<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 22, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CITYSEARCH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 7375 95-4546874
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR ----------------
ORGANIZATION)
CITYSEARCH, INC.
790 E. COLORADO BOULEVARD, SUITE 200
PASADENA, CA 91101
(626) 405-0050
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
CHARLES CONN
CHIEF EXECUTIVE OFFICER
CITYSEARCH, INC.
790 E. COLORADO BOULEVARD, SUITE 200
PASADENA, CA 91101
(626) 405-0050
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
LARRY W. SONSINI GLEN R. VAN LIGTEN
JOHN T. SHERIDAN CRAIG E. SHERMAN
NAN H. KIM ADAM J. ROSENBERG
WILSON SONSINI GOODRICH & ROSATI VENTURE LAW GROUP
PROFESSIONAL CORPORATION A PROFESSIONAL CORPORATION
650 PAGE MILL ROAD 2800 SAND HILL ROAD
PALO ALTO, CA 94304 MENLO PARK, CA 94025
(650) 493-9300 (650) 854-4488
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
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. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================
PROPOSED MAXIMUM
TITLE OF EACH PROPOSED MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. $ $50,000,000 $14,750
=====================================================================================
</TABLE>
(1)Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2)Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) promulgated under the Securities
Act of 1933, as amended.
----------------
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, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED JUNE 22, 1998
SHARES
[LOGO OF CITYSEARCH.COM APPEARS HERE]
COMMON STOCK
All of the shares of Common Stock offered hereby are being offered by
CitySearch, Inc. ("CitySearch" or the "Company"). Prior to this offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price per share will be between $
and $ per share. See "Underwriting" for a discussion of factors to be
considered in determining the initial public offering price. USA Networks,
Inc., an existing stockholder of the Company that owns 11.8% of the Company
prior to this offering (on a fully diluted, as-converted basis), has the right
to purchase that number of shares of this offering that will enable USA
Networks to own up to 14.9% of the Company after this offering (on a fully
diluted, as converted basis), subject to certain limitations. See "Certain
Transactions" and "Underwriting." Application has been made to have the Common
Stock approved for listing on the Nasdaq National Market under the symbol
"CTYS".
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
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<S> <C> <C> <C>
Per Share..................................... $ $ $
Total(3)...................................... $ $ $
</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company estimated at
$ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
Price to Public will total $ , the Underwriting Discount will total $
and the Proceeds to Company will total $ . See "Underwriting."
The shares of Common Stock are offered by the Underwriters named herein,
subject to receipt and acceptance by them, and subject to their right to reject
any order in whole or in part. It is expected that delivery of the certificates
representing said shares will be made against payment therefor at the office of
NationsBanc Montgomery Securities LLC on or about , 1998.
-----------
NationsBanc Montgomery Securities LLC
BancAmerica Robertson Stephens
Donaldson, Lufkin & Jenrette
Securities Corporation
, 1998
<PAGE>
[ARTWORK]
The inside cover will contain four images consisting of screen shots from the
Company's city guide web sites. An image of the Company's home page
(www.citysearch.com) primarily containing a map of the U.S. will appear in the
upper left corner. An arrow will point from the area of the map indicating the
location of Toronto, Ontario to an image in the upper right area of the page
containing a screen shot from the home page of the Toronto city guide web site
(www.starcitysearch.com). Another arrow will lead from the area of the U.S.
map indicating the location of Raleigh/Durham/Chapel Hill to an image in the
lower right area of the page containing a screen shot from the home page of
the Raleigh/Durham/Chapel Hill city guide web site (www.citysearch11.com). A
third arrow will lead from the area of the U.S. map indicating the location of
San Francisco to an image in the lower left area of the page containing a
screen shot from the home page of the San Francisco city guide web site
(www.citysearch7.com).
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE PURCHASE OF THE
COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
The CitySearch logo is a registered United States trademark of the Company.
"CitySearch" is a registered United States trademark of a third party, and the
Company is the exclusive third party licensee of this trademark in its field
of use. See "Risk Factors--Uncertain Protection of Intellectual Property;
Risks of Third Party Licenses." This Prospectus also contains trademarks and
tradenames of other companies.
2
<PAGE>
The page will be divided by a vertical line roughly two-thirds of the distance
across the page. The left area of the page will contain four screen shots from
the Company's web site. The first screen shot depicts a home page from one of
the Company's city guides. The second screen shot depicts an "arts and
entertainment" topic page indicating a search for "jazz" events in the search
box. The third screen shot depicts an event description created by the Company
describing a jazz event. The fourth screen shot depicts the Web site of a
business customer that hosts jazz events. The right column of the page will
describe the content available on each of the four pages, e.g., "The home page
indicates the content areas within the site, and contains the branding of
CitySearch and its local market media partners."
<PAGE>
The page will contain three boxes. The first box will contain the names and/or
logos of the Company's licensees, including washingtonpost.com, Los Angeles
Times, the Toronto Star, The Melbourne Age, Big Colour Pages, The Sydney
Morning Herald, The Dallas Morning News, Schibsted ASA, Scandinavia Online and
The Baltimore Sun. The second box will contain names and/or logos of the
Company's marketing partners, including American Express, Earthlink, Internet
Travel Network, Guess?, WebTV Networks, Inc. etc. The third box will contain
names and/or logos of the Company's local market media partners organized by
the city in which the service is available, including KGO-TV, WTVD, other
television stations and radio stations owned by CBS, Citadel Communications
Corp., Clear Channel, and others who consent to use of their trademarks.
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information, including "Risk Factors" and
Financial Statements and Notes thereto, appearing elsewhere in this Prospectus.
The discussion in this Prospectus includes forward-looking statements. The
outcome of the events described in said forward-looking statements is subject
to risks and uncertainties. The Company's actual results may differ materially
from those discussed in such forward-looking statements. Factors that may cause
or contribute to such differences include those discussed in sections entitled
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," as well as those discussed elsewhere
in this Prospectus. Except as otherwise specified, all information in this
Prospectus reflects (i) the conversion of each outstanding share of Preferred
Stock into Common Stock upon completion of this offering and (ii) no exercise
of the Underwriters' over-allotment option.
THE COMPANY
CitySearch produces and delivers comprehensive local city guides on the World
Wide Web (the "Web"), providing up-to-date information regarding arts and
entertainment events, community activities, recreation, businesses, shopping,
professional services and news/sports/weather to consumers in metropolitan
areas. Each local city guide primarily consists of original content developed
and designed specifically for the Web by the Company and its partners. The
Company designs and produces custom-built Web sites and related services for
local and regional businesses, aggregates them in a local city guide
environment and provides business customers the ability to regularly update and
expand the sites. This service offers local and regional businesses the
opportunity to reach and interact with targeted consumers. The Company builds
its city sites with the involvement of local government, community and
volunteer associations, business and professional groups, educational
institutions and local media companies. In addition, content generated by
consumers through e-mail and bulletin boards, available in most sites, enhances
the sense of community in CitySearch sites.
CitySearch and its partners create comprehensive locally-focused content
within a database that enables targeted, sophisticated searches across all
content residing on a CitySearch site. In contrast, many search engines and
navigational guides access pre-existing content from third party Web sites that
may be incomplete or out of date. In its owned and operated markets, CitySearch
offers a broad array of updated, local content that is relevant to consumers.
In certain markets, CitySearch provides local media companies with the
necessary technology and business expertise for its partners to design, launch
and operate a co-branded CitySearch site. The Company's city guides have
received numerous awards and recognition for design, functionality and content
including PC Magazine's Editor's Choice, USA Today/Intelliquest's survey
leader, the 1998 Webby award for best travel site, recognition by the New York
Times as best overall online guide to New York City, How Magazine's Design
Award and Net Guide's Platinum "Best of the Web" Award.
CitySearch launched its initial site in the Raleigh-Durham-Chapel Hill
metropolitan area in May 1996. The Company and its partners have since launched
additional local city guides in Austin, Los Angeles, Nashville, New York City,
Portland, Salt Lake City/Utah, the San Francisco Bay Area and Washington, D.C.
in the U.S., and in Melbourne, Sydney and Toronto internationally. The Company
plans to expand its service to additional national and international markets
both by leveraging the standardized roll-out model it has developed through
previous city launches and by partnering with major media companies in certain
cities. The Company has, for instance, partnered with The Baltimore Sun, The
Dallas Morning News, the Los Angeles Times, The Washington Post, The Melbourne
Age, Schibsted ASA/Scandinavia Online, The Sydney Morning Herald and the
Toronto Star. These major media partners bring capital, brand recognition,
promotional strength and local knowledge to their CitySearch sites and allow
the Company to build out its national and international network of sites faster
than it could solely through owned and operated sites.
The Company was organized under the laws of Delaware in September 1995. The
Company's principal executive offices are located at 790 E. Colorado Boulevard,
Suite 200, Pasadena, California 91101, and its telephone number at that address
is (626) 405-0500.
3
<PAGE>
THE OFFERING
Common Stock offered................ shares
Common Stock to be outstanding shares(1)
after this offering.................
Use of proceeds..................... The Company intends to use the net
proceeds of this offering for general
corporate purposes, including working
capital, capital expenditures relating to
the CitySearch site (such as enhancements
to the Company's server and networking
infrastructure) and expansion of its
sales and marketing capabilities. See
"Use of Proceeds."
Proposed Nasdaq symbol.............. CTYS
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS
SEPTEMBER 20, 1995 YEAR ENDED ENDED
(DATE OF FORMATION) DECEMBER 31, MARCH 31,
TO DECEMBER 31, ---------------- --------------
1995 1996 1997 1997 1998
------------------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Subscription and
services.............. $ -- $ 203 $ 4,913 $ 470 $2,563
Licensing and royalty.. -- -- 1,271 -- 528
------- ------- ------- ------ ------
Total revenues....... -- 203 6,184 470 3,091
Loss from operations.... (313) (14,112) (36,741) (9,165) (8,150)
Net loss................ (308) (13,897) (36,526) (9,081) (7,977)
Historical basic and
diluted net loss per
share(2)............... $ (0.04) $ (1.58) $ (3.86) $(0.97) $(0.82)
Pro forma basic and
diluted net loss per
share(2)............... $ (0.04) $ (1.10) $ (1.96) $(0.54) $(0.33)
Shares used in computing
historical basic and
diluted historical net
loss per share(2)...... 7,894 8,785 9,451 9,407 9,777
Shares used in computing
pro forma basic and
diluted net loss per
share (2).............. 8,460 12,647 18,666 16,889 23,932
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------
ACTUAL AS ADJUSTED (3)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $16,455 $
Working capital....................................... 11,658
Total assets.......................................... 23,724
Long-term obligations, less current portion........... 2,758
Redeemable Convertible Preferred Stock................ 70,882
Total stockholders' equity (deficit).................. (55,795)
</TABLE>
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(1) Based on shares outstanding as of March 31, 1998. Does not include (i)
2,287,101 shares of Common Stock issuable upon exercise of options
outstanding at March 31, 1998 at a weighted average price of $1.10 per
share under the Company's 1996 Stock Option Plan, (ii) 479,739 shares of
Common Stock available for future grant or issuance under the Company's
1996 Stock Option Plan and (iii) 93,305 shares of Common Stock issuable
upon exercise of an outstanding warrant at an exercise price of $8.84 per
share held by NationsBanc Montgomery Securities LLC. See "Capitalization,"
"Management--Employee Benefit Plans," "Underwriting" and Note 7 of Notes to
Consolidated Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used to compute basic and
diluted pro forma and historical net loss per share.
(3) Adjusted to reflect (i) the sale and issuance of the shares of Common
Stock offered hereby at an assumed initial public offering price of $ per
share and after deducting the underwriting discount and estimated offering
expenses and (ii) the conversion of all outstanding shares of Preferred
Stock into Common Stock upon the closing of this offering. See
"Capitalization."
4
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. In addition to the other
information set forth in this Prospectus, the following risk factors should be
considered carefully in evaluating the Company and its business before
purchasing any of the shares of Common Stock of the Company. This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all forward-looking statements wherever
they appear in this Prospectus. The Company's actual results could differ
materially from the results discussed in this Prospectus. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere in this Prospectus.
LIMITED OPERATING HISTORY
The Company was incorporated in September 1995 and launched its initial
local city guide service in the Raleigh-Durham-Chapel Hill metropolitan area
in May 1996. Accordingly, the Company has an extremely limited operating
history upon which an evaluation of the Company and its prospects can be
based. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies in new and rapidly evolving
markets such as the Company's. Such risks include, but are not limited to, an
evolving and unpredictable business model, management of growth, the Company's
ability to anticipate and adapt to a developing market, acceptance by Internet
users and business customers of the Company's local city guide concept and the
ability of the Company to enter into relationships with additional media
partners. To address these risks, the Company must, among other things,
attract and retain an audience of frequent users of its service in its target
markets, maintain its customer base and attract a significant number of new
business customers in its target markets, respond to competitive developments,
continue to form and maintain relationships with media partners, continue to
attract, retain and motivate qualified persons, provide superior customer
service, and continue to develop and upgrade its technologies and
commercialize its services incorporating such technologies. There can be no
assurance that the Company will be successful in addressing such risks, and a
failure to do so could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ANTICIPATED CONTINUED OPERATING LOSSES
The Company incurred net losses of $308,000, $13.9 million and $36.5 million
for the period from September 20, 1995 (date of formation) to December 31,
1995, and the years ended December 31, 1996 and 1997, respectively, and $8.0
million for the three months ended March 31, 1998. At March 31, 1998, the
Company had an accumulated deficit of $58.7 million. The Company believes that
its future profitability and success will depend in large part on, among other
things, its ability to generate sufficient revenues from sales of business Web
sites to businesses and the licensing of its technology and business systems
to partners setting up CitySearch services in partner-led markets, its ability
to effectively maintain existing relationships with its media partners and its
ability to successfully enter into new strategic relationships for
distribution and increased usage of its offerings. Accordingly, the Company
intends to expend significant financial and management resources on the roll-
out of its service in new owned and operated and partner-led markets, site and
content development, strategic relationships, technology and operating
infrastructure. As a result, the Company expects to incur significant
additional losses and continued negative cash flow from operations for the
foreseeable future. There can be no assurance that the Company's revenues will
increase or even continue at their current levels or that the Company will
achieve or maintain profitability or generate cash from operations in future
periods. In view of the rapidly evolving nature of the Company's business and
its limited operating history, the Company believes that period-to-period
comparisons of its operating results are not meaningful and should not be
relied upon as an indication of future performance. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
5
<PAGE>
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company requires substantial working capital to fund its business and
expects to use a significant portion of the net proceeds of this offering to
fund its operating losses. Since inception, the Company has experienced
negative cash flow from operations and expects to continue to experience
significant negative cash flow from operations for the foreseeable future. The
Company currently believes that its existing capital resources, combined with
the net proceeds of this offering, will be sufficient to meet its presently
anticipated cash requirements through at least the next 12 months. Thereafter,
the Company may be required to raise additional funds. No assurance can be
given that the Company will not be required to raise additional financing
prior to such time. If additional funds are raised through the issuance of
equity securities, stockholders of the Company may experience significant
dilution. Furthermore, there can be no assurance that additional financing
will be available when needed or that if available, such financing will
include terms favorable to the Company or its stockholders. If such financing
is not available when required or is not available on acceptable terms, the
Company may be unable to develop or enhance its services, take advantage of
business opportunities or respond to competitive pressures, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
UNPREDICTABILITY OF FUTURE REVENUES; FLUCTUATIONS IN OPERATING RESULTS
As a result of the Company's limited operating history and the emerging
nature of the local city guide market in which the Company competes, the
Company is unable to accurately forecast its revenues. The Company's current
and future expense levels are based predominantly on its operating plans and
estimates of future revenues and are to a large extent fixed. The Company's
business model, particularly in its owned and operated markets, requires
significant staffing to develop content and to create and maintain
relationships with small and medium size businesses. The Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues would likely
have an immediate material adverse effect on the Company's business, financial
condition and results of operations. Further, the Company currently intends to
increase its operating expenses to roll out its service in new markets, to
fund increased sales and marketing and customer service operations and to
further develop its technology infrastructure. To the extent such expenses
precede or are not subsequently followed by increased revenues, the Company's
operating results will fluctuate and net anticipated losses in a given quarter
may be greater than expected.
The Company expects to experience significant fluctuations in its future
operating results due to a variety of factors, many of which are outside of
the Company's control. Factors that may adversely affect the Company's
operating results include, but are not limited to, the ability of its partners
to meet roll-out schedules for the Company's city guide service, the timing
and amount of license and royalty payments from the Company's partners, the
Company's ability to retain existing business customers, attract new business
customers at a steady rate and maintain customer satisfaction, the timing and
volume of new business Web site orders and the Company's capacity to meet such
orders, the Company's ability to maintain or increase current rates of sales
productivity, the announcement or introduction of new or enhanced sites and
services by the Company or its competitors, the amount of traffic on the
Company's online sites, the amount of expenditures for online advertising by
businesses, the level of use of online services and consumer acceptance of the
Internet for services such as those offered by the Company, the Company's
ability to upgrade and develop its systems and attract personnel in a timely
and effective manner, the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business and
infrastructure, technical difficulties, system downtime or Internet brownouts,
political or economic events affecting the cities in which the Company
operates and general economic conditions. Unfavorable changes in any of the
above factors could adversely affect the Company's revenues, gross margins and
results of operations in future periods. Accordingly, the Company believes
that period-to-period comparisons of its results of operations should not be
relied upon as an indication of future performance. In addition, the results
of any quarterly period are not indicative of results to be expected for a
full fiscal year. Finally, as a result of the foregoing factors, the Company's
annual or quarterly results of
6
<PAGE>
operations may be below the expectations of public market analysts or
investors, in which case the market price of the Common Stock could be
materially and adversely affected. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
NEW AND UNCERTAIN MARKET; UNPROVEN MARKET ACCEPTANCE
The markets for the Company's service have only recently begun to develop,
are rapidly evolving and are characterized by a number of entrants that have
introduced or plan to introduce online city guides. As is typical in the case
of a new and rapidly evolving industry, demand and market acceptance for
recently introduced services are subject to a high level of uncertainty and
risk. Because the markets for the Company's services are new and evolving, it
is difficult to predict the size and future growth rate, if any, of these
markets. There can be no assurance that the markets for the Company's services
will develop or that demand for the Company's services will emerge or become
economically sustainable. In particular, the success of the Company's city
guide service will depend on the willingness of local businesses to pay for
custom business Web sites developed by the Company and to retain the service,
which in turn may depend on the popularity of the guides to consumers and on
the actual or perceived revenues attributable to the Company's services. If
such businesses are unwilling to pay for the Company's service or retain the
service, if the markets for the Company's service otherwise fail to develop or
develop more slowly than anticipated, or if business customer turnover rates
are higher than projected by the Company, the Company's business, financial
condition and results of operations will be materially and adversely affected.
In addition, the turnover rate of business customers using the Company's
service has been higher than the Company anticipated in some of its initial
markets and there can be no assurance that such turnover rates would be at
levels which would not in the future materially and adversely affect the
Company's business, financial condition and results of operations.
RELIANCE ON STRATEGIC RELATIONSHIPS IN PARTNER-LED MARKETS
An important element of the Company's current business strategy is to enter
into agreements with local media companies to establish and support city
guides. The Company has entered into, and intends to enter into agreements
with media companies in the future to address opportunities in certain
markets. In these markets, the Company develops and designs a city guide for
local media companies and licenses certain intellectual property to such
companies in exchange for certain up-front and continuing license payments and
royalty payments. These royalty payments are based on the amount of revenues
generated by such companies through the partner-led city guides. The Company
currently anticipates that royalty payments from such agreements will
constitute a significant portion of its revenues in future periods.
Accordingly, the Company's success will depend in large part upon the ability
of its partners to timely launch city guides in the Company's partner-led
markets and the extent to which these partners are able to generate revenue
through their city guides. Under the terms of the Company's agreements with
its media company partners, the Company has very limited control over the
amount of time and financial resources that a partner devotes to the launch of
a city guide or over the day-to-day operations and management of the city
guide, including the marketing and sale of business Web sites to potential
business customers. For example, one of the Company's partners did not launch
its city guide in accordance with the Company's initial expectations, thereby
delaying revenues subject to royalty payments payable to the Company. There
can be no assurance that the Company's partners that are in the process of
developing new city guides or the Company's future partners will launch their
sites in a timely manner, or at all, or that if launched, such sites will
generate revenues consistent with the Company's expectations. There also can
be no assurance that the Company will successfully enter into partnerships
with media companies in additional cities. Furthermore, due to the Company's
limited experience with partner-led city guides, the Company is unable to
accurately forecast its revenues to be derived from these agreements with such
partners. In addition, certain of the Company's agreements with its media
company partners may be terminated for non-performance or material breach. Any
failure by one of the Company's proposed partner-led city guides to launch in
a timely manner or by one of the Company's existing partner-led city guides to
generate sufficient revenues, or a failure by the Company to enter into or to
renew agreements with media company partners on terms favorable to the
Company, or early termination of certain existing agreements could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Strategic Alliances."
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DEPENDENCE ON SALES PERSONNEL
The Company currently derives and, for the foreseeable future, intends to
derive a substantial portion of its revenues from sales of business Web sites
to local businesses in markets in which the Company owns and operates city
guides. The Company depends on its direct sales force to sell business Web
sites in cities in these markets. The creation of new revenue from the
Company's city guide service and its roll-out in additional cities requires
the services of a highly trained sales force working directly for the Company.
Accordingly, a shortage in the number of trained salespeople could limit the
Company's ability to sell business Web sites as it rolls out its service in
new cities or to maintain or increase its number of business customers in
cities in which the Company already operates. The Company has in the past and
expects in the future to experience a high rate of turnover in its direct
sales force. There can be no assurance that such turnover will not increase in
the future or otherwise have a material adverse effect on the usage of the
Company's services, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
UNCERTAIN ACCEPTANCE AND MAINTENANCE OF CITYSEARCH BRAND
The Company believes that establishing and maintaining the CitySearch brand
is critical to its efforts to attract consumers and business customers to its
sites and that the importance of brand recognition will increase due to the
growing number of Internet sites and relatively low barriers to entry to
providing Internet content. Promotion of the CitySearch brand will depend
largely on the success of the Company and its media company partners in
providing high quality Internet content. Under the terms of its agreements
with its media company partners, the Company has very limited control over the
content provided on the partners' sites. If consumers and business customers
do not perceive the content of the Company's or its partners' existing sites
to be of high quality, the Company will be unsuccessful in promoting and
maintaining its brand. Furthermore, not all of the Company's partners promote
the CitySearch brand on their services with a high level of prominence. Other
than links to the Company's city sites, the Company has not entered into a
significant distribution relationship with any major online search or
navigation company. In order to attract and retain consumers and business
customers, and to promote the CitySearch brand in response to competitive
pressures, the Company may find it necessary to increase its budget for
content or otherwise to increase substantially its financial commitment to
creating and maintaining a distinct brand loyalty among consumers and business
customers. If either the Company or its media company partners are unable to
provide high quality content or otherwise fail to promote and maintain the
CitySearch brand, or if the Company incurs excessive expenses in an attempt to
improve its content or promote and maintain its brand, the Company's business,
financial condition and results of operations will be materially and adversely
affected. The Company has also entered into a large number of marketing
agreements with local television, radio and other entities to promote its
brand and increase usage of the city sites. There can be no assurance that
such relationships will be successful or continue in the future on terms
acceptable to the Company.
RISKS ASSOCIATED WITH ROLL-OUT OF CITYSEARCH SERVICE
The Company's future success will depend to a significant extent on the
Company's ability, on its own and with partners, to rapidly roll out its local
city guide service in additional cities in the United States and
internationally. As of June 1, 1998, the Company had launched its local city
guide service in 12 metropolitan areas and intends to expand its service in
additional cities in the U.S. and internationally. There can be no assurance
that the Company will be able to launch its service in additional markets in a
cost-effective or timely manner or in accordance with its planned schedule, or
that any newly launched service will achieve market acceptance. Any new
service that is not favorably received by local businesses or consumers could
damage the Company's reputation or the CitySearch brand. Launching the
CitySearch service will also require significant additional expenses and will
strain the Company's management, financial and operational resources. In
particular, the launch of the CitySearch service in additional cities will
require the Company to expand and upgrade its technology infrastructure and
business systems, including its enterprise management system (i.e., an
integrated set of software tools and business processes for sales force
management, Web site production, customer service and billing) and its
business Web site production system. The Company is in the process of
launching a new version of the back office software underlying its CitySearch
service. There can be no assurance that this new version will function as
intended, and any failure of the Company's software could have a material
adverse effect on the Company's business, financial condition and results of
operations. Moreover, the strain
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placed on the Company's resources by simultaneous launches in multiple cities
may adversely affect the roll-out schedule or quality of the service in a
particular city. The Company's failure to launch its service in new markets in
a timely and cost effective manner in accordance with its planned schedule or
the lack of market acceptance of new services will have a material adverse
effect on the Company's business, financial condition and results of
operations.
COMPETITION
The markets for local interactive content and services are highly
competitive. Currently, the Company's primary competitors include Digital
City, Inc., a company wholly owned by America Online, Inc. and Tribune
Company, Microsoft Corporation (Sidewalk) and Zip2 Corporation. The Company
also competes against search engine and other site aggregation companies such
as Excite, Inc. (City.Net), Lycos, Inc. (Lycos City Guide) and Yahoo! Inc.
(Yahoo! Local) which primarily serve to aggregate links to sites providing
local content. In addition, the Company competes against offerings from media
companies, including Cox Interactive Media and Knight-Ridder, Inc., as well as
offerings from several telecommunications and cable companies and Internet
service providers that provide local interactive programming such as SBC
Communications Inc. (At Hand) and U.S. West, Inc. (Dive-In). Many of these
companies have greater financial and marketing resources than the Company and
may have significant competitive advantages through other lines of business
and existing business relationships. There are also numerous niche competitors
which focus on a specific category or geography and compete with specific
content offerings provided by CitySearch. The Company may also compete with
online services and other Web site operators, as well as traditional media
such as television, radio and print for a share of advertisers' total
advertising budgets. Furthermore, additional major media and other companies
with financial and other resources greater than those of the Company may
introduce new Internet products and services addressing these markets in the
future. There can be no assurance that the Company's competitors will not
develop services that are superior to those of the Company or that achieve
greater market acceptance than the Company's offerings.
The Company believes that the principal competitive factors in its markets
include depth, quality and comprehensiveness of content, ease of use,
distribution, search capability and brand recognition. There can be no
assurance that the Company will be able to successfully compete against its
current or future competitors or that competition will not have a material
adverse effect on the Company's business, financial condition and results of
operations. Furthermore, as a strategic response to changes in the competitive
environment, the Company may make certain pricing, service or marketing
decisions or enter into acquisitions or new ventures that could have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISKS ASSOCIATED WITH OFFERING NEW SERVICES
The Company plans to introduce new and expanded services in order to
generate additional revenues, attract more consumers and respond to
competition. For example, the Company recently introduced business Web sites
containing new and enhanced functionality for its business customers. The
Company also may in the future offer services facilitating the purchase of
goods by consumers from the Company's business customers. There can be no
assurance that the Company will be able to offer any new services in a cost-
effective or timely manner or that any such efforts would be successful.
Furthermore, any new service launched by the Company that is not favorably
received by consumers could damage the Company's reputation or its brand name.
Expansion of the Company's services in this manner would also require
significant additional expenses and development and may strain the Company's
management, financial and operational resources. The Company's inability to
generate revenues from such expanded services sufficient to offset their cost
could have a material adverse effect on the Company's business, financial
condition and results of operations.
MANAGEMENT GROWTH; RISKS ASSOCIATED WITH EXPANSION
The Company's business has grown rapidly in recent periods. The growth of
the Company's business and expansion of its business customer base have placed
a significant strain on the Company's management and operations. The Company's
expansion has resulted, and is expected in the future to result, in growth in
the
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number of its employees; in the establishment of offices in disparate regions
of the country and in increased responsibility for both existing and new
management personnel and to put additional pressure on the Company's existing
operational, financial and management information systems. The Company's
success depends to a significant extent on the ability of its executive
officers and other members of senior management, none of whom has any prior
executive management experience in public companies, to operate effectively,
both independently and as a group. To manage its growth, the Company must
continue to implement and improve its operational, financial and management
systems and hire and train additional qualified personnel, including sales and
marketing staff. There can be no assurance that the Company will be able to
manage its recent or any future expansions successfully, and any failure of
the Company to do so could have a material adverse effect on the Company's
business, financial condition and results of operations. There also can be no
assurance that the Company will be able to sustain the rate of expansion that
it has experienced in the past. See "Management--Executive Officers and
Directors."
DEPENDENCE UPON KEY PERSONNEL; NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of its executive management team, including Charles Conn, the
Company's co-founder and Chief Executive Officer, and Thomas Layton, the
Company's President and Chief Operating Officer. The loss of the services of
Mr. Conn or Mr. Layton or other members of the Company's management team could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company's success will also depend upon the
continued service of the other members of its senior management team and its
technical, marketing and sales personnel. The Company's employees, including
its senior officers, may voluntarily terminate their employment with the
Company at any time and competition for qualified employees is intense. The
Company's success also depends upon its ability to attract and retain
additional highly qualified management, technical and sales and marketing
personnel. The process of locating and hiring such personnel with the
combination of skills and attributes required to carry out the Company's
strategy is often lengthy. The loss of the services of key personnel or the
inability to attract additional qualified personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE UPON CONTINUED CONTENT DEVELOPMENT
The Company's success depends in part upon its ability to deliver compelling
interactive content such as arts and entertainment events, community
activities, businesses and news information in order to attract consumers with
demographic characteristics valuable to the Company's business customers. The
markets for the Company's services are characterized by rapidly changing
technology, emerging industry standards and consumer requirements that are
subject to rapid change and frequent new service introductions. These
characteristics are exacerbated by the emerging nature of the local
interactive content and service market and the expectation that many companies
may introduce new Internet products and services addressing this market in the
near future. There can be no assurance that the Company will be successful in
developing new content and services or enhancing its existing local city guide
service on a timely basis, or that such content and services will effectively
address consumer requirements and achieve market acceptance. If the Company,
for technological or other reasons, is unable to develop and enhance its local
interactive content and service in a manner compatible with emerging industry
standards and that allows it to attract, retain and expand a consumer base
possessing demographic characteristics attractive to business customers, the
Company's business, financial condition and results of operations would be
materially and adversely affected.
DEPENDENCE ON INCREASED USAGE AND STABILITY OF THE INTERNET AND THE WEB
The usage of the Web for services such as those offered by the Company will
depend in significant part on continued rapid growth in the number of
households and commercial, educational and government institutions with access
to the Web, in the level of usage by individuals and in the number and quality
of products and services designed for use on the Web. Because usage of the Web
as a source for information, products and services is a relatively recent
phenomenon, it is difficult to predict whether the number of users drawn to
the Web will continue to increase and whether any significant market for usage
of the Web for such purposes will continue to develop and expand. There can be
no assurance that Internet usage patterns will not decline as the
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novelty of the medium recedes or that the quality of products and services
offered online will improve sufficiently to continue to support user interest.
Failure of the Web to stimulate user interest and be accessible to a broad
audience at moderate costs would jeopardize the markets for the Company's
local city guide service.
Moreover, issues regarding the stability of the Internet's infrastructure
remain unresolved. The rapid rise in the number of Internet users and
increased transmission of audio, video, graphical and other multimedia content
over the Web has placed increasing strains on the Internet's communications
and transmission infrastructures. Continuation of such trends could lead to
significant deterioration in transmission speeds and reliability of the Web
and could reduce the usage of the Web by businesses and individuals. In
addition, to the extent that the Web continues to experience significant
growth in the number of users and level of use without corresponding increases
and improvements in the Internet infrastructure, there can be no assurance
that the Internet will be able to support the demands placed upon it by such
continued growth. Any failure of the Internet to support such increasing
number of users due to inadequate infrastructure or otherwise would seriously
limit the development of the Web as a viable source of local interactive
content and services, which could materially and adversely affect the
acceptance of the Company's services, which would, in turn, materially and
adversely affect the Company's business, financial condition and results of
operations.
SUSCEPTIBILITY TO GENERAL ECONOMIC CONDITIONS
The Company's revenues and results of operations will be subject to
fluctuations based upon the general economic conditions of the United States
and other countries in which its local city guide service is offered. If there
were to be a general economic downturn or a recession in the United States or
any other country in which the Company's service is provided, the Company
expects that business enterprises, including its customers and potential
customers, will substantially and immediately reduce their advertising and
marketing budgets. In the event of such an economic downturn, the Company's
business, financial condition and results of operations could be materially
and adversely affected.
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
A key component of the Company's strategy is to continue to expand its local
city guide service into international markets. The Company anticipates that it
will expend significant financial and management resources to operate overseas
and create localized user interfaces through the launch of additional partner-
led markets. If the revenues generated by these international operations are
insufficient to offset the expense of establishing and maintaining such
operations, the Company's business, financial condition and results of
operations will be materially and adversely affected. To date, the Company has
limited experience in developing localized versions of its online sites and
marketing and distributing its products and services internationally. There
can be no assurance that the Company or its partners will be able to
successfully market or sell its services in these international markets. In
addition to the uncertainty as to the Company's ability to expand its
international presence, there are certain risks inherent in conducting
business on an international level, such as unexpected changes in regulatory
requirements, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, political instability, currency rate
fluctuations, and potentially adverse tax consequences. There can be no
assurance that one or more of the foregoing factors will not have a material
adverse effect on the Company's current and future international operations
and, consequently, on its business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT STOCKHOLDERS
As of June 1, 1998, the directors, executive officers and stockholders
owning 5% of the Company's Common Stock and their respective affiliates in the
aggregate beneficially own approximately 61.1% of the outstanding Common Stock
(on an as converted basis and including shares issuable upon exercise of stock
options to purchase shares of Common Stock which are exercisable within 60
days of June 1, 1998). In addition, USA Networks, Inc., formerly HSN, Inc.
("USA Networks"), which beneficially owns approximately 11.8% of
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the outstanding Common Stock as of June 1, 1998 prior to this offering (in a
fully diluted, as-converted basis), has a right to purchase that number of
shares of this offering that will enable it to own up to 14.9% of the Company
after the offering (on a fully diluted, as-converted basis), subject to
certain limitations. Furthermore, USA Networks has the right to elect a member
of Board of Directors until November 12, 2007, subject to certain limitaitons.
Pursuant to a voting agreement, certain holders of the Company's Preferred
Stock and Common Stock are required to vote all of the Company's voting
securities owned by them to elect to the Board of Directors a designee of the
holders of a majority of the shares of Series C Preferred Stock outstanding
immediately prior to the closing of this offering. As of June 1, 1998,
entities affiliated with Goldman, Sachs & Co. own approximately 79.6% of the
outstanding Series C Preferred Stock. As a result, these stockholders will
possess significant influence over the Company, giving them the ability, among
other things, to elect a majority of the Company's Board of Directors and
approve significant corporate transactions. Such share ownership and control
may also have the effect of delaying or preventing a change in control of the
Company, impeding a merger, consolidation, takeover or other business
combination involving the Company or discourage a potential acquiror from
making a tender offer or otherwise attempting to obtain control of the Company
which could have a material adverse effect on the market price of the
Company's Common Stock. See "Management--Board Composition" and "Certain
Transactions."
CAPACITY CONSTRAINTS AND SYSTEM DISRUPTIONS
The satisfactory performance, reliability and availability of the Company's
city guides and its network infrastructure are critical to attracting Web
users and maintaining relationships with business customers and consumers.
System interruptions that result in the unavailability of the Company's sites
or slower response times for consumers would reduce the number of business Web
sites and advertisements purchased and reduce the attractiveness of the
Company's local city guides to business customers and consumers. The Company
has experienced system interruptions in the past and believes that such
interruptions will continue to occur from time to time in the future.
Additionally, any substantial increase in traffic on the Company's local city
services will require the Company to expand and adapt its network
infrastructure. The Company's inability to add additional software and
hardware to accommodate increased traffic on its local city guides may cause
unanticipated system disruptions and result in slower response times. In
addition, the Company currently depends on a limited number of suppliers for
certain key technologies used to roll out and manage the CitySearch service.
There can be no assurance that the Company will be able to expand its network
infrastructure on a timely basis to meet increased demand or that key
technology suppliers will continue to provide the Company with products and
services that meet the Company's requirements. Any increase in system
interruptions or slower response times resulting from the foregoing factors
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's operations are vulnerable to interruption by fire, earthquake,
power loss, telecommunications failure and other events beyond the Company's
control. Substantially all of the Company's server equipment is currently
located in California in areas that are susceptible to earthquakes. The
Company's business interruption insurance may not be sufficient to compensate
the Company for losses that may occur, and any losses or damages incurred by
the Company could have a material adverse effect on its business, financial
condition and results of operations. See "Business--Technology" and "--
Facilities."
LIABILITY FOR ONLINE CONTENT
The Company may face potential liability for defamation, negligence,
copyright, patent or trademark infringement and other claims based on the
nature and content of the materials that appear on the Company's or its
partners' online sites. Such claims have been brought, and sometimes
successfully pressed, against online services. Although the Company carries
general liability insurance, the Company's insurance may not cover claims of
these types or may not be adequate to indemnify the Company for any liability
that may be imposed. Any imposition of liability, particularly liability that
is not covered by insurance or is in excess of insurance coverage, could have
a material adverse effect on the Company's reputation and its business,
financial condition and results of operations.
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UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY; RISKS OF THIRD PARTY LICENSES
The Company regards its copyrights, service marks, trademarks, trade dress,
trade secrets and similar intellectual property as critical to its success,
and relies on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with the Company's employees,
customers, partners and others to protect its proprietary rights. The Company
pursues the registration of certain of its key trademarks and service marks in
the United States and internationally. Effective trademark, service mark,
copyright and trade secret protection may not be available in every country in
which the Company's products and services are made available online. The
Company has licensed in the past, and expects that it may license in the
future, certain of its proprietary rights, such as trademarks or copyrighted
material, to third parties. In addition, the Company has licensed in the past,
and expects that it may license in the future, certain content, including
trademarks and copyrighted material, from third parties. While the Company
attempts to ensure that the quality of its brand is maintained by such
licensees, there can be no assurance that such licensees will not take actions
that might materially adversely affect the value of the Company's proprietary
rights or reputation, which could have a material adverse effect on the
Company's business, financial condition and results of operations. There can
be no assurance that the steps taken by the Company to protect its proprietary
rights will be adequate or that third parties will not infringe or
misappropriate the Company's copyrights, trademarks, trade dress and similar
proprietary rights. In addition, there can be no assurance that other parties
will not assert infringement claims against the Company. The Company licenses
the trademark "CitySearch" from a third party, and there can be no assurance
that the Company will continue to license the trademark according to terms
acceptable to the Company. The Company may be subject to legal proceedings and
claims from time to time in the ordinary course of its business, including
claims of alleged infringement of the trademarks and other intellectual
property rights of third parties by the Company and its licensees. Such
claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources which could result in a
material adverse effect on the Company's business, financial condition and
results of operations.
RISK ASSOCIATED WITH REGULATORY MATTERS
The Company is subject to regulations applicable to businesses generally and
laws or regulations directly applicable to access to online commerce. Although
there are currently few laws and regulations directly applicable to the
Internet and commercial online services, it is possible that a number of laws
and regulations may be adopted with respect to the Internet or commercial
online services covering issues such as user privacy, pricing, content,
copyrights, distribution, antitrust and characteristics and quality of
products and services. Furthermore, the growth and development of the market
for online commerce may prompt calls for more stringent consumer protection
laws that may impose additional burdens on those companies conducting business
online. The adoption of any additional laws or regulations may decrease the
growth of the Internet or commercial online services, which could, in turn,
decrease the demand for the Company's products and services and increase the
Company's cost of doing business, or otherwise have a material adverse effect
on the Company's business, financial condition and results of operations.
Moreover, the applicability to the Internet and commercial online services
of existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. For example, tax authorities in a number of states
are currently reviewing the appropriate tax treatment of companies engaged in
online commerce, and new state tax regulations may subject the Company to
additional state sales and income taxes. Any such new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to the Company's business, or the application of
existing laws and regulations to the Internet and commercial online services
could have a material adverse effect on the Company's business, financial
condition and results of operations.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
As part of its business strategy, the Company may make acquisitions of, or
significant investments in, complementary companies, products or technologies,
although the Company has no present understandings, commitments or agreements
with respect to any acquisition or investment. Any such future acquisitions
would
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be accompanied by the risks commonly encountered in acquisitions of companies.
Such risks include, among other things, the difficulty of assimilating the
operations and personnel of the acquired companies, the potential disruption
of the Company's ongoing business, the diversion of resources from the
Company's existing businesses, sites and technologies, the inability of
management to maximize the financial and strategic position of the Company
through the successful incorporation of the acquired technology into the
Company's products and services, additional expense associated with
amortization of acquired intangible assets, the maintenance of uniform
standards, controls, procedures and policies and the impairment of
relationships with employees and customers as a result of any integration of
new management personnel. There can be no assurance that the Company would be
successful in overcoming these risks or any other problems encountered with
such acquisitions, and the Company's inability to overcome such risks could
have a material adverse effect on its business, financial condition and
results of operations.
SECURITY RISKS
Although the Company has not in the past experienced attempts by programmers
or "hackers" to penetrate the Company's network security, there can be no
assurance that such actions will not occur in the future. If successful, such
actions could have a material adverse effect on the Company's business,
financial condition and results of operations. A party who is able to
penetrate the Company's network security could misappropriate proprietary
information or cause interruptions in the Company's Web site. The Company may
be required to expend significant capital and resources to protect against the
threat of such security breaches or to alleviate problems caused by such
breaches. Concerns over the security of Internet transactions and the privacy
of users may also inhibit the growth of the Internet generally, particularly
as a means of conducting commercial transactions. Security breaches or the
inadvertent transmission of computer viruses could expose the Company to a
risk of loss or litigation and possible liability. There can be no assurance
that contractual provisions attempting to limit the Company's liability in
such areas will be successful or enforceable, or that other parties will
accept such contractual provisions as part of the Company's agreements, any of
which could have a material adverse effect on the Company's business, results
of operations and financial condition.
RISKS ASSOCIATED WITH DOMAIN NAMES
The Company currently holds various Web domain names relating to its brand,
including the "citysearch.com" domain name. The acquisition and maintenance of
domain names generally is regulated by governmental agencies and their
designees. For example, in the United States, the National Science Foundation
has appointed Network Solutions, Inc. as the exclusive registrar for the
".com," ".net" and ".org" generic top-level domains. The regulation of domain
names in the United States and in foreign countries is subject to change.
Governing bodies may establish additional top-level domains, appoint
additional domain name registrars or modify the requirements for holding
domain names. As a result, there can be no assurance that the Company will be
able to acquire or maintain relevant domain names in all countries in which it
conducts business. Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is
unclear. The Company, therefore, may be unable to prevent third parties from
acquiring domain names that are similar to, infringe upon or otherwise
decrease the value of its trademarks and other proprietary rights. Any such
inability could have a material adverse effect on the Company's business,
financial condition and results of operations.
YEAR 2000 RISK
Many older computer systems and software products currently in use are coded
to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century
dates from 20th century dates. As a result, in less than two years, computer
systems and/or software used by many companies may need to be upgraded to
comply with such "Year 2000" requirements. Significant uncertainty exists in
the software industry concerning the potential effects associated with such
compliance. Although the Company licenses to its partners software products
that are designed to be Year 2000 compliant, there can be no assurance that
the Company's software products contain all necessary date changes. In
addition, although the Company licenses software from third parties that it
believes are Year 2000 compliant, there can be no assurance that such software
will be compliant. Any Year 2000 compliance problems could result in a
material adverse affect on the Company's business, financial condition and
results of operations.
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LACK OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained. The initial public offering price for the Common
Stock to be sold by the Company has been established by negotiations among the
Company and the Representatives of the Underwriters and may bear no
relationship to the price at which the Common Stock will trade after
completion of the offering. See "Underwriting" for factors to be considered in
determining such offering price. The market price of the Common Stock could be
subject to significant fluctuations in response to quarter-to-quarter
variations in the Company's operating results, announcements of technological
innovations or new products by the Company or its competitors, and other
events or factors. For example, a shortfall in revenues or net income, or an
increase in losses from levels expected by securities analysts, could have an
immediate and significant adverse effect on the market price of the Company's
Common Stock. In addition, the stock market in recent years has experienced
extreme price and volume fluctuations that have particularly affected the
market prices of many high technology companies and that have often been
unrelated or disproportionate to the operating performance of companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the market price for the Common Stock.
ANTITAKEOVER EFFECT OF CERTAIN CHARTER AND CONTRACTUAL PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
and Bylaws which will become effective upon the closing of this offering will
have the effect of delaying, deferring or preventing a change of control of
the Company. These provisions will provide, among other things, that the Board
of Directors is divided into three classes to serve staggered three-year
terms, that stockholders may not take actions by written consent, that certain
provisions of the Company's Restated Certificate of Incorporation and Bylaws
may be amended only by the affirmative vote of 66 2/3% of the Common Stock and
that the stockholders may not call special meetings. After completion of this
offering, the Company will be authorized to issue up to 2,000,000 shares of
Preferred Stock. The Board of Directors is authorized, subject to limitations
prescribed by Delaware law, to provide for the issuance of additional shares
of Preferred Stock in one or more series, to establish from time to time the
number of shares to be included in each such series, to fix the powers,
designations, preferences and rights of the shares of each wholly unissued
series and designate any qualifications, limitations or restrictions thereon
and to increase or decrease the number of shares of any such series (but not
below the number of shares of such series then outstanding) without any
further vote or action by the stockholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change of control of the Company and may adversely affect the
voting and other rights of the holders of Common Stock, which could have an
adverse impact on the market price of the Common Stock. In addition, the
Company will be subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law ("DGCL"), which will prohibit the Company
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. Such provisions may have the effect of preventing
changes in the management of the Company. The Sixth Amended and Restated
Stockholders' Agreement by and among the Company and certain stockholders of
the Company dated May 26, 1998 (the "Stockholders' Agreement') provides that
the Company may not (i) adopt a rights agreement (or other similar device)
with an ownership threshold that would limit USA Networks' ability to own or
purchase securities of the Company or (ii) amend its bylaws, certificate of
incorporation or fail to take an action under Section 203 of the DGCL, in each
case which would limit USA Networks' ability to own or purchase securities of
the Company. See "Certain Transactions," "Description of Capital--Antitakeover
Effects of Provisions of Certificate of Incorporation and Bylaws" and "--
Effect of Delaware Antitakeover Statute."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after this
offering or the anticipation of such sales could have a material adverse
effect on then-prevailing market prices. Upon completion of the
15
<PAGE>
offering, the Company will have shares of Common Stock outstanding,
assuming no exercise of currently outstanding options. Of these shares, the
shares sold in this offering (plus any additional shares sold upon exercise of
the Underwriters' over-allotment option) will be freely transferable without
restriction under the Securities Act of 1933, as amended (the "Securities
Act"), unless they are held by "affiliates" of the Company as that term is
used under the Securities Act and the regulations promulgated thereunder
("Affiliates"). The remaining 25,118,827 shares of Common Stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 of the Securities Act (the "Restricted Shares"). Restricted Shares
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 or Rule 701 under the Securities
Act. As a result of contractual restrictions and the provisions of Rules 144
and 701, additional shares will be available for sale in the public market as
follows: (i) approximately 1,239,279 Restricted Shares will be eligible for
immediate sale on the effective date of this Offering; (ii) approximately
676,578 Restricted Shares will be eligible for sale 90 days after the date;
(iii) approximately 19,505,560 Restricted Shares will be eligible for sale 180
days upon expiration of pre-existing contractual lock-up agreements and lock-
up agreements with the Underwriters and upon expiration of their respective
holding periods under Rule 144; and (iv) the remainder of the Restricted
Shares will be eligible for sale from time to time thereafter upon expiration
of their respective holding periods under Rule 144. In addition, 1,601,285
shares will be issuable upon exercise of vested stock options 180 days after
the effective date of this offering upon the expiration pre-existing
contractual lock-up agreements. NationsBanc Montgomery Securities LLC, on
behalf of the Underwriters, may, in its sole discretion and at any time
without notice, release all or any portion of securities subject to the lock-
up agreement with the Underwriters.
Upon the effective date of this offering, the holders of 13,128,789 shares
of Common Stock have the right in certain circumstances to require the Company
to register their shares under the Securities Act for resale to the public. If
such holders, by exercising their demand registration rights, cause a large
number of shares to be registered and sold in the public market, such sales
could have a material adverse effect on the market price for the Company's
Common Stock. If the Company were required to include in a Company-initiated
registration shares held by such holders and holders of an additional
10,756,878 shares of Common Stock pursuant to the exercise of their piggyback
registration rights, such sales may have a material adverse affect on the
Company's ability to raise new capital. In addition, the Company expects to
file a registration statement on Form S-8 registering a total of approximately
4,368,340 shares of Common Stock subject to outstanding stock options or
reserved for issuance under the Company's 1996 Stock Plan, 1998 Directors
Option Plan and 1998 Employee Stock Purchase Plan. The Form S-8 registration
statement is expected to be filed and to become effective 180 days following
the effective date of this offering. Shares registered under such registration
statement will be available for sale in the open market, subject to Rule 144
value limitations applicable to Affiliates, unless such shares are subject to
vesting restrictions with the Company or the lock-up agreements described
above. See "Description of Capital Stock--Registration Rights" and "Shares
Eligible for Future Sale."
NO SPECIFIC USE OF PROCEEDS
The Company has not designated any specific use for the net proceeds from
the sale by the Company of the Common Stock offered hereby. The Company
intends to use the net proceeds of this offering for general corporate
purposes, including working capital, capital expenditures relating to the
CitySearch site (such as enhancements to the Company's server and networking
infrastructure) and expansion of its sales and marketing capabilities.
Accordingly, management will have significant flexibility in applying the net
proceeds of this offering. The failure of management to apply such funds
effectively could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Use of Proceeds."
DILUTION
The initial public offering price is substantially higher than the book
value per share of the outstanding Common Stock. At an assumed initial public
offering price of $ per share, investors purchasing shares of Common Stock
in the offering will incur immediate, substantial dilution in the amount of
$ per share. In addition, investors purchasing shares of Common Stock in
this offering will incur additional dilution to the extent outstanding options
and warrants are exercised. See "Dilution."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby are estimated to be million ( million if the over-
allotment option is exercised in full) at an assumed initial public offering
price of $ per share and after reducing the underwriting discount and
estimated offering expenses. The Company intends to use the net proceeds of
this offering for general corporate purposes, including working capital,
capital expenditures relating to the CitySearch site (such as enhancements to
the Company's server and networking infrastructure) and expansion of its sales
and marketing capabilities. A portion of the proceeds also may be used to
acquire or invest in complementary businesses, technologies or service
offerings. In the ordinary course of business, the Company evaluates potential
acquisitions of such businesses, technologies or service offerings. However,
the Company has no present understandings, commitments or agreements with
respect to any such acquisition, and the Company is not currently engaged in
any negotiations with respect to any such transaction. Pending use of the net
proceeds for the above purposes, the Company intends to invest such funds in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock to date. The Company currently anticipates that it will retain any
future earnings for use in its business and does not anticipate paying any
cash dividends for the foreseeable future.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998 (i) on an actual basis, and (ii) the on an as adjusted basis to
reflect the conversion of all outstanding shares of Preferred Stock into
Common Stock upon the closing of this offering at the receipt of the net
proceeds from the sale of the shares of Common Stock offered hereby at an
assumed initial public offering price of $ per share and after deducting the
underwriting discount and estimated offering expenses.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations, less current portion(1)............ $ 2,758 $
Redeemable Convertible Preferred Stock (2)................ 70,882
Stockholders' (deficit) equity (3):
Preferred Stock, $0.01 par value: 2,241,173 shares
authorized, actual; 2,000,000 shares authorized, as
adjusted; 2,016,521 shares issued and outstanding,
actual; no shares issued and outstanding, as adjusted... 2,610
Common stock, $0.01 par value; 75,000,000 shares
authorized, actual; 9,973,517 shares issued and
outstanding, actual; shares issued and
outstanding, as adjusted................................ 870
Deferred stock compensation............................... (567)
Accumulated deficit....................................... (58,708)
------- ----
Total stockholders' equity (deficit)...................... (55,795)
------- ----
Total capitalization..................................... $17,845 $
======= ====
</TABLE>
- --------
(1) See Notes 2 and 5 of Notes to Consolidated Financial Statements.
(2) See Note 6 of Notes to Consolidated Financial Statements.
(3) Based on shares outstanding as of March 31, 1998. Does not include (i)
2,287,101 shares of Common Stock issuable upon exercise of options
outstanding at March 31, 1998 at a weighted average price of $1.01 per
share under the Company's 1996 Stock Option Plan, (ii) 479,739 shares of
Common Stock available for future grant or issuance under the Company's
1996 Stock Option Plan and (iii) 93,305 shares of Common Stock issuable
upon exercise of an outstanding warrant at an exercise price of $8.84 per
share held by NationsBanc Montgomery Securities LLC. See "Management--
Employee Benefit Plans," "Underwriting," and Note 7 of Notes to
Consolidated Financial Statements.
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998
was $15.1 million, or $1.60 per share of Common Stock, assuming the conversion
of all outstanding shares of Preferred Stock into shares of Common Stock. "Pro
forma net tangible book value per share" is determined by dividing the number
of outstanding shares of Common Stock into the net tangible book value of the
Company (total tangible assets less total liabilities). After giving effect to
the application of the estimated net proceeds from the sale by the Company of
the shares of Common Stock offered hereby (based upon an assumed initial
public offering price of $ per share and after deducting the underwriting
discount and estimated offering expenses), the pro forma net tangible book
value of the Company as of March 31, 1998 would have been approximately $
million, or $ per share. This represents an immediate increase in pro forma
net tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors purchasing shares at the
initial public offering price. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................... $
Pro forma net tangible book value as of March 31, 1998............ $1.60
Increase in pro forma net tangible book value attributable to new
investors........................................................
-----
Pro forma net tangible book value after offering....................
----
Dilution to new investors........................................... $
====
</TABLE>
The following table summarizes on a pro forma basis as of March 31, 1998,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by the
existing stockholders and by the investors purchasing shares of Common Stock
in this offering, based upon an assumed initial public offering price of $
per share (before deducting the underwriting discount and estimated offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)....... 24,129,228 $76,349,245 $3.16
New Investors(1)...............
---------- --- ----------- ---
Total........................
========== === =========== ===
</TABLE>
- --------
(1) If the Underwriters' over-allotment is exercised in full the number of
shares held by new investors will be increased to , or % of the total
shares of Common Stock to be outstanding after this offering.
The foregoing computations assume no exercise of any outstanding stock
options or warrants. As of March 31, 1998, there were options outstanding to
purchase a total of 2,287,101 shares of Common Stock at a weighted average
exercise price of $1.10 per share and warrants outstanding to purchase a total
of 93,305 shares of Common Stock at an exercise price of $8.84 per share. In
addition, as of March 31, 1998, 479,739 shares of Common Stock were reserved
for future issuance under the Company's 1996 Stock Option Plan. To the extent
that any shares available for issuance upon exercise of outstanding stock
options or warrants or reserved for future issuance under the Company's 1996
Stock Option Plan, 1998 Directors Option Plan or 1998 Employee Stock Purchase
Plan issued, there will be future dilution to new investors. See "Management--
Employee Benefit Plans," "Underwriting" and Note 7 to Consolidated Financial
Statements.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for the period from
September 20, 1995 (date of formation) through December 31, 1995 and for, and
as of the end of, each of the years in the two-year period ended December 31,
1997, are derived from the consolidated financial statements of the Company,
which consolidated financial statements have been audited by Ernst & Young
LLP, independent certified public accountants, and are included elsewhere in
this Prospectus. The consolidated balance sheet data as of December 31, 1995
is derived from audited consolidated financial statements of the Company that
are not included herein. The consolidated statements of operations data for
the three-month periods ended March 31, 1997 and 1998 and the consolidated
balance sheet data at March 31, 1998 are derived from unaudited consolidated
financial statements included elsewhere in this Prospectus. In the opinion of
management, the unaudited consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and contain
all adjustments, consisting only of normal recurring adjustment, necessary for
a fair presentation of the Company's results of operations for such periods
and financial condition at such dates. The results of operations for the three
months ended March 31, 1998 are not necessarily indicative of the results to
be expected for the full year or future periods. The selected consolidated
financial data set forth is qualified in its entirety by, and should be read
in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 20,
1995 (DATE OF YEAR ENDED THREE MONTHS
FORMATION) TO DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, ------------------ ----------------
1995 1996 1997 1997 1998
------------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Subscription and
services................ $ -- $ 203 $ 4,913 $ 470 $ 2,563
Licensing and royalty.... -- -- 1,271 -- 528
------ -------- -------- ------- -------
Total revenues......... -- 203 6,184 470 3,091
Costs and expenses:
Cost of revenues......... -- 2,908 10,846 2,040 3,450
Sales and marketing...... 57 6,369 19,014 4,519 4,568
Research and development. 152 2,563 7,182 1,713 1,655
General and
administrative.......... 104 2,475 5,883 1,363 1,568
------ -------- -------- ------- -------
Total costs and ex-
penses................ 313 14,315 42,925 9,635 11,241
------ -------- -------- ------- -------
Loss from operations...... (313) (14,112) (36,741) (9,165) (8,150)
Interest income, net...... 5 217 223 84 173
------ -------- -------- ------- -------
Loss before provision for
income taxes............. (308) (13,895) (36,518) (9,081) (7,977)
Provision for income
taxes.................... -- (2) (8) -- --
------ -------- -------- ------- -------
Net loss.................. $ (308) $(13,897) $(36,526) $(9,081) $(7,977)
====== ======== ======== ======= =======
Historical basic and
diluted net loss per
share.................... $(0.04) $ (1.58) $ (3.86) $ (0.97) $ (0.82)
====== ======== ======== ======= =======
Pro forma basic and
diluted net loss per
share.................... $(0.04) $ (1.10) $ (1.96) $ (0.54) $ (0.33)
====== ======== ======== ======= =======
Shares used to compute
basic and diluted
historical net loss per
share.................... 7,894 8,785 9,451 9,407 9,777
====== ======== ======== ======= =======
Shares used to compute
basic and diluted pro
forma net loss per share. 8,460 12,647 18,666 16,889 23,932
====== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1998
----------------------- ---------
1995 1996 1997
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash equiva-
lents.................. $1,413 $ 7,527 $25,227 $16,455
Working capital......... 1,323 4,257 19,375 11,658
Total assets............ 1,490 13,370 31,655 23,724
Long-term obligations,
less current portion... -- 1,451 2,420 2,758
Redeemable Convertible
Preferred Stock........ -- 20,309 70,882 70,882
Stockholders's equity
(deficit).............. 8,366 (11,943) (47,911) (55,795)
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the related Notes thereto included elsewhere in this
Prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including, but not limited to, those set forth under "Risk
Factors" and elsewhere in this Prospectus.
OVERVIEW
CitySearch produces and delivers comprehensive local city guides on the
World Wide Web (the "Web"), providing up-to-date information regarding arts
and entertainment events, community activities, recreation, businesses,
shopping, professional services and news/sports/weather to consumers in
metropolitan areas. Each local city guide primarily consists of original
content developed and designed specifically for the Web by the Company and its
partners. The Company designs and produces custom-built Web sites and related
services for local and regional businesses, aggregates them in a local city
guide environment and provides business customers the ability to regularly
update and expand their sites. From the Company's founding and incorporation
in September 1995 through May 1996, the Company's operating activities
consisted primarily of recruiting employees, performing product and technology
development, raising capital, engaging in marketing activities, and
negotiating strategic partnerships. The Company launched its first city guide
in Chapel Hill, North Carolina in May 1996. The Company first commenced
selling business Web sites to local businesses in February 1996 and recognized
its initial revenues in June 1996.
CitySearch has two primary means of providing its local city guides. In its
"owned and operated" markets, the Company systematically produces the majority
of its own content, hires and rapidly deploys a direct sales force to sell
custom-built Web sites as well as related services to local and regional
businesses and launches a presence in approximately six months. In other
markets, the Company partners with a local media company that contracts with
CitySearch to assist in developing, designing and launching a city guide.
These partners license CitySearch's systems and provide royalty payments to
the Company for revenues derived from operations. While the Company's initial
site launches were all on an "owned and operated" basis, the Company is
increasingly launching city guides in conjunction with local newspaper
companies in its partner-led markets. These major media partners bring
capital, brand recognition, promotional strength and local knowledge to their
CitySearch sites and allow the Company to build out its national and
international network of sites faster than it could solely through owned and
operated sites. The Company's current owned and operated sites include Austin,
Nashville, New York City, Portland, Raleigh-Durham-Chapel Hill, Salt Lake
City/Utah and the San Francisco Bay Area, and current partner-led markets
include Los Angeles, Washington D.C., Melbourne, Sydney and Toronto.
Additional partner-led markets where roll-out teams have been deployed include
Baltimore, Copenhagen, Dallas, and Stockholm.
In its owned and operated markets, the Company derives its revenues
primarily from subscription fees resulting from creating local business Web
sites, and to a lesser extent, from banner advertising derived from national
and regional advertisers, as well as barter agreements with television, radio
and media alliances. With barter agreements, the Company receives television
and radio advertising in exchange for Web site design, hosting and
maintenance. The Company recognizes revenue from sales of local business Web
sites on a monthly basis over the term of the contract as services are
rendered. Business customers typically enter into 12 month agreements that
automatically convert to month to month contracts upon expiration. The
Company's business customers in its owned and operated markets increased from
approximately 1,800 as of January 31, 1997 to approximately 9,300 online as of
March 31, 1998. The average monthly revenue in these markets for new business
customers signed up in January 1997 was approximately $50, in December 1997
was approximately $100 and in March 1998 was approximately $125. Banner
revenue is recognized as earned. Barter revenue is recognized monthly over the
term of each contract. For each barter agreement, revenue and expense are
equal, and are recognized at a rate based on the estimated cost of the
specific services provided by the Company.
21
<PAGE>
In partner-led markets, the Company derives revenues from licensing its
business and technology systems, from royalties on partner-led Web site
subscriptions, banners, sponsorships and other ancillary offerings, and from
providing consulting and technology customization services, and from hosting
and back office services, including site production, customer service and
billing. Royalty, consulting and technology customization revenues have not
been significant to date, but are expected to increase as a percentage of
revenues as partner-led markets mature and as more partner-led market sites
are launched. Licensing revenue under license agreements entered into prior to
December 31, 1997 is recognized upon the completion and installation of the
Company's business and technology systems and training of partner personnel in
each partner-led market. Beginning with contracts signed in 1998 pursuant to
SOP 97-2, the Company is recognizing revenues from the sale of licenses for
use of the Company's business and technology systems over the term of the
license agreement or the period over which the relevant services are
delivered. See Note 1 of Notes to Consolidated Financial Statements. Royalty
revenue is recognized as earned and is typically a percentage of partner-led
Web site subscriptions, banners, sponsorships and other ancillary offerings.
In the second quarter of 1998, the Company began to derive revenue from
providing back office services, including business Web site design, hosting,
customer service and billing, to certain of its partners.
The Company has recorded deferred stock compensation of $255,000 for the
year ended December 31, 1997 and $352,000 for the three months ended March 31,
1998 as a result of stock options granted during 1997 and the first three
months of 1998. Amortization of deferred stock compensation of $10,000 was
recognized in 1997, and $30,000 was recognized in the three months ended March
31, 1998. Amortization of deferred stock compensation is allocated to costs of
revenues and to all operating expense lines identified on the statement of
operations. Deferred stock compensation is amortized over the vesting period
of the options, generally four years. As a result, amortization of deferred
stock compensation will adversely impact the Company's operating results for
the next four years.
The Company incurred net losses of $308,000, $13.9 million and $36.5 million
for the period from September 20, 1995 (date of formation) to December 31,
1995, and the years ended December 31, 1996 and 1997, respectively, and $8.0
million for the three months ended March 31, 1998. At March 31, 1998, the
Company had an accumulated deficit of $58.7 million. The net losses and
accumulated deficit resulted from the Company's lack of substantial revenues
and the significant operation, infrastructure and other costs incurred in the
development and initial roll-outs of the Company's services. Given its limited
operating history, the Company believes that an analysis of its cost and
expense categories as a percentage of revenue is not meaningful. As a result
of its aggressive expansion plans, the Company expects to incur significant
additional losses from operations for the foreseeable future. Although the
Company has experienced revenue growth in recent periods, there can be no
assurance that such growth rates are sustainable and, therefore, they should
not be considered indicative of future operating results. There can be no
assurance that the Company will ever achieve significant revenues or
profitability or, if significant revenues and profitability are achieved, that
they could be sustained.
RESULTS OF OPERATIONS
Revenues. The Company's revenues increased from $470,000 for the three
months ended March 31, 1997 to $3.1 million for the three months ended March
31, 1998, and increased from $203,000 for the year ended December 31, 1996 to
$6.2 million for the year ended December 31, 1997. The Company did not
recognize any revenue from September 20, 1995 (date of formation) to December
31, 1995 (the "Inception Period"). The Company has two revenue sources: (i)
subscription and services revenue and (ii) licensing and royalty revenue.
Subscription and services revenue was $470,000 and $2.6 million for the three
months ended March 31, 1997 and 1998, respectively, and was $203,000 and $4.9
million for the years ended December 31, 1996 and 1997 respectively.
Subscription and services revenue increased in each period primarily as the
result of increases in business Web site subscription revenue due to increases
in the number of city guides launched, an increased number of business Web
sites in each city guide market, and an increase in the average sales price
for business Web sites. The increases in subscription and services revenue
also resulted from increases in consulting revenue, barter revenue, and banner
revenue. Licensing and royalty revenue was $0 and $528,000 for the three
months ended March 31, 1997 and 1998, respectively, and was $0 and $1.3
million for the years ended December 31, 1996 and 1997, respectively.
22
<PAGE>
Cost of Revenues. Cost of revenues consists primarily of the expenses
associated with the design, layout, photography, customer service and
editorial resources used in the production and maintenance of business Web
sites and editorial content, network infrastructure maintenance and the
provision of consulting services in partner-led markets. Cost of revenues is
expensed as incurred. The Company had no cost of revenues for the Inception
Period. Cost of revenues were $2.0 million and $3.5 million for the three
months ended March 31, 1997 and 1998, respectively, and were $2.9 million and
$10.8 million for the years ended years December 31, 1996 and 1997,
respectively. The increases were due primarily to increased personnel and
freelance labor required to produce and maintain the increased number of
business Web sites and amount of editorial content.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily
of the costs related to compensation of sales and marketing personnel,
advertising, public relations, travel, sales force training and marketing
literature. Sales and marketing expenses were $4.5 million and $4.6 million
for the three months ended March 31, 1997 and 1998, respectively, and were
$57,000, $6.4 million and $19.0 million for the Inception Period and for the
years ended December 31, 1996 and 1997, respectively. These increases were due
primarily to increased headcount and, to a lesser extent, increases in
marketing and advertising programs. The rate of growth of sales and marketing
expenses slowed as the Company has reduced its advertising expenses due to the
increased number of barter media alliances. The Company expects that sales and
marketing expenses will continue to increase in absolute dollars as the
Company expands its direct sales force, hires additional marketing personnel
and increases expenditures for marketing and promotional activities.
Research and Development Expenses. Research and development expenses include
the costs to develop, test and upgrade the CitySearch online service and the
enterprise management systems. These costs consist primarily of salaries for
product development personnel, contract labor expense, consulting fees,
software licenses, hardware costs and recruiting fees. Research and
development expenses were $1.7 million and $1.7 million for the three months
ended March 31, 1997 and 1998, respectively, and were $152,000, $2.6 million
and $7.2 million for the Inception Period and for the years ended December 31,
1996 and 1997, respectively. The increases in research and development
expenses were primarily attributable to increased staffing levels required to
design, test, deploy and support expanded city guide functionality and back-
office systems. The Company believes that timely deployment of new and
enhanced products and technology are critical to attaining its strategic
objectives and to remain competitive. Accordingly, the Company intends to
continue recruiting and hiring experienced research and development personnel
and make other investments in research and development. As such, the Company
expects that research and development expenditures will increase in absolute
dollars in future periods. The Company has expensed research and development
costs as incurred.
General and Administrative Expenses. General and administrative expenses
consist primarily of administrative and executive personnel costs, fees for
professional services and the costs of in-house infrastructure to support the
operations of the Company. General and administrative expenses were $1.4
million and $1.6 million for the three months ended March 31, 1997 and 1998,
respectively, and were $104,000, $2.5 million and $5.9 million for the
Inception Period and for the years ended December 31, 1996 and 1997,
respectively. These increases were due primarily to increased staffing levels
to manage and support the Company's expanding operations. The Company
anticipates hiring additional personnel and incurring additional costs related
to being a publicly held entity, including directors' and officers' liability
insurance, investor relations programs and professional service fees.
Accordingly, the Company anticipates that general and administrative expenses
will continue to increase in absolute dollars.
Interest Income, Net. Net interest income consists primarily of interest
earned on the Company's cash, cash equivalents and short term investments,
less interest expense on capital lease obligations. The Company had net
interest income of $84,000 and $173,000 for the three months ended March 31,
1997 and 1998, respectively, and $5,000, $217,000 and $223,000 for the
Inception Period and for the years ended December 31, 1996 and 1997,
respectively. The Company invests its cash balances in short-term investment
grade, interest-bearing securities.
23
<PAGE>
INCOME TAXES
The provision for income, franchise and capital taxes of $800, $1,600 and
$8,330 for the Inception Period and for the years ended December 31, 1996 and
December 31, 1997, respectively is based solely on minimum state tax
requirements. The Company's effective tax rate differs from the statutory
federal income tax rate, primarily as a result of operating losses not
benefited. Due to the uncertainty surrounding the timing or realizing the
benefits of its favorable tax attributes in future tax returns, the Company
has placed a valuation allowance against its otherwise recognizable deferred
tax assets. At December 31, 1997, the Company had net operating loss
carryforwards for federal and state income tax purposes of approximately $47.5
million. The federal carryforwards expire principally in the period from 2010
to 2012, and the state carryforwards expire principally in 2003. The Tax
Reform Act of 1986 imposes substantial restrictions on the utilization of net
operating losses and tax credits in the event of an "ownership change" of a
corporation. The Company's ability to utilize net operating loss carryforwards
may be limited as a result of an "ownership change" as defined in the Internal
Revenue Code. See Note 4 of Notes to Consolidated Financial Statements.
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth certain consolidated statement of operations
data for the Company's five most recent quarters. This information has been
derived from the Company's unaudited, consolidated financial statements. In
management's opinion, this unaudited information has been prepared on the same
basis as the annual consolidated financial statements and includes all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation for the quarters presented. This information should be read
in conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus. The operating results for any quarter
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1997 1997 1997 1997 1998
--------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Subscription and services...... $ 470 $ 1,038 $ 1,478 $ 1,927 $ 2,563
Licensing and royalty.......... -- -- 677 594 528
------- ------- ------- ------- -------
Total revenues............... 470 1,038 2,155 2,521 3,091
Costs and expenses:
Costs of revenues.............. 2,040 2,416 3,156 3,234 3,450
Sales and marketing............ 4,519 4,691 4,506 5,298 4,568
Research and development....... 1,713 1,506 1,730 2,233 1,655
General and administrative..... 1,363 1,381 1,519 1,620 1,568
------- ------- ------- ------- -------
Total costs and expenses..... 9,635 9,994 10,911 12,385 11,241
------- ------- ------- ------- -------
Loss from operations............ (9,165) (8,956) (8,756) (9,864) (8,150)
Interest income, net............ 84 19 -- 120 173
------- ------- ------- ------- -------
Provision for income tax........ -- -- -- (8) --
------- ------- ------- ------- -------
Net loss........................ $(9,081) $(8,937) $(8,756) $(9,752) $(7,977)
======= ======= ======= ======= =======
</TABLE>
The Company's operating results have varied on a quarterly basis during its
short operating history and may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside the Company's
control. Factors that may affect the Company's quarterly operating results
include, but are not limited to, the ability of its partners to meet roll-out
schedules for the Company's city guide service, the timing and amount of
license and royalty payments from the Company's partners, the Company's
ability to retain existing business customers, attract new business customers
at a steady rate and maintain customer satisfaction, the timing and
24
<PAGE>
volume of new business Web site orders and the Company's capacity to meet such
orders, the Company's ability to maintain or increase current rates of sales
productivity, the announcement or introduction of new or enhanced sites and
services by the Company or its competitors, the amount of traffic on the
Company's online sites, the amount of expenditures for online advertising by
businesses, the level of use of online services and consumer acceptance of the
Internet for services such as those offered by the Company, the Company's
ability to upgrade and develop its systems and attract personnel in a timely
and effective manner, the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business and
infrastructure, technical difficulties, system downtime or Internet brownouts,
political or economic events affecting the cities in which the Company
operates and general economic conditions. Unfavorable changes in any of the
above factors could adversely affect the Company's revenues, gross margins and
results of operations in future periods. Accordingly, the Company believes
that period-to-period comparisons of its results of operations should not be
relied upon as an indication of future performance. In addition, the results
of any quarterly period are not indicative of results to be expected for a
full fiscal year. Finally, as a result of the foregoing factors, the Company's
annual or quarterly results of operations may be below the expectations of
public market analysts or investors, in which case the market price of the
Common Stock could be materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has primarily financed its operations
through both the private placement of equity securities, raising $81.0 million
and capital equipment leases. At March 31, 1998, the Company had approximately
$16.5 million in cash, cash equivalents and short-term investments. The
Company has had significant negative cash flows from operating activities in
each fiscal and quarterly period to date. Net cash used in operating
activities was $8.1 million and $8.5 million for the three months ended March
31, 1997 and 1998, respectively, and $213,000, $10.5 million and $30.1 million
for the Inception Period and for the years ended December 31, 1996 and 1997,
respectively. Cash used in operating activities from Inception through March
31, 1998 consisted primarily of net operating losses and increases in accounts
receivable, which were partially offset by increases in deferred revenues,
accrued expenses and accounts payable.
Net cash used in investing activities was $681,000 and $49,000 for the three
months ended March 31, 1997 and 1998, respectively, and was approximately
$82,000, $3.5 million and $2.0 million for the Inception Period and for the
years ended December 31, 1996 and 1997, respectively. Net cash used in
investing activities in these periods consisted primarily of capital
expenditures for computer equipment, purchased software, office equipment, and
leasehold improvements. As of December 31, 1997 and March 31, 1998, the
Company also had commitments under non-cancelable operating leases of $5.3
million and $5.3 million. Net cash provided by (used in) financing activities
was $10.0 million and $(226,000) for the three months ended March 31, 1997 and
1998, respectively and was $1.7 million, $20.2 million and $49.7 million for
the Inception Period and the years ended December 31, 1996 and 1997,
respectively, attributable to the private sale of Preferred Stock.
The Company believes that net proceeds from this offering, together with
existing cash, cash equivalents and short-term investments, will be sufficient
to meet its working capital and capital expenditures requirements for at least
the next 12 months. Thereafter, the Company may be required to raise
additional funds. No assurance can be given that the Company will not be
required to raise additional financing prior to such time. If additional funds
are raised through the issuance of equity securities, stockholders of the
Company may experience significant dilution. Furthermore, there can be no
assurance that additional financing will be available when needed or that if
available, such financing will include terms favorable to the Company or its
stockholders. If such financing is not available when required or is not
available on acceptable terms, the Company may be unable to develop or enhance
its products and services, take advantage of business opportunities or respond
to competitive pressures, any of which could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Risk Factors--Future Capital Needs; Uncertainty of Additional Funding."
25
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENT
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 97-2, Software Revenue Recognition,
which supersedes SOP No. 91-1. The Company adopted SOP No. 97-2 prospectively
for software transactions entered into beginning January 1, 1998. SOP No. 97-2
generally requires revenue earned on software arrangements involving multiple
elements to be allocated to each element based on the relative fair values of
the elements. The fair value of an element must be based on evidence that is
specific to the vendor. If a vendor does not have evidence of the fair value
for all elements in a multiple-element arrangement, all revenue from the
arrangement is deferred until such evidence exists or until all elements are
delivered. Beginning with contracts signed in 1998 pursuant to SOP 97-2, the
Company is recognizing revenues from the sale of licenses for use of the
Company's business and technology systems over the term of the license
agreement or the period over which the relevant services are delivered. See
Note 1 of Notes to Consolidated Financial Statements.
26
<PAGE>
BUSINESS
The discussion in this Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are
not limited to, those discussed in "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
OVERVIEW
CitySearch produces and delivers comprehensive local city guides on the
World Wide Web (the "Web"), providing up-to-date information regarding arts
and entertainment events, community activities, recreation, businesses,
shopping, professional services and news/sports/weather to consumers in
metropolitan areas. Each local city guide primarily consists of original
content developed and designed specifically for the Web by the Company and its
partners. The Company designs and produces custom-built Web sites and related
services for local and regional businesses, aggregates the sites in a local
city guide environment and provides business customers the ability to
regularly update and expand their sites. This service offers local and
regional businesses the opportunity to reach and interact with targeted
consumers. The Company builds its city sites with the involvement of local
government, community and volunteer associations, business and professional
groups, educational institutions and local media companies. In addition,
content generated by consumers through e-mail and bulletin boards, available
in most sites, enhances the sense of community in CitySearch sites.
CitySearch and its partners create comprehensive locally-focused content
within a database that enables targeted, sophisticated searches across all
content residing on a CitySearch site. In contrast, many search engines and
navigational guides access pre-existing content from third-party Web sites
that may be incomplete or out of date. In its owned and operated markets,
CitySearch offers a broad array of updated, local content that is relevant to
consumers. In other markets, CitySearch provides local media companies with
the necessary technology and business expertise to effectively design, launch
and operate a co-branded CitySearch site. The Company's city guides have
received numerous awards and recognition for design, functionality and
content, including PC Magazine's Editor's Choice, USA Today/Intelliquest's
survey leader, the 1998 Webby award for best travel site, recognition by The
New York Times as the best overall online guide to New York City, How
Magazine's Design Award and Net Guide's Platinum "Best of the Web" Award.
CitySearch launched its initial site in the Raleigh-Durham-Chapel Hill
metropolitan area in May 1996. The Company and its partners have since
launched additional local content guides in Austin, Los Angeles, Nashville,
New York City, Portland, Salt Lake City/Utah, the San Francisco Bay Area and
Washington, D.C. in the U.S., and in Melbourne, Sydney and Toronto
internationally. The Company plans to expand its service to additional
national and international markets by the end of 1998 both by leveraging the
standardized roll-out model it has developed through previous city launches
and by partnering with major media companies in certain cities. The Company
has, for instance, partnered with The Baltimore Sun, The Dallas Morning News,
the Los Angeles Times, The Washington Post, The Melbourne Age, Schibsted
ASA/Scandinavia Online, The Sydney Morning Herald and the Toronto Star. These
major media partners bring capital, brand recognition, promotional strength
and local knowledge to their CitySearch sites and allow the Company to build
out its national and international network of sites faster than it could
solely through owned and operated sites.
INDUSTRY BACKGROUND
The Internet and the World Wide Web
The Internet is an increasingly significant global interactive medium for
communications, content and commerce. International Data Corporation ("IDC")
estimates that the number of Web users worldwide will increase from 69 million
at the end of 1997 to 320 million by the year 2002. According to The Media
Audit, in certain of the markets where CitySearch has offerings, including
Austin, San Francisco and Washington, D.C., more than four in ten adults are
online. Growth in Internet usage has been fueled by a number of factors,
27
<PAGE>
including the large and growing installed base of personal computers in the
workplace and home, advances in the performance and speed of personal
computers and modems, improvements in network infrastructure, easier and
cheaper access to the Internet and increased awareness of the Internet among
businesses and consumers. As Internet accessibility, usage and functionality
continue to grow, the Internet is increasingly being used as a medium for
direct communication among users (e.g., via e-mail and bulletin boards) as
well as a rapidly growing sales and marketing channel.
The Demand for Local, Community-Oriented Information over the Internet
The Company believes that as users spend more time on the Web, they are
increasingly seeking local information relevant to their daily lives. The
Company believes that consumers spend a large majority of their time and money
in their local communities and that, as a result, Web users are increasingly
seeking targeted, relevant information concerning local events, places of
interest, shopping and other information that is pertinent to their local
activities. According to a survey conducted by Find/SVP, over half of U.S.
Internet users accessed some type of online local news and information during
the first three months of 1997. Additionally, businesses are seeking cost-
effective means to target advertising and direct marketing efforts based on
demographic characteristics, specific interests and geographic location.
McCann-Erickson estimates that businesses spent approximately $77 billion in
1997 on traditional, indirect advertising efforts in local markets. With the
Internet, businesses can directly interact with consumers, receive immediate
feedback on their marketing efforts, and refine advertising campaigns on a
real-time basis. The Company believes that the Web is becoming a more
effective and efficient means for businesses to reach consumers.
Consumers have limited Web resources available to provide focused and
relevant local information. Similarly, many local businesses lack Web
resources enabling them to effectively advertise to targeted local consumers.
As the Internet has evolved, Web users have used sites devoted to local areas
within navigational guides such as search engines and directories, and Web
sites provided by newspapers and other traditional media sources. Local
content within large navigational guides is often comprised of hypertext links
to multiple, disparate Web sites that often provide the user with inconsistent
and confusing user interfaces, outdated information and no common database to
enable useful information searches. While Web sites for traditional media,
including newspapers and television stations, effectively provide Web users
with updated news coverage, they often lack the internal resources to
structure easy-to-use, interactive guides for Web users, resulting in Web
sites with limited functionality. In addition, the Company believes these
sites frequently do not provide businesses with useful geographic and topical
context for a business' Web presence. Finally, many traditional media
organizations do not have experience in fielding, training and managing a
sales and production force skilled at selling Web sites to local businesses,
producing high quality Web-based advertising or providing necessary customer
support.
The Company believes there is a growing demand for online city guides that
provide frequently updated local information organized in an intuitive manner
and targeted at metropolitan consumers. The Company believes that consumers
are seeking a guide that provides extensive information on local events,
business listings and community activities, offers a user-friendly interface
to facilitate rapid information access and allows users to search within a
city-specific site. The Company also believes that as Internet users are
increasingly seeking such information, traditional media sources are also
seeking to partner with companies that are able to provide the appropriate
technology and business processes to develop an online presence. Similarly,
businesses are seeking content and technology solutions that not only offer
Web users a rich and focused local guide so as to provide a highly effective
context for the marketing of their goods and services, but also provide small
and medium sized businesses a low cost, high quality Web presence. Indicative
of this opportunity, Jupiter Communications estimates that the amount of local
businesses advertising online will grow from 9% of total online advertising
revenues in 1996 to 37% in 1998 and 54% of the $7.7 billion in online
advertising in 2002. For local businesses seeking a means of establishing a
Web presence, the current alternatives include either building their own Web
site or placing an advertisement with an electronic yellow pages site. Most
Web custom sites are expensive to develop and maintain, and may not attract
high levels of Web site traffic without significant promotion. Placing an
advertisement with an electronic yellow pages typically does not provide an
appropriate
28
<PAGE>
context for a local business' site and no assistance on how to effectively
reach consumers. As a result, the Company believes a significant opportunity
exists for a local city guide that meets consumers' demands for local
information and businesses' objectives for targeting, interacting and selling
to these local consumers.
THE CITYSEARCH SOLUTION
CitySearch produces and delivers comprehensive local city guides on the Web,
providing up-to-date information regarding arts and entertainment events,
community activities, recreation, businesses, shopping, professional services
and news/sports/weather to consumers in metropolitan areas. Each local city
guide primarily consists of original content developed and designed
specifically for the Web by the Company and its partners. The Company designs
and produces custom-built Web sites and related services for local and
regional businesses, aggregates them in a local city guide environment and
provides business customers the ability to regularly update and expand their
sites. The CitySearch sites offer local and regional businesses the
opportunity to reach and interact with targeted consumers.
CitySearch typically targets medium to large sized cities with a combination
of high personal computer penetration, high Internet use, strong population
growth, significant high technology employment, a large university population
and a government presence. CitySearch has two primary means of providing its
local city guides. In its "owned and operated" markets, the Company
systematically produces the majority of its own content, hires and rapidly
deploys a direct sales force to sell custom-built Web sites as well as related
services to local businesses and launches a presence in approximately six
months. In other markets, the Company partners with a local media company that
contracts with CitySearch to assist in developing, designing, launching and
hosting a city guide. These partners license CitySearch's systems and provide
royalty payments to the Company for revenues derived from operations. As of
June 1, 1998, the Company provided local guides in 12 cities, seven of which
are owned and operated and five of which are operated by its local newspaper
partners ("partner-led markets"). The Company and its partners are in the
process of rolling out their services in four additional partner-led markets
in the U.S. and internationally including Baltimore, Copenhagen, Dallas and
Stockholm. Key elements of the Company's solution include the following:
Leading and Experienced Local Online Service. The Company is a leader in
providing online local guides. CitySearch has launched or initiated a roll-out
of Web-based local city guides with an easy-to-use interface in major national
and international markets, including Austin, Baltimore, Dallas, Los Angeles,
Nashville, New York City, Portland, Raleigh-Durham-Chapel Hill, Salt Lake
City/Utah, the San Francisco Bay Area, Washington, D.C., Copenhagen,
Melbourne, Stockholm, Sydney and Toronto. The Company believes the success of
its approach is evidenced by the over 9,300 local and regional business Web
sites that were online as of March 31, 1998 in its owned and operated markets.
Differentiated Service Offering. The Company believes its local city guides
differ substantially from competitive offerings. CitySearch develops and
regularly updates its own content, both internally and in conjunction with
local media partners, and offers consumers the opportunity to perform
sophisticated searches since all Web content resides in the CitySearch site
database. Unlike navigational guides that typically access content from third-
party Web sites that may be incomplete or out of date, CitySearch sites
encompass a broad array of updated, community-specific content that is easily
accessed through CitySearch's common interface. The Company's city guides have
received numerous awards and recognition for design, functionality and content
including PC Magazine's Editor's Choice, USA Today/Intelliquest's survey
leader, the 1998 Webby award for best travel site, recognition by the New York
Times' as best overall online guide to New York City, How Magazine's Design
Award and Net Guide's Platinum "Best of the Web" award.
Strategic Partnerships. The Company is engaged in a number of strategic
partnerships with media, content and other companies in order to build the
CitySearch brand name and network of city guides. The Company has established
or signed agreements to develop city guides in partnership with The Baltimore
Sun, The Dallas
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<PAGE>
Morning News, Digital Ink Company, a subsidiary of The Washington Post
Company, the Los Angeles Times, The Melbourne Age, Schibsted ASA/Scandinavia
Online, The Sydney Morning Herald and the Toronto Star. Several of the
Company's strategic relationships involve equity investments from the
Company's partners, including The Washington Post Company, The Toronto Star
and The Times-Mirror Company, owner of the Los Angeles Times and The Baltimore
Sun. These major media partners also bring capital, brand recognition,
promotional strength and local knowledge to their CitySearch sites and allow
the Company to build out its national and international network of sites
faster than it could solely through owned and operated sites.
In CitySearch owned and operated markets, the Company partners with local
media companies to assist it in developing content and expanding its
promotional activities. For example, CitySearch has partnered in Raleigh-
Durham-Chapel Hill with the ABC television station (WTVD) and with four radio
stations owned by Capstar Broadcasting Corporation, in Salt Lake City/Utah
with the CBS television station (KUTV) and six radio stations owned by Citadel
Communications Corporation, and in San Francisco with the ABC television
station (KGO) and two CBS-owned radio stations. In addition, the Company has
entered into an agreement with American Express Travel Related Services
Company, Inc. ("American Express") that provides for an equity investment by
American Express in the Company, the distribution of co-branded marketing
materials for the sale of business Web sites to American Express merchant
customers on CitySearch guides, American Express sponsorship and banner
advertising, introduction of electronic commerce products and services and
sponsorship of other promotions. To further supplement the information and
services it provides its consumers, the Company also entered into a
relationship with Ticketmaster Group, Inc. ("Ticketmaster") to develop a
system to enable consumers to purchase tickets to events listed on the
CitySearch service. CitySearch has also reached agreements or arrangements
with Earthlink Network, Inc., Microsoft Corporation's WebTV Networks, Inc.,
The Walt Disney Company's Family.com, C/Net Snap, Planet Direct and Internet
Travel Network to expand its distribution efforts.
Offer Local Businesses Differentiated Presence on the Web. The Company
creates Web sites for local businesses, aggregates the Web sites in a local
city guide environment and provides businesses the ability to regularly update
and expand their sites. The Company believes its service offers local and
regional businesses the opportunity to reach and interact with targeted
audiences in a cost-effective manner. The Company provides business customers
with integrated solutions to establish customized, multi-page Web sites
including design, layout, photography, posting of updated information, hosting
and maintenance. Businesses are able to provide a targeted audience with
updated information about their products and services, including photographs,
prices, store location, schedules of live entertainment, specials or sales and
other relevant information. The Company typically creates a customized, multi-
page Web site for its customers with a minimal up-front fee and monthly fees
ranging from $60 to $750 per month. The Company believes its broad offering of
services and prices compares favorably to other options available to
businesses. Such options range from low cost, low quality scanned-in
information to free-standing custom-designed sites that may cost in excess of
$10,000 in up-front fees to produce and that rely on significant promotion to
attract traffic. By providing a high quality Web presence at an affordable
price, the Company's services address the demand of the large number of
businesses whose online needs fall between these market extremes.
Community-Based Approach. CitySearch differentiates itself from many
national developers of local city guides by building many of its owned and
operated sites with involvement from city governments, chambers of commerce,
community associations, schools and others, and by focusing its hiring efforts
within the local community. The Company builds free Web sites for selected
community organizations, provides tools for e-mail to constituents and
community forums and maintains guides to community services and volunteer
opportunities, thereby enhancing the sense of community each CitySearch site
provides. The Company believes that its community-based approach builds
consumer interest in the site both directly, since the content it provides is
of interest to many individuals and is not generally covered by competing city
sites, and indirectly, because it builds broad support and "ownership" in the
community. The Company has secured strong community support for its service in
each of its markets, and the launch of many of its owned and operated markets
has been presided over by the mayor or governor.
30
<PAGE>
THE CITYSEARCH STRATEGY
The Company's objective is to be the category leader for comprehensive local
city guides that will attract a new and larger group of consumers to the
Internet and to provide an easy-to-use resource for local information that is
relevant to people's daily lives. The Company's strategy is focused on rapidly
rolling out its service in the most attractive, Web-penetrated markets
worldwide, establishing a dominant presence in these markets and using the
CitySearch service as a platform for multiple revenue streams. The following
are key elements of this strategy:
Leverage Systematic City Launch Process. The Company believes it derives a
competitive advantage from its ability to launch its service rapidly.
CitySearch has developed and refined its detailed roll-out process in its 12
city guide launches to date. The Company's roll-out teams are led by
experienced managers who prepare for launch by setting up operations, hiring
and training local management teams, building the initial community
relationships, negotiating promotional arrangements with local media, training
a direct sales force of Internet Business Advisors ("IBAs") and selling
initial sites. The Company's documented roll-out processes typically enable it
to launch its service in approximately six months in owned and operated
markets. In partner-led markets, the Company provides its roll-out expertise,
professional personnel and technical infrastructure to assist its partners in
creating an effective site and initiating a rapid and successful launch.
Rapidly Build National and International Network and Brand Awareness. The
Company intends to establish its service as the category leader for local
information on the Web by linking its local city guides together in a national
and international network. As of June 1, 1998, the Company's service operated
in 12 metropolitan areas worldwide, and has initiated roll-out for launches in
four additional metropolitan areas. The Company will continue to aggressively
enter targeted markets through either an owned and operated market presence or
by entering into partnerships and strategic alliances with major newspapers.
The Company believes that as the number of its sites and usage of its service
increases, it is creating a readily recognizable brand name for local content
on the Internet. The Company believes that its branded worldwide network of
local guides in Web-penetrated markets will increasingly attract local,
regional and national advertisers that seek to efficiently target local
markets and consumers seeking information about cities where they live or that
they intend to visit.
Continue Penetration of Established Markets. The Company emphasizes an
aggressive, on-going process of increasing penetration of businesses in its
metropolitan markets and continued community involvement. The Company strives
to retain its business customers through continuing direct contact by Internet
Marketing Advisers ("IMAs") employed by the Company in most cities and by
providing customers with a high level of customer support. IMAs also educate
existing customers about the benefits of upgrading and expanding their Web
presence. The Company continues to emphasize local community involvement in
each city by maintaining Web sites for and communication with selected city
governments, chambers of commerce, community associations, schools, local
charities and others. Through direct and ongoing contact with businesses and
continuing emphasis on the community, the Company believes it creates a local
presence that is difficult for subsequent competitive entrants to displace or
replicate.
Continue to Enter into Strategic Alliances. The Company intends to continue
to differentiate its service by entering into agreements with local radio,
television and other media companies in its future owned and operated markets
and with major newspapers and other media companies in its partner-led
markets. The Company intends to increase its number of local newspaper
partnerships as a primary growth vehicle. The Company believes its
partnerships with local newspapers provide a significant barrier to entry to
competing local city guides that will be difficult to replicate. In addition,
the Company intends to enter into additional strategic relationships, such as
its current relationships with local television and radio stations, American
Express and distribution partners.
Develop Platform with Multiple Revenue Streams. The Company believes that
its local city guides provide a platform for multiple revenue streams. In
owned and operated markets, the Company derives recurring revenue fees from
the sale of Web sites to local businesses in the communities CitySearch
serves, as well as banner and
31
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sponsorship advertising. Part of the Company's strategy is to increase average
monthly revenue from new customers, in part through the introduction of new
services. Between June 1997 and June 1998, average monthly revenue for new
customers more than doubled. In partner-led markets, the Company derives
licensing and royalty revenues from the licensing of the Company's technology
and business systems, consulting revenues for CitySearch personnel provided to
develop and establish local sites, and revenues for the provision of back
office and hosting services. The Company also offers or intends to offer
electronic commerce functionality and other innovative features allowing
businesses to better serve consumers, including ticketing, reservations, sales
events notifications, electronic coupons, newsletters and other transactions.
The Company believes these types of services offer the Company the opportunity
to further attract both consumers and businesses to its sites and to derive
revenues through increased fees from businesses for additional services and
potentially from online product sales.
THE CITYSEARCH SERVICE FOR CONSUMERS
CitySearch produces and delivers comprehensive local city guides on the Web,
providing up-to-date information regarding arts and entertainment events,
community activities, recreation, businesses, shopping, professional services
and news/sports/weather to consumers in metropolitan areas. Each local city
guide consists primarily of original content developed and designed
specifically for the Web by the Company and its partners. The CitySearch
service is topically organized by categories, which include arts and
entertainment, restaurants and bars, community, shops and services, sports and
outdoors, hotels and tourism, local news and professional services. By using
the CitySearch service, consumers can search shopping areas, obtain maps,
contact community organizations and vendors by e-mail, and engage in bulletin
board discussions with individuals such as local public officials and
celebrities. Some consumers can also access video streams from local
television station partners, including recent news and other information.
CitySearch offers local and regional businesses the opportunity to reach and
interact with targeted consumers. In addition, content generated by consumers
through e-mail and bulletin boards enhances the sense of community in
CitySearch sites.
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The CitySearch service has been launched in markets across the United States
and in selected international markets. The Company plans to continue to expand
its service both in owned and operated markets and by partnering with major
media companies in certain markets. These major media partners bring capital,
brand recognition, promotional strength and local knowledge to their city
guides and allow the Company to build out its national and international
network of sites faster than it could solely through owned and operated sites.
The following table lists the Company's owned and operated and partner-led
markets:
<TABLE>
<CAPTION>
MARKETS DATE OF LAUNCH PARTNERS
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
OWNED AND OPERATED:
Raleigh-Durham-Chapel May 1996 WTVD (ABC)
Hill Capstar Broadcasting Corporation (4 radio
stations)
WUNC (public radio)
WCHL
The Independent
San Francisco Bay October 1996 KGO (ABC)
Area CBS Radio (2 radio stations)
Austin February 1997 KTBC (Fox)
Clear Channel Communications, Inc. (4 radio
stations)
Salt Lake City/Utah March 1997 KUTV (CBS)
Citadel Communications Corporation (6 radio
stations)
Nashville May 1997 WZTV (Fox)
Dick Broadcasting (2 radio stations)
Portland June 1997 KATU (ABC)
Jacor Broadcasting (1 radio station)
New York September 1997(/1/) Time Out New York (Weekly Arts and Entertainment
Publication)
PARTNER-LED:
Melbourne July 1997 The Melbourne Age (Big Colour Pages)
Sydney September 1997 The Sydney Morning Herald (Big Colour Pages)
Toronto September 1997 the Toronto Star
Washington, D.C. December 1997 The Washington Post (Washington Post Newsweek
Interactive)
Los Angeles(/2/) April 1998 the Los Angeles Times
Baltimore 1998* The Baltimore Sun
Copenhagen 1998* Schibsted ASA/Scandinavia Online
Dallas 1998* The Dallas Morning News
Stockholm 1998* Schibsted ASA/Scandinavia Online
Oslo 1999* Schibsted ASA/Scandinavia Online
</TABLE>
* Estimated launch dates
(1) CitySearch acquired MetroBeat, Inc. in June 1996 and relaunched the
MetroBeat site as a CitySearch site in September 1997.
(2) Includes Pasadena, California, which was launched as a beta test site in
January 1996.
33
<PAGE>
[Black and white photographs of computer screens depicting a typical search on
the Company's Web site.]
THE CITYSEARCH SERVICE FOR BUSINESS CUSTOMERS
The Company creates and hosts Web sites for local and regional businesses
and organizations for a monthly fee. CitySearch offers local businesses a wide
range of options in creating Web presences, from a basic Web presence costing
as little as $60 per month to a multi-page site with additional features and
functionality costing up to $750 per month. Most business customers have
entered into a 12 month agreement that automatically converts into a month-to-
month contract. By aggregating a customer's Web site with those of numerous
other businesses in a comprehensive local city guide, CitySearch provides
categorical and geographic context to a customer's Web presence to generate
usage by consumers, as well as significant Internet traffic. Based on internal
studies, the Company believes that CitySearch users are more evenly split
between men and women, better educated, slightly older and have higher annual
incomes than the typical Internet user. The Company believes that these
demographics are attractive to its business customers.
The Company provides an integrated solution for businesses to establish a
Web presence, including design, photography, lay out, posting of updated
information, hosting and maintenance. Businesses are able to provide a
targeted audience with current information about their stores and services
including photographs, prices, store location, schedules of live
entertainment, sales and other relevant information. Unlike traditional media
such as yellow-pages advertising, the Company offers business customers a
certain number of free updates each month. CitySearch's business customers
also receive usage reports, e-mails from interested consumers and access to an
expanded base of potential buyers including tourists and out-of-town users.
The Company has recently introduced a strategy of bundling enhanced features
and functionality, including panoramic images and audio clips. These services,
when bundled with the Company's basic services, are typically priced from $200
to $750 per month, and have accounted for significant increases in the average
selling prices of the Company's offerings. The Company believes its broad
offering of services and prices compares favorably to other options available
to businesses. Such options range from low cost, low quality scanned-in
information to free-standing custom-designed sites that may cost in excess of
$10,000 in up-front fees to produce and that rely on significant promotion to
attract traffic. By providing a high quality Web presence at an affordable
price, the Company's services address the demand of the large number of
businesses whose online needs fall between these market extremes.
The Company's proprietary site design tools and production economies enable
it to build customized multi-page Web sites for customers for a minimal up-
front fee. The production of business Web sites for CitySearch owned and
operated markets and certain partner-led markets is managed centrally in the
Company's headquarters to better control quality and cost and provide rapid
production. Business Web site creation follows a standardized process. First,
IBAs in the field work with customers to design their sites and gather images
and text. Once content is collected, IBAs forward this information to
CitySearch's central production site in Pasadena, where data entry personnel
input the text. Graphic designers then use the Company's proprietary software
to combine the text and scanned images to create custom designed sites that
reflect the nature and style of each business customer. Once the Web site
designers have completed their work, the business Web site is checked for
accuracy and published online after a 14 day customer proofing period. The
entire process, from the receipt of content by the Company to putting a site
online, takes approximately one month to complete. Each step of the sales and
production process is monitored by a sophisticated enterprise management
system to ensure that the process is consistent and complete. The Company
believes the systems and processes it has developed to produce business Web
sites allow it to create higher quality, more informative sites in a more
cost-effective and timely manner than that of its competitors.
The Company offers or intends to offer electronic commerce functionality and
other innovative features allowing businesses to better serve consumers,
including ticketing, reservations, sales events notifications, electronic
coupons, newsletters and other transactions. These types of services offer the
Company the opportunity to further attract both consumers and businesses to
its sites and to derive revenues through increased fees from businesses for
additional services and potentially from online product sales.
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<PAGE>
STRATEGIC ALLIANCES
The Company has entered into partnerships and strategic alliances with third
parties in order to (i) rapidly build its national and international network,
(ii) generate licensing revenue in its partner-led markets, (iii) facilitate
branding, (iv) gain access to additional content and (v) drive traffic on the
CitySearch network of sites. Management intends to continue to negotiate
further partnerships and alliances.
Newspaper Partnerships. CitySearch has entered into strategic partnerships
with major newspapers companies such as The Baltimore Sun, The Dallas Morning
News, the Los Angeles Times, The Washington Post, Schibsted ASA/Scandinavia
Online (Copenhagen, Oslo and Stockholm), The Melbourne Age, The Sydney Morning
Herald and the Toronto Star. In these partner-led markets, the partner
provides the capital and management, while CitySearch contributes technology,
a business model, consulting services, and business systems and processes.
CitySearch typically receives up-front license fees, ongoing license fees for
delivery of upgrades and support and royalties based on revenues that the
newspaper partner generates through the city guide service. In addition, the
Company generally receives additional fees for consulting services in
connection with the launch of the partner's city guides, custom engineering
requested by particular partners, and compensation for business Web site
production, customer service, billing and hosting services. The terms of the
partner agreements are typically five to eight years in length, and contain
customary termination rights in the event of material breach or non-
performance. The Company believes these arrangements allow it to expand its
national and international network of cities in a more rapid and cost-
effective manner than a solely owned and operated network would allow.
Television and Radio Media Alliances. CitySearch has entered into co-
promotion agreements with local television and radio stations in most of its
owned and operated markets. These relationships typically offer content
sharing and co-promotion to both parties. CitySearch works with each partner
to develop a multimedia Web site within the CitySearch site, while the partner
offers promotion and a recognized brand within the market. CitySearch
typically receives significant on-air promotion from these television and
radio stations that increases brand awareness and drives traffic to the
CitySearch site. For example, CitySearch has partnered in Raleigh-Durham-
Chapel Hill with the ABC television station (WTVD) and radio stations owned by
Capstar Broadcasting Corporation and in Salt Lake City/Utah with the CBS
television station (KUTV), as well as radio stations owned by Citadel
Communications Corporation. In San Francisco, the Company has agreements with
the ABC television station (KGO) and radio stations owned by CBS.
Marketing Agreements. The Company has entered into both local and national
marketing agreements. For example, the Company recently reached a wide-ranging
agreement with American Express simultaneously with its $4.0 million equity
investment in the Company. The agreement provides for distribution of co-
branded marketing materials to American Express merchant customers in the
Company's local markets that will offer merchant customers online presences
through the Company's local city guides. The parties intend to create areas
within the Company's sites to aggregate promotions and discounts offered to
consumers by American Express merchant customers as well as develop additional
electronic commerce products. In addition, American Express will purchase
sponsorships and banner advertising on the Company's sites. The Company has
also entered into an agreement with Ticketmaster to develop a system to enable
consumers to purchase tickets to Ticketmaster events featured on the
CitySearch service along with local market online promotion of various
Ticketmaster events. The Company also enters into a wide variety of national
and local marketing agreements. For example, the Company has reached an
agreement with Guess? Inc. that involves banner and in-store promotions in all
of the Company's owned and operated markets, and an agreement with Levi
Strauss Associates Inc.'s Dockers Khakis to provide sponsorship, editorial
features and contests relating to two 1998 San Francisco film festivals. The
Company intends to continue to aggressively pursue such marketing agreements
in order to attract additional business customers and increase usage of the
service by consumers.
Distribution and Vertical Content Alliances. The Company has entered into
agreements with a number of companies to expand its distribution efforts and
user base. For example, the Company has entered into agreements or
arrangements with Earthlink Network, Inc., Microsoft Corporation's WebTV
Networks, Inc., The Walt Disney Company's Family.com, C/Net Snap, Planet
Direct and Internet Travel Network to provide links across sites.
35
<PAGE>
MARKETING AND SALES
The Company emphasizes marketing activities in its owned and operated
markets aimed at increasing awareness of its local city guides for both
consumers and business customers. The Company seeks to build each site as a
community project. From the outset, the Company approaches city councils,
chambers of commerce, volunteer groups, community associations and clubs,
visitors bureaus, schools and other local groups. The Company begins by
creating an online presence for selected organizations free of charge. This
approach builds consumer interest in the site, both directly, since this
content is of interest to the community and not typically covered by
commercial city sites, and indirectly because it builds goodwill with a broad
group. The Company's roll-out teams are led by experienced professionals who
prepare for launch by negotiating promotional arrangements with local media,
training a direct sales force and selling initial sites. The roll-out team
initiates advertising and public relations campaigns through low-cost
"guerilla" marketing efforts and CitySearch's local media partners in radio,
television and print advertising to both drive business customer sales and
consumer usage. The Company also purchases targeted advertising on Web sites
such as Infoseek, Preview Travel and Yahoo! as well as through traditional
media such as radio, print and outdoor.
Market roll-out is supported by integrated business system software that
guides operations, production, billing and customer service. The roll-out
strategy and software is designed to enable CitySearch to rapidly penetrate
key targeted vendor categories and neighborhoods. These integrated,
enterprise-wide tools facilitate lead management, sales cycle management,
problem tracking resolution, mass mailing fulfillment, and in-bound and out-
bound call handling.
In partner-led markets, the Company's marketing efforts rely substantially
on the partner's existing franchise and resources in the community. Partners
typically market their city guide services through substantial print promotion
and integration into a pre-existing news Web site. The partner's brand is also
used in conjunction with the CitySearch brand to build credibility with local
consumers. The Company both provides its partners with a roll-out team to
launch the service, including assistance with recruiting, sales strategy, back
office operations and ongoing support.
Once a city site has been launched, the Company and its partners rely upon a
direct sales force to accelerate the momentum established by the roll-out
team. As of May 31, 1998, the Company employed approximately 140 IBAs in seven
owned and operated markets selling directly to local businesses and
approximately 15 IMAs in these markets to maintain regular contact with
business customers and facilitate up-selling of Web site functionality. Each
IBA and IMA completes a one week intensive training program at the Company's
headquarters with follow up field training. The Company's proprietary
enterprise management system tracks sales leads and prospect status and allows
sales managers to track performance. IBAs and IMAs participate in ongoing
training sessions in sales techniques and new products.
OPERATIONS
The Company has created a systematic approach to market roll-out that
enables it to launch its service in owned and operated markets in
approximately six months and to support a local service once launched. In
addition, the Company licenses its roll-out capabilities to media companies in
its partner-led markets. The Company has analyzed and documented the best
practices associated with its early city launches to refine and standardize
its field and home office production processes. CitySearch's software systems
monitor much of the sales and customer care functions. Additionally, the
Company has built custom systems that streamline the site creation and
maintenance process.
The Company's customer service operation is located in the Company's
Pasadena headquarters. The Company's enterprise management systems enable
customer service staff to view the customer's full profile, billing and
interactive history as they take the call, and to use the software tools to
make many changes to the business customer's site in real time.
36
<PAGE>
TECHNOLOGY
The Company has developed and implemented a number of technologies to
support its local service and business operations, including (i) an online
city guide application; (ii) a set of content development and management
tools; and (iii) a suite of integrated enterprise management systems.
CitySearch Online Application
The CitySearch online application provides an user interface intended to
support novice online users while providing easily accessible advanced
features for experienced Web users. The core end-user functionality of the
CitySearch application includes (i) concurrently performed keyword, spatial
and temporal searches; (ii) personalization that permits consumers, for
example, to receive newsletters in areas of interest, and register for special
offers from CitySearch business customers that have chosen to implement a one-
to-one marketing approach; (iii) dynamic map rendering and "nearby"
functionality; (iv) real-time chat; and (v) message boards.
CitySearch has to date employed an object-relational database to support Web
publishing and searching. With version CS 2.5 of its service, the Company will
employ a multi-tiered architecture, separating a standard relational database
from business rules and presentation logic. With CS 2.5, city guide publishers
will be able to create and change the appearance and, generally, the function
of the product using any commercially available Web page design tool or text
editor. As a result, the Company and its partners will be able to respond even
more quickly to changes in the marketplace and evolving user preferences. In
addition, the object-oriented architecture provides for rapid development
cycles and code reuse. The Company has made a substantial investment in its
product development infrastructure and intends to continue to release product
enhancements that address changing demands of business customers and
consumers.
Content Creation and Management Tools
The Company has created the following applications to support editorial and
advertising content production: (i) SiteWorks, for design of business Web
sites and editorial features; (ii) EditWorks, for editorial content entry;
(iii) User Interface Tree editor, for defining and managing the site
hierarchy; and (iv) MediaWorks, to enable remote content partners, typically
television and radio stations, to submit content directly to the site. These
tools are designed to minimize the technical knowledge that editorial and
advertising content producers need to possess.
Enterprise Management Systems
CitySearch has developed and implemented a suite of integrated enterprise
management systems designed to handle an increasing volume of business
customers. The enterprise management system consists of third party and
internally developed applications covering sales force automation and
telemarketing, production management and tracking systems, customer service,
accounting, billing and commissions systems.
CitySearch has also designed a sophisticated tool to manage the planning,
scheduling, forecasting and tracking of business Web sites, banners and other
services through the various stages of design and production. This tool
enables the Company to manage the large number of business Web sites and
banners developed simultaneously and originating from numerous cities. The
Company believes the systems and processes it has developed to produce
business Web sites allow it to create high quality sites in a more cost-
effective and timely manner.
COMPETITION
The markets for local interactive content and services are highly
competitive. Currently, the Company's primary competitors include Digital
City, Inc., a company wholly owned by America Online Inc. and Tribune Company,
Microsoft Corporation (Sidewalk) and Zip2 Corporation. The Company also
competes against search engine and other site aggregation companies such as
Excite, Inc. (City.Net), Lycos, Inc. (Lycos City Guide) and Yahoo! Inc.
(Yahoo! Local) which primarily serve to aggregate links to sites providing
local content. In addition,
37
<PAGE>
the Company competes against offerings from media companies, including Cox
Interactive Media and Knight-Ridder, Inc., as well as offerings from several
telecommunications and cable companies and Internet service providers that
provide local interactive programming such as SBC Communications Inc. (At
Hand) and U.S. West, Inc. (Dive-In). Many of these companies have greater
financial and marketing resources than the Company and may have significant
competitive advantages through other lines of business and existing business
relationships. There are also numerous niche competitors which focus on a
specific category or geography and compete with specific content offerings
provided by CitySearch. The Company may also compete with online services and
other Web site operators, as well as traditional media such as television,
radio and print for a share of advertisers' total advertising budgets.
Furthermore, additional major media and other companies with financial and
other resources greater than those of the Company may introduce new Internet
products and services addressing these markets in the future. There can be no
assurance that the Company's competitors will not develop services that are
superior to those of the Company or that achieve greater market acceptance
than the Company's offerings.
The Company believes that the principal competitive factors in its markets
include depth, quality and comprehensiveness of content, ease of use,
distribution, search capability and brand recognition. There can be no
assurance that the Company will be able to successfully compete against its
current or future competitors or that competition will not have a material
adverse effect on the Company's business, financial condition and results of
operations. Furthermore, as a strategic response to changes in the competitive
environment, the Company may make certain pricing, service or marketing
decisions or enter into acquisitions or new ventures that could have a
material adverse effect on the Company's business, financial condition and
results of operations.
PROPRIETARY RIGHTS
The Company regards its copyrights, service marks, trademarks, trade dress,
trade secrets and similar intellectual property as critical to its success,
and relies on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with the Company's employees,
customers, partners and others to protect its proprietary rights. The Company
pursues the registration of certain of its key trademarks and service marks in
the United States and internationally. Effective trademark, service mark,
copyright and trade secret protection may not be available in every country in
which the Company's products and services are made available online. The
Company has licensed in the past, and expects that it may license in the
future, certain of its proprietary rights, such as trademarks or copyrighted
material, to third parties. In addition, the Company has licensed in the past,
and expects that it may license in the future, certain content, including
trademarks and copyrighted material, from third parties. While the Company
attempts to ensure that the quality of its brand is maintained by such
licensees, there can be no assurance that such licensees will not take actions
that might materially and adversely affect the value of the Company's
proprietary rights or reputation, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
There can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate or that third parties will not infringe or
misappropriate the Company's copyrights, trademarks, trade dress and similar
proprietary rights. In addition, there can be no assurance that other parties
will not assert infringement claims against the Company. The Company licenses
the trademark "CitySearch" from a third party, and there can be no assurance
that the Company will continue to license the trademark according to terms
acceptable to the Company. The Company may be subject to legal proceedings and
claims from time to time in the ordinary course of its business, including
claims of alleged infringement of the trademarks and other intellectual
property rights of third parties by the Company and its licensees. Such
claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources which could result in a
material adverse effect on the Company's business, financial condition and
results of operations.
EMPLOYEES
As of May 31, 1998, CitySearch employed 560 persons (257 persons in
functions related to cost of revenue, 199 persons in sales and marketing, 56
persons in research and development and 48 persons in general and
administrative areas). None of the Company's employees is represented by a
labor union, and CitySearch considers its employee relations to be good.
38
<PAGE>
FACILITIES
The Company's headquarters are located in Pasadena, California, where the
Company currently leases approximately 28,000 square feet under a lease
expiring in 2002. The Company also leases approximately 4,500 square feet in
Austin, 3,900 square feet in Morrisville, North Carolina, 7,900 square feet in
Research Triangle Park, North Carolina, 4,600 square feet in Nashville, 10,000
square feet in New York, 4,700 square feet in Portland, 4,600 square feet in
Salt Lake City and 5,800 square feet in San Francisco under leases which
expire in 2002, 2001, 2003, 2000, 2004, 2002, 2001 and 1999, respectively. The
Company believes that its facilities are adequate in those cities in which the
Company currently does business.
LEGAL PROCEEDINGS
The Company is not currently subject to any material legal proceedings. The
Company may from time to time become a party to various legal proceedings
arising in the ordinary course of business.
39
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of June 1, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Charles Conn............ 36 Chief Executive Officer and Director
Thomas Layton........... 35 President, Chief Operating Officer, Treasurer
and Director
Douglas McPherson....... 36 Chief Legal Officer and Vice President,
Business Development
Bradley Ramberg......... 34 Chief Financial Officer, Vice President,
Finance and Administration and Secretary
Robert Kavner(1)........ 54 Chairman of the Board
Gerald Breslauer(2)..... 69 Director
Jeffrey Brewer.......... 29 Director
Barry Diller............ 56 Director
Joseph Gleberman(2)..... 40 Director
William Gross(1)........ 39 Director
Yves Sisteron(2)........ 43 Director
Alan Spoon.............. 46 Director
Thomas Unterman(1)...... 53 Director
</TABLE>
- --------
(1)Member of the Compensation Committee
(2)Member of the Audit Committee
Mr. Conn has served as Chief Executive Officer and a director since he co-
founded the Company in September 1995 and served as President of the Company
from September 1995 to October 1996. From September 1990 to September 1995, he
was a consultant at McKinsey & Company, where he was elected Partner. From
September 1986 to September 1988, Mr. Conn worked with the Boston Consulting
Group in Boston and Tokyo and in 1989 with Canon, Inc. in Japan. Mr. Conn
holds a B.A. from Boston University, a B.A. and M.A. from Oxford University,
where he was a Rhodes Scholar and a M.B.A. from Harvard Business School, where
he was a Baker Scholar.
Mr. Layton has served as President since October 1996, Chief Operating
Officer since November 1995, a director since May 1996 and Treasurer of the
Company since September 1995. He also served as Vice President, Sales and
Marketing from November 1995 to October 1996. From May 1994 to November 1995,
he was with Score Learning Corporation, a leading educational learning center,
where he was promoted from Chief Financial Officer to President and Chief
Operating Officer. From February 1989 to September 1992, Mr. Layton was Vice
President and General Manager of the Western Region for Leasecomm, Inc., a
high growth national equipment leasing company, and was previously with the
Boston Consulting Group. Mr. Layton holds a B.S. from the University of North
Carolina at Chapel Hill and a M.B.A. from Stanford Business School.
Mr. McPherson has served as Chief Legal Officer and Vice President, Business
Development since he joined the Company in July 1996. From November 1992 to
June 1996, Mr. McPherson was with the law firm of Heller Ehrman White &
McAuliffe, where he specialized in intellectual property law and general
commercial litigation. From September 1991 to September 1992, he served as a
law clerk for a federal district judge. From
40
<PAGE>
June 1986 to June 1988, he served as Assistant to the Vice President at The
Rockefeller Foundation in New York City. He holds a B.A. from the University
of North Carolina at Chapel Hill, a M.A. from the University of California,
Berkeley and a J.D. from Stanford Law School.
Mr. Ramberg has served as the Chief Financial Officer and Vice President,
Finance and Administration since he joined the Company in April 1996 and as
Secretary since February 1998. From January 1994 to April 1996, he was Vice
President of Finance and Operations at the Fresh Gourmet Company, a joint
venture between CPC International Inc. and Prepco. From December 1992 to
January 1994, he was vice president, operations and finance at Pro-Towel, a
start-up consumer products venture. He holds an A.B. from Brown University and
a M.B.A. from Harvard Business School.
Mr. Kavner has served as a director of the Company since December 1995 and
Chairman of the Board of Directors since March 1996. Mr. Kavner has served as
the Chief Executive Officer, President and a director of OnCommand, Inc., a
provider of in-hotel room entertainment and movies, since September 1996 and
was a consultant in the area of Internet services and content, interactive
entertainment and telecommunications from August 1995. From June 1994 to
August 1995, Mr. Kavner was the head of Creative Artists Agency's business
advisory group. From 1984 to 1994, Mr. Kavner held a number of senior
executive positions in AT&T Corp. Mr. Kavner has a B.A. from Adelphi
University. He also serves as a director of Fleet Financial Corp., Tandem
Computers Incorporated and Earthlink Network, Inc.
Mr. Breslauer has served as a director of the Company since December 1995.
Since June 1952, he has been a Partner of Breslauer & Rutman, a financial
management company. Mr. Breslauer holds a B.A. from the University of
California, Los Angeles.
Mr. Brewer has served as a director of the Company since September 1995 and
was Vice President, Technology and Secretary of the Company from September
1995 to January 1998. Since January 1998, he has served as Chief Executive
Officer of GoTo.com, an internet search engine company. From June 1994 to
September 1995, he served as Director of Online Development at Knowledge
Adventure, a company which developed educational software for children. He
holds a B.S. from Southern Methodist University.
Mr. Diller has served as a director of the Company since December 1997. He
has been a director and Chairman of the Board and Chief Executive Officer of
USA Networks since August 1995. He was Chairman of the Board and Chief
Executive Officer of QVC, Inc. from December 1992 through December 1994. From
1984 to 1992, Mr. Diller served as the Chairmen of the Board and Chief
Executive Officer of Fox, Inc. Prior to joining Fox, Inc., Mr. Diller served
for ten years as Chairman of the Board and Chief Executive Officer of
Paramount Pictures Corporation. Mr. Diller is also a director of The Seagram
Company, Ltd., Ticketmaster Group, Inc. and Golden Books Family Entertainment,
Inc.
Mr. Gleberman has served as a director of the Company since May 1996. He is
a Managing Director in the Principal Investment Area of Goldman, Sachs & Co.
He joined Goldman, Sachs & Co. in 1982. He holds a B.A. and M.A. from Yale
University and a M.B.A. from Stanford University. Mr. Gleberman serves as a
director of Applied Analytical Industries, Inc., Biofield Corp., and Dade
International, Inc.
Mr. Gross has served as a director of CitySearch since he co-founded it in
September 1995. Mr. Gross is currently Chief Executive Officer of Bill Gross'
idealab!, a corporation which generates ideas for and creates new companies.
In 1991, he founded Knowledge Adventure, a corporation which developed
educational software for children. He served as the Chairman of Knowledge
Adventure from October 1991 to January 1997. He was a developer at Lotus
Development Corporation from 1986 to 1991. Prior to joining Lotus Development
Corporation, Mr. Gross founded, in 1980, GNP Loudspeaker, Inc. to manufacture
and sell his patented designs. In 1995, Mr. Gross was elected to the Board of
Trustees of California Institute of Technology as the first Young Alumni
Trustee. Mr. Gross holds a B.S. from the California Institute of Technology.
Mr. Sisteron has served as a director of the Company since December 1997.
Mr. Sisteron has been a Managing Director of Global Retail Partners Fund, L.P.
since January 1996 and a Managing Director, U.S.
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<PAGE>
Investments of Carrefour S.A. since March 1993. Mr. Sisteron has a J.D. and an
L.L.M. from the Lyon Law School and an L.L.M. in Comparative Law from New York
University School of Law.
Mr. Spoon has served as a director of the Company since December 1997. Mr.
Spoon has been President of The Washington Post Company since September 1993
and Chief Operating Officer and a director since May 1991. Prior to that, Mr.
Spoon held a wide variety of positions at The Washington Post Company,
including President of Newsweek from September 1989 to May 1991. Mr. Spoon has
a B.S. from the Massachusetts Institute of Technology, a M.S. from the M.I.T.
Sloan School of Management and a J.D. from Harvard Law School. He is also a
director of American Management Systems, Inc. and Human Genome Sciences, Inc.
Mr. Unterman has served as a director of the Company since June 1997. Since
August 1995, he has served as a Senior Vice President and Chief Financial
Officer of The Times Mirror Company. From February 1995 to August 1995, Mr.
Unterman was a Senior Vice President and General Counsel, and from September
1992 to February 1995 was a Vice President and General Counsel, of The Times
Mirror Company. He has an A.B. from Princeton University and a J.D. from the
University of Chicago.
BOARD COMPOSITION
The Board of Directors is currently comprised of 11 directors, including
nine non-employee directors. Messrs. Diller and Sisteron were elected pursuant
to rights granted to USA Networks and Global Retail Partners, L.P. ("GRP"),
respectively, under the Company's Restated Certificate of Incorporation.
Pursuant to the Company's Restated Certificate of Incorporation, USA Networks
has a right to elect one member of the Board of Directors until the earlier of
(i) November 12, 2007 or (ii) the date USA Networks owns less than 50% of the
capital stock of the Company that it owned on November 12, 1997. In the event
that the Company grants any other stockholder or stockholders, voting as a
separate class, a right to elect more than one director, USA Networks will be
entitled to elect the same number of directors. The Company's Restated
Certificate of Incorporation also provides that GRP has a right to elect one
member of the Board of Directors until the earlier of (i) November 20, 1999,
(ii) the one-year anniversary of the closing of this offering or (iii) the
date GRP owns less than 100% of the capital stock of the Company that it owned
on November 20, 1997.
Mr. Gleberman was elected to the Board of Directors pursuant to the
Company's Restated Certificate of Incorporation which provides that the
holders of Series C Preferred Stock, voting together as a separate class, have
a right to elect one member of the Board of Directors. This right terminates
upon the closing of this offering. Certain holders of the Company's Preferred
Stock and Common Stock have entered into a voting agreement (the "Voting
Agreement") pursuant to which such stockholders are required to vote, from and
after the closing of the offering, all of the shares of the Company's voting
securities owned by them to elect to the Board of Directors the designee or
designees (the "Series C Directors") of the holders of a majority of the
shares of Series C Preferred Stock outstanding immediately prior to the
closing of this offering (the "Series C Holders"). The Series C Holders are
entitled to designate one candidate for election to the Board of Directors,
except that if any other stockholder or stockholders, voting as a separate
class, are entitled, by virtue of a right granted by the Company, to elect
more than one director, the number shall be increased to the number of
directors that such other stockholder or stockholders are entitled to elect.
The Company has agreed to use its best efforts to cause the nomination and
election of the Series C Directors in accordance with the Voting Agreement.
The Voting Agreement terminates upon the date the Series C Holders hold less
than 7.5% of the then outstanding Common Stock (on a fully diluted basis). As
of June 1, 1998, the holders of the Series C Preferred hold 11.5% of the
outstanding Common Stock of the Company (on a fully diluted basis, as
converted basis). As of June 1, 1998, entities affiliated with Goldman, Sachs
& Co. owned 79.6% of the outstanding Series C Preferred Stock.
The Company's Restated Certificate of Incorporation to be effective upon the
completion of this Offering provides that the Board of Directors will be
divided into three classes to serve staggered three-year terms.
The Board of Directors has a Compensation Committee, currently comprised of
Mr. Kavner, Mr. Gross and Mr. Unterman that makes recommendations to the Board
of Directors concerning salaries and incentive
42
<PAGE>
compensation for officers and employees of the Company. The Board of Directors
also has an Audit Committee, currently comprised of Mr. Breslauer, Mr.
Gleberman and Mr. Sisteron, that reviews the results and scope of the annual
audit and other accounting related matters.
DIRECTOR COMPENSATION
The members of the Board of Directors are not compensated for their services
to the Company other than for reimbursement of their expenses incurred in
connection with such services and their eligibility for stock option grants
under the Company's 1996 Stock Option Plan. In March and April 1996, Mr.
Kavner received options to purchase 50,000, 10,000 and 81,681 shares of Common
Stock under the 1996 Stock Option Plan at an exercise price of $.10, $.10 and
$.25 per share, respectively. In March 1996, Mr. Breslauer received an option
to purchase 10,000 shares of Common Stock under the 1996 Stock Option Plan at
an exercise price of $.10 per share. Upon completion of this offering,
directors who are employees of the Company will be eligible to receive stock
options pursuant to the 1996 Stock Option Plan, while non-employee directors
will receive stock options pursuant to the automatic option grant provisions
of the 1998 Director Option Plan. See "--Employee Benefit Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee is an officer or employee
of the Company. No interlocking relationship exists between the Company's
Board of Directors or Compensation Committee and the board of directors or
compensation committee of any other company, nor has such an interlocking
relationship existed in the past.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation awarded to, earned by or paid for services rendered to the
Company in all capacities during the year ended December 31, 1997 by the
Company's Chief Executive Officer and the one executive officer who earned in
excess of $100,000 in compensation during the fiscal year ended December 31,
1997 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITY
------------------- OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY BONUS COMPENSATION OPTIONS (#)
- ---------------------------- ------------------- ------------ ------------
<S> <C> <C> <C> <C>
Charles Conn..................... $ 93,333 $ 40,000 -- 125,000
Chief Executive Officer and Di-
rector
Thomas Layton.................... 86,667 25,000 -- 75,000
President, Chief Operating
Officer, Treasurer and Director
</TABLE>
43
<PAGE>
OPTION GRANTS IN 1997
The following table sets forth certain information regarding option grants
to each of the Named Executive Officers during the year ended December 31,
1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERMS(4)
---------------------------------------------------------- ---------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS GRANTED EMPLOYEES IN PRICE(3)
NAME (1) 1997(2) PER SHARE EXPIRATION DATE 5% 10%
- ---- --------------- ---------------- --------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles Conn............ 125,000 12.2% $2.00 10/01/07 $ 157,224 $ 398,436
Thomas Layton........... 75,000 7.3 2.00 10/01/07 94,334 239,061
</TABLE>
- --------
(1) All options were granted under the Company's 1996 Stock Option Plan and
vest one forty-eighth per month at the end of each month commencing
September 1, 1997; provided, however that upon a substantial merger or an
acquisition of the Company, the unvested portion of such options will vest
immediately.
(2) Based on options to purchase 1,025,000 shares granted to employees,
including the Named Executive Officers, during the fiscal year ended
December 31, 1997 (excluding options to purchase 85,000 shares of Common
Stock which were granted to employees and subsequently canceled during the
fiscal year ended December 31, 1997).
(3) The exercise price per share of each option was equal to the fair market
value of the underlying Common Stock on the date of grant as determined by
the Board of Directors.
(4) Potential gains are calculated net of the exercise price but before taxes
associated with the exercise. The 5% and 10% assumed annual rates of
compounded stock appreciation are mandated by the rules of the Securities
and Exchange Commission ("Commission") and do not represent the Company's
estimate or projection of the future Common Stock price. Actual gains, if
any, on stock option exercises are dependent on the future financial
performance of the Company, overall market conditions and the option
holder's continued employment through the vesting period.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth the number of shares acquired upon the
exercise of stock options during the year ended December 31, 1997 and the
number of shares covered by both exercisable and unexercisable stock options
held by each of the Named Executive Officers at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR-END(1) AT YEAR-END(2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles Conn............ -- $ -- 10,417 114,583 $ $
Thomas Layton........... -- -- 256,250 68,750
</TABLE>
- --------
(1) Options shown were granted under the 1996 Stock Option Plan and are
subject to vesting as described in footnote (1) to the option grant table
above. See "Employee Benefit Plans" for a description of the material
terms of these options.
(2) Based on the assumed initial public offering price of $ per share, less
the exercise price.
EMPLOYMENT AGREEMENT
On May 9, 1996 and July 2, 1997, respectively, the Company entered into at-
will employment agreements with each of Charles Conn and Thomas Layton, the
Company's Chief Executive Officer and President, respectively. Pursuant to
such employment agreements, in the event that Mr. Conn's or Mr. Layton's, as
the case may be, employment is terminated, each will be entitled to receive
severance payments until the earlier of (i) such time as he is employed by a
recognized company or (ii) six months after termination. Such severance
payments will equal his full salary for the first three months after
termination and half of his salary for the second three months after
termination.
44
<PAGE>
EMPLOYEE BENEFIT PLANS
1996 Stock Option Plan. The Board of Directors adopted and the stockholders
approved the Company's 1996 Stock Option Plan (the "Stock Plan") and the
reservation of 2,500,000 shares of Common Stock thereunder on March 1, 1996.
On September 18, 1996, the Board of Directors and the stockholders approved an
increase of 500,000 reserved for issuance under the Stock Plan. The Board of
Directors and the stockholders approved a further increase of 1,000,000 shares
on November 18, 1996 and November 20, 1996, respectively. Subject to approval
by the stockholders, the Company plans to increase the number of shares
reserved for issuance by 1,000,000 shares to an aggregate of 5,000,000 shares
of the Common Stock reserved under the Stock Plan. The Stock Plan, as proposed
to be amended, provides that the aggregate number of shares reserved
thereunder will automatically be increased each year on the first day of the
Company's fiscal year beginning in 1999 by a number of shares equal to the
lesser of (i) 2,000,000 shares of Common Stock, (ii) 4% of the then
outstanding shares of Common Stock on such date or (iii) a lesser amount
determined by the Board of Directors.
The Stock Plan provides for the granting to employees (including officers
and employee directors) of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, and for the
granting to employees (including officers and employee directors) and
consultants (including non-employee directors) of nonstatutory stock options.
Unless terminated sooner, the Stock Plan will terminate automatically in March
2006. The Board of Directors has the authority to amend, suspend or terminate
the Stock Plan, provided that no such action may affect any share of Common
Stock previously issued and sold or any option previously granted under the
Stock Plan.
The Stock Plan may be administered by the Board of Directors or a committee
consisting of members of the Board of Directors. The administrator has the
power to determine the terms of each option granted, including the exercise
price, the number of shares subject to the option and the exercisability
thereof, and the form of consideration payable upon exercise. No employee or
consultant may be granted, in any fiscal year of the Company, options to
purchase more than 750,000 shares (plus 1,500,000 shares in the case of a new
employee's or consultant's initial employment with the Company). Unless
determined otherwise by the administrator, an option granted under the Stock
Plan is not transferable by the optionee other than by will or by the laws of
descent or distribution, and is exercisable during the lifetime of the
optionee only by such optionee. An option granted under the Stock Plan must be
exercised within three months after termination of the optionee's status as an
employee or consultant of the Company (or within 12 months after termination
of such status by death or disability), but in no event later than the
expiration of the option in accordance with its terms. The exercise price of
nonstatutory stock options is determined by the administrator, but with
respect to nonstatutory stock options intended to a qualify as "performance-
based compensation" within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended, the exercise price must at least be equal to
the fair market value of the Common Stock on the date of grant. With respect
to any participant who owns stock possessing more than 10% of the voting power
of all classes of the Company's outstanding capital stock, the exercise price
of any incentive stock option must equal at least 110% of the fair market
value on the grant date and the term of the option must not exceed five years.
The term of all other options granted under the Stock Plan may not exceed ten
years.
The shares subject to options granted under the Stock Plan may be fully and
immediately exercisable or may be exercisable cumulatively over time or upon
satisfaction of specified performance criteria, as determined by the
administrator. In most cases, 25% of the shares subject to options granted
under the Stock Plan are exercisable at the end of one year with one forty-
eighth of the shares subject to the option becoming exercisable each month
thereafter.
The Stock Plan provides that in the event of a merger of the Company with or
into another corporation, outstanding stock options will either be assumed by
the acquiring corporation or terminated as of the date of the closing of the
merger, and immediately prior to the consummation of any dissolution or
liquidation of the Company, outstanding stock options will be terminated.
45
<PAGE>
1998 Director Option Plan. Subject to approval by the stockholders, the
Company intends to adopt the 1998 Director Option Plan (the "Director Plan").
The Director Plan provides for the automatic grant of nonstatutory stock
options to non-employee directors. The Director Plan has a term of ten years,
unless terminated sooner by the Board of Directors. A total of 300,000 shares
of Common Stock have initially been reserved for issuance under the Director
Plan. In addition, the Director Plan provides for annual increases on the
first day of the Company's fiscal year beginning in 1999 by a number equal to
the lesser of (i) the number of shares needed to restore the maximum aggregate
number of shares available for sale under the Director Plan to 300,000 shares
or (ii) a lesser number of shares determined by the Board of Directors.
The Director Plan provides that each non-employee director who is a member
of the Board of Directors on or after the effective date of this offering
shall automatically be granted an option to purchase 20,000 shares of Common
Stock (the "First Option") on the later of (i) the effective date of this
offering or (ii) the date which such person first becomes a non-employee
director. In addition to the First Option, each non-employee director shall
automatically be granted an option to purchase 5,000 shares (a "Subsequent
Option") on the date of each of the Company's annual meeting of stockholders,
if on such date he or she shall have served on the Board of Directors for at
least six months. Each First Option and Subsequent Option shall have a term of
ten years. Twenty-five percent of the shares subject to the options will vest
one year from the date of grant and one forty-eighth of the optioned stock
shall vest each month thereafter, provided that the individual continues to
serve as a director on such dates. The exercise price of each First Option and
each Subsequent Option shall be 100% of the fair market value per share of the
Common Stock on the date of grant.
In the event of a merger of the Company or the sale of substantially all of
the assets of the Company, each outstanding option may be assumed or an
equivalent option substituted for by the successor corporation. If an option
is assumed or substituted for by the successor corporation, it shall continue
to vest as provided in the Director Plan so long as the optionee continues to
serve as a director of the Company or the successor corporation, as
applicable. However, if a non-employee director's status as a director of the
Company or the successor corporation, as applicable, is terminated other than
upon a voluntary resignation by the non-employee director, each option granted
to such non-employee director shall become fully vested and exercisable. If
the successor corporation does not assume an outstanding option or substitute
for it an equivalent option, the option will terminate as of the closing of
the merger or asset sale. Options granted under the Director Plan must be
exercised within three months of the end of the optionee's tenure as a
director of the Company, or within 12 months after such director's termination
by death or disability, but in no event later than the expiration of the
option's ten-year term. Options granted under the Director Plan are generally
not transferable by the optionee other than by will or the laws of descent and
distribution, and each option is exercisable, during the lifetime of the
optionee, only by such optionee.
1998 Employee Stock Purchase Plan. Subject to approval by stockholders, the
Company plans to adopt the 1998 Employee Stock Purchase Plan (the "Purchase
Plan") and reserve an aggregate of 300,000 shares of Common Stock thereunder.
The number of shares reserved will be increased automatically each year on the
first day of the Company's fiscal year beginning in 1999 by an amount equal to
the lesser of (i) 600,000 shares of Common Stock, (ii) 1.5% of the outstanding
shares of Common Stock on such date or (iii) a lesser amount determined by the
Board of Directors. The Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Code. Under the
Purchase Plan, the Board of Directors may authorize participation by eligible
employees, including officers, in periodic offerings following the
commencement of the Purchase Plan. Each offering period will run for 12 months
and will be divided into consecutive purchase periods of approximately six
months. The initial offering under the Purchase Plan will commence on the date
of this Prospectus and terminate on October 31, 1999. Thereafter, new 12 month
offering periods will commence every six months on each May 1 and November 1.
Unless otherwise determined by the Board of Directors, employees are
eligible to participate in the Purchase Plan only if they are customarily
employed by the Company or a subsidiary of the Company designated by the Board
of Directors for at least 20 hours per week and for at least five months per
calendar year. Amounts deducted and accumulated by the participant are used to
purchase shares of Common Stock at the end of each
46
<PAGE>
purchase period. Employees who participate in an offering may have up to 15%
compensation withheld pursuant to the Purchase Plan. The price of Common Stock
purchased under the Purchase Plan will be equal to 85% of the fair market
value of the Common Stock at the commencement date of each offering period or
the relevant purchase date, whichever is lower. In the event the fair market
value at the end of a purchase period is less than the fair market value at
the beginning of the offering period, the participants will be withdrawn from
the current offering period following exercise and automatically re-enrolled
in a new offering period. The new offering period will use the lower fair
market value as of the first date of the new offering period to determine the
purchase price for future purchase periods. Employees may end their
participation in any offering period at any time during any offering period,
and participation ends automatically on termination of employment with the
Company. The maximum number of shares that a participant may purchase during
each purchase period is 5,000 shares during any purchase period. In addition,
no person may purchase shares under the Purchase Plan to the extent such
person would own 5% or more of the total combined value or voting power of all
classes of the capital stock of the Company or any of its subsidiaries, or to
the extent that such person's rights to purchase stock under all employee
stock purchase plans would exceed $25,000 for any calendar year. The Purchase
Plan will terminate ten years from the date of adoption of the Purchase Plan,
unless terminated earlier in accordance with the provisions of the Purchase
Plan.
In the event of a proposed sale of all or substantially all the assets of
the Company, or the merger of the Company with or into another corporation,
each outstanding option will be assumed or an equivalent option substituted by
the successor corporation. In the event the successor corporation does not
assume or substitute for the option, any offering periods then in progress
shall be shortened to a new date prior to the proposed sale or merger. The
Board of Directors has the authority to amend or terminate the Purchase Plan,
provided, that no such action may adversely affect any outstanding rights to
purchase Common Stock.
401(k) Plan. The Company participates in a tax-qualified employee savings
and retirement plan (the "401(k) Plan") which covers all of the Company's
full-time employees who are at least 21 years of age and who have been
employed with the Company for at least three months. Pursuant to the 401(k)
Plan, eligible employees may defer up to 20% of their pre-tax earnings,
subject to the Internal Revenue Service's annual contribution limit. The
401(k) Plan permits additional discretionary matching contributions by the
Company on behalf of all participants in the 401(k) Plan in such a percentage
amount as may be determined annually by the Board of Directors. To date, the
Company has made no such matching contributions. The 401(k) Plan is intended
to qualify under Section 401 of the Internal Revenue of 1986, as amended, so
that contributions by employees or by the Company to the 401(k) Plan, and
income earned on plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan, and so that contributions by the Company, if
any, will be deductible by the Company when made. The trustee under the 401(k)
Plan, at the direction of each participant, invests the assets of the 401(k)
Plan in any of a number of investment options.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation, which will become
effective upon the closing of this offering, limits the liability of directors
for breach of fiduciary duty as a director to the maximum extent not
prohibited by the DGCL. The DGCL provides that a corporation's certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of a director for monetary damages for breach of their fiduciary
duties as directors, except for liability (i) for any breach of their 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) for unlawful payments of dividends or unlawful stock repurchases
or redemptions as provided for in Section 174 of the DGCL or (iv) for any
transaction from which the director derived an improper personal benefit. The
Company's Restated Certificate of Incorporation also provides that the Company
is required to indemnify to the fullest extent permitted by law any director,
officer or employee of the Company.
The Company's Bylaws, which will also become effective upon the closing of
this offering, provide that (i) the Company is required to indemnify its
directors and officers to the maximum extent permitted by the DGCL, subject to
certain very limited exceptions, (ii) the Company may indemnify its other
employees and agents to the maximum extent permitted by the DGCL, (iii) the
Company is required to advance expenses, as incurred, to its
47
<PAGE>
directors and officers in connection with a legal proceeding, subject to
certain very limited exceptions and (iv) the rights conferred in the Bylaws
are not exclusive.
The Company will enter into indemnification agreements with its officers and
executive directors containing provisions that may require the Company, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors
or officers (other than liabilities arising from willful misconduct of a
culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
48
<PAGE>
CERTAIN TRANSACTIONS
PRIVATE PLACEMENTS OF SECURITIES
On September 22, 1995, the Company issued an aggregate of 6,622,857 shares
of its Common Stock to William Gross, a co-founder and director of the
Company, for services provided to the Company and aggregate proceeds of
$5,000. On December 9, 1995, the Company repurchased 2,000,000 shares of
Common Stock from Mr. Gross for an aggregate price of $1,510. On October 11,
1995 the Company sold an aggregate of 4,233,500 shares of its Common Stock to
Charles Conn, Thomas Layton, Jeffrey Brewer and certain other key employees
(together with shares of Common Stock issued to William Gross, the "Founders'
Stock") for aggregate proceeds of $84,670. Pursuant to the terms of the
applicable subscription agreement, Founders' Stock may not be transferred
without the written consent of the Board of Directors. To date, 1,778,234
shares of Founders' Stock have been transferred by Mr. Gross and certain key
employees with the approval of the Board of Directors. However, Mr. Gross
retains voting power over 1,428,234 of shares transferred by him until the
closing of this offering.
Between May 15, 1996 and July 31, 1996, the Company issued and sold an
aggregate of 3,261,024 shares of Series C Preferred Stock at a per share price
of $3.4665. Entities affiliated with Goldman, Sachs & Co., which entities
together hold more than 5% of the capital stock of the Company, purchased
2,596,278 of these shares for an aggregate purchase price of approximately
$9.0 million. Mr. Gleberman, a director of the Company, is a Managing Director
in the Principal Investment Area of Goldman, Sachs & Co.
Between December 13, 1996 and October 22, 1997, the Company issued and sold
an aggregate of 4,430,313 shares of Series D Preferred Stock at a per share
price of $6.5251. These sales included the following: 766,272 shares to were
sold to The Times Mirror Company for an aggregate purchase price of
approximately $5.0 million; 475,085 shares were sold to entities affiliated
with Goldman, Sachs & Co. for an aggregate purchase price of approximately
$3.1 million; 459,753 shares were sold to Digital Ink Company, a wholly-owned
subsidiary of The Washington Post Company, for an aggregate purchase price of
approximately $3.0 million; and 12,674 shares were sold to Byters for an
aggregate purchase price of approximately $83,000. Mr. Unterman, a director of
the Company, is a Senior Vice President and Chief Financial Officer of The
Times Mirror Company. Mr. Spoon, a director of the Company, is President of
The Washington Post Company. Mr. Breslauer, a director of the Company, is a
general partner of Byters.
Between November 11, 1997 and November 26, 1997, the Company issued and sold
an aggregate of 4,714,286 shares of Series E Preferred Stock at a per share
price of $7.00. USA Networks purchased 2,857,143 of these shares for an
aggregate purchase price of approximately $20.0 million. Mr. Diller, a
director of the Company, is Chairman and Chief Executive Officer of USA
Networks. In addition, 714,286 shares were sold to entities affiliated with
Global Retail Partners, L.P. for an aggregate purchase price of approximately
$5.0 million and 306,509 shares were sold to Digital Ink Company for an
aggregate purchase price of approximately $2.1 million. Mr. Sisteron, a
director of the Company, is a Managing Director of Global Retail Partners,
L.P.
On May 26, 1998, the Company issued and sold an aggregate of 1,000,000
shares of Series E Preferred Stock at a per share price of $7.00. USA Networks
purchased 428,571 of these shares for an aggregate purchase price of
approximately $3.0 million.
Until the closing of this offering, the holders of the Series C Preferred
Stock have a right to elect directors pursuant to the Company's Restated
Certificate of Incorporation and from and after the closing of this offering
pursuant to the Voting Agreement. USA Networks and GRP have a right to elect
directors pursuant to the Company's Restated Certificate of Incorporation. See
"Management--Board Composition."
Pursuant to Stockholders' Agreement, USA Networks has a right to purchase
that number of shares of this offering (the "IPO Shares") which will enable
USA Networks to own up to 14.9% of the Company (on a fully diluted, as
converted to Common Stock basis); provided that USA Networks may not purchase
more than 50%
49
<PAGE>
of the IPO Shares. As of June 1, 1998, USA Networks owns 12.9% of the Company
(on a fully diluted, as converted to Common Stock basis). Pursuant to the
Stockholders' Agreement, within ten days of USA Networks' receipt of a notice
of the range of per share prices for the IPO Shares, USA Networks must give
written notice of its intent to purchase the IPO Shares. If the actual price
of the IPO Shares is above the range specified in the Company's notice, USA
Networks will no longer be obligated to purchase any IPO Shares. In addition,
the Stockholders' Agreement provides that the Company may not (i) adopt a
rights agreement (or other similar device) with an ownership threshold that
would limit USA Networks' ability to own or purchase securities of the Company
or (ii) amend its bylaws, certificate of incorporation or fail to take an
action under Section 203 of the DGCL which would limit USA Networks' ability
to own or purchase securities of the Company.
In May 1997, the Company entered into a cross-promotional agreement with
Ticketmaster Group, Inc., an affiliate of USA Networks ("Ticketmaster").
Pursuant to the agreement, Ticketmaster agreed to provide banner advertising
promoting the Company's owned and operated city sites on the Ticketmaster Web
site, to provide access to Ticketmaster ticket and information Web pages and
to provide "music-on-hold" and/or direct mail opportunities. CitySearch agreed
to provide promotion of the Ticketmaster name and logo in selected advertising
and marketing materials, to co-produce with Ticketmaster broadcast
advertising, to provide banner advertising promoting Ticketmaster on the
CitySearch Web sites and to promote Ticketmaster events and publications.
In June 1997, the Company entered into a license and services agreement with
the Los Angeles Times, a division of The Times Mirror Company. The agreement
provides for the license of the Company's intellectual property and consulting
services in exchange for an up-front license fee, ongoing royalties based on
the revenues generated by the city guide developed by the parties and fees for
consulting services. The agreement contains customary termination provisions
for material breach or non-performance.
In November 1997, the Company entered into a license and services agreement
with Digital Ink Company, a wholly-owned subsidiary of The Washington Post
Company. The agreement provides for the license of the Company's intellectual
property and consulting services in exchange for an up-front license fee,
ongoing royalties based on the revenues generated by the city guide developed
by the parties and fees for consulting services. The agreement contains
customary termination provisions for material breach or non-performance.
The Company believes that the terms of each of the transactions described
above, taken as a whole, were no less favorable than the Company could have
obtained from unaffiliated third parties. All future transactions between the
Company and its officers, directors and principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested outside directors.
The Company has entered into employment agreements with each of Charles Conn
and Thomas Layton, the Company's Chief Executive Officer and President,
respectively. See "Management--Employment Agreement."
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock on an as converted on June 1, 1998
basis and as adjusted to reflect the sale of the shares of Common Stock
offered hereby by (i) each person or entity who is known by the Company to own
beneficially 5% or more of the Company's outstanding Common Stock; (ii) each
director of the Company; (iii) each of the Named Executive Officers; and (iv)
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(2)
NAME AND ADDRESS OF NUMBER OF SHARES ------------------------------
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) BEFORE OFFERING AFTER OFFERING
- ------------------- --------------------- --------------- --------------
<S> <C> <C> <C>
William Gross(3).......... 3,535,446 14.1
Barry Diller(4)........... 3,251,541 12.9
USA Networks, Inc. ....... 3,251,541 12.9 (5)
152 West 57th Street,
38th Floor
New York, NY 10019
Joseph Gleberman(6)....... 2,985,591 11.9
Entities affiliated with 11.9
Goldman, Sachs & Co.(7).. 2,985,591
85 Broad Street
New York, NY 10004
Charles Conn(8)........... 1,614,467 6.4
Thomas Layton(9).......... 967,188 3.9
Thomas Unterman(10)....... 751,424 3.0
Alan Spoon(11)............ 749,933 3.0
Yves Sisteron(12)......... 706,855 2.8
Jeffrey Brewer............ 412,500 1.6
Robert Kavner(13)......... 224,322 *
Gerald Breslauer(14)...... 91,616 *
Executive officers and
directors as a group
(13 persons)(15)......... 15,352,960 61.1
</TABLE>
- --------
* Less than 1% of the Company's outstanding Common Stock.
(1) Unless otherwise indicated, the address of each of the named individuals
is: c/o CitySearch, Inc., 790 E. Colorado Boulevard, Suite 200, Pasadena,
CA 91101.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Except as indicated by footnote, and subject to community
property laws where applicable and the terms of the Voting Agreement
relating to the election of the Series C Director, the persons named in
the table above have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them. Percentage of
beneficial ownership is based on 25,118,827 shares of Common Stock
outstanding as of June 1, 1998, and shares of Common Stock after
completion of this offering. Amounts shown in the above table and the
following notes include shares issuable upon stock options to purchase
shares of Common Stock which are exercisable within 60 days of June 1,
1998.
(3) Excludes 1,178,234 shares which Mr. Gross transferred previously but as
to which he retains voting power until the closing of this offering.
Includes 590,823 shares held by Bill Gross' idealab!, as to which Mr.
Gross disclaims beneficial ownership.
(4) Includes 3,251,541 shares held by USA Networks, as to which Mr. Diller
disclaims beneficial ownership.
(5) Excludes the shares of Common Stock offered in this offering which may be
purchased by USA Networks pursuant to the Stockholder Rights Agreement.
See "Certain Transactions."
(6) Includes 2,985,591 shares held by entities affiliated with Goldman, Sachs
& Co., as to which Mr. Gleberman disclaims beneficial ownership. See
footnote (7).
(7) Includes 1,873,249 shares held by GS Capital Partners II, L.P., 744,693
shares held by GS Capital Partners II Offshore, L.P., 177,906 shares held
by Stone Street Fund 1996, L.P., 120,650 shares held by Bridge Street
Fund 1996, L.P. and 69,093 shares held by Goldman, Sachs & Co.
Verwaltungs GmbH.
51
<PAGE>
(8) Includes 28,646 shares issuable upon exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
June 1, 1998.
(9) Includes 17,188 shares issuable upon exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
June 1, 1998.
(10) Includes 744,356 shares held by The Times Mirror Company, as to which Mr.
Unterman disclaims beneficial ownership and 7,068 shares held by The
Thomas and Janet Unterman Living Trust dated 12/30/94.
(11) Includes 749,933 shares held by Digital Ink Company, a wholly-owned
subsidiary of The Washington Post Company, as to which Mr. Spoon
disclaims beneficial ownership.
(12) Includes 706,855 shares held by entities affiliated with Global Retail
Partners, L.P., as to which Mr. Sisteron disclaims beneficial ownership.
(13) Includes 109,039 shares issuable upon exercise of stock options to
purchase shares of Common Stock which are exercisable by Mr. Kavner
within 60 days of June 1, 1998.
(14) Includes 81,616 shares held by Byters and 10,000 shares issuable upon
exercise of stock options to purchase shares of Common Stock which are
exercisable within 60 days of June 1, 1998.
(15) See footnotes (2) through (14). Includes 164,873 shares issuable upon
exercise of stock options to purchase shares of Common Stock which are
exercisable within 60 days of June 1, 1998.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of June 1, 1998, and assuming the conversion of all outstanding Preferred
Stock into Common Stock as of June 1, 1998, there were 25,118,827 shares of
Common Stock held of record by 248 stockholders and options to purchase
2,392,023 shares of Common Stock outstanding.
COMMON STOCK
Upon the closing of this offering, the Company will be authorized to issue
75,000,000 shares of Common Stock. Subject to preferences that may apply to
shares of Preferred Stock outstanding from time to time, the holders of
outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the
Board of Directors may from time to time determine. Each stockholder is
entitled to one vote for each share of Common Stock held on all matters
submitted to a vote of stockholders. Cumulative voting for the election of
directors is not provided for in the Company's Restated Certificate of
Incorporation; therefore, the holders of a majority of the shares voted can
elect all of the directors then standing for election. The Common Stock is not
entitled to preemptive rights and is not subject to conversion or redemption.
Upon a liquidation, dissolution or winding-up of the Company, the assets
legally available for distribution to stockholders are distributable ratably
among the holders of the Common Stock and any participating Preferred Stock
outstanding at that time after payment of liquidation preferences, if any, on
any outstanding Preferred Stock and payment of other claims of creditors. Each
outstanding share of Common Stock is, and all shares of Common Stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
Upon the closing of this offering, the Company will be authorized to issue
2,000,000 shares of Preferred Stock. The Board of Directors is authorized,
subject to limitations prescribed by Delaware law, to provide for the issuance
of shares of Preferred Stock in one or more series, to establish from time to
time the number of shares to be included in each such series, to fix the
powers, designations, preferences and rights of the shares of each wholly
unissued series and designate any qualifications, limitations or restrictions
thereon and to increase or decrease the number of shares of any such series
(but not below the number of shares of such series then outstanding) without
any further vote or action by the stockholders. The issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company and may adversely affect the voting and other rights of
the holders of Common Stock, which could have an adverse impact on the market
price of the Common Stock. The Company has no current plan to issue any shares
of Preferred Stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Restated Certificate of Incorporation provides that, effective
upon the closing of this offering, all stockholder actions must be effected at
a duly called meeting and not by consent in writing. Provisions of the
Restated Certificate of Incorporation and Bylaws provide that the stockholders
may amend certain provisions of the Restated Certificate of Incorporation and
the Bylaws only with the affirmative vote of holders of 66 2/3% of the
Company's capital stock. Further, the Bylaws (i) provide that only the Board
of Directors, the Chairman of the Board of Directors or the President may call
special meetings of the stockholders and (ii) establish an advance notice
procedure for stockholder proposals to be brought before an annual meeting of
stockholders of the Company, including proposed nominations of persons for
election to the Board of Directors. In addition, the Restated Certificate of
Incorporation provides that the Board of Directors will be divided into three
classes to serve staggered three-year terms. These provisions of the Restated
Certificate of Incorporation and Bylaws will have the effect of delaying,
deferring or preventing a change of control of the Company. These provisions
are intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage certain types of transactions that may
involve an actual or threatened change of control of the Company. These
provisions are designed to reduce the vulnerability of the Company to an
unsolicited acquisition proposal. The
53
<PAGE>
provisions also are intended to discourage certain tactics that may be used in
proxy fights. However, such provisions could have the effect of discouraging
others from making tender offers for the Company's shares and, as a
consequence, they also may inhibit fluctuations in the market price of the
Company's shares that could result from actual or rumored takeover attempts.
Such provisions also may have the effect of preventing changes in the
management of the Company. The Stockholders Agreement provides that the
Company may not (i) adopt a rights agreement (or other similar device) with an
ownership threshold that would limit USA Networks' ability to own or purchase
securities of the Company or (ii) amend its bylaws, certificate of
incorporation or fail to take an action under Section 203 of the DGCL, in each
case which would limit USA Networks' ability to own or purchase securities of
the Company. See "Risk Factors--Anti-takeover Effects of Certain Charter and
Contractual Provisions."
EFFECT OF DELAWARE ANTITAKEOVER STATUTE
The Company is subject to Section 203 of the DGCL (the "Antitakeover Law"),
which regulates corporate acquisitions. The Antitakeover Law prevents certain
Delaware corporations, including those whose securities are listed for trading
on the Nasdaq National Market, from engaging, under certain circumstances in a
"business combination" with any "interested stockholder" for three years
following the date that such stockholder became an interested stockholder. For
purposes of the Antitakeover Law, a "business combination" includes, among
other things, a merger or consolidation involving the Company and the
interested stockholder and the sale of more than ten percent of the Company's
assets. In general, the Antitakeover Law defines an "interested stockholder"
as any entity or person beneficially owning 15% or more of the outstanding
voting stock of the Company and any entity or person affiliated with or
controlling or controlled by such entity or person. A Delaware corporation may
"opt out" of the Antitakeover Law with an express provision in its original
certificate of incorporation or an express provision in its certificate of
incorporation or bylaws resulting from amendments approved by the holders of
at least a majority of the Company's outstanding voting shares. The Company
has not "opted out" of the provisions of the Antitakeover Law.
REGISTRATION RIGHTS
After this offering, the holders of 23,885,667 shares of Common Stock will
be entitled to certain rights with respect to the registration of such shares
under the Securities Act. Under the terms of the agreement between the Company
and the holders of such registrable securities, if the Company proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other security holders exercising registration
rights, such holders are entitled to notice of such registration and are
entitled to include shares of such Common Stock therein. Additionally, of such
holders, holders of 13,128,789 shares of Common Stock are also entitled to
certain demand registration rights pursuant to which they may require the
Company to file a registration statement under the Securities Act at its
expense with respect to their shares of Common Stock, and the Company is
required to use its best efforts to effect such registration. All of these
registration rights are subject to certain conditions and limitations, among
them the right of the underwriters of an offering to limit the number of
shares included in such registration and the right of the Company not to
effect a requested registration within six months following an offering of the
Company's securities, including the offering made hereby.
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is .
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could materially adversely affect prevailing market prices.
Furthermore, since only a limited number of shares will be available for sale
shortly after the offering because of certain contractual and legal
restrictions on resale described below, sales of substantial amounts of Common
Stock of the Company in the public market after restrictions lapse could
materially adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of the offering, the Company will have shares of Common
Stock outstanding, assuming no exercise of currently outstanding options. Of
these shares, the shares sold in this offering (plus any additional shares
sold upon exercise of the Underwriters' over-allotment option) will be freely
transferable without restriction under the Securities Act, unless they are
held by "affiliates" of the Company as that term is used under the Securities
Act and the regulations promulgated thereunder ("Affiliates"). The remaining
25,118,827 shares of Common Stock held by existing stockholders are
"restricted securities" as that term is defined in Rule 144 of the Securities
Act (the "Restricted Shares"). Restricted Shares may be sold in the public
market only if registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 under the Securities Act. As a result
of contractual restrictions and the provisions of Rules 144 and 701,
additional shares will be available for sale in the public market as follows:
(i) approximately 1,239,279 Restricted Shares will be eligible for immediate
sale on the effective date of this offering; (ii) approximately 676,578
Restricted Shares will be eligible for sale 90 days after the effective date
of this offering; (iii) approximately 19,501,560 Restricted Shares will be
eligible for sale 180 days after the effective date of this offering upon
expiration of pre-existing contractual lock-up agreements and lock-up
agreements with of the Underwriters and upon expiration of their respective
holding periods under Rule 144; and (iv) the remainder of the Restricted
Shares will be eligible for sale from time to time thereafter upon expiration
of their respective holding periods under Rule 144. In addition, 1,601,285
shares will be issuable upon exercise of vested stock options 180 days after
the effective date of this offering upon the expiration of contractual pre-
existing lock-up agreements. NationsBanc Montgomery Securities LLC, on behalf
of the Underwriters, may, in its sole discretion and at any time without
notice, release all or any portion of securities subject to the lock-up
agreement with the Underwriters.
Upon the effective date of this offering, the holders of 13,128,789 shares
of Common Stock have the right in certain circumstances to require the Company
to register their shares under the Securities Act for resale to the public. If
such holders, by exercising their demand registration rights, cause a large
number of shares to be registered and sold in the public market, such sales
could have a material adverse effect on the market price for the Company's
Common Stock. If the Company were required to include in a Company-initiated
registration shares held by such holders and holders of an additional
10,756,878 shares of Common Stock pursuant to the exercise of their piggyback
registration rights, such sales may have a material adverse affect on the
Company's ability to raise new capital. See "Description of Capital Stock--
Registration Risks."
In addition, the Company expects to file a registration statement on Form S-
8 registering a total of approximately 4,368,340 shares of Common Stock
subject to outstanding stock options or reserved for issuance under the
Company's 1996 Stock Option Plan, 1998 Director Option Plan and 1998 Employee
Stock Purchase Plan. The Form S-8 registration statement is expected to be
filed and to become effective 180 days following the effective date of this
offering. Shares registered under such registration statement will be
available for sale in the open market, subject to Rule 144 value limitations
applicable to Affiliates, unless such shares are subject to vesting
restrictions with the Company or the lock-up agreements described above.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the offering, an Affiliate of the Company or person (or
persons whose shares are aggregated) who has beneficially owned restricted
shares (as defined under Rule 144) for at least one year is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (i) one percent of the then outstanding shares of the Company's
Common Stock or (ii) the average weekly trading volume of the Company's Common
Stock in the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which the notice of
55
<PAGE>
the sale is filed with the Commission. Sales pursuant to Rule 144 are subject
to certain requirements relating to the manner of sale, notice, and
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not an Affiliate of the Company at
any time during the 90 days immediately preceding the sale, and who has
beneficially owned restricted shares for at least two years is entitled to
sell such shares under Rule 144(k) without regard to the limitations described
above.
An employee, officer or director of the Company or a consultant to the
Company who purchased or was awarded shares or options to purchase shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701 of the Securities Act, which permits Affiliates
and non-Affiliates to sell their Rule 701 shares without having to comply with
Rule 144's holding period restrictions, in each case commencing 90 days after
the date of this Prospectus. In addition, non-Affiliates may sell Rule 701
shares without complying with the public information, volume and notice
provisions of Rule 144.
56
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities LLC, BancAmerica Robertson Stephens and
Donaldson, Lufkin & Jenrette Securities Corporation (the "Representatives"),
have severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from the Company the number of shares of
Common Stock indicated below opposite their respective names at the initial
public offering price less the underwriting discount set forth on the cover
page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent
and that the Underwriters are committed to purchase all of the shares if they
purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
NationsBanc Montgomery Securities LLC..............................
BancAmerica Robertson Stephens.....................................
Donaldson, Lufkin & Jenrette Securities Corporation................
---
Total............................................................
===
</TABLE>
The Representatives have advised the Company that the Underwriters initially
propose to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share, and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the offering, the offering
price and concessions and other selling terms may be changed by the
Representatives. No change in such terms shall change the amount of proceeds
to be received by the Company as set forth on the cover page of this
Prospectus. The Common Stock is offered subject to receipt and acceptance by
the Underwriters and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by the
Underwriters. To the extent the Underwriters exercise this option, each of the
Underwriters will be committed to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with this offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
All of the Company's officers and directors and certain stockholders have
agreed that, subject to certain exceptions, for a period of 180 days after the
date of this Prospectus, they will not, without the prior written consent of
NationsBanc Montgomery Securities LLC, directly or indirectly, sell, offer to
sell or otherwise dispose of any such shares of Common Stock or any right to
acquire such shares. In addition, the Company has agreed that, for a period of
180 days after the date of this Prospectus, it will not, without the prior
written consent of NationsBanc Montgomery Securities LLC, issue, offer, sell,
grant options to purchase or otherwise dispose of any of the Company's equity
securities or any other securities convertible into or exchangeable for the
Common Stock or other equity security, other than the grant of options to
purchase Common Stock, or the issuance of shares of Common Stock under the
Company's stock option and stock purchase plans, the issuance of shares of
Common Stock in connection with certain acquisitions and the issuance of
shares of Common Stock pursuant to the exercise of outstanding options.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in such negotiations will be the history of, and the prospects
for, the Company and
57
<PAGE>
the industry in which it competes, an assessment of the Company's management,
the prospects for future earnings of the Company, the present state of the
Company's development, the general condition of the securities markets at the
time of the offering, the market prices of and demand for publicly traded
common stock of comparable companies in recent periods and other factors
deemed relevant.
The Representatives, on behalf of the Underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities and Exchange
Act of 1934. Over-allotment involves syndicate sales in excess of the offering
size, which creates a syndicate short position. Stabilizing transactions
permit bids to purchase the underlying security so long as the stabilizing
bids do not exceed a specified maximum. Syndicate covering transactions
involve purchases of shares of Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Representatives to reclaim a selling concession from a
syndicate member when the shares of Common Stock originally sold by such
syndicate member are purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Common Stock to be
higher than it would otherwise be in the absence of such transactions. These
transactions may be effected on the Nasdaq National Market or otherwise and,
if commenced, may be discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect to make sales in excess of five percent of the number of shares of
Common Stock offered hereby to accounts over which they exercise discretionary
authority.
In consideration of the services rendered by NationsBanc Montgomery
Securities LLC as placement agent for the Company's Series E Preferred Stock
financing, the Company paid to NationsBanc Montgomery Securities LLC a fee
equal to $1,546,182 in November 1997. As additional consideration for such
services, the Company granted to NationsBanc Montgomery Securities LLC a
warrant to purchase 94,286 shares of Series E Preferred Stock. The warrant is
exercisable at any time at an exercise price of $8.75 per share of Common
Stock. Any unexercised portion of the warrant is automatically convertible
into Common Stock immediately prior to the closing of this offering for that
number of shares of Series E Preferred Stock equal to (x) the value of the
unexercised portion as of the date of the closing of this offering, which
value shall equal the difference between the aggregate exercise price and the
aggregate value of the shares of Series E Preferred Stock issuable upon
exercise of the unexercised portion of the warrant, at a per share price equal
to the initial offering price divided by (y) the initial offering price.
Bayview Investors, Ltd., an entity affiliated with BancAmerica Robertson
Stephens, holds 25,199 shares of the Company's Common Stock (on an as
converted basis).
GRP and other entities affiliated with Donaldson, Lufkin & Jenrette
Securities Corporation hold 706,855 shares of the Company's Common Stock (on
an as converted basis). Under the Company's Restated Certificate of
Incorporation, GRP is entitled to elect one member of the Board of Directors
until the earlier of (i) November 20, 1999, (ii) the one-year anniversary of
the closing of this offering or (iii) the date GRP owns less than 100% of the
capital stock of the Company that it owned on November 20, 1997.
58
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Venture Law Group, A Professional Corporation, is acting as
counsel for the Underwriters in connection with certain legal matters relating
to the shares of Common Stock offered hereby.
EXPERTS
The consolidated financial statements of the Company at December 31, 1996
and 1997 and for the period from September 20, 1995 (date of formation) to
December 31, 1995 and for the years ended December 31, 1996 and 1997, included
in this Prospectus have been audited by Ernst & Young LLP, independent
auditors, as stated in their report thereon appearing elsewhere herein and in
the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act with respect to the securities offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock, reference is made to the
Registration Statement and the exhibits and schedules filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete. In each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, and each such statement is qualified in all
respects by such reference. The Registration Statement, including exhibits and
schedules thereto, may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and Northwestern
Atrium Center, 500 Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such materials may be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the Commission's
Web site is http://www.sec.gov.
59
<PAGE>
CITYSEARCH, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at December 31, 1996 and 1997 and at March 31,
1998 (unaudited)......................................................... F-3
Consolidated Statements of Operations for the period from September 20,
1995 (date of formation) to December 31, 1995, the years ended December
31, 1996 and 1997 and the three months ended March 31, 1997 and 1998
(unaudited) ............................................................. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the period
from September 20, 1995 (date of formation) to December 31, 1995, the
years ended December 31, 1996 and 1997 and the three months ended March
31, 1998 (unaudited)..................................................... F-5
Consolidated Statements of Cash Flows for the period from September 20,
1995 (date of formation) to December 31, 1995, the years ended December
31, 1996 and 1997 and the three months ended March 31, 1997 and 1998
(unaudited).............................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS
CITYSEARCH, INC.
We have audited the accompanying consolidated balance sheets of CitySearch,
Inc. as of December 31, 1996 and 1997 and the related statements of
operations, stockholders' equity, and cash flows for the period from September
20, 1995 (date of formation) to December 31, 1995 and for each of the two
years in the period ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CitySearch,
Inc. at December 31, 1996 and 1997, and the consolidated results of its
operations and its cash flows for the period from September 20, 1995 (date of
formation) to December 31, 1995 and for each of the two years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Los Angeles, California
March 11, 1998, except for Note 10,
as to which the date is May 26, 1998
F-2
<PAGE>
CITYSEARCH, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
---------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
------- ------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 7,527 $25,227 $16,455
Accounts receivable, net of allowance
for doubtful accounts of $25 in 1997
and $44 in 1998..................... 34 100 286
Due from licensees................... -- 193 611
Prepaid expenses and other current
assets.............................. 249 119 185
------- ------- -------
Total current assets................ 7,810 25,639 17,537
Computers, software, equipment and
leasehold improvements:
Computers and software............... 2,074 7,716 8,560
Furniture and equipment.............. 391 194 194
Leasehold improvements............... 194 275 275
Enterprise system development in
process............................. 1,315 -- --
------- ------- -------
3,974 8,185 9,029
Accumulated depreciation............. (329) (2,169) (2,842)
------- ------- -------
3,645 6,016 6,187
Intangible asset, net of accumulated
amortization of $422 in 1996......... 1,915 -- --
------- ------- -------
Total assets........................ $13,370 $31,655 $23,724
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable..................... $ 1,975 $ 2,197 $ 1,903
Accrued payroll and related
liabilities......................... 174 664 804
Other accrued liabilities............ 991 760 483
Deferred subscription and license
revenue............................. 327 1,836 1,713
Current portion of obligations under
capital leases...................... 86 807 976
------- ------- -------
Total current liabilities........... 3,553 6,264 5,879
Deferred rent......................... 33 189 189
Deferred purchase price of subsidiary. 1,336 891 891
Obligations under capital leases, net
of current portion................... 82 1,340 1,678
Commitments
Redeemable Convertible Preferred Stock
(Series C, D, and E):
Authorized shares -- 12,500 at
December 31, 1997 and March 31, 1998
(pro forma: none)
Issued and outstanding -- 4,706 at
December 31, 1996 and 12,406 at
December 31, 1997 and March 31, 1998
(pro forma: none)
Liquidation preference -- $20,731 at
December 31, 1996 and $73,212 at
December 31, 1997 and March 31, 1998
(pro forma: none)................... 20,309 70,882 70,882 $ --
Stockholders' equity (deficit):
Convertible Preferred Stock $0.01 par
value, (Series A and B):
Authorized shares -- 2,241 at
December 31, 1997 and March 31,
1998
Issued and outstanding -- 1,948 at
December 31, 1996 and 2,016 at
December 31, 1997 and March 31,
1998 (pro forma: none)
Liquidation preference -- $2,165 at
December 31, 1996 and $2,610 at
December 31, 1997 and March 31,
1998 (pro forma: none)............. 2,165 2,610 2,610 --
Common Stock $0.01 par value:
Authorized shares -- 75,000 at
December 31, 1997 and March 31,
1998
Issued and outstanding shares --
8,813 at December 31, 1996 and
9,539 at December 31, 1997 and
9,925 at March 31, 1998 (pro forma:
24,081)............................ 97 455 870 74,362
Deferred compensation................ -- (245) (567) (567)
Accumulated deficit.................. (14,205) (50,731) (58,708) (58,708)
------- ------- ------- --------
Total stockholders' equity
(deficit).......................... (11,943) (47,911) (55,795) $ 15,087
------- ------- ------- ========
Total liabilities and
stockholders' equity (deficit).. $13,370 $31,655 $23,724
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CITYSEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 20, THREE MONTHS
1995 (DATE OF YEAR ENDED ENDED
FORMATION) TO DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------ ----------------
1995 1996 1997 1997 1998
------------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Subscription and services
......................... $ -- $ 203 $ 4,913 $ 470 $ 2,563
Licensing and royalty .... -- -- 1,271 -- 528
------ -------- -------- ------- -------
-- 203 6,184 470 3,091
Cost and expenses:
Cost of revenues.......... -- 2,908 10,846 2,040 3,450
Sales and marketing ...... 57 6,369 19,014 4,519 4,568
Research and development . 152 2,563 7,182 1,713 1,655
General and administrative
......................... 104 2,475 5,883 1,363 1,568
------ -------- -------- ------- -------
313 14,315 42,925 9,635 11,241
------ -------- -------- ------- -------
Loss from operations....... (313) (14,112) (36,741) (9,165) (8,150)
Interest income............ 5 229 494 124 279
Interest expense........... -- (12) (271) (40) (106)
------ -------- -------- ------- -------
5 217 223 84 173
------ -------- -------- ------- -------
Loss before provision for
income taxes.............. (308) (13,895) (36,518) (9,081) (7,977)
Provision for income taxes. -- (2) (8) -- --
------ -------- -------- ------- -------
Net loss................... $ (308) $(13,897) $(36,526) $(9,081) $(7,977)
====== ======== ======== ======= =======
Historical basic and
diluted net loss per
share..................... $(0.04) $ (1.58) $ (3.86) $ (0.97) $ (0.82)
====== ======== ======== ======= =======
Pro forma basic and diluted
net loss per share........ $(0.04) $ (1.10) $ (1.96) $ (0.54) $ (0.33)
====== ======== ======== ======= =======
Shares used in computing
historical basic and
diluted net loss per
share..................... 7,894 8,785 9,451 9,407 9,777
====== ======== ======== ======= =======
Shares used in computing
pro forma basic and
diluted net loss per
share..................... 8,460 12,647 18,666 16,889 23,932
====== ======== ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CITYSEARCH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK
(SERIES A AND B) COMMON STOCK
----------------- -------------- DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT TOTAL
-------- -------- ------ ------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial issuance of
Common Stock, September
20, 1995............... -- $ -- 6,623 $ 5 $ -- $ -- $ 5
Repurchase of Common
Stock.................. -- -- (2,000) (2) -- -- (2)
Issuance of Common
Stock.................. -- -- 4,233 85 -- -- 85
Issuance of Convertible
Preferred Stock........ 1,791 1,620 -- -- -- -- 1,620
Net loss................ -- -- -- -- -- (308) (308)
------- -------- ------ ---- ----- -------- --------
Balance at December
31, 1995............. 1,791 1,620 8,856 88 -- (308) 1,400
Repurchase of Common
Stock.................. -- -- (116) (2) -- -- (2)
Exercise of stock
options................ -- -- 73 11 -- -- 11
Issuance of Series B
Convertible Preferred
Stock.................. 157 545 -- -- -- -- 545
Net loss................ -- -- -- -- -- (13,897) (13,897)
------- -------- ------ ---- ----- -------- --------
Balance at December
31, 1996............. 1,948 2,165 8,813 97 -- (14,205) (11,943)
Exercise of stock
options................ -- -- 726 103 -- -- 103
Issuance of Series B
Convertible Preferred
Stock.................. 68 445 -- -- -- -- 445
Deferred compensation... -- -- -- 255 (255) -- --
Amortization of deferred
compensation........... -- -- -- -- 10 -- 10
Net loss................ -- -- -- -- -- (36,526) (36,526)
------- -------- ------ ---- ----- -------- --------
Balance at December
31, 1997............. 2,016 2,610 9,539 455 (245) (50,731) (47,911)
Exercise of stock
options (unaudited).... -- -- 386 63 -- -- 63
Deferred compensation
(unaudited)............ -- -- -- 352 (352) -- --
Amortization of deferred
compensation
(unaudited)............ -- -- -- -- 30 -- 30
Net loss (unaudited).... -- -- -- -- -- (7,977) (7,977)
------- -------- ------ ---- ----- -------- --------
Balance at March 31,
1998 (unaudited)..... 2,016 $ 2,610 9,925 $870 $(567) $(58,708) $(55,795)
======= ======== ====== ==== ===== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CITYSEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 20, THREE MONTHS
1995 (DATE OF YEAR ENDED ENDED
FORMATION) TO DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------ ----------------
1995 1996 1997 1997 1998
------------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................... $ (308) $(13,897) $(36,526) $(9,081) $(7,977)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Equity interest in loss
from partnership......... -- -- 259 65 --
Write-down of investment
in partnership........... -- -- 321 131 --
Depreciation.............. 5 325 1,841 289 673
Amortization.............. -- 422 1,915 453 --
Change in operating assets
and liabilities, net of
assets acquired and
liabilities assumed:
Accounts receivable....... -- (34) (67) (11) (185)
Due from licensees........ -- -- (193) -- (419)
Prepaid expenses and other
current assets........... -- (249) 129 120 (65)
Accounts payable.......... 90 2,537 317 (308) (293)
Accrued payroll and
related liabilities...... -- -- 489 198 140
Other accrued liabilities. -- -- (221) (332) (248)
Deferred subscription and
license revenue.......... -- 327 1,510 396 (123)
Deferred rent............. -- 33 157 24 --
------ -------- -------- ------- -------
Net cash used in
operating activities.... (213) (10,536) (30,069) (8,056) (8,497)
INVESTING ACTIVITIES
Purchases of software,
equipment and leasehold
improvements.............. (82) (3,547) (1,391) (357) (49)
Investment in partnership.. -- -- (580) (324) --
------ -------- -------- ------- -------
Net cash used in investing
activities................ (82) (3,547) (1,971) (681) (49)
FINANCING ACTIVITIES
Payments on capital leases. -- (121) (840) (286) (289)
Exercise of stock options.. -- 11 103 -- 63
Issuance of Common Stock... 90 -- -- -- --
Repurchases of Common
Stock..................... (2) (2) -- -- --
Issuance of Preferred
Stock, net................ 1,620 20,309 50,477 10,270 --
------ -------- -------- ------- -------
Net cash provided by
financing activities...... 1,708 20,197 49,740 9,984 (226)
------ -------- -------- ------- -------
Net increase in cash and
cash equivalents.......... 1,413 6,114 17,700 1,247 (8,772)
Cash and cash equivalents
at beginning of year...... -- 1,413 7,527 7,527 25,227
------ -------- -------- ------- -------
Cash and cash equivalents
at end of year............ $1,413 $ 7,527 $ 25,227 $ 8,774 $16,455
====== ======== ======== ======= =======
Supplemental disclosure of
cash flow information:
Cash paid for:
Interest.................. $ -- $ 12 $ 271 $ 44 $ 106
Income taxes.............. $ 800 $ 2 $ 8 $ -- $ --
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES
During 1996 and 1997, the Company purchased computers and office equipment
under financing leases totaling $288,000 and $2,820,000, respectively.
On June 19, 1996, the Company acquired its wholly owned subsidiary
Metrobeat, Inc. in exchange for an initial payment of Series B Preferred Stock
valued at $544,497. During 1997, the Company made its second annual
installment of Series B Convertible Preferred Stock valued at $445,495
pursuant to the acquisition. The remaining purchase price of $891,000 is
payable in two annual installments, principally of Series B Convertible
Preferred Stock.
During 1997, the Company issued 14,670 shares of Series D Preferred Stock
valued at $95,725 as payment for accrued advertising and recruiting fees.
During the three months ended March 31, 1997 and 1998, the Company purchased
computers and office equipment under financing leases totaling $1,205,000 and
$795,000, respectively.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY AND BASIS OF PRESENTATION
CitySearch, Inc. (the "Company"), a Delaware corporation, was organized on
September 20, 1995. The Company and its wholly owned subsidiaries Metrobeat,
Inc. ("Metrobeat") and CitySearch Ontario, Inc ("CitySearch Ontario"),
produces and delivers comprehensive local city guides on the World Wide Web
(the "Web"), providing up-to-date information regarding arts and entertainment
events, community activities, recreation, business, shopping, professional
services and news/sports/weather to consumers in metropolitan areas. Each
local city guide primarily consists of original content developed and designed
specifically for the Web by the Company and its media partners. The Company
designs and produces custom-built Web sites and related services for local
businesses, aggregates them in a local city guide environment and provides
business customers the ability to regularly update and expand their sites. The
Company's sites include digital photographs, maps, sounds and windows with
additional information, including menus, bills of service and interactive
order and inquiry forms.
Customers include restaurants, taverns, movie theaters, museums and retail
stores. The Company currently owns and operates sites in Austin, TX,
Nashville, TN, New York, NY, Portland, OR, Raleigh-Durham-Chapel Hill, NC,
Salt Lake City, UT, Los Angeles, CA, and San Francisco, CA. Through
partnership and licensing agreements, the Company has an internet presence in
Washington D.C., Melbourne and Sydney, Australia, and Toronto, Canada, with
sites expected soon to be launched in Baltimore, MD, and designated
Scandinavian cities.
The Company has experienced operating losses and negative cash flows from
operations since its formation on September 20, 1995. Since its formation, the
Company has raised significant capital through the sale of Preferred Stock to
outside investors and expects to continue to raise capital in 1998. The
Company has also successfully licensed its product domestically and
internationally generating additional revenue streams. Through strategic
partnerships, the Company is implementing additional ways of delivering its
product. Management anticipates that its investment in new markets and
technology will result in operating losses in the near term but believes that
anticipated revenues, existing cash, cash equivalents, working capital and new
capital contributions will be sufficient to fund operations over the next
year.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, Metrobeat and CitySearch
Ontario. All significant intercompany amounts have been eliminated.
INTERIM FINANCIAL INFORMATION
The accompanying balance sheet as of March 31, 1998 and the statements of
operations and cash flows for the three months ended March 31, 1997, and 1998
and the statement of changes in shareholders equity (deficit) for the three
months ended March 31, 1998 are unaudited. In the opinion of management, the
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting of normal recurring
adjustments, necessary for the fair statement of interim periods. The data
disclosed in these notes to the financial statements for these periods is also
unaudited. The results of operations and cash flows for the interim period are
not necessarily indicative of the results to be expected for any other interim
future period.
ESTIMATES USED IN THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and the accompanying notes. Actual results could differ from those
estimates, although management does not believe that any differences would
materially affect the Company's consolidated financial position or results of
operations.
F-7
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
REVENUE RECOGNITION
The Company generates revenue from the sale of subscriptions for business
Web sites and advertising on its owned and operated city guides on the
internet, the sale of licenses for use of the Company's business and
technology systems to its licensees establishing the CitySearch service in
certain markets, the receipt of royalties under its license agreements in
exchange for customer support and certain upgrade rights, and the performance
of consultation and design services.
The Company recognizes subscription revenues over the period the services
are provided. Licensing revenue, under agreements entered into prior to
December 31, 1997, for partner-led markets is recognized upon the completion
of the delivery and installation of the business and technology systems and
training of partner personnel in each partner-led-market. Royalty revenues are
recognized when earned. Revenue from consultation and design services is
recognized as the services are provided. Advertising revenues, which have not
been significant, are recognized as earned and are included in subscription
and service revenues.
Effective January 1, 1998, the Company adopted Statement of Position 97-2
(SOP 97-2), "Software Revenue Recognition," which impacts the manner companies
recognize revenue on sales and licensing of software. The Company, during
1997, accounted for licensing of its software under the provisions of SOP 91-
1. Under the provision of SOP 97-2 revenues from the sale of licenses for use
of the Company's business and technology systems to its partner-led markets
generally will be recognized over the term of the license agreement. The
Company's license agreements have terms ranging from five to nine years. SOP
97-2 is not expected to have a material effect on revenues from royalties,
services, and subscriptions.
Deferred revenues arise upon the prepayment of subscription services and
license agreements.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable and cash
deposits at financial institutions. Concentration of credit risk with respect
to trade receivables is limited due to the large number of customers and their
geographic dispersion. The Company requires no collateral from its customers.
The Company places its cash deposits with high-credit quality financial
institutions. At times, balances in the Company's cash accounts may exceed the
Federal Deposit Insurance Corporation (FDIC) limit.
COMPUTERS, SOFTWARE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Computers, software, equipment and leasehold improvements are stated at cost
and depreciated using the straight-line method over the estimated useful lives
of the assets, which range from three to seven years. Assets acquired under
capitalizable lease arrangements are recorded at the present value of the
minimum lease payments. Amortization of assets capitalized under capital
leases and leasehold improvements are computed using the straight-line method
over the life of the asset or term of the lease, whichever is shorter, and is
included in depreciation expense.
F-8
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as incurred.
Based on the Company's product development process, technological feasibility
is established upon completion of a working model. Costs incurred by the
Company between completion of the working model and the point at which the
product is ready for general release have been insignificant.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs for the years
ended December 31, 1996 and 1997, amounted to $1,305,859 and $2,464,641,
respectively. There was no advertising expense for the period from September
20, 1995 (date of formation) to December 31, 1995.
During 1996 and 1997 the Company entered into several barter arrangements
whereby the Company has assisted in the design of a Web site in exchange for
broadcast advertising. The Company valued these barter transactions at $60,000
and $1,158,000 for the years ended December 31, 1996 and 1997, respectively,
based on the estimated cost of the specific services provided by the Company.
Such amounts are included in subscription and services revenue as well as
recognized in sales and marketing expense in the accompanying consolidated
statements of operations. Reciprocal noncash advertising on the Internet is
not valued in the consolidated financial statements and no barter revenue is
recorded for any such agreements.
PRO FORMA AND HISTORICAL NET LOSS PER SHARE
Pro forma net loss per share is computed using the weighted average number
of shares of Common Stock outstanding. Common equivalent shares from
convertible Preferred Stock (using the if converted method) have been included
in the computation when dilutive, except that the Convertible Preferred Stock
which will convert into Common Stock in connection with the Company's initial
public offering is included as if converted at the original date of issuance,
for both basic and diluted net loss per share, even though inclusion is
antidilutive, based on the conversion price disclosed in Note 6.
Historical net loss per share is computed as described above except that it
excludes the Convertible Preferred Stock because it is antidilutive for
periods which incurred a net loss.
INTANGIBLE ASSET
The intangible asset is stated at cost and consists of goodwill resulting
from the purchase of Metrobeat in June 1996 (see Note 2).
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123), requires that stock awards granted subsequent
to January 1, 1995, be recognized as compensation
F-9
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
expense based on their fair value at the date of grant. Alternatively, a
company may use Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees," and disclose pro forma results of
operations which would have resulted from recognizing such awards at their
fair value. The Company will continue to account for stock-based compensation
under APB 25 and make the required pro forma disclosures for compensation (see
Note 8). Under APB 25 compensation expense is calculated based on the
difference between the exercise price and the fair market value of the
underlying stock on the date of grant. The amount of compensation expense
calculated under APB 25 is recognized over the vesting period of the options.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' balances to
conform to the current year presentation.
YEAR 2000 -- UNAUDITED
The Company could be adversely affected if its computer systems and those of
its service providers do not properly process and calculate date-related
information and data from and after January 1, 2000. The Company is taking
steps that it believes are reasonably designed to address these issues and to
obtain reasonable assurances that comparable steps are being taken by each of
the Company's service providers. Management believes such efforts and any
remedies will be completed by 1999 and all expenses incurred in assessing and
remedying this issue will be expensed as incurred and are not expected to be
material to the consolidated financial statements.
2. ACQUISITION OF METROBEAT
On June 19, 1996, the Company purchased Metrobeat for approximately
$2,337,300. The Company assumed net liabilities of $456,303 and issued 157,074
shares of Series B Convertible Preferred Stock valued at $544,497. During
1997, the Company made its second annual installment of Series B Convertible
Preferred Stock valued at $445,495. The remaining purchase price of $891,000
is payable in two annual installments, principally of Series B Convertible
Preferred Stock. The remaining installments have been recorded as a deferred
purchase price in the accompanying consolidated balance sheets. The
transaction was accounted for using the purchase method of accounting. The
excess of the purchase price over the net assets acquired has been allocated
to goodwill and was initially to be amortized over three years. Effective
January 1, 1997, the Company reassessed the future life of the goodwill
recorded in connection with the Metrobeat acquisition and concluded the
remaining life was one year. Accordingly, the unamortized goodwill as of
December 31, 1996 was fully amortized to expense in 1997.
3. INVESTMENT IN PARTNERSHIP
On February 17, 1997, CitySearch Ontario entered into a partnership, Toronto
Star CitySearch, with others to launch CitySearch sites in Canada. CitySearch
Ontario contributed the Company's technology through a licensing agreement
valued by the other partners at $390,500 and cash of $319,171 in exchange for
a 20% interest in the partnership. The other partners collectively contributed
cash of $2,811,600 in exchange for the remaining 80% interest. Profits are
shared in accordance with the respective partnership interests. Losses are
allocated to one of the other partners up to a cumulative loss limit, and
thereafter losses of the partnership shall be allocated to CitySearch Ontario
and the other partners at a ratio of 10% and 90%, respectively. CitySearch
Ontario is committed to funding up to 10% of any losses of the partnership.
F-10
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
Summarized unaudited financial information of Toronto Star CitySearch as of
and for the year ended December 31, 1997 is as follows (in thousands):
<TABLE>
<S> <C>
As of December 31, 1997:
Current assets.................................................... $ 1,520
Total liabilities................................................. 2,006
Partners' capital................................................. 758
For the period ended December 31, 1997:
Revenues.......................................................... $ 123
Loss from operations.............................................. (2,658)
Net loss.......................................................... (2,806)
</TABLE>
CitySearch Ontario carries its investment in Toronto Star CitySearch at
zero. CitySearch Ontario's share of partnership losses ($258,937) is included
in costs of revenues and sales and marketing expenses.
4. INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Deferred tax expense is determined by the
change in the net asset or liability for deferred taxes.
The provision for income, franchise and capital taxes of $800, $1,600 and
$8,330 is based solely on minimum state tax requirements. The Company's
effective tax rate differs from the statutory federal income tax rate,
primarily as a result of operating losses not benefited.
The tax effect of temporary differences resulted in net deferred income tax
assets and liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss and tax credits...................... $ 5,485 $ 21,239
Various accruals........................................ 58 636
Deferred rent........................................... 14 77
------- --------
5,557 21,952
Less valuation allowance................................ (5,103) (19,650)
------- --------
Net deferred tax assets................................... 454 2,302
Deferred tax liabilities:
Federal benefit for state income taxes.................. (427) (1,499)
Excess of tax depreciation and amortization............. (27) (803)
------- --------
Deferred tax liabilities.................................. (454) (2,302)
------- --------
$ -- $ --
======= ========
</TABLE>
F-11
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
Due to the uncertainty surrounding the timing of the realization of the
benefits from its favorable tax attributes in future tax returns, the Company
has placed a valuation allowance against its otherwise recognizable deferred
tax assets. The Company had federal and state operating loss carryforwards of
$47,450,000 at December 31, 1997. The federal carryforwards expire principally
in the period from 2010 to 2012, and the state carryforwards expire
principally in 2003. The Company has generated tax credit carryforwards for
federal and state purposes in the amounts of $329,723 and $107,353,
respectively, at December 31, 1997. Utilization of the above carryforwards is
subject to utilization limitations which may inhibit the Company's ability to
use carryforwards in the future.
The following table reconciles the provision for taxes based on income
before taxes to the statutory federal income tax rate of 35%:
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 20,
1995 (DATE OF
FORMATION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------
1995 1996 1997
-------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax benefit at statutory rate..... $(108) $ (4,864) $ (12,781)
Increase related to:
State taxes, net of federal bene-
fit.............................. 1 1 5
Meals and entertainment......... 1 17 30
Amortization of goodwill........ -- 143 670
Foreign operations.............. -- -- 203
Valuation reserve on deferred
taxes.......................... 106 4,705 11,881
----- ----------- ------------
$ -- $ 2 $ 8
===== =========== ============
</TABLE>
F-12
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
5. COMMITMENTS
LEASES
The Company entered into noncancelable capital lease obligations for
computers and equipment during the year ended December 31, 1997. In addition,
the Company leases its facilities and other office equipment under
noncancelable operating lease agreements expiring through 2004. Certain of the
Company's leases provide for free rent and escalations. The Company is
responsible for other costs such as property taxes, insurance, maintenance and
utilities.
The following is a schedule of future minimum lease payments:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
(IN THOUSANDS)
<S> <C> <C>
December 31:
1998.................................................... $1,321 $1,115
1999.................................................... 1,191 1,028
2000.................................................... 1,167 517
2001.................................................... 1,043 4
2002.................................................... 265 --
Thereafter.............................................. 332 --
------ ------
$5,319 2,664
======
Less amount representing interest......................... 517
------
Net present value of net minimum lease payments (including
approximately $807,000 payable currently)................ $2,147
======
</TABLE>
Computers, software and equipment under capital leases had an original cost
basis of $288,419 and $2,819,842 at December 31, 1996 and 1997, respectively.
The net book value of the related computers, software and equipment was
$231,267 and $2,157,717 at December 31, 1996 and 1997, respectively.
Rent expense related to operating leases was $7,800, $291,000 and $1,372,000
for the period from September 20, 1995 (date of formation) to December 31,
1995 and for the years ended December 31, 1996 and 1997, respectively.
F-13
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
6. CONVERTIBLE PREFERRED STOCK
At December 31, 1997 and March 31, 1998, the Company was authorized to issue
14,741,082 shares of Convertible Preferred Stock with a par value of $0.01 per
share. The Company has designated 1,791,173 shares as Series A Convertible
Preferred Stock, 450,000 shares as Series B Convertible Preferred Stock,
3,261,024 shares as Series C Redeemable Convertible Preferred Stock, 4,430,313
shares as Series D Redeemable Convertible Preferred Stock, and 4,808,572
shares as Series E Redeemable Convertible Preferred Stock.
Convertible Preferred Stock issued and outstanding as of December 31, 1997
and March 31, 1998 are as follows:
<TABLE>
<CAPTION>
ORIGINAL
AMOUNT PER SHARE
SHARES (NET OF ISSUANCE
OUTSTANDING ISSUANCE COST) PRICE DATE FIRST ISSUED
----------- -------------- --------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Series A............. 1,791 $ 1,620 $0.904 October 31, 1995
Series B............. 157 545 3.467 June 19, 1996
Series B............. 68 445 6.525 June 19, 1997
Series C............. 3,261 11,261 3.467 May 15, 1996
Series D............. 4,431 28,265 6.525 December 13, 1996
Series E............. 4,714 31,356 7.000 November 10, 1997
------ -------
14,422 $73,492
====== =======
</TABLE>
Preferred Stock contains a liquidation preference of an amount per share
equal to the price for which such share of Preferred Stock was originally
issued, adjusted for any stock dividends, combinations or splits with respect
to such shares, plus any declared and unpaid dividends on the Preferred Stock.
The Series C Preferred Stock contains a May 2006 mandatory redemption
provision. The Series D and E Preferred Stock contain mandatory redemption
provisions with a minimum of an 80% favorable vote, by the holders, beginning
December 2004.
Each share of Preferred Stock shall be, at the option of the holder,
convertible at any time into the number of shares of Common Stock as
determined by dividing the original issue price by the conversion price, as
defined. At the date of issuance, the conversion price for each series of
Preferred Stock was equal to the original per share issuance price. The
conversion price is subject to adjustment for stock splits and stock
combinations of the Company's outstanding Common Stock. The conversion price
for Series C, D and E Preferred Stock is also adjusted for the forfeiture of
Common Stock options outstanding from the date of issuance to the date of
conversion. The Preferred Stock has an automatic conversion feature which
provides for each share of Preferred Stock to be automatically converted into
shares of Common Stock based on the then effective conversion price
immediately upon the closing of an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of shares of the Corporation's Common Stock priced
above $7.70 per share, with aggregate net proceeds to the Company of not less
than $20,000,000. At March 31,1998, the unaudited pro forma per share
conversion price, giving effect to Common Stock option forfeitures through
June 1, 1998 as if they occurred as of March 31, 1998, of the Series A, B, C,
D and E Preferred Stock was $0.904, $3.467, $3.580, $6.717, and $7.074,
respectively.
F-14
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
7. STOCK OPTIONS
The Company has adopted the 1996 Stock Option Plan (the "Plan") which
authorizes members of management to grant non-statutory stock options or
incentive stock options to employees and consultants of the Company and its
subsidiaries. The maximum number of shares of Common Stock to be issued under
the plan is 4,000,000 shares. All options granted under the Plan have been
made at prices not less than fair market value of the stock at the date of
grant. Options granted under the Plan are exercisable at various dates over
their ten-year life. Options granted under the Plan vest principally 25% after
the first year and ratably over the remaining vesting period.
The following table summarizes certain information related to options for
Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PRICE PER SHARE
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1, 1996.................. --
Granted during 1996....................... 3,220 $ 0.10 to $ 0.75
Forfeited................................. 314 0.10 to 0.75
Exercised................................. 73 0.10 to 0.75
----- ----------------
Outstanding at December 31, 1996............ 2,833 0.10 to 0.75
Granted during 1997....................... 1,110 0.75 to 3.00
Forfeited................................. 485 0.10 to 2.00
Exercised................................. 726 0.10 to 2.00
----- ----------------
Outstanding at December 31, 1997............ 2,732 0.10 to 3.00
Granted................................... 172 3.00 to 3.00
Forfeited................................. 231 0.10 to 3.00
Exercised................................. 386 0.10 to 2.00
----- ----------------
Outstanding at March 31, 1998............... 2,287 0.10 to 3.00
===== ================
</TABLE>
Options granted during the year ended December 31, 1997 and the three months
ended March 31, 1998 resulted in a total compensation amount of $255,000 and
$352,000, respectively, and was recorded as deferred compensation in
stockholders equity. The deferred compensation amount will be recognized as
compensation expense over the vesting period. During the year ended December
31, 1997 and the three months ended March 31, 1998, such compensation expense
amounted to $10,000 and $30,000, respectively.
Information with respect to stock options outstanding is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1997
---------------- ---------------
(NUMBER OF SHARES IN THOUSANDS)
<S> <C> <C>
Weighted average price per share............ $0.2575 $ 0.8600
Exercisable options......................... 1,110 992
Options available for future grants......... 1,094 469
Weighted average remaining contractual life. 9.5 years 9 years
</TABLE>
F-15
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
In connection with the Series E Redeemable Convertible Preferred Stock
issuance, the Company granted warrants to a private placement selling agent to
purchase 94,286 shares of Series E Redeemable Convertible Preferred Stock at
an exercise price of $8.75 per share in exchange for services. The warrants
expire upon a closing of an initial public offering or five years from the
grant date, whichever is earlier.
Pro forma information regarding the effect on operations is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using the minimum-
value method, which utilizes a near-zero volatility factor.
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Expected life (years)...................................... 6 years 5 years
Risk-free interest rate.................................... 6.30% 6.30%
Dividend yield............................................. -- --
</TABLE>
This option valuation model requires input of highly subjective assumptions.
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 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.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Net loss, as reported............................. $ (13,897) $ (36,526)
Pro forma net loss................................ (13,953) (36,608)
Pro forma basic and diluted loss per share........ $ (1.10) $ (1.96)
Pro forma basic and diluted historical loss per
share............................................ (1.58) (3.87)
</TABLE>
The effects of applying Statement 123 in this pro forma disclosure may not
be indicative of future amounts. Additional awards in future years are
anticipated.
8. DEFINED CONTRIBUTION PLAN
In July 1997, the Company established a defined contribution plan for
certain qualified employees as defined in the plan. Participants may
contribute from 1% to 20% of pretax compensation subject to certain
liabilities. The plan does provide for certain discretionary contributions by
the Company as defined in the plan. No Company contributions were made for the
year ended December 31, 1997.
9. RELATED PARTY TRANSACTIONS
Included in revenues for the year ended December 31, 1997 and the three
months ended March 31, 1998 is approximately $1,049,000 and $714,000 of
revenues, respectively, generated under the Company's license agreements with
stockholders or other related parties. Included in due from licensees at
December 31, 1997 and March 31, 1998 is $136,000 and $477,000, respectively,
due from stockholders and other related parties.
F-16
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(INFORMATION AT MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
10. PROPOSED INITIAL PUBLIC OFFERING AND OTHER SUBSEQUENT EVENTS
On May 26, 1998, the Company issued 1,000,000 shares of its Series E
Redeemable Convertible Preferred Stock for $7.00 per share and received gross
proceeds of $7,000,000.
In connection with the issuance of the Series E Redeemable Convertible
Preferred Stock, the Company amended its Certificate of Incorporation to
increase the number of shares of Series E Redeemable Convertible Preferred
Stock authorized to 5,808,572.
The Company is contemplating filing a registration statement with the
Securities and Exchange Commission, relating to an initial public offering of
shares of its unissued Common Stock. If the initial public offering is
consummated under the terms presently anticipated, all of the Preferred Stock
outstanding will automatically convert into Common Stock. At March 31, 1998,
on an unaudited pro forma basis, excluding the issuance of the Series E
Redeemable Convertible Preferred Stock in May 1998, using a conversion price
calculated based on Common Stock option forfeitures through June 1, 1998,
14,155,592 shares of Common Stock would be issued upon automatic conversion of
Preferred Stock. The pro forma effect on stockholders' equity, as adjusted for
the assumed conversion of the Preferred Stock, is set forth on the
accompanying balance sheet.
F-17
<PAGE>
The back inside cover will contain a selection of five to fifteen overlapping
screen shots of home pages of the Company's business customers. The screen
shots will represent business customers in a variety of service categories
(e.g., restaurants, professional services, entertainment venues, etc.).
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any infor-
mation or to make any representations other than those contained in this Pro-
spectus in connection with this offering and, if given or made, such informa-
tion or representation must not be relied upon as having been authorized by the
Company or any Underwriter. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction. Neither the delivery of this Prospectus nor any sale made hereun-
der shall, under any circumstances, create any implication that the information
herein is correct as of any time subsequent to the date hereof or that there
has been no change in the affairs of the Company since such date.
--------------------------
TABLE OF CONTENTS
--------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Financial Data................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 27
Management................................................................ 40
Certain Transactions...................................................... 49
Principal Stockholders.................................................... 51
Description of Capital Stock.............................................. 53
Shares Eligible for Future Sale........................................... 55
Underwriting.............................................................. 57
Legal Matters............................................................. 59
Experts................................................................... 59
Additional Information.................................................... 59
Index to Financial Statements............................................. F-1
</TABLE>
---------------
Until , 1998 (25 days after the commencement of the Offering), all dealers
effecting transactions in the Common Stock, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting as Underwrit-
ers and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO CITYSEARCH.COM]
COMMON STOCK
---------------
PROSPECTUS
---------------
NationsBanc Montgomery Securities LLC
BancAmerica Robertson Stephens
Donaldson, Lufkin & Jenrette
Securities Corporation
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts, commissions and certain accountable expenses, payable
by the Company in connection with the sale of Common Stock being registered.
All amounts are estimates except the SEC registration fee and the NASD filing
fee.
<TABLE>
<S> <C>
SEC Registration Fee................................................ $14,750
NASD Filing Fee..................................................... 5,500
Nasdaq Listing Fee..................................................
Printing Fees and Expenses..........................................
Legal Fees and Expenses.............................................
Accounting Fees and Expenses........................................
Blue Sky Fees and Expenses..........................................
Transfer Agent and Registrar Fees...................................
Miscellaneous.......................................................
-------
Total............................................................. $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
The Registrant's Restated Certificate of Incorporation provides for the
indemnification of directors to the fullest extent permissible under Delaware
law.
The Registrant's Bylaws provide for the indemnification of officers,
directors and third parties acting on behalf of the Registrant if such person
acted in good faith and in a manner reasonably believed to be in and not
opposed to the best interest of the Registrant, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for
in the Registrant's Bylaws, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception of Registrant (September 20, 1995), the Registrant has
issued and sold the following unregistered securities:
(1) From September 20, 1995 to June 1, 1998, Registrant granted options
to purchase 4,614,011 shares of Common Stock pursuant to its 1996 Stock
Option Plan at exercise prices ranging from $.10 to $5.50.
(2) From September 20, 1995 to June 1, 1998, Registrant issued and sold
an aggregate of 1,233,160 shares of Common Stock to its employees,
directors and consultants upon exercise of stock options granted pursuant
to its 1996 Stock Option Plan at exercise prices ranging from $.10 to $3.00
for an aggregate consideration of $220,990.70.
(3) In September 1995; at Registrant formation, Registrant issued and
sold 6,622,857 shares of Common Stock to William Gross for an aggregate
cash consideration of $5,000 and for services provided to the Company.
II-1
<PAGE>
(4) In October 1995, Registrant issued and sold an aggregate of 4,233,500
shares of its Common Stock for an aggregate cash consideration of $84,670.
These shares were issued to the following key founding employees: Charles
Conn, III; Thomas Layton; Jeffrey Brewer; Kristen Ding; Caskey Dickson;
David Holtz; Tamar Halpern; Brad Haugaard; Taylor Wescoatt; Linda Gross;
Karen DeDea; Lee Husiuk and Michael Radford.
(5) From November 1995 to December 1995, Registrant issued and sold an
aggregate 1,791,173 shares of Series A Preferred Stock for an aggregate
cash consideration of approximately $1.6 million. Shares of Series A
Preferred Stock were issued to the following: David M. Balkin; Robert
McLean; Morris Ventures; Robert W. Shaw, Jr.; Philip E. Berney; WS
Investment Company 95B; William N. Melton; Stuart Cohen; Robert Kavner;
Edwin C. Cohen; Peter R. Bleyleben; Steven Spielberg; Gerald Breslauer;
Barry S. Volpert; Pando Associates, Ltd.; John Wylie; Jeffrey Glynn and
Victoria Jo Edwards, Co-Trustees of the Edwards Family Trust of 1995;
Charles R. Conn, II; Taylor Wescoatt; North American Trust Co., TTEE FBO
L&W Dickson #410280.
(6) In June 1996, Registrant issued an aggregate 157,074 shares of Series
B Preferred Stock at $3.4665 per share as part consideration for the
acquisition of MetroBeat, Inc. Such shares were issued to the following
shareholders of MetroBeat, Inc.: Mark Davies and Joshua White.
(7) From May 1996 to July 1996, Registrant issued and sold an aggregate
3,261,024 shares of Series C Preferred Stock for an aggregate cash
consideration of approximately $11.3 million. Shares of Series C Preferred
Stock were issued to the following: GS Capital Partners II, L.P; GS Capital
Partners II Offshore, L.P.; Goldman, Sachs & Co. Verwaltungs GmbH; The
Goldman Sachs Group, L.P.; AT&T Venture Fund I, L.P.; AT&T Venture Fund II,
L.P.; Steven Spielberg; Edwin C. Cohen; Pamela C. Alexander; Barry S.
Volpert; Alexander Communications, Inc.; Jeffrey G. Edwards; IRA MSTC
Custodian; Morris Ventures; Byters; David White; Robert W. Shaw, Jr.;
Charles R. Conn, II; The Pacific Bank, N.A., Trustee E. Keith Thomson IRA;
Michael Barton; Eric Higgs; Mark Lewyn; Emily Martin; Douglas M. McPherson;
Ted Meisel.
(8) From December 1996 to October 1997, Registrant issued and sold an
aggregate 4,430,313 shares of Series D Preferred Stock for an aggregate
cash consideration of approximately $28.0 million and for services provided
to the Company. Such shares of Series D Preferred Stock were issued to the
following: GS Capital Partners II, L.P.; GS Capital Partners II Offshore,
L.P.; Goldman, Sachs & Co. Verwaltungs GmbH; Stone Street Fund 1996, L.P.;
Bridge Street Fund 1996, L.P.; Edwin C. Cohen; EnCompass Group, Inc.;
Michael Barton; Mark Lewyn; Brian A. Goler; Emily Bloomfield; Bradley
Ramberg; Lamar Rutherford; Kristen Brown; James R. McGovern; AnneMarie
Weibel; Debra J. Wilkens; Francesca Colloredo-Mansfeld; Kathryn Takach;
Byters; Comcast CitySearch, Inc.; Far West Capital Partners, L.P.; Robert
McLean; Morris Ventures; Steven Spielberg; David White; CPQ Holdings, Inc.;
Intel Corporation; Bayview Investors, Ltd.; Toronto Star Newspapers
Limited; AT&T Venture Fund I, L.P.; AT&T Venture Fund II, L.P.; Bill Gross'
idealab!; Alexander Communications, Inc.; The Times Mirror Company; Paul S.
Larsen; ServiceMaster Venture Fund L.L.C.; Digital Ink Company and
Korn/Ferry International.
(9) In June 1997, Registrant issued an aggregate 68,274 shares of Series
B Preferred Stock at $6.5251 per share as additional consideration for the
acquisition of Metro Beat, Inc. Such shares were issued to the following
shareholders of MetroBeat, Inc.: Mark Davies and Joshua White.
(10) In November 1997, Registrant issued and sold an aggregate 4,714,286
shares of Series E Preferred Stock for an aggregate cash consideration of
approximately $33.0 million. Such shares of Series E Preferred Stock were
issued to the following: USA Networks, Inc.; Comcast CitySearch, Inc.; Far
West Capital Partners, LP; Intel Corporation; Endurance Fund; Gary Lauder;
The Thomas and Janet Unterman Living Trust dated 12/30/94; East Peak
Partners; Margaret L. Taylor; David A. Duffield Trust dated 7/14/88; Orchid
& Co.; Digital Ink Company; Global Retail Partners, L.P.; DLJ Diversified
Partners, L.P.; GRP Partners, L.P.; Global Retail Partners Funding, Inc.;
DLJ First ESC L.P. and Schibsted ASA.
II-2
<PAGE>
NationsBanc Montgomery Securities LLC ("NationsBanc") acted as placement
agent. As consideration for such services, Registrant paid NationsBanc
$1,546,182 in cash and issued a warrant to purchase 94,286 shares of Series
E Preferred Stock, which terms and conditions are described in item (11)
below.
(11) In November 1997, as part consideration for services provided as
placement agent, Registrant issued to NationsBanc a warrant to purchase
94,286 shares of Series E Preferred Stock. The warrant is exercisable at
any time at an exercise price equal to $8.75 per share and any unexercised
portion of the warrant is automatically convertible immediately prior to
the closing of this offering.
(12) In May 1998, Registrant issued an sold an aggregate 1,000,000 shares
of Series E Preferred Stock for an aggregate cash consideration of
approximately $7.0 million. Such shares of Series E Preferred Stock were
issued to the following: USA Networks, Inc. and American Express Travel
Related Services, Inc.
The sales of the securities described in Items 15(1) and 15(2) were deemed
to be exempt from registration under the Securities Act in reliance on Rule
701 promulgated under Section 3(b) of the Securities Act as transactions
pursuant to compensatory benefit plans and contracts relating to compensation
as provided under such Rule 701. The sale of the securities described in Items
15(3) through 15(12) were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, as transactions by an issuer not
involving a public offering. The recipients of securities in each such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either receive adequate information about the Registrant or had access,
through employment or other relationships, to such information.
II-3
<PAGE>
ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
2.1* +Agreement and Plan of Reorganization, among Registrant, MS Acquisition
Corporation, MetroBeat, Inc., Mark Davies and Joshua White, dated May
31, 1996.
3.1 Restated Certificate of Incorporation, as currently in effect.
3.2* Restated Certificate of Incorporation, to be filed prior to the
consummation of the offering.
3.3* Restated Certificate of Incorporation, to be filed immediately
following the consummation of the offering.
3.4* Bylaws, as currently in effect.
3.5 Restated Bylaws, to be effective upon the closing of the offering.
4.1* Specimen Common Stock Certificate.
4.2 Sixth Amended and Restated Stockholders' Agreement by and among
Registrant and certain stockholders of the Registrant, dated May 26,
1998.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
as to the legality of the securities being registered.
10.1 Form of Indemnification Agreement for directors and officers.
10.2* 1996 Stock Plan and form of agreement thereunder.
10.3* 1998 Employee Stock Purchase Plan.
10.4* 1998 Director Option Plan.
10.5* +License Agreement between Registrant and Perly, Inc., dated March 9,
1996.
10.6* +Marketing Agreement between Registrant and American Express Travel
Related Services Company, Inc., dated May 26, 1998.
10.7 Employment Agreement between Registrant and Charles Conn, dated May 9,
1996.
10.8* +Partnership Agreement between Metroland Printing, Publishing &
Distributing Ltd. 1217554 Ontario Inc., Registrant and Torstar
Corporation, dated February 17, 1997.
10.9* +License and Services Agreement between Registrant and 1217554 Ontario
Inc., dated February 17, 1997.
10.10* +Noncompetition Agreement between Registrant, 1217554 Ontario Inc.,
Torstar Corporation and Metroland Printing, Publishing & Distributing
Ltd., dated February 17, 1997.
10.11* +Assignment Agreement between Registrant, 1217554 Ontario Inc., and
Toronto Star CitySearch, dated February 17, 1997.
10.12* Lease Agreement by and between Registrant and West End Land Development
Co., L.P., dated November 7, 1996.
10.13* Standard Form of Lease, Aeriel Center Executive Park, between
Pizzagalli Investment Company and Registrant, dated May 8, 1996.
10.14* Standard Office Lease between Registrant and Sage Realty Corporation,
dated May 6, 1997.
10.15* Standard Office Lease between Registrant and H. Naito Corporation,
dated March 6, 1997.
10.16* Standard Office Lease between Registrant and Brazos Austin Centre,
Ltd., dated August 15, 1996.
10.17* Standard Office Lease between Registrant and Judge Building Group,
dated September 10, 1996.
10.18* Standard Office Lease between Registrant and Sobel Building
Development, dated May 31, 1996.
10.19* Standard Office Lease between Registrant and BPG Pasadena, L.L.C.
(later assigned to Spieker Properties), dated September 30, 1996.
10.20* Lease Agreement between Registrant and Secured Properties Investors II,
L.P., dated May 13, 1998.
10.21 Amended and Restated Voting Agreement by and among Registrant and
certain stockholders of Registrant, dated November 12, 1997.
10.22* Employment Agreement between Registrant and Thomas Layton, dated July
2,1997.
11.1* Calculation of earnings per share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule (available in EDGAR format only).
</TABLE>
(b) Schedules
Schedule II--Valuation and Qualifying Accounts
- --------
* To be filed by amendment.
+ Confidential treatment requested.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the provisions described in Item 14 above, 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 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 of 1933, and will be governed by the
final adjudication of such issue.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act of 1933, the information omitted from
the form of prospectus as filed as part of the registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of the time
it was declared effective, and (2) for the purpose of determining any
liability under the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus 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.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-1 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF PASADENA, STATE OF CALIFORNIA, ON THE 22 DAY OF JUNE, 1998.
CITYSEARCH, INC.
/s/ Charles Conn
By___________________________________
CHARLES CONN CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Charles Conn and Bradley Ramberg and
each one of them, acting individually and without the other, as his or her
attorney-in-fact, each with full power of substitution, for him and her in any
and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments), and to sign any registration
statement for the same Offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact, or his substitute or substitutes may
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED
SIGNATURE TITLE DATE
/s/ Charles Conn Chief Executive June 22, 1998
- ------------------------------------- Officer and
CHARLES CONN Director (Principal
Executive Officer)
/s/ Bradley Ramberg Chief Financial June 22, 1998
- ------------------------------------- Officer and Vice
BRADLEY RAMBERG President, Finance
and Administration
and Secretary
(Principal
Financial Officer
and Principal
Accounting Officer)
/s/ Thomas Layton President, Chief June 22, 1998
- ------------------------------------- Operating Officer,
THOMAS LAYTON Treasurer and
Director
II-6
<PAGE>
SIGNATURE TITLE DATE
/s/ Jeffrey Brewer Director June 22, 1998
- -------------------------------------
JEFFREY BREWER
/s/ Gerald Breslauer Director June 22, 1998
- -------------------------------------
GERALD BRESLAUER
Director
- -------------------------------------
BARRY DILLER
/s/ Joseph Gleberman Director June 22, 1998
- -------------------------------------
JOSEPH GLEBERMAN
/s/ William Gross Director June 22, 1998
- -------------------------------------
WILLIAM GROSS
/s/ Robert Kavner Director June 22, 1998
- -------------------------------------
ROBERT KAVNER
Director
- -------------------------------------
ALAN SPOON
/s/ Yves Sisteron Director June 22, 1998
- -------------------------------------
YVES SISTERON
/s/ Thomas Unterman Director June 22, 1998
- -------------------------------------
THOMAS UNTERMAN
II-7
<PAGE>
CITYSEARCH, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- --------------------- ---------- ----------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER THE END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Period from September 20
(date of formation)
through December 31,
1995................... $ -- $ -- $-- $ -- $ --
Year ended December 31,
1996................... -- -- -- -- --
Year ended December 31,
1997................... -- 114,000 -- 89,000(a) 25,000
</TABLE>
- --------
(a) Represents amounts written-off against the allowance for doubtful accounts,
net of recoveries and reversals.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1* +Agreement and Plan of Reorganization, among Registrant, MS
Acquisition Corporation, MetroBeat, Inc., Mark Davies and Joshua
White, dated May 31, 1996.
3.1 Restated Certificate of Incorporation, as currently in effect.
3.2* Restated Certificate of Incorporation, to be filed prior to the
consummation of the offering.
3.3* Restated Certificate of Incorporation, to be filed immediately
following the consummation of the offering.
3.4* Bylaws, as currently in effect.
3.5 Restated Bylaws, to be effective upon the closing of the offering.
4.1* Specimen Common Stock Certificate.
4.2 Sixth Amended and Restated Stockholders' Agreement by and among
Registrant and certain stockholders of the Registrant, dated May
26, 1998.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, as to the legality of the securities being
registered.
10.1 Form of Indemnification Agreement for directors and officers.
10.2* 1996 Stock Plan and form of agreement thereunder.
10.3* 1998 Employee Stock Purchase Plan.
10.4* 1998 Director Option Plan.
10.5* +License Agreement between Registrant and Perly, Inc., dated March
9, 1996.
10.6* +Marketing Agreement between Registrant and American Express
Travel Related Services Company, Inc., dated May 26, 1998.
10.7 Employment Agreement between Registrant and Charles Conn, dated
May 9, 1996.
10.8* +Partnership Agreement between Metroland Printing, Publishing &
Distributing Ltd. 1217554 Ontario Inc., Registrant and Torstar
Corporation, dated February 17, 1997.
10.9* +License and Services Agreement between Registrant and 1217554
Ontario Inc., dated February 17, 1997.
10.10* +Noncompetition Agreement between Registrant, 1217554 Ontario
Inc., Torstar Corporation and Metroland Printing, Publishing &
Distributing Ltd., dated February 17, 1997.
10.11* +Assignment Agreement between Registrant, 1217554 Ontario Inc.,
and Toronto Star CitySearch, dated February 17, 1997.
10.12* Lease Agreement by and between Registrant and West End Land
Development Co., L.P., dated November 7, 1996.
10.13* Standard Form of Lease, Aeriel Center Executive Park, between
Pizzagalli Investment Company and Registrant, dated May 8, 1996.
10.14* Standard Office Lease between Registrant and Sage Realty
Corporation, dated May 6, 1997.
10.15* Standard Office Lease between Registrant and H. Naito Corporation,
dated March 6, 1997.
10.16* Standard Office Lease between Registrant and Brazos Austin Centre,
Ltd., dated August 15, 1996.
10.17* Standard Office Lease between Registrant and Judge Building Group,
dated September 10, 1996.
10.18* Standard Office Lease between Registrant and Sobel Building
Development, dated May 31, 1996.
10.19* Standard Office Lease between Registrant and BPG Pasadena, L.L.C.
(later assigned to Spieker Properties), dated September 30, 1996.
10.20* Lease Agreement between Registrant and Secured Properties
Investors II, L.P., dated May 13, 1998.
10.21 Amended and Restated Voting Agreement by and among Registrant and
certain stockholders of Registrant, dated November 12, 1997.
10.22* Employment Agreement between Registrant and Thomas Layton, dated
July 2,1997.
11.1* Calculation of earnings per share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule (available in EDGAR format only).
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested.
<PAGE>
EXHIBIT 1.1
Draft of June 17, 1998
_______________ SHARES
CITYSEARCH, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED _________, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES....................................................... 2
COMPLIANCE WITH REGISTRATION REQUIREMENTS................................................... 2
OFFERING MATERIALS FURNISHED TO UNDERWRITERS................................................ 2
DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY............................................ 3
THE UNDERWRITING AGREEMENT.................................................................. 3
AUTHORIZATION OF THE COMMON SHARES.......................................................... 3
NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS.......................................... 3
NO MATERIAL ADVERSE CHANGE.................................................................. 3
INDEPENDENT ACCOUNTANTS..................................................................... 3
PREPARATION OF THE FINANCIAL STATEMENTS..................................................... 3
INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS SUBSIDIARIES......................... 4
CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS.............................................. 4
STOCK EXCHANGE LISTING;..................................................................... 5
NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER AUTHORIZATIONS
OR APPROVALS REQUIRED....................................................................... 5
NO MATERIAL ACTIONS OR PROCEEDINGS.......................................................... 5
INTELLECTUAL PROPERTY RIGHTS................................................................ 5
ALL NECESSARY PERMITS, ETC.................................................................. 6
TITLE TO PROPERTIES......................................................................... 6
TAX LAW COMPLIANCE.......................................................................... 6
COMPANY NOT AN INVESTMENT COMPANY........................................................... 6
INSURANCE................................................................................... 6
NO PRICE STABILIZATION OR MANIPULATION...................................................... 7
RELATED PARTY TRANSACTIONS.................................................................. 7
NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS................................................. 7
COMPANY'S ACCOUNTING SYSTEM................................................................. 7
COMPLIANCE WITH ENVIRONMENTAL LAWS.......................................................... 7
ERISA COMPLIANCE............................................................................ 8
SECTION 2. PURCHASE, SALE AND DELIVERY OF COMMON SHARES......................................... 8
THE FIRM COMMON SHARES...................................................................... 8
THE FIRST CLOSING DATE...................................................................... 8
THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE......................................... 9
PUBLIC OFFERING OF THE COMMON SHARES........................................................ 9
PAYMENT FOR THE COMMON SHARES............................................................... 9
DELIVERY OF THE COMMON SHARES............................................................... 10
DELIVERY OF PROSPECTUS TO THE UNDERWRITERS.................................................. 10
SECTION 3. ADDITIONAL COVENANTS [OF THE COMPANY]................................................ 10
REPRESENTATIVE'S REVIEW OF PROPOSED AMENDMENTS AND SUPPLEMENTS.............................. 10
SECURITIES ACT COMPLIANCE................................................................... 10
AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER SECURITIES ACT MATTERS............... 11
COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS.................................. 11
BLUE SKY COMPLIANCE......................................................................... 11
USE OF PROCEEDS............................................................................. 11
TRANSFER AGENT.............................................................................. 12
EARNINGS STATEMENT.......................................................................... 12
PERIODIC REPORTING OBLIGATIONS.............................................................. 12
AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES........................................ 12
FUTURE REPORTS TO THE REPRESENTATIVE........................................................ 12
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
SECTION 4. PAYMENT OF EXPENSES.................................................................. 13
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.................................... 13
ACCOUNTANTS' COMFORT LETTER................................................................. 13
COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER, NO OBJECTION FROM NASD............ 14
NO MATERIAL ADVERSE CHANGE OR RATINGS AGENCY CHANGE......................................... 14
OPINION OF COUNSEL FOR THE COMPANY.......................................................... 14
OPINION OF COUNSEL FOR THE UNDERWRITERS..................................................... 14
OFFICERS' CERTIFICATE....................................................................... 15
BRING-DOWN COMFORT LETTER................................................................... 15
LOCK-UP AGREEMENT FROM CERTAIN STOCKHOLDERS OF THE COMPANY.................................. 15
ADDITIONAL DOCUMENTS........................................................................ 15
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES.............................................. 16
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT...................................................... 16
SECTION 8. INDEMNIFICATION...................................................................... 16
INDEMNIFICATION OF THE UNDERWRITERS......................................................... 16
INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS.................................. 17
NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES.......................................... 18
SETTLEMENTS................................................................................. 19
SECTION 9. CONTRIBUTION......................................................................... 19
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS............................. 20
SECTION 11. TERMINATION OF THIS AGREEMENT.................................................. 21
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY............................ 21
SECTION 13. NOTICES............................................................................. 22
SECTION 14. SUCCESSORS..................................................................... 23
SECTION 15. PARTIAL UNENFORCEABILITY............................................................ 23
SECTION 16. GOVERNING LAW PROVISIONS....................................................... 23
SECTION 17. GENERAL PROVISIONS.................................................................. 24
</TABLE>
-ii-
<PAGE>
UNDERWRITING AGREEMENT
___________, 1998
NATIONSBANC MONTGOMERY SECURITIES LLC
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
BANCAMERICA ROBERTSON STEPHENS
As Representatives of the several Underwriters
c/o NATIONSBANC MONTGOMERY SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. CitySearch, Inc., a Delaware corporation (the
"Company), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of [___] shares (the "Firm Common
- ----------
Shares") of its Common Stock, par value $0.01 per share (the "Common Stock").
In addition, the Company has granted to the Underwriters an option to purchase
up to an additional [___] shares (the "Optional Common Shares") of Common Stock,
as provided in Section 2. The Firm Common Shares and, if and to the extent such
option is exercised, the Optional Common Shares are collectively called the
"Common Shares". Nationsbanc Montgomery Securities LLC ("NMS"), Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") and BancAmerica Robertson
Stephens ("BRS") have agreed to act as representatives of the several
Underwriters (in such capacity, the "Representatives") in connection with the
offering and sale of the Common Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-[___]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Common Shares, is called the "Prospectus"; provided,
however, if the Company has, with the consent of the Representatives, elected to
rely upon Rule 434 under the Securities Act, the term "Prospectus" shall mean
the Company's prospectus subject to completion (each, a "preliminary
prospectus") dated [___] (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the
-1-
<PAGE>
applicable term sheet (the "Term Sheet") prepared and filed by the Company with
the Commission under Rules 434 and 424(b) under the Securities Act and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. All references in this Agreement to the Registration
Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the
Prospectus or the Term Sheet, or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters
as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
The Company hereby represents, warrants and covenants to each
Underwriter as follows :
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the
Commission for additional or supplemental information. No stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement is in effect and no proceedings for such
purpose have been instituted or are pending or, to the best knowledge of
the Company, are contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-
T under the Securities Act), was identical to the copy thereof delivered to
the Underwriters for use in connection with the offer and sale of the
Common Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the
time it became effective and at all subsequent times, complied and will
comply in all material respects with the Securities Act and did not and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus, as amended or
supplemented, as of its date and at all subsequent times, did not and will
not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements
thereto, made in reliance upon and in conformity with information relating
to any Underwriter furnished to the Company in writing by the
Representatives expressly for use therein. There are no contracts or other
documents required to be described in the Prospectus or to be filed as
exhibits to the Registration Statement which have not been described or
filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives three complete manually signed copies of
the Registration Statement and of each consent and certificate of experts
filed as a part thereof, and conformed copies of the Registration Statement
(without exhibits) and preliminary prospectuses and the Prospectus,
-2-
<PAGE>
as amended or supplemented, in such quantities and at such places as the
Representatives have reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with
the offering and sale of the Common Shares other than a preliminary
prospectus, the Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized
for issuance and sale pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement, will be validly
issued, fully paid and nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or
included in the offering contemplated by this Agreement, except for such
rights as have been duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus: (i) there has been no material adverse change, or
any development that could reasonably be expected to result in a material
adverse change, in the condition, financial or otherwise, or in the
earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change is called a
"Material Adverse Change"); (ii) the Company and its subsidiaries,
considered as one entity, have not incurred any material liability or
obligation, indirect, direct or contingent, not in the ordinary course of
business nor entered into any material transaction or agreement not in the
ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company or, except
for dividends paid to the Company or other subsidiaries, any of its
subsidiaries on any class of capital stock or repurchase or redemption by
the Company or any of its subsidiaries of any class of capital stock.
(h) Independent Accountants. Ernst & Young LLP, which has expressed
its opinion with respect to the financial statements (which term as used in
this Agreement includes the related notes thereto) and supporting schedules
filed with the Commission as a part of the Registration Statement and
included in the Prospectus, are independent certified public accountants as
required by the Securities Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and
included in the Prospectus present
-3-
<PAGE>
fairly the consolidated financial position of the Company and its
subsidiaries as of and at the dates indicated and the results of their
operations and cash flows for the periods specified. The supporting
schedules included in the Registration Statement present fairly the
information required to be stated therein. Such financial statements and
supporting schedules have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved, except as may be expressly stated in the related notes
thereto. No other financial statements or supporting schedules are required
to be included in the Registration Statement. The financial data set forth
in the Prospectus under the captions "Prospectus Summary--Summary Selected
Financial Data", "Selected Financial Data" and "Capitalization" fairly
present the information set forth therein on a basis consistent with that
of the audited financial statements contained in the Registration
Statement.
(j) Incorporation and Good Standing of the Company and its
Subsidiaries. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation and has corporate
power and authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus and, in the case of the
Company, to enter into and perform its obligations under this Agreement.
Each of the Company and each subsidiary is duly qualified as a foreign
corporation to transact business and is in good standing in the State of
California and each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except for such jurisdictions (other than the State of
California) where the failure to so qualify or to be in good standing would
not, individually or in the aggregate, result in a Material Adverse Change.
All of the issued and outstanding capital stock of each subsidiary has been
duly authorized and validly issued, is fully paid and nonassessable and is
owned by the Company, directly or through subsidiaries, free and clear of
any security interest, mortgage, pledge, lien, encumbrance or claim. The
Company does not own or control, directly or indirectly, any corporation,
association or other entity other than the subsidiaries listed in Exhibit
____ to the Registration Statement.
(k) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in
the Prospectus). The Common Stock (including the Common Shares) conforms in
all material respects to the description thereof contained in the
Prospectus. All of the issued and outstanding shares of Common Stock have
been duly authorized and validly issued, are fully paid and nonassessable
and have been issued in compliance with federal and state securities laws.
None of the outstanding shares of Common Stock were issued in violation of
any preemptive rights, rights of first refusal or other similar rights to
subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants, preemptive rights, rights of
first refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock of
the Company or any of its subsidiaries other than those accurately
described in the Prospectus. The description of the Company's stock option,
stock bonus and other stock plans or arrangements, and the options or other
rights granted thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to such
plans, arrangements, options and rights.
-4-
<PAGE>
(l) Stock Exchange Listing. The Common Shares have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or is in default
(or, with the giving of notice or lapse of time, would be in default)
("Default") under any indenture, mortgage, loan or credit agreement, note,
contract, franchise, lease or other instrument to which the Company or any
of its subsidiaries is a party or by which it or any of them may be bound
or to which any of the property or assets of the Company or any of its
subsidiaries is subject (each, an "Existing Instrument"), except for such
Defaults as would not, individually or in the aggregate, result in a
Material Adverse Change. The Company's execution, delivery and performance
of this Agreement and consummation of the transactions contemplated hereby
and by the Prospectus (i) have been duly authorized by all necessary
corporate action and will not result in any violation of the provisions of
the charter or by-laws of the Company or any subsidiary, (ii) will not
conflict with or constitute a breach of, or Default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its subsidiaries pursuant to, or require
the consent of any other part to, any Existing Instrument, except for such
conflicts, breaches, Defaults, liens, charges or encumbrances as would not,
individually or in the aggregate, result in a Material Adverse Change and
(iii) will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company or
any subsidiary. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental or regulatory
authority or agency, is required for the Company's execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been
obtained or made by the Company and are in full force and effect under the
Securities Act, applicable state securities or blue sky laws and from the
National Association of Securities Dealers, Inc. (the "NASD").
(n) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company or any
of its subsidiaries, (ii) which has as the subject thereof any officer or
director of, or property owned or leased by, the Company or any of its
subsidiaries or (iii) relating to environmental or discrimination matters,
where in any such case (A) there is a reasonable possibility that such
action, suit or proceeding might be determined adversely to the Company or
such subsidiary and (B) any such action, suit or proceeding, if so
determined adversely, would reasonably be expected to result in a Material
Adverse Change or adversely affect the consummation of the transactions
contemplated by this Agreement. No material labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the best
of the Company's knowledge, is threatened or imminent.
(o) Intellectual Property Rights. The Company and its subsidiaries
own or possess sufficient trademarks, trade names, patent rights,
copyrights, licenses, approvals, trade secrets and other similar rights
(collectively, "Intellectual Property Rights") reasonably necessary to
conduct their businesses as now conducted; and the expected expiration of
any of such Intellectual Property Rights would not result in a Material
Adverse Change. Neither the Company nor any of its subsidiaries has
received any notice of infringement or conflict with asserted Intellectual
Property Rights of others, which infringement or conflict, if the subject
-5-
<PAGE>
of an unfavorable decision, would result in a Material Adverse Change.
(p) All Necessary Permits, etc. The Company and each subsidiary
possess such valid and current certificates, authorizations or permits
issued by the appropriate state, federal or foreign regulatory agencies or
bodies necessary to conduct their respective businesses, and neither the
Company nor any subsidiary has received any notice of proceedings relating
to the revocation or modification of, or non-compliance with, any such
certificate, authorization or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, could result in
a Material Adverse Change.
(q) Title to Properties. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as
owned in the financial statements referred to in Section 1(i) above (or
elsewhere in the Prospectus), in each case free and clear of any security
interests, mortgages, liens, encumbrances, equities, claims and other
defects, except such as do not materially and adversely affect the value of
such property and do not materially interfere with the use made or proposed
to be made of such property by the Company or such subsidiary. The real
property, improvements, equipment and personal property held under lease by
the Company or any subsidiary are held under valid and enforceable leases,
with such exceptions as are not material and do not materially interfere
with the use made or proposed to be made of such real property,
improvements, equipment or personal property by the Company or such
subsidiary.
(r) Tax Law Compliance. The Company and its subsidiaries have filed
all necessary federal, state and foreign income and franchise tax returns
and have paid all taxes required to be paid by any of them and, if due and
payable, any related or similar assessment, fine or penalty levied against
any of them. The Company has made adequate charges, accruals and reserves
in the applicable financial statements referred to in Section 1 (i) above
in respect of all federal, state and foreign income and franchise taxes for
all periods as to which the tax liability of the Company or any of its
subsidiaries has not been finally determined.
(s) Company Not an "Investment Company". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after
receipt of payment for the Common Shares will not be, an "investment
company" within the meaning of Investment Company Act and will conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(t) Insurance. Each of the Company and its subsidiaries are insured
by recognized, financially sound and reputable institutions with policies
in such amounts and with such deductibles and covering such risks as are
generally deemed adequate and customary for their businesses including, but
not limited to, policies covering real and personal property owned or
leased by the Company and its subsidiaries against theft, damage,
destruction, acts of vandalism and earthquakes. The Company has no reason
to believe that it or any subsidiary will not be able (i) to renew its
existing insurance coverage as and when such policies expire or (ii) to
obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that
would not result in a Material Adverse Change. Neither of the Company nor
any subsidiary has been denied any insurance coverage which it has sought
or for which it has applied.
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<PAGE>
(u) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Common Shares.
(v) Related Party Transactions. There are no business relationships
or related-party transactions involving the Company or any subsidiary or
any other person required to be described in the Prospectus which have not
been described as required.
(w) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge,
any employee or agent of the Company or any subsidiary, has made any
contribution or other payment to any official of, or candidate for, any
federal, state or foreign office in violation of any law or of the
character required to be disclosed in the Prospectus.
(x) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(y) Compliance with Environmental Laws. Except as would not,
individually or in the aggregate, result in a Material Adverse Change (i)
neither the Company nor any of its subsidiaries is in violation of any
federal, state, local or foreign law or regulation relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including without limitation, laws and
regulations relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum and petroleum products (collectively,
"Materials of Environmental Concern"), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environment Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations
required for the operation of the business of the Company or its
subsidiaries under applicable Environmental Laws, or noncompliance with the
terms and conditions thereof, nor has the Company or any of its
subsidiaries received any written communication, whether from a
governmental authority, citizens group, employee or otherwise, that alleges
that the Company or any of its subsidiaries is in violation of any
Environmental Law; (ii) there is no claim, action or cause of action filed
with a court or governmental authority, no investigation with respect to
which the Company has received written notice, and no written notice by any
person or entity alleging potential liability for investigatory costs,
cleanup costs, governmental responses costs, natural resources damages,
property damages, personal injuries, attorneys' fees or penalties arising
out of, based on or resulting from the presence, or release into the
environment, of any Material of Environmental Concern at any location
owned, leased or operated by the Company or any of its subsidiaries, now or
in the past (collectively, "Environmental Claims"), pending or, to the best
of the Company's knowledge, threatened
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<PAGE>
against the Company or any of its subsidiaries or any person or entity
whose liability for any Environmental Claim the Company or any of its
subsidiaries has retained or assumed either contractually or by operation
of law; and (iii) to the best of the Company's knowledge, there are no past
or present actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the release, emission, discharge,
presence or disposal of any Material of Environmental Concern, that
reasonably could result in a violation of any Environmental Law or form the
basis of a potential Environmental Claim against the Company or any of its
subsidiaries or against any person or entity whose liability for any
Environmental Claim the Company or any of its subsidiaries has retained or
assumed either contractually or by operation of law.
(z) ERISA Compliance. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or
maintained by the Company, its subsidiaries or their "ERISA Affiliates" (as
defined below) are in compliance in all material respects with ERISA.
"ERISA Affiliate" means, with respect to the Company or a subsidiary, any
member of any group of organizations described in Sections 414(b),(c),(m)
or (o) of the Internal Revenue Code of 1986, as amended, and the
regulations and published interpretations thereunder (the "Code") of which
the Company or such subsidiary is a member. No "reportable event" (as
defined under ERISA) has occurred or is reasonably expected to occur with
respect to any "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates. No "employee
benefit plan" established or maintained by the Company, its subsidiaries or
any of their ERISA Affiliates, if such "employee benefit plan" were
terminated, would have any "amount of unfunded benefit liabilities" (as
defined under ERISA). Neither the Company, its subsidiaries nor any of
their ERISA Affiliates has incurred or reasonably expects to incur any
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971,
4975 or 4980B of the Code. Each "employee benefit plan" established or
maintained by the Company, its subsidiaries or any of their ERISA
Affiliates that is intended to be qualified under Section 401(a) of the
Code is so qualified and nothing has occurred, whether by action or failure
to act, which would cause the loss of such qualification.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
(a) The Firm Common Shares. The Company agrees to issue and sell to
the several Underwriters the Firm Common Shares upon the terms herein set forth.
On the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
- ----------
Underwriters to the Company shall be $[___] per share.
(b) The First Closing Date. Delivery of certificates for the Firm
Common
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Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of NMS, 600 Montgomery Street, San Francisco, California (or such
other place as may be agreed to by the Company and the Representatives) at 6:00
a.m. San Francisco time, on [___], or such other time and date not later than
10:30 a.m. San Francisco time , on [___] as the Representatives shall designate
by notice to the Company (the time and date of such closing are called the
"First Closing Date"). The Company hereby acknowledges that circumstances under
which the Representatives may provide notice to postpone the First Closing Date
as originally scheduled include, but are in no way limited to, any determination
by the Company or the Representatives to recirculate to the public copies of an
amended or supplemented Prospectus or a delay as contemplated by the provisions
of Section 10.
(c) The Optional Common Shares; the Second Closing Date. In addition,
on the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of [___] Optional Common Shares from the Company
at the purchase price per share to be paid by the Underwriters for the Firm
Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be purchased as
the number of Firm Common Shares set forth on Schedule A opposite the name of
----------
such Underwriter bears to the total number of Firm Common Shares. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
(d) Public Offering of the Common Shares. The Representatives hereby
advise the Company that the Underwriters intend to offer for sale to the public,
as described in the Prospectus, their respective portions of the Common Shares
as soon after this Agreement has been executed and the Registration Statement
has been declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
(e) Payment for the Common Shares. Payment for the Common Shares
shall be made at the First Closing Date (and, if applicable, at the Second
Closing Date) by wire transfer of immediately available funds to the order of
the Company.
It is understood that the Representatives have been authorized, for
their own
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account and the accounts of the several Underwriters, to accept delivery of and
receipt for, and make payment of the purchase price for, the Firm Common Shares
and any Optional Common Shares the Underwriters have agreed to purchase. NMS,
DLJ or BRS, individually and not as the Representatives of the Underwriters, may
(but shall not be obligated to) make payment for any Common Shares to be
purchased by any Underwriter whose funds shall not have been received by the
Representatives by the First Closing Date or the Second Closing Date, as the
case may be, for the account of such Underwriter, but any such payment shall not
relieve such Underwriter from any of its obligations under this Agreement.
(f) Delivery of the Common Shares. The Company shall deliver, or
cause to be delivered, to the Representatives for the accounts of the several
Underwriters certificates for the Firm Common Shares at the First Closing Date,
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The Company shall also
deliver, or cause to be delivered, to the Representatives for the accounts of
the several Underwriters, certificates for the Optional Common Shares the
Underwriters have agreed to purchase at the First Closing Date or the Second
Closing Date, as the case may be, against the irrevocable release of a wire
transfer of immediately available funds for the amount of the purchase price
therefor. The certificates for the Common Shares shall be in definitive form
and registered in such names and denominations as the Representatives shall have
requested at least two full business days prior to the First Closing Date (or
the Second Closing Date, as the case may be) and shall be made available for
inspection on the business day preceding the First Closing Date (or the Second
Closing Date, as the case may be) at a location in New York City as the
Representatives may designate. Time shall be of the essence, and delivery at
the time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00
p.m. on the second business day following the date the Common Shares released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
SECTION 3. ADDITIONAL COVENANT.
(a) Representatives' Review of Proposed Amendments and Supplements.
During such period beginning on the date hereof and ending on the later of
the First Closing Date or such date, as in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be delivered
in connection with sales by an Underwriter or dealer (the "Prospectus
Delivery Period"), prior to amending or supplementing the Registration
Statement (including any registration statement filed under Rule 462(b)
under the Securities Act) or the Prospectus, the Company shall furnish to
the Representatives for review a copy of each such proposed amendment or
supplement, and the Company shall not file any such proposed amendment or
supplement to which the Representatives reasonably object.
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Representatives in writing (i) of the
receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing
of any post-effective amendment to the Registration Statement or any
amendment or supplement to any preliminary prospectus or the Prospectus,
(iii) of the time and date that any post-effective amendment to the
Registration Statement becomes effective and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of
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<PAGE>
the Registration Statement or any post-effective amendment thereto or of
any order preventing or suspending the use of any preliminary prospectus or
the Prospectus, or of any proceedings to remove, suspend or terminate from
listing or quotation the Common Stock from any securities exchange upon
which the it is listed for trading or included or designated for quotation,
or of the threatening or initiation of any proceedings for any of such
purposes. If the Commission shall enter any such stop order at any time,
the Company will use its best efforts to obtain the lifting of such order
at the earliest possible moment. Additionally, the Company agrees that it
shall comply with the provisions of Rules 424(b), 430A and 434, as
applicable, under the Securities Act and will use its reasonable efforts to
confirm that any filings made by the Company under such Rule 424(b) were
received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. If, during the Prospectus Delivery Period, any event shall
occur or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances when the Prospectus is delivered to a purchaser,
not misleading, or if in the opinion of the Representatives or counsel for
the Underwriters it is otherwise necessary to amend or supplement the
Prospectus to comply with law, the Company agrees to promptly prepare
(subject to Section 3(a) hereof), file with the Commission and furnish at
its own expense to the Underwriters and to dealers, amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Representatives may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of)
the or state securities or blue sky laws or Canadian provincial securities
laws of those jurisdictions designated by the Representatives, shall comply
with such laws and shall continue such qualifications, registrations and
exemptions in effect so long as required for the distribution of the Common
Shares. The Company shall not be required to qualify as a foreign
corporation or to take any action that would subject it to general service
of process in any such jurisdiction where it is not presently qualified or
where it would be subject to taxation as a foreign corporation. The Company
will advise the Representatives promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the
Common Shares for offering, sale or trading in any jurisdiction or any
initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification,
registration or exemption, the Company shall use its best efforts to obtain
the withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds from
the sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
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<PAGE>
(g) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month
period ending September 30, 1998 that satisfies the provisions of Section
11(a) of the Securities Act.
(j) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and
the Nasdaq National Market all reports and documents required to be filed
under the Exchange Act. Additionally, the Company shall file with the
Commission all reports on Form SR as may be required under Rule 463 under
the Securities Act.
(l) Agreement Not To Offer or Sell Additional Securities During the
period of 180 days following the date of the Prospectus, the Company will
not, without the prior written consent of NMS (which consent may be
withheld at the sole discretion of NMS), directly or indirectly, sell,
offer, contract or grant any option to sell, pledge, transfer or establish
an open "put equivalent position" within the meaning of Rule 16a-1(h) under
the Exchange Act, or otherwise dispose of or transfer, or announce the
offering of, or file any registration statement under the Securities Act in
respect of, any shares of Common Stock, options or warrants to acquire
shares of the Common Stock or securities exchangeable or exercisable for or
convertible into shares of Common Stock (other than as contemplated by this
Agreement with respect to the Common Shares); provided, however, that the
Company may issue shares of its Common Stock or options to purchase its
Common Stock, or Common Stock upon exercise of options, pursuant to any
stock option, stock bonus or other stock plan or arrangement described in
the Prospectus, but only if the holders of such shares, options, or shares
issued upon exercise of such options, agree in writing not to sell, offer,
dispose of or otherwise transfer any such shares or options during such 180
day period without the prior written consent of NMS (which consent may be
withheld at the sole discretion of the NMS).
(m) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives at 600
Montgomery Street, San Francisco, CA 94111 Attention: Steve Baum, (i) as
soon as practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of the
close of such fiscal year and statements of income, stockholders' equity
and cash flows for the year then ended and the opinion thereon of the
Company's independent public or certified public accountants; (ii) as soon
as practicable after the filing thereof, copies of each proxy statement,
Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report
on Form 8-K or other report filed by the Company with the Commission, the
NASD or any securities exchange; and (iii) as soon as available, copies of
any report or communication of the Company mailed generally to holders of
its capital stock.
NMS, on behalf of the several Underwriters, may, in its sole
discretion, waive in writing the performance by the Company of any one or more
of the foregoing covenants or extend the time for their performance.
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SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all
costs, fees and expenses incurred in connection with the performance of its
obligations hereunder and in connection with the transactions contemplated
hereby, including without limitation (i) all expenses incident to the issuance
and delivery of the Common Shares (including all printing and engraving costs),
(ii) all fees and expenses of the registrar and transfer agent of the Common
Stock, (iii) all necessary issue, transfer and other stamp taxes in connection
with the issuance and sale of the Common Shares to the Underwriters, (iv) all
fees and expenses of the Company's counsel, independent certified public
accountants and other advisors, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
the Registration Statement (including financial statements, exhibits, schedules,
consents and certificates of experts), each preliminary prospectus and the
Prospectus, and all amendments and supplements thereto, and this Agreement, (vi)
all filing fees, attorneys' fees and expenses incurred by the Company or the
Underwriters in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Common Shares for offer and sale under the state securities or blue sky laws or
the provincial securities laws of Canada, and, if requested by the
Representatives, preparing and printing a "Blue Sky Survey" or memorandum, and
any supplements thereto, advising the Underwriters of such qualifications,
registrations and exemptions, (vii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in connection with,
the NASD's review and approval of the Underwriters' participation in the
offering and distribution of the Common Shares, (viii) the fees and expenses
associated with including the Common Shares on the Nasdaq National Market, and
(ix) all other fees, costs and expenses referred to in Item 13 of Part II of the
Registration Statement. Except as provided in this Section 4, Section 6, Section
8 and Section 9 hereof, the Underwriters shall pay their own expenses, including
the fees and disbursements of their counsel.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing Date
as though then made and, with respect to the Optional Common Shares, as of the
Second Closing Date as though then made, to the timely performance by the
Company of its covenants and other obligations hereunder, and to each of the
following additional conditions :
(a) Accountants' Comfort Letter. On the date hereof, the
Representatives shall have received from Ernst & Young LLP, independent
certified public accountants for the Company, a letter dated the date
hereof addressed to the Underwriters, in form and substance satisfactory to
the Representatives, containing statements and information of the type
ordinarily included in accountant's "comfort letters" to underwriters,
delivered according to Statement of Auditing Standards No. 72 (or any
successor bulletin), with respect to the audited and unaudited financial
statements and certain financial information contained in the Registration
Statement and the Prospectus (and the Representatives shall have received
an additional [___] conformed copies of such accountants' letter for each
of the several Underwriters).
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(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the
Securities Act) in the manner and within the time period required by Rule
424(b) under the Securities Act; or the Company shall have filed a post-
effective amendment to the Registration Statement containing the
information required by such Rule 430A, and such post-effective amendment
shall have become effective; or, if the Company elected to rely upon Rule
434 under the Securities Act and obtained the Representatives' consent
thereto, the Company shall have filed a Term Sheet with the Commission in
the manner and within the time period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in effect
and no proceedings for such purpose shall have been instituted or
threatened by the Commission; and
(iii) the NASD shall have raised no objection to the fairness
and reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change or Ratings Agency Change. For the
period from and after the date of this Agreement and prior to the First
Closing Date and, with respect to the Optional Common Shares, the Second
Closing Date:
(i) in the judgment of the Representatives there shall not
have occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction of
the possible change, in the rating accorded any securities of the Company
or any of its subsidiaries by any "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under
the Securities Act.
(d) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received
the favorable opinion of Wilson Sonsini Goodrich & Rosati, counsel for the
Company, dated as of such Closing Date, the form of which is attached as
Exhibit A (and the Representatives shall have received an additional [___]
---------
conformed copies of such counsel's legal opinion for each of the several
Underwriters).
(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Venture Law Group, A Professional
Corporation, counsel for the Underwriters, dated as of such Closing Date,
with respect to the matters set forth in paragraph (i), (vii) (with respect
to subparagraph (i) only), (viii), (ix), (x), (xi), (xii) and (xiii) (with
respect to the captions "Description of Capital Stock" and "Underwriting"
under subparagraph (i) only), and the
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next-to-last paragraph of Exhibit A (and the Representatives shall have
---------
received an additional [___] conformed copies of such counsel's legal
opinion for each of the several Underwriters).
(f) Officers' Certificate. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer
or President of the Company and the Chief Financial Officer or Chief
Accounting Officer of the Company, dated as of such Closing Date, to the
effect set forth in subsections (b)(ii) and (c)(ii) of this Section 5, and
further to the effect that:
(i) for the period from and after the date of this Agreement
and prior to such Closing Date, there has not occurred any Material Adverse
Change;
(ii) the representations, warranties and covenants of the
Company set forth in Section 1 of this Agreement are true and correct with
the same force and effect as though expressly made on and as of such
Closing Date; and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing Date and
the Second Closing Date the Representatives shall have received from Ernst
& Young LLP, independent certified public accountants for the Company, a
letter dated such date, in form and substance satisfactory to the
Representatives, to the effect that they reaffirm the statements made in
the letter furnished by them pursuant to subsection (a) of this Section 5,
except that the specified date referred to therein for the carrying out of
procedures shall be no more than three business days prior to the First
Closing Date or Second Closing Date, as the case may be (and the
Representatives shall have received an additional [___] conformed copies of
such accountants' letter for each of the several Underwriters).
(h) Lock-Up Agreement from Certain Stockholders of the Company. On
the date hereof, the Company shall have furnished to the Representatives an
agreement in the form of Exhibit B hereto from each director, officer and
---------
each beneficial owner of more than _____ shares of Common Stock (as
defined and determined according to Rule 13d-3 under the Exchange Act,
except that a one hundred eighty day period shall be used rather than the
sixty day period set forth therein) and such agreement shall be in full
force and effect on each of the First Closing Date and the Second Closing
Date.
(i) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, the Representatives and counsel for the
Underwriters shall have received such information, documents and opinions
as they may reasonably require for the purposes of enabling them to pass
upon the issuance and sale of the Common Shares as contemplated herein, or
in order to evidence the accuracy of any of the representations and
warranties, or the satisfaction of any of the conditions or agreements,
herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
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part of any party to any other party, except that Section 4, Section 6, Section
8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Representatives pursuant to Section 5, Section 7, Section
10 or Section 11, or if the sale to the Underwriters of the Common Shares on the
First Closing Date is not consummated because of any refusal, inability or
failure on the part of the Company to perform any agreement herein or to comply
with any provision hereof, the Company agrees to reimburse the Representatives
and the other Underwriters (or such Underwriters as have terminated this
Agreement with respect to themselves), severally, upon demand for all out-of-
pocket expenses that shall have been reasonably incurred by the Representatives
and the Underwriters in connection with the proposed purchase and the offering
and sale of the Common Shares, including but not limited to fees and
disbursements of counsel, printing expenses, travel expenses, postage, facsimile
and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Representatives of the effectiveness of the
Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company to any Underwriter,
except that the Company shall be obligated to reimburse the expenses of the
Representatives and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of
any Underwriter to the Company, or (c) of any party hereto to any other party
except that the provisions of Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. The Company agrees to indemnify
and hold harmless each Underwriter, its officers and employees, and each
person, if any, who controls any Underwriter within the meaning of the
Securities Act and the Exchange Act against any loss, claim, damage, liability
or expense, as incurred, to which such Underwriter or such controlling person
may become subject, under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected
with the written consent of the Company), insofar as such loss, claim, damage,
liability or expense (or actions in respect thereof as contemplated below)
arises out of or is based (i) upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, or any
amendment thereto, including any information deemed to be a part thereof
pursuant to Rule 430A or Rule 434 under the Securities Act, or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) upon any
untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment
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or supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; or (iii) in
whole or in part upon any inaccuracy in the representations and warranties of
the Company contained herein; or (iv) in whole or in part upon any failure of
the Company to perform its obligations hereunder or under law; or (v) any act
or failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Common Stock or the
offering contemplated hereby, and which is included as part of or referred to
in any loss, claim, damage, liability or action arising out of or based upon
any matter covered by clause (i) or (ii) above, provided that the Company
shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such
loss, claim, damage, liability or action resulted directly from any such acts
or failures to act undertaken or omitted to be taken by such Underwriter
through its bad faith or willful misconduct; and to reimburse each Underwriter
and each such controlling person for any and all expenses (including the fees
and disbursements of counsel chosen by NMS) as such expenses are reasonably
incurred by such Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that the
foregoing indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out of or
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Representatives expressly for use
in the Registration Statement, any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto); and provided, further, that with
respect to any preliminary prospectus, the foregoing indemnity agreement shall
not inure to the benefit of any Underwriter from whom the person asserting any
loss, claim, damage, liability or expense purchased Common Shares, or any
person controlling such Underwriter, if copies of the Prospectus were timely
delivered to the Underwriter pursuant to Section 2 and a copy of the
Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or
on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Common Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense. The indemnity agreement set forth in this
Section 8(a) shall be in addition to any liabilities that the Company may
otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company
within the meaning of the Securities Act or the Exchange Act, against any
loss, claim, damage, liability or expense, as incurred, to which the Company,
or any such director, officer or controlling person may become subject, under
the Securities Act, the Exchange Act, or other federal or state statutory law
or regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based
upon any untrue or alleged untrue statement of a material fact contained in
the Registration Statement, any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto), or arises out of or is 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
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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 the
Registration Statement, any preliminary prospectus, the Prospectus (or any
amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Company by the Representatives expressly
for use therein; and to reimburse the Company, or any such director, officer
or controlling person for any legal and other expense reasonably incurred by
the Company, or any such director, officer or controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action. The Company hereby acknowledges
that the only information that the Underwriters have furnished to the Company
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto) are the statements set
forth (A) as the last two paragraphs on the inside front cover page of the
Prospectus concerning stabilization and passive market making by the
Underwriters and (B) in the table in the first paragraph and as the [second
and eighth paragraphs] under the caption "Underwriting" in the Prospectus; and
the Underwriters confirm that such statements are correct. The indemnity
agreement set forth in this Section 8(b) shall be in addition to any
liabilities that each Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8,
notify the indemnifying party in writing of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section 8 or to
the extent it is not prejudiced as a proximate result of such failure. In
case any such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an indemnifying
party, the indemnifying party will be entitled to participate in, and, to the
extent that it shall elect, jointly with all other indemnifying parties
similarly notified, by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that a conflict may arise
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of such indemnifying party's
election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel (together with local counsel),
approved by the indemnifying party (NMS in the case of Section 8(b) and
Section 9), representing the indemnified parties who are parties to such
action) or (ii) the indemnifying party shall not have employed counsel
satisfactory to the
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indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8 shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified
party against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse
the indemnified party for fees and expenses of counsel as contemplated by
Section 8(c) hereof, the indemnifying party agrees that it shall be liable for
any settlement of any proceeding effected without its written consent if (i)
such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity was or could have been
sought hereunder by such indemnified party, unless such settlement, compromise
or consent includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such action, suit or
proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any reason
held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Underwriters, on the
other hand, from the offering of the Common Shares pursuant to this Agreement or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, on the one hand, and the Underwriters, on the other hand, in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriters, on the other hand, in connection with the offering of the
Common Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Common
Shares pursuant to this Agreement (before deducting expenses) received by the
Company, and the total underwriting discount received by the Underwriters, in
each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the Company, on the one hand,
and the Underwriters, on the other hand, shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or
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<PAGE>
alleged omission to state a material fact or any such inaccurate or alleged
inaccurate representation or warranty relates to information supplied by the
Company, on the one hand, or the Underwriters, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
- ----------
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
----------
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to
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which such default occurs exceeds 10% of the aggregate number of Common Shares
to be purchased on such date, and arrangements satisfactory to the
Representatives and the Company for the purchase of such Common Shares are not
made within 48 hours after such default, this Agreement shall terminate without
liability of any party to any other party except that the provisions of Section
4, Section 8 and Section 9 shall at all times be effective and shall survive
such termination. In any such case either the Representatives or the Company
shall have the right to postpone the First Closing Date or the Second Closing
Date, as the case may be, but in no event for longer than seven days in order
that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date this Agreement may be terminated by the Representatives by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York,
Delaware or California authorities; (iii) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States' or international political, financial or economic
conditions, as in the judgment of the Representatives is material and adverse
and makes it impracticable to market the Common Shares in the manner and on the
terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representatives there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Representatives may interfere materially
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured. Any termination pursuant to
this Section 11 shall be without liability on the part of (a) the Company to any
Underwriter, except that the Company shall be obligated to reimburse the
expenses of the Representatives and the Underwriters pursuant to Sections 4 and
6 hereof, (b) any Underwriter to the Company, or (c) of any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
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SECTION 13. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
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<PAGE>
If to the Company:
CitySearch, Inc.
790 E. Colorado Boulevard, Ste. 200
Pasadena, CA _________
Facsimile: (626) 660-2537
Attention: Brad Ramberg, Chief Financial Officer
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and personal representatives, and no
other person will have any right or obligation hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. (A) GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other
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proceeding brought in any such court has been brought in an inconvenient forum.
SECTION 17. GENERAL PROVISIONS. This Agreement constitutes the
entire agreement of the parties to this Agreement and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may be
executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement may not be amended or modified unless in writing by
all of the parties hereto, and no condition herein (express or implied) may be
waived unless waived in writing by each party whom the condition is meant to
benefit. The Table of Contents and the Section headings herein are for the
convenience of the parties only and shall not affect the construction or
interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
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If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.
Very truly yours,
CITYSEARCH, INC.
By:__________________________
Charles Conn
Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives in San Francisco, California as of the date first above
written.
NATIONSBANC MONTGOMERY SECURITIES LLC
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
BANCAMERICA ROBERTSON STEPHENS
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By NATIONSBANC MONTGOMERY SECURITIES LLC
By: _____________________________
Richard A. Smith
Managing Director
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<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM
COMMON SHARES
UNDERWRITERS TO BE PURCHASED
<S> <C>
NationsBanc Montgomery Securities LLC.............. [___]
Donaldson, Lufkin & Jenrette Securities............ [___]
Corporation
BancAmerica Robertson Stephens..................... [___]
[___].............................................. [___]
[___].............................................. [___]
Total..................................... [___]
</TABLE>
A-1
<PAGE>
EXHIBIT A
The final opinion in draft form should be attached as Exhibit A at the time this
Agreement is executed.
Opinion of counsel for the Company to be delivered pursuant to
Section 5(d) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any
---------
supplements thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the
Underwriting Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the State of California and in
each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except for such jurisdictions (other than the State of California) where the
failure to so qualify or to be in good standing would not, individually or in
the aggregate, result in a Material Adverse Change.
(iv) Each significant subsidiary (as defined in Rule 405 under the
Securities Act) has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and, to
the best knowledge of such counsel, is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except for such jurisdictions where
the failure to so qualify or to be in good standing would not, individually or
in the aggregate, result in a Material Adverse Change.
(v) All of the issued and outstanding capital stock of each such
significant subsidiary has been duly authorized and validly issued, is fully
paid and non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance or, to the best knowledge of such counsel, any pending or
threatened claim.
(vi) The authorized, issued and outstanding capital stock of the Company
(including the Common Stock) conform to the descriptions thereof set forth or
incorporated by reference in the Prospectus. All of the outstanding shares of
Common Stock have been duly authorized and validly issued, are fully paid and
nonassessable and, to the best of such counsel's knowledge, have been issued
in compliance with the registration and qualification requirements of federal
and state securities laws. The form of certificate used to evidence the
A-1
<PAGE>
Common Stock is in due and proper form and complies with all applicable
requirements of the charter and by-laws of the Company and the General
Corporation Law of the State of Delaware. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and the
options or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be shown
with respect to such plans, arrangements, options and rights.
(vii) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to subscribe
for or purchase securities of the Company arising (i) by operation of the
charter or by-laws of the Company or the General Corporation Law of the State
of Delaware or (ii) to the best knowledge of such counsel, otherwise, except
for such rights as have been duly waived.
(viii) The Underwriting Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
thereunder may be limited by applicable law and except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or
by general equitable principles.
(ix) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company pursuant
to the Underwriting Agreement against payment of the consideration set forth
therein, will be validly issued, fully paid and nonassessable.
(x) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the Commission
under the Securities Act. To the best knowledge of such counsel, no stop order
suspending the effectiveness of either of the Registration Statement or the
Rule 462(b) Registration Statement, if any, has been issued under the
Securities Act and no proceedings for such purpose have been instituted or are
pending or are contemplated or threatened by the Commission. Any required
filing of the Prospectus and any supplement thereto pursuant to Rule 424(b)
under the Securities Act has been made in the manner and within the time
period required by such Rule 424(b).
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus including any document incorporated by
reference therein, and each amendment or supplement to the Registration
Statement and the Prospectus including any document incorporated by reference
therein, as of their respective effective or issue dates (other than the
financial statements and supporting schedules included or incorporated by
reference therein or in exhibits to or excluded from the Registration
Statement, as to which no opinion need be rendered) comply as to form in all
material respects with the applicable requirements of the Securities Act.
(xii) The Common Shares have been approved for listing on the Nasdaq
National Market.
B-2
<PAGE>
(xiii) The statements (i) in the Prospectus under the captions "Risk
Factors-", "Description of Capital Stock", "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources", "Business--Proprietary Rights", "Certain Relationships and
Related Transactions", "Shares Eligible for Future Sale", "Certain United
States Income Tax Considerations" and "Underwriting" and (ii) in Item 14 and
Item 15 of the Registration Statement, insofar as such statements constitute
matters of law, summaries of legal matters, the Company's charter or by-law
provisions, documents or legal proceedings, or legal conclusions, have been
reviewed by such counsel and fairly present and summarize, in all material
respects, the matters referred to therein.
(xiv) To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
(xv) To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto;
and the descriptions thereof and references thereto are correct in all
material respects.
(xvi) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance of
the Underwriting Agreement and consummation of the transactions contemplated
thereby and by the Prospectus, except as required under the Securities Act,
applicable state securities or blue sky laws and from the NASD.
(xvii) The execution and delivery of the Underwriting Agreement by the
Company and the performance by the Company of its obligations thereunder
(other than performance by the Company of its obligations under the
indemnification section of the Underwriting Agreement, as to which no opinion
need be rendered) (i) have been duly authorized by all necessary corporate
action on the part of the Company; (ii) will not result in any violation of
the provisions of the charter or by-laws of the Company or any subsidiary;
(iii) will not to the best knowledge of such counsel constitute a breach of,
or Default under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, any material Existing Instrument; or (iv) to the
best knowledge of such counsel, will not result in any violation of any law,
administrative regulation or administrative or court decree applicable to the
Company or any subsidiary.
(xviii) The Company is not, and after receipt of payment for the Common
Shares will not be, an "investment company" within the meaning of Investment
Company Act.
(xix) Except as disclosed in the Prospectus under the caption "Shares
Eligible for Future Sale", to the best knowledge of such counsel, there are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the
B-3
<PAGE>
Registration Statement or included in the offering contemplated by the
Underwriting Agreement, except for such rights as have been duly waived.
(xx) To the best knowledge of such counsel, neither the Company nor any
subsidiary is in violation of its charter or by-laws or any law,
administrative regulation or administrative or court decree applicable to the
Company or any subsidiary or is in Default in the performance or observance of
any obligation, agreement, covenant or condition contained in any material
Existing Instrument, except in each such case for such violations or Defaults
as would not, individually or in the aggregate, result in a Material Adverse
Change.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an 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 not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
derived therefrom, included or incorporated by reference in the Registration
Statement or the Prospectus or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the General Corporation Law of the
State of California or the federal law of the United States, to the extent they
deem proper and specified in such opinion, upon the opinion (which shall be
dated the First Closing Date or the Second Closing Date, as the case may be,
shall be satisfactory in form and substance to the Underwriters, shall expressly
state that the Underwriters may rely on such opinion as if it were addressed to
them and shall be furnished to the Representatives) of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for the Underwriters; provided, however, that such counsel shall further state
that they believe that they and the Underwriters are justified in relying upon
such opinion of other counsel, and (B) as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Company and public
officials.
B-4
<PAGE>
EXHIBIT B
[Date]
NationsBanc Montgomery Securities LLC
Donaldson, Lufkin & Jenrette Securities Corporation
BancAmerica Robertson Stephens
As Representatives of the Several Underwriters
c/o NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
RE: CitySearch, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
representatives of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of NMS (which consent
may be withheld in its sole discretion), directly or indirectly, sell, offer,
contract or grant any option to sell (including without limitation any short
sale), pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares of
Common Stock, or securities exchangeable or exercisable for or convertible into
shares of Common Stock currently or hereafter owned either of record or
beneficially (as defined in Rule 13d-3 under Securities Exchange Act of 1934, as
amended) by the undersigned, or publicly announce the undersigned's intention to
do any of the foregoing, for a period commencing on the date hereof and
continuing through the close of trading on the date 180 days after the date of
the Prospectus. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of record or beneficially by the undersigned, including any rights
to receive notice of the Offering.
<PAGE>
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
_____________________________________
Printed Name of Holder
By:__________________________________
Signature
_____________________________________
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
<PAGE>
Exhibit 3.1
EXHIBIT B
---------
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
of
CITYSEARCH, INC.
a Delaware Corporation
CitySearch, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of Delaware (the "Corporation"), does hereby
certify as follows:
FIRST: The original Certificate of Incorporation of the Corporation was
filed under the name of "PerfectMarket, Inc." with the Secretary of State of the
State of Delaware (the "Secretary") on September 20, 1995, amended by the
Certificate of Amendment of Certificate of Incorporation filed with the
Secretary on November 27, 1995, by the Restated Certificate of Incorporation
filed with the Secretary on May 15, 1996, by the Certificate of Amendment of the
Certificate of Incorporation filed with the Secretary on June 25, 1996, by the
Certificate of Amendment of the Certificate of Incorporation filed with the
Secretary on July 25, 1996, by the Restated Certificate of Incorporation filed
with the Secretary on December 12, 1996, by the Restated Certificate of
Incorporation filed with the Secretary on December 23, 1996 and by the Restated
Certificate of Incorporation filed with the Secretary on November 12, 1997.
SECOND: This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware by the Board of Directors of
the Corporation.
THIRD: This Amended and Restated Certificate of Incorporation was approved
by written consent of the stockholders pursuant to Section 228 of the General
Corporation Law of the State of Delaware.
FOURTH: The Restated Certificate of Incorporation of this Corporation is
amended and restated in its entirety to read as follows:
I.
The name of the Corporation is CitySearch, Inc.
<PAGE>
II.
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
III.
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 of
Delaware.
IV.
The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock" all of which
shall have a par value of $0.01 per share. The total number of shares which the
Corporation is authorized to issue is ninety million seven hundred and forty-one
thousand and eighty-two (90,741,082) shares. Seventy-five million (75,000,000)
shares shall be Common Stock and fifteen million seven hundred and forty-one
thousand and eighty-two (15,741,082) shares shall be Preferred Stock.
1,791,173 shares of Preferred Stock shall be designated "Series A Preferred
Stock" (hereinafter "Series A Preferred"), 450,000 shares of Preferred Stock
shall be designated "Series B Preferred Stock" (hereinafter "Series B
Preferred"), 3,261,024 shares of Preferred Stock shall be designated "Series C
Preferred Stock" (hereinafter "Series C Preferred"), 4,430,313 shares of
Preferred Stock shall be designated "Series D Preferred Stock" (hereinafter
"Series D Preferred") and 5,808,572 shares of Preferred Stock shall be
designated "Series E Preferred Stock" (hereinafter "Series E Preferred" and,
together with the Series A Preferred, Series B Preferred, Series C Preferred,
and Series D Preferred, the "Preferred Stock"). The rights, preferences,
restrictions and other matters relating to the Preferred Stock are as follows:
1. Liquidation Preference.
----------------------
(a) The Preferred Stock shall, with respect to rights upon liquidation,
dissolution or winding up, rank prior to the shares of Common Stock and of any
other class of stock of the Corporation ranking junior to the Preferred Stock
and in the event of any Transaction (as defined below), whether voluntary or
involuntary, the holders of the Preferred Stock shall be entitled to receive out
of the assets of the Corporation available for distribution to its stockholders,
whether from capital, surplus or earnings, the distributions described herein
before any distribution is made to holders of shares of Common Stock or any
other junior stock.
-2-
<PAGE>
(b) At any time, in the event of any of the following occurrences (each,
a "Transaction"):
(i) Any dissolution of the Corporation, liquidation or winding up
of the Corporation;
(ii) Any liquidation or winding up of the Corporation as a result
of a bankruptcy, reorganization or similar proceeding;
(iii) Any foreclosure by creditors of the Corporation on
all or substantially all of the assets or equity interests in the Corporation;
or
(iv) An acquisition, merger or consolidation of the
Corporation occurs in which more than 50% of the outstanding capital stock of
the Corporation is being acquired for cash and the price per share of Common
Stock (on a fully diluted basis) is below the Series E Conversion Price (as
defined in Section 2 below) then in effect;
the Corporation shall take appropriate steps in connection with such Transaction
to ensure that the assets of the Corporation available for distribution shall be
distributed at the closing of the Transaction in the order and priority as
follows:
(x) the holders of the Preferred Stock shall be entitled to
receive the amount of $.90446 (the "Series A Preference Amount") for each share
of Series A Preferred then held by them, the amount of $3.4665 (the "Series B
Preference Amount") for each share of Series B Preferred then held by them, the
amount of $3.4665 (the "Series C Preference Amount") for each share of Series C
Preferred then held by them, the amount of $6.5251 (the "Series D Preference
Amount") for each share of Series D Preferred then held by them and the amount
of $7.00 (the "Series E Preference Amount", together with the Series A
Preference Amount, the Series B Preference Amount, the Series C Preference
Amount and the Series D Preference Amount, collectively, the "Preference
Amounts" and, individually, a "Preference Amount") for each share of Series E
Preferred then held by them. Each of the Preference Amounts shall be adjusted
for any stock dividends, combinations or splits with respect to such shares,
plus any declared and unpaid dividends on the Preferred Stock; and
(y) all remaining assets available for distribution shall be
distributed pro rata among the holders of the Common Stock based on the number
of shares held by each.
If upon the occurrence of a Transaction, the assets and funds available for
distribution (the "Distribution Assets") are less than the sum of the Preference
Amounts of all shares of Preferred Stock (the "Aggregate Preference Amount"),
the distribution on account of each share of Preferred Stock pursuant to
paragraph (x) above shall be an amount equal to (a) (i) the respective
Preference
-3-
<PAGE>
Amount of such share of Preferred Stock multiplied by (ii)
the Distribution Assets divided by (b) the Aggregate Preference Amount.
(c) With respect to any Transaction, if the consideration received by
the Corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability:
(A) If traded on a securities exchange or through Nasdaq,
the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty
(30) trading day period ending three (3) days prior to the
closing;
(B) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid or sale
prices (whichever is applicable) over the thirty (30)
trading day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value shall
be the fair market value thereof, as mutually determined
by the Corporation and the holders of at least a majority
of the voting power of all then outstanding shares of
Preferred Stock with respect to any Transaction.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount
from the market value determined as above in (i)(A), (B) or (C) to
reflect the approximate fair market value thereof, as mutually determined
by the Corporation and the holders of at least a majority of the voting
power of all then outstanding shares of such Preferred Stock.
(d) In the event the requirements of this Section 1 are not complied
with, this Corporation shall forthwith either:
(i) cause such closing to be postponed until such time as the
requirements of this Section 1 have been complied with; or
(ii) cancel such Transaction to the extent permitted by law, in
which event the rights, preferences and privileges of the holders of the
Preferred Stock shall revert to and be the same as such rights, preferences and
privileges existing immediately prior to the date of the first notice referred
to in Section 1(e) hereof.
-4-
<PAGE>
(e) The Corporation shall give each holder of record of Preferred
Stock written notice of such impending Transaction not later than twenty (20)
days prior to the stockholder's meeting called to approve such Transaction, or
twenty (20) days prior to the closing of such Transaction, whichever is earlier,
and shall also notify such holders in writing of the final approval of such
Transaction. The first of such notices shall describe the material terms and
conditions of the impending Transaction and the provisions of this Section 1,
and the Corporation shall thereafter give such holders prompt notice of any
material changes. The Transaction shall in no event take place sooner than
twenty (20) days after the Corporation has given the first notice provided for
herein or sooner than ten (10) days after the Corporation has given notice of
any material changes provided for herein; provided, however, that such periods
may be shortened upon the written consent of the holders of Preferred Stock that
are entitled to such notice rights or similar notice rights and that represent
at least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
2. Conversion. The holders of the Preferred Stock have conversion rights
----------
as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for the Preferred Stock, into such number of fully paid and nonassessable shares
of Common Stock as is determined: in the case of the Series A Preferred, by
dividing $0.90446 by the Series A Conversion Price, determined as hereinafter
provided, in effect at the time of the conversion; in the case of the Series B
Preferred, by dividing $3.4665 by the Series B Conversion Price, determined as
hereinafter provided, in effect at the time of the conversion; in the case of
Series C Preferred, by dividing $3.4665 by the Series C Conversion Price,
determined as hereinafter provided, in effect at the time of the conversion; in
the case of the Series D Preferred, by dividing $6.5251 by the Series D
Conversion Price, determined as hereinafter provided, in effect at the time of
the conversion; and in the case of the Series E Preferred, by dividing $7.00 by
the Series E Conversion Price, determined as hereinafter provided, in effect at
the time of the conversion. The price at which shares of Common Stock shall be
deliverable upon conversion of the Series A Preferred (the "Series A Conversion
Price") shall initially be $0.90446 per share of Common Stock. The price at
which shares of Common Stock shall be deliverable upon conversion of the Series
B Preferred (the "Series B Conversion Price") shall initially be $3.4665 per
share of Common Stock. The price at which shares of Common Stock shall be
deliverable upon conversion of the Series C Preferred (the "Series C Conversion
Price") shall initially be $3.4665 per share of Common Stock. The price at
which shares of Common Stock shall be deliverable upon conversion of the Series
D Preferred (the "Series D Conversion Price") shall initially be $6.5251 per
share of Common Stock. The price at which shares of Common Stock shall be
deliverable upon conversion of the Series E Preferred (the "Series E Conversion
Price") shall initially be $7.00 per share of Common Stock. The term
"Conversion Price," as used herein shall refer to the respective Conversion
Price of each series of Preferred Stock. Each such Conversion Price shall be
subject to adjustment as hereinafter provided. Upon conversion, all declared
and unpaid dividends on the
-5-
<PAGE>
Preferred Stock shall be paid, to the extent funds are legally available
therefor, either in cash or in shares of Common Stock of the Corporation, at the
election of the Corporation, wherein the shares of Common Stock shall be valued
at the fair market value at the time of such conversion, as determined in good
faith by the Board.
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the then effective
Conversion Price upon: (i) the closing of a firm underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of shares of the Corporation's
Common Stock with an aggregate net proceeds (after deduction of underwriter's
discounts and commissions and offering expenses) to the Company of not less than
$20,000,000, the price per share to the public of which was not less than $7.70
per share (a "Qualified IPO"); or (ii) the written election of holders of not
less than a majority of the then outstanding Preferred Stock and a majority of
each of the then outstanding Series C Preferred and Series E Preferred. In the
event of the automatic conversion of the Preferred Stock upon a public offering
as aforesaid, the person(s) entitled to receive the Common Stock issuable upon
such conversion of Preferred Stock shall not be deemed to have converted such
Preferred Stock until immediately prior to the closing of such sale of
securities.
(c) Mechanics of Conversion. No fractional shares of Common Stock shall
-----------------------
be issued upon conversion of Preferred Stock. In lieu of any fractional shares
to which the holder would otherwise be entitled (after aggregating all shares of
Preferred Stock held by such holder such that the maximum number of whole shares
of Common Stock is issued to such holder upon conversion), the Corporation shall
pay cash equal to such fraction multiplied by the then fair market value of a
share of Common Stock. Before any holder of Preferred Stock shall be entitled
to convert the same into full shares of Common Stock and to receive certificates
therefor, such holder shall surrender the certificate or certificates evidencing
such Preferred Stock, duly endorsed, at the office of the Corporation or of any
transfer agent for the Preferred Stock, and shall give written notice to the
Corporation at such office that such holder elects to convert the same;
provided, however, that in the event of an automatic conversion pursuant to
paragraph (b) hereof, the outstanding shares of Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent, and provided further that the Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such automatic conversion unless the certificates evidencing
such shares of Preferred Stock are either delivered to the Corporation or its
transfer agent as provided above, or the holder notifies the Corporation or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such certificates.
The Corporation shall, as soon as practicable after such delivery, or after
such agreement and indemnification, issue and deliver at such office to such
holder of Preferred Stock, a certificate or certificates for the number of
shares of Common Stock to which the holder shall be entitled as aforesaid and a
check payable to the holder in the amount of any cash amounts payable as the
result
-6-
<PAGE>
of a conversion into fractional shares of Common Stock. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted, or, in the
case of automatic conversion, on the date of closing of the offering or the date
of written election to convert, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date.
(d) Adjustments of the Conversion Price.
-----------------------------------
(i) If the number of shares of Common Stock outstanding at any
time after the date upon which any shares of Series E Preferred were first
issued (the "Series E Original Issue Date") is increased by split or subdivision
of the outstanding shares of Common Stock or the receipt by holders of Common
Stock of a dividend or other distribution payable in additional shares of Common
Stock or other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional shares of Common Stock
(hereinafter referred to as "Common Stock Equivalents") without payment of any
consideration by such holder for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the number of shares of Common Stock issuable on conversion of each
share of Preferred Stock shall be increased in proportion to such increase in
outstanding shares by means of an adjustment to the applicable Conversion Price.
(ii) If the number of shares of Common Stock outstanding at any
time after the Series E Original Issue Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the number of shares of Common Stock issuable on conversion of each
share of Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares by means of an adjustment to the applicable Conversion Price.
(iii) If at any time or from time to time the Corporation
distributes to all holders of the Corporation evidences of indebtedness or
assets of the Corporation (other than cash dividends), the holders of the
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Preferred Stock the amount of such evidences of indebtedness or assets of the
Corporation as such holders of Preferred Stock would have been entitled to
receive had they converted their shares of Preferred Stock into shares of Common
Stock immediately prior to such distribution.
(e) Adjustments for Certain Corporate Transactions. If the Common
----------------------------------------------
Stock issuable upon conversion of the Preferred Stock shall be changed into the
same or a different number of shares of any other class or classes of stock of
the Corporation or another corporation, whether by merger, consolidation, sale
of all or substantially all of the assets of the Corporation, liquidation,
capital reorganization, reclassification or otherwise (other than a dividend,
subdivision, combination or consolidation of shares provided for above) (a
"Reorganization"), the Conversion Price then in
-7-
<PAGE>
effect shall, concurrently with the effectiveness of such Reorganization, be
proportionately adjusted such that the Preferred Stock shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock of the Corporation or other corporation, as the case may be,
equivalent to the number of shares of Common Stock that would have been subject
to receipt by the holders upon conversion of such shares of Preferred Stock
immediately before such Reorganization. Furthermore, in the event of an
acquisition, merger or consolidation of the Corporation whereby the
Corporation's stockholders of record immediately prior to such acquisition,
merger or consolidation hold less than 50% of the voting power of the surviving
entity immediately after such acquisition, merger or consolidation and (i) such
acquisition, merger or consolidation shall be effected in such a way that the
holders of the Corporation's Common Stock shall be entitled to receive stock,
securities or assets other than cash and (ii) the surviving entity is not
subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the
Securities Act of 1934, as amended, immediately after such acquisition, merger
or consolidation, appropriate provisions shall be made with respect to the
rights and interests of holders of the Series A Preferred, the Series B
Preferred, the Series C Preferred, the Series D Preferred and the Series E
Preferred to the end that the rights, preferences and privileges of the Series A
Preferred, the Series B Preferred, the Series C Preferred, the Series D
Preferred and the Series E Preferred as set forth in this Restated Certificate,
as applicable (including without limitation provisions for adjustments of the
Conversion Price), shall thereafter be incorporated into any shares of stock or
securities thereafter deliverable upon the exercise of such conversion rights.
(f) Adjustment of Series C Conversion Price. Upon any conversion of any
---------------------------------------
shares of Series C Preferred to Common Stock in accordance with this Section 2,
the Series C Conversion Price shall be adjusted to the extent necessary to an
amount equal to the following:
Series C Conversion Price = $45 million
-----------------------------------------
Series C Measurement Shares plus Series C
Option Shares
For purposes of this Section 2(f), (i) the term "Series C Measurement Shares"
shall equal 10,690,196 shares of Common Stock (as adjusted for stock splits,
stock dividends or similar recapitalizations after the Series E Original Issue
Date) and (ii) the term "Series C Option Shares" shall equal the 2,291,181
shares of Common Stock issuable upon exercise of stock options ("Original Issue
Date Options") outstanding as of the date upon which any shares of Series C
Preferred were first issued (the "Series C Original Issue Date") less such
number of Option Shares that were subject to Original Issue Date Options that
were canceled as a result of the termination of employment or consulting
services on or prior to the date of conversion of the Series C Preferred (as
adjusted for stock splits, stock dividends or similar recapitalizations after
the Series E Original Issue Date).
(g) Adjustment of Series D Conversion Price. Upon any conversion of any
---------------------------------------
shares of Series D Preferred to Common Stock in accordance with this Section 2,
the Series D Conversion Price shall be adjusted to the extent necessary to an
amount equal to the following:
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<PAGE>
Series D Conversion Price = $110 million
-------------------------------------------
Series D Measurement Shares plus Series D
Option Shares
For purposes of this Section 2(g), (i) the term "Series D Measurement Shares"
shall equal 14,011,324 shares of Common Stock (as adjusted for stock splits,
stock dividends or similar recapitalizations after the Series E Original Issue
Date) and (ii) the term "Series D Option Shares" shall equal 2,846,776 shares of
Common Stock issuable upon exercise of stock options ("Series D Original Issue
Date Options") outstanding as of the date upon which any shares of Series D
Preferred were first issued (the "Series D Original Issue Date") less such
number of Series D Option Shares that were subject to Series D Original Issue
Date Options that were canceled as a result of the termination of employment or
consulting services on or prior to the date of conversion of the Series D
Preferred (as adjusted for stock splits, stock dividends or similar
recapitalizations after the Series E Original Issue Date).
(h) Adjustment of Series E Conversion Price. Upon any conversion of any
---------------------------------------
shares of Series E Preferred to Common Stock in accordance with this Section 2,
the Series E Conversion Price shall be adjusted to the extent necessary to an
amount equal to the following:
Series E Conversion Price = $ 152,662,601
-------------------------------------------
Series E Measurement Shares plus Series E
Option Shares
For purposes of this Section 2(h), (i) the term "Series E Measurement Shares"
shall equal 19,173,153 shares of Common Stock (as adjusted for stock splits,
stock dividends or similar recapitalizations after the Series E Original Issue
Date) and (ii) the term "Series E Option Shares" shall equal 2,635,790 shares of
Common Stock issuable upon exercise of stock options ("Series E Original Issue
Date Options") outstanding as of the Series E Original Issue Date less such
number of Series E Option Shares that were subject to Series E Original Issue
Date Options that were canceled as a result of the termination of employment or
consulting services on or prior to the date of conversion of the Series E
Preferred (as adjusted for stock splits, stock dividends or similar
recapitalizations after the Series E Original Issue Date).
(i) No Fractional Shares as to Adjustments. No fractional shares shall
--------------------------------------
be issued upon the conversion of any share or shares of the Preferred Stock, and
the number of shares of Common Stock to be issued shall be rounded down to the
nearest whole share.
(j) No Impairment. The Corporation will not, by amendment of this
-------------
Amended and Restated Certificate of Incorporation or through any Reorganization,
issuance or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 2 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of the Preferred Stock against impairment.
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<PAGE>
(k) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment of the Conversion Price pursuant to this Section 2, the Corporation
at its expense shall promptly compute such adjustment in accordance with the
terms hereof and furnish to each holder of Preferred Stock a certificate setting
forth such adjustment and showing in detail the facts upon which such adjustment
is based. The Corporation shall, upon the written request at any time of any
holder of Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of such holder's shares of Preferred Stock.
3. Mandatory Redemption.
--------------------
(a) The Corporation shall redeem, from any source of funds legally
available therefor, all then outstanding shares of Series C Preferred on the
ten-year anniversary date (the "Series C Redemption Date") of the Series C
Original Issue Date. The Corporation shall effect such redemption on the Series
C Redemption Date by paying in exchange for the outstanding shares of Series C
Preferred Stock cash in the amount equal to the liquidation value of such shares
pursuant to Section 1 above (the "Series C Redemption Price").
(b) The Corporation shall redeem, from any source of funds legally
available therefor, all then outstanding shares of Series D Preferred at any
time on or after the seven-year anniversary date of the Series D Original Issue
Date upon the written election of holders of not less than eighty percent (80%)
of the then outstanding Series D Preferred. "Series D Redemption Date" shall
mean forty-five (45) days from the date of the receipt by the Corporation of
such written election. The Corporation shall effect such redemption on the
Series D Redemption Date by paying in exchange for the outstanding shares of
Series D Preferred, cash in the amount equal to the liquidation value of such
shares pursuant to Section 1 above (the "Series D Redemption Price").
(c) The Corporation shall redeem, from any source of funds legally
available therefor, all then outstanding shares of Series E Preferred at any
time on or after the seven-year anniversary date of the Series D Original Issue
Date upon the written election of holders of not less than eighty percent (80%)
of the then outstanding Series E Preferred. "Series E Redemption Date" shall
mean forty-five (45) days from the date of the receipt by the Corporation of
such written election and the term "Redemption Date" shall mean a Series C
Redemption Date, a Series D Redemption Date or a Series E Redemption Date. The
Corporation shall effect such redemption on the Series E Redemption Date by
paying in exchange for the outstanding shares of Series E Preferred, cash in the
amount equal to the liquidation value of such shares pursuant to Section 1 above
(the "Series E Redemption Price" and together with the Series C Redemption Price
and Series D Redemption Price, a "Redemption Price").
(d) At least fifteen (15) but no more than thirty (30) days prior to any
Redemption Date, written notice shall be mailed, first class postage prepaid, to
each holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series C Preferred, Series D
Preferred or Series E Preferred, as the case may be, at the address last shown
on
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<PAGE>
the records of the Corporation for such holder, notifying such holder of the
redemption to be effected, specifying the applicable Redemption Date, the
applicable Redemption Price, the place at which payment may be obtained and
calling upon such holder to surrender to the Corporation, in the manner and at
the place designated, his or her certificate or certificates representing the
Series C Preferred, the Series D Preferred or the Series E Preferred, as the
case may be, (the "Redemption Notice"). Except as provided in Section 3(e)
below, on or after such Redemption Date, each holder of Series C Preferred, the
Series D Preferred or the Series E Preferred, as the case may be, shall
surrender to the Corporation the certificate or certificates representing such
shares, in the manner and at the place designated in the Redemption Notice, and
thereupon the applicable Redemption Price of such shares shall be payable to the
order of the person whose name appears on such certificate or certificates as
the owner thereof and each surrendered certificate shall be canceled.
(e) From and after any Redemption Date, unless there shall have been a
default in the payment of the applicable Redemption Price, all rights of the
holders of shares of Series C Preferred, Series D Preferred or Series E
Preferred, as the case may be, (except the right to receive the applicable
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of the Corporation legally
available for redemption of shares of Series C Preferred, Series D Preferred or
Series E Preferred, as the case may be, on any Redemption Date are insufficient
to redeem the total number of shares of Series C Preferred, Series D Preferred
or Series E Preferred, as the case may be, those funds which are legally
available will be used to redeem the maximum possible number of such shares
ratably among the holders of Series C Preferred, Series D Preferred or Series E
Preferred, as the case may be, based on their holdings of Series C Preferred,
Series D Preferred or Series E Preferred, as the case may be. The shares of
Series C Preferred, Series D Preferred or Series E Preferred, as the case may
be, not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein. At any time thereafter when additional funds of
the Corporation are legally available for the redemption of shares of Series C
Preferred, Series D Preferred or Series E Preferred, as the case may be, such
funds will immediately be used to redeem the balance of the shares to the extent
of such additional funds until all shares of Series C Preferred, Series D
Preferred or Series E Preferred, as the case may be, are redeemed.
(f) At least ten days prior to any Redemption Date, the Corporation shall
deposit the applicable Redemption Price of all shares of Series C Preferred,
Series D Preferred or Series E Preferred, as the case may be, with a bank or
trust corporation having aggregate capital and surplus in excess of $100,000,000
as a trust fund for the benefit of the respective holders of the Series C
Preferred, Series D Preferred or Series E Preferred, as the case may be, with
irrevocable instructions and authority to the bank or trust corporation to pay
the applicable Redemption Price for such shares to their respective holders on
or after such Redemption Date upon receipt of notification from the Corporation
that such holder has surrendered his or her share certificate to the Corporation
pursuant to Section 3(d) above. As of such Redemption Date, the deposit shall
constitute full payment of the shares to their holders, and from and after such
Redemption Date the shares of Series C Preferred, Series D Preferred or Series E
Preferred, as the case may be, shall be redeemed and shall be deemed
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<PAGE>
to be no longer outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and shall have no rights with respect
thereto except the rights to receive from the bank or trust corporation payment
of the applicable Redemption Price of the shares, without interest, upon
surrender of their certificates therefor. Such instructions shall also provide
that any moneys deposited by the Corporation pursuant to this Section 3(f) for
the redemption of shares thereafter converted into shares of the Corporation's
Common Stock pursuant to Section 2 hereof prior to such Redemption Date shall be
returned to the Corporation forthwith upon such conversion. The balance of any
moneys deposited by the Corporation pursuant to this Section 3(f) remaining
unclaimed at the expiration of two years following such Redemption Date shall
thereafter be returned to the Corporation upon its request expressed in a
resolution of its Board of Directors.
(g) Notwithstanding anything to the contrary in this Section 3, in the
event the Corporation is precluded by applicable law from redeeming any of
Series C Preferred, Series D Preferred or Series E Preferred, as the case may
be, hereunder, the Corporation shall redeem such Series C Preferred, Series D
Preferred or Series E Preferred, as the case may be, at the earliest date
permitted under applicable law.
(h) The provisions of this Section 3 shall terminate upon the closing of
a Qualified IPO.
4. Voting Rights.
-------------
(a) General. Except as otherwise provided herein or required by law, the
-------
holder of each share of Common Stock issued and outstanding shall have one vote
and the holder of each share of Preferred Stock shall be entitled to the number
of votes equal to the number of shares of Common Stock into which such share of
Preferred Stock could be converted at the record date for determination of the
stockholders entitled to vote on such matters, or, if no such record date is
established, at the date such vote is taken or any written consent of
stockholders is solicited, such votes to be counted together with all other
shares of stock of the Corporation having a general voting power and not
separately as a class. Holders of Common Stock and Preferred Stock shall be
entitled to notice of any stockholders' meeting in accordance with the Bylaws of
the Corporation. Fractional votes by the holders of Preferred Stock shall not,
however, be permitted and any fractional voting rights shall (after aggregating
all shares into which shares of Preferred Stock held by each holder could be
converted) be rounded to the nearest whole number.
(b) The holders of Series C Preferred voting together as a separate class
shall have the right to elect one (1) member of the Board of Directors until the
earlier of (i) a Qualified IPO or (ii) at such time as the outstanding Series C
Preferred (including shares of Common Stock issuable upon conversion of the
Series C Preferred) shall be less than five percent (5%) of the then outstanding
Common Stock of the Company (including shares of Common Stock issuable upon
conversion, exchange or exercise of securities convertible into or exercisable
for or exchangeable for Common Stock). At such time as any other stockholder or
stockholders, voting as a separate class, are entitled, by virtue of a right
granted by the Company and not solely as a result of the number of shares held
by such stockholder or stockholders, to elect two (2) or more directors, for
purposes of
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<PAGE>
the preceding sentence, the holders of the Series C Preferred voting together as
a separate class shall have the right to elect a number of directors equal to
the number of directors such stockholder or stockholders are entitled to elect.
(c) HSN, Inc. ("HSN") shall have the right to elect one (1) member of the
Board of Directors until the earlier of (i) the ten-year anniversary date of the
Series E Original Issue Date or (ii) the date HSN owns less than 50% of the
capital stock of the Company (on an as converted to Common Stock basis and as
adjusted for stock dividends, stock splits, stock combinations,
recapitalizations and the like) that it owned as of the Series E Original Issue
Date. At such time as any other stockholder or stockholders, voting as a
separate class, are entitled, by virtue of a right granted by the Company and
not solely as a result of the number of shares held by such stockholder or
stockholders, to elect two (2) or more directors, for purposes of the preceding
sentence, HSN shall have the right to elect a number of directors equal to the
number of directors such stockholder or stockholders are entitled to elect.
(d) Global Retail Partners, L.P. (together with its affiliates "GRP")
shall have the right to elect one (1) member of the Board of Directors until the
later of (i) the two-year anniversary of the date of the initial issuance of
Series E Preferred to GRP (the "GRP Purchase Date") or (ii) the one-year
anniversary of the closing of a Qualified IPO; provided GRP owns 100% of the
capital stock of the Company (on an as converted to Common stock basis and as
adjusted for stock dividends, stock splits, stock combinations,
recapitalizations and the like) that it owned as of the GRP Purchase Date.
(e) Protective Provisions.
---------------------
(i) So long as any shares of Series C Preferred remain outstanding,
the Corporation shall not, without the vote or written consent of not less than
a majority of such outstanding shares of Series C Preferred voting together as a
single class:
(A) Increase or decrease the total number of authorized shares of
Series C Preferred;
(B) Alter or change by amendment to this Restated Certificate of
Incorporation or otherwise the terms and provisions of the Series C Preferred or
any other terms so as to affect adversely the rights, preferences or privileges
of the Series C Preferred; or
(C) Create or issue any new shares or any other securities
convertible into equity securities of the Corporation or reclassify any existing
shares into equity securities or any other securities convertible into equity
securities of the Corporation having a preference senior to the Series C
Preferred with respect to voting, dividends, redemption or upon liquidation.
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<PAGE>
(ii) So long as any shares of Series D Preferred remain outstanding,
the Corporation shall not, without the vote or written consent of not less than
a majority of such outstanding shares of Series D Preferred voting together as a
single class:
(A) Increase or decrease the total number of authorized shares
of Series D Preferred;
(B) Alter or change by amendment to this Restated Certificate of
Incorporation or otherwise the terms and provisions of the Series D Preferred or
any other terms so as to affect adversely the rights, preferences or privileges
of the Series D Preferred; or
(C) Create or issue any new shares or any other securities
convertible into equity securities of the Corporation or reclassify any existing
shares into equity securities or any other securities convertible into equity
securities of the Corporation having a preference senior to the Series D
Preferred with respect to voting, dividends, redemption or upon liquidation.
(iii) So long as any shares of Series E Preferred remain outstanding,
the Corporation shall not, without the vote or written consent of not less than
a majority of such outstanding shares of Series E Preferred voting together as a
single class:
(A) Increase or decrease the total number of authorized shares
of Series E Preferred;
(B) Alter or change by amendment to this Restated Certificate of
Incorporation or otherwise the terms and provisions of the Series E Preferred or
any other terms so as to affect adversely the rights, preferences or privileges
of the Series E Preferred; or
(C) Create or issue any new shares or any other securities
convertible into equity securities of the Corporation or reclassify any existing
shares into equity securities or any other securities convertible into equity
securities of the Corporation having a preference senior to the Series E
Preferred with respect to voting, dividends, redemption or upon liquidation.
5. Status of Converted Stock. In case any shares of Preferred Stock shall
-------------------------
be converted pursuant to Section 2 hereof, the shares so converted shall be
canceled and shall not be issuable by the Corporation. From time to time, this
Restated Certificate of Incorporation shall be appropriately revised to reflect
the corresponding reduction in the Corporation's authorized capital stock.
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<PAGE>
V.
The Board is expressly authorized to make, alter or repeal Bylaws of the
Corporation, but the stockholders may make additional Bylaws and may alter or
repeal any Bylaw whether adopted by them or otherwise.
VI.
Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the Corporation.
VII.
(a) To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as may hereafter be amended, 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.
(b) The Corporation shall indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.
(c) Neither any amendment nor repeal of this Article VII, nor the
adoption of any provision of the Corporation's Restated Certificate of
Incorporation inconsistent with this Article VII, shall eliminate or reduce the
effect of this Article VII in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article VII, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
FIFTH: That written notice of this Amended and Restated Certificate of
Incorporation was duly given to the stockholders of this corporation who did
not consent in writing to the foregoing resolutions.
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<PAGE>
IN WITNESS WHEREOF, CitySearch, Inc. has caused this Restated Certificate
of Incorporation to be signed by its Chief Executive Officer and attested to by
its Secretary this _____ day of May, 1998.
----------------------------------------
Charles Conn, III
Chief Executive Officer
ATTEST:
Bradley O. Ramberg
Secretary
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<PAGE>
EXHIBIT 3.5
BYLAWS
OF
CITYSEARCH, INC.
(A DELAWARE CORPORATION)
ARTICLE I
CORPORATE OFFICES
1.1 Principal Office. The registered office of the corporation shall be
fixed in the certificate of incorporation of the corporation.
1.2 Other Offices. The board of directors may at any time establish
offices at such other places as the board of directors may from time to time
designate.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Place of Meetings. Meetings of stockholders shall be held at any
place within or outside the State of Delaware designated by the board of
directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
2.2 Annual Meeting. The annual meeting of stockholders shall be held each
year on a date and at a time designated by the board of directors. In the
absence of such designation, the annual meeting of stockholders shall be held on
the third Wednesday of May in each fiscal year at such time as the Board shall
determine. However, if such day falls on a legal holiday, then the meeting shall
be held at the same time and place on the next succeeding full business day. At
the meeting, directors shall be elected, and any other proper business may be
transacted.
2.3 Special Meeting. A special meeting of the stockholders may be called
at any time by the board of directors, by the chairman of the board or by the
president.
2.4 Notice of Stockholders' Meetings. All notices of meetings of
stockholders shall be sent or otherwise given in accordance with Section 2.5 of
these bylaws not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date, and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted (no business other than that specified in the notice
may be transacted) or (ii) in the case of the annual meeting, those matters
which the board of directors, at the time of giving the notice, intends to
present for action by the stockholders (but any proper matter may be presented
at the meeting for such action). The notice of any meeting at which directors
are to be elected shall include the name of any nominee or nominees who, at the
time of the notice the board intends to present for election.
<PAGE>
2.5 Manner of Giving Notice; Affidavit of Notice. Written notice of any
meeting of stockholders shall be given either personally or by first-class mail
or by telegraphic or other written communication. Notices not personally
delivered shall be sent postage prepaid and shall be addressed to the
stockholder at the address of that stockholder appearing on the books of the
corporation or given by the stockholder to the corporation for the purpose of
notice. Notice shall be deemed to have been given at such time as it is
delivered personally or deposited in the mail or sent by telegram or other means
of written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 Advance Notice of Stockholder Nominees and Stockholder Business. To
be properly brought before an annual meeting or special meeting, nominations for
the election of directors or other business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the board
of directors, (b) otherwise properly brought before the meeting by or at the
direction of the board of directors or (c) otherwise properly brought before the
meeting by a stockholder.
2.7 Quorum. The holders of a majority of the shares entitled to vote,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business at all meetings of stockholders, except as otherwise
provided by statute or by the certificate of incorporation. The stockholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
When a quorum is present at any meeting, the affirmative vote of holders of
a majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 Adjourned Meeting; Notice. When any meeting of stockholders, either
annual or special, is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place are announced at the
meeting at which the adjournment is taken. At any adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) 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.
2.9 Voting. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.11 of these bylaws, subject to the provisions of 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners, and to voting trusts and other voting arrangements).
Except as otherwise provided in the certificate of incorporation or bylaws,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
<PAGE>
2.10 No Stockholder Action by Written Consent Without a Meeting. No
action which may be taken at any annual or special meeting of stockholders may
be taken without a meeting and without prior notice, in a consent in writing.
2.11 Record Date for Stockholder Notice; Voting. For purposes of
determining the stockholders entitled to notice of any meeting or to vote
thereat or entitled to give consent to corporate action without a meeting, the
board of directors may fix, in advance, a record date, which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, 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 business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section 8.1
of these bylaws.
2.12 Proxies. Every person entitled to vote for directors, or on any
other matter, shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
secretary of the corporation, but no such proxy shall be voted or acted upon
after three (3) years from its date, unless the proxy provides for a longer
period. A proxy shall be deemed signed if the stockholder's name is placed on
the proxy (whether by manual signature, typewriting, telegraphic transmission,
telefacsimile or otherwise) by the stockholder or the stockholder's attorney-in-
fact. The revocability of a proxy that states on its face that it is irrevocable
shall be governed by the provisions of Section 212(e) of the General Corporation
Law of Delaware (relating to the irrevocability of proxies).
2.13 Organization. The president, or in the absence of the president, the
chairman of the board, or in the absence of the chairman. Any executive officer
of the corporation, shall call the meeting of the stockholders to order, and
shall act as chairman of the meeting. In the absence of the president, the
chairman of the board, and all of the executive officers, the stockholders shall
appoint a chairman for such meeting. The chairman of any meeting of stockholders
shall determine the order of business and the procedures at the meeting,
including such matters as the regulation of the manner of voting and the conduct
of business. The secretary of the corporation shall act as secretary of all
meetings of the stockholders, but in the absence of the secretary at any meeting
of the stockholders, the chairman of the meeting may appoint any person to act
as secretary of the meeting.
2.14 List of Stockholders Entitled to Vote. The officer who has charge of
the stock ledger of the corporation shall prepare and make, at least ten (10)
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,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) 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
<PAGE>
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.
ARTICLE III
DIRECTORS
3.1 Powers. Subject to the provisions of the General Corporation Law of
Delaware and to any limitations in the certificate of incorporation or these
bylaws relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
3.2 Number of Directors. The board of directors shall consist of eleven
(11) members. The number of directors may be changed by an amendment to this
bylaw, duly adopted by the board of directors or by the stockholders, or by a
duly adopted amendment to the certificate of incorporation.
3.3 Election and Term of Office of Directors. Except as provided in
Section 3.4 of these bylaws or the certificate of incorporation, directors shall
be elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a director elected or appointed to fill
a vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
3.4 Resignation and Vacancies. Any director may resign effective on
giving written notice to the chairman of the board, the president, the secretary
or the board of directors, unless the notice specifies a later time for that
resignation to become effective. If the resignation of a director is effective
at a future time, the board of directors may elect a successor to take office
when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum. or by a sole remaining
director; provided, a vacancy created by the removal of a director by the vote
of the stockholders or by court order may be filled only by the affirmative vote
of a majority of the shares represented and voting at a duly held meeting at
which a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Each director so elected shall hold office
until the next annual meeting of the stockholders and until a successor has been
elected and qualified.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(1) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or
by a sole remaining director.
(2) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships
of such class or classes or series may be filled by a majority of the
directors elected by such class or classes or series thereof then in
office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
<PAGE>
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware (relating to meetings of stockholders) as far as
applicable.
3.5 Removal of Directors. Unless otherwise restricted by statute, by the
certificate of incorporation or by these bylaws, any director or the entire
board of directors may be removed, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors.
3.6 Place of Meetings; Meetings by Telephone. Regular meetings of the
board of directors may be held at any place within or outside the State of
Delaware that has been designated from time to time by resolution of the board.
In the absence of such a designation, regular meetings shall be held at the
principal executive office of the corporation. Special meetings of the board may
be held at any place within or outside the State of Delaware that has been
designated in the notice of the meeting or, if not stated in the notice or if
there is no notice, at the principal executive office of the corporation.
Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such directors shall
be deemed to be present in person at the meeting.
3.7 Regular Meetings. Regular meetings of the board of directors may be
held without notice if the times of such meetings are fixed by the board of
directors. If any regular meeting day shall fall on a legal holiday, then the
meeting shall be held at the same time and place on the next succeeding full
business day.
3.8 Special Meetings; Notice. Special meetings of the board of directors
for any purpose or purposes may be called at any time by the chairman of the
board, the president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.9 Quorum. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 3.11 of these bylaws. Every act or decision done
<PAGE>
or made by a majority of the directors present at a duly held meeting at which a
quorum is present shall be regarded as the act of the board of directors,
subject to the provisions of the certificate of incorporation and applicable
law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.10 Waiver of Notice. Notice of a meeting need not be given to any
director (i) who signs a waiver of notice or a consent to holding the meeting or
an approval of the minutes thereof, whether before or after the meeting, or (ii)
who attends the meeting other than for the express purpose of objecting at the
beginning of the meeting of the transaction of any business because the meeting
is not lawfully called or convened. All such waivers, consents, and approvals
shall be filed with the corporate records or made part of the minutes of the
meeting. A waiver of notice need not specify the purpose of any regular or
special meeting of the board of directors.
3.11 Adjournment. A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
3.12 Notice of Adjournment. Notice of the time and place of holding an
adjourned meeting need not be given unless the meeting is adjourned for more
than twenty-four (24) hours. If the meeting is adjourned for more than twenty-
four (24) hours, then notice of the time and place of the adjourned meeting
shall be given before the adjourned meeting takes place, in the manner specified
in Section 3.8 of these bylaws, to the directors who were not present at the
time of the adjournment.
3.13 Board Action by Written Consent Without a Meeting. Any action
required or permitted to be taken by the board of directors may be taken without
a meeting, provided that all members of the board individually or collectively
consent in writing to that action. Such action by written consent shall have the
same force and effect as a unanimous vote of the board of directors. Such
written consent and any counterparts thereof shall be filed with the minutes of
the proceedings of the board.
3.14 Fees and Compensation of Directors. Directors and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
board of directors. This Section 3.14 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee or otherwise and receiving compensation for those services.
3.15 Approval of Loans to Officers. The corporation may lend money or
property to, or guarantee the obligations of, or otherwise assist any officer or
other employee of the corporation or its parent or any subsidiary, whether or
not a director of the corporation or its parent or any subsidiary, whenever, in
the judgment of the directors, such loan, guaranty or assistance may reasonably
be expected to benefit the corporation. The loan, guaranty or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the board of directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing contained in this section shall
be deemed to deny, limit or restrict the powers of guaranty or warranty of the
corporation at common law or under any statute.
3.16 Sole Director Provided by Certificate of Incorporation. In the event
only one director is required by these bylaws or the certificate of
incorporation, then any reference herein to notices, waivers, consents,
<PAGE>
meetings or other actions by a majority or quorum of the directors shall be
deemed to refer to such notice, waiver. etc., by such sole director, who shall
have all the rights and duties and shall be entitled to exercise all of the
powers and shall assume all the responsibilities otherwise herein described as
given to the board of directors.
3.17 Nomination of Directors; Stockholder Business at Annual Meetings.
Subject to the rights of holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation,
nominations for the election of directors may be made by the board of directors
or any nominating committee appointed by the board of directors or by any
stockholder entitled to vote in the election of directors generally. However, a
stockholder generally entitled to vote in the election of directors may nominate
one or more persons for election as directors at a meeting only if written
notice of such stockholder's intent to make such nomination or nominations has
been given, either by personal delivery or by United States mail, postage
prepaid, to the secretary of the corporation not later than (i) with respect to
an election to be held at an annual meeting of stockholders, 60 days in advance
of such meeting and (ii) with respect to an election to be held at a special
meeting of stockholders for the election of directors, the close of business on
the seventh day following the date on which notice of such meeting is first
given to stockholders. Each such notice shall set forth the following
information: (a) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the stockholder is a holder of record of stock of the corporation entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the stockholder, each
nominee or any other person or persons (naming such person or persons) pursuant
to which the nomination or nominations are to be made by the stockholder; (d)
such other information regarding each nominee proposed by such stockholder as
would be required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission, had the nominee been
nominated, or intended to be nominated, by the board of directors of the
corporation; and (e) the consent of each nominee to serve as a director of the
corporation if so elected. At the request of the board of directors any person
nominated by the board of directors for election as a director shall furnish to
the secretary of the corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth herein. A majority of the board of
directors may reject any nomination by a stockholder not timely made or
otherwise not in accordance with the terms of this Section 3.17. If a majority
of the board of directors reasonably determines that the information provided in
a stockholder's notice does not satisfy the informational requirements of this
Section 3.17 in any material respect, the secretary of the corporation shall
promptly notify such stockholder of the deficiency in writing. The stockholder
shall have an opportunity to cure the deficiency by providing additional
information to the secretary within such period of time, not to exceed ten (10)
days from the date such deficiency notice is given to the stockholder, as a
majority of the board of directors shall reasonably determine. If the deficiency
is not cured within such period, or if a majority of the board of directors
reasonably determines that the additional information provided by the
stockholder, together with the information previously provided, does not satisfy
the requirements of this Section 3.17 in any material respect, then a majority
of the board of directors may reject such stockholder's nomination. The
secretary of the corporation shall notify a stockholder in writing whether the
stockholder's nomination has been made in accordance with the time and
information requirements of this Section 3.17.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the chairman of the meeting or (ii) by any stockholder of the
corporation who complies with the notice procedures set forth in this Section
3.17. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 60 days prior to the meeting; provided,
<PAGE>
however, that in the event that less than 70 days notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be received not later than the close of
business on the tenth day following the earlier of the day on which such notice
of the date of the annual meeting was mailed or such public disclosure was made.
A stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting the following
information: (a) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (b) the name and address, as they appear on the corporation's
books, of the stockholder proposing such business, (c) the class and number of
shares of the corporation which are beneficially owned by the stockholder and
(d) any material direct or indirect interest, financial or otherwise of the
stockholder or its affiliates or associates in such business. The board of
directors may reject any stockholder proposal not timely made in accordance with
this Section 3.17. If the board of directors determines that the information
provided in a stockholder's notice does not satisfy the informational
requirements hereof, the secretary of the corporation shall promptly notify such
stockholder of the deficiency in the notice. The stockholder shall then have an
opportunity to cure the deficiency by providing additional information to the
secretary within such period of time, not to exceed ten days from the date such
deficiency notice is given to the stockholder, as the board of directors shall
determine. If the deficiency is not cured within such period, or if the board of
directors determines that the additional information provided by the
stockholder, together with the information previously provided, does not satisfy
the requirements of this Section 3.17, then the board of directors may reject
such stockholder's proposal. The secretary of the corporation shall notify a
stockholder in writing whether the stockholder's proposal has been made in
accordance with the time and information requirements hereof.
This provision shall not prevent the consideration and approval or
disapproval at an annual meeting of reports of officers, directors and
committees of the board of directors, but in connection therewith no new
business shall be acted upon at any such meeting unless stated, filed and
received as herein provided. Notwithstanding anything in these bylaws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with procedures set forth in this Section 3.17.
ARTICLE IV
COMMITTEES
4.1 Committees of Directors. The board of directors may, by resolution
adopted by a majority of the authorized number of directors, designate one (1)
or more committees, each consisting of one (1) or more directors, to serve at
the pleasure of the board. The board may designate one (1) or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. The appointment of members or alternate members of a
committee requires the vote of a majority of the authorized number of directors.
Any committee, to the extent provided in the resolution of the board, shall have
all the authority of the board, but no such committee shall have the power and
authority to (i) amend the certificate of incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the board of directors as provided in
Section 151(a) of the General Corporation Law of Delaware, fix the designations
and any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation), (ii) adopt an agreement of merger or consolidation
under Sections 251 or 252 of the General Corporation Law of Delaware (relating
to mergers and consolidations of domestic and foreign corporations), (iii)
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a
<PAGE>
revocation of a dissolution or (v) amend the bylaws of the corporation; and,
unless the board resolution establishing the committee, the bylaws or the
certificate of incorporation expressly so provide, no such committee shall have
the power or 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 General Corporation Law of Delaware (relating to mergers of parent and
subsidiary corporations).
4.2 Meetings and Action of Committees. Meetings and actions of committees
shall be governed by, and held and taken in accordance with, the provisions of
Article III of these bylaws: Section 3.6 (place of meetings; meetings by
telephone), Section 3.7 (regular meetings), Section 3.8 (special meetings;
notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11
(adjournment), Section 3.12 (notice of adjournment) and Section 3.13 (board
action by written consent without meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may be determined either by resolution of the
board of directors or by resolution of the committee, that special meetings of
committees may also be called by resolution of the board of directors, and that
notice of special meetings of committees shall also be given to all alternate
members, who shall have the right to attend all meetings of the committee. The
board of directors may adopt rules for the government of any committee not
inconsistent with the provisions of these bylaws.
4.3 Committee Minutes. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
ARTICLE V
OFFICERS
5.1 Officers. The corporate officers of the corporation shall be a
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the board of directors, a chairman of the board, one
or more vice presidents (however denominated), one or more assistant
secretaries, and such other officers as may be appointed in accordance with the
provisions of Section 5.3 of these bylaws. Any number of offices may be held by
the same person.
5.2 Election of Officers. The corporate officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 5.3 or Section 5.5 of these bylaws, shall be chosen by the board,
subject to the rights, if any, of an officer under any contract of employment,
and shall hold their respective offices for such terms as the board of directors
may from time to time determine.
5.3 Subordinate Officers. The board of directors may appoint, or may
empower the president to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these bylaws or as
the board of directors may from time to time determine, and, in the case of an
officer chosen by the president, by the president.
5.4 Removal and Resignation of Officers. Subject to the rights, if any,
of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the board of directors at any regular or
special meeting of the board or, except in case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors, and, in the case of an officer chosen by
the president, by the president.
<PAGE>
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 Vacancies in Offices. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these bylaws for regular appointments to that office.
5.6 Chairman of the Board. The chairman of the board, if such an officer
be elected, shall, if present, preside at meetings of the board of directors and
exercise and perform such other powers and duties as may from time to time be
assigned to him or her by the board of directors or as may be prescribed by
these bylaws. If there is no president, then the chairman of the board shall
also be the chief executive officer of the corporation and shall have the powers
and duties prescribed in Section 5.7 of these bylaws.
5.7 President. Subject to such supervisory powers, if any, as may be
given by the board of directors to the chairman of the board, if there be such
an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction, and control of the business and the officers of
the corporation. The president shall preside at all meetings of the stockholders
and, in the absence or nonexistence of a chairman of the board, at all meetings
of the board of directors. The president shall have the general powers and
duties of management usually vested in the office of president of a corporation,
and shall have such other powers and duties as may be prescribed by the board of
directors or these bylaws.
5.8 Vice Presidents. In the absence or disability of the president, the
vice presidents, if any, in order of their rank as fixed by the board of
directors or, if not ranked, a vice president designated by the board of
directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors, these bylaws, the president or the chairman of the board.
5.9 Secretary. The secretary shall keep or cause to be kept, at the
principal executive office of the corporation or such other place as the board
of directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and stockholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. The secretary shall keep the seal of the corporation, if one be
adopted in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
<PAGE>
5.10 Chief Financial Officer. The chief financial officer shall keep and
maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors. He or she shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
5.11 Authority and Duties of Officers. In addition to the foregoing
powers, authority and duties, all officers of the corporation shalt respectively
have such authority and powers and perform such duties in the management of the
business of the corporation as may be designated from time to time by the board
of directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 Indemnification of Directors and Officers. The corporation shall, to
the maximum extent and in the manner permitted by the General Corporation Law of
Delaware as the same now exists or may hereafter be amended, indemnify any
person against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred in connection with
any threatened, pending or completed action, suit, or proceeding in which such
person was or is a party or is threatened to be made a party by reason of the
fact that such person is or was a director or officer of the corporation. For
purposes of this Section 6.1, a "director" or "officer" of the corporation shall
mean any person (i) who is or was a director or officer of the corporation, (ii)
who is or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise,
or (iii) who was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
board of directors of the corporation.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 Indemnification of Others. The corporation shall have the power, to
the maximum extent and in the manner permitted by the General Corporation Law of
Delaware as the same now exists or may hereafter be amended, to indemnify any
person (other than directors and officers) against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit, or proceeding, in which such person was or is a party or is
threatened to be made a party by reason of the fact that such person is or was
an employee or agent of the corporation. For purposes of this Section 6.2, an
"employee" or "agent" of the corporation (other than a director
<PAGE>
or officer) shall mean any person (i) who is or was an employee or agent of the
corporation, (ii) who is or was serving at the request of the corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or (iii) who was an employee or agent of a corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 Payment of Expenses in Advance. Corporation shall pay the expenses
(including attorney's fees) incurred by a director or officer of the corporation
entitled to indemnification hereunder in defending any action, suit or
proceeding referred to in this Section 6.1 in advance of its final disposition;
provided, however, that payment of expenses incurred by a director or officer of
the corporation in advance of the final disposition of such action, suit or
proceeding shall be made only upon receipt of an undertaking by the director or
officer to repay all amounts advanced if it should ultimately be determined that
the director or officer is not entitled to be indemnified under this Section 6.1
or otherwise.
6.4 Indemnity Not Exclusive. The rights conferred on any person by this
Article shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the corporation's Certificate
of Incorporation, these bylaws, agreement, vote of the stockholders or
disinterested directors or otherwise.
6.5 Insurance Indemnification. The corporation may 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 another corporation, partnership,
joint venture, trust or other enterprise 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, whether or not the corporation would have the power
to indemnify him or her against such liability under the provisions of the
General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 Maintenance and Inspection of Share Register. The corporation shall
keep either at its principal executive office or at the office of its transfer
agent or registrar (if either be appointed), as determined by resolution of the
board of directors, a record of its stockholders listing the names and addresses
of all stockholders and the number and class of shares held by each stockholder.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 Inspection by Directors. Any director shall have the right to examine
the corporation's stock ledger, a list of its stockholders and its other books
and records for a purpose reasonably related to his or her position as a
director.
<PAGE>
7.3 Annual Report to Stockholders. The board of directors shall present
at each annual meeting of the stockholders a full and clear statement of the
business and condition of the corporation.
7.4 Representation of Shares of Other Corporations. The chairman of the
board, the president, any vice president, the chief financial officer, the
secretary or assistant secretary of this corporation, or any other person
authorized by the board of directors or the president or a vice president, is
authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority herein granted may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
7.5 Certification and Inspection of Bylaws. The original or a copy of
these bylaws, as amended or otherwise altered to date, certified by the
secretary, shall be kept at the corporation's principal executive office and
shall be open to inspection by the stockholders of the corporation, at all
reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
8.1 Record Date for Purposes Other Than Notice and Voting. For purposes
of determining the stockholders entitled to receive payment of any dividend or
other distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any other lawful action, the board of
directors may fix, in advance, a record date, which shall not be more than sixty
(60) days before any such action. In that case, only stockholders of record at
the close of business on the date so fixed are entitled to receive the dividend,
distribution or allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date so fixed, except as otherwise provided in the Code.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution.
8.2 Checks; Drafts; Evidences of Indebtedness. From time to time, the
board of directors shall determine by resolution which person or persons may
sign or endorse all checks, drafts, other orders for payment of money, notes or
other evidences of indebtedness that are issued in the name of or payable to the
corporation, and only the persons so authorized shall sign or endorse those
instruments.
8.3 Corporate Contracts and Instruments: How Executed. The board of
directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation; such authority
may be general or confined to specific instances. Unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
8.4 Certificates for Shares. The shares of the corporation shall be
represented by certificates, provided that the board of directors of the
corporation may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the corporation. Notwithstanding the adoption
<PAGE>
of such a resolution by the board of directors, every holder of stock
represented by certificates and, upon request, every holder of uncertificated
shares, shall be entitled to have a certificate signed by, or in the name of the
corporation by, the chairman or vice-chairman of the board of directors, or the
president or vice-president, and by the chief financial officer, or the
secretary or an assistant secretary of such corporation representing the number
of shares registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
has ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
Certificates for shares shall be of such form and device as the board of
directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any, a conspicuous notice of
restrictions upon transfer or registration of transfer, if any, a statement as
to any applicable voting trust agreement; and, if the shares be assessable, or,
if assessments are collectible by personal action, a plain statement of such
facts.
Upon surrender to the secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 Special Designation on Certificates. If the corporation is authorized
to issue more than one class of stock or more than one series of any class, then
the powers, the designations, the preferences and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate that the corporation shall issue to represent such class or series
of stock; provided, however, that, except as otherwise provided in Section 202
of the General Corporation Law of Delaware (relating to transfers of stock,
stock certificates and undercertificated stock), in lieu of the foregoing
requirements there may be set forth on the face or back of the certificate that
the corporation shall issue to represent such class or series of stock a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, the designations, the preferences and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
8.6 Lost Certificates. Except as provided in this Section 8.6, no new
certificates for shares shall be issued to replace a previously issued
certificate unless the latter is surrendered to the corporation and canceled at
the same time. The board of directors may, in case any share certificate or
certificate for any other security is lost, stolen or destroyed, authorize the
issuance of replacement certificates on such terms and conditions as the board
may require; the board may require indemnification of the corporation secured by
a bond or other adequate security
<PAGE>
sufficient to protect the corporation against any claim that may be made against
it, including any expense or liability, on account of the alleged loss, theft or
destruction of the certificate or the issuance of the replacement certificate.
8.7 Transfer Agents And Registrars. The board of directors may appoint
one or more transfer agents or transfer clerks, and one or more registrars, each
of which shall be an incorporated bank or trust company, either domestic or
foreign, who shall be appointed at such times and places as the requirements of
the corporation may necessitate and the board of directors may designate.
8.8 Construction; Definitions. Unless the context requires otherwise, the
general provisions, rules of construction, and definitions in the Code shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws. Notwithstanding the
foregoing, the affirmative vote for sixty-six and two thirds percent (66 2/3%)
of the then outstanding voting securities of the corporation, voting together as
a single class, shall be required to amend or repeal Section 2.3, 2.4, 2.6, 2.10
and 2.11 hereunder.
<PAGE>
Exhibit 4.2
SIXTH AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
This SIXTH AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (the
"Agreement") is made as of May 20, 1998, by and among CitySearch, Inc., a
Delaware corporation (the "Company"); the purchasers of shares of Series C
Preferred Stock of the Company (the "Series C Holders") pursuant to the Series C
Preferred Stock Purchase Agreement, dated as of May 15, 1996 (the "Series C
Agreement"); the purchasers of shares of Series D Preferred Stock of the Company
(the "Series D Holders") pursuant to (i) the Series D Preferred Stock Purchase
Agreement, dated as of December 13, 1996, as it may be amended from time to
time, (ii) the Series D Preferred Stock Purchase Agreement, dated as of June 23,
1997, as it may be amended from time to time, (iii) the Series D Preferred Stock
Purchase Agreement, dated July 18, 1997, as it may be amended from time to time
(collectively, the "Series D Agreements"); and the purchasers of shares of
Series E Preferred Stock of the Company (the "Series E Holders") pursuant to (i)
the Series E Stock Purchase Agreement dated as of November 12, 1997 and (ii) the
Series E Stock Purchase Agreement, dated May 20, 1998, as it may be amended from
time to time (the "Second Series E Agreement" and collectively, the "Series E
Agreements"); and for purposes of Section 5 only, NationsBanc Montgomery
Securities, Inc. ("Montgomery").
R E C I T A L S
---------------
A. The Company, the Series C Holders, the Series D Holders, the
holders of the outstanding shares of Series E Preferred Stock (the "Existing
Series E Holders") and Montgomery are parties to a Fifth Amended and Restated
Stockholders' Agreement, dated as of November 11, 1997 (the "Original
Agreement"), pursuant to which the Series C Holders, the Series D Holders and
the Existing Series E Holders were granted certain rights, including but not
limited to registration rights and rights of first refusal.
B. The Company proposes to sell an additional 1,000,000 shares of
Series E Preferred Stock pursuant to the Second Series E Agreement.
C. The Company desires to provide a further inducement to the
purchasers of the additional Series E Preferred Stock to purchase shares of its
Series E Preferred Stock by providing the rights set forth herein.
D. The Company has requested and (a) the Holders (as defined in the
Original Agreement) holding at least a majority of the shares of the Common
Stock issuable upon conversion of the Company's Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
E Preferred Stock, (b) the Holders holding at least a majority of the Company's
Series C Preferred Stock, (c) the Holders holding at least 66 2/3% of the
Company's Series D Preferred Stock and (d) the Holders holding at least a
majority of the outstanding shares of the Company's Series E Preferred Stock
have agreed, pursuant to Section 11.6 of the Original Agreement, to amend and
restate in its entirety the Original Agreement, in the manner set forth herein.
<PAGE>
THE PARTIES AGREE AS FOLLOWS:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Big Four Accounting Firm" shall mean one of the four largest public
------------------------
accounting firms in the United States with an international practice.
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's Common Stock, par value $0.01
------------
per share.
"Election Notice" has the meaning set forth in Section 7.1.
---------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"First Offer Price" has the meaning set forth in Section 8.2.
-----------------
"Form S-3" shall mean Form S-3 issued by the Commission or any
--------
substantially similar form then in effect.
"GRP" shall mean Global Retail Partners, L.P. and its affiliates.
---
"GRP Director" shall mean any director of the Company elected by GRP.
------------
"Holder" shall mean any holder of outstanding Registrable Securities
------
which have not been sold to the public, but only if such holder is a Stockholder
or an assignee or transferee of registration rights as permitted by Sections 9
and 11.1 hereof.
"HSN" shall mean HSN, Inc. or its successors.
---
"HSN Director" shall mean any director of the Company elected by HSN.
------------
"Initiating Holders" has the meaning set forth in Section 5.1.1.
------------------
"Investment Basket" has the meaning set forth in Section 10.
-----------------
"IPO Election Notice" has the meaning set forth in Section 7.2.
-------------------
<PAGE>
"Material Adverse Event" shall mean an occurrence having a consequence
----------------------
that either (a) is materially adverse as to the business, properties, prospects
or financial condition of the Company or (b) is reasonably foreseeable, has a
reasonable likelihood of occurring, and if it were to occur might materially
adversely affect the business, properties, prospects or financial condition of
the Company.
"New Securities" has the meaning set forth in Section 7.1.
--------------
"Offer Period" has the meaning set forth in Section 8.4.
------------
"Offered Shares" has the meaning set forth in Section 8.2.
--------------
"Preferred Stock" shall mean the Series A Preferred, Series B
---------------
Preferred, Series C Preferred, Series D Preferred and Series E Preferred.
"Qualified IPO" shall mean an initial public offering of Common Stock
-------------
of the Company generating aggregate net proceeds to the Company of at least
$20,000,000 and having a per share public offering price of at least $7.70.
The terms "Register", "Registered" and "Registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act ("Registration Statement"), and the
declaration or ordering of the effectiveness of such Registration Statement.
"Registrable Securities" means (i) the Common Stock issuable upon
----------------------
conversion of the Series C Preferred, the Series D Preferred and the Series E
Preferred, (ii) with respect to Registrations under Section 5.2 only, the
Common Stock issuable upon conversion of the Series A Preferred and Series B
Preferred and (iii) any Common Stock of the Company issued or issuable in
respect of any stock described in clauses (i) and (ii) above; excluding in all
cases, however, any Registrable Securities sold by a Holder in a sale pursuant
to a registration statement, a transaction pursuant to Rule 144 promulgated
under the Securities Act or any other transaction in which registration rights
are not transferred pursuant to Section 9 hereof.
"Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in complying with Section 5.1 or 5.2 of this Agreement, including,
without limitation, all federal and state registration, qualification and filing
fees, printing expenses, fees and disbursements of counsel for the Company, blue
sky fees and expenses, and the expense of any special audits incident to or
required by any such registration and the reasonable fees and disbursements of
one counsel for all Holders, reasonably acceptable to such Holders, in
connection with Section 5.1 or 5.2 of this Agreement.
"Reoffer Notice" has the meaning set forth in Section 8.4.
--------------
"Reoffer Price" has the meaning set forth in Section 8.4.
-------------
-3-
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Seller's Notice" has the meaning set forth in Section 8.2.
---------------
"Selling Expenses" shall mean all underwriting discounts and selling
----------------
commissions applicable to the sale of Registrable Securities pursuant to this
Agreement.
"Selling Stockholder" has the meaning set forth in Section 8.2.
-------------------
"Series A Preferred" shall mean the Company's Series A Preferred
------------------
Stock, par value $0.01 per share, outstanding as of the date hereof.
"Series B Preferred" shall mean the Company's Series B Preferred
------------------
Stock, par value $0.01 per share, outstanding as of the date hereof.
"Series C Director" shall mean any director of the Company elected by
-----------------
the holders of the Series C Preferred.
"Series C Preferred" shall mean the Company's Series C Preferred
------------------
Stock, par value $0.01 per share, outstanding as of the date hereof.
"Series D Preferred" shall mean the Company's Series D Preferred
------------------
Stock, par value $0.01 per share.
"Series E Preferred" shall mean the Company's Series E Preferred
------------------
Stock, par value $0.01 per share.
"Shares" shall mean the Preferred Stock and the Common Stock issuable
------
upon conversion of the Preferred Stock held by the Stockholders and additional
shares of Common Stock and Preferred Stock, as the case may be, issued in
respect of such shares upon any stock split, stock dividend or the like and, in
any provision where the context requires a vote or counting of Shares, shares of
Preferred Stock shall be counted based upon the number of shares of Common Stock
into which such shares of Preferred Stock are then convertible.
"Stockholders" shall mean the Series C Holders, the Series D Holders
------------
and the Series E Holders.
"Transfer" shall mean an offer, sale, offer to sell, transfer,
--------
assignment, pledge, encumbrance or other disposition.
-4-
<PAGE>
"Underwriter's Representative" has the meaning set forth in Section
----------------------------
5.1.5(c).
2. Restrictions Upon Transfer of Shares.
------------------------------------
2.1 Restrictions on Transferability. The Shares shall not be
-------------------------------
transferable except upon the conditions specified in this Agreement, which
conditions are intended to ensure compliance with the provisions of the
Securities Act. Each holder of Shares will cause any proposed transferee of
such securities to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Agreement.
2.2 Restrictive Legend. Each certificate representing Shares shall
------------------
(unless otherwise permitted by the provisions of Section 3 below) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SAID ACT.
3. Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Shares, by acceptance thereof, agrees to comply in all respects
with the provisions of this Section 3. Prior to any proposed transfer of any
Shares, unless there is in effect a registration statement under the Securities
Act covering the proposed transfer, the holder thereof shall give written notice
to the Company of such holder's intention to effect such transfer. Each such
notice shall describe the manner and circumstances of the proposed transfer in
sufficient detail and shall, if the Company so requests, be accompanied by
either (i) a written opinion of legal counsel who shall be reasonably
satisfactory to the Company addressed to the Company to the effect that the
proposed transfer of the Shares may be effected without registration under the
Securities Act or (ii) a "no action" letter from the Commission to the effect
that the transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the holder of such Shares shall be entitled to transfer such
Shares in accordance with the terms of the notice delivered by the holder to the
Company; provided, however, that no opinion or no action letter need be obtained
with respect to a transfer without consideration to (A) any affiliated entity of
a holder of Shares, (B) a partner, active or retired, of a holder of Shares, (C)
the estate of any such partner or a trust established for the benefit of the
descendants or any relatives or spouse of such partner, (D) to a parent
corporation or wholly-owned subsidiary of a holder of Shares or to a wholly-
owned subsidiary of such parent, or (E) to the spouse of a holder of Shares;
provided, in any
-5-
<PAGE>
such case, that the transferee agrees in writing to be subject to the terms
hereof. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual circumstances. Each
certificate evidencing the Shares transferred as above provided shall bear the
appropriate restrictive legend set forth in Section 2 above, except that such
certificate shall not bear such restrictive legend if in the opinion of counsel
for the Company such legend is not required in order to establish compliance
with any provisions of the Securities Act.
4. Information Rights. The Company hereby covenants and agrees as
------------------
follows:
4.1 Financial Statements and Reports to Stockholders. The Company
------------------------------------------------
shall deliver to the Stockholders (i) as soon as practicable after the end of
each fiscal year of the Company, and in any event within 90 days thereafter, a
consolidated balance sheet of the Company as of the end of such year and
consolidated statements of income, stockholders' equity and cash flows for such
year, which year-end financial reports shall be in reasonable detail, prepared
in accordance with generally accepted accounting principles and fairly
reflecting the fiscal affairs of the Company to the date thereof and audited by
a Big Four Accounting Firm and a management letter discussing such financial
results and (ii) as soon as practicable after the end of each fiscal quarter,
and in any event within 30 days thereafter, unaudited financial statements of
the Company prepared in accordance with generally accepted accounting
principles. In addition, the Company shall deliver to the Series C Holders and
the Series E Holders as soon as practicable after the end of each fiscal quarter
of the Company, and in any event within 30 days thereafter, a management letter
discussing the financial results and operations of the Company for the quarter
and an officer's certificate of compliance with the provisions of this sentence.
The Company shall provide to each Holder of Series C Preferred, Series D
Preferred and Series E Preferred all closing documents of any round of debt or
equity financing which requires the vote of the Series C Preferred, Series D
Preferred or Series E Preferred, as the case may be, or which adversely affects
the Series C Preferred, Series D Preferred or Series E Preferred, as the case
may be. The Company shall also deliver, with reasonable promptness, copies of
all filings with the Commission, and such other information and data that is in
existence and has been compiled with respect to the Company as any Stockholder
may from time to time reasonably request; provided, however, that the Company
shall not be obligated pursuant to this Section 4.1 to provide any information
which it reasonably considers to be a trade secret or confidential information.
The Company shall provide the Series C Director, the HSN Director and the GRP
Director with all information furnished to the Company's other directors for
purposes of performing his or her duties as a director.
4.2 Termination of Covenants. As to any Series C Holder, the
------------------------
covenants of the Company set forth in Section 4.1 shall be terminated and be of
no further force or effect upon the earlier of (a) the date on which the shares
of Series C Preferred then outstanding (including the Common Stock issued upon
conversion of the Series C Preferred), and the Series D Preferred (including the
Common Stock issuable upon the conversion of such Series D Preferred) then held
by such Series C Holder, is equal to less than 5% of the Company's then
outstanding capital stock on a fully diluted basis and there is no Series C
Director on the Board of Directors of the Company, (b) there are no shares of
Series C Preferred outstanding (due to conversion, redemption or
-6-
<PAGE>
otherwise), and (c) upon the closing of a Qualified IPO. Except as set forth
below, as to any Series D Holder that does not hold Series C Preferred, the
covenants of the Company set forth in Section 4.1 shall be terminated and be of
no further force or effect upon the earlier of (a) the date on which the shares
of Series D Preferred then outstanding (including the Common Stock issuable upon
conversion of the Series D Preferred), is equal to or less than 5% of the
Company's then outstanding capital stock on a fully diluted basis, (b) there are
no shares of Series D Preferred outstanding (due to conversion, redemption or
otherwise), and (c) upon the closing of a Qualified IPO. As to any Series E
Holder, the covenants of the Company set forth in Section 4.1 shall be
terminated and be of no further force or effect upon the earlier of (a) the date
on which the shares of Series E Preferred then outstanding (including the Common
Stock issuable upon conversion of the Series E Preferred), is equal to or less
than 5% of the Company's then outstanding capital stock on a fully diluted basis
and as to HSN, there is no HSN Director on the Board of Directors of the
Company, (b) there are no shares of Series E Preferred outstanding (due to
conversion, redemption or otherwise), and (c) upon the closing of a Qualified
IPO. Except as set forth below, in addition, such covenants shall terminate as
to any Stockholder at such time as such Stockholder no longer holds at least 5%
of the shares of Series C Preferred (including Common Stock issued upon
conversion), Series D Preferred (including Common Stock issuable upon
conversion), or Series E Preferred (including Common Stock issuable upon
conversion), as the case may be, originally purchased by such Stockholder under
the Series C Agreement, the Series D Agreements or the Series E Agreements, as
the case may be. Notwithstanding any of the foregoing provisions of this
paragraph, as to any Series D Holder holding more than 15% of the Series D
Preferred as of January 8, 1997, such covenants shall not terminate until the
date such Stockholder holds less than 25% of the shares of Series D Preferred
held by such Stockholder as of January 8, 1997.
5. Registration Rights.
-------------------
5.1 Demand Registration.
-------------------
(a) Request for Registration on Form Other Than Form S-3. Subject
----------------------------------------------------
to the terms of this Agreement, in the event that the Company shall receive from
the Holders (the "Initiating Holders") of Registrable Securities at any time
after the earlier to occur of (a) the effective date of the Company's initial
public offering of shares of Common Stock under a Registration Statement and (b)
the five (5) year anniversary of the first date of issuance of the Series C
Preferred, but in no case within 180 days of the effective date of a
Registration in which Section 5.2.2 applied, a written request that the Company
file a registration statement with respect to at least 10% of the sum of (i)
outstanding Common Stock as of May 15, 1996 plus (ii) Preferred Stock (on an as
converted to Common Stock basis) on a form of registration statement other than
Form S-3, in which the reasonably anticipated aggregate offering price to the
public would equal or exceed $10,000,000, the Company shall (i) promptly give
written notice of the proposed Registration to all other Holders and shall (ii)
as soon as practicable, use its best efforts to effect Registration of the
Registrable Securities specified in such request, together with any Registrable
Securities of any Holder joining in such request as are specified in a written
request given within 20 days after written notice from the
-7-
<PAGE>
Company. The Company shall not be obligated to effect more than three
Registrations under this Section 5.1.1.
(b) Request for Registration on Form S-3. Subject to the terms of this
------------------------------------
Agreement, in the event that the Company receives from Initiating Holders a
written request that the Company effect any Registration on Form S-3 (or any
successor form to Form S-3 regardless of its designation) at a time when the
Company is eligible to register securities on Form S-3 (or any successor form to
Form S-3 regardless of its designation), but in no case within 180 days of the
effective date of a Registration, for an offering of Registrable Securities if
the reasonably anticipated aggregate offering price to the public, would exceed
$1,000,000, the Company will promptly give written notice of the proposed
Registration to all the Holders and will as soon as practicable use its best
efforts to effect Registration of the Registrable Securities specified in such
request, together with all or such portion of the Registrable Securities of any
Holder joining in such request as are specified in a written request delivered
to the Company within 20 days after written notice from the Company of the
proposed Registration. Registration under this Section 5.1.2 shall not be
counted as a Registration under Section 5.1.1.
(c) Right of Deferral of Registration. If the Company shall furnish
---------------------------------
to all such Holders who joined in the request a certificate signed by the
President of the Company stating that, in the good faith judgment of the Board
of Directors of the Company, it would be seriously detrimental to the Company
for any Registration to be effected as requested under Sections 5.1.1 or 5.1.2,
the Company shall have the right to defer the filing of a Registration Statement
with respect to such offering for a period of not more than 180 days (60 days in
the case of a Registration on Form S-3) from delivery of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve month period.
(d) Registration of Other Securities in Demand Registration. Any
-------------------------------------------------------
Registration Statement filed pursuant to the request of the Initiating Holders
under this Section 5.1 may, subject to the provisions of Sections 5.1.5(b) and
(d), include securities of the Company other than Registrable Securities.
(e) Underwriting in Demand Registration.
-----------------------------------
(f) Notice of Underwriting. If the Initiating Holders intend to
----------------------
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to this Section 5.1, and the Company shall include such information in
the written notice referred to in Section 5.1.1 or 5.1.2. The right of any
Holder to Registration pursuant to Section 5.1 shall be conditioned upon such
Holder's agreement to participate in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting.
(g) Inclusion of Other Holders in Demand Registration. If the
-------------------------------------------------
Company, officers or directors of the Company holding Common Stock other than
Registrable Securities or
-8-
<PAGE>
holders of securities other than Registrable Securities, request inclusion in
such Registration, the Initiating Holders, to the extent they deem advisable and
consistent with the goals of such Registration, shall, on behalf of all Holders,
offer to any or all of the Company, such officers or directors and such holders
of securities other than Registrable Securities that such securities other than
Registrable Securities be included in the underwriting and may condition such
offer on the acceptance by such persons of the terms of this Section 5.1.
(h) Selection of Underwriter in Demand Registration. The Company
-----------------------------------------------
shall (together with all Holders proposing to distribute their securities
through such underwriting) enter into an underwriting agreement with the
representative ("Underwriter's Representative") of the underwriter or
underwriters of national reputation selected for such underwriting by the
Holders of a majority of the Registrable Securities being registered by the
Initiating Holders and agreed to by the Company (which consent shall not be
unreasonably withheld).
(i) Marketing Limitation in Demand Registration. In the event the
-------------------------------------------
Underwriter's Representative advises the Company or the Initiating Holders in
writing that market factors (including, without limitation, the aggregate number
of shares of Common Stock requested to be Registered, the general condition of
the market, and the status of the persons proposing to sell securities pursuant
to the Registration) require a limitation of the number of shares to be
underwritten, then (i) first the securities other than Registrable Securities
and (ii) next the securities requested to be registered by the Company, shall be
excluded from such Registration to the extent required by such limitation. If a
limitation of the number of shares is thereafter still required, the Initiating
Holders shall so advise all Holders and the number of shares of Registrable
Securities that may be included in the Registration and underwriting shall be
allocated among all Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities entitled to inclusion in such
Registration held by such Holders at the time of filing the Registration
Statement. No Registrable Securities or other securities excluded from the
underwriting by reason of this Section 5.1.5(d) shall be included in such
Registration Statement. To facilitate the allocation of shares in accordance
with the above provisions, the Company or the Underwriter's Representative may
round the number of shares allocated to any Holder to the nearest 100 shares.
(j) Right of Withdrawal in Demand Registration. If any Holder of
------------------------------------------
Registrable Securities, or a holder of other securities entitled (upon request)
to be included in such Registration, disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders delivered at least seven
days prior to the effective date of the Registration Statement. The securities
so withdrawn shall also be withdrawn from the Registration Statement.
(k) Blue Sky in Demand Registration. In the event of any Registration
-------------------------------
pursuant to Section 5.1, the Company will exercise its best efforts to Register
and qualify the securities covered by the Registration Statement under such
other securities or Blue Sky laws of such jurisdictions as shall be reasonably
appropriate for the distribution of such securities; provided, however, that (i)
the Company shall not be required to qualify to do business or to file a general
-9-
<PAGE>
consent to service of process in any such states or jurisdictions, and (ii)
notwithstanding anything in this Agreement to the contrary, in the event any
jurisdiction in which the securities shall be qualified imposes a non-waivable
requirement that expenses incurred in connection with the qualification of the
securities be borne by selling stockholders, such expenses shall be payable pro
rata by selling stockholders.
5.2 Piggyback Registration.
----------------------
(a) Notice of Piggyback Registration and Inclusion of
-------------------------------------------------
Registrable Securities. Subject to the terms of this Agreement, in the event the
- ----------------------
Company decides to Register any of its Common Stock or other securities solely
for cash (either for its own account or the account of a security holder or
holders exercising their respective demand registration rights) on a form that
would be suitable for a registration involving solely Registrable Securities,
the Company will: (i) promptly give each Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable Blue Sky or other state
securities laws) and (ii) include in such Registration (and any related
qualification under Blue Sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
delivered to the Company by any Holder within fifteen (15) days after delivery
of such written notice from the Company in accordance with Section 10.2.
(b) Underwriting in Piggyback Registration.
--------------------------------------
(c) Notice of Underwriting in Piggyback Registration. If the
------------------------------------------------
Registration of which the Company gives notice is for a Registered public
offering involving an underwriting, the Company shall so advise the Holders as a
part of the written notice given pursuant to Section 5.2.1. In such event the
right of any Holder to Registration shall be conditioned upon such underwriting
and the inclusion of such Holder's Registrable Securities in such underwriting
to the extent provided in this Section 5.2.2. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement with the Underwriter's
Representative for such offering. The Holders shall have no right to
participate in the selection of the underwriters for an offering pursuant to
this Section 5.2.
(d) Marketing Limitation in Piggyback Registration. In the event
----------------------------------------------
the Underwriter's Representative advises the Holders seeking registration of
Registrable Securities pursuant to Section 5.2 in writing that market factors
(including, without limitation, the aggregate number of shares of Common Stock
requested to be Registered, the general condition of the market, and the status
of the persons proposing to sell securities pursuant to the Registration)
require a limitation of the number of shares to be underwritten, the
Underwriter's Representative (subject to the allocation priority set forth in
Section 5.2.2(c)) may exclude some or all Registrable Securities from such
registration and underwriting, but in no event shall (i) the amount of
securities of the selling Holders be reduced below 20% of the total amount of
securities included in such offering, unless such offering is the initial public
offering of the Company's securities in which case the
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<PAGE>
selling Holders may be excluded in full if no other stockholder's securities are
included and (ii) notwithstanding clause (i) above, any shares being sold by a
stockholder exercising a demand registration right similar to that granted in
Section 5.1 be excluded from such offering.
(e) Allocation of Shares in Piggyback Registration. In the event that
----------------------------------------------
the Underwriter's Representative limits the number of shares to be included in a
Registration pursuant to Section 5.2.2(b), the number of shares to be included
in such Registration shall be allocated (subject to Section 5.2.2(b)) in the
following manner: The number of shares, if any, that may be included in the
Registration and underwriting by selling stockholders shall first be allocated
among all the requesting Holders pro rata according to the respective amounts of
Registrable Securities entitled to be included in such offering by such
requesting Holders and then among all other holders of securities other than
Registrable Securities requesting and legally entitled to include shares in such
Registration, in proportion, as nearly as practicable, to the respective amounts
of securities (including Registrable Securities) which such Holders and such
other holders would otherwise be entitled to include in such Registration. No
Registrable Securities or other securities excluded from the underwriting by
reason of this Section 5.2.2(c) shall be included in the Registration Statement.
To facilitate the allocation of shares in accordance with the above provisions,
the Company or the Underwriter's Representative may round the number of shares
allocated to any Holder to the nearest 100 shares. The Company covenants and
agrees that it will not permit the holders of the Company's Common Stock as of
the date of this Agreement to exercise piggyback registration rights in a manner
pari passu or senior to those of the Holders of Registrable Securities.
- ---- -----
(f) Withdrawal in Piggyback Registration. If any Holder disapproves
------------------------------------
of the terms of any such underwriting, he may elect to withdraw therefrom by
written notice to the Company and the underwriter delivered at least seven (7)
days prior to the effective date of the Registration Statement. Any Registrable
Securities or other securities excluded or withdrawn from such underwriting
shall be withdrawn from such Registration.
(g) Blue Sky in Piggyback Registration. In the event of any
----------------------------------
Registration of Registrable Securities pursuant to Section 5.2, the Company will
exercise its best efforts to Register and qualify the securities covered by the
Registration Statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably appropriate for the distribution of such
securities; provided, however, that (i) the Company shall not be required to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions, and (ii) notwithstanding anything in this
Agreement to the contrary, in the event any jurisdiction in which the securities
shall be qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the securities be borne by selling
stockholders, such expenses shall be payable pro rata by selling stockholders.
5.3 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with three Registrations pursuant to Sections 5.1.1 and 5.1.2 and all
Registrations pursuant to Section 5.2, shall be borne by the Company. All
Registration Expenses incurred in connection with any other registration,
qualification or compliance shall be apportioned among the Holders and other
-11-
<PAGE>
holders of the securities so registered on the basis of the number of shares so
registered. Notwithstanding the above, the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 5.1 if
the registration request is subsequently withdrawn at the request of the Holders
of a majority of the Registrable Securities to be registered (which Holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to demand one (1) registration pursuant
to Section 5.1; provided further, however, that if at the time of such
withdrawal, the Holders have learned of a Material Adverse Event either (i) not
known to the Holders at the time of their request or (ii) not made known to the
Holders within 15 days after their request, then the Holders shall not be
required to pay any of such expenses and shall retain their rights pursuant to
Section 5.1. All Selling Expenses shall be borne by the holders of the
securities registered pro rata on the basis of the number of shares registered.
5.4 Registration Procedures. The Company will keep each Holder whose
-----------------------
Registrable Securities are included in any registration pursuant to this
Agreement advised as to the initiation and completion of such Registration. At
its expense, the Company will as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to 120 days or until
the distribution contemplated in the registration statement has been completed;
provided, however, that such 120-day period shall be extended for a period of
time equal to the period the Holders refrain from selling any securities
included in such registration at the request of an underwriter of Common Stock
(or other securities) of the Company.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish such number of prospectuses (including preliminary
prospectuses) in conformity with the requirements of the Securities Act and
other documents as a Holder from time to time may reasonably request.
(d) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
-12-
<PAGE>
(e) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or on the Nasdaq Stock
Market, as the case may be, on which similar securities issued by the Company
are then listed.
(f) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
Registration.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 5, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a Registration pursuant to this Section 5, if such securities are being
sold through underwriters, or, if such securities with respect to such
securities becomes effective, an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and a letter, dated such date,
from the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any.
5.5 Reports Under the Exchange Act. With a view to making available
------------------------------
to the Holders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the Commission that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a Registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company), the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the
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<PAGE>
most recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the
Commission which permits the selling of any such securities without registration
or pursuant to such form.
5.6 Information Furnished by Holder. It shall be a condition
-------------------------------
precedent of the Company's obligations under this Agreement that each Holder of
Registrable Securities included in any Registration furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
or Holders as the Company may reasonably request.
5.7 Indemnification.
---------------
(a) Company's Indemnification of Holders. To the extent
------------------------------------
permitted by law, the Company will indemnify each Holder, each of its officers,
directors and constituent partners and each person controlling such Holder, with
respect to which Registration, qualification or compliance of Registrable
Securities has been effected pursuant to this Agreement, and each underwriter,
if any, and each person who controls any underwriter against all claims, losses,
damages or liabilities (or actions in respect thereof) to the extent such
claims, losses, damages or liabilities arise out of or are based upon any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus or supplement thereto or other document (including any related
Registration Statement or any amendment thereto) incident to any such
Registration, qualification or compliance, or are based on 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, or any violation by
the Company of any rule or regulation promulgated under the Securities Act,
Exchange Act, any state securities law or any rules or regulations promulgated
thereunder, applicable to the Company and relating to action or inaction
required of the Company in connection with any such Registration, qualification
or compliance; and the Company will pay to each such Holder, director, officer,
partner, person, each such underwriter and each person who controls any such
Holder or underwriter, as incurred, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, however, that the indemnity
contained in this Section 5.7.1 shall not apply to amounts paid in settlement of
any such claim, loss, damage, liability or action if settlement is effected
without the consent of the Company (which consent shall not unreasonably be
withheld); and provided, further, that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based upon any untrue statement (or alleged untrue
statement) or omission (or alleged omission) based upon written information
furnished to the Company by such Holder, provided, that, if the Holder is a
corporate holder, such information shall have been provided by an officer of
such Holder, underwriter, or controlling person and stated to be for use in
connection with the offering of securities of the Company.
(b) Holder's Indemnification of Company. To the extent
-----------------------------------
permitted by law, each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such Registration,
qualification or compliance is being effected pursuant to this Agreement,
indemnify the Company, each of its directors and officers, each underwriter, if
any, of the
-14-
<PAGE>
Company's securities covered by such a Registration Statement, each person who
controls the Company or such underwriter within the meaning of the Securities
Act, and each other such Holder, each of its officers, directors and constituent
partners and each person controlling such other Holder, against all claims,
damages and liabilities or actions in respect thereof arising out of or based
upon any untrue statement of a material fact contained in any such Registration
Statement, prospectus, offering circular or supplement or amendment thereto, or
other document, or any omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by such Holder of any rule or regulation promulgated under the
Securities Act, Exchange Act, any state securities law or any rules or
regulations promulgated thereunder, applicable to such Holder and relating to
action or inaction required of such Holder in connection with any such
Registration, qualification or compliance; and will pay to the Company, such
Holders, such directors, officers, partners, persons, underwriters or control
persons, as incurred, for any legal and any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement or omission is made in such Registration Statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use in connection with the offering of securities
of the Company, provided, however, (i) that the indemnity contained in this
Section 5.7.2 shall not apply to any amounts paid in settlement of such claim,
loss, damage, liability or action if settlement is effected without the consent
of indemnifying Holders representing a majority-in-interest of the securities of
the Company held by such Holders (which consent shall not be unreasonably
withheld) and (ii) that each Holder's liability under this Section 5.7.2 shall
not exceed such Holder's proceeds from the offering of securities made in
connection with such Registration.
(c) Indemnification Procedure. Promptly after receipt by an
-------------------------
indemnified party under this Section 5.7 of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party under this Section 5.7, notify the indemnifying
party in writing of the commencement thereof and generally summarize such
action. The indemnifying party shall have the right to participate in and to
assume the defense of such claim; provided, however, that the indemnifying party
shall be entitled to select counsel for the defense (which fees and expenses
will be paid by the indemnifying party) of such claim with the approval of any
parties entitled to indemnification, which approval shall not be unreasonably
withheld; provided further, however, that if either party reasonably determines
that there may be a conflict between the position of the Company and the Holders
in conducting the defense of such action, suit or proceeding by reason of
recognized claims for indemnity under this Section 5.7, then counsel for such
party (which fees and expenses will be paid by the indemnifying party) shall be
entitled to conduct the defense to the extent reasonably determined by such
counsel to be necessary to protect the interest of such party. The failure to
notify an indemnifying party promptly of the commencement of any such action, if
prejudicial to the ability of the indemnifying party to defend such action,
shall relieve such indemnifying party, to the extent so prejudiced, of any
liability to the indemnified party under this Section 5.7, but the omission so
to notify the indemnifying party will not relieve such party of any liability
that such party may have to any indemnified party otherwise
-15-
<PAGE>
other than under this Section 5.7. No settlement of any such claim, loss,
damage, liability or action shall be made by the indemnified party without the
prior written consent of the indemnifying party. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent of each
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claims or litigation.
(d) If the indemnification provided for in this Section 5.7
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 5.7 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 5, and otherwise.
5.8 Limitations on Registration Rights Granted to Other Securities.
--------------------------------------------------------------
From and after the date of this Agreement, except as set forth in Section 10.3,
the Company shall not enter into any agreement with any holder or prospective
holder of any securities of the Company providing for the granting to such
holder of any Registration rights, except that, with the consent of the Holders
of a majority of the aggregate of the Shares then outstanding, additional
holders may be added as parties to this Agreement with regard to any or all
securities of the Company held by them. Any such additional parties shall
execute a counterpart of this Agreement, and upon execution by such additional
parties and by the Company, shall be considered a Stockholder for all purposes
of this Agreement. The additional parties and the additional Registrable
Securities shall be identified in an amendment to Schedule A hereto.
5.9 Termination of Registration Rights. Notwithstanding the
----------------------------------
foregoing provisions of this Section 5, a Holder's rights under this Section 5
will terminate upon the first day when such
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<PAGE>
Holder has the right to sell all securities under Rule 144 under the Securities
Act within the next three-month period and the number of shares of Common Stock
held by such Holder is less than one percent of the then outstanding shares of
Common Stock of the Company as shown on the Company's then most recent published
report or statement.
6. Market Stand-off. In consideration for the Company agreeing to
----------------
its obligations under this Agreement, each Holder hereby agrees in connection
with the first registration of the Company's securities not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any Company securities (other than those included in the registration)
without the prior written consent of the Company or underwriters managing the
offering, as the case may be, for a period of no more than 180 days after the
effective date of such registration; provided, however, that such Holder shall
be relieved of its obligations under this Section 6 unless all executive
officers, directors and stockholders of the Company each holding individually
more than 2% of the capital stock of the Company enter into similar agreements
for the same time period. Each Holder hereby agrees that, upon the request of
the Company or the underwriters, it will confirm in writing the provisions of
this Section 6.
7. Stockholders' Right of First Refusal.
------------------------------------
7.1 Right of First Refusal for New Securities. (a) Subject to
-----------------------------------------
the limitations set forth in Section 7.1(b) below, the Company hereby grants to
each Stockholder the right of first refusal to purchase a pro rata portion of
any New Securities (as defined in this Section 7) which the Company may, from
time to time, propose to sell and issue. A Stockholder's pro rata share, for
purposes of this Section 7 is the ratio that the number of Shares held by such
Stockholder at the time of the issuance of the New Securities bears to the total
number of Common Stock and Preferred Stock then outstanding (on a fully diluted
basis and an as converted to Common Stock basis).
(b) Notwithstanding any other provision of this Section 7,
the Company hereby grants to HSN the right of first refusal to purchase such
additional portion of any New Securities (the "HSN Securities") as will enable
HSN to hold up to the then effective HSN Maximum Percentage (as defined below)
of the capital stock of the Company outstanding immediately after the issuance
or sale of the New Securities (on an fully diluted basis and an as converted to
Common Stock basis). Notwithstanding the foregoing, the percentage of New
Securities subject to HSN's right of first refusal shall not exceed 80% of the
New Securities sought to be sold by the Company. In the event that HSN's
election of its right of first refusal under this Section 7.1(b) results in the
purchase by HSN of more than its pro rata share of the New Securities, each
Stockholder other than HSN hereby agrees and acknowledges that such
Stockholder's share of New Securities shall be decreased proportionally (based
on the ratio of the number of Shares held by such Stockholder to the number of
Shares held by all Stockholders other than HSN) by such excess amount. A
reduction of any Stockholder's pro rata share pursuant to this Section 7.1(b)
shall only be applicable to the issuance of New Securities with respect to which
such reduction is made. For purposes of this Section 7, the "HSN Maximum
Percentage" shall initially equal 14.9% and may not exceed 14.9% regardless of
whether HSN is permitted to acquire more than 14.9% of the Company's stock
pursuant
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<PAGE>
to Section 11.12 or otherwise. In the event that HSN fails to fully purchase its
pro rata portion of any New Securities pursuant to Section 7.1, the then
effective HSN Maximum Percentage shall be appropriately decreased by the
percentage dilution suffered by HSN in the transaction in which it elected not
to exercise its right under Section 7.1(a). As an example only and not in
limitation of the above, if the number of Shares held by HSN represents 12% of
the capital stock of the Company outstanding prior to an issuance of New
Securities by the Company (on a fully diluted basis and an as converted to
Common Stock basis) and the then effective HSN Maximum Percentage is 14.9%, and
HSN's failure to exercise its rights under Section 7.1(a) decreases HSN's
ownership of the capital stock of the Company immediately after the issuance to
10% (on a fully diluted basis and an as converted to Common Stock basis), the
new HSN Maximum Percentage shall equal 14.9% minus 2%.
(c) "New Securities" Defined. Except as set forth below,
-----------------------
"New Securities" shall mean any shares of capital stock of the Company including
Common Stock and Preferred Stock, whether now authorized or not, and rights,
options or warrants to purchase said shares of Common Stock or Preferred Stock,
or securities of any type whatsoever that are, or may become, convertible into
equity securities of the Company. Notwithstanding the foregoing, "New
Securities" does not include (i) up to 1,000,000 shares of Series E Preferred
issued on or after the date hereof pursuant to the Second Series E Agreement,
(ii) securities offered to the public in a Qualified IPO, (iii) shares of the
Company's Common Stock or options convertible into such Common Stock issued to
employees, officers and directors of, and consultants to the Company pursuant to
any arrangements approved by the Board of Directors of the Company where the
primary purpose is not to raise additional equity capital for the Company, (iv)
stock issued upon conversion of any convertible securities or exercise of any
options, warrants or other rights to acquire equity securities of the Company,
provided that the rights of first refusal established by this Section 7 applied
to the initial sale or grant by the Company of such convertible securities,
options or other rights, (v) stock issued as direct consideration for the
acquisition by the Company of another business entity or the merger of any
business entity with or into the Company or subsidiary of the Company or a
merger of a subsidiary of the Company with or into another entity; (vi) stock
issued in connection with any stock split, stock dividend or recapitalization by
the Company; or (vii) stock issued upon conversion of the Preferred Stock.
(d) Notice of Intent to Issue New Securities. In the event
----------------------------------------
the Company proposes to undertake an issuance of New Securities, it shall give
each Stockholder written notice of its intention, describing the type of New
Securities, and the price and terms upon which the Company proposes to issue the
same. Each Stockholder shall have 20 days from the date of receipt of any such
notice to agree, by written notice to the Company (the "Election Notice"), to
purchase up to its respective pro rata share and in the case of HSN, its
additional share, of such New Securities for the price and upon the terms
specified in the written notice delivered by the Company and stating therein the
quantity of New Securities to be purchased. In the event that HSN elects to
purchase any HSN Securities, the Company shall, as soon as practicable, provide
written notice to each Stockholder that has delivered an Election Notice of the
number of HSN Securities to be purchased by HSN and the decrease in such
Stockholder's pro rata share of the New Securities. Any sale to the
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<PAGE>
Stockholders pursuant to exercise of their rights of first refusal hereunder
shall be consummated as promptly as possible following the 20 day notice period
referred to above in this Section 7.1(d).
(e) Offers to Third Parties. To the extent the Stockholders
-----------------------
fail to exercise in full the right of first refusal within said 20 day period,
the Company shall have 60 days thereafter to sell the New Securities not elected
to be purchased by the Stockholders, at the price and upon terms no more
favorable to the purchasers of such securities than specified in the Company's
notice. In the event the Company has not sold the New Securities within said 60
day period, the Company shall not thereafter issue or sell any New Securities,
without first offering such securities in the manner provided above.
7.2 HSN Right of First Refusal for Qualified IPO. (a) The
--------------------------------------------
Company hereby grants to HSN the right of first refusal to purchase such portion
(the "HSN Portion") of the securities proposed to be issued in a Qualified IPO
(the "Qualified IPO Shares") as will enable HSN to own or hold up to the then
effective HSN Maximum Percentage of the capital stock of the Company outstanding
immediately after the Qualified IPO (on a fully diluted basis and on as
converted to Common Stock basis). Notwithstanding the foregoing, the percentage
of the Qualified IPO Shares subject to HSN's right of first refusal shall not
exceed 50% of the Qualified IPO Shares.
(b) Notice of Intent. In the event the Company proposes to
----------------
undertake a Qualified IPO, it shall give HSN written notice of Board approval of
such Qualified IPO. No less than 15 days after the initial public filing with
the Commission of a registration statement and preliminary prospectus pursuant
to the Securities Act with respect to a Qualified IPO, the Company shall notify
HSN of the range of per share prices for the Common Stock (the "Company's Range
Notice") which will be set forth on the cover page of the such registration
statement. HSN shall have 10 days from the date of receipt of the Company's
Range Notice to agree, by written notice to the Company (the "IPO Election
Notice"), to purchase up to the HSN Portion of the Qualified IPO Shares at any
price per share that is within the range specified in the Company's Range
Notice. Such IPO Election Notice shall specify the number of Qualified IPO
Shares HSN intends to purchase. If the actual price at which the Qualified IPO
Shares are to be issued is within or below the range specified in the Company's
Range Notice, then HSN shall be obligated to buy that number of Qualified IPO
Shares which was specified in the IPO Election Notice. If the actual price at
which the Qualified IPO Shares are to be issued is above the range specified in
the Company's Range Notice, then HSN shall have the right, in its sole
discretion, to purchase up to that number of Qualified IPO Shares specified in
the IPO Election Notice by delivering a written notice to the Company as soon as
practicable following the time at which the per share price to be paid in a
Qualified IPO has been determined by the Company. Any sale to HSN pursuant to
exercise of its right of first refusal pursuant to this Section 7.2 shall be
consummated at the closing of the Qualified IPO.
(c) Offers to Third Parties. To the extent HSN declines to
-----------------------
exercise in full its right of first refusal within 10 days of the receipt of the
Company's Range Notice, the Company shall have the right to sell the Qualified
IPO Shares at the closing of the Qualified IPO. In the event
-19-
<PAGE>
that such Qualified IPO is terminated for any reason, the Company shall not
undertake another Qualified IPO without first granting HSN its rights of first
refusal pursuant to this Section 7.2.
7.3 Transferability of Right of First Refusal. Except as provided in
-----------------------------------------
Section 11.1, the right of first refusal granted pursuant to Section 7.1(a) is
not assignable by a Stockholder. The rights of first refusal granted to HSN
pursuant to Sections 7.1(b) and 7.2 are not assignable by HSN. Notwithstanding
the foregoing, a Stockholder electing to purchase all or a portion of said
Stockholder's pro rata share of any New Securities, or HSN electing to purchase
all or a portion of its additional pro rata share of the New Securities or all
or a portion of its portion of the Qualified IPO Shares may designate other
purchasers to purchase such New Securities or Qualified IPO Shares provided such
designees are general or limited partners or affiliates of such Stockholder or
of HSN.
7.4 Termination of Provision. This Section 7 shall terminate and be
------------------------
of no further force or effect upon the earlier of (i) as to the Series C
Holders, the date on which there are no shares of Series C Preferred outstanding
(due to conversion, redemption or otherwise), as to Series D Holders, the date
on which there are no shares of Series D Preferred outstanding (due to
conversion, redemption or otherwise), as to Series E Holders, the date on which
there are no shares of Series E Preferred outstanding (due to conversion,
redemption or otherwise), as to HSN, the date on which it holds no shares of
capital stock of the Company, or (ii) upon the closing of a Qualified IPO.
8. Right of First Offer.
--------------------
8.1 The Right. Each Stockholder hereby agrees that it will not
---------
effect a transfer of any Series C Preferred, Series D Preferred or Series E
Preferred, as the case may be, or Common Stock issued or issuable upon
conversion of the Series C Preferred, Series D Preferred or Series E Preferred,
as the case may be, of the Company owned or held by such Stockholder (except to
an affiliate of such Stockholder, which affiliate agrees to be bound by the
terms of this Agreement (a "Permitted Transferee")) representing fifteen percent
(15%) or more of the outstanding Common Stock and Preferred Stock (on an as
converted to Common Stock basis), unless the Stockholder shall have complied
with the provisions of this Section 8.
8.2 Offering Notice. If a Stockholder (a "Selling Stockholder")
---------------
proposes to effect a transfer of Series C Preferred, Series D Preferred or
Series E Preferred, as the case may be, or Common Stock issued or issuable upon
conversion of the Series C Preferred, Series D Preferred or Series E Preferred,
as the case may be, of the Company owned or held by such Stockholder (other than
to a Permitted Transferee) representing fifteen percent (15%) or more of the
outstanding Common Stock and Preferred Stock (on an as converted to Common Stock
basis) (the "Offered Shares") the Selling Stockholder shall first give written
notice (a "Seller's Notice") to the Company stating the Selling Stockholder's
desire to effect such transfer, and the cash price (in the case of a sale) (the
"First Offer Price"), or a description of the proposed transfer (in the case of
a transaction other than a sale), the name and address of the proposed
transferee and other terms and conditions of such proposed transfer.
-20-
<PAGE>
8.3 Exercise of Right. Within thirty (30) days after receipt of
-----------------
Seller's Notice, the Company shall give a notice to the Selling Stockholder
stating whether it elects to purchase any Offered Shares. Any such purchase by
the Company of Offered Shares shall be at the purchase price and in accordance
with the terms and conditions set forth in the Seller's Notice.
8.4 Effect of Non-Exercise. If any or all of the Offered Shares
----------------------
are not purchased by the Company prior to the expiration of the period provided
in Section 8.3 hereof, the Selling Stockholder may make a transfer as set forth
in the Seller's Notice of the balance of the Offered Shares not timely purchased
by the Company, but, in the case of a sale, only at a cash purchase price of at
least 95% of the First Offer Price, and, in the case of a transaction other than
a cash sale, only in compliance with the terms therein stated. If the Selling
Stockholder shall fail to complete such a transfer of the Offered Shares within
90 days following the expiration of the time provided in Section 8.3 hereof (the
"Offer Period"), the Selling Stockholder shall not thereafter propose to
transfer any of its shares of Common Stock or Preferred Stock without first
offering such securities in the manner provided above in this Section 8.
Furthermore, if within such Offer Period the Selling Stockholder shall desire to
transfer the Offered Shares in a sale at a cash price less than 95% of the First
Offer Price, the Selling Stockholder shall give written notice (a "Reoffer
Notice") to the Company stating the Selling Stockholder's desire to effect such
transfer at the lower price (the "Reoffer Price"). Within the Offer Period, the
Selling Stockholder shall be entitled to submit only two Reoffer Notices to the
Company. Within 30 days after receipt of the Reoffer Notice, the Company shall
give a notice to the Selling Stockholder stating whether it elects to purchase
any Offered Shares at the Reoffer Price, and if the Company does not purchase
any or all of the Offered Shares at the Reoffer Price, the Selling Stockholder
may effect such transfer of the Offered Shares at the Reoffer Price for a 60-day
period following the expiration of such 30-day period. If the Company does not
exercise its option to purchase the Offered Shares upon the terms set forth in a
Seller's Notice or a Reoffer Notice, and the Selling Stockholder shall not have
transferred the Offered Shares before the expiration of the applicable period,
then the Stockholder shall not give a Seller's Notice with respect to a
transaction which would require compliance with this Section 8 for a period of
60 days.
8.5 Rights Upon Prohibited Transfers. In the event the Selling
--------------------------------
Stockholder should transfer any securities of the Company in contravention of
the right of first offer under this Section 8 or under Section 9(a) of the
Company under this Agreement, the Company may proceed to protect and enforce its
rights by suit in equity or by action at law, whether for the specific
performance of any term contained in this Agreement or for an injunction against
the breach of any such term or in furtherance of the exercise of any power
granted in this Agreement, or to enforce any other legal or equitable right of
the Company or to take one or more of such actions.
8.6 Termination of Provision. This Section 8 shall terminate
------------------------
and be of no further force or effect upon the earlier of (i) as to Series C
Holders, the date on which there are no shares of Series C Preferred outstanding
(due to conversion, redemption or otherwise), as to Series D Holders, the date
on which there are no shares of Series D Preferred, outstanding (due to
conversion, redemption or otherwise) and as to Series E Holders, the date on
which there are no shares of
-21-
<PAGE>
Series E Preferred, outstanding (due to conversion, redemption or otherwise), or
(ii) upon the Closing of a Qualified IPO.
9. Certain Limitations on Sales
----------------------------
(a) Notwithstanding any other provision of this Agreement, for a
period of five (5) years from the date of the Series C Agreement, the date of
the applicable Series D Agreement or the date of the applicable Series E
Agreement, as the case may be, the Stockholders shall not effect any transfer of
Series C Preferred, Series D Preferred or Series E Preferred, as the case may
be, or Common Stock into which such Series C Preferred, Series D Preferred or
Series E Preferred, as the case may be, may be converted, to competitors of the
Company as identified by the Company and set forth in Exhibit B hereto. Exhibit
B shall set forth three such competitors, and the list of three competitors may
be updated by the Company no more than once every three months during the
respective five year period. Any additions to Exhibit B must be made in good
faith by the Company, and the Company may not amend Exhibit B to include a
proposed transferee of Offered Shares after a Seller's Notice has been delivered
specifying such proposed transferee.
(b) Subject to the Company's right of first offer set forth in
Section 8 and the prohibition set forth in Section 9(a), the Stockholders may
effect transfers of shares of Series C Preferred, Series D Preferred or Series E
Preferred, as the case may be, or Common Stock into which such Series C
Preferred, Series D Preferred or Series E Preferred, as the case may be, may be
converted; provided however, that if the Stockholders transfer a cumulative
aggregate of 45% or more of the outstanding shares of Series C Preferred or
Common Stock into which such Series C Preferred may be converted to any
person(s) or entity(ies) that is in the communications industry, the rights of
the holders of Series C Preferred to elect a Series C Director as set forth in
the Certificate shall terminate, and the Company will take all appropriate
action to amend its Certificate of Incorporation, as then in effect, to
eliminate the right to elect the Series C Director, and in such event, the
holders of Series C Preferred agree to vote in favor of such amendment to the
Certificate of Incorporation.
(c) This Section 9 shall terminate and be of no further force or
effect upon the earlier of (i) as to Series C Holders, the date on which there
are no shares of Series C Preferred outstanding (due to conversion, redemption
or otherwise), as to Series D Holders, the date on which there are no shares of
Series D Preferred outstanding (due to conversion, redemption or otherwise) and
as to Series E Holders, the date on which there are no shares of Series E
outstanding (due to conversion, redemption or otherwise), or (ii) upon the
Closing of a Qualified IPO.
(d) Each certificate representing Series C Preferred, Series D
Preferred and Series E Preferred shall be stamped or otherwise imprinted with a
legend substantially in the following form (in addition to any legend required
pursuant to Section 2.2. hereof):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS' AGREEMENT, AS
AMENDED AND RESTATED FROM
-22-
<PAGE>
TIME TO TIME, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE
OFFICES OF THE ISSUER. NO REGISTRATION OR TRANSFER OF SUCH SECURITIES
WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH
RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH.
10. Protective Provisions. The Company shall not perform the following,
---------------------
without the prior written consent or affirmative vote of each of (i) the holders
of record of at least a majority of the outstanding shares of Series C
Preferred, (ii) HSN and (iii) with respect to (g) below only, GRP:
(a) a merger or consolidation of the Company with QVC, Inc. or
Comcast, Inc. or any of their respective successors and assigns;
(b) the acquisition by the Company of another business entity,
joint venture or partnership or the establishment of non-wholly owned
subsidiaries, any of which involve the contribution of the greater of $5,000,000
or 10% of the post-money valuation of the Company based on its then most
recently completed equity financing (the "Investment Basket"); provided,
however, such restriction shall not apply to the merger, consolidation, share
exchange, or other reorganization or business combination (a "Reorganization")
involving a change of control of the Company (including without limitation, a
Reorganization in which the stockholders of the Company immediately prior to
such Reorganization own fifty percent (50%) or less of the voting capital stock
of the resulting entity);
(c) the incurrence of indebtedness in excess of the Investment
Basket;
(d) any expansions into new businesses other than the consumer
information business or electronic commerce;
(e) any asset sales in excess of the Investment Basket;
(f) any liens on or encumbrances of assets in excess of the
Investment Basket, except liens or encumbrances securing senior indebtedness of
the Company to a commercial bank or a syndicate of commercial banks;
(g) any issuances or sales of New Securities in excess of the
Investment Basket; provided, that at least one other director of the Company who
was also a director as of the date of the original issuance of Series C
Preferred (or replacement thereof) other than the Series C Director vetoes such
proposed issuance or sale;
(h) any issuances or sales of New Securities to QVC, Inc. or any
of its successors and assigns;
-23-
<PAGE>
(i) any issuances or sales of New Securities to Comcast, Inc. or
any of its successors or assigns other than issuances and sales of New
Securities purchased by Comcast, Inc. pursuant to its right set forth in Section
7.1(a);
(j) any payments of dividends, repurchases or redemptions of
securities (except pursuant to stock options or restricted stock purchase
agreements with employees or consultants of the Company as approved by the Board
of Directors or as set forth in the Company's Amended and Restated Certificate
of Incorporation) or debt (except to the extent such debt has been approved by a
majority of the Board of Directors is due in accordance with its terms);
(k) any transactions with any affiliates of the Company;
(l) a change in the bylaws of the Company (except that the Company
shall be permitted to increase the number of directors authorized thereunder
without either the consent of the Series C Preferred or the consent of HSN);
(m) a change in the Company's independent public accountants; or
(n) any registrations of securities under the Securities Act,
except for a Qualified IPO and except pursuant to Section 5.1 hereof;
provided, however, in the event the Series C Holders, HSN or GRP, as the case
may be, do not consent to the proposed transaction, their written rejection must
be received by the Company within 15 days of the date the Series C Holders, HSN
or GRP receive notification of the proposed transaction. If such rejection is
not received by the Company within such 15-day period, the Company may effect
the proposed transaction within a 90-day period thereafter without further
complying with this Section 10.
Notwithstanding any of the foregoing, in no event shall the Series C
Preferred, HSN or GRP have any consent or voting right pursuant to this Section
10 with respect to any Reorganization other than as set forth in Section 10(a)
or Section 10(b) (subject to the limits set forth therein) above or as provided
by applicable law. The preceding sentence shall not limit in any way, the
voting right of any HSN Director, any Series C Director or any director elected
by GRP pursuant to the Company's charter.
The Company acknowledges that (i) its annual budget, and (ii) any adoption
or amendment of key employment contracts or benefit plans, including, but not
limited to, stock option plans, shall be subject to approval of the Company's
Board of Directors, consistent with the Company's then existing charter and by-
laws.
With respect to the Series C Preferred, the provisions of this Section 10
shall terminate and be of no further force or effect upon the earlier of (i) the
date on which there are no shares of Series C Preferred outstanding (due to
conversion, redemption or otherwise), and (ii) upon the
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<PAGE>
closing of a Qualified IPO. With respect to HSN, the provisions of this Section
10 shall terminate and be of no further force or effect upon the earlier of (i)
the date on which HSN holds less than 50% of the capital stock of the Company
(on an as converted to Common Stock basis and as adjusted for stock dividends,
stock splits, stock combinations, recapitalizations and the like) that it held
as of the date of this Agreement, and (ii) upon the closing of a Qualified IPO.
HSN's rights under this Section 10 may not be assigned. With respect to GRP, the
provisions of this Section 10 shall terminate and be of no further force or
effect upon the earlier of (i) the date on which GRP holds less than 100% of the
capital stock of the Company (on an as converted to Common Stock basis and as
adjusted for stock dividends, stock splits, stock combinations,
recapitalizations and the like) that it held as of the date of the initial
issuance of shares of Series E Preferred to GRP, and (ii) upon the closing of a
Qualified IPO. GRP's rights under this Section 10 may not be assigned.
11. Miscellaneous.
-------------
11.1 Transfer of Rights. Subject to the provisions of Sections 7.3,
------------------
9 and 10, the rights of the Stockholders in this Agreement may not be assigned
by any Stockholder except to a transferee or assignee of any Shares not sold to
the public acquiring at least the lesser of (a) 100,000 Shares and (b) the total
number of Shares acquired by such stockholder on or as of the date such
stockholder becomes a party to this Agreement (equitably adjusted for any stock
splits, subdivisions, stock dividends, changes, combinations or the like);
provided, however, that the Company must receive written notice prior to the
time of said transfer, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such rights are
being assigned. Notwithstanding the limitation set forth in the foregoing
sentence respecting the minimum number of shares which must be transferred, (i)
any Stockholder which is a partnership may transfer such holder's rights to such
holder's constituent partners, (ii) any Stockholder which is a natural person
may transfer such rights to any immediate family member or to any trust created
for the benefit of a Stockholder or his or her immediate family members, in each
case without restriction as to the number or percentage of shares acquired by
any such constituent partner, and (iii) any Stockholder may transfer any of such
holder's rights to an affiliated entity, subject in each case to such
transferee's agreeing to be bound by the rights and restrictions of this
Agreement.
11.2 Notices, etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing, shall be effective upon receipt and may
be delivered in person, by telecopy, overnight courier, express delivery service
or U.S. mail, in which event it may be mailed by first-class, certified or
registered, postage prepaid, addressed (i) to the Company, 790 E. Colorado
Blvd., Suite 200, Pasadena, CA 91101, Attn: Chief Executive Officer and (ii)
to the Stockholders at the address set forth on the Schedule of Stockholders
attached hereto as Exhibit A, or to such other address as a party may have
specified in writing.
11.3 Additional Holders. The parties acknowledge that each of the
------------------
holders of the Series A Preferred and Series B Preferred will become parties to
this Agreement for purposes of Section 5.2 after the date hereof at such time
that the Company obtains an executed signature page to this Agreement from such
holder.
-25-
<PAGE>
11.4 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
11.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
CONTRACTS ENTERED INTO AND WHOLLY TO BE PERFORMED WITHIN THE STATE OF DELAWARE
BY DELAWARE RESIDENTS.
11.6 Waivers and Amendments. The rights and obligations of the
----------------------
parties under this Agreement may be amended, waived or discharged (either
generally or in a particular instance, either retroactively or prospectively,
and either for a specified period of time or indefinitely) only by a written
instrument effecting such amendment, waiver or discharge signed by the Company
and by (i) Holders holding at least a majority of the Shares, (ii) Holders
holding at least a majority of the Series C Preferred, (iii) Holders holding at
least 66 2/3% of the Series D Preferred and (iv) Holders holding at least a
majority of the Series E Preferred. Notwithstanding the foregoing, any
provision relating only to HSN may be amended, waived or discharged (either
generally or in a particular instance, either retroactively or prospectively,
and either for a specified period of time or indefinitely) by a written
instrument effecting such amendment, waiver or discharge signed only by the
Company and by HSN.
11.7 Titles and Subtitles. The titles of the paragraphs and
--------------------
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
11.8 Severability of this Agreement. If any provision of this
------------------------------
Agreement shall be judicially determined to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
11.9 Delays or Omissions. It is agreed that no delay or omission to
-------------------
exercise any right, power or remedy accruing to any party upon any breach or
default of any other party under this Agreement 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 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. It is further agreed that any waiver, permit, consent or approval of
any kind or character of any breach or default under this Agreement, or any
waiver of any provisions or conditions of this Agreement must be in writing and
shall be effective only to the extent specifically set forth in writing and that
all remedies, either under this Agreement, by law or otherwise, shall be
cumulative and not alternative.
11.10 Entire Agreement. This Agreement constitutes the full and
----------------
entire understanding and agreement between the parties with regard to the
subjects hereof.
-26-
<PAGE>
11.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
11.12 HSN Ownership. (a) The Company agrees that it shall not (i)
-------------
adopt a rights agreement (or other device similar to a rights agreement) with an
ownership threshold that would limit HSN's ability to own or purchase securities
of the Company or (ii) amend its bylaws, certificate of incorporation or fail to
take an action under Section 203 of the Delaware General Corporation Law (or the
analogous statute in another jurisdiction applicable to the Company) which would
limit HSN's ability to own or purchase securities of the Company. Nothing in
this Section 11.12 shall be read to prohibit the adoption by the Company of a
rights agreement (or other device similar to a rights agreement) so long as HSN
is specifically exempted from the applicability of such rights agreement or
similar device.
(b) Prior to a Qualified IPO, without the prior written consent
of the Company, HSN will not, and will not permit any of its subsidiaries or
affiliates to, directly or indirectly, purchase or otherwise acquire, or agree
to acquire, or obtain, directly or indirectly, beneficial ownership of any
shares of the Company's capital stock entitled to vote generally for the
election of directors of the Company, whether currently outstanding or hereafter
issued (collectively, "Voting Stock") or beneficial ownership of any (i) non-
------------
voting securities of the Company which are convertible into Voting Stock,
whether currently outstanding or hereafter issued, and/or (ii) options, warrants
and other rights to acquire Voting Stock whether currently outstanding or
hereafter granted (collectively, "Rights to Acquire Voting Stock"), if the
------------------------------
effect of such acquisition would be to increase the number of shares of Voting
Stock then owned by HSN and its subsidiaries and affiliates to an amount equal
to more than 14.9% of all Voting Stock, assuming for the purposes of determining
each such percentage the exercise and/or conversion of all Rights to Acquire
Voting Stock, whether owned by HSN or otherwise.
(c) For purposes of determining the percentage of the capital
stock of the Company held by HSN in connection with the first sentence of
Section 7.1(b), Section 7.2(a) and Section 11.12(b) only, HSN shall be deemed to
beneficially own or hold any shares of capital stock of the Company initially
held by it but later transferred. Under no circumstance shall this Section
11.12(c) apply to any other provisions of this Agreement, including without
limitation, Section 4.2, Section 7.4 and Section 10.
-27-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders'
Agreement as of the day and year first above written.
The Company: CITYSEARCH, INC.,
a Delaware corporation
By:
----------------------------------------
Name: Charles Conn, III
Title: Chief Executive Officer
The Stockholders:
Name
Signature
Title, if Entity
[SIXTH AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Stockholders' Agreement to
be duly executed and delivered by their proper and duly authorized officer as of
the day and year first written above.
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH*
By:
-----------------------------------------
Joseph H. Gleberman, Managing Director
and
-----------------------------------------
Carla H. Skodinski, Registered Agent
*2 Signatories required to bind this entity
GS CAPITAL PARTNERS II, L.P.
By: GS Advisors, L.P.
Its General Partner
By: GS Advisors, Inc.
Its General Partner
By:
-----------------------------------------
Joseph H. Gleberman, Vice President
GS CAPITAL PARTNERS II OFFSHORE, L.P.
By: GS Advisors II (Cayman), L.P.
Its General Partner
By: GS Advisors II, Inc.
Its General Partner
By:
-----------------------------------------
Joseph H. Gleberman, Vice President
STONE STREET FUND 1996, L.P.
By: Stone Street Empire Corp.,
General Partner
By:
-----------------------------------------
Carla H. Skodinski, Vice President
BRIDGE STREET FUND 1996, L.P.
By: Stone Street Empire Corp.
Managing General Partner
By:
-----------------------------------------
Carla H. Skodinski, Vice President
[SIXTH AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Stockholders' Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first written above.
ORCHID & CO., nominee for
T. Rowe Price Threshold Fund III, L.P.
By: T. Rowe Price Threshold Fund Associates, Inc.
By:
---------------------------------------------
Name:
Title:
[SIXTH AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Stockholders' Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first written above.
GLOBAL RETAIL PARTNERS, L.P.
By: GLOBAL RETAIL PARTNERS, INC.
General Partner
By:
-----------------------------------------
Name:
Title:
DLJ DIVERSIFIED PARTNERS, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.
General Partner
By:
-----------------------------------------
Name:
Title:
DLJ DIVERSIFIED PARTNERS-A, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.
General Partner
By:
-----------------------------------------
Name:
Title:
[SIXTH AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT]
-31-
<PAGE>
GRP PARTNERS, L.P.
By: GLOBAL RETAIL PARTNERS, INC.
General Partner
By:
-----------------------------------------
Name:
Title:
GLOBAL RETAIL PARTNERS FUNDING, INC.
By:
-----------------------------------------
Name:
Title:
DLJ FIRST ESC L.L.C.
By: DLJ LBO PLANS MANAGEMENT CORPORATION
Manager
By:
-----------------------------------------
Name:
Title:
[SIXTH AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT]
-32-
<PAGE>
EXHIBIT B
List of Three Competitors
-------------------------
Microsoft Corp.
One Microsoft Way
Redmond, WA 98052
(206) 882-8080
Zip2
444 Castro Street
Suite 101
Mountain View, CA 94041
(415) 429-4400
America Online Inc.
8619 Westwood Centre Drive
Vienna, Virginia 22182
(703) 448-8700
<PAGE>
EXHIBIT D
---------
CITYSEARCH, INC.
Sixth Amended and Restated Stockholders' Agreement
May 20, 1998
<PAGE>
Exhibit 10.1
CITYSEARCH, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is entered into as of the
___ day of March, 1998 by and between CitySearch, Inc., a Delaware corporation
(the "Company") and ("Indemnitee").
RECITALS
--------
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company may not be willing to
continue to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Indemnification of Expenses. The Company shall indemnify
---------------------------
Indemnitee to the fullest extent permitted by Delaware law if Indemnitee was or
is or becomes a party to or witness or other participant in, or is threatened to
be made a party to or witness or other participant in, any threatened, pending
or completed action, suit, proceeding or alternative dispute resolution
mechanism, or any hearing, inquiry or investigation that Indemnitee in good
faith believes might lead to the
<PAGE>
institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other (hereinafter a "Claim") by reason of (or arising in part out of) any event
or occurrence related to the fact that Indemnitee is or was a director, officer,
employee, agent or fiduciary of the Company, or any subsidiary of the Company,
or is or was serving at the request of the Company as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
trust or other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity (hereinafter an "Indemnifiable Event")
against any and all expenses (including attorneys' fees and all other costs,
expenses and obligations incurred in connection with investigating, defending,
being a witness in or participating in (including on appeal), or preparing to
defend, be a witness in or participate in, any such action, suit, proceeding,
alternative dispute resolution mechanism, hearing, inquiry or investigation),
judgments, fines, penalties and amounts paid in settlement (if such settlement
is approved in advance by the Company, which approval shall not be unreasonably
withheld) of such Claim and any federal, state, local or foreign taxes imposed
on Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement (collectively, hereinafter "Expenses"), including all interest,
assessments and other charges paid or payable in connection with or in respect
of such Expenses. Such payment of Expenses shall be made by the Company as soon
as practicable but in any event no later than five days after written demand by
Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
---------------
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitees' obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(c) hereof. Indemnitee shall
have the right, within 60 days of a determination by the Reviewing Party that
Indemnitee substantively would not be permitted to be
-2-
<PAGE>
indemnified in whole or in part under applicable law, or within 30 days or
Indemnitee's request for payment if there has been no determination by the
Reviewing Party, to commence litigation in any court of competent jurisdiction,
or seek an award in arbitration to be conducted by a single arbitrator pursuant
to the rules of the American Arbitration Association, which award shall be
deemed final, unappealable and binding, to determine whether Indemnitee should
be indemnified under applicable law, or to challenge any such determination by
the Reviewing Party or any aspect thereof, including the legal or factual bases
therefor. Any such court or arbitrator, as the case ma be, shall thereupon have
the exclusive authority to make such determination unless and until such court
or arbitrator dismisses or otherwise terminates such action without having made
a determination. The Company hereby consents to service of process and to appear
in any such proceeding. In any such action before the court or arbitrator,
Indemnitee shall be presumed to be entitled to indemnification and the Company
shall have the burden of proving that indemnification is not required under this
Agreement. All fees and expenses of any arbitrator pursuant to this provision
and all reasonable fees and expenses of counsel retained by Indemnitee in
connection with any court or arbitration finding an obligation greater than that
assumed by the Company prior to commencement of such court action or arbitration
shall be paid by the Company. Any determination by the Reviewing Party otherwise
shall be conclusive and binding on the Company and Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change
-----------------
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitees to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected
by Indemnitee. Such counsel, among other things, shall render its written
opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
-----------------------------------
-3-
<PAGE>
(a) Advancement of Expenses. The Company shall advance all Expenses
-----------------------
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitees' right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitees'
power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement,
--------------------------------
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
---------------
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law. In
addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the Company
------------------
of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
hereunder to pay the Expenses of any Claim, the Company shall be entitled to
assume the defense of such Claim with counsel approved by Indemnitee, which
approval shall not be unreasonably withheld, upon the delivery to Indemnitee of
written notice of its election so to do. After delivery of such notice, approval
of such counsel by Indemnitee and the retention of such counsel by the Company,
the
-4-
<PAGE>
Company will not be liable to Indemnitee under this Agreement for any fees of
counsel subsequently incurred by Indemnitee with respect to the same Claim;
provided that, (i) Indemnitee shall have the right to employ Indemnitees'
counsel in any such Claim at Indemnitee expense and (ii) if (A) the employment
of counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there is a conflict of interest
between the Company and Indemnitee in the conduct of any such defense, or (C)
the Company shall not continue to retain such counsel to defend such Claim, then
the fees and expenses of Indemnitee counsel shall be at the expense of the
Company. The Company shall have the right to conduct such defense as it sees fit
in its sole discretion, including the right to settle any claim against
Indemnitee without the consent of the Indemnitee provided the Company holds the
Indemnitee harmless in connection with any such settlement.
3. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify Indemnitee to the
-----
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Restated Certificate of Incorporation, the Company's Bylaws or by
statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its Board of Directors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify a member of its Board
of Directors or an officer, employee, agent or fiduciary, such change, to the
extent not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder except as set forth in Section 8(a) hereof.
(b) Amendment to Indemnification Rights. The Company shall not adopt
-----------------------------------
any amendment to its Restated Certificate of Incorporation, as amended (the
"Certificate") or By-Laws the effect of which would be to deny, diminish or
encumber Indemnitee's rights to indemnity pursuant to the Restated Certificate
of Incorporation, By-Laws, the Delaware General Corporation Law or any other
applicable law as applied to any act or failure to act occurring in whole or in
part prior to the date (the "Effective Date") upon which the amendment was
approved by the Company's Board of Directors or stockholders, as the case may
be. In the event that the Company shall adopt any amendment to its Restated
Certificate of Incorporation or By-Laws the effect of which is to change
Indemnitee's rights to indemnity under such instruments, such amendment shall
apply only to acts or failures to act occurring entirely after the Effective
Date thereof. The Company shall give written notice to Indemnitee of any
proposal which respect to any such amendment no later than the date such
amendment is first presented to the Board of Directors (or any committee
thereof) for consideration, and shall provide a copy of any such amendment to
Indemnitee promptly after its adoption.
-5-
<PAGE>
(c) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee are entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee
---------------------
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee understands
and acknowledges that the Company has undertaken or may be required in the
future to undertake with the Securities and Exchange Commission to submit the
question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
7. Liability Insurance.
-------------------
(a) Except as provided in (b) below, the Company hereby agrees to use
its best efforts to obtain and maintain directors and officers liability
insurance for Indemnitee so long as Indemnitee shall continue to serve as a
director, officer or key employee of the Company, and, thereafter, so long as
Indemnitee shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that Indemnitee was a director, officer or
key employee of the Company.
(b) The Company shall have no obligation hereunder to obtain or
maintain directors and officers liability insurance if, in the reasonable
business judgment of the Board of Directors of the Company, such insurance is
not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, or the coverage provided by
such insurance is limited, by exclusions or otherwise, so as to provide an
insufficient benefit.
(c) To the extent the Company maintains liability insurance
applicable to directors, officers, employees, agents or fiduciaries, Indemnitee
shall be covered by such policies in such a
-6-
<PAGE>
manner as to provide Indemnitee the same rights and benefits as are accorded to
the most favorably insured of the Company's directors, if Indemnitee is a
director; or of the Company's officers, if Indemnitee is not a director of the
Company but is an officer; or of the Company's key employees, agents or
fiduciaries, if Indemnitee is not an officer or director but is a key employee,
agent or fiduciary.
(d) The Company shall give prompt written notice to Indemnitee of any
amendment or other change or modification, or any proposed amendment change or
modification, to any policy of directors and officers liability insurance
maintained by the Company and covering Indemnitee.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
----------------------------
Indemnitee's acts, omissions or transactions from which Indemnitee or the
Indemnitee may not be relieved of liability under applicable law;
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period;
-7-
<PAGE>
provided, however, that if any shorter period of limitations is otherwise
- -------- -------
applicable to any such cause of action, such shorter period shall govern.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee, agent or fiduciary of the Company
which imposes duties on, or involves services by, such director, officer,
employee, agent or fiduciary with respect to an employee benefit plan, its
participants or its beneficiaries; and if Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% of the total voting power represented by
the Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
-8-
<PAGE>
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean any
appropriate person or body consisting of a member or members of the Company's
Board of Directors or any other person or body appointed by the Board of
Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean any
securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary of the Company or of any other enterprise at the
Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret
-9-
<PAGE>
any of the terms hereof or thereof, Indemnitee shall be entitled to be paid all
Expenses incurred by Indemnitee with respect to such action, regardless of
whether Indemnitee is ultimately successful in such action, and shall be
entitled to the advancement of Expenses with respect to such action, unless, as
a part of such action, a court of competent jurisdiction over such action
determines that each of the material assertions made by Indemnitee as a basis
for such action was not made in good faith or was frivolous. In the event of an
action instituted by or in the name of the Company under this Agreement to
enforce or interpret any of the terms of this Agreement, Indemnitee shall be
entitled to be paid all Expenses incurred by Indemnitee in defense of such
action (including costs and expenses incurred with respect to Indemnitee
counterclaims and cross-claims made in such action), and shall be entitled to
the advancement of Expenses with respect to such action, unless, as a part of
such action, a court having jurisdiction over such action determines that each
of Indemnitee material defenses to such action was made in bad faith or was
frivolous.
14. Notice. All notices and other communications required or
------
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given (a) five (5) days after deposit with
the U.S. Postal Service or other applicable postal service, if delivered by
first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c)
one business day after the business day of deposit with Federal Express or
similar overnight courier, freight prepaid, or (d) one day after the business
day of delivery by facsimile transmission, if delivered by facsimile
transmission, with copy by first class mail, postage prepaid, and shall be
addressed if to Indemnitee, at the Indemnitee address as set forth beneath
Indemnitee signatures to this Agreement and if to the Company at the address of
its principal corporate offices (attention: Secretary) or at such other address
as such party may designate by ten days' advance written notice to the other
party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be
------------
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, and the
remaining provisions shall remain enforceable to the fullest extent permitted by
law. Furthermore, to the fullest extent possible, the provisions of this
Agreement (including, without limitations, each portion of this Agreement
containing any provision held to be invalid, void or otherwise unenforceable,
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
-------------
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between
-10-
<PAGE>
Delaware residents, entered into and to be performed entirely within the State
of Delaware, without regard to the conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification,
-------------------------
termination or cancellation of this Agreement shall be effective unless it is in
writing signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in
---------------------------------------
this Agreement shall be construed as giving Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
CitySearch, Inc.
By:___________________________
Title:________________________
Address:______________________
______________________
AGREED TO AND ACCEPTED BY:
Name:___________________________
Address:________________________
________________________
-11-
<PAGE>
EXHIBIT 10.7
PERFECTMARKET, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into between
PERFECTMARKET, INC., ("PMI"), a Delaware corporation, and Charles Conn
("Employee"). PMI and Employee agree, in consideration for each others' promises
as described in this Agreement, as follows:
1. Position and Duties. PMI agrees to hire Employee, initially in the
-------------------
position of CEO and President, and Employee accepts such employment. Employee
agrees to perform any and all services as are required by PMI, and agrees to
perform such services at the time and in the manner so designated by PMI.
Employee agrees to devote Employee's full time and energy toward the performance
of the duties and responsibilities assigned to Employee, which may be changed at
any time and from time and time. Employee further agrees to at all times abide
by the policies, procedures and directions of PMI.
2. Compensation. In exchange for Employee consenting to this Agreement,
------------
PMI agrees to employ Employee pursuant to the terms hereof, and to compensate
Employee for such employment. Employee's compensation, and benefits if any,
shall be as agreed by PMI and Employee. PMI may adjust said salary from time to
time in its sole discretion, in view of changes in Employees's job duties and
responsibilities. Employees's job performance, financial considerations of PMI,
and other similar business factors.
3. Insurance. Employee agrees to provide PMI with a certificate of
---------
automobile liability insurance covering any vehicle that Employee intends or
actually uses during the course of his employment with PMI in the performance of
his duties and responsibilities. Such insurance coverage must meet the minimum
coverage required by state law.
4. Safety Procedures. Employee agrees to abide by all procedures,
-----------------
practices, guidelines and directions of PMI relating to safety. Failure to
comply with such procedures, practices, guidelines and directions may result in
termination.
5. Termination of Employment. Employee understands and agrees that
-------------------------
Employee is employed "at will." This means that either Employer or PMI may
terminate Employee's employment with PMI at any time, for any reason, with or
without cause or notice.
No express or implied agreement contrary to this at-will employment provision
exists between Employee and PMI.
In the event that Employee is terminated, Employee will receive salary
continuation pay of full-salary for the first three months after termination,
and half-salary for the second three months after termination, until Employee is
employed by a recognized company, but in no case more than six months of salary
continuation.
6. Inventions, Trade Secrets and Proprietary Information. Employee agrees
-----------------------------------------------------
to execute and abide by PMI's Employee Inventions & Confidentiality Agreement.
Any breach of that Agreement shall be a material breach of this Agreement. The
obligations undertaken by Employee in the Inventions & Confidentiality Agreement
shall survive termination of this Agreement.
7. Entire Agreement. This Agreement constitutes the sole and entire
----------------
agreement between the parties concerning Employee's employment, and supersedes
any and all other agreements between them, whether oral or written, implied or
express. There are no understandings or agreements between the parties which are
not expressly set forth in this Agreement. Any modification to this Agreement
will be effective only if in writing and if fully executed by Employee and the
President of PMI.
<PAGE>
8. SEVERABILITY. If any provision of this Agreement is held void or
------------
unenforceable for any reason, that provision shall be severed from the Agreement
and all remaining Provisions shall be valid and fully enforceable.
9. Governing Law. This Agreement shall be construed, applied,
-------------
interpreted and enforced in accordance with the laws of the State of California.
EMPLOYEE HEREBY ACKNOWLEDGES THAT: (1) EMPLOYEE HAS READ THIS ENTIRE
EMPLOYMENT, CONFIDENTIALITY & INVENTIONS AGREEMENT; (2) EMPLOYEE UNDERSTANDS
THIS ENTIRE AGREEMENT AND HAS HAD AN OPPORTUNITY TO ASK QUESTIONS ABOUT IT
BEFORE SIGNING IT; AND (3) EMPLOYEE UNDERSTANDS THAT THIS AGREEMENT IS THE SOLE
AGREEMENT PERTAINING TO THE CONDITIONS, NATURE, TENURE AND/OR DURATION OF THE
PARTIES' EMPLOYMENT RELATIONSHIP.
Employee:
Charles Conn
- ------------------------------
Please Print Name
/s/ Charles Conn III 5/09/96
- ------------------------------ ------------
Employee's Signature Date
PERFECTMARKET. INC.
By: /s/ Charles Conn III 5/09/96
--------------------------- ------------
Charles Conn, President Date
<PAGE>
Exhibit 10.21
EXHIBIT F
---------
AMENDED AND RESTATED VOTING AGREEMENT
-------------------------------------
THIS AMENDED AND RESTATED VOTING AGREEMENT is made as of the 12th day
of November, 1997, by and among CitySearch, Inc., a Delaware corporation (the
"Company"), the holders of the Series B Preferred Stock of the Company (the
"Series B Holders"); the purchasers of shares of Series C Preferred Stock of the
Company (the "Series C Holders") pursuant to the Series C Preferred Stock
Purchase Agreement, dated as of May 15, 1996; the purchasers of shares of Series
D Preferred Stock of the Company (the "Series D Holders") pursuant to (i) the
Series D Preferred Stock Purchase Agreement, dated as of December 13, 1996, as
amended from time to time, (ii) the Series D Preferred Stock Purchase Agreement,
dated as of June 23, 1997, as amended from time to time, and (iii) the Series D
Preferred Stock Purchase Agreement, dated July 18, 1997, as amended from time to
time; the purchasers of shares of Series E Preferred Stock of the Company (the
"Series E Holders') pursuant to the Series E Stock Purchase Agreement, as
amended from time to time, dated as of November 12, 1997 (the "Series E
Agreement"); NationsBanc Montgomery Securities, Inc. and certain holders of the
Company's Series A Preferred Stock and Common Stock listed on Schedule A
attached hereto (the "Common Stock Holders," and together with the Series B
Holders, the Series C Holders, the Series D Holders and the Series E Holders,
the "Stockholders").
WHEREAS, the Company and the Series B Holders, the Series C Holders,
the Series D Holders and the Common Stock Holders are parties to a Voting
Agreement, dated May 15, 1996 (the "Original Agreement").
WHEREAS, the Company has requested and the holders of a majority-in-
interest of the Series C Preferred Stock and the holders of a majority-in-
interest of the Shares (as defined in the Original Agreement) have agreed,
pursuant to Section 11 of the Original Agreement, to amend and restate in its
entirety the Original Agreement, in the manner set forth herein. All terms not
otherwise defined herein shall have the meaning ascribed to such terms in the
Series E Agreement and the Fifth Amended and Restated Stockholders' Agreement
dated November 12, 1997.
NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Agreement to Vote. During the term of this Agreement, the
-----------------
Stockholders agree to vote all of the shares of the Company's voting securities
now or thereafter owned by them, whether beneficially or otherwise (the
"Shares"), at any regular or special meeting of stockholders of the Company, or,
in lieu of any such meeting, to have their written consent, in the election or
removal of certain directors of the Company as provided in this Agreement.
<PAGE>
2. Election of Directors. From and after the closing date of a
---------------------
Qualified IPO, and the conversion of all outstanding shares of Series C
Preferred Stock (the "Series C Preferred") into Common Stock of the Company in
connection therewith, the Stockholders shall vote all shares of the Company's
capital stock held by them to elect the number of designees (the "Series C
Directors") selected by the holders of a majority of the outstanding shares of
Series C Preferred immediately prior to such closing (the "Series C Holders") as
provided below. The number of Series C Directors shall equal one (1) member of
the Board. At such time as any other stockholder or stockholders, voting as a
separate class, are entitled, by virtue of a right granted by the Company to
elect two (2) or more directors, the number of Series C Directors shall be
increased to equal the number of directors such stockholder or stockholders are
entitled to elect.
3. Replacement of Director. In the event of any termination or
-----------------------
resignation of any Series C Director, the Stockholders agree to vote their
Shares as required to cause such vacancy to be filled by a designee of the
Series C Holders in accordance with the provisions of Section 2 hereof.
4. Successors in Interest of the Parties.
-------------------------------------
(a) The provisions of the Agreement shall be binding upon the
successors in interest of the Stockholders to any of the Shares. The Company
shall not permit the transfer of any Shares on its books or issue a new
certificate representing any Shares unless and until the person to whom such
securities is to be transferred shall have executed a written agreement pursuant
to which such person becomes a party to this Voting Agreement and agrees to be
bound by all the provisions hereof as if such person was a Voting Party
hereunder.
(b) Each certificate representing any Shares issued after the date
of this Agreement shall be endorsed by the Company with a legend reading
substantially as follows:
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT DATED AS
AMENDED AND RESTATED FROM TIME TO TIME (A COPY OF WHICH MAY BE OBTAINED
UPON WRITTEN REQUEST FROM THE ISSUER), AND BY ACCEPTING ANY INTEREST IN
SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO
AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID VOTING AGREEMENT.
5. Covenants of the Company. The Company agrees to use its best
------------------------
efforts to ensure that the rights given to holders of Series C Preferred
hereunder are effective and that such holders enjoy the benefits thereof. Such
actions include, without limitation, the use of the Company's best efforts to
cause the nomination and election of the Series C Directors as provided in
Section 2. The Company will not, by any voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all of the provisions of this Agreement and in the taking of all
such actions as may be necessary, appropriate or reasonably requested by the
holders of a majority of the outstanding voting securities held by the Series C
Holders assuming exercise and conversion of
-2-
<PAGE>
all outstanding securities in order to protect the rights of the parties
hereunder against impairment. The Company further covenants and agrees that it
shall require all persons or entities to whom it issues any voting securities
after the date of this Agreement and prior to a Qualified IPO to become parties
to this Voting Agreement as a condition to the issuance of such securities.
6. Grant of Proxy. Should the provisions of this Voting Agreement be
--------------
construed to constitute the granting of proxies, such proxies shall be deemed
coupled with an interest and, to the extent permitted by law, shall be
irrevocable for the term of this Voting Agreement.
7. Specific Enforcement. It is agreed and understood that monetary
--------------------
damages would not adequately compensate an injured Series C Holder for the
breach of this Voting Agreement by any Stockholder, that his Voting Agreement
shall be specifically enforceable, and that any breach or threatened breach of
this Voting Agreement shall be the proper subject of a temporary or permanent
injunction or restraining order. Further, each Stockholder hereto waives any
claim or defense that there is an adequate remedy at law for such breach or
threatened breach.
8. Manner of Voting. The voting of Shares pursuant to this Voting
----------------
Agreement may be effected in person, by proxy, by written consent, or in any
other manner permitted by applicable law.
9. Termination.
-----------
(a) This Agreement shall terminate and be of no further force or
effect upon the earlier of (i) the date the Series C Holders shall hold less
than seven and one-half percent (7.5%) of the then outstanding Common Stock of
the Company (on an as-converted to Common Stock basis) or (ii) the date, if it
occurs prior to a Qualified IPO, that the right of the holders of Series C
Preferred to elect a specified number of directors to the Board pursuant to the
provisions set forth in the Company's Restated Certificate of Incorporation is
terminated.
(b) Upon termination of this Agreement, the Directors shall be
elected in accordance with the Bylaws and the Restated Certificate of
Incorporation of the Company.
10. Third Party Beneficiaries. The holders of Series C Preferred
-------------------------
shall be considered third party beneficiaries under this Agreement.
11. Amendments and Waivers. Any term hereof may be amended and in
----------------------
observance of any term hereof may be waived (either generally or in a particular
provision and either retroactively or prospectively) only with the written
consent of the Company, the holders of a majority-in-interest of the Series C
Holders and the holders of a majority-in-interest of the Shares. Any amendment
or waiver so effected shall be binding upon the parties hereof.
12. Stock Splits, Stock Dividends, etc. In the event of any stock
----------------------------------
split, stock dividend, recapitalization, reorganization, or the like, any
securities issued with respect to the Shares
-3-
<PAGE>
shall become Shares for purposes of the Agreement and shall be endorsed with the
legend set forth in Section 4(b) hereof.
13. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but with any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
14. Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of Delaware as applied to contracts among Delaware
residents entered into and to be performed entirely within Delaware.
15. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16. Successors and Assigns. Except as otherwise expressly provided in
----------------------
this Agreement, the provisions, hereof shall inure to the benefit of, and be
binding upon, the successors and assigns of the parties hereto.
17. Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed effectively given upon personal deliver to the party
to be notified or five (5) days after deposit in the Untied States mail, by
registered or certified mail, postage prepaid and properly addressed to the
party to be notified as set forth on the signature page hereof or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties hereto.
18. Additional Parties. The parties hereto acknowledge and agree that
------------------
it is contemplated that persons and entities who are issued voting securities of
the Company subsequent to the date of this Agreement shall be made parties to
this Agreement. Upon execution of this Agreement, such persons and entities
shall be considered "Stockholders" for all purposes of this Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Voting Agreement
as of the day and year first above written.
The Company: CitySearch, Inc.,
a Delaware corporation
By:
----------------------------------
Title:
-------------------------------
The Stockholders:
-------------------------------------
Name
-------------------------------------
Signature
-------------------------------------
Title, if Entity
The Series C Preferred
Stock Holders:
-------------------------------------
Name
-------------------------------------
Signature
-------------------------------------
Title, if Entity
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Voting Agreement
as of the day and year first above written.
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH*
By:
-------------------------------------------
Joseph H. Gleberman, Managing Director
and
-------------------------------------------
Carla H. Skodinski, Registered Agent
*2 Signatories required to bind this entity
GS CAPITAL PARTNERS II, L.P.
By: GS Advisors, L.P.
Its General Partner
By: GS Advisors, Inc.
Its General Partner
By:
-------------------------------------------
Joseph H. Gleberman, Vice President
GS CAPITAL PARTNERS II OFFSHORE, L.P.
By: GS Advisors II (Cayman), L.P.
Its General Partner
By: GS Advisors II, Inc.
Its General Partner
By:
-------------------------------------------
Joseph H. Gleberman, Vice President
STONE STREET FUND 1996, L.P.
By: Stone Street Empire Corp.,
General Partner
By:
-------------------------------------------
Carla H. Skodinski, Vice President
BRIDGE STREET FUND 1996, L.P.
By: Stone Street Empire Corp.
Managing General Partner
By:
-------------------------------------------
Carla H. Skodinski, Vice President
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Voting Agreement
as of the day and year first above written.
SERVICEMASTER VENTURE FUND L.L.C.
By: The Service Master Company Limited Partnership,
managing member
By: ServiceMaster Management Corporation,
general partner
By:
-------------------------------------------
Kenneth Hooten, Vice President
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Voting Agreement
as of the day and year first above written.
ORCHID & CO., nominee for
T. Rowe Price Threshold Fund III, L.P.
By: T. Rowe Price Threshold Fund Associates, Inc.
By:
-------------------------------------------
Name:
Title:
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Voting Agreement
as of the day and year first above written.
GLOBAL RETAIL PARTNERS, L.P.
By: GLOBAL RETAIL PARTNERS, INC.
General Partner
By:
-------------------------------------------
Name:
Title:
DLJ DIVERSIFIED PARTNERS, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.
General Partner
By:
-------------------------------------------
Name:
Title:
DLJ DIVERSIFIED PARTNERS-A, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.
General Partner
By:
-------------------------------------------
Name:
Title:
-9-
<PAGE>
GRP PARTNERS, L.P.
By: GLOBAL RETAIL PARTNERS, INC.
General Partner
By:
-------------------------------------------
Name:
Title:
GLOBAL RETAIL PARTNERS FUNDING, INC.
By:
-------------------------------------------
Name:
Title:
DLJ FIRST ESC L.L.C.
By: DLJ LBO PLANS MANAGEMENT CORPORATION
Manager
By:
-------------------------------------------
Name:
Title:
-10-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF CITYSEARCH, INC.
Metro Beat, Inc. (New York)
CitySearch Canada Inc. (Ontario, Canada)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITOR
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated March 11, 1998
(except Note 10, as to which the date is May 26, 1998), in the Registration
Statement Form S-1 and related Prospectus (the Registration Statement) of
CitySearch, Inc. dated June 22, 1998.
Our audit also included the financial statement schedule of CitySearch, Inc.
listed in Item 16(b). The schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the schedule based
on our audit. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Woodland Hills, CA
June 19, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 MAR-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<EXCHANGE-RATE> 1 1
<CASH> 25,227 16,455
<SECURITIES> 0 0
<RECEIVABLES> 318 941
<ALLOWANCES> 25 44
<INVENTORY> 0 0
<CURRENT-ASSETS> 25,639 17,537
<PP&E> 8,185 9,029
<DEPRECIATION> 2,169 2,842
<TOTAL-ASSETS> 31,655 23,724
<CURRENT-LIABILITIES> 6,264 5,879
<BONDS> 0 0
70,882 70,882
2,610 2,610
<COMMON> 455 870
<OTHER-SE> (245) (567)
<TOTAL-LIABILITY-AND-EQUITY> 31,655 23,724
<SALES> 6,184 3,091
<TOTAL-REVENUES> 6,184 3,091
<CGS> 10,846 3,450
<TOTAL-COSTS> 36,741 8,150
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 115 23
<INTEREST-EXPENSE> 271 106
<INCOME-PRETAX> (36,518) (7,977)
<INCOME-TAX> 8 0
<INCOME-CONTINUING> (36,526) (7,977)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (36,526) (7,977)
<EPS-PRIMARY> (1.96) (.33)
<EPS-DILUTED> (1.96) (.33)
</TABLE>
