On December 16, 2013, Viggle Inc. (the “Company”), and Viggle Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with wetpaint.com, Inc., a Delaware corporation (“Wetpaint”), certain stockholders of Wetpaint (solely with respect to Articles 1, 5 and 6 and Subsection 11.1) and Shareholder Representative Services LLC, a Colorado limited liability company (solely in its capacity as the Stockholders’ Agent).
The Merger Agreement and the transactions contemplated thereby were approved by the board of directors of each of the Company, Merger Sub and Wetpaint. Within twenty four hours following the execution and delivery of the Merger Agreement, Wetpaint delivered to the Company and Merger Sub the irrevocable written consent (the “Written Consent”) of certain of the holders of Wetpaint common stock (the “Wetpaint Common Stock”) and Wetpaint preferred stock (the “Wetpaint Preferred Stock” and, collectively with the Wetpaint Common Stock, the “Wetpaint Capital Stock”) adopting and approving the Merger Agreement and the transactions contemplated thereby. Following receipt of the Written Consent, upon the terms set forth in the Merger Agreement, Merger Sub merged with and into Wetpaint (the “Merger”), with Wetpaint continuing as the surviving corporation and a wholly-owned subsidiary of the Company. The Merger is intended to qualify as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended.
In connection with the Merger, all outstanding shares of Wetpaint Capital Stock were converted into the right to receive an aggregate amount of cash and shares of the Company’s Common Stock (the “Stock Consideration”) payable as described below. Following the effective time of the Merger, (i) $1,133,500 in cash (subject to certain adjustments for payment of certain transaction expenses by the Company and bonus and premium payments to certain Wetpaint employees and stockholders) and $18,016,667 in shares of the Company’s Common Stock (subject to certain adjustments as described below) have been or are in the process of being promptly delivered to the holders of Wetpaint Capital Stock in accordance with the allocation set forth in the Merger Agreement, and (ii) $3,750,000 in shares of the Company’s Common Stock (the “Escrow Shares”) were delivered to an escrow agent to satisfy potential indemnification claims. On the earlier of a date within three business days following the date that the Company completes a public offering of its capital stock in which it raises at least $20,000,000 in net cash proceeds (a “Subsequent Offering”) and February 15, 2014, an aggregate amount of $3,366,500 in cash (subject to certain adjustments for changes in Wetpaint’s net working capital, payment of certain transaction expenses by the Company and bonus and premium payments to certain Wetpaint employees and stockholders) shall be delivered to the holders of Wetpaint Capital Stock in accordance with the allocation set forth in the Merger Agreement.
| CUSIP No. 92672V | SCHEDULE 13D/A | Page 4 of 6 Pages |
Pursuant to the terms of the Merger Agreement, if the Company completes a Recapitalization (as defined in the Merger Agreement) on or prior to the earlier of the date that the Company completes a Subsequent Offering and December 31, 2015, the Stock Consideration shall be adjusted such that (i) if upon giving effect to such Recapitalization, the shares constituting the Stock Consideration (including the Escrow Shares) collectively represent less than 13.17% of the total outstanding shares of the Company’s Common Stock on a fully-diluted basis (subject to certain adjustments set forth in the Merger Agreement), the Company will issue to the Company’s stockholders that are former stockholders of Wetpaint (the “Wetpaint/Viggle Holders”) such additional number of shares of the Company’s Common Stock as is necessary such that the shares constituting the Stock Consideration (including the Escrow Shares), as so adjusted, represent 13.17% of the total outstanding shares of the Company’s Common Stock on a fully-diluted basis (subject to certain adjustments set forth in the Merger Agreement) as of such time, and (ii) if upon giving effect to such Recapitalization, the shares constituting the Stock Consideration (including the Escrow Shares) collectively represent greater than 17.55% of the total outstanding shares of the Company’s Common Stock on a fully-diluted basis (subject to certain adjustments set forth in the Merger Agreement), then the Company will cancel such number of shares of the Company’s Common Stock constituting the Stock Consideration (including the Escrow Shares) as is necessary such that the Stock Consideration (including the Escrow Shares), as so adjusted, collectively represent 17.55% of the total outstanding shares of the Company’s Common Stock on a fully-diluted basis (subject to certain adjustments set forth in the Merger Agreement) as of such time.
A copy of the Merger Agreement is filed as Exhibit 2.1 on the Company’s Current Report on Form 8-K filed with the SEC on December 16, 2013, and is incorporated herein by reference. The foregoing description of the Merger Agreement is qualified in its entirety by reference to the full text of the Merger Agreement filed with such Current Report on Form 8-K.
Pursuant to the Merger Agreement, the Company entered into a nomination agreement, effective at the closing of the Merger, with certain Wetpaint/Viggle Holders (the “Nomination Agreement”), pursuant to which the Wetpaint/Viggle Holders party thereto were granted certain rights with respect to nominating a member of the board of directors of the Company or selecting a representative to attend all meetings of the board of directors of the Company in a nonvoting observer capacity.
Also pursuant to the Merger Agreement, certain Wetpaint/Viggle Holders entered into a stockholders agreement, effective at the closing of the Merger, with the Reporting Person and the Company (the “Stockholders Agreement”). Pursuant to the terms of the Stockholders Agreement, those Wetpaint/Viggle Holders appointed Mr. Sillerman as their proxy and granted him a power of attorney to vote their respective shares of the Company’s Common Stock and any other Company securities in his sole discretion. That proxy will expire on the first to occur of the Company’s completion of a Recapitalization (as defined in the Merger Agreement) and December 31, 2015.
Additionally, the Stockholders Agreement granted certain Wetpaint/Viggle Holders “pre-emptive” rights to purchase a pro rata portion of any equity securities or convertible securities that the Company sells for the purposes of raising new capital (subject to certain exceptions set forth in the Stockholders Agreement) during the period that the proxy is in effect.
As a result of the proxy granted pursuant to the Stockholders Agreement, the Reporting Person has the sole power to vote the shares of the Wetpaint/Viggle Holders with respect to any proposal submitted for the approval of the Company’s stockholders. The following Wetpaint/Viggle Holders (along with their representative with regard to the Escrow Shares) signed the Stockholders Agreement, and have thus granted the proxy described above over such number and percentage of the Company’s Common Stock as set forth next to their respective names below:
Accel IX L.P. – 6,670,199 shares or 5.7% of the Company’s Common Stock
Accel IX Strategic Partners L.P. – 710,009 shares or 0.6% of the Company’s Common Stock
Accel Investors 2007 L.L.C. – 715,675 shares or 0.6% of the Company’s Common Stock
Trinity Ventures VIII, L.P. – 5,644,605 shares or 4.8% of the Company’s Common Stock
Trinity VIII Side-by-Side Fund, L.P. – 331,849 shares or 0.3% of the Company’s Common Stock
Trinity VIII Entrepreneurs’ Fund, L.P. – 103,972 shares or 0.1% of the Company’s Common Stock
Frazier Technology Ventures II, LP – 6,080,427 shares or 5.2% of the Company’s Common Stock
DAG Ventures III-QP, L.P. – 9,043,693 shares or 7.7% of the Company’s Common Stock
DAG Ventures III, L.P. – 850,689 shares or 0.7% of the Company’s Common Stock
DAG Ventures GP Fund III, LLC – 8,912 shares or less than 0.1%% of the Company’s Common Stock
DAG Ventures III-A, LLC – 900,303 shares or 0.8% of the Company’s Common Stock
Shareholder Representative Services LLC – 7,455,268 shares or 6.3% of the Company’s Common Stock
Shareholder Representative Services LLC serves as a representative of the Wetpaint/Viggle Holders for the Escrow Shares, and thus has no pecuniary interest in the shares it holds. In addition, the Company is in the process of distributing documents to the remainder of the Wetpaint/Viggle Holders instructing them on how to exchange their Wetpaint shares for the Company’s shares. In accordance with the terms of the Merger Agreement, it is a condition of their receipt of the Stock Consideration that they shall have entered into the Stockholders Agreement. Accordingly, when all Wetpaint/Viggle Holders have exchanged their shares, it is anticipated that 49,701,789 shares will have been issued, and the Wetpaint/Viggle Holders will all have granted the proxy set forth in the Stockholders Agreement. Accordingly, for purposes of this Schedule 13D, the reporting Person has claimed the power to vote all 49,701,789 (the “Wetpaint/Viggle Shares”) of such shares.
Pursuant to the Merger Agreement, Viggle also entered into a registration rights agreement, effective at the closing of the Merger, with certain Wetpaint/Viggle Holders, pursuant to which the Company granted piggy-back registration rights to the Wetpaint/Viggle Holders party thereto for a specified period following the date that is six months following the date on which the Company completes a Subsequent Offering.
Also pursuant to the Merger Agreement, the Company entered into a “lockup agreement,” effective at the closing of the Merger, with certain Wetpaint/Viggle Holders (the “Lockup Agreement”), pursuant to which the Wetpaint/Viggle Holders party thereto are prohibited from selling shares of the Company’s Common Stock until the date that is six months following the date on which the Company completes a Subsequent Offering.
The Reporting Person intends to enter into discussions with the Company regarding the Recapitalization.
