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The following is an excerpt from a DEF 14A SEC Filing, filed by RYKA INC on 11/12/1997.
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GSI COMMERCE INC - DEF 14A - 19971112 - PROPOSAL_2

PROPOSAL TWO

AMENDMENT AND RESTATEMENT OF THE
CERTIFICATE OF INCORPORATION

Overview

At the RYKA Annual Meeting, the stockholders will vote upon a proposal to approve and adopt an Amended and Restated Certificate of Incorporation of RYKA which, effective immediately prior to the consummation of the Reorganization, would: (i) effect a 1-for-20 Reverse Stock Split in which each twenty shares of issued Common Stock of RYKA, par value $0.01 per share, whether issued and outstanding or held in treasury, will be reclassified and changed into one share of new Common Stock of RYKA, par value $0.20 per share, (ii) reclassify the par value of each share of Common Stock from $0.20 per share to $0.01 per share,
(iii) decrease the number of shares of Common Stock which RYKA has authority to issue from 90,000,000 to 20,000,000 shares, and (iv) change the name of RYKA to Global Sports, Inc. Upon such amendment and restatement of RYKA's Certificate of Incorporation, RYKA will have the authority to issue 20,000,000 shares of Common Stock, par value $0.01 per share, 1,000,000 shares of Preferred Stock, par value $0.01 per share, of which 3,318,352 shares of Common Stock will be issued and outstanding and no shares will be held in treasury.

THE BOARD OF DIRECTORS OF RYKA BELIEVES THAT THE AMENDMENT AND RESTATEMENT OF RYKA'S CERTIFICATE OF INCORPORATION IS ADVISABLE AND IN THE BEST INTERESTS OF RYKA AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT ITS STOCKHOLDERS VOTE FOR APPROVAL OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.

A copy of the Amended and Restated Certificate of Incorporation of RYKA is attached to this Proxy Statement as Appendix "A" and is incorporated herein by reference.

Stockholder approval of this proposal is required under Delaware Law. Approval of the amendment and restatement of RYKA's Certificate of Incorporation requires the affirmative vote of the holders of a majority of the outstanding shares of Common Stock. If the stockholders do not approve this proposal, then the Certificate of Incorporation will remain the same, and the Reorganization will not be consummated.

Reverse Stock Split

General. If the stockholders approve the Amended and Restated Certificate of Incorporation, the Amended and Restated Certificate of Incorporation will be filed with the Secretary of State of the State of Delaware on such date as may be selected by RYKA's Board of Directors. The Reverse Stock Split will become effective on the date of such filing (the "Split Effective Date"). On the Split Effective Date, stockholders of RYKA who own twenty or more shares on such date will be deemed to own one new share for every twenty shares owned, and a fractional new share interest equivalent to one-twentieth of a new share for each additional share owned less than a multiple of twenty shares. Stockholders owning less than twenty shares on the Split Effective Date will be deemed to own a fractional new share interest consisting of one-twentieth new share for each share owned immediately prior to the Split Effective Date. No fractional shares of Common Stock will be issued as a result of the Reverse Stock Split but a cash payment in lieu thereof will be paid as described below. Consequently, on the Split Effective Date, each stockholder will cease to have an equity interest in RYKA with respect to any fractional new share interest, but such

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stockholder will have the nontransferable right to receive a cash payment in an amount equal to such fraction multiplied by the arithmetic average of the average of bid and asked prices for a share of Common Stock during the 20 trading days after the Split Effective Date. THEREFORE, STOCKHOLDERS WHO OWN LESS THAN TWENTY SHARES ON THE SPLIT EFFECTIVE DATE WILL CEASE TO HAVE ANY EQUITY INTEREST WHATSOEVER IN RYKA UPON CONSUMMATION OF THE REVERSE STOCK SPLIT.

Although RYKA's Board of Directors believes that the Reverse Stock Split is advisable, the Reverse Stock Split may be abandoned by the Board of Directors at any time before, during or after the Annual Meeting and prior to the Split Effective Date, without further action by the stockholders of RYKA. In addition, depending upon prevailing market conditions, the Board of Directors may deem it advisable to implement the Reverse Stock Split and concurrently declare a Common Stock dividend in an amount to be determined, which Common Stock dividend would not require stockholder approval. Any such Common Stock dividend would partially offset the decrease in the number of issued and outstanding shares of new Common Stock resulting from the one-for-twenty Reverse Stock Split. No such Common Stock dividend is presently contemplated.

Stockholders of RYKA have no appraisal rights under Delaware law or under RYKA's Certificate of Incorporation or Bylaws in connection with the Reverse Stock Split.

Reasons for the Reverse Stock Split Proposal. The Board of Directors of RYKA believes that the relatively low market price of the Common Stock may impair the acceptability of the Common Stock to certain institutional investors and other members of the investing public. Theoretically, the number of shares outstanding should not, by itself, affect the marketability of the Common Stock, the type of investor who acquires it, or a company's reputation in the financial community. In practice, however, this is not necessarily the case, as certain investors view low-priced stocks as unattractive and certain brokerage firms, as a matter of policy, will not extend margin credit on stocks trading at low prices, although certain other investors may be attracted to low-priced stocks because of the greater trading volatility sometimes associated with such securities. Many brokerage firms are reluctant to recommend lower-priced stocks to their clients or to hold them in their own portfolios. Further, a variety of brokerage firm policies and practices discourage individual brokers within those firms from dealing in low-priced stocks because of the time-consuming procedures that make the handling of low-priced stocks economically unattractive.

Since the broker's commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current share price of the Common Stock can result in individual stockholders paying transaction costs (commissions, markups or markdowns) which are a higher percentage of their total share value than would be the case if the share price was substantially higher. This factor is also believed to limit the willingness of institutions to purchase the Common Stock at its current relatively low market price. If approved, the Reverse Stock Split will result in some stockholders owning "odd-lots" of less than 100 shares of Common Stock. Brokerage commissions and other costs of transactions in odd-lots may be higher, particularly on a per-share basis, than the cost of transactions in lots of 100 shares or more.

As a result of the delisting of RYKA's Common Stock from the NASDAQ Small Cap Market in 1996 (See "MARKET PRICE DATA FOR RYKA"), RYKA's Common Stock is subject to Rule 15g-9 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which imposes additional sales practice requirements for broker-dealers which sell such securities to persons other than established customers and accredited investors as defined in Regulation D under the Securities Act. For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. Consequently, such rule may

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adversely affect the ability of broker-dealers to sell RYKA's Common Stock and may adversely affect the ability of persons acquiring shares in this offering to sell any of the shares acquired in the secondary market.

The Securities and Exchange Commission (the "Commission") regulations define a "penny stock" as any equity security not registered on a national securities exchange or for which quotation information is not disseminated on NASDAQ and has a market price (as therein defined) of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Accordingly, RYKA's Common Stock is deemed to be a penny stock under such regulations. For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to a transaction in a penny stock, of a disclosure schedule prepared by the Commission relating to the penny stock market. Disclosure is also required to be made about commissions payable to both the broker-dealer and registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

The foregoing required penny stock restrictions will not apply to RYKA's Common Stock if such securities are included for quotation on NASDAQ and have certain price and volume information provided on a current and continuing basis or meet certain minimum net tangible assets or average revenue criteria. RYKA anticipates that the Reverse Stock Split will increase the price of RYKA's Common Stock above its current levels. RYKA also contemplates the inclusion of its Common Stock for quotation on NASDAQ following the Reorganization. These steps may qualify RYKA's Common Stock for exemption from the penny stock restrictions; however, there can be no assurance RYKA's Common Stock will so qualify.

In addition, the Board of Directors believes that the decrease in the number of shares of Common Stock outstanding as a consequence of the proposed Reverse Stock Split and the resulting anticipated increased price level will encourage greater interest in the Common Stock by the financial community and the investing public and possibly promote greater liquidity for RYKA's stockholders, although it is possible that such liquidity could be affected adversely by the reduced number of shares outstanding after the Reverse Stock Split. Although any increase in the market price of the new Common Stock resulting from the Reverse Stock Split may be proportionately less than the decrease in the number of shares outstanding, the proposed Reverse Stock Split could result in a market price for the shares that would be high enough to overcome the reluctance, policies and practices of brokerage firms and investors referred to above and to diminish the adverse impact of correspondingly higher trading commissions for the shares.

There can be no assurance, however, that the foregoing hoped-for effects will occur following the Reverse Stock Split, that the market price of the new Common Stock immediately after implementation the proposed Reverse Stock Split will be maintained for any period of time, that such market price will approximate twenty times the market price before the proposed Reverse Stock Split, or that such market price will exceed or remain in excess of the current market price.

Approval of the Reverse Stock Split itself will not affect any stockholder's percentage ownership interest in RYKA or proportional voting power, except for minor differences resulting from the sale of fractional shares. The Reverse Stock Split should not reduce significantly the number of stockholders of RYKA. The shares of Common Stock which will be issued upon approval of the Reverse Stock Split will be fully paid and non-assessable. The voting rights and other privileges of the holders of Common Stock will not be affected substantially by adoption of the Reverse Stock Split or the subsequent implementation thereof. If for any reason the Board of Directors deems it advisable to do so, the Reverse Stock Split may be abandoned by the Board of Directors at any time before, during or after the Annual Meeting and prior to the Split Effective Date, without further action by the stockholders of RYKA. In addition, the effect of

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the Reverse Stock Split may be partially offset if the Board of Directors elects to declare a Common Stock dividend as described above.

Federal Income Tax Consequences. THE FOLLOWING DESCRIPTION OF THE FEDERAL
INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT HAS BEEN PREPARED BY COUNSEL TO RYKA AND IS BASED ON CERTAIN REPRESENTATIONS BY RYKA AND UPON CERTAIN ASSUMPTIONS BY SUCH COUNSEL. THIS DESCRIPTION IS INCLUDED SOLELY FOR THE GENERAL INFORMATION OF STOCKHOLDERS. THE TAX CONSEQUENCES FOR ANY PARTICULAR STOCKHOLDER MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN AND STOCKHOLDERS SHOULD CONSULT THEIR PERSONAL TAX ADVISERS IN DETERMINING THE TAX CONSEQUENCES (INCLUDING FEDERAL, STATE AND LOCAL TAXES, IF ANY) TO THEM ARISING FROM THE REVERSE STOCK SPLIT. THERE WILL BE NO ADVERSE TAX CONSEQUENCES TO RYKA AS A RESULT OF THE REVERSE STOCK SPLIT.

A stockholder who owns less than twenty shares of RYKA Common Stock and, therefore, receives only cash pursuant to the Reverse Stock Split and who does not thereafter, actually or constructively, own any new shares will recognize a capital gain or loss, provided such stockholder held the shares as capital assets. Such capital gain or loss will be equal to the difference between the cash received and the stockholder's basis for the shares surrendered and will be long-term capital gain or loss if the shares have been held by such stockholder for more than one year.

A stockholder who receives only new shares pursuant to the Reverse Stock Split will not recognize any gain or loss as a result of the split. Such stockholder will have the same aggregate tax basis in new shares as the stockholder had in shares held before the exchange. Such stockholder also will include in holding periods of new shares the holding periods in the shares exchanged therefor, assuming the shares exchanged for the new shares are held as capital assets on the Split Effective Date.

A stockholder who receives new shares and cash will recognize a gain, if any, in an amount equal to the lesser of (i) the excess of the sum of the cash and the fair market value of the new shares received over the stockholder's basis for his old shares, or (ii) the amount of cash received. No loss will be recognized. Section 302 of the Internal Revenue Code of 1986, as amended (the "Code") and the regulations promulgated thereunder, will determine whether the gain, if any, resulting from the cash payment for fractional new share interests will be treated as capital gain or as a dividend. Due to the complex nature of
Section 302 of the Code and the differing circumstances of each of the stockholders, RYKA is unable to determine whether any particular stockholder would be required to report the cash distribution as capital gain or as a dividend (or otherwise). Each stockholder, therefore, should consult such stockholder's tax adviser regarding the application of Section 302 of the Code to the stockholder's particular situation. If the cash distribution has the effect of the distribution of a dividend, then so much of the gain recognized as is not in excess of the stockholder's ratable share of RYKA's accumulated earnings and profits would be taxed as a dividend at ordinary income rates and the remainder of the gain recognized would be treated as capital gain (provided the shares have been held as capital assets). If the cash distribution does not have the effect of the distribution of a dividend, then the entire gain, if any, recognized by a stockholder will be short-term or long-term capital gain, assuming such stockholder's shares have been held as capital assets. The aggregate tax basis in new shares will be the same as the aggregate tax basis in the shares exchanged therefor, decreased by the cash received and increased by the amount of any gain recognized. The holding periods in new shares will include the holding periods in the shares exchanged therefor, assuming the shares exchanged for new shares were held as capital assets on the Split Effective Date.

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Exchange of Certificates; Fractional Share Interest; Escheat. On the Split Effective Date, each certificate representing existing shares of Common Stock will automatically be deemed for all purposes to evidence ownership of the appropriate reduced number of new shares of Common Stock and/or the right to receive payment for the appropriate fractional new share interest without any action by the stockholder thereof. As soon as practicable after the Split Effective Date, stockholders will be notified and requested to surrender their certificates for their existing shares with instructions as to how to receive new certificates and/or payment for their fractional new share interest. No certificates should be surrendered until such notice is received. Certificates for existing shares will be exchanged for certificates representing new shares and any cash to which transmitting stockholders are entitled after the Reverse Stock Split. American Securities Transfer, Incorporated will act as the exchange agent for stockholders in effecting the exchange of their certificates and the payment for fractional new share interests.

RYKA presently expects to take no further action to solicit stockholders who are entitled to cash for fractional new share interests but who do not surrender their certificates after the mailing. No interest will accrue or be paid on such cash. Under state escheat laws, any cash for fractional new share interests not claimed by the stockholder entitled to such cash may escheat to, and be claimed by, various states.

Reclassification of Par Value

As a result of the Reverse Stock Split, the par value of the Common Stock was increased from $0.01 per share to $0.20 per share. The Board of Directors has determined that it is in the best interest of RYKA and its stockholders to reclassify the new shares of Common Stock to reduce its par value from $0.20 to $0.01 per share.

Reduction of Authorized Shares of Common Stock

Under RYKA's Certificate of Incorporation, RYKA currently is authorized to issue up to 90,000,000 shares of Common Stock. As of the Split Effective Date, after taking into account the Reverse Stock Split and the Reorganization, RYKA will have issued and reserved for issuance 8,613,055 shares of RYKA's Common Stock (assuming approval of Proposals Three and Four discussed below). Therefore, the number of shares that RYKA currently has authorized is far in excess of the number of shares RYKA may need for the foreseeable future. The Board of Directors approved an amendment to RYKA's Certificate of Incorporation that decreases the maximum number of authorized shares by 70,000,000 to a total of 20,000,000 shares, subject to approval by the stockholders of RYKA.

Change of Name

In connection with the Reorganization, RYKA will change its name to Global Sports, Inc. to reflect the fact that, after the Reorganization, RYKA will become a holding company, and the assets and operations of RYKA will be owned and conducted by a newly created subsidiary which will be named RYKA.

THE BOARD OF DIRECTORS OF RYKA UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"

PROPOSAL TWO.

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