares or Warrants equal
to the product of (i) the number of Shares, Warrants or Options Transferred by
the Transferring Stockholder divided by the number of Shares, Warrants or
Options owned by the Transferring Stockholder as of the date of such Transfer,
and (ii) the number of Shares or Warrants owned by the Principal Stockholder as
of the date of such Transfer, in each case, treating all Options and Warrants as
Shares on an as-converted basis (without giving effect to restrictions or
limitations on the exercise of such Options or Warrants).
Section 3.3 RIGHT OF FIRST OFFER. The Principal Stockholder hereby
covenants and agrees that following the termination of the Merger Agreement and
during the remainder of the Restricted Period, it shall not Transfer any Shares
or Warrants except pursuant to the following provisions:
(a) OFFERING NOTICE. If the Principal Stockholder wishes to Transfer (other
than pursuant to the Merger) all or any portion of its Shares or Warrants to any
person or entity (a "THIRD PARTY PURCHASER"), the Principal Stockholder shall
first offer such Shares or Warrants to Parent, by sending written notice (an
"OFFERING NOTICE") to Parent, which shall state (i) the number of Shares or
Warrants proposed to be transferred (the "OFFERED SECURITIES"); (ii) whether
such sale (with respect to Shares only) will be effected in an open market
transaction that complies with Rule 144(f) of the Securities Act of 1933 (a
"PUBLIC SALE") or otherwise (a "PRIVATE SALE") and (iii) the proposed purchase
price for the Offered Securities (the "OFFER PRICE") which, with respect to a
Public Sale, may not be at a per share price in excess of the closing price of
shares of Company Common Stock on the NASDAQ for the trading day immediately
prior to the date on which the Offering Notice is given. Upon delivery of the
Offering Notice, such offer shall be irrevocable unless and until the rights of
first offer provided for herein shall have been waived or shall have expired;
(b) PARENT OPTION. For a period of three business days after the giving of
the Offering Notice pursuant to Section 3.3(a) (the "OPTION PERIOD"), Parent
shall have the right (the "OPTION") but not the obligation to purchase all (but
not less than all) of the Offered Securities at a purchase price equal to the
Offer Price. If the consideration to be paid pursuant to such Private Sale is
not in the form of cash, Parent may, at its election, exercise the Option by
paying cash in the amount equal to the fair market value of the consideration to
be paid to the Principal Stockholder. The parties, each acting through one or
more senior officers of the rank of Vice President or higher as its
representative, shall negotiate in good faith and alone (except for one
assistant for each party) to determine such fair market value. If no agreement
can be reached by such senior managers, then such fair market value shall be
determined by a neutral arbitrator under the Commercial Arbitration Rules of the
American Arbitration Association. No sale may be made until a determination as
to such fair value is reached, and such determination shall be made within
30 days of the Offering Notice. The right of Parent to purchase any or all of
the Offered Securities under this Section 3.3(b) shall be exercisable by
delivering written notice of the exercise thereof (the "ACCEPTANCE"), prior to
the expiration of the Option Period, to the Principal Stockholder, which notice
shall state the number of Offered Securities proposed to be purchased by Parent.
The failure of Parent to respond within the Option Period shall be deemed to be
a waiver of the Option; PROVIDED that Parent may waive its rights under this
Section 3.3(b) prior to the expiration of the Option Period by giving written
notice to the Principal Stockholder (the date any such written waiver is
received by the Principal Stockholder or, if no written waiver is given, the
last date of the Option Period is referred to as the "WAIVER DATE");
(c) CLOSING. The closing of the purchase of Offered Securities subscribed
for by Parent under Section 3.3(b) shall be held at the executive offices of
Parent at 11:00 a.m., local time, on the later of (i) the 10th day after the
Acceptance pursuant to Section 3.3(b) and (ii) two days following the date on
which all governmental or regulatory approvals (including the expiration of any
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act) with
respect to such transaction, if any, have been obtained or at such other time
and place as the parties to the transaction may agree. At such closing,
4
<PAGE>
the Principal Stockholder shall deliver certificates representing the Offered
Securities, duly endorsed for transfer and accompanied by all requisite transfer
taxes, if any, and such Offered Securities shall be free and clear of any Liens
(other than those arising hereunder) and the Principal Stockholder shall so
represent and warrant, and shall further represent and warrant that it is the
sole beneficial and record owner of such Offered Securities. Parent shall
deliver at the closing payment in full in immediately available funds for the
Offered Securities purchased. In connection with such sale the parties to the
transaction shall execute such additional documents and take all reasonable
steps as are otherwise necessary or appropriate to effectuate such transaction;
and
(d) SALE TO A THIRD PARTY PURCHASER. If Parent does not elect to purchase
all of the Offered Securities under Section 3.3(b), the Principal Stockholder
may sell all, but not less than all, of the Offered Securities that Parent
elected not to purchase (i) with respect to a Private Sale to a Third Party
Purchaser on terms and conditions no less favorable to the Principal Stockholder
than those set forth in the Offering Notice; PROVIDED, HOWEVER, that such sale
is bona fide and not undertaken for the purpose of avoiding the Principal
Stockholder's obligations hereunder and made pursuant to a contract entered into
within 10 days after the Waiver Date and (ii) with respect to a Public Sale,
such sale is effected within five days following the Waiver Date at the market
price in effect at the time of such sale. If such sale is not consummated within
five days after the Waiver Date with respect to a Public Sale or 45 days after
the Waiver Date with respect to a Private Sale, then the restrictions provided
for herein shall again become effective, and no transfer of such Offered
Securities may be made thereafter by the Principal Stockholder without again
offering the same to Parent in accordance with this Section 3.3.
(e) Notwithstanding the foregoing, the provisions of this Section 3.3 shall
be of no further force and effect if: (a) the Merger Agreement is not executed
prior to February 15, 2000; (b) any party materially breaches its obligations
under the Merger Agreement and such breach has a material adverse effect on the
Principal Stockholder; or (c) the Merger Agreement is amended in a manner
materially adverse to the Principal Stockholder.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND THE COMPANY
Section 4.1 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and the
Company has full right, power and authority to enter into and perform this
Agreement and this Agreement has been duly authorized, executed and delivered by
each of Parent and the Company and is a valid and binding agreement of each of
Parent and the Company and enforceable against each of Parent and the Company in
accordance with its terms.
Section 4.2 NO CONFLICT. (a) The execution and delivery of this Agreement
by each of Parent and the Company do not, and the performance of this Agreement
by each of Parent and the Company will not, (i) conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to Parent or the
Company, as applicable or (ii) result in any breach of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien (as defined below) pursuant
to any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Parent or the
Company is a party or by which the Parent or the Company are bound or affected,
except for any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay the performance by the Parent or
the Company of their obligations under this Agreement.
(b) The execution and delivery of this Agreement by each of Parent and the
Company do not, and the performance of this Agreement by each of Parent and the
Company will not, require any consent,
5
<PAGE>
approval, authorization or permit of, or filing with or notification to, any
court or arbitrator or any governmental body, agency or official except for
applicable requirements, if any, of the Securities Exchange Act of 1934, as
amended, and except where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay the performance by Parent or the Company, as applicable, of its
obligations under this Agreement.
Section 4.3 OTHER AGREEMENTS. Concurrently with the execution hereof,
Parent and the Company are entering into separate agreements with Joyce
Freedman, Lee Freedman and Maurizio Vecchione containing restrictions on voting
and transfer similar to the restrictions contained herein. The restrictions on
voting and transfer contained in such agreements are not materially more
favorable to such other parties than the restrictions on voting and transfer
applicable to the Principal Stockholder hereunder. Concurrently with the
execution hereof, Parent is entering into separate waiver agreements with Castle
Creek Partners, L.L.C., Marshall Capital Management, Inc. and Winfield Capital
Corp. waiving certain provisions of agreements between such parties and the
Company similar to the waivers contained in Schedule 2. Such waivers are not
materially more favorable to such other parties than the waivers applicable to
the Principal Stockholder hereunder. Following the date hereof, neither Parent
nor the Company shall enter into an agreement (or amend an existing agreement)
containing waivers similar to the waivers contained in Schedule 2 that are more
favorable to the other party (when taken as a whole) than those applicable to
the Principal Stockholder hereunder, unless Parent and the Company also offer
such more favorable terms to the Principal Stockholder.
ARTICLE 5
MISCELLANEOUS
Section 5.1 TERMINATION. This Agreement shall terminate upon the earliest
to occur of (i) the Closing, (ii) the 12-month anniversary following termination
of the Merger Agreement and (iii) the termination of the Merger Agreement by
Parent pursuant to Section 7.1(c) of such Agreement; PROVIDED that (x) the
representations and warranties contained herein shall survive the termination
hereof and (y) subject to Section 1.5, Section 1.3 hereof shall survive the
consummation of the Merger; PROVIDED, FURTHER, that the agreements of the
Company and Parent set forth in Schedule 2 and 4 hereof, respectively relating
to the extension of the Warrants and cashless exercise shall survive the
termination hereof or the consummation of the Merger as the case may be.
Section 5.2 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or in equity.
Section 5.3 DEFINITIONS. Unless otherwise defined herein, all capitalized
terms shall have the definitions assigned to such terms in the Merger Agreement.
Section 5.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among Parent, the Company and the Principal Stockholder with respect
to the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
Section 5.5 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 5.6 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule or 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
this Agreement is not affected in any manner materially adverse to any party.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the
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<PAGE>
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 to the fullest
extent permitted by applicable law in a mutually acceptable manner in order that
the terms of this Agreement remain as originally contemplated.
Section 5.7 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
Section 5.8 JURISDICTION. Each party to this Agreement hereby irrevocably
agrees that any legal action or proceeding arising out of or relating to this
Agreement or any agreements or transactions contemplated hereby shall be brought
in the courts of the State of New York and hereby expressly submits to the
personal jurisdiction and venue of such courts for the purposes thereof and
expressly waives any claim of improper venue and any claim that such courts are
an inconvenient forum.
IN WITNESS WHEREOF, Parent and the Principal Stockholder have caused this
Agreement to be duly executed on the date hereof.
USANi SUB LLC
By: /s/ DARA KHOSROWSHAHI
------------------------------------
Name: Dara Khosrowshahi
Title: Vice President
INTEL CORPORATION
By: /s/ ARVIND SODHANI
------------------------------------
Name: Arvind Sodhani
Title: Vice President and Treasurer
STYLECLICK.COM INC.
By: /s/ MAURIZIO VECCHIONE
------------------------------------
Name: Maurizio Vecchione
Title: President and Co-Chief
Executive Officer
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SCHEDULE 1
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OWNED BENEFICIALLY NUMBER OF
OR OF RECORD(1) WARRANTS OWNED
- --------------------- --------------
<S> <C>
455,218....... 664,990
</TABLE>
- ------------------------
(1) Other than Shares issuable upon exercise of Warrants, which are listed in
the next column.
8
<PAGE>
EXHIBIT 10.1
MEDIA WARRANT AGREEMENT
between
[NEWCO],
as Issuer,
and
USA NETWORKS, INC.,
as Warrantholder
Dated as of [ ], 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
SECTION 1. Definitions...................................... 1
SECTION 2. The Warrants..................................... 5
SECTION 3. Exercise......................................... 5
SECTION 4. Payment of Taxes................................. 7
SECTION 5. Replacement Warrant.............................. 7
SECTION 6. Reservation of Class B Common Stock and Other
Covenants................................................. 7
SECTION 8. No Dilution or Impairment........................ 15
SECTION 9. Transfers of the Warrant......................... 16
SECTION 10. Survival of Provisions.......................... 17
SECTION 11. Delays, Omissions and Indulgences............... 17
SECTION 12. Rights of Transferees........................... 17
SECTION 13. Captions........................................ 17
SECTION 14. Notices......................................... 17
SECTION 15. Successors and Assigns.......................... 18
SECTION 16. Severability.................................... 18
SECTION 17. Governing Law................................... 18
SECTION 19. Entire Agreement; Amendment..................... 19
SECTION 20. Rules of Construction........................... 19
</TABLE>
<PAGE>
MEDIA WARRANT AGREEMENT
MEDIA WARRANT AGREEMENT, dated as of , 2000, between [Newco], a
Delaware corporation (the "COMPANY"), and USA Networks, Inc., a Delaware
corporation (the "WARRANTHOLDER").
WITNESSETH:
WHEREAS, Styleclick.com, Inc., a California corporation ("STYLECLICK"), and
USANi Sub LLC, a Delaware limited liability company ("PARENT"), have entered
into an Agreement and Plan of Merger, dated as of January 24, 2000 (the "MERGER
AGREEMENT"), which provides for, among other things, the merger of Styleclick
(the "MERGER") with a wholly owned subsidiary of the Company and the concurrent
contribution by Parent to the Company of all of the outstanding limited
liability interests of Internet Shopping Network LLC, a Delaware limited
liability company ("ISN");
WHEREAS, concurrently with the execution hereof, the Warrantholder has
executed the Media Commitment (as defined below);
WHEREAS, as a condition to the willingness of the parties to enter into the
Merger Agreement and the Media Commitment, the Company has agreed to issue a
warrant (the "WARRANT") to purchase shares of Class B Common Stock (as defined
below) to the Warrantholder prior to the Closing (as defined in the Merger
Agreement);
WHEREAS, the Company proposes to issue a certificate evidencing the Warrant
(such warrant certificate issued pursuant to this Agreement being hereinafter
referred to as the "WARRANT CERTIFICATE"); and
WHEREAS, the Company and Warrantholder desire to set forth in this
Agreement, among other things, the form and provisions of the Warrant
Certificate and the terms and conditions under which it may be issued,
transferred, exchanged, replaced and surrendered in connection with the exercise
of the Warrant.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS. As used herein, the following terms shall have the
following meanings.
"AFFILIATE" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first Person. The term
"control" means possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"AGGREGATE EXERCISE PRICE" has the meaning assigned thereto in
Section 3(b).
"BUSINESS DAY" means any day other than a day on which (i) banks in the
State of New York are authorized or obligated to be closed or (ii) the New York
Stock Exchange is closed.
"BOARD OF DIRECTORS" means the Board of Directors of the Company.
"CAPITAL STOCK" means (a) in the case of a corporation, capital stock,
(b) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
capital stock, (c) in the case of a partnership, partnership interests (whether
general or limited), (d) in the case of a limited liability company, membership
interests and (e) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CASHLESS EXERCISE" has the meaning assigned thereto in Section 3(c).
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"CHARTER DOCUMENTS" means the Certificate of Incorporation and the Bylaws of
the Company, as amended or supplemented from time to time.
"CLASS A COMMON STOCK" means the Class A Common Stock, par value $0.01 per
share, of the Company.
"CLASS B COMMON STOCK" means the Class B Common Stock, par value $0.01 per
share, of the Company.
"COMMON STOCK" means (a) the Class A Common Stock and the Class B Common
Stock, (b) any other Capital Stock into which such Common Stock is reclassified
or reconstituted and (c) in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Section 7(e)
hereof, the stock or other securities or property provided for in such Section.
"COMMON STOCK DEEMED OUTSTANDING" shall mean the number of shares of Common
Stock actually outstanding (not including shares of Common Stock held in the
treasury of the Company), plus (x) in case of any adjustment required by
Section 7(a) resulting from the issuance of any Options, the maximum total
number of shares of Common Stock issuable upon the exercise of the Options for
which the adjustment is required (including any Common Stock issuable upon the
conversion of Convertible Securities issuable upon the exercise of such
Options), and (y) in the case of any adjustment required by Section 7(a)
resulting from the issuance of any Convertible Securities, the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of the Convertible Securities for which the adjustment is required, as
of the date of issuance of such Convertible Securities, if any.
"CONVERTIBLE SECURITIES" means evidences of indebtedness, shares of stock or
other securities which are directly or indirectly convertible or exchangeable,
with or without payment of additional consideration in cash or property, for
shares of Common Stock, either immediately or upon the onset of a specified date
or the happening of a specified event.
"DISTRIBUTION" has the meaning assigned thereto in Section 7(f).
"ELECTION TO PURCHASE" has the meaning assigned thereto in Section 3(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"EXERCISE AMOUNT" has the meaning assigned thereto in Section 3(a).
"EXERCISE PRICE" has the meaning assigned thereto in Section 2.
"EXPIRATION DATE" means the tenth (10th) anniversary of the date hereof.
"MARKET PRICE" as of any date, (i) means the average of the daily closing
bid prices for the shares of Class A Common Stock as reported to The Nasdaq
National Market for the trading day immediately preceding such date, or (ii) if
The Nasdaq National Market is not the principal trading market for the Class A
Common Stock, the average of the last reported bid prices on the principal
trading market for the Class A Common Stock during the same period, or, if there
is no bid price for such period, the last reported sales price for such period,
or (iii) if market value cannot be calculated as of such date on any of the
foregoing bases, the Market Price shall be the average fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holders of a majority in interest of the Warrants,
with the costs of the appraisal to be borne by the Company.
"MEDIA COMMITMENT" means the agreement between ISN and the Warrantholder in
the Merger Agreement pursuant to which the Warrantholder will commit to provide
to ISN $10 million of Media Value from the Network over a period ending on the
third anniversary of the closing of the Merger.
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<PAGE>
"MEDIA VALUE" means advertising time on the Network computed on a net basis
at fair market value rates, which shall determined by taking into account recent
sales by the Network of comparable size, volume and desired time in similar
product categories; PROVIDED that any determination of Media Value shall be made
in good faith by the Warrantholder, which determination shall be conclusive and
binding for purposes of this Agreement.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"NETWORK" means the network of media properties of Warrantholder, including
USA Network, SciFi Channel, USA Broadcasting, Ticketmaster, Home Shopping
Network, Sci-Fi.com, USA Networks.com, USA Studios.com and USA Films.com and
others as they may exist from time to time.
"PERSON" means any individual, corporation, partnership, firm, group (as
such term is used in Section 13(d)(3) of the Exchange Act), joint venture,
association, trust, limited liability company, unincorporated organization,
estate, trust or other entity.
"PRINCIPAL OFFICE" means the Company's principal office as set forth in
Section 14 hereof or such other principal office of the Company in the United
States of America the address of which first shall have been set forth in a
notice to the Warrantholder.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of [ ], 2000, among the Company, the Warrantholder and Parent, as
amended, restated, supplemented or otherwise modified from time to time.
"REGULATORY REQUIREMENT" has the meaning assigned thereto in Section 6(c).
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"SIGNIFICANT STOCKHOLDER" means any stockholder of the Company that,
together with its Affiliates, beneficially owns more than 50% of the then
outstanding voting securities of the Company.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement, dated as of
[ ], 2000, among the Company, the Warrantholder, Parent and the other
stockholders named therein, as amended, restated, supplemented or otherwise
modified from time to time.
"SUBSIDIARY" of any Person means any corporation, partnership, joint venture
or other legal entity of which such Person (either directly or through or
together with any other Subsidiary of such Person), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or similar governing body of such corporation, partnership, joint venture or
other legal entity.
"WARRANT SHARES" means (a) the shares of Class B Common Stock issued or
issuable upon exercise of the Warrant in accordance with its terms and (b) all
other shares of the Company's capital stock issued with respect to such shares
by way of stock dividend, stock split or other reclassification or in connection
with any merger, consolidation, recapitalization or other reorganization
affecting the Company's Capital Stock.
SECTION 2. THE WARRANTS.
Subject to the terms and conditions of this Agreement, the Company hereby
issues and delivers to the Warrantholder a warrant, substantially in the form of
Exhibit A hereto, to purchase 12,867,606 shares of fully paid and nonassessable
Class B Common Stock at a price per share equal to $11.50 (the "EXERCISE
PRICE").
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<PAGE>
SECTION 3. EXERCISE.
(a) METHOD OF EXERCISE. From time to time on or before the Expiration Date,
the Warrantholder, in accordance with the terms hereof, may exercise the
Warrant, in whole or in part. The Warrantholder shall effect any such
exercise by delivering the Warrant to the Company during normal business
hours on any Business Day at the Company's Principal Office, together
with the Election to Purchase, substantially in the form of Exhibit B
hereto (the "ELECTION TO PURCHASE"), duly executed, and payment, in
accordance with Section 3(b), of the Exercise Price for the number of
Warrant Shares (the "EXERCISE AMOUNT") to be so purchased, as specified
in the Election to Purchase. If the Expiration Date is not a Business
Day, then the Warrant may be exercised on the next succeeding Business
Day.
(b) PAYMENT OF EXERCISE PRICE. Payment of the Aggregate Exercise Price (as
defined below) shall be made to the Company in cash or other immediately
available funds or as provided in Sections 3(c) or 3(d), or a combination
thereof, with respect to any exercise of the Warrant. In the case of
payment of all or a portion of the Aggregate Exercise Price pursuant to
Sections 3(c) or 3(d), the direction by the Warrantholder to make a
Cashless Exercise or Media Commitment Exercise, respectively, shall serve
as accompanying payment for such portion of the Aggregate Exercise Price.
The amount to be paid (the "AGGREGATE EXERCISE PRICE") shall equal the
product of (a) the Exercise Amount multiplied by (b) the Exercise Price.
(c) CASHLESS EXERCISE. The Warrantholder shall have the right, but no
obligation, to pay all or a portion of the Aggregate Exercise Price by
making a cashless exercise pursuant to this Section 3(c) (a "CASHLESS
EXERCISE"), in which case the portion of the Aggregate Exercise Price to
be so paid shall be deemed paid in full by the reduction of the number of
Warrant Shares otherwise issuable pursuant to the Election to Purchase by
that number of Warrant Shares equal to the quotient obtained by dividing
(x) the value of the Warrant at the time of exercise (determined by
subtracting (a) the Aggregate Exercise Price in effect immediately prior
to exercise from (b) the aggregate Market Price immediately prior to
exercise) by (y) the Market Price immediately prior to exercise.
(d) MEDIA COMMITMENT EXERCISE. The Warrantholder shall have the right, but
no obligation, to pay up to 50% of the Aggregate Exercise Price by making
a media commitment exercise pursuant to this Section 3(d) (a "MEDIA
COMMITMENT EXERCISE"), in which case the portion of the Aggregate
Exercise Price to be so paid shall be deemed paid in full by increasing
the amount of Media Value available under the Media Commitment by such
portion of the Aggregate Exercise Price, with such additional Media Value
being made available over the three year period beginning on the date of
exercise pursuant to this Section 3(d).
(e) ISSUANCE OF SHARES OF COMMON STOCK. Upon receipt by the Company of the
Warrant at its Principal Office in proper form for exercise, and
accompanied by payment of the Aggregate Exercise Price as aforesaid and,
in the case of any payment pursuant to Section 3(d) above, accompanied by
reasonably satisfactory evidence of such increased Media Value
commitment, the Warrantholder shall be deemed to be the holder of record
of the shares of Class B Common Stock issuable upon such exercise,
notwithstanding that certificates representing such shares of Class B
Common Stock may not then be actually delivered. Upon surrender of the
Warrant and payment of the Aggregate Exercise Price as aforesaid, the
Company shall issue and cause to be delivered with all reasonable
dispatch to, or upon the written order of, the Warrantholder (and in such
name or names as the Warrantholder may designate) a certificate or
certificates for the Exercise Amount, subject to any reduction as
provided in Section 3(c) for a Cashless Exercise.
(f) FRACTIONAL SHARES. The Company shall not be required to deliver
fractions of shares of Class B Common Stock upon exercise of the Warrant.
If any fraction of a share of Class B Common
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<PAGE>
Stock would be deliverable upon exercise of the Warrant, the Company may,
in lieu of delivering such fraction of a share of Class B Common Stock,
make a cash payment to the Warrantholder in an amount equal to the same
fraction of the Market Price determined as of the Business Day
immediately preceding the date of exercise of the Warrant.
(g) PARTIAL EXERCISE. In the event of a partial exercise of the Warrant, the
Company shall issue to the Warrantholder a Warrant in like form for the
unexercised portion thereof.
SECTION 4. PAYMENT OF TAXES.
The Company shall pay all stamp taxes attributable to the initial issuance
of shares or other securities issuable upon the exercise of the Warrant or
issuable pursuant to Section 7 hereof, excluding any tax or taxes which may be
payable because of the transfer involved in the issuance or delivery of any
certificates for shares of Class B Common Stock or other securities in a name
other than that of the Warrantholder in respect of which such shares or
securities are issued.
SECTION 5. REPLACEMENT WARRANT.
If the Warrant is mutilated, lost, stolen or destroyed, the Company shall
issue and deliver in exchange and substitution for and upon cancellation of the
mutilated Warrant, or in lieu of and in substitution for the Warrant lost,
stolen or destroyed, a new Warrant of like tenor and representing an equivalent
right or interest, but only upon receipt of evidence reasonably satisfactory to
the Company of such loss, theft or destruction of such Warrant and upon receipt
of indemnity reasonably satisfactory to the Company.
SECTION 6. RESERVATION OF CLASS B COMMON STOCK AND OTHER COVENANTS.
(a) RESERVATION OF AUTHORIZED CLASS B COMMON STOCK. The Company shall
at all times reserve and keep available out of the aggregate of its
authorized but unissued shares, free of preemptive rights, such number of
its duly authorized shares of Class B Common Stock, or other stock or
securities deliverable pursuant to Section 7 hereof, as shall be sufficient
to enable the Company at any time to fulfill all of its obligations under
this Agreement and the Warrant.
(b) AFFIRMATIVE ACTIONS TO PERMIT EXERCISE AND REALIZATION OF
BENEFITS. If any shares of Class B Common Stock reserved or to be reserved
for the purpose of exercise of the Warrant, or any shares or other
securities reserved or to be reserved for the purpose of issuance pursuant
to Section 7 hereof, require registration with or approval (other than as a
result of a Regulatory Requirement contemplated by Section 6(c)) of any
governmental authority under any federal or state law (including approvals
or expirations of waiting periods required under the Hart-Scott-Rodino
Antitrust Improvements Act, but excluding the Securities Act and any state
securities or "blue sky" laws) before such shares or other securities may be
validly delivered upon exercise of the Warrant, then the Company and the
Warrantholder shall cooperate with each other so that each may prepare and
file notification and report forms in compliance with such law and shall
otherwise fully comply with the requirements of such law, to the extent
required in connection with the exercise of the Warrant. The Company shall
bear all expenses in connection with the filing of such forms.
(c) REGULATORY REQUIREMENTS AND RESTRICTIONS. In the event of any
reasonable determination by the Warrantholder that, by reason of any
existing or future federal or state law, statute, rule, regulation,
guideline, order, court or administrative ruling, request or directive
(whether or not having the force of law and whether or not failure to comply
therewith would be unlawful) (a "REGULATORY REQUIREMENT"), the Warrantholder
is effectively restricted or prohibited from holding the Warrant or the
related Warrant Shares (including any shares of capital stock or other
securities
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<PAGE>
distributable to the Warrantholder in any merger, reorganization,
readjustment or other reclassification), or otherwise realize upon or
receive the benefits intended under the Warrant, the Company shall, and
shall use its commercially reasonable efforts to have its stockholders, take
such action as the Warrantholder may deem reasonably necessary to permit the
Warrantholder to comply with such Regulatory Requirement. The costs of
taking such action shall be shared equally by the Company and the
Warrantholder. Such action to be taken may include the Company's
authorization of one or more new classes of capital stock for which the
Warrant may be exercised or the adoption of such modifications and
amendments to the Charter Documents, this Agreement, the Warrant or any
other documents and instruments related to or executed in connection
herewith or with the Warrant as may be deemed reasonably necessary by the
Warrantholder. The Warrantholder shall give written notice to the Company of
any such determination and the action or actions necessary to comply with
such Regulatory Requirement, which notice and determination shall be
conclusive absent manifest error, and the Company shall take all
commercially reasonable steps necessary to comply with such determination as
expeditiously as possible.
(d) VALIDLY ISSUED SHARES. The Company covenants that all shares of
Class B Common Stock or other securities that may be delivered upon exercise
of the Warrant (including those issued pursuant to Section 7 hereof) shall,
upon delivery by the Company, be duly authorized and validly issued, fully
paid and nonassessable, free from all taxes, liens and charges with respect
to the issue or delivery thereof and otherwise free of all other security
interests, encumbrances and claims of any nature whatsoever.
SECTION 7. ANTIDILUTION PROVISIONS. Prior to the Expiration Date or until
the Warrant is fully exercised, the Exercise Price and the number of Warrant
Shares shall be subject to adjustment from time to time as provided in this
Section 7. In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
or down to the nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON ISSUANCE OF
COMMON STOCK. Except as otherwise provided in Section 7(c) and 7(e) hereof,
if and whenever after the initial issuance of this Warrant, the Company
issues or sells, or in accordance with Section 7(b) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Market Price on the date of issuance
(a "Dilutive Issuance"), then effective immediately upon the Dilutive
Issuance, the Exercise Price will be adjusted in accordance with the
following formula:
E' = (E) (O + P/M) / (CSDO)
<TABLE>
<S> <C> <C> <C>
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price;
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in
Section 7(b) hereof, received by the Company upon such
Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding immediately after the Dilutive Issuance.
</TABLE>
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Section 7(a) hereof, the
following will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any manner
issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to
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<PAGE>
purchase Common Stock or other securities exercisable, convertible into
or exchangeable for Common Stock ("CONVERTIBLE SECURITIES"), but not to
include the grant or exercise of any stock or options which may hereafter
be granted or exercised under any employee or director benefit plan of
the Company now existing or to be implemented in the future, so long as
the issuance of such stock or options is approved by a majority of the
non-employee members of the Board of Directors or a majority of the
members of a committee of non-employee directors established for such
purpose (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "OPTIONS"), and the
price per share for which Common Stock is issuable upon the exercise of
such Options is less than the Market Price on the date of issuance
("BELOW MARKET OPTIONS"), then the maximum total number of shares of
Common Stock issuable upon the exercise of all such Below Market Options
(assuming full exercise, conversion or exchange of Convertible
Securities, if applicable) will, as of the date of the issuance or grant
of such Below Market Options, be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. For
purposes of the preceding sentence, the price per share for which Common
Stock is issuable upon the exercise of such Below Market Options is
determined by dividing (A) the total amount, if any, received or
receivable by the Company as consideration for the issuance or granting
of such Below Market Options, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
exercise of all such Below Market Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below Market
Options, the minimum aggregate amount of additional consideration payable
upon the exercise, conversion or exchange thereof at the time such
Convertible Securities first become exercisable, convertible or
exchangeable, by (B) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Below Market Options (assuming
full conversion of Convertible Securities, if applicable). No further
adjustment to the Exercise Price will be made upon the actual issuance of
such Common Stock upon the exercise of such Below Market Options or upon
the exercise, conversion or exchange of Convertible Securities issuable
upon exercise of such Below Market Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES.
(A) If the Company in any manner issues or sells any Convertible
Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per
share for which Common Stock is issuable upon such exercise,
conversion or exchange (as determined pursuant to
Section 7(b)(ii)(B) if applicable) is less than the Market Price on
the date of issuance, then the maximum total number of shares of
Common Stock issuable upon the exercise, conversion or exchange of
all such Convertible Securities will, as of the date of the issuance
of such Convertible Securities, be deemed to be outstanding and to
have been issued and sold by the Company for such price per share.
For the purposes of the preceding sentence, the price per share for
which Common Stock is issuable upon such exercise, conversion or
exchange is determined by dividing (I) the total amount, if any,
received or receivable by the Company as consideration for the
issuance or sale of all such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Company upon the exercise, conversion or exchange thereof at the time
such Convertible Securities first become exercisable, convertible or
exchangeable, by (II) the maximum total number of shares of Common
Stock issuable upon the exercise, conversion or exchange of all such
Convertible Securities. No further adjustment to the Exercise Price
will be made upon the actual issuances of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
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<PAGE>
(B) If the Company in any manner issues or sells any Convertible
Securities with a fluctuating conversion or exercise price or
exchange ratio (a "VARIABLE RATE CONVERTIBLE SECURITY"), then the
price per share for which Common Stock is issuable upon such
exercise, conversion or exchange for purposes of the calculation
contemplated by Section 7(b)(ii)(A) shall be deemed to be the lowest
price per share which would be applicable assuming that (I) all
holding period and other conditions to any discounts contained in
such Convertible Security have been satisfied, and (II) the Market
Price on the date of issuance of such Convertible Security was 80% of
the Market Price on such date (the "Assumed Variable Market Price").
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. Except for the
grant or exercise of any stock or options which may hereafter be granted
or exercised under any employee or director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance
of such stock or options is approved by a majority of the non-employee
members of the Board of Directors of the Company or a majority of the
members of a committee of non-employee directors established for such
purpose, if there is a change at any time in (A) the amount of additional
consideration payable to the Company upon the exercise of any Options;
(B) the amount of additional consideration, if any, payable to the
Company upon the exercise, conversion or exchange or any Convertible
Securities; or (C) the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock (other than under or by
reason of provisions designed to protect against dilution), the Exercise
Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case
may be, at the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. If, in any case, the total number of shares of Common Stock
issuable upon exercise of any Options or upon exercise, conversion or
exchange of any Convertible Securities is not, in fact, issued and the
rights to exercise such option or to exercise, convert or exchange such
Convertible Securities shall have expired or terminated, the Exercise
Price then in effect will be readjusted to the Exercise Price which would
have been in effect at the time of such expiration or termination had
such Options or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in
respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be
the amount received by the Company therefor, before deduction of
reasonable commissions, underwriting discounts or allowances or other
reasonable expenses paid or incurred by the Company in connection with
such issuance, grant or sale. In case any Common Stock, Options or
Convertible Securities are issued or sold for a consideration part or all
of which shall be other than cash, the amount of the consideration other
than cash received by the Company will be the fair market value of such
consideration except where such consideration consists of
freely-tradeable securities, in which case the amount of consideration
received by the Company will be the Market Price thereof as of the date
of receipt. The fair market value of any consideration other than cash or
securities will be determined in the good faith reasonable business
judgment of the Board of Directors.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No adjustment to
the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such date;
(ii) upon the grant or exercise of any stock or options which may
hereafter be granted or
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<PAGE>
exercised under any employee or director benefit plan of the Company now
existing or to be implemented in the future, so long as the issuance of
such stock or options is approved by a majority of the non-employee
members of the Board of Directors or a majority of the members of a
committee of non-employee directors established for such purpose;
(iii) upon the exercise of the Warrants or (iv) upon the issuance of
Common Stock or other Capital Stock of the Company as consideration in an
acquisition of a third party or in connection with a merger with a third
party; provided that, with respect to clause (iv), such third party is
not a controlled Affiliate of the Company or such transaction (A) has
been approved by a special committee of the Board of Directors comprised
solely of independent directors and such special committee has
recommended that the stockholders of the Company vote in favor thereof
and (B) the Company has received from a nationally recognized investment
banking firm a written opinion addressed to such special committee, for
inclusion in the proxy statement to be delivered to the stockholders,
substantially to the effect that such transaction is fair to Newco or to
Newco's stockholders (other than any Significant Stockholder) from a
financial point of view.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company, at any
time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price
in effect immediately prior to such subdivision will be proportionately
reduced. If the Company, at any time after the initial issuance of this
Warrant, combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a smaller
number of shares, then, after the date of record for effecting such
combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 7, the number of
shares of Class B Common Stock issuable upon exercise of this Warrant shall
be adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Class B
Common Stock issuable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
(e) MAJOR TRANSACTIONS. If the Company shall consolidate or merge with
any other corporation or entity (other than a merger in which the Company is
the surviving or continuing entity and its capital stock is unchanged and
unissued in such transaction (except for Common Stock constituting less than
twenty percent (20%) of the Company's Common Stock then outstanding)) or any
subsidiary of the Company shall be a party to a merger or consolidation or
other extraordinary transaction and the Company issues twenty percent (20%)
or more of its Common Stock in any such merger, consolidation or other
transaction or there shall occur any share exchange pursuant to which all of
the outstanding shares of Common Stock are converted into other securities
or property or any reclassification or change of the outstanding shares of
Common Stock (each of the foregoing being a "MAJOR TRANSACTION"), then the
Warrantholder may thereafter, at its option, be entitled, at its election,
either to (a) in the event that the Common Stock remains outstanding or
holders of Common Stock receive any common stock or substantially similar
equity interest, in each of the foregoing cases which is publicly traded,
retain its Warrant and the Warrant shall continue to apply to such Common
Stock or shall apply, as nearly as practicable, to such other common stock
or equity interest, as the case may be, or (b) regardless of whether
(a) applies, receive consideration, in exchange for the Warrant, equal to
the number of shares of stock or securities or property of the Company, or
of the entity resulting from such Major Transaction (the "MAJOR TRANSACTION
CONSIDERATION"), to which a holder of the number of shares of Class B Common
Stock delivered upon the exercise of the Warrant would have been entitled
upon such Major
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<PAGE>
Transaction had the Warrantholder exercised the Warrant (without regard to
any limitations on conversion or elsewhere contained) on the trading date
immediately preceding the public announcement of the transaction resulting
in such Major Transaction and had such Class B Common Stock been issued and
outstanding and had the Warrantholder been the holder of record of such
Class B Common Stock at the time of the consummation of such Major
Transaction, and the Company shall make lawful provision for the foregoing
as a part of such Major Transaction; and shall cause the issuer of any
security in such transaction which constitutes Registrable Securities under
the Registration Rights Agreement to assume all of the Company's obligations
under the Registration Rights Agreement. No sooner than ten Business Days
nor later than five Business Days prior to the consummation of the Major
Transaction, but not prior to the public announcement of such Major
Transaction, the Company shall deliver written notice ("NOTICE OF MAJOR
TRANSACTION") to the Warrantholder, which Notice of Major Transaction shall
be deemed to have been delivered one Business Day after the Company's
sending such notice by telecopy (provided that the Company sends a
confirming copy of such notice on the same day by overnight courier) of such
Notice of Major Transaction. Such Notice of Major Transaction shall indicate
the amount and type of the Major Transaction Consideration which the
Warrantholder would receive under this Section. If the Major Transaction
Consideration does not consist entirely of United States currency, such
holder may elect to receive United States currency in an amount equal to the
value of the Major Transaction Consideration in lieu of the Major
Transaction Consideration by delivering notice of such election to the
Company within five Business Days of such holder's receipt of the Notice of
Major Transaction.
(f) DISTRIBUTION OF ASSETS. In case the Company shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the
Company's shareholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "Distribution"), at any time after the
initial issuance of this Warrant, then the Warrantholder shall be entitled
upon exercise of this Warrant for the purchase of any or all of the shares
of Common Stock subject hereto, to receive the amount of such assets (or
rights) which would have been payable to the Warrantholder had the
Warrantholder been the holder of such shares of Common Stock on the record
date for the determination of shareholders entitled to such Distribution.
(g) NOTICES OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case,
the Company shall give notice thereof to the Warrantholder, which notice
shall state the Exercise Price resulting from such adjustment and the
increase or decrease in the number of Warrant Shares purchasable at such
price upon exercise, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. Such
calculation shall be certified by the chief financial officer of the
Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be
made, but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which,
together with any adjustments so carried forward, shall amount to not less
than 1% of such Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of Class B Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall
pay a cash adjustment in respect of any fractional share which would
otherwise be issuable in an amount equal to the same fraction of the Market
Price; PROVIDED that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Class B Common Stock shall be rounded up to the next whole number.
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<PAGE>
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other
distribution to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of
any class or other rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or
merger of the Company with or into, or sale of all or
substantially all of its assets to, another corporation or
entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Warrantholder (a) notice
of the date on which the books of the Company shall close or a record shall be
taken for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
SECTION 8. NO DILUTION OR IMPAIRMENT.
The Company will not, by amendment of its Charter Documents or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
share exchange, dissolution or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of the Warrant,
including the adjustments required under Section 7 hereof, and will at all times
in good faith assist in the carrying out of all such terms and in taking of all
such action as may be necessary or appropriate to protect the rights of the
Warrantholder against dilution or other impairment. Without limiting the
generality of the foregoing and notwithstanding any other provision of the
Warrant to the contrary (including by way of implication), the Company (a) will
not increase the par value of any shares of Class B Common Stock receivable on
the exercise of the Warrant above the amount payable therefor on such exercise
and (b) will take all such corporate action as may be necessary or appropriate
so that the Company may validly and legally issue fully paid and nonassessable
shares of Class B Common Stock on the exercise of the Warrant.
SECTION 9. TRANSFERS OF THE WARRANT.
(a) TRANSFER AND EXCHANGES. The Company shall initially record the
Warrant on a register to be maintained by the Company with its other stock
books and, subject to Section 9(b) hereof and the provisions of the
Stockholders Agreement, from time to time thereafter shall record a transfer
of the Warrant on such register when the Warrant is: (i) surrendered for
transfer in accordance with the terms hereof, (ii) properly endorsed and
accompanied by appropriate instructions, and (iii) accompanied by payment in
cash or by check, bank draft or money order payable to the order
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<PAGE>
of the Company, in United States currency, of an amount equal to any stamp
or other tax or governmental charge or fee required to be paid in connection
with the transfer thereof. Upon any such transfer, a new Warrant or Warrants
shall be issued to the transferee and the Warrantholder (in the event that
the Warrant is only partially transferred) and the surrendered Warrant shall
be canceled. Each such transferee shall succeed to all of the rights of the
transferring Warrantholder under this Agreement or in the event that the
Warrant is only partially transferred, the transferring Warrantholder and
such transferee shall, simultaneously, hold rights hereunder in proportion
to their respective percentage interests of the original Warrant. The
Warrant may be exchanged at the option of the Warrantholder, when
surrendered at the Principal Office of the Company, for another Warrant or
other Warrants of like tenor and representing in the aggregate the right to
purchase a like number of shares of Common Stock, subject to adjustment as
more fully set forth herein.
(b) TRANSFERS SUBJECT TO SECURITIES LAWS; STOCKHOLDERS
AGREEMENT. Subject to the restrictions set forth in this Section 9 and the
Stockholders Agreement, the Warrantholder may at any time and from time to
time freely transfer the Warrant and the Warrant Shares in whole or in part.
The Warrant has not been, and the Warrant Shares at the time of their
issuance may not be, registered under the Securities Act, and, except as
provided in the Stockholders Agreement or the Registration Rights Agreement,
nothing herein contained shall be deemed to require the Company to so
register the Warrant or Warrant Shares. The Warrant and the Warrant Shares
are issued or issuable subject to the provisions and conditions contained
herein and the Warrantholder by accepting the Warrant agrees with the
Company to such provisions and conditions, and represents to the Company
that the Warrant has been acquired and the Warrant Shares will be acquired
for the account of the Warrantholder for investment and not with a view to
or for sale in connection with any distribution thereof.
(c) TRANSFERS TO NON-AFFILIATES. Notwithstanding the foregoing, upon
any transfer of this Warrant to a transferee that is not an Affiliate of the
Warrantholder, this Warrant shall automatically be amended to (i) become
exercisable solely for the number of shares of Class A Common Stock equal to
the number of shares of Class B Common Stock for which the Warrant was
exercisable prior to such transfer and (ii) provide that such transferee
shall not be entitled to pay the Aggregate Exercise Price by a Media
Commitment Exercise pursuant to Section 3(d)
SECTION 10. SURVIVAL OF PROVISIONS.
The provisions of this Agreement and the Warrant shall survive until the
earlier of (a) the full exercise by of the Warrant or (b) the Expiration Date.
SECTION 11. DELAYS, OMISSIONS AND INDULGENCES.
No delay or omission to exercise any right, power or remedy accruing to the
Warrantholder upon any breach or default of the Company hereunder or under the
Warrant shall impair any such right, power or remedy, nor shall it be construed
to be a waiver of any such breach or default, or any acquiescence therein, or of
or in any similar breach or default thereafter occurring, nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the Warrantholder's part of any breach or
default hereunder or under the Warrant, or any waiver on the Warrantholder's
part of any provisions or conditions hereof or of the Warrant must be in writing
and that all remedies, either hereunder, under the Warrant or by law or
otherwise afforded to the Warrantholder, shall be cumulative and not
alternative.
SECTION 12. RIGHTS OF TRANSFEREES.
Subject to Section 9(c), the rights granted to the Warrantholder hereunder
and under the Warrant shall pass to and inure to the benefit of all subsequent
transferees of all or any portion of the Warrant
12
<PAGE>
until extinguished pursuant to the terms hereof; provided that the Warrantholder
and any transferee shall hold such rights in proportion to their respective
ownership of the Warrant and Warrant Shares.
SECTION 13. CAPTIONS.
The titles and captions of the Sections and other provisions hereof are for
convenience of reference only and are not to be considered in construing this
Agreement.
SECTION 14. NOTICES.
All notices, demands and other communications provided for or permitted
hereunder shall be made in writing and shall be by registered or certified
first-class mail, return receipt requested, telecopy, overnight courier service
or personal delivery:
(a) if to the Company:
[ ]
[ ]
[ ]
[ ]
Attention: [ ]
Telecopy: [ ]
(b) if to the Warrantholder:
[ ]
[ ]
[ ]
[ ]
Attention: [ ]
Telecopy: [ ]
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; when delivered by courier, if
delivered by commercial overnight courier service; five Business Days after
being deposited in the mail, postage prepaid, if mailed; and when receipt is
acknowledged, if telecopied.
SECTION 15. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, provided that the Company
shall have no right to assign its rights, or to delegate its obligations,
hereunder without the prior written consent of the Warrantholder.
SECTION 16. SEVERABILITY.
If any one or more of the provisions contained herein, or the application
thereof in any circumstance, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions hereof shall
not be in any way impaired, unless the provisions held invalid, illegal or
unenforceable shall substantially impair the benefits of the remaining
provisions hereof.
SECTION 17. GOVERNING LAW.
THIS AGREEMENT AND THE WARRANT IS TO BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE.
13
<PAGE>
SECTION 18. JURISDICTION. Each party to this Agreement hereby irrevocably
agrees that any legal action or proceeding arising out of or relating to this
Agreement or any agreements or transactions contemplated hereby shall be brought
in the courts of the State of New York and hereby expressly submits to the
personal jurisdiction and venue of such courts for the purposes thereof and
expressly waives any claim of improper venue and any claim that such courts are
an inconvenient forum.
SECTION 19. ENTIRE AGREEMENT; AMENDMENT.
This Agreement, the Warrant, the Merger Agreement and the other agreements
and documents referenced therein are intended by the parties as a final
expression of their agreement and are intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. Except as otherwise expressly
provided in this Agreement, any provision of this Agreement or of the Warrant
may be amended or modified only by an instrument in writing signed by the
Company and the Warrantholder.
SECTION 20. RULES OF CONSTRUCTION.
Unless the context otherwise requires "or" is not exclusive, and references
to sections or subsections refer to sections or subsections of this Agreement.
All pronouns and any variations thereof refer to the masculine, feminine or
neuter, singular or plural, as the context may require.
* * *
14
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be duly
executed as of the date first above written.
<TABLE>
<S> <C> <C>
NEWCO
By:
-----------------------------------------
Name:
Title:
</TABLE>
<TABLE>
<S> <C> <C>
USA NETWORKS INC.
By:
-----------------------------------------
Name:
Title:
</TABLE>
15
<PAGE>
EXHIBIT A
FORM OF WARRANT
THIS CLASS B COMMON STOCK PURCHASE WARRANT AND THE SHARES THAT MAY BE
PURCHASED HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
UNDER THE SECURITIES LAWS OF ANY STATE. THIS CLASS B COMMON STOCK PURCHASE
WARRANT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO
DISTRIBUTION, AND THIS CLASS B COMMON STOCK PURCHASE WARRANT AND THE SHARES THAT
MAY BE PURCHASED HEREUNDER MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AND
REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL THAT THE PROPOSED TRANSACTION DOES NOT VIOLATE THE SECURITIES
ACT OF 1933, AND APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT IS SUBJECT TO THE TERMS OF A WARRANT AGREEMENT, DATED AS OF
[ ], 2000, BETWEEN [NEWCO] AND [USA].
[NEWCO]
CLASS B COMMON STOCK PURCHASE WARRANT
NUMBER
THIS IS TO CERTIFY that USA Networks, Inc., a Delaware corporation, and its
transferees, successors and assigns (the "WARRANTHOLDER"), for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, is
entitled to purchase from [Newco], a Delaware corporation (the "COMPANY"), at a
price per share equal to the Exercise Price, 12,539,788 shares of fully paid and
nonassessable Class B Common Stock of the Company, subject to the terms and
conditions of the Warrant Agreement, dated as of [ ], 2000, between
the Company and the Warrantholder (as amended or otherwise modified, the
"WARRANT AGREEMENT"). The number of shares of Class B Common Stock subject to
this Warrant is subject to adjustment or reduction as set forth in Section 7 of
the Warrant Agreement. Capitalized terms used herein shall have the meanings
ascribed to such terms in the Warrant Agreement.
Payment of the Exercise Price may be made as set forth in Section 3 of the
Warrant Agreement.
If this Warrant is not exercised on or before 5:00 p.m., Pacific Standard
time on the Expiration Date, this Warrant shall become void and all rights
hereunder shall cease as of such time, except as provided in the Warrant
Agreement.
This Warrant is issued pursuant to the Warrant Agreement and is subject to,
and entitled to the benefits of, all of the terms, provisions and conditions of
the Warrant Agreement, which Warrant Agreement is hereby incorporated by
reference herein and made a part hereof. The Warrant Agreement sets forth a full
description of the rights, limitations of rights, obligations, duties and
immunities of the Company and the Warrantholder with respect to this Warrant.
Copies of the Warrant Agreement are on file at the Principal Office of the
Company.
16
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its
name by its duly authorized officer, as of the day of [ ], 2000.
<TABLE>
<S> <C> <C>
[NEWCO]
By:
-----------------------------------------
Name:
Title:
</TABLE>
17
<PAGE>
EXHIBIT B
FORM OF NOTICE OF EXERCISE
______ ______, ______
To: [ ]
[ ]
[ ]
[ ]
Attention: [ ]
Telecopy: [ ]SS
1. The undersigned, pursuant to the provisions of the attached Warrant,
hereby elects to exercise such Warrant with respect to shares of
Class B Common Stock (the "EXERCISE AMOUNT"). Capitalized terms used but not
otherwise defined herein have the meanings ascribed thereto in the attached
Warrant.
2. The undersigned herewith tenders payment for such shares in the
following manner (please check type, or types, of payment and indicate the
portion of the Exercise Price to be paid by each type of payment):
Exercise for Cash
Cashless Exercise
Media Commitment Exercise
3. Please issue a certificate or certificates representing the shares
issuable in respect hereof under the terms of the attached Warrant, as
follows:
(Name of Record Warrantholder/Transferee)
and deliver such certificate or certificates to the following address:
(Address of Record Warrantholder/Transferee)
4. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that
the undersigned has no present intention of distributing or reselling such
shares.
5. If the Exercise Amount is less than all of the shares of Class B
Common Stock purchasable hereunder, please issue a new warrant representing
the remaining balance of such shares, as follows:
(Name of Record Warrantholder/Transferee)
and deliver such warrant to the following address:
(Address of Record Warrantholder/Transferee)
In witness whereof, the undersigned Warrantholder has caused this Notice of
Exercise to be executed as of this day of , .
<TABLE>
<S> <C> <C>
(Name of Warrantholder)
By:
-----------------------------------------
Name:
Title:
</TABLE>
18
<PAGE>
EXHIBIT 10.2
LICENSE AGREEMENT
LICENSE AGREEMENT (the "AGREEMENT"), dated as of [ ], 2000, by
and among [NEWCO], a Delaware corporation ("NEWCO"), Styleclick.com Inc., a
California corporation ("STYLECLICK"), Internet Shopping Network LLC, a Delaware
limited liability company ("ISN"), and USA Networks, Inc., a Delaware
corporation ("USA").
WHEREAS, Styleclick and USANi Sub LLC, a Delaware limited liability company
and an Affiliate of ISN ("PARENT"), have entered into an Agreement and Plan of
Merger, dated as of January 24, 2000 (the "MERGER AGREEMENT"), which provides
for, among other things, the merger (the "MERGER") of Styleclick with a
subsidiary of Newco and the concurrent contribution by Parent to Newco of all of
the outstanding limited liability interests of ISN;
WHEREAS, Newco, Styleclick, ISN and their respective controlled Affiliates
as they exist from time to time (each, a "LICENSOR" and collectively, the
"LICENSORS") have developed and will develop technologies that enable enhanced
shopping for and selling of merchandise on the Internet;
WHEREAS, USA (together with its Affiliates, other than the Licensors, as
they exist from time to time, collectively the "LICENSEE") desires to use such
technologies in the ongoing business activities of Licensee; and
WHEREAS, the execution and delivery of this Agreement is a condition to
Closing under, and as defined in, the Merger Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. DEFINITIONS. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings ascribed thereto in the Merger
Agreement.
1.1 "LICENSED TECHNOLOGY" means all proprietary technology owned or
developed (whether before or after the date hereof) by any of the Licensors
at any stage of development, including any software, patents, patent
applications, techniques, methods or other know-how, whether patentable or
not.
1.2 "ENHANCED TECHNOLOGY" means (a) any Licensed Technology that is an
improvement, enhancement or add-on to any technology owned or developed
(whether before or after the date hereof) by a Third Party (such Licensed
Technology being referred to as the "OWNED ENHANCED TECHNOLOGY") and
(b) the technology so owned or developed by such Third Party (the "THIRD
PARTY TECHNOLOGY") to the extent of any Licensor's rights and interests
therein or in respect thereof (the "THIRD PARTY LICENSE").
1.3 "CONFIDENTIAL INFORMATION" shall mean all non-public information
of a party and its Affiliates including, without limitation, information
relating to such party's technology, business strategy (either as then being
conducted or proposed to be conducted), know-how, marketing, suppliers,
customers, sources of materials, finances, accounting, business
relationships, employees, and trade secrets. Confidential Information shall
not include (i) any information that enters the public domain through no
fault of a party bound hereby, (ii) any information that is made available
to a party from a source other than the other party that is not bound by a
confidentiality agreement with the Company, or (iii) any information that is
developed by a party independently.
1.4 "INTELLECTUAL PROPERTY" means all of the following as they exist
in all jurisdictions throughout the world: (i) patents, patent applications
and other patent rights; (ii) trademarks,
1
<PAGE>
service marks, trade dress, Internet domain names, designs, whether
registered or unregistered; (iii) copyrights, including all source code,
object code and documentation related thereto; (iv) concepts, ideas,
designs, research, processes, procedures, techniques, methods, know-how,
data, mask works, discoveries, inventions (whether or not patentable), and
other proprietary rights.
2. LICENSE TERMS
2.1 The Licensors hereby grant Licensee a perpetual, non-exclusive,
worldwide right to use the Licensed Technology in any field of use.
2.2 The Licensors further grant Licensee the right to sublicense the
rights granted to Licensee hereunder solely as needed for Licensee to
license, sell, or distribute any bona fide products or services offered from
time to time by Licensee that may incorporate the Licensed Technology;
PROVIDED that no such sublicense shall be made if the portion of such
product or service being offered by Licensee that is not comprised of the
Licensed Technology is immaterial to such product or services offered.
2.3 The Licensors further grant Licensee the right to prepare
derivative works based upon, make copies of and/or distribute any software
that embodies the Licensed Technology solely to the extent necessary for
Licensee to exercise all of its rights granted by paragraphs 2.1 and 2.2 of
this section.
2.4 Any rights not expressly granted hereunder are reserved by
Licensors.
2.5 If and when Licensee seeks to use an Enhanced Technology, each
Licensor shall use its best efforts to obtain the right to sublicense that
component of the Enhanced Technology that is Third Party Technology under
the same terms and conditions as the Third Party License in respect of such
Third Party Technology and to sublicense such rights to the Third Party
Technology to (and permit the sublicense by) Licensee on the same terms as
the Third Party License. Notwithstanding anything to the contrary herein, in
the event that a Third Party License requires the payment of any non-cash
consideration by a Licensor, such requirement shall not apply to the
sublicense of such Third Party Technology to or by Licensee hereunder.
3. ROYALTY FEES.
3.1 FIRST TIME LICENSING FEES. The royalty fees payable for the use of
any Licensed Technology that, as of the time Licensee begins to use such
Licensed Technology, no Licensor has licensed to a Third Party, shall be
determined by the parties hereto based on a good faith mutually satisfactory
determination of the fair market value of Licensee's rights hereunder in
respect of such Licensed Technology, taking into account all attendant
circumstances that may affect such determination including, without
limitation, (i) the breadth of the intended field of usage, (ii) the
expected volume of usage and (iii) the expected term of usage (as so
determined, the "FAIR MARKET VALUE"). The royalty fee so determined shall
remain in effect for the duration of the term of this Agreement or until
such earlier time as any Licensor executes a license granting use of such
Licensed Technology to a Third Party, in which case Section 3.2 shall govern
the royalties payable by Licensee for the rights granted hereunder in
respect of such Licensed Technology.
3.2 FEES FOR OTHERWISE LICENSED TECHNOLOGY. The royalty fees payable
for the use of any Licensed Technology (including any Enhanced Technology)
that, as of the time Licensee begins to use such Licensed Technology, a
Licensor has licensed to a Third Party, shall be the lowest fee payable by
any Third Party for a comparable license with respect to such Licensed
Technology and shall be on terms no less favorable than the terms granted to
such Third Party; PROVIDED that in no event shall such royalty fees exceed
the Fair Market Value (determined in accordance with Section 3.1) of
Licensee's rights hereunder in respect of such Licensed Technology. To the
extent that any consideration to be paid by such Third Party is other than
in the form of cash, Licensee shall
2
<PAGE>
have the right to pay such consideration in cash in an amount equal to the
fair market value of such non-cash consideration as reasonably determined by
the parties hereto.
3.3 FIRST TIME ENHANCED TECHNOLOGY SUBLICENSE. Without duplication,
the royalty fees payable for use of any Enhanced Technology that, as of the
time Licensee has begun to use such Licensed Technology, no Licensor has
licensed to a Third Party, shall be the sum of (i) the royalties payable
under Section 3.1 in respect of the Owned Enhanced Technology plus (ii) the
royalty fee for use of the Third Party Technology provided under the terms
of the Third Party License in respect of such Third Party Technology. In the
event that a Third Party License requires consideration from any License in
the form of equity, barter of services or some other non-cash consideration,
such requirement shall not apply to Licensee.
4. OWNERSHIP OF INTELLECTUAL PROPERTY. Each party hereby covenants and
agrees that as between the parties, the Intellectual Property of the other party
are and shall remain the sole and exclusive property of that party and neither
party shall hold itself out as having any ownership rights with respect thereto.
5. USA SERVICES TO NEWCO. For so long as Newco is a controlled Affiliate
of USA, USA shall offer to provide to Newco the business services described on
Schedule A attached hereto; PROVIDED that such services are available from USA
or any of its controlled affiliates to third parties and only so long as USA has
the existing capacity to provide such services. Such services shall be provided
on terms and conditions that are determined through good faith negotiations
between USA and Newco; PROVIDED that, if such services are provided by USA to a
Third Party, then such terms and conditions shall be at least as favorable to
Newco as those offered by USA to such Third Party for comparable services.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Each party hereto
represents and warrants to each other party hereto that (i) it has the right and
power to enter into and fully perform this Agreement and to make the commitments
it makes herein and to perform fully its obligations hereunder; (ii) it has
obtained all necessary licenses, permissions and consents required to license
Licensee to use and/or distribute the Licensed Technology or the Enhanced
Technology in accordance with the terms of this Agreement or as otherwise
necessary in connection with any of the transactions contemplated hereby.
7. INDEMNIFICATION. Each Licensor at its own expense, will indemnify,
defend and hold harmless USA and its Affiliates (other than Newco or any of its
subsidiaries) and their respective employees, officers, directors,
representatives and agents (each such party an "USA PARTY"), from and against
any and all claims, damages, liabilities, costs and expenses (including legal
expenses and reasonable counsel fees) brought against an USA Party arising from
a claim that any Licensed Technology, offered or provided by any Licensor for
use and/or distribution by Licensee infringes in any manner any copyright,
patent, trademark, trade secret or any other intellectual property right of any
third party, or that violates any law or regulation, or that otherwise violates
any rights of any person or entity, including, without limitation, rights of
publicity, privacy or personality, or has otherwise resulted in any consumer
fraud, product liability, tort, breach of contract, injury, damage or harm of
any kind to any third party; PROVIDED, HOWEVER, that in any such case: (i) USA
shall provide Newco with prompt notice of any such claim and (ii) USA shall
permit Newco to assume and control the defense of such action upon Newco's
written notice to Licensee of its intention to so indemnify, so long as Newco
does not enter into any settlement or compromise of any such claim which would
result in any liability to USA or its Affiliates without USA's prior written
consent. Newco will reimburse each USA Party and/or each of their respective
licensees on demand for any payment made at any time after the date hereof in
respect of any liability or claim in respect of which an USA Party is entitled
to be indemnified hereunder.
8. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally, upon a receipt of a
transmittal confirmation if sent by facsimile or like transmission, and on the
next Business Day when sent by Federal Express, Express Mail or
3
<PAGE>
similar overnight courier service to the parties at the following addresses or
facsimile numbers (or at such other address or facsimile number for a party as
shall be specified by like notice):
(i) If to Newco, to:
[NEWCO]
[____________]
[ ]
Attention: [ ]
Facsimile: [ ]
(ii) If to Styleclick, to:
Styleclick.com Inc.
[____________]
[ ]
Attention: [ ]
Facsimile:
(iii) If to ISN, to:
Internet Shopping Network LLC
[____________]
[____________]
Attention: [ ]
Facsimile: [ ]
(iv) If to Licensee, to:
c/o USA Networks, Inc.
[____________]
[____________]
Attention: [ ]
Facsimile: [ ]
9. ASSIGNMENT. Without the prior written approval of the other parties
hereto, no party hereto may assign its rights or obligations hereunder in whole
or in part to any Person; PROVIDED, that USA may assign any or all of its rights
and obligations hereunder to any of its controlled Affiliates. Any assignment in
violation of this Section 9 shall be null and void.
10. TERMINATION.
10.1 TERMINATION. USA or Newco may terminate this Agreement at any
time in the event of (a) a material breach by a Licensor or USA,
respectively, of any material term, representation or warranty which remains
uncured for sixty (60) days following written notice of such breach
delivered by the terminating party or (b) if Newco or USA, respectively,
becomes or is declared insolvent or bankrupt, is the subject of any
proceeding related to its liquidation or insolvency which is not dismissed
within ninety (90) calendar days or makes an assignment for the benefit of
creditors.
Notwithstanding any termination of this Agreement, this Section 10 and
Sections 4, 7, 8, 9, 11, 12 and 13 shall remain in full force and effect.
11. LIMITATION OF LIABILITY. THE LICENSORS HAVE PROVIDED AND USA HAS
ACCEPTED THE LICENSED TECHNOLOGY AND THE ENHANCED TECHNOLOGY AS IS AND WITHOUT
ANY REPRESENTATION OR WARRANTY WHETHER EXPRESS OR IMPLIED.
4
<PAGE>
12. CONFIDENTIALITY. Each party covenants to the other party that it will
not, either directly or indirectly through any officer, director, employee,
agent or otherwise, disclose this Agreement, any provisions of this Agreement
(except to the extent such disclosure is required by law to be disclosed or this
Agreement becomes generally available to the public other than as a result of a
disclosure in violation of this Agreement) nor any Confidential Information of
the other party either in whole or in part, without the prior written consent of
the other party.
13. MISCELLANEOUS.
13.1 This Agreement contains the entire understanding of the parties
hereto relating to the subject matter hereof and cannot be changed or
terminated except by an instrument signed by an officer of USA and an
officer of Newco. A waiver by either party of any term or condition of this
Agreement in any instance shall not be deemed or construed as a waiver of
such term or condition for the future, or of any subsequent breach thereof.
All remedies, rights, undertakings, obligations and agreements contained in
this Agreement shall be cumulative and none of them shall be in limitation
of any other remedy, right, undertaking, obligation or agreement of either
party.
13.2 Notwithstanding anything to the contrary herein, the parties
hereto shall be deemed independent contractors and nothing herein shall be
construed as establishing a joint venture or partnership.
13.3 This Agreement shall be deemed entered into the State of New York,
and the validity, interpretation and legal effect of this Agreement shall be
governed by the laws of the State of New York applicable to contracts
entered into and performed entirely within the State of New York, with
respect to the determination of any claim, dispute or disagreement which may
arise out of the interpretation, performance, or breach of this Agreement.
13.4 The parties hereto are sophisticated and have had the opportunity
to be represented by lawyers throughout the negotiation of this Agreement.
As a consequence, the parties do not believe that the presumptions of any
laws or rules relating to the interpretation of contracts against the
drafter of any particular clause should be applied in this case and
therefore waive their effects.
13.5 This Agreement shall not become effective until executed by the
parties hereto.
13.6 This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, and all of which, when taken together,
shall constitute one and the same instrument.
5
<PAGE>
ACCEPTED AND AGREED:
<TABLE>
<S> <C> <C>
USA NETWORKS, INC.
By:
-----------------------------------------
Title:
INTERNET SHOPPING NETWORK LLC
By:
-----------------------------------------
Title:
[NEWCO]
BY:
-----------------------------------------
Title:
[NEWCO]
BY:
-----------------------------------------
Title:
</TABLE>
6
<PAGE>
SCHEDULE A
- Fulfillment
- Teleservices
- Direct Selling Commercials
- Database Marketing
- Call Center Operations
- Internet Customer Care
- Any other services provided to third parties from time to time by USA's
Electronic Commerce and Services Division or any successor thereof
controlled by USA.
7
<PAGE>
Exhibit 10.3
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "AGREEMENT") is entered into as of
January 24, 2000, by and between USANi Sub LLC, a Delaware limited liability
company (the "GRANTEE"), and Styleclick.com Inc., a California corporation (the
"GRANTOR").
(a) The Grantee and the Grantor are entering into an Agreement
and Plan of Merger, dated as of the date hereof (the "MERGER AGREEMENT"),which
provides for, among other things, the merger of Grantor (the "MERGER") with a
wholly owned subsidiary of a newly formed Delaware corporation ("NEWCO") and the
concurrent contribution (the "CONTRIBUTION") by Grantee to Newco of all of the
outstanding limited liability interests of Internet Shopping Network LLC, a
Delaware limited liability company (the Merger and the Contribution, along with
the other transactions contemplated by the Merger Agreement are referred to
herein as the "TRANSACTIONS").
(b) As a condition and inducement to Grantee's willingness to
enter into the Merger Agreement, the Grantee has requested that the Grantor
grant to the Grantee an option to purchase up to 1,533,281 shares of Common
Stock, no par value, of the Grantor (the "COMMON STOCK"), upon the terms and
subject to the conditions hereof.
(c) In order to induce the Grantee to enter into the Merger
Agreement, the Grantor is willing to grant the Grantee the requested option.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements set forth herein, the parties hereto agree as
follows:
1. DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings ascribed thereto in
the Merger Agreement.
2. THE OPTION; EXERCISE; ADJUSTMENTS; PAYMENT OF SPREAD.
(a) Subject to the other terms and conditions set forth
herein, the Grantor hereby grants to the Grantee an irrevocable option (the
"OPTION") to purchase up to 1,533,281 (such number subject to adjustment as
provided herein) shares of Common Stock (the "SHARES") at a cash purchase price
equal to $17.50 per share (the "PURCHASE PRICE"). The Option may be exercised by
the Grantee, in whole or in part, at any time, or from time to time, following
the occurrence of one of the events set forth in Section 3(d) hereof, and prior
to the termination of the Option in accordance with the terms of this Agreement.
(b) In the event the Grantee wishes to exercise the Option,
the Grantee shall send a written notice to the Grantor (the "STOCK EXERCISE
NOTICE") specifying a
<PAGE>
date for the closing of such purchases not later than 10 Business Days and not
earlier than three Business Days following the date such notice is given;
provided such period shall be extended as may be necessary to meet any
regulatory requirements, including expiration or termination of any applicable
waiting periods under the HSR Act. In the event of any change in the Common
Stock issued and outstanding by reason of a distribution, reclassification stock
dividend, split-up (including a reverse stock split), combination,
recapitalization, exchange of shares or similar transaction, the type and number
of shares or securities subject to the Option, and the Exercise Price therefor,
shall be adjusted appropriately, and proper provision shall be made in the
agreements governing such transaction so that the Grantee shall receive upon
exercise of the Option the same class and number of outstanding shares or other
securities or property that Grantee would have received upon exercise of the
Option if the Option had been exercised immediately prior to such event or the
record date therefor, as applicable. Without limiting the parties' relative
rights and obligations under the Merger Agreement, if any additional shares of
Common Stock are issued after the date of this Option Agreement (other than
pursuant to an event described in the first sentence of this Section 2(b)), the
number of shares of Common Stock then remaining subject to the Option shall be
adjusted so that, after such issuance of additional shares, such number of
shares then remaining subject to the Option, together with any shares
theretofore issued pursuant to the Option, equals 19.9% of the number of shares
of Common Stock then issued and outstanding. Notwithstanding anything in this
Agreement, the number of Shares subject to this Option shall never exceed 19.9%
of the outstanding shares of Common Stock of the Grantor.
3. CONDITIONS TO DELIVERY OF SHARES. The Grantor's obligation
to deliver Shares upon exercise of the Option is subject only to the conditions
that:
(a) no preliminary or permanent injunction or other order
issued by any federal or state court of competent jurisdiction in the United
States prohibiting the delivery of the Shares shall be in effect;
(b) any applicable waiting periods under the HSR Act shall
have expired or been terminated;
(c) any other consent, approval, order, notification or
authorization, the failure of which to obtain or make would make the issuance of
the Shares illegal, shall have been obtained or made and be in full force and
effect; and
(d) (i) any person (other than Grantee or any of its
subsidiaries and other than any shareholder of Grantee that currently owns in
excess of 15% of the outstanding Common Stock) shall have acquired beneficial
ownership (as such term is defined in Rule 13d-3 under the Exchange Act or the
right to acquire beneficial ownership of, or any "group" (as such term is
defined under the Exchange Act) shall have been formed which beneficially owns
or has the right to acquire beneficial ownership of, shares of Common Stock
aggregating 15% or more of the then outstanding Common Stock, (ii) any person
shall have commenced or
<PAGE>
publicly announced its intention to commence a tender offer for 15% or more of
the outstanding Common Stock or shall have publicly announced its intention to
effect an Alternative Transaction, (iii) the Merger Agreement is terminated
pursuant to Section 7.1(e) or 7.1(f), or (iv) the Merger Agreement is terminated
pursuant to Section 7.1(d) and at such time an Alternative Transaction was
publicly announced prior to such termination or an Alternative Transaction is
consummated, or a definitive agreement with respect thereto is executed by the
Company or any of its affiliates following such termination and on or prior to
the 12 month anniversary of such termination
4. THE CLOSING.
(a) Any closing hereunder shall take place on the date
specified by the Grantee in its Stock Exercise Notice, at 9:30 a.m., local time,
at the offices of the Company, if the conditions set forth in Section 3(a), (b)
or (c) have not then been satisfied, on the second Business Day following the
satisfaction of such conditions, or at such other time and place as the parties
hereto may agree (the "CLOSING DATE"). On the Closing Date, the Grantor will
deliver to the Grantee a certificate or certificates, representing the Shares in
the denominations designated by the Grantee in its Stock Exercise Notice and the
Grantee will purchase such Shares from the Grantor at the price per Share equal
to the Purchase Price. Any payment made by the Grantee to the Grantor shall be
made by wire transfer to a bank designated by the party receiving such funds.
(b) The certificates representing the Shares shall bear an
appropriate legend relating to the fact that such Shares have not been
registered under the Securities Act.
5. REPRESENTATIONS AND WARRANTIES OF THE GRANTOR. The Grantor
represents and warrants to the Grantee that (a) the Grantor is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has the requisite corporate power and authority to enter
into and perform this Agreement; (b) the execution and delivery of this
Agreement by the Grantor and the consummation by it of the transactions
contemplated hereby have been duly authorized by the Board of Directors of the
Grantor and this Agreement has been duly executed and delivered by a duly
authorized officer of the Grantor and constitutes a valid, binding and
enforceable obligation of the Grantor; (c) the Grantor has taken all necessary
corporate action to authorize and reserve the Shares issuable upon exercise of
the Option and the Shares, when issued and delivered by the Grantor upon
exercise of the Option and paid for by Grantee as contemplated hereby, will be
duly authorized, validly issued, fully paid and non-assessable and free of
preemptive rights; (d) the execution and delivery of this Agreement by the
Grantor and, except as otherwise required by the HSR Act and for such filings as
are required by NASDAQ and under any applicable federal security laws and
regulations, the consummation by it of the transactions contemplated hereby do
not require the consent, waiver, approval or authorization of or any filing with
any person or public authority and will not violate, result in a breach of or
the acceleration of any obligation under, or
<PAGE>
constitute a default under, any provision of Grantor's Articles of
Incorporation or Bylaws, or any material indenture, mortgage, lien, lease,
agreement, contract, instrument, order, law, rule, regulation, judgment,
ordinance, decree or restriction by which the Grantor or any of its Subsidiaries
or any of their respective properties or assets is bound; (e) no "fair price,"
"moratorium," "control share acquisition," "interested shareholder" or other
form of antitakeover statute or regulation, or similar provision contained in
the Articles of Incorporation or By-laws of Grantor, is or shall be applicable
to any of the transactions contemplated by this Agreement, and the Board of
Directors of Grantor has taken all action to approve the transactions
contemplated hereby to the extent necessary to avoid any such application
(including the Board of Directors of Grantor having determined that the purchase
price under Sections 8 and 9 hereof will not violate any rights of any holder of
the Company's Equity Securities or require any shareholder vote or any other
consent or waiver by any holders of the Company's Equity Securities, in each
case that have not been waived or obtained).
6. REPRESENTATIONS AND WARRANTIES OF THE GRANTEE. The Grantee
represents and warrants to the Grantor that (a) the execution and delivery of
this Agreement by the Grantee and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary limited liability
company action on the part of the Grantee and this Agreement has been duly
executed and delivered by a duly authorized officer of the Grantee and
constitutes a valid and binding obligation of Grantee; and (b) the Grantee is
acquiring the Option and, if and when it exercises the Option, will be acquiring
the Shares issuable upon the exercise thereof for its own account and not with a
view to distribution or resale in any manner which would be in violation of the
Securities Act or the NASDAQ rules.
7. LISTING OF SHARES; FILINGS; GOVERNMENTAL CONSENTS. Subject
to applicable law and the rules and regulations of the National Association of
Securities Dealers ("NASD"), when the Option becomes exercisable hereunder, the
Grantor will promptly file an application to list the Shares on the NASDAQ and
will use all reasonable best efforts to obtain approval of such listing and to
effect all necessary filings by the Grantor under the HSR Act; PROVIDED,
HOWEVER, that if the Grantor is unable to effect such listing on the NASDAQ by
the Closing Date, the Grantor will nevertheless be obligated to deliver the
Shares upon the Closing Date. Each of the parties hereto will use its reasonable
best efforts to obtain consents of all third parties and governmental
authorities, if any, necessary to the consummation of the transactions
contemplated.
8. REGISTRATION RIGHTS.
(a) In the event that the Grantee shall desire to sell any
of the Shares within three years after the purchase of such Shares pursuant
hereto, and such sale requires, in the opinion of counsel to the Grantee, which
opinion shall be reasonably satisfactory to the Grantor and its counsel,
registration of such Shares under the Securities Act, the Grantor will cooperate
with the Grantee and any underwriters in registering such Shares for resale,
including promptly filing a registration statement which complies with the
requirements of
<PAGE>
applicable federal and state securities laws, and entering into an underwriting
agreement with such underwriters upon such terms and conditions as are
customarily contained in underwriting agreements with respect to secondary
distributions; PROVIDED that the Grantor shall not be required to have declared
effective more than two registration statements hereunder and shall be entitled
to delay the filing or effectiveness of any registration statement for up to 90
days if the offering would, in the judgment of the Board of Directors of the
Grantor, require premature disclosure of any material corporate development or
material transaction involving the Grantor or interfere with any previously
planned securities offering by the Grantor.
(b) If the Common Stock is registered pursuant to the
provisions of this Section 8, the Grantor agrees (i) to furnish copies of the
registration statement and the prospectus relating to the Shares covered thereby
in such numbers as the Grantee may from time to time reasonably request and (ii)
if any event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file under
the applicable securities laws such amendments and supplements as may be
necessary to keep available for at least 90 days a prospectus covering the
Common Stock meeting the requirements of such securities laws, and to furnish
the Grantee such numbers of copies of the registration statement and prospectus,
as amended or supplemented, as may reasonably be requested. The Grantor shall
bear the cost of the registration, including all registration and filing fees,
printing expenses, and fees and disbursements of counsel and accountants for the
Grantor, except that the Grantee shall pay the fees and disbursements of its
counsel, and the underwriting fees and selling commissions applicable to the
shares of Common Stock sold by the Grantee. The Grantor shall indemnify and hold
harmless (x) Grantee, its affiliates and its officers and directors and each
person who controls Grantee within the meaning of the Securities Act or Exchange
Act and (y) each underwriter and each person who controls any underwriter within
the meaning of the Securities Act or the Exchange Act (collectively, the
"UNDERWRITERS") ((x) and (y) being referred to as "INDEMNIFIED PARTIES") against
any losses, claims, damages, liabilities or expenses, to which the Indemnified
Parties may become subject, insofar as such losses, claims, damages, liabilities
(or actions in respect thereof) and expenses arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained or
incorporated by reference in any registration statement or prospectus filed
pursuant to this paragraph, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; PROVIDED, HOWEVER,
that the Grantor will not be liable in any such case to the extent that any such
loss, liability, claim, damage or expense arises out of or is based upon an
untrue statement or alleged untrue statement in or omission or alleged omission
from any such documents in reliance upon and in conformity with written
information furnished to the Grantor by the Indemnified Parties expressly for
use or incorporation by reference therein.
(c) The Grantee and the Underwriters shall indemnify and
hold harmless the Grantor, its affiliates and its officers and directors and
each person who controls Grantor within the meaning of the Securities Act or
Exchange Act against any losses, claims, damages, liabilities or expenses to
which the Grantor, its affiliates and its officers and directors
<PAGE>
may become subject, insofar as such losses, claims, damages, liabilities (or
actions in respect thereof) and expenses arise out of or are based upon any
untrue statement of any material fact contained or incorporated by reference in
any registration statement filed pursuant to this paragraph, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Grantor by the Grantee or the Underwriters, as applicable, specifically for use
or incorporation by reference therein.
9. EXPENSES. Each party hereto shall pay its own expenses
incurred in connection with this Agreement, except as otherwise specifically
provided herein.
10. SPECIFIC PERFORMANCE. The Grantor acknowledges that if the
Grantor fails to perform any of its obligations under this Agreement immediate
and irreparable harm or injury would be caused to the Grantee for which money
damages would not be an adequate remedy. In such event, the Grantor agrees that
the Grantee shall have the right, in addition to any other rights it may have,
to specific performance of this Agreement. Accordingly, if the Grantee should
institute an action or proceeding seeking specific enforcement of the provisions
hereof, the Grantor hereby waives the claim or defense that the Grantee has an
adequate remedy at law and hereby agrees not to assert in any such action or
proceeding the claim or defense that such a remedy at law exists.
11. NOTICE. All notices and other communications hereunder
shall be in writing and shall be deemed given when delivered personally, upon a
receipt of a transmittal confirmation if sent by facsimile or like transmission,
and on the next Business Day when sent by Federal Express, Express Mail or
similar overnight courier service to the parties at the following addresses or
facsimile numbers (or at such other address or facsimile number for a party as
shall be specified by like notice):
If to the Grantee:
USANi Sub LLC
Carnegie Hall Tower
152 West 57th Street, 42nd Floor
New York, NY 10019
<PAGE>
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Robert B. Schumer
Facsimile: (212) 757-3990
If to the Grantor:
The Company
3861 Sepulveda Blvd.
Culver City, CA 90230
Attention: Maurizio Vecchione
Facsimile: (310) 751-2122
with a copy to:
Coudert Brothers
950 17th St., 18th Fl.
Denver, CO 80202
Attention: John A. St. Clair
Facsimile: (303) 607-1080
12. PARTIES IN INTEREST. This Agreement shall inure to the
benefit of and be binding upon the parties named herein and their respective
successors and assigns. Nothing in this Agreement, express or implied, is
intended to confer upon any person other than the Grantor or the Grantee, or
their successors or assigns, any rights or remedies under or by reason of this
Agreement.
13. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together
with the Merger Agreement and the other documents contemplated thereby, contains
the entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes all prior and contemporaneous agreements and
understandings, oral or written, with respect to such transactions. This
Agreement may not be changed, amended or modified orally, but may be changed
only by an agreement in writing signed by the party against whom any waiver,
change, amendment, modification or discharge may be sought.
14. ASSIGNMENT. No party to this Agreement may assign any of
its rights or obligations under this Agreement without the prior written consent
of the other party hereto, except that the Grantee may assign its rights and
obligations hereunder to any of its direct or indirect wholly owned
subsidiaries, but no such transfer shall relieve the Grantee of its obligations
hereunder if such transferee does not perform such obligations.
<PAGE>
15. HEADINGS. The section headings herein are for convenience
only and shall not affect the construction of this Agreement.
16. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
17. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such state.
18. TERMINATION OF OPTION. The right to exercise the Option
granted pursuant to this Agreement shall terminate at the earlier of (i) the
Effective Time and (ii) the 12 month anniversary of Merger Termination Date;
PROVIDED that, if the Option cannot be exercised or the Shares cannot be
delivered to Grantee upon such exercise because the conditions set forth in
Section 3(a), (b) or (c) hereof have not yet been satisfied, the termination
date set forth in clause (ii) shall be extended until 30 days after such
impediment to exercise or delivery has been removed. All representations and
warranties contained in this Agreement shall survive delivery of and payment for
the Shares.
19. PROFIT LIMITATION.
(a) Notwithstanding any other provision of this Agreement
or the Merger Agreement, in no event shall the Grantee's Total Profit (as
hereinafter defined) exceed $5,545,809 and, if it otherwise would exceed such
amount, the Grantee shall repay such excess amount to Grantor in cash (or the
purchase price for purposes of Section 8, shall be reduced) so that Grantee's
Total Profit shall not exceed $5,545,809 after taking into account the foregoing
actions.
(b) Notwithstanding any other provision of this Agreement,
this Option may not be exercised for a number of Shares as would, as of the date
of the Stock Exercise Notice, result in a Notional Total Profit (as defined
below) of more than $5,545,809 and, if exercise of the Option otherwise would
exceed such amount, the Grantee, at its discretion, may increase the Purchase
Price for that number of Shares set forth in the Stock Exercise Notice so that
the Notional Total Profit shall not exceed $5,545,809; PROVIDED, that nothing in
this sentence shall restrict any exercise of the Option permitted hereby on any
subsequent date at the Purchase Price set forth in Section 2(a) hereof.
(c) As used herein, the term "TOTAL PROFIT" shall mean the
aggregate amount (before taxes) of the following: (i) (x) the amount of the cash
Termination Fee received by Grantee pursuant to Section 8.3(b) of the Merger
Agreement and Section 2(c) hereof, less (y) any repayment of such cash to
Grantor, (ii) (x) the net cash amounts received by Grantee pursuant to the sale
of Shares (or any other securities into or for which such Shares are
<PAGE>
converted or exchanged) to any unaffiliated party, less (y) the Grantee's
purchase price for such Shares.
(d) As used herein, the term "NOTIONAL TOTAL PROFIT" with
respect to any number of Shares as to which Grantee may propose to exercise this
Option shall be the Total Profit determined as of the date of the Stock Exercise
Notice assuming that this Option were exercised on such date for such number of
Shares and assuming that such Shares, together with all other Shares acquired
upon exercise of the Option and held by Grantee and its affiliates as of such
date, were sold for cash at the closing market price for the Common Stock as of
the close of business on the preceding trading day (less customary brokerage
commissions).
20. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
<PAGE>
IN WITNESS WHEREOF, the Grantee and the Grantor have caused
this Agreement to be duly executed and delivered on the day and year first above
written.
USANi SUB LLC
By:
----------------------------------
Name:
Title:
STYLECLICK.COM INC.
By:
----------------------------------
Name:
Title:
<PAGE>
Exhibit 10.4
WAIVER AGREEMENT
WAIVER AGREEMENT, dated as of January 24, 2000 (this "AGREEMENT"),
among Castle Creek Technology Partners, LLC, an Illinois limited liability
company (the "PRINCIPAL STOCKHOLDER"), USANi Sub LLC, a Delaware limited
liability company ("PARENT") and Styleclick.com Inc., a California corporation
(the "COMPANY").
WHEREAS, the Company and Parent propose to enter into an Agreement and
Plan of Merger, dated as of the date hereof (the "MERGER AGREEMENT"), which
provides for, among other things, the merger of the Company (the "MERGER") with
a wholly owned subsidiary of a newly formed Delaware corporation ("NEWCO") and
the concurrent contribution by Parent to Newco of all of the outstanding limited
liability interests of Internet Shopping Network LLC, a Delaware limited
liability company;
WHEREAS, the Principal Stockholder is (a) the owner of one or more of
the following securities: (i) shares of common stock of the Company, no par
value ("COMPANY COMMON STOCK"), and (ii) warrants to acquire Company Common
Stock, in each case listed on Schedule 1, and (b) party to certain agreements
with the Company identified on Schedule 2 (the "COMPANY AGREEMENTS"); and
WHEREAS, in order to induce Parent to enter into the Merger Agreement,
the Principal Stockholder has agreed to enter into this Agreement with respect
to (a) all the shares of Company Common Stock now owned, whether beneficially or
of record, and which may hereafter be acquired by the Principal Stockholder upon
exercise of the Warrants (as defined below) and any shares of Company Common
Stock over which the Principal Stockholder has investment power or voting power,
each within the meaning of Rule 13d-3(a) of the Securities Exchange Act of 1934,
as amended (the "SHARES"), and all warrants to acquire Shares now owned (the
"WARRANTS"), and (b) the Company Agreements to which the Principal Stockholder
is a party.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE 1
Section 1.1 ACKNOWLEDGMENT. The Principal Stockholder acknowledges
receipt and review of a copy of the Merger Agreement.
<PAGE>
2
Section 1.2 WAIVER OF COMPANY AGREEMENTS. The Principal Stockholder
hereby irrevocably and forever waives, and agrees to the modifications of its
rights under, the provisions of the Company Agreements identified on Schedule 2
and as limited and qualified by Schedule 2 which is incorporated herein by
reference, and hereby irrevocably and forever waives or modifies, as the case
may be, any similar provision contained in any other agreement or arrangement
between the Principal Stockholder and the Company.
Section 1.3 WAIVER OF DISSENTERS' RIGHTS. The Principal Stockholder
hereby irrevocably and forever waives any rights the Principal Stockholder may
have, as a result of the Merger, to demand payment for any Shares beneficially
owned by the Principal Stockholder pursuant to Section 1300 et. seq. of
California Law or to otherwise qualify as a "dissenting shareholder" as such
term is used in such sections of California Law.
Section 1.4 TERMINATION OF WAIVERS. Notwithstanding the foregoing, the
waivers and modifications effected in Sections 1.2 and 1.3 shall be of no
further force and effect and shall be treated as if they had never been granted
if: (a) the Merger Agreement is not executed prior to February 15, 2000; (b) the
Merger is not consummated prior to July 31, 2000; (c) the Merger Agreement is
amended in a manner materially adverse to the Principal Stockholder; (d) any
party materially breaches its obligations under the Merger Agreement and such
breach has a material adverse effect on the Principal Stockholder; or (e) the
Merger Agreement is otherwise terminated pursuant to its terms prior to the
consummation of the Merger.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE PRINCIPAL STOCKHOLDER
The Principal Stockholder hereby represents and warrants to Parent as
follows:
Section 2.1 AUTHORITY RELATIVE TO THIS AGREEMENT. The Principal
Stockholder has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby and no other proceedings on the part of the
Principal Stockholder is necessary to authorize this Agreement or to consummate
such transactions. This Agreement has been duly and validly executed and
delivered by the Principal Stockholder and, assuming the due authorization,
execution and delivery by Parent and the Company, constitutes a legal, valid and
binding obligation of the Principal Stockholder, enforceable against the
Principal Stockholder in accordance with its terms.
<PAGE>
3
Section 2.2 NO CONFLICT. (a) The execution and delivery of this
Agreement by the Principal Stockholder do not, and the performance of this
Agreement by the Principal Stockholder will not, (i) conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to the Principal
Stockholder or by which the Shares or the Warrants are bound or affected or (ii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a Lien (as defined below) on any of the Shares or the Warrants
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Principal Stockholder is a party or by which the Principal Stockholder or the
Shares or the Warrants are bound or affected, except for any such conflicts,
violations, breaches, defaults or other occurrences which would not prevent or
delay the performance by the Principal Stockholder of its obligations under this
Agreement.
(b) The execution and delivery of this Agreement by the Principal
Stockholder do not, and the performance of this Agreement by the Principal
Stockholder will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any court or arbitrator or any governmental
body, agency or official except for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended, and except where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay the performance by the
Principal Stockholder of its obligations under this Agreement.
Section 2.3 TITLE TO THE SHARES. As of the date hereof, the Principal
Stockholder is the record and beneficial owner of, or has voting power or
investment power over, the Shares, and is the record and beneficial owner of the
Warrants, listed on Schedule 1. Such Shares and Warrants are all the securities
of the Company owned, either of record or beneficially, by the Principal
Stockholder or in which the Principal Stockholder has voting or investment power
and the Principal Stockholder owns no other rights or interests exercisable for
or convertible into any securities of the Company. Except as identified on
Schedule 3, all of the Shares and Warrants referred to above are owned free and
clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreement, limitations on the Principal Stockholder's voting
rights, charges and other encumbrances of any nature whatsoever, but excluding
standard margin rules applicable to the Shares or the Warrants (collectively,
"LIENS") except, with respect to the Warrants, the Warrant Agreements pursuant
to which such Warrants were issued. The Principal Stockholder has not appointed
or granted any proxy, which appointment or grant is still effective, with
respect to the Shares.
<PAGE>
4
ARTICLE 3
COVENANTS OF THE PRINCIPAL STOCKHOLDER
Section 3.1 NO INCONSISTENT AGREEMENT. The Principal Stockholder hereby
covenants and agrees that it shall not enter into any agreement or grant a proxy
or power of attorney with respect to the Shares or Warrants which is
inconsistent with this Agreement.
Section 3.2 TRANSFER RESTRICTION.
(a) The Principal Stockholder hereby covenants and agrees
that it shall not sell, give, assign, hypothecate, pledge, encumber, grant a
security interest in or otherwise dispose of, whether by operation of law or by
agreement or otherwise (each a "TRANSFER"), from the date hereof until the
earlier of (i) termination of this Agreement or (ii) termination of the Merger
Agreement, any Shares or Warrants, or any right, title or interest therein or
thereto; PROVIDED, HOWEVER, that, notwithstanding the foregoing, the Principal
Stockholder may engage in ordinary course hedging transactions and may sell
Shares in open market transactions that comply with Rule 144(f) under the
Securities Act of 1933 (without regard to any other requirements of Rule 144).
(b) Notwithstanding the foregoing, the Principal
Stockholder may Transfer any Shares, Options or Warrants, or any right, title or
interest therein or thereto, to any of its subsidiaries or controlled
affiliates; PROVIDED that, prior to such Transfer, any transferee thereof shall
execute and deliver an agreement by which it shall become a party to and be
bound by the applicable terms and provisions of this Agreement, in form and
substance reasonably satisfactory to Parent.
(c) Notwithstanding the foregoing, if Parent permits any
stockholder that is a party to an agreement containing restrictions on transfer
of the type contained herein (the "TRANSFERRING STOCKHOLDER") to Transfer any
Shares, Warrants or options to purchase Company Common Stock (the "OPTIONS")
after the date hereof and prior to the termination of the Merger Agreement,
which Transfer would otherwise be prohibited by such agreement, then Parent
shall permit the Principal Stockholder, upon its request, to Transfer a number
of Shares or Warrants equal to the product of (i) the number of Shares, Warrants
or Options Transferred by the Transferring Stockholder divided by the number of
Shares, Warrants or Options owned by the Transferring Stockholder as of the date
of such Transfer, and (ii) the number of Shares or Warrants owned by the
Principal Stockholder as of the date of such Transfer, in each case, treating
all Options and Warrants as Shares on an as-converted basis (without giving
effect to any restrictions or limitations on the exercise of such Option or
Warrant).
<PAGE>
5
Section 3.3 EXERCISE RESTRICTION. The Principal Stockholder hereby
agrees not to exercise any of its Warrants from the date of this Agreement until
the earlier of (i) termination of this Agreement or (ii) consummation of the
Merger; PROVIDED that the Principal Stockholder may exercise its Warrants if it
immediately sells the Shares received pursuant to such exercise in a transaction
that complies with Section 3.2(a) hereof.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND THE COMPANY
Each of Parent and the Company (on its own behalf and not on behalf of
the other party) hereby represent and warrant to Principal Stockholder as
follows:
Section 4.1 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
the Company has full right, power and authority to enter into and perform this
Agreement and this Agreement has been duly authorized, executed and delivered by
each of Parent and the Company and is a valid and binding agreement of each of
Parent and the Company and enforceable against each of Parent and the Company in
accordance with its terms.
Section 4.2 NO CONFLICT. (a) The execution and delivery of this
Agreement by each of Parent and the Company do not, and the performance of this
Agreement by each of Parent and the Company will not, conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to Parent or the
Company, as applicable.
(b) The execution and delivery of this Agreement by each of Parent and
the Company do not, and the performance of this Agreement by each of Parent and
the Company will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any court or arbitrator or any governmental
body, agency or official except for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended, and except where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay the performance by Parent
or the Company, as applicable, of its obligations under this Agreement.
Section 4.3 OTHER AGREEMENTS. Concurrently with the execution hereof,
Parent and the Company are entering into separate waiver agreements with Intel
Corporation, Marshall Capital Management, Inc. and Winfield Capital Corp.
(collectively, the "OTHER PURCHASERS") waiving certain provisions of agreements
between such parties and the Company similar to the waivers contained in
Schedule 2. Such waivers are not materially more favorable to such other parties
than the waivers applicable to the Principal Stockholder hereunder.
<PAGE>
6
Following the date hereof, neither Parent nor the Company shall enter into an
agreement (or amend an existing agreement) relating to the Warrants, this
Agreement and the Company Agreements each as between the Company and/or the
Parent and the Other Purchasers that is more favorable to the other party (when
taken as a whole) than those applicable to the Principal Stockholder hereunder,
unless Parent and the Company also offer such more favorable terms to the
Principal Stockholder.
ARTICLE 5
MISCELLANEOUS
Section 5.1 TERMINATION. This Agreement shall terminate upon the
earlier of: (i) the consummation of the Merger; (ii) February 15, 2000, if the
Merger Agreement is not executed prior to such date; (iii) July 31, 2000, if the
Merger is not consummated prior to such date; (c) the amendment of the Merger
Agreement in a manner materially adverse to the Principal Stockholder; (d) the
material breach by any party of its obligations under the Merger Agreement with
such breach having a material adverse effect on the Principal Stockholder; or
(e) the termination of the Merger Agreement pursuant to its terms prior to the
consummation of the Merger; PROVIDED that (x) the representations and warranties
contained herein shall survive the termination hereof and (y) subject to Section
1.5, Section 1.2 hereof shall survive consummation of the Merger; PROVIDED,
FURTHER, that the agreements of the Company and Parent set forth in Schedule 2
and 4 hereof, respectively, relating to the extension of the Warrants and
cashless exercise shall survive the termination hereof or consummation of the
Merger as the case may be.
Section 5.2 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or in equity.
Section 5.3 DEFINITIONS. Unless otherwise defined herein, all
capitalized terms shall have the definitions assigned to such terms in the
Merger Agreement.
Section 5.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among Parent, the Company and the Principal Stockholder with respect
to the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
Section 5.5 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
<PAGE>
7
Section 5.6 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule or 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 this Agreement is not affected in any manner materially 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 to the fullest extent permitted by applicable law
in a mutually acceptable manner in order that the terms of this Agreement remain
as originally contemplated.
Section 5.7 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
Section 5.8 JURISDICTION. Each party to this Agreement hereby
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or any agreements or transactions contemplated hereby
shall be brought in the courts of the State of New York and hereby expressly
submits to the personal jurisdiction and venue of such courts for the purposes
thereof and expressly waives any claim of improper venue and any claim that such
courts are an inconvenient forum.
<PAGE>
8
IN WITNESS WHEREOF, Parent and the Principal Stockholder have caused
this Agreement to be duly executed as of the date first above written.
USANi SUB LLC
By:
-----------------------------
Name:
Title:
CASTLE CREEK TECHNOLOGY
PARTNERS, LLC
By:
-----------------------------
Name:
Title:
STYLECLICK.COM INC.
By:
-----------------------------
Name:
Title:
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Number of Shares
owned beneficially Number of
or of record(1) Warrants Owned
-------------- --------------
<S> <C>
89,718 538,674
</TABLE>
- --------
(1) Other than Shares issuable upon exercise of Warrants, which are
listed in the next column.
<PAGE>
Schedule 2
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Principal Provision
Stockholder Name of Agreement Waived Description of Provision* Modification of Provision
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Castle Creek Securities Purchase ss.IV(3) Company covenants to N/A,2/ except that (i) the
Technology Partners, Agreement, dated as maintain its status as an Company will maintain its
LLC ("Castle of April 7, 1999, issuer required to file status as an issuer required to
Creek") among Castle Creek, reports under the file reports under the Exchange
the Company and the Exchange Act. Act until consummation of the
other investors named Merger and (ii) Parent will
therein cause Newco to maintain its
status as an issuer required to
file reports under the Exchange
Act from consummation of the
Merger until termination of the
Warrants; provided that, this
provision, as so modified by
clause (ii), shall not prohibit
Newco from consummating a
merger or other "going private"
transaction.
- ------------------------------------------------------------------------------------------------------------------------------------
ss.IV(5) Prohibition on certain N/A, except that this provision
below-market issuances of will continue to apply to
equity, equity-like or issuances by the Company prior
equity-linked securities. to Closing of the Merger other
than issuances contemplated by
the Merger Agreement or the
Credit Agreement.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
2/ "N/A" means the provision shall have no further force or effect and any
and all claims arising under such provision (whether before or after the
date of this Waiver Agreement) are hereby expressly waived, subject in
each case to the provisions of Section 1.2 and Section 1.4 of this Waiver
Agreement.
* Description may not be complete. Entire provision is incorporated herein
by reference.
<PAGE>
2
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Principal Provision
Stockholder Name of Agreement Waived Description of Provision* Modification of Provision
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ss.IV(6) Prohibition on issuance or N/A, except that this provision
transfer of any debt or will continue to apply to
security of the Company's issuances or transfers prior to
subsidiaries. Closing of the Merger.
- ------------------------------------------------------------------------------------------------------------------------------------
ss.IV(10) Company agrees to N/A, except that (i) the
maintain listing on Company will maintain its
NASDAQ or other listing or authorization for
exchange until certain date trading on NASDAQ until
and to pay penalties for consummation of the Merger
days not listed. and (ii) Parent will cause
Newco to maintain its listing or
authorization for trading on
NASDAQ or other exchange
from consummation of the
Merger until termination of the
Warrants; provided that, this
provision, as so modified by
clause (ii), shall not prohibit
Newco from consummating a
merger or other "going private"
transaction.
Put right if not listed for
more than 30 days in any N/A. See Schedule 4.
12-month period.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Description may not be complete. Entire provision is incorporated herein
by reference.
<PAGE>
3
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Principal Provision
Stockholder Name of Agreement Waived Description of Provision* Modification of Provision
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ss.V(1) Company agrees to N/A, except that this provision
remove legend on shares, will continue to apply to the
warrants and shares Company prior to Closing of
underlying such warrants the Merger. Following Closing
that are issued pursuant to of the Merger, Parent will
these agreements. cause Newco to remove such
legends only upon Newco's
receipt of customary and
reasonable documentation from
the holder that the relevant
security is registered or able to
be sold without registration.
- ------------------------------------------------------------------------------------------------------------------------------------
ss.(V)(3) Company agrees to pay N/A, except that this provision
penalty upon failure to will continue to apply to the
remove legend (as Company prior to Closing of
described above). the Merger. Following Closing
of the Merger, if the failure to
remove the legend results from
Newco acting in a willful and
capricious manner, Newco will
pay penalty equal to 1/10 of
1% of the fair market value of
the Common Stock and
Common Stock underlying the
Warrants then held by Castle
Creek for every day that such
failure continues beginning on
the 10th day following such
failure.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Description may not be complete. Entire provision is incorporated herein
by reference.
<PAGE>
4
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Principal Provision
Stockholder Name of Agreement Waived Description of Provision* Modification of Provision
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ss.VIII(10) Indemnification Provision waived only with
provisions. respect to claims for
indemnification known to Castle
Creek on or prior to the date of
the Merger Agreement.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Description may not be complete. Entire provision is incorporated herein
by reference.
<PAGE>
5
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Principal Provision
Stockholder Name of Agreement Waived Description of Provision* Modification of Provision
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Castle Creek Each of the warrants, Exercise price of the If, at any time following the
dated April 7, 1999, warrants. consummation of the Merger
issued by the and prior to 4/7/2001, Castle
Company to Castle Creek desires in good faith to
Creek sell shares of Newco Common
Stock issuable upon exercise of
the warrants, and, at such time
a registration statement
permitting the sale of such
shares is not effective, Castle
Creek may request Newco to
effect a demand registration of
such shares and, if a
registration statement is not
effective within 30 days of such
demand, and Castle Creek
exercises its warrants within
five days following such 30 day
period, and commits to sell the
underlying shares into the
market pursuant to Rule 144 as
soon as reasonably practicable
following such exercise, the
exercise price of the warrants
so exercised shall be reduced
by $1.00 per underlying share.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Description may not be complete. Entire provision is incorporated herein
by reference.
<PAGE>
6
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Principal Provision
Stockholder Name of Agreement Waived Description of Provision* Modification of Provision
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ss.3(c) Company agrees to N/A, except that (i) the
maintain listing on Company will maintain its
NASDAQ or other listing or authorization for
exchange until certain date trading on NASDAQ until
and to pay penalties for consummation of the Merger
every day not listed. and (ii) Parent will cause
Newco to maintain its listing or
authorization for trading on
NASDAQ or other exchange
from consummation of the
Merger until termination of the
Warrants; provided that, this
provision, as so modified by
clause (ii), shall not prohibit
Newco from consummating a
merger or other "going private"
transaction.
Put right if not listed for
more than 30 days in any N/A
12-month period.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Description may not be complete. Entire provision is incorporated herein
by reference.
<PAGE>
7
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Principal Provision
Stockholder Name of Agreement Waived Description of Provision* Modification of Provision
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ss.4(a) Anti-dilution adjustment to Provision waived with respect
exercise price and number to any of the following
of shares upon below- transactions to the extent that
market issuances. such transaction would
otherwise require an adjustment
under Section 4(a): (i) any
issuance (or deemed issuance)
of securities contemplated by
the Merger Agreement or the
Credit Agreement; or (ii) any
issuance (or deemed issuance)
of securities by Newco as
consideration in an acquisition
of or from a third party or in
connection with a merger with
a third party anytime after the
Effective Time of the Merger;
provided that, with respect to
clause (ii), the principal
purpose of such transaction is
not to raise capital, and such
third party is not a controlled
affiliate of Newco or such
transaction (a) has been
approved by a special
committee of the Board of
Directors comprised solely of
independent directors and
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Description may not be complete. Entire provision is incorporated herein
by reference.
<PAGE>
8
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Principal Provision
Stockholder Name of Agreement Waived Description of Provision* Modification of Provision
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
such special committee has
recommended that the
stockholders of Newco vote in
favor thereof and (b) Newco
has received from a nationally
recognized investment banking
firm a written opinion
addressed to such special
committee, for inclusion in the
proxy statement to be delivered
to the stockholders,
substantially to the effect that
such transaction is fair to
Newco or to Newco's
stockholders (other than any
stockholder that, together with
its affiliates, beneficially owns
equity securities representing
more than 50% of the combined
voting power of all outstanding
equity securities of Newco
ordinarily entitled to vote in
the election of directors) from a
financial point of view.
- ------------------------------------------------------------------------------------------------------------------------------------
ss.4(e)(b)(ii) Right to receive 125% of N/A
Black-Scholes Amount
upon a Major Transaction
(as defined in each
warrant).
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Description may not be complete. Entire provision is incorporated herein
by reference.
<PAGE>
9
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Principal Provision
Stockholder Name of Agreement Waived Description of Provision* Modification of Provision
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ss.4(l) Adjustment to exercise
price and number of
shares upon certain
dispositions of the
Company Common Stock
by Vecchione.
- ------------------------------------------------------------------------------------------------------------------------------------
Castle Creek Each of the warrants, ss.2 Period of Exercise The Exercise Period of the
dated April 7, 1999 warrants shall be extended to
issued by the 4/7/2002.
Company to Castle
Creek and terminating
on April 7, 2000 and
July 7, 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Castle Creek Registration Rights ss.2.1(d) Put right if sales of all N/A. See Schedule 4.
Agreement, dated as Registrable Securities
of April 7, 1999, cannot be made pursuant
among the Castle to the registration
Creek, the Company statement for more than 30
and the other investors days in any 12-month
named therein period.
- ------------------------------------------------------------------------------------------------------------------------------------
ss.2.3 Penalty for each day on N/A. See Schedule 4.
which sales of Registrable
Securities cannot be made
pursuant to the registration
statement.
- ------------------------------------------------------------------------------------------------------------------------------------
ss.3.1 Company covenants to N/A. See Schedule 4.
maintain effectiveness of
registration statement for
certain period of time.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Description may not be complete. Entire provision is incorporated herein
by reference.
<PAGE>
10
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Principal Provision
Stockholder Name of Agreement Waived Description of Provision* Modification of Provision
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ss.3.13 Company agrees to N/A, except that (i) the
maintain listing on Company will maintain its
NASDAQ or other listing or authorization for
exchange. trading on NASDAQ until
consummation of the Merger
and (ii) Parent will cause
Newco to maintain its listing or
authorization for trading on
NASDAQ or other exchange
from consummation of the
Merger until termination of the
Warrants; provided that, this
provision, as so modified by
clause (ii), shall not prohibit
Newco from consummating a
merger or other "going private"
transaction.
- ------------------------------------------------------------------------------------------------------------------------------------
ss.3.19 Company covenants not to N/A. See Schedule 4.
grant certain registration
rights to certain other
equityholders
- ------------------------------------------------------------------------------------------------------------------------------------
ss.3.15 Company agrees to N/A. See Schedule 4.
provide opinion of counsel
within two days following
effectiveness of
registration statement filed
pursuant to these
agreements.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Description may not be complete. Entire provision is incorporated herein
by reference.
<PAGE>
11
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Principal Provision
Stockholder Name of Agreement Waived Description of Provision* Modification of Provision
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ss.6 Indemnification Provision waived only with
provisions. respect to claims for
indemnification known to the
Castle Creek on or prior to the
date of the Merger Agreement.
- ------------------------------------------------------------------------------------------------------------------------------------
ss.8 Company covenants to N/A, except that (i) the
maintain its status as an Company will maintain its
issuer required to file status as an issuer required to
reports under the file reports under the Exchange
Exchange Act. Act until consummation of the
Merger and (ii) Parent will
cause Newco to maintain its
status as an issuer required to
file reports under the Exchange
Act from consummation of the
Merger until termination of the
Warrants; provided that, this
provision, as so modified by
clause (ii), shall not prohibit
Newco from consummating a
merger or other "going private"
transaction.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Description may not be complete. Entire provision is incorporated herein
by reference.
<PAGE>
SCHEDULE 3
LIENS
-----
None
<PAGE>
13
SCHEDULE 4
REGISTRATION RIGHTS
Immediately upon effectiveness of Newco's S-4 until consummation of the
Merger, the Company will take all reasonable action to reinstate the
effectiveness of the S-3 registration statement pursuant to which the
warrantholder's Shares are registered until the Closing.
Immediately following consummation of the Merger, Newco will provide
the existing outside warrantholders of the Company, including the Principal
Stockholder and any of its permitted assignees (collectively, the
"WARRANTHOLDERS"), with a total of six demand registrations and piggyback
registration rights; PROVIDED that the Principal Stockholder shall be entitled
to at least two such demands. Newco will use its best efforts to keep each such
registration in effect for the earlier of (i) 90 days following the effective
time of such registration statement and (ii) the time when all shares subject to
such registration statement have been sold (the "EFFECTIVENESS PERIOD"). No
demand may be made within 90 days following the Effectiveness Period.
Demand registrations are subject to suspensions at any time for periods
not to exceed 90 days (which right Newco may not exercise more than twice in any
12-month period) if such registration would interfere with any financing,
acquisition or other material transaction involving Newco or any of its
affiliates or would otherwise require disclosure of material non-public
information which Newco reasonably believes would be harmful to disclose at such
time. The terms of the Warrants held by the Warrantholders shall be extended for
(a) the period of time between signing of the Merger Agreement and the
effectiveness of the registration statement on Form S-4 relating to the Merger
and (b) following effectiveness of such registration statement, the aggregate
periods of time for which all such suspensions are in effect and (without
duplication) for which an effective registration statement is not effective
following a demand therefor and for such periods of time when the Warrantholder
is not permitted to make a demand for registration.
Newco will not be required to register shares following a demand unless
at least 250,000 shares (as adjusted for stock splits and stock combinations)
or, if lower, a number of shares equal to the number of shares then beneficially
owned by the Warrantholders requesting such demand (not below 100,000 shares)
are included in such registration statement.
Newco will use its best efforts to cause registered shares to be
qualified for sale under all applicable blue sky laws unless such qualification
would require Newco to qualify to do business in any state or if it would
subject Newco to additional taxation.
Registration rights obligations with respect to the Shares will end
upon the earlier of (i) the date on which all of the Shares have been sold and
(ii) the date on which all of the Shares (in the reasonable opinion of counsel
to the Warrantholder) may be immediately sold to the public pursuant to
Rule 144(k). On or following April 7, 2000, the Company will permit
<PAGE>
14
cashless exercise of the Warrants upon request of any Warrantholders if,
at such time, the S-3 registration statement pursuant to which such
Warrantholder's Shares are registered would not permit the sale of such
Shares or if no such registration statement is then effective. Following
consummation of the Merger, Newco will agree to permit cashless exercise of
warrants upon request of any Warrantholders.
All expenses incurred in connection with a registration (other than (i)
fees and disbursements of counsel to the selling stockholder and (ii)
underwriting discounts and commissions, if any) shall be borne by Newco.
The registration rights set forth herein are subject to the condition
that the selling stockholder shall provide Newco with such information with
respect to shares of common stock to be registered, the plans for the proposed
distribution thereof and such other information as, in the reasonable opinion of
Newco is necessary to enable Newco to include in such registration statement all
material facts required to be disclosed with respect to such offering.
<PAGE>
Schedule to
Exhibit 10.4
Other Old Styleclick investors executed waiver agreements
substantially similar to the foregoing, except that the following investors
hold the amounts of Old Styleclick securities listed below:
Marshall Capital Management, Inc. -- warrants to purchase 269,337 shares of
Old Styleclick common stock
Winfield Capital Corp. -- 47,000 shares of Old Styleclick common stock and
warrants to purchase 55,616 shares of Old Styleclick
common stock
ING Barings LLC -- warrants to purchase 7,768 shares of Old Styleclick common
stock
PaineWebber Incorporated -- warrants to purchase 7,768 shares of Old Styleclick
common stock
<PAGE>
Exhibit 10.5
CONFORMED COPY
================================================================================
CREDIT AGREEMENT
BETWEEN
STYLECLICK.COM INC.
AND
USA NETWORKS, INC.
DATED AS OF JANUARY 24, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS........................................................1
1.1 Defined Terms....................................................1
1.2 Other Definitional Provisions....................................8
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS....................................8
2.1 Commitment.......................................................8
2.2 Procedure for Borrowing..........................................8
2.3 Repayment of Loan; Evidence of Indebtedness......................8
2.4 Prepayments......................................................9
2.5 Interest Rates...................................................9
2.6 Computation of Interest.........................................10
2.7 Payments........................................................10
2.8 Taxes...........................................................10
SECTION 3. REPRESENTATIONS AND WARRANTIES....................................11
3.1 Financial Condition.............................................11
3.2 No Change.......................................................11
3.3 Existence; Compliance with Law..................................14
3.4 Power; Authorization; Enforceable Obligations...................15
3.5 No Legal Bar....................................................16
3.6 No Material Litigation..........................................16
3.7 No Default......................................................16
3.8 Intellectual Property...........................................16
3.9 Taxes...........................................................18
3.10 Federal Regulations............................................19
3.11 ERISA..........................................................19
3.12 Investment Company Act; Other Regulations......................21
3.13 Purpose of Loan................................................21
3.14 Environmental Matters..........................................22
SECTION 4. CONDITIONS PRECEDENT..............................................22
4.1 Conditions to Loan..............................................22
SECTION 5. AFFIRMATIVE COVENANTS.............................................24
5.1 Financial Statements............................................25
5.2 Certificates; Other Information.................................25
5.3 Payment of Obligations..........................................26
5.4 Conduct of Business and Maintenance of Existence................26
5.5 Maintenance of Property; Insurance..............................26
5.6 Inspection of Property; Books and Records; Discussions..........26
5.7 Notices.........................................................26
5.8 Environmental Laws..............................................27
5.9 Further Assurances..............................................27
5.10 Additional Collateral..........................................27
<PAGE>
PAGE
SECTION 6. NEGATIVE COVENANTS................................................28
6.1 Limitation on Indebtedness......................................28
6.2 Limitation on Liens.............................................28
6.3 Limitation on Fundamental Changes...............................29
6.4 Limitation on Sale of Assets....................................29
6.5 Limitation on Dividends.........................................29
6.6 Limitation on Capital Expenditures..............................29
6.7 Limitation on Investments, Loans and Advances...................29
6.8 Limitation on Transactions with Affiliates......................30
6.9 Limitation on Negative Pledge Clauses...........................30
6.10 Limitation on Lines of Business................................30
SECTION 7. EVENTS OF DEFAULT.................................................30
SECTION 8. MISCELLANEOUS.....................................................33
8.1 Amendments and Waivers..........................................33
8.2 Notices.........................................................33
8.3 No Waiver; Cumulative Remedies..................................33
8.4 Survival of Representations and Warranties......................33
8.5 Payment of Expenses and Taxes...................................34
8.6 Successors and Assigns; Participations and Assignments..........34
8.7 Set-off.........................................................34
8.8 Counterparts....................................................35
8.9 Severability....................................................35
8.10 Integration....................................................35
8.11 GOVERNING LAW..................................................35
8.12 Submission To Jurisdiction; Waivers............................35
8.13 Acknowledgments................................................36
8.14 WAIVERS OF JURY TRIAL..........................................36
8.15 Confidentiality................................................36
Exhibits
A - Form of Note
B - Form of Warrant Agreement
C - Form of Collateral Agreement
D - Form of Closing Certificate
E - Form of Legal Opinions
- ii -
<PAGE>
CREDIT AGREEMENT, dated as of January 24, 2000, between STYLECLICK.COM
INC., a California corporation (the "BORROWER"), and USA NETWORKS, INC., a
Delaware corporation (together with its successors and assigns, the "LENDER").
WHEREAS, the Borrower is willing to borrow and the Lender is willing to
lend a loan up to the amount of $10,000,000 pursuant to the terms set forth
herein.
NOW THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following terms shall
have the following meanings:
"AFFILIATE": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, such Person. For
purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (a) vote 10% or more of the
securities having ordinary voting power for the election of directors
of such Person or (b) direct or cause the direction of the management
and policies of such Person, whether by contract or otherwise.
"AGREEMENT": this Credit Agreement, as amended, supplemented
or otherwise modified from time to time.
"BORROWER PERMITS": as defined in Section 3.3(c) hereto.
"BORROWER BENEFIT PLANS": as defined in Section 3.11(a)
hereto.
"BORROWER SEC DOCUMENTS": as defined in Section 3.1 hereto.
"BUSINESS DAY": a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or
required by law to close.
"CAPITAL STOCK": any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person
(other than a corporation) and any and all warrants or options to
purchase any of the foregoing.
"CASH EQUIVALENTS": (a) securities with maturities of six
months or less from the date of acquisition issued or fully guaranteed
or insured by the United States Government or any agency thereof, (b)
certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition and overnight bank
deposits of the Lender or of any commercial bank having capital and
<PAGE>
2
surplus in excess of $5,000,000,000, (c) repurchase obligations of any
commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than 30 days with respect to
securities issued or fully guaranteed or insured by the United States
Government, (d) commercial paper of a domestic issuer rated at least
A-1 by Standard and Poor's Rating Group ("S&P") or P-1 by Moody's
Investors Service, Inc. ("MOODY'S"), (e) securities with maturities of
six months or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United
States, by any political subdivision or taxing authority of any such
state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may
be) are rated at least AA by S&P or Aa2 by Moody's, (f) securities with
maturities of six months or less from the date of acquisition backed by
standby letters of credit issued by any commercial bank satisfying the
requirements of clause (b) of this definition or (g) shares of money
market mutual or similar funds which invest exclusively in assets
satisfying the requirements of clauses (a) through (f) of this
definition.
"CLOSING DATE": the first date on which the conditions
precedent set forth in subsection 4.1 shall be satisfied and there has
been an initial notice of borrowing.
"CODE": the Internal Revenue Code of 1986, as amended from
time to time.
"COLLATERAL": all assets of the Borrower, now owned or
hereinafter acquired, upon which a Lien is purported to be created by
any Security Document.
"COLLATERAL AGREEMENT": the Collateral Agreement, dated as of
January 24, 2000, made by the Borrower in favor of the Lender
substantially in the form of Exhibit C.
"COMMITMENT": the commitment of the Lender to make the Loan on
the during the Commitment Period.
"COMMITMENT PERIOD": the period from and including the date
hereof to but not including the earliest of (i) the Merger, (ii)
termination of the Merger Agreement or (iii) such earlier date on which
the Commitment shall terminate as provided herein.
"COMMONLY CONTROLLED ENTITY": an entity, whether or not
incorporated, which is under common control with the Borrower within
the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which is treated as a single employer under
Section 414 of the Code.
"COMPANY DISCLOSURE SCHEDULE": as defined in the Merger
Agreement.
"COMPANY GOVERNMENTAL APPROVALS": as defined in the Merger
Agreement.
<PAGE>
3
"COMPANY REQUIRED CONSENTS": as defined in the Merger
Agreement.
"CONTRACT": any note, bond, mortgage, indenture, contract,
agreement, commitment, lease, license, permit, franchise, arrangement
or other instrument or obligations whether or not in writing.
"CONTRACTUAL OBLIGATION": as to any Person, any provision of
any security issued by such Person or of any Contract to which such
Person is a party or by which it or any of its property is bound.
"DEFAULT": any of the events specified in Section 7, whether
or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"DOLLARS" and "$": dollars in lawful currency of the United
States of America.
"ENVIRONMENTAL LAWS": any and all foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, requirements of any Governmental Authority
or other Requirements of Law (including common law) regulating,
relating to or imposing liability or standards of conduct concerning
protection of human health or the environment, as now or may at any
time hereafter be in effect.
"EQUITY SECURITIES": as defined in the Merger Agreement.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"EVENT OF DEFAULT": any of the events specified in Section 7,
PROVIDED that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"EXCHANGE ACT": the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"FINANCIAL STATEMENTS": with respect to the Borrower, means
the Borrower's (i) audited balance sheet as of December 31, 1998; (ii)
statement of cash flows and statement of changes in shareholders'
equity for the year ended December 31, 1998; (iii) unaudited balance
sheet as of September 30, 1999; and (iv) unaudited statement of
operations for the three month period ended September 30, 1999, in each
case which were provided by the Borrower to the Lender on or prior to
the date hereof.
"FINANCING LEASE": any lease of property, real or personal,
the obligations of the lessee in respect of which are required in
accordance with GAAP to be capitalized on a balance sheet of the
lessee.
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4
"GAAP": generally accepted accounting principles in the United
States of America as in effect from time to time.
"GOVERNMENTAL AUTHORITY": any nation or government, any state
or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING
PERSON"), any obligation of (a) the guaranteeing person or (b) another
Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has
issued a reimbursement, counterindemnity or similar obligation, in
either case guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends or other obligations (the "PRIMARY OBLIGATIONS") of
any other third Person (the "PRIMARY OBLIGOR") in any manner, whether
directly or indirectly, including, without limitation, any obligation
of the guaranteeing person, whether or not contingent, (i) to purchase
any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (1) for the
purchase or payment of any such primary obligation or (2) to maintain
working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation or (iv)
otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; PROVIDED, HOWEVER, that the
term Guarantee Obligation shall not include endorsements of instruments
for deposit or collection in the ordinary course of business. The
amount of any Guarantee Obligation of any guaranteeing person shall be
deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Guarantee Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person
may be liable are not stated or determinable, in which case the amount
of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as
determined by the Borrower in good faith.
"INDEBTEDNESS": of any Person at any date, (a) all
indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services (other than current trade
liabilities incurred in the ordinary course of business and not
outstanding for more than 45 days), (b) any other indebtedness of such
Person which is evidenced by a note, bond, debenture or similar
instrument, (c) all obligations of such Person under Financing Leases,
(d) all obligations of such Person in respect of acceptances issued or
created for the account of such Person, (e) all liabilities secured by
any Lien on any property owned by such Person even though such Person
has not assumed or otherwise become liable for the payment thereof and
(f) all Guarantee Obligations of such Person.
<PAGE>
5
"INSOLVENCY": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"INSOLVENT": pertaining to a condition of Insolvency.
"IP LICENSES": as defined in Section 3.8(i)(B) hereto.
"KNOWLEDGE": with respect to a natural Person, the actual
knowledge of such Person and, with respect to a non-natural Person, the
actual knowledge of such Person's officers and directors (or similar
representatives).
"LIABILITIES": any Indebtedness, liability, claim, loss, or
obligation of any kind, whether accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, absolute, contingent, inchoate or
otherwise.
"LIEN": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or
other security interest or any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title
retention agreement and any Financing Lease having substantially the
same economic effect as any of the foregoing).
"LOAN": the loan made by the Lender in one or more drawings
hereunder during the Commitment Period in an aggregate principal amount
not to exceed $10,000,000.
"LOAN DOCUMENTS": this Agreement, the Note, the Security
Documents and the Warrant Agreement.
"MATERIAL ADVERSE CHANGE": with respect to any Person, a
change, development or effect that, together with all such other
changes, developments or effects, individually or in the aggregate, has
had, or is reasonably likely to have, a Material Adverse Effect on such
Person.
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a)
the business, operations, property, condition (financial or otherwise)
or prospects of the Borrower or (b) the validity or enforceability of
this or any of the other Loan Documents or the rights or remedies of
the Lender hereunder or thereunder.
"MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any Environmental Law,
including, without limitation, asbestos, polychlorinated biphenyls and
urea-formaldehyde insulation.
"MERGER": as defined in the Merger Agreement.
<PAGE>
6
"MERGER AGREEMENT": Agreement and Plan of Merger, dated as of
January 24, 2000 between the Borrower and USANi Sub LLC, a Delaware
limited liability company and an affiliate of USA Networks, Inc.
"MERGER SUB: as defined in the Merger Agreement.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"NET CASH AMOUNT": as defined in the Merger Agreement.
"NEWCO": as defined in the recitals hereto.
"NON-EXCLUDED TAXES": as defined in subsection 2.8.
"NOTE": a promissory note of the Borrower evidencing the Loan
of the Lender, substantially in the form of Exhibit A with appropriate
insertions as to the date and principal amount.
"ORDER": any applicable order, judgment, injunction, writ or
decree.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"PERSON": an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.
"PLAN": at a particular time, any employee benefit plan which
is covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"PROPOSED INTELLECTUAL PROPERTY AGREEMENTS": as defined in
Section 3.8(i)(D) hereto.
"REGULATION U": Regulation U of the Board of Governors of the
Federal Reserve System as in effect from time to time.
"REORGANIZATION": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"REPORTABLE EVENT": any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty day
notice period is waived under subsections .13, .14, .16, .18, .19 or
.20 of PBGC Reg. ss. 2615.
<PAGE>
7
"REQUIREMENT OF LAW": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is
subject.
"RESPONSIBLE OFFICER": the chief executive officer and the
president of the Borrower or, with respect to financial matters, the
chief financial officer of the Borrower.
"SEC": the Securities and Exchange Commission.
"SECURITIES ACT": the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"SECURITY DOCUMENTS": the collective reference to the
Collateral Agreement and any other security documents hereafter
delivered to the Lender granting a Lien on any asset or assets of any
Person to secure the obligations and liabilities of the Borrower
hereunder and under any of the other Loan Documents or to secure any
guarantee of any such obligations and liabilities.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"SUBSIDIARY": as to any Person, a corporation, partnership or
other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the
time owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries, or both, by
such Person.
"SYSTEMS": as defined in Section 3.8(viii) hereto.
"TAX" or "TAXES": as defined in Section 3.9(a) hereto.
"TAX RETURN": as defined in Section 3.9(b) hereto.
"TERMINATION DATE": one year from the Closing Date or such
earlier date upon which the Loan becomes due and payable pursuant to
the terms hereof.
"TRANSACTIONS": as defined in the Merger Agreement.
"WARN": as defined in Section 3.11(l) hereto.
"WARRANT AGREEMENT": as defined in the Merger Agreement.
<PAGE>
8
"YEAR 2000 COMPLIANT": as defined in Section 3.8(vii) hereto.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in any Note or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in any Note, and any certificate or
other document made or delivered pursuant hereto, accounting terms relating to
the Borrower not defined in subsection 1.1 and accounting terms partly defined
in subsection 1.1, to the extent not defined, shall have the respective meanings
given to them under GAAP.
(c) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 COMMITMENT. Subject to the terms and conditions hereof, the Lender
agrees to make the Loan to the Borrower in one or more drawings during the
Commitment Period in an aggregate principal amount not to exceed $10,000,000.
Any portion of the Commitment not drawn on the last day of the Commitment Period
will expire at the close of business on such day.
2.2 PROCEDURE FOR BORROWING. The Borrower may borrow under the
Commitment during the Commitment Period on any Business Day, PROVIDED that the
Borrower shall give the Lender irrevocable notice which notice must be received
by the Lender prior to 10:00 a.m., New York City time at least one Business Day
prior to the requested drawdown and which must specify (i) the amount to be
drawn which must be at least $1,000,000 in excess thereof and an integral
multiple of $100,000 and (ii) the requested Business Day of the drawing. The
Lender will make the requested amount of the Loan available to the Borrower
prior to 2:00 p.m., New York City time, on the Business Day requested by the
Borrower in funds immediately available to the Borrower. Such borrowing will be
made available to the Borrower by wire transfer to the account of the Borrower
specified in the notice of borrowing.
2.3 REPAYMENT OF LOAN; EVIDENCE OF INDEBTEDNESS. (a) The Borrower
hereby unconditionally promises to pay to the Lender the then unpaid principal
amount of the Loan on the Termination Date. The Borrower hereby further agrees
to pay accrued unpaid interest as herein provided on the principal amount of the
Loan on each March 31, June 30, September 30, December 31 and on the Termination
Date from the Closing Date through the Termination Date.
<PAGE>
9
(b) The Lender shall maintain an account evidencing
indebtedness of the Borrower to the Lender resulting from the Loan, including
the amounts of principal and interest payable and paid to the Lender from time
to time under this Agreement.
(c) The accounts of the Lender maintained pursuant to
subsection 2.3(b) shall, to the extent permitted by applicable law, be PRIMA
FACIE evidence of the existence and amounts of the obligations of the Borrower
therein recorded; PROVIDED, HOWEVER, that the failure of the Lender to maintain
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loan made to
such Borrower by the Lender in accordance with the terms of this Agreement.
2.4 PREPAYMENTS. (a) The Borrower may at any time and from time to time
prepay the Loan, in whole or in part, without premium or penalty, upon at least
four Business Days irrevocable notice to the Lender, specifying the date and
amount of prepayment; PROVIDED if the Merger Agreement has not been terminated,
no such prepayment shall be permitted unless the Merger has occurred. If any
such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein together with accrued interest to such
date on the amount prepaid. Amounts prepaid on account of the Loan may not be
reborrowed. Partial prepayments shall be in an aggregate principal amount of
$1,000,000 or a whole multiple of $100,000 in excess thereof.
(b) The Loan shall be prepaid in the following amounts within
one Business Day of receipt: (i) 100% of the net proceeds of any sale or
issuance of Capital Stock (except issuances of Common Stock pursuant to stock
option plans and warrants outstanding or in effect on the date hereof) or
incurrence of Indebtedness (other than Indebtedness permitted by Section 6.1) by
the Borrower; and (ii) 100% of the net proceeds of any sale or other disposition
(including as a result of casualty or condemnation) by the Borrower of any
assets (except for the sale of inventory in the ordinary course of business
permitted by Section 6.4(b)).
(c) The Loan shall be prepaid in full (i) immediately, if the
Merger Agreement is terminated and any payment is required to be made by
Borrower pursuant to Section 8.3 of the Merger Agreement and (ii) within 45 days
following any termination of the Merger Agreement if the Borrower shall have
materially breached any of its representations and warranties or covenants
thereunder.
2.5 INTEREST RATES. (a) The Loan shall bear interest at 7 1/2% per
annum.
(b) If all or a portion of (i) any principal of any Loan, (ii)
any interest payable thereon, or (iii) any other amount payable hereunder shall
not be paid when due (whether at the stated maturity, by acceleration or
otherwise), the principal of the Loan and any such overdue interest, commitment
fee or other amount shall bear interest at a rate per annum which is 9 1/2%.
<PAGE>
10
(c) Interest accruing pursuant to paragraph (b) of this
subsection shall be payable from time to time on demand.
2.6 COMPUTATION OF INTEREST. Interest shall be calculated on the basis
of a 360-day year for the actual days elapsed.
2.7 PAYMENTS. All payments (including prepayments) to be made by the
Borrower hereunder, whether on account of principal, interest or otherwise,
shall be made without set off or counterclaim and shall be made prior to 12:00
Noon, New York City time, on the due date thereof to the Lender by wire transfer
of immediately available funds to an account designated by the Lender. If any
payment hereunder becomes due and payable on a day other than a Business Day,
such payment shall be extended to the next succeeding Business Day, and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
2.8 TAXES. All payments made by the Borrower under this Agreement and
the Note shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Lender as a result of a present or former
connection between the Lender and the jurisdiction of the Governmental Authority
imposing such tax or any political subdivision or taxing authority thereof or
therein (other than any such connection arising solely from the Lender having
executed, delivered or performed its obligations or received a payment under, or
enforced, this Agreement or the Note). If any such non-excluded taxes, levies,
imposts, duties, charges, fees deductions or withholdings ("NON-EXCLUDED TAXES")
are required to be withheld from any amounts payable to the Lender hereunder or
under the Note, the amounts so payable to the Lender shall be increased to the
extent necessary to yield to the Lender (after payment of all Non-Excluded
Taxes) interest or any such other amounts payable hereunder at the rates or in
the amounts specified in this Agreement. Whenever any Non-Excluded Taxes are
payable by the Borrower, as promptly as possible thereafter the Borrower shall
send to the Lender a certified copy of an original official receipt received by
the Borrower showing payment thereof. If the Borrower fails to pay any
Non-Excluded Taxes when due to the appropriate taxing authority or fails to
remit to the Lender the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lender for any incremental taxes,
interest or penalties that may become payable by the Lender as a result of any
such failure. The agreements in this subsection shall survive the termination of
this Agreement and the payment of the Loan and all other amounts payable
hereunder.
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11
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the Loan,
the Borrower hereby represents and warrants to the Lender that:
3.1 FINANCIAL CONDITION. The Borrower has made available to the Lender
a true and complete copy of each form, report, schedule, registration statement
and definitive proxy statement filed by the Borrower with the SEC since January
1, 1997 (as such documents have since the time of their filing been amended or
supplemented, the "BORROWER SEC DOCUMENTS"), which are all of the documents that
the Borrower was required to file with the SEC since January 1, 1997. Except as
set forth in Section 3.1(d) of the Company Disclosure Schedule, as of their
respective dates, the Borrower SEC Documents complied in all material respects
with the requirements of the Securities Act and the Exchange Act, as applicable,
and none of the Borrower SEC Documents (including all financial statements
included therein and all exhibits and schedules thereto and documents
incorporated by reference therein) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Financial State ments delivered by the
Borrower to the Lender comply as to form in all material respects with
applicable accounting requirements and with the rules and regulations of the SEC
with respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited Financial Statements, as
permitted by Exchange Act Form 10-Q) and fairly present (subject, in the case of
the unaudited Financial Statements, to normal, recurring audit adjustments that,
individually and in the aggregate, were not material) the financial position of
the Borrower as at the dates thereof and the results of each of their operations
and cash flows for the periods then ended. There are no Liabilities of any kind
required to be disclosed under GAAP that are not disclosed, reflected or
reserved against in the Financial Statements of the Borrower, except for such
Liabilities incurred in the ordinary course of business consistent with past
practice since the date of the Borrower's most recent audited Financial
Statements or as set forth in Section 3.1(d) of the Company Disclosure Schedule
or as would not have a Material Adverse Effect with respect to the Borrower.
3.2 NO CHANGE. Except as disclosed in Section 3.1(p) of the Company
Disclosure Schedule, since the date of the Borrower's most recent audited
Financial Statements:
(i) there has not been any Material Adverse Change with
respect to the Borrower;
(ii) there has not been any declaration, setting aside or
payment of any dividend or other distribution with respect to any
shares of capital stock of the Borrower, or any repurchase, redemption
or other acquisition by the Borrower of any outstanding shares of
capital stock or other securities of, or other
<PAGE>
12
ownership interests in, the Borrower or any split, combination or
reclassification of any of the Borrower's capital stock or issuance or
authorization relating to the issuance of any other securities in
respect of, in lieu of or in substitution for shares of the Borrower's
capital stock;
(iii) there has not been any amendment to, or change in, the
Articles of Incorporation or By-laws of the Borrower or modification
through merger, liquidation, reorganization, restructuring or in any
other fashion to the corporate structure or ownership of any Subsidiary
of the Borrower;
(iv) there has not been any incurrence, creation or assumption
by the Borrower of any Indebtedness or any Lien on any material asset,
and the Borrower has not issued or sold any debt securities or warrants
or other rights to acquire any debt securities of the Borrower or
entered into any "keep well" or other agreement to maintain any
financial statement condition of another Person or enter into any
arrangement having the economic effect of any of the foregoing;
(v) there has not been any change in any method of accounting
or accounting practice by the Borrower, except for any such change
required by reason of a concurrent change in GAAP or to conform a
Subsidiary's accounting policies and practices to those of the
Borrower;
(vi) there has not been any sale or transfer by the Borrower
of any of material assets of the Borrower, cancellation of any
Indebtedness or claims or waiver of any material rights by the
Borrower;
(vii) the Borrower has not made any loans, advances or capital
contributions to or investments in, any other Person, other than travel
and entertainment advances to employees of the Borrower in the ordinary
course of business consistent with past practices;
(viii) except for this Agreement and any other Loan Documents,
the Borrower has not entered into any material transaction or incurred
any material expenditure other than in the ordinary course of business
consistent with past practice;
(ix) there has not been any adverse change in a material
customer or material supplier relationship, including any cancellation
or termination or written notice of cancellation or termination by any
material customer or material supplier of its relationship or a
material portion of its relationship with the Borrower or any material
decrease in the usage or purchase of the products or services of the
Borrower by any such customer or any material decrease or limitation of
services or supplies of the products or services to the Borrower by any
such supplier which
<PAGE>
13
would have, individually or in the aggregate, a Material Adverse Effect
with respect to the Borrower;
(x) there has not been any waiver or release of any material
right of claim of the Borrower, including any write-off or other
compromise of any account receivable of the Borrower or any Subsidiary,
other than in the ordinary course of business and consistent with past
practices;
(xi) there has not been, to the Knowledge of the Borrower, any
assertion by any advertiser, subscriber and/or customer of the Borrower
which, if substantiated, would have a Material Adverse Effect with
respect to the Borrower;
(xii) there has not been any material change in the policies
under which the Borrower extends discounts, credits or warranties to
customers or otherwise deals with its customers;
(xiii) there has not been any grant of exclusive promotion or
sponsorship with respect to any portion of any website of the Borrower;
(xiv) the Company has not authorized for issuance, issued,
delivered, sold or agreed or committed to issue, sell or deliver
(whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise), pledge or
otherwise encumber any shares of capital stock or other Equity
Securities of the Company;
(xv) except with respect to annual bonuses made in the
ordinary course of business consistent with past practice, the Borrower
has not adopted or amended in any material respect any bonus, profit
sharing, compensation, severance, termination, stock option, stock
appreciation right, pension, retirement, employment or other employee
benefit agreement, trust, plan or other arrangement for the benefit or
welfare of any director, officer or employee of the Borrower or
increase in any manner the compensation or fringe benefits of any
director, officer or employee of the Borrower or pay any benefit not
required by any existing agreement or place any assets in any trust for
the benefit of any director, officer or employee of the Borrower (in
each case, except with respect to employees in the ordinary course of
business consistent with past practice);
(xvi) there has not been any grant or transfer of any rights
of value or modify or change in any material respect any existing
material license, lease, Contract or other document;
(xvii) the Borrower has not adopted a plan of complete or
partial liquidation or resolutions providing for or authorizing such a
liquidation or a
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14
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization other than as is necessary in order to effect the
Merger;
(xviii) the Borrower has not settled or compromised any
shareholder derivative suits arising out of the transactions
contemplated hereby or any other litigation (whether or not commenced
prior to the date of this Agreement) or settled, paid or compromised
any claims not required to be paid, individually in an amount in excess
of $100,000 and in the aggregate in an amount in excess of $1,000,000,
other than in consultation and cooperation with the Lender, and, with
respect to any such settlement, with the prior written consent of the
Lender;
(xix) the Borrower has not entered into any transaction or
series of transactions with any Affiliate of the Borrower (other than a
wholly-owned Subsidiary of the Borrower) or otherwise that would be
required to be disclosed pursuant to Item 404 of Regulation S-K under
the Securities Act other than on terms and conditions substantially as
favorable to the Borrower or such Subsidiary as would be obtainable by
the Borrower or such Subsidiary at the time of such transaction with a
Person that is not an Affiliate of the Borrower;
(xx) there has not been any acquisition or agreement to
acquire (x) by merging or consolidating with, or by purchasing a
substantial portion of the stock or assets of, or by any other manner,
any business or any other Person or (y) any assets that are material,
individually or in the aggregate, to the Borrower taken as a whole,
except purchases of inventory in the ordinary course of business
consistent with past practice; and
(xxi) there has been no agreement by the Borrower, whether
written or oral, to do any of the foregoing.
3.3 EXISTENCE; COMPLIANCE WITH LAW. (a) The Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted, and
is duly qualified or licensed and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure so to qualify would not have a Material
Adverse Effect with respect to the Borrower. Section 3.1(a) of the Company
Disclosure Schedule sets forth, as of the date hereof, a true and complete list
of all of the Borrower's Subsidiaries, including (x) the jurisdiction of
incorporation of each such Subsidiary and (y) the percentage of each such
Subsidiary's outstanding capital stock, and the nature of such capital stock,
owned by the Borrower and/or another Subsidiary of the Borrower, as the case may
be. All of the outstanding shares of capital stock in each of the Subsidiaries
of the Borrower are duly authorized, validly issued, fully paid and
nonassessable and, except as set forth in Section 3.1(a) of the Company
Disclosure Schedule, are owned (of record and beneficially)
<PAGE>
15
by the Borrower and/or by another Subsidiary of the Borrower, as the case may
be, free and clear of all Liens, and are not subject to preemptive rights
created by statute, such Subsidiary's Articles of Incorporation or By-laws (or
similar constituent documents) or any agreement to which such Subsidiary is a
party or by which such Subsidiary is bound. Other than as set forth in Section
3.1(a) of the Company Disclosure Schedule, the Borrower does not directly or
indirectly own any Equity Securities in any Person.
(b) The execution, delivery and performance by the Borrower of
this Agreement and the other Loan Documents to which the Borrower is party and
the consummation of the Loan do not and will not (i) contravene or conflict with
or result in any violation or breach of any provision of the Articles of
Incorporation or By-laws of the Borrower, (ii) assuming all Company Governmental
Approvals and Company Required Consents have been made or obtained, contravene
or conflict with or result in a violation or breach of any provision of any Law
or order binding upon or applicable to the Borrower or any of their respective
assets, (iii) require any consent or other action by any Person under,
constitute a default under or give rise to a right of termination, cancellation,
change of any right or obligation, or acceleration of any right or obligation or
to the loss of any benefit or adverse modification of the effect (including an
increase in the price paid by, or cost to, the Borrower) of, or under any
provision of any agreement or other instrument to which the Borrower is a party
or that is binding upon the Borrower or their properties or assets or any
license, franchise, permit or other similar authorization held by the Borrower
or (iv) result in the creation or imposition of any Lien on any asset of the
Borrower, except with respect to clauses (iii) and (iv) as set forth in Section
3.1(h) of the Company Disclosure Schedule; PROVIDED, HOWEVER, that clauses (ii)
through (iv) above address only those matters that, individually or in the
aggregate, would have a Material Adverse Effect with respect to the Borrower.
(c) The Borrower holds all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Authorities, except where
any such failure so to hold, individually and in the aggregate, would not have a
Material Adverse Effect with respect to the Borrower (the "BORROWER PERMITS").
The Borrower is in compliance with the terms of the Borrower Permits in all
material respects. The businesses of the Borrower are not being conducted in
violation of any Requirement of Law. No investigation or review by any
Governmental Authority with respect to the Borrower is pending or, to the
Knowledge of the Borrower, threatened, nor, to the Knowledge of the Borrower,
has any Governmental Authority indicated an intention to conduct the same.
3.4 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The Borrower has the
corporate or other entity power and authority, and the legal right, to make,
deliver and perform the Loan Documents and to borrow hereunder and has taken all
necessary corporate or other entity action to authorize the borrowings on the
terms and conditions of this Agreement and any Note and to authorize the
execution, delivery and performance of the Loan Documents. No consent or
authorization of, filing with, notice to or other act by or in respect of, any
Governmental Authority or any other Person is required in connection with
<PAGE>
16
the borrowings hereunder or with the execution, delivery, performance, validity
or enforceability of the Loan Documents. This Agreement has been, and each other
Loan Document will be, duly executed and delivered on behalf of the Borrower.
This Agreement constitutes, and each other Loan Document when executed and
delivered will constitute, a legal, valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
3.5 NO LEGAL BAR. The execution, delivery and performance of the Loan
Documents, the borrowings hereunder and the use of the proceeds thereof will not
violate any Requirement of Law or Contractual Obligation of the Borrower and
will not result in, or require, the creation or imposition of any Lien on any of
its or their respective properties or revenues pursuant to any such Requirement
of Law or Contractual Obligation except for Liens created under the Loan
Documents in favor of the Lender.
3.6 NO MATERIAL LITIGATION. As of the date of this Agreement, except as
set forth in Section 3.1(i) of the Company Disclosure Schedule, there is no
suit, claim, action or proceeding pending, or, to the Knowledge of the Borrower,
threatened against the Borrower or an Affiliate of the Borrower that,
individually or in the aggregate, would have a Material Adverse Effect with
respect to the Borrower, nor is there any Order of any Governmental Authority
outstanding against the Borrower or an Affiliate of the Borrower that,
individually or in the aggregate, would have a Material Adverse Effect with
respect to the Borrower.
3.7 NO DEFAULT. The Borrower is not in default under or with respect to
any of its Contractual Obligations in any respect which could reasonably be
expected to have a Material Adverse Effect. No Default or Event of Default has
occurred and is continuing.
3.8 INTELLECTUAL PROPERTY.
(i) DISCLOSURE.
(A) Section 3.1(m)(i)(A) or Section 3.1(m)(i)(B) of
the Company Disclosure Schedule sets forth all United States and
foreign patents and patent applications, trademark and service mark
registrations and applications, Internet domain name registrations and
applications and copyright registrations and applications owned or
licensed by the Borrower specifying as to each item, as applicable; the
nature of the item, including the title; the owner of the item; the
jurisdictions in which the item is issued or registered or in which an
application for issuance or registration has been filed; and the
issuance, registration, or application numbers and dates.
<PAGE>
17
(B) Section 3.1(m)(i)(B) of the Company Disclosure
Schedule sets forth all material licenses, sublicenses and other
agreements or permissions ("IP LICENSES") under which the Borrower is a
licensor or licensee or otherwise is authorized to use or practice any
Intellectual Property.
(C) Except as set forth in Section 3.1(m)(i)C) of the
Company Disclosure Schedule, all Intellectual Property that is material
to the business or development of the Company has been developed by
employees of the Company and all such employees have executed a
Proprietary Rights Assignment and Non- Disclosure Agreement.
(D) Section 3.1(m)(i)(D) of the Company Disclosure
Schedule sets forth and describes the status of any material agreements
involving Intellectual Property currently in negotiation or proposed
("PROPOSED INTELLECTUAL PROPERTY AGREEMENTS") by the Borrower.
(ii) OWNERSHIP. The Borrower owns, free and clear of all
Liens, and has the unrestricted right to use, sell or license, all Intellectual
Property in its possession, except for failures to own free and clear or to have
the unrestricted right to use, sell, or license that, individually and in the
aggregate, would not have a Material Adverse Effect with respect to the Borrower
and except for technology licensed to the Company and listed on Section
3.1(m)(i)(B) of the Company Disclosure Schedule. Notwithstanding the foregoing,
the Borrower currently possesses free and clear of all liens or assignments, all
Intellectual Property rights necessary in order for the Borrower to continue
operating its current business.
(iii) CLAIMS. Except as set forth in Section 3.2(m)(ii) of the
Company Disclosure Schedule, the Borrower and its Affiliates have not been a
party to any Claim, nor, to the Borrower's Knowledge, is any such Claim
threatened, that challenges the validity, enforceability, ownership, or right to
use, sell or license, any Intellectual Property in the possession of the
Borrower. To the Borrower's Knowledge, no third party is infringing upon any
such Intellectual Property.
(iv) ADMINISTRATION AND ENFORCEMENT. The Borrower has taken
all necessary and desirable actions to maintain and protect each item of
Intellectual Property owned by the Borrower except for failures to take such
actions that, individually and in the aggregate, would not have a Material
Adverse Effect with respect to the Borrower.
(v) PROTECTION OF TRADE SECRETS AND TECHNOLOGY. The Borrower
has taken all reasonable precautions to protect the secrecy, confidentiality and
value of its trade secrets and the proprietary nature and value of its
Technology, including requiring all employees and contractors to execute a
Proprietary Rights and Non-Disclosure Agreement.
<PAGE>
18
(vi) SOFTWARE. All material Software used by the Borrower
performs in conformance with its documentation, except for failures to perform
that, individually and in the aggregate, would not have a Material Adverse
Effect with respect to the Borrower. The Transactions will not require any third
party consents under the terms of the documentation related to the Software
other than (A) as set forth in Section 3.1(m)(vi) of the Company Disclosure
Schedule or (B) such consents that, individually and in the aggregate, would not
have a Material Adverse Effect with respect to the Borrower.
(vii) YEAR 2000 COMPLIANCE. All Software, hardware, databases
and embedded control systems (collectively, the "SYSTEMS") used by the Borrower
are Year 2000 Compliant, except for failures to be Year 2000 Compliant that,
individually and in the aggregate, would not have a Material Adverse Effect with
respect to the Borrower. As used herein, the term "YEAR 2000 COMPLIANT" means
that the Systems (i) accurately process date and time data (including
calculating, comparing and sequencing) from, into and between the twentieth and
twenty-first centuries, the years 1999 and 2000 and leap year calculations and
(ii) operate accurately with other software and hardware that use standard date
format (4 digits) for representation of the year.
(viii) EFFECT OF TRANSACTION. The Borrower is not, nor, as a
result of the execution and delivery of this Agreement, the consummation of the
Transactions or the performance of the Borrower's obligations hereunder, will
be, in violation of any agreement relating to any Intellectual Property, except
for violations that, individually and in the aggregate, would not have a
Material Adverse Effect with respect to the Borrower.
3.9 TAXES. (a) Other than Taxes that individually and in the aggregate
are not material (i) all federal, state, county, local, foreign and other taxes
(including, without limitation, income, profits, premium, estimated, excise,
sales, use, occupancy, gross receipts, franchise, ad valorem, severance, capital
levy, production, transfer, withholding, employment, unemployment compensation,
payroll related and property taxes, import duties and other governmental charges
and assessments), whether or not measured in whole or in part by net income, and
including deficiencies, interest, additions to tax or interest, penalties with
respect thereto and expenses associated with contesting any proposed adjustment
related to any of the foregoing (hereinafter "TAXES" or, individually, a "TAX")
required to be paid on or before the date hereof by or with respect to the
Borrower have been timely paid, and (ii) any Taxes required to be paid by or
with respect to the Borrower after the date hereof and on or before the Closing
Date shall be timely paid.
(b) All material returns and reports required to be filed
(hereinafter "TAX RETURNS" or, individually, a "TAX RETURN") by or with respect
to the Borrower with respect to Taxes on or before the date hereof have been
timely filed. All material Tax Returns required to be filed by or with respect
to the Borrower after the date hereof and on or before the Closing Date shall be
prepared and timely filed, in a manner consistent with prior years and
applicable laws and regulations. No penalties or other charges in a material
<PAGE>
19
amount are or will become due with respect to the late filing of any Tax Return
of the Borrower or payment of any Tax of the Borrower, required to be filed or
paid on or before the Closing Date.
(c) With respect to all Tax Returns filed by or with respect
to the Borrower, except as set forth in Section 3.1(j) of the Company Disclosure
Schedule, (i) the statute of limitations for the assessment of Taxes has expired
with respect to all periods ending on or before June 30, 1992; (ii) no audit is
in progress and no extension of time has been executed with respect to any date
on which any Tax Return was or is to be filed and no waiver or agreement has
been executed for the extension of time for the assessment or payment of any
Tax; and (iii) there is no unassessed deficiency proposed or threatened against
the Borrower.
(d) Except as set forth in Section 3.1(j) of the Company
Disclosure Schedule, the Borrower has not been nor is a party to any tax sharing
agreement or similar arrangement.
(e) Except as set forth in Section 3.1(j) of the Company
Disclosure Schedule, the Borrower has not been part of a group of affiliated
corporations that has filed a consolidated federal income tax return.
3.10 FEDERAL REGULATIONS. No part of the proceeds of the Loan will be
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U as now and from time to
time hereafter in effect. If requested by the Lender, the Borrower will furnish
to the Lender a statement to the foregoing effect in conformity with the
requirements of FR Form G-1 or FR Form U-1 referred to in Regulation U, as the
case may be.
3.11 ERISA. The following representations and warranties contained in
this Section 3.11 are qualified by such exceptions which, individually and in
the aggregate, would not have a Material Adverse Effect with respect to the
Borrower:
(a) Section 3.1(l)(i) of the Company Disclosure Schedule
contains a true and complete list of each "employee benefit plan" (within the
meaning of section 3(3) of ERISA, including multiemployer plans within the
meaning of ERISA section 3(37)), stock purchase, stock option, severance,
employment, change-in-control, fringe benefit, welfare benefit, collective
bargaining, bonus, incentive, deferred compensation and all other employee
benefit plans, agreements, programs, policies or other arrangements, whether or
not subject to ERISA (including any funding mechanism therefor now in effect or
required in the future as a result of the Transactions contemplated by this
Agreement or otherwise), whether formal or informal, oral or written, legally
binding or not, under which any employee or former employee of the Borrower has
any present or future right to benefits or under which the Borrower has any
present or future liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "BORROWER
<PAGE>
20
BENEFIT PLANS." Where appropriate all references to the "Borrower" in this
Section 3.11 refer to the Borrower and any member of its "controlled group"
within the meaning of Section 414 of the Code.
(b) The Borrower has, with respect to each Borrower Benefit
Plan, if applicable, delivered or made available to the Lender true and complete
copies of: (i) all plan texts and agreements and related trust agreements (or
other funding vehicles); (ii) the most recent summary plan descriptions and
material employee communications; (iii) the most recent annual report (including
all schedules thereto); (iv) the most recent annual audited financial statement
and opinion; (v) if the plan is intended to qualify under Code section 401(a),
the most recent determination letter received from the IRS; and (vi) all
material communications with any governmental entity or agency (including the
PBGC and the IRS) given or received within the past three years.
(c) Except as set forth in Section 3.1(l)(iii) of the Company
Disclosure Schedule, all amounts properly accrued as liabilities to or expenses
of any Borrower Benefit Plan have been properly reflected on the Borrower's most
recent financial statements to the extent required by GAAP. Since the date of
the Borrower's most recent financial statements, there has been no amendment or
change in interpretation by the Borrower relating to any Borrower Benefit Plan
which would materially increase the cost thereof.
(d) No Borrower Benefit Plan is subject to either Code section
412 or Title IV of ERISA.
(e) Each Borrower Benefit Plan is in material compliance with
all applicable Requirements of Law. Each Borrower Benefit Plan which is intended
to qualify under Code section 401(a) has been issued a favorable determination
letter by the IRS and has not been amended in a manner, and no event has
occurred since such date, which would cause any such plan to fail to remain so
qualified. Each Borrower Benefit Plan that requires registration with a relevant
government body has been so registered.
(f) Except as set forth in Section 3.1(1)(vi) of the Company
Disclosure Schedule, there are no actions, liens, suits or claims pending or, to
Borrower's Knowledge, threatened (other than routine claims for benefits) with
respect to any Borrower Benefit Plan as to which the Borrower has or could
reasonably be expected to have any direct or indirect actual or contingent
material liability.
(g) Each Borrower Benefit Plan which is a "group health plan"
(as defined in ERISA section 607(1)) is in material compliance with the
provisions of COBRA (within the meaning of Code section 4980B), Health Insurance
Portability and Accountability Act and any other applicable, federal, state or
local Law.
<PAGE>
21
(h) There are no (i) Borrower Benefit Plans maintained by the
Borrower pursuant to which welfare benefits are provided to current or former
employees beyond their retirement or other termination of service, other than
coverage mandated by COBRA, the cost of which is fully paid by the current or
former employees or their dependents; or (ii) unfunded Borrower Benefit Plan
obligations with respect to any employee of the Borrower which are not fairly
reflected by reserves shown on the Financial Statements of the Borrower.
(i) Except as set forth in Section 3.1(1)(ix) of the Company
Disclosure Schedule, the consummation of the Transactions will not (i) entitle
any current or former employee of the Borrower to severance pay, unemployment
compensation or any similar payment or (ii) accelerate the time of payment or
vesting, or increase the amount of any compensation due to, any current or
former employee of the Borrower.
(j) No Borrower Benefit Plan is a "multiemployer plan" or
"multiple employer plan" within the meaning of the Code or ERISA or the
regulations promulgated thereunder.
(k) Neither the Borrower nor any Borrower Benefit Plan, or to
the Borrower's Knowledge any "disqualified person" (as defined in Code section
4975) or any "party in interest" (as defined in ERISA section 3(18)), has
engaged in any non-exempt prohibited transaction (within the meaning of Code
section 4975 or ERISA section 406) which could reasonably be expected to result
in any material liability to the Borrower.
(l) None of the Borrower's employees is represented by a
union, and to Borrower's Knowledge no union organizing efforts have been
conducted within the last five years or are now being conducted. The Borrower
does not currently have, nor to Borrower's Knowledge, is there now threatened, a
strike, picket, work stoppage, work slowdown or other organized labor dispute.
The Borrower has not as of the date hereof incurred any liability or obligation
under the Worker Adjustment and Retraining Notification Act, as it may have been
amended from time to time ("WARN") or any similar state law.
3.12 INVESTMENT COMPANY ACT; OTHER REGULATIONS. The Borrower is not an
"investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended. The
Borrower is not subject to regulation under any Federal or State statute or
regulation (other than Regulation X of the Board of Governors of the Federal
Reserve System) which limits its ability to incur Indebtedness.
3.13 PURPOSE OF LOAN. The proceeds of the Loan shall be used by the
Borrower first to repay any outstanding Indebtedness and thereafter for working
capital purposes in the ordinary course of business.
<PAGE>
22
3.14 ENVIRONMENTAL MATTERS. (i) The Borrower has obtained and is in
material compliance with the terms and conditions of all Environmental Laws;
(ii) no asbestos in a friable condition or equipment containing polychlorinated
biphenyls or leaking underground or above-ground storage tanks are contained in
or located at any facility owned, leased or controlled by the Borrower; (iii)
the Borrower is in material compliance with all applicable Environmental Laws,
and has fully disclosed all known material past and present non-compliance with
Environmental Laws, and all known past discharges, emissions, leaking or
releases known to the Borrower of any substance or waste regulated under or
defined by Environmental Laws that could reasonably be expected to form the
basis of any claim, action, suit, proceeding, hearing or investigation under any
applicable Environmental Laws; and (iv) the Borrower has not received notice of
any past or present events, conditions, circumstances, activities, practices,
incidents, actions or plans that have resulted in or threaten to result in any
common law or legal liability, or otherwise form the basis of any claim, action,
suit, proceeding, hearing or investigation under any applicable Environmental
Laws; PROVIDED, HOWEVER, that clauses (i) through (iv) above address only those
matters that, individually or in the aggregate, would have a Material Adverse
Effect with respect to the Borrower.
3.15 SUBSIDIARIES. The Borrower has no, and will not have any,
Subsidiaries.
SECTION 4. CONDITIONS PRECEDENT
4.1 CONDITIONS TO LOAN. The agreement of the Lender to make the Loan is
subject to the satisfaction, immediately prior to or concurrently with the
making of such Loan on the Closing Date, of the following conditions precedent:
(a) LOAN DOCUMENTS. The Lender shall have received this
Agreement, executed and delivered by a duly authorized officer of the Borrower,
the Collateral Agreement, executed and delivered by a duly authorized officer
the Borrower; and the Lender shall have received a Note duly completed and
executed and delivered by a duly authorized officer of the Borrower.
(b) CLOSING CERTIFICATE. The Lender shall have received a
certificate from the Borrower, dated the Closing Date, substantially in the form
of Exhibit D, with appropriate insertions and attachments, satisfactory in form
and substance to the Lender, executed by the President or any Vice President and
the Secretary or any Assistant Secretary of the Borrower.
(c) CORPORATE PROCEEDINGS OF THE BORROWER. The Lender shall
have received a copy of the resolutions, in form and substance satisfactory to
the Lender, of the Board of Directors of the Borrower authorizing (i) the
execution, delivery and performance of this Agreement and the other Loan
Documents, (ii) the borrowings contemplated hereunder and (iii) the granting by
it of the Liens created pursuant to the Security
<PAGE>
23
Documents, certified by the Secretary or an Assistant Secretary of the Borrower
as of the Closing Date, which certificate shall be in form and substance
satisfactory to the Lender and shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded.
(d) CORPORATE DOCUMENTS. The Lender shall have received true
and complete copies of the certificate of incorporation and by-laws of the
Borrower, certified as of the Closing Date as complete and correct copies
thereof by the Secretary or an Assistant Secretary of the Borrower.
(e) CONSENTS, LICENSES AND APPROVALS. The Lender shall have
received a certificate of a Responsible Officer of the Borrower (i) attaching
copies of all consents, authorizations and filings referred to in subsection
3.4, and (ii) stating that such consents, licenses and filings are in full force
and effect, and each such consent, authorization and filing shall be in form and
substance satisfactory to the Lender.
(f) LEGAL OPINIONS. The Lender shall have received the
executed legal opinion of Coudert Brothers, counsel to the Borrower,
substantially in the form of Exhibit E;
Such legal opinion shall cover such other matters incident to the transactions
contemplated by this Agreement as the Lender may reasonably require;
(g) ACTIONS TO PERFECT LIENS. The Lender shall have received
evidence in form and substance satisfactory to it that all filings, recordings,
registrations and other actions, including, without limitation, the filing of
duly executed financing statements on form UCC-1, necessary or, in the opinion
of the Lender, desirable to perfect the Liens created by the Security Documents
shall have been completed.
(h) LIEN SEARCHES. The Lender shall have received the results
of a recent search by a Person satisfactory to the Lender, of the Uniform
Commercial Code, judgement and tax lien filings which may have been filed with
respect to personal property of the Borrower, and the results of such search
shall be satisfactory to the Lender.
(i) INSURANCE. The Lender shall have received evidence in form
and substance satisfactory to it that all of the requirements of subsection 5.5
hereof and Section 4.2 of the Collateral Agreement have been met.
(j) WARRANTS. The Lender shall have received Warrants for
328.084 shares of common stock of the Borrower with an exercise price of $19.05
per share pursuant to the Warrant Agreement.
4.2 CONDITIONS TO EACH ADVANCE. The agreement of the Lender to make any
advance in respect of the Loan requested to be made by it on any date
(including, without
<PAGE>
24
limitation, its initial advance) is subject to the satisfaction of the following
conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Borrower in or pursuant to the Loan
Documents shall be true and correct in all material respects on and as of such
date as if made on and as of such date.
(b) NO DEFAULT. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the Loan
requested to be made on such date.
(c) ADDITIONAL MATTERS. All corporate and other proceedings,
and all documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement, the other Loan Documents and the
Merger Agreement shall be satisfactory in form and substance to the Lender, and
the Lender shall have received such other documents and legal opinions in
respect of any aspect or consequence of the transactions contemplated hereby or
thereby as it shall reasonably request.
Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date thereof that the conditions contained in
this subsection have been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitment remains in
effect or any amount is owing to the Lender hereunder or under any other Loan
Document, the Borrower shall:
5.1 FINANCIAL STATEMENTS. Furnish to the Lender:
(a) as soon as available, but in any event within 90 days
after the end of each fiscal year of the Borrower, a copy of the balance sheet
of the Borrower as at the end of such year and the related statements of income
and retained earnings and of cash flows for such year, setting forth in each
case in comparative form the figures for the previous year, reported on without
a "going concern" or like qualification or exception, or qualification arising
out of the scope of the audit, by Ernst & Young or other independent certified
public accountants of nationally recognized standing; and
(b) as soon as available, but in any event not later than 45
days after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, the unaudited balance sheet of the Borrower as at the end
of such quarter and the related unaudited statements of income and retained
earnings and of cash flows of the Borrower for such quarter and the portion of
the fiscal year through the end of such quarter, setting forth
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25
in each case in comparative form the figures for the previous year, certified by
a Responsible Officer as being fairly stated in all material respects (subject
to normal year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
5.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Lender:
(a) concurrently with the delivery of the financial statements
referred to in subsections 5.1(a) and (b), a certificate of a Responsible
Officer stating that, to the best of such Officer's knowledge, during such
period (i) no Subsidiary has been formed or acquired (or, if any such Subsidiary
has been formed or acquired, the Borrower has complied with the requirements of
subsection 5.10 with respect thereto, (ii) the Borrower has not changed its
name, its principal place of business, its chief executive office or the
location of any material item of tangible Collateral without complying with the
requirements of this Agreement and the Security Documents with respect thereto
and (iii) the Borrower has observed or performed all of its covenants and other
agreements, and satisfied every condition, contained in this Agreement and the
other Loan Documents to be observed, performed or satisfied by it, and that such
Officer has obtained no knowledge of any Default or Event of Default except as
specified in such certificate;
(b) within five days after the same are sent, copies of all
financial statements and reports which the Borrower sends to its stockholders,
and within five days after the same are filed, copies of all financial
statements and reports which the Borrower may make to, or file with, the
Securities and Exchange Commission or any successor or analogous Governmental
Authority; and
(c) promptly, such additional financial and other information
as the Lender may from time to time reasonably request.
5.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves
in conformity with GAAP with respect thereto have been provided on the books of
the Borrower.
5.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to
engage in business of the same general type as now conducted by it and preserve,
renew and keep in full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business except as otherwise permitted
pursuant to subsection 6.3; comply with all Contractual
<PAGE>
26
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, have a Material Adverse Effect.
5.5 MAINTENANCE OF PROPERTY; INSURANCE. Keep all property useful and
necessary in its business in good working order and condition; maintain with
financially sound and reputable insurance companies insurance on all its
property in at least such amounts and against at least such risks (but including
in any event public liability, product liability and business interruption) as
are usually insured against in the same general area by companies engaged in the
same or a similar business; and furnish to the Lender, upon written request,
full information as to the insurance carried.
5.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep proper
books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and permit
representatives of the Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time and as often as may reasonably be desired and to discuss the business,
operations, properties and financial and other condition of the Borrower with
officers and employees of the Borrower and with its independent certified public
accountants.
5.7 NOTICES. Promptly give notice to Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or (ii) litigation, investigation or proceeding which
may exist at any time between the Borrower and any Governmental Authority, which
in either case, if not cured or if adversely determined, as the case may be,
could reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower in
which the amount involved is $100,000 or more and not covered by insurance or in
which injunctive or similar relief is sought;
(d) the following events, as soon as possible and in any event
within 30 days after the Borrower knows or has reason to know thereof: (i) the
occurrence or expected occurrence of any Reportable Event with respect to any
Plan, a failure to make any required contribution to a Plan, the creation of any
Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution
of proceedings or the taking of any other action by the PBGC or the Borrower or
any Commonly Controlled Entity or any Multiemployer Plan with respect to the
withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan;
and
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27
(e) any material adverse change in the business, operations,
property, condition (financial or otherwise) or prospects of the Borrower taken
as a whole.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower proposes to take with respect thereto.
5.8 ENVIRONMENTAL LAWS. (a) Comply with, and ensure compliance by all
tenants and subtenants, if any, with, all applicable Environmental Laws and
obtain and comply with and maintain, and ensure that all tenants and subtenants
obtain and comply with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws except to the extent that failure to do so could not be reasonably expected
to have a Material Adverse Effect.
(b) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply with all lawful orders and directives of
all Governmental Authorities regarding Environmental Laws except to the extent
that the same are being contested in good faith by appropriate proceedings and
the pendency of such proceedings could not be reasonably expected to have a
Material Adverse Effect.
5.9 FURTHER ASSURANCES. Upon the request of the Lender, promptly
perform or cause to be performed any and all acts and execute or cause to be
executed any and all documents (including, without limitation, financing
statements and continuation statements) for filing under the provisions of the
Uniform Commercial Code or any other Requirement of Law which are necessary or
advisable to maintain in favor of the Lender Liens on the Collateral that are
duly perfected in accordance with all applicable Requirements of Law.
5.10 ADDITIONAL COLLATERAL. With respect to any assets acquired after
the Closing Date by the Borrower that are intended to be subject to the Lien
created by any of the Security Documents but which are not so subject (other
than immaterial assets a Lien on which cannot be perfected by filing UCC-1
financing statements), promptly (and in any event within 30 days after the
acquisition thereof): (i) execute and deliver to the Lender such amendments to
the relevant Security Documents or such other documents as the Lender shall deem
necessary or advisable to grant to the Lender a Lien on such assets, (ii) take
all actions necessary or advisable to cause such Lien to be duly perfected in
accordance with all applicable Requirements of Law, including, without
limitation, the filing of financing statements in such jurisdictions as may be
requested by the Lender, and (iii) if requested by the Lender, deliver to the
Lender legal opinions relating to the matters described in clauses (i) and (ii)
immediately preceding, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Lender.
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28
SECTION 6. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitment remains in
effect or any amount is owing to the Lender hereunder or under any other Loan
Document, the Borrower shall not directly or indirectly:
6.1 LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to
exist any Indebtedness, except Indebtedness of the Borrower under this
Agreement.
6.2 LIMITATION ON LIENS. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested
in good faith by appropriate proceedings, PROVIDED that adequate reserves with
respect thereto are maintained on the books of the Borrower in conformity with
GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business which
are not overdue for a period of more than 60 days or which are being contested
in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security legislation and
deposits securing liability to insurance carriers under insurance or
self-insurance arrangements;
(d) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case materially
detract from the value of the property subject thereto or materially interfere
with the ordinary conduct of the business of the Borrower; and
(f) Liens created pursuant to the Security Documents.
6.3 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger other than
pursuant to the Merger Agreement, consolidation or amalgamation, or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution), or
convey, sell, lease, assign, transfer or otherwise dispose of, all or
substantially all of its property, business or assets, or make any material
change in its present method of conducting business.
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29
6.4 LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign, transfer
or otherwise dispose of any of its property, business or assets (including,
without limitation, receivables and leasehold interests), whether now owned or
hereafter acquired, except:
(a) the sale or other disposition of obsolete or worn out
property in the ordinary course of business; PROVIDED that the net cash proceeds
of each such transaction are applied to the prepayment of the Loan;
(b) the sale of inventory in the ordinary course of business;
and
6.5 LIMITATION ON DIVIDENDS. Declare or pay any dividend (other than
dividends payable solely in common stock of the Borrower) on, or make any
payment on account of, or set apart assets for a sinking or other analogous fund
for, the purchase, redemption, defeasance, retirement or other acquisition of,
any shares of any class of Capital Stock of the Borrower or any warrants or
options to purchase any such Stock, whether now or hereafter outstanding, or
make any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of the Borrower (such
declarations, payments, setting apart, purchases, redemptions, defeasances,
retirements, acquisitions and distributions being herein called "RESTRICTED
PAYMENTS") other than pursuant to, or as expressly provided in, the Merger
Agreement.
6.6 LIMITATION ON CAPITAL EXPENDITURES. Make or commit to make (by way
of the acquisition of securities of a Person or otherwise) any expenditure in
respect of the purchase or other acquisition of fixed or capital assets
(excluding any such asset acquired in connection with normal replacement and
maintenance programs properly charged to current operations) except for
expenditures in the ordinary course of business not exceeding $500,000 in the
aggregate for the Borrower for the life of this Agreement.
6.7 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of, or make any other investment in, any Person (including,
without limitation, any Subsidiary), except:
(a) extensions of trade credit in the ordinary course of
business; and
(b) investments in Cash Equivalents.
6.8 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Agreement, (b) in the
ordinary course of the Borrower's or business and (c) upon fair and reasonable
terms no less favorable to the Borrower than it would obtain in a comparable
arm's length transaction with a Person which is not an Affiliate.
<PAGE>
30
6.9 LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into with any Person
any agreement, other than this Agreement, which prohibits or limits the ability
of the Borrower to create, incur, assume or suffer to exist any Lien upon any of
its property, assets or revenues, whether now owned or hereafter acquired.
6.10 LIMITATION ON LINES OF BUSINESS. Enter into any business, except
for those businesses in which the Borrower are engaged on the date of this
Agreement or which are directly related thereto.
SECTION 7. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of the Loan
when due in accordance with the terms thereof or hereof; or the Borrower shall
fail to pay any interest on the Loan, or any other amount payable hereunder,
within five days after any such interest or other amount becomes due in
accordance with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by any
Loan Party herein or in any other Loan Document or which is contained in any
certificate, document or financial or other statement furnished by it at any
time under or in connection with this Agreement or any such other Loan Document
shall prove to have been incorrect in any material respect on or as of the date
made or deemed made; or
(c) The Borrower shall default in the observance or
performance of any agreement contained in Section 4 or Section 5 of the
Collateral Agreement; or
(d) The Borrower shall default in the observance or
performance of any other agreement contained in this Agreement or any other Loan
Document (other than as provided in paragraphs (a) through (c) of this Section),
and such default shall continue unremedied for a period of 30 days; or
(e) The Borrower shall (i) default in any payment of principal
of or interest of any Indebtedness (other than the Loan), beyond the period of
grace (not to exceed 30 days), if any, provided in the instrument or agreement
under which such Indebtedness was created; or (ii) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause, with the giving of
notice if required, such Indebtedness to become due prior to its stated
maturity; or
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31
(f) (i) The Borrower shall commence any case, proceeding or
other action (A) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian, conservator or other similar official for it or
for all or any substantial part of its assets, or the Borrower shall make a
general assignment for the benefit of its creditors; or (ii) there shall be
commenced against the Borrower any case, proceeding or other action of a nature
referred to in clause (i) above which (A) results in the entry of an order for
relief or any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there shall be
commenced against the Borrower any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets which results in the entry of
an order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof; or (iv)
the Borrower shall take any action in furtherance of, or indicating its consent
to, approval of, or acquiescence in, any of the acts set forth in clause (i),
(ii), or (iii) above; or (v) the Borrower shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as they
become due; or
(g) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect to any
Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur
with respect to, or proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed, to administer or to terminate, any Single Employer
Plan, which Reportable Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Lender, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the
Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion
of the Lender is likely to, incur any liability in connection with a withdrawal
from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any
other event or condition shall occur or exist with respect to a Plan; and in
each case in clauses (i) through (vi) above, such event or condition, together
with all other such events or conditions, if any, could reasonably be expected
to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against
the Borrower involving in the aggregate a liability (not paid or fully covered
by insurance) of $250,000 or more, and all such judgments or decrees shall not
have been vacated, discharged, stayed or bonded pending appeal within 60 days
from the entry thereof; or
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32
(i) (i) Any of the Security Documents shall cease, for any
reason, to be in full force and effect, or the Borrower or any other Loan Party
which is a party to any of the Security Documents shall so assert or (ii) the
Lien created by any of the Security Documents shall cease to be enforceable and
of the same effect and priority purported to be created thereby; or
(j) (i) Any Person or "group" (within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) other than
pursuant to the Merger (A) shall have acquired beneficial ownership of 40% or
more of any outstanding class of Capital Stock having ordinary voting power in
the election of directors of the Borrower or (B) shall obtain the power (whether
or not exercised) to elect a majority of the Borrower's directors or (ii) the
Board of Directors of the Borrower shall not consist of a majority of Continuing
Directors; "CONTINUING DIRECTORS" shall mean the directors of the Borrower on
the Closing Date and each other director, if such other director's nomination
for election to the Board of Directors of the Borrower is recommended by a
majority of the then Continuing Directors;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section with respect to the
Borrower, automatically the Commitment shall immediately terminate and the Loan
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement shall immediately become due and payable, and (B) if such event is any
other Event of Default, either or both of the following actions may be taken:
(i) the Lender may, by notice to the Borrower declare the Commitment to be
terminated forthwith, whereupon the Commitment shall immediately terminate; and
(ii) the Lender may, by notice to the Borrower, declare the Loan hereunder (with
accrued interest thereon) and all other amounts owing under this Agreement to be
due and payable forthwith, whereupon the same shall immediately become due and
payable. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
SECTION 8. MISCELLANEOUS
8.1 AMENDMENTS AND WAIVERS. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by both the Borrower and the Lender or, in the case of
a waiver, by the party waiving compliance.
8.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) in the case of delivery by hand,
when delivered, (b) in the case of delivery by mail, [three] days after being
deposited in the mails, postage prepaid, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been confirmed, addressed as
follows in
<PAGE>
33
the case of the Borrower and the Lender, and as set forth in Schedule I in the
case of the other parties hereto, or to such other address as may be hereafter
notified by the respective parties hereto:
The Borrower: Styleclick.com Inc.
3861 Sepulveda Blvd.
Culver City, CA 90230
Attention: Maurizio Vecchione
Telephone: (310) 751-2222
Fax: (310) 751-2122
with a copy to: Coudert Brothers
950 17th St., 18th Floor
Denver, CO 80202
Attention: John A. St.Clair
Telephone: (303) 607-0888
Fax: (303) 607-1080
The Lender: USA Networks, Inc.
Carnegie Hall Tower
152 West 57th Street, 42nd Floor
New York, NY 10019
Attention: Tom Kuhn
Telephone: (212) 314-7322
Fax: (212) 314-7329
with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019
Attention: Robert B. Schumer
Telephone: (212) 373-3000
Fax: (212) 757-3990
8.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay
in exercising, on the part of the Lender, any right, remedy, power or privilege
hereunder or under the other Loan Documents shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
8.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made hereunder, in the other Loan Documents and in any document,
certificate or
<PAGE>
34
statement delivered pursuant hereto or in connection herewith shall survive the
execution and delivery of this Agreement and the making of the Loan hereunder.
8.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees (a) to pay or
reimburse the Lender for all its out-of-pocket costs and expenses incurred in
connection with the preparation and execution of, and any amendment, supplement
or modification to, this Agreement and the other Loan Documents and any other
documents prepared in connection herewith or therewith, and the consummation and
administration of the transactions contemplated hereby and thereby, including,
without limitation, the reasonable fees and disbursements of counsel to the
Lender, (b) to pay or reimburse the Lender for all its costs and expenses
incurred in connection with the enforcement or preservation of any rights under
this Agreement, the other Loan Documents and any such other documents,
including, without limitation, the fees and disbursements of counsel to the
Lender, (c) to pay, indemnify, and hold the Lender harmless from, any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other taxes, if any, which
may be payable or determined to be payable in connection with the execution and
delivery of, or consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement, the other Loan Documents and
any such other documents, and (d) to pay, indemnify, and hold the Lender
harmless from and against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Agreement, the other Loan
Documents, the Merger Agreement, the Merger or the use of the proceeds of the
Loan in connection with the Merger and any such other documents, including,
without limitation, any of the foregoing relating to the violation of,
noncompliance with or liability under, any Environmental Law applicable to the
operations of the Borrower or any of the facilities and properties owned, leased
or operated by the Borrower (all the foregoing in this clause (d), collectively,
the "indemnified liabilities"), PROVIDED that the Borrower shall have no
obligation hereunder to the Lender with respect to indemnified liabilities
arising from the gross negligence or willful misconduct of the Lender. The
agreements in this subsection shall survive repayment of the Loan and all other
amounts payable hereunder.
8.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lender and their respective successors and assigns, except that the Borrower may
not assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of the Lender.
8.7 SET-OFF. In addition to any rights and remedies of the Lender
provided by law, the Lender shall have the right, without prior notice to the
Borrower, any such notice being expressly waived by the Borrower to the extent
permitted by applicable law, upon any amount becoming due and payable by the
Borrower hereunder (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against
<PAGE>
35
such amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by the Lender or any
branch or agency thereof to or for the credit or the account of the Borrower.
The Lender agrees promptly to notify the Borrower after any such set-off and
application made by the Lender, PROVIDED that the failure to give such notice
shall not affect the validity of such set-off and application.
8.8 COUNTERPARTS. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
8.9 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.10 INTEGRATION. This Agreement and the other Loan Documents represent
the agreement of the Borrower and the Lender with respect to the subject matter
hereof, and there are no promises, undertakings, representations or warranties
by the Lender relative to subject matter hereof not expressly set forth or
referred to herein or in the other Loan Documents.
8.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
8.12 SUBMISSION TO JURISDICTION; WAIVERS. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which it
is a party, or for recognition and enforcement of any judgement in respect
thereof, to the non-exclusive general jurisdiction of the Courts of the State of
New York, the courts of the United States of America for the Southern District
of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
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36
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in subsec tion 8.2 or at such other address of
which the Lender shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding referred
to in this subsection any special, exemplary, punitive or consequential damages.
8.13 ACKNOWLEDGMENTS. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents;
(b) the Lender has no fiduciary relationship with or duty to
the Borrower arising out of or in connection with this Agreement or any of the
other Loan Documents, and the relationship between the Lender and the Borrower
in connection herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions contemplated hereby
among the Lender or among the Borrower and the Lender.
8.14 WAIVERS OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
<PAGE>
37
8.15 CONFIDENTIALITY. Each Lender agrees to keep confidential all
non-public information provided to it by the Borrower pursuant to this Agreement
that is designated by the Borrower in writing as confidential; PROVIDED that
nothing herein shall prevent any Lender from disclosing any such information (i)
to its employees, directors, agents, attorneys, accountants and other
professional advisors, (ii) upon the request or demand of any Governmental
Authority having jurisdiction over the Lender, (iii) in response to any order of
any court or other Governmental Authority or as may otherwise be required
pursuant to any Requirement of Law, (iv) which has been publicly disclosed other
than in breach of this Agreement, or (v) in connection with the exercise of any
remedy hereunder.
<PAGE>
38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
STYLECLICK.COM INC.
By: /s/ Barry Hall
------------------------------------
Name: Barry Hall
Title: Chief Financial Officer
USA NETWORKS, INC.
By: /s/ Dara Khosrowshahi
------------------------------------
Name: Dara Khosrowshahi
Title:
<PAGE>
Exhibit 10.6
CONFORMED COPY
BRIDGE LOAN WARRANT AGREEMENT
between
STYLECLICK.COM INC.,
as Issuer,
and
USA NETWORKS, INC.,
as Warrantholder
----------------------
Dated as of January 24, 2000
----------------------
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. Definitions........................................................1
SECTION 2. The Warrants.......................................................5
SECTION 3. Exercise...........................................................5
SECTION 4. Payment of Taxes...................................................6
SECTION 5. Replacement Warrant................................................6
SECTION 6. Reservation of Common Stock and Other Covenants....................7
SECTION 7. Antidilution Provisions............................................8
SECTION 8. No Dilution or Impairment.........................................15
SECTION 9. Transfers of the Warrant..........................................15
SECTION 10. Registration Rights...............................................16
SECTION 11. Survival of Provisions............................................18
SECTION 12. Delays, Omissions and Indulgences.................................18
SECTION 13. Rights of Transferees.............................................18
SECTION 14. Captions..........................................................18
SECTION 15. Notices...........................................................18
SECTION 16. Successors and Assigns............................................19
SECTION 17. Severability......................................................19
SECTION 18. Governing Law.....................................................19
SECTION 20. Entire Agreement; Amendment.......................................20
SECTION 21. Rules of Construction.............................................20
i
<PAGE>
BRIDGE LOAN WARRANT AGREEMENT
BRIDGE LOAN WARRANT AGREEMENT, dated as of January 24, 2000, between
Styleclick.com Inc., a California corporation (the "COMPANY"), and USA Networks,
Inc., a Delaware corporation (the "WARRANTHOLDER").
W I T N E S S E T H:
WHEREAS, the Company and USANi Sub LLC, a Delaware limited liability
company ("PARENT"), are entering into an Agreement and Plan of Merger, dated as
of the date hereof (the "MERGER AGREEMENT"), which provides for, among other
things, the merger of the Company (the "MERGER") with a wholly owned subsidiary
of a Delaware corporation to be formed by Parent ("NEWCO"), and the concurrent
contribution by Parent to Newco of all of the outstanding limited liability
interests of Internet Shopping Network LLC, a Delaware limited liability
company;
WHEREAS, the Company and the Warrantholder are entering into a Credit
Agreement, dated as of the date hereof (the "CREDIT AGREEMENT"), pursuant to
which the Warrantholder commits to make a loan to the Company in a principal
amount not to exceed $10 million and the Company agrees to issue to the
Warrantholder a promissory note (the "NOTE") in a principal amount equal to the
principal amount of such loan;
WHEREAS, as a condition to the willingness of the parties to enter into
the Merger Agreement and the Credit Agreement, the Company has agreed to issue a
warrant (the "WARRANT") to purchase shares of Common Stock (as defined below) to
the Warrantholder;
WHEREAS, the Company proposes to issue a certificate evidencing the
Warrant (such warrant certificate issued pursuant to this Agreement being
hereinafter referred to as the "WARRANT CERTIFICATE"); and
WHEREAS, the Company and the Warrantholder desire to set forth in this
Agreement, among other things, the form and provisions of the Warrant
Certificate and the terms and conditions under which it may be issued,
transferred, exchanged, replaced and surrendered in connection with the exercise
of the Warrant.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings.
"AFFILIATE" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by,
<PAGE>
2
or is under common control with, such first Person. The term "CONTROL" means
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"AGGREGATE EXERCISE PRICE" has the meaning assigned thereto in Section
3(b).
"BLACK-SCHOLES AMOUNT" means an amount determined by calculating the
"Black-Scholes" value of an option to purchase one share of Common Stock on the
applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
Common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury bill or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Warrantholder
shall calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
"BUSINESS DAY" means any day other than a day on which (i) banks in the
State of New York are authorized or obligated to be closed or (ii) the New York
Stock Exchange is closed.
"BOARD OF DIRECTORS" means the Board of Directors of the Company.
"CAPITAL STOCK" means (a) in the case of a corporation, capital stock,
(b) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
capital stock, (c) in the case of a partnership, partnership interests (whether
general or limited), (d) in the case of a limited liability company, membership
interests and (e) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CASHLESS EXERCISE" has the meaning assigned thereto in Section 3(c).
"CHARTER DOCUMENTS" means the Certificate of Incorporation and the
Bylaws of the Company, as amended or supplemented from time to time.
"COMMON STOCK" means (a) the common stock of the Company, no par value
per share, (b) any other Capital Stock into which such Common Stock is
reclassified or reconstituted and (c) in the case of any reorganization,
reclassification, consolidation,
<PAGE>
3
merger, or sale of the character referred to in Section 7(e) hereof, the stock
or other securities or property provided for in such Section.
"COMMON STOCK DEEMED OUTSTANDING" shall mean the number of shares of
Common Stock actually outstanding (not including shares of Common Stock held in
the treasury of the Company), plus (x) in case of any adjustment required by
Section 7(a) resulting from the issuance of any Options, the maximum total
number of shares of Common Stock issuable upon the exercise of the Options for
which the adjustment is required (including any Common Stock issuable upon the
conversion of Convertible Securities issuable upon the exercise of such
Options), and (y) in the case of any adjustment required by Section 7(a)
resulting from the issuance of any Convertible Securities, the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of the Convertible Securities for which the adjustment is required, as
of the date of issuance of such Convertible Securities, if any.
"CONVERTIBLE SECURITIES" means evidences of indebtedness, shares of
stock or other securities which are directly or indirectly convertible or
exchangeable, with or without payment of additional consideration in cash or
property, for shares of Common Stock, either immediately or upon the onset of a
specified date or the happening of a specified event.
"DISTRIBUTION" has the meaning assigned thereto in Section 7(g).
"ELECTION TO PURCHASE" has the meaning assigned thereto in Section
3(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"EXERCISE AMOUNT" has the meaning assigned thereto in Section 3(a).
"EXERCISE PRICE" has the meaning assigned thereto in Section 2.
"EXPIRATION DATE" means the tenth (10th) anniversary of the date
hereof.
"MARKET PRICE" as of any date, (i) means the average of the daily
closing bid prices for the shares of Common Stock as reported to The Nasdaq
National Market for the trading day immediately preceding such date, or (ii) if
The Nasdaq National Market is not the principal trading market for the Common
Stock, the average of the last reported bid prices on the principal trading
market for the Common Stock during the same period, or, if there is no bid price
for such period, the last reported sales price for such period, or (iii) if
market value cannot be calculated as of such date on any of the foregoing bases,
the Market Price shall be the average fair market value as reasonably determined
by an investment banking firm selected by the Company and reasonably acceptable
to the Holders of a majority in
<PAGE>
4
interest of the Warrants, with the costs of the appraisal to be borne by the
Company. The manner of determining the Market Price of the Common Stock set
forth in the foregoing definition shall apply with respect to any other security
in respect of which a determination as to market value must be made hereunder.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"PERSON" means any individual, corporation, partnership, firm, group
(as such term is used in Section 13(d)(3) of the Exchange Act), joint venture,
asso ciation, trust, limited liability company, unincorporated organization,
estate, trust or other entity.
"PRINCIPAL OFFICE" means the Company's principal office as set forth in
Section 14 hereof or such other principal office of the Company in the United
States of America the address of which first shall have been set forth in a
notice to the Warrantholder.
"REGULATORY REQUIREMENT" has the meaning assigned thereto in Section
6(c).
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SIGNIFICANT STOCKHOLDER" means any stockholder of the Company that,
together with its Affiliates, beneficially owns more than 50% of the then
outstanding voting securities of the Company.
"SUBSIDIARY" of any Person means any corporation, partnership, joint
venture or other legal entity of which such Person (either directly or through
or together with any other Subsidiary of such Person), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or similar governing body of such corporation, partnership, joint venture or
other legal entity.
"WARRANT SHARES" means (a) the shares of Common Stock issued or
issuable upon exercise of the Warrant in accordance with its terms and (b) all
other shares of the Company's capital stock issued with respect to such shares
by way of stock dividend, stock split or other reclassification or in connection
with any merger, consolidation, recapitalization or other reorganization
affecting the Company's Capital Stock.
<PAGE>
5
SECTION 2. THE WARRANTS.
Subject to the terms and conditions of this Agreement, the Company
hereby issues and delivers to the Warrantholder a warrant, substantially in the
form of Exhibit A hereto, to purchase 328,084 shares of fully paid and
nonassessable Common Stock at a price per share equal to $19.05 (the "EXERCISE
PRICE").
SECTION 3. EXERCISE.
(a) METHOD OF EXERCISE. From time to time on or before the
Expiration Date, the Warrantholder, in accordance with the terms hereof, may
exercise the Warrant, in whole or in part. The Warrantholder shall effect any
such exercise by delivering the Warrant to the Company during normal business
hours on any Business Day at the Company's Principal Office, together with the
Election to Purchase, substantially in the form of Exhibit B hereto (the
"ELECTION TO PURCHASE"), duly executed, and payment, in accordance with Section
3(b), of the Exercise Price for the number of Warrant Shares (the "EXERCISE
AMOUNT") to be so purchased, as specified in the Election to Purchase. If the
Expiration Date is not a Business Day, then the Warrant may be exercised on the
next succeeding Business Day.
(b) PAYMENT OF EXERCISE PRICE. Payment of the Aggregate
Exercise Price (as defined below) shall be made to the Company in cash or other
immediately available funds or as provided in Sections 3(c) or 3(d), or a
combination thereof, with respect to any exercise of the Warrant. In the case of
payment of all or a portion of the Aggregate Exercise Price pursuant to Sections
3(c) or 3(d), the direction by the Warrantholder to make a Cashless Exercise or
Note Exercise, respectively, shall serve as accompanying payment for such
portion of the Aggregate Exercise Price. The amount to be paid (the "AGGREGATE
EXERCISE PRICE") shall equal the product of (a) the Exercise Amount multiplied
by (b) the Exercise Price.
(c) CASHLESS EXERCISE. The Warrantholder shall have the right,
but no obligation, to pay all or a portion of the Aggregate Exercise Price by
making a cashless exercise pursuant to this Section 3(c) (a "CASHLESS
EXERCISE"), in which case the portion of the Aggregate Exercise Price to be so
paid shall be deemed paid in full by the reduction of the number of Warrant
Shares otherwise issuable pursuant to the Election to Purchase by that number of
Warrant Shares equal to the quotient obtained by dividing (x) the value of the
Warrant at the time of exercise (determined by subtracting (a) the Aggregate
Exercise Price in effect immediately prior to exercise from (b) the aggregate
Market Price immediately prior to exercise) by (y) the Market Price immediately
prior to exercise.
(d) NOTE EXERCISE. The Warrantholder shall have the right, but
no obligation, to pay all or a portion of the Aggregate Exercise Price by making
a note exercise pursuant to this Section 3(d) (a "NOTE EXERCISE"), in which case
the portion of the Aggregate Exercise Price to be so paid shall be deemed paid
in full by reducing the
<PAGE>
6
principal amount due under the Note by an amount equal to the portion of the
Aggregate Exercise Price to be so paid.
(e) ISSUANCE OF SHARES OF COMMON STOCK. Upon receipt by the
Company of the Warrant at its Principal Office in proper form for exercise, and
accompanied by payment of the Aggregate Exercise Price as aforesaid and, in the
case of any payment pursuant to Section 3(d) above, accompanied by reasonably
satisfactory evidence of such reduced principal amount due under the Note, the
Warrantholder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that certificates
representing such shares of Common Stock may not then be actually delivered.
Upon surrender of the Warrant and payment of the Aggregate Exercise Price as
aforesaid, the Company shall issue and cause to be delivered with all reasonable
dispatch to, or upon the written order of, the Warrantholder (and in such name
or names as the Warrantholder may designate) a certificate or certificates for
the Exercise Amount, subject to any reduction as provided in Section 3(c) for a
Cashless Exercise.
(f) FRACTIONAL SHARES. The Company shall not be required to
deliver fractions of shares of Common Stock upon exercise of the Warrant. If any
fraction of a share of Common Stock would be deliverable upon exercise of the
Warrant, the Company may, in lieu of delivering such fraction of a share of
Common Stock, make a cash payment to the Warrantholder in an amount equal to the
same fraction of the Market Price determined as of the Business Day immediately
preceding the date of exercise of the Warrant.
(g) PARTIAL EXERCISE. In the event of a partial exercise of
the Warrant, the Company shall issue to the Warrantholder a Warrant in like form
for the unexercised portion thereof.
SECTION 4. PAYMENT OF TAXES.
The Company shall pay all stamp taxes attributable to the initial
issuance of shares or other securities issuable upon the exercise of the Warrant
or issuable pursuant to Section 7 hereof, excluding any tax or taxes which may
be payable because of the transfer involved in the issuance or delivery of any
certificates for shares of Common Stock or other securities in a name other than
that of the Warrantholder in respect of which such shares or securities are
issued.
SECTION 5. REPLACEMENT WARRANT.
If the Warrant is mutilated, lost, stolen or destroyed, the Company
shall issue and deliver in exchange and substitution for and upon cancellation
of the mutilated Warrant, or in lieu of and in substitution for the Warrant
lost, stolen or destroyed, a new Warrant of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or
<PAGE>
7
destruction of such Warrant and upon receipt of indemnity reasonably
satisfactory to the Company.
SECTION 6. RESERVATION OF COMMON STOCK AND OTHER COVENANTS.
(a) RESERVATION OF AUTHORIZED COMMON STOCK. The Company shall
at all times reserve and keep available out of the aggregate of its authorized
but unissued shares, free of preemptive rights, such number of its duly
authorized shares of Common Stock, or other stock or securities deliverable
pursuant to Section 7 hereof, as shall be sufficient to enable the Company at
any time to fulfill all of its obligations under this Agreement and the Warrant.
(b) AFFIRMATIVE ACTIONS TO PERMIT EXERCISE AND REALIZATION OF
BENEFITS. If any shares of Common Stock reserved or to be reserved for the
purpose of exercise of the Warrant, or any shares or other securities reserved
or to be reserved for the purpose of issuance pursuant to Section 7 hereof,
require registration with or approval (other than as a result of a Regulatory
Requirement contemplated by Section 6(c)) of any governmental authority under
any federal or state law (including approvals or expirations of waiting periods
required under the Hart-Scott-Rodino Antitrust Improvements Act, but excluding
the Securities Act and any state securities or "blue sky" laws) before such
shares or other securities may be validly delivered upon exercise of the
Warrant, then the Company and the Warrantholder shall cooperate with each other
so that each may prepare and file notification and report forms in compliance
with such law and shall otherwise fully comply with the requirements of such
law, to the extent required in connection with the exercise of the Warrant. The
Company shall bear all expenses in connection with the filing of such forms.
(c) REGULATORY REQUIREMENTS AND RESTRICTIONS. In the event of
any reasonable determination by the Warrantholder that, by reason of any
existing or future federal or state law, statute, rule, regulation, guideline,
order, court or administrative ruling, request or directive (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful) (a "REGULATORY REQUIREMENT"), the Warrantholder is effectively
restricted or prohibited from holding the Warrant or the related Warrant Shares
(including any shares of capital stock or other securities distributable to the
Warrantholder in any merger, reorganization, readjustment or other
reclassification), or otherwise realize upon or receive the benefits intended
under the Warrant, the Company shall, and shall use its commercially reasonable
efforts to have its stockholders, take such action as the Warrantholder may deem
reasonably necessary to permit the Warrantholder to comply with such Regulatory
Requirement. The costs of taking such action shall be shared equally by the
Company and the Warrantholder. Such action to be taken may include the Company's
authorization of one or more new classes of capital stock for which the Warrant
may be exercised or the adoption of such modifications and amendments to the
Charter Documents, this Agreement, the Warrant or any other documents and
instruments related to or executed in connection herewith or with the Warrant as
may be deemed reasonably necessary by the Warrantholder. The Warrantholder shall
give written notice to the Company of any such determination and the
<PAGE>
8
action or actions necessary to comply with such Regulatory Requirement, which
notice and determination shall be conclusive absent manifest error, and the
Company shall take all commercially reasonable steps necessary to comply with
such determination as expeditiously as possible.
(d) VALIDLY ISSUED SHARES. The Company covenants that all
shares of Common Stock or other securities that may be delivered upon exercise
of the Warrant (including those issued pursuant to Section 7 hereof) shall, upon
delivery by the Company, be duly authorized and validly issued, fully paid and
nonassessable, free from all taxes, liens and charges with respect to the issue
or delivery thereof and otherwise free of all other security interests,
encumbrances and claims of any nature whatsoever.
SECTION 7. ANTIDILUTION PROVISIONS. Prior to the Expiration Date or
until the Warrant is fully exercised, the Exercise Price and the number of
Warrant Shares shall be subject to adjustment from time to time as provided in
this Section 7. In the event that any adjustment of the Exercise Price as
required herein results in a fraction of a cent, such Exercise Price shall be
rounded up or down to the nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON
ISSUANCE OF COMMON STOCK. Except as otherwise provided in Section 7(c) and 7(e)
hereof, if and whenever after the initial issuance of this Warrant, the Company
issues or sells, or in accordance with Section 7(b) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Market Price on the date of issuance (a
"DILUTIVE ISSUANCE"), then effective immediately upon the Dilutive Issuance, the
Exercise Price will be adjusted in accordance with the following formula:
E' = (E) (O + P/M) / (CSDO)
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price;
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set
forth in Section 7(b) hereof, received by the Company
upon such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding immediately after the Dilutive Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes
of determining the adjusted Exercise Price under Section 7(a) hereof, the
following will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
<PAGE>
9
immediately exercisable, to subscribe for or to purchase Common Stock
or other securities exercisable, convertible into or exchangeable for
Common Stock ("CONVERTIBLE SECURITIES"), but not to include the grant
or exercise of any stock or options which may hereafter be granted or
exercised under any employee or director benefit plan of the Company
now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of the
non-employee members of the Board of Directors or a majority of the
members of a committee of non-employee directors established for such
purpose (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "OPTIONS"), and
the price per share for which Common Stock is issuable upon the
exercise of such Options is less than the Market Price on the date of
issuance ("BELOW MARKET OPTIONS"), then the maximum total number of
shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full exercise, conversion or exchange of
Convertible Securities, if applicable) will, as of the date of the
issuance or grant of such Below Market Options, be deemed to be
outstanding and to have been issued and sold by the Company for such
price per share. For purposes of the preceding sentence, the price per
share for which Common Stock is issuable upon the exercise of such
Below Market Options is determined by dividing (A) the total amount, if
any, received or receivable by the Company as consideration for the
issuance or granting of such Below Market Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of all such Below Market Options, plus, in
the case of Convertible Securities issuable upon the exercise of such
Below Market Options, the minimum aggregate amount of additional
consideration payable upon the exercise, conversion or exchange thereof
at the time such Convertible Securities first become exercisable,
convertible or exchangeable, by (B) the maximum total number of shares
of Common Stock issuable upon the exercise of all such Below Market
Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made
upon the actual issuance of such Common Stock upon the exercise of such
Below Market Options or upon the exercise, conversion or exchange of
Convertible Securities issuable upon exercise of such Below Market
Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES.
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible
(other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is
issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 7(b)(ii)(B) if applicable) is
less than the Market Price on the date of issuance, then the
maximum total number of shares of Common Stock issuable upon
the exercise, conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to
have been issued and sold by the Company for such
<PAGE>
10
price per share. For the purposes of the preceding sentence,
the price per share for which Common Stock is issuable upon
such exercise, conversion or exchange is determined by
dividing (I) the total amount, if any, received or receivable
by the Company as consideration for the issuance or sale of
all such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the
Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable,
convertible or exchangeable, by (II) the maximum total number
of shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Convertible Securities. No
further adjustment to the Exercise Price will be made upon the
actual issuances of such Common Stock upon exercise,
conversion or exchange of such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or
exercise price or exchange ratio (a "VARIABLE RATE CONVERTIBLE
SECURITY"), then the price per share for which Common Stock is
issuable upon such exercise, conversion or exchange for
purposes of the calculation contemplated by Section
7(b)(ii)(A) shall be deemed to be the lowest price per share
which would be applicable assuming that (I) all holding period
and other conditions to any discounts contained in such
Convertible Security have been satisfied, and (II) the Market
Price on the date of issuance of such Convertible Security was
80% of the Market Price on such date (the "ASSUMED VARIABLE
MARKET PRICE").
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. Except for
the grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee or director benefit plan of the
Company now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of the
non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose, if there is a change at any time in (A)
the amount of additional consideration payable to the Company upon the
exercise of any Options; (B) the amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange
or any Convertible Securities; or (C) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other
than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such change will
be readjusted to the Exercise Price which would have been in effect at
such time had such Options or Convertible Securities still outstanding
provided for such changed additional consideration or changed
conversion rate, as the case may be, at the time initially granted,
issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. If, in any case, the total number of shares of Common Stock
issuable
<PAGE>
11
upon exercise of any Options or upon exercise, conversion or exchange
of any Convertible Securities is not, in fact, issued and the rights to
exercise such option or to exercise, convert or exchange such
Convertible Securities shall have expired or terminated, the Exercise
Price then in effect will be readjusted to the Exercise Price which
would have been in effect at the time of such expiration or termination
had such Options or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in
respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued, granted or sold
for cash, the consideration received therefor for purposes of this
Warrant will be the amount received by the Company therefor, before
deduction of reasonable commissions, underwriting discounts or
allowances or other reasonable expenses paid or incurred by the Company
in connection with such issuance, grant or sale. In case any Common
Stock, Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, the amount
of the consideration other than cash received by the Company will be
the fair market value of such consideration except where such
consideration consists of freely-tradeable securities, in which case
the amount of consideration received by the Company will be the Market
Price thereof as of the date of receipt. The fair market value of any
consideration other than cash or securities will be determined in the
good faith reasonable business judgment of the Board of Directors.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No adjustment
to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on
the date hereof in accordance with the terms of such securities as of
such date; (ii) upon the grant or exercise of any stock or options
which may hereafter be granted or exercised under any employee or
director benefit plan of the Company now existing or to be implemented
in the future, so long as the issuance of such stock or options is
approved by a majority of the non-employee members of the Board of
Directors or a majority of the members of a committee of non-employee
directors established for such purpose; or (iii) upon the exercise of
the Warrants.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Company, at any time after the initial issuance of this Warrant, subdivides (by
any stock split, stock dividend, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a greater number
of shares, then, after the date of record for effecting such subdivision, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the initial issuance
of this Warrant, combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) its shares of Common Stock into a
smaller number of shares, then, after the date of record for effecting such
combination, the Exercise Price in effect immediately prior to such combination
will be proportionately increased.
<PAGE>
12
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 7, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) MAJOR TRANSACTIONS. If the Company shall consolidate or
merge with any other corporation or entity (other than a merger in which the
Company is the surviving or continuing entity and its capital stock is unchanged
and unissued in such transaction (except for Common Stock constituting less than
twenty percent (20%) of the Company's Common Stock then outstanding)) or any
subsidiary of the Company shall be a party to a merger or consolidation or other
extraordinary transaction and the Company issues twenty percent (20%) or more of
its Common Stock in any such merger, consolidation or other transaction or there
shall occur any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property or any
reclassification or change of the outstanding shares of Common Stock (each of
the foregoing being a "MAJOR TRANSACTION"), then the Warrantholder may
thereafter, at its option, be entitled, at its election, either to (a) in the
event that the Common Stock remains outstanding or holders of Common Stock
receive any common stock or substantially similar equity interest, in each of
the foregoing cases which is publicly traded, retain its Warrant and the Warrant
shall continue to apply to such Common Stock or shall apply, as nearly as
practicable, to such other common stock or equity interest, as the case may be,
or (b) regardless of whether (a) applies, receive consideration, in exchange for
the Warrant, equal to the greater of, as determined in the sole discretion of
the Warrantholder, (i) the number of shares of stock or securities or property
of the Company, or of the entity resulting from such Major Transaction (the
"MAJOR TRANSACTION CONSIDERATION"), to which a holder of the number of shares of
Common Stock delivered upon the exercise of the Warrant would have been entitled
upon such Major Transaction had the Warrantholder exercised the Warrant (without
regard to any limitations on conversion or elsewhere contained) on the trading
date immediately preceding the public announcement of the transaction resulting
in such Major Transaction and had such Common Stock been issued and outstanding
and had the Warrantholder been the holder of record of such Common Stock at the
time of the consummation of such Major Transaction, and (ii) cash paid by the
Company in immediately available funds, in an amount equal to one hundred and
twenty-five percent (125%) of the Black-Scholes Amount times the number of
shares of Common Stock for which this Warrant was exercisable (without regard to
any limitations on exercise herein contained); and the Company shall make lawful
provision for the foregoing as a part of such Major Transaction. No sooner than
ten Business Days nor later than five Business Days prior to the consummation of
the Major Transaction, but not prior to the public announcement of such Major
Transaction, the Company shall deliver written notice ("NOTICE OF MAJOR
TRANSACTION") to the Warrantholder, which Notice of Major Transaction shall be
deemed to have been delivered one Business Day after the Company's sending such
notice by telecopy (provided that the Company sends a confirming copy of such
notice on the same
<PAGE>
13
day by overnight courier) of such Notice of Major Transaction. Such Notice of
Major Transaction shall indicate the amount and type of the Major Transaction
Consideration which the Warrantholder would receive under this Section. If the
Major Transaction Consideration does not consist entirely of United States
currency, such holder may elect to receive United States currency in an amount
equal to the value of the Major Transaction Consideration in lieu of the Major
Transaction Consideration by delivering notice of such election to the Company
within five Business Days of such holder's receipt of the Notice of Major
Transaction.
(f) EFFECT OF MERGER. (i) If, pursuant to clause (a) of
Section 7(e), the Warrantholder elects to retain the Warrant with the Warrant
continuing to apply to the Common Stock or applying, as nearly as practicable,
to other common stock or equity interest received by the stockholders of the
Company in connection with the Merger, then (A) Section 7(b)(vi) shall be
amended to include the following clause (iv): "(iv) upon the issuance of Common
Stock or other Capital Stock of the Company as consideration in an acquisition
of or from a third party or in connection with a merger with a third party;
provided that, with respect to clause (iv), such third party is not a controlled
Affiliate of the Company or such transaction (A) has been approved by a special
committee of the Board of Directors comprised solely of independent directors
and such special committee has recommended that the stockholders of the Company
vote in favor thereof and (B) the Company has received from a nationally
recognized investment banking firm a written opinion addressed to such special
committee, for inclusion in the proxy statement to be delivered to the
stockholders, substantially to the effect that such transaction is fair to the
Company or to the Company's stockholders (other than any Significant
Stockholder) from a financial point of view" and (B) Section 7(e) shall be
amended to delete clause (b)(ii) thereof.
(ii) Notwithstanding anything to the contrary contained
herein, if the Warrantholder elects, pursuant to clause (a) of Section 7(e), to
retain the Warrant following the Merger, then the Warrant shall automatically be
amended to become exercisable for a number of shares of Class B Common Stock,
par value $0.01 per share, of Newco equal to the number of shares of Common
Stock for which the Warrant was exercisable immediately prior to the Merger.
(g) DISTRIBUTION OF ASSETS. In case the Company shall declare
or make any distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the initial issuance of this
Warrant, then the Warrantholder shall be entitled upon exercise of this Warrant
for the purchase of any or all of the shares of Common Stock subject hereto, to
receive the amount of such assets (or rights) which would have been payable to
the Warrantholder had the Warrantholder been the holder of such shares of Common
Stock on the record date for the determination of shareholders entitled to such
Distribution.
<PAGE>
14
(h) NOTICES OF ADJUSTMENT. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the Warrantholder, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(i) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(j) NO FRACTIONAL SHARES. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock; PROVIDED that in the event that sufficient funds are not
legally available for the payment of such cash adjustment any fractional shares
of Common Stock shall be rounded up to the next whole number.
(k) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other
distribution to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class
or other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or
merger of the Company with or into, or sale of all or substantially all
of its assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Warrantholder (a) notice
of the date on which the books of the Company shall close or a record shall be
taken for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation,
<PAGE>
15
merger, sale, dissolution, liquidation or winding-up and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take place.
Such notice shall also specify the date on which the holders of Common Stock
shall be entitled to receive such dividend, distribution, or subscription rights
or to exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding-up, as the case may be. Such notice
shall be given at least 30 days prior to the record date or the date on which
the Company's books are closed in respect thereto, but in no event earlier than
public announcement of such proposed transaction or event. Failure to give any
such notice or any defect therein shall not affect the validity of the
proceedings referred to in clauses (i), (ii), (iii) and (iv) above.
SECTION 8. NO DILUTION OR IMPAIRMENT.
The Company will not, by amendment of its Charter Documents or through
any reorganization, recapitalization, transfer of assets, consolidation, merger,
share exchange, dissolution or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of the Warrant,
including the adjustments required under Section 7 hereof, and will at all times
in good faith assist in the carrying out of all such terms and in taking of all
such action as may be necessary or appropriate to protect the rights of the
Warrantholder against dilution or other impairment. Without limiting the
generality of the foregoing and notwithstanding any other provision of the
Warrant to the contrary (including by way of implication), the Company (a) will
not increase the par value of any shares of Common Stock receivable on the
exercise of the Warrant above the amount payable therefor on such exercise and
(b) will take all such corporate action as may be necessary or appropriate so
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock on the exercise of the Warrant.
SECTION 9. TRANSFERS OF THE WARRANT.
(a) TRANSFER AND EXCHANGES. The Company shall initially record
the Warrant on a register to be maintained by the Company with its other stock
books and, subject to Section 9(b) hereof, from time to time thereafter shall
record a transfer of the Warrant on such register when the Warrant is: (i)
surrendered for transfer in accordance with the terms hereof, (ii) properly
endorsed and accompanied by appropriate instructions, and (iii) accompanied by
payment in cash or by check, bank draft or money order payable to the order of
the Company, in United States currency, of an amount equal to any stamp or other
tax or governmental charge or fee required to be paid in connection with the
transfer thereof. Upon any such transfer, a new Warrant or Warrants shall be
issued to the transferee and the Warrantholder (in the event that the Warrant is
only partially transferred) and the surrendered Warrant shall be canceled. Each
such transferee shall succeed to all of the rights of the transferring
Warrantholder under this Agreement or in the event that the Warrant is only
partially transferred, the transferring Warrantholder and such transferee shall,
simultaneously, hold rights hereunder in proportion to their
<PAGE>
16
respective percentage interests of the original Warrant. The Warrant may be
exchanged at the option of the Warrantholder, when surrendered at the Principal
Office of the Company, for another Warrant or other Warrants of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock, subject to adjustment as more fully set forth herein.
(b) TRANSFERS SUBJECT TO SECURITIES LAWS. Subject to the
restrictions set forth in this Section 9, the Warrantholder may at any time and
from time to time freely transfer the Warrant and the Warrant Shares in whole or
in part. The Warrant has not been, and the Warrant Shares at the time of their
issuance may not be, registered under the Securities Act, and nothing herein
contained shall be deemed to require the Company to so register the Warrant or
Warrant Shares. The Warrant and the Warrant Shares are issued or issuable
subject to the provisions and conditions contained herein and the Warrantholder
by accepting the Warrant agrees with the Company to such provisions and
conditions, and represents to the Company that the Warrant has been acquired and
the Warrant Shares will be acquired for the account of the Warrantholder for
investment and not with a view to or for sale in connection with any
distribution thereof.
(c) TRANSFERS TO NON-AFFILIATES. Notwithstanding the
foregoing, upon any transfer of this Warrant to a transferee that is not an
Affiliate of the Warrantholder, this Warrant shall automatically be amended to
(i) provide that such transferee shall not be entitled to pay the Aggregate
Exercise Price by a Note Exercise pursuant to Section 3(d), (ii) delete Section
7(f)(ii), if the Warrant is exercisable for shares of Common Stock of the
Company at the time of such transfer and (iii) become exercisable for shares of
Class A Common Stock, par value $0.01 per share, of Newco, if the Warrant has
become exercisable for shares of Class B Common Stock, par value $0.01 per
share, of Newco pursuant to Section 4(f)(ii).
SECTION 10. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS. In the event that the
Warrantholder shall desire to sell any of the Warrant Shares, and such sale
requires, in the opinion of counsel to the Warrantholder, which opinion shall be
reasonably satisfactory to the Company and its counsel, registration of such
Warrant Shares under the Securities Act, the Company will cooperate with the
Underwriter and any underwriters in registering such Warrant Shares for resale,
including promptly filing a registration statement which complies with the
requirements of applicable federal and state securities laws, and entering into
an underwriting agreement with such underwriters upon such terms and conditions
as are customarily contained in underwriting agreements with respect to
secondary distributions; PROVIDED that the Company shall not be required to have
declared effective more than two registration statements hereunder and shall be
entitled to delay the filing or effectiveness of any registration statement for
up to 90 days if the offering would, in the judgment of the Board of Directors
of the Company, require premature disclosure of any material corporate
development or material transaction involving the Company or interfere with any
previously planned securities offering by the Company.
<PAGE>
17
(b) MAINTENANCE OF REGISTRATION STATEMENT; INDEMNIFICATION OF
WARRANTHOLDER. If the Warrant Shares are registered pursuant to the provisions
of this Section 10, the Company agrees (i) to furnish copies of the registration
statement and the prospectus relating to the Warrant Shares covered thereby in
such numbers as the Warrantholder may from time to time reasonably request and
(ii) if any event shall occur as a result of which it becomes necessary to amend
or supplement any registration statement or prospectus, to prepare and file
under the applicable securities laws such amendments and supplements as may be
necessary to keep available for at least 90 days a prospectus covering the
Warrant Shares meeting the requirements of such securities laws, and to furnish
the Warrantholder such numbers of copies of the registration statement and
prospectus, as amended or supplemented, as may reasonably be requested. The
Company shall bear the cost of the registration, including all registration and
filing fees, printing expenses, and fees and disbursements of counsel and
accountants for the Company, except that the Warrantholder shall pay the fees
and disbursements of its counsel, and the underwriting fees and selling
commissions applicable to the shares of Common Stock sold by the Warrantholder.
The Company shall indemnify and hold harmless (x) the Warrantholder, its
affiliates and its officers and directors and each person who controls the
Warrantholder within the meaning of the Securities Act or Exchange Act and (y)
each underwriter and each person who controls any underwriter within the meaning
of the Securities Act or the Exchange Act (collectively, the "UNDERWRITERS")
((x) and (y) being referred to as "INDEMNIFIED PARTIES") against any losses,
claims, damages, liabilities or expenses, to which the Indemnified Parties may
become subject, insofar as such losses, claims, damages, liabilities (or actions
in respect thereof) and expenses arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained or
incorporated by reference in any registration statement or prospectus filed
pursuant to this paragraph, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; PROVIDED, HOWEVER,
that the Company will not be liable in any such case to the extent that any such
loss, liability, claim, damage or expense arises out of or is based upon an
untrue statement or alleged untrue statement in or omission or alleged omission
from any such documents in reliance upon and in conformity with written
information furnished to the Company by the Indemnified Parties expressly for
use or incorporation by reference therein.
(c) INDEMNIFICATION OF THE COMPANY. The Warrantholder and the
Underwriters shall indemnify and hold harmless the Company, its affiliates and
its officers and directors and each person who controls the Company within the
meaning of the Securities Act or Exchange Act against any losses, claims,
damages, liabilities or expenses to which the Company, its affiliates and its
officers and directors may become subject, insofar as such losses, claims,
damages, liabilities (or actions in respect thereof) and expenses arise out of
or are based upon any untrue statement of any material fact contained or
incorporated by reference in any registration statement filed pursuant to this
paragraph, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance
<PAGE>
18
upon and in conformity with written information furnished to the Company by the
Warrantholder or the Underwriters, as applicable, specifically for use or
incorporation by reference therein.
SECTION 11. SURVIVAL OF PROVISIONS.
The provisions of this Agreement and the Warrant shall survive until
the earlier of (a) the full exercise by of the Warrant or (b) the Expiration
Date.
SECTION 12. DELAYS, OMISSIONS AND INDULGENCES.
No delay or omission to exercise any right, power or remedy accruing to
the Warrantholder upon any breach or default of the Company hereunder or under
the Warrant shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach or default, or any acquiescence
therein, or of or in any similar breach or default thereafter occurring, nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the Warrantholder's part of any
breach or default hereunder or under the Warrant, or any waiver on the
Warrantholder's part of any provisions or conditions hereof or of the Warrant
must be in writing and that all remedies, either hereunder, under the Warrant or
by law or otherwise afforded to the Warrantholder, shall be cumulative and not
alternative.
SECTION 13. RIGHTS OF TRANSFEREES.
Subject to Section 9(c), the rights granted to the Warrantholder
hereunder and under the Warrant shall pass to and inure to the benefit of all
subsequent transferees of all or any portion of the Warrant until extinguished
pursuant to the terms hereof; PROVIDED that the Warrantholder and any transferee
shall hold such rights in proportion to their respective ownership of the
Warrant and Warrant Shares.
SECTION 14. CAPTIONS.
The titles and captions of the Sections and other provisions hereof are
for convenience of reference only and are not to be considered in construing
this Agreement.
SECTION 15. NOTICES.
All notices, demands and other communications provided for or permitted
hereunder shall be made in writing and shall be by registered or certified
first-class mail, return receipt requested, telecopy, overnight courier service
or personal delivery:
<PAGE>
19
(a) if to the Company:
Styleclick.com Inc.
3861 Sepulveda Blvd.
Culver City, CA 90230
Attention: Maurizio Vecchione
Facsimile: (310) 751-2122
(b) if to the Warrantholder:
USA Networks, Inc.
Carnegie Hall Tower
152 West 57th Street, 42nd Floor
New York, NY 10019
Attention: Tom Kuhn
Facsimile: (212) 314-7329
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
SECTION 16. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, provided that the
Company shall have no right to assign its rights, or to delegate its
obligations, hereunder without the prior written consent of the Warrantholder.
SECTION 17. SEVERABILITY.
If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
SECTION 18. GOVERNING LAW.
THIS AGREEMENT AND THE WARRANT IS TO BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE.
<PAGE>
20
SECTION 19. JURISDICTION. Each party to this Agreement hereby
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or any agreements or transactions contemplated hereby
shall be brought in the courts of the State of New York and hereby expressly
submits to the personal jurisdiction and venue of such courts for the purposes
thereof and expressly waives any claim of improper venue and any claim that such
courts are an inconvenient forum.
SECTION 20. ENTIRE AGREEMENT; AMENDMENT.
This Agreement, the Warrant, the Merger Agreement, the Credit Agreement
and the other agreements and documents referenced in the Merger Agreement and
the Credit Agreement are intended by the parties as a final expression of their
agreement and are intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. Except as otherwise expressly provided in
this Agreement, any provision of this Agreement or of the Warrant may be amended
or modified only by an instrument in writing signed by the Company and the
Warrantholder.
SECTION 21. RULES OF CONSTRUCTION.
Unless the context otherwise requires "or" is not exclusive, and
references to sections or subsections refer to sections or subsections of this
Agreement. All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
* * *
<PAGE>
21
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
duly executed as of the date first above written.
STYLECLICK.COM INC.
By: /s/ Barry Hall
-------------------------------------
Name: Barry Hall
Title: Chief Financial Officer
USA NETWORKS, INC.
By: /s/ Dara Khosrowshahi
-------------------------------------
Name: Dara Khosrowshahi
Title:
<PAGE>
22
EXHIBIT A
FORM OF WARRANT
- ---------------
THIS COMMON STOCK PURCHASE WARRANT AND THE SHARES THAT MAY BE PURCHASED
HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES LAWS OF ANY STATE. THIS COMMON STOCK PURCHASE WARRANT HAS BEEN
ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION, AND THIS
COMMON STOCK PURCHASE WARRANT AND THE SHARES THAT MAY BE PURCHASED HEREUNDER MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AND REGISTRATION OR QUALIFICATION
UNDER APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL THAT THE
PROPOSED TRANSACTION DOES NOT VIOLATE THE SECURITIES ACT OF 1933, AND APPLICABLE
STATE SECURITIES LAWS.
THIS WARRANT IS SUBJECT TO THE TERMS OF A WARRANT AGREEMENT, DATED AS OF JANUARY
24, 2000, BETWEEN STYLECLICK.COM INC. AND USA NETWORKS, INC.
STYLECLICK.COM INC.
COMMON STOCK PURCHASE WARRANT
NUMBER _____
THIS IS TO CERTIFY that USA Networks, Inc., a Delaware corporation, and
its transferees, successors and assigns (the "WARRANTHOLDER"), for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, is entitled to purchase from Styleclick.com Inc., a California
corporation (the "COMPANY"), at a price per share equal to the Exercise Price,
328,084 shares of fully paid and nonassessable Common Stock of the Company,
subject to the terms and conditions of the Warrant Agreement, dated as of
January 24, 2000, between the Company and the Warrantholder (as amended or
otherwise modified, the "WARRANT AGREEMENT"). The number of shares of Common
Stock subject to this Warrant is subject to adjustment or reduction as set forth
in Section 7 of the Warrant Agreement. Capitalized terms used herein shall have
the meanings ascribed to such terms in the Warrant Agreement.
<PAGE>
23
Payment of the Exercise Price may be made as set forth in Section 3 of
the Warrant Agreement.
If this Warrant is not exercised on or before 5:00 p.m., Pacific
Standard time on the Expiration Date, this Warrant shall become void and all
rights hereunder shall cease as of such time, except as provided in the Warrant
Agreement.
This Warrant is issued pursuant to the Warrant Agreement and is subject
to, and entitled to the benefits of, all of the terms, provisions and conditions
of the Warrant Agreement, which Warrant Agreement is hereby incorporated by
reference herein and made a part hereof. The Warrant Agreement sets forth a full
description of the rights, limitations of rights, obligations, duties and
immunities of the Company and the Warrantholder with respect to this Warrant.
Copies of the Warrant Agreement are on file at the Principal Office of the
Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its duly authorized officer, as of the 24th day of January, 2000.
STYLECLICK.COM INC.
By:
-------------------------------------
Name:
Title:
<PAGE>
24
EXHIBIT B
FORM OF NOTICE OF EXERCISE
________________ __, ____
To: [______________]
[______________]
[______________]
[______________]
Attention: [______________]
Telecopy: [______________]SS
1. The undersigned, pursuant to the provisions of the attached Warrant,
hereby elects to exercise such Warrant with respect to ________ shares of Common
Stock (the "EXERCISE AMOUNT"). Capitalized terms used but not otherwise defined
herein have the meanings ascribed thereto in the attached Warrant.
2. The undersigned herewith tenders payment for such shares in the
following manner (please check type, or types, of payment and indicate the
portion of the Exercise Price to be paid by each type of payment):
____ Exercise for Cash
____ Cashless Exercise
____ Note Exercise
3. Please issue a certificate or certificates representing the shares
issuable in respect hereof under the terms of the attached Warrant, as follows:
(Name of Record Warrantholder/Transferee)
and deliver such certificate or certificates to the following address:
(Address of Record Warrantholder/Transferee)
4. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
<PAGE>
25
5. If the Exercise Amount is less than all of the shares of Common
Stock purchasable hereunder, please issue a new warrant representing the
remaining balance of such shares, as follows:
(Name of Record Warrantholder/Transferee)
and deliver such warrant to the following address:
(Address of Record Warrantholder/Transferee)
In witness whereof, the undersigned Warrantholder has caused this
Notice of Exercise to be executed as of this _____ day of __________, ______.
(Name of Warrantholder)
By:
----------------------------------------
Name:
Title:
<PAGE>
Exhibit 10.7
CONFORMED COPY
THIS COMMON STOCK PURCHASE WARRANT AND THE SHARES THAT MAY BE PURCHASED
HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES LAWS OF ANY STATE. THIS COMMON STOCK PURCHASE WARRANT HAS BEEN
ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION, AND THIS
COMMON STOCK PURCHASE WARRANT AND THE SHARES THAT MAY BE PURCHASED HEREUNDER MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AND REGISTRATION OR QUALIFICATION
UNDER APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL THAT THE
PROPOSED TRANSACTION DOES NOT VIOLATE THE SECURITIES ACT OF 1933, AND APPLICABLE
STATE SECURITIES LAWS.
THIS WARRANT IS SUBJECT TO THE TERMS OF A WARRANT AGREEMENT, DATED AS OF JANUARY
24, 2000, BETWEEN STYLECLICK.COM INC. AND USA NETWORKS, INC.
STYLECLICK.COM INC.
COMMON STOCK PURCHASE WARRANT
NUMBER _____
THIS IS TO CERTIFY that USA Networks, Inc., a Delaware corporation, and
its transferees, successors and assigns (the "WARRANTHOLDER"), for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, is entitled to purchase from Styleclick.com Inc., a California
corporation (the "COMPANY"), at a price per share equal to the Exercise Price,
328,084 shares of fully paid and nonassessable Common Stock of the Company,
subject to the terms and conditions of the Warrant Agreement, dated as of
January 24, 2000, between the Company and the Warrantholder (as amended or
otherwise modified, the "WARRANT AGREEMENT"). The number of shares of Common
Stock subject to this Warrant is subject to adjustment or reduction as set forth
in Section 7 of the Warrant Agreement. Capitalized terms used herein shall have
the meanings ascribed to such terms in the Warrant Agreement.
Payment of the Exercise Price may be made as set forth in Section 3 of
the Warrant Agreement.
If this Warrant is not exercised on or before 5:00 p.m., Pacific
Standard time on the Expiration Date, this Warrant shall become void and all
rights hereunder shall cease as of such time, except as provided in the Warrant
Agreement.
<PAGE>
2
This Warrant is issued pursuant to the Warrant Agreement and is subject
to, and entitled to the benefits of, all of the terms, provisions and conditions
of the Warrant Agreement, which Warrant Agreement is hereby incorporated by
reference herein and made a part hereof. The Warrant Agreement sets forth a full
description of the rights, limitations of rights, obligations, duties and
immunities of the Company and the Warrantholder with respect to this Warrant.
Copies of the Warrant Agreement are on file at the Principal Office of the
Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its duly authorized officer, as of the 24th day of January, 2000.
STYLECLICK.COM INC.
By: /s/ Maurizio Vecchione
----------------------------------
Name: Maurizio Vecchione
Title: President and Co-CEO
<PAGE>
Exhibit 10.8
CONFORMED COPY
================================================================================
COLLATERAL AGREEMENT
made by
STYLECLICK.COM INC.
in favor of
USA NETWORKS, INC.
Dated as of January 24, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE #
SECTION 1.
DEFINED TERMS............................................................1
1.1 Definitions.........................................................1
1.2 Other Definitional Provisions.......................................4
SECTION 2.
GRANT OF SECURITY INTEREST...............................................5
SECTION 3.
REPRESENTATIONS AND WARRANTIES...........................................5
3.1 Title; No Other Liens...............................................6
3.2 Perfected First Priority Liens......................................6
3.3 Chief Executive Office..............................................6
3.4 Inventory and Equipment.............................................6
3.5 Farm Products.......................................................6
3.6 Pledged Securities..................................................6
3.7 Receivables.........................................................7
3.8 Intellectual Property...............................................7
SECTION 4
COVENANTS................................................................7
4.1 Delivery of Instruments and Chattel Paper...........................8
4.2 Maintenance of Insurance............................................8
4.3 Payment of Obligations..............................................8
4.4 Maintenance of Perfected Security Interest; Further Documentation...8
4.5 Changes in Locations, Name, etc.....................................9
4.6 Notices.............................................................9
4.7 Pledged Securities..................................................9
4.8 Receivables........................................................10
4.9 Intellectual Property..............................................11
SECTION 5.
REMEDIAL PROVISIONS.....................................................12
5.1 Certain Matters Relating to Receivables............................12
5.2 Communications with Obligors; Grantor Remains Liable...............13
i
<PAGE>
PAGE #
5.3 Pledged Stock......................................................13
5.4 Proceeds to be Turned Over to Lender...............................14
5.5 Application of Proceeds............................................15
5.6 Code and Other Remedies............................................15
5.7 Registration Rights................................................16
5.8 Waiver; Deficiency.................................................17
SECTION 6.
THE LENDER..............................................................17
6.1 Lender's Appointment as Attorney-in-Fact, etc......................17
6.2 Duty of Lender.....................................................19
6.3 Execution of Financing Statements..................................19
SECTION 7.
MISCELLANEOUS...........................................................20
7.1 Amendments in Writing..............................................20
7.2 Notices............................................................20
7.3 No Waiver by Course of Conduct; Cumulative Remedies................20
7.4 Successors and Assigns.............................................20
7.5 Counterparts.......................................................20
7.6 Severability.......................................................20
7.7 Section Headings...................................................21
7.8 Integration........................................................21
7.9 GOVERNING LAW......................................................21
7.10 Submission To Jurisdiction; Waivers................................21
7.11 Acknowledgments....................................................22
7.12 WAIVER OF JURY TRIAL...............................................22
7.13 Releases...........................................................22
SCHEDULES
1 - Description of Pledged Securities
2 - Filings and Other Actions Required to Perfect Security Interests
3 - Location of Inventory and Equipment
4 - Intellectual Property
ATTACHMENTS
A - Copyrights and Copyright Licenses
B - Patents and Patent Licenses
C - Trademarks and Trademark Licenses
ii
<PAGE>
COLLATERAL AGREEMENT
COLLATERAL AGREEMENT, dated as of January 24, 2000, made by
STYLECLICK.COM INC. (the "GRANTOR"), in favor of USA NETWORKS, INC. (the
"LENDER") under the Credit Agreement, dated as of January 24, 2000 (as amended,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
between the Grantor and the Lender.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lender has agreed to
make the Loan to the Grantor upon the terms and subject to the conditions set
forth therein;
WHEREAS, it is a condition precedent to the obligation of the Lender to
make the Loan to the Grantor under the Credit Agreement that the Grantor shall
have executed and delivered this Agreement to the Lender;
NOW, THEREFORE, in consideration of the premises and to induce the
Lender to enter into the Credit Agreement and to induce the Lender to make the
Loan to the Grantor thereunder, the Grantor hereby agrees with the Lender, as
follows:
SECTION 1.
DEFINED TERMS
1.1 DEFINITIONS. (a) Unless otherwise defined herein, terms defined in
the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement, and the following terms which are defined in the Uniform
Commercial Code in effect in the State of New York on the date hereof are used
herein as so defined: Accounts, Chattel Paper, Documents, Equipment, Farm
Products, Instruments, Inventory and Investment Property.
(b) The following terms shall have the following meanings:
"AGREEMENT": this Collateral Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
"COLLATERAL": as defined in Section 2.
"COLLATERAL ACCOUNT": any collateral account established by the Lender
as provided in Section 5.1 or 5.4.
<PAGE>
2
"COPYRIGHT LICENSES": any written agreement naming the Grantor as
licensor or licensee (including, without limitation, those listed in SCHEDULE
4), granting any right under any Copyright, including, without limitation, the
grant of rights to manufacture, distribute, exploit and sell materials derived
from any Copyright.
"COPYRIGHTS": (i) all copyrights arising under the laws of the United
States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished (including,
without limitation, those listed in SCHEDULE 4), all registrations and
recordings thereof, and all applications in connection therewith, including,
without limitation, all registrations, recordings and applications in the United
States Copyright Office, and (ii) the right to obtain all renewals thereof.
"GENERAL INTANGIBLES": all "general intangibles" as such term is
defined in Section 9-106 of the Uniform Commercial Code in effect in the State
of New York on the date hereof and, in any event, including, without limitation,
with respect to the Grantor, all contracts, agreements, instruments and
indentures in any form, and portions thereof, to which the Grantor is a party or
under which the Grantor has any right, title or interest or to which the Grantor
or any property of the Grantor is subject, as the same may from time to time be
amended, supplemented or otherwise modified, including, without limitation, (i)
all rights of the Grantor to receive moneys due and to become due to it
thereunder or in connection therewith, (ii) all rights of the Grantor to damages
arising thereunder and (iii) all rights of the Grantor to perform and to
exercise all remedies thereunder, in each case to the extent the grant by the
Grantor of a security interest pursuant to this Agreement in its right, title
and interest in such contract, agreement, instrument or indenture is not
prohibited by such contract, agreement, instrument or indenture without the
consent of any other party thereto, would not give any other party to such
contract, agreement, instrument or indenture the right to terminate its
obligations thereunder, or is permitted with consent if all necessary consents
to such grant of a security interest have been obtained from the other parties
thereto (it being understood that the foregoing shall not be deemed to obligate
the Grantor to obtain such consents); PROVIDED, that the foregoing limitation
shall not affect, limit, restrict or impair the grant by the Grantor of a
security interest pursuant to this Agreement in any Receivable or any money or
other amounts due or to become due under any such contract, agreement,
instrument or indenture.
"INTELLECTUAL PROPERTY": the collective reference to all rights,
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including,
without limitation, the Copyrights, the Copyright Licenses, the Patents, the
Patent Licenses, the Trademarks and the Trademark Licenses, and all rights to
sue at law or in equity for any infringement or other impairment thereof,
including the right to receive all proceeds and damages therefrom.
<PAGE>
3
"ISSUERS": the collective reference to each issuer of a Pledged
Security.
"NEW YORK UCC": the Uniform Commercial Code as from time to time in
effect in the State of New York.
"OBLIGATIONS": the collective reference to the unpaid principal of and
interest on the Loan and all other obligations and liabilities of the Grantor
(including, without limitation, interest accruing at the rate provided in the
Credit Agreement after the maturity of the Loan and interest accruing at the
rate provided in the Credit Agreement after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Grantor, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) to the Lender, whether
direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with, the Credit Agreement, this Agreement or the other Loan Documents or any
other document made, delivered or given in connection therewith, in each case
whether on account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses or otherwise (including, without limitation, all
fees and disbursements of counsel to the Lender that are required to be paid by
the Grantor pursuant to the terms of any of the foregoing agreements).
"PATENT LICENSE": all agreements, whether written or oral, providing
for the grant by or to the Grantor of any right to manufacture, use or sell any
invention covered in whole or in part by a Patent, including, without
limitation, any of the foregoing referred to in SCHEDULE 4.
"PATENTS": (i) all letters patent of the United States, any other
country or any political subdivision thereof, all reissues and extensions
thereof and all goodwill associated therewith, including, without limitation,
any of the foregoing referred to in SCHEDULE 4, (ii) all applications for
letters patent of the United States or any other country and all divisions,
continuations and continuations-in-part thereof, including, without limitation,
any of the foregoing referred to in SCHEDULE 4, and (iii) all rights to obtain
any reissues or extensions of the foregoing.
"PLEDGED NOTES": all promissory notes listed on SCHEDULE 1 and all
other promissory notes issued to or held by the Grantor.
"PLEDGED SECURITIES": the collective reference to the Pledged Notes and
the Pledged Stock.
"PLEDGED STOCK": the shares of Capital Stock listed on SCHEDULE 1,
together with any other shares, stock certificates, options or rights of any
nature whatsoever in respect of the Capital Stock of any Person that may be
issued or granted to, or held by, the Grantor while this Agreement is in effect.
<PAGE>
4
"PROCEEDS": all "proceeds" as such term is defined in Section 9-306(1)
of the Uniform Commercial Code in effect in the State of New York on the date
hereof and, in any event, shall include, without limitation, all dividends or
other income from the Pledged Securities, collections thereon or distributions
or payments with respect thereto.
"RECEIVABLE": any right to payment for goods sold or leased or for
services rendered, whether or not such right is evidenced by an Instrument or
Chattel Paper and whether or not it has been earned by performance (including,
without limitation, any Account).
"SECURITIES ACT": the Securities Act of 1933, as amended.
"TRADEMARK LICENSE": any agreement, whether written or oral, providing
for the grant by or to the Grantor of any right to use any Trademark, including,
without limitation, any of the foregoing referred to in SCHEDULE 4.
"TRADEMARKS": (i) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles, service marks,
logos and other source or business identifiers, and all goodwill associated
therewith, now existing or hereafter adopted or acquired, all registrations and
recordings thereof, and all applications in connection therewith, whether in the
United States Patent and Trademark Office or in any similar office or agency of
the United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, and all common-law rights related thereto,
including, without limitation, any of the foregoing referred to in SCHEDULE 4,
and (ii) the right to obtain all renewals thereof.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof," "herein,"
"hereto" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and Section and Schedule references are to this Agreement unless
otherwise specified.
(b) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
(c) Where the context requires, terms relating to the
Collateral or any part thereof, when used in relation to the Grantor, shall
refer to the Grantor's Collateral or the relevant part thereof.
<PAGE>
5
SECTION 2.
GRANT OF SECURITY INTEREST
The Grantor hereby assigns and transfers to the Lender and hereby
grants to the Lender, a security interest in, all of the following property now
owned or at any time hereafter acquired by the Grantor or in which the Grantor
now has or at any time in the future may acquire any right, title or interest
(collectively, the "COLLATERAL"), as collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Grantor's Obligations:
(a) all Accounts;
(b) all Chattel Paper;
(c) all Documents;
(d) all Equipment;
(e) all General Intangibles;
(f) all Instruments;
(g) all Intellectual Property;
(h) all Inventory;
(i) all Investment Property including all Pledged Securities;
(j) all books and records pertaining to the Collateral; and
(k) to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing and all collateral security and
guarantees given by any Person with respect to any of the foregoing.
SECTION 3.
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into the Credit Agreement and to induce
the Lender to make the Loan to the Grantor thereunder, the Grantor hereby
represents and warrants to the Lender that:
<PAGE>
6
3.1 TITLE; NO OTHER LIENS. Except for the security interest granted to
the Lender pursuant to this Agreement and the other Liens permitted to exist on
the Collateral by the Credit Agreement, the Grantor owns each item of the
Collateral free and clear of any and all Liens or claims of others. No financing
statement or other public notice with respect to all or any part of the
Collateral is on file or of record in any public office, except such as have
been filed in favor of the Lender, pursuant to this Agreement or as are
permitted by the Credit Agreement.
3.2 PERFECTED FIRST PRIORITY LIENS. The security interests granted
pursuant to this Agreement (a) constitute valid perfected security interests in
all of the Collateral in favor of the Lender, as collateral security for the
Grantor's Obligations, enforceable in accordance with the terms hereof against
all creditors of the Grantor and any Persons purporting to purchase any
Collateral from the Grantor and (b) are prior to all other Liens on the
Collateral in existence on the date hereof, PROVIDED, HOWEVER, no representation
or covenant to perfect is made, with respect to clause (a) above, with respect
to Collateral comprised of Intellectual Property unless and to the extent such
Collateral is registered with the United States Copyright Office or the United
States Patent and Trademark Office, as applicable.
3.3 CHIEF EXECUTIVE OFFICE. On the date hereof, the Grantor's
jurisdiction of organization is California and the location of the Grantor's
chief executive office is 3861 Sepulveda Boulevard, Culver City, California.
3.4 INVENTORY AND EQUIPMENT. On the date hereof, the Inventory and the
Equipment (other than mobile goods) are kept at the locations listed on SCHEDULE
3.
3.5 FARM PRODUCTS. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.
3.6 PLEDGED SECURITIES. (a) The shares of Pledged Stock pledged by the
Grantor hereunder constitute all the issued and outstanding shares of all
classes of the Capital Stock of each Issuer owned by the Grantor.
(b) All the shares of the Pledged Stock have been duly and
validly issued and are fully paid and nonassessable.
(c) Each of the Pledged Notes constitutes the legal, valid and
binding obligation of the obligor with respect thereto, enforceable in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
(d) The Grantor is the record and beneficial owner of, and has
good and marketable title to, the Pledged Securities pledged by it hereunder,
free
<PAGE>
7
of any and all Liens or options in favor of, or claims of, any other Person,
except the security interest created by this Agreement.
3.7 RECEIVABLES. (a) No amount payable to the Grantor under or in
connection with any Receivable is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Lender.
(b) None of the obligors on any Receivables is a Governmental
Authority.
(c) The amounts represented by the Grantor to the Lender from
time to time as owing to the Grantor in respect of the Receivables will at such
times be accurate in all material respects taking into account the Grantor's
reserves established therefor.
3.8 INTELLECTUAL PROPERTY. (a) SCHEDULE 4 lists all registered
Trademarks and Patents owned by the Grantor in its own name on the date hereof.
Such SCHEDULE 4 indicates such registered Trademarks and Patents which, as of
the date hereof and in the judgment of the Grantor, are material.
(b) On the date hereof, all material Intellectual Property is
valid, subsisting, unexpired and enforceable, has not been abandoned and does
not infringe the intellectual property rights of any other Person.
(c) Except as set forth in SCHEDULE 4, on the date hereof,
none of the Intellectual Property is the subject of any licensing or franchise
agreement pursuant to which the Grantor is the licensor or franchisor.
(d) No holding, decision or judgment has been rendered by any
Governmental Authority which would limit, cancel or question the validity of, or
the Grantor's rights in, any Intellectual Property in any respect that could
reasonably be expected to have a Material Adverse Effect.
(e) No action or proceeding is pending, or, to the knowledge
of the Grantor, threatened, on the date hereof (i) seeking to limit, cancel or
question the validity of any Intellectual Property or the Grantor's ownership
interest therein, or (ii) which, if adversely determined, would have a material
adverse effect on the value of any Intellectual Property.
SECTION 4.
COVENANTS
The Grantor covenants and agrees with the Lender that, from and after
the date of this Agreement until the Obligations shall have been paid in full
and the
<PAGE>
8
Commitment shall have terminated:
4.1 DELIVERY OF INSTRUMENTS AND CHATTEL PAPER. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall be
immediately delivered to the Lender, duly indorsed in a manner satisfactory to
the Lender, to be held as Collateral pursuant to this Agreement.
4.2 MAINTENANCE OF INSURANCE. (a) The Grantor will maintain, with
financially sound and reputable companies, insurance policies (i) insuring the
Inventory and Equipment against loss by fire, explosion, theft and such other
casualties as may be reasonably satisfactory to the Lender and (ii) insuring the
Grantor and the Lender against liability for personal injury and property damage
relating to such Inventory and Equipment, such policies to be in such form and
amounts and having such coverage as may be reasonably satisfactory to the
Lender.
(b) All such insurance shall (i) provide that no cancellation,
material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Lender of written notice
thereof, (ii) name the Lender as insured party or loss payee, (iii) include a
breach of warranty clause and (iv) be reasonably satisfactory in all other
respects to the Lender.
(c) The Grantor shall deliver to the Lender a report of a
reputable insurance broker with respect to such insurance as the Lender may from
time to time reasonably request, PROVIDED, HOWEVER, that the Lender shall make
not more than one such request during each calendar year.
4.3 PAYMENT OF OBLIGATIONS. The Grantor will pay and discharge or
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all taxes, assessments and governmental charges or levies imposed
upon the Collateral or in respect of income or profits therefrom, as well as all
claims of any kind (including, without limitation, claims for labor, materials
and supplies) against or with respect to the Collateral, except that no such
charge need be paid if the amount or validity thereof is currently being
contested in good faith by appropriate proceedings, reserves in conformity with
GAAP with respect thereto have been provided on the books of the Grantor and
such proceedings could not reasonably be expected to result in the sale,
forfeiture or loss of any material portion of the Collateral or any interest
therein.
4.4 MAINTENANCE OF PERFECTED SECURITY INTEREST; FURTHER DOCUMENTATION.
(a) Except as provided in Section 3.2, the Grantor shall maintain the security
interests created by this Agreement as a perfected security interest having at
least the priority described in Section 3.2 and shall defend such security
interest against the claims and demands of all Persons whomsoever.
(b) The Grantor will furnish to the Lender from time to time
<PAGE>
9
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Lender may
reasonably request, all in reasonable detail.
(c) At any time and from time to time, upon the written
request of the Lender, and at the sole expense of the Grantor, the Grantor will
promptly and duly execute and deliver, and have recorded, such further
instruments and documents and take such further actions as the Lender may
reasonably request for the purpose of obtaining or preserving the full benefits
of this Agreement and of the rights and powers herein granted, including,
without limitation, the filing of any financing or continuation statements under
the Uniform Commercial Code (or other similar laws) in effect in any
jurisdiction with respect to the security interests created hereby.
4.5 CHANGES IN LOCATIONS, NAME, ETC. The Grantor will not, except upon
30 days' prior written notice to the Lender and delivery to the Lender of (a)
all additional executed financing statements and other documents reasonably
requested by the Lender to maintain the validity, perfection and priority of the
security interests provided for herein and (b) if applicable, a written
supplement to SCHEDULE 3 showing any additional location at which Inventory or
Equipment shall be kept:
(i) permit any of the Inventory or Equipment to be kept at a
location other than those listed on SCHEDULE 3;
(ii) change the location of its chief executive office or sole
place of business from that referred to in Section 3.3; or
(iii) change its name, identity or corporate structure to such
an extent that any financing statement filed by the Lender in
connection with this Agreement would become misleading.
4.6 NOTICES. The Grantor will advise the Lender promptly, in reasonable
detail, of:
(a) any Lien (other than security interests created hereby or
Liens permitted under the Credit Agreement) on any of the Collateral which would
adversely affect the ability of the Lender to exercise any of its remedies
hereunder; and
(b) of the occurrence of any other event which could
reasonably be expected to have a material adverse effect on the aggregate value
of the Collateral or on the security interests created hereby.
4.7 PLEDGED SECURITIES. (a) If the Grantor shall become entitled to
receive or shall receive any stock certificate (including, without limitation,
any certificate representing a stock dividend or a distribution in connection
with any
<PAGE>
10
reclassification, increase or reduction of capital or any certificate issued in
connection with any reorganization), option or rights in respect of the Capital
Stock of any Issuer, whether in addition to, in substitution of, as a conversion
of, or in exchange for, any shares of the Pledged Stock, or otherwise in respect
thereof, the Grantor shall accept the same as the agent of the Lender, hold the
same in trust for the Lender and deliver the same forthwith to the Lender in the
exact form received, duly indorsed by the Grantor to the Lender, if required,
together with an undated stock power covering such certificate duly executed in
blank by the Grantor and with, if the Lender so requests, signature guaranteed,
to be held by the Lender, subject to the terms hereof, as additional collateral
security for the Obligations. Any sums paid upon or in respect of the Pledged
Securities upon the liquidation or dissolution of any Issuer shall be paid over
to the Lender to be held by it hereunder as additional collateral security for
the Obligations, and in case any distribution of capital shall be made on or in
respect of the Pledged Securities or any property shall be distributed upon or
with respect to the Pledged Securities pursuant to the recapitalization or
reclassification of the capital of any Issuer or pursuant to the reorganization
thereof, the property so distributed shall, unless otherwise subject to a
perfected security interest in favor of the Lender, be delivered to the Lender
to be held by it hereunder as additional collateral security for the
Obligations. If any sums of money or property so paid or distributed in respect
of the Pledged Securities shall be received by the Grantor, the Grantor shall,
until such money or property is paid or delivered to the Lender, hold such money
or property in trust for the Lender, segregated from other funds of the Grantor,
as additional collateral security for the Obligations.
(b) Without the prior written consent of the Lender, the
Grantor will not (i) vote to enable, or take any other action to permit, any
Issuer to issue any stock or other equity securities of any nature or to issue
any other securities convertible into or granting the right to purchase or
exchange for any stock or other equity securities of any nature of any Issuer,
(ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any
option with respect to, the Pledged Securities or Proceeds thereof (except
pursuant to a transaction expressly permitted by the Credit Agreement), (iii)
create, incur or permit to exist any Lien or option in favor of, or any claim of
any Person with respect to, any of the Pledged Securities or Proceeds thereof,
or any interest therein, except for the security interests created by this
Agreement or (iv) enter into any agreement or undertaking restricting the right
or ability of the Grantor or the Lender to sell, assign or transfer any of the
Pledged Securities or Proceeds thereof.
4.8 RECEIVABLES. (a) Other than in the ordinary course of business
consistent with its past practice, the Grantor will not (i) grant any extension
of the time of payment of any Receivable, (ii) compromise or settle any
Receivable for less than the full amount thereof, (iii) release, wholly or
partially, any Person liable for the payment of any Receivable, (iv) allow any
credit or discount whatsoever on any Receivable or (v) amend, supplement or
modify any Receivable in any manner that could adversely affect the value
thereof.
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11
(b) The Grantor will deliver to the Lender a copy of each
material demand, notice or document received by it that questions or calls into
doubt the validity or enforceability of more than 10% of the aggregate amount of
the then outstanding Receivables.
4.9 INTELLECTUAL PROPERTY. (a) The Grantor (either itself or through
licensees) will (i) continue to use each material Trademark on each and every
trademark class of goods applicable to its current line as reflected in its
current catalogs, brochures and price lists in order to maintain such Trademark
in full force free from any claim of abandonment for non-use, (ii) maintain as
in the past the quality of products and services offered under such Trademark,
(iii) use such Trademark with the appropriate notice of registration and all
other notices and legends required by applicable Requirements of Law, (iv) not
adopt or use any mark which is confusingly similar or a colorable imitation of
such Trademark unless the Lender shall obtain a perfected security interest in
such mark pursuant to this Agreement, and (v) not (and not permit any licensee
or sublicensee thereof to) do any act or knowingly omit to do any act whereby
such Trademark may become invalidated or impaired in any way.
(b) The Grantor (either itself or through licensees) will not
do any act, or omit to do any act, whereby any material Patent may become
forfeited, abandoned or dedicated to the public.
(c) The Grantor (either itself or through licensees) will not
(and will not permit any licensee or sublicensee thereof to) do any act or
knowingly omit to do any act whereby any material portion of the Copyrights may
become invalidated or otherwise impaired. The Grantor will not (either itself or
through licensees) do any act whereby any material portion of the Copyrights may
fall into the public domain.
(d) The Grantor (either itself or through licensees) will not
do any act that knowingly uses any material Intellectual Property to infringe
the intellectual property rights of any other Person.
(e) The Grantor will notify the Lender immediately if it
knows, or has reason to know, that any application or registration relating to
any material Intellectual Property may become forfeited, abandoned or dedicated
to the public, or of any adverse determination or development (including,
without limitation, the institution of, or any such determination or development
in, any proceeding in the United States Patent and Trademark Office, the United
States Copyright Office or any court or tribunal in any country) regarding the
Grantor's ownership of, or the validity of, any material Intellectual Property
or the Grantor's right to register the same or to own and maintain the same.
(f) Whenever the Grantor, either by itself or through any
agent, employee, licensee or designee, shall file an application for the
registration of
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12
any Intellectual Property with the United States Patent and Trademark Office,
the United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof, the Grantor shall report such
filing to the Lender within five Business Days after the last day of the fiscal
quarter in which such filing occurs. Upon request of the Lender, the Grantor
shall execute and deliver, and have recorded, any and all agreements,
instruments, documents, and papers as the Lender may request to evidence the
Lender's security interest in any Copyright, Patent or Trademark and the
goodwill and general intangibles of the Grantor relating thereto or represented
thereby.
(g) The Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark Office, the United States Copyright Office or any similar office
or agency in any other country or any political subdivision thereof, to maintain
and pursue each application (and to obtain the relevant registration) and to
maintain each registration of the material Intellectual Property, including,
without limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.
(h) In the event that any material Intellectual Property is
infringed, misappropriated or diluted by a third party, the Grantor shall (i)
take such actions as the Grantor shall reasonably deem appropriate under the
circumstances to protect such Intellectual Property and (ii) if such
Intellectual Property is of material economic value, promptly notify the Lender
after it learns thereof and sue for infringement, misappropriation or dilution,
to seek injunctive relief where appropriate and to recover any and all damages
for such infringement, misappropriation or dilution.
SECTION 5.
REMEDIAL PROVISIONS
5.1 CERTAIN MATTERS RELATING TO RECEIVABLES. (a) The Lender shall have
the right to make test verifications of the Receivables in any manner and
through any medium that it reasonably considers advisable, and the Grantor shall
furnish all such assistance and information as the Lender may require in
connection with such test verifications. At any time and from time to time, upon
the Lender's request and at the expense of the relevant Grantor, the Grantor
shall cause independent public accountants or others satisfactory to the Lender
to furnish to the Lender reports showing reconciliations, aging and test
verifications of, and trial balances for, the Receivables.
(b) The Lender hereby authorizes the Grantor to collect the
Grantor's Receivables, subject to the Lender's direction and control, and the
Lender may curtail or terminate said authority at any time after the occurrence
and during the continuance of an Event of Default. If required by the Lender at
any time after the occurrence and during the continuance of an Event of Default,
any payments of
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13
Receivables, when collected by the Grantor, (i) shall be forthwith (and, in any
event, within two Business Days) deposited by the Grantor in the exact form
received, duly indorsed by the Grantor to the Lender if required, in a
Collateral Account maintained under the sole dominion and control of the Lender,
subject to withdrawal by the Lender only as provided in Section 5.5, and (ii)
until so turned over, shall be held by the Grantor in trust for the Lender,
segregated from other funds of the Grantor. Each such deposit of Proceeds of
Receivables shall be accompanied by a report identifying in reasonable detail
the nature and source of the payments included in the deposit.
(c) At the Lender's request, the Grantor shall deliver to the
Lender all original and other documents evidencing, and relating to, the
agreements and transactions which gave rise to the Receivables, including,
without limitation, all original orders, invoices and shipping receipts.
5.2 COMMUNICATIONS WITH OBLIGORS; GRANTOR REMAINS LIABLE. (a) The
Lender in its own name or in the name of others may at any time after the
occurrence and during the continuance of an Event of Default communicate with
obligors under the Receivables to verify with them to the Lender's satisfaction
the existence, amount and terms of any Receivables.
(b) Upon the request of the Lender at any time after the
occurrence and during the continuance of an Event of Default, the Grantor shall
notify obligors on the Receivables that the Receivables have been assigned to
the Lender and that payments in respect thereof shall be made directly to the
Lender.
(c) Anything herein to the contrary notwithstanding, the
Grantor shall remain liable under each of the Receivables to observe and perform
all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise
thereto. The Lender shall not have any obligation or liability under any
Receivable (or any agreement giving rise thereto) by reason of or arising out of
this Agreement or the receipt by the Lender of any payment relating thereto, nor
shall the Lender be obligated in any manner to perform any of the obligations of
the Grantor under or pursuant to any Receivable (or any agreement giving rise
thereto) to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party thereunder, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
5.3 PLEDGED STOCK. (a) Notwithstanding the provisions of Section 4.7,
unless an Event of Default, shall have occurred and be continuing and the Lender
shall have given notice to the relevant Grantor of the Lender's intent to
exercise its corresponding rights pursuant to Section 6.3(b), the Grantor shall
be permitted to receive all cash dividends paid in respect of the Pledged Stock
and all payments made in respect of the Pledged Notes, in each case paid in the
normal course of business of the relevant Issuer and consistent with past
practice, to the
<PAGE>
14
extent permitted in the Credit Agreement, and to exercise all voting and
corporate rights with respect to the Pledged Securities; PROVIDED, HOWEVER, that
no vote shall be cast or corporate right exercised or other action taken which,
in the Lender's reasonable judgment, would impair the Collateral or which would
be inconsistent with or result in any violation of any provision of the Credit
Agreement, this Agreement or any other Loan Document.
(b) If an Event of Default shall occur and be continuing and
the Lender shall give notice of its intent to exercise such rights to the
Grantor provided that in the case of an Event described in Section 7(f) of the
Credit Agreement with respect to the Grantor, (i) the Lender shall have the
right to receive any and all cash dividends, payments or other Proceeds paid in
respect of the Pledged Securities and make application thereof to the
Obligations in such order as the Lender may determine, and (ii) any or all of
the Pledged Securities may, at the Lender's option, be registered in the name of
the Lender or its nominee, and the Lender or its nominee may thereafter exercise
(x) all voting, corporate and other rights pertaining to such Pledged Securities
at any meeting of shareholders of the relevant Issuer or Issuers or otherwise
and (y) any and all rights of conversion, exchange and subscription and any
other rights, privileges or options pertaining to such Pledged Securities as if
it were the absolute owner thereof (including, without limitation, the right to
exchange at its discretion any and all of the Pledged Securities upon the
merger, consolidation, reorganization, recapitalization or other fundamental
change in the corporate structure of any Issuer, or upon the exercise by the
Grantor or the Lender of any right, privilege or option pertaining to such
Pledged Securities, and in connection therewith, the right to deposit and
deliver any and all of the Pledged Securities with any committee, depositary,
transfer agent, registrar or other designated agency upon such terms and
conditions as the Lender may determine), all without liability except to account
for property actually received by it, but the Lender shall have no duty to the
Grantor to exercise any such right, privilege or option and shall not be
responsible for any failure to do so or delay in so doing.
(c) The Grantor hereby authorizes and instructs each Issuer of
any Pledged Securities pledged by the Grantor hereunder to (i) comply with any
instruction received by it from the Lender in writing that (x) states that an
Event of Default has occurred and is continuing and (y) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from the Grantor, and the Grantor agrees that each Issuer shall be
fully protected in so complying, and (ii) unless otherwise expressly permitted
hereby, pay any dividends or other payments with respect to the Pledged
Securities directly to the Lender.
5.4 PROCEEDS TO BE TURNED OVER TO LENDER. In addition to the rights of
the Lender specified in Section 5.1 with respect to payments of Receivables, if
an Event of Default shall occur and be continuing, all Proceeds received by the
Grantor consisting of cash, checks and other near-cash items shall be held by
the Grantor in trust for the Lender, segregated from other funds of the Grantor,
and shall, forthwith upon receipt by the Grantor, be turned over to the Lender
in the exact form received
<PAGE>
15
by the Grantor (duly indorsed by the Grantor to the Lender, if required). All
Proceeds received by the Lender hereunder shall be held by the Lender in a
Collateral Account maintained under its sole dominion and control. All Proceeds
while held by the Lender in a Collateral Account (or by the Grantor in trust for
the Lender) shall continue to be held as collateral security for all the
Obligations and shall not constitute payment thereof until applied as provided
in Section 5.5.
5.5 APPLICATION OF PROCEEDS. At such intervals as may be agreed upon by
the Grantor and the Lender, or, if an Event of Default shall have occurred and
be continuing, at any time at the Lender's election, the Lender may apply all or
any part of Proceeds held in any Collateral Account in payment of the
Obligations in such order as the Lender may elect, and any part of such funds
which the Lender elects not so to apply and deems not required as collateral
security for the Obligations shall be paid over from time to time by the Lender
to the Grantor or to whomsoever may be lawfully entitled to receive the same.
Any balance of such Proceeds remaining after the Obligations shall have been
paid in full and the Commitment shall have terminated shall be paid over to the
Grantor or to whomsoever may be lawfully entitled to receive the same.
5.6 CODE AND OTHER REMEDIES. If an Event of Default shall occur and be
continuing, the Lender may exercise, in addition to all other rights and
remedies granted to them in this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the New York UCC or any other applicable law.
Without limiting the generality of the foregoing, the Lender, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon the
Grantor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker's board or office of
the Lender or elsewhere upon such terms and conditions as it may deem advisable
and at such prices as it may deem best, for cash or on credit or for future
delivery without assumption of any credit risk. The Lender shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in the Grantor,
which right or equity is hereby waived and released. The Grantor further agrees,
at the Lender's request, to assemble the Collateral and make it available to the
Lender at places which the Lender shall reasonably select, whether at the
Grantor's premises or elsewhere. The Lender shall apply the net proceeds of any
action taken by it pursuant to this Section 5.6, after deducting all reasonable
costs and expenses of every kind incurred in connection therewith or incidental
to the care or safekeeping of any of the Collateral or in any way relating to
the Collateral or the rights of the Lender hereunder, including, without
limitation,
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16
reasonable attorneys' fees and disbursements, to the payment in whole or in part
of the Obligations, in such order as the Lender may elect, and only after such
application and after the payment by the Lender of any other amount required by
any provision of law, including, without limitation, Section 9-504(1)(c) of the
New York UCC, need the Lender account for the surplus, if any, to the Grantor.
To the extent permitted by applicable law, the Grantor waives all claims,
damages and demands it may acquire against the Lender arising out of the
exercise by them of any rights hereunder. If any notice of a proposed sale or
other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least 10 days before such sale or other
disposition.
5.7 REGISTRATION RIGHTS. (a) If the Lender shall determine to exercise
its right to sell any or all of the Pledged Stock pursuant to Section 5.6, and
if in the opinion of the Lender it is necessary or advisable to have the Pledged
Stock, or that portion thereof to be sold, registered under the provisions of
the Securities Act, to the extent that the Grantor holds a registration right
enabling it to do so, the Grantor will cause the Issuer thereof to (i) execute
and deliver, and cause the directors and officers of such Issuer to execute and
deliver, all such instruments and documents, and do or cause to be done all such
other acts as may be, in the opinion of the Lender, necessary or advisable to
register the Pledged Stock, or that portion thereof to be sold, under the
provisions of the Securities Act, (ii) use its best efforts to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering of
the Pledged Stock, or that portion thereof to be sold, and (iii) make all
amendments thereto and/or to the related prospectus which, in the opinion of the
Lender, are necessary or advisable, all in conformity with the requirements of
the Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto. To the extent that the Grantor holds a
registration right enabling it to do so, the Grantor agrees to cause such Issuer
to comply with the provisions of the securities or "Blue Sky" laws of any and
all jurisdictions which the Lender shall designate and to make available to its
security holders, as soon as practicable, an earnings statement (which need not
be audited) which will satisfy the provisions of Section 11(a) of the Securities
Act.
(b) The Grantor recognizes that the Lender may be unable to
effect a public sale of any or all the Pledged Stock, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. The
Grantor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Lender shall
be under no obligation to delay a sale of any of the Pledged Stock for the
period of time necessary to permit the Issuer thereof to register such
securities for public sale
<PAGE>
17
under the Securities Act, or under applicable state securities laws, even if
such Issuer would agree to do so.
(c) The Grantor agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Pledged Stock pursuant to this Section 5.7 valid and
binding and in compliance with any and all other applicable Requirements of Law.
The Grantor further agrees that a breach of any of the covenants contained in
this Section 5.7 will cause irreparable injury to the Lender, that the Lender
have no adequate remedy at law in respect of such breach and, as a consequence,
that each and every covenant contained in this Section 5.7 shall be specifically
enforceable against the Grantor, and the Grantor hereby waives and agrees not to
assert any defenses against an action for specific performance of such covenants
except for a defense that no Event of Default has occurred under the Credit
Agreement.
5.8 WAIVER; DEFICIENCY. To the fullest extent permitted by applicable
law, the Grantor waives and agrees not to assert any rights or privileges which
it may acquire under Section 9-112 of the New York UCC. The Grantor shall remain
liable for any deficiency if the proceeds of any sale or other disposition of
the Collateral are insufficient to pay its Obligations and the reasonable fees
and disbursements of any attorneys employed by the Lender to collect such
deficiency.
SECTION 6.
THE LENDER
6.1 LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT, ETC. (a) The Grantor
hereby irrevocably constitutes and appoints the Lender and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Grantor and in the name of the Grantor or in its own name, for the
purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement, and,
without limiting the generality of the foregoing, the Grantor hereby gives the
Lender the power and right, on behalf of the Grantor, without notice to or
assent by the Grantor, to do any or all of the following:
(i) in the name of the Grantor or its own name, or otherwise,
take possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under
any Receivable or Contract or with respect to any other Collateral and
file any claim or take any other action or proceeding in any court of
law or equity or otherwise deemed appropriate by the Lender for the
purpose of collecting any and all such moneys due under any Receivable
or Contract or with respect to any other Collateral whenever payable;
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18
(ii) in the case of any Intellectual Property, execute and
deliver, and have recorded, any and all agreements, instruments,
documents and papers as the Lender may request to evidence its security
interest in such Intellectual Property and the goodwill and general
intangibles of the Grantor relating thereto or represented thereby;
(iii) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any insurance
called for by the terms of this Agreement and pay all or any part of
the premiums therefor and the costs thereof;
(iv) execute, in connection with any sale provided for in
Section 5.6 or 5.7, any indorsements, assignments or other instruments
of conveyance or transfer with respect to the Collateral; and
(v) direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Lender or as the Lender shall direct; (vi)
ask or demand for, collect, and receive payment of and receipt for, any
and all moneys, claims and other amounts due or to become due at any
time in respect of or arising out of any Collateral; (vii) sign and
indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of
the Collateral; (viii) commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction
to collect the Collateral or any portion thereof and to enforce any
other right in respect of any Collateral; (ix) defend any suit, action
or proceeding brought against the Grantor with respect to any
Collateral; (x) settle, compromise or adjust any such suit, action or
proceeding and, in connection therewith, give such discharges or
releases as the Lender may deem appropriate; (xi) assign any Copyright,
Patent or Trademark (along with the goodwill of the business to which
any such Copyright, Patent or Trademark pertains), throughout the world
for such term or terms, on such conditions, and in such manner, as the
Lender shall in its sole discretion determine; and (xii) generally,
sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as
though the Lender were the absolute owner thereof for all purposes, and
do, at the Lender's option and the Grantor's expense, at any time, or
from time to time, all acts and things which the Lender deems necessary
to protect, preserve or realize upon the Collateral and the Lender's
security interests therein and to effect the intent of this Agreement,
all as fully and effectively as the Grantor might do.
Anything in this Section 6.1(a) to the contrary notwithstanding, the
Lender agrees that it will not exercise any rights under the power of attorney
provided for in this Section 6.1(a) unless an Event of Default shall have
occurred and be continuing.
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19
(b) If the Grantor fails to perform or comply with any of its
agreements contained herein, the Lender, at its option, but without any
obligation so to do, may perform or comply, or otherwise cause performance or
compliance, with such agreement.
(c) The expenses of the Lender incurred in connection with
actions undertaken as provided in this Section 6.1, together with interest
thereon at a rate per annum equal to 9.5% from the date of payment by the Lender
to the date reimbursed by the relevant Grantor, shall be payable by the Grantor
to the Lender on demand.
(d) The Grantor hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof. All powers, authorizations and
agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security interests
created hereby are released.
6.2 DUTY OF LENDER. To the fullest extent permitted by applicable law,
the Lender's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the New
York UCC or otherwise, shall be to deal with it in the same manner as the Lender
deals with similar property for its own account. Neither the Lender nor any of
its officers, directors, employees or agents shall be liable for failure to
demand, collect or realize upon any of the Collateral or for any delay in doing
so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of the Grantor or any other Person or to take any
other action whatsoever with regard to the Collateral or any part thereof. The
powers conferred on the Lender hereunder are solely to protect the Lender's
interests in the Collateral and shall not impose any duty upon the Lender to
exercise any such powers. The Lender shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers, and neither the
Lender nor any of its officers, directors, employees or agents shall be
responsible to the Grantor for any act or failure to act hereunder, except for
their own gross negligence or willful misconduct.
6.3 EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the
New York UCC and any other applicable law, the Grantor authorizes the Lender to
file or record financing statements and other filing or recording documents or
instruments with respect to the Collateral without the signature of the Grantor
in such form and in such offices as the Lender reasonably determines appropriate
to perfect the security interests of the Lender under this Agreement. A
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement or other filing or recording document or instrument for
filing or recording in any jurisdiction.
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20
SECTION 7.
MISCELLANEOUS
7.1 AMENDMENTS IN WRITING. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except by a
written instrument executed by each affected Grantor and the Lender, PROVIDED
that any provision of this Agreement imposing obligations on the Grantor may be
waived by the Lender in a written instrument executed by the Lender.
7.2 NOTICES. All notices, requests and demands to or upon the Lender or
the Grantor hereunder shall be effected in the manner provided for in subsection
7.2 of the Credit Agreement.
7.3 NO WAIVER BY COURSE OF CONDUCT; CUMULATIVE REMEDIES. The Lender
shall not by any act (except by a written instrument pursuant to Section 7.1),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Default or Event of Default. No
failure to exercise, nor any delay in exercising, on the part of the Lender, any
right, power or privilege hereunder shall operate as a waiver thereof. No single
or partial exercise of any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. A waiver by the Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the Lender
would otherwise have on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any other rights or remedies provided by law.
7.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
successors and assigns of the Grantor and shall inure to the benefit of the
Lender and its successors and assigns; PROVIDED that the Grantor may not assign,
transfer or delegate any of its rights or obligations under this Agreement
without the prior written consent of the Lender.
7.5 COUNTERPARTS. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
7.6 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
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21
7.7 SECTION HEADINGS. The Section headings used in this Agreement are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
7.8 INTEGRATION. This Agreement and the other Loan Documents represent
the agreement of the Grantor and the Lender with respect to the subject matter
hereof and thereof, and there are no promises, undertakings, representations or
warranties by the Grantor or the Lender relative to subject matter hereof and
thereof not expressly set forth or referred to herein or in the other Loan
Documents.
7.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
7.10 SUBMISSION TO JURISDICTION; WAIVERS. The Grantor hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the Courts of the State of
New York, the courts of the United States of America for the Southern District
of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to the
Grantor at its address referred to in Section 7.2 or at such other address of
which the Lender shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding referred
to in this Section any special, exemplary, punitive or consequential damages.
<PAGE>
22
7.11 ACKNOWLEDGMENTS. The Grantor hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents to which
it is a party;
(b) the Lender does not have any fiduciary relationship with
or duty to the Grantor arising out of or in connection with this Agreement or
any of the other Loan Documents, and the relationship between the Grantor, on
the one hand, and the Lender, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions contemplated hereby
by the Lender or between the Grantor and the Lender.
7.12 WAIVER OF JURY TRIAL. THE GRANTOR AND THE LENDER EACH HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
7.13 RELEASES. (a) At such time as the Loans and the other Obligations
shall have been paid in full, the Commitment has been terminated, the Collateral
shall be released from the Liens created hereby, and this Agreement and all
obligations (other than those expressly stated to survive such termination) of
the Lender and the Grantor hereunder shall terminate, all without delivery of
any instrument or performance of any act by any party, and all rights to the
Collateral shall revert to the Grantor. At the request and sole expense of the
Grantor following any such termination, the Lender shall deliver to the Grantor
any Collateral held by the Lender hereunder, and execute and deliver to the
Grantor such documents as the Grantor shall reasonably request to evidence such
termination.
(b) If any of the Collateral shall be sold, transferred or
otherwise disposed of by the Grantor in a transaction permitted by the Credit
Agreement, then the Lender, at the request and sole expense of the Grantor,
shall execute and deliver to the Grantor all releases or other documents
reasonably necessary or desirable for the release of the Liens created hereby on
such Collateral.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
23
IN WITNESS WHEREOF, each of the undersigned has caused this Collateral
Agreement to be duly executed and delivered as of the date first above written.
STYLECLICK.COM INC.
By: /s/ Barry Hall
--------------------------------------
Title: Chief Financial Officer
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
SS.:
COUNTY OF LOS ANGELES)
On this 24th day of January, 2000, before me personally came Barry
Hall, who being by me duly sworn, did depose and say that he is the CFO of
Styleclick.com, Inc., the Corporation described in and which executed the
foregoing instrument; and that he signed his name thereto by order of the Board
of Directors of said corporation as the act and deed of said corporation.
/s/ Brian L. Luce
--------------------------------------
Notary Public
Comm. #1247992
<PAGE>
SCHEDULE 1
DESCRIPTION OF PLEDGED SECURITIES
PLEDGED STOCK:
<TABLE>
<CAPTION>
No. of
Issuer Class of Stock Stock Certificate No. Shares
- ----------------------------------------- -------------------- --------------------------- -----------------
<S> <C> <C> <C>
NONE
</TABLE>
PLEDGED NOTES:
<TABLE>
<CAPTION>
Issuer Payee Principal Amount
- -------------------------------------------------- ------------------------ ---------------------------------
<S> <C> <C>
NONE
</TABLE>
<PAGE>
2
SCHEDULE 2
FILINGS AND OTHER ACTIONS
REQUIRED TO PERFECT SECURITY INTERESTS
Uniform Commercial Code Filings
-------------------------------
Secretary of State of California
Secretary of State of New York New York County
Secretary of State of North Carolina Guilford County
Patent and Trademark Filings
----------------------------
Filing in PTO for Patents and Trademarks
Filing in Copyright Office for Copyrights
Actions with Respect to Pledged Stock
-------------------------------------
None
Other Actions
-------------
None
<PAGE>
SCHEDULE 3
LOCATION OF INVENTORY AND EQUIPMENT
Locations
---------
1. 3861 Sepulveda Boulevard, Culver City, CA 90230
2. 2136 Lotner Avenue, Los Angeles, CA 3. 4180 Mendenhall Oaks Parkway,
Suite 120, High Point, NC 27265
4. 358 Fifth Avenue, New York, NY 10001
<PAGE>
SCHEDULE 4
COPYRIGHTS AND COPYRIGHT LICENSES
See Attachment A
PATENTS AND PATENT LICENSES
See Attachment B
TRADEMARKS AND TRADEMARK LICENSES
See Attachment C
<PAGE>
Exhibit 10.9
CONFORMED COPY
NOTE
$10,000,000 New York, New York
January 24, 2000
FOR VALUE RECEIVED, the undersigned, STYLECLICK.COM INC., a California
corporation (the "BORROWER"), hereby unconditionally promises to pay to the
order of USA NETWORKS, INC. (the "LENDER") at the office of Lender, located at
Carnegie Hall Tower, 152 West 57th Street, York, New York 10019, in lawful money
of the United States of America and in immediately available funds, the
principal amount of TEN MILLION DOLLARS ($10,000,000), or, if less, the unpaid
principal amount of the Loan made by the Lender pursuant to subsection 2.1 of
the Credit Agreement, as hereinafter defined. The principal amount shall be paid
in the amounts and on the dates specified in subsection 2.3 of the Credit
Agreement. The Borrower further agrees to pay interest in like money at such
office on the unpaid principal amount hereof from time to time outstanding at
the rates and on the dates specified in subsections 2.3 and 2.5 of such Credit
Agreement.
The holder of this Note is authorized to endorse on the schedule
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date and amount of each advance of
the Loan and the date and amount of each payment or prepayment of principal with
respect thereto. Each such endorsement shall constitute PRIMA FACIE evidence of
the accuracy of the information endorsed. The failure to make any such
endorsement shall not affect the obligations of the Borrower in respect of such
advance of the Loan.
This Note (a) is the Note referred to in the Credit Agreement dated as
of January 24, 2000 (as amended, supplemented or otherwise modified from time to
time, the "CREDIT AGREEMENT"), between the Borrower and the Lender, (b) is
subject to the provisions of the Credit Agreement and (c) is subject to optional
and mandatory prepayment in whole or in part as provided in the Credit
Agreement. This Note is secured as provided in the Loan Documents. Reference is
hereby made to the Loan Documents for a description of the nature and extent of
the security, the terms and conditions upon which the security interests were
granted and the rights of the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
<PAGE>
2
All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
STYLECLICK.COM INC.
By: /s/ Barry Hall
-----------------------------------
Name: Barry Hall
--------------------------------
Title: Chief Financial Officer
--------------------------------
<PAGE>
Schedule
ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of Principal Unpaid Principal Notation Made
Date Amount of Loans Prepaid Balance of Loans By
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 21.1
Following completion of the proposed mergers, Styleclick, Inc. will have two,
wholly-owned subsidiaries:
Internet Shopping Network LLC, a Delaware limited liability company
Styleclick.com Inc., a California corporation.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and in the
headnote under "Old Styleclick Selected Historical Financial Data" in the
Registration Statement (Form S-4 No. 33-00000) and related Proxy
Statement/Prospectus of Styleclick, Inc. for the registration of 7,980,000
shares of its common stock and to the inclusion of our report dated
February 21, 2000, with respect to the financial statements and schedule of
Styleclick.com Inc. for the year ended December 31, 1999, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Los Angeles, California
March 24, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement of Styleclick,
Inc. on Form S-4 of our report, dated March 16, 1999 (except for Note 11, as to
which the date is May 19, 1999), relating to the financial statements of
Styleclick.com Inc. (formerly ModaCAD, Inc.). We also consent to the reference
to our Firm under the caption "Experts" in the prospectus, which is part of this
Registration Statement.
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
- -------------------------------------------------------
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
March 22, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
headnote under "ISN Selected Historical Financial Data" in the Registration
Statement (Form S-4) and related Proxy Statement/Prospectus of Styleclick, Inc.
for the registration of 7,980,000 shares of its common stock and to the
inclusion of our report dated March 2, 2000, with respect to the financial
statements and schedule of Internet Shopping Network LLC as of December 31, 1999
and 1998 and for each of the three years in the period ended December 31, 1999,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
New York, New York
March 22, 2000
<PAGE>
EXHIBIT 23.4
LETTERHEAD OF COUDERT BROTHERS
March 23, 2000
Styleclick.com Inc.
3861 Sepulveda Boulevard
Culver City, California 90230
Re: Styleclick Inc.--Form S-4 Registration Statement
Ladies and Gentlemen:
We have acted as counsel for Styleclick.com Inc., a California corporation
("Old Styleclick"), in connection with the above-referenced registration
statement filed by Styleclick, Inc. ("New Styleclick") with the Securities and
Exchange Commission (the "Registration Statement") with respect to the shares of
Class A common stock, par value $0.01 per share, of New Styleclick proposed to
be issued in connection with the Amended and Restated Agreement and Plan of
Merger dated as of March 21, 2000 (the "Merger Agreement") entered into by and
among Old Styleclick, Internet Shopping Network LLC ("ISN") and USANi Sub LLC,
pursuant to which a subsidiary of New Styleclick will be merged with and into
Old Styleclick (the "Old Styleclick Merger") and a subsidiary of New Styleclick
will be merged with and into ISN.
In connection with the Merger Agreement, we have delivered our opinion as to
the U.S. Federal income tax consequences of the Old Styleclick Merger. We hereby
consent to the filing of such opinion as an exhibit to the Registration
Statement and to the references to Coudert Brothers under the captions "THE
PROPOSED TRANSACTIONS--Material Federal Income Tax Consequences" and "EXPERTS"
in the Proxy Statement/Prospectus which forms a part of the Registration
Statement.
Very truly yours,
/s/ Coudert Brothers
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9
<SECURITIES> 0
<RECEIVABLES> 679
<ALLOWANCES> 42
<INVENTORY> 11,319
<CURRENT-ASSETS> 12,920
<PP&E> 15,121
<DEPRECIATION> 6,020
<TOTAL-ASSETS> 28,121
<CURRENT-LIABILITIES> 11,941
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,180
<TOTAL-LIABILITY-AND-EQUITY> 28,121
<SALES> 24,690
<TOTAL-REVENUES> 24,690
<CGS> 23,845
<TOTAL-COSTS> 23,845
<OTHER-EXPENSES> 43,336
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,494)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,395,991
<SECURITIES> 0
<RECEIVABLES> 799,862
<ALLOWANCES> 242,229
<INVENTORY> 0
<CURRENT-ASSETS> 5,089,518
<PP&E> 2,600,458
<DEPRECIATION> 1,823,850
<TOTAL-ASSETS> 15,046,916
<CURRENT-LIABILITIES> 1,975,446
<BONDS> 0
0
0
<COMMON> 43,216,747
<OTHER-SE> 30,145,277
<TOTAL-LIABILITY-AND-EQUITY> 13,071,470
<SALES> 6,173,924
<TOTAL-REVENUES> 6,173,924
<CGS> 667,701
<TOTAL-COSTS> 667,701
<OTHER-EXPENSES> 21,663,216
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,879,341)
<EPS-BASIC> (2.24)
<EPS-DILUTED> (2.24)
</TABLE>
<PAGE>
EXHIBIT 99.3
INTERNET SHOPPING NETWORK LLC
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
DEDUCTIONS/
BALANCE AT CHARGES TO CHARGES BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
OF PERIOD EXPENSES ACCOUNTS(1) PERIOD
---------- ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1999................. $41 $100 $ (99) $42
========== ========== ============ ==========
Year ended December 31, 1998................. $10 $ 49 $ (18) $41
========== ========== ============ ==========
Year ended December 31, 1997(2).............. $22 $458 $(470) $10
========== ========== ============ ==========
</TABLE>
- -------------
(1) Write-off fully reserved accounts receivable.
(2) Write-off uncollectible amounts related to Computer Superstore.
<PAGE>
EXHIBIT 99.4
STYLECLICK.COM INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
- ----------- ---------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts....................... $132,500 $ 60,00 -- $(49,729)(1) $242,229
======== ======== ======== ======== ========
Balance at December 31, 1998
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts....................... $ 81,500 $917,438 -- $866,438 (1) $132,500
======== ======== ======== ======== ========
Balance at December 31, 1997
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts....................... $112,141 $ 52,000 -- $ 82,641 (1) $ 81,500
======== ======== ======== ======== ========
</TABLE>
- ------------------------
(1) Uncollectible accounts written off, net of recoveries.
