<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TICKETMASTER ONLINE-CITYSEARCH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C> <C>
DELAWARE 7375 95-4546874
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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TICKETMASTER ONLINE-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
TICKETMASTER ONLINE-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:
<TABLE>
<S> <C> <C>
LARRY W. SONSINI PAMELA S. SEYMON GLEN R. VAN LIGTEN
JOHN T. SHERIDAN ANDREW J. NUSSBAUM CRAIG E. SHERMAN
JULIE A. BELL WACHTELL, LIPTON, ROSEN & KATZ EDWARD Y. KIM
EILEEN MARSHALL 51 WEST 52ND STREET ROBERT S. SCHLOSSMAN
WILSON SONSINI GOODRICH & ROSATI NEW YORK, NY 10019 VENTURE LAW GROUP
PROFESSIONAL CORPORATION (212) 403-1000 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
</TABLE>
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
--------------
If any 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. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
--------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
PROPOSED
MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO PROPOSED AGGREGATE AMOUNT OF
SECURITIES TO BE BE MAXIMUM OFFERING OFFERING REGISTRATION
REGISTERED REGISTERED(1) PRICE PER SHARE PRICE(1)(2) FEE
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<S> <C> <C> <C> <C>
Class B Common Stock
$0.01 par value....... $ $92,000,000 $27,140
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</TABLE>
(1) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional shares of Class B Common Stock solely 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.
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<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 THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED SEPTEMBER 30, 1998
[LOGO] SHARES [LOGO]
TICKETMASTER ONLINE-CITYSEARCH, INC.
CLASS B COMMON STOCK
All of the shares of Class B Common Stock (the "Class B Common Stock")
offered hereby are being offered by Ticketmaster Online-CitySearch, Inc. (the
"Company"). Prior to this offering, there has been no public market for the
Class B Common Stock. It is currently estimated that the initial public
offering price will be between $ and $ per share. See "Underwriting"
for a discussion of factors to be considered in determining the initial public
offering price. Application has been made to have the Class B Common Stock
approved for listing on the Nasdaq National Market under the symbol "TMCS."
(Continued on next page)
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE CLASS B 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.
<TABLE>
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<CAPTION>
Price Proceeds
to Underwriting to
Public Discount(1) Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................................ $ $ $
Total(3)......................................... $ $ $
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</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company estimated at
$ . See "Underwriting."
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional shares of Class B 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 Class B 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 the shares will be made against payment therefor at
the office of NationsBanc Montgomery Securities LLC on or about , 1998.
-----------
NationsBanc Montgomery Securities LLC
Allen & Company Incorporated
BancBoston Robertson Stephens
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
, 1998
<PAGE>
(Continued from the previous page)
Following this offering, the Company will have two classes of authorized
Common Stock outstanding, Class A Common Stock (the "Class A Common Stock"),
and the Class B Common Stock offered hereby. Immediately prior to this
offering, there were 62,469,875 shares of Class A Common Stock and no shares
of Class B Common Stock outstanding. The rights of the holders of Class A
Common Stock and Class B Common Stock are substantially identical, except with
respect to voting, conversion and transfer. Except as otherwise required by
applicable law, each share of Class A Common Stock entitles its holder to 15
votes and each share of Class B Common Stock entitles its holder to one vote
on all matters submitted to a vote or for the consent of stockholders. Except
as otherwise required by applicable law, the Class A Common Stock and the
Class B Common Stock shall vote together as a single class on all matters
submitted to a vote or for the consent of stockholders. The Company has also
authorized Class C Common Stock (the "Class C Common Stock" and, together with
the Class A Common Stock and the Class B Common Stock, the "Common Stock"),
which is nonvoting and of which no shares are issued and outstanding. See
"Description of Capital Stock." The Company is currently a direct, non-wholly
owned subsidiary of Ticketmaster Corporation, an Illinois corporation
("Ticketmaster Corp."), which is an indirect wholly-owned subsidiary of USA
Networks, Inc., a Delaware corporation ("USAi"). USAi beneficially owns
40,482,641 shares of Class A Common Stock, or approximately 64.8%, of the
Company's outstanding Common Stock prior to this offering. Immediately after
this offering, USAi will beneficially own approximately % of the
outstanding Common Stock, representing approximately % of the total voting
power of the outstanding Common Stock. As a result of such ownership, after
giving effect to this offering, USAi will be able to control the outcome of
substantially all matters submitted to a vote or for the consent of
stockholders, including the election of directors and the approval of other
corporate transactions. See "Risk Factors--Control by and Relationship with
USAi," "--Potential Conflicts of Interest," "--Possible Future Sales of Common
Stock by USAi," "Principal Stockholders" and "Ticketmaster Online-CitySearch
Merger."
<PAGE>
This page will contain a short paragraph of text from the Prospectus briefly
describing the Web services operated by Ticketmaster Online-CitySearch.
Immediately below this paragraph will be screen shots of the home pages of each
of the CitySearch and Ticketmaster Online Web sites. Below the home page screen
shots are maps of the United States and certain foreign countries on which the
cities where CitySearch provides local guides are indicated by the CitySearch
logo, and the areas with live event venues ticketed by Ticketmaster Online are
indicated by shading.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS B COMMON STOCK
OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE PRICE OF THE
CLASS B 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 United States trademark of a third party, and the Company is
the exclusive third party licensee of this trademark in its field of use.
"Ticketmaster" is a registered United States trademark of Ticketmaster Corp.
The Ticketmaster Online logo is a registered United States service mark of
Ticketmaster Corp. 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>
[This page will be divided by a horizontal line roughly half of the distance
down the page. The upper half of the page will contain two citysearch.com
screen shots side by side, the left hand screenshot depicting a home page from
one of CitySearch's city guides and the righthand screen shot depicting an
"arts and entertainment" topic page indicating a search for "jazz" events in
the search box. There will be a short description of the contents of these
pages immediately above them. The lower half of the page will contain four
citysearch.com screen shots on the left two-thirds of the page and a short
description of the contents of these pages on the right one-third of the page.
The first screen shot will depict a listing of events resulting from the
search for "jazz" events. To the right of this screen shot will be a screen
shot of a listing of locations resulting from the search for "jazz" events.
Immediately below the screen shot of the events listing will be a screen shot
of an event profile created by CitySearch or its partners describing one of
the listed jazz events. Immediately below the screen shot of the locations
listing will be a screen shot of a custom Web site purchased by a CitySearch
business customer that hosts jazz events. This screen shot also depicts a
feature that enables Web users to get more information on places to go and
things to do nearby the business customer's location.]
<PAGE>
[This page will contain nine ticketmaster.com screen shots. The upper left
corner of the page will contain a screen shot of the Ticketmaster Online home
page. Immediately to the right of this screen shot will be a sentence
describing the contents of the home page. Immediately below this sentence will
be a sentence describing Ticketmaster Online's transactional features for
purchasing merchandise and music products. Two overlapping screen shots of The
Mall and Music Boulevard areas within the ticketmaster.com Web site will
appear below this description. The lower left corner of the page will contain
several ticketmaster.com screen shots relating to live event ticketing,
including screen shots of event and location listings, a seating chart and
directions to a venue. The lower right corner of the page will contain a
screen shot of Ticketmaster Online's travel service.]
<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," the
Consolidated Financial Statements of CitySearch, Inc. and Notes thereto, the
Financial Statements of Ticketmaster Multimedia Holdings, Inc. (the "Financial
Statements of Ticketmaster Online") and Notes thereto and the Unaudited Pro
Forma Condensed Combined Financial Statements and Notes thereto, appearing
elsewhere in this Prospectus. The discussion in this Prospectus includes
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from those discussed in such forward-
looking statements. Unless the context otherwise requires, (i) "Ticketmaster
Online" means, prior to the Merger (as defined below), Ticketmaster Multimedia
Holdings, Inc. and, after the Merger, the Ticketmaster Online business of the
Company, (ii) "CitySearch" means, prior to the Merger, CitySearch, Inc. and its
subsidiaries and, after the Merger, the CitySearch business of the Company,
(iii) "Ticketmaster Group" means Ticketmaster Group, Inc., a wholly-owned
subsidiary of USA Networks, Inc., and its subsidiaries and managed affiliates
(other than Ticketmaster Online and the Company), (iv) "Ticketmaster Corp."
means Ticketmaster Corporation, a wholly-owned subsidiary of Ticketmaster
Group, and its subsidiaries and managed affiliates (other than Ticketmaster
Online and the Company) collectively or individually, and (v) "USAi" means USA
Networks, Inc. and its subsidiaries and managed affiliates (other than
Ticketmaster Online and the Company). All information in this Prospectus (i)
reflects the consummation of the merger of Ticketmaster Online with a wholly-
owned subsidiary of CitySearch, with Ticketmaster Online continuing as the
surviving corporation and as a wholly-owned subsidiary of CitySearch (the
"Merger"), (ii) reflects the conversion of all of the Company's outstanding
Preferred Stock into Common Stock of the Company, which became effective upon
consummation of the Merger (the "Conversion") and the reclassification of all
outstanding shares of the Company's Common Stock into Class A Common Stock,
which became effective on September 28, 1998 (the "Reclassification"), and
(iii) assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
The Company is combining CitySearch and Ticketmaster Online to create a
leading provider of local city guides, local advertising and live event
ticketing on the Internet. The Company intends to integrate its local
CitySearch city guides with its Ticketmaster Online live events ticketing and
merchandise distribution capabilities to offer online ticketing, merchandise,
electronic coupons and other transactions to a broader audience of consumers.
The CitySearch city guides provide 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. Ticketmaster Online offers consumers up-to-date information on live
entertainment events and a convenient means of purchasing tickets for live
events and related merchandise on the Web for live events in 44 states and
eight foreign countries. Consumers can access the Ticketmaster Online service
at www.ticketmaster.com and from CitySearch owned and operated city guides at
www.citysearch.com through numerous direct links from banners and event
profiles. Subject to certain limitations, Ticketmaster Online is the exclusive
agent for Ticketmaster Corp., a leading provider of live event automated
ticketing services in the United States, for the online sale of tickets to live
events presented by Ticketmaster Corp.'s clients.
The Company intends to utilize Ticketmaster Online's presence in certain
domestic and international cities to accelerate the expansion of the CitySearch
city guides into new local territories. The Company plans to include selected
CitySearch editorial content on the Ticketmaster Online Web site, thereby
providing additional information to assist purchasing decisions. The Company
believes that by expanding its branded network of local city guides and
continuing to offer attractive features and services, such as live event
ticketing, the Company's Web sites will increasingly attract local, regional
and national advertisers that seek to efficiently target local consumers.
3
<PAGE>
The CitySearch Service
Each local city guide primarily consists of original content developed and
designed specifically for the Web by the Company and its partners. The
CitySearch service is topically organized by categories, such as arts and
entertainment, restaurants and bars, community, shops and services, sports and
outdoors, hotels and tourism, local news and professional services. Within most
of the city guides, consumers can search neighborhood 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. In CitySearch owned and operated markets, consumers can also
access the Ticketmaster Online Web site through CitySearch city guides to
purchase live event tickets and related merchandise online.
The Company designs and produces custom-built Web sites and performs related
services for local and regional businesses, aggregates them in a local city
guide environment and provides these businesses with 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. The
Company builds its city guides 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.
The Company and its partners create original and locally focused content that
can be accessed using 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, the
Company offers a broad array of updated, local content that is relevant to
consumers. In certain other markets, the Company provides local media companies
with the necessary technology and business expertise to design, launch and
operate a co-branded CitySearch site.
The Company launched its initial site in the Raleigh-Durham-Chapel Hill
metropolitan area in May 1996. The Company and its partners have since launched
or initiated a roll out of Web-based local city guides in Austin, Baltimore,
Dallas, Los Angeles, Nashville, New York City, Portland, Salt Lake City/Utah,
San Diego, the San Francisco Bay Area and Washington, D.C. in the United States
and in Copenhagen, Melbourne, Stockholm, Sydney and Toronto internationally. As
of June 30, 1998, more than 8,900 CitySearch business Web sites were online in
the Company's owned and operated markets, while the Company believes that over
6,800 business Web sites were online in its partner-led markets.
The Company intends to enter targeted geographic regions, including those in
which Ticketmaster Corp. clients are located, through either an owned and
operated presence or by entering into partnerships and strategic alliances with
major media and telephony companies. The Company has, for instance, partnered
with The Baltimore Sun, The Dallas Morning News, the Los Angeles Times, The San
Diego Union-Tribune, Washingtonpost.Newsweek Interactive, Big Colour Pages
(independent yellow pages of Australia), The Melbourne Age, Schibsted
ASA/Scandinavia Online (Copenhagen, Oslo and Stockholm), The Sydney Morning
Herald, Tele-Direct (the yellow pages subsidiary of Bell Canada, Inc.) 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 has also entered into an agreement with Classified Ventures,
L.L.C. ("Classified Ventures"), a leading provider of online classified
advertising products and services to the newspaper industry that was formed by
eight leading newspaper companies. The Company has licensed elements of its
technology and business systems to Classified Ventures and provides services in
automotive and real estate classified advertising categories. The Company has
also entered into an agreement with American Express Travel Related Services
Company, Inc. ("American Express") that provides for marketing of CitySearch's
services to American Express merchant customers and various other electronic
commerce and marketing initiatives.
4
<PAGE>
The Ticketmaster Online Service
Ticketmaster Online is a leading online ticketing service that enables
consumers to purchase tickets for live music, sports, theater and family
entertainment events presented by Ticketmaster Corp.'s clients and related
merchandise over the Web. The Company believes the online nature of the service
offers improved marketing and distribution capabilities as well as a larger
potential consumer base to Ticketmaster Corp. clients, while providing
consumers more convenient access to live event tickets and related merchandise.
In addition to these services, the Ticketmaster Online Web site provides local
information and original content regarding live events for Ticketmaster Corp.
clients throughout the United States, Canada and the United Kingdom.
Since its commencement of online ticket sales in November 1996, Ticketmaster
Online has experienced significant growth in tickets sold through its Web site.
Gross transaction dollars from ticket sales increased from approximately
$100,000 in November 1996 to more than $10 million in July 1998. Similarly,
tickets sold on the Ticketmaster Online Web site in November 1996 represented
less than 0.1% of total tickets sold by Ticketmaster Corp., while tickets sold
online in the month of July 1998 represented more than 5.0%.
The Ticketmaster Online Web site consists primarily of original content
developed and designed specifically for the Web by Ticketmaster Online.
Information is currently available through a database with information on more
than 3,000 clients, and weekly listings of live events. Scheduled to launch in
the fourth quarter of 1998, the "my Ticketmaster" Web site is being developed
in partnership with Intel Corporation and will permit consumers to order
tickets and related merchandise over the Web while customizing live event
information to individual preferences.
----------------------------------------
The Company is a direct, non-wholly owned subsidiary of Ticketmaster Corp.,
which is an indirect wholly-owned subsidiary of USAi. The Company's other
equity investors include entities affiliated with The Goldman Sachs Group,
L.P., Washingtonpost.Newsweek Interactive, The Times Mirror Company, CPQ
Holdings, Inc. (an entity affiliated with Compaq Computer Corporation), Global
Retail Partners, L.P., American Express, Intel Corporation, AT&T Ventures, T.
Rowe Price Threshold Fund III, L.P. and Schibsted ASA.
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) 405-0050.
TICKETMASTER ONLINE-CITYSEARCH MERGER
On September 28, 1998, pursuant to an Amended and Restated Agreement and Plan
of Reorganization, dated August 12, 1998 (the "Merger Agreement"), by and among
CitySearch, USAi, Ticketmaster Group, Ticketmaster Corp., Ticketmaster Online,
and Tiberius, Inc., a wholly owned subsidiary of CitySearch ("Merger Sub"),
Merger Sub was merged with and into Ticketmaster Online, with Ticketmaster
Online continuing as the surviving corporation and as a wholly-owned subsidiary
of the Company. At the effective time of the Merger, the outstanding capital
stock of Ticketmaster Online was converted into an aggregate of 37,238,000
shares of CitySearch Common Stock which pursuant to the Reclassification was
subsequently converted into Class A Common Stock of the Company. USAi acquired
a controlling interest in Ticketmaster Group in July 1997 and the remainder of
the outstanding equity in Ticketmaster Group in June 1998, at which time
Ticketmaster Group became a wholly owned subsidiary of USAi.
Pursuant to the terms of the Merger Agreement, in connection with the Merger,
USAi will commence an offer (the "Tender Offer") to purchase from holders of
Common Stock (including holders of outstanding options or warrants to acquire
Preferred Stock or Common Stock that were vested and exercisable at the
effective time of the Merger and the outstanding Preferred Stock converted into
Common Stock immediately prior to the Merger) and transferees of all such
holders (excluding USAi and its affiliates) (each a "Current CitySearch
5
<PAGE>
Holder") up to 20% of each such holder's shares of Common Stock (including
shares of Common Stock issuable upon conversion of Preferred Stock or upon
exercise of options or warrants that were vested and exercisable at the
effective time of the Merger) at a per share price of $8.67 net to the seller
in cash. The Merger Agreement provides that, notwithstanding the foregoing,
USAi is not obligated to purchase in the Tender Offer more than an aggregate of
2,924,339 shares of Common Stock. The Tender Offer is scheduled to expire 20
business days after commencement. See "Ticketmaster Online-CitySearch Merger--
Merger Agreement."
Following the Merger, USAi beneficially owns 40,482,641 shares of Class A
Common Stock, or approximately 64.8% of the outstanding Common Stock. Assuming
USAi purchases the total number of shares of Common Stock of the Company
subject to the Tender Offer, USAi will beneficially own 43,406,980 shares of
Class A Common Stock, or approximately 69.5%, of the outstanding Common Stock
prior to this offering and, immediately after this offering, will beneficially
own approximately % of the outstanding Common Stock, representing
approximately % of the total voting power of the Common Stock. As a result
of such ownership, after giving effect to this offering, USAi will be able to
control the outcome of substantially all matters submitted to a vote of or for
the consent of stockholders, including the election of directors and the
approval of other corporate transactions. See "Risk Factors--Control by and
Relationship with USAi," "--Potential Conflicts of Interest," "--Possible
Future Sales of Common Stock by USAi," "Principal Stockholders" and
"Ticketmaster Online-CitySearch Merger."
Concurrently with the execution of the Merger Agreement, Ticketmaster Corp.,
Ticketmaster Online and USAi entered into a License and Services Agreement,
dated August 12, 1998 (the "Ticketmaster License Agreement"). The Ticketmaster
License Agreement designates Ticketmaster Online as Ticketmaster Corp.'s
exclusive online sales agent and allows Ticketmaster Online to use the
Ticketmaster trademark in connection with online promotion of sales of tickets
to live events presented by Ticketmaster Corp.'s clients, subject to certain
limitations. For purposes of the Ticketmaster License Agreement, "online sales"
is defined to include sales over the Web and any sales through commercial
online services such as America Online and @Home. The Ticketmaster License
Agreement also grants Ticketmaster Online certain non-exclusive rights to
conduct online solicitation of sales for merchandise offered by Ticketmaster
Corp. The Ticketmaster License Agreement further provides that Ticketmaster
Online may not enter into arrangements with venues, ticket sellers or sales
agents to sell tickets online and that USAi and its affiliates may not enter
into arrangements with other parties for online sales of tickets to events
presented by Ticketmaster Corp.'s clients. See "Risk Factors--Dependence on
Relationship with Ticketmaster Corp." and "Business--Ticketmaster Online
Business--Ticketmaster License Agreement."
In addition, concurrently with the execution of the Merger Agreement, USAi
loaned $50 million in cash to CitySearch in exchange for a convertible note
with a $50 million principal amount (the "Convertible Note"). The Convertible
Note bears interest at a rate of 7.00% per annum and, after consummation of the
Merger, is generally due and payable on the earlier to occur of (a) August 13,
2005 or (b) 20 days following the closing of an initial public offering which
meets certain criteria. The Company intends to use approximately $51 million of
the net proceeds of this offering to repay in full the Convertible Note and the
accrued interest thereon. See "Use of Proceeds," "Capitalization" and
"Ticketmaster Online-CitySearch Merger."
RISK FACTORS
No assurances can be given that the Company's objectives or strategies will
be achieved. Prospective investors should carefully consider the factors
discussed in detail elsewhere in this Prospectus under "Risk Factors."
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class B Common Stock offered...... shares
Common Stock to be outstanding
after this offering:
Class A Common Stock............ 62,469,875 shares(1)
Class B Common Stock............ shares(1)(2)
Total Common Stock............ shares(1)(2)
</TABLE>
- --------
(1) Based on shares of Class A Common Stock outstanding as of September 30,
1998. Does not include (i) shares of Class A Common Stock issuable
upon exercise of options outstanding at June 30, 1998 at a weighted average
exercise price of $ per share under the Company's 1996 Stock Option Plan
and (ii) 93,107 shares of Class A Common Stock issuable upon exercise of an
outstanding warrant at an exercise price of $8.86 per share held by
NationsBanc Montgomery Securities LLC. See "Capitalization," "Management--
Employee Benefit Plans," "Underwriting" and Note 7 of Notes to Consolidated
Financial Statements of CitySearch, Inc.
(2) Does not include, as of the date of this Prospectus, an aggregate of
shares of Class B Common Stock available for future grant or issuance under
the Company's 1998 Stock Option Plan and 1998 Employee Stock Purchase Plan.
See "Management--Employee Benefit Plans."
Relative rights of Class A Common
Stock
and Class B Common Stock........... The Class A Common Stock and Class B
Common Stock have substantially identical
rights other than with respect to voting,
conversion and transfer. Except as
otherwise required by applicable law, the
Class A Common Stock is entitled to 15
votes per share while the Class B Common
Stock is entitled to one vote per share
on all matters submitted to a vote or for
the consent of stockholders. Except as
otherwise required by applicable law, the
Class A Common Stock and Class B Common
Stock will vote together as a single
class on all matters submitted to a vote
or for the consent of stockholders. The
shares of Class A Common Stock are
convertible at any time at the option of
the holder into shares of Class B Common
Stock on a share-for-share basis. In
addition, shares of Class A Common Stock
will automatically be converted into a
like number of shares of Class B Common
Stock upon any sale, pledge, conveyance,
hypothecation, assignment or other
transfer of such share by the initial
registered holder (except under certain
limited circumstances). See "Principal
Stockholders" and "Description of Capital
Stock."
Controlling stockholder............. USAi beneficially owns 40,482,641 shares
of Class A Common Stock, or approximately
64.8% of the Company's outstanding Common
Stock and, immediately after this
offering, will beneficially own
approximately % of the outstanding
Common Stock of the Company, representing
approximately % of the total voting
power of the Common Stock. Assuming USAi
purchases the total number of shares of
Common Stock of the Company subject to
the Tender Offer, USAi will beneficially
own 43,406,980 shares of Class A Common
Stock, or approximately 69.5% of the
7
<PAGE>
Company's outstanding Common Stock prior
to this offering and, immediately after
this offering, will beneficially own
approximately % of the outstanding
Common Stock, representing approximately
% of the total voting power of the
Common Stock.
Use of proceeds..................... The Company intends to use approximately
$51 million of the net proceeds of this
offering to repay in full the Convertible
Note and the accrued interest thereon.
The Convertible Note was issued to USAi
upon execution of the Merger Agreement in
exchange for a $50 million loan from USAi
to provide working capital to the
Company. The remaining proceeds from this
offering and the Company's available cash
will be used for capital expenditures
relating to the Company's Web sites, such
as enhancements to the Company's server
and networking and infrastructure,
working capital and other general
corporate purposes, including sales and
marketing. See "Use of Proceeds."
Proposed Nasdaq symbol.............. TMCS
8
<PAGE>
CITYSEARCH SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The CitySearch summary historical financial data set forth below have been
derived from the Consolidated Financial Statements of CitySearch, Inc. and the
Notes thereto set forth elsewhere in this Prospectus and should be read in
conjunction with those financial statements and notes. The data set forth below
do not give effect to the Merger.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
SEPTEMBER 20, YEAR ENDED ENDED
1995 (DATE OF DECEMBER 31, JUNE 30,
FORMATION) 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 $ 1,508 $ 5,577
Licensing and royalty.. -- -- 1,271 -- 1,221
------ -------- -------- -------- --------
Total revenues....... -- 203 6,184 1,508 6,798
Loss from operations.... (313) (14,112) (36,741) (18,122) (16,742)
Net loss................ (308) (13,897) (36,526) (18,018) (16,482)
Historical basic and
diluted net loss per
share(1)............... $(0.04) $ (1.58) $ (3.86) $ (1.91) $ (1.67)
Pro forma basic and
diluted net loss per
share(1)............... $ (1.96) $ (0.68)
Shares used to compute
historical basic and
diluted net loss per
share(1)................. 7,895 8,786 9,452 9,423 9,873
Shares used to compute
pro forma basic and
diluted net loss per
share(1)............... 18,645 24,209
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1998
--------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................ $ 15,512
Working capital...................................................... 10,731
Total assets......................................................... 22,490
Long-term obligations, less current portion.......................... 2,319
Redeemable Convertible Preferred Stock............................... 77,840
Stockholders' deficit................................................ (63,741)
</TABLE>
- --------
(1) Shares used to compute pro forma basic and diluted net loss per share give
effect to the conversion of outstanding convertible Preferred Stock of
CitySearch as if converted at the earlier of the beginning of the period or
issue date. See Note 1 of Notes to Consolidated Financial Statements of
CitySearch, Inc. for an explanation of the determination of the number of
shares used to compute historical and pro forma basic and diluted net loss
per share.
9
<PAGE>
TICKETMASTER ONLINE SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The Ticketmaster Online summary historical financial data set forth below
have been derived from the Financial Statements of Ticketmaster Online and the
Notes thereto set forth elsewhere in this Prospectus and should be read in
conjunction with those financial statements and notes. The data set forth below
do not give effect to the Merger.
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED
YEAR ENDED JANUARY 31, JUNE 30,
------------------------ -------------
1996(1) 1997(1) 1998 1997 1998
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Ticketing operations.................... $ -- $ 199 $5,972 $2,110 $5,324
Sponsorship and advertising............. 14 997 3,933 1,437 2,099
------ ------ ------ ------ ------
Total revenues........................ 14 1,196 9,905 3,547 7,423
Operating income (loss).................. (534) (989) 4,174 1,670 3,165
Net income (loss)........................ (330) (615) 2,347 939 1,706
Basic and diluted net income (loss) per
equivalent share(2)..................... $(0.01) $(0.02) $ 0.06 $ 0.03 $ 0.05
Shares used to compute basic and diluted
net income (loss) per equivalent
share(2)................................ 37,238 37,238 37,238 37,238 37,238
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1998
--------
<S> <C>
BALANCE SHEET DATA:
Cash................................................................. $ --
Working capital deficit(3)........................................... (2,918)
Total assets(4)...................................................... 155,424
Stockholder's accounts(4)............................................ 152,309
</TABLE>
- --------
(1) Ticketmaster Online did not incur costs or expenses until June 1995 and
commenced selling live event tickets and merchandise online in November
1996.
(2) Basic and diluted net income (loss) per equivalent share is based on the
number of shares of CitySearch Common Stock exchanged in the Merger.
(3) Negative working capital is primarily the result of current deferred
revenue related to sponsorship and advertising agreements for which the
cash has been transferred to Ticketmaster Corp. and is included as a
receivable in "Due to (from) Ticketmaster" in stockholder's accounts. See
Note 1 of Notes to Financial Statements of Ticketmaster Online.
(4) Total assets and stockholder's accounts reflect a preliminary allocation of
goodwill of $154.8 million to Ticketmaster Online resulting from the
purchase of Ticketmaster Group by USAi. See Note 1 of Notes to Financial
Statements of Ticketmaster Online.
10
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary unaudited pro forma combined financial data set forth below give
effect to the Merger and USAi's acquisition of Ticketmaster Group, the parent
of Ticketmaster Online (the "Ticketmaster Transaction"). The Merger will be
accounted for using the "reverse purchase" method of accounting pursuant to
which Ticketmaster Online will be treated as the acquiring entity for
accounting purposes and the assets and liabilities of CitySearch will be
recorded at their respective fair values. The unaudited pro forma combined
balance sheet data give effect to the Merger as if it had occurred on June 30,
1998. The unaudited pro forma combined statements of operations data give
effect to the Merger and the Ticketmaster Transaction as if they had occurred
at the beginning of the respective periods. The summary unaudited pro forma
combined financial data have been derived from the unaudited pro forma
condensed combined financial statements and notes thereto set forth elsewhere
herein and should be read in conjunction with those financial statements and
notes. The summary unaudited pro forma combined financial data do not purport
to be indicative of future operations and should not be construed as
representative of future operations of the combined companies.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1997 1998
------------ --------------
<S> <C> <C>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA:
Revenues.......................................... $ 15,479 $ 15,189
Loss from operations.............................. (82,904) (38,844)
Net loss.......................................... (86,189) (40,334)
Basic and diluted net loss per share.............. $ (1.54) $ (0.66)
Shares used to compute basic and diluted net loss
per share........................................ 55,883 61,448
<CAPTION>
JUNE 30, PRO FORMA
1998 AS ADJUSTED(1)
------------ --------------
<S> <C> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 63,512 $
Working capital................................... 55,813
Total assets(2)................................... 364,335
Long-term obligations, less current portion....... 52,331
Stockholders' equity(2)........................... 302,829
</TABLE>
- --------
(1) Adjusted to reflect the sale and issuance of the shares of Class B
Common Stock offered hereby at an assumed initial public offering price of
$ per share (after deducting the underwriting discount and estimated
offering expenses payable by the Company) and the application of the
estimated net proceeds of this offering. See "Use of Proceeds" and
"Capitalization."
(2) Total assets and stockholders' equity include $293.2 million of goodwill
resulting from the Merger and the Ticketmaster Transaction.
11
<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 Class B Common Stock offered hereby. This
Prospectus contains forward-looking statements that involve risks and
uncertainties, which statements may be deemed to include, but are not limited
to, the Company's plans to grow its online businesses, to expand the range of
services offered by the Company, to increase the number of customers and
venues using the Company's services and the dollar volume of transactions
booked through the Company's Web sites, to otherwise expand its business
activities in new cities and foreign countries, to retain key personnel or
otherwise to implement its strategy as well as the Company's beliefs regarding
consumer acceptance of the Internet as a means of commerce and the use of the
Internet as a source of advertising. Such statements include statements
regarding the belief or current expectation of the Company's management and
are necessarily based on management's current understanding of the markets and
industries in which the Company operates. That understanding could change or
could prove to be inconsistent with actual developments. The Company's actual
results could differ materially from the results discussed in this Prospectus,
including those anticipated in or implied by any forward-looking statements.
Factors that could cause or contribute to such differences include those
discussed below, as well as those discussed elsewhere in this Prospectus. The
cautionary statements made in this Prospectus should be read as being
applicable to all forward-looking statements wherever they appear in this
Prospectus.
LIMITED OPERATING HISTORY
CitySearch was incorporated in September 1995 and launched its initial local
city guide service in the Raleigh-Durham-Chapel Hill metropolitan area in May
1996. Ticketmaster Online commenced online ticket sales in November 1996.
Accordingly, the CitySearch and Ticketmaster Online businesses each have 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 those in which the Company competes. Such
risks include, but are not limited to, evolving and unpredictable business
models, management of growth, the Company's ability to anticipate and adapt to
developing markets, acceptance by Internet users, consumers and business
customers of the Company's services and the ability of the Company to
establish relationships with additional strategic partners. To address these
risks, the Company must, among other things, attract and retain an audience of
frequent users of its services in its target markets, maintain its business
customer base, attract a significant number of new CitySearch business
customers in target markets, expand its sales of tickets and merchandise
through Ticketmaster Online, respond to competitive developments, continue to
form and maintain relationships with media partners, continue to attract,
retain and motivate qualified personnel, 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.
Furthermore, neither the Company, CitySearch nor Ticketmaster Online has any
history as a company with public reporting obligations, and operating the
Company with such obligations will place substantial demands on management and
the Company's operating systems. These increased demands may require further
expenditures to hire management personnel and to expand the Company's
operating systems. To the extent such expenditures precede or are not
subsequently followed by increased revenues, the Company's business, financial
condition and results of operations could be materially and adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
ABSENCE OF HISTORY OF TICKETMASTER ONLINE AS AN INDEPENDENT COMPANY
Prior to the Merger, Ticketmaster Online was operated as a wholly-owned
subsidiary of Ticketmaster Corp. As a result, Ticketmaster Online does not
have an operating history as an independent company. In addition,
12
<PAGE>
prior to the Merger, Ticketmaster Online relied on Ticketmaster Corp. to
provide certain human resource, finance, recruiting, legal and other services.
Neither USAi nor Ticketmaster Corp. is required to provide assistance, funding
or any such services to Ticketmaster Online or the Company, except as
described in the Ticketmaster License Agreement. The Company will be required
to develop and implement the operational, administrative and other systems and
infrastructure necessary to support Ticketmaster Online's current and future
business, and any failure to do so could have a material adverse effect on the
Company's business financial condition and results of operations. See "--
Dependence on Relationship with Ticketmaster Corp.," "--Control by and
Relationship with USAi" and "--Management of Potential Growth; Risks
Associated with Expansion."
ANTICIPATED CONTINUED OPERATING LOSSES
CitySearch 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 for the years ended December 31, 1996 and 1997, respectively, and
$16.5 million for the six months ended June 30, 1998. At June 30, 1998,
CitySearch had an accumulated deficit of $67.2 million. Ticketmaster Online
incurred net losses of $615,000 for the year ended January 31, 1997 and
generated net income of $2.3 million and $1.7 million for the year ended
January 31, 1998 and for the five months ended June 30, 1998, respectively. As
a result of the Ticketmaster Transaction and the Merger, the Company has
recorded a significant amount of goodwill which will adversely affect the
earnings and profitability of the Company for the foreseeable future. The
Company recorded an aggregate of $293.2 million of goodwill, $154.8 million of
which related to the Ticketmaster Transaction and is to be amortized through
2038, and $138.4 million of which related directly to the Merger and is to be
amortized through 2001. To the extent the amount of such recorded goodwill is
increased or the Company has future losses and is unable to demonstrate its
ability to recover the amount of goodwill recorded during such time periods,
the period of amortization could be shortened, which may further increase
annual amortization charges. In such event, the Company's business, financial
condition and results of operations could be materially and adversely
affected.
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 CitySearch Web sites to businesses and from the
licensing of its technology and business systems to partners setting up
CitySearch services in partner-led markets, the ability of Ticketmaster Corp.
to maintain existing relationships and enter into new relationships with live
event venues, sports franchises, promoters and other clients for which it
sells live event tickets and to obtain or retain for Ticketmaster Online the
right to sell live event tickets and related merchandise online, its ability
to effectively maintain existing relationships with its media partners, its
ability to successfully enter into new strategic relationships for
distribution and increased usage of the Ticketmaster Online and CitySearch
services and its ability to generate sufficient online traffic and sales
volume to achieve profitability of the Ticketmaster Online business.
Accordingly, the Company expects to expend significant financial and
management resources on the roll-out of the CitySearch service in new owned
and operated and partner-led markets, site and content development on its
CitySearch and Ticketmaster Online sites, integration of the CitySearch and
Ticketmaster Online services, 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, the limited operating history of both CitySearch and
Ticketmaster Online and the risks associated with integrating these
businesses, the Company believes that period-to-period comparisons of
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."
DEPENDENCE ON RELATIONSHIP WITH TICKETMASTER CORP.
In connection with the Merger, Ticketmaster Online, Ticketmaster Corp. and
USAi entered into the Ticketmaster License Agreement, which agreement
designates, subject to certain limitations, Ticketmaster Online as
Ticketmaster Corp.'s exclusive agent for online live event ticket sales and as
its non-exclusive agent
13
<PAGE>
for the online sale of merchandise. See "Ticketmaster Online-CitySearch
Merger--Ticketmaster License Agreement."
The Company anticipates that, for the foreseeable future, a majority of its
revenues will be derived from the online sale of tickets and merchandise by
Ticketmaster Online. Ticketmaster Online currently derives and, for the
foreseeable future, will continue to derive a substantial portion of its
revenues from per ticket convenience charges and per order handling charges
paid by consumers in connection with online purchases of tickets to live
events presented or promoted by clients of Ticketmaster Corp. Ticketmaster
Online does not have contractual relationships with the entities for which it
sells tickets as Ticketmaster Corp.'s agent and it is restricted pursuant to
the Ticketmaster License Agreement from having such relationships, whether
with current Ticketmaster Corp. clients or its potential clients. Accordingly,
Ticketmaster Online's future revenues and business success are dependent on
Ticketmaster Corp.'s ability to maintain and renew relationships with its
existing clients and to establish relationships with additional clients.
For the year ended January 31, 1998, Ticketmaster Corp. processed ticket
sales for over 3,000 clients. Approximately 20% of Ticketmaster Corp.'s client
contracts are subject to renewal each year. Ticketmaster Online is dependent
upon Ticketmaster Corp.'s ability to enter into and maintain client contracts
on terms that are favorable to Ticketmaster Corp. and Ticketmaster Online.
There can be no assurance that Ticketmaster Corp. will be able to enter into
or maintain client contracts on such terms.
All of Ticketmaster Online's ticket sales are processed through Ticketmaster
Corp.'s systems. Under the Ticketmaster License Agreement, Ticketmaster Corp.
is generally obligated to provide order fulfillment services at least at the
same level as such services were generally provided as of the date of the
Ticketmaster License Agreement. The Ticketmaster License Agreement obligates
Ticketmaster Corp. to process a specified number of tickets sold online each
year through December 31, 2001. As a result, Ticketmaster Online's future
revenues are dependent upon Ticketmaster Corp.'s ability to process such
online ticket sales in an accurate and timely manner. While the Company
believes that, due to the perpetual right of Ticketmaster Online to serve as
Ticketmaster Corp.'s exclusive agent for online live event ticket sales,
Ticketmaster Corp. has a substantial interest in its relationship with
Ticketmaster Online, there can be no assurance that Ticketmaster Corp. will
provide fulfillment services to Ticketmaster Online in excess of the
requirements of the Ticketmaster License Agreement and, in particular, after
December 31, 2001.
Ticketmaster Online's ability to generate ticket and merchandise sales on
its Web sites is also dependent in part on Ticketmaster Corp.'s ability to
maintain and enhance the Ticketmaster brand name. Any failure on the part of
Ticketmaster Corp. to maintain its existing base of clients, to establish
relationships with new clients upon terms favorable to Ticketmaster Online, to
obtain or retain for Ticketmaster Online the right to sell tickets and
merchandise online for Ticketmaster Corp.'s clients, to process Ticketmaster
Online's online ticket sales in a timely and accurate manner or at levels
necessary to support Ticketmaster Online's business or to maintain and enhance
the Ticketmaster brand name would 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" and "Ticketmaster Online-CitySearch Merger."
CONTROL BY AND RELATIONSHIP WITH USAI
The Company is currently a direct, non-wholly owned subsidiary of
Ticketmaster Corp., which is an indirect, wholly owned subsidiary of USAi.
Upon completion of this offering, USAi will own approximately % of the
total outstanding Common Stock, representing approximately % of the total
voting power of the Common Stock. Assuming USAi purchases the total number of
shares of Common Stock subject to the Tender Offer, following this offering,
USAi will beneficially own 43,406,980 shares of Class A Common Stock, or
approximately %, of the outstanding Common Stock, representing
approximately % of the total voting power of the Common Stock. Following
this offering, as a result of its ownership of Class A Common Stock, USAi will
have the right to control the outcome of any matter submitted for the vote or
consent of Company stockholders, except where a separate vote of the holders
of Class B Common Stock is required by Delaware law. Subject to applicable
Delaware law, USAi will generally not be restricted with regard to its ability
to control the election of directors of the Company, to cause the amendment of
the Company's Amended and Restated Certificate of Incorporation (the "Restated
Certificate of Incorporation"), Amended and Restated
14
<PAGE>
Bylaws (the "Restated Bylaws") and other documents (including the Ticketmaster
License Agreement) or generally to exercise a controlling influence over the
business and affairs of the Company, including any determinations with respect
to mergers or other business combinations involving the Company, the
acquisition or disposition of assets by the Company, future issuances of
equity securities by the Company, the incurrence of indebtedness by the
Company and the payment of dividends with respect to the Common Stock.
Similarly, USAi will have the power to prevent, delay or cause a change in
control of the Company and could take other actions that might be favorable to
USAi but not necessarily favorable to other stockholders of the Company. In
addition, because of the importance to the Company of the relationship between
Ticketmaster Online and Ticketmaster Corp., an indirect wholly owned
subsidiary of USAi, the Company is to a large degree dependent on its business
relationships with its controlling stockholder. There can be no assurance that
conflicts, disagreements or other disputes between the Company and USAi will
not arise, or that such disputes will be resolved in a manner that does not
adversely affect the business, financial condition or results of operations of
the Company. There can be no assurance that USAi's ownership of the Company's
Class A Common Stock or its other relationships with the Company will not have
a material adverse effect on the Company's business, financial condition or
results of operations, on its other stockholders or on the market price of the
Company's Class B Common Stock.
Subject to applicable Delaware law, USAi could elect to sell all or a
substantial portion of its equity interest in the Company to a third party
(after conversion of such shares into shares of Class B Common Stock to the
extent required by the Restated Certificate of Incorporation), which would
represent a controlling or substantial interest in the Company, without
offering to other stockholders of the Company the opportunity to participate
in such a transaction. Although there can be no assurance in this regard, USAi
has advised the Company that its current intent is to continue to hold for the
foreseeable future the shares of Class A Common Stock owned by it. In the
event of a sale of USAi's interest to a third party, such third party may be
able to control the Company in the manner that USAi is able to control the
Company, including with respect to the election of a majority of the members
of the Company's Board of Directors. Such a sale may adversely affect the
market price of the Class B Common Stock and may adversely affect the
Company's business, financial condition and results of operations. See "--
Possible Future Sales of Common Stock by USAi."
Barry Diller, who is a director of the Company, is also the Chairman and
Chief Executive Officer of USAi. In addition, as described in documents
publicly filed with the Securities and Exchange Commission (the "Commission")
by USAi, pursuant to stockholder and governance agreements among Mr. Diller,
Liberty Media Corp. ("Liberty,") a subsidiary of Tele-Communications, Inc.
("TCI"), The Seagram Company Ltd. ("Seagram"), Universal Studios, Inc.
("Universal," a subsidiary of Seagram) and USAi, Mr. Diller generally has the
right to control the outcome of any matter submitted to a vote or for the
consent of USAi stockholders, other than with respect to certain fundamental
changes relating to USAi, in which case the consent of Mr. Diller, Liberty and
Universal is generally required for any such fundamental change. Upon Mr.
Diller's departure from USAi, USAi may change in various fundamental ways,
including the possible exercise of control by Universal over the management
and governance of USAi, subject to certain rights of Liberty. Although Mr.
Diller has a significant equity interest in USAi, including in the form of
options to acquire shares of the Common Stock of USAi (the "USAi Common
Stock"), some of which are not fully vested and require Mr. Diller's continued
employment for a specified period to so vest, Mr. Diller does not have an
employment or noncompetition agreement with USAi and is not obligated to
remain as an executive officer or director of that company. Any change in the
management, operations or business of USAi could have a material adverse
effect on the Company's relationship with USAi and Ticketmaster Corp. and
could materially and adversely affect the Company's business, financial
condition and results of operations.
POTENTIAL CONFLICTS OF INTEREST
Conflicts of interest may arise between the Company, including Ticketmaster
Online, on the one hand, and USAi and its affiliates, including Ticketmaster
Corp., on the other hand, in areas relating to past, ongoing and future
relationships, including the Ticketmaster License Agreement, corporate
opportunities, indemnity arrangements, tax and intellectual property matters,
potential acquisitions or financing transactions, sales or other
15
<PAGE>
dispositions by USAi of shares of the Company's Class A Common Stock held by
it and the exercise by USAi of its ability to control the management and
affairs of the Company. These conflicts also may include disagreements
regarding the Ticketmaster License Agreement, including with respect to
possible amendments to, or modifications or waivers of provisions of, such
agreement. Due to USAi's ability to control the Company's Board of Directors
and subject to Delaware law, USAi may be able to effect such amendments
without seeking the approval of any other party. Such amendments,
modifications or waivers may adversely affect the Company's business,
financial condition and results of operations. Ownership interests of
directors or officers of the Company in the USAi Common Stock, or service as
both a director or officer of the Company and a director, officer or employee
of USAi, could create or appear to create potential conflicts of interest when
directors and officers are faced with decisions that could have different
implications for the Company and USAi. Seven of the members of the Company's
Board of Directors are also directors, officers or employees of USAi. See
"Management" and "Ticketmaster Online--CitySearch Merger."
In addition, USAi is engaged in a diverse range of media and entertainment-
related businesses, including businesses engaged in electronic and online
commerce (including Home Shopping Network and its USA Interactive business),
and these businesses may have interests that conflict or compete in some
manner with the businesses of the Company. Subject to applicable Delaware law,
USAi is under no obligation, and has not indicated any intention, to share any
future business opportunities available to it with the Company, except as
expressly provided by the Ticketmaster License Agreement. The Company's
Restated Certificate of Incorporation will also include provisions which
provide that (i) USAi shall have no duty to refrain from engaging in the same
or similar activities or lines of business of the Company, thereby competing
with the Company, (ii) USAi, its officers, directors and employees shall not
be liable to the Company or its stockholders for breach of any fiduciary duty
by reason of any activities of USAi in competition with the Company, and (iii)
USAi shall have no duty to communicate or offer corporate opportunities to the
Company and shall not be liable for breach of any fiduciary duty as a
stockholder of the Company in connection with such opportunities, provided
that certain procedures set forth in the Restated Certificate of Incorporation
are followed. There can be no assurance that any conflicts that may arise
between the Company and USAi, any loss of a corporate opportunity to USAi that
might otherwise be available to the Company or any engagement by USAi (subject
to the limitations of the Ticketmaster License Agreement) in any activity that
is similar to the businesses of the Company will not have a material adverse
effect on the Company's business, financial condition and results of
operations or its other stockholders. See "Description of Capital Stock."
POSSIBLE FUTURE SALES OF COMMON STOCK BY USAI
Subject to applicable federal securities laws and the restrictions set forth
below, after completion of this offering, USAi may sell a significant portion
of the shares of the Company's Class A Common Stock beneficially owned by it
(which, after completion of this Offering, and assuming USAi purchases the
total number of shares of Common Stock subject to the Tender Offer, would
represent approximately % of the outstanding Common Stock) or distribute
any or all of such shares of Class A Common Stock to its stockholders.
Pursuant to the Company's Restated Certificate of Incorporation, each share of
Class A Common Stock will be converted automatically into one share of Class B
Common Stock upon any sale, pledge, conveyance, assignment or other transfer
by the initial registered holder thereof (except in certain cases such as
transfers to affiliates or other holders of Class A Common Stock). See
"Description of Capital Stock." Any sales or distribution by USAi of
substantial amounts of Class B Common Stock issuable upon conversion of the
Class A Common Stock held by USAi in the public market or to its stockholders,
or the perception that such sales or distribution could occur, could adversely
affect the prevailing market prices for the Class B Common Stock. USAi is not
subject to any obligation to retain any portion of its controlling interest in
the Company, except that USAi has agreed not to sell or otherwise dispose of
any shares of its capital stock of the Company for a period of 180 days after
the date of this Prospectus without the prior written consent of NationsBanc
Montgomery Securities LLC. See "Underwriting." Although there can be no
assurance in this regard, USAi has advised the Company that its current intent
is to continue to hold for the foreseeable future the shares of Class A Common
Stock owned by it.
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As a result, there can be no assurance concerning the period of time during
which USAi will maintain its beneficial ownership of capital stock of the
Company owned by it following this offering. Moreover, there can be no
assurance that, in any transfer by USAi of a controlling interest in the
Company, any other holders of Common Stock will be able to participate in such
transaction or will realize any premium or other amounts with respect to any
of their shares of such Common Stock.
COMPANY INTEGRATION RISKS
Prior to the Merger, CitySearch operated independently and Ticketmaster
Online operated as a wholly-owned subsidiary of Ticketmaster Corp. and USAi.
The Company's future success will depend to a significant extent on the
efficient, effective and timely integration of CitySearch's operations with
Ticketmaster Online's operations. Such integration will include the
combination of different business models, different technologies and personnel
with different expertise and backgrounds and the development of services in
which CitySearch's local content and Ticketmaster Online's live event-specific
content and transactional capabilities are integrated with each other. The
Company also will be required to evaluate its existing technologies and its
ability to support the expanded range of products and services the Company is
expected to offer. As a result of the Merger, the Company may attempt to link
the Ticketmaster Online ticketing service more closely with certain of its
CitySearch city guides. The Company has not executed such integration in the
past, and such integration could require adaptation of existing technologies
or development of new technologies. There can be no assurance that CitySearch
or Ticketmaster Online will be able to coordinate either operational or
technological integration effectively or efficiently with each other. Failure
to effectively accomplish the integration of the two companies' operations or
the loss of any of CitySearch's or Ticketmaster Online's key employees could
have a material adverse effect on the Company's business, financial condition
and results of operations.
DEPENDENCE ON INCREASED TICKET SALES
The Company's future success, and in particular its revenues and operating
results, depends in large part upon its ability to increase the dollar volume
of transactions through Ticketmaster Online, either by generating
significantly higher levels of traffic to its CitySearch and Ticketmaster
Online Web sites or by increasing the percentage of visitors to its online
sites who purchase tickets or merchandise, or through some combination
thereof. The Company's ability to increase ticket sales will also depend in
part upon Ticketmaster Corp.'s ability to obtain the rights to sell tickets
online for new Ticketmaster Corp. clients. The Company must also increase the
number of repeat purchasers of tickets and merchandise through Ticketmaster
Online. Under the Ticketmaster License Agreement, Ticketmaster Corp. is
generally obligated to provide order fulfillment services at least at the same
level as such services were generally provided as of the date of such
agreement. The Ticketmaster License Agreement obligates Ticketmaster Corp. to
process a specified number of tickets sold online each year through 2001.
While the Company believes that, due to the perpetual right of Ticketmaster
Online to serve as Ticketmaster Corp.'s exclusive agent for online live event
ticket sales, Ticketmaster Corp. has a substantial interest in its
relationship with Ticketmaster Online, there can be no assurance that
Ticketmaster Corp. will provide fulfillment services to Ticketmaster Online in
excess of the requirements of the Ticketmaster License Agreement and, in
particular, after December 31, 2001. In addition, in order to generate
sufficient revenues from sponsorship and advertising on the Ticketmaster
Online Web sites, the Company must deliver a high level of service and
compelling content in order to attract users with demographic characteristics
valuable to sponsors and advertisers. There can be no assurance that the
Company will be able to increase the dollar volume of transactions booked
through its online sites, increase traffic to its online sites, increase the
percentage of visitors who purchase tickets or merchandise, increase the
number of repeat purchasers or increase its sponsorship and advertising
revenues. In addition, there can be no assurance that the Company will be able
to offer its online ticketing services through its city guides in its partner-
led markets on terms acceptable to the Company. The failure to do one or more
of the foregoing would likely have a material adverse effect on the Company's
business, financial condition and results of operations. See "--Dependence on
Relationship with Ticketmaster Corp." and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
Since inception, CitySearch has experienced negative cash flow from
operations and the Company expects to continue to experience significant
negative cash flow from operations for the foreseeable future. USAi has no
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obligation or agreement to provide any future capital or other funding to the
Company. The Company currently believes that its existing capital resources,
including the proceeds from the Convertible Note, combined with the net
proceeds of this offering, after repayment in full of the Convertible Note and
any accrued interest thereon, 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 CitySearch's limited operating history and Ticketmaster
Online's lack of independent operating history, and the emerging nature of the
markets in which the Company competes, the Company is unable to accurately
forecast its future 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. For example, the CitySearch 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. Furthermore, the Company currently
intends to increase its operating expenses to roll out its CitySearch service
in new markets, to fund increased sales and marketing and customer service
operations, to attempt to further develop its technology infrastructure and to
integrate its local content with the event-specific content and transactional
capabilities of Ticketmaster Online. 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, Ticketmaster Corp.'s
ability to maintain and increase the number of clients for which it provides
online ticketing services and convenience charges relating thereto, the
ability of the Company's partners to meet roll-out schedules for CitySearch
city guide services, the timing and amount of license and royalty payments
from the Company's partners, the Company's ability to increase the volume of
online ticket sales through the Ticketmaster Online Web site, 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 the Web and 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. In addition, Ticketmaster Online
derives a majority of its revenues directly or indirectly from the sale of
tickets and related merchandise for live entertainment, sporting and leisure
events and is directly affected by the popularity,
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frequency and location of such events. Factors affecting the demand for and
attendance of such events include, without limitation, general economic
conditions, consumer trends and work stoppages. Any occurrence or condition
that results in decreased attendance or demand for such entertainment,
sporting and leisure events would likely have a material adverse effect on the
Company's business, financial condition and results of operations.
As a result of the foregoing, 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.
The foregoing factors which are largely unpredictable and may cause
significant fluctuations in operating results may cause the Company's annual
or quarterly results of operations to be below the expectations of public
market analysts or investors, in which case the market price of the Class B
Common Stock could be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
NEW AND UNCERTAIN MARKETS; UNPROVEN MARKET ACCEPTANCE; RISK OF SIGNIFICANT
BUSINESS CUSTOMER TURNOVER
The markets for the Company's services have only recently begun to develop,
are rapidly evolving and are characterized by a number of entrants that have
introduced or plan to introduce competing services. As is typical in the case
of new and rapidly evolving industries, demand and market acceptance for
recently introduced services are subject to a high level of uncertainty and
risk. It is therefore 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. The success of the Ticketmaster
Online service will depend on the willingness of consumers to purchase tickets
to live events and related merchandise online and on Ticketmaster Online's
ability to significantly increase online traffic and sales volume. The success
of CitySearch's city guide service will depend on the willingness of local
businesses to pay for custom business Web sites developed by CitySearch 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
services. If such businesses are unwilling to pay for the CitySearch service
or retain the service, if the markets for the Company's services otherwise
fail to develop or develop more slowly than anticipated or if business
customer turnover rates are higher than expected by the Company, the Company's
business, financial condition and results of operations could be materially
and adversely affected. In addition, the turnover rate of business customers
using CitySearch's service has been higher than CitySearch had anticipated,
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. There can be no
assurance that businesses will elect to outsource the design, development and
maintenance of their Web sites to services such as CitySearch. Businesses may
elect to perform such tasks internally, particularly if third party providers
of such services prove to be unreliable, ineffective or too expensive or if
software companies offer user-friendly and cost-effective tools for such
purpose. In the event that a significant number of businesses internalize such
tasks, such event may have a material adverse affect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON CONTINUED GROWTH OF ONLINE COMMERCE
The Company's future revenues and any future profits are substantially
dependent upon the widespread acceptance and use of the Web and online
services as an effective medium of commerce by consumers. Rapid growth in the
use of and interest in the Web, the Internet and commercial online services is
a recent phenomenon, and there can be no assurance that acceptance and use
will continue to develop or that a sufficiently broad base of consumers will
adopt, and continue to use, the Web and online services as a medium of
commerce, particularly for purchasing tickets to live events and related
merchandise. Demand for recently introduced services and products over the Web
and online services is subject to a high level of uncertainty, and there are
relatively few proven services and products. The development of the Web and
online services as a viable commercial marketplace is subject to a number of
factors, including continued growth in the number of Internet users and users
of such services, concerns about transaction security, continued development
of the necessary technological
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infrastructure and the development of complementary services and products. If
the Web and online services do not become a viable commercial marketplace, the
Company's business, financial condition and results of operations would be
materially and adversely affected. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
CITYSEARCH'S RELIANCE ON STRATEGIC RELATIONSHIPS
An important element of the Company's current business strategy with respect
to the CitySearch service 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 to address
opportunities. In these "partner-led" 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 the
Company's revenues in future periods. Accordingly, the Company's success will
depend in large part upon the ability of CitySearch's partners to timely
launch city guides in 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. Furthermore, some of the Company's agreements
grant exclusivity in certain territories. There can be no assurance that the
Company's partners that are in the process of developing new city guides or
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. Furthermore, due to the Company's limited experience with
partner-led city guides, it is unable to accurately forecast its revenues to
be derived from these agreements with such partners. Exclusivity provisions in
some of the Company's agreements place certain limitations on the Company's
ability to license its intellectual property to other partners. There also can
be no assurance that the Company will successfully enter into partnerships
with media companies in additional cities with respect to the CitySearch
service. In addition, certain of the Company's agreements with its media
company partners may be terminated for failure to meet performance criteria.
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.
The Company has recently entered into a license and services agreement with
Classified Ventures, pursuant to which the Company will license elements of
its technology and business systems to Classified Ventures and provide
services in automotive and real estate classified advertising categories. The
Company expects to receive significant revenues from licensing and service
fees under this agreement. Under this agreement, the Company is restricted
from entering into certain classified advertising markets and from licensing
its technology and business systems to competitors of Classified Ventures. In
addition, this agreement may be terminated effective 2001 by Classified
Ventures and there can be no assurance that it will be renewed on terms
favorable to the Company. The failure of the Company to meet certain
milestones under this agreement, early termination of this agreement or the
inability of the Company to compete with Classified Ventures or to license
technology to competitors of Classified Ventures may have a material adverse
effect on the Company's business, financial condition and results of
operations.
In its owned and operated markets, the Company has entered into co-promotion
or distribution agreements with a number of television, radio, print media and
online companies. Some of these agreements are of a short
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duration and there can be no assurance that the Company's co-promotion or
distribution partners with respect to the CitySearch business will not
terminate their agreements with the Company or that the Company will secure
additional co-promotion or distribution partners in the future which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
TICKETMASTER ONLINE'S RELIANCE ON STRATEGIC RELATIONSHIPS
Ticketmaster Online's business is to an extent dependent on its (and
Ticketmaster Corp.'s) relationships with certain strategic partners, including
N2K Inc. ("N2K") (relating to development of a co-branded online music store
available to users of the Ticketmaster Online and N2K Music Boulevard Web
sites) and Yahoo! Inc. ("Yahoo!") (relating to the sharing of certain
Ticketmaster Online Web site and user links between the Yahoo! and
Ticketmaster Online sites). The Company expects to derive significant
benefits, including increased revenues and consumer awareness, from these
agreements. Such arrangements also include, in certain cases, non-competition
provisions that restrict the ability of the Company to engage in similar
activities on its own or with other partners. There can be no assurance that
these relationships will continue, that such strategic relationships will be
successful in any respect or that the Company will be able to find suitable
additional or replacement strategic partners. The failure of such
relationships could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Ticketmaster
Online Business--Ticketmaster Online Strategic Alliances."
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 it owns and operates CitySearch city
guides. The Company depends on its direct sales force to sell business Web
sites in these markets. The creation of new revenue from CitySearch'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
CitySearch 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 have
a material adverse effect on the Company's sales, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, Ticketmaster Online currently derives a significant
portion of its revenues from the sale of banner advertising and sponsorships.
A shortage in the number of trained salespeople could limit the Company's
ability to sell additional banner advertising or sponsorships or renew
existing sponsorship or advertising relationships which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON KEY PERSONNEL; NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of the Company's executive management team, including Charles
Conn, the Company's Chief Executive Officer, Thomas Layton, President and
Chief Operating Officer of the Company, and Robert Perkins, Executive Vice
President, Ticketing and Electronic Commerce. In connection with the Merger,
Mr. Conn and Mr. Layton received certain payments in exchange for entering
into non-competition agreements, and the vesting of options to purchase the
Company's Class A Common Stock previously granted to Mr. Conn and Mr. Layton
was accelerated so that such options became fully exercisable upon
consummation of the Merger. The loss of the services of Messrs. Conn, Layton
or Perkins 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. In addition, Ticketmaster Online has been managed
historically by the management of Ticketmaster Corp. The success of the
Company will depend upon a
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successful transition of Ticketmaster Online's management responsibility to
the Company's senior management team. 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.
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 CitySearch 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 CitySearch partners' sites. If consumers and business
customers do not perceive the content of CitySearch's or its partners'
existing sites to be of high quality, the Company will be unsuccessful in
promoting and maintaining the CitySearch brand. Furthermore, not all of the
Company's partners promote the CitySearch brand on their services with a high
level of prominence. In addition, users accessing partner-led market sites
that contain different interfaces from the Company's owned and operated sites
may be confused by the differences in interface or navigation, and any such
confusion may inhibit the Company's ability to develop its brand and network.
Other than links to CitySearch'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 CitySearch content or promote and maintain the CitySearch brand,
the Company's business, financial condition and results of operations could be
materially and adversely affected.
RISKS ASSOCIATED WITH ROLL OUT OF SERVICES
The Company's future success will depend to a significant extent on its
ability, on its own and with partners, to rapidly roll out the CitySearch
local city guide service in additional cities in the United States and
internationally. As of September 30, 1998, the Company had launched its local
city guide service in 15 metropolitan areas and intends to expand its service
in additional cities in the United States and internationally. There can be no
assurance that the Company will be able to launch the CitySearch 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 or future services offered by the Company
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
software underlying the CitySearch service. There can be no assurance that
this new version will function as intended, and any failure of the software
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the
existing technology used by Ticketmaster Online would be
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able to accommodate increased volumes of traffic and transactions that may
arise in the future. Expansion or increases of the Company's technology
capabilities could result in significant expenses. Moreover, the strain placed
on the Company's resources by simultaneous launches of the CitySearch service
in multiple cities and the Company's efforts to integrate CitySearch's local
content with the event-specific content and transactional capabilities of
Ticketmaster Online may adversely affect the roll-out schedule or quality of
the service in a particular city. The Company's failure to launch the
CitySearch 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 would have a material adverse effect on the Company's business,
financial condition and results of operations.
RISKS OF FIXED-PRICE CONTRACTS
The services offered by the Company to CitySearch business customers
typically consist of the design, implementation, hosting and maintenance of
customized Web sites, for which the customers are billed on a fixed-price
basis, consisting of an up-front fee and monthly fees. The Company's failure
to estimate accurately the resources and time required for providing such
services, to manage client expectations effectively regarding the scope of
services to be delivered for the estimated fees or to complete the services
within budget, on time and to clients' satisfaction would expose the Company
to risks associated with cost overruns and customer dissatisfaction, 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."
COMPETITION
The markets for local interactive content and services are highly
competitive. Currently, CitySearch's primary competitors include Digital City,
Inc., a company wholly-owned by America Online, Inc. and Tribune Company,
Microsoft Corporation (Sidewalk) and Zip2 Corporation. CitySearch also
competes against search engine and other site aggregation companies which
primarily serve to aggregate links to sites providing local content such as
Excite, Inc. (City.Net), Lycos, Inc. (Lycos City Guide) and, while it is also
a strategic partner of Ticketmaster Online, Yahoo! (Yahoo! Local). In
addition, CitySearch competes against offerings from media companies,
including Cox Interactive Media, Inc. 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 MediaOne Group, Inc. (DiveIn). There are
also numerous niche competitors which focus on a specific category or
geography and compete with specific content offerings provided by the Company.
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. The Company faces
different competitors in most of its CitySearch markets. For example,
competitors in the San Francisco Bay Area, the Company's largest market in
terms of CitySearch subscription and services revenues for the six months
ended June 30, 1998 (i.e., accounting for 14% of such revenues during such
period) primarily included Microsoft Corporation (Sidewalk), America Online,
Inc. (Digital City) and Yahoo! (SF Bay). Competitors in Raleigh-Durham-Chapel
Hill, the Company's second largest market in terms of subscription and
services revenues for the six months ended June 30, 1998 (i.e., accounting for
13% of such revenues during such period) primarily included the Web site
operated by The Raleigh News & Observer, WRAL-TV, trianglerestaurants.com,
Digital Center (raleighonline.com), Yahoo! Local and Internet Presentations,
Inc. (citydirect.com). 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 markets for the business of selling live events tickets and related
merchandise is highly competitive and diverse. Ticketmaster Online's
competitors include event facilities and promoters that handle their own
ticket sales and distribution through online and other distribution channels,
live event automated ticketing companies with Web sites which may or may not
currently offer online transactional capabilities and certain Web-based
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live event ticketing companies which only conduct business online. Where
facilities and promoters decide to utilize the services of a ticketing
company, Ticketmaster Online competes with international, national and
regional ticketing services, including TicketWeb, Telecharge (Shubert
Ticketing Services), NEXT Ticketing, Advantix, ETM Entertainment Network,
Dillard's, Prologue, Capital Tickets and Lasergate (Lasergate Systems, Inc.).
Several of Ticketmaster Online's competitors have operations in multiple
locations throughout the United States and compete with Ticketmaster Online on
a national level, while others compete with Ticketmaster Online principally in
one specific geographic region. In certain specific geographic regions,
including certain of the local markets in which CitySearch provides or intends
to provide its local city guide service, one or more of these competitors may
serve as the primary ticketing service in the region. The Company believes
that Ticketmaster Online will experience significant difficulty in
establishing a significant online presence in such regions and, as a result,
any local city guide for such a region may be unable to provide significant
ticketing capabilities. There can be no assurance that one or more of these
regional automated ticketing companies will not expand into other regions or
nationally, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Furthermore, certain of Ticketmaster Online's competitors have financial and
other resources greater than those of the Company and may introduce new
Internet products and services in these markets in the future. There can be no
assurance that Ticketmaster Online's competitors will not develop services
superior to those of Ticketmaster Online or achieve greater acceptance than
Ticketmaster Online's offerings. In addition, pursuant to the Ticketmaster
License Agreement, Ticketmaster Online is restricted from entering into
agreements with facilities, promoters or other ticket sellers for the online
sale of live event tickets. As a result, Ticketmaster Online is dependent on
the ability of Ticketmaster Corp. to acquire and maintain live event ticketing
rights, including online ticketing rights, with facilities and promoters and
to negotiate commercially favorable terms for such rights. Furthermore,
substantially all of the tickets sold through Ticketmaster Online's Web site
are also sold by Ticketmaster Corp. by telephone and through independent
retail outlets. Such sales by Ticketmaster Corp. could have a material adverse
effect on Ticketmaster Online's online sales, and as a result, the Company's
business, financial condition and results of operations.
The Company believes that the principal competitive factors include depth,
quality and comprehensiveness of content, ease of use, distribution, search
capability and brand recognition. Many of the Company's competitors, whether
with respect to its CitySearch service or its Ticketmaster Online service,
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 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, servicing 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 BUSINESS AND CONSUMER SERVICES
The Company is expected to introduce new and expanded services in order to
generate additional revenues, attract more businesses, consumers and respond
to competition. For example, the Company recently introduced business Web
sites containing new and enhanced functionality for its CitySearch business
customers. The Company also may in the future offer services facilitating the
purchase of goods by consumers from CitySearch's business customers or others.
A key element of the Company's strategy is to technologically enable its city
guides so that consumers and its business customers can buy and sell goods and
services online through the Company's city guides. The Company has limited
experience in building e-commerce functionality with its city guides. There
can be no assurance that the Company will be able to offer e-commerce or other
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
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or its brand names. 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 OF POTENTIAL GROWTH; RISKS ASSOCIATED WITH EXPANSION
CitySearch's and Ticketmaster Online's businesses have grown rapidly in
recent periods. The growth of their businesses and expansion of their consumer
bases have placed a significant strain on their management and operations. The
growth of the businesses of CitySearch and Ticketmaster Online has resulted,
and for the Company is expected in the future to result, in the growth in the
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. In addition, this growth has and will put additional
pressure on existing operational, financial and management information systems.
The Company's success will depend to a significant extent on the ability of its
executive officers and other members of senior management to operate
effectively, both independently and as a group. To manage its growth, the
Company must continue to implement and improve operational, financial and
management information 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 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 either CitySearch or
Ticketmaster Online will be able to sustain the rate of expansion that each has
experienced in the past.
DEPENDENCE UPON CONTINUED CONTENT DEVELOPMENT
The Company's success depends in part upon its ability to deliver compelling
interactive content on its CitySearch service, such as local events
information, recreation, business, shopping, professional services and
news/sports/weather and online ticketing services in order to attract consumers
with demographic characteristics valuable to CitySearch's business customers,
as well as its ability to develop and integrate compelling content with
existing ticketing capabilities on the Ticketmaster Online Web site. There can
be no assurance that the Company will be successful in developing new content
and services or enhancing CitySearch's existing local city guide service or the
Ticketmaster Online 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 CitySearch's and Ticketmaster Online's local interactive
content and services 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 CitySearch's business customers and
Ticketmaster Online's advertisers and sponsors, 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 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 services.
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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.
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
A key component of the Company's strategy is to continue to expand its
services into international markets. The Company anticipates that it will
expend significant financial and management resources to operate overseas and,
with respect to the CitySearch service, create localized user interfaces
through the launch of additional partner-led markets. The Company believes
Ticketmaster Corp. intends to continue to expand its operations outside of the
United States, which will require additional resources from Ticketmaster Online
to the extent it distributes tickets online in those 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, CitySearch 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.
CAPACITY CONSTRAINTS AND SYSTEM DISRUPTIONS; RELIANCE ON THIRD PARTY SYSTEMS
The satisfactory performance, reliability and availability of CitySearch's
city guides and Ticketmaster Online's online service and their network
infrastructures are critical to attracting Web users and maintaining
relationships with business customers and consumers. System interruptions that
result in the unavailability of sites or slower response times for consumers
would reduce the number of business Web sites and advertisements purchased and
reduce the attractiveness of CitySearch's local city guides and Ticketmaster
Online's online service to business customers and consumers. CitySearch and
Ticketmaster Online have experienced system interruptions in the past and
believe that such interruptions will continue to occur from time to time in the
future. Additionally, any substantial increase in traffic on CitySearch's local
city guides and Ticketmaster Online's online service 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
CitySearch's local city guides and Ticketmaster Online's online service may
cause unanticipated system disruptions and result in slower response times. In
addition, CitySearch 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.
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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 would not compensate the Company for
the loss of consumer goodwill due to disruption of service, and any losses or
damages incurred by the Company could have a material adverse effect on its
business, financial condition and results of operations.
In addition, Ticketmaster Online's operations are substantially dependent
upon services and infrastructure provided by Ticketmaster Corp. that enable
Ticketmaster Online to access information on ticket and merchandise inventory,
events and consumers maintained by Ticketmaster Corp. In addition,
Ticketmaster Corp. has agreed to provide all order processing, payment
processing and fulfillment services for tickets to live events and merchandise
ordered through Ticketmaster Online pursuant to the terms and subject to the
limitations of the Ticketmaster License Agreement. Any discontinuation or
disruption of such services by Ticketmaster Corp. would be disruptive to the
Ticketmaster Online business and would likely have a material adverse effect
on the Company's business, financial condition and results of operations. See
"--Dependence on Relationship with Ticketmaster Corp." and "Business--
Ticketmaster Online Business."
Ticketmaster Online uses a custom-developed system for its online ticketing
operations and certain aspects of transaction processing. Ticketmaster Online
has experienced temporary system interruptions, which may continue to occur in
the future from time to time. Any substantial increase in the volume of
traffic on the Company's online sites or the number of tickets purchased by
consumers may require Ticketmaster Online to expand and upgrade further its
technology, transaction-processing systems and network infrastructure.
Ticketmaster Online has experienced and expects to continue to experience
temporary capacity constraints due to sharply increased traffic for certain
events, which may cause unanticipated system disruptions, slower response
times and degradation in levels of service. In addition, to the extent
Ticketmaster Online experiences delays in processing ticketing confirmations
and reporting accurate financial information, its operations would be
adversely affected. There can be no assurance that Ticketmaster Online's
transaction-processing systems and network infrastructure will be able to
accommodate such increases in traffic in the future, or that the Company will,
in general, be able to accurately project the rate or timing of such increases
or upgrade its systems and infrastructure to accommodate future traffic levels
on its online sites. In addition, there can be no assurance that Ticketmaster
Online will be able to effectively upgrade and expand its transaction-
processing systems in a timely manner or to successfully integrate any newly
developed or purchased components of its existing systems. Any inability to do
so could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Ticketmaster Online
Business."
ONLINE COMMERCE AND DATABASE SECURITY RISKS
A fundamental requirement for online commerce and communications is the
secure transmission of confidential information over public networks. The
Company relies on encryption and authentication technology licensed from third
parties to provide the security and authentication necessary to effect secure
transmission of confidential information, such as consumers credit card
numbers. In addition, the Company maintains an extensive confidential database
of consumer profiles and transaction information. There can be no assurance
that advances in computer capabilities, new discoveries in the field of
cryptography, or other events or developments will not result in a compromise
or breach of the methods used by the Company to protect consumer transaction
and personal data contained in the Company's database. If any such compromise
of the Company's security were to occur, it could have a material adverse
effect on the Company's reputation and on its business, operating results and
financial condition. A party who is able to circumvent the Company's security
measures could misappropriate proprietary information or cause interruptions
in the Company's operations. The Company may be required to expend significant
capital and other resources to protect against such security breaches or to
alleviate problems caused by such breaches. Concerns over the security of
transactions conducted on the Internet and commercial online services and the
privacy of users may also inhibit the growth of the Web and online
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services as a means of conducting commercial transactions. To the extent that
activities of the Company or third-party contractors involve the storage and
transmission of proprietary information, such as credit card numbers or other
personal information, security breaches could expose the Company to a risk of
loss or litigation and possible liability. In addition, the Company may suffer
losses as a result of orders placed with fraudulent credit card data, even
though the consumer's payment for such orders has been authorized by the
associated financial institution. Under current credit card practices, a
merchant is liable for fraudulent credit card transactions where, as is the
case with the transactions processed by the Company, no cardholder signature
is obtained. There can be no assurance that the Company will not suffer
significant losses as a result of fraudulent use of credit card data in the
future, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--CitySearch
Business--Technology" and "Business--Ticketmaster Online Business--
Technology."
RAPID TECHNOLOGICAL CHANGE
The Internet and the online commerce industry are characterized by rapid
technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices that
could render the Company's existing online sites and proprietary technology
and systems obsolete. The emerging nature of these products and services and
their rapid evolution will require that the Company continually improve the
performance, features and reliability of its online services, particularly in
response to competitive offerings. The Company's success will depend, in part,
on its ability to enhance its existing services, to develop new services and
technology that address the increasingly sophisticated and varied needs of its
prospective customers and to respond to technological advances and emerging
industry standards and practices on a cost-effective and timely basis. The
development of online sites and other proprietary technology entails
significant technical and business risks and requires substantial expenditures
and lead time. There can be no assurance that the Company will successfully
use new technologies effectively or adapt its online sites, proprietary
technology and transaction-processing systems to customer requirements or
emerging industry standards. If the Company is unable, for technical, legal,
financial or other reasons, to adapt in a timely manner in response to
changing market conditions or customer requirements, its business, operating
results and financial condition could be materially adversely affected. See
"Business--CitySearch Business--Technology" and "Business--Ticketmaster Online
Business--Technology."
YEAR 2000 COMPLIANCE
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 CitySearch 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, Ticketmaster Online is largely dependent on Ticketmaster
Corp. to ensure that all of its software used in connection with its online
ticketing service will manage and manipulate data involving the transition of
dates from 1999 to 2000 without functional or data abnormality and without
inaccurate results related to such dates. Any failure by Ticketmaster Online
or Ticketmaster Corp. to ensure that such software complies with year 2000
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, while the Company
has developed a plan to identify programs used by its computer systems that
may require modification, and has initiated programs to rectify any such
problems, there can be no assurance that such plans and programs will be
effective in making such programs Year 2000 compliant or will be completed
prior to December 31, 1999. In addition, the Company utilizes third-party
equipment and the Company licenses software from third parties that may not be
Year 2000 compliant. Failure of the Company's software or internal computer
systems or of third-party equipment or software utilized by the
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Company to be Year 2000 compliant could result in a material adverse affect on
the Company's business, financial condition and results of operations.
Furthermore, the spending patterns of business customers or potential business
customers may be affected by Year 2000 issues as companies expend significant
resources to correct or update their current systems for Year 2000 compliance.
These expenditures may result in reduced funds available for such customers to
pay for custom Web sites, license the Company's software products and retain
the Company's services, which could have a material adverse affect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000."
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 CitySearch or
Ticketmaster Online sites or on sites operated by their respective partners.
Such claims have been brought, and sometimes successfully pressed, against
online services. Although the Company intends to continue its 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.
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY; RISKS OF THIRD PARTY LICENSES
The Company regards its copyrights, service marks, trademarks, trade dress,
trade secrets, proprietary software 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
employees, customers, partners and others to protect its proprietary rights.
The Company does not hold any patents. 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 or sought by the Company 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 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 brands 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 its copyrights, trademarks, trade dress and similar proprietary
rights. In addition, there can be no assurance that other parties will not
assert infringement claims, including patent 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 be able to continue to
license the trademark on terms acceptable to the Company. The licensor of the
trademark has filed an application for United States registration of the
CitySearch trademark with the United States Patent and Trademark Office
("USPTO") and has recently received communications from a third party seeking
an extension of the time period during which third parties may oppose
registration of the mark to the licensor of such trademark or that an
inability to obtain such registration will not have an adverse effect on the
ability of such licensor or the Company to utilize such mark in the future.
There can be no assurance that the USPTO will grant registration of the
CitySearch trademark. The Company licenses the trademark "Ticketmaster" and
related trademarks from Ticketmaster Corp. pursuant to the Ticketmaster
License Agreement. The Company may be subject to legal proceedings and 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 licensed to
Ticketmaster Corp. The Company is dependent upon Ticketmaster Corp. to
maintain and assert its rights to the trademarks and defend infringement
claims, if any.
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RISKS 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,
taxation, 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.
Ticketmaster Online is regulated by certain state and local regulations,
including, but not limited to, a law in Georgia that establishes maximum
convenience charges on tickets for certain sporting events. Other legislation
that could affect the way Ticketmaster Online does business, including bills
that would regulate the amount of convenience charges and handling charges,
are introduced from time to time in federal, state and local legislative
bodies. The Company is unable to predict whether any such bills will be
adopted and, if so, whether such legislation would have a material effect on
the business, financial condition and results of operations of the Company.
POTENTIAL GOVERNMENTAL INVESTIGATIONS AND LITIGATION
From time to time, federal, state and local authorities have conducted
investigations or inquiries with respect to Ticketmaster Corp.'s compliance
with antitrust, unfair business practice and other laws. The most recent
federal investigation was commenced in 1994 by the Antitrust Division of the
Department of Justice and was concluded in 1995 with no enforcement action
being taken against Ticketmaster Corp.
In addition, in 1994, Ticketmaster Corp. was also named as a defendant in
multiple class action lawsuits by ticket purchasers alleging that Ticketmaster
Corp.'s activities violated federal antitrust laws. All of such federal
lawsuits were consolidated by the Judicial Panel on Multidistrict Litigation
for Pretrial Proceedings. After an amended and consolidated complaint was
filed by the plaintiffs, Ticketmaster Corp. filed a motion to dismiss and, on
May 31, 1996, the United States District Court for the Eastern District of
Missouri granted the motion to dismiss for failure to state a claim upon which
relief could be granted. On June 12, 1996, the plaintiffs appealed the
dismissal, and on April 10, 1998, the Court of Appeals issued an opinion
affirming the district court's ruling that the plaintiffs were not entitled to
pursue their claims for damages under the federal antitrust laws. However, the
Court of Appeals also held that the plaintiffs' status as indirect purchasers
of Ticketmaster's services did not bar them from seeking injunctive relief.
Discovery on the plaintiffs' claim for equitable relief is ongoing in the
United States District Court in the Eastern District of Missouri and a trial
date of July 17, 2000 has been set. On July 9, 1998, a petition for writ of
certiorari was filed by the plaintiffs in the United States Supreme Court.
Accordingly, there can be no assurance that this lawsuit, if determined
adversely against Ticketmaster Corp., will not have a material adverse effect
on the business, financial condition or results of operations of Ticketmaster
Online or the Company.
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There can be no assurance that the Company, Ticketmaster Online or
Ticketmaster Corp. or its affiliates will not become the subject of future
governmental investigations or inquiries or named as a defendant in claims
alleging violations of federal or state antitrust laws or any other laws. Any
adverse outcome in such litigation, investigation or proceeding against the
Company, Ticketmaster Online or Ticketmaster Corp. or its affiliates could
limit or prevent Ticketmaster Online from engaging in its online ticketing
business or subject the Company to potential damage assessments, all of which
could have a material adverse effect on the Company's business, financial
condition or results of operations. Regardless of its merit, source or
outcome, any such litigation, investigation or proceeding would at a minimum
be costly and could divert the efforts of the Company's management and other
personnel from productive tasks, which could have a material adverse effect on
the Company's business, financial condition or 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.
Any such future acquisitions would 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.
RISKS ASSOCIATED WITH DOMAIN NAMES
The Company currently holds and licenses various Web domain names relating
to its brand, including the "citysearch.com" and "ticketmaster.com" domain
names. 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.
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
Class B 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
Class B Common Stock to be sold by the Company will be established by
negotiations among the Company and the Representatives of the Underwriters and
may bear no relationship to the price at which the Class B Common Stock will
trade after completion of this offering. See "Underwriting" for factors to be
considered in determining such offering price. The market price of the Class B
Common Stock could be subject to significant fluctuations in response to
quarter-to-quarter variations in the Company's operating results,
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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 Class B Common Stock. In addition, the stock
market in recent years has experienced extreme price and volume fluctuations
that have often dramatically affected the market prices of many high
technology companies, particularly those companies doing business on the
Internet. These fluctuations have often been unrelated or disproportionate to
the operating performance of the companies. Such fluctuations, as well as
general economic and market conditions, may adversely affect the market price
for the Class B Common Stock.
BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS
This offering will provide substantial benefits to current stockholders of
the Company. Consummation of this offering is expected to create a public
market for the Class B Common Stock issuable upon conversion of the Class A
Common Stock held by current stockholders, including executive officers and
directors of the Company. As of September 30, 1998, existing stockholders paid
approximately $ million for an aggregate of approximately shares
of Class B Common Stock issuable upon conversion of the Class A Common Stock.
Based upon an assumed initial public offering price of $ per share, the
value of the shares held by such existing stockholders would be approximately
$ million. Therefore, the aggregate unrealized gain to existing
stockholders of the Company resulting from the offering would be approximately
$ million. See "Principal Stockholders" and "Shares Eligible for
Future Sale."
ANTITAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
and the Restated Bylaws and Delaware General Corporation Law Section 203 may
render more difficult, or have the effect of discouraging, unsolicited
takeover bids from third parties or the removal of incumbent management of the
Company. These provisions include the right of the holders of the Class A
Common Stock to 15 votes per share, versus one vote per share for the holders
of Class B Common Stock and provide that the stockholders may not call special
meetings. In addition, upon completion of this offering, the Company's
Restated Certificate of Incorporation will authorize the Board of Directors to
issue, without stockholder approval, 2,000,000 shares of Preferred Stock with
voting, conversion and other rights and preferences that could adversely
affect the voting power or other rights of the holders of Common Stock of the
Company. Although the Company has no current plans to issue any shares of
Preferred Stock, the issuance of Preferred Stock or rights to purchase
Preferred Stock could render more difficult, or have the effect of
discouraging, unsolicited takeover bids from third parties or the removal of
incumbent management of the Company, or otherwise adversely affect the market
price for the Class B Common Stock. See "Description of Capital Stock--
Preferred Stock", "--Antitakeover Effects of Provisions of Certificate of
Incorporation and Bylaws" and "--Effect of Delaware Antitakeover Statute."
Although such provisions do not have a substantial practical significance to
investors while USAi, through its ownership of Class A Common Stock, is in a
position to effectively control all matters affecting the Company, such
provisions could have the effect of depriving stockholders of an opportunity
to sell their shares at a premium over prevailing market prices should USAi no
longer be in such control.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Class B Common Stock in the public market
after this offering (including by optional or automatic conversion of shares
of Class A Common Stock into Class B Common Stock), or the anticipation of
such sales, could have a material adverse effect on then-prevailing market
prices. Upon completion of the offering, the Company will have shares
of Class B Common Stock outstanding and 62,469,875 shares of Class A Common
Stock outstanding (assuming no exercise of currently outstanding options or
warrants). Prior to this offering, USAi will beneficially own approximately
64.8% of the outstanding Common Stock (or approximately 69.5% assuming USAi
purchases the total number of shares of Common Stock subject
32
<PAGE>
to the Tender Offer). Shares of Class A Common Stock are convertible into
Class B Common Stock on a share-
for-share basis at the election of the holder or automatically upon certain
transfers thereof. The shares of Class B Common Stock 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
shares of Class B Common Stock issuable upon conversion of the
Class A Common Stock (including the shares of Class B Common Stock issuable
upon certain transfers of the Class A Common Stock or at the option of the
holder thereof) 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
Restricted Shares will be eligible for immediate sale on the
effective date of this offering; (ii) approximately Restricted
Shares will be eligible for sale 90 days after the date of this offering;
(iii) approximately Restricted Shares will be eligible for sale
without restriction and Restricted Shares will be eligible for sale
subject to volume limitations, in each case 180 days after the effective date
of this offering upon the expiration of contractual pre-existing lock-up
agreements with the Company and the representatives of the Underwriters 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, shares of Class B Common Stock
issuable upon conversion of Class A Common Stock will be issuable upon
exercise of vested stock options and eligible for sale 180 days after the 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 consummation of this offering, the holders of 7,006,671 shares of Class
A Common Stock will have the right in certain circumstances to request the
Company to register their shares under the Securities Act for resale to the
public in the event of a Company-initiated registration. 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. If the Company were required to include in a Company-
initiated registration shares held by such holders, such sales may have a
material adverse affect on the market price for the Company's Class B Common
Stock and 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 shares of Class A Common Stock subject to
outstanding stock options under the Company's 1996 Stock Plan and the
approximately shares of Class B Common Stock reserved for issuance
under the Company's 1998 Stock Plan and 1998 Employee Stock Purchase Plan. The
Form S-8 registration statement is expected to be filed and to become
effective immediately 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 volume 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."
DILUTION
The initial public offering price is substantially higher than the book
value per share of all of the outstanding classes of Common Stock. At an
assumed initial public offering price of $ per share, investors
purchasing shares of Class B Common Stock in the offering will incur
immediate, substantial dilution in the amount of $ per share. In
addition, investors purchasing shares of Class B Common Stock in this offering
will incur additional dilution to the extent outstanding options and warrants
are exercised. See "Dilution."
33
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Class B 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 deducting the underwriting discount and
estimated offering expenses payable by the Company. The Company intends to use
approximately $51 million of the net proceeds of this offering to repay in
full the Convertible Note and accrued interest thereon. The Convertible Note
was issued to USAi upon execution of the Merger Agreement in exchange for a
$50 million loan from USAi to provide working capital to the Company. The
Convertible Note bears interest at a rate of 7.00% per annum and is generally
due and payable on the earlier to occur of (i) August 13, 2005 or (ii) 20 days
following the closing of an initial public offering meeting certain criteria.
The remaining proceeds from this offering and the Company's available cash
will be used for capital expenditures relating to the Company's Web sites such
as enhancements to the Company's servers and networking infrastructure,
working capital and other general corporate purposes, including sales and
marketing. 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. See "Ticketmaster Online--CitySearch
Merger."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. 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.
34
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998 (i) on an actual basis, (ii) on a pro forma basis to give effect to
the Merger, the Conversion and the Reclassification, and (iii) on a pro forma
as-adjusted basis to reflect the receipt of the net proceeds from the sale of
the shares of Class B Common Stock offered hereby at an assumed initial
public offering price of $ per share (after deducting the underwriting
discount and estimated offering expenses payable by the Company) and the
application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, less current portion(1). $ 2,319 $ 52,331 $
Redeemable Convertible Preferred Stock(2)...... 77,840 --
Stockholders' equity(3):
Convertible Preferred Stock, $0.01 par value,
2,241,000 shares authorized, actual;
shares authorized, pro forma and
pro forma as adjusted; 2,080,000 shares
issued and outstanding, actual; no shares
issued and outstanding, pro forma and pro
forma as adjusted........................... 3,056 --
Common Stock, $0.01 par value; 75,000,000
shares authorized, actual; 9,990,000 shares
issued and outstanding, actual; no shares
issued and outstanding, pro forma and pro
forma as adjusted........................... 1,648 --
Class A Common Stock, $0.01 par value; no
shares authorized or issued and outstanding,
actual; 100,000,000 shares authorized pro
forma and pro forma as adjusted;
shares issued and outstanding, pro forma;
shares issued and outstanding, pro
forma as adjusted........................... -- 299,721
Class B Common Stock, $0.01 par value; no
shares authorized or issued and outstanding,
actual; 250,000,000 shares authorized pro
forma and pro forma as adjusted; no shares
issued and outstanding, pro forma;
shares issued and outstanding, pro
forma as adjusted........................... -- --
Class C Common Stock, $0.01 par value; no
shares authorized or issued and outstanding,
actual; 2,883,506 shares authorized pro
forma and pro forma as adjusted; no shares
issued and outstanding pro forma and pro
forma as adjusted........................... -- --
Deferred stock compensation.................... (1,232) --
Retained earnings (accumulated deficit)........ (67,213) 3,108
-------- -------- ---
Total stockholders' equity (deficit)........... (63,741) 302,829
-------- -------- ---
Total capitalization....................... $ 16,418 $355,160 $
======== ======== ===
</TABLE>
- --------
(1) See Notes 2 and 5 of Notes to Consolidated Financial Statements of
CitySearch, Inc.
(2) See Note 6 of Notes to Consolidated Financial Statements of CitySearch,
Inc.
(3) Based on shares outstanding as of June 30, 1998. Does not include (i)
3,913,928 shares of Class A Common Stock issuable upon exercise of options
outstanding at June 30, 1998 at a weighted average price of $3.47 per
share under the Company's 1996 Stock Option Plan, (ii) an aggregate of
shares of Class B Common Stock available for future grant or
issuance as of the date of this Prospectus under the Company's 1998 Stock
Option Plan and 1998 Employee Stock Purchase Plan and (iii) 93,107 shares
of Class A Common Stock issuable upon exercise of an outstanding warrant
at an exercise price of $8.86 per share held by NationsBanc Montgomery
Securities LLC. See "Management--Employee Benefit Plans," "Underwriting"
and Note 1 of Notes to Consolidated Financial Statements of CitySearch,
Inc.
35
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1998 was $ million, or $ per share 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 Class B 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 payable by the Company),
the pro forma net tangible book value of the Company as of September 30, 1998
would have been $ 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 September 30, 1998......... $
Increase in pro forma net tangible book value attributable to new
investors.........................................................
----
Pro forma net tangible book value per share after the offering.......
----
Dilution per share to new investors.................................. $
====
</TABLE>
The following table summarizes on a pro forma basis as of September 30,
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 payable by the Company):
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
-------------- -------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............ % $ %
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 all classes of Common Stock to be outstanding after this
offering.
The foregoing computations assume no exercise of any outstanding stock
options or warrants. As of September 30, 1998, there were options outstanding
to purchase a total of shares of Common Stock at a weighted average
exercise price of $ per share and warrants outstanding to purchase a total
of 93,107 shares of Common Stock at an exercise price of $8.86 per share. In
addition, as of the date of this Prospectus, an aggregate of shares of
Common Stock were reserved for future issuance under the Company's 1998 Stock
Option Plan and 1998 Employee Stock Purchase 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 Stock Option Plan or 1998 Employee Stock Purchase Plan are issued,
there will be future dilution to new investors. See "Management--Employee
Benefit Plans," "Underwriting" and Note of Notes to Consolidated Financial
Statements of CitySearch, Inc.
36
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
CITYSEARCH
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 CitySearch,
Inc., which consolidated financial statements have been audited by Ernst &
Young LLP, independent auditors, and are included elsewhere in this
Prospectus. The consolidated balance sheet data as of December 31, 1995 are
derived from audited Consolidated Financial Statements of CitySearch, Inc.
that are not included herein. The consolidated statements of operations data
for the six-month periods ended June 30, 1997 and 1998, respectively, and the
consolidated balance sheet data at June 30, 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
adjustments, necessary for a fair presentation of CitySearch's results of
operations for such periods and financial condition at such date. The results
of operations for the six months ended June 30, 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 below are qualified in
their 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 of CitySearch, Inc. and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 20, 1995 YEAR ENDED SIX MONTHS ENDED
(DATE OF DECEMBER 31, JUNE 30,
FORMATION) TO ------------------ ------------------
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 $ 1,508 $ 5,577
Licensing and royalty. -- -- 1,271 -- 1,221
------ -------- -------- -------- --------
Total revenues...... -- 203 6,184 1,508 6,798
Costs and expenses:
Cost of revenues...... -- 2,908 9,688 4,043 6,699
Sales and marketing... 57 6,369 20,172 9,624 9,812
Research and
development.......... 152 2,563 7,182 3,220 3,395
General and
administrative....... 104 2,475 5,883 2,743 3,634
------ -------- -------- -------- --------
Total costs and
expenses........... 313 14,315 42,925 19,630 23,540
------ -------- -------- -------- --------
Loss from operations... (313) (14,112) (36,741) (18,122) (16,742)
Interest income, net... 5 217 223 104 260
------ -------- -------- -------- --------
Loss before provision
for income taxes...... (308) (13,895) (36,518) (18,018) (16,482)
Provision for income
taxes................. -- 2 8 -- --
------ -------- -------- -------- --------
Net loss............... $ (308) $(13,897) $(36,526) $(18,018) $(16,482)
====== ======== ======== ======== ========
Historical basic and
diluted net loss per
share................. $(0.04) $ (1.58) $ (3.86) $ (1.91) $ (1.67)
====== ======== ======== ======== ========
Pro forma basic and
diluted net loss per
share................. $ (1.96) $ (0.68)
======== ========
Shares used to compute
historical basic and
diluted net loss per
share(1).............. 7,895 8,786 9,452 9,423 9,873
====== ======== ======== ======== ========
Shares used to compute
pro forma basic and
diluted net loss per
share(1).............. 18,645 24,209
======== ========
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997 1998
------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................ $1,413 $ 7,527 $ 25,227 $ 15,512
Working capital.......................... 1,323 4,257 19,375 10,731
Total assets............................. 1,490 13,370 31,655 22,490
Long-term obligations, less current
portion................................. -- 1,451 2,420 2,319
Redeemable Convertible Preferred Stock... -- 20,309 70,882 77,840
Stockholders' equity (deficit)........... 8,366 (11,943) (47,911) (63,741)
</TABLE>
- --------
(1) Shares used to compute pro forma basic and diluted net loss per share give
effect to the conversion of outstanding convertible Preferred Stock of
CitySearch as if converted at the earlier of the beginning of the period
or issue date. See Note 1 of Notes to Consolidated Financial Statements of
CitySearch, Inc. for an explanation of the determination of the number of
shares used to compute historical and pro forma basic and diluted net loss
per share.
38
<PAGE>
TICKETMASTER ONLINE
The selected financial data presented below at January 31, 1997 and 1998 and
for each of the three years in the period ended January 31, 1998, are derived
from the Financial Statements of Ticketmaster Online, which financial
statements have been audited by Ernst & Young LLP, independent auditors, and
are included elsewhere in this Prospectus. The balance sheet data as of
January 31, 1996 are derived from unaudited financial statements of
Ticketmaster Online that are not included herein. The statements of operations
data for the five-month periods ended June 30, 1997 and 1998 and the balance
sheet data at June 30, 1998 are derived from unaudited financial statements
included elsewhere in this Prospectus. In the opinion of management, the
unaudited financial statements have been prepared on the same basis as the
audited financial statements and contain all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of
Ticketmaster Online's results of operations for such periods and financial
condition at such date. The results of operations for the five months ended
June 30, 1998 are not necessarily indicative of the results to be expected for
the full year or future periods. The selected Ticketmaster Online financial
data set forth below are qualified in their entirety by, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements of Ticketmaster Online
and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED JUNE
YEAR ENDED JANUARY 31, 30,
------------------------ -------------
1996(1) 1997(1) 1998 1997 1998
------- ------- ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Ticketing operations.................... $ -- $ 199 $5,972 $2,110 $5,324
Sponsorship and advertising............. 14 997 3,933 1,437 2,099
------ ------ ------ ------ ------
Total revenues........................ 14 1,196 9,905 3,547 7,423
Costs and expenses:
Ticketing operations.................... -- 635 3,522 1,091 3,027
Sales and marketing..................... -- 290 490 169 410
General and administrative.............. 548 1,260 1,719 617 821
------ ------ ------ ------ ------
Total costs and expenses.............. 548 2,185 5,731 1,877 4,258
------ ------ ------ ------ ------
Income (loss) before income taxes........ (534) (989) 4,174 1,670 3,165
Income tax provision (benefit)........... (204) (374) 1,827 731 1,459
------ ------ ------ ------ ------
Net income (loss)........................ $ (330) $ (615) $2,347 $ 939 $1,706
====== ====== ====== ====== ======
Basic and diluted net income (loss) per
equivalent share(2)..................... $(0.01) $(0.02) $ 0.06 $ 0.03 $ 0.05
====== ====== ====== ====== ======
Number of shares used to compute basic
and diluted net income (loss) per
equivalent share (2).................... 37,238 37,238 37,238 37,238 37,238
====== ====== ====== ====== ======
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
JANUARY 31,
--------------- JUNE 30,
1996 1997 1998 1998
---- ---- ----- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................................ $ -- $ 3 $ -- $ --
Working capital (deficit)(3)........................ 223 218 (100) (2,918)
Total assets(4)..................................... 354 554 688 155,424
Stockholder's accounts(4)........................... 354 489 289 152,309
</TABLE>
- --------
(1) Ticketmaster Online did not incur costs or expenses until June 1995 and
commenced selling live event tickets and merchandise online in November
1996.
(2) Basic and diluted net income (loss) per equivalent share is based on the
number of shares of CitySearch Common Stock exchanged in the Merger.
(3) Negative working capital at January 31, 1998 and June 30, 1998 is
primarily the result of current deferred revenue related to sponsorship
and advertising agreements for which the cash has been transferred to
Ticketmaster Corp. and is included as a receivable in "Due to (from)
Ticketmaster" in stockholder's accounts. See Note 1 of the Financial
Statements of Ticketmaster Online and Notes thereto included elsewhere in
this Prospectus.
(4) Total assets and stockholder's accounts reflect a preliminary allocation
of goodwill of $154.8 million to Ticketmaster Online resulting from the
purchase of Ticketmaster Group by USAi.
40
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The selected unaudited pro forma combined financial data give effect to the
Merger and the Ticketmaster Transaction. The Merger will be accounted for
using the "reverse purchase" method of accounting pursuant to which
Ticketmaster Online will be treated as the acquiring entity for accounting
purposes and the assets and liabilities of CitySearch will be recorded at
their respective fair values. The unaudited pro forma balance sheet data give
effect to the Merger as if it had occurred on June 30, 1998. The unaudited pro
forma statements of operations data assume that the Merger and Ticketmaster
Transaction had occurred at the beginning of the respective periods. The
selected unaudited pro forma combined financial data have been derived from
the unaudited pro forma condensed combined financial statements and notes
thereto set forth elsewhere herein and should be read in conjunction with
those financial statements and notes. The summary unaudited pro forma combined
financial data do not purport to be indicative of future operations and should
not be construed as representative of future operations of the combined
companies.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED
1997 JUNE 30, 1998
------------ ----------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS:
Revenues:
Ticketing operations........................... $ 5,442 $ 5,947
Sponsorship and advertising.................... 3,965 2,721
City guide and related......................... 6,072 6,521
-------- --------
Total revenues............................... 15,479 15,189
Costs and expenses:
Cost of ticketing operations................... 3,865 4,408
Cost of city guide and related................. 9,688 6,699
Sales and marketing............................ 20,611 10,282
Research and development....................... 7,182 3,395
General and administrative..................... 6,993 4,227
Amortization of goodwill....................... 50,044 25,022
-------- --------
Total costs and expenses..................... 98,383 54,033
-------- --------
Loss from operations............................ (82,904) (38,844)
Interest income (expense), net.................. (3,277) (1,490)
-------- --------
Loss before provision for income taxes.......... (86,181) (40,334)
Provision for income taxes...................... 8 --
-------- --------
Net loss........................................ $(86,189) $(40,334)
======== ========
Basic and diluted net loss per share............ $ (1.54) $ (0.66)
Shares used to compute basic and diluted net
loss per share................................. 55,883 61,448
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
1998 AS ADJUSTED(2)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 63,512 $
Working capital........................................ 55,813
Total assets(1)........................................ 364,335
Long-term obligations, less current portion............ 52,331
Stockholders' equity(1)................................ 302,829
</TABLE>
- --------
(1) Total assets and stockholders' equity includes $293.2 million of goodwill
resulting from the Merger and the Ticketmaster Transaction.
(2) Adjusted to reflect the sale and issuance of the shares of Class B
Common Stock offered hereby at an assumed initial public offering price of
$ per share (after deducting the underwriting discount and estimated
offering expenses payable by the Company) and the application of the
estimated net proceeds of this offering. See "Capitalization."
41
<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 of CitySearch, Inc. and the related Notes thereto and the
Financial Statements of Ticketmaster Online 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
The Company is combining CitySearch and Ticketmaster Online to create a
leading provider of local city guides, local advertising and live event
ticketing on the Internet. The Company intends to integrate its local
CitySearch city guides with its Ticketmaster Online live events ticketing and
merchandise distribution capabilities to offer online ticketing, merchandise,
electronic coupons and other transactions to a broader audience of consumers.
CitySearch was founded in September 1995 and Ticketmaster Online launched its
online ticketing services in November 1996 as a wholly-owned subsidiary of
Ticketmaster Corp. On September 28, 1998, pursuant to the Merger, a wholly-
owned subsidiary of CitySearch merged into Ticketmaster Online, with
Ticketmaster Online continuing as the surviving corporation and as a wholly-
owned subsidiary of CitySearch. The Merger was accounted for using the
"reverse purchase" method of accounting pursuant to which Ticketmaster Online
was treated as the acquiring entity for accounting purposes.
CitySearch
The Company has two primary means of providing CitySearch 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
the Company to assist in developing, designing and launching a city guide.
These partners license the Company's business and technology systems and
provide royalty payments to the Company for revenues derived from operations.
In partner-led markets, the Company's partners hire and train the local city
guide staff and purchase all necessary third-party hardware and software. The
Company's current owned and operated sites are 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 Baltimore, Dallas,
Los Angeles, Washington D.C., Melbourne, Stockholm, Sydney and Toronto.
Additional partner-led markets where roll-out teams have been deployed include
San Diego and Copenhagen.
In its owned and operated city guide markets, the Company derives its
revenues primarily from subscription fees resulting from the creation, hosting
and maintenance of local business Web sites. Business customers typically
enter into one-year agreements that automatically convert to month to month
contracts upon expiration. The Company recognizes revenue from sales of local
business Web sites on a monthly basis over the term of each contract as
services are rendered. The Company's city guide business customers in its
owned and operated markets increased from approximately 1,300 as of December
31, 1996 to approximately 8,900 as of June 30, 1998. As of June 30, 1998, the
Company believes that there were approximately 6,800 business customers in its
partner-led markets. The average monthly revenue from new businesses signed up
in its owned and operated markets in August 1997 was approximately $81 per
customer and in August 1998 was approximately $183 per customer. To a lesser
extent, the Company derives city guide revenue from banner and sponsorship
advertising purchased by national and regional advertisers and from barter
agreements with television, radio and media alliances. Banner revenue is
recognized as earned. With barter agreements, the Company receives television
and radio broadcast advertising in exchange for Web site design, hosting and
maintenance. Barter revenue and expense are 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.
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<PAGE>
In partner-led markets, the Company derives licensing and royalty revenues
from the licensing of the Company's technology and business systems,
consulting services and from providing back office and hosting services.
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. Pursuant to SOP 97-2 and beginning with contracts
signed in 1998, 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 of
CitySearch, Inc. Royalty revenue is recognized as earned and is typically a
percentage of partner-led market revenues from Web site subscriptions,
banners, advertisements, 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.
Ticketmaster Online
Through Ticketmaster Online, the Company derives revenues from its online
ticketing service, from the sale of sponsorships and advertising banners on
the Ticketmaster Online Web site and from the sale of merchandise through the
Ticketmaster Online Web site. Ticket operations revenues are primarily
comprised of convenience charges that are charged on a per ticket purchased
basis and shipping and handling fees which are collected on a per order basis.
The sale of tickets for an event often begins several months prior to the
scheduled date of the event. Ticket operations revenue is recognized when the
ticket is sold. If credit card chargeback or refund activity is likely to
occur with respect to an event, for example, due to the cancellation of such
event, an allowance is established for potential convenience charge refunds.
Sponsorship and advertising revenues are primarily recognized ratably over the
term of the promotion. Merchandise sale revenues are recognized when the
products are sold. The Company expects that revenues from Ticketmaster Online
will comprise a majority of the Company's overall revenues for the foreseeable
future.
Under the Ticketmaster License Agreement, subject to certain limitations,
Ticketmaster Corp. has granted Ticketmaster Online an exclusive, perpetual,
irrevocable, worldwide license to use the Ticketmaster trademark and certain
Ticketmaster Corp. databases to sell live event tickets online for
Ticketmaster Corp.'s clients. In addition, Ticketmaster Corp. has authorized
Ticketmaster Online to be Ticketmaster Corp.'s exclusive, perpetual, worldwide
agent for such online ticket sales. The Ticketmaster License Agreement further
provides that Ticketmaster Corp. may use and permit others to use the
Ticketmaster trademark in connection with the online promotion of ticket
sales.
Ticketmaster Corp. retains the rights to sell tickets by non-online means
and to use the Ticketmaster trademark in connection with such sales. The
Ticketmaster License Agreement defines such non-online means to include by
telephone; by other voice-to-voice means or voice-to-voice recognition unit
systems; by non-interactive broadcast, cable and satellite television; and by
kiosks and retail ticket outlets. Client venues retain the rights to sell
tickets at their box offices or as otherwise provided in client venue
agreements with Ticketmaster Corp.
Ticketmaster Corp. is the contracting party with client venues, promoters
and sports franchises, providing ticket inventory management, consumer
information and related data for all ticketing transactions. Ticketmaster
Corp. provides such information to Ticketmaster Online in connection with
processing online ticket sales and provides all transaction processing and
fulfillment services for online live event ticket sales. Ticketmaster Online
is required under the Ticketmaster License Agreement to comply with the terms
of Ticketmaster Corp.'s client agreements and Ticketmaster Online's rights as
set forth in the Ticketmaster License Agreement are subordinated and subject
to such agreements. The Ticketmaster License Agreement also generally
restricts Ticketmaster Online from cooperating with, offering online links to,
or entering into any agreements with venues, ticket sellers or sales agents
for online sale of tickets.
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<PAGE>
Under the Ticketmaster License Agreement, Ticketmaster Online pays
Ticketmaster Corp. a royalty based on the percentage of the net profit it
derives from online ticket sales. Ticketmaster Online also reimburses
Ticketmaster Corp. for Ticketmaster Corp.'s direct expenses related to online
ticket sales.
Ticketmaster Online has also been granted under the Ticketmaster License
Agreement the non-exclusive right to promote and sell online certain
merchandise available through Ticketmaster Corp. Ticketmaster Corp. serves as
Ticketmaster Online's exclusive fulfillment provider for the online sales of
such merchandise. As long as Ticketmaster Corp.'s fees, terms and quality of
service are no less favorable than those available to Ticketmaster Online from
third parties, Ticketmaster Corp. or its affiliates serves as Ticketmaster
Online's exclusive fulfillment provider for the online sales of all other
merchandise available through Ticketmaster Corp. Ticketmaster Corp. may also
solicit, sponsorship and advertising for Ticketmaster Online's Web sites in a
bundle with other sponsorship and advertising opportunities offered by
Ticketmaster Corp. See "Risk Factors--Dependence on Relationship with
Ticketmaster Corp." and "--Potential Conflicts of Interest."
Pursuant to its client agreements, Ticketmaster Corp. is generally granted
the right to collect from ticket purchasers a per ticket convenience charge on
all tickets sold other than at the box office and an additional per order
handling charge on all tickets sold by Ticketmaster Corp. at other than at
remote sales outlets to partially offset the cost of fulfillment. The amount
of the convenience charge is typically determined during the contract
negotiation process, and varies based upon numerous factors, including the
services to be rendered to the client, the amount and cost of equipment to be
installed at the client's box office and the amount of advertising and/or
promotional allowances to be provided, as well as the type of event and
whether the ticket is purchased at a remote sales outlet, by telephone,
through the Ticketmaster Online Web site or otherwise.
Operating Losses
Prior to the Merger, CitySearch 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 for the years ended December 31, 1996 and
1997 respectively, and $16.5 million for the six months ended June 30, 1998.
At June 30,
1998, CitySearch had an accumulated deficit of $67.2 million. The net losses
and accumulated deficit resulted from CitySearch's lack of substantial
revenues and the significant operation, infrastructure and other costs
incurred in the development and initial roll outs of CitySearch's services.
Prior to the Merger, Ticketmaster Online incurred net losses of $330,000 and
$615,000 for the years ended January 31, 1996 and 1997, respectively, and
earned net income of $2.3 million for the year ended January 31, 1998 and net
income of $1.7 million for the five months ended June 30, 1998. At June 30,
1998, Ticketmaster Online had retained earnings of $3.1 million.
Goodwill
The Merger resulted in $138.4 million of goodwill that will be amortized
over three years. Prior to the Merger, Ticketmaster Online was a wholly-owned
subsidiary of Ticketmaster Corp., which is a wholly-owned subsidiary of
Ticketmaster Group. Goodwill of $154.8 million, recorded by Ticketmaster
Online, which is being amortized over 40 years, represents a preliminary
allocation of goodwill resulting from the acquisition of Ticketmaster Group by
USAi.
RESULTS OF OPERATIONS
CitySearch
Revenues. CitySearch's revenues increased from $1.5 million for the six
months ended June 30, 1997 to $6.8 million for the six months ended June 30,
1998, and increased from $203,000 for the year ended December 31, 1996 to $6.2
million for the year ended December 31, 1997. CitySearch did not recognize any
revenue from September 20, 1995 (date of formation) to December 31, 1995 (the
"Inception Period"). CitySearch has two revenue sources: (i) subscription and
services revenue and (ii) licensing and royalty revenue.
44
<PAGE>
Subscription and services revenue was $1.5 million and $5.6 million for the
six months ended June 30, 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 for the six months ended June 30,
1998 as compared to the six months ended June 30, 1997 and for the year ended
December 31, 1997 as compared to the year ended December 31, 1996 primarily as
the result of increases in business Web site subscription revenue of $2.9
million and $3.2 million, respectively, due to increases in the number of city
guides launched, an increased number of business Web sites in each city guide
market, and to a lesser extent an increase in the average sales price for
business Web sites. The increases in subscription and services revenue for the
six months ended June 30, 1998 and for the year ended December 31, 1997 also
resulted from increases in consulting revenue of $575,000 and $306,000,
respectively, barter revenue of $333,000 and $1.1 million, respectively, and
banner revenue of $265,000 and $113,000, respectively. Licensing and royalty
revenue was $0 and $1.2 million for the six months ended June 30, 1997 and
1998, respectively, and was $0 and $1.3 million for the years ended December
31, 1996 and 1997, respectively. The Company began recognizing licensing and
royalty revenue after the launch of its initial partner-led market city guide
in July 1997.
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 costs
of consulting services in partner-led markets. Cost of revenues is expended as
incurred. CitySearch had no cost of revenues for the Inception Period. Cost of
revenues were $4.0 million and $6.7 million for the six months ended June 30,
1997 and 1998, respectively, and were $2.9 million and $9.7 million for the
years ended December 31, 1996 and 1997, respectively. The increases for the
six months ended June 30, 1998 as compared to the six months ended June 30,
1997 and for the year ended December 31, 1997 as compared to the year ended
December 31, 1996 were due primarily to increased personnel and freelance
labor amounting to $1.7 million and $5.5 million, respectively, required to
produce and maintain the increased number of business Web sites and amount of
editorial content. The remaining amount of the increase during the periods was
due to operating support costs associated with the growth in the business.
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 $9.6 million and $9.8 million
for the six months ended June 30, 1997 and 1998, respectively, and were
$57,000, $6.4 million and $20.2 million for the Inception Period and for the
years ended December 31, 1996 and 1997, respectively. The increase for the
year ended December 31, 1997 as compared to the year ended December 31, 1996
was due primarily to increased labor related costs of $7.6 million. The
increase in the year ended December 31, 1997 was also attributable, to a
lesser extent, to an increase of $2.0 million in advertising costs. The
remaining increase in the period was related to operating support costs
associated with the growth in sales and marketing activities. The Company
expects that sales and marketing expenses will continue to increase in
absolute dollars as CitySearch 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 $3.2 million and $3.4 million for the six months
ended June 30, 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 is 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
45
<PAGE>
development. As such, the Company expects that research and development
expenditures will increase in absolute dollars in future periods. CitySearch
has expended 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 CitySearch. General and administrative expenses were $2.7
million and $3.6 million for the six months ended June 30, 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 CitySearch'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 CitySearch's cash and cash equivalents, less interest expense on
capital lease obligations. CitySearch had net interest income of $104,000 and
$260,000 for the six months ended June 30, 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. CitySearch invests its cash balances
in short-term investment grade, interest-bearing securities.
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. CitySearch'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 of realizing the
benefits of its favorable tax attributes in future tax returns, CitySearch has
placed a valuation allowance against its otherwise recognizable deferred tax
assets. At December 31, 1997, CitySearch 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. See Note 4 of Notes to
Consolidated Financial Statements of CitySearch, Inc. 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.
CitySearch's ability to utilize net operating loss carryforwards may be
limited as a result of "ownership change" as defined in the Internal Revenue
Code. The Merger, and prior issuances of Preferred Stock, have constituted
"ownership changes" that could result in limitations on the use of net
operating loss carryforwards in future periods.
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. CitySearch
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, CitySearch is recognizing
revenues from the sale of licenses for use of CitySearch'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 of CitySearch, Inc.
Ticketmaster Online
Revenues. Ticketing operations revenues increased from $2.1 million for the
five months ended June 30, 1997 to $5.3 million for the five months ended June
30, 1998, and increased from $199,000 for the fiscal year ended January 31,
1997 to $6.0 million for the fiscal year ended January 31, 1998. Ticketmaster
Online did not recognize ticketing revenue for the fiscal year ended January
31, 1996, since significant operations commenced
46
<PAGE>
in November 1996. The increase for the five months ended June 30, 1998 as
compared to the comparable period in 1997 is primarily attributable to a
significant increase in the number of tickets sold (from 324,000 to 992,000
tickets), and a 7.7% increase in average per ticket operations revenue (from
$4.92 to $5.30). The increase for the fiscal year ended January 31, 1998 is
primarily attributable to a significant increase in the number of tickets sold
(from 39,000 to 1,065,000 tickets), and a 11% increase in average convenience
charge revenue (from $4.56 to $5.06). The increase in the number of tickets
sold in the fiscal year ended January 31, 1998 is largely attributable to the
commencement of online ticket sales through the Ticketmaster Online Web site
in November 1996.
Sponsorship and advertising revenues were $1.4 million and $2.1 million for
the five months ended June 30, 1997 and 1998, respectively, and $14,000, $1.0
million and $3.9 million for the fiscal years ended January 31, 1996, 1997 and
1998, respectively. The increases are primarily attributable to an increase in
sponsorship and promotion activity with strategic marketing partners.
Ticketing Operations Expenses. Ticketing operations expenses consist
primarily of expenses associated with ticket fulfillment, Web site design and
layout, service and network infrastructure maintenance and data
communications. Ticketing operating expenses were $1.1 million and $3.0
million for the five months ended June 30, 1997 and 1998, respectively, and
were $635,000 and $3.5 million for the fiscal years ended January 31, 1997 and
1998, respectively. Ticketmaster Online did not incur any ticketing operations
expenses during the fiscal year ended January 31, 1996, since significant
ticketing operations began in November 1996. Ticketing operations expenses are
primarily variable in nature and have increased during the periods presented
in conjunction with the increase in ticketing operations revenue and will
continue to increase in future periods to the extent ticketing operations
revenues increase during such periods. In addition, the Company expects that
ticketing operations expenses will increase as a percentage of ticketing
revenues following the Merger as a result of expenses associated with the
Ticketmaster License Agreement.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily
of costs related to the compensation of sales and marketing personnel,
advertising and travel. Sales and marketing expenses were $169,000 and
$410,000 for the five months ended June 30, 1997 and 1998, respectively, and
$290,000 and $490,000 for the fiscal years ended January 31, 1997 and 1998,
respectively. The increases for the fiscal year ended January 31, 1998 and the
five months ended June 30, 1998 over corresponding periods were due primarily
to increased salary related costs and operating support costs associated with
the growth in sales and marketing activities. The Company expects that sales
and marketing expenses will increase in absolute dollars.
General and Administrative Expenses. General and administrative expenses
consist primarily of administrative and executive personnel costs. General and
administrative expenses were $617,000 and $821,000 for the five months ended
June 30, 1997 and 1998, respectively, and were $548,000, $1.3 million and
$1.7 million for the fiscal years ended January 31, 1996, 1997, and 1998,
respectively. These increases were due primarily to increased staffing levels
to manage and support Ticketmaster Online's expanding operations. The Company
expects the general and administrative expenses will increase in absolute
dollars.
Income Taxes. The provision (benefit) for income taxes was $731,000 and $1.5
million for the five months ended June 30, 1997 and 1998, respectively, and
$(204,000), $(374,000), and $1.8 million for the fiscal years ended January
31, 1996, 1997 and 1998, respectively. Ticketmaster Online's effective tax
rate differs from the statutory federal income tax rate, primarily as a result
of state income taxes. Tax benefits were recorded in fiscal years 1996 and
1997 as there were no valuation allowances recognized against the deferred tax
asset on a stand-alone basis for the respective years. The Company expects
that any taxable income of Ticketmaster Online for 1998 and 1999 will be
offset by the expected future net operating losses of CitySearch, resulting in
a nominal tax provision on a combined basis subsequent to the Merger. However,
net operating loss carryforwards of CitySearch will not be available to
further offset taxable income of Ticketmaster Online.
47
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth certain historical statement of operations
data for CitySearch and Ticketmaster Online and certain pro forma combined
Ticketmaster Online-CitySearch, Inc. statement of operations data for the six
quarters ended June 30, 1998. This information has been derived from unaudited
historical and pro forma financial statements. In management's opinion, the
unaudited historical information has been prepared on the same basis as the
annual financial statements of CitySearch and Ticketmaster Online 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 of CitySearch,
Inc. and Notes thereto, the Financial Statements of Ticketmaster Online and
Notes thereto and Unaudited Pro Forma Condensed Combined Financial Statements
of Ticketmaster Online-CitySearch, Inc. included elsewhere in this Prospectus.
The operating results for any quarter are not necessarily indicative of
results for any future period.
CitySearch (Historical)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1997 1997 1997 1998 1998
--------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Subscription and
services............. $ 470 $ 1,038 $ 1,478 $ 1,927 $ 2,563 $ 3,014
Licensing and royalty. -- -- 677 594 528 693
------- ------- ------- ------- ------- -------
Total revenues...... 470 1,038 2,155 2,521 3,091 3,707
Costs and expenses:
Cost of revenues...... 1,898 2,145 2,783 2,862 3,260 3,439
Sales and marketing... 4,661 4,963 4,878 5,670 4,757 5,055
Research and
development.......... 1,713 1,507 1,729 2,233 1,655 1,740
General and
administrative....... 1,363 1,380 1,520 1,620 1,568 2,066
------- ------- ------- ------- ------- -------
Total costs and
expenses........... 9,635 9,995 10,910 12,385 11,240 12,300
------- ------- ------- ------- ------- -------
Loss from operations.... (9,165) (8,957) (8,755) (9,864) (8,149) (8,593)
Interest income, net.... 84 20 -- 119 173 87
------- ------- ------- ------- ------- -------
Loss before provision
for income taxes....... (9,081) (8,937) (8,755) (9,745) (7,976) (8,506)
Provision for income
taxes.................. -- -- -- 8 -- --
------- ------- ------- ------- ------- -------
Net loss................ $(9,081) $(8,937) $(8,755) $(9,753) $(7,976) $(8,506)
======= ======= ======= ======= ======= =======
</TABLE>
Subscription and services revenues increased each period primarily as the
result of business Web site subscription revenue growth due to an increased
number of city guides launched, a greater number of business Web sites in each
city guide and an increase in the average sales price for business Web sites.
Licensing and royalty revenues has fluctuated with the timing of license
agreements in partner-led markets.
Cost of revenues has increased each period as CitySearch continues to sell
new business Web sites, add editorial content, host and maintain an increasing
number of business Web sites and, to a lesser extent, provide increasing
services in partner-led markets. Sales and marketing expenses fluctuate
primarily due to the timing of advertising and promotional campaigns. During
the three months ended December 31, 1997, the increase in sales and marketing
expense was primarily due to increased advertising expenditures. Research and
development expenses fluctuate primarily due to the periodic use of technology
consultants. During the three months ended December 31, 1997, consultants were
retained to assist with the development of version CS 2.5 of CitySearch's
online city guide application. General and administrative expenses have
increased due primarily to increased staffing levels to manage and support
CitySearch's expanding operations. During the three months ended June 30,
1998, general and administrative expenses increased primarily due to higher
professional fees incurred during the quarter.
48
<PAGE>
Ticketmaster Online (Historical)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1997 1997 1997 1998 1998
--------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Ticketing operations... $ 528 $1,665 $1,302 $1,947 $2,237 $3,710
Sponsorship and
advertising........... 742 959 1,012 1,140 917 1,527
------ ------ ------ ------ ------ ------
Total revenues...... 1,270 2,624 2,314 3,087 3,154 5,237
Costs and expenses:
Cost of ticketing
operations............ 441 753 863 1,203 1,377 2,074
Sales and marketing.... 93 85 97 164 225 245
General and
administrative........ 396 389 439 476 515 492
------ ------ ------ ------ ------ ------
Total costs and
expenses........... 930 1,227 1,399 1,843 2,117 2,811
------ ------ ------ ------ ------ ------
Income before provision
for income taxes....... 340 1,397 915 1,244 1,037 2,426
Provision for income
taxes.................. 149 612 401 545 478 1,117
------ ------ ------ ------ ------ ------
Net income.............. $ 191 $ 785 $ 514 $ 699 $ 559 $1,309
====== ====== ====== ====== ====== ======
</TABLE>
During the three months ended June 30, 1997, ticketing operations revenues
included approximately $450,000 of revenue earned from Web site development
and support for an affiliate of Ticketmaster Online. During the three months
ended June 30, 1998, Ticketmaster Online began to recognize revenue from the
advertising and sponsorship agreement with N2K.
Ticketmaster Online-CitySearch, Inc. (Pro Forma)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1997 1997 1997 1998 1998
--------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Ticketing operations... $ 528 $ 1,665 $ 1,302 $ 1,947 $ 2,237 $ 3,710
Sponsorship and
advertising........... 744 968 1,047 1,206 1,014 1,707
Cityguide and related.. 468 1,029 2,120 2,455 2,994 3,527
-------- -------- -------- -------- -------- --------
Total revenues...... 1,740 3,662 4,469 5,608 6,245 8,944
Costs and expenses:
Cost of ticketing
operations............ 450 915 1,018 1,482 1,691 2,717
Cityguide and related.. 1,898 2,145 2,783 2,862 3,260 3,439
Sales and marketing.... 4,754 5,048 4,975 5,834 4,982 5,300
Research and
development........... 1,713 1,507 1,729 2,233 1,655 1,740
General and
administrative........ 1,611 1,622 1,812 1,948 1,876 2,351
Amortization........... 12,511 12,511 12,511 12,511 12,511 12,511
-------- -------- -------- -------- -------- --------
Total costs and
expenses........... 22,937 23,748 24,828 26,870 25,975 28,058
-------- -------- -------- -------- -------- --------
Loss from operations.... (21,197) (20,086) (20,359) (21,262) (19,730) (19,114)
Interest income
(expense), net......... (791) (855) (875) (756) (702) (788)
-------- -------- -------- -------- -------- --------
Loss before provision
for income taxes....... (21,988) (20,941) (21,234) (22,018) (20,432) (19,902)
Provision for income
taxes.................. -- -- -- 8 -- --
-------- -------- -------- -------- -------- --------
Net loss................ $(21,988) $(20,941) $(21,234) $(22,026) $(20,432) $(19,902)
======== ======== ======== ======== ======== ========
</TABLE>
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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, Ticketmaster Corp.'s ability to maintain and
increase the number of clients for which it provides online ticketing services
and convenience charges relating thereto, the ability of the Company's
partners to meet roll-out schedules for CitySearch city guide services, the
timing and amount of license and royalty payments from CitySearch partners,
the Company's ability to increase the volume of online ticket sales through
the Ticketmaster Online Web site, 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 the
Web and 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. In addition, Ticketmaster Online derives a majority of its
revenues directly or indirectly from the sale of tickets and related
merchandise for live entertainment, sporting and leisure events and is
directly affected by the popularity, frequency and location of such events.
Factors affecting the demand for and attendance of such events include,
without limitation, general economic conditions, consumer trends and work
stoppages. Any occurence or condition that results in decreased attendance or
demand for such entertainment, sporting and leisure events would likely have a
material adverse effect on the Company's business, financial condition and
results of operations. As a result of the foregoing, 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. The foregoing factors which are largely unpredictable and may
cause significant fluctuations in operating results may cause the Company's
annual or quarterly results of operations to be below the expectations of
public market analysts or investors, in which case the market price of the
Class B Common Stock could be materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
CitySearch
Since its inception, CitySearch has financed its operations primarily
through the private placement of equity securities, raising $81.0 million, and
capital equipment leases. At June 30, 1998, CitySearch had $15.5 million in
cash and cash equivalents. CitySearch has had significant negative cash flows
from operating activities in each fiscal and quarterly period to date. Net
cash used in operating activities was $15.8 million and $16.1 million for the
six months ended June 30, 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 June 30, 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.
CitySearch received a $50.0 million loan from USAi upon issuance of the
Convertible Note in August 1998. See "Ticketmaster Online--CitySearch Merger."
Net cash used in investing activities was $1.1 million and $54,000 for the
six months ended June 30, 1997 and 1998, respectively, and was $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, the Company also had commitments under
non-cancelable operating
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leases of $5.3 million. Net cash provided by financing activities was $15.7
million and $6.5 million for the six months ended June 30, 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.
Ticketmaster Online
Prior to the Merger, Ticketmaster Online's primary sources of liquidity were
cash from operations and funding from Ticketmaster Corp. Consistent with the
cash management policies of Ticketmaster Corp., Ticketmaster Online did not
maintain any cash balances at June 30, 1998. Since its inception through the
fiscal year ended January 31, 1997, Ticketmaster Online had negative cash flows
from operating activities. Subsequent to these periods, net cash provided from
operating activities has been positive. Net cash provided from operating
activities was $1.1 million and $4.7 million for the five months ended June 30,
1997 and 1998, respectively, and $2.9 million for the fiscal year ended January
31, 1998, while net cash used in operating activities was $538,000 and $556,000
for the years ended January 31, 1996 and 1997, respectively. Cash provided from
operating activities for the five months ended June 30, 1998 primarily consists
of net operating income and increases in deferred revenue.
Net cash used in investing activities was $91,000 and $127,000 for the five
months ended June 30, 1997 and 1998, respectively, and was $146,000, $189,000
and $250,000 for the fiscal years ending January 31, 1996, 1997 and 1998,
respectively. Net cash used in investing activities in these periods consisted
primarily of capital expenditures for computer equipment, software, office
equipment and leasehold improvements. As of January 31, 1998, Ticketmaster
Online had no commitments under non-cancelable operating leases. Net cash used
in financing activities was $1.1 million and $4.6 million for the five months
ended June 30, 1997 and 1998, respectively, and $2.7 million for the fiscal
year ended January 31, 1998 attributable to repayments to Ticketmaster Corp.
for prior financing provided to Ticketmaster Online and distributions to
Ticketmaster Corp. Net cash provided by financing activities was $684,000 and
$748,000 for the fiscal years ended January 31, 1996 and 1997, respectively,
attributed to intercompany funding from Ticketmaster Corp.
The Company believes that net proceeds from this offering, together with
existing cash and cash equivalents 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 Financing."
YEAR 2000
The widespread use of computer programs that rely on two-digit dates to
perform computation and decision-making functions may cause computer systems,
including systems and software used by the Company and its Web services, to
malfunction prior to or in the year 2000 and lead to significant business
delays and disruptions in the Company's business and operations in the United
States and internationally. Both CitySearch and Ticketmaster Online have begun
to develop plans to minimize the impact of this "year 2000 problem." Pursuant
to such plans, CitySearch and Ticketmaster Online engaged in the process of
identifying programs used by its computer systems that may require modification
as well as potential hardware system upgrades that may be necessary as a result
of the use of such two-digit dates, and has initiated programs to rectify any
problems, including upgrading existing software packages, implementing new year
2000 compliant systems and repairing existing software. The Company believes
that the costs of resolving its own year 2000 compliance issues, which
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it presently expects will not exceed $200,000, will not be material. Both
CitySearch and Ticketmaster Online have also begun communications with
significant suppliers to determine the extent to which these operations are
vulnerable to those third parties' failure to solve their own year 2000 issues.
In this regard, the plan includes vendor compliance certification and an
attempt to identify substitute suppliers. In some cases, however, it will not
be possible for the Company to identify an alternate supplier or third-party
service provider. Such cases include the functionality of the Internet in
general, the fulfillment and other services provided by Ticketmaster Corp. as
well as the payment clearing services of financial institutions and other
credit card issuers. The Company believes, based on its inquiry to date, that
these entities generally have either already addressed their year 2000
compliance or are actively engaged in that process. There can be no assurance,
however, a failure by the hardware or software systems of the Company's third
party suppliers to be Year 2000 compliant will not have a material adverse
effect to the Company's business, financial condition or results of operations.
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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
The Company is combining CitySearch and Ticketmaster Online to create a
leading provider of local city guides, local advertising, and live event
ticketing on the Internet. The Company intends to integrate its local
CitySearch city guides with its Ticketmaster Online live events ticketing and
merchandising distribution capabilities to offer online ticketing,
merchandise, electronic coupons and other transactions to a broader audience
of consumers. The CitySearch city guides provide 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. Ticketmaster Online offers consumers up-to-date
information on live entertainment events and a convenient means of purchasing
tickets and related merchandise on the Web for live events in 44 states and
eight foreign countries. Consumers can access the Ticketmaster Online service
at www.ticketmaster.com and from CitySearch owned and operated city guides at
www.citysearch.com through numerous direct links from banners and event
profiles. Subject to certain limitations, Ticketmaster Online is the exclusive
agent for Ticketmaster Corp., a leading provider of live event automated
ticketing services in the United States, for the online sale of tickets to
live events presented by Ticketmaster Corp.'s clients.
The Company intends to utilize Ticketmaster Online's presence in certain
domestic and international cities to accelerate the expansion of the
CitySearch city guides into new local territories. The Company plans to
include selected CitySearch editorial content on the Ticketmaster Online Web
site, thereby providing additional information to assist purchasing decisions.
The Company believes that by expanding its branded network of local city
guides and continuing to offer attractive features and services, such as live
event ticketing, the Company's Web sites will increasingly attract local,
regional and national advertisers that seek to efficiently target local
consumers.
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, Dallas, Portland, Raleigh-Durham-Chapel Hill, Salt Lake City, San
Diego, 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,
including (i) the large and growing installed base of personal computers in
the workplace and home, (ii) advances in the performance of personal computers
and modems, (iii) improvements in network systems and infrastructure, (iv)
more readily available and lower cost access to the Internet, (v) increased
awareness of the Internet among businesses and consumers, (vi) increased
volume of information and services offered on the Web and (vii) reduced
security risks in conducting transactions online. 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.
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The Demand for Local, Community-Oriented Information and Transactions 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 and
sophisticated online transaction capabilities including opportunities to
purchase products and services online. 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, products and services
available for sale and other information that is pertinent to their local
activities. The Media Audit reports that 39% of the adult population living in
66 metropolitan areas in the United States were online in the second quarter
of 1998. According to a survey conducted by Find/SVP, over half of United
States 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 Incorporated 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 local consumers. In
addition to improving advertising and marketing efforts, the increasing
functionality and availability of the Internet have made it an increasingly
attractive medium for conducting commerce. A broad range of consumer products
is being sold online, including tickets to live events, books, computers,
travel services, brokerage services, automobiles and music. International Data
Corporation ("IDC") estimates that the amount of commerce conducted worldwide
over the Web will grow from over $12 billion at the end of 1997 to more than
$425 billion by the end of 2002, of which approximately $93.5 billion is
estimated to be goods and services purchased by users over the Web from their
homes.
Web users seeking relevant local information, as well as local businesses
interested in advertising to targeted consumers, currently lack effective Web
resources. 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 may provide the user
with inconsistent and confusing user interfaces, outdated information and no
common database to enable information searches. While Web sites for
traditional media, including newspapers and television stations, effectively
provide Web users with updated news coverage, traditional media organizations
often lack the internal resources to structure easy-to-use, interactive event
and transaction guides for Web users. In addition, the Company believes such
Web sites frequently do not provide local businesses with useful geographic
and editorial context for a business' Web presence. Finally, many traditional
media organizations, while possessing strong brand names in their local
markets, 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, providing sophisticated online transaction
capabilities and necessary customer support. 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. Custom Web sites are often 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 provides neither an appropriate editorial context for a local
business' site nor assistance on how to effectively reach consumers.
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, allows users to search within a city-
specific site, and provides a platform for online transactions. The Company
additionally 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
high quality Web presences, editorially targeted at interested consumers, at
an affordable cost. Indicative of this opportunity, Jupiter Communications
estimates that
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the amount of local business 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. Forrester estimates that total worldwide
Internet advertising will increase from $1.5 billion in 1998 to $15.2 billion
in 2003. 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 with and selling to these
local consumers.
The Automated and Online Ticketing Industry
The supply of tickets for live events, both domestically and
internationally, has grown in recent years due to increases in the number of
facilities, facility size and seating capacity, event expansion into new
market areas (e.g., new sports teams and leagues) and increases in the number
of event performances. Ticket supply has also been enhanced by the need for
facilities to continually present as many revenue-producing events as possible
in order to meet their financial and other obligations. In recent years, the
public's increased demand for tickets to certain live entertainment events has
been evidenced by its willingness to pay higher ticket prices to attend these
events and the spread of public interest in certain types of events beyond
customary boundaries (e.g., increased worldwide interest in American
basketball).
Tickets have historically been distributed through box offices and retail
outlets. These traditional ticket distribution methods have been characterized
by inefficiencies, including the lack of ticket accountability, inefficient
inventory control systems, inability to capture ticket sales information on a
real-time basis, and limited public access to tickets. Automated ticketing
services have grown substantially in response to the needs of venues, sports
franchises and promoters to more effectively and efficiently distribute and
manage the expanding supply of tickets, and to accommodate the public's
increasing demand for fair and convenient access to such tickets.
Automated ticketing companies that process and sell tickets for live events
contract with arenas, stadiums and other venues, sports franchises and event
promoters to provide ticket sales, promotion, distribution, inventory control,
and transaction processing and fulfillment services. Currently, other than
tickets sold at venue box offices, the substantial majority of tickets for
live events which are made available to the general public by automated
ticketing companies are purchased through telephone call centers and
independent retail ticket outlets. The Web provides venues, sports franchises
and event promoters with innovative ways to market tickets to live events,
including seating maps, presentation of event related content, sale of
distressed inventory in the last hours or days before an event, and a
purchasing process that enables consumers to conveniently purchase tickets at
home. Jupiter Communications predicts that the percentage of concert tickets
sold online will increase from 1.8% of total concert ticket sales in 1998 to
19.2% in 2002.
By selling live event tickets through automated ticket companies, the
Company believes venues, sports franchises and event promoters are better able
to centrally control ticket inventory and proceeds, collect and utilize
accounting information and market research data, manage transaction costs,
effect the broad, expedient and equitable distribution of tickets and widely
disseminate event information. Consumers are able to purchase tickets over the
telephone or by visiting an independent retail ticket outlet, such as a record
store, that is more conveniently located by the consumer's home or office than
the box office of the applicable venue.
Automated ticket companies are increasingly utilizing the Internet in an
effort to provide greater marketing and distribution capabilities for clients
and to enable consumers to more conveniently purchase live event tickets. The
Company believes the Web provides significant opportunities for venues and
other clients and marketing partners to use collected demographic information
to reach and interact with targeted audiences (e.g., advance notice of
upcoming events and promotional and merchandising opportunities). Additional
opportunities may exist internationally to reach additional live event venues
in what the Company believes are historically under-penetrated geographic
regions for ticketing services. The Company further believes consumers will
increasingly recognize the convenience of the Web for purchasing tickets to
live entertainment events as the transactional capabilities of the Internet
become more familiar, comfortable and easier for consumers to use.
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THE TICKETMASTER ONLINE-CITYSEARCH SOLUTION
The Company operates two complementary Web services: a network of CitySearch
local city guides and the Ticketmaster Online Web site. The CitySearch city
guides provide 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. Ticketmaster
Online offers consumers up-to-date information on live entertainment events
and a convenient means of purchasing tickets for live events and related
merchandise on the Web in 44 states and eight foreign countries. Consumers can
access the Ticketmaster Online service at www.ticketmaster.com and from
CitySearch owned and operated city guides at www.citysearch.com through
numerous direct links from banners and event profiles. Pursuant to the terms
of the Ticketmaster License Agreement and subject to certain limitations,
Ticketmaster Online is Ticketmaster Corp.'s exclusive agent for the online
sale of tickets to live events presented by Ticketmaster Corp.'s clients.
CitySearch
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 performs related services for
local and regional businesses, aggregates them in a local city guide
environment and provides these businesses with 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.
The Company typically targets medium- to large-sized cities for its
CitySearch city guides 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. The Company 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 deploys a direct sales
force to sell custom-built Web sites to local businesses. In other markets,
the Company partners with a local media company that contracts with the
Company to assist in designing, developing and launching a city guide. These
partners license the Company's systems and provide royalty payments to the
Company on revenues derived from operations. As of September 30, 1998, the
Company provided CitySearch city guides in 15 cities, seven of which are owned
and operated and eight 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 two additional partner-led markets in Copenhagen
and San Diego.
Ticketmaster Online
Ticketmaster Online is a leading online ticketing service that enables
consumers to purchase tickets for live music, sports, theater and family
entertainment events presented by Ticketmaster Corp.'s clients and related
merchandise over the Web. The Company believes the online nature of the
service offers improved marketing and distribution capabilities as well as a
larger potential consumer base to Ticketmaster Corp. clients, while providing
consumers more convenient access to live event tickets and related
merchandise. In addition to these services, the Ticketmaster Online Web site
provides local information and original content regarding live events for
Ticketmaster Corp. clients throughout the United States, Canada and the United
Kingdom.
Ticketmaster Online distributes tickets over the Internet for Ticketmaster
Corp.'s clients, for clients include over 3,000 venues, sports franchises and
event promoters. In addition to serving both multi-event and single event
promoters, Ticketmaster Corp.'s venues range in size from large stadiums with
more than 60,000 seats to smaller theaters with fewer than 1,000 seats.
Through Ticketmaster Online, consumers can purchase tickets over the Internet
for 94 professional sports franchises in North America, including 16 Major
League Baseball teams, 18 National Football League teams, 23 National
Basketball Association teams, 20 National Hockey League teams, 10 Major League
Soccer teams and 7 Women's National Basketball Association teams.
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Key elements of the Company's solution include the following:
Leading Local Online Services and Ticketing. The Company is a leading
provider of online local city guides and ticketing services for live events.
CitySearch has launched or initiated a roll-out of Web-based local city guides
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, San Diego, the San Francisco Bay Area, Washington,
D.C., Copenhagen, Melbourne, Stockholm, Sydney and Toronto. The Company
believes the success of its city guide approach is evidenced by the over 8,900
CitySearch local and regional business Web sites that were online as of June
30, 1998 in its owned and operated markets, the over 6,800 business Web sites
that the Company believes were online as of June 30, 1998 in its partner-led
markets, and by its consumer base penetration and consumer usage. According to
a RelevantKnowledge study, the Company had approximately 810,000 unique adult
users in its CitySearch owned and operated markets in June 1998. The Company
believes that approximately 7.4% of the local market online consumers used the
CitySearch service in these markets. Media Metrix reports that Ticketmaster
Online had 1.3 million unique users in July 1998. Gross transaction dollars
from live event ticket sales through the Ticketmaster Online Web site
increased from approximately $100,000 in November 1996 to more than $10.0
million in July 1998.
Differentiated Service Offering. The Company believes its CitySearch local
city guides in combination with its Ticketmaster Online sales of tickets and
related merchandise differ substantially from competitive offerings. The
Company develops and regularly updates the content of its city guides, both
internally and in conjunction with local media partners, as well as the live
event information presented by Ticketmaster Online. 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 the
CitySearch 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, two 1998 Local Internet Service Awards for
Best Local/Regional Directory and Best City Guide, recognition by The New York
Times as best overall online guide to New York City and Net Guide's Platinum
"Best of the Web" award. In addition, the Ticketmaster Online Web site
received Internet Shopper Magazine's Spring 1997 Internet Shopper Choice award
for Best Entertainment Web Site and Interactive Services Association's award
for Best Online Application (Products and Services) and was included in
WebMaster Magazine's Top 50/50 Internet & Intranet Sites.
Strategic Partnerships. The Company is engaged in a number of strategic
partnerships with media, content and other companies in order to build the
CitySearch and Ticketmaster Online brand names as well as the network of city
guides. The Company has agreements to develop city guides in partnership with
The Baltimore Sun, The Dallas Morning News, the Los Angeles Times, the San
Diego Union-Tribune, Washingtonpost.Newsweek Interactive, Big Colour Pages
(independent yellow pages of Australia), The Melbourne Age, Schibsted
ASA/Scandinavia Online (Copenhagen, Oslo and Stockholm), The Sydney Morning
Herald, Tele-Direct (the yellow pages subsidiary of Bell Canada, Inc.), and
the Toronto Star. Several of the Company's strategic relationships involve
equity investments from the Company's partners, including
Washingtonpost.Newsweek Interactive Company, The Times Mirror Company, owner
of the Los Angeles Times and The Baltimore Sun, Schibsted ASA and Toronto Star
Newspapers Limited. 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 July 1998, the Company entered into an agreement with Classified
Ventures, a leading provider of online advertising products and services to
the newspaper industry. Classified Ventures is funded by Central Newspapers
Inc., Gannett Co., Inc., Knight Ridder, The McClatchy Company, The New York
Times Company, The Times Mirror Company, Tribune Company and The Washington
Post Company, and has a network of over 140 affiliated newspapers in 42
states, including 35 of the nation's top 50 markets. CitySearch has licensed
elements of its technology and business systems to Classified Ventures and
provide services in automotive and
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real estate classified advertising categories. Certain CitySearch owned and
operated city guides may also participate as Classified Ventures affiliates in
their respective markets.
In owned and operated CitySearch markets, the Company partners with local
media companies to assist it in developing content and expanding its
promotional activities. For example, the Company has partnered in Salt Lake
City/Utah with the CBS television station (KUTV) and six radio stations owned
by Citadel Communications Corporation, in San Francisco with the ABC
television station (KGO) and two CBS-owned radio stations and in Raleigh-
Durham-Chapel Hill with the national public radio station (WUNC) and with four
radio stations owned by Capstar Broadcasting Corporation. In addition, the
Company is a party to an agreement with American Express Travel Related
Services Company, Inc. ("American Express") pursuant to which American Express
made an equity investment in the Company, and that provides for the
distribution of co-branded marketing materials for the sale of business Web
sites to American Express merchant customers, American Express sponsorship and
banner advertising, introduction of electronic commerce products and services,
sponsorships and other promotions. The Company has also reached agreements or
arrangements with Earthlink Network, Inc., The Walt Disney Company's
Family.com, CNET, Inc.'s Snap! Online, Planet Direct Corporation, @Home
Corporation and Internet Travel Network to expand its distribution efforts.
The Company participates in several media, marketing and technology
initiatives. For example, Ticketmaster Online has entered into agreements with
major media companies such as the Los Angeles Times, The New York Times, and
Tribune Interactive to create co-branded Web sites containing event listings,
other content and promotional opportunities for advertisers. Ticketmaster
Online has created a co-branded Web presence with N2K (Music Boulevard) to
promote and sell music products. Ticketmaster Online also advertises products
and services of Ford Motor Company, International Business Machines, Red
Lobster, Sprint Communications Company, L.P., United Parcel Service of
America, Inc., and Yahoo! Ticketmaster Online is also working with Intel to
jointly develop the "my Ticketmaster" site, a personalized Web application
designed to enable users to choose categories of event information based on
personal preferences and that is scheduled to launch in the fourth quarter of
1998.
Differentiated Presence on the Web For Local and Regional Businesses. The
Company creates CitySearch Web sites for local and regional 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 CitySearch 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, audio clips, e-mail distributions,
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 CitySearch services and prices compares
favorably to other Web advertising 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 additional promotion to attract
traffic. By providing a high quality Web presence at an affordable price, the
Company believes that its services address the demand of the large number of
businesses whose online needs fall between these market extremes.
Community-Based Approach. The Company differentiates itself from most
national developers of local city guides by building many of the CitySearch
owned and operated sites with involvement from city governments, chambers of
commerce, community associations, schools and other community groups, 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 organizations, 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
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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.
STRATEGY
The Company's objective is to be the leading provider of comprehensive local
city guides and online live event ticketing to attract a new and larger group
of consumers to the Internet and provide an easy-to-use resource for local
information and transactions. The Company's strategy is focused on rapidly
rolling out its services in the most attractive, Web-penetrated communities
worldwide, establishing a leading presence in these communities while
increasing traffic and repeat usage of its network. In addition, the Company
intends to use the CitySearch local city guides and Ticketmaster Online
ticketing service as platforms for multiple revenue streams. The following are
key elements of this strategy:
Rapidly Build National and International Network and Brand Awareness. The
Company intends to establish its services as the category leader for local
information and live event ticketing on the Web by linking its local city
guides together in a national and international network. The Company believes
that as the number of its sites and usage of its service increase, it is
creating a readily recognizable brand name for local content and live event
ticketing on the Internet. As of September 30, 1998, the Company's CitySearch
service operated in 15 metropolitan areas worldwide, and the Company had
initiated rollout for launches in two additional metropolitan areas. The
Company intends to continue to aggressively enter targeted markets, including
territories in which Ticketmaster Corp. clients are located, through either an
owned and operated market presence or by entering into partnerships and
strategic alliances with major media and telephony companies. The Company's
roll-out teams are led by experienced managers who prepare for launch of a
CitySearch site in owned and operated markets by 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
detailed roll-out process has been refined in seven owned and operated market
launches to date. In partner-led markets, the Company provides its roll-out
expertise, professional personnel and technical infrastructure to assist
partners in creating effective sites and initiating rapid and successful
launches.
The Company intends to further emphasize the differentiation of its services
by leveraging the widely-recognized Ticketmaster brand name and its live
events ticketing and merchandise distribution capabilities. The Company
believes that the Ticketmaster brand name and extensive distribution
capabilities of the Ticketmaster Online Web site combined with the local city
guides will help enable the Company to continue to increase penetration among
established live event ticketing and merchandise consumers, and will provide
opportunities to expand internationally to live event venues in historically
under-penetrated geographic regions. The Company believes that its branded and
expanding network of local city 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 intend to visit.
Provide Multiple Revenue Streams. CitySearch local city guides and the
Ticketmaster Online ticketing service provide platforms for multiple revenue
streams. With respect to Ticketmaster Online, the Company derives revenues
from online sales of tickets to live events and related merchandise, as well
as advertising. In owned and operated CitySearch markets, the Company derives
recurring fees from the sale of Web sites to local businesses, as well as
banner and sponsorship advertising. Part of the Company's strategy is to
increase average monthly revenue from new business customers, in part through
the introduction of new services. Between August 1997 and August 1998, average
monthly revenue from new customers on CitySearch local city guides increased
from $81 to $183. In partner-led markets, the Company derives licensing and
royalty revenues from the licensing of the Company's technology and business
systems, consulting services, and from providing back office and hosting
services. The Company intends to offer additional e-commerce functionality and
other features designed to enable businesses to better serve consumers,
including reservations, electronic coupons, and other transactions.
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The Company further believes that its platforms will help enable it to take
advantage of new opportunities in areas such as entertainment information,
merchandising, advertising, promotional services and direct marketing.
Increase Usage and Frequency of Use of the Network. The Company plans to
increase usage of its network by continuing to provide compelling content and
expanding services that it believes are most desired by consumers. For
example, the Company is actively developing means of increasing the
personalization capabilities of its services to enable consumers to be
notified of upcoming events, reviews and transaction offerings for which they
specify a direct interest. In addition, the Company intends to introduce in
the fourth quarter of 1998, a new "my Ticketmaster" Web site, which is
designed to enable consumers to tailor live event information to individual
preferences. The Company intends to continually improve the convenience of its
services to businesses and consumers through technology enhancements such as
user interface refinements and increased efficiencies in transaction
processing and fulfillment operations. The Company also plans to increase
traffic over its network through strategic relationships and through increased
integration of the content and services provided by CitySearch city guides and
Ticketmaster Online. The Company believes these types of services offer the
Company the opportunity to attract new and existing consumers and businesses
to its sites. As the Company's network of city guides expands, the Company
intends to pursue regional and national media distribution arrangements to
help drive traffic to the Company's Web services.
Continue to Enter into Strategic Alliances. The Company intends to continue
to differentiate its services by entering into agreements with local radio,
television and other media and telephony companies in its future owned and
operated markets and with major newspapers and other media and telephony
companies in its domestic and international partner-led markets. The Company
believes major newspapers, in particular, are trusted sources for local
information and possess strong brand names in their communities. In addition,
the Company intends to aggressively pursue strategic relationships to enhance
its content offering, transaction capabilities and revenues. For example, the
Company has recently entered into relationships with Classified Ventures to
provide a variety of services and technology for classified advertising and
with American Express to promote the Company's services and coordinate e-
commerce initiatives. The Company will also continue to evaluate means of
expanding the reach of its services through additional alliances with other
Web sites, online service providers and through other relationships. Through
the Ticketmaster Online Web site, the Company participates in several media,
marketing and technology initiatives, with companies including N2K (Music
Boulevard), Yahoo!, Intel Corporation, Tribune Interactive, JAM TV, RealTime
Sports, the Los Angeles Times and The New York Times.
Expand Reach of Online Ticketing and City Guide Services. The Company
intends to increase the reach of its online live event ticketing and city
guide services. By further integrating ticketing functionality into its local
city guides, the Company intends to make online ticketing available to more
consumers. Furthermore, the Company believes that as a result of increases in
the number and seating capacity of venues, the number of teams and sports
leagues and the number of live entertainment events, significant opportunities
exist to increase the online sale of tickets and related merchandise. The
Company intends to work with Ticketmaster Corp. to extend the online
availability of live event tickets and related merchandise with respect to
smaller venues than have traditionally been served by automated ticketing
systems. The Company intends to increase the number of metropolitan areas
served by its CitySearch city guides by taking advantage of Ticketmaster
Online's presence in certain local areas.
CITYSEARCH BUSINESS
CitySearch Service for Consumers
The Company produces and delivers comprehensive local city guides on 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 partners. The CitySearch
service is topically organized by categories, such as arts and entertainment,
restaurants
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and bars, community, shops and services, sports and outdoors, hotels and
tourism, local news and professional services. Within most of the city guides,
consumers can search neighborhood 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.
In CitySearch owned and operated markets, consumers can also access the
Ticketmaster Online Web site through CitySearch city guides to purchase live
event tickets and related merchandise online. In certain markets, consumers
can also access audio streams, including recent news and other information,
from local radio partners. 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
the service both in owned and operated markets and by partnering with major
media companies in other 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 SELECTED PARTNERS
<C> <C> <S>
OWNED AND OPERATED:
Raleigh-Durham-Chapel May 1996 WUNC (public radio station)
Hill Capstar Broadcasting Corporation (4
radio stations)
WCHL AM
The Independent (weekly arts and
entertainment publication)
San Francisco Bay Area October 1996 KGO (ABC)
CBS Radio (2 radio stations)
Austin March 1997 KTBC (Fox)
Clear Channel Communications, Inc. (4
radio stations)
Salt Lake City/Utah April 1997 KUTV (CBS)
Citadel Communications Corporation (6
radio stations)
Nashville May 1997 WZTV (Fox)
Dick Broadcasting (2 radio stations)
Portland June 1997 KATU (ABC)
KKCW FM
New York(1) September 1997 New York Daily News
Time Out New York (weekly arts and
entertainment publication)
PARTNER-LED:
Melbourne July 1997 The Melbourne Age
Big Colour Pages (independent yellow
pages of Australia)
Sydney September 1997 The Sydney Morning Herald
Big Colour Pages
Toronto September 1997 Toronto Star
Tele-Direct (the yellow pages
subsidiary of Bell Canada)
Washington, D.C. January 1997 Washingtonpost.Newsweek Interactive
Los Angeles(2) April 1998 Los Angeles Times
Dallas July 1998 The Dallas Morning News
Baltimore August 1998 The Baltimore Sun
Stockholm September 1998 Schibsted ASA/Scandinavia Online
Copenhagen 1998* Schibsted ASA/Scandinavia Online
Oslo 1999* Schibsted ASA/Scandinavia Online
San Diego 1999* San Diego Union-Tribune
</TABLE>
* Estimated launch dates
(1) The Company 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.
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CitySearch Service for Business Customers
The Company creates and hosts CitySearch Web sites for local and regional
businesses and organizations for a monthly fee. The Company 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 one-year agreement that automatically
converts into a month-to-month contract upon expiration of the initial term. By
aggregating a customer's Web site with those of numerous other businesses in a
comprehensive local city guide, the Company provides categorical, geographic
and editorial 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
CitySearch Web presence, including design, photography, layout, posting of
updated information, hosting and maintenance. Businesses are able to provide a
targeted audience with current information about their products and services
including photographs, prices, location, schedules of live entertainment, sales
and other relevant information. Unlike traditional media such as yellow pages
advertising, the Company offers CitySearch business customers a certain number
of free updates each month. The 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 CitySearch services, are typically priced from $190 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 its prices compare favorably to other Web advertising 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 believes that its 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 the
Company's central production site in Pasadena, California 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 sites designed
to 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 an 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 its competitors.
The Company intends to offer e-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
local city guides.
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CitySearch 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
of CitySearch local city guides, (ii) generate licensing revenue in CitySearch
partner-led markets, (iii) facilitate branding, (iv) gain access to additional
content and (v) drive traffic on the Company's network of sites. Management
intends to continue to negotiate further partnerships and alliances.
Newspaper and Telephony Partnerships. The Company has entered into strategic
partnerships with major newspapers and media companies such as The Baltimore
Sun, The Dallas Morning News, the Los Angeles Times, the San Diego Union-
Tribune, Washingtonpost.Newsweek Interactive, Big Colour Pages (independent
yellow pages of Australia), The Melbourne Age, Schibsted ASA/Scandinavia
Online (Copenhagen, Oslo and Stockholm), The Sydney Morning Herald, Tele-
Direct (the yellow pages subsidiary of Bell Canada, Inc.) and the Toronto
Star. In these partner-led markets, the partner provides the capital and
management, while the Company contributes technology, a business model,
consulting services, business systems and processes and network participation.
The Company typically receives up-front license fees, ongoing license fees for
delivery of upgrades and support, and royalties based on revenues that the
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. These 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.
In August 1998, the Company restructured its relationship with Toronto Star
Newspapers Limited in order to admit a new partner with significant brand,
sales and financial resources. Under the terms of the partnership agreement,
Toronto Star Newspapers Limited and Tele-Direct Inc. each hold a 45% interest
in the partnership and together operate the toronto.com Web service. The
Company holds a 10% interest in the partnership and licenses its technology
and business systems to the partnership for use in the defined territory.
In July 1998, the Company entered into agreement with Classified Ventures, a
leading provider of online advertising products and services to the newspaper
industry. Classified Ventures is funded by Central Newspapers, Inc., Gannett
Co., Inc., Knight Ridder, The McClatchy Company, The New York Times Company,
The Times Mirror Company, Tribune Company and The Washington Post Company, and
has a network of over 140 affiliated newspapers in 42 states, including 35 of
the nation's top 50 markets. The Company licensed elements of its technology
and business systems to Classified Ventures and provides services in
automotive and real estate classified advertising categories. Certain
CitySearch owned and operated city guides may also participate as Classified
Ventures affiliates in their respective markets.
Television and Radio Media Alliances. The Company has entered into co-
promotion agreements with local television and radio stations in most of its
CitySearch owned and operated markets. These relationships typically offer
content sharing and co-promotion to both parties. The Company 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. The Company
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, the Company has partnered in Salt Lake City/Utah
with the CBS television station (KUTV) as well as radio stations owned by
Citadel Communications Corporation and, in Raleigh-Durham-Chapel Hill, with
the national public radio station (WUNC) and radio stations owned by Capstar
Broadcasting 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 is a party to an
agreement with American Express which included an equity investment in the
Company. The agreement provides for distribution of co-branded marketing
materials to
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American Express merchant customers in the Company's local markets that will
offer merchant customers online Web site presences through the Company's local
city guides. The parties intend to create areas within the CitySearch 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 CitySearch sites. In local markets, the Company reached 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, and created printed local information guides for the United States
Tennis Association and American Express for distribution at the U. S. Open. The
Company intends to continue to aggressively pursue such marketing agreements in
order to attract additional business customers and increase usage of the
CitySearch service by consumers.
Content Distribution Alliances. The Company has entered into agreements with
a number of companies to distribute its content and drive traffic to the
Company's Web sites. For example, the Company has entered into agreements or
arrangements with Earthlink Network, Inc., The Walt Disney Company's
Family.com, CNET, Inc.'s Snap! Online, Planet Direct Corporation, @Home
Corporation and Internet Travel Network to distribute content across relevant
sites.
Marketing and Sales
The Company emphasizes marketing activities in its owned and operated markets
aimed at increasing awareness of its CitySearch local city guides for both
consumers and business customers. The Company's roll-out teams are led by
experienced managers who prepare for launch by negotiating promotional
arrangements with local media, training a direct sales force and selling
initial sites. The Company conducts advertising and public relations campaigns
through low-cost "guerilla" marketing efforts and the Company'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.
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 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 provides its partners both with a roll-out team to
launch the service and ongoing support, including assistance with recruiting,
sales strategy and back office operations.
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 June 30, 1998, the Company employed approximately 140 IBAs in seven owned
and operated markets selling directly to local businesses as well as field
customers service representatives in these markets to maintain regular contact
with business customers and facilitate up-selling of Web site functionality.
Each IBA completes an 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 participate in ongoing training sessions in sales
techniques and new products.
Operations
The Company has created a systematic approach to market roll-out of its
CitySearch local city guides that is designed to enable it to launch its
service in owned and operated markets 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. The Company'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.
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Customer service operations are 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 changes to
the business customer's site in real time.
Technology
The Company has developed and implemented a number of technologies to support
its local city guide service and business operations, including (i) an online
city guide application, (ii) a set of content creation and management tools and
(iii) a suite of integrated enterprise management systems.
CitySearch Online Application. The CitySearch online application provides a
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, geographic 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, which the Company
is currently deploying in all of its markets, in 1998, CitySearch will employ a
multi-tiered architecture, separating a standard relational database from
business rules and presentation logic. CS 2.5 is designed to permit city guide
publishers 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 believes that both it and its partners will be
able to respond more quickly to changes in the marketplace and evolving user
preferences. In addition, the object-oriented architecture is designed to
provide 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.
The Company 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.
TICKETMASTER ONLINE BUSINESS
Ticketmaster Online Service
Ticketmaster Online is a leading online ticketing service that enables
consumers to purchase tickets for live music, sports, theater and family
entertainment events presented by Ticketmaster Corp.'s clients and related
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merchandise over the Web. Consumers can access the Ticketmaster Online service
at www.ticketmaster.com and from CitySearch owned and operated city guides at
www.citysearch.com through numerous direct links from banners and event
profiles. In addition to these services, the Ticketmaster Online Web site
provides local information and original content regarding live events for
Ticketmaster Corp. clients throughout the United States, Canada and the United
Kingdom.
Throughout the Ticketmaster Online Web site and at the conclusion of a
confirmed ticket purchase, the consumer is prompted to purchase merchandise
that is related to a particular event, such as videos, tour merchandise and
sports memorabilia. The Company intends to expand the types and range of
merchandise that can be ordered by consumers through the Ticketmaster Online
Web site. The Company also intends to organize membership programs that will
provide Ticketmaster Online members with certain benefits centered around
entertainment, leisure and travel activities. Membership is expected to
include participation in other activities not generally available to the
public.
Since the commencement of online ticket sales in November 1996, Ticketmaster
Online has experienced significant growth in tickets sold through its Web
site. Gross transaction dollars for ticket sales increased from approximately
$100,000 in November 1996 to more than $10 million in July 1998. Similarly,
tickets sold on the Ticketmaster Online Web site in November 1996 represented
less than 0.1% of total tickets sold by Ticketmaster Corp., while tickets sold
online in the month of July 1998 represented more than 5.0%.
Ticketmaster Corp. Clients
Ticketmaster Corp. is a leading provider of live event automated ticketing
services in the United States. Ticketmaster Corp. has over 3,000 clients,
including many well-known entertainment venues, sports teams and promoters.
Ticketmaster Corp. provides these clients with comprehensive ticket inventory
control and management, a broad distribution network and dedicated marketing
and support services. Ticket orders are received and fulfilled through call
centers, independent sales outlets remote to the facility box office, and
online. Pursuant to the Ticketmaster License Agreement and subject to certain
limitations, Ticketmaster Online acts as Ticketmaster Corp.'s exclusive agent
for online sales of live event tickets.
The Company believes that the Ticketmaster System and its distribution
capabilities enhance Ticketmaster Corp.'s ability to attract new clients and
maintain its existing client base. The Ticketmaster System, which includes
both hardware and software, is typically installed in a client's box office
and provides a single centralized inventory control management system capable
of tracking total ticket inventory for all events, whether sales are made on a
season, subscription, group or individual ticket basis. The versatility of the
Ticketmaster System allows it to be customized to satisfy a full range of
client requirements.
Ticketmaster Corp. is the contracting party with the venues, promoters and
sports franchises that sell tickets through Ticketmaster Online. Ticketmaster
Corp. generally enters into written agreements with its clients pursuant to
which it agrees to provide the Ticketmaster System and to serve as the
client's exclusive ticket sales agent for all sales of individual tickets sold
outside of the facility's box office for a specified period, typically three
to five years. Pursuant to its agreements with facilities, Ticketmaster Corp.
generally is granted the right to sell tickets for all live events presented
at a facility, and installs the Ticketmaster System in the facility's box
office. Agreements with promoters generally grant Ticketmaster Corp. the right
to sell tickets for all live events presented by that promoter at any
facility, unless the facility is covered by an exclusive agreement with
another automated ticketing service company. The terms of Ticketmaster Corp.'s
agreements with clients are negotiated on a contract-by-contract basis. In the
case of contracts subject to public bid (e.g., by facilities owned or managed
by municipalities or governmental agencies), the terms are defined, to a
material degree, by the specifications and conditions set forth in the formal
requests for bid.
Pursuant to its client agreements, Ticketmaster Corp. is generally granted
the right to collect from ticket purchasers a per ticket convenience charge on
all tickets sold other than at the box office and an additional per order
handling charge on all tickets sold by Ticketmaster Corp. other than at remote
sales outlets to partially
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offset the cost of fulfillment. The amount of the convenience charge is
typically determined during the contract negotiation process, and varies based
upon numerous factors, including the services to be rendered to the client, the
amount and cost of equipment to be installed at the client's box office and the
amount of advertising and/or promotional allowances to be provided, as well as
the type of event and whether the ticket is purchased at a remote sales outlet,
by telephone, through the Ticketmaster Online Web site or otherwise. Any
deviations from those amounts for any event are negotiated and agreed upon by
Ticketmaster Corp. and the client prior to the commencement of ticket sales.
During Ticketmaster Corp.'s fiscal 1998, the convenience charges generally
ranged from $1.50 to $7.00 per ticket. Convenience charges, when added to per
order handling charges, averaged approximately $4.50 per ticket in fiscal 1998.
Ticketmaster Corp.'s client agreements also generally establish the amounts and
frequency of any increases in the convenience charge and handling charge during
the term of the agreement.
The agreements with certain of Ticketmaster Corp.'s clients may provide for a
client to participate in the convenience charges paid by ticket purchasers for
tickets bought through Ticketmaster Corp. for that client's events. The amount
of such participation, if any, is determined by negotiation with that client.
Some agreements also may provide for Ticketmaster Corp. to make participation
advances to the client, generally recoupable by Ticketmaster Corp. out of the
client's future right to participation. In limited cases, Ticketmaster Corp.
makes an upfront, non-recoupable payment to a client for the right to sell
tickets for that client.
Clients are routinely required by contract to include the Ticketmaster name
in print, radio and television advertisements for entertainment events
sponsored by such clients. The Ticketmaster name and logo are also prominently
displayed on printed tickets and ticket envelopes.
Ticketmaster Corp. generally does not buy tickets from its clients for resale
to the public and has no financial risk for unsold tickets. In the United
Kingdom, Ticketmaster Corp. may from time to time buy tickets from its clients
for resale to the public in an amount typically not exceeding (Pounds)600,000
in the aggregate. Ticket prices are not determined by Ticketmaster Corp.
Ticketmaster Corp.'s clients also generally determine the scheduling of when
tickets go on sale to the public and what tickets will be available for sale
through Ticketmaster Corp. Facilities and promoters, for example, often handle
group and season ticket sales and in-house. Ticketmaster Corp. only sells a
portion of its clients' tickets, the amount of which varies from client to
client and varies as to any single client from year to year.
The Company believes that the primary benefits derived by Ticketmaster
Corp.'s clients by use of the Ticketmaster System include (i) centralized
control of total ticket inventory as well as accounting information and market
research data, (ii) centralized accountability for ticket proceeds, (iii)
manageable and predictable transaction costs, (iv) broader and expedited
distribution of tickets, (v) wide dissemination of information about upcoming
events through Ticketmaster Corp.'s call centers, Ticketmaster Online and other
media platforms, (vi) the ability to easily add additional performances if
warranted by demand and (vii) marketing and promotional support.
If an event is canceled, Ticketmaster Corp.'s current policy is to refund the
per ticket convenience charges (but not the handling charge which is payable
with respect to online orders). Refunds of the ticket price for a canceled
event are funded by the client. To the extent that funds then being held by
Ticketmaster Corp. on behalf of the client are insufficient to cover all
refunds, the client is obligated to provide Ticketmaster Corp. with additional
amounts within 24 to 72 hours after a request by Ticketmaster Corp.
Ticketmaster License Agreement
Under the Ticketmaster License Agreement, subject to certain limitations,
Ticketmaster Corp. has granted Ticketmaster Online an exclusive, perpetual,
irrevocable, worldwide license to use the Ticketmaster trademark and certain
Ticketmaster Corp. databases to sell live event tickets online for Ticketmaster
Corp.'s clients. In addition, Ticketmaster Corp. authorized Ticketmaster Online
to be Ticketmaster Corp.'s exclusive, perpetual,
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worldwide agent for such online ticket sales. The Ticketmaster License
Agreement further provides that Ticketmaster Corp. may use and permit others
to use the Ticketmaster trademark in connection with the online promotion of
ticket sales.
Ticketmaster Corp. retains the rights to sell tickets by non-online means
and to use the Ticketmaster trademark in connection with such sales. The
Ticketmaster License Agreement defines such non-online means to include by
telephone; by other voice-to-voice means or voice-to-voice recognition unit
systems; by non-interactive broadcast, cable and satellite television; and by
kiosks and retail ticket outlets. Client venues retain the rights to sell
tickets at their box offices or as otherwise provided in client venue
agreements with Ticketmaster Corp.
Ticketmaster Corp. is the contracting party with client venues, promoters
and sports franchises, providing ticket inventory management, consumer
information and related data for all ticketing transactions. Ticketmaster
Corp. provides such information to Ticketmaster Online in connection with
processing online live event ticket sales and provides all transaction
processing and fulfillment services for online live event ticket sales.
Ticketmaster Online is required under the Ticketmaster License Agreement to
comply with the terms of Ticketmaster Corp.'s client agreements and
Ticketmaster Online's rights as set forth in the Ticketmaster License
Agreement are subordinated and subject to such agreements. The Ticketmaster
License Agreement also generally restricts Ticketmaster Online from
cooperating with, offering online links to, or entering into any agreements
with venues, ticket sellers or sales agents for online sale of tickets.
Under the Ticketmaster License Agreement, Ticketmaster Online pays
Ticketmaster Corp. a royalty based on the percentage of the net profit it
derives from online ticket sales. Ticketmaster Online also reimburses
Ticketmaster Corp. for Ticketmaster Corp.'s direct expenses related to online
ticket sales.
Ticketmaster Online has also been granted under the Ticketmaster License
Agreement the non-exclusive right to promote and sell online certain
merchandise available through Ticketmaster Corp. Ticketmaster Corp. serves as
Ticketmaster Online's exclusive fulfillment provider for the online sales of
such merchandise. As long as Ticketmaster Corp.'s fees, terms and quality of
service are no less favorable than those available to Ticketmaster Online from
third parties, Ticketmaster Corp. or its affiliates serves as Ticketmaster
Online's exclusive fulfillment provider for the online sales of all other
merchandise available through Ticketmaster Corp. Ticketmaster Corp. may also
solicit, sponsorship and advertising for Ticketmaster Online's Web sites in a
bundle with other sponsorship and advertising opportunities offered by
Ticketmaster Corp. See "Risk Factors--Dependence on Relationship with
Ticketmaster Corp." and "--Potential Conflicts of Interest." The summary
descriptions of the Ticketmaster License Agreement contained in this
Prospectus are qualified in their entirety by reference to the copy thereof
filed as an exhibit to the Registration Statement of which this Prospectus is
a part.
Ticketmaster Online Strategic Alliances
Ticketmaster Online participates in certain strategic partnerships with
leading media, marketing and technology partners. The Company believes that
these alliances will assist in the development of compelling content, increase
consumer traffic to the Ticketmaster Online Web site, continue to build the
Ticketmaster Online brand name and expand the Company's promotional
opportunities.
Media Partnerships. Ticketmaster Online creates and acquires entertaining,
informative and timely local content (e.g., live event information, venue
information, articles on live entertainment topics, chat sessions,
entertainment reviews and Webcasts), for use on its Web sites. In this regard,
Ticketmaster Online has entered into agreements with media companies such as
JAM TV and RealTime Sports. These arrangements generally provide for the
development of a co-branded Web presence and links from the co-branded area to
event listings and ticketing and merchandising pages on the Ticketmaster
Online Web site. Ticketmaster Online shares in the advertising and
merchandising revenues generated under the applicable agreement.
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Advertising, Sponsorship and Marketing Partnerships. Ticketmaster Online has
entered into advertising, sponsorship and marketing alliances with Internet
content and service providers and other partners. In addition, Ticketmaster
Corp. has entered into similar agreements pursuant to which Ticketmaster
Online performs services and is allocated a percentage of revenues. For
example, pursuant to an agreement with Ticketmaster Corp., Ticketmaster Online
and N2K (Music Boulevard) have developed a co-branded presence on the Web for
retailing music products. Ticketmaster Online's other advertisers and
marketing partners include Yahoo!, United Parcel Service of America, Inc.,
International Business Machines, Sprint Communications Company, Ltd., Red
Lobster and Ford Motor Company. Client advertisements and marketing
opportunities are typically integrated into Ticketmaster Online's Web site
through banners and links that encourage viewers to click through for
additional information. The Company intends to continue to pursue such
advertising, sponsorship and marketing opportunities.
Technology Partnerships. Ticketmaster Online also participates in certain
arrangements with technology partners to provide enhanced features and
functionality on its Web site. For example, the Company's "my Ticketmaster"
Web site, which Ticketmaster Online is jointly developing with Intel and
currently anticipates will be launched in the fourth quarter of 1998, is a
personalized Web application designed to enable users to choose categories of
event information they receive based on personal preferences and habits. This
personalized and localized site is currently being designed to include such
features as seating charts (some of which are designed to provide three-
dimensional perspectives) and driving directions to venues.
Marketing and Sales
The Company believes that it will benefit from Ticketmaster Corp.'s
continued promotion of its brand name through Ticketmaster Corp.'s services
and advertising sales force. The Company intends to continue to leverage the
Ticketmaster brand name, Ticketmaster Corp.'s extensive distribution
capabilities and core ticketing services in an effort to offer live event
venues, sports franchises, promoters, advertisers, sponsors and other partners
a wider variety of advertising, promotional and marketing platforms for their
products and services. Through the Company's relationship with Ticketmaster
Corp., advertisers have access to a full array of advertising alternatives,
ranging from online advertising vehicles such as Web sites, banners and
sponsorships to traditional advertising on ticket stock and envelopes, during
telephone sales (e.g., "music on hold" and sales scripts) and through direct
mail campaigns. The Company has nine employees dedicated to advertising and
promotion of Ticketmaster Online's services.
Operations
Ticketmaster Online's ticketing system interfaces on a real-time basis with
the host ticketing systems developed by Ticketmaster Corp. This is designed to
ensure that, except in limited circumstances, the inventory of tickets
available online is identical to that which is available through
Ticketmaster's other distribution methods (e.g., telephone call centers and
independent retail outlets) and to enable consumers to order tickets on a
"best available seat" basis. Measures are taken that are designed to prevent
system failure in Ticketmaster Corp.'s computer center. Each system has a live
back-up standing ready in the event of a primary system failure. The rooms
housing the computer-related equipment are protected by computer-safe fire
protection systems. To guard against power outages, uninterruptable power
supplies are utilized. High capacity back-up generators eliminate the
dependency on public electric sources. In addition, all data is continually
recorded on back-up tape.
Ticketmaster Online utilizes Secure Sockets Layer encryption technology
designed to allow users to securely transmit their personal information to the
Ticketmaster Online Web site. The decrypted data is then passed through two
levels of firewalls, using an internally developed communications protocol to
the Ticketmaster host systems where credit cards are processed and customer
accounts are built. The host systems communicate directly with bank processing
centers for instantaneous online credit card authorization and electronic
deposit of credit card receipts. Essentially, all order processing, credit
card billing, order fulfillment and consumer service functions for online
ticketing orders are handled by Ticketmaster Corp. in the same manner as
orders which are placed by telephone.
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Technology
Ticketmaster Online has an extensive database of live event information, with
event information updated 12 times every hour and more than 200 times daily.
This data base contains information on more than 30,000 events and over 3,000
clients and is designed to support an easy-to-use and reliable dynamic event
calendar and ticket-buying interface to the Ticketmaster System.
The Ticketmaster Online system is deployed as a multi-tiered system of
servers that separate database functions, Web page serving functions,
transaction processing functions and ticketing system interfacing functions.
The system is built using a combination of commercial and proprietary software
and hardware and is integrated into the Ticketmaster System. All Ticketmaster
Online ticket sales occur on one of 20 geographically dispersed host systems.
Credit card authorization and deposit, inventory control for events, customer
account management and ticket printing and distribution are all handled on the
Ticketmaster System. Internet users interact with various web servers to find
an event using various criteria including event location, event type, or
performer name. Once an event is located users interact with forms-based HTML
pages to guide them through the ticket-buying process. The Web servers
communicate via a proprietary gateway to the host ticketing systems where the
transaction actually takes place. Since the online ticketing system interfaces
in real-time with the host ticketing systems, except in limited circumstances,
the seats are identical to those available for sale through Ticketmaster
Corp.'s other distribution systems such call centers, outlets or box offices.
COMPETITION
The markets for local interactive content and transaction services are highly
competitive. Currently, the Company's primary competitors with respect to the
CitySearch service include Digital City, Inc., a company wholly-owned by
America Online, Inc. and Tribune Company, Microsoft Corporation (Sidewalk) and
Zip2 Corporation. CitySearch also competes against search engine and other site
aggregation companies which primarily serve to aggregate links to sites
providing local content such as Excite, Inc. (City.Net), Lycos, Inc. (Lycos
City Guide) and, while it is also a strategic partner of Ticketmaster Online,
Yahoo! (Yahoo! Local). In addition, the CitySearch service competes against
offerings from media companies, including Cox Interactive Media, Inc. 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 Media One Group,
Inc. (DiveIn). There are also numerous niche competitors which focus on a
specific category or geography and compete with specific content offerings
provided by the Company. 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. The
Company faces different competitors in most of its CitySearch markets. For
example, competitors in the San Francisco Bay Area, the Company's largest local
market in terms of CitySearch subscription and services revenues for the six
months ended June 30, 1998 (i.e., accounting for 14% of such revenues during
such period) primarily included Microsoft Corporation (Sidewalk), America
Online, Inc. (Digital City) and Yahoo! (SF Bay). Competitors in Raleigh-Durham-
Chapel Hill, the Company's second largest market in terms of subscription and
services revenues for the six months ended June 30, 1998 (i.e., accounting for
13% of such revenues during such period) primarily included the Web site
operated by The Raleigh News & Observer, WRAL-TV, trianglerestaurants.com,
Digital Center (raleighonline.com), Yahoo! Local and Internet Presentations,
Inc. (citydirect.com). 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. Pursuant to the
Ticketmaster License Agreement, Ticketmaster Online is restricted from entering
into agreements with facilities, promoters or other ticket sellers for the
online sale of tickets. As a result, Ticketmaster Online is substantially
dependent on the ability of Ticketmaster Corp. to establish and maintain
ticketing rights with facilities, promoters and sports franchises and negotiate
commercially favorable terms for such rights. Furthermore, Ticketmaster Corp.'s
sales
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of live event tickets by telephone and through retail outlets could impact
Ticketmaster Online's sales over the Internet. The Company believes that its
business arrangement with Ticketmaster Corp. pursuant to the Ticketmaster
License Agreement will mitigate any such impact. See "-- Ticketmaster Online
Business."
The business of selling live events tickets and related merchandise is
highly competitive and diverse. Ticketmaster Online's competitors include
event facilities and promoters that handle their own ticket sales and
distribution through online and other distribution channels, live event
automated ticketing companies with Web sites which may or may not currently
offer online transactional capabilities and certain live event Web-based
ticketing companies which only conduct business online. Where facilities and
promoters decide to utilize the services of a ticketing company, Ticketmaster
Online competes with international, national and regional ticketing services,
including TicketWeb, Telecharge (Shubert Ticketing Services), NEXT Ticketing,
Advantix, ETM Entertainment Networks, Dillard's, Prologue, Capital Tickets and
Lasergate (Lasergate Systems, Inc.). Several of Ticketmaster Online's
competitors have operations in multiple locations throughout the United
States, while others compete with Ticketmaster Online principally in one
specific geographic region. In certain specific geographic regions, including
certain of the local markets in which CitySearch provides or intends to
provide its local city guide service, one or more of these competitors may
serve as the primary ticketing service in the region. The Company believes
that Ticketmaster Online will experience significant difficulty in
establishing a significant online presence in such regions and, as a result,
any local city guide for such a region may be unable to provide significant
ticketing capabilities. There can be no assurance that one or more of these
regional automated ticketing companies will not expand into other regions,
which could have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, certain of
Ticketmaster Online's competitors have financial and other resources greater
than those of the Company and may introduce new Internet products and services
in these markets in the future. There can be no assurance that Ticketmaster
Online's competitors will not develop services superior to those of
Ticketmaster Online or achieve greater market acceptance than Ticketmaster
Online's offerings.
The Company believes that the principal competitive factors include depth,
quality and comprehensiveness of content, ease of use, distribution, search
capability and brand recognition. The Company believes that the principal
competitive factors for online ticketing for live events are brand
recognition, consumer confidence, and the ability to develop and maintain
relationships with facilities, sports franchises and promoters by providing
high-quality service. Many of the Company's competitors, whether with respect
to its CitySearch service or its Ticketmaster Online service, 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 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, servicing 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, proprietary software 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
employees, customers, partners and others to protect its proprietary rights.
The Company does not hold any patents. 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 or sought by the Company 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 proprietary rights, such as trademarks or copyrighted
material, to third parties. In addition, the Company has licensed in the past,
and expects that it
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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 brands 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 its
copyrights, trademarks, trade dress and similar proprietary rights. In
addition, there can be no assurance that other parties will not assert
infringement claims, including patent 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 be able to continue to
license the trademark on terms acceptable to the Company. The licensor of the
trademark has filed an application for United States registration of the
CitySearch trademark with the United States Patent and Trademark Office
("USPTO") and has recently received communications from a third party seeking
an extension of the time period during which third parties may oppose
registration of the mark. There can be no assurance that the USPTO will grant
registration of the CitySearch trademark. The Company licenses the trademark
"Ticketmaster" and related trademarks from Ticketmaster Corp. pursuant to the
Ticketmaster License Agreement. The Company is dependent upon Ticketmaster
Corp. to maintain and assert its rights to the trademarks licensed from
Ticketmaster Corp. and defend infringement claims, if any, relating to the
Company's use of such marks. The Company may be subject to legal proceedings
and claims of alleged infringement of the trademarks and other intellectual
property rights of third parties by the Company and its licensees or
licensors. 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 June 30, 1998, CitySearch employed 553 persons, including 207 persons
in functions related to cost of revenue (including 171 persons in design,
content collection, editorial and photography, 20 persons in customer service
and 16 persons in professional services), 243 persons in sales and marketing,
54 persons in research and development and 49 persons in general and
administrative areas. As of June 30, 1998, Ticketmaster Online employed 28
persons, including nine in advertising and promotion, eight in operations and
technical support, six in graphic design and editorial and content development
and five in general and administrative services. None of the Company's
employees is represented by a labor union, and the Company considers its
employee relations to be good.
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.
Ticketmaster Online leases its principal offices in Los Angeles, California,
as well as office space in additional cities throughout the United States, the
United Kingdom, and Canada, in each case on a month-to-month basis from
Ticketmaster Corp. on terms the Company believes are at least as favorable as
those it could obtain from a third party in an arm's-length transaction.
Ticketmaster Online currently occupies an aggregate of approximately 3,900
square feet of space. 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.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of September 30, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Alan Citron............. 40 Chairman of the Board
Charles Conn............ 37 Chief Executive Officer
Thomas Layton........... 35 President and Chief Operating Officer
Robert Perkins.......... 43 Executive Vice President, Ticketing and
Electronic Commerce
Douglas McPherson....... 36 Chief Legal Officer and Vice President,
Business Development
Bradley Ramberg......... 35 Chief Financial Officer, Vice President,
Finance and Administration and Secretary
Terry Barnes............ 47 Director
Eugene L. Cobuzzi....... 41 Director
Stuart W. DePina........ 37 Director
Barry Diller............ 56 Director
Joseph Gleberman........ 40 Director
William Gross........... 39 Director
Victor A. Kaufman....... 54 Director
Robert Kavner........... 54 Director
William D. Savoy........ 33 Director
Alan Spoon.............. 47 Director
Thomas Unterman......... 53 Director
</TABLE>
Mr. Citron has served as Chairman of the Board of the Company since September
1998 and the President of USA Interactive, a division of USAi, since July 1998.
From July 1997 until July 1998, Mr. Citron served as the President and Chief
Operating Officer of Ticketmaster Online. From January 1995 until July 1997,
Mr. Citron served as Senior Vice President--New Media of Ticketmaster Corp.
From January 1991 until December 1994, Mr. Citron was employed by the Los
Angeles Times, a division of The Times Mirror Company, as a reporter and
business writer and, commencing in 1992, as an assistant business editor in
charge of entertainment.
Mr. Conn has served as Chief Executive Officer of the Company since September
1998 and served as Chief Executive Officer of CitySearch since he co-founded
CitySearch in September 1995, served as President of CitySearch from September
1995 to October 1996 and served as a director from September 1995 until
September 1998. 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. 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 an M.B.A. from Harvard Business School, where he was a Baker
Scholar.
Mr. Layton has served as President and Chief Operating Officer of the Company
since September 1998. Prior to such time, he served as President of CitySearch
since October 1996 and as Chief Operating Officer and Treasurer since November
1995. He served as a director of CitySearch from May 1996 to September 1998. He
also served as Vice President, Sales and Marketing from November 1995 to
October 1996. From May 1994 to
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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 January 1989 to October 1992, Mr.
Layton was Vice President and General Manager of the Western Region for
Leasecomm, Inc., a 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 an M.B.A. from Stanford University.
Mr. Perkins has served as Executive Vice President, Ticketing and Electronic
Commerce of the Company since September 1998. From 1982 until September 1998,
he served in a variety of senior management positions with Ticketmaster Group,
most recently as Vice President of Ticketmaster Online. Prior to joining
Ticketmaster Group, Mr. Perkins worked in Venue Management and Sports
Marketing, having directed ticketing for the 1987 Pan Am Games in Indianapolis,
Indiana and serving as Venue Manager for the Olympic Ice Center at the 1980
Winter Olympics in Lake Placid, New York.
Mr. McPherson has served as Chief Legal Officer and Vice President, Business
Development since September 1998. From July 1998 until September 1998, he
served as Chief Legal Officer and Vice President, Business Development of
CitySearch. From November 1992 to July 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
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, Vice President,
Finance and Administration and Secretary of the Company since September 1998.
From April 1996 when he joined CitySearch until September 1998, he served as
Chief Financial Officer and Vice President, Finance and Administration of
CitySearch and also served as Secretary of CitySearch 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 an M.B.A. from Harvard Business School.
Mr. Barnes has served as a director of the Company since September 1998 and
as the President and Chief Executive Officer of Ticketmaster Corp. since June
1998. From September 1995 until June 1998, Mr. Barnes was the President and
Chief Operating Officer of TM Ticketing Co. From January 1991 until August
1995, Mr. Barnes was Vice President and General Manager of numerous
subsidiaries of Ticketmaster Corp. in the Midwest.
Mr. Cobuzzi has served as a director of the Company since September 1998 and
as the Chief Operating Officer of Ticketmaster Corp. since June 1998. From
February 1997 until June 1998, Mr. Cobuzzi was the Senior Vice President of
Operations for Ticketmaster Corp. From September 1995 until February 1997, Mr.
Cobuzzi served as an Executive Vice President of TM Ticketing Co. From January
1991 until August 1995, Mr. Cobuzzi served as an officer of numerous
subsidiaries of Ticketmaster Corp. in the Northeast. Mr. Cobuzzi, a CPA, began
his career at Ticketmaster Corp. as Controller in August 1985.
Mr. DePina has served as a director of the Company since September 1998 and
as the Chief Financial Officer of Ticketmaster Corp. since June 1998. From
November 1995 until June 1998, Mr. DePina was the Vice President--Finance and
Treasurer of Ticketmaster Group. From August 1984 to November 1995, Mr. DePina
was employed by the public accounting firm of KPMG Peat Marwick LLP serving in
various capacities including, most recently, as a partner.
Mr. Diller has served as a director of the Company since September 1998 and
served as a director of CitySearch from December 1997 until September 1998. Mr.
Diller has been a director and Chairman of the Board and Chief Executive
Officer of USAi since August 1995. He was Chairman of the Board and Chief
Executive
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Officer of QVC, Inc., from December 1992 through December 1994. From 1984 to
1992, Mr. Diller served as the Chairman 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.
He also serves on the Board of the Museum of Television and Radio and is a
member of the Board of Councilors for the University of Southern California's
School of Cinema-Television. Mr. Diller also serves on the Board of Directors
of AIDS Project Los Angeles, the Executive Board for the Medical Sciences of
the University of California, Los Angeles and the Board of the Children's
Advocacy Center of Manhattan.
Mr. Gleberman has served as a director of CitySearch since May 1996 and of
the Company since September 1998. He is a Managing Director in the Principal
Investment Area of Goldman, Sachs & Co., an investment banking firm. He joined
Goldman, Sachs & Co. in 1982. Mr. Gleberman also 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 and of the Company since September 1998. Since March 1996, Mr.
Gross has been Chairman of the Board, Chief Executive Officer and President of
bill gross' idealab!, a corporation which generates ideas for and creates new
companies. In 1991, he founded Knowledge Adventure Inc., a corporation which
developed educational software for children, and served as its Chairman from
June 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. Kaufman has served as a director of the Company since September 1998. Mr.
Kaufman has also served as a director of USAi since December 1996. Mr. Kaufman
has served in the Office of the Chairman of USAi since January 1997 and as its
Chief Financial Officer since November 1997. Prior to that time, he served as
Chairman and Chief Executive Officer of Savoy Pictures Entertainment, Inc.
("Savoy") from March 1992 through December 1996 and as a director of Savoy from
February 1992 through December 1996. Mr. Kaufman was the founding Chairman and
Chief Executive Officer of Tri-Star Pictures, Inc. ("Tri-Star") from 1983 until
December 1987, at which time he became President and Chief Executive Officer of
Tri-Star's successor company, Columbia Pictures Entertainment, Inc.
("Columbia"). He resigned from these positions at the end of 1989 following the
acquisition of Columbia by Sony USA, Inc. Mr. Kaufman joined Columbia in 1974
and served in a variety of senior positions at Columbia and its affiliates
prior to the founding of Tri-Star.
Mr. Kavner has served as a director of CitySearch since December 1995,
including as Chairman of the Board from March 1996 to September 1998 and as a
director of the Company since September 1998. Mr. Kavner has served as the
Chief Executive Officer, President and a director of On Command Corporation, a
provider of hotel in-room entertainment and movies, since September 1996 and
was a consultant in the area of Internet services and content, interactive
entertainment and telecommunications from September 1995 to August 1996. From
June 1994 to September 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 with AT&T, Inc. He also serves as a director of
Fleet Financial Group and Earthlink Networks, Inc.
Mr. Savoy has served as a director of the Company since September 1998. Since
1990, Mr. Savoy has served as Vice President of Vulcan Ventures, Incorporated,
a venture capital fund. From 1987 until November 1990, Mr. Savoy was employed
by Layered, Inc., and became its President in 1988. Currently, Mr. Savoy serves
as President of Vulcan Northwest, Inc. Mr. Savoy also serves on the Advisory
Board of Dream Works SKG. Mr. Savoy serves as a director of Cnet, Inc.,
Harbinger Corporation, Metricom, Inc., Telescan, Inc., United States Satellite
Broadcasting, Inc. and, since July 1997, has served as a director of USAi.
Mr. Spoon has served as a director of CitySearch since December 1997 and as a
director of the Company since September 1998. 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
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positions at The Washington Post Company, including President of Newsweek from
September 1989 to May 1991. He is also a director of American Management
Systems, Inc. and Human Genome Sciences, Inc.
Mr. Unterman has served as a director of CitySearch since June 1997 and as a
director of the Company since September 1998. Since March 1998, he has served
as Executive Vice President and Chief Financial Officer and from August 1995 to
March 1998, he served as 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 Vice President and General Counsel of The Times Mirror Company.
BOARD COMPOSITION
The Board of Directors of the Company is currently comprised of 12 directors,
none of whom is an officer or employee of the Company. Upon completion of this
offering, pursuant to the Restated Certificate of Incorporation of the Company,
the number of directors of the Company will be fixed from time to time by
resolution of the Board of Directors. All members of the Board of Directors are
elected annually by the stockholders of the Company. Seven of the Company's
current directors are directors, officers or employees of USAi or Ticketmaster
Group. See "Risk Factors--Control By and Relationship with USAi."
Prior to the completion of this offering, the Board of Directors will select
a Compensation Committee that shall make recommendations to the Board of
Directors concerning salaries and incentive compensation for officers and
employees of the Company, including equity compensation for senior executives
of the Company. In addition, the Board of Directors will also appoint an Audit
Committee that reviews and monitors corporate financial reporting and audits of
the Company, as well as any 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. In March and April 1996, Mr. Kavner received
options to purchase 50,000 shares, 10,000 shares and 81,681 shares of
CitySearch Common Stock (or 50,000 shares, 10,000 shares and 81,681 shares of
Class A Common Stock, respectively, pursuant to the Reclassification) under the
1996 Stock Option Plan at an exercise price of $0.10 per share, $0.10 per share
and $0.25 per share, respectively. Upon completion of this offering, directors
who do not receive compensation as officers or employees of the Company, USAi
or any of their respective affiliates, and who are not currently directors of
the Company, may receive discretionary stock options pursuant to the provisions
of the Company's 1998 Stock Option Plan. See "--Employee Benefit Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee will be an officer or
employee of the Company. No interlocking relationship will exist between the
Company's Board of Directors or the Compensation Committee and the board of
directors or compensation committee of any other company, nor has such an
interlocking relationship existed in the past.
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EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation awarded to, earned by or paid for services rendered 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
such year, (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------
AWARDS
--------------
ANNUAL CITYSEARCH
COMPENSATION SECURITIES
--------------- OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS (#)(1)
- --------------------------- ------- ------- ------------ --------------
<S> <C> <C> <C> <C>
Charles Conn....................... $93,333 $40,000 $ -- 125,000
Chief Executive Officer
Thomas Layton...................... 86,667 25,000 -- 75,000
President, Chief Operating Officer
and Treasurer
</TABLE>
- --------
(1) These options were granted pursuant to CitySearch's 1996 Stock Option Plan
and are options to purchase Class A Common Stock of the Company. See
"Employee Benefits Plans--1996 Stock Option Plan."
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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>
INDIVIDUAL GRANTS(1)
---------------------------------------------------
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES
OF STOCK
PRICE
NUMBER OF PERCENT OF APPRECIATION
SECURITIES TOTAL OPTIONS FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------
NAME GRANTED(#)(1) 1997(2) PER SHARE(3) DATE 5% 10%
---- ------------- ------------- ------------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Charles Conn............ 125,000 12.1% $2.00 10/01/07 $ $
Thomas Layton........... 75,000 7.2% 2.00 10/01/07
</TABLE>
- --------
(1) All options were granted under CitySearch's 1996 Stock Option Plan and are
exercisable for Class A Common Stock of the Company. As of December 31,
1997, 10,416 shares and 6,250 shares subject to the options granted to
Messrs. Conn and Layton were vested, respectively. Prior to the Merger, an
additional 20,833 shares and 12,500 shares subject to the options granted
to Messrs. Conn and Layton, respectively, vested. Upon the effectiveness
of the Merger, the remaining 93,751 shares and 56,250 shares subject to
the options granted to Messrs. Conn and Layton, respectively, immediately
vested.
(2) Based on options to purchase 1,035,219 shares granted to CitySearch
employees, including Messrs. Conn and Layton, during the year ended
December 31, 1997 (excluding options to purchase 84,895 shares of
CitySearch Common Stock that 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 CitySearch Common Stock on the date of grant as
determined by the CitySearch Board of Directors.
(4) Potential gains are calculated based on the assumed initial public
offering of $ per share of Class B Common Stock net of the respective
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 Commission and do not represent the Company's estimate or
projection of the future Class B Common Stock price. Actual gains, if any,
on stock option exercises are dependent on the future Class B 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.
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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
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT YEAR-END IN-THE-MONEY OPTIONS
(#)(1)(2) AT YEAR-END (3)
------------------------- -------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles Conn............ -- -- 10,416 114,584 $ $
Thomas Layton........... -- -- 256,250 68,750
</TABLE>
- --------
(1) Options shown were granted under the CitySearch 1996 Stock Option Plan and
are exercisable for Class A Common Stock. See "Employee Benefit Plans--1996
Stock Option Plan" for a description of the material terms of these
options.
(2) Upon the effectiveness of the Merger, the unvested stock options held by
Mr. Conn and Mr. Layton immediately vested and became fully exercisable.
(3) Based on the assumed initial public offering price of $ per share, less
the exercise price.
EMPLOYMENT AGREEMENTS
On May 9, 1996 and July 2, 1997, CitySearch entered into at-will employment
agreements with each of Messrs. Conn and Layton, respectively. Pursuant to such
employment agreements, in the event that Messrs. Conn's or Layton's, as the
case may be, employment is terminated, he 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.
In addition, pursuant to stock option agreements between the Company and each
of Messrs. Conn and Layton, the vesting of such stock options were accelerated
and fully vested upon completion of the Merger. Moreover, in connection with
the Merger, each of Messrs. Conn and Layton entered into non-competition
agreements with CitySearch, Ticketmaster Corp. and Ticketmaster Online. See
"Certain Transactions--Acceleration of Stock Options" and "--Non-Competition
Agreements."
EMPLOYEE BENEFIT PLANS
1996 Stock Option Plan. The Board of Directors of CitySearch adopted and the
stockholders approved the Company's 1996 Stock Option Plan (the "1996 Stock
Plan") and the reservation of 2,500,000 shares of Common Stock of CitySearch
thereunder on March 1, 1996. On September 18, 1996, the Board of Directors and
the stockholders of CitySearch approved an increase of 500,000 shares reserved
for issuance under the 1996 Stock Plan. The Board of Directors and the
stockholders of CitySearch approved a further increase of 1,000,000 shares on
November 18, 1996 and November 20, 1996, respectively. Pursuant to the terms of
the 1996 Stock Plan, the Merger and the Reclassification, the CitySearch Common
Stock reserved for issuance under the 1996 Stock Plan has been reclassified as
Class A Common Stock of the Company. As of September 30, 1998, there were
options to purchase an aggregate of shares of Class A Common Stock
outstanding under the 1996 Stock Plan. Subject to approval by the stockholders
of the Company, the Company amended the 1996 Stock Plan to increase the number
of shares reserved for issuance by 1,500,000 shares of Class A Common Stock to
an aggregate of 5,500,000 shares. The Company does not intend to grant any
additional options under the 1996 Stock Plan following the consummation of this
offering.
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The 1996 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 determined otherwise by the administrator, an option granted under the
1996 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. Unless otherwise provided by the
administrator, an option granted under the 1996 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 shares subject to options granted
under the 1996 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 1996 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 1996 Stock Plan provides
that in the event of a merger of the Company with or into another corporation,
or a sale of substantially all of the Company's assets, each option shall be
assumed or an equivalent option substituted for by the successor corporation.
If the outstanding options are not assumed or substituted for by the successor
corporation, the administrator shall provide for the optionee to have the right
to exercise the option as to all of the optioned stock, including shares as to
which it would not otherwise be exercisable. If the administrator makes an
option exercisable in full in the event of a merger or sale of assets, the
administrator shall notify the optionee that the option shall be fully
exercisable for a period of 15 days from the date of such notice, and the
option will terminate upon the expiration of such period.
1998 Stock Option Plan. Subject to approval by the Company's stockholders,
the Company intends to adopt the 1998 Stock Option Plan (the "1998 Stock Plan")
and reserve shares of Class B Common Stock of the Company for issuance
thereunder. The 1998 Stock Plan provides for the grant of incentive stock
options to employees (including officers and employee directors) and for the
grant of nonstatutory stock options and stock purchase rights ("SPRs") to
employees, directors and consultants. Unless terminated sooner, the 1998 Stock
Plan will terminate automatically in September 2008. As of the date of this
Prospectus, no options have been granted under the 1998 Stock Plan.
The administrator of the 1998 Stock Plan has the power to determine the terms
of the options or SPRs granted, including the exercise price of the option or
SPR, the number of shares subject to each option or SPR, the exercisability
thereof, and the form of consideration payable upon such exercise. In addition,
the administrator has the authority to amend, suspend or terminate the 1998
Stock Plan, provided that no such action may affect any shares of Class B
Common Stock previously issued and sold or any option previously granted under
the 1998 Stock Plan. The maximum number of shares covered by options that each
optionee may be granted during a fiscal year is 500,000 shares. In addition, in
connection with an optionee's initial employment with the Company, such
optionee may be granted an option covering an additional 1,000,000 shares.
Options and SPRs granted under the 1998 Stock Plan are generally not
transferable by the optionee, and each option and SPR is exercisable during the
lifetime of the optionee only by such optionee. Options granted under the 1998
Stock Plan generally must be exercised within three months after the end of the
optionee's status as an employee, director or consultant of the Company, or
within 12 months after such optionee's termination by death or disability, but
in no event later than the expiration of the option's term.
In the case of SPRs, unless the administrator determines otherwise, the
restricted stock purchase agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment or consulting relationship with the Company for any reason
(including death or disability). The purchase price for shares repurchased
pursuant to the restricted stock purchase agreement shall be the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of
the purchaser to the Company. The repurchase option shall lapse at a rate
determined by the administrator.
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The exercise price of all incentive stock options granted under the 1998
Stock Plan must be at least equal to the fair market value of the Class B
Common Stock on the date of grant. The exercise price of nonstatutory stock
options and SPRs granted under the 1998 Stock Plan is determined by the
administrator, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section
162(m) of the Code, the exercise price must be at least equal to the fair
market value of the Class B 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 granted must be at least equal 110% of the fair
market value on the grant date, and the term of such incentive stock option
must not exceed five years. The term of all other options granted under the
1998 Stock Plan may not exceed ten years.
The 1998 Stock Plan provides that in the event of a merger of the Company
with or into another corporation, or a sale of substantially all of the
Company's assets, each option and SPR shall be assumed or an equivalent option
substituted for by the successor corporation. If the outstanding options and
SPRs are not assumed or substituted for by the successor corporation, the
administrator shall provide for the optionee to have the right to exercise the
option or SPR as to all of the optioned stock, including shares as to which it
would not otherwise be exercisable. If the administrator makes an option or SPR
exercisable in full in the event of a merger or sale of assets, the
administrator shall notify the optionee that the option or SPR shall be fully
exercisable for a period of 15 days from the date of such notice, and the
option or SPR will terminate upon the expiration of such period.
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 shares of Class B 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) shares of Class B Common Stock,
(ii) 1.0% of the outstanding shares of Common Stock of the Company 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
period 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 Class B Common Stock at the end of each purchase period. Employees who
participate in an offering may have up to 15% of their compensation withheld
pursuant to the Purchase Plan. The price of Class B Common Stock purchased
under the Purchase Plan will be equal to 85% of the fair market value of the
Class B 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
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.
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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
Class B Common Stock.
USAi Options. USAi has informed the Company that all outstanding options to
purchase shares of USAi Common Stock held by employees of Ticketmaster Online
shall remain outstanding until the earliest to occur of the exercise thereof,
the expiration thereof and the date that the optionholder is no longer an
employee of Ticketmaster Online or another business of the Company, and that
the unvested options shall continue to vest and become exercisable pursuant to
the terms of grant until the earlier of the expiration thereof and the date the
optionholder is no longer an employee of Ticketmaster Online or another
business of the Company.
401(k) Plan. The Company participates in a tax-qualified employee savings and
retirement plan (the "Company 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 Company 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 Company 401(k)
Plan permits additional discretionary matching contributions by the Company on
behalf of all participants in the Company 401(k) Plan in such a percentage
amount as may be determined annually by the Board of Directors of the Company.
To date, the Company has made no such matching contributions. The Company
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
Company 401(k) Plan, and income earned on plan contributions, are not taxable
to employees until withdrawn from the Company 401(k) Plan, and so that
contributions by the Company, if any, will be deductible by CitySearch when
made. The trustee under the Company 401(k) Plan, at the direction of each
participant, invests the assets of the Company 401(k) Plan in any of a number
of investment options.
Prior to the Merger, the employees of Ticketmaster Online were eligible for
and participated in the Ticketmaster 401(k) Plan. Pursuant to the terms of the
Merger Agreement, it is anticipated that the Ticketmaster Online employees
shall cease participation in and become ineligible to contribute to the
Ticketmaster 401(k) Plan after the effectiveness of the Merger. It is further
anticipated that (i) the Company will accept a spin-off of the Ticketmaster
401(k) Plan as a trustee-to-trustee transfer with respect to that portion of
the Ticketmaster 401(k) Plan which is attributable to the employees of
Ticketmaster Online, (ii) the vested balances of these Ticketmaster Online
employees will be assumed by and transferred into the Company 401(k) Plan, and
(iii) the Company will maintain the level of plan benefits and features
required by the Employee Retirement Income Security Act and the Internal
Revenue Code in the case of such spin-offs. In the event that the Company,
Ticketmaster Online and Ticketmaster Corp. determine that such trustee-to-
trustee transfer is inadvisable, adjustments may be made to enable the affected
Ticketmaster Online employees to maintain certain benefits comparable to those
previously afforded such employees and to explore opportunities for such
employees to participate in the 1998 Stock Plan and any other benefits and
plans offered or adopted by the Company (including any welfare and other
benefits plans).
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 permitted by
the Delaware General Corporation Law (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
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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 Restated Bylaws 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
directors and officers in connection with a legal proceeding, subject to
certain very limited exceptions and (iv) the rights conferred in the Restated
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.
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PRINCIPAL STOCKHOLDERS
The following tables set forth certain beneficial ownership information with
respect to the Company and USAi, the majority owner of the Company.
COMPANY CLASS B COMMON STOCK
The following table sets forth, as of September 30, 1998, certain
information regarding the beneficial ownership of the Company's Class B Common
Stock, adjusted to reflect the sale of the shares of Class B 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 Class B 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>
NUMBER OF PERCENTAGE OF PERCENTAGE OF
SHARES SHARES TOTAL VOTING
NAME AND ADDRESS BENEFICIALLY BENEFICIALLY POWER
OF BENEFICIAL OWNER(1) OWNED(2) OWNED(2) (OF ALL CLASSES)(3)
- ---------------------- ------------ ------------- -------------------
<S> <C> <C> <C>
USA Networks, Inc.(4)............ 40,482,641
152 West 57th Street, 42nd Floor
New York, NY 10019
Barry Diller(4)(5)............... 40,482,641
William Gross(6)................. 3,535,326
Alan Citron...................... -- -- --
Terry Barnes..................... -- -- --
Eugene L. Cobuzzi................ -- -- --
Stuart W. DePina................. -- -- --
Joseph Gleberman(7).............. 2,984,973 **
Victor A. Kaufman................ -- -- --
Alan Spoon(8).................... 748,692
Thomas Unterman(9)............... 750,413
Robert Kavner(10)................ 229,998 * **
William D. Savoy................. -- -- --
Charles Conn(11)................. 1,910,821
Thomas Layton(12)................ 1,203,821
All executive officers and
directors as a group (17
persons)(13).................... 51,937,149
</TABLE>
- --------
* Less than 1% of the Company's outstanding Class B Common Stock.
** Less than 1% of the total voting power of the Company's outstanding Class
A Common Stock and Class B Common Stock.
(1) The address of Mr. Diller and Mr. Kaufman is c/o USA Networks, Inc. The
address of each of the other named individuals is: c/o Ticketmaster
Online- CitySearch, Inc., 790 E. Colorado Boulevard, Suite 200, Pasadena,
CA 91101.
(2) All numbers shown give effect to the sale of shares of Class B
Common Stock offered hereby. No shares of Class B Common Stock were
issued or outstanding, and no shares of Class B Common Stock were
beneficially owned, prior to the offering other than shares issuable upon
conversion of the Company's outstanding Class A Common Stock. Pursuant to
the Company's Restated Certificate of Incorporation, shares of Class A
Common Stock are convertible at any time into an equal number of shares
of Class B Common Stock. The percentage of shares beneficially owned
assumes the conversion of all shares of Class A Common Stock beneficially
owned by such listed person, but does not assume the conversion of Class
A Common Stock owned by any other person. Beneficial ownership is
determined in accordance with the rules of the Commission and generally
includes voting or investment power with
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<PAGE>
respect to securities. Except as indicated by footnote, and subject to
community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them. Percentage of beneficial
ownership is based on shares of Class B Common Stock outstanding
immediately upon completion of this offering. Amounts shown in the above
table and the following notes include shares issuable upon exercise of
stock options to purchase shares of Class A Common Stock which are
exercisable within 60 days of September 30, 1998.
(3) Percentage of total voting power of all classes is based on one vote for
each share of Class B Common Stock and 15 votes for each share of Class A
Common Stock and is calculated assuming no conversion of the Class A
Common Stock.
(4) Does not reflect shares to be purchased by USAi pursuant to the Tender
Offer. See "Ticketmaster Online-CitySearch Merger--Merger Agreement--
Tender Offer." Assuming USAi purchases the maximum number of shares of
the Class A Common Stock subject to the Tender Offer (2,924,339 shares),
USAi will beneficially own 43,406,980 shares, or approximately %
after this offering ( % of the total voting power of all classes).
(5) Includes 40,482,641 shares of Class A Common Stock which are beneficially
owned by USAi. Mr. Diller disclaims beneficial ownership of such shares.
(6) Excludes 1,178,234 shares of Class A Common Stock which Mr. Gross
transferred previously but as to which he retains voting power until the
closing of this offering. Includes 590,703 shares of Class A Common Stock
which are held by bill gross' idealab! Mr. Gross disclaims beneficial
ownership of such shares.
(7) Includes 2,984,973 shares of Class A Common Stock which are held by
entities affiliated with The Goldman Sachs Group L.P. (the "GS Group").
Mr. Gleberman is a managing director of Goldman, Sachs & Co., the general
partner of which is GS Group. Mr. Gleberman disclaims beneficial
ownership of the shares owned by the GS Group, except to the extent of
his pecuniary interest therein.
(8) Includes 748,692 shares of Class A Common Stock which are held by
Washingtonpost.Newsweek Interactive Company. Mr. Spoon disclaims
beneficial ownership of such shares.
(9) Includes 743,360 shares of Class A Common Stock which are held by The
Times Mirror Company. Mr. Unterman disclaims beneficial ownership of such
shares. Also includes 7,053 shares of Class A Common Stock which are held
by The Thomas and Janet Unterman Living Trust dated 12/30/94.
(10) Includes 115,282 shares of Class A Common Stock and options to purchase
114,716 shares of Class A Common Stock exercisable by Mr. Kavner within
60 days of September 30, 1998.
(11) Includes 1,585,821 shares of Class A Common Stock and options to purchase
325,000 shares of Class A Common Stock exercisable by Mr. Conn within 60
days of September 30, 1998.
(12) Includes 928,821 shares of Class A Common Stock and options to purchase
275,000 shares of Class A Common Stock exercisable by Mr. Layton within
60 days of September 30, 1998.
(13) See notes (2) through (12).
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<PAGE>
COMPANY CLASS A COMMON STOCK
The following table sets forth information relating to the beneficial
ownership of the Company's Class A Common Stock by (i) each person or entity
who is known by the Company to beneficially own 5% or more of the Company's
outstanding Class A 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>
NUMBER OF
SHARES PERCENTAGE
NAME AND ADDRESS BENEFICIALLY OF
OF BENEFICIAL OWNER(1) OWNED(2) CLASS(2)
---------------------- ------------ ----------
<S> <C> <C>
USA Networks, Inc.(3)............................. 40,482,641 64.8
152 West 57th Street, 42nd Floor
New York, NY 10019
Barry Diller(3)(4)................................ 40,482,641 64.8
William Gross(5).................................. 3,535,326 5.7
Alan Citron....................................... -- --
Terry Barnes...................................... -- --
Eugene L. Cobuzzi................................. -- --
Stuart W. DePina.................................. -- --
Joseph Gleberman(6)............................... 2,984,973 4.8
Victor A. Kaufman................................. -- --
Alan Spoon(7)..................................... 748,692 1.2
Thomas Unterman(8)................................ 750,413 1.2
Robert Kavner(9).................................. 229,998 *
William D. Savoy.................................. -- --
Charles Conn(10).................................. 1,910,821 3.0
Thomas Layton(11)................................. 1,203,821 1.9
All executive officers and directors as a group
(17 persons)(12)................................. 51,937,149 83.1
</TABLE>
- --------
* Less than 1% of the Company's outstanding Class A Common Stock.
(1) The address of Mr. Diller and Mr. Kaufman is c/o USA Networks, Inc. The
address of each of the other named individuals is: c/o Ticketmaster
Online-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, the persons named in the table above have
sole voting and investment power with respect to all shares of Class A
Common Stock shown as beneficially owned by them. Percentage of class is
based on 62,469,875 shares of Class A Common Stock outstanding as of
September 30, 1998. Amounts shown in the above table and the following
notes include shares issuable upon exercise of stock options to purchase
shares of Class A Common Stock which are exercisable within 60 days of
September 30, 1998. Shares of Class A Common Stock may be converted at
any time into an equal number of shares of Class B Common Stock.
(3) Does not reflect shares to be purchased by USAi pursuant to the Tender
Offer. See "Ticketmaster Online-CitySearch Merger--Merger Agreement--
Tender Offer." Assuming USAi purchases the maximum number of shares of
Class A Common Stock subject to the Tender Offer (2,924,339 shares), USAi
will beneficially own 43,406,980 shares, or approximately 69.5% of the
class.
(4) Includes 40,482,641 shares of Class A Common Stock beneficially owned by
USAi, as to which Mr. Diller disclaims beneficial ownership.
(5) Excludes 1,178,234 shares of Class A Common Stock which Mr. Gross
transferred previously but as to which he retains voting power until the
closing of this offering. Includes 590,703 shares of Class A Common Stock
held by bill gross' idealab!, as to which Mr. Gross disclaims beneficial
ownership.
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<PAGE>
(6) Includes 2,984,973 shares of Class A Common Stock held by entities
affiliated with the GS Group. Mr. Gleberman is a managing director of
Goldman, Sachs & Co., the general partner of which is GS Group. Mr.
Gleberman disclaims beneficial ownership of the shares owned by the GS
Group, except to the extent of his pecuniary interest therein.
(7) Includes 748,692 shares of Class A Common Stock held by
Washingtonpost.Newsweek Interactive Company, as to which Mr. Spoon
disclaims beneficial ownership.
(8) Includes 743,360 shares of Class A Common Stock held by The Times Mirror
Company, as to which Mr. Unterman disclaims beneficial ownership, and
7,053 shares of Class A Common Stock held by The Thomas and Janet Unterman
Living Trust dated 12/30/94.
(9) Includes 114,716 shares issuable upon exercise of stock options to
purchase shares of Class A Common Stock which are exercisable by Mr.
Kavner within 60 days of September 30, 1998.
(10) Includes 325,000 shares issuable upon exercise of stock options to
purchase shares of Class A Common Stock which are exercisable by Mr. Conn
within 60 days of September 30, 1998.
(11) Includes 275,000 shares issuable upon exercise of stock options to
purchase shares of Class A Common Stock which are exercisable by Mr.
Layton within 60 days of September 30, 1998.
(12) See notes (2) through (12).
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<PAGE>
USAI COMMON STOCK
The following table sets forth, as of , 1998, information relating to
the beneficial ownership of the common stock of USAi, par value $.01 per share
("USAi Common Stock") by (i) each director of the Company; (ii) the Named
Executive Officers of the Company; and (iii) all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER TOTAL VOTING
NAME AND ADDRESS OF PERCENT POWER
OF BENEFICIAL OWNER(1) SHARES OF CLASS(2) (OF ALL CLASSES)(3)
---------------------- ------ ----------- -------------------
<S> <C> <C> <C>
Barry Diller(4)......................
William Gross........................
Alan Citron..........................
Terry Barnes.........................
Eugene L. Cobuzzi....................
Stuart W. DePina.....................
Joseph Gleberman.....................
Victor A. Kaufman(5)................. * **
Alan Spoon...........................
Thomas Unterman......................
Robert Kavner........................
William D. Savoy(6).................. * **
Charles Conn.........................
Thomas Layton........................
All executive officers and directors
of the Company as a group (17 per-
sons)...............................
</TABLE>
- --------
* Less than 1% of the outstanding USAi Common Stock.
** Less than 1% of the total voting power of the USAi Common Stock and the
Class B common stock of USAi, par value $.01 per share ("USAi Class B
Common Stock").
(1) Mr. Diller and Mr. Kaufman may be contacted at USAi's corporate
headquarters, 152 West 57th Street, 42nd Floor, New York, NY 10019. The
address of each of the other named individuals is: c/o Ticketmaster
Online-CitySearch, Inc., 790 E. Colorado Boulevard, Suite 200, Pasadena,
CA 91101.
(2) The percentage of beneficial ownership listed assumes the conversion of
any shares of USAi Class B Common Stock owned by such listed person, but
does not assume the conversion of USAi Class B Common Stock owned by any
other person. Beneficial ownership has been determined in accordance with
the rules of the Commission. Shares of USAi Class B Common Stock are
convertible at any time into an equal number of shares of USAi Common
Stock.
(3) The percentage of votes for all classes is based on one vote for each
share of USAi Common Stock and ten votes for each share of USAi Class B
Common Stock (assuming no conversion of USAi Class B Common Stock).
(4) Liberty, a wholly owned subsidiary of TCI, Universal, Seagram, USAi and
Mr. Diller are parties to a stockholders agreement (the "Stockholders
Agreement") pursuant to which Liberty and Mr. Diller have formed BDTV
INC., BDTV II INC., BDTV III INC. and BDTV IV INC. (together the "BDTV
Entities") which entities hold , , and shares
of USAi Class B Common Stock, respectively. Includes shares of
USAi Class B Common Stock, and shares of USAi Common Stock as to
which Mr. Diller has general voting power and which are otherwise
beneficially owned
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<PAGE>
by Seagram. Mr. Diller also owns through intermediate entities shares
of USAi Common Stock and vested options to purchase shares of USAi
Common Stock. Pursuant to the Stockholders Agreement, Mr. Diller generally
has the right to vote all of the shares of USAi stock held by the BDTV
entities, Seagram and Liberty. These figures do not include any unissued
shares of USAi Common Stock or USAi Class B Common Stock issuable upon
exchange of the shares of Home Shopping Network, Inc. ("Home Shopping") held
by Liberty HSN, Inc. ("Liberty HSN") and the shares of USANi LLC ("LLC
Shares") beneficially owned by Liberty or Seagram.
(5) Consists of shares of USAi Common Stock and vested options to
purchase shares of USAi Common Stock.
(6) Consists of shares of USAi Common Stock held by [ ] and vested
options to purchase shares of USAi Common Stock.
USAI CLASS B COMMON STOCK
The following table sets forth, as of , 1998, information relating to
the beneficial ownership of USAi Class B Common Stock for the individuals
described in the table regarding ownership of USAi Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
NAME AND ADDRESS BENEFICIALLY PERCENTAGE
OF BENEFICIAL OWNER OWNED(1) OF CLASS
- ------------------- ------------ ----------
<S> <C> <C>
Barry Diller(2)......................................... %
</TABLE>
- --------
(1) All or any portion of shares of USAi Class B Common Stock may be converted
at any time into an equal number of shares of USAi Common Stock.
(2) These figures do not include any unissued shares of USAi Common Stock or
USAi Class B Common Stock issuable upon conversion of Liberty HSN's Home
Shopping shares and LLC Shares beneficially owned by Liberty or Seagram.
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<PAGE>
TICKETMASTER ONLINE-CITYSEARCH MERGER
MERGER AGREEMENT
On September 28, 1998, pursuant to the Merger Agreement, the Merger was
consummated and Ticketmaster Online became a wholly-owned subsidiary of the
Company. At the effective time of the Merger, the outstanding capital stock of
Ticketmaster Online was converted into an aggregate of 37,238,000 shares of
CitySearch Common Stock which, pursuant to the Reclassification, was
subsequently converted into Class A Common Stock. The following is a summary
of certain aspects of the Merger Agreement, the Merger and related
transactions and is qualified in its entirety by reference to the Merger
Agreement and the exhibits thereto, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
Tender Offer. Pursuant to the terms of the Merger Agreement, in connection
with the Merger, USAi will commence the Tender Offer to purchase from each
Current CitySearch Holder up to 20% of each such holder's shares of Common
Stock (including shares of Common Stock issuable upon conversion of Preferred
Stock or upon exercise of options or warrants that were vested and exercisable
as of the effective time of the Merger) at a per share price of $8.67 net to
the seller in cash. The Merger Agreement provides that, notwithstanding the
foregoing, USAi is not obligated to purchase in the Tender Offer more than an
aggregate of 2,924,339 shares of Common Stock; provided that in the event more
than 2,924,339 shares are tendered, the number of shares purchased from each
holder in excess of 10% of any holder's shares will be reduced on a pro rata
basis. The Tender Offer is scheduled to expire 20 business days after
commencement.
Assuming USAi purchases the total number of shares subject to the Tender
Offer, USAi will beneficially own 43,406,980 shares of Class A Common Stock,
or approximately 69.5%, of the outstanding Common Stock prior to this offering
and, immediately after this offering, will beneficially own % of the
outstanding Common Stock, representing approximately % of the total voting
power of the Common Stock. All of the shares purchased pursuant to the Tender
Offer will be shares of Class A Common Stock and will not be converted into
Class B Common Stock when purchased by USAi. Such shares of Class A Common
Stock are convertible, however, into Class B Common Stock on a share-for-share
basis at the election of USAi or automatically upon certain transfers thereof
by USAi.
Put Option. The Merger Agreement provides that, in the event that the
Company does not close a Qualified IPO (as defined below), during each of the
45-day periods starting on the dates that are 12 months, 18 months and 24
months from the date of the Merger Agreement, a majority in interest of the
Current CitySearch Holders may, upon notice to USAi, require USAi to commence
an exchange offer, consummation of which would be subject to certain
conditions, including that a minimum of 50.1% (on a fully diluted basis) of
the then-outstanding Common Stock held by Current CitySearch Holders is
tendered therein, for all shares of Common Stock then held by any Current
CitySearch Holder for consideration of (a) 0.1548 shares of USAi Common Stock
plus (b) at the election of USAi, either (i) $4.34 in immediately available
funds or (ii) a number of additional shares of USAi Common Stock equal to
$4.34 divided by the average closing price of a share of USAi Common Stock for
the 20 consecutive trading days ending on the date five days prior to the date
of the applicable notice, as reported on the Nasdaq National Market or the New
York Stock Exchange, as the case may be. Any such exchange offer would be
subject to certain conditions, including that a minimum of 50.1% (on a fully
diluted basis) of the then-outstanding Common Stock held by Current CitySearch
Holders is tendered therein. A "Qualified IPO" is defined in the Merger
Agreement as an underwritten public offering of the Company's Common Stock
pursuant to a registration statement declared effective by the Commission
under the Securities Act, involving the offer and sale of shares of the
Company's Common Stock either (x) equal in number to 10% of the number of all
shares of outstanding Common Stock of all classes at the time of such closing
or (y) at an aggregate offering price (after deduction of underwriter
commissions and offering expenses) of not less than $75 million. For all
purposes under the Merger Agreement, a Qualified IPO shall have occurred if an
underwritten public offering meeting the criteria specified in the immediately
preceding sentence is consummated and one of
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<PAGE>
the investment banking institutions specified on a list agreed to by
CitySearch and USAi is a managing underwriter (or the sole underwriter) of
such underwritten public offering.
Based upon the number of shares of Class B Common Stock being offered
hereby, and the expected initial public offering price of such shares, this
offering, upon closing, will constitute a Qualified IPO. As a result, the Put
Option, as well as the other rights granted to the Current CitySearch Holders
in the Merger Agreement that terminate or expire upon the closing of a
Qualified IPO (including, without limitation, the right to nominate four
persons as directors on the Company's Board of Directors and certain Company
actions requiring supermajority board approvals), will terminate or expire, as
the case may be, upon the closing of this offering.
Indemnification by USAi. Pursuant to the Merger Agreement, USAi has agreed
to indemnify each of the Current CitySearch Holders and hold them harmless
against any loss, loss of value, liability, demand, claim, action or expense
which any such person or entity may suffer or become subject to as a result of
a breach of certain representations and warranties made by USAi, Ticketmaster
Group, Ticketmaster Corp. and Ticketmaster Online relating to Ticketmaster
Group venue agreements and Ticketmaster Online financial statements.
Non-Competition Agreements. In connection with the execution of the Merger
Agreement, Messrs. Conn and Layton entered into the non-competition agreements
with CitySearch, Ticketmaster Corp. and Ticketmaster Online (the "Non-
Competition Agreements"). Each of Messrs. Conn and Layton received a cash
payment of $250,000 from Ticketmaster Corp. in connection with the execution
of his Non-Competition Agreement. See "Certain Transactions--Non-Competition
Agreements."
CONVERTIBLE NOTE
Concurrently with the execution of the Merger Agreement, USAi loaned $50
million in cash to CitySearch in exchange for the Convertible Note. The
Convertible Note, in the principal amount of $50 million, bears interest at a
rate per annum of 7.00%. Following consummation of the Merger, the Convertible
Note is convertible only upon the expiration of the final put right described
above under "Ticketmaster Online-CitySearch Merger" into that number of shares
of Class A Common Stock equal to the outstanding principal amount and any
accrued and unpaid interest (which interest has been outstanding for a period
longer than one year) divided by $7.33. Upon completion of this offering,
which will result in the termination of the Put Option, the Convertible Note
and any remaining outstanding principal or accrued interest thereon will no
longer be convertible into capital stock of the Company. The Convertible Note
is generally due and payable on the earlier to occur of (a) August 13, 2005 or
(b) 20 days following the closing of a Qualified IPO, which, as described
above, would include this offering. In the event that a Qualified IPO results
in net cash proceeds to the Company less than the aggregate amount of the
outstanding principal and accrued interest under the Convertible Note, the
Company will be required to pay USAi an amount equal to such net cash
proceeds, with payment of such proceeds first applied against the accrued and
unpaid interest and then to outstanding principal. See "Use of Proceeds."
TICKETMASTER LICENSE AGREEMENT
Concurrently with the execution of the Merger Agreement, Ticketmaster
Corp.,Ticketmaster Online and USAi entered into the Ticketmaster License
Agreement, which is described under "Business--Ticketmaster Online Business--
Ticketmaster License Agreement."
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<PAGE>
CERTAIN TRANSACTIONS
PRIVATE PLACEMENTS OF SECURITIES
On September 22, 1995, CitySearch issued an aggregate of 6,622,857 shares of
its Common Stock to William Gross, a co-founder of CitySearch and director of
the Company, for services provided to CitySearch and aggregate proceeds of
$5,000. On December 9, 1995, CitySearch repurchased 2,000,000 shares of such
Common Stock from Mr. Gross for an aggregate price of $1,510. On October 11,
1995 CitySearch 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 Reclassification, the
Founders' Stock has been reclassified as Class A Common Stock of the Company.
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, 1,178,234 shares of Founders' Stock have been transferred by Mr. Gross
and certain key employees with the approval of the Board of Directors of
CitySearch. However, Mr. Gross retains voting power over all of shares
transferred by him until the closing of this offering.
Between May 15, 1996 and July 31, 1996, CitySearch issued and sold an
aggregate of 3,261,024 shares of Series C Preferred Stock (or 3,170,356 shares
of Class A Common Stock pursuant to the Conversion and the Reclassification) at
a per share price of $3.4665. Entities affiliated with Goldman, Sachs & Co.
purchased 2,596,278 shares of these shares (or 2,465,686 shares of Class A
Common Stock pursuant to the Conversion and the Reclassification) 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, CitySearch issued and sold an
aggregate of 4,430,313 shares of Series D Preferred Stock (or 4,297,824 shares
of Class A Common Stock pursuant to the Conversion and the Reclassification) at
a per share price of $6.5251. These sales included the following: 766,272
shares (or 743,360 shares of Class A Common Stock pursuant to the Conversion
and the Reclassification) were sold to The Times Mirror Company for an
aggregate purchase price of approximately $5.0 million; 475,085 shares (or
460,873 shares of Class A Common Stock pursuant to the Conversion and the
Reclassification) were sold to entities affiliated with Goldman, Sachs & Co.
for an aggregate purchase price of approximately $3.1 million; and 459,763
shares (or 446,015 shares of Class A Common Stock pursuant to the Conversion
and the Reclassification) were sold to Washingtonpost.Newsweek Interactive
Company for an aggregate purchase price of approximately $3.0 million. Mr.
Unterman, a director of the Company, is an Executive Vice President and Chief
Financial Officer of The Times Mirror Company. Mr. Gleberman, a director of the
Company, is Managing Director in the Principal Investment Area of Goldman,
Sachs & Co. Mr. Spoon, a director of the Company, is President, Chief Operating
Officer and a director of The Washington Post Company.
Between November 11, 1997 and November 26, 1997, CitySearch issued and sold
an aggregate of 4,655,347 shares of Series E Preferred Stock (or 4,714,286
shares of Class A Common Stock pursuant to the Conversion and the
Reclassification) at a per share price of $7.00. USAi purchased 2,857,143 such
shares (2,821,428 shares of Class A Common Stock pursuant to the Conversion and
the Reclassification) for an aggregate purchase price of approximately $20.0
million. Mr. Diller, a director of the Company, is Chairman and Chief Executive
Officer of USAi. In addition, 302,677 shares (or 306,509 shares of Class A
Common Stock pursuant to the Conversion and the Reclassification) were sold to
Washingtonpost.Newsweek Interactive Company for an aggregate purchase price of
approximately $2.1 million.
On May 26, 1998, CitySearch issued and sold an aggregate of 1,000,000 shares
of Series E Preferred Stock (or 987,500 shares of Class A Common Stock pursuant
to the Conversion and the Reclassification) at a per share price of $7.00. USAi
purchased 428,571 of these shares (or 423,213 shares of Class A Common Stock
pursuant to the Conversion and the Reclassification) for an aggregate purchase
price of approximately $3.0 million.
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<PAGE>
TRANSACTIONS WITH AFFILIATES
USAi, Ticketmaster Corp. and Related Entities
In May 1997, CitySearch entered into a cross-promotional agreement with
Ticketmaster Online. Pursuant to the agreement, Ticketmaster Online agreed to
provide banner advertising promoting CitySearch's owned and operated city sites
on the Ticketmaster Online Web site, to provide access to Ticketmaster Online
ticket and information Web pages and to provide "music-on-hold" and/or direct
mail opportunities from Ticketmaster Corp. CitySearch agreed to provide
promotion of the Ticketmaster name and logo in selected advertising and
marketing materials, to co-produce with Ticketmaster Online broadcast
advertising, to provide banner advertising promoting Ticketmaster Online on the
CitySearch Web sites and to promote Ticketmaster Corp. events and publications.
This agreement terminates on October 31, 1998.
CitySearch, USAi, Ticketmaster Online and various affiliates are parties to
the Merger Agreement. In addition, pursuant to the Merger Agreement, USAi has
commenced the Tender Offer, which will be consummated prior to completion of
this offering. Concurrently with the execution of the Merger Agreement, USAi
loaned $50 million in cash to CitySearch in exchange for the Convertible Note.
See "Ticketmaster Online-CitySearch Merger--Merger Agreement."
In August 1998, Ticketmaster Online and Ticketmaster Corp. entered into the
Ticketmaster License Agreement. See "Business--Ticketmaster Online Business--
Ticketmaster License Agreement."
The Company expects that, both within and outside the ordinary course of
business, the Company and its affiliates (other than USAi and its controlled
affiliates), on the one hand, and USAi and its affiliates (other than the
Company and its controlled affiliates) will engage in various transactions,
including pursuant to the Ticketmaster License Agreement. The Company expects
that such transactions will be negotiated at arm's length and will result in
terms to the Company that are at least as favorable as those that could be
obtained from a third party, where applicable.
Other Affiliates
In June 1997, CitySearch 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 CitySearch'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. Thomas Unterman, a director of the
Company, is Executive Vice President and Chief Financial Officer of The Times
Mirror Company.
In September 1997, Ticketmaster Online entered into an agreement with The Los
Angeles Times, Inc. providing for Ticketmaster Online to create and maintain a
co-branded Web site with ticketing capabilities and information on local live
events. Under the agreement, Ticketmaster Online is required to pay to The Los
Angeles Times, Inc. 50% of net merchandising revenue from the co-branded Web
site.
In November 1997, CitySearch entered into a license and services agreement
with Washingtonpost.Newsweek Interactive 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. Alan Spoon, a director of the Company, is the
President and a director of The Washington Post Company, the parent of
Washington-post.Newsweek Interactive Company.
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ACCELERATION OF STOCK OPTIONS
Charles Conn and Thomas Layton are parties to stock option agreements under
the 1996 Stock Option Plan pursuant to which Mr. Conn was granted options to
purchase 125,000 shares and 200,000 shares of CitySearch Common Stock at
exercise prices of $2.00 per share and $7.00 per share, respectively, and Mr.
Layton was granted options to purchase 75,000 shares and 200,000 shares of
CitySearch Common Stock at exercise prices of $2.00 per share and $7.00 per
share, respectively. Each of these stock option agreements provides that in
the event of a substantial merger or a board approved acquisition of
CitySearch, all outstanding, unvested stock options will vest upon completion
of such event. Upon consummation of the Merger, 277,084 shares subject to
unvested options held by Mr. Conn and 239,584 shares subject to unvested
options held by Mr. Layton immediately vested. Pursuant to terms of the stock
option agreements, the Merger and the Reclassification, these options are
exercisable for Class A Common Stock.
NON-COMPETITION AGREEMENTS
In connection with the execution of the Merger Agreement, Messrs. Conn and
Layton each entered into the Non-Competition Agreements with CitySearch,
Ticketmaster Corp. and Ticketmaster Online.
The Non-Competition Agreements provide that each of Messrs. Conn and Layton
will not, for a period of two years and six months from the date of the Non-
Competition Agreement, directly engage in or assist any activity that is the
same or materially competes with the local city guide business on the Web or
the business of the sale of tickets to live events through any distributed
channels. Messrs. Conn and Layton each received $250,000 from Ticketmaster
Group in connection with the execution of his Non-Competition Agreement. In
addition, neither Messrs. Conn nor Layton may solicit senior employees or
customers, advertisers or clients of CitySearch or Ticketmaster Online or any
of their respective subsidiaries for a period of one year following the date
of the termination of his employment with CitySearch for any reason.
The Company has also entered into employment agreements with each of Messrs.
Conn and Layton, which provide for certain severance payments upon termination
of employment. See "Management--Employment Agreements."
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DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of the Company's capital stock is
qualified in its entirety by reference to the applicable provisions of Delaware
law and the Company's Restated Certificate of Incorporation and Restated Bylaws
as proposed to be in effect upon consummation of this offering.
As of September 30, 1998, there were 62,469,875 shares of Class A Common
Stock outstanding, held of record by 292 stockholders of the Company, and
options to purchase shares of Class A Common Stock outstanding.
COMMON STOCK
Upon the closing of this offering, the Company will be authorized to issue
100,000,000 shares of Class A Common Stock, 250,000,000 shares of Class B
Common Stock and 2,883,506 shares of Class C Common Stock. The Class A Common
Stock, Class B Common Stock and Class C Common Stock will have the following
rights, preferences and privileges:
Class A Common Stock. Except as otherwise provided by the Restated
Certificate of Incorporation or by applicable law, each share of Class A Common
Stock issued and outstanding shall have 15 votes on any matter submitted to a
vote of stockholders. Pursuant to the Merger and the Reclassification, each
issued and outstanding share of CitySearch Common Stock outstanding prior to
the Merger was reclassified on a one-for-one basis as Class A Common Stock of
the Company. Each share of Class A Common Stock will be automatically converted
into one share of Class B Common Stock of the Company upon any sale, pledge,
conveyance, hypothecation, assignment or other transfer (a "Transfer") of such
share, whether or not for value by the initial registered holder (the "Initial
Holder") thereof, other than any such Transfer by such holder to (i) a nominee
of such holder (without any change in beneficial ownership, within the meaning
of Section 13(d) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act")) or (ii) another person that, at the time of the Transfer,
beneficially owns shares of Class A Common Stock or a nominee thereof; provided
that, notwithstanding the foregoing (A) any Transfer by the Initial Holder
without consideration to (i) any affiliated entity of such Initial Holder, (ii)
a partner, active or retired, of such Initial Holder, (iii) the estate of any
such Initial Holder or a trust established for the benefit of the descendants
or any relatives or spouse of such Initial Holder, (iv) a parent corporation or
wholly-owned subsidiary of such Initial Holder or to a wholly-owned subsidiary
of such parent unless and until such transferee ceases to be a parent or
wholly-owned subsidiary of the Initial Holder or a wholly-owned subsidiary of
such parent, or (v) the spouse of such Initial Holder, in each case, shall not
result in such conversion, or (B) any bona fide pledge to a financial
institution in connection with a borrowing shall not result in such conversion;
and provided further, that in the event any Transfer shall not give rise to
automatic conversion hereunder, then any subsequent Transfer by the holder
(other than any such Transfer by such holder to a nominee of such holder
(without any change in beneficial ownership, as such term is defined under
Section 13(d) of the Exchange Act)) or the pledgor, as the case may be, shall
be subject to automatic conversion upon such terms and conditions. In addition,
each share of Class A Common Stock may be converted at any time into one share
of Class B Common Stock at the option of the holder thereof. The one-to-one
conversion ratio shall be in all events equitably preserved in the event of any
merger, consolidation or other reorganization of the Company with another
corporation.
Pursuant to the terms of conversion described above, shares of Class A Common
Stock purchased by USAi pursuant to the Tender Offer will not convert to Class
B Common Stock and will remain shares of Class A Common Stock. See
"Ticketmaster Online-CitySearch Merger--Merger Agreement--Tender Offer."
Pursuant to the terms of the Company's 1996 Stock Option Plan, as amended,
and the Reclassification, all outstanding options as of September 30, 1998 are
exercisable for shares of Class A Common Stock, and no additional options will
be granted under the 1996 Stock Plan. See "Employee Benefit Plans--1996 Stock
Option Plan."
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Class B Common Stock. Except as otherwise provided by the Company's Restated
Certificate of Incorporation or applicable law, each share of Class B Common
Stock issued and outstanding shall have one vote on any matter submitted to a
vote of stockholders. The Restated Certificate of Incorporation provides that
the Company shall at all times reserve and keep available out of its authorized
but unissued shares of Class B Common Stock, solely for the purpose of
effecting the conversion of the shares of the Class A Common Stock, such number
of its shares of Class B Common Stock as shall be necessary to effect the
conversion of all outstanding shares of Class A Common Stock. Except as
otherwise required by applicable law, the Class A Common Stock and the Class B
Common Stock shall vote together as a single class on all matters submitted to
a vote of stockholders.
Class C Common Stock. No shares of Class C Common Stock issued and
outstanding shall have any vote on any matter submitted to a vote of
stockholders, except as otherwise required by applicable law. The Class C
Common Stock is reserved for issuance upon conversion of the Convertible Note
held by USAi based upon limited circumstances, as described in the Convertible
Note. See "Ticketmaster Online--CitySearch Merger--Merger Agreement--
Convertible Note."
Except as set forth in the Company's Restated Certificate of Incorporation
and summarized in this Prospectus, with respect to voting rights, conversion
and transfer, and except as otherwise provided by applicable law, the Class A
Common Stock, Class B Common Stock and the Class C Common Stock have identical
rights, preferences and privileges. As such, subject to preferences that may
apply to shares of Preferred Stock outstanding from time to time, the holders
of outstanding shares of Common Stock of the Company are entitled to receive,
on a share-for-share basis, such dividends if, as and when declared from time
to time by the Board of Directors of the Company. Cumulative voting for the
election of directors is not provided for in the Company's Restated Certificate
of Incorporation; therefore, subject to applicable law, the holders of a
majority of the shares voted will have the power to elect all of the directors
then standing for election. No class of Common Stock is entitled to preemptive
rights or 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 each class of
Common Stock, subject to the preferences, if any, of any outstanding Preferred
Stock and payment of claims of creditors. The Company's Restated Certificate of
Incorporation further provides that in no event will any stock dividends or
stock splits or combinations of stock shall not be declared or made on Class A
Common Stock, Class B Common Stock or Class C Common Stock unless all shares of
Class A Common Stock, Class B Common Stock and Class C Common Stock then
outstanding are treated equally and identically. Each outstanding share of
Common Stock of the Company 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 of the Company, which could have an adverse impact on the
market price of the Class B Common Stock. The Company has no current plan to
issue any shares of Preferred Stock.
WARRANTS
In November 1997, as additional consideration for service rendered by
NationsBanc Montgomery Securities LLC as placement agent for CitySearch's
Series E Preferred Stock financing, CitySearch issued to NationsBanc
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Montgomery Securities LLC a warrant to purchase 94,286 shares of Series E
Preferred Stock (or 93,107 shares of Class A Common Stock pursuant to the
Conversion and the Reclassification). The warrant is exercisable at any time
at an exercise price of $8.86 per share of Class A Common Stock. Any
unexercised portion of the warrant is automatically convertible into Class A
Common Stock immediately prior to the closing of this offering for that number
of shares of Class A Common 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 Class A Common 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 per share initial offering price of the
shares of Class B Common Stock to be issued and sold in this offering.
CORPORATE OPPORTUNITIES
The Company's Restated Certificate of Incorporation will provide that "USA
Networks" (for purposes of this section only, as defined below) shall have no
duty to refrain from engaging in the same or similar activities or lines of
business as the Company, and neither USA Networks nor any officer, director or
employee thereof (except as described below) shall be liable to the Company or
its stockholders for breach of any fiduciary duty by reason of any such
activities of USA Networks. In the event that USA Networks acquires knowledge
of a potential transaction or matter which may be a corporate opportunity for
both USA Networks and the Company, USA Networks shall have no duty to
communicate or offer such corporate opportunity to the Company and shall not
be liable to the Company or its stockholders for breach of any fiduciary duty
as a stockholder of the Company by reason of the fact that USA Networks
pursues or acquires such corporate opportunity for itself, directs such
corporate opportunity to another person, or does not communicate information
regarding such corporate opportunity to the Company. Nothing in this provision
of the Company's Restated Certificate of Incorporation shall amend or modify
in any respect any written contractual agreement between USA Networks and the
Company.
In the event that a director or officer of the Company who is also a
director, officer or employee of USA Networks acquires knowledge of a
potential transaction or matter which may be a corporate opportunity for both
the Company and USA Networks, such director or officer of the Company shall
have fully satisfied and fulfilled the fiduciary duty of such director or
officer to the Company and its stockholders with respect to such corporate
opportunity, if such director or officer acts in a manner consistent with the
following policy:
(i) a corporate opportunity offered to any person who is an officer of
the Company, and who is also a director but not an officer or employee of
USA Networks, shall belong to the Company;
(ii) a corporate opportunity offered to any person who is a director but
not an officer of the Company, and who is also a director, officer or
employee of USA Networks shall belong to the Company if such opportunity is
expressly offered to such person in his or her capacity as a director of
the Company, and otherwise shall belong to USA Networks; and
(iii) a corporate opportunity offered to any person who is a officer or
employee of USA Networks and an officer of the Company shall belong to the
Company if such opportunity is expressly offered to such person in his or
her capacity as an officer or employee of the Company, and otherwise shall
belong to USA Networks.
For purposes of the foregoing:
(i) A director of the Company who is Chairman of the Board of Directors
of the Company or of a committee thereof shall not be deemed to be an
officer of the Company by reason of holding such position (without regard
to whether such position is deemed an office of the Company under the
Bylaws of the Company), unless such person is a full-time employee of the
Company; and
(ii) The term "Company" shall mean the Company and all corporations,
partnerships, joint ventures, associations and other entities in which the
Company beneficially owns (directly or indirectly) 50% or more of the
outstanding voting stock, voting power, partnership interests or similar
voting interests. The term "USA Networks" shall mean USA Networks, Inc., a
Delaware corporation, USANi LLC, a Delaware
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limited liability company, and all corporations, partnerships, joint
ventures, associations and other entities (other than the Company, as
defined in accordance with this paragraph) in which USA Networks
beneficially owns (directly or indirectly) 50% or more of the outstanding
voting stock, voting power, partnership interests or similar voting
interests.
The foregoing provisions of the Company's Restated Certificate of
Incorporation shall expire on the date that USA Networks ceases to beneficially
own Common Stock representing at least 20% of the total voting power of all
classes of outstanding capital stock of the Company entitled to vote in the
election of directors and no
person who is a director or officer of the Company is also a director or
officer of USA Networks. In addition to any vote of the stockholders required
by law, until the time that USA Networks ceases to beneficially own Common
Stock representing at least 20% of the total voting power of all classes of
outstanding capital stock of the Company entitled to vote in the election of
directors, the affirmative vote of the holders of more than 80% of the total
voting power of all such classes of outstanding capital stock of the Company
shall be required to alter, amend or repeal in a manner adverse to the
interests of USA Networks, or adopt any provision adverse to the interests of
USA Networks and inconsistent with, the corporate opportunity provisions
described above.
Any person purchasing or otherwise acquiring any interest in shares of the
capital stock of the Company shall be deemed to have notice of and to have
consented to the foregoing provisions of the Company's Restated Certificate of
Incorporation.
ANTITAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS
Certain provisions of the Company's Restated Certificate of Incorporation and
Restated Bylaws and Delaware General Corporation Law Section 203 may render
more difficult, or have the effect of discouraging, unsolicited takeover bids
from third parties or the removal of incumbent management of the Company. These
provisions include the right of the holders of Class A Common Stock to 5 votes
per share, versus one vote per share for the holders of Class B Common Stock,
and provide that the stockholders may not call special meetings. In addition,
the Company's Restated Certificate of Incorporation authorizes the Board of
Directors to issue, without stockholder approval, 2,000,000 shares of Preferred
Stock with voting, conversion and other rights and preferences that could
adversely affect the voting power or other rights of the holders of Common
Stock of the Company. Although the Company has no current plans to issue any
shares of Preferred Stock, the issuance of Preferred Stock or rights to
purchase Preferred Stock could render more difficult, or have the effect of
discouraging, unsolicited takeover bids from third parties or the removal of
incumbent management of the Company, or otherwise adversely affect the market
price for the Class B Common Stock. See "--Preferred Stock." Although, such
provisions do not have a substantial practical significance to investors while
USAi, through its ownership of Class A Common Stock, is in a position to
effectively control all matters affecting the Company, such provisions could
have the effect of depriving stockholders of an opportunity to sell their
shares at a premium over prevailing market prices should USAi no longer be in
such control.
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
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Company has not "opted out" of the provisions of the Antitakeover Law. The
restrictions of Section 203 will not apply to USAi, however, because (i) the
Company's Board of Directors approved the transaction which resulted in USAi
becoming an "interested stockholder" prior to the consummation of that
transaction and (ii) at the time USAi became an "interested stockholder," the
restrictions of Section 203 did not apply to the Company because the Company
did not have a class of voting stock (x) listed on a national securities
exchange, (y) authorized for quotation on the Nasdaq Stock Market or (z) held
of record by more than 2,000 stockholders.
REGISTRATION RIGHTS
After this offering, the holders of 7,006,671 shares of Class A Common Stock
will have the right in certain circumstances to request the Company to register
their shares under the Securities Act for resale to the public in the event of
a Company-initiated registration. Under the terms of the agreements between the
Company and the holders of such registrable securities, if the Company proposes
to register any of its securities under the Securities Act, such holders are
entitled to notice of such registration and are entitled to include shares of
such Class A Common Stock therein. 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.
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is Bank of New York.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Class B
Common Stock of the Company. Future sales of substantial amounts of Class B
Common Stock in the public market (including by optional or automatic
conversion of shares of Class A Common Stock into Class B Common Stock), or the
anticipation of such sales, 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 Class B
Common Stock of the Company in the public market (including by optional or
automatic conversion of shares of Class A Common Stock into Class B Common
Stock) after such 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 Class B
Common Stock outstanding ( shares if the underwriters over-allotment option
is exercised in full) and 64,469,875 shares of Class A Common Stock (assuming
no exercise of currently outstanding options or warrants). Following
consummation of the Merger, USAi beneficially owns 40,482,641 shares of Class A
Common Stock (or 43,406,980 shares of Class A Common Stock assuming USAi
purchases the total number of shares of Common Stock subject to the Tender
Offer). Shares of Class A Common Stock are convertible into Class B Common
Stock on a share-for-share basis at the election of the holder or automatically
upon certain transfers thereof. The shares of Class B Common Stock 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 shares of Class B
Common Stock issuable upon conversion of the Class A Common Stock (including
the shares of Class B Common Stock issuable upon certain transfers of the Class
A Common Stock or at the option of the holder thereof) 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 Restricted Shares will be eligible for immediate sale on the
effective date of this offering; (ii) approximately Restricted Shares will
be eligible for sale 90 days after the effective date of this offering; (iii)
approximately Restricted Shares will be eligible for sale without
restriction and Restricted Shares will be eligible for sale subject to
volume limitations, in each case 180 days after the effective date of this
offering upon the expiration of contractual pre-existing lock-up agreements
with the Company and the representatives of the Underwriters, 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, 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.
In addition, the Company expects to file a registration statement on Form S-8
registering a total of approximately shares of Class A Common Stock subject
to outstanding stock options under the Company's 1996 Stock Option Plan and an
aggregate of shares of Class B Common Stock reserved for future issuance
under the Company's 1998 Stock Option Plan and 1998 Employee Stock Purchase
Plan. The Form S-8 registration statement is expected to be filed and to become
effective immediately following the 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.
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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
Class B Common Stock or (ii) the average weekly trading volume of the Company's
Class B Common Stock in the Nasdaq National Market during the four calendar
weeks immediately preceding the date on which the notice of 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 offering. In addition, non-Affiliates may sell Rule 701 shares
without complying with the public information, volume and notice provisions of
Rule 144.
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UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities LLC, Allen & Company Incorporated,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc. 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
Class B 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..............................
Allen & Company Incorporated.......................................
BancBoston Robertson Stephens Inc. ................................
Bear, Stearns & Co. Inc. ..........................................
Donaldson, Lufkin & Jenrette Securities Corporation................
---
Total............................................................
===
</TABLE>
The Representatives have advised the Company that the Underwriters initially
propose to offer the shares of Class B 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 Class B 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. In addition, the Representatives
have agreed to reimburse the Company for a portion of the out-of-pocket
expenses incurred by the Company in connection with this offering.
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 Class B 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 (other than pursuant to a conversion of shares of
Class A Common Stock to Class B Common Stock) of any shares of Class A Common
Stock, Class B Common Stock issuable upon conversion thereof or any right to
acquire such shares or any security convertible into or exchangeable or
exercisable for any such shares or rights
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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
securities or any other securities convertible into or exchangeable or
exercisable for the Class B Common Stock or other security of the Company,
other than the grant of options to purchase Class B Common Stock, or the
issuance of shares of Class B Common Stock under the Company's stock option and
stock purchase plans, the issuance of shares of Class B Common Stock in
connection with certain acquisitions and the issuance of shares of Class B
Common Stock pursuant to the exercise of outstanding options.
Prior to this offering, there has been no public market for the Class B
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 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 Exchange Act. 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 Class B 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 Class B 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 Class B 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 Class
B 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 CitySearch's Series E Preferred Stock
financing, CitySearch paid to NationsBanc Montgomery Securities LLC a fee equal
to $1,546,182 in November 1997. As additional consideration for such services,
CitySearch granted to NationsBanc Montgomery Securities LLC a warrant to
purchase 94,286 shares of Series E Preferred Stock (or 93,107 shares of Class A
Common Stock pursuant to the Conversion and the Reclassification). The warrant
is exercisable at any time at an exercise price of $8.86 per share of Class A
Common Stock. Any unexercised portion of the warrant is automatically
convertible into Class A Common Stock immediately prior to the closing of this
offering for that number of shares of Class A Common 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 Class A Common 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.
In connection with the Merger, NationsBanc Montgomery Securities LLC acted as
the Company's financial advisor. In addition to reimbursing NationsBanc
Montgomery Securities LLC for reasonable out-of-pocket expenses, the Company
will pay a customary fee to NationsBanc Montgomery Securities LLC in connection
with such services. In addition, the Company has agreed to indemnify
NationsBanc Montgomery Securities LLC
104
<PAGE>
against certain liabilities in connection with the Merger or will contribute to
payments that NationsBanc Montgomery Securities LLC may be required to make in
respect thereof.
Bayview Investors, Ltd., an entity affiliated with BancBoston Robertson
Stephens Inc., holds 25,165 shares of Class A Common Stock. Global Retail
Partners, L.P. and its affiliates, each an affiliate of Donaldson, Lufkin &
Jenrette Securities Corporation, holds 714,286 shares of Class A Common Stock.
Donald R. Keough, the Chairman of Allen & Company Incorporated, currently
serves as a director of USAi.
LEGAL MATTERS
The validity of the Class B 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 Class B Common Stock offered hereby. An entity
affiliated with Wilson Sonsini Goodrich & Rosati, Professional Corporation,
holds an aggregate of 75,281 shares of Class A Common Stock.
EXPERTS
The consolidated financial statements of CitySearch, Inc. 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, and the
financial statements of Ticketmaster Multimedia Holdings, Inc. at January 31,
1997 and 1998 and for the years ended January 31, 1996, 1997 and 1998, included
in this Prospectus have been audited by Ernst & Young LLP, independent
auditors, as stated in their reports thereon appearing elsewhere herein and in
the Registration Statement, and are included in reliance upon such reports
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 Class B 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.
105
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Introduction.............................................................. F-2
Unaudited Pro Forma Condensed Combined Balance Sheet at June 30, 1998..... F-3
Unaudited Pro Forma Condensed Combined Statement of Operations for the six
months ended June 30, 1998............................................... F-4
Unaudited Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1997............................................. F-5
Notes to Unaudited Pro Forma Condensed Combined Financial Statements...... F-6
TICKETMASTER MULTIMEDIA HOLDINGS, INC. ("TICKETMASTER ONLINE")
Report of Independent Auditors............................................ F-8
Balance Sheets at January 31, 1997 and 1998 and June 30, 1998 (unaudited). F-9
Statements of Operations for the years ended January 31, 1996, 1997 and
1998 and the five months ended June 30, 1997 and 1998 (unaudited)........ F-10
Statements of Stockholder's Accounts for the years ended January 31, 1996,
1997 and 1998 and the five months ended June 30, 1998 (unaudited)........ F-11
Statements of Cash Flows for the years ended January 31, 1996, 1997 and
1998 and the five months ended June 30, 1997 and 1998 (unaudited)........ F-12
Notes to Financial Statements............................................. F-13
CITYSEARCH, INC.
Report of Independent Auditors............................................ F-19
Consolidated Balance Sheets at December 31, 1996 and 1997 and at June 30,
1998 (unaudited)......................................................... F-20
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 six months ended June 30, 1997 and 1998
(unaudited).............................................................. F-21
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 six months ended June 30,
1998 (unaudited)......................................................... F-22
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 six months ended June 30, 1997 and 1998
(unaudited).............................................................. F-23
Notes to Consolidated Financial Statements................................ F-25
</TABLE>
F-1
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
(the "Condensed Statements") have been prepared to give effect to the Merger.
In addition, the Condensed Statements have been prepared to give effect to the
Ticketmaster Transaction and the Ticketmaster License Agreement. The Merger
will be accounted for using the "reverse purchase" method of accounting,
pursuant to which Ticketmaster Online will be treated as the acquiring entity
for accounting purposes and the assets and liabilities of CitySearch will be
recorded at their respective fair values under the purchase method of
accounting. Capitalized terms presented in the unaudited condensed combined
pro forma financial statements, including the notes thereto, are defined
elsewhere in this Prospectus.
The Condensed Statements reflect certain assumptions regarding the Merger
and are based on the historical consolidated financial statements of the
respective entities. The Condensed Statements, including the notes thereto,
are qualified in their entirety by reference to and should be read in
conjunction with, the audited financial statements of CitySearch, Inc. and
Ticketmaster Online, including the notes thereto, which are included in this
Prospectus. The unaudited financial statements of Ticketmaster Online for the
year ended December 31, 1997 and six months ended June 30, 1998 were derived
from the historical financial information of Ticketmaster Online which has
been adjusted to reflect the Ticketmaster Online change in year end to
December 31.
The unaudited pro forma condensed combined balance sheet as of June 30, 1998
gives effect to the Merger as if it had occurred on June 30, 1998 and combines
the unaudited consolidated balance sheet of CitySearch and unaudited balance
sheet of Ticketmaster Online as of that date.
The unaudited pro forma condensed combined statement of operations for the
six months ended June 30, 1998 reflects the unaudited consolidated statement
of operations of CitySearch, combined with the unaudited pro forma statement
of operations of Ticketmaster Online (including the pro forma effects of the
Ticketmaster Transaction), in each case, for the six months ended June 30,
1998.
The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 1997 reflects the audited consolidated statement of
operations of CitySearch for the year ended December 31, 1997, combined with
the unaudited pro forma results of operations of Ticketmaster Online for the
year ended December 31, 1997 (including the pro forma effects of the
Ticketmaster Transaction).
USAi will commence a tender offer to purchase up to 20% of each
stockholder's CitySearch Common Stock at a per share purchase price of $8.67
in cash, up to an aggregate of 2,924,339 shares (the "Tender Offer"). The
Unaudited Pro Forma Condensed Combined Financial Statements do not give effect
to the Tender Offer (see Note 16).
The Company is in the process of evaluating the fair value of assets
acquired and liabilities assumed in order to make a final allocation of the
excess purchase price, including allocation to the intangibles other than
goodwill. Accordingly, the purchase accounting information is preliminary and
has been made solely for the purpose of developing such unaudited pro forma
condensed combined financial information.
The Condensed Statements are presented for illustrative purposes only and
are not necessarily indicative of the financial position or the results of
operations which would have actually been reported had the Merger and
Ticketmaster Transaction occurred as of June 30, 1998, or for the six months
ended June 30, 1998, or for the year ended December 31, 1997, nor are the
Condensed Statements necessarily indicative of future financial position or
results of operations.
F-2
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET OF
TICKETMASTER ONLINE AND CITYSEARCH
COMBINED AS OF JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
TICKETMASTER HISTORICAL PRO FORMA PRO FORMA
ONLINE CITYSEARCH ADJUSTMENTS COMBINED(16)
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. $ -- $ 15,512 $ 50,000 (1) $ 63,512
(2,000)(2)
Accounts receivable, net.. 121 407 -- 528
Due from licensees........ -- 735 -- 735
Prepaid expenses and other
current assets........... 64 149 -- 213
-------- -------- -------- --------
Total current assets.... 185 16,803 48,000 64,988
Computers, software,
equipment, and leasehold
improvements, net.......... 450 5,687 -- 6,137
Goodwill and other
intangibles................ 154,789 -- 138,421 (3) 293,210
-------- -------- -------- --------
Total assets............ $155,424 $ 22,490 $186,421 $364,335
======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable.......... $ 200 $ 2,480 $ -- $ 2,680
Accrued and other
liabilities.............. 335 1,639 -- 1,974
Deferred revenue and
other.................... 2,568 980 -- 3,548
Current portion of capital
lease obligations........ -- 973 -- 973
-------- -------- -------- --------
Total current
liabilities............ 3,103 6,072 -- 9,175
Deferred purchase price of
subsidiary and other....... 12 648 -- 660
Convertible promissory note. 50,000 (1) 50,000
Obligations under capital
leases, net of current
portion.................... -- 1,671 -- 1,671
Redeemable Convertible
Preferred Stock............ -- 77,840 (77,840)(4) --
Stockholders' equity
(deficit):
Convertible Preferred
Stock.................... -- 3,056 (3,056)(4) --
Common Stock and
additional paid-in
capital.................. 154,789 1,648 143,284 (5) 299,721
Due from Ticketmaster
Corp..................... (5,588) 5,588 (6) --
Deferred compensation..... -- (1,232) 1,232 (7) --
Retained earnings
(accumulated deficit).... 3,108 (67,213) 69,213 (7) 3,108
(2,000)(2)
-------- -------- -------- --------
Total stockholders' equity
(deficit).................. 152,309 (63,741) 214,261 302,829
-------- -------- -------- --------
Total liabilities and
stockholders' equity
(deficit)................ $155,424 $ 22,490 $186,421 $364,335
======== ======== ======== ========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
F-3
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS OF
TICKETMASTER ONLINE AND CITYSEARCH
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TICKETMASTER
TICKETMASTER PRO FORMA ONLINE AND
HISTORICAL ONLINE ADJUSTED CITYSEARCH
TICKETMASTER PRO FORMA TICKETMASTER HISTORICAL PRO FORMA PRO FORMA
ONLINE ADJUSTMENTS ONLINE CITYSEARCH ADJUSTMENTS COMBINED(16)
------------ ------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Ticketing operations.. $5,947 $ -- $5,947 $ -- $ -- $ 5,947
Sponsorship and
advertising.......... 2,444 -- 2,444 277 -- 2,721
City guide and
related.............. -- -- -- 6,521 -- 6,521
------ ------- ------ -------- -------- --------
8,391 -- 8,391 6,798 -- 15,189
Costs and expenses:
Cost of ticketing
operations........... 3,451 -- 3,451 -- 1,461 (9) 4,408
(504)(10)
Cost of city guide and
related.............. -- -- -- 6,699 -- 6,699
Sales and marketing... 470 -- 470 9,812 -- 10,282
Research and
development.......... -- -- -- 3,395 -- 3,395
General and
administrative....... 1,007 -- 1,007 3,634 (414)(10) 4,227
Amortization of
goodwill............. -- 1,935(8) 1,935 -- 23,087 (11) 25,022
------ ------- ------ -------- -------- --------
4,928 1,935 6,863 23,540 23,630 54,033
------ ------- ------ -------- -------- --------
Income (loss) from
operations............. 3,463 (1,935) 1,528 (16,742) (23,630) (38,844)
Interest income......... -- -- -- 371 -- 371
Interest expense........ -- -- -- (111) (1,750)(12) (1,861)
------ ------- ------ -------- -------- --------
-- -- -- 260 (1,750) (1,490)
------ ------- ------ -------- -------- --------
Income (loss) before
provision for income
taxes.................. 3,463 (1,935) 1,528 (16,482) (25,380) (40,334)
Provision for income
taxes.................. 1,595 -- 1,595 -- (1,595)(13) --
------ ------- ------ -------- -------- --------
Net income (loss)....... $1,868 $(1,935) $ (67) $(16,482) $(23,785) $(40,334)
====== ======= ====== ======== ======== ========
Basic and diluted net
loss per share......... $ (1.67) $ (0.66)
======== ========
Shares used to compute
basic and diluted net
loss per share......... 9,873 61,448 (14)
======== ========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
F-4
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS OF
TICKETMASTER ONLINE AND CITYSEARCH
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TICKETMASTER
TICKETMASTER PRO FORMA ONLINE AND
HISTORICAL ONLINE ADJUSTED CITYSEARCH
TICKETMASTER PRO FORMA TICKETMASTER HISTORICAL PRO FORMA PRO FORMA
ONLINE ADJUSTMENTS ONLINE CITYSEARCH ADJUSTMENTS COMBINED(16)
------------ ------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Ticketing operations.. $5,442 $ -- $ 5,442 $ -- $ -- $ 5,442
Sponsorship and
advertising.......... 3,853 -- 3,853 112 -- 3,965
City guide and
related.............. -- -- -- 6,072 -- 6,072
------ ------- ------- -------- -------- --------
9,295 -- 9,295 6,184 -- 15,479
Costs and expenses:
Cost of ticketing
operations........... 3,260 -- 3,260 -- 1,001 (9) 3,865
(396)(10)
Cost of city guide and
related.............. -- 9,688 -- 9,688
Sales and marketing... 439 -- 439 20,172 -- 20,611
Research and
development.......... -- -- -- 7,182 -- 7,182
General and
administrative....... 1,700 -- 1,700 5,883 (590)(10) 6,993
Amortization of
goodwill............. 3,870 (8) 3,870 -- 46,174 (11) 50,044
------ ------- ------- -------- -------- --------
5,399 3,870 9,269 42,925 46,189 98,383
------ ------- ------- -------- -------- --------
Income (loss) from
operations............. 3,896 (3,870) 26 (36,741) (46,189) (82,904)
Interest income......... -- -- -- 494 -- 494
Interest expense........ -- -- -- (271) (3,500)(12) (3,771)
------ ------- ------- -------- -------- --------
-- -- -- 223 (3,500) (3,277)
------ ------- ------- -------- -------- --------
Income (loss) before
provision for income
taxes.................. 3,896 (3,870) 26 (36,518) (49,689) (86,181)
Provision for income
taxes.................. 1,707 -- 1,707 8 (1,707)(13) 8
------ ------- ------- -------- -------- --------
Net income (loss)....... $2,189 $(3,870) $(1,681) $(36,526) $(47,982) $(86,189)
====== ======= ======= ======== ======== ========
Basic and diluted net
loss per share......... $ (3.86) $ (1.54)
======== ========
Shares used to compute
basic and diluted net
loss per share......... 9,452 55,883 (14)
======== ========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
F-5
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) Represents proceeds from Convertible Note issued in connection with the
Merger.
(2)Represents CitySearch's estimated transaction costs related to the Merger.
(3) Ticketmaster Online Merger. Merger costs and the preliminary
determination of the unallocated excess of Merger costs over net assets
acquired are set forth below:
<TABLE>
<S> <C>
Initial investment at cost...................................... $ 23,000
Value of Ticketmaster Online contributed to Company in exchange
for 37,238 shares of CitySearch................................ 120,983
Estimated transaction costs..................................... 1,500
--------
Total acquisition costs....................................... 145,483
Net assets acquired............................................. 7,062
--------
Unallocated excess of acquisition cost over net assets acquired
(see note 11).................................................. $138,421
========
</TABLE>
The value of the non-monetary exchange between Ticketmaster Online and
CitySearch was valued by Ticketmaster Online based on the fair value of
the 50.7% of CitySearch acquired in the transaction. The fair value of
CitySearch was based on an assumed fair value of $8.67 per share of
CitySearch Common Stock and the number of shares outstanding at August 10,
1998, including outstanding stock options under the treasury method.
The assumed fair value of the CitySearch Common Stock of $8.67 per share
is based on the Tender Offer consideration per share determined in a
negotiated transaction.
(4) Represents the conversion of the CitySearch Convertible Preferred Stock
of $3,056 and Redeemable Convertible Preferred Stock of $77,840 into
Common Stock in connection with the Merger.
(5) Represents the sum of the following pro forma adjustments:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- --------
<S> <C>
Goodwill (see note 3)........................................... $138,421
Conversion of Preferred Stock (see note 4)...................... 80,896
Due from Ticketmaster (see note 6).............................. (5,588)
Elimination of equity and deferred compensation (see note 7).... (70,445)
--------
$143,284
========
</TABLE>
(6) Reflects the reclassification of Ticketmaster Online's amounts due from
Ticketmaster Corp. to additional paid in capital. Amounts due from
Ticketmaster resulted from the net difference between cash receipts and
disbursements and intercompany charges arising from the allocation of
certain Ticketmaster Online revenues and operating costs. Under the
Merger Agreement, the net due from Ticketmaster will not be paid to
Ticketmaster Online.
(7) Reflects the elimination of deferred compensation and historical equity
of CitySearch.
(8) Reflects additional amortization expense resulting from the increase in
goodwill and other intangible assets. Additional goodwill of $154,789
represents a preliminary allocation of goodwill resulting from
F-6
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
USAi's acquisition of Ticketmaster Group, which is being amortized
straight line over 40 years. The Ticketmaster Online amortization period
is consistent with the historical amortization period of Ticketmaster
Group due to the perpetual Ticketmaster License Agreement, and the market
leadership, brand identity and age of the overall Ticketmaster business.
(9) Represents license fee under the Ticketmaster License Agreement.
(10) Represents certain costs allocated from Ticketmaster Corp. to
Ticketmaster Online which are now covered under the license fee (See note
9).
(11) Reflects additional amortization expense resulting from the increase in
goodwill and other intangible assets due to the Merger. The unallocated
excess of acquisition costs over net assets acquired has been
preliminarily allocated to intangibles of $500 related to certain non-
compete arrangements, which is being amortized over 2.5 years, and to
goodwill of $138,421, which is being amortized over 3 years. In
connection with finalizing the purchase price allocation, Ticketmaster
Online is currently evaluating the fair value of assets acquired and
liabilities assumed. Using this information, Ticketmaster Online will
make a final allocation of the excess purchase price, including
allocation to the intangibles other than goodwill. Accordingly, the
purchase accounting information set forth herein is preliminary.
(12) Reflects interest expense at a rate of 7% resulting from the Convertible
Note issued in connection with the Merger.
(13) Represents income tax benefit of the Merger, as taxable income of
Ticketmaster Online is offset by tax losses of CitySearch.
(14) For the six months ended June 30, 1998, the calculation of shares used in
calculating basic and diluted pro forma loss per share adjusts the 9,873
CitySearch historical weighted average shares by 37,238 shares to be
issued to Ticketmaster Corp. in connection with the Merger, and 14,337
shares to be issued assuming the conversion of the Convertible Preferred
Stock of CitySearch at the earlier of the beginning of the period or date
of issuance of the Convertible Preferred Stock.
(15) For the year ended December 31, 1997, basic and diluted pro forma loss
per share adjusts the 9,452 CitySearch historical weighted average shares
by 37,238 shares to be issued to Ticketmaster Corp. in connection with
the Merger, and 9,193 shares to be issued assuming the conversion of the
Convertible Preferred Stock of CitySearch at the earlier of the beginning
of the period or date of issuance of the Convertible Preferred Stock.
(16) The accompanying pro forma financial statements do not give any effect to
the Tender Offer. Assuming the maximum participation in the Tender Offer
on a pro forma combined basis, goodwill and stockholders' equity at June
30, 1998 would have been $317.4 million and $327.3 million, respectively.
Furthermore, amortization expense, net loss and net loss per share would
have been $58.1 million, $94.2 million and $1.69, respectively, for the
year ended December 31, 1997 and $29.0 million, $44.4 million and $0.72,
respectively, for the six months ended June 30, 1998.
F-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS
TICKETMASTER MULTIMEDIA HOLDINGS, INC.
We have audited the accompanying balance sheets of Ticketmaster Multimedia
Holdings, Inc. (Ticketmaster Online, a wholly-owned subsidiary of Ticketmaster
Corporation) as of January 31, 1997 and 1998, and the related statements of
operations, stockholder's accounts and cash flows for each of the three years
in the period ended January 31, 1998. These financial statements are the
responsibility of Ticketmaster Online's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ticketmaster Online at
January 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended January 31, 1998, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
September 3, 1998
F-8
<PAGE>
TICKETMASTER MULTIMEDIA HOLDINGS, INC. (TICKETMASTER ONLINE)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31,
--------------- JUNE 30,
1997 1998 1998
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................ $ 3 $ -- $ --
Accounts receivable............................. 126 167 121
Prepaid expenses................................ 154 124 64
------ ------- --------
Total current assets.......................... 283 291 185
Property, equipment and leasehold improvements,
net.............................................. 271 397 450
Cost in excess of net assets acquired............. -- -- 154,789
------ ------- --------
Total assets.................................. $ 554 $ 688 $155,424
====== ======= ========
LIABILITIES AND STOCKHOLDER'S ACCOUNTS
Current liabilities:
Accounts payable................................ $ -- $ 158 $ 200
Accrued expenses................................ 65 144 335
Deferred revenue................................ -- 89 2,568
------ ------- --------
Total current liabilities..................... 65 391 3,103
Deferred rent..................................... -- 8 12
Stockholder's accounts:
Common stock, no par value, 1,000 shares
authorized and issued.......................... -- -- --
Due to (from) Ticketmaster Corp................. 1,434 (1,113) (5,588)
Additional paid-in capital...................... -- -- 154,789
Retained earnings (deficit)..................... (945) 1,402 3,108
------ ------- --------
Total stockholder's accounts.................. 489 289 152,309
------ ------- --------
Total liabilities and stockholder's accounts.. $ 554 $ 688 $155,424
====== ======= ========
</TABLE>
See accompanying notes.
F-9
<PAGE>
TICKETMASTER MULTIMEDIA HOLDINGS, INC. (TICKETMASTER ONLINE)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY FIVE MONTHS
31, ENDED JUNE 30,
--------------------- ---------------
1996 1997 1998 1997 1998
----- ------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Ticketing operations.................... $ -- $ 199 $5,972 $ 2,110 $ 5,324
Sponsorship and advertising............. 14 997 3,933 1,437 2,099
----- ------ ------ ------- -------
14 1,196 9,905 3,547 7,423
Operating costs and expenses:
Ticketing operations.................... -- 635 3,522 1,091 3,027
Sales and marketing..................... -- 290 490 169 410
General and administrative.............. 548 1,260 1,719 617 821
----- ------ ------ ------- -------
Total costs and expenses................ 548 2,185 5,731 1,877 4,258
----- ------ ------ ------- -------
Income (loss) before income taxes......... (534) (989) 4,174 1,670 3,165
Income tax provision (benefit)............ (204) (374) 1,827 731 1,459
----- ------ ------ ------- -------
Net income (loss)......................... $(330) $ (615) $2,347 $ 939 $ 1,706
===== ====== ====== ======= =======
</TABLE>
See accompanying notes.
F-10
<PAGE>
TICKETMASTER MULTIMEDIA HOLDINGS, INC. (TICKETMASTER ONLINE)
STATEMENTS OF STOCKHOLDER'S ACCOUNTS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK DUE TO ADDITIONAL RETAINED
------------- (FROM) PAID-IN EARNINGS
SHARES AMOUNT TICKETMASTER CAPITAL (DEFICIT) TOTAL
------ ------ ------------ ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at inception.... -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock.................. 1,000 -- -- -- -- --
Net transfers from (to)
Ticketmaster Corp...... -- -- 684 -- -- 684
Net loss................ -- -- -- -- (330) (330)
----- ---- ------- -------- ------ --------
Balance at January 31,
1996................. 1,000 -- 684 -- (330) 354
Net transfers from (to)
Ticketmaster Corp...... -- -- 750 -- -- 750
Net loss................ -- -- -- -- (615) (615)
----- ---- ------- -------- ------ --------
Balance at January 31,
1997................. 1,000 -- 1,434 -- (945) 489
Net transfers from (to)
Ticketmaster Corp...... -- -- (2,547) -- -- (2,547)
Net income.............. -- -- -- -- 2,347 2,347
----- ---- ------- -------- ------ --------
Balance at January 31,
1998................. 1,000 -- (1,113) -- 1,402 289
Net transfers from (to)
Ticketmaster Corp.
(unaudited)............ -- -- (4,475) -- -- (4,475)
Allocation of cost in
excess of net assets
acquired (unaudited)... -- -- -- 154,789 -- 154,789
Net income (unaudited).. -- -- -- -- 1,706 1,706
----- ---- ------- -------- ------ --------
Balance at June 30,
1998 (unaudited)..... 1,000 $ -- $(5,588) $154,789 $3,108 $152,309
===== ==== ======= ======== ====== ========
</TABLE>
See accompanying notes.
F-11
<PAGE>
TICKETMASTER MULTIMEDIA HOLDINGS, INC. (TICKETMASTER ONLINE)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY FIVE MONTHS
31, ENDED JUNE 30,
-------------------- ----------------
1996 1997 1998 1997 1998
----- ----- ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................... $(330) $(615) $2,347 $ 939 $ 1,706
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization....... 15 51 268 85 215
Changes in operating assets and
liabilities:
Accounts receivable............... (18) (108) (41) 20 46
Prepaid expenses.................. (205) 51 30 (122) 60
Accounts payable.................. -- -- 158 28 42
Accrued expenses.................. -- 65 87 21 195
Deferred revenue.................. -- -- 89 176 2,479
----- ----- ------ ------- -------
Net cash provided by (used in)
operating activities................. (538) (556) 2,938 1,147 4,743
INVESTING ACTIVITIES
Purchase of property, equipment and
leasehold improvements............... (146) (189) (250) (91) (127)
----- ----- ------ ------- -------
Net cash used in investing activities. (146) (189) (250) (91) (127)
FINANCING ACTIVITIES
Net proceeds from (distributions to)
Ticketmaster Corp.................... 684 748 (2,691) (1,053) (4,616)
----- ----- ------ ------- -------
Net cash provided by (used in)
financing activities................. 684 748 (2,691) (1,053) (4,616)
----- ----- ------ ------- -------
Net increase (decrease) in cash....... -- 3 (3) 3 --
Cash at beginning of period........... -- -- 3 3 --
----- ----- ------ ------- -------
Cash at end of period................. $ -- $ 3 $ -- $ 6 $ --
===== ===== ====== ======= =======
</TABLE>
See accompanying notes.
F-12
<PAGE>
TICKETMASTER MULTIMEDIA HOLDINGS, INC. (TICKETMASTER ONLINE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT JUNE 30, 1998 AND FOR THE FIVE MONTHS ENDED
JUNE 30, 1997 AND 1998 IS UNAUDITED)
JANUARY 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Ticketmaster Multimedia Holdings, Inc. (Ticketmaster Online) is a subsidiary
of Ticketmaster Corporation (Ticketmaster Corp.) which is the leading provider
of automated ticketing services in the United States with clients including
the country's foremost entertainment facilities, promoters and professional
sports franchises. Ticketmaster Online was formed in December 1993 to
administer the online business of Ticketmaster Corp. There were no costs and
expenses incurred by Ticketmaster Online until June 1995. Ticketmaster Online
commenced online ticket sales in November 1996 providing a ticketing outlet
via the Internet's World Wide Web (Web) which gives users access to tickets
and event information. Ticketmaster Online's operations are the online
distribution mechanism for Ticketmaster Corp., which utilizes Ticketmaster
Corp.'s business relationships and brand name.
BASIS OF PRESENTATION
The accompanying financial statements reflect the financial position,
results of operations and cash flows of Ticketmaster Online. The financial
statements have been prepared using the historical basis in the assets and
liabilities and historical results of operations related to Ticketmaster
Online's business. The financial statements include revenues related to the
convenience charges in connection with tickets sold via the Internet and
advertising sales on Ticketmaster Online's web site. Costs of ticketing
revenues have been allocated on a per ticket sold basis. The financial
statements include expenses which have been allocated to Ticketmaster Online
by Ticketmaster Corp. on a specific identification basis. Further,
Ticketmaster Online shares certain employees and other resources with
Ticketmaster Corp. Allocations from Ticketmaster Corp. for indirect expenses
for such shared resources have been made primarily on a proportional cost
allocation method based on tickets sold and related revenues. Management
believes these allocations are reasonable and that such expenses would not
differ materially had the Company operated on a stand-alone basis for all
periods presented. The financial statements of Ticketmaster Online do not
necessarily reflect the results of operations or financial position that would
have existed had Ticketmaster Online been an independent company.
INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of June 30, 1998 and the statements of
operations and stockholder's accounts and cash flows for the five months ended
June 30, 1997 and 1998 are unaudited. The accompanying balance sheet as of
June 30, 1998 reflects a preliminary allocation of the purchase price paid by
USA Networks, Inc. (USAi) in its acquisition of Ticketmaster Corp.'s ultimate
parent, Ticketmaster Group, Inc. (Ticketmaster Group) and its subsidiaries,
including Ticketmaster Online. Ticketmaster Online has presented the
statements of operations and cash flows for the five months ended June 30,
1997 and 1998 to reflect a change in Ticketmaster Online's year-end as a
result of the purchase of Ticketmaster Group by USAi. In the opinion of
management, the unaudited financial statements have been prepared on the same
basis as the audited financial statements and include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the financial position, results of operations, and cash flows for the
interim periods. The results of operations for the five months ended June 30,
1998 are not necessarily indicative of operating results to be expected for
the full fiscal year.
REVENUE RECOGNITION
Revenue from advertising and sponsorship agreements is recognized when the
service is provided or over the license period. Revenue from the sale of
tickets is recognized when tickets are sold.
F-13
<PAGE>
TICKETMASTER MULTIMEDIA HOLDINGS, INC. (TICKETMASTER ONLINE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1998 AND FOR THE FIVE MONTHS ENDED
JUNE 30, 1997 AND 1998 IS UNAUDITED)
Deferred revenue primarily consists of advertising and sponsorship revenue
and revenue from Web site support agreements with joint venture partners of
Ticketmaster Corp. Web site support is recognized straight line over the life
of the agreement.
ACCOUNTS RECEIVABLE
Accounts receivable are principally from advertisers and represent the net
amount of the advertising agreement. The remainder is comprised of receivables
from Ticketmaster Corp.'s joint venture partners for ticket revenues and Web
site support.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are stated at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the related assets of three to five years. When
assets are retired or otherwise disposed of, the cost is removed from the
asset account and the corresponding accumulated depreciation is removed from
the related allowance account and any gain or loss is reflected in results of
operations.
COST IN EXCESS OF NET ASSETS ACQUIRED
During June 1998, USAi acquired the remaining interest owned by public
shareholders of Ticketmaster Group and allocated the cost in excess of net
assets acquired upon the completion of the acquisition. Cost in excess of net
assets acquired represents goodwill amounts allocated to Ticketmaster Online
from the purchase of Ticketmaster Group by USAi, and is being amortized by the
straight-line method over 40 years.
DUE TO (FROM) TICKETMASTER CORP.
Due to (from) Ticketmaster Corp. includes amounts payable to Ticketmaster
Corp. primarily for operations and working capital requirements, offset by
amounts receivable for cash collected by Ticketmaster Corp. The balances are
primarily the result of Ticketmaster Online's participation in Ticketmaster
Corp.'s central cash management system, wherein all of Ticketmaster Online's
cash receipts are collected by Ticketmaster Corp. and all cash disbursements
are funded by Ticketmaster Corp. Other transactions include Ticketmaster
Online's pro rata share of the current portion of Ticketmaster Corp.'s
consolidated income tax liability and other administrative expenses incurred
by Ticketmaster Corp. on behalf of Ticketmaster Online. Such amounts payable
do not have specific repayment terms and do not bear interest.
An analysis of transactions in the due (to) from Ticketmaster Corp. account
for each of the three years in the period ended January 31, 1998 follows:
<TABLE>
<CAPTION>
1996 1997 1998
----- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year....................... $ -- $ (684) $(1,434)
Net cash remitted to (from) Ticketmaster Corp...... (880) (986) 4,619
Share of Ticketmaster Corp.'s current federal
income tax benefit (provision).................... 204 374 (1,827)
Miscellaneous other administrative expenses........ (8) (138) (245)
----- ------- -------
Balance at end of year............................. $(684) $(1,434) $ 1,113
===== ======= =======
Average balance during the year.................... $(342) $(1,059) $ (161)
===== ======= =======
</TABLE>
F-14
<PAGE>
TICKETMASTER MULTIMEDIA HOLDINGS, INC. (TICKETMASTER ONLINE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1998 AND FOR THE FIVE MONTHS ENDED
JUNE 30, 1997 AND 1998 IS UNAUDITED)
INCOME TAXES
Historically, Ticketmaster Online's results have been included in
Ticketmaster Corp.'s consolidated federal and state income tax returns. The
income tax provision is calculated and deferred tax assets and liabilities are
recorded as if Ticketmaster Online had operated as an independent company.
Deferred tax assets and liabilities are recognized with respect to the tax
consequences attributable to the differences between the financial statement
carrying values and tax bases of assets and liabilities. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which these temporary differences are expected
to be recovered or settled. Further, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Ticketmaster Corp. pays all taxes for
Ticketmaster Online and, as such, income taxes payable and deferred tax assets
have been included in due to (from) Ticketmaster Corp.
CONCENTRATION OF CREDIT RISK
Concentration of credit risk with respect to trade receivables is acceptable
based on the size and diversity of Ticketmaster Online's customers and
Ticketmaster Online generally does not require collateral. Credit losses have
generally been within management's expectations and have not been significant.
FINANCIAL INSTRUMENTS
The estimated fair values of cash, accounts receivable, accounts payable,
and accrued expenses approximate their carrying value because of the short
term maturity of these instruments or the stated interest rates are indicative
of market interest rates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Ticketmaster Online adopted the disclosure requirements of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of" in fiscal 1996. This Statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows (on an undiscounted basis) expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
(SFAS No. 130), effective for fiscal years beginning after December 15, 1997.
Ticketmaster Online will adopt SFAS No. 130 in fiscal 1998 and does not expect
that the adoption will have a material effect on its financial statements.
F-15
<PAGE>
TICKETMASTER MULTIMEDIA HOLDINGS, INC. (TICKETMASTER ONLINE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1998 AND FOR THE FIVE MONTHS ENDED
JUNE 30, 1997 AND 1998 IS UNAUDITED)
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (SFAS No. 131), effective for fiscal
years beginning after December 15, 1997. The new rules establish revised
standards for public companies relating to the reporting of financial and
descriptive information about their operating segments in financial
statements. Ticketmaster Online will adopt SFAS No. 131 in fiscal 1998 and
does not expect that the adoption will have a material effect on its financial
statements.
2. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consisted of the following:
<TABLE>
<CAPTION>
JANUARY
31,
-----------
1997 1998
---- -----
(IN
THOUSANDS)
<S> <C> <C>
Computer equipment.............................................. $311 $ 532
Furniture and fixtures.......................................... 8 20
Leasehold improvements.......................................... 16 33
---- -----
335 585
Less accumulated depreciation................................... (64) (188)
---- -----
$271 $ 397
==== =====
</TABLE>
Depreciation expense was $15,000, $49,000 and $124,000 for 1996, 1997 and
1998, respectively. During 1996, 1997, and 1998, rent expense allocated from
Ticketmaster Corp. amounted to $8,000, $42,000 and $149,000, respectively.
3. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED
JANUARY 31,
--------------------
1996 1997 1998
----- ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................................. $(186) $(340) $1,445
State................................................ (24) (46) 395
----- ----- ------
(210) (386) 1,840
----- ----- ------
Deferred:
Federal.............................................. 6 12 (13)
State................................................ -- -- --
----- ----- ------
6 12 (13)
----- ----- ------
Total income tax provision (benefit)................... $(204) $(374) $1,827
===== ===== ======
</TABLE>
The following is a reconciliation of the statutory federal income tax rate
to Ticketmaster Online's effective income tax rate:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Statutory federal income tax expense
(benefit)............................... (34)% (34)% 34%
State income tax expense (benefit)....... (5) (6) 9
Other.................................... 1 2 1
------- ------- -------
(38)% (38)% 44%
======= ======= =======
</TABLE>
F-16
<PAGE>
TICKETMASTER MULTIMEDIA HOLDINGS, INC. (TICKETMASTER ONLINE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1998 AND FOR THE FIVE MONTHS ENDED
JUNE 30, 1997 AND 1998 IS UNAUDITED)
4. 401(K) PLAN
Ticketmaster Online participates in Ticketmaster Corp.'s 401(k) defined
contribution plan (the Plan), covering substantially all employees, which
contains an employer matching feature of 25% up to a maximum of 6% of the
employee's compensation. Ticketmaster Online's contribution for the Plan years
ended December 31, 1995, 1996 and 1997 was $0, $6,000 and $12,000,
respectively.
5. RELATED PARTY TRANSACTIONS
Ticketmaster Online is part of a consolidated group and, as such, has
significant transactions with related entities. The terms of those
transactions were determined between related parties and may differ from terms
which would have occurred between unrelated parties and may also differ from
the costs which would have been incurred had Ticketmaster Online operated as
an independent company.
On June 28, 1996, Ticketmaster Online entered into an agreement expiring on
December 31, 2003, with an affiliate of its then majority shareholder, whereby
in exchange for services rendered in connection with the development of
Ticketmaster Online's Web site, Ticketmaster Online will pay royalties
equaling 5% of net profit (as defined) from ticket convenience charges and 10%
of net profit (as defined) from merchandise sold through its web site (net of
defined deductions). The agreement calls for an annual minimum royalty payment
of $100,000 per year (pro-rated for calendar 1996). Royalty expense incurred
for the years ended January 31, 1997 and 1998 amounted to $50,000 and
$138,000, respectively.
Revenues from affiliated companies for the fiscal years 1996, 1997 and 1998
amounted to $0, $21,000 and $583,000, respectively, primarily for web site
development and support and license fee revenue.
6. SUBSEQUENT EVENT
Ticketmaster Online has entered into an Amended and Restated Agreement and
Plan of Reorganization (Merger Agreement), dated as of August 12, 1998, by and
among CitySearch, Inc. (CitySearch), USAi, Ticketmaster Group, Ticketmaster
Online, and Tiberius, Inc. (Tiberius), a wholly owned subsidiary of
CitySearch, whereby Tiberius will be merged with and into Ticketmaster Online
with Ticketmaster Online continuing as the surviving corporation and as a
wholly-owned subsidiary of CitySearch. In connection with the Merger
Agreement, all issued and outstanding shares of Ticketmaster Online's common
stock will be exchanged for 37,238,000 shares of CitySearch Common Stock. The
Merger will be accounted for using the "reverse purchase" method of
accounting, pursuant to which the Company will be treated as the acquiring
entity for accounting purposes and the assets acquired and liabilities assumed
of CitySearch will be recorded at their respective fair values.
In connection with the Merger Agreement, Ticketmaster Online also entered
into a License and Services Agreement (License Agreement) with Ticketmaster
Corp. and USAi to remain perpetually in effect unless terminated as allowed
under the License Agreement. Under the License Agreement, for a license fee,
Ticketmaster Corp. granted Ticketmaster Online, among other things, the
exclusive worldwide right to use the trademarks of Ticketmaster Corp. in
connection with the sale of tickets and merchandise via electronic interactive
services.
F-17
<PAGE>
TICKETMASTER MULTIMEDIA HOLDINGS, INC. (TICKETMASTER ONLINE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1998 AND FOR THE FIVE MONTHS ENDED
JUNE 30, 1997 AND 1998 IS UNAUDITED)
PRO FORMA FINANCIAL RESULTS (UNAUDITED)
The following unaudited pro forma information presents a summary of results
of Ticketmaster Online assuming the Merger had occurred as of January 1, 1997,
with pro forma adjustments to give effect to amortization of goodwill, certain
other adjustments to conform to the terms under the License Agreement, and the
related income tax effects. The pro forma financial information is not
necessarily indicative of the results of operations as they would have been
had the transactions been effective on January 1, 1997.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
Revenues............................................. $ 15,479 $ 15,189
Net loss............................................. $(86,189) $(40,334)
</TABLE>
F-18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
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 August 12, 1998
F-19
<PAGE>
CITYSEARCH, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
------------------ JUNE 30, EQUITY AT
1996 1997 1998 JUNE 30, 1998
-------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 7,527 $ 25,227 $ 15,512
Accounts receivable, net of
allowance for doubtful accounts
of $0 in 1996 $25 in 1997 and
$61 in 1998...................... 34 100 407
Due from licensees................ -- 57 501
Due from licensees--related party. -- 136 234
Prepaid expenses and other current
assets........................... 249 119 149
-------- -------- --------
Total current assets............. 7,810 25,639 16,803
Computers, software, equipment and
leasehold improvements:
Computers and software............ 2,074 7,716 8,879
Furniture and equipment........... 391 194 194
Leasehold improvements............ 194 275 275
Enterprise system development in
process.......................... 1,315 -- --
-------- -------- --------
3,974 8,185 9,348
Accumulated depreciation.......... (329) (2,169) (3,661)
-------- -------- --------
3,645 6,016 5,687
Intangible asset, net of
accumulated amortization of $422
in 1996........................... 1,915 -- --
-------- -------- --------
Total assets..................... $ 13,370 $ 31,655 $ 22,490
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................. $ 1,975 $ 2,197 $ 2,480
Accrued payroll and related
liabilities...................... 174 664 1,186
Other accrued liabilities......... 991 760 453
Deferred subscription and license
revenue.......................... 327 1,836 980
Current portion of obligations
under capital leases............. 86 807 973
-------- -------- --------
Total current liabilities........ 3,553 6,264 6,072
Deferred rent...................... 33 189 202
Deferred purchase price of
subsidiary........................ 1,336 891 446
Obligations under capital leases,
net of current portion............ 82 1,340 1,671
Commitments
Redeemable Convertible Preferred
Stock (Series C, D, and E):
Authorized shares--12,500 at
December 31, 1997 and June 30,
1998 (pro forma: none)
Issued and outstanding--4,706 at
December 31, 1996 and 12,406 at
December 31, 1997 and 13,406 at
June 30, 1998 (pro forma: none)
Liquidation preference--$20,731 at
December 31, 1996 and $73,212 at
December 31, 1997 and $80,212 at
June 30, 1998 (pro forma: none).. 20,309 70,882 77,840 $ --
Stockholders' equity (deficit):
Convertible Preferred Stock $0.01
par value, (Series A and B):
Authorized shares--2,241 at
December 31, 1997 and June 30,
1998
Issued and outstanding--1,948 at
December 31, 1996 and 2,016 at
December 31, 1997 and 2,080 at
June 30, 1998 (pro forma: none)
Liquidation preference--$2,165 at
December 31, 1996 and $2,610 at
December 31, 1997 and $3,056 at
June 30, 1998 (pro forma: none).. 2,165 2,610 3,056 --
Common Stock $0.01 par value:
Authorized shares--75,000 at
December 31, 1997 and June 30,
1998
Issued and outstanding shares--
8,814 at December 31, 1996 and
9,540 at December 31, 1997 and
9,990 at June 30, 1998 (pro
forma: 25,184)................... 97 455 1,648 82,544
Deferred compensation............. -- (245) (1,232) (1,232)
Accumulated deficit............... (14,205) (50,731) (67,213) (67,213)
-------- -------- -------- --------
Total stockholders' equity
(deficit)....................... (11,943) (47,911) (63,741) $ 14,099
-------- -------- -------- ========
Total liabilities and
stockholders' equity
(deficit).................... $ 13,370 $ 31,655 $ 22,490
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
CITYSEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 20,
1995 (DATE OF YEAR ENDED SIX MONTHS
FORMATION) TO DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, ------------------ ------------------
1995 1996 1997 1997 1998
------------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Subscription and
services.............. $ -- $ 203 $ 4,612 $ 1,393 $ 5,310
Subscription and
services--related
party................. -- -- 301 115 267
Licensing and royalty.. -- -- 528 -- 71
Licensing and royalty--
related party......... -- -- 743 -- 1,150
------ -------- -------- -------- --------
Total revenues....... -- 203 6,184 1,508 6,798
Costs and expenses:
Cost of revenues....... -- 2,908 9,688 4,043 6,699
Sales and marketing.... 57 6,369 20,172 9,624 9,812
Research and
development........... 152 2,563 7,182 3,220 3,395
General and
administrative........ 104 2,475 5,883 2,743 3,634
------ -------- -------- -------- --------
Total costs and
expenses............ 313 14,315 42,925 19,630 23,540
------ -------- -------- -------- --------
Loss from operations..... (313) (14,112) (36,741) (18,122) (16,742)
Interest income.......... 5 229 494 161 371
Interest expense......... -- (12) (271) (57) (111)
------ -------- -------- -------- --------
5 217 223 104 260
------ -------- -------- -------- --------
Loss before provision for
income taxes............ (308) (13,895) (36,518) (18,018) (16,482)
Provision for income
taxes................... -- 2 8 -- --
------ -------- -------- -------- --------
Net loss................. $ (308) $(13,897) $(36,526) $(18,018) $(16,482)
====== ======== ======== ======== ========
Historical basic and
diluted net loss per
share................... $(0.04) $ (1.58) $ (3.86) $ (1.91) $ (1.67)
====== ======== ======== ======== ========
Pro forma basic and
diluted net loss per
share................... $ (1.96) $ (0.68)
======== ========
Shares used to compute
historical basic and
diluted net loss per
share................... 7,895 8,786 9,452 9,423 9,873
====== ======== ======== ======== ========
Shares used to compute
pro forma basic and
diluted net loss per
share................... 18,645 24,209
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
CITYSEARCH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK DEFERRED ACCUMULATED
(SERIES A AND B) COMMON STOCK 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................ -- -- 74 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 8,814 97 -- (14,205) (11,943)
Exercise of stock
options................ -- -- 726 103 -- -- 103
Issuance of Series B
Convertible Preferred
Stock.................. 68 445 -- -- -- -- 445
Deferred compensation... -- -- -- 272 (272) -- --
Amortization of deferred
compensation........... -- -- -- -- 10 -- 10
Net loss................ -- -- -- -- -- (36,526) (36,526)
------- -------- ------ ------ ------- -------- --------
Balance at December 31,
1997.................. 2,016 2,610 9,540 472 (262) (50,731) (47,911)
Exercise of stock
options (unaudited).... -- -- 450 122 -- -- 122
Issuance of Series B
Convertible Preferred
Stock (unaudited)...... 64 446 -- -- -- -- 446
Deferred compensation
(unaudited)............ -- -- -- 1,054 (1,054) -- --
Amortization of deferred
compensation
(unaudited)............ -- -- -- -- 84 -- 84
Net loss (unaudited).... -- -- -- -- -- (16,482) (16,482)
------- -------- ------ ------ ------- -------- --------
Balance at June 30,
1998 (unaudited)...... 2,080 $ 3,056 9,990 $1,648 $(1,232) $(67,213) $(63,741)
======= ======== ====== ====== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
CITYSEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 20,
1995 (DATE OF YEAR ENDED SIX MONTHS ENDED
FORMATION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------ ------------------
1995 1996 1997 1997 1998
------------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................. $ (308) $(13,897) $(36,526) $(18,018) $(16,482)
Adjustments to reconcile
net loss to net cash
used in
operating activities:
Equity interest in loss
from partnership....... -- -- 259 20 --
Write-down of
investment in
partnership............ -- -- 321 321 --
Depreciation............ 5 325 1,841 654 1,492
Amortization............ -- 422 1,915 957 --
Change in operating
assets and
liabilities, net of
assets
acquired and
liabilities assumed:
Accounts receivable... -- (34) (67) (49) (306)
Due from licensees.... -- -- (57) (266) (444)
Due from licensees--
related party........ -- -- (136) (200) (98)
Prepaid expenses and
other current assets. -- (249) 129 71 (31)
Accounts payable...... 90 2,537 317 (643) 284
Accrued payroll and
related liabilities.. -- -- 489 575 523
Other accrued
liabilities.......... -- -- (221) (325) (305)
Deferred subscription
and license revenue.. -- 327 1,510 1,069 (856)
Deferred rent......... -- 33 157 48 12
Deferred compensation. -- 84
------ -------- -------- -------- --------
Net cash used in
operating activities.... (213) (10,536) (30,069) (15,786) (16,127)
INVESTING ACTIVITIES
Purchases of software,
equipment and
leasehold improvements.. (82) (3,547) (1,391) (774) (54)
Investment in
partnership............. -- -- (580) (324) --
------ -------- -------- -------- --------
Net cash used in
investing activities.... (82) (3,547) (1,971) (1,098) (54)
FINANCING ACTIVITIES
Payments on capital
leases.................. -- (121) (840) (247) (613)
Exercise of stock
options................. -- 11 103 60 121
Issuance of Common Stock. 90 -- -- -- --
Repurchases of Common
Stock................... (2) (2) -- -- --
Issuance of Preferred
Stock, net.............. 1,620 20,309 50,477 15,881 6,958
------ -------- -------- -------- --------
Net cash provided by
financing activities.... 1,708 20,197 49,740 15,694 6,466
------ -------- -------- -------- --------
Net increase (decrease)
in cash and cash
equivalents............. 1,413 6,114 17,700 (1,190) (9,715)
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 $ 6,337 $ 15,512
====== ======== ======== ======== ========
Supplemental disclosure
of cash flow
information:
Cash paid for:
Interest.............. $ -- $ 12 $ 271 $ 57 $ 111
Income taxes.......... $ 1 $ 2 $ 8 $ -- $ --
</TABLE>
F-23
<PAGE>
CITYSEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
NON-CASH INVESTING AND FINANCING ACTIVITIES
During 1996 and 1997, the Company purchased computers and office equipment
under financing leases totaling $288 and $2,820, respectively.
On June 19, 1996, the Company acquired its Metrobeat, Inc. in exchange for
an initial payment of Series B Convertible Preferred Stock valued at $544.
During the year ended December 31, 1997 and the six months ended June 30,
1998, the Company made its second and third annual installment of Series B
Convertible Preferred Stock valued at $445 and $445, respectively, pursuant to
the acquisition. The remaining purchase price of $446 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 $96 as payment for accrued advertising and recruiting fees.
During the six months ended June 30, 1997 and 1998, the Company purchased
computers and office equipment under financing leases totaling $1,835 and
$1,109, respectively.
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 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"),
produce and deliver 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 consists primarily 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 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 business Web sites as well as related services to local and
regional businesses and launches a presence in the market. In its other
markets, the Company contracts with a local media company to provide
assistance in developing, designing and launching a city guide. Under these
contracts, the partners license the Company's business and technology systems
and pay a license fee and make royalty payments to the Company based on
certain revenues generated by the media partner from the operation of their
sites and pay the Company for additional consultation and design services not
provided for under the license fee.
Subscription and services revenues include revenue generated from the sale
of subscriptions for custom-built business Web sites (designed and developed
by the Company) and advertising on its "owned and operated" city guides on the
Internet, and the performance of consultation and design services. Licensing
and royalty revenues include revenues generated from the sale of licenses for
the use of the Company's business and technology systems in its partner-led
markets and the receipt of royalty payments under its license agreements. See
Revenue Recognition.
The cost of designing and developing custom-built business Web sites in the
Company's "owned and operated" markets and the cost of providing other design
and consultation services including the cost of developing, designing and
launching a city guide in partner-led-markets is included, as incurred, in the
cost of revenues. The cost of developing, designing and launching a city
guide, that are not separately billable under license agreements as services
revenue in the Company's partner-led markets, is not significant and is
included, as incurred, in the cost of revenues. Any ongoing customer support
or upgrades, after the launch of the Website that is not separately billable
under the licensing contract is insignificant.
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.
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.
F-25
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 June 30, 1998 and the statements of
operations and cash flows for the six months ended June 30, 1997, and 1998 and
the statement of changes in shareholders equity (deficit) for the six months
ended June 30, 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.
REVENUE RECOGNITION
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 based on the revenues generated by the license or based
on the minimum royalty provisions in the contract. 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. Any ongoing customer support
costs or upgrades, after the launch of the Website, that is not separately
billable under the licensing contract is insignificant.
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 or the
period over which the relevant services are delivered. The Company's license
agreements have terms ranging from five to nine years. Licensing and royalty
revenues, on a pro forma basis, for the year ended December 31, 1997, and the
six months ended June 30, 1997 and 1998 would have been $253,000, $73,000 and
$304,000, respectively, had SOP 97-2 been effective January 1, 1997. SOP 97-2
is not expected to have a material effect on revenues from royalties,
services, and subscriptions.
F-26
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 fair value of services provided and the services
received in the barter arrangement are not readily determinable and therefore
are not used to measure the value of the broadcast advertising received. 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 barter advertising on the Internet is not
valued in the consolidated financial statements because of the immateriality
of the associated costs and the indeterminable fair value.
F-27
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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).
LONG-LIVED ASSETS
In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company
periodically reviews the value of the long-lived assets and records impairment
losses on long-lived assets used in operations when events and circumstances
indicate that the assets might be impaired and undiscounted net cash flows
estimated to be generated by those assets are less than the carrying amounts
of those assets. The impaired assets are written down to their fair market
value. The Company has experienced negative cash flows from operating
activities leading to circumstances which indicated that $6.0 million and $5.7
million of assets of the Company at December 31, 1997 and June 30, 1998,
respectively, might be impaired. However, the Company's estimate of the
projected undiscounted net cash flows indicated that such carrying amounts
were expected to be recovered. Nonetheless, it is reasonably possible that the
estimate of undiscounted cash flows may change in the near term resulting in
the need to write-down those assets to fair value. Any such determination of
fair value would be based on various valuation methods that may include
analysis of discounted projected cash flows.
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 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.
F-28
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 the
year ended December 31, 1997 and the six months ended June 30, 1998, the
Company made its second and third annual installment of Series B Convertible
Preferred Stock valued at $445,495 and $445,494, respectively. The remaining
purchase price of $445,506 is payable in one annual installment, principally
of Series B Convertible Preferred Stock. The remaining installment has been
recorded as a deferred purchase price liability 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.
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.
F-29
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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.
F-30
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 YEAR ENDED
FORMATION TO 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 benefit........ 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>
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.
F-31
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
6. CONVERTIBLE PREFERRED STOCK
At December 31, 1997 and June 30, 1998, the Company was authorized to issue
14,741,082 and 15,741,082 shares, respectively 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 5,808,572 shares as Series E Redeemable
Convertible Preferred Stock.
Convertible Preferred Stock issued and outstanding as of December 31, 1997
and June 30, 1998 are as follows:
<TABLE>
<CAPTION>
AS CONVERTED
EFFECTIVE PER
ORIGINAL SHARE COMMON
AMOUNT PER SHARE STOCK PRICE
SHARES (NET OF ISSUANCE AT JUNE 30,
OUTSTANDING ISSUANCE COST) PRICE 1998 DATE FIRST ISSUED
----------- -------------- --------- ------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Series A................ 1,791 $ 1,620 $0.904 $0.904 October 31, 1995
Series B................ 157 545 3.467 3.467 June 19, 1996
Series B................ 68 445 6.525 6.525 June 19, 1997
Series B................ 64 445 7.000 7.00 June 21, 1998
Series C................ 3,261 11,261 3.467 3.57 May 15, 1996
Series D................ 4,431 28,265 6.525 6.73 December 13, 1996
Series E................ 4,714 31,356 7.000 7.09 November 10, 1997
Series E................ 1,000 6,959 7.000 7.09 May 26, 1998
------ -------
15,486 $80,896
====== =======
</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.
F-32
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At June 30, 1998, on an unaudited pro forma basis, giving effect to Common
Stock option forfeitures through June 30, 1998, each share of Series A, B, C,
D and E Preferred Stock was convertible into approximately 1.0, 1.0, .972,
.970 and .988 shares of Common Stock, respectively.
The as-converted effective per share Common Stock price at June 30, 1998
presented in the table above represents the effective price paid by the
holders of the Preferred Stock for each share of Common Stock to be obtained
upon conversion, as of June 30, 1998.
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. As of December 31, 1997 and June 30, 1998 the maximum number of
shares of Common Stock to be issued under the plan was 4,000,000 and 5,500,000
shares, respectively. 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>
WEIGHTED
AVERAGE
NUMBER OF PRICE PER EXERCISE
SHARES SHARE PRICE
-------------- -------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1, 1996............ --
Granted during 1996................. 3,221 $0.10 to $0.69 $0.25
Forfeited........................... 314 0.10 to 0.69 0.15
Exercised........................... 74 0.10 to 0.69 0.16
-----
Outstanding at December 31, 1996...... 2,833 0.10 to 0.69 0.26
Granted during 1997................. 1,110 0.75 to 3.00 1.83
Forfeited........................... 485 0.10 to 2.00 0.64
Exercised........................... 726 0.10 to 2.00 0.15
-----
Outstanding at December 31, 1997...... 2,732 0.10 to 3.00 0.86
Granted............................. 1,869 3.00 to 8.00 6.25
Forfeited........................... 239 0.10 to 5.50 1.59
Exercised........................... 450 0.10 to 3.00 0.23
-----
Outstanding at June 30, 1998.......... 3,912 0.10 to 8.00 3.47
=====
</TABLE>
Options granted during the year ended December 31, 1997 and the six months
ended June 30, 1998 resulted in a total compensation amount of $272,000 and
$1,054,000, 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 six months ended June 30, 1998, such compensation expense
amounted to $10,000 and $84,000, respectively. Options outstanding at December
31, 1996 and 1997 were exercisable for 1,100,000 and 1,135,500 shares of
Common Stock, respectively. Common Stock available for future grants at
December 31, 1996 and 1997 were 1,093,500 and 544,500 shares, respectively.
F-33
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Additional information with respect to outstanding options as of December
31, 1997 is as follows:
(NUMBER OF SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED- ----------------------
WEIGHTED- AVERAGE WEIGHTED-
RANGE OF AVERAGE REMAINING AVERAGE
EXERCISE NUMBER OF EXERCISE CONTRACTUAL NUMBER OF EXERCISE
PRICES SHARES PRICE LIFE SHARES PRICE
------------- --------- --------- ----------- --------- ---------
(NUMBER OF SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$0.10 to 0.25 1,206 $0.13 8.18 885 $0.12
0.50 to 0.75 631 0.61 8.83 168 0.57
2.00 to 3.00 895 2.02 9.76 83 2.00
----- -----
0.10 to 3.00 2,732 1,136
===== =====
</TABLE>
In connection with the Series E Redeemable Convertible Preferred Stock
issuance in November 1997, 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. The fair value of these
warrants was not material at the date of issuance and therefore was included
in the amount of Series E Redeemable Preferred Stock reflected in the
accompanying balance sheet.
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 historical loss per share.... $ (1.59) $ (3.87)
Pro forma basic and diluted loss per share............... (1.10) (1.96)
</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. The weighted-average fair value of options granted during the
F-34
<PAGE>
CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
years ended December 31, 1996 and 1997 was $0.19 and $0.56, respectively, for
options granted with an exercise price equal to the deemed fair market value,
at the date of grant, of the underlying Common Stock. The weighted-average
fair value of options, granted with an exercise price less than the deemed
fair market value, at the date of grant, of the underlying Common Stock during
1997 was $1.04.
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 subscription and service-related party and license and royalty-
related party revenues for the year ended December 31, 1997 and the six months
ended June 30, 1998 is approximately $1,044,000 and $1,417,000 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 June 30, 1998 is $136,000 and $234,000, respectively,
due from stockholders and other related parties.
10. SUBSEQUENT EVENTS
The Company has entered into an Amended and Restated Agreement and Plan of
Reorganization (the "Merger Agreement"), dated as of August 12, 1998 by and
between the Company, USA Networks, Inc. ("USAi"), Ticketmaster Group, Inc., a
wholly owned subsidiary of USAi, Ticketmaster Corp., a wholly owned subsidiary
of Ticketmaster Group, Inc., Ticketmaster Online and Tiberius, Inc., a wholly
owned subsidiary of CitySearch, Inc., whereby Tiberius will be merged with and
into Ticketmaster Online, with Ticketmaster Online continuing as the surviving
corporation and as a wholly-owned subsidiary of CitySearch, Inc. Under the
Merger Agreement, the Company will issue 37,238,000 shares of the Company's
Common Stock in exchange for 100% of the outstanding Common Stock of
Ticketmaster Online. The Merger will be accounted for using the "reverse
purchase" method of accounting, pursuant to which Ticketmaster Online will be
treated as the acquiring entity and for accounting purposes the assets
acquired and liabilities assumed of the Company will be recorded at their
respective fair values. The Merger Agreement provides for USAi, the indirect
parent of Ticketmaster Online, to commence a tender offer (the Tender Offer)
to purchase up to 2,924,339 shares of the Company's Common Stock for $8.67 per
share. The Tender Offer is scheduled to expire 20 days after its commencement.
The Merger Agreement contains a "put option" which provides that in the event
of consummation of the Merger, if a Qualified IPO, as defined, is not closed
within twelve, eighteen and twenty-four months following the date of the
Merger Agreement, the holders of the Company's Common Stock could, subject to
certain conditions, require USAi to commence an exchange offer for all the
then-outstanding shares of Common Stock.
In addition, concurrently with the execution of the Merger Agreement, the
Company received a $50 million loan from USAi in exchange for a convertible
note (the "Convertible Note"). The Convertible Note, in the principal amount
of $50 million, bears interest at a rate per annum of 7.00% and, after
consummation of the Merger, is generally due and payable on the earlier to
occur of (a) August 13, 2005 or (b) 20 days following the closing of a
Qualified IPO, as defined.
In connection with the Merger, all the Preferred Stock outstanding will
automatically convert into Common Stock. At June 30, 1998, on an unaudited pro
forma basis 15,191,237 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-35
<PAGE>
[This page will be divided by a vertical line roughly two-thirds of the
distance across the page. The upper left two-thirds of the page will contain a
selection of [five] citysearch.com screen shots of the custom Web sites
purchased by CitySearch business customers. The screen shots will represent
business customers in a variety of service categories (e.g., restaurants,
professional services, entertainment venues, etc.) The lower left one-third of
the page will contain screen shots depicting Ticketmaster Online's
transactional features for purchasing merchandise and music products. The
right one-third of the page will contain three boxes. The first box will
contain the names and/or logos of the Company's domestic partners, including
washingtonpost.com, Los Angeles Times, The Baltimore Sun, The Dallas Morning
News and The San Diego Union-Tribune. The second box will contain the names
and/or logos of the Company's international partners organized by the city in
which the partner's service is available, including The Age, The Sydney
Morning Herald, Big Colour Pages, the Toronto Star, Tele-Direct, Schibsted and
Scandinavia Online. The third box will contain the names and/or logos of
certain of the businesses with which the Company has strategic relationships,
including American Express, Internet Travel Network, Classified Ventures, New
York Daily News, and EarthLink.]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with this offering and, if given or made, such
information 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 hereunder 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.............................................................. 12
Use of Proceeds........................................................... 34
Dividend Policy........................................................... 34
Capitalization............................................................ 35
Dilution.................................................................. 36
Selected Historical Financial Data........................................ 37
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 42
Business.................................................................. 53
Management................................................................ 74
Principal Stockholders.................................................... 85
Ticketmaster Online-CitySearch Merger..................................... 91
Certain Transactions...................................................... 93
Description of Capital Stock.............................................. 96
Shares Eligible for Future Sale........................................... 101
Underwriting.............................................................. 103
Legal Matters............................................................. 105
Experts................................................................... 105
Additional Information.................................................... 105
Index to Financial Statements............................................. F-1
</TABLE>
---------------
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Class B 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 Underwriters and with respect to their unsold allotments or
subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
[LOGO]
TICKETMASTER ONLINE-CITYSEARCH, INC.
[LOGO]
CLASS B COMMON STOCK
---------------
PROSPECTUS
---------------
NationsBanc Montgomery
Securities LLC
Allen & Company Incorporated
BancBoston
Robertson Stephens
Bear, Stearns & Co. Inc.
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, expected
to be incurred by the Company in connection with the sale of Class B Common
Stock being registered. All amounts are estimates except the SEC registration
fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC Registration Fee................................................ $27,140
NASD Filing Fee..................................................... 9,700
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.......................................................
Less Reimbursement of Expenses by the Underwriters(1)...............
-------
Total............................................................. $
=======
</TABLE>
- --------
(1) In connection with this offering, the Underwriters have agreed to
reimburse the Company for up to $560,000 of out-of-pocket expenses
incurred by the Company.
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 September 30, 1998, CitySearch granted
options to purchase 6,336,818 shares of its Common Stock pursuant to its
1996 Stock Option Plan at exercise prices ranging from $0.10 to $8.67 per
share (or 6,336,818 shares of its Class A Common Stock pursuant to the
Reclassification).
(2) From September 20, 1995 to September 30, 1998, CitySearch issued and
sold an aggregate of 1,310,661 shares of its Common Stock (or 1,310,661
shares of its Class A Common Stock pursuant to the Reclassification) to its
employees, directors and consultants upon exercise of stock options granted
pursuant to its 1996 Stock Option Plan at exercise prices ranging from
$0.10 to $8.00 per share for an aggregate consideration of $265,551.50.
II-1
<PAGE>
(3) In September 1995, at CitySearch's formation, CitySearch issued and
sold 6,622,857 shares of its Common Stock (or 6,622,857 shares of its Class
A Common Stock pursuant to the Reclassification) to William Gross for an
aggregate cash consideration of $5,000 and for services provided to
CitySearch.
(4) In October 1995, CitySearch issued and sold an aggregate of 4,233,500
shares of its Common Stock (or 4,233,500 shares of its Class A Common Stock
pursuant to the Reclassification) 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, CitySearch issued and sold an
aggregate of 1,791,173 shares of its Series A Preferred Stock (or 1,791,173
shares of Class A Common Stock pursuant to the Reclassification) 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, CitySearch issued an aggregate of 157,074 shares of its
Series B Preferred Stock (or 157,074 shares of Class A Common Stock
pursuant to the Reclassification) 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, CitySearch issued and sold an aggregate
of 3,261,024 shares of its Series C Preferred Stock (or 3,170,356 shares of
Class A Common Stock pursuant to the Conversion and the Reclassification)
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, CitySearch issued and sold an
aggregate of 4,430,313 shares of its Series D Preferred Stock (or 4,297,824
shares of Class A Common Stock pursuant to the Conversion and the
Reclassification) for an aggregate cash consideration of approximately
$28.9 million and for services provided to CitySearch. 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, CitySearch issued an aggregate of 68,274 shares of its
Series B Preferred Stock (or 68,274 shares of Class A Common Stock pursuant
to the Reclassification) 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.
II-2
<PAGE>
(10) In November 1997, CitySearch issued and sold an aggregate of
4,714,286 shares of its Series E Preferred Stock (or 4,655,347 shares of
Class A Common Stock pursuant to the Conversion and the Reclassification)
for an aggregate cash consideration of approximately $33.0 million. Such
shares of Series E Preferred Stock were issued to the following: USAi,
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.
NationsBanc Montgomery Securities LLC ("NationsBanc") acted as placement
agent. As consideration for such services, CitySearch paid NationsBanc
$1,546,182 in cash and issued a warrant to purchase shares of its 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, CitySearch issued to NationsBanc a warrant to purchase
94,286 shares of its Series E Preferred Stock (or 93,107 shares of its
Class A Common Stock pursuant to the Conversion and the Reclassification).
The warrant is exercisable at any time at an exercise price equal to $8.86
per share of Class A Common Stock and any unexercised portion of the
warrant is automatically convertible immediately prior to the closing of
this offering.
(12) In May 1998, CitySearch issued an sold an aggregate of 1,000,000
shares of its Series E Preferred Stock (or 987,500 shares of its Class A
Common Stock pursuant to the Conversion and the Reclassification) for an
aggregate cash consideration of approximately $7.0 million. Such shares of
Series E Preferred Stock were issued to the following: USAi, Inc. and
American Express Travel Related Services, Inc.
(13) In June 1998, CitySearch issued an aggregate of 63,644 shares of its
Series B Preferred Stock (or 63,644 shares of its Class A Common Stock
pursuant to the Reclassification) at $7.00 per share as additional
consideration for the acquisition of MetroBeat, Inc. Such shares were
issued to the following shareholders of MetroBeat, Inc.: Mark Davies and
Joshua White.
(14) In September 1998, CitySearch issued an aggregate of 37,238,000
shares of its Common Stock (or 37,238,000 of its Class A Common Stock
pursuant to the Reclassification) as consideration for the acquisition of
Ticketmaster Multimedia Holdings, Inc. Such shares were issued to
Ticketmaster Corporation.
(15) In September 1998, pursuant to the Reclassification, each issued and
outstanding share of Common Stock of the Company, or 62,469,875 shares, was
reclassified into one share of Class A Common Stock of the Company for no
consideration.
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(14) 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 received adequate information about CitySearch or had access, through
employment or other relationships, to such information. The sale of securities
in Item 15(15) was deemed to be exempt from registration under the Securities
Act in reliance on Section 3(a)(9) of the Securities Act as an exchange by the
issuer with its existing security holders where no commission or other
renumeration is paid or given directly or indirectly for soliciting such
exchange.
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 CitySearch, Inc., MB
Acquisition Corporation, MetroBeat, Inc., Mark Davies and Joshua White,
dated May 31, 1996.
2.2 Amended and Restated Agreement and Plan of Reorganization, among
CitySearch, Inc., Tiberius, Inc., USA Networks, Inc., Ticketmaster
Group, Inc., Ticketmaster Corporation and Ticketmaster Multimedia
Holdings, Inc., dated August 12, 1998.
3.1 Amended and Restated Certificate of Incorporation, as currently in
effect.
3.2 *Restated Certificate of Incorporation, to be filed immediately
following the consummation of the offering.
3.3 *Restated Bylaws.
4.1 *Specimen Common Stock Certificate.
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 Stock Plan and form of agreement hereunder.
10.4 *1998 Employee Stock Purchase Plan.
10.5 +License Agreement between CitySearch, Inc. and Perly, Inc., dated March
9, 1996.
10.6 +Marketing Agreement between CitySearch, Inc. and American Express
Travel Related Services Company, Inc., dated May 26, 1998.
10.7 Employment Agreement between CitySearch, Inc. and Charles Conn, dated
May 9, 1996.
10.8 +Unanimous Shareholder Agreement between Tele-Direct (Services), Inc.,
Metroland Printing, Publishing & Distributing Ltd., CitySearch Canada,
Inc. and 1310818 Ontario, Inc., dated August 31, 1998.
10.9 +Limited Partnership Agreement between Metroland Printing, Publishing &
Distributing Ltd., 1310818 Ontario Inc., CitySearch Canada, Inc., Tele-
Direct (Services), Inc., Tele-Direct (Publications), Inc., CitySearch,
Inc. and Torstar Corporation, dated August 31, 1998.
10.10 +Amended and Restated License and Services Agreement between CitySearch,
Inc. and CitySearch Canada, Inc., dated August 31, 1998.
10.11 +Sublicense and Services Agreement between CitySearch Canada, Inc. and
toronto.com, dated August 31, 1998.
10.12 +Non-competition Agreement between Toronto Star Newspapers Ltd., Tele-
Direct (Services), Inc., CitySearch Canada, Inc. and Metroland Printing,
Publishing & Distributing Ltd., dated August 31, 1998.
10.13 Lease Agreement by and between CitySearch, Inc. and West End Land
Development Co., L.P., dated November 7, 1996.
10.14 Standard Form of Lease, Aeriel Center Executive Park, between Pizzagalli
Investment Company and CitySearch, Inc., dated May 8, 1996.
10.15 Standard Office Lease between CitySearch, Inc. and Sage Realty
Corporation, dated May 6, 1997.
10.16 Standard Office Lease between CitySearch, Inc. and H. Naito Corporation,
dated March 6, 1997.
10.17 Standard Office Lease between CitySearch, Inc. and Brazos Austin Centre,
Ltd., dated August 15, 1996.
10.18 Standard Office Lease between CitySearch, Inc. and Judge Building Group,
dated September 10, 1996.
10.19 Standard Office Lease between CitySearch, Inc. and Sobel Building
Development, dated May 31, 1996.
10.20 Standard Office Lease between CitySearch, Inc. and BPG Pasadena, L.L.C.
(later assigned to Spieker Properties), dated September 30, 1996.
10.21 Lease Agreement between CitySearch, Inc. and Secured Properties
Investors II, L.P., dated May 13, 1998.
10.22 Employment Agreement between CitySearch, Inc. and Thomas Layton, dated
July 2, 1997.
10.23 +License and Services Agreement between CitySearch, Inc. and Classified
Ventures.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.24 Convertible Promissory Note issued to CitySearch, Inc. by USA Networks, Inc., dated August 12, 1998.
10.25 Non-Competition Agreement between CitySearch, Inc., Ticketmaster Corporation, Ticketmaster
Multimedia Holdings, Inc., and Charles Conn, dated August 12, 1998.
10.26 Non-Competition Agreement between CitySearch, Inc., Ticketmaster Corporation, Ticketmaster
Multimedia Holdings, Inc., and Thomas Layton, dated August 12, 1998.
10.27 *Letter Agreement between N2K Inc. and Ticketmaster Ticketing Co., Inc., dated April 23, 1998, as
amended by a Letter Agreement by and between the parties, dated June 18, 1998.
10.28 Development and Services Agreement between Ticketmaster Multimedia Holdings, Inc. and Starwave
Corporation, dated June 28, 1996.
10.29 +License and Services Agreement between Ticketmaster Corporation, Ticketmaster Multimedia
Holdings, Inc. and USA Networks, Inc., dated August 12, 1998.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
23.2 Consent of Independent Auditors.
23.3 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
</TABLE>
(b) Schedules
Schedule II--Valuation and Qualifying Accounts
- --------
* To be filed by amendment.
+ Confidential treatment requested.
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 30TH DAY OF SEPTEMBER, 1998.
TICKETMASTER ONLINE-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, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Charles Conn Chief Executive Officer September 30,
____________________________________ (Principal Executive 1998
CHARLES CONN Officer)
/s/ Bradley Ramberg Chief Financial Officer and September 30,
____________________________________ Vice President, Finance and 1998
BRADLEY RAMBERG Administration and
Secretary (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ Terry Barnes Director September 30,
____________________________________ 1998
TERRY BARNES
/s/ Alan Citron Director September 30,
____________________________________ 1998
ALAN CITRON
/s/ Eugene L. Cobuzzi Director September 30,
____________________________________ 1998
EUGENE L. COBUZZI
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Stuart W. DePina Director September 30,
____________________________________ 1998
STUART W. DEPINA
/s/ Barry Diller Director September 30,
____________________________________ 1998
BARRY DILLER
/s/ Joseph Gleberman Director September 30,
____________________________________ 1998
JOSEPH GLEBERMAN
/s/ William Gross Director September 30,
____________________________________ 1998
WILLIAM GROSS
/s/ Victor A. Kaufman Director September 30,
____________________________________ 1998
VICTOR A. KAUFMAN
/s/ Robert Kavner Director September 30,
____________________________________ 1998
ROBERT KAVNER
/s/ William D. Savoy Director September 30,
____________________________________ 1998
WILLIAM D. SAVOY
/s/ Alan Spoon Director September 30,
____________________________________ 1998
ALAN SPOON
Director
____________________________________
THOMAS UNTERMAN
</TABLE>
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 CitySearch, Inc., MB
Acquisition Corporation, MetroBeat, Inc., Mark Davies and Joshua
White, dated May 31, 1996.
2.2 Amended and Restated Agreement and Plan of Reorganization, among
CitySearch, Inc., Tiberius, Inc., USA Networks, Inc., Ticketmaster
Group, Inc., Ticketmaster Corporation and Ticketmaster Multimedia
Holdings, Inc., dated August 12, 1998.
3.1 Amended and Restated Certificate of Incorporation, as currently in
effect.
3.2 *Restated Certificate of Incorporation, to be filed immediately
following the consummation of the offering.
3.3 *Restated Bylaws.
4.1 *Specimen Common Stock Certificate.
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 Stock Plan and form of agreement hereunder.
10.4 *1998 Employee Stock Purchase Plan.
10.5 +License Agreement between CitySearch, Inc. and Perly, Inc., dated
March 9, 1996.
10.6 +Marketing Agreement between CitySearch, Inc. and American Express
Travel Related Services Company, Inc., dated May 26, 1998.
10.7 Employment Agreement between CitySearch, Inc. and Charles Conn,
dated May 9, 1996.
10.8 +Unanimous Shareholder Agreement between Tele-Direct (Services),
Inc., Metroland Printing, Publishing & Distributing Ltd.,
CitySearch Canada, Inc. and 1310818 Ontario, Inc., dated
August 31, 1998.
10.9 +Limited Partnership Agreement between Metroland Printing,
Publishing & Distributing Ltd., 1310818 Ontario Inc., CitySearch
Canada, Inc., Tele-Direct (Services), Inc., Tele-Direct
(Publications), Inc., CitySearch, Inc. and Torstar Corporation,
dated August 31, 1998.
10.10 +Amended and Restated License and Services Agreement between
CitySearch, Inc. and CitySearch Canada, Inc., dated August 31,
1998.
10.11 +Sublicense and Services Agreement between CitySearch Canada, Inc.
and toronto.com, dated August 31, 1998.
10.12 +Non-competition Agreement between Toronto Star Newspapers Ltd.,
Tele-Direct (Services), Inc., CitySearch Canada, Inc. and
Metroland Printing, Publishing & Distributing Ltd., dated
August 31, 1998.
10.13 Lease Agreement by and between CitySearch, Inc. and West End Land
Development Co., L.P., dated November 7, 1996.
10.14 Standard Form of Lease, Aeriel Center Executive Park, between
Pizzagalli Investment Company and CitySearch, Inc., dated May 8,
1996.
10.15 Standard Office Lease between CitySearch, Inc. and Sage Realty
Corporation, dated May 6, 1997.
10.16 Standard Office Lease between CitySearch, Inc. and H. Naito
Corporation, dated March 6, 1997.
10.17 Standard Office Lease between CitySearch, Inc. and Brazos Austin
Centre, Ltd., dated August 15, 1996.
10.18 Standard Office Lease between CitySearch, Inc. and Judge Building
Group, dated September 10, 1996.
10.19 Standard Office Lease between CitySearch, Inc. and Sobel Building
Development, dated May 31, 1996.
10.20 Standard Office Lease between CitySearch, Inc. and BPG Pasadena,
L.L.C. (later assigned to Spieker Properties), dated September 30,
1996.
10.21 Lease Agreement between CitySearch, Inc. and Secured Properties
Investors II, L.P., dated May 13, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.22 Employment Agreement between CitySearch, Inc. and Thomas Layton, dated July 2, 1997.
10.23 +License and Services Agreement between CitySearch, Inc. and Classified Ventures.
10.24 Convertible Promissory Note issued to CitySearch, Inc. by USA Networks, Inc., dated August 12, 1998.
10.25 Non-Competition Agreement between CitySearch, Inc., Ticketmaster Corporation, Ticketmaster
Multimedia Holdings, Inc., and Charles Conn, dated August 12, 1998.
10.26 Non-Competition Agreement between CitySearch, Inc., Ticketmaster Corporation, Ticketmaster
Multimedia Holdings, Inc., and Thomas Layton, dated August 12, 1998.
10.27 *Letter Agreement between N2K Inc. and Ticketmaster Ticketing Co., Inc., dated April 23, 1998,
as amended by a Letter Agreement by and between the parties, dated June 18, 1998.
10.28 Development and Services Agreement between Ticketmaster Multimedia Holdings, Inc. and
Starwave Corporation, dated June 28, 1996.
10.29 +License and Services Agreement between Ticketmaster Corporation, Ticketmaster Multimedia
Holdings, Inc. and USA Networks, Inc., dated August 12, 1998.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
23.2 Consent of Independent Auditors.
23.3 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PERFECTMARKET, INC.
MB ACQUISITION CORPORATION
METROBEAT, INC.
MARK DAVIES
AND
JOSHUA WHITE
MAY 31, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION I THE MERGER........................................................................... 1
1.1 Merger............................................................................... 1
1.2 Effective Time of the Merger......................................................... 1
1.3 Closing.............................................................................. 1
1.4 Effects of the Merger................................................................ 2
1.5 Certificate of Incorporation; Bylaws; Directors; Officers............................ 2
1.6 Taking of Necessary Action........................................................... 2
SECTION II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; SURRENDER OF CERTIFICATES......................................... 2
2.1 Consideration; Payment............................................................... 2
2.2 Effect on Capital Stock of Sub....................................................... 3
2.3 Surrender of Certificates............................................................ 6
SECTION III REPRESENTATIONS AND WARRANTIES OF METROBEAT.......................................... 7
3.1 Organization, Standing and Power..................................................... 8
3.2 Capital Structure.................................................................... 8
3.3 Authority............................................................................ 9
3.4 Financial Statements................................................................. 10
3.5 Inventory............................................................................ 10
3.6 Receivables.......................................................................... 11
3.7 Compliance with Law.................................................................. 11
3.8 No Defaults.......................................................................... 11
3.9 Litigation........................................................................... 12
3.10 No Material Adverse Effect........................................................... 12
3.11 Absence of Undisclosed Liabilities................................................... 13
3.12 Information Supplied................................................................. 14
3.13 Certain Agreements................................................................... 14
3.14 Plans................................................................................ 14
3.15 Major Contracts...................................................................... 14
3.16 Taxes................................................................................ 16
3.17 Interests of Officers................................................................ 18
3.18 Technology........................................................................... 18
3.19 Restrictions on Business Activities.................................................. 19
3.20 Title to Properties: Absence of Liens and Encumbrances: Condition of Equipment....... 20
3.21 Governmental Authorizations and Licenses............................................. 20
3.22 Environmental Matters................................................................ 20
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3.23 Insurance............................................................................ 21
3.24 Labor Matters........................................................................ 21
3.25 Customers; Backlog; Returns and Complaints........................................... 21
3.26 Employees............................................................................ 22
3.27 Questionable Payments................................................................ 22
3.28 Import/Export........................................................................ 22
3.29 Brokers; Finders..................................................................... 22
3.30 Disclosure........................................................................... 22
SECTION IV REPRESENTATIONS AND WARRANTIES OF
PERFECTMARKET AND SUB....................................................................... 23
4.1 Organization; Standing and Power..................................................... 23
4.2 Capitalization of PerfectMarket...................................................... 23
4.3 Authority............................................................................ 24
4.4 Financial Statements................................................................. 25
4.5 Compliance with Law.................................................................. 25
4.6 No Defaults.......................................................................... 25
4.7 Litigation........................................................................... 26
4.8 No Material Adverse Effect........................................................... 26
4.9 Absence of Undisclosed Liabilities................................................... 26
4.10 Technology........................................................................... 26
4.11 Governmental Authorizations and Licenses............................................. 27
4.12 Environmental Matters................................................................ 27
4.13 Labor Matters........................................................................ 28
4.15 Import/Export........................................................................ 28
4.16 Brokers; Finders..................................................................... 28
4.17 Disclosure........................................................................... 28
SECTION V CONDUCT AND TRANSACTIONS PRIOR TO
EFFECTIVE TIME; ADDITIONAL AGREEMENTS....................................................... 29
5.1 Conduct of Business of MetroBeat..................................................... 29
5.2 Exclusivity; Acquisition Proposals................................................... 31
5.3 MetroBeat Shareholders' Approval..................................................... 31
5.4 Notification of Certain Matters...................................................... 32
5.5 Consents............................................................................. 32
5.6 Reasonable Efforts................................................................... 32
5.7 Public Announcements................................................................. 33
5.8 Tax Returns and Income Tax Liability................................................. 33
5.9 Support of Event Listings Business................................................... 34
5.10 Payment of Liabilities............................................................... 34
5.11 Payment of Legal Expenses............................................................ 34
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
5.12 "MetroBeat" Mark..................................................................... 34
SECTION VI CONDITIONS PRECEDENT................................................................. 35
6.1 Conditions to Each Party's Obligation to Effect the Merger........................... 35
6.2 Conditions to Obligations of PerfectMarket and Sub................................... 35
6.3 Conditions to Obligations of MetroBeat............................................... 37
SECTION VII INDEMNIFICATION...................................................................... 37
7.1 Indemnification...................................................................... 37
7.2 Procedures........................................................................... 38
7.3 Right of Set-Off..................................................................... 38
7.4 Survival of Representations, Warranties and Covenants................................ 38
SECTION VIII TERMINATION.......................................................................... 39
8.1 Termination.......................................................................... 39
8.2 Expenses............................................................................. 39
8.3 Procedure and Effect of Termination.................................................. 39
SECTION IX GENERAL PROVISIONS................................................................... 40
9.1 Amendment............................................................................ 40
9.2 Extension; Waiver.................................................................... 40
9.3 Arbitration.......................................................................... 40
9.4 Notices.............................................................................. 41
9.5 Broker's or Finder's Fees............................................................ 42
9.6 Interpretation....................................................................... 42
9.7 Counterparts......................................................................... 42
9.8 Entire Agreement..................................................................... 42
9.9 No Transfer.......................................................................... 42
9.10 Severability......................................................................... 42
9.11 Other Remedies....................................................................... 43
9.12 Further Assurances................................................................... 43
9.13 Absence of Third-Party Beneficiary Rights............................................ 43
9.14 Mutual Drafting...................................................................... 43
9.15 Governing Law........................................................................ 43
9.16 Employees............................................................................ 43
</TABLE>
-iii-
<PAGE>
EXHIBITS
Exhibit A Plan of Merger
Exhibit B Certificate of Merger
Exhibit C Restated Certificate of Incorporation of PerfectMarket
Exhibit D MetroBeat Disclosure Schedule
Exhibit E PerfectMarket Disclosure Schedule
Exhibit F Form of Opinion of Counsel to MetroBeat
Exhibit G Form of FIRPTA Notification Letter and Form of Notice
Exhibit H Form of Employment and Noncompetition Agreement
Exhibit I Form of Shareholder's Representation Statement
-vii-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is dated as of
May 31, 1996 among PERFECTMARKET, INC., a Delaware corporation
("PerfectMarket"), MB ACQUISITION CORPORATION, a New York corporation and a
wholly-owned subsidiary of PerfectMarket ("Sub"), METROBEAT, INC., a New York
corporation ("MetroBeat"), Mark Davies (the "Principal Shareholder") and Joshua
White.
RECITAL
The Boards of Directors of PerfectMarket, MetroBeat and Sub have each
approved the terms and conditions of the acquisition of MetroBeat by
PerfectMarket to be effected by the merger of Sub with and into MetroBeat,
pursuant to the terms and subject to the conditions of this Agreement in
accordance with the New York Business Corporation Law.
NOW THEREFORE, in consideration of the premises and mutual covenants and
agreements contained in this Agreement, PerfectMarket, Sub, MetroBeat and the
Principal Shareholder agree as follows:
SECTION 1
THE MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement, the
------
Plan of Merger in substantially the form attached hereto as Exhibit A (the "Plan
---------
of Merger") and the Certificate of Merger in substantially the form attached
hereto as Exhibit B (the "Certificate of Merger"), Sub will be merged with and
---------
into MetroBeat (the "Merger") in accordance with the applicable provisions of
the New York Business Corporation Law (the "New York Statute"). The Plan of
Merger provides for the mode of consummating the Merger. The Certificate of
Merger shall be executed by the parties thereto concurrently with the execution
of this Agreement.
1.2 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this
----------------------------
Agreement and the Plan of Merger, the Certificate of Merger and the required
certificates, if any, shall be duly filed in accordance with the New York
Secretary of State in accordance with the New York Statute simultaneous with or
as soon as practicable following the Closing (as defined in Section 1.3 below).
The Merger shall become effective (the "Effective Time") upon the filing of the
Certificate of Merger with the New York Secretary of State (as defined in
Section 1.3 below) and as provided under the New York Statute.
1.3 CLOSING. Unless this Agreement shall have been terminated pursuant
-------
to Section 8, the closing of the Merger (the "Closing") will take place at 10:00
a.m. Pacific Standard Time on June 19, 1996 (the "Closing Date") or, if the
closing conditions contained in Section 6 are not satisfied or waived
<PAGE>
on or prior to such date, the first business day after satisfaction or waiver of
all such conditions, at the offices of Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, California 94304,
unless a different date or place is agreed to in writing by the parties.
1.4 EFFECTS OF THE MERGER. Subject to the terms and conditions of this
---------------------
Agreement and the Certificate of Merger, at the Effective Time: (i) the separate
existence of Sub shall cease and Sub shall be merged with and into MetroBeat
(Sub and MetroBeat are sometimes referred to as the "Constituent Corporations,"
and MetroBeat after the Merger is sometimes referred to as the "Surviving
Corporation"), and (ii) the Merger shall have all the effects provided by the
New York Statute, this Agreement and the Certificate of Merger.
1.5 CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS; OFFICERS. At the
---------------------------------------------------------
Effective Time, (i) the Certificate of Incorporation of MetroBeat, as amended
and substantially in the form attached to the Plan of Merger as Exhibit A, shall
---------
be the Certificate of Incorporation of the Surviving Corporation, until altered,
amended or repealed as provided in the New York Statute; (ii) the Bylaws of Sub,
as in effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation, until thereafter duly altered, amended or repealed as
provided in the New York Statute or in the Certificate of Incorporation or
Bylaws of the Surviving Corporation; (iii) the directors of Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation and will hold office from the Effective Time until their respective
successors are duly elected or appointed and qualified in the manner provided in
the Certificate of Incorporation and Bylaws of the Surviving Corporation, as
such instruments may be amended from time to time, either before or after the
Effective Time, or as otherwise provided by law; and (iv) the officers of Sub at
the Effective Time shall be the initial officers of the Surviving Corporation.
1.6 TAKING OF NECESSARY ACTION. Prior to the Effective Time, the parties
--------------------------
shall take, or cause to be taken, all such reasonable actions as may be
necessary or appropriate in order to effect, as expeditiously as reasonably
practicable, the Merger.
SECTION 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS;
SURRENDER OF CERTIFICATES
2.1 CONSIDERATION; PAYMENT. In consideration of the transactions
----------------------
contemplated hereby, PerfectMarket has agreed to pay an aggregate of $1,900,000
in the form of Series B Preferred Stock, par value $ 0.01 per share, of
PerfectMarket (the "Series B Preferred") and/or cash (the "Aggregate
Consideration"), pursuant to the terms and subject to the conditions set forth
in this Agreement. The Series B Preferred shall have the rights, preferences
and privileges set forth in the Restated Certificate of Incorporation of
PerfectMarket, substantially in the form attached hereto as Exhibit C (the
---------
"Restated Certificate").
-2-
<PAGE>
2.2 EFFECT ON CAPITAL STOCK OF SUB. At the Effective Time by virtue of
------------------------------
the Merger and without any action on the part of the holders of any shares of
capital stock of MetroBeat:
(a) Capital Stock of Sub. Each issued and outstanding share of
--------------------
capital stock of Sub shall be converted into one share of Common Stock, $.001
par value, of the Surviving Corporation. Each stock certificate of Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of MetroBeat. All
------------------------------------------------------------
shares of capital stock of MetroBeat ("MetroBeat Capital Stock") that are owned
directly or indirectly by MetroBeat or any subsidiary of MetroBeat shall, by
virtue of the Merger and without any action on the part of MetroBeat or any
subsidiary of MetroBeat, be canceled, and no consideration shall be delivered in
exchange therefor.
(c) Effect on MetroBeat Capital Stock. Each share of MetroBeat
---------------------------------
Capital Stock (other than shares canceled pursuant to Section 2.2(b)) that is
issued and outstanding immediately prior to the Effective Time, shall, subject
to Section 2.2(f) and (g) below, be automatically canceled and extinguished and
be converted into the right to receive an amount equal to the Aggregate
Consideration divided by the number of shares of MetroBeat Capital Stock issued
and outstanding as of the Effective Time.
(d) Cancellation of Other Equity Securities. Except as otherwise
---------------------------------------
provided in this Agreement, all shares of and all options to acquire shares of
capital stock or other equity securities of MetroBeat other than MetroBeat
Capital Stock shall be canceled as of the Effective Time without consideration
received in exchange therefor.
(e) Payment of the Aggregate Consideration.
--------------------------------------
(i) Subject to Section 2.2(e)(iii) below, the Aggregate
Consideration to be paid by PerfectMarket pursuant to the Merger shall be paid
on such dates (each a "Payment Date") as follows: (A) at the Closing, $550,000
of Series B Preferred (valued as of the Closing Date as set forth below) shall
be issued to the shareholders of MetroBeat; (B) on the first annual anniversary
of the Closing (the "First Anniversary"), $450,000 of Series B Preferred (valued
as of the First Anniversary as set forth below) (the "First Deferred Payment");
(C) on the second annual anniversary of the Closing (the "Second Anniversary"),
$450,000 of Series B Preferred (valued as of the Second Anniversary as set forth
below) (the "Second Deferred Payment"); and (D) on the third anniversary of the
Closing (the "Third Anniversary"), $450,000 of Series B Preferred Stock (valued
as of the Third Anniversary Date as set forth below) and/or cash shall be
delivered to the shareholders of MetroBeat (the "Final Payment").
(ii) The Final Payment shall be paid by PerfectMarket either in
the form of Series B Preferred and/or cash. At least 300 days prior to the Third
Anniversary, each of PerfectMarket, on the one hand, and Shareholder's Agent (as
defined in Section 7.2), on the other hand, shall elect the form of
consideration (cash or Series B Preferred (or if after the closing of an IPO as
defined in Section 2.2(e)(iv) below, Common Stock)) comprising 50% of the Final
Payment. If any portion of the Final
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<PAGE>
Payment is elected to be made in cash, such cash payment shall be secured by a
number of shares of Series B Preferred equal to the value of such cash payment
(the value of such Series B Preferred to be calculated in accordance with
Section 2.2(e)(v)).
(iii) PerfectMarket shall issue a minimum of 250,000 shares and a
maximum of 450,000 shares of its capital stock (as adjusted for stock splits,
stock dividends and similar recapitalizations of PerfectMarket) to the
shareholders of MetroBeat pursuant to this Section 2.2. If the shareholders
elect cash for any portion of the Final Payment pursuant to Section 2.2(e)(ii),
then both the minimum of 250,000 shares and the maximum of 450,000 shares shall
be reduced by the number of shares equal to such minimum or maximum multiplied
by the percentage equal to the amount of the cash payment elected by the
shareholders as the numerator, and $1,900,000 million as the denominator. Such
an adjustment shall not be applicable to any portion of the Final Payment
PerfectMarket elects to make in cash. At the time PerfectMarket shall be
obligated to deliver a cumulative aggregate amount to the shareholders of
MetroBeat of 450,000 shares of capital stock in accordance with the provisions
of this Section 2.2(e), all payment obligations of PerfectMarket in excess of
such amount shall immediately terminate. In the event that PerfectMarket's
payment obligations as calculated through the Final Payment shall be less than
250,000 shares of capital stock, PerfectMarket shall issue as part of the Final
Payment such additional number of shares of capital stock as required such that
the cumulative aggregate shares issued pursuant to this Section 2.2(e) shall
equal 250,000 shares.
(iv) Notwithstanding anything to the contrary in this Agreement,
in the event that PerfectMarket closes an initial public offering (an "IPO") of
its Common Stock, par value $0.01 per share (the "PM Common Stock"), then
PerfectMarket may, in its sole discretion (A) accelerate any portion or all of
the Aggregate Consideration not yet due to the shareholders of MetroBeat
pursuant to this Agreement, and/or (B) issue shares of PM Common Stock instead
of Series B Preferred under this Section 2.2(e); provided, however, that in the
-------- -------
event such IPO closes prior to the First Anniversary, 50% of the First and
Second Deferred and Final Payments shall be accelerated to the IPO closing date,
in the event such IPO closes after the First Anniversary but before the Second
Anniversary, 50% of the Second Deferred and Final Payments shall be accelerated
to the IPO closing date and in the event such IPO closes after the Second
Anniversary but before the Third Anniversary, 50% of the Final Payment shall be
accelerated to the IPO closing date.
(v) The valuation of the Series B Preferred (or PM Common Stock
if applicable) shall be determined as follows:
(A) If the PM Common Stock is traded or quoted on a national
securities exchange or the Nasdaq National Market, the per share valuation of
the PM Common Stock shall be the average of the closing prices of the PM Common
Stock as quoted on the exchange or the Nasdaq National Market for the ten day
period ending on the day before the applicable Payment Date.
(B) If the Payment Date is the date of the closing of a PerfectMarket
IPO, the valuation shall equal the price to the public of PM Common Stock in the
IPO;
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<PAGE>
(C) If (A) or (B) above do not apply and PerfectMarket shall have
closed a Preferred Stock financing within 90 days of the Payment Date, the per
share valuation will equal the purchase price of such Preferred Stock; and
(D) If none of (A), (B) or (C) apply, the parties shall negotiate in
good faith the valuation of the Series B Preferred. If PerfectMarket and the
Shareholders' Agent are unable to agree on the valuation as of the Payment Date,
then the valuation, which valuation shall be based on fair market value, shall
be set by an independent appraiser agreed to by PerfectMarket and the
Shareholders' Agent. If PerfectMarket and the Shareholders' Agent cannot agree
on an appraiser within 30 days after the Payment Date, each of PerfectMarket and
Shareholders' Agent shall pick one appraiser and these two appraisers shall pick
a third appraiser to determine the valuation. Any appraiser chosen under this
provision shall be one of the six largest accounting firms in the U.S. (a "Big
Six Accounting Firm"), or an internationally known valuation firm with expertise
in determining the valuation of companies such as PerfectMarket. In the event
of such arbitration, PerfectMarket and Shareholders' Agent agree that (x) the
last completed Preferred Stock financing of PerfectMarket, if it shall have
occurred within 24 months of the Payment Date, shall be a minimum price for
determining the valuation by the appraisers and (y) PerfectMarket shall pay two-
thirds of the cost of the appraisal and the shareholders of MetroBeat shall pay
one-third of such cost, provided, however, (I) that PerfectMarket shall pay all
-------- -------
of the shareholders' portion of the appraisal cost to the extent such portion
exceeds $25,000, and (II) unless otherwise prohibited by law, the shareholders
may elect to have PerfectMarket pay the shareholders' portion of the cost of the
appraisal above $5,000 (the "Reimbursable Amount") and, in such event, the
shareholders shall deliver to PerfectMarket a number of shares of capital stock
of PerfectMarket the fair market value of which shall equal the Reimbursable
Amount (as determined by the appraisal described above). In the event the per
share valuation is determined in accordance with this Section 2.2(e)(D), the
Payment Date shall be postponed until ten (10) days after a final determination
of the valuation.
(f) Fractional Shares. No fractional shares of Series B Preferred or
-----------------
PM Common Stock, as the case may be, shall be issued, but in lieu thereof each
holder of shares of MetroBeat Common Stock who would otherwise be entitled to
receive a fraction of a share of Series B Preferred or PM Common Stock, as the
case may be, shall receive from PerfectMarket an amount of cash equal to the per
share valuation of the Series B Preferred or PM Common Stock, as the case may
be, as determined in Section 2.2(e) above multiplied by the fraction of a share
of Series B Preferred or PM Common Stock, as the case may be, to which such
holder would otherwise be entitled. The fractional share interests of each
shareholder shall be aggregated, so that no shareholder shall receive cash in an
amount greater than the value of one full share of Series B Preferred or PM
Common Stock, as the case may be.
(g) Dissenters' Rights. Any shares of MetroBeat Capital Stock held by
------------------
a holder who has properly exercised dissenters' rights for such shares in
accordance with the New York Statute and who, as of the Effective Time, has not
effectively withdrawn or lost such dissenters' rights ("Dissenting Shares")
shall not be converted into the right to receive the consideration set forth in
Section 2, but shall instead be converted into the right to receive such
consideration as may be determined to be due with respect to such Dissenting
Shares pursuant to the New York Statute. MetroBeat agrees that, except with the
prior written consent of PerfectMarket, or as required under the New York
Statute, it will not
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<PAGE>
voluntarily make any payment with respect to, or settle or offer to settle, any
such purchase demand. If after the Effective Time any Dissenting Shares shall
lose their status as Dissenting Shares, PerfectMarket shall deliver, upon
surrender by such shareholder of a certificate or certificates representing
shares of MetroBeat Capital Stock in accordance with Section 2.3(c), the amount
of consideration to which the holder thereof would otherwise be entitled under
Section 2.2.
(h) Relinquishment of Shares. In the event the Principal Shareholder
------------------------
voluntarily terminates his employment with PerfectMarket or its subsidiary, as
the case may be, prior to 24 months following the Closing, as set forth pursuant
to the terms of the Employment and Noncompetition Agreement in the form attached
hereto as Exhibit F [*]. In the event PerfectMarket is precluded by applicable
law from accepting the return of such consideration at such time, such
consideration shall be held in escrow by a third-party selected by PerfectMarket
and shall be returned to PerfectMarket at the earliest date permitted under
applicable law.
2.3 SURRENDER OF CERTIFICATES.
-------------------------
(a) Exchange Agent. PerfectMarket shall act as Exchange Agent (the
--------------
"Exchange Agent") in the Merger. Prior to the Closing Date, MetroBeat shall
deliver to the Exchange Agent specific instructions to be followed by Exchange
Agent, and Exchange Agent shall have no liability for acting in accordance with
those instructions.
(b) PerfectMarket to Provide the Aggregate Consideration. On the
----------------------------------------------------
Closing Date, PerfectMarket shall set aside the Aggregate Consideration for
exchange in accordance with Section 2.2 and the Plan of Merger, through such
reasonable procedures as PerfectMarket may adopt.
(c) Exchange Procedures. Prior to the Closing Date, the Exchange
-------------------
Agent or MetroBeat, as PerfectMarket and MetroBeat shall agree, shall mail to
each holder of record of certificate(s) or other documents which represent
MetroBeat Capital Stock (the "Certificates"), to be converted into the Aggregate
Consideration pursuant to Section 2.2(c) hereof and the Plan of Merger: (i) a
letter of transmittal (which shall specify that, with respect to the
Certificates, delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as PerfectMarket
may reasonably specify); and (ii) instructions for use in effecting the
surrender of the Certificates. Upon surrender of a Certificate for cancellation
to the Exchange Agent or to such other agent or agents as may
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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<PAGE>
be appointed by PerfectMarket, together with such letter of transmittal, duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor that portion of the Aggregate Consideration with respect to
the MetroBeat Capital Stock properly covered by such Certificate as to which
such holder is entitled pursuant to Section 2.2(c) and the Plan of Merger.
Certificates so surrendered pursuant to this Section 2.3 shall be canceled at
the Effective Time (if not otherwise canceled or terminated in accordance with
their terms). In the event of a transfer of ownership of MetroBeat Capital
Stock which is not registered on the transfer records of MetroBeat, the
appropriate Aggregate Consideration may be delivered to a transferee if the
Certificate representing such transferred security is presented to the Exchange
Agent and accompanied by all documents required to evidence and effect such
transfer and to evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.3, each Certificate
shall be deemed at any time after the Effective Time to represent solely the
right to receive upon such surrender that portion of the Aggregate Consideration
(without interest and subject to applicable withholding, escheat, and other
laws) to which such holder is entitled.
(d) No Further Ownership Rights in Capital Stock of MetroBeat. The
---------------------------------------------------------
amounts paid in respect of MetroBeat Capital Stock in accordance with the terms
of this Agreement and the Plan of Merger shall be deemed to have been delivered
in full satisfaction of all rights pertaining thereto, and following the
Effective Time, holders of the Certificates shall have no further rights to, or
ownership in, shares of capital stock of MetroBeat. There shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of MetroBeat Capital Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged in accordance with the terms of this Agreement
and the Plan of Merger.
(e) No Liability. Notwithstanding anything to the contrary in this
------------
Section 2.3, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of the capital stock of MetroBeat
for any amount paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(f) Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
certificates evidencing shares of MetroBeat Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificates, upon the making of an affidavit in a form
reasonably satisfactory to PerfectMarket of that fact by the holder thereof,
such consideration as may be required pursuant to Section 2.2(c).
SECTION 3
REPRESENTATIONS AND WARRANTIES OF METROBEAT
Except as disclosed in the disclosure schedule attached as Exhibit C which
---------
identifies by section and subsection number any exception to a representation
and warranty in this Section 3 as well as the basis for any such exception (the
"MetroBeat Disclosure Schedule"), each of MetroBeat and the Principal
Shareholder represents and warrants to PerfectMarket and Sub as follows:
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<PAGE>
3.1 ORGANIZATION, STANDING AND POWER. MetroBeat is a corporation duly
--------------------------------
organized and validly and legally existing under the laws of New York and has
all requisite power and authority to own, operate and lease its properties and
to carry on its business as now being conducted. MetroBeat is duly qualified as
a foreign corporation and is in good standing in each jurisdiction in which the
failure to so qualify would have a Material Adverse Effect (as defined below).
Schedule 3.1 sets forth a true and complete list of the states and foreign
- ------------
countries where MetroBeat is qualified as a foreign corporation. MetroBeat has
no subsidiaries or affiliated companies and does not otherwise own or control,
directly or indirectly, any equity interest in any partnership, corporation,
joint venture, business association or other entity and has no loans to any
partnership, corporation, joint venture, business association or other entity.
MetroBeat has delivered to PerfectMarket complete and correct copies of its
Certificate of Incorporation and Bylaws, in each case as amended to the date
hereof, and has delivered or made available to PerfectMarket copies of its
corporate minute books which include all minutes of MetroBeat's directors' and
shareholders' meetings and a stock ledger setting forth the record ownership of
all outstanding shares of MetroBeat Capital Stock. The term "Material Adverse
Effect" means any change, event or effect that is materially adverse to the
business, assets (including intangible assets), liabilities, financial
condition, results of operations or prospects of MetroBeat, or Perfect Market,
as the context requires.
3.2 CAPITAL STRUCTURE.
-----------------
(a) The authorized capital stock of MetroBeat consists of 200 shares
of Common Stock, no par value ("MetroBeat Common Stock"). There are issued and
outstanding 198 shares of MetroBeat Common Stock. All outstanding shares of
MetroBeat Common Stock are validly issued, fully paid and nonassessable and not
subject to preemptive rights created by statute, or by MetroBeat's Certificate
of Incorporation or Bylaws, each as in effect immediately prior to the Effective
Time, or by any agreement to which MetroBeat is a party or by which MetroBeat
may be bound.
(b) Other than as described in this Section 3.2, there are no
outstanding shares of MetroBeat Common Stock, preferred stock or any other
equity securities of MetroBeat, and there are no options, warrants, calls,
conversion rights, commitments or agreements of any character to which MetroBeat
or the Principal Shareholder is a party or by which MetroBeat or the Principal
Shareholder may be bound that do or may obligate MetroBeat to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of MetroBeat
Common Stock, preferred stock or other equity securities or that do or may
obligate MetroBeat to grant, extend or enter into any such option, warrant,
call, conversion right, commitment or agreement. There are no outstanding
arrangements, agreements, commitments or understandings of any kind affecting or
relating to the voting, issuance, purchase, redemption, repurchase or transfer
of any capital stock of MetroBeat or any other securities of MetroBeat. Other
than as provided in or contemplated by this Agreement, MetroBeat and the
Principal Shareholder have not, and prior to the Effective Time will not, become
party to or subject to any contract or obligation wherein any person has a right
or option to purchase or acquire any rights in any additional capital stock or
securities of MetroBeat.
(c) Schedule 3.2(c) contains a complete and accurate list of, and the
---------------
number of shares owned of record by, the holders of outstanding MetroBeat Common
Stock. As of the Balance Sheet
-8-
<PAGE>
Date (as defined in Section 3.4), no shares of MetroBeat Common Stock held by
certain persons were subject to repurchase upon termination of employment.
(d) As of the Effective Time, there shall be no shares of capital
stock of MetroBeat or options or other rights therefor outstanding or in
existence other than those held by PerfectMarket.
3.3 AUTHORITY.
---------
(a) MetroBeat has all requisite corporate power and authority to enter
into this Agreement and the Certificate of Merger and to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Certificate
of Merger, the performance by MetroBeat of its obligations hereunder and
thereunder and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
on the part of MetroBeat, including approval by its Board of Directors and
shareholders. The Principal Shareholder has full power and authority to execute
and deliver this Agreement, to perform such shareholder's obligations under this
Agreement, and to consummate the transactions contemplated by this Agreement and
the Certificate of Merger. The Principal Shareholder has full power and
authority to vote the outstanding shares of MetroBeat Common Stock held by such
shareholder to approve this Agreement, the Plan of Merger, the Certificate of
Merger and the transactions contemplated hereby and thereby, and will vote all
of such shares to approve this Agreement, the Plan of Merger, the Certificate of
Merger and the transactions contemplated hereby and thereby in compliance with
all applicable laws, and the Certificate of Incorporation and Bylaws of
MetroBeat. This Agreement is a legal, valid and binding obligation of each of
MetroBeat and the Principal Shareholder, enforceable against MetroBeat and the
Principal Shareholder in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies is subject to the discretion of the court before which any
proceeding therefor may be brought. The Certificate of Merger, when delivered by
the parties thereto, will be a legal, valid and binding obligation of MetroBeat
enforceable against MetroBeat in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefore may be brought. The only vote of the
holders of any class or series of MetroBeat Capital Stock necessary to approve
this Agreement, the Plan of Merger, the Certificate of Merger and the
transactions contemplated hereby and thereby was the affirmative vote of the
holders of a majority of the outstanding shares of MetroBeat Common Stock.
(b) The execution and delivery of this Agreement does not, and the
execution and delivery of the Certificate of Merger and the consummation of the
transactions contemplated hereby and thereby will not, conflict with or result
in any violation of any statute, law, rule, regulation, judgment, order, decree,
or ordinance applicable to MetroBeat or its properties or assets or the
Principal Shareholder, or conflict with or result in any breach or default (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
benefit under, or result in the creation of a lien or encumbrance on any of the
properties or assets of MetroBeat pursuant to (i) any provision of the
Certificate of Incorporation or Bylaws of
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<PAGE>
MetroBeat or (ii) any agreement, contract, note, mortgage, indenture, lease
instrument, permit, concession, franchise or license to which MetroBeat is a
party or by which MetroBeat or any of its property or assets may be bound or
affected. Schedule 3.3(b) lists all consents, waivers, and approvals under any
---------------
of MetroBeat's agreements, contracts, licenses or leases required to be obtained
in connection with the consummation of the transactions contemplated hereby and
by the Plan of Merger and the Certificate of Merger ("MetroBeat Third-Party
Consents"). Copies of such MetroBeat Third-Party Consents will be delivered by
MetroBeat to PerfectMarket prior to the Closing.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency, commission,
regulatory authority or other governmental authority or instrumentality, whether
domestic or foreign (a "Governmental Entity"), is required by or with respect to
MetroBeat or the Principal Shareholder in connection with the execution and
delivery of this Agreement and the Certificate of Merger by MetroBeat or the
consummation by MetroBeat of the transactions contemplated hereby or thereby,
except for (i) the filing of the Certificate of Merger and officers'
certificates with the New York Secretary of State and appropriate documents with
the relevant authorities of other states in which MetroBeat is qualified to do
business and (ii) such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky laws in
connection with the Merger.
3.4 FINANCIAL STATEMENTS. MetroBeat has furnished or made available to
--------------------
PerfectMarket its financial statements for the fiscal year ended on December 31,
1995, including the balance sheet of MetroBeat, and the related statement of
operations, cash flows and shareholders' equity (collectively, the "MetroBeat
Year-End Financial Statements") and MetroBeat's financial statements as of April
30, 1996, including a balance sheet of MetroBeat (the "Interim Balance Sheet")
as of April 30, 1996 (the "Balance Sheet Date") and the related statement of
income, retained earnings and, cash flows (the "Interim Financial Statements")
(the Interim Financial Statements together with the MetroBeat Year-End Financial
Statements are collectively referred to as the "MetroBeat Financial
Statements"). The MetroBeat Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied and fairly present the financial position of MetroBeat as of the dates
thereof and the results of its operations and cash flows for the periods then
ended, except that the Interim Financial Statements do not contain any footnote
disclosure required by GAAP. There has been no change in MetroBeat's accounting
policies, except as described in the notes to the MetroBeat Financial
Statements.
3.5 INVENTORY. The inventories of MetroBeat shown on the Interim Balance
---------
Sheet ("Inventories") were valued at cost or market, whichever is lower, with
adequate allowances for excess and obsolete materials and materials below
standard quality, in accordance with GAAP consistently applied. The quality and
quantity of the Inventories are such that the Inventories are readily usable and
saleable in the normal course of business of MetroBeat, except such amounts as
are reserved on the Interim Balance Sheet in accordance with GAAP consistently
applied and in accordance with the past practice of MetroBeat. All items
included in such Inventories are owned by MetroBeat, except for sales made
subsequent to the Balance Sheet Date in the ordinary course of business, for all
of which either the purchaser has made full payment or the purchaser is
obligated to make payment and such obligation is an asset of MetroBeat in
accordance with GAAP consistently applied. Schedule 3.5 lists all
------------
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<PAGE>
Inventories materially in excess of reasonable estimated requirements for
MetroBeat based on current operations for the next three months.
3.6 RECEIVABLES. The receivables shown on the Interim Balance Sheet
-----------
arose in the ordinary course of business and have been collected or are
collectible in the book amounts thereof, less an amount not in excess of the
allowance for doubtful accounts provided for in such balance sheet. Allowances
for doubtful accounts and warranty returns are adequate and have been prepared
in accordance with GAAP consistently applied and in accordance with the past
practices of MetroBeat. The receivables of MetroBeat arising after the Balance
Sheet Date and prior to the Effective Time arose or will arise in the ordinary
course of business and have been collected or are collectible in the book
amounts thereof, less allowances for doubtful accounts and warranty returns
determined in accordance with the past practices of MetroBeat. None of the
receivables of MetroBeat is subject to any material claim of offset, recoupment,
set off or counterclaim and neither MetroBeat nor the Principal Shareholder has
any knowledge of any specific facts or circumstances (whether asserted or
unasserted) that could give rise to any such claim. No amount of receivables
are contingent upon the performance by MetroBeat of any obligation or contract.
No person has any lien on any of such receivables and no agreement for deduction
or discount has been made with respect to any of such receivables. Schedule 3.6
------------
sets forth an aging of accounts receivable of MetroBeat as of the Balance Sheet
Date in the aggregate and by customer (0-30 days, 31-60 days, 60-90 days and
greater than 90 days), and indicates for each category the respective amounts of
allowances for doubtful accounts and warranty returns and the amounts of
accounts receivable within each category which are subject to warranty claims in
the aggregate. Prior to the date of this Agreement, MetroBeat has provided
PerfectMarket with information regarding amounts of accounts receivable which
are subject to warranty claims by customer and has made available detailed
information regarding warranty claims made within the last year, including the
type and amounts of such claims. Schedule 3.6 lists pending authorized product
------------
returns.
3.7 COMPLIANCE WITH LAW. MetroBeat is in compliance and has conducted
-------------------
its business so as to comply with all laws, rules and regulations, judgments,
decrees or orders of any Governmental Entity applicable to its operations or
with respect to which compliance is a condition of engaging in the business
thereof. There are no judgments or orders, injunctions, decrees, stipulations
or awards (whether rendered by a court or administrative agency or by
arbitration) against MetroBeat or against any of its properties or businesses.
Without limiting the generality of the foregoing, MetroBeat has not violated any
United States and foreign import and export control laws and regulations, export
licensing laws and regulations and customs regulations (including its
obligations under the Foreign Corrupt Practices Act) applicable to MetroBeat.
MetroBeat has not been cited by the United States Department of Commerce, the
United States Customs Service or any other relevant Governmental Entity for any
violation of United States laws or regulations relating to importing or
exporting of products, materials or services. Schedule 3.7 contains a summary of
------------
any violation of, or conflict with, any applicable statute, law, rule,
regulation, ruling, order, judgment or decree of which such Governmental Entity
has notified MetroBeat, including any of the foregoing relating to Environmental
Laws (as defined in Section 3.22(c) below).
3.8 NO DEFAULTS. MetroBeat is not, nor has it or the Principal
-----------
Shareholder received notice that MetroBeat is or would be with the passage of
time, (a) in violation of any provision of its Certificate of Incorporation or
Bylaws or (b) in default or violation of any term, condition or provision of (i)
any
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<PAGE>
judgment, decree, order, injunction or stipulation applicable to MetroBeat or
(ii) any agreement, note, mortgage, indenture, contract, lease or instrument,
permit, concession, franchise or license to which MetroBeat is a party or by
which MetroBeat or its properties or assets may be bound.
3.9 LITIGATION. There is no action, suit, proceeding, claim, arbitration
----------
or investigation pending or, to the knowledge of MetroBeat and the Principal
Shareholder, threatened, against MetroBeat or the Principal Shareholder, or
which in any manner challenges or seeks to prevent, enjoin, alter or delay any
of the transactions contemplated hereby. Schedule 3.9 sets forth with respect
------------
to each pending action, suit, proceeding, claim, arbitration or investigation to
which MetroBeat is a party, the forum, the parties thereto, a brief description
of the subject matter thereof and the amount of damages claimed. Neither
MetroBeat nor the Principal Shareholder is aware of any reasonable basis for any
other such litigation. MetroBeat has delivered or made available to
PerfectMarket correct and complete copies of all correspondence prepared by its
counsel for MetroBeat's independent public accountants in connection with all
completed audits or reviews of MetroBeat's financial statements and any such
correspondence since the date of the last such audit or review. Schedule 3.9
------------
accurately describes all product liability claims made against MetroBeat since
inception.
3.10 NO MATERIAL ADVERSE EFFECT. Since the Balance Sheet Date, MetroBeat
--------------------------
has conducted its business in the ordinary course and there has not occurred:
(a) Any Material Adverse Effect;
(b) Any amendments or changes in the Certificate of Incorporation or
Bylaws of MetroBeat;
(c) Any damage, destruction or loss, whether covered by insurance or
not, materially and adversely affecting any of the properties or businesses of
MetroBeat;
(d) Any issuance, redemption, repurchase or other acquisition of
shares of capital stock of MetroBeat, or any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the capital stock of MetroBeat;
(e) Any increase in or modification of the compensation or benefits
payable or to become payable by MetroBeat to any of its directors or employees;
(f) Any increase in or modification of any bonus, pension, insurance
or other employee benefit plan, payment or arrangement (including the granting
of stock options, restricted stock awards or stock appreciation rights) made to,
for or with any of its employees;
(g) Any sale of the property or assets of MetroBeat individually in
excess of $5,000 or in the aggregate in excess of $10,000 other than inventory
sales in the ordinary course of business consistent with past practice;
(h) Any alteration in any term of any outstanding security of
MetroBeat;
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<PAGE>
(i) Any (A) incurrence, assumption or guarantee by MetroBeat of any
debt for borrowed money; (B) issuance or sale of any securities convertible into
or exchangeable for debt securities of MetroBeat; or (C) issuance or sale of
options or other rights to acquire from MetroBeat, directly or indirectly, debt
securities of MetroBeat or any securities convertible into or exchangeable for
any such debt securities;
(j) Any creation or assumption by MetroBeat of any mortgage, pledge,
security interest or lien or other encumbrance on any asset (other than liens
arising in the ordinary course of MetroBeat's business which in the aggregate
are not material and liens for taxes not yet due and payable);
(k) Any making of any loan, advance or capital contribution to, or
investment in, any person other than (A) travel loans or advances made in the
ordinary course of business of MetroBeat and (B) other loans and advances in an
aggregate amount which does not exceed $10,000 outstanding at any time;
(l) Any entry into, amendment of, relinquishment, termination or
nonrenewal by MetroBeat of any contract, lease transaction, commitment or other
right or obligation other than in the ordinary course of business consistent
with past practice;
(m) Any transfer or grant of a right under the MetroBeat Intellectual
Property Rights (as defined in Section 3.18) other than those transferred or
granted in the ordinary course of business consistent with past practice;
(n) Any labor dispute, other than routine individual grievances, or
any activity or proceeding by a labor union or representative thereof to
organize any employees of MetroBeat;
(o) Any violation of or conflict with any applicable laws, statutes,
orders, rules and regulations promulgated or judgment entered by any
Governmental Entity which, individually or in the aggregate, materially and
adversely affects (or, insofar as MetroBeat or the Principal Shareholder know,
might reasonably be expected to materially and adversely affect) MetroBeat; or
(p) Any agreement or arrangement made by MetroBeat or the Principal
Shareholder to take any action which, if taken prior to the date hereof, would
have made any representation or warranty set forth in this Section 3.10 untrue
or incorrect as of the date when made.
3.11 ABSENCE OF UNDISCLOSED LIABILITIES. MetroBeat has no material
----------------------------------
liabilities or obligations (whether absolute, accrued, contingent or otherwise
and whether or not determined or determinable) except liabilities or obligations
(i) adequately provided for in the Interim Balance Sheet or (ii) incurred in the
ordinary course of business consistent with past practice and which are not,
individually or in the aggregate, material to MetroBeat. MetroBeat shall
provide PerfectMarket with a schedule of all outstanding liabilities as of the
Closing Date.
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3.12 INFORMATION SUPPLIED. The materials to be prepared for use in
--------------------
soliciting approval of the Merger by MetroBeat's shareholders as described in
Section 5.3 and other solicitation materials relating to the Merger, on the date
on which MetroBeat mails such materials to its shareholders and at all times
from such date up to and including the Effective Time, will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading, and will
comply in all respects with all applicable federal and state securities law
requirements.
3.13 CERTAIN AGREEMENTS. Neither the execution and delivery of this
------------------
Agreement or the Certificate of Merger nor the consummation of the transactions
contemplated hereby or thereby will (a) result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any director or employee of MetroBeat under any Plan (as defined
in Section 3.14) or otherwise, (b) materially increase any benefits otherwise
payable under any Plan, or (c) result in the acceleration of the time of payment
or vesting of any such benefits.
3.14 PLANS. All employee compensation, incentive, fringe or benefit
-----
plans, programs, policies, commitments or other arrangements (whether or not set
forth in a written document) covering any active, former or retired employee or
consultant of MetroBeat, or with respect to which MetroBeat has or may in the
future have liability, are listed on Schedule 3.14 (the "Plans"). To the extent
-------------
applicable, the Plans comply with the requirements of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and the Code, and no Plan is
an "employee pension plan" within the meaning of Section 3 of ERISA, nor is any
Plan intended to be qualified under Section 401(a) of the Code. MetroBeat has
furnished or made available to PerfectMarket copies of the most recent Internal
Revenue Service letters and Forms 5500 with respect to any such Plan. No Plan
is covered by Title IV of ERISA or Section 412 of the Code. Neither MetroBeat
nor any officer or director of MetroBeat has incurred any liability or penalty
under Section 4975 through 4980B of the Code or Title 1 of ERISA. Each Plan has
been maintained and administered in all material respects in compliance with its
terms and with the requirements prescribed by and all statutes, orders, rules
and regulations, including but not limited to ERISA and the Code, which are
applicable to such Plans. No suit, action or other litigation (excluding claims
for benefits incurred in the ordinary course of Plan activities) has been
brought, or to the best knowledge of MetroBeat and the Principal Shareholder is
threatened, against or with respect to any such Plan. All contributions,
reserves or premium payments required to be made or accrued as of the date
hereof to the Plans have been made or accrued. Schedule 3.14 includes a listing
-------------
of the accrued vacation liability of the Company as of the Balance Sheet Date.
3.15 MAJOR CONTRACTS. Schedule 3.15 lists and describes:
--------------- -------------
(a) Any union contract or any employment or consulting contract or
arrangement providing for future compensation, written or oral, with any
officer, consultant, director or employee which is not terminable by MetroBeat
on 30 days' notice or less without penalty or obligation to make payments
related to such termination;
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(b) Any plan, contract or arrangement, whether written or oral,
providing for bonuses, pensions, deferred compensation, severance pay or
benefits, retirement payments, profit-sharing or the like;
(c) Any joint venture contract or arrangement or any other agreement
currently in effect which has involved or is expect to involve a sharing of
profits with other persons;
(d) Any existing OEM agreement, distribution agreement, volume
purchase agreement, or other similar agreement (but excluding individual
customer purchase orders) in which the annual amount involved in fiscal 1995
exceeded or is expected to exceed in fiscal 1996 $10,000 in aggregate amount or
pursuant to which MetroBeat has granted or received most favored nation pricing
provisions or exclusive marketing rights related to any product, group of
products or territory;
(e) Any current individual customer purchase order for the sale of
goods or services in excess of $15,000;
(f) Any lease for real or personal property in which the amount of
payments which MetroBeat is required to make on an annual basis exceeds $10,000;
(g) Except for trade indebtedness incurred in the ordinary course of
business, any instrument evidencing or related in any way to indebtedness
incurred in the acquisition of companies or other entities or indebtedness for
borrowed money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee, leasehold obligations or otherwise;
(h) Any license agreement, either as licensor or licensee (excluding
nonexclusive software licenses granted to customers or end-users in the ordinary
course of business);
(i) Any contract containing covenants purporting to limit the freedom
of MetroBeat to compete in any line of business in any geographic area;
(j) Any agreement of indemnification other than those entered in
connection with the sale of MetroBeat products in the ordinary course of
business;
(k) Any agreement, contract or commitment relating to capital
expenditures and which involve future payments individually in excess of $5,000
or in the aggregate in excess of $10,000 by MetroBeat;
(l) Any agreements, contracts or commitments relating to the
disposition or acquisition of any assets (other than Inventory) which involve
payments individually in excess of $5,000 or in the aggregate in excess of
$10,000 by MetroBeat;
(m) Any purchase orders or contracts for the purchase of raw materials
which involve payments individually in excess of $5,000 or in the aggregate in
excess of $10,000;
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(n) Any agreement, contract or commitment relating to the disposition
or acquisition by MetroBeat of any Intellectual Property Rights; or
(o) Any other agreement, contract or commitment which is material to
MetroBeat.
Each agreement, contract, mortgage, indenture, plan, lease, instrument,
permit, concession, franchise, arrangement, license and commitment listed on the
Schedule 3.15 (the "Major Contracts") is valid and binding on MetroBeat, and is
- -------------
in full force and effect, and neither MetroBeat nor, to the best knowledge of
MetroBeat and the Principal Shareholder, any other party thereto, has breached,
any provision of, or is in default under the terms of, any such Major Contract.
No such Major Contract contains any material liquidated damages, penalty or
similar provision. MetroBeat does not intend to cancel, withdraw, modify or
amend any such Major Contract and, to the best knowledge of MetroBeat and the
Principal Shareholder, no party to any such contract, agreement or instrument
intends to cancel, withdraw, modify or amend any such Major Contract.
3.16 TAXES.
-----
(a) All Tax (as defined below in Section 3.16(e)) returns,
statements, reports and forms (including estimated Tax returns and reports and
information returns and reports) required to be filed with any Taxing Authority
(as defined below) with respect to any Taxable period ending on or before the
Effective Time, by or on behalf of MetroBeat (collectively, the "MetroBeat
Returns"), have been or will be filed when due (including any extensions of such
due date), and all amounts shown due thereon on or before the Effective Time
have been or will be paid on or before such date. The Interim Balance Sheet (i)
fully accrues all actual and contingent liabilities for Taxes with respect to
all periods through the Balance Sheet Date and MetroBeat has not and will not
incur any Tax liability in excess of the amount reflected on the Interim Balance
Sheet with respect to such periods, and (ii) properly accrues in accordance with
GAAP all liabilities for Taxes payable after the Balance Sheet Date with respect
to all transactions and events occurring on or prior to such date. All
information set forth in the notes to the MetroBeat Year-End Financial
Statements relating to Tax matters is true, complete and accurate in all
material respects.
(b) No material Tax liability has been incurred since the Balance
Sheet Date other than in the ordinary course of business and adequate provision
has been or will be made for all Tax liabilities incurred since that date in
accordance with GAAP on at least a quarterly basis. MetroBeat has withheld and
paid to the applicable financial institution or Taxing Authority all amounts
required to be withheld. All MetroBeat Returns filed with respect to Taxable
years of MetroBeat through the Taxable year ended December 31, 1995, in the case
of the United States, have been examined and closed or are MetroBeat Returns
with respect to which the applicable period for assessment under applicable law,
after giving effect to extensions or waivers, has expired. Neither MetroBeat
nor any member of any affiliated or combined group of which MetroBeat has been a
member has granted any extension or waiver of the limitation period applicable
to any MetroBeat Returns.
(c) There is no material claim, audit, action, suit, proceeding, or
investigation now pending or, threatened against or with respect to MetroBeat in
respect of any Tax or assessment. No
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notice of deficiency or similar document of any Taxing Authority has been
received by MetroBeat, and there are no liabilities for Taxes (including
liabilities for interest, additions to tax and penalties thereon and related
expenses) with respect to the issues that have been raised (and are currently
pending) by any Tax Authority that could, if determined adversely to MetroBeat,
materially and adversely affect the liability of MetroBeat for Taxes. Neither
MetroBeat, nor any person on behalf of MetroBeat, has entered into nor will it
enter into any agreement or consent pursuant to Section 341(f) of the Code.
There are no liens for Taxes upon the assets of MetroBeat except liens for
current Taxes not yet due. Except as may be required as a result of the Merger,
MetroBeat has not been or will not be required to include any material
adjustment in Taxable income for any Tax period (or portion thereof) ending on
or after the Closing pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Closing.
(d) There is no contract, agreement, plan or arrangement, including,
but not limited to, the provisions of this Agreement, covering any employee or
independent contractor or former employee or independent contractor of MetroBeat
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to Section 280G, 162 or 404 of the Code.
Other than pursuant to this Agreement, MetroBeat is not a party to or bound by
(or will prior to the Effective Time become a party to or bound by) any tax
indemnity, tax sharing or tax allocation agreement (whether written, unwritten
or arising under operation of federal law as a result of being a member of a
group filing consolidated tax returns, under operation of certain state laws as
a result of being a member of a unitary group, or under comparable laws of other
states or foreign jurisdictions) which includes a party other than MetroBeat.
None of the assets of MetroBeat (i) is property that MetroBeat is required to
treat as owned by any other person pursuant to the so-called "safe harbor lease"
provisions of former Section 168(f)(8) of the Code, (ii) directly or indirectly
secures any debt the interest on which is tax exempt under Section 103(a) of the
Code or (iii) is "tax exempt use property" within the meaning of Section 168(h)
of the Code. MetroBeat has not participated in (nor will prior to the Effective
Time participate in) an international boycott within the meaning of Section 999
of the Code. MetroBeat has previously provided or made available to
PerfectMarket true and correct copies of all material Tax Returns, and, as
reasonably requested by PerfectMarket, prior to or following the date hereof,
information statements, reports, work papers, Tax opinions and memoranda and
other Tax data and documents.
(e) For purposes of this Agreement, the term "Tax" (and, with
correlative meaning, "Taxes" and "Taxable") means (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Entity (a "Taxing Authority") responsible for the imposition of any
such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in clause (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period and
(iii) any liability for the payment of any amounts of the type described in
clause (i) or (ii) as a result of any express or implied obligation to indemnify
any other person.
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3.17 INTERESTS OF OFFICERS. Neither the Principal Shareholder nor any of
---------------------
MetroBeat's other officers or directors have any interest, either directly or
indirectly, in any property, real or personal, tangible or intangible, used in
or pertaining to MetroBeat's business, including any interest in the
Intellectual Property Rights (as defined in Section 3.18(a) below), except for
rights as a shareholder, and except for rights under any Plan. No employee,
shareholder, officer or director of MetroBeat, or their spouses or children, is
indebted to MetroBeat, nor is MetroBeat indebted to any of them.
3.18 TECHNOLOGY.
----------
(a) MetroBeat owns, or is licensed or otherwise entitled to exercise
all rights under or with respect to all patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, formulae, processes,
designs, schematics, compositions, ideas, technology, know-how and tangible or
intangible proprietary information, trade secrets or materials employed in the
operation of the business of MetroBeat as currently conducted or as currently
proposed to be conducted (the "Intellectual Property Rights"). MetroBeat has
entered into a confidentiality and invention assignment agreement, in the form
previously provided to PerfectMarket, with each of its officers, directors,
employees and consultants providing MetroBeat, to the extent permitted by
applicable law, with title and ownership to Intellectual Property Rights
conceived, developed, reduced to practice by or at the direction of such person,
solely or jointly, during the period of employment by MetroBeat. Schedule
--------
3.18(a) lists all MetroBeat patents, trademarks, works of authorship, registered
- -------
and unregistered copyrights, registered and unregistered trademarks, trade names
and service marks, and any applications therefor, which relate to or are a part
of MetroBeat's products or services (the "MetroBeat Intellectual Property
Rights"), and specifies the jurisdictions in which each such issuance and
registration has been filed, including the respective registration or
application numbers, together with a list of all of MetroBeat's currently
marketed software products and an indication as to which, if any, of such
software products have been registered for copyright protection with the United
States Copyright Office and any foreign offices. Without in any manner limiting
the foregoing, MetroBeat represents that it has filed for trademark registration
in the United States for the name "MetroBeat", that it has received confirmation
of receipt of such filing, and that it has conducted a trademark search that
showed the "MetroBeat" mark clear of prior registration or use.
(b) Schedule 3.18(b) includes and specifically identifies all third-
----------------
party patents, trademarks, works of authorship, registered and unregistered
copyrights, registered and unregistered trademarks, trade names and service
marks, and any applications therefor (the "Third-Party Intellectual Property
Rights") which are incorporated in, are, or form a part of, any MetroBeat
product or service. Schedule 3.18(b) lists (i) any requests MetroBeat has
----------------
received to make any such registration, including the identity of the requestor
and the item requested to be so registered, and the jurisdiction for which such
request has been made; (ii) all material licenses, sublicenses and other
agreements as to which MetroBeat is a party and pursuant to which any person is
authorized to use any MetroBeat Intellectual Property Rights or any trade secret
material to MetroBeat; and (iii) all material licenses, sublicenses and other
agreements as to which MetroBeat is a party and pursuant to which MetroBeat is
authorized to use any Third-Party Intellectual Property Rights, or trade secret
of a third party in or as any product or service, and includes the identity of
all parties thereto and a description and statement as to the status of the
applicable royalty thereof. Schedule 3.18(c) includes copies of MetroBeat's
----------------
standard end-user
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license agreements and lists all other agreements with respect to which
MetroBeat indemnifies third parties against intellectual property infringement.
MetroBeat is not, nor as a result of the execution and delivery of this
Agreement or the performance of MetroBeat's obligations hereunder will be, in
violation of any license, sublicense or other agreement applicable to it.
MetroBeat is the sole and exclusive owner or licensee of, with all right, title
and interest in and to (free and clear of any liens or encumbrances), the
Intellectual Property Rights, and has sole and exclusive rights in respect
thereof, and is not contractually obligated to pay any compensation to any third
party. After the Closing, the Surviving Corporation will own or have the
exclusive right to use, sell, license and dispose of and the exclusive right to
bring actions for infringement of and otherwise exercise all Intellectual
Property Rights.
(c) No claims with respect to the Intellectual Property Rights have
been asserted, have been threatened or are likely to be threatened, by any
person. In addition, no grounds exist for any claims now or in the future (i)
to the effect that any business of MetroBeat as currently conducted or proposed
to be conducted infringes on or misappropriates any patents, works of
authorship, registered and unregistered copyrights, registered and unregistered
trademarks, trade name, service marks, trade secrets, tangible and intangible
proprietary information and technical knowhow and any applications therefor in
which a third party has any rights or (ii) challenging the ownership, validity
or effectiveness of any of the Intellectual Property Rights. No MetroBeat
Intellectual Property Right is subject to any lien, encumbrance or other secured
interest. MetroBeat does not know of any fact that would render the MetroBeat
Intellectual Property Rights invalid. There is no material unauthorized use,
infringement or misappropriation of any of the MetroBeat Intellectual Property
Rights by any third party, including any present or former employee of
MetroBeat. There is no material unauthorized use, infringement or
misappropriation of any of the Third-Party Intellectual Property Rights by
MetroBeat or by any third party, including any present or former employee of
MetroBeat. No Intellectual Property Right is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting in any manner the
licensing or exploitation thereof by MetroBeat. Except for end-user object code
license agreements for MetroBeat's products executed in the ordinary course of
business, without alteration or amendment of any material term therein, and in
accordance with MetroBeat's past practices (true and correct copies of the forms
of these agreements are attached as part of Schedule 3.18(c)), MetroBeat has not
----------------
entered into any agreement to indemnify any other person against any charge of
infringement relating to any Intellectual Property Right. No employee of
MetroBeat is in violation of any term of any confidentiality or invention
assignment agreement, employment contract (whether written or verbal), patent
disclosure agreement or any other contract or agreement relating to the
relationship of any such employee with MetroBeat or any other party (including
prior employers) because of the nature of the business conducted or proposed to
be conducted by MetroBeat.
3.19 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement, judgment,
-----------------------------------
injunction, order or decree binding upon MetroBeat or which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of MetroBeat, any acquisition of property by MetroBeat or
the conduct of business of MetroBeat as currently conducted or as currently
proposed to be conducted.
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3.20 TITLE TO PROPERTIES: ABSENCE OF LIENS AND ENCUMBRANCES: CONDITION OF
--------------------------------------------------------------------
EQUIPMENT.
- ---------
(a) Schedule 3.20 sets forth a true and complete list of all real
-------------
property owned or leased by MetroBeat and summarizes all material lease terms,
including the aggregate annual rental or other fees payable, the length of all
leases and the number of extensions available.
(b) MetroBeat has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used in its business, free and
clear of any liens (other than liens for Taxes that are not yet delinquent),
charges, pledges, security interests or other encumbrances, except for such
imperfections of title and encumbrances, if any, which are not substantial in
character, amount or extent, and which do not materially detract from the value,
or interfere with the present use, of the property subject thereto or affected
thereby.
(c) MetroBeat has previously provided PerfectMarket with a listing of
the machinery and equipment (the "Equipment") owned or leased by MetroBeat as of
the Balance Sheet Date. The Equipment is, taken as a whole, (i) adequate for
the conduct of the business of MetroBeat consistent with its past practice, (ii)
suitable for the uses to which it is currently employed, (iii) in good operating
condition, subject to normal wear and tear, (iv) regularly and properly
maintained, (v) not obsolete, dangerous or in need of renewal or replacement,
except for renewal or replacement in the ordinary course of business, and (vi)
free from any material defects.
3.21 GOVERNMENTAL AUTHORIZATIONS AND LICENSES. MetroBeat is the holder
----------------------------------------
of all licenses, authorizations, permits, concessions, certificates and other
franchises of any Governmental Entity required to operate its business
(collectively, the "Licenses") and is in compliance with the terms, conditions,
limitations, restrictions, standards, prohibitions, requirements and obligations
of such Licenses. The Licenses are in full force and effect. There is not now
pending, or to the best knowledge of MetroBeat and the Principal Shareholder is
there threatened in writing, any action, suit, investigation or proceeding
against MetroBeat before any Governmental Entity with respect to the Licenses,
nor is there any issued or outstanding notice, order or complaint with respect
to the violation by MetroBeat of the terms of any License or any rule or
regulation applicable thereto.
3.22 ENVIRONMENTAL MATTERS.
---------------------
(a) No substance that is regulated by any Governmental Entity or that
has been designated by any Governmental Entity to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment (a "Hazardous
Material") is present in, on or under any property that MetroBeat has at any
time owned, operated, occupied or leased.
(b) MetroBeat does not and has not transported, stored, used,
manufactured, released or exposed its employees or any other person to any
Hazardous Material in violation of any applicable statute, rule, regulation,
order or law.
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(c) No permits, consents, waivers, exemptions, licenses, approvals
and other authorizations are required to be obtained by it under the laws of any
Governmental Entity relating to land use, public and employee health and safety,
pollution or protection of the environment (collectively, "Environmental Laws").
MetroBeat is in compliance in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in the Environmental Laws or contained in any
regulation, code, plan, order, decree, judgment, notice or demand letter issued,
entered, promulgated or approved thereunder. Neither MetroBeat nor the Principal
Shareholder has received any notice and is not aware of any past or present
condition or practice of the businesses conducted by MetroBeat which forms or
could be reasonably expected to form the basis of any material claim, action,
suit, proceeding, hearing or investigation against MetroBeat, arising out of the
manufacture, processing, distribution, use, treatment, storage, spill, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any Hazardous Material by MetroBeat.
3.23 INSURANCE. Schedule 3.23 lists and summarizes all insurance
--------- -------------
policies and fidelity or surety bonds covering the assets, business, equipment,
properties, operations of MetroBeat, or the employees, officers and directors of
MetroBeat, their termination dates and the amounts of coverage under each such
policy and bond of MetroBeat. MetroBeat has not been refused any requested
insurance coverage. All premiums payable under all such policies and bonds have
been paid and MetroBeat is otherwise in full compliance with the terms of such
policies and bonds (or other policies and bonds providing substantially similar
insurance coverage). Such policies of insurance and bonds are of the type and
in amounts customarily carried by persons conducting businesses similar to that
of MetroBeat. Neither MetroBeat nor the Principal Shareholder knows of any
threatened termination of, or material premium increase with respect to, any of
such policies.
3.24 LABOR MATTERS. MetroBeat is in compliance in all material respects
-------------
with all currently applicable laws and regulations respecting employment,
discrimination in employment, terms and conditions of employment and wages and
hours and occupational safety and health and employment practices, and is not
engaged in any unfair labor practice. Neither MetroBeat nor the Principal
Shareholder has received any notice from any Governmental Entity, and, there has
not been asserted before any Governmental Entity, any claim, action or
proceeding to which MetroBeat is a party or involving MetroBeat, and there is
neither pending nor, to MetroBeat's and the Principal Shareholder's best
knowledge, threatened any investigation or hearing concerning MetroBeat arising
out of or based upon any such laws, regulations or practices.
3.25 CUSTOMERS; BACKLOG; RETURNS AND COMPLAINTS. Schedule 3.25 sets
------------------------------------------ -------------
forth the customers of MetroBeat from January 1, 1995 to the date hereof which
purchased MetroBeat's products or consulting services in aggregate amounts in
excess of $15,000 ("Significant Customers"). As of the date hereof, MetroBeat
has no material backlog of customer orders. MetroBeat has not received any
customer complaints concerning its products and/or services which complaints it
has not been able to address to the satisfaction of the complainant within a
commercially reasonable length of time after MetroBeat received notice of such
complaint, nor has it had any of its products returned by a purchaser thereof
except for normal warranty returns consistent with past history and those
returns that would not result in a reversal of any revenue by MetroBeat.
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3.26 EMPLOYEES. Schedule 3.26 identifies all MetroBeat employees and
--------- -------------
sets forth the job title and responsibilities of each such employee. MetroBeat
has previously provided to PerfectMarket a schedule setting forth the cash
compensation of the employees listed on Schedule 3.26 during the period from
-------------
January 1, 1995 to December 31, 1995 and from January 1, 1996 to the Balance
Sheet Date. None of such employees has indicated to MetroBeat or the Principal
Shareholder that he or she has a present intention to resign or retire.
3.27 QUESTIONABLE PAYMENTS. None of MetroBeat, the Principal Shareholder
---------------------
nor any director, officer or other employee of MetroBeat has: (i) made any
payments or provided services or other favors in the United States of America or
in any foreign country in order to obtain preferential treatment or
consideration by any Governmental Entity with respect to any aspect of the
business of MetroBeat; or (ii) made any political contributions which would not
be lawful under the laws of the United States (including the Foreign Corrupt
Practices Act) or the foreign country in which such payments were made. None of
MetroBeat, the Principal Shareholder nor any director, officer or other employee
of MetroBeat nor, to MetroBeat's or the Principal Shareholder's best knowledge,
any supplier of MetroBeat has been the subject of any inquiry or investigation
by any Governmental Entity in connection with payments or benefits or other
favors to or for the benefit of any governmental or armed services official,
agent, representative or employee with respect to any aspect of the business of
MetroBeat or with respect to any political contribution.
3.28 IMPORT/EXPORT. MetroBeat has not violated any United States and
-------------
foreign import and export control laws and regulations, export licensing laws
and regulations and customs regulations applicable to MetroBeat. MetroBeat has
not been cited by the United States Department of Commerce, the United States
Customs Service or any other relevant Governmental Entity for any material
violation of United States laws or regulations relating to importing or
exporting of products, materials or services. All goods imported into the United
States or any other country by MetroBeat ("Imported Goods") have with such
exceptions as are not material to MetroBeat been properly valued and classified
in accordance with applicable tariff laws, rules and regulations and all proper
duties, tariffs or excise taxes have been paid with respect to the Imported
Goods. No penalties have been assessed, asserted or claimed with respect to any
Imported Goods. All Imported Goods have been properly marked as to country of
origin, content and material.
3.29 BROKERS; FINDERS. MetroBeat has made no commitments to pay any
----------------
broker's or finder's fee or any similar commission or fee in connection with any
of the transactions contemplated by this Agreement, the Plan of Merger or the
Certificate of Merger ("Broker's or Finder's Fee") to any agent, broker,
investment banker or other firm or person.
3.30 DISCLOSURE. No representation or warranty made by MetroBeat or the
----------
Principal Shareholder in this Agreement, nor any financial statement, other
written financial information or schedule, certificate, schedule or exhibit
prepared and furnished or to be prepared and furnished by MetroBeat, the
Principal Shareholder or its representatives pursuant hereto or in connection
with the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary to make the statements or facts contained herein or therein not
misleading in light of the circumstances under which they were furnished. There
is no event,
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fact or condition that has caused, or that reasonably could be expected to
cause, a Material Adverse Effect, that has not been set forth in this Agreement
or the MetroBeat Disclosure Schedule. The financial projections relating to
MetroBeat which were delivered to PerfectMarket prior to the date of this
Agreement ("Financial Projections") were prepared by MetroBeat in good faith
based upon assumptions MetroBeat believes to be reasonable. MetroBeat is not
aware of any fact or information that would lead MetroBeat to believe that the
Financial Projections are misleading in any material respect.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PERFECTMARKET AND SUB
Except as disclosed in the disclosure schedule attached as Exhibit D which
---------
identifies by section and subsection number any exception to representation and
warranty in this Section 3 as well as the basis for any such exception (the
"PerfectMarket Disclosure Schedule"), each of PerfectMarket and Sub represents
and warrants to MetroBeat as follows:
4.1 ORGANIZATION; STANDING AND POWER. Each of PerfectMarket and Sub is a
--------------------------------
corporation legally and validly existing under the laws of its state of
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
PerfectMarket is duly qualified as a foreign corporation and is in good standing
in each jurisdiction in which the failure to so qualify would have a material
adverse effect. PerfectMarket has no direct or indirect subsidiaries or
affiliated companies (other than Sub) and does not otherwise own or control,
directly or indirectly, any equity interest in any partnership, corporation,
joint venture business association or other entity and has no loans to any
partnership, corporation, joint venture, business association or other entity.
PerfectMarket has delivered to MetroBeat complete and correct copies of its
Certificate of Incorporation and Bylaws, in each case as amended to the date
hereof.
4.2 CAPITALIZATION OF PERFECTMARKET. Upon the filing of the Restated
-------------------------------
Certificate of Incorporation, the authorized capital Stock of PerfectMarket
shall consist of 25,000,000 shares of PM Common Stock, of which 8,740,357 shares
are currently issued and outstanding, 1,791,178 shares of Series A Preferred
Stock, par value $0.01 per share, of which 1,791,178 shares are currently
issued and outstanding, 450,000 shares of Series B Preferred, none of which
shares shall be issued and outstanding and 3,190,540 shares of Series C
Preferred Stock, par value $0.01 per share, up to which 3,190,540 shares shall
be issued outstanding. The authorized capital Stock of MB Acquisition
Corporation consists of 1,000 shares of Common Stock, par value $0.01 per share,
of which 1,000 shares are issued and outstanding and owned beneficially and of
record by PerfectMarket. In addition, PerfectMarket has authorized 2,500,000
shares of Common Stock under its 1996 Stock Option Plan. The Series B Preferred
or PM Common Stock, as the case may be, to be delivered by PerfectMarket at each
Payment Date will be duly authorized, validly issued shares of stock of
PerfectMarket, fully paid and nonassessable. All of the shares of Series B
Preferred or PM Common Stock to be issued to the Principal Shareholder in
accordance herewith will be offered, issued, sold and delivered by PerfectMarket
in compliance with all applicable state and federal laws concerning the issuance
of securities and none of such shares were or will be issued in violation of the
preemptive rights of any
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shareholder of PerfectMarket. In the event the Principal Shareholder were to
own 300,000 shares of capital stock of PerfectMarket as of the date hereof,
there would be no more than four active members of the Company's; management
team who own more outstanding shares of PerfectMarket (on an as converted to
Common Stock basis) as of the date hereof.
4.3 AUTHORITY.
---------
(a) Each of PerfectMarket and Sub has all requisite corporate power
and authority to enter into this Agreement and the Certificate of Merger and to
perform its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Certificate of Merger, the performance by each of
PerfectMarket and Sub of its obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action on the part of
PerfectMarket and Sub, including approval by their Board of Directors and
shareholders. Each of PerfectMarket and Sub has full power and authority to
execute and deliver this Agreement, to perform their obligations under this
Agreement, and to consummate the transactions contemplated by this Agreement,
the Plan of Merger and the Certificate of Merger. This Agreement is a legal,
valid and binding obligation of each of PerfectMarket and Sub, enforceable
against PerfectMarket and Sub in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefor may be brought. The Certificate of Merger,
when delivered by the parties thereto, will be a legal, valid and binding
obligation of Sub enforceable against Sub in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency, or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefore may be brought.
(b) The execution and delivery of this Agreement does not, and the
execution and delivery of the Certificate of Merger and the consummation of the
transactions contemplated hereby and thereby will not, conflict with or result
in any violation of any statute, law, rule, regulation, judgment, order, decree,
or ordinance applicable to PerfectMarket or Sub or their properties or assets,
or conflict with or result in any breach or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a benefit under, or
result in the creation of a lien or encumbrance on any of the properties or
assets of PerfectMarket pursuant to (i) any provision of the Certificate of
Incorporation or Bylaws of PerfectMarket or (ii) any agreement, contract, note,
mortgage, indenture, lease instrument, permit, concession, franchise or license
to which PerfectMarket is a party or by which PerfectMarket or any of its
property or assets may be bound or affected.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by or with
respect to PerfectMarket or Sub in connection with the execution and delivery of
this Agreement and the Certificate of Merger by PerfectMarket or Sub or the
consummation by PerfectMarket or Sub of the transactions contemplated hereby or
thereby, except for (i) the filing of the Certificate of Merger and officers'
certificates with the
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New York Secretary of State and (ii) such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities or
Blue Sky laws in connection with the Merger.
4.4 FINANCIAL STATEMENTS.
--------------------
(a) PerfectMarket has furnished or made available to MetroBeat the
compiled financial statements from the year ended December 31, 1995 (the
"PerfectMarket Balance Sheet Date")(the "PerfectMarket Year-End Financial
Statements"). PerfectMarket has also furnished or made available to MetroBeat
PerfectMarket's internal cash-based financial statements for the quarter ended
March 31, 1996 (the "PerfectMarket Interim Financial Statements" and
collectively with PerfectMarket Year-End Financial Statements, the
"PerfectMarket Financial Statements") including a Balance Sheet as of March 31,
1996. The PerfectMarket Financial Statements (i) are complete and correct in
all material respects, (ii) fairly present the financial condition of the
PerfectMarket of the date of the balance sheet contained therein, and the
statement of operations contained therein accurately presents the operating
results of PerfectMarket during the period indicated therein, (iii) are in
accordance with the books and records of PerfectMarket, and (iv) with respect to
the PerfectMarket Year-End Financial Statements only, have been prepared in
accordance with generally accepted accounting principles consistently applied
except that footnote disclosures contemplated by generally accepted accounting
principles are not provided.
(b) Except as set forth in the PerfectMarket Financial Statements, the
PerfectMarket has no material liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to the
PerfectMarket Balance Sheet Date and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the PerfectMarket
Financial Statements, which, in both cases, individually or in the aggregate,
are not material to the financial condition or operating results of
PerfectMarket.
4.5 COMPLIANCE WITH LAW. PerfectMarket is in compliance and has
-------------------
conducted its business so as to comply with all laws, rules and regulations,
judgments, decrees or orders of any Governmental Entity applicable to its
operations or with respect to which compliance is a condition of engaging in the
business thereof. There are no judgments or orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency or
by arbitration) against PerfectMarket or against any of its properties or
businesses. Without limiting the generality of the foregoing, PerfectMarket has
not violated any United States and foreign import and export control laws and
regulations, export licensing laws and regulations and customs regulations
(including its obligations under the Foreign Corrupt Practices Act) applicable
to PerfectMarket. PerfectMarket has not been cited by the United States
Department of Commerce, the United States Customs Service or any other relevant
Governmental Entity for any violation of United States laws or regulations
relating to importing or exporting of products, materials or services.
4.6 NO DEFAULTS. PerfectMarket is not, (a) in violation of any provision
-----------
of its Certificate of Incorporation or Bylaws or (b) in default or violation of
any term, condition or provision of (i) any judgment, decree, order, injunction
or stipulation applicable to PerfectMarket or (ii) any agreement, note,
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mortgage, indenture, contract, lease or instrument, permit, concession,
franchise or license to which PerfectMarket is a party or by which PerfectMarket
or its properties or assets may be bound.
4.7 LITIGATION. There is no action, suit, proceeding, claim, arbitration
----------
or investigation pending or, to the knowledge of PerfectMarket, threatened,
against PerfectMarket, or which in any manner challenges or seeks to prevent,
enjoin, alter or delay any of the transactions contemplated hereby.
PerfectMarket is not aware of any reasonable basis for any other such
litigation.
4.8 NO MATERIAL ADVERSE EFFECT. Since the Balance Sheet Date,
--------------------------
PerfectMarket has conducted its business in the ordinary course and there has
not occurred any Material Adverse Effect.
4.9 ABSENCE OF UNDISCLOSED LIABILITIES. PerfectMarket has no material
----------------------------------
liabilities or obligations (whether absolute, accrued, contingent or otherwise
and whether or not determined or determinable) except liabilities or obligations
(i) adequately provided for in the PerfectMarket Year End Financial Statements
or (ii) incurred in the ordinary course of business consistent with past
practice since the PerfectMarket Balance Sheet Date.
4.10 TECHNOLOGY.
----------
(a) PerfectMarket owns, or is licensed or otherwise entitled to
exercise all rights under or with respect to all patents, trademarks, trade
names, service marks, copyrights, and any applications therefor, formulae,
processes, designs, schematics, compositions, ideas, technology, know-how and
tangible or intangible proprietary information, trade secrets or materials
employed in the operation of the business of PerfectMarket as currently
conducted or as currently proposed to be conducted (the "PerfectMarket
Intellectual Property Rights"). PerfectMarket has entered into a
confidentiality and invention assignment agreement, with each of its officers,
directors, employees and consultants providing PerfectMarket, to the extent
permitted by applicable law, with title and ownership to PerfectMarket
Intellectual Property Rights conceived, developed, reduced to practice by or at
the direction of such person, solely or jointly, during the period of employment
by PerfectMarket.
(b) PerfectMarket is not, nor as a result of the execution and
delivery of this Agreement or the performance of PerfectMarket's obligations
hereunder will be, in violation of any license, sublicense or other agreement
applicable to it. PerfectMarket is the sole and exclusive owner or licensee of,
with all right, title and interest in and to (free and clear of any liens or
encumbrances), the PerfectMarket Intellectual Property Rights, and has sole and
exclusive rights in respect thereof, and is not contractually obligated to pay
any compensation to any third party.
(c) No claims with respect to the PerfectMarket Intellectual Property
Rights have been asserted, have been threatened or are likely to be threatened,
by any person. In addition, no grounds exist for any claims now or in the
future (i) to the effect that any business of PerfectMarket as currently
conducted or proposed to be conducted infringes on or misappropriates any
patents, works of authorship, registered and unregistered copyrights, registered
and unregistered trademarks, trade name, service marks, trade secrets, tangible
and intangible proprietary information and technical knowhow and any
applications therefor in which a third party has any rights or (ii) challenging
the ownership, validity
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or effectiveness of any of the PerfectMarket Intellectual Property Rights. No
PerfectMarket Intellectual Property Right is subject to any lien, encumbrance or
other secured interest. PerfectMarket does not know of any fact that would
render the PerfectMarket Intellectual Property Rights invalid. There is no
material unauthorized use, infringement or misappropriation of any of the
PerfectMarket Intellectual Property Rights by any third party, including any
present or former employee of PerfectMarket. No PerfectMarket Intellectual
Property Right is subject to any outstanding order, judgment, decree,
stipulation or agreement restricting in any manner the licensing or exploitation
thereof by PerfectMarket. No employee of PerfectMarket is in violation of any
term of any confidentiality or invention assignment agreement, employment
contract (whether written or verbal), patent disclosure agreement or any other
contract or agreement relating to the relationship of any such employee with
PerfectMarket or any other party (including prior employers) because of the
nature of the business conducted or proposed to be conducted by PerfectMarket.
4.11 GOVERNMENTAL AUTHORIZATIONS AND LICENSES. PerfectMarket is the holder
----------------------------------------
of all licenses, authorizations, permits, concessions, certificates and other
franchises of any Governmental Entity required to operate its business
(collectively, the "PerfectMarket Licenses") and is in compliance with the
terms, conditions, limitations, restrictions, standards, prohibitions,
requirements and obligations of such PerfectMarket Licenses. The PerfectMarket
Licenses are in full force and effect. There is not now pending, or to the best
knowledge of PerfectMarket is there threatened in writing, any action, suit,
investigation or proceeding against PerfectMarket before any Governmental Entity
with respect to the Licenses, nor is there any issued or outstanding notice,
order or complaint with respect to the violation by PerfectMarket of the terms
of any License or any rule or regulation applicable thereto.
4.12 ENVIRONMENTAL MATTERS.
---------------------
(a) No Hazardous Material is present in, on or under any property
that PerfectMarket has at any time owned, operated, occupied or leased.
(b) PerfectMarket does not and has not transported, stored, used,
manufactured, released or exposed its employees or any other person to any
Hazardous Material in violation of any applicable statute, rule, regulation,
order or law.
(c) No permits, consents, waivers, exemptions, licenses, approvals
and other authorizations are required to be obtained by it under Environmental
Laws. PerfectMarket is in compliance in all material respects with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in the Environmental Laws or
contained in any regulation, code, plan, order, decree, judgment, notice or
demand letter issued, entered, promulgated or approved thereunder. PerfectMarket
has not received any notice and is not aware of any past or present condition or
practice of the businesses conducted by PerfectMarket which forms or could be
reasonably expected to form the basis of any material claim, action, suit,
proceeding, hearing or investigation against PerfectMarket, arising out of the
manufacture, processing, distribution, use, treatment, storage, spill, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any Hazardous Material by PerfectMarket.
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4.13 LABOR MATTERS. PerfectMarket is in compliance in all material
-------------
respects with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment and
wages and hours and occupational safety and health and employment practices, and
is not engaged in any unfair labor practice. PerfectMarket has not received any
notice from any Governmental Entity, and, there has not been asserted before any
Governmental Entity, any claim, action or proceeding to which PerfectMarket is a
party or involving PerfectMarket, and there is neither pending nor, to
PerfectMarket's best knowledge, threatened any investigation or hearing
concerning PerfectMarket arising out of or based upon any such laws, regulations
or practices.
4.14 QUESTIONABLE PAYMENTS. Neither PerfectMarket nor any director,
---------------------
officer or other employee of PerfectMarket has: (i) made any payments or
provided services or other favors in the United States of America or in any
foreign country in order to obtain preferential treatment or consideration by
any Governmental Entity with respect to any aspect of the business of
PerfectMarket; or (ii) made any political contributions which would not be
lawful under the laws of the United States (including the Foreign Corrupt
Practices Act) or the foreign country in which such payments were made. None of
Neither PerfectMarket, nor any director, officer or other employee of
PerfectMarket nor, to PerfectMarket's or the best knowledge, any supplier of
PerfectMarket has been the subject of any inquiry or investigation by any
Governmental Entity in connection with payments or benefits or other favors to
or for the benefit of any governmental or armed services official, agent,
representative or employee with respect to any aspect of the business of
PerfectMarket or with respect to any political contribution.
4.15 IMPORT/EXPORT. PerfectMarket has not violated any United States and
-------------
foreign import and export control laws and regulations, export licensing laws
and regulations and customs regulations applicable to PerfectMarket.
PerfectMarket has not been cited by the United States Department of Commerce,
the United States Customs Service or any other relevant Governmental Entity for
any material violation of United States laws or regulations relating to
importing or exporting of products, materials or services. All goods imported
into the United States or any other country by PerfectMarket ("Perfect Market
Imported Goods") have with such exceptions as are not material to PerfectMarket
been properly valued and classified in accordance with applicable tariff laws,
rules and regulations and all proper duties, tariffs or excise taxes have been
paid with respect to the PerfectMarket Imported Goods. No penalties have been
assessed, asserted or claimed with respect to any PerfectMarket Imported Goods.
All PerfectMarket Imported Goods have been properly marked as to country of
origin, content and material.
4.16 BROKERS; FINDERS. PerfectMarket has made no commitments to pay any
----------------
Broker's or Finder's fee to any agent, broker, investment banker or other firm
or person.
4.17 DISCLOSURE. No representation or warranty made by PerfectMarket,
----------
nor any financial statement, other written financial information or schedule,
certificate, schedule or exhibit prepared and furnished or to be prepared and
furnished by PerfectMarket, Sub or their representatives pursuant hereto or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements or facts contained herein or
therein not misleading in light of the circumstances under which they were
furnished. There is no event, fact or condition that has caused, or that
reasonably could be expected to cause, a
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Material Adverse Effect, that has not been set forth in this Agreement or the
MetroBeat Disclosure Schedule.
SECTION 5
CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE
TIME; ADDITIONAL AGREEMENTS
5.1 CONDUCT OF BUSINESS OF METROBEAT. During the period from the date of
--------------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, MetroBeat shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as conducted
prior to the date of this Agreement and, to the extent consistent with such
business, use all commercially reasonable efforts consistent with past practice
and policies to preserve intact its present business organization, keep
available the services of its present officers and key employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, with the objective that its
goodwill and ongoing business shall be unimpaired at the Effective Time.
MetroBeat shall promptly notify PerfectMarket of any event or occurrence not in
the ordinary course of business of MetroBeat, and any event which has had, or
could reasonably be expected to have, a Material Adverse Effect, subject to
MetroBeat's continuing operating losses consistent with its operating plan as
provided to PerfectMarket. Except as expressly contemplated by this Agreement
or as set forth on Schedule 5.1, MetroBeat shall not, without the prior written
------------
consent of PerfectMarket:
(a) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock;
(b) Issue, deliver or sell, authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities or
authorize or propose any change in its equity capitalization;
(c) Solicit approval for or effect any amendments to MetroBeat's
Certificate of Incorporation or Bylaws;
(d) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to MetroBeat;
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(e) Sell, lease, license, pledge or otherwise dispose of or encumber
any of its properties or assets except in the ordinary course of business
consistent with past practice (including any indebtedness owed to it or any
claims held by it);
(f) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee, endorse or
otherwise become responsible for the obligations of others, or make loans or
advances;
(g) Pay, discharge or satisfy in an amount in excess of $5,000 in any
one case any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business consistent with past practice of
liabilities reflected or reserved against in the MetroBeat's Financial
Statements or those incurred after the Balance Sheet Date in the ordinary course
of business;
(h) Adopt or amend any Plan, enter into or amend any employment,
severance or termination contract with or pay any special bonus or special
remuneration, including any severance or termination pay to, any director,
employee or consultant, or increase the salaries or wage rates of its employees;
(i) Commence a lawsuit other than for the routine collection of bills;
(j) Except for end-user licenses granted in the ordinary course of
business, transfer to any person or create entitlement to any rights to the
MetroBeat Intellectual Property Rights or enter into or amend any agreements
pursuant to which any other party is granted marketing or other similar rights
of any type or scope with respect to any products of MetroBeat;
(k) Violate, amend or otherwise modify the terms of any of MetroBeat's
material contracts binding on MetroBeat set forth in Schedule 3.15;
-------------
(l) Revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable other than in the ordinary
course of business and consistent with past practice;
(m) Make any Tax election other than in the ordinary course of
business and consistent with past practice, change any Tax election, adopt any
Tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
return (other than any estimated tax returns, payroll tax returns or sale tax
returns or other returns in the ordinary course of business) or any amendment to
a Tax return, enter into any closing agreement, settle any Tax claim or
assessment, or consent to any Tax claim or assessment, without the prior written
consent of PerfectMarket, which consent will not be unreasonably withheld;
(n) Engage in any activities or transactions that are outside the
ordinary course of its business consistent with past practice;
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(o) Fail to pay or otherwise satisfy its monetary obligations as they
become due, except such as are being contested in good faith; or waive or commit
to waive any rights of substantial value; or cancel, materially amend or renew
any insurance policy;
(p) Pay or agree to pay any bonuses out of the ordinary course of
business to any employee, officer, consultant, director or other agent of
MetroBeat; or
(q) Take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 5.1(a) through (p) above, or any action which
would make any of the representations or warranties of MetroBeat contained in
this Agreement untrue or incorrect or result in any of the conditions to the
Merger set forth in Section 6 not being satisfied.
5.2 EXCLUSIVITY; ACQUISITION PROPOSALS. Unless and until this Agreement
----------------------------------
shall have been terminated by either party pursuant to Section 8.1, neither
MetroBeat nor the Principal Shareholder shall, directly or indirectly, through
any officer, director, shareholder, employee, representative, agent or
otherwise, solicit, initiate, entertain or encourage any proposals or offers
from any third party relating to any possible acquisition of MetroBeat or any of
its subsidiaries (whether by way of merger, purchase of capital stock, purchase
of assets or otherwise) (an "Alternative Acquisition"), or engage in any sale of
equity interests in MetroBeat's (other than pursuant to the exercise of
outstanding options or warrants) (an "Equity Transaction"); nor will MetroBeat
participate in any negotiations regarding, or furnish to any person any
information with respect to, or otherwise cooperate with, facilitate or
encourage any effort or attempt by any person to do or seek any Alternative
Acquisition or Equity Transaction. In addition, (a) MetroBeat will maintain the
confidentiality of its confidential information, including information with
respect to its financial and operating condition, and (b) without
PerfectMarket's written consent, MetroBeat and its representatives will not
disclose to any other person (other than its accountants, lawyers and other
professional advisers) the nature of the discussions or negotiations taking
place concerning the proposed transaction involving the parties or any of the
terms, conditions or other facts with respect thereto (including the status
thereof). In the event MetroBeat or the Principal Shareholder receive from any
third party any offer or indication of interest (whether made in writing or
otherwise) regarding an Alternative Transaction or an Equity Transaction, or any
request for information about MetroBeat with respect to any of the foregoing,
then MetroBeat shall promptly communicate to PerfectMarket the material terms of
each such offer, indication of interest, or request, including the identity of
the third party. The Principal Shareholder further agrees not to transfer,
sell, exchange, pledge or otherwise dispose of or encumber any shares of
MetroBeat Common Stock or to discuss, negotiate, or make any offer or agreement
relating thereto, at any time prior to the earliest to occur of the termination
of this Agreement and the Effective Time.
5.3 METROBEAT SHAREHOLDERS' APPROVAL. MetroBeat shall either (i) call a
--------------------------------
meeting of its shareholders (the "Shareholders' Meeting") to be held as promptly
as practicable (the date on which such meeting is scheduled is referred to as
the "Shareholders' Meeting Date") or (ii) solicit shareholder approval by
written consent in accordance with applicable law, for the purpose of obtaining
the shareholder approval required in connection with the transactions
contemplated hereby, by the Plan of Merger and the Certificate of Merger, and
shall use its best efforts to obtain such approval. If a Shareholders' meeting
is called, MetroBeat shall not change the Shareholders' Meeting Date without the
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prior written consent of PerfectMarket, nor shall MetroBeat adjourn the
Shareholders' Meeting without the prior consent of PerfectMarket, unless such
adjournment is due to the lack of a quorum, in which case the Chairman of the
Shareholders' Meeting shall announce at such meeting the time and place of the
adjourned meeting. As soon as practicable after the execution of this
Agreement, MetroBeat shall prepare and distribute to its shareholders a Proxy or
Information Statement for purposes of soliciting the approval of the
shareholders of MetroBeat of this Agreement, the Plan of Merger or the
Certificate of Merger and the transactions contemplated hereby and thereby.
MetroBeat shall use its best efforts to cause the Proxy or Information Statement
to comply with applicable federal and state securities law requirements. The
Proxy or Information Statement shall be subject to prior review and approval by
PerfectMarket. The Proxy or Information Statement shall contain the unanimous
recommendation of the Board of Directors of MetroBeat that the MetroBeat
shareholders approve the Merger and this Agreement and the conclusion of the
Board of Directors that the terms and conditions of the Merger are fair and
reasonable to the shareholders of MetroBeat.
5.4 NOTIFICATION OF CERTAIN MATTERS. MetroBeat and the Principal
-------------------------------
Shareholder shall give prompt notice to PerfectMarket, and PerfectMarket and Sub
shall give prompt notice to MetroBeat, of the occurrence, or pending or
threatened occurrence or failure to occur, of any event, which occurrence or
failure to occur would be likely to cause (a) any representation or warranty
contained in this Agreement to be untrue or inaccurate at any time from the date
of this Agreement to the Effective Time, or (b) any material failure of
MetroBeat or PerfectMarket and Sub (as the case may be), or of any officer,
director, employee or agent thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement. Each party shall use all reasonable efforts to prevent or promptly
remedy such breach or inaccuracy.
5.5 CONSENTS. Each of PerfectMarket and MetroBeat shall promptly apply
--------
for or otherwise seek, and use all reasonable efforts to obtain, all consents
and approvals, including all MetroBeat Third-Party Consents, required to be
obtained by it for the consummation of the Merger and the transactions
contemplated by this Agreement and to enable the Surviving Corporation to
conduct and operate the business of MetroBeat substantially as presently
conducted and as contemplated to be conducted.
5.6 REASONABLE EFFORTS.
------------------
(a) MetroBeat and the Principal Shareholder shall each use its or his
reasonable efforts to effect the transactions contemplated hereby and to fulfill
and cause to be fulfilled the conditions to Closing under this Agreement.
MetroBeat shall take all reasonable actions necessary to comply promptly with
all legal requirements which may be imposed on MetroBeat with respect to the
Merger and will promptly cooperate with and furnish information to PerfectMarket
in connection with any such requirements imposed upon PerfectMarket, Sub or any
other subsidiary of PerfectMarket in connection with the Merger. MetroBeat
shall take all reasonable actions to obtain (and to cooperate with PerfectMarket
and its subsidiaries in obtaining) any consent, authorization, order or approval
of, or any exemption by, any Governmental Entity, required to be obtained or
made by MetroBeat (or by PerfectMarket or its subsidiaries) in connection with
the Merger or the taking of any action contemplated thereby, by this Agreement,
by the Plan of Merger or the Certificate of Merger, and to defend all lawsuits
or other legal proceedings challenging this Agreement, the Plan of Merger or the
Certificate of Merger,
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or the consummation of the transactions contemplated hereby and thereby, to lift
or rescind any injunction or restraining order or other order adversely
affecting the ability or the parties to consummate the transactions contemplated
hereby and thereby, and to effect all necessary registrations and filings and
submissions or information required by any Governmental Entity, and to fulfill
all conditions to this Agreement.
(b) Each of PerfectMarket and Sub shall take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed on
them with respect to the Merger and will promptly cooperate with and furnish
information to MetroBeat and the Principal Shareholder in connection with any
such requirement imposed upon MetroBeat in connection with the Merger.
PerfectMarket and Sub shall take all reasonable actions to obtain (and to
cooperate with MetroBeat in obtaining) any consent, authorization, order or
approval of, or exemption by, any Governmental Entity required to be obtained or
made by PerfectMarket or any of its subsidiaries (or by MetroBeat) in connection
with the Merger or the taking of any action contemplated by this Agreement, by
the Plan of Merger or the Certificate of Merger, and to defend all lawsuits or
other legal proceedings challenging this Agreement or the consummation of the
transactions contemplated hereby and by the Plan of Merger and the Certificate
of Merger, to lift or rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby and by the Plan of Merger and the Certificate of Merger, and
to effect all necessary registrations and filings and submissions of information
requested by any Governmental Entity, and to fulfill all conditions to this
Agreement.
5.7 PUBLIC ANNOUNCEMENTS. Each party will consult in advance with the
--------------------
other concerning the timing and content of any announcements, press releases and
public statements concerning the Merger and will not make any such announcement,
release or statement without the other's consent; provided, however, that
-------- -------
PerfectMarket may make any public statement concerning the Merger without
MetroBeat's consent if, in the opinion of counsel for PerfectMarket, such
statement or announcement is required or advisable to comply with applicable
law.
5.8 TAX RETURNS AND INCOME TAX LIABILITY. The Principal Shareholder shall
------------------------------------
timely file all federal and state income tax returns for taxable periods ending
on or prior to the Effective Time and have paid or will pay all Taxes
attributable to such periods. Such returns will be prepared and filed in
accordance with applicable law and in a manner consistent with past practices
and shall be subject to review and approval by PerfectMarket. After the
Effective Time, PerfectMarket and MetroBeat, on the one hand, and the former
shareholders of MetroBeat, on the other hand, will make available to the other,
as reasonably requested, all information, records or documents relating to the
liability for Taxes of MetroBeat for all periods prior to or including the
Effective Time and will preserve such information, records or documents until
the expiration of any applicable statute of limitations or extensions thereof.
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5.9 SUPPORT OF EVENT LISTINGS BUSINESS. After the Closing, PerfectMarket
----------------------------------
agrees to commit to providing to the MetroBeat operations design, technical and
marketing resources, including an initial agreement by PerfectMarket to provide
$1.5 million in funding for the events listing business. In connection
therewith, PerfectMarket acknowledges that it intends, after the Closing, to
perform the following:
(a) to spend not less than $5,000 per month for a period of four
months and up to $10,000 per month in both Los Angeles and San Francisco in
fiscal 1996 to set the ground work for future entry in those markets, including
performing the photography and site information collection to reduce the time
necessary to launch an events listing service, if PerfectMarket so determines,
in those markets;
(b) to provide up to $75,000 in order to complete the development,
testing and debugging of MetroBeat 2.0 and to put the MetroBeat service on a
faster computer platform, and provide reasonably necessary computer support and
database administration to accomplish this objective;
(c) to support with PerfectMarket staff the design and interface
design for the development of MetroBeat 2.0 and an integrated
MetroBeat/PerfectMarket offering; and
(d) to cooperate with the Principal Shareholder in the development of
a dynamic event listings in markets targeted by PerfectMarket in its sole
discretion.
5.10 PAYMENT OF LIABILITIES. Within thirty (30) days after the
----------------------
Closing, PerfectMarket agrees to pay the liabilities of MetroBeat to Davies,
Joshua White and the American Broadcasting Corporation in the aggregate amount
not to exceed $[*].
5.11 PAYMENT OF LEGAL EXPENSES. Within thirty (30) days after the
-------------------------
Closing, PerfectMarket agrees to pay the reasonable legal expenses of MetroBeat
incurred by it in connection with the transactions contemplated by this
Agreement, the Plan of Merger and the Certificate of Merger.
5.12 "METROBEAT" MARK. In the event that the Principal Shareholder's
---------------
employment is terminated by either party for any reason under the Employment
Agreement, PerfectMarket shall assign the mark "MetroBeat" to the Principal
Shareholder on the first anniversary of such termination, provided, that,
-------- ----
PerfectMarket shall have failed to use such mark for at least three years prior
thereto.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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SECTION 6
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
----------------------------------------------------------
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing of the following conditions:
(a) Shareholder Approval. This Agreement, the Plan of Merger and the
--------------------
Certificate of Merger and all the transactions contemplated hereby and thereby
shall have been approved and adopted by the affirmative vote of the holders of
the outstanding shares of MetroBeat Common Stock as required by applicable law
and by MetroBeat's Certificate of Incorporation and Bylaws.
(b) Legal Action. No temporary restraining order, preliminary
------------
injunction or permanent injunction or other order preventing the consummation of
the Merger or the transactions contemplated by this Agreement shall have been
issued by any Governmental Entity and remain in effect, and no litigation
seeking the issuance of such an order or injunction, or seeking relief against
MetroBeat, the Surviving Corporation or PerfectMarket if the Merger is
consummated, shall be pending which, in the good faith judgment of MetroBeat's
or PerfectMarket's Board of Directors (acting upon the written opinion of their
respective outside counsel) has a reasonable probability of resulting in such
order, injunction or relief and such order, injunction or relief would have a
Material Adverse Effect on MetroBeat. In the event any such order or injunction
shall have been issued, each party agrees to use commercially reasonable efforts
to have any such order or injunction lifted.
(c) Statutes. No action shall have been taken, and no statute, rule,
--------
regulation or order shall have been enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity which would (i) make the
consummation of the Merger illegal, (ii) prohibit PerfectMarket's or MetroBeat's
ownership or operation of all or a material portion of the business or assets of
MetroBeat, or PerfectMarket and its subsidiaries taken as a whole, or compel
PerfectMarket or MetroBeat to dispose of or hold separate all or a material
portion of the business or assets of MetroBeat, or PerfectMarket and its
subsidiaries taken as a whole, as a result of the Merger or (iii) render
PerfectMarket, Sub, MetroBeat or the Principal Shareholder unable to consummate
the Merger.
(d) Financing. PerfectMarket shall have closed its next round of
---------
equity financing.
6.2 CONDITIONS TO OBLIGATIONS OF PERFECTMARKET AND SUB. The obligations
--------------------------------------------------
of PerfectMarket and Sub to effect the Merger are subject to the satisfaction of
the following conditions, unless waived by PerfectMarket and Sub:
(a) Representations and Warranties. The representations and
------------------------------
warranties of MetroBeat and the Principal Shareholder set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date, and PerfectMarket shall have received
a certificate signed by the Principal Shareholder in his individual capacity and
each of the President and Treasurer of MetroBeat on behalf of MetroBeat to such
effect on the Closing Date.
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(b) No Material Adverse Effect. There shall have been no Material
--------------------------
Adverse Effect on MetroBeat from the date of this Agreement through the Closing
Date, and PerfectMarket shall have received a certificate signed by the
Principal Shareholder in his individual capacity and each of the President and
Treasurer of MetroBeat on behalf of MetroBeat to such effect on the Closing
Date.
(c) Opinion of Counsel to MetroBeat. PerfectMarket shall have
-------------------------------
received written opinions dated as of the Closing Date of Rosalind Lichter or
Jed Alpert, counsel to MetroBeat, substantially in the form attached as Exhibit
-------
E hereto.
- -
(d) Performance of Obligations of MetroBeat. MetroBeat and the
---------------------------------------
Principal Shareholder shall have performed all obligations and covenants
required to be performed by it under this Agreement, the Plan of Merger and the
Certificate of Merger prior to the Closing Date, and PerfectMarket shall have
received a certificate signed by the Principal Shareholder in his individual
capacity and each of the President and Treasurer of MetroBeat on behalf of
MetroBeat to such effect on the Closing Date.
(e) Approvals and Consents. All authorizations, consents, orders or
----------------------
approvals of, or declarations or filings with, any Governmental Entity necessary
for the consummation of the transactions contemplated by this Agreement shall
have been filed, occurred or been obtained, and PerfectMarket shall have
received duly executed copies of all MetroBeat Third-Party Consents in form and
substance satisfactory to PerfectMarket.
(f) FIRPTA. PerfectMarket shall have received a properly executed
------
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA") Notification
Letter, which states that shares of capital stock of MetroBeat do not constitute
"United States real property interests" under Section 897(c) of the Code, for
purposes of satisfying PerfectMarket's obligations under Treasury Regulation
Section 1.1445-2(c)(3). In addition, simultaneously with delivery of such
Notification Letter, MetroBeat shall have provided to PerfectMarket a form of
notice to the Internal Revenue Service in accordance with the requirements of
Treasury Regulation Section 1.897-2(h)(2) along with written authorization for
PerfectMarket to deliver such notice to the Internal Revenue Service on behalf
of MetroBeat. Such FIRPTA Notification Letter and form of notice shall be in
substantially the form attached hereto as Exhibit F.
---------
(g) Resignation of Officers and Directors. The officers and directors
-------------------------------------
of MetroBeat in office immediately prior to the Effective Time shall have
resigned as officers and directors of the Surviving Corporation effective as of
the Effective Time.
(h) Employment Agreements. All employment agreements entered into by
---------------------
MetroBeat with any of its employees shall have been terminated in full and be of
no further force and effect as of the Effective Time and no payments shall be
due thereunder. Such terminations shall be pursuant to documentation reasonably
satisfactory to PerfectMarket.
(i) Employee Retention. PerfectMarket shall be satisfied in its sole
------------------
discretion (exercised reasonably and in good faith) that a sufficient core group
of employees (including the
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<PAGE>
Principal Shareholder) at MetroBeat are ready, willing and able to remain with
MetroBeat and PerfectMarket following the transaction to enable the continued
operation of MetroBeat's business.
(j) Employment and Noncompetition Agreement. PerfectMarket shall have
---------------------------------------
received the executed employment and noncompetition agreement, substantially in
the form attached hereto as Exhibit G (the "Employment Agreement"), of the
---------
Principal Shareholder.
(k) Shareholder's Representation Statement. All shareholders of
--------------------------------------
MetroBeat shall have executed and delivered a Shareholder's Representation
Statement, substantially in the form attached hereto as Exhibit H.
---------
(l) Hells Kitchen Systems. PerfectMarket shall have received
---------------------
clarification to its satisfaction of the status of Hells Kitchen Systems, Inc.
as a shareholder of MetroBeat.
6.3 CONDITIONS TO OBLIGATIONS OF METROBEAT. The obligation of MetroBeat
--------------------------------------
to effect the Merger is subject to the satisfaction of the following conditions,
unless waived by MetroBeat:
(a) Representations and Warranties. The representations and
------------------------------
warranties of PerfectMarket and Sub set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and as of
the Closing Date. MetroBeat shall have received a certificate signed by an
officer of each of PerfectMarket and Sub to such effect on the Closing Date.
(b) Performance of Obligations of PerfectMarket and Sub.
---------------------------------------------------
PerfectMarket and Sub shall have performed all obligations and covenants
required to be performed by them under this Agreement, the Plan of Merger and
the Certificate of Merger prior to the Closing Date, and MetroBeat shall have
received a certificate signed by an officer of PerfectMarket to such effect on
the Closing Date.
(c) Approvals and Consents. All authorizations, consents, orders or
----------------------
approvals of, or declarations or filings with, any Governmental Entity necessary
for the consummation of the transactions contemplated by this Agreement shall
have been filed, occurred or been obtained.
(d) No Material Adverse Effect. There shall have been no Material
--------------------------
Adverse Effect on PerfectMarket from the date of this Agreement through the
Closing Date, and MetroBeat shall have received a certificate signed by the
Chief Executive Officer of PerfectMarket to such effect on the Closing Date.
SECTION 7
INDEMNIFICATION
7.1 INDEMNIFICATION. From and after the Closing Date, PerfectMarket, Sub
---------------
and the Surviving Corporation, and the respective officers, directors,
employees, shareholders, assigns and successors and the affiliates of the
foregoing persons and entities (individually, an "Indemnified Person"
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<PAGE>
and collectively, "Indemnified Persons"), shall be held harmless from and
against and in respect of any and all claims, demands, lawsuits, actions, causes
of actions, administrative proceedings (including informal proceedings), losses,
assessments, costs, damages, punitive damages, judgments, liabilities (including
sums paid in settlement of claims), penalties, fines, interest (including
interest from the date of such damages), and costs and expenses including
reasonable legal fees and disbursements of every kind, nature and description
(collectively "Damages") that arise or result from or relate to, directly or
indirectly, any breach of any of the representations, warranties, and covenants
given or made by MetroBeat and the Principal Shareholder in this Agreement or
any certificate, document, or instrument delivered by or on behalf of MetroBeat
pursuant hereto.
7.2 PROCEDURES. The Indemnified Person shall promptly notify Mr. Mark
----------
Davies, as agent of the shareholders of MetroBeat hereunder (the "Shareholder's
Agent"), in writing of the existence of any claim, demand or other matter (a
"Claim") involving Damages to which the indemnification obligations in this
Section 7 would apply. The Shareholders' Agent and each Indemnified Person
agrees to cooperate with the other in determining the validity of any such
Claim. If such Claim relates to a claim or demand asserted by a third party,
the Shareholders' Agent shall have the right at its expense to employ counsel to
defend such claim or demand and the Indemnified Person shall have the right at
its expense, but not the obligation, to participate in the defense of any such
claim or demand. So long as the Shareholders' Agent is defending such Claim in
good faith, the Indemnified Person will not settle such claim or demand without
the consent of the Shareholders' Agent, which consent shall not be unreasonably
withheld. The Indemnified Person shall make available to the Shareholders'
Agent all records and other materials reasonably required by it in contesting a
claim or demand asserted by a third party against the Indemnified Person and
shall cooperate in the defense thereof.
7.3 RIGHT OF SET-OFF. To the extent, but only to the extent, that any
----------------
Indemnified Person would be entitled to indemnification for Damages under this
Section 7, PerfectMarket shall have an express right of set-off of such Damages
against any future obligations of PerfectMarket to make any payments under this
Agreement to the former shareholders of MetroBeat. In the event that on a
Payment Date there are Claims pending under this Section 7, the payment to be
made on such Payment Date shall be deferred, to the extent of such pending
Claims, until resolution of such pending Claims. The Company agrees that it
shall first seek to recover indemnification for any Damages under this Section 7
by seeking to secure shares of Series B Preferred issued to the former
shareholders of MetroBeat pursuant to this Agreement and thereafter to seek
recovery against any other assets of such shareholders.
7.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. For purposes
-----------------------------------------------------
of asserting Claims under this Section 7, all representations, warranties and
covenants made by MetroBeat in or pursuant to this Agreement or in any document
delivered pursuant hereto will survive the Closing and will remain in effect
until (i) the First Anniversary or (ii) with respect to the representations,
warranties and covenants set out in Section 3.16 (Taxes) and Section 3.22
(Environmental Matters), until expiration of the applicable statute of
limitations; provided, however, that the indemnification obligations under this
Section 7 shall continue in effect after the applicable termination date with
respect to any Claim pending as of such date until the final resolution of any
such pending Claim. All representations, warranties and covenants made by
PerfectMarket pursuant to this Agreement or in any document delivered pursuant
hereto shall survive for a period of one year after the Closing.
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<PAGE>
SECTION 8
TERMINATION
8.1 TERMINATION.
-----------
(a) This Agreement may be terminated at any time prior to the
Effective Time:
(i) by mutual agreement of the Boards of Directors of
PerfectMarket and MetroBeat;
(ii) by PerfectMarket on or after the tenth business day
following delivery of written notice thereof to MetroBeat, if there has been a
material breach by MetroBeat or the Principal Shareholder of any representation,
warranty, covenant or agreement set forth in this Agreement on the part of
MetroBeat that remains uncured as of such sixth business day;
(iii) by MetroBeat on or after the tenth business day following
delivery of written notice thereof to PerfectMarket, if there has been a
material breach by PerfectMarket or Sub of any representation, warranty,
covenant or agreement set forth in this Agreement on the part of PerfectMarket
or Sub that remains uncured as of such sixth business day;
(iv) by PerfectMarket or MetroBeat, if the Merger shall not have
been consummated on or before July 31, 1996; or
(v) by PerfectMarket or MetroBeat if any permanent injunction
or other order of a court or other competent authority preventing the Merger
shall have become final and nonappealable.
(b) Where action is taken to terminate this Agreement pursuant to
this Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors of the party taking such action.
8.2 EXPENSES. Whether or not the Merger is consummated, except as
--------
otherwise set forth herein all costs and expenses incurred in connection with
this Agreement, the Plan of Merger, the Certificate of Merger and the
transactions contemplated hereby and thereby shall be paid by the party
incurring such expense.
8.3 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination of
-----------------------------------
this Agreement as provided in this Section 8, the terminating party shall
provide written notice of such termination to the other party and the provisions
of this Agreement shall forthwith become void, except that the agreements
contained or referred to in the Non-Disclosure Agreement and in Sections 3.29
(Brokers; Finders), 4.5 (Brokers; Finders), 5.7 (Public Announcements), 8
(Termination) and 9 (General Provisions) of this Agreement shall survive.
Notwithstanding the foregoing, in the event of a
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<PAGE>
termination of this Agreement by any party hereto, nothing herein shall limit
the remedies at law or in equity of any party with respect to any breaches
hereof by any other party.
SECTION 9
GENERAL PROVISIONS
9.1 AMENDMENT. This Agreement may be amended by the parties hereto at any
---------
time prior to the Closing, provided that, no amendment shall be made which by
law requires the further approval of the shareholders of MetroBeat without
obtaining such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
9.2 EXTENSION; WAIVER. At any time prior to the Effective Time, each of
-----------------
MetroBeat and PerfectMarket, by action taken by its Board of Directors, may, to
the extent legally allowed, (i) extend the time for the performance of any of
the obligations or other acts of the other, (ii) waive any inaccuracies in the
representations and warranties made to it contained herein or in any document
delivered pursuant hereto and (iii) waive compliance with any of the agreements
or conditions for the benefit of it contained herein. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
9.3 ARBITRATION. All disputes or controversies (whether of law or fact)
-----------
of any nature whatsoever arising from or relating to this Agreement and the
transactions contemplated hereby shall be decided by arbitration by the American
Arbitration Association (the "Association") in accordance with the Commercial
Arbitration Rules of the Association. The arbitrators shall be selected as
follows: PerfectMarket and the Shareholders' Agent shall, within 30 days of the
date of demand by either party for arbitration, each select one independent,
qualified arbitrator and the two arbitrators so selected shall select the third
arbitrator within 30 days after their appointment as party arbitrators. Each
party reserves the right to object to any individual arbitrator who shall be
employed by or affiliated with a competing organization. In the event objection
is made, the Association shall resolve any dispute regarding the propriety of an
individual arbitrator acting in that capacity. The parties shall each bear the
expenses of the arbitrator chosen by it, and shall bear one-half the expenses of
the independent arbitrator. Hearings in the proceeding shall commence within
120 days of the selection of the neutral arbitrator. Arbitration shall take
place in Los Angeles County, California. At the request of either party,
arbitration proceedings will be conducted confidentially; in such case all
documents, testimony and records shall be received, heard and maintained by the
arbitrators in confidence under seal, available for the inspection only by the
Association, the Shareholder's Agent and PerfectMarket and their respective
attorneys and their respective experts who shall agree in advance and in writing
to receive all such information confidentially and to maintain such information
in confidence. The arbitrators, who shall act by majority vote, shall be able
to decree any and all relief of an equitable and legal nature, including but not
limited to such relief as a temporary restraining order, a temporary and/or a
permanent injunction, and shall also be able to award damages, with or without
an accounting and costs. The decree or award rendered by the arbitrators may be
entered as a final and binding judgment in any court having jurisdiction
thereof. Reasonable notice of the time and place of arbitration shall be given
to all persons, other than the parties, as shall be required by law, in which
case such persons or those authorized representatives shall
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<PAGE>
have the right to attend and/or participate in all the arbitration hearings in
such manner as the law shall require. The resolution of conflicts procedures set
forth in this Section 9.3 are the parties' sole and exclusive methods for
resolving disputes arising out of this Agreement. Except as expressly set forth
above, the parties agree to waive all rights to commence any action in law or
equity arising out of this Agreement. The arbitrators shall be entitled to award
the costs and expenses of the arbitration proceeding (including the arbitrators'
fees and attorneys' fees) to the prevailing party.
9.4 NOTICES. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) or sent by telecopy,
confirmation received, to the parties at the following addresses and telecopy
numbers (or at such other address or number for a party as shall be specified by
like notice):
(a) If to PerfectMarket or Sub, to:
PerfectMarket, Inc.
4502 Dyer Street, Suite 201
La Cresenta, CA 91214
Attn.: Charles Conn
Telecopy No.: (818) 542-3837
Telephone No.: (818) 542-3820
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attn: Larry W. Sonsini, Esq.
Telecopy No.: (415) 493-6811
Telephone No.: (415) 493-9300
(b) if to MetroBeat or the Principal Shareholder, to:
MetroBeat, Inc.
225 Lafayette Street
New York, NY 10012
Attn: Mark Davies
Telecopy No.: (212) 925-1399
Telephone No.: (212) 925-1426
with a copy to:
Rosalind Lichter
Law Offices of Rosalind Lichter
375 Greenwich Street
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<PAGE>
New York, New York 10013
Telecopy No.: (212) 941-4076
Telephone No.: (212) 941-4075
9.5 BROKER'S OR FINDER'S FEES. MetroBeat agrees to indemnify
-------------------------
PerfectMarket and Sub for any Broker's or Finder's Fees incurred by MetroBeat or
any Shareholder in connection with the transactions contemplated by this
Agreement, the Plan of Merger and the Certificate of Merger. PerfectMarket
agrees to indemnify MetroBeat and the Principal Shareholder for any Broker's or
Finder's Fees incurred by PerfectMarket or Sub in connection with the
transactions contemplated by this Agreement, the Plan of Merger and the
Certificate of Merger.
9.6 INTERPRETATION. When a reference is made in this Agreement to
--------------
Sections, Schedules or Exhibits, such references shall be to a Section of or
Schedule or Exhibit to this Agreement unless otherwise indicated. The words
"include," "includes" and "including" when used herein shall be deemed in each
case to be followed by the words "without limitation." The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
9.7 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
9.8 ENTIRE AGREEMENT. This Agreement (including the Exhibits and the
----------------
Schedules), the Non-Disclosure Agreement and the documents and instruments and
other agreements among the parties delivered pursuant hereto constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and are not intended to
confer upon any other person any rights or remedies hereunder except as
otherwise expressly provided herein.
9.9 NO TRANSFER. This Agreement and the rights and obligations set forth
-----------
herein may not be transferred or assigned by operation of law or otherwise
without the consent of each party hereto, provided that Sub may assign all or
any portion of its rights hereunder to any other newly-formed, wholly-owned
subsidiary of PerfectMarket. This Agreement is binding upon and will inure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
9.10 SEVERABILITY. If any provision of this Agreement, or the application
------------
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
9.11 OTHER REMEDIES. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy
-42-
<PAGE>
conferred hereby or by law or equity on such party; and the exercise of any one
remedy will not preclude the exercise of any other.
9.12 FURTHER ASSURANCES. Each party agrees to cooperate fully with
------------------
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and purposes
of this Agreement.
9.13 ABSENCE OF THIRD-PARTY BENEFICIARY RIGHTS. No provision of this
-----------------------------------------
Agreement is intended, nor will be interpreted, to provide or create any third-
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, employee, partner or any party hereto or any
other person or entity, and all provisions hereof will be personal solely
between the parties to this Agreement.
9.14 MUTUAL DRAFTING. This Agreement is the joint product of
---------------
PerfectMarket and MetroBeat, and each provision of this Agreement has been
subject to the mutual consultation, negotiation and agreement of PerfectMarket
and MetroBeat, and shall not be construed for or against any party hereto.
9.15 GOVERNING LAW. This Agreement shall be governed in all respects,
-------------
including validity, interpretation and effect, by the laws of the State of New
York (without giving effect to its choice of law principles).
9.16 EMPLOYEES. The Company agrees that the employees of MetroBeat,
---------
for so long as they remain employees of PerfectMarket or any subsidiary of
PerfectMarket subsequent to the Closing, shall be entitled to benefits
(including stock options) comparable to the benefits received by other employees
of PefectMarket or such subsidiaries who hold positions of comparable levels.
-43-
<PAGE>
IN WITNESS WHEREOF, PerfectMarket, Sub and MetroBeat have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
and the Principal Shareholder have signed this Agreement in their respective
individual capacities, all as of the date first written above.
PERFECTMARKET, INC.
By: /s/ Charles R. Conn III
-------------------------------
Name: Charles Conn
Title: Chief Executive Officer
MB ACQUISITION CORPORATION
By: /s/ Charles R. Conn III
-------------------------------
Name: Charles Conn
Title: Chief Executive Officer
METROBEAT, INC.
By: /s/ Mark Davies
-------------------------------
Name: Mark Davies
Title: Publisher
PRINCIPAL SHAREHOLDER
/s/ Mark Davies
----------------------------------
Mark Davies
/s/ Joshua White
----------------------------------
Joshua White
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<PAGE>
AMENDMENT #1 TO
AGREEMENT AND PLAN OF REORGANIZATION
This Amendment (the "Amendment") to the Agreement and Plan of
Reorganization, dated May 31, 1996, by and among PerfectMarket, Inc., a Delaware
corporation ("PerfectMarket"), MB Acquisition Corporation, a New York
corporation ("MB Acquisition"), MetroBeat, Inc., a New York corporation
("MetroBeat"), Mark Davies and Joshua White (the "Agreement"), is made as of
June 21, 1996 among the same parties.
RECITAL
-------
WHEREAS, the parties entered into the Agreement pursuant to which MB
Acquisition shall be merged with and into MetroBeat such that MetroBeat becomes
a wholly-owned subsidiary of PerfectMarket; and
WHEREAS, the Agreement provided for the issuance by PerfectMarket of Series
B Preferred Stock and/or cash with an aggregate value of $1,900,000 ("Purchase
Price"); and
WHEREAS, the parties desire to amend the Agreement to provide that the
Purchase Price shall be decreased to $1,881,000.
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. AMENDMENTS TO THE AGREEMENT. The parties hereby agree that the
---------------------------
Agreement shall be amended as follows:
1.1 Amendment to Section 2.2(e)(i). Section 2.2(e)(i) of the
------------------------------
Agreement shall be deleted in its entirety and the following shall be
substituted in lieu thereof:
"(i) Subject to Section 2.2(e)(iii) below, the Aggregate
Consideration to be paid by PerfectMarket pursuant to the Merger shall be
paid on such dates (each a "Payment Date") as follows: (A) at the Closing,
$544,500 of Series B Preferred (valued as of the Closing Date as set forth
below) shall be issued to the shareholders of MetroBeat; (B) on the first
annual anniversary of the Closing (the "First Anniversary"), $445,500 of
Series B Preferred (valued as of the First Anniversary as set forth below)
(the "First Deferred Payment"); (C) on the second annual anniversary of
the Closing (the "Second Anniversary"), $445,500 of Series B Preferred
(valued as of the Second Anniversary as set forth below) (the "Second
Deferred Payment"); and (D) on the third anniversary of the Closing (the
"Third Anniversary"), $445,500 of Series B Preferred Stock (valued as of
the Third Anniversary Date as set forth below) and/or cash shall be
delivered to the shareholders of MetroBeat (the "Final Payment")."
<PAGE>
1.2 Amendment to Section 2.2(e)(iii). Section 2.2(e)(iii) of the
--------------------------------
Agreement shall be deleted in its entirety and the following shall be
substituted in lieu thereof:
"(i) PerfectMarket shall issue a minimum of 247,500 shares and a
maximum of 445,500 shares of its capital stock (as adjusted for stock
splits, stock dividends and similar recapitalizations of PerfectMarket) to
the shareholders of MetroBeat pursuant to this Section 2.2. If the
shareholders elect cash for any portion of the Final Payment pursuant to
Section 2.2(e)(ii), then both the minimum of 247,500 shares and the maximum
of 445,500 shares shall be reduced by the number of shares equal to such
minimum or maximum multiplied by the percentage equal to the amount of the
cash payment elected by the shareholders as the numerator, and $1,881,000
million as the denominator. Such an adjustment shall not be applicable to
any portion of the Final Payment PerfectMarket elects to make in cash. At
the time PerfectMarket shall be obligated to deliver a cumulative aggregate
amount to the shareholders of MetroBeat of 445,500 shares of capital stock
in accordance with the provisions of this Section 2.2(e), all payment
obligations of PerfectMarket in excess of such amount shall immediately
terminate. In the event that PerfectMarket's payment obligations as
calculated through the Final Payment shall be less than 247,500 shares of
capital stock, PerfectMarket shall issue as part of the Final Payment such
additional number of shares of capital stock as required such that the
cumulative aggregate shares issued pursuant to this Section 2.2(e) shall
equal 247,500 shares."
1.3 Amendment to Section 5.10. Section 5.10 of the Agreement shall be
-------------------------
deleted in its entirety and the following shall be substituted in lieu thereof:
"Within thirty (30) days after the Closing, PerfectMarket agrees to pay the
liabilities of MetroBeat to Davies, Joshua White and the American
Broadcasting Corporation in the aggregate amount not to exceed [*]."
2. MISCELLANEOUS.
-------------
2.1 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.
2.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
ENTERED INTO AND WHOLLY TO BE PERFORMED WITHIN THE STATE OF CALIFORNIA BY
CALIFORNIA RESIDENTS.
2.3 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 Purchasers holding at least a majority of the Shares. Any amendment or
waiver effected in
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-2-
<PAGE>
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities and the Company.
2.4 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.
2.5 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.
2.6 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.
2.7 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.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first written above.
PERFECTMARKET, INC.
By: /s/ Charles R. Conn III
----------------------------------------
Charles Conn, Chief
Executive Officer
MB ACQUISITION CORPORATION
By: /s/ Charles R. Conn III
----------------------------------------
Charles Conn, Chief Executive Officer
METROBEAT, INC.
By: /s/ Mark Davies
----------------------------------------
Mark Davies, Publisher
PRINCIPAL SHAREHOLDER
/s/ Mark Davies
-------------------------------------------
Mark Davies
/s/ Joshua White
-------------------------------------------
Joshua White
[AMENDMENT]
-4-
<PAGE>
EXHIBIT B
---------
CERTIFICATE OF MERGER
OF
MB ACQUISITION CORPORATION
A NEW YORK CORPORATION,
INTO
METROBEAT, INC.
A NEW YORK CORPORATION
UNDER SECTION 904 OF THE BUSINESS CORPORATION LAW
ARTICLE I
A. The names of the constituent corporations are MB Acquisition
Corporation (the "Merged Corporation" or "Sub") and MetroBeat, Inc.
("MetroBeat")
B. The surviving corporation shall be MetroBeat and following the Merger
its name shall be MetroBeat, Inc. Metrobeat, as it exists from and after the
effective time of the Merger shall be referred to as the "Surviving Corporation"
C. As to the Merged Corporation, the number of shares outstanding which
are entitled to vote on the merger is as follows:
Common Stock 1,000 shares outstanding
D. As to Metrobeat, the number of shares of outstanding which are
entitled to vote on the merger is as follows:
Common Stock 198 shares outstanding
E. At the effective time of the Merger, the Articles of Incorporation of
MetroBeat, Inc. prior to the effective time shall be the Articles of
Incorporation of the Surviving Corporation.
<PAGE>
ARTICLE II
A. The effective date of the merger shall be the date of filing of this
certificate of merger.
ARTICLE III
A. The certificate of incorporation of Sub was filed by the Department of
State of the State of New York on May 8, 1996.
B. The certificate of incorporation of MetroBeat was filed by the
Department of State of the State of New York on May 2, 1995.
ARTICLE IV
A. The merger was approved by Action of Unanimous Written Consent of the
Board of Directors of Sub on May 21, 1996 and by Action by Written Consent of
Sole Stockholder of Sub on May 21, 1996.
B. The merger was approved by Action of Unanimous Written Consent of the
Board of Directors of MetroBeat on May 20, 1996 and by Written Consent of the
Shareholders of MetroBeat on May 20, 1996.
C. This Certificate of Merger may be signed in counterparts.
-2-
<PAGE>
We affirm the statements contained herein as true under penalties of perjury.
Executed on June 21, 1996
MB ACQUISITION CORPORATION
a New York corporation
By: /s/ Charles Conn
--------------------------------
Name: Charles Conn
Title: President
By: /s/ Jeffrey Brewer
--------------------------------
Name: Jeffrey Brewer
Title: Secretary
METROBEAT, INC.
a New York corporation
By: /s/ Mark Davies
--------------------------------
Name: Mark Davies
Title: President
By: /s/ Joshua White
--------------------------------
Name: Joshua White
Title: Secretary
<PAGE>
EXHIBIT C
---------
CORRECTED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PERFECTMARKET, INC.
A DELAWARE CORPORATION
PerfectMarket, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of Delaware, hereby corrects the
previously filed Restated Certificate of Incorporation as follows: (i) the
phrase "thirty million, four hundred thirty nine thousand, seven hundred
eighteen (30,439,718)" in the third and fourth lines of the first paragraph of
Article IV shall be deleted and the phrase "thirty million, four hundred thirty
one thousand, seven hundred eighteen (30,431,718)" shall be inserted in lieu
thereof; (ii) the phrase "five million, four hundred thirty nine thousand seven
hundred eighteen (5,439,718)" in the fifth and sixth line of the first paragraph
of Article IV shall be deleted and the phrase "five million, four hundred thirty
one thousand, seven hundred eighteen (5,431,718)" shall be inserted in lieu
thereof; and (iii) the number "3,198,540" in the third line of the second
paragraph of Article IV shall be deleted and the phrase "3,190,540" shall be
inserted in lieu thereof. The Corrected and Restated Certificate of
Incorporation shall read as follows:
<PAGE>
EXHIBIT C
---------
RESTATED CERTIFICATE OF INCORPORATION
OF
PERFECTMARKET, INC.
A DELAWARE CORPORATION
PerfectMarket, 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 with the Secretary of State of the State of Delaware on September 20,
1995, amended by the Certificate of Amendment of Certificate of Incorporation
filed with the Secretary of State of the State of Delaware on November 27, 1995.
SECOND: This 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 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 PerfectMarket, Inc..
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.
<PAGE>
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 thirty million, four hundred thirty one
thousand, seven hundred eighteen (30,431,718) shares. Twenty five million
(25,000,000) shares shall be Common Stock and five million, four hundred thirty
one thousand seven hundred eighteen (5,431,718) shares shall be Preferred Stock.
1,791,178 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"), and 3,190,540 shares of Preferred Stock shall be designated "Series
C Preferred Stock" (hereinafter "Series C Preferred" and together with the
Series A Preferred and Series B Preferred, the "Preferred Stock"). The rights,
preferences, restrictions and other matters relating to the Preferred Stock are
as follows:
1. LIQUIDATION PREFERENCE. (a) At any time, in the event of any of the
----------------------
following occurrences (a "Transaction"):
(i) Any dissolution of the Corporation, followed by the liquidation
and 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 in
which more than 50% of the outstanding capital stock of the Company is being
acquired for cash and the price per share of Common Stock (on a fully diluted
basis) is below the 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:
(i) the holders of the Preferred Stock shall receive ratably (based
on their respective preference amounts) an amount per share equal to the price
for which such share of
2
<PAGE>
Preferred Stock was originally issued, as adjusted for any stock dividends,
combinations or splits with respect to such shares, plus any declared and unpaid
dividends on the Preferred Stock; and
(ii) 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 thus distributed
among the holders of Preferred Stock shall be insufficient to permit the payment
to such holders of the full aforesaid preferential amount, then the entire
assets and funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of Preferred Stock in proportion to the
liquidation preference amount each holder is otherwise entitled.
(b) 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-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-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.
(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.
(c) 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
3
<PAGE>
(iii) cancel such Transaction, 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(d) hereof.
(d) 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; and 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.
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 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 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
4
<PAGE>
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 the then outstanding Series C
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 therefor, 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 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.
5
<PAGE>
(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 C Preferred were first
issued (the "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.
(ii) If the number of shares of Common Stock outstanding at any
time after the 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.
(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 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
6
<PAGE>
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 Preferred Stock to the end
that the rights, preferences and privileges of the Preferred Stock 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 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
--------------------------------------
Measurement Shares plus Option Shares
For purposes of this Section 2(f), (i) the term "Measurement Shares" shall equal
10,690,196 shares of Common Stock (as adjusted for stock splits, stock dividends
or similar recapitalizations after the Original Issue Date) and (ii) the term
"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
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 Original Issue Date).
(g) 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. Whether fractional shares are issuable upon
such conversion shall be determined on the basis of the total number of shares
of Preferred Stock the holder is at the time converting into Common Stock and
the number of shares of Common Stock issuable upon such aggregate conversion.
(h) No Impairment. The Corporation will not, by amendment of its
-------------
Restated Certificate of Incorporation or through any Reorganization, issue or
sell 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.
(i) 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
7
<PAGE>
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 "Redemption Date") of the Original Issue Date.
The Corporation shall effect such redemption on the 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 "Redemption Price").
(b) At least fifteen (15) but no more than thirty (30) days prior to
the 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, at
the address last shown on the records of the Corporation for such holder,
notifying such holder of the redemption to be effected, specifying the
Redemption Date, the 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 "Redemption Notice"). Except as
provided in Section 3(c) below, on or after the Redemption Date, each holder of
Series C Preferred 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 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.
(c) From and after the Redemption Date, unless there shall have been a
default in the payment of the Redemption Price, all rights of the holders of
shares of Series C Preferred (except the right to receive the 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 on the Redemption Date are
insufficient to redeem the total number of shares of Series C Preferred, 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 based on
their holdings of Series C Preferred. The shares of Series C Preferred 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 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 are redeemed.
8
<PAGE>
(d) At least ten days prior to the Redemption Date, the Corporation
shall deposit the Redemption Price of all shares of Series C Preferred 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, with irrevocable instructions and authority to the bank or
trust corporation to pay the Redemption Price for such shares to their
respective holders on or after the 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(b) above. As of the
Redemption Date, the deposit shall constitute full payment of the shares to
their holders, and from and after the Redemption Date the shares of Series C
Preferred shall be redeemed and shall be deemed 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 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(d) for the redemption of shares thereafter converted
into shares of the Corporation's Common Stock pursuant to Section 2 hereof prior
to the 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(d) remaining unclaimed at the expiration of two years following
the Redemption Date shall thereafter be returned to the Corporation upon its
request expressed in a resolution of its Board of Directors.
(e) Notwithstanding anything to the contrary in this Section 3, in the
event the Corporation is precluded by applicable law from redeeming any of the
Series C Preferred hereunder, the Corporation shall redeem such Series C
Preferred at the earliest date permitted under applicable law.
(f) 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.
9
<PAGE>
(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). In the event that the Board
of Directors is increased after the Original Issue Date to a number of members
greater than ten (10), then for purposes of the preceding sentence, the holders
of Series C Preferred voting together as a separate class shall have the right
(i) to elect two (2) members of the Board of Directors so long as the total
number shall be between 11 and 13 and (iii) to elect a number of directors
equivalent to the number of directors that could be elected by the holders of
Series C Preferred by cumulative voting in the event the total number of
directors exceeds 13.
(c) Protective Provisions. 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:
(i) Increase or decrease the total number of authorized shares
of Series C Preferred;
(ii) 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
(iii) Create or issue any new shares 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.
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.
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.
10
<PAGE>
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 thereafter, pursuant to a resolution of its Board of
Directors, the foregoing resolutions were submitted to the stockholders of the
Corporation for their approval by written consent in accordance with Section 228
of the General Corporation Law of the State of Delaware, by which written
consent the necessary number of shares as required by statute were voted in
favor of the amendment.
SIXTH: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
SEVENTH: That written notice of said amendment was duly given to the
stockholders of this corporation who did not consent in writing to the foregoing
resolutions.
11
<PAGE>
IN WITNESS WHEREOF, PerfectMarket, Inc. has caused this Restated
Certificate of Incorporation to be signed by its President and Chief Executive
Officer and attested to by its Secretary this ______ day of May, 1996.
______________________________________
Charles Conn
President and Chief Executive Officer
ATTEST:
Jeffrey Brewer
Secretary
12
<PAGE>
EXHIBIT G
---------
METROBEAT, INC.
225 Lafayette Street
June 7, 1996
PerfectMarket, Inc.
4502 Dyer Street, Suite 201
La Cresenta, CA 91214
Gentlemen:
In connection with your acquisition of MetroBeat, Inc. (the "Company"), we
are providing this representation letter and the attached notice to you in order
to establish that the shares and rights to acquire shares of the Company are not
a U.S. real property interest and accordingly no withholding is required
pursuant to Internal Revenue Code Section 1445. We represent that, as of the
date of this letter, no interest in the Company (other than interests solely as
a creditor) constitutes a United States real property interest, as defined in
Section 897 of the Internal Revenue Code of 1986, as amended. This notice is
provided to you in accordance with Treasury Regulation Section 1.897-2(h) in
response to your request made pursuant to Treasury Regulation Section 1.1445-
2(c)(3)(i).
This letter constitutes authorization for PerfectMarket, Inc. as agent for
the Company, to deliver a copy of this letter, along with the appropriate
notification, to the Internal Revenue Service on behalf of the Company.
Under penalties of perjury, the undersigned declares that the above
information is correct to the best of my knowledge and belief.
Sincerely,
Mark Davies
President
Enclosure
<PAGE>
METROBEAT, INC.
225 Lafayette Street
New York, New York 10012
June 21,1996
Assistant Commissioner (International)
Director, Office of Compliance
OP:I:C:E:666
950 L'Enfant Plaza South, S.W.
COMSAT Building
Washington, D.C. 20024
Re: Notice Required Under Treasury Regulation Section 1 897-2(h)(2)
---------------------------------------------------------------
Gentlemen:
At the request of PerfectMarket, Inc. ("PerfectMarket"), in connection with
their acquisition of MetroBeat, Inc. ("MetroBeat"), we provided the attached
statement to PerfectMarket on June 7, 1996.
(i) This notice is provided pursuant to the requirements of Treasury
Regulation Section 1 .897-2(h)(2);
(ii) The following information relates to the corporation providing the
notice:
Name MetroBeat, Inc.
Address 225 Lafayette Street
New York, New York 10012
Taxpayer Identification
Number
(iii) The attached statement was not requested by a foreign interest
holder. It was voluntarily provided by MetroBeat in response to a
request from PerfectMarket in accordance with Treasury Regulation
Section 1.1445-2(c)(3)(i). The following information relates to
PerfectMarket which requested the attached statement:
Name PerfectMarket, Inc.
Address 4502 Dyer Street, Suite 201
LaCresenta, CA 91214
<PAGE>
Assistant Commissioner (International)
June ___ 1996
Page 2
Taxpayer Identification
Number 95-4546874
(iv) The interest in question (capital stock and rights to acquire capital
stock of MetroBeat) is not a U. S. real property interest.
Under penalties of perjury, the undersigned declares that the above notice
(including the attachment hereto) is correct to my knowledge and belief.
Sincerely,
/s/ Mark Davies
Mark Davies
President
Enclosure
<PAGE>
EXHIBIT H
---------
EMPLOYMENT AND NONCOMPETITION AGREEMENT
Agreement made on June 21, 1996, between PerfectMarket, Inc., a Delaware
corporation (the "Company"), and Mark Davies ("Executive") and for purposes of
Sections 1(d)(i) and1(e) only, Joshua White (the "Shareholder").
RECITALS
--------
A. The Company, MetroBeat, Inc., a New York corporation ("MetroBeat"), MB
Acquisition Corporation, a New York corporation and wholly-owned subsidiary of
the Company ("Sub"), and the Executive have executed and delivered an Agreement
and Plan of Reorganization dated May 31, 1996 (the "Reorganization Agreement"),
providing for the acquisition of MetroBeat by the Company which became effective
on the date hereof pursuant to a merger of Sub with and into MetroBeat.
B. The Company and Executive desire to enter into certain agreements
providing for Executive's employment with the Company on the terms hereinafter
set forth.
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive and Executive
----------
accepts such employment for the period beginning as of the date hereof and
ending upon the earlier of (i) termination pursuant to paragraph 1(d) or 1(e)
hereof or (ii) the date two (2) years from the date of this Agreement (the
"Employment Period").
(a) Services. During the Employment Period, Executive will render
--------
such services of an executive and administrative character to the Company and
its affiliates as the Chief Executive Officer, President or Chief Operating
Officer (or any officer of the Company who reports directly to any such
person)(collectively, the "Senior Officers") may from time to time direct.
Executive will devote his best efforts and substantially all of his business
time and attention (except for vacation periods and reasonable periods of
illness or other incapacity) to the business of the Company and its affiliates
and will faithfully and diligently carry out such duties and have such
responsibilities as are customary among persons employed in substantially
similar capacities for similar companies. Executive will report to the Chief
Executive Officer, or such other officer designated by the Chief Executive
Officer, and shall faithfully and diligently comply with all of its reasonable
and lawful directives. For purposes of this Agreement, the term "affiliates"
means any corporation, limited partnership, limited liability company or other
entity engaged in the same business as the Company or a related business, which
is controlled by or under common control with the Company.
<PAGE>
(b) Salary. During the Employment Period and thereafter as provided
------
in paragraph (d) below, the Company will pay Executive a base salary at the rate
of not less than $[*] per annum (or such higher amount as the Board may
-------------
establish from time to time). Executive's salary will be consistent with other
officers of the Company with a similar level of responsibility and performance.
Executive's base salary for any partial year will be prorated based upon the
number of days elapsed in such year and will be payable in accordance with the
Company's customary payroll practices.
(c) Benefits. In addition to the compensation described above in this
--------
paragraph 1, Executive will be entitled during the Employment Period to the
following benefits:
(i) such health insurance and other benefits as are
available from time to time to the executive officers employees
generally;
(ii) vacation, sick leave and personal time in accordance
with the Company's vacation and absence policies as in effect from
time to time;
(iii) reimbursement, upon submission of documentation in
accordance with the Company's regular expense policies, for
reasonable business expenses incurred on the Company's behalf by
Executive; and
(iv) participation in any savings plan, 401(k) plan, profit
sharing plan or pension plan as the Company may establish in the
future for the Company's salaried employees generally.
(d) Termination. Executive's employment with the Company will
-----------
continue until terminated by Executive's death, disability which cannot be
reasonably accommodated, or termination of Executive's employment pursuant to
any of the following provisions:
(i) Termination by the Company without Cause; Constructive
------------------------------------------------------
Termination. The Company may at any time terminate Executive's
-----------
employment without Cause (as defined below) by giving Executive
notice of the effective date of termination (which effective date
may be the date of such notice). In the event of such termination
or a Constructive Termination (as defined below), the Company
shall be obligated to pay Executive continuing payments of base
salary in accordance with paragraph (b) above at the rate in
effect at the effective date of such termination for a period of
twelve (12) months following the effective date of such
termination (the "Salary Severance") and Executive and the other
former shareholders of MetroBeat shall receive any remaining
payments due to them under Section 2.2(e) of the Reorganization
Agreement (without regard to Section 2.2(h) thereto) (the "Merger
Payments"); provided that, in the event that Executive breaches
any of the representations, warranties and covenants set forth in
paragraphs 2 and 4 below, (x) with respect to the Salary
Severance, the Company will have
-2-
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
no further obligation to make payments of the base salary
following knowledge of such breach and may pursue all other
available remedies, and the Executive shall be obligated to repay
the Company the amount of Salary Severance within ten (10) days
following delivery by the Company to Executive of written
confirmation of such breach, and (y) (if the termination occurs
within 24 months after the date hereof), with respect to the
Merger Payments, Section 2.2(h) of the Reorganization Agreement
shall apply and the Shareholder shall be obligated to return to
the Company any shares required to be returned as set forth in
said Section 2.2(h) of the Reorganization Agreement.
As used in this Agreement, "Constructive Termination" shall mean
the termination of Executive's employment by Executive if, during
the Employment Period, one or more of the following events have
occurred:
(A) without Executive's express written consent, the
assignment to Executive of any duties or the reduction of
Executive's duties, either of which results in a significant
diminution in Executive's position or responsibilities with the
Company in effect immediately prior to such assignment, or the
removal of Executive from such position and responsibilities; or
(B) any material breach by the Company of any material
provision of this Agreement.
(ii) Termination by the Company for Cause. A majority of the
------------------------------------
Board shall have the right to terminate Executive's employment at
any time for any of the following reasons (each of which is
referred to herein as "Cause") by giving Executive written notice
of the Cause and Executive shall have fifteen (15) days from the
receipt of such notice to cure such Cause, to the extent such
cause is curable. If the cause is not cured within fifteen days
or the Cause is not curable, the Company shall give Executive
written notice of the effective date of termination (which
effective date may be the date of such notice):
(A) the willful breach of any provision of paragraphs
1(a), 2 or 4 (including but not limited to a refusal to follow
reasonable and lawful directives of the Board of Directors or the
Senior Officers);
(B) any act of fraud or dishonesty with respect to any
aspect of the Company's or any affiliate's business;
(C) continued use of illegal drugs;
(D) as a result of Executive's gross negligence or
willful misconduct, Executive shall violate, or cause the Company
to violate, any
-3-
<PAGE>
applicable federal or state securities or banking law or
regulation and as a result of such violation, shall become, or
shall cause the company or any affiliate to become the subject of
any legal action or administrative proceeding seeking an
injunction from further violations or a suspension of any right
or privilege;
(E) as a result of Executive's gross negligence or willful
misconduct, Executive shall commit any act that causes, or shall
knowingly fail to take reasonable and appropriate action to
prevent, any material injury to the financial condition or
business reputation of the Company or any affiliate; or
(F) indictment for a felony.
If a majority of the Board terminates Executive's employment for
any of the reasons set forth above in this paragraph 1(d)(ii), the
Company shall have no further obligations hereunder from and after the
effective date of termination and shall have all other rights and
remedies available under this or any other agreement and at law or in
equity.
(e) Voluntary Termination by Executive. In the event that Executive's
----------------------------------
employment with the Company is terminated by Executive (except as set forth in
paragraph 1(d)(i)), the Company shall have no further obligations hereunder from
and after the date of such termination. Upon termination of Executive's
employment under this Section 1(e) within the Employment Period, Executive and
the Shareholder shall relinquish their right to receive certain shares of the
Company's capital stock or return shares to the Company, as the case may be,
pursuant to Section 2.2(h) of the Reorganization Agreement.
2. Nondisclosure. During the Employment Period and thereafter, Executive
-------------
shall not, without the prior written consent of the Board of Directors, disclose
or use for any purpose (except in the course of his employment under this
Agreement and in furtherance of the business of the Company or any of its
affiliates or subsidiaries) any confidential or proprietary data of the Company.
As an express condition of Executive's employment with the Company, Executive
agrees to execute confidentiality agreements as requested by the Company,
including but not limited to the Company's form of Employee Inventions and
Confidentiality Agreement which is attached hereto as Exhibit A and incorporated
---------
herein by reference.
3. Other Businesses. During the Employment Period, Executive agrees that
----------------
he will not, directly or indirectly except with the express written consent of
the Board, become engaged in, render services for, or permit his name to be used
in connection with, or directly or indirectly counsel or consult with, any
business other than the business of the Company and its affiliates.
4. Noncompetition.
--------------
-4-
<PAGE>
(a) Executive agrees that, with respect to the Current Restricted
Business (as defined on Exhibit B hereto):
---------
(i) During the term he performs services for the Company
and for a period of [*] after the termination thereof (for any
reason), he will not interfere with the relationship of the
Company and any employee, agent or representative.
(ii) During the term he performs services for the Company
and for a period of [*] after the termination thereof (for any
reason), he will not directly or indirectly interfere with the
relationships of the Company with customers, dealers,
distributors, vendors or sources of supply.
(iii) Executive further agrees that during the term he
performs services for the Company and for a period of [*] after
the termination thereof (for any reason) he will not directly or
indirectly own, manage, operate, control, be employed by,
participate in, or be connected in any manner with the ownership,
management, operation or control of, any Current Restricted
Business worldwide.
(b) Executive agrees that, with respect to an Alternative Restricted
Business (as defined on Exhibit B hereto):
---------
(i) During the term he performs services for the Company
and for a period of [*] after the termination thereof (for any
reason), he will not interfere with the relationship of the
Company and any employee, agent or representative.
(ii) During the term he performs services for the Company
and for a period of [*] after the termination thereof (for any
reason), he will not directly or indirectly interfere with the
relationships of the Company with customers, dealers,
distributors, vendors or sources of supply.
(iii) Executive further agrees that during the term he
performs services for the Company and for a period of [*] after
the termination thereof (for any reason) he will not directly or
indirectly own, manage, operate, control, be employed by,
participate in, or be connected in any manner with the ownership,
management, operation or control of, any Alternative Restricted
Business worldwide.
(c) After discussing the matter with Executive, the Company shall
have the right, subject to applicable law, to inform any other third party that
the Company reasonably believes to be, or to be contemplating, participating
with Executive or receiving from Executive assistance in violation of this
Agreement, of the terms of this Agreement and of the rights of the Company
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-5-
<PAGE>
hereunder, and that participation by any such third party with Executive in
activities in violation of this Section 4 may give rise to claims by the Company
against such third party.
5. Right of First Offer.
--------------------
(a) If, during the two (2) year period from the date thereof, the Company
shall desire to effect a sale, disposition or other transfer (a "Transfer") of
the New York operations of the Company consisting of the business of MetroBeat
as currently being, or as may in the future be, conducted (the "New York
Operations"), then the Company shall first submit a notice (the "Offering
Notice") to the Executive specifying all of the material terms of the proposed
Transfer, including the price being requested and the name and address of the
proposed transferee (if any).
(b) Within 15 days after receipt of an Offering Notice, Executive shall
give notice to the Company stating whether Executive elects to acquire all of
the New York Operations on the terms set forth in the Offering Notice. If
Executive does not elect to acquire all of the New York Operations on the terms
set forth in the Offering Notice, the Company may, for a period of 180 days from
the end of such 15-day period, effect a Transfer of the New York Operations to a
third party on terms no more favorable than the terms set forth in the Offering
Notice. If the Company fails to effect such a Transfer to a third party within
such 180-day period, the Company shall thereafter be required to submit another
Offering Notice in order to effect any Transfer of the New York Operations under
this Section 5.
(c) The right of first offer set forth in this Section 5 shall be
nonassignable by Executive.
(d) Notwithstanding anything to the contrary in this Section 5, Perfect
Market shall not be under any obligation to effect a Transfer.
6. Termination of Agreement. This Agreement shall terminate on the
------------------------
second anniversary of the date hereof.
7. General Provisions.
------------------
(a) Notices. Any notice provided for in this Agreement must be in
-------
writing and must be either personally delivered, or mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service, to the recipient at the address below indicated:
To the Company:
PerfectMarket, Inc.
4502 Dyer Street, Suite 201
LaCresenta, CA 91214
Attn: Chief Executive Officer
-6-
<PAGE>
To Executive:
At Executive's last known
address as listed with
the Company
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or if mailed, five days after so mailed.
(b) Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision in any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein except that
any court having jurisdiction shall have the power to reduce the duration, area
or scope of such invalid, illegal or unenforceable provision and, in its reduced
form, it shall be enforceable.
(c) Complete Agreement. This Agreement (with all exhibits hereto) and
------------------
the Reorganization Agreement, which agreement is incorporated herein by
reference, embodies the complete agreement and understanding between the parties
and supersedes and preempts any prior understandings, agreements or
representations by or between the parties, written or oral, which may have
related to the subject matter hereof in any way.
(d) Successors and Assigns. This Agreement is intended to bind and
----------------------
inure to the benefit of and be enforceable by Executive and the Company [and,
with respect to Sections 1(d)(i) and 1(e), the Shareholder], except that
Executive may not assign any of his rights or obligations under this Agreement.
The Company may assign its rights under this Agreement, as security, to any
lender to the Company, and in the event of a sale of the stock, or substantially
all of the stock, of the Company, or consolidation or merger of the Company into
another corporation or entity, or the sale of substantially all of the operating
assets of the Company to another corporation, entity or individual, the Company
may assign its rights and obligations under this Agreement to its successor-in-
interest, in which event such successor-in-interest shall be deemed to have
acquired all rights and assumed all obligations of the Company hereunder.
(e) CHOICE OF LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
-------------
VALIDITY AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL
LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF CALIFORNIA.
-7-
<PAGE>
(f) Remedies. Each of the parties to this Agreement will be entitled
--------
to enforce his or its rights under this Agreement specifically, to recover
damages (including, without limitation, reasonable fees and expenses of counsel)
by reason of any breach of any provision of this Agreement and to exercise all
other rights existing in his or its favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach or
threatened breach of the provisions of this Agreement and that any party may in
his or its sole discretion apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief in order to
enforce or prevent any violations of the provisions of this Agreement.
(g) Amendments and Waivers. Any provision of this Agreement may be
----------------------
amended or waived only with the prior written consent of Executive and a
majority of the Board.
(h) Absence of Conflicting Agreements. Executive hereby warrants and
---------------------------------
covenants that his employment by the Company does not result in a breach of the
terms, conditions or provisions of any agreement to which Executive is subject.
(i) Survival. No termination of Executive's employment by either or
--------
both parties shall reduce or terminate Executive's covenants and agreements in
paragraphs 2 and 4.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered on the day and year first above written.
PERFECTMARKET, INC.
By:________________________________
Name: Charles Conn
Title: President
EXECUTIVE
___________________________________
Mark Davies
SHAREHOLDER
___________________________________
Joshua White
(EMPLOYMENT AGREEMENT SIGNATURE PAGE - MARK DAVIES)
-9-
<PAGE>
EXHIBIT A
EMPLOYEE INVENTIONS AND CONFIDENTIALITY AGREEMENT
-10-
<PAGE>
EMPLOYEE INVENTIONS & CONFIDENTIALITY AGREEMENT
-------------------------------------------------
______________ ("Employee"), in consideration of his/her employment and/or
continued employment with PERFECTMARKET, INC. ("PMI"), a Delaware corporation,
and of the compensation paid for his/her services in the course of his/her
employment, agrees as follows:
1. Employee understands that PMI has no interest in and will not accept
disclosure by Employee of any confidential information which belongs to a third
party.
2. During and after the employment by PMI, Employees agrees to keep
secret and confidential, and will not disclose, transfer to others or use any
proprietary information relating to the business or affairs of PMI (including
its affiliates) or any third parties doing businesses with PMI which Employee
may acquire during the course of his/her employment. Such information includes,
but shall not be limited to, any information, software, sales approach,
manufacturing technique, design, process, formula, development or experimental
work, work in process, business, trade secret, or any other secret or
confidential matter relating to the products, services, customers, suppliers,
sales, or business affairs of PMI, as well as all information regarding the
names, buying habits or practices or any of its customers, its marketing methods
and related data, the names of any of its vendors or suppliers, cost of
materials, the prices its obtains or has obtained or at which it sells or has
sold its product or services, manufacturing and sales costs, lists or other
written computerized records used in its business, compensation paid to
employees and other terms of employment, and other confidential information
concerning PMI's manner of operation, all of which are acknowledged by the
parties hereto to be important and confidential trade secrets which are
necessary for the successful conduct of PMI's business.
3. Employee agrees that during his/her employment by PMI Employee: (a)
will not render services of a business, professional or commercial nature to any
other person or firm, whether for compensation or otherwise, if it interferes
with Employee's job duties at PMI in any way (b) will notify PMI if rendering
any services of a business, professional or commercial nature to any other
person or firm; or (c) will not engage in any activity competitive with or
adverse to PMI's business or welfare, whether alone, as a partner, or as an
officer, director, employee or shareholder of any other corporation; or (d) will
not undertake planning for or organization of any business activity competitive
with PMI or combine or conspire with other employees or representatives of PMI
for the purpose of organizing any such competitive business.
4. Employee agrees that during his/her employment by PMI and for a period
of one year thereafter, Employee will not, directly or indirectly, either for
himself/herself or for others, do any of the following: (a) solicit, divert or
take away or attempt to solicit, divert or take away any of PMI's customers; or
(b) induce or influence any person who is engaged as an employee or otherwise by
PMI to terminate his or her employment or other engagement; or (c) undertake any
employment or activity competitive with PMI wherein the fulfillment of the
duties of the competitive employment or activity would call upon Employee to
reveal or use any of its proprietary information.
5. Employee recognizes that his/her knowledge of some of PMI's
proprietary information may be so sensitive and so inter-related with his/her
job activities that it will be difficult for Employee to work for another
in similar employment without disclosure, advertent or inadvertent, of such
proprietary information. Accordingly, Employee agrees that for the period of one
year after termination of Employee's employment with PMI, if Employee intends to
perform for him/herself or for others job duties in substantially the same
manner of any job duties performed by Employee for PMI during the three years
preceding the termination of his/her employment, Employee will advise PMI and
any prospective employer of the areas of similarities so that there can be a
joint determination of assurances that no proprietary information will be
disclosed. Employee understands that he/she has the right to use or practice any
skills or expertise generally associated with Employee's employment not special
or unique to PMI.
6. All inventions, discoveries, developments and improvements conceived
or made by Employee, alone or with others, prior to Employee's employment by PMI
are listed and described on the reverse side of this page. To the best of
Employee's knowledge this list is complete (or if no items are so listed,
Employee has nothing to so disclose). Employee understands that his/her failure
to list any item will require that Employee demonstrate through clear, tangible
evidence that Employee or his/her assigns own an item which PMI believes it
owns. If it is determined that Employee owns any unlisted item, and PMI has
expended monies to develop it, PMI shall be entitled to the use of same without
royalty payments to Employee or his/her assigns.
<PAGE>
7. Employee will promptly and fully inform PMI of all inventions,
discoveries, developments and improvements that Employee may conceive, discover,
develop or make during Employee's employment, whether made solely or jointly
with others, whether or not patentable, and whether or not such conception,
discovery or making involves the use of PMI's time, facilities, equipment or
personnel (collectively, "Inventions"). Employee acknowledges and agrees that
all such Inventions relating to any work Employee performs for PMI or any
business in which PMI is or intends to be engaged are "works for hire" under
applicable law and shall belong to PMI. Emmployee further agrees to assign, and
does hereby assign, to PMI all right, title and interest in and to any and all
such Inventions and agree to execute all documents deemed necessary or desirable
by PMI in connection therewith, including patent and/or copyright assignments,
and to cooperate both during and after Employee's employment with PMI, at PMI's
expense, in all further actions deemed necessary or desirable to confirm,
register, protect or enforce PMI's right therein. Employee acknowledges that the
foregoing assignment does not include any Invention unrelated to PMI's business
or research which meets the requirements of Section 2870 of the California Labor
Code.
8. Employee also shall assign in writing any right to or interest
Employee has in any PMI inventions to the United States government, if requested
by PMI. This obligation will continue at all times after the termination of
Employee's employment. If PMI cannot for any reason, including any mental or
physical incapacity, secure Employee's signature to apply for or pursue any
application for any United States or foreign letters patent, copyright, or
trademark registrations (or on any document transferring ownership thereof)
covering PMI inventions, Employee hereby irrevocably designates and appoints PMI
and its officers and agents as Employee's agent and attorney in fact, to act for
and in Employee's behalf and stead to execute and file any such applications and
documents, and to do all other lawfully permitted acts to further the
prosecution and issuance of letters patent, copyright, or trademark
registrations or transfers thereof with the same legal force and effect as if
executed by Employee. This appointment is coupled with an interest in the PMI
inventions and will survive Employee's death or disability. Employee hereby
quitclaims to PMI all claims of any nature whatsoever Employee may now or
hereafter have for infringement of any patents, copyright, or trademark
resulting from or relating to any such application for letters patent,
copyright, or trademark registrations.
9. Upon termination of employment, or on demand at any time prior
thereto, Employee agrees to deliver promptly to PMI all devices, data, models,
samples, tools, equipment, designs, notes, reports, proposals, lists, boooks,
correspondence, specifications, drawings, blueprints, sketches, materials and
other written and graphical records (including all copies thereof) in Employee's
possession or under his/her control relating to any product, business, work,
customer, supplier, or other aspect of PMI.
10. This Agreement contains the entire understanding of the parties
concerning inventions and confidentiality, and supersedes any and all other
agreements between them, whether oral or written, implied or express. Even
though PMI may fail to insist on strict compliance with any of the conditions of
this Agreement, such failure shall not be deemed a waiver of any of the terms or
conditions of this Agreement. Any modification to this Agreement will be
effective only if in writing and fully executed by Employee.
11. Employee understands that his/her obligations hereunder shall continue
in effect beyond his/her employment and shall be binding upon Employee's
assigns, heirs, executors, administrators and legal representatives.
12. Employee represents that his/her performance of the terms of this
Agreement and of his/her employment with PMI will not breach any agreement to
keep in confidence proprietary information acquired by Employee in confidence or
in trust prior to Employee's employment by PMI. Employee further agrees to
notify all of Employee's present, future and prospective employers of the
existence of this Agreement, and recognizes PMI's right to do the same.
13. The provisions of this Agreement are severable; and if any one or more
provisions may be determined to be unenforceable, in whole or in part, the
remaining provisions, and any partially unenforceable provisions to the extent
enforceable in any jurisdiction, shall nevertheless be binding and enforceable.
<PAGE>
14. This Agreement shall be governed by and construed, interpreted and
enforced under the laws of the State of California. In the event of a breach or
threatened breach of this Agreement, Employee acknowledges and agree that
damages would be inadequate and that PMI shall be entitled to preliminary and/or
permanent injunctive relief restraining such breach. However, all remedies of
PMI shall be cumulative and nothing shall prohibit PMI from pursuing any other
legal or equitable remedy available to PMI under this Agreement, at law, in
equity, or otherwise.
15. Employee acknowledges that nothing herein shall be construed as any
assurance, promise, or guarantee of employment or continued employed.
__________________________ __________________________
Employee Witness
Print Name: Print Name:
___________________________ ___________________________
Date:_______________, 19___ Date:_______________, 19___
<PAGE>
EXHIBIT B
DEFINITIONS OF CURRENT RESTRICTED BUSINESS
AND ALTERNATIVE RESTRICTED BUSINESS
As used in Section 4, the term "Current Restricted Business" shall mean the
business of providing business directory listings, events listings and community
and civic information in electronic form or any other business in which the
Company actively engages as of the date of this Agreement.
As used in Section 4, the term "Alternative Restricted Business" shall mean
any business in which the Company may actively engage from time to time during
the Employment Period, but which is not included in the definition of Current
Restricted Business above.
-11-
<PAGE>
EXHIBIT I
---------
INVESTMENT REPRESENTATION STATEMENT
Pursuant to the Agreement and Plan of Reorganization by and among
PerfectMarket, Inc., a Delaware corporation ("PerfectMarket"), MB Acquisition
Corporation, a New York corporation and wholly-owned subsidiary of PerfectMarket
("Sub"), MetroBeat, Inc., a New York corporation ("MetroBeat"), and a
shareholder of MetroBeat, PerfectMarket is acquiring MetroBeat in a merger of
Sub with and into MetroBeat (the "Merger") and the former shareholders of
MetroBeat are acquiring certain securities of PerfectMarket and rights to
acquire securities (the "Securities") of PerfectMarket upon the occurrence of
certain events. In connection with the acquisition of the Securities in the
Merger, the undersigned shareholder of MetroBeat (the "Shareholder") represents
to PerfectMarket as follows:
(a) Shareholder is aware of PerfectMarket's business affairs and
financial condition and has acquired sufficient information about PerfectMarket
to reach an informed and knowledgeable decision to acquire the Securities.
Shareholder is acquiring these Securities for investment for Shareholder's own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
(b) Shareholder acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Shareholder's investment intent as expressed herein. In this
connection, Shareholder understands that, in the view of the Securities and
Exchange Commission, the statutory basis for such exemption may be unavailable
if Shareholder's representation was predicated solely upon a present intention
to hold these Securities for the minimum capital gains period specified under
tax statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Shareholder further understands that the Securities must
be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Shareholder
further understands that no public market currently exists for the securities of
PerfectMarket, and that even if a public market exists at the time the
Shareholder wishes to sell the Securities, PerfectMarket may not be satisfying
the current public information requirements of Rule 144 as promulgated under the
Securities Act. Shareholder further acknowledges and understands that
PerfectMarket is under no obligation to register the Securities. Shareholder
understands that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel
satisfactory to PerfectMarket and any other legend required under applicable
state securities laws.
<PAGE>
(c) Shareholder is familiar with the provisions of Rule 144 which, in
substance, permit limited public resale of "restricted securities" acquired,
directly or indirectly from the issuer thereof, in a non-public offering subject
to the satisfaction of certain conditions set forth in Rule 144, which requires
the resale to occur not less than two years after the later of the date the
Securities were sold by PerfectMarket or the date the Securities were sold by an
affiliate of PerfectMarket, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than three years.
(e) Shareholder further understands that in the event all of the
applicable require ments of Rule 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
are not exclusive, the Staff of the Securities and Exchange Commission has
expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Shareholder understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Shareholder:
__________________________________
Date:_______________________, 1996
<PAGE>
EXHIBIT 2.2
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CITYSEARCH, INC.,
USA NETWORKS, INC.,
TICKETMASTER GROUP, INC.,
TICKETMASTER CORPORATION,
TICKETMASTER MULTIMEDIA HOLDINGS, INC.
AND
TIBERIUS, INC.
Dated as of August 12, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS .......................................................................................................... 1
ARTICLE I THE MERGER............................................................................................... 1
1.1 The Merger....................................................................................... 1
1.2 Effective Time; Closing.......................................................................... 1
1.3 Effect of the Merger............................................................................. 2
1.4 Certificate of Incorporation; Bylaws............................................................. 2
1.5 Directors and Officers........................................................................... 2
1.6 Effect on Capital Stock.......................................................................... 2
1.7 Surrender of Certificates........................................................................ 3
1.8 No Further Ownership Rights in City Capital Stock................................................ 4
1.9 Lost, Stolen or Destroyed Certificates........................................................... 4
1.10 Tax Consequences................................................................................. 5
ARTICLE II THE OFFER............................................................................................... 5
2.1 Commencement of the Offer........................................................................ 5
2.2 Expiration of the Offer.......................................................................... 5
2.3 Offer Mechanics.................................................................................. 5
2.4 List of City Holders............................................................................. 6
2.5 Proration........................................................................................ 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF USA, TICKET AND TMOL................................................. 6
3.1 Organization, Standing and Corporate Power....................................................... 6
3.2 Capital Structure................................................................................ 7
3.3 Authority/Noncontravention....................................................................... 7
3.4 Financial Statements; No Undisclosed Liabilities................................................. 9
3.5 Absence of Certain Changes or Events............................................................. 10
3.6 Litigation....................................................................................... 10
3.7 Contracts........................................................................................ 10
3.8 Compliance With Laws............................................................................. 12
3.9 Absence of Changes in Benefit Plans; Employment Agreements; Labor Relations ..................... 13
3.10 ERISA Compliance................................................................................. 13
3.11 Taxes............................................................................................ 14
3.12 No Excess Parachute Payments..................................................................... 15
3.13 Title to Properties.............................................................................. 15
3.14 Intellectual Property............................................................................ 16
3.15 Section 203 of Delaware Law Not Applicable....................................................... 16
3.16 Brokers.......................................................................................... 16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CITY.................................................................. 17
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
4.1 Organization, Standing and Corporate Power. ..................................................... 17
4.2 City Capital Structure........................................................................... 17
4.3 Authority/Noncontravention....................................................................... 18
4.4 Financial Statements; No Undisclosed Liabilities................................................. 19
4.5 Absence of Certain Changes or Events............................................................. 19
4.6 Litigation....................................................................................... 20
4.7 Contracts........................................................................................ 20
4.8 Compliance With Laws............................................................................. 20
4.9 Absence of Changes in Benefit Plans; Employment Agreements; Labor Relations. .................... 21
4.10 ERISA Compliance................................................................................. 21
4.11 Taxes............................................................................................ 22
4.12 No Excess Parachute Payments..................................................................... 22
4.13 Title to Properties.............................................................................. 23
4.14 Intellectual Property............................................................................ 23
4.15 Section 203 of Delaware Law Not Applicable....................................................... 24
4.16 Brokers.......................................................................................... 24
ARTICLE V ADDITIONAL AGREEMENTS.................................................................................... 24
5.1 Conduct of Business.............................................................................. 24
5.2 City Stockholder Vote............................................................................ 27
5.3 Restrictions on Transfer......................................................................... 27
5.4 Confidentiality; Access to Information........................................................... 28
5.5 No Solicitation.................................................................................. 29
5.6 Public Disclosure................................................................................ 30
5.7 Tax Free Reorganization.......................................................................... 30
5.8 Commercially Reasonable Efforts; Regulatory Filings; Notification................................ 30
5.9 Convertible Note................................................................................. 32
5.10 Agreement to Vote Shares......................................................................... 32
5.11 Corporate Governance Matters..................................................................... 32
5.12 Qualified IPO.................................................................................... 36
5.13 Put Option....................................................................................... 36
5.14 Certain Tax Matters.............................................................................. 38
5.15 Certain Employee Benefit Matters................................................................. 40
5.16 Registration Rights.............................................................................. 40
5.17 Closing Balance Sheet............................................................................ 41
5.18 Delivery of Financial Information................................................................ 41
ARTICLE VI CONDITIONS TO THE MERGER ............................................................................... 42
6.1 Conditions to Obligations of Each Party to Effect the Merger..................................... 42
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.2 Additional Conditions to Obligations of USA, Ticket and TMOL..................................... 42
6.3 Additional Conditions to the Obligations of City and Merger Sub.................................. 43
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER ..................................................................... 44
7.1 Termination...................................................................................... 44
7.2 Notice of Termination; Effect of Termination..................................................... 45
7.3 Fees and Expenses................................................................................ 45
7.4 Amendment........................................................................................ 45
7.5 Extension; Waiver................................................................................ 45
ARTICLE VIII GENERAL PROVISIONS ................................................................................... 46
8.1 Survival......................................................................................... 46
8.2 Notices.......................................................................................... 46
8.3 Interpretation; Knowledge........................................................................ 47
8.4 Counterparts..................................................................................... 48
8.5 Entire Agreement; Third Party Beneficiaries...................................................... 48
8.6 Severability..................................................................................... 48
8.7 Other Remedies; Specific Performance............................................................. 48
8.8 Governing Law.................................................................................... 49
8.9 Rules of Construction............................................................................ 49
8.10 Assignment....................................................................................... 49
8.11 Waiver of Jury Trial............................................................................. 49
8.12 Majority in Interest of City Holders............................................................. 49
</TABLE>
-iii-
<PAGE>
INDEX OF EXHIBITS
Exhibit A Form of Convertible Note
Exhibit B TMOL Business Agreement
Exhibit C Form of Voting Agreement
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
This AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION is made and
entered into as of August 12, 1998 (this "AGREEMENT"), among CitySearch, Inc., a
Delaware corporation ("CITY"), Tiberius, Inc., a Delaware corporation and a
wholly owned subsidiary of City ("MERGER SUB"), USA Networks, Inc., a Delaware
corporation ("USA"), Ticketmaster Group, Inc., an Illinois corporation and a
wholly owned subsidiary of USA ("TICKET GROUP"), Ticketmaster Corporation, an
Illinois corporation and a wholly owned subsidiary of Ticket Group ("TICKET
CORP." and, together with Ticket Group, "TICKET") and Ticketmaster Multimedia
Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of Ticket
Corp. ("TMOL").
RECITALS
--------
A. City, Merger Sub, USA, Ticket and TMOL are parties to an Agreement and
Plan of Reorganization dated as of August 12, 1998 (the "ORIGINAL MERGER
AGREEMENT").
B. City, Merger Sub, USA, Ticket and TMOL desire to amend and restate in
its entirety the Original Merger Agreement, in the manner set forth herein, as
of the date of the Original Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties, covenants and agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
----------
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("DELAWARE LAW"),
Merger Sub shall be merged with and into TMOL (the "MERGER"), the separate
corporate existence of Merger Sub shall cease and TMOL shall continue as the
surviving corporation. TMOL as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "SURVIVING CORPORATION." City,
following the Effective Time, is sometimes referred to as the "COMBINED
COMPANY."
1.2 Effective Time; Closing. Subject to the provisions of this Agreement,
-----------------------
the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "CERTIFICATE OF
MERGER") (the time of the effectiveness of the Certificate of Merger (or such
later time as may be agreed in writing by City and USA and specified in the
Certificate of Merger) being the "EFFECTIVE TIME") on the Closing Date (as
defined below). The closing of the Merger (the "CLOSING") shall take place at
the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, at a
time and date
<PAGE>
to be specified by the parties, which shall be no later than the second business
day after the satisfaction or waiver of the conditions set forth in Article VI,
or at such other time, date and location as the parties hereto mutually agree in
writing (the "CLOSING DATE").
1.3 Effect of the Merger. At the Effective Time the effect of the Merger
--------------------
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of TMOL and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of TMOL and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws. At the Effective Time, the
------------------------------------
Certificate of Incorporation of TMOL as in effect immediately prior to the
Effective Time (shall be the Certificate of Incorporation of the Surviving
Corporation and the Bylaws of TMOL as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation.
1.5 Directors and Officers. The directors of TMOL immediately prior to
----------------------
the Effective Time shall continue as directors of the Surviving Corporation. The
initial officers of the Surviving Corporation shall be the officers of TMOL
immediately prior to the Effective Time.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
-----------------------
Merger and without any action on the part of Merger Sub, TMOL or the holders of
any of the following securities:
(a) Conversion of TMOL Common Stock. Each share of common stock, no
-------------------------------
par value, of TMOL ("TMOL COMMON STOCK") issued and outstanding immediately
prior to the Effective Time, other than any shares of TMOL Common Stock to be
canceled pursuant to Section 1.6(b), shall be converted (subject to Sections
1.6(d) and (e)) into 37,238 (the "EXCHANGE RATIO") validly issued, fully paid
and nonassessable shares of Common Stock, $0.01 par value, of City ("CITY COMMON
STOCK"). All such shares of TMOL Common Stock shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
certificate previously representing any such shares shall thereafter represent
the shares of City Common Stock into which such TMOL Common Stock has been
converted. Certificates previously representing shares of TMOL Common Stock
shall be exchanged for certificates representing whole shares of City Common
Stock issued in consideration therefor upon the surrender of such certificates
in accordance with Section 1.7 (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if required) in the manner
provided in Section 1.9).
(b) Cancellation of Stock. Each share of TMOL Common Stock held by
---------------------
TMOL immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(c) Capital Stock of Merger Sub. Each share of common stock, par
---------------------------
value $0.01 per share (the "MERGER SUB COMMON STOCK"), of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into one
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation. Each certificate evidencing ownership of shares of
Merger
-2-
<PAGE>
Sub Common Stock shall evidence ownership of such shares of capital stock of the
Surviving Corporation.
(d) Exchange Ratio. The Exchange Ratio shall be adjusted to reflect
--------------
appropriately the effect of any stock split, reverse stock split, stock dividend
(including any dividend or distribution of securities convertible into City
Common Stock or TMOL Common Stock), reorganizations, recapitalization,
reclassification or other like change with respect to City Common Stock or TMOL
Common Stock occurring or having a record date on or after the date hereof and
prior to the Effective Time.
(e) Fractional Shares. No fractional share of City Common Stock shall
-----------------
be issued in the Merger. In lieu thereof, any fractional share shall be rounded
up or down to the nearest whole share of City Common Stock.
(f) Dissenting Shares. Ticket hereby waives all dissenters rights or
-----------------
appraisal rights to which it may be entitled by virtue of the Merger.
1.7 Surrender of Certificates.
-------------------------
(a) Exchange Agent. City shall select a bank, trust company or other
--------------
entity reasonably acceptable to USA to act as the exchange agent (the "EXCHANGE
AGENT") in the Merger.
(b) City to Provide Stock. Promptly after the Effective Time, City
---------------------
shall make available to the Exchange Agent for exchange in accordance with this
Article I, the shares of City Common Stock issuable pursuant to Section 1.6 in
exchange for outstanding shares of TMOL Common Stock.
(c) Exchange Procedures. As soon as practicable after the Effective
-------------------
Time, and in no event later than five (5) business days thereafter, City shall
cause the Exchange Agent to mail to each holder of record (as of the Effective
Time) of a certificate or certificates which immediately prior to the Effective
Time represented outstanding shares of TMOL Common Stock (the "CERTIFICATES")
whose shares were converted into shares of City Common Stock pursuant to Section
1.6, (i) a letter of transmittal in customary form (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall
contain such other provisions as City may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of City Common Stock. Upon surrender of
Certificates for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by City, together with such letter of transmittal and
form of election duly completed and validly executed in accordance with the
instructions thereto, the holders of such Certificates shall be entitled to
receive in exchange therefor certificates representing the number of whole
shares of City Common Stock into which their shares of TMOL
-3-
<PAGE>
Common Stock were converted at the Effective Time, and the Certificates so
surrendered shall forthwith be canceled. Until so surrendered, outstanding
Certificates will be deemed from and after the Effective Time, for all corporate
purposes to evidence only the ownership of the number of full shares of City
Common Stock into which such shares of TMOL Common Stock shall have been so
converted. Notwithstanding the foregoing, in the event that Ticket is the sole
stockholder of TMOL and appears at the Closing with all Certificates
representing formerly outstanding shares of TMOL capital stock, duly endorsed
for transfer, City shall effect the exchange of City Common Stock for such
Certificates at the Closing.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
------------------------------------------------
other distributions declared or made after the date of this Agreement with
respect to City Common Stock with a record date after the Effective Time will be
paid to the holders of any unsurrendered Certificates with respect to the shares
of City Common Stock represented thereby until the holders of record of such
Certificates shall surrender such Certificates. Subject to applicable law,
following surrender of any such Certificates, the Exchange Agent shall deliver
to the record holders thereof, without interest, certificates representing whole
shares of City Common Stock issued in exchange therefor and the amount of any
such dividends or other distributions with a record date after the Effective
Time payable with respect to such whole shares of City Common Stock.
(e) Transfers of Ownership. If certificates representing shares of
----------------------
City Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to City or any agent designated by it
any transfer or other taxes required by reason of the issuance of certificates
representing shares of City Common Stock in any name other than that of the
registered holder of the Certificates surrendered, or established to the
reasonable satisfaction of City or any agent designated by it that such tax has
been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
------------
Section 1.7, neither the Exchange Agent, City, the Surviving Corporation nor any
party hereto shall be liable to a holder of shares of City Common Stock or TMOL
Common Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in City Capital Stock. At and after the
-------------------------------------------------
Effective Time the holders of Certificates to be exchanged pursuant to this
Agreement shall cease to have any rights as stockholders of TMOL except for the
right to surrender such holder's Certificates in exchange for shares of City
Common Stock, and after the Effective Time there shall be no transfers on the
stock transfer books of the Surviving Corporation of the shares of TMOL Common
Stock which were outstanding immediately prior to the Effective Time. Any
Certificates formerly representing shares of TMOL Common Stock presented to the
Surviving Corporation or Exchange Agent shall be canceled and exchanged for
shares of City Common Stock, as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates
--------------------------------------
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of
an affidavit of that fact by the holder thereof, certificates representing the
shares of City Common Stock into which the shares of TMOL Common Stock
represented by such Certificates were converted pursuant to Section 1.6, and any
dividends or distributions payable pursuant to Section 1.7(d); provided,
--------
however, that City may, in its discretion and as a condition precedent to the
- -------
-4-
<PAGE>
issuance of such certificates representing shares of City Common Stock, cash and
other distributions, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against City, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the
----------------
Merger shall constitute a reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended (the "CODE"), and each of the
parties hereto will use its commercially reasonable efforts to cause the Merger
to be treated as such a reorganization. The parties hereto adopt this Agreement
as a "plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Income Tax Regulations.
ARTICLE II
THE OFFER
2.1 Commencement of the Offer. USA shall, as soon as practicable after
-------------------------
the consummation of the Merger, commence, subject to Section 2.5, an offer (the
"OFFER") to purchase from each holder of City capital stock as of the date
hereof, any transferee of such shares, and any future holder of City capital
stock who acquired such stock upon exercise of warrants outstanding on the date
hereof or conversion of City Preferred Stock outstanding on the date hereof or
exercise of employee or consultant incentive stock options issued in the
ordinary course of business at any time (excluding, in any event, USA, any
successor holder thereto and any affiliates of USA or any successor holder
thereto) (each, a "CITY HOLDER") up to 20% of each City Holder's shares of City
Common Stock (including shares of City Common Stock issuable upon conversion of
Preferred Stock or upon exercise of options or warrants) (the "20% LIMITATION").
The purchase price of the Offer (the "OFFER EXCHANGE RATIO") shall be, for each
share of City Common Stock, $8.67 in cash. The Offer Exchange Ratio and the USA
Cap (as defined in Section 2.5) shall be adjusted to reflect appropriately the
effect of any stock split, reverse stock split, stock dividend (including any
dividend or distribution of securities convertible into City Common Stock or any
Series of Preferred Stock of City), reorganizations (other than the Merger),
recapitalization, reclassification or other like change with respect to City
Common Stock or any Series of Preferred Stock of City occurring or having a
record date on or after the date hereof and prior to the consummation of the
Offer (other than changes contemplated by this Agreement).
2.2 Expiration of the Offer. The Offer shall remain open until 5:00
-----------------------
p.m., New York City time, on the date twenty business days following the
commencement of the Offer (the "EXPIRATION DATE"). USA may not amend or change
any terms of the Offer without the written consent of (a) City at any time prior
to the Effective Time or (b) a majority in interest of the City Holders at any
time following the Effective Time.
2.3 Offer Mechanics. The Offer shall be made by means of an offer to
---------------
purchase (the "OFFER TO PURCHASE") containing the terms set forth in this
Agreement. Concurrently with the commencement of the Offer, USA shall
disseminate to all City Holders the Offer to Purchase and a letter of
transmittal
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<PAGE>
in customary form (the "OFFER DOCUMENTS") to each of which City shall not have
reasonably objected. City and its counsel shall be given a reasonable
opportunity to review and comment on the Offer Documents prior to the
dissemination thereof to City Holders. Upon the terms of the Offer, USA will
purchase by accepting for payment and will pay for shares of City Common Stock
validly tendered, as promptly as practicable after the Expiration Date.
2.4 List of City Holders. City shall furnish USA with a list containing
--------------------
the names and addresses of all City Holders and such information about City as
USA may reasonably request to enable it to comply with applicable law.
2.5 Proration. The aggregate number of shares of City Common Stock to be
---------
purchased from City Holders pursuant to the Offer (the "USA CAP") shall not
exceed 2,924,339 shares. In the event that the aggregate number of shares of
City Common Stock properly tendered exceeds the USA Cap, USA will accept and pay
for (i) all City Common Stock validly tendered up to 10% of the aggregate number
of City Common Stock owned by each tendering City Holder (including City Common
Stock issued upon conversion of the Preferred Stock or upon exercise of options
or warrants) (such amount for each stockholder, the "MINIMUM AMOUNT", and in the
aggregate for all stockholders, the "AGGREGATE MINIMUM AMOUNT") and (ii) with
respect to City Common Stock tendered in excess of 10% of the City Common Stock
owned by any tendering stockholder (including City Common Stock issued upon
conversion of the Preferred Stock or upon exercise of options or warrants) (the
"10% THRESHOLD"), a number of shares of City Common Stock equal to (x) the City
Common Stock validly tendered in excess of the 10% Threshold and not in excess
of the 20% Limitation for such stockholder (the "SUPPLEMENTAL AMOUNT", and
together will all such City Common Stock tendered by all current City Holders,
the "AGGREGATE SUPPLEMENTAL AMOUNT") multiplied by (y) the Proration Factor (as
defined below), with any fraction rounded down to the next whole share, in any
case upon the terms and subject to the conditions set forth herein. The
"PRORATION FACTOR" shall be a fraction, the numerator of which is (x) the USAi
Cap minus (y) the Aggregate Minimum Amount and the denominator of which is the
Aggregate Supplemental Amount. City and USA shall take all steps necessary to
ensure that each City Holder tendering shares of City Common Stock into the
Offer which are not purchased pursuant to the Offer shall receive a certificate
for such unpurchased shares as promptly as practicable.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
USA, TICKET AND TMOL
USA, Ticket and TMOL jointly and severally represent and warrant to City
and Merger Sub, subject to the exceptions disclosed in writing in the disclosure
letter supplied by USA to City dated as of the date hereof (the "USA
SCHEDULES"), as set forth below.
3.1 Organization, Standing and Corporate Power. Each of USA, Ticket and
------------------------------------------
TMOL and each Distributor (as defined in Section 3.7(b) below) is a corporation
or other entity duly organized or formed, as the case may be, validly existing
and in good standing under the laws of the jurisdiction of its
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<PAGE>
organization or formation, as the case may be, and has all requisite corporate
or other entity power and authority to carry on its business as now being
conducted. Each of USA, Ticket and TMOL and each Distributor is duly qualified
or licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed or be in good
standing individually or in the aggregate could not reasonably be expected to
have a USA Material Effect (as defined in Section 8.3). TMOL has delivered to
City complete and correct copies of its Certificate of Incorporation and Bylaws
as amended to the date hereof. TMOL has no subsidiaries.
3.2 Capital Structure. The authorized capital stock of TMOL consists of
-----------------
1,000 shares of Common Stock, no par value. As of the date hereof, 1,000 such
shares are issued and outstanding. Ticket Corp. is the sole stockholder of TMOL.
Each of USA and Ticket Corp. is an accredited investor as defined in Regulation
D promulgated under the Securities Act of 1933, as amended (the "SECURITIES
ACT"). USA is acquiring the Convertible Promissory Note in the form attached
hereto as Exhibit A (the "CONVERTIBLE NOTE") and Ticket Corp. is acquiring the
---------
shares of City Common Stock issued in the Merger, in each case, solely for its
own account for investment and not with a view to or for sale in connection with
any distribution of such securities, any securities issuable upon conversion
thereof or any portion thereof, and not with any present intention of selling,
offering to sell or otherwise disposing of or distributing such securities, any
securities issuable upon conversion thereof or any portion thereof. Except as
set forth above, on the date hereof, no shares of capital stock or other voting
securities of TMOL were issued, reserved for issuance or outstanding. All
outstanding shares of capital stock of TMOL are duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights. There are no
bonds, debentures, notes or other indebtedness of TMOL having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of TMOL may vote. Except as set forth
above, there are no securities, options, warrants, calls, rights, contracts,
commitments, agreements, arrangements, obligations or undertakings of any kind
to which TMOL or USA or any of USA's subsidiaries is a party, or by which TMOL
or USA or any of USA's subsidiaries is bound, obligating TMOL or USA or any of
USA's subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock or other voting securities of TMOL
or securities convertible or exchangeable therefor or obligating TMOL or USA or
any of USA's subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, contract, commitment, agreement,
arrangement, obligation or undertaking. There are not any outstanding
contractual obligations requiring TMOL to repurchase, redeem or otherwise
acquire any shares of capital stock of TMOL. TMOL is not a party to or bound by
any agreement requiring it to register shares of its capital stock under the
Securities Act.
3.3 Authority/Noncontravention. Each of (to the extent it is a party) USA,
--------------------------
Ticket and TMOL has the requisite corporate power and authority to execute and
deliver this Agreement and the License and Services Agreement attached hereto as
Exhibit C (the "TMOL BUSINESS AGREEMENT") and to consummate the transactions
- ---------
contemplated hereby and thereby. The execution, delivery and performance of
this Agreement and the TMOL Business Agreement by each of (to the extent it is a
party) USA, Ticket and TMOL and the consummation by (to the extent it is a
party) USA, Ticket and TMOL of the transactions contemplated hereby and thereby
have been duly authorized by all necessary
-7-
<PAGE>
corporate action on the part of (to the extent it is a party) USA, Ticket and
TMOL and no other corporate proceedings on the part of (to the extent it is a
party) USA, Ticket or TMOL are necessary to authorize this Agreement and the
TMOL Business Agreement or to consummate the transactions contemplated hereby
and thereby. This Agreement and the TMOL Business Agreement have been duly
executed and delivered by (to the extent it is a party) USA, Ticket and TMOL and
constitute valid and binding obligations of (to the extent it is a party) USA,
Ticket and TMOL, enforceable against (to the extent it is a party) USA, Ticket
and TMOL in accordance with their terms. The execution and delivery of this
Agreement and the TMOL Business Agreement do not, and the consummation of the
transactions contemplated by this Agreement and the TMOL Business Agreement and
compliance with the provisions of this Agreement and the TMOL Business Agreement
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit or require any consent, approval or authorization under, or
result in the creation of any pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever (collectively, "LIENS") in
or upon any of the properties or assets of TMOL (or USA or Ticket to the extent
related to the Put, the Offer, the TMOL Business Agreement or the Online Revenue
Rights), under, any provision of (a) the Certificate of Incorporation or Bylaws
of USA, Ticket or TMOL or the certificates of incorporation or bylaws (or
similar organizational documents) of any of USA's subsidiaries, (b) any loan or
credit agreement, bond, debenture, note, mortgage, indenture, lease or other
material contract, commitment, agreement, arrangement, obligation, undertaking,
instrument, permit, concession, franchise or license applicable to TMOL (or USA
or Ticket to the extent related to the Put, the Offer, the TMOL Business
Agreement or the Online Revenue Rights) or their respective properties or assets
or (c) any statute, law, ordinance, rule or regulation or judgment, order or
decree, in each case, applicable to USA, TMOL or any of USA's subsidiaries (or
USA or Ticket to the extent related to the Put, the Offer, the TMOL Business
Agreement or the Online Revenue Rights) or their respective properties or
assets, other than, in the case of clauses (b) and (c), any such conflicts,
violations, defaults, rights or Liens or other occurrences that individually or
on the aggregate could not reasonably be expected to have a USA Material Effect.
No consent, approval, order or authorization of, or registration, declaration or
filing with, any Federal, state or local, domestic or foreign, government or any
court, administrative agency or commission or other governmental authority or
agency, domestic or foreign (a "GOVERNMENTAL ENTITY"), is required by or with
respect to USA, Ticket or TMOL or any of USA's subsidiaries in connection with
the execution and delivery of this Agreement or the TMOL Business Agreement by
USA, Ticket and TMOL or the consummation by USA, Ticket and TMOL of the Merger,
the Put, the Offer or the other transactions contemplated by this Agreement and
the TMOL Business Agreement, except for (a) the filing of the Certificate of
Merger with the Delaware Secretary of State, (b) such consents, approvals,
orders, authorizations, registrations, declarations or filings as may be
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"), (c) compliance with, and filings under, any applicable
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act") in connection with the Put, and (d) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings the failure of which to be obtained or to be made, individually or in
the aggregate, could not reasonably be expected to (i) have a USA Material
Effect or (ii) prevent or materially delay any of the transactions contemplated
by this Agreement.
-8-
<PAGE>
3.4 Financial Statements; No Undisclosed Liabilities.
------------------------------------------------
(a) The unaudited balance sheet of TMOL (the "TMOL BALANCE SHEET") as
of June 30, 1998 (the "TMOL BALANCE SHEET DATE") and the related unaudited
statements of operations for the period from February 1, 1998 through June 30,
1998 are attached to Section 3.4(a) of the USA Schedules and have been prepared
in accordance with the books and records of TMOL and are complete and correct in
all material respects, have each been prepared in accordance with generally
accepted accounting principles ("GAAP") (with the exception that no footnotes or
tax provisions and tax related liabilities have been provided) in conformity
with the practices consistently applied by TMOL throughout the periods involved
and present fairly the financial position and results of operations of TMOL as
of the dates and for the periods specified.
(b) The unaudited pro forma statement of operations for the period
from February 1, 1998 through June 30, 1998 (the "TMOL PRO FORMA FINANCIAL
STATEMENTS") are attached to Section 3.4(b) of the USA Schedules and have been
prepared in good faith in accordance with the books and records of TMOL with
items of revenue from Distributors and items of expense presented on a pro forma
basis as if the TMOL Business Agreement was in effect for the period specified.
(c) As of the TMOL Balance Sheet Date, TMOL did not have any material
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise, and whether due or to become due or asserted or
unasserted), which were not fully reflected in, reserved against or otherwise
described in the TMOL Balance Sheet. Since the TMOL Balance Sheet Date, TMOL
has not incurred any material indebtedness, obligations or liabilities of any
kind (whether accrued, absolute, contingent or otherwise, and whether due or to
become due or asserted or unasserted), other than those incurred in the ordinary
course of business consistent with past practice.
(c) USA has filed all forms, reports and documents required to be
filed by USA with the SEC since December 31, 1997. All such required forms,
reports and documents (including those that USA may file subsequent to the date
hereof) are referred to herein as the "USA SEC REPORTS." As of their respective
dates, the USA SEC Reports (i) were prepared in accordance with, and in
compliance with, in all material respects, the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such USA SEC Reports, and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(d) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the USA SEC Reports, including any
USA SEC Reports filed after the date hereof until the Closing, (x) complied as
to form in all material respects with the published rules and regulations of the
SEC with respect thereto, (y) was prepared in all material respects in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act) and (z) fairly presented in all material respects
the consolidated
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<PAGE>
financial position of USA and its subsidiaries as at the respective dates
thereof and the consolidated results of USA's operations and cash flows for the
periods indicated, except that the unaudited interim financial statements may
not contain footnotes.
3.5 Absence of Certain Changes or Events. Since the TMOL Balance Sheet
------------------------------------
Date and until the date hereof, TMOL has conducted its business only in the
ordinary course consistent with past practice, and there has not been (a) except
for transactions in the ordinary course of business, consistent with past
practice, any material transaction, agreement or arrangement involving both (i)
any of USA or any of its affiliates and (ii) TMOL, (b) any declaration, setting
aside or payment of any dividend on, or other distribution (whether in cash,
stock or property) with respect to TMOL's capital stock, (c) any split,
combination, reclassification or repurchase of TMOL's capital stock or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for shares of TMOL's capital stock, (d) (i)
any granting by TMOL to any officer of TMOL of any increase in compensation,
except in the ordinary course of business consistent with past practice, (ii)
any granting by TMOL to any officer of TMOL of any increase in severance or
termination pay, or (iii) any entry by TMOL into (A) any currently effective
employment, severance, termination or indemnification agreement, or consulting
agreement (other than in the ordinary course of business consistent with past
practice), with any current or former officer, director, employee or consultant
or (B) any agreement with any current or former officer, director, employee or
consultant the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving TMOL of the
nature contemplated by this Agreement, (e) any material damage, destruction or
loss to TMOL of any of the Online Revenue Rights, whether or not covered by
insurance, (f) any material change in accounting methods, principles or
practices by TMOL, except insofar as may have been required by a change in GAAP
or (g) any material tax election by TMOL.
3.6 Litigation. There is no suit, claim, action, proceeding or, to the
----------
knowledge of TMOL, Ticket or USA, investigation, pending or, to the knowledge of
TMOL, Ticket or USA, threatened, against or affecting TMOL, USA, Ticket or any
Distributor, nor is there any judgment, order, decree or injunction of any
Governmental Entity or arbitrator outstanding against, or, to the knowledge of
TMOL, Ticket or USA, investigation by any Governmental Entity involving, TMOL,
Ticket USA, or any Distributor except for such suits, claims, actions,
proceedings, investigations, judgments, orders, decrees, or injunctions which,
individually and in the aggregate, could not reasonably be expected to (a) have
a USA Material Effect or (b) prevent or materially delay any of the transactions
contemplated by this Agreement.
3.7 Contracts.
---------
(a) As of the date hereof, TMOL is not a party to, nor are any of its
properties or assets bound by, any currently binding (i) contracts, licenses or
agreements, with respect to any tangible or intangible property with a value or
cost in excess of $50,000, (ii) any employment or consulting agreement or
contract that requires payments in excess of $50,000 per year (other than offer
letters providing only for "at will" employment), (iii) any agreement or plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the TMOL Business Agreement or the value of
any of
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<PAGE>
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement or the TMOL Business Agreement, (iv) any
agreement of indemnification, agreement providing for reimbursement of payments
or providing a right of rescission, hold harmless or guaranty, or any obligation
or liability with respect to infringement of the intellectual property rights of
another person, in excess of, or entered into in connection with a transaction
in excess of, $50,000, (v) any agreement, contract or commitment containing any
covenant limiting the freedom of such party, any of its subsidiaries or the
Surviving Corporation to engage in any line of business or to compete with any
person, (vi) any agreement, contract or commitment relating to capital
expenditures and involving future payments by TMOL in excess of $50,000 in one
or in a series of transactions, (vii) any agreement, contract or commitment
relating to the disposition or acquisition of assets or any interest in any
business enterprise outside the ordinary course of business, (viii) any
mortgages, indentures, loans or credit agreements, security agreements or other
agreements or instruments relating to the borrowing of money or extension of
credit in excess of $50,000 in the aggregate, (ix) any purchase order or
contract for the purchase of materials involving in excess of $50,000, (x)
except as contemplated by this Agreement or the TMOL Business Agreement, any
material agreement (or material arrangement to be in place following the
Effective Time) involving both (a) any of USA or any of its affiliates and (b)
TMOL, (xi) any contracts that relate to corporate governance, the voting or
transfer of any equity securities of such party, the registration of any
securities of such party under the Securities Act or that grant any redemption
or preemptive rights or (xii) any other agreement, contract or commitment that
involves $50,000 or more or is not cancelable without penalty within thirty (30)
days (collectively, the "TMOL CONTRACTS"). TMOL has delivered or otherwise made
available to City true, correct and complete copies of the TMOL Contracts,
together with all amendments, modifications and supplements thereto and all side
letters to which TMOL is a party affecting the obligations of any party
thereunder. TMOL is not, and to the knowledge of TMOL or USA neither is any
other party, in violation of or in default (with or without notice or lapse of
time, or both) under any material lease, permit, concession, franchise, license
or any other material contract, commitment, agreement, arrangement, obligation
or understanding to which TMOL is a party or affecting the Online Revenue Rights
or by which TMOL or any of its properties or assets is bound, except for any
such violations or defaults that could not reasonably be expected to,
individually or in the aggregate, (i) prevent or materially delay consummation
of any of the transactions contemplated hereby or (ii) have a USA Material
Effect.
(b) For purposes of this Agreement, a "VENUE AGREEMENT" means a
contract, agreement or arrangement to which any of USA, TMOL or any affiliate of
either of them is a party (each, a "DISTRIBUTOR"), relating to any rights any
such Distributor has to sell, enable the sale of, or distribute tickets for live
events or performances and impose any fees or charges (collectively "FEES,"
which shall include, without limitation, convenience charges, handling charges,
inside charges and credit card purchase charges) in connection therewith to the
counterparty and/or ticket purchaser ("TICKET DISTRIBUTION"). Under each Venue
Agreement, the Distributor that is a party thereto has all rights necessary to
permit and enable it to engage in, and derive revenue from, Ticket Distribution
on-line over the Internet for the events and performances that are the subject
of such Venue Agreement (individually and collectively, the "ONLINE REVENUE
RIGHTS"). The terms of the Online Revenue Rights in each Venue Agreement
(including without limitation the amount of all Fees) are no less favorable to
the Distributor than the terms of the Venue Agreements pertaining to Ticket
Distribution conducted by telephone. Without limiting the foregoing, under each
Venue Agreement, the Distributor that is a party
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<PAGE>
thereto has the right to apply the customer convenience charges, the handling
charges, any inside charges and any credit card purchase charges for Ticket
Distribution online in the amounts no less than the amounts specified in such
agreements for Ticket Distribution conducted by telephone. The execution and
delivery of this Agreement and the TMOL Business Agreement do not, and the
consummation of the transactions contemplated by this Agreement and the TMOL
Business Agreement and compliance with the provisions of this Agreement and the
TMOL Business Agreement will not conflict with, or result in any violation of,
or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation, acceleration of any obligation or
to loss or impairment of a benefit or require any consent, approval or
authorization under, or result in the creation of any Liens upon any of the
properties or assets of any Distributor, under any provision of any Venue
Agreement, except as could not reasonably be expected to have a USA Material
Effect.
The line items entitled "Convenience Charges" and "S&H Revenue-Tickets"
included in the TMOL statement of operations that is included in the TMOL Pro
Forma Financial Statements are comprised only of revenues recognized by
Distributors from Ticket Distribution on-line over the Internet under the Venue
Agreements; and if such revenue were to be generated by a Distributor following
the Effective time, then, under the TMOL Business Agreement, all such revenue
would be treated as revenue of TMOL. The line items entitled "Convenience
Charges" and "S&H Revenue-Tickets" included in the statement of operations that
is included in the TMOL Financial Statements are comprised of all "Inside
Charges", "Royalties", "License Fees" and all other fees and charges, however
denominated, received by Distributor in respect of Ticket Distribution online.
With respect to a substantial majority of the Venue Agreements for major
clients, there is no third party that has any right to engage in Ticket
Distribution by telephone or on-line over the Internet.
Neither USA, Ticket nor any other Distributor has transferred or permitted
the transfer of any rights to any person or entity that is not majority owned
and controlled by Ticket to engage in, or derive revenue from, Ticket
Distribution over the Internet using the "Ticketmaster" name (or any derivation
thereof) or Ticketmaster marks, and no existing contract, agreement or
arrangement is in, or may in the future take, effect that would permit any
person or entity that is not majority owned and controlled by Ticket to use such
names or marks for such purposes. Each Distributor is majority owned and
controlled by Ticket.
3.8 Compliance With Laws. USA, Ticket, TMOL, their respective subsidiaries
--------------------
and affiliates, and, to the knowledge of TMOL or USA, all Distributors are in
compliance with all statutes, laws, ordinances, rules, regulations, judgments,
orders and decrees of any Governmental Entity applicable to their businesses or
operations, except for instances of possible noncompliance that individually or
in the aggregate could not reasonably be expected to have a USA Material Effect.
USA, Ticket, TMOL, their respective subsidiaries and each Distributor have in
effect all Federal, state and local, domestic and foreign, governmental
consents, approvals, orders, authorizations, certificates, filings, notices,
permits, franchises, licenses and rights (collectively "PERMITS") necessary for
them to own, lease or operate their properties and assets and to carry on their
businesses as now conducted and there has occurred no violation of, or default
under, any such Permit, except for the lack of Permits and for violations of, or
defaults under, Permits which lack, violation or default individually or in the
aggregate could not
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reasonably be expected to have a USA Material Effect. As of the date of this
Agreement, neither any of the representations or warranties made by USA, Ticket
and TMOL in this Agreement nor the USA Schedules, when taken together as a
whole, under the circumstances in which they were made, contains any untrue
statement of a material fact, or omits to state any material fact necessary in
order to make such representations, warranties and statements not misleading.
3.9 Absence of Changes in Benefit Plans; Employment Agreements; Labor
-----------------------------------------------------------------
Relations. Since the TMOL Balance Sheet Date and until the date hereof, there
- ---------
has not been any termination, adoption, amendment or agreement to amend in any
material respect by TMOL of any material bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock purchase,
stock appreciation, restricted stock, stock option, phantom stock, performance,
retirement, vacation, severance, disability, death benefit, hospitalization,
medical or other material plan, arrangement or understanding providing benefits
to any current or former officer, director or employee of TMOL (collectively,
"BENEFIT PLANS"). As of the date hereof there exist no currently binding
employment, severance or termination agreements or material consulting
agreements between TMOL and any current or former officer of TMOL. There are no
collective bargaining or other labor union agreements to which TMOL is a party
or by which it is bound. TMOL has not encountered any labor union organizing
activity, nor had any actual or threatened employee strikes, work stoppages,
slowdowns or lockouts.
3.10 ERISA Compliance.
----------------
(a) Section 3.10(a) of the USA Schedules contains a list of all
"employee pension benefit plans" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) (sometimes
referred to herein as "TMOL PENSION PLANS"), "employee welfare benefit plans"
(as defined in Section 3(l) of ERISA) and all other Benefit Plans maintained or
contributed to by TMOL or any person or entity that, together with TMOL, is
treated as a single employer under Section 414(b), (c), (m) or (o) of the Code
(a "TMOL COMMONLY CONTROLLED ENTITY") for the benefit of any current or former
officers, directors or employees of TMOL. TMOL has made available to City true,
complete and correct copies of (i) each Benefit Plan (or, in the case of any
unwritten Benefit Plans, descriptions thereof), (ii) the most recent annual
report on Form 5500 required to be filed with the Internal Revenue Service (the
"IRS") with respect to each Benefit Plan (if any such report was required),
(iii) the most recent summary plan description and all material modifications
thereto for each Benefit Plan for which such summary plan description is
required and (iv) each trust agreement and group annuity contract relating to
any Benefit Plan. Each Benefit Plan has been administered in accordance with
its terms, except where the failure to so administer could not, individually or
in the aggregate, reasonably be expected to have a USA Material Effect. TMOL
and all the Benefit Plans are all in compliance with applicable provisions of
ERISA and the Code, except for instances of possible noncompliance that could
not, individually or in the aggregate, reasonably be expected to have a USA
Material Effect.
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<PAGE>
(b) Each of the TMOL Pension Plans has been the subject of a
determination letter (or its equivalent) from the IRS to the effect that such
TMOL Pension Plan is qualified and exempt from United States Federal income
taxes under Sections 401(a) and 501(a), respectively, of the Code, and no such
determination letter (or its equivalent) has been revoked nor has any event
occurred since the date of its most recent determination letter (or its
equivalent) or application therefor that would adversely affect its
qualification or materially increase its costs.
(c) Neither TMOL nor any TMOL Commonly Controlled Entity has
maintained, contributed to or been obligated to contribute to any Benefit Plan
that is subject to Title IV of ERISA.
(d) Except pursuant to Section 5.15(b), no officer or employee of TMOL
will be entitled to any additional compensation or benefits or any acceleration
of the time of payment or vesting of any compensation or benefits under any
Benefit Plan as a result of the transactions contemplated by this Agreement or
any benefits under any Benefits Plan the value of which will be calculated on
the basis of any of the transactions contemplated by this Agreement.
(e) TMOL: (i) has withheld and reported all amounts required by law
or by agreement to be withheld and reported by it with respect to wages,
salaries and other payments to any current or former employee, consultant or
director of TMOL ("TMOL EMPLOYEES"); (ii) is not liable for any arrears of wages
or any taxes or any penalty for failure to comply with any of the foregoing; and
(iii) is not liable for any payment to any trust or other fund governed by or
maintained by or on behalf of any governmental authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for TMOL Employees (other than routine payments to be made in the
normal course of business and consistent with past practice), except, in the
case of (i) through (iii) above, for such noncompliance or liability as could
not reasonably be expected to have a USA Material Effect. There are no pending,
threatened or reasonably anticipated claims or actions against TMOL under any
worker's compensation policy or long-term disability policy other than claims or
actions for which TMOL is insured or that otherwise could not reasonably be
expected to have a USA Material Effect.
3.11 Taxes. All material tax returns, information statements and reports
-----
("RETURNS") required to be filed with respect to TMOL or its assets or
operations have been filed, and all such Returns are true and correct in all
material respects (except where adequate reserves have been established
therefore on the TMOL Balance Sheet). All material taxes that accrue or are
payable by TMOL and each of its subsidiaries in respect of taxable periods that
end on or before the Closing Date have been (on or before the Closing Date)
timely paid or an adequate reserve has been established on the TMOL Balance
Sheet. No deficiencies for any Taxes have been proposed, asserted or assessed
against TMOL, and no requests for waivers of the time to assess any such Taxes
are pending. No audit or other examination of any Return of TMOL is currently
in progress, nor has TMOL or Ticket been notified of any request for such an
audit or other examination. TMOL has provided or made available for inspection
copies of all foreign, federal and state income and state sales and use Returns
for all periods since the date of TMOL's incorporation. There are (and as of
immediately following the Effective Time there will be) no liens, pledges,
charges, claims, security interests or other encumbrances of any sort on the
assets of TMOL relating to or attributable to Taxes. As of the Effective Time,
there will not be any contract, agreement, plan or arrangement, including but
not limited to the provisions of this Agreement, covering any
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<PAGE>
employee or former employee of TMOL that, individually or collectively, could
give rise to the payment of any amount that would not be deductible pursuant to
Section 280G or 162 of the Code. TMOL is not a party to a Tax sharing or
allocation agreement nor does TMOL owe any amount under any such agreement. TMOL
will not be required to be under applicable law, included in any combined,
consolidated or unitary Return with USA, Ticket or any affiliate thereof (other
than City), for any period ending after the Closing Date, and TMOL has not been
included on any combined, consolidated or unitary Tax Returns with any entity
other than TMOL. As used in this Agreement, "Taxes" means (i) all Federal,
state, local and foreign income, property, sales, excise and other taxes,
tariffs or governmental charges of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts; (ii) any
liability for the payment of any amounts of the type described in clause (i) as
a result of being or ceasing to be a member of an affiliated, consolidated,
combined or unitary group for any period (including, without limitation, any
liability under Treas. Reg. Section 1502-6 or any comparable provisions of
foreign, state or local law); and (iii) any liability for the payment of any
amounts of the type described in clause (i) or (ii) as a result of any express
or implied obligation to indemnify any other person or as a result of any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for Taxes of a predecessor
entity.
3.12 No Excess Parachute Payments. No amount that could be received
----------------------------
(whether in cash or property or the vesting of property) as a result of any of
the transactions contemplated by this Agreement by any employee, officer or
director of TMOL who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Benefit Plan
currently in effect would be an "excess parachute payment" (as such term is
defined in Section 280G(b)(1) of the Code). No such person is entitled to
receive any additional payment from TMOL, the Surviving Corporation or any other
person (a "PARACHUTE GROSS-UP PAYMENT") in the event that the excise tax of
Section 4999(a) of the Code is imposed on such person. The Board of Directors of
TMOL has not granted to any officer, director or employee of TMOL any right to
receive any Parachute Gross-Up Payment.
3.13 Title to Properties.
-------------------
(a) TMOL has good and marketable title to, valid leasehold
interests in, or valid license rights to use, all of its material properties and
assets except for such as are no longer used or useful in the conduct of its
businesses or as have been disposed of in the ordinary course of business and
except for defects in title, easements, restrictive covenants and similar
encumbrances that individually or in the aggregate could not reasonably be
expected to have a USA Material Effect. All such material assets and properties,
other than assets and properties in which TMOL has a leasehold interest, are
free and clear of all Liens (other than Liens for current taxes not yet due and
payable), except for Liens that individually or in the aggregate could not
reasonably be expected to have a USA Material Effect.
(b) TMOL has complied in all material respects with the terms
of all material leases to which it is a party and under which it is in
occupancy, all such leases are in full force and effect, except for such
noncompliance or failure to be in full force and effect as individually or in
the aggregate could not reasonably be expected to have a USA Material Effect and
have been made available to City.
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<PAGE>
TMOL enjoy peaceful and undisturbed possession under all such material leases,
except for failures to do so that individually or in the aggregate could not
reasonably be expected to have a USA Material Effect.
3.14 Intellectual Property.
---------------------
(a) TMOL owns, or has the right to use, sell or license all
material intellectual property necessary or required for the conduct of its
business as presently conducted and as presently contemplated (such intellectual
property and the rights thereto are collectively referred to as the "TMOL IP
RIGHTS").
(b) TMOL has taken all reasonable steps necessary or appropriate
(including, entering into appropriate confidentiality, nondisclosure agreements
with officers, directors, subcontractors, independent contractors, full-time and
part-time employees, licensees and customers) to safeguard and maintain the
secrecy and confidentiality of, and the proprietary rights in, the TMOL IP
Rights material to its business.
(c) (i) Neither the manufacture, marketing, license, sale or
intended use of any product or technology currently licensed or sold by TMOL
violates in any material respect any license or agreement between TMOL and any
third party or infringes in any material respect any proprietary right of any
other party; and (ii) there is no pending or, to the knowledge of TMOL or USA,
threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any TMOL IP Right (other than immaterial claims
in foreign countries not in the Territory (as defined in the TMOL Business
Agreement)).
3.15 Section 203 of Delaware Law Not Applicable. The Board of
------------------------------------------
Directors of TMOL has taken all actions within its control so that the
restrictions contained in Section 203 of Delaware Law applicable to a "business
combination" (as defined in such Section 203) will not apply to the execution,
delivery or performance of this Agreement or to the consummation of the Merger
or the other transactions contemplated by this Agreement or the Convertible
Note, and, to the knowledge of USA, Ticket and TMOL, no other "fair price,"
moratorium," "control share acquisition," or other anti-takeover statute or
similar statute or regulation applies or purports to apply to this Agreement,
the Merger, the Convertible Note or the transactions contemplated hereby or
thereby.
3.16 Brokers. No broker, investment banker, financial advisor or other
-------
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of TMOL, Ticket or
USA, except for Lazard Freres & Co., LLC, whose fees shall be paid by USA.
Except for the foregoing, as of the date hereof, TMOL is not a party to any
agreement obligating it to retain any investment banking firm as a financial
advisor and to pay such investment banking firm a material fee for advisory
services in connection with any financing or acquisition transaction.
-16-
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CITY
City and Merger Sub jointly and severally represent and warrant to USA,
Ticket and TMOL, subject to the exceptions disclosed in writing in the
disclosure letter supplied by City to USA dated as of the date hereof (the "CITY
SCHEDULES"), as set forth below.
4.1 Organization, Standing and Corporate Power. City and each of its
------------------------------------------
subsidiaries (including Merger Sub) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and has all requisite corporate power and authority to carry on its
business as now being conducted. City and each of its subsidiaries (including
Merger Sub) is duly qualified or licensed to do business and is in good standing
in each jurisdiction in which the nature of its business or the ownership,
leasing or operation of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed or be in good standing individually or in the aggregate could not
reasonably be expected to have a City Material Effect. City has delivered to USA
complete and correct copies of its Certificate of Incorporation and Bylaws and
the certificates of incorporation and bylaws (or similar organizational
documents) of each of its subsidiaries, in each case as amended to the date
hereof. The shares of capital stock of each City subsidiary owned by City are
owned by it free and clear of any Liens (as defined in Section 3.3) of any kind
and such shares are fully paid and nonassessable.
4.2 City Capital Structure. The authorized capital stock of City
----------------------
consists of 75,000,000 shares of Common Stock, $0.01 par value per share, and
15,485,788 shares of Preferred Stock $0.01 par value per share, 1,791,173 of
which have been designated Series A Preferred Stock, 288,992 of which have been
designated Series B Preferred Stock, 3,261,024 of which have been designated
Series C Preferred Stock, 4,430,313 of which have been designated Series D
Preferred Stock and 5,714,286 of which have been designated Series E Preferred
Stock. As of the date hereof, 10,034,775 shares of Common Stock of City are
issued and outstanding, 1,791,173 shares of Series A Preferred Stock are issued
and outstanding, 288,992 shares of Series B Preferred Stock are issued and
outstanding, 3,261,024 shares of Series C Preferred Stock are issued and
outstanding, 4,430,313 shares of Series D Preferred Stock are issued and
outstanding and 5,714,286 shares of Series E Preferred Stock are issued and
outstanding. As of the date hereof, City had reserved an aggregate of 5,500,000
shares of City Common Stock, net of exercises, for issuance to employees,
consultants and non-employee directors pursuant to the City 1996 Stock Option
Plan, under which options were outstanding for an aggregate of 3,924,322 shares.
As of the date hereof, assuming conversion of all City Preferred Stock and
exercise of all outstanding options and warrants to acquire City Common Stock,
calculated on the treasury method assuming a fair market value of City Common
Stock of $8.67 per share, there are outstanding 27,523,750 shares of City Common
Stock. Except as set forth above, on the date hereof, no shares of capital stock
or other voting securities of City were issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of City are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. There are no bonds, debentures, notes or other indebtedness
of City having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders of
City may vote. Except as set forth above, there are no securities, options,
warrants, calls, rights, contracts, commitments, agreements, arrangements,
obligations or undertakings
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<PAGE>
of any kind to which City or any of its subsidiaries is a party, or by which
City or any of its subsidiaries is bound, obligating City or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other voting securities of City or
any of its subsidiaries or securities convertible or exchangeable thereafter or
obligating City or any of its subsidiaries to issue, grant, extend or enter into
any such security, option, warrant, call, right, contract, commitment,
agreement, arrangement, obligation or undertaking. There are not any outstanding
contractual obligations (i) requiring City or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of City or
(ii) requiring City to vote or to dispose of any shares of the capital stock of
any of its subsidiaries. Except as set forth in the Sixth Amended and Restated
Stockholders' Agreement, dated as of May 20, 1998, among City and certain of its
stockholders (the "STOCKHOLDERS' AGREEMENT"), City is not a party to or bound by
any agreement requiring it to register shares of its capital stock under the
Securities Act. Upon the Closing and assuming that City obtains the requisite
stockholder vote as contemplated by Section 5.2 of this Agreement, the
Stockholders' Agreement and all rights and obligations (other than Section 6 and
Sections 11.2, 11.4, 11.5, 11.6, 11.7, 11.8, 11.9 and 11.11) thereunder will
terminate.
4.3 Authority/Noncontravention. Each of City and Merger Sub has the
--------------------------
requisite corporate power and authority to execute and deliver this Agreement
and, subject to the approval and adoption of this Agreement and approval of the
Merger by City's stockholders, to consummate the transactions contemplated by
this Agreement. The execution, delivery and performance of this Agreement by
City and Merger Sub and the consummation by City and Merger Sub of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of City and Merger Sub and no other
corporate proceedings on the part of City and Merger Sub are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby,
subject, in each case, to the approval and adoption of this Agreement and
approval of the Merger by City's stockholders. This Agreement has been duly
executed and delivered by City and Merger Sub and constitutes a valid and
binding obligation of City and Merger Sub, enforceable against City and Merger
Sub in accordance with its terms. The execution and delivery of this Agreement
do not, and subject to receipt of the approval and adoption of this Agreement
and approval of the Merger by City's stockholders, the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
of this Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit or require any consent, approval or authorization
under, or result in any Liens upon any of the properties or assets of City or
Merger Sub, under, any provision of (a) the Certificate of Incorporation or
Bylaws of City or Merger Sub or the certificates of incorporation or bylaws (or
similar organizational documents) of any of their respective subsidiaries, (b)
any loan or credit agreement, bond, debenture, note, mortgage, indenture, lease
or other material contract, commitment, agreement, arrangement, obligation,
undertaking, instrument, permit, concession, franchise or license applicable to
City or Merger Sub or any of their respective subsidiaries or its properties or
assets or (c) assuming the truth and accuracy of the representations and
warranties of USA, Ticket and TMOL herein, any statute, law, ordinance, rule or
regulation or judgment, order or decree, in each case, applicable to City or
Merger Sub or any of their respective subsidiaries or their respective
properties or assets, other than, in the case of clauses (b) and (c), any such
conflicts, violations, defaults, rights or Liens or other occurrences that
individually or in the aggregate could not reasonably be expected to have
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<PAGE>
a City Material Effect. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to City or Merger Sub or any of their respective subsidiaries
in connection with the execution and delivery of this Agreement by City or the
consummation by City of the Merger or the other transactions contemplated by
this Agreement, except for (a) the filing of the Certificate of Merger with the
Delaware Secretary of State, (b) compliance with and filings under, any
applicable requirements of the Securities Act or the Exchange Act in connection
with the Merger, (c) such consents, approvals, orders, authorizations,
registrations, declarations or filings as may be required under the HSR Act and
(d) such other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made,
individually or in the aggregate, could not reasonably be expected to (i) have a
City Material Effect or (ii) prevent or materially delay any of the transactions
contemplated by this Agreement.
4.4 Financial Statements; No Undisclosed Liabilities.
------------------------------------------------
(a) The audited balance sheet of City as of December 31, 1997
and the related audited statements of operations, stockholders' equity and cash
flows for the period from January 1, 1997 through December 31, 1997, together
with the unaudited balance sheet of City (the "CITY BALANCE SHEET") as of June
30, 1998 (the "CITY BALANCE SHEET DATE") and the related unaudited statements of
operations, stockholders' equity and cash flows for the six month period ending
June 30, 1998 (collectively, including the related notes and schedules thereto,
the "CITY FINANCIAL STATEMENTS") are in accordance with the books and records of
City and are complete and correct in all material respects, have each been
prepared in accordance with GAAP in conformity with the practices consistently
applied by City throughout the periods involved and present fairly the financial
position, results of operations and cash flows of City as of the dates and for
the periods specified. True and complete copies of the City Financial Statements
have previously been supplied to USA.
(b) As of the City Balance Sheet Date, City did not have any
material indebtedness, obligations or liabilities of any kind (whether accrued,
absolute, contingent or otherwise, and whether due or to become due or asserted
or unasserted), which were not fully reflected in, reserved against or otherwise
described in the City Balance Sheet. Since the City Balance Sheet Date, City has
not incurred any material indebtedness, obligations or liabilities of any kind
(whether accrued, absolute, contingent or otherwise, and whether due or to
become due or asserted or unasserted), other than those incurred in the ordinary
course of business consistent with past practice.
4.5 Absence of Certain Changes or Events. Since the City Balance
------------------------------------
Sheet Date and until the date hereof, City and its subsidiaries have conducted
their respective businesses only in the ordinary course consistent with past
practice, and there has not been (a) any declaration, setting aside or payment
of any dividend on, or other distribution (whether in cash, stock or property)
with respect to any of City's or any of its subsidiaries' capital stock, (b) any
split, combination, reclassification or repurchase of any of City's or any of
its subsidiaries' capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of City's or any of its subsidiaries' capital stock, (c) (i) any
granting by City or any of its subsidiaries to any officer of City or any of its
subsidiaries of any increase in compensation, except in the ordinary course of
business consistent with past practice, (ii) any granting by City or any of its
subsidiaries to any officer of City or any of its
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<PAGE>
subsidiaries of any increase in severance or termination pay, or (iii) any entry
by City or any of its subsidiaries into (A) any currently effective employment,
severance, termination or indemnification agreement, or consulting agreement
(other than in the ordinary course of business consistent with past practice),
with any current or former officer, director, employee or consultant or (B) any
agreement with any current or former officer, director, employee or consultant
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving City of the nature
contemplated by this Agreement, (d) any material damage, destruction or loss,
whether or not covered by insurance, (e) any material change in accounting
methods, principles or practices by City, except insofar as may have been
required by a change in GAAP or (f) any material tax election by City.
4.6 Litigation. There is no suit, claim, action, proceeding or, to
----------
the knowledge of City, investigation, pending or, to the knowledge of City,
threatened, against or affecting City, nor is there any judgment, order, decree
or injunction of any Governmental Entity or arbitrator outstanding against, or,
to the knowledge of City, investigation by any Governmental Entity involving
City except for such suits, claims, actions, proceedings, investigations,
judgments, orders, decrees, or injunctions which, individually and in the
aggregate, could not reasonably be expected to (a) have a City Material Effect
or (b) prevent or materially delay any of the transactions contemplated by this
Agreement.
4.7 Contracts. Except as has been filed by City with the SEC, as of
---------
the date hereof, neither City, nor any subsidiary thereof, is a party to, nor
are any of their properties or assets bound by, any contract required to be
filed with any filing made by City with the SEC by Item 601(10) of Regulation S-
K promulgated under the Securities Act. Neither City nor any of its subsidiaries
is, nor to the knowledge of City is any other party, in violation of or in
default (with or without notice or lapse of time, or both) under any such filed
contract, except for any such violations or defaults that could not reasonably
be expected to, individually or in the aggregate, (i) prevent or materially
delay consummation of any of the transactions contemplated hereby or (ii) have a
City Material Effect.
4.8 Compliance With Laws. City and its subsidiaries are in compliance
--------------------
with all statutes, laws, ordinances, rules, regulations, judgments, orders and
decrees of any Governmental Entity applicable to their businesses or operations,
except for instances of possible noncompliance that individually or in the
aggregate could not reasonably be expected to have a City Material Effect. City
and its subsidiaries have in effect all Permits necessary for them to own, lease
or operate their properties and assets and to carry on their businesses as now
conducted and there has occurred no violation of, or default under, any such
Permit, except for the lack of Permits and for violations of, or defaults under,
Permits which lack, violation or default individually or in the aggregate could
not reasonably be expected to have a City Material Effect. As of the date of
this Agreement, neither any of the representations or warranties made by City in
this Agreement nor the statements made in the City Schedules, when taken
together as a whole, under the circumstances in which they were made, contains
any untrue statement of a material fact, or omits to state any material fact
necessary in order to make the statements contained in such representations,
warranties and statements not misleading. As of the date of this Agreement, the
statements made in the S-1 Registration Statement filed by City with the SEC, as
amended, when taken together as a whole, under the circumstances in which they
were made, do not contain any untrue statement of a material fact, or omit to
state any material fact necessary in order to make the statements contained
therein not misleading (it being understood that City will not consummate the
public offering
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or effect the amendments to its Certificate of Incorporation contemplated by
such Registration Statement).
4.9 Absence of Changes in Benefit Plans; Employment Agreements; Labor
-----------------------------------------------------------------
Relations. Since the City Balance Sheet Date and until the date hereof, there
- ---------
has not been any termination, adoption, amendment or agreement to amend in any
material respect by City or any of its subsidiaries of any material Benefit
Plan. As of the date hereof there exist no currently binding employment,
severance or termination agreements or material consulting agreements between
City or any of its subsidiaries and any current or former officer of City or any
of its subsidiaries. There are no collective bargaining or other labor union
agreements to which City or any of its subsidiaries is a party or by which it is
bound. Neither City nor any of its subsidiaries has encountered any labor union
organizing activity, nor had any actual or threatened employee strikes, work
stoppages, slowdowns or lockouts.
4.10 ERISA Compliance.
----------------
(a) Section 4.10(a) of the City Schedules contains a list of all
"employee pension benefit plans" (as defined in Section 3(2) of ERISA)
(sometimes referred to herein as "CITY PENSION PLANS"), "employee welfare
benefit plans" (as defined in Section 3(l) of ERISA) and all other Benefit Plans
maintained or contributed to by City or any of its subsidiaries or any person or
entity that, together with City or any of its subsidiaries, is treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code (a "CITY
COMMONLY CONTROLLED ENTITY") for the benefit of any current or former officers,
directors or employees of City or any of its subsidiaries. City has made
available to USA true, complete and correct copies of (i) each Benefit Plan (or,
in the case of any unwritten Benefit Plans, descriptions thereof), (ii) the most
recent annual report on Form 5500 required to be filed with the Internal Revenue
Service (the "IRS") with respect to each Benefit Plan (if any such report was
required), (iii) the most recent summary plan description and all material
modifications thereto for each Benefit Plan for which such summary plan
description is required and (iv) each trust agreement and group annuity contract
relating to any Benefit Plan. Each Benefit Plan has been administered in
accordance with its terms, except where the failure to so administer could not,
individually or in the aggregate, reasonably be expected to have a City Material
Effect. City and its subsidiaries and all the Benefit Plans are all in
compliance with applicable provisions of ERISA and the Code, except for
instances of possible noncompliance that could not, individually or in the
aggregate, reasonably be expected to have a City Material Effect.
(b) Each of the City Pension Plans has been the subject of a
determination letter (or its equivalent) from the IRS to the effect that such
City Pension Plan is qualified and exempt from United States Federal income
taxes under Sections 401(a) and 501(a), respectively, of the Code, and no such
determination letter (or its equivalent) has been revoked nor has any event
occurred since the date of its most recent determination letter (or its
equivalent) or application therefor that would adversely affect its
qualification or materially increase its costs.
(c) Neither City nor any City Commonly Controlled Entity has
maintained, contributed to or been obligated to contribute to any Benefit Plan
that is subject to Title IV of ERISA.
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(d) No officer or employee of City or any of its subsidiaries
will be entitled to any additional compensation or benefits or any acceleration
of the time of payment or vesting of any compensation or benefits under any
Benefit Plan as a result of the transactions contemplated by this Agreement or
any benefits under any Benefits Plan the value of which will be calculated on
the basis of any of the transactions contemplated by this Agreement.
(e) City: (i) has withheld and reported all amounts required by
law or by agreement to be withheld and reported with respect to wages, salaries
and other payments to any current or former employee, consultant or director of
City ("CITY EMPLOYEES"); (ii) is not liable for any arrears of wages or any
taxes or any penalty for failure to comply with any of the foregoing; and (iii)
is not liable for any payment to any trust or other fund governed by or
maintained by or on behalf of any governmental authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for City Employees (other than routine payments to be made in the
normal course of business and consistent with past practice), except, in the
case of (i) through (iii) above, for such noncompliance or liability as could
not reasonably be expected to have a City Material Effect. There are no pending,
threatened or reasonably anticipated claims or actions against City under any
worker's compensation policy or long-term disability policy.
4.11 Taxes. City and each of its subsidiaries have filed all material
-----
Returns required to be filed by it and all such Returns are true and correct in
all material respects (except where adequate reserves have been established
therefore on the City Balance Sheet). All Taxes that accrue or are payable by
City and each of its subsidiaries in respect of taxable periods that end on or
before the Closing Date have been (on or before the Closing Date) timely paid or
an adequate reserve has been established on the City Balance Sheet. The most
recent financial statements, dated June 30, 1998, (a true, correct complete copy
of which has been delivered to TMOL by City) reflect an adequate reserve for all
Taxes payable by City and each of its subsidiaries for all taxable periods and
portions thereof through the date of such financial statements and no
liabilities for Taxes have been incurred since the date of such financial
statements except in the ordinary course of business. No deficiencies for any
Taxes have been proposed, asserted or assessed against City or any of its
subsidiaries, and no requests for waivers of the time to assess any such Taxes
are pending. No audit or other examination of any Return of City is currently in
progress, nor has City been notified of any request for such an audit or other
examination. City has provided or made available for inspection copies of all
foreign, federal and state income and state sales and use Tax Returns for all
periods since the date of City's incorporation. There are (and as of immediately
following the Effective Date there will be) no liens, pledges, charges, claims,
security interests or other encumbrances of any sort on the assets of City
relating to or attributable to Taxes. As of the Effective Time, there will not
be any contract, agreement, plan or arrangement, including but not limited to
the provisions of this Agreement, covering any employee or former employee of
City that, individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Section 280G or 162 of the Code.
City is not a party to a tax sharing or allocation agreement nor does City owe
any amount under any such agreement.
4.12 No Excess Parachute Payments. No amount that could be received
----------------------------
(whether in cash or property or the vesting of property) as a result of any of
the transactions contemplated by this Agreement by any employee, officer or
director of City who is a "disqualified individual" (as such term is defined
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in proposed Treasury Regulation Section 1.280G-1) under any employment,
severance or termination agreement, other compensation arrangement or Benefit
Plan currently in effect would be an "excess parachute payment" (as such term is
defined in Section 280G(b)(1) of the Code). No such person is entitled to
receive any Parachute Gross-Up Payment from City, the Surviving Corporation or
any other person in the event that the excise tax of Section 4999(a) of the Code
is imposed on such person. The Board of Directors of City has not granted to any
officer, director or employee of City any right to receive any Parachute Gross-
Up Payment.
4.13 Title to Properties.
-------------------
(a) City and each of its subsidiaries has good and marketable
title to, valid leasehold interests in, or valid license rights to use all of
its material properties and assets except for such as are no longer used or
useful in the conduct of its businesses or as have been disposed of in the
ordinary course of business and except for defects in title, easements,
restrictive covenants and similar encumbrances that individually or in the
aggregate could not reasonably be expected to have a City Material Effect. All
such material assets and properties, other than assets and properties in which
City or any of its subsidiaries has a leasehold interest, are free and clear of
all Liens (other than Liens for current taxes not yet due and payable), except
for Liens that individually or in the aggregate could not reasonably be expected
to have a City Material Effect.
(b) Each of City and its subsidiaries has complied in all
material respects with the terms of all material leases to which it is a party
and under which it is in occupancy, all such leases are in full force and
effect, except for such noncompliance or failure to be in full force and effect
as individually or in the aggregate could not reasonably be expected to have a
City Material Effect and have been made available to USA. City and its
subsidiaries enjoy peaceful and undisturbed possession under all such material
leases, except for failures to do so that individually or in the aggregate could
not reasonably be expected to have a City Material Effect.
4.14 Intellectual Property.
---------------------
(a) City and its subsidiaries own, or have the right to use,
sell or license all material intellectual property necessary or required for the
conduct of their respective businesses as presently conducted and as presently
contemplated (such intellectual property and the rights thereto are collectively
referred to as the "CITY IP RIGHTS").
(b) City and its subsidiaries have taken all reasonable steps
necessary or appropriate (including, entering into appropriate confidentiality,
nondisclosure agreements with officers, directors, subcontractors, independent
contractors, full-time and part-time employees, licensees and customers) to
safeguard and maintain the secrecy and confidentiality of, and the proprietary
rights in, the City IP Rights material to their business.
(c) (i) Neither the manufacture, marketing, license, sale or
intended use of any product or technology currently licensed or sold by City or
any of its subsidiaries violates in any material respect any license or
agreement between City or any of its subsidiaries and any third party or
infringes
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in any material respect any proprietary right of any other party; and (ii) there
is no pending or, to the knowledge of City, threatened claim or litigation
contesting the validity, ownership or right to use, sell, license or dispose of
any City IP Right.
4.15 Section 203 of Delaware Law Not Applicable. The Board of
------------------------------------------
Directors of City has taken all actions so that the restrictions contained in
Section 203 of Delaware Law applicable to a "business combination" (as defined
in such Section 203) will not apply to the execution, delivery or performance of
this Agreement or to the consummation of the Merger or the other transactions
contemplated by this Agreement or the Convertible Note, and, to the knowledge of
City, no other "fair price," moratorium," "control share acquisition," or other
anti-takeover statute or similar statute or regulation applies or purports to
apply to this Agreement, the Merger, the Convertible Note or the transactions
contemplated hereby or thereby.
4.16 Brokers. No broker, investment banker, financial advisor or other
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person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of City, except for
NationsBanc Montgomery Securities, Inc. Except for the foregoing, as of the date
hereof, City is not a party to any agreement obligating it to retain any
investment banking firm as a financial advisor and to pay such investment
banking firm a material fee for advisory services in connection with any
financing or acquisition transaction.
4.17 Merger Sub. Merger Sub was incorporated for the purpose of
----------
consummating the Merger (or another merger transaction) and has conducted no
business of any kind whatsoever.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Conduct of Business. During the period from the date of this
-------------------
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, each of TMOL (which for the
purposes of this Article V shall include TMOL and USA and Ticket with respect to
any assets that are used for the conduct of the business of TMOL or exploitation
of Online Revenue Rights) and City (which for the purposes of this Article V
shall include City and each of its subsidiaries) agree, except (i) in the case
of TMOL as provided in Article V of the USA Schedules and in the case of City as
provided in Article V of the City Schedules, or (ii) to the extent that the
other of them shall otherwise consent in writing, to carry on its business
diligently and in accordance with good commercial practice and to carry on its
business in the usual, regular and ordinary course, in substantially the same
manner as heretofore conducted and in compliance with all applicable laws and
regulations, to pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, to pay or perform other material obligations when due,
and use its commercially reasonable efforts consistent with past practices and
policies to preserve intact its present business organization, keep available
the services of its present officers and employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others with which it has business dealings. In addition, each of TMOL and City
will promptly notify the other of any material event involving its business or
operations.
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Furthermore, TMOL and City agree that during the period prior to the Effective
Time their respective senior management groups will participate in informational
meetings on a regular basis, at such time and place as shall be mutually
agreeable. No information or knowledge obtained in any investigation will affect
or be deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger.
In addition, except as permitted by the terms of this Agreement, and
except in the case of TMOL as provided in Article V of the USA Schedules, and
except in the case of City as provided in Article V of the City Schedules,
without the prior written consent of the other, neither TMOL nor City shall do
any of the following, and City shall not permit its subsidiaries to do any of
the following:
(a) Waive any stock repurchase rights (other than as may be
consistent with past practices), accelerate, amend or change the period of
exercisability of options or restricted stock, or reprice options granted under
any employee, consultant or director stock plans or authorize cash payments in
exchange for any options granted under any of such plans;
(b) Grant any severance or termination pay to any officer or
employee except payments in amounts consistent with policies and past practices
or pursuant to written agreements outstanding, or policies existing, on the date
hereof and as previously disclosed in writing to the other, or adopt any new
severance plan;
(c) Transfer or license to any person or entity or otherwise
extend, amend or modify in any material respect any rights to the (i) TMOL IP
Rights or the Online Revenue Rights or (ii) the City IP Rights, as the case may
be, or enter into grants to future patent rights;
(d) Declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any capital
stock or split, combine or reclassify any capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock;
(e) Repurchase or otherwise acquire, directly or indirectly, any
shares of capital stock except pursuant to rights of repurchase of any such
shares under any employee, consultant or director stock plan existing on the
date hereof;
(f) Issue, deliver, sell, authorize or propose the issuance,
delivery or sale of, any shares of capital stock or any securities convertible
into shares of capital stock, or subscriptions, rights, warrants or options to
acquire any shares of capital stock or any securities convertible into shares of
capital stock, or enter into other agreements or commitments of any character
obligating it to issue any such shares or convertible securities, other than (i)
the issuance of shares of City Common Stock pursuant to the exercise of stock
options or warrants therefor outstanding, as of the date of this Agreement, (ii)
options to purchase up to 200,000 shares of City Common Stock by City with
regard to the hiring of a Vice President of Engineering (or similar employee),
up to 100,000 additional shares of City Common Stock by City to employees and
such additional amounts by City to which TMOL shall be required to consent
(which consent shall not be unreasonably withheld) or up to such number of
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shares of TMOL Common Stock as would equal, when exchanged in the Merger
pursuant to the Exchange Ratio, 300,000 shares of City Common Stock by TMOL to
be granted at fair market value with four year vesting and a one year cliff and,
in the case of City, in the ordinary course of business, consistent with past
practice, and, in the case of City, in accordance with stock option plans
existing on the date hereof, and for which neither City nor TMOL will be
required under GAAP to record an accounting charge as a result of the grant or
vesting of such options, or (iii) shares of City Common Stock issuable upon the
exercise of the options referred to in clause (ii);
(g) Cause, permit or propose any amendments to any charter
document or bylaw (or similar governing instruments of any subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity interest in or a material portion of the
assets of, or by any other manner, any business or any corporation, partnership
interest, association or other business organization or division thereof, or
other wise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the business of TMOL or City, as the case
may be, or enter into any material joint ventures, strategic partnerships or
alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate, to
the business of TMOL or City, as the case may be, except in the ordinary course
of business consistent with past practice;
(j) Incur any indebtedness for borrowed money (other than
ordinary course trade payables or pursuant to existing credit facilities in the
ordinary course of business) or guarantee any such indebtedness or issue or sell
any debt securities or warrants or rights to acquire debt securities of TMOL or
City, as the case may be, or guarantee any debt securities of others;
(k) Adopt or amend any employee benefit or employee stock
purchase or employee option plan, or enter into any employment contract, pay any
special bonus or special remuneration to any director or employee, or increase
the salaries or wage rates of its officers or employees other than in the
ordinary course of business, consistent with past practice, or change in any
material respect any management policies or procedures;
(l) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business;
(m) Make any grant of exclusive rights to any third party;
(n) in the case of TMOL, enter into or modify any contract or
new arrangement with USA or any affiliate thereof or terminate any contract or
arrangement (including, without limitation, the TMOL Business Agreement);
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(o) make any change in accounting methods, principles or
practices, except as may be required by GAAP;
(p) knowingly take any other action which would cause any of the
conditions set forth in Article VI not to be satisfied;
(q) make or agree to make any material capital expenditures
outside the ordinary course of business;
(r) Agree in writing or otherwise to take any of the actions
described in Section 5.1(a) through (q) above.
In addition, USA covenants that it shall cause TMOL and Ticket to
comply with all covenants herein and shall not, and shall cause TMOL, Ticket and
each of USA's affiliates not, to transfer or license to any person or entity or
otherwise extend, amend or modify in any material respect any rights to the TMOL
IP Rights or the Online Revenue Rights. USA acknowledges and agrees that any
breach by TMOL of any covenant set forth in this Section 5.1 shall constitute a
breach hereof by USA.
5.2 City Stockholder Vote. City shall take all actions necessary to
---------------------
submit, as promptly as practicable after the date hereof, this Agreement and the
transactions contemplated hereby, including, without limitation, the Merger, to
its stockholders for approval and adoption, by a vote at a duly called
stockholders meeting or by written consent, as provided by applicable law and
City's Certificate of Incorporation and Bylaws. In connection therewith, the
parties hereto shall cooperate to prepare and deliver to City's stockholders
such information as City shall reasonably require. Each party hereto represents
and warrants that none of the information supplied or to be supplied by it
specifically for inclusion or incorporation by reference in the information
delivered to City's stockholders relating to the approval and adoption of this
Agreement and approval of the Merger will (except to the extent revised or
superseded by amendments or supplements contemplated hereby), at the date it is
first mailed to City's stockholders or at the time of any meeting of City's
stockholders to consider approval and adoption of this Agreement and approval of
the Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. City agrees to use its reasonable efforts to cause its stockholders
to approve this Agreement and the Merger and the other transactions contemplated
by this Agreement.
5.3 Restrictions on Transfer. Each certificate representing City
------------------------
Common Stock issued in the Merger, and any shares issued or issuable in respect
of any such shares upon any stock split, stock dividend, recapitalization, or
similar event, shall be stamped or otherwise imprinted with restrictive legends
as set forth below:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL
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SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED."
5.4 Confidentiality; Access to Information.
--------------------------------------
(a) USA, Ticket and TMOL hereby agree to treat any nonpublic
information concerning City (whether prepared by City, its advisors or otherwise
and irrespective of the form of communication) which is furnished hereunder to
them or to their directors, officers, employees, agents or advisors (including,
without limitation, attorneys, accountants, consultants, bankers and financial
advisors) (collectively, "REPRESENTATIVES") now or in the future by or on behalf
of City (herein collectively referred to as the "EVALUATION MATERIAL") in
accordance with the provisions below, and to take or abstain from taking certain
other actions hereinafter set forth. The term "Evaluation Material" also shall
be deemed to include all notes, analyses, compilations, studies, interpretations
or other documents prepared by City or its Representatives which contain,
reflect or are based upon, in whole or in part, the information furnished by
City or its Representatives pursuant hereto which is not available to the
general public. The term "Evaluation Material" does not include information
which (i) is or becomes generally available to the public other than as a result
of a breach of this Agreement by USA, Ticket or TMOL or their Representatives,
(ii) was within their possession prior to its being furnished to them by or on
behalf of City, provided that the source of such information was not known by
them to be bound by a confidentiality agreement with or other contractual, legal
or fiduciary obligation of confidentiality to City, (iii) is or becomes
available to them on a non-confidential basis from a source other than City or
any of its Representatives, provided that such source was not known by them to
be bound by a confidentiality agreement with or other contractual, legal or
fiduciary obligation of confidentiality to City or any other party with respect
to such information or (iv) is independently developed by them without use of
Evaluation Material.
(b) USA, Ticket and TMOL hereby agree that they and their
Representatives shall use City's Evaluation Material solely for the purpose of
evaluating the transactions contemplated hereby, and that City's Evaluation
Material will be kept confidential and they and their Representatives will not
disclose or use for purposes other than the evaluation of the transactions
contemplated hereby any of City's Evaluation Material in any manner whatsoever.
(c) Each party will afford the other party and such other
party's accountants, counsel and other representatives reasonable access during
normal business hours to its properties, books, agreements, records and
personnel during the period prior to the Effective Time to obtain all
information concerning its business, including the status of product development
and license efforts, properties, results of operations and personnel, as such
other party may reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section 5.4 will affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
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5.5 No Solicitation.
---------------
(a) Restrictions on TMOL. From and after the date of this
--------------------
Agreement until the earlier of the Effective Time or termination of this
Agreement pursuant to its terms, USA, TMOL and their respective subsidiaries
shall not, and will instruct their respective directors, officers, employees,
representatives, investment bankers, agents and affiliates not to, directly or
indirectly, (i) solicit or encourage submission of, any proposals or offers by
any person, entity or group (other than City and its affiliates, agents and
representatives), or (ii) participate in any discussions or negotiations with,
or disclose any nonpublic information concerning TMOL, USA or any of their
respective subsidiaries to, or afford any access to the properties, books or
records of TMOL, USA or any of their respective subsidiaries to, or otherwise
assist or facilitate, or enter into any agreement or understanding with, any
person, entity or group (other than City and its affiliates, agents and
representatives), in connection with any Acquisition Proposal with respect to
TMOL.
For the purposes of this Agreement, an "ACQUISITION PROPOSAL" with
respect to an entity means any proposal or offer relating to (i) any merger,
consolidation, sale of substantial assets or similar transactions involving the
entity or any subsidiaries of the entity (or, in the case of TMOL, any affiliate
of USA with assets used in the conduct of TMOL's business or exploitation of the
Online Revenue Rights) (other than sales or licenses of assets or inventory in
the ordinary course of business or as permitted under the terms of this
Agreement), (ii) sale of 10% or more of the then outstanding shares of capital
stock of the entity (or, in the case of TMOL, any affiliate of USA with assets
used in the conduct of TMOL's business or the exploitation of the Online Revenue
Rights) (including, without limitation, by way of a tender offer or an exchange
offer), (iii) the acquisition by any person of beneficial ownership or a right
to acquire beneficial ownership of, or the formation of any "group" (as defined
under Section 13(d) of the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder) which beneficially owns, or has the right to
acquire beneficial ownership of, 15% or more of the then outstanding shares of
capital stock of the entity (or, in the case of TMOL, any affiliate of USA with
assets used in the conduct of TMOL's business or exploitation of the Online
Revenue Rights); or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing. TMOL and USA will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. TMOL and USA will (i) notify City as promptly as
practicable if any inquiry or proposal is made or any information or access is
requested in writing in connection with an Acquisition Proposal or potential
Acquisition Proposal and (ii) as promptly as practicable notify City of the
identity of the potential bidder and the significant terms and conditions of any
such Acquisition Proposal. In addition, from and after the date of this
Agreement until the earlier of the Effective Time and termination of this
Agreement pursuant to its terms, TMOL, USA and their respective subsidiaries
will not, and will instruct their respective directors, officers, employees,
representatives, investment bankers, agents and affiliates not to, directly or
indirectly, make or authorize any public statement, recommendation or
solicitation in support of any Acquisition Proposal made by any person, entity
or group (other than City).
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(b) Restrictions on City. From and after the date of this
Agreement until the earlier of the Effective Time or termination of this
Agreement pursuant to its terms, City and its subsidiaries will not, and will
instruct their respective directors, officers, employees, representatives,
investment bankers, agents and affiliates not to, directly or indirectly, (i)
solicit or encourage submission of, any proposals or offers by any person,
entity or group (other than TMOL and its affiliates, agents and
representatives), or (ii) participate in any discussions or negotiations with,
or disclose any nonpublic information concerning City or any of its subsidiaries
to, or afford any access to the properties, books or records of City or any of
its subsidiaries to, or otherwise assist or facilitate, or enter into any
agreement or understanding with, any person, entity or group (other than TMOL
and its affiliates, agents and representatives), in connection with any
Acquisition Proposal with respect to City. City will immediately cease any and
all existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. City will (i) notify TMOL as
promptly as practicable if any inquiry or proposal is made or any information or
access is requested in writing in connection with an Acquisition Proposal or
potential Acquisition Proposal and (ii) as promptly as practicable notify TMOL
of the identity of the potential bidder and the significant terms and conditions
of any such Acquisition Proposal. In addition, from and after the date of this
Agreement until the earlier of the Effective Time and termination of this
Agreement pursuant to its terms, City and its subsidiaries will not, and will
instruct their respective directors, officers, employees, representatives,
investment bankers, agents and affiliates not to, directly or indirectly, make
or authorize any public statement, recommendation or solicitation in support of
any Acquisition Proposal made by any person, entity or group (other than TMOL).
5.6 Public Disclosure. City, TMOL, Ticket, and USA will use
-----------------
commercially reasonable efforts to consult with each other, and to the extent
practicable, agree, before issuing any press release or otherwise making any
public statement with respect to the Merger or this Agreement and will not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by law.
5.7 Tax Free Reorganization. Each of the parties hereto agrees not to
-----------------------
take any action either prior to or after the Effective Time that would
reasonably be expected to cause the Merger to fail to qualify as a
"reorganization" under Section 368 of the Code.
5.8 Commercially Reasonable Efforts; Regulatory Filings;
---------------------------------------------------
Notification.
- ------------
(a) Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties hereto agrees to use commercially reasonable
efforts to take, or cause to be taken, such actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, such things
as are necessary, proper or advisable to consummate and make effective, as
expeditiously as reasonably practicable, the Merger and the other transactions
contemplated by this Agreement, including using commercially reasonable efforts
to accomplish the following: (i) the taking of such reasonable acts as are
necessary to cause the conditions precedent set forth in Article VI to be
satisfied, (ii) the obtaining of all necessary actions or nonactions, waivers,
consents, approvals, orders and authorizations from Governmental Entities and
the making of all necessary registrations, declarations and filings (including
registrations, declarations and filings with Governmental Entities, if any) and
the taking of such reason-
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able steps as may be necessary to avoid any suit, claim, action, investigation
or proceeding by any Governmental Entity, (iii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iv) the defending of any
suits, claims, actions, investigations or proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (v) the execution or delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. In connection with and without
limiting the foregoing, each of the parties hereto and its respective Board of
Directors shall, if any state takeover statute or similar statute or regulation
is or becomes applicable to the Merger, this Agreement or any of the
transactions contemplated by this Agreement, use commercially reasonable efforts
to ensure that the Merger and the other transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
statute or regulation on the Merger, this Agreement and the transactions
contemplated hereby. Notwithstanding anything herein to the contrary, nothing in
this Agreement shall be deemed to require City or TMOL or any subsidiary or
affiliate thereof to agree to any divestiture by itself or any of its affiliates
of shares of capital stock or of any business, assets or property, or the
imposition of any material limitation on the ability of any of them to conduct
their businesses or to own or exercise control of such assets, properties and
stock. If and to the extent City is contractually required to incur indebtedness
for borrowed money convertible into its equity securities (other than the
Convertible Note) as a result of the issuance of the Convertible Note, City will
take all action required to provide the holder of the Convertible Note the
intended benefits of its investment (it being understood that the covenant in
this sentence shall survive termination of this Agreement).
(b) As soon as may be reasonably practicable, the parties hereto
shall file with the United States Federal Trade Commission (the "FTC") and the
Antitrust Division of the United States Department of Justice (the "DOJ")
Notification and Report Forms relating to the transactions contemplated herein
as required by the HSR Act, as well as any comparable pre-merger notification
forms required by the merger notification or control laws and regulations of any
applicable jurisdictions, as agreed to by the parties. The parties hereto shall
promptly (i) supply each other with any information which may be required in
order to effectuate such filings and (ii) supply any additional information
which reasonably may be required by the FTC, the DOJ or the competition or
merger control authorities of any other jurisdiction and which the parties may
reasonably deem appropriate.
(c) USA, Ticket and TMOL shall give prompt notice to City of any
representation or warranty made by USA, Ticket or TMOL contained in this
Agreement becoming untrue or inaccurate, or any failure of USA, Ticket or TMOL
to comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement, in each
case, such that the conditions set forth in Section 6.3 would not be satisfied,
provided, however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
(d) City and Merger Sub shall give prompt notice to USA of any
representation or warranty made by City or Merger Sub contained in this
Agreement becoming untrue or inaccurate, or
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any failure of City or Merger Sub to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement, in each case, such that the conditions set forth in
Section 6.2 would not be satisfied, provided, however, that no such notification
shall affect the representations, warranties, covenants or agreements of the
parties or the conditions to the obligations of the parties under this
Agreement.
(e) USA, Ticket and TMOL shall take all action required to ensure
that immediately following the Effective Time and thereafter, the Surviving
Corporation shall possess all Online Revenue Rights without any additional cost
to the Surviving Corporation and free and clear of all Liens.
5.9 Convertible Note. Concurrently with the execution of this Agreement,
----------------
USA shall wire transfer $50,000,000 to City to the account previously designated
by City against delivery by City of the Convertible Note.
5.10 Agreement to Vote Shares. At every meeting of the stockholders of
------------------------
City called with respect to approval of the adoption of this Agreement and/or
approval of the Merger, and at every adjournment thereof, and on every action or
approval by written consent of the stockholders of City with respect to such
matter, USA and each affiliate thereof shall cause the shares of City capital
stock held or beneficially owned by it to be voted in favor of approval of
adoption of this Agreement and approval of the Merger and all other transactions
contemplated by this Agreement. In addition, USA will take all voting action
within its power to ensure that all outstanding shares of City Series E
Preferred Stock are converted to Common Stock in connection with the Merger
prior to the Effective Time and that the Stockholders' Agreement is terminated
as required by Section 6.2(d) hereof.
5.11 Corporate Governance Matters.
----------------------------
(a) Management of Combined Company: Until his successor shall be duly
------------------------------
appointed and qualified, Charles Conn will be Chief Executive Officer of the
Combined Company following the Merger. Until his successor shall be duly
appointed and qualified, Alan Citron will become the Chairman of the Board of
the Combined Company following the Merger. Following the Merger, the Chief
Financial Officer of the Combined Company will be appointed and approved by the
Board of the Combined Company in accordance with the terms hereof.
(b) Nomination of Directors: The Combined Company Board will be
-----------------------
governed by a Board of Directors consisting of twelve members. The number of
directors may not be increased or decreased without approval of a majority of
the City Directors (as defined below) then in office. At any election of
directors of the Combined Company the members of the Board of Directors shall be
nominated as follows: (i) USA shall have the right to nominate six directors of
the Combined Company (each, a "USA Director"); (ii) the holders of City Common
Stock other than USA, Ticket, any of their respective affiliates and any
transferees of shares of City Common Stock previously held by USA, Ticket or any
of their respective affiliates ("USA City Shares"), shall have the right to
nominate four directors of the Combined Company (each, a "City Director"); and
(iii) the USA Directors and the City Directors shall each (as a separate group)
have the right to nominate one independent director of the Combined Company who
shall not be affiliated with USA or Ticket (each, an "INDEPENDENT DIRECTOR"),
provided,
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that for the initial election of directors to be effective at the Effective
- ----
Time, one independent directorship shall be filled by each of the USA Directors
and the City Directors (as a separate group) and provided further that the USA
-------- -------
Directors shall consult with the City Directors in connection with nominating
the Independent Director nominated by them (the "USA INDEPENDENT DIRECTOR") and
the City Directors shall consult with the USA Directors in nominating the
Independent Director nominated by them (the "CITY INDEPENDENT DIRECTOR"). With
respect to the nomination of individuals to serve as the City Directors (each a
"CITY NOMINEE"), votes for such nomination shall be cast and tallied on a
cumulative basis (with each share of Common Stock, regardless of the voting
rights attached thereto, deemed to have one vote per share for such purpose) and
the City Nominees shall be those four individuals (or fewer if a fewer number of
City Directors are to be elected) in favor of whom the highest number of votes
are cast. If a vacancy occurs or exists on the Board of Directors at any time,
including but not limited to a vacancy because of the death, disability,
retirement, resignation or removal of any director for cause or otherwise, then:
(A) with respect to a vacancy created by a USA Director or the USA Independent
Director, the remaining USA Directors shall have the sole right to fill such
vacancy; and (B) with respect to a vacancy created by a City Director or the
City Independent Director, the remaining City Directors shall have the sole
right to fill such vacancy (with each of the Independent Directors remaining
subject to consultation with the appropriate directors as provided herein). In
addition, unless the Board of Directors objects, the Company will invite Charles
Conn and Thomas Layton to attend meetings of the Board of Directors in a
nonvoting observer capacity. Upon the earliest to occur of (X) the exercise of
the Put (as such term is defined in Section 5.13 below), (Y) the expiration of
the Third Put (as such term is defined in Section 5.13 below), and (Z) the
consummation of a Qualified IPO, if the holders of City Common Stock (other than
USA City Shares) as of immediately prior to the Effective Time ("ORIGINAL CITY
HOLDERS") dispose of their shares to persons other than Original City Holders or
their affiliates or to USAi pursuant to the Offer, then the number of City
Directors shall be reduced (and the number of directors shall be accordingly
reduced) as follows: (i) if more than 25% of the shares of City Common Stock
held by Original City Holders as of the Effective Time are so disposed, the
number of City Directors shall be reduced to three; (ii) if more than 50% of the
shares of City Common Stock held by Original City Holders as of the Effective
Time are so disposed, the number of City Directors shall be reduced to two;
(iii) if more than 75% of the shares of City Common Stock held by Original City
Holders as of the Effective Time are so disposed, the number of City Directors
shall be reduced to one; and (iv) if more than 80% of the shares of City Common
Stock held by Original City Holders as of the Effective Time are so disposed,
then the Original City Holders shall no longer have a contractual right
hereunder to nominate a City Director.
(c) Voting: The members of the Board of Directors nominated as
------
described in this Agreement shall be duly elected by the vote of a majority of
the issued and outstanding shares entitled to vote thereon. Each stockholder of
the Combined Company will vote its shares, subject to applicable law, to ensure
the governance of the Combined Company as set forth in this Section 5.11,
including, but not limited to, the election of the Directors nominated in
accordance with the terms of Section 5.11(b) above. USA and Ticket agree that
they shall not be entitled to transfer any of their respective shares of City
capital stock to another person or entity unless and until such proposed
transferee agrees in writing for the benefit of all other holders of City
capital stock to be bound by the provisions of this Section 5.11.
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(d) Removal of Directors: The members of the Board of Directors are
--------------------
subject to removal as follows:
(i) USA Directors: Any USA Director may be removed from office
-------------
with or without cause (A) by a majority vote of the other USA Directors, or (B)
by a majority vote of all holders of City Common Stock.
(ii) City Directors: Any City Director may be removed from
--------------
office with cause by a majority vote of the other City Directors, or with or
without cause by a 80% vote of all holders of City Common Stock with votes cast
by USA, Ticket, any of their respective affiliates and any transferees of USA
City Shares being counted as voted in the same proportion as all other holders
of City Common Stock.
(iii) USA Independent Directors: Any USA Independent Director may
-------------------------
be removed from office with or without cause (A) by a majority vote of the USA
Directors, or (B) by a majority vote of all holders of City Common Stock.
(iv) City Independent Directors: Any City Independent Director
--------------------------
may be removed from office with or without cause (A) by a majority vote of the
City Directors, or (B) a majority vote of all holders of City Common Stock with
votes cast by USA, Ticket, any of their respective affiliates and any
transferees of USA City Shares being counted as voted in the same proportion as
all other holders of City Common Stock.
(e) Meetings: The Board of Directors shall hold regular meetings at
--------
least quarterly. Special Meetings of the Board of Directors may be called by two
or more directors. Meetings of the Board of Directors shall be held upon not
less than 72 hours notice, provided, however, that such notice can be waived in
writing. The notice convening a meeting of the Board of Directors shall set out
a detailed agenda of the matters anticipated to be discussed at that meeting.
(f) Quorum; Board Voting: A majority of the directors then in office
------
that includes not less than one City Director shall constitute a quorum (a
"Quorum") for the transaction of business, and the acts of a Quorum present and
voting at a meeting shall be the acts of the Board of Directors except as
provided below; provided that, with respect to any meeting of the Board of
Directors, to the extent proper notice is given for such meeting in accordance
with City's By-laws and Section 5.11(e) above and no City Director is present at
such meeting, the requirement of attendance of one City Director to constitute a
Quorum shall not apply to such meeting. In the event of a tie on the vote on any
matter submitted to the Board of Directors, the Chairman shall not have a tie-
breaking vote that is in addition to the vote the Chairman otherwise has as a
director.
(g) Supermajority Board Approvals: Approval of a majority of the City
-----------------------------
Directors then in office voting together with the Independent Directors then in
office will be required for the following:
(i) Participation of the Combined Company in any merger or
consolidation or share exchange or any sale, lease, exchange or dissolution of
all or any substantial part of the assets
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of the Combined Company, except for sales, leases, exchanges or dissolutions of
assets comprising, in any twelve month period, less than 20% of the fair value
of the Combined Company's assets.
(ii) The issuance or sale by the Combined Company of any
additional shares of capital stock of any class or any securities convertible
into, exchangeable for, or options or rights to acquire any shares of the
Combined Company's capital stock, or any repurchase by the Combined Company of
any of the foregoing (other than issuances of shares in connection with (A) the
exercise of outstanding employee stock options, (B) the grant of stock options
to employees in the ordinary course of business or (C) a Qualified IPO.
(iii) Approval of any change in the Combined Company's
principal business.
(iv) The designation, creation or formation of any committee
of the Combined Company's Board of Directors authorized to take any action
requiring supermajority approval pursuant to this Section 5.11(g), and the
appointment, election or designation of members thereof.
(v) The declaration or payment of any dividends or other
distributions (whether cash, stock or in kind), direct or indirect, to the
holders of capital stock of the Combined Company or the purchase or redemption
of any shares of capital stock of the Combined Company, except for the
declaration or payment, in any 12 month period, of dividends with a value not in
excess of 20% of the fair value of the assets of the Combined Company.
(vi) The creation, incurrence, assumption, guarantee or other
action or inaction causing the Combined Company to become liable (directly or
indirectly) with respect to indebtedness for borrowed money or the amendment or
extension of any financing facility, or any material amendment or variation of
an existing facility, except for the creation, incurrence, assumption or
guarantee of indebtedness not in the aggregate in excess, in any 12 month
period, of 20% of the fair value of the assets of the Combined Company.
(vii) the payment by the Combined Company of the Convertible
Note prior to its stated maturity.
(viii) The establishment of or any material amendment to any
Combined Company employee stock option or stock purchase plan or establishment
of or any material amendment to any other employee earnings incentive scheme or
other employee benefit plan by the Combined Company, except as required to
conform to applicable law.
(ix) The acquisition (whether by merger, stock purchase, asset
purchase or otherwise) of any business or entity by the Combined Company, except
for the acquisitions, in any 12 month period, of businesses or entities for
consideration not in excess of 20% of the fair value of the assets of the
Combined Company.
(x) The amendment of the Combined Company's Certificate of
Incorporation or By-laws (other than the amendment (A) of the Combined Company's
Certificate of Incorporation to
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<PAGE>
change the Combined Company's name, (B) of the Combined Company's Certificate of
Incorporation to reclassify the Combined Company's common capital stock into
classes that are identical with respect to all terms other than voting, (C) of
the Combined Company's Certificate of Incorporation to provide for the substance
and effect of the provisions of Section 5.13, and (D) of the Combined Company's
Certificate of Incorporation and By-laws to make customary changes necessary to
facilitate the consummation of a Qualified IPO).
(xi) The commencement of any voluntary proceeding seeking
liquidation, reorganization, moratorium, readjustment or other relief with
respect to the Combined Company under any bankruptcy, insolvency or similar law
or consent to the appointment of a trustee, receiver or liquidator.
(xii) The registration of securities of the Combined Company
under the Securities Act or the filing of any registration statement with the
United States Securities and Exchange Commission, or the entering into of any
underwriting agreement, other than in connection with a Qualified IPO (as
defined in Section 5.13).
(xiii) The creation, amendment or termination of any agreement,
arrangement, or transaction between the Combined Company and USA, Ticket or any
of their respective affiliates.
(xiv) Move of the Combined Company's principal place of
business and headquarters outside of the Los Angeles metropolitan area.
(h) Termination of Minority Rights. The provisions of Section 5.11(g)
------------------------------
shall terminate upon the earlier of (i) closing of a Qualified IPO, (ii)
exercise of the Put or (iii) expiration of the Third Put. The other provisions
of this Section 5.11 shall terminate on the closing of a Qualified IPO.
5.12 Qualified IPO. The Combined Company will use all reasonable efforts to
-------------
effect a Qualified IPO as promptly as practicable following consummation of the
Merger, and in any event no later than one year after the date of this
Agreement.
5.13 Put Option.
----------
(a) In the event that the Merger is consummated, but City does not,
within one year from the date hereof, close an underwritten public offering of
Common Stock of City pursuant to a registration statement declared effective by
the SEC under the Securities Act, involving the offer and sale of shares of
Common Stock of City either (x) equal in number to 10% of the number of all
shares of outstanding Common Stock of all classes of City at the time of such
closing or (y) at an aggregate offering price (after deduction of underwriter
commissions and offering expenses) of not less than $75,000,000 (a "QUALIFIED
IPO"), USA (or any successor entity thereof) shall, upon the request and notice
of a majority in interest of the City Holders given within the period set forth
in the next sentence, as promptly as practicable commence an Exchange Offer (as
defined below) (the "FIRST PUT"). Subject to the conditions of the preceding
sentence, at the request of and upon notice (the "FIRST PUT NOTICE") by a
majority in interest of the City Holders at any time following the date one year
from the date hereof
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<PAGE>
and on or prior to the date one year and forty five days from the date hereof,
USA (or any successor entity thereof) shall acquire pursuant to the Exchange
Offer from all tendering City Holders, any and all shares of City Common Stock
tendered for the following consideration per share (the "PUT CONSIDERATION"):
(i) 0.1548 shares of common stock of USA, $0.01 par value ("USA
COMMON STOCK"), plus
(ii) at the election of USA, either: (A) $4.34 in immediately
available funds or (B) a number of additional shares of USA Common Stock equal
to $4.34 divided by the average closing price of a share of USA Common Stock for
the twenty (20) consecutive trading days ending on the date five days prior to
the date of the applicable Put Notice, as reported on the Nasdaq National Market
or the New York Stock Exchange, as the case may be.
(b) As used in this Section 5.13, "EXCHANGE OFFER" means an exchange
offer for any and all shares of City Common Stock complying with all applicable
law, subject to (i) a minimum condition of, in the aggregate, 50.1%, on a fully-
diluted basis, of the City Common Stock held by City Holders immediately prior
to consummation being validly tendered in the Exchange Offer and not withdrawn,
and (ii) other customary terms, conditions and tender procedures for a self-
tender or exchange offer.
(c) In the event that the Merger is consummated, but City does not,
within eighteen months from the date hereof, close a Qualified IPO, USA (or any
successor entity thereof) shall, upon the request and notice of a majority in
interest of the City Holders given within the period set forth in the next
sentence, as promptly as practicable commence an Exchange Offer (as defined
below) (the "SECOND PUT"). Subject to the conditions of the preceding sentence,
at the request of and upon notice (the "SECOND PUT NOTICE") by a majority in
interest of the City Holders at any time following the date eighteen months from
the date hereof and on or prior to the date eighteen months and forty five days
from the date hereof, USA (or any successor entity thereof) shall acquire
pursuant to the Exchange Offer from all tendering City Holders, any and all
shares of City Common Stock tendered for the Put Consideration.
(d) In the event that the Merger is consummated, but City does not,
within two years from the date hereof, close a Qualified IPO, USA (or any
successor entity thereof) shall, upon the request and notice of a majority in
interest of the City Holders given within the period set forth in the next
sentence, as promptly as practicable commence an Exchange Offer (as defined
below) (the "THIRD PUT" and, collectively with the First Put and the Second Put,
the "PUT"). Subject to the conditions of the preceding sentence, at the request
of and upon notice (the "THIRD PUT NOTICE" and, collectively with the First Put
Notice and the Second Put Notice, the "PUT NOTICES") by a majority in interest
of the City Holders at any time following the date two years from the date
hereof and on or prior to the date two years and forty five days from the date
hereof, USA (or any successor entity thereof) shall acquire pursuant to the
Exchange Offer from all tendering City Holders, any and all shares of City
Common Stock tendered for the Put Consideration.
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(e) All shares of USA Common Stock issued pursuant to any exercise of
the Put will be validly issued, fully paid and nonassessable, will be free of
any Liens and will be freely tradable (including under applicable securities
laws) at the time of issuance. USA shall take all actions necessary to ensure
the foregoing including, without limitation, if required, the filing of a shelf
registration statement covering sale and/or resale of any USA Common Stock
issued upon exercise of the Put (and agreeing to customary indemnification of
the selling stockholders thereunder) and taking all steps necessary to ensure
that such registration statement is declared effective by the SEC prior to any
issuance of USA Common Stock upon exercise of the Put and that, if required,
such registration statement remains effective until the Put has been exercised
in full and all shares issued thereby have been sold. To the extent that the
effectiveness of any such registration statement is required for City Holders to
make an investment decision with regard to exercise of the Put, the period of
exercisability of the Put shall be extended and tolled for any time during which
the Put is exercisable and such registration statement is not effective. No
fractional shares of USA Common Stock shall be issued pursuant to the Exchange
Offer. In lieu of any fractional shares to which any City Holder would otherwise
be entitled (after aggregating all shares of City Common Stock being sold by
such City Holder pursuant to the Exchange Offer such that the maximum number of
whole shares of USA Common Stock is issued to such City Holder thereby), USA (or
any successor thereto) shall pay cash equal to (i) such fraction multiplied by
(ii) the greater of $30.00 or the average closing price of a share of USA Common
Stock for the ten (10) consecutive trading days ending on the date of the Put
Notice, as reported on the Nasdaq National Market or any national exchange (or,
if the USA Common Stock is not traded on such market, the fair market value of
such shares as determined in good faith by the City Directors). USA shall
provide appropriate information to City Holders and shall take all other action
within its power and control, subject to applicable law, to enable the City
Holders to exercise the Put in a timely fashion pursuant to the terms hereof.
(f) The Put Consideration shall be adjusted to reflect appropriately
the effect of any stock split, reverse stock split, stock dividend (including
any dividend or distribution of securities convertible into City Common Stock or
USA Common Stock), reorganizations (other than the Merger), recapitalization,
reclassification or other like change with respect to City Common Stock or USA
Common Stock occurring or having a record date on or after the date hereof and
prior to the expiration of the Put.
(g) USA shall make all commercially reasonable efforts (including,
without limitation, replacing the Exchange Offer with a forward triangular
merger with respect to all City Holders) to cause the exchange of City Common
Stock for USA Common Stock pursuant to this Section 5.13 to satisfy the
requirements of a tax-free "reorganization" under Section 368(a) of the Code and
to report the exchange as such.
5.14 Certain Tax Matters.
-------------------
(a) Return Filing; Information Sharing.
----------------------------------
(i) USA shall prepare and file, or cause to be prepared and
filed, in a manner consistent with past practices, with the appropriate
governmental authority all Returns, and be liable for
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(and indemnify City and TMOL against) any Tax liability arising thereunder,
relating to Taxes of TMOL, its subsidiaries or their assets or operations with
respect to periods (or any portions thereof) ending on or prior to the Closing
Date where such Tax or Tax Return is with respect to a consolidated, combined or
unitary Tax including an entity other than TMOL or its subsidiaries.
(ii) USA, Ticket and City agree that they will, and will cause
their affiliates to, make available all such information, employees and records
of or relating to TMOL as either party may request with respect to matters
relating to Taxes (including, without limitation, the right to make copies of
such information and records) and will cooperate with respect to all matters
relating to Taxes (including, without limitation the filing of Returns, the
filing of an amended Return, audits, and proceedings). Unless requested by USA,
neither City nor TMOL nor any subsidiary thereof shall file (or permit to be
filed) any amended Return with respect to TMOL for any period (or portion
thereof) ending on or prior to the Closing Date without obtaining the prior
written consent of USA.
(iii) USA shall promptly reimburse City in an amount equal to
the net tax benefit to USA, its affiliates, or their successors for the use, on
any Return of USA, Ticket or any affiliate thereof, of any deduction, credit,
offset, basis or net operating loss or other carryover or other Tax attribute
("TAX ATTRIBUTE") of (a) TMOL or its subsidiaries unless such Tax Attribute
arose with respect to a period ending on or prior to the Closing Date, or (b)
City, with respect to Tax Attributes or benefits of any period.
(iv) USA and Ticket will indemnify and hold harmless City,
TMOL, their subsidiaries and affiliates, and their officers and directors with
respect to any Tax (a) for any period whatsoever of USA, Ticket or any affiliate
thereof, or any subsidiary thereof (other than City or TMOL or their
subsidiaries), or (b) arising out of Treas. Reg. Section 1.1502-6 (or a
comparable provision of foreign law).
(v) Notwithstanding any other provision of this Agreement,
all transfer, registration, stamp, documentary, sales, use and similar Taxes
(including, but not limited to, all applicable real estate transfer or gains
Taxes and stock transfer Taxes), and any penalties, interest and additions to
such Taxes incurred in connection with this Agreement and the Merger
contemplated hereby shall be the responsibility of and be shared equally by USA
and City. USA and City shall cooperate in the timely making of all filings,
Returns, reports and forms as may be required in connection therewith.
(vi) If any of City, TMOL or any subsidiary or affiliate of
the foregoing thereof receives any written notice from any Tax authority
proposing any audit or adjustment to any Tax relating to TMOL for which USA or
any affiliate thereof may be liable under this Agreement, City or TMOL shall
give prompt written notice thereof to USA. In the event USA or Ticket of any
affiliate thereof receives notice of Taxes for which City or TMOL may be liable,
USA or Ticket or such affiliate shall provide similar notice to City.
(vii) Any tax sharing or tax allocation agreement of which TMOL
or any of its subsidiaries is a party, other than an agreement solely between
TMOL and its subsidiaries, and not including this Agreement, shall terminate at
the time of or prior to Closing.
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(b) Tax Covenants. Unless there has been a final determination to the
-------------
contrary (or USA and City otherwise agree in writing), USA, Ticket, City and
TMOL covenant and agree, for all Tax purposes including all Tax Returns and any
Tax controversies, to (and to cause any affiliate or successor to their assets
or businesses to) take each of the positions set forth below (and not to take
any position inconsistent therewith):
(i) The Merger will qualify as a reorganization described in
section 368(a) of the Code.
(ii) None of the consideration in the Merger will be paid or
issued for services.
(c) Allocation of Income and Deductions. For purposes of this
-----------------------------------
Agreement, income, deductions, and other items will be allocated between the
final pre-closing Tax period and post-closing Tax period based on an actual
closing of the books of the business as of the close of business on the Closing
Date, determined in a manner consistent with past practices.
5.15 Certain Employee Benefit Matters. USA, Ticket and/or TMOL, as
--------------------------------
applicable, covenant that each TMOL Employee currently participating in a TMOL
Pension Plan shall continue to accrue benefits under the TMOL Pension Plans
through the Closing Date so long as such Employee continues to be a TMOL
Employee. Prior to the Closing Date, USA, Ticket and/or TMOL, as applicable,
shall take such action as may be necessary so that, effective as of the Closing
Date, (a) TMOL shall cease to be a participating employer in TMOL Pension Plans,
(b) each TMOL Employee's account balance under the TMOL Pension Plans shall be
fully vested and nonforfeitable and (c) no additional benefits shall accrue for
any TMOL Employee under TMOL Pension Plans after the Closing Date. City shall
assume no liability or obligations in connection with TMOL Pension Plans. After
the Closing Date, USA and/or Ticket shall provide continuation coverage under
COBRA or any similar state statute providing for continuation coverage to TMOL
employees and their eligible dependents until the earlier of (a) the day TMOL
employees are covered by City employee benefit plans that provide employee
benefits that are no less favorable than employee benefits provide to City
employees generally, or (b) 120 days following the Closing Date. City shall use
reasonable efforts to timely provide employee benefits to TMOL Employees that
are no less favorable than employee benefits provided to City employees
generally. USA and/or Ticket agree to cooperate in all respects with City with
regard to the plan-to-plan transfer of the assets of TMOL Pension Plans
attributable to TMOL Employees.
5.16 Registration Rights.
-------------------
(a) In connection with the initial public offering of City's equity
securities, City will promptly give notice to each City Holder and will include
in such registration under the Securities Act for such offering (and any related
qualification under blue sky laws or other compliance), and any related
underwriting, all the City Common Stock (subject to cutback as set forth in
Section 5.16(b)) specified in a written request or requests made within twenty
(20) days after receipt of such written notice from City by any City Holder. In
the event of any recapitalization of the City Common Stock, the rights of the
City Holders pursuant to this Section 5.16 shall apply to any securities issued
in such recapitalization to the City Holders.
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(b) The right of any City Holder to registration pursuant to this
Section 5.16 shall be conditioned upon such City Holder's participation in such
offering and the inclusion of shares of City Common Stock in such
registration to the extent provided herein. If any City Holder proposes to
distribute its securities through such offering, such City Holder shall
(together with City) enter into an underwriting agreement in customary form with
the managing underwriter selected for such offering by City. Notwithstanding any
other provision of this Section 5.16, if the managing underwriter determines
that marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the City Common Stock to be
sold by the City Holders in such offering; provided that no such reduction shall
be made with respect to securities being offered by City for its own account
unless the number of shares of City Common Stock to be sold by the City Holders
in such offering shall be reduced to zero. City shall so advise the City Holders
and the number of shares of City Common Stock that may be included in the
registration and underwriting shall be allocated among the City Holders in
proportion, as nearly as practicable, to the respective amounts of City Common
Stock held by the City Holders at the time of filing of the registration
statement. To facilitate the allocation of shares in accordance with the above
provisions, City or the underwriters may round the number of shares allocated to
the City Holders to the nearest 100 shares.
(c) The rights of any City Holder to receive notice and to
participate in a registration pursuant to the terms of this Section 5.16 shall
terminate at such time as such City Holder could sell all of the City Common
Stock held by such City Holder in any one three-month period under the terms of
Rule 144(k) under the Securities Act.
(d) City shall pay all expenses related to any offering pursuant to
this Section 5.16 (other than underwriting discounts, selling commissions and
transfer and stamp taxes for shares of City Common Stock sold by any City Holder
and any fees and disbursements of counsel to any City Holder).
(e) City and each City Holder will provide customary indemnification
with respect to a registration effected pursuant to this Section 5.16
(f) Each City Holder selling City Common Stock included in any
registration effected pursuant to this Section 5.16 shall furnish to City such
information, including information regarding such City Holder, the City Common
Stock held by them and the distribution proposed, as City may request in writing
to enable City to comply with the provisions hereof in connection with any
registration, qualification or compliance referred to in this Section 5.16.
5.17 Closing Balance Sheet. USA shall ensure that the current assets of
---------------------
TMOL as of the close of business on the Closing Date are equal to or greater
than the current liabilities of TMOL as of such time (as determined pursuant to
GAAP).
5.18 Delivery of Financial Information. Until the earliest to occur of
---------------------------------
(X) the exercise of the Put (as such term is defined in Section 5.13 below), (Y)
the expiration of the Third Put (as such term is defined in Section 5.13 below),
and (Z) the consummation of a Qualified IPO, the Combined Company shall deliver
the following information to any holders of greater than one (1%) percent City
Common Stock upon their request:
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(a) Annual Financial Information. As soon as practicable after the
----------------------------
end of each fiscal year, and in any event within ninety (90) days thereafter,
the Combined Company shall deliver consolidated balance sheets of the Combined
Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of cash flows of
the Combined Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and signed by the principal financial or
accounting officer of the Company.
(b) Quarterly Financial Information. As soon as practicable after the
-------------------------------
end of each fiscal quarter (except for the fourth fiscal quarter of each year),
and in any event within forty-five (45) days thereafter, the Combined Company
shall deliver consolidated balance sheets of the Combined Company and its
subsidiaries, if any, as of the end of such quarter, and cash flow statements
and consolidated statements of income for each quarter and for the current
fiscal year to date, prepared in accordance with generally accepted accounting
principles consistently applied, all in reasonable detail and signed, subject to
changes resulting from year-end audit adjustments, by the principal financial or
accounting officer of the Company.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
--------------------
adopted and the Merger shall have been approved by the stockholders of City by
the requisite vote under applicable law and its Certificate of Incorporation and
Bylaws.
(b) No Order. No Governmental Entity shall have enacted, issued,
--------
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger. All waiting periods, if any,
under the HSR Act relating to the transactions contemplated hereby will have
expired or terminated early.
6.2 Additional Conditions to Obligations of USA, Ticket and TMOL. The
------------------------------------------------------------
obligation of USA, Ticket and TMOL to consummate and effect the Merger shall be
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
USA:
(a) Representations and Warranties. Each representation and
------------------------------
warranty of City and Merger Sub contained in this Agreement shall be true and
correct in all material respects on and as of
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the date of this Agreement and on and as of the Closing Date with the same force
and effect as if made on and as of the Closing Date except for changes
contemplated by this Agreement and for those representations and warranties
which address matters only as of a particular date (which representations shall
have been true and correct in all material respects as of such particular date)
(it being understood that, for purposes of determining the accuracy of such
representations and warranties that any update of or modification to the City
Schedules made or purported to have been made after the date of this Agreement
shall be disregarded). USA shall have received a certificate to such effect
signed on behalf of City by an authorized officer of City
(b) Agreements and Covenants. Each of City and Merger Sub shall have
------------------------
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or prior to
the Closing Date, and USA shall have received a certificate to such effect
signed on behalf of City by an authorized officer of City.
(c) Conversion of Preferred Stock. Each outstanding share of
-----------------------------
Preferred Stock of City shall have been converted into shares of City Common
Stock prior to or concurrently with the Merger..
(d) Termination of Stockholders Agreement. The Stockholders'
-------------------------------------
Agreement shall have been terminated and there shall be no further rights
thereunder of any stockholder (other than Section 6 and Sections 11.2, 11.4,
11.5, 11.6, 11.7, 11.8, 11.9 and 11.11).
6.3 Additional Conditions to the Obligations of City and Merger Sub.
---------------------------------------------------------------
The obligations of City and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
City:
(a) Representations and Warranties. Each representation and warranty
------------------------------
of USA, Ticket or TMOL contained in this Agreement shall be true and correct in
all material respects on and as of the date of this Agreement and on and as of
the Closing Date with the same force and effect as if made on and as of the
Closing Date except for changes contemplated by this Agreement and for those
representations and warranties which address matters only as of a particular
date (which representations shall have been true and correct in all material
respects as of such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties that any update
of or modification to the USA Schedules made or purported to have been made
after the date of this Agreement shall be disregarded). City shall have received
a certificate to such effect signed on behalf of USA by an authorized officer of
USA.
(b) Agreements and Covenants. USA, Ticket and TMOL shall have
------------------------
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them at or prior
to the Closing Date, and City shall have received a certificate to such effect
signed on behalf of USA by an authorized officer of USA.
(c) Convertible Note. USA shall have delivered $50,000,000 to City by
----------------
wire transfer to the account previously designated by City against delivery by
City of the Convertible Note.
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(d) TMOL Business Agreement. The TMOL Business Agreement shall have
-----------------------
been duly executed by each party thereto, shall constitute the legally binding
and enforceable obligation of each such party, shall be in full force and
effect, and City shall have received a certificate to such effect signed on
behalf of USA by an authorized officer of USA.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
-----------
Effective Time, whether before or after the requisite approval of the
stockholders of City:
(a) by mutual written consent duly authorized by the Boards of
Directors of City and TMOL;
(b) by either TMOL or City if the Merger shall not have been
consummated by December 31, 1998 for any reason; provided, however, that the
-------- -------
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been the principal
cause of the failure of the Merger to occur on or before such date and such
action or failure to act constitutes a material breach of this Agreement;
(c) by either TMOL or City if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case having
the effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, which order, decree, ruling or other action is final and nonappealable;
(d) by either TMOL or City if the required approval of the
stockholders of City of this Agreement and the Merger shall not have been
obtained by reason of the failure to obtain the required vote at a duly called
meeting of such stockholders for such purpose (provided that the right to
terminate this Agreement under this Section 7.1(d) shall not be available to any
party where the failure to obtain stockholder approval shall have been caused by
the action or failure to act of such party and such action or failure to act
constitutes a material breach by such party of this Agreement (it being
understood that any breach by any of USA, Ticket or TMOL shall constitute a
breach of TMOL for purposes of this Article VII);
(e) by TMOL, upon a breach of any representation, warranty, covenant
or agreement on the part of City set forth in this Agreement, or if any
representation or warranty of City shall have become untrue, in either case such
that the conditions set forth in Section 6.2(a) or Section 6.2(b) would not be
satisfied as of the time of such breach or as of the time such representation or
warranty shall have become untrue, provided that TMOL may not terminate this
--------
Agreement under this Section 7.1(e) if such inaccuracy in City's representations
and warranties or breach by City is curable by City through the exercise of its
commercially reasonable efforts within 30 days of notice by TMOL to City of such
breach, provided City continues to exercise commercially reasonable efforts to
cure such breach (it being understood that TMOL may not terminate this Agreement
pursuant to this paragraph (e) if it shall have
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<PAGE>
materially breached this Agreement or if such breach by City is cured prior to
the expiration of such 30 day period); or
(f) by City, upon a breach of any representation, warranty, covenant
or agreement on the part of USA, Ticket or TMOL set forth in this Agreement, or
if any representation or warranty of USA, Ticket or TMOL shall have become
untrue, in either case such that the conditions set forth in Section 6.3(a) or
Section 6.3(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided, that
--------
City may not terminate this Agreement under this Section 7.1(f) if such
inaccuracy in USA's, Ticket's or TMOL's representations and warranties or breach
by USA, Ticket or TMOL is curable by USA, Ticket or TMOL through the exercise of
its commercially reasonable efforts within 30 days of notice from City to USA of
such breach, provided USA, Ticket and TMOL continue to exercise commercially
reasonable efforts to cure such breach (it being understood that City may not
terminate this Agreement pursuant to this paragraph (f) if it shall have
materially breached this Agreement or if such breach by USA, Ticket or TMOL is
cured prior to the expiration of such 30 day period).
7.2 Notice of Termination; Effect of Termination. Any termination of this
--------------------------------------------
Agreement under and pursuant to the terms of Section 7.1 above will be effective
immediately upon the delivery of written notice of the terminating party to the
other parties hereto. In the event of the termination of this Agreement as
provided in Section 7.1, this Agreement shall be of no further force or effect,
except (i) as set forth in this Section 7.2, Section 7.3 and Article VIII
(miscellaneous), each of which shall survive the termination of this Agreement,
and (ii) nothing herein shall relieve any party from liability for any willful
breach of this Agreement.
7.3 Fees and Expenses. All fees and expenses incurred in connection with
-----------------
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses whether or not the Merger is consummated.
7.4 Amendment. Subject to applicable law, this Agreement may be amended
---------
by the parties hereto at any time prior to the Effective Time by execution of an
instrument in writing signed on behalf of each of City and USA and at any time
following the Effective Time by execution of an instrument in writing signed on
behalf of City and a majority in interest of the City Holders.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
-----------------
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 Survival. The covenants contained in this Agreement and the
--------
representations and warranties contained in Sections 3.4(a), 3.4(b) and 3.7(b)
of this Agreement shall survive the Effective Time. After the Effective Time,
USA shall promptly indemnify (without right of contribution from City, TMOL or
the Surviving Corporation) each person or entity (other than USA and any
affiliates thereof) who, immediately prior to the Effective Time, was a
stockholder of City or held options or warrants to purchase stock of City, and
hold them harmless against any loss, loss of value, liability, demand, claim,
action or expense which any such person or entity may suffer or become subject
to as a result of any breach of Sections 3.4(a), 3.4(b) and 3.7(b) of this
Agreement. USA will ensure that each of USA, Ticket and TMOL perform all of
their obligations under and pursuant to this Agreement and the TMOL Business
Agreement. TMOL will enforce all of its rights under the TMOL Business
Agreement.
8.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via facsimile (receipt confirmed) to the parties at
the following addresses or facsimile numbers (or at such other address or
facsimile numbers for a party as shall be specified by like notice):
(a) if to City or Merger Sub, to:
CitySearch, Inc.
790 E. Colorado Blvd., Suite 200
Pasadena, CA 91101
Attention: Douglas M. Mc Pherson, Chief Legal Officer
Telephone No.: (626) 405-0050
Facsimile No.: (626) 405-9929
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Larry W. Sonsini
John T. Sheridan
Marty Korman
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
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<PAGE>
(b) if to USA, Ticket or TMOL, to:
c/o USA Networks, Inc.
152 W. 57th St.
New York, New York 10019
Attention: General Counsel
Telephone No.: (212) 314-7322
Facsimile No.: (212) 314-7329
with a copy to:
Howard, Smith & Levin LLP
1330 Avenue of the Americas
New York, New York 10019
Attention: Scott F. Smith
Stephen A. Infante
Telephone No.: (212) 841-1000
Facsimile No.: (212) 841-1010
8.3 Interpretation; Knowledge.
-------------------------
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement unless otherwise indicated. The words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement the term "knowledge" means with
respect to a party hereto, with respect to any matter in question, that any of
the chief executive officer, chief operating officer, president, chief financial
officer, general counsel or controller of such party, has actual knowledge of
such matter or would have knowledge of such matter following due investigation.
(c) For purposes of this Agreement, the term "subsidiary" of any
entity means any other entity of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are directly or indirectly owned or
controlled, directly or indirectly, by such entity.
(d) For purposes of this Agreement, the term "USA Material Effect"
means (i) any change, event or effect that is materially adverse to the
business, financial condition or results of operations of USA and its
subsidiaries, taken as a whole, or materially affects USA's ability to perform
its obligations under this Agreement or the TMOL Business Agreement, (ii) any
change, event or effect
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<PAGE>
that is materially adverse to the business, financial condition or results of
operations of Ticket and its subsidiaries, taken as a whole, or materially
affects Ticket's ability to perform its obligations under this Agreement or the
TMOL Business Agreement, (iii) any change, event or effect that is material to
the business, financial condition, results of operations or prospects of TMOL or
to TMOL's ability to perform its obligations under this Agreement or the TMOL
Business Agreement or (iv) any change, event or effect that is material to the
Online Revenue Rights.
(e) For purposes of this Agreement, the term "City Material Effect"
means any change, event or effect that is material to the business, financial
condition, results of operations or prospects of City or to City's ability to
perform its obligations under this Agreement..
(f) For purposes of this Agreement, the term "affiliate" shall have
the meaning set forth in Rule 144(a)(1) promulgated under the Securities Act.
8.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
-------------------------------------------
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the USA Schedules and the City
Schedules (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof (including, without limitation, the Original Merger Agreement), it being
understood that Sections 5.4(a) and 5.4(b) and the last sentence of Section 5.8
shall survive any termination of this Agreement; and (b) are not intended to
confer upon any other person any rights or remedies hereunder, except that the
stockholders of City (and holders of options or warrants to purchase stock of
City) immediately prior to the Effective Time are intended to be third party
beneficiaries hereof and may enforce this Agreement (including, without
limitation, Article II and Sections 5.11, 5.12, 5.13, 5.16 and 8.1 hereof) as if
they were parties hereto).
8.6 Severability. In the event that any provision of this Agreement or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
------------------------------------
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not
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performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to seek an injunction
or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
Each of the parties hereto irrevocably consents to the jurisdiction of any state
or federal court within the State of Delaware in connection with any matter
based upon or arising out of this Agreement or the matters contemplated herein,
agrees that process may be served upon them in any manner authorized by the laws
of the State of Delaware for such persons and waives and covenants not to assert
or plead any objection which they might otherwise have to such jurisdiction and
such process.
8.9 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
----------
rights, interests, or obligations hereunder without the prior written approval
of the other parties, provided that City Holders may assign their rights
hereunder to other City Holders. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
8.11 Waiver of Jury Trial. EACH OF USA, CITY, TMOL, TICKET AND MERGER SUB
--------------------
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF USA, CITY, TMOL OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
8.12 Majority in Interest of City Holders. For purposes of this Agreement,
------------------------------------
except as otherwise required by applicable law, a majority in interest of the
City Holders shall be determined on a one-share- one-vote basis regardless of
the voting rights of the shares of capital stock then held by the City Holders.
* * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
CITYSEARCH, INC. TICKETMASTER CORPORATION
By: /s/ Thomas H. Layton By: Eugene L. Cobuzzi
------------------------- -------------------------
Name: Thomas H. Layton Name: Eugene L. Cobuzzi
------------------------- -------------------------
Title: President Title: Chief Operating Officer
------------------------- -------------------------
USA NETWORKS, INC. TICKETMASTER MULTIMEDIA HOLDINGS, INC.
By: /s/ Thomas J. Kuhn By: /s/ Eugene L. Cobuzzi
------------------------- -------------------------
Name: Thomas J. Kuhn Name: Eugene L. Cobuzzi
------------------------- -------------------------
Title: Senior Vice President Title: Executive Vice President
------------------------- -------------------------
and General Counsel
-------------------------
TICKETMASTER GROUP, INC. TIBERIUS, INC.
By: /s/ Eugene L. Cobuzzi By: /s/ Thomas H. Layton
------------------------- -------------------------
Name: Eugene L. Cobuzzi Name: Thomas H. Layton
------------------------- -------------------------
Title: Chief Operating Officer Title: President
------------------------- -------------------------
* * * AMENDED AND RESTATED REORGANIZATION AGREEMENT * * *
<PAGE>
EXHIBIT C
VOTING AGREEMENT
THIS VOTING AGREEMENT is entered into as of August ___, 1998, by and among
USA Networks, Inc. a Delaware corporation ("PARENT") CitySearch, Inc., a
Delaware corporation (the "COMPANY") and ________________________________
("STOCKHOLDER").
RECITALS
WHEREAS, Stockholder is a stockholder of THE COMPANY.
WHEREAS, the Company, Parent, Ticketmaster Group, Inc., an Illinois
corporation and wholly owned subsidiary of Parent ("TICKET GROUP"), Ticketmaster
Corporation, an Illinois corporation and wholly owned subsidiary of Ticket Group
("TICKET"), Ticketmaster Multimedia Holdings, Inc., a Delaware corporation and
wholly owned subsidiary of Ticket ("TMOL"), and Tiberius, Inc., a Delaware
corporation and a wholly owned subsidiary of the Company ("MERGER SUB") are
entering into an Agreement and Plan of Merger and Reorganization of even date
herewith (the "MERGER AGREEMENT") which provides (subject to the conditions set
forth therein) for a business combination transaction pursuant to which, among
other things, (i) Merger Sub would be merged with and into TMOL (the "MERGER")
and (ii) the CONVERSION (AS DEFINED BELOW).
NOW, THEREFORE, in order to induce the Company, Parent, Ticket Group,
Ticket, TMOL and Merger Sub to enter into the Merger Agreement and consummate
the transactions contemplated thereby, and for other valuable consideration (the
receipt and sufficiency of which are hereby acknowledged by Stockholder),
Stockholder hereby covenants and agrees as follows:
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
1. CERTAIN DEFINITIONS.
For purposes of this Agreement:
(a) "AMENDED CERTIFICATE" shall mean the Amended and Restated
Certificate of Incorporation of the Company amended to provide that upon
Conversion (as defined below) the respective conversion prices of the Series C
Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock
of the Company as set forth in Article IV, Section 2(f), 2(g) and 2(h) of the
Company's Amended and Restated Certificate of Incorporation shall be calculated
as of June 30, 1998.
(b) "COMPANY COMMON STOCK" shall mean the common stock, par value
$0.01 per share, of the Company.
1
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(c) "COMPANY PREFERRED STOCK" shall mean Series A Preferred Stock of
the Company, par value $0.01 per share, Series B Preferred Stock of the Company,
par value $0.01 per share, Series C Preferred Stock of the Company, par value
$0.01 per share, Series D Preferred Stock of the Company, par value $0.01 per
share, and Series E Preferred Stock of the Company, par value $0.01 per share.
(d) "CONVERSION" shall mean the conversion of all the Company
Preferred Stock upon election of holders by a majority of the Company Preferred
Stock in accordance with the terms of Section 2(b)(ii) of the Amended
Certificate immediately prior to the closing of the Merger.
(f) "EXPIRATION DATE" shall mean the earlier of (i) the date upon
which the Merger Agreement is validly terminated pursuant to Article VII
thereof, or (ii) the date upon which the Merger becomes effective in accordance
with the terms and provisions of the Merger Agreement.
(g) Stockholder shall be deemed to "OWN" or to have acquired
"OWNERSHIP" of a security if Stockholder is the "beneficial owner" (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of such
security by virtue of Stockholder, directly or indirectly, having or sharing
voting power over such security.
(h) "PERSON" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental authority.
(i) "SUBJECT SECURITIES" shall mean: (i) all securities of the
Company (including all shares of Company Common Stock and Company Preferred
Stock and all options, warrants and other rights to acquire shares of Company
Common Stock and Company Preferred Stock) Owned by Stockholder as of the date of
this Agreement; and (ii) all additional securities of the Company (including all
additional shares of Company Common Stock and Company Preferred Stock and all
additional options, warrants and other rights to acquire shares of Company
Common Stock and Company Preferred Stock) of which Stockholder acquires
Ownership during the period from the date of this Agreement through the
Expiration Date.
(j) A Person shall be deemed to have a effected a "TRANSFER" of a
security if such Person directly or indirectly: (i) sells, pledges, encumbers,
grants an option with respect to, transfers or disposes of such security or any
interest in such security; or (ii) enters into an agreement or commitment
providing for the sale of, pledge of, encumbrance of, grant of an option with
respect to, transfer of or disposition of such security or any interest therein.
2
<PAGE>
2. TRANSFER OF SUBJECT SECURITIES.
2.1 TRANSFEREE OF SUBJECT SECURITIES TO BE BOUND BY THIS AGREEMENT.
Stockholder agrees that, during the period from the date of this Agreement
through the Expiration Date, Stockholder shall not cause or permit any Transfer
of any of the Subject Securities to be effected unless each Person to which any
of such Subject Securities, or any interest in any of such Subject Securities,
is or may be transferred shall have: (a) executed a counterpart of this
Agreement and a proxy in the form attached hereto as Exhibit A (with such
modifications as Parent may reasonably request); and (b) agreed in writing to
hold such Subject Securities (or interest in such Subject Securities) subject to
all of the terms and provisions of this Agreement.
2.2 TRANSFER OF VOTING RIGHTS. Stockholder agrees that, during the period
from the date of this Agreement through the Expiration Date, Stockholder shall
not deposit (or permit the deposit of) any Subject Securities in a voting trust
or grant any proxy or enter into any voting agreement or similar agreement in
contravention of the obligations of Stockholder under this Agreement with
respect to any of the Subject Securities.
3. VOTING OF SHARES.
3.1 VOTING AGREEMENT. Stockholder agrees that, during the period from the
date of this Agreement through the Expiration Date:
(a) at any meeting of stockholders of the Company, however called, and
at every adjournment thereof, Stockholder shall (unless otherwise directed in
writing by Parent) cause all outstanding shares of Company Common Stock and/or
Company Preferred Stock that are Owned by Stockholder as of the record date
fixed for such meeting to be voted in favor of the approval and adoption of the
Merger Agreement, the approval of the Merger, the filing of the Amended
Certificate and the Conversion, and in favor of each of the other actions
contemplated by the Merger Agreement (including without limitation, the
potential subsequent amendment of the Amended Certificate to provide therein for
the substance and effect of the provisions of Section 5.13 of the Merger
Agreement); and
(b) in the event written consents are solicited or otherwise sought
from stockholders of the Company with respect to the approval or adoption of the
Merger Agreement, with respect to the approval of the Merger, the filing of the
Amended Certificate and the Conversion or with respect to any of the other
actions contemplated by the Merger Agreement (including without limitation, the
potential subsequent amendment of the Amended Certificate to provide therein for
the substance and effect of the provisions of Section 5.13 of the Merger
Agreement), Stockholder shall (unless otherwise directed in writing by Parent)
cause to be executed, with respect to all shares of Company Common Stock and/or
Company Preferred Stock that are Owned by Stockholder as of the record date
fixed for the consent to the proposed action, a written consent or written
consents to such proposed action.
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<PAGE>
3.2 PROXY; FURTHER ASSURANCES.
(a) Contemporaneously with the execution of this Agreement: (i)
Stockholder shall deliver to Parent a proxy executed by Stockholder in the form
attached to this Agreement as Exhibit A, which shall be irrevocable to the
fullest extent permitted by law, with respect to the shares referred to therein
(the "PROXY"); and (ii) Stockholder shall cause to be delivered to Parent an
additional proxy (in the form attached hereto as Exhibit A) executed on behalf
of the record owner of any outstanding shares of Company Common Stock and/or
Company Preferred Stock that are Owned by Stockholder.
(b) From time to time and without additional consideration,
Stockholder shall execute and deliver, or cause to be executed and delivered,
such additional transfers, assignments, endorsements, proxies, consents and
other instruments (at Parent's expense, except with respect to any act that may
be required of Stockholder by Parent as the result of a Transfer), and shall
take such further actions, as Parent may reasonably request for the purpose of
carrying out and furthering the intent of this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER.
Stockholder hereby represents and warrants to Parent as follows:
4.1 AUTHORIZATION, ETC. Stockholder has the absolute and unrestricted
right, power, authority and capacity to execute and deliver this Agreement and
the Proxy and to perform his obligations hereunder and thereunder. This
Agreement and the Proxy have been duly executed and delivered by Stockholder and
constitute legal, valid and binding obligations of Stockholder, enforceable
against Stockholder in accordance with their terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
4.2 NO CONFLICTS OR CONSENTS.
(a) The execution and delivery of this Agreement and the Proxy by
Stockholder do not, and the performance of this Agreement and the Proxy by
Stockholder will not: (i) conflict with or violate any order, decree or judgment
applicable to Stockholder or by which he or any of his properties is or may be
bound or affected; or (ii) result in or constitute (with or without notice or
lapse of time) any breach of or default under, or give to any other Person (with
or without notice or lapse of time) any right of termination, amendment,
acceleration or cancellation of, or result (with or without notice or lapse of
time) in the creation of any encumbrance or restriction on any of the Subject
Securities pursuant to, any contract to which Stockholder is a party or by which
Stockholder or any of his affiliates or properties is or may be bound or
affected.
(b) The execution and delivery of this Agreement and the Proxy by
Stockholder do not, and the performance of this Agreement and the Proxy by
Stockholder will not, require any consent or approval of any Person.
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<PAGE>
4.3 TITLE TO SECURITIES. As of the date of this Agreement: (a)
Stockholder holds of record (free and clear of any encumbrances or restrictions
that will restrict or interfere in any way with the actions contemplated hereby
or Stockholder's obligations hereunder) the number of outstanding shares of
Company Common Stock and/or Company Preferred Stock set forth under the heading
"Shares Held of Record" on the signature page hereof; (b) Stockholder holds
(free and clear of any encumbrances or restrictions that will restrict or
interfere in any way with the actions contemplated hereby or Stockholder's
obligations hereunder) the options, warrants and other rights to acquire shares
of Company Common Stock and/or Company Preferred Stock set forth under the
heading "Options and Other Rights" on the signature page hereof; (c) Stockholder
Owns the additional securities of the Company set forth under the heading
"Additional Securities Beneficially Owned" on the signature page hereof; and (d)
Stockholder does not directly or indirectly Own any shares of capital stock or
other securities of the Company, or any option, warrant or other right to
acquire (by purchase, conversion or otherwise) any shares of capital stock or
other securities of the Company, other than the shares and options, warrants and
other rights set forth on the signature page hereof.
5. QUALIFIED IPO; TERMINATION OF STOCKHOLDER'S AGREEMENT.
5.1 QUALIFIED IPO. In connection with any efforts on the part of the
Company to pursue, market and consummate a Qualified IPO (as such term is
defined in the Merger Agreement), Stockholder agrees to provide upon the
Company's request customary and reasonable cooperation (including upon
reasonable request of the Company, furnishing in a reasonably prompt manner
necessary information regarding Stockholder). If Stockholder is then an officer
or employee of the Company, Stockholder will provide reasonable and customary
assistance in the Qualified IPO process. Stockholder further agrees that
Stockholder will not, directly or indirectly, knowingly and intentionally impede
the Company's efforts to consummate a Qualified IPO. If requested by the
managing underwriter with respect to a Qualified IPO, Stockholder agrees to
enter into a customary "Lock-up Agreement" pursuant to which Stockholder would
agree, for a period of up to 180 days after the closing of the Qualified IPO,
not to sell, agree to sell, or otherwise dispose of, or reduce its risk of
ownership with respect to, shares of capital stock of the Company held
immediately prior to the effective time of the registration statement relating
to the Qualified IPO; provided that USA and its subsidiaries and controlled
affiliates also agree to sign a substantially identical Lock-up Agreement.
5.2 CONSENT; WAIVER. For all purposes of that certain Sixth Amended and
Restated Stockholders' Agreement by and among the Company and the respective
signatories thereto dated May 26, 1998 (the "STOCKHOLDERS' AGREEMENT")
(including, but not limited to, Section 7 and Section 10 thereof) and in
conjunction with the transactions contemplated by the Merger Agreement,
Stockholder hereby consents to the Merger, all of the transactions contemplated
by the Merger Agreement and to the issuance by the Company to USA or an
affiliate thereof of a convertible promissory note in the aggregate principal
amount of $50,000,000 (the "CONVERTIBLE NOTE"), which Convertible Note shall be
convertible into Company Common Stock under certain circumstances. In addition,
Stockholder hereby waives Stockholder's rights of first refusal as set forth in
Section 7 of the Merger Agreement with respect to the issuance of the
Convertible Note and securities into
5
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which such Convertible Note is convertible. Stockholder hereby consents to the
inclusion of the Company Common Stock issuable upon conversion of the
Convertible Note within the definition of Registrable Securities under the
Stockholders' Agreement, and the addition of the holder of the Convertible Note
as a party to the Stockholders' Agreement with respect to Registration rights of
such Registrable Securities.
5.3 TERMINATION OF STOCKHOLDERS' AGREEMENT. In conjunction with the
closing of the Merger and the Conversion, Stockholder hereby approves the
termination of the Stockholders' Agreement immediately upon the consummation of
the Merger and agrees that upon such termination, all the terms of the
Stockholders' Agreement shall be of no further force and effect.
6. MISCELLANEOUS.
6.1 EXPENSES. All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such costs and expenses.
6.2 NOTICES. Any notice or other communication required or permitted to
be delivered to Parent or Stockholder under this Agreement shall be in writing
and shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail, by courier or express delivery service or by facsimile
confirmation obtained) to the address or facsimile telephone number set forth
beneath the name of such party below (or to such other address or facsimile
telephone number as such party shall have specified in a written notice given to
the other party):
IF TO STOCKHOLDER:
at the address or facsimile phone number set forth below Stockholder's
signature on the signature page hereof
WITH A COPY TO:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: Martin W. Korman, Esq.
Fax: (650) 493-6811
6
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IF TO PARENT:
USA NETWORKS, INC.
152 West 57th
42nd Floor
New York, NY 10019
Attn: General Counsel
Fax: (212) 314-7329
WITH A COPY TO:
Howard Smith & Levin LLP
1330 Avenue of the Americas
New York, NY 10019
Attention: Scott F. Smith, Esq.
Fax: (212) 841-1010
6.3 SEVERABILITY. If any provision of this Agreement or any part of any
such provision is held under any circumstances to be invalid or unenforceable in
any jurisdiction, then (a) such provision or part thereof shall, with respect to
such circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (b) the invalidity or unenforceability of such provision or part thereof
under such circumstances and in such jurisdiction shall not affect the validity
or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (c) the invalidity or
unenforceability of such provision or part thereof shall not affect the validity
or enforceability of the remainder of such provision or the validity or
enforceability of any other provision of this Agreement. Each provision of this
Agreement is separable from every other provision of this Agreement, and each
part of each provision of this Agreement is separable from every other part of
such provision.
6.4 ENTIRE AGREEMENT. This Agreement, the Proxy, and any other documents
delivered by the parties in connection herewith constitute the entire agreement
between the parties with respect to the subject matter hereof and thereof and
supersede all prior agreements and understandings between the parties with
respect thereto.
6.5 ASSIGNMENT; BINDING EFFECT. Except as provided herein, neither this
Agreement nor any of the interests or obligations hereunder may be assigned or
delegated by Stockholder and any attempted or purported assignment or delegation
of any of such interests or obligations shall be void. Subject to the preceding
sentence, this Agreement shall be binding upon Stockholder and his heirs,
estate, executors, personal representatives, successors and assigns, and shall
inure to the benefit of Parent and its successors and assigns. This Agreement
shall be binding upon any Person to whom any Subject Securities are transferred
to the extent provided in Section 2 hereof. Nothing in this Agreement is
intended to confer on any Person (other than Parent, the Company and their
successors and assigns) any rights or remedies of any nature.
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<PAGE>
6.6 SPECIFIC PERFORMANCE. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement or the Proxy was
not performed in accordance with its specific terms or was otherwise breached.
Stockholder agrees that, in the event of any breach or threatened breach by
Stockholder of any covenant or obligation contained in this Agreement or in the
Proxy, Parent shall be entitled (in addition to any other remedy that may be
available to it, including monetary damages) to seek and obtain (a) a decree or
order of specific performance to enforce the observance and performance of such
covenant or obligation, and (b) an injunction restraining such breach or
threatened breach.
6.7 GOVERNING LAW. This Agreement and the Proxy shall be construed in
accordance with, and governed in all respects by, the laws of the State of
Delaware (without giving effect to principles of conflicts of laws).
6.8 COUNTERPARTS. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
6.9 CAPTIONS. The captions contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
6.10 WAIVER. No failure on the part of Parent to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of
Parent in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy. Parent shall not be deemed to have waived any claim
available to Parent arising out of this Agreement, or any power, right,
privilege or remedy of Parent under this Agreement, unless the waiver of such
claim, power, right, privilege or remedy is expressly set forth in a written
instrument duly executed and delivered on behalf of Parent; and any such waiver
shall not be applicable or have any effect except in the specific instance in
which it is given.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this VOTING AGREEMENT to be
executed as of the date first written above.
CITYSEARCH, INC. USA NETWORKS, INC.
By:______________________________ By:______________________________
Title:___________________________ Title:___________________________
STOCKHOLDER
Name:____________________________
Address:_________________________
Facsimile:_______________________
Shares Held of Record Class of Shares Held
- --------------------- --------------------
Additional Securities
Beneficially Owned Options and Other Rights
- ------------------ ------------------------
SIGNATURE PAGE
9
<PAGE>
EXHIBIT A
FORM OF IRREVOCABLE PROXY
The undersigned stockholder of CitySearch, Inc., a Delaware corporation
(the "COMPANY"), hereby irrevocably (to the fullest extent permitted by law)
appoints and constitutes Thomas J. Kuhn, Dara Khosrowshahi and USA Networks,
Inc., a Delaware corporation ("PARENT"), and each of them, the attorneys and
proxies of the undersigned with full power of substitution and resubstitution,
to the full extent of the undersigned's rights with respect to (i) the
outstanding shares of capital stock of the Company owned of record by the
undersigned as of the date of this proxy, which shares are specified on the
final page of this proxy, and (ii) any and all other shares of capital stock of
the Company which the undersigned may acquire on or after the date hereof. (The
shares of the capital stock of the Company referred to in clauses "(i)" and
"(ii)" of the immediately preceding sentence are collectively referred to as the
"SHARES," and capitalized terms used but not defined herein shall have the
meanings set forth in the Voting Agreement, dated as of the date hereof, between
Parent and Stockholder (the "VOTING AGREEMENT"). Upon the execution hereof, all
prior proxies given by the undersigned with respect to any of the Shares are
hereby revoked, and the undersigned agrees that the undersigned shall not grant
any subsequent proxy at any time prior to the Expiration Date.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with the Voting Agreement, and is granted in consideration of Parent
entering into the Agreement and Plan of Reorganization, dated as of the date
hereof, among the Company, Parent, Ticketmaster Group, Inc., Ticketmaster
Corporation, Ticketmaster Multimedia Holdings, Inc., and Tiberius, Inc. (the
"MERGER AGREEMENT").
The attorneys and proxies named above will be empowered, and may exercise
this proxy, to vote the Shares at any time until the Expiration Date at any
meeting of the stockholders of the Company, however called, or in connection
with any solicitation of written consents from stockholders of the Company, in
favor of the approval and adoption of the Merger Agreement, the approval of the
Merger, the filing of the Amended Certificate, and approval of the Conversion,
and in favor of each of the other actions contemplated by the Merger Agreement.
The undersigned may vote the Shares on all other matters.
This proxy shall be binding upon the heirs, estate, executors, personal
representatives, successors and assigns of the undersigned (including any
transferee of any of the Shares).
If any provision of this proxy or any part of any such provision is held
under any circumstances to be invalid or unenforceable in any jurisdiction, then
(a) such provision or part thereof shall, with respect to such circumstances and
in such jurisdiction, be deemed amended to conform to applicable laws so as to
be valid and enforceable to the fullest possible extent, (b) the invalidity or
unenforceability of such provision or part thereof under such circumstances and
in such jurisdiction shall not affect the validity or enforceability of such
provision or part thereof under any other circumstances or in any other
jurisdiction, and (c) the invalidity or unenforceability of such
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<PAGE>
provision or part thereof shall not affect the validity or enforceability of the
remainder of such provision or the validity or enforceability of any other
provision of this proxy. Each provision of this proxy is separable from every
other provision of this proxy, and each part of each provision of this proxy is
separable from every other part of such provision.
This proxy shall terminate upon the Expiration Date.
Dated: ____________, 1998
______________________________________
Name:
Number of shares and class of capital
stock of the Company owned of record
as of the date of this proxy:
______________________________________
SIGNATURE PAGE
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<PAGE>
EXHIBIT 3.1
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, by the Restated
Certificate of Incorporation filed with the Secretary on November 12, 1997, by
the Restated Certificate of Incorporation filed May 22, 1998 and by the Restated
Certificate of Incorporation filed with the Secretary on September 29, 1998.
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 Amended and 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 Ticketmaster Online-CitySearch, Inc.
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.
<PAGE>
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 the
State of Delaware.
IV.
The Corporation is authorized to issue three classes of stock to be
designated "Class A Common Stock," "Class B Common Stock" and "Class C Common
Stock" (the Class A Common Stock, Class B Common Stock and Class C Common Stock
are sometimes referred to collectively hereinafter as the "Common 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 three hundred fifty-two million
eight hundred and eighty-three thousand and five hundred and six (352,883,506)
shares. One hundred million (100,000,000) shares shall be Class A Common Stock,
two hundred and fifty million (250,000,000) shares shall be Class B Common Stock
and two million eight hundred and eighty-three thousand and five hundred six
(2,883,506) shares shall be Class C Common Stock.
Upon filing of this Amended and Restated Certificate of Incorporation, each
issued and outstanding share of Common Stock shall be reclassified as one share
of "Class A Common Stock".
The rights, preferences, restrictions and other matters relating to the
Common Stock are as follows:
1. DIVIDENDS. The holders of the Class A Common Stock, the Class B
---------
Common Stock and the Class C Common Stock shall be entitled to receive, on a
share-for-share basis, such dividends if, as and when declared from time to time
by the Board of Directors of the Corporation (the "Board of Directors").
2. LIQUIDATION. In the event of the voluntary or involuntary
-----------
liquidation, dissolution, distribution of assets or winding-up of the
Corporation, the holders of the Class A Common Stock, the Class B Common Stock,
and the Class C Common Stock shall be entitled to receive, on a share-for-share
basis, all of the assets of the Corporation of whatever kind available for
distribution to stockholders.
3. VOTING RIGHTS. Except as otherwise provided herein or required by
-------------
applicable law or the Amended and Restated Agreement and Plan of Reorganization,
dated as of August 12, 1998 (the "Merger Agreement"), by and among the
Corporation, USA Networks, Inc. ("USAi"), Ticketmaster Group, Inc. ("TM Group"),
Ticketmaster Corporation ("TM Corp.", and together with TM Group, "TM"),
Ticketmaster Multimedia Holdings, Inc. and Tiberius, Inc., (i) each holder of
Class A Common Stock shall be entitled to vote fifteen (15) votes for each share
of Class A Common Stock held as of the applicable date on any matter that is
submitted to a vote or to the consent of the stockholders of the Corporation,
(ii) each holder of Class B Common Stock shall be entitled to vote one (1) vote
for each share of Class B Common Stock held as of the applicable date on any
matter that is submitted to a vote or to the consent of the stockholders of the
Corporation and (iii) each holder of Class C Common Stock shall be entitled to
no vote for each shares of Class C Common Stock held as of the applicable date
on
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<PAGE>
any matter that is submitted to a vote or to the consent of the stockholders of
the Corporation. Holders of Common Stock shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation. Except
as otherwise required by applicable law, the Class A Common Stock and the Class
B Common Stock shall vote together as a single class on all matters submitted to
a vote or to the consent of the stockholders of the Corporation.
4. NOMINATION OF DIRECTORS. (a) The Board of Directors shall consist of
-----------------------
twelve members. The number of directors may not be increased or decreased
without approval of a majority of the City Directors (as defined below) then in
office. At any election of directors of the Corporation, the members of the
Board of Directors shall be nominated as follows: (i) USAi shall have the right
to nominate six directors of the Corporation (each, a "USAi Director"); (ii) the
holders of Common Stock other than USAi, TM or any of their respective
affiliates and any transferees of shares of Common Stock previously held by
USAi, TM or any of their respective affiliates ("USAi City Shares"), shall have
the right to nominate four directors of the Corporation (each, a "City
Director"); and (iii) the USAi Directors and the City Directors shall each (as a
separate group) have the right to nominate one independent director of the
Corporation who shall not be affiliated with USAi or TM (each, an "Independent
Director"), provided, that for the initial election of directors to be effective
--------------
at the Effective Time (as defined below), the independent directorships shall be
filled by the USA Directors and the City Directors (each acting as a separate
group) and provided, further that the USAi Directors shall consult with the City
----------------------
Directors in connection with nominating the Independent Director nominated by
them (the "USAi Independent Director") and the City Directors shall consult with
the USAi Directors in nominating the Independent Director nominated by them (the
"City Independent Director"). With respect to the nomination of individuals to
serve as the City Directors (each a "City Nominee"), votes for such nomination
shall be cast and tallied on a cumulative basis (with each share of Common
Stock, notwithstanding Section 3 above, deemed to have one vote per share for
such purpose) and the City Nominees shall be those four individuals (or fewer if
a fewer number of City Directors are to be elected) in favor of whom the highest
number of votes are cast. If a vacancy occurs or exists on the Board of
Directors at any time, including but not limited to a vacancy because of the
death, disability, retirement, resignation or removal of any director for cause
or otherwise, then: (A) with respect to a vacancy created by a USAi Director or
the USAi Independent Director, the remaining USAi Directors shall have the sole
right to fill such vacancy; and (B) with respect to a vacancy created by a City
Director or the City Independent Director, the remaining City Directors shall
have the sole right to fill such vacancy (with each of the Independent Directors
remaining subject to consultation with the appropriate directors as provided
herein). Upon the earliest to occur of (X) the exercise of the Put (as such
term is defined in Section 5.13 of the Merger Agreement), (Y) the expiration of
the Third Put (as such term is defined in Section 5.13 of the Merger Agreement),
and (Z) the consummation of a Qualified IPO (as such term is defined in Section
5.13 of the Merger Agreement) if the holders of Common Stock (other than USAi
City Shares) as of immediately prior to the effective time (the "Effective
Time") of the merger of Merger Sub with and into TMOL ("Original City Holders")
dispose of their shares to persons other than Original City Holders or their
affiliates or to USAi pursuant to the Offer (as such term is defined in Section
2.1 of the Merger Agreement), then the number of City Directors shall be reduced
(and the number of directors shall be accordingly reduced) as follows: (i) if
more than 25% of the shares of Common Stock held by Original City Holders as of
the Effective Time are so disposed, the number of City Directors shall be
reduced to three; (ii) if more than 50% of the shares of Common Stock held by
Original City Holders as of the
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<PAGE>
Effective Time are so disposed, the number of City Directors shall be reduced to
two; (iii) if more than 75% of the shares of Common Stock held by Original City
Holders as of the Effective Time are so disposed, the number of City Directors
shall be reduced to one; and (iv) if more than 80% of the shares of Common Stock
held by Original City Holders as of the Effective Time are so disposed, then the
Original City Holders shall no longer have a right hereunder to nominate a City
Director.
(b) All of the provisions of Section 4(a) above shall automatically
terminate and be of no further force or effect upon the consummation of a
Qualified IPO.
5. CONVERSION.
----------
(a) Each share of Class A Common Stock shall be convertible into one
fully paid and nonassessable share of Class B Common Stock at the option of the
holder thereof at any time.
(b) Each share of Class A Common Stock shall automatically be
converted into one fully paid and nonassessable share of Class B Common Stock
upon any sale, pledge, conveyance, hypothecation, assignment or other transfer
(a "Transfer") of such share, whether or not for value, by the initial
registered holder (the "Initial Holder") thereof, other than any such Transfer
by such holder to (i) a nominee of such holder (without any change in
beneficial ownership, as such term is defined under Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) or (ii)
another person that, at the time of such Transfer, beneficially owns shares of
Class A Common Stock or a nominee thereof; provided that, notwithstanding the
foregoing, (A) any Transfer by the Initial Holder without consideration to (1)
any affiliated entity of such Initial Holder, (2) a partner, active or retired,
of such Initial Holder, (3) the estate of any such Initial Holder or a trust
established for the benefit of the descendants or any relatives or spouse of
such Initial Holder, (4) a parent corporation or wholly-owned subsidiary of such
Initial Holder or to a wholly-owned subsidiary of such parent unless and until
such transferee ceases to be a parent or wholly-owned subsidiary of the Initial
Holder or a wholly-owned subsidiary of such parent, or (5) the spouse of such
Initial Holder, in each case, shall not result in such conversion or (B) any
bona fide pledge by the Initial Holder to any financial institution in
connection with a borrowing shall not result in such conversion; and provided,
further that in the event any Transfer shall not give rise to automatic
conversion hereunder, then any subsequent Transfer by the holder (other than any
such Transfer by such holder to a nominee of such holder (without any change in
beneficial ownership)) or the pledgor, as the case may be, shall be subject to
automatic conversion upon the terms and conditions set forth herein.
(c) The one-to-one conversion ratio for the conversion of the Class A
Common Stock into Class B Common Stock in accordance with Section 5(a) and 5(b)
above shall in all events be equitably preserved in the event of any merger,
consolidation or other reorganization of the Corporation with another
corporation.
(d) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Class B Common Stock, solely for the
purpose of effecting the conversion of the shares of the Class A Common Stock,
such number of its shares of Class B Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Class A Common
Stock.
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<PAGE>
(e) In case any shares of Class A Common Stock shall be converted
pursuant to this Section 5, the shares so converted shall be canceled and shall
not be subject to reissue by the Corporation. From time to time, this Amended
and Restated Certificate of Incorporation shall be appropriately revised to
reflect the corresponding reduction in the Corporation's authorized capital
stock.
6. STOCK DIVIDENDS OR STOCK SPLITS OR COMBINATIONS. In no event shall
-----------------------------------------------
any stock dividends or stock splits or combinations of stock be declared or made
in Class A Common Stock, Class B Common Stock or Class C Common Stock unless all
shares of Class A Common Stock, Class B Common Stock and Class C Common Stock
then outstanding are treated equally and identically.
V.
Except as set forth in Article IX of the Bylaws, the Board of Directors is
expressly authorized to make, alter or repeal Bylaws of the Corporation, and 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.
1. 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.
2. 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.
3. Neither any amendment nor repeal of this Article VII, nor the
adoption of any provision of the Corporation's Amended and 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.
-5-
<PAGE>
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.
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 29th day of September, 1998.
/s/ Charles Conn III
------------------------------------
Charles Conn, III
Chief Executive Officer
ATTEST: /s/ Bradley O. Ramberg
Bradley O. Ramberg
Secretary
-6-
<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
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<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:________________________
________________________
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<PAGE>
EXHIBIT 10.5
LICENSE AGREEMENT
-----------------
THIS LICENSE AGREEMENT made and effective this 9th day of March, 1996
BETWEEN: PERLY INC., of
345 Adelaide Street West,
Suite 400,
Toronto, Ontario
M5V 1R5
("Perly")
AND: PERFECT MARKET INC., of
4502 Dyer Street, Suite 201,
La Crescenta, California,
U.S.A. 91214
("Perfect")
BACKGROUND
- ----------
A. Perly is the owner of U.S. trademark and service mark registration no.
1.706.303 registered August 11, 1992, and is the owner of non-U.S trademark
and service mark no. 617598 registered February 23, 1990 for CITISEARCH,
for computer programs in the field of geographic information and data bases
containing geographic information, and for consulting services in the field
of geographic information.
B. Perfect wishes to use the trademark CITYSEARCH as a trademark for providing
on the Internet listings of businesses, attractions and facilities and
their locations (including maps), as well as current events and community
information for the public and wishes to have a license from Perly for such
use.
1. Perly hereby grants to Perfect a license, subject to the terms of this
agreement, to use the mark CITYSEARCH for the services of providing on the
internet listings of businesses, attractions and facilities and their
locations (including maps), as well as current events and community
information for the public. The license will be worldwide except for
Canada, subject to notices and payments of fees as set forth below. Perly
agrees not to license any user other than Perfect for a service similar to
that of Perfect. Perfect agrees that Perly may utilize the mark itself
and/or may license a user that is associated or affiliated with Perly.
2. As partial consideration for the grant of this license. Perfect will pay
Perly a sum of $[*] (all sums mentioned herein are in U.S. dollars)
concurrently with signing of this agreement by both parties. In addition,
Perfect will within 10 days from receipt of invoices therefor from Perly,
pay to Perly the out-of-pocket expenses incurred by Perly in relation to
the subject matter of this agreement, including Perly's costs relating to
the preparation of this agreement, and Perly's costs in relation to any
work performed concerning any trademark applications or registrations which
Perly reasonably believes are necessary or desirable to improve or obtain
protection in any place for the mark CITYSEARCH relating to this license.
Perly agrees to notify Perfect if on any occasion its above-mentioned costs
exceed $4,000.
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-2-
3. Perfect's license will be effective without further payment other than as
specified above, for Internet listings as specified above in the city of
Pasadena, California and for the U.S. metropolitan area as defined by the
U.S. Census Bureau which contains Pasadena. [*]
4. If Perfect wishes to make its license effective in any country outside the
U.S. (excluding Canada), Perfect will so notify Perly and will pay Perly
the sum of $1,000.00 for each country outside the U.S. Upon Perly's receipt
of such notice and payment, and subject to the terms of this agreement and
applicable law, Perfect's license for the country in question will become
effective.
5. Perfect will use the mark CITYSEARCH only for Internet listings of
businesses, attractions and facilities and their locations (including
maps), as well as current events and community information for the public,
which are located in areas in which its license has been made effective,
and then only in association with providing the Internet listings referred
to above. All such listings and their manner of provision will be of a high
quality and standard which will be subject to Perly's approval, such
approval not unreasonably to be withheld. Perfect will notify Perly of any
substantial change in the above mentioned Internet service or associated
material. Perfect may use the name CitySearch in its corporate name or
trade style.
6. Perfect shall in its use of the CITYSEARCH trademark publish such trademark
notice or notices, and in such matter, as Perly may from time to time
request. The standard for Perly's trademark notice request shall be that
such notifications are readable and reasonable.
7. Perfect will defend, indemnify and hold Perly harmless against all claims,
actions and suits brought against Perly and which result from, relate to or
arise from Perfect's activities under this license.
8. Perfect agrees that it will not use or advertise any word, design, mark or
name which is, or any part of which is, the same as, similar to or
confusingly similar with the mark CITYSEARCH except as specifically
permitted under this agreement.
9. Perfect acknowledges that the mark CITISEARCH and CITYSEARCH are and shall
at all times be solely the property of Perly, and that its use of the mark
CITYSEARCH enures to the benefit of Perly, and Perfect agrees that it will
not directly or indirectly do or cause to be done, whether by commission or
omission, any act which may in any way jeopardize or adversely affect the
validity or distinctiveness of such marks or the title of Perly thereto,
and Perfect agrees that it will without charge to Perly, upon request by
Perly or its representatives, do all things and execute all documents that
may at any time be necessary or desirable to ensure the validity and
distinctiveness of the mark CITISEARCH and CITYSEARCH and to ensure the
title of Perly thereto for all countries.
10. It is understood that Perly does not provide any warranties concerning the
trade marks licensed hereunder or Perfect's right to use such trade marks
in any place, other than Perly's own covenant not to complain of such use
by Perfect so long as Perfect complies in all respect with the terms of
this agreement. Perly warrants that Perly is the sole and exclusive owner
of the mark, free of all liens and encumbrances; there are no claims,
judgements or settlements to be paid by Perly or pending claims or
litigation relating to the mark.
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-3-
11. Perfect agrees that Perly shall have the right of first refusal to supply
maps or mapping software for use in its service provided that the price and
quality of Perly's offerings shall be at least equal to Perfect's current
or proposed supplier. This right shall be subject to any previous agreement
or contract with Perfect and a third party. Perly shall have the onus to
advise Perfect when it has maps or map software where Perfect is operating.
12. The term of this license shall be five years from its date, subject to
earlier termination and to renewal as set forth below.
13. Perfect shall have the right to renew this agreement on the same terms and
conditions as those set forth here within for successive periods of one
year each by notice given to Perly at least 45 days before the expiry this
agreement or any renewal, and upon payment by Perfect to Perly of a
Payment of $[*] for each one year renewal, but no such renewal shall be
effective if Perfect is in breach of any term of this agreement, either at
time of notice or renewal.
14. If Perfect breaches this agreement, and if such breach is not remedied
within 45 days after notice of the breach is given by Perly to Perfect,
then Perly may terminate this agreement including any renewal thereof.
15. This agreement and any renewal thereof shall terminate if Perfect becomes
bankrupt or insolvent, or makes an assignment for the benefit of creditors,
or if all or any part of its business is placed in the hands of a receiver
or trustee, or if it seeks the benefit of any statute for the protection of
creditors or fails to meet its debts in general as they become due, or if
it ceases for a continuous period of six months to use the mark CITYSEARCH
for the Internet listings in question.
16. Perfect agrees that on termination or expiry of this agreement, it will
promptly cease use of the mark CITYSEARCH and will not thereafter use or
advertise the mark CITYSEARCH or any word, design, trademark or trade name
which is, or any part of which is, similar to or confusingly similar with
the mark CITISEARCH or CITYSEARCH, whether as a part of its corporate name
or otherwise.
17. It is agreed that clauses 7.9 and 16 will survive the termination or expiry
of this agreement and will remain in full force and effect at all times.
18. All notices given under this agreement will be considered properly given if
they are sent by facsimile, courier, or registered or certified mail to the
addresses of the parties as set forth above or to such other addresses as
the parties may in writing advise. Notices sent by facsimile or courier
will be considered given when received. Notices sent by registered or
certified mail will be considered given seven business days after being
mailed if there is no postal interruption in effect which would delay their
delivery.
19. This agreement is personal to Perfect and may not be assigned or
sublicensed by Perfect without Perly's prior written permission. Such
permission will not unreasonably be withheld if the assignment is to a
successor to substantially all of Perfect's business who is not a
competitor of Perly. [*] Perfect may sublicense a joint venture in which it
has a substantial interest, or a user who licenses an entire operating
package from Perfect. Such sublicensed to be valid under this agreement
must be exclusive to one sublicensee per one given country or region.
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-4-
20. This agreement shall be governed by the laws of Ontario, Canada and all
disputes relating to the subject matter thereof shall be resolved by
appropriate tribunals in Ontario, Canada, whose decisions will be binding
on the parties.
21. This agreement will be binding upon and will enure to the benefit of the
parties and their respective permitted successors and assigns.
IN WITNESS OF WHICH the parties have duly executed this agreement under the
hands of their properly authorized officers.
PERLY INC.
By: [SIGNATURE ILLEGIBLE]
-----------------------
Title: President
PERFECTMARKET INC.
By: /s/ Charles Conn III
-----------------------
Title: President & CEO
<PAGE>
Amendment of License
Recitals:
1. Perly Inc. ("Perly") and PerfectMarket Inc. (predecessor to CitySearch
Inc., "CS", collectively the "Parties," executed that certain license
agreement dated March 9, 1996 (the "License"), whose subject matter is the
trademark "CITYSEARCH" described more fully therein (the "Mark").
2. Perly is the owner of registration number 365856 for the trademark
"CITYSEARCH" and recresents that this is a valid registration.
3. The Parties wish to amend the License to include Canada.
Therefore,
1. The License is hereby amended as follows:
a. Paragraph 1, line 4: "except for Canada" is deleted.
b. Paragraph 4, line 2: "(excluding Canada)" is deleted.
2. The Parties acknowledge that the purpose of this amendment is for Perly to
grant CS a license to use the Mark in Canada pursuant to the terms and
conditions contained in the License.
3. In partial consideration for this amendment CS agrees to pay to Perly a sum
of U.S. $[*], receipt of which is hereby acknowledged.
4. The parties acknowledge that the U.S. $[*] payment will satisfy all
payment obligations with respect to Canada pursuant to paragraph 4 of the
License.
5. If the Parties further amend the License with respect to any terms and
conditions therein including, but not limited to assigning the Mark to CS, the
U.S. $[*] amount will be applied toward CS's payment obligations, if any,
under the further amendment.
6. The Parties will take all necessary actions with respect to the Canadian
Trademark Office to record or otherwise validate the License and this
amendment, including, without limitation, the filing, at CS's expense, of a
Canadian application for the Mark, provided that no such Canadian application
will be filed earlier than one month from the date hereof without CS's consent.
Perly, Inc. CitySearch Inc.
By: [SIGNATURE ILLEGIBLE] By: /s/ Charles Conn III
--------------------- ---------------------
Its: President Its: Chief Executive Officer
---------------------
Date:Mar 14 1997 Date: 18 March 1997
-------------------- --------------------
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.6
EXECUTION COPY
MARKETING AGREEMENT
This Marketing Agreement (this "Agreement") is entered into this 26th day of
May 1998, by and between CITYSEARCH, INC., a Delaware corporation ("Company"),
and AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., a New York
corporation ("AMEX").
WHEREAS, Company is engaged in, among other things, the business of promoting,
selling and providing to merchant establishments services associated with the
World Wide Web (the "Web") Internet sites; and
WHEREAS, Company and AMEX are parties to that certain Series E Preferred Stock
Purchase Agreement and related exhibits;
WHEREAS, AMEX desires to have offered, and to participate with Company in the
offering of the Service (as defined below), to certain of AMEX's current and
future merchants that accept the charge, credit, stored value, smart and other
cards offered for use and acceptance on the American Express network (the "AMEX
Merchant Customers") on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
in this Agreement, the parties hereto agree as follows:
1. THE SERVICE:
------------
(a) AMEX hereby retains Company, and Company hereby agrees, to provide
AMEX Merchant Customers with a development and hosting service for
AMEX Merchant InfoSites (as defined in subsection (b) below) and with
the ability to offer certain promotions over the Web (such service as
offered or modified by Company from time to time, the "Basic Service;"
the Basic Service as offered on the date hereof is more specifically
described in Exhibit A hereto), with changes and enhancements thereto
---------
as developed by Company from time to time specifically for AMEX and
approved by AMEX and Company (such changes and enhancements, the
"Enhancements"; the Basic Service and such Enhancements, collectively
the "Service"). The Service shall accord with the terms of this
Agreement. The Enhancements (including by way of example additional
services, reduced pricing or incentive offers) will be exclusively
offered to AMEX Merchant Customers as described in Section 7(a)(i).
AMEX reserves the right, subject to the Company's systems
capabilities, not to include any Enhancement to AMEX Merchant
Customers identified by AMEX. AMEX will consult with the Company from
time to time as to procedures for excluding Enhancements for
particular AMEX Merchant Customers.
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<PAGE>
(b) The Service shall include, without limitation, the Company's
production and delivery via the Web of comprehensive local city guides
which will provide, to consumers who access the Company's Web sites
(together with the Company's national home page, the "Company Local
Sites") or Web sites that are offered by Company's licensees that are
permitted to participate in the Service (the "Partner-Led Market
Sites"; and together with the Company Local Sites, the "CitySearch Web
Sites"), up-to-date localized information regarding arts and
entertainment, community activities and events, recreation, and news.
The Company, in connection with the Service, shall create and host for
AMEX Merchant Customers custom Web sites ("AMEX Merchant InfoSites"),
which will be linked to the appropriate Company Local Sites. Company
shall use commercially reasonable efforts to have AMEX Merchant
InfoSites linked to appropriate Partner-Led Market Sites as requested
by AMEX.
(c) AMEX Merchant InfoSites shall contain, at AMEX's election, trademarks
or service marks of AMEX in a manner determined by AMEX. The design
and location of such trademarks or service marks shall be appropriate
in relation to the design and graphical user interface as the parties
shall agree. Without limiting the foregoing, the AMEX Merchant
InfoSites shall contain such messages and such trademarks as the
parties shall reasonably determine.
(d) AMEX shall determine the eligibility of AMEX Merchant Customers that
may enroll in the Service, provided that Company shall be entitled to
comment on and approve such eligibility criteria, which approval shall
not be unreasonably withheld.
2. E-COMMERCE:
----------
(a) As used herein:
(i) "AMEX E-Commerce Software" shall mean collectively, the High-End
E-Commerce Software and the Low-End E-Commerce Software;
(ii) "Commercially Viable" shall describe products and services that
are generally commercially available and that are competitive in
price and functionality with comparable products or services
offered by third parties.
(iii) "E-Commerce Authorization" shall mean the process via the Web
for receiving approval from AMEX and other credit, charge,
debit, stored valued and smart card issuers of E-Commerce
Transactions pursuant to applicable card acceptance agreements
between AMEX or such other issuers and Merchant Enrollees;
(iv) "E-Commerce Processor" shall mean the agent on behalf of each
Merchant Enrollee that processes the E-Commerce Authorizations;
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<PAGE>
(v) "E-Commerce Transaction" shall mean, collectively, the High-End
E-Commerce Transaction and the "Low-End" E-Commerce Transaction;
(vi) "High-End E-Commerce Software" shall mean the software, owned or
licensed by AMEX, which provides "high-end" E-Commerce
Transaction capabilities to the AMEX Merchant InfoSites, the
Company Local Sites and certain permitted Partner-Led Market
Sites. Certain current requirements of such "high-end"
capabilities, which may be modified from time to time, are set
forth on Exhibit B hereto;
---------
(vii) "High-End E-Commerce Transaction" shall mean any purchase of
goods or services from a Merchant Enrollee by Cardholders (as
defined in Section 3(a)(i)) or any other holders of credit,
charge, debit, stored valued and smart cards via the Web that
utilizes the High-End E-Commerce Software. Such purchase shall
be made from any AMEX Merchant InfoSite, any Company Local Site
or any participating Partner-Led Market Site;
(viii)"Low-End E-Commerce Software" shall mean the electronic commerce
software owned or licensed by AMEX, which provides "low-end" E-
Commerce Transaction capabilities to the AMEX Merchant
InfoSites, the Company Local Sites and any participating
Partner-Led Market Sites. Certain current requirements of such
"low-end" capabilities, which may be modified from time to time,
are set forth on Exhibit C hereto.
---------
(ix) "Low-End E-Commerce Transaction" shall mean any purchase of
goods or services from a Merchant Enrollee by Cardholders or any
other holders of credit, charge, debit, stored valued and smart
cards via the Web that utilizes the Low-End E-Commerce Software.
Such purchase shall be made from any AMEX Merchant InfoSite, any
Company Local Site or any Partner-Led Market Site;
(x) "Merchant Enrollee" shall mean any AMEX Merchant Customer that
enrolls in the Service.
(b) Company agrees to develop an electronic commerce capability for the
Service which will allow individuals who access any Company Local
Site, any AMEX Merchant InfoSites, or participating Partner-Led Market
Sites, to conduct E-Commerce Transactions. Upon execution of an E-
Commerce Transaction (e.g., submission of all data necessary to
complete such transaction), a message shall be displayed, in a form
and content reasonably requested by AMEX, which shall indicate that
such E-Commerce Transaction is being processed by AMEX.
(c) Certain E-Commerce Exclusivity.
-------------------------------
(i) E-Commerce Processor Exclusivity. During the term of the
Agreement, AMEX shall be the exclusive E-Commerce Processor for
all E-Commerce Transactions conducted
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<PAGE>
on the AMEX Merchant InfoSites and the Company Local Sites,
subject to the provisions of subsection (c) (iii) below. During
the term of this Agreement, AMEX E-Commerce Processor pricing,
taking into account all related fees, and functionality will be
comparable to pricing and functionality for competing processor
services.
- -------------
-4-
<PAGE>
(ii) High-End Exclusivity.
(A) During the initial two (2) years of this Agreement, Company
agrees to utilize the AMEX High-End Software exclusively for
all High-End E-Commerce Transactions conducted on the AMEX
Merchant InfoSites and the Company Local Sites. Company
agrees to identify AMEX as the exclusive provider of the
High-End E-Commerce Software by displaying an icon or
message, in a format reasonably requested by AMEX, on
appropriate pages of the AMEX Merchant INfoSites and Company
Local Sites from which a High-End E-Commerce Transaction may
be conducted. The design and location of the message or icon
shall be appropriate in relation to the design and graphical
user interface as agreed by the parties.
(B) Provided that AMEX has committed to market the Service to
AMEX Merchant Customers in addition to those identified in
Section 4(b)(ii) hereof after the commencement of the third
year of this Agreement, then the provisions of subsection
(c)(ii)(A) hereof shall extend for so long as AMEX continues
to market the Service to AMEX Merchant Customers at levels
no less than those described in Section 4(b)(ii) on an
annual basis.
(iii) Low-End Exclusivity. If Company chooses to offer a Low-End
E-Commerce Software solution to any merchant customer of the
Company, then Company shall give AMEX written notification
thereof. AMEX shall have sixty (60) days from the date of its
receipt of such notice to provide Company with a commercially
viable Low-End E-Commerce Software solution to offer to AMEX
Merchant Customers and other merchant customers of Company.
(A) If AMEX provides to Company a Commercially Viable Low-End E-
Commerce Software solution, then Company agrees to utilize
the AMEX Low-End Software exclusively for all Low-End E-
Commerce Transactions conducted on the AMEX Merchant
InfoSItes and the Company Local Sites. Company agrees to
identify AMEX as the exclusive provider of the Low-End E-
Commerce Software by displaying an icon or message, in a
format reasonably requested by AMEX, on each page of the
AMEX Merchant InfoSites and Company Local Sites from which a
Low-End E-Commerce Transaction may be conducted. The design
and location of the message or icon shall appropriate in
relation to the design and graphical user interface as
agreed by the parties.
(B) If AMEX is unable to provide Company with a Commercially
Viable Low-End E-Commerce Software solution by the
expiration of such sixty (60) day period, then AMEX shall
have an additional one hundred twenty (120) day period to
integrate its E-Commerce Processor capabilities with the
low-end solution reasonably selected by the Company. If AMEX
is unable or unwilling to integrate such low-end solution by
the expiration of such one hundred and twenty
-5-
<PAGE>
(120) day period, then Company may utilize a third party E-
Commerce Processor for such Low-End E-Commerce Transactions.
The parties expressly acknowledge that during such one
hundred twenty (120) day period, Company can utilize a third
party E-Commerce Processor for such Low-End E-Commerce
Transactions until AMEX can provide an E-Commerce Processor
solution to Company that meets the criteria set forth in
Section 2(c)(i). No AMEX Merchant Enrollee that uses a third
party E-Commerce Software solution selected by the Company in
accordance with the terms of this subsection (iii)(B) shall
be required to terminate its low-end software solution
relationship with such third party.
(C) If Company chooses to utilize a Low-End E-Commerce Software
solution that is not approved by AMEX for distribution to
AMEX Merchant Customers, then the exclusivity granted to
Company pursuant to Section 7(b) hereof shall be voided.
(d) Subject to the provisions of subsection (c) above and subsection (g)
below, during the term of this Agreement, Company agrees not to
integrate into the AMEX Merchant InfoSites or the Company Local Sites
any other capabilities or software that perform functions similar to
the functions provided by the AMEX E-Commerce Software. Furthermore
Company agrees to recognize AMEX as the default method of payment for
all E-Commerce Transactions within the AMEX Merchant InfoSites and
Company Local Web Sites by means reasonably requested by AMEX.
(e) Company agrees to promote to its licensees the AMEX E-Commerce
Software and AMEX's capabilities as the E-Commerce Processor. Company
agrees to use commercially reasonable efforts to induce its licensees
that own or operate the Partner-Led Market Sites to utilize the
AMEX E-Commerce Software and to utilize AMEX as the exclusive
E-Commerce Processor. Company agrees to notify its potential licensees
of Company's relationship with AMEX, to provide AMEX with
introductions to such licensees, to facilitate technical discussions
with such licensees regarding the E-Commerce Software and E-Commerce
Processor capabilities, and to participate in meetings with such
potential licensees and AMEX at AMEX's reasonable request.
(f) Company agrees to negotiate in good faith with AMEX the definitive
terms of the Merchant Hosting and Distribution License Agreement in
connection with the licensing by Company of the AMEX E-Commerce
Software. Furthermore each Merchant Enrollee that desires to allow its
customers to conduct E-Commerce Transactions shall execute and deliver
a license agreement, in a form provided by AMEX, in connection with
the sub-licensing from Company of the AMEX E-Commerce Software.
(g) During the term of the Agreement, AMEX agrees to provide to Company
the AMEX E-Commerce Software and the E-Commerce Processor that AMEX
makes generally available to the public. [*]
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[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-6-
<PAGE>
[*]
(h) Nothing in this Section 2 shall be construed to limit Company's
ability to offer online transaction capabilities provided by third
parties, retailers, merchandisers to its customers or users or to
provide links to other web sites outside of the Company's platform
that provides E-Commerce Transaction capabilities.
3. PROMOTIONAL SITE:
----------------
(a) As used herein:
(i) "AMEX Merchant Offer" shall mean each specific offer listed in
the Promotional Site and the National Promotional Site from AMEX
Merchant Customers exclusively to holders ("Cardholders") of a
charge, credit, debit or stored value card issued by AMEX or its
licensee and accepted on the AMEX network (the "AMEX Card") and
requiring payment using an AMEX Card. Such offers shall include,
without limitation, price discounts and free or discounted
products;
(ii) "National Promotional Site" shall mean a web page or web pages
that may or may not be developed, maintained or hosted by the
Company, which web page or web pages are designed to collect and
display, on a national (rather than local) level, AMEX Merchant
Offers for presentation to Cardholders;
(iii) "Promotional Site" shall mean a web page or web pages located
exclusively within the Company Site, developed and maintained by
the Company for the purpose of presenting AMEX Merchant Offers
to Cardholders.
(b) AMEX will make commercially reasonable efforts to publish AMEX
Merchant Offers solicited by AMEX in the Promotional Site.
(c) AMEX Merchant Offers that are solicited by Company shall appear in the
Promotional Site and AMEX will make commercially reasonable efforts to
publish such Company solicited AMEX Merchant Offers in the National
Promotional Site.
(d) The following AMEX Merchant Offers will link back to the Promotional
Site or to the related AMEX Merchant InfoSite unless the related AMEX
Merchant Customer elects otherwise: any AMEX Merchant Offer that is
(i) solicited by AMEX and (ii) derived from an AMEX Merchant Customer
that is located in a market in which the Company has a Company Local
Site which is located on the National Promotional Site.
(e) The Company agrees to develop the Promotional Site and make the
related AMEX Merchant Offers accessible to Cardholders, which may
include, without limitation,
- -------------
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
Cardholders who conduct E-Commerce Transactions. The Company agrees to
use commercially reasonable efforts to develop the Promotional Site
within six (6) months of AMEX's written notice to Company of AMEX's
desire to launch such Promotional Site. The Promotional Site shall be
branded prominently with an AMEX trademark as selected by AMEX and
agreed to by Company. Company agrees to post on the home page of the
appropriate Company Local Site an icon that shall hypertext link to
the Promotional Site. AMEX agrees to place an icon and hypertext link
on pages of the National Promotional Site as the parties shall agree.
(f) The Company agrees to grant AMEX an option for the Company to develop
a National Promotional Site where AMEX Merchant Offers may be
published and available to Cardholders, which may include, without
limitation, Cardholders who conduct E-Commerce Transactions. The
Company agrees to use commercially reasonable efforts to develop such
National Promotional Site within six (6) months of AMEX's written
notice to Company of AMEX's desire to launch such National Promotional
Site. Upon receipt of such notice, Company agrees to negotiate in good
faith with AMEX on additional terms, conditions and fees for the
Company's development of the National Promotional Site. The National
Promotional Site shall be branded prominently with an AMEX trademark
as selected by AMEX and agreed to by Company.
(g) If Company creates a site (the "Similar Site") similar to the
Promotional Site and a Merchant Enrollee posts an offer or promotion
in both the Similar Site and the Promotional Site, then Company agrees
to use commercially reasonable efforts to assure that such offer or
promotion posted in the Similar Site shall not have terms more
favorable than the AMEX Merchant Offer posted in the Promotional Site.
4. PROMOTION OF THE SERVICE:
-------------------------
(a) AMEX and Company shall promote the Service to AMEX Merchant Customers
by participating in promotional programs (as defined below) in the
manner and to the extent provided in this Agreement. From time-to-time
during the term of this Agreement AMEX may engage in other
solicitation activities relating to the Service.
(b) Programs:
---------
(i) The parties acknowledge that they intend to offer the Service
during the term of this Agreement through various promotional
programs and channels as the parties shall mutually agree
("Programs"). All marketing and other promotional materials
(including without limitation, solicitation, fulfillment,
customer service and retention materials) developed hereunder in
connection with any Program or the Service shall be referred to
as "Promotional Materials." In the event of a disagreement, AMEX
shall have the final controlling rights on all marketing and
promotion of the Service (including but not limited to
presentation, copy, format, design, script development, etc.) so
long as such marketing and promotion do not violate any
contracts, laws or
-8-
<PAGE>
regulations. The timing and scope (i.e., size and frequency of
solicitations) will be mutually approved by both parties, which
approval shall not unreasonably withheld.
(ii) The initial Program shall involve the marketing of the Service,
including without limitation the delivery of Promotional
Materials, to one hundred thousand (100,000) AMEX Merchant
Customers located in geographic areas in which Company operates
the Basic Service. Such Program shall commence no later than
ninety (90) days from the date hereof. AMEX shall identify such
AMEX Merchant Customers in accordance with criteria that AMEX
shall identify to Company.
(c) Promotional Materials: Company and AMEX shall prepare Promotional
---------------------
Materials for the Service. Such materials shall be designed to
solicit Merchant Enrollees. The Company shall be solely responsible
for verifying the accuracy of all statements relating to the Service
contained in the Promotional Materials.
(d) Performance Standards: Company shall fulfill the requirements set
---------------------
forth in the following exhibits attached hereto and made a part
hereof:
Exhibit A Description of the Basic Service
---------
Exhibit D Financial Arrangement
---------
Exhibit E Customer Service
---------
The requirements set forth in the foregoing shall be deemed the
performance standards (the "Performance Standards") hereunder. The
parties hereto agree and acknowledge that the failure of the Company
to fulfill the requirements of the Performance Standards shall
constitute a material breach of this Agreement.
(e) Solicitation and Selection of AMEX Merchant Customers.
------------------------------------------------------
(i) AMEX shall provide to Company a list of AMEX Merchant Customers
which Company may solicit for enrollment in the Service. Such
solicitation shall be conducted by Company in person by the
Company's sales force or by any other method mutually approved by
the parties. Each proposed Merchant Enrollee shall execute a
Service agreement in the form of Schedule 1 hereto as amended
----------
from time to time and as approved by AMEX.
(ii) Company shall provide to AMEX the sales materials used by Company
or its agents to solicit AMEX Merchant Customers. All such
materials shall be subject to AMEX's review and comment and shall
not be used if, in AMEX's sole discretion, the materials are
deemed unacceptable.
(f) Costs and Expenses:
-------------------
(vi) Except as set forth in subsection (ii) below, all costs and
expenses associated with a
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<PAGE>
Program or the Service, including without limitation costs and
expenses related to merchant solicitations, AMEX Merchant
InfoSite creation and development, market research, market
tests, public relations, list development, ad agency fees,
software development and Customer Service, whether incurred by
the Company or reasonably incurred by AMEX in connection with
its obligations hereunder, shall be payable by the Company. Any
reimbursable amounts incurred by AMEX shall conform with the
requirements set forth in subsection (A) below or otherwise as
approved by Company in writing. Any amounts incurred by AMEX
shall be invoiced to the Company, with reasonable documentary
support for the amounts stated therein, and paid by Company
within thirty (30) days of its receipt thereof. [*]
(A) Reimbursable costs and expenses incurred by AMEX shall
conform with the following: postage, printing and
creative development fees (including without limitation
fees for creative agencies) not to exceed [*] per year
and market research expenses not to exceed [*] per year.
Without limiting the foregoing, AMEX agrees to make
reasonably commercial efforts to inform Company of AMEX's
proposed expenditure of amounts greater than $5,000 that
are reimbursable hereunder.
(ii) AMEX shall be responsible for costs and expenses incurred by
AMEX in connection with any direct mail or telemarketing
solicitations of AMEX Merchant Customers.
(iii) AMEX shall invoice to Company any amounts reimbursable by
Company hereunder, with reasonable documentary support for the
amounts stated therein. Company shall pay such amounts within
thirty (30) days of its receipt thereof. Company shall pay
interest at the rate of eighteen percent (18%) per annum on all
such amounts paid after the due date, and a penalty of five
percent (5%) of such amounts due that is not received by AMEX
within thirty (30) days of the original due date.
(g) AMEX's Sponsorship Commitments. AMEX agrees to spend a minimum of
[*] within 90 days of the execution of this Agreement with
Company in connection with advertising and sponsorship Programs, which
may include, but not be limited to, banners, content sponsorships,
contests and other service promotions. AMEX and Company will jointly
determine the nature of the advertising expenditure including, but not
limited to, specific programming, markets, sponsorships, banner
campaigns, etc. The advertising will be priced favorably to AMEX at
discounted rates relative to other Company advertisers of similar size
and nature, and as mutually agreed upon by both parties. [*]
Dedicated account support, campaign management and post-sales follow-
up and tracking reports will be provided to AMEX by Company on a
timely basis. [*]
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-10-
<PAGE>
[*]
5. CUSTOMER SERVICE:
----------------
(a) The Company agrees to provide customer service ("Customer Service") to
AMEX Merchant Customers in accordance with the standards set forth on
Exhibit E hereto.
---------
(b) Customer Service shall be provided to AMEX Merchant Customers for the
term of their respective enrollment in the Service. [*]
(c) The Company shall provide AMEX with the following reports, at the time
and in the form and substance mutually agreed upon by the parties
hereto.
(i) AMEX Merchant Customer report including: (A) total number
of Merchant Enrollees; (B) Merchant Enrollees' names; (C)
Merchant Enrollees' Merchant Account numbers; (D) Merchant
Enrollees' dates of enrollment;
(ii) Revenue report setting forth revenues generated by the
Service;
(iii) Customer Service report including: (A) number of AMEX
Merchant Customers contacting Customer Service, (B)
wait/response time for telephone, and (C) length of
telephone calls;
(iv) Attrition report including: (A) total number of the
Merchant Enrollees that cancel their enrollment in the
Service; (B) reasons disclosed to Company for such AMEX
Merchant Customers' discontinuing their respective
enrollment in the use of the Service; and (C) date of
cancellation by such Merchant Enrollees.
The report required by (i) above shall be provided on a weekly basis for
the first three (3) months of the Service thereafter it shall be provided
on a monthly basis. The report required by (iv) above shall be provided on
a quarterly basis. The other reports described above will be provided to
AMEX on a monthly basis or as otherwise jointly agreed by AMEX and the
Company.
6. FINANCIAL ARRANGEMENT:
----------------------
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-11-
<PAGE>
(a) AMEX Merchant Customers enrolling in the Service shall be charged the
price or prices determined by Company and approved by AMEX (the
"Enrollment Fees"). Company shall be responsible for billing and
collecting all Enrollment Fees. Such Enrollment Fees will be billed by
invoice, automatic debit from a demand deposit account, or, when
available, to the AMEX Merchant Customers' American Express Corporate
Purchasing Card account. Payment schedules and procedures will be set
forth in detail on Exhibit D.
---------
(b) Company understands that it will be responsible for paying any charges
incurred in connection with the Acceptance Agreements (as defined in
Section 13(d) below), including the payment of any discount fees
payable thereunder. (Any revenues to AMEX generated by the terms of
the Acceptance Agreements shall not be calculated as part of the gross
revenues for purposes of Exhibit D hereto.)
---------
7. EXCLUSIVITY:
------------
(a) For the Benefit of AMEX
-----------------------
(i) During the term of this Agreement neither Company, nor any
affiliate within the Company's control, may market any service
or program similar to the Service that provides the Enhancements
without the prior written consent of AMEX; provided that if the
Enhancement is a pricing feature, then such exclusivity shall
apply only in the market where such Enhancement is promoted
during the thirty (30) day period following the expiration of
the marketing of such Enhancement by the parties hereunder.
(ii) During the term of this Agreement, AMEX shall be the exclusive
sponsor of the Service, the AMEX Merchant InfoSites and the
Company's Local Sites for credit, charge, debit, stored value
and other similar card products (the "Charge Card Products").
Except as permitted herein, Company agrees that during the term
of this Agreement, Company will not, without the express written
consent of AMEX, grant or permit its licensees to grant a
sponsorship (where Company's approval or consent is required),
or engage in any marketing activities, relating to any Charge
Card Product.
(iii) During the term of this Agreement, AMEX shall be the preferred
travel agency and financial services sponsor of the Service, the
AMEX Merchant InfoSites and the Company's Local Sites. Company
agrees to promote AMEX as such preferred sponsor in the manner
reasonably requested by AMEX and as appropriate for the AMEX
sponsorship commitment. The Company will make commercially
reasonable efforts to notify AMEX of sponsorship opportunities
in other areas and to grant AMEX a right of first refusal to
sponsor such other areas on terms no less favorable than the
sponsorship opportunities the Company proposes to grant to a
third party. The foregoing shall not be construed to restrict
Company from accepting banner
-12-
<PAGE>
advertisements or regional sponsorships from third party travel
agencies or financial services providers.
(b) For the Benefit of Company.
--------------------------
(i) As used herein:
(A) "Non-Solicitation Period" shall mean the six (6) month
period commencing on the date AMEX drops mail in connection
a Service Promotion;
(B) "Service Promotion" shall mean the direct mail
solicitation, billing statement inserts and proactive
telemarketing solicitation of AMEX Merchant Customers for
enrollment in the Service;
(C) "Similar Service" shall mean a product or service
substantially similar to the Service or the Basic Service
and offered by Microsoft Sidewalk, Digital City, Cox
Interactive Media or the New York Times Company.
(ii) [*]
(iii) AMEX agrees to use commercially reasonable efforts to have the
AMEX proprietary sales force which markets to AMEX Merchant
Customers Web-related products and services to include the
Service in its schedule of available products. AMEX shall use
such efforts only in markets where the Company operates a
Company Local Site or in a Partner-Led Market Site participating
with AMEX pursuant to this Agreement. Furthermore, AMEX shall
use such efforts in connection with its sales efforts and
inbound sales calls.
(iv) AMEX agrees to identify the Service as the AMEX sponsored online
local guide and service which develops and hosts merchant Web
sites. AMEX agrees to coordinate with Company on the specific
language in connection with such identification and the
Company's preferential status. Furthermore, AMEX shall use such
efforts in connection with its proprietary sales force efforts
and inbound sales calls.
(v) The rights of Company under this Section 7(b) shall be subject
to the terms set forth in Section 2(c)(iii)(C) hereof.
8. ADVERTISEMENTS. Company agrees to comply with the Advertisement Policy set
--------------
forth in Exhibit F hereto.
---------
9. INDEMNIFICATION AND HOLD HARMLESS:
----------------------------------
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-13-
<PAGE>
(a) Each party hereto (an "Indemnitor") shall indemnify and hold harmless the
other party, its parent, subsidiaries, affiliates successors, assignees,
directors, officers, agents and employees (each an "Indemnitee") from and
against any loss, damage, cost, expense, liability, and settlement,
including without limitation, any reasonable attorney fees and court costs
(each of the foregoing a "Claim") reasonably incurred by any Indemnitee
which Claim arises out of or in connection with (i) the intentional or
negligent act or omission of the Indemnitor or its officers, directors,
employees, contractors or agents (collectively, the "Agents") in the course
of the performance of Indemnitor's duties and obligations under this
Agreement; (ii) the failure of Indemnitor or its Agents, as the case may
be, to comply with the terms of this Agreement; or (iii) the failure of
Indemnitor (including without limitation its Agents who perform on behalf
of Indemnitor hereunder) to comply with its obligations under any and all
laws, rules, or regulations applicable to Indemnitor, its Agent or the
Service, as the case may be.
(b) Each Indemnitee seeking indemnification under this Agreement shall give
prompt notice to Indemnitor along with such Indemnitee's request for
indemnification, of any Claim for which it is seeking indemnification. The
parties understand and further agree that no settlement of an indemnified
Claim shall be made by an Indemnitee without the concurrence of Indemnitor.
Indemnitor shall control the settlement or defense of any Claim; provided,
however, that the Indemnitee may, at its cost, engage its own attorneys.
The Indemnitee will fully cooperate with Indemnitor to enable it to fulfill
its obligations with respect to such Claim.
(c) IN NO EVENT WILL EITHER PARTY HERETO BE RESPONSIBLE FOR ANY INCIDENTAL,
INDIRECT, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES OF ANY
KIND, INCLUDING WITHOUT LIMITATION LOST REVENUES, LOSS OF PROFITS OR LOSS
OF BUSINESS.
(d) The provisions of this Section 9 shall survive the termination of this
Agreement.
10. PUBLICITY: Except as may be required by law, no party hereto shall
----------
issue advertising, promotional activity, press or publicity release
relating to the Service or this Agreement without securing the prior
written consent of such other party.
11. CONFIDENTIALITY:
----------------
(a) Company and AMEX acknowledge that as a result of the performance of
their respective responsibilities under this Agreement, AMEX will
obtain access to confidential and proprietary information of the
Company and Company shall obtain access to confidential and
proprietary information concerning Cardholders, AMEX's business,
customers, methodologies and strategies (all such information herein
the "Confidential Information"). All such Confidential Information of
the other party shall be deemed to be confidential and proprietary
unless such Confidential Information: (i) is clearly intended for
public distribution by AMEX, in the case of AMEX Confidential
Information, or by
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<PAGE>
Company, in the case of Company's Confidential Information; (ii) is
known by the receiving party prior to its receipt thereof; (iii) is
lawfully obtained by the receiving party from a third party; or (iv)
is independently developed by the receiving party without use of any
portion of such Confidential Information which can be reasonably
demonstrated by written record.
(b) This Agreement, including all exhibits and schedules hereto, is hereby
designated as confidential within the meaning of this Section 11 and
shall not be disclosed to a third party unless disclosure is required
by government regulation or court order.
(c) Company and AMEX shall not use any of the other party's Confidential
Information for any purpose other than to perform their respective
responsibilities under this Agreement. Company and AMEX shall each
take the same measures to protect the Confidential Information of the
other party received by it as it prudentially should take with respect
to its own Confidential Information, including, but not limited to,
instructing its employees, vendors, agents, and independent
contractors (excluding only those retained to provide the Service) of
the foregoing and requiring them to be bound by appropriate
confidentiality agreements.
(d) AMEX shall have all rights and interests to the list of AMEX Merchant
Customers and the information contained thereon. Company (i) shall not
solicit AMEX Merchant Customers for any reason other than in
accordance with the terms of this Agreement or as requested by AMEX in
writing and (ii) may neither communicate with, nor permit its licensee
or designee to communicate with, Merchant Enrollees other than in
accordance with the terms of this Agreement without the prior written
consent of AMEX. Notwithstanding the foregoing, the Company may market
products and services to, or communicate with, its own merchant
customers and potential merchant customers provided that the source of
the information used by the Company to market to or communicate with
such merchant customer or potential merchant customer is neither AMEX
nor the lists provided by or on behalf of AMEX under this Agreement.
(e) It is understood and agreed by the parties hereto that all files of
Merchant Enrollees supplied to the Company in connection with the
Service (including, but not limited to, the master file tape for the
Service) are and always have been the exclusive property of AMEX, and
will be turned over to AMEX, at no cost to AMEX, upon termination of
this Agreement.
(f) Nothing in this Agreement shall be deemed to prevent Company or AMEX
from providing information to their respective independent contractors
who are retained to assist in the performance of such party's
obligations hereunder provided that the conditions set forth herein
are complied with by such party and its independent contractors and
such independent contractors are not competitors of the other party.
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<PAGE>
(g) Each party acknowledges that irreparable injury would be caused to the
other party in the event of unauthorized use of such other party's
confidential information, and agrees that preliminary and permanent
injunctive relief would be appropriate in the event of breach of this
Section 11.
(h) Upon termination or expiration of this Agreement and at the request
and option of AMEX or Company, as the case may be, each of AMEX and
Company agrees promptly (i) to return the confidential information of
the other party to such party or (ii) destroy the confidential
information of the other party and acknowledge in a sworn affidavit
that all such confidential information has been destroyed.
(i) Section 11 in its entirety, shall survive the termination of this
Agreement.
12. DATA AND RECORDS: Acknowledging the confidentiality of AMEX Merchant
-----------------
Customer data, Company hereby agrees to the terms of the AMEX Data Access
Document attached hereto as Exhibit G and the AMEX Merchant Customer Data
---------
and Data Related Rights schedule attached hereto as Exhibit I the terms of
---------
which are hereby incorporated herein and made a part hereof. Company will
comply with the exhibits entitled Security attached hereto as Exhibit J and
---------
AMEX Audit Rights attached hereto as Exhibit K, the terms of both are
---------
incorporated herein by reference and made a part hereof. In the event
Company uses the services of third party vendors, representatives or
subcontractors, Company shall be responsible for ensuring their compliance
with the terms of this Agreement, and shall ensure that all such vendors,
representatives or subcontractors execute the Non-Disclosure Agreement
substantially similar to that attached hereto as Exhibit L. With respect to
---------
access of AMEX data via a computer, Company's employees and agents will
follow the Terminal Rules set forth in Exhibit M.
---------
13. REPRESENTATIONS, WARRANTIES & COVENANTS:
----------------------------------------
(a) Each party hereto represents and warrants that it has full power and
authority to execute this Agreement and to take all actions required
by, and to perform the agreements contained in, this Agreement, and
that each party's respective obligations under this Agreement do not
conflict with its obligations under any other agreement by which the
such party is bound.
(b) Each party represents, warrants and covenants that the performance of
its respective obligations under this Agreement in connection with the
Service complies and will comply with all applicable federal, state,
local and foreign laws and regulations.
(c) Each party represents, warrants and covenants that each of its
respective employees assigned to perform services with respect to the
Service has and will have the skill and background to perform such
assigned services in a competent and professional manner, and to act
in compliance with all applicable laws and regulations.
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<PAGE>
(d) Company represents, warrants and covenants that it is and shall
continue to be during the terms of this Agreement a party in good
standing to (i) a card acceptance agreement with AMEX (the "Retail
Acceptance Agreement") for the acceptance of the American Express(R)
Cards and (ii) a corporate purchasing card acceptance agreement with
AMEX (the CPC Acceptance Agreement"; and together with the Retail
Acceptance Agreement, the "Acceptance Agreements") for the acceptance
of the American Express(R) Corporate Purchasing Cards.
(e) Company covenants that the Service shall comply with AMEX's policies,
as amended from time to time, relating to privacy of customer data.
Attached hereto as Exhibit N is a copy of AMEX's online privacy
---------
policies in effect on the date hereof.
14.TRADEMARKS: Notwithstanding any other provision of this Agreement, neither
----------
party shall have the right to use the other party's registered or
unregistered trademarks, service marks, or trade names, or to refer to the
other party directly or indirectly, in connection with any product, promotion
or publication without the prior written approval of that party.
15.INTELLECTUAL PROPERTY OWNERSHIP:
--------------------------------
(a) As used herein "Developed Materials" shall mean, hereunder, all
inventions, methods, techniques, works of authorship, computer software,
computer upgrades, computer programs, service providers, vendors
information, training materials, telemarketing scripts, computer
screens, reports, data, any other proprietary or confidential
information made, created, developed or written hereunder and other
intellectual property created, developed or written in accordance with
the activities contemplated hereunder. In the event any Developed
Material (i) is fully paid for by AMEX and Company has not provided
material creative or developmental input therein (including without
limitation provision of proprietary or confidential information), then
such Developed Material shall be deemed the sole property of AMEX and
any use thereof by Company shall require consent thereto by AMEX; (ii)
is substantially paid for by AMEX and Company has had material creative
or developmental input therein (including without limitation provision
of proprietary or confidential information), then such Developed
Material shall be deemed the property of AMEX with Company having a non-
exclusive, royalty-free right of use thereof; (iii) is substantially
paid for by Company and AMEX has had material creative or developmental
input therein (including without limitation provision of proprietary or
confidential information), then such Developed Material shall be deemed
the property of Company with AMEX having a non-exclusive, royalty-free
right of use thereof; and (iv) is fully paid for by Company and AMEX has
not provided material creative or developmental input therein (including
without limitation provision of proprietary or confidential
information), then such Developed Material shall be deemed the sole
property of Company and any use thereof by AMEX shall require consent
thereto by Company. As used herein, "AMEX Property" shall mean the
Developed Material as described in (i) and (ii) above; "Company
Property" shall mean the Developed Material as described in (iii) and
(iv) above.
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<PAGE>
(b) All Developed Materials shall be deemed Confidential Data and
Information and subject to the confidentiality provisions of this
Agreement.
(c) Nothing herein shall be construed to restrict, impair or deprive Company
or AMEX of any of their respective rights or proprietary interests in
technology or products that existed prior to and independent of the
performance of their respective obligations hereunder.
16. INTELLECTUAL PROPERTY INFRINGEMENT
----------------------------------
(a) Each party agrees to defend and/or handle at its own expense, any claim
or action against the other party or its affiliates (including without
limitation, its parent, subsidiaries, officers and directors) for any
actual or alleged infringement of any intellectual or industrial
property right, including, without limitation, trademarks, service
marks, patents, copyrights, misappropriation of trade secrets or any
similar proprietary rights, based upon the Service or any portion
thereof furnished or utilized by such party or based on the other
party's use thereof. Each party further agrees to indemnify and hold the
other party and its affiliates harmless from and against any and all
liabilities, losses, costs, damages and expenses (including reasonable
attorneys' fees) associated with any such claim or action. Each
indemnifying party shall have the sole right to conduct the defense of
any such claim or action and all negotiations for its settlement or
compromise, unless otherwise mutually agreed to in writing.
(b) If any portions of the Service become, or in Company's opinion are
likely to become, the subject of any claim or action as described in
subsection (a) above, then, Company, at its expense may either: (i)
procure for AMEX the right to continue using same as contemplated
hereunder; (ii) modify same to render same non-infringing (provided such
modification does not adversely affect the use of the Service as
contemplated hereunder); or (iii) to AMEX's satisfaction, replace same
with equally suitable, functionally equivalent, compatible, non-
infringing products, materials or services.
17. NOTICES: All notices, consents, requests, instructions, approvals, and
--------
other communications made, required or permitted hereunder (each herein, a
"Notice") shall be given in writing and delivered to the receiving party
to its respective address set forth below (i) by personal delivery to the
individual identified below, (ii) by certified or registered mail (return
receipt requested), or (iii) by a nationally recognized courier. The
effective date of such Notice shall be deemed to be the date upon which
any such Notice is personally received by the addressee. Any party hereto
may change its address set forth below by written notice to the other
party hereto in accordance with the terms of this Section:
(a) If to AMEX:
American Express Travel Related Services Company, Inc.
American Express Tower
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<PAGE>
3 World Financial Center
New York, New York 10285-4221
Attn: Pierric Beckert
Vice President
Interactive Enterprise Development
American Express Relationship Services
Copy to:
American Express Travel Related Services
Company, Inc.
General Counsel's Office
American Express Tower
3 World Financial Center
New York, New York 10285-4909
Attn: Francis M. Caesar
Counsel for AERS
(b) If to Company:
CitySearch, Inc.
790 East Colorado Boulevard
Suite 200
Pasadena, California 91101
Attn: Charles Conn III
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<PAGE>
Copy to:
CitySearch, Inc.
790 East Colorado Boulevard
Suite 200
Pasadena, California 91101
Attn: Douglas McPherson
Chief Legal Officer
18. TERM AND TERMINATION:
---------------------
(a) This Agreement shall take effect upon the date hereof (the "Effective
Date"), and continue until May 26, 2002 (including any renewal period
as provided herein, the "Expiration Date") unless earlier terminated
in accordance with this Section.
(b) Early Termination: In accordance with the following, this Agreement
-----------------
may be terminated by either party prior to the Expiration Date:
(i) In the event that the other party commits a material breach or
default under this Agreement which breach is not cured by the
breaching party thirty (30) days from the receipt of notice to
cure the breach from the non-breaching party, then the non-
breaching party may terminate this Agreement in its discretion
at any time after such thirty (30) day period; provided that if
such cure cannot be accomplished within such thirty (30) day
period, then, with the non-breaching party's consent which shall
not be unreasonably withheld, such period shall be extended for
such reasonable additional period as shall be necessary to
effect such cure, so long as the party shall have commenced such
cure within such thirty (30) day period and shall thereafter
proceed diligently to complete the cure.
(ii) In the event (1) of a sale or distribution of all or
substantially all of the assets of Company or a sale or
distribution of sufficient stock (other than pursuant to a
public offering) of Company to effect a change in control or (2)
that Company or its affiliate enters into the business of
providing financial services or provides a financial product or
service substantially similar to any of AMEX's financial
products or services, AMEX may, in its sole discretion,
terminate this Agreement immediately. In the event that AMEX
terminates this Agreement pursuant to the preceding sentence of
this Section, Company shall reimburse AMEX for reasonable
out-of-pocket expenses (not to exceed $100,000) incurred in
transferring all data contained within the AMEX Merchant
InfoSites (excluding Company Property) at AMEX's election, to
another vendor of AMEX or to AMEX itself. The expenses described
in the foregoing shall include costs associated with consultants
retained by AMEX in connection with such termination.
Furthermore, the costs associated with Company's obligations in
Section 11(e) shall not be applied against the $100,000 cap
stated herein.
-20-
<PAGE>
(iii) Either party may terminate this Agreement with immediate effect:
(1) upon the institution by the other party of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by the other
party to institution of bankruptcy or insolvency proceedings
against it or the filing by the other party of a petition or
answer or consent seeking reorganization or release under the
Federal Bankruptcy Code, or any other applicable Federal or state
law, or the consent by the other party to the filing of any such
petition or the appointment of a receiver, liquidator, assignee,
trustee, or other similar official of the other party or of any
substantial part of its property, or the making by the other
party of an assignment for the benefit of creditors, or the
admission in writing by the other party of an assignment for the
benefit of creditors, or the admission in writing by the other
party of its inability to pay its debts generally as they become
due or the taking of corporate action by the other party in
furtherance of any such actions; (2) if, within 60 days after the
commencement of an action against the other party seeking any
bankruptcy, insolvency, reorganization, liquidation, dissolution
or similar relief under any present or future law or regulation,
such action shall not have been dismissed or all orders or
proceedings thereunder affecting the operations or the business
of the other party stayed, or if the stay of any such order or
proceeding shall thereafter be set aside; or if, within 60 days
after the appointment without the consent or acquiescence of the
other party of any trustee, receiver or liquidator or similar
official of the other party, or of all or any substantial part of
the property of the other party, such appointment shall not have
been vacated.
(c) Transfer Assistance: Upon the termination of this Agreement due to an
--------------------
event described in Section 18(b)(i), where the material breach relates to
the Company's obligations under this Agreement, Section 18(b)(ii) or
Section 18(b)(iii), where the events described therein occur with respect
to Company, Company shall, upon AMEX's request, provide the following
assistance: (i) continue to provide the Service to the extent requested by
AMEX in accordance with the Performance Standards for the remainder of all
Merchant Enrollees' enrollment period up to one (1) year provided that
Company has been paid for such enrollment period; (ii) provide such
assistance ("Transfer Assistance") as reasonably requested by AMEX to
transfer the Service to another vendor or to AMEX itself during a one-
hundred eighty (180) day period following the effective date of the
termination of the Agreement; (iii) answer AMEX Merchant Customers'
questions regarding the Services as mutually agreed on an as needed basis;
and (iv) deliver to AMEX any remaining AMEX-owned reports and documentation
still in Company's possession, or at AMEX's direction, destroy all AMEX
data and information in the Company's possession. The above referenced
Transfer Assistance shall be provided at AMEX's expense unless otherwise
provided herein or the termination is due to a material breach by Company.
(d) Certain Post-Termination Rights and Obligations.
-----------------------------------------------
(i) As used herein "Post-Termination Period" shall mean the one (1) year
period following termination of this Agreement so long as such
termination is not due to an
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<PAGE>
event described in the following sections: 18(b)(i), where the
material breach relates to the Company's obligations under this
Agreement; 18(b)(ii); or 18(b)(iii), where the events described
therein occur with respect to Company. During the Post-Termination
Period:
(A) AMEX and Company agree that Company shall continue to provide the
Service to Merchant Enrollees in accordance with the terms and
conditions of this Agreement; the term of the Agreement shall be
deemed extended through the expiration of the Post-Termination
Period with respect to the Merchant Enrollees. Any and all
solicitations by Company under this Agreement for new enrollments
in the Service shall cease immediately prior to the commencement
of the Post-Termination Period;
(B) Company may, but is not obligated to, renew the enrollment of any
Merchant Enrollee, provided that no term of such renewal
enrollment shall extend for more than a twelve (12) month period.
[*]
(C) AMEX shall not solicit Merchant Enrollees to enroll in a service
that is substantially similar to the Service.
(ii) For a period of five (5) years following the termination of the
Agreement, Company agrees not to promote or sponsor an AMEX
Competitor on any AMEX Merchant InfoSite, regardless of whether such
AMEX Merchant InfoSite is hosted or maintained by Company. As used
herein, "AMEX Competitor" shall mean an entity engaged in the
issuance or promotion of Charge Card Products or is engaged in the
financial services business.
(iii) Upon expiration of the Post-Termination Period, Company's obligations
to brand any portion of the AMEX Merchant InfoSite with an AMEX
trademark shall cease.
19. MISCELLANEOUS:
--------------
(a) Headings: Headings stated in this Agreement are for convenience of
---------
reference only and are not intended as a summary of such sections and
do not affect, limit, modify, or construe the contents thereof.
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
(b) 21/st/ Century. No later than December, 1998, Company shall (i)
--------------
manage and manipulate data in connection with the Service involving
all dates from the 20/th/ and 21/st/ centuries without functional or
data abnormality related to such dates; (ii) manage and manipulate
data in connection with the Service involving all dates from the
20/th/ and 21/st/ centuries without inaccurate results related to
such dates; (iii) have user interfaces and data fields in connection
with the Service formatted to distinguish between dates from the
20/th/ and 21/st/ centuries; and (iv) represent all data in
connection with the Service to include indications of the millennium,
century, and decade as well as the actual year.
(c) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall constitute an original, but all of
which together shall constitute one instrument notwithstanding that
all parties are not signatories to the same counterparts.
(d) Informal Resolution and Arbitration.
-----------------------------------
(i) With the exception of the disputes arising under the provisions
of Section 11 hereof, if that there is a dispute between the
parties relating to this Agreement, the parties agree the party
claiming the dispute will provide written notice of the dispute
to the other party. Within thirty (30) days after receipt of the
written notice, AMEX and Company will each appoint a
representative with full authority to negotiate a resolution of
the dispute and meet as often as is necessary in a good faith
effort to resolve the dispute without the necessity of a formal
meeting. In the event that representatives are unable to resolve
the dispute within ninety (90) days of the date of the written
notice, said dispute shall be submitted to mandatory and binding
arbitration as provided below in Section 19(e)(ii).
(ii) To initiate the arbitration, the disputing party shall notify
the other party in writing which shall describe in reasonable
detail the nature of the dispute, state the amount of the claim,
specify the requested relief and name an arbitrator who has been
licensed to practice law in the U.S. for at least ten years, is
not an employee of AMEX or Company or an employee of an
affiliate of either AMEX or Company, is experienced in
representing clients in connection with commercial agreements
and is impartial, neutral, disinterested, unbiased and bound by
the Rules of Ethics of the ABA and AAA for neutral arbitrators
and shall not have ex parte communications with the parties
(Basic Qualifications). Within fifteen (15) days after the other
party's receipt of the Arbitration Demand, such other party
shall file and serve on the disputing party a written statement
answering the claims set forth in the Arbitration Demand and
including any affirmative defenses of such party, asserting any
counterclaim which shall describe in reasonable detail the
nature of the dispute relating to the counterclaim, and state
the amount of the counterclaim and specify the requested relief
and name the second arbitrator satisfying the Basic
Qualifications. Within fifteen (15) days thereafter, the two
party selected arbitrators shall select a third neutral
arbitrator from a list provided by the AAA of potential
arbitrators who satisfy the Basic Qualifications and who have no
past or present relationship with the parties or their counsel
except as disclosed in writing to and approved by the parties.
The
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<PAGE>
third arbitrator selected by the two party appointed arbitrator
shall serve and have sole responsibility as the "case manager".
Within forty-five (45) days after the arbitration panel has been
appointed, the case manager shall meet with the parties and
their counsel to agree to a case management agreement which
shall include the arbitration panel's commitment that they have
sufficient time available for the handling of the dispute to
final disposal within one hundred eighty (180) days. The
arbitration will be heard by a panel of the three arbitrators so
chosen and decisions of a majority of the members of the
arbitration panel shall be final and subject to the provisions
of Section 11 hereof. The arbitration panel shall have the power
and authority and is instructed to exclude evidence on grounds
of prejudice, immateriality and/or redundancy and no ruling by
the arbitrator rejecting evidence on such ground shall be a
ground for vacating the arbitration award.
(iii) Any controversy, dispute, disagreement or claim arising out of
or relating to this Agreement, or any alleged breach thereof, or
the subject matter thereof, shall be settled exclusively by
binding arbitration, as described in above in subparagraphs (i)
and (ii), which shall be conducted in New York, New York. The
arbitration panel is specifically authorized to render partial
or full summary judgment as provided by the Federal Rules of
Civil Procedure. In the event full or partial summary judgment
is granted, the non-prevailing party may not raise as a basis
for a motion to vacate an award that the Arbitration Panel
failed or refused to consider evidence of bearing on the
dismissed claim or issue. The Federal Rules of Civil Procedure
shall apply to all discovery pursuant to the arbitration process
and the Federal Rules of Evidence and Subpoena shall apply to
the arbitration hearing. The party bringing a particular claim
or asserting an affirmative defense shall have the burden of
proof with respect to thereto. The arbitration proceeding and
all testimony, filings, documents and information relating to or
presented during the arbitration proceedings shall be deemed to
be information subject to the confidentiality provisions of the
Agreement. The arbitration panel will have no power or authority
under the Commercial Arbitration Rules of the AAA or otherwise,
to relieve the parties from their agreement hereunder to
arbitrate or otherwise to amend or disregard any provision of
the Agreement, including without limitation the provisions of
this Section 19(d), except that the parties hereto expressly
agree that claims pursuant to Section 11(g) hereof will not be
subject to the requirements of this Section 19(d).
(iv) Should an arbitrator refuse or be unable to proceed with
arbitration proceedings, he/she shall be replaced by the party
who selected such arbitrator or if such arbitrator was selected
by the two party appointed arbitrators, by such two party
appointed arbitrators selecting a new third arbitrator in
accordance with the basic qualifications.
(v) Any award rendered by the arbitration panel will be final,
conclusive and binding upon the parties and any judgment hereon
may be entered and enforced in any court of competent
jurisdiction.
-24-
<PAGE>
(vi) Each party will bear a pro rata share of all fees, costs and
expenses of the arbitrators, and notwithstanding any law to the
contrary, each party will bear all fees, costs and expenses of
its own attorneys, experts and witnesses; provided, however that
in connection with any judicial proceeding to compel arbitration
pursuant to this agreement or to confirm, vacate or enforce any
award rendered by the arbitration panel, the prevailing party in
such proceeding will be entitled to recover reasonable attorneys
fees and expenses incurred in connection with such proceeding,
in addition to any other relief to which it may be entitled.
(f) New York Law: This Agreement shall be governed by and in accordance
-------------
with the laws of the State of New York, without reference to its
conflict of laws principles.
(g) Independent Contractor Status And Authority.
-------------------------------------------
(i) Company agrees and acknowledges that in its performance of its
obligations under this Agreement, Company is an independent
contractor of AMEX. Company is solely responsible for its own
activities. Company has no authority to make commitments or enter
into contracts on behalf of, bind or otherwise obligate AMEX in
any manner whatsoever except as expressly stated in this
Agreement.
(ii) Since Company is an independent contractor and not an agent of
AMEX, Company represents, warrants and agrees that it shall be
liable for all taxes, withholdings, and imposts of any nature
applicable to the payment of compensation, whether current or
deferred, for the work performed on Company's behalf in
accordance with Company's obligations hereunder. Furthermore,
Company will indemnify and hold AMEX harmless for any such
taxes, withholding or imposts for which AMEX may be determined
to be liable.
(h) Non-Waiver; Cumulative Rights: No failure or delay (in whole or in
------------------------------
part) on the part of any party to exercise any right or remedy
hereunder shall or operate as a waiver thereof or effect any other
right or remedy. All rights and remedies hereunder are cumulative and
are not exclusive of any other rights or remedies provided hereunder or
by law.
(i) Severability: If any provision contained in this Agreement is or
-------------
becomes invalid, illegal, or unenforceable in whole or in part, such
invalidity, legality, or unenforceability shall not affect the
remaining provisions and portions of this Agreement.
(j) Assignment: This Agreement may not be assigned by either party without
the prior written consent of the other party.
(k) No Creation of Partnership. This Agreement shall not be construed to
--------------------------
create or constitute a partnership for tax or other purposes.
-25-
<PAGE>
(l) Sales Tax. Company, and not AMEX, is the seller of the services
---------
hereunder. Company is responsible for collecting and remitting to the
appropriate jurisdiction any and all applicable sales or use taxes and
shall fully indemnify and hold AMEX harmless for any sales, use or
similar transaction taxes that are assessed, whether against AMEX or
Company, with respect to such sales.
(m) Access to AMEX Merchant Customer Lists. The access provided by AMEX
--------------------------------------
to Company of certain lists of AMEX Merchant Customers shall be
provided to Company at no additional charge.
(n) Entire Agreement: This Agreement constitutes the entire Agreement
-----------------
between the parties with respect to the subject matter hereof and
supersedes all prior contemporaneous oral or written understandings or
Agreements among the parties which relate to the subject matter hereof.
No modification or amendment of this Agreement or any of its provisions
shall be binding upon any party unless made in writing and duly
executed by authorized representatives of all parties.
IN WITNESS WHEREOF, AMEX and Company, intending to be legally bound by the terms
of this Agreement, have caused this Agreement to be executed by their duly
authorized representatives as of the date and year first above written.
AMERICAN EXPRESS TRAVEL
RELATED SERVICES COMPANY, INC.
By: /s/ Pierric Beckert
---------------------------------
Name: Pierric Beckert
Title: Vice President
Interactive Enterprise Development
American Express Relationship Services
By: /s/ Paul Dottle
---------------------------------
Name: Paul Dottle
Title: Vice President
Establishment Services
CITYSEARCH, INC.
By: /s/ Charles Conn
---------------------------------
-26-
<PAGE>
Name: Charles Conn
Title: CEO
-27-
<PAGE>
EXHIBIT A
---------
DESCRIPTION OF THE BASIC SERVICE
--------------------------------
The Basic Service
- -----------------
Company produces and delivers comprehensive local city guides on the Web at
its Web site, www.citysearch.com, providing up-to-date information regarding
arts and entertainment, community activities and events, recreation, businesses
and news/sports/weather to consumers in major metropolitan areas. Each local
city guide consists of original content developed and designed specifically for
the Web by the Company and its licensees. The Company creates custom-built Web
sites ("InfoSites") for local businesses, aggregates them in a local city
environment and provides consumers the ability to regularly update and expand
the sites according to customer preferences. By enabling consumers to search,
sort and filter information and engage in interactive relationships, the Basic
Service offers local and regional businesses the opportunity to reach and
interact with targeted audiences in a cost-effective manner. The Basic Service
is built in cooperation with the community, and in partnership with local
government, community and volunteer associations, business and professional
groups, educational institutions and local media companies.
Services to Consumers
- ---------------------
Company provides events, community, business and news information in a
complete and current guide to a local city at no charge to consumers. For
example, the Basic Service lists restaurants, music, movies, theater, volunteer
information, children's activities, gift ideas, entertainment, local getaway
ideas, physicians, pets, shopping and short features. The information and the
interface have been designed to cater to a broad range of interests in an easily
navigable, intuitive format.
Company has developed technology which enables consumers to perform
sophisticated search functions and allows filtering for their personal
interests, with e-mail delivery. The information can be searched, sorted and
filtered by keyword, time and geography. For example, if a consumer in San
Francisco wants to locate a traditional Italian restaurant in North Beach
neighborhood, he could access the San Francisco site and type in the keywords
"Italian restaurant" in the "What Are You Looking For" box and click on "North
Beach" at the "Area" prompt. The Basic Service would return all Italian
restaurants in North Beach. At the consumer's discretion, the search result
could be sorted by InfoSite size, alphabetically or by category and viewed as
either a list or map. The list view provides each restaurant's name, address,
telephone number and, if the restaurant has purchased an InfoSite, provides the
number of pages purchased. The map view displays each restaurant's name and
location. For restaurants that have purchased InfoSites, the consumer can click
on the restaurant's name or icon to find additional information.
-28-
<PAGE>
By using the Basic Service, consumers can search main shopping areas
navigable maps, community organizations and vendors can be contacted via e-mail,
and consumers can engage in the chat and bulletin board discussions with
individuals such as local public officials and celebrities. Consumers may also
access video streams from local television stations, including recent news,
weather and traffic. The Company is continuing to develop a local platform for
electronic commerce, including ticketing, reservations, sales event
notifications, electronic coupons, newsletters and other transactions.
Value Proposition to Business Customers
- ---------------------------------------
The Company creates and hosts InfoSites for local businesses and
organizations for a monthly fee. Company believes it offers an attractive value
proposition for local businesses. For an initial fee ranging from $60 to $650
per month, the Company provides a turn-key solution for businesses to establish
a Web presence including design, layout, photography, posting of updated
information, hosting and maintenance. Business customers are able to provide a
targeted audience with updated information about their stores and services
including pictures, prices, store location, live entertainment, weekly specials
or sales and other relevant information. Electronic delivery enables the
service to be provided at a fraction of the cost of paper-based media. The
Company's efficient, proprietary site design tools and significant production
economies enable it to build customized multi-paged Web sites without charging
customers an up-front fee. Furthermore, the Company encourages frequent
information updates by offering business customers a certain number of free
updates each month. This is in contrast to yellow pages and similar forms of
advertising which print infrequently and do not allow for regular information
updates.
By building and hosting custom Web sites in its local city guide
environment, Company provides business customers a cost effective way to
establish a meaningful presence on the Web. In addition, the Company offers a
number of additional benefits to customers. By aggregating a business
customer's InfoSite with those of numerous other businesses in a comprehensive
local city guide, Company provides categorical and geographic context to a
business customer's Web presence rather than allowing it to "free-float" in
cyberspace. Business customers, moreover, receive free promotion of their
InfoSite as part of the Basic Service. Company's business customers receive
usage reports, e-mail functionality to enable consumers and businesses to
communicate with each other, community sponsorship opportunities and access to
an expanded base of potential buyers including tourists and mail order users.
The Company is also developing the system as a platform for electronic commerce,
including ticketing, reservations, sales events notifications, electronic
coupons, newsletters and other transactions).
-29-
<PAGE>
EXHIBIT B
---------
HIGH-END CAPABILITIES
---------------------
[*]
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-30-
<PAGE>
EXHIBIT C
---------
LOW-END CAPABILITIES
--------------------
[*]
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-31-
<PAGE>
[*]
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-32-
<PAGE>
EXHIBIT D
---------
FINANCIAL ARRANGEMENT
---------------------
[*]
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-33-
<PAGE>
EXHIBIT E
---------
CUSTOMER SERVICE
[*]
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-34-
<PAGE>
[*]
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-35-
<PAGE>
[*]
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-36-
<PAGE>
EXHIBIT F
---------
ADVERTISEMENT POLICY
--------------------
1. Advertisements on the AMEX Merchant InfoSites, any portion of the Service
or the CitySearch Web Sites (to the extent such CitySearch Web Sites are
branded with an AMEX trademark), shall not:
(a) Contain any unlawful, harmful, threatening, abusive, harassing,
defamatory, vulgar, obscene, profane, hateful, racially, ethnically or
otherwise objectionable material of any kind, including, but not
limited to, any material which encourages conduct that would
constitute a criminal offense, give rise to civil liability or
otherwise violate any applicable local, state, national or
international law.
(b) Contain personal attacks on a company or individual.
(c) Offer unauthorized downloads of any copyrighted or private
information.
(d) Purport to be from someone other than the author.
(e) Violate applicable law, including but not limited to any FTC or unfair
advertising rules, regulations, and laws.
2. The Company agrees to provide AMEX with a quarterly list of advertisers and
services offered through the AMEX Merchant InfoSites and the CitySearch Web
pages (to the extent such CitySearch Web pages are branded with an AMEX
trademark).
3. The parties reserve the right at any time to exclude any specific
advertisers and advertisements in the AMEX Merchant InfoSites, the Service
and the CitySearch Web Sites (to the extent such CitySearch Web Sites are
branded with an AMEX trademark), including any promotional materials
related thereto, by written notice to each other.
-37-
<PAGE>
EXHIBIT G
---------
AMEX DATA ACCESS DOCUMENT
-------------------------
Information Security Requirements
- ---------------------------------
The following are provided as minimum requirements or guidelines only.
GENERAL
- -------
[*]
Company agrees to abide by the Privacy Principles as adopted by AMEX for itself
from time to time. Those requirements are currently as follows:
1. COLLECT ONLY CUSTOMER INFORMATION THAT IS NEEDED, AND TELL CUSTOMERS HOW
IT WILL BE USED.
Limit the collection of information about customers to what is needed to be
known to administer their accounts, to provide customer services, to offer
new products and services, and to fulfill any legal and regulatory
requirements. Tell customers about the general uses of the information
collected about them, and will provide additional explanation if customers
request it.
2. GIVE CUSTOMERS CHOICES ABOUT HOW THEIR DATA WILL BE USED.
On a regular basis, give customers the option to decide whether or not they
wish to have their names removed from lists used for mail, telephone and
online marketing. These "opt-out" choices include product and service
offers from AMEX and those made in conjunction with AMEX's business
partners.
3. ENSURE INFORMATION QUALITY.
Use advanced technology and well-defined employee practices to help ensure
that customer data are processed promptly, accurately and completely.
Require high standards of quality from the consumer reporting agencies and
others who provide information about prospective customers.
4. USE INFORMATION SECURITY SAFEGUARDS.
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-38-
<PAGE>
Access to customer data is limited to those who specifically need it to
conduct their business responsibilities. Use security techniques designed
to protect customer data -- especially when certain data are used by
employees and business partners to fulfill customer services.
5. LIMIT THE RELEASE OF CUSTOMER INFORMATION.
In addition to providing customers with the opportunity to "opt out" of
marketing offers, information is released only with the customers' consent
or request, or when required to do so by law or other regulatory authority.
When a court order or subpoena requires release of information, customer is
notified promptly to give the customer an opportunity to exercise his or
her legal rights. The only exceptions to this policy are when notifying the
customer is prohibited by court order or law, or cases in which fraud
and/or criminal activity is suspected.
6. BE RESPONSIVE TO CUSTOMERS' REQUESTS FOR EXPLANATIONS.
If an application for services is denied or a customer's relationship is
ended, to the extent permitted by applicable laws, an explanation is
provided, if requested. The reasons for the action taken is stated and the
information upon which the decision was based, unless the issue involves
potential criminal activity. Medical information about an applicant for
insurance, or an insured individual, may be disclosed to a physician
designated by the customer rather than to the customer directly.
7. EXTEND THESE PRIVACY PRINCIPLES TO BUSINESS RELATIONSHIPS.
AMEX expects the companies selected as business partners to honor AMEX's
Privacy Principles in the handling of customer information. These include
companies which (a) assist in providing services to AMEX customers; (b)
supply AMEX with information for identifying or evaluating prospective
customers; or (c) are given the opportunity to send mailings to approved
AMEX customer lists. In selecting business partners, consider the accuracy
and quality of the data they provide, how they respond to consumer
complaints and whether or not they provide "opt out" choices for those
whose information they process.
8. HOLD EMPLOYEES RESPONSIBLE FOR THESE PRIVACY PRINCIPLES.
Each employee is personally responsible for maintaining consumer confidence
in the company. Provide training and communications programs designed to
educate employees about the meaning and requirements of these Privacy
Principles. Conduct internal audits and commission outside-expert reviews
of compliance with the Privacy Principles and the specific policies and
practices that support the Principles.
Disregard of these Privacy Principles shall be deemed a breach of the Agreement
and cause for termination pursuant to the terms thereof.
[*]
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-39-
<PAGE>
CARDMEMBER PRIVACY
- ------------------
[*]
EMPLOYEE RESPONSIBILITIES
- -------------------------
[*]
SECURITY ADMINISTRATION AND RESPONSIBILITIES
- --------------------------------------------
[*]
SYSTEM SECURITY
- ---------------
[*]
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-40-
<PAGE>
[*]
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-41-
<PAGE>
EXHIBIT H
---------
[INTENTIONALLY OMITTED]
-42-
<PAGE>
EXHIBIT I
---------
CUSTOMER DATA AND DATA-RELATED RIGHTS
-------------------------------------
1. Limited Access to AMEX Merchant Customer Data. Company shall have limited
---------------------------------------------
access to certain Card Member data including AMEX Merchant Customer account
number, address and other relevant information (the "AMEX Merchant Customer
Data") solely for the purposes of investigating and monitoring the handling of
cases and related customer services for particular AMEX Programs and plans to be
determined by the parties hereto. AMEX shall have the sole responsibility of
overseeing all security standards and requirements as set forth by AMEX in
relation to the AMEX Merchant Customer Data in Company's possession. Company
shall insure that all standards and requirements will meet AMEX's full and
reasonable satisfaction.
2. Data and Reports
----------------
Ownership of AMEX Data. All data and information submitted to Company by AMEX in
- ----------------------
connection with the Services (the "AMEX Data") is and shall remain the property
of AMEX. The AMEX Data shall: (1) not be used by Company other than in
connection with providing or analyzing the Services, (2) not be disclosed, sold,
assigned, leased or otherwise provided to third parties by Company; and (3) not
be commercially exploited by or on behalf of Company, its employees or agents
except as provided in this Agreement. Company shall take all appropriate actions
to safeguard the AMEX Data. The database of Enrolled AMEX Merchant Customers
shall remain the sole property of AMEX.
Return of Data. Upon request by AMEX upon the termination or expiration of this
- --------------
Agreement, Company shall (1) promptly return to AMEX, in a format agreed upon by
the parties hereto and on the media reasonably requested by AMEX, all AMEX Data
and/or (2) erase or destroy under the supervision of AMEX, all AMEX Data in
Company possession.
Accuracy of Data. As part of the Services, each party shall be responsible for
- ----------------
the accuracy and completeness of the data and information submitted by a party
to the other and any errors in and with respect to data and information
submitted to the other. Each party shall promptly correct any errors or
inaccuracies in the data or information prepared by one party and submitted to
the other.
Corrections of Errors. As part of the Service, Company shall promptly correct
- ---------------------
any errors or inaccuracies made known to them either through their own sources
or made known to them by AMEX in the AMEX Data. AMEX shall be responsible for
(1) the accuracy and completeness of the AMEX Data submitted by AMEX to Company
and (2) any errors in and with respect to data obtained from Company caused by
inaccurate or incomplete AMEX Data.
-43-
<PAGE>
EXHIBIT J
---------
SECURITY
--------
1. Safety and Security Procedures: [*]
- ------------------------------------
2. Logical Security Controls: [*]
- ------------------------------
3. Authorized Access: [*]
- -----------------------
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-44-
<PAGE>
4. Security Relating to Competitors: [*]
- --------------------------------------
5. Disaster Recovery: [*]
- -----------------------
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-45-
<PAGE>
EXHIBIT K
AMEX AUDIT RIGHTS
-----------------
Company shall keep all documents (excluding credit and monitoring reports)
relating to services provided under this Agreement for a period of three (3)
years or longer as required by applicable law. Unless otherwise instructed by
AMEX, Company shall promptly deliver all such documents to AMEX upon the
termination of this Agreement.
AMEX shall have the right, during normal business hours and with 24 hour notice
to Company, to visit Company's operations center to (i) monitor telephone
conversations between Company customer service representatives and AMEX Merchant
Customers/AMEX Merchant Customers to the extent permitted by and in accordance
with applicable law, and (ii) to audit Company's Service Locations and files for
the services described in this Agreement and otherwise relating to Company's
performance of its obligations under this Agreement. Upon AMEX's request,
Company shall also cooperate with AMEX in developing the telecommunications
systems necessary to enable AMEX to conduct such telephone monitoring at any
time from AMEX's New York headquarters or other reasonable remote location(s) to
the extent permitted by and in accordance with applicable law. In the event such
systems are developed, AMEX may conduct such remote monitoring at any time to
the extent permitted by and in accordance with applicable law and to the extent
AMEX will cover the cost to develop the necessary telecommunications systems,
AMEX shall cover those costs that are reasonable and appropriate.
AMEX shall have the right, without notice, to perform a Data Security review of
Company's security controls as they relate to the physical security and
protection of AMEX Confidential data/system access.
-46-
<PAGE>
EXHIBIT L
---------
NON DISCLOSURE AGREEMENT
------------------------
[Subcontractor/Agent/Representative Name] ("Receiving Party") agrees that
Receiving Party is aware that American Express Travel Related Services Company,
Inc. ("AMEX") and ________________________ ("Company") have entered into a
Marketing Agreement ("Agreement") that imposes certain obligations on Company,
some of which are specifically set forth below. Receiving Party understands that
as part of obligations under the Marketing Agreement, Company is required to
obtain this written agreement from Receiving Party to further ensure
understanding and compliance with these obligations.
In consideration of Receiving Party's future assignment and/or responsibilities
in connection with Company's performance under the Marketing Agreement,
Receiving Party hereby acknowledges, represents and confirms to Company and AMEX
as follows: (a) Receiving Party has read the provisions of this Non-Disclosure
Agreement, understands each of them, agrees to them, and knows of no agreements,
obligations or restrictions which prevent or prohibit Receiving Party from
complying with them; (b) Receiving Party shall receive and maintain all AMEX
information and perform services in a manner consistent with these obligations;
and (c) Receiving Party agrees not to, directly or indirectly, engage in or
assist others to engage in, any activity or conduct which violates the
provisions of this Non-Disclosure Agreement.
1. General Obligations. All confidential or proprietary information and
-------------------
documentation ("Confidential Information" (including the terms of this Non-
------------------------
Disclosure Agreement, the AMEX Data and the Software) relating to AMEX
(including without limitation AMEX's customers, partners and clients) shall be
held in confidence by Receiving Party to the same extent and in at least the
same manner as AMEX protects its own confidential or proprietary information and
as recommended as a result of any facility audits or reviews. Receiving Party
shall not disclose, publish, release, transfer or otherwise make available
Confidential Information in any form to, or for the use or benefit of, any
person or entity without AMEX's express written consent. Receiving Party shall,
however, be permitted to disclose relevant aspects of the Confidential
Information to its officers, agents, subcontractors and employees and to the
officers, agents, subcontractors and employees of its corporate affiliates or
subsidiaries to the extent that such disclosure is reasonably necessary for the
performance of its duties and obligations to Company under the Marketing
Agreement; provided, that Company shall take all reasonable measures to ensure
that the Confidential Information is not disclosed or duplicated in
contravention of the provisions of this Non-Disclosure Agreement by such
officers, agents, subcontractors and employees. The obligations in this Section
-------
1 shall not restrict any disclosure by Receiving Party pursuant to any
- -
applicable law, or by order of any court or government agency (provided that
Receiving Party shall give prompt notice to AMEX of such order) and shall not
apply with respect to information which (a) is developed by Receiving Party
without violating AMEX's proprietary and confidential rights, (b) is or becomes
publicly known (other than through unauthorized disclosure), (c) is disclosed by
AMEX to a third-party free of any obligation of confidentiality, is already
known by the Receiving Party without an obligation of confidentiality other than
pursuant to this Non-Disclosure Agreement or any confidentiality agreements
entered into before the effective date of the Marketing Agreement, or (d) is
rightfully received by Receiving Party free of any obligation of
confidentiality.
2. Unauthorized Acts. Receiving Party shall: (a) notify AMEX promptly of any
-----------------
material unauthorized possession, use or knowledge, or attempt thereof, of the
Confidential Information by any person or
-47-
<PAGE>
entity which may become known to such party, (b) promptly furnish to AMEX full
details of the unauthorized possession, use or knowledge, or attempt thereof,
and use reasonable efforts to investigate and prevent the recurrence of any
unauthorized possession, use or knowledge, or attempt thereof, of the
Confidential Information, (c) use reasonable efforts to cooperate with AMEX in
any litigation and investigation against third parties deemed necessary by AMEX
to protect its proprietary and confidential rights and (d) promptly use all
reasonable efforts to prevent a recurrence of any such unauthorized possession,
use or knowledge of the Confidential Information. Receiving Party shall bear the
cost it incurs as a result of compliance with this Section 2.
---------
3. Receiving Party agrees that if Receiving Party threatens to or actually
breaches or fails to observe any of the obligations set forth in this Non-
Disclosure Agreement, AMEX and Company shall be subject to irreparable harm
which shall not be adequately satisfied by damages. Receiving Party therefore
agrees that Company or AMEX shall be entitled to an injunction and/or any other
remedies permitted, to ensure and enforce Receiving Party's compliance with
these obligations; provided, however, that no specification herein of any
particularly legal or equitable remedy shall be construed as a waiver,
prohibition or limitation of any legal or equitable remedies.
By: ________________________________
Name: ______________________________
(Type, Stamp or Print)
Title: _____________________________
Date: ______________________________
Witness: ___________________________
-48-
<PAGE>
EXHIBIT M
---------
________________________________________________________________________________
[LOGO OF AMERICAN EXPRESS APPEARS HERE]
TERMINAL RULES AND REGULATIONS
________________________________________________________________________________
Part of our mission is to make changes and adjustments to various AMEX Merchant
Customer accounts. This is done through the use of our computer system. The use
of this system is extremely critical. There are a few very specific rules and
regulations that go along with working with the computer system. These rules
must be followed in detail by every employee who is involved with the computer
system. Therefore, you are being shown the rules and regulations so that you
understand how the system works. It is very important that you understand and
comply with the following operating rules and regulations.
MAINTENANCE CHANGES TO CARDMEMBER ACCOUNTS.
[*]
USE OF YOUR PASSWORD AND IDENTIFICATION NUMBER
[*]
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-49-
<PAGE>
[*]
MONITORING
[*]
UNAUTHORIZED ACCESS/VIEWING OF ACCOUNTS
[*]
IMPORTANCE OF THE RULES AND REGULATIONS
[*]
ACKNOWLEDGMENT
I have read and understand the above regulations and agree to comply with them.
_________________________ __________________________________________________
Employee Signature Print Name Date
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-50-
<PAGE>
EXHIBIT N
---------
AMERICAN EXPRESS CUSTOMER INTERNET PRIVACY STATEMENT
Protecting your privacy is important to us. We hope the following statement will
help you understand how American Express collects, uses and safeguards the
personal information you provide to us on our website.
. Security
--------
. Information Collection
----------------------
. Information Use
---------------
. Declining Email Offers
----------------------
Set Email Preferences - set, review or change preferences regarding
---------------------
the type email offers you do not want to receive.
. Children
--------
. Company Commitment to Privacy
-----------------------------
___________________________________________________________________________
SECURITY
When you send confidential personal account data to us on an American Express
website, we require that a "secure session" first be established using Secure
Socket Layer (SET), or Secure Electronic Transactions (SET) when that is fully
available. For further information about SSL, SET and the safety and
confidentiality of personal data transmissions over the Internet, please read
our Security Q & A.
--------------
INFORMATION COLLECTION
When you BROWSE any American Express website, you do so anonymously. Personal
information including your email address is NOT collected. Some of our websites,
however, may request that you VOLUNTARILY supply us with personal information,
including your email address and account number [if you are an American Express
Cardmember or InvestDirect user], for purposes such as correspondence, site
registration, checking your bill or investments online, making a purchase, or
participating in online surveys.
Like many other commercial websites, the American Express website may utilize a
standard technology called a "cookie" to collect information about how our site
is used. Please read About Cookies for more information.
-------------
INFORMATION USE
If you provide us with your email address, or have done so in the past, we may
upon occasion send you email offers. We may use information you have given us
to, for example, provide a service, ensure proper billing, measure consumer
interest in our various services and inform you about
-51-
<PAGE>
products and services. These offers may be based on information you provided in
your initial transaction with us, in surveys, from information that may indicate
purchasing preferences and lifestyle, as well as information available from
external sources, such as census bureau data. Primarily, these email offers will
come from American Express. We may also, upon occasion, share email addresses
with certain establishments that accept the American Express Card, or with other
well-established companies so that they can send you product and service offers
that may be of interest.
All offers are carefully developed to ensure that they meet our standards. Our
goal is to target offers to people who we believe will find them of value. The
lists used to send you product and service offers are developed and managed
under strict conditions designed to safeguard the security and privacy of
customer personal information. For an illustration of the types of offers we may
provide with our business partners exclusively to American Express Cardmembers,
please view American Express Special Offers.
-------------------------------
Please note that our free email service, AMEXMAIL, as well as our financial
services websites, AMERICAN EXPRESS FINANCIAL ADVISORS and AMERICAN EXPRESS
FINANCIAL DIRECT, do not share email addresses with any company outside of
------
American Express.
DECLINING EMAIL OFFERS
American Express provides customers with an easy means to decline receiving
email offers.
Although most customers tell us they appreciate receiving notice of these
carefully designed opportunities, we recognize the importance of providing you
with choices. At any time, you may request to discontinue receiving these offers
from us by simply replying to the email and informing us of your preferences.
All email offers that you receive from American Express will inform you of how
to decline receiving further email offers. Additionally, you may Set Email
---------
Preferences to notify us of your preferences regarding the type of email offers
- -----------
you do not want to receive, and you may also review and change preferences you
have previously set.
CHILDREN
American Express does not knowingly solicit data from children, and we do not
knowingly market to children.
COMPANY COMMITMENT TO PRIVACY
In keeping with our long-standing leadership in consumer privacy protection,
American Express is actively involved with current industry initiatives to
preserve individual privacy rights on the Internet and in all aspects of
electronic commerce.
For additional information about our commitment to protecting the privacy of our
customers both online and offline, please read the American Express Customer
-------------------------
Privacy Principles. The American Express Customer Internet Privacy Statement is
- ------------------
currently applicable only to our U.S. customers and visitors to our website. As
we develop websites for international audiences, they
-52-
<PAGE>
will maintain their own additional rules and practices, which are fully
consistent with this Statement, and which they may modify as needed for
particular products and services, or to conform to local laws or customs around
the world. If you have any questions about this statement, you can reach us at
1-800-AXP-1234, or you may send us an email.
----------------
To obtain information about American Express direct mail and telemarketing
privacy policies for the U.S., please call: 1-800-528-4800.
ABOUT COOKIES
Cookies were originally designed to help a website distinguish a user's browser
as a previous visitor and thus save and remember any preferences that may have
been set while the user was browsing the site. A cookie is a small string of
text that a website can send to your browser. A COOKIE CANNOT RETRIEVE ANY OTHER
DATA FROM YOUR HARD DRIVE, PASS ON COMPUTER VIRUSES, OR CAPTURE YOUR EMAIL
ADDRESS. Currently, websites use cookies to enhance the user's visit; in
general, cookies can securely store a user's ID and password, personalize home
pages, identify which parts of a site have been visited or keep track of
selections in a "shopping cart."
If you are just browsing an American Express website, a cookie identifies only
your browser. If you become a registered user on an American Express website
(with a designated user ID and password), we may use cookies so that we can
provide personalized information that we believe will be of value to you based
on preferences you have indicated while visiting the site.
It is possible to set your browser to inform you when a cookie is being placed
this way, you have the opportunity to decide whether to accept the cookie. If
you are just browsing our site and are not a registered user, you do not have to
accept a cookie and you may still continue utilizing the site. However, if you
are visiting a site where you will be accessing your confidential account
information (such as Checking Your Bill), you must accept that site's cookies as
they are essential for site administration and security. By accepting a cookie,
keep in mind that your choice to decline email offers remains unaffected. Here
is how to set your cookie preferences:
NETSCAPE NAVIGATOR 3: Select Network Preferences from the Options menu. From the
Network Preferences menu, select the Protocols tab and modify your preference if
you wish to be warned before accepting cookies.
NETSCAPE NAVIGATOR 4: Select Preferences from the Edit menu. From the
Preferences menu, select Advanced and several options for cookies will be listed
in the lower right of the menu. Additionally, you may select Help for more
details. For further information about the Netscape browser and use of cookies,
visit Netscape's website at http://home.netscape.com.
MICROSOFT INTERNET EXPLORER 3: Select Options from the View menu. Choose the
Advanced menu to modify your preference if you wish to be warned before
accepting cookies.
MICROSOFT INTERNET EXPLORER 4: Select Options from the View menu. Choose the
Advanced menu and scroll to the section labeled "Cookies," where several options
are listed. For further information about the Microsoft Internet Explorer
browser and use of cookies, visit Microsoft's website at
http://www.microsoft.com/Misc/Cookie.htm.
-53-
<PAGE>
AOL: The following AOL browsers automatically accept cookies and do not allow
you to set cookie preferences: AOL v3.0 for Windows 3.0 using AOL's proprietary
browser or Microsoft Internet Explorer v3.0 for AOL. AOL v3.0 for Windows 95
using Microsoft Internet Explorer v3.0, or AOL for the MAC using Microsoft
Internet Explorer 2.1. All OTHER earlier versions of AOL browsers do not support
cookies, and therefore cannot authenticate you as a registered user on American
Express websites that involve sending or receiving personal account information.
-54-
<PAGE>
SCHEDULE 1
----------
FORM OF SERVICE AGREEMENT
-55-
<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 10.8
UNANIMOUS SHAREHOLDER AGREEMENT
BETWEEN
TELE-DIRECT (SERVICES) INC.
- AND-
METROLAND PRINTING, PUBLISHING &
DISTRIBUTING LTD.
- AND -
CITYSEARCH CANADA INC..
- AND -
1310818 ONTARIO INC.
MADE AS OF
AUGUST 31, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 PRELIMINARY MATTERS
1.1 Recitals.............................................................. 2
1.2 Prior Agreements...................................................... 2
1.3 Inconsistencies....................................................... 2
ARTICLE 2 DEFINITIONS AND INTERPRETATION
2.1 Definitions........................................................... 3
2.2 Construction.......................................................... 8
ARTICLE 3 OPERATION OF THE CORPORATION
3.1 Board of Directors.................................................... 9
3.2 Chair of the Board of Directors....................................... 10
3.3 Meetings of Directors................................................. 10
3.4 Quorum................................................................ 11
3.5 Signed Instruments in Lieu of Meeting................................. 11
3.6 Compensation.......................................................... 11
3.7 Executive Committee................................................... 11
3.8 Meetings of Executive Committee....................................... 12
3.9 Officers.............................................................. 12
3.10 Secretary............................................................. 13
3.11 Material Decisions.................................................... 13
ARTICLE 4 CORPORATION'S BUSINESS AND PURPOSE
4.1 Business and Purpose.................................................. 13
4.2 Material Decisions.................................................... 13
4.3 Unanimous Approval of Matters......................................... 15
4.4 Mandatory Distribution to the Limited Partners........................ 16
4.5 Execution of Instruments.............................................. 16
ARTICLE 5 FINANCIAL AND ACCOUNTING MATTERS
5.1 Business Plan and Annual Budget....................................... 16
5.2 Periodic Reports of the Corporation................................... 17
5.3 Books of Account...................................................... 17
5.4 Auditors.............................................................. 17
ARTICLE 6 COVENANTS OF SHAREHOLDERS
6.1 Covenants............................................................. 17
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 7 TRANSFER OF SHARES
7.1 Warranty as to Ownership.............................................. 18
7.2 Prohibition on Unauthorized Transfers................................. 18
7.3 New Shareholders...................................................... 18
7.4 Transfer to Permitted Transferees..................................... 19
7.5 Right of First Refusal................................................ 19
7.6 Tag Along Rights...................................................... 21
7.7 Drag Along Rights for CitySearch Canada............................... 21
7.8 Prohibition Against Transfer to a Direct Competitor................... 21
7.9 Prohibition Against Transfer by CitySearch Canada..................... 21
7.10 Special Provision in the Event of an Acquisition of a Shareholder by a
Communication or Media Services Corporation........................... 22
ARTICLE 8 DISPUTE RESOLUTION
8.1 Resolution of a Dispute Between the Major Shareholders................ 23
8.2 Buy-Sell Provision ("Shotgun")........................................ 23
8.3 Resolution of a Dispute between the Major Shareholders and CitySearch
Canada................................................................ 24
8.4 Call or Put Provision................................................. 24
8.5 Purchase of CitySearch Canada Shares and Limited Partnership Interest. 25
ARTICLE 9 DEFAULT PROVISIONS
9.1 Events of Default..................................................... 26
ARTICLE 10 CLOSING
10.1 Closing............................................................... 29
ARTICLE 11 CONFIDENTIALITY
11.1 Confidentiality....................................................... 31
11.2 Survival.............................................................. 32
ARTICLE 12 GENERAL CONTRACT PROVISIONS
12.1 Arbitration........................................................... 32
12.2 Term of Agreement..................................................... 33
12.3 Treatment of Sale Provisions.......................................... 33
12.4 Implementation of this Agreement...................................... 33
12.5 Endorsement on Certificates........................................... 33
12.6 Notices............................................................... 33
12.7 Time of the Essence................................................... 36
12.8 Governing Law......................................................... 36
</TABLE>
<PAGE>
<TABLE>
<S> <C>
12.9 Entire Agreement.................................................... 36
12.10 Waiver.............................................................. 36
12.11 Severability........................................................ 36
12.12 Equitable Remedies.................................................. 36
12.13 Binding Effect...................................................... 36
</TABLE>
<PAGE>
UNANIMOUS SHAREHOLDER AGREEMENT
THIS AGREEMENT effective the 31st day of August, 1998.
A M O N G :
TELE-DIRECT (SERVICES) INC., a corporation
incorporated under the laws of Canada
("Tele-Direct")
- and -
METROLAND PRINTING, PUBLISHING &
DISTRIBUTING LTD., a corporation incorporated under
the laws of Ontario
("Metroland")
- and -
CITYSEARCH CANADA INC., a corporation
incorporated under the laws of Ontario
("CitySearch Canada")
- and -
1310818 ONTARIO INC., a corporation incorporated
under the laws of Ontario
(the "Corporation")
WHEREAS:
A. Tele-Direct, Metroland and CitySearch Canada have formed the
Corporation to act as General Partner of the Limited Partnership, as hereinafter
defined;
B. the authorized capital of the Corporation consists of an unlimited
number of common shares;
C. on the date hereof the issued and outstanding shares in the capital of
the Corporation consist of 1000 common shares;
<PAGE>
-2-
D. the parties to this Agreement are the holders of record and the
beneficial owners of the following number of issued and outstanding shares in
the capital of the Corporation:
<TABLE>
<CAPTION>
======================================================
HOLDER OF SHARES NUMBER AND CLASS PERCENTAGE
OF
SHARES
------------------------------------------------------
<S> <C> <C>
Tele-Direct 450 common 45%
------------------------------------------------------
Metroland 450 common 45%
------------------------------------------------------
CitySearch Canada 100 common 10%
======================================================
</TABLE>
E. the parties to this Agreement wish to make arrangements regarding
certain aspects of the organization of the affairs of the Corporation and their
respective rights and obligations to the Corporation and each other;
F. the parties to this Agreement wish to make arrangements regarding the
rights and obligations of the General Partner of the Limited Partnership,
toronto.com, and to make arrangements regarding certain aspects of the
management and organization of the affairs of the Limited Partnership,
toronto.com;
NOW THEREFORE this Agreement witnesses that in consideration of the
mutual covenants and agreements contained in it, the parties agree with each
other as follows:
ARTICLE 1
PRELIMINARY MATTERS
1.1 RECITALS. Each party respectively acknowledges and declares that the
--------
foregoing recitals, insofar as they relate to it, are true and correct.
1.2 PRIOR AGREEMENTS. Any other agreements regarding the matters
----------------
contained in this Agreement, whether written or oral, are hereby terminated.
1.3 INCONSISTENCIES. The terms of this Agreement shall supersede the
---------------
terms of the articles, any by-laws, and resolutions of the Corporation to the
extent allowed by law and to the extent necessary to resolve any inconsistency.
<PAGE>
-3-
ARTICLE 2
DEFINITIONS AND INTERPRETATION
2.1 DEFINITIONS. As used in this Agreement or any amendment to this
-----------
Agreement, the following terms shall have the following meanings:
(a) "ACCEPTANCE PERIOD" has the meaning attributed thereto in Section 8.2;
(b) "ACT" means the Business Corporations Act (Ontario) and all
regulations made pursuant thereto as now enacted or as the same may be
from time to time amended, re-enacted or replaced;
(c) "AFFILIATE" has the meaning attributed thereto in the Act;
(d) "AGREEMENT" means this agreement and all amendments made hereto
pursuant to the provisions hereof;
(e) "AMENDED AND RESTATED LICENSE AND SERVICES AGREEMENT" means the
amended and restated agreement between CitySearch U.S.A. and
CitySearch Canada providing for the licensing to CitySearch Canada of
certain software, technology and know-how dated as of August 31, 1998;
(f) "ANCILLARY AGREEMENTS" means the Amended and Restated License and
Services Agreement, toronto.com Sublicense and Services Agreement,
Tele-Direct Sales Agreement, Tele-Direct Services Agreement, Torstar
Services Agreement, Metroland and CitySearch Canada Conveyance and
Employee Transfer Agreement, Reciprocal Fees Agreement and Non-
Competition Agreement, each dated as of August 31, 1998;
(g) "ANNUAL BUDGET" means the then current annual budget (including
projections of cash flow, capital expenditure and income) for the
Limited Partnership approved pursuant to Section 5.1;
(h) "ASSUMPTION AGREEMENT" means an agreement among the Corporation, the
Shareholders remaining after a Transfer of Shares and Limited
Partnership Interest and the transferee of those Shares and Limited
Partnership Interest pursuant to which the transferee of those Shares
and Limited Partnership Interest, if not a Shareholder before the
Transfer, agrees to be bound by this Agreement, the Limited
Partnership Agreement and the Non-Competition Agreement in the same
manner as if it had been an original party and to the same extent as
the transferor Shareholder;
(i) "AUDITORS" has the meaning set forth in Section 5.4;
<PAGE>
-4-
(j) "BOARD OF DIRECTORS" means the board of directors of the Corporation;
(k) "BUSINESS DAY" means a day other than a Saturday, Sunday or any other
day on which principal commercial banks are not open for business in
the City of Toronto, Ontario;
(l) "BUSINESS PLAN" means a business and marketing plan of the Limited
Partnership as approved by the Board of Directors pursuant to Section
5.1;
(m) "BUY-SELL NOTICE" has the meaning attributed thereto in Section 8.2;
(n) "BUYERS" has the meaning attributed thereto in Section 10.1;
(o) "CALL NOTICE" has the meaning attributed thereto in Section 7.10;
(p) "CITYSEARCH GROUP" means, collectively, CitySearch Canada and any
Permitted Transferee to whom Shares and a Limited Partnership Interest
are transferred by CitySearch Canada, so long as such Permitted
Transferee holds any Shares and a Limited Partnership Interest
pursuant to this Agreement and the Limited Partnership Agreement;
(q) "CITYSEARCH INFORMATION SERVICE" means an online service of providing
Content related to restaurants, entertainment, retail establishment,
community events and other services, including on-line ticketing and
sale of merchandise, pertaining to a particular city or geographic
region which uses the CitySearch Systems;
(r) "CITYSEARCH SYSTEMS" has the meaning ascribed thereto in the Amended
and Restated License and Services Agreement;
(s) "CITYSEARCH U.S.A." means CitySearch, Inc. a corporation incorporated
under the laws of Delaware;
(t) "CONFIDENTIAL INFORMATION" has the meaning ascribed thereto in the
Amended and Restated License and Services Agreement;
(u) "CONTENT" has the meaning ascribed thereto in the Amended and Restated
License and Services Agreement;
(v) "CONTROL" means control in fact, whether direct or indirect; shares
are controlled if the voting rights which attach to those shares are
controlled;
(w) "DEFAULTING SHAREHOLDER" has the meaning attributed thereto in Section
9.1;
<PAGE>
-5-
(x) "DIRECT COMPETITOR" of Metroland means a Person whose business is
primarily involved in newspaper or electronic publishing; a Direct
Competitor of CitySearch Canada means a Person whose business
competes directly with that of CitySearch Canada, CitySearch, Inc. or
any of their respective Affiliates involved in electronic publishing;
and a Direct Competitor of Tele-Direct means a Person whose business
competes directly with Tele-Direct or any of its respective
Affiliates in print and electronic publishing and data-related
businesses;
(y) "DISPUTE CALL NOTICE" has the meaning ascribed thereto in Section
8.4;
(z) "DISPUTE PUT NOTICE" has the meaning ascribed thereto in Section 8.4;
(aa) "EBITDA" means, for a particular fiscal period of the Limited
Partnership, the income (or loss) of the Limited Partnership before
deductions of interest, taxes, depreciation and amortization for such
fiscal period as determined from the financial statements of the
Limited Partnership for such period;
(bb) "EVENT OF DEFAULT" has the meaning attributed thereto in Section 9.1;
(cc) "EXCLUSIVE TERRITORY" means the territory so marked in Schedule A of
the Limited Partnership Agreement;
(dd) "EXECUTIVE COMMITTEE" has the meaning attributed thereto in Section
3.7;
(ee) "FAIR MARKET VALUE" means, for the purpose of valuation of the Shares
together with the Limited Partnership Interests, as determined by the
Valuator, the highest price in terms of money which would be obtained
as of the date specified in the applicable section thereof, if the
Shareholders and Limited Partners sold the Shares and their Limited
Partnership Interest, in an open and unrestricted market without
compulsion to a willing and knowledgeable purchaser acting at arm's
length;
(ff) "FISCAL YEAR" means the period which currently commences on the date
hereof or January 1, as the case may be, in any calendar year and
ends on December 31 in the same calendar year, or any other period
determined from time to time by the board of directors of the
Corporation to be the fiscal year of the Corporation;
(gg) "GENERAL PARTNER" has the meaning attributed thereto in Section 4.1;
(hh) "LAUNCH" means giving written notice (a"Launch Notice"), in the case
of a Launch by the Limited Partnership, to CitySearch Canada or, in
the case of a Launch by an
<PAGE>
-6-
entity affiliated with CitySearch Canada or any Affiliate of
CitySearch, Inc., to the Limited Partnership, of a date when a
CitySearch Information Service will be accessible to the public for a
particular region not more than 150 days from the date of such notice
and "Launched" and "Launching" shall have corresponding meanings;
(ii) "LIMITED PARTNERS" means Tele-Direct, Metroland and CitySearch Canada
and "LIMITED PARTNER" shall mean any one of them;
(jj) "LIMITED PARTNERSHIP" has the meaning set forth in Section 4.1;
(kk) "LIMITED PARTNERSHIP AGREEMENT" means a limited partnership agreement
made as of August 31, 1998 between, among others, 1310818 Ontario
Inc., Metroland, Tele-Direct and CitySearch Canada;
(ll) "LIMITED PARTNERSHIP BUSINESS" means the business of developing and
operating local on-line services (with Content comprising local news
and information, local events, yellow pages business directories, and
with classified advertising content relating to jobs, automotive,
real estate and other classifications) that facilitate communication
and business transactions for internet users, generating revenue from
advertising and electronic commerce transactions, as more
particularly described in the Limited Partnership Agreement;
(mm) "LIMITED PARTNERSHIP INTEREST" has the meaning set forth in the
Limited Partnership Agreement;
(nn) "MAJOR LIMITED PARTNERS" means Tele-Direct and Metroland and "MAJOR
LIMITED PARTNER" means any one of them;
(oo) "MAJOR SHAREHOLDERS" means Tele-Direct and Metroland and a "MAJOR
SHAREHOLDER" means any one of them;
(pp) "MATERIAL DECISIONS" has the meaning attributed thereto in Section
4.2;
(qq) "METROLAND GROUP" means, collectively, Metroland and any Permitted
Transferee to whom Shares and a Limited Partnership Interest are
transferred by Metroland, so long as such Permitted Transferee holds
any Shares and a Limited Partnership Interest pursuant to this
Agreement and the Limited Partnership Agreement;
(rr) "NON-DEFAULTING SHAREHOLDER" has the meaning attributed thereto in
Section 9.1;
(ss) "NOTICE" has the meaning attributed thereto in Section 7.5;
<PAGE>
-7-
(tt) "NOTIFIER" has the meaning attributed thereto in Section 8.2;
(uu) "OFFER" has the meaning attributed thereto in Section 7.5;
(vv) "OFFERED INTEREST" has the meaning attributed thereto in Section
9.1;
(ww) "OFFEREE" has the meaning attributed thereto in Section 7.5;
(xx) "OFFEROR" has the meaning attributed thereto in Section 7.5;
(yy) "OTHER MAJOR SHAREHOLDER" has the meaning attributed thereto in
Section 8.2;
(zz) "PASSIVE SHAREHOLDER" has the meaning attributed thereto in Section
7.10;
(aaa) "PERMITTED TRANSFEREE" with respect to any Shareholder means an
Affiliate of that Shareholder;
(bbb) "PERSON" means an individual, partnership, unincorporated
association, organization, syndicate, corporation, trustee,
executor, administrator or other legal or personal representative;
(ccc) "PURCHASE OFFER" has the meaning attributed thereto in Section 8.2;
(ddd) "PURCHASE PRICE" has the meaning attributed thereto in Section 7.5
and 9.1(e);
(eee) "PUT NOTICE" has the meaning attributed thereto in Section 7.10;
(fff) "REJECTED INTEREST" has the meaning attributed thereto in Sections
7.5 and 9.1;
(ggg) "SALE OFFER" has the meaning attributed thereto in Section 8.2;
(hhh) "SHARE" means a share in the capital of the Corporation and "SHARES"
means, collectively, shares in the capital of the Corporation;
(iii) "SHAREHOLDERS" means, collectively, Tele-Direct, Metroland and
CitySearch Canada and any Person to whom Shares may be Transferred or
issued in accordance with this Agreement, so long as such Person
holds any Shares; "SHAREHOLDER" means any one of them;
(jjj) "SHOTGUN PRICE" has the meaning attributed thereto in Section 8.2;
<PAGE>
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(kkk) "TARGET" has the meaning attributed thereto in Section 7.10;
(lll) "TELE-DIRECT GROUP" means, collectively, Tele-Direct and any
Permitted Transferee to whom Shares and a Limited Partnership
Interest are transferred by Tele-Direct, so long as such Permitted
Transferee holds any Shares and a Limited Partnership Interest
pursuant to this Agreement and the Limited Partnership Agreement;
(mmm) "TORONTO.COM SUBLICENSE AND SERVICES AGREEMENT" means the agreement
between CitySearch Canada and the Limited Partnership dated August
31, 1998;
(nnn) "TRANSACTION" has the meaning attributed thereto in Section 7.10;
(ooo) "TRANSFER" means to sell, assign, surrender, give, transfer, pledge,
mortgage, charge, create a security interest in, hypothecate or
otherwise encumber any of the Shares, a Limited Partnership interest
or any interest, whether legal or beneficial, in the Shares or a
Limited Partnership Interest, whether voluntary, involuntary, by
operation of law or otherwise. A change in Control of a Shareholder
shall be deemed not to be a Transfer of the Shares held by that
Shareholder;
(ppp) "VALUATOR" means the Person appointed pursuant to Section 9.1(e);
(qqq) "VENDORS" has the meaning attributed thereto in Section 10.1; and
(rrr) "WORKING CAPITAL" means current assets (including, without
limitation, accounts receivable, cash, prepaid expenses, short term
investments and current deferred taxes) less current liabilities
(including, without limitation, accounts payable, accrued expenses,
current portion of long term debt, current deferred taxes and
deferred revenues);
2.2 CONSTRUCTION. In this Agreement, except as otherwise expressly
------------
provided:
(a) all words and personal pronouns relating thereto shall be read and
construed as the number and gender of the party or parties require
and the verb shall be read and construed as agreeing with the
required word and pronoun;
(b) the division of this Agreement into Articles and Sections and the use
of headings is for convenience of reference only and shall not modify
or affect the interpretation or construction of this Agreement or any
of its provisions;
(c) when calculating the period of time within which or following which
any act is to be done or step taken pursuant to this Agreement, the
first day of such period shall be
<PAGE>
-9-
excluded and the last day of such period shall be included. If the
last day of such period is not a Business Day, the period in question
shall end on the next Business Day;
(d) all dollar amounts are expressed in Canadian funds; and
(e) all accounting terms which are not specifically defined shall be
construed in accordance with accounting principles which are
generally accepted in Canada from time to time as set forth in the
handbook published by The Canadian Institute of Chartered
Accountants.
ARTICLE 3
OPERATION OF THE CORPORATION
3.1 BOARD OF DIRECTORS. The board of directors of the Corporation (the
------------------
"Board of Directors") shall consist initially of seven directors. As long as
each of the Shareholders is a Shareholder, and subject to the provisions of
Section 6.5 of the Limited Partnership Agreement, each Shareholder shall be
entitled to nominate and replace from time to time the number of individuals as
its directors as set forth opposite its name below:
SHAREHOLDER NUMBER OF DIRECTORS
----------- -------------------
Tele-Direct 3
Metroland 3
CitySearch 1
The Shareholders shall take all actions that may be required to ensure the
election or appointment of the nominees contemplated by this Article. On the
appointment or election of each director, the Secretary of the Corporation shall
make note of the nominator, and the nominator shall, subject to the Act, be
entitled by direction in writing from time to time to remove its nominee and
nominate a successor who shall, promptly upon the resignation of the existing
director, be elected a director to replace the individual previously nominated.
The initial directors shall be:
<PAGE>
-10-
DIRECTOR NOMINATOR
-------- ---------
Douglas G. Renwicke Tele-Direct
Thomas J. Bourke Tele-Direct
Serge Fortin Tele-Direct
Rocco Rossi Metroland
Victor Kruklis Metroland
Anthony Brown Metroland
Michael Barton CitySearch Canada
All decisions of the Board of Directors shall require the consent of the
majority of the directors voting thereon. Notwithstanding any law or rule of
procedure to the contrary, the Chairperson of any meeting of the Board of
Directors of the Corporation shall not be entitled to a second, extra or casting
vote in the case of a tie vote at any such meeting.
3.2 CHAIR OF THE BOARD OF DIRECTORS. The Board of Directors shall elect
-------------------------------
from among themselves a Chairperson at the first meeting of the Board of
Directors and thereafter annually at the first meeting of the Board of Directors
in each year. In the first year after the effective date of this Agreement, the
Chairperson will be a Tele-Direct director and in the second year, a Metroland
director, alternating thusly every year. The Chairperson shall preside at all
meetings of the Board of Directors if present, and if not present, the directors
shall elect an alternative Chairperson from among themselves to preside at the
meeting.
3.3 MEETINGS OF DIRECTORS. Meetings of the Board of Directors shall be
---------------------
governed by the following:
(a) meetings of the Board of Directors of the Corporation shall be held at
regular intervals at least four (4) times per year in each calendar
year at a time and place to be determined by the Chairperson of the
Corporation. At least five (5) Business Days before each meeting of
the directors, each director shall receive a written notice from the
Secretary of the Corporation indicating the time and place of the
meeting and providing a summary of the matters to be considered.
Additional meetings of the Board of Directors may be called by any two
directors upon not less than ten (10) Business Days prior notice by
the delivery of a written notice to every other director containing
the information as would be required to be delivered in connection
with the regularly scheduled meetings; and such additional meetings
are to be held at the principal office of the Corporation or at such
other location as may be agreed by the directors. A director may waive
notice of a meeting by an instrument in writing delivered to the
Chairperson of the Corporation at or prior to the meeting;
<PAGE>
-11-
(b) notice of any meeting of the Board of Directors shall be sent to each
director as last recorded in the books of the Corporation; such notice
shall be accompanied by an agenda prepared by the Chairperson or the
other directors calling the meeting, as the case may be, that sets
forth those matters to be considered at the meeting;
(c) subject to prior notice of such meeting in the manner required by this
Agreement, meetings of the Board of Directors may be conducted by
means of telephone or other communications facilities as permit all
persons participating in the meeting to hear each other, and a
director participating in such a meeting by such means is deemed
present at that meeting;
(d) no notice calling a meeting of the Board of Directors shall be
required if all the directors are present or those absent have waived
notice in writing of such meeting in advance;
(e) each director shall have one vote on each matter to be decided at a
meeting and each matter shall be decided, unless otherwise
specifically provided herein, by a majority of the votes cast on the
question; and
(f) the proceedings at each meeting shall be evidenced by minutes signed
by the Chairperson and Secretary.
3.4 QUORUM. A quorum for a meeting of directors shall be a majority of
------
the directors of the Corporation, provided that at least two of the nominee(s)
of each Major Shareholder are present.
3.5 SIGNED INSTRUMENTS IN LIEU OF MEETING. Any matter to be decided by
-------------------------------------
the Board of Directors may be passed by resolution signed by each of the
directors. Any resolution so signed is as valid and effective as if passed at a
meeting duly called, constituted and held for that purpose.
3.6 COMPENSATION. The directors shall serve in that capacity without
------------
compensation.
3.7 EXECUTIVE COMMITTEE. The Board of Directors shall appoint an
-------------------
Executive Committee consisting of one director of each of the Major
Shareholders. In addition to any other powers delegated to the Executive
Committee by the Board of Directors, the Executive Committee shall have the
power to give direction to the management of the Limited Partnership to
implement the decisions of the Board of Directors. The Executive Committee may
also make Material Decisions in those circumstances where a meeting of the Board
of Directors cannot be called in a timely manner and where such Material
Decision to be made cannot be postponed until such time as a meeting of the
Board of Directors can be held. Whenever Material Decisions are made in such
circumstances, the Executive Committee shall forthwith deliver or cause to be
delivered to the Board
<PAGE>
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of Directors, detailed minutes of such meeting setting forth with specificity
the topics discussed, any votes taken, any policies or directions implemented
and any resolutions passed. The initial members of the Executive Committee shall
be:
EXECUTIVE COMMITTEE MEMBER MAJOR SHAREHOLDER
-------------------------- -----------------
Douglas G. Renwicke Tele-Direct
Rocco Rossi Metroland
3.8 MEETINGS OF EXECUTIVE COMMITTEE. Meetings of the Executive Committee
-------------------------------
shall be held at any time as deemed necessary or desirable by the Executive
Committee, provided that at least one meeting be held in each fiscal quarter of
the Corporation. Both members of the Executive Committee must be present in
order to constitute a quorum.
3.9 OFFICERS. The Board of Directors shall appoint officers as follows:
--------
(a) Corporation: Initially the Board of Directors shall appoint the
-----------
Secretary as the sole officer of the Corporation. In the first year
after the effective date of this Agreement, the Secretary will be a
Tele-Direct appointee and in the second year, a Metroland appointee,
alternating thusly every year. The first Secretary of the Corporation
shall be:
NAME OFFICE
---- -------
Shaul Ezer Secretary
The Board of Directors shall appoint such other officers as it deems
necessary or desirable.
The Secretary of the Corporation shall also be the Secretary of the
Limited Partnership.
(b) Limited Partnership: Initially the Board of Directors shall appoint
as officers the Publisher (who shall also assume the duties normally
associated with a President of a company), Secretary and Controller.
The initial officers of the Limited Partnership shall be:
NAME OFFICE
---- ------
Bruce Annan Publisher
Shaul Ezer Secretary
<PAGE>
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Sharon Langer Controller
The Board of Directors shall appoint such other officers as it deems
necessary or desirable. The authority and responsibilities of the officers
shall be determined by the Board of Directors from time to time.
The Executive Committee in conjunction with the Publisher shall
approve the appointment of the individuals to the positions of head of the
operations, sales and marketing and content departments.
3.10 SECRETARY. The Secretary of the Corporation shall keep records of
---------
all proceedings and decisions of the Board of Directors, the Executive Committee
and the Shareholders, and distribute copies thereof to each director, member of
the Executive Committee and to each Shareholder promptly thereafter, and keep
copies of all correspondence and documentation received and sent by the
directors, Executive Committee and Shareholders, and shall have similar duties
and responsibilities as Secretary of the Limited Partnership. Each Shareholder
and Limited Partner, as the case may be, shall have the right to examine the
same and take copies of such correspondence and documentation.
3.11 MATERIAL DECISIONS. In addition to any decisions or matters which,
------------------
under the Act, require the approval of Shareholders, no Material Decisions shall
be implemented without the prior approval of the Major Shareholders.
ARTICLE 4
CORPORATION'S BUSINESS AND PURPOSE
4.1 BUSINESS AND PURPOSE. The business and purpose of the Corporation
--------------------
shall be to act as the general partner (the "General Partner") of toronto.com, a
limited partnership formed pursuant to the laws of the Province of Ontario (the
"Limited Partnership"). The Corporation's business shall be conducted at all
times so as to implement the provisions hereof and those contained in the
Limited Partnership Agreement.
4.2 MATERIAL DECISIONS. Notwithstanding any of the other provisions
------------------
hereof, the following material decisions relating to the Corporation or the
Limited Partnership (the "Material Decisions") shall require the prior approval
of the Major Shareholders:
(a) the entering into or amendment of any agreement with third parties
except as otherwise permitted hereunder;
(b) the purchase or sale of any assets from or to the Limited Partnership
or the provision of services to the Limited Partnership by any Limited
Partner or a related person to
<PAGE>
-14-
any Limited Partner (as the term "related person" is defined in the
Income Tax Act (Canada)), except (i) in an amount not exceeding
$100,000; (ii) other than as approved in the Annual Budget; (iii) as
approved pursuant to the toronto.com Sublicense and Services
Agreement; or (iv) as otherwise permitted herein;
(c) the sale of any assets of the Limited Partnership or the purchase of
any assets by the Limited Partnership with an aggregate price in
excess of $100,000 other than as approved in the Annual Budget;
(d) any arrangement for the sharing of profits or similar incentive
arrangement for employees or any joint venture with any Person;
(e) the acquisition by the Limited Partnership of any business;
(f) the admission of a new Limited Partner so long as a new Limited
Partner is not a Direct Competitor of CitySearch Canada, unless
admission of a new Limited Partner is in accordance with the
provisions of Section 7.4;
(g) other than as may be approved in the Annual Budget, the borrowing of
any money in excess of the aggregate principal amount of $100,000, the
giving of any security or the making or incurring of any capital
expenditures which, in the aggregate, are in excess of $100,000 in any
year;
(h) the making of any amendments to this Agreement or the Limited
Partnership Agreement except as limited by the terms of Section
4.3(a);
(i) initiating or settling any material litigation involving the
Corporation or the Limited Partnership Business or any of its assets
or undertaking;
(j) other than as may be approved in the Annual Budget, the entering into
contracts with a value or which result in obligations over the term
thereof greater than $100,000;
(k) the approval, for the Limited Partnership Business, of the appointment
or dismissal of individuals to the positions of Publisher, Secretary
and Controller;
(l) the removal or replacement of the Auditors during their term of
appointment;
(m) the making of any decision to distribute cash to the Limited Partners;
<PAGE>
-15-
(n) any other distribution of any nature (including repayment of loans) to
any Person not acting at arm's length with the Limited Partnership, as
that concept is construed for the purposes of the Income Tax Act
(Canada);
(o) the Corporation or the Limited Partnership entering into any
transactions with or making any payments to officers, employees or
members of their families or other Persons with whom they do not act
at arm's length as that concept is construed for the purposes of the
Income Tax Act (Canada), except in the ordinary course of the Limited
Partnership Business, consistent with past practice;
(p) the Corporation or the Limited Partnership entering into (other than
in the ordinary course to fund Working Capital needs expressly
contemplated by the Annual Budget for the applicable Fiscal Year),
agreements modifying or canceling any credit facility;
(q) any new or change in the outsourcing arrangements for the Limited
Partnership personnel and human resources, accounting and legal
services in place as of the date of this Agreement;
(r) the sale of the Limited Partnership Business or a substantial part
thereof so long as such sale is not to a Direct Competitor of
CitySearch Canada; and
(s) the approval of the Annual Budget and Business Plan.
4.3 UNANIMOUS APPROVAL OF MATTERS. Notwithstanding any of the other
-----------------------------
provisions hereof, the following matters shall require the prior unanimous
approval of the Shareholders:
(a) any material change in the business or affairs of the Limited
Partnership that adversely affects CitySearch Canada in a manner
different from the Major Limited Partners;
(b) the making of any decision to Launch or carry on a CitySearch
Information Service to standards that are not equal to the Quality
Standards (as defined in the Amended and Restated License and Services
Agreement) or to use any navigation layouts or hierarchical maps
inconsistent with those established from time to time by CitySearch
U.S.A.;
(c) the carrying on of the Limited Partnership Business other than in the
Exclusive Territory utilizing the CitySearch technology platform;
(d) the merger or other reorganization of the Limited Partnership with any
Person;
<PAGE>
-16-
(e) the admission of a new Limited Partner who is a Direct Competitor of
CitySearch Canada;
(f) approval of the head of the technology department of the Limited
Partnership;
(g) any material change in the name of the Limited Partnership; and
(h) any amendment to the Exclusive Territory.
4.4 MANDATORY DISTRIBUTION TO THE LIMITED PARTNERS. Notwithstanding any
----------------------------------------------
of the provisions of Section 4.2, commencing five (5) years from the date of
this Agreement, the General Partner shall, at the end of any Fiscal Year in
which the financial statements show positive EBITDA, distribute pro rata to each
of the Limited Partners, [*] of the net income of the Limited Partnership
for such Fiscal Year.
4.5 EXECUTION OF INSTRUMENTS. Contracts, documents or instruments in
------------------------
writing shall be executed in accordance with the by-laws of the Corporation or
as otherwise determined by the Board of Directors from time to time.
Notwithstanding the foregoing:
(a) contracts, documents or instruments in writing referred to in Section
4.2 which require the approval of the Major Shareholders shall be
signed by at least one director of each Major Shareholder; and
(b) contracts, documents or instruments in writing requiring execution by
the Limited Partnership shall require the signature of two officers of
the Limited Partnership and all contracts, documents and instruments
in writing so signed shall be binding upon the Limited Partnership
without further authorization or formality.
ARTICLE 5
FINANCIAL AND ACCOUNTING MATTERS
5.1 BUSINESS PLAN AND ANNUAL BUDGET
-------------------------------
(i) BUSINESS PLAN. The Business Plan of the Limited Partnership shall be
developed by the Publisher in conjunction with the Executive Committee which in
turn shall deliver the Business Plan to the Board of Directors for approval by
the Board of Directors. The Business Plan for the Fiscal Years 1999 and 2000
shall be tabled no later than December 31, 1998. At least three (3) months
prior to the end of the term of a Business Plan, the Publisher shall deliver to
the Board of Directors for approval a new Business Plan for the ensuing 2-year
period.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
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(ii) ANNUAL BUDGET AND QUARTERLY FINANCIAL FORECASTS. At least two
months prior to the beginning of each Fiscal Year of the Limited Partnership,
the Publisher shall prepare and deliver to the Board of Directors a profit
forecast and an annual budget providing, among other things, a detailed
breakdown of projected cash flow, capital expenditures and income, and setting
out cost and revenue targets for the Fiscal Year (the "Annual Budget"). Such
Annual Budget shall be approved by the Board of Directors, with such changes as
the Board of Directors determine to be necessary, not later than October 31 in
the year prior to the Fiscal Year for which such Annual Budget is prepared. The
Annual Budget shall become effective upon being approved by the Board of
Directors. Quarterly financial forecasts including income statement, balance
sheet and cash flow statement shall be delivered to the Board of Directors by
the Publisher and shall be tabled at every quarterly meeting of the Board of
Directors. Deviations of up to a maximum of 20% from the preceding quarterly
financial forecast may be made on the authority of a majority of the Board of
Directors at such meeting.
5.2 PERIODIC REPORTS OF THE CORPORATION. Within seven Business Days
-----------------------------------
after the end of each calendar month, the Controller of the Limited Partnership
shall send to each director and Shareholder an income statement, balance sheet
and cash flow statement of the Limited Partnership, together with comments of
the Publisher thereon.
5.3 BOOKS OF ACCOUNT. Proper books of account and records shall reflect
----------------
all Corporation and Limited Partnership transactions, shall be kept by the
Corporation and the Limited Partnership at the registered office or principal
place of business of the Corporation and the Limited Partnership, as applicable,
and entries shall be made therein in accordance with generally accepted
accounting principles. Each of the Shareholders, directors and Limited Partners
and their respective representatives shall have access at all reasonable times
to examine and copy such books of account and records, as well as tax returns
and tax assessments, provided that any confidential information which is
obtained from their examinations shall not be disclosed to Persons who are not
directors of the Corporation, Shareholders or directors of Shareholders or
Limited Partners (or their professional advisors) and shall not be used for any
improper purpose. The financial statements for the Corporation and the Limited
Partnership shall be audited for all Fiscal Years of the Corporation.
5.4 AUDITORS. Ernst & Young shall be appointed the Auditors of the
--------
Corporation unless, prior to the appointment of any other person as Auditors,
the Board of Directors has consented in writing to such other person being
appointed.
<PAGE>
-18-
ARTICLE 6
COVENANTS OF SHAREHOLDERS
6.1 COVENANTS. Each Shareholder covenants that, throughout the term of
---------
this Agreement, the Shareholder shall:
(a) ensure its continued qualification under the laws of its jurisdiction
of incorporation and such jurisdictions where the Shareholder conducts
the business to the extent it is reasonably within its power to do so
except where a failure to do so would not result in a material adverse
effect;
(b) not disclose or use any confidential or proprietary information of the
other Shareholders or any of their Affiliates or of the Corporation or
the Limited Partnership to which it may have access or have disclosed
to it by virtue of being a Shareholder of the Corporation, except for
the purposes of the Corporation and the Limited Partnership and shall
ensure that all persons to whom any such information is disclosed are
bound by a duty of confidence with respect thereto;
(c) not permit any security interest, encumbrance, pledge or other similar
claim to exist on its Shares and Limited Partnership Interest or its
interest in any property of the Corporation;
(d) at all times duly and punctually pay and discharge separate and
private debts and engagements whether present or future and keep the
Corporation and the other Shareholders indemnified therefrom and from
all actions, proceedings, costs, claims, demands, damages and expenses
in respect thereof; and
(e) maintain its Canadian resident status for purposes of the Income Tax
Act (Canada).
ARTICLE 7
TRANSFER OF SHARES
7.1 WARRANTY AS TO OWNERSHIP. Each Shareholder represents and warrants
------------------------
that it is the registered and beneficial owner of that number of Shares set
forth beside its name in the recitals to this Agreement, free and clear of all
liens, claims, charges, security interests, encumbrances or rights in favour of
other Persons, other than pursuant to this Agreement.
7.2 PROHIBITION ON UNAUTHORIZED TRANSFERS. Except as otherwise permitted
-------------------------------------
in accordance with the terms of this Agreement or the Limited Partnership
Agreement, or unless the unanimous written consent of the other Shareholders is
first obtained, no Shareholder shall Transfer any Shares or Limited Partnership
Interest. No Transfer of Shares by a Shareholder shall be effected
<PAGE>
-19-
pursuant to this Agreement unless there is at the same time a Transfer of such
Shareholder's Limited Partnership Interest; nor shall a Transfer of a Limited
Partnership Interest by a Shareholder be effected unless there is at the same
time a Transfer of such Shareholder's Shares. Notwithstanding the foregoing, in
no case shall a Transfer of Shares or Limited Partnership Interest occur within
18 months following the date of this Agreement except as permitted pursuant to
Section 7.4.
7.3 NEW SHAREHOLDERS. Without limiting the effect of Section 7.2, no
----------------
Person who is not a Shareholder may acquire Shares and a Limited Partnership
Interest unless that Person first executes and delivers an Assumption Agreement.
7.4 TRANSFER TO PERMITTED TRANSFEREES. Notwithstanding any other
---------------------------------
provision of this Agreement, each Shareholder shall be entitled after giving
three (3) Business Days' written notice to the other Shareholders and to the
Secretary of the Corporation to Transfer any of the Shares beneficially owned by
it to a Permitted Transferee, provided that:
(a) the transferor Shareholder and the other shareholders of the Permitted
Transferee agree not to transfer or issue any shares of the Permitted
Transferee that will result, either directly or indirectly, in a
change of Control of the Permitted Transferee for so long as such
Permitted Transferee shall own any Shares;
(b) the transferor Shareholder guarantees the obligations of such
Permitted Transferee under this Agreement;
(c) the Permitted Transferee executes and delivers an Assumption
Agreement; and
(d) no transfer of Shares shall be effected unless the transferor also
transfers such transferor's Limited Partnership Interest to the
Permitted Transferee.
7.5 RIGHT OF FIRST REFUSAL
----------------------
(a) In the event that a Major Shareholder receives a bona fide offer from
a third party (an "Offer") to purchase all, but not less than all, of
a Major Shareholder's Limited Partnership Interest which such Major
Shareholder is prepared to accept, such Major Shareholder (the
"Offeror") shall give notice (the "Notice") of the terms and price of
the Offer (the "Purchase Price") to the Corporation and to the other
Shareholders. Such Offer must also include an offer to purchase all,
but not less than all, of such Major Shareholder's Shares.
(b) Upon the Notice being given, the other Shareholders (the "Offerees"
and sometimes individually referred to as an "Offeree") shall have the
right to purchase all, but not less than all, of the Limited
Partnership Interest and Shares of the Offeror for the
<PAGE>
-20-
Purchase Price and on the terms contained in the Offer. The Offerees
shall be entitled to purchase the Limited Partnership Interest and
Shares of the Offeror pro rata based upon the percentage of the
Limited Partnership Interests and Shares beneficially owned by the
Offerees or to purchase in such other proportion as the Offerees may
otherwise agree in writing.
(c) Within thirty (30) Business Days after having been given the Notice,
each Offeree who desires to purchase all of the Limited Partnership
Interest and Shares of the Offeror that it is entitled to purchase in
accordance with the provisions of Section 7.5(b) shall give notice to
the Offeror, to the General Partner and to the other Offerees. If any
Offeree does not give such notice, the Limited Partnership Interest
and Shares of the Offeror that it had been entitled to purchase (the
"Rejected Interest") may instead be purchased by the Offerees who did
give such notice, pro rata based upon the percentages of the Limited
Partnership Interests and Shares beneficially owned by such Offerees
as between themselves or in such other proportion as such Offerees may
agree in writing, and, within five (5) Business Days of the expiry of
the thirty (30) Business Day period specified in this Section 7.5(c)
each Offeree who desires to purchase all of the Rejected Interest that
it is entitled to purchase in accordance with the provisions of this
Section 7.5(c) shall give an additional notice to the Offeror, to the
General Partner and to the other Offerees. If any Offeree entitled to
give the said additional notice does not do so, the Rejected Interest
that it had been entitled to purchase may instead be purchased by the
Offerees who did give such notice, and so on from time to time until
the Offerees are willing to purchase all of the Limited Partnership
Interest and Shares of the Offeror or until they are not willing to
purchase any more. If the Offerees are willing to purchase all, but
not less than all, of the Limited Partnership Interest and Shares of
the Offeror, the transaction of purchase and sale shall be completed
in accordance with the terms set out in the Notice.
(d) If the Offeror makes default in transferring its Limited Partnership
Interest and Shares to the Offerees in accordance with the terms set
out in the Notice, the Secretary of the Limited Partnership (or other
designated person fulfilling such function) is authorized and directed
to receive the purchase money for the Limited Partnership Interest and
to thereupon cause the names of the Offerees to be entered in the
registers of the Limited Partnership as the holders of the Limited
Partnership Interests purchasable by them and the Secretary of the
Corporation is authorized and directed to receive the money for the
Shares and to thereupon cause the names of the Offerees to be entered
into the Share register of the Corporation. The said purchase money
for the Limited Partnership Interest shall be held in trust by the
Limited Partnership and the said purchase money for the Shares shall
be held in trust for the Corporation on behalf of the Offeror and not
commingled with either the Limited Partnership's or the
<PAGE>
-21-
Corporation's assets, except that any interest thereon shall be for
the account of the Limited Partnership and the Corporation, as the
case may be. The receipt by the Secretary of the Limited Partnership
and the Corporation for the purchase money shall be a good discharge
to the Offerees and, after their names have been entered in their
respective registers in exercise of the aforesaid power, the validity
of the proceedings shall not be subject to question by any person. On
such registration, the Offeror shall cease to have any right to or in
respect of the Limited Partnership Interest or Shares of the Offeror
except the right to receive, without interest, the purchase price
received by the Secretary of the Limited Partnership and the Secretary
of the Corporation.
(e) If the Offerees do not give notice in accordance with the provisions
of Section 7.5(b) that they are willing to purchase all of the Limited
Partnership Interest and Shares of the Offeror, the rights of the
Offerees, subject as hereinafter provided, to purchase the Limited
Partnership Interest and Shares of the Offeror shall forthwith
terminate and the Offeror may, within four months after the expiry of
the thirty (30) Business Day period or five (5) Business Day periods,
as the case may be, specified in Section 7.5(c) accept the Offer,
provided that the person to whom its Shares and Limited Partnership
Interest are to be sold agrees prior to such transaction to be bound
by this Agreement and the Limited Partnership Agreement and to become
a party hereto and thereto in place of the Offeror with respect to the
Shares and Limited Partnership Interest of the Offeror. If the Offer
is not accepted within such four month period on such terms, the
rights of the Offerees pursuant to this Section 7.5 shall again take
effect and so on from time to time.
7.6 TAG ALONG RIGHTS. Where after compliance with the provisions of
----------------
Section 7.5 a Major Shareholder desires and is entitled to sell all, but not
less than all, of such Major Shareholder's Limited Partnership Interest and
Shares, such sale, notwithstanding the provisions of Section 7.5, shall be
permitted only if such third party makes an offer in writing irrevocable for
thirty (30) Business Days to the other Shareholders with respect to the Limited
Partnership Interest and Shares held by the other Shareholders, to purchase such
Limited Partnership Interests and Shares at the same price and upon the same
terms and conditions. Any Shareholder receiving such an offer must provide
notice in writing to such a third party accepting or refusing such an offer
within thirty (30) Business Days of receipt of the offer. Failure to comply
with the time limit for providing such notice shall be deemed to be notice of
refusal of the offer.
7.7 DRAG ALONG RIGHTS FOR CITYSEARCH CANADA. Notwithstanding Section
---------------------------------------
7.5 hereof, if the Major Shareholders receive a bona fide offer from a third
party dealing at arm's length with them for all, but not less than all, of the
Limited Partnership Interests and Shares, the Major Shareholders shall forthwith
advise CitySearch Canada of such offer, in which case if the Major Shareholders
wish to accept such offer, the Major Shareholders shall have the right to
require
<PAGE>
-22-
CitySearch Canada to sell all of its Limited Partnership Interest and Shares to
the arm's length third party pursuant to the terms of the offer for the amount
set forth in the offer.
7.8 PROHIBITION AGAINST TRANSFER TO A DIRECT COMPETITOR.
---------------------------------------------------
Notwithstanding any other provisions of this Agreement, no Shareholder may
transfer its Shares and its Limited Partnership Interest to a Direct Competitor
of any other Shareholder, without such other Shareholder's prior written
consent.
7.9 PROHIBITION AGAINST TRANSFER BY CITYSEARCH CANADA. CitySearch Canada
-------------------------------------------------
may not transfer any of its Shares and its Limited Partnership Interest except
in accordance with Sections 7.6 and 7.7 hereof.
7.10 SPECIAL PROVISION IN THE EVENT OF AN ACQUISITION OF A SHAREHOLDER BY A
----------------------------------------------------------------------
COMMUNICATION OR MEDIA SERVICES CORPORATION. In the event a transaction ("the
- -------------------------------------------
Transaction") occurs under which shares representing 51% or more of the votes in
a Shareholder ("the Target") are acquired directly or indirectly by an entity
in the business of providing communication or media services, then save and
except for the acquisition or merger of CitySearch U.S.A. by or with
Ticketmaster, the following provisions shall apply:
(a) DETERMINATION OF FAIR MARKET VALUE. Within six (6) months after the
closing of the Transaction, any one of the other Shareholders ("the
Passive Shareholder(s)") may obtain a determination of the Fair Market
Value of the Shares and the Limited Partnership Interest as at the end
of the month during which the Transaction occurs in accordance with
the valuation procedure set out in Section 9.1 hereof which shall be
conclusive and binding upon all parties hereto.
(b) CALL OR PUT. Within three (3) months after the determination of the
Fair Market Value:
(1) the Passive Shareholders shall have the right to require, by
written notice (the "Call Notice") to the Target, that the
Passive Shareholders purchase and the Target and its Affiliates
sell, and if a Call Notice is delivered, the Passive Shareholders
hereby undertake to purchase and the Target and its Affiliates
hereby undertake to sell, all of the Shares and the Limited
Partnership Interest then owned by them for a price in cash equal
to the Fair Market Value. The Shares and Limited Partnership
Interest of the Target and its Affiliates shall be purchased by
the Passive Shareholders pro rata based upon the percentage of
the Shares and Limited Partnership Interest beneficially owned by
the Passive Shareholders as between themselves or in such other
proportion as the Passive Shareholders may agree in writing, and
in the event that one Passive Shareholder elects not to purchase
any of the Shares and Limited
<PAGE>
-23-
Partnership Interest of the Target and its Affiliates, the other
Passive Shareholder may purchase all of such Shares and Limited
Partnership Interest; or
(2) where one of the Major Shareholders is the Target, each of the
Passive Shareholders shall have the right to require by written
notice (the "Put Notice") to the Target, that that Passive
Shareholder and its Affiliates sell and the Target purchase, and
if a Put Notice is delivered, the Target and its Affiliates
hereby undertake to purchase and the Passive Shareholder hereby
undertakes to sell, all of the Shares and Limited Partnership
Interest then owned by it for a price in cash equal to the Fair
Market Value.
(c) The closing of the transaction arising from this Section 7.10 shall
take place thirty (30) days after receipt by the Target of the Call
Notice or Put Notice, as the case may be.
(d) In the event that a Passive Shareholder(s) fail(s) to issue a Call
Notice or a Put Notice within the time periods prescribed in this
Section 7.10 with respect to a Transaction, then the rights under
Section 7.10 shall expire only with respect to that Transaction but
shall be available to the Shareholders with respect to a subsequent
Transaction.
ARTICLE 8
DISPUTE RESOLUTION
8.1 RESOLUTION OF A DISPUTE BETWEEN THE MAJOR SHAREHOLDERS. In the case
------------------------------------------------------
of a dispute among the Shareholders, the same shall be referred for resolution
to the Chief Executive Officers of the Shareholders. If they fail to resolve
the matter within 30 days, then the matter shall be referred to an independent
party for mediation. If they fail to resolve the matter by mediation within
another 60 days, then the following shall apply:
(a) The Shareholders having the dispute may agree to have the matter
resolved pursuant to the Arbitration Act (Ontario) in accordance with
the procedures set forth in Schedule A; or
(b) Failing an agreement under Section 8.1(a), then Section 8.2 shall
apply.
<PAGE>
-24-
8.2 BUY-SELL PROVISION ("SHOTGUN").
------------------
(a) At any time after the Major Shareholders in dispute have failed,
pursuant to Section 8.1, to resolve a dispute by mediation and failed
to agree to resolve it by arbitration, then a Major Shareholder (the
"Notifier") may send to the other Major Shareholder (the "Other Major
Shareholder") a notice (the "Buy-Sell Notice") containing an offer to
purchase all of the Shares and Limited Partnership Interest of the
Other Major Shareholder and those of its Affiliates (the "Purchase
Offer") and an offer to sell all of the Shares and Limited Partnership
Interest of the Notifier and those of its Affiliates (the "Sale
Offer"), in each case at a price for all of such Shares and such
Limited Partnership Interest in cash set out in the Buy-Sell Notice
(the "Shotgun Price"). Each offer shall be open for acceptance for
thirty (30) days from the date of receipt of the Buy-Sell Notice by
the Other Major Shareholder (the "Acceptance Period").
(b) During the Acceptance Period, the Other Major Shareholder may accept
the Purchase Offer, in which case there shall be a binding agreement
in accordance with the Purchase Offer; or the Other Major Shareholder
may accept the Sale Offer, in which case there shall be a binding
agreement in accordance with the Sale Offer.
(c) If the Other Major Shareholder fails to respond during the Acceptance
Period, the Other Major Shareholder shall be deemed to have accepted
the Purchase Offer, in which case there shall be deemed to be a
binding agreement in accordance with the Purchase Offer.
(d) The closing of the transaction arising from this Section 8.2 shall
take place thirty (30) days after a binding agreement comes into force
in accordance with this Section 8.2.
8.3 RESOLUTION OF A DISPUTE BETWEEN THE MAJOR SHAREHOLDERS AND CITYSEARCH
---------------------------------------------------------------------
CANADA. In the case of a dispute between both of the Major Shareholders,
- ------
acting together, and CitySearch Canada, the same shall be referred for
resolution to the Chief Executive Officers of the Shareholders. This Section
8.3 shall apply only where the Major Shareholders agree to act together as one
party to the dispute. If the Major Shareholders and CitySearch Canada fail to
resolve the matter within 30 days, then:
(a) the Shareholders may agree to have the matter resolved pursuant to the
Arbitration Act (Ontario) in accordance with the procedures set forth
in Schedule A-1; or
(b) failing an agreement under Section 8.3, then Section 8.4 shall apply.
<PAGE>
-25-
Nothing contained herein shall be construed to limit CitySearch Canada's right
to seek equitable remedies in the event of any breach of Article 11 hereof.
8.4 CALL OR PUT PROVISION. At any time after the Shareholders have
---------------------
failed, pursuant to Section 8.3, to resolve a dispute by mediation and failed to
agree to resolve it by arbitration, then the following provisions shall apply:
(a) Determination of Fair Market Value. A Shareholder may obtain a
----------------------------------
determination of the Fair Market Value of the Shares and Limited
Partnership Interests as at the end of the month during which the
failure to resolve the dispute pursuant to Section 8.3 occurs in
accordance with the valuation procedure set out in Section 9.1 hereof
which shall be conclusive and binding upon the parties hereto.
(b) Call or Put. Within forty-five (45) days after the determination of
-----------
the Fair Market Value:
(1) the Major Shareholders shall have the right to require, by
written notice (the "Dispute Call Notice") to CitySearch Canada,
that the Major Shareholders purchase and CitySearch Canada sell,
and if the Dispute Call Notice is delivered, the Major
Shareholders hereby undertake to purchase and CitySearch Canada
hereby undertakes to sell, all of the Shares and Limited
Partnership Interest then owned by CitySearch Canada for a price
in cash equal to the Fair Market Value. The Shares and the
Limited Partnership Interest of CitySearch Canada shall be
purchased by the Major Shareholders pro rata based upon the
percentage of the Shares and Limited Partnership Interest
beneficially owned by the Major Shareholders as between
themselves or in such other proportion as the Major Shareholders
may agree in writing, and in the event that one Major Shareholder
elects not to purchase any of the CitySearch Canada Shares and
Limited Partnership Interest, the other Major Shareholder may
purchase all of such Shares and Limited Partnership Interest; or
(2) CitySearch Canada shall have the right to require by written
notice (the "Dispute Put Notice") to the Major Shareholders, that
CitySearch Canada sell and the Major Shareholders purchase, and
if the Dispute Put Notice is delivered, the Major Shareholders
hereby undertake to purchase and CitySearch Canada hereby
undertakes to sell, all of the Shares and Limited Partnership
Interest then owned by CitySearch Canada for a price in cash
equal to the Fair Market Value. The Shares and Limited
Partnership Interest of CitySearch Canada shall be purchased by
the Major Shareholders pro rata based upon the percentage of the
Shares and Limited Partnership Interest
<PAGE>
-26-
beneficially owned by each Major Shareholder as between
themselves or in such other proportion as the Major Shareholders
may agree in writing.
8.5 PURCHASE OF CITYSEARCH CANADA SHARES AND LIMITED PARTNERSHIP INTEREST.
---------------------------------------------------------------------
At any time at the request of a Shareholder, it may be determined by a third
party expert in the field, acceptable to all of the Shareholders, acting
reasonably, with expertise in and knowledge of internet platforms and
information technology, that the CitySearch Systems are no longer competitive
with other city guide information services available and operating in other
markets. In making such determination, the third party expert will compare the
CitySearch Systems with up to three (3) other city guide information service
providers, and shall have regard to, inter alia, availability for license,
features, price, response time and performance levels, breadth of exposure on a
network and other benefits of licensing from the third party. Should the third
party expert determine that the CitySearch Systems are no longer competitive
within the meaning of this Section 8.5, and if within six (6) months of written
notice of the determination, CitySearch U.S.A. does not upgrade the CitySearch
Systems so that, taken as a whole, the CitySearch Systems are comparable to the
leading service provider(s) indentified by the third party expert, then the
Major Shareholders shall have the right to purchase pro rata or in such other
proportion as the Major Shareholders may agree in writing, all of the CitySearch
Canada Shares and Limited Partnership Interest at Fair Market Value pursuant to
the valuation procedure set out in Section 9.1 which shall be conclusive and
binding upon the parties hereto. The closing of any purchase of CitySearch
Canada Shares and Limited Partnership Interest shall occur within 30 days after
the determination of Fair Market Value, pursuant to the closing procedures set
out in Section 10.1.
ARTICLE 9
DEFAULT PROVISIONS
9.1 EVENTS OF DEFAULT.
-----------------
(a) An Event of Default shall be deemed to occur with respect to a
Shareholder (the "Defaulting Shareholder") if:
(i) any Shareholder is in breach of a covenant in Article 6 and, if
such breach is capable of being remedied, such breach is not
remedied within five (5) days after notice has been given to such
Shareholder specifying such breach;
(ii) a process of execution is issued against the Shares and Limited
Partnership Interest of any Shareholder and such execution is
not released or vacated within the shorter of a period of thirty
(30) days or such shorter period as would permit the Shares and
Limited Partnership Interest to be sold;
<PAGE>
-27-
(iii) any Shareholder makes an assignment for the benefit of creditors
of any material portion of its assets or is in bankruptcy or is
adjudged bankrupt or insolvent within the meaning of the
Bankruptcy and Insolvency Act (Canada);
(iv) substantially all of the assets of any Shareholder are seized or
otherwise attached by anyone pursuant to any legal process or
other means, including distress, execution or any other step or
proceeding with similar effect and the same is not released or
vacated within the shorter of a period of thirty (30) days or
such shorter period as would permit such property or any part
thereof to be sold pursuant thereto;
(v) any Shareholder fails to perform or observe any other material
term or material condition of this Agreement or the Limited
Partnership Agreement and such failure continues for a period of
thirty (30) days following written notice thereof from one of
the other Shareholders or the Corporation; or
(vi) [*]
(b) A Shareholder knowing that any other Shareholder is a Defaulting
Shareholder shall promptly confirm that fact with the Defaulting
Shareholder and shall thereupon deliver notice in writing to the
Secretary of the Corporation who shall provide the other Shareholders
(the "Non-Defaulting Shareholders") with written notice of that fact
and the number of the Shares and amount of the Limited Partnership
Interest held by the Defaulting Shareholder.
(c) In addition to any rights or remedies that may be available to them,
the Non-Defaulting Shareholders shall have the right to purchase all,
but not less than all, of the Shares and Limited Partnership Interest
beneficially owned by the Defaulting Shareholder (the "Offered
Interest") for [*]% of the Fair Market Value of such Shares and
Limited Partnership Interest (or in the case of an Event of Default
pursuant to Section 9.1(a)(iii), for 100% of the Fair Market Value) of
such Limited Partnership Interest.
(d) The Non-Defaulting Shareholders shall be entitled to purchase the
Offered Interest pro rata based upon the percentage of the Shares and
Limited Partnership Interests beneficially owned by the Non-Defaulting
Shareholders or to purchase in such other proportion as the Non-
Defaulting Shareholders may otherwise agree in writing.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-28-
(e) Unless the Shareholders otherwise agree in writing within fifteen (15)
Business Days of notice of the date of the event referred to in
Section 9.1(a), the price of the Offered Interest (the "Purchase
Price") shall be an amount equal to the Fair Market Value or [*]% of
the Fair Market Value, as applicable, of the Shares and Limited
Partnership Interest (taking into account, among other things, the
markets, cash flow and prospects of the Corporation and the Limited
Partnership) as determined by an internationally recognized accounting
firm, qualified business valuator or investment bank (the "Valuator")
appointed under this Section as agreed to by the Shareholders as at
the end of the fiscal quarter of the Corporation and the Limited
Partnership immediately preceding the fiscal quarter in which the
event referred to in Section 9.1(a) occurred. Such determination shall
be made in writing and given to all of the Shareholders and to the
Limited Partnership within thirty (30) Business Days of notice of the
date of the event referred to in Section 9.1(a) or as soon thereafter
as may be reasonably possible. The Fair Market Value of the Offered
Interest shall be deemed to be equal to the most recent determination
of Fair Market Value pursuant to this Section if the most recent
determination of Fair Market Value took place within six (6) months of
the date on which such determination is to be made.
(f) The Valuator shall have access to the books, accounts, records,
vouchers, cheques, papers and documents of, or which may relate to,
the Corporation and Limited Partnership. The Shareholders shall co-
operate with the Valuator and shall provide all information and
documents reasonably requested by the Valuator. All reasonable fees
and disbursements charged by the Valuator shall be paid by the
Corporation.
(g) The report of the Valuator when delivered to the Shareholders and to
the General Partner, shall be conclusive and binding upon all parties.
(h) Within ten (10) Business Days of having been given the Valuator's
report of the Purchase Price, each Non-Defaulting Shareholder who
desires to purchase all of the Offered Interest that it is entitled to
purchase in accordance with the provisions of Section 9.1 shall give
notice to the Defaulting Shareholder, the Corporation, the Limited
Partnership and to the other Non-Defaulting Shareholders. If any Non-
Defaulting Shareholder does not give such notice, the portion of the
Offered Interest that it had been entitled to purchase (the "Rejected
Interest") may instead be purchased by the Non-Defaulting Shareholders
who did give such notice, pro rata based upon the percentages of the
Shares and Limited Partnership Interests beneficially owned by such
Non-Defaulting Shareholders as between themselves or in such other
proportion as such Non-Defaulting Shareholders may agree in writing,
and, within five (5) Business Days of the expiry of the ten (10)
Business Day period specified in this Section 9.1, each Non-Defaulting
Shareholder who desires to purchase all of the Rejected Interest that
it is entitled to purchase in accordance with
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-29-
the provisions of this Section 9.1 shall give an additional notice to
the Defaulting Shareholder, to the Limited Partnership and to the
other Non-Defaulting Shareholders. If any Non-Defaulting Shareholder
entitled to give the said additional notice does not do so, the
Rejected Interest that it had been entitled to purchase may instead be
purchased by the Non-Defaulting Shareholders who did give such notice,
pro rata based upon the percentages of the Shares and Limited
Partnership Interests beneficially owned by such Non-Defaulting
Shareholders as between themselves or in such other proportion as such
Non-Defaulting Shareholders may agree in writing, and so on from time
to time until the Non-Defaulting Shareholders are willing to purchase
all of the Offered Interest or until they are not willing to purchase
any more. If the Non-Defaulting Shareholders are willing to purchase
all, but not less than all, of the Offered Interest, the transaction
of purchase and sale shall be completed within twenty (20) Business
Days of the expiry of the ten (10) Business Day period or five (5)
Business Day period, as the case may be, specified in this Section
9.1. The transaction shall be completed at the Corporation's principal
office where a Transfer of the Offered Interest shall be made by the
Defaulting Shareholder with good title, free and clear of all liens,
charges, encumbrances and any other rights of others, against payment
by certified cheque by the Non-Defaulting Shareholders.
(i) If the Defaulting Shareholder makes default in transferring the
Offered Interest to the Non-Defaulting Shareholders as provided for in
this Section 9.1, the Secretary of the Corporation and the Limited
Partnership is authorized and directed to receive the purchase money
and thereupon to cause the names of the purchasing Non-Defaulting
Shareholders to be entered in the registers of the Corporation and
Limited Partnership as the holders of the portion of the Shares and
Limited Partnership Interest purchasable by them. The said purchase
money shall be held in trust by the Corporation and the Limited
Partnership on behalf of the Defaulting Shareholder and not commingled
with the Corporation's or the Limited Partnership's assets, except
that any interest accruing thereon shall be for the account of the
Corporation or the Limited Partnership. The receipt by the Secretary
of the Corporation and of the Limited Partnership for the purchase
money shall be a good discharge to the Non-Defaulting Shareholders
and, after their names have been entered in the registers of the
Corporation and the Limited Partnership in exercise of the aforesaid
power, the validity of the proceedings shall not be subject to
question by any person. On such registration, the Defaulting
Shareholder shall cease to have any right to or in respect of the
Offered Interest except the right to receive, without interest, the
purchase price received by the Secretary of the Corporation and the
Limited Partnership.
(j) If the Non-Defaulting Shareholders do not give notice in accordance
with the provisions of this Section 9.1 that they are willing to
purchase all of the Offered Interest or complete the purchase of the
Offered Interest as provided therein, the
<PAGE>
-30-
rights of the Non-Defaulting Shareholders, except as hereinafter
provided, to purchase the Offered Interest shall forthwith cease and
determine but any Non-Defaulting Shareholders may, except in respect
of a default under Section 9.1(a)(vi), within twenty (20) Business
Days of the expiry of the applicable time period referred to in
Section 9.1(h), give notice to the Defaulting Shareholder, the
Corporation and the Limited Partnership requiring the dissolution of
the Limited Partnership.
ARTICLE 10
CLOSING
10.1 CLOSING. The closing of any purchase of Shares and Limited
-------
Partnership Interests by the Corporation or one or more Shareholders from
another Shareholder pursuant to this Agreement shall be held at the head office
of the Corporation at 10:00 a.m. (local time) on the prescribed date and shall
be subject to the following terms and conditions:
(a) the Shareholder(s) and the Limited Partner(s) (the "Buyers") who are
to acquire the Shares and Limited Partnership Interest shall pay the
applicable purchase price to the Shareholder(s) and Limited Partner(s)
(the "Vendors") who are to sell their Shares and Limited Partnership
Interest and the Vendors shall deliver to or to the order of the
Buyers certificates for the Shares to be acquired, duly endorsed for
transfer, free and clear of all liens, mortgages, charges, security
interests and other encumbrances;
(b) the Vendors and their nominees, if any, shall resign in writing the
positions which they then hold with the Corporation and the Limited
Partnership and the Vendors and any Person having a legal or
beneficial interest in the Vendors (whether direct or indirect) and
nominees of the Vendors shall release the remaining Shareholders,
Limited Partners, Corporation and the Limited Partnership from all
manner of actions, causes of action, suits, claims or demands against
any of them which they ever had, then have or may thereafter have, for
or by reason of or arising out of any cause, matter or thing but
excluding claims arising from the transaction and claims for other
moneys then owing pursuant to bona fide debts of the Corporation;
(c) if the Shares and Limited Partnership Interest to be purchased are
subject to any lien, pledge, security interest or encumbrance or any
of the Vendors owe any money to the Corporation or the Limited
Partnership or the Buyers, as determined by the Auditors of the
Corporation, the Buyers shall have the right to deduct from the amount
otherwise required to be paid by them to that Vendor the amount
required to discharge all such liens, pledges, security interests or
encumbrances and repay any moneys so owing by the Vendor and such
amount shall be used accordingly;
<PAGE>
-31-
(d) the Vendors shall be repaid any amounts owing to them pursuant to
loans advanced to the Corporation or the Limited Partnership and shall
be released from any guarantees provided for the benefit of the
Corporation or the Limited Partnership or, if such releases are not
forthcoming, shall be provided security (in form acceptable to the
Vendors, acting reasonably) for amounts which may be payable by them
pursuant to such guarantees;
(e) if, on the date of closing of the transaction, any of the Vendors
shall fail or refuse to complete the transaction, then the Buyers
shall have the right, on payment of the purchase price for the Shares
and the Limited Partnership Interest into any chartered bank or trust
company in the City of Toronto (provided notice is given to the
Defaulting Shareholder of such payment) within 15 Business Days after
the date of closing, to execute and deliver all such transfers,
resignations and other documents and instruments which may be
necessary or advisable in order to complete the transaction and for
such purpose, the Shareholders and Limited Partners who may become
Vendors hereby nominate, constitute and irrevocably appoint the
Secretary of the Corporation and the Limited Partnership and the
Shareholders and Limited Partners who may become Buyers as their
lawful attorney and agent, which appointment is coupled with an
interest, with full power and authority to execute for and in the name
of and on behalf of the Vendors any deeds, transfers, conveyances,
assignments, assurances, certificates and other documents and to do
all things which the Vendors are required to do under the terms
hereof;
(f) other than the license granted by CitySearch Canada under the Amended
and Restated License and Services Agreement, all licences, inputs and
contributions granted by the Vendors shall be terminated 90 days after
the closing of the transaction; and
(g) except with regard to matters of confidentiality as herein set forth
in Article 11 arising prior to the time of closing, at closing, the
Vendors shall be released from their obligations under this Agreement,
the Limited Partnership Agreement and the Non-Competition Agreement.
ARTICLE 11
CONFIDENTIALITY
11.1 CONFIDENTIALITY.
---------------
<PAGE>
-32-
(a) Each of the Shareholders acknowledges that it shall have access to and
will be entrusted with information that would reasonably be
confidential to the Corporation, the Shareholders, and the Limited
Partnership. Such information may include, without limitation, trade
secrets, know-how, marketing plans and techniques, cost figures,
customer lists and other information relating to the customers of the
Corporation, the Shareholders and the Limited Partnership. It is
acknowledged that the disclosure of any of such information to
competitors of the Corporation, the Shareholders or of the Limited
Partnership or to the general public would be highly detrimental to
the best interests of the Corporation, the Shareholders and the
Limited Partnership, as the case may be. Accordingly, each of the
Shareholders agrees that it shall not, at any time until such
information is disseminated to the public or becomes public knowledge
other than as a result of a breach of this Agreement, without the
consent of the other parties, which consent may be unreasonably
withheld, directly or indirectly, communicate or disclose to any
Person including to any Affiliates of any of the Shareholders any of
such information other than (a) to its professional advisors or the
directors, officers, employees or authorized representatives of the
Corporation and the Limited Partnership, as the case may be, that have
a need to know such information; (b) for the purposes of Section 7.8
of the Limited Partnership Agreement; and (c) in furtherance of the
Limited Partnership Business; nor shall it use or exploit, directly or
indirectly, the same for any purpose other than the purposes of the
Corporation and the Limited Partnership. Each of the Shareholders
shall take all reasonable measures available to it to keep such
information in the strictest confidence. The General Partner will
cause all of the employees, agents and independent contractors of the
Limited Partnership to sign a confidentiality agreement, acceptable to
all of the Shareholders, in favour of CitySearch Canada with respect
to the CitySearch U.S.A. Confidential Information disclosed to such
persons. The General Partner shall immediately provide notice to
CitySearch Canada of any breach of the restriction against the
disclosure of CitySearch U.S.A. Confidential Information of which it
is aware or of any circumstances of which it is aware that could
reasonably be expected to result in a breach of such restriction.
(b) Notwithstanding section 11.1(a), each of the Shareholders may
communicate such information if the disclosure of such information is
required by any applicable law, governmental rule or regulation,
subpoena, or order of any court or governmental agency, provided that
such Shareholder shall:
(i) promptly notify the other Shareholder thereof;
(ii) consult with the other Shareholder on the advisability of taking
steps to resist or narrow such requirement; and
<PAGE>
-33-
(iii) if disclosure is required or deemed advisable, co-operate with
the other Shareholder in any attempt to obtain an order or other
assurance that such information will be accorded confidential
treatment.
(c) The foregoing Sections 11.1(a) and 11.1(b) do not apply to such
information as becomes available to the editorial department of
Metroland or any of its Affiliates other than through a breach of this
Agreement.
11.2 SURVIVAL. The provisions of this Article 11 shall survive the
--------
termination of this Agreement for a period of two (2) years thereafter.
ARTICLE 12
GENERAL CONTRACT PROVISIONS
12.1 ARBITRATION. Other than as otherwise provided in Sections 8.1 and
-----------
8.3, if any difference or dispute shall arise among the parties hereto in
respect of any matter arising out of this Agreement, except with respect to any
breach of Article 11, including, without limitation, the interpretation of any
provision hereof, such difference or dispute shall, unless settled by agreement
between or among the disputing parties be submitted to arbitration by a single
arbitrator, if the parties can agree on one. Any such arbitration shall be
conducted in accordance with the provisions of the Arbitration Act (Ontario), as
from time to time amended or replaced. If the parties fail to appoint an
arbitrator within seven (7) days of reaching agreement to resolve the dispute by
arbitration, any one of the parties in dispute may apply to a judge of the
Ontario Court (General Division) to appoint an arbitrator. The arbitrator so
appointed shall forthwith proceed to arbitrate the dispute. The cost of the
arbitration shall be paid as determined by the arbitrator. Despite anything to
the contrary contained in the Arbitration Act (Ontario) the decision arrived at
by the arbitrator shall be final and binding upon the parties and all persons
claiming through or under them and no appeal shall lie from any award of the
arbitrator.
12.2 TERM OF AGREEMENT. This Agreement shall take effect on the date
-----------------
hereof and shall remain in full force until the earlier of:
(a) the date that this Agreement is terminated by the written agreement of
the parties hereto; and
(b) the date that there remains only one Shareholder.
12.3 TREATMENT OF SALE PROVISIONS. Notwithstanding any other provision of
----------------------------
this Agreement to the contrary, on any of the sale provisions hereinbefore
referred to in Sections 7.5,
<PAGE>
-34-
7.10, 8.2(a), 8.4(b), and 9.1(c) being invoked or becoming operative pursuant to
provisions of this Agreement, no other offer or notice of sale or intention of
sale shall be given or accepted until the closing or termination of the
operative transaction.
12.4 IMPLEMENTATION OF THIS AGREEMENT. The parties hereto shall sign such
--------------------------------
further and other documents, cause such meetings to be held, cause such
resolutions to be passed and such by-laws to be enacted, exercise their vote and
influence and do and perform (and cause to be done and performed) such further
and other acts or things as may be necessary or desirable in order to give full
effect to this Agreement and every part of it. If any conflict shall appear
between the articles, by-laws or resolutions of the Corporation and the
provisions of this Agreement, the provisions of this Agreement shall govern and
supersede the provisions of the articles, by-laws and resolutions. If there
shall be any such conflict, the Shareholders shall amend the articles, by-laws
and resolutions so as to ensure conformity with the terms of this Agreement.
12.5 ENDORSEMENT ON CERTIFICATES. All share certificates of the
---------------------------
Corporation shall be endorsed with the following legend:
"This certificate is subject to a unanimous shareholder agreement and
is transferable only in accordance with the provisions of such
agreement."
12.6 NOTICES. All payments and communications which may be or are required
-------
to be given by any party to any other party, shall be in writing and (i)
delivered personally, (ii) sent by prepaid courier service or (iii) sent by
prepaid telecopier or other similar means of electronic communication to the
parties at their following respective address:
(a) For Tele-Direct:
325 Milner Avenue, Suite 1050
Scarborough, Ontario M1B 5S8
Attention: Mr. Douglas G. Renwicke
Fax No.: 416-412-5870
with a copy to:
325 Milner Avenue, Suite 1050
Scarborough, Ontario M1B 5S8
Attention: Mr. Shaul I. Ezer
Vice-President, General Counsel and Secretary
Fax No.: 416-412-5858
<PAGE>
-35-
(b) For Metroland:
c/o Torstar Corporation
1 Yonge Street
Toronto, Ontario
M5E 1P9
Attention: Mr. David Wetherald
General Counsel and Secretary
Fax. No.: (416) 869-4183
with a copy to:
Toronto Star Newspapers Limited
1 Yonge Street
Toronto, Ontario M5E 1E6
Attention: Mr. Rocco Rossi
Vice-President, Strategic Planning & New Media
Fax No.: (416) 865-3618
(c) For CitySearch Canada:
c/o CitySearch, Inc.
790 East Colorado Boulevard
Suite 200
Pasadena, California 91101
U.S.A.
Attention: Mr. Douglas McPherson
Chief Legal Officer
Fax No.: (626) 405-9929
with a copy to:
c/o CitySearch, Inc.
790 East Colorado Boulevard
Suite 200
Pasadena, California 91101
U.S.A.
<PAGE>
-36-
Attention: Mr. Bradley Ramberg
Chief Financial Officer
Fax No.: (626) 405-9929
(d) For the Corporation:
1 Yonge Street
14th Floor
Toronto, Ontario
M5E 1P9
Attention: Publisher, toronto.com
Fax No.: (416) 814-7520
Any such notice so given shall be deemed conclusively to have been given and
received when so personally delivered or when delivered by prepaid courier
service, or if sent by telecopier or other electronic communication, on the
first Business Day after confirmed transmission. Any party may from time to
time change its address hereinbefore set forth by notice to the other parties in
accordance with this section.
12.7 TIME OF THE ESSENCE. Time shall be of the essence of this Agreement
-------------------
and of every part hereof.
12.8 GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein. All of the parties to this Agreement hereby irrevocably
attorn to the non-exclusive jurisdiction of the courts of the Province of
Ontario.
12.9 ENTIRE AGREEMENT. This Agreement, the Limited Partnership Agreement
----------------
and the Ancillary Agreements constitute the entire agreement between the parties
hereto with respect to the matter hereof and cancel and supersede any prior
understandings and agreements between the parties hereto with respect thereto
including a term sheet entitled, "CitySearch-Term Sheet for Partnership
Agreement" dated July 16, 1998 and the initialled addendum attached thereto.
The execution of this Agreement, the Limited Partnership Agreement and the
Ancillary Agreements have not been induced by, nor do any of the parties rely
upon or regard as material, any representations, promises, agreements or
statements whatsoever not incorporated herein or therein and made a part hereof
or thereof. This Agreement and the Ancillary Agreements hereto shall not be
amended, altered or qualified except by a memorandum in writing signed by all
the parties.
12.10 WAIVER. No party to this Agreement shall be deemed or taken to have
------
waived any provision of this Agreement unless such waiver is in writing, and
then such waiver shall be limited to the circumstances set forth in such written
waiver.
<PAGE>
-37-
12.11 SEVERABILITY. If any Article, Section or any portion of any Section
------------
of this Agreement is determined to be unenforceable or invalid, that
unenforceability or invalidity shall not affect the remaining portions of this
Agreement and such unenforceable or invalid Article, Section or portion thereof
shall be deemed to be severed from the remainder of this Agreement.
12.12 EQUITABLE REMEDIES. The parties have acknowledged that the
------------------
restrictions contained in this Agreement are reasonable, and if any party
breaches the terms of this Agreement the remaining parties, in addition to any
other rights and remedies, shall be entitled to equitable remedies that may
include an injunction to stop the contravention of this Agreement or an order
for specific performance to compel compliance with this Agreement.
12.13 BINDING EFFECT. This Agreement shall enure to the benefit of the
--------------
parties hereto and their respective heirs, executors, administrators, legal
personal representatives, successors and permitted assigns.
IN WITNESS WHEREOF the parties hereto have duly executed this
Agreement.
TELE-DIRECT (SERVICES) INC.
By: /s/ D. G. Renwicke
----------------------------------
Name:
Title:
By:__________________________________
Name:
Title:
METROLAND PRINTING, PUBLISHING
& DISTRIBUTING LTD.
By: /s/ David Wetherald
----------------------------------
Name:
Title:
By:__________________________________
Name:
Title:
<PAGE>
-38-
CITYSEARCH CANADA INC.
By: /s/ Michael Barton
----------------------------------
Name:
Title:
1310818 ONTARIO INC.
By: /s/ D. G. Renwicke
----------------------------------
Name:
Title:
By:__________________________________
Name:
Title:
<PAGE>
SCHEDULE A
ARBITRATION -
MAJOR SHAREHOLDERS
------------------
Subject to the provisions of Section 8.1, the Major Shareholders may
agree to settle the dispute by arbitration before one arbitrator jointly
appointed by them in accordance with the Arbitration Act (Ontario). The
provisions of this Schedule A shall be deemed to constitute a "submission"
within the meaning of the Arbitration Act (Ontario) and except to the extent
that contrary intention is expressed, shall apply to any arbitration hereunder.
Within seven (7) days after reaching agreement to resolve the dispute by
arbitration, the Major Shareholders shall appoint a single arbitrator with
appropriate experience to determine such dispute. The arbitrator will be
selected if possible from persons having experience with and knowledge of the
Internet/computer business such as that of the Limited Partnership Business.
Any such arbitration shall be conducted in Toronto, Ontario. If the Major
Shareholders fail to appoint an arbitrator within such seven (7) day period,
either Major Shareholder may apply to a judge of the Ontario Court of Justice
(General Division) to appoint an arbitrator to determine such dispute. The
arbitrator so appointed shall forthwith proceed to arbitrate the dispute. The
cost of the arbitration shall be paid as determined by the arbitrator. Despite
anything to the contrary contained in the Arbitration Act (Ontario), the award
of the arbitrator shall be final and binding upon the parties and all Persons
claiming through or under them and no appeal shall lie from any award of the
arbitrator. Judgment upon the award rendered by the arbitrator may be entered
into any court having jurisdiction and thereupon execution or legal process may
issue thereon. The parties to the foregoing Agreement and all Persons claiming
through or under them hereby attorn to the jurisdiction of the arbitrator and to
the jurisdiction of any court in which their judgment may be entered.
<PAGE>
SCHEDULE A-1
ARBITRATION -
MAJOR SHAREHOLDERS AND CITYSEARCH CANADA
----------------------------------------
Subject to the provisions of Section 8.3, the Major Shareholders and
CitySearch Canada may agree to settle the dispute by arbitration before one
arbitrator jointly appointed by them in accordance with the Arbitration Act
(Ontario). The provisions of this Schedule A-1 shall be deemed to constitute a
"submission" within the meaning of the Arbitration Act (Ontario) and except to
the extent that contrary intention is expressed, shall apply to any arbitration
hereunder. Within seven (7) days after reaching agreement to resolve the
dispute by arbitration, the Major Shareholders and CitySearch Canada shall
appoint a single arbitrator with appropriate experience to determine such
dispute. The arbitrator will be selected if possible from persons having
experience with and knowledge of the Internet/computer business such as that of
the Limited Partnership Business. Any such arbitration shall be conducted in
Toronto, Ontario. If the Major Shareholders and CitySearch Canada fail to
appoint an arbitrator within such seven (7) day period, either the Major
Shareholders or CitySearch Canada may apply to a judge of the Ontario Court of
Justice (General Division) to appoint an arbitrator to determine such dispute.
The arbitrator so appointed shall forthwith proceed to arbitrate the dispute.
The cost of the arbitration shall be paid as determined by the arbitrator.
Despite anything to the contrary contained in the Arbitration Act (Ontario), the
award of the arbitrator shall be final and binding upon the parties and all
Persons claiming through or under them and no appeal shall lie from any award of
the arbitrator. Judgment upon the award rendered by the arbitrator may be
entered into any court having jurisdiction and thereupon execution or legal
process may issue thereon. The parties to the foregoing Agreement and all
Persons claiming through or under them hereby attorn to the jurisdiction of the
arbitrator and to the jurisdiction of any court in which their judgment may be
entered.
<PAGE>
EXHIBIT 10.9
LIMITED PARTNERSHIP AGREEMENT
BETWEEN
1310818 ONTARIO INC.
AND
METROLAND PRINTING, PUBLISHING & DISTRIBUTING LTD.
AND
CITYSEARCH CANADA INC.
AND
TELE-DIRECT (SERVICES) INC.
AND
CITYSEARCH, INC.
AND
TORSTAR CORPORATION
AND
TELE-DIRECT (PUBLICATIONS) INC.
MADE AS OF
AUGUST 31, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 INTERPRETATION
1.1 Definitions................................................................... 3
1.2 Headings and Table of Contents................................................ 7
1.3 Incorporation of Preambles and Recitals....................................... 7
1.4 Extended Meanings............................................................. 7
1.5 Accounting Principles......................................................... 7
1.6 Calculation of Time........................................................... 7
ARTICLE 2 THE LIMITED PARTNERSHIP
2.1 Formation.................................................................... 8
2.2 Declaration of Limited Partnership........................................... 8
2.3 Filing of Declarations....................................................... 9
2.4 Unlimited Liability of General Partner....................................... 9
2.5 Limited Liability of Limited Partners........................................ 9
2.6 Limited Partnership Interests................................................ 9
2.7 Business..................................................................... 10
2.8 Name......................................................................... 10
2.9 Authority.................................................................... 10
2.10 Activities................................................................... 10
2.11 California Franchise Disclaimer.............................................. 10
2.12 Ownership of Limited Partners................................................ 10
2.13 Year 2000 Compliance......................................................... 11
ARTICLE 3 PLACE OF LIMITED PARTNERSHIP BUSINESS
3.1 Location..................................................................... 12
3.2 Qualification................................................................ 12
ARTICLE 4 GENERAL PARTNER AND RESTRICTIONS ON LIMITED PARTNERS
4.1 General Partner and Duties of the General Partner............................ 12
4.2 Appointment of Operating Personnel by General Partner........................ 13
4.3 Reimbursement of the General Partner......................................... 13
4.4 Appointment of Publisher..................................................... 13
4.5 Borrowing.................................................................... 13
4.6 No Commingling of Funds...................................................... 13
4.7 Restrictions upon the General Partner........................................ 13
4.8 Representations and Warranties of General Partner............................ 14
4.9 Limitations on Authority of the Limited Partners............................. 14
ARTICLE 5 MANAGEMENT OF THE LIMITED PARTNERSHIP,ACCOUNTING AND FINANCIAL
STATEMENTS
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.1 Control...................................................................... 15
5.2 Meetings..................................................................... 15
5.3 Minute Book.................................................................. 15
5.4 Books and Records............................................................ 15
5.5 Financial Statements......................................................... 16
5.6 Auditors..................................................................... 16
5.7 Fiscal Year End.............................................................. 16
5.8 Other Information............................................................ 16
ARTICLE 6 CAPITAL CONTRIBUTIONS,ALLOCATIONS AND DISTRIBUTIONS
6.1 Classes of Accounts.......................................................... 17
6.2 Capital Contributions........................................................ 17
6.3 Capital Accounts and Initial Capital Contributions........................... 18
6.4 Additional Capital Contributions............................................. 18
6.5 Consequences of Non-Payment of Additional Capital Contribution............... 19
6.6 Allocation for Income Tax Purposes........................................... 21
6.7 Distributions to Limited Partners............................................ 22
6.8 Allocation in Event of Transfer.............................................. 22
ARTICLE 7 BUSINESS CONTRIBUTIONS AND OPERATION
7.1 Locations Where Service Will Be Provided..................................... 22
7.2 Site Selection............................................................... 24
7.3 Contributions of the Limited Partners........................................ 24
7.4 Subsequent Inputs............................................................ 24
7.5 Tele-Direct Contributions.................................................... 24
7.6 Excluded TEP/Metroland Assets and Excluded Tele-Direct Assets................ 25
7.7 Excluded Assets.............................................................. 25
7.8 Sympatico.................................................................... 26
7.9 CitySearch Canada Competitors................................................ 26
ARTICLE 8 COVENANTS OF LIMITED PARTNERS
8.1 Covenants.................................................................... 27
ARTICLE 9 TERMINATION, DISSOLUTION AND NON-COMPETITION
9.1 Term......................................................................... 27
9.2 Dissolution.................................................................. 28
ARTICLE 10 INSURANCE
10.1 Insurance.................................................................... 29
ARTICLE 11 GENERAL
11.1 Further Assurances........................................................... 29
11.2 Public Announcements......................................................... 30
11.3 Benefit of the Agreement..................................................... 30
11.4 Entire Agreement............................................................. 30
</TABLE>
<PAGE>
<TABLE>
<S> <C>
11.5 Dispute Resolution........................................................... 30
11.6 Amendment and Waiver......................................................... 31
11.7 Assignment................................................................... 31
11.8 Notices...................................................................... 31
11.9 Governing Law................................................................ 33
11.10 Limited Partner not a General Partner........................................ 33
11.11 Counterparts................................................................. 33
</TABLE>
<PAGE>
LIMITED PARTNERSHIP AGREEMENT
-----------------------------
THIS AGREEMENT made as of August 31, 1998;
B E T W E E N:
1310818 ONTARIO INC., a corporation incorporated under the laws of
Ontario
(hereinafter referred to as "General Partner")
OF THE FIRST PART
- and -
METROLAND PRINTING, PUBLISHING & DISTRIBUTING LTD., a corporation
incorporated under the laws of Ontario
(hereinafter referred to as "Metroland")
OF THE SECOND PART
- and -
CITYSEARCH CANADA INC., a corporation incorporated under the laws of
Ontario
(hereinafter referred to as "CitySearch Canada")
OF THE THIRD PART
- and -
TELE-DIRECT (SERVICES) INC., a corporation incorporated under the laws
of Canada
(hereinafter referred to as "Tele-Direct")
OF THE FOURTH PART
- and -
<PAGE>
-2-
CITYSEARCH, INC., a corporation incorporated under the laws of
Delaware
(hereinafter referred to as "CitySearch U.S.A.")
OF THE FIFTH PART
- and -
TORSTAR CORPORATION, a corporation incorporated under the laws of
Ontario
(hereinafter referred to as "Torstar")
OF THE SIXTH PART
- and -
TELE-DIRECT (PUBLICATIONS) INC., a corporation incorporated under the
laws of Canada
(hereinafter referred to as "Tele-Direct Pub.")
OF THE SEVENTH PART
WHEREAS the parties hereto hereby agree to form a limited partnership
for the purpose of operating the Limited Partnership Business;
AND WHEREAS the parties hereto have entered into this Agreement for
the purpose of making provision for the harmonious operation of the Limited
Partnership and to provide for their obligations with respect to the Limited
Partnership and to each other in respect of the Limited Partnership;
AND WHEREAS the General Partner is to be the general partner and the
Limited Partners are to be the limited partners of the limited partnership
created by this Agreement;
AND WHEREAS Tele-Direct Pub., CitySearch U.S.A. and Torstar are
parties to this Agreement for the purpose of giving the representations and
warranties provided for in Section 2.12;
AND WHEREAS CitySearch U.S.A. is also a party to this Agreement for
the purpose of giving the covenant in Section 2.13;
<PAGE>
-3-
NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the
premises and the covenants and agreements herein contained and for other good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto covenant and agree as follows:
ARTICLE 1
INTERPRETATION
--------------
1.1 DEFINITIONS
-----------
In this Agreement, unless something in the subject matter or context
is inconsistent therewith, the following terms as used herein, including the
recitals, shall have the meanings set forth below:
(a) "AMENDED AND RESTATED LICENSE AND SERVICES AGREEMENT" means the
agreement made between CitySearch U.S.A. and CitySearch Canada
providing for the licensing to CitySearch Canada of certain software,
technology and know-how dated as of August 31, 1998;
(b) "ACT" means the Limited Partnerships Act (Ontario) as now enacted or
as the same may be from time to time amended, re-enacted or replaced;
(c) "AFFILIATE" means an affiliate of a party as determined by the
provisions of the Business Corporations Act (Ontario) as now enacted
or as the same may be from time to time amended, re-enacted or
replaced;
(d) "AGREEMENT" means this agreement and all amendments made hereto by
written agreement between the parties hereto;
(e) "ANCILLARY AGREEMENTS" means the Amended and Restated License and
Services Agreement, toronto.com Sublicense and Services Agreement,
Tele-Direct Sales Agreement, Tele-Direct Services Agreement, Torstar
Services Agreement, Metroland and CitySearch Conveyance and Employee
Transfer Agreement, Reciprocal Fees Agreement and Non-Competition
Agreement, each dated as of August 31, 1998;
(f) "ANNUAL BUDGET" means the then current annual budget (including
projections of cash flow, capital expenditure and income) for the
Limited Partnership approved pursuant to Section 5.1 of the Unanimous
Shareholder Agreement;
(g) "AUDITORS" means the auditors appointed pursuant to Section 5.6;
<PAGE>
-4-
(h) "BOARD OF DIRECTORS" means the board of directors of the General
Partner as elected or appointed from time to time;
(i) "BUSINESS" means the business of developing and operating local on-
line services (with content comprising local news and information,
local events, yellow pages business directories, and with classified
advertising content relating to jobs, automotive, real estate and
other classifications) that facilitate communication and business
transactions for internet users, generating revenue from advertising
and electronic commerce transactions, all as more particularly
described in Schedule B;
(j) "BUSINESS DAY" means a day other than a Saturday, Sunday or statutory
holiday in Ontario or California;
(k) "BUSINESS PLAN" means a business and marketing plan of the Limited
Partnership as approved by the Board of Directors pursuant to Section
5.1 of the Unanimous Shareholder Agreement;
(l) "CAPITAL" means the amount of cash or the value of all property
contributed to the capital of the Limited Partnership pursuant to the
provisions hereof;
(m) "CAPITAL ACCOUNT" of a Limited Partner means an account to which is
credited or debited all Capital contributions received from and
Capital distributions made, respectively, to such Limited Partner, in
accordance with the provisions of this Agreement;
(n) "CITYSEARCH INFORMATION SERVICE" means an online service of providing
Content related to restaurants, entertainment, retail establishment,
community events and other services, including on-line ticketing and
sale of merchandise, pertaining to a particular city or geographic
region which uses the CitySearch Systems;
(o) "CITYSEARCH SYSTEMS" has the meaning ascribed thereto in the Amended
and Restated License and Services Agreement;
(p) "CONTENT" has the meaning ascribed thereto in the Amended and Restated
License and Services Agreement;
(q) "CONTRIBUTING LIMITED PARTNER" has the meaning ascribed thereto in
Section 6.5;
(r) "CURRENT ACCOUNT" of a Limited Partner means an account to which is
credited or debited the net income or net loss, respectively, of the
Limited Partnership allocated to such Limited Partner in accordance
with the provisions of Section 6.1;
<PAGE>
-5-
(s) "DILUTION DATE" has the meaning set forth in Section 6.5;
(t) "DISTRIBUTION" and "DISTRIBUTED" shall mean amounts paid or other
property distributed by the Limited Partner in respect, or on account
of its interest in the Limited Partnership;
(u) "DIRECT COMPETITOR" of Metroland means a person whose business is
primarily involved in newspaper or electronic publishing; a Direct
Competitor of CitySearch Canada means a person whose business competes
directly with that of CitySearch Canada, CitySearch U.S.A. or any of
their respective Affiliates involved in electronic publishing; and a
Direct Competitor of Tele-Direct means a person whose business
competes directly with Tele-Direct or any of its respective Affiliates
in print and electronic publishing and data-related businesses;
(v) "EBITDA" means, for a particular fiscal period of the Limited
Partnership, the income (or loss) of the Limited Partnership before
deductions of depreciation, amortization, interest and taxes for such
fiscal period as determined from the financial statements of the
Limited Partnership for such period;
(w) "EXCLUSIVE TERRITORY" means the territory so marked in Schedule A;
(x) "EXECUTIVE COMMITTEE" means the executive committee of the Board of
Directors of the General Partner, as constituted from time to time;
(y) "FISCAL YEAR" means the period which currently commences on the date
hereof or January 1, and the case may be in any calendar year and ends
on December 31 in the same calendar year, or any other period
determined from time to time by the Board of Directors of the
Corporation to be the fiscal year of the Corporation;
(z) "GENERAL PARTNER" means 1310818 Ontario Inc.;
(aa) "INITIAL CAPITAL CONTRIBUTION" means in the case of Tele-Direct, the
amount of $[*] in cash, in the case of CitySearch Canada, the adjusted
cost base of the assets it is contributing under Section 6.2(b)(i)
which is estimated to be [*] Dollars ($[*]), and in the case of
Metroland, the adjusted cost base of the assets it is contributing
under Section 6.2(b)(ii) and an amount by way of deemed Capital
contribution sufficient to bring Metroland's Initial Capital
Contribution to [*] Dollars ($[*]);
(bb) "LIMITED PARTNERS" means Tele-Direct, Metroland and CitySearch Canada,
together with such other Persons who may become parties to this
Agreement and Limited Partner means any one of them;
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-6-
(cc) "LIMITED PARTNERSHIP" means the limited partnership constituted by
this Agreement;
(dd) "LIMITED PARTNERSHIP BUSINESS" means the Business to be carried on in
the Exclusive Territory set forth on the map in Schedule A;
(ee) "LIMITED PARTNERSHIP INTEREST" has the meaning, subject to adjustment
pursuant to Section 6.4(2), set forth in Schedule E;
(ff) "MAJOR LIMITED PARTNERS" means Tele-Direct and Metroland and a Major
Limited Partner means any one of them;
(gg) "MAJOR SHAREHOLDERS" means collectively Tele-Direct and Metroland and
a "Major Shareholder" means any one of them;
(hh) "METROLAND AND CITYSEARCH CANADA CONVEYANCE AND EMPLOYEE TRANSFER
AGREEMENT" means an agreement among CitySearch Canada, Metroland,
Tele-Direct and the Limited Partnership dated August 31, 1998;
(ii) "NON-COMPETITION AGREEMENT" means an agreement made as of August 31,
1998 among Toronto Star Newspapers Ltd, Metroland, Tele-Direct and
CitySearch Canada;
(jj) "NON-CONTRIBUTING LIMITED PARTNER" has the meaning set forth in
Section 6.5;
(kk) "NOTICE" has the meaning set forth in Section 6.5;
(ll) "PERSON" means an individual, partnership, unincorporated association,
organization, syndicate, corporation, trustee, executor, administrator
or other legal or personal representative;
(mm) "PROMISSORY NOTE" has the meaning ascribed thereto in Section 6.2(b);
(nn) "SHAREHOLDER" means any holder of shares in the capital of the General
Partner;
(oo) "TEP" means Torstar Electronics Publishing Ltd;
(pp) "TORONTO STAR CITYSEARCH" means the general partnership formed as of
February 17, 1997 between Metroland and CitySearch Canada;
(qq) "TORONTO.COM SUBLICENSE AND SERVICES AGREEMENT" means the agreement
between CitySearch Canada and the Limited Partnership dated as of
August 31, 1998;
<PAGE>
-7-
(rr) "TRANSFER" means to sell, assign, surrender, give, transfer, pledge,
mortgage, charge, create a security interest in, hypothecate or
otherwise encumber the Limited Partnership Interest, whether
voluntary, involuntary, by operation of law or otherwise. A change in
control of a Limited Partner shall be deemed not to be a Transfer of
the Limited Partnership Interest held by that Limited Partner; and
(ss) "UNANIMOUS SHAREHOLDERS AGREEMENT" means an agreement made as of
August 31, 1998 between Tele-Direct, Metroland, CitySearch Canada and
the General Partner.
1.2 HEADINGS AND TABLE OF CONTENTS
------------------------------
The division of this Agreement into Articles and Sections, the
insertion of headings and the provision of any table of contents are for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement. The terms "this Agreement", "hereof",
"hereunder" and similar expressions refer to this Agreement and not to any
particular Article, Section or other portion hereof and include any agreement
supplemental hereto.
1.3 INCORPORATION OF PREAMBLES AND RECITALS
---------------------------------------
The preambles and recitals set forth herein are true and correct at
the date hereof and are deemed to be part of this Agreement.
1.4 EXTENDED MEANINGS
-----------------
In this Agreement words importing the singular number only shall
include the plural and vice versa, words importing any gender shall include all
genders and words importing Persons shall include individuals, partnerships,
associations, trusts, unincorporated organizations and corporations.
1.5 ACCOUNTING PRINCIPLES
---------------------
Wherever in this Agreement reference is made to a calculation to be
made in accordance with generally accepted accounting principles, such reference
shall be deemed to be to the generally accepted accounting principles from time
to time approved by the Canadian Institute of Chartered Accountants, or any
successor institute, applicable as at the date on which such calculation is made
or required to be made.
<PAGE>
-8-
1.6 CALCULATION OF TIME
-------------------
When calculating the period of time within which or following which
any act is to be done or step taken pursuant to this Agreement, the first day of
such period shall be excluded and the last day of such period shall be included.
If the last day of such period is not a Business Day, the period in question
shall end on the next Business Day.
1.7 CURRENCY
--------
Unless otherwise provided herein, all reference to currency shall be
to Canadian dollars.
1.8 SECTION AND SCHEDULE REFERENCES
-------------------------------
Unless the context requires otherwise, references in this Agreement to
Sections, Exhibits or Schedules are to Sections, Exhibits or Schedules of this
Agreement. The Exhibits and Schedules to this Agreement are as follows:
EXHIBITS
--------
A Promissory Note
SCHEDULES
---------
A Area Map of the Exclusive Territory
B Description of the Limited Partnership's Business
C Cities/Regions in which Torstar/Metroland Operates and in which
Tele-Direct Operates
D Inputs
E Limited Partnership Interest
ARTICLE 2
THE LIMITED PARTNERSHIP
-----------------------
2.1 FORMATION
---------
The General Partner and the Limited Partners hereby constitute
themselves a limited partnership (the "Limited Partnership") for the purpose of
carrying on the Limited Partnership Business, subject to the terms and
conditions hereinafter set forth. To the extent not otherwise provided for
herein, the Limited Partnership shall be governed by the provisions of the Act
as now enacted or as the same may be from time to time amended, re-enacted or
replaced.
<PAGE>
-9-
2.2 DECLARATION OF LIMITED PARTNERSHIP
----------------------------------
A Declaration of Limited Partnership shall be filed or recorded to
establish the Limited Partnership with the Ministry of Consumer and Commercial
Relations in accordance with the provisions of the Act and in such other public
office as is required under applicable law or deemed advisable under the
discretion of the General Partner. Further amendments to the declaration also
shall be duly filed and recorded as required under the law or deemed advisable
in the discretion of the General Partner.
2.3 FILING OF DECLARATIONS
----------------------
As soon as practicable following the execution hereof, the General
Partner shall cause to be executed and filed such declarations, instruments and
documents as may be required under the laws of Ontario including the requisite
declarations under the Act. The General Partner shall, in accordance with the
provisions of this Agreement, cause to be filed, as appropriate, additional
declarations as required under the Act. The General Partner and each Limited
Partner shall execute and deliver as promptly as possible any documents that may
be necessary or desirable to accomplish the purposes of this Agreement or to
give effect to the formation and continuance of the Limited Partnership under
applicable laws. The General Partner shall take all necessary actions on the
basis of information available to it and maintain the status of the Limited
Partnership as a limited partnership.
2.4 UNLIMITED LIABILITY OF GENERAL PARTNER
--------------------------------------
The General Partner will have unlimited liability for all debts and
other liabilities and obligations of the Limited Partnership.
2.5 LIMITED LIABILITY OF LIMITED PARTNERS
-------------------------------------
Subject to the Act and any specific assumption of liability, the
liability of each Limited Partner for the debts, liabilities and obligations of
the Limited Partnership is limited to the amount of capital that such Limited
Partner has contributed or agreed to contribute to the Limited Partnership plus
such Limited Partner's share of the undistributed income of the Partnership as
set out herein and a Limited Partner shall have no further personal liability
for such debts, liabilities and obligations after making the full amount of such
Limited Partner's capital contribution to the Limited Partnership, subject to
any further calls or assessments or further contributions to the Limited
Partnership required pursuant to the terms of this Agreement.
<PAGE>
-10-
2.6 LIMITED PARTNERSHIP INTERESTS
-----------------------------
Notwithstanding the unequal Capital contributions of the General
Partner and the Limited Partners, the General Partner and the Limited Partners
hereby acknowledge and agree that as of the date hereof the respective Limited
Partnership Interests are as set forth in Schedule E.
2.7 BUSINESS
--------
The Limited Partnership shall not carry on any business other than the
Limited Partnership Business and no assets of the Limited Partnership shall be
used by any Limited Partner for any purpose other than the Limited Partnership
Business.
2.8 NAME
----
The name of the Limited Partnership shall be toronto.com. The primary
brand and URL address of the website for the Limited Partnership shall be
toronto.com. The by-line shall read as follows: "A Torstar/Tele-Direct
Partnership". In addition, the Toronto Star and Yellow Pages brands and/or
trademarks will be prominently displayed on the homepage and elsewhere on the
site. A mark will be placed "above the fold" on the first screen visible without
scrolling on the home page with the CitySearch U.S.A. logo and the statement "A
member of the CitySearch network".
2.9 AUTHORITY
---------
Except as otherwise provided herein, no Limited Partner shall have any
authority to act for, or assume any obligation or responsibility on behalf of,
any other Limited Partner or the Limited Partnership.
2.10 ACTIVITIES
----------
Each Limited Partner shall act in good faith toward, and in the best
interests of, the Limited Partnership and shall devote such time as may be
required to fulfill the obligations assumed by the Limited Partner in this
Agreement. Except as otherwise provided in Article 7 and subject to such
activities not causing a breach of this Agreement, each Limited Partner may
engage in any other business or activity outside the Limited Partnership
Business.
<PAGE>
-11-
2.11 CALIFORNIA FRANCHISE DISCLAIMER
-------------------------------
The parties agree that neither this Agreement nor the business
relationship established hereunder will be construed as granting a franchise.
The parties warrant to one another that they have consulted counsel in reviewing
and negotiating this Agreement and have concluded that no business plan or
franchise fees are conveyed or provided for in this Agreement or otherwise by
the relationship established hereby or by the relationship between the parties.
2.12 OWNERSHIP OF LIMITED PARTNERS
-----------------------------
(1) CitySearch U.S.A. represents and warrants to Tele-Direct, Tele-Direct
Pub., Torstar and Metroland that it is the beneficial and registered owner of
all of the outstanding shares of CitySearch Canada. Subject to the terms of
this Agreement, CitySearch U.S.A. covenants to ensure that the Limited
Partnership Interest held by CitySearch Canada continues to be held by a direct
or indirect wholly-owned subsidiary of CitySearch U.S.A.
(2) Torstar represents and warrants to Tele-Direct, Tele-Direct Pub.,
CitySearch U.S.A. and CitySearch Canada that it is the beneficial and registered
owner of all of the outstanding shares of Toronto Star Newspapers Limited, which
is the beneficial and registered owner of all of the outstanding shares of
Metroland. Subject to the terms of this Agreement, Torstar covenants to ensure
that the Limited Partnership Interest held by Metroland continues to be held by
a direct or indirect wholly-owned subsidiary of Torstar.
(3) Tele-Direct Pub. represents and warrants to Torstar, Metroland,
CitySearch U.S.A. and CitySearch Canada that it is the beneficial and registered
owner of all of the outstanding shares of Tele-Direct. Subject to the terms of
this Agreement, Tele-Direct Pub. covenants to ensure that the Limited
Partnership Interest held by Tele-Direct continues to be held by a direct or
indirect wholly-owned subsidiary of Tele-Direct Pub.
2.13 YEAR 2000 COMPLIANCE
--------------------
CitySearch U.S.A. covenants that on or before August 31, 1999:
(i) its 2.5, 2.6 and 2.7 releases of the software currently utilized
by the Limited Partnership will be installed in the toronto.com
platform; and
(ii) such releases will be Year 2000 compliant.
For the purposes of this Agreement, Year 2000 compliance shall mean the software
has been written and tested to support numeric transitions in leap years and
from the 20th to the 21st centuries, and back (eg. all calculations, ageing,
reporting, printing, displays, reversals, disasters, on vital records,
recoveries) without corruption or impact to current and/or future operations,
and that the software will operate during each such time period without error or
inaccuracy relating to
<PAGE>
-12-
or arising from the processing of calendar date data, including without
limitation, recognizing, calculating, comparing, managing, manipulating, sorting
and sequencing from, into and between different centuries or more than one
century, recognizing calendar date data century and performing calculations to
accommodate same-century and multi-century formulas and calendar date values.
ARTICLE 3
PLACE OF LIMITED PARTNERSHIP BUSINESS
-------------------------------------
3.1 LOCATION
--------
The principal place of business shall be at 1 Yonge Street, in the
City of Toronto in the Province of Ontario, M5E 1E6, or as may otherwise be
determined by the General Partner, and the books and records of accounts of the
Limited Partnership shall be kept at such location.
3.2 QUALIFICATION
-------------
To the extent required by any applicable law, the Limited Partnership
and each Limited Partner shall qualify to carry on the Limited Partnership
Business where the Limited Partnership Business is to be carried on from time to
time and shall maintain such registrations as may be necessary to lawfully carry
on the Limited Partnership Business.
ARTICLE 4
GENERAL PARTNER AND RESTRICTIONS ON LIMITED PARTNERS
----------------------------------------------------
4.1 GENERAL PARTNER AND DUTIES OF THE GENERAL PARTNER
-------------------------------------------------
Subject to any delegation of its powers properly authorized and
subject to the provisions of the Act, the General Partner will control and have
full and exclusive power, authority and responsibility of the business of the
Limited Partnership and will do or cause to be done in a prudent and reasonable
manner any and all acts necessary, appropriate or incidental to the business of
the Limited Partnership.
The General Partner shall exercise the powers and discharge the duties
of its office hereunder honestly, in good faith and in the best interest of the
Limited Partners and, in connection therewith, shall exercise the degree of
care, diligence and skill that a reasonably prudent person, experienced in the
business of the Limited Partnership, would exercise in comparable circumstances.
The General Partner shall be entitled to retain advisors, experts or consultants
to assist it in the exercise of its powers and the performance of its duties
hereunder. The General Partner further covenants that it shall maintain the
confidentiality of financial and other information and data which it may obtain
through or on behalf of the Limited Partnership,
<PAGE>
-13-
the disclosure of which may adversely affect the interests of the Limited
Partnership or a Limited Partner, except to the extent that the disclosure is
required by law or is in the best interests of the Limited Partnership, and it
shall utilize the information and data only for the business of the Limited
Partnership.
4.2 APPOINTMENT OF OPERATING PERSONNEL BY GENERAL PARTNER
-----------------------------------------------------
The General Partner shall appoint operating personnel of the Limited
Partnership and specify their duties.
4.3 REIMBURSEMENT OF THE GENERAL PARTNER
------------------------------------
The General Partner is entitled to reimbursement by the Limited
Partnership for all reasonable third party costs and expenses which are incurred
by the General Partner on behalf of the Limited Partnership in the ordinary
course of business or other costs and expenses incidental to acting as General
Partner to the Limited Partnership which are incurred, provided the General
Partner is not in default of its duties hereunder in connection with such costs
and expenses.
4.4 APPOINTMENT OF PUBLISHER
------------------------
The General Partner shall appoint the Publisher of the Limited
Partnership who shall report directly to the Executive Committee, which in turn
shall report to the Board of Directors. Until replaced with the approval of a
majority of the Board of Directors, the first Publisher shall be a Torstar
employee.
4.5 BORROWING
---------
The General Partner may borrow funds in the name of and on the
security of the assets of the Limited Partnership for the purposes of financing
and refinancing the business and operations of the Limited Partnership but not
for any other purpose.
4.6 NO COMMINGLING OF FUNDS
-----------------------
The funds or assets of the Limited Partnership shall not be commingled
with the funds or assets of the General Partner or any other Person.
4.7 RESTRICTIONS UPON THE GENERAL PARTNER
-------------------------------------
(1) The General Partner covenants that it shall not without the written
consent of all of the Limited Partners:
<PAGE>
-14-
(a) cause the Limited Partnership to guarantee the obligations or
liabilities of or make loans to the General Partner or any affiliate
or associate of the General Partner; or
(b) commingle the funds of the Limited Partnership with the funds of the
General Partner or any affiliate or associate of either of the General
Partner or any other Person;
(2) The General Partner has no authority without the written consent to
the specific act of all of the Limited Partners to:
(a) do any act in contravention of this Agreement;
(b) do any act which makes it impossible to carry on the ordinary business
of the Limited Partnership;
(c) consent to a judgment against the Limited Partnership;
(d) possess property of the Limited Partnership, or assign any rights in
specific property of the Limited Partnership, for other than a limited
partnership purpose; or
(e) admit a Person as a general partner.
4.8 REPRESENTATIONS AND WARRANTIES OF GENERAL PARTNER
-------------------------------------------------
The General Partner represents, warrants and covenants to the Limited
Partners that the General Partner:
(a) is a corporation incorporated and in good standing under the laws of
the Province of Ontario;
(b) has the capacity and corporate authority to act as General Partner and
to perform its obligations under this Agreement, and such obligations
do not and will not conflict with or breach its Articles of
Incorporation, by-laws or any agreement by which it is bound; and
(c) will carry on no business other than for the purposes set forth in
this Agreement.
<PAGE>
-15-
4.9 LIMITATIONS ON AUTHORITY OF THE LIMITED PARTNERS
------------------------------------------------
While Limited Partners have voting rights with respect to certain
matters, including the termination of the Limited Partnership, no Limited
Partner may take part in the operation or management of the business of the
Limited Partnership nor may any Limited Partner have the power to sign for or to
bind the Limited Partnership; however a Limited Partner may from time to time
examine into the state and progress of the business of the Limited Partnership
and advise as to its management. Limited Partners shall comply with the
provisions of the Act in force or in effect from time to time and shall not take
any action which will jeopardize or eliminate the status of the Limited
Partnership as a limited partnership.
ARTICLE 5
MANAGEMENT OF THE LIMITED PARTNERSHIP,
ACCOUNTING AND FINANCIAL STATEMENTS
-----------------------------------
5.1 CONTROL
-------
The General Partner shall have the full and exclusive control of the
business of the Limited Partnership. The Limited Partners shall have no control
over and no right to control the business of the Limited Partnership or the
management or direction of its affairs or policy and shall not have any power to
transact the business of, or sign for, or in any way bind, the Limited
Partnership.
5.2 MEETINGS
--------
Meetings of the Limited Partners may be called at any time by the
General Partner and shall be called upon written request of the Limited
Partners. Such request shall specify the purpose or purposes for which such
meeting is to be called and shall include sufficient information to enable other
Limited Partners to make a reasoned judgment on each matter to be considered at
the meeting. Any such meeting shall be held at such place in Ontario as the
General Partner shall reasonably designate. If the General Partner fails to
call a meeting upon such request of Limited Partners within a period of 10 days
after the giving of such request, the requesting Limited Partner(s) may call
such meeting and the notice calling such meeting shall be signed by such
requesting Limited Partner(s) or by any Person as such requesting Limited
Partner(s) may specify in writing.
5.3 MINUTE BOOK
-----------
All proceedings at all meetings of Limited Partners shall be recorded
in a minute book by the General Partner, which minute book shall be available
for the inspection of the Limited Partners at all meetings of Limited Partners
and at all other reasonable times during normal business hours at the offices of
the Limited Partnership.
<PAGE>
-16-
5.4 BOOKS AND RECORDS
-----------------
Proper books of account and records shall reflect all Limited
Partnership transactions, shall be kept by the Limited Partnership at the
principal place of business, and entry shall be made therein in accordance with
generally accepted accounting principles. Each of the Limited Partners shall
have access at all reasonable times to examine and copy such books of account
and records, as well as tax returns and tax assessments, provided that any
confidential information which is obtained from their examinations shall not be
disclosed to Persons who are not Shareholders or Limited Partners (or their
professional advisors) and shall not be used for any improper purpose. The
financial statements for the Limited Partnership shall be audited for all Fiscal
Years of the Limited Partnership.
5.5 FINANCIAL STATEMENTS
--------------------
(1) As soon as practicable after the end of each month but no later than
six (6) Business Days thereafter, financial statements shall be prepared by the
Limited Partnership, for and as of the end of such month, in accordance with
generally accepted accounting principles consistently applied, and such
financial statements shall show the cash flow, the assets and the liabilities of
the Limited Partnership, all income and revenue received and receivable and all
expenses, costs and charges incurred and paid or payable by the Limited
Partnership in respect of such month, with the resulting net profit or loss of
the Limited Partnership in respect of such month, and shall also show the
amounts standing to the credit of each Limited Partner hereto in respect of its
Capital Account and Current Account, all in accordance with the provisions
herein contained. As soon as practicable at the end of each Fiscal Year of the
Limited Partnership but no more than 30 days thereafter, like financial
statements shall be prepared for and as of the end of such Fiscal Year. As soon
as practicable at the end of each Fiscal Year of the Limited Partnership and no
later than sixty (60) days thereafter, audited financial statements shall be
prepared for the Limited Partnership at the expense of the Limited Partnership
in accordance with generally accepted accounting principles consistently
applied.
(2) Any financial statements prepared and certified by the Auditors as
herein provided shall be final, binding and conclusive among the Limited
Partners in the absence of manifest error.
5.6 AUDITORS
--------
Ernst & Young shall be appointed the Auditors unless, prior to the
appointment of any other Person as Auditors, the General Partner has consented
in writing to such person being appointed.
5.7 FISCAL YEAR END
---------------
<PAGE>
-17-
The fiscal year end of the Limited Partnership shall be December 31 in
each year.
5.8 OTHER INFORMATION
-----------------
The General Partner shall provide or cause to be provided to the
Limited Partners such additional financial and other information as may be
required from time to time under applicable legislation.
ARTICLE 6
CAPITAL CONTRIBUTIONS,
ALLOCATIONS AND DISTRIBUTIONS
-----------------------------
6.1 CLASSES OF ACCOUNTS
-------------------
(1) The Limited Partnership shall maintain a Capital Account and a Current
Account for each Limited Partner.
(2) The Capital contributions by each Limited Partner shall be credited to
the Capital Account maintained for such Limited Partner and the Capital
distributed to such Limited Partner shall be debited therefrom. No Limited
Partner shall be entitled to withdraw any part of its Capital Account or to
receive any distribution except as determined by the Board of Directors.
(3) The Limited Partnership's income allocated to each Limited Partner
shall be credited to the Current Account maintained for such Limited Partner and
any Limited Partnership's loss allocated to such Limited Partner shall be
debited therefrom. All distributions to the Limited Partners (except Capital
distributions) shall be debited to the Current Accounts.
6.2 CAPITAL CONTRIBUTIONS
---------------------
(a) GENERAL PARTNER
The General Partner shall contribute as Capital to the Limited
Partnership the cash sum of $10, on execution of this Agreement.
(b) LIMITED PARTNERS
Not later than the close of business on the Business Day following the
date of this Agreement, or as otherwise agreed, the Limited Partners shall make
Capital contributions to the Limited Partnership as follows:
(i) CitySearch Canada shall contribute its undivided interest in the
assets and its proportionate share of the liabilities of Toronto
Star CitySearch as set
<PAGE>
-18-
out in the Metroland and CitySearch Canada Conveyance and
Employee Transfer Agreement;
(ii) Metroland shall contribute its undivided interest in the assets
and its proportionate share of the liabilities of Toronto Star CitySearch
as set out in the Metroland and CitySearch Canada Conveyance and Employee
Transfer Agreement; and
(iii) Tele-Direct shall contribute $[*] of which $[*] shall be
contributed not later than the close of business on the Business Day
following the date of this Agreement, together with a promissory note in
substantially the same form as Exhibit A hereto for the balance (the
"Promissory Note"), of which $[*] is to be contributed on February 26, 1999
and $[*] is to be contributed on May 28, 1999, or such earlier dates as
determined by the Board of Directors.
(c) INTEREST ON CAPITAL CONTRIBUTIONS
No Limited Partner shall be entitled to interest on the amount of its
Capital contribution to the Limited Partnership.
(d) GST AND PST INDEMNIFICATION
Metroland and CitySearch Canada shall indemnify the Limited
Partnership from Goods and Services Tax and Ontario Provincial Sales Tax
resulting from the Transfer of their respective undivided interests in the
assets of Toronto Star CitySearch to the Limited Partnership.
6.3 CAPITAL ACCOUNTS AND INITIAL CAPITAL CONTRIBUTIONS
--------------------------------------------------
As of the date hereof, the Capital Accounts of the Limited Partners
are as follows:
Tele-Direct: $[*]
Metroland: $[*]
CitySearch Canada: $[*]
The foregoing is subject to amendment to reflect the actual cost base
of the assets being contributed to the Limited Partnership by Metroland and
CitySearch Canada. After finalization of the Capital Accounts for Metroland and
CitySearch Canada, Tele-Direct shall have the right to review and verify the
amount of such Capital Accounts.
6.4 ADDITIONAL CAPITAL CONTRIBUTIONS
--------------------------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-19-
(1) Additional Capital contributions required for the Limited Partnership
shall be identified and provided for in the Annual Budget. By the close of
business on the last Business Day of each fiscal quarter, the Major Limited
Partners agree to make any additional Capital contributions, on a pro rata
basis, which are specified in the Annual Budget and approved by the Major
Limited Partners as being required for the fiscal quarter following the next
succeeding fiscal quarter. In addition, the Major Limited Partners shall have
the authority to determine, on a quarterly basis, the amount of any additional
required Capital contributions not identified in the Annual Budget which are in
the best interest of the Limited Partnership. Such additional Capital
contributions determined by the Major Limited Partners as being required in a
particular fiscal quarter shall not exceed [*]% of the Capital contributions
specified in the Annual Budget for such fiscal quarter. The Major Limited
Partners agree to make additional Capital contributions, on a pro rata basis, by
the close of business on the second Business Day following a capital call by
them.
(2) Each Major Limited Partner shall contribute its pro rata share of the
additional Capital contributions pursuant to Section 6.4(1), failing which that
Major Partner's Limited Partnership Interest shall be diluted in accordance with
the formula set forth in Section 6.5.
(3) In the event that any Major Limited Partner fails to make an
additional Capital contribution required pursuant to Section 6.4(1), and that
Major Partner's Limited Partnership Interest is diluted, the General Partner
shall cause Schedule E to be amended to appropriately reflect the adjustment to
the Limited Partnership Interests of the Limited Partners.
6.5 CONSEQUENCES OF NON-PAYMENT OF ADDITIONAL CAPITAL CONTRIBUTION
--------------------------------------------------------------
If a Major Limited Partner fails to make an additional Capital
contribution in accordance with Section 6.4(1) hereof (the "Non-Contributing
Limited Partner") the other Major Limited Partner (the "Contributing Limited
Partner") may, in addition to making its own contribution, elect by notice to
the Non-Contributing Limited Partner (the "Notice"), to make the contribution of
the Non-Contributing Limited Partner. Upon non-contribution by a Major Limited
Partner, the Limited Partnership Interest of the Non-Contributing Limited
Partner shall be diluted in accordance with the terms and conditions hereinafter
set forth.
(a) In the event that the Non-Contributing Limited Partner has not paid
its proportionate share of the additional Capital contribution by the
close of the second Business Day (the "Dilution Date") following
receipt of a capital call pursuant to Section 6.4(1), such Non-
Contributing Partner's Limited Partnership Interest shall be
determined in accordance with the calculation set out below. The
Limited Partnership Interests of the Major Limited Partners following
non-contribution by a Major Limited Partner shall be calculated as
follows:
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
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the aggregate of the Contributing Major
Limited Partner's Initial Capital
Contribution plus the additional required
Capital contribution
--------------------------------X [*]%
the aggregate of the Initial Capital
Limited Partnership Interest = Contributions of both Major Limited Partners
of a Major Limited Partner plus the additional required Capital
contribution
For greater clarity, the following examples illustrate the adjustment
to the respective Limited Partnership Interests:
A) FIRST ADDITIONAL CAPITAL CONTRIBUTION:
Initial Capital Contributions of each Major Limited $[*]
Partner:
Limited Partnership Interest: [*]%
additional Capital contribution: $2 million
Limited Partnership Interest of sole Contributing [*] X [*]% = [*]%
Limited Partner "A" after contribution: ---
[*]
B) FUTURE ADDITIONAL CAPITAL CONTRIBUTION:
Limited Partnership Interest: Contributing Limited
Partner
"A": [*]%
Non-contributing
Limited
Partner "B": [*]%
additional Capital contribution: $3 million
Limited Partnership Interest of sole Contributing [*] X [*]% = [*]%
Limited Partner "A" after contribution: ---
[*]
Relative positions of Major Limited Partners: Contributing Limited
Partner
"A": [*]%
Non-Contributing
Limited
Partner "B": [*]%
C) FUTURE ADDITIONAL CAPITAL CONTRIBUTION:
Limited Partnership Interest: Contributing Limited
Partner
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
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Limited Partnership Interest: "A": [*]
Non-Contributing
Limited
Partner "B": [*]%
additional Capital contribution: $2 million
Limited Partnership Interest of Limited [*] X [*]% = [*]%
Partner "A" as non-Contributing Limited Partner ---
[*]
Limited Partnership Interest of Contributing [*] X [*]% = [*]%
Limited Partner "B" ---
[*]
Limited Partnership Interests following 3 capital Limited Partner "A":
[*]%
calls: Limited Partner "B":
[*]%
(b) if, as a result of the application of this Section 6.5,
the Limited Partnership Interest of a Major Limited
Partner falls below 30%, then the number of nominees on
the Board of Directors to which such Major Limited
Partner's corresponding Major Shareholder is otherwise
entitled shall be reduced from 3 to 2 and the number of
nominees of the other Major Limited Partner's
corresponding Major Shareholder shall be increased from
3 to 4;
(c) if the Limited Partnership Interest of a Major Limited
Partner is diluted to 15% or less, the number of
nominees on the Board of Directors to which such Major
Limited Partner's corresponding Major Shareholder is
entitled shall be reduced from 2 to 1 and the number of
nominees of the other Major Limited Partner's
corresponding Major Shareholder shall be increased from
4 to 5; and
(d) if the Limited Partnership Interest of a Major Limited
Partner falls to 15% or below any provision of this
Agreement requiring the consent of both Major Limited
Partners or any provision requiring the consent of both
Major Shareholders pursuant to the Unanimous
Shareholders Agreement shall be read as requiring the
consent only of the Major Limited Partner holding the
greater Limited Partnership Interest or of that Major
Limited Partner's corresponding Major Shareholder as
the case may be.
6.6 ALLOCATION FOR INCOME TAX PURPOSES
----------------------------------
Income and losses of the Limited Partnership shall be determined in
accordance with the Income Tax Act (Canada).
(a) All net losses of the Limited Partnership shall be shared by and
allocated for income tax purposes to the Limited Partners on the following
basis:
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-22-
(1) With respect to the net losses arising from the first $[*] of expenses
of the Limited Partnership:
(i) the revenues of the Limited Partnership shall be allocated to
each of the Major Limited Partners in proportion to their Limited
Partnership Interest;
(ii) the expenses of the Limited Partnership shall be allocated pro
rata to each Major Limited Partner in accordance with the
Capital Account and the Current Account (excluding revenues) of
such Limited Partner as at the end of each Fiscal Year (or at
the end of any accounting period, as may be appropriate in the
circumstances) provided that for periods ending on or before
December 31, 1998, Tele-Direct's Capital Account shall be
reduced by the amount of the Promissory Note outstanding; and
(iii) the net income or net loss for each Major Limited Partner shall
be its proportionate allocation of revenue (as determined
pursuant to subsection (a)(1)(i)) less its proportionate share
of the Limited Partnership's expenses (as determined pursuant to
subsection (a)(1)(ii) above).
(2) With respect to any additional net losses of the Limited Partnership,
all net losses of the Limited Partnership shall be allocated to each
of the Major Limited Partners in proportion to their Limited
Partnership Interest.
(b) All net income of the Limited Partnership shall be shared by and
allocated for income tax purposes to each of the Limited Partners in
proportion to their Limited Partnership Interest.
6.7 DISTRIBUTIONS TO LIMITED PARTNERS
---------------------------------
(A) DISTRIBUTIONS FROM THE CAPITAL ACCOUNT. All distributions from the
Capital Account to the Limited Partners shall first be to the extent of each
Limited Partner's Initial Capital Contribution, and thereafter proportionate to
each Limited Partner's contributions made in excess of the Initial Capital
Contribution.
(B) DISTRIBUTIONS FROM THE CURRENT ACCOUNT. All distributions from the
Current Account of each of the Limited Partners shall be pro rata in proportion
to each Limited Partner's respective Limited Partnership Interest.
6.8 ALLOCATION IN EVENT OF TRANSFER
-------------------------------
If a Limited Partnership Interest is transferred in accordance with
the terms of this Agreement, all items of income, gain, loss, deduction and
credit of the Limited Partnership shall be allocated between the periods before
and after the Transfer by a "closing of the books"
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-23-
method. As of the date of such Transfer, the transferee shall succeed to the
Capital Account of the transferor Limited Partner with respect to the
transferred Limited Partnership Interest. This Section 6.8 shall apply for
purposes of computing a Limited Partner's Capital Account.
ARTICLE 7
BUSINESS CONTRIBUTIONS AND OPERATION
------------------------------------
7.1 LOCATIONS WHERE SERVICE WILL BE PROVIDED
----------------------------------------
(a) EXCLUDED TERRITORY. The Limited Partnership shall provide the Limited
Partnership Business in the Exclusive Territory.
(b) BUSINESS WHERE MAJOR LIMITED PARTNERS OPERATE. Subsequently, the
Limited Partnership may carry on the Business in those Canadian cities listed in
Schedule C, as amended from time to time, where both Major Limited Partners
operate.
(c) REST OF CANADA. In those areas of Canada outside the geographic
markets described in Sections 7.1 (a) and (b) hereof, the following shall apply:
(i) In Canadian markets where only one Major Limited Partner has an
operating presence, that Major Limited Partner has the right to
include or exclude the other Major Limited Partner from the
Business carried on in that market. If such Major Limited Partner
chooses to include the other Major Limited Partner in the
Business and the invited Major Limited Partner elects to
participate, the Limited Partnership shall carry on the Business
in that market. If one Major Limited Partner is excluded or
chooses not to be included, then the other Major Limited Partner
may carry on the Business in that market in association with
another local party, and that business association shall have the
right to use the Limited Partnership's know-how and intellectual
property under terms to be agreed to with the Limited Partnership
and the Limited Partners.
(ii) In Canadian markets where neither of the Major Limited Partners
has an operating presence, the two Major Limited Partners may
agree to cause the Limited Partnership to enter that market. If
one Major Limited Partner chooses not to participate, then the
other Major Limited Partner may carry on the Business with
another party, and that business association shall have the right
to use the Limited Partnership's know-how and intellectual
property under terms to be agreed to with the Limited Partnership
and the Limited Partners.
<PAGE>
-24-
(d) WHERE THE PARTIES OPERATE. For the purpose of determining whether a
Limited Partner operates in a given market, the following shall apply:
(i) The determination shall be made immediately prior to the time
that the Limited Partnership or a Limited Partner has notified
the other parties that it is considering operating the Business
in that city.
(ii) As of the date hereof, Torstar/Metroland and Tele-Direct shall be
considered to be operating in the cities listed in Schedule C.
Within 30 days after commencing operation in a new city, a Limited
Partner shall advise the other Limited Partners in writing that it is operating
the Business in that city.
7.2 SITE SELECTION
--------------
The site or sites for the Limited Partnership Business shall be
determined by the Executive Committee, leveraging the brands, where possible,
from Tele-Direct, Metroland, CitySearch Canada or their affiliated corporations
or other affiliated entities.
7.3 CONTRIBUTIONS OF THE LIMITED PARTNERS
-------------------------------------
In addition to any assets that are being contributed pursuant to the
Ancillary Agreements hereto, the initial inputs of the Limited Partners shall be
as follows:
(a) From the date hereof, Torstar/Metroland hereby grants to the Limited
Partnership a royalty-free license to use the know-how and
intellectual property belonging to Torstar ("Torstar/Metroland's
Inputs") as described in Schedule D; and
(b) From the date hereof, Tele-Direct hereby grants to the Limited
Partnership a royalty-free license to use the know-how and
intellectual property belonging to Tele-Direct ("Tele-Direct's
Inputs") as described in Schedule D.
7.4 SUBSEQUENT INPUTS
-----------------
The Limited Partners agree to use their reasonable best efforts to
make available to the Limited Partnership other know-how and intellectual
property that will add value to the Business belonging to them or their
affiliated entities at reasonable market rates.
<PAGE>
-25-
7.5 TELE-DIRECT CONTRIBUTIONS
-------------------------
Tele-Direct will transfer free of charge to the Limited Partnership
the following existing or planned Internet services (and related personnel for
item 4 only) relating to the Exclusive Territory as defined in Schedule A:
Greater Toronto Area ("GTA")
Internet Service Estimated Annual Revenue
---------------- ------------------------------
1. Repurposed Advertisements
for the Internet (upselling from
print based directory)
2. E-mail $[*]
3. URL links (links from online
directory listings to home pages)
4. Web Sites $[*]
Revenues shall accrue to toronto.com for sales or renewals made after
the date hereof.
7.6 EXCLUDED TEP/METROLAND ASSETS AND EXCLUDED TELE-DIRECT ASSETS
-------------------------------------------------------------
(a) EXCLUDED TEP/METROLAND ASSETS. The Limited Partners acknowledge that
Metroland and Torstar Electronic Publishing Ltd. ("TEP"), an Affiliate
of Torstar, have built and currently offer in the Exclusive Territory
certain electronic offerings. The Limited Partners recognize that some
combination of such electronic offerings with the Limited Partnership
Business may be to the mutual advantage of Metroland, TEP and the
Limited Partnership. In the event of such a contribution, details of
which are subject to negotiation, the Limited Partners intend that:
(a) the revenues from TEP's and Metroland's currently existing
business will be excluded from the calculation of the Limited
Partnership's revenue; and (b) the Limited Partnership will share in a
portion of any revenues of Metroland or TEP related to products or
services jointly developed with the Limited Partnership on terms to be
mutually agreed upon by Metroland, TEP and the Limited Partnership.
(b) EXCLUDED TELE-DIRECT ASSETS. The Limited Partners acknowledge that
Tele-Direct and its Affiliates have built and currently offer in the
Exclusive Territory certain electronic offerings. The Limited Partners
recognize that some combination of such electronic offerings with the
Limited Partnership Business may be to the mutual advantage of Tele-
Direct, its Affiliates and the Limited Partnership. In the event of
such a contribution, details of which are subject to negotiation, the
Limited Partners intend that:
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-26-
(a) the revenues from Tele-Direct and its Affiliates' currently
existing business will be excluded from the calculation of the
Limited Partnership's revenue; and
(b) the Limited Partnership will share in a portion of any revenues
of Tele-Direct and its Affiliates relating to products or
services jointly developed with the Limited Partnership on terms
to be mutually agreed-upon by Tele-Direct, its Affiliates and the
Limited Partnership.
7.7 EXCLUDED ASSETS
---------------
The following assets of each of Metroland and Tele-Direct and their
respective Affiliates are not being transferred to the Limited Partnership as
part of a Major Limited Partner's Capital contributions to the Limited
Partnership but may be available to the Limited Partnership on mutually
satisfactory terms and conditions.
(A) EXCLUDED TORSTAR/METROLAND ASSETS
- Thestar.com
- Torstar.com
- Any national classifieds
content and/or portal services unless entered
into jointly with Tele-Direct.
(B) EXCLUDED TELE-DIRECT ASSETS
- All Internet services outside the Exclusive Territory
- Internet services in association with CANYPS
- Teledirect.com
- Canadayellowpages.com
- Yellowpages.ca / PagesJaunes.ca
- Canadian Trade Index (CTI)
- Caribbean Travel Guide
- Yellowpages of Golf
- BonVoyage.com
- Telecom Directories (Hong Kong)
- Chinese Yellow Pages
7.8 [*]
---------
The General Partner and the Limited Partners agree to consider [*] as
the exclusive portal for the Limited Partnership once [*] has reached a
significant share
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-27-
([*]%) of the Toronto online subscriber market and relevant traffic which will
be reviewed annually, provided that [*] remains an open system freely
accessible from the World Wide Web.
Tele-Direct will use its best efforts to assist the Limited
Partnership to work with [*] to maximize the exposure of the toronto.com
service.
7.9 CITYSEARCH CANADA COMPETITORS
-----------------------------
The Major Limited Partners agree not to utilize the services of a
Direct Competitor of CitySearch Canada in the Exclusive Territory for the
Limited Partnership Business.
ARTICLE 8
COVENANTS OF LIMITED PARTNERS
-----------------------------
8.1 COVENANTS
---------
Each Limited Partner covenants that, throughout the term of this
Agreement, the Limited Partner shall:
(a) ensure its continued qualification under the laws of its jurisdiction
of incorporation and such jurisdictions where the Limited Partnership
conducts the Limited Partnership Business to the extent it is
reasonably within its power to do so;
(b) subject to the rights and obligations of the Limited Partners pursuant
to the License and Services Agreement and any amendments thereto, the
Limited Partners agree not to disclose or use any confidential or
proprietary information of the other Limited Partner or any of its
Affiliates or of the Limited Partnership to which it may have access
or have disclosed to it by virtue of the Limited Partnership, except
for the purposes of the Limited Partnership and shall ensure that all
persons to whom any such information is disclosed is bound by a duty
of confidence with respect thereto;
(c) not permit any security interest, encumbrance, pledge or other similar
claim to exist against its Limited Partnership Interest or its
interest in any property of the Limited Partnership;
(d) at all times duly and punctually pay and discharge separate and
private debts and engagements whether present or future and keep the
Limited Partnership and the
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-28-
other Limited Partners indemnified therefrom and from all actions,
proceedings, costs, claims, demands, damages and expenses in respect
thereof; and
(e) maintain its Canadian resident status for purposes of the Income Tax
Act (Canada).
ARTICLE 9
TERMINATION, DISSOLUTION AND NON-COMPETITION
--------------------------------------------
9.1 TERM
----
Except as otherwise provided in this Agreement, the Limited
Partnership created by this Agreement shall begin on the date hereof and shall
continue thereafter until the Limited Partnership is dissolved pursuant to
Section 9.2, or the Limited Partnership is otherwise dissolved by operation of
law, notwithstanding changes from time to time in the Persons who are Limited
Partners.
9.2 DISSOLUTION
-----------
(1) The Limited Partnership may be dissolved in the following manner:
(a) commencing three (3) years from the date hereof, and any time
thereafter, any Limited Partner shall have the right to dissolve the
Limited Partnership upon the occurrence of any one of the following
events:
(i) the financial statements of the Limited Partnership for the
fiscal period ending December 31, 2001 or at the end of any
subsequent twelve (12) month period thereafter, do not show
positive EBITDA; or
(ii) at the end of August 31, 2001 or at the end of any twelve (12)
month period thereafter, toronto.com is not, in the Exclusive
Territory, ranked either first or second among competing,
comparable city guides with similar kinds of features, such
ranking to be determined by an independent web traffic
measurement firm acceptable to all of the Limited Partners, based
upon measurement criteria generally accepted in the industry that
include, but are not limited to, the tracking of traffic and
transactions.
The criteria set forth in the foregoing clause (a)(i) are subject to
reasonable adjustments to take into account changes in the business
focus and/or traffic of toronto.com and adjustments to the Business
Plan agreed upon by the Board of Directors.
<PAGE>
-29-
Upon the occurrence of either of the foregoing events, any Limited
Partner has the right, but not the obligation, to give written notice
to the other Limited Partners that the Limited Partnership shall be
dissolved following thirty (30) days from the date of such notice. At
the end of such thirty (30) day period, the Limited Partnership shall
take all necessary steps to sell its assets and the proceeds therefrom
shall be distributed to the Limited Partners in accordance with
Section 9.2(2) hereof; or
(b) otherwise by operation of law.
(2) Upon sale of all or substantially all of the assets of the Limited
Partnership, or upon dissolution of the Limited Partnership pursuant to either
Section 9.2(1)(a) or (b) above, a full and general account shall be taken of the
assets, credits, debts and liabilities of the Limited Partnership and of the
transactions and dealings thereof and with all convenient speed such assets and
credits shall be sold, realized and collected and the proceeds shall be applied
as follows:
(a) firstly, in paying and discharging the debts and liabilities of the
Limited Partnership to the Persons who are not Limited Partners and
the expenses of and incidental to the dissolution of the Limited
Partnership;
(b) secondly, in paying to each Limited Partner any unpaid debts and
liabilities (including any unpaid net profits) which may be due to it,
including without limitation, payment of the balance, if any, of the
royalty fee payable to CitySearch U.S.A. pursuant to section 4.08 of
the Amended and Restated Licence and Services Agreement; and
(c) thirdly, the balance, if any, of such proceeds and cash, shall be
divided between the Limited Partners proportionately to their Limited
Partnership Interests subject to the provisions of Section 6.7 hereof.
(3) On dissolution of the Limited Partnership, the Board of Directors
shall act as the receiver of the Limited Partnership. If the Board of
Directors shall be unable or unwilling to so act, the General Partner
may appoint some other appropriate Person as receiver of the Limited
Partnership.
ARTICLE 10
INSURANCE
---------
10. INSURANCE
---------
Unless the General Partner directs otherwise, the Limited Partnership
shall maintain insurance in respect of its business, operations and activities,
and the other assets of the
<PAGE>
-30-
Limited Partnership of such types and in such amounts as the Board of Directors
deems advisable including, without limitation, third party liability insurance
and product liability insurance, both during the operation of the Limited
Partnership Business and until any dissolution is completed.
ARTICLE 11
GENERAL
-------
11.1 FURTHER ASSURANCES
------------------
Each Limited Partner shall from time to time execute and deliver all
such further documents and instruments and do all acts and things as the General
Partner may reasonably require to effectively carry out or better evidence or
perfect the full intent and meaning of this Agreement.
11.2 PUBLIC ANNOUNCEMENTS
--------------------
Subject to applicable law or stock exchange regulation, no public
announcement or press release primarily concerning the Limited Partnership shall
be made by any Limited Partner without the prior consent of the General Partner
and joint approval of the other Limited Partners. If a Limited Partner wishes to
issue a press release primarily concerning the Limited Partnership it shall
provide a draft thereof (or the portion thereof relating to the Limited
Partnership) to the General Partner and the other Limited Partners as soon as a
draft is available and shall consider any reasonable comments of the General
Partner and the other Limited Partners with respect to the press release
provided that such comments are provided forthwith upon receipt of the draft.
Any failure to provide comment with respect to a draft press release within
three (3) Business Days shall be deemed to constitute consent to the release
thereof.
11.2 BENEFIT OF THE AGREEMENT
------------------------
This Agreement shall enure to the benefit of and be binding upon the
respective successors and permitted assigns of the parties hereto.
11.4 ENTIRE AGREEMENT
----------------
This Agreement, the Unanimous Shareholder Agreement and the Ancillary
Agreements constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and cancel and supersede any prior
understandings and agreements between the parties hereto with respect thereto
including a term sheet entitled, "CitySearch-Term Sheet for Partnership
Agreement" dated July 16, 1998 and the initialled addendum attached thereto.
There are no representations, warranties, terms, conditions, undertakings or
collateral agreements, express, implied or statutory, between the parties other
than as expressly set forth in this Agreement, the Unanimous Shareholders
Agreement or the Ancillary Agreements.
<PAGE>
-31-
11.5 DISPUTE RESOLUTION
------------------
If any difference or dispute shall arise among the parties hereto in
respect of any matter arising out of this Agreement, including, without
limitation, the interpretation of any provision hereof, such difference or
dispute shall, unless settled by agreement between or among the disputing
parties be submitted to arbitration by a single arbitrator, if the parties can
agree on one. Any such arbitration shall be conducted in accordance with the
provisions of the Arbitration Act (Ontario), as from time to time amended or
replaced. If the parties fail to appoint an arbitrator within seven (7) days of
reaching agreement to resolve the dispute by arbitration, any one of the parties
in dispute may apply to a judge of the Ontario Court (General Division) to
appoint an arbitrator. The arbitrator so appointed shall forthwith proceed to
arbitrate the dispute. The cost of the arbitration shall be paid as determined
by the arbitrator. Despite anything to the contrary contained in the
Arbitration Act (Ontario) the decision arrived at by the arbitrator shall be
final and binding upon the parties and all Persons claiming through or under
them and no appeal shall lie from any award of the arbitrator.
11.6 AMENDMENT AND WAIVER
--------------------
This Agreement may be amended on the initiative of the General Partner
with the consent of the Limited Partners. No waiver of any breach of any term
or provision of this Agreement shall be effective or binding unless made in
writing and signed by the party purporting to give the same and, unless
otherwise provided, shall be limited to the specific breach waived.
11.7 ASSIGNMENT
----------
Except as may be expressly provided in this Agreement, no Limited
Partner may assign its rights or obligations under this Agreement without the
prior written consent of the General Partner and the other Limited Partners.
11.8 NOTICES
-------
Any demand, notice or other communication to be given in connection
with this Agreement shall be given in writing and shall be given by personal
delivery or by transmittal by electronic means of communication addressed to the
recipient as follows:
<PAGE>
-32-
For the General Partner:
1 Yonge Street
Toronto, Ontario
M5E 1E6
Attention: Chairperson
Fax No.: (416) 865-3618
For Tele-Direct:
325 Milner Avenue, Suite 1050
Scarborough, Ontario M1B 5S8
Attention: Mr. Douglas G. Renwicke
Fax No.: 416-412-5870
with a copy to:
325 Milner Avenue, Suite 1050
Scarborough, Ontario M1B 5S8
Attention: Mr. Shaul I. Ezer
Vice-President, General Counsel and Secretary
Fax No.: 416-412-5858
<PAGE>
-33-
For Metroland or Torstar:
c/o Torstar Corporation
1 Yonge Street
Toronto, Ontario
M5E 1P9
Attention: Mr. David Wetherald
General Counsel and Secretary
Fax. No.: (416) 869-4183
with a copy to:
Toronto Star Newspapers Limited
1 Yonge Street
Toronto, Ontario
M5E 1E6
Attention: Mr. Rocco Rossi
Vice-President, Strategic Planning & New Media
Fax No.: (416) 865-3618
To CitySearch Canada or CitySearch U.S.A.:
c/o CitySearch, Inc
790 East Colorado Boulevard
Suite 200
Pasadena, California 91101
U.S.A.
Attention: Douglas McPherson, Chief Legal Officer
Fax No.: (626) 405-9929
with a copy to:
Attention: Bradley Ramberg
Chief Financial Officer
Fax No.: (626) 405-9929
or to such other address, electronic communication number or individual as may
be designated by notice given by the General Partner or any Limited Partner to
the others. Any communication shall be conclusively deemed to have been given
on the day of actual delivery thereof if such day is a Business Day and the
communication is delivered or transmitted during the normal business
<PAGE>
-34-
hours of the recipient and on the Business Day during which normal business
hours next occur if given after such hours on any day.
11.9 GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario and the laws of Canada applicable therein.
11.10 LIMITED PARTNER NOT A GENERAL PARTNER
-------------------------------------
In the event that any provision of this Agreement should have the
effect of imposing upon a Limited Partner any of the obligations of the General
Partner, such provision shall be of no force and effect and shall not be part of
this Agreement, but the remainder of this Agreement shall continue in effect.
11.11 COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts with the
same effect as if all the parties hereto had executed the same document. All
counterparts shall be construed together and shall constitute one agreement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement.
1310818 ONTARIO INC.
Per: /s/ D. G. Renwicke
---------------------------------
_____________________________________
TELE-DIRECT (SERVICES) INC.
Per: /s/ D. G. Renwicke
---------------------------------
_____________________________________
<PAGE>
-35-
METROLAND PRINTING, PUBLISHING & DISTRIBUTING LTD.
Per: /s/ David Wetherald
---------------------------------
_____________________________________
CITYSEARCH CANADA INC.
Per: /s/ Michael Barton
---------------------------------
CITYSEARCH, INC.
Per: /s/ Michael Barton
---------------------------------
TORSTAR CORPORATION
Per: /s/ David Wetherald
---------------------------------
_____________________________________
TELE-DIRECT (PUBLICATIONS) INC.
Per: /s/ D. G. Renwicke
---------------------------------
_____________________________________
<PAGE>
EXHIBIT A
PROMISSORY NOTE
---------------
AMOUNT: $[*]CDN) AUGUST 31, 1998
FOR VALUE RECEIVED, the undersigned hereby promises to pay to or to
the order of Toronto.com, a limited partnership, at Toronto, Ontario or such
other place as the Limited Partnership may direct in writing, the sum of [*]
Dollars ($[*]) (the "Principal Amount"), all in lawful money of Canada,
and payable in accordance with, and subject to, the provisions regarding the
payment of such amount set forth in this Promissory Note.
This Promissory Note is issued pursuant to and is subject to certain
provisions of a limited partnership agreement between, among others, 1310818
Ontario Inc., Tele-Direct (Services) Inc., Metroland Printing, Publishing &
Distribution Ltd. and CitySearch Canada Inc., made as of the 31st day of August,
1998 (the "Limited Partnership Agreement"). In the event of any inconsistency
between the terms of this Promissory Note and the terms of the Limited
Partnership Agreement, the terms of the Limited Partnership Agreement shall
govern to the extent of any such inconsistency. All capitalized terms used
herein unless otherwise defined shall have the meaning ascribed thereto in the
Limited Partnership Agreement.
The sum of [*] Dollars ($[*]) of the Principal Amount shall be due and
payable on February 26, 1999 and the sum of [*] Dollars ($[*]) of the Principal
Amount shall be due and payable on May 28, 1999, or on such earlier dates as
determined by the Board of Directors of the General Partner.
The Principal Amount shall bear interest from the date such sums are
due, calculated on the daily balance of such sums. Interest shall be payable
monthly on the last day of each month at Toronto, or at such other place as the
Limited Partnership shall direct in writing, after maturity, default and
judgment, at the rate per annum quoted by Canadian Imperial Bank of Commerce
("CIBC") from time to time as its prime rate for Canadian dollar commercial
loans made in Canada, adjusted automatically from time to time upon change by
CIBC without notice to the undersigned, and interest on overdue interest payable
at the same time, place and rate.
The undersigned waives presentment for payment, notice of dishonour,
notice of non-payment, protest and notice of protest in respect of this
Promissory Note.
The rights or obligations under this Promissory Note may not be
assigned or otherwise transferred.
This Promissory Note shall be governed by and construed in accordance
with the laws of the province of Ontario and the laws of Canada applicable
therein and the undersigned hereby attorns to the jurisdiction of the courts of
the province of Ontario for all purposes relating to this Promissory Note.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-2-
This Promissory Note is binding upon the undersigned and its
successors and permitted assigns and is for the benefit of the Limited
Partnership and its successors and permitted assigns.
DATED this 31st day of August, 1998.
TELE-DIRECT (SERVICES) INC.
By:_____________________________
Its:____________________________
<PAGE>
SCHEDULE A
AREA MAP OF THE EXCLUSIVE TERRITORY
-----------------------------------
[Map of Greater Toronto Area]
<PAGE>
SCHEDULE B
DESCRIPTION OF THE LIMITED PARTNERSHIP'S BUSINESS
-------------------------------------------------
(a) GENERAL. The Limited Partnership's business shall be to develop and
-------
operate local on-line services (with content comprising local news and
information, local events, yellow pages business directories, and with
classified advertising content relating to jobs, automotive, real estate
and other classifications) that facilitate communication and business
transactions for internet users, generating revenue from advertising and
electronic commerce transactions in the Exclusive Territory ("the
Exclusive Territory") described in Schedule A. The Limited Partnership's
business shall include:
- - To create a new entity in the local, online city directory and guide
business to operate as toronto.com
- - Building on the above, to create the best platform of local information
that facilitates communication and business transactions for Internet users
- - This platform will become a focal point for [*]
- - Content for the Toronto area local online directory and guide is not
limited to, but generally includes the following categories:
(a) Yellow Pages (TM) Business Directory (Tele-Direct)
(b) Classified Advertising (Star)
(c) Features and Events
News, Weather, Sports
Arts and Entertainment
Community Information
- - [*]
Note: The Major Limited Partner shall contribute the above elements to
toronto.com royalty-free, subject to any royalty that may have to be paid to a
third party.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
SCHEDULE C
CITIES/REGIONS IN WHICH TORSTAR/METROLAND OPERATE
- -------------------------------------------------
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
[*]
CITIES/REGIONS IN WHICH TELE-DIRECT OPERATES
- --------------------------------------------
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
SCHEDULE D
INPUTS
------
TORSTAR/METROLAND INPUTS
- ------------------------
1) License to use various Torstar affiliate logos and trademarks, including
"The Toronto Star"
2) Reciprocal links from thestar.com and torstar.com
3) Filler ad cross promotion support from Torstar print properties and
Toronto Star Television
4) Piggyback on local promotions - events and sponsorship opportunities
CITYSEARCH INPUTS
- -----------------
Amended and Restated License and Services Agreement dated as of August 31, 1998
Toronto.com Sublicense and Services Agreement dated as of August 31, 1998
TELE-DIRECT INPUTS
- ------------------
1. Yellow Pages Business Listings Data for the Exclusive Territory - Updated
Monthly -Initial and Update
2. 700 Digital Photos of GTA Restaurants
3. 500 Plus Enhanced Restaurants Listings in GTA - Food Type, Dress Code,
etc.
4. License to use Yellow Pages (TM) Logo and Trademark
5. Yellow Pages.ca/PagesJaunes.ca Links (reciprocal)
6. Filler ad Cross Promotion Support from Yellow Pages (TM) Print Business
7. Piggyback on Local Promotion - Events and Sponsorship Opportunities
Note: (1) Item 4 is subject to the Limited Partnership executing the
standard form license agreement in use by Tele-Direct (Publications) Inc., the
owner of the Logo and Trademark.
<PAGE>
(2) Item 1 is subject to restrictions or prohibitions that may be imposed
by the local telephone company or the CRTC.
<PAGE>
SCHEDULE E
LIMITED PARTNERSHIP INTEREST
----------------------------
LIMITED PARTNERSHIP INTERESTS AS OF AUGUST 31, 1998
- ---------------------------------------------------
GENERAL PARTNER
1310818 Ontario Inc. 0.1%
LIMITED PARTNERS
Tele-Direct 44.96%
Metroland 44.96%
CitySearch Canada 9.98%
<PAGE>
EXHIBIT 10.10
AMENDED AND RESTATED
LICENSE AND SERVICES AGREEMENT
BETWEEN
CITYSEARCH INCORPORATED
AND
CITYSEARCH CANADA INC.
INITIALLY DATED AS OF FEBRUARY 17, 1997
AND AMENDED AS OF DECEMBER 31, 1997
AND AMENDED AND RESTATED AS OF AUGUST 31, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE ONE - INTERPRETATION
1.01 Definitions......................................................... 2
1.02 Headings............................................................ 6
1.03 Extended Meanings................................................... 6
1.04 Accounting Principles............................................... 6
1.05 Currency............................................................ 7
1.06 Schedules........................................................... 7
ARTICLE TWO - LICENSE TO CITYSEARCH SYSTEMS
2.01 License to CitySearch Systems....................................... 7
2.02 License to CitySearch Documentation................................. 8
ARTICLE THREE - SERVICES
3.01 Delivery of Materials............................................... 8
3.02 Training Service.................................................... 8
3.03 Consulting Service.................................................. 9
3.04 Customization Service............................................... 9
3.05 Responsibilities of Licensee........................................ 10
ARTICLE FOUR - FEES AND EXPENSES
4.01 [intentionally deleted]............................................. 11
4.02 Initial Service Fee................................................. 11
4.03 Additional Service Fees............................................. 11
4.04 Invoicing........................................................... 11
4.05 Expenses............................................................ 11
4.06 Taxes............................................................... 12
4.07 Disputed Payments................................................... 12
4.08 License Fee......................................................... 12
ARTICLE FIVE - INTELLECTUAL PROPERTY RIGHTS
5.01 Ownership of CitySearch Systems..................................... 13
5.02 Ownership of Content................................................ 13
5.03 Ownership of Work Products.......................................... 13
5.04 Disclosure of Licensee Improvements................................. 15
5.05 Disclosure of Licensor Improvements................................. 15
5.06 Source Codes........................................................ 15
ARTICLE SIX - TRADE-MARKS AND QUALITY STANDARDS
6.01 Grant of License to Trade-Marks..................................... 18
6.02 Ownership of Trade-Marks............................................ 18
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.03 Restrictions on Use of the Trade-marks.............................. 18
6.04 Quality Standards................................................... 18
ARTICLE SEVEN - PROPRIETARY RIGHTS AND CONFIDENTIAL INFORMATION
7.01 Duty of Confidence.................................................. 20
7.02 Protection of Proprietary Rights.................................... 21
7.03 Inspection by Licensor.............................................. 21
7.04 Third Party Information............................................. 22
7.05 Loss of Confidential Information.................................... 22
7.06 Enforcement of Confidentiality Obligation........................... 22
ARTICLE EIGHT - INFRINGEMENT
8.01 Prosecution of Infringement Claims.................................. 22
8.02 Licensor's Defence of Infringement Claims........................... 23
8.03 Licensee's Defence of Infringement Claims........................... 24
ARTICLE NINE - WARRANTIES AND DISCLAIMERS
9.01 Warranty............................................................ 25
9.02 Electronic Access................................................... 26
9.03 Disclaimer of Warranty.............................................. 26
9.04 Limit of Liability.................................................. 26
9.05 Limitation Period................................................... 28
9.06 California Franchise Disclaimer..................................... 28
ARTICLE TEN - TERM AND TERMINATION
10.01 Term................................................................ 28
10.02 Termination......................................................... 28
10.03 Effect of Termination by Licensor................................... 29
10.04 Return of Intellectual Property..................................... 29
10.05 Survival............................................................ 30
10.06 Sale of Limited Partnership Interest................................ 31
ARTICLE ELEVEN - GENERAL
11.01 Further Assurances.................................................. 32
11.02 Public Announcements................................................ 32
11.03 Dispute Resolution.................................................. 33
11.04 Entire Agreement.................................................... 33
11.05 Force Majeure....................................................... 33
11.06 Amendment and Waiver................................................ 33
11.07 Assignment.......................................................... 34
11.08 Notices............................................................. 34
11.09 Governing Law....................................................... 36
</TABLE>
<PAGE>
AMENDED AND RESTATED LICENSE AND SERVICES AGREEMENT
---------------------------------------------------
THIS AGREEMENT IS AN AMENDED AND RESTATED LICENSE AND SERVICES AGREEMENT
initially dated as of February 17, 1997, amended as of December 31, 1997 and
amended and restated as of August 31, 1998;
B E T W E E N:
CITYSEARCH INCORPORATED, a corporation incorporated under the laws of
Delaware (hereinafter referred to as "Licensor")
OF THE FIRST PART,
- and -
CITYSEARCH CANADA INC., a corporation incorporated under the laws of
Ontario (hereinafter referred to as "Licensee"),
OF THE SECOND PART.
WHEREAS Licensor is engaged in the business of providing CitySearch
Information Services (as defined below) in the United States and elsewhere;
AND WHEREAS toronto.com (the "Partnership"), a limited partnership
between Metroland Printing, Publishing & Distributing Ltd. ("Metroland"), Tele-
Direct (Services) Inc. and Licensee has been formed to carry on a CitySearch
Information Service in the Exclusive Territory (as defined below);
AND WHEREAS Licensee is a wholly-owned subsidiary of Licensor and has
requested Licensor to grant to it the License and to provide it with the
Services to enable the Limited Partnership to establish and operate a CitySearch
Information Service in the Exclusive Territory;
NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the
premises and the covenants and agreements herein contained, the parties hereto
agree as follows:
<PAGE>
-2-
ARTICLE ONE - INTERPRETATION
-----------------------------
1.01 DEFINITIONS
-----------
In this Agreement:
(a) "Access Event" has the meaning ascribed to it in Section 5.06(a).
(b) "Additional Service Fees" shall have the meaning ascribed to it in
Section 4.03.
(c) "Affiliate" means an affiliate of a party as determined by the
provisions of the Business Corporations Act (Ontario) as now
enacted or as the same may be from time to time amended, re-
enacted or replaced.
(d) "Agreement" means this agreement, the schedules hereto annexed and
all amendments made hereto by written agreement between the
parties hereto.
(e) "Business Day" means a day other than a Saturday, Sunday or
statutory holiday in Ontario or California.
(f) "CitySearch Business Systems" means the methods of operation,
procedures and standards to implement, maintain, market and
advertise a CitySearch Information Service, described in Schedule
B and all Licensor Improvements thereto.
(g) "CitySearch Documentation" means documentation, however recorded,
which forms part of and which describes the CitySearch Business
Systems and CitySearch Technology Systems and which are provided
by Licensor to Licensee hereunder. For the avoidance of doubt, the
term "CitySearch Documentation" does not include any of the
Licensed Programs.
(h) "CitySearch Information Service" means an on-line service of
providing Content related to restaurants, entertainment, retail
establishments, community events and other services including on-
line ticketing and sale of merchandise pertaining to a particular
city or geographic region which uses the CitySearch Systems.
(i) "CitySearch Systems" means the CitySearch Technology Systems,
CitySearch Business Systems, and related CitySearch Documentation.
<PAGE>
-3-
(j) "CitySearch Technology Systems" means the proprietary software and
tools described in Schedule A and database structures, text and
artwork formats, computer and human interfaces, databases and
other Intellectual Property related thereto and all Licensor
Improvements thereto.
(k) "Confidential Information" means the confidential, secret or
proprietary information of one party (the "Disclosing Party"),
including technical, financial, and business information and
software of the Disclosing Party which has been or may hereafter
be disclosed, directly or indirectly to the other party (the
"Recipient"), either orally, in writing or in any other material
form.
(l) "Consulting Service" means the consulting assistance described in
Section 3.03.
(m) "Content" with respect to a CitySearch Information Service
includes all information, databases, advertisements, text, sound,
photographic images, video and other content which is displayed or
accessible to a consumer using the service. For the avoidance of
doubt, the term "Content" does not include any CitySearch System
or any Improvement thereto.
(n) "Customization Service" means the service described in Section
3.04.
(o) "Direct Competitor" has the meaning ascribed to it in the Limited
Partnership Agreement.
(p) "Designated Location" means the location(s) described in Schedule
C at which the CitySearch Systems must be used and includes such
replacement locations in the Exclusive Territory owned or
controlled by Licensee or any of its Affiliates which are notified
to Licensor in writing by Licensee.
(q) "Effective Date" means August 31, 1998.
(r) "Escrow Agreement" means the agreement described in Section
5.06(a).
(s) "Event of Default" has the meaning ascribed to it in Section
10.02(a).
(t) "Exclusive Territory" shall have the meaning ascribed to it in the
Limited Partnership Agreement.
(u) "Improvements" means, in relation to any technology or
Intellectual Property, changes, modifications, improvements,
enhancements, additions
<PAGE>
-4-
and adaptations to, and derivative works based upon or derived
from, the technology or Intellectual Property.
(v) "Initial Service Fee" shall have the meaning ascribed to it in
Section 4.02.
(w) "Intellectual Property" means all intellectual and industrial
property including without limitation all works in which
copyright subsists or may subsist (such as computer programs,
designs and documentation, data structures, audio-visual
displays, databases, and designs), methods, operational
procedures, specialized techniques, processes, formula, know-how,
trade secrets and confidential information, and discoveries and
inventions.
(x) "Intellectual Property Rights" includes all trade-mark rights and
trade-marks and trade names, patents, copyrights, industrial
design rights, design rights, integrated circuit topography
rights, rights in trade secrets, confidential information and
know-how, applications and registrations for the foregoing, and
other proprietary rights including privacy rights, moral rights,
publicity rights, neighbouring rights, and rights of a similar
nature.
(y) "Jointly Owned Work Products" means the Work Products described
in Section 5.03 (b).
(z) "Launch" means the date when the toronto.com CitySearch
Information Service will be accessible to the public and
"Launched" shall have a corresponding meaning.
(aa) "License" means the license rights conferred upon Licensee
pursuant to Article 2 and Sections 5.06(b) and 6.01.
(bb) "Licensed Programs" means the computer programs forming part of
the CitySearch Technology Systems described in Schedule A.
(cc) "Licensed Trade-Marks" means the words, symbols, icons, logos,
trade-marks and other indicia of origin described in Schedule D.
(dd) "Licensee Improvements" means the Licensee Owned Work Products,
the Jointly Owned Work Products to the extent created by
Licensee, and the Source Modifications.
(ee) "Licensee Owned Work Products" means the Work Products described
in Section 5.03(a).
<PAGE>
-5-
(ff) "Licensor Improvements" means Improvements made by Licensor to
the CitySearch Systems which are owned or controlled by Licensor
and which are made generally available by Licensor to its
Affiliates and other persons to whom it has granted licenses to
use the CitySearch Systems to carry on a CitySearch Information
Service during the term of this Agreement.
(gg) "Licensor Owned Work Products" means the Work Products described
In Section 5.03(e).
(hh) "Limited Partnership Agreement" means an agreement made as of
August 31, 1998, between Licensee, Metroland, Tele-Direct,
1310818 Ontario Inc., Licensor, Tele-Direct Pub. and Torstar
Corporation.
(ii) "Limited Partnership Interest" shall have the meaning ascribed
thereto in the Limited Partnership Agreement.
(jj "Non-Competition Agreement" means an agreement as of August 31,
1998 between Metroland, Toronto Star Newspapers Ltd., Licensee
and Teledirect.
(kk) "Quality Standards" has the meaning ascribed thereto in Section
6.04.
(ll) "Services" means services which are provided by Licensor to
Licensee under this Agreement.
(mm) "Shareholder Agreement" means the Unanimous Shareholder Agreement
made as of August 31, 1998 between Tele-Direct, Metroland,
Licensee and 1310818 Ontario Inc.
(nn) "Source Modifications" has the meaning ascribed thereto in
Section 5.06(b).
(oo) "Tele-Direct" means Tele-Direct (Services) Inc.
(pp) "toronto.com CitySearch Information Service" means a CitySearch
Information Service which contains Content related solely to the
Exclusive Territory as set out in Section 2.01(c).
(qq) "Training Services" means the training services described in
Section 3.02.
<PAGE>
-6-
(rr) "Work Product" means Intellectual Property (other than trade-
marks) originated or developed by either party either alone or
with the assistance of the other party pursuant to this
Agreement.
1.02 HEADINGS
--------
The division of this Agreement into Articles and Sections and the
insertion of headings are for convenience of reference only and shall not affect
the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof", "hereunder" and similar expressions refer to this
Agreement and not to any particular Article, Section or other portion hereof and
include any agreement supplemental hereto. Unless something in the subject
matter or context is inconsistent therewith, references herein to Articles and
Sections are to Articles and Sections of this Agreement.
1.03 EXTENDED MEANINGS
-----------------
In this Agreement words importing the singular number only shall
include the plural and vice versa, words importing any gender shall include all
genders and words importing persons shall include individuals, partnerships,
associations, trusts, unincorporated organizations and corporations. The terms
"provision" and "provisions" refer to terms, conditions, provisions, covenants,
obligations, undertakings, warranties and representations in this Agreement.
The term "includes" or "including" or "such as" shall be construed as meaning
"includes without limitation", "including without limitation" and "such as
without limitation", as the case may be.
1.04 ACCOUNTING PRINCIPLES
---------------------
Wherever in this Agreement reference is made to a calculation to be
made in accordance with generally accepted accounting principles, such reference
shall be deemed to be to the generally accepted accounting principles from time
to time approved by the Canadian Institute of Chartered Accountants, or any
successor institute, applicable as at the date on which such calculation is made
or required to be made. Wherever in this Agreement reference is made to a
calculation to be made in accordance with United States generally accepted
accounting principles, such reference shall be deemed to be to the generally
accepted accounting principles from time to time approved by the American
Institute of Certified Public Accountants, or any successor institute,
applicable as at the date on which such calculation is made or is required to be
made.
<PAGE>
-7-
1.05 CURRENCY
--------
All references to currency herein are to lawful money of Canada. Any
conversion of funds required to enable payments to be made or calculated in
Canadian dollars shall be converted at the spot buying rate for such funds
quoted by the Canadian Imperial Bank of Commerce at its office in Toronto at
approximately noon on the business day immediately preceding the due date of the
payment or calculation, as the case may be.
1.06 SCHEDULES
---------
The schedules to this Agreement are as follows:
Schedule A CitySearch Technology Systems
Schedule B CitySearch Business Systems
Schedule C Designated Locations
Schedule D Licensed Trade-Marks
Schedule E Fee Schedule
1.07 AMENDMENT AND RESTATEMENT
-------------------------
This Amendment and Restatement of the License and Services Agreement
amends the License and Services Agreement, restates and consolidates in one
document dated as of the date hereof the terms and provisions of the License and
Services Agreement as so amended, and represents the entire agreement currently
constituted between the Licensor and the Licensee respecting the subject matter
of the License and Services Agreement.
ARTICLE TWO - LICENSE TO CITYSEARCH SYSTEMS
-------------------------------------------
2.01 LICENSE TO CITYSEARCH SYSTEMS
-----------------------------
(a) Subject to the provisions of this Agreement including the
provisions of Article 10, Licensor hereby grants to Licensee and Licensee hereby
accepts from Licensor a personal, irrevocable, perpetual, non-transferable and
exclusive license to use the CitySearch Systems in the Exclusive Territory
solely for the purpose of establishing and operating the toronto.com CitySearch
Information Service. Notwithstanding the foregoing, the Licensor reserves the
right to, and to authorize other persons to, use the CitySearch Systems at a
site or sites in the Exclusive Territory for the purpose of operating or
establishing CitySearch Information Services for a territory outside the
Exclusive Territory.
(b) The Licensed Programs may be reproduced solely to (i) install same
on computers located at the Designated Location, (ii) for processing of the
machine instructions, statements or data therein, and (iii) as may be necessary
for archival and backup purposes in accordance with Licensee's written archival
and backup policies.
<PAGE>
-8-
(c) The CitySearch Systems may be used only as set out in this
Agreement and Licensee agrees not to make any copies or use thereof other than
as expressly permitted herein. Without limiting the generality of the
foregoing, Licensee agrees to use the CitySearch Systems only in the Exclusive
Territory, at the Designated Location, and for the purpose of providing a
CitySearch Information Service with Content related solely to the Exclusive
Territory. The parties agree that particular Content that relates primarily to
the Exclusive Territory but which also refers to a place or places outside of
the Exclusive Territory will be considered to be Content related solely to the
Exclusive Territory. Licensee agrees not to use the CitySearch Systems for the
purpose of providing any service other than the toronto.com CitySearch
Information Service.
2.02 LICENSE TO CITYSEARCH DOCUMENTATION
-----------------------------------
CitySearch Documentation provided in machine readable form may be
printed and used solely for the purpose of establishing and operating the
toronto.com CitySearch Information Service. No other reproduction or use of the
CitySearch Documentation is permitted.
ARTICLE THREE - SERVICES
------------------------
3.01 DELIVERY OF MATERIALS
---------------------
Licensor agrees to deliver to Licensee by no later than 120 days
following the Effective Date, a technology information package containing a copy
of the materials described in Schedules A and B made generally available by
Licensor to its Affiliates and other persons to whom it has granted licenses to
use the CitySearch Systems to assist them in establishing and operating a
CitySearch Information Service. Except as agreed to pursuant to this Article 3,
Licensor shall not be required to create any computer programs, documentation or
other Intellectual Property for delivery to or use by Licensee.
3.02 TRAINING SERVICE
----------------
Upon the request of Licensee, Licensor agrees to permit employees of
Licensee to attend and participate in management workshops and planning
sessions, sales training sessions and other training sessions provided by
Licensor to its own staff in the course of carrying on its CitySearch
Information Service business (the "Training Services").
<PAGE>
-9-
3.03 CONSULTING SERVICE
------------------
Licensor agrees to provide consulting assistance to Licensee to update
the financial model for the toronto.com CitySearch Information Service.
Licensor also agrees to provide Licensee with other consulting services as
reasonably requested by Licensee (subject to availability of staff of Licensor)
related to the CitySearch Systems and the toronto.com CitySearch Information
Service (all consulting assistance and service provided by CitySearch pursuant
to this Section 3.03 is referred to here as the "Consulting Service").
3.04 CUSTOMIZATION SERVICE
---------------------
(a) The parties acknowledge that there may be a need to customize the
CitySearch Technology Systems to adapt same for use in the toronto.com
CitySearch Information Service such as, for example, customization of
interfaces, design tools, mapping of geographic data and of spellings, phrases
and colloquialisms to conform to norms in the Exclusive Territory. (Any such
customization service provided by Licensor is referred to here as the
"Customization Service"). Licensee shall initiate a request for Customization
Service by submitting a request for Customization Service to Licensor (the
"Request"). Each Request shall contain a description of the specific
Customization Service and the CitySearch System Technology which is the subject
of the Request (the "Project").
(b) Licensor shall submit within a reasonable period of time a reply
to Licensee's Request (the "Work Plan"). Where applicable, the Work Plan will
include the following: (i) a description of the Customization Service to be
performed and the CitySearch Technology Systems to be customized; (ii)
acceptance tests or means proposed for testing the systems delivered at the
completion of the Project; (iii) an implementation schedule which shows the
timeframes for all stages of the Project's development and completion; and where
the costs of the Project will not be paid for in accordance with the fees
schedule set out in Schedule E, the costs of the Project and a schedule of
payments to be made during or at the completion of the Project. For larger
Projects, the Work Plan may provide for a development program of several stages,
such stages, for example, being the production of specifications and completions
of the development of custom changes. If the Customization Service to be
provided will be paid for on a cost plus basis the Work Plan shall, unless
otherwise agreed to by the parties, contain an estimate of the time and cost for
all phases as well as an estimate of the time and cost for the first phase of
the Project.
(c) Neither party shall be bound to proceed with any Project until the
parties have agreed in writing to the terms of the applicable Work Plan.
Licensor and Licensee shall negotiate in good faith the terms of each Work Plan.
At Licensor's discretion, Licensor may notify Licensee that it does not desire
to perform Customization Service requested by Licensee pursuant to Section
3.04(b). Upon receipt of such notice, or in the event the parties are unable to
agree on the terms of a Work Plan after negotiating same in good faith, Licensee
shall be
<PAGE>
-10-
entitled to obtain access to the Source Materials necessary to perform the work
which is the subject of the Request, subject to the provisions of Section 5.06
and the Escrow Agreement.
(d) Licensee shall assist Licensor in the performance of the
Customization Service by making available all equipment, software, documentation
and data, information and personnel described in a Work Plan on a timely basis.
Licensee shall also ensure that those of its personnel who are assigned to
assist Licensor are familiar with Licensee's requirements and have the
expertise and capabilities necessary to permit Licensor to undertake and
complete the Services.
3.05 RESPONSIBILITIES OF LICENSEE
----------------------------
Licensee acknowledges that Licensor shall not be required to:
(i) use its site production management staff and resources to
develop or operate the toronto.com CitySearch Information
Service;
(ii) provide any Training Service, Consulting Service or
Customization Service for any CitySearch Information Service
other than the toronto.com CitySearch Information Service;
(iii) deploy any of its personnel or resources to provide any
services that could substantially change Licensor's own
priorities such as writing additional manuals or scheduling
additional training that ordinarily would not have been
provided by Licensor in the course of conducting its business
in the United States;
(iv) developing or providing any Content;
(v) providing any of Licensor's back office support systems such as
sales tracking, site creation tracking, billing and customer
services;
(vi) providing access to or use of any of Licensor's databases,
servers or other computer or communications hardware or
software, except as provided in Schedule A;
(vii) purchase, lease, license or otherwise provide any hardware or
software, other than as set forth in Schedule A; or
(viii) furnish or license to Licensee any third party software such as
Informix/Illustra, Etak, Perly, Photoshop, Microsoft Word, SQL
Server, Windows 95 and Windows NT, or networking software such
TCP/IP.
<PAGE>
-11-
ARTICLE FOUR - FEES AND EXPENSES
---------------------------------
4.01 [INTENTIONALLY DELETED]
4.02 INITIAL SERVICE FEE
-------------------
Licensee has paid to Licensor a one-time, non-refundable, initial
service fee (the "Initial Service Fee") of [*] dollars ( $[*]) with respect to
Services to be provided by Licensor under this Agreement.
4.03 ADDITIONAL SERVICE FEES
-----------------------
Licensee shall pay to Licensor service fees with respect to
Customization Services, Training Services and Consulting Services. Except as
provided to the contrary in any Work Plan, the said services shall be paid for
in accordance with Schedule E (the "Additional Service Fees"). It is understood
and agreed that Licensor shall be entitled to unilaterally increase the
consulting rates set out in Schedule E by no more than [*]% per annum. In
consideration of the payment by Licensee to Licensor of the Initial Service Fee,
Licensor hereby waives its right to be paid the first [*] dollars ($[*]) of
Additional Service Fees. As of August 31, 1998, $[*] remains to the credit of
Licensee in respect of Additional Service Fees.
4.04 INVOICING
---------
Except as otherwise set forth in a Work Plan, any Additional Service
Fees billed to Licensee will be invoiced regularly once a month in arrears and
will be due and payable within forty-five (45) days of receipt by Licensee. Any
sum due to Licensor that is not paid when due shall bear interest from the due
date thereof to the date of payment at the prime rate plus two percent (2%) per
annum, calculated and payable monthly. For the purpose of this section, the
term "prime rate" means at any time the rate per annum, commonly known as the
prime rate, announced by the Canadian Imperial Bank of Commerce from time to
time, being its reference rate in effect for determining interest rates on
Canadian dollar commercial loans made at Toronto.
4.05 EXPENSES
--------
Licensee agrees to reimburse Licensor for all expenses incurred by it
in connection with travel (including airfare and hotel accommodation) pertaining
to providing Services to Licensee hereunder. The amount to which Licensor shall
be entitled to be reimbursed for travel shall not exceed amounts which have been
approved in advance by Licensee, or amounts generally approved by Metroland for
travel, from time to time, whichever is the greater. Licensee also agrees to
reimburse Licensor for any costs or expenses incurred by it in connection to
rent or lease dedicated communication lines between Licensor and Licensee, and
other out-of-
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-12-
pocket expenses such as expenses for discs, tapes, and other magnetic media
provided by Licensor to Licensee.
4.06 TAXES
-----
All payments to be made to Licensor under this Agreement are exclusive
of all taxes and Licensee shall pay any sales, use, goods and services, personal
property, consumption, value added, or other tax and any duties or tariffs that
now exist or which may arise in the future related to this Agreement or the
performance of the Services or otherwise, except for tax based on the income of
Licensor. Licensee shall be entitled to deduct withholding taxes which may be
imposed by any governmental authority in Canada with respect to Services
performed in Canada otherwise due to Licensor; provided, however, that no such
deduction shall be taken unless Licensee makes payment to the governmental
authority responsible for the collection of such taxes within 30 days of the
month following the month in which the payments are made to Licensor hereunder.
Not less frequently than once each year during the term of this Agreement and
during the year immediately following the termination of this Agreement,
Licensee shall forward to Licensor a copy of any and all correspondence filed
with governmental authorities directly relating to the reporting and/or payment
of withholding taxes due on account of payments made to Licensor hereunder.
Licensee shall provide to Licensor such reasonable assistance as Licensor may
request in connection with any claim by Licensor for a credit or refund of such
withholding taxes.
4.07 DISPUTED PAYMENTS
-----------------
In the event of a dispute between Licensor and Licensee with respect
to any amounts that Licensor claims are owing to it for Services rendered,
Licensee will pay to Licensor all amounts the payment of which is not in
dispute, and all amounts that are the subject of the dispute into an escrow
account structured by agreement of the parties, or as ordered by an arbitrator
pursuant to the dispute resolution procedure described in Section 11.03.
Subject to the provisions of Article 10, Licensor shall continue to perform
agreed to Services during arbitration proceedings pursuant Section 11.03 except
where this Agreement has been terminated in accordance with Article 10, or the
dispute relates (in whole or in part) to amounts that Licensor claims are owing
to it pursuant to this Agreement and Licensee does not pay the disputed amounts
into an escrow account and the amounts not in dispute to Licensor in accordance
with this Section 4.07.
4.08 LICENSE FEE
-----------
Licensee shall pay to Licensor a license fee in the amount of Cdn.
$[*], payable in five equal instalments of $[*] on August 31 in each of 1998
through 2002 inclusive, with no license fees payable thereafter. In the event of
a dissolution of the Limited Partnership for any reason or in the event that
Licensee ceases to hold any Limited Partnership
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-13-
Interest prior to August 31, 2002, Licensee shall immediately pay to Licensor
the unpaid balance of such license fee, discounted at the rate of 15% per annum.
ARTICLE FIVE - INTELLECTUAL PROPERTY RIGHTS
-------------------------------------------
5.01 OWNERSHIP OF CITYSEARCH SYSTEMS
-------------------------------
Nothing herein shall transfer or convey or operate so as to grant to
Licensee any right, title or interest to all or any part of the CitySearch
Systems or any of the Licensed Trade-Marks.
5.02 OWNERSHIP OF CONTENT
--------------------
Nothing herein shall transfer or convey or operate so as to grant to
Licensor any right, title or interest to all or any part of the Content
developed by Licensee for use as part of the toronto.com CitySearch Information
Service.
5.03 OWNERSHIP OF WORK PRODUCTS
--------------------------
Except as otherwise specifically provided in a Work Plan, ownership of
Work Products and the Intellectual Property Rights therein, shall be as follows:
(a) With respect to Work Products developed and prepared solely by
Licensee during the term of this Agreement and which are not Improvements to the
CitySearch Systems (the "Licensee Owned Work Products"), the Intellectual
Property Rights therein shall be and remain the exclusive property of Licensee.
Licensee shall disclose to Licensor the Licensee Owned Work Products and shall,
if requested to do so by Licensor, negotiate in good faith with Licensor a
license to use and to enable Affiliates and other licensees of Licensor to use
the Licensee Owned Work Products in consideration of the payment to Licensee of
a reasonable license fee. Licensor acknowledges that all Licensee Owned Work
Products developed prior to the Effective Date shall be deemed to be the
property of toronto.com.
(b) With respect to Work Products which are: (i) developed and
prepared solely by Licensee during the term of this Agreement or during any
period in which the License in respect of the CitySearch Systems conferred by
Article 2 shall survive termination of the Agreement, and which are Improvements
to the CitySearch Systems, or (ii) developed and prepared jointly by Licensor
and Licensee during the term or following the termination of this Agreement
including Work Products developed and prepared by Licensor or jointly by
Licensor and Licensee in the course of performing Customization Service (the
"Jointly Owned Work Products"), the Intellectual Property Rights therein shall
be jointly owned by Licensor and Licensee as tenants-in-common. Each of
Licensor and Licensee shall have a perpetual, royalty-free and, subject to
Section 5.03(c), assignable license to use the Jointly Owned Work Products
<PAGE>
-14-
in any jurisdiction. Licensee shall provide notice to Licensor as soon as
reasonably practical of commencing work on any such Work Products. Licensor
acknowledges that all Jointly Owned Work Products developed prior to the
Effective Date shall be deemed to be jointly owned by Licensor and toronto.com
as tenants-in-common.
(c) Licensee agrees that during the term of this Agreement and
thereafter for as long as any copyright or other Intellectual Property Right
subsists in Canada or the United States in the Jointly Owned Work Products that
it will not authorize or permit any other person to use the Jointly Owned Work
Products to provide, operate, manage or carry on an on-line city guide
information and/or ticketing or merchandising service, provided that to the
extent that such Jointly Owned Work Products (i) are developed and prepared
solely by Licensee and (ii) do not include or constitute changes, modifications,
improvements, enhancements, additions and adaptions to, and derivative works
based upon or derived from the source codes forming part of the CitySearch
Systems (the "Stand Along Products") the following shall apply. During the term
of this Agreement, Licensee shall be entitled to sublicense its rights to the
Stand Alone Products for use in Canada to any entity in which it has an
ownership interest of not less than 25% (a "Substantial Interest"). During the
term of this Agreement, Licensee shall be entitled to sublicense its rights to
Stand Alone Products for use outside of Canada to any entity in which it has a
Substantial Interest unless Licensor has a market presence in the intended area
of use or has previously entered into an exclusive license with respect to the
CitySearch Systems in such area. For such purposes, in the event Licensor
wishes to grant such a sublicense outside of Canada, it shall give Licensee
prior notice of such intention and it shall be the responsibility of Licensor to
reasonably demonstrate such a market presence or grant of a pre-existing
exclusive license within 7 Business Days, failing which Licensee shall be
entitled to proceed with the grant of a sublicense. After any dissolution of
toronto.com or upon any sale by Tele-Direct or Metroland of its Limited
Partnership Interest, such limited partners shall have the same rights and be
subject to the same obligations as Licensee under this Section 5.03(c). Subject
to the foregoing and to Licensee's obligations under the Non-Competition
Agreement, Licensee shall have the right to, and to authorize others to, make
changes, modifications and enhancements (but not other adaptations or derivative
works which Licensee agrees not to make) to the Jointly Owned Work Products and
to reproduce and commercially exploit same without any obligation to obtain the
consent of or to account to Licensor with respect to the said activities. The
parties agree that any changes, modifications or enhancements made to the
Jointly Owned Work Products by Licensee during the term of this Agreement or
during any period in which the License in respect of the CitySearch Systems
conferred by Article 2 shall survive a termination of the Agreement, shall be
considered to be Jointly Owned Work Products. Provided, however, nothing in
this Section 5.03 authorizes Licensee to use or reproduce any CitySearch Systems
or to commercially exploit or embed same in connection with the commercial
exploitation of the Jointly Owned Work Products. The parties agree that
Improvements made to the Jointly Owned Work Products by Licensor shall be
considered to be Licensor Owned Work Products.
(d) Subject to Licensor's obligations under the Non-Competition
Agreement, Licensor shall have the right to, and to authorize others to, make
Improvements to the Jointly
<PAGE>
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Owned Work Products and to reproduce and commercially exploit same without any
obligation to obtain the consent of or to account to Licensee with respect to
the said activities.
(e) With respect to all Work Products developed and prepared solely by
Licensor during the term of this Agreement (the "Licensor Owned Work Products"),
the Intellectual Property Rights therein shall be and remain the exclusive
property of Licensor. Such Work Products shall be considered to be CitySearch
Systems for all purposes herein which Licensee shall have the right to use
pursuant to Article 2 during the term of this Agreement.
5.4 DISCLOSURE OF LICENSEE IMPROVEMENTS
-----------------------------------
Licensee will promptly inform Licensor of any and all Licensee
Improvements. Upon request, Licensee agrees to furnish Licensor with copies of
all Intellectual Property including source codes and technical documentation
related thereto, provided, however, that Licensee shall not be required to
deliver to Licensor the source codes to Licensee Owned Work Products unless
Licensee agrees to do so pursuant to an agreement reached by the parties
pursuant to Section 5.03(a).
5.5 DISCLOSURE OF LICENSOR IMPROVEMENTS
-----------------------------------
Licensor will promptly inform Licensee of Licensor Improvements. Upon
request, Licensor will furnish Licensee with copies of the Intellectual Property
related thereto.
5.6 SOURCE CODES
------------
(a) Except as may be otherwise provided in a Work Plan, Licensor shall
not be required to disclose to Licensee the source codes, models, or other high
level language versions of any computer programs forming part of the CitySearch
Systems. However, within sixty (60) days of the Effective Date, Licensor agrees
to establish an escrow agreement (the "Escrow Agreement") with an independent
source code agent with respect to the source codes to the CitySearch Technology
Systems (including the Licensed Programs) delivered to Licensee during the term
of this Agreement (the "Source Materials"). The Escrow Agreement shall contain
an expeditious dispute resolution procedure to resolve disputes arising under
the agreement. The escrow agreement will contain a release provision entitling
Licensee to obtain access to the Source Materials upon the following events
(each event is referred to here as an "Access Event") (i) Licensor going out of
business of establishing and operating CitySearch Information Services, (ii)
Licensor's material failure to comply with its obligations under Section 9.01(a)
that results in Licensee being materially inhibited in its ability to utilize
the CitySearch Systems if Licensee shall have given written notice to Licensor
of such breaches in sufficient detail to enable Licensor to reproduce the
problems experienced by Licensee and confirm that Licensee's inability to use
the Licensed Programs is due to Licensor's failure to comply with its
obligations under Section 9.01(a), and Licensor shall not have substantially
remedied (or provided Licensee with a work-around for) such breaches within ten
(10) days in the case of the
<PAGE>
-16-
toronto.com CitySearch Service being unavailable to the public due to such
breaches, or within thirty (30) days after receiving such notice in all other
cases, (iii) an event described in Section 3.04(c) entitling Licensee to release
of Source Materials shall have occurred, (iv) Licensor shall be in material
breach of any significant delivery obligation undertaken pursuant to a Work Plan
agreed to pursuant to Section 3.04 that results in Licensee being materially
inhibited in its ability to Launch the toronto.com CitySearch Information
Service or to make changes or modifications thereto once Launched, if Licensee
shall have given written notice to Licensor containing complete particulars of
such breaches, and Licensor shall not have substantially remedied such breaches
or provided Licensee with a reasonable plan of remediation within five (5)
Business Days after receiving such notice, (v) Licensor does not provide
Licensee with any Improvements to the CitySearch Systems for a period of over
two (2) years from the Effective Date, (vi) Licensor shall have failed pursuant
to Section 10.06(v) to have negotiated with Licensee in good faith and on
commercially reasonable terms the license and services described in Section
10.06(v), or (vii) Licensor is in a material breach of its obligations under
Section 8.02 and Licensee shall have given written notice to Licensor of such
breach and requested Licensor to provide it with the Source Materials applicable
to the component (or components) of the CitySearch Systems which are the subject
of the Claim to enable Licensee to modify the applicable CitySearch System to
make it non-infringing and within thirty (30) days of receiving the notice (or
within ten (10) days of receiving the notice in the event Licensee is enjoined
by a count from using the CitySearch Systems) Licensor has not substantially
remedied such breach or provided Licensee with a reasonable plan of remediation,
subject to compliance with the other terms and conditions of the Escrow
Agreement including those related to the release of the Source Materials and the
maintenance thereof in confidence by Licensee. To be effective, any notice
delivered to Licensor under this Section 5.06 must make reference to this
Section 5.06 and warn Licensor that Licensee intends to obtain a release of the
Source Materials from escrow if the Access Event is not remedied.
(b) Upon the occurrence of an Access Event and Licensee's entitlement
to receive Source Materials pursuant to the Escrow Agreement, Licensee shall be
entitled to receive the entirety of the Source Materials in connection with the
Access Events described in Section 5.06(a)(i), (v), or (vi) and in connection
therewith Licensee shall have and Licensor hereby grants to Licensee a personal,
non-transferable, and non-exclusive license in the Exclusive Territory to make
changes, modifications and enhancements to the Source Materials. Upon the
occurrence of any of the Access Events described in Sections 5.06(a)(ii), (iii),
(iv) or (vii) and Licensee's entitlement to receive Source Materials pursuant to
the Escrow Agreement, Licensee shall be entitled to receive that portion of the
Source Materials which is necessary to remedy or to carry out the work which is
the subject of the Access Event and in connection therewith, Licensee shall have
and Licensor hereby grants to Licensee a personal, non-transferable, and non-
exclusive license in the Exclusive Territory to make changes, modifications and
enhancements to the Source Materials for the applicable purpose. In the event of
any dispute between Licensee and Licensor as to the Source Materials which are
required to be released pursuant to this Section, the dispute shall be resolved
pursuant to the dispute resolution procedure set out in the Escrow Agreement or,
upon the consent of the parties, the dispute resolution procedure described in
<PAGE>
-17-
Section 11.03. The changes, modifications and enhancements made by Licensee to
the Source Materials (the "Source Modifications") shall be deemed to be Jointly
Owned Work Products created by Licensee. Nothing herein shall transfer or convey
or operate so as to grant to Licensee any right, title or interest to all or any
part of the Source Materials and Licensee's use thereof shall continue only for
as long as Licensee has the right to use the Licensed Programs pursuant to
Article 2.
(c) In the event the Source Materials are released or disclosed to
Licensee, Licensee shall maintain the Source Materials and all information
related thereto in the strictest of confidence and may only use same by its
employees and by contractors who are not Direct Competitors of Licensor and who
do not provide, operate, manage or carry on an on-line city guide information
and/or ticketing or merchandising service, provided that all persons to whom
access is given have agreed in writing with Licensee, and have undertaken to
Licensor, to maintain the Source Materials and all information related thereto
in the strictest of confidence and to use same only as permitted in this Section
5.06.
(d) Licensee agrees to keep written records of the access or use by
it of the Source Materials. In particular, Licensee shall keep written records
of the names of individual persons, dates, times, and places in which the Source
Materials have been used or accessed. Licensor will be entitled at reasonable
times and upon reasonable notice to Licensee to inspect such written records
related to the Source Materials pursuant to this Section 5.06.
(e) Licensee acknowledges and agrees that Licensor will suffer
irreparable injury if Licensee breaches any of the provisions of this Section
5.06 and that the damages suffered by Licensor would be an inadequate remedy in
respect of such breach. Licensee hereby agrees in advance, that in the event of
such breach, that Licensor shall be entitled, in addition to such other
remedies, damages and relief as may be available under applicable law, to the
granting of injunctive relief to restrain and to require Licensee to comply with
its obligations under this Section 5.06.
ARTICLE SIX - TRADE-MARKS AND QUALITY STANDARDS
-----------------------------------------------
6.01 GRANT OF LICENSE TO TRADE-MARKS
-------------------------------
(a) Licensor hereby grants to Licensee, and Licensee hereby accepts
from Licensor, a personal, non-exclusive, non-transferable license during the
term of this Agreement to use the Licensed Trade-Marks solely in conjunction
with the toronto.com CitySearch Information Service.
(b) During the term of this Agreement, Licensor agrees not to use the
Licensed Trade-Marks in conjunction with a CitySearch Information Service
pertaining to the Exclusive Territory or to license any other person to do so,
without Licensee's prior written
<PAGE>
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consent. However, nothing herein shall prevent Licensor or persons authorized by
Licensor from using the Licensed Trade-Marks to market, advertise or promote the
toronto.com CitySearch Information Service or to operate other CitySearch
Information Services.
6.02 OWNERSHIP OF TRADE-MARKS
------------------------
Licensee acknowledges that all goodwill associated with Licensee's use
of the Licensed Trade-Marks will enure to the exclusive benefit of Licensor.
Licensee agrees that it will not challenge the validity or ownership or
Licensor's right to use the Licensed Trade-Marks. Licensee also agrees that it
will not apply for registration of any of the Licensed Trade-Marks, or any
substantially similar mark, in the Exclusive Territory or outside the Exclusive
Territory, either during or after the term of this Agreement.
6.03 RESTRICTIONS ON USE OF THE TRADE-MARKS
--------------------------------------
Licensee agrees to comply with all instructions and requirements
provided by Licensor in writing to Licensee with respect to the use of the
Licensed Trade-Marks from time to time. Licensee will not make any use of the
Licensed Trade-Marks including any use over any network until Licensor has
approved such use in writing. Licensee agrees not to use the Licensed Trade-
Marks, or any variation thereof, as a corporate name or trade name of Licensee
or any affiliate of Licensee, without Licensor's prior written consent.
6.04 QUALITY STANDARDS
-----------------
(a) Licensee acknowledges that high standards of quality are required
for the operation of the toronto.com CitySearch Information Service to maintain
the good public image and reputation of the Licensed Trade-Marks and the
business of Licensor and Licensee agrees to maintain such standards. Without
limiting the generality of the foregoing, Licensee agrees:
(i) subject to the right of the management of the Limited
Partnership to determine the "look and feel" of toronto.com
following consultation with Licensor, to comply with all
policies, standards and specifications established from
time to time by Licensor and notified to Licensee in
writing for the establishment and operation of a CitySearch
Information Service including those related to navigational
layouts, hierarchical maps and the use of trade-marks and
logos;
(ii) to implement and enforce the policies and procedures
adopted by Torstar Corporation for the operation of its
electronic publishing
<PAGE>
-19-
business and those of its Affiliates (or replacement
policies and procedures agreed to in writing by the
parties) (the "Offensive Content Standards"); to ensure
that the Content which is displayed or accessible to
consumer(s) using the toronto.com CitySearch Information
Service will not be obscene, indecent, pornographic or
offensive or be defamatory of any person, or infringe upon
or violate any Intellectual Property Right of any person;
and, to promptly delete from the service any such Content
or Content which contravenes the Offensive Content
Standards;
(iii) that the toronto.com CitySearch Information Service will be
available to consumers 7 days a week, 24 hours a day,
subject only to scheduled maintenance and system failures
which could not have been reasonably avoided by Licensee;
(iv) to conduct the toronto.com CitySearch Information Service
in a manner that will reflect favourably on the good name
and reputation of Licensor and its business of providing
CitySearch Information Services, and refrain from engaging
in any unfair, or deceptive trade practice, or unethical
business practice whatever, or practice that could
unfavourably reflect upon Licensor or the CitySearch
Information Services provided by Licensor; and
(v) to comply with all applicable laws, regulations, and
ordinances and obtain all necessary licenses, permits and
consents pertaining to or required for the establishment
and operation of the toronto.com CitySearch Information
Service including consents from persons with any
Intellectual Property Right in any Content used or
displayed in the provision of the Toronto Star Information
Service (the requirements set out in this Section 6.04(a)
are referred to here as the "Quality Standards").
(b) Prior to Launching the toronto.com CitySearch Information
Service, Licensee shall demonstrate to the reasonable satisfaction of Licensor
that the service meets all of the Quality Standards.
(c) Licensor, either by itself or through third parties (provided
that such third parties have entered into confidentiality agreements acceptable
to Licensee), shall have the right to test the toronto.com CitySearch
Information Service provided from time to time by Licensee. In connection with
the foregoing, Licensee agrees to provide Licensor with access to the Designated
Locations from which the service is provided, subject to the reasonable security
and confidentiality requirements of Licensee. In the event the Quality
Standards are not complied with, Licensee, if requested to do so in writing by
Licensor, shall cease to use the Licensed
<PAGE>
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Trade-Marks until such time as Licensee can demonstrate to the reasonable
satisfaction of Licensor that the service meets or exceeds the Quality
Standards, if Licensor shall have given written notice to Licensee describing in
reasonable detail the failures of the Toronto Star CitySearch Service to meet
the Quality Standards and such breach shall not have been remedied by Licensee
within thirty (30) days after receipt of such written notice.
(d) Licensee assumes all responsibility and liability for loss or
damage caused by or attributable to the toronto.com CitySearch Information
Service, however caused. Licensee agrees to indemnify and hold harmless Licensor
and its Affiliates and their officers, directors, employees and agents from any
and all claims, damages, liabilities and costs, including reasonable legal fees
and disbursements, which Licensor or any of the said persons shall suffer or
incur as a result of the failure of Licensee to meet the Quality Standards or
the operation of the toronto.com CitySearch Information Service.
Notwithstanding the foregoing, Licensee shall not be responsible for, and shall
have no liability to indemnify Licensor hereunder for, any claim, damage,
liability or cost to the extent that it is caused by Licensor or the failure of
the CitySearch Systems to operate as described in Section 9.01.
ARTICLE SEVEN - PROPRIETARY RIGHTS
AND CONFIDENTIAL INFORMATION
----------------------------
7.01 DUTY OF CONFIDENCE
------------------
(a) Each of Licensee and Licensor acknowledges that Confidential
Information will be exchanged between them pursuant to this Agreement. Each of
Licensee and Licensor shall use no less than the same means it uses to protect
its similar confidential and proprietary information, but in any event not less
than commercially reasonable means, to prevent the disclosure and to protect the
confidentiality of the Confidential Information of the other. Each of Licensee
and Licensor agrees that, except as provided herein, it will not use the
Confidential Information of the other except for the purposes of this Agreement
and as authorized herein.
(b) Licensee shall not disclose, provide, or make the CitySearch
Systems or any part thereof available in any form or medium to any person except
to its employees, and to contractors and consultants of Licensee approved in
writing by Licensor with a need for access to enable Licensee to exercise its
license rights under this Agreement. All persons to whom access is given shall
execute a confidentiality agreement in a form to be approved by Licensor.
(c) Notwithstanding section 7.01(a), the Recipient of Confidential
Information may use or disclose the Confidential Information to the extent that
the Recipient can show that such Confidential Information is (i) already known
by the Recipient without an obligation of confidentiality, (ii) publicly known
or becomes publicly known through no unauthorized act of the Recipient, (iii)
rightfully received from a third party, (iv) independently
<PAGE>
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developed by the Recipient without use of the information of the Disclosing
Party, (v) approved by the Disclosing Party for disclosure, or (vi) required to
be disclosed pursuant to a requirement of a governmental agency or law so long
as the Recipient provides the other party with notice of such requirement prior
to any such disclosure and takes all reasonable steps available to maintain the
information in confidence.
7.02 PROTECTION OF PROPRIETARY RIGHTS
--------------------------------
(a) On all authorized copies of the CitySearch Systems and Source
Materials Licensee shall make and include all proprietary, copyright, patent,
trade-mark, design right and trade secret legends and alphanumeric codes, in the
same form and location as the legends appearing on the CitySearch Systems and
Source Materials. Further, Licensee shall not remove any proprietary,
copyright, patent, trade-mark, design right or trade secret legends from the
CitySearch Systems or Source Materials.
(b) Licensee agrees not to disassemble, decompile, translate or
convert into human readable form or into another computer language, reconstruct
or decrypt, or reverse engineer, all or any part of the CitySearch Systems.
7.03 INSPECTION BY LICENSOR
----------------------
Licensee agrees to provide Licensor with reasonable access to the
Designated Locations where the CitySearch Systems and Source Materials are used
for the purpose of enabling Licensor to verify that the CitySearch Systems and
Source Materials are and have been used in compliance with the provisions of
this Agreement. Licensor agrees to give Licensee reasonable notice of its
intention to make the aforesaid investigation.
7.04 THIRD PARTY INFORMATION
-----------------------
Neither Licensee nor Licensor shall disclose to the other any
proprietary, confidential, secret, or private information of any third person
which it is under a duty not to disclose.
7.05 LOSS OF CONFIDENTIAL INFORMATION
--------------------------------
In the event of any unauthorized disclosure or loss of, or inability
to account for, Confidential Information of the Disclosing Party, the Recipient
will notify the Disclosing Party immediately.
<PAGE>
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7.06 ENFORCEMENT OF CONFIDENTIALITY OBLIGATION
-----------------------------------------
Each of Licensee and Licensor acknowledges and agrees that irreparable
injury may result to the other if it breaches the provisions of this Article and
that damages may be an inadequate remedy in respect of such breach. Each of
Licensee and Licensor hereby agree in advance that, in the event of such breach,
the other of them shall be entitled, in addition to such other remedies, damages
and relief as may be available under applicable law, to the granting of
injunctive relief in such party's favour.
ARTICLE EIGHT - INFRINGEMENT
----------------------------
8.01 PROSECUTION OF INFRINGEMENT CLAIMS
----------------------------------
(a) The parties shall as soon as possible notify each other in writing
of any actual, alleged, or threatened infringements or other unauthorized uses
of the CitySearch Systems or the Licensed Trade-Marks in conjunction with a
CitySearch Information Service pertaining to the Exclusive Territory (the
foregoing are referred to here as "Infringements") of which they become aware.
Licensor may, but is not required to, take any and all actions, legal or
otherwise, which are necessary to terminate or prevent Infringements. Licensee
shall have the right to be kept informed of the status and progress of all
actions instituted by Licensor pursuant to this section 8.01(a). Licensee
agrees to comply with all reasonable requests for assistance from Licensor in
connection with Infringements. Licensor agrees to reimburse Licensee for its
costs of providing such assistance, provided that Licensee gives Licensor a
written estimate of the costs to be incurred and provided further that the costs
for which reimbursement are sought do not exceed the estimate. Licensor shall
bear all expenses of all actions which it initiates pursuant to this section
8.01(a).
(b) If Licensor does not institute an action within thirty (30) days
after receiving notice from Licensee of an Infringement and a request by
Licensee to commence an action to terminate the Infringement itself, then
Licensee may institute an action with respect thereto only upon receiving the
prior written consent of Licensor, which consent will not be unreasonably
refused. Licensee agrees that if any of the Licensed Trade-Marks are not owned
by Licensor that Licensor may not be able to consent to Licensee's instituting
any action with respect thereto. Licensee shall have no right hereunder to
commence any action with respect to any Infringements which do not pertain to
the use of the CitySearch Systems or the Licensed Trade-Marks, in connection
with a CitySearch Information System pertaining to the Exclusive Territory.
Licensor shall have the right to be kept informed of the status and progress of
all such actions instituted by Licensee pursuant to this section 8.01(b).
Licensee shall bear all the expenses of all actions which it initiates pursuant
to this section 8.01(b), including without limitation all legal fees and
disbursements which Licensor may incur in connection with such actions
regardless of whether Licensor is a party to such action and Licensee shall
indemnify and hold Licensor harmless with respect to such costs. Licensor
agrees to comply with all reasonable
<PAGE>
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requests for assistance from Licensee in connection with actions instituted by
Licensee under this Section. Licensee agrees to reimburse Licensor for its costs
of providing such assistance, provided that Licensor gives Licensee a written
estimate of the costs to be incurred and provided further that the costs for
which reimbursement are sought do not exceed the estimate.
(c) In the event Licensee and Licensor jointly agree to institute an
action to terminate or prevent Infringements, Licensee and Licensor shall
jointly control any such proceedings and shall develop mutually satisfactory
procedures for prosecuting the said action.
(d) Unless otherwise provided for herein, any recoveries or settlement
fees received from suits or settlements involving an action initiated pursuant
to section 8.01(a) or (b) shall be paid to the party which initiated such suit
or action in accordance with Section 8.01(a) or (b), and shall be for such
party's own use and benefit. Any recoveries or settlement fees received from
suits or settlements involving an action initiated pursuant to section 8.01(c)
shall, unless otherwise agreed to by the parties in writing, be to the joint
benefit of Licensor and Licensee after payment of all expenses (including all
legal fees).
8.02 LICENSOR'S DEFENCE OF INFRINGEMENT CLAIMS
-----------------------------------------
(a) Licensor will defend or (at its option) settle, any claim or
action brought against Licensee to the extent that it is based on a claim that
the CitySearch Systems infringes any copyright, patent, trade secret, trademark
or contractual right enforceable in Canada or the United States of any third
person (a "Claim") and indemnify Licensee against damages and costs awarded
against Licensee by a court of competent jurisdiction by final order from which
no appeal is taken or the time for appealing has expired; provided that Licensee
notifies Licensor promptly in writing of same; and provided further that
Licensee permits Licensor thereof to defend, compromise or settle the Claim, and
at Licensor's expense provides all available information, assistance and
authority to enable Licensor to do so. Licensor shall be responsible for paying
for any compromises or settlements with respect to Claims, provided that
Licensor shall not be liable to reimburse Licensee for any compromise or
settlement made by Licensee without Licensor's prior written consent. Licensor
shall not be liable to reimburse Licensee for any legal fees or expenses
incurred by Licensee in connection with any Claim. Licensee shall have no
authority to settle any Claim on behalf of Licensor.
(b) Should the CitySearch Systems or any part thereof become, or in
Licensor's sole opinion be likely to become, the subject of a claim of
infringement, misappropriation, or violation of any Intellectual Property Right
(an "Infringement Claim") Licensor shall (i) procure for Licensee, at no cost to
Licensee the right to continue to use the CitySearch System or component which
is the subject of the Infringement Claim, (ii) replace or modify the CitySearch
System (or the component thereof which is the subject of the Infringement Claim)
at no cost to Licensee with a functionally equivalent system or component, or
(iii) if none of the forgoing alternatives are reasonably practical in
Licensor's sole judgement, if requested
<PAGE>
-24-
to do so by Licensee remove the component that is the subject of the
Infringement Claim and refund all license fees paid by Licensee related to such
component.
(c) Licensor shall have no liability for any Claim to the extent that
it is based on (i) the use of other than the latest release and version of any
Intellectual Property provided to Licensee, (ii) the use or combination of the
CitySearch Systems with software, hardware or any other product not provided by
Licensor or recommended or approved in writing by Licensor, or (iii) any
Licensee Improvement to the CitySearch Systems or use of the CitySearch Systems
other than as authorized herein or as described or recommended by Licensor in
the CitySearch Documentation.
(d) Except as expressly provided herein, this Section 8.02 states the
entire liability of Licensor and Licensee's sole remedies with respect to any
Infringement Claim.
8.3 LICENSEE'S DEFENCE OF INFRINGEMENT CLAIMS
-----------------------------------------
(a) Licensee will defend or (at its option) settle, any claim or
action brought against Licensor to the extent that it is based upon a claim that
any Licensee Improvement or Content displayed or accessible to consumers using
the toronto.com CitySearch Information Service infringes or violates an
Intellectual Property Right or contractual right enforceable in Canada or the
United States (a "Claim") of any third person and indemnifies Licensor against
damages and costs awarded against Licensor by a court of competent jurisdiction
by final order from which no appeal is taken or the time for appealing has
expired, provided that Licensor notifies Licensee promptly in writing of same;
and provided further that Licensor permits Licensee to defend, compromise or
settle the Claim and at Licensee's expense provides all available information,
assistance and authority to enable Licensee to do so. Licensee shall be
responsible for paying for any compromises or settlements with respect to
Claims, provided that Licensee shall not be liable to reimburse Licensor for any
compromise or settlement made by Licensor without Licensee's prior written
consent. Licensee shall also not be liable to reimburse Licensor for any legal
fees or expenses incurred by Licensor in connection with any Claims. Licensor
shall have no authority to settle any Claim on behalf of Licensee.
(b) Licensee shall have no liability for any Claim to the extent that
it is based on any Improvement made by Licensor to the Licensee Improvement or
Content, or for the use thereof other than related to a CitySearch Information
Service.
(c) Except as otherwise provided herein, this Section 8.03 states the
entire liability of Licensee and Licensor's sole remedies with respect to any
Claim.
<PAGE>
-25-
ARTICLE NINE - WARRANTIES AND DISCLAIMERS
-----------------------------------------
9.01 WARRANTY
--------
(a) During the term of this Agreement, Licensor will make commercially
reasonable efforts to correct or provide Licensee with a workaround for the
failure of the CitySearch Systems to conform in all material respects to the
description thereof in the CitySearch Documentation and provide Licensee with
replacement media in the event there are defects in materials or workmanship in
the media upon which the CitySearch Systems are provided. Licensor shall,
within 120 days of implementation of such a workaround, implement a permanent
solution for such failure. Licensor shall have no obligations under this
Section 9.01 with respect to any changes, modifications or enhancements made by
Licensee to the CitySearch Systems or to any part of the CitySearch Systems
affected by any such changes, modifications or enhancements, except as may be
specifically agreed to by Licensor and Licensee in a Work Plan or other
agreement of the parties in writing.
(b) Licensor warrants to Licensee that all Services will be performed
with reasonable skill and care and by persons qualified to provide the Services.
Licensor also warrants that to its knowledge, the Licensed Programs do not
contain any viruses, locks or codes which are intended to interfere with their
use.
(c) In the event of Licensor's material failure to comply with its
obligations under Section 9.01(a) that results in the Toronto Star CitySearch
System being unavailable to the public after the Launch and Licensee having
given written notice of same to Licensor in sufficient detail to enable Licensor
to reproduce the problems experienced by Licensee, Licensor agrees that if such
problems are not substantially remedied (or a work-around provided to Licensee
therefor) within two (2) days following receipt of the notice, that Licensor
will, if requested to do so by Licensee and subject to Licensor's security and
confidentiality requirements, permit up to two (2) members of Licensee's
technical staff to access the Source Materials pertaining to the problem at the
business premises of Licensor to assist Licensor in resolving the problem.
9.02 ELECTRONIC ACCESS
-----------------
Licensee agrees to provide Licensor with access to the computer upon
which the CitySearch Systems are installed, used, or accessed, to perform its
obligations hereunder, subject to compliance with Licensee's security and
confidentiality policies. Access to the said systems shall include access by
physical and direct remote electronic access means. To facilitate such access,
Licensee agrees to establish and maintain, at its own expense, during the term
of this Agreement all reasonable communication equipment and related software
and other items reasonably requested by Licensor to enable Licensor to access
and use the said systems. The remote electronic access shall be available at all
times (twenty-four (24) hours seven (7) days a
<PAGE>
-26-
week), except for scheduled maintenance and downtimes due to failures of the
systems. Licensee shall also reimburse Licensor for its costs of establishing
and maintaining electronic links with Licensee including without limitation any
equipment purchased by Licensor specifically to provide Services to Licensee
hereunder and, monthly line charges.
9.03 DISCLAIMER OF WARRANTY
----------------------
(a) LICENSOR EXPRESSLY DISCLAIMS ALL REPRESENTATIONS, WARRANTIES AND
CONDITIONS EXPRESS OR IMPLIED NOT CONTAINED HEREIN, INCLUDING REPRESENTATIONS,
WARRANTIES AND CONDITIONS OF QUALITY, PERFORMANCE, MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE, TITLE AND THOSE ARISING BY STATUTE OR OTHERWISE IN LAW OR
FROM A COURSE OF DEALING OR USE OF TRADE. LICENSOR DOES NOT REPRESENT OR
WARRANT THAT (I) THE OPERATION OF THE CITYSEARCH SYSTEMS WILL BE ERROR FREE OR
UNINTERRUPTED OR (II) ALL PROGRAMMING ERRORS CAN BE CORRECTED OR FOUND IN ORDER
TO BE CORRECTED.
(b) Licensee is responsible for taking precautionary measures to
prevent the loss or destruction of Content such as, for example, making regular
backups and verifying the results obtained from using the CitySearch Systems.
9.04 LIMIT OF LIABILITY
------------------
(a) For breach or default by Licensor of any of the provisions of this
Agreement, or in respect of any claim arising herefrom or related hereto,
Licensor's entire liability, regardless of the form of action, whether based on
contract or tort, including negligence, shall be the direct damage suffered by
Licensee up to a limit which shall in no event exceed: (i) subject to the
provisions of subparagraphs (ii) and (iii), for any claim arising herefrom or
related hereto the sum of [*] dollars ($[*]), (ii) for any claim pertaining to
Services provided or not provided by Licensee where the cause of action arises
after the Launch of the toronto.com City Search Information Service, the amount
paid by Licensee to Licensor in respect of the specific Services which are the
subject of the claim, or (iii) in the aggregate in respect of all claims under
or related to this Agreement, the sum of [*] dollars ($[*]). Licensor's
liability for death or personal injury arising from either the negligence of
Licensor or its employees while acting in the course of their employment shall
in no event exceed the sum of [*] ($[*]) dollars. The limitation of liability in
this Section 9.04(a) shall not apply to any claim to the extent that the claim
is based upon a breach or default by Licensor of Sections 5.06(a) (Licensor's
refusal to establish an Escrow Agreement with an independent Source Code agent
as required in Section 5.06(a)) 7.01 or 8.02.
(b) IN NO EVENT WILL EITHER PARTY BE LIABLE FOR SPECIAL, INCIDENTAL,
INDIRECT, OR CONSEQUENTIAL LOSS OR DAMAGE,
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-27-
LOST BUSINESS REVENUE, LOSS OF PROFITS, LOSS OF DATA, FAILURE TO REALIZE
EXPECTED PROFITS OR SAVINGS OR ANY CLAIM AGAINST THE OTHER PARTY BY ANY OTHER
PERSON (EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH LOSS
OR DAMAGE). THE LIMITATION OF LIABILITY IN THIS SECTION 9.04(B) SHALL NOT APPLY
TO ANY CLAIM TO THE EXTENT THAT THE CLAIM IS BASED UPON A BREACH OR DEFAULT BY
LICENSEE OF ARTICLES 2, 5, OR 6, OR SECTIONS 7.01, 7.02, OR 8.03. THE LIMITATION
OF LIABILITY IN THIS SECTION 9.04(B) SHALL NOT APPLY TO ANY CLAIM TO THE EXTENT
THAT THE CLAIM IS BASED UPON A BREACH OR DEFAULT BY LICENSOR OF SECTIONS 5.06(A)
(LICENSOR'S REFUSAL TO ESTABLISH AN ESCROW AGREEMENT WITH AN INDEPENDENT SOURCE
CODE AGENT AS REQUIRED IN SECTION 5.06(A)) 7.01 OR 8.02.
(c) LICENSOR SHALL BE LIABLE TO LICENSEE AS EXPRESSLY PROVIDED IN THIS
AGREEMENT BUT SHALL HAVE NO OTHER OBLIGATION, DUTY, OR LIABILITY WHATSOEVER IN
CONTRACT, TORT OR OTHERWISE TO LICENSEE INCLUDING ANY LIABILITY FOR NEGLIGENCE.
THE LIMITATIONS, EXCLUSIONS AND DISCLAIMERS IN THIS AGREEMENT SHALL APPLY
IRRESPECTIVE OF THE NATURE OF THE CAUSE OF ACTION, DEMAND, OR ACTION BY
LICENSEE, INCLUDING BUT NOT LIMITED TO BREACH OF CONTRACT, NEGLIGENCE, TORT, OR
ANY OTHER LEGAL THEORY AND SHALL SURVIVE A FUNDAMENTAL BREACH OR BREACHES OR THE
FAILURE OF THE ESSENTIAL PURPOSE OF THIS AGREEMENT OR OF ANY REMEDY CONTAINED
HEREIN.
9.05 LIMITATION PERIOD
-----------------
Neither party may bring an action, regardless of form, arising out of
or related to this Agreement more than [*] years after the cause of action
has arisen or the date of discovery of such cause, whichever is later.
9.06 CALIFORNIA FRANCHISE DISCLAIMER
-------------------------------
The parties agree that neither this Agreement nor the business
relationship established hereunder will be construed as granting a franchise.
The parties warrant to one another that they have consulted counsel in reviewing
and negotiating this Agreement and have concluded that no business plan or
franchise fees are conveyed or provided for in this Agreement or otherwise by
the relationship established hereby or by the relationship between the parties.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-28-
ARTICLE TEN - TERM AND TERMINATION
----------------------------------
10.01 TERM
----
The term of this Agreement shall commence on the Effective Date and
shall continue until terminated as provided for in this Article 10.
10.02 TERMINATION
-----------
(a) This Agreement may be terminated (each ground for termination
below is referred to here as an "Event of Default"):
(i) at any time by mutual written consent of Licensee and
Licensor;
(ii) by notice from one party to the other in the event the
other party becomes insolvent, makes an assignment for the
benefit of its creditors, ceases operations, a receiver is
appointed for the other party or its property, or the other
party becomes subject to bankruptcy or receivership
proceedings;
(iii) by a party immediately upon notice to the other party in
the event of any material breach or default by the other
party of any provision in this Agreement, if the party
shall have given written notice to the other party of such
breach or default and such breach or default shall not have
been remedied within thirty (30) days after receipt of such
written notice;
(iv) by a party effective immediately upon notice to the other
party in the event of a material breach of the provisions
of Article 7 by the other party, if the party shall have
given written notice to the other party of such material
breach and such material breach shall not have been
remedied within ten (10) days after receipt of such written
notice;
(v) by Licensor in the event that any other party (other than
Licensee) is in breach of the Non-Competition Agreement and
such breach has not been remedied within thirty (30) days
after receipt of such written notice; or
(vi) by Licensor upon written notice to Licensee in the event
Licensee's use of CitySearch Systems or Source Materials or
any part thereof exceeds the License granted to Licensee or
is in
<PAGE>
-29-
contravention of any of the provisions of Article 2 or
Article 6 or Section 5.06, if such use or contravention has
not been remedied with twenty (20) days after receipt of
such written notice.
(b) The failure of any party to terminate this Agreement for any of
the reasons specified in Section 10.02, or in this Agreement, shall not in any
way be deemed a waiver of such party's rights in respect thereof or otherwise
limit its rights to enforce the obligations of the other party hereunder.
10.03 EFFECT OF TERMINATION BY LICENSOR
---------------------------------
Upon the termination of this Agreement by Licensor pursuant to Section
10.02 or by the parties pursuant to Section 10.02(i), the rights, powers,
privileges, and licenses including the License granted to Licensee shall
immediately terminate. Without limiting the generality of the foregoing, upon
any such termination, Licensee shall have no right to continue to use the
CitySearch Systems, to receive or use any Licensor Improvements, or to use the
Licensed Trade-marks.
10.04 RETURN OF INTELLECTUAL PROPERTY
-------------------------------
Subject to the provisions of Section 10.05(b), upon the termination of
this Agreement, Licensee shall cease all use of the CitySearch Systems
(including the Source Materials) and Licensee shall return to Licensor all of
Licensor's Confidential Information (including Source Materials) and CitySearch
Systems in its possession, power or control within 90 days.
10.05 SURVIVAL
--------
(a) The termination of this Agreement by Licensor under Section 10.02
or by the parties pursuant to Section 10.02(i) shall not limit or otherwise
affect the respective rights and obligations of the parties under Articles 4, 7
and 9 and Sections 5.03, 6.02, 6.03, 6.04(d), 10.03, 10.04, 11.01 or 11.03 or
any other right or obligation of the parties hereunder accrued prior to the date
of the termination.
(b) The termination of this Agreement by Licensee under Section 10.02
shall not limit or otherwise affect the respective rights and obligations of the
parties under Articles 4, 7 and 9 and Sections 5.03, 5.04, 5.06, 6.02, 6.03,
6.04(d), 8.03, 11.01 or 11.03 or any other rights and obligations of the parties
hereunder accrued prior to the date of the termination. Further, and
notwithstanding any termination of this Agreement by Licensee pursuant to
Section 10.02 (the date of the occurrence of any such event is referred to here
as the "Licensee Termination Date"), the following shall occur:
<PAGE>
-30-
(i) the License in respect of the CitySearch System conferred
by Article 2 shall continue with respect to the version and
release thereof delivered to Licensee as of the Licensee
Termination Date subject to the provisions and restrictions
set out in Article 2 related to the use of the CitySearch
Systems;
(ii) Licensee shall have no right to receive or use any Licensor
Improvements made after the Licensee Termination Date;
(iii) Licensee's License to use the Licensed Trade-Marks shall
terminate, Licensor's obligations under Section 6.01(b)
shall terminate, and Licensee shall make no further use of
any of the Licensed Trade-Marks other than for the minimum
period, not to exceed thirty (30) days, which is necessary
for Licensee to remove all reference to the Licensed Trade-
Marks from the toronto.com CitySearch Information Service
(provided that the Quality Standards shall be met during
this period);
(iv) Licensee's License to use the CitySearch Systems conferred
by Section 2.01 shall become non-exclusive and Licensor,
subject to the restrictions contained in the Non-
Competition Agreement, shall be entitled to, and may
authorize third persons to, use the CitySearch Systems in
the Exclusive Territory or outside thereof for the purpose
of establishing and operating a CitySearch Information
Service;
(v) Licensor shall have no further obligations to Licensee
hereunder to provide any Services, or to provide Licensee
with the warranty support described in Section 9.01;
(vi) Licensee shall not have any right to take or continue any
action against any person for the infringement of any
Intellectual Property Right in connection with the use of
the CitySearch Systems or the Licensed Trade-Marks; and
(vii) Licensor shall be entitled to terminate any of the rights
of Licensee which pursuant to this Section 10.05(b) shall
have expressly survived a termination of this Agreement by
Licensee pursuant to Section 10.02(a), upon the occurrence
of an Event of Default which would have entitled Licensor
to terminate this Agreement pursuant to Section 10.02(a)
and the provisions of Section 10.05(a) shall apply mutatis
mutandis upon the termination of the said rights.
<PAGE>
-31-
10.6 SALE OF LIMITED PARTNERSHIP INTEREST
------------------------------------
Upon the Licensee ceasing to hold any Limited Partnership Interest or
upon the dissolution of the Limited Partnership for any reason, (the date of the
occurrence of any such event is referred to here as the "Sale Date") , the
following shall occur:
(i) the License in respect of the CitySearch System conferred
by Article 2 shall continue with respect to the version and
release thereof delivered to Licensee as of the Sale Date,
subject to the provisions and restrictions set out in
Article 2 related to the use of the CitySearch Systems;
(ii) Subject to Sub-section (v) below, Licensee shall have no
right to receive or to use any Licensor Improvements made
after the Sale Date;
(iii) Licensee's License to use the Licensed Trade-Marks shall
terminate, Licensor's obligations under Section 6.01(b)
shall terminate, and Licensee shall make no further use of
any of the Licensed Trade-Marks, other than for the minimum
period, not to exceed thirty (30) days, which is necessary
for Licensee to remove all reference to the Licensed Trade-
Marks from the toronto.com CitySearch Information Service
(provided that the Quality Standards shall be met during
this period);
(iv) Licensee's License to use the CitySearch Systems conferred
by Article 2 shall become non-exclusive and Licensor,
subject to the restrictions contained in the Non-
Competition Agreement, shall be entitled to, and may
authorize third persons to, use the CitySearch Systems in
the Exclusive Territory or outside thereof for the purpose
of establishing and operating a CitySearch Information
Service;
(v) Licensor shall have no further obligations to Licensee
hereunder to provide any Services, or to provide Licensee
with the warranty support described in Section 9.01;
however, upon being requested to do so by Licensee,
Licensor agrees to negotiate with Licensee in good faith a
renewal of the said obligations and a license to use
Licensor Improvements developed after the Sale Date upon
terms to be mutually agreed upon by the parties including
terms pertaining to the payment of reasonable license fees
for the use of Licensor Improvements and for the provision
of Services,
<PAGE>
-32-
provided that Licensor shall have no obligation to enter
into any such agreement in the event Licensor has ceased to
or has plans to cease to operate CitySearch Information
Services; and
(vi) the provisions of Sections 3.01-3.04, 6.01, 6.04(a), 8.01
(other than Licensee's obligations to assist Licensor),
9.01 and 9.02 shall cease to apply.
ARTICLE ELEVEN - GENERAL
------------------------
11.01 FURTHER ASSURANCES
------------------
Each party shall from time to time execute and deliver all such
further documents and instruments and do all acts and things as the other party
may reasonably require (at the requesting party's expense) to effectively carry
out or better evidence or perfect the full intent and meaning of this Agreement.
11.02 PUBLIC ANNOUNCEMENTS
--------------------
Subject to applicable law or stock exchange regulation, no public
announcement or press release concerning this Agreement shall be made by any
party without the prior consent and joint approval of the other party. If a
party wishes to issue a press release it shall provide a draft thereof to the
other party at least three days prior to its intended release and shall consider
the reasonable comments of the other party with respect to the press release.
Any failure to provide comment within a period of thirty (30) days with respect
to a draft press release shall be deemed to constitute consent to the release
thereof.
11.03 DISPUTE RESOLUTION
------------------
Any dispute, disagreement, controversy, question or claim arising out
of or relating to this Agreement, other than in connection with Article Seven,
shall be settled in accordance with the provisions of Section 12.5 (Dispute
Resolution) of the Limited Partnership Agreement.
<PAGE>
-33-
11.04 ENTIRE AGREEMENT
----------------
This Agreement together with the Limited Partnership Agreement, the
Non-Competition Agreement and the Assignment Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and cancels and supersedes any prior understandings and agreements between the
parties hereto with respect thereto. There are no representations, warranties,
terms, conditions, undertakings or collateral agreements, express, implied or
statutory, between the parties other than as expressly set forth in this
Agreement.
11.05 FORCE MAJEURE
-------------
If the performance of this Agreement, or any obligation thereunder
except the making of payments hereunder is prevented, restricted, or interfered
with by reason of: fire, flood, earthquake, explosion or other casualty or
accident or act of God; strikes or labour disputes; inability to procure or
obtain delivery of parts, supplies, power, equipment or software from suppliers,
war or other violence; any law, order, regulation, ordinance, demand or
requirement of any governmental authority; or any other act or condition
whatsoever beyond the reasonable control of the affected party, the party so
affected, upon giving prompt notice to the other party, shall be excused from
such performance to the extent of such prevention, restriction or interference;
provided, however, that the party so affected shall take all commercially
reasonable steps to avoid or remove such cause of non-performance and shall
resume performance hereunder with dispatch whenever such causes are removed.
11.06 AMENDMENT AND WAIVER
--------------------
No modification of or amendment to this Agreement shall be valid or
binding unless set forth in writing and duly executed by the parties hereto and
no waiver of any breach of any term or provision of this Agreement shall be
effective or binding unless made in writing and signed by the party purporting
to give the same and, unless otherwise provided, shall be limited to the
specific breach waived.
11.07 ASSIGNMENT
----------
Except as provided below, or with the prior written consent of the
other party, neither party may assign its rights or obligations under this
Agreement. Licensee may assign all of its rights and obligations under this
Agreement to the Limited Partnership, provided that the Limited Partnership
agrees in writing to assume all of the rights, obligations and liabilities of
Licensee under this Agreement. This Agreement shall enure to the benefit of and
be binding upon the successors and permitted assigns of the parties. Either
party may also assign this Agreement with the prior written consent of the other
party.
11.08 NOTICES
-------
<PAGE>
-34-
Any demand, notice or other communication to be given in connection
with this Agreement shall be given in writing and shall be given by personal
delivery or by transmittal by electronic means of communication addressed to the
recipient as follows:
To Licensee:
c/o Torstar Corporation
1 Yonge Street
Toronto, Ontario
M5E 1P9
Fax No.: (416) 869-4183
Attention: David Wetherald,
----------
General Counsel and Secretary
with a copy to:
Toronto Star Newspapers Limited
1 Yonge Street
Toronto, Ontario
M5E 1E6
Fax No.: (416) 865-3618
Attention: Rocco Rossi,
----------
Vice-President, Strategic Planning & New Media
and a copy to:
Tele-Direct (Services) Inc.
325 Milne Avenue, Suite 1050
Scarborough, Ontario
M1B 5S8
Fax No.: (416) 412-5870
Attention: Douglas G. Renwicke
----------
<PAGE>
-35-
and a copy to:
Tele-direct (Services) Inc.
325 Milne Avenue, Suite 1050
Scarborough, Ontario
M1B 5S8
Fax No.: (416) 412-5058
Attention: Shaul I. Ezer,
----------
Vice-President, General Counsel and Secretary
To Licensor:
790 East Colorado Boulevard
Suite 200
Pasadena, California 91101
U. S. A.
Fax No.: (626) 405-9929
Attention: Douglas McPherson, Chief Legal Officer
----------
with a copy to:
790 East Colorado Boulevard
Suite 200
Pasadena, California
U.S.A. 91101
Fax No.: (626) 405-9929
Attention: Bradley Ramberg, Chief Financial Officer
----------
or to such other address, electronic communication number or individual as may
be designated by notice given by any party to the other. Any communication
shall be conclusively deemed to have been given on the day of actual delivery
thereof if such day is a Business Day and the communication is delivered or
transmitted during the normal business hours of the recipient and on the
Business Day during which normal business hours next occur if given after such
hours on any day.
<PAGE>
-36-
11.09 GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario and the laws of Canada applicable therein.
IN WITNESS WHEREOF the parties have executed this Agreement.
CITYSEARCH INCORPORATED
Per: /s/ Michael Barton
-----------------------------------
CITYSEARCH CANADA INC.
Per: /s/ Michael Barton
-----------------------------------
<PAGE>
SCHEDULE A
CITYSEARCH TECHNOLOGY SYSTEMS
CITYSEARCH TECHNOLOGY SYSTEMS
- -----------------------------
The CitySearch Technology Systems are composed of four systems:
the CitySearch client
CityServer
the CitySearch Staging Server
CityWorks
These systems form a CitySearch technology infrastructure which supports content
management and on-line delivery mechanisms. Licensee will have access to
hardware configuration documentation and initial setup support for all
CitySearch Technology Systems. Licensee will be responsible for acquiring,
configuring all third party hardware and software components required by the
CitySearch Systems before the actual delivery and setup of the CitySearch
Systems begins.
Licensee understands that the CitySearch Systems are not "shrink wrapped" and
will require significant setup time and tailoring for Exclusive Territory.
Customization Service activities are likely to include but not be limited to:
. Canadian editorial content such as record categorization model and
associated keywords/synonyms.
. Canadian interface "look and feel".
. Acquisition and incorporation of telephone directory listings data for
the Exclusive Territory.
. Acquisition and incorporation of mapping data and associated
rendering, server and geocoding software related to the Exclusive
Territory.
The actual components and configuration of the CitySearch Systems will change
over time in response to market conditions, externally available hardware and
software, and internally generated improvements. The CitySearch Systems
delivered to Licensee initially will be based upon those used in the San
Francisco deployment.
The following is a summary of the CitySearch Technology Systems components to be
delivered to Licensee:
<PAGE>
-2-
CitySearch Client
- -----------------
CitySearch Interface: This is the interface the user sees and includes icons,
- --------------------
buttons, the CitySearch map and other graphic design elements. This is the
interface through which the user initiates tasks to be performed by the
CityServer.
The CitySearch Client application is capable of initiating keyword, spatial and
temporal search on the CitySearch database resident on the CityServer. This
proprietary search interface is included as part of the CitySearch interface.
CityServer
- ----------
Proprietary Server Components: CityServer consists of a collection of custom
- -----------------------------
server software modules which provide the core functionality for the on-line
delivery of the CitySearch application. The proprietary components manage
communications between the CitySearch client application, the Informix/Illustra
database and the CitySearch Staging server.
Customized front end to the Informix/Illustra database: : CitySearch has chosen
to use Informix/Illustra, an object relational database which provides features
including text, web, 2D and geo-spatial DataBlades (an Illustra technical term)
as well as proprietary temporal search components developed by CitySearch.
Subject to the provisions of Article 10, any Licensor Improvements to the
proprietary software developed by CitySearch designed to be used with
Informix/Illustra will be delivered to Licensee. The Informix/Illustra database
licenses must be sublicensed from Licensor in consideration of the payment by
Licensee to Licensor of the license fee payable to third parties plus expenses
of Licensor in entering into the sublicense agreement.
CitySearch Staging Server.
- -------------------------
Proprietary Server Software: The CitySearch Staging Server is a collection of
- ---------------------------
proprietary software modules which provide server support for the development
and maintenance of the CitySearch service for one or more markets. The
CitySearch Staging Server manages communications between the CityServer, the
Informix/Illustra database and components of the City works system.
Customization of the Informix/Illustra database: CitySearch has chosen to build
- -----------------------------------------------
the CitySearch Staging Server around Informix/Illustra, an object relational
database. The Informix/Illustra database licenses must be acquired pursuant to
a sublicense from Licensor in consideration of the payment by Licensee to
Licensor of the license fee payable to third parties plus expenses of Licensor
in entering into the sublicense agreement.
<PAGE>
-3-
Subject to the provisions of Article 12 of the Agreement, any Licensor's
Improvements to the proprietary software developed by CitySearch designed to be
used with Informix/Illustra will be delivered to Licensee.
City works:
- ----------
Content Creation and Maintenance: The City works system includes tools and
- ---------------------------------
support software needed to create and maintain the content of the CitySearch
system. Most of the tools run under Windows 95 or Windows NT on PC platforms.
The proprietary tools InfoWorks and SiteWorks operate in conjunction with third
party software (Photoshop and Word, for example). The PC platforms, TCP/IP
networking components, operating systems, and required third party software need
to be obtained and configured by Licensee before City works can be put in place.
Other tools such as EditWorks are used in conjunction with a local database
in order to generate and maintain editorial content. The local database
requires the Windows NT Server operating system and SQL Server.
<PAGE>
SCHEDULE B
CITYSEARCH BUSINESS SYSTEMS
CITYSEARCH BUSINESS SYSTEMS
- ---------------------------
CitySearch has developed a scalable business model to enable rapid adoption of
the service. Licensee will have full access to the CitySearch consumer and
vendor roll-out plan aimed at building a durable franchise. Specifically, the
business systems made available to Licensee will include the following
components (much of which is embedded in staff member's experience base).
Community selection approach: [*]
- ----------------------------
Market segmentation/prioritization approach: This approach helps determine
- -------------------------------------------
which suburbs and shopping areas to cover within a target market, and in what
order.
Categorization of community information: This involves market prioritization
- ---------------------------------------
for certain high leverage categories such as entertainment, education,
government, health/human services, sports/recreation, arts and culture. The
CitySearch philosophy involves providing comprehensive coverage of both
community and business information in a dense local area, and attempts to
insures that the information is meaningful and easy to use for the end user.
City organization approach: CitySearch will provide its approach to how to work
- --------------------------
with various organizations within a community. CitySearch will advise as to how
Licensee first establishes sponsorships from the important merchant associations
and government groups.
Statistics/surveys and accompanying methodology: Statistical data has been
- -----------------------------------------------
accumulated and continues to be accumulated on existing CitySearch markets. In
addition, CitySearch has conducted numerous focus groups and consumer surveys
around information content, user interfaces, search functionality, and other
essential subjects. This documentation will be provided to Licensee.
Sales force training, techniques and approaches: CitySearch has organized a
- -----------------------------------------------
fluid sales team structure to maximize speed of entry and capture. This
commissioned, flexible sales force is supported by a custom designed training
program and a demo-assisted sales process. CitySearch will provide education as
to its methods of operating the sales force training through secondments of the
Exclusive Territory staff to the US, supplemented by appropriate telephone/e-
mail interaction.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
SCHEDULE C
DESIGNATED LOCATIONS
1 Yonge Street, Toronto, Ontario
<PAGE>
SCHEDULE D
LICENSED TRADE-MARKS
The Licensed Trade-Marks are as follows:
The following CitySearch Logo:
[LOGO OF CITY SEARCH APPEARS HERE]
In the event Licensor becomes the owner of or acquires license rights to use the
trade-mark "CitySearch" in Canada, the said trade-mark, upon notice from
Licensor to Licensee, shall be deemed to be included in this Schedule D.
<PAGE>
EXHIBIT 10.11
TORONTO.COM SUBLICENSE AND SERVICES AGREEMENT
---------------------------------------------
THIS AGREEMENT made as of August 31, 1998.
B E T W E E N:
CITYSEARCH CANADA INC., a corporation incorporated under the laws of
Ontario (hereinafter referred to as "Sublicensor"),
OF THE FIRST PART,
- and -
TORONTO.COM, a Limited Partnership formed under the laws of Ontario
(hereinafter referred to as the "Sublicensee"),
OF THE SECOND PART.
WHEREAS CitySearch, Inc. (the "Licensor") is engaged in the business of
providing CitySearch Information Services in the United States and elsewhere;
AND WHEREAS Licensor has entered into an amended and restated license and
services agreement with Sublicensor made as of August 31, 1998 (the "License
Agreement"), providing for the grant by Licensor to Sublicensor of a license
with respect to the CitySearch Information Service in the Exclusive Territory, a
copy of which License Agreement is attached as Schedule A;
AND WHEREAS the Sublicensee, a limited partnership (the "Partnership")
between Metroland Printing, Publishing & Distributing Ltd. ("Metroland"), a
subsidiary of Torstar Corporation, Tele-Direct (Services) Inc. and Sublicensor,
among others, has been formed to carry on a CitySearch Information Service in
the Exclusive Territory pursuant to the partnership agreement between the
parties;
AND WHEREAS Sublicensor desires to grant to the Sublicensee a sublicense
(the "Sublicense") of its rights under the License Agreement to enable the
Sublicensee to operate a CitySearch Information Service in the Exclusive
Territory;
NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the
premises and the covenants and agreements herein contained and other good and
<PAGE>
-2-
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged by each of the parties), the parties hereto agree as follows:
1. DEFINITIONS
-----------
Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed thereto in the License Agreement.
2. GRANT OF SUBLICENSE
-------------------
Subject to the provisions of this Agreement, Sublicensor hereby grants
to the Sublicensee and Sublicensee hereby accepts from Sublicensor a sublicense
of the rights of the Sublicensor under the License Agreement. By its acceptance
of the Sublicense, Sublicensee covenants and agrees to perform the obligations
of, and to comply with the restrictions imposed upon, the Sublicensor under the
License Agreement as if the Sublicensee were a party thereto.
3. SECTION 4.02 PAYMENT
--------------------
Sublicensor acknowledges that the payment referred to in section 4.02
of the License Agreement has been paid.
4. FURTHER ASSURANCES
------------------
Each party shall from time to time execute and deliver all such
further documents and instruments and do all acts and things as the other party
may reasonably require (at the requesting party's expense) to effectively carry
out or better evidence or perfect the full intent and meaning of this Agreement.
5. ENTIRE AGREEMENT
----------------
This Agreement together with the Limited Partnership Agreement, the
License Agreement, Unanimous Shareholder Agreement and the Non-Competition
Agreement constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and cancels and supersedes any prior
understandings and agreements between the parties hereto with respect thereto.
There are no representations, warranties, terms, conditions, undertakings, or
collateral agreements, express, implied or statutory, between the parties other
than as expressly set forth in this Agreement.
<PAGE>
-3-
6. AMENDMENT AND WAIVER
--------------------
No modification of or amendment to this Agreement shall be valid or
binding unless set forth in writing and duly executed by the parties hereto and
no waiver of any breach of any term or provision of this Agreement shall be
effective or binding unless made in writing and signed by the party purporting
to give the same and, unless otherwise provided, shall be limited to the
specific breach waived.
7. ASSIGNMENT
----------
Except as provided below, or with the prior written consent of the
other party, neither party may assign its rights or obligations under this
Agreement. This Agreement shall enure to the benefit of and be binding upon the
successors and permitted assigns of the parties.
8. NOTICES
-------
Any demand, notice or other communication to be given in connection
with this Agreement shall be given in writing and shall be given by personal
delivery or by transmittal by electronic means of communication addressed to the
recipient as follows:
To Sublicensee:
c/o Torstar Corporation
1 Yonge Street
Toronto, Ontario
M5E 1P9
Fax No.: (416) 869-4183
Attention: General Counsel
---------
with a copy to:
Toronto Star Newspapers Limited
1 Yonge Street
Toronto, Ontario
M5E 1E6
Fax No.: (416) 869-4762
Attention: Vice-President, Strategic Planning
---------
<PAGE>
-4-
with a copy to:
Tele-Direct (Services) Inc.
325 Milner Ave., Ste. 1050
Scarborough, Ontario
M1G 5S8
Fax No.: (416) 412-5870
Attention: Douglas G. Renwicke
---------
To Sublicensor:
c/o CitySearch, Inc.
790 East Colorado Boulevard
Suite 200
Pasadena, California 91101
U.S.A.
Fax No. (818) 405-9929
Attention: Bradley Ramberg, Chief Financial Officer
---------
or to such other address, electronic communication number or individual as may
be designated by notice given by any party to the other. Any communication
shall be conclusively deemed to have been given on the day of actual delivery
thereof if such day is a Business Day and the communication is delivered or
transmitted during the normal business hours of the recipient and on the
Business Day during which normal business hours next occur if given after such
hours on any day.
9. TERMINATION
-----------
The sublicense granted pursuant to this Agreement shall terminate upon
the earlier to occur of: (1) the dissolution of the Sublicensee and (2) the
termination of the License Agreement.
<PAGE>
-5-
10. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario and the laws of Canada applicable therein.
IN WITNESS WHEREOF the parties have executed this Agreement.
CITYSEARCH CANADA INC.
Per: /s/ Michael Barton
-----------------------------
TORONTO.COM
a Limited Partnership by its general
partner . Ontario Ltd.
Per: /s/ D. G Renwicke
-----------------------------
The undersigned acknowledges and accepts the grant of the sublicense
provided for herein and agrees that, as against the undersigned, the Sublicensee
shall have all of the rights of the Licensee under the License Agreement. The
undersigned further acknowledges that it has received the $[*] payment referred
to in section 4.02 of the License Agreement.
DATED as of August 31, 1998.
CITYSEARCH, INC.
Per: /s/ Michael Barton
-----------------------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.12
NON-COMPETITION AGREEMENT
BETWEEN
TORONTO STAR NEWSPAPERS LTD.
- AND-
TELE-DIRECT (SERVICES) INC.
- AND -
CITYSEARCH CANADA INC.
- AND -
METROLAND PRINTING, PUBLISHING AND DISTRIBUTING LTD.
MADE AS OF AUGUST 31, 1998
<PAGE>
NON-COMPETITION AGREEMENT
THIS AGREEMENT made as of August 31, 1998;
BETWEEN:
TORONTO STAR NEWSPAPERS LTD., a corporation incorporated under
the laws of Ontario
("Tor News")
- and -
TELE-DIRECT (SERVICES) INC., a corporation incorporated under the
laws of Canada
("Tele-Direct")
- and -
CITYSEARCH CANADA INC., a corporation incorporated under the laws
of Ontario
("CitySearch Canada")
- and -
METROLAND PRINTING, PUBLISHING AND DISTRIBUTING LTD., a
corporation incorporated under the laws of Ontario
("Metroland")
WHEREAS Tor News, through its affiliate, Metroland, Tele-Direct and
CitySearch Canada formed the toronto.com Limited Partnership for the purpose of
carrying on the Limited Partnership Business;
AND WHEREAS Metroland, Tele-Direct and CitySearch Canada, among
others, entered into the Limited Partnership Agreement;
<PAGE>
-2-
AND WHEREAS CitySearch Inc. and CitySearch Canada are parties to an
Amended and Restated License and Services Agreement, under which certain rights
were sublicensed to toronto.com;
AND WHEREAS the parties hereto wish to make arrangements regarding
their respective rights and obligations to each other.
NOW THEREFORE THIS AGREEMENT WITNESSES that, for good and valuable
consideration and the payment by each of the parties to the other of the sum of
$1.00 of lawful money of Canada (the receipt and sufficiency of which
consideration is hereby acknowledged by each of the parties), the parties agree
as follows:
ARTICLE 1 - INTERPRETATION
--------------------------
1.01 DEFINITIONS
-----------
In this Agreement, unless something in the subject matter or context
is inconsistent therewith, the following terms as used herein, including the
recitals, shall have the meanings set forth below:
(a) "AMENDED AND RESTATED LICENSE AND SERVICES AGREEMENT" means the
amended and restated agreement between CitySearch Inc. and CitySearch
Canada providing for the licensing to CitySearch Canada of certain
software, technology and know-how dated as of August 31, 1998;
(b) "AGREEMENT" means this agreement and all amendments made hereto by
written agreement between the parties hereto;
(c) "CITYSEARCH INFORMATION SERVICE" means an online service of providing
Content related to restaurants, entertainment, retail establishment,
community events and other services, including on-line ticketing and
sale of merchandise, pertaining to a particular city or geographic
region which uses the CitySearch Systems;
(d) "CITYSEARCH SYSTEMS" has the meaning set forth in Section 1.01 of the
Amended and Restated License and Services Agreement;
(e) "COMPETING SERVICE" has the meaning set forth in Section 2.01;
(f) "CONTENT" has the meaning ascribed thereto in the Amended and Restated
License and Services Agreement; and
<PAGE>
-3-
(g) "LIMITED PARTNERSHIP AGREEMENT" means a limited partnership agreement
made as of August 31, 1998 between, among others, 1310818 Ontario
Inc., Tele-Direct, Metroland and CitySearch Canada.
1.02 OTHER CAPITALIZED TERMS
-----------------------
Capitalized terms used herein and not otherwise defined shall have the
meaning ascribed thereto in the Limited Partnership Agreement.
1.03 HEADINGS
--------
The division of this Agreement into Articles and Sections and the
insertion of headings are for convenience of reference only and shall not affect
the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof", "hereunder" and similar expressions refer to this
Agreement and not to any particular Article, Section or other portion hereof and
include any agreement supplemental hereto. Unless something in the subject
matter or context is inconsistent therewith, references herein to Articles and
Sections are to Articles and Sections of this Agreement.
1.04 EXTENDED MEANINGS
-----------------
In this Agreement words importing the singular number only shall
include the plural and vice versa, words importing any gender shall include all
genders.
ARTICLE 2 - TERMS AND CONDITIONS
--------------------------------
2.01 COVENANT NOT TO COMPETE
-----------------------
Each of Tele-Direct, Tor News and CitySearch Canada hereby covenants
and agrees that it shall not, directly or indirectly either on its own or
through any agent, joint venture, subsidiary or independent contractor, at any
time during the currency of this Agreement, offer a local, on-line city guide
information service that taken as a whole competes with the CitySearch
Information Service of the Limited Partnership (the "Competing Service")
anywhere within [*].
2.02 CONTINUATION OF EXISTING BUSINESS
---------------------------------
Nothing herein shall restrict either Tor News or Tele-Direct from
continuing or expanding in the Exclusive Territory certain electronic offerings
being offered as of the date hereof that are not being transferred to the
Limited Partnership pursuant to the Limited Partnership Agreement, or from
creating an on-line version of a print product Tor News or Tele-Direct sells or
disbtributes, as long as such electronic offerings, considered as a whole, do
not comprise a Competing Service. For greater certainty, but without
limitation, excluded as
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
-4-
Competing Services are the Excluded Assets listed in Sections 7.6 and 7.7 of the
Limited Partnership Agreement. Provided, however, that wherever possible the
Major Limited Partners will use the Limited Partnership as the entity for
Greater Toronto Area (the "GTA") related information. If one of the Major
Limited Partners does continue, expand or launch an internet service in the GTA
(other than the Excluded Assets) that competes with part of the business of the
Limited Partnership then such Major Limited Partner shall pay the Limited
Partnership the revenues less the costs thereof generated by it from within the
GTA from the competitive part of the business. For example, if one of the Major
Limited Partners launches a national classifieds database then the Limited
Partnership shall receive the revenues less the costs that are generated from
classifieds that arise from within the GTA. Such revenues less the costs shall
be paid by the Major Limited Partner to the Limited Partnership on a quarterly
basis and the Major Limited Partner shall provide the Limited Partnership with
financial statements prepared by an independent auditor showing the basis for
the calculation of the amount of the payment to the Limited Partnership.
2.03 INTELLECTUAL PROPERTY
---------------------
Each of the parties hereto covenants and agrees with CitySearch Canada
that it will not transfer outside the Exclusive Territory, use, or transfer to,
disclose to or authorize any third party, affiliated or unaffiliated, to use,
the CitySearch Systems and other know-how and intellectual property of
CitySearch Canada gained through operation of the Limited Partnership Business.
2.04 NON-SOLICITATION OF EMPLOYEES
-----------------------------
Each of the parties hereto hereby covenants and agrees that it shall
not, without the prior approval of each of the other parties hereto, directly or
indirectly, solicit or endeavour to entice away from any of the other parties
hereto, any person who is employed by or otherwise engaged to perform services
for any of such other parties hereto.
2.05 CONFIDENTIALITY
---------------
<PAGE>
-5-
(a) Each of the parties hereto acknowledges that it shall have access to
and will be entrusted with information that would reasonably be
confidential to the Limited Partnership or the other parties hereto.
Such information may include, without limitation, trade secrets, know
how, marketing plans and techniques, cost figures, customer lists and
other information relating to the customers of the Limited Partnership
and the Limited Partners. It is acknowledged that the disclosure of
any of such information to competitors of the Limited Partnership or
of the parties hereto or to the general public would be highly
detrimental to the best interests of the Limited Partnership or the
parties hereto, as the case may be. Accordingly, each of the parties
hereto hereby covenants and agrees that it shall not, at any time
until such information is disseminated to the public or becomes public
knowledge other than as a result of a breach of this Agreement,
without the consent of the other parties, which consent may be
unreasonably withheld, directly or indirectly, communicate or disclose
to any Person including to any Affiliates of any of the parties hereto
any of such information other than (a) to its professional advisors or
the directors, officers, employees or authorized representatives of
the Limited Partnership that have a need to know such information; (b)
for the purposes of Section 7.8 of the Limited Partnership Agreement;
and (c) in furtherance of the Limited Partnership Business; nor shall
it use or exploit, directly or indirectly, the same for any purpose
other than the purposes of the Limited Partnership. Each of the
parties hereto shall take all reasonable measures available to it to
keep such information in the strictest confidence.
(b) Notwithstanding Section 2.05(a), each of the parties hereto may
communicate such information if the disclosure of such information is
required by any applicable law, governmental rule or regulation,
subpoena, or order of any court or governmental agency, provided that
each party hereto shall:
(i) promptly notify the other parties hereto;
(ii) consult with the other parties hereto on the advisability of
taking steps to resist or narrow such requirement; and
(iii) if disclosure is required or deemed advisable, co-operate with
the other parties hereto in any attempt to obtain an order or
other assurance that such information will be accorded
confidential treatment.
(c) The foregoing Sections 2.05(a) and 2.05(b) do not apply to such
information that becomes available to the editorial departments of
Metroland, Tor News or any of their Affiliates other than through a
breach of this Agreement.
<PAGE>
-6-
2.06 APPLICATION
-----------
With the exception of Section 2.05 which shall survive the term of
this Agreement for a period of two (2) years, this Agreement ceases to apply to
any Limited Partner when such Limited Partner ceases to be a Shareholder or a
Limited Partner.
ARTICLE 3 - BREACH
------------------
3.01 REMEDIES FOR BREACH
-------------------
Each of the parties hereto acknowledges and agrees that any violation
of any of the covenants made in this Agreement will cause irreparable damage or
injury to the parties hereto for whose benefit it was made, the exact amount of
which would be impossible to ascertain, and that, for such reason, the parties
hereto shall be entitled to obtain interim, interlocutory, and final injunctive
relief restraining a party hereto from breaching, and requiring a party hereto
to comply with, its obligations under this Agreement, or to seek and obtain such
other relief against a party hereto as may be required to specifically enforce
any of the covenants or obligations contained in this Agreement. Each of the
parties hereto acknowledges the importance to the Limited Partnership of the
strict compliance with the terms of this Agreement and acknowledges that each of
parties' interest in the strict enforcement thereof will outweigh the balance of
convenience or harm which a party hereto may suffer as a result of the strict
enforcement of this Agreement.
3.02 EQUITABLE RIGHTS
----------------
Nothing in this Agreement shall be construed as abrogating or
diminishing any right of a party hereto at common law or in equity to restrain a
breach of duty including without limitation any breach of trust, confidence or
fiduciary duty.
ARTICLE 4 - GENERAL
-------------------
4.01 TERM
----
Subject to Article 10.1(g) of the Unanimous Shareholder Agreement,
this Agreement shall commence on the date hereof and continue until the
dissolution or winding-up of the Limited Partnership, with the exception of
Section 2.05 which survives the term of this Agreement for a period of two (2)
years.
<PAGE>
-7-
4.02 FURTHER ASSURANCES
------------------
Each party hereto shall from time to time execute and deliver all such
further documents and instruments and do all acts and things as the other party
may reasonably require to effectively carry out or better evidence or perfect
the full intent and meaning of this Agreement.
4.03 NOTICE
------
Any notices or other communications required or permitted hereunder
shall be given in accordance with Section 12.6 of the Unanimous Shareholder
Agreement.
4.04 SEVERABILITY
------------
Each covenant and provision contained in this Agreement shall be
severable, separate and distinct and the unenforceability in whole or in part of
any covenant or provision hereof shall be deemed not to affect or impair the
validity or enforceability of any other covenant or provision hereof. If any of
the activities, time periods or geographical areas specified herein are
considered by a court of competent jurisdiction as being unreasonable, the
Limited Partners agree that such court shall have authority to limit such
activities, time periods or geographical areas to such activities, time periods
or geographical areas as the court deems proper in the circumstances.
4.05 ENTIRE AGREEMENT
----------------
This Agreement, the Limited Partnership Agreement, the Unanimous
Shareholder Agreement and the Ancillary Agreements constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and cancel and supersede any prior understandings and agreements between the
parties hereto with respect thereto, including the "CitySearch Term Sheet for
Partnership Agreement" dated July 16, 1998 and the initialled addendum attached
thereto.
4.06 ASSIGNMENT
----------
None of the parties hereto shall have the right to assign or
otherwise be relieved of their obligations hereunder, except as may be expressly
agreed to in writing by all of the parties hereto. This Agreement shall be
binding upon and shall enure to the benefit of the parties hereto and their
successors and permitted assigns.
4.07 AMENDMENT AND WAIVER
--------------------
No modification of or amendment to this Agreement shall be valid or
binding unless set forth in writing and duly executed by the parties hereto and
no waiver of any breach of any term or provision of this Agreement shall be
effective or binding unless made in writing and
<PAGE>
-8-
signed by the party purporting to give the same and, unless otherwise provided,
shall be limited to the specific breach waived.
4.08 GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario and the laws of Canada applicable therein.
4.09 COUNTERPARTS
------------
This Agreement may be executed in counterparts. Each executed
counterpart shall be deemed to be an original and all counterparts taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF the parties have executed this Agreement.
TORONTO STAR NEWSPAPERS LTD.
By: /s/ Rocca Russi
---------------------------------
Name:
Title:
By:_________________________________
Name:
Title:
TELE-DIRECT (SERVICES) INC.
By: /s/ D. G. Renwicke
---------------------------------
Name:
Title:
By:________________________________
Name:
Title:
CITYSEARCH CANADA INC.
By: /s/ Michael Barton
--------------------------------
Name:
Title:
<PAGE>
-9-
METROLAND PRINTING, PUBLISHING &
DISTRIBUTING LTD.
By: /s/ David Wetherald
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.13
LEASE AGREEMENT
by and between
WEST END LAND DEVELOPMENT CO., L.P.
("Landlord")
and
CITYSEARCH, INC.
("Tenant")
dated
November 7th, 1996
for
Fourth Floor
containing
4,556 square feet of net rentable area
at One Church Street
101 Church Street
Nashville, Tennessee
Term: 5 Years
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Article I SUMMARY OF LEASE PROVISIONS AND EXHIBITS..................... 1
SECTION 1.1 - Fundamental Lease Provisions........................ 1
Article II PREMISES AND TERM............................................ 3
SECTION 2.1 - Demised Premises.................................... 3
SECTION 2.2 - Term and Right of Termination....................... 3
SECTION 2.3 - Completion and Occupancy............................ 5
Article III CONSTRUCTION................................................. 6
SECTION 3.1 - Landlord's Work..................................... 6
SECTION 3.2 - Early Commencement Date............................. 6
SECTION 3.3 - Ownership of Improvements........................... 6
Article IV RENT......................................................... 7
SECTION 4.1 - Payment............................................. 7
SECTION 4.2 - Fixed Minimum Rent.................................. 7
SECTION 4.3 - Adjustment of Fixed Minimum Rent.................... 7
SECTION 4.4 - Operating Expenses.................................. 7
SECTION 4.5 - Late Payment Penalty................................ 9
SECTION 4.6 - Additional Rent..................................... 9
SECTION 4.7 - Rent for a Partial Month............................ 9
SECTION 4.8 - Payment by Automatic Transfer....................... 9
SECTION 4.9 - Services Provided to Landlord....................... 10
Article V UTILITY SERVICES............................................. 10
SECTION 5.1 - Utilities........................................... 10
Article VI LANDLORD'S ADDITIONAL COVENANTS.............................. 11
SECTION 6.1 - Repairs by Landlord................................. 11
SECTION 6.2 - Quiet Enjoyment..................................... 12
SECTION 6.3 - Landlord's Liability................................ 12
SECTION 6.4 - Services............................................ 12
SECTION 6.5 - Common Areas........................................ 13
SECTION 6.6 - Signage............................................. 13
SECTION 6.7 - Indemnity........................................... 13
Article VII TENANT'S ADDITIONAL COVENANTS................................ 13
SECTION 7.1 - Affirmative Covenants............................... 13
SECTION 7.2 - Negative Covenants.................................. 17
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Article VIII DESTRUCTION AND CONDEMNATION.................................... 18
SECTION 8.1 - Fire or other Casualty............................... 18
SECTION 8.2 - Eminent Domain....................................... 19
Article IX DEFAULTS AND REMEDIES........................................... 20
SECTION 9.1 - Default.............................................. 20
SECTION 9.2 - Bankruptcy........................................... 20
SECTION 9.3 - Remedies of Landlord................................. 21
SECTION 9:4 - Waiver of Jury Trial; Tenant Not to Counterclaim..... 22
SECTION 9.5 - Holdover by Tenant................................... 22
SECTION 9.6 - Landlord's Right to Cure Defaults.................... 22
SECTION 9:7 - Effect of Waivers of Default......................... 23
SECTION 9.8 - Security Deposit..................................... 23
SECTION 9.9 - Landlord's Default................................... 23
Article X MISCELLANEOUS PROVISIONS........................................ 23
SECTION 10.1 - Notices.............................................. 23
SECTION 10.2 - Estoppel Certificates................................ 23
SECTION 10.3 - Applicable Law and Construction...................... 24
SECTION 10.4 - Cancellation......................................... 24
SECTION 10.5 - Binding Effect of Lease.............................. 24
SECTION 10.6 - Effect of Unavoidable Delays......................... 24
SECTION 10.7 - Subordination........................................ 25
SECTION 10.8 - No Waiver............................................ 26
SECTION 10.9 - No Oral Changes...................................... 26
SECTION 10.10 - No Representations by Landlord....................... 26
SECTION 10.11 - Changes in Entrances and Other Public Areas.......... 26
SECTION 10.12 - Risk of Loss or Damage to Personal Property, Etc..... 27
SECTION 10.13 - Rules and Regulations................................ 27
SECTION 10.14 - Real Estate Commissions.............................. 27
SECTION 10.15 - Attorney's Fees...................................... 27
</TABLE>
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ARTICLE I
---------
SUMMARY OF LEASE PROVISIONS AND EXHIBITS
SECTION 1.1 - Fundamental Lease Provisions:
- ------------------------------------------
DATE: November 7/th/, 1996
COMMENCEMENT DATE: December 1, 1996 subject to adjustment pursuant to Section
2.2
TERMINATION DATE: November 30, 2000
LANDLORD: West End Land Development Co., L.P.
ADDRESS OF LANDLORD: West End Land Development Co., L.P.
c/o Grace Development, Inc.
3309 Fairmont Drive
Nashville, Tennessee 37203
TENANT: CitySearch Inc.
ADDRESS OF TENANT: CitySearch, Inc.
Attn: Chief Financial Officer
790 Colorado Boulevard
Pasadena, California 91101
BUILDING ADDRESS: One Church Street
101 Church Street
Nashville, Tennessee 37219
FIXED MINIMUM RENT: Year 1 $47,844 - $3,987 per month ($10.50 psf)
Year 2 $47,844 - $3,987 per month ($10.50 psf)
Year 3 $47,844 - $3,987 per month ($10.50 psf)
Year 4 $47,844 - $3,987 per month ($10.50 psf)
Year 5 $47,844 - $3,987 per month ($10.50 psf)
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NET RENTABLE AREA: 4,556 square feet
TENANT'S PRO-RATA
PERCENTAGE AND
OPERATING EXPENSES: 15.07% 1997 Base Year Operating Expense Stop
LEASE TERM AND RIGHT OF
EARLY TERMINATION: Five (5) years. Right of termination following year
three (3) of Lease as set forth in Section 2.2.
RENEWAL OPTIONS: One (1) Renewal Option of Five (5) years.
PERMITTED USE: Office
SECURITY DEPOSIT: N/A
SECTION 1.2 - Effect of Summary and Reference to Fundamental Lease Provisions:
- -----------------------------------------------------------------------------
Each reference in this Lease to any of the Fundamental Lease Provisions
contained in Section 1.1 shall be construed to incorporate all of the terms
provided under such Fundamental Lease Provision.
SECTION 1.3 - EXHIBITS:
- ----------------------
The exhibits listed in this Section and attached to this Lease are hereby
incorporated in and made a part of this Lease:
Exhibit "A" - Site Plan and Legal Description
Exhibit "B" - Space Plan
Exhibit "C" - Description of Landlord's Work
2
<PAGE>
ARTICLE II
PREMISES AND TERM
SECTION 2.1 - Demised Premises:
- ------------------------------
Landlord hereby leases to Tenant and Tenant hires and takes from Landlord
the premises (the "Premises" or "Demised Premises") consisting of 4,556 net
rentable square feet located on the Fourth Floor of the building known as One
Church Street, 101 Church Street, Nashville, Tennessee (the "Building") on the
parcel of land (the "Parcel") shown and described on Exhibit "A" hereof and
-----------
located at Nashville, Tennessee, the Premises being that certain space and being
delineated on the Space Plan, attached hereto as Exhibit "B", subject to and
-----------
with the benefits of the terms of this Lease, together with the appurtenances
specifically granted in this Lease, but reserving and excepting to Landlord (i)
the use of (a) the exterior faces of the walls and (b) the roof, and (ii) the
right to install, maintain, use, repair and replace pipes, ducts, conduits and
wires through the Demised Premises serving the other parts of the Building
provided that Landlord's reserved and excepted uses and rights shall not
unreasonably interfere with Tenant's use of the Premises.
SECTION 2.2 - Term and Right of Termination:
- -------------------------------------------
The term of this Lease shall be for a period of five (5) years commencing
on the Commencement Date (as hereinafter defined), which is anticipated to be on
or about December 1, 1996, plus the period from the Commencement Date to the
first day of the calendar month next following said Commencement Date if the
Commencement Date occurs on a day other than the first day of the calendar month
(the "Term"). The Term shall end five (5) years thereafter (the "Expiration
Date"), subject to the right of Tenant to terminate this Lease as provided for
in this Section 2.2. Landlord and Tenant agree to execute an addendum or letter
agreement following the execution of the Lease specifying the Commencement Date
if it is other than December 1, 1996.
The Commencement Date shall be the earlier of: (i) the date the Demised
Premises are ready for Tenant's occupancy, or (ii) the date Tenant occupies the
Demised Premises with the consent of the Landlord, and shall end at noon at the
end of the Lease Term, unless sooner terminated as hereinafter provided;
subject, however, to the provisions of Section 2.3.
Prior to the Commencement Date, and during the time of Landlord's carrying
out of the completion of the Landlord's Work as set forth in Section 3.1 herein,
Tenant shall have the right following the date of the execution of a letter of
intent by Landlord and Tenant to occupy temporary space in the Building,
consisting of approximately 2,000 square feet located on the Third Floor of the
Building (the "Temporary Premises"). Tenant shall pay rent to Landlord for
Tenant's occupancy of the Temporary Premises in the amount of $1,500.00 per
month calculated on a pro-rata basis for the number of days of occupancy until
the Commencement Date. Tenant shall observe and perform all of its obligations
under this Lease, except for the payment of the
3
<PAGE>
Fixed Minimum Rent as provided for herein, from and after the date upon which
the Temporary Premises are made available to Tenant until the Commencement Date
of the Term of this Lease in the same manner as though the Commencement Date of
the Term of this Lease began when the Temporary Premises were so made available
to Tenant.
Tenant shall have the option, upon the terms and conditions set forth
herein, to extend the Term for the Premises for one (1) period of five (5) years
(the "Renewal Term"), by notifying Landlord in writing of its exercise of said
option at least one hundred twenty (120) days prior to the expiration date of
the Term. Rent payable for the Renewal Term period shall be at a fair market
rental rate. Following notice by Tenant to Landlord of Tenant's exercise of the
option to renew as provided for herein, Landlord and Tenant shall negotiate this
rate and, if a fair market rental rate cannot be determined and mutually agreed
to by Landlord and Tenant within thirty (30) days of the date of Tenant's notice
of the exercise of the option, the option to extend the Term shall expire and be
of no further force or effect.
Tenant's right to exercise the foregoing option to extend the Term for
lease of the Premises is subject to this Lease being in full force and effect
and Tenant not being in default under any provisions of this Lease at the time
notice of the exercise of such option to renew is given, or on the last day of
the Term immediately preceding the commencement of the ensuing Renewal Term.
Failure by Tenant to notify Landlord of Tenant's exercise of any option herein
granted in the manner and within the time period set forth herein shall
constitute a waiver of said option to renew.
Tenant shall have the right of first refusal to lease the Fourth Floor
adjacent space to the Premises in the Building, as set forth herein. If such
Fourth Floor space shall become vacant or available for lease to the general
public, and prior to Landlord agreeing to lease any of such space to a
prospective tenant, Landlord shall offer such space for lease to Tenant upon
terms and conditions similar to the terms offered to any prospective tenant of
such space. Said offer to Tenant shall be conveyed in writing or verbal, at
Landlord's sole discretion. Tenant shall have twenty (20) days to exercise said
right of first refusal following the date of Landlord's notice to Tenant of such
right to lease. If Tenant exercises said right, Tenant shall enter into a lease
agreement substantially similar to the form of this Lease, except for such terms
as the rental, term, and other provisions which were contained in the offer to
the prospective tenant for said adjacent space. Failure by Tenant to notify
Landlord of Tenant's exercise of such right of first refusal shall constitute a
waiver of said right.
Notwithstanding the foregoing, but only so long as Tenant has not breached
any of the terms, provisions, and covenants of this Lease, Tenant shall have the
right following the first three (3) years of the Term of this Lease, and upon
not less than one hundred eighty (180) days advance written notice from Tenant
to Landlord computed following the expiration of said three (3) years, and
following payment by Tenant to Landlord in advance of all unamortized
construction costs of Landlord which constitute Landlord's Work (as hereinafter
defined) and any unamortized real estate commissions payable hereunder (the
"Termination Fee"), to terminate this Lease. The Termination Fee is payable to
Landlord as of the time of the notice of Tenant's
4
<PAGE>
exercise of said right, but Tenant nevertheless shall be liable for the Fixed
Minimum Rent and any other amounts due hereunder for said one hundred eighty
(180) day period, as well as any other provisions of this Lease during such
period.
SECTION 2.3 - Completion and Occupancy:
- --------------------------------------
2.3.1 Subject to delay by causes beyond the reasonable control of
Landlord, or by the action or inaction of Tenant, Landlord shall endeavor to
have the Premises ready for Tenant's occupancy on or before a reasonable period
of time following execution of this Lease but not to exceed sixty (60) days. If
the Demised Premises are not ready for the Tenant's occupancy on such date, then
this Lease shall not be affected thereby but, in such case, such date shall be
postponed until the date when the Demised Premises are ready for Tenant's
occupancy. and Tenant shall not have any claim against Landlord, and Landlord
shall have no liability to Tenant, by reason of any such postponement of such
specific date. Notwithstanding the foregoing, if the Demised Premises are not
ready for the Tenant's occupancy within ninety (90) days of the date of Landlord
and Tenant's execution of this Lease, Tenant shall have the right to terminate
this Lease.
2.3.2 The Demised Premises shall be conclusively deemed ready for Tenant's
occupancy as soon as (i) a certificate (temporary or final) permitting occupancy
of the Demised Premises has been issued by the governmental authority having
jurisdiction, and (ii) the initial installations and work to be done by Landlord
(referred to on Exhibit "C" annexed hereto and made a part hereof) in the
-----------
Demised Premises have been substantially completed by Landlord in accordance
with the obligations assumed by Landlord hereunder. Tenant shall cooperate with
Landlord in obtaining a certificate of occupancy for the Premises. The Fixed
Minimum Rent and all additional rent to be paid under this Lease shall commence
on the Commencement Date. Notwithstanding the aforesaid, Tenant shall pay the
first monthly installment of Fixed Minimum Rent on the execution of this Lease.
The Demised Premises shall not be deemed to be unready for Tenant's occupancy or
incomplete, nor shall the Commencement Date be delayed. if only minor or
insubstantial details of construction, decoration or mechanical adjustments
remain to be done in the Premises, or if the delay in the availability of the
Premises for occupancy shall be due to special work, changes, alterations or
additions required or made by Tenant in the layout or finish of the Premises or
any part thereof or shall be caused in whole or in part by Tenant through the
delay of Tenant in submitting any plans and/or drawings (including, but not
limited to, the final plans and drawings referred to on Exhibit "C" hereof),
-----------
supplying information, approving estimates or giving authorizations or shall be
caused in whole or in part by delay and/or default on the part of Tenant.
Notwithstanding the foregoing, Landlord and Tenant shall approve the final
punch-list for the construction of the Demised Premises prior to the time that
the Demised Premises shall be deemed to be ready for Tenant's occupancy.
2.3.3 Landlord and Tenant acknowledge the final plans and drawings for
completion of the Landlord's Work (as shown on the drawings attached hereto as
Exhibit "C") If Tenant delays in submitting to Landlord any additional
- -----------
information required for the Landlord's carrying out of the Landlord's Work,
such as approving estimates, or in giving authorizations or otherwise or
5
<PAGE>
if Tenant makes any changes, alterations or additions to said plans, any
additional cost to Landlord in connection with the completion of the Premises in
accordance with the terms of this Lease and said Exhibit "C" shall be promptly
-----------
paid by Tenant to Landlord as additional rent.
ARTICLE III
-----------
CONSTRUCTION
SECTION 3.1 - Landlord's Work:
- -----------------------------
Landlord shall perform the work ("Landlord's Work") with respect to the
Demised Premises on behalf of Tenant as set forth in the description of the
Landlord's Work attached -hereto as Exhibit "C". As an accommodation to Tenant,
-----------
Landlord shall give Tenant thirty (30) days advance notice of the estimated date
for completion of the Landlord's Work. The giving of such notice of the
estimated date of completion of the Landlord's Work, or the failure to give such
notice, shall not affect the respective obligations of the parties under this
Lease.
SECTION 3.2 - Early Commencement Date:
- -------------------------------------
If Landlord has substantially completed the Landlord's Work prior to the
specific date mentioned in Section 2.2 hereof, Tenant may, with the prior
written consent of Landlord, enter into possession of the Demised Premises.
Under such circumstances, the Lease Term shall commence on the date ("Early
Commencement Date") Landlord delivers possession of the Demised Premises to
Tenant, and all rent, Additional Rent and other charges payable by Tenant
hereunder, shall accrue on and after the Early Commencement Date.
SECTION 3.3 - Ownership of Improvements:
- ---------------------------------------
All structural installations, alterations, additions or improvements (the
"Improvements") upon the Premises made by either party, shall, at the option of
the Landlord, become the property of the Landlord and shall remain upon and be
surrendered with the Premises as a part thereof at the expiration or sooner
termination of the Lease Term. Notwithstanding the foregoing, Landlord may, at
its option, specify which Improvements that have been made by the Tenant shall
be removed from the Demised Premises at the expiration or sooner termination of
the Lease Term. Tenant, at its own expense, shall remove such specified
Improvements, and Tenant shall, at its expense, promptly repair any damage
caused by such removal. Movable office furniture and trade fixtures which are
installed by Tenant at its expense shall remain the property of Tenant and may
be removed at any time prior to the expiration of the Lease Term, provided
Tenant promptly repairs any damage caused by such removal.
6
<PAGE>
ARTICLE IV
----------
RENT
SECTION 4.1 - Payment:
- ---------------------
All Fixed Minimum Rent and other charges payable to Landlord under any
provision of this Lease shall be paid to Landlord, or as Landlord may otherwise
designate, in lawful money of the United States which shall be legal tender in
payment of all debts and dues, public and private, at the time of payment at the
Address of Landlord or at such other place as Landlord in writing may designate,
without any set-off or deduction whatsoever and without any prior demand
therefor. Ln addition to the payment of Fixed Minimum Rent and other charges.
Tenant shall also pay to Landlord, at the time of payment of such Fixed Minimum
Rent and other charges, all sales, use or occupancy taxes payable by virtue of
any such payments.
SECTION 4.2 - Fixed Minimum Rent:
- --------------------------------
Tenant shall pay the annual Fixed Minimum Rent in equal monthly
installments in advance on the first day of each calendar month included in the
Lease Term. The first monthly installment of Fixed Minimum Rent shall be paid on
the signing of this Lease as provided in Section 2.3.2 hereof.
SECTION 4.3 - Adjustment of Fixed Minimum Rent: N/A.
- ----------------------------------------------
SECTION 4.4 - Operating Expenses:
- --------------------------------
4.4.1 In addition to the Fixed Minimum Rent, Tenant shall pay to Landlord
its pro-rata share of the increase in Operating Expenses (as such term is
hereinafter defined) over the first Lease year which shall be defined as 1997.
Such pro-rata share shall be determined by multiplying the Operating Expenses by
the Tenant's Percentage referred to in Section 1.1 hereof. The Operating
Expenses for each prospective calendar year shall be determined and estimated by
Landlord. Tenant agrees to pay its share of Operating Expenses, as additional
rent, in monthly payments in advance during the term of this Lease as may be
estimated by Landlord. At the end of each calendar year, Landlord shall advise
Tenant of Tenant's share of the Operating Expenses payable for such year as
computed on the accrual basis based upon the costs thereof to Landlord. Tenant
upon written request to Landlord shall be provided with an itemized cost
analysis in reasonable detail and shall have the right to review the records in
support of Landlord's calculation of Tenant's share of the Operating Expenses.
If Tenant's review of Landlord's records in support of Tenant's share of the
Operating Expenses results in a finding that Landlord overcharged Tenant, Tenant
shall have the right to require Landlord to bill Tenant for Tenant's share of
Operating Expenses annually as opposed to being paid in monthly payments as
provided for in this Section 4.4.1. If there shall have been an underpayment
by Tenant, Tenant shall forthwith pay the difference, and if there shall be an
overpayment by Tenant, Tenant shall be given a credit towards the next due
payment(s) of its share of Operating Expenses. The
7
<PAGE>
Operating Expenses payable by Tenant as provided for herein shall not increase
from the immediately preceding annual period by more than four percent (4%);
and, provided that any and all non-controllable items which comprise the
Operating Expenses (such as real estate taxes, premiums paid for insurance on
the Building and similar items) shall be payable by Tenant and not subject to
such limitation.
4.4.2 For the purposes of this Section 4.4, the term "Operating Expenses"
shall include all reasonable and customary costs and expenses relating to the
operation and maintenance of the Building as an office building, including, but
not limited to, costs of replacement for tools and equipment, reasonable amounts
paid to managing agents of the Building, amounts paid for legal or other
professional services related to the Premises, costs of clerical and accounting
staff and costs of telephone, telegraph, postage, stationery supplies and other
materials required by such staff, amounts paid to contractors for services,
materials and supplies (including without limitation, the servicing and
maintenance of the elevator, plumbing, heating, air conditioning, ventilating,
lighting, electrical, security and fire alarms and other systems and equipment),
reasonable premiums paid for insurance, cost of equipment rental, including
applicable taxes, costs of electricity, water and other utilities, Real Estate
Taxes (hereinafter defined), and costs of painting the Premises or Common Areas.
The term "Operating Expenses" shall also include all costs and expenses relating
to the operation and maintenance of the Parcel and all improvements thereon,
including without limitation all costs of landscape maintenance and the
materials and supplies incident thereto, all costs and expenses relating to the
maintenance and operation of all entrances, exits, parking areas, driveways,
curbs, walks, and exterior lighting, reasonable premiums for public liability
and other insurance. For the purposes of this Section 4.4, the term "Real Estate
Taxes" shall include all real estate taxes, assessments (general and special)
and other governmental impositions and charges of every kind and nature
whatsoever, extraordinary as well as ordinary, foreseen or unforeseen, and each
and every installment thereof, which shall or may during the Lease Term be
levied, assessed, imposed, become due and payable, or liens upon, or arise in
connection with the use, occupancy or possession of, or grow due or payable out
of, or for, the Building or any part thereof, the Parcel and all improvements
thereon. Operating Expenses and Real Estate Taxes do not include, nor shall
Tenant be obligated to contribute towards, any expenses associated in any way
with Landlord's compliance with the Americans with Disabilities Act, toxic or
hazardous materials regulations (whether federal, state or local) or asbestos
abatement or containment other than materials introduced into the Premises by
Tenant.
SECTION 4.5 - Late Payment Penalty:
- ----------------------------------
A penalty of three and one-half percent (3-1/2%) per month of the Fixed
Minimum Rent and any additional rent provided for in this Lease shall be
assessed, due and payable immediately upon tender of the payment for the Fixed
Minimum Rent and additional rent if said payment is not received by the tenth
(lOth) day next following the due date of such rental payment. If payment is
received after the twentieth (2Oth) day of the month, the penalty shall be
increased to eight percent (8%) per month if such payment is not made.
8
<PAGE>
SECTION 4.6 - Additional Rent: N/A
- -----------------------------
SECTION 4.7 - Rent for a Partial Month:
- --------------------------------------
For any portion of a calendar month at the beginning or end of the Lease
Term, Tenant shall pay 1/3Oth of the monthly installment of Fixed Minimum Rent
and additional rent for each day of such portion of a month payable in advance
at the beginning of such period.
SECTION 4.8 - Payment by Automatic Transfer:
- -------------------------------------------
Instead of requiring Tenant to pay Fixed Minimum Rent, Operating Expenses,
or other charges in a manner pursuant to Section 4.1, Landlord may, if Tenant
shall agree to the same upon not less than thirty (30) days' prior notice to
Tenant, request Tenant to execute promptly and deliver to Landlord any
documents, instruments, authorizations, or certificates required by Landlord to
give effect to an automated debiting system, whereby any or all payments by
Tenant (as designated from time to time by Landlord) of whatsoever nature
required or contemplated by this Lease shall be debited monthly or from time to
time, as determined by Landlord, from Tenant's account in a bank or financial
institution designated by Tenant and credited to Landlord's bank account as
Landlord shall designate from time to time.
Tenant shall promptly pay all reasonable service fees and other reasonable
charges connected therewith including, without limitation, any charges resulting
from insufficient funds in Tenant's bank account or any charges imposed on the
Landlord.
In the event that Tenant elects to designate a different bank or financial
institution from which any Fixed Minimum Rent. Operating Expenses, or other
charges under this Lease are automatically debited, notification of such change
and the required documents, instruments, authorizations, and certificates as
specified in this Section 4.8 must be received by Landlord no later than thirty
(30) days prior to the date such change is to become effective.
Tenant agrees that it shall remain responsible to Landlord for all payments
of Fixed Minimum Rent, Operating Expenses. and other charges pursuant to this
Lease, even if Tenant's bank account is incorrectly debited in any given month.
Such Fixed Minimum Rent, Operating Expenses, and other charges shall be
immediately payable to Landlord upon written demand.
SECTION 4.9 - Services Provided to Landlord:
- -------------------------------------------
Tenant acknowledges that Landlord has undertaken to pay the entire cost of
the Landlord's Work as provided for in Section 3.1 herein, which cost is in
excess of the cost of Landlord's original estimates to construct suitable space
for Tenant in the Building. In consideration of the foregoing, Tenant shall
provide to Landlord, or any of its affiliates, for a period of three (3) years
from the date of publication (i.e., the date of publication of an information
site on the World Wide Web) an information site consisting of up to 14 pages
within the CitySearch Nashville service at a rate of fifty percent (50%) of the
standard commercial rate charged for such
9
<PAGE>
information site. Such services shall include design, photography and lay-out,
updates and any similar services provided by Tenant. Prior to providing such
services, Landlord shall execute Tenant's standard Information Site Agreement.
In exchange for the above, Landlord agrees to use its reasonable best efforts to
promote the CitySearch service to its other tenants and other vendors and
business associates of Landlord. For example, Landlord agrees to promote Tenant
in Landlord's newsletter, presentations and contacts with other vendors and
business associates.
ARTICLE V
---------
UTILITY SERVICES
SECTION 5.1 - Utilities:
- -----------------------
Provided that Tenant is not in default hereunder, Landlord agrees to
furnish to the Premises electricity for normal desk top office equipment and
normal copying equipment, and heating, ventilation and air conditioning ("HVAC")
as required in Landlord's judgment for the comfortable use and occupancy of the
premises, 365 days per year, 24 hours per day at no additional cost to Tenant.
Landlord shall also maintain and keep lighted the common stairs, common entries
and restrooms in the Building. Landlord shall not be in default hereunder or be
liable for any damages directly or indirectly resulting from, nor shall the Rent
be abated by reason of (i) the installation, use or interruption of use of any
equipment in connection with the furnishing of any of the foregoing services if
beyond the reasonable control of Landlord, (ii) failure to furnish or delay in
furnishing any such services where such failure or delay is caused by accident
or any condition or event beyond the reasonable control of Landlord, or by the
making of necessary repairs or improvements to the Premises, Building or
Project, or (iii) the limitation, curtailment or rationing of, or restrictions
on, use of water, electricity, gas or any other form of energy serving the
Premises. Building or Project if beyond the reasonable control of Landlord.
Landlord shall not be liable under any circumstances for a loss of or injury to
property or business, however occurring, through or in connection with or
incidental to failure by third parties to furnish any such services. If Tenant
uses heat generating machines or equipment in the Premises which affect the
temperature otherwise maintained by the HVAC system, Landlord reserves the right
to install supplementary air conditioning units in the Premises and the cost
thereof, including the cost of installation, operation and maintenance thereof,
shall be paid by Tenant to Landlord upon demand by Landlord. Landlord shall use
reasonable efforts to correct all services provided for hereunder.
Tenant shall not, without the written consent of Landlord, use any
apparatus or devise in the Premises, including without limitation, electronic
data processing machines, punch card machines or machines using in excess of 120
volts, which consumes more electricity than is usually furnished or supplied for
the use of premises as general office space, as determined by Landlord. Tenant
shall not connect any apparatus with electric current except through existing
electrical outlets in the Premises. Tenant shall not consume water or electric
current in excess of that usually furnished or supplied for the use of Premises
as general office space (as
<PAGE>
determined by Landlord), without first procuring the written consent of
Landlord, which Landlord may refuse, and in the event of consent. Landlord may
have installed a water meter or electrical current meter in the Premises to
measure the amount of water or electric current consumed. The cost of any such
meter and of its installation, maintenance and repair shall be paid for by the
Tenant and Tenant agrees to pay to Landlord promptly upon demand for all such
water and electric current consumed as shown by said meters, at the rates
charged for such services by the local public utility plus any additional
expense incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, the excess cost for such water
and electric current shall be established by an estimate made by a utility
company or electrical engineer hired by Landlord at Tenant's expense.
ARTICLE VI
----------
LANDLORD'S ADDITIONAL COVENANTS
SECTION 6.1 - Repairs by Landlord:
- ---------------------------------
Landlord covenants to keep, in good order, repair and condition the
foundations and roof of the Building and the structural soundness of the floors
and walls thereof and the pipes, ducts, conduits and wires running through the
Demised Premises and installed therein as part of the Landlord's Work (but not
including Tenant's service connections thereto) except as affected by any work
by or for Tenant or the negligence, act or omission of Tenant, its employees,
agents and invitees. Landlord shall not be required to commence any repair until
after notice from the Tenant that the same is necessary, which notice, except in
the case of an emergency, shall be in writing and shall allow Landlord seven
(7) days in which to commence such repair. The provisions of this Section shall
not apply in the case of damage by fire or casualty or by eminent domain, in
which events the obligations of the Landlord shall be controlled by the
applicable provisions of this Lease. Except as provided in this Section,
Landlord shall not be obligated to make repairs, replacements or improvements of
any kind upon the Demised Premises or upon any equipment or facilities or
fixtures contained herein, all of which shall be the responsibility of Tenant.
Landlord acknowledges that Tenant shall have no responsibility for completion of
the Landlord's Work and for the Premises following such work to be in compliance
with applicable building, health and environmental ordinances or regulations of
any federal, state and local entities.
SECTION 6.2 - Quiet Enjoyment:
- -----------------------------
Landlord covenants that Tenant, on paying the Fixed Minimum Rent and
additional rent and performing Tenant's obligations under this Lease shall
peacefully and quietly have, hold and enjoy the Demised Premises throughout the
Lease Term, subject to the other terms and provisions of this Lease and to all
mortgages and underlying leases to which this Lease may be or become subject and
subordinate. Landlord covenants that any construction or renovation in the
Building
11
<PAGE>
following the date of the execution of this Lease shall not unreasonably or
adversely affect Tenant's ability to conduct its business within the Premises.
SECTION 6.3 - Landlord's Liability:
- ----------------------------------
In the event of a sale or assignment by Landlord of its interest in the
Building, then, and in that event, Landlord shall thereupon be entirely relieved
of all terms, covenants, and obligations thereafter to be performed by Landlord
under this Lease and it shall be deemed and construed, without further
agreement, that the transferee or lessee, as the case may be, has assumed and
agreed to carry out any and all covenants and obligations of Landlord hereunder.
SECTION 6.4 - Services:
- ----------------------
Landlord will furnish the following services to Tenant:
(a) Automatically operated elevator service at all times and on all
days throughout the year subject to such security arrangements (by key operation
or otherwise) during non-business hours as Landlord shall deem prudent and
necessary.
(b) Heat and air conditioning, as necessary, to the public portions of
the Building.
(c) Landlord shall furnish such cleaning of the Demised Premises as in
the judgment of Landlord is normal and usual in office buildings similar to the
Building provided that (i) the Premises are kept in order by Tenant; (ii)
Landlord shall not be required to clean storage rooms data processing, computers
or similar equipment; and (iii) any shampooing or cleaning of carpets more than
one (1) time per year and other than normal vacuuming shall be at Tenant's own
expense.
Such services shall be provided so long as the Tenant is not in default
under any of the terms, provisions, covenants and conditions of this Lease,
subject to interruptions caused by repairs, renewals, improvements, changes of
service, alterations, strikes, lockouts, labor controversies, inability to
obtain fuel or power, accidents, breakdowns, catastrophes, national or local
emergencies, acts of God, and conditions and causes beyond the reasonable
control of Landlord; and upon such happening, no claim for damages or abatement
of rent for failure to furnish any such services shall be made by the Tenant or
allowed by the Landlord.
SECTION 6.5 - Common Areas:
- --------------------------
Tenant and Tenant's agents, employees and invitees shall have the right to
use, in common with Landlord and Landlord's tenants and the agents, employees,
and invitees of each, the public sidewalks, entrances, lobbies, vestibules,
stairways, corridors, elevators, public toilets, and other public areas of the
Building subject, however, to applicable rules, regulations, and security
measures; and Tenant and Tenant's agents, employees, and invitees shall not
obstruct or litter,
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or use for storage, temporary or otherwise, or for any purpose other than the
intended or normal purpose, any of the public sidewalks, entrances, lobbies,
vestibules, stairways, corridors, elevators, public toilets, and other public
areas of the Building.
SECTION 6.6 - Signage:
- ---------------------
Tenant may have installed a sign identifying Tenant at Tenant's entrance to
its suite subject to Landlord's reasonable approval. Tenant shall also be
identified in the lobby directory. Both such signs shall be paid for by
Landlord.
SECTION 6.7 - Indemnity:
- -----------------------
To defend and save Tenant harmless and indemnified from all loss, claims or
damage (including attorney's fees and disbursements) to any person or property
arising from, related to or in connection with any work performed by or for
Landlord in the Building, other than losses, claims or damage resulting from or
caused by Tenant's negligence or any of its agents or employees.
ARTICLE VII
-----------
TENANT'S ADDITIONAL COVENANTS
SECTION 7.1 - Affirmative Covenants:
- -----------------------------------
Tenant covenants, at its own expense, at all times during the Lease Term:
7.1.1 To perform promptly all of the obligations of Tenant set forth in
this Lease and in the exhibits attached hereto and to pay, when due, the Fixed
Minimum Rent and other charges and additional rents which by the terms of this
Lease are to be paid by Tenant.
7.1.2 To use the Demised Premises only for the Permitted Use and to abide
by and conform to any and all use restrictions set forth in the certificate of
occupancy issued for the Demised Premises, all applicable occupation permits,
the recorded plat, all agreements filed of record and all other laws, orders,
rules and regulations of any governmental authority having or claiming
jurisdiction over the Demised Premises.
7.1.3 Except for repairs required to be performed by Landlord pursuant to
the provisions of this Lease, to keep the Demised Premises, including the
equipment, facilities and fixtures therein, at Tenant's sole costs and expense,
in good order, repair, condition and free of vermin.
7.1.4 Other than the Landlord's Work as set forth in Section 3.1, and
except for the work described in Section 4.4.2, to pay promptly, when due, the
entire costs of any work to the Demised Premises, including equipment,
facilities and fixtures therein, undertaken by Tenant when permitted or required
to do so under the provisions of this Lease so that the Demised
13
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Premises shall at all times be free of liens for labor and materials; to procure
all necessary permits before undertaking such work; to do all such work in a
good and workmanlike manner acceptable to Landlord, employing materials of good
quality; to perform such work in such manner as to insure proper maintenance of
labor relationships; to comply with all governmental requirements relating
thereto and to save Landlord harmless and indemnified from all injury, loss,
claims or damage to any person or property occasioned by or growing out of such
work.
7.1.5 To defend and save Landlord harmless and indemnified from all injury,
loss, claims or damage (including attorney's fees and disbursements) to any
person or property arising from, related to or in connection with any work
performed by or for Tenant in the Demised Premises, other than losses, claims or
damage resulting from or caused by Landlord's negligence or any of its agents or
employees.
7.1.6 To maintain in responsible companies approved by Landlord (i)
liability insurance, with contractual liability endorsement covering the matters
set forth in this Lease, against all claims, demands or actions for injury to or
death of any one person in an amount of not less than $1,000,000 and for injury
to or death of more than one person in any one accident or occurrence to the
limit of not less than $2,000,000 and for damage to property in an amount not
less than $1,000,000 made by or on behalf of any person or persons, firms or
corporations arising from, relating to or connected with the conduct and
operation of Tenant's business at the Demised Premises or caused by actions or
omissions to act, where there is a duty to act, of Tenant, its agents, servants
and contractors; and (ii) fire insurance, with such extended coverage
endorsements as Landlord may reasonably from time to time require, covering all
of Tenant's fixtures, furniture, furnishing, floor coverings and equipment at
the Demised Premises in an amount not less than one hundred percent (100%) of
their full replacement cost. All of said insurance shall be in form satisfactory
to Landlord and shall provide that it shall not be subject to cancellation,
termination or change except after at least thirty (30) days prior written
notice to Landlord. All insurance provided by Tenant as required under this
Section shall be carried in favor of Landlord and Tenant, as their respective
interests may appear. All liability policies shall provide that although the
Landlord is named insured, it shall nevertheless be entitled to recover under
said policies for any loss or damage to Landlord resulting from Tenant's
negligence. The policies, or duly executed certificates for the same, including
any renewals, together with satisfactory evidence of the payment of the premium
thereof, shall be deposited with Landlord within twenty (20) days of the written
request of Landlord. If Tenant fails to comply with such requirement, Landlord
may, but shall not be obligated to, obtain such insurance and keep the same in
effect and Tenant shall pay Landlord the premium costs thereof upon demand
7.1.7 To pay on demand any increase in premiums that may be charged on
insurance carried by Landlord or for which Landlord may be obligated to make
reimbursement to other tenants or occupants of the Building under the terms of
their respective leases or occupancy agreements resulting from Tenant's use or
occupancy of the Demised Premises, or from any vacancy of the Demised Premises,
provided, however, Tenant shall not be required to pay any amounts that exceed
ten percent (10%) from the immediately preceding policy term, whether or
14
<PAGE>
not Landlord has consented to same. In determining whether increased premiums
are the result of Tenant's use or occupancy or vacancy of the Demised Premises,
a schedule or "make-up" rate of the organization issuing the coverage, or any
and all risk insurance rates for said premises, or any rule books issued by the
rating organization or similar bodies or by rating procedures or rules of
Landlord's insurance company shall be conclusive evidence of the items and
charges which make up the insurance rates and premiums on the Demised Premises
and the Building.
7.1.8 To waive all claims for loss or damage to Tenant's business or damage
to personal property sustained by Tenant or any person claiming through Tenant
resulting from any accident or occurrence in or upon the Demised Premises or the
Building, unless caused by or resulting from the negligence of Landlord, its
agents, servants or employees.
7.1.9 To permit Landlord or Landlord's agents to enter upon the Demised
Premises at all reasonable times to examine same and to make such repairs,
alterations, improvements or additions in the Demised Premises or in the
Building as may be necessary and to allow Landlord to take all materials into
and upon said premises that may be required therefor without the same
constituting an eviction of Tenant, in whole or in part, and all rents shall in
no wise abate while such repairs, alterations, improvements, or additions are
being made by reason of loss or interruption of business of Tenant because of
the performance of any such work. Landlord or Landlord's agents shall also have
the right to enter upon the Demised Premises at reasonable times to show them to
prospective mortgage or or purchasers of the Building. During the 90 days prior
to the expiration of the Term of this Lease, Landlord may show the Demised
Premises to prospective tenants and Landlord may also place upon the Demised
Premises the usual notices "To Let" or "For Rent", which notices Tenant shall
permit to remain thereon without molestation. If, during the last month of the
Term. Tenant shall have removed all or substantially all of Tenant's property
therefrom, Landlord may immediately enter and alter, renovate and redecorate the
Demised Premises without elimination or abatement of rent or additional rent or
other compensation and such action shall have no effect upon this Lease.
7.1.10 To pay Landlord's expenses, including reasonable attorney's,
architect's and engineer's fees, incurred in enforcing any obligation of Tenant
under this Lease or incurring any default by Tenant under this Lease, assuming
Landlord is the prevailing party in such enforcement action.
7.1.11 Forthwith to cause to be discharged of record (by payment, bond,
order of a court of competent jurisdiction or otherwise) any mechanic's lien at
any time filed against the Demised Premises or the Building for any work, labor,
services or materials claimed to have been performed at, or furnished to Tenant,
excluding the Landlord's Work. If Tenant shall fail to cause such lien to be
discharged upon demand, then, in addition to any other right or remedy of
Landlord, Landlord may, but shall not be obligated to, discharge the same by
paying the amount claimed to be due or by bonding or other proceeding deemed
appropriate by Landlord and the amount so paid by Landlord and/or all costs and
expense, including reasonable attorney's fees, incurred by Landlord in procuring
the discharge of such lien shall be deemed to be additional rent. Nothing in
this Lease contained shall be construed as a consent on the part of the Landlord
15
<PAGE>
to subject Landlord's estate in the Demised Premises or the Building to any lien
or liability under any laws, orders, rules and regulations of any governmental
authority having or claiming jurisdiction over the Demised Premises. The Tenant
shall not have any authority to create any liens for labor or material on the
Landlord's interest in the Demised Premises or the realty of which the Demised
Premises form a part and all persons contracting with the Tenant for the
destruction or removal of any facilities or other improvements or for the
erection, installation, alteration, or repair of any facilities or other
improvements on or about the Demised Premises, and all materialmen, contractors,
mechanics, and laborers, are hereby charged with notice that they must look only
to the Tenant and to the Tenant's interests in the Demised Premises to secure
the payment of any bill for work done or material furnished at the request or
instruction of Tenant.
7.1.12 Upon the expiration or other termination of the Lease Term, to quit
and surrender to Landlord the Demised Premises, broom clean, in good order and
condition, ordinary wear and tear excepted, and at Tenant's expense, to remove
all property of Tenant, to repair all damages to the Demised Premises caused by
such removal and restore the Demised Premises to the condition in which they
were prior to the installation of the articles so removed. Any property not so
removed shall be deemed to have been abandoned by Tenant and may be retained or
disposed of by Landlord, as Landlord shall desire, and if Landlord shall decide
to dispose of same, such disposal shall be at the cost and expense of Tenant.
7.1.13 To remove all rubbish, dirt and debris from the Demised Premises,
at its own cost and expense, utilizing a company approved by Landlord, subject
to the obligation of Landlord to furnish normal and usual cleaning services as
provided in Section 6.4 hereof.
7.1.14 To remain fully obligated under this Lease, notwithstanding any
assignment or sublease or any indulgence granted by Landlord to Tenant or to any
assignee or sublessee.
SECTION 7.2 - Negative Covenants:
- --------------------------------
Tenant covenants at all times during the Lease Term and such further time
as Tenant occupies the Demised Premises, or any part thereof:
7.2.1 Not to injure, overload, deface or otherwise harm the Demised
Premises or any equipment or installation therein; nor commit any waste or
nuisance; nor permit the emission of any objectionable noise or odor; nor burn
any trash or refuse in or about the Demised Premises; nor make any use of the
Demised Premises, or any part thereof or equipment therein, which is improper,
offensive or contrary to any law or ordinance or to reasonable rules or
regulations of Landlord as such may be promulgated from time to time; nor park
or permit its employees, agents, visitors or invitees to park automobiles or
other vehicles so as to interfere with the use of driveways, entrances, exits,
walks, roadways, highways, streets, or parking areas. Without limiting the
foregoing provisions pertaining to overloading and noise, Tenant further
covenants that (a) Tenant shall not place a load upon any floor of the Demised
Premises which exceeds the load per square foot which such floor was designed to
carry or which is allowed by law and (b)
16
<PAGE>
business machines and mechanical equipment belonging to Tenant which cause
noise, vibration or any other nuisance that may be transmitted to the structure
or other portions of the Building or to the Demised Premises to such a degree as
to be objectionable to Landlord, or which interfere with the use or enjoyment by
other tenants of their premises or the public portions of the Building, shall be
placed and maintained by Tenant, at Tenant's cost and expense, in settings
sufficient to eliminate noise or vibration. Landlord reserves the right to
approve the weight and position of all safes which Tenant desires to bring into
the Demised Premises.
7.2.2 Except for placement and display of art work, erasable boards, other
display materials, and routine cables (reparable with minor patching) and
telephone lines, not to make any alterations or additions to the Demised
Premises or the Building, nor permit the making of any holes in the walls,
ceilings, or floors thereof installed as part of Landlord's Work, without on
each occasion obtaining prior written consent of the Landlord, in which event
the provisions of Paragraph 7.1.5 shall control.
7.2.3 Not to assign, sell, mortgage, encumber, pledge or in any manner
transfer this Lease or any interest therein or sublet the Demised Premises or
any part or parts thereof. or grant any concession or license or otherwise
permit occupancy of all or any part thereof by anyone with, through, or under
it, without the prior written consent of the Landlord, which consent may not be
unreasonably withheld.
7.2.4 Not to place, install or maintain any sign, advertisement, notice or
any other lettering upon the Parcel or any part thereof, the entrance door or
doors to the Demised Premises, or upon or within the interior of the Building or
any part thereof, except for such sign and/or lettering placed or installed by
Landlord at its expense pursuant to Section 6.5 hereof.
7.2.5 Not to place or install any blinds, shades or other window coverings
or treatments in the windows of the Demised Premises other than those furnished
by Landlord without the prior written approval of Landlord; not to place or
display any signs, advertising or other things of whatsoever kind, nature or
description in the windows of the Demised Premises or within the Demised
Premises so that the same are visible from outside of the Demised Premises; and
not to wash or permit or suffer any contractor, employee or agent of Tenant to
wash the exterior of any windows in the Demised Premises.
ARTICLE VIII
------------
DESTRUCTION AND CONDEMNATION
SECTION 8.1 - Fire or other Casualty:
- ------------------------------------
8.1.1 Tenant shall give prompt notice to Landlord in case of fire or other
damage to the Demised Premises or the Building.
17
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8.1.2 If (i) the Demised Premises shall be damaged to the extent of more
than twenty-five percent (25%) of the cost of replacement thereof; or (ii) the
proceeds of Landlord's insurance recovered or recoverable as a result of the
damage shall be insufficient to pay fully for the cost of replacement of so much
of the Demised Premises and/or the Building in which they are located as was
included in the Landlord's Work referred to in Section 3.1 hereof; or (iii) the
Demised Premises or the Building shall be damaged as a result of a risk which is
not covered by Landlord's insurance; or (iv) the Demised Premises shall be
damaged in whole or in part during the last six (6) months of the Lease Term; or
(v) the Building of which the Demised Premises are a part shall be damaged to
the extent of fifty percent (50%) or more of the cost of replacement thereof,
whether or not the Demised Premises shall be damaged, then, and in any of such
events, Landlord may terminate this Lease by notice given within sixty (60) days
after such event in which case this Lease shall terminate effective upon the
date the damage occurred and Tenant shall vacate and surrender the Demised
Premises to Landlord. If the casualty, repairing or rebuilding shall render the
Demised Premises untenantable in whole or in part, an equitable abatement of the
Fixed Minimum Rent shall be allowed from the date when the damage occurred until
completion of the repairs or rebuilding or, in the event Landlord elects to
terminate this Lease, until said date of termination, taking into account, among
other things, the amount and location of the floor space of the Demised Premises
rendered untenantable.
8.1.3 If this Lease shall not be terminated as provided above, Landlord
shall, at its expense, proceed with the repair or restoration of the Demised
Premises and the Building. All repairs and restoration of the Demised Premises
not included in Landlord's Work shall be performed by Tenant at its expense. All
work of restoration by Landlord shall be done in conformity with Exhibit "C".
-----------
All salvage from repair or restoration work done at any time pursuant to this
Section shall belong to Landlord, who shall not be accountable therefor to
Tenant.
8.1.4 If the Demised Premises shall be damaged or destroyed due to the
fault and/or negligence of Tenant, its agents, employees or invitees, the cost
of repairing or restoring the Demised Premises shall be paid by Tenant and the
Fixed Minimum Rent and all other additional rents and charges herein shall not
abate.
SECTION 8.2 - Eminent Domain:
- ----------------------------
8.2.1 If the whole of the Demised Premises shall be taken by any public or
quasi-public authority under the power of condemnation, eminent domain or
expropriation, or in the event of a conveyance in lieu thereof, the Lease Term
shall cease as of the date possession shall be taken by such authority.
8.2.2 If twenty-five percent (25%) or less of the Floor Space of the
Demised Premises shall be so taken or conveyed, the Lease Term shall cease only
with respect to the part so taken or conveyed, as of the date possession shall
be taken by such authority.
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8.2.3 If more than twenty-five percent (25%) of the Floor Space of the
Demised Premises shall be so taken or conveyed, the Lease Term shall cease only
with respect to the part so taken or conveyed, as of the date possession shall
be taken by such authority, and either party shall have the right to terminate
this Lease upon notice in writing within thirty (30) days after such taking of
possession.
8.2.4 In the event of any such taking or conveyance of the Demised
Premises, or any portion thereof, Tenant shall pay Fixed Minimum Rent and
additional rent to the day when possession thereof shall be taken by such
authority, with an appropriate refund by Landlord of such rent as may have been
paid in advance for a period subsequent to such date. If this Lease shall
continue in effect as to any portion of the Demised Premises not so taken or
conveyed, the Fixed Minimum Rent shall be equitably reduced and the other
charges shall thereafter be recomputed on the basis of the remaining Floor
Space. If this Lease shall so continue, Landlord shall, at its expense, but only
to the extent of an equitable proportion of the award or other compensation for
the portion taken or conveyed of the Building in which the Demised Premises are
located, make all necessary repairs or alterations so as to constitute the
remaining Demised Premises a complete architectural and tenantable unit.
8.2.5 All compensation awarded for any such taking or conveyance, whether
for the whole or a part of the Demised Premises or otherwise, shall be the
property of Landlord, and Tenant hereby assigns to the Landlord all of Tenant's
right, title and interest in and to any and all such compensation.
ARTICLE IX
----------
DEFAULTS AND REMEDIES
SECTION 9. 1 - Default:
- ----------------------
9.1.1 If Tenant defaults in fulfilling any of the covenants of this Lease,
including, without limitation, the payment of Fixed Minimum Rent when due, or
for the making of any other payment herein provided for, or for the performance
of any other covenant on Tenant's part to be performed hereunder, and, in the
case of Tenant's failure to pay Fixed Minimum Rent or other required charges and
such failure continues for ten (10) days after such payment is due and following
written notice from Landlord that the same is due, or in the case where Tenant
fails to promptly and fully perform any other covenant, condition or agreement
contained herein and such failure continues for thirty (30) days after written
notice thereof from Landlord to Tenant, provided that if such failure cannot be
cured within thirty (30) days, if Tenant does not use reasonably diligent
efforts to commence to cure such failure within said thirty (30) day period,
then, in any one or more of such events, Landlord may serve upon Tenant a
written notice ("Notice of Termination") that this Lease will terminate on a
date to be specified therein, which shall not be less than fifteen (15) days
after the giving of such notice, and upon the date so
19
<PAGE>
specified, Tenant shall then quit and surrender the Demised Premises to
Landlord, but Tenant shall remain liable as hereinafter set forth.
9.1.2 If the Notice of Termination provided for in the above paragraph
shall have been given and this Lease shall be terminated, then, and in such
event, Landlord may seek such remedies for recovery of possession of the Demised
Premises, and for damages incurred, as provided for under the laws of the State
of Tennessee.
SECTION 9.2 - Bankruptcy:
- ------------------------
9.2.1 If there shall be filed against Tenant in any court, pursuant to any
statute either of the United States or of any state, a petition in bankruptcy or
insolvency or reorganization or the appointment of a receiver or trustee of all
or a portion of Tenant's property and is not dismissed within sixty (60) days,
or if Tenant shall voluntarily file any such petition, then, and in the event,
the Lease shall be deemed canceled and terminated, subject to the right of the
trustee, with the court's approval, to timely assume the unexpired Lease. If
Tenant shall make an assignment for the benefit of creditors or enter into an
arrangement, this Lease shall be deemed canceled and terminated, in which event
neither Tenant nor any person claiming through or under Tenant shall be entitled
to acquire or remain in possession of the Demised Premises and Landlord shall
have no further liability hereunder to Tenant and any such person, if in
possession, shall forthwith quit and surrender the Demised Premises. If this
Lease shall be so canceled and terminated, Landlord, in addition to the other
rights or remedies of Landlord contained herein, or by virtue of any statute or
rule of law, may retain as liquidated damages the Security Deposit or any monies
received by Landlord from Tenant or others on behalf of Tenant. In addition,
Landlord shall be entitled to recover from Tenant, as liquidated damages, an
amount equal to the difference between (i) the sum of (a) the annual Fixed
Minimum Rent, and (b) all additional rents due for the remaining term of the
Lease; and (ii) the present rental value of the Demised Premises at the time of
termination for such unexpired term. If the Demised Premises, or any part
thereof, be relet by Landlord for the unexpired term of said Lease, or any part
thereof, before presentation of proof of such liquidated damages to any court,
the amount of rent received upon such reletting shall be deemed prima facie to
be the fair and reasonable rental value for the part of the whole of the
premises so relet during the term of the reletting.
SECTION 9.3 - Remedies of Landlord:
- ----------------------------------
9.3.1 In case of any such default, and Landlord elects not to terminate
this Lease, (i) the Fixed Minimum Rent and additional rent shall become due
thereupon and be paid up to the time of such default; (ii) Landlord may relet
the Demised Premises, or any part or parts thereof, for a term which may at
Landlord's option be less than or exceed the period which would have otherwise
constituted the balance of the term of this Lease and may grant concessions or
free rent; and (iii) Tenant or the legal representative of Tenant shall also pay
Landlord, as liquidated damages for the failure of Tenant to observe and perform
Tenant's covenants herein contained, for each month of the period constituting
the balance of the Lease Term, any deficiency between (a) the sum of (1) one
monthly installment of the Fixed Minimum Rent, and (2) the monthly
20
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charge for Operating Expenses and other charges and (b) the net amount, if any,
of the rents collected on account of the lease or leases of the Demised Premises
for each month of the period which would otherwise have constituted the balance
of the Lease Term. In computing such liquidated damages, there shall be added to
the said deficiency such expenses as Landlord may incur in connection with the
reletting, such as court costs, attorney's fees and disbursements, brokerage,
and for putting and keeping the Demised Premises in good order or for preparing
same for reletting, together with interest on the expenses so incurred at the
then maximum lawful rate from the date of such expenditure to the date of
repayment thereof to Landlord. Any such liquidated damages shall be paid in
monthly installments by Tenant on the rent date specified in this Lease and any
suit brought to collect the amount of deficiency for any month shall not
prejudice in any way the rights of Landlord to collect the deficiency for any
subsequent month by a similar proceeding. Landlord at Landlord's option, may
make such alterations, repairs, replacements and/or decorations of the Demised
Premises as Landlord, in Landlord's sole judgment, considers advisable and
necessary for the purpose of reletting the Demised Premises and the making of
such alterations and/or declaration shall not operate or be construed to release
Tenant from liability hereunder.
9.3.2 In the case of such default and the Lease is terminated, Landlord
may recover from Tenant, or the legal representative of Tenant, as liquidated
damages (i) the worth at the time of termination of any unpaid Fixed Minimum
Rent, additional rent, and other charges earned at the time of such termination;
plus (ii) the worth at the time of the termination of the amount of the unpaid
Fixed Minimum Rent, additional rent and other charges which Tenant would have
paid for the remaining term of the Lease plus (iii) such expenses on other
amounts to compensate Landlord for all the detriment proximately caused by
Tenant's failure to fulfill any of the covenants of this Lease or which in the
ordinary course of things would be likely to result therefrom, including without
limitation, any costs or expenses incurred by Landlord in (1) maintaining or
preserving the Premises after such default, (2) recovering possession of the
Premises, including attorneys fees therefor, (3) expenses of reletting the
Premises including necessary renovations or alterations of the Premises
including necessary renovations or alterations of the Premises, attorneys fees
and leasing commissions incurred, plus (4) such other amounts in addition to or
in lieu of the foregoing as may be permitted by law.
As used in Paragraph (i) above, the "worth at the time of termination" is
computed by allowing interest on unpaid amounts at the maximum rate allowed by
law. As used in Paragraph (ii) above the "worth at the time of termination" is
computed by discounting such amount at the discount rate of the nearest Federal
Reserve Bank in effect at the time of the award plus one percent (1%).
9.3.3 In the event of a breach by Tenant of any of the covenants or
provisions hereof, Landlord shall have the right of injunction and the right to
invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
Lease of any particular remedy shall not preclude Landlord from any other remedy
in law or in equity.
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SECTION 9.4 - Waiver of Jury Trial; Tenant Not to Counterclaim: N/A
- --------------------------------------------------------------
SECTION 9.5 - Holdover by Tenant:
- --------------------------------
In the event Tenant remains in possession of the Demised Premises after the
expiration of the tenancy created hereunder, and without the execution of a new
lease, Tenant, at the option of Landlord, shall be deemed to be occupying said
Demised Premises as a tenant from month to month, at a monthly rental equal to
one hundred fifty percent (150%) of the sum of (i) the monthly installment of
Fixed Minimum Rent during the last month of the Lease Term; (ii) the monthly
Operating Expenses payable for such month; and (iii) all other charges payable
hereunder, subject to all of the other conditions, provisions and obligations of
this Lease insofar as the same are applicable to a month-to-month tenancy.
SECTION 9.6 - Landlord's Right to Cure Defaults:
- -----------------------------------------------
Landlord may, but shall not be obligated to, cure, at any time, upon
fifteen (15) days prior written notice to Tenant (except that notice shall not
be required in the event of emergencies), any default by Tenant under this Lease
and whenever Landlord so elects, all costs and expenses incurred by Landlord in
curing such default, including, without limitation, reasonable attorneys' fees,
together with interest on the amount of costs and expenses so incurred at the
then maximum lawful rate, shall be paid by Tenant to Landlord on demand and
shall be recoverable as additional rent.
SECTION 9.7 - Effect of Waivers of Default:
- ------------------------------------------
No consent or waiver, express or implied, by landlord to or of any breach
of any covenant, condition or duty of Tenant shall be construed as a consent or
waiver to or of any other breach of the same or any other covenant, condition or
duty unless in writing signed by the Landlord.
SECTION 9.8 - Security Deposit: N/A
- ------------------------------
SECTION 9.9 - Landlord's Default:
- --------------------------------
If Landlord fails to perform any covenant, condition, or agreement
contained in this Lease within thirty (30) days after receipt of written notice
from Tenant specifying such failure (or if such failure cannot reasonably be
cured within thirty (30) days, if Landlord does not commence to cure the failure
within that thirty (30) day period), then such failure shall constitute a
default hereunder and Landlord shall be liable to Tenant for any damages
sustained by Tenant as a result of Landlord's default.
22
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ARTICLE X
---------
MISCELLANEOUS PROVISIONS
SECTION 10.1 - Notices:
- ----------------------
Any notice or demand from Landlord to Tenant or from Tenant to Landlord
shall be in writing and shall be deemed duly delivered if mailed by registered
or certified mail, return receipt requested, addressed, if to Tenant, at the
address of Tenant or such other address as Tenant shall have last designated by
notice in writing to Landlord, and, if to Landlord, at the address of Landlord
or such other address as Landlord shall have last designated by written notice
to Tenant. Provided, however, notices to Tenant shall be deemed duly served or
given if delivered or mailed to Tenant at the Premises.
SECTION 10.2 - Estoppel Certificates:
- ------------------------------------
Tenant agrees that it will, at reasonable intervals, within ten (10) days
following written notice by Landlord, execute, acknowledge and deliver to
Landlord a statement in writing certifying that this Lease is unmodified and in
full force and effect (or if there have been any modifications, that the same is
in full force and effect as modified, stating the modifications) and the dates
to which Fixed Minimum Rent and other payments due hereunder from Tenant have
been paid in advance, if any, and stating whether or not to the best knowledge
of the Tenant the Landlord is in default in the performance of any covenant,
agreement or condition contained in this Lease and, if so, specifying each such
default.
SECTION 10.3 - Applicable Law and Construction:
- ----------------------------------------------
The laws of the State of Tennessee shall govern the validity, performance
and enforcement of this Lease. The invaliditv or unenforceability of any
provision of this Lease shall not affect or impair any other provision. All
negotiations, considerations, representations and understandings between the
parties are incorporated in this Lease. The headings of the several articles and
sections contained herein are for convenience only and do not define, limit or
construe the contents of such articles or sections.
SECTION 10.4 - Cancellation:
- ---------------------------
If Landlord shall be unable to deliver the Demised Premises ready for
Tenant's occupancy within ninety (90) days of the date of the complete execution
of the Lease (except that such date shall be extended as a result of (a)
Unavoidable Delays of the type referred to in Section 10.6 hereof and (b) any
delay caused by Tenant), this Lease shall, at the option of either Landlord or
Tenant (exercisable by the giving of written notice of cancellation to the other
party within ten (10) days after the specific date hereinbefore mentioned in
this Subsection 10.4 as the same may be extended as herein provided), cease and
be deemed canceled. Upon any such cancellation, this Lease shall be of no
further force or effect and neither party shall have any right or claim
23
<PAGE>
hereunder against the other except that upon such cancellation, Landlord shall
be required to return to Tenant, without interest, the monthly installment of
Fixed Minimum Rent and any other amounts paid upon the execution of this Lease.
SECTION 10.5 - Binding Effect of Lease:
- --------------------------------------
The covenants, agreements and obligations herein contained, except as
herein otherwise specifically provided, shall extend to, bind and inure to the
benefit of the parties hereto and their respective personal representatives,
successors and permitted assigns. Each covenant, agreement, obligation or other
provision herein contained shall be deemed and construed as a separate and
independent covenant of the party bound by, undertaking or making the same, not
dependent on any other provision of this Lease unless otherwise expressly
provided. If any term, covenant, agreement or provision of this Lease shall be
held by any court of competent jurisdiction to be against public policy and/or
null and void, such term, covenant, agreement or provision shall be deemed not
to have been included in this Lease and shall not affect the validity of the
remaining terms, covenants, agreements or provisions of this Lease.
SECTION 10.6 - Effect of Unavoidable Delays:
- -------------------------------------------
The provisions of this Section shall be applicable if there shall occur,
during the Lease Term, or prior to the commencement thereof, any (i) strike,
lockout or labor dispute; (ii) inability to obtain labor or materials or
reasonable substitutes therefor; or (iii) acts of God, governmental
restrictions, regulations or controls, enemy or hostile governmental action,
civil commotion, fire or other casualty or other conditions similar or
dissimilar to those enumerated in this item (iii) any other circumstances beyond
the reasonable control of the party obligated to perform. If Landlord or Tenant
shall, as a result of any of the above described events, fail punctually to
perform any obligation on its part to be performed under this Lease, then such
failure shall be excused and not be a breach of this Lease by the party in
question, but only to the extent occasioned by such event. If any right or
option of any party to take any action under or with respect to this Lease is
conditioned upon the same being exercised within any prescribed period of time
or at or before a named date, then such prescribed period of time and such named
date shall be deemed to be extended or delayed, as the case may be, for a period
equal to the period of the delay occasioned by any above described event.
Notwithstanding anything herein contained, however, the provisions of this
Section shall not be applicable to Tenant's obligation to pay the Fixed Minimum
Rent or additional rent under the provisions of Article IV or its obligation to
pay any other sums, monies, costs, charges or expenses required to be paid by
Tenant hereunder, unless the Premises are untenantable.
SECTION 10.7 - Subordination:
- ----------------------------
10.7.1 Subject to Landlord and Tenant executing a reasonably satisfactory
non-disturbance agreement, this Lease is subject and subordinate to all ground
leases and/or underlying leases now or hereafter covering the real property of
which the Demised Premises form a part and to all mortgages which may now or
hereafter be placed on or affect such leases and/or such real
24
<PAGE>
property, or any part or parts thereof, and/or Landlord's interest therein and
to all renewals, modifications, amendments, consolidations, replacements or
extensions thereof. This clause shall be self-operative and no further
instrument of subordination shall be required by any mortgagee. In confirmation
of such subordination, Tenant shall execute promptly any certificate that
Landlord may request. Tenant hereby constitutes and appoints Landlord as the
Tenant's attorney-in-fact to execute any such certificate or certificates for
and on behalf of Tenant.
10.7.2 At the option of the Landlord or any successor Landlord or the
holder of any mortgage affecting the Demised Premises, Tenant agrees that
neither the foreclosure of a mortgage affecting the Demised Premises nor the
institution of any suit, action, summary or other proceeding against the
Landlord herein or any successor Landlord or any foreclosure proceeding brought
by the holder of any such mortgage to recover possession of such property shall,
by operation of law or otherwise, result in a cancellation or termination of
this Lease or the obligations of Tenant hereunder, and upon the request of any
such Landlord, successor Landlord or the holder of such mortgage, Tenant
covenants and agrees to execute an instrument in writing satisfactory to such
Landlord, successor Landlord or to the holder of such mortgage or to the
purchaser of the mortgaged premises in foreclosure whereby Tenant attorns to
such successor in interest.
10.7.3 If, in connection with obtaining financing for the Building and/or
the Parcel, a banking, insurance or other recognized institutional lender shall
request reasonable modifications in this Lease as a condition to such financing,
Tenant will not unreasonably withhold, delay or defer its consent thereto,
provided that such modifications that increase the obligations of Tenant
hereunder or materially adversely affect the leasehold interest hereby created
or Tenant's use and enjoyment of the Demised Premises shall be accompanied by a
reasonable rent reduction to be negotiated in good faith by Landlord and Tenant.
SECTION 10.8 - No Waiver:
- ------------------------
The failure of Landlord to seek redress for violation of, or to insist upon
the strict performance of, any covenant or condition of this Lease or any of the
Rules and Regulations now or hereafter adopted or promulgated by Landlord shall
not prevent a subsequent act, which would have originally constituted a
violation, from having all the force and effect of an original violation. The
receipt by Landlord of Fixed Minimum Rent or additional rent or any other
charges payable under this Lease with knowledge of the breach of any covenant of
this Lease by Tenant shall not be deemed a waiver of such breach. No provision
of this Lease shall be deemed to have been waived by Landlord unless such waiver
be in writing and signed by Landlord. No payment by Tenant or receipt by
Landlord of a lesser amount than the monthly payments required to be made
hereunder shall be deemed to be other than on account of the earliest stipulated
Fixed Minimum Rent or additional rent or other charges payable hereunder nor
shall any endorsement or statement on any check or any letter accompanying any
check or payment be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy in this Lease provided.
25
<PAGE>
SECTION 10.9 - No Oral Changes:
- ------------------------------
This Lease may not be changed or terminated orally but only by an agreement
in writing signed by the parties hereto.
SECTION 10.10 - No Representations by Landlord:
- ----------------------------------------------
Landlord or Landlord's agents have made no representations, warranties or
promises with respect to the Demised Premises or the Building except as herein
expressly set forth.
SECTION 10.11 - Changes in Entrances and Other Public Areas:
- -----------------------------------------------------------
Landlord shall have the right at any time and from time to time, whether
before or after the completion of the Building, without thereby creating an
actual or constructive eviction of incurring any liability to Tenant therefor,
to change the arrangement or location of such of the following as are not
contained within the Demised Premises or any part thereof: entrances,
passageways, doors and doorways, corridors, stairs, toilets and other public
service portions of the Building provided that such changes do not unreasonably
interfere with Tenant's use of the Premises. Landlord shall also have the right
at any time and from time to time to change the entrances, exits, parking areas,
driveways, walks, exterior lighting, landscaping and other common areas of the
Parcel without creating an actual or constructive eviction or incurring any
liability to Tenant therefor provided that such changes do not unreasonably
interfere with Tenant's use-of the Premises.
SECTION 10.12 - Risk of Loss or Damage to Personal Property, Etc.:
- -----------------------------------------------------------------
Supplementing the provisions of Section 7.1.9 hereof and without limiting
the generality of said Section 7.1.9, it is agreed that all personal property at
any time placed or kept within the Demised Premises shall be placed or kept
therein at the risk of the Tenant or other owner thereof; that Landlord shall
not be liable for any theft or loss of any personal property placed or kept
within the Demised Premises unless such theft or loss is due to the fault and/or
negligence of Landlord, its agents, representatives or invitees; and that
Landlord shall not be liable to Tenant or to any other person whomsoever for any
damage to any personal property at any time placed or kept within the Demised
Premises arising from the bursting or leaking of water pipes unless such
bursting or leaking is due to the fault and/or negligence of Landlord, its
agents, representatives or invitees, or from any negligence of any tenant or
occupant of space within the Building.
SECTION 10.13 - RULES AND REGULATIONS:
- -------------------------------------
Tenant, its employees, agents, visitors and invitees shall comply with all
reasonable rules and regulations Landlord may adopt from time to time for
operation of the Building and the Parcel and the protection and welfare of the
Building, its tenants, visitors and occupants. Any rules and regulations shall
become a part of this Lease and Tenant hereby agrees to comply with
26
<PAGE>
the same upon delivery of a copy thereof to Tenant, providing the same do not
unreasonably interfere with or deprive Tenant of its rights established under
this Lease or its lawful use of the Premises.
SECTION 10.14 - Real Estate Commissions:
- ---------------------------------------
Landlord and Tenant each warrant and represent to the other that no real
estate brokers were involved on its behalf in negotiating or consummating this
Lease, other than Landlord's broker, Frank L. Smith Co., and Tenant's broker.
Cherry and Associates, and each agrees to indemnify and hold the other party
harmless from and against any and all claims for any other brokerage commissions
arising out of any communications or negotiations had by such party with any
other brokers regarding the Premises and/or the consummation of this Lease.
Landlord shall pay within thirty (30) days of the Commencement Date of the
Lease a cash-out commission equal to four percent (4%) to Cherry and Associates
and a cash-out commission equal to two percent (2%) to Frank L. Smith Co., of
the gross rentals to be received by Landlord during the Term of the Lease.
Tenant acknowledges that it shall be responsible for the unamortized portion of
said commissions payable by Landlord hereunder in the event Tenant exercises its
right of termination as set forth in Section 2.2 herein.
SECTION 10.15 - Attorney's Fees:
- -------------------------------
In the event either Landlord or Tenant is required to retain an attorney to
bring any action to enforce or construe any of the terms, provisions or
covenants of this Lease, such party shall be entitled to the recovery of
reasonable attorney's fees and expenses from the other so long as such party is
the prevailing party in such action.
IN WITNESS WHEREOF, Landlord and Tenant have hereunto executed this Lease
as of this 7th day of November, 1996.
LANDLORD:
Date: 11/07/96 500 CHURCH STREET, L.P.
----------------
By: GRACE DEVELOPMENT, INC.,
Its: General Partner
By: /s/ John R. Grace, V.P.
------------------------------------------
John R. Grace, Vice President
TENANT:
Date: 11/07/96 CITYSEARCH, INC.
----------------
By: /s/ Douglas McPherson
------------------------------------------
Its: Chief Legal Officer
-----------------------------------------
27
<PAGE>
RULES AND REGULATIONS
---------------------
1. No sign, advertisement, display, notice, or other lettering or picture
shall be exhibited, inscribed, painted or affixed on any part of the
outside of the Office Building or inside, if visible from the outside,
without Landlord's written consent.
2. No awning or other projection shall be attached to the outside walls of the
Premises or the Office Building without, in each instance, the prior
written consent of Landlord.
3. All loading and unloading of goods shall be done only at such times, in the
areas and through the entrances designated for such purposes by Landlord.
4. No loudspeakers, television sets, phonographs, radios or other devices
shall be used in a manner so as to be heard or seen outside of the Premises
without the prior written consent of the landlord.
5. No auction, fire, bankruptcy, second-hand or going-out-of-business sales or
other promotions or sales (except for periodic sales in the normal course
of business) shall be conducted on or about the Premises without the prior
written consent of the landlord.
6. Tenant shall keep the Premises at a temperature sufficiently high to
prevent freezing of water in pipes and fixtures.
7. The corridors immediately adjoining the Premises shall not be obstructed by
the Tenant, and Tenant shall not place or permit any obstructions in such
areas or in the stairwells.
8. Tenant shall not operate any coin or token operated vending machine or
similar device for the sale of any goods, wares, merchandise, food,
beverages, or services, including but not limited to, pay telephones, pay
lockers, scales, amusement devices and machines for the sale of beverages,
foods, chewing gum, candy, cigarettes or other commodities without the
prior written consent of the Landlord.
9. Tenant shall not suffer, allow or permit any vibration, noise, light, odor
or other effect to emanate from the Premises, or from any machine or other
installation therein, or otherwise suffer, allow or permit the same to
constitute a nuisance or otherwise interfere with the safety, comfort or
convenience of Landlord or any of the other occupants of the Office
Building or their customers, clients, agents or invitees or any others
lawfully in the Office Building. Tenant shall not store gasoline, kerosene,
or any inflammable or combustible or hazardous substance on the Premises
without the prior written consent of Landlord. Upon notice by Landlord to
Tenant that any of the aforesaid is occurring, Tenant agrees to forthwith
remove or control the same.
10. Tenant shall not go onto the roof without the express written consent of
Landlord obtained first in each instance.
28
<PAGE>
11. Tenant's entry doors shall at all times, except when in actual use, be kept
closed.
12. No furniture, freight or equipment of any kind shall be brought into or
removed from the Premises without the consent of Landlord, except that
Tenant shall have the right to move furniture and equipment into the leased
portion of the Office Building without the express consent of Landlord; and
all moving of same into or out of Premises, by Tenant, shall be done at
such time and in such manner as Landlord shall designate. Landlord shall
have the right to prescribe the weight, size and position of all safes and
other heavy property brought into the Premises, and also the times and
manner of moving the same in and out of the premises. Landlord shall not be
responsible for loss or damage to any such safe or property from any cause;
but all damage done to the Premises by moving or maintaining any such safe
or property shall be repaired at the expense of Tenant by contractors or
mechanics named by Landlord.
13. Tenant shall not alter any lock or install any new additional locks or
bolts on any door of the premises, without the express written consent of
Landlord.
14. Tenant agrees not to have duplicate keys made without the consent of
Landlord. Upon termination of the Lease, Tenant shall surrender all keys,
provided, however, that the surrender of such keys shall not in itself be
considered as a termination of the Lease or a surrender of the Premises.
15. Landlord or Landlord's representative shall not be liable for excluding any
person from the Office Building who is intoxicated or under the influence
of liquor or drugs or who shall in any manner do any act in violation of
any of the rules and regulations of the Office Building.
16. Doors of the Premises are to be closed and securely locked when Tenant
closes, and Tenant must observe strict care and caution that all water
faucets and other apparatus (other than computers and facsimile machines)
are regulated and monitored to prevent waste and damage before Tenant's
employees leave the Premises, and that all electricity, gas or air shall
likewise be carefully monitored to prevent waste or damage.
17. Tenant shall not disturb, solicit or canvas any occupancy of the Office
Building and shall cooperate to prevent the same.
29
<PAGE>
EXHIBIT "A"
(PROPERTY DESCRIPTION)
BEING A PARCEL OF LAND IN THE FIRST CIVIL DISTRICT OF DAVIDSON COUNTY,
TENNESSEE, LOCATED ON CHURCH STREET BETWEEN FIRST AVENUE NORTH AND SECOND
AVENUE NORTH, BEING PART OF LOT NO.12 IN THE ORIGINAL TOWN OF NASHVILLE, NOT OF
RECORD, AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT THE POINT OF INTERSECTION OF THE WESTERLY MARGIN OF FIRST
AVENUE NORTH AND THE SOUTHERLY MARGIN OF CHURCH STREET, THENCE WITH SAID MARGIN
OF FIRST AVENUE NORTH S 27 degrees 02' OO" E 78.30 FEET TO THE OUTSIDE EDGE
(CORNER) OF BUILDING; THENCE LEAVING SAID MARGIN S 62 degrees 38' 00" W 208.76
FEET, TO THE EASTERLY MARGIN OF SECOND AVENUE NORTH; THENCE WITH SAID MARGIN N
27 degrees 01' 00" W 18.85 FEET TO A POINT, SAID POINT BEING 59.1 FEET SOUTH OF
THE SOUTHERLY MARGIN OF CHURCH STREET; THENCE LEAVING SAID SECOND AVENUE NORTH,
N 62 degrees 32' 00" E 103.00 FEET TO A POINT; THENCE N 27 degrees 01' 00" W
59.07 FEET TO THE SOUTHERLY MARGIN OF CHURCH STREET; THENCE WITH SAID MARGIN N
62 degrees 32' 00" E 105.74 FEET TO THE POINT OF BEGINNING, CONTAINING 10,221
SQUARE FEET OR 0.23 ACRES MORE OR LESS, DESCRIBED ACCORDING TO THE SURVEY DATED
OCTOBER 25, 1994 PREPARED BY HOWARD W ANDERSON, TENNESSEE NO.527, A & A
ENGINEERS, INC., P.O. BOX 40048, NASHVILLE, TENNESSEE 37204, JOB NO. 5321-94.
<PAGE>
EXHIBIT "B"
SPACE PLAN
----------
[TO BE ATTACHED]
31
<PAGE>
EXHIBIT "C"
DESCRIPTION OF LANDLORD'S WORK
------------------------------
Landlord represents and warrants that the Landlord's Work on the Demised
Premises as described herein will be completed pursuant to applicable building
codes administered in Nashville, Davidson County, Tennessee as of the date of
the issuance of the use and occupancy permit for the Demised Premises.
<PAGE>
EXHIBIT 10.14
STANDARD FORM OF LEASE
AERIAL CENTER EXECUTIVE PARK
LEASE SUMMARY
LESSOR: Pizzagalli Investment Company
-----------------------------------------------------------------------
LESSOR'S ADDRESS: 50 Joy Drive, P. O. Box 2009
---------------------------------------------------------------
South Burlington Vermont 05403
----------------------------------------------------------------
LESSEE: PerfectMarket, Inc.
-------------------------------------------------------------------------
LESSEE'S ADDRESS (FOR NOTICE AND BILLING):______________________________________
4502 Dyer Street, Suite 201 La Crescenta. California 91216
- --------------------------------------------------------------------------------
LESSEE'S REPRESENTATIVE: Thomas Layton
-------------------------------------------------------
BUILDING: 3000 Aerial Center, Suite 140
-----------------------------------------------------------------------
RENTABLE SQUARE FEET OF LESSEE'S SPACE: 3,900
-----------------------------------------
RENTABLE SQUARE FEET OF BUILDING: 50,900
-----------------------------------------------
TERM COMMENCEMENT DATE: June 1, 1996
---------------------------------------------------------
TERM EXPIRATION DATE: May 31, 2001 APPROXIMATE TERM: 60 Months
--------------- ---------------------------
<TABLE>
<CAPTION>
BASE RENT SCHEDULE:
BASE RATE RENT/ BASE MONTHLY
YEAR SQ.FT. RENT
---- ----- ----
<S> <C> <C>
1 $13.50 $4,387.50
2 $13.91 $4,519.13
3 $14.32 $4,654.70
4 $14.75 $4,794.34
5 $15.19 $4,938.17
</TABLE>
ESCALATIONS: N.A.
--------------------------------------------------------------------
SECURITY DEPOSIT: $4,387.50
---------------------------------------------------------------
PERMITTED USES: General Office Use
-----------------------------------------------------------------
EXHIBITS:
Exhibit A Floor Plan of the Premises
Exhibit B Master Plan
Exhibit C Work Letter
Exhibit D Rules and Regulations
Exhibit E Janitorial Schedule
Exhibit F Renewal Option
Exhibit G Additional Provisions
i
<PAGE>
TABLE OF CONTENTS
AERIAL CENTER EXECUTIVE PARK
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article 1. Premises 1
Article 2. Term 1
Article 3. Rent 1
Article 4. Permitted Uses 2
Article 5. Acceptance of Premises; Repairs; Alterations 2
Article 6. Maintenance 2
Article 7. Assignment 2
Article 8. Termination not to affect liability for rent 3
Article 9. Signs 3
Article 10. Removal of Fixtures 3
Article 11. Attorney's Fees 3
Article 12. Loss of personal property 3
Article 13. Comply with laws 3
Article 14. Duty to keep Premises is good order 3
Article 15. Entire agreement herein 4
Article 16. Remedies cumulative; Nonwaiver 4
Article 17. Rental Adjustment for Services and Taxes 4
Article 18. Services by Lessor 4
Article 19. Lessee's Obligations 5
Article 20. Exculpation of personal liability 6
Article 21. Self-help by Lessor 7
Article 22. Lessor's rights 7
Article 23. Subordination; Mortgagee's Rights 7
Article 24. Damage to property; eminent domain 8
Article 25. Default and remedies 8
Article 26. Captions 9
Article 27. Lessor's right to sell 9
Article 28. Joint and several liability 9
Article 29. Liability insurance 9
Article 30. Fire Insurance 9
Article 31. Lease not to be recorded 9
Article 32. Severability 9
Article 33. Notice 9
Article 34. Mortgagee approval 10
Article 35. Indemnification 10
Article 36. Relocation 10
Article 37. Riders and Exhibits 10
</TABLE>
ii
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF WAKE
STANDARD FORM OF LEASE
AERIAL CENTER EXECUTIVE PARK
----------------------------
THIS AGREEMENT dated this 8 day of May, 1996, by and between Pizzagalli
Investment Company, a Vermont general partnership having an office at 50 Joy
Drive, Post Office Box 2009, South Burlington, Vermont 05407-2009 (hereinafter
called "Lessor") and PerfectMarket, Inc., a California corporation with its
principal office at 4502 Dyer St., # 201 La Crescenta, CA, 91214 (hereinafter
called "Lessee")
W I T N E S S E T H
ARTICLE 1. PREMISES: (a) The Lessor does hereby rent and lease to
---------
the Lessee and the Lessee does hereby rent and lease from the Lessor certain
space described on the attached Exhibit A (hereinafter called "Premises")
located in a building known as 3000 Aerial Center, Suite 140, Morrisville, North
Carolina 27560 (hereinafter called the "Building"), together with the right (i)
of ingress and egress to the Premises through designated areas and under
conditions approved by the Lessor and (ii) to use the designated parking lot in
common with others. No easement for light or air is granted hereunder.
(b) For all purposes of this lease, the Premises shall be deemed to
Contain 3,900 square feet of rentable floor area and said Building shall be
deemed to contain a total of 50,900 square feet of rentable floor area.
ARTICLE 2. TERM: To have and to hold said Premises for a term
-----
commencing on June 1, 1996, and, unless sooner terminated as herein provided,
extending through May 31, 2001.
ARTICLE 3. RENT: (a) Lessee hereby agrees and covenants to pay to
-----
the Lessor as rental for the Premises in advance on the first day of each month
during the term hereof the "base rent schedule" as follows:
<TABLE>
<CAPTION>
BASE RENT/ BASE MONTHLY
YEAR SQ.FT. RENT
---- ------ ----
<S> <C> <C>
1 $ 13.50 $ 4,387.50
2 $ 13.91 $ 4,519.13
3 $ 14.32 $ 4,654.70
4 $ 14.75 $ 4,794.34
5 $ 15.19 $ 4,938.17
</TABLE>
said base rent to be prorated for portions of the calendar month at the
beginning and end of said term and to be paid to Lessor at the address first set
forth above, or at such other place as Lessor shall designate in writing to the
Lessee in the manner provided herein. Said rental shall be paid promptly
without notice or demand and without setoff or deduction of any kind.
(b) Lessee has deposited with Lessor the sum of "Four Thousand Three
Hundred Eighty Seven and Seventeen Cents ($4,387.50)", as security for the full
and faithful performance of every provision of this Lease to be performed by
Lessee. If Lessee defaults with respect to any provisions of this Lease,
including but not limited to the provisions relating to the payment of rent,
Lessor may use, apply or retain all or any part of this security deposit for the
payment of any rent or any other sum in default or for the payment of any other
amount which Lessor may spend or become obligated to spend by reason of Lessee's
default, or to compensate Lessor for any other loss, cost or damage which Lessor
may suffer by reason of Lessee's default. If any portion of said deposit is so
used or applied, Lessee shall, within five (5) days after written demand
therefore, deposit cash with Lessor in an amount sufficient to restore the
security deposit to its original amount and Lessee's failure to do so shall be a
breach of this
<PAGE>
Lease. Lessor shall not, unless otherwise required by law, be required to keep
this security deposit separate from its general fund, nor pay interest to its
Lessee. If Lessor is required to maintain said deposit in an interest bearing
account, Lessor will retain the maximum amount permitted under applicable law as
a bookkeeping and administrative charge. If Lessee shall fully and faithfully
perform every provision of this Lease to be performed by it, the security
deposit or any balance thereof shall be returned to Lessee (or, at Lessor's
option, to the last transferee of Lessee's interest hereunder) at the expiration
of the Lease term and upon Lessee's vacation of the Premises. In the event the
Building is sold, the security deposit will be transferred to the new owner, and
the Lessor named herein shall have no further liability in connection therewith.
(c) Any payment of rent or other sum due hereunder not received by
Lessor by the first (1st) day of the month shall be subject to a late payment
charge of eighteen (18%) percent per annum from the due date to the date of
payment or $15.00, whichever is greater.
ARTICLE 4. PERMITTED USES: (a) Lessee shall use and occupy the
---------------
Premises for the following described purposes and for none other:
GENERAL OFFICE USE.
(b) The Premises shall not be used for any illegal purpose, nor in
violation of any valid regulation of any governmental body, nor in any manner to
create any nuisance or trespass, nor in any manner to vitiate the insurance or
increase the rate of insurance on the Premises or on the Building.
(c) In the event that Lessee fails to comply with this provision, then
(i) Lessee shall reimburse Lessor, as additional rent hereunder, for that
portion of all insurance premiums previously or thereafter paid by Lessor which
shall have been charged because of such failure by Lessee to so comply, such
payment to be made within thirty days after payment of charges by Lessor, and
(ii) Lessor may exercise any other remedy provided for herein with respect to
default by Lessee.
ARTICLE 5. ACCEPTANCE OF PREMISES; REPAIRS; ALTERATIONS: The
---------------------------------------------
Lessee, by taking possession of the Premises, shall accept and shall be held to
have accepted same as suitable for the use intended by the Lessee. The Lessor
shall not be required, after possession of the Premises has been delivered to
the Lessee, to make any repairs or improvements to the Premises, except repairs
necessary for safety and tenantability and customary office or building
maintenance. The Lessee shall make no alterations in, or additions to, the
Premises, without first obtaining in writing the Lessor's written consent for
such alterations or additions, which such alterations or additions shall be at
the sole cost and expense of the Lessee. In connection therewith, Lessee shall
comply with all applicable rules, regulations, laws, or orders of any
governmental authority, or any rules or conditions established by Lessor or
Lessors insurance carrier.
ARTICLE 6. MAINTENANCE: Lessee shall, at its own expense, keep and
------------
maintain the said Premises and appurtenances and every part thereof in good
order and repair except portions of the Premises to be repaired by the Lessor
under the terms of Article 5 above. Lessee shall at once report in writing to
Lessor any defective condition known to him which the Lessor is required to
repair, and the failure to so report shall make the Lessee responsible for
damages resulting from such defective condition.
ARTICLE 7. ASSIGNMENT: Lessee shall not, without the prior written
-----------
consent of Lessor, assign this Lease, or any interest thereunder, or sublet the
Premises or any part thereof, or permit the use of the Premises by any party
other than the Lessee. Consent to one assignment or sublease shall not destroy
or waive this provision, and all later assignments and subleases shall
<PAGE>
likewise be made only on the prior written consent of the Lessor. Subtenants or
assignees shall be liable to the Lessor for all obligations of the Lessee
hereunder. Provided however, that notwithstanding such consent at any time
given, the Lessee shall remain as fully liable hereunder as if no subletting had
taken place. Provided further, that Lessor, prior to such subletting, shall have
the right to require that all (or any portion) of the Premises which Lessee
proposes to sublease or as to which Lessee proposes to assign this Lease (if the
subtenant or assignee is not an entity controlled by the same interest which
controls Lessee) be surrendered to Lessor for the term of the proposed sublease
or assignment in consideration of the appropriate prorata adjustment of, or
cancellation of, the Lessee's obligations hereunder.
ARTICLE 8. TERMINATION NOT TO AFFECT LIABILITY FOR RENT: No
---------------------------------------------
termination of this lease prior to the normal ending thereof, by lapse of time
or otherwise, shall affect Lessor's right to collect rent for the period prior
to the termination thereof.
ARTICLE 9. SIGNS: Lessee shall not paint or place any signs,
------
displays, advertising devices, or other things upon the windows of the Premises
or at any other location in, upon or about the Premises or the Building which
are visible from outside of the Premises or the Building. Lessee may, however,
erect a suitable sign at the door to its Premises, the design, construction, and
erection procedure of which shall first be approved in writing by the Lessor,
which approval shall not be unreasonably withheld. Lessee acknowledges that
Lessor may from time to time erect and maintain signs to identify the Building
or signs displaying the name or logotype of another lessee of the Building;
provided, however, that no such signs shall obstruct any window of the Premises.
Lessee shall also have the right, at Lessor's expense, to include its name in a
common directory in the lobby of the Building.
ARTICLE 10. REMOVAL OF FIXTURES: Lessee may (if not in default
--------------------
hereunder) prior to the expiration of this Lease, or any extension thereof,
remove all fixtures and equipment which it has placed in the Premises provided
that Lessee repairs all damages to the Premises caused by such removal.
ARTICLE 11. ATTORNEY'S FEES: If Lessee defaults and any rent owing
----------------
under this Lease is collected by or through an Attorney at Law, Lessee agrees to
pay all reasonable attorneys' fees and related costs of collection.
ARTICLE 12. LOSS OF PERSONAL PROPERTY: Lessee agrees that all
--------------------------
personal property brought into the Premises shall be at the risk of the Lessee
only and the Lessor shall not be liable for theft thereof or any damage thereto
occasioned from any acts of cotenants or other occupants of said Building or any
other person.
ARTICLE 13. COMPLY WITH LAWS: Lessee agrees that it will promptly
-----------------
comply at its own expense with all requirements of any governmental authority
having competent jurisdiction, which requirements are made necessary by reason
of Lessee's occupancy of said Premises.
ARTICLE 14. DUTY TO KEEP PREMISES IN GOOD ORDER: Lessee hereby
------------------------------------
covenants and agrees to keep the Premises in as good order, repair and condition
as the same are in as of the commencement of the term hereof, or may be put in
thereafter, damage by fire or unavoidable casualty and reasonable wear and tear
excepted; and at the termination hereof, to peaceably yield up said Premises and
all additions, alterations, and improvements thereto in such good order, repair
and condition leaving the Premises clean, neat and tenantable. If Lessor in
writing permits Lessee to leave any such goods and chattels in the Premises, and
the Lessee does so, Lessee shall have no further claims and rights in such goods
and chattels as against the Lessor or those claiming by, through or under the
lessor.
<PAGE>
ARTICLE 15. ENTIRE AGREEMENT HEREIN: This Lease contains the entire
------------------------
agreement of the parties and no representations, inducements, promises or
agreements between the parties not embodied herein shall be of any force or
effect.
ARTICLE 16. REMEDIES CUMULATIVE; NONWAIVER: No remedy herein or
-------------------------------
otherwise conferred upon or reserved to Lessor or Lessee shall be considered
exclusive of any other remedy, but the same shall be distinct, separate and
cumulative and shall be in addition to every other remedy given hereunder, or
now or hereafter existing at law or in equity; and every power and remedy given
by this Lease may be exercised from time to time as often as occasion may arise
or as may be deemed expedient. No delay or omission of Lessor to exercise any
right or power arising from any default on the part of Lessee shall impair any
such right or power, or shall be construed to be a waiver of any such default,
or an acquiescence therein. The acceptance of rent by Lessor with knowledge of a
default by Lessee hereunder shall not constitute a waiver of such default.
****
ARTICLE 18. SERVICES BY LESSOR: (a) Lessor covenants and agrees to
-------------------
furnish services to the Premises as follows:
(2) Water for ordinary drinking, cleaning, lavatory and toilet
facilities.
(3) Cleaning and janitor service.
<PAGE>
(4) Maintenance and repair of the Building in a safe and tenantable
condition, except maintenance and repair which is the obligation of the Lessee
hereunder or with respect to which the Lessor is specifically excused from
responsibility; provided, however, that any such maintenance or repairs made
necessary by fault or neglect of the Lessee or the employees and visitors of the
Lessee shall be at the expense of the Lessee and Lessee shall pay all costs
thereof.
(5) Window washing.
(b) Lessor shall not be liable to anyone for interruption in or
cessation of any service rendered to the Premises or Building or agreed to by
the terms of this Lease, due to any accident, the making of repairs, alteration
or improvements, labor difficulties, trouble in obtaining fuel, electricity
service or supplies from the sources from which they are usually obtained for
said Building, or any cause beyond the lessor's control, except to the extent
that the liability of the Lessor is insured by virtue of a general comprehensive
Lessor's public liability insurance policy, which the Lessor agrees to maintain
on the Building.
(c) In the event Lessee wishes to provide outside services for the
Premises over and above those services to be provided by Lessor as set forth
herein, Lessee shall first obtain the prior written approval of Lessor for the
installation and/or utilization of such services, which approval shall not be
unreasonably withheld. "Outside services" shall include but shall not be limited
to cleaning and moving services, television and so-called "canned music"
services, security services, catering services and the like. In the event Lessor
approves the installation and/or utilization of such services, such installation
and utilization shall be at Lessee's sole cost, risk and expense.
****
ARTICLE 19. LESSEE'S OBLIGATIONS: Lessee covenants and agrees as
---------------------
follows:
(1) to pay, when due, all rents and other charges set forth herein;
all charges for electricity, gas, telephone and other communications systems
used at, supplied to, or furnished to the Premises; Lessor to provide initial
(1) lamps, ballasts and bulbs.
(2) not to place a load upon any floor of the Premises in excess of 80
pounds live load per square foot or in violation of what is allowed by law.
(3) that, without limitation of any other provision herein, the Lessor
and its employees shall not be liable for any injuries to any person or damages
to property due to the Building, or any part thereof, or any appurtenance
thereof, becoming out of repair or due to the happening of any accident in or
about the Building or the Premises or due to any act or neglect of any lessee of
the Building or of any employee or visitor of any lessee. Without limitation,
this provision shall apply to injuries and damage caused by nature, rain, snow,
ice, wind, water, steam, gas, or odors in any form or by the bursting or leaking
of windows, doors, walls, ceilings, floors, pipes, gutters, or other fixtures;
and to damage caused to fixtures, furniture, equipment and the like
<PAGE>
situated in the Premises, whether owned by the Lessee or others. Provided
however, that Lessor shall be liable for its negligence and the negligence of
its employees to the extent that liability of the Lessor is insured by virtue of
a Lessor's general comprehensive public liability insurance policy, which the
Lessor agrees to maintain on the Building.
(4) to permit Lessor or its agents to examine the Premises at
reasonable times and, if Lessor shall so elect, to make any repairs or additions
Lessor may deem necessary and, at Lessee's expense, to remove any alterations,
signs, drapes, curtains, shades, awnings, aerials, flagpoles, or the like, not
consented to in writing.
(5) to permit Lessor to show the Premises to prospective purchasers,
mortgagees and to prospective lessees of the Building.
(6) to permit Lessor at any time or times to decorate and to make, at
its own expense, repairs, alterations, additions, improvements, structural or
otherwise, in or to the Building or any part thereof, and during such operations
to take into and through the Premises or any part of the Building all materials
required and to close or temporarily suspend operation of entrances, doors,
corridors, elevators or other facilities, Lessor agreeing, however, that it will
carry out such work in a manner which will cause minimum inconvenience and
interference to the business of the Lessee.
(7) not to install any vending machines or food services equipment in
or upon the Premises without first obtaining Lessor's written consent, which
consent shall not be unreasonably withheld.
(8) not to permit any employee of the Lessee to violate any covenant
or obligation of Lessee hereunder.
(9) not to suffer or permit any lien of any nature or description to
be placed against the Building, the Premises, or any portion thereof, and, in
the case of any such lien attaching by reason of the conduct of Lessee, to
immediately pay and remove the same. This provision shall not be interpreted as
meaning that the Lessee has any authority or power to permit any lien of any
nature or description to attach to or be placed upon the Lessor's title or
interest in the Building, the Premises, or any portion thereof.
(10) to keep the Premises equipped with all safety appliances required
by law or public authority because of the use made by the Lessee of the
Premises.
(11) to use electric current in such manner as not to overload the
Building's wiring installation and not to use any electrical equipment which in
Lessor's opinion, reasonably exercised, will overload such installations or
interfere with the use thereof by other lessees in the Building.
ARTICLE 20. EXCULPATION OF PERSONAL LIABILITY: It is agreed that none
----------------------------------
of the partners who constitute the Lessor here-under, nor any person having a
beneficial interest in the Premises or the Building, shall be personally liable
under this Agreement in any way whatsoever to the Lessee, and the Lessee shall
be entitled to make claim, for any liability it is alleged to have suffered,
only against the Lessor's property. Furthermore, if Lessor, or any successor in
interest of Lessor, shall be a mortgagee in possession, or an individual, joint
venture, trust, tenancy in common, corporation or partnership, general or
limited, it is specifically understood and agreed that there shall be absolutely
no personal liability on the part of such mortgagee in possession, or such
individual or on the part of the stockholders of such corporation or the members
of such partnership or joint venture or the beneficiaries of such trust with
respect to any of the terms, covenants and conditions of this lease, and Lessee
shall look solely to the equity of Lessor, or such successor in interest, in the
estate of Lessor in the Premises for the satisfaction of each and every remedy
of Lessee in the event of any breach by Lessor, or by such successor in
interest, of any of the terms, covenants and condi-
<PAGE>
tions of this Lease to be performed by Lessor, such exculpation of personal
liability to be absolute and without any exception whatsoever.
ARTICLE 21. SELF-HELP BY LESSOR: If the Lessee shall at any time
--------------------
breach or default in the performance of any of the obligations of Lessee under
this Lease, Lessor shall have the right to enter upon the Premises and to
perform such obligation of the Lessee including the payment of money and the
performance of any other act. All sums paid by the Lessor and all necessary
incidental costs and expenses in connection therewith shall be deemed to be
additional rent under this Lease and shall be payable to Lessor immediately upon
demand.
ARTICLE 22. LESSOR'S RIGHTS: Lessor may, without limitation of
----------------
anything elsewhere herein contained:
(1) designate and change the name and street address of the Building;
provided however that the Lessor shall first give reasonable notice thereof to
the Lessee.
(2) designate, restrict and control all sources from which Lessee may
obtain maintenance services for the Premises and any service in or to the
Building and its tenants.
(3) retain and use in appropriate instances keys to all doors within
and into the Premises. No locks shall be changed by Lessee without the prior
written consent of the Lessor.
****
(5) enter upon the Premises and exercise any and all of Lessor's
rights without being deemed guilty of any eviction or disturbance of Lessee's
use or possession and without being liable in any manner to Lessee.
(6) establish such reasonable rules and regulations, as described on
the attached Exhibit D for the conduct and operation of the Premises and the
Building as are not inconsistent with the express terms of this Lease.
(7) change the arrangement and/or location of public entrances,
doorways, doors, passageways, corridors, elevators, toilets, stairs, or other
public parts of the Building.
ARTICLE 23. SUBORDINATION; MORTGAGEE'S RIGHTS: (A) Lessee agrees, at
----------------------------------
the request of Lessor, to subordinate this Lease to any mortgage or mortgages
placed upon the Premises by Lessor and to any ground or underlying leases and,
if required by the mortgagee or mortgagees, or such ground or underlying lessor,
to agree not to prepay rent more than ten (10) days in advance, provided such
mortgagee or lessor shall agree that, in the event such holder takes possession
of the Premises or forecloses such mortgage or takes a deed in lieu of
foreclosure, or terminates its ground or underlying lease, Lessee shall continue
its occupancy of the Premises in accordance with the terms and provisions of
this Lease so long as Lessee shall then recognize such holder as Lessor
hereunder and continue to pay the rent when due and otherwise punctually perform
all Lessee's obligations hereunder.
(b) Lessee agrees that it will not cancel or terminate this Lease by
reason of any act, omission, breach or default by Lessor, or for any other cause
except the normal expiration hereof, without first giving written notice of such
act, omission, breach or default to any mortgagee of the Building or ground or
underlying
<PAGE>
lessor and affording such party the opportunity to remedy such act, omission,
breach or default within ten (lO) days from receipt of such written notice or
within such longer time as may be reasonably necessary under the circumstances.
ARTICLE 24. DAMAGE TO PROPERTY; EMINENT DOMAIN: If the Premises or
-----------------------------------
Building, or any substantial part thereof, shall be taken by any exercise of the
right of eminent domain or shall be destroyed or damaged by fire or unavoidable
casualty or by action of any public or other authority, or shall suffer any
direct consequential damage for which Lessee and Lessor, or either of them,
shall be entitled to compensation by reason of anything done in pursuance of any
public or other authority during this Lease or any extension thereof, then this
Lease shall terminate at the election of Lessor which election may be made
whether or not Lessor's entire interest has been divested; and if Lessor shall
not so elect, then in case of such taking, destruction or damage rendering the
Premises unfit for use and occupation, a just proportion of said rent according
to the nature and extent of the injury shall be abated until the Premises, or in
the case of a partial taking, what may remain thereof, shall have been put in
proper condition for use and occupation. Lessor reserves and accepts all rights
to damages to said Premises and Building and the leasehold hereby created,
accrued or substantially accruing by reason of anything lawfully done in
pursuance of any public, or other authority; and by way of confirmation, Lessee
grants to Lessor all Lessee's rights to such damages and covenants to execute
and deliver such further instruments of assignment thereof as Lessor may from
time to time request. Lessor shall give Lessee notice of its decision to
terminate this Lease or restore said Premises within two (2) days after any
occurrence giving rise to Lessor's right to so terminate or restore.
ARTICLE 25. DEFAULT AND REMEDIES: (a) If Lessee shall continue in
---------------------
default in the payment of any rental or other sum of money becoming due
hereunder for a period of 10 days after written notice of such default has been
given to Lessee, or if Lessee shall default in the performance of any other of
the terms, conditions, or covenants contained in this Lease to be observed or
performed by it and does not remedy such default within 30 days after written
notice thereof or does not within such 30 days commence such act or acts
promptly, or if Lessee shall become bankrupt or insolvent, or file any debtor
proceedings, or file in any court pursuant to any statute, either of the United
States or of any State a petition in bankruptcy or insolvency or for
reorganization, or file or have filed against it a petition for the appointment
of a receiver or trustee for all or substantially all of the assets of Lessee
and such appointment shall not be vacated or set aside within 15 days from the
date of such appointment, or if Lessee makes an assignment for the benefit of
creditors, or petitions for or enters into an arrangement, or if Lessee shall
abandon the Premises or suffer the Lease to be taken under any writ of execution
and such writ is not vacated or set aside within 15 days, then in any such event
the Lessor shall have the immediate right of reentry without resort to legal
proceedings and the right to terminate and cancel this Lease. If Lessor should
elect to reenter as herein provided, or should it take possession pursuant to
legal proceedings, it may either terminate this Lease or it may from time to
time without terminating this Lease, relet the Premises for such term and at
such rentals and upon such other terms and conditions as the Lessor may deem
advisable. If such reletting shall yield rentals insufficient for any month to
pay the rental due by Lessee hereunder for that month, Lessee shall be liable to
Lessor for the deficiency and same shall be paid monthly. No such reentry or
taking possession of the Premises by Lessor shall be construed as an election to
terminate this Lease unless a written notice of such intention be given by
Lessor to Lessee at the time of such reentry; but, notwithstanding any such
reentry and reletting without termination, Lessor may at any time thereafter
elect to terminate this Lease for such previous breach. If as a result of
Lessee's default hereunder, Lessor shall institute legal proceedings for the
enforcement of Lessee's obligations, Lessee shall pay all costs incurred by
Lessor, including
<PAGE>
reasonable attorney's fees.
(b) Lessee shall also pay to Lessor such expenses as Lessor may incur
in connection with reletting including, but not by way of limitation, reasonable
attorney's fees, brokerage and advertising costs, and expenses for keeping the
Premises in good order or for preparing same for reletting.
ARTICLE 26. CAPTIONS: The captions are inserted only as a matter of
---------
convenience and for reference and in no way define, limit or describe the scope
of this Lease nor the intent of any provision hereof.
ARTICLE 27. LESSOR'S RIGHT TO SELL: Lessor shall have the right to
-------------------------
sell, assign, transfer or otherwise alienate its interest in the Building. Upon
such sale, assignment, transfer or alienation, the new owner shall succeed to
all of Lessor's obligations hereunder, and Lessee shall be bound to the new
owner to the same extent as it was bound to Lessor. At such time, Lessor
hereunder shall be entirely freed and relieved of any further obligation or
responsibility under this Lease.
ARTICLE 28. JOINT AND SEVERAL LIABILITY: If Lessee is more than one
----------------------------
person or party, Lessee's obligations shall be joint and several. Unless
repugnant to the context, "Lessor" and "Lessee" mean the person or persons,
natural or corporate, named above as Lessor and Lessee respectively, and their
respective heirs, executors, administrators, successors and assigns.
ARTICLE 29. LIABILITY INSURANCE: Lessee shall procure and maintain
-------------------
during the term of this Lease comprehensive general liability insurance written
by good and solvent insurance companies licensed to do, and doing, business in
North Carolina and reasonably acceptable to Lessor, naming Lessor as an
additional insured, with limits of not less than $1,000,000 for injury or death
to any one person and not less than $1,000,000 for injuries or deaths arising
out of any one occurrence. Copies of such policies or certificates thereof,
together with evidence of payment of premiums, shall be furnished to the Lessor.
Such insurance policies shall provide that the insurance company agrees not to
cancel or modify the coverage without first giving thirty (30) days advance
written notice to Lessor. If the term of this Lease (including any renewal
options) exceeds five (5) years, the aforesaid limits shall be doubled after the
fifth lease year.
ARTICLE 30. FIRE INSURANCE: It is acknowledged and understood by the
--------------
parties hereto that such insurance for fire and extended coverage as Lessor
elects to purchase shall be for the sole benefit of the Lessor, and that such
insurance shall not cover Lessee's personal property, trade fixtures, leasehold
improvements, and other appurtenances, and that in the event of damage to or
loss of any such items, Lessor shall have no obligation to repair or replace
same. Lessor and Lessee hereby release and waive all right of recovery against
each other or any one claiming through or under each of them by way of
subrogation or otherwise and arising out of any loss by fire or other similar
casualty.
ARTICLE 31. LEASE NOT TO BE RECORDED: Lessor and Lessee agree that
-------------------------
this Lease shall not be recorded. Lessor and Lessee shall enter into a
Memorandum of Lease in recordable form.
ARTICLE 32. SEVERABILITY: If any provision of this Lease or its
------------
application to any person or circumstances shall to any extent be invalid or
unenforceable, the remainder of this Lease or the application of such provision
to persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby and each provision of this Lease
shall be valid and enforceable to the fullest extent permitted by law.
ARTICLE 33. NOTICE: Any notice required to be given by the terms
-------
hereof shall be deemed duly served if sent by certified mail, return receipt
requested, through the United States
<PAGE>
Postal Service, if to Lessee at said premises after the term of this Lease has
commenced and prior thereto at:
PERFECTMARKET, INC.
4502 Dyer St., #201
La Crescenta, CA 91214
or to the Lessor at the place from time to time established for the payment of
rent in accordance with Article 3 hereof, or to either party at such place as
may, from time to time, be established in the manner aforesaid.
ARTICLE 34. MORTGAGES APPROVAL: This Lease is subject to the approval
------------------
of Lessor's mortgagee, and the parties agree hereby to execute an amendment to
the Lease, in such form as said mortgagee might reasonably require, in the event
that any technical changes are required. It is understood that any such changes
will not affect such substantive items as the rent or term provided for herein.
ARTICLE 35. INDEMNIFICATION: Lessee agrees to indemnify and save
----------------
harmless Lessor against all claims for damages to persons or property by reason
of the use or occupancy of the Premises, the Building or Lessor's adjoining land
and all expenses incurred by Lessor on account thereof, including reasonable
attorney's fees and court costs. Lessee further shall be liable for and shall
hold Lessor harmless in connection with damage or injury to Lessor, the
Premises, the Building and the land and property or persons of Lessor's other
tenants, or anyone else, if due to act or neglect of Lessee, or anyone in its
control or employ .
ARTICLE 36. RELOCATION: (a) Lessor shall have the right during the
-----------
term of this Lease to relocate Lessee to other comparable office space within
Aerial Executive Park. Lessor shall give written notice to Lessee of its intent
to relocate Lessee at least three (3) days in advance of the proposed relocation
date. All costs necessitated by the relocation of Lessee shall be borne by
Lessor. All other terms and conditions contained herein shall apply to the
premises to which the Lessee is relocated. Upon such relocation, the parties
shall enter into a new lease in substantially the same form as this Lease.
(b) Lessee may terminate this Lease by giving written notice of intent
to terminate within four (4) days of receipt of notice from lessor to relocate.
If notice is not given as aforesaid, Lessee's right to terminate will be void
and of no further effect .
ARTICLE 37. RIDERS AND EXHIBITS: The following riders and exhibits are
-------------------
hereby incorporated herein by reference and to the extent that any of such
riders or exhibits conflict with any of the foregoing provisions, the provisions
of such riders or exhibits shall prevail:
Exhibit A Floor Plan of the Premises
Exhibit B Master Plan
Exhibit C Work Letter
Exhibit D Rules and Regulations
Exhibit E Janitorial Schedule
Exhibit F Renewal Option
Exhibit G Additional Provisions
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Lease as of the
day and date first written above.
In the presence of: PIZZAGALLI INVESTMENT COMPANY
/s/ [SIGNATURE ILLEGIBLE]
- -------------------------------
/s/ [SIGNATURE ILLEGIBLE] BY /s/ Ronald I. Bouchard
- ------------------------------- -----------------------------
In the presence of: PERFECTMARKET, INC.
/s/ [SIGNATURE ILLEGIBLE]
- ----------------------------- BY /s/ Thomas Layton
_____________________________ -------------------------------
State of Vermont )
(SS
Chitlenden County )
At South Borlington in said County on the 9th day of May, 1996 Ronald I.
Bouchard, Partner of Pizzagalli Investment Company personally appeared and he
executed the above instrument and acknowledged the same to be his free act and
deed and the free act and deed of said Company.
Before me,
/s/ [SIGNATURE ILLEGIBLE]
-----------------------------------
Notary Public
My Commission Expires 2/10/99
State of North Carolina )
(SS
Franklin County )
At Morrisville in said County on the 8th day of May, 1996 Thomas Layton,
of Perfectmarket Inc. personally appeared and he executed the above instrument
and acknowledged the same to be his free act and deed and the free act and deed
of said Company.
Before me,
/s/ [SIGNATURE ILLEGIBLE]
-----------------------------------
Notary Public
My Commission Expires 2/16/99
<PAGE>
EXHIBIT "A"
-----------
[FLOOR PLAN OF THE PREMISES APPEARS HERE]
PERFECTMARKET, INC.
3000 AERIAL CENTER, SUITE 140
3,900 RENTABLE SQUARE FEET
<PAGE>
EXHIBIT "B"
-----------
[MASTER PLAN APPEARS HERE]
PERFECTMARKET, INC.
3000 AERIAL CENTER, SUITE 140
3,900 RENTABLE SQUARE FEET
<PAGE>
EXHIBIT "C"
-----------
WORK LETTER
PERFECTMARKET, INC.
3000 AERIAL CENTER, SUITE 140
3,900 RENTABLE SQUARE FEET
The following above standard work shall be provided by Lessor at its cost and
expense:
OFFICE AREA
- -----------
1) Place new building standard carpet in the entire office area to include
vinyl wall boards. (Lessee will choose carpet type and color)
2) Paint the entire office area. (Lessee will choose paint color)
3) Perform a one time general clean-up of the entire office to include
lighting lenses, windows and the replacing of burned out bulbs.
4) Install 8' X 10' +/- window in space where overhead door was located
installation to be performed no later than June 10, 1996.
5) Electrical outlets and conduit will be installed at 12' intervals on
walls in Open Area #1, Open Area #2 and along the 54" Wall #1, #2 and
#3.
6) Space will be modified per the attached floor plan (Exhibit "A").
SIGNAGE
- -------
1) Building directory sign will be provided at Lessor's expense.
2) Door sign will be provided at Lessee's expense and conform with Aerial
Center's Building Standard.
3) Signage will be made available on the building exterior per the Aerial
Center's Building Standard and will be at Lessee's expense.
<PAGE>
EXHIBIT "D"
-----------
RULES AND REGULATIONS
PERFECTMARKET, INC.
3000 AERIAL CENTER, SUITE 140
3,900 RENTABLE SQUARE FEET
1. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by Lessee or used for any purpose other than
ingress and egress to the premises. The halls, passages, exits, entrances,
stairways, balconies and roof are not for use by the general public, and
Lessor shall in all cases retain the right to control and prevent access
thereto by all persons whose presence in the judgement of Lessor may be
prejudicial to the safety, character, reputation or best interests of the
Building and its tenants. Nothing herein contained shall be construed to
prevent such access to persons with whom Lessee conducts business, unless
such persons are engaged in illegal activities. No Lessee and no employees
or invitees of any Lessee shall go upon the roof of the Building.
2. Lessee shall not alter any lock or install any new or additional locks or
bolts on any door of the Premises.
3. No restroom fixture shall be used for any purpose other than that for which
it was constructed; no foreign substance of any kind whatsoever shall be
thrown therein. The expense of any breakage, stoppage or damage resulting
from the violation of the above rule shall be borne by Lessee or employees
or invitees of Lessee.
4. ****
5. Except with the written consent of Lessor, no person or persons other than
those approved by Lessor shall be permitted to enter the Premises or
Building for the purpose of cleaning same. Lessee shall not cause any
unnecessary labor by reason of Lessee's carelessness or indifference in
the preservation of good order and cleanliness. Janitorial services shall
include ordinary dusting and cleaning by the janitor assigned to such work
and shall not include cleaning of carpets or rugs, except normal vacuuming,
or moving of furniture or other special services.
6. Lessee shall not use, keep or permit any foul or noxious gas or substance
in the Premises, or permit or allow the Premises to be occupied or used in
a manner which interferes with business or is offensive or objectionable to
Lessor or other occupants of the Building by reason of noise, odors and/or
vibrations. No animals or birds shall be brought in or about the Premises
or the Building.
7. The following shall not be permitted by Lessee on the Premises: cooking,
storing of merchandise, washing clothes, lodging, or for any improper,
objectionable or immoral purposes.
<PAGE>
8. Lessee shall not use, keep, or permit in the Premises or the Building any
kerosene, gasoline, inflammable or combustible fluid or material, or use
any method of heating or air conditioning other than that supplied by
Lessor.
9. Lessor will direct electricians as to where and how telephone and telegraph
wires are to be introduced. No boring or cutting for wires is permitted
without the prior consent of Lessor.
10. Upon termination of its tenancy, Lessee shall deliver to Lessor all
Building keys which shall have been furnished Lessee or which Lessee shall
have had made. In the event of loss of any keys so furnished, Lessee
shall pay Lessor for the replacement of keys and/or any necessary locks.
11. Lessee shall not install linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in
any manner except as approved by Lessor. The expense of repairing any
damage resulting from violation of this rule or from removal of any floor
covering shall be borne by the Lessee by whom, or by whose contractors,
employees or invitees, the damage shall have been caused.
12. Lessee shall see that the doors of the Premises are closed and securely
locked before leaving the Building. All water faucets or water apparatus
and all electricity shall be shut off before Lessee or Lessee's employees
leave the Building, so as to prevent waste or damage, and for any default
or carelessness Lessee shall make good all injuries sustained by Lessor
and/or other tenants or occupants of the Building.
13. Lessor reserves the right to exclude or expel from the Building any person
who, in the judgement of Lessor is intoxicated or under the influence of
liquor or drugs, or who shall in any manner violate the Building rules and
regulations.
14. Lessee shall not disturb, solicit, or canvas any occupant of the Building
and shall cooperate to prevent the same.
15. Without the written consent of Lessor, Lessee shall not conduct any auction
upon the Premises or use the name of the Building in promoting or
advertising the business of Lessee except as Lessee's address.
<PAGE>
EXHIBIT "E"
-----------
JANITORIAL SCHEDULE
PERFECTMARKET, INC.
3000 AERIAL CENTER, SUITE 140
3,900 RENTABLE SQUARE FEET
I. GENERAL CLEANING
a. Empty all waste baskets and trash containers. (D)
b. Replace soiled trash liners as needed. (or W)
c. Empty and damp wipe all ash trays. (D)
d. Dust all horizontal surfaces below 6' high. (W)
e. Dust all vertical surfaces below 6' high. (W)
f. Dust all high ledges, shelves, picture frames, etc. (M)
g. Dust all baseboards and preform all low dusting not done daily.
(W)
h. Clean and sanitize all drinking fountains. (D)
i. Dust all venetian blinds. (2 TIMES PER Y)
j. Sweep or vacuum upholstered furniture. (M)
k. Polish brass main lobby doors (D)
l. Break room maintained per restroom guidelines.
II. FLOOR/WORK - HARD RESILIENT
a. Dust mop or sweep. (D)
b. Spot mop and remove spillage. (D)
c. Damp mop or wet mop. (2 TIMES W)
d. Buff or spray buff. (W)
e. Machine clean. (M)
f. Add water one time per week to restroom floor drains (W)
III. CARPET CARE
a. Vacuum all traffic lanes. D
b. Remove all spots and stains when possible. (D)
c. Completely vacuum all carpets including edges. (3 TIMES W)
IV. RESTROOMS
a. Polish mirrors and all metal surfaces. (D)
b. Clean and disinfect all toilets and urinals. (D)
c. Clean and polish wash basins. (D)
d Mop floors using disinfectant. (D)
e Fill soap dispensers, towel and tissue holders. (D)
f. Clean partitions and ledges. (D)
g. Scrub bathroom floors and ceramic tile. (M)
V. WALLS, WOODWORK AND OVERHEAD
a. Remove hand prints from door frames and around light switches.
(D)
b. Clean air vents and diffusers. (1 TIME Y)
c. Dust or vacuum bottom surface of light fixtures. (1 TIME Y)
VI. OTHER REQUESTED OPERATIONS
a. Spot clean entrance door glass. (D)
b. Spot clean partition glass. (D)
c. Clean windows inside and outside. (2 TIMES Y)
d Clean exterior surfaces of vending machines. (M)
e Polish all brass thresholds and doors. (W)
f. Police 20' on each side of main doors.
g. Empty any outside ash cans or trash cans. (D)
(D) - Daily cleaning (5 times per week)
(W) - Weekly cleaning
(M) - Monthly cleaning
<PAGE>
EXHIBIT "F"
----------
RENEWAL OPTION
PERFECTMARKET, INC.
3000 AERIAL CENTER, SUITE 140
3,900 RENTABLE SQUARE FEET
a) Lessor hereby grants unto Lessee the right and option to renew and extend
this Lease, if Lessee is not then in default under any of the terms or
conditions of the lease at the time notice is given, nor at any time prior
to the commencement of the extended term, for all of such space as then
comprises the Premises for one (1) renewal term of two (2) years. Said
renewal term to begin immediately upon expiration of the initial term of
this Lease as the case may be. Said option for renewal shall be exercised
by Lessee giving notice to Lessor, as provided herein with respect to
notices, of Lessee's election to renew, at least six (6) months prior to the
expiration of the initial term and if notice as aforesaid is not given,
said option shall lapse and be of no further force and effect. Time is
agreed to be of the essence with respect to this notice requirement.
b) Said renewal term shall be upon the same conditions as herein agreed upon
for the initial term, except that the base rent during the first year (year
six) of the renewal term shall be $5,000.00 per month, the next year (year
seven) of the renewal term the base rent shall be $5,150.00, then Lessor and
Lessee prior to the first day of the renewal term shall enter into an
amendment to this Lease for the purpose of confirming said rental.
C) Whenever in this Lease words are used such as "during the term hereof" or
words of similar effect, it is agreed that upon the valid exercise by Lessee
of this renewal option, such words shall also mean "during any renewal term
hereof", and all of the provisions of the initial term shall apply to the
renewal term, except as provided herein with respect to the base rent.
<PAGE>
EXHIBIT "G"
----------
ADDITIONAL PROVISIONS
PERFECTMARKET, INC.
3000 AERIAL CENTER, SUITE 140
3,900 RENTABLE SQUARE FEET
The following additional provisions are incorporated as part of the Lease and
are numerically referenced in the body of the Lease:
1. Add: "and replacement"
2. Insert: "sixty (60)"
3. Insert: "ninety (90)"
4. Insert: "twenty (20)"
<PAGE>
EXHIBIT 10.15
[LETTERHEAD OF SAGE REALTY CORPORATION APPEARS HERE]
May 6, 1997
CitySearch, Inc.
790 East Colorado Blvd.
Suite 200
Pasadena, CA 91101
Re: Lease, dated May 6, 1997 (the "Lease"),
between Sage Realty Corporation, as Agent
("Landlord"), and CitySearch Inc. ("Tenant"),
for a portion of the third (3rd) floor (the
"Demised Premises") in the building known as
320 West 13th Street, New York, New York
---------------------------------------------
Gentlemen:
This letter shall serve to confirm our understanding with respect to the
referenced Lease. All capitalized terms used herein shall have the meaning
ascribed to them in the Lease unless otherwise indicated.
Landlord, as agent for the owner of the building located 747 Third
Avenue, New York, New York (the "Building"), and Tenant hereby agree that Tenant
shall occupy that portion of the 34th floor of the Building as shown on Exhibit
A annexed hereto and made a part hereof (the "Temporary Space") during the
period (the "Temporary Space Term") commencing on the date hereof and ending on
the earlier to occur of (i) the Commencement Date or (ii) October 1, 1997.
During the Temporary Space Term, Tenant shall occupy the Temporary Space
in accordance with all of the terms and conditions of the Lease which would be
applicable to the
<PAGE>
-2-
Temporary Space if the Temporary Space were the Demised Premises, except that
Tenant shall have no obligation to pay Fixed Rent or additional rent due under
Article 3 of the Lease and in lieu thereof, Tenant shall pay to Landlord the sum
of $2,647.88 per month for each month (pro-rated for any partial month)
occurring during the Temporary Space Term. It is understood and agreed that
Tenant shall not be obligated to pay to Landlord Fixed Rent or other charges for
usual services in connection with its occupancy of the Temporary Space but if
Tenant specifically requests and receives any overtime or additional services
from Landlord, Tenant shall pay Landlord's customary charges therefor.
In the event that Tenant shall fail to vacate and surrender the
Temporary Space on or prior to October 1, 1997, all of the provisions of Article
28 of the Lease shall be applicable to Tenant with respect to the Temporary
Space as if the Temporary Space were the Demised Premises under the Lease, and
Landlord shall have all of the rights of Landlord set forth in the Lease with
respect to the Temporary Space as if the Temporary Space were the Demised
Premises. For the purposes of Section 28.03, the average rent and additional
rent referred to therein shall with respect to the Temporary Space be deemed to
be $8,726.48 per month.
<PAGE>
-3-
Please execute a copy of this Letter Agreement where indicated to
acknowledge your agreement with the foregoing.
SAGE REALTY CORPORATION, AGENT
By: [SIGNATURE ILLEGIBLE]
-----------------------------
Accepted and Agreed to this
1st day of May, 1997.
CITYSEARCH, INC.
By: [SIGNATURE ILLEGIBLE]
------------------------
<PAGE>
[LETTERHEAD OF SAGE REALTY CORPORATION APPEARS HERE]
May 6, 1997
CitySearch, Inc.
790 East Colorado Boulevard
Suite 200
Pasadena, CA 91101
Re: Proposed lease (the "Lease") between Sage Realty
Corporation, as Agent ("Landlord"), and
CitySearch, Inc. ("Tenant") for space located in
320 West 13th Street, New York, NY (the
"Building")
--------------------------------------------------
Gentlemen:
Notwithstanding the requirement contained in Section 3.01 of the Lease
to the effect that Tenant's checks must be drawn on a member of the New York
Clearinghouse Association, provided checks are received by Landlord on or before
the fifth (5th) Business Day of each calendar month, Tenant may utilize checks
which are drawn on a Californai bank which is not a member of the New York
Clearinghouse Association. In the event that any check is received after the
fifth (5th) Business Day of any calendar month, Tenant acknowledges that
Landlord may strictly enforce the terms and conditions of Section 3.01 and
require checks to be drawn on a bank which is a member of the New York
Clearinghouse Association.
Please sign a copy of this letter where indicated to acknowledge your
consent to the foregoing.
SAGE REALTY CORPORATION,
AS AGENT
By: /s/ Robert Kaufman
----------------------------------------
Robert Kaufman, Executive
Vice President
Accepted and Agreed to
this 1st day of May, 1997
CITYSEARCH, INC.
By: [SIGNATURE ILLEGIBLE]
------------------------
<PAGE>
SAGE REALTY CORPORATION, AGENT
LANDLORD
and
CITYSEARCH, INC.
TENANT
INDENTURE OF LEASE
PREMISES: Part of the Third Floor
320 West 13th Street
New York, New York 10014
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. DEFINITIONS, TERM................................................. 1
2. COMMENCEMENT OF TERM.............................................. 2
3. FIXED RENT, ADDITIONAL RENTS AND RENT ADJUSTMENTS................. 3
REAL ESTATE TAX ADJUSTMENT........................................ 5
4. ELECTRICITY....................................................... 7
5. USE............................................................... 13
6. REPAIRS, ALTERATIONS AND LIENS.................................... 13
7. FLOOR LOAD, NOISE, WINDOW CLEANING................................ 20
8. LAWS, ORDINANCES, REQUIREMENTS OF PUBLIC AUTHORITIES ............. 21
9. INSURANCE, PROPERTY LOSS, REIMBURSEMENT........................... 22
10. DAMAGE OR DESTRUCTION BY FIRE OR OTHER CAUSE...................... 25
11. ASSIGNMENT, SUBLETTING, MORTGAGING................................ 27
12. NO LIABILITY ON LANDLORD.......................................... 33
13. MOVING OF HEAVY EQUIPMENT......................................... 34
14. CONDEMNATION...................................................... 34
15. ENTRY, RIGHT TO CHANGE PUBLIC PORTIONS OF THE BUILDING............ 35
16. BANKRUPTCY........................................................ 37
17. DEFAULTS AND REMEDIES AND WAIVER OF REDEMPTION.................... 38
18. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS ................. 41
19. COVENANT OF QUIET ENJOYMENT....................................... 42
20. EXCAVATION........................................................ 42
21. SERVICES AND EQUIPMENT............................................ 42
22. DEFINITION OF LANDLORD............................................ 46
23. INVALIDITY OF ANY PROVISION....................................... 47
24. BROKER............................................................ 47
25. SUBORDINATION..................................................... 47
26. ESTOPPEL CERTIFICATE.............................................. 49
</TABLE>
<PAGE>
<TABLE>
<S> <C>
27. LEGAL PROCEEDINGS, WAIVER OF JURY TRIAL........................... 50
28. SURRENDER OF PREMISES/HOLDOVER.................................... 52
29. RULES AND REGULATIONS............................................. 53
30. NOTICES........................................................... 53
31. NO WAIVER; ENTIRE AGREEMENT....................................... 54
32. CAPTIONS.......................................................... 55
33. INABILITY TO PERFORM.............................................. 55
34. REPRESENTATION BY LANDLORD........................................ 56
35. NAME OF BUILDING.................................................. 56
36. SUCCESSORS AND ASSIGNS............................................ 56
37. DEFERRED COLLECTIONS.............................................. 56
38. FEES/INTEREST/LATE CHARGES........................................ 57
39. ABATEMENT OF RENT................................................. 57
40. SECURITY DEPOSIT.................................................. 58
41. TENANT'S EXPANSION OPTION......................................... 59
42. TENANT'S EXTENSION OPTION. ....................................... 62
</TABLE>
Schedule A Floor Plan
Schedule B Work Letter
Schedule C Rule and Regulations
Schedule D Form of Letter of Credit
Schedule E Schedule of Building Holidays
Schedule F Electric Survey
ii
<PAGE>
INDENTURE OF LEASE made as of this 6th day of May, 1997, between SAGE
REALTY CORPORATION, a New York corporation having its principal office at 777
Third Avenue, New York, New York 10017, Agent for the owner of the Building
hereinafter mentioned (herein "Landlord"), and CITYSEARCH, INC., a Delaware
corporation having its office at 790 East Colorado Boulevard, Suite 200,
Pasadena, California 91101 (herein "Tenant").
W I T N E S S E T H:
ARTICLE 1.
DEFINITIONS, TERM
-----------------
Section 1.01. The terms defined in this Article shall, for all purposes of
this Lease and all agreements supplemental thereto, have the meanings herein
specified unless the context otherwise requires.
(a) "Building" shall mean the office building known as 320 West 13th
Street, in the Borough of Manhattan, City and State of New York. The plot of
land on which the Building is erected is hereinafter called the "Land."
(b) "Business Days" shall mean all days excluding Saturdays, Sundays
and days observed by the State of New York or Federal Government as legal
holidays, and further excluding holidays established by any union contract
applicable to employees at the Building. A schedule of holidays for calendar
year 1997 is attached hereto as Schedule E.
(c) "Commencement Date" shall have the meaning set forth in Section
2.02.
(d) "Demised Premises" shall mean a portion of the third (3rd) floor
of the Building, as shown on the Floor Plan annexed hereto as Schedule A and
made a part of this Lease, including all fixtures and equipment which at the
Commencement Date or during the Term of this Lease are attached thereto and
which become a part thereof.
(e) "Expiration Date" shall mean the last day of the month in which
the day prior to the seventh (7th) anniversary of the Commencement Date occurs,
or any sooner date of termination pursuant to the provisions hereof.
(f) "Fixed Rent" shall mean the annual rental payable by Tenant for
the Demised Premises in equal monthly installments as provided for in Article 3
of this Lease.
(g) "Interest Rate" shall mean the lesser of (i) 2% above the prime
commercial lending rate of Marine Midland Bank, N.A. in effect from time to time
or (ii) the maximum applicable legal rate, if any.
<PAGE>
-2-
(h) "Landlord's Work" shall mean the work agreed to be done by
Landlord in the Demised Premises as provided for in Schedule B hereof.
(i) "Lease" shall mean this Indenture of Lease and any and all
Schedules annexed hereto.
(j) "Term of this Lease" and "Term" shall mean the term of years
commencing on the Commencement Date and expiring on the Expiration Date, subject
to the terms and conditions hereinafter set forth.
Section 1.02. Landlord hereby leases to Tenant, and Tenant hereby rents
from Landlord, the Demised Premises, subject to the provisions hereinafter set
forth, together with appurtenances, including the right to use in common with
others the lobbies, elevators and other public portions of the Building.
TO HAVE AND TO HOLD unto Tenant, its successors and permitted assigns, for
the Term of this Lease or until the Term of this Lease sooner terminates as
hereinafter provided.
ARTICLE 2.
COMMENCEMENT OF TERM
--------------------
Section 2.01. Except as provided in Section 2.02 hereof, Tenant
acknowledges that it has examined the Demised Premises and is taking same "as
is" as of the Commencement Date. Tenant acknowledges that Landlord is not
required to do any work with respect thereto, except as set forth in Schedule B.
Section 2.02. The Term of this Lease and the payment of rent shall commence
on the date that the Demised Premises shall be Substantially Completed, as
defined in Schedule B (herein the "Commencement Date"). Promptly after the
Commencement Date, Landlord and Tenant agree to execute an agreement
("Commencement Date Agreement") in form and substance satisfactory to Landlord
setting forth, among other things, the Commencement Date and the Expiration Date
of this Lease.
The taking of possession by Tenant of the Demised Premises shall be deemed
an acceptance of same by Tenant and shall be conclusively deemed Substantial
Completion (as defined in Schedule B) of Landlord's Work. Such taking of
possession shall also be conclusive evidence, as against Tenant, that the
Demised Premises and the Building of which the same form a part were in good and
satisfactory condition at the time of such occupancy (except for so-called
"punchlist" items and latent defects, if any) and that the Demised Premises were
substantially as shown on Schedule A. Landlord shall, however, thereafter
complete any "punchlist" items required for completion of Landlord's Work.
<PAGE>
-3-
Section 2.03. If Landlord shall be unable to give possession of the Demised
Premises on the date anticipated for the commencement of the Term hereof for any
reason whatsoever, Landlord shall not be subject to any liability, nor shall the
validity of this Lease nor the obligations of Tenant hereunder be thereby
affected. Landlord shall use diligent efforts to substantially complete the work
necessary to deliver possession of the Demised Premises promptly, subject to any
delays beyond the reasonable control of Landlord. In the event that Landlord
shall be unable to give possession of the Demised Premises on or prior to August
1, 1997 (the" Outside Completion Date") (subject to extension by reason of force
majeure [set forth immediately below]), Tenant shall be entitled to a credit
against the first installments of Fixed Rent due hereunder (after taking into
account any abatement of Fixed Rent as provided in Article 39 hereof), in the
amount of $395.52 per day for each day beyond the Outside Completion Date that
Landlord shall remain unable to deliver possession of the Demised Premises. Any
delay in Landlord's substantial completion of Landlord's Work caused by labor
trouble, governmental controls, act of God, or any other cause beyond Landlord's
reasonable control shall extend such time period for Landlord to substantially
complete Landlord's Work and give possession of the Demised Premises to Tenant.
Without limiting the foregoing, the parties hereto expressly negate the
provisions of Section 223-a of the Real Property Law and agree that such Section
shall be inapplicable hereto. Tenant agrees that the provisions of this Article
are intended to constitute "an express provision to the contrary" within the
meaning of Section 223-a. If by reason of such delay, the Term of this Lease
shall commence subsequent to such anticipated date, the Term of this Lease shall
be deemed extended for the same period.
ARTICLE 3.
FIXED RENT, ADDITIONAL RENTS AND RENT ADJUSTMENTS
-------------------------------------------------
Section 3.01. During the Term of this Lease, Tenant shall pay, at
Landlord's address as herein set forth, or at such other address that Landlord
may from time to time designate, a Fixed Rent payable in lawful money of the
United States of America (by check of Tenant drawn on a bank that is a member of
the New York Clearinghouse Association) in equal monthly installments in advance
on the first day of each calendar month, without notice or demand, and without
setoff or deduction whatsoever at annual rates as follow:
(i) $164,785.44 per annum for the period beginning on the
Commencement Date and continuing through the day prior to
the first (1st) anniversary of the Commencement Date;
(ii) $173,605.44 per annum for the period beginning on the
first (1st) anniversary of the Commencement Date
<PAGE>
-4-
and continuing through the day prior to the second (2nd)
anniversary of the Commencement Date;
(iii) $178,060.44 per annum for the period beginning on the
second (2nd) anniversary of the Commencement Date and
continuing through the day prior to the third (3rd)
anniversary of the Commencement Date;
(iv) $191,515.44 per annum for the period beginning on the third
(3rd) anniversary of the Commencement Date and continuing
through the day prior to the fourth (4th) anniversary of
the Commencement Date;
(v) $205,240.44 per annum for the period beginning on the
fourth (4th) anniversary of the Commencement Date and
continuing through the day prior to the fifth (5th)
anniversary of the Commencement Date; and
(vi) $214,735.44 per annum for the period beginning on the fifth
(5th) anniversary of the Commencement Date and continuing
through the day prior to the sixth (6th) anniversary of the
Commencement Date; and
(vii) $224,365.44 per annum for the period beginning on the sixth
(6th) anniversary of the Commencement Date and continuing
through the Expiration Date.
If Tenant's obligation to pay Fixed Rent shall commence on a date
other than the first day of a calendar month, the first installment of Fixed
Rent shall be in an amount equal to that required to cover the period up to and
including the last day of the month wherein the obligation to pay Fixed Rent
occurs, computed on a per diem basis.
Section 3.02. The Fixed Rent does not take into account increases
of real estate taxes and/or expenses during the Term of this Lease or other
adjustments in rent, or other payments to be made by Tenant, during the Term of
this Lease. Provision therefor is hereinafter made.
Section 3.03. All costs, expenses, adjustments and payments which
Tenant is obligated to pay to Landlord pursuant to this Lease and/or its
Schedules shall be deemed additional rent whether or not denominated as such
and, in the event of nonpayment thereof, Landlord shall have all rights and
remedies with respect thereto as herein provided for in case of nonpayment of
Fixed Rent.
Tenant covenants and agrees to pay the Fixed Rent and additional
rent as in this Lease provided, when due.
<PAGE>
-5-
Section 3.04. For the purposes of this Section 3.04, the following
definitions shall apply:
(a) The term "Base Tax Year" as hereinafter set forth for the
determination of real estate tax escalation shall mean the period commencing on
July 1, 1997 and ending on June 30, 1998.
(b) The term "the Percentage" shall mean 2.38%.
(c) The term "Real Estate Taxes" shall mean all real estate taxes,
assessments, water and sewer rents, governmental levies, county taxes or any
other governmental charges, general or special, ordinary or extraordinary,
unforeseen as well as foreseen, of any kind or nature whatsoever, which are or
may be assessed or imposed upon the Land, the Building and the sidewalks, plazas
or streets in front of or adjacent thereto, including any tax, excise or fee
measured by or payable with respect to any rent, and levied against Landlord
and/or the Land and/or Building, under the laws of the United States, the State
of New York, or any political subdivision thereof, or by the City of New York,
or any political subdivision thereof. If, due to a future change in the method
of taxation or in the taxing authority, a franchise, income, transit, profit or
other tax or governmental imposition, however designated, shall be levied
against Landlord, and/or the Land and/or the Building, in substitution in whole
or in part for said Real Estate Taxes, or in lieu of additional real estate
taxes, then such franchise, income, transit, profit or other tax or governmental
imposition shall be deemed to be included within the definition of "Real Estate
Taxes" for the purposes hereof. In the event that the Real Estate Taxes for the
Base Tax Year shall include any charge with respect to any so called "Business
Improvement District" or similar charge (a "Bid Charge"), and if any such Bid
Charge is subsequently discontinued or eliminated, then, as of the date of such
discontinuance or elimination, the Real Estate Taxes for the Base Tax Year shall
be recalculated as if the Bid Charge had not originally been included therein.
(d) The term "Tax Year" shall mean every twelve-month consecutive
period commencing each July 1st during the Term of this Lease.
Real Estate Tax Adjustment
In the event that the Real Estate Taxes payable for any Tax Year shall
exceed the amount of such Real Estate Taxes, as finally determined, payable with
respect to the Base Tax Year, Tenant shall pay to Landlord, as additional rent
("Tenant's Tax Payment") for such Tax Year, an amount equal to the Percentage of
the excess. By or after the start of the Tax Year following the Base Tax Year,
and by or after the start of each Tax Year thereafter, Landlord shall furnish to
Tenant a statement of the
<PAGE>
-6-
Real Estate Taxes payable with respect to such Tax Year, and a statement of the
Real Estate Taxes payable during the Base Tax Year. Notwithstanding the
foregoing, in the event that the Real Estate Taxes for any Tax Year shall be
more than fifty (50%) percent in excess of the Real Estate Taxes for the
preceding Tax Year (or, with regard to the First Tax Year, more than fifty (50%)
percent in excess of the Real Estate Taxes for the Base Tax Year), Tenant's Tax
Payment shall be limited to the amount that Tenant's Tax Payment would be if
there had been only a fifty (50%) percent year to year increase in Real Estate
Taxes.
Within thirty (30) days after the issuance by the governmental authority
having jurisdiction thereover of tax bills for Real Estate Taxes assessed,
levied and/or imposed upon the Land and Building for any Tax Year, Landlord
shall submit to Tenant a photostatic copy of such bill and/or bills and
thereafter on or about each respective anniversary date shall submit a copy of
the tax bill and/or bills for the Real Estate Taxes assessed, levied or imposed
upon the Land and Building for such Tax Year, together with a statement which
shall indicate the amount, if any, of Tenant's Tax Payment. Landlord's failure
to submit copies of bills as aforesaid shall not be considered a default by
Landlord or a defense by Tenant to such tax payment.
Within thirty (30) days after the issuance of the statement Tenant shall
pay Tenant's Tax Payment in the amount set forth on such statement. Such
statement shall be conclusively deemed binding upon Tenant unless Tenant shall
have objected thereto in writing within thirty (30) days of receipt thereof.
In the event Landlord shall receive a final reduction or refund of Real
Estate Taxes for any Tax Year for which Tenant is obligated to pay any
additional rent under the provisions of this subsection B of Section 3.04, the
amount or the proceeds of such reduction or refund, less legal fees and other
expenses incurred in collecting the same or achieving such reduction, shall be
applied and allocated to the periods for which such final reduction or refund
was obtained, and proper adjustment shall be made between Landlord and Tenant.
Tenant has been advised that proceedings to protest the Real Estate Tax
Assessment for the Base Tax Year may have been filed and may result in a
reduction of Real Estate Taxes for the Base Tax Year.
Any payments or refunds due hereunder for any period of less than a full
Tax Year at the commencement or end of the Term of this Lease shall be equitably
prorated to reflect such event.
In addition to Tenant's obligation to pay Tenant's Tax Payment as
aforesaid, Tenant shall pay to Landlord as additional rent payable upon demand,
any occupancy tax or rent tax now in effect or hereafter enacted, if payable by
Landlord in the first instance or hereafter required to be paid by Landlord.
<PAGE>
-7-
Section 3.05. Upon the date of the expiration or any sooner termination of
this Lease, whether the same be the date hereinabove set forth as the expiration
of the Term of this Lease or any prior or subsequent date, a proportionate share
of the Fixed Rent, adjustments and additional rents for the year (calendar or
fiscal) in which such expiration or termination occurs, shall immediately become
due and payable by Tenant to Landlord as hereinafter provided, if not
theretofore already billed and paid. Such proportionate share shall be based
upon the length of time that this Lease shall have been in existence during such
year. Promptly after any such expiration or termination, Landlord shall compute
the amounts due from Tenant, as aforesaid, which computations shall either be
based on that year's actual figures or be an estimate based on the most recent
statements theretofore prepared by Landlord and furnished to Tenant pursuant to
this Lease. If an estimate is used, then Landlord shall promptly cause
statements to be prepared on the basis of the comparative year's actual figures
as soon as they are available, and within ten (10) days after such statement or
statements are prepared by Landlord and furnished to Tenant, Landlord and Tenant
shall make appropriate adjustments of any estimated payments theretofore made.
Tenant's obligation to pay any and all rents, adjustments and additional
rents under this Lease shall continue and shall cover all periods up to the
Expiration Date. Landlord's and Tenant's obligations to make the adjustments
hereinabove referred to shall survive any expiration or termination of this
Lease. Any delay or failure of Landlord in billing any Fixed Rent or additional
rent herein provided for shall not constitute a waiver of or in any way impair
the continuing obligation of Tenant to pay such rent adjustments hereunder.
ARTICLE 4.
ELECTRICITY
-----------
Section 4.01. The Fixed Rent reserved in this Lease includes the agreed sum
of $20,785.44 per annum in consideration of which Landlord, as an additional
service, will supply Tenant with electricity for normal use in the Demised
Premises between the hours 8:00 A.M. and 6:00 P.M. on Business Days. Landlord
and Tenant agree that the aforesaid sum was determined based on an electrical
survey, a copy of which is annexed hereto as Schedule F and made a part hereof
(the "Electric Survey"). Electricity shall be supplied 24 hours a day, seven
days a week, however in the event Tenant uses electricity in excess of that
contemplated in the Electric Survey, the Fixed Rent reserved herein may be
increased as provided in Section 4.03 hereof. If Landlord's electric rates
(i.e., the public utility rate schedule at the time in question, including all
surcharges, taxes, fuel adjustments, taxes regularly passed on to consumers by
the public
<PAGE>
-8-
utility, and other sums payable in respect thereof for the supply of electric
energy to Landlord for the Building) are increased, the Fixed Rent reserved in
this Lease shall be adjusted by applying to the sum specified above, the same
percentage as such rate increase, and such adjusted Fixed Rent shall be billed
by Landlord to Tenant, with effect as of the date of the increase of Landlord's
electric rate. Landlord shall not be liable in any way to Tenant for any failure
or defect in the supply or character of electric energy furnished to the Demised
Premises by reason of any requirement, act or omission of the public utility
serving the Building with electricity or for any other reason not attributable
to the Landlord. At Landlord's option, Tenant shall purchase from the Landlord
or Landlord's agent all lighting tubes, lamps, bulbs and ballasts used in the
Demised Premises and Tenant shall pay Landlord's reasonable charges therefor
which shall be commercially competitive, for providing and installing same on
demand, as additional rent; if Landlord's charges shall cease to be commercially
competitive, Tenant shall no longer be required to purchase same from Landlord
or Landlord's agent
Section 4.02. Tenant's use of electric energy in the Demised Premises shall
not at any time exceed the capacity of any of the electrical conductors,
machinery and equipment in or otherwise serving the Demised Premises. In order
to insure that such capacity is not exceeded and to avert possible adverse
effect upon the Building electric service, Tenant shall not, without Landlord's
prior written consent in each instance, connect any additional fixtures,
machinery, appliances or equipment to the Building electric distribution system
or make any alteration or addition to the equipment specified on the Electric
Survey, or the electric system of the Demised Premises existing on the
Commencement Date other than lamps, typewriters, copiers, computer terminals,
copying machines, communications equipment such as telephones, fax machines,
appliances, and other small office machines necessary for Tenant's use of the
Demised Premises that consume comparable or less amounts of electricity. Should
Landlord grant such consent, all additional risers or other equipment required
therefor shall be provided by Landlord, and the cost thereof shall be paid by
Tenant upon Landlord's demand. As a condition to granting such consent, Landlord
may require Tenant to agree to an increase in the Fixed Rent by an amount which
will reflect the value to Tenant (which shall be based upon what Tenant would
pay the public authority for such service if the same were supplied directly to
Tenant) of the additional service to be furnished by Landlord, that is, the
potential additional electrical energy to be made available to Tenant based upon
the estimated additional capacity of such additional risers or other equipment.
If Landlord and Tenant cannot agree on the amount of such increase, Tenant shall
nevertheless pay the same as billed until such amount shall be determined by an
independent utility consultant to be selected by Landlord and paid equally by
Landlord and Tenant. The determination of the consultant shall be binding upon
the
<PAGE>
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parties. When the amount of such increase is so determined, the parties shall
execute an agreement supplementary hereto to reflect such increase in the amount
of the Fixed Rent stated in this Lease and in the amount set forth in Section
4.01, effective from the date such additional service is made available to
Tenant, but such increase shall be effective from such date even if such
supplementary agreement is not executed.
Section 4.03. If there shall be an increase in the space constituting the
Demised Premises, or if Tenant's failure to maintain its machinery and equipment
in good order and repair causes greater consumption of electrical current, or if
Tenant uses electricity in excess of that contemplated in the Electric Survey,
the Fixed Rent herein reserved shall be increased accordingly. The amount of
such increase shall be billed by Landlord to Tenant, effective as of the date of
the increased usage. Such sum shall be due, and shall be paid by Tenant, as
additional rent hereunder at the time billed. If Tenant disputes the amount of
such increase, Tenant shall nevertheless pay the same as billed, and the amount
shall be determined by an independent utility consultant to be selected and paid
equally by Landlord and Tenant. The determination of the consultant shall be
binding upon the parties.
Section 4.04. A. Landlord reserves the right to discontinue furnishing
electric energy to Tenant in the Demised Premises at any time upon not less than
ninety (90) days prior written notice to Tenant provided that Landlord shall
have made such election as to the majority of all tenants occupying the Building
and further provided that electric service is available directly from the public
utility servicing the Building (Landlord hereby agreeing, unless otherwise
required by law, not to discontinue furnishing electricity to Tenant until such
time as Tenant is able to obtain same directly from the public utility). If
Landlord exercises such right of termination, this Lease shall continue in full
force and effect and shall be unaffected thereby, except only that, from and
after the effective date of such termination, Landlord shall not be obligated to
furnish electric energy to Tenant and the Fixed Rent under this Lease shall be
reduced by the amount set forth in Section 4.01, plus or minus the amount of any
change pursuant to Sections 4.01, 4.02, 4.03 and 4.05. If Landlord so
discontinues furnishing electric energy to Tenant, Tenant shall arrange to
obtain electric energy directly from the public utility company furnishing
electric service to the Building. Such electric energy may be furnished to
Tenant by means of the then existing Building system feeders, risers and wiring
to the extent that the same are available, suitable and safe for such purposes.
All meters and additional panel boards, feeders, risers, wiring and other
conductors and equipment which may be required to obtain electric energy
directly from such public utility company shall be installed and maintained by
Tenant at its expense.
<PAGE>
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B. In the event that Landlord shall discontinue furnishing electric energy
to Tenant as provide above, if Tenant's cost of electric energy as charged by
the public utility shall be in excess of one hundred thirty (130%) percent of
the amount Tenant was paying to Landlord immediately preceding such
discontinuance (and provided that Tenant has not used amounts of electricity
more than when Landlord was furnishing electric energy to Tenant), then Tenant
shall have the option to terminate this Lease upon ten (10) days prior written
notice to Landlord and upon the expiration of such ten (10) day period, this
Lease shall cease and terminate and be of no further force or effect.
Section 4.05. Tenant covenants and agrees that at no time will the
connected electrical load serving the Demised Premises exceed 5 watts per square
foot. Should Landlord consent to an increase in the connected electrical load,
as a condition to granting such consent, Landlord may require Tenant to agree to
an increase in the Fixed Rent by an amount which will reflect the value to
Tenant of the additional connected electrical load. If Tenant disputes the
amount, Tenant shall nevertheless pay the same as billed, and the amount shall
be determined by an independent utility consultant to be selected and paid
equally by Landlord and Tenant. The determination of the consultant shall be
binding upon the parties.
Section 4.06. If any tax is imposed upon Landlord with respect to
electrical energy furnished as a service to Tenant by any Federal, State or
Municipal Authority, Tenant covenants and agrees that where permitted by law or
applicable regulations, Tenant's pro rata share of such taxes shall be
reimbursed by Tenant to Landlord.
Section 4.07. (a) Landlord shall have the right to procure periodic
surveys made by an independent utility consultant selected by Landlord and if
such utility consultant determines that there has been (i) an increase in
Tenant's use of electrical current or (ii) the amount set forth in Section 4.01
is insufficient, then, the amount set forth in Section 4.01 shall be adjusted
and in addition to the other requirements and obligations imposed on Tenant in
this Article, Landlord shall pay the fees of the utility consultant making such
survey. The findings of such utility consultant shall be binding and conclusive
upon the parties. Notwithstanding anything contained in this Article 4 to the
contrary, provided Tenant continues to use amounts of electricity as
contemplated in the Electric Survey, Landlord agrees that the amount set forth
in Section 4.01 shall not be subject to increase for a period of two (2) years
after the Commencement Date.
(b) If Tenant wishes to dispute any determination of the
additional rental value of electricity service to the Demised Premises on the
basis of any survey made pursuant to Section 4.07(a) or as otherwise determined
pursuant
<PAGE>
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to Sections 4.02 and 4.03 hereof, it shall notify Landlord to such effect
within thirty (30) days after receipt of written notice of such determination.
Unless and until such dispute is determined in Tenant's favor, Tenant shall pay
the Fixed Rent as computed in accordance with such determination. The dispute
shall be determined in the following manner: Tenant shall retain an independent
electrical engineer or consultant ("Tenant's Consultant") to review Landlord's
survey or other basis of Landlord for such determination, as the case may be,
and, if deemed advisable, to make an independent survey. Not later than thirty
(30) days after Tenant shall have given Landlord the notice of dispute, Tenant
shall deliver to Landlord (i) Tenant's Consultant's comments on Landlord's
survey or on Landlord's other basis for such determination, and/or (ii) Tenant's
Consultant's survey. Landlord shall refer such comments and/or survey to the
consultant who prepared the original survey or to its electrical consultant
("Landlord's Consultant") who shall meet with Tenant's Consultant for the
purpose of reaching agreement upon the additional rental value of the
electricity service to the Demised Premises. If they are unable to reach such
agreement within thirty (30) days after the delivery of such comments or report,
Landlord's Consultant and Tenant's Consultant shall appoint a disinterested
third electrical consultant, who shall, within twenty (20) days thereafter,
resolve whatever differences may remain between Landlord's Consultant and
Tenant's Consultant and on the basis of such resolution determine the additional
rental value of the electricity service to the Demised Premises. If Landlord's
Consultant and Tenant's Consultant are unable to agree upon a disinterested
third electrical consultant within the thirty (30) day period above specified
for agreement between Landlord's Consultant and Tenant's Consultant, and if the
parties are unable to agree upon such a third electrical consultant within ten
(10) days thereafter, either party, upon written notice to the other, may apply
for the appointment of such a third electrical consultant to the President of
the Real Estate Board of New York, Inc. or any organization successor thereto,
or in his absence or refusal or failure to act, to the Supreme Court of the
State of New York in the County of New York. The fees and expenses of
Landlord's Consultant shall be borne entirely by Landlord. The fees and
expenses of Tenant's Consultant shall be borne entirely by Tenant. The fees and
expenses of the disinterested third electrical consultant shall be shared
equally by Landlord and Tenant. If and to the extent that the additional rental
value of the electricity service to the Demised Premises shall be so determined
to be less than the value originally determined by Landlord's Consultant, the
amount of the resulting overpayment of the Fixed Rent shall be refunded by
Landlord to Tenant on Tenant's demand therefor.
Section 4.08. Notwithstanding the aforesaid provisions of this Article,
if, pursuant to an action of the Public Service Commission of the State of New
York, or otherwise, submetering of electricity is permitted at the Building
then Landlord shall,
<PAGE>
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have the option, at Landlord's sole cost and expense, of installing submeters to
measure Tenant's electricity consumption. Upon installation of the submeters,
Tenant's electricity consumption and demand shall be measured by said submeters,
and subject to the terms and conditions of Section 4.09 hereof, Tenant agrees to
purchase such electricity from Landlord or Landlord's designated agent at
Landlord's electric rates, plus five (5%) percent thereof to reimburse Landlord
for administrative services in connection with supplying and billing such
electricity and for line loss. All such sums shall be paid by Tenant to
Landlord as additional rent hereunder. If more than one meter measures the
electricity consumption and demand of Tenant in the Building, the service
rendered through each meter shall be aggregated and billed in accordance with
the above rate classification, unless Landlord shall elect separate billing on a
per-meter basis. Landlord may at any time render bills for Tenant's consumption
and demand and Tenant shall pay the same within thirty (30) days following the
date the same are rendered. If Landlord exercises such right of submetering,
this Lease shall continue in full force and effect and shall be unaffected
thereby, except only that, from and after the effective date of such
submetering, the Fixed Rent under this Lease shall be reduced by the amount set
forth in Section 4.01, plus or minus the amount of any change pursuant to
Sections 4.01, 4.02, 4.03 and 4.05, and Tenant shall purchase electric energy
pursuant to this Section 4.08.
Section 4.09. If at any time during the Term of this Lease Tenant shall be
legally able to obtain electric energy from a third party supplier, Landlord
agrees that Tenant, upon not less than 30 days prior written notice, shall have
the option to do so. Such electric energy furnished by said third party
supplier may be furnished to Tenant by means of the then existing Building
system feeders, risers and wiring but only to the extent that same are
available, suitable and safe for such purposes. Any meters, panel boards,
feeders, risers, wiring and other conductors and equipment which may be required
to obtain electric energy directly from such third party supplier shall be
installed and maintained by Tenant at its sole cost and expense. If Tenant
exercises its option as aforesaid, this Lease shall continue in full force and
effect and shall be unaffected thereby, except only that, from and after the
date Tenant begins receiving electric energy from said third party supplier,
Landlord shall not be obligated to furnish electric energy to Tenant and the
Fixed Rent under this Lease shall be reduced by the amount set forth in Section
4.01, plus or minus the amount of any change pursuant to Sections 4.01, 4.02,
4.03 and 4.05.
<PAGE>
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ARTICLE 5.
USE
---
Section 5.01. Tenant shall use and occupy the Demised Premises for
administrative, executive and general business office purposes only and for no
other purposes.
Section 5.02. Tenant shall not suffer or permit the Demised Premises or
any part thereof to be used in any manner, or suffer or permit anything to be
done therein, or suffer or permit anything to be brought into or kept in the
Demised Premises which would in any way (i) violate any law or requirement of
public authorities, (ii) cause structural injury to the Building or any part
thereof, (iii) interfere with the normal operation of the heating, air
conditioning, ventilating, plumbing or other mechanical or electrical systems of
the Building or the elevators installed therein, (iv) constitute a public or
private nuisance, or (v) alter the appearance of the exterior of the Building or
of any portion of the interior thereof other than the Demised Premises.
Tenant's signage on its entrance door shall be subject to Landlord's approval.
Section 5.03. Tenant shall not, without the prior written consent of
Landlord (which shall not be unreasonably withheld or delayed), allow a
"Servicing Company" (defined below) to install any telephone, data, information
or other communications equipment in the Demised Premises to service premises
occupied by persons other than Tenant and/or its affiliates. For example, the
Demised Premises may not be used as a so-called "switching" or "relay" station
serving third parties (that is, parties other than Tenant and its affiliates)
without such consent by Landlord. In granting such consent, Landlord may require
that the Servicing Company enter into a license agreement with Landlord
confirming that the Servicing Company shall have no independent rights in the
Demised Premises and that upon termination of this Lease, for whatever reason,
the Servicing Company will have no right to leave its equipment in the Demised
Premises. Landlord may make a reasonable charge to the Servicing Company for
allowing it to install its equipment in the Demised Premises. A "Servicing
Company" shall mean a person, firm, corporation or other entity other than
----------
Tenant whose equipment services not only the Demised Premises, but other
- ------
premises or parties as well.
ARTICLE 6.
REPAIRS, ALTERATIONS AND LIENS
------------------------------
Section 6.01. Tenant shall take good care of the Demised Premises and the
fixtures and appurtenances and equipment therein and, at its sole cost and
expense, make all repairs thereto as and when needed to preserve the aforesaid
in good working order and condition (other than structural repairs and repairs
to plumbing, wiring and other Building equipment for the general
<PAGE>
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supply of water, heat, air-conditioning, gas and electricity which are not
caused by the carelessness, omission, neglect, improper conduct or other cause
of Tenant, its servants, employees, agents, visitors or licenses). Except to
the extent caused by the negligence of Landlord and its agents, all damage or
injury to the Demised Premises and to its fixtures, appurtenances and equipment
or to the Building of which the same form a part, or to its fixtures,
appurtenances and equipment caused by Tenant moving property, or resulting from
any air-conditioning unit or system, any short circuit, flow or leakage of
water, steam, illuminating gas, sewer gas, sewerage or odors, or by frost or by
bursting or leaking of pipes or plumbing works or gas, or from any other cause
of any other kind or nature whatsoever due to carelessness, omission, neglect,
improper conduct or other cause of Tenant, its servants, employees, agents,
visitors or licenses, shall be repaired, restored or replaced promptly by
Tenant, at its sole cost and expense, to the satisfaction of Landlord. If
Tenant fails to commence and diligently prosecute such repairs, restorations or
replacements, within the time period set within Section 17.01, (except in the
event of an emergency in which cease no notice shall be required), same may be
made by Landlord at the expense of Tenant and any actual out-of-pocket costs
incurred by Landlord therefor shall be collectible as additional rent or
otherwise, and shall be paid by Tenant within thirty (30) days after rendition
of a bill or statement therefor.
Section 6.02. Landlord shall, at its expense, make all repairs and
replacements, structural and otherwise, necessary in order to keep in good order
and repair the exterior of the Building and the public portions of the Building,
the need for which Landlord shall have knowledge (including the public halls and
stairways, plumbing, wiring and other Building equipment for the general supply
of water, heat, air-conditioning, gas and electricity) except repairs
hereinabove provided to be made by Tenant and repairs, the need for which Tenant
has not reported to Landlord. Except in the event of an emergency, all repairs
to be performed by Landlord which affect the Demised Premises shall be performed
upon not less than three (3) days prior written notice to Tenant, and Landlord
shall use reasonable efforts not to interfere with the conduct of Tenant's
business; provided that the foregoing shall not be deemed to require that
Landlord employ labor on an overtime or premium pay basis.
Section 6.03. All repairs, restorations or replacements by either party
shall be of first-class quality and done in good and workmanlike manner. Tenant
shall, and shall include in all contracts, subcontracts and purchase orders, a
requirement that such contractors, subcontractors or materialmen, as the case
may be, shall, cause all workers at the Demised Premises to work in a
cooperative manner with each other and with Building personnel and in a manner
which will not disrupt access to or use of the common areas of the Building,
cause any labor dispute with other
<PAGE>
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workers in the Building, cause inconvenience to the other tenants in the
Building or interfere with the conduct of other tenants' business. Tenant
agrees that should Tenant, its agents and/or contractors, enter upon the Demised
Premises for the purpose of performing any work, the labor employed by Tenant or
anyone performing such work, for or on behalf of Tenant, shall always be
cooperative and compatible with the labor employed by Landlord or any
contractors or subcontractors of Landlord so as to prevent any labor dispute or
walk-out by Landlord's contractors and subcontractors. Should such labor be
uncooperative or incompatible, Landlord may require Tenant to withdraw such
labor from the Demised Premises. In the event Tenant or Tenant's contractor
shall enter upon the Demised Premises or any other part of the Building, Tenant
agrees to indemnify and save Landlord free and harmless, from and against any
and all claims whatsoever arising out of said entry or such work, except to the
extent such claim is due to the negligence of Landlord, its agents or
contractors. Tenant's agents and contractors and their employees shall comply
with the special rules, regulations and requirements of Building management
(which are applicable generally to all tenants of the Building), with respect
to the performance and coordination of said agents, contractors and their
employees so as to avoid intrusion into the operation of the Building and to
avoid disturbing the quiet enjoyment of other tenants.
Section 6.04. Tenant shall not store or place any materials or other
obstructions in the lobby or other public portions of the Building, or on the
sidewalk adjacent to the Building.
Section 6.05. Tenant shall do no work and shall make no alterations,
decorations, installations, additions or improvements in or to the Demised
Premises, including, but not limited to, installation of a water cooler, an air-
conditioning or cooling system unit or part thereof, or other apparatus of like
or other nature without Landlord's prior written consent, which consent shall
not be unreasonably withheld or delayed in the cease of alterations,
decorations, installations, additions or improvements in the Demised Premises
which are non-structural in nature and do not affect the structure, exterior or
common areas of the Building or adversely affect the functioning of the heating,
ventilating or air-conditioning, electrical, mechanical, plumbing or elevator
systems of the Building or other tenants' use thereof, and then only by
contractors or mechanics approved by Landlord ("Approved Contractors"). Such
approval must be obtained prior to any bidding for said work. For purposes
hereof, Landlord agrees that the term "decorations" shall not include the
hanging of paintings, pictures, artwork and bulletin boards in the Demised
Premises which are capable of being removed from the Demised Premises without
damage to the pictures or artwork and without damage, except to a de minimis
extent, to the Demised Premises. Landlord agrees that it shall respond to any
request for its consent to Tenant's proposed alterations,
<PAGE>
-16-
decorations, installations, additions or improvements within five (5) Business
Days after receipt of all information and documents relevant thereto and if
Landlord shall fail to so respond within said five (5) Business Days, Landlord
shall be deemed to have consented to Tenant's proposed alterations, decorations,
installations, additions or improvements provided that Tenant's request for
consent contained a legend in bold typeface to the effect that Landlord's
failure to respond within said five (5) Business Days shall be deemed Landlord's
consent. If Landlord shall reject Tenant's proposed alterations, decorations,
installations, additions or improvements, in whole or in part, Landlord shall
state with reasonable specificity the basis for such rejection and shall suggest
changes, which, if incorporated, would make Tenant's proposed alterations,
decorations, installations, additions or improvements acceptable to Landlord.
Landlord covenants that it will maintain a list with a minimum of two (2)
Approved Contractors for each category of work (other than for electric work,
for painting and for carpeting, for which there may be only one (1) Approved
Contractor, for each such category) during the Term. The charges of such
Approved Contractors and the quality of their work shall be reasonably
competitive with other reputable contractors of comparable skill and experience
for similar work in similar buildings in Manhattan. A current list of Approved
Contractors has heretofore been delivered to Tenant, but Tenant understands and
agrees that such list may be changed in Landlord's sole discretion from time to
time, provided that Landlord shall always maintain the minimum number of
Approved Contractors as provided herein. Landlord shall throughout the Term,
deliver to Tenant an updated list of Approved Contractors upon Tenant's request
therefor. In the event Tenant claims that the charges of any such Approved
Contractor are not competitive as aforesaid, Tenant shall send notice to
Landlord asserting such claim, and if Landlord and Tenant cannot resolve such
dispute within fifteen (15) days after Landlord's receipt of Tenant's notice,
then, at Tenant's option such dispute shall be resolved by arbitration in
Manhattan by an arbitrator selected from the panel of retired judges maintained
by Comprehensive Alternative Dispute Resolution Enterprises, Inc. ("CADRE"). If
CADRE shall no longer exist or shall be unwilling or unable to act, such dispute
shall be resolved by another reputable commercial arbitration company which has
expedited arbitration procedures, as Landlord shall select (the "Company"),
provided, however, that Tenant may dispute Landlord's choice of the Company, in
which event the parties shall mutually agree upon the Company, and if the
parties shall be unable to agree upon the Company, the Company shall be
appointed by any judge of a court of competent jurisdiction in the City of New
York. Upon selection of the Company, the parties agree that the balance of this
Section 6.05 shall continue to apply with the substitution of the Company in
lieu of CADRE. If Tenant so desires to submit such dispute to CADRE, Tenant
shall notify Landlord of such desire, and within ten (10) Business Days
thereafter, Tenant shall make such submission and deliver all applicable
<PAGE>
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applications and documents to CADRE with a copy of the entire submission being
delivered simultaneously to Landlord. The arbitration shall be conducted
pursuant to the then existing rules, regulations, practices and procedures of
CADRE for expedited arbitration, it being the intent of the parties to conduct
the arbitration in the most expeditious manner permitted by the rules. Any
determination pursuant to this Section shall be final and binding upon the
parties and each party shall pay its respective costs of any proceedings
pursuant to this Section (except that the prevailing party shall have the right
to be reimbursed for its reasonable fees and expenses within twenty (20) days
after submission of a bill therefor to the losing party). All such work,
alterations, decorations, installations, additions or improvements shall be done
at Tenant's sole expense and at such times and in such manner as Landlord may
from time to time designate and in full compliance with all governmental bodies
having jurisdiction thereover. Tenant's work, alterations, decorations,
installations, additions or improvements shall be completed free of all liens
and encumbrances and, as a condition to Landlord's consent to the making by
Tenant of alterations, decorations, installations, additions or improvements to
the Demised Premises, Tenant agrees to obtain, and deliver to Landlord, at the
earliest opportunity permitted by applicable law, written and unconditional
waivers of mechanics' liens upon the real property in which the Demised Premises
are located, for all work, labor and services to be performed and materials to
be furnished by them in connection with such work, signed by all contractors,
subcontractors, materialmen and laborers to become involved in such work. As a
condition to Landlord's permission to Tenant to make any alterations,
decorations, installations, additions or improvements to the Demised Premises
prior to the Commencement Date (including any initial installations), Landlord
may require that Tenant agree with Landlord to fixing the Commencement Date of
this Lease.
Landlord shall not be liable for any failure of the air-conditioning and
ventilating equipment in the Demised Premises installed by Landlord caused by
any work, alterations, decorations, installations, additions or improvements by
Tenant, and Tenant shall correct any such condition causing such failure
promptly upon notice from Landlord of the need therefor. If Tenant shall fail
to correct same, Landlord may make such correction and charge Tenant for the
cost thereof. Such sum due Landlord shall be deemed additional rent and shall
be paid by Tenant promptly upon being billed therefor.
Section 6.06. Prior to commencing any work pursuant to the provisions of
Section 6.05, Tenant shall furnish to Landlord:
(i) Copies of all governmental permits and authorizations which may be
required in connection with such work.
<PAGE>
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(ii) A certificate evidencing that Tenant (or Tenant's contractors) has
(have) procured workers' compensation insurance covering all persons employed in
connection with the work who might assert claims for death or bodily injury
against Landlord, "Overlandlord" (as hereinafter defined), Tenant or the
Building.
(iii) Such additional personal injury and property damage insurance (over
and above the insurance required to be carried by Tenant pursuant to the
provisions of Article 9) as Landlord may reasonably require because of the
nature of the work to be performed by Tenant.
Section 6.07. All work, alterations, decorations, installations, additions
or improvements upon the Demised Premises made by either party, including all
paneling, decorations, partitions, railings, mezzanine floors, galleries and the
like, affixed to the realty or for which Tenant shall have received a credit or
contribution shall, unless Landlord elects otherwise (which election shall be
made by giving a notice pursuant to the provisions of Article 30 not less than
thirty (30) days prior to the expiration or other termination of this Lease or
any renewal or extension thereof) become the property of Landlord and shall
remain upon, and be surrendered with the Demised Premises as a part thereof at
the end of the Term or renewal or extension term, as the case may be. In the
event that Landlord shall elect otherwise, then such alterations, decorations,
installations, additions or improvements which are atypical of an ordinary
office installation (atypical shall be deemed to include, but not be limited to,
a raised floor, louvered windows, any kitchen facility, any vault and any audio
or video installation), made by Tenant upon the Demised Premises as Landlord
shall select shall be removed by Tenant, and Tenant shall restore the Demised
Premises to its original condition as of the Commencement Date (ordinary wear
and tear and damage by fire or other casualty excepted), at its own cost and
expense, at or prior to the expiration of the Term. Landlord hereby agrees that
no item of Landlord's Work shall be required to be removed by Tenant at the end
of the Term hereof.
Where furnished by or at the expense of Tenant (except where same is a
replacement of an item theretofore furnished and paid for by Landlord or against
which Tenant has received a credit or contribution from Landlord), all movable
property, furniture, furnishings and trade fixtures other than those affixed to
the realty so that they cannot be removed without material damage shall remain
the property of Tenant and shall be removed from the Demised Premises on or
before the Expiration Date. In the event of damage to the Demised Premises or
the Building by reason of such removal, Tenant shall restore the same to good
order and condition (normal wear and tear excepted). If Tenant should desire
to leave any part of such property in the Demised Premises upon the expiration
of the Term, it shall so notify Landlord in writing not less than thirty (30)
days prior to the expiration of
<PAGE>
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the Term, specifying the items of property which it desires to so leave. If
within fifteen (15) days after the service of such notice Landlord shall request
Tenant to remove any of the said property, Tenant shall, at its expense, at or
before the expiration of the Term, remove said property and, in case of damage
to the Demised Premises or the Building by reason of such removal, restore the
Demised Premises to good order and condition (normal wear and tear and damage by
fire or other casualty excepted).
Section 6.08. Landlord shall not be responsible for supervision and/or
coordination in respect to Tenant's activities pursuant to this Lease.
Landlord's managing agent shall perform such supervision and coordination and,
with respect to any work, alteration, decoration, addition or improvement
costing more than $15,000, Tenant agrees to pay such managing agent, promptly
upon being billed therefor, a sum equal to six (6%) percent of the cost of such
work for indirect costs, field supervision and coordination in connection
therewith. Tenant agrees to keep records of Tenant's work, alterations,
decorations, additions and improvements costing in excess of $15,000 and of the
cost thereof. Tenant agrees to furnish to Landlord's managing agent copies of
such records certified as correct by Tenant within forty-five (45) days after
Landlord's managing agent's request therefor. Notwithstanding anything
contained herein to the contrary, the supervisory fee described above shall not
apply to any work performed by Tenant in preparation for its initial occupancy
of the Demised Premises.
Section 6.09. Tenant will not do any act or suffer any act to be done
which will in any way encumber the title of Landlord or Tenant in and to the
Demised Premises or the Building or the Land, nor will the interest or estate of
Landlord or Tenant in the Demised Premises or the Building or the Land be in any
way subject to any claim by way of lien or encumbrance, whether by operation of
law or by virtue of any express or implied contract by Tenant.
Section 6.10. Tenant will not suffer or permit any liens to stand against
the Demised Premises, the Building or the Land or any part thereof, by reason of
any work, labor, services or materials done for, or supplied to, or claimed to
have been done for, or supplied to, Tenant, or anyone holding the Demised
Premises or any part thereof through or under Tenant. If any such lien is at
any time filed against the Demised Premises or the Building or the Land, Tenant
will cause the same to be discharged of record within thirty (30) days after the
date that Tenant first has actual knowledge of filing of the same, by either
payment, deposit or bonding (and the failure of Tenant to do so shall be a
material default hereunder entitling Landlord to give a notice to Tenant
pursuant to the provisions of Section 17.01 (1) hereof). In addition to any
other right or remedy of Landlord Landlord may, but will not be obligated to,
procure the
<PAGE>
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discharge of such lien either by paying the amount claimed to be due by deposit
in court or bonding, and/or Landlord will be entitled, if Landlord so elects, to
compel the prosecution of an action for the foreclosure of such lien by the
lienor and to pay the amount of the judgment, if any, in favor of the lienor
with interest computed at the Interest Rate, costs and allowances. Any amount
paid or deposited by Landlord for any of the aforesaid purposes, and all legal
and other expenses of Landlord, including, without limitation, attorneys' fees
incurred in defending such action or in procuring the discharge of such lien,
with all necessary disbursements in connection therewith, will become due and
payable on the date of payment or deposit, as additional rent.
Section 6.11. Nothing in this Lease will be deemed to be, or construed in
any way as constituting, the consent or request of Landlord, express or implied
by inference or otherwise, to any person, firm or corporation for the
performance of any labor or the furnishing of any materials for any
construction, rebuilding, alteration or repair of or to the Demised Premises,
the Building or the Land or any part thereof, nor as giving Tenant any right,
power or authority to contract for or permit the rendering of any services or
the furnishing of any materials which might in any way give rise to the right to
file any lien against Landlord's interest in the Demised Premises, the Building
or the Land.
ARTICLE 7.
FLOOR LOAD, NOISE, WINDOW CLEANING
----------------------------------
Section 7.01. Tenant shall not place a load upon any floor of the Demised
Premises which exceeds 120 pounds per square foot which is the load per square
foot which such floor was designed to carry and which is allowed by law.
Section 7.02. Business machines and mechanical equipment belonging to
Tenant which cause noise or vibration that may be transmitted to the structure
of the Building or the Demised Premises to such a degree as to be objectionable
to Landlord shall be placed and maintained by the party owning the machines or
equipment, at such party's expense, in settings of cork, rubber or spring type
vibration eliminators sufficient to eliminate noise or vibration.
Section 7.03. Tenant will not clean, nor require, permit, suffer or allow
any window in the Demised Premises to be cleaned from the outside in violation
of Section 202 of the Labor Law or of the rules of the Board of Standards and
Appeals or of any other board or body having or asserting jurisdiction. Prior
to the Commencement Date, Landlord, at its sole cost and expense, shall (i)
replace any broken glass in the exterior windows of the Demised Premises and
(ii) clean the inside and outside (to the extent practical) of such windows.
<PAGE>
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ARTICLE 8.
LAWS, ORDINANCES, REQUIREMENTS OF PUBLIC AUTHORITIES
----------------------------------------------------
Section 8.01. Tenant shall, at its expense, comply with all laws, orders,
ordinances and regulations or any direction made pursuant to any law, ordinance,
rule, regulation or order of any public office or officer which or who shall,
with respect to the particular manner of use of the Demised Premises (as opposed
to mere use and occupancy as contemplated by Article 5) or to any abatement of
nuisance, impose any violation, order or duty upon Landlord or Tenant arising
from Tenant's particular manner of use of the Demised Premises (as opposed to
mere use and occupancy as contemplated by Article 5), or as a result of any
installations made therein (whether or not in compliance with the work article
hereof) by Tenant or at Tenant's request, or required by reason of a breach of
any of Tenant's covenants or agreements hereunder.
Section 8.02. If Tenant should desire to contest the validity of any such
law, ordinance, rule, regulation or order with which Tenant is obligated to
comply, it may, at its expense, carry on such contest and non-compliance by it
during such contest (so long as Tenant proceeds with due diligence) shall not
constitute a breach of this Lease provided that it shall, to the satisfaction of
Landlord, indemnify and hold Landlord harmless from and against all liability
for any loss, damages and expenses (including, without limitation, attorneys'
fees) which might result from or be incurred in connection with such contest or
noncompliance. Notwithstanding the foregoing, non-compliance as aforesaid shall
not commence or continue if it might subject Landlord to any fine or penalty or
to prosecution for a crime, or if it would constitute a default by Landlord
under any mortgage or lease affecting the Building and/or the Land.
Section 8.03. If Tenant receives written notice of any violation of law,
ordinance, rule, regulation or order applicable to the Demised Premises, it
shall give prompt notice thereof to Landlord.
Section 8.04. Except as aforesaid, Landlord shall, at its expense, comply
with or cause to be complied with, all laws, ordinances, rules, regulations and
orders of federal, state, county and municipal authorities and any direction
made pursuant to law of any public officer or officers which shall, with respect
to the public portions of the Building, impose any violation, order or duty upon
Landlord or Tenant and with respect to which Tenant is not obligated by Section
8.01 to comply. Except as aforesaid, Landlord shall further, at its expense,
comply with or cause to be complied with, all laws, ordinances, rules,
regulations and orders of federal, state, county and municipal authorities and
any direction made pursuant to law of any public officer or officers which
affect Tenant's use or enjoyment of, or access to, the Demised Premises and with
respect
<PAGE>
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to which Tenant is not obligated by Section 8.01 to comply. Landlord may, at its
expense, contest the validity of any such law, ordinance, rule, order or
regulation.
Section 8.05. Landlord hereby agrees to comply with all present and future
laws, ordinances, rules, regulations and orders which are violated as a result
of any conditions to the Demised Premises which exist immediately prior to the
Commencement Date ("Pre-Existing Conditions"). Landlord further agrees to
indemnify and hold Tenant harmless from and against any loss, costs or expenses
which Tenant may incur arising out of the existence of any such Pre-Existing
Condition which violates any present or future laws, ordinances, rules,
regulations and orders as aforesaid.
ARTICLE 9.
INSURANCE, PROPERTY LOSS, REIMBURSEMENT
---------------------------------------
Section 9.01. Tenant shall not do or permit to be done any act or thing
upon the Demised Premises which will invalidate or be in conflict with the
Certificate of Occupancy or the terms of the New York State standard form of
fire, boiler, sprinkler, water damage or other insurance policies covering the
Building and the fixtures and property therein and Tenant shall, at its own
expense, comply with all rules, orders, regulations or requirements of the New
York Board of Fire Underwriters or any other similar body having jurisdiction
and shall not knowingly do or permit anything to be done in or upon the Demised
Premises in a manner which increases the rate of fire insurance upon the
Building or on any property or equipment located therein over the rate in effect
at the commencement of the Term of this Lease. Landlord agrees to provide Tenant
with a copy of any notice of increase in the rate of fire insurance caused by
Tenant, and Tenant shall have the right to take action to prevent such increase
if any cure period is available to Landlord to remedy the conditions which
caused such increase.
Section 9.02. If, by reason of any action or omission of Tenant, the rate
of fire, boiler, sprinkler, water damage or other insurance (with extended
coverage) on the Building or on the property and equipment of Landlord shall be
higher than it otherwise would be, Tenant shall reimburse Landlord for that part
of the fire, boiler, sprinkler, water damage or other insurance premiums
thereafter paid by Landlord which shall have been charged because of such
failure by Tenant, and Tenant shall make the reimbursement on the first day of
the month following such payment by Landlord or such other tenants. In any
action or proceeding wherein Landlord and Tenant are parties, a schedule or
"make up" of any insurance rate for the Building or Demised Premises issued by
the New York Fire Insurance Exchange, or other body establishing fire insurance
rates for the Building, shall be conclusive evidence of the facts therein stated
and of the several items and charges in the insurance rates then applicable
<PAGE>
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to the Building or Demised Premises. Landlord agrees to provide Tenant with a
copy of any notice of increase in the rate of fire insurance caused by Tenant,
and Tenant shall have the right to take action to prevent such increase if any
cure period is available to Landlord to remedy the conditions which caused such
increase.
Section 9.03. Tenant, at Tenant's own cost and expense, shall maintain
insurance protecting and indemnifying Landlord and Tenant (and at Landlord's
request, the landlord under any ground or underlying lease [herein
"Overlandlord"], as well as the holder of any mortgage affecting the Land, the
Building or both) against any and all claims for injury or damage to persons or
property for the loss of life or of property occurring upon, in or about the
Demised Premises and the public portions of the Building used by Tenant, its
employees, agents, contractors, customers and invitees arising out of the
negligent act or omission of any of the foregoing, such insurance to afford
minimum protection during the Term of this Lease of not less than a single
combined limit of $2,000,000 in respect of property damage and bodily injury or
death to any one person or in respect of any one occurrence or accident (which
may be maintained by umbrella coverage). Landlord may from time to time
require that the amount of liability insurance to be maintained by Tenant under
this Article be increased so that Landlord shall be adequately protected giving
due consideration to all relevant circumstances and conditions. Landlord hereby
agrees to maintain throughout the Term the insurance required to be maintained
by Landlord pursuant to the mortgage currently encumbering the Building (or, if
no mortgage shall encumber the Building, commercially reasonable levels of fire
and extended coverage insurance covering the Building and general liability
insurance in amounts and types customarily carried by owners of similar
buildings in the area of the Building.
All such insurance shall be effected under valid and enforceable policies
(which may cover the Demised Premises and other locations), shall be issued by
insurers of recognized responsibility and shall contain a provision whereby the
insurer agrees not to cancel the insurance without ten (10) days' prior written
notice to Landlord.
On or before the Commencement Date of this Lease, Tenant shall furnish
Landlord with a certificate evidencing the aforesaid insurance coverage and
renewal certificates shall be furnished to Landlord at least thirty (30) days
prior to the expiration date of each policy for which a certificate was
theretofore required to be furnished.
Section 9.04. Tenant shall give Landlord immediate notice in case of a
fire or accident in the Demised Premises or the Building, or of defects therein
or in any fixtures or equipment promptly after Tenant becomes aware of the same.
<PAGE>
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Section 9.05. Tenant shall indemnify and hold Landlord harmless from and
against all liabilities, suits, claims, demands and actions, and costs and
expenses of any kind or nature, due to or arising out of any injury to person or
property, including death resulting at any time therefrom, occurring in or about
the Demised Premises (unless caused by or due to the negligence or willful
misconduct of Landlord, its agents, employees, contractors or invitees, in which
event Tenant's indemnification herein shall be only to the extent, if any, of
Tenant's negligence or willful misconduct or that of Tenant's agents, employees,
contractors or invitees). To the extent of any valid and collectible insurance
furnished by Tenant for the protection of Landlord, Tenant's obligation to
indemnify and hold Landlord harmless against liability which is covered by such
insurance shall be deemed, to the extent thereof, to be satisfied.
Section 9.06. Landlord and Tenant shall each endeavor to secure an
appropriate clause in, or an endorsement upon, each fire or extended coverage or
rent insurance policy obtained by it and covering the Building, the Demised
Premises or the personal property, fixtures and equipment located therein or
thereon, pursuant to which the respective insurance companies waive subrogation
or permit the insured, prior to any loss, to agree with a third party to waive
any claim it might have against said third party. The parties hereto shall give
prompt notice to the other in the event such clause is or becomes unavailable.
The waiver of subrogation or permission for waiver of any claim shall extend to
the agents of each party and the employees of each party and its respective
agents and, in the case of Tenant, shall also extend to all other persons and
entities occupying or using the Demised Premises. If and to the extent that
such waiver or permission can be obtained only upon payment of an additional
charge, then the party benefiting from the waiver or permission shall pay such
charge upon written demand, or shall be deemed to have agreed that the party
obtaining the insurance coverage in question shall be free of any further
obligations under the provisions hereof relating to such waiver or permission.
Subject to the foregoing provisions of this Section 9.06, each party hereby
releases the other with respect to any claim (including a claim for negligence)
which it might otherwise have against the other party for loss, damages or
destruction with respect to its properly by fire or other casualty (including
rental value or business interest, as the case may be) occurring during the Term
of this Lease.
Section 9.07. Tenant agrees to look solely to Landlord's estate and
interest in the Land and Building, or the lease of the Building, or of the Land
and Building, and the Demised Premises, and the proceeds of any casualty
insurance policy thereon, for the satisfaction of any right or remedy of Tenant
for the collection of a judgment (or other judicial process) requiring the
payment of money by Landlord, in the event of any liability
<PAGE>
-25-
by Landlord, and no other property or assets of Landlord shall be subject to
levy, execution, attachment, or other enforcement procedure for the satisfaction
of Tenant's remedies under or with respect to this Lease, the relationship of
Landlord and Tenant hereunder, or Tenant's use and occupancy of the Demised
Premises, or any other liability of Landlord to Tenant.
ARTICLE 10.
DAMAGE OR DESTRUCTION BY FIRE OR OTHER CAUSE
--------------------------------------------
Section 10.01. If the Building or the Demised Premises shall be partially
or totally damaged or destroyed by fire or other cause, then whether or not the
damage or destruction shall have resulted from the fault or neglect of Tenant,
or its employees, agents or visitors (and if this Lease shall not have been
terminated as in this Article 10 hereinafter provided), Landlord shall to the
extent permitted by available insurance proceeds, repair the damage and restore
and rebuild the Building and/or the Demised Premises (without limiting the
rights of any insurance company, subrogated to Landlord's rights hereunder
pursuant to the terms of any insurance policy as to which Landlord shall have
been unable to obtain a waiver of subrogation in accordance with Section 9.06
hereof to seek recovery from Tenant, and any rights of Landlord under any other
provisions of this Lease or at law or in equity), with reasonable dispatch
after notice to it of the damage or destruction; provided, however, that
Landlord shall not be required to repair or replace any of Tenant's property.
Notwithstanding anything contained herein to the contrary, in no event shall
Tenant be relieved of liability or responsibility for damage or destruction
resulting from the fault or neglect of Tenant if the insurance policies carried
by Landlord on the Building do not contain a waiver of the right of subrogation.
Section 10.02. If the Building or the Demised Premises shall be partially
destroyed by fire or other cause, the rents payable hereunder shall be abated to
the extent that the Demised Premises shall have been rendered untenantable and
for the period from the date of such damage or destruction to the date the
damage shall be repaired or restored. If the Demised Premises or a major part
thereof shall be totally (which shall be deemed to include substantially
completely) untenantable on account of fire or other cause, the rent shall abate
as of the date of the damage or destruction and until Landlord shall repair,
restore and rebuild the Building and the Demised Premises, provided, however,
that should Tenant occupy or reoccupy a portion of the Demised Premises during
the period the Demised Premises are made completely untenantable, rents
allocable to such portion shall be payable by Tenant from the date of such
occupancy.
Section 10.03. If the Building or Demised Premises shall be totally
damaged or destroyed by fire or other cause, or if the
<PAGE>
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Building shall be so damaged or destroyed by fire or other cause that Landlord
shall decide not to restore or rebuild it, then in either such case Landlord may
terminate this Lease by giving Tenant notice to such effect within ninety (90)
days after the date of the casualty, provided, however, that in the event of a
total damage or destruction to the Building, Landlord shall have made such
election as to all or substantially all of the tenants occupying the Building.
If the Demised Premises shall be substantially damaged or destroyed during the
final two (2) years of the Term, each of Landlord and Tenant shall have the
option, to be exercised by giving written notice to the other, within thirty
(30) days of the occurrence of such damage, to terminate this Lease and the Term
and estate hereby granted as of the date of such damage or destruction. In case
of any damage or destruction mentioned in this Article 10, Tenant may terminate
this Lease by notice to Landlord, (x) unless, in the reasonable opinion of a
reputable architect or contractor selected by Landlord, and reasonably
satisfactory to Tenant, who shall be experienced with regard to restoration of
comparable buildings following such a casualty (which opinion shall be delivered
to Tenant within forty-five (45) days following the occurrence of such damage),
the damage or destruction can be repaired and restored such that the Building
and the Demised Premises shall be tenantable within nine (9) months following
the occurrence of such damage (subject to extension as set forth immediately
below), or (y) if Landlord has not completed the making of the required repairs
and restored and rebuilt the Building and the Demised Premises within nine (9)
months from the date of such damage or destruction, or within such period after
such date (not exceeding three (3) months) as shall equal the aggregate period
Landlord may have been delayed in doing so by adjustment of insurance, labor
trouble, governmental controls, act of God, or any other cause beyond Landlord's
reasonable control, and such termination shall be effective upon the expiration
of thirty (30) days after the date of such notice. Upon the termination of
this Lease as provided above, Tenant may remove its fixtures, personal property
and inventory from the Demised Premises.
Section 10.04. No damages, compensation or claim shall be payable by
Landlord for inconvenience, loss of business or annoyance arising from any
repair or restoration of any portion of the Demised Premises or of the Building
pursuant to this Article 10. Landlord shall endeavor to effect such repair or
restoration promptly and in such manner as not unreasonably to interfere with
Tenant's business, provided no additional costs, for labor at overtime or
premium rates, or otherwise, are incurred thereby.
Section 10.05. Tenant covenants and agrees to cooperate with Landlord, the
landlord under any ground or underlying lease to which this Lease is subject and
subordinate or any mortgagee of any mortgage to which this Lease is subordinate
in their
<PAGE>
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attempts to collect insurance proceeds (including rent insurance proceeds)
payable to any of such parties.
Section 10.06. Landlord will not carry separate insurance of any kind on
Tenant's property and Landlord shall not be obligated to repair any damage
thereto or replace the same.
Section 10.07. In the event of the termination of this Lease pursuant to
any of the provisions of this Article 10, this Lease and the Term and estate
hereby granted shall expire as of the date of such termination with the same
effect as if that were the Expiration Date, and the Fixed Rent and additional
rent payable hereunder shall be apportioned as of such date.
Section 10.08. The provisions of this Article 10 shall be considered an
express agreement governing any case of damage or destruction of the Demised
Premises by fire or other casualty, and Section 227 of the Real Property Law of
the State of New York providing for a contingency in the absence of an express
agreement, and any other law of like import, now or hereafter in force, shall
have no application to the Demised Premises and this Lease.
ARTICLE 11.
ASSIGNMENT, SUBLETTING, MORTGAGING
----------------------------------
Section 11.01. (a) Tenant will not by operation of law or otherwise,
assign, mortgage or otherwise encumber this Lease, nor the estate and Term
hereby granted, nor sublet or permit the Demised Premises or any part thereof to
be used by others, without Landlord's prior written consent in each instance.
The consent by Landlord to any assignment or subletting shall not in any manner
be construed to relieve Tenant from obtaining Landlord's express written consent
to any other or further assignment or subletting.
If Tenant desires to assign or sublet all or any portion of the Demised
Premises, Tenant agrees to use as its exclusive rental agent for such purpose
the then designated leasing agent of the Building and to notify such leasing
agent of its desire to assign this Lease or sublet the Demised Premises. Upon
obtaining a proposed assignee or sublessee, upon terms satisfactory to Tenant,
Tenant shall submit to Landlord in writing (1) the name of the proposed assignee
or subtenant; (2) the terms and conditions of the proposed assignment or
subletting; (3) the nature and character of the business of the proposed
assignee or subtenant and any other information reasonably requested by
Landlord.
Upon receipt of the foregoing submission from Tenant Landlord shall have
the following options to be exercised within fifteen (15) Business Days from the
date of such receipt:
<PAGE>
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1. If an assignment shall be proposed or if a proposed subletting shall
be for all or substantially all of the Demised Premises, Landlord shall have the
option to terminate this Lease effective as of the date proposed by Tenant for
such assignment or subletting.
2. If a proposed sublease shall be for less than all or substantially
all of the Demised Premises or if it shall be for less than the balance of the
Term of this Lease, Landlord shall have the option to terminate this Lease as to
the portion of the Demised Premises proposed to be sublet for such portion of
the Term as is included in such proposed sublease, effective as of the effective
date of such proposed sublease. In the event of the exercise of such option
under this subparagraph 2, the rent and all other charges payable hereunder
shall be equitably apportioned, and Tenant shall be responsible for the cost of
constructing any necessary demising walls.
3. (a) Landlord shall have the option to require Tenant to execute an
assignment or sublease to Landlord, or to any party designated by Landlord, upon
the same terms and conditions as contemplated with the proposed assignee or
subtenant, except that (A) Landlord (or Landlord's designee) as assignee or
sublessee shall have an express unlimited right to further assign or sublease to
others and to make any alterations required in connection therewith, and (B) the
rent or consideration payable under such assignment or sublease to Landlord (or
Landlord's designee) shall be the lower of (i) the rental payable by Tenant to
Landlord under this Lease, or (ii) the rental payable by the proposed assignee
or subtenant pursuant to the assignment or sublease originally proposed by
Tenant.
(b) If Landlord shall not exercise any of its foregoing options
within the time set forth above, provided Tenant shall not then be in default
hereunder, Landlord's consent to any such proposed assignment or subletting
shall not be "unreasonably" withheld, as described in paragraph (c) of this
Section 11.01.
If Landlord shall not exercise any of the options described in paragraph
(a) above and Tenant shall thereupon assign this Lease or sublet all or any
portion of the Demised Premises, then and in that event Tenant shall pay to
Landlord as additional rent the difference, if any, between the Fixed Rent plus
additional rent allocable to that part of the Demised Premises affected by such
assignment or sublease pursuant to the provisions of this Lease, and the Fixed
Rent and additional rent payable by the assignee or sublessee to Tenant. Such
additional rent payments shall be made monthly within five (5) days after
receipt of the same by Tenant. Any other cash or other consideration payable to
Tenant in connection with such assignment or sublease or the sale of Tenant's
property in connection therewith shall be similarly paid over to Landlord when
and as received by Tenant.
<PAGE>
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If Tenant fails to consummate any proposed assignment or subletting to
which Landlord shall have consented within sixty (60) days after granting such
consent, paragraph (a) shall again apply to said proposed assignment or
subletting.
No option exercised by Landlord pursuant to the above provisions of
paragraph (a), and no assignment or sublease made to Landlord under the above
provisions of paragraph (a), shall be binding upon any purchaser of any ground
or underlying lease who acquires such ground or underlying lease by reason of
the foreclosure of any mortgage to which this Lease is subordinate, nor upon any
assignee of any ground or underlying lease who takes such assignment in lieu of
such foreclosure, it being understood, however, that such purchaser or assignee
may, at its option, elect to enforce such option, assignment or sublease.
(c) In determining reasonableness with respect to its consent to a
proposed assignment or sublease by Tenant, Landlord may take into consideration
all relevant factors surrounding the proposed assignment or sublease, including,
without limitation, the following:
(i) the financial stability and business reputation of the
proposed assignee or subtenant;
(ii) the nature of the business and the proposed use of the
Demised Premises by the proposed assignee or subtenant in relation to the
majority of other tenants in the Building;
(iii) that the proposed assignee or subtenant shall not be a tenant
of other space in the Building or a party which has dealt with Landlord or
Landlord's agent (directly or through a broker) with respect to space in the
Building during the six (6) months immediately preceding Tenant's request for
Landlord's consent, provided Landlord has space in the Building for such
proposed assignee or subtenant;
(iv) restrictions contained in leases of other tenants of the
Building;
(v) the effect that the proposed assignee's or subtenant's
occupancy or use of the Demised Premises would have upon the operation and
maintenance of the Building and Landlord's investment therein;
(vi) that not more than one entity shall occupy the Demised
Premises at any time.
Section 11.02. If this Lease shall be assigned, or if the Demised Premises
or any part thereof be sublet or occupied by any person or persons other than
Tenant, Landlord may after default by Tenant, collect rent from the assignee,
subtenant or occupant and apply the net amount collected to the rent herein
reserved,
<PAGE>
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but no such assignment, subletting, occupancy or collection of rent shall be
deemed a waiver of the covenants in this Article, nor shall it be deemed
acceptance of the assignee, subtenant or occupant as a tenant, or a release of
Tenant from the full performance by Tenant of all the terms, conditions and
covenants of this Lease.
Section 11.03. Each assignee or transferee shall assume and be deemed to
have assumed this Lease and shall be and remain liable jointly and severally
with Tenant for the payment of the rent, additional rent and adjustments of
rent, and for the due performance of all the terms, covenants, conditions and
agreements herein contained on Tenant's part to be performed for the Term of
this Lease. Notwithstanding the forgoing, in the event of an assignment of this
Lease to an entity whose business and intended use of the Demised Premises is
acceptable to Landlord and which has a net worth, as determined in accordance
with generally accepted accounting principals, at least equal to the net worth,
similarly determined, of Tenant as of the date of this Lease then, in such
event, Landlord agrees to release Tenant from any and all liability arising
under this Lease from after the effective date of such assignment. No
assignment shall be binding on Landlord unless such assignee or Tenant shall
deliver to Landlord a duplicate original of the instrument of assignment which
contains a covenant of assumption by the assignee of all of the obligations
aforesaid and shall obtain from Landlord the aforesaid written consent prior
thereto.
Section 11.04. For the purposes of this Lease, any sale, transfer or
assignment of any of the stock of a corporate Tenant or any transfer in the
control of Tenant by operation of law or otherwise shall be deemed an
assignment.
Section 11.05. The listing of any name other than that of Tenant, whether
on the doors of the Demised Premises, on the Building directory or otherwise,
shall not operate to vest any right or interest in this Lease or the Demised
Premises. It is expressly understood that any such listing is a privilege
extended by Landlord that is revocable at will by written notice to Tenant.
Section 11.06. Tenant shall reimburse Landlord for any costs incurred by
Landlord to review the requested consent provided in Article 11, including
attorneys' fees.
Section 11.07. If Landlord shall recover or come into possession of the
Demised Premises before the Expiration Date, Landlord shall have the right to
take over any sublease made by Tenant and to succeed to all lights of Tenant
thereunder, Tenant hereby assigning (effective as of the date of Landlord's
succession of Tenant's estate in the Demised Premises) such subleases as
Landlord may elect to take over. Every subletting hereunder shall be subject to
the condition that, from and after
<PAGE>
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the termination of this Lease or re-entry by Landlord hereunder or other
succession by Landlord to Tenant's estate in the Demised Premises, the subtenant
under such sublease shall waive any right to surrender possession or to
terminate the sublease and, at Landlord's election, shall be bound to Landlord
for the balance of the term thereof and shall attorn to and recognize Landlord,
as its landlord, under all of the then executory terms of such sublease, except
that Landlord shall not be (a) liable for any previous act, omission or
negligence of Tenant under such sublease, (b) subject to any counterclaim,
defense or offset theretofore accruing to such subtenant against Tenant, (c)
bound by any previous modification or amendment of such sublease made without
Landlord's consent or by any previous prepayment of more than one month's rent
and additional rent unless paid as provided in the sublease, or (d) obligated to
perform any repairs or other work in the subleased space or the Building beyond
Landlord's obligations under this Lease, and each subtenant shall execute and
deliver such instruments as Landlord may reasonably request to evidence and
confirm such attornment.
Section 11.08. Notwithstanding anything to the contrary elsewhere
contained herein (including Section 11.01(a) hereof), provided that Tenant shall
not be in default in any of the terms of this Lease beyond notice and the
expiration of any applicable grace period, Tenant may, without Landlord's
consent but upon not less than ten (10) days' prior written notice to Landlord,
sublet to any corporations or other business entities which control, are
controlled by, or are under common control with Tenant (herein referred to as a
"Related Entity") all or part of the Demised Premises or permit any Related
Entity to occupy the same for any of the purposes permitted to Tenant, subject
however to compliance with Tenant's obligations under this Lease. Such
subletting or occupancy shall not be deemed to vest in any such Related Entity
any right or interest in this Lease nor shall such subletting or occupancy
relieve, release, impair or discharge any of Tenant's obligations hereunder.
Tenant shall deliver to Landlord a copy of any such sublease or occupancy
agreement for all or any portion of the Demised Premises.
Section 11.09. Notwithstanding anything to the contrary elsewhere
contained herein (including Section 11.01(a), which shall not be applicable to
an assignment or transfer pursuant to this Section 11.09), Tenant may, upon
prior written notice to Landlord, assign or transfer its entire interest in this
Lease and the leasehold estate hereby created to a "Successor Corporation" (as
such term is hereinafter defined) of Tenant, provided that Tenant shall not be
in default in any of the terms of this Lease beyond notice and the expiration of
any applicable grace period. A "Successor Corporation", as used in this Section,
shall mean (a) a corporation into which or with which Tenant, its corporate
successors or permitted assigns, is merged or consolidated, in accordance with
applicable statutory provisions for the merger or consolidation of a
corporation,
<PAGE>
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provided that by operation of law or by effective provisions contained in the
instruments of merger or consolidation, the liabilities of the corporations
participating in such merger or consolidation are assumed by the corporation
surviving such merger or consolidation, or (b) a corporation, partnership or
other business entity acquiring this Lease and the Term and the estate hereby
granted, the goodwill and all or substantially all of the other property and
assets (other than capital stock of such acquired corporation) of Tenant, its
corporate successors or permitted assigns, and assuming all or substantially all
of the liabilities of Tenant, its corporate successors or permitted assigns, or
(c) any corporate successor to a Successor Corporation becoming such by either
of the methods described in subdivisions (a) and (b) above, provided that, (x)
immediately after giving effect to any such merger or consolidation, or such
acquisition and assumption, as the case may be, the corporation, partnership or
other business entity surviving such merger or created by such consolidation or
acquiring such assets and assuming such liabilities, as the case may be, shall
have a net worth, as determined in accordance with generally accepted accounting
principles, at least equal to the greater of (i) the net worth, similarly
determined, of Tenant, immediately prior to such merger or consolidation or such
acquisition and assumption, as the case may be, or (ii) the net worth, similarly
determined, of Tenant as of the date of this Lease and (y) proof of such net
worth, as evidenced by a statement from a certified public accounting firm
reasonably satisfactory to Landlord shall have been delivered to Landlord at
least ten (10) days prior to the effective date of any such merger or
consolidation, or acquisition and assumption, as the case may be. Upon the
compliance with the foregoing provisions of this Section 11.09, and the delivery
to Landlord of the agreement of the Successor Corporation, in form and substance
satisfactory to Landlord, to assume all the terms of this Lease to be performed
by Tenant, and to be bound thereby, the corporation, partnership or other
business entity so assigning or transferring this Lease shall thereafter be
released and discharged from any obligations thereafter arising under this
Lease.
Section 11.10. In the event that any subtenant approved by Landlord
pursuant to the terms and conditions of this Article 11 (not including any
subtenant for which Landlord's consent is not required pursuant to the terms and
conditions of this Article 11) occupies substantially all of the Demised
Premises for the balance of the Term and provided such subtenant agrees to
attorn to Landlord upon all of the terms and conditions of this Lease (including
the Fixed Rent and additional rent payable under this Lease by Tenant (computed
at the rate per square foot payable by Tenant hereunder)), Landlord shall, upon
the written request of Tenant, deliver to such subtenant a non-
disturbance/attornment agreement in Landlord's then standard form.
<PAGE>
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ARTICLE 12.
NO LIABILITY ON LANDLORD
------------------------
Section 12.01. Landlord or its agents shall not be liable for any damage
to property of Tenant or of others entrusted to employees of the Building, nor
for the loss of or damage to any property of Tenant by theft or otherwise.
Landlord or its agents shall not be liable for any injury or damage to persons
or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water, rain or snow, leaks from any part of the Building or from
the pipes, appliances or plumbing works or from the roof, street or sub-surface
or from any other place or by dampness or by any other cause of whatsoever
nature, unless caused by or due to the negligence of Landlord, its agents,
servants or employees; nor shall Landlord or its agents be liable for any such
damage caused by other tenants or persons in the Building or caused by
operations in construction of any private, public or quasi-public work; nor
shall Landlord be liable for any latent defect in the Demised Premises or in the
Building of which they form a part.
If at any time any windows of the Demised Premises are temporarily closed
("temporarily" for the purposes of this Section 12.01 meaning a period not in
excess of thirty (30) consecutive days), darkened or bricked up for any reason
whatsoever (other than by reason of Landlord's own arbitrary, unjustified
acts), Landlord shall not be liable for any damage Tenant may sustain thereby,
and Tenant shall not be entitled to any compensation therefor nor abatement of
rent nor shall the same release Tenant from its obligations hereunder nor
constitute an eviction. In the event that the windows are closed, darkened or
bricked up for more than thirty (30) consecutive days (and same shall not have
been required by law), there shall be, as Tenant's sole remedy, an equitable
abatement for the Fixed Rent and additional rent hereunder until such condition
shall be remedied. Landlord agrees that Landlord will not permanently close,
darken or brick up the windows of the Demised Premises unless required by law.
ARTICLE 13.
MOVING OF HEAVY EQUIPMENT
-------------------------
Section 13.01. Tenant shall not move any safe, heavy equipment or bulky
matter in or out of the Building without Landlord's written consent, which
consent Landlord agrees not to unreasonably withhold or delay. For purposes
hereof, the term "bulky matter" shall not include ordinary personal computers
and related equipment. If the movement of such items requires special handling,
Tenant agrees to employ only persons holding a Master Riggers License to do said
work and all such work shall be done in full compliance with the Administrative
Code of the City of New York and other municipal requirements. All such
movements
<PAGE>
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shall be made during hours which will least interfere with the normal operations
of the Building, and all damage caused by such movement shall be promptly
repaired by Tenant at Tenant's expense.
ARTICLE 14.
CONDEMNATION
------------
Section 14.01. In the event that the whole or any material portion of the
Demised Premises shall be lawfully condemned or taken in any manner for any
public or quasipublic use, this Lease and the Term and estate hereby granted
shall forthwith cease and terminate as of the date of vesting of title. In the
event that only an immaterial part of the Demised Premises shall be so condemned
or taken, then, effective as of the date of vesting of title, the rent hereunder
for such part shall be abated. In the event that only a part of the Building
shall be so condemned or taken, then (a) if substantial structural alteration or
reconstruction of the Building shall in the reasonable opinion of Landlord be
necessary or appropriate as a result of such condemnation or taking (whether or
not the Demised Premises be affected), Landlord may, at its option, terminate
this Lease and the Term and estate hereby granted as of the date of such vesting
of title by notifying Tenant in writing of such termination within sixty (60)
days following the date on which Landlord shall have received notice of vesting
of title, or (b) if Landlord does not elect to terminate this Lease, as
aforesaid, this Lease shall be and remain unaffected by such condemnation or
taking, except that the Fixed Rent and additional rent shall be abated to the
extent, if any, hereinbefore provided in this Article 14. In the event that
only a part of the Demised Premises shall be so condemned or taken and this
Lease and the Term and estate hereby granted are not terminated as hereinbefore
provided, Landlord will, at its expense, restore with reasonable diligence the
remaining structural portions of the Demised Premises as nearly as practicable
to the same condition as it was prior to such condemnation or taking.
In the event of termination in any of the cases hereinabove provided in
this Article 14, this Lease and the Term and estate hereby granted shall expire
as of the date of such termination with the same effect as if that were the date
hereinbefore set for the expiration of the Term of this Lease, and the rent
hereunder shall be apportioned as of such date.
In the event of any condemnation or taking hereinabove mentioned of all or
a part of the Building, Landlord shall be entitled to receive the entire award
in the condemnation proceeding, including any award made for the value of the
estate vested by this Lease in Tenant, and Tenant hereby expressly assigns to
Landlord any and all right, title and interest of Tenant now or hereafter
arising in or to any such award or any
<PAGE>
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part thereof, and Tenant shall be entitled to receive no part of such award.
ARTICLE 15.
ENTRY, RIGHT TO CHANGE PUBLIC PORTIONS OF THE BUILDING
------------------------------------------------------
Section 15.01. Tenant shall permit Landlord to erect, use and maintain
pipes and conduits in and through the Demised Premises. All such pipes and
conduits shall either be concealed above the suspended ceiling area, or within
the demising walls or installed in the service columns, or shall be installed
along the walls of the Demised Premises and appropriately enclosed, where
feasible. In the event the construction deprives the Tenant of the use of a
material or substantial portion of the usable area of the Demised Premises
(other than on a temporary basis), the Tenant shall be entitled to an pro rata
abatement of rent for the space so permanently taken. Landlord agrees that in
the event more than ten (10%) of the Demised Premises is permanently taken
pursuant to this Article 15 and such taking materially interferes with Tenant's
ability to conduct its business in the balance of the Demised Premises, Tenant
shall, within thirty (30) days after such permanent taking, have the right to
cancel and terminate this Lease upon written notice to Landlord. Landlord or
its agents or designees shall have the right, but only upon not less than ten
(10) days prior notice (except in emergencies, in which event no notice shall be
required) given to Tenant or any authorized employee of Tenant at the Demised
Premises, to enter the Demised Premises at reasonable times during business
hours, for the purpose of making such repairs or alterations as shall be
required or as Landlord shall have the right to make by the provisions of this
Lease. Landlord shall be allowed to take all material into and upon the Demised
Premises that may be required for the repairs and alterations above mentioned
without the same constituting an eviction of Tenant in whole or in part, and the
rent reserved hereunder shall in no wise abate, except as otherwise provided in
this Lease, while said repairs or alterations are being made, by reason of loss
or interruption of the business of Tenant because of the prosecution of any such
work, or otherwise. Landlord agrees to do any work pursuant to this Article in
such a manner so as not to unreasonably interfere with Tenant's business,
provided no additional costs, for labor at overtime or premium rates, or
otherwise, are incurred thereby (unless the health or safety of Tenant's
employees is threatened, in which event Landlord shall employ overtime labor if
doing so will eliminate such threat) and at Tenant's option a representative of
Tenant may be present during the performance of any such work.
Section 15.02. During the twelve (12) months prior to the expiration of
the Term of this Lease, Landlord may exhibit the Demised Premises to prospective
tenants. Landlord shall also have the right to enter the Demised Premises for
the purpose of
<PAGE>
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inspecting the same or exhibiting the same to prospective purchasers or lessees
of the entire Building or to prospective mortgagees of the property of which the
Demised Premises forms a part. The holders of any mortgage of Landlord's
interest in the property, or such holders' agents or designees, shall also have
such right of inspection for itself and for any prospective assignees of any
such mortgagees. Landlord agrees, to the extent practicable, to give Tenant
reasonable prior notice of any exhibition or inspection pursuant to this Section
15.02 and to perform any such exhibition or inspection at times convenient to
Tenant and in a manner so as to minimize interference with Tenant's business.
Section 15.03. Landlord shall have the right at any time without thereby
creating an actual or constructive eviction or incurring liability to Tenant
therefor, to change the arrangement or location of such of the following as are
not contained within the Demised Premises or any part thereof: entrances,
passageways, elevators, doors and doorways, corridors, stairs, toilets and other
like public service portions of the Building, provided any such changes do not
require Tenant to perform any work in the Demised Premises and further provided
such changes do not unreasonably interfere with Tenant's access to and use of
the Demised Premises.
ARTICLE 16.
BANKRUPTCY
----------
Section 16.01. (a) Anything elsewhere in this Lease to the contrary
notwithstanding, this Lease may be cancelled by Landlord by the sending of a
written notice to Tenant within a reasonable time after the happening of any one
or more of the following events: (i) Tenant shall (A) have applied for or
consented to the appointment of a receiver, trustee, liquidator, or other
custodian of Tenant or any of its properties or assets, (B) have made a general
assignment for the benefit of creditors, (C) have commenced a voluntary case for
relief as a debtor under the United States Bankruptcy Code or filed a petition
to take advantage of any bankruptcy, reorganization, insolvency, readjustment of
debts, dissolution or liquidation law or statute or an answer admitting the
material allegations of a petition filed against it in any proceeding under any
such law, or (D) be adjudicated a bankrupt or insolvent; or (ii) without the
acquiescence or consent of Tenant an order, judgment or decree shall have been
entered by any court of competent jurisdiction approving as properly filed a
petition seeking relief under the United States Bankruptcy Code or any
bankruptcy, reorganization, insolvency, readjustment of debts, dissolution or
liquidation law or statute with respect to Tenant or appointing a receiver,
trustee, liquidator or other custodian of all or a substantial part of its
properties or assets, and such order, judgment or decree shall have continued
unstayed and in effect for any period
<PAGE>
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of not less than sixty (60) days. Neither Tenant, nor any person claiming
through or under Tenant (except for any subtenant who has received a non-
disturbance/attornment agreement from Landlord in accordance with Section 11.10
hereof) or by reason of any statute or order of court, shall thereafter be
entitled to possession of the Demised Premises, but shall forthwith quit and
surrender the Demised Premises. If this Lease shall be assigned in accordance
with its terms, the provisions of this Article shall be applicable only to the
party then owning Tenant's interest in this Lease.
(b) It is stipulated and agreed that in the event of the termination of
this Lease pursuant to paragraph (a) hereof, Landlord shall forthwith,
notwithstanding any other provisions of this Lease to the contrary but subject
to applicable law, be entitled to recover from Tenant as and for liquidated
damages an amount equal to the difference between the rent reserved hereunder
for the unexpired portion of the Term demised and the then fair and reasonable
rental value of the Demised Premises for the same period. In the computation of
such damages the difference between any installment of rent becoming due
hereunder after the date of termination and the fair and reasonable rental value
of the Demised Premises for the period for which such installment was payable
shall be discounted to the date of termination at one (1%) percent above the
then prime commercial lending rate of Marine Midland Bank N.A. If the Demised
Premises or any part thereof be re-let by Landlord for the unexpired Term of
this Lease, or any part thereof, before the presentation of proof of such
liquidated damages to any court, commission or tribunal, the amount of rent
reserved upon such re-letting shall be prima facie evidence as to the fair and
reasonable rental value for the part or the whole of the Demised Premises so re-
let during the term of the re-letting. Nothing herein contained shall limit or
prejudice the Right of Landlord to prove for and obtain as liquidated damages by
reason of such termination, an amount equal to the maximum allowed by any
statute or rule in effect at the time when, and governing the proceedings in
which, such damages are to be approved, whether or not such amount be greater,
equal to, or less than the amount of the difference referred to above.
Notwithstanding the foregoing provisions of this Section 16.01(b), if this Lease
shall be terminated as a result of any of the conditions described in Section
16.01(a), then, in such event, Landlord agrees to use commercially reasonable
efforts to relet the Demised Premises and thus to mitigate Tenant's damages
provided for in this Section 16.01(b).
<PAGE>
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ARTICLE 17.
DEFAULTS AND REMEDIES AND WAIVER OF REDEMPTION
----------------------------------------------
Section 17.01. (1) If (A) Tenant defaults in fulfilling any of the
covenants of this Lease, (i) with respect to the covenant for the payment of
Fixed Rent or additional rent, if such default shall continue for five (5) days,
and (ii) with respect to any other covenants, if such default shall continue for
twenty (20) days, in either event, after Landlord shall have given to Tenant a
written notice specifying such default, or (B) the Demised Premises become
vacant or abandoned, or (C) in the case of the happening of a default or
omission (other than in the payment of Fixed Rent, additional rent or other
charges hereunder and other than the failure to cause a lien against the Demised
Premises, the Building or the Land to be discharged of record within the time
period provided elsewhere in this Lease) which cannot with due diligence be
completely cured or remedied within such twenty (20) day period, if Tenant
shall not have diligently commenced curing such default within such twenty (20)
day period, and shall not thereafter with reasonable diligence and in good
faith be proceeding to remedy or cure such default, then, in any such case,
Landlord may give to Tenant a notice of intention to terminate this Lease upon
the expiration of five (5) days from the service of such notice of intention,
and upon the expiration of said five (5) days, this Lease and the Term hereof
shall terminate, and Tenant shall then quit and surrender the Demised Premises
to Landlord, but Tenant shall remain liable as hereinafter provided.
(2) If (A) the notice provided for in (1) hereof shall have been given,
and the Term shall expire as aforesaid; or (B) if Tenant shall make any default
in the payment of Fixed Rent or additional rent herein reserved, or any part of
either, or in making any other payment herein provided within the time period
provided for in subsection (1) above; or (C) if any execution or attachment
shall be issued against Tenant or any of Tenant's property whereupon the Demised
Premises shall be taken or occupied or attempted to be taken or occupied by
someone other than Tenant; or (D) if Tenant shall fail to move into or take
possession of the Demised Premises within ninety (90) days after commencement of
the Term of this Lease, of which facts Landlord shall be the sole judge; then in
any of such events Landlord may, to the extent legally permissible without
further notice, re-enter the Demised Premises either by force or otherwise, and
dispossess Tenant and the legal representatives of Tenant or any other occupants
of the Demised Premises by summary proceedings or otherwise and remove their
effects and hold the Demised Premises as if this Lease had not been made. If
Tenant shall make default hereunder, beyond the expiration of any applicable
notice and cure periods, prior to the date fixed as the commencement of any
renewal or extension of this Lease, Landlord may cancel and terminate such
renewal or extension agreement by written notice, but Tenant shall remain liable
as hereinafter provided.
<PAGE>
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Section 17.02. In case of any such default, after the expiration of the
applicable notice and cure periods provided in Section 17.01(1), re-entry,
expiration and/or dispossess by summary proceedings or otherwise, (i) the rent
shall become due thereupon and be paid up to the time of such re-entry,
dispossess and/or expiration together with such costs as Landlord may incur for
legal expenses, reasonable attorneys' fees, brokerage and/or putting the Demised
Premises in good order, or for preparing the same for re-rental; (ii) Landlord
may re-let the Demised Premises or any part or parts thereof, either in the name
of Landlord or otherwise, for a term or terms, which may at Landlord's option be
less than or exceed the period which would otherwise have constituted the
balance of the Term of this Lease and may grant concessions or free rent; and/or
(iii) Tenant or the legal representatives of Tenant shall also pay Landlord as
liquidated damages for the failure of Tenant to observe and perform Tenant's
covenants herein contained, at the election of Landlord, either:
(a) a sum which at the time of such termination of this Lease or at the
time of any such re-entry by Landlord, as the case may be, represents the then
value of the excess, if any, of (1) the aggregate of the installments of Fixed
Rent and the additional rent (if any) which would have been payable hereunder
by Tenant, had this Lease not so terminated, for the period commencing with
such earlier termination of this Lease or the date of any such re-entry, as
the case may be, and ending with the date hereinbefore set for the expiration
of the full term hereby granted pursuant to Articles 1 and 2 hereof, over (2)
the aggregate rental value of the Demised Premises for the same period, said
lump sum to be discounted to the Expiration Date of this Lease at the then
prevailing prime rate of interest; or
(b) sums equal to the aggregate of the installments of Fixed Rent and
additional rent (if any) which would have been payable by Tenant had this Lease
not so terminated, or had Landlord not so re-entered the Demised Premises,
payable upon the due dates therefor specified herein following such termination
or such re-entry and until the date hereinbefore set for the expiration of the
full Term hereby granted; provided, however, that if Landlord shall re-let the
Demised Premises during said period, Landlord shall credit Tenant with the net
rents received by Landlord for such re-letting, such net rents to be determined
by first deducting from the gross rents as and when received by Landlord from
such re-letting the expenses incurred or paid by Landlord terminating this Lease
or of re-entering the Demised Premises and of securing possession thereof,
including, without limitation, attorneys' fees and costs of removal and storage
of Tenant's property, as well as the expenses of re-letting, including
repairing, restoring, altering, decorating and preparing the Demised Premises
for new tenants, brokers' commissions, advertising costs, reasonable attorneys'
fees, and all other similar or dissimilar expenses chargeable against the
Demised Premises and the rental therefrom in connection with such
<PAGE>
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re-letting, it being understood that any such re-letting may be for a period
equal to or shorter or longer than the remaining Term of this Lease; provided,
further, that (1) in no event shall Tenant be entitled to receive any excess of
such net rents over the sums payable by Tenant to Landlord hereunder, (2) in no
event shall Tenant be entitled in any suit for the collection of damages
pursuant to this paragraph (b) to a credit in respect of any net rents from a
re-letting except to the extent that such net rents are actually received by
Landlord prior to the commencement of such suit, and (3) if the Demised Premises
or any part thereof should be re-let in combination with other space, then
proper apportionment on a square foot area basis shall be made of the rent
received from such re-letting and of the expenses of re-letting.
For the purpose of paragraph (a) of this Section 17.02, the amount of
additional rent which would have been payable by Tenant under Article 3 hereof
for each year, as therein provided, ending after such termination of this Lease
or such re-entry, shall be deemed to be an amount equal to the amount of such
additional rent payable by Tenant for the calendar year and Tax Year ending
immediately preceding such termination of this Lease or such re-entry. Suit or
suits for the recovery of such damages, or any installments thereof, may be
brought by Landlord from time to time at its election, and nothing contained
herein shall be deemed to require Landlord to postpone suit until the date when
the Term of this Lease would have expired if it had not been terminated under
the provisions of Articles 16 or 17 hereof, or under any provision of law, or
had Landlord not re-entered the Demised Premises.
Landlord, at Landlord's option, may make such alterations, repairs,
replacements and/or decorations in the Demised Premises as Landlord in
Landlord's sole judgment considers advisable and necessary for the purpose of
re-letting the Demised Premises; and the making of such alterations and/or
decorations shall not operate or be construed to release Tenant from any
liability hereunder as aforesaid. Landlord shall in no event be liable in any
way whatsoever for failure to re-let the Demised Premises, or in the event that
the Demised Premises are re-let, for failure to collect the rent thereof under
such reletting. In the event of a breach or threatened breach by Tenant of any
of the covenants or provisions hereof, Landlord shall have the right of
injunction and the right to invoke any remedy allowed at law or in equity as
if re-entry, summary proceedings and other remedies were not herein provided
for. Mention in this Lease of any particular remedy shall not preclude
Landlord from any other remedy, in law or in equity. Tenant hereby expressly
waives any and all rights of redemption granted by or under any present or
future laws in the event of Tenant being evicted or dispossessed for any cause,
or in the event of Landlord obtaining possession of the Demised Premises, by
reason of the violation by Tenant of any of the covenants and conditions of this
Lease, or otherwise.
<PAGE>
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ARTICLE 18.
LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS
------------------------------------------------
Section 18.01. If Tenant shall default in the observance or performance of
any term or covenant on its part to be observed or performed under or by virtue
of any of the terms or provisions in any Article of this Lease and such default
shall continue beyond any applicable notice and cure period (provided, however,
in the case of an emergency neither notice nor the expiration of any cure
periods shall be necessary), Landlord, without being under any obligation to do
so and without thereby waiving such default, may remedy such default for the
account and at the expense of Tenant. If Landlord makes any expenditures or
incurs any obligations for the payment of money in connection therewith,
including, but not limited to, attorneys' fees in instituting, prosecuting or
defending any action or proceedings, such sums paid or obligations incurred with
interest computed at the Interest Rate and costs shall be deemed to be
additional rent hereunder and shall be paid to it by Tenant on demand.
ARTICLE 19.
COVENANT OF QUIET ENJOYMENT
---------------------------
Section 19.01. Landlord covenants that upon Tenant paying the rent and
additional rents and observing and performing all the terms, covenants and
provisions of this Lease on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the Demised Premises, subject nevertheless to
the terms and conditions of this Lease.
ARTICLE 20.
EXCAVATION
----------
Section 20.01. In the event that an excavation should be made for building
or other purposes upon land adjacent to the Building, or should be authorized to
be made, Tenant shall, if necessary, afford to the person or persons causing or
authorized to cause such excavation, license to enter upon the Demised Premises
for the purpose of doing such work as shall reasonably be necessary to protect
or preserve the wall or walls of the Building, or the Building, from injury or
damage and to support them by proper foundations, pinning and/or underpinning.
ARTICLE 21.
SERVICES AND EQUIPMENT
----------------------
Section 21.01. So long as Tenant is not in default under any of the
covenants of this Lease, Landlord shall, at its cost and expense:
<PAGE>
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(a) Provide necessary elevator facilities on Business Days from 8:00 A.M.
to 6:00 P.M. and shall have sufficient elevators available at all other times.
At Landlord's option, the elevators shall be operated by automatic control or by
manual control, or by a combination of both of such methods. Tenant shall have
access to the Demised Premises twenty-four (24) hours a day, seven (7) days per
week.
(b) Maintain and keep in good order and repair the heating system
installed by Landlord. The aforesaid system will be operated by Landlord when
seasonably required on Business Days, and shall be effective from 8:00 A.M. to
6:00 P.M. Landlord shall have no responsibility or liability for the ventilating
conditions and/or temperature of the Demised Premises during the hours or days
Landlord is not required to furnish heat pursuant to this paragraph. Any use or
occupancy of the Demised Premises during the hours or days Landlord is not so
required to furnish heat to the Demised Premises shall be at the sole risk,
responsibility and hazard of Tenant. If the Demised Premises shall be
uninhabitable during such times as Landlord is not required to furnish heat to
the Demised Premises pursuant to this paragraph, such condition shall not
constitute nor be deemed to be a breach or a violation of this Lease or of any
provision thereof, nor shall it be deemed an eviction nor shall Tenant claim
or be entitled to claim any abatement of rent nor make any claim for any damages
or compensation by reason of such condition of the Demised Premises. It is
Landlord's recommendation that Tenant cause all of the windows in the Demised
Premises to be kept closed to facilitate proper functioning of the heating
system. If Tenant shall elect not to do so, any improper functioning of the
heating system resulting therefrom shall be the sole responsibility of Tenant
to cure (at Tenant's sole cost and expense). Tenant shall keep entirely
unobstructed all of the vents, intakes, outlets and grilles, at all times and
shall comply with and observe all reasonable regulations and requirements
prescribed by Landlord for the proper functioning of the heating system.
(c) Air-conditioning service ("A/C Service") shall be furnished to the
Demised Premises by way of an existing air-cooled package type air-conditioning
unit (the "A/C Unit"). Tenant shall, at Tenant's expense, maintain and repair
and replace (as necessary) the A/C Unit, including, without limitation, the
periodic cleaning of filters, replacement of fuses and bets, the calibration of
thermostats and all start-up and shutdown maintenance of the A/C Unit. Landlord
hereby agrees to "balance" the A/C Service in the Demised Premises as part of
Landlord's Work, however, it is understood that Landlord shall have no further
obligation to "balance" the A/C Service after the Commencement Date. Such
maintenance obligations shall be performed throughout the Term by a reputable
air-conditioning maintenance company engaged by Tenant at Tenant's expense (and
first approved by Landlord). Tenant shall pay on demand all
<PAGE>
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expenses incurred in connection with the maintenance and repair of the A/C Unit.
In the event of the total breakdown of the A/C Unit In such a manner that the
same cannot reasonably be repaired, Landlord shall replace the A/C Unit at its
own cost and expense. All electricity used in connection with the operation of
the A/C Unit shall be supplied by Landlord upon and subject to all of the terms
and conditions contained in Article 4 hereof. The existing A/C Unit, and any
replacements thereof or additional units installed by Tenant during the Term,
shall be and remain at all times the property of Landlord, and Tenant shall
surrender the A/C Unit and all such repairs and replacements to Landlord in good
working order and condition on the Expiration Date. If any permit or license
shall be required for the operation of any A/C Unit serving the Demised
Premises, Landlord shall have the option of obtaining the same on Tenant's
behalf and at Tenant's expense, or requiring Tenant, at Tenant's expense, to
obtain and maintain any such permit or license. It is Landlord's recommendation
that Tenant cause all of the windows in the Demised Premises to be kept closed
to facilitate proper functioning of the A/C Unit. If Tenant shall elect not to
do so, any improper functioning of the A/C Unit resulting therefrom shall be the
sole responsibility of Tenant to cure (at Tenant's sole cost and expense).
Tenant shall keep entirely unobstructed all of the vents, intakes, outlets and
grilles, at all times and shall comply with and observe all reasonable
regulations and requirements prescribed by Landlord for the proper functioning
of the A/C Unit.
(d) Furnish hot and cold water for lavatory, drinking and office cleaning
purposes. If Tenant requires, uses or consumes water for any other purpose,
Tenant agrees to Landlord installing a meter or meters or other means to measure
Tenant's water consumption, and Tenant further agrees to reimburse Landlord for
the cost of the mater or meters and the installation thereof, and to pay for the
maintenance of said meter equipment and/or to pay Landlord's cost of other means
of measuring such water consumption by Tenant. Tenant shall reimburse Landlord
the cost of all water consumed, as measured by said meter or meters or as
otherwise measured, including sewer rents.
Section 21.02. A. Landlord reserves the right to interrupt, curtail or
suspend the services required to be furnished by Landlord under this Article 21
when the necessity therefor arises by reason of accident, emergency, mechanical
breakdown, or when required by any law, order or regulation of any federal,
state, county or municipal authority, or for any other cause beyond the
reasonable control of Landlord. Landlord shall use due diligence to complete
all required repairs or other necessary work as quickly as possible so that
Tenant's inconvenience resulting therefrom may be for as short a period of time
as circumstances will permit. No diminution or abatement of rent or other
compensation shall or will be claimed by Tenant as a result therefrom, nor shall
this Lease or any of the
<PAGE>
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obligations of Tenant be affected or reduced by reason of such interruption,
curtailment or suspension.
B. Notwithstanding the foregoing, in the event that as a result of such
interruption, curtailment or suspension of services not necessitated by
Tenant's acts and not occurring as a result of a requirement of law or a
situation beyond Landlord's reasonable control, Tenant shall be unable to
conduct and shall actually discontinue conducting its normal business operations
in the Demised Premises for a period of ten (10) consecutive Business Days or
longer and shall notify Landlord of such discontinuance at the inception of such
period (the "Inception Notice"), then Tenant shall be entitled to an abatement
of the Fixed Rent and additional rent payable with respect to the Demised
Premises for the period beginning on the day after the Demised Premises were so
rendered unusable for the conduct of Tenant's normal business operations (and
such Inception Notice was given) and ending on the earlier of the date on which
(a) Tenant resumes occupancy of the Demised Premises for the conduct of its
business or (b) the Demised Premises are rendered usable for the conduct of
Tenant's business operations (regardless of any delay by Tenant in thereafter
resuming such business operations).
Section 21.03. Landlord will not be required to furnish any other
services, except as otherwise provided in this Lease.
Section 21.04. (a) Tenant, at its sole cost and expense, shall cause the
Demised Premises to be exterminated on a monthly basis to the satisfaction of
Landlord and shall for such purposes employ exterminators designated by
Landlord, which exterminators charges shall be reasonably comparable to the
charges of other exterminators of similar skill, quality and experience for
similar services in similar buildings in Manhattan.
(b) If Tenant shall have facilities on the Demised Premises for
cooking, drinking, eating, washing and/or storage of food, or similar items,
Tenant shall, on a weekly basis, cause the portion of the Demised Premises on
which such facilities are located to be exterminated to the satisfaction of
Landlord by exterminators designated by Landlord. The foregoing shall not,
however, constitute any approval or consent to the use of the Demised Premises
for such purposes.
(c) If Tenant fails to comply with the provisions of this Section,
Landlord, in addition to any other remedies available to it under this Lease or
pursuant to law, may perform such service, and the cost therefor shall be paid
by Tenant on demand as additional rent hereunder.
Section 21.05. Tenant shall clean the Demised Premises and arrange for the
removal of all rubbish and refuse therefrom in accordance with the standards of
the Building (the "Building
<PAGE>
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Standard"). Tenant shall employ for such purposes only the maintenance and
trash removal contractors designated by Landlord for use in the Building (such
contractors' charges to be reasonably comparable to the charges of other
contractors of similar skill, quality and experience for similar services in
similar buildings in Manhattan). All such charges shall be paid promptly by
Tenant directly to such contractors.
Section 21.06. It is expressly agreed that only Landlord or any one or
more persons, firms or corporations authorized in writing by Landlord will be
permitted to sell, deliver or furnish any food or beverages, either personally
or through the use of vending machines, for consumption within the Demised
Premises or elsewhere in the Building. Landlord expressly reserves the light to
act as or to designate at any time, or from time to time, an exclusive supplier
or suppliers of such food and beverages; and Landlord further expressly reserves
the right to exclude from the Building any person, firm or corporation
attempting to deliver or purvey any such food or beverages but not so designated
by Landlord. It is understood, however, that Tenant or regular office employees
of Tenant who are not employed by any supplier of such food or beverages or by
any person, firm or corporation engaged in the business of purveying such food
or beverages, may personally bring food or beverages into the Building for
consumption within the Demised Premises by employees and invitees of Tenant, but
not for resale to or for consumption by any other tenant. Landlord may fix in
its absolute discretion, at any time and from time to time, the hours during
which, the regulations under which, foods and beverages may be brought into the
Building by regular employees of Tenant. Notwithstanding the foregoing, it is
understood that Tenant or regular office employees of Tenant who are not
employed by any supplier of such food or beverages or by any person, firm or
corporation engaged in the business of purveying such food or beverages, may
personally bring food or beverages into the Building for consumption within the
Demised Premises by employees of Tenant, but not for resale to or for
consumption by any other tenant. It is further understood that Tenant may order
food and beverages for delivery to Tenant in the Demised Premises for
consumption by Tenant's employees and invitees from contractors, restaurants and
caterers selected by Tenant, without obtaining Landlord's prior consent,
provided, however, that if Landlord determines that the delivery by any such
contractor, restaurant or caterer poses a security risk to the Building
personnel or to other tenants in the Building or otherwise causes a nuisance or
disruption in the Building, Landlord may exclude same from the Building.
ARTICLE 22.
DEFINITION OF LANDLORD
----------------------
Section 22.01. The term "Landlord" wherever used in this Lease shall be
limited to mean and include only the owner or
<PAGE>
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owners at the time in question of the Land and the Building or the Building or
the tenant under a ground or underlying lease affecting the Land and the
Building or the Building, or both, to whom this Lease may be assigned, or a
mortgagee in possession, so that in the event of any sale, assignment or
transfer of the Land and the Building or the Building, or of such ground or
underlying lease, such owner, tenant under a ground lease or mortgagee in
possession shall thereupon be released and discharged from all covenants,
conditions and agreements of Landlord thereafter accruing hereunder; but such
covenants, conditions and agreements shall be binding upon each new owner,
tenant under a ground or underlying lease, or mortgagee in possession for the
time being of the Land and the Building, until sold, assigned or transferred.
ARTICLE 23.
INVALIDITY OF ANY PROVISION
---------------------------
Section 23.01. If any term, covenant, condition or provision of this Lease
or the application thereof to any circumstance or to any person, firm or
corporation shall be invalid or unenforceable to any extent, the remaining
terms, covenants, conditions and provisions of this Lease, or the application
thereof to any circumstances or to any person, firm or corporation other than
those as to which any term, covenant, condition or provision is held invalid or
unenforceable, shall not be affected thereby and each remaining term, covenant,
condition and provision of this Lease shall be valid and shall be enforceable to
the fullest extent permitted by law.
ARTICLE 24.
BROKER
------
Section 24.01. The parties hereto agree that Janet Liff and
SageGroupAssociates Inc. (collectively, the "Brokers") were the only brokers who
negotiated and brought about this transaction, and Landlord agrees to pay the
Brokers a commission therefor as per separate agreements. Tenant represents and
warrants that it has not dealt with any broker other than the Brokers with
respect to the Demised Premises, and Tenant agrees to indemnify and save
Landlord harmless from any claims made by other brokers claiming to have dealt
with Tenant. Landlord represents that it has not dealt with any broker other
than the Brokers, and Landlord agrees to indemnify and save Tenant harmless from
any claims made by other brokers claiming to have dealt with Landlord.
ARTICLE 25.
SUBORDINATION
-------------
<PAGE>
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Section 25.01. This Lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the Building of which the Demised Premises forms a part, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
This clause shall be self-operative, and no further instrument of subordination
shall be required by any mortgagee. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Landlord may request. Tenant
hereby constitutes and appoints Landlord the Tenant's attorney-in-fact to
execute any such certificate or certificates for and on behalf of Tenant.
Section 25.02. At the option of Landlord or any successor landlord or the
holder of any mortgage affecting the Demised Premises, Tenant agrees that
neither the cancellation nor termination of any ground or underlying lease to
which this Lease is now or may hereafter become subject or subordinate, nor any
foreclosure of a mortgage affecting said premises, nor the institution of any
suit, action, summary or other proceeding against Landlord herein or any
successor landlord, or any foreclosure proceeding brought by the holder of any
such mortgage to recover possession of such property, shall by operation of law
or otherwise result in cancellation or termination of this Lease or the
obligations of Tenant hereunder, and upon the request of any such landlord,
successor landlord, or the holder of such mortgage, Tenant covenants and agrees
to attorn to Landlord or to any successor to Landlord's interest in the Demised
Premises, or to such holder of such mortgage or to the purchaser of the
mortgaged premises in foreclosure.
Section 25.03. In the event of any act or omission by Landlord which would
give Tenant the right to terminate this Lease or to claim a partial or total
eviction, pursuant to the terms of this Lease, if any, Tenant will not exercise
any such right until:
(i) it has given written notice of such act or omission to the following
(whose names and addresses shall previously have been furnished to Tenant) by
delivering such notice of such act or omission addressed to the last address so
furnished:
(a) the holder of any first mortgage, and
(b) the landlord under any ground or underlying lease to which this
Lease is subject and subordinate; and
(ii) a reasonable period for remedying such act or omission shall have
elapsed following such giving of notice during which such parties, or any of the
parties, with reasonable diligence, following the giving of such notice, has not
commenced and continued to remedy such act or omission or to cause the same to
be remedied.
<PAGE>
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Section 25.04. If, in connection with obtaining financing, a banking,
insurance or other recognized institutional lender shall request reasonable
modifications in this Lease as a condition to such financing, Tenant will not
unreasonably withhold, delay or defer its consent thereto, provided that such
modifications do not, in Tenant's good faith opinion, increase the obligations
of Tenant hereunder or materially or adversely affect the leasehold interest
hereby created or Tenant's use and enjoyment of the Demised Premises or reduce
Landlord's obligations under the Lease.
Section 25.05. Landlord agrees to use its best efforts to obtain from its
current and any future mortgagee for the benefit of Tenant a Subordination, Non-
disturbance and Attornment Agreement in such mortgagee's standard form, provided
that such "best efforts" shall not require Landlord to expend any sum of money
(other than its legal expenses and processing expenses (if any) charged by the
mortgagee for processing said Subordination, Non-disturbance and Attornment
Agreement) and further provided that Landlord shall have no liability
whatsoever, and the obligations of the parties hereto shall not be affected in
any manner whatsoever, if any such mortgagee shall fail to deliver such
agreement.
ARTICLE 26.
ESTOPPEL CERTIFICATE
--------------------
Section 26.01. Tenant agrees, at any time, and from time to time, upon not
less than ten (10) days prior notice from Landlord, to execute, acknowledge and
deliver to Landlord a statement in writing addressed to Landlord certifying that
this Lease is unmodified and in full force and effect (or, if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), stating the dates to which the Fixed Rent, additional rental
and other charges have been paid, and stating whether or not to the best
knowledge of the signer of such certificate, there exists any default in the
performance of any covenant, agreement, term, provision or condition contained
in this Lease, and any claim or offset in favor of Tenant, and, if any,
specifying each such default, claim or offset in favor of Tenant, and, if any,
specifying each such default, claim or offset of which signer may have
knowledge, it being intended that any such statement delivered pursuant hereto
may be relied upon by Landlord and by any purchaser or prospective purchaser of
the Building and/or the Land and by any mortgagee or prospective mortgagee of
any mortgage affecting the Building and/or the Land, and by any landlord under a
ground or underlying lease affecting the Land or the Building.
Section 26.02. Landlord agrees, at any time, and from time to time, upon
not less than ten (10) days prior notice from Tenant, to execute, acknowledge
and deliver to Tenant a statement
<PAGE>
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in writing addressed to Tenant certifying that this Lease is unmodified and in
full force and effect (or, if there have been modifications, that the same is in
full force and effect as modified and stating the modifications), stating the
dates to which the Fixed Rent, additional rent and other charges have been paid,
and stating whether or not, to the best knowledge of the signer of such
certificate for and on behalf of Landlord, there exists any default in the
performance of any covenant, agreement, term, provision or condition contained
in this Lease and, if any, specifying each such default of which such signer may
have knowledge.
ARTICLE 27.
LEGAL PROCEEDINGS, WAIVER OF JURY TRIAL
---------------------------------------
Section 27.01. Landlord and Tenant hereby waive, to the extent such waiver
is not prohibited by law, the right to a jury trial in any action, summary
proceeding or legal proceeding between or among the parties hereto or their
successors arising out of this Lease or Tenant's occupancy of the Demised
Premises or Tenant's right to occupy the Demised Premises.
Section 27.02. Tenant hereby waives the right to interpose a counterclaim
(other than a mandatory counterclaim) in any summary proceeding instituted by
Landlord against Tenant or in any action instituted by Landlord for unpaid rent
or additional rent under this Lease.
Section 27.03. A. Subject to the provisions of Section 27.03B, in the
event Tenant claims or asserts that Landlord has violated or failed to perform a
covenant of Landlord not to unreasonably withhold or delay Landlord's consent or
approval, or in any case where Landlord's reasonableness in exercising its
judgment is in issue, Tenant's sole remedy shall be an action for specific
performance, declaratory judgment or injunction, and in no event shall Tenant be
entitled to any money damages for a breach of such covenant, and in no event
shall Tenant claim or assert any claims in any money damages in any action or by
way of set-off, defense or counterclaim, and Tenant hereby specifically waives
the right to any money damages or other remedies.
B. In the event that Tenant shall request Landlord's consent
to an assignment of this Lease or a proposed subletting or occupancy of all or
any portion of the Demised Premises or to any proposed alteration, decoration,
installation, addition or improvement ("Tenant Improvement") to the Demised
Premises and Tenant believes that Landlord has unreasonably withheld or delayed
the same, such dispute, but no other matter whatsoever (except for any other
matter under this Lease for which arbitration is provided as the method of
dispute resolution, in which event such matter shall be resolved in a separate
arbitration proceeding), shall be resolved by
<PAGE>
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arbitration in Manhattan by an arbitrator selected from the panel of retired
judges maintained by Comprehensive Alternative Dispute Resolution Enterprises,
Inc. ("CADRE"). If CADRE shall no longer exist or shall be unwilling or unable
to act, such dispute shall be resolved by another reputable commercial
arbitration company which has expedited arbitration procedures which meet the
time frame set forth herein, as Landlord shall select (the "Company"), provided,
however, that Tenant may dispute Landlord's choice of the Company, in which
event the parties shall mutually agree upon the Company, and if the parties
shall be unable to agree upon the Company, the Company shall be appointed by any
judge of a court of competent jurisdiction in the City of New York. Upon
selection of the Company the parties agree that the balance of this Section
27.03B shall continue to apply with the substitution of the Company in lieu of
CADRE. If Tenant so desires to submit such dispute to CADRE, Tenant shall
notify Landlord of such desire, and within ten (10) Business Days thereafter,
Tenant shall make such submission and deliver all applicable applications and
documents to CADRE with a copy of the entire submission being delivered
simultaneously to Landlord. The arbitration shall be conducted pursuant to the
then existing rules, regulations, practices and procedures of CADRE and provided
such rules so permit, CADRE shall select a single arbitrator (who shall be
impartial and shall have experience regarding the matter to be determined)
within five (5) Business Days after Tenant's submission or application, the
arbitration shall commence two (2) Business Days thereafter and shall be
conducted for at least seven (7) hours on each Business Day thereafter until
completion, each party having no more than a total of fifteen (15) hours to
present its case and to cross-examine or interrogate persons supplying
information or documentation on behalf of the other party. If such rules do not
permit such expedited procedure, then such rules of CADRE shall govern, it being
the intent of the parties to conduct the arbitration in the most expeditious
manner permitted by the rules. The arbitrator shall make a determination within
five (5) Business Days after conclusion of the arbitration; such determination
to be strictly limited to whether or not Landlord's failure to consent to any
proposed assignment of this Lease or proposed sublease or occupancy of all or
any portion of the Demised Premises or proposed Tenant Improvement, was
reasonable, and, if such failure shall be found to be unreasonable, whether the
same was in bad faith. No monetary award shall be awarded as a result of any
proceeding pursuant to this Section, Landlord's sole responsibility in the event
of a negative determination being the requirement of granting its consent to
Tenant's proposed assignment, sublease or occupancy or proposed Tenant
Improvement, as the case may be, except that (i) the prevailing party shall have
the right to be reimbursed for its reasonable fees and expenses within twenty
(20) days after submission of a bill therefor to the losing party, and (ii) in
the event that pursuant to this arbitration procedure Landlord shall be found to
have acted in bad faith in withholding its consent to Tenant's
<PAGE>
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proposed assignment, sublease or occupancy, but, due solely to the delay caused
by such procedure, Tenant's proposed assignee or sublessee or occupant shall not
be obligated to assume this Lease or sublease or occupy the proposed portion of
the Demised Premises, Landlord shall, at Tenant's option be required to step
into the position of such assignee or sublessee or occupant upon the terms and
conditions contained in the submission required to be made to Landlord
(including, if the same would have been the obligation of the subtenant or
occupant, constructing, at Landlord's own cost and expense any required demising
walls). Any determination pursuant to this Section shall be final and binding
upon the parties and each party shall pay its respective costs of any
proceedings pursuant to this Section (except that the prevailing party shall
have the right to be reimbursed for its reasonable fees and expenses within
twenty (20) days after submission of a bill therefor to the losing party).
ARTICLE 28.
SURRENDER OF PREMISES/HOLDOVER
------------------------------
Section 28.01. Upon the expiration or other termination of the Term of
this Lease, Tenant shall quit and surrender the Demised Premises in good order
and condition, ordinary wear and tear and damage by fire or other casualty, the
elements and any cause beyond Tenant's reasonable control excepted, and shall
remove all its property therefrom, except as otherwise provided in this Lease.
Tenant's obligation to observe or perform this covenant shall survive the
expiration or other termination of the Term of this Lease.
Section 28.02. If at any time during the last month of the Term of this
Lease, Tenant shall have removed all or substantially all of Tenant's property
from the Demised Premises, Landlord may, and Tenant irrevocably grants to
Landlord a license to, immediately enter and alter, renovate and redecorate the
Demised Premises, without diminution or abatement of rent, or incurring
liability to Tenant for any compensation, and such acts shall have no effect on
this Lease.
Section 28.03. Tenant agrees it shall indemnify and save Landlord harmless
against all costs, claims, loss or liability resulting from delay by Tenant in
surrendering the Demised Premises upon expiration or sooner termination of the
term of this Lease, including, without limitation, any claims made by any
succeeding tenant founded on such delay unless such delay was caused by
Landlord. The parties recognize and agree that the damage to Landlord resulting
from any failure by Tenant timely to surrender the Demised Premises will be
substantial, will exceed the amount of monthly rent theretofore payable
hereunder, and will be impossible of accurate measurement. Tenant therefore
agrees that if possession of the Demised Premises is not surrendered to Landlord
within two (2) days after the date of the
<PAGE>
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expiration or sooner termination of the Term of this Lease, then Tenant will pay
Landlord as liquidated damages for each month and for each portion of any month
during which Tenant holds over in the Demised Premises after expiration or
sooner termination of the Term of this Lease, a sum equal to two (2) times the
average rent and additional rent which was payable per month under this Lease
during the six (6) month period preceding such expiration or termination of the
Term of this Lease. Notwithstanding, the foregoing, provided that during the
six (6) month period immediately preceding the Expiration Date, Tenant has
entered into a new lease or has been negotiating in good faith the terms of a
new lease, in either case to commence on or prior to the Expiration Date, then
Tenant shall pay Landlord as liquidated damages for each month and for each
portion of any month, not to exceed six (6) months, during which Tenant holds
over in the Demised Premises after expiration of the Term of this Lease, only a
sum equal to the average rent and additional rent which was payable per month
under this Lease during the six (6) month period preceding such expiration of
the Term of this Lease. After six (6) months beyond the Expiration Date, the
provisions of the immediately preceding sentence shall not apply. The aforesaid
obligations shall survive the expiration of sooner termination of the Term of
this Lease.
ARTICLE 29.
RULES AND REGULATIONS
---------------------
Section 29.01. Tenant, its servants, employees, agents, visitors, and
licensees shall observe faithfully and comply strictly with the rules and
regulations set forth in Schedule C attached hereto and made a part hereof.
Landlord shall have the right from time to time during the Term of this Lease to
make reasonable changes in and additions to the rules thus set forth. Landlord
agrees not to enforce the rules and regulations against Tenant in a
discriminatory manner unless compliance is necessitated due to the manner in
which Tenant uses and occupies the Demised Premises, or any act or omission by
Tenant.
Section 29.02. Any failure by Landlord to enforce any rules and
regulations now or hereafter in effect, either against Tenant or any other
tenant in the Building, shall not constitute a waiver of any such rules and
regulations.
ARTICLE 30.
NOTICES
-------
Section 30.01. Any notice, request or demand permitted or required to be
given by the terms and provisions of this Lease, or by any law or governmental
regulation, either by Landlord to Tenant or by Tenant to Landlord, shall be in
writing. Unless otherwise required by such law or regulation, such notice,
<PAGE>
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request or demand shall be given, and shall be deemed to have been served and
given by Landlord and received by Tenant, when Landlord (1) shall have deposited
such notice, request or demand by registered or certified mail enclosed in a
securely closed postpaid wrapper, in a United States Government general or
branch post office, addressed to Tenant at the Demised Premises, and (2) until
Tenant has moved its offices to the Demised Premises, shall have deposited such
notice, request or demand by registered or certified mail enclosed in a securely
closed postpaid wrapper in such a post office addressed to Tenant at its address
as stated on the first page of this Lease. Additionally a copy of all notices to
Tenant shall be sent to Tenant at: CitySearch, Inc., 790 East Colorado
Boulevard, Suite 200, Pasadena, CA 91101 Att: Chief Financial Officer. Such
notice, request or demand shall be given, and shall be deemed to have been
served and given by Tenant and received by Landlord, when Tenant shall have
deposited such notice, request or demand by registered or certified mail
enclosed in a securely closed postpaid wrapper in such a post office addressed
to Landlord at 777 Third Avenue, New York, New York 10017. Either party may, by
notice as aforesaid, designate a different address or addresses for notices,
requests or demands to it.
ARTICLE 31.
NO WAIVER; ENTIRE AGREEMENT
---------------------------
Section 31.01. The failure of Landlord to seek redress for violation of,
or to insist upon the strict performance of, any covenant or condition of this
Lease, or any of the Rules and Regulations set forth or hereafter adopted by
Landlord shall not prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Landlord of rent with knowledge of the breach of any
covenant of this Lease shall not be deemed a waiver of such breach. The failure
of Landlord to enforce any of the Rules and Regulations set forth, or hereafter
adopted, against Tenant and/or any other tenant in the Building shall not be
deemed a waiver of any such Rules and Regulations. No provision of this Lease
shall be deemed to have been waived by Landlord, unless such waiver be in
writing signed by Landlord. No payment by Tenant or receipt by Landlord of a
lesser amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any endorsement
or statement on any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy in this Lease provided.
Section 31.02. This Lease with the Schedules annexed hereto, if any,
contains the entire agreement between Landlord and Tenant, and any executory
agreement hereafter made between
<PAGE>
-54-
Landlord and Tenant shall be ineffective to change, modify, waive, release,
discharge, terminate, or effect an abandonment of this Lease, in whole or in
part, unless such executory agreement is in writing and signed by the party
against which enforcement of the change, modification, waiver, release,
discharge, termination or the effecting of the abandonment is sought.
ARTICLE 32.
CAPTIONS
--------
. .
Section 32.01. The captions of Articles in this Lease are inserted only as
a matter of convenience and for reference, and they in no way define, limit or
describe the scope of this Lease or the intent of any provision thereof.
ARTICLE 33.
INABILITY TO PERFORM
--------------------
Section 33.01. This Lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on the
part of Tenant to be performed shall in no way be affected, impaired or excused
because Landlord is unable to fulfill any of its obligations under this Lease or
to supply or is delayed in supplying any service expressly or impliedly to be
supplied or is unable to make, or is delayed in making any repair, additions,
alterations or decorations or is unable to supply or is delayed in supplying any
equipment or fixtures if Landlord is prevented or delayed from so doing by
reason of strike or labor troubles or any outside cause whatsoever including but
not limited to, governmental preemption in connection with a National Emergency
or by reason of any rule, order or regulation of any department or subdivision
thereof of any government agency or by reason of the conditions of supply and
demand which have been or are affected by war or other emergency. This Lease and
the obligation of Landlord to perform all of the covenants and agreements
hereunder on the part of Landlord to be performed shall, except as otherwise
specifically set forth herein, in no way be affected, impaired or excused
because Tenant is unable to fulfill any of its obligations under this Lease
(expressly excluding the obligation of Tenant to pay any Fixed Rent, additional
rent or any other monetary item hereunder) if Tenant is prevented or delayed
from so doing by reason of strike or labor troubles or any outside cause
whatsoever beyond the reasonable control of Tenant (which shall not be deemed to
include Tenant's failure to possess or inability to procure sufficient funds or
to obtain labor and/or materials at a below average price) including but not
limited to, governmental preemption in connection with a National Emergency or
by reason of any rule, order or regulation of any department or subdivision
thereof of any government agency or by reason of
<PAGE>
-55-
the conditions of supply and demand which have been or are affected by war or
other emergency.
ARTICLE 34.
NO REPRESENTATION BY LANDLORD
-----------------------------
Section 34.01. Landlord or Landlord's agents have made no representations
or promises with respect to the Building, the Land or the Demised Premises
except as herein expressly set forth, and no rights, easements or licenses are
acquired by Tenant by implication or otherwise except as expressly set forth in
the provisions of this Lease. The taking of possession of the Demised Premises
by Tenant shall be conclusive evidence, as against Tenant, that Tenant accepts
said premises and that the Demised Premises and the Building of which the same
form a part were in good and satisfactory condition at the time such possession
was so taken subject to Landlord's obligation under Section 2.02 hereof.
ARTICLE 35.
NAME OF BUILDING
----------------
Section 35.01. The Building may be known as or by such name as Landlord,
in its sole discretion, may elect, and Landlord shall have the right from time
to time to change such designation or name without Tenant's consent.
ARTICLE 36.
SUCCESSORS AND ASSIGNS
----------------------
Section 36.01. The covenants, conditions and agreements contained in this
Lease shall bind and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and, except as otherwise
provided herein, their assigns.
ARTICLE 37.
DEFERRED COLLECTIONS
--------------------
Section 37.01. If all or any part of the Fixed Rent or additional rents,
as above defined, shall at any time become uncollectible, reduced or required to
be refunded by virtue of any rules, regulations, orders, laws and ordinances
(including, without limitation, rent control or stabilization laws), or
governmental or quasi-governmental authorities having jurisdiction ("Laws and
Ordinances"), then for the period prescribed by said Laws and Ordinances, Tenant
shall pay to Landlord the maximum amounts permitted pursuant to said Laws and
Ordinances. Upon the expiration of the applicable period of time
<PAGE>
-56-
during which such amounts shall be uncollectible, reduced or refunded, Tenant
shall pay to Landlord as additional rent, within fifteen (15) days after demand,
all such uncollected, reduced or refunded amounts that would have been payable
for the period absent such Laws and Ordinances; provided, however, that the
retroactive collection thereof shall then be lawful.
ARTICLE 38.
FEES/INTEREST/LATE CHARGES
--------------------------
Section 38.01. Whenever any default by Tenant causes Landlord to incur
attorneys' fees and/or any other costs or expenses, Tenant agrees that it shall
pay and/or reimburse Landlord for such fees, costs or expenses promptly upon
being billed therefor. Landlord and Tenant hereby agree that the non-prevailing
party in any legal proceeding between them shall pay the reasonable legal fees
and disbursements of the prevailing party within thirty (30) days after receipt
of a bill therefor. In the event of any settlement of such proceeding, or any
partial award to either party, the parties shall each pay their own legal fees
and disbursements and neither party shall be responsible for payment to the
other for the same.
Section 38.02. If any monies owing by Tenant under this Lease are paid
more than ten (10) days after the date such monies are payable pursuant to the
provisions of this Lease, Tenant shall pay Landlord interest thereon, at the
Interest Rate, for the period from the date such monies were originally payable
to the date such monies are paid. In the event that three (3) times in any
twelve (12) month period Tenant shall have defaulted beyond any applicable
notice and cure period in the payment of Fixed Rent or additional rent, or any
part of either, then any further default by Tenant within such twelve (12) month
period shall permit Landlord to collect from Tenant, upon demand, in addition to
any interest payable pursuant to this Article 38, or elsewhere in this Lease, a
late charge equal to the amount of Fixed Rent and additional rent so due
multiplied by a percentage equal to the then prime rate of interest charged by
Marine Midland Bank, N.A. as compensation to Landlord for the costs incurred by
it as a result of such defaults, Landlord and Tenant acknowledging that the
actual amount of such costs would be impossible to ascertain.
ARTICLE 39.
ABATEMENT OF RENT
-----------------
Section 39.01. Anything herein to the contrary notwithstanding, provided
this Lease shall be in full force and effect and Tenant shall not be in default
hereunder beyond any applicable notice and grace periods, the Fixed Rent shall
abate
<PAGE>
-57-
at the rate of $4,166.66 per month for a period of six (6) months from and after
the Commencement Date.
ARTICLE 40.
SECURITY DEPOSIT
----------------
Section 40.01. Upon execution of this Lease, Tenant shall deliver to
Landlord an irrevocable letter of credit (the "Letter of Credit") in the amount
of $26,250 issued by a New York City commercial bank acceptable to Landlord in
its discretion, and in the form of the letter of credit annexed hereto as
Schedule D, to be held by Landlord as security ("Security Deposit") for the
faithful performance and observance by Tenant of the terms, provisions and
conditions of this Lease. It is agreed that in the event Tenant defaults, in
respect of any of the terms, provisions and conditions of this Lease, including,
but not limited to, the payment of Fixed Rent or additional rent, Landlord may
draw down upon the Letter of Credit and use, apply or retain the whole or any
part of the proceeds thereof to the extent required for the payment of any Fixed
Rent and additional rent or any other sum as to which Tenant is in default or
for any sum which Landlord may expend or may be required to expend by reason of
Tenant's default in respect of any of the terms, covenants and conditions of
this Lease, including, but not limited to, any damages or deficiency in the re-
letting of the Demised Premises, whether such damages or deficiency accrued
before or after summary proceedings or other re-entry by Landlord. In the event
that Tenant shall fully and faithfully comply with all of the terms, provisions,
covenants and conditions of this Lease, the Security Deposit shall be returned
promptly to Tenant after the date fixed as the Expiration Date hereof and after
delivery of entire possession of the Demised Premises to Landlord. In the event
of an assignment by Landlord of its interest in the Lease, Landlord shall have
the right to transfer the Security Deposit to the assignee and Landlord shall
thereupon be released by Tenant from all liability for the return of such
Security Deposit and Tenant agrees to look to the assignee solely for the return
of said Security Deposit, and it is agreed that the provisions hereof shall
apply to every transfer or assignment made of the Security Deposit to a new
assignee. Tenant further covenants that it will not assign or encumber or
attempt to assign or encumber the Security Deposit and that neither Landlord nor
its successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
Section 40.02. In the event of a default by Tenant of any of the terms,
provisions and conditions of this Lease Landlord shall be permitted to draw down
the entire amount of the Letter of Credit (or a portion thereof) and apply the
proceeds (or a portion thereof) in accordance with Section 40.01 of this Article
<PAGE>
-58-
and retain the balance for the Security Deposit required hereunder.
Section 40.03. If Landlord shall apply all or any portion of the Security
Deposit (by way of a draw on the Letter of Credit), then Tenant shall deposit
with Landlord, upon demand, a sufficient amount of cash or an additional Letter
of Credit to bring the balance of cash and the Letter of Credit held by Landlord
hereunder to the amount of the Security Deposit. Any use by Landlord of all or
any portion of the Security Deposit pursuant to the provisions hereof shall be
deemed an involuntary payment by Tenant and shall not be deemed a waiver by
Landlord of Tenant's default or Landlord's right to terminate this Lease
pursuant to the provisions of this Lease.
Section 40.04. Provided Tenant has not been in default under the terms and
conditions of the Lease during the first eighteen (18) months of the Term,
Landlord shall return the Letter of Credit to Tenant upon the expiration of said
eighteen (18) month period. Upon the return of the Letter of Credit as
aforesaid, this Article 40 shall be deemed to be null and void and of no further
force and effect.
ARTICLE 41.
TENANT'S EXPANSION OPTION
-------------------------
Section 41.01. In the event that Tenant has notified Landlord in writing
that it desires to lease additional space in the Building (any such space is
hereinafter referred to as the "Expansion Space") and provided same becomes
available for direct leasing (i.e., a lease of such space expires or is
----
terminated and such space is not leased again by the same tenant or occupant, or
the successors or assigns or subtenants of such tenant or occupant, by renewal
or a new lease or modification of a previous lease, and such space is not
subject to any other lease or an option contained in another lease, or the space
is not subject to a lease as of the date hereof, and the space is not one with
respect to which Landlord has commenced negotiations with any other proposed
tenant), then, Landlord shall send Tenant a notice setting forth the date on
which Landlord has obtained, or anticipates obtaining, vacant possession of the
Expansion Space. Upon Landlord giving such a notice, provided this Lease shall
be in full force and effect and provided that Tenant shall not be in default
hereunder beyond any applicable notice and grace period either as of the date of
Tenant's exercise of the expansion option herein described or as of the day
which would otherwise be the first day of Tenant's leasing of the Expansion
Space (which conditions regarding default may be waived by Landlord in its sole
discretion), and further provided that there shall be not less than five (5)
years remaining in the Term as of the Expansion Space Commencement Date (as
hereinafter defined) (unless Tenant shall simultaneously exercise its extension
option contained in Article 42 hereof), then Tenant shall have the
<PAGE>
-59-
option, exercisable by notice to Landlord given within five (5) days after
Landlord's notice to Tenant, time being of the essence with respect to Tenant's
notice, to lease the Expansion Space from Landlord upon the terms and conditions
hereinafter set forth. In the event Tenant fails to exercise its option to
accept the Expansion Space within five (5) days from the date of the applicable
notice from Landlord, Landlord shall have the right to lease the Expansion Space
to any other proposed tenant for any term whatsoever and Tenant shall be deemed
to have waived its rights to the Expansion Space.
Section 41.02. If Tenant exercises its option to lease the Expansion Space
in a timely manner, then on the date (the "Expansion Space Commencement Date")
Landlord delivers possession of the Expansion Space to Tenant, the Expansion
Space shall be added to the Demised Premises. Tenant acknowledges that it will
take the Expansion Space "as-is", and Landlord shall not be obligated to perform
any work, furnish any materials, or give Tenant any rent credit or work
allowance or any sum of money with respect thereto, and the Expansion Space
shall become part of the Demised Premises upon and subject to all of the terms
and conditions of this Lease (including the provisions of Section 2.02 hereof
with regard to latent defects and Section 8.05 with respect to Pre-Existing
Conditions), except that the Fixed Rent payable by Tenant for the Expansion
Space shall be equal to the greater of (i) the Fixed Rent then in effect from
time to time for the Demised Premises (on a per square foot basis) including all
escalations and additional rent payable as herein provided or (ii) the fair
market rental value of the Expansion Space (the "Expansion FMRV"). The
Expansion FMRV shall be determined in accordance with the following procedure:
(i) Immediately after the exercise by Tenant of its option
contained herein, Landlord and Tenant shall use their best efforts to agree
upon the Expansion FMRV. In the event Landlord and Tenant cannot reach
agreement within fifteen (15) Business Days after the date of Tenant's
notice of exercise of its option contained herein, Landlord and Tenant
shall each select a reputable, licensed real estate broker having an office
in New York County and familiar with the rentals then being charged in the
Building and in comparable buildings (respectively, "Landlord's Broker" and
"Tenant's Broker") who shall confer promptly after their selection by
Landlord and Tenant and shall use their best efforts to agree upon the
Expansion FMRV, taking into consideration all relevant factors, including,
as a primary factor, the rental which Landlord is then commanding or
requiring for leases of comparable space in the Building (or, if there is
then no comparable space in the Building, taking into consideration the
quality of non-comparable space in the Building relative to the Expansion
Space). If
<PAGE>
-60-
Landlord's Broker and Tenant's Broker cannot reach agreement within forty-
five (45) days after the date of Tenant's notice of exercise of its option
contained herein, then within ten (10) days thereafter, they shall
designate a third reputable, licensed real estate broker having an office
in New York County (the "Independent Broker"). Upon the failure of
Landlord's Broker and Tenant's Broker to agree upon the designation of the
Independent Broker, then the Independent Broker shall be appointed by the
appropriate official of the Real Estate Board of New York, Inc. upon ten
(10) days notice, or by any other real estate trade organization exercising
functions similar to those exercised by The Real Estate Board of New York,
Inc. Concurrently with such appointment, Landlord's Broker and Tenant's
Broker shall each submit a letter to the Independent Broker, with a copy to
Landlord and Tenant, setting forth such broker's estimate of the Expansion
FMRV, taking into consideration the factors described above (respectively,
"Landlord's Broker's Letter" and "Tenant's Broker's Letter").
(ii) In the event the Expansion FMRV set forth in Landlord's
Broker's Letter and Tenant's Broker's Letter shall differ by less than
$2.50 per square foot for any year during the remainder of the Term, then
the Expansion FMRV shall not be determined by the Independent Broker, and
the Expansion FMRV shall be the average of the Expansion FMRV set forth in
Landlord's Broker's Letter and Tenant's Broker's Letter. In the event the
Expansion FMRV set forth in Landlord's Broker's Letter and Tenant's
Broker's Letter shall differ by more than $2.49 per square foot per annum
for any year during the remainder of the Term, the Independent Broker shall
conduct such investigations and hearings as he may deem appropriate and
shall, within sixty (60) days after the date of his designation, choose
either the rental set forth in Landlord's Broker's Letter or Tenant's
Broker's Letter to be the Expansion FMRV during the Term and such choice
shall be binding upon Landlord and Tenant. Landlord and Tenant shall each
pay the fees and expenses of its respective broker. The fees and expenses
of the Independent Broker shall be shared equally by Landlord and Tenant.
Section 41.03. In the event the Fixed Rent for the Expansion Space shall
not have been determined prior to the Expansion Space Commencement Date, then
the Fixed Rent for the Expansion Space to be paid by Tenant to Landlord until
such determination has been made shall be the Fixed Rent for the Demised
Premises (on a per square foot basis) immediately
<PAGE>
-61-
preceding the Expansion Space Commencement Date, including all escalations or
additional rent payable pursuant to Article 3 hereof or as otherwise provided
herein. After such determination of the Fixed Rent for the Expansion Space has
been made, any excess rental for the Expansion Space theretofore paid by Tenant
to Landlord shall be credited by Landlord against the next ensuing monthly
installments of Fixed Rent payable by Tenant to Landlord and any deficiency in
Fixed Rent due from Tenant to Landlord attributable to the Expansion Space shall
be immediately paid.
Section 41.04. Promptly after Tenant exercises its option to lease the
Expansion Space and the Fixed Rent for the Expansion Space shall have been
determined, Landlord and Tenant shall execute and deliver an agreement (i)
incorporating the Expansion Space into the definition of the Demised Premises,
(ii) setting forth the Fixed Rent for the Expansion Space, (iii) amending
Section 3.04 to reflect the increase in the Percentage attributable to the
Expansion Space and the increase in the Wage Rate Factor attributable to the
Expansion Space and (iv) amending Section 4.01 to reflect the increase in the
dollar amount set forth therein attributable to such Expansion Space; provided
the failure of the parties to enter into such an agreement shall not affect
their respective rights and obligations hereunder.
Section 41.05. Under no circumstances shall Landlord have any liability
for the failure of any occupant of all or a portion of the Expansion Space to
vacate same at the end of the term of such occupant's lease. Landlord agrees to
take such actions as are reasonable, in its sole judgment, to obtain vacant
possession of any such space at the end of such term provided Landlord's failure
to deliver such possession to Tenant shall in no event affect the enforceability
of this Lease.
ARTICLE 42.
TENANT'S EXTENSION OPTION
-------------------------
Section 42.01. Provided this Lease shall then be in full force and effect
and Tenant shall not be in default hereunder beyond any applicable notice or
grace period either as of the date of Tenant's exercise of the extension option
described herein or as of the day which would otherwise be the first day of the
Extension Term, as defined herein (which conditions regarding default may be
waived by Landlord in its sole discretion), Tenant shall have the right, at its
option, to extend the Term for a single five (5) year period (the "Extension
Term"). The Extension Term shall commence on the day immediately following the
original Expiration Date and shall expire on the day prior to the fifth (5th)
anniversary of such date unless the Extension Term shall sooner end pursuant to
any of the terms, covenants or conditions of this Lease or pursuant to law.
Tenant shall give Landlord written notice of Tenant's intention to exercise such
<PAGE>
-62-
option on or before the date which is nine (9) months prior to the original
Expiration Date, the time of exercise being of the essence, and upon the giving
of such notice, this Lease and the Term shall be extended without execution or
delivery of any other or further documents, with the same force and effect as if
the Extension Term had originally been included in the Term and the Expiration
Date shall thereupon be deemed to be the last day of the Extension Term. All of
the terms, covenants and conditions of this Lease shall continue in full force
and effect during the Extension Term, including items of additional rent and
escalation which shall remain payable on the terms herein set forth, except that
the Fixed Rent shall be as determined in accordance with Section 42.02 of this
Article and Tenant shall have no further right to extend the Term pursuant to
this Article.
Section 42.02. The Fixed Rent payable by Tenant for the Demised Premises
during the Extension Term shall be the greater of (i) the Fixed Rent then in
effect, including all escalations and additional rent payable as herein
provided, or (ii) the fair market rental value of the Demised Premises taking
into consideration all relevant factors, including, as a primary factor, the
rental which Landlord is then commanding or requiring for comparable space in
the Building (or, if there is then no comparable space in the Building, taking
into consideration the quality of non-comparable space in the Building relative
to the Demised Premises) (fair market rental value taking into account the
foregoing is hereinafter referred to as the "FMRV"). The FMRV shall be
determined in accordance with the following procedure:
(i) Immediately after the exercise by Tenant of its option under
Section 42.01 above, Landlord and Tenant shall use their best efforts to
agree upon the FMRV. In the event Landlord and Tenant cannot reach
agreement within fifteen (15) Business Days after the date of Tenant's
notice of exercise of its option, Landlord and Tenant shall each select a
reputable qualified, licensed real estate broker having an office in New
York County and familiar with the rentals then being charged in the
Building and in comparable buildings (respectively, "Landlord's Broker" and
"Tenant's Broker") who shall confer promptly after their selection by
Landlord and Tenant and shall use their best efforts to agree upon the
FMRV. If Landlord's Broker and Tenant's Broker cannot reach agreement
within sixty (60) days after the date of Tenant's notice of exercise of its
option, then within ten (10) days thereafter, they shall designate a third
reputable, licensed real estate broker having an office in New York County
(the "Independent Broker"). Upon the failure of Landlord's Broker and
Tenant's Broker to agree upon the designation of the Independent Broker,
then the Independent Broker shall be appointed by the appropriate official
of The Real Estate Board of New York, Inc. upon ten (10) days notice, or by
any other real estate trade
<PAGE>
-63-
organization having jurisdiction and exercising functions similar to those
exercised by The Real Estate Board of New York, Inc. Concurrently with such
appointment, Landlord's Broker and Tenant's Broker shall each submit a
letter to the Independent Broker, with a copy to Landlord and Tenant,
setting forth such broker's estimate of the FMRV (respectively, Landlord's
Broker's Letter" and "Tenant's Broker's Letter").
(ii) In the event the FMRV set forth in Landlord's Broker's Letter
and Tenant's Broker's Letter shall differ by less than $2.50 per square
foot for each year during the Extension Term, then the FMRV shall not be
determined by the Independent Broker, and the FMRV shall be the average of
the FMRV set forth in Landlord's Broker's Letter and Tenant's Broker's
Letter. In the event the FMRV set forth in Landlord's Broker's Letter and
Tenant's Broker's Letter shall differ by more than $2.49 per square foot
per annum for any year during the Extension Term, the Independent Broker
shall conduct such investigations and hearings as he may deem appropriate
and shall, within sixty (60) days after the date of his designation, choose
either the rental set forth in Landlord's Broker's Letter or Tenant's
Broker's Letter to be the FMRV during the Extension Term and such choice
shall be binding upon Landlord and Tenant. Landlord and Tenant shall each
pay the fees and expenses of its respective broker. The fees and expenses
of the Independent Broker shall be shared equally by Landlord and Tenant.
Section 42.03. In the event the Extension Term shall commence prior to
determination of the Fixed Rent during the Extension Term as herein provided,
then the Fixed Rent to be paid by Tenant to Landlord until such determination
has been made shall be the Fixed Rent for the twelve (12) month period
immediately preceding the commencement of the Extension Term, including all
escalations or additional rent payable pursuant to Article 3 hereof or as
otherwise provided herein. After such determination has been made for the Fixed
Rent during the Extension Term, any excess rental for the Extension Term
theretofore paid by Tenant to Landlord shall be credited by Landlord against the
next ensuing monthly Fixed Rent payable by Tenant to Landlord and any deficiency
in Fixed Rent due from Tenant to Landlord during the Extension Term shall be
immediately paid.
Section 42.04. Promptly after the Fixed Rent has been determined, Landlord
and Tenant shall execute and deliver an agreement setting forth the Fixed Rent
for the Extension Term, as finally determined, provided the failure of the
parties to do so shall not affect their respective rights and obligations
hereunder.
<PAGE>
-64-
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first above written.
SAGE REALTY CORPORATION, AGENT
By: [SIGNATURE ILLEGIBLE]
-----------------------------------
Landlord
CITYSEARCH, INC.
By: [SIGNATURE ILLEGIBLE]
-----------------------------------
Tenant
<PAGE>
State of California
County of Los Angeles
On May 1, 1997 before me, BETTYE FUSSELL, NOTARY PUBLIC
----------- ------------------------------------------------------
DATE NAME, TITLE OF OFFICER . E.G. "JANE DOE, NOTARY PUBLIC"
personally appeared DOUGLAS MCPHERSON
-------------------------------------------------------------
NAME(S) OF SIGNER(S)
[_] personally known to me - OR - [X] proved to me on the basis of satisfactory
evidence to be the person(s) whose
name(s) is/are subscribed to the within
instrument and acknowledged to me that
he/she/they executed the same in
his/her/their authorized capacity(ies),
and that by his/her/their signature(s)
on the instrument the person(s), or the
entity upon behalf of which the,
person(s) acted, executed the
instrument.
[SEAL APPEARS HERE] WITNESS my hand and official seal.
/s/ Bettye Fussell
----------------------------------------
SIGNATURE OF NOTARY
- --------------------------------- OPTIONAL -------------------------------------
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER DESCRIPTION OF ATTACHED DOCUMENT
[_] INDIVIDUAL
[_] CORPORATE OFFICER
OFFICE LEASE
_______________________________ ---------------------------------------
TITLE(S) TITLE OR TYPE OF DOCUMENT
[_] PARTNER(S) [_] LIMITED
[_] GENERAL /////////////////////////
---------------------------------------
NUMBER OF PAGES
[_] ATTORNEY-IN-FACT
[_] TRUSTEE(S)
[_] GUARDIAN/CONSERVATOR /////////////////////
[_] OTHER:_________________________ ---------------------------------------
_______________________________ DATE OF DOCUMENT
_______________________________
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES) ONE
---------------------------------------
___________________________________ SIGNER(S) OTHER THAN NAMED ABOVE
___________________________________
<PAGE>
ACKNOWLEDGEMENTS
State of New York )
ss.:
County of Queens )
On the 7th day of May 1997, before me personally came Robert Kaufman
to me known, who being by me duly sworn, did depose and say that he resides at
[SIGNATURE ILLEGIBLE] that he is the Executive VP of SAGE REALTY COPORATION, the
corporation described in and which executed the foregoing instrument; and that
he signed his name thereto by authority of the Board of Directors of said
corporation.
[SIGNATURE ILLEGIBLE]
---------------------------------
Notary Public
<PAGE>
CORPORATE TENANT
- ----------------
State of New York )
ss.:
County of New York)
On the ____ day of __________________ 1997, before me personally came
______________________ to me known, who being by me duly sworn, did depose and
say that he resides at _________________________________; that (s)he is the
____________ of CITYSEARCH, INC., the corporation described in and which
executed the above instrument; and that (s)he signed (her) his name by authority
of the Board of Directors of such corporation.
______________________________
Notary Public
<PAGE>
SCHEDULE "A"
FLOOR PLAN
SEE ATTACHED
<PAGE>
[FLOOR PLAN APPEARS HERE]
<PAGE>
SCHEDULE "B"
LANDLORD'S WORK
I. PLANS AND WORK
1. Plan Submission
---------------
Tenant has submitted to Landlord for review and approval complete and
detailed final architectural, mechanical and engineering plans and
specifications labeled 3-GN, 3-WL, 3-KC, 3-DM, 3-ET (all dated 4/22/97) and 3-CP
and 3-DT (all dated 4/28/97) prepared by Emery Roth Associates showing the
alterations required by Tenant to the Demised Premises in order to prepare the
Demised Premises for Tenant's occupancy. In addition to submission of the
aforesaid plans and specifications, Tenant shall also furnish any and all
documents and information which Landlord may reasonably require for submission
to its insurance compan(ies), mortgagee(s), contractors and other interested
parties.
2. Authorization to Proceed
------------------------
The plans and specifications, as approved by Landlord, are hereinafter
referred to as the "Final Plans" and all work required by the Final Plans to be
preformed by Landlord is hereinafter referred to as "Landlord's Work." Landlord
shall perform Landlord's Work in accordance with good construction practices
using new or like new materials.
The submission of the Final Plans to Landlord shall be deemed
authorization by Tenant for Landlord to proceed with the work shown on the Final
Plans, subject to the provisions hereof. Any approvals required to be given by
either party shall be deemed given, unless within five (5) days after any
submission the party receiving the same notifies the submitting party of an
objection thereto. Any architect or designer now or hereafter acting for or on
behalf of Tenant shall be deemed an agent of Tenant and authorized to bind
Tenant in all respects.
3. Compliance with Laws & Codes
----------------------------
Landlord hereby agrees to be responsible for Landlord's Work meeting
applicable laws, rules, ordinances, requirements and or regulations of any
governmental or quasi-governmental authority having jurisdiction thereover.
Neither Landlord's approval of the Final Plans, performance of the Landlord's
Work nor any statement made herein or in the body of the Lease shall constitute
an express or implied representation of Landlord that any or all work performed
and installation supplied pursuant to the Final Plans is suitable for the
particular requirements of Tenant or any specific or general use and purpose of
Tenant.
<PAGE>
-2-
4. Filing with Governmental Agencies
---------------------------------
Landlord shall cause the Final Plans and/or appropriate building
notices and forms relating thereto to be filed with and approved by any
governmental and quasi-governmental authorities having jurisdiction over
Landlord's Work. All costs, fees and expenses incurred in connection with
obtaining the approvals of and filings with such governmental and quasi-
governmental authorities as well as all engineering and architectural costs
associated therewith, if any, shall be paid for by Landlord. Any additional
approvals or filings necessitated by changes made by Tenant to the Final Plans
shall be at the sole cost and expense of Tenant.
5. Architectural & Engineering Services
------------------------------------
The Final Plans shall be prepared by Tenant at Landlord's own cost and
expense.
The air conditioning system to serve the Demised Premises will be
designed and initially balanced at Landlord's expense. Any changes to the Final
Plans and any changes to the original air-conditioning design necessitated by
any changes made by Tenant to the Final Plans shall be at Tenant's expense.
6. Entry by Tenant
---------------
Prior to the Commencement Date, entry by Tenant, its agents,
contractors or subcontractors, in or on the Demised Premises for performance of
work in the Demised Premises not included within Landlord's Work, or for any
other purpose whatsoever, shall be at Tenant's sole risk and responsibility.
Upon the request of Landlord, Tenant shall deliver to Landlord policies and
certificates of insurance reasonably satisfactory to Landlord. In the event
Tenant or Tenant's contractor shall enter upon or perform work in the Demised
Premises or any other part of the Building, Tenant agrees to indemnify and save
Landlord free and harmless, from and against any and all claims whatsoever
arising out of said entry or such work.
Tenant agrees that should Tenant, its agents, contractors or
subcontractors, enter upon the Demised Premises for the purpose of performing
any work not included within Landlord's Work, or for any other purpose
whatsoever, the labor employed by Tenant or anyone performing such work, for or
on behalf of Tenant, shall always be harmonious and compatible with the labor
employed by Landlord or any agents, contractors or subcontractors of Landlord.
Should such labor be unharmonious or incompatible, Landlord may require Tenant,
its agents and/or contractors to withdraw from the Demised Premises. Tenant's
agents, contractors and subcontractors and their respective employees shall
comply with the special rules, regulations and requirements of Building
management for the performance and coordination of said agents,
<PAGE>
-3-
contractors, subcontractors and their employees so as to avoid the intrusion
into the operation of the Building and to avoid disturbing the quiet enjoyment
of other tenants.
As a condition to Landlord's permission to Tenant to make any of
Tenant's installations in the Demised Premises, Landlord may require that Tenant
agree with Landlord the fixing of the Commencement Date of this Lease.
Landlord agrees to remain responsible for one (1) year following
substantial completion of Landlord's Work to cure all defects in workmanship,
design, materials or equipment with respect to Landlord's Work (notice of which
shall be given to Landlord within such one (1) year period), and for a longer
period, if and to the extent that the cure of any such defect is covered under
the terms of any warranty or guaranty that Landlord may have received from any
supplier, contractor or subcontractor.
II. SUBSTANTIAL COMPLETION
----------------------
Landlord's Work shall be deemed to be substantially completed
("Substantially Completion" or "Substantial Completion") on the date (the
"Substantial Completion Date") when Landlord's Work shall have been completed in
accordance with the Final Plans with the exception of punchlist items (i.e.,
insubstantial details of construction, mechanical adjustment or decoration which
remain to be performed in connection with Landlord's Work which shall be
completed with reasonable promptness after the Commencement Date). Landlord
hereby agrees to cause its contractor to cooperate with Tenant's contractors in
order to phase the construction of Landlord's Work with Tenant's work provided
that completion of Landlord's Work will not be delayed nor the cost of
Landlord's Work be increased thereby.
III. DELAYS
------
The term "Tenant Delay" shall mean any delay that Landlord may
encounter in the completion Landlord's Work by reason of any act, neglect,
failure or omission of Tenant, its agents, servants, contractors, architect or
employees, in the performance of Tenant's obligations under this Schedule B,
including:
l. Changes
-------
Any delay due to changes made by or on behalf of Tenant in the Final Plans;
2. Tenant Work
-----------
Any delay caused by work by or on behalf of tenant, other than Landlord's Work
as described in the Final Plans; and
<PAGE>
-4-
3. Non-payment of Tenant Contribution
----------------------------------
Non-payment of any installment of Tenant's Contribution (as defined in Section
IV below), or any other payment required of Tenant under this Schedule B or
elsewhere in the Lease, when due.
If the Substantial Completion Date shall be delayed by reason of a
Tenant Delay, the Demised Premises shall be deemed to be Substantially Completed
for purposes of the Commencement Date (as defined in the Lease) as of the date
that the Demised Premises would have been Substantially Completed but for any
such Tenant Delay, as determined by Landlord in its reasonable discretion,
whether or not any such Tenant Delay could have been avoided by the commitment
by Landlord of additional personnel to the performance of Landlord's Work. In
addition, Tenant shall, promptly upon demand, reimburse Landlord for all damages
resulting from such Tenant Delay.
IV. LIABILITY FOR ABOVE BUILDING STANDARD WORK
------------------------------------------
Tenant shall be liable to Landlord or Landlord's designated agent for
costs incurred by Landlord in the completion of Landlord's Work to the extent
that such costs are incurred as a result of a change requested by Tenant in the
work as shown on the Final Plans. In computing the cost to Tenant of any change
to the Final Plans requested by Tenant, Landlord agrees to charge Tenant only
for the increased cost of Landlord's Work (i.e. deducting any savings which it
realizes by reason of such change from any increase it incurs by reason of such
change). Landlord or Landlord's agent shall inform Tenant by notice of the
cost of such extra work which shall be payable by Tenant together with a
handling and supervision fee as charged by Landlord's contractor which shall not
exceed twenty-one percent (21%) (such costs together with such fee being
collectively, "Tenant's Contribution") as additional rent within ten (10) days
of delivery to Tenant of an invoice for same. Landlord shall perform such extra
work only if Tenant approves the cost thereof in writing within three (3) days
from Landlord's notice thereof.
<PAGE>
SCHEDULE "C"
RULES AND REGULATIONS
---------------------
l. The rights of tenants in the entrances, corridors, elevators and
escalators of the Building are limited to ingress to and egress from the
tenants' premises for the tenants and their employees, licensees and invitees,
and no tenant shall use, or permit the use of, the entrances, corridors,
escalators or elevators for any other purpose. No bicycles, dogs or other
animals may be brought into the Building by Tenant, or its employees, licensees
or invitees. No tenant shall invite to the tenant's premises, or permit the
visit of, persons in such numbers or under such conditions as to interfere with
the use and enjoyment of any of the plazas, entrances, corridors, escalators,
elevators and other facilities of the Building by other tenants. Fire exits and
stairways are for emergency use only, and they shall not be used for any other
purposes by the tenants, their employees, licensees or invitees. No tenant
shall encumber or obstruct, or permit the encumbrance or obstruction of, any of
the sidewalks, plazas, entrances, corridors, escalators, elevators, fire exits
or stairways of the Building. Landlord reserves the right to control and
operate the public portions of the Building and the public facilities, as well
as facilities furnished for the common use of the tenants, in such manner as it
deems best for the benefit of the tenants generally.
2. The cost of repairing any damage to the public portions of the
Building or the public facilities or to any facilities used in common with other
tenants, caused by a tenant or the employees, licensees or invitees of the
tenant, shall be paid by such tenant.
3. Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to the watchman in charge or not having a
pass issued by Landlord or not properly identified, and may require all persons
admitted to or leaving the Building outside of ordinary business hours to
register. Tenant's employees, agents and visitors shall be permitted to enter
and leave the Building whenever appropriate arrangements have been previously
made between Landlord and Tenant with respect thereto. Each tenant shall be
responsible for all persons for whom he requests such permission and shall be
liable to Landlord for all acts of such persons. Any person whose presence in
the Building at any time shall, in the judgment of Landlord, be prejudicial to
the safety, character, reputation and interests of the Building or its tenants
may be denied access to the Building or may be ejected therefrom. In case of
invasion, riot, public excitement or other commotion, Landlord may prevent all
access to the Building during the continuance of the same, by closing the doors
or otherwise, for the safety of the tenants and protection of property in the
Building. Landlord may require any person leaving the Building with any package
or other object to exhibit a pass from the tenant from whose
<PAGE>
C-2
premises the package or object is being removed, but the establishment and
enforcement, or failure to enforce, of such requirements shall not impose any
responsibility on Landlord for the protection of any tenant against the removal
of property from the premises of the tenant. Landlord shall, in no way, be
liable to any tenant for damages or loss arising from the admission, exclusion
or ejection of any person to or from the tenant's premises or the Building under
the provisions of this rule.
4. Except to the extent otherwise permitted in the lease, no tenant
shall obtain or accept or use in its premises ice, drinking water, food,
beverage, towel, barbering, boot blacking, floor polishing, lighting
maintenance, cleaning or other similar services from any persons not authorized
by Landlord in writing to furnish such services, provided always that the
charges for such services by persons authorized by Landlord are not excessive.
Such services shall be furnished only at such hours, in such places within the
tenant's premises and under such regulations as may be fixed by Landlord.
5. No awnings or other projections over or around the windows shall
be installed by any tenant and only such window blinds as are supplied, or
permitted by Landlord shall be used in a tenant's premises.
6. There shall not be used in any space, or in the public halls of
the Building, either by Tenant or by jobbers or others, in the delivery or
receipt of merchandise or mail, any hand trucks, except those equipped with
rubber tires and side guards.
7. All entrance doors in each tenant's premises shall be left locked
when the tenant's premises are not in use. Entrance doors shall not be left
open at any time. All windows in each tenant's premises shall be kept closed at
all times, and all blinds or drapes therein above the ground floor shall be
lowered or closed when and as reasonably required because of the position of the
sun, during the operation of the Building air conditioning system to cool or
ventilate the tenant's premises.
8. No noise, including the playing of any musical instruments, radio
or television, which, in the judgment of Landlord, might disturb other tenants
in the Building shall be made or permitted by any tenant and no cooking shall be
done in Tenant's premises except as expressly approved by Landlord. Tenant may
heat food (but not cook) items in the Demised Premises using a microwave or
toaster oven. Nothing shall be done or permitted in any tenant's premises and
nothing shall be brought into or kept in any tenant's premises which would
impair or interfere with any of the Building services or the proper and economic
heating, cleaning or other servicing of the Building or the premises, or the use
or enjoyment by any other tenant of any other premises, nor shall there be
installed by any tenant any
<PAGE>
C-3
ventilating, air conditioning, electrical or other equipment of any kind which,
in the judgment of Landlord, might cause any such impairment or interference.
No dangerous, inflammable, combustible or explosive object or material shall be
brought into the Building by any tenant or with the permission of any tenant
(which shall not be deemed to include ordinary office supplies in small
quantities as shall be necessary for the conduct of Tenant's business.)
9. Tenant shall not permit any cooking or food odors emanating from
the Demised Premises to seep into other portions of the Building.
10. No acids, vapors or other materials shall be discharged or
permitted to be discharged into the waste lines, vents or flues of the Building
which may damage them. The water and wash closets and other plumbing fixtures
in or serving any tenant's premises shall not be used for any purpose other than
the purpose for which they were designed or constructed, and no sweepings,
rubbish, rags, acids or other foreign substances shall be deposited therein.
All damages resulting from any misuse of the fixtures shall be borne by the
tenant who, or whose servants, employees, agents, visitors or licensees, shall
have caused the same.
11. No signs, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any tenant on any part of the
outside or inside the premises or the Building without the prior written consent
of Landlord. In the event of the violation of the foregoing by any tenant,
Landlord may remove the same without any liability, and may charge the expense
incurred by such removal to the tenant or tenants violating this rule. Interior
signs and lettering on doors and elevators shall be inscribed, painted, or
affixed for each tenant by Landlord at the expense of such tenant, and shall be
of a size, color and style acceptable to Landlord.
12. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows in any tenant's premises, and no lock on any door
therein shall be changed or altered in any respect. Duplicate keys for a
tenant's premises and toilet rooms shall be procured only from Landlord, which
may make a reasonable charge therefor which charge shall be equal to Landlord's
out of pocket cost therefor. Upon the termination of a tenant's lease, all keys
to the tenant's premises and toilet rooms shall be delivered to Landlord.
13. No tenant shall mark, paint, drill into, or in any way deface any
part of the Building or the premises demised to such tenant (which shall not be
deemed to include display or installation of such items as bulletin boards,
pictures, etc.) Not boring, cutting or stringing of wires shall be permitted,
except with the prior written consent of Landlord, and as
<PAGE>
C-4
Landlord may direct. Not tenant shall install any resilient tile or similar
floor covering in the premises demised to such tenant except in a manner
approved by Landlord.
14. No tenant shall use or occupy, or permit any portion of the
premises demised to such tenant to be used or occupied, as an office for a
public stenographer or typist, or as a barber or manicure shop, or as an
employment bureau. No tenant or occupant shall engage or pay any employees in
the Building, except those actually working for such tenant or occupant in the
Building or advertise for laborers giving an address at the Building.
15. No premises shall be used, or permitted to be used, at any time,
as a store for the sale or display of goods or merchandise or any king, or as a
restaurant, shop, booth, bootblack or other stand, or for the conduct of any
business or occupation which involves direct patronage of the general public on
the premises demised to such tenant, or for manufacturing or for other similar
purposes.
16. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside for the regular duties, unless under
special instructions from the office of the Landlord.
17. Each tenant shall, at its expense, provide artificial light in
the premised demised to such tenant for Landlord's agents, contractors and
employees while performing janitorial or other cleaning services and making
repairs or alterations in said premises.
18. Employees of Tenant shall not loiter around the hallways,
stairways, elevators, front, roof or any other part of the Building used in
common by the occupants thereof.
19. Any cuspidors or similar containers or receptacles used in the
Demised Premises shall be cared for and cleaned by and at the expense of Tenant.
20. Any and all wet and/or food garbage, including coffee grinds, is
to be deposited in a plastic liner bag in a waste basket or other receptacle.
21. Tenant shall separate all refuse and rubbish of Tenant in
accordance with the methods and procedures set forth, from time to time, by
Landlord.
<PAGE>
SCHEDULE "D"
FORM OF LETTER OF CREDIT
Dated:____________________
Sage Realty Corporation, As Agent
777 Third Avenue
New York, New York 10017
Re: Irrevocable Clean Letter of Credit
----------------------------------
Gentlemen:
By order of our client, ________________________________________, we
hereby open our clean Irrevocable Letter of Credit No. _____ in your favor for
an amount not to exceed in the aggregate $_______________ U.S. Dollars effective
immediately.
Funds under this credit are available to you against your site draft
drawn on us mentioning thereon our Credit No. _______.
This Letter of Credit shall expire sixteen months from the date
hereof, provided, however, that it is a condition of this Letter of Credit that
it shall be deemed automatically extended, from time to time, without amendment,
for one year from the expiry date hereof and from each and every future expiry
date, unless at least thirty (30) days prior to any expiry date we shall notify
you by registered mail that we elect not to consider this Letter of Credit
renewed for any such additional period.
This Letter of Credit is transferable and may be transferred one or
more times. However, no transfer shall be effective unless advice of such
transfer is received by us in the form attached signed by you.
We hereby agree with you that all drafts drawn or negotiated in
compliance with the terms of this Letter of Credit will be duly and promptly
honored upon presentment and delivery of your draft to our office at
__________________________________ if negotiated on or prior to the expiry date
as the same may from time to time be extended.
<PAGE>
D-2
Except as otherwise specified herein, this Letter of Credit is subject
to the Uniform Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce Publication No. 500.
Very truly yours,
(Name of Bank)
By:____________________
<PAGE>
Re: Credit ___________________
Issued By: ___________________
Gentlemen:
For value received, the undersigned beneficiary irrevocably transfers
to:
____________________________
(Name of Second Beneficiary)
____________________________
(Address)
all rights of the undersigned beneficiary to draw under the above Letter of
Credit in its entirety.
By this transfer, all rights of the undersigned beneficiary in such
Letter of Credit are transferred to the second beneficiary and the second
beneficiary shall have the sole rights of beneficiary thereof, including the
sole rights relating to any amendments whether increases or extensions or other
amendments and whether now existing or hereafter made. All amendments are to be
advised direct to the second beneficiary without necessity of any consent of or
notice of the undersigned beneficiary.
The advice of such Letter of Credit is returned herewith, and we ask
you to endorse the assignment on the reverse thereof and forward it direct to
the second beneficiary with your customary notice of transfer.
Enclosed is remittance of $100.00 in payment of your transfer
commission and in addition thereto we agree to pay you on demand any expenses
which may be incurred by you in connection with this transfer.
Very truly yours,
Signature of Beneficiary
SIGNATURE AUTHENTICATED
(Bank)
(Authorized Signature)
<PAGE>
1997 HOLIDAY OBSERVANCES
SCHEDULE" "E"
<TABLE>
<CAPTION>
LOCAL #32B/J LOCAL #94 SAGE REALTY LIFT CO.
(CLEANING)* (ENGINEERS) * (ELEVATORS)
<S> <C> <C> <C> <C>
NEW YEAR'S DAY
WEDNESDAY, JANUARY 1 X X X X
- -----------------------------------------------------------------------------------
MARTIN LUTHER KING DAY
MONDAY, JANUARY 20 X - - -
- -----------------------------------------------------------------------------------
LINCOLN'S BIRTHDAY
WEDNESDAY, FEBRUARY 12 - - - X
- -----------------------------------------------------------------------------------
PRESIDENT'S DAY
MONDAY, FEBRUARY 17 X - X X
- -----------------------------------------------------------------------------------
GOOD FRIDAY
FRIDAY, MARCH 28 X - - -
- -----------------------------------------------------------------------------------
MEMORIAL DAY
MONDAY, MAY 26 X X X X
- -----------------------------------------------------------------------------------
INDEPENDENCE DAY
FRIDAY, JULY 4 X X X X
- -----------------------------------------------------------------------------------
LABOR DAY
MONDAY, SEPTEMBER 1 X X X X
- -----------------------------------------------------------------------------------
COLUMBUS DAY
MONDAY, OCTOBER 13 X - X X
- -----------------------------------------------------------------------------------
VETERAN'S DAY
TUESDAY, NOVEMBER 11 - - - X
- -----------------------------------------------------------------------------------
THANKSGIVING DAY
THURSDAY, NOVEMBER 27 X X X X
- -----------------------------------------------------------------------------------
DAY AFTER THANKSGIVING
FRIDAY, NOVEMBER 28 X - X X
- -----------------------------------------------------------------------------------
CHRISTMAS
THURSDAY, DECEMBER 25 X X X X
- -----------------------------------------------------------------------------------
DAY AFTER CHRISTMAS
FRIDAY, DECEMBER 26 - - X -
- -----------------------------------------------------------------------------------
NEW YEAR'S DAY
THURSDAY, JANUARY 1, 1998 X X X X
- -----------------------------------------------------------------------------------
DAY AFTER NEW YEAR'S
FRIDAY, JANUARY 2, 1998 - - X -
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
LOREC INC.
ELECTRIC EVALUATION REPORT
--------------------------
For: Sage Realty Corporation Date: 4/25/97
Re: CitySearch
3rd floor, Portion
320 West 13th Street, NYC
SUMMARY OF DATA PROVIDED:
- -------------------------
------------------------
Energy Demand
Kwhrs Kw
------------------------
Lighting 2,593 11.99
Misc Equipment 672 2.90
Computers 2,784 9.90
HVAC 5 mos 2,188 10.96
------------------------
Totals 8,237 35.75
------------------------
Evaluation Under Utility Rate
- -----------------------------
Utility: Con Edison
Rate: SC4-I Winter/Summer rates averaged
Fuel Adj 0.008611
Rate Adj 0.080526
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Energy $237 kwhrs@ $0.0543 $447.24
Fuel Adj: $237 kwhrs@ $0.008611 $70.92
Demand 35.7 kw@ $26.93 $962.70
Subtotal $1,480.86
Rate Adj Av 1996 8.0526% $119.25
Subtotal $1,600.11
Sales Tax 8.25% $132.01
---------
Total Value per Month $1,732.12
---------------------
----------------------------------
Annual Value: $20,785.44
==================================
</TABLE>
<PAGE>
LOREC. inc
- --------------------------------------------------------------------------------
Electricity Evaluation Report
For: Sage Realty Corporation Date 4/25/97
Re: CitySearch
3rd Floor, Portion, 320 West 13 Street, NYC
Data Submitted:
<TABLE>
<CAPTION>
QTY W Each Description Comm Coinc Hours: Kw K whrs
Load Factor month Demand
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lighting
- ---------------------------------------------------------------------------------------------------------------------------
1 11,625 Lighting per space 11,625 1.00 210 11.63 2,441
- ---------------------------------------------------------------------------------------------------------------------------
28 20 Dark Lamp 560 0.50 165 0.28 94
- ---------------------------------------------------------------------------------------------------------------------------
2 40 Exit 80 1.00 730 0.08 38
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Lighting Totals 12,265 11.99 2,593
- ---------------------------------------------------------------------------------------------------------------------------
Misc Equipment
- ---------------------------------------------------------------------------------------------------------------------------
1 400 Refrigerator 400 0.65 100 0.30 40
- ---------------------------------------------------------------------------------------------------------------------------
1 1,200 Micro Wave 1,200 0.10 2 0.10 2
- ---------------------------------------------------------------------------------------------------------------------------
1 500 Coffee Maker 500 0.50 40 0.30 20
- ---------------------------------------------------------------------------------------------------------------------------
1 400 Phone Switch 400 1.00 730 0.40 292
- ---------------------------------------------------------------------------------------------------------------------------
1 26 Fax 26 1.00 80 0.00 2
- ---------------------------------------------------------------------------------------------------------------------------
1 26 Fax 36 0.50 10 0.00 0
- ---------------------------------------------------------------------------------------------------------------------------
1 2,200 Copier 2,200 0.69 100 1.30 220
- ---------------------------------------------------------------------------------------------------------------------------
1 1,200 Copier 1,200 0.40 80 0.50 96
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Equipment Totals 5,962 2.90 672
- ---------------------------------------------------------------------------------------------------------------------------
Computers
- ---------------------------------------------------------------------------------------------------------------------------
25 344 PC + Monitor 9,632 0.90 210 8.70 2,923
- ---------------------------------------------------------------------------------------------------------------------------
25 0 Lamp 0 0.00 0 0.00 0
- ---------------------------------------------------------------------------------------------------------------------------
1 150 Printer 150 0.90 150 0.10 23
- ---------------------------------------------------------------------------------------------------------------------------
1 150 Printer 150 0.50 50 0.10 8
- ---------------------------------------------------------------------------------------------------------------------------
1 500 File Server 500 0.90 730 0.50 365
- ---------------------------------------------------------------------------------------------------------------------------
1 500 SQL Server 500 0.90 730 0.50 365
- ---------------------------------------------------------------------------------------------------------------------------
Computer Totals 10,932 9.90 2,784
- ---------------------------------------------------------------------------------------------------------------------------
HVAC
- ---------------------------------------------------------------------------------------------------------------------------
2 17,300 15 Ton A/C 35,000 0.75 150 26.30 5,250
- ---------------------------------------------------------------------------------------------------------------------------
(5 Month/Yr)
- ---------------------------------------------------------------------------------------------------------------------------
HVAC Total 35,000 26.30 5,250
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Installation List Page 1
<PAGE>
EXHIBIT 10.16
Standard Form of OFFICE BUILDING LEASE Developed by PORTLAND METROPOLITAN
ASSOCIATION OF BUILDING OWNERS AND MANAGERS
OFFICE LEASE
[LOGO OF
PORTLAND
APPEARS
HERE] This lease, made and entered into at Portland, Oregon, this 6th day of
March 1997 by and between
H. NAITO CORPORATION, an Oregon Corporation,
LANDLORD:
and CitySearch, Inc., a Delaware Corporation,
TENANT:
Landlord hereby leases to Tenant the following: Suite 700
(the Premises)
in Montgomery Park (the Building)
at 2701 NW Vaughn St., Portland, Oregon, containing approximately
4,696 rentable square feet as outlined in red on the attached Exhibit A
calculated using a load factor of twelve percent.
Tenant's Proportion Share for purposes of Section 19 shall be 0.701%.
This lease is for a term commencing April 1, 1997, 1997 and continuing
through March 31, 2002 at a Monthly Base Rental as follows: Six
Thousand Eight Hundred Forty Eight and no/100 Dollars ($6,848.00).
Rent is payable in advance on the 1st day of each month commencing
April 1, 1997. Landlord and Tenant covenant and agree as follows:
1.1 Delivery of Possession.
Should Landlord be unable to deliver possession of the Premises on the
date fixed for the commencement of the term, commencement will be
deferred and Tenant shall owe no rent until notice from Landlord
tendering possession to Tenant. If possession is not so tendered
within 90 days following commencement of the term, then Tenant may
elect to cancel this lease by notice to Landlord within 10 days
following expiration of the 90-day period. Landlord shall have no
liability to Tenant for delay in delivering possession, nor shall such
delay extend the term of this lease in any manner unless the parties
execute a written extension agreement.
2.1 Rent Payment.
Tenant shall pay the Base Rent for the Premises and any additional
rent provided herein without deduction or offset. Rent for any partial
month during the lease term shall be prorated to reflect the number of
days during the month that Tenant occupies the Premises. Additional
rent means amounts determined under Section 19 of this Lease and any
other sums payable by Tenant to Landlord under this Lease. Rent not
paid when due shall bear interest at the rate of one percent per month
until paid. Landlord may at its option impose a late charge of $.05
for each $1 of rent for rent payments made more than 10 days late in
lieu of interest for the first month of delinquency, without waiving
any other remedies available for default. Failure to impose a late
charge shall not be a waiver of Landlord's rights hereunder.
3.1 Lease Consideration.
Upon execution of the lease Tenant has paid the Base Rent for the
first full month of the lease term for which rent is payable and in
addition has paid the sum of $ 6,848.00 as lease consideration.
Landlord may apply the lease consideration to
Please Initial
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Landlord Tenant
<PAGE>
At no time shall Tenant be liable for any costs, abatement fines,
penalties, or charges resulting from Landlord's lack of compliance
with local, state or federal ordinances, laws, rules or regulations.
If Tenant does incur such costs, fines or penalties resulting from
Landlord's failure to Comply with local, state or federal ordinances,
laws, rules or regulations, Landlord agrees to hold harmless and
indemnify Tenant for all liabilities incurred by Tenant within 30 days
of receipt of an itemized accounting of liability pay the cost of
performing any obligation which Tenant fails to perform within the
time required by this lease, but such application by of Landlord shall
not be the exclusive remedy for Tenant's default. If the lease
consideration is applied by Landlord, Tenant shall on demand pay the
sum necessary to replenish the lease consideration to its original
amount. To the extent not applied by Landlord to cure defaults by
Tenant, the lease consideration shall be applied against the rent
payable for the last month of the term. The lease consideration shall
not be refundable.
4.1 Use. Tenant shall use the Premises as a business office and for no
other purpose without Landlord's written consent. In connection with
its use, Tenant shall not annoy, obstruct, or interfere with the
rights of other tenants of the Building. Tenant shall create no
nuisance nor allow any objectionable fumes, noise, or vibrations to be
emitted from the Premises. Tenant shall not conduct any activities
that will increase Landlord's insurance rates for any portion of the
Building or that will in any manner degrade or damage the reputation
of the Building.
4.2 Equipment
Tenant shall install in the Premises only such office equipment as is
customary for general office use and shall not overload the floors or
electrical circuits of the Premises or Building or alter the plumbing
or wiring of the Premises or Building. Landlord must approve in
advance the location of and manner of installing any wiring or
electrical, heat generating or communication equipment or
exceptionally heavy articles. All telecommunications equipment,
conduit, cables and wiring, additional dedicated circuits and any
additional air conditioning required because of heat generating
equipment or special lighting installed by Tenant shall be installed
and operated at Tenant's expense. Landlord shall have no obligation to
pay for installation of equipment by any telecommunications provider
whose equipment is not then servicing the Building.
4.3 Signs.
No signs, awnings, antennas, or other apparatus shall be painted on or
attached to the Building or anything placed on any glass or woodwork
of the Premises so as to be visible from outside the Premises
without Landlord's written approval as to design, size, location, and
color. All signs installed by Tenant shall comply with Landlord's
standards for signs and all applicable codes and all signs and sign
hardware shall be removed upon termination of this lease with the sign
location restored to its former state unless Landlord elects to retain
all or any portion thereof. See Exhibit "B", paragraph 7.
5.1 Utilities and Services.
Landlord will furnish water and electricity to the Building at all
times and will furnish heat and air conditioning (if the Building is
air conditioned) during the normal Building hours as established by
Owner*. Janitorial service will be provided in accordance with the
regular schedule of the Building. which schedule and service may
change from time to time. Tenant shall comply with all government laws
or regulations regarding the use or reduction of use of utilities on
the Premises. Interruption of services or utilities shall not be
deemed an eviction or disturbance of Tenant's use and possession of
the Premises, render Landlord liable to Tenant for damages, or relieve
Tenant from performance of Tenant's obligations under this lease.
*Landlord shall take all reasonable steps to correct any interruptions
in service. Electrical service furnished will be 110 volts unless
different service already exists in the Premises. Tenant shall provide
its own surge protection for power furnished to the Premises. *8:00
a.m. to 6:00 p.m. Monday through Friday and 8:00 a.m. to 12:00 noon
Saturday.
5.2 Extra Usage.
If Tenant uses excessive amounts of utilities or services of any kind
because of operation outside of normal Building hours, high demands
from office machinery and equipment, nonstandard lighting, or any
other cause. Landlord may impose a reasonable charge for supplying
such extra utilities or services, which charge shall be payable
monthly by Tenant in conjunction with rent payments In case of dispute
over any extra charge under this paragraph, Landlord shall designate a
qualified independent engineer whose decision shall be conclusive on
both parties. Landlord and Tenant shall each pay one-half of the cost
of such determination.
5.3 Security.
Landlord may but shall have no obligation to provide security service
or to adopt security measures regarding the Premises, and Tenant shall
cooperate with all reasonable security measures adopted by Landlord.
Tenant may install a security system within the leased Premises with
Landlord's written consent which will not be unreasonably withheld.
Landlord will be provided with an access code to any security system
and shall not have any liability for accidentally setting off Tenant's
security system. Landlord may modify the type or amount of security
measures or services provided to the Building or the Premises at any
time.
6.1 Maintenance and Repair.
Landlord shall have no liability for failure to perform required
maintenance and repair unless written notice of such maintenance or
repair is given by Tenant and Landlord fails to commence efforts to
remedy the problem in a reasonable time and manner. Landlord shall
have the right to erect scaffolding and other apparatus necessary for
the purpose of making repairs, and Landlord shall have no liability
for interference with Tenant's use-because of repairs and
installations. Tenant shall have no claim against Landlord for any
interruption or reduction of services or interference with Tenant's
occupancy, and no such interruption or reduction shall be construed as
a constructive or other eviction of Tenant.* Repair of damage caused
by negligent or intentional acts or breach of this lease by Tenant,
its employees or invitees shall be at Tenant's expense.
* Except where caused by the negligence or willful misconduct of
Landlord or its agents.
Please Initial
[ILLEDGIBLE]
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Landlord Tenant
<PAGE>
Tenant shall not make any significant alterations, additions, or
improvements to the Premises, change the color of the interior, or
install any wall or floor covering without Landlord's prior written
consent which may be withheld in Landlord's sole discretion. Any such
improvements, alterations, wiring, cables or conduit installed by
Tenant shall at once become part of the Premises and belong to
Landlord except for removable machinery and unattached movable trade
fixtures. Landlord may at its option require that Tenant remove any
improvements, alterations, wiring, cables or conduit installed by or
for Tenant and restore the Promises to the original condition upon
termination of this lease.* Landlord shall have the right to approve
the contractor used by Tenant for any work in the Premises, and to
post notices of nonresponsibility in connection with work being
performed by Tenant in the Premises. Work by Tenant shall comply with
all laws then applicable to the Promises. *So long as Landlord
provided notice to Tenant prior to commencement of construction of
such improvement, alterations, etc.
7.1 Indemnity.
Tenant shall not allow any liens to attach to the Building or Tenant's
interest in the Premises as a result of its activities. Tenant shall
indemnify and defend Landlord and its managing agents from any claim,
liability, damage, or loss occurring on the Premises, arising out of
any activity by Tenant, its agents, or invitees or resulting from
Tenant's failure to comply with any term of this lease. Neither
Landlord nor its managing agent shall have any liability to Tenant
because of loss or damage to Tenant's property or for death or bodily
injury caused by the acts or omissions of other Tenants of the
Building, or by third parties (including criminal acts).*
7.2 Insurance.
Tenant shall carry liability insurance with limits of not less than
ONE Million Dollars ($1,000,000) combined single limit bodily injury
and property damage which insurance shall have an endorsement naming
Landlord and Landlord's managing agent, if any, as an additional
insured, cover the liability insured under paragraph 7.1 of this lease
and be in form and with companies reasonably acceptable to Owner.
Prior to occupancy, Tenant shall furnish a certificate evidencing such
insurance which shall state that the coverage shall not be cancelled
or materially changed without 10 days advance notice to Landlord and
Landlord's managing agent, if any. A renewal certificate shall be
furnished at least 10 days prior to expiration of any policy, upon
request from Landlord.
8.1 Fire or Casualty.
"Major Damage" means damage by fire or other casualty to the Building
or the Promises which causes the Premises or any substantial portion
of the Building to be unusable, or which will cost more than 25
percent of the pre-damage value of the Building to repair, or which is
not covered by insurance. In case of Major Damage, Landlord may elect
to terminate this lease by notice in writing to the Tenant within 30
days after such date. If this lease is not terminated following Major
Damage, or if damage occurs which is not Major Damage, Landlord shall
promptly restore the Premises to the condition existing just prior to
the damage. Tenant shall promptly restore all damage to tenant
improvements or alterations installed by Tenant or pay the cost of
such restoration to Landlord if Landlord elects to do the restoration
of such improvements. Rent shall be reduced from the date of damage
until the date restoration work being performed by Landlord is
substantially complete, with the reduction to be in proportion to the
area of the Premises not useable by Tenant.
8.2 Waiver of Subrogation.
Tenant shall be responsible for insuring its personal property and
trade fixtures located on the Premises and any alterations or tenant
improvements it has made to the Premises. Neither Landlord, its
managing agent nor Tenant shall be liable to the other for any loss or
damage caused by water damage, sprinkler leakage, or any of the risks
that are or could be covered by a special all risk property insurance
policy, or for any business interruption, and there shall be no
subrogated claim by one party's insurance carrier against the other
party arising out of any such loss.* This waiver is binding only if it
does not invalidate the insurance coverage of either party hereto.
*Except where caused by the negligence or willful misconduct of
Landlord or its agents.
9.1 Eminent Domain.
If a condemning authority takes title by eminent domain or by
agreement in lieu thereof to the entire Building or a portion
sufficient to render the Premises unsuitable for Tenant's use, then
either party may elect to terminate this lease effective on the date
that the condemning authority.* Rent shall be reduced for the
remainder of the term in an amount proportionate to the reduction in
area of the Premises caused by the taking. All condemnation proceeds
shall be shared with Tenant according to the percentage the leased
premises bear to the total. * authorizes condemnation.
10.1 Assignment and Subletting.
This lease shall bind and inure to the benefit of the parties, their
respective heirs, successors, and assigns, provided that Tenant shall
not assign its interest under this lease or sublet all or any portion
of the Premises without first obtaining Landlord's consent in writing.
This provision shall apply to all transfers by operation of law
including but not limited to mergers and changes in control of Tenant.
No assignment shall relieve Tenant of its obligation to pay rent or
perform other obligations required by this lease, and no consent to
one assignment or subletting shall be a consent to any further
assignment or subletting. Landlord shall not unreasonably withhold its
consent to any assignment or subletting provided the proposed Tenant
is compatible with Landlord's normal standards for the Building. If
Tenant proposes a subletting or assignment to which Landlord is
required to consent under this paragraph. Landlord shall have the
option if terminating this lease and dealing directly with the
proposed subtenant or assignee, or any third party. If an assignment
or subletting is permitted, any cash profit, or the net value of any
other consideration received by Tenant as a result of such transaction
shall be paid to Landlord promptly following its receipt by Tenant.
Tenant shall pay any reasonable costs incurred by Landlord in
connection with a request for assignment or subletting. including
reasonable attorneys' fees.
See Exhibit "B", paragraph 7.
* Except where caused by the negligence or willful misconduct of
Landlord or its agents.
Please Initial
[ILLEDGIBLE]
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Landlord Tenant
<PAGE>
11.1 Default.
Any of the following shall constitute a default by Tenant under this
lease:
(a) Tenant's failure to pay rent or any other charge under this lease
within 20 days after it is due, or failure to comply with any other
term or condition within 20 days following written notice from
Landlord specifying the noncompliance. If such noncompliance cannot be
cured within the 20-day period, this provision shall be satisfied if
Tenant commences correction within such period and thereafter proceeds
in good, faith and with reasonable diligence to effect compliance as
soon as possible. Time is of the essence of this lease.
(b) Tenant's insolvency, business failure or assignment for the
benefit of its creditors. Tenant's commencement of proceedings under
any provision of any bankruptcy or insolvency law or failure to obtain
dismissal of any petition filed against it under such laws within the
time required to answer, or the appointment of a receiver for all or
any portion of Tenant's properties or financial records.
(c) Assignment or subletting by Tenant in violation of paragraph
10.1.
(d) Failure to occupy the Premises within twenty (20) days after
notice from Landlord tendering possession.
11.2 Remedies for Default.
In case of default as described in paragraph 11.1 Landlord shall have
the right to the following remedies which are intended to be
cumulative and in addition to any other remedies provided under
applicable law:
(a) Landlord may at its option terminate the lease by notice to
Tenant. With or without termination, Landlord may retake possession of
the Premises and may use or relet the Premises without accepting a
surrender or waiving the right to damages. Following such retaking of
possession, efforts by Landlord to relet the Premises shall be
sufficient if Landlord follows its usual procedures for finding
tenants for the space at rates not less than the current rates for
other comparable space in the Building, if Landlord has other vacant
space in the Building, prospective tenants may be placed in such other
space without prejudice to Landlord's claim to damages or loss of
rentals from Tenant only if the other space is significantly better
suited for prospective Tenant's needs.
(b) Landlord may recover all damages caused by Tenant's default which
shall include an amount equal to rentals lost because of the default,
lease commissions paid for this lease, and the unamortized cost of any
tenant improvements installed by Landlord to meet Tenant's special
requirements. Landlord may sue periodically to recover damages as they
occur throughout the lease term, and no action for accrued damages
shall bar a later action for damages subsequently accruing. Landlord
may elect in any one action to recover accrued damages plus damages
attributable to the remaining term of the lease. Such damages shall be
measured by the difference between the rent under this lease and the
reasonable rental value of the Premises for the remainder of the term,
discounted to the time of judgement at the prevailing interest rate on
judgements.
(c) Landlord may make any payment or perform any obligation which
Tenant has failed to perform, in which case Landlord shall be entitled
to recover from Tenant upon demand all amounts so expended, plus
interest from the date of the expenditure at the rate of one (1%)
percent per month. Any such payment or performance by Landlord shall
not waive Tenant's default.
12.1 Surrender.
On expiration or early termination of this lease Tenant shall deliver
all keys to Landlord and surrender the Premises vacuumed, swept, and
free of debris and in the same condition as at the commencement of the
term subject only to reasonable wear from ordinary use. Tenant shall
remove all of its furnishings and trade fixtures that remain its
property and repair all damage resulting from such removal. Failure to
remove shall be an abandonment of the property, and Landlord may
dispose of it in any manner without liability. If Tenant fails to
vacate the Premises when required, including failure to remove all its
personal property, Landlord may elect either: (i) to treat Tenant as a
tenant from month to month, subject to the provisions of this lease
except that rent shall be 125% of the total rent being charged when
the lease term expired, and any option or other rights regarding
extension of the term or expansion of the Premises shall no longer
apply, or (ii) to eject Tenant from the Premises and recover damages
caused by wrongful holdover.
13.1 Regulations.
Landlord shall have the right but shall not be obligated to make,
revise and enforce reasonable regulations or policies consistent with
this lease for the purpose of promoting safety, health (including
moving, use of common areas and prohibition of smoking), order,
economy, cleanliness, and good service to all tenants of the Building.
All such regulations and policies shall be complied with as if part of
this lease.
14.1 Access.
During times other than normal Building hours Tenant's officers and
employees or those having business with Tenant may be required to
identify themselves or show passes in order to gain access to the
Building. Landlord shall have no liability for permitting or refusing
to permit access by anyone. Landlord may regulate access to any
Building elevators outside of normal Building hours. Landlord shall
have the right to enter upon the Premises at any time by passkey or
otherwise to determine Tenant's compliance with this lease, to perform
necessary services, maintenance and repairs or alterations to the
Building or the Premises or to show the Premises to any prospective
tenant or purchasers. Except in case of emergency such entry shall be
at such times and in such manner as to minimize interference with
the reasonable business use of the Premises by Tenant. Entry during
normal business hours, except in emergency situations, shall take
place with reasonable advance notice.
14.2 Furniture and Bulky Articles.
Tenant shall move furniture and bulky articles in and out of the
Building or make independent use of the elevators only at times
approved by Landlord following at least 24 hours written notice to
Landlord of the intended move. Landlord will not unreasonably withhold
its consent under this paragraph.
Please Initial
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Landlord Tenant
<PAGE>
15.1 Notices.
Notices between the parties relating to this lease shall be in
writing, effective when delivered, or if mailed, effective on the
second day following mailing, postage prepaid, to the address for the
party stated in this lease or to such other address as either party
may specify by notice to the other. Notice to Tenant shall be
delivered to Chief Financial Officer CitySearch 790 E. Colorado Blvd.,
Suite 200 Pasadena, CA 91101. Rent shall be payable to Landlord at
the same address and in the same manner, but shall be considered paid
only when received.
16.1 Subordination and Attornment.
This lease shall be subject to and subordinate to any mortgages, deeds
of trust, or land sale contracts (here after collectively referred to
as encumbrances) now existing against the Building. At Landlord's
option this lease shall be subject and subordinate to any future
encumbrance hereafter placed against the Building (including the
underlying land) or any modifications of existing encumbrances, and
Tenant shall execute such documents as may reasonably be requested by
Landlord or the holder of the encumbrance to evidence this
subordination. If any encumbrance is foreclosed, then if the purchaser
at foreclosure sale gives to Tenant a written agreement to recognize
Tenant's lease. Tenant shall attorn to such purchaser and this Lease
shall continue. See Exhibit B, paragraph 9 for non-disturbance
agreement.
16.2 Transfer of Building.
If the Building is sold or otherwise transferred by Landlord or any
successor, Tenant shall attorn to the purchaser or transferee and
recognize it as the lessor under this lease, and, provided the
purchaser or transferee assumes all obligations hereunder, the
transferor shall have no further liability hereunder.
16.3 Estoppels.
Either party will within 10 days after notice from the other execute,
acknowledge and deliver to the other party a certificate certifying
whether or not this lease has been modified and is in full force and
effect: whether there are any modifications or alleged breaches by the
other party; the dates to which rent has been paid in advance, and the
amount of any security deposit or prepaid rent; and any other facts
that may reasonably be requested. Failure to deliver the certificate
within the specified time shall be conclusive upon the party of whom
the certificate was requested that the lease is in full force and
effect and has not been modified except as may be represented by the
party requesting the certificate. If requested by the holder of any
encumbrance, or any ground lessor, Tenant will agree to give such
holder or lessor notice of and an opportunity to cure any default by
Landlord under this lease.
17.1 Attorneys' Fees.
In any litigation arising out of this lease, the prevailing party
shall be entitled to recover attorneys' fees at trial and on any
appeal.
18.1 Quiet Enjoyment.
Landlord warrants that so long as Tenant complies with all terms of
this lease it shall be entitled to peaceable and undisturbed
possession of the Premises free from any eviction or disturbance by
Landlord. Neither Landlord nor its managing agent shall have any
liability to Tenant for loss or damages arising out of the acts,
including criminal acts, of other tenants of the Building or third
parties, nor any liability for any reason which exceeds the value of
its interest in the Building, except where caused by the negligence
or wilful misconduct of Landlord or its agents.
*****
19.2 Additional Rent-Cost-of-Living Adjustment.
On each anniversary date of this lease, the Landlord shall adjust the
base rental in the same percentage as the increase, if any, in the
Consumer Price Index published by the United States Department of
Labor, Bureau of Labor Statistics. The charge shall be computed by
comparing the schedule entitled "U.S. City Average, All Items, All
Urban Consumers, 1982 - 84 = 100* for the latest available month
preceding the month in which the lease term commenced with the same
figure for the same month in the years for which the adjustment is
computed. All comparisons shall be made using index figures derived
from the same base period and in no event shall this provision operate
to decrease the monthly rental for the Premises below the initial
stated monthly rental, plus property tax adjustments and operating
expense adjustments as provided in this Lease. If the index cited
above is revised or discontinued during the term of this Lease then
the index that is designated by the Portland Metropolitan Association
of Building Owners and Managers to replace it shall be used. The above
notwithstanding, the CPI adjustment shall not exceed 4% of the
previous year's Base Rental.
******
Please Initial
________ ______________
Landlord Tenant
<PAGE>
19.4 Disputes.
If Tenant disputes any computation of additional rent or rent
adjustment under paragraphs 19.1 through 19.3 of this lease, it shall
give notice to Landlord not later than one year after the notice from
Landlord describing the computation in question, but in any event not
later than 30 days after expiration or earlier termination of this
lease. If Tenant fails to give such a notice, the computation by
Landlord shall be binding and conclusive between the parties for the
period in question.
20.1 Complete Agreement; No Implied Covenants.
This lease and the attached Exhibits and Schedules if any, constitute
the entire agreement of the parties and supersede all prior written
and oral agreements and representations and there are no implied
covenants or other agreements between the parties except as expressly
set forth in this Lease. Neither Landlord nor Tenant is relying on any
representations other than those expressly set forth herein.
20.2 Space Leased AS IS.
Unless otherwise indicated on Exhibit C and stated in this Lease, the
Premises are leased AS IS in the condition now existing with no
alterations or other work to be performed by Landlord.
20.3 Captions.
The titles to the paragraphs of this lease are descriptive only and
are not intended to change or influence the meaning of any paragraph
or to be part of this lease.
20.4 Nonwaiver.
Failure by Landlord to promptly enforce any regulation, remedy or
right of any kind under this Lease shall not constitute a waiver of
the same and such right or remedy may be asserted at any time after
Landlord becomes entitled to the benefit thereof notwithstanding delay
in enforcement.
20.5 Exhibits.
The following Exhibits are attached hereto and incorporated as a part
of this lease:
See EXHIBITS A, B, C, AND D.
Please Initial
[ILLEDGIBLE]
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Landlord Tenant
<PAGE>
IN WITNESS WHEREOF, the duly authorized representatives of the parties have
executed this lease as of the day and year first written above.
LANDLORD: By: /s/ Douglas McPherson
-----------------------------
Address for notices:
P.O. BOX 3458
- ------------------------ Title: Chief Legal Officer
-------------------------
Portland, OR 97208
- ------------------------ By._____________________________
TENANT:
Title:__________________________
Address for notices:
Chief Financial Officer
- ------------------------
City Search
- ------------------------
790 E. Colorado Blvd., Suite 200
Pasadena, CA 91101
<PAGE>
EXHIBIT "A"
MONTGOMERY PARK
[MONTGOMERY PARK 7th FLOOR PLAN APPEARS HEAR]
<PAGE>
EXHIBIT "B"
Additional Lease Provisions
Lease between H. Naito Corporation
and
CitySearch, Inc.
1. PARKING
During the term of this lease, Landlord shall provide parking for Tenant's
customers while they are conducting business with Tenant. Landlord shall
also provide Tenant with fourteen (14) monthly parking space(s). Said
space(s) may be unassigned and/or limited to a designated lot. Up to 31
additional parking spaces will be provided at a monthly fee of $40.00 per
space per month, subject to the annual CPI adjustments not to exceed 4% as
described in paragraph 19.2
2. COMPLETION OF BUILDING
Construction of additional tenant improvements in the Building may take
place after the commencement of the term of this lease. Landlord's
construction work shall be done in such a way as to interfere as little as
reasonably possible with the use of the premises by Tenant. Landlord may
close entrances, doors, corridors, elevators, parking areas, roads, drives,
walkways and other facilities as may be reasonably necessary to complete
said work, provided that Tenant shall have access to the premises
sufficient for the conduct of Tenant's business. Tenant and Tenant's guests
shall have no inconvenience, interference, disturbance or annoyance
resulting from Landlord's performance of any such work pursuant to this
paragraph.
3. RULES AND REGULATIONS
Tenant shall comply and cause Tenant's employees, agents, invitees and
customers to comply with the rules and regulations respecting the use of
the premises and the Building set forth in Exhibit "D." Landlord reserves
the right to make such other and reasonable rules and regulations as in its
judgment may from time to time be needed to the right to amend any of the
rules and regulations from time to time. Without limiting the generality of
the foregoing, such rules may establish hours during which the building
shall be open for use, may regulate the parking area, may regulate the
receiving and delivery of goods and merchandise to the premises and may
regulate the removal of garbage and refuse from the premises.
4. TENANT IMPROVEMENTS
Landlord, at its cost, agrees to remove part of the existing build-out in
suite 700 and construct new office improvements as shown and described in
the attached Exhibit C. These improvements shall be completed in a
workmanlike manner according to industry and comparable office building
standards.
<PAGE>
5. OCCUPANCY OF TEMPORARY SPACE
Landlord agrees to make suite 770 available to Tenant as temporary space
commencing February 15, 1997. Tenant agrees to pay $1,667.00 month, or the
appropriate prorated daily amount, for so many days as Tenant occupies
suite 770. Lease payments for suite 770 will cease on April 1 or on the day
before Tenant occupies suite 700, whichever occurs earlier.
6. AFTER-HOURS HEATING, VENTILATION AND IF AIR CONDITIONING (HVAC)
After-hours HVAC service will be available at a cost of $8.10 for any
given two-hour period or fraction or multiple thereof: or if 24-hour,
seven-day-per-week service is required, at a cost of $461.53 per month.
Said cost shall be subject to annual CPI adjustments not to exceed 4% as
specified in paragraph 19.2.
7. CONSENT BY LANDLORD TO BE REASONABLE
Whenever Landlord's consent is called for in this lease, Landlord agrees
not to unreasonably withhold such consent or approval.
8. RIGHTS OF FIRST REFUSAL
a. Tenant shall have the first right of refusal to lease, subject to the
same terms as this lease, the adjoining suite 762 and 730 (outlined in blue
on "Exhibit A" hereof) when the present lease expires on June 30, 1997.
However, this right shall be secondary to the present tenant's right to
renew or extend its lease, and it shall under all circumstances expire at
midnight on July 31, 1997, unless extended by mutual written agreement.
b. Suite 730 is currently vacant and offered for lease by Landlord. So long
as Tenant is not in default, Tenant shall have a first right of refusal
on said space or any part thereof following the successful effort by
Landlord to lease said premises to a third party tenant. The first right
of refusal shall be exercised by Tenant within three business days of
written notice of the terms offered by a bona fide prospective lessee,
subject only to rights of the third party Tenant to whom Landlord leases
said space.
9. NON-DISTURBANCE
In the event of any attornment by Tenant pursuant to paragraph 16.1, it is
understood and agreed that this Lease and Tenant's rights hereunder shall
continue undisturbed while Tenant is not in default hereunder, subject
however to the provisions of the terms of Article 16.1.
10. OPTION TO TERMINATE
Tenant shall have the right to terminate the entire lease or any
independently leasable portion of the leased premises anytime after the
third year of the lease. Tenant shall provide nine (9) months' advance
written notice of its intent to exercise this option. It is agreed and
understood that the penalty for such termination shall be the repayment to
Landlord of any
<PAGE>
unamortized tenant improvements and leasing commissions attributable to the
portion or portions of space so terminated, calculated at an annual rate of
10 percent interest.
11. ACCESS
Tenant and Tenant's employees shall have access to the Premises 24 hours
each day, seven days each week upon presentation of appropriate
identification.
12. CONFIDENTIALITY CLAUSE
No publicity concerning the tenancy of CitySearch shall be allowed by
Landlord or its agents. Any information provided by CitySearch to Landlord
shall not be used for any purpose other than evaluating the proposed lease,
and for the purpose of listing Tenant's name on building directories,
tenant lists and rental rolls necessary for the regular operation of the
building.
<PAGE>
EXHIBIT "C"
-----------
"DESCRIPTION OF TENANT IMPROVEMENT WORK TO BE DONE IN SUITE 700"
Landlord shall, at its sole cost and expense, build Tenant premises according to
the plan attached hereto as part of this "Exhibit C". This will include but not
necessarily be limited to the following:
A. DEMOLITION.
- --------------
Demo Center Island Area, cabinets, two offices, one conference room, one storage
room, one conference room wall and part of kitchen cabinetry per plans. Includes
removing electrical & communication wiring, unwanted wall trim in back
conference room. Demo carpet and base.
B. CONSTRUCTION.
- ----------------
1. Build demising wall to separate Suite 700 from that part of the former Suite
700 which is not included in the present lease (future Suite 730).
2. Build two 36' X 54" pony walls, one 35' X 54" and one 9' 10" X 54" pony wall.
And one 14' pony wall per plans; finish ready to paint. Includes all duplex
receptacles shown on plan, and running conduit as needed for electrical.
3. Minor ceiling tile work; and patching/finishing wall ends ready to paint.
4. Move fire extinguisher in kitchen to post including patching wall hole where
removed.
5. Patch walls where trim removed.
6. Cut 6 desks 4" shorter.
7. Frame & hang two new doors, (one with window) including special hardware &
wiring for emergency exit fire door.
8. Remove small table in kitchen & phone jack, new wall paper, new flooring.
9. HVAC as necessary to modify system appropriately to allow for changes in
suite.
10. Electrical necessary to change unwanted existing recessed lighting to 2' X
4' drop-in fluorescence fixtures (leaving recessed in reception area). Add 3
duplex receptacles behind new reception wall. Add exit sign over fire door.
11. Add duplex on outside wall of smallest conference room, run conduit down
post and provide duplex receptacle on separate circuit for copier. Install one
power pole for freestanding wall. Install dedicated circuit with quadplex
receptacle and grounding bar in phone room. And change sensors to switches in 6
conference rooms. Including Conf. "F".
12. Electrical and building permits.
13. Add sound proofing to door between conference rooms A & E.
C. Install new carpet and base as selected by Landlord and approved by Tenant.
- --
D. Paint and otherwise finish the space to make ready for occupancy.
- --
<PAGE>
"EXHIBIT C"
PAGE 2
[DEMOLITION PLAN APPEARS HERE]
<PAGE>
"EXHIBIT A"
Page 3
[CONSTRUCTION PLAN APPEARS HERE]
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS
1. Use of Common Areas. The sidewalks, halls, passages, exits, entrances,
-------------------------
elevators, and stairways of the Building shall not be obstructed by any of the
lessees or used by them for any purpose, other than for ingress to and egress
from their respective premises. The halls, passages, exits, entrances, elevators
and stairways are not for the general public, and Lessor shall in all cases
retain the right to control and prevent access thereto of all persons whose
presence in the judgement of Lessor would be prejudicial to the safety,
character, reputation and interests of the Building and its lessees, provided
that nothing herein shall be construed to prevent such access to persons with
whom any lessee normally deals in the ordinary course of its business unless
such persons are engaged in illegal activities. The roof of the Building is not
a common area. No lessee, and no employees or invitees of any lessee, shall go
upon the roof of the Building except as authorized by Lessor.
2. Prohibited Uses. The premises shall not be used for manufacturing or
---------------------
for lodging. No cooking shall de done or permitted by any lessee on the
premises, except that use by Lessee of equipment including microwave approved by
Underwriter's Laboratory for brewing coffee, tea, hot chocolate and similar
beverages shall be permitted, provided that such use is in accordance with all
applicable federal, state, and city laws, codes, ordinances, rules and
regulations.
3. Keys. Lessor will furnish each lessee free of charge with one key for
----------
each employee plus two additional keys to each door lock in the premises. Lessor
may make a reasonable charge for any additional keys. No lessee shall have any
keys made. No lessee shall alter any lock or install a new or additional lock or
any bolt on any door of its premises without the prior written consent of
Lessor. Lessee shall in each case furnish Lessor with a key for any such lock.
Each lessee, upon termination of its tenancy, shall deliver to Lessor all keys
to doors in the Building which shall have been furnished to Lessee.
4. Nuisances and Dangerous Substances. No lessee shall use or keep in the
--------------------------------------
premises or the Building any kerosene, gasoline or inflammable or combustible
fluid or material, other than limited quantities thereof reasonably necessary
for the operation or maintenance of office equipment, or without Lessor's prior
written approval, use any method of heating or air conditioning, other than that
supplied by Lessor. No lessee shall use or keep or permit to be used or kept any
foul or noxious gas or substance in the premises, or permit or suffer the
premises to be occupied or used in a manner offensive or objectionable to Lessor
or other occupants of the Building by reason of noise, odors or vibrations, or
interfere in any way with other lessees of those having business therein. Nor
shall any animals or birds be brought in or kept in or about the premises of
the Building.
5. Building Directory. The directory of the Building will be provided for
------------------------
the display of the name and location of lessees and in Lessor's discretion a
reasonable number of the principal officers and employees of lessees, and lessor
reserved the right to exclude any other names therefrom. Any additional name
which any lessee shall desire to place upon said directory must first be
approved by Lessor, and if so approved, a charge may be made therefor.
6. Window Coverings. No curtains, draperies, blinds, shutters, shades,
----------------------
screens or other coverings, hangings or decorations shall be attached to, hung
or placed in, or used in connection with, any window of the Building without the
prior written consent of Lessor. In any event with the prior written content of
lessor such items shall be installed on the office side of Lessors standard
window covering and shall in no may be visible from the exterior of the
Building.
7. Heating, Ventilating and Air Conditioning. Lessee shall cooperate with
-----------------------------------------------
Lessor in obtaining maximum effectiveness of the heating, ventilating and air
conditioning (HVAC) system. Lessee shall not obstruct, alter or in any way
impair the efficient operation of Lessor's HVAC system, and shall not tamper
with or change the setting of any thermostats, temperature control vanes, or
discharge or return air registers or ducts.
8. Floor Coverings. No lessee shall lay linoleum, tile, carpet or any
---------------------
other floor covering so that the same shall be affixed to the floor of its
premises in any manner, except as approved in writing by Lessor. The expense of
repairing any damage resulting from a violation of this rule or removal of any
floor covering shall be borne by the lessee by whom, or by whose contractors,
employees or invitees, the damage shall have been caused.
9. Closing Procedure. Each lessee shall see that the doors of its
-----------------------
premises are closed and locked and that all water faucets, water apparatus are
shut off before lessee or its employees leave the premises, so as to prevent
waste or damage, and for any default or carelessness by a lessee in this regard,
the lessee shall be liable for all injuries sustained by other lessees or,
occupants of the Building or Lessor. All lessees shall keep the doors to the
building corridors closed at all times, except for ingress and egress.
10. Plumbing Facilities. The toilets, urinals, wash bowls and other
------------------------
apparatus shall not be used for any purpose, other than that for which they are
constructed; no foreign substance of any kind whatsoever shall be thrown therein
and the expense of any similar breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the lessee who, or whose employees or
invitees, shall have caused it.
<PAGE>
11. Use of Hand Trucks. There shall not be used in any space, or in the
------------------------
public halls of the Building, whether by any lessee or others, any hand trucks,
except those equipped with rubber tires and side guards or such other material
handling equipment as Lessor may approve. No other vehicles of any kind shall be
brought by any lessee into the Building or kept in or about its premises.
12. Soliciting. Canvassing, peddling, soliciting and distribution of
----------------
handbills or any other written materials in the Building are prohibited, and
each lessee shall cooperate to prevent the same.
13. Lessee's Requirements. The reasonable requirements of the lessees will
---------------------------
be attended to, but only upon application by telephone or in person at the
office Building. Employees of the Lessor or its manager shall no perform any
work or do anything outside or their regular duties unless under special
instructions from Lessor.
14. Parking. All parking ramps and areas, walkways, plaza and other
-------------
public areas forming a part of the Building shall be under the sole and absolute
control of Lessor, with the exclusive right to regulate and control these areas.
Lessee and its employees and invitees shall park their cars and trucks only in
areas designated by Lessor from time to time for that purpose, and further
agrees to conform to the rules and regulations that may be established by Lessor
for these areas from time to time.
15. Fire and Safety Regulations. Lessees shall comply with all safety,
---------------------------------
fire protection and evacuation procedures and regulations established by Lessor
or any governmental agency.
16. Responsibility for Theft. Lessee assumes any and all responsibility
------------------------------
for protecting its premises from theft, robbery and pilferage, which includes
keeping doors locked and other means of entry to the premises closed.
17. Enforcement. Lessor may waive any one or more of these Rules and
----------------
Regulations for the benefit of any particular lessee or lessees, no such waiver
by Lessor shall be construed as a waiver of such Rules and Regulations in favor
of any lessee or lessees, nor prevent Lessor from thereafter enforcing any such
Rules and Regulations against any or all of the lessees of the Building.
18. Effect on Lease. These Rules and Regulations are in addition to, and
---------------------
shall not be construed to in any way modify or amend, in whole or in part, the
terms, covenants, agreements and conditions of any lease of premises in the
Building.
19. Additional and Amended Rules. Lessor reserves the right to make such
----------------------------------
other and reasonable rules and regulations as in its judgement may from time to
time be needed for the safety, care and cleanliness of the Building and for the
preservation of good order therein and the right to amend any of the rules and
regulations from time to time.
20. Smoking Prohibited. Smoking of cigarettes, pipes and cigars shall be
------------------------
prohibited in the Premises. Under the Oregon Indoor Clean Air Act (ORS 433.835
through 433.875), smoking shall be prohibited in the common areas of the
building including, but not limited to, restrooms, public corridors, meeting
rooms, the atrium, elevators, and elevator lobbies. Smoking shall be permitted
only in a designated smoking room or rooms. Landlord reserves the right at any
time and at its sole discretion to eliminate any or all designated smoking room
or rooms.
21. Signage. Tenant shall not place, or cause to be placed or maintained,
-------------
any sign or advertising matter of any kind anywhere within the Montgomery Park
Building, except in the interior of the Leased Premises, without Landlord's
prior written approval. NO HANDWRITTEN SIGNS SHALL BE PERMITTED. No symbol,
design, name, mark or insignia adopted by Landlord for the Montgomery Park
Building shall be used without the prior written consent of Landlord. No
illuminated signs located in the interior of the Leased Premises and which are
visible from outside of the Leased Premises shall advertise any product. All
signs located in the interior of the Leased Premises shall be in good taste so
as not to detract from the general appearance of the Leased Premises and the
Montgomery Park Building. Tenant shall maintain in good condition and repair at
all times any sign or advertising matter of any kind which has been approved by
Landlord for use by Tenant. Landlord approved signs shall be displayed only in
the display areas designated as such by Landlord, unless otherwise specifically
agreed to in writing by Landlord.
<PAGE>
EXHIBIT 10.17
AUSTIN CENTRE LEASE AGREEMENT
By and Between
BRAZOS AUSTIN CENTRE, LTD.
("Landlord")
and
CITYSEARCH, INC.
("Tenant")
<PAGE>
AUSTIN CENTRE LEASE AGREEMENT
-----------------------------
This Lease is entered into as of August 15, 1996, between BRAZOS AUSTIN
CENTRE, LTD., a Texas Corporation ("Landlord"), whose address for purposes of
notice hereunder is 701 Brazos Suite 190, Austin, Texas, 78701 and CitySearch,
Inc., a Delaware corporation, "Tenant"), whose address prior to the Commencement
Date (defined in Section 2.01 hereof) and for purposes of notice is 4502 Dyer
St., Suite 201, La Crescenta, California 91314 and whose address after the
Commencement Date shall be 701 Brazos, Suite 440, Austin, Texas. 78701.
W I T N E S S E T H:
ARTICLE 1
1.01 PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases
--------
from Landlord, for the rent and subject to the provisions of this Lease, the
space (the "Premises") reflected on the floor plan(s) attached as Exhibit A
hereto, located on floor four (4) of the building (the "Building") known as
Austin Centre located at 701 Brazos, Austin Travis County, Texas (such Building,
the enclosed arrium area and ground-level open areas and walkways appurtenant to
the Building, any parking areas and garages serving the Building, any other
structure or improvement utilized in the operation or maintenance of the
Building, and the land (the "Land") on which all such improvements are located
said Land being more particularly described on Exhibit B attached hereto and
made a part hereof for all purposes and any present or future associated
underground or elevated pedestrian tunnels or walkways being hereinafter
collectively referred to as the "Project"). As used herein, the term "Project"
does not include the building located on the land that is now known and operated
as Omni Austin Hotel of Austin Centre (the "Hotel"). Landlord and Tenant hereby
agree that the Premises contain 4,473 square feet of rentable area and the
Project contains 343,664 square feet of rentable area.
ARTICLE 2
2.01 TERM. Subject to the other provisions hereof, and any exhibits
----
hereto, this Lease shall be for a term of approximately sixty-six and one half
(66 1/2) months commencing on the Commencement Date (defined in Section 2.02
hereof) and expiring on March 31, 2002 (the "Expiration Date"). Such term, as
it may be modified, is herein called the "Term."
2.02 COMMENCEMENT. As used herein, "Commencement Date" means the latter
------------
to occur of: (a) the date Tenant's leasehold improvements are substantially
completed (or would have been substantially completed except for delays caused
by Tenant) in accordance with Exhibit C attached hereto and made a part hereof
for all purposes, or (b) September 16, 1996. Notwithstanding the foregoing, if
Tenant occupies all or any part of the Premises prior to (a) or (b) above, the
Commencement Date shall be the date of such occupancy. If Landlord is unable to
deliver possession of the Premises to Tenant on or before September 16, 1996,
Landlord agrees that it will continue to provide Tenant with office space on the
third and fourth floors and the use of twenty-five (25) telephones at no cost
(excluding long distance and information charges) until the Landlord delivers
possession.
Within five (5) days after the Commencement Date and at any time thereafter
upon the request of Landlord, Tenant shall execute and deliver to Landlord a
declaration (in the form of Exhibit F hereto) specifying, among other things,
the date upon which the same occurred.
2
<PAGE>
ARTICLE 3
3.01 BASE RENT. Tenant, in consideration for this Lease, agrees to pay to
---------
Landlord a base rental ("Base Rent") in the amounts and installments indicated
below for each square foot of rentable area agreed by Landlord and Tenant to be
within the Premises, payable at Landlord's address herein provided in legal
tender of the United States of America without notice, demand, counterclaim,
set-off or abatement, in advance on the first day of each calendar month
throughout the Term:
Lease Dates Base Rent
----------- ---------
09/16/1996 - 03/15/1997 Free Rent Period (No Base Rent or Rental
Adjustment)
03/16/1997 - 03/31/1993 $3,727.50 per month (based on a rental rate
of $10.00 per rental square foot per year)
04/01/1998 - 03/31/1999 $3,913.88 per month (based on a rental rate
of $10.50 per rental square foot per year)
04/01/1999 - 03/31/2000 $4,100.25 per month (based on a rental rate
of $11.00 per rental square foot per year)
04/01/2000 - 03/31/2001 $4,286.63 per month (based on a rental rate
of $11.50 per rental square foot per year)
04/01/2001 - 03/31/2002 $4,473.00 per month (based on a rental rate
of $12.00 per rental square foot per year)
3.02 RENTAL ADJUSTMENT Tenant's pro rata share of all Operating
-----------------
Expenses (defined in Section 3.03 hereof) for purposes of rental adjustment is
agreed to be 1.3016% ("Tenant's Pro Rata Share"). On or before the Commencement
Date and thereafter on or before the first day of each calendar year of the
Term, Landlord shall provide to Tenant the Estimated Operating Expense (defined
in Section 3.03 hereof) for the upcoming year. In addition to the Base Rent,
Tenant shall pay in advance on the first day of each calendar month during the
Term, installments equal to one-twelfth (1/12) of Tenant's Pro Rata Share of the
Estimated Operating Expense. Within one hundred fifty (150) days after the
end of each calendar year during the Term, Landlord shall furnish to Tenant a
statement certified by Landlord of the Actual Operating Expense (defined in
Section 3.03 hereof) for the immediately preceding calendar year, which
statement shall specify the various types of Operating Expenses and set forth
Landlord's calculations of Tenant's Pro Rata Share thereof. If Tenant's Pro Rata
Share of the Estimated Operating Expense paid to Landlord during the previous
calendar year exceeds Tenant's Pro Rata Share of the Actual Operating Expense,
then Landlord shall refund the difference to Tenant at the time Landlord
furnishes the statement of the Actual Operating Expense. Otherwise, within
fifteen (15) days after Landlord furnishes such statement to Tenant, Tenant
shall make a lump sum payment to Landlord equal to Tenant's Pro Rata Share of
the positive difference between the Actual Operating Expense and the Estimated
Operating Expense theretofore paid by Tenant. As used in this Lease the term
"Rent" shall refer collectively to the Base Rent and all rental adjustments. If
the Term commences on a day other than the first day of the month or calendar
year, or terminates on a day other than the last day of a month or calendar
year, then Tenant shall be required to pay only a pro rata portion of the
installments and adjustments of Rent due for such month or year.
3.03 OPERATING EXPENSES.
-------------------
(a) "Operating Expenses" shall mean and include all reasonable
amounts, expenses, and costs of whatsoever nature incurred because of or in
connection with the ownership, management, operation, repair, maintenance
or security of the Project, all additional facilities which may be added to
the Project, and Landlord's personal property which may be utilized in
connection therewith. Operating Expenses shall not include capital
improvements, depreciation, interest and principal payments on mortgage and
3
<PAGE>
other nonoperating debts of Landlord, management fees and management
overhead to the extent they exceed market rates, attorney's fees related to
disputes with other tenants, and specific costs for special items or
services billed to and paid by specific tenants. Operating Expenses shall,
however, include the amortization of capital improvements (over the
expected payback period) which are primarily for the purpose of reducing
Operating Expenses or which are required by governmental or quasi-
governmental authorities. Operating Expenses shall be determined on an
accrual basis in accordance with generally accepted accounting principles
consistently applied. The "Estimated Operating Expense" (currently 58.25.
per rental square foot per year) shall equal the Landlord's estimate of
Operating Expenses for the applicable calendar year. Landlord's statement
of Estimated Operating Expense shall control for the year specified in such
statement and for each succeeding year during the Term until Landlord
provides a new statement of the Estimated Operating Expense." The Actual
Operating Expense" shall equal the operating expenses actually incurred
for the applicable calendar year. Notwithstanding any provision contained
herein to the contrary, if less than 95% of the total square feet of
rentable area in the Building is occupied by tenants or Landlord is not
supplying services to 95% of the total square feet of rentable area of the
Building at any time during any calendar year. Operating Expenses for such
calendar year shall be determined to be an amount equal to the like expense
which would normally be expected to be incurred had such occupancy been 95%
of the Building's total square feet of rentable area and had Landlord been
supplying services to 95% of the Building's total square feet of rentable
area throughout such calendar year.
(b) Operating Expenses from the Commencement Date through September
15, 1997 shall not exceed $8.25 per rentable square foot; for the balance
of 1997, Operating Expenses shall not exceed $8.50 per rentable square
foot. Controllable Operating Expenses (defined as all Operating Expenses
except real estate taxes, insurance and utilities) shall not increase more
than eight percent (8%) per year.
3.04 SECURITY DEPOSIT. Tenant shall deposit with Landlord on the date
----------------
Tenant executes this Lease the sum of Thirteen Thousand Four Hundred Nineteen
and No/100 Dollars ($13,419.00) as a "Security Deposit" on the understanding:
(a) the Landlord shall apply $6,709.50 to the payment of the first accruing
rental installment due and subsequent rental installments until exhausted,
provided Tenant is not in default under this Lease at that time: (b) that the
Security Deposit or any portion thereof may be applied to the curing of any
Default (defined in Section 13.01 hereof), without prejudice to any other remedy
or remedies which the Landlord may have on account thereof, and upon such
application Tenant shall pay Landlord on demand the amount so applied which
shall be added to the Security Deposit so the same will be restored to its
original amount: (c) that Landlord shall not be obligated to hold the Security
Deposit as a separate fund, but may commingle it with other funds: and (d) that
if no Default exists and no event has occurred that with notice and/or the
passage of time would constitute a Default, the remaining balance of the
Security Deposit shall be returned to Tenant, without interest, within thirty
(30) days after the expiration of the Term; provided, however, that Landlord
shall have the right to retain and expend such remaining balance for cleaning
and repairing the Premises if Tenant shall fail to deliver the Premises at the
termination of this Lease in a near and clean condition and in as good a
condition as existed at the date of possession of same by Tenant, ordinary wear
and tear only excepted.
ARTICLE 4
4.01 USE. Tenant shall use and occupy the Premises only for office purposes
---
and for no other purposes. Tenant shall not do or permit anything to be done
in or about the Premises nor bring or keep anything therein that will in any
way increase the existing rate of or affect any fire or other insurance upon the
Project or any of its contents, or cause cancellation of any insurance policy
covering the Project or any part thereof or any of its contents. Tenant shall
not do or permit anything to be done in or about the Premises that will in any
way obstruct or interfere with the rights of other tenants or occupants of the
Project or injure or annoy them or tend to lower the first class character of
the building or create unreasonable elevator loads or otherwise interfere with
standard Building operations. Tenant shall not permit any nuisance in, on or
about the Premises. Tenant shall not commit or suffer to be committed any
waste in or upon the Premises. Tenant shall not use the Premises or permit
anything to be done in or about the Premises that will in any way conflict with
any reasonable rule or
4
<PAGE>
regulation of Landlord, any reasonable restrictive covenant imposed by Landlord,
or any law, statute, ordinance or any governmental or quasi-governmental
authority now in force or that may hereafter be enacted or promulgated.
ARTICLE 5
5.01 LANDLORD'S SERVICES. Provided Tenant is not in default hereunder,
-------------------
Landlord shall, at Landlord's expense, except as provided to the contrary in
this Lease, furnish to Tenant the following services:
(a) Subject to curtailment as required by governmental laws, rules or
regulations, air conditioning and central heat, in season, at such
temperatures and in such amounts as are deemed by Landlorn to be standard
for first class office buildings in Austin, Texas, during normal Building
hours, which are presently scheduled to be 7:00 a.m. through 6:00 p.m. on
weekdays and 8:00 a.m. through 2:00 p.m. on Saturdays, exclusive of normal
business holidays. Normal business holidays for purposes of this Lease
shall include, without limitation New Year's Day, Martin Luther King Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
the Friday following Thanksgiving Day and Christmas Day. If in the case of
any holiday described herein a different day shall be observed than the
respective day described then the day which constitutes the day observed by
national banks in Austin, Texas, on account of such holiday shall
constitute the holiday under this Lease.
(b) Janitorial services in the Premises and public portions of the
Building for all days except Saturdays, Sundays, and normal business
holidays.
(c) Water at those points of supply provided for drinking, toilet, and
lavatory purposes.
(d) Normal and customary routine maintenance for all public,
structural, and exterior portions of the Project according to Landlord's
standards.
(e) Electric lighting service for all public portions of the Project
in the manner and to the extent deemed by Landlord to be in keeping with
the standards of a first class office building in Austin, Texas.
(f) Reasonably adequate, non-exclusive automatic passenger elevator
service at all times for access to and egress from the Premises. Freight
elevator service, in common with other tenants, shall be provided during
reasonable business hours as prescribed by Landlord, exclusive of
Saturdays, Sundays, and normal business holidays.
(g) Electric energy that Tenant shall require for standard office
equipment such as personal computers, typewriters, dictation machines,
calculators, other machines of a similar low electrical consumption, and
Building Standard (defined in Exhibit C attached hereto) lighting in the
Premises. Without Landlord's prior written consent, Tenant shall not be
entitled to employ lighting on the Premises that consumes electrical
current in excess of Building Standard lighting nor utilize any office
equipment that requires a voltage other than 120 volts single phase.
(h) Building security to encourage compliance with the Rules and
Regulations (defined in Section 15.09 hereof) and to limit after-hour
access to the Building; provided, however, Landlord shall have no
responsibility to prevent, and shall not be liable to Tenant for, liability
or loss to Tenant, its agents, employees and visitors arising out of losses
due to theft, burglary, or damage or injury to persons or property caused
by persons having or gaining access to the Building or the Premises, unless
caused by Landlord's negligence, and Tenant hereby releases Landlord from
all liability relating thereto.
(i) Window washing services for the outside portions of the Building
at least one (1) time per calendar year.
5
<PAGE>
(j) Replacement of florescent light bulbs in any florescent light
fixtures which are located in the Premises and which contain the Building
Standard light bulbs (Paralux 3 tube Florescent Lighting).
5.02 ADDITIONAL SERVICE COST. Tenant shall pay Landlord, upon demand, such
-----------------------
additional amounts as are necessary to recover additional costs incurred by
Landlord in performing or providing janitorial, maintenance, security, or other
services or requirements of Tenant(and in paying additional taxes) as to any
non-Building Standard installations in the Premises. Tenant shall pay Landlord,
upon demand, monthly as billed charges for providing off-hour and nonstandard
air conditioning, heating and electricity; provided, however, that there shall
be no charge for off-hour air conditioning and heating prior to September 1,
1997, and the charge thereafter shall be $7.50 per hour.
5.03 SERVICE INTERRUPTION. To the extent any of the services described
--------------------
above require electricity, gas, water or other services supplied by public
utilities. Landlord's covenants hereunder shall impose on Landlord only the
obligation to use its good faith efforts to cause the applicable public
utilities to furnish the same. Any failure or defect in the services described
above shall not be construed as an eviction of Tenant nor entire Tenant to any
reduction, abatement, offset, or refund of Rent or to any damages from Landlord.
Landlord shall not be in breach or default under this Lease, provided Landlord
uses reasonable diligence during normal business hours to restore any such
failure or defect after Landlord receives written notice thereof.
ARTICLE 6
6.01 ALTERNATIONS Tenant shall not make or allow to be made any
------------
alterations, installations, additions or improvements in or to the Premises, or
place safes, vaults or other heavy furniture or equipment within the Premises,
without Landlord's prior written consent. All alterations, installations,
additions or improvements, other than movable furniture and movable trade
fixtures, made by Tenant to the Premises shall remain upon and be surrendered
with the Premises and become the property of Landlord at the expiration or
termination of this Lease or the termination of Tenant's right to possession of
the Premises: provided, however, that Landlord may require Tenant, at Tenant's
cost, to remove any or all of such items that are not Building Standard upon the
expiration or termination of this Lease or the termination of Tenant's riitht to
possession of the Premises. Tenant, at its sole cost and prior to the expiration
or termination of this Lease. shall remove all of T enant's property from the
Premises and make, or reimburse Landlord for the reasonable cost of, all repairs
to the Premises and/or Project for damage resulting from such removal, provided
that Landlord has indicated that it will require such removal at the time of
providing consent to such alterations, installations, additions or improvements.
All work shall be completed promptly and in a good and workmanlike matter and
shall be performed in such a manner that no mechanic's, materialman's or other
similar liens shall attach to Tenant's leasehold estate, and in no event shall
Tenant permit, or be authorized to permit, any such liens or other claims to be
asserted against Landlord or Landlord's rights, estate and interests with
respect to the project or this Lease. Landlord may require, at Tenant's sole
cost and expense, a lien and completion bond in an amount equal to the estimated
cost of any improvements, additions or alterations in the Premises.
6.02 TENANT REPAIRS By taking possession of the Premises, Tenant shall be
--------------
deemed to have accepted the Premises as being in good, sanitary order, condition
and repair. Tenant shall, at Tenant's sole cost and expense, keep the Premises
in good condition and repair, damage thereto from causes beyond the reasonable
control of Tenant and ordinary wear and tear damage excepted. Any injury or
damage to the Premises or Project, or the appurtenances or fixtures thereof,
caused by or resulting from the act, omission or neglect of Tenant or Tenant's
employees, servants, agents, invitees, assignees, or subtenants shall be
repaired or replaced by Tenant, or at Landlord's option by Landlord, at the
expense of Tenant. If Tenant fails to maintain the Premises or falls to repair
or replace any damage to the Premises or Project resulting from the negligence
or intentional act of Tenant, its employees, servants, agents, invitees,
assignees or subtenants, Landlord may, but shall not be obligated to, cause
such maintenance, repair or replacement to be done, as Landlord deems necessary,
and Tenant shall immediately pay to Landlord all reasonable costs related
thereto plus a charge for overhead of 15% of such costs.
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6.03 LANDLORD REPAIRS: Unless otherwise Stipulated herein, Landlord shall
----------------
not be required to make any improvements to or repairs of any kind or character
to the Premises during the Term, except such repairs to Building Standard
improvements as may be deemed necessary by Landlord for normal maintenance
operations; provided, however, non-Building Standard leasehold improvements
will, at Tenant's written request, be maintained by Landlord at Tenant's
expense, at a cost or charge equal to the costs incurred in such maintenance
plus an additional charge or 15%. Notwithstanding any provisions of this
Lease to the contrary, all repairs, alterations or additions to the base
Building or its systems (as opposed to those involving only Tenant's Leasehold
improvements), and all repairs, alterations or additions to Tenant's non-
Building Standard leasehold improvements which affect the Building's
structural components or major mechanical, electrical or plumbing systems in the
Building, to be made by or for or on behalf of Tenant, shall be made by Landlord
or its contractor only, and, except as otherwise provided in Exhibit C attached
hereto, shall be paid for by Tenant in an amount equal to Landlords, costs plus
an additional charge of 15%.
ARTICLE 7
7.01 LANDLORD INSURANCE. Landlord shall insure the Project and shall
------------------
maintain liability and other insurance in such amounts as may be required by
Landlord's mortgagee, or in such greater amounts as Landlord, in its sole
discretion, may deem appropriate. The cost of such insurance, including any
deductible paid thereunder by Landlord, shall be an "Operating Expense" as
defined in Section 3.03 hereof. Such insurance shall be for the sole benefit of
Landlord and, if required, Landlord's mortgagee. If the annual premiums to be
paid by Landlord exceed the standard rates because of Tenant's operations
within or contents of the Premises or because improvements to the Premises are
beyond Building Standard, Tenant shall promptly pay the excess amount of the
premium upon request by Landlord (and if necessary, Landlord may allocate the
insurance costs of the Building to give effect to this sentence).
7.02 TENANT INSURANCE. Tenant shall, at Tenant's expense fully insure its
----------------
property located in the Premises against fire and other casualty and shall
maintain comprehensive general liability insurance insuring Landlord and Tenant
against any liability arising out of ownership, use, occupancy or maintenance of
the Premises and all areas appurtenant thereto, including contractual liability
insurance (with respect to Section 7.04 hereof), with insurance companies
approved by Landlord and with limits of liability of at least $2,000.000 in each
occurrence for Bodily Injury and Property Damage combined and $2,000,00O general
aggregate for Bodily Injury and Property Damage combined with the endorsement
of comprehensive general liability CG-2504. Tenant shall cause Landlord to be
named as an additional insured under such policies and shall, not less than
twenty (20) days prior to (a) the Commencement Date, and (b) the expiration of
old policies, furnish Landlord with certificates of insurance with loss payable
clauses satisfactory to Landlord. The limit of such insurance shall not,
however, limit the liability of Tenant hereunder. Tenant may carry such
insurance under a blanket policy, provided such insurance has a Landlord's
protective liability endorsement attached thereto. If Tenant fails to procure
and maintain said insurance, Landlord may, but shall not be required to, procure
and maintain same, but at the expense of Tenant. No policy shall be cancelable
or subject to reduction of coverage except after thirty (30) days prior written
notice to Landlord.
7.03 WAIVER OF SUBROGATION. Whenever (a) any loss, cost, damage or expense
---------------------
resulting from fire, explosion or any other casualty or occurrence is incurred
by either of the parties to this Lease in connection with the Premises or the
Project, and (b) such party is then covered (or is required under this Lease to
be covered) in whole or in part by insurance with respect to such loss, cost,
damage or expense, then the party so insured hereby releases the other party
from any liability it may have on account of such loss, cost, damage or expense
to the extent of any amount recovered by reason of such insurance, and waives
any right of subrogation which might otherwise exist on account thereof,
provided that such release of liability and waiver of the right to subrogation
shall not be operative in any case where the effect thereof is to invalidate
such insurance coverage or increase the cost thereof (provided, that in the case
of increased cost, the other party shall have the right, within thirty (30) days
following written notice, to pay such increased costs, thereupon keeping such
release and waiver in full force and effect). Landlord and Tenant shall use
their respective best efforts to obtain such a release and
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waiver of subrogation from their respective insurance carriers and shall obtain
any special endorsements, if required by their insurer, to evidence compliance
with the aforementioned waiver.
7.04 INDEMNITY. Tenant hereby indemnifies and holds Landlord harmless from
---------
and against any and all claims arising from Tenant's use of the Premises for the
conduct of its business or from any activity, work or other thing done,
permitted or suffered by Tenant on or about the Project and shall further
indemnify and hold harmless Landlord from and against any and all claims arising
from any breach or default in the performance of any obligation on Tenant's part
to be performed under the terms of this Lease, or arising from any act or
omission of, or due to the negligence of, the Tenant, or any officer, agent,
employee, guest or invitee of Tenant, and from and against all costs, attorney's
fees expenses and Liabilities incurred in or related to any such claim or any
action or proceeding brought thereon. Tenant as a material part of the
consideration to Landlord, hereby assumes all risk of damage to property or
injury to persons including death in, upon or about the Project except for such,
damage or injury caused by Landlord's negligence, and Tenant hereby waives all
claims in respect thereof against Landlord.
ARTICLE 8
8.01 CASUALTY. Tenant shall give Landlord written notice of any fire or
--------
other casualty occurring within the Premises on the next business day following
such occurrence or Tenant's knowledge thereof, whichever is later. If the
Premises or Project (provided such damage to the Project would constitute an
interference with Tenant's quiet enjoyment of the Premises), or any portion of
either, shall be damaged by fire or other casualty covered by the insurance
carried by Landlord hereunder and the cost of repairing such damage shall not be
greater than 10% of the then full replacement cost thereof, then, subject to
the following provisions of this Article. Landlord shall repair the Premises
and/or Project. If the Premises or Project shall be damaged (a) by fire or other
casualty not covered by insurance carried by Landlord hereunder, (b) by fire or
other casualty covered by insurance carried by Landlord hereunder and Landlord's
mortgagee requires that such insurance proceeds be used to retire the mortgage
debt, or (c) to an extent greater than 40% of the then full replacement cost
thereof, then Landlord shall have the option (i) to repair or reconstruct the
damaged Premises or Project to substantially the same condition as immediately
prior to such fire or other casualty, or (ii) to terminate this Lease by so
notifying Tenant within one hundred twenty (120) days after the date of such
fire or other casualty, such termination to be effective as of the date of such
fire or other casualty. The Rent required to be paid hereunder shall be abated
in proportion to the portion of the Premises, if any, which is rendered
untenantable by fire or other casualty hereunder until repairs of the Premises
are completed or if the Premises are not repaired, until the Expiration Date
hereunder. Other than such rental abatement, no damages, compensation or claims
shall be payable by Landlord for loss of the use of the whole or any part of the
Premises, Tenant's personal property, or any inconvenience, loss of business, or
annoyance arising from any such repair and reconstruction. If the damage results
from the fault or negligence of Tenant, its agents, employees, licensees or
invitees, Tenant shall not be entitled to any abatement or reduction of any Rent
or other sums due hereunder, and such damage shall be repaired by Tenant, or at
Landlord's option by Landlord, at Tenant's expense. If this Lease is terminated
as provided in (c)(ii) above, all Rent shall be apportioned and paid up to the
date of such termination. Landlord shall not be required to repair or replace
any furniture, furnishings, or other personal property that Tenant may be
entitled to remove from the Premises or any property constructed and installed
by or for Tenant pursuant to Section 6.01 hereof or any installations in excess
of Building Standard.
8.02 END OF TERM CASUALTY. Notwithstanding anything to the contrary in
--------------------
this Article, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the Premises or the Project when the damage resulting
from any casualty covered under this Article occurs during the last twelve (12)
months of Term or any extension thereof.
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ARTICLE 9
9.01 CONDEMNATION. If more than 20% of the Premises should be taken for
------------
any public or quasi-public use, by right of eminent domain or otherwise, or
should be sold in lieu of condemnation, then either party hereof shall have the
right, at its option, to terminate this Lease as of the date when physical
possession of the Premises is taken by the condemning authority. If 20% or less
of the Premises is so taken or sold or if this Lease is not terminated upon any
taking or sale of greater than 20% of the Premises, the Rent payable hereunder
(including an appropriate adjustment of the Pro Rata Share) shall be abated in
proportion to the portion of the Premises which is rendered untenantable by such
condemnation and Landlord shall, to the extent Landlord deems feasible and if
permitted by Landlord's mortgagee, ground lessor or other secured parry,
restore the Premises to substantiallv its former condition, but Landlord shall
not in any event be required to spend for such work an amount in excess of the
amount received by Landlord as compensation for such taking. If any part of the
Project other than the Premises may be so taken or sold, Landlord shall have
the right at its option to terminate this Lease as of the date when physical
possession of such part of the Project is taken by the condemning authority.
Al1 amounts awarded upon taking of any part or all of the Project or the
Premises shall belong to Landlord and Tenant shall not be entitled to, and
expressly assigns all claims, rights and interests to, any such compensation to
Landlord.
ARTICLE 10
10.01 ENTRY. Landlord, its agents, employees and representatives, shall
-----
have the right to enter the Premises at any time upon reasonable notice to
Tenant under the circumstances (which notice may be oral and not in compliance
with Section 15.08 hereof, but no notice shall be required in the case of
routine maintenance or an emergency) to show the Premises to prospective
tenants or purchasers or for any purpose that Landlord may reasonably deem
necessary for the operation and maintenance of the Project. Tenant hereby waives
any claim for damages or for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and
any other loss occasioned thereby. For each of the aforesaid purposes. Landlord
shall at all times have and retain a key with which to unlock all of the doors
in upon and about the Premises, excluding Tenant's vaults, safes and files.
Landlord shall have the right to use any and all means which Landlord may deem
proper to open the doors in, upon and about the Premises in an emergency in
order to obtain entry to the Premises without liability to Tenant, except for
any failure to exercise due care for Tenant's property.
ARTICLE II
11.01 SUBORDINATION. This Lease is and shall be subject and subordinate to
-------------
any and all ground or similar leases affecting the Project, and to all
mortgages, deeds of trust, and security agreements that may now or hereafter
encumber or affect the Project or any interest of Landlord therein and/or the
contents of the Building, and to any advances made on the security thereof and
to any and all increases, renewals, modifications, consolidations, replacements
and extensions of any such leases, mortgages. deeds of trust and/or security
agreements. This clause shall be self-operative and no further instrument of
subordination need be required by any owner or holder of such ground lease
mortgage, deed of trust or security agreement. Tenant agrees to execute and
return any estoppel certificate, consent or agreement reasonably requested by
any such lessor, mortgagee, trustee or secured party in connection with this
Section within ten (10) days after receipt of same, and Tenant hereby
irrevocably appoints Landlord as Tenant's attorney-in-fact to execute the same
if Tenant fails to respond within such period. Tenant shall furnish any
mortgagee of Landlord secured by a lien on the Project, any lessor to Landlord
under a ground lease of the Project, or any secured party under a security
agreement encumbering the interest of Landlord, with written notice of any
default or breach by Landlord at least sixty (60) days prior to the exercise by
by Tenant of any rights and/or remedies of Tenant hereunder arising out of such
default or breach.
11.02 ATTORNMENT. If any ground or similar such lease, mortgage, deed of
----------
trust or security agreement is enforced by the ground lessor, the mortgagee, the
trustee, or the secured party, Tenant shall, upon
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request attorn to the lessor under such lease or the mortgage or purchaser at
such foreclosure sale, or any person or party succeeding to the interest of
LandLord as a result of such enforcement as the case may be, and execute
instrument(s) confirming such attornment: provided however, that if this Lease
was approved and accepted in writing by such lessor, mortgagee, trustee or
secured party. Tenant's attornment shall be conditioned upon the agreement by
such successor to landlord's interest not to disturb Tenant's possession
hereunder during the Term so 1ong as Tenant performs its obligations under this
Lease. In the event of such enforcement and upon Tenant's attornment as
aforesaid. Tenant will automatically become the tenant of the successor to
Landlord's interest without charge in the terms or provisions of this Lease;
provided, however, that such successor to Landlord's interest shall not be bound
by (a) any payment of Rent for more than one month in advance (except
prepayments for security deposits, if any), (b) any amendments or modifications
of this Lease made without the prior written consent of such lessor or
mortgagee, or (c) any credits, offsets, defenses or claims which Tenant may have
against Landlord.
11.03 QUIET ENJOYMENT. Tenant, on paying the Rent and keeping and
---------------
performing the conditions and covenants herein contained, shall and may
peaceably and quietly enjoy the Premises for the Term, subject to the aforesaid
underlying leases, mortgages, deeds of trust and security agreements, all
applicable laws and other governmental and legal requirements, applicable
insurance requirements and regulations, and the provisions of this Lease. It is
understood and agreed that this covenant and any and all other covenants of
Landlord contained in this Lease shall be binding upon Landlord and its
successors only with respect to breaches occurring during its and their
respective ownership of the Landlord's interest hereunder.
ARTICLE 12
12.01 ASSIGNMENT AND SUBLETTING. Tenant shall not, voluntarily, by
-------------------------
operation of law, or otherwise, assign, transfer, mortgage, pledge, or encumber
this Lease or sublease the Premises or any part thereof, or suffer any person
other than Tenant, its employees, agents, servants and invitees to occupy or use
the Premises or any portion thereof, without the express prior written consent
of Landlord which will not be unreasonably withheld. Any attempt to do any of
the foregoing without such written consent shall be null and void and of no
effect and shall further constitute a material default under this Lease. If
Tenant so requests Landlord's consent, said request shall be in writing
specifying the identity of the proposed transferee, the duration of said desired
sublease or assignment, the date same is to occur, the exact location of the
space affected thereby and the proposed rentals on a square foot basis
chargeable thereunder, and shall be submitted to Landlord at least thirty (30)
days in advance of the date on which Tenant desires to make such assignment or
sublease or allow such occupancy or use. Upon such request Landlord may, with
reasonable business judgment, (a) grant such consent subject to Landlord's
approval of the assignee, transferee, subtenant, or mortgagee, or (b) deny such
consent. If Landlord does not give such consent in writing within fifteen (15)
days of the date such consent is requested, then Landlord's consent shall be
deemed to have been denied. In no event may Tenant assign this Lease or
sublease the Premises or any portion thereof to any party whose operations in
the Project would not be in keeping with, or would detract from, the operations
of other tenants in the Project. Tenant shall advise Landlord within thirty
(30) days of any change in a majority of the voting rights or other controlling
rights or interests of Tenant.
In any situation in which Landlord consents to an assignment or sublease
hereunder. Tenant shall promptly deliver to Landlord a fully executed copy of
the final sublease agreement or assignment instrument and all ancillary
agreements relating thereto. No assignment shall be effective unless the
assignee has agreed within the assignment instrument to assume the obligations
of Tenant hereunder and to be personally bound by all of the covenants, terms
and conditions hereof on the part of Tenant to be performed or observed
hereunder.
12.02 CONTINUED LIABILITY. Tenant shall, despite any permitted assignment
-------------------
or sublease, remain directly and primarily liable for the performance of all of
the covenants, duties, and obligations of Tenant hereunder, and Landlord shall
be permitted to enforce the provisions of this Lease against Tenant or any
assignee or sublessee without demand upon or proceeding in any way against any
other person.
12.03 CONSENT. Consent by Landlord to a particular assignment or sublease
-------
shall not be deemed a consent to any other or subsequent transaction. If this
Lease is assigned or if the Premises are subleased without
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the permission of Landlord, then LandLord may nevertheless collect Rent from
the assignee or sublessee and apply the net amount collected to the Rent payable
hereunder, but no such transaction or collection of Rent or application thereof
by Landlord shall be deemed a waiver of any provision hereof or a release of
Tenant from the performance of the obligations of the Tenant hereunder.
12.04 PROCEEDS. All cash or other proceeds of any assignment, sale or
--------
sublease of Tenant's interest in this Lease, whether consented to by Landlord or
not, shall be paid to Landlord notwithstanding the fact that such proceeds
exceed the Rent called for hereunder, and Tenant hereby assigns all rights it
might have or ever acquire in any such proceeds to Landlord.
ARTICLE 13
13.01 DEFAULT. Each of the following shall constitute a "Default" by
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Tenant:
(a) The failure of Tenant to pay the Rent or any part thereof when
due, and the failure to cure the problem within five (5) days of receipt
of written notice from Landlord; provided, however that Landlord shall not
be obligated to give written notice more than three (3) times in any twelve
month period:
(b) Tenant shall become insolvent or unable to pay its debts as they
become due, or Tenant notifies Landlord that it anticipates either
condition:
(c) Tenant takes any action to, or notifies Landlord that Tenant
intends to, file a petition under any section or chapter of the United
States Bankruptcy Code, as amended from time to time or under any
similar law or statute of the United States or any state thereof: or a
petition shall be filed against Tenant under any such statute or Tenant
notifies Landlord that it knows such a petition will be filed: or the
appointment of a receiver or trustee to take possession of substantiallv
all of Tenant's assets located at the Premises or of Tenant's interest in
this Lease: or the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease; unless the application of this subsection 13.01(c)
shall contravene any applicable law:
(d) Tenant shall fail to fulfill or perform, in whole or in part,
any of its obligations under this Lease (other than the payment of Rent)
and such failure or nonperformance shall continue for a period of thirty
(30) days after written notice thereof has been given by Landlord to
Tenant:
(e) Tenant shall vacate or abandon the Premises or any significant
portion thereof:
(f) Tenant shall fail to take possession of the Premises when
Landlord notifies Tenant that the Premises are ready for occupancy;
(g) The occurrence of any event or condition having a material and
adverse effect on the assets, liabilities, financial condition, business or
operations of Tenant as they exist on the date of this Lease, or the
ability of Tenant to meet its obligations under this Lease on a timely
basis as provided herein: or
(h) Any representation or warranty by Tenant in this Lease or in any
certificate, statement or other document furnished pursuant to or under
this Lease, including, without limitation, financial statements, proves to
be or becomes incorrect in any material respect.
13.02 RIGHTS UPON DEFAULT. If a Default by Tenant occurs, then at any time
-------------------
thereafter prior to the curing thereof, with or without notice or demand,
Landlord may exercise any and all rights and remedies available to Landlord
under this Lease, at law or in equity, including without limitation, termination
of this Lease and termination of Tenant's right to possession without
terminating the Lease. If Tenant is in Default for nonpayment of Rent and if
Tenant fails to pay same in full within five (5) days after Landlord hand
delivers to the
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Premises written notice of Landlord's intent to exercise its lockout rights,
then Landlord shall be entitled to change or modify door locks on all entry
doors of the Premises and Tenant shall not be entitled to a key to re-enter the
Premises until all delinquent Rent is paid in full: provided, however, Landlord
shall immediately thereafter post a notice on an entry door to the Premises,
stating that Landlord has exercised such lockout rights. If Tenant vacates or
abandons the Premises or any significant portion thereof. Landlord may
permanently change the locks without notice to Tenant, and Tenant shall not be
entitled to a key to re-enter the Premises. The two preceding sentences shall
supersede any conflicting provisions of Section 93.002 of the Texas Property
Code or any successor statue In the event of a Default, Landlord may, without
additional notice and without court proceedings, re-enter and repossess the
Premises and remove all persons and property therefrom, and Tenant hereby agrees
to surrender possession of the Premises, waives any claim arising by reason
thereof or by reason of issuance of any distress warrant or writ of
sequestration, and agrees to hold Landlord harmless from any such claims. If
Landlord elects to terminate this Lease, it may treat the default as an
entire breach of this Lease and Tenant shall immediately become liable to
Landlord for damages equal to the total of (a) the cost of recovering,
reletting, including, without limitation, the cost of leasing commissions
attributable to the unexpired portion of the Term of this Lease, and remodeling
the Premises, (b) all unpaid Rent and other amounts earned or due through such
termination, including interest thereon at the rate specified in Section 13.04
hereof, plus (c) the present value (discounted at the rate of 8% per annum) of
the balance of the Rent for the remainder of the Term less the present value
(discounted at the same rate) of the fair market rental value of the Premises
for said period and (d) any other sum of money and damages owed by Tenant to
Landlord. If Landlord elects to terminate Tenant's right to possession of the
Premises without terminating this Lease. Landlord may (but shall not be
obligated to) rent the Premises or any part thereof for the account of Tenant to
any person or persons for such rent and for such terms and conditions as
Landlord deems appropriate, and Tenant shall be liable to Landlord for the
amount, if any, by which the Rent for the unexpired balance of the Term exceeds
the net amount, if any, received by Landlord from such reletting, being the
gross amount so received by Landlord less the costs of repossession, reletting,
remodeling, and other expenses incurred by Landlord. Such sum or sums shall be
paid by Tenant in monthly installments on the first day of each month of the
Term. In no case shall Landlord be liable for failure to relet the Premises or
to collect the rent due under such reletting, and in no event shall Tenant be
entitled to more than 50% of any excess rents received by Landlord. All rights
and remedies of Landlord shall be cumulative and not exclusive.
13.03 COSTS. If a Default by Tenant occurs, then Tenant shall reimburse
-----
Landlord on demand for all costs reasonably incurred by Landlord in connection
therewith including, but not limited to, reasonable attorney's fees, court
costs, and related costs, plus interest thereon from the date such costs are
paid by Landlord until Tenant reimburses Landlord, at the rate specified in
Section 13.04 hereof.
13.04 INTEREST. ALL late payments of Rent, costs or other amounts due from
--------
Tenant under this Lease shall bear interest from the date due until paid at the
rate of 18% per annum; provided, however, in no event shall the rate of interest
hereunder exceed the maximum non-usurious rate of interest (the Maximum Rate)
permitted by the applicable laws of the State of Texas or the United States of
America, whichever shall permit the higher non-usurious rate, and as to which
Tenant could not successfully assert a claim or defense of usury, and to the
extent that the Maximum Rate is determined by reference to the laws of the State
of Texas the Maximum Rate shall be the indicated rate ceiling (as defined and
described in Texas Revised Civil Statutes, Article 5069-1.04, as amended) at the
applicable time in effect.
13.05 LANDLORD'S LIEN. Landlord reserves (and is hereby granted) a first and
---------------
superior lien and security interest (which shall be in addition to and not in
lieu of the statutory landlord's lien) on all fixtures, equipment, and personal
property (tangible and intangible) (excluding any confidential or proprietary
information or trade secrets, or trade secret information, stored in any form)
now or hereafter placed by Tenant in or on the Premises to secure all sums due
by Tenant hereunder, which lien and security interest may be enforced by
Landlord in any manner provided by law, including, without limitation, under and
in accordance with the Texas Uniform Commercial Code. The provisions of this
Section shall constitute a security agreement under the Texas Uniform Commercial
Code and, at Landlord's request. Tenant shall execute and file, where
appropriate, all documents required to perfect the security interest herein
granted in accordance with the Texas Uniform Commercial Code. Landlord may at
its election at any time file a copy of this Lease as a financing statement.
Unless otherwise provided by law and for the purpose of exercising any right
pursuant to this Section. Landlord
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and Tenant agree that reasonable notice shall be met if such notice is given by
five days' written notice, certified mail, return receipt requested, to Landlord
or Tenant at the address specified herein.
13.06 NON-WAIVER. The failure of Landlord to seek redress for violation
----------
of, or to insist upon the strict performance of, any covenant or condition of
this Lease shall not prevent a subsequent act or omission that would have
originally constituted a violation of this Lease from having all the force and
effect of an original violation. The receipt by Landlord of Rent with or without
knowledge of the breach of any provision of this Lease shall not be deemed a
waiver of such breach, shall not reinstate this Lease or Tenant's right of
possession if either or both have been terminated, and shall not otherwise
affect any notice, election, action, or suit by Landlord. No provision of this
Lease shall be deemed to have been waived by Landlord unless such waiver is in
writing signed by Landlord. No act or thing done by Landlord during the Term
shall be deemed an acceptance of a surrender of the Premises and no agreement to
accept such surrender shall be valid, unless express and in writing signed by
Landlord.
ARTICLE 14
14.01 FINANCIAL STATEMENTS. Tenant, at the reasonable request of Landlord
--------------------
from time to time, shall deliver to Landlord current financial statements,
including, without limitation, balance sheets, profit and loss statements,
reconciliations of capital and surplus, changes in financial condition,
schedules of sources and applications of funds, and operating statements with
respect to the business of Tenant, all of which shall, at the request of
Landlord, be certified by an independent certified public accountant. Landlord
agrees that such information shall be kept confidential.
14.02 CORPORATE RESOLUTIONS. If Tenant is a corporation, Tenant shall,
---------------------
within thirty (30) days following the execution and delivery of this Lease,
deliver a fully executed Certificate of the Secretary in the form attached
hereto as Exhibit G. Such certificate shall have attached a copy of the
resolution(s) of Tenant's corporate board authorizing its officers to enter into
this Lease; the resolution(s) may be in the form indicated or otherwise.
ARTICLE 15
15.01 AMENDMENT. Any agreement hereafter made between Landlord and Tenant
---------
shall be ineffective to modify, release, or otherwise affect this Lease, in
whole or in part unless such agreement is in writing and signed by the party to
be bound thereby.
15.02 SEVERABILITY. If any term or provision of this Lease shall, to any
------------
extent, be held invalid or unenforceable by a final judgment of a court of
competent jurisdiction, the remainder of this Lease shall all not be affected
thereby.
15.03 ESTOPPEL LETTERS. Tenant shall promptly upon request from Landlord
----------------
execute and acknowledge a certificate containing such information as may be
reasonably requested for the benefit of Landlord, any prospective purchaser or
any current or prospective mortgagee of all or any portion of the Project.
15.04 LANDLORD'S LIABILITY AND AUTHORITY. The liability of Landlord to
----------------------------------
Tenant for any default by Landlord under the terms of this Lease shall be
limited to the interest of Landlord in the Project, it being intended that
Landlord, its officers, directors and employees shall not be personally liable
for any judgment or deficiency. Whenever in this Lease there is imposed upon
Landlord the obligation to use its best efforts, reasonable efforts, diligence
or act in good faith, Landlord shall be required to do so only to the extent the
same is economically feasible and otherwise will not impose upon Landlord
extreme financial or other burdens.
15.05 HOLDOVER. If Tenant shall remain in possession of the Premises after
--------
the Expiration Date or earlier termination of this Lease, then Tenant shall be
deemed a tenant-at-will whose tenancy is terminable at any time. In such event,
Tenant shall pay Rent at one and one quarter the daily rental rate prevailing on
the date of
13
<PAGE>
such termination or expiration, but otherwise shall be subject to all of the
obligations of Tenant under this Lease. Additionally, Tenant shall pay to
LandLord all damages sustained by Landlord on account of such holding over by
Tenant.
15.06 SURRENDER. Upon the expiration or earlier termination of the Term.
---------
Tenant shall peaceably quit and surrender the Premises in good order and
condition excepting ordinary wear and tear, but subject to Sections 6.01 and
6.02 hereof. All obligations of Tenant for the period of time prior to the
expiration or earlier termination of the Term shall survive such expiration or
termination.
15.07 PARTIES AND SUCCESSORS. Subject to the limitations and conditions
----------------------
set forth elsewhere herein, this Lease shall bind and inure to the benefit
of the respective heirs, legal representatives, successors, and permitted
assigns and/or sublessees of the parties hereto. The term "Landlord", as used in
this Lease, so far as the performance of any covenants or obligations on the
part of Landlord under this Lease are concerned, shall mean only the owner of
the Project at the time question, so that in the event of any transfer of title
to the Project, the party by whom may such transfer is made shall be relieved of
all liability and obligations of the Landlord arising under this Lease from and
after the date of such transfer. Landlord shall have the right to transfer,
sell, assign, mortgage or encumber, in whole or in part, all of its rights and
obligations hereunder and in the Building, the Land, the Project and other
property of Landlord referred to herein.
15.08 NOTICE. Except as otherwise provided herein, any statement, notice
------
or other communication that Landlord or Tenant may desire or be required to
give to the other shall be deemed sufficiently given or rendered if hand
delivered, or if sent by registered or certified mail, return receipt
requested, addressed at the address(es) first hereinabove given or at such other
addresses(es) as the other parry shall designate from time to time by prior
written notice, and such notice shall be effective when the same is received or
in the case of mail notice, the earlier of when delivery is attempted or
acceptance of a letter is declined, and otherwise upon receipt, if mailed as
herein provided.
15.09 RULES AND REGULATIONS. Tenant, its servants, employees, agents,
---------------------
visitors, invitees, and licensees, shall observe faithfully and comply strictly
with the Rules and Regulations set forth in Exhibit D hereto, and shall abide by
and conform to such further Rules and Regulations as Landlord may from time to
time reasonably make, amend or adopt, after Tenant receives a copy thereof.
15.10 CAPTIONS. The captions in this Lease are inserted only as a matter
--------
of convenience and for reference and they in no way define, limit, or describe
the scope of this Lease or the intent of any provision hereof.
15.11 NUMBER AND GENDER. All genders used in this Lease shall include the
-----------------
other genders, the singular shall include the plural, and the plural shall
include the singular, whenever and as often as may be appropriate.
15.12 GOVERNING LAW. This Lease shall be governed by and construed in
-------------
accordance with the Laws of the State of Texas.
15.13 INABILITY TO PERFORM. Notwithstanding Section 15.18 hereof, whenever
--------------------
a period of time is herein prescribed for the taking of any action by Landlord,
Landlord shall not be liable or responsible for, and there shall be excluded
from the computation of such period of time, any delays due to strikes, riots,
acts of God, shortages of labor or materials, war, governmental laws,
regulations or restrictions, or any other cause whatsoever beyond the control of
Landlord, and such nonperformance or delay in performance by Landlord shall not
constitute a breach or default by Landlord under this Lease nor give rise to any
claim against Landlord for damages or constitute a total or partial eviction,
constructive or otherwise.
15.14 USE OF NAME. Tenant shall not, except to designate Tenant's business
-----------
address (and then only in a conventional manner and without emphasis or
display), use the name or mark "Austin Centre" for any purpose whatsoever.
14
<PAGE>
15.15 BROKER. Tenant represents and warrants that Tenant has dealt with,
------
and only with OMNI Commercial Realty Advisors, Inc. as Landlord's exclusive
broker and Tynes Realty as Tenant's exclusive broker in connection with this
Lease and that, insofar as Tenant knows, no other broker(s) negotiated this
Lease or are entitled to any commission in connection herewith. Tenant shall
indemnify and hold harmless Landlord from and against all claims (and costs of
defending against and investigating such claims) of any other broker(s) or
similar parties claiming under Tenant in connection with this Lease. Landlord
shall indemnify and hold harmless Tenant from and against all claims (and
costs of defending against and investigating such claims) of any other broker(s)
or similar parties claiming under Landlord in connection with this Lease.
15.16 MEMORANDUM OF LEASE. Without the prior written consent of Landlord
-------------------
(which may be granted or withheld in Landlord's sole discretion), Tenant shall
not record this Lease or any memorandum or other instrument with respect to this
Lease. Upon the date of execution of this Lease, or at any time thereafter, and
at the request of Landlord, Tenant and Landlord shall execute a memorandum in
recordable form setting forth the material terms and conditions of this Lease.
15.17 ENTIRE AGREEMENT. This Lease, including all Exhibits attached
----------------
hereto (which Exhibits are hereby incorporated herein and shall constitute a
portion hereof), contains the entire agreement between Landlord and Tenant with
respect to the subject matter hereof. Tenant hereby acknowledges and agrees
that neither Landlord nor Landlord's agents or representatives have made any
representations, warranties, or promises with respect to the Project, the
Premises, Landlord's services, or any other matter or thing except as herein
expressly set forth, and no rights, easements, or licenses are acquired by
Tenant by implication or otherwise except as expressly set forth in this Lease.
The taking of possession of the Premises by Tenant shall be conclusive evidence,
as against Tenant, that Tenant accepts the Premises and the Project, and that
same were in good and satisfactory condition at the time such possession was so
taken. Further, the terms and provisions of this Lease shall not be construed
against or in favor of a party hereto merely because such party is the
"Landlord" or the "Tenant" hereunder or such party or its counsel is the
draftsman of this Lease.
15.18 TIME OF ESSENCE. Time is of the essence of this Lease and each and
---------------
all of its provisions in which performance is a factor.
15.19 PARKING. Tenant shall have the right to use the parking facilities
-------
of the Building, subject to the monthly rates, rules and regulations, and any
other charges of Landlord for such parking facilities, all as more particularly
set forth on Exhibit E hereto.
15.20 TENANT TAXES. Tenant shall pay, or cause to be paid, before
------------
delinquency any and all taxes levied or assessed and which become payable during
the Term upon all of Tenant's leasehold improvements, equipment, furniture,
fixtures and personal property located in the Premises; except such property
which has been paid for by Landlord and is the standard of the Building.
15.21 ATTORNEY'S FEES. In the event Tenant defaults in the performance of
---------------
any of the terms, agreements or conditions contained in this Lease and Landlord
places the enforcement of this Lease, or any part thereof, or the collection of
any rent due or to become due hereunder, or recovery of the possession of the
Premises, in the hands of any attorney who files suit upon the same, the Tenant
shall pay the Landlord's reasonable attorney's fees.
15.22 LANDLORD ALTERATIONS OR MODIFICATIONS. Notwithstanding anything
-------------------------------------
herein to the contrary, Landlord expressly reserves the right in its sole
discretion to temporarily or permanently change the location of, close, block or
otherwise alter any entrances, corridors, skywalks, tunnels, doorways, or
walkways leading to or providing access to the Building or any part thereof or
otherwise restrict the use of same provided such acts do not unreasonably impair
Tenant's access to the Premises. Landlord shall not incur any liability
whatsoever to Tenant as a consequence thereof and such acts shall not be deemed
to be a breach of any of Landlord's obligations hereunder. Landlord agrees to
exercise good faith in notifying Tenant within a reasonable time in advance of
any alterations, modification or other acts of Landlord under this Section.
15
<PAGE>
15.23 NAME CHANGE. Landlord and Tenant covenant and agree that Landlord
-----------
hereby reserves and shall have the right at any time and from time to time to
change the name of the Building as Landlord may deem advisable, and Landlord
shall not incur any liability whatsoever to Tenant as a consequence thereof.
LANDLORD:
BRAZOS AUSTIN CENTRE, LTD.
By:_______________________________
Printed Name:_____________________
Title:____________________________
Date:_____________________________
TENANT:
CITYSEARCH, INC.
By: /s/ Bradley Ramberg
-------------------------------
Printed Name: Bradley Ramberg
---------------------
Title: CFO - VP Finance
----------------------------
Date:
----------------------------
16
<PAGE>
EXHIBITS:
EXHIBIT A: FLOOR-PLANS
EXHIBIT B: LEGAL DESCRIPTION
EXHIBIT C: WORK-LETTER
EXHIBIT D: RULES AND REGULATIONS
EXHIBIT E: PARKING
EXHIBIT F: COMMENCEMENT DATE DECLARATION
EXHIBIT G: CERTIFICATE OF THE SECRETARY
EXHIBIT H: NONE
EXHIBIT I: NONE
EXHIBIT J: RIGHT OF FIRST REFUSAL
EXHIBIT K: NONE
EXHIBIT L: MEMORANDUM OF LEASE
EXHIBIT M: LIMITED TERMINATION OPTION
17
<PAGE>
EXHIBIT A
---------
TO LEASE BETWEEN
BRAZOS AUSTIN CENTRE, LTD., AS LANDLORD
AND CITYSEARCH, INC., AS TENANT
FLOOR-PLANS
-----------
[SEE ATTACHED]
INITIALED FOR IDENTIFICATION BY LANDLORD ______ AND TENANT ILLEGIBLE]
-----------
<PAGE>
EXHIBIT A
[PLAN OF CITYSEARCH SUITE 440 APPEARS HERE]
<PAGE>
EXHIBIT B
---------
TO LEASE BETWEEN
BRAZOS AUSTIN CENTRE, LTD., AS LANDLORD
AND CITYSEARCH, INC., AS TENANT
LEGAL DESCRIPTION
-----------------
A FIELD NOTE DESCRIPTION OF A 1.75 ACRE TRACT OF LAND BEING ALL OF BLOCK 85
ORIGINAL CITY OF AUSTIN, TRAVIS COUNTY, TEXAS. PLAT OF SAID ORIGINAL CITY OF
AUSTIN BEING RECORDED AT THE GENERAL LAND OFFICE IN AUSTIN, TEXAS. SAID 1.75
ACRE TRACT BEING MORE PARTICULARLY DESCRIBED BY METES AND BOUNDS AS FOLLOWS:
COMMENCING at a concrete monument found in the intersection or the centerlines
of East Eighth Street and Brazos Street.
THENCE S 26 degrees 03'0l" E, a distance of 56.52 feet to a punchhole set in
concrete at the intersection of the south right-of-way line of East Eighth
Street and the east right-of-way lines of Brazos Street, and being a
perpendicular distance of 40.00 feet east of the said monumented centerline of
Brazos Street and being a perpendicular distance of 40.00 feet south of the
monumented centerline of East Eighth Street for the northwest corner and POINT
OF BEGINNING hereof:
THENCE with the west line of said Block 85 being parallel to and a perpendicular
distance of 40.00 feet east of the said monumented centerline of Brazos Street S
19 degrees 00'00" W, for a distance of 276.69 feet to an iron pin in the north
right-of-way line of East Seventh Street and being a perpendicular distance of
40.00 feet north of the monumented centerline of East Seventh Street for the
southwest corner hereof:
THENCE with the south line of said Block 85 being parallel to and a
perpendicular distance of 40.00 feet north of the monumented centerline of East
Seventh Street S 71 degrees 06"5l" E, a distance of 276.17 feet to an iron pin
set in the west right-of-way line of San Jacinto Street and being a
perpendicular distance of 40.00 feet to the west of said monumented centerline
of San Jacinto Street for the southeast corner hereof:
THENCE with the east line of said Block 85 being parallel to and a
perpendicular distance of 40.00 feet west of the monumented centerline of San
Jacinto Street N 18 degrees 59'22" E, for a distance of 276.52 feet to an
iron pin set in the south right-of-way line of East Eighth Street and being a
perpendicular distance of 40.00 feet south of the said monumented centerline of
East Eighth Street for the northeast corner hereof:
THENCE with the north line of said Block 85 being parallel to and a
perpendicular distance of 40.00 feet south of the monumented centerline of East
Eighth Street N 71 degrees 06"03" W, a distance of 276.12 feet to the POINT OF
BEGINNING and containing 1.75 acres of land, more or less.
INITIALED FOR IDENTIFICATION BY LANDLORD ______ AND TENANT [SIGNATURE ILLEGIBLE]
---------------------
<PAGE>
EXHIBIT C
---------
TO LEASE BETWEEN
BRAZOS AUSTIN CENTRE, LTD., AS LANDLORD
AND CITYSEARCH, INC., AS TENANT
WORK-LETTER
-----------
1. Prior to the Commencement Date, Landlord shall, at its sole cost and
expense, do the work described and reflected in the approved plans (herein
called the "Work") necessary to furnish and install within the Premises, the
tenant improvements defined below as Building Standard. The cost of the Work
shall be advanced by Landlord for the benefit of Tenant, to be repaid by Tenant
in the form of Base Rent. All Work completed by Landlord will meet applicable
building codes.
For purposes of this Lease. "Building Standard" shall mean those
improvements and other items as approved by Landlord as standard for buildout
purposes on initial space and for expansion and additional space in the
Building. The following shall apply unless otherwise specified in this Lease or
in the plans and specifications for the Work:
a. Ceiling Systems: 2' X 4" suspended lay-in acoustical ceiling. Ceiling
---------------
tile is regular edged and is cut to resemble 1' X 1'.
b. HVAC System: A multi-zoned heating, ventilating, and air conditioning
-----------
system is provided with perimeter slot diffusers, light fixture mounted supply
troffers and ceiling mounted supply and return air grilles. Main duct runs and
mixing boxes are provided on each floor for spin-in connections to supply
points. Each zone is individually controlled by a wall mounted thermostat.
Landlord's central plant will provide heat and conditioned air to each floor in
quantities necessary to support typical office use occupancy during ordinary
business hours as set forth in this Lease.
c. Window Wall: Window blinds in Landlord selected color will be provided
-----------
at each exterior window. Interior window blinds will be provided to Tenant if
they are determined by Landlord to be appropriate for the project.
d. Public Restroom: Complete men's and women's restroom facilities are
---------------
provided on each floor. All restrooms meet current handicap requirements.
e. Interior Partition: One (1) linear foot of latex flat painted
------------------
partition with rubber base per twelve (12) square feet of rentable area.
Measurement will be through door openings.
f. Demising Partitions: One-half (1/2) the total length of demising
-------------------
partitions separating tenants on multi-tenant floors will be added to interior
partition footage.
g. Interior Doors: One (1) solid core wood veneer door with hollow metal
--------------
frames and latchset will be provided per three hundred (300) square feet of
rentable area.
h. Entry Doors: Front and rear entry doors will be provided with
-----------
a building standard lockset and closer. Two (2) keys will be supplied with each
lockset.
i. Light Fixtures: One (1) 2' X 4' parabolic lay-in fluorescent light
--------------
fixture will be provided for each ninety (90) square feet of rentable area.
Light fixtures are capable of receiving saddle type air troffer for supply air
or adjustable slots for return air.
INITIALED FOR IDENTIFICATION BY LANDLORD ______ AND TENANT [SIGNATURE ILLEGIBLE]
---------------------
C-1
<PAGE>
j. Light Switches: One (1) single pole wall switch for lighting control
--------------
will be provided for each three hundred twenty five (325) square feet of
rentable area.
k. Duplex Outlets: One (1) 120 volt house circuited duplex wall outlet
--------------
will be provided for each one hundred twenty five (125) square feet of rentable
area.
l. Telephone Outlets: One (1) wall mounted telephone pull string will be
-----------------
provided for each two hundred twenty (220) square feet of rentable area.
m. Flooring: Building standard flooring will be 32 ounce carpet glued
--------
directly to the concrete slab.
Standard line VCT can be installed in lieu of carpet at no additional cost.
In order to ensure that the Landlord is able to maintain and monitor the
quality of the building construction, the design intent of the systems,
including warranties, guarantees, etc. and to further protect the unit prices
established for the Building Standard items, it shall be understood that all
Work will be performed by Landlord's contractor unless otherwise provided
herein. It shall be understood that all mechanical, structural, electrical,
plumbing and fire sprinkler engineering required to develop Tenant's
improvements through modifications to Building Standard requested by Tenant and
approved by Landlord to accommodate Tenant's layout will be done by the
Landlord's engineers at Tenant's expense.
2. Landlord shall provide, in consultation with Tenant, architectural
working drawings for the improvements to the Premises (hereinafter called
"Drawings"). The Drawings shall include partition and door location drawings,
telephone and electric drawings and reflect ceiling drawings, and include any
specifications required by Tenant including, but not limited to, paint colors,
finish details, and non-standard construction work to be performed within the
Premises by Landlord's contractors. Tenant covenants and agrees to deliver to
Landlord all information necessary to cause said Drawings to be prepared in a
timely matter. Landlord will, at Landlord's sole cost and expense, have
mechanical (sprinkler, air conditioning, hearing, electric and plumbing)
drawings prepared by Landlord's mechanical engineer or contractor covering, and
limited to the mechanical elements of the Work as shown on the Drawings as the
Work relates specifically to Building Standard installations as set forth in
Paragraph 1 above. The cost of mechanical drawings relating to Work in addition
to or exceeding Building Standard installations shall be paid by Tenant.
3. Except as set forth in Paragraph 1 and Paragraph 2, Landlord has no
other agreement with Tenant and has no other obligation to do any other work
with respect to the Premises. Any other work in the Premises that may be
permitted by Landlord pursuant to the terms and conditions of this Lease shall
be done at Tenant's sole cost and expense and in accordance with said terms and
conditions. If Landlord agrees to perform, at Tenant's request and upon
submission by Tenant (at Tenant's sole cost and expense) of all necessary
drawings, plans and specifications (the "Extra Work Drawings"), any other work
in addition to the Work (the"Extra Work"), such Extra Work will be done at
Tenant's sole cost and expense. Landlord shall submit to Tenant written
estimates of the cost of Extra Work. Such estimate shall include a charge of 7
% of the total expenses and costs otherwise chargeable for the Extra Work, for
Landlord's overhead (exclusive of and in addition to the general contractor's
overhead and profit), whether the Extra Work is to be performed by Landlord or
others). If Tenant shall fail to approve said estimates within seven (7) days
from the receipt thereof, the same shall be deemed disapproved in all respects
by Tenant and Landlord shall not be authorized to proceed thereon. Upon
Landlord's approval of the Extra Work Drawings, Tenant agrees to pay 50% of the
cost of the Extra Work to Landlord and the balance of the cost upon being billed
therefor by Landlord at any time and from time to time thereafter. Landlord
shall not be liable for any damages, nor shall the Commencement Date be
delayed, nor any Rent abated, as a result of the construction or performance of
any Extra Work or any delay in such construction or performance.
4. Landlord, at Landlord's discretion, may permit Tenant and Tenant's
agents to enter the Premises prior to the Commencement Date in order that Tenant
may do such other work as may be required by Tenant to
INITIALED FOR IDENTIFICATION BY LANDLORD ______ AND TENANT BR
---------------
C-2
<PAGE>
make the Premises ready for Tenant's use and occupancy thereof. If Landlord
permits such entry prior to commencement of the Term, then such permission is
conditioned upon Tenant and Tenant's agents, contractors, workmen, mechanics,
suppliers and invitees, working in harmony and not interfering with Landlord and
Landlord's agents in doing Landlord's work in the Premises or for other tenants
and occupants of said Building. If at any time such entry shall cause or
threaten to cause such disharmony or interference. Landlord shall have the right
to withdraw such permission upon twenty-four (24) hours written notice to
Tenant. Tenant agrees that any such entry into and occupation of the Premises
shall be deemed to be under all of the terms, covenants, conditions and
provisions of this Lease except as to the covenant to pay Rent, and further
agrees Landlord shall not be liable in any way for any injury, loss or damage
that may occur to any of Tenant's work and installations made in the Premises or
to properties placed therein prior to the Commencement Date, the same being at
Tenant's sole risk.
5. Tenant agrees that in the event Tenant shall have:
(A) caused changes to be made in the Drawings after they have
been prepared by Landlord or in the mechanical drawings and/or specifications
thereof or work or improvements required thereby (notwithstanding Landlord's
approval of such changes), or
(B) directly, or indirectly through any person, firm or
corporation employed by Tenant, unreasonably interfered with or delayed the work
of Landlord's contractor, or
(C) caused any delay in Landlord's completion of the Premises
through any fault or negligence of Tenant or its agents.
thereby delaying Tenant's occupancy of the Premises, Tenant shall commence
payment of Rent on the Commencement Date specified in Article 2 of this Lease.
INITIALED FOR IDENTIFICATION BY LANDLORD ______ AND TENANT [SIGNATURE ILLEGIBLE]
C-3
<PAGE>
EXHIBIT D
---------
TO LEASE BETWEEN
BRAZOS AUSTIN CENTRE, LTD., AS LANDLORD
AND CITYSEARCH INC., AS TENANT
RULES AND REGULATIONS
---------------------
1. The sidewalks, walks, plaza entries, corridors, concourses, ramps,
staircases, escalators and elevators of the Project shall not be obstructed or
used by Tenant, or the employees, agents, servants, visitors or licensees of
Tenant for any purpose other than ingress and egress to and from the Premises.
No bicycle or motorcycle shall be brought into the Building or kept on the
Premises without the prior written consent of Landlord.
2. No freight, furniture or bulky matter of any description will be received
into the Project or carried into the elevators except in such a manner, during
such hours and using such elevators and passageways as may be approved by
Landlord, and then only upon having been scheduled in advance. Any hand trucks,
carryalls of similar equipment used for the delivery or receipt of merchandise
or equipment shall be equipped with rubber tires, side guards and such other
safeguards as Landlord shall require.
3. Landlord shall have the right to prescribe the weight, position and
manner of installation of safes or other heavy equipment which shall, if
considered necessary by Landlord, be installed in a manner that shall insure
satisfactory weight distribution. All damage done to the Premises shall be
repaired at the expense of Tenant. The time, routing and manner of moving
safes or other heavy equipment shall be subject to prior approval by Landlord.
4. Only persons authorized by Landlord will be permitted to furnish
newspapers, ice, towels, barbering, shoe shining, janitorial services, floor
polishing and other similar services and concessions to Tenant, and only at
hours and under regulations fixed by Landlord. Tenant shall use no other method
of heating or cooling than that supplied by Landlord without Landlord's prior
written consent.
5. Neither Tenant nor the employees, agents, servants, visitors or
licensees of Tenant shall at any time place, leave or discard any rubbish paper,
articles or objects of any kind whatsoever outside the doors of the Premises or
in the corridors or passageways of the Project. No animals or birds shall be
brought or kept in or about the Project.
6. Landlord shall have the right to prohibit any advertising by Tenant
which in Landlord's opinion, tends to impair the reputation of the Project or
its desirability for offices and, upon written notice from Landlord, Tenant will
refrain from or discontinue such advertising.
7. Tenant shall not place or cause or allow to be placed, any sign,
placard, picture, advertisement, notice or lettering whatsoever, in, about or on
the exterior of the Premises, Building or Project except in and at such places
as may be designated by Landlord and consented to by Landlord in writing. Any
such sign, placard, advertisement, picture, notice or lettering and graphics on
corridor doors shall conform to the building standard prescribed by Landlord. No
trademark shall be displayed in any event.
8. Canvassing, soliciting or peddling in the Building and/or Project is
prohibited and Tenant shall cooperate to prevent same.
9. Landlord shall have the right to exclude any person from the Project
other than during customary business hours as set forth in the Lease, and any
person in the Project will be subject to identification by employees and agents
of Landlord. All persons in or entering the Project shall be required to comply
with the security policies of the Project.
INITIALED FOR IDENTIFICATION BY LANDLORD _____ AND TENANT BR
---------------
D-1
<PAGE>
If Tenant desires additional security service for the Premises, Tenant shall
have the right (with the prior written consent of Landlord) to obtain such
additional service at Tenant's sole cost and expense. Tenant shall keep doors to
unattended areas locked and shall otherwise exercise reasonable precautions to
protect property from theft, loss or damage. Landlord shall not be
responsible for the theft, loss or damage of any property or for any error with
regard to the exclusion from or admission to the Project of any person. In case
of invasion, mob, riot or public excitement, the Landlord reserves the right to
prevent access to the Project during the continuance of same by closing the
doors or taking other measures for the safety of the tenants and protection of
the Project and property or persons therein.
10. Only workmen employed, designated or approved by Landlord may be employed
for repairs, installations, alterations, painting, material moving and other
similar work that may be done in or on the Premises.
11. Tenant shall not conduct any restaurant, luncheonette, automat or
cafeteria for the sale of food or beverages to its employees or to others.
Tenant may, however, operate a coffee bar and microwave oven by and for its
employees.
12. Tenant shall not bring or permit to be brought or kept in or on the
Premises or Project any inflammable, combustible, corrosive, caustic, poisonous,
or explosive substance, or cause or permit any odors to permeate in or emanate
from the Premises, or permit or suffer the Premises to be occupied or used in a
manner offensive or objectionable to Landlord or other occupants of the Project
by reason of light, radiation, magnetism, noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business in the Project.
13. Tenant shall not mark paint, drill into, or in any way deface any part
of the Project or the Premises, provided that Tenant may hang artwork,
whiteboards, corkboards and similar items as a part of their normal business
operations. No boring, driving of nails or screws, cutting or stringing of wires
shall be permitted, except with the prior consent of Landlord and as Landlord
may direct. Tenant shall not install any resilient tile or similar floor
covering in the Premises except with the prior approval of Landlord. The use of
cement or other similar adhesive material is expressly prohibited.
14. No additional locks or bolts of any kind shall be placed by Tenant on
any door in the Project or the Premises, and no lock on any door therein shall
be changed or altered by Tenant in any respect. Landlord shall furnish two keys
for each lock on exterior doors to the Premises and shall on Tenant's request
and at Tenant's expense, provide additional duplicate keys. All keys shall be
returned to Landlord upon the termination of this Lease, and Tenant shall give
to Landlord the explanations of the combinations of all safes, vaults and
combination locks remaining with the Premises. Landlord may at all times keep a
pass key to the Premises. All entrance doors to the Premises shall be left
closed at all times and left locked when the Premises are not in use.
15. Tenant shall give immediate notice to Landlord in case of theft,
unauthorized solicitation or accident in the Premises or in the Project or of
defects therein or in any fixtures or equipment, or of any known emergency in
the Project.
16. Tenant shall not allow the Premises to be used for photographic,
lithographic or multigraphic reproductions except in connection with its own
business and not as a service for others without Landlord's prior written
consent.
17. Tenant shall not use or permit any portion of the Premises to be used as
an office for a public stenographer or typist, offset printing, the sale of
liquor or tobacco, a barber or manicure shop, an employment bureau, a labor
union office, a doctor's or dentist's office, a dance or music studio, any type
of school, or for any use other than those specifically granted in this Lease.
18. Tenant shall not advertise for laborers giving the Premises as an
address, nor pay such laborers at a location in the Premises.
INITIALED FOR IDENTIFICATION BY LANDLORD __________AND TENANT
[SIGNATURE ILLEGIBLE]
- ---------------------
D-2
<PAGE>
19. The requirements of Tenant will be attended to only upon application at
the office of Landlord in the Building or at such other address as may be
designated by Landlord in the Lease. Employees of Landlord shall not perform any
work or do anything outside of their regular duties, unless under special
instructions from the office of Landlord.
20. Tenants shall not place a load upon any floor of the Premises that
exceeds the load per square foot that such floor was designed to carry and that
is allowed by law. Business machines and mechanical and electrical equipment
belonging to Tenant that cause noise, vibration, electrical or magnetic
interference, or any other nuisance that may be transmitted to the structure or
other portions of the Project or to the Premises to such a degree as to be
objectionable to Landlord or that interfere with the use or enjoyment by other
tenants of their premises or the public portions of the Project shall be placed
and maintained by Tenant, at Tenant's expense, in settings of cork, rubber,
spring type, or other vibration eliminators sufficient to eliminate noise or
vibration.
21. No awnings, draperies, shutters or other interior or exterior window
coverings that are visible from the exterior of the Building or from the
exterior of the Premises within the Building may be Installed by Tenant.
22. Tenant shall not place, install or operate within the Premises or any
other part of the Project any engine, stove or machinery, or conduct mechanical
operations therein, without the written consent of Landlord.
23. No portion of the Premises or any other part of the Project other than
that portion of the Project operated as a hotel shall at any time be used or
occupied as sleeping or lodging quarters.
24. Tenant shall at all times keep the Premises neat and orderly.
25. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed, no
foreign substance of any kind whatsoever shall be thrown therein, and the
expense of any breakage, stoppage or damage resulting from the violation of this
rule shall be borne by the tenant who or whose employees or invitees shall have
caused it.
26. Landlord reserves the right to exclude or expel from the Project any
person who, in the judgement of Landlord, is intoxicated or under the Influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
the Rules and Regulations of the Project.
27. No noxious, illegal or offensive activities shall be carried on in the
Premises or the Project, nor shall anything be done which is an annoyance or
nuisance or which interferes with the quiet enjoyment of other occupants of the
Project. No activity is permitted which increases the rate of insurance for the
Project or causes any insurance policy to be cancelled or not renewed, or which
will impair the structural integrity of the Project.
28 . Tenants and their employees, agents, visitors and licensees shall conduct
themselves in an orderly, polite and inoffensive manner throughout the Project.
Any tenant or employee, agent, visitor or licensee of any tenant who is
intoxicated or under the influence of alcoholic beverages or drugs anywhere in
the Project will be in violation of these rules and regulations.
29. Landlord reserves the right, without the approval of Tenant, to rescind
any Rules or Regulations, to add new reasonable Rules or Regulations or make
reasonable amendments thereto, and to waive any Rules or Regulations with
respect to any tenant or tenants.
INITIAL FOR IDENTIFICATION BY LANDLORD _____ AND TENANT BR
----------------
D-3
<PAGE>
EXHIBIT E
---------
TO LEASE BETWEEN
BRAZOS AUSTIN CENTRE, LTD. AS LANDLORD
AND CITYSEARCH, INC. AS TENANT
PARKING
-------
(a) Guaranteed Spaces - Austin Centre Garage. Landlord agrees to provide,
----------------------------------------
and Tenant agrees to rent through the Term of the Lease, six (6) unreserved
spaces for the parking of automobiles in the parking garage located at Austin
Centre, Austin, Travis County, Texas. Tenant shall rent all such spaces unless
and until Landlord releases Tenant from such spaces after Tenant gives at least
sixty (60) days prior written notice to Landlord that Tenant desires to take
fewer spaces, but Landlord shall be under no obligation to later make available
to Tenant any spaces relinquished by Tenant. As rental for such parking spaces
provided to Tenant hereunder, Tenant shall pay to Landlord or the operator of
the garage, as may be designated from time to time by Landlord, monthly in
advance in the same manner and in addition to the Base Rent provided in the
Lease, rental on each such parking space at the rate of $80.00 for each
unreserved space per month, plus tax.
(b) Guaranteed Spaces - St. David's Garage. Landlord also agrees to make
--------------------------------------
available to Tenant through the term of the Lease up to fourteen (14) spaces in
the St. David's Garage at an initial cost of $68.00 per space per month, plus
tax; rates for these spaces may be adjusted from time to time as specified by
the operator of the garage. Landlord shall have no obligation to make available
to Tenant any such spaces used and later relinquished by Tenant.
(c) Optional Spaces - St. David's Garage. If Tenant has used all of its
------------------------------------
Guaranteed Spaces in the St. David's Garage, then, subject to availability.
Tenant may lease up to five (5) additional spaces in the St. David's Garage on a
month to month basis at the rates specified from time to time by the operator of
the garage.
(d) Default in Payment of Parking Fees. Upon the failure of Tenant to pay
----------------------------------
any parking fees when due, and the failure to cure such problem within five (5)
days of receipt of written notice from Landlord (provided, however, that
Landlord shall not be obligated to give written notice more than three (3) times
in any twelve month period), Landlord shall be relieved of any further
obligations under this Exhibit E furthermore, if Tenant has not paid such
overdue amounts within ninety (90) days of receipt of the written notice or if
Tenant is otherwise in default under the Lease at such time, then Tenant's
failure to pay will be deemed to be a default under the Lease and Landlord may
then exercise any other remedy allowed under this Lease.
(e) Miscellaneous. Tenant shall comply with all traffic, security, safety
-------------
and other rules and regulations promulgated from time to time by Landlord.
Tenant shall indemnify and hold harmless Landlord from and against all claims,
losses, liabilities, damages, costs and expenses (including, but not limited to,
attorneys' fees and court costs) arising or alleged to arise out of Tenant's use
of any such parking spaces, except to the extent caused by Landlord's
negligence. In the event any of the guaranteed parking spaces are or become
unusable at any time or from time to time throughout the Term, whether due to
casualty or any other cause, this Lease shall continue in full force and
effect; provided however, (i) Landlord shall make reasonable efforts to provide
alternate parking and (ii) Tenant shall be entitled to an abatement of the rent
due for any such space for so long as it is unavailable for use by Tenant during
normal Building hours.
INITIALED FOR IDENTIFICATION BY LANDLORD _____ AND TENANT [SIGNATURE ILLEGIBLE]
---------------------
<PAGE>
FOR EXAMPLE PURPOSES ONLY -- TO BE COMPLETED
UPON ACTUAL OCCUPANCY OF THE PREMISES.
EXHIBIT F
---------
TO LEASE BETWEEN
BRAZOS AUSTIN CENTRE, LTD., AS LANDLORD
AND CITYSEARCH, INC., AS TENANT
COMMENCEMENT DATE DECLARATION
-----------------------------
This declaration is executed with respect to that certain Austin Centre
Lease Agreement (the "Lease") dated August 15, 1996 by and between Brazos Austin
Centre, Ltd., a Texas corporation ("Landlord"), and CitySearch Inc., a Delaware
corporation ("Tenant"), covering approximately 4,473 square feet of rentable
area on floor four (4) of the Building. Capitalized terms used but not defined
herein shall have the meanings given to them in the Lease.
By their respective execution below. Landlord and Tenant each hereby
stipulates and agrees that:
(1) The Commencement Date (as defined in Section 2.02 of the Lease)
occurred on_________, 1996 and the Expiration Date is March 31, 2002;
(2) The Premises contain 4,473 rentable square feet:
(3) Tenant's Pro Rata Share for purposes of calculating rental
adjustments based on payment of Operating Expenses is 1.3016%; and
(4) Base Rent is payable in monthly installments as follows:
Lease Dates Base Rent
----------- ---------
09/16/1996 - 03/15/1997 Free Rent Period (No Base Rent or
Rental Adjustment)
03/16/1997 - 03/31/1998 $3,727.50 per month (based on a rental
rate of $10.00 per rental square foot
per year)
04/01/1998 - 03/31/1999 $3,913.88 per month (based on a rental
rate of $10.50 per rental square foot
per year)
04/01/1999 - 03/31/2000 $4,100.25 per month (based on a rental
rate of $11.00 per rental square foot
per year)
04/01/2000 - 03/31/2001 $4,286.63 per month (based on a rental
rate of $11.50 per rental square foot
per year)
INITIALED FOR IDENTIFICATION BY LANDLORD_____ AND TENANT BR
----------------
F-1
<PAGE>
04/01/2001 - 03/31/2002 $4,473.00 per month (based on a rental
rate of $12.00 per rental square foot
per year)
This declaration may be relied upon by any person having or acquiring an
interest in the Lease or the Building, without notice to or consent of
Landlord or Tenant.
LANDLORD:
BRAZOS AUSTIN CENTRE, LTD.
By:_________________________________
Printed Name:_______________________
Title:______________________________
Date:_______________________________
TENANT:
CITYSEARCH, INC.
By:_________________________________
Printed Name:_______________________
Title:______________________________
Date:_______________________________
INITIALED FOR IDENTIFICATION BY LANDLORD____________AND TENANT___________
F-2
<PAGE>
EXHIBIT G
---------
TO LEASE BETWEEN
BRAZOS AUSTIN CENTRE LTD., AS LANDLORD
AND CITYSEARCH INC., AS TENANT
CERTIFICATE OF THE SECRETARY
----------------------------
The undersigned, Secretary of CitySearch, Inc., a Delaware corporation (the
"Corporation"), hereby certifies that attached is a true and correct copy of the
resolutions duly adopted by unanimous consent dated 03/30/91, 1996, of all
directors of the Board of Directors of the Corporation and that the same have
not been amended, altered or rescinded and are now in full force and effect;
that the Corporation is duly organized and existing under the laws of the State
of Delaware; that all franchise and other taxes, if any, required to maintain
the corporate existence of the Corporation have been paid when due and that no
such taxes are delinquent that no proceedings are pending for the forfeiture of
the Certificate of Incorporation of the Corporation or for its dissolution,
voluntary or involuntary; that the Corporation is duly qualified to do business
in the State of Texas and is in good standing in such state; that there is no
provision of the Articles of Incorporation or Bylaws of the Corporation limiting
the powers of the Board of Directors to pass or consent to the resolutions set
out in the instrument attached hereto and that said resolutions are in
conformity with the provisions of said Articles of Incorporation and Bylaws; and
that the Secretary is the keeper of the records and minutes of the proceedings
of the Board of Directors of the Corporation.
This is to further certify that the persons named below are the duly
elected and qualified officers of the Corporation, holding the respective
offices set forth opposite their names, that they continue to hold these
offices at the present time, and that the respective signatures set opposite
their names are the genuine, original signatures of each respectively:
Name Title Signature
Charles Conn President /s/ Charles Conn
------------------ -----------------------
Bradley Ramberg Vice President /s/ Bradley Ramberg
------------------ -----------------------
Jeffrey Brewer Secretary /s/ Jeffrey Brewer
------------------ -----------------------
Thomas H. Layton Treasurer /s/ Thomas H. Layton
------------------ -----------------------
INITIALED FOR IDENTIFICATION BY LANDLORD______ AND TENANT BR
----------------
G-1
<PAGE>
IN WITNESS WHEREOF I have hereunto affixed my name as Secretary and have
caused the corporate seal of the Corporation to be hereto affixed this 3rd
day of August, 1996.
/s/ Jeffrey Brewer
---------------------------------
Secretary
The undersigned, Charles Comm, President of the Corporation, hereby
certifies that Jeffrey Brewer is the duly elected and qualified Secretary of the
Corporation, that the signature above is his (her) genuine signature, that
attached is a true and correct copy of the resolutions duly adopted by the Board
of Directors of the Corporation, which are now in full force and effect and that
the foregoing certificate is true and correct.
/s/ Charles Comm
---------------------------------
President
INITIAL FOR IDENTIFICATION BY LANDLORD____________AND TENANT ILLEGIBLE
---------
G-2
<PAGE>
RESOLUTIONS OF CORPORATE BOARD
------------------------------
RESOLVED: That CitySearch Inc. (this "Corporation") enter into the Austin Centre
Lease Agreement (the "Lease") dated August 15, 1996, with Brazos Austin Centre,
Ltd., a Texas corporation ("Landlord"), covering premises located on the 4th
floor of Austin Centre (the "Building").
FURTHER RESOLVED: That the Lease shall be in form and substance satisfactory to
Landlord and in form and substance approved by the officer of this Corporation
executing the same, his approval of each such instrument to be conclusively
evidenced by his execution thereof.
FURTHER RESOLVED: That the President or any Vice President of this Corporation
be and each hereby is severally authorized and directed for and on behalf, and
as the act and deed of this Corporation to execute and deliver to Landlord the
Lease and any addenda, amendments and supplements thereto, and to take such
other action in the consummation of the transaction herein contemplated as the
officer acting shall deem to be necessary or desirable, without the necessity of
attestation by the secretary or any other officer of this Corporation and with
or without the seal of this Corporation; any and all acts heretofore taken by
the President or any Vice President of this Corporation to such end are hereby
expressly ratified and confirmed as the acts and deeds of this Corporation.
INITIALED FOR IDENTIFICATION BY LANDLORD_____________AND TENANT ILLEGIBLE
---------
G-3
<PAGE>
EXHIBIT J
---------
TO LEASE BETWEEN
BRAZOS AUSTIN CENTRE, LTD., AS LANDLORD
AND CITYSEARCH, INC., AS TENANT
RIGHT OF FIRST REFUSAL
----------------------
1. Landlord hereby grants to Tenant a right of first refusal (the "Right
of First Refusal") exercisable as hereinafter set forth, covering the property
designated as Refusal Space on Exhibit A. All rights of Tenant to lease the
Refusal Space pursuant to the Right of First Refusal shall be applicable to the
entire Refusal Space or to any portion thereof which may become available from
time to time. The Right of First Refusal shall be as follows:
(a) Upon receipt of a bona fide offer for the lease of any
portion of the Refusal Space, which offer Landlord wishes to
accept, and provided Tenant is not at such time in default
under the Lease, Landlord shall give Tenant notice (the
"Notice") in writing of the terms and conditions of the
offer. Tenant may exercise the Right of First Refusal by
delivering to Landlord written notice of Tenant's election
on or before the tenth (10th) calendar day after the date of
Landlord's delivery to Tenant of the Notice. In the event
Tenant exercises its Right of First Refusal, it shall be
required to lease the Refusal Space on the same terms and
conditions provided in the Notice, subject to section (c)
below.
(b) In the event Landlord does not actually receive notice of
Tenant's election to lease the Refusal Space described in
the Notice within the period provided herein, then Landlord
shall be free to lease such space to one or more third
parties.
(c) All Refusal Space leased to Tenant pursuant to the Right of
First Refusal, shall at Landlord's option, be for a term
which is coterminous with the initial Term of this Lease and
any renewal or extension thereof.
(d) The term "Premises", as used in this Lease and/or the
Underlying Lease, shall include all expansions thereof that
may occur from time to time pursuant to this Right of First
Refusal.
(e) This Right of First Refusal shall terminate at the end of
the twelfth month following the Commencement Date.
INITIALED FOR IDENTIFICATION BY LANDLORD _____ AND TENANT [SIGNATURE ILLEGIBLE]
---------------------
<PAGE>
EXHIBIT L
---------
TO LEASE BETWEEN
BRAZOS AUSTIN CENTRE, LTD., AS LANDLORD
AND CITYSEARCH, INC., AS TENANT
MEMORANDUM OF LEASE
-------------------
THE STATE OF TEXAS (S)
(S) KNOW ALL MEN BY THESE PRESENTS THAT:
COUNTY OF TRAVIS (S)
This Memorandum of Lease is executed in connection with that certain Austin
Centre Lease Agreement (the "Lease") between Brazos Austin Centre, Ltd., a
Texas corporation ("Landlord") and CitySearch, Inc., a Delaware corporation
("Tenant") dated August 15, 1996, relating to the real property (the "Land")
situated on Travis County, Texas, described in Exhibit "B" attached hereto and
-----------
made a part hereof for all purposes, which land has a street address of 701
Brazos Street, Austin, Travis County, Texas.
Landlord has leased to Tenant, and Tenant has leased from Landlord for the
rent and subject to the provisions of the Lease, certain space described in the
Lease located on floor four (4) of the building known as Austin Centre as more
particularly described on Exhibit "A" hereto.
----------
The initial term of the Lease commences on ___________ and expires on
March 31, 2002.
This Memorandum of Lease is executed for purposes of giving public notice
of the matter contained herein, and shall not operate to add to, reduce, or
change any of the substantive rights of any of the parties to the Lease.
LANDLORD:
BRAZOS AUSTIN CENTRE LTD.
By:________________________________
Printed Name:______________________
Title:_____________________________
Date:______________________________
TENANT:
CITYSEARCH, INC.
By: /s/ Bradley Ramberg
--------------------------------
Printed Name: Bradley Ramberg
----------------------
Title: CFO
-----------------------------
Date: 9/12/96
------------------------------
INITIALED FOR IDENTIFICATION BY LANDLORD______ AND TENANT [SIGNATURE ILLEGIBLE]
---------------------
L-1
<PAGE>
THE STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
THIS INSTRUMENT was acknowledged before me on ________________________,
1996, by _________________ ,__________________ of Brazos Austin Centre Ltd., a
Texas corporation, on behalf of said corporation.
__________________________________
Notary Public in and for
The State of Texas
__________________________________
Typed or Printed Name of Notary
My Commission Expires:____________
THE STATE OF CALIFORNIA (S)
(S)
COUNTY OF LOS ANGELES (S)
THIS INSTRUMENT was acknowledged before me on Sept 12, 1996, by Bradley
Ramberg, CFO of CitySearch Search, Inc., a Delaware corporation on behalf of
said corporation.
[STAMP APPEARS HERE] [SIGNATURE ILLEGIBLE]
---------------------------------------
NotarY Public in and for
The State of California
Kevin Asaturian
---------------------------------------
Typed or Printed Name of Notary
My Commission Expires: Jan 15, 2000
INITIALED FOR IDENTIFICATION BY LANDLORD___________ AND TENANT_________
L-2
<PAGE>
EXHIBIT M
---------
TO LEASE BETWEEN
BRAZOS AUSTIN CENTRE LTD., AS LANDLORD
AND CITYSEARCH, INC., AS TENANT
LIMITED RIGHT OF TERMINATION
----------------------------
Notwithstanding anything to the contrary contained in the Lease. Tenant
shall have the limited right to change the Expiration Date of the Lease to March
15, 2000. Tenant may do so if, and only, if, (i) Tenant delivers written notice
of the new Expiration Date to Landlord no later than September 15, 1999, (ii)
Tenant is not then in default under the Lease, and (iii) Tenant pays to
Landlord at the time notice is given the sum of the following amounts:
(a) the full amount of the unamortized portion of the Tenant improvement
costs incurred by Landlord and the real estate commission paid by Landlord
to the Broker;
(b) one half (1/2) of the full rental abatement given to Tenant in Section
3.01 of the Lease: and
(c) the sum of $1,000.00 to cover after hours utility charges.
For purposes of calculating the unamortized portion of the improvement
costs and Broker's commission, such expenses shall be deemed to be amortizing on
a straight line basis over the unmodified lease term.
INITIALED FOR IDENTIFICATION BY LANDLORD___________ AND TENANT [SIGNATURE
----------
ILLEGIBLE
- ---------
<PAGE>
[LOGO OF CONSTRUCTIONS CONSTRUCTIONS & ASSOCIATES, INC
& ASSOCIATES, INC Date: 29-Jul-98
APPEARS HERE] FOR: CITY SEARCH
SUITE 440 4,473 SF
701 BRAZOS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
COSTS PERCENT
SUMMARY OF REMODEL COSTS TOTALS /SF OF TOTALS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEMOLITION/CONC CUT & FOUR SACK $ 1,025 $ 0.13 1%
MILLY/CRK $ 1,500 $ 0.34 2%
DOORS/FRAMES/HARDWARE $ 9,329 $ 2.09 13%
GLASS AND GLAZING $ 910 $ 0.21 1%
DRYWALL/ACCUSTICAL $10,850 $ 2.43 15%
FLOORING $ 7,290 $ 1.63 10%
PAINT $ 5,554 $ 1.24 8%
SIGNAGE (ALLOWANCE) N/A $ 0.00 0%
FOOD SERVICE EQUIPMENT $ 675 $ 0.15 1%
METAL SHELVING $ 395 $ 0.09 1%
FIRE PROTECTION $ 2.185 $ 0.48 3%
PLUMBING $ 3,344 $ 0.76 5%
HVAC $ 8,871 $ 1.49 9%
ELECTRICAL $12,524 $ 2.80 18%
--------------------------------------------
SUBTOTAL $62,241 $13.91 87%
GENERAL CONDITIONS $ 5,550 $ 1.24 8%
--------------------------------------------
SUBTOTAL $87,791 $15.16 95%
OVERHEAD AND PROFIT 5.00% $ 3,390 $ 0.76 5%
--------------------------------------------
SUBTOTAL $71,187 $15.81 100%
STATE REMODEL TAX 5.25% N/A $ 0.00 0%
--------------------------------------------
N/A SHELL SPACE SUBTOTAL $71,181 $15.81 100%
-----------------------------------------------------------------------------------------
TOTAL PROJECT COST $71,181 $15.81 100%
-----------------------------------------------------------------------------------------
QUALIFICATIONS:
-----------------------------------------------------------------------------------------
1. POWER TO LOW WALLS BY POLE TO PLENUM SPACE.
2. OWNER TO REMOVE EXISTING BUILDING STOCK IN
SPACE.
3. WE ASSUME AVAILABLE SPACE IN EXISTING
ELECTRICAL PANEL NO NEW PANEL BE NECESSARY.
UTAH
SAN ANTONIO
HOUSTON
DALLAS
FORT WORTH
DENVER
NEW YORK
BOSTON
WASHINGTON
LONDON
</TABLE>
<PAGE>
[LOGO OF CITYSEARCH
APPEARS HERE]
VIA FEDERAL EXPRESS
AUGUST 20, 1996
Mr. Casey Beasley
OMNI Commercial Realty Advisors
823 Congress Avenue, Suite 111
Austin, TX 78701
Dear Casey:
I am enclosing two copies of the Austin Centre Lease Agreement by and
between Brazos Austin Centre, Ltd. and CitySearch Inc. both of which have
been executed by us. As we discussed, we are holding onto Exhibits G and
L. As soon as all of our Board members are in town, we will return
Exhibit G. I will return Exhibit L next week. I am also enclosing three
copies of the approved space plan. Please return one fully executed lease
and space plan to me.
If you have questions, please call me at (818) 542-3862.
Sincerely,
/s/ Bradley Ramberg
Bradley Ramberg
Chief Financial Officer
BR/pc
Enclosures
<PAGE>
EXHIBIT 10.18
LEASE
OFFICE BUILDING
PARTIES
THIS LEASE made this 10th day of September 1996 between Judge Building
Group Lessor, and City Search, Inc., as Lessee.
WITNESSETH:
PREMISES
Lessor does hereby lease to Lessee and Lessee hereby hires from Lessor
those certain premises (hereinafter called "premises") consisting
ofapproximately 4,645 rentable square feet, said premises being situated on the
third floor of building, located at Judge Building, Suite 300 Salt Lake City,
Utah 84111.
Said letting and hiring is upon and subject to the terms, covenants and
conditions herein set forth and the Lessee covenants as a material part of the
consideration for this Lease to keep and perform each and all of said terms,
covenants and conditions by it to be kept and performed and that this Lease is
made upon the conditions of such performance.
1. PURPOSE. The premises are to be used for the conduct of general offices and
such other uses as are compatible or necessary thereto and for no other purpose
without the written consent of Lessor.
TERM AND POSSESSION. The term of this Lease shall commence on the date that
possession is provided to Lessee which shall be on or before See Addendum A,
and the term shall expire at midnight following the expiration of 5 years from
the commencement date.
If the Lessor, for any reason whatsoever, cannot deliver possession of the
said premises to Lessee at the commencement of the term hereof, this Lease shall
not be void or voidable, nor shall Lessor be liable to Lessee for any loss or
damage resulting therefrom, but in that event all rent shall be abated during
the period between the commencement of the said term and the time when Lessor
delivers possession.
3. RENT. Lessee shall pay as base annual rent on the leased premises during
the term hereof the amount set forth on the schedule below, with one-twelfth
(1/12) of said amount to be paid each month. On the commencement date, Lessee
shall pay in advance the rent attributable to the calendar or fractional
calendar month with which the term of this Lease begins (if prorated) together
with the rent attributable to the first full calendar month. Lessee shall pay in
advance one-twelfth of the annual rent specified in this Section 3. Each rental
payment or other sum required to be paid by Lessee under this Lease shall be
delivered to Lessor at Judge Building Group, C/O D.M. Properties, Inc., 2180 E.
4500 So. #110 Accounting Office SLC, UT 84117 or to such other address as
Lessor may hereafter designate in a written notice given to Lessee. Any
installment of rent, other sum, or any portion of such installment or sum
required under this Lease to be paid by Lessee which has not been paid within
ten (10) days after the due date thereof shall, whether or not demand therefore
is made or notice of default is given, bear interest at the rate of twelve
percent (12%) per annum from the due date thereof until paid in full. In
addition thereto, Lessor may charge a sum equal to five percent (5%) of each
unpaid amount as a service fee to compensate Lessor for the additional time and
expense necessitated in the handling of delinquent payments.
The rental schedule for base rent is as follows:
<TABLE>
<S> <C> <C>
Year #1 $ 61,546.25 per year payable at the rate of
----------
$ 5,128.85 on or before the first day of each month.
----------
Year #2 $ 64,623.56 per year payable at the rate of
----------
$ 5,385,29 on or before the first day of each month.
----------
Year #3 $ 67,854.74 per year payable at the rate of
----------
$ 5,654 56 on or before the first day of each month.
----------
Year #4 $ 71,247.47 per year payable at the rate of
----------
$ 5,937.28 on or before the first day of each month.
----------
Year #5 $ 74,809.84 per year payable at the rate of
----------
$ 6,234.15 on or before the first day of each month.
----------
</TABLE>
4. RENTAL ADJUSTMENTS FOR BUILDING OPERATING EXPENSES. Lessee agrees to pay as
additional rent for the premises an amount equal to Lessee's proportionate share
of the increase in Operating Expenses (as hereinafter defined) in connection
with the premises, the office building, and the common areas (hereinafter
collectively referred to as the "Property"), which in the aggregate are
in excess of $ 1996 Base Year ("Base Operating Expenses") per annum.
-------------------
Operating Expenses
As used herein, the term "Operating Expenses" shall include (but not be
limited to) the following costs of operation and maintenance: Real property
taxes and assessments; rent taxes (if applicable); water and sewer charges;
insurance premiums; utilities; supply and materials costs; license and permit
fees; costs incurred in the management of the Property, including professional
management fees; costs for services of independent contractors, and costs of
employee compensation (including salaries, employment taxes and fringe benefits)
connected with the day-to-day operation, repair, and maintenance of the
Property, including without limitation, janitorial service, gardening, security,
parking, elevator, painting, plumbing, electrical, carpentry, heating,
ventilation, air conditioning, window washing, parking and grounds maintenance,
snow removal, and refuse service. Operating expenses shall not include
depreciation on the building on which the premises are a part or equipment
therein, loan payments, or brokerage commissions.
Leasee's proportionate share of any increase in Operating Expenses is
5.75%. This percentage is that portion of the total gross rentable area of the
building occupied by the Lessee hereunder.
Lessor shall give to Lessee on or before the first day of April of each
year following the year in which the Lease commences a statement of the increase
in rent payable by Lessee hereunder (both on an annual basis and on a monthly
installment basis), but failure
-1-
<PAGE>
14
No Lessee shall lay linoleum, tile, carpet or other similar floor covering
so that the same shall be affixed to the floor of the premises in any manner
except as approved by the Lessor. The expense of repairing any damage resulting
from a violation of this rule or removal of any floor covering shall be borne
by the Lessee by whom, or by whose contractors, employees or invitees, the
damage shall have been caused.
15
No furniture, packages, supplies, equipment or merchandise will be received
in the building or carried up or down in the elevators, except between such
hours and in such elevators as shall be designated by Lessor.
16
On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 P.M. and 8:00 A.M. the following day, access to the building, or
to the halls, corridors, elevators or stairways in the building, or to the
premises may be refused unless the person seeking access is known to the person
or employee of the building in charge and has a pass or is properly identified.
The Lessor shall in no case be liable for damages for any error with regard to
the admission to or exclusion from the building of any person. In case of
invasion, mob, riot, public excitement, or other commotion, the Lessor reserves
the right to prevent access to the building during the continuance of the same
by closing the doors or otherwise, for the safety of the Lessees and protection
of property in the building and the building.
17
Lessee shall see that the doors of the premises are closed and securely
locked before leaving the building and must observe strict care and caution that
all water faucets or water apparatus are entirely shut off, so as to prevent
waste or damage, and for any default of carelessness Lessee shall make good all
injuries sustained by other tenants or occupants of the building of Lessor.
18
Lessor reserves the right to exclude or expel from the building any person
who, in the judgment of Lessor, is intoxicated or under the influence of liquor
or drugs, or who shall in any manner do any act in violation of any of the rules
and regulations of the building.
19
The requirements of Lessee will be attended to only upon application at the
Office of the Building. Employees of Lessor shall not perform any work or do
anything outside of their regular duties unless under special instructions from
the Lessor, and no employee will admit any person (Lessee or otherwise) to any
office without specific instructions from the Lessor.
20
No vending machine or machines of any description or kind may be maintained
or operated upon the premises without the written consent of Lessor.
21
Lessor shall have the right, exercisable without notice and without
liability to Lessee, to change the name and the street address of the building
of which the premises are a part.
22
Lessee shall not disturb, solicit, or canvass any occupant of the building
and shall cooperate to prevent same.
23
Without the written consent of Lessor, Lessee shall not use the name of the
building in connection with or in promoting or advertising the business of
Lessee except as Lessee's address.
24
The word "building" as used herein means the building of which the premises
are a part.
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Lessor to give such Statement by said date shall not constitute a waiver
by Lessor of its right to require an increase in rent, so long as such notice is
given not later than December 31 of the year in question. Upon receipt of said
Statement, Lessee shall pay in full, within fifteen (15) days thereafter.
Lessee's share of the total amount of the increase due (based upon the number of
months the Lease was in effect during the prior year), and in addition for the
then current year Lessee shall pay the Lessor an amount equal to one monthly
installment multiplied by the number of months from January in the calendar
year in which the Statement is rendered to the month of such payment, both
months inclusive. Subsequent monthly installments shall be payable concurrently
with the regular monthly rent payments for the balance of that calendar year,
and shall continue until the next comparison year's Statement is rendered. If
the next or any succeeding comparison year results in a greater increase in
Operating Expenses, then upon receipt of the Statement from Lessor, Lessee shall
pay a lump sum equal to Leasee's share of such total increase in Operating
Expenses less the total of the monthly installments of estimated increase paid
in the previous calendar year for which comparison is then being made; and the
estimated monthly installments to be paid for the next year following said
comparison year shall be adjusted to reflect such increase. If in any comparison
year the Leasee's share of Operating Expenses are less than the preceeding year,
then upon receipt of Lessor's Statement, any overpayment made by Lessee on the
monthly installment basis provided above shall be credited towards the next
monthly rent following due and the estimated monthly installments of Operating
Expenses to be paid shall be adjusted to reflect such lower Operating Expenses
for the most recent comparison year.
By way of example and illustration of the above provisions, the following
hypothetical Lease is assumed:
(a) Leasee's base monthly rent is $1,000; (b) Leasee's Lease commenced on
July 1 of the prior year; (c) Lessee's portion of the increase in Operating
Expenses for the comparison year is $360, or $30 per month; and (d) the
Statement is delivered to Lessee on March 1 of the current calendar year.
Under the above facts, Lessee would be required to pay to Lessor upon
receipt of the Statement the sum of $240, representing the monthly increase
attributable to the last six months of the year in which the Lease commenced and
the first two months of the current calendar year, and commencing March of the
current calendar year, Leasee's total monthly rent would be increased to $1,030.
Lessor agrees to maintain records concerning the cost of Operating Expenses
for all comparison years for a period not less than 150 days after the date
Lessor delivers to Lessee the Statement setting forth the previous year's
cost increase. Lessee shall have the right to inspect and copy such records.
If the Lease term has expired and Lessee has vacated the premises, when
the final determination is made of Lessee's share of Operating Expense increases
for the year in which this Lease terminates, Lessee shall immediately pay any
increase due over the estimated expenses paid, and conversely, any overpayment
made in the event said expense is decreased shall be immediately rebated by
Lessor to Lessee.
USES PROHIBITED. Lessee shall not do or permit anything to be done in or
about the premises nor being or keep anything herein which will in any way
increase the existing rate of or affect any fire or other insurance upon the
building or any of its contents, or cause a cancellation of any insurance policy
covering said building or any part thereof or any of its contents. Lessee shall
not do or permit anything to be done in or about the premises which will in any
way obstruct or interfere with the rights of other tenants or occupants of the
building or injure or annoy them or use or allow the premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor shall Lessee cause,
maintain or permit any nuisance in, on or about the premises. Lessee shall not
commit or suffer to be committed any waste in or upon the premises.
6. COMPLIANCE WITH LAW. Lessee shall not use the premises or permit anything
to be done in or about the premises which will in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Lessee shall at its sole cost and expense
promptly comply with all laws, statutes, ordinances and governmental rules,
regulations or requirements now in force or which may hereafter be in force and
with the requirements of any board of fire underwriters or other similar body
now or hereafter constituted relating to or affecting the condition, use or
occupancy of the premises excluding structural changes not related to or
affected by Leasee's improvements or acts. The judgment of any court of
competent jurisdiction or the admission of Lessee in any action against Lessee,
whether Lessor be a party thereto or not, that Lessee has violated any law,
statute, ordinance or governmental rule, regulation or requirement, shall be
conclusive of that fact as between Lessor and Lessee.
7. ALTERATIONS. As of the date Lessor delivers the premises to Tenant and
continuing thereafter until the original term expires, Lessee shall have the
right to make non-structural alterations, additions and improvements to the
premises, including, but not limited to, the installation of partitions,
carpeting, light fixtures, window hangings, wall hangings, furnitures, and trade
fixtures (the "Improvements"); provided, in no event shall Lessee make such
alterations or improvements without first obtaining Lessor's prior approval of
the proposed improvement, which consent shall not be unreasonably withheld.
Lessee may contract with a third party or Lessor for the construction of such
improvements; provided, Lessor shall have the right to approve any such third
party contractor, which approval shall not be unreasonably withheld.
Upon the expiration or termination of the Lease, Lessee, upon Lessor's
demand, shall at its cost remove any improvements to the premises which are
designated by Lessor to be removed and Lessee shall forthwith and with all due
diligence and at its sole cost and expense, repair any damage to the premises
caused by such removal. Upon the expiration or termination of the Lease, Lessee
shall have the right to remove all improvements owned by it which are not
attached or affixed to the premises.
8. REPAIRS AND DAMAGES. By entry hereunder Lessee accepts the premises as
being in good, sanitary order, condition and repair. Lessee hereby waives all
rights to make repairs at the expense of Lessor as provided by any law, statute
or ordinance now or hereafter in effect. Lessee shall, upon the expiration or
sooner termination of the term hereof, surrender the premises to Lessor in the
same condition as when received, ordinary wear and tear and damage by fire,
earthquake, act of God or the elements excepted. It is specifically understood
and agreed that Lessor has no obligation and has made no promises to any part
thereof and that no representations respecting the condition of the premises or
the building of which the premises are a part have been made by Lessor to Lessee
except as specifically herein set forth.
9. ABANDONMENT. Lessee shall not vacate or abandon the premises at any time
during the term, and if Lessee shall abandon, vacate or surrender said premises,
or be dispossessed by process of law, or otherwise, any personal property
belonging to Lessee and left on the premises shall be deemed to be abandoned.
10. LIENS. Lessee shall keep the premises and the property in which the
premises are situated free from any liens arising out or any work performed,
materials furnished or obligations incurred by Lessee.
11. ASSIGNMENT AND SUBLETTING. Lessee shall not assign, transfer, mortgage,
pledge, hypothecate or encumber this Lease, or any interest therein, and shall
not sublet the said premises or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person (the agents and servants of
Lessee excepted) to occupy or use the said premises, or any portion thereof,
without the written consent of Lessor first had and obtained, which consent
shall not be unreasonably withheld, and a consent to one assignment, subletting,
occupation or use by another person. Any such assignment or subletting without
such consent shall be void, and shall at the option of Lessor, terminate this
Lease. Any sublease or assignment agreed to by Lessor shall in no way relieve
Lessee of responsibility of making rent payments to Lessor in the event of a
default by the assignee or "sub-lessee" in making their rent payments for the
terms of the original lease or any extensions thereof. This Lease shall not, nor
shall any interest therein, be assignable as to the interest of Lessee by
operation of law, without the written consent of Lessor.
12. INDEMNIFICATION OF LESSOR. Lessor shall not be liable to Lessee, and
Lessee hereby waives all claims against Lessor, for any injury or damage to any
person or property in or about the premises by or from any cause whatsoever,
and, without limiting the generality of the foregoing, whether caused by water
leakage of any character from the roof, walls, basement or other portion of the
premises or the building, or caused by gas, fire, oil, electricity or any cause
whatsoever in, on or about the premises of the building or any part thereof,
Lessee shall hold Lessor harmless from any and all claims or liability from
injury or damage to any person or property whatsoever: (1) occurring in or about
the premises or any part thereof and (2) occurring in or about any facilities
without
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prejudice to the generality of the term "facilities," elevators, stairways,
passageways, hallways and parking areas, the use of which Lessee may have in
conjunction with other tenants of the building, when such injury or damage shall
be caused in part or in whole by the act, neglect, fault of or omission of any
duty with respect to the same by Lessee, its agents, servants, employees or
invitees.
13. INSURANCE. Lessee agrees during the term hereof to carry public liability
insurance covering the premises in an amount of not less than Two Hundred Fifty
Thousand Dollars ($250,000.00)for injury and/or death to any one person and Five
Hundred Thousand Dollars ($500,000.00) for injury and/or death to any number of
persons in any one accident, and property damage insurance in an amount of One
Hundred Thousand Dollars($100,000.00) in companies satisfactory to Lessor in the
name of Lessee (with Lessor named as an additional insured), to pay the premiums
therefor and to deliver said policies or certificates thereof to Lessor, and the
failure of Lessee either to effect said insurance in the names herein called
for, or to permit Lessor to procure said insurance, or to pay the requisite
premiums therefor or to deliver said policies or certificates or duplicates
thereof to Lessor, shall permit Lessor to procure said insurance and pay the
requisite premiums therefor, which premiums shall be repayable to Lessor with
the next installment of rent. Each insurer under the policies required hereunder
shall agree by endorsement on the policy issued by it or by independent
instrument furnished to Lessor that it will give Lessor no fewer than ten (10)
days written notice before the policy or policies in question shall be altered
or cancelled.
14. SERVICES AND UTILITIES. Lessor agrees to furnish to the premises during
reasonable hours of generally recognized business days, to be determined by
Lessor, and subject to the rules and regulations of the building of which the
premises are a part, water and electricity suitable for the intended use of the
premises, heat and air conditioning necessary for the comfortable use and
occupation of the premises, and janitorial service. Lessor shall also maintain
and keep lighted the common stairs, entries and toilet rooms in the building of
which the demised premises are a part. Lessee shall not be entitled to any
abatement or reduction of rental by reason of Lessor's failure to furnish any of
the foregoing when such failure is caused by accidents, breakage, repairs,
strikes, lockouts of other labor disturbances or labor disputes of any
character, or by any other similar cause, beyond the reasonable control of
Lessor; provided, should Lessor fail to furnish such services for a continuous
period of time in excess of ten (10) days unless the result of causes beyond
Lessor's reasonable control, Lessee shall, as of the eleventh (11th) day have
the right to reduce its rental by reason of such failure to supply services.
Wherever heat generating machines or equipment are used in the premises which
affect the temperature otherwise maintained by the air conditioning system.
Lessor reserves the right to install supplementary air conditioning units in the
premises and the cost thereof, including the cost of installation and the cost
of operation and maintenance thereof, shall be paid by Lessee to Lessor upon
demand by Lessor.
Lessee will not, without the written consent of Lessor, use any apparatus
or device in the premises, including but without limitation thereto, computers,
electronic data processing machines, punch card machines and machines using
current in excess of 110 volts, which will in any way increase the amount of
electricity or water usually furnished or supplied for use of the premises as
general office space; nor connect with electric current, except through existing
electrical outlets in the premises, or water pipes, any apparatus or device, for
the purposes of using electric current or water. If Lessee shall require water
or electric current in excess of that usually furnished or supplied for use of
the premises as general office space, Lessee shall first procure the consent of
Lessor, which Lessor may refuse, to the use thereof and Leasee may cause a water
meter or electric current meter to be installed in the premises, so as to
measure the amount of water and electric current consumed for any such use. The
cost of any such meters and installation, maintenance and repair thereof shall
be paid for by Lessee and Lessee agrees to pay to Lessor promptly upon demand
therefor by Lessor for all such water and electric current consumed as shown by
said meters, at the rates charged for such services by the local public utility
furnishing the same, plus any additional expenses incurred in keeping account of
the water and electric current so consumed.
15. PERSONAL PROPERTY TAXES. Lessee agrees to pay or cause to be paid, before
delinquency, any and all taxes levied or assessed and which become payable
during the term hereof upon all equipment, furniture, fixtures and other
personal property located in the premises; except that which may be owned by
Lessor.
16. RULES AND REGULATIONS. Lessee shall faithfully observe and comply with the
rules and regulations printed as Exhibit "A" to this Lease and all reasonable
modifications of and additions thereto from time to time put into effect by
Lessor, provided that in such event Lessor shall give notice thereof to Lessee.
Lessor shall not be responsible to Lessee for the non-performance by any other
tenant or occupant of the building of any of said rules and regulations.
17. HOLDING OVER. If, with Lessor's consent, Lessee holds possession of the
premises after the term of this Lease, Lessee shall become a tenant from month
to month upon the terms herein specified but at a monthly rental equivalent to
the then prevailing rental paid by Lessee at the expiration of the term of this
Lease pursuant to all of the provisions of Paragraphs 4 and 5 hereof payable in
advance on or upon the first day of each month, and Lessee shall continue in
possession until such tenancy shall be terminated by Lessor, or until Lessee
shall have given to Lessor a written notice at least one month prior to the date
of termination of such monthly tenancy of his intention to terminate such
tenancy.
18. ENTRY BY LESSOR. Lessor reserves and shall at any and all times have the
right to enter the premises to inspect the same, to supply janitorial service
and any other service to be provided by Lessor to Lessee hereunder, and submit
said premises to prospective purchasers or tenants, to post notices of
nonresponsibility, and to alter, improve or repair the premises and any portion
of the building of which the premises are a part, without abatement of rent, and
may for that purpose erect scaffolding and other necessary structures where
reasonably required by the character of the work to be performed, always
providing the entrance to the premises shall not be blocked thereby, and further
providing that the business of Lessee shall not be interfered with unreasonably.
Lessee hereby waives any claim for damages for any injury or inconvenience to or
interference with Lessee's business, any loss of occupancy or quiet enjoyment of
the premises, and any other loss occasioned thereby. For each of the aforesaid
purposes, Lessor shall at all times have and retain a key with which to unlock
all of the doors in, upon and about the premises, excluding Lessee's vaults and
safes, and Lessor shall have the right to use any and all means which Lessor may
deem proper to open said doors in an emergency, in order to obtain entry to the
premises, and any entry to the premises obtained by Lessor by any of said means,
or otherwise shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a detainer of, the premises or an eviction
of Lessee from the premises or any portion thereof.
19. DEFAULT. The occurrence of any of the following shall constitute a material
default and breach of this Lease by Lessee:
(i) Any failure by Lessee to pay the rental or to make any other
payments required to be made by Lessee hereunder (where such failure continues
for ten [10] days after written notice thereof by Lessor to Lessee).
(ii) The abandonment or vacation of the premises by Lessee.
(iii) A failure by Lessee to observe and perform any other provision
of this Lease to be observed or performed by Lessee, where such failure
continues for thirty (30) days after written notice thereof by Lessor to Lessee;
provided, however, that if the nature of such default is such that the same
cannot reasonably be cured within such thirty day period Lessee shall not be
deemed to be in default of Lessee shall within such period commence such cure
and thereafter diligently prosecute the same to completion.
(iv) The making by Lessee of any general assignment for the benefit
of creditors; the filing by or against Lessee of a petition to have Lessee
adjudged a bankrupt or of a petition for reorganization or arrangement under any
law relating to bankruptcy (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days): the appointment of a
trustee or receiver to take possession of substantially all of Lessee's assets
located at the premises or of Lessee's interest in this Lease, including an
attempted assumption of this Lease by the Trustee under Section 70B of the
Bankruptcy Act, where possession is not restored to Lessee within thirty (30)
days; or the attachment, execution or other judicial seizure of substantially
all of Lessee's assets located at the premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days.
In the event of any such default by Lessee, then in addition to any other
remedies available to Lessor at law or in equity, Lessor shall have the
immediate option to terminate this Lease and all rights of Lessee hereunder by
giving written notice of such intention to terminate. In the event that Lessor
shall elect to so terminate this Lease then Lessor may recover from Lessee:
(i) The worth at the time of award of any unpaid rent which had been
earned at the time of such termination; plus
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(ii) The worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss Lessee proves could have been reasonably
avoided; plus
(iii) The worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that Lessee proves could be reasonably avoided; plus
(iv) Any other amount necessary to compensate Lessor for all the
detriment proximately caused by Lessee's failure to perform his obligation under
this Lease or which in the ordinary course of things would be likely to result
therefrom, and
(v) At Lessor's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by applicable law.
The term "rent," as used herein, shall be deemed to be and to mean the
rental, rental adjustment payments and all other sums required to be paid by
Lessee pursuant to the term of this Lease.
As used in subparagraphs (i) and (ii) above, the "worth at the time of
award" is computed by allowing interest at the rate of ten percent (10%) per
annum. As used in paragraph (iii) above, the "worth at the time of award" is
computed by discounting such amount at the discount rate of the Federal Reserve
Bank at the time of award plus one percent (1%).
In the event of any such default by Lessee, Lessor shall also have the
right, with or without terminating this Lease, re-enter the premises and remove
all persons and property from the premises; such property may be removed and
stored in a public warehouse or elsewhere at the cost of and for the account of
Lessee.
In the event of the vacation or abandonment of the premises by Lessee or in
the event that Lessor shall elect to reenter as provided above or shall take
possession of the premises pursuant to legal proceeding or pursuant to any
notice provided by law, then if Lessor does not elect to terminate this Lease as
provided above, then Lessor may from time to time, without terminating this
Lease, either recover all rental as it becomes due or relet the premises or any
part thereof for such term or terms and conditions as Lessor in its sole
discretion may deem advisable with the right to make alterations and repairs to
the premises.
In the event that Lessor shall elect to so relet, then rentals received by
Lessor from such reletting shall be applied; first, to the payment of any
indebtedness other than rent due hereunder from Lessee to Lessor; second, to the
payment of any cost of such reletting; third, to the payment of the cost of any
alteration and repairs to the premises; fourth, to the payment of rent due and
unpaid hereunder; and the residue, if any, shall be held by Lessor and applied
in payment of future rent as the same may become due and payable hereunder.
Should that portion of such rentals received from such reletting during any
month which is applied by the payment of rent hereunder, be less than the rent
payable during that month by Lessee hereunder, then Lessee shall pay such
deficiency to Lessor immediately upon demand therefor by Lessor. Such deficiency
shall be calculated and paid monthly. Lessee shall also pay to Lessor, as soon
as ascertained, any costs and expenses incurred by Lessor in such reletting or
in making such alterations and repairs not covered by the rentals received
from such reletting.
No re-entry or taking possession of the premises by Lessor pursuant to this
Paragraph 19 shall be construed as an election to terminate this Lease unless a
written notice of such intention be given to Lessee or unless the termination
thereof be decreed by a court of competent jurisdiction. Notwithstanding any
reletting without termination by Lessor because of any default by Lessee, Lessor
may at any time after such reletting elect to terminate this Lease for any such
default.
20. RECONSTRUCTION. In the event the premises or the building of which the
premises are a part are damaged by fire or other perils covered by extended
coverage insurance, Lessor agrees to forthwith repair the same; and this Lease
shall remain in full force and effect, unless otherwise terminated in accordance
with this Article, except that Lessee shall be entitled, to a proportionate
reduction of rent while such repairs are being made, such proportionate
reduction to be based upon the extent to which the making of such repairs shall
interfere with the business carried on by Lessee in the premises. Provided,
however, if the damage or destruction renders the premises or the common areas
of the building providing access to the premises unusable, Lessee may terminate
this Lease effective as of the date of the damage and destruction by giving
notice thereof in writing to Lessor unless Lessor shall, after receipt of the
notice, immediately take all necessary emergency action so that the premises can
be utilized for Leasee's normal business use with a minimum of disruption and
thereafter Lessor, within seven (7) days of the date Leasee's notice is given
commences removal of the debris and the restoration of the premises. If
notwithstanding such damage or destruction the building in which the premises is
located remains open for business with the public, Lessor's restoration and
repair shall be completed as soon as reasonably feasible and in no event later
than one-hundred twenty (120) days after such damage and destruction. If the
premises and/or the building are so damaged or destroyed that it will not be
open to the public or usable by Lessee for a period in excess of one hundred
twenty (120) days, Lessee shall have the right to terminate this Lease by giving
Lessor written notice thereof, said notice to be effective as of the date it is
given.
In the event the destruction of the premises or of the building is to an
extent greater than twenty-five percent (25%) of the then full replacement
value, then Lessor shall have the option either: (1) to repair or restore such
damage, this Lease continuing in full force and effect; provided, Lessee has not
terminated this Lease in accordance with the provisions of this Article, but the
rent to be proportionately reduced as provided above in this paragraph; or (2)
give notice to Lessee at any time within thirty (30) days after such damage,
terminating this Lease as of the date of such notice. In the event of giving of
such notice, this Lease shall expire and all interest to the Lessee in the
premises shall terminate on the date so specified in such notice and the rent,
reduced by any proportionate reduction, based upon the extent, if any, to which
such damage interfered with the business carried on by Lessee in the premises,
shall be paid up to date of such termination.
Notwithstanding anything to the contrary contained in this Paragraph,
Lessor shall not have any obligation whatsoever to repair, reconstruct or
restore the premises when the damage resulting from any casualty covered under
this Paragraph occurs during the last twelve (12) months of the term of this
Lease or any extension thereof.
Lessor shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacement of any panels, decoration,
office fixtures, railing, ceiling, floor covering partitions, or any other
property installed in the premises by Lessee.
21. EMINENT DOMAIN. If all or any part of the premises shall be taken or
appropriated by any public or quasi-public authority under the power of eminent
domain, either party hereto shall have the right, at its option, to terminate
this Lease, and Lessor shall be entitled to any and all income, rent, award, or
any interest therein whatsoever which may be paid or made in connection with
such public or quasi-public use or purpose, and Lessee shall have no claim
against Lessor for the value of any unexpired term of this Lease. If a part of
the premises shall be so taken or appropriated and neither party hereto shall
elect to terminate this Lease, the rental thereafter to be paid shall be
equitably reduced. Before Lessee may terminate this lease by reason of taking
or appropriation as above provided, such taking or appropriation shall be of
such an extent and nature as to substantially handicap, impede or impair
Lessee's use of the premises for a period in excess of sixty (60) days. If any
part of the building other than the premises shall be so taken or appropriated,
Lessor shall have the right, at its option, to terminate this Lease and shall be
entitled to the entire award, as above provided.
22. PLATS AND RIDERS. Clauses, plats and riders, if any, signed or initialed by
Lessor and Lessee and endorsed on or affixed to this Lease are a part hereof.
23. SALE BY LESSOR. In the event of a sale or conveyance by Lessor of the
building containing the premises, the same shall operate to release Lessor from
any future liability upon any of the covenants or conditions, express or
implied, herein contained in favor of Lessee, and in such event Lessee agrees to
look solely to the responsibility of the successor in interest of Lessor in and
to this Lease. This Lease shall not be affected by any such sale, and Lessee
agrees to attorn to the purchaser or assignee.
24. ATTORNEYS' FEES. In the event of any action or proceeding brought by either
party against the other under this Lease the prevailing party shall be entitled
to recover for the fees of its attorneys in such action or proceeding such
amount as the Court may adjudge reasonable as attorneys' fees.
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EXHIBIT "A"
RULES AND REGULATIONS ATTACHED TO
AND MADE A PART OF THIS LEASE
1
No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside or
inside of the building without the written consent of Lessor first having been
obtained and Lessor shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the expense of
Lessee.
All approved signs or lettering on doors shall be printed, painted, affixed
or inscribed at the expense of Lessee by a person approved of by Lessor.
Lessor shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the premises; provided, however, the Lessor is to furnish and install a
building standard drapery or blinds at all exterior windows.
2
The bulletin board or directory of the building will be provided
exclusively for the display of the name and location of Lessee only and Lessor
reserves the right to exclude any other name therefrom.
3
The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the Lessees or used by them for any purpose
other than for ingress to and egress from their respective premises. The halls,
passages, exits, entrances, elevators, stairways, balconies and roof are not for
the use of the general public and the Lessor shall in all cases retain the right
to control and prevent access thereto by all persons whose presence in the
judgment of the Lessor shall be prejudicial to the safety, character, reputation
and interests of the building and its Lessees, provided that nothing herein
contained shall be construed to prevent such access to persons with whom the
Lessee normally deals in the ordinary course of Lessee's business unless such
persons are engaged in illegal activities. No Lessee and no employees or
invitees of any Lessee shall go upon the roof of the building.
4
Lessee shall not alter any lock or install any new or additional locks or
any bolts on any door of the premises.
5
The toilet rooms, urinals, wash bowls, and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the Lessee who, or whose employees or invitees shall have
caused it.
6
Lessee shall not overload the floor of the premises or mark, drive nail,
screw or drill into the partitions, woodwork or plaster, or in any way deface
the premises of any part thereof, without Lessor's written consent.
7
No furniture, freight or equipment of any kind shall be brought into the
building without the consent of Lessor and all moving of the same into or out of
the building shall be done at such time and in such manner as Lessor shall
designate. Lessor shall have the right to prescribe the weight, size and
position of all safes and other heavy equipment brought into the building and
also the times and manner of moving the same in and out of the building. Safes
or other heavy objects shall, if considered necessary by Lessor, stand on wood
strips of such thickness as is necessary to properly distribute the weight.
Lessor will not be responsible for loss of or damage to any such safe or
property from any cause and all damage done to the building by moving or
maintaining any such safe or other property shall be repaired at the expense of
Lessee.
8
Lessee shall not employ any person or persons other than the janitor of
Lessor for the purpose of cleaning the premises unless otherwise agreed to by
Lessor. Except with the written consent of Lessor, no person or persons other
than those approved by Lessor shall be permitted to enter the building for the
purpose of cleaning the same. Lessee shall not cause any unnecessary labor by
reason of Lessee's carelessness or indifference in the preservation of good
order and cleanliness. Lessor shall in no way be responsible to any Lessee for
any loss of property on the premises, however occurring, or for any damage done
to the effects of any Lessee by the janitor or any other employee or any other
person. Janitor service shall include ordinary dusting and cleaning by the
janitor assigned to such work and shall not include cleaning of carpets or rugs,
except normal vacuuming, or moving of furniture or other special services.
9
Lessee shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the premises, or permit or suffer the premise to be occupied
or used in a manner offensive or objectionable to the Lessor or other occupants
of the building by reason of noise, odors and/or vibrations, or interfere in any
way with other Lessees or those having business therein, nor shall any animals
or birds be brought in or kept in or about the premises or building.
10
No cooking shall be done or permitted by any Lessee on the premises, nor
shall the premises be used for the storage of merchandise, for washing clothes,
for lodging, or for any improper, objectionable or immoral purposes.
11
Lessee shall not use or keep in the premises or the building any kerosene,
gasoline or inflammable or combustible fluid or material, or use any method of
heating or airconditioning other than that supplied by Lessor.
12
Lessor will direct electricians as to where and how telephone and telegraph
wires are to be introduced. No boring or cutting for wires will be allowed
without the consent of Lessor. The location of telephones, call boxes and other
office equipment affixed to the premises shall be subject to the approval of
Lessor.
13
Each Lessee, upon the termination of the tenancy, shall deliver to the
Lessor the keys of offices, rooms and toilet rooms which shall have been
furnished the Lessee or which the Lessee shall have had made, and in the event
of loss of any keys so furnished, shall pay the Lessor therefor.
-1-
<PAGE>
25. SURRENDER OF PREMISES. The voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, shall not work a merger, and shall at
the option of the Lessor, terminate all or any existing sublease or
subtenancies, or may, at the option of Lessor, operate as an assignment to it of
any or all such subleases or subtenancies.
26. WAIVER. The waiver by Lessor of any term, covenant or condition herein
contained shall not be deemed to be a waiver of such term, covenant or condition
or any subsequent breach of the same or any other term, covenant or condition
herein contained. The subsequent acceptance of rent hereunder by Lessor shall
not be deemed to be a waiver of any preceding breach by Lessee of any term,
covenant or condition of this Lease, other than the failure of Lessee to pay
the particular rental so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
27. NOTICES. All notices and demands which may or are required to be given by
either party to the other hereunder shall be in writing. All notices and demands
by the Lessor to the Lessee shall be sent by United States certified or
registered mail, postage prepaid, addressed to the Lessee as follows, or to such
other place as the Lessee may from time to time designate in a notice to the
Lessor. All notices and demands by the Lessee to the Lessor shall, be sent by
United States certified or registered mail, postage prepaid, addressed to the
Lessor as follows, or to such other person or place as the Lessor may from time
to time designate in a notice to the Lessee.
LESSOR'S ADDRESS LESSEE'S ADDRESS
Judge Building Group City Search, Inc.
- ------------------------------------------ ------------------------------
Judge Building, Suite 200 4502 Dyer Street, Suite 201
- ------------------------------------------ ------------------------------
8 East Broadway, Salt Lake City, Utah 84111 La Cresenta, CA 91214
- ------------------------------------------ ------------------------------
Attention: Daniel A Miller Attention: Chief Financial
- ------------------------------------------ ------------------------------
Officer
------------------------------
Whenever this Lease requires Lessee to obtain consent from Lessor prior to
acting, such consent shall be obtained from the General Partner of Lessor.
28. DEFINED TERMS AND MARGIN HEADINGS. The words "Lessor" and "Lessee" as used
herein shall include the plural as well as the singular. Words used in masculine
gender include the feminine and neuter. If there be more than one Lessee the
obligations hereunder imposed upon Lessee shall be joint and several. The
marginal headings and titles to the paragraphs of the Lease are not a part of
this Lease and shall have no effect upon the construction or interpretation of
any part hereof.
29. TIME. Time is of the essence of this Lease and each and all of its
provisions.
30. SUCCESSORS AND ASSIGNS. The covenants and conditions herein contained
shall, subject to the provisions as to assignment, apply to and bind the heirs,
successors, executors, administrators, and assigns of the parties hereto.
31. COMMON AREAS - All those portions of the Property not occupied by the
buildings thereon or not set aside for the exclusive use of the Lessor or of a
particular Lessee shall be common area available for the joint use of Lessor and
all tenants of the Property, their customers, invitees, and employees for
receipt of goods, and for general right of passage access to the respective
buildings, stores, suites, and rented or leased areas. Lessor reserves the right
to construct additional buildings on the Property or to enclose or otherwise
devote portions of the common area to the exclusive use of the Lessor or of
specific tenant or tenants.
32. SECURITY DEPOSIT. Lessee has deposited with Lessor the sum of $5,128.85
---------
________________________________________________________________________________
________________________________________________________________________________
Said sum shall be held by Lessor as security for the faithful performance by
Lessee of all of the terms, covenants, and conditions of this Lease to be kept
and performed by Lessee during the term hereof. If Lessee defaults with respect
to any provisions of this Lease, including but not limited to the provisions
relating to the payment of rent, and maintaining premises in good condition,
Lessor may (but shall not be required to) use, apply or retain all or any part
of this security deposit for the payment of any rent or any damages, or other
sum in default, or for the payment of any other amount which Lessor may spend by
reason of Leasee's default or to compensate Lessor for any other loss or damage
which Lessor may suffer by reason of Lessee's default. If any portion of said
deposit is so used or applied. Lessee shall, upon demand therefor, deposit cash
with Lessor in an amount sufficient to restore the security deposit to its
original amount and Lessee's failure to do so shall be a material breach of this
Lease. Lessor shall not be required to keep this security deposit separate from
its general funds, and Lessee shall not be entitled to interest on such deposit.
If Lessee shall fully and faithfully perform every provision of this Lease
to be performed by it, the security deposit or any balance thereof shall be
returned to Lessee (or, at Lessee's option, to the last assignee of Lessee's
interest hereunder)at the expiration of the Lease term. In the event of
termination of Lessor's interest in this Lease, Lessor shall transfer said
deposit to Lessor's successor in interest.
33. COMPLETION OF PREMISES. If applicable, Lessor shall use reasonable speed
and diligence in completing the premises for the certification of occupancy no
later than the commencement date of this Lease. In the event Lessor is delayed
in obtaining certification of occupancy due to an act of God, fire, earthquake,
explosion, war, riot, inability to procure materials of labor, failure of
transportation, strikes, action of labor unions, condemnation, lawful orders of
government authorities or any other cause not within the reasonable control of
Lessor, the commencement date and the ending date of this Lease shall be changed
commensurate with the delay as aforesaid.
34. FORCE MAJEURE. Except for purpose of rental, Lessor and Lessee shall be
excused for the period of any delay in the performance of any obligations
hereunder when prevented from so doing by cause or causes beyond the respective
control of each including labor disputes, civil commotion, war, governmental
regulations or controls, fire or other casualty, weather, inability to obtain
any material or services, or acts of God.
35. SUBORDINATION, ATTORNMENT. This Lease, at Lessor's option, shall be
subordinate to the lien of any first deed of trust or first mortgage
subsequently placed upon the real property of which the demised premises are a
part, and to any and all advances made on the security thereof, and thereof;
provided, however, that as to the lien of any such deed of trust or mortgage
Lessee's right to quiet possession of the premises shall not be disturbed if
Lessee is not in default and so long as Lessee shall pay rent and observe and
perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease prior to the lien of its mortgage, deed of trust,
or ground lease, and shall give written notice to Lessee, this Lease shall be
deemed prior to such mortgage, deed of trust, or ground lease, whether this
Lease is dated prior or subsequent to the date of said mortgage, deed of trust
or ground lease or the date of recording thereof.
In the event any proceedings are brought for foreclosure, or in the event
of the exercise of the power of sale under any mortgage or deed of trust made by
the Lessor covering the demised premises, Lessee shall attorn to the purchaser
upon any much foreclosure or sale and recognize such purchaser as the Lessor
under this Lease.
36. WAIVER OF SUBROGATION. So long as their respective insurers so permit,
Lessee and Lessor hereby mutually waive their respective rights of recovery
against each other for any loss insured by liability, fire, extended coverage
and other property insurance
-5-
<PAGE>
policies existing for the benefit of the respective party. Each party shall
obtain any special endorsements, if required by their insurer evidence
compliance with the aforementioned waiver.
37. LESSOR LIABILITY. Lessee covenants and agrees that, if Lessor is a
partnership or corporation, any claims that Lessee may have now or hereafter
against Lessor shall be asserted against, and satisfiable only out of the assets
of the Lessor partnership or corporation, as may be the case, and not from any
of the personal assets of any of the individual partners, officers, directors
or stockholders of Lessor, and Lessee hereby waives and releases each of the
individual partners, officers, directors and stockholders, now or hereafter
existing in Lessor's partnership or corporation, as may be the case, together
with their estates, representatives and assigns.
IN WITNESS WHEREOF Lessor and Lessee have executed this Lease the day and
year first above written.
LESSOR LESSEE
JUDGE BUILDING GROUP CITY SEARCH, INC.
- -------------------------------------- ----------------------------------------
By
By /s/ Daniel A. Miller By /s/ Brad Ramberg
----------------------------------- -------------------------------------
Daniel A. Miller Brad Ramberg
Owner/Partner Chief Financial Officer
Lessee agrees to comply and conform with municipal, state, and federal laws and
statutes that are in effect concerning hazardous waste, toxic substances, and
chemical substances. Lessee agrees to indemnify Lessor and hold Lessor free and
harmless from any liability and cost caused by Lessee's maintenance of hazardous
waste and other toxic substances on or about the premises. Lessee shall have the
obligation to store and dispose of such waste at Lessee's expense.
Exhibits "A" and "B" attached hereto are incorporated herein by this reference.
<PAGE>
EXHIBIT 'B'
[THIRD LEVEL FLOOR PLAN APPEARS HERE]
<PAGE>
LEASE ADDENDUM "A"
-------------------
This Lease Addendum "A" ("Addendum") is entered into on this 10th day of
September, 1996, by and between Judge Building Group, as Lessor, and City
Search, Inc., as Lessee, and modifies and supersedes the provisions of the
printed form lease agreement ("Lease") entered into between the parties on the
same date hereof covering Suite 300 ("Premises") at the Judge Building, 8 East
Broadway, Salt Lake City, Orem, Utah, in the event of any inconsistencies
between the two.
1. Lease commencement date shall be the date of completion of improvements to
the Premises, which is estimated to be 45 days from execution of the Lease.
Lessee shall pay first month's rent and security deposit upon execution of the
Lease.
2. Lessor shall build-out the Premises in accordance with the layout and
specifications contained in Exhibit "B" attached hereto. Lessor will install
dedicated conduit for all electrical, telephone, and data outlets indicated on
Exhibit "B." Carpeting allowance shall be $14.00 per yard installed. Build-out
shall be done in accordance with building standard construction (vanilla finish)
for wall, doors, jambs, base, lighting, standard grid ceiling, and HVAC. Any
upgrades desired by Lessee shall be at Lessee's expense. Lessee, however, may
elect to have "open ceiling environment" instead of a grid ceiling, in which
case Lessee shall pay 50% of the net additional cost of the open ceiling
environment. Within seven days of execution of the Lease, Lessor shall submit to
Lessee an estimate of the net additional cost of the open ceiling environment,
and Lessee shall notify Lessor within five days thereafter if it desires to have
an open ceiling environment. If Lessee does not notify Lessor of its decision
within said five day period, Lessor shall be entitled to proceed with
installation of the standard grid ceiling. In the event Lessee selects the open
ceiling environment, Lessee understands that sound acoustics of the Premises
will diminish and that certain exposed equipment and fixtures that serve the
Premises will make the Premises noisier and louder, and Lessee agrees that
Lessor shall have no responsibility or obligation to mitigate such increased
sound or noise levels.
3. Lessee shall have access to the premises seven days a week. Lessee's
business hours may extend to after normal business hours and weekends, with use
of HVAC at no extra cost. However, Lessee agrees not to work multiple shifts or
have over-lapping shifts. Further, Lessee agrees not to have more than 40
employees that work
<PAGE>
throughout the day at the premises, excepting out of town personnel that work on
a non-recurring basis and regional sales meetings. Lessor will, however, allow
Lessee to exceed said limit to meet demand during periodic peak business cycles
as long as the use of additional employees does not interfere with any other
tenant's peaceful enjoyment of their premises; and provided, further, that the
limit in no event can exceed 50 people without first obtaining Lessor's prior
written consent.
4. Upon execution of the Lease and Pending completion of the premises, Lessee
shall have free use of the space directly east of the Premises, known as Suite
310. Suite 310 consists of approximately 3,000 feet. Lessor shall install
ceiling lights and light fixtures in Suite 310, but Lessee shall otherwise
occupy Suite 301 in its "as-is" condition, and shall be responsible for all
other improvements it needs or desires, including additional electrical, walls,
carpeting, etc. Lessee shall also provide its own janitorial service for said
suite. Lessee shall vacate Suite 310 at the time of completion of the Premises.
5. Lessee shall have the right to five (5) free parking spaces in the
Convenience Parking Lot, located between 400 South and 500 South and Main
Street, for as long as Lessor has the right to lease such parking from the owner
of said lot. In the event Lessor looses the right to lease any of said parking
spaces, there shall be a rent credit to Lessee in the amount of $35.00 per month
per space. In addition, Lessee shall have the right to rent an additional 13
spaces in said lot at the same rate that Lessor pays (currently around $35 per
month), provided Lessee rents such spaces concurrently with the execution of
this Lease. If Lessee later reduces the amount of such parking spaces, Lessor
shall have no obligation to provide the "surrendered" spaces to Lessee for the
remainder of the Lease term.
Lessee shall also have the right to two unreserved parking spaces, at the
prevailing monthly rates, in the Exchange Place Garage, located to the east of
the Judge Building. The cost of such parking shall be paid by Lessee.
Other than as provided above, Lessor shall have no further obligation to
provide parking to Lessee.
6. Lessee shall have an option to extend the term of the Lease for an
additional five years under the following terms and conditions:
a. Lessee must deliver written notice to Lessor of its intention to
extend the term of the Lease at least 6 months prior to the expiration of the
initial term of the Lease.
b. The base lease rate for the first year of the extension term shall be
5% greater than the base rate for the fifth year of the initial Lease term (or
at such mutually agreed to rate that is
2
<PAGE>
determined within 30 days after Lessee serves notice of its desire to extend the
term of the Lease), with 5% annual base rate increases thereafter. The expense
pass-through provisions of Paragraph 4 of the Lease, as modified herein, shall
continue in effect.
c. Lessee must not be in breach or default of the Lease at the time of
exercise of the extension option, or have been more than 10 days late in the
payment of rent more than 5 times during the initial Lease term, unless waived
by Lessor.
d. All other terms and provisions of the Lease and Addendum shall remain
in full force and effect during the extension term.
7. Effective one year after the Lease commencement date, Lessee shall have a
limited, one time, right of first refusal to lease Suite 310 in accordance with
the following terms and conditions:
a. Lessee must have been timely in its rent payments and not otherwise in
breach of the Lease.
b. Lessee shall have the right to lease Suite 310 under the same terms as
Lessor is willing to lease such space to a new tenant ("New Tenant"). Lessee
shall have three days in which to elect in writing to lease Suite 310 after
Lessor informs Lessee in writing of the lease terms for the New Tenant. In the
event Lessee exercises it right of first refusal, it shall have a tenant
improvement allowance equal to Lessor's cost of providing tenant improvement for
the New Tenant, with any additional improvement cost to be borne by Lessee.
c. Lessee shall execute a new lease for Suite 310 within four days after
exercise of it right of first refusal, and its failure to timely do so shall
result in a relinquishment and release of its right of first refusal.
d. If Lessee does not timely elect to lease such space within the three
day notice period as above provided, Lessee shall have no further right of first
refusal to lease such space, unless Lessor fails to consummate a lease with the
New Tenant. If Lessor fails to consummate a lease with the New Tenant, then
Lessee shall continue to have a right of first refusal, on the same terms
provided herein, until such time as Lessor consummates a lease with a New Tenant
for Suite 310.
e. Time is strictly of the essence herein, it being acknowledged by
Lessee that the right of first refusal granted to Lessee hereby is an impediment
to Lessor's ability to freely lease Suite 310.
8. The 12% interest charge provided in Paragraph 3 of the Lease shall be
applicable only if and when Lessee is more than 30 days
3
<PAGE>
late in its payment of rent.
9. Paragraph 4 of the Lease is modified as follows: Notwithstanding Lessee's
calculated portion of increases in operating expenses above base year expenses
in any given year, as per paragraph #4 of the Lease, Lessee's portion of
increase in any given year shall not exceed the equivalent of a 2% increase in
Lessee's then prevailing base lease rate. This 2% "cap" on expense pass-throughs
shall be cumulative annually.
The 15 days reference in the fourth paragraph of Paragraph 4 of the Lease shall
be extended to 30 days.
10. Paragraph 5, line 2, of the Lease is modified by deleting the words "or
other" and adding the word "liability."
11. Paragraph 6, line 6, of the Lease is modified by adding the phrase "and
excluding any noncomplying conditions existing prior to the commencement of
Lessee's lease" after the phrase "Lessee's improvements or acts."
12. Paragraph 7 of the Lease is modified as follows: Lessee shall have the
right to make non-structural modifications or additions not exceeding $2,000 in
cost without obtaining Lessor's consent. For any modifications or additions that
require Lessor's consent, Lessor shall indicate whether it will require removal
of such modifications or additions at the time Lessor gives its consent.
13. Paragraph 8 of the Lease is modified as follows: The second sentence of
said paragraph is hereby deleted, and the following sentence substituted in lieu
thereof: "Any repairs to the Premises (other than those required because of the
nature of Lessee's operations) that are required to be made by Lessor in order
to comply with applicable law, statute, or ordinance now or hereafter in effect,
shall not be made without the joint approval of Lessor and Lessee."
14. Paragraph 12 of the Lease is modified as follows: The indemnification and
waiver provisions therein shall be mutual between Lessor and Lessee, and shall
not be applicable for any damage or injuries caused by the negligence,
recklessness, or wanton disregard of the parties.
15. Paragraph 13 of the Lease is modified as follows: Lessee shall only be
required to provide insurance information upon Lessor's request.
16. Paragraph 14, second paragraph, of the Lease and Regulation #6 shall be
modified as follows: (a) Lessee shall be entitled to drive nails and screws to
hang art, whiteboard, corkboards, etc, as part of normal business operations
without the prior written consent of Lessor; (b) The failure to provide services
and rent reduction
4
<PAGE>
right time periods are changed from 10 and 11 days, respectively, to 3 & 4 days
respectively; (c) Lessee shall have the right to use computers (except for main
frame type computers).
17. To the extent that Paragraph 19, sixth paragraph, beginning with the phrase
"As used in subparagraphs (i) and (ii) above" is considered to include
prejudgment interest, it shall be applicable only if Utah law allows prejudgment
interest.
18. Paragraph 20 of the Lease is modified as follows: (a) 25% is changed to
30%; (b) The phrase "as of the date notice is given" is changed to "as of the
date the premises becomes unusable."
19. Paragraph 23 of the Lease is changed by adding the following sentence:
"Lessee, however, shall have the right to deliver a statement to Lessor's
successor in interest that sets forth any claims or grievances that Lessee has
against Lessor."
20. Paragraph 26, line 1, of the Lease is amended by adding the phrase "or by
Lessee" after the words "by Lessor."
21. All notices sent by Lessor pursuant to Paragraph 27 of the Lease shall be
noted: "Attention: Chief Financial Officer."
22. The sentence of Regulation #8 beginning with the phrase "Lessor in no way
shall be responsible" is hereby deleted.
23. Regulations #10 & #15 are hereby deleted.
24. Regulation #21 is modified as follows: Lessor shall give notice to Lessee
of any building name or address changes.
25. Concurrently with the execution of the Lease and this Addendum, Lessee
shall deliver to Lessor a corporate resolution duly authorizing Lessee's
execution of the Lease and Addendum.
IN WITNESS WHEREOF Lessor and Lessee have executed this Addendum "A" the day and
year first above written.
Lessor: The Judge Building Group
by: [SIGNATURE ILLEGIBLE]
-----------------------
Managing Partner
Lessee: City Search, Inc
by: [SIGNATURE ILLEGIBLE]
------------------------
Its ____________________
5
<PAGE>
Exhibit 10.19
SOBEL BUILDING DEVELOPMENT PARTNERS
680 Eighth Street
San Francisco, California 94103
(415) 861-4443
THIS LEASE executed this 31st day of May 1996, between SOBEL BUILDING
DEVELOPMENT PARTNERS, a California general partnership (hereinafter "Landlord"),
and, Perfect Market, Inc., DBA; City Search, A Delaware Corporation,
(hereinafter "Tenant" without distinction as to number or gender).
RECITALS
--------
A. Pursuant to the provisions of that certain Lease ("the Master
Lease") dated January 10, 1986, between Sheron Sugarman, Cynthia Morris, Joanne
Liss and Steve Cohen (who, along with their successors and assignees, are
referred to herein collectively as "Owner") and Landlord, Landlord has leased
that certain improved real property and the improvements thereon (collectively,
the "Building") commonly known as 680-Eighth Street, in the City and County of
San Francisco, California and described more fully in Exhibit A attached hereto
and incorporated herein.
B. This Lease is a sublease of part of the Building and, as such, is
expressly made subject to all of the terms and provisions of the Master Lease
and the rights of the Owner thereunder.
C. A copy of the Master Lease and any amendments thereto is
available for inspection at reasonable times at the office of the Landlord.
NOW, THEREFORE, FOR VALUABLE CONSIDERATION, Landlord and Tenant hereby
agree as follows:
1. Premises. Landlord hereby leases to Tenant and Tenant hereby
--------
hires from and takes from Landlord those certain premises (the "Premises")
situated in the building, more particularly described as follows: Suite 240
consisting of approximately 5,200 rentable square feet on the second floor, as
set forth in Exhibit B attached and incorporated herein. The Building in which
the Premises are located contains approximately 76,500 rentable square feet. The
Premises consist of 6.8% of the total rentable square footage of the Building.
2. Term. The term of this lease shall be for Three (3) years and
----
fifteen (15) days, commencing on June 15, 1996 and ending on June 30, 1999. If
the term of the Lease extends beyond December 31, 2010, the effectiveness of any
portion of the term of this Lease after such date is conditioned upon Landlord's
exercising its option to extend the term of the Master Lease beyond such date.
See paragraph 34 for option terms.
3. Rent. The rent under this Lease shall be paid in monthly
----
installments in advance, payable on the first day of each month, which Tenant
agrees to pay to Landlord, at the office of the Landlord, or such other place or
places as may be designated from time to time by Landlord, in United States
Legal Tender, as follows:
1
<PAGE>
<TABLE>
<CAPTION>
Period Rent per Month
<S> <C>
June 15, 1996 through June 30, 1996 $3,900.00
July 1, 1996 through June 30, 1997 7,800.00
July 1, 1997 through June 30, 1998 8,034.00
July 1, 1998 through June 30, 1999 8,275.00
</TABLE>
It is hereby mutually understood and agreed that the above letting and
hiring is upon the following terms and conditions.
4. The Master Lease. Tenant hereby recognizes that the estate of
----------------
Landlord in the Premises and the Building is that of the "Lessee" under the
Master Lease. Tenant agrees that all rights, power, privileges and options
granted to Tenant by this Lease are subject to the provisions of the Master
Lease and no such right, power, privilege or option may be exercised or enjoyed
by Tenant if and to the extent that the exercise or enjoyment thereof would not
be permitted by, or would violate the terms of, the Master Lease, and that
Tenant will not commit or suffer any act of omission or commission which would
violate any of the terms or conditions of the Master Lease.
5. Delivery of Possession. If Tenant occupies the Premises prior to
----------------------
the commencement of the term, such occupancy shall not advance the termination
date. Tenant at its option, along with any of its vendors, contractors, agents,
etc., shall be permitted to enter the Premises at any time during normal
business hours prior to the Commencement Date, with no obligation to pay rent,
for the purpose of installing furniture fixtures, and equipment, provided that
Tenant does not interfere or delay Landlord's work. Landlord agrees that Tenant
shall receive 5 days of free rent for each day premises are delivered late
(beyond the expected June 15, 1996 (at 11 a.m.) delivery date).
6. Payment of Rent. Tenant agrees to pay Landlord the rental herein
---------------
reserved at the time and in the manner herein provided without any demand
therefore or deduction or offset therefrom whatsoever, free of any and all
claims and demands against Landlord of any kind or character, except as
specifically provided in Paragraph 15.6 of this Lease.
7. Use of Premises. The Premises shall be used, occupied and
---------------
conducted exclusively as and for offices and for no other purpose (see paragraph
29). No unusual or heavy machinery or equipment which will by reason of its
weight, vibration or noise (a) affect the structure of the Building, (b)
constitute a nuisance, or (c) affect or disturb the quiet use and possession of
any part of the Building by Landlord or any other tenant in the Building, shall
be maintained in or upon the Premises. The Premises shall be used, occupied and
conducted by Tenant without any annoyance, disturbance, detriment or injury to
Landlord or to any of the tenants of Landlord in, or occupants of, or other
persons lawfully in, other parts of the Building or to the business of such
other tenants, occupants or persons. Tenant shall not maintain or permit or
suffer to be maintained or permitted any nuisance or waste in or about the
Premises, or bring or keep anything therein which will in any way affect or
increase fire or other insurance on the Building or any of its contents. Tenant
will not use or allow the Premises to be used for any unlawful, immoral or
objectionable purpose, See paragraph 29.
8. Assignment and Subletting. Tenant agrees not to assign this Lease
-------------------------
or any interest therein nor to sublet the whole or any part of the Premises
unless and until the area encompassed by the proposed sublease or assignment is
first offered in writing to Landlord for a period of ten (10) days, with
Landlord having the
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option to take said proposed assigned or sublet space for its own account and to
relet the same for its own account and proportionately abating Tenant's rent
during the term of said proposed sublease or assignment. If Landlord chooses not
to exercise this option, Tenant with Landlord's written consent first obtained
may sublet or assign all or a portion of the Premises, providing the proposed
sublessee or assignee first pays in advance two months' rent which will be
applied to the rent due during the last two months of the proposed subleasing or
assignment and provided further that, in the event said sublessee or assignee
pays rent (or other form of compensation however designated) greater than that
due from Tenant, said excess shall be paid over to Landlord by Tenant as
received and the same shall constitute additional rent due Landlord from Tenant
under this Lease. Consent to any assignment or subletting shall apply only in
the given instance and a further assignment or subletting by Tenant or its
assignee or subtenant shall be made only after obtaining Landlord's prior
written consent as provided in Section 8. Nothing contained herein will obligate
Landlord to consent to any proposed assignment or sublease if the proposed
sublessee or assignee does not meet Landlord's reasonable financial criteria or
would otherwise be considered an undesirable tenant, because of its business or
business reputation, the character of the Building and the types and mix of
other tenants. Upon any subletting, nothing contained herein shall be construed
to relieve Tenant of any of its obligations contained in this Lease including,
without limitation, the obligation to pay rent. Tenant shall not require
Landlord's consent to sublease Premises or assign the lease to a bona fide
subsidiary or affiliate of the Tenant.
9. Acceptance, Alterations, Repairs and Inspection. Landlord shall,
-----------------------------------------------
at its sole cost, keep, repair and maintain the structural portions of the
Building, common areas in the Building, exterior walls and roof of the Building,
Building utility systems and sidewalks adjacent to the Building in good and
sanitary order, condition and repair, except where said conditions exist because
of the lack of ordinary care by Tenant, in which case Tenant shall promptly
reimburse Landlord for any expenses incurred in connect herewith. Tenant shall,
at its sole cost and expense, keep the premises in good and sanitary order,
condition and repair, except where such disrepair is due to a violation of the
Lease by Landlord, in which case Landlord shall make such repair. By entry
hereunder, and subject to the completion of any improvements referred to in
Exhibit C, Tenant accepts the Premises and the Building as being in good and
sanitary order, condition and repair and agrees that on the last day of the term
of this Lease or, upon sooner termination of this Lease, to surrender to
Landlord all of the Premises in the same condition as when received, reasonable
wear and tear thereof excepted. Unless otherwise provided by written agreement,
all additions to, improvements and alterations of premises, except movable
furniture and trade fixtures, shall become the property of Landlord at
Landlord's option, and shall remain upon and be surrendered with the premises.
Tenant shall not make any additions or improvements to or alterations or
modifications of the premises without the prior written consent of Landlord,
which shall not be unreasonably withheld. As a condition to any such consent
Landlord may, among other things, require performance or completion bonds for
the work, copies of plans and specifications and other relevant information.
Notwithstanding the foregoing, Tenant may make non structural additions,
improvements, alterations or modifications to the Premises with an aggregate
cost not exceeding One Thousand Dollars ($1,000.00) in any six month period
without seeking Landlord's prior consent. Tenant shall keep the Premises and the
Building free from any liens arising out of any work performed, materials
furnished, or obligations incurred by Tenant. Tenant agrees that if it shall
make any repairs, alterations, modifications or improvements, after having
obtained Landlord's consent where required, it will not commence such
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action until two (2) days after written notice to Landlord in order that
Landlord may post appropriate notices of non responsibility to avoid any
liability for liens. Tenant will at all times permit such notices to be posted
and remain posted until the completion and acceptance of the work. If Tenant
fails to remove any liens promptly, Landlord may, at its option, do so, in which
case Tenant shall immediately upon demand reimburse Landlord for all such
amounts paid and costs and expenses incurred. All such amounts shall constitute
additional rent due Landlord from Tenant under this lease.
10. Compliance with Law. Tenant shall, at its sole cost and expense,
--------------------
comply with all the requirements of all Municipal, State and Federal authorities
now in force or which may hereinafter be in force pertaining to the Premises,
and shall faithfully observe in the use of the premises all Municipal ordinances
and State and Federal statutes now in force or which may hereinafter be in
force. The judgment of any court of competent jurisdiction, or the admission of
Tenant in any action or proceeding against Tenant, whether Landlord be a party
thereto or not, that Tenant has violated any such ordinance or statute in the
use of the Premises shall be conclusive of the fact as between Landlord and
Tenant. Nothing contained in this Section 10 shall require Tenant to make any
structural changes or any changes affecting Building utility systems. Tenant
will not be responsible for the cost of compliance with the Americans with
Disabilities Act or any comparable State or Local statute.
11. Exculpation of Landlord and Owner. Tenant waives all claims
---------------------------------
against Landlord, Owner and their agents and employees for damage to person or
property arising from any reason, except that Landlord shall be liable for
damage to Tenant from the negligent or willful acts or omissions of Landlord or
its agents or employees.
12. Indemnity. Tenant on behalf of itself, its agents, its
---------
employees, its guests and invitees shall defend and indemnify and hold Landlord,
Owner and their agents and employees harmless from and against all damages,
which result from the acts or omissions of Tenant or its agents or employees,
including reasonable attorneys' fees, arising out of any damage to any such
person or their property occurring in, on or about the Premises or the Building,
unless such damages result from Landlord's negligent or willful acts or
omissions.
13. Liability and Property Insurance. Landlord agrees to carry and
--------------------------------
keep in force during the term hereof a standard fire and extended coverage
insurance policy of the Building. Tenant agrees to take out and keep in force
during the term hereof, at Tenant's expense, (a) bodily injury and property
damage liability insurance in companies and through brokers approved by Landlord
(with at least a Best A-Rating) to protect against any liability to the public
incident to the use of or resulting from any accident occurring in or about the
Premises or the Building, the liability under such insurance to be not less that
One Million Dollars ($1,000,000.00) for any one person injured or $1,000,000.00
for any one accident and (b) property insurance of $1,000,000.00 covering loss
or damage to the Premises (including any improvements constructed). These
policies (1) shall name Owner (Cynthia & Craig Morris, Joanne and Robert Liss,
Sheron & Charles Sugarman, THE LISS LIVING TRUST U/A DATED 4/15/91 and THE
CHARLES AND SHERRI SUGARMAN LIVING TRUST U/A DATED 8/24/90) and Landlord (Sobel
Building Development Partners) and such lenders, if any, as may be designated by
Landlord, as additional insureds, (2) a certificate of insurance is to be
delivered to the Landlord upon issuance and renewal
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and (3) shall contain a written obligation on the part of the insurance carriers
to notify Landlord in writing thirty (30) days prior to any cancellation
thereof. Notwithstanding the foregoing, Owner, Landlord and their lenders, if
any, need not be named as additional insureds for Tenant's furniture, equipment
and personal property. Tenant agrees that, if it does not keep such insurance in
full force and effect, Landlord may, at its option, take out the necessary
insurance and pay the premium. In such a case, Tenant shall reimburse Landlord
for the amount so paid and such amount shall constitute additional rent due
Landlord from Tenant under this Lease. The policies provided for herein together
with proof of payment of premium therefore shall be delivered to Landlord within
ten (10) days after the date of execution of this Lease, and renewal
certificates and proof of payment of premiums therefor shall be delivered to
Landlord not less than fifteen (15) days prior to the renewal date of any such
insurance policies.
14. Defaults: Remedies. 14.1 Defaults. The occurrence of any one or
------------------ --------
more of the following events shall constitute a material default and breach of
this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant:
(b) The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant here under, within five (5) days of
written notice following the date such amount is due;
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this lease to be observed or performed by Tenant
other than described in Section 14.1(b)above, where such failure shall continue
for a period of thirty (30) days after written notice from Landlord to Tenant,
provided, however, that if the nature of Tenant's default is such that more than
thirty (30) days are reasonably required for its cure, the Tenant shall not be
deemed to be in default if Tenant commences such cure within said 30-day period
and thereafter diligently prosecutes such cure to completion;
(d) (i) The making by Tenant of any general arrangement for the
benefit of creditors;
(ii) The filing by or against Tenant of a petition to have Tenant
adjudged a bankrupt or a petition for re-organization or arrangement under any
law relating to bankruptcy (unless, in the case of a petition filed against the
Tenant, the same is dismissed within sixty (60) days);
(iii) The appointment of a trustee or receiver to take possession of
all or substantially all of Tenant's assets located at the premises or of
Tenant's interest in this Lease.
(iv) The attachment, execution or other judicial seizure of all or
substantially all of Tenant's assets located at the premises or of Tenant's
interest in this lease where such seizure is not discharged within thirty (30)
days.
(e) The discovery by Landlord that any financial statement given to
Landlord by Tenant, any sublessee or assignee of Tenant, any successor in
interest of Tenant or any guarantor of Tenant's obligations here under, or any
of them, was materially false.
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14.2 Remedies. In the event of any such material default or breach by
--------
Tenant, Landlord may at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have by reason of such default or breach take any of the following
actions:
(a) Terminate Tenant's right to possession of the Premises by any
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event, Landlord shall
be entitled to recover from Tenant: (1) the worth at the time of award of the
unpaid rent which had been earned at the time of termination: (2) the worth at
the time of award of the amount by which the unpaid rent which would have been
earned after termination until the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonably avoided: (3) the worth
at the time of award of the amount by which the unpaid rent for the balance of
the term after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided; and (4) any other amount necessary to
compensate Landlord for all the detriment proximately caused by Tenant's failure
to perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom.
(b) Have this Lease continue in effect for so long as Landlord does
not terminate this Lease and Tenant's right to possession of the Premises, in
which event Landlord shall have the right to enforce all of Landlord's rights
and remedies under this Lease, including the right to recover the rent as it
becomes due under this Lease.
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the State of California.
(d) The "worth at the time of award" of the amounts referred to in
Sections 14.2(a)(1) and 14.2(a)(2) above shall be computed by allowing interest
at the maximum annual interest rate allowed by law for business loans (not
primarily for personal, family or household purposes) not exempt from the usury
law at the time of termination or, if there is no such maximum annual interest
rate, at the Bank of America N.T. & S.A. "Prime Rate" charged on such
termination then in effect plus two (2) percentage points. The "worth at the
time of award" of the amount referred to in Section 14.2(a)(3) above shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of the award plus one percent (1%) per annum.
For the purpose of determining unpaid rent under Sections 14.2(a)(1), (2) and
(3) above, such unpaid rent shall be the rent payable by Tenant in accordance
with all of the provisions of this Lease.
14.3 Default by Landlord. Landlord shall not be in default unless
-------------------
Landlord fails to perform obligations required of Landlord within a reasonable
time, but in no event later than thirty (30) days after written notice by Tenant
to Landlord and to any lenders whose names and addresses shall have been
theretofore furnished to Tenant in writing, specifying wherein Landlord has
failed to perform such obligation, provided, however, that if the nature of
Landlord's obligation is such that more than thirty (30) days are required for
the performance, then Landlord shall not be in default if Landlord commences the
performance within such 30-day period and thereafter diligently prosecutes the
same to completion. Tenant's sole remedy in the event of Landlord's default
shall be in damages. Tenant shall not have the right to any rent abatement or
reduction, but may terminate this Lease if Landlord fails to cure its default.
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15. Damage or Destruction.
---------------------
15.1 Partial Damage -- Insured. Subject to the provisions of Sections
-------------------------
15.3, 15.4 and 15.5, if the Premises are damaged and such damage was caused by a
casualty covered under any insurance policy required to be maintained by Tenant
pursuant to Section 13 or any insurance policy carried by Landlord, Landlord
shall first apply the proceeds paid under any such policy of insurance to the
repair of such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. Notwithstanding the foregoing to the
contrary, Landlord shall have no duty to repair or replace Tenant's fixtures,
equipment, personal property, alterations or improvements to the Premises,
including without limitation those described in Exhibit C, and Tenant shall
promptly, at its sole cost and expense, repair and replace such items, unless
such damage results from Landlord's negligent or willful acts.
15.2 Partial Damage -- Uninsured. Subject to the provisions of
---------------------------
Sections 15.3, 15.4 and 15.5, if the Premises are damaged, except by a negligent
or willful act of Tenant or Landlord (in which event Tenant or landlord shall
make all required repairs at its own expense), and such damage was caused by a
casualty not covered under an insurance policy required to be maintained by
Tenant under Section 13, or otherwise maintained by Landlord, Landlord may, at
its option, either (i) repair such damage as soon as reasonably possible, at
Landlord's expense, in which event this lease shall continue in full force and
effect, or (ii) give written notice to Tenant within sixty (60) days after the
date of the occurrence of such damage of Landlord's intention to cancel and
terminate this Lease as of the date of occurrence of such damage. In the event
Landlord elects to give such notice of Landlord's intention to cancel and
terminate this Lease, Tenant shall have the right within ten (10) days after
receipt of such notice to give written notice to Landlord of Tenant's intention
to repair such damage at Tenant's expense, without reimbursement from Landlord,
in which event this Lease shall continue in full force and effect and Tenant
shall proceed to make such repairs as soon as is reasonably possible. If Tenant
does not give such notice within such 10-day period, this Lease shall be
canceled and terminated as of the date of the occurrence of such damage.
Notwithstanding the foregoing to the contrary, if Landlord elects to repair the
premises after an uninsured casualty, Landlord shall have no duty to repair or
replace any of Tenant's fixtures, equipment, personal property or alterations or
improvements to the Premises, including without limitation those described in
Exhibit C, and Tenant shall promptly, at its sole cost and expense, repair and
replace such items unless such damage was caused by a negligent or willful act
of landlord.
15.3 Total Destruction. If at any time during the term hereof the
-----------------
Premises are totally destroyed from any cause whether or not covered by
insurance required to be maintained under this Lease (including any total
destruction required by an authorized public authority), this Lease shall
automatically terminate as of the date of such total destruction.
15.4 Damage Near End of Term. If the Premises are partially destroyed
-----------------------
or damaged during the last one (1) year of the term of this Lease, Landlord may,
at Landlord's option, cancel and terminate this Lease as of the date of the
occurrence of such damage by giving written notice to Tenant of Landlord's
election to do so within sixty (60) days after the date of the occurrence of
such damage.
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15.5 Damage to Building. In the event of any casualty to the Building
------------------
(whether or not including damage to the Premises), the repair or restoration of
which would in Landlord's reasonable judgment cost in excess of fifty percent
(50%) of the full replacement cost of the Building, Landlord may, at its option,
terminate this Lease by written notice given to Tenant within sixty (60) days of
the date of such damage.
15.6 Abatement of Rent: Tenant's Remedies. (a) If the Premises are
------------------------------------
partially destroyed or damage and Landlord or Tenant repairs or restores them
pursuant to the provisions of this Section 15, the rent payable here under for
the period during which such damage, repair or restoration continues shall be
abated in proportion to the degree to which Tenant's use of the Premises is
impaired. Except for abatement of rent, if any, Tenant shall have no right to
claim against Landlord for any damage suffered by reason of such damage,
destruction, repair or restoration except where such damage or destruction was
the result of Landlord's negligence.
(b) If Landlord shall be obligated to repair or restore the Premises
under the provisions of this Section 15, it shall commence said repairs within
sixty (60) days after such obligation accrues, unless prevented by any
governmental agency, Acts of God, labor interruptions or strikes or events of a
similar nature, and if Landlord fails to commence such repair or restoration
within said sixty (60) day period, Tenant may, at its option, cancel and
terminate this Lease by giving Landlord written notice of Tenant's election to
do so at any time prior to the commencement of such repair or restoration. In
such event, this Lease shall terminate as of the date of such notice.
15.7 Termination -- Advance Payments. Upon termination of this lease
-------------------------------
pursuant to this Section 15, an equitable adjustment shall be made concerning
advance rent and any advance payment made by Tenant to Landlord. Landlord shall,
in addition, return to Tenant so much of Tenant's security deposit as has not
theretofore been applied by Landlord.
15.8 Waiver. Tenant waives the provisions of California Civil Code
------
Sections 1932(2) and 1933(4) which relate to termination of leases when the
thing leased is destroyed and agrees that such event shall be governed by the
terms of this Lease.
16. Holding Over. On the last day of the term of this Lease or sooner
------------
termination of this Lease, Tenant agrees to peacefully and quietly surrender and
yield possession of the premises unto Landlord in as good order, state and
condition as the same were at the time of delivery of possession of the premises
to Tenant, reasonable use and wear and tear thereof excepted. Should Tenant hold
over said term hereby created with the consent of Landlord, such tenancy shall
be deemed to be merely one from month-to-month, at a monthly rental of one
hundred ten percent (110%) of the monthly rental in effect at the end of the
term of this Lease and upon all the other terms and conditions contained in this
Lease.
17. Non-Waiver. The waiver of any breach of this Lease by either of
----------
the parties or the failure or omission of the parties to exercise and remedy for
a violation of any of its terms, conditions or covenants shall in no way be
deemed to be a consent by the parties to such violation and shall in no way
estop or prevent the parties from exercising any of their rights under this
Lease thereafter either for
8
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such or any subsequent violation of any term, condition or covenant. The
acceptance or payment of rent here under shall not be, and shall not be
construed to be, a waiver of any breach, term, covenant or condition of this
Lease.
18. Utilities and Services.
----------------------
(a) Landlord agrees to furnish power to the premises, and heat and
air for the normal use of the premises.
(b) Landlord shall provide Tenant with after-hours control of heating,
ventilation and air conditioning (HVAC) for the Premises. Landlord shall install
a new electrical submeter in Tenant's Premises.
(c) Landlord to pay twelve cents (SO.12) per month, per usable square
foot, for Tenant's utilities service. Tenant to pay any additional cost for said
monthly service.
(d) Normal janitorial service shall be provided to the premises, and
the common areas of the Building, five nights per week.
The foregoing services and utilities shall be provided in an amount
and at such times customarily used in similar type buildings in the geographical
area in which the Landlord competes. The interruption or curtailment of any such
services caused by any event beyond the control of Landlord, including repairs,
renewals, improvements, alterations, strikes, lockouts, accidents, inability to
obtain fuel or supplies, or voluntary or involuntary governmental regulation
shall not constitute eviction or disturbance of Tenant's use of the Premises and
shall not entitle Tenant to abatement of rent or any other claim against
Landlord. Landlord shall use its best efforts at all times to continue said
service to the common areas.
19. Security Deposit. Tenant has, contemporaneously with the execution
----------------
of this Lease, deposited with Landlord the sum of $7,800.00 (Seven Thousand
Eight Hundred Dollars) receipt of which is hereby acknowledged by Landlord. This
sum shall be held by Landlord as security for the faithful performance by Tenant
on all of the terms, covenants and conditions of this Lease by Tenant to be kept
and performed during the term hereof. If at any time during the term of this
Lease any of the rent herein reserved shall be overdue and unpaid or any other
sum payable by Tenant to Landlord here under shall be overdue and unpaid,
the Landlord May, at its option (but Landlord shall not be required to),
appropriate and apply any portion of said $7,800.00 to the payment of any such
overdue rent or other sum. In the event of the failure of Tenant to keep and
perform all of the terms, covenants and conditions of this Lease to be kept and
performed by Tenant, then at the option of Landlord, it may, after terminating
this Lease, appropriate and apply said entire $7,800.00 (or so much thereof as
may be necessary) to compensate Landlord for all loss or damage sustained or
suffered by Landlord due to such breach on the part of Tenant. Should the entire
$7,800.00 (or any portion thereof) be appropriated or applied by Landlord for
the payment of overdue rent or other sums then due and payable to Landlord by
Tenant here under, then Tenant shall, upon written demand of Landlord, forthwith
remit to Landlord a sufficient amount in cash to restore said security to the
original sum of $7,800.00. Tenant's failure to do so within ten (10) days after
receipt of such demand shall constitute a breach of this Lease. Should Tenant
comply with all of said terms, covenants and conditions and promptly pay all
of the rental herein provided as it falls due, and all other sums payable by
Tenant to Landlord here under, then said
9
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falls due, and all other sums payable by Tenant to Landlord here under, then
said sum shall be returned in full to Tenant at the end of the term of this
Lease or upon the earlier termination of the Lease under the provisions of
Section 15 hereof.
20. Operating Expenses and Property Taxes. (a) Landlord shall pay for
-------------------------------------
the cost of insurance for the Building, water and sewer, elevator, maintenance
management, scavenger and other services and expenses related to the Premises
and the Building. Landlord shall also pay for PG&E, scavenger and janitorial for
the common areas of the Building.
(b) Tenant shall be responsible for paying its proportionate share of
increases in actual operating expenses and real property taxes for the Premises
above a Base Year of 1996. Said increases shall not exceed ten percent (10%) in
any given year. Tenant shall not be required to pay for any capital repairs or
alterations other than those which may be required by applicable codes, law or
regulations which become effective after lease commencement, and only then
depreciated over the useful life of the repair or alteration. Tenant shall not
pay operating expense and real estate tax increases until after the first
anniversary of the Commencement Date of the lease. Tenant shall be entitled to
review the documentation for such expenses.
21. Building Directory/Signage. Landlord, at its cost, shall place,
--------------------------
construct and maintain a directory, which shall be located in the lobby of the
Building, exclusively for the display of the names of tenants in the Building
and their respective suite numbers.
(a) Tenant and Landlord shall agree on all signage requested by
Tenant, which signage must comply with Building standards already in place. All
signage shall be furnished and installed at Tenant's expense. Landlord shall
cooperate, without charge to Tenant, in assisting Tenant in obtaining any
required government approvals.
22. Parking. Landlord agrees Super Parking, Inc., a tenant of
-------
Landlord, shall provide twenty five (25) parking stalls in the surface parking
lots adjacent to and within one block of the Building. The rate charged to
Tenant by Super Parking, Inc. for these parking stalls shall be $75.00 per month
per stall for the first year of the lease, subject to fair market increases not
to exceed three percent (3%) per annum.
23. Real Property Taxes. Landlord shall be responsible for the payment
-------------------
of all "real property" taxes on the property of which the Premises is a part
during the lease term. Tenant shall not be responsible for any increase in taxes
due to a sale or transfer of the property. "Real property tax" as used herein
shall include all real estate and personal property taxes (excluding any
personal property taxes assessed any other tenant of the Building), assessments
and any and all other impositions, fees and charges, whether extraordinary or
ordinary, general or special, which may at any time or from time to time during
the term of this Lease be levied or assessed or imposed or charged against or
with respect to, or become a lien against, (i) the Premises, (ii) the Building,
(iii) the land on which the Building is located, (iv) any part of the foregoing,
(v) this Lease, (vi) the operation of the Building or the Premises or any part
thereof by Landlord, Tenant, or Owner (including, without limitation, any and
all payroll, transit impact, housing fund, child care funds, license, business
and occupation taxes, fees, charges and other impositions), and any taxes or
other impositions imposed in lieu of said taxes, assessments, fees, charges and
other impositions, and any taxes, assessments, fees and other impositions
imposed
10
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upon the rental here under or under the Master Lease by any government authority
having jurisdiction thereover. Without limiting the generality of the foregoing,
"real property" tax shall also include all taxes on Owner or Landlord measured
by gross receipts from the Building levied during the term hereof under the
provisions of the Gross Receipts Tax Ordinance of the City and County of San
Francisco as from time to time amended, or any statutory successor, or under the
provisions of any statute, ordinance or regulation of any other governmental
body. "Real property" taxes shall be prorated at the commencement and at the
expiration of the term hereof. "Real property" taxes shall not include any
estate or inheritance taxes or any net income tax of Landlord or owner unless
the same is imposed in lieu of or as a replacement for what would otherwise be a
"real property" tax, or any taxes which Landlord is not required to pay under
the terms of the Master Lease.
24. Personal Property Taxes.
-----------------------
(a) Tenant shall pay prior to deliquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property (collectively "personal property") of Tenant contained in the Premises
or elsewhere. When possible, Tenant shall cause all personal property to be
assessed and billed separately from the Premises, Building or land on which they
are located.
(b) If any of Tenant's personal property shall be assessed with any
real property of Owner or Landlord, Tenant shall pay Landlord the taxes
attributable to Tenant's personal property within ten (10) days after receipt of
a written statement setting forth the taxes applicable.
25. Rental Adjustments. See paragraph 3.
------------------
26. Condemnation. If the Premises or any portion thereof are taken
------------
under power of eminent domain, or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than fifteen percent (15%)
of the floor area of the Premises is taken by condemnation, Tenant may, at
Tenant's option, to be exercised in writing only within ten (10) days after
Landlord shall have given Tenant written notice of such taking (or in the
absence of such notice, within ten [10] days after the condemning authority
shall have taken possession), terminate this Lease as of the date the condemning
authority takes such possession. If Tenant does not terminate the Lease in
accordance with the foregoing, the Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent shall be
reduced in the proportion of the floor area taken bears to the total floor area
of the Premises. Any award for the taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the power
of eminent domain shall be the property of Landlord, whether such award shall be
made as compensation for diminution in value of the leasehold or for the taking
of the fee (or any interest therein), or as severance damages; provided,
however, that Tenant shall be entitled to any award for loss of or damage to
Tenant's trade fixtures and removable personal property, Tenant's relocation
expenses and interruption of Tenant's business. In the event that this Lease is
not terminated by reason of such condemnation, Landlord shall, to the extent of
severance damages received by Landlord in connection with such condemnation,
repair any damage to the Premises caused by such condemnation except to the
extent that Tenant has been reimbursed therefor by the condemning authority.
Tenant shall pay any amount in excess of
11
<PAGE>
such severance damages required to complete such repair. If there is a
condemnation of any portion of the Building or the land on which the Building is
located, and such taking is of so much of the Building that Landlord determines
that it cannot resonably and economically operate the Building for the purpose
for which it was operated prior to such condemnation, Landlord may, in such an
event terminate this Lease by giving Tenant written notice thereof with ninety
(90) days of the date of such condemnation and, in such a case, any award will
be located as provided above.
27. Attornment. See Exhibit E Recognition and Attornment Agreement.
----------
28. General Provisions.
------------------
28.1 Estoppel Certificate. (a) Tenant shall at any time upon not less
--------------------
than ten (10) days prior written notice from Landlord execute, acknowledge and
deliver to Landlord a statement in writing certifying (i) that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and that this Lease, as so modified, is in full force and
effect) and the date to which the rent and other charges are paid in advance, if
any, (ii) that there are not, to Tenant's knowledge, any uncured defaults on the
part of Landlord hereunder, or specifying such defaults if any are claimed, and
(iii) such other matters as may be reasonably requested by Landlord. Any such
statement may be conclusively relied upon by any prospective purchaser or
encumbrancer of the Land and improvements in which the Premises are located or
any interest therein.
(b) Tenant's failure to deliver such statement within such time shall
be a material breach of this Lease and shall be conclusive upon the Tenant (i)
that this Lease is in full force and effect, without modification except as may
be represented by Landlord, (ii) that there are no uncured defaults in
Landlord's performance, and (iii) that not more than one month's rent has been
paid in advance.
(c) If Landlord desires to finance or refinance its interest in the
property and improvements upon which the Premises are located, or any parts
thereof, Tenant hereby agrees to deliver to any lender designated by Landlord
such financial statements of Tenant as may be reasonably required by lender.
Such statements shall include the past three (3) years' financial statements of
Tenant. All such financial statements shall be received by Landlord in
confidence and shall be used only for the purposes herein set forth.
28.2 Severability. If the invalidity of any provision of this Lease is
------------
determined by a court of competent jurisdiction, it shall in no way affect the
validity of any other provision hereof.
28.3 Late Charges. Tenant hereby acknowledges that the late payment
------------
by Tenant to Landlord of rent or other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amounts of which would be
impossible to ascertain. Such cost include, but are not limited to, processing
and accounting charges, late charges which may be imposed upon Landlord by the
terms of the Master Lease or any mortgage or deed of trust covering Landlord's
interest in the property on which the Premises is located, interest penalties
and lost opportunity. Accordingly, if any installment of rent or an other sum
due from Tenant shall not be received by Landlord within five (5) days after
such amount shall be due, Tenant shall pay Landlord a late charge equal to Five
Hundred Dollars
12
<PAGE>
($500.00) The parties hereby agree that such late charge represent a fair and
reasonable estimate of the costs Landlord will incur by reason of late payment
by Tenant. Acceptance of such late charge by Landlord after Tenant's first late
payment shall in no event constitute a waiver of Tenant's default with respect
to such overdue amount nor prevent Landlord from exercising any other rights and
remedies granted hereunder.
28.4 Interest on Past-Due Obligations. Except as expressly provided
--------------------------------
herein, any amount due Landlord and not paid when due shall bear interest from
the date due at a rate equal to the lesser of (a) three percent (3%) above the
reference rate or the publicly announced prime rate of interest charged on such
due date by the San Francisco Main Office of Bank of America, N.T. & S.A. (or
any successor bank thereto) to substantial commercial borrowers for ninety (90)
day loans or (b) the maximum rate permitted by law. Such payment of interest
shall not excuse or cure any default by Tenant under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Tenant.
28.5 Time is of the Essence. Time is of the essence.
----------------------
28.6 Captions. Section headings in this Lease are for convenience
--------
purposes only and shall not be interpreted as a substantive part of this Lease.
28.7 Recording. Tenant shall not record this Lease or any memorandum
---------
of this Lease without Landlord's prior written consent, and such recordation
shall, at the option of Landlord, constitute a noncurable default of Tenant
hereunder.
28.8 Cumulative Remedies. No remedy or election hereunder shall be
-------------------
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
28.9 Covenants and Conditions. Each provision of this Lease
------------------------
performable by Tenant shall be deemed both a covenant and a condition.
28.10 Binding Effect: Choice of Law. Subject to any provisions hereof
-----------------------------
restricting assignment or subletting by Tenant, this Lease shall bind the
parties, their personal representatives, successors and assigns. This Lease
shall be governed by the laws of the State of California.
28.11 Subordination. (a) This Lease, at Landlord's option, shall be
-------------
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the real property of
which the Premises are a part (or upon Landlord's leasehold interest in such
real property) and to any and all advance made on the security thereof and to
all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Tenant's right to quiet possession
of the Premises shall not be disturbed by Landlord or any person succeeding to
Landlord's interest in the Premises if Tenant is not in default and so long as
Tenant shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Tenant, this Lease shall be deemed prior to such mortgage,
deed of trust or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
13
<PAGE>
recording thereof.
(b) Tenant agrees to execute any documents required to effectuate such
subordination or to make this Lease prior to the lien of any mortgage, deed of
trust or ground lease, as the case may be, and failing to do so within ten (10)
days after written demand, does hereby make, constitute and irrevocably appoint
Landlord as Tenant's attorney-in-fact and in Tenant's name, place and stead, to
do so.
28.12 Waiver of Subrogation. So long as the applicable policy is not
---------------------
affected and the cost thereof is not increased thereby, each of the parties
hereto does hereby waive its entire right of recovery against the other for
any damages caused by an occurrence insured against such party and the rights of
any insurance carrier to be subrogated to the rights of the insured under the
applicable policy.
28.13 Modification of Public Areas. Landlord shall have the right to
----------------------------
change or modify public areas of the Building wherein the Premises are located
so long as said changes or modifications do not materially interfere with or
affect Tenant's quiet enjoyment.
28.14 Quitclaim Deed. At the expiration of the term of this Lease or
--------------
its earlier termination under the terms hereof, Tenant, upon Landlord's written
request, shall provide within ten (10) days a quitclaim deed in favor of
Landlord or its assigns whereby Tenant releases any and all of its interest in
the Premises or the land and improvements of which the Premises are a part.
28.15 Merger. The voluntary or other surrender of the Lease by Tenant,
------
or a mutual cancellation thereof, or a termination by Landlord, shall not work
as a merger, and shall, at the option of Landlord, operate as an assignment to
Landlord of any or all subtenancies.
28.16 Corporate Authority. If any party executing this Lease is a
-------------------
corporation, such individual executing this Lease on behalf of said corporation
represents and warrants that she/he is duly authorized to execute and deliver
this Lease on behalf of said corporation.
28.17 Quiet Possession. Upon Tenant paying the fixed rent reserved
----------------
hereunder and observing and performing all of the covenants, conditions and
provisions on Tenant's part to be observed and performed hereunder, Tenant shall
have quiet possession of the premises for the entire term hereof subject to all
of the provisions of this Lease.
28.18 Advertisements and Signs. Landlord reserves the exclusive
------------------------
right to use the exterior walls and roof of the Premises and the Building and
access thereto and Tenant shall not inscribe, paint or affix any signs,
advertisements, placards or awnings on the exterior walls, windows or roof of
the Premises or the Building without prior written consent of Landlord. It is
understood and agreed that any sign so placed on the premises or building with
consent of Landlord shall be removed by Tenant at termination of this Lease and
any damage or injury to the Premises resulting therefrom shall be repaired by
Tenant at its sole cost. In the event of the failure of Tenant to remove such
signs or repair any damage resulting there from, Landlord may remove said signs
and repair at the Tenant's expense.
28.19 Auctions. Tenant shall hold no auction upon the Premises without
--------
14
<PAGE>
the prior written consent of Landlord.
28.20 Entry by Landlord and Owner. Tenant shall permit Owner and
---------------------------
Landlord and their agents to enter into and upon the premises with twenty four
(24) hour notice to Tenant, except in the case of emergency, for the purpose of
inspecting the same, for the purpose of showing the Premises to prospective
tenants, prospective buyers, lenders and insurance carriers, and for the purpose
of maintaining the Building in which the Premises are situated, or for the
purpose of making repairs.
28.21 Cost of Suit. If either party becomes a party to any
------------
litigation concerning this Lease, the Premises, or the Building or the land
thereunder, by reason of any act or omission of the other party or its
authorized representatives, and not by any act or omission of the party that
becomes a party to that litigation or any act or omission of its authorized
representatives, the party that causes the other party to become involved in the
litigation shall be liable to that party for reasonable attorneys' fees and
court costs incurred by it in the litigation as fixed by a court of competent
jurisdiction. If either party commences an action against the other party
arising out of or in connection with this Lease, the prevailing party shall be
entitled to have and recover from the losing party reasonable attorneys' fees
and costs of suit as fixed by a court of competent jurisdiction.
28.22 Notices. All notices or demands to be given to Landlord or
-------
Tenant shall be deemed sufficiently served if the same is in writing and is
enclosed in a sealed envelope and is delivered personally or is deposited in the
United States Mail, certified or registered mail, return receipt requested,
postage prepaid and addressed to the Tenant at City Search, 4502 Dyer Street,
Suite 201, La Crecenta, CA 91214, and to Landlord at 680 Eighth St., San
Francisco, California 94103. Any such notice shall be deemed to have been served
and received upon such personal delivery or upon such mailing; provided,
however, if such notice pertains to the change of address of either party, such
notice shall be deemed to have been served only upon actual receipt thereof.
28.23 Sale or Transfer of Premises. If Landlord sells or transfers all
----------------------------
or any portion of its interest in the land and improvements of which Premises
are a part, Landlord, on consummation of the sale or transfer, shall be released
and discharged from any liability under this Lease upon the transfer of all
prepaid rent and any unexpended security deposit to Landlord's successor.
28.24 Financial Statements. Tenant shall cause to be furnished to
--------------------
Landlord within ten (10) days of preparation its most current financial
statement and balance sheet prepared in accordance with generally accepted
accounting principles. Said information as a minimum shall be furnished not less
frequently than annually.
28.25 Brokerage. Julien J. Studley, Inc. is acting as Tenant's
---------
exclusive agent in this transaction. Landlord shall pay to Julien J. Studley,
Inc. a brokerage commission of five percent (5%) of the fully serviced rental
paid by Tenant during the initial lease term. The first half of the commission
will be due and payable upon complete execution of the lease. The second half
will be due and payable sixty (60) days from the Commencement Date of the lease.
28.26 Exhibits. Exhibits A through E inclusive, are incorporated in
--------
15
<PAGE>
this Lease and made a part hereof.
28.27 Integrated Agreements -- Modification. This Lease contains all
-------------------------------------
the agreements of the parties and cannot be amended or modified except by a
written agreement executed by all parties or their successors.
28.28 Rules and Regulations. The Commencement of the lease term is
----------------------
expressly conditioned upon Landlord being able to complete the desired
remodeling to his satisfaction and further conditioned upon Landlord being able
to obtain all of the necessary permits. Tenant shall comply with Landlord's
rules and regulations for the Building attached hereto as Exhibit D and to such
modifications and amendments thereto as may be made by Landlord after the date
of this Lease.
28.29 Joint and Several Liability. All of the terms, covenants and
---------------------------
conditions contained in this Lease to be performed by either party, if such
party shall consist of more than one person or organization, shall be deemed
joint and several.
29. Primary Use. In no event shall the premises be used for any
-----------
purpose other than as described in paragraph 7 herein.
30. Insolvency or Bankruptcy. The appointment of a receiver to take
------------------------
possession of all or substantially all of the assets of Tenant or of the
operations of Tenant in the demised premises, or a general assignment by Tenant
for the benefit of creditors, or the filing of proceedings in insolvency or
bankruptcy by or against Tenant shall entitle Landlord, at its option to
terminate the lease; provided, however, if Tenant cures its insolvency or
bankruptcy within thirty (30) days of written notice thereof, the lease shall
not terminate.
31. Freight Movement. Furniture, merchandise and other bulk objects
----------------
shall be brought into and removed from the Building only through the freight
entrance, and the time and manner of movement of such objects shall be subject
to reasonable requirements of Landlord. Freight movement to and from the
premises shall be accomplished as promptly as possible. Such moving shall be at
Tenant's sole expense. No such objects shall be brought into or removed from the
Building during any major market exhibition without the prior written consent of
Landlord.
32. Prior Entry. Tenant shall have the right to install telephone and
-----------
computer cables, and equipment so long as Tenant performs such work through a
licensed contractor and said work is done in a good workmanlike manner to City
and County specifications. Lessee shall be responsible for all costs and
expenses occasioned by such installation and work. In such event, lessee shall
be bound by all of the terms, covenants and conditions of this Lease Agreement.
33. Option Premises/Right of First Refusal. Suite 244, the option
--------------------------------------
premises (600 rentable square feet, approximately). Tenant shall have the option
to lease the Option Premises, by providing written notice to Landlord within one
hundred twenty (120) days of the Commencement Date of the lease. The Option
Premises shall be leased under the same terms and conditions as the Initial
Premises, including Tenant Improvements to be determined. The Commencement Date
for the Option Premises shall be within sixty (60) days of the date the option
is exercised.
(a) Tenant shall be granted the continuing Right of First Refusal to
lease
16
<PAGE>
Option Premises and contiguous space to the Premises, that is or comes available
throughout the initial lease or renewal term, including the Option Premises.
The Lease of Suite 255 expires on May 31, 2001. The Lease of Suite
231 expires on June 30, 1997 and there is one (1) three (3) year option, which
if exercised, expires on June 30, 2000.
(b) Landlord shall provide written notifications to Tenant of all good
faith acceptable offers received for any space that comes available pursuant to
this right of first refusal. Tenant shall have seven (7) business days in which
to elect to lease such space, or any portion thereof, at the terms presented in
such written notification from the Landlord, including rent at fair market
value. Landlord, at Landlord's sole cost, shall construct in the First Refusal
premises tenant improvements of the same quality and scope as those constructed
in the Initial Premises. In the event Tenant elects not to exercise its right to
lease any such space, Landlord may offer such space to third parties upon
substantially the same terms and conditions that it offered the space to Tenant.
34. Option To Extend. Tenant shall have the right to renew the lease
----------------
for one (1) three (3) year period. Notice for the renewal option shall be given
to Landlord in writing no later than four (4) months prior to the expiration of
the prior term. If said Option is exercised by Tenant, the rent shall be
increased by 3% at the end of years three (3), four (4), and five (5).
Executed at San Francisco, California, on May 31, 1996.
------
LANDLORD TENANT
SOBEL BUILDING DEV. PARTNERS
[SIGNATURE ILLEGIBLE] /s/ Thomas Layton
- ---------------------------- --------------------------------
For Leon Baumgarten Thomas Layton
General Partner Chief Operating Officer
Perfect Market, Inc.
17
<PAGE>
ALL OF THE REAL PROPERTY SITUATE IN THE CITY AND COUNTY OF SAN FRANCISCO,
STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL ONE:
----------
BEGINNING AT THE POINT OF INTERSECTION OF THE NORTHWESTERLY LINE OF
TOWNSEND STREET AND THE SOUTHWESTERLY LINE OF EIGHTH STREET IN THE CITY OF SAN
FRANCISCO; THENCE SOUTH 45 DEGREES 08 FEET 40 INCHES (THE BEARING OF SAID
NORTHWESTERLY LINE OF TOWNSEND STREET BEING TAKEN AS SOUTH 45 DEGREES 08 FEET 40
INCHES WEST FOR THE PURPOSE OF THIS DESCRIPTION) ALONG SAID NORTHWESTERLY LINE
OF TOWNSEND STREET, A DISTANCE OF 81.75 FEET TO THE POINT OF BEGINNING OF THE
PROPERTY TO BE DESCRIBED; THENCE FROM SAID POINT OF BEGINNING SOUTH 45 DEGREES
08 FEET 40 INCHES WEST ALONG SAID NORTHWESTERLY LINE OF TOWNSEND STREET, A
DISTANCE OF 18.53 FEET TO THE POINT OF INTERSECTION OF SAID NORTHWESTERLY LINE
OF TOWNSEND STREET AND THE NORTHERLY LINE OF DIVISION STREET; THENCE SOUTH 25
DEGREES 39 FEET 21 INCHES WEST ALONG SAID NORTHERLY LINE OF DIVISION STREET, A
DISTANCE OF 207.19 FEET TO A POINT ON THE EASTERLY LINE OF THAT CERTAIN PARCEL
OF LAND CONVEYED BY THE WESTERN PACIFIC RAILROAD COMPANY TO THE STATE OF
CALIFORNIA, BY DEED RECORDED FEBRUARY 26, 1952, IN BOOK 5876, PAGE 453 OFFICIAL
RECORDS OF SAN FRANCISCO COUNTY; THENCE NORTHWESTERLY ALONG A 1147.0 FOOT RADIUS
CURVE TO THE LEFT (THE CENTER OF SAID CURVE BEARS SOUTH 23 DEGREES 06 FEET 03
INCHES WEST) THROUGH AN ANGLE OF 4 DEGREES 59 FEET 48 INCHES, AN ARC DISTANCE OF
100.03 FEET; THENCE NORTHEASTERLY ALONG A 372.745 FOOT RADIUS CURVE TO THE RIGHT
(THE CENTER OF SAID CURVE BEARS SOUTH 65 DEGREES 15 FEET 13 INCHES EAST) THROUGH
AN ANGLE OF 9 DEGREES 39 FEET 53 INCHES, AN ARC DISTANCE OF 62.88 FEET; THENCE
TANGENT TO SAID CURVE NORTH 34 DEGREES 24 FEET 40 INCHES EAST, A DISTANCE OF
141.77 FEET TO A POINT ON SAID SOUTHWESTERLY LINE OF EIGHTH STREET; THENCE
SOUTH 44 DEGREES 51 FEET 20 INCHES EAST ALONG SAID SOUTHWESTERLY LINE OF EIGHTH
STREET, A DISTANCE OF 166.30 FEET; THENCE SOUTH 45 DEGREES 08 FEET 40 INCHES
WEST, A DISTANCE OF 81.75 FEET; THENCE SOUTH 44 DEGREES 51 FEET 20 INCHES EAST,
A DISTANCE OF 93.0 FEET TO THE POINT OF BEGINNING, CONTAINING 39, 808 SQUARE
FEET, MORE OR LESS, AND BEING A PORTION OF 100 VARA BLOCK NO. 420.
PARCEL TWO:
----------
BEGINNING AT THE POINT OF INTERSECTION OF THE NORTHWESTERLY LINE OF
TOWNSEND STREET AND THE SOUTHWESTERLY LINE OF EIGHTH STREET IN THE CITY AND
COUNTY OF SAN FRANCISCO; THENCE FROM SAID POINT OF BEGINNING SOUTH 45 DEGREES 08
FEET 40 INCHES WEST (THE BEARING OF SAID NORTHWESTERLY LINE OF TOWNSEND STREET
BEING TAKEN AS SOUTH 45 DEGREES 08 FEET 40 INCHES WEST FOR THE PURPOSE OF THIS
DESCRIPTION) ALONG SAID NORTHWESTERLY LINE OF TOWNSEND STREET, A DISTANCE OF
81.75 FEET TO A POINT ON THE NORTHEASTERLY LINE OF PARCEL CONVEYED BY THE
WESTERN PACIFIC RAILROAD COMPANY TO J.W. EHRLICH, TRUSTEE FOR THE HEIRS OF THE
PRINCIPALS OF MAX SOBEL WHOLESALE LIQUORS, BY DEED RECORDED OCTOBER 18, 1955, IN
BOOK 6717 OF OFFICIAL RECORDS, AT PAGES 161 TO 166, INCLUSIVE IN THE OFFICE OF
THE RECORDER OF THE CITY AND COUNTY OF SAN FRANCISCO; THENCE NORTH 44 DEGREES 51
FEET 20 INCHES WEST ALONG SAID NORTHEASTERLY LINE, A DISTANCE OF 93.00 FEET;
THENCE AT A RIGHT ANGLE NORTH 45 DEGREES 08 FEET 40 INCHES EAST ALONG THE
SOUTHEASTERLY LINE OF SAID PARCEL CONVEYED TO J.W. EHRLICH, TRUSTEE, A DISTANCE
OF 81.75 FEET TO A POINT ON SAID SOUTHWESTERLY LINE OF EIGHTH STREET; THENCE
SOUTH 44 DEGREES 51 FEET 20 INCHES EAST ALONG SAID SOUTHWESTERLY LINE OF EIGHTH
STREET, A DISTANCE OF 93.00 FEET TO THE POINT OF BEGINNING.
BEING PART OF 100 VARA BLOCK NO. 420.
EXHIBIT "A"
<PAGE>
PARCEL THREE
------------
BEGINNING AT THE MOST NORTHERLY CORNER OF THAT CERTAIN PARCEL OF LAND
CONVEYED BY THE WESTERN PACIFIC RAILROAD COMPANY, TO J. W. EHRLICH, TRUSTEE FOR
SHERON SOBEL, CYNTHIA SOBEL, JOANNE COHEN AND STEVEN COHEN, AS RECORDED OCTOBER
18, 1955 IN VOLUME 6717, AT PAGES 161 TO 166 INCLUSIVE, OFFICIAL RECORDS, OF THE
CITY AND COUNTY OF SAN FRANCISCO, SAID POINT OF BEGINNING, ALSO BEING ON THE
SOUTHERLY LINE OF 8TH STREET, SAID CITY OF SAN FRANCISCO; THENCE FROM SAID POINT
OF BEGINNING SOUTH 34 DEGREES 24 FEET 40 INCHES WEST ALONG THE WESTERLY LINE OF
SAID PARCEL CONVEYED TO J.W. EHRLICH, TRUSTEE, A DISTANCE OF 141.77 FEET; THENCE
CONTINUING ALONG SAID WEST LINE ON THE ARC OF A CURVE TO THE LEFT HAVING A
RADIUS OF 372,745 FEET (THE CENTER OF SAID CURVE BEARS SOUTH 55 DEGREES 35 FEET
20 INCHES EAST), THROUGH A CENTRAL ANGLE OF 9 DEGREES 39 FEET 53 INCHES, AN ARC
DISTANCE OF 62.88 FEET, TO A POINT ON THE NORTHEASTERLY LINE OF THE PARCEL OF
LAND CONVEYED BY THE WESTERN PACIFIC RAILROAD COMPANY TO THE STATE OF
CALIFORNIA, AS RECORDED FEBRUARY 26, 1952 IN VOLUME 5876, AT PAGE 453, OFFICIAL
RECORDS OF THE CITY AND COUNTY OF SAN FRANCISCO; THENCE NORTHERLY AND WESTERLY
ALONG SAID NORTHEASTERLY PROPERTY LINE ALONG THE ARC OF A CURVE TO THE LEFT
HAVING A RADIUS OF 1,147.00 FEET (THE CENTER OF SAID CURVE BEARS SOUTH 78
DEGREES 06 FEET 15 INCHES WEST), THROUGH A CENTRAL ANGLE OF 4 DEGREES 59 FEET 29
INCHES, AN ARC DISTANCE OF 99.92 FEET; THENCE ON THE ARC OF A CURVE TO THE RIGHT
HAVING A RADIUS OF 372.245 FEET (THE CENTER OF SAID CURVE BEARS SOUTH 73 DEGREES
57 FEET 51 INCHES EAST), THROUGH A CENTRAL ANGLE OF 24 DEGREES 11 FEET 13
INCHES, AN ARC DISTANCE OF 157.14 FEET, TO A POINT ON THE SOUTHERLY LINE OF 8TH
STREET; THENCE SOUTH 44 DEGREES 51 FEET 20 INCHES EAST ALONG SAID SOUTHERLY LINE
OF 8TH STREET, A DISTANCE OF 68.49 FEET TO THE POINT OF BEGINNING.
BEING A PORTION OF 100 VARA BLACK 420.
RESERVING FROM Parcel One of said real property (i) the free-standing sign
on the southerly portion of said Parcel One and (ii) an easement of ingress and
egress from Division Street across said Parcel One and of use of the area within
said Parcel One immediately surrounding said sign for the purposes of operating,
maintaining, repairing and replacing said sign for the benefit of Grantors,
their assigns, agents and invitees.
<PAGE>
EXHIBIT C
---------
Landlord shall provide Tenant's improvements as follows:
1. Three (3) private offices with sliding glass doors.
2. Two (2) conference rooms with glass windows (panels).
3. Four, fifty four inch (54") high walls.
4. Open kitchen with sink, counter and cabinetry.
5. Vinyl tile in kitchen.
6. Supply room or shelving.
7. Carpet throughout of Tenant's choice (not to exceed $15.00 per square
yard) installed.
8. Painting throughout in colors of Tenant's choice with Landlord
approval.
9. The exposed structural columns within the Premises shall be
"fired-out" with a finish acceptable to Tenant.
10. Lighting sufficient to illuminate desk-heights surfaces.
11. Electrical outlets, located at a ratio of one (1) outlet per twelve
(12) lineal feet of partition for the office areas, including the
fifty four (54") high walls. Landlord agrees to install conduit (for
cabling) at each electrical outlet.
12. Electrical outlets shall be fifty percent (50%) duplex and fifty
percent (50%) fourplex. Four dedicated outlets will be installed.
13. Tenant to plan, install, and pay for all telephone equipment, computer
cables, and computer equipment.
14. Landlord shall improve to building standard the appearance of the
secondary entrance of the stairway from Eighth Street.
15. See Exhibit C-1 for Tenant's floor plan.
16. Landlord agrees that all improvements shall be to the standard of
Suite 244.
<PAGE>
EXHIBIT C-1(a)
[EIGHTH STREET -- PARTIAL SECOND FLOOR PLAN]
<PAGE>
EXHIBIT B
[EIGHTH STREET -- PARTIAL SECOND FLOOR PLAN]
<PAGE>
EXHIBIT C-1(b)
PERFECT MARKET/CITY SEARCH
[EIGHTH STREET -- PARTIAL SECOND FLOOR PLAN]
<PAGE>
EXHIBIT D
---------
RULES AND REGULATIONS
---------------------
1. The sidewalks, halls, passages, exits, entrances, elevators and
stairways of the building shall not be obstructed by any of the tenants or used
by them for any purpose other than for ingress to and egress from their
respective premises. The halls, passages, exits, entrances, and stairways are
not for the general public, and Landlord shall, in all cases, retain the right
to control and prevent access thereto of all persons whose presence, in the
judgment of Landlord, would be prejudicial to the safety, character, reputation
and interests of the building and its tenants, provided that nothing herein
contained shall be construed to prevent such access to persons with whom any
tenant normally deals in the ordinary course of its business, unless such
persons are engaged in illegal activities.
2. No sign, placard, picture, name, advertisement or notice visible
from the exterior of any tenant's premises shall be inscribed, painted, affixed
of otherwise displayed by any tenant on any part of the building without the
prior written consent of Landlord. Landlord will adopt and furnish to tenant
general guidelines relating to signs inside the building on the office floors.
Tenant agrees to conform to such guidelines, but may request approval of
Landlord for modifications, which approval will not be unreasonably withheld.
All approved signs of lettering on doors shall be printed, painted, affixed or
inscribed at the expense of the tenant by a person approved by Landlord, which
approval will not be unreasonably withheld. Material visible from outside the
building will not be permitted. Landlord may from time to time replace the
directory sign with a new sign of equal or better quality. Landlord may, from
time to time, remove and/or relocate signs placed outside of any tenant's
premises.
3. The premises shall not be used for lodging. No cooking shall be
done or permitted by any tenant on the premises, except that use by the tenant
of Underwriters's Laboratory approved equipment for brewing coffee, tea, hot
chocolate and similar beverages shall be permitted, provided that such use is in
accordance with all applicable federal, state and city laws, codes, ordinances,
rules and regulations.
4. Landlord will furnish each tenant free of charge a key to each
door lock in the premises. Landlord may make a
EXHIBIT D
---------
-1-
<PAGE>
reasonable charge for any additional keys. No tenant shall have any duplicate
keys made without prior written approval of Landlord, no tenant shall alter any
lock or install a new or additional lock or any bolt on any door of its premises
without the prior written consent of Landlord. Tenant shall in each case furnish
Landlord with a key for any such lock. Each tenant, upon the termination of its
tenancy, shall deliver to Landlord all keys to doors in the building which shall
have been furnished to tenant.
5. No tenant shall use or keep in the premises or the building any
kerosene, gasoline or inflammable or combustible fluid or material other than
limited quantities thereof reasonably necessary for the operation or maintenance
of office equipment, or, without Landlord's prior written approval, use any
method of heating or air conditioning other than supplied by Landlord, no
tenant shall use or keep or permit to be used or kept any foul or noxious gas or
substance in the premises, or permit or suffer the premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants of
the building by reason of noise, odors or vibrations, or interfere in any way
with other tenants or those having business therein.
6. Landlord shall have the right, exercisable without notice and
without liability to any tenant, to change the name and street address of the
building.
7. The toilet rooms, toilets, urinals, wash bowls and other
apparatus shall not be used for any purpose other than that for which they were
constructed, no foreign substance of any kind whatsoever shall be thrown therein
and the expense of any breakage, stoppage or damage resulting from the violation
of this rule shall be borne by the tenant who, or whose employees or invitees,
shall have caused it.
8. The Premises shall not be used for manufacturing of any kind, or
any business or activity other than that specifically provided for in Tenant's
lease.
EXHIBIT D
---------
-2-
<PAGE>
9. 110 tenant shall install any radio or television antenna,
loudspeaker, or other device on the roof or exterior walls of the building.
10. There shall not be used in any space, or in the public halls of
the building, either by any tenant or others, any hand trucks except those
equipped with rubber tires and side guards or such other material handling
equipment as Landlord may approve. No other vehicles of any kind shall be
brought by any tenant into the Building or kept in or about its premises.
11. EACH TENANT SHALL STORE ALL ITS TRASH AND GARBAGE WITHIN ITS
------------------------------------------------------------
PREMISES.
- --------
12. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of trash and garbage in the City
of San Francisco without being in violation of any low or ordinance governing
such disposal. All garbage and refuse disposal shall be made only through
entryways and elevators provided for such purposes and at such times as Landlord
shall designate.
13. Canvassing, peddling, soliciting, and distribution of handbills
or any other written materials in the building are prohibited, and each tenant
shall cooperate to prevent the same.
14. Landlord may waive any or more of these rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules and Regulations against any or all of the tenants of the building.
15. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend in whole or in part the terms,
covenants, agreements and conditions of any lease of premises in the building.
16. Landlord reserves the right to make such other and reasonable
rules and regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the building, and for the preservation of good
order therein.
EXHIBIT D
---------
-3-
<PAGE>
EXHIBIT E
RECOGNITION AND ATTORNMENT AGREEMENT
This Agreement ("Agreement") is made on __________________________________, 19__
between Cynthia Morris, THE LISS LIVING TRUST U/A DATED 4/15/91 and CHARLES,
AND SHERRI SUGARMAN LIVING TRUST U/A DATED 8/24/90 (collectively
"Masterlandlord"), whose address is 5710 Paradise Drive, Suite 3A, Corte Madera,
CA 94925, SOBEL BUILDING DEVELOPMENT PARTNERS, a California General Partnership
("Landlord"), whose address is 680 Eighth Street, San Francisco, CA 94103, and
Perfect Market, Inc. DBA: City Search ("Tenant"), whose address is
- -------------------------------------
680 Eighth Street, Suite 240 who agree as follows:
- ----------------------------
San Francisco, CA 94103
1. RECITALS. This Agreement is made with reference to the following facts
and objectives.
(a) Master Landlord is the owner in fee of improved real property
located in the City of San Francisco, County of San Francisco, commonly known as
680 Eighth Street.
(b) On January 10, 1986, Master Landlord leased to Landlord and
Landlord leased from Master Landlord, the real property described in this
Agreement. The lease between Master Landlord and Landlord shall be referred to
as 'the Master Lease.
(c) Landlord and Tenant are contemplating entering into a sublease of
a part of the real property (the "Premises"), a copy of which sublease Master
Landlord has received. The sublease shall be referred to as the "Lease".
(d) The parties desire, under the provisions set forth in this
Agreement, to assute to Tenant possession of the Premises for the entire term of
the Lease even if Landlord defaults under the Master Lease or the Master Lease
terminates before expiration of the Lease.
2. MASTER LANDLORD'S CONSENT TO LEASE. Master Landlord consents to Landlord
and Tenant entering into the Lease, without waiver of the restriation in the
Master Lease concerning further assignment or subletting.
3. ATTORNMENT. If after expiration of the applicable period that Landlord
has in which to cure its defaults, Landlord defaults under the Master Lease, the
Master Landlord shall notify the Tenant of the default. On receipt of the notice
from Master Landlord, Tenant shall attorn to Master Landlord and perform all
Tenant's obligations under the Lease directly to Master Landlord as if Master
Landlord were the Landlord under the Lease. If Tenant is not, at the time of the
notice, in default, Master Landlord shall continue to recognize the estate of
Tenant created under the Lease. If Tenant is not in default, the Lease shall
continue with the same force and effect as if Master Landlord and Tenant had
entered into a Lease on the same provisions as those contained in the Lease.
4. TERMINATION OF MASTER LEASE BY DESTRUCTION OR CONDEMATION. If Master
Lease terminates as provided in paragraphs 18 & 20 of the Master Lease, the
Lease shall also terminate on the date that the Master Lease terminates.
5. TENANT'S LIABILITY TO LANDLORD. From the date Tenant attorns to Master
Landlord as provided in this Agreement, Tenant shall not be further liable to
Landlord for performance under the Lease, and Landlord shall return to Tenant,
immediately on Tenant's demand, the security deposit plus accrued interest and
other prepaid sums the Tenant paid to Landlord under provisions of the Lease.
<PAGE>
6. CONDITIONS OF MASTER LANDLORD'S RECOGNITION AND TENANT'S ATTORNMENT.
Master, Landlord's obligation to recognize Tenant's rights under the Lease, and
Tenant's obligation to attorn to Master Landlord, are subject to the following:
(a) Master Landlord and Tenant, from the date of recognition and
attornment, shall have the same rights that can be enforced against each other
as Landlord and Tenant have that can be enforced against each other under the
Lease. Master Landlord shall not be liable for any act or omission of Landlord
and its authorized representatives, shall not be subject to any offsets or
defenses that Tenant has against Landlord, and shall not be bound by any prepaid
rent, security deposit or other prepaid sum that Tenant has paid in advance to
Landlord.
(b) Master Landlord and Tenant immediately shall enter into a written
agreement with the same provisions as those in the Lease, except for any changes
that are necessary because of the substitution of Master Landlord in the place
of Landlord.
7. AMENDMENT OF LEASE. Landlord and Tenant shall not enter into any
agreement that amends the Lease without Master Landlord's consent. Any amendment
of the Lease in violation of this provision shall have no force or effect on
Master Landlord.
8. MISCELLANEOUS.
(a) No Effect on Master Lease. Nothing in this Agreement shall be
deemed to change in any manner the provisions of the Master Lease between Master
Landlord and Landlord, or to waive any right that Master Landlord may now have
or later acquire against Landlord by reason of the Master Lease.
(b) Attorney's Fees. If any commences an action against any of the
other parties arising out of or in connection with this Agreement, the
prevailing party shall be entitled to recover from the losing party reasonable
attorney's fees and costs of suit.
(c) Notice. Any notice, demand, request, consent, approval, or
communication that any party desires or is required to give to another party or
any other person shall be in writing and either served personally or sent by
prepaid, first-class-mail. Any notice, demand, request, consent, approval, or
communication that any party desires or is required to give to the other party
at the address set forth in the introductory paragraph of this Agreement. Any
party may change its address by notifying the other parties of the change of
Address. Notice shall be deemed communicated within forty-eight(48) hours from
the time of mailing if mailed as provided in this paragraph.
(d) Successors. This Agreement shall be binding on and inure to the
benefit of the parties and their successors.
MASTER LANDLORD LANDLORD TENANT
By______________________ By [SIGNATURE ILLEGIBLE] By [SIGNATURE ILLEGIBLE]
-------------------- --------------------
Title___________________ Title Agent for Title COO
----------------- ----------------
Leon Baungerton
General Partner
Page 2
<PAGE>
EXHIBIT 10.20
OFFICE LEASE
790 EAST COLORADO BOULEVARD
PASADENA, CALIFORNIA 91101
Lessor:
BPG PASADENA, L.L.C.,
a Delaware Limited Liability Company
and
Lessee:
CITYSEARCH, INC., a Delaware Corporation
Dated: September 30, 1996
<PAGE>
BARKER PACIFIC GROUP
October 3, 1996
Mr. Brad Ramberg
CitySearch, Inc.
4502 Dyer Street
Suite 201
La Crescenta, CA 91214
Dear Brad:
Attached is a fully executed copy of the Lease for your files.
I am assuming that I will continue to coordinate directly with you
concerning the build-out. Please keep me advised relative to the computer
room facility as I do not want to let the ball drop on our end, relative to
special work that needs to be done in that area.
We look forward to having you relocate to the building, and I will be in
touch with your associate, Bob Dinan, concerning the public information
program.
Very truly yours,
/s/ Michael D. Barker
Michael D. Barker
Managing Director
attachment
cc: Bob Fitzgerald
Drew Planting
MDB/cer
<PAGE>
790 EAST COLORADO BOULEVARD
---------------------------
SUMMARY OF BASIC LEASE INFORMATION
----------------------------------
The undersigned hereby agree to the following terms of this Summary of Basic
Lease Information (the "Summary"). This Summary is hereby incorporated into
and made a part of the attached Office Lease (this Summary and the Office Lease
to be known collectively as the "Lease") which pertains to the office building
and parking structure the "Project") located at 790 East Colorado Boulevard,
Pasadena, California 91101. Each reference in the Office Lease to any term of
this Summary shall have the meaning as set forth in this Summary for such term.
In the event of a conflict between the terms of this Summary and the Office
Lease, the terms of the Office Lease shall prevail. Any capitalized terms used
herein and not otherwise defined herein shall have the meaning as set forth in
the Office Lease.
<TABLE>
<CAPTION>
TERMS OF LEASE DESCRIPTION
-------------- -----------
(References are to the Office Lease)
<S> <C>
1. Date: September 30, 1996
2. Lessor: BPG Pasadena, L.L.C.
790 East Colorado Boulevard
Pasadena, California 91101
Attention: Natalie P. Loucks
With copy to:
Attention: Richard J.Johnson
Barker Pacific Group, Inc.
100 First, Suite 2200
San Francisco, CA 94105
3. Lessee: CITYSEARCH, INC.
4502 Dyer Street, Suite 201
La Crescenta, CA 91214
Attention: Chief Financial Officer
and
790 East Colorado Boulevard
Suite 200
Pasadena, California 91101
Attention: Chief Financial Officer
(After Lease Commencement Date)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4. a. Premises (Article I): 22.389 rentable square feet of space comprising all of Level 2 and a portion
of Level 3 of the Project as set forth in Exhibit B-I attached hereto.
b. Expansion Premises 5.173 rentable square feet of space located on the 3rd floor of the Project
as set forth in Exhibit B-2, attached hereto.
5. Term (Article 3): Five (5) years, Lessee may terminate the Lease after 36 months, subject to:
5.1 Lease Term: (a) no material default of Lease: (b) nine (9) months prior written notice:
(c) payment of five (5) months Base Rental: and (a) payment of all
unamortized Lessee improvement provided by Lessor and unamortized Lease
commissions paid by Lessor at 12% interest rate.
6 Lease Commencement Date: The earlier of (i) the date Lessee commences business in the Premises, and
(ii) the later of (A) November 1, 1996 or (B) the date of Substantial
Completion of the Premises by Lessor (subject to acceleration pursuant to
Section 5 of Exhibit B attached to the Office Lease). The Lease Commencement
Date is scheduled to be November 1, 1996. Lessor shall endeavor to deliver
to Lessee thirty (30) days' prior written notice of Lessor's estimate of when
the date of Substantial Completion of the Premises shall occur. Lessor shall
abate the Annual Base Rental three (3) days for each day the Lease premises
are not substantially complete by November 20. 1996. Lessor's obligation
hereunder shall be subject to Lessee's compliance with its scheduled
commitments as set forth in the Work Letter (Exhibit D).
7. Lease Expiration Date: The last day of the month in which the 60th month anniversary of the Lease
Commencement Date occurs.
8. Base Rent (Article 4)
</TABLE>
<TABLE>
<CAPTION>
Annual
Monthly Rental Rate
Lease Annual Installment per Rentable
Year Base Rent of Base Rent Square Foot
----- --------- ------------ ------------
<S> <C> <C> <C>
Months 1-9 416,435.00 34,702.95 $18.60
Months/9-12 512,653.20 42,721.10 $18.60
2 529,190.40 44,099.20 $19.20
3 562,264.80 46,855.40 $21.00
4 578,802.00 48,233.50 $21.00
5 578,802.00 48,233.50 $21.00
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9. Additional Rent (Article 4)
9.1 Base Year: Basic costs for Calendar year 1997.
9.2 Lessee's Initial Share 21.10% (based upon a Building rentable area). The percentage share is based
of Direct Expenses: on Lessee's ratio of leased premises to the total rentable area of the
Buildings as defined by the BOMA. The percentage share will be adjusted to
include the Expansion Premises upon commencement of the Lease of the
Expansion Premises.
10. Security Deposit (Article 4.9): One month's rent.
11. a. Parking Passes (Article 20.20): Lessee shall be granted a ratio of four (4) parking passes for each 1.000
square feet of its Premises and expansion premises and right of first offer
space.
Monthly parking passes, based on stipulated ratio of passes, shall be:
Months 1 - 6 No charge
Months 6 - 12 $35.00
Months 13 - 24 $40.00
Months 25 - 36 $45.00
Months 37 - 48 $50.00
Months 49 - 60 $55.00
The above monthly amounts shall not exceed comparable parking charges in
comparable office buildings located in the Lake Street office corridor of
Pasadena.
b. Additional Parking Subject to availability and subject to the prior rights of other lessees at
the Project, Lessee may acquire additional parking passes at the market rate
for such spaces, and shall receive additional parking preferential to those
who are not Building occupants.
12. Brokers (Section 20.16): Lessee Agent:
Drew Planting and Robert Fitzgerald
Cushman & Wakefield of California
555 S. Flower Street, Suite 4200
Los Angeles, CA 90071-2418
and
Lessor Agent:
Barker Pacific Group, L.L.C.
790 E. Colorado Boulevard, 9th Floor
Pasadena, CA 91101
</TABLE>
<PAGE>
The foregoing terms of this Summary are hereby agreed to by Lessor and Lessee.
"LESSOR":
BPG PASADENA, L.L.C.
By:___________________________________
Its: Managing Member
----------------------------------
"LESSEE":
CITYSEARCH, INC.
By: /s/ [SIGNATURE ILLEGIBLE]
-----------------------------------
Its: Chief Financial Officer
----------------------------------
<PAGE>
"90 EAST COLORADO BOULEVARD
--------------------------
OFFICE LEASE
------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ARTICLE SUBJECT MATTER PAGE
- ------- -------------- ----
<S> <C> <C>
ARTICLE 1 REAL PROPERTY, BUILDING AND PREMISES.................................... 1
ARTICLE 2 PLANS AND CONSTRUCTION.................................................. 4
ARTICLE 3 TERM, USE, COMPLIANCE WITH LAWS......................................... 5
ARTICLE 4 RENTAL.................................................................. 7
ARTICLE 5 SERVICES AND UTILITIES.................................................. 12
ARTICLE 6 REPAIRS................................................................. 13
ARTICLE 7 ADDITIONS AND ALTERATIONS............................................... 14
ARTICLE 8 COVENANT AGAINST LIENS.................................................. 15
ARTICLE 9 INSURANCE............................................................... 15
ARTICLE 10 DAMAGE AND DESTRUCTION.................................................. 17
ARTICLE 11 NON-WAIVER.............................................................. 18
ARTICLE 12 EMINENT DOMAIN.......................................................... 18
ARTICLE 13 ASSIGNMENT AND SUBLETTING............................................... 19
ARTICLE 14 SURRENDER OF PREMISES OWNERSHIP AND REMOVAL OF TRADE FIXTURES........... 21
ARTICLE 15 HOLDING OVER............................................................ 22
ARTICLE 16 ESTOPPEL, ATTORNMENT AND SUBORDINATION.................................. 22
ARTICLE 17 DEFAULTS: REMEDIES...................................................... 23
ARTICLE 18 GRAPHICS................................................................ 25
ARTICLE 19 LESSOR'S RIGHT TO CURE DEFAULT; PAYMENT BY LESSEE....................... 25
ARTICLE 20 MISCELLANEOUS PROVISIONS................................................ 26
</TABLE>
EXHIBITS
- --------
A. LEGAL DESCRIPTION
B. OUTLINE OF FLOOR PLAN OF PREMISES
C. LESSEE WORK LETTER
D. LESSEE'S FINAL SPACE PLAN
E. NOTICE OF LEASE TERM DATES
F. RULES AND REGULATIONS
G. FORM OF LESSEE ESTOPPEL CERTIFICATE
H. CLEANING SPECIFICATIONS
<PAGE>
<TABLE>
<CAPTION>
INDEX OF MAJOR DEFINED TERMS
----------------------------
DEFINED TERMS LOCATION OF DEFINITION
IN OFFICE LEASE
---------------
<S> <C>
Additional Rental............................................ Article 4.6
Adjacent Parking Structure................................... Article 1.1
Base Rent.................................................... Article 8 of Summary
Base Year................................................... Article 9.1 of Summary
Basic Costs.................................................. Article 4.4
Calendar Year................................................ Article 4.3.2
Basic Services............................................... Article 5.1
Commencement Date............................................ Article 3.1
Expense Rental............................................... Article 4.1(b)
Expense Rental Adjustment.................................... Article 4.2(b)
Expense Year................................................. Article 4.3.3
Force Majeure................................................ Article 4.27
Hazardous Material........................................... Article 20.24
Holidays..................................................... Article 5.1
Impositions.................................................. Article 4.4(1)
Scheduled Commencement Date.................................. Article 2.2(c)
Lease Expiration Date........................................ Article 7 of Summary
Lease Term................................................... Article 5 of Summary
Operating Expenses........................................... Article 4.2.5
Preliminary Plans............................................ Article 2.1(a)
Premises..................................................... Article 4 of Summary
Project...................................................... Article 1.1
Rentable Area................................................ Article 1.5
Security Deposit............................................. Article 4.9
Signage...................................................... Article 5.6
Systems and Equipment........................................ Article 5.1
Lessee Work Letter........................................... Article 2.1(b)
Transfer Notice.............................................. Article 13.1
Transfer Premium............................................. Article 13.1
Transferee................................................... Article 13.1
Transfers.................................................... Article 13.1
</TABLE>
790 EAST COLORADO BOULEVARD
---------------------------
OFFICE LEASE
------------
This Office Lease, which includes the preceding Summary of Basic Lease
Information (the "Summary") attached hereto and incorporated herein by the
reference (the Office Lease and Summary to be known sometimes collectively
hereafter as the "Lease"), dated as of the date set forth in Section 1 of the
Summary, is made by and between BPG PASADENA, L.L.C., a Delaware Limited
Liability Company ("Lessor"), and CITYSEARCH, INC., a Delaware Corporation
("Lessee").
ARTICLE I
---------
REAL PROPERTY, BUILDING AND PREMISES
------------------------------------
1.1 Real Property, Building and Premises. Upon and subject to the
------------------------------------
terms, covenants and conditions hereinafter set forth in this Lease, Lessor
hereby leases to Lessee and Lessee hereby leases from Lessor the premises set
forth in Section 4 of the Summary (the "Premises"), which Premises are located
in the "Project," as that term is defined in this Section 1.1. The outline of
the floor plan of the Premises is set forth in Exhibit B attached hereto. The
---------
Premises are a part of the office building (the "Project") located at 790 East
Colorado Boulevard, Pasadena, California 91101. The office building, the parking
garage facility located adjacent to the office building ("Adjacent Parking
Structure"), the outside plaza areas, land and other improvements surrounding
the Project which are designated from time to time by Lessor as common areas
appurtenant to or servicing the Project, and the land upon which any of the
foregoing are situated, are herein sometimes collectively referred to as the
"Real Property." Lessee is hereby granted the right to the nonexclusive use of
the common corridors and hallways, stairwells, elevators, rest rooms and other
public or common areas located on the "Real Property," provided, however, that
the manner in which such public and common areas are maintained and operated
shall be at the sole discretion of Lessor and the use thereof shall be subject
to such rules, regulations and restrictions as Lessor may make form time to
time, subject to non-discrimination standards. Lessor reserves the right to make
alterations or additions to or change the location of elements of the Real
Property and the common areas thereof provided however, that Lessor shall not
make any alterations or changes to the Common Areas that would materially
decrease the level of service provided to Lessee. Except when and where Lessee's
right of access is specifically excluded above and elsewhere on this Lease,
Lessee shall have the right of access to the Premises twenty-four (24) hours per
day, seven (7) days per week during the Lease Term.
1.2 Condition of the Premises. Except as specifically set forth
-------------------------
in this Lease and in the Lessee Work Letter attached hereto as Exhibit C. Lessor
shall not be obligated to provide or pay for any improvement work or services
related to the improvement of the Premises. Lessee also acknowledges that Lessor
has made no representation or warranty regarding the condition of the Premises
or the Project except as specifically set forth in this Lease and the Lessee
Work Letter. Lessor shall deliver the Premises free and clear of debris, and
shall thoroughly clean the Premises, following Lessee's move into the Premises.
Lessor thereafter warrants that the Project will be leased, operated and
maintained as an institutional quality office building.
1.3 Common Area. Appurtenant to the Premises and subject to
-----------
reasonable rules and regulations from time to time made by the Lessor of which
Lessee is given notice, Lessee shall have the right to the use of the following
common ("Common Areas"):
(a) Building Common Area. The common stairways, corridors
--------------------
and accessways, vending or mail areas, lobbies and foyers, entrances, stairs,
escalators, elevators, rest rooms, janitorial, telephone, mechanical and
electrical rooms and any passageways thereto, and the common pipes, ducts,
conduits, wires and appurtenant equipment serving the Premises.
1
<PAGE>
(b) Land Common Area. The common walkways and sidewalks
-----------------
necessary for access to the Project. Lessee's acceptance of the Premises shall
constitute an acknowledgment and acceptance of the various temporary
inconveniences that may be associated with the use of the Common Areas.
1.4 Lessor's Reserved Rights in Premises and Common Areas. Lessor
-----------------------------------------------------
reserves the right, provided that the exercise of such right does not materially
decrease the level of service provided to Lessee from time to time.
(a) Building Changes. To install, use, maintain, repair and
----------------
replace pipes, ducts, conduits, wires and appurtenant meters and equipment for
service to other parts of the Project above the ceiling surfaces, below the
floor surfaces, within the walls and in the central core areas, and to relocate
any pipes, ducts, conduits, wires and appurtenant meters and equipment in the
Premises which are so located or located elsewhere outside the Premises.
(b) Boundary Changes. To change the lines of the lot on which
----------------
the office building and parking structure stands ("Lot") and to redesign and
restripe the parking facilities in the Garage and make other reasonable changes
and grant others rights thereto, including without limitation the granting of
easements, rights of way and rights of ingress and egress and similar rights to
users of parcels adjacent to the Lot.
(c) Facility Changes. To alter or relocate any other common
----------------
areas of facilities associated with the Project.
(d) Garage Parking and Storage. To grant exclusive use to
--------------------------
portions of the Garage in the Project to other Tenants of the Building and to
impose parking charges from time to time for use of the Garage, except however,
as limited by the parking charges to be paid by Lessee as set forth in the
Summary and per article 20.20 below
1.5 Rentable Area. The term "Rentable Area" shall be deemed to
-------------
include.
(a) in the case of a single tenancy floor the aggregate of (i)
all floor area of the Premises measured from the inside surface of the outer
glass and extensions of the plane thereof in non-glass areas to the inside
surface of the opposite outer glass and extensions of the plane thereof in non-
glass areas and shall include all areas within the outside walls, excluding only
the areas ("Service Areas") used for elevator mechanical rooms, building stairs,
fire towers, elevator shafts, flues, vents, stacks, vertical pipe shafts and
vertical ducts, but including any such Service Arears which are for the specific
use of the particular tenant such as special stairs or elevators, and (ii)
Lessee's Percentage Share (defined in Article 1.6 below of the square footage of
the Project's elevator and main mechanical rooms, fire control stations and
building lobbies ("Building Areas"); and
(b) in the case of a partial tenancy floor, the aggregate of (i)
all floor area of the Premises within the inside surface of the outer glass
and extensions of the plane thereof in non-glass areas to the mid-point of the
demising walls separating the Premises from areas leased by or held for lease to
other tenants or from Project Common Areas located on such floor and other
similar facilities for the use of all tenants on such floor, (ii) Lessee's
allocable portion based upon the ratio which the Rentable Area of the Premises
bears to the Rentable Area of the floor ("Lessee's Floor Share") of the Project
Common Areas located on such floor and other similar facilities for the use of
all tenants on such floor, and (iii) Lessee's Percentage Share of the Project
Areas.
In determining Rentable Area, no deductions shall be made for
columns or projections necessary for the Project. The Rentable Area of the
Premises and the Rentable Area of the Project (which for the purposes of this
Lease is exclusive of retail and storage or basement uses) have been calculated
on the basis of the foregoing definition and shall be consistent with the
standards established by the Building Owners and Management Association, "BOMA",
are hereby stipulated for all purposes hereof to be the approximate amounts
stated in the Basic Lease Information, subject to confirmation by actual
measurement by Lessor's architect, at the request of either party prior to
Lessee's occupancy.
2
<PAGE>
1.6 Lessee's Percentage Share. The term "Lessee's Percentage Share"
-------------------------
shall mean the percentage figure specified in the Basic Lease Information which
represents the ratio that the Rentable Area of the Premises bears one hundred
(100%) of the Rentable Area then leased in the Project. In the event Lessee's
Percentage Share is changed during a calendar year by reason of a change in
the Rentable Area of the Premises or a charge in the total Rentable Area of
the Project, Lessee's Percentage Share shall be re-calculated pursuant to the
aforementioned formula and shall be determined on the basis of the number of
days during such calendar year at each such percentage, provided however that
Lessee's financial obligation shall not be increased thereby.
1.7 Right of First Offer. During the term of the Lease, Lessee
--------------------
shall have a right of first offer to lease that portion of the rentable area of
seventh (7th) floor of the Project consisting of approximately 13.896 rentable
square feet, as depicted on Exhibit B, attached hereto, (the First Offer Space)
---------
which becomes available for lease as described hereinbelow, Lessee's right of
first offer shall be on the terms and conditions set forth in this Section 1.7.
Lessee shall not have any such first offer right to lease the First Offer Space
(and/or Initial Space as the case may be) pursuant to this Section 1.7 until (A)
with respect to the First Offer Space, after a Vacant Space Lease has been
executed for such Vacant Space and such First Offer Space becomes available for
lease following the expiration of such Vacant Space Lease (including renewals)
and the Lessee thereunder has vacated such Vacant Space.
1.8 Procedure for Offer. Upon receipt of a written offer from a
-------------------
third party for all or a portion of the subject Space, Lessor shall give Lessee
written notice (the "First Offer Notice") that the First Offer Space requires a
response pursuant to the terms of Lessee's Right of First Offer, as set forth in
this Article 1. Pursuant to such First Offer Notice, Lessor shall offer to lease
to Lessee the First Offer Space for a term coterminous with the Lease Term. The
First Offer Notice shall describe the space so offered to Lessee including
without limitation, Lessor's determination of the rentable square footage
thereof, and shall set forth the "First Offer Rent" as that term 15 defined in
Section 1.10 below, and the other terms upon which Lessor is willing to lease
such space to Lessee.
1.9 Procedure for Acceptance. If Lessee wishes to exercise Lessee's
------------------------
right of first offer with respect to the space described in the First Offer
Notice, then within ten (10) business days of delivery of the First Offer Notice
to Lessee. Lessee shall deliver notice to Lessor of Lessee's exercise of its
Right of First Offer in respect to the space described in the First Offer Notice
at the First Offer Rent and upon the terms contained in such notice. If Lessee
does not wish to exercise its Right of First Offer within such ten (10) business
day period, then Lessor shall be free to lease the space described in the First
Offer Notice to anyone to whom Lessor desires on any terms Lessor desires,
whereupon, Lessee's Right of First Offer shall terminate with respect to such
First Offer Space. Notwithstanding anything to the contrary contained herein,
Lessee must elect to exercise its Right of First Offer, if at all, with respect
to all of the space offered by Lessor to Lessee at any particular time, and
Lessee may not elect to lease only a portion thereof.
1.10 First Offer Space Rent. The rent payable by Lessee for the
----------------------
First Offer Space (the "First Offer Rent") shall be equal to the Fair Market
Rental Rate for the First Offer Space. In the event Lessor and Lessee cannot
mutually agree upon the terms for such space, an Arbitrator will be appointed
consistent with the terms of Article 3.7.
1.11 Construction In First Offer Space. Subject to any improvement
---------------------------------
allowance granted to Lessee or Lessee improvement work to be provided by Lessor
as a component of First Offer Rent, Lessee shall take the First Offer Space in
its "as-is" condition as of the date of delivery of such space, and the
construction of improvements in the First Offer Space shall be Lessee's sole
responsibility (except that Lessor will provide a tenant improvement allowance
equal to the Tenant Improvement Allowance for the Initial Premises reduced pro-
rata by the remaining Lease Term), with any such construction to comply with the
terms of Article 8 of this Lease. Notwithstanding the foregoing, should Tenant
exercise its Right of First Offer within 12 calendar months prior to its
Termination Rights and should Tenant receive a Tenant Improvement Allowance,
then should Tenant exercise its Termination Right, Tenant in addition to paying
the unamortized costs shall also pay on a penalty, equal to one month's Base
Rent as set forth in Section 8 of the Summary of Basic Lease Information. The
parties will consider the condition of the Space to determine the Fair Market
Rental Rate.
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1.12 Amendment to Lease. If Lessee timely exercises Lessee's right
------------------
to lease the First Offer Space, Lessor and Lessee shall within thirty (30) days
thereafter execute an amendment to the Lease memorializing Lessee's lease for
such First Offer Space upon the terms and conditions set forth in this Article
1. Lessee shall commence payment of Rent for the First Offer Space, and the
term of the First Offer Space shall commence upon the date of delivery of the
First Offer Space to Lessee in a condition mutually agreed by the parties (the
"First Offer Commencement Date") and terminate coterminous with the termination
of the Lease Term.
1.13 Suspension of Right of First Offer. Lessee shall not have the
----------------------------------
right to lease any First Offer Space if, as of the date of the attempted
exercise of any right of first offer by Lessee, or as of the scheduled date of
delivery of such First Offer Space to Lessee. Lessee is in material default
under this Lease beyond any applicable notice and cure periods. In addition, the
rights to lease the First Offer Space shall be personal to the Original Lessee,
or any affiliate entity acquiring entity or restructured entity, which is
comprised of Lessee, subject to the creditworthiness of the subject affiliate,
acquiring or restructured entity executing this Lease (the "Original Lessee")
and may only be exercised by the Original Lessee (and not by any assignee or any
sublessee or other, transferee of Lessee's interest in this Lease or the
Premises, or any part thereof) if, at the time of the attempted exercise of any
such right of first offer, the Original Lessee is in physical occupancy and
possession of the entire Premises.
1.14 Expansion Premises. On or before Nine (9) months from the
------------------
Commencement Date, Lessee hereby commits the lease, occupy and use all the
remaining Space not initially leased on Level 3 as depicted in Exhibit B-2. The
terms and conditions of the Expansion Premises shall be the same rental and same
level of tenant improvements, to be provided by Lessor subject to Lessee's
submittal of an Approved Space Plan for the Expansion Premises. The term of the
lease for the Expansion Premises shall terminate on the same date as the lease
covering the Initial Premises and all terms and conditions set forth in this
lease shall be applicable to the Expansion Premises.
ARTICLE 2
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PLANS AND CONSTRUCTION
----------------------
2.1 Plans.
-----
(a) Preliminary Plans. Lessor and Lessee have approved the
-----------------
preliminary plans and outline specifications identified in Exhibit D for the
construction of the Premises ("Preliminary Plans").
(b) Work Letter. Lessee has delivered to Lessor for Lessor's
-----------
review and approval the Space Plan (and any revisions thereto) and the Working
Drawings (substantially in conformity with the Space Plan), containing the
information required by the Work Letter attached hereto as Exhibit C for the
construction of the Premises (defined more completely in the Work Letter as
"Improvements"). Any changes to the Improvements requested by Lessee shall only
be made in accordance with the terms of the Work Letter.
2.2 Construction of Improvements and Payment.
----------------------------------------
(a) Construction. Lessor shall construct or install the
-------------
Improvements in the Premises substantially in accordance with the Working
Drawings and pursuant to the schedule set forth in the Work Letter.
(b) Payment. Lessor shall determine Lessee's share of the cost
-------
of constructing or installing the Improvements based on the parties' obligations
as specified in the Work Letter. Lessee shall be solely responsible for the
payment of Lessee Extra Work (as defined in the Work Letter).
(c) Completion. Lessor shall use diligence to construct or
-----------
install the
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Improvements in a professional workmanlike manner in the Premises so that they
are Substantially Complete (as defined in the Work Letter) by the Scheduled
Commencement Date set forth in the Basic Lease Information; provide, however,
that the Scheduled Commencement Date shall be extended for a period equal to the
period of any delays affecting the construction of the Improvements because of
fire, earthquake, weather, acts of God, acts or the public enemy, riot,
insurrection, governmental authorities (permitting or inspection), governmental
regulations of the sales of materials or supplies or the transportation thereof,
strikes of boycotts, unavailability of material or labor at reasonable and
customary prices, moratoria Lessee Delays (as defined in the Work Letter) at the
time and in the manner described in the Work Letter.
(d) Delays. Except for Lessee delays, if for any reason Lessor
------
cannot deliver possession of the Premises to Lessee on the Scheduled
Commencement Date, this Lease shall not be void or voidable, except however,
Lessee shall be granted three (3) days for each work day the Premises are not
delivered by Lessor in a Substantially Complete form. Should Lessee Delay
contribute to the delay, Lessor shall be granted one additional work day of
delay for each day of delay resulting from Lessee Delays. Notwithstanding the
foregoing, if possession of the Premises has not been delivered to Lessee within
three (3) months following the Scheduled Commencement Date, this Lease shall
automatically terminate. No delay in delivery of possession shall operate to
extend the Lease term.
ARTICLE 3
-------
TERM: USE: COMPLIANCE WITH LAWS
-------------------------------
3.1 Commencement of Term. Subject to and upon the terms and
--------------------
conditions set forth herein, and receipt by Lessee of a thirty (30) day prior
written notice of Lessor's intent to deliver the Premises, the term shall be for
a period specified in the Summary as Term, commencing upon the earliest of the
following dates ("Commencement Date"):
(a) The date on which the Improvements to the Premises are
Substantially Complete (defined in the Work Letter, Exhibit C);
(b) The date on which the Improvements to the Premises would
have been Substantially Complete had there been no Lessee Delays (defined in the
Work Letter); or
(c) The date upon which Lessee actually commences to do business
in the Premises with Lessor's written consent.
(d) November 20, 1996 (except for the area referred to as the
computer room).
Upon the Commencement Date, Lessor and Lessee shall execute an
amendment to this Lease, as shown in Exhibit E attached herewith and made a
part of this Lease setting forth the Commencement Date and Term Expiration Date.
3.2 General Use and Compliance with Laws. Lessee shall only use the
------------------------------------
Premises for general office, administrative and for any other legally
permissible use comparable with a first class office building but for no other
use without the prior written consent of Lessor. Subject to Article 4.4 (4) (i),
Lessee shall comply with and faithfully observe all of the requirements of
municipal, county, state, federal and other applicable governmental authorities,
or which may hereafter be in force, pertaining to the use and occupancy of the
Premises, Lot. Garage and Project and shall secure any necessary permits
pertaining to Lessee's use and occupancy of the Premises. In Lessee's use and
occupancy of the Premises. Lessee shall not subject the Premises to any use that
would tend to damage any portion thereof or which shall in any way increase
the existing rate of any insurance on the Project or any portion thereof or
cause any cancellation of any insurance policy covering the Project or any
portion thereof. Lessee shall not do or permit anything to be done in or about
the Premises which shall in any way obstruct or interfere with the rights of
other tenants of the Project, or injure or annoy them, or use or allow the
5
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Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Lessee or Lessee's customers cause, maintain, or permit any
nuisance in, on or about the Premises or commit or suffer to be committed any
waste in, on or about the Premises. Lessee shall not bring into the office
building, or keep or arrange in the Premises any furniture, equipment, materials
or other objects which individually or collectively overload Premises or the
office building. Lessor reserves the right to prescribe the weight and position
of all safes, fixtures and heavy installations that Lessee desires to place in
the Premises so as to distribute properly the weight, or to rescure plans
prepared by a qualified structural engineer for such heavy objects at Lessee's
sole cost and expense. Notwithstanding the foregoing Lessor shall have no
liability for damage caused by the installation of such safes and heavy
equipment. Furthermore, business machines and mechanical equipment belonging to
Lessee that cause noise and or vibration that may be transmitted to the
structure of the office building or to any other tenants in the office building
shall be placed and maintained by Lessee, at Lessee's sole cost and expense, in
settings of cork, rubber or spring type noise and or vibration eliminators and
Lessee shall take such other measures directed by Lessor as needed to eliminate
such vibration and/or noise. Lessee recognizes that the Project is maintained by
Lessor as a location for first-class type of office business and retail
occupancy.
3.3 Option Right. In the event Lessee has not elected to exercise
------------
its termination right as set forth in the Summary. Lessor hereby grants to
Lessee one (1) option to extend the Lease Term for a period of five (5) years
(the "Option Term"). The option shall be exercisable only by written notice
delivered by Lessee to Lessor as provided below, provided that, as of the date
of delivery of such notice. Lessee is not in material default under this Lease
beyond any applicable notice and cure periods. Upon the proper exercise of such
option to extend, and provided that, as of the end of the initial Lease Term,
Lessee is not in material default under this Lease beyond any applicable notice
and cure periods, the Lease Term as it applies to the Premises, and any
Expansion Premises or any Premises leased in the Project by Lessee, shall be
extended for the Option Term. The rights contained in this Section 3.3 shall be
personal to the Original Lessee or its permitted assignee such as affiliates,
acquiring entity or restructured entity, but not by any assignee, or any
sublessee or other non-approved transferee of Lessee's interest in this Lease or
the Premises, or any part thereof.
3.4 Option Rent. The rent payable by Lessee during the Option
-----------
Term (the "Option Rent") shall equal ninety-five percent (95%) of the "Fair
Market Rental Rate" for the Premises. The term "Fair Market Rental Rate" for the
Premises during the Option Term and the Fair Market Rental Rate for the First
Offer Space for purposes of determining the First Offer Rent pursuant to Section
1.7) shall mean the annual amount per rentable square foot being charged on a
full service basis by Lessor as of the first day of the Option Term (or the
First Offer Commencement Date for the First Offer Rent, as the case may be) for
unencumbered non-sublease, non-equity space comparable to the Premises (or First
Offer Space as applicable) in the Office Building (defined as those signed
within 6 months of the valuation date) or if not enough comparable transactions
exist in the office building then the annual amount per rentable square foot
being charged on a full service basis for comparable space in Comparable
Buildings (as that term is defined below, giving appropriate consideration to
(appropriate concessions) "Rent Concessions and to all economic terms, such as
annual rental rates per rentable square foot, escalation clauses (such as net,
base year or expense stop), commercial provisions, relocation payments, locating
free rent, if any, length of the lease term, size and location of premises being
leased and other generally acceptable terms and conditions for the tenancy of
the space in question, including Lessee improvements or allowances provided or
to be provided for such comparable space (provided, however, that the amount of
such improvements or allowances shall be reduced, when calculating the Option
Rent for First Offer Rent, as the case may be by deducting the value of the
existing improvements in the Premises (or First Offer Space, as the case may
be), as of the first day of the Option Term, (or First Offer Commencement Date,
as the case may be) with such value to be based upon the age, of the
improvements provided, however, in calculating the Fair Market Rental Rate, no
consideration shall be given in to the fact that (i) any rental abatement is or
is not given such Lessees in connection with the construction of improvements in
such comparable space, or (ii) Lessor is or is not required to pay a real estate
brokerage commission in connection with the Option Term for First Offer Space,
or the fact that comparable deals do or do not involve the payment of real
estate brokerage commissions. If in determining the Fair Market Rental Rent.
Rent Concessions are granted Lessor may at Lessor's sole option, elect any or a
portion of the following:
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(a) To grant some or all of the Rent Concessions to Lessee in
the form as described above of as free rent and/or an improvement allowance):
or.
(b) To adjust the rental rate component of the Fair Market
Rental Rate to be an effective rental rate which takes into consideration the
total dollar value of such Rent Concessions (in which case the Rent Concessions
evidenced in the effective rental rate shall not be granted to Lessee). The term
"Comparable Building" as used in this Lease shall mean first-class office
buildings located in the Lake Street Corridor of the Central Business District
of Pasadena, California.
3.5 Exercise of Option. The Lease Extension Option shall be
------------------
exercised by Lessee, if at and only in the following manner: (1) Lessee shall
deliver written notice to Lessor not more than fourteen (14) months nor less
than nine (9) months prior to the expiration of the initial Lease Term, stating
that Lessee may be interested in exercising its option: (ii) Lessor, after
receipt of Lessee's notice, shall deliver notice the "Option Rent Notice") to
Lessee not less than thirty (30) days, setting forth the Option Rent and, (iii)
if Lessee wishes to exercise such option, Lessee shall, on or before the date
occurring nine (9) months prior to the expiration of the initial Lease Term,
exercise the option by delivering written notice thereof to Lessor, and upon,
and concurrent with, such, exercise Lessee may, at its option, object to the
Option Rent contained In the Option Rent Notice, in which case the parties shall
follow the procedure, and the Option Rent shall be determined, as set forth in
Section 3.6 below.
3.6 Determination of Option Rent. In the event Lessee timely and
-----------------------------
objects in writing to the Option Rent (or First Offer Rent, as the case may be)
initially determined by Lessor and based on ninety-five percent (95%) of the
then Fair Market Value for comparable space on comparable buildings located in
Pasadena, California, Lessor and Lessee shall attempt to agree upon the Option
Rent (or First Offer Rent, as the case may be), using their best good-faith
efforts. If Lessor and Lessee fail to reach agreement within twenty (b) dave
following Lessee's objection to the Option Rent( or First Offer Rent, as the
case may be) (the "Outside Agreement Date"), then each party shall submit to
tine other party a separate written determination of the Option Rent (or First
Offer Rent, as the case may be) within ten (10) business days after the Outside
Agreement Date, and such determinations shall be submitted to arbitration in
accordance with the provisions herein. Failure of Lessee or Lessor to submit a
written determination of the Option Rent (or First Offer Rent, as the case may
be) within such ten (10) business day period shall conclusively be deemed to be
the non-determining party's approval of the Option Rent (or First Offer Rent, as
the case may be) submitted within such ten (10) business day period by the
other party.
3.7 Option Terms - Arbitration. Lessor and Lessee shall each
---------------------------
appoint one arbitrator who shall by profession be an independent real estate
broker who shall have been active over the five (5) year period ending on the
date of such appointment in the leasing of first-class office buildings in
Pasadena, California. The determination of the arbitrators shall be limited
solely to the issue of whether Lessor's or Lessee's submitted Option Rent (or
First Offer Rent, as the case may be) is the closest to the actual Option Rent
(or First Offer Rent, as the case may as determined by the arbitrators, taking
into account the requirements of Section 3.6 of this Lease with respect to the
Option Rent and Section 1.10 of this Lease with respect to the First Offer Rent.
Each such arbitrator shall be appointed within thirty (30) days after the
Outside Agreement Date and adopt procedures as follows:
(a) The two (2) arbitrators so appointed shall within ten (10)
days of the date of the appointment of the last appointed arbitrator agree upon
and appoint a third arbitrator who shall be qualified under the same criteria
set forth hereinabove for qualification of the initial two (2) arbitrators:
(b) The three (3) arbitrators shall with in thirty (30) days
after the appointment of the third arbitrator reach a decision as to whether
the panel shall use Lessor's or Lessee's submitted Option Rent (or First Offer
Rent, as the case may be) and shall notify Lessor and Lessee thereof:
(c) The decision of the majority of the three (3) arbitrators
shall be binding upon Lessor and Lessee:
7
<PAGE>
(d) If either Lessor or Lessee fails to appoint an arbitrator
within thirty (30) days after the applicable Outside Agreement Date, the
arbitrator appointed by one of them shall reach a decision, notify Lessor and
Lessee thereof, and such arbitrator's shall be binding upon Lessor and Lessee;
(e) If the two (2) arbitrators fail to agree upon and appoint a
third arbitrator within the time period provided above, then the parties shall
mutually select the third arbitrator. If Lessor and Lessee are unable to agree
upon the third arbitrator within ten (10) days, then either party may upon at
least five (5) days prior written notice to the other party, request the
Presiding judge of the Los Angeles County Superior Court, acting in his her
private and non-judicial capacity, to appoint the third arbitrator. Following
the appointment the third arbitrator the panel, of arbitrators shall within
thirty (30) days thereafter reach a decision as to whether Lessor's or Lessee's
Option Rent (or First Offer Rent, as the case may be shall be used and shall
notify Lessor and Lessee thereof; and
(f) The cost of the arbitrators and the arbitration proceeding
shall be paid by Lessor and Lessee equally, except that each party shall pay for
the cost of its own witnesses, agents and attorneys.
ARTICLE 4
-------
RENTAL
------
4.1 Rent. Lessee shall pay, without notice or demand, to Lessor at
----
such place as Lessor may from time to time designate in writing, in currency or
a check for currency which, at the time of payment, is legal tender for private
or public debts in the United States of America, "Rent" as set forth in Section
8 of the Summary, pay payable in equal monthly installments in advance on or
before the first day of each and every month during the Lease Term, without any
set off or deduction whatsoever. Rental shall collectively mean the following
sums (collectively "Rent").
(a) Base Rental. Base Rental as specified in The Summary of
-----------
Basic Lease information includes a component applicable to Basic Costs (defined
in Article 4.4). The Base Year for the calculation of Basic Costs is 1997, and
the Base Year "shall mean the period set forth in Section 9.1 of the Basic
Lease Information adjusted to reflect 95% building occupancy. The "Expense
Year" shall mean each calendar year in which any portion, of the Lease Term
falls, through and including the calendar year in which the Lease Term expires.
4.2 Calculation and Payment of Additional Rent.
------------------------------------------
(a) Base Rental Adjustment. The Base Rental adjustments for the
----------------------
Term are set forth in the Summary.
(b) Additional Rent Estimate. The amount to be paid initially as
------------------------
Expense Rental has been estimated by Lessor for the calendar year, 1997,
Lessee's first full calendar year of the Term. Thereafter, Lessee's payment of
Basic Costs shall be estimated and adjusted by Lessor as soon as reasonably
possible after the end of each calendar year. The estimates and adjustments
shall be made in accordance with the following procedures.
(c) Calculation of Excess. If for any Expense Year ending or
---------------------
commencing within the Lease Term, Tenant's Share of Direct Expenses for each
Expense Year exceeds Tenant's proportionate share of the amount of Direct
Expenses applicable to the Base Year, then Tenant shall pay to Landlord, in the
manner set forth herein, as Additional Rent an amount equal to the excess. The
foregoing shall be referred to as Lessee's share of Basic Costs.
(d) Statement of Actual Direct Expenses and Payment by Tenant.
---------------------------------------------------------
Within 120 days following the end of each Expense Year, Lessor shall deliver to
Lessee a Statement ("Statement") which Statements should be derived from a
audit conducted by an, independent certified public accountant (which accountant
is a
8
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member of a nationally recognized accounting firm) which shall state the Basic
Costs on a line item basis as to the general categories of Basic Costs, incurred
or accrued for each preceding Expense Year and which shall indicate the amount,
if any, of any Excess. Upon receipt of the Statement for each Expense Year
ending during the lease term if an Excess in present, Tenant shall pay with its
next installment of Base Rent due but in no event prior to thirty (30) days
after the receipt of such Statement the full amount of the excess for such
Expense Year, less the amount, if any, paid during such Expense Year as defined.
In the event that a Statement shows that the amount paid by Tenant exceeds
Tenant's Share of the Increase in Basic Cost for the Expense Year in question
("overpayment") Tenant may credit the amount of such overpayment against the
next due installments of Base Rent and Additional Rent provided that even
though the Lease Term has expired and Tenant has vacated the premises, when the
final determination is made to Tenant's Share of the Basic Cost for the Expense
Year in which this Lease expires or earlier terminates taking into
consideration that the Lease expiration date may have occurred prior to the
final day of the applicable Expense Year if (i) any overpayment is present then
Landlord shall concurrent with Landlords delivery to Tenant of the Statement pay
to Tenant the amount of such over payment or (ii) an excess is present. Tenant
shall within thirty (30) days pay to Landlord an amount as calculated pursuant
to the provisions herein.
(e) Prior to the commencement of each calendar year after Base
Year, or as soon thereafter as practicable, Lessor shall give Lessee written
notice of its estimate of Basic Costs for the ensuing twelve (12) month
period; provided that if such notice is not given twenty (20) days prior to the
commencement of the calendar year, Lessee shall continue to pay on the basis of
the then applicable Lessee's Percentage Share of Basic Costs until the month
after such notice is given.
4.3 Basic Costs. The term "Basic Costs" shall consist of all
-----------
operating expenses of the Project including without limitation those specified
below, which shall be computed on a cash basis and shall consist of all
expenditures by Lessor to maintain in quality, first-class condition all
facilities in operation from the beginning of the Term of this Lease and such
additional facilities in subsequent years as may be determined by Lessor to be
necessary or generally beneficial to the Project. The term Basic Costs as used
herein shall mean all expenses, costs and disbursements of every kind and nature
which Lessor shall pay or become obligated to pay because of or in connection
with the ownership, management and operation of the Project, including without
limitation the following:
(a) Wages, salaries, taxes, insurance and related expenses and
benefits of all on-site and off-site employees directly engaged in the
operation, maintenance or access control of the Project.
(b) All supplies, tools, equipment and materials directly used
in the operation and maintenance of the Project, including any lease payments
therefor.
(c) Cost of all utilities for the Project, including the cost of
water, power, sewer, heating, lighting, air conditioning and ventilating for the
Project. Such cost of utilities shall expressly exclude any utility costs paid
by any Lessees in the Project, or reimbursed to Lessor by any Lessees for
separately metered services.
-------
(d) Cost of all maintenance, repair and replacement expenses,
janitorial, building engineering, landscaping, security, legal, other consulting
fees and service agreements for the Project and the equipment therein, excluding
such costs that exceed the amounts as determined by Article 4.4(i), including
without limitation alarm service, window cleaning and elevator maintenance.
(e) Cost of all insurance relating to the Project including
without limitation the cost of casualty, earthquake, rental abatement and
personal injury and property liability insurance applicable to the Project and
Lessor's personal property used in connection therewith.
(f) All real property taxes and assessments levied against the
Project and the various estates therein and the underlying land, all personal
property taxes levied on personal property of Lessor used in the management
operation, maintenance and repair of the Project, all taxes, assessments and
reassessments
9
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of every kind and nature whatsoever levied or assessed in lieu of or in
substitution for existing or additional real or personal property taxes and
assessments on the Project or the sale, conveyance, assignment, ground lease or
other transfer thereof, service payment in lieu of taxes, excises, transit
charges and fees, housing, park and child care assessment, development and other
assessments: reassessments, levies, fees or charges, general and special,
ordinary and extraordinary, unforeseen as well as foreseen, of any kind which
are assessed, levied, charged, confirmed, or imposed by any public authority
upon the Project, its operations or the Rent provided for in this Lease, or
amounts necessary to be expended because of governmental orders, whether general
or special, ordinary or extraordinary, unforeseen as well as foreseen, or any
kind and nature for public improvements, services, benefits, or any other
purposes which are assessed, levied, confirmed, imposed or become a lien upon
the Premises or Project or become payable during the Term (hereinafter
collectively "Impositions").
(i) Installment Election. In the case of any Impositions
--------------------
which may be evidenced by improvement or other bonds or which may be paid in
annual or other periodic installments, Lessor shall elect to cause such bonds to
be issued or cause such assessment to be paid in installments over the maximum
period permitted by law.
(ii) Limitation. Nothing contained in this Lease shall
----------
require Lessee to pay any franchise, estate, inheritance or succession transfer
tax of Lessor, or any income, profits or revenue tax or charge, upon the net
income of Lessor from all sources: provided, however, that if at any time during
the Term under the laws of the United States government or the State of
California, or any political subdivision thereof, a tax or excise on Rent, or
any tax however described, is levied or assessed by any such political body
against Lessor on account of Rent, or a portion thereof, Lessee shall pay one
hundred percent (100%) of any such tax or excise as Additional Rent (defined in
Article 4.6).
(iii) Real Property Tax Reassessment. If the Project is
------------------------------
sold, conveyed or title otherwise transferred, and if, as a result thereof, the
taxing authorities increase the real and personal property taxes, assessments,
levies and fees set forth in Article 4.4(f) and other surcharges levied against
the Project ("Property Taxes") in accordance with California Constitution
Article XIIIA (such events together with the dollar amount of increased Property
Taxes is a "Proposition 13 Readjustment"), Basic Costs shall be adjusted so that
Basic Costs include (I) the Lessor of (a) the amount of Property Taxes payable
after the Proposition 13 Readjustment, inclusive of any increase allowed under
Proposition 13 had there been no such transfer, or (b) the Property Taxes as
adjusted in accordance with the actual increase in the Consumer Price Index
("CPI") for All Urban Consumers. All Items for the Los Angeles Long Beach Area,
as published by the Bureau of Labor Statistics of the U.S. Department of Labor
as follows: the Property Taxes shall be adjusted by multiplying the Property
Taxes as of the first full year of operation of the Property by a factor
computed by adding one (1) to a fraction, the numerator of which shall be the
difference between the CPI for the month nearest preceding the Proposition 13
Readjustment ("Adjustment Index") less the CPI for the month nearest preceding
the Commencement Date ("Base Index") and the denominator of which shall be the
Base Index, (II) all increases in Property Taxes which would occur
notwithstanding such Proposition 13 Readjustment, including without limitation
construction assessments, annual notification of new values and supplemental
assessments, and (III) all increases in Property Taxes which occur because of
changes in the laws, ordinances, orders, rules and regulations or because of
voter action relating to Property Taxes.
(g) Repairs, replacements and general maintenance (excluding
repairs and general maintenance paid by proceeds of insurance or by Lessee or
other third parties, and alterations attributable solely to tenants of the
Building other than Lessee).
(h) All maintenance costs relating to public and service areas
of the Project, including without limitation sidewalks, landscaping, service
areas, mechanical rooms and Project exteriors.
(i) Amortization of the useful life of the cost of installation
of capital improvement terms which are primarily for the purpose of reducing
operating costs or which may be required by governmental authority.
Notwithstanding this clause, any costs incurred by Lessor which may be expended
to bring the Building into compliance with the American Disability Act (ADA) or
hazardous material regulations, shall be fully borne by Lessor and shall be
excluded from Base Costs.
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(j) Lessor's central accounting costs and audit fees
attributable to the Project.
(k) A management cost recovery equal to three percent (3%) of
Rent collections, provided that Lessor operate the Project through a full-time
manager in a first-class efficient and as cost-effective a manner as possible so
as to minimize operating expenses.
(l) All costs and expenses associated with the operation and
maintenance of the Garage.
Except as specifically provided above, Basic Costs shall not include
replacement of capital Improvement items, specific costs billed to and paid by
specific tenants, expenses attributable to retail or commercial tenants, or
expenses attributable to the management or operation of the visitor parking
areas of the Garage.
Notwithstanding any other provision herein to the contrary, it is
agreed that in the event the office building is not at least ninety-five
percent (95%) occupied during any calendar year of the Lease Term, an adjustment
shall be made in computing the Basic Costs for such year so that the Basic
Costs shall be computed for such year as though the office building had been
ninety-five percent (95%) occupied during such year, Lessor and Lessee agree
that Lessee's Percentage Share of Basic Costs shall be paid during the entire
term of this Lease, beginning with the Commencement Date commencement and
continuing to the day of termination.
At its expense, Lessee shall have the right at any time to review and
copy Lessor's books and records relating to the Basic Costs for the previous
year.
Lessor and Lessee acknowledge that certain of the costs of management,
operation and maintenance of the Project are allocated entirely to the office
tenants of the Project. Certain or such costs are allocated entirely to the
retail operations, and certain of such costs are allocated among the office
tenants of the office building and retail operations. The determination of such
costs and their allocation shall be in accordance with generally accepted
accounting principles applied on a consistent basis.
4.5 Monthly Rental Payments. Rental under Article 4.1(a) and (b)
-----------------------
shall be due and payable in twelve (12) equal installments of one-twelfth (1/12)
each on the first day of each calendar month during the Term and any extensions
or renewals thereof without demand, counterclaim or offset. If the Term
commences on a day other than the first day of a calendar month or ends on a
day other than the last day of a calendar month, then the Rental under Article
4.1 (a) and (b) for the first and last fractional months shall be appropriately
prorated. If the Term commences on a day other than the first day of a calendar
year for purposes of calculating Lessee's Percentage Share of Basic Costs, the
Basic Costs and the Expense Factor shall each be reduced by the proportion, that
the number of days of the Term falling within such calendar year bears to three
hundred sixty-five (365) days. Rental under Article 4.l (c) and any other
amounts due under this Lease shall be collected pursuant to written notices
from Lessor and payment shall be due within thirty (30) days of such notice.
4.6 Additional Rental. Lessee shall also pay as additional rental
-----------------
all such other sums of money (including without limitation parking rental
pursuant to Article 20.20) and rental in the initial amount specified in the
Summary for use of storage space which may be subject to its availability,
separately leased by Lessee. The initial rental shall be $1.00 per square foot
per month without services and shall be subject to adjustment in like manner as
provided in Article 4.2. as shall become due and payable by Lessee to Lessor, ("
Additional Rental"). Such Additional Rental shall not be subject to abatement,
set-off or deduction whatsoever, including without limitation all amounts
Lessee shall be responsible for paying pursuant to the terms of Article 7.3 of
this Lease. Except for amounts billed to Lessee under the terms of the Work
Letter (which shall be payable pursuant to the terms of the Work Letter), Lessee
shall pay to Lessor all amounts of Additional Rental within thirty (30) days
of Lessee's receipt of a bill therefor. Lessor shall have the same remedies of
default for the payment of Additional Rental as are available to Lessor in the
payment of Rental. All Rental amounts due under Article 4.1 of this Lease and
all amounts of Additional Rental shall be collectively referred to as "Rent".
11
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4.7 No Deduction or Offer. Rent shall be paid to Lessor, without
---------------------
deduction or offset, in lawful money of the United States of America at Lessor's
address as set forth in the Summary or to such other person or at such place as
Lessor may from time to time designate in writing. No payment by Lessee or
receipt by Lessor of a lessor amount of Rent shall be other than on account of
the earliest rental or payment due, nor shall any endorsement or statement on
any check or letter accompanying any such check or payment constitute an accord
and satisfaction and Lessor may accept any such check or payment or pursue any
other remedy under this Lease, at law or in equity.
4.8 Late Payment and Interest. If any installment of Rent is not
-------------------------
paid within five (5) days of the date when due, subject to three (3) days
prior written notice, such past due Rent shall bear interest from five (5) days
after the due date until paid at the lesser of (a) three per cent (3%) per
annum over the prime rate of interest announced from time to time by Wells Fargo
National Association, Los Angeles, California. In the event such late charge; is
imposed by Lessor for two (2) consecutive months for whatever reason Lessor
shall have that option to require that, beginning with the first payment of Rent
due following the imposition of the second consecutive late charge. Lessee shall
increase the amount of the Security Deposit required under Article 4.9 by one
hundred percent (100%) which additional Security Deposit shall be retained by
Lessor. This provision shall not relieve Lessee from payment of Rent at the time
and in the manner herein specified. The payment by Lessee and receipt by Lessor
of the payment charges interest is not a release on waiver by the Lessor of a
default by Lessee.
4.9 Security Deposit. Upon execution of this Lease, Lessee shall
----------------
deposit the amount specified in the Summary as a security deposit ("Security
Deposit"), with Lessor. The Security Deposit shall secure Lessee's obligations
under this Lease to pay Rent and other monetary amounts, to maintain the
Premises and repair damages thereto, to surrender the Premises to Lessor in
clean condition and repair upon termination of this Lease and to discharge
Lessee's other obligations hereunder. If Lessee fails to perform Lessee's
obligations hereunder, Lessor may, but without any obligation to do so, apply
all or any portion of the Security Deposit towards fulfillment of Lessee's
unperformed obligations. If Lessor does so apply any potion of the Security
Deposit, Lessee, upon demand by Lessor, shall immediately pay Lessor a
sufficient amount in cash to restore the Security Deposit to the original
amount. Lessee's failure to forthwith remit to Lessor an amount in cash
sufficient to restore the Security Deposit to the original sum deposited within
five (5) days after receipt of such demand shall constitute an Event of Default
defined in Article 17). The Security Deposit shall be held by Lessor with
liability for interest at the annual rate or five and one-half percent (5.5%)
for the time such deposit is held by Lessor. Lessor is entitled to commingle the
security deposits with its own funds and the Lessor is not to be deemed a
trustee of fiduciary for Lessee in respect of the security deposit. Upon
termination of this Lease, if Lessee has then performed all of Lessee's
obligations hereunder, Lessor shall return the Security Deposit to Lessee. If
Lessor sells or otherwise transfers Lessor's right or interest under this Lease,
Lessor may deliver the Security Deposit to the transferee, whereupon Lessor
shall be released from any further liability to Lessee with respect to the
Security Deposit.
ARTICLE 5
---------
SERVICES AND UTILITIES
----------------------
5.1 Basic Services. Lessor shall provide the following Basic
--------------
Services to the Project on all days during the Lease Term, unless otherwise
stated below.
(a) Subject to all governmental rules, regulations and
guidelines applicable thereto, Lessor shall provide heating and air conditioning
for normal comfort for normal office use in the Premises, from Monday through
Friday, during the period from 7:00 a.m. to 6:00 p.m., and on Saturday during
the period from 8:00 a.m. to 1:00 p.m. except for the date of observation of New
Year's Day, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas Day (collectively the "Holidays"). Lessor will
provide heating and air conditioning during other time periods as requested by
Lessee at a rate not to exceed Lessor's actual cost for Premises.
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(b) Lessor shall provide adequate electrical wiring and
facilities and power for normal general office use defined as 5 watts per
rentable square foot as depicted in the Preliminary Plan as approved by Lessor
and Lessee. Such electrical capacity excludes twenty-four (24) hour HVAC systems
as may be required for installation in the Premises by Lessee. Lessor shall
replace, as part of Basic Costs, lamps, starters and ballasts for Building
standard lighting fixtures within the Premises.
(c) Lessor shall provide city water from the regular Building
outlets for drinking, lavatory and plumbing requirements within the Premises.
(d) Lessor shall provide janitorial services five (5) days per
week, except the date of observation of the Holidays, in and about the Premises
and window washing services according to the specifications set forth in Exhibit
H.
(e) Lessor shall provide nonexclusive automatic passenger
elevator service at all times.
(f) Lessor shall provide nonexclusive freight elevator service
subject to scheduling by Lessor.
(g) Subject to Lessee's repair obligations set forth in Article
6 below, Lessor shall operate and maintain, as a Basic Cost Expense, the Project
(including the structural components of the Project and the Project's Systems
and Equipment) in a first-class manner and condition.
(h) Lessor shall maintain as a Basic Cost Expense, twenty-four
(24) hours per day, seven (7) days per week, a reasonable security and
supervision program for the Project, which may include, without limitation,
security personnel, cameras, roving patrols, a keyboard system and/or any other
security measures which Lessor deems appropriate.
5.2 Over Standard Use. Lessee shall not, without Lessor's prior
-----------------
written consent, use heat generating machines, machines other than normal
fractional horsepower office machines, or equipment or lighting other than
building standard lights in the Premises, which may affect the temperature
otherwise maintained by the air conditioning system or increase the water
normally furnished for the Premises by Lessor pursuant to the terms of Section
5.1. If such consent is given, Lessor shall have the right to install
supplementary air conditioning units or other facilities in the Premises,
including supplementary or additional metering devices, and the cost thereof
including the cost of installation, operation and maintenance, increased wear
and tear on existing equipment and other similar charges, shall be paid by
Lessee to Lessor upon billing by Lessor. If Lessee uses water or heat or air
conditioning in excess of that supplied by Lessor pursuant to Section 5.1 such
special HVAC units to provide twenty-four (24) hour service to specified areas
within the Premises. Lessee shall pay to Lessor, upon billing, the actual cost
of such excess consumption, the cost of the installation, operation, and
maintenance of equipment which is installed in order to supply such excess
consumption, and the cost of the increased wear and tear on existing equipment
caused by such excess consumption and Lessor may install devices to separately
meter any increased use and in such event Lessee shall pay the increased cost
directly to Lessor, on demand, including the cost of such additional metering
devices.
5.3 Interruption of Use. Lessee agrees that Lessor shall not be
-------------------
liable for damages, by abatement of Rent or otherwise, for failure to furnish or
delay in furnishing any service (including telephone and telecommunication
services), or for any diminution in the quality or quantity thereof, when such
failure or delay or diminution is occasioned, in whole or in part, by repairs,
replacements, or improvements, by any strike, lockout or other labor trouble, by
inability to secure electricity, gas, water or other fuel at the Project after
reasonable effort to do so by any accident or casualty whatsoever by act or
default of Lessee or other panics or by any other cause beyond Lessor's
reasonable control and such failures or delays or diminution shall never be
deemed to constitute an eviction or disturbance of Lessee's use and possession
of the Premises or relieve Lessee from paying Rent or performing any of its
obligations under this Lease. Furthermore, Lessor shall not be liable under any
circumstances for a loss of, or injury to, property or for injury to, or
interference with, Lessee's business, including, without
13
<PAGE>
limitation, loss of profits, however occurring, through or in connection with or
incidental to a failure to furnish any of the services or utilities unless
caused by Lessor's negligence or intentional misconduct. If Lessee's use of the
Premises is prevented, either due to an interruption of building services
or otherwise rendering the Premises untenantable (e.g. fire or casualty), for a
consecutive period of three (3) days or more, resulting in the inability of
Lessee to conduct its normal business activities, Lessee's Base Rent. Additional
Rent and parking charges shall be abated for the period of time such
interruption of services occurs.
5.4 Additional Services. Lessor shall also have the exclusive
-------------------
right, but not the obligation, to provide any additional services which may be
requested by Lessee, including, without limitation, locksmithing, lamp
replacement for non-Building standard lamps or fixtures, additional janitorial
service and additional repairs and maintenance, provided that Lessee shall pay
to Lessor upon billing, the actual cost to Lessor of providing such
additional services, plus a reasonable administration fee for any service which
Lessee is required to pay from time to time hereunder, shall be deemed
Additional Rent hereunder and shall be billed on a monthly basis.
5.5 Graphics. Lessor shall provide identification of Lessee's name
--------
and suite numerals at the main entrance door to the Premises. All graphics of
Lessee visible in or from public corridors or the exterior of the Premises, or
Project shall be subject to Lessor's reasonable approval. Special graphics,
logos and other Lessee graphics may be installed within the Premises at
Lessee's expense.
5.6 Signage. Lessee shall be granted the right to non-exclusive
-------
space on the Building's Colorado Boulevard monument sign, and or appropriate
walls and doors within the Premises, identifying Lessee's presence in the
Building. Such signage will be installed at Lessor's expense.
5.7 Keys and Locks. Lessor shall furnish Lessee two (2) keys for
---------------
each corridor door entering the Premises. Additional keys shall be furnished at
a charge by Lessor on an order signed by Lessee. All such keys shall remain the
property of Lessor. No additional locks shall be allowed on any door of the
Premises without Lessor's prior written permission, and Lessee shall not
make or permit to be made any duplicate keys, except those furnished by Lessor.
Upon termination of this Lease, Lessee may surrender to Lessor all keys of the
Premises, and give to Lessor the combination of all locks for safes, safe
cabinets and vault doors, if any, in the Premises.
ARTICLE 6
-------
REPAIRS
-------
6.l Lessee shall, at Lessee's own expense, keep the Premises (for
the purpose of this Article 6.1 Premises shall mean from area below the
suspended ceiling and in front of the walls, excluding special Tenant
installation e.g. separate HVAC units or computer equipment), including all
tenant improvements located within the Premises fixtures and furnishings
therein, in good order, repair and condition at all times during the Lease Term.
In addition, Lessee shall, at Lessee's own expense but under the supervision and
subject to the prior approval of Lessor, and within any reasonable period of
time specified by Lessor, promptly and adequately repair all damage to the
Premises and replace or repair all damaged or broken fixtures and appurtenances;
provided however, that, at Lessor's option, or if Lessee fails to make such
repairs. Lessor may, but need not, make such repairs and replacements, and
Lessee shall pay Lessor the cost thereof, including an additional three percent
(3%) of the cost thereof, as reimbursement to Lessor for all actual overhead,
general conditions, fees and other actual costs or expenses arising from
Lessor's management and coordination of repairs and replacements. Upon being
billed for same, Lessor may, but shall not be required to, enter the Premises at
all reasonable times to make such repairs, alternations, improvements and
additions to the Premises or to the Project or to any equipment located in the
Project as Lessor shall desire or deem necessary or as Lessor may be required to
do by governmental or quasi-governmental authority or court order or decree.
Lessee hereby waives and releases its right to make repairs at Lessor's expense
under sections 1941 and 1942 of the California Civil Code or under any similar
---------------------
law, statute, or ordinance now or hereafter in effect.
14
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ARTICLE 7
---------
ADDITIONS AND ALTERNATIONS
--------------------------
7.1 Lessor's Consent to Alternations. Lessee may not make any
--------------------------------
improvements, alterations, additions or changes to the Premises (collectively,
the "Alterations") without first procuring the prior written consent of Lessor
to such Alterations, which consent shall be requested by Lessee not less than
thirty (30) days prior to the commencement thereof, and which consent shall not
be unreasonably withheld, conditioned or delayed, by Lessor. The construction of
the initial improvements to the Premises shall be governed by the terms of the
Lessee Work Letter Exhibit C to this Lease.
7.2 Manner of Construction. Lessor may impose as a condition of its
----------------------
consent to all Alterations or repairs of the Premises or about the Premises,
such requirements as Lessor in its reasonable discretion may deem desirable,
including, but not limited to, the requirement that upon Lessor's request,
Lessee shall, at Lessee's expense, remove such Alterations upon the expiration
or any early termination of the Lease Term, and/or the requirement that Lessee
utilize for such purposes only contractors, materials, mechanics and management
selected by Lessee and approved by Lessor (which approval shall not be
unreasonably withheld, conditioned or delayed): provided, however, that Lessee
shall utilize subcontractors of Lessor's selection to perform all work that may
affect the Systems and Equipment, structural aspects of the Project, the Base,
Sheil and Core, or exterior appearance of the Project or common areas, provided
that Lessor shall cause such subcontractors selected by Lessor to charge Lessee
for such work in an amount equal to the cost that comparable first-class
reputable and reliable subcontractors would have charged Lessee if selected
pursuant to competitive bidding procedures. Lessee shall construct such
Alterations and perform such repairs in conformance with any and all applicable
rules and regulations of any federal state, country or municipal code or
ordinance and pursuant to a valid building permit issued by the City of Pasadena
in conformance with Lessor's construction rules and regulations Lessor's
approval of the plans, specifications and working drawings for Lessee's
Alterations shall create no responsibility or liability on the part of Lessor
for their completeness, design sufficiency, or compliance with all laws, rules
and regulations of governmental agencies or authorities. All work with respect
to any Alterations must be done in a good and workmanlike manner and diligently
prosecuted to completion to the end that the Premises shall at all times be a
complete unit except during the period of work. In performing the work of any
such Alterations, Lessee shall have the work performed in such manner is not to
obstruct access to the Project for any other Lessee of the Project, and is not
to obstruct the business of Lessor or other Lesses in the Project, or interfere
with the labor force working in the Project. In the event that Lessee makes any
Alterations, Lessee agrees to carry "Builder's All Risk" insurance in an amount
reasonably approved by Lessor covering the construction of such Alterations, and
such other insurance is Lessor may require, it being understood and agreed that
all of such Alteration shall be insured by Lessee pursuant to Article 9
immediately upon completion thereof. In addition, Lessor may, in its reasonable
discretion, require Lessee to obtain a lien and completion bond or some
alternate form of security satisfactory to Lessor in an amount sufficient to
ensure the lien-free completion of such Alterations and naming Lessor as a co-
obligee. Upon completion of any Alterations, Lessee agrees to cause a Notice of
Completion to be recorded in the Office of the Recorder of the County of Los
Angeles in accordance with section 3093 of the Civil Code of the State of
----------
California or any successor statute and Lessee shall deliver to the Building
management office a reproducible copy of the "as built" drawing of the
Alterations.
7.3 Payment for Improvements. The cost of all Alterations
------------------------
shall be paid Lessee. In the event Lessee orders any Alteration or repair
directly from Lessor, or from the contractor selected by Lessor, the charges for
such work shall be deemed Additional Rent under this Lease, payable upon billing
therefor, either periodically during construction or upon the substantial
completion of such work, at Lessor's option. Upon completion of such work Lessee
shall deliver to Lessor, if payment is made directly to contractors, evidence of
payment, contractors affidavit; and full and final waivers of all liens for
labor, services or materials. If Lessee orders any work directly from Lessor,
Lessee shall pay to Lessor an amount sufficient to reimburse Lessor for all
?????? overhead, general conditions fees and other actual costs and expenses
arising from Lessor's involvement with such work and for all amounts paid to
subcontractors by Lessor. If Lessee does not order any work directly from
Lessor, Lessee shall reimburse Lessor for Lessor's reasonable out-of-pocket
costs and expenses actually incurred in connection with Lessor's review of and
or involvement with such work.
15
<PAGE>
7.4 Lessor's Property and Fixtures. All Alternations, improvements,
-------------------------------
fixtures and/or equipment which may be installed or placed in or about the
Premises, and all signs, other than those described in Article 5.6 installed in,
on or about the Premises from time to time, shall be at the sole cost of Lessee
and shall be and become the property of Lessor, except that Lessee may remove
any Alterations, improvements, fixtures and/or equipment which Lessee can
substantiate to Lessor have not been paid for with any Lessee improvement
allowance funds provided to Lessee by Lessor, provided Lessee repairs any damage
to the Premises and Project caused by such removal. Furthermore, if Lessor, as a
condition to Lessor's consent to any Alterations requires that Lessee remove any
Alternations upon the expiration or early termination of the Lease Term. Lessor
may by written notice to Lessee prior to the end of the Lease Term, or
given upon any earlier termination of this Lease require Lessee at Lessee's
expense to remove such, Alterations and to repair any damage to the Premises
and Project caused by such removal. If Lessee fails to complete such removal
and/or to repair any damage caused by the removal of any Alterations. Lessor may
do so and may charge the cost thereof to Lessee. Lessee hereby, indemnifies and
holds Lessor harmless from any liability, cost, obligation, expense or claim of
lien in any mannerr relating to the installation, placement, removal or
financing of any such Alterations, improvements, fixtures and/or equipment in,
on or about the Premises.
ARTICLE 8
-------
COVENANT AGAINST LIENS
----------------------
8.l Lessee has no authority or power to cause or permit any lien or
encumbrance of any kind whatsoever, whether created by act of Lessee, operation
of law or otherwise, to attach to or be placed upon the Real Property, Project
or Premises, and any and all liens and encumbrances created by Lessee shall
attach to Lessee's interest only. Lessor shall have the right at all times to
post and keep posted on the Premises any notice which it deems necessary for
protection from such liens. Lessee covenants and agrees not to suffer or permit
any lien of mechanics or materialmen or others to be placed against the Real
Property to the Premises with respect to work or services claimed to have been
performed for or materials claimed to have been furnished to Lessee or the
Premises, and in case of any such lien attaching or notice of any lien. Lessee
covenants and agrees to cause in to be immediately released and removed of
record. Notwithstanding anything to the contrary set forth in this Lease, in
the event such lien is not released and removed on or before the date notice of
such lien is delivered by Lessor to Lessee. Lessor, at its sole option, may
immediately take all action necessary to release and remove such lien, without
any duty to investigate the validity thereof, and all sums, costs and expenses,
including reasonable attorneys' fee and costs, incurred by Lessor in connection
with such lien shall be deemed. Additional Rent under this Lease and shall
immediately be due and payable by Lessee.
ARTICLE 9
-------
INSURANCE
---------
9.l Lessor Coverage. During the Term. Lessor shall procure and
---------------
maintain in full force and effect with respect to the Project a policy or
policies of commercial and liability insurance including sprinkler, vandalism
and malicious mischief coverage, including earthquake and flood coverage at
Lessee's option, and any other endorsements required by the holder of any fee or
leasehold mortgage) in an amount that is customarily carrieds by first-class
office buildings in Los Angeles. If because of the nature of Lessee's operations
the annual premiums charged Lessor for such insurance exceed the standard
premium rates or result in increased exposure then Lessee, within thirty (30)
days of receipt of appropriate premium invoices, shall reimburse Lessor for such
increased amount.
9.2 Lessee Coverage.
---------------
(a) Commercial Insurance. During the Term and at its own
--------------------
cost and expense, Lessee shall maintain in full force and effect a policy or
policies of special cause of loss form insurance (including
16
<PAGE>
sprinkler, vandalism and malicious mischief coverage, including earthquake and
flood coverage at Lessee's option and any other endorsements required by the
holder of any fee or leasehold mortgage) in an amount adequate to cover damage
to the Premises, including without limitation Lessee's Improvements as defined
in Exhibit D. Merchandise fixtures, trade fixtures, furniture, furnishings
equipment goods, inventory and other personal property located on the Premises
or in the Project insuring the full replacement value of such items.
(b) General Liability. During the Term and at its own cost and
-----------------
expense, Lessee shall maintain in full force and effect a policy, or policies of
comprehensive commercial general liability insurance insuring Lessee's
activities with respect to the Premises. Building and/or Project against loss,
damage or liability for personal injury or death of any person or loss or damage
to property occurring in, upon or about the Premises, Building and or Project
with a combined single limit of One Million Dollars ($1,000,000): such
comprehensive commercial general liability insurance shall include broad form
contractual liability insurance coverage which shall insure Lessee's performance
of the indemnity provisions and elsewhere in this Lease.
(c) Workers' Compensation. During the Term and at its own cost
---------------------
and expense. Lessee shall maintain in full force and effect the statutory
amount of workers' compensation insurance required by the State of California
for the benefit of Lessee's employees, and employer's liability insurance with
no less than $1,000,000 per employee per occurence.
Lessee agrees that if Lessee does not procure and maintain such
insurance continuously, Lessor may (but shall not be required to) procure such
insurance on Lessee's behalf and Lessee shall pay to Lessor the cost thereof,
as Additional Rental within thirty (30) days of Lessee's receipt of a bill
therefor.
9.3 General Insurance Requirements
------------------------------
(a) All insurance required under this Article 9 shall be issued
by such good and reputable insurance companies qualified to do and doing
business in California and having a rating of not less than "A" or a class
rating of not less than "13" and a financial rating of not less than "X" as rate
in the most current copy to Best's Insurance report in the form customary to the
locality. All such Lessee insurance shall include (i) an endorsement expressly
providing that such policies shall not be cancelable or subject to reduction or
coverage or otherwise by subject to modification except after thirty (30) days
prior written notice to the parties named as insureds in this Article 9, (ii) an
endorsement providing that Lessor, its successors, assigns, and nominees holding
any interest in the Premises, including without limitation any ground lessor and
the holder to any fee or leasehold mortgage, shall be named as additional
insureds under such policy of insurance maintained by Lessee pursuant to this
Lease, (iii) an endorsement providing that such insurance as is afforded under
Lessee's policy in primary as respects lessor and that any other insurance
maintained by Lessor is excess and non-contributing with other insurance
required under this Article 9, (iv) an endorsement deleting any employee
exclusion on personal injury covered, (v) an endorsement including employees as
additional insureds, (vi) an endorsement deleting any liquor liability exclusion
and (vii) an endorsement providing for coverage of employer's automobile
ownership liability. All such insurance shall provide for severability of
interests: shall provide that an act or omission of one of the named insureds;
and shall not reduce or avoid coverage to the other named insured: and shall
afford coverage for all claims based in acts, omissions injury and damage which
claims occurred or arose (or the onset of which occurred or arose) in full or in
part during the policy period. Expiration of Lessee's policy shall not limit
recovery thereunder: "claims made" insurance policies are not acceptable to
satisfy Lessee's insurance requirements under this Article 9. Lessee shall
furnish to Lessor, upon the Commencement Date and thereafter within thirty (30)
days prior to the expiration of each such policy, a Certificate of Insurance and
endorsement(s) affording evidence of the above insurance requirements issued by
the insurance carrier of each policy of insurance carried by Lessee pursuant
hereto.
(b) Lessee's Use. Lessee will not keep, use, sell or
------------
offer for sale in, or upon the Premises any article which may be prohibited by
any insurance policy periodically in force covering the Project. If Lessee is
occupancy or business in or on the Premises, whether or not Lessor has
consented to the same, results in any increase in premiums for the insurance
periodically carried by Lessor with respect to the Project, Lessee shall pay any
such increase in premiums as Additional Rental within ten (10) days after being
billed thereof by Lessor.
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In determining whether increased premiums are a result of Lessee's use of the
Premises, a schedule issued by the organization computing the insurance rate on
the Project or the Lessee Improvements showing the various components or such
rate, shall be conclusive evidence of the several items and changes which make
up such rate.
(c) Waiver of Subrogation. Any policy or policies of special
---------------------
cause of loss form and comprehensive commercial general liability insurance,
which either party obtains in connection with the Premises, or Lessee's
personal property therein, shall include a clause or endorsement denying the
insurer any rights of subrogation against the other party to the extent rights
have been waived by the insured prior to the occurrence of injury or loss.
Lessor and Lessee hereby waive any rights of recovery against the other for
injury or loss due to hazards covered by insurance containing such a waiver of
subrogation clause or endorsements to the extent of the injury or loss covered
thereby and agree to obtain such a waiver from their respective insurance
carriers and deliver a copy thereof to the other party; each party shall provide
written notice to the other party if such waiver is not obtained and shall
indemnify, defend and hold the other harmless from all liabilities, penalties,
losses, costs, expenses, demands, causes of action, claims, judgments or damages
arising from the indemnifying party's failure to obtain such a waiver from its
insurance company.
ARTICLE 10
----------
DAMAGE AND DESTRUCTION
----------------------
10.1 Repair of Damage to Premises by Lessor. Lessee shall promptly
--------------------------------------
notify Lessor of any damage to the Premises resulting from fire or any other
casualty or condition existing in the Premises as a result of a fire or other
casualty that would give rise to the terms of this Article 10. If the Premises
or any common areas of the Building serving or providing access to the Premises
shall be damaged by fire or other casualty or be subject to a condition existing
as a result of a fire or other casualty. Lessor shall promptly and diligently,
subject to reasonable delays for insurance adjustment or other matters beyond
Lessor's reasonable control, and subject to all other terms of this Article 10,
restore the base, shell, and core of the Premises and such common areas to
substantially the same condition as existed prior to the casualty, expect for
modifications required by zoning and building codes and other laws or by the
holder of a mortgage on the Building or any other modifications to the common
areas deemed desirable by Lessor, provided access to the Premises and any common
restrooms serving the Premises shall not be materially impaired. Notwithstanding
any other provision of this Lease, upon the occurrence of any damage to the
Premises, Lessee may assign to Lessor (or to any party designated by Lessor) all
insurance proceeds payable to Lessee under Lessee's insurance required under
this Lease, and along with the proceeds received by Lessor from the Tenant
Improvement Insurance. Lessor shall repair any injury or damage to the Tenant
Improvements installed in the Premises and shall return such Lessee Improvements
to their original condition. In connection with such repairs and replacements.
Lessee shall, prior to the commencement of construction, submit to Lessor for
Lessor's review and approval, all plans, specifications and working drafts
relating thereto, and Lessor shall reasonably approve the contractors selected
by Lessee to perform such improvement work. Such submittal of plans and
construction of improvements shall be performed in substantial compliance with
the terms of the Work Letter as though such construction of improvements were
the initial construction of the Tenant Improvements. Neither Lessor nor Lessee
shall be liable for any inconvenience or annoyance to Lessee or its visitors, or
injury to Lessee's business resulting in any way from such damage or the repair
thereof: provided however, that if such fire or other casualty shall have
damaged the Premises or common areas necessary to Lessee's occupancy. Lessor
shall allow Lessee a proportionate abatement of Rent, during the time and to the
extent the Premises are unfit for occupancy for the normal conduct of Lessee's
business, and not occupied by Lessee as a result thereof, provided, further, if
the Premises is damaged such that the remaining portion thereof is not
sufficient to allow Lessee to conduct its operations therefrom. Lessor shall
allow Lessee a total abatement of Rent during the time and to the extent the
Premises are unfit for occupancy for the normal conduct of Lessee's business,
and not occupied by Lessee as a result of the subject damage.
10.2 Lessor's Option to Repair. Notwithstanding the terms of
-------------------------
Section 10.1 of this Lease. Lessor may elect not to rebuild and or restore the
Premises and or Project and instead terminate this Lease by notifying Lessee
in writing of such termination within sixty (60) days after the date of
damage, such notice to include a termination date giving Lessee ninety (90)
days to vacate the Premises, but Lessor may so elect only if the Project shall
be damaged by fire or other casualty or cause whether or not the Premises are
affected, and one or
18
<PAGE>
more of the following conditions is present: (a) repairs cannot reasonably be
completed withinin one hundred twenty (l20) days of the date of damage (when
such repairs are made without the payment of overtime or other premiums), (b)
the holder of any mortgage on the Building or ground or underlying lessor with
respect to the Real Property and or the Project shall require that the insurance
proceeds or any portion thereof be used to retire the mortgage debt or shall
terminate the ground or underlying lease, as the case may be: or (c) the damage
is nor fully covered, except for deductible amounts, by Lessor's insurance
policies.
l0.3 Damage Near End of Term. In addition, in the event that
-----------------------
the Premises or the Project is destroyed or damaged to any substantial extent
during the last twenty-four (24) months of the Lease Term, Lessor shall have the
option to terminate this Lease by giving written notice to Lessee of the
exercise of such option within thirty (30) days after such damage or
destruction, in which event this Lease shall cease and terminate as of the date
of such notice Upon any such termination of this Lease pursuant to this Section
10.2. Lessee shall pay the Base Rent and Additional Rent, properly apportioned
up to such date of termination, and both parties hereto shall thereafter be
freed and discharged of all further obligations hereunder, except as provided
for in provisions of this Lease which by their terms survive the expiration or
earlier termination of the Lease Term.
10.4 Waiver of Statutory Provisions. The provisions of this
------------------------------
Lease, including this Article l0 constitute an express agreement between Lessor
and Lessee with respect to any and all damage to, or destruction of, all or any
part of the Premises, the Project or any other portion of the Real Property, and
any statute or regulation of the State of California, including, without
limitation, sections 1932(2) and 1933(4) of the California Civil Code, with
---------------------
respect to any rights or obligations concerning damage or destruction in the
absence of an express agreement with respect to any rights or obligations
concerning damage or destruction in the absence of an express agreement between
the parties, and any other statute or regulation, now or hereafter in effect,
shall have no application to this Lease or any damage or destruction to all or
any part of the Premises, the Project or any other portion of the Real Property.
ARTICLE ll
----------
NON-WAIVER
----------
11.1 No waiver of any provision of this Lease shall be implied
by any failure of Lessor to enforce any remedy on account of the violation of
such provision, even if such violation shall continue or be repeated
subsequently, any waiver by Lessor of any provision of this Lease may only be
in writing, and no express waiver shall affect any provision other than the one
specified in such waiver and that one only for the time and in the manner
specifically stated. No receipt of monies by Lessor from Lessee after the
termination of this Lease shall in any way alter the length of the Lease Term
or of Lessee's right of possession hereunder or after the giving of any
notice shall reinstate, continue or extend the Lease Term or affect any notice
given Lessee prior to the receipt of such monies. It being agreed that after the
service of notice or the commencement of a suit or after final judgment for
possession of the Premises. Lessor may receive and collect any Rental due, and
the payment of said Rental shall not waive or affect said notice, suit or
judgment.
ARTICLE 12
----------
EMINENT DOMAIN
--------------
l2.1 Condemnation and Loss or Damage. If the whole or
-------------------------------
any part of the Premises or Project shall be taken by power of eminent domain
or condemned by any competent authority for any public or quasi-public use or
purpose, or if any adjacent property or street shall be so taken or condemned,
or reconfigured or vacated by such authority in such manner as to require the
use, reconstruction or remodeling of any part of the Premises or Project, or if
Lessor shall grant a deed or other instrument in lieu of such taking by eminent
domain or condemnation. Lessor shall have the option to terminate this Lease
upon ninety (90) days notice, provided such notice is given no later than one
hundred eighty (180) days after the date of such taking, condemnation,
reconfiguration, vacation, deed or other instrument. If more than twenty-five
percent (25%) of the rentable square
19
<PAGE>
feet of the Premises is taken, or if access to the Premises is substantially
impaired. Lessee shall have the option to terminate this Lease upon ninety (90)
days' notice, provided such notice is given no later than one hundred eighty
(180) days after the date of such taking Lessor shall be entitled to receive the
entire award or payment in connection therewith, except that Lessee shall have
the right to file any separate claim available to Lessee for any taking of
Lessee's personal property and fixtures belonging to Lessee and removable by
Lessee upon expiration of the Lease Term pursuant to the terms of this Lease,
and for moving expenses, so long as such claim does not diminish the award
available to Lessor, its ground lessor with respect to the Real Property or its
mortgagee, and such claim is payable seperately to Lessee. All Rental shall be
apportioned as of the date of such termination, or the date of such taking,
whichever shall first occur.
12.2 Temporary Taking. Notwithstanding anything to the
----------------
contrary contained in this Article 12 in the event of a temporary taking of all
or any portion of the Premises for a period of one hundred and eighty (180)
days or less, then this Lease shall not terminate but the Base Rent and the
Additional Rent shall be abated for the period of such taking in proportion to
the ratio that the amount of rentable square feet of the Premises taken bears to
the total rentable square feet of the Premises. Lessor shall be entitled to
receive the entire award made in connection with any such temporary taking.
12.3 Total Destruction. A total destruction of the Project
-----------------
shall automatically terminate the Lease.
ARTICLE 13
----------
ASSIGNMENT AND SUBLETTING
-------------------------
l3.1 Transfers. Lessee shall not, without the prior written
---------
consent of Lessor, assign, mortgage, pledge, hypothecate, encumber, or permit
any lien to attach to, or otherwise transfer, this Lease or any interest
hereunder or permit any assignment or other such foregoing transfer of this
Lease or any interest hereunder by operation of law, sublet the Premises or any
part thereof, or permit the use of the Premises by any persons other than Lessee
and its employees (all of the foregoing are hereinafter sometimes referred to
collectively as "Transfers" and any person to whom any Transfer is made or
sought to be made is hereinafter sometimes referred to as a "Transferee"). If
Lessee shall desire Lessor's consent to any Transfer, Lessee shall notify Lessor
in writing, which notice (the "Transfer Notice") shall include:
(a) the proposed effective date of the Transfer, which
shall not be less then fifteen (15) days nor more than one hundred eighty (180)
days after the date of delivery of the Transfer Notice:
(b) a description of the portion of the Premises to be
transferred (the "Subject Space");
(c) all of the terms of the proposed Transfer and the
consideration therefor, including a calculation of the "Transfer Premium," as
that term is defined in Section 13.3 below, in connection with such Transfer,
the name and address of the proposed Transferee, and a copy of all existing
and/or proposed documentation pertaining to the proposed Transfer, including all
existing operative documents to be executed to evidence such Transfer or the
agreements incidental or related to such Transfer; and,
(d) current financial statements of the proposed
Transferee certified by an officer, partner or owner thereof, and any other
information required by Lessor, which will enable Lessor to determine the
financial responsibility, character, and reputation of the proposed Transferee,
nature of such Transferee's business and proposed use of the Subject Space.
Lessee shall, thirty (30) days after written request by
Lessor, reimburse Lessor for all reasonable costs and expenses (including
reasonable attorneys' fees) incurred by Lessor in connection with its review of
a proposed Transfer.
13.2 Lessor's Consent. Lessor shall not unreasonably
----------------
withhold, condition or delay its
20
<PAGE>
consent to any proposed Transfer of the Subject Space to the Transferee on the
terms specified in the Transfer Notice. The parties hereby agree that it shall
be reasonable under this Lease and under any applicable law for Lessor to
withhold consent to any proposed Transfer where one or more of the following
apply:
(a) The Transferee is of a character or reputation or
engaged in a business which is not consistent with the quality of the
Building, or would be a significantly less prestigious occupant of the Project
than Lessee:
(b) The Transferee intends to use the Subject Space for
purposes which are not permitted hereunder.
(c) The Transferee is either a governmental agency or
instrumentality thereof:
(d) The Transfer will result in more than a reasonable
and safe number of occupants per floor:
(e) The Transferee is not a party of reasonable
financial worth and/or financial stability in light of the responsibilities
involved under the Lease on the date consent is requested:
(f) The proposed Transfer would cause Lessor to be in
violation of another lease or agreement to which Lessor is a party, or would
give an occupant of the Project a right to cancel its lease:
(g) The terms of the proposed Transfer will allow the
Transferee (subject to Transferee qualifying as an affiliate entity, acquiring
entity, related entity, merging entity, or company that has a financial
interest in Lessee) to exercise a right of renewal, right of expansion, right
of first offer, or other similar right held by Lessee (or will allow the
Transferee to occupy space leased by Lessee pursuant to any such right):
13.3 Effect of Transfer. If Lessor consents to a Transfer,
------------------
(i) the terms and conditions of this Lease shall in no way be deemed to have
been waived or modified, (ii) such consent shall not be deemed consent to any
further Transfer by either Lessee or a Transferee, (iii) Lessee shall deliver to
Lessor, promptly after execution, an original executed copy of all documentation
pertaining to the Transfer in form reasonably acceptable to Lessor, (iv) Lessee
shall furnish upon Lessor's request a complete statement, certified by an
independent certified public accountant, or Lessee's chief financial officer,
setting forth in detail the computation of any premium Lessee has derived and
shall derive from such Transfer, and (v) no Transfer relating to this Lease or
agreement entered into with respect thereto, whether with or without Lessor's
consent, shall relieve Lessee or any guarantor of the Lease from liability under
this Lease. Lessor or its authorized representatives shall have the right at all
reasonable times to audit the books, records and papers of Lessee relating to
any Transfer, and shall have the right to make copies thereof if the premium
respecting any Transfer shall be found understated. Lessee shall, within thirty
(30) days after demand, pay the deficiency and Lessor's costs of such audit, and
if understated by more than ten percent (10%), Lessor shall have the right to
cancel this Lease upon thirty (30) days' notice to Lessee.
13.4 Transfer Profits. In the event a sublease of Lessee's
----------------
space results in net rental greater than the Base Rental plus Additional Rental
less the unamortized cost of the Lessee Improvements or the costs of any
Sublease improvements (costs such as Tenant Improvements or Lease Commissions),
such net profits shall be shared fifty percent (50%) by Lessor and fifty percent
(50%) by Lessee.
l3.5 Additional Transfers. For purposes of this Lease, the term
--------------------
"Transfer" shall also include: (i) if Lessee is a partnership, the withdrawal or
change, voluntary, involuntary or by operation of law, of fifty percent (50%) or
more of the partners, or transfer of fifty percent (50%) or more of partnership
interests, within a twelve (l2) month period, or the dissolution of the
partnership without immediate reconstitution thereof.
21
<PAGE>
ARTICLE 14
-------
SURRENDER OF PREMISES OWNERSHIP
-------------------------------
AND REMOVAL OF TRADE FIXTURES
-----------------------------
14.1 Surrender of Premises. No act or thing done by Lessor or
---------------------
any agent or employee of Lessor during the Lease Term shall be deemed to
constitute an acceptance by Lessor of a surrender of the Premises unless such
intent is specifically acknowledged in a writing signed by Lessor. The delivery
of keys to the Premises to Lessor or any agent or employee of Lessor shall
not constitute a surrender of the Premises or effect a termination of this
Lease, whether or not the keys are thereafter retained by Lessor, and
notwithstanding such delivery. Lessee shall be entitled to the return of such
keys at any reasonable time upon request until this Lease shall have been
property terminated. The voluntary or other surrender of this Lease by Lessee,
whether accepted by Lessor or not, or a mutual Termination hereof, shall not
work a merger, and at the option of Lessor shall operate as an assignment to
Lessor of all subtenancies or subtenancies affecting the Premises.
14.2 Removal of Tenant Property by Lessee. Upon the
------------------------------------
expiration of the Lease Term, or upon any earlier termination of this Lease,
Lessee shall, quit and surrender possession of the Premises to Lessor in as good
order and condition as when Lessee took possession and as thereafter improved by
Lessor, reasonable wear and tear and repairs which are specifically made the
responsibility of Lessor hereunder excepted. Upon such expiration or
termination, Lessee shall, without expense to Lessor, remove or cause to be
removed from the Premises all debris and rubbish, and such items of furniture,
equipment free-standing cabinet worked other articles of personal property owned
by Lessee or installed or placed by Lessee at its expense in the Premises, and
such similiar articles of any other persons claiming under Lessee, as Lessor
may, in its sole discretion, require to be removed, and Lessee shall repair at
its own expense all damage to the Premises and Project resulting from such
removal.
ARTTCLE 15
----------
HOLDING OVER
------------
If Lessee holds over after the expiration of the Lease Term hereof,
with or without the express or implied consent of Lessor, such tenancy shall be
from month-to-month only, and shall not constitute a renewal hereof or an
extension for any further term, and in such case Base Rent shall be payable at a
monthly rate equal to one hundred thirty percent (130%), of the Base Rent
applicable during the last rental period of the Lease Term under this Lease.
Such month-to-month tenancy shall be subject to every other term, covenant
and agreement contained herein. Nothing contained in this Lease shall be
construed as consent by Lessor to any holding over by Lessee, and Lessor
expressly reserves the right to require Lessee to surrender possession of the
Premises to Lessor as provided in this Lease upon the expiration or other
termination of this Lease. The provisions of this Lease shall not be deemed to
limit or constitute a waiver of any other rights or remedies of Lessor provided
herein or at law. If Lessee fails to surrender the Premises upon thirty (30)
days following the termination or expiration of this Lease, in addition to any
other liabilities to Lessor accruing therefrom, Lessee shall protect, defend,
indemnify and hold Lessor harmless from all loss, costs (including reasonable
attorneys' fees) and liability resulting from such failure, including, without
limiting the generality of the foregoing, any claims made by any succeeding
Lessee founded upon such failure to surrender, and any lost profits to Lessor
resulting therefrom.
ARTTCLE 16
----------
ESTOPPEL ATTORNMENT AND SUBORDINATION
-------------------------------------
16.1 Estoppel Certificate. Within ten (10) days after request
therefor by either Lessee or Lessor, or if on any sale, assignment or
hypothecation by Lessor of Lessor's interest in the Building or the Project, or
any part thereof, an Estoppel Certificate shall be required: Lessee or Lessor,
as the case may be, shall deliver, in
22
<PAGE>
recordable form, a certificate to any proposed mortgagee or purchaser, and to
Lessor, certifying (if such be the case) that this Lease is in full force and
effect; the date of Lessee's most recent payment of Rent, and that Lessee has no
defenses or offsets outstanding, or stating those claimed by Lessee and any
other information reasonably requested.
(a) this Lease is in full force and effect without
modification, except as may be represented by Lessor;
(b) there are no uncured defaults in Lessor's
performance and Lessee has no right of offset couterclaim or deduction against
Rent hereunder; and,
(c) no more than one month's Base Rental has been paid
in advance.
16.2 Attornment. In the event any proceedings are brought
----------
for the foreclosure of, or in the event of exercise of the power of sale
under any mortgage or deed of trust made by lessor, its successors or assigns,
encumbering the Premises, or any part thereof, or in the event of termination
of a ground lease, if any, and if so requested. Lessee shall attorn to the
purchaser upon such foreclosure or sale or upon any grant of a deed in lieu of
foreclosure and recognize such purchaser as Lessor under this Lease.
16.3 Lease Superior. The rights of Lessee hereunder are and
--------------
shall superior to the lien of such mortgage securing the Building, or the lien
resulting from any other method of financing or refinancing, now or hereafter in
force against the Project, and to all advances made or hereafter to be made upon
the security. Provided that Lessee is not in default under any of the terms,
covenants and conditions of this Lease, neither this Lease nor any of the rights
of Lessee hereunder shall be terminated or subject to termination by any
trustee's sale, any action to enforce the security or by any proceeding or
action in foreclosure. If requested, Lessor and Lessee agrees to execute
documentation may be required to further effect the provisions of this Articie
16.
ARTICLE l7
----------
DEFAULTS REMEDIES
-----------------
17.1 Events of Default. The occurrence of any or the
-----------------
following events shall constitute an "Event of Default" on the part of Lessee
without notice from Lessor unless otherwise provided:
(a) Vacation or Abandonment. Vacation or abandonment
-----------------------
of the Premises;
(b) Payment. Failure to pay any installment of
-------
Base Rental. Additional Rental or other monies due and payable hereunder upon
the date when said payment is due, the failure continuing for a period of five
(5) days;
(c) Performance. Default in the performance of any of
-----------
Lessee's covenants, agreements or obligations hereunder (except default in the
payment of Rent), the default continuing for thirty (30) days after written
notice thereof from Lessor (provided that Lessee shall continuously and
diligently pursue the remedy of such default at all times until such default is
cured);
(d) Assignment. A general assignment by Lessee for the
----------
benefit of creditors;
(e) Bankruptcy. The filing of a voluntary petition by
----------
Lessee, or the filing of an involuntary petition by any of Lessee's creditors
seeking the rehabilitation, liquidation or reorganization of Lessee under any
law relating to bankruptcy, insolvency or other relief of debtors:
(f) Receivership The appointment of a receiver or other
------------
custodian to take possession of substantially all of Lessee's assets or of the
Premises or any interest of Lessee therein.
23
<PAGE>
(g) Insolvency or Dissolution. Lessee shall become insolvent or
-------------------------
unable to pay its debts, or shall fail generally to pay its debts as they become
due; or any court shall enter a decree or order directing the winding up or
liquidation of Lessee or of substantially all of its assets; or Lessee shall
take any action toward the dissolution or winding up of its affairs or the
cessation or suspension of its use of the Premises; and.
(h) Attachment. Attachment, execution or other judicial
----------
seizure of substantially all of Lessee's assets or the Premises or any interest
of Lessee under this Lease.
l7.2 Lessor's Remedies. If an Event of Default shall occur, at any
-----------------
time thereafter and without limiting Lessor in the exercise of any other right
or remedy at law or in equity, Lessor may elect any of the following remedies:
(a) Continuation of Lease. Notwithstanding Lessee's breach
---------------------
of the Lease and abandonment of the Premises, Lessor may continue the Lease in
full force and effect and enforce all of the Lessor's rights and remedies under
the Lease, as provided by California Civil Code section 1951.4. including the
----------
right to recover rents as it becomes due, so long as Lessor does not terminate
Lessee's right to possession. Acts of maintenance or preservation or efforts to
relet the Premises or the appointment of a receiver upon initiative of Lessor to
protect Lessor's interest under this Lease shall not constitute a termination of
Lessee's right to possession. At any time subsequent to vacation or abandonment
of the Premises by Lessee, Lessor may give notice of termination and shall
thereafter have all of the rights set forth in Article 17. ??(b) below.
(b) Termination. So long as the default continues Lessor shall
-----------
have the right to terminate this Lease by written notice to Lessee setting
forth: (i) the default: (ii) the requirements to cure it and (iii) a demand for
possession, which shall be effective upon the later of three (3) days after it
is given or the expiration of the times specified in Article 17.l hereinabove.
(c) Possession. Following termination of the Lease under
----------
Article 17.2(b) and without prejudice to any other remedies Lessor may have by
reason of Lessee's default or of such termination. Lessor may then or at anytime
thereafter: (i) peaceably re-enter the Premises or any part thereof upon
voluntary surrender by Lessee or expel or remove Lessee therefrom and any other
persons occupying them, using such legal proceedings as are then available: (ii)
repossess and enjoy the Premises, or relet the Premises or any part thereof for
such term or terms (which may be for a term extending beyond the Term) at such
rental or rentals and upon such other terms and conditions as Lessor in its sole
discretion shall determine, with the right to make reasonable alterations and
repairs to the Premises: and (iii) remove all personal property therefrom, store
such personal property at Lessee's expense and sell property and apply the
proceeds therefrom pursuant to applicable California law, all as attorney-in-
fact for Lessee. Lessee shall not be entitled to any reimbursement for the
unamortized cost of Lessee Extra Work.
(d) Recovery. Following termination under Article 17 2(b) above
--------
Lessor shall have all the rights and remedies to recover from Lessee damages as
provided by California Civil Code section 1951.2 (or any successor law)
----------
including without limitation: (i) the worth at the time of the award of the
unpaid Rent and other amounts which had been earned at the time of termination:
(ii) the worth at the time of the award of the amount by which the unpaid Rent
which would have been earned after termination until the time of the award
exceeds the amount of such Rent loss that Lessee proves could have been
reasonably avoided: (iii) the worth at the time of the award of the amount by
which the unpaid Rent loss Lessee proves could be reasonably avoided: and (iv)
any other amount necessary to compensate Lessor for all detriment approximately
caused by Lessee's failure to perform its obligations under this Lease or which
in the ordinary course of things would be likely to result therefrom. The "worth
at the time of the award" of the amounts referred to in (i) and (ii) are
computed by allowing interest at the rate of three percent (3%) per annum
over the prime rate of interest announced by Wells Fargo Bank, National
Association Los Angeles, California applicable to the time of award, but not to
exceed the highest rate legally permissible at the time of the award. The
"worth at the time of the award" of the amount referred to in (iii) above shall
be computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
24
<PAGE>
(e) Receivership. Upon application by Lessor, Lessor may have a
------------
receiver appointed for Lessee to take possession of the Premises and to apply
all rental collected from the Premises and to exercise all other rights and
remedies granted to Lessor as attorney-in-fact for Lessee pursuant to Article
17.2(c) above.
(f) Additional Remedies. In addition to the foregoing remedies
-------------------
so long as this Lease is not terminated, Lessor shall have the right to remedy
any default of Lessee, to maintain or improve the Premises without terminating
the Lease, to incur expenses on behalf of Lessee in seeking a new subtenant or
to cause a receiver to be appointed to administer the Premises and new or
existing subleases, and to add to the Rent payable hereunder all of Lessor's
reasonable costs in doing so, with interest at the maximum rate set by statute.
Lessor may pursue any and all other remedies available to Lessor at law or in
equity, by statute or otherwise.
(g) Other Breaches. If Lessee causes or threatens a breach of
--------------
any of the covenants, agreements, terms or conditions contained in this Lease,
Lessor shall be entitled to retain all sums held by Lessor for Lessee's account
or in any account provide for herein to enjoin such breach or threatened breach,
and to invoke any right and remedy allowed at law or in equity or by statute or
otherwise as though re-entry, summary proceedings and other remedies were
not provided for in this Lease.
(h) Cumulative. Each right and remedy of Lessor provided for in
----------
this Lease shall be cumulative and shall be in addition to every other right or
remedy provided for in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise. The exercise or beginning of the exercise
by Lessor of any one or more of the rights or remedies provided for in this
Lease, or nor or hereafter existing at law or in equity or by, statute or
otherwise, shall not preclude the simultaneous or later exercise by Lessor of
any or all other rights or remedies provided for in this Lease or now or
hereafter existing at law or in equity or statute or otherwise.
(i) No Waiver. Notwithstanding, no failure by Lessor to insist
--------
upon the strict performance of any term hereof or to exercise any right or
remedy consequent upon a breach thereof and no acceptance of full or partial
payment of Rent during the continuance of any such breach shall constitute a
waiver of any such breach or of any such term. Efforts by Lessor to mitigate the
damages caused by Lessee's breach of this Lease shall not be construed to be a
waiver of Lessor's right to recover damages under this Article l7. Nothing in
this Article 17 affects the right of Lessor to be indemnified and/or held
harmless by Lessee in accordance with the provisions of this Lease for
liability arising prior to the termination of this Lease for personal injuries
or property damage.
ARTICLE 18
----------
GRAPHICS
--------
18.1 In General. Lessee shall be entitled, at Lessor's cost,
----------
building standard to identification signage outside of Lessee's Premises on the
floor on which Lessee's Premises are located. The location, quality, design,
style, lighting and size of such signage shall be consistent with the Lessor's
Building standard signage program and shall be subject to Lessor's prior written
approval, in its sole discretion. Upon the expiration or earlier termination of
this Lease, Lessee shall be responsible, at its sole cost and expense, for the
removal of such signage and the repair of all damage to the Building caused by
such removal.
l8.2 Building Directory. At Lessor's cost Lessee shall be
-------------------
entitled to utilize up to tyventy (20) lines on the office building directory to
display Lessee's name and location in the Project.
l8.3 Prohibited Signage and Other Items. Any signs, notices, logos,
----------------------------------
pictures, names or advertisements which are installed and that have not been
individually approved by Lessor may be removed without notice by Lessor at the
sole expense of Lessee. Lessee may not install any signs on the exterior or roof
of the office building or the common areas of the Project. Any signs, window
coverings, or blinds (even if the same are located
25
<PAGE>
behind the Lessor approved window coverings for the office building), or
other items visible from the exterior of the Premises are subject to the prior
approval of Lessor, in its sole discretion.
ARTICLE 19
-------
LESSOR'S RIGHT TO CURE DEFAULT PAYMENTS BY LESSEE
-------------------------------------------------
l9.l Lessor's Cure. All covenants and agreements to be kept or
-------------
performed by Lessee under this Lease shall be performed by Lessee at Lessee's
sole cost and expense and without any reduction of Rent. If Lessee shall fail to
perform any of its obligations under this Lease within a reasonable time
after such performance is required by the terms of this Lease. Lessor may, but
shall not be obligated to, after reasonable prior notice to Lessee make any
such payment or perform any such act on Lessee's part without waiving its right
based upon any default of Lessee and without releasing Lessee from any
obligations hereunder.
19.2 Lessee's Reimbursement. Except as may be specifically provided
----------------------
to the contrary in this Lease, Lessee shall pay to Lessor, within fifteen (15)
days after delivery by Lessor to Lessee of statements therefor:(i) sums equal to
expenditures reasonably made and obligations incurred by Lessor in connection
with the remedying by Lessor of Lessee's defaults pursuant to the provisions
of Section 17.1; (ii) sums equal to all losses, costs, liabilities, damages and
expenses referred to in Article 9 of this Lease: and (iii) sums equal to all
expenditures made and obligations incurred by Lessor in collecting or attempting
to collect the Rent or in enforcing or attempting to enforce any rights of
Lessor under this Lease or pursuant to law, including, without limitation all
legal fees and other amounts so expended. Lessee's obligations under this
Section 19.2 shall survive the expiration or sooner termination of the Lease
Term.
ARTICLE 2O
-------
MISCELLANEOUS PROVISIONS
------------------------
20.1 Terms. The necessary grammatical changes required to make the
-----
provisions hereof apply either to corporations or partnerships or individuals,
men or women, as the case may require shall in all cases be assumed as though
in each case fully expressed.
20.2 Binding Effect. Each of the provisions of this Lease shall
--------------
extend to and shall, as the case may require, bind or inure to the benefit not
only of Lessor and of Lessee, but also of their respective successors or
assigns.
20.3 Easements. Lessor reserves the right to: (i) alter the
---------
boundaries of the Lot: and, (ii) grant easements on the Lot and dedicate for
public use portions thereof without Lessee's consent: provided, however, that
no such grant or dedication shall materially interfere with Lessee's use of the
Premises.
20.4 No Light Air or View Easement. Any diminution or shutting off
-----------------------------
of light, air or view by any structure which may be erected on lands adjacent
to or in the vicinity of the Project shall in no way affect this Lease or impose
any liability on Lessor.
20.5 Authorization. If Lessee executes this Lease as a corporation
-------------
or partnership, then Lessee and the persons executing this Lease on behalf of
Lessee, represent and warrant that such entity is duly qualified to do business
in California and that the individuals executing this Lease on Lessee's behalf
are duly authorized to execute and deliver this Lease on its behalf. In the case
of a corporation, in accordance with a duly adopted resolution of the board of
directors of the Lessee, a copy of which is to be delivered to Lessor on
execution hereof, and in accordance with the by-laws of Lessee and that this
Lease is binding upon Lessee in accordance with its terms, and in the case of
a partnership agreement and the most current amendment thereto, if any, copies
of which are to be delivered to Lessor with the execution hereof.
26
<PAGE>
20.6 Accord and Satisfaction. No payment by Lessee or receipt by
-----------------------
Lessor of a lesser amount than the Rent herein stipulated shall be deemed to be
other than on account of the Rent, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as Rent be deemed an
accord and satisfaction, and Lessor may accept such check or payment without
prejudice to Lessor's right to recover the balance of such Rent or pursue any
other remedy provided in this Lease.
20.7 Peaceful Enjoyment. Subject to the other terms hereof. Lessee
------------------
shall and may peacefully have hold and enjoy the Premises, provided that Lessee
pays the Rent and other sums herein to be paid by Lessee and performs all of
Lessee's covenants and agreements contained herein. It is understood and agreed
that this covenant and any and all other covenants of Lessor contained in this
Lease shall be binding upon Lessor and its successors only with respect to
breaches occurring when Lessor has an ownership interest in the Project, and
shall be binding on Lessor's successors only with respect to breaches occurring
when such successors have an ownership interest in the Project. Lessor will
provide, upon execution of the Lease, a commercially reasonable non-disturbance
agreement from the Project lender recognizing Lessee's rights to the leased
premises.
20.8 Limitation of Lessor's Liability. The obligations of Lessor
--------------------------------
under this Lease shall not constitute personal obligations of the partners,
directors, officers or shareholders of Lessor, and Lessee shall look solely to
the real estate that is the subject of this Lease and to no other assets of
Lessor for satisfaction of any liability in respect of this Lease and shall not
seek recourse against the partners, directors, officers or shareholders of
Lessor or any of their personal assets for such satisfaction.
20.9 Time, Calendar Year: Calendar Days. Time is of the essence in
----------------------------------
the performance of all obligations under this Lease. As used in this Lease, the
term "calendar year" shall mean January l through December 3l. Except as
otherwise expressly provided herein, all references to days in this Lease shall
mean calender days, not working or business days: provided, however, that if a
certain date falls on a weekend or holiday, the next business day shall be
substituted for the applicable date.
20.10 Professional Fees. In any action or proceeding which Lessor or
-----------------
Lessee may be required to prosecute to enforce its respective rights
hereunder,the unsuccessful parties therein shall pay all costs and expenses
incurred by the prevailing party therein, including without limitation actual
professional fees such as appraisers, accountants and reasonable attorneys' fees
and expenses, to be fixed by the court, and such costs and attorneys' fees and
expenses shall be made a part of the judgment in such action. In any situation
in which a dispute is settled other than by action or proceeding, including a
default by Lessee, Lessee shall pay all Lessor's costs and, attorney's fees and
expenses relating thereto.
20.11 Severability. If any term or provisions of this Lease, or the
------------
application thereof to any person or circumstance, the deletion of which shall
not adversely affect the receipt of any material benefit of Lessor or Lessee,
shall be invalid, void or unenforceable to any extent, the remainder of this
Lease, and the application of such terms or provisions to other persons or
circumstances, shall not be affected, impaired or invalidated thereby and shall
be enforced to the greatest extent permitted by law.
20.12 Applicable Law. This Lease, and the rights and obligations of
--------------
the parties hereto, shall be construed and enforced in accordance with the laws
of the State of California.
20.13 Submission of Lease. The submission of this document for
-------------------
examination and negotiation neither constitutes an offer to lease, nor a
reservation of, nor option for leasing the Premises. This document shall become
effective and binding only upon execution and delivery by Lessor. No act or
omission of any employee or agent of Lessor or of Lessor's broker or managing
agent shall alter, change or modify any of the provisions hereof.
20.14 Rules and Regulations At all times during the Term. Lessee
---------------------
shall comply with rules and regulations (and such amendments as Lessor may
reasonably adopt) for the Project as set forth in Exhibit F attached hereto and
by this reference made a part hereof ("Rules and Regulations").
27
<PAGE>
20.15 No Nuisance. Lessee shall conduct it's business and control
-----------
its agents, employees, invitees and visitors in such a manner as not to
create any nuisance or interfere with, annoy or disturb any other tenant or
Lessor in its operation of the Building.
20.16 Broker. Lessee warrants that it has had no dealings with any
------
real estate broker or agent other than Lessee's Broker set forth in the Summary
("Broker") in connection with the negotiation of this Lease, and that it knows
of no other real estate broker or agent other than Lessee's Broker, who may be
entitled to any commission or finder's fee in connection with this Lease. Lessee
hereby indemnifies, defends, protects and holds Lessor harmless from and against
any and all claims, demands, losses, liabilities, lawsuits, judgements, costs
and expenses with respect to any leasing commission or equivalent compensation
alleged to be owing on account of Lessee's dealings with any real estate broker
or agent other than Broker as set forth in Broker's separate agreement with
Lessor.
20.17 Lessor's Right to Perform. Upon Lessee's failure to perform
-------------------------
any obligation of Lessee hereunder, subject to notice and reasonable period of
time, including without limitation, payment of Lessee's insurance premiums or
charges of contractors who have supplied materials or labor to the Premises.
Lessor shall have the right to perform such obligation of Lessee on behalf of
Lessee and, or to make payment on behalf of Lessee to such parties. Lessee shall
reimburse Lessor the reasonable cost of Lessor's performing such obligation on
Lessee's behalf, including any amounts that may be expended by Lessor, plus
interest at the rate set forth in Article 4.6 for past due installments of
Rent, as Additional Rental.
20.18 Modification for Lender. If, in connection with obtaining
-----------------------
construction interim or permanent financing for the Project, the lender or any
ground lessor shall request reasonable modifications in this Lease as a
condition to such financing. Lessee will not unreasonably withhold, delay or
defer its consent thereto, provided that such modifications do not increase the
obligations of Lessee hereunder or materially adversely affect the leasehold
interest hereby created or Lessee's rights hereunder.
20.19 Recording. Neither Lessor nor Lessee shall record this Lease
----------
nor a short form memorandum thereof without the written consent of the other.
20.20 Parking Facilities
------------------
(a) The Garage is available for the use of tenants of the
Project and their visitors and customers. All parking rights are subject to the
rules, regulations, charges, rates, validation and identification systems set
forth by Lessor from time to time. Lessor may restrict certain portions of the
Garage for the exclusive use of one or more tenants of the Project and may
designate other areas to be used at large only by customers and visitors of
tenants of the Project. Lessor reserves the right to delegate the operation of
the Garage to a parking operator which shall be entitled to all of the
obligations and benefits of Lessor.
(b) During the Lease Term Lessee shall have the right in
common with other tenants of the Project to rent use the number of undesignated
spaces in the Garage specified in the Summary Information: additional parking
spaces for Lessee's customers and visitors may be allowed at Lessor's option,
and as further provided in the Summary, subject to availability. Lessee shall
pay to Lessor as Additional Rental the parking space rental specified in the
Summary Information, which amount is the charge currently in effect for the
rental use of such parking facilities. Notwithstanding the foregoing. Lessor
reserves the right, from time to time, to make reasonable changes in, additions
to and deletions from the parking facilities and the purposes to which the same
may be devoted, provided that Lessor does not permanently reduce the number of
Lessee's parking spaces specified above. Furthermore, Lessor reserves the right,
from time to time, to make changes in the rental for such parking facilities
based upon the fair market value of such parking facilities as determined solely
by Lessor or governmental authorities.
(c) Lessor shall have the right to cause to be removed any
vehicles of Lessee, its customers or visitors that are parked in violation of
this Lease or in violation of the Rules and Regulations of the
28
<PAGE>
Building without liability of any kind to Lessor and Lessee agrees to indemnify,
defend, protect and hold Lessor harmless from and against any and all claims,
losses, damages, demands, costs and expenses (including without limitation
reasonable attorney's fees and expenses) asserted or arising with respect to or
in connection with the removal of any such automobile(s) as aforesaid. Lessor
shall not be liable for any claims, losses, damages, expenses or demands with
respect to any vehicles of Lessee, its customers or visitors that are parked in
the Garage, except for such loss or damage as may be caused by Lessor's gross
negligence or willful misconduct, and Lessee agrees to indemnify, defend,
protect and hold Lessor harmless from and against any such claim, loss, damage,
demand, cost or expense (including without limitation reasonable attorneys' fees
and expenses). From time to time, upon request of Lessor, Lessee shall supply
Lessor with a list of license plate numbers of all automobiles owned by its
employees and agents granted parking privileges.
20.2l No Merger. The voluntary' or other surrender of this
---------
Lease by Lessee, or a mutual cancellation thereof, shall not work a merger, and
at the option of Lessor shall terminate all or any existing assignments,
sublessees, or subtenancies, or at the option of Lessor may operate as an
assignment to it of any or all such assignments, subleases or subtenancies.
20.22 Amendment. Except as otherwise provided herein,
---------
no subsequent alteration, amendment, change or addition to this Lease shall be
binding upon Lessor or Lessee unless in writing and executed by Lessor and
Lessee.
20.23 Financial Statements. No more often than once per annum.
--------------------
Lessee shall upon twenty (20) days prior written notice from Lessor provide
Lessor with a most recent annual financial statement. Such statements shall be
prepared in accordance with generally accepted accounting principles.
20.24 Hazardous Substances: Indemnification.
-------------------------------------
(a) Except for general offices supplies typically used in an
office area in the ordinary course of business, such as copier toner, liquid
paper, glue, ink, and cleaning solvents, for use in the manner for which they
were designed, in such amounts as may be normal for the office business
operations conducted by Lessee in the Premises, neither Lessee nor its agents,
employees, contractors, licensees, sublesses, assignees, concessionaires or
invitees shall use, handle, store or dispose of any Hazardous Substances in, on,
under or about the Premises or the Project. Except for Hazardous Substances
customarily used in connection with general office uses. Lessee shall not cause
or permit any Hazardous Substance to be used, stored, generated or disposed of
on or in the Building or the Premises by Lessee. Lessee's agents, employees,
contractors, or invitees without first obtaining Lessor's written consent. If
any Hazardous Substances are used, stored, generated, or disposed of on or in
the Premises including those customarily used in connection with general office
uses, or if the Premises become affected by any release or discharge of a
Hazardous Substance. Lessee shall, if caused by a violation of the above,
indemnify, defend and hold harmless the Lessor from and against any and all
claims, damages, fines, judgments, penalties, costs, liabilities, or losses
(including, without limitation, a decrease in value of the Premises, damages
caused by loss or restriction of rentable or usable space, or any damages caused
by a diverse impact on marketing of the space, and any and all sums paid for
settlement of claims, attorneys' fees, consultant, and expert fees) arising
during or after the term of this Lease and arising as a result of such
contamination, release or discharge. This indemnification includes, without
limitation, any and all costs incurred because of any investigation of the site
or any clean-up, remediation, removal, or restoration mandated by federal, state
or local agency or political subdivision. Without limitation of the foregoing,
if Lessee causes or permits the presence of any Hazardous Substance on the
Premises and the same results in any contamination, release or discharge. Lessee
shall promptly, at its sole expense, take any and all necessary actions to
return the Premises to the conditions existing prior to the presence of any such
Hazardous Substance on the Premises. Lessee shall first obtain Lessor's approval
for any such remedial action. Furthermore, Lessee shall immediately notify
Lessor of any inquiry, test, investigation or enforcement proceeding by or
against Lessee or the Property concerning the presence of any Hazardous
Substance. Lessee acknowledges that Lessor, at Lessor's election, shall have the
sole right, at Lessee's expense, to negotiate, defend, approve and appeal any
action taken or order issued by any governmental authority with regard to any
Hazardous Substance contamination which Lessee is obligated hereunder to
remediate.
29
<PAGE>
(b) Lessor represents and warrants that Lessor has nor
knowingly used or permitted the use of any portion of Lessee's Premises, the
Project or Garage to be used in violation of any governmental law ordinances,
regulations or orders relating to environmental conditions including but not
limited to asbestos, soil and ground water conditions and Hazardous Materials.
(c) As used herein. "Hazardous Substance" means asbestos,
any petroleum fuel, polychorobiphenyls ("PCBs") and any hazardous or toxic
substance, material or waste which is or becomes regulated by any local
governmental authority, the State of California or the United States government,
including, but not limited to, any material or substance defined as a "hazardous
waste", "extremely" hazardous waste", "restricted hazardous waste", "hazardous
substances", "hazardous material" or "toxic pollutant" under the California
Health and Safety Code and/or under the Comprehensive Environmental Response,
Compensation and Liability Act. 42. U.S.C. section T9901, et. seq.
20.25 No Warranty. In executing and delivering this Lease,
-----------
Lessee has not relied on any representation including, but not limited to, any
representation whatsoever as to the amount of any item comprising Additional
Rent or the amount of the Additional Rent in the aggregate or that Lessor is
furnishing the same services to other Lessees, at all, on the same level or on
the same basis or any warranty or any statement of Lessor which is not set forth
herein or in one or more of the exhibits attached hereto.
20.26 Entire Agreement. It is understood and acknowledged that
----------------
there are no oral agreements between the parties hereto affecting this Lease and
this Lease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements and understandings, if any, between the
parties hereto or displayed by Lessor to Lessee with respect to the subject
matter thereof, and none thereof shall be used to interpret or construe this
Lease. This Lease and any side letter or separate agreement executed by Lessor
and Lessee in connection with this Lease and dated of even date herewith contain
all of the terms, covenants, conditions, warranties and agreements of the
parties relating in any manner to the rental, use and occupancy of the Premises,
shall be considered to be the only agreement between the parties hereto and
their representatives and agents, and none of the terms, covenants, conditions
or provisions of this Lease can be modified, deleted or added to except in
writing signed by the parties hereto. All negotiations and oral agreements
acceptable to both parties have been merged into and are included herein. There
are no other representations or warranties between the parties, and all reliance
with respect to representations is based totally upon the representations and
agreements contained in this Lease.
20.27 Force Majeure. Any prevention, delay or stoppage due to
-------------
strikes, lockouts, labor disputes, Acts of God, inability to obtain services,
labor, or materials or reasonable substitutes therefor, governmental actions,
civil commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, except with respect to the
obligations imposed with regard to Rent and other charges to be paid by Lessee
pursuant to this Lease (collectively, the "Force Majeure"), notwithstanding
anything to the contrary contained in this Lease, shall excuse the performance
of such party for a period equal to any such prevention, delay or stoppage and,
therefore, if this Lease specifies a time period for performance of an
obligation of either party, that time period shall be extended by the period of
any delay in such party's performance caused by a Force Majeure.
20.28 Waiver of Redemption. Lessor hereby waives for Lessee and
--------------------
for all those claiming under Lessee all right now or hereafter existing to
redeem by order or judgment of any court or by any legal process or writ.
Lessee's right of occupancy of the Premises after any termination of this Lease.
20.29 Joint and Several. If there is more than one Lessee, the
-----------------
obligations imposed upon Lessee under this Lease shall be joint and several.
20.30 Attorneys' Fees. If either party commences litigation
---------------
against the other for the specific performance of this Lease, for damages for
the breach hereof or otherwise for enforcement of any remedy hereunder. In the
event of any such commencement of litigation, the prevailing party shall be
entitled to recover
30
<PAGE>
from the other party such costs and reasonable attorneys' fees as may have been
incurred, including any and all costs incurred in enforcing, perfecting and
executing such judgment.
20.31 Independent Covenants. This Lease shall be construed as
---------------------
though the covenants herein between Lessor and Lessee are independent and not
dependent and Lessee hereby expressly waives the benefit of any statute to
the contrary and agrees that if Lessor fails to perform its obligations set
forth herein, Lessee shall not be entitled to make any repairs or perform any
acts hereunder at Lessor's expense or to any set-off of the Rent or other
amounts owing hereunder against Lessor: provided, however, that the foregoing
shall in no way impair the right of Lessee to commence a separate action against
Lessor for any violation by Lessor of the provisions hereof so long as notice is
first given to Lessor and any holder of a mortgage or deed of trust covering the
Building. Real Property or any portion thereof, of whose address Lessee has
therefore been notified, and an opportunity is granted to Lessor and such
holder to correct such violations as provided above.
20.32 Project Name and Signage. Lessor shall have the right at
------------------------
any time to change the name of the Project and to install, affix and maintain
any and all signs on the exterior and on the interior of the Project as Lessor
may, in Lessor's sole discretion, desire.
20.33 Transportation Management. Lessee shall fully comply with
-------------------------
all present or future programs intended to manage parking, transportation or
traffic in and around the Project, and in connection therewith. Lessee shall
take responsible action for the transportation, planning and management of all
employees located at the Premises by working directly with Lessor, any
governmental transportation management organization or any other
transportation-related committees or entities. Such programs may include,
without limitation: (i) restrictions on the number of peak-hour vehicle trips
generated by Lessee. (ii) increased vehicle occupancy; (iii) implementation of
an in-house ride-sharing program and an employee transportation coordinator:
(iv) working with employees and any Project or area-wide ride-sharing program
manager: (v) instituting employer-sponsored incentives (financial or in-kind) to
encourage employees to ride-share: and (vi) utilizing flexible work shifts for
employees.
20.34 No Discrimination. Lessee covenants by and for itself,
-----------------
its heirs, executors, administrators and assigns, and all persons claiming under
or through Lessee, and this Lease is made and accepted upon and subject to the
following conditions: that there shall be no discrimination against or
segregation of any person or group of persons, on account of race, color, creed,
sex, religion, marital status, ancestry, or national origin in the leasing,
subleasing, transferring, use or employment of the Premises, nor shall Lessee
itself, or any person, use claiming under or through Lessee, establish or permit
such practice or practices of discrimination or segregation with reference to
the selection, location, number, use or occupancy of tenants, lessees,
sublessees, subtenants or vendees in the Premises.
31
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be executed the
day and date first above written.
"Lessor":
BPG PASADENA, L.L.C.,
a Delaware Limited Liability Company
[SIGNATURE ILLEGIBLE]
- -----------------------------------
Its: Managing Member
--------------------------
"Lessee":
CITY SEARCH, INC.,
a Delaware Corporation
/s/ Bradley Ramberg
By:----------------------------------
Its: Chief Financial Officer
----------------------------
32
<PAGE>
EXHIBIT A
---------
790 EAST COLORADO BOULEVARD
---------------------------
LEGAL DESCRIPTION
-----------------
All the certain real property located in the County of Los Angeles. State of
California, described as follows:
APN 5734-013-022
PARCEL l OF THE PARCEL MAP NO.12432. IN THE CITY OF PASADENA, COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA. AS PER MAP RECORDED IN BOOK 138, PAGES 66 AND 67
OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXHIBIT A - PAGE 1
<PAGE>
EXHIBIT B
---------
790 EAST COLORADO BOULEVARD
---------------------------
OUTLINE OF FLOOR PLAN OF PREMISES
---------------------------------
(TO BE PROVIDED BY LESSOR)
EXHIBIT B - PAGE 1
<PAGE>
EXHIBIT B
---------
790 E. COLORADO BLVD.
[SECOND FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT C
---------
790 EAST COLORADO BOULEVARD
---------------------------
WORK LETTER
-----------
This Work Letter shall set forth the terms and conditions relating to the
construction of the Lessee improvements in the Premises. This Work Letter is
essentially organized chronologically and addresses the issues of the
construction of the Premises, in sequence, as such issues will arise during the
actual construction of the Premises. All capitalized terms used but not defined
herein shall have the meanings given such terms in this Lease. All references in
this Work Letter to Articles or Sections of "this Lease" shall mean the relevant
portion of Articles 1 through 20 of this Lease to and of which this Work Letter
forms a part. All references in this Work Letter to Sections of "this Work
Letter" shall mean the relevant portion of Sections 1 through 6 of this Work
Letter.
AGREEMENT
---------
SECTION l
---------
DESIGN AND CONSTRUCTION OF LESSEE IMPROVEMENTS
----------------------------------------------
1.l Construction Drawings for Lessee Improvements. Prior to the
---------------------------------------------
execution of this Lease, Lessor and Lessee have approved a detailed space plan
and supplemental specifications for the construction of certain improvements in
the Premises a copy of which is included as Exhibit D to the Lease (the "Final
Space Plan"). Based upon and in conformity with the Final Space Plan. Lessor
shall cause its architect and engineers to prepare and deliver to Lessee, for
Lessee's reasonable approval, detailed specifications and engineered working
drawings for the Lessee improvements shown on the Final Space Plan (the "Working
Drawings"). To the extent that the finishes and specifications are not
completely set forth in the Final Space Plan for any portion of the Lessee
improvements depicted thereon, the actual specifications and finish work shall
be in accordance with the specifications for the building's standard improvement
package items, as determined by Lessor. Within three (3) days after Lessee's
receipt of the Working Drawings. Lessee shall approve or disapprove the same,
which approval shall not be unreasonably withheld; provided, however, that
Lessee may only disapprove the Working Drawings to the extent such Working Draw
ings are inconsistent with the Final Space Plan and only if Lessee delivers to
Lessor, within such thirty (30) day period, specific changes proposed by Lessee
which are consistent with the Final Space Plan and do not constitute changes
which would result in any of the circumstances described in items (i) through
the below. If any such revisions are timely and properly proposed by Lessee,
Lessor shall cause its architect and engineers to revise the Working Drawings to
incorporate such revisions and submit the same for Lessee's approval in
accordance with the foregoing provisions and the parties shall follow the
foregoing procedures for approving the Working Drawings until the same are
finally approved by Lessor and Lessee. Upon Lessor's and Lessee's approval of
the Working Drawings, the same shall be known as the "Approved Working
Drawings". Once the Approved Working Drawings have been approved by Lessor
and Lessee. Lessee shall make no changes or modifications thereto without the
prior written consent of Lessor, which consent may be withheld in Lessor's sole
discretion if such change or modification would: (i) directly or indirectly
delay the "Substantial Completion", as that term is in defined section 5 below,
of the Premises: (ii) increase the cost of designing or constructing the Lessee
Improvements above the cost of the Lessee Improvements depicted in the Final
Space Plan: (iii) be of a quality lower than the quality of the standard
improvement package items for the office building; and or (iv) require any
changes to the Base, Shell and Core of the Project. The Lessee improvements
shown on the Approved Working Drawings, excluding any of Lessee's furniture,
computer systems, telephone systems, equipment or other personal property
which may be depicted thereon, shall be referred to herein as the "Lessee
Improvements".
1.2 Limitation on Lessor's Liability. Lessor's submittal and/or approval
--------------------------------
of the Final Space Plan. Working Drawings and Approved Working Drawings
(collectively, the "Construction Drawings") as set forth in this Section 5 shall
not imply Lessor review of the same, or obligate Lessor to review the same for
quality, design, compliance with codes or other like matters.
<PAGE>
EXHIBIT B
---------
[790 E. COLORADO BLVD. -- THIRD FLOOR PLAN]
<PAGE>
SECTION 2
---------
CONSTRUCTION COSTS AND OVER-ALLOWANCE AMOUNT
--------------------------------------------
Lessor and Lessee hereby agree that Lessor shall at Lessor's sole cost and
expense, improve Lessee's Premises consistent with the space plan developed by
City Spaces and approved by CitySearch. The intention of the parties herein is
to develop at Landlord expense, standard professional office space in all areas
of Lessee's Premises except for the Computer Room. Specifically, Lessor shall at
Lessor's sole cost and expense provide all necessary improvements to the
Premises, including but not limited to, suspended ceilings, lighting, walls,
doors, floor coverings, furniture low wall partition systems,
telecommunications, cabling, fourplex electrical outlets (as required), a
men's & women's shower facility, and breakroom including sink coffee and
storage area. Lessor shall also build the demised area for the Computer Room
consistent with buildings standards for the Premises. Lessee, at Lessee's sole
cost and expense shall be responsible for the development of the Computer Room
beyond building standard including any additional air conditioning units, fire
suppression systems, floor support system, etc.
SECTION 3
---------
CONTRACTOR'S WARRANTIES AND GUARANTIES
--------------------------------------
Lessor will, upon completion of the Lessee Improvements and Lessee's
acceptance of the Premises, assign to Lessee all warranties and guaranties by
the contractor who constructs the Lessee Improvements (the "Contractor")
relating to the Lessee Improvements, and Lessee hereby waives all claims against
Lessor relating to, or arising out of the construction of the Lessee
Improvements except to extent of Lessor's cross negligence or willful
misconduct.
SECTION 4
---------
LESSEE'S COVENANTS
------------------
Lessee shall use its good faith efforts to cooperate with Lessor to
cause a Notice of Completion to be recorded in the Office of the Recorder
of the County of Los Angeles in accordance with section 3093 of the Civil Code
----------
of the State of California or any successor statute, including the execution of
any appropriate documents if necessary; provided, however, Lessor may itself
execute and file the same on behalf of Lessee as Lessee's agent for such purpose
SECTION 5
---------
COMPLETION OF THE LESSEE IMPROVEMENTS:
--------------------------------------
LEASE COMMENCEMENT DATE
-----------------------
Except as provided in this Section 5, the Lease Commencement Date shall
occur as set forth in the Summary and Article 3 of this Lease. For purposes of
this Lease "Substantial Completion" of the Premises shall occur upon the
completion of construction of the Lessee Improvements in the Premises pursuant
to the Approved Working Drawings, with the exception of any punch list items
and any Lessee fixtures, work-stations, built-in furniture, or equipment to
be installed by Lessee or under the supervision of a Contractor. If there shall
be a delay or there are delays in the Substantial Completion of the Premises or
in the occurrence of any of the other conditions precedent to the Lease
Commencement Date as set forth in the Summary of this Lease as a result of:
5.1 Lessee's failure to timely approve any matter requiring Lessee's
approval:
5.2 A breach by Lessee of the terms of this Work Letter or this Lease;
EXHIBIT C - PAGE 2
<PAGE>
5.4 Lessee's request for changes in any of the Construction Drawings, the
changes of which result in added time to the construction schedule:
5.5 Lessee's requirement for materials, components, finishes or
improvements which are not available in a commercially reasonable time (given
the anticipated Lease Commencement Date as set forth in this Lease) or which
are different than Lessor's standard improvement package items for the office
building:
5.6 Any other acts or omissions of Lessee, or its agents, or employees
except for computer room; then, notwithstanding anything to the contrary set
forth in this Lease or this Work Letter and regardless of the actual date of the
Substantial Completion of the Premises, the Lease Commencement Date shall be
deemed to be the date the Lease Commencement Date would have occurred pursuant
to the Summary if no Lessee Delay or delays, as set forth above had occurred.
SECTION 6
---------
MISCELLANEOUS
-------------
6.1 Lessee's Entry Into the Premises Prior to Substantial Completion.
----------------------------------------------------------------
Provided that Lessee and its agents do not interfere with Contractor's work in
the Project and the Premises. Contractor shall allow Lessee access to the
Premises prior to the Substantial Completion of the Premises for the purpose of
Lessee installing over-standard equipment or fixtures ( including Lessee's data
and telephone equipment, wall and floor coverings, security systems and
millwork) in the Premises. Prior to Lessee's entry into the Premises as
permitted by the terms of this Section 6.1. Lessee shall submit a schedule to
Lessor and Contractor, for their approval, which schedule shall detail the
timing and purpose of Lessee's entry. Lessee shall hold Lessor harmless from and
indemnity, protect and defend Lessor against any loss or damage to the Project
or Premises and against injury to any persons caused by Lessee's actions
pursuant to this Section 6.1.
6.2 Freight Elevators. Lessor shall, consistent with its obligations to
-----------------
other tenants of the Project, and subject to the needs of Lessor with respect to
Lessor's construction work in the Project, make the freight elevator reasonably
available to Lessee in connection with initial decorating, furnishing and
moving into the Premises.
6.3 Lessee's Representative. Lessee has designated Bradley Ramberg as its
-----------------------
sole representative with respect to the matters set forth in this Work Letter,
who, until further notice to Lessor, shall have full authority and
responsibility to act on behalf of the Lessee as required in this Work Letter.
6.4 Lessor's Representative. Lessor has designated Michael D. Barker as
-----------------------
its sole representative with respect to the matters set forth in this Work
Letter, who, until further notice to Lessee, shall have full authority and
responsibility to act on behalf of the Lessor as required in this Work Letter.
6.6 Time of the Essence in This Work Letter. Unless otherwise indicated,
---------------------------------------
all references herein to a " number of days" shall mean and refer to calendar
days. In all instances where Lessee is required to approve or deliver an item,
if no written notice of approval is given or the item is not delivered within
the stated time period, at Lessor's sole option, at the end of such period the
item shall automatically be deemed approved or delivered by Lessee and the next
succeeding time period shall commence.
6 7. Lessee's Material Default. Notwithstanding any provision to the
-------------------------
contrary contained in this Lease, if an event of default as described in
Article 17 of this Lease, or a default by Lessee under this Work Letter, has
occurred at any time on or before the Substantial Completion of the Premises,
then (i) in addition to all other rights and remedies granted to Lessor pursuant
to this Lease, Lessor shall have the right to cause Contractor to cease the
construction of the Premises (in which case, Lessee shall be responsible for
any delay in the Substantial Completion of the Premises caused by such work
stoppage as set forth in Section 5 of this Work Letter), and (ii) all other
obligations of Lessor under the terms of this Work Letter shall be forgiven
until such time as such default is cured pursuant to the terms of this Lease.
EXHIBIT C - PAGE 3
<PAGE>
EXHIBIT D
---------
790 EAST COLORADO BOULEVARD
----------------------------
LESSEE'S FINAL SPACE PLAN
-------------------------
<PAGE>
EXHIBIT E
---------
790 EAST COLORADO BOULEVARD
---------------------------
NOTICE OF LEASE TERM DATES
--------------------------
To: City Search, Inc. Date: September ____, 1996
4502 Dyer Street, Suite 201
La Crescenta, CA 91214
Re: Office Lease dated ____________________, 19___, between BPG Pasadena,
L.L.C., Lessor, and, CitySearch. Inc., Lessee. concerning Suite 200,
located at 790 East Colorado Boulevard, Pasadena, California 91101.
In accordance with the subject Lease, we wish to advise you and/or confirm as
follows:
l. The Premises have been accepted by the Tenant as being substantially
complete in accordance with the Lease and there is no deficiency in
construction.
2. Tenant has possession of the Premises and acknowledges that under the
provisions of the Lease, the term of said Lease shall commence as of
November 1, 1996 for a term of five (5) years, ending on October 31, 2001.
3. In accordance with the Lease, Rent commenced to accrue on ________________.
4. If the commencement date of the Lease is other than the first day of the
month, the first billing will contain a pro rata adjustment. Each billing
thereafter shall be for the full amount of the monthly installment as
provided for in the Lease.
5. Rent is due and payable in advance on the first day of each and every
month. Rent checks should be made payable to BPG Pasadena, L.L.C. and
delivered to:
6. Nationwide Remittance Centers - California, Inc.
Department 66099
El Monte, CA 91735-6099
7. The number of rentable square feet in the Premises is ___________.
EXHIBIT E - PAGE
<PAGE>
8. Tenant's Percentage Share is _________________%.
AGREED AND ACCEPTED:
Lessor: Lessee:
BPG Pasadena. L.L.C., City, Search, Inc.,
a Delaware Limited Liability Company a Delaware Corporation
790 East Colorado Boulevard 4502 Dyer Street, Suite 201
Pasadena, CA 91101 La Crescenta, CA 91214
By:__________________________________ By:_____________________________________
Managing Member
_____________________________________ ________________________________________
[Print Name] [Print Name]
EXHIBIT E - PAGE
<PAGE>
EXHIBIT F
---------
790 EAST COLORADO BOULEVARD
---------------------------
RULES AND REGULATIONS
---------------------
Lessee shall faithfully observe and comply with the following Rules and
Regulations. Lessor shall not be responsible to Lessee for the non-performance
of any of said Rules and Regulations by or otherwise with respect to he acts or
omissions of any other tenants or occupants of the Project.
1. Lessee shall not alter any lock or install any new or additional
locks or bolts on any doors or windows of the Premises without obtaining
Lessor's prior written consent. Lessee shall bear the cost of any lock changes
or repairs required by Lessee. Two keys will be furnished by Lessor for the
Premises, and any additional keys required by Lessee must be obtained from
Lessor at a reasonable cost to be established by Lessor.
2. All doors opening to public corridors shall be kept closed at all
times except for normal ingress and agrees to the Premises, unless electrical
hold-backs have been installed.
3. Lessor reserves the right to close and keep locked all entrance and
exit doors of the office building during such hours as are customary for
comparable buildings in the vicinity of the Project. Lessee, its employees and
agents must be sure that the doors to the office building are securely closed
and locked when the leaving Premises if it is after the normal hours of
business for the Project. Any Lessee, its employees, agents persons entering
or leaving the Project at any time when it is so locked, or any time when it
is considered to be after normal business hours for the Project, may be
required to sign the security register when so doing. Access to the Project
may be refused unless the person seeking access has proper identification or
has made a previous arrangement with regard to the admission to or exclusion
from the Project of any person. In case of invasion, mob, riot, public
excitement, or other commotion, Lessor reserves the right to prevent access to
the Project during the continuance of same by any means it deems appropriate
for the safety and protection of life and property.
4. Lessor shall have the right to prescribe the weight, size and
position of all safes and other heavy property brought into the Project. Safes
and other heavy objects shall, if considered necessary by Lessor, stand on
supports of such thickness as is necessary to properly distribute the weight.
Lessor shall not be responsible for loss or damage to any such safe or property
in any case. All damage done to any part of the Building, its contents,
occupants or visitors by moving or maintaining any such safe or other property
shall be the sole responsibility of Lessee and any expense of said damage or
injury shall be borne by Lessee.
5. No furniture, freight, packages, supplies, equipment or merchandise
will be brought into or removed from the Building or carried up or down in the
elevators, except upon prior notice to Lessor, and in such manner, in such
specific elevator, and between such hours as shall be designated by Lessor.
Lessee shall provide Lessor with not less than 24 hours prior notice of the need
to utilize an elevator for any such purpose, so as to provide Lessor with a
reasonable period to schedule such use and to install such padding or take such
other actions or prescribe such procedures as are appropriate to protect against
damage to the elevators or other parts of the Building. In no event shall
Lessee's use of the elevators for any such purpose be permitted during the hours
of 7:00 a.m. - 9:00 a.m., 11:30 a.m. - 1:30 p.m. and 4:30 p.m. - 6:30 p.m.
6. Lessor shall have the right to control and operate the public portions
of the Building, the public facilities, the heating and air conditioning, and
any other facilities furnished for the common use of tenants, in such manner as
is customary for comparable buildings in the vicinity of the Building.
7. The requirements of Lessee will be attended to only upon application
at the Office of the Building or at such office location designated by Lessor.
Employees of Lessor shall not perform any work or do anything outside their
regular duties unless under special instructions from Lessor.
EXHIBIT F - PAGE
<PAGE>
8. Lessee shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate with Lessor or Lessor's agents to prevent same.
9. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein. The expense
or any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the Lessee who, or whose employees or agents, shall have
caused it.
10. Lessee shall not overload the floor of the Premises, nor mark, drive
nails or screws, or drill into the partitions, woodwork or plaster or in any
way deface the Premises or any part thereof without Lessor's consent first had
and obtained, which consent shall not be unreasonably withheld or delayed;
provided, however, that Lessee may without Lessor's prior consent, place
pictures and normal wall hangings on the Premises so long as Lessee repairs any
damage resulting therefrom and Lessee restores the Premises to its condition
prior to the placement of such items.
11. Except for vending machines rented for the sole use of Lessee's
employees and invitees, no vending machine or machines of any description other
than fractional horsepower office machines, shall be installed, maintained or
operated upon the Premises without the written consent of Lessor.
12. Lessee shall not use or keep in or on the Premises or the Building any
kerosene, gasoline or other inflammable or combustible fluid or material.
13. Lessee shall not use any method of heating or air conditioning other
than that which may be supplied by Lessor without the prior written consent of
Lessor.
14. Lessee shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in or on the Premises, or permit or allow the Premises
to be occupied or used in a manner offensive or objectionable to Lessor or other
occupants of the Building by reason of noise, odors, or vibrations, or interfere
in any way with other tenants or those having business therein.
15. Lessee shall not bring into or keep within the Building or the
Premises any animals, birds, bicycles or other vehicles.
16. No cooking shall be done or permitted by any Lessee on the Premises,
nor shall the Premises be used for the storage of merchandise, for lodging or
for any improper, objectionable or immoral purposes. Notwithstanding the
foregoing. Underwriters' laboratory-approved equipment and microwave ovens may
be used in the Premises for heating food and brewing coffee, tea, hot chocolate
and similar beverages, provided that such use is in accordance with all
applicable federal, state and city laws, codes, ordinances, rules and
regulations, and does not cause odors which are objectionable to Lessor and
other tenants.
17. Lessor will approve where and how telephone and telegraph wires are
to be introduced to the Premises. No boring or cutting for wires shall be
allowed without the consent of Lessor. The location of telephone, call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Lessor.
18. Lessor reserves the right to exclude or expel from the Building any
person who, in the judgment of Lessor, is intoxicated or under the influence of
liquor or drugs, or who shall in any manner do any act in violation of any of
these Rules and Regulations.
19. Lessee, its employees and agents shall not loiter in the entrances or
corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or
elevators, and shall use the same only as a means of ingress and egress for the
Premises.
EXHIBIT F - PAGE
<PAGE>
20. Lessee shall not waste electricity, water or air conditioning and
agrees to cooperate fully with Lessor to ensure the most effective operation of
the Building's heating and air conditioning system, and shall refrain from
attempting to adjust any controls. This includes the closing of exterior blinds,
disallowing the sun rays to shine directly into areas adjacent to exterior
windows.
21. Lessee shall store all its trash and garbage within the interior of
the Premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of trash and garbage in Los
Angeles County without violation of any law or ordinance governing such
disposal. All trash, garbage and refuse disposal shall be made only through
entry-ways and elevators provided for such purposes at such times as Lessor
shall designate.
22. Lessee shall comply with all safety, fire protection and evacuation
procedures and regulations established by Lessor or any governmental agency.
23. Lessee shall assume any and all responsibility for protecting the
Premises from robbery and pilferage, which includes keeping doors locked and
other means of entry to the Premises closed when the Premises are not occupied.
24. Lessor may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants but no such waiver by Lessor
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Lessor from thereafter enforcing any such
Rules or Regulations against any or all tenants of the Building.
25. No awnings or other projection shall be attached to the outside walls
of the Building without the prior written consent of Lessor. No curtains,
blinds, shades or screens shall be attached to or hung in or used in connection
with any window or door of the Premises without the prior written consent of
Lessor. All electrical ceiling fixtures hung in offices or spaces along the
perimeter of the Building must be fluorescent and or of a quality, tape, design
and bulb color approved by Lessor.
26. The sashes, sash doors, skylights, windows and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by Lessee, nor shall any bottles,
parcels or other articles be placed on the window sills.
27. The washing and or detailing of, or the installation of windshields,
radios, telephones in or general worK on automobiles shall not be allowed on
the Real Property.
28. Food vendors shall be allowed in the Building upon receipt of a
written request from the Lessee. Food vendor shall service only those tenants
which have a written request on file in the Building Management Office. Under
no circumstance shall the food vendor display their products in the public or
common area of the Building, including corridors and elevator lobbies. Any
failure to comply with this rule shall result in immediate, permanent
withdrawal of the vendor from the Building.
29. Lessees must comply with requests made by the Lessor relative to
informing Lessee's employees of any items of importance affecting them as so
deemed by the Lessor.
30. Lessee shall comply with any non-smoking ordinance adopted by any
applicable governmental authority.
3l. Lessor reserves the right at any time to change or rescind any one or
more of these Rules and Regulations, or to make such other and further
reasonable Rules and Regulations as in Lessor's judgment may, from time to time
be necessary for the management, safety, care and cleanliness of the Premises
and Building, and for the preservation of good order therein, as well as for the
convenience of other occupants and tenants. Lessor shall not be responsible to
Lessee or to any other person for the non-observance of said Rules Regulations
by another
EXHIBIT F - PAGE
<PAGE>
Lessee or other person. Lessee shall be deemed to have read these Rules and
Regulations and to have agreed to abide by them as a condition of its occupancy
of the Premises.
EXHIBIT F - PAGE
<PAGE>
EXHIBIT G
-------
790 EAST COLORADO BOULEVARD
---------------------------
FORM OF LESSEE'S ESTOPPEL CERTIFICATE
-------------------------------------
The undersigned as Lessee under that certain Office Lease (the "Lease") made and
entered into as of 19__ and between BPG Pasadena L.L.C., a Delaware Limited
Liability Company, and the undersigned as Lessee for Premises on the floor(s)
of the Office Building located at 790 East Colorado Boulevard, Pasadena,
California 91101 certifies as follows:
1 . Attached hereto as Exhibit A is a true and correct copy of the Lease
and all amendments and modifications thereto. The documents contained in Exhibit
A represent the entire agreement between the parties as to the Premises.
2. The undersigned has commenced occupancy of the Premises described in
the Lease currently occupies the Premises, and the Lease Term commenced on
November 1, 1996.
3. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way.
4. Lessee has not transferred, assigned or sublet any portion of the
Premises nor entered into any license or concession agreements with respect
thereto, except as follows:
5. Lessee shall not modify the Lease document or prepay any amounts owing
under the Lease to Lessor in excess of thirty (30) days without the prior
written consent of Lessor's mortgagee.
6. Base Rent became payable on November 1, 1996.
7. The Lease Term expires on October 31, 2001.
8. All conditions of the Lease to be performed by Lessor necessary to the
enforceability of the Lease have been satisfied and Lessor is not in default
thereunder.
9 No rental has been paid in advance and no security has been deposited
with Lessor except as provided in the Lease.
10. As of the date hereof, there are no existing defenses or offsets that
the undersigned has, which preclude enforcement of the Lease by Lessor.
11. All monthly installments of Base Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through. The current monthly installment of Base Rent is $___________________.
12. The undersigned acknowledges that this Estoppel Certificate may be
delivered to Lessor's prospective mortgagee, or a prospective purchaser, and
acknowledges that it recognizes that if the same is done, said mortgagee,
prospective mortgagee, or prospective purchaser will be relying upon the
statements contained herein in making the loan or acquiring the property of
which the Premises are a part, and in accepting an assignment of the Lease as
collateral security, and that receipt by it of this certificate is a condition
of making of the loan or acquisition of such property.
EXHIBIT G - PAGE
<PAGE>
13. If Lessee is a corporation or partnership each individual executing
this Estoppel Certificate on behalf of Lessee hereby represents and warrants
that Lessee is a duly formed and existing entity qualified to do business in
California and that Lessee has full right and authority to execute and deliver
this Estoppel Certificate and that each person signing on behalf of Lessee is
authorized to do so.
Executed at ________________ on the _________ day of _____________, 19____.
" Lessee":
CitySearch, Inc.,
a Delaware Corporation________________________
By:___________________________
Its:__________________________
BY:___________________________
ITS:__________________________
EXHIBIT G - PAGE
<PAGE>
EXHIBIT H
-------
CLEANING SPECIFICATIONS
-----------------------
JANITORIAL SPECIFICATIONS
GENERAL SERVICES
Daily Services
Clean Entry Glass Doors.
Sweep with Chemically-Treated Dust Mop or Vacuum all Floors.
Spot Clean Composition Floors and Carpets
Dust Desk, Chairs and all other Office Furniture.
Clean all Ash Trays and Sand Urns.
Properly Position Furniture in Offices.
Empty all Waste Baskets and Carry Trash to Pick Up Area.
Spot Clean Door, Door Frames and Counters.
Spot Clean Partition and Door Glass.
Spot Clean around Wall Switches.
Clean and Polish Drinking Fountains.
Clean Elevator and Elevator Tracks.
Leave on Designated Lights.
Police Stairway Entries.
Weekly Services
Dust Ledges and Window Sills.
Perform Los Dusting.
Dust the Baseboards.
Sweep Vacuum Stairways Dust Rails.
Remove Fingerprints form Woodwork, Walls and Partitions.
Monthly Services
Perform High Dusting, i.e.. Door Sashes and Tops of Partitions.
RESTROOM SERVICES
Daily Services
Empty and Wipe Out all Waste Paper receptacles.
Empty Sanitary Napkin Containers and Replace Insert.
Polish all Metal and Mirrors.
Clean and Polish all Dispensers.
Clean and Disinfect Wash Basins, Toilet Bowls and Urinals.
Disinfect Underside and Tops of Toilet Seats.
Spot Clean Tile Walls and Toilet Partitions.
Spot Clean Walls Around Wash Basins.
Clean Floors with a Germicidal Solution.
Refill Soap, Towel, Tissue and Seat Cover Dispensers.
Weekly Services
Wash Down Ceramic Tile Walls and Toilet Compartment Partitions.
Perform High Dusting.
Monthly Services
Brush Down Vents.
Machine Scrub Floors.
EXHIBIT H - PAGE
<PAGE>
EXHIBIT 10.21
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (the "Lease") is made and entered into as of the 13
--
day of MAY, 1998 by and between Secured Properties Investors II, L.P., having a
--- ----
mailing address of Two Paces Ferry West, Suite 1600, 2727 Paces Ferry Road,
Attn. JAMESTOWN Management Corporation, Atlanta, Georgia 30339 ("Landlord")and
City Search Inc., a Delaware corporation,having a mailing address of 790 E.
-------- ------
Colorado Blvd, Suite 200 Pasadena CA, 91101 ("Tenant").
- -------------------------------------------
RECITALS:
--------
In consideration of the rent to be paid, the mutual covenants and
agreements herein contained and other good and valuable considerations, the
receipt and legal sufficiency of which are hereby acknowledged by the parties
hereto, Landlord hereby leases and rents to Tenant, and Tenant hereby leases and
rents from Landlord, the "Demised Premises" hereinafter described upon the
terms, provisions and conditions hereinafter set forth:
1. DEMISED PREMISES: Landlord hereby leases and rents to Tenant and
----------------
Tenant hereby leases and rents from Landlord, that certain rental space
(hereinafter referred to as the "Demised Premises") containing approximately
7,880 square feet, shown outlined in red on the Building Plan attached hereto as
Exhibit "A," made a part hereof by reference and pertaining to a multi-tenant
building and related improvements (hereinafter referred to as the "Project")
which is on a tract of land (hereinafter referred to as the "Building Site")
fronting Triangle Drive in the Research Triangle Park, Durham County, North
Carolina and as described on Exhibit "B" attached hereto; together with the
nonexclusive license to use in connection with other tenants of the Project, all
of the parking areas, driveways, sidewalks and other common facilities made
available by Landlord from time to time to the Project, all subject to such
reasonable rules and regulations as may be prescribed by Landlord from time to
time.
2. IMPROVEMENTS AND DELIVERY OF DEMISED PREMISES: Landlord represents
---------------------------------------------
that it will cause the Demised Premises to be constructed thereon substantially
in accord with the Design Plans and specifications attached hereto as Exhibit
"C" and incorporated herein by reference. Finished Design Plans and
specifications (hereinafter referred to as the "Final Plans") 'for the Demised
Premises shall be prepared by Tenant's architect and consented to by Landlord,
which consent shall not be unreasonably withheld. The Final Plans for the
Demised Premises shall comply with all laws, ordinances, decrees, orders, rules
and regulations of any lawful authority, agency or governmental unit having
jurisdiction over the Demised Premises and Landlord's consent to the Final Plans
shall not be construed as a representation that the Final Plans are sufficient
for any purpose.
The date on which Landlord has completed construction of the Demised
Premises and obtained a certificate of Occupancy for the Demised Premises shall
be referred to herein as the
<PAGE>
"Completion Date." Landlord shall provide notice to Tenant thirty (30) days
before the Completion Date. Landlord agrees to use due diligence in completing
construction of the Demised Premises as soon as possible after the date Tenant
delivers the Final Plans to Landlord. Landlord shall not be responsible for
delay(s) caused by or resulting from strikes, unavailability of materials,
casualty, acts of God, or any other matter(s) beyond its control, and the
Completion Date shall be automatically extended for the period(s) of time caused
by such delay(s). If Landlord, due to circumstances beyond its reasonable
control, is unable to substantially complete construction of the Demised
Premises within one hundred eighty (180) days after the date Tenant delivers the
Final Plans to Landlord, this Lease may be terminated at the option of Landlord
or Tenant. Such options shall be exercised, if at all, by delivery of not less
than 30 days advance notice of same to the other party and, upon any such
termination, neither party shall have any rights against the other. Completion
of the Demised Premises shall not include punch-list items that may be completed
after Tenant takes occupancy. All improvements constructed by Landlord pursuant
to this paragraph shall remain the property of Landlord.
At any time after the execution of this Lease and prior to the Completion
Date, Tenant, its agents and contractors, shall have the privilege of entering
upon the Demised Premises at their sole risk for the purpose of taking
measurements, making tenant improvements, and for any other purpose expressly
permitted by Landlord; provided, however, such entry shall not interfere with,
hinder, obstruct or delay the progress of construction by Landlord of the
Project.
Upon final completion of the Demised Premises, Landlord shall furnish
Tenant a certificate of occupancy from the appropriate governmental authority
having jurisdiction. Upon receipt of this item, Tenant agrees that it accepts
the Demised Premises "as is" and pursuant to Section 9 hereof, Tenant agrees to
take full responsibility for the Demised Premises.
In connection with Landlord's construction obligation, Landlord shall pay a
tenant improvement allowance not to exceed $66,980.00 (the "Construction
Allowance"), for the improvements referenced herein, including preparation of
Final Plans, architectural and engineering fees, attorneys' fees, permit costs
and actual hard construction costs. In no event shall Landlord be obligated to
pay any amount for the improvements referenced herein which exceeds the
Construction Allowance. Any unused portion of the Construction Allowance shall
be deemed forfeited by Tenant.
All facilities furnished to the Project and designated for the general use,
in common, of occupants of the Project (including Tenant hereunder, its
officers, agents, employees and business guests) including, but not limited to,
parking areas, streets, sidewalks, canopies, roadways, shelters, driveways,
landscaped areas and other similar facilities (herein called "common
facilities"), shall be subject at all times to the right of Landlord to change
from time to time the area, level, location, and arrangement of such common
facilities, to restrict parking by tenants, their employees, and business guests
to designated parking areas, and to make all reasonable rules and regulations
and do such further things from time to time as in Landlord's sole discretion
may be necessary or appropriate regarding said common facilities.
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3. TERM AND OPTION TO RENEW: The initial term of this Lease (the "Initial
------------------------
Term") shall begin on the Completion Date and shall end at 12:00 o'clock
midnight on the date five years from the Completion Date, In addition to the
Initial Term, and provided Tenant is not in default under any of the terms,
provisions or conditions of this Lease, Tenant shall have one option to renew
(the "Option") the term of this Lease for a period of five years (the "Option
Period") at the rental for each Option Period specified in Section 4 hereof,
such Option to renew being exercisable by written notice to Landlord not less
than 180 days prior to the end of the Initial Term. (The Initial Term together
with any Option Period is collectively referred to as the "Lease Term.") Time
is of the essence with respect to the time of exercise of each option to renew
and any failure to renew shall extinguish all subsequent renewal options.
4. RENTAL: Tenant shall pay to Landlord for the use and occupancy of the
------
Demised Premises during the first year of Initial Term an initial annual rental
of $9.75 per square foot, payable in equal monthly installments of $6,402.50 in
advance on or before the first day of each and every month beginning on the
Completion Date. During the remainder of the Lease Term, base rent shall
increase by three percent per year, effective on each 12-month anniversary date
of the Completion Date. All rental payments provided herein shall be payable to
Landlord, until notice to the contrary is given by Landlord. Tenant shall have
no right to offset against rent hereunder. Any payment of rent not received on
or before the first day of the month shall incur a late fee equal to fifty
dollars ($50.00). In addition, any amounts of rent not paid when due hereunder
shall bear interest at the rate of ten percent (10%) per annum from the date due
until paid in full.
As security for the faithful performance by Tenant throughout the term, and
any extensions or renewals thereof, of all the terms and conditions of the Lease
on the part of Tenant, Tenant shall deposit with Landlord the sum of $6,402.50
(the "Security Deposit") on the date Tenant executes and delivers this Lease to
Landlord. Such amount shall be returned to Tenant, without interest, after the
expiration of the Lease Term, provided Tenant has fully and faithfully observed
and performed all of the terms, covenants, agreements, warranties and conditions
hereof on its part to be observed and performed. Landlord shall have the right
to apply all or any part of the Security Deposit toward the cure of any default
of Tenant. If all or any part of said security deposit is so applied by
Landlord, then Tenant shall immediately pay to Landlord an amount sufficient to
return said security deposit to the balance on deposit with Landlord prior to
said application, Neither Landlord nor its agents shall be required to keep the
Security Deposit separate from their general accounts, it being agreed that the
Security Deposit may be commingled with other funds of Landlord or of its
agents. It is further agreed and acknowledged by Tenant that Landlord or its
agents shall have the right to deposit the Security Deposit in an interest-
bearing account, and all interest accrued on the Security Deposit shall belong
to Landlord and will be retained by Landlord as its property.
5. USE OF DEMISED PREMISES: Tenant shall use the Demised Premises only
-----------------------
for general office purposes and shall not use or store any environmental
contaminants, as defined by either state of federal law, on the Demised
Premises, other than janitorial supplies and other
3
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substances commonly used for office purposes. Tenant shall comply with all laws,
ordinances, decrees, orders, rules, and regulations of any lawful authority,
agency or governmental unit having jurisdiction over the Demised Premises.
However, Tenant shall not, by reason of such compliance, be required to make any
repairs or alterations to the Demised Premises unless such repairs or
alterations are required by Tenant's particular use of the Demised Premises.
Tenant shall save the Landlord harmless from penalties, fines, costs, expenses
or damages resulting from any failure of the Tenant to perform its obligations
under this Section. Tenant shall not do any act or follow any practices in or
about the Demised Premises which shall constitute a nuisance or detract from or
impair the reputation of the Project. Without limiting the generality of the
foregoing, Tenant shall make such arrangements for the storage and timely
disposition of all garbage and refuse as may be required in order to keep the
Demised Premises in a neat and orderly condition, clean and free from rubbish,
dirt, snow and ice, and shall not cause disturbing or offensive odors, fumes, or
gases or any smoke, dust, steam or vapors, or any loud or disturbing noise or
vibrations to be emitted from the Demised Premises.
Tenant understands and acknowledges that the Demised Premises are part of
the Research Triangle Park and are subject to special zoning requirements and
regulations under the Durham County Zoning Ordinance (the "Zoning Ordinance").
Tenant represents to Landlord that Tenant has conducted its own independent
investigation of the Zoning Ordinance as same relates to Tenant's intended use
and occupancy of the Demised Premises, and Tenant has satisfied itself that its
intended use and occupancy of the Demised Premises will not violate the Zoning
Ordinance.
6. TAXES: Tenant covenants and agrees to pay promptly all Taxes affecting
-----
the Demised Premises which are now or may hereafter be imposed or assessed upon
the Demised Premises, except as otherwise expressly provided for in this Lease.
The word "Taxes" shall mean (i) all real estate taxes, payable (adjusted after
protest or litigation, if any) for any part of the Lease Term, exclusive of
penalties or discounts, on the Project, (ii) any taxes which shall be levied in
lieu of any real estate taxes, (iii) any special assessments for benefits on the
Project (except any payable in whole or in part during the base year for taxes)
and (iv) the expense of contesting the amount or validity of any such Taxes,
charges or assessments, such expense to be applicable to the period of the item
contested (Landlord hereby exclusively reserving the right to contest same).
With respect to any Taxes for which the Demised Premises are not separately
assessed. Tenant shall pay its proportionate share ("Tenant's Proportionate
Share"), which will be determined by dividing the total number of square feet of
the Demised Premises by the total number of square feet of rentable floor area
of the entire Project. Landlord shall not be required to pay any taxes or
assessments of any nature imposed or assessed upon fixtures, equipment,
machinery, merchandise or other property installed in the Demised Premises or
brought thereon by Tenant or at Tenant's direction, but such shall be the
obligation of Tenant, and Tenant agrees that it will promptly pay all such taxes
or assessments before they become delinquent.
Tenant shall pay to Landlord in monthly installments on the same day that
rent is due hereunder, an amount equal to one-twelfth (1/12th) of the Taxes due
hereunder, as estimated by
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Landlord in good faith from time to time. As soon as practical after the close
of each callender year during the Lease Term, Landlord shall furnish a statement
in writing to Tenants specifying the actual amount due by Tenant in respect of
Taxes. In the event the total of the monthly payment theretofore made by Tenant
under this Section for such year exceeds the actual amount due, then the excess
shall be applied pro rata as a credit on the monthly installments thereafter
coming due, In the event that the total monthly payments made by Tenants under
this Section is less than the actual amounts due, any such deficiency shall be
due and payable by Tenant to Landlord within 10 days after Tenant's receipt of
such statement.
7. FIRE AND EXTENDED COVERAGE INSURANCE: Landlord will maintain and pay
------------------------------------
for "all-risk" and "named perils" coverage in an amount at least equal to the
value of the Project. Tenant will provide and pay for all insurance on its own
contents in the Demised Premises. Tenant shall pay a proportionate share (said
"proportionate share" to be determined in the same manner as "Tenant's
Proportionate Share" under Section 6 hereof) of the insurance premium provided
for in this Section, due in monthly installments as estimated by Landlord.
8. LANDLORD'S COVENANT TO REPAIR AND REPLACE: In the event it becomes
-----------------------------------------
necessary during the Lease Term to repair utility lines prior to the point of
entry into the Demised Premises, roof, exterior walls, or structural members,
including foundation and subflooring, of the Demised Premises, Landlord shall
make such repairs or replacements at its sole cost and expense within a
reasonable time after demand to do so by Tenant, unless such repairs or
replacements are required as a result of the negligence, misconduct or
intentional acts or omissions of Tenant, its employees, invitees or licensees,
and in that event such necessary repairs or replacements shall be made at
Tenant's sole expense.
Provided Landlord's work does not unreasonably interfere with Tenant's use
of the Demised Premises, Landlord shall repair and replace the IIVAC systems
within the Demised Premises, as necessary, after termination of Tenant's
obligation to perform such work as provided in Paragraph 9.
9. TENANT'S COVENANT TO REPAIR AND MAINTAIN: Except as expressly
----------------------------------------
provided in Section 8 hereof, Tenant will, at its own expense, keep and maintain
in good order and repair, and replace as necessary, during the Lease Term all
parts of the Demised Premises, including the plumbing, wiring, electrical
systems, heating systems, air conditioning systems and equipment and machinery
constituting fixtures, unless any of such repairs are required by the negligence
of Landlord, in which case such repairs shall be made at Landlord's expense; and
Tenant will, upon termination or expiration of this Lease, deliver the Demised
Premises to the Landlord in as good condition as they were when received by it,
excepting only normal wear and tear, acts of God and repairs required to be made
by Landlord pursuant to the provisions of Section 11 hereof. Tenant shall bear
the expense of any trash, janitorial and/or cleaning services necessary to
maintain the Demised Premises in the condition required by this Lease. In
addition, Tenant shall bear a proportionate share (said "proportionate share" to
be determined in the same manner as "Tenant's Proportionate Share" under Section
6 hereof) of the cost of any maintenance
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<PAGE>
or cleaning services necessary to maintain the common areas in the condition
required by this Lease.
Landlord shall deliver space at occupancy with a fully operational HVAC
system. After tenant takes possession of the space, Tenant shall be obligated to
repair and replace the HVAC system within the Demised Premises up to $1,000 in
any given year, each year commencing on the anniversary of the Completion
Date. Tenant's obligations hereunder shall be cumulative, but Tenant's
obligation to repair the HVAC system shall not exceed $5,000 over the life of
the Lease Term. Tenant agrees to keep in force throughout the Lease Term, at its
expense, a standard maintenance agreement on all HVAC equipment serving the
Demised Premises from a vendor approved by Landlord and to provide a copy of the
maintenance agreement to Landlord accompanied by proof of payment of the service
fee therefor, Repairs to the HVAC system shall be tested and approved by the
approved HVAC maintenance vendor.
10. ALTERATIONS BY TENANT: Except for structural work, for which
---------------------
Landlord's consent shall be required (at Landlord's sole and absolute
discretion), Tenant may at any time during the Lease Term (if Tenant shall not
then be in default), at its own expense, make non-structural alterations,
additions or improvements ("Alterations") upon or to the interior of the Demised
Premises, as Tenant deems desirable, without Landlord's consent, provided that
such Alterations: shall be performed in a good and workmanlike manner, in
conformity with applicable building codes and governmental laws and
requirements; do not endanger or in any way impair the structural integrity of
the Demised Premises; and cost in the aggregate no more than $5,000.00. Such
Alterations, when made, become the property of Landlord and shall remain upon
and be surrendered with the Demised Premises as a part thereof at the expiration
of the Lease Term. Landlord shall have no obligation (other than its obligation
to incorporate into the Demised Premises the improvements shown on the Final
Plans) to make any alterations, improvements or repairs to the Demised Premises.
11. DAMAGE OR DESTRUCTION OF DEMISED PREMISES: If the Demised Premises
-----------------------------------------
shall be damaged by fire or other casualty, but are not thereby rendered
untenantable in whole or in part in Landlord's reasonable opinion, Landlord
shall without unreasonable delay, cause such damage to be repaired within one
hundred eighty (180) days, and the rental shall not be abated.
In the event the Demised Premises shall be destroyed or damaged and
rendered untenantable, Landlord may, at its option, terminate this Lease by
notice to Tenant, provided that: such notice shall be delivered to Tenant within
sixty (60) days of the destructive event and such termination shall not affect
any rights theretofore accrued to Landlord hereunder because of prior defaults
of Tenant. Except as herein provided, there shall be no obligation on Landlord
to repair or rebuild in case of fire or other casualty, in the event of damage
or destruction not covered by the insurance required of Landlord herein. In the
event Landlord elects not to repair or rebuild the Demised Premises, Tenant
shall have the right, on ten (10) days notice, to terminate this Lease. If
Landlord elects to repair or rebuild the Demised Premises and the anticipated
period for
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<PAGE>
substantial completion of such repair and rebuilding exceeds (i) two hundred and
seventy (270) days, or (ii) the end of the Initial Term (or the end of the
Option Period, if applicable), Tenant shall have the right, on ten (10) days
notice, to terminate this Lease.
Tenant's rental and all other charges under this Lease shall be fully
abated during any time period when the Demised Premises are destroyed or damaged
and rendered untenantable. If Tenant is able to occupy and does occupy a portion
of the Premises during such time period, rental and other charges under this
Lease shall be shared only for the portion of the Demised Premises not occupied
by Tenant.
12. MUTUAL WAIVER OF SUBROGATION: Tenant and Landlord each hereby waive,
----------------------------
and shall cause their respective insurers to similarly waive, any and all rights
of recovery against the other, or against the officers, employees, partners,
agents and representatives of the other, for loss of or damage to the property
of the waiving party or the property under its control, to the extent such loss
or damage is (or would have been) insured against under any insurance policy
carried or required to be carried) by Landlord or Tenant hereunder.
13. TRADE FIXTURES AND EQUIPMENT: Any trade fixtures or equipment
----------------------------
(collectively, the "fixtures") installed in or attached to the Demised Premises
by or at the expense of the Tenant shall remain the property of Tenant, provided
it is not then in default hereunder, Tenant shall have the right to remove any
and all of such fixtures; provided, however, that in such event Tenant shall
-------- -------
restore the Demised Premises to substantially the same condition in which they
were at the time Tenant took possession, ordinary wear and tear excepted. Any
such fixtures not removed at or prior to such termination shall be and become
the property of Landlord.
14. UTILITIES: During the Lease Term, the Tenant shall pay for all
---------
electricity, gas, heat, air conditioning, water, sewerage, janitorial services,
garbage disposal and other utilities or services relating to its use and/or
occupancy of the Demised Premises. Landlord shall have no duty or responsibility
to Tenant for the stoppage or interruption of such utilities or services.
Landlord hereby confirms that the Demised Premises currently are served by
electricity, gas, heat, air conditioning and water, Tenant shall be permitted to
bring ISDN, T-1 or other necessary telecommunications facilities to the Demised
Premises, provided that: all of such work shall be done at Tenant's cost and
expense and Tenant indemnifies Landlord for any damages incurred by Landlord
with respect to such work.
15. SIGNS AND ADVERTISING: In order to preserve the overall architectural
---------------------
continuity and aesthetic harmony of the Project, Tenant may install only such
signs, marquees, billboards, outside lighting fixtures and/or other decorations
on the Demised Premises as may from time to time be approved in writing by
Landlord, such approval not to be unreasonably withheld, and as shall not damage
or impair the attractiveness of the Project; provided, however that the care
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and maintenance of such signs shall be the sole responsibility of Tenant and
Tenant also must obtain the consent of the Research Triangle Foundation.
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<PAGE>
16. INDEMNIFICATION AND PUBLIC LIABILITY INSURANCE: Tenant indemnifies and
----------------------------------------------
holds Landlord harmless from any injury or damage to Landlord or its agents or
employees and from any and all liability for injury to third persons or damage
to the property of third persons, including cost, expenses, and reasonable
counsel fees, while lawfully upon the Demised Premises occurring by reason of
any negligent act or omission of Tenant, its agents, or employees. Tenant shall,
at all times during the term hereof, keep in force at its own expense in such
amounts and with such companies as shall from time to time be acceptable to
Landlord (and to any lender having mortgage interest in the Demised Premises)
and naming as insured both Landlord and Tenant: public liability insurance with
minimum limits of $2,000,000.00 on account of bodily injury or death of one or
more persons, and $1,000,000,00 on account of damage to property; and fire
insurance with extended coverage equal to the replacement cost of Tenant's
betterments, improvements and contents on or in the Demised Premises to the
extent of such betterments, improvements, and contents. Tenant will furnish to
Landlord at least five (5) working days prior to the Completion Date, copies of
policies or certificates of insurance evidencing the coverages required by this
Lease. All policies required hereunder shall provide for waiver of subrogation
and shall contain an endorsement providing that the insurer will not cancel or
materially change the coverage of said policy or policies without first giving
thirty (30) days' prior written notice thereof to Landlord. Landlord will
furnish to Tenant within five (5) days of the Completion Date evidence of the
indemnification and liability insurance carried by the Landlord,
17. LANDLORD'S RIGHT OF ENTRY: The Landlord and those persons authorized
-------------------------
by it shall have the right to enter upon the Demised Premises at all reasonable
times during the Lease Term for the purposes of inspection, and to show the
Demised Premises to prospective tenants, purchasers and/or lenders provided
Landlord has given Tenant at least twenty-four (24) hour notice.
18. EMINENT DOMAIN: If more than twenty percent (20%) of the Building Site
--------------
or any portion of the Demised Premises is taken under the power of eminent
domain (including any conveyance made in lieu thereof) and such taking shall
make the operation of Tenant's business on the Demised Premises unfeasible, then
Tenant shall have the right to terminate this Lease by giving Landlord written
notice of such termination within thirty (30) days after such taking; and if
Tenant does not so elect to terminate this Lease, Landlord, at its own expense,
will repair and restore the Demised Premises to tenantable condition, and the
rental to be paid by Tenant hereunder shall be proportionately and equitably
reduced.
All compensation awarded for any taking (or the proceeds of private sale in
lieu thereof) whether for the whole or a part of the Demised Premises, shall be
the property of the Landlord, and Tenant hereby assigns all of its interest in
any such award to Landlord; provided, however, Landlord shall have no interest
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in any award made to Tenant for loss of business or for the taking of Tenant's
fixtures and other property within the Demised Premises if a separate award for
such items is made to Tenant.
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19. EVENTS OF DEFAULT: If any one or more of the following events ("Events
-----------------
of Default") shall occur;
a. if the Tenant shall default in the payment when due of any
rental or other sum of money specified hereunder to be paid by Tenant five
days after written notice of same; or
b. if Tenant shall default in the performance of any other of the
terms, conditions, or covenants contained in this Lease to be performed or
observed by it and Tenant does not remedy such default within thirty days
after written notice thereof; or
c. if the Tenant shall become bankrupt or insolvent; or
d. if the Tenant shall vacate, fail to operate in or abandon the
Demised Premises or any substantial part thereof or suffer the Lease to be
taken under any writ of execution and such writ is not vacated or set aside
within fifteen (15) days;
Then in the case of any one or more of such Events of Default, Landlord
will have the right to terminate and cancel this Lease; to the full extent
allowed by law, the right to place a lien on Tenant's personal property located
at the Demised Premises; or, without excluding other rights or remedies that it
may have, Landlord shall have the immediate right of reentry and may remove all
persons and properties from the Demised Premises and dispose of such property as
it deems fit, all without resort to legal process and without being deemed
guilty of trespass, or becoming liable for any loss or damage which may be
occasioned thereby. If the Landlord should elect to reenter as herein provided,
or should it take possession pursuant to legal proceedings, it may either
terminate this Lease or it may from time to time without terminating this
Lease, make such alterations and repairs as may be necessary or appropriate in
order to relet the Demised Premises, and relet the Demised Premises for such
term and at such rental and upon such other terms and conditions as the Landlord
may deem advisable. No such reentry or taking possession of the Demised Premises
by the Landlord shall be construed as an election to terminate this Lease unless
a written notice of such intention is given by the Landlord to the Tenant at the
time of such reentry; but, notwithstanding any such reentry or reletting without
termination, the Landlord may at any time thereafter elect to terminate this
Lease for such previous breach. In the event of any termination by Landlord,
whether before or after reentry, Landlord may recover from the Tenant damages
incurred by reason of such breach, including without limitation, the
out-of-pocket costs and expenses incurred by Landlord in recovering the Demised
Premises. Tenant shall remain liable to the Landlord for the rental hereinabove
specified until the expiration of the term of the Lease or earlier termination
date, less the rentals actually received by Landlord from any reletting.
Landlord shall not be liable to Tenant for rentals received from any reletting
in excess of the rental specified in this Lease.
20. SUBORDINATION: Tenant shall, upon request by Landlord, subject and
-------------
subordinate all or any of its rights under this Lease to any and all mortgages
and deeds of trust
9
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now existing or hereafter placed on the property of which the Premises are a
part, Tenant agrees that this Lease shall remain in full force and effect
notwithstanding any default or foreclosure under any such mortgage or deed of
trust and that it will attorn to the mortgagee, trustee or beneficiary of such
mortgage or deed of trust and their successors or assigns and to the purchaser
or assignee under such foreclosure. Tenant will, upon request by Landlord,
execute and deliver to Landlord or to any other person designated by Landlord
any instrument or instruments required to give effect to the provisions of this
Section. In conjunction therewith, Landlord shall use its best efforts to obtain
a non-disturbance agreement acceptable to Tenant.
21. ASSIGNING, MORTGAGING, SUBLETTING: Tenant agrees not to assign,
---------------------------------
sublet, mortgage, pledge or encumber this Lease in whole or in part, without
first obtaining the written consent of Landlord, which consent shall not be
unreasonably withheld. Tenant agrees that, in the event of any such assignment,
mortgaging or subletting made with the written consent of Landlord as aforesaid,
Tenant will nevertheless remain primarily liable for the performance of all of
the terms, conditions and covenants of this Lease on its part to observe, comply
with or perform. This Lease is binding on all successors and assigns.
22. ESTOPPEL CERTIFICATE: Within ten (10) days after request therefor by
---------------------
Landlord or any mortgagee or trustee, Tenant shall deliver in form recordable in
the office of the Register of Deeds of Durham County, North Carolina, a
certificate in form satisfactory to Landlord and directed to the proposed
mortgagee, purchaser or other transferee, and/or to Landlord, certifying any
facts that are then true with respect to this Lease, including, without
limitation (if such be the case), that this Lease is in full force and effect,
that no default exists on the part of Landlord or Tenant under the Lease, that
Tenant is in possession, that Tenant has commenced the payment of rent, and that
there are no defenses or offsets claimed by Tenant with respect to the rentals
under the Lease.
23. ADDITIONAL, COVENANTS OF TENANT. Tenant covenants and agrees to do all
-------------------------------
things necessary to prevent the filing of any mechanics' or other liens against
the Demised Premises or any part thereof by reason of work. labor, services or
materials supplied or claimed to have been supplied to Tenant, or anyone holding
the Demised Premises or any part thereof, through or under Tenant. If any such
lien shall at any time be filed against Tenant's interest in the Demised
Premises, Tenant shall either cause the same to be discharged of record within
twenty (20) days after the date of filing of the same, or, if Tenant, in
Tenant's discretion and in good faith, determines that such lien should be
contested, shall furnish such security as may be necessary or required to
prevent any foreclosure proceedings against Tenant's interest in the Demised
Premises during the pendency of such contest. If Tenant shall fail to discharge
such lien within such period or fail to furish such security, then, in addition
to any other rights or remedies of Landlord resulting from Tenant's default,
Landlord may, but shall not be obligated to, discharge the same either by paying
the amount claimed to be due (in which event Tenant shall immediately reimburse
Landlord for all sums so paid by Landlord and all costs and expenses incurred by
Landlord in connection with the performance of such act together with interest
on the aggregate of such sums, costs and expenses at the maximum legal rate
payable by corporate
10
<PAGE>
borrowers under North Carolina law at the time of Tenant's failure, but in no
event more than 15% per annum) or by procuring the discharge of such lien by
giving security or in such other manner as is, or may be, prescribed by law.
Nothing contained herein shall imply any consent or agreement on the part of
Landlord to subject Landlord's estate to liability under any mechanics' or other
lien law.
24. FORCE MAJEURE: In the event that Landlord or Tenant shall be delayed,
-------------
hindered or prevented from the performance of any act required hereunder, by
reason of governmental restrictions, scarcity of labor or materials, strikes,
fire, or any other reason beyond its reasonable control, the performance of such
act shall be excused for the period of delay, and the period of the performance
of any such act shall be extended for the period necessary to complete
performance after the end of the period of such delay. Notwithstanding anything
herein contained to the contrary, the provisions of this Section shall not be
applicable to Tenant's obligation to pay rent or any other sum, monies, costs,
charges or expenses required to be paid by Tenant on and subsequent to the
Completion Date.
25. REMEDIES CUMULATIVE -- NONWAIVER: No remedy herein or otherwise
--------------------------------
conferred upon or reserved to Landlord shall be considered exclusive of any
other remedy, but the same shall be distinct, separate and cumulative and shall
be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute and every power and remedy given by
this Lease to Landlord may be exercised from time to time as often as occasion
may arise, or as may be deemed expedient. No course of dealing between Landlord
and Tenant, or delay or omission of Landlord to exercise any right or power
arising from any default on the part of the Tenant shall impair any such right
or power, or shall be construed to be a waiver of any such default or an
acquiescence thereto.
26. LIABILITY AND INDEMNITY: Landlord shall not have any liability to
-----------------------
Tenant or any of Tenant's officers, employees or agents for any damage or injury
to person or property, or both, directly or indirectly caused by or arising
from, in whole or in part, any act or failure to act of Landlord or any of
Landlord's employees or agents, unless such damage or injury is the direct
result of the negligence of Landlord or the failure of the Project to comply
with applicable local, state, and federal regulations, including but not limited
to the Americans With Disabilities Act, provided such was enacted subsequent to
the delivery of Final Plans. Landlord shall have no personal liability with
respect to any of the provisions of this Lease. If Landlord is in default with
respect to its obligations under this Lease, Tenant shall look solely to the
equity of Landlord in and to the Demised Premises for satisfaction of Tenant's
remedies, if any. It is expressly understood and agreed that Landlord's
liability under the terms of this Lease shall in no event exceed the amount of
its interest in and to the Demised Premises. Such exculpation of personal
liability is absolute and without exception whatsoever. All personal property
brought into the Demised Premises by Tenant, or Tenant's employees, agents, or
business visitors, shall be at the risk of Tenant only, and Landlord shall not
be liable for theft thereof or any damage thereto occasioned by any act of co-
tenants, occupants, invitees or other users of the Improvements or any other
person.
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Moreover, during the Lease Term, Tenant shall pay, and shall protect, indemnify
and hold harmless Landlord and Landlord's beneficiaries, employees and agents
from, against and in respect of, all liabilities, damages, losses, costs,
expenses (including all reasonable attorneys' fees and expenses of Landlord),
causes of action, suits, claims, demands and judgments of any nature whatsoever
arising out of, by reason of or in connection with the Lease.
27. HOLDING OVER: If Tenant remains in possession of the Demised
------------
Premises or any part thereof after the expiration of the Lease Term, with
Landlord's acquiescence and without any written agreement between the parties,
Tenant shall be only a tenant at will and there shall be no renewal of this
Lease or any exercise of the Option by operation of law.
28. NOTICES: Any notice provided for herein shall be deemed to have been
-------
sufficiently served if the same shall be in writing and placed in the United
States mail, via certified mail or registered mail, return receipt requested,
with postage prepaid and in the proper amount, and addressed as shown on page
one (1), with a copy to A. Summey Orr III, Esq., Holland & Knight, LLP, 1201
West Peachtree, N,E., Suite 2000, One Atlantic Center, Atlanta, Georgia 30309-
3400 and Douglas McPherson, CitySearch, 790 E, Colorado Blvd., Suite 200,
Pasadena, California 91101.
The address of both Landlord and Tenant and the person, if any, to whose
attention a notice or copy of same shall be directed, may be changed or added
from time to time by either party serving written notice upon the other, in the
above-prescribed manner.
29. NATURE AND EXTENT OF AGREEMENT: This instrument contains the complete
------------------------------
agreement of the parties regarding the terms and conditions of the lease of the
Demised Premises, and there are no oral or written conditions, terms,
understandings or other agreements pertaining thereto which have not been
incorporated herein. This instrument creates only the relationship of Landlord
and Tenant between the parties hereto as to the Demised Premises; and nothing
herein shall in any way be construed to impose upon either party hereto any
obligations or restrictions not herein expressly set forth. The laws of the
State of North Carolina shall govern the validity, interpretation, performance
and enforcement of this Lease. Notwithstanding that this Lease was drafted by
Landlord, in the event of any ambiguous provisions hereof, there shall be no
presumption in favor of either Landlord or Tenant.
30. BINDING EFFECT: This Lease shall be binding upon and shall inure to
--------------
the benefit of the parties hereto and their respective successors and assigns
during the Lease Term.
31. ATTORNEYS' FEES: If either party commences an action against the other
---------------
party arising out of or in connection with this Lease, the prevailing party
shall be entitled to have and recover from the losing party reasonable
attorneys' fees and costs of suit. Notwithstanding, Tenant shall be responsible
for Landlord's attorney's fees in any suit or threatened suit by Landlord to
collect rent.
12
<PAGE>
32. BROKERS: Tenant represents that it has not engaged a broker in
-------
connection with this Lease, other than Thomas Commercial, Inc., which will not
be owed a separate commission from Landlord (other than its participating share
from Landlord's broker), and agrees to indemnify and hold Landlord harmless from
any claim made by a broker with respect to this Lease.
33. CAPTIONS AND HEADINGS: The captions and headings throughout this Lease
---------------------
are for convenience and reference only, and the words contained therein shall in
no way be held or deemed to define, limit, describe, explain, modify, amplify or
add to the interpretation, construction, or meaning of any provision of or the
scope or intent of this Lease or in any way affect this Lease.
34. HAZARDOUS MATERIALS: Landlord agrees to defend, indemnify and hold
-------------------
harmless Tenant, its officers, directors, employees and agents from and against
any and all liability, loss, suits, claims, actions, causes of action,
proceedings, demands, costs, penalties, fines and expenses, including without
limitation attorney's fees, consultant's fees, litigation costs and cleanup
costs asserted against or incurred by Tenant at any time and from time to time
by reason of or arising out of the generation, storage, treatment, handling,
transportation, disposal or release, other than by Tenant or any of its agents,
of any Hazardous Materials, as such term is defined by North Carolina law, at or
upon the Project.
35. AUTHORITY: The parties executing this Lease hereby represent and
---------
warrant that they have all necessary power and authority to execute and deliver
this Lease on behalf of the Landlord and Tenant, respectively.
36. QUIET ENJOYMENT. Landlord covenants that upon Tenant's paying the rent
---------------
and performing each of Tenant's covenants hereunder, Tenant may peaceably and
quietly have, hold, and enjoy the Demised Premises, subject to the terms and
conditions of this Lease.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed in their corporate names and their corporate seals hereto affixed, all
in pursuance of authority duly given by their respective Boards of Directors, as
of the day and year first above written.
SECURED PROPERTIES INVESTORS II, L.P.
By: JAMESTOWN
[SIGNATURE ILLEGIBLE]
By:----------------------------
__________________
Secretary
CITYSEARCH, INC.
/s/ Douglas McPherson
Name:------------------------
Chief Legal Officer
Title:-----------------------
[CORPORATE SEAL]
[SIGNATURE ILLEGIBLE]
- ---------------------
Secretary
14
<PAGE>
STATE OF _______________
COUNTY OF ______________
This ___ day of ________________ , 19__, personally came before me
_______________________ who being by me duly sworn, says that he is
__________________________ of _________________________________________ that the
seal affixed to the foregoing instrument in writing is the corporate seal of the
Corporation, and that said writing was signed and sealed by him in behalf of
said Corporation, by its authority duly given, and the said _________________
acknowledged the said writing to be the act and deed of said Corporation.
_________________________
Notary Public
My Commission Expires:
_____________________
[NOTARY SEAL]
<PAGE>
EXHIBIT "A"
-----------
<PAGE>
[PLAN APPEARS HERE]
<PAGE>
EXHIBIT "B"
-----------
BEING that certain acre tract of land fronting Service Drive, in
the Research Triangle Park, Durham County, North Carolina, as
described on that certain survey dated December 5, 1979, and
prepared by Boney & Associates, Inc. of Raleigh, North Carolina
and being recorded in Book of Maps 95 at Page 199 in the office
of the Register of Deeds, Durham County, North Carolina.
<PAGE>
EXHIBIT "C"
-----------
<PAGE>
[LETTERHEAD OF PRIME BUILDING COMPANY APPEARS HERE]
April 14, 1998
Mr. Rob Czyzewski
Operations Manager
Citysearch.com
3000 Aerial Center Parkway, Suite 140
Morrisville, NC 27560
Dear Rob:
Prime Building is pleased to offer the following budget estimate for your
proposed relocation to the MET building at 5 Triangle Drive in RTP.
Our price is based on my site visit with Lee Clyburn last week and the single
page floor plan I received from your office.
Lump sum total at this stage is Sixty nine thousand two hundred fifty three
dollars ($69,253.00).
Once a building permit is secured, we estimate a 4 week construction schedule.
In the meantime, I would be happy to provide carpet, paint and wallcovering
samples for your review.
Attached please find a detailed cost estimate with assumptions and
clarifications for your review. Contact me at the office should you have any
additional questions.
Respectfully,
/s/ Charles Zevenhuizen
Charles Zevenhuizen
Project Estimator
<PAGE>
citysearch.com
Cost Breakdown
April 14, 1998
<TABLE>
<S> <C>
Field Administration-supervision, truck and mileage, phone and pager, $ 5,500.00
- ---------------------
equipment rental, dumpster and debris removal, general cleaning
Architectural and Engineering--- allowance for design services $ 8,000.00
- ---------------------------------
Demolition - remove indicated walls, doors and frames, floor coverings, $ 6,884.00
- ------------
old cabinetry, necessary ceiling tile and grid, old VWC in restrooms
Cabinetry- new kitchen and conference room cabinets as shown, new $ 5,540.00
- ----------
laminate countertops in restrooms
Doors, Frames, Hardware- install (2) reused doors in locations shown $ 100.00
- -----------------------
Drywall- build new walls as shown,'repair existing walls, repair old $ 1,988.00
- -------
door and window locations
Acoustical Ceilings- replace grid on right 1/3 of building, replace tile as $ 3,2O0.00
- ---------------------
needed
Carpet and Base- $14.00/sy direct glue down carpet in all areas except $ 15,750.00
- ----------------
restrooms, breakroom and vault
Paint and Wallcovering- paint existing walls with (1) coat flat latex, paint $ 5,770.00
- -----------------------
new walls with (2) coats flat latex, install new vinyl wallcovering in
restrooms, touch up existing doors
Plumbing- provide new stainless steel sink in conference room, reinstall $ 700.00
- --------
existing sink in breakroom and bathrooms
HVAC- allowance to relocate existing grills and thermostats $ 1,200.00
- ------
Electrical- rewire lights after new ceiling installation, add (10) duplex $ 3,900.0O
- -----------
receptacles, relocate fire alarm, install (5) power poles, add (10) data/com
boxes, sensor for small conference room lighting
Final Cleaning- prior to tenant occupancy $ 975.00
- -------------- ------------
Sub-total $ 59,507.00
Taxes $ 2,041.00
Insurance, Permit $ 285.00
OH&P $ 7,420.00
------------
TOTAL $ 69,253.00
</TABLE>
Please note the following exclusions:
brick cleaning, interior blinds, fire sprinklers, appliances, carpet
squares in small conference room, tele/comm installation, electrical
service upgrades, any item not specifically listed above
<PAGE>
LEASEHOLD IMPROVEMENT AGREEMENT
This Leasehold Improvement Agreement ("Improvement Agreement") is dated for
reference purposes only as May 13, 1998, and is made by and between Secured
Properties Investors II, L.P. ("Landlord") and CitySearch, Inc, ("Tenant") as
part of that certain Lease of even date herewith between them, affecting that
real property commonly known as 5 Triangle Drive, Durham County, North Carolina
(the "Lease"). The following provisions are hereby added to the Lease and in the
event of conflict between this Improvement Agreement and the Lease, this
Improvement Agreement shall prevail:
SECTION 1
DEFINITIONS
1.1 Definitions. All capitalized terms in this Improvement Agreement
-----------
shall have the meaning defined in the Lease. Wherever used in this Improvement
Agreement, the following terms are defined as follows:
1.1.1 "Allowance" is the maximum amount Landlord is required to pay
toward Construction Cost of the Improvements, which amount is $66,980.00.
1.1.2 "Architect(s)" collectively means The Smith Sinnett Associates,
P.A., and all other architects, structural engineers, mechanical engineers and
the other design professionals as are needed to design the Improvements, each of
whom shall be duly licensed by the State of North Carolina and in good
professional standing.
1.1.3 "Applicable Laws and Restrictions" means all laws (including
without limitation the Americans With Disabilities Act), building codes,
ordinances, regulations, title covenants, conditions, and restrictions, and
casualty underwriters requirements applicable to the premises and the
improvements.
1.1.4 The "Building" is the multi-tenant building in which the Demised
Premises are situated.
1.1.5 "Contractor(s)" means Prime Building Co. and all other general
contractors, design-build contractors, subcontractors, and material suppliers
who provide labor and materials for construction of the Improvements. To the
extent required by Applicable Laws and Restrictions, each Contractor shall be
duly licensed by the State of North Carolina and in good professional standing.
1.1.6 "Construction Cost" means all of the following:
a. fees paid by Landlord to Architect(s) for services required
by this Improvement Agreement;
b. fees paid by Landlord for engineering fees for construction
of the Improvements;
c. fees of governmental and quasi-governmental agencies for
Permits;
d. payments to Contractor(s) for labor, materials, and
equipment.
1
<PAGE>
1.1.7 "Construction Documents" are the Design Plans and the Final
Plans
1.1.8 "Construction Schedule" is the schedule for commencement,
prosecution and Substantial Completion of the Improvements.
1.1.9 "Improvements" are the alterations, modifications and
improvement described on the Final Plans which will be constructed pursuant to
this Improvement Agreement.
1.1.10 "Landlord's Work" is the construction of all of the
Improvements
1.1.11 "Landlord's Representative" is Ben Gainey or such other person
as the Landlord shall designate in writing to Tenant as its authorized
representative for the purposes of administering this improvement Agreement.
1.1.12 "Permits" are those permits approvals and consents of
governmental authorities and third parties having jurisdiction over the work
which are required for commencement and completion of the Improvements.
1.1.13 "Substantial Completion" or "Substantially Completed" is
defined in Section 5.1. The "Substantial Completion Date" is the date the
Improvements are Substantially Completed.
1.1.14 "Scheduled Completion Date" is the scheduled date for
Substantial Completion of the Improvements.
1.1.15 "Tenant's Representative" is Robb Czyzewski or such other
person as the Tenant shall designate in writing to Landlord as its authorized
representative for the purposes of administering this Improvement Agreement.
1.1.16 "Tenant's Work" is limited to the installation of the Tenant's
trade fixtures, furnishings, and equipment in the premises alter completion of
the Landlord's Work.
SECTION 2
DESIGNATION OF REPRESENTATIVE
2.1 Designation of Representative. Landlord and Tenant hereby respectively
-----------------------------
appoint the Landlord's Representative and the Tenant's Representative as its
sole representative for the purposes of this Improvement Agreement. Until
replaced by written notice, the Landlord's Representative and the Tenant's
Representative will have the full authority and responsibility to act on behalf
of Landlord and Tenant respectively, as required in this Improvement Agreement.
SECTION 3
CONTRACT DOCUMENTS & PERMITS
3.1 Retention of Architects and Delivery of Final Plans. Tenant shall
---------------------------------------------------
direct and Landlord shall pay for the services of the Architect(s) to prepare
the finished Design Plans and
2
<PAGE>
specifications for the Improvements (the "Final Plans"). The Final Plans shall
be based upon and consistent with the Design Plans and specifications attached
to the Lease as Exhibit C and subject to approval by Landlord, which approval
shall not be unreasonably withheld, denied or delayed.
3.2 Preparation and Approval of Cost Estimate and Construction Schedule.
-------------------------------------------------------------------
Immediately following approval of the Final Plans, Landlord shall cause the
Architect to prepare a preliminary Cost Estimate and Construction Schedule.
Landlord and Tenant shall review the Cost Estimate and the Construction Schedule
and promptly deliver to the other party and to the Architect(s) the party's
written approval or disapproval thereof. If the Cost Estimate or Construction
Schedule is disapproved in any respect, the parties shall confer and negotiate
in good faith to reach written agreement. Landlord's and Tenant's approval of
the Cost Estimate or the Construction Schedule shall not be unreasonably
withheld, denied or delayed, provided, however, that (I) Tenant may deny
approval in its sole discretion of any Cost Estimate which exceeds $66,980.00,
and (2) Landlord or Tenant may deny approval of any Construction Schedule which
calls for a Substantial Completion Date of more than 180 days after the date
Tenant first delivered the Final Plans to Landlord. Any disapproval by Landlord
or Tenant shall be accompanied by a written statement of the disapproved item,
the reasons for disapproval and the specific changes required to make the item
acceptable. If a party's written notice of disapproval is not delivered within
10 days from delivery of the Cost Estimate or the Construction Schedule,
approval shall be deemed given. If the Cost Estimate or Construction Schedule is
disapproved as provided herein, the parties shall confer and negotiate in good
faith to reach written agreement.
3.3 Application for Approvals. Landlord shall submit the Final Plans to
-------------------------
all appropriate governmental agencies and third parties for issuance of the
Permits required for the construction of the Improvements and occupancy by
Tenant of the Improvements for its intended use. Landlord shall use all
reasonable efforts to obtain the Permits on or before the date specified for
same in the Contract Schedule, Landlord shall not be responsible for any delay
or denial of a Permit which is beyond its reasonable control.
3.4 Changes to Final Plans. The Final Plans may be modified only by a
----------------------
written "Change Order" executed by Landlord and Tenant, which clearly describes
(i) the change, (ii) the party required to perform the change, (iii) the party
required to pay for the change, and (iv) any revision of the Construction
Schedule occasioned by the change. Neither Landlord nor Tenant shall
unreasonably deny, withhold or delay its approval of a change, whether requested
by a party or required by an Applicable Law or Restriction.
3.5 Delay of Substantial Completion Date. Upon any delay in the
------------------------------------
Substantial Completion Date beyond 180 days after the date when the Final Plans,
Cost Estimate and Construction Schedule are all approved, which is due to
circumstances beyond the reasonable control of Landlord, either Landlord or
Tenant may terminate this Lease.
3
<PAGE>
SECTION 4
PERFORMANCE OF THE WORK
4.1 Selection of Contractor(s) and Suppliers. Construction of the
----------------------------------------
Landlord's Work shall be performed under the direction of Landlord and by
Contractor(s) selected by Landlord.
4.2 Commencement and Completion of Improvements. When all Permits have
-------------------------------------------
been obtained, Landlord shall cause its Contractor(s) to commence and to
thereafter diligently prosecute the construction of the Landlord's Work so that
the Landlord's Work will be Substantially Completed on or before the Scheduled
Completion Date.
4,3 Standards for Performance of Work. Landlord shall cause the
----------------------------------
Landlord's Work to be constructed by well-trained, adequately supervised
workers, in a good and workmanlike manner, free from design, material and
workmanship defects in accordance with all Construction Documents. Tenant shall
comply, and shall cause its Contractor to comply with the reasonable rules and
regulations promulgated by Landlord for the performance and scheduling of the
Tenant's Work. The parties shall cooperated in good faith to schedule,
coordinate, and perform Landlord's Work and Tenant's Work.
SECTION 5
COMPLETION OF THE WORK
5.1 Inspection, Substantial Completion & Punchlist. Tenant's
-----------------------------------------------
Representative and Architect shall have the right to enter the Demised Premises
at all reasonable times for the purpose of inspecting the progress of the work.
Landlord's Work shall be deemed "Substantially Completed" or in "Substantial
Completion" when (i) construction of the Improvements has been completed and all
incomplete or defective Landlord's Work which interferes with Tenant's use of
the Demised Premises has been remedied; (ii) the Architect has certified that
the Landlord's Work has been constructed in accordance with the Final Plans,
(iii) all necessary governmental approvals for occupancy of the Demised Premises
and the Improvements have been obtained, including a Certificate of Occupancy;
and (iv) all utilities are hooked up and available for use. Landlord shall
notify Tenant when the Landlord's Work is Substantially Completed and the
Tenant's Representative, Landlord's Representative, and the Architect(s) shall
immediately inspect the Landlord's Work and prepare a written list of any
defective an incomplete work (the "Punchlist"). Tenant may augment the Punchlist
at any time on or before 20 days following the Substantial Completion Date.
Landlord shall promptly remedy all Punchlist items. Notwithstanding the
foregoing, (1) Tenant's failure to specify any defect on the Punchlist shall not
waive any obligation of the Landlord to complete the Improvements in accordance
with this Improvement Agreement, and (2) Landlord shall not be obligated to pay
more than the Allowance.
SECTION 6
PAYMENT OF CONSTRUCTION COST
6.1 Duty to Pay Construction Cost. Landlord shall pay the Construction
------------------------------
Cost of the Improvements, up to an amount equal to the Allowance. Tenant shall
pay any remainder of such
4
<PAGE>
Construction Cost and Tenant shall pay the entire cost of Tenant's Work, without
reimbursement by Landlord.
6.2 Notice of Non-Responsibility. Tenant shall provide Landlord with at
----------------------------
least 10 days prior written notice for commencement of the Tenant's Work, in
order to permit the Landlord to post and record such Notices of non-
Responsibility and other instruments as may be necessary to protect the Landlord
and its property from claims by Contractor's for unpaid costs and other
liabilities associated with the Tenant's Work.
SECTION 7
RISK OF LOSS
7.1 Casualty. If the Building is damaged or destroyed prior to the
--------
Completion Date, Landlord and Tenant shall have the right to terminate this
Lease, if, in the reasonable opinion of the Architect(s), the Building cannot be
restored and the Improvements Substantially Completed within 180 days after
Tenant first delivers the Final Plans to Landlord. If the Building is damaged or
destroyed and the Lease is not terminated pursuant to this Section, Landlord
shall promptly and diligently complete repair of the Building and construction
of the Improvements.
IN WITNESS WHEREOF, the Landlord and Tenant have executed this Improvement
Agreement, intending to be bound thereby as of the date first above written.
Landlord Tenant
Secured Properties Investors II, L.P. CitySearch, Inc.
/s/ Douglas McPherson
By___________________________________ By---------------------------
Douglas McPherson
Name:________________________________ Name:------------------------
Chief Legal Officer
Title:_______________________________ Title:-----------------------
5
<PAGE>
EXHIBIT 10.22
PERFECTMARKET, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into between
PERFECTMARKET, INC., ("PMI"), a Delaware corporation, and Thomas Layton
("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 Chief Operating Officer and Vice President of Sales and Marketing,
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:
Thomas Layton
- ------------------------------
Please Print Name
/s/ Thomas Layton 7/2/97
- ------------------------------ ------------
Employee's Signature Date
PERFECTMARKET. INC.
By: /s/ Charles Conn III
--------------------------- ------------
Charles Conn, President Date
<PAGE>
EXHIBIT 10.23
SUBJECT TO CONFIDENTIALITY AGREEMENT
DO NOT DISTRIBUTE
CLASSIFIED VENTURES - CITYSEARCH
LICENSE AND SERVICES AGREEMENT
INTRODUCTION CitySearch, Inc. ("CitySearch") and Classified
Ventures, L.L.C. ("CV") hereby enter into a
multiyear strategic relationship, in which
CitySearch will help CV to develop quickly its
vertical businesses in auto, new homes, apartments
and resale real estate (collectively, the "CV
Businesses"). CV will consider using CitySearch
services if CV expands its classified business into
other categories.
LICENSE AND SERVICES CitySearch grants to CV the following:
(i) A non-transferable (subject to the Assignment
section below), exclusive (as described below)
license to use the CitySearch Technology and
Business Systems, as defined in Exhibit A, solely
for use within the CV Businesses in the CV Territory
(defined to be North America subject to the
exclusions contained in the Competition section
below).
(ii) The right to license the CitySearch Technology
and Business Systems in the additional classified
categories of employment, personals and general
merchandise (the "Additional Categories") [*],
subject to the following: (a) if CV provides written
notice to CitySearch of its intent to license the
CitySearch Technology and Business Systems for use
in connection with one or more of the Additional
Categories, CitySearch agrees to license the
CitySearch Technology and Business Systems for use
in that Additional Category or Categories on an
exclusive basis according to other terms to be
agreed in the future, none of which shall conflict
with the terms contained in this section (ii), (b)
if CitySearch intends to license the CitySearch
Technology and Business Systems to a third party for
national application after
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
July 2, 1999 and before expiration of any of the
successive two year terms, CitySearch will provide
CV with written notice of its intent to license. If
CV declines within 60 days to license the CitySearch
Technology and Business Systems subject to the terms
of this section (ii) or fails to respond, CitySearch
may license the CitySearch Technology and Business
Systems to any third party. If, on the other hand,
CV responds in writing within 30 days with a project
plan detailing resources committed to launch one or
more of the Additional Categories and project
milestones necessary to launch at least one of the
Additional Categories publicly online within five
months of CV's response to CitySearch ("Project
Plan"), then CitySearch will license the CitySearch
Technology and Business Systems to CV in the
Additional Category or Categories for which Project
Plans exist on an exclusivity basis according to
other terms to be agreed in the future, none of
which shall conflict with the terms contained in
this section (ii). If CV has not launched at least
one of the Additional Categories within five months,
or if CV does not roll out the Additional Categories
to at least 10 of the top 30 markets, ranked by MSA,
within one year, then the exclusivity granted in one
or more of the Additional Categories hereunder shall
terminate.
(iii) CitySearch will also provide CV with the
services set forth on Exhibit A attached hereto.
---------
(iv) CitySearch will also assist CV, at CV's
direction, in compilation of data utilized in the CV
billing process.
Subject to execution of customary sublicense
documents, the CitySearch Technology and Business
Systems, and services provided by CitySearch, shall
be available to CV for application in CV affiliate
markets, CV's headquarters and/or other regional
production centers.
EXCLUSIVITY With respect to the CV Businesses in the CV
Territories, CV shall have exclusive access to the
CitySearch Technology and Business Systems,
-2-
<PAGE>
provided that the license granted to CV hereunder
does not violate other CitySearch city guide
agreements, and that CV does not engage in elements
of CitySearch's city guide business in the markets
in which CitySearch or its partners operate. CV
shall make reasonable efforts to utilize CitySearch
as its sole provider of CV's customer service and
site production services in each of the individual
verticals according to the milestones set forth in
Exhibit D. In the event that CV does not utilize
CitySearch as the sole provider in a given vertical,
CitySearch shall not be subject to the non-
competition covenants contained herein with respect
to that vertical. Subject to the other restrictions
contained herein, CitySearch agrees not to license
the CitySearch Technology and Business Systems for
use in the Additional Categories to third parties
for national application prior to July 2, 1999.
AFFILIATE STATUS CitySearch will have the option to become CV's
affiliate in [*], and [*]. With respect to [*],
CitySearch agrees to make reasonable efforts to
negotiate a joint offering with [*]. CV will
consider making CitySearch its affiliate in other
markets where CV presently does not have an
affiliate. In any market where CitySearch desires to
become a CV affiliate, CitySearch agrees to sign
CV's standard affiliate agreement and comply with
the terms thereof including promotional requirements
as modified for non-newspaper affiliates. In each
such market, CV agrees to (i) deliver a draft
affiliate agreement containing all material terms
for each market on or before September 1, 1998, (ii)
charge CitySearch [*] (taking into consideration the
market size and other reasonable, objective criteria
that CV applies to a majority of its affiliates),
and (iii) publicly launch online each such
CitySearch affiliate on a timely basis such that
each affiliate is among the [*] of CV affiliates
launched among the CitySearch affiliate's decile,
ranked by MSA (for example, assuming [*] is the 63rd
largest market by MSA, CV agrees to launch
CitySearch's [*]service among the first five of the
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THE OMITTED PORTIONS.
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ten markets ranked 60-69 by MSA).
FEES CV will pay CitySearch (i) an initial, non-
refundable license fee of [*] payable in two
installments, the first payment of [*] payable
upon execution of the agreement, the second
payment of [*] payable pursuant to the payment
milestones set forth in Exhibit D and (ii) an
annual license fee paid quarterly in arrears,
equal to the greater of [*] of CV's gross
revenues generated in said year during years [*]
of the agreement. In years [*] and [*] of the
agreement, CV shall pay to CitySearch an annual
license fee paid quarterly in arrears, equal to
the greater of [*] of CV's gross revenues
generated in said year. In years [*] and [*], CV
shall pay to CitySearch an annual license fee paid
quarterly in arrears, equal to the greater of [*]
of CV's gross revenues generated in said year. CV
will also pay CitySearch the fees set forth in
Exhibit A and B for services monthly in arrears.
In the event CV acquires CitySearch during the
term of the agreement, all license fees paid or
due by CV to CitySearch shall be taken into
account in determining the value of CitySearch.
AUDIT Either party shall permit the other party and its
agents and accountants, on reasonable notice and at
reasonable times during normal business hours, to
audit, at the auditing party's expense, the books
and records of the other party relating to the
subject matter of this agreement. In the event that
an audit discloses any error in payment, appropriate
adjustments shall be paid immediately. In the
further event that an error is favorable to the
auditing party in an amount equal to or in excess of
fifteen (15) percent of the amount reported, then
the audited party shall reimburse the reasonable
costs of the audit and pay liquidated damages in the
amount of fifty (50) percent of the error.
DEFAULTS & REMEDIES By CitySearch. In the event CV believes CitySearch
-------------
is in default of any of its obligations hereunder
including performance standards or milestones set
forth in the
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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exhibits, and provided CV is not in default of any
of its obligations hereunder, CV shall give
CitySearch specific written notice of the default
and the parties agree to meet and confer (by
telephone or in person) in good faith within 5
business days of receipt of notice. If, at the
conclusion of the meet and confer process, which
shall not be longer than 10 additional business days
or such longer period as the parties mutually agree,
CV continues to believe CitySearch is in default, CV
shall provide written notice of the issues
remaining. Provided CV is not in default of any of
its obligations hereunder, if CitySearch has not
cured the default within 15 business days, or in the
case of a default that is not susceptible of cure
within 15 days, if CitySearch has not taken diligent
steps to commence cure of the default within 15
business days and completed such cure within three
months, CV may request arbitration to be conducted
by a mutually agreed disinterested third party
arbitrator, who shall be authorized to award damages
based on CitySearch's default (excluding
consequential or punitive damages), which damages
may be set-off against future service fees owed to
CitySearch, and which shall not in any event exceed
the total amount of fees paid to CitySearch. This
section describes CV's sole remedy in the event of a
default by CitySearch.
By CV. In the event CitySearch believes CV is in
-----
default of any of its obligations hereunder,
CitySearch shall give CV specific written notice of
the default and the parties agree to meet and confer
(by telephone or in person) in good faith within 15
days of receipt of notice.
TERM Two year terms (the last day of the last term of
which shall be the "Unwind Commencement Date") which
may be extended at CV's sole option for four
additional two year terms. CV may give written
notice to unwind the agreement no sooner than seven
months but no later than six months before
expiration of the current term. The provisions
contained within the Exclusivity and Competition
sections shall terminate on the
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Unwind Commencement Date. For the one year period
following the Unwind Commencement Date, the parties
agree to continue all terms of this agreement,
except for the terms contained in the Exclusivity
and Competition sections. Absent notice to unwind,
the agreement shall renew for an additional two year
term.
COMPETITION CitySearch will not offer, in its own markets or to
its licensees, online classified products in a
searchable database format or under a national brand
in the CV Businesses, except that CitySearch may
develop and market its own classified product [*]
(iii) in its owned and operated markets where there
is a CV affiliate, provided that (a) CitySearch
receives written approval from the CV affiliate in
the respective city and, [*] In markets where
CitySearch operates owned and operated markets and
currently offers products in the CV Businesses under
a national brand or in a searchable database format,
CitySearch agrees to [*]. Provided that CitySearch
complies with the obligations set forth in
subsection (iv) of this Competition section,
subsection (iv) shall not be construed to prevent
CitySearch from selling web sites to individuals or
businesses engaged in real estate or automobile-
related businesses or limit the content thereof.
NON-SOLICITATION During the term of the agreement and for a period of
[*] after the Unwind Commencement Date, (i)
CitySearch shall not solicit CV's affiliates or
customers with respect to the CV Businesses or an
Additional Category or Categories (to the extent CV
has launched an Additional Category or Categories
pursuant to this
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THE OMITTED PORTIONS.
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Agreement), and (ii) neither party shall, directly
or indirectly, solicit or hire, except for general
commercial solicitations, any employee or
independent contractor of the other party without
prior written approval.
REPORTING Given the rapidly evolving nature of CV's business,
the parties agree to meet periodically to review
CV's satisfaction with CitySearch's products and
services, and to outline action plans for the next
period. The parties agree to make commercially
reasonable efforts to hold status meetings daily. In
addition, the parties will conduct periodic service
reviews. These reviews shall take place at CV's
request, but no more frequently than monthly. At
each review meeting, the parties shall ensure that
each party is in compliance with the performance
standards and milestones contained in the exhibits
attached to this agreement.
REPRESENTATIVE CV will consider making CitySearch its
RELATIONSHIP representative for selling classified solutions to
(i) affiliates in smaller North American markets;
and (ii) outside of North America.
INVESTMENT Subject to advice from underwriters and auditors,
CitySearch will make reasonable efforts to accept an
equity investment from CV for a period of 90 days or
until CitySearch is a public company, whichever is
shorter.
ASSIGNMENT Either party may assign this agreement to an entity
acquiring all, or substantially all, of the party's
assets, or to an entity that the party wholly owns.
CONFIDENTIALITY The parties agree to execute the mutual
confidentiality agreement attached as Exhibit C
simultaneously with this agreement.
OWNERSHIP OF INTELLECTUAL Except as otherwise provided in this agreement or
PROPERTY the attachments, CitySearch and CV will retain
ownership to the intellectual property provided by
one to the other.
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Any and all non-public information CitySearch
obtains about the customers of CV affiliates, in the
course of serving such affiliates in the CV
Businesses, shall be considered the property of CV.
Other information about the CV Businesses will be
governed by the mutual confidentiality agreement.
With regard to software developed by CitySearch at
CV's request and wholly paid for by CV, CV shall own
the software, and grants to CitySearch a perpetual,
royalty-free license to use the software in
applications other than applications within the CV
Businesses or an Additional Category or Categories
(to the extent CV has launched an Additional
Category or Categories pursuant to this Agreement).
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This license and services agreement constitutes a contractual commitment that is
legally binding upon the parties, their successors, and assigns.
ACCEPTED AND AGREED:
CITYSEARCH, INC. CLASSIFIED VENTURES, L.L.C.
By: /s/ Charles R. Conn By: /s/ Timothy Landon
--------------------------- ---------------------------
Its: CEO Its: Chief Executive Officer
-------------------------- ---------------------------
7/17/98 July 16, 1998
Date:_________________________ Date:__________________________
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EXHIBIT A
---------
CITYSEARCH TECHNOLOGY AND BUSINESS SYSTEMS
CitySearch will license the following to CV for use in the CV Businesses:
. TECHNOLOGY SYSTEMS
Throughout the term of the agreement, CitySearch will license and/or provide
licenses to Classified Ventures for technology in the following areas: microsite
production; microsite customer tracking and billing; customer service; and
creating, editing and maintaining business listings ("Technology Systems").
While CitySearch may change technologies to meet future requirements, these
technologies are expected to include a customized version of Aurum's Support
Trak; CitySearch's PTB (Production, Tracking and Billing) system; Siteworks; and
a geocoding tool. CitySearch will provide CV [*] seats (one machine on which the
software application is installed) for use at its headquarters facilities, and
up to [*] seats per application for each affiliate. Affiliates may add seats at
CitySearch's incremental cost plus [*]% subject to a maximum of $[*] per seat.
On at least a quarterly basis, CitySearch shall present to a designated
Classified Ventures contact any new products or enhancements to Technology
Systems for Classified Ventures to incorporate in its own product offerings.
CitySearch shall also consult with Classified Ventures on its development plans
with respect to the Technology Systems.
In addition, CitySearch shall present to CV any other software products released
within the previous quarter that may have application to the CV Businesses.
Payment terms for products falling outside the scope of the Technology Systems
will be negotiated separately.
. BUSINESS SYSTEMS
In the course of launching 7 owned and operated markets and 8 partner markets,
CitySearch has developed a substantial set of intellectual property for
launching and operating local online information businesses, particularly city
guide-related businesses. This intellectual property includes operating
processes, job descriptions, hiring plans, project plans, product-related
guidelines, training materials, content collection forms, and other material
essential to successful development and operation of a business. CitySearch will
leverage this material in the creation of rollout programs for CV, so that the
time required to develop business processes for the CV Businesses can be
substantially shortened.
STAFFING AND SERVICES
In order to provide CV with Affiliate Rollout and Back Office services,
CitySearch will provide CV with substantial staffing on a consulting basis. Many
such individuals have been identified and are named herein; others are to be
determined. CitySearch retains the right to replace any individual at any time
and for any reason, except that CitySearch shall use commercially reasonable
efforts to ensure continuity of service where possible.
In addition to providing staff for Affiliate Rollout and Back Office services,
CV has indicated an interest in retaining CitySearch staff for other purposes,
including temporary general management roles and product
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development. Unless such appointments become the subject of a separate
agreement, rates and conditions will be governed by this agreement.
. Overall Direction
Stephanie Meisel currently will provide day-to-day direction for CitySearch's
efforts under this agreement, and will be based, as appropriate, in Chicago.
Stephanie will be dedicated 100% to this project. Ted Meisel, Vice President,
Products & Technologies Group, John Pleasants, General Manager, Rollout, and Jim
McGovern, Vice President Operations, will provide overall direction for the
effort.
. Enable Affiliate Rollout/Operations; Affiliate Training
CitySearch employees will assist CV employees in the development and planning of
the affiliate rollout process, including the affiliate training program for
cars.com and newhomenetwork.com. The milestones associated with this activity
are attached as Exhibit D.
Initially, CitySearch plans to staff this activity with the following
individuals.
. Paul Lafontaine
. Missy Farrell
. Doug Miller (rollout Program Manager)
. Colleen Hickey (rollout Sales Trainer)
. Rob Barron (rollout Operations Trainer)
. Enable Back Office (Microsite production and service) Operations
CitySearch employees will work with Classified Ventures' employees to establish
back office operations for each of the CV Businesses per Exhibit D. Based on
requirements analysis recently completed for cars.com by a CitySearch team,
CitySearch staff will develop and implement a plan to quickly establish back
office operations for cars.com in Pasadena. Building on that work, CitySearch
staff will work with CV staff to analyze the back office requirements for
newhomesnetwork and to establish operations in Pasadena. Back Office Operations
for resale real estate and apartments will follow. Other employees will assist
in building Classified Ventures' customer service operations and assist with
Classified Ventures' wholesale billing services.
The following staff from CitySearch will participate in the requirements
analysis and implementation phase:
. Karen Lu (Director of Market Operations)
. Angie Putman (Director, Home Office Operations)
. Hans Dreyer (Director, Customer Service)
. Jeff Grammatke (Professional Services Associate)
. Christopher Adorna (Classified Ventures Back Office Manager)
. Chris Swartley (Operations Associate)
. John Foley (Operations Manager)
. Corrinne Tosaki (Project Manager)
. 2 designers and 2 customer service reps. (plus others, ramping up as
appropriate)
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In addition to staff, CitySearch may need to obtain capital equipment to serve
CV. For example, CitySearch will need to purchase dedicated NT, SQL server
machines to host CV's customer information. CitySearch will seek written
approval from CV for all such expenditures in excess of $5,000; CV agrees not to
unreasonably withhold approval beyond deadlines necessary to meet milestones
described elsewhere in this agreement.
. Rollout Team ([*] units)
CitySearch will staff a minimum of [*] rollout units, expected to consist of 3
members each, for the initial contract term. The rollout units will train
affiliates in field sales, marketing and operations processes and best
practices. These teams will be deployed as directed by Classified Ventures. The
deployment of these teams would be staged so that divergent processes are not
developed from the beginning. At CV's request, CitySearch will provide
additional teams subject to a minimum commitment of [*]. At CV's request,
CitySearch will extend the service of existing teams beyond the initial contract
term, subject to a minimum extension of [*].
It has been CitySearch's experience that the heavy travel demands of the
rollout process require special policies in order to attract and retain team
members, including policies regarding travel and expenses, time off the road,
and others. For example, it may be necessary to staff a rollout team with [**]
members in order to rotate the demands of travel and rollout commitments. CV
agrees to reimburse CitySearch pursuant to policies equal to the greater of 1)
CitySearch's rollout team policies as modified from time to time, and 2) CV's
rollout team policies to be established.
In addition, the roll out teams will require administrative support (for
example, to forward mail to team members based at CV's offices, and to assist
with travel arrangements). CV agrees to either (i) provide such support, or
(ii) reimburse CitySearch for its reasonable costs incurred in providing such
support.
. Classified Ventures Microsite Production and Service
CitySearch will produce microsites and provide services for customers of the CV
business. Initially, CitySearch will build a team to provide these services to
cars.com and newhomenetwork.com (see Exhibit D). CitySearch also expects to
provide these services to apartments.com and resale real estate as noted in
Exhibit D.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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EXHIBIT B
---------
CITYSEARCH BILLING RATES
Rates are calculated as follows:
1. Establish average salary per employee category
2. Multiply salary by related costs
. [*] for benefits and taxes
. [*] for recruiting and training
. [*] to adjust for cost of stock options (estimated as average increment
required to bring compensation to market)
. [*] for administration and management
3. Add overhead per employee
. $[*]/hr for technical staff
. $[*]/hr all other
4. Add [*] to total for CitySearch margin
Rates are subject to change in the event that CitySearch's costs change.
Individuals who are assigned to Classified Ventures for at least one month will
be billed at a maximum of 8 hours per day. Weekend hours will also be charged
at a maximum of 8 hours per day. Individuals who are assigned to Classified
Ventures for less than one month will be billed at actual hours worked, both
business and weekend days.
<TABLE>
<CAPTION>
------------------------------------------------------------------
ROLE HOURLY
RATE
------------------------------------------------------------------
<S> <C>
CV Rollout Team Positions (subject to change
based on pilot team experience)
------------------------------------------------------------------
Program Manager $[*]
------------------------------------------------------------------
Operations Trainer $[*]
------------------------------------------------------------------
Sales Trainer $[*]
------------------------------------------------------------------
Marketing Advisor $[*]
------------------------------------------------------------------
Field Producer $[*]
------------------------------------------------------------------
------------------------------------------------------------------
Other CitySearch Positions*
------------------------------------------------------------------
Functional Vice President (e.g., marketing, sales) $[*]
------------------------------------------------------------------
General Manager $[*]
------------------------------------------------------------------
Functional Director $[*]
------------------------------------------------------------------
Functional Manager $[*]
------------------------------------------------------------------
Functional Supervisor $[*]
------------------------------------------------------------------
Functional Associate $[*]
------------------------------------------------------------------
Customer Service Representative $[*]
------------------------------------------------------------------
Infosite Designer $[*]
------------------------------------------------------------------
Data Entry Clerk $[*]
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
CitySearch Professional Services Support*
------------------------------------------------------------------
Senior Software Engineer $[*]
------------------------------------------------------------------
</TABLE>
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<TABLE>
<CAPTION>
------------------------------------------------------------------
ROLE HOURLY
RATE
------------------------------------------------------------------
<S> <C>
Software Engineer $[*]
------------------------------------------------------------------
Senior Project Manager/Director/Producer $[*]
------------------------------------------------------------------
Project Coordinator/Manager/Producer $[*]
------------------------------------------------------------------
Senior Graphic/Interface Designer $[*]
------------------------------------------------------------------
Graphic/Interface Designer $[*]
------------------------------------------------------------------
QA Engineer $[*]
------------------------------------------------------------------
Technical Support Analyst $[*]
------------------------------------------------------------------
</TABLE>
CV agrees to reimburse CitySearch for reasonable travel expenses incurred by
CitySearch staff, subject to customary documentation.
*If needed; other positions quoted as requested.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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EXHIBIT C
---------
MUTUAL CONFIDENTIALITY AGREEMENT
In connection with license and services agreement dated July 16, 1998 (the
"Engagement") between Classified Ventures, L.L.C. ("CV") and CitySearch, Inc.
(the "Company"), the Company and CV expect to make available to one another
certain nonpublic information concerning their respective business, financial
condition, operations, assets and liabilities. As a condition to such
information being furnished to each party and, when appropriate and in
accordance with the terms of this agreement, its directors, officers, employees,
agents or advisors (including, without limitation, attorneys, accountants,
consultants, bankers and financial advisors) (collectively, "Representatives"),
each party agrees to treat any nonpublic information concerning the other party
(whether prepared by the disclosing party, its advisors or otherwise and
irrespective of the form of communication) which is furnished hereunder to a
party or to its Representatives now or in the future by or on behalf of the
disclosing party (herein collectively referred to as the "Engagement Material")
in accordance with the provisions of this agreement, and to take or abstain from
taking certain other actions hereinafter set forth.
(1) ENGAGEMENT MATERIAL. The term "Engagement Material" also shall be
-------------------
deemed to include all notes, analyses, compilations, studies, interpretations or
other documents prepared by each party or its Representatives which contain,
reflect or are based upon, in whole or in part, the information furnished to
such party or its Representatives pursuant hereto which is not available to the
general public. The term "Engagement Material" does not include information
which (i) is or becomes generally available to the public other than as a result
of a breach of this Agreement by the receiving party or its Representatives,
(ii) was within the receiving party's possession prior to its being furnished to
the receiving party by or on behalf of the disclosing party, provided that the
source of such information was not known by the receiving party to be bound by a
confidentiality agreement with or other contractual, legal or fiduciary
obligation of confidentiality to the disclosing party, (iii) is or becomes
available to the receiving party on a non-confidential basis from a source other
than the disclosing party or any of its Representatives, provided that such
source was not known by the receiving party to be bound by a confidentiality
agreement with or other contractual, legal or fiduciary obligation of
confidentiality to the disclosing party or any other party with respect to such
information, (iv) is independently developed by the recipient without use of
Engagement Material, (v) is disclosed under requirements of law provided the
disclosing party complies with Section 5 hereof, or (vi) is disclosed by the
recipient or its Representatives with the discloser's prior written approval.
(2) PURPOSE OF DISCLOSURE OF ENGAGEMENT MATERIAL. It is understood and
--------------------------------------------
agreed to by each party that any exchange of information under this agreement
shall be solely for the purpose of the Engagement between the parties.
Competitively sensitive information such as information concerning product
development or marketing plans, product prices or pricing plans, cost data,
customers or similar information the disclosure of which has been determined to
be reasonably necessary to the Engagement, shall be limited only to those
employees and Representatives who are directly involved in the Engagement.
(3) USE OF ENGAGEMENT MATERIAL. Each party hereby agrees that it and its
--------------------------
Representatives shall use the other's Engagement Material solely for the purpose
of the Engagement, and that the disclosing party's Engagement Material will be
kept confidential and each party and its Representatives will not disclose or
use for purposes other than the Engagement; provided, however, that (i) the
receiving party may make any disclosure of such information to which the
disclosing party gives its prior written consent and (ii) any of such
information may be disclosed to the receiving party's Representatives who need
to know such information for the sole purpose of accomplishing the Engagement.
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(4) NON-DISCLOSURE. In addition and subject to Section 5, each party
--------------
agrees that, without the prior written consent of the other party, its
Representatives will not disclose to any other person the license fees, term,
royalties, or exclusivity or competition provisions of the Engagement.
(5) REQUIRED DISCLOSURE. In the event that a party or its Representatives
-------------------
are requested or required (by oral questions, interrogatories, requests for
information or documents in legal filings or proceedings, subpoena, civil
investigative demand or other similar process) to disclose any of the other
party's Engagement Material, the party requested or required to make the
disclosure shall provide the other party with prompt notice of any such request
or requirement so that the other party may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this
agreement. If, in the absence of a protective order or other remedy or the
receipt of a waiver by such other party, the party requested or required to make
the disclosure or any of its Representatives are nonetheless, in the opinion of
counsel, legally compelled to disclose the other party's Engagement Material,
the party requested or required to make the disclosure or its Representative
may, without liability hereunder, disclose only that portion of the other
party's Engagement Material which such counsel advises is legally required to be
disclosed, provided that the party requested or required to make the disclosure
exercises its reasonable efforts to preserve the confidentiality of the other
party's Engagement Material, including, without limitation, by cooperating with
the other party to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the other party's
Engagement Material.
(6) TERMINATION OF ENGAGEMENT. Upon termination of the Engagement for any
-------------------------
reason, each receiving party will promptly cease use of the Engagement Materials
and deliver to the disclosing party or destroy (with such destruction to be
certified in writing by the receiving party) all written Engagement Material
(and all copies thereof and extracts therefrom) furnished to the receiving party
or its Representatives by or on behalf of the disclosing party pursuant hereto
other than those materials modified for, or created expressly for, CV.
Notwithstanding the return or destruction of the Engagement Material, each party
and its Representatives will continue to be bound by its obligations of
confidentiality, non-use and other obligations hereunder.
(7) NO REPRESENTATION OF ACCURACY. Each party understands and
-----------------------------
acknowledges that neither party nor any of its Representatives makes any
representation or warranty, express or implied, as to the accuracy or
completeness of the Engagement Material made available by it or to it. Each
party agrees that neither the disclosing party nor any of its Representatives
shall have any liability to the receiving party or to any of its Representatives
relating to or resulting from the use of or reliance upon such disclosing
party's Engagement Material or any errors therein or omissions therefrom. Only
those representations or warranties which are made in a final definitive
agreement regarding the Transaction, when, as and if executed, and subject to
such limitations and restrictions as may be specified therein, will have any
legal effect.
(8) MISCELLANEOUS. Each party agrees to be responsible for any breach of
-------------
this agreement by any of its Representatives. No failure or delay by either
party or any of its Representatives in exercising any right, power or privileges
under this agreement shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege hereunder. In case any provision of this agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of the agreement shall not in any way be affected or
impaired thereby.
(10) INJUNCTIVE RELIEF. It is further understood and agreed that money
-----------------
damages would not be a sufficient remedy for any breach of this agreement by
either party or any of its Representatives and that the non-breaching party
shall be entitled to equitable relief, including injunction and specific
performance, as a remedy for any such breach. Such remedies shall not be deemed
to be the exclusive remedies for a breach of this agreement but shall be in
addition to all other remedies available at law or equity. In the event of
litigation relating to this agreement, if a court of competent jurisdiction
determines that either party or any of its
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Representatives have breached this agreement, then the breaching party shall be
liable and pay to the non-breaching party the reasonable legal fees incurred in
connection with such litigation, including an appeal therefrom.
(11) NO LICENSE. Nothing in this agreement is intended to grant any rights
----------
to either party under any patent or copyright of the other party, nor shall this
agreement grant any party any rights in or to the Engagement Material of the
other party except as expressly set forth herein.
(12) TERM. The obligations of each receiving party hereunder shall survive
----
for two (2) years from the date of termination of the Engagement.
(13) GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California applicable to agreements
made and to be performed within such State.
ACCEPTED AND AGREED:
CITYSEARCH, INC. CLASSIFIED VENTURES, L.L.C.
By:_________________________________ By:_________________________________
Its:________________________________ Its:________________________________
Date: ______________________________ Date: ______________________________
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EXHIBIT D: MILESTONES
---------------------
[*] CitySearch and CV have agreed to condition a portion of the license fees to
be paid from CV to CitySearch upon the achievement of certain milestones,
spelled out in Exhibit D1. Even after CitySearch has met the criteria for a
given milestone, it is the parties' expectation that CV's needs will continue to
evolve, requiring CitySearch to be responsive to those needs. Nothing in the
Milestones process is intended to convey that CitySearch's obligations end upon
completion of Milestones. Rather, it is the parties' intention that the formal
process established herein will create a disciplined mechanism to foster a
strong working relationship between CitySearch and CV.
This introduction is intended to provide definitions governing the Milestones
payment schedule.
COMPLETION OF MILESTONES
CitySearch and CV expect the operating plans for the CV Businesses to undergo
frequent change for the foreseeable future. In order to meet CV's need for
rapid implementation and accountability, and CitySearch's need for clear
definition and milestones within its control, each milestone will be controlled
by some variation of the following process:
1. CitySearch and CV develop objectives and plans for meeting the milestone by
a specified date. CitySearch will take the lead in developing such plans
when requested to do so by CV.
2. CV reviews the plans by a specified date and approves them or provides
specific, written feedback.
3. Steps 1 and 2 are repeated if necessary, but it is the parties' intention
that up to one iteration shall be the norm, given the tight time frames.
4. CitySearch implements the agreed-upon plans, and applies for the Milestone
payment.
5. CV shall honor the payment as long as CitySearch has implemented the plan
agreed upon for certification of the milestones.
CV agrees that for the purposes of Milestone Payments, CitySearch will have met
a given milestone once it has achieved implementation of the plan(s) agreed to
by the dates specified, unless (i) CV and CitySearch agree on a modified plan in
writing, or (ii) some other criteria is described in writing. In the case of a
modified plan, the milestone will be considered complete when CitySearch has
reached substantially the same achievements (e.g., hired the 15 people called
for in the original hiring plan, even though the revised plan calls for 20
people with somewhat different skills).
APPROVALS
Where approvals are required for operating plans or standards, CV and CitySearch
expect that the General Manager or Acting General Manager of a given vertical
shall review and sign the document in a timely manner. The GM's signature shall
indicate CV's agreement to the plans and standards contained therein for the
purpose of milestone criteria. In addition, the CEO and/or COO may agree in
place of any of the vertical General Managers.
SINGLE POINT OF CONTACT
For each vertical, CV shall designate a single point of contact to facilitate
the resolution of open issues in an expeditious manner. Where appropriate, CV
shall also designate individuals to assist CitySearch in the development of
plans and completion of particular tasks and activities as called for by project
workplans.
-18-
<PAGE>
EXHIBIT D1
PAYMENT SCHEDULE FOR BUSINESS AND TECHNOLOGY SYSTEMS
<TABLE>
<CAPTION>
TARGET
MILESTONE START DATE COMPLETION
KEY MILESTONES PAYMENT DATE CITYSEARCH OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Staff and Train HQ [*] 7/6/98 [*] [*]
support team
- ------------------------------------------------------------------------------------------------------------------------------------
2 Cars Rollout program [*] 6/15/98 [*] [*]
complete and revised
- ------------------------------------------------------------------------------------------------------------------------------------
3 Cars Rollout teams [*] 6/29/98 [*] [*]
deployed
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
KEY MILESTONES CV OBLIGATIONS CRITERIA FOR MILESTONE COMPLETE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Staff and Train HQ [*] . Hiring and training of team as
support team defined by Support Team Plan
. Milestone will be considered
complete even if Director of Affiliate
Rollout is not yet hired
- ------------------------------------------------------------------------------------------------------------------------------------
2 Cars Rollout program [*] . All Program Modules revised and
complete and revised approved as specified in Rollout
Lesson Learned
. As long as CitySearch has made
good faith efforts and have demonstrated an
acceptable level of effectiveness,
this milestone shall be considered
complete no later than [*]
- ------------------------------------------------------------------------------------------------------------------------------------
3 Cars Rollout teams [*] . Team members recruited and trained
deployed as agreed to in the Plan, but not to
exceed 8 people for purposes of this
Milestone
. Once an individual commences
rollout, he/she can no longer be
deemed inadequate for rollout purposes
. Target date contingent on
CitySearch's ability to use existing
resources; redefinition of skills
would significantly affect completion
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
_______________________________
* Individuals must have an acceptable level of knowledge and skill to
adequately roll out a vertical. Acceptable level of knowledge shall be
defined as the ability to deliver a given set of rollout Modules and to
field Frequently-asked questions as defined by the vertical.
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
<TABLE>
<CAPTION>
TARGET
MILESTONE START DATE COMPLETION
KEY MILESTONES PAYMENT DATE CITYSEARCH OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4 Cars Back-Office [*] 6/29/98 [*] [*]
infrastructure enabled
- ------------------------------------------------------------------------------------------------------------------------------------
5 Cars Back-office [*] 6/8/98 [*] [*]
infrastructure complete
- ------------------------------------------------------------------------------------------------------------------------------------
6 Homes rollout program [*] 7/9/98 [*] [*]
complete and revised
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
KEY MILESTONES CV OBLIGATIONS CRITERIA FOR MILESTONE COMPLETE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4 Cars Back-Office [*] . CS has implemented Staffing
infrastructure enabled Plan and has demonstrated
ability to produce sites and serve
customer in accordance with
approved PRGs and OM
- ------------------------------------------------------------------------------------------------------------------------------------
5 Cars Back-office [*] Implementation of BOSP-Cars, including,
infrastructure complete but not limited to:
. Customer service information
tracked in CS Support Trak
. Packets processed using
modified CS PTB system
. Basic reports avaliable on a timely
basis
. System accessible from Chicago
and Pasadena, subject to order
and delivery of WAN connection
. Requests for significant
deviations from 5/22/96
Requirements document will not
be considered in evaluating the
completion of this milestone
- ------------------------------------------------------------------------------------------------------------------------------------
6 Homes rollout program [*] . All Program Modules revised and
complete and revised approved as specified in Rollout
Lessons Learned
. As long as CitySearch has made
good faith efforts and has
demonstrated an acceptable
level of effectiveness, this
milestone shall be considered
complete no later than [*]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-20-
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
<TABLE>
<CAPTION>
TARGET
MILESTONE START DATE COMPLETION
KEY MILESTONES PAYMENT DATE CITYSEARCH OBLIGATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7 Homes Rollout teams [*] 6/29/98 [*] [*]
deployed - [*]
- -----------------------------------------------------------------------------------------------------------------------------------
8 Homes back-office [*] 7/9/98 [*]
infrastructure functional [*]
- -----------------------------------------------------------------------------------------------------------------------------------
9 Homes back-office [*] 7/9/98 [*] [*]
infrastructure integrated
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CRITERIA FOR MILESTONE COMPLETE
KEY MILESTONES CV OBLIGATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
7 Homes Rollout teams [*] . Team members recruited and trained
deployed as agreed to in the Plan, but not to
exceed 8 people for purposes of this
Milestone
. Once an individual commences
rollout, he/she can no longer be
deemed inadequate for rollout purposes
. Target date within the range
subject to (a) CitySearch's ability to
use existing resources; redefinition
of skills would significantly affect
completion date; (b) team size
remaining small (i.e., 2 or fewer
members would push toward beginning of
range)
- -----------------------------------------------------------------------------------------------------------------------------------
8 Homes back-office [*] . CS has implemented Staffing Plan
infrastructure functional and has demonstrated ability to
produce sites and serve customers in
accordance with approved PRGs and OM
. Target date is contingent on
requirements analysis, PRGs, and OM
findings consistent with current view
that implementation of Homes back
office will be similar to and no more
difficult than that for cars.com
.
- -----------------------------------------------------------------------------------------------------------------------------------
9 Homes back-office [*] Implementation of BOSP-Homes,
infrastructure integrated including, but not limited to:
. Customer service information
tracked in CS SupportTrak
. Packets processed using modified CS
PTB system
. Basic reports available on a timely
basis
. System accessible from Chicago and
Pasadena
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-21-
<PAGE>
<TABLE>
<CAPTION>
TARGET
MILESTONE START DATE COMPLETION
KEY MILESTONES PAYMENT DATE CITYSEARCH OBLIGATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 Apartments rollout [*] No sooner TBD [*]
program complete than
[*] and
currently
planned to
be [*]
- -----------------------------------------------------------------------------------------------------------------------------------
11 Apts.com Rollout teams [*] No sooner [*] [*]
deployed, if CV elects to than [*],
utilize CitySearch based on
assistance for Workplan
Apartments.com (See 10 Program
above)
- -----------------------------------------------------------------------------------------------------------------------------------
12 Apartments back-office [*] No sooner TBD [*]
infrastructure than [*]
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CRITERIA FOR MILESTONE COMPLETE
KEY MILESTONES CV OBLIGATIONS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10 Apartment rollout [*] Either:
program complete . All Program Modules revised and approved
as specified in Rollout Lessons Learned
no later than date to be determined in
workplan when developed
[*]
- --------------------------------------------------------------------------------------------------------------------------------
11 Apts.com Rollout teams [*] . Fulfillment of Apartments Rollout
deployed, if CV elects to Organization Plan within 8 weeks of
utilize CitySearch submission, no later than [*]
assistance for . Once an individual commences
Apartments.com (See 10 rollout, he/she can no longer be
above) deemed inadequate for rollout purposes
[*]
- -------------------------------------------------------------------------------------------------------------------------------
12 Apartments back-office [*] . CS has implemented Staffing Plan
infrastructure and has demonstrated ability to
produce sites and serve customers in
accordance with approved PRGs and OM
. Implementation of BOSP-Apts
. System accessible from Chicago and
Pasadena
[*]
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-22-
<PAGE>
<TABLE>
<CAPTION>
TARGET
MILESTONE START DATE COMPLETION
KEY MILESTONES PAYMENT DATE CITYSEARCH OBLIGATIONS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[*]
- ----------------------------------------------------------------------------------------------------------------------------
13 Resale RE rollout program [*] No sooner TBD [*]
complete than
[*]
- ----------------------------------------------------------------------------------------------------------------------------
14 Resale RE RO teams [*] No sooner [*]
deployed than TBD
[*]
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CRITERIA FOR MILESTONE COMPLETE
KEY MILESTONES CV OBLIGATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[*] [*]
- ---------------------------------------------------------------------------------------------------------------------------------
13 Resale RE rollout program [*] If CV has communicated intent to
complete engage CitySearch in this program:
. All Program Modules revised and
approved as specified in Rollout
Lessons Learned
. In any event, no later than [*],
assuming CitySearch has made good
faith efforts
[*]
- ---------------------------------------------------------------------------------------------------------------------------------
14 Resale RE RO teams [*] If CV has communicated intent to
deployed engage CitySearch in this program:
. Team members recruited and trained
as agreed to in the plan
[*]
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-23-
<PAGE>
<TABLE>
<CAPTION>
TARGET
MILESTONE START DATE COMPLETION
KEY MILESTONES PAYMENT DATE CITYSEARCH OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
15 Resale RE back-office [*] 30 days [*]
infrastructure integrated after notice, 6 weeks after
but not start date
before
[*]
- -----------------------------------------------------------------------------------------------------------------------------------
16 Implementation [*] 6/15/98 [*]
Completed TBD
- -----------------------------------------------------------------------------------------------------------------------------------
Total [*] .
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CRITERIA FOR MILESTONE COMPLETE
KEY MILESTONES CV OBLIGATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[*]
- ---------------------------------------------------------------------------------------------------------------------------------
15 Resale RE back-office [*] Either
. CS has implemented Staffing Plan
and has demonstrated ability to
produce sites and serve customers in
accordance with approved PRGs and OM
[*]
- ---------------------------------------------------------------------------------------------------------------------------------
16 Implementation Completed [*] . Completion of previous milestones
that have not been waived, but no
later than [*] assuming CS has
demonstrated good faith to achieve all
milestones
- ---------------------------------------------------------------------------------------------------------------------------------
Total [*] .
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-24-
<PAGE>
EXHIBIT 10.24
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A
VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF. THE SECURITIES
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND
QUALIFICATION WITHOUT, EXCEPT UNDER CERTAIN SPECIFIC LLMITED CIRCUMSTANCES, AN
OPINION OF COUNSEL FOR THE HOLDER, CONCURRED IN BY COUNSEL FOR THE COMPANY THAT
SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
CITYSEARCH, INC.
CONVERTIBLE PROMISSORY NOTE
New York, New York
$50,000,000.00 August 13, 1998
1. Principal and Interest. City Search, Inc. (the "Company"), a Delaware
----------------------
corporation, for value received by promises to pay to the order of USA Networks,
Inc. ("Lender") in lawful money of the United States the principal amount of
Fifty Million Dollars ($50, 000,000.00) or, if less, the aggregate unpaid
principal amount of this Note, which sum shall bear interest at a rate per annum
of 7.00% calculated on the basis of a year of 365 days and actual days elapsed,
compounded annually.
All outstanding principal and all accrued and unpaid interest on this Note
shall become due and payable on the earlier to occur of (a) the date seven years
from the date hereof (b) twenty days following the closing of (i) a Qualified
IPO (as defined in the Agreement and Plan of Reorganization dated as of August
13,1998 (the "Merger Agreement") among the Company, Tiberius, Inc., the Lender,
Ticketmaster Group, Inc. Ticketmaster Multimedia Holdings, Inc.) following the
consummation of the Merger (as defined in the Merger Agreement), or (ii) in the
event that the Merger has not been consummated, the closing of the first
underwritten public offering (the IPO) of common stock of the Company pursuant
to a registration statement declared effective by the securities Act of 1933, as
amended (the "Securities Act"). In the event that such Qualified IPO or IPO
results in net cash proceeds to the Company of less than the aggregate amount of
the outstanding principal and accrued interest on this Note, the Company shall
be required to pay the Lender an amount equal to such net cash proceeds, with
payment of such proceeds first applied against the accrued and unpaid interest
and second to outstanding principal. Prepayments to be applied against interest
shall be applied first to interest that is not convertible under Section 2(a).
<PAGE>
Unless the Merger shall have been consummated this Note may be prepaid in
whole or in part from tune to time at the option of the Company upon three days
prior irrevocable mode to the lender (unless this Note shall be convertible in
accordance with Section 2 hereof, in which case, upon thirty days prior
irrevocable notice) (a "Prepayment Notice"), Prepayments in part shall be
applied first against accrued and unpaid interest and second against principal
In addition, unless the Merger shall have been consummated. the Company shall
have the option on each anniversary date of the date of this Note, to pay all or
part of the accrued and unpaid interest on this Note without notice to Lender.
If the due date of any payment under this Note would otherwise fall an a
day that is not a business day, such date shall be extended to the next
succeeding business day, and interest shall be payable for any principal so
extended for the period of such extension.
Payment of principal and interest shall be made in lawful money of the
United States by draft or in immediately available funds to Lender at the
Company's principal offices or, at the option of the Lender, at such other place
in the United States as such Lender shall have designated to the Company in
writing.
2. Conversion. (a) The outstanding principal amount of this Note and any
----------
accrued and unpaid interest, which interest has been outstanding for a period
longer than one year (the "Convertibility Amount may upon written notice by the
Lender to the Company (the "Conversion Notice") he converted (in whole or in put
to the extent permitted pursuant to subsection of this Section 2) into common
stock of the Company, as further described in subsections (b), (c), (d) and (C)
below, upon or at any time after the occurrence of any of the following events
(each a "Convertibility Event"):
(i) if the Merger shall not have been consummated and the Merger
Agreement is terminated pursuant to Section 7.1(d) of the Merger Agreement (such
termination being referred to herein as a "Company Termination" or if the
Company shall not have obtained the Registration Rights Vote (as hereinafter
defined) by the date of such termination, this Note shall become convertible on
the date of such termination.
(ii) if the Merger Agreement shall have been terminated pursuant to
Section 7.1(c) or (d) thereof (an "Illegality Termination"), this Note shall
become convertible on the one year anniversary of the date of this Note:
(iii) if the Merger shall not have been consummated and the Merger
Agreement shall have been terminated pursuant to Section 7.1(f) of the Merger
Agreement (a "Lender Termination") and an IPO has occurred at any time valuing
the Company's common stock at a price (the "IPO Price") equal to or greater than
$9.33 per share (before commission, underwriter's discounts and other expenses
and such number shall he appropriately adjusted to reflect any stock split,
stock dividend, reverse stock split or
2
<PAGE>
similar change in the Company's common stock following the date of this Note and
prior to conversion), this Note shall became convertible on the date five
business days following such IPO; or
(iv) if the Merger shall have been consummated, this Note shall became
convertible upon the expiration of the Third Put as defined in Section 5,13 of
the Merger Agreement.
In the event the Company shall provide a Prepayment Notice indicating the
Company's intent to prepay this Note in full at any time following a
Convertibility Event, the conversion rights described in this Section 2(a) shall
expire on the close of business on the date immediately preceding the date this
Notes are to be so prepaid All accrued and unpaid interest outstanding and not
converted pursuant to this subsection (a) shall become due and owing on the date
the Convertibility Amount is converted in whole.
(b) Upon conversion of this Note following the Convertibility Event
described in subsection (a)(i) of this Section 2, the Convertibility Amount
shall be converted into that number of shares of the Company's voting common
stock as is equal to the Convertibility Amount divided by $7.33 (with such
number to be appropriately adjusted to reflect any stock split, stock dividend
reverse stock split or similar change in the Company's common stock following
the date of this Note and prior to conversion), with any fraction of a share
rounded up to the next whole share.
(c) In the case of the Lender's conversion of all of this Note following
the occurrence of a Convertibility Event described in subsection (a)(ii) of this
Section 2, (i) one-half of the Convertibility Amount shall be converted into
that number of shares of the Company's voting Common Stock equal to one-half of
the Convertibility Amount divided by $8.67 (with such number to be appropriately
adjusted to reflect any stock split, stock dividend, reverse stock split or
similar change in the Company's common stock following the date of this Note and
prior to conversion), with any fraction of a share rounded up to the next whole
share and (ii) one-half of the Convertibility Amount shall be converted into
that number of shares of the Company's voting common stock (or, if prior to such
conversion the Company shall have authorized a class of non-voting common stock,
such non-voting common stock) equal to one-half of the Convertibility Amount
divided by $8.67 (with such number to be appropriately adjusted to reflect any
stock split, stock dividend, reverse stock split or similar change in the
Company's common stock following the date of this Note and prior to conversion),
with any fraction of a share rounded up to the next whole share In the event
that the Lender shall be issued any security with voting rights pursuant to any
conversion pursuant to clause (ii) of the preceding sentence, the Lender shall
vote such securities on each matter submitted to a vote of the Company's,
stockholders (including by written consent) for and against such matter in the
same proportion as all other voting securities of the Company are voted (whether
by proxy or otherwise) for and against such matter. Before acquiring any such
securities, the Lender shall execute and deliver an irrevocable proxy to the
Company in such form as the
3
<PAGE>
Company shall reasonably propose authorizing the Company or its designees to
vote such securities in accordance with the provisions hereof.
(d) Upon conversion of this Note following the Convertibility Event
described in subsection (a)(iii) of this Section 2, the Convertibility Amount
shall be converted into that number of shares of the Company's voting common
stock as is equal to the Convertibility Amount divided by the IPO Price (with
such number to be appropriately adjusted to reflect any stock split, stock
dividend, reverse stock split or similar change in the Company's common stock
following the date of this Note and prior to conversion), with any fraction of a
share rounded up to the next whole share.
(e) Upon conversion of this Note following the Convertibility Event
described in subsection (a)(iv) of this Section 2 the Convertibility Amount
shall be converted into that number of shares of the Company's voting common
stock as is equal to the Convertibility Amount divided by $8.67 (with such
number to be appropriately adjusted to reflect any stock split stock dividend
reverse stock split or similar change in the Company's common stock following
the date of this Note and prior to conversion), with any fraction of a share
rounded up to the next whole share.
(f) The Company covenants to cause all share issuable upon conversion of
this Note, when issued pursuant to this Section 2, to be fully paid,
nonassessable and not subject to preemptive rights, and free from all taxes,
liens and charges with respect to the issuance thereof (other than any liens
that may be in- by the Lender). The Company agrees that it shall at all times
after this Note's becoming convertible pursuant to this Section 2, have reserved
for issuance upon conversion of this Note a sufficient number of authorized and
unissued shares of the Company's common stock to allow for conversion of this
Note in full Conversion of this Note into shares of the Company common stock
shall take place, and the Lender shall be issued certificates evidencing such
shares, on the date which is the later of (i) five business days after the
issuance of the Conversion Notice and (ii) the first business day following the
date that all record filings with, and all required approval., consents and
actions by, any governmental or regulatory agency (including, without
limitation, any approval under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended) shall have been obtained or made. The Company shall
promptly take such action as may be necessary to hive the common stock issuable
upon conversion of this Note to be deemed Registrable Securities (as defined in
the Sixth Amended and Restated Stockholders Agreement of the Company, dated May
26, 1998 with respect to registrations under both Sections 5.1 and 5.332
thereof, as amended from time to time including obtaining the necessary
stockholder approval (the "Registration Rights Vote") and such action shall be
taken prior to any other common stock of the Company being deemed Registrable
Securities (other than Registrable Securities outstanding on the date hereof).
(g) In the event that the Company has provided a Prepayment Notice
indicating its intent to prepay this Note in part following a Convertibility
Event, the Lender shall have the option to convert that portion of this Note
equal to the amount of
4
<PAGE>
such partial prepayment that, if paid would reduce the Convertibility Amount
(the "Convertibility Reduction Amount") and receive in lieu of the
Convertibility Reduction Amount that number of shares of common stock (and if
following a Convertibility Event pursuant to subsection (a)(ii) of this Section
two, half voting common stock and half non-voting common stock on the same terms
and conditions as described in subsection (c) above with respect to a conversion
of the whole Convertibility Amount) equal to the Convertibility Reduction Amount
divided by the conversion price that would be applicable to such conversion if
it were a conversion in whole. The conversion rights described in this Section
2(g) shall expire with respect to the proposed partial prepayment described in
such Conversion Notice on the close of business on the date immediately
preceding the date this Notes are to be so prepaid and nothing is intended to
diminish the right of the Lender to convert the remaining principal amount of
this Note together with accrued and unpaid interest to the extent otherwise
permitted, and in the manner provided for, in this Section 2.
3. Covenants.
---------
(a) At all times other than of time from and after the consummation of
the Merger until the consummation of a Qualified IPO,. the Company agrees that
it shall not directly or indirectly (i) are or pay any dividend (other than a
stock dividend) or make any distribution on its capital stock or to the holders
of its capital stock, or (ii) directly or indirectly, purchase, redeem or
otherwise acquire or retire for value, any such capital stock (or options,
warrants or other rights to acquire such capital stock, other than this Note);
provided that (A) the Company may convert any of its convertible capital stock
into other capital stock pursuant to the terms of such convertible capital stock
or otherwise in exchange therefor, and (B) the Company may repurchase stock from
current or former employees of the Company in accordance with the terms of
repurchase or similar agreements between the Company and such employees or in
accordance with the terms of any employee stock ownership plan.
(b) At all times other than the period of time from and after the
consummation of the Merger until the consummation of a Qualified IPO, the
Company agrees that it shall not (i) consolidate with or merge into any other
person or (ii) sell, lease or otherwise transfer, directly or indirectly, all or
substantially all of the assets of the Company and its subsidiaries, taken as a
whole, to any other person unless (A) the successor formed by such consolidation
or the survivor of such merger or the person that acquires by conveyance,
transfer or lease all or substantially all of the assets of the Company and its
subsidiaries if an entirety, as the case may be, shall be a solvent corporation
organized and existing under the laws of the United States or any State thereof
(including the District of Columbia), and, if the Company is not such
corporation, such corporation shall have executed and delivered to the Lender
its assumption of the due and punctual performance and observance of each
covenant and condition of this Note and (B) immediately after giving effect to
such transaction, no Event of Default and no condition or event which with the
giving of notice or lapse of time or both would, unless cured or waived, become
an Event of Default, shall have occurred and be continuing. Upon the
5
<PAGE>
occurrence of a consolidation merger or a sale, lease or transfer of all or
substantially all of the assets of the Company and its subsidiaries, the Lender
shall be entitled to receive, upon conversion of this Notes following a
Convertibility Event, for each share of common stocks that the Lender would
otherwise be entitled to receive upon conversion, such stock, other securities,
other property or assets (including cash) received by the holders of common
stock of the Company per share.
4. Events of Default.
-----------------
(a) The following shall constitute an "Event of Default" under this Note:
(i) the Company shall fail to pay when due any principal of or
interest on this Note and such failure shall continue for 30 days;
(ii) the Company shall fail to observe or perform any covenant or
agreement contained in this Note (other than those covered by clause (i) above)
for a period of 60 days after written notice thereof has been given to the
Company by the Lender;
(iii) the Company subsidiaries shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall con sent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing; or
(iv) an involuntary case or other proceeding shall be commenced
against the Company (other than as the result of a petition by the Lender or any
of its affiliates) seeking liquidation, reorganization or other relict with
respect to it or its debts under any bankruptcy insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days; or an order for relief shall
be entered against the Company or any of its subsidiaries under the federal
bankruptcy as now or hereafter in effect.
Notwithstanding the foregoing, in no event shall an Event of Default be
deemed to have occurred during the period of time from and after the
consummation of the Merger until the consummation of a Qualified IPO.
(b) Notwithstanding any provision of this Note to the contrary, upon the
occurrence and during the continuance of an Event of Default, then, the Lender
may, by
6
<PAGE>
principal amount thereof and accrued interest thereon without presentment,
demand, protest, or other notice of any kind, all of which are hereby expressly
waived, anything contained herein or therein to the contrary notwithstanding,
provided that upon the occurrence of an Events of Default specified in Section
4(a)(iii) or 4(a)(iv) above with respect to the Company, without any notice to
the Company or any other act by the Lender, this Note shall become forthwith due
and payable, both as to the outstanding principal amount thereof and accrued
interest thereon, without presentment, demand, protest, or other notice of any
kind, all of which are hereby expressly waived, anything contained herein or
therein to the contrary notwithstanding.
(c) In case an Event of Default shall have occurred and be continuing,
then, the Lender may proceed to protect and enforce the Lenders rights either by
suit in equity and/or by action at law, whether for the specific performance of
any covenant or agreement contained in the Merger Agreement or this Note or in
aid of the exercise of any power granted in the Merger Agreement or in this
Note, or proceed to enforce the payment of this Note or to enforce any other
legal or equitable right of the Lender. Any overdue principal of or interest on
this Note shall bear interest, payable on demand, and in lawful money of the
United States, for each day until paid at the rate of 9.00% per annum. No remedy
herein conferred is be exclusive of any other remedy and each and every such
remedy shall be in addition to every other remedy given hereunder or hereafter
existing or in equity or by statute or otherwise. No course of dealing between
the Company of its subsidiaries and the Lender or any delay on the part of the
Lender in exercising any rights hereunder shall operate as a waiver of any
rights of any such person hereunder or under the Merger Agreement.
5. Transfer. This Note may not be transferred, assigned or conveyed by
--------
the Lender, including by operation of law, without the prior written consent of
the Company.
6. Notices: Choice of Law and Consent to Service of Process. (a) Any
-------
notice, other communication or payment required or permitted hereunder shall be
in writing and shall be deemed to have been given upon delivery if personally
delivered or upon deposit if deposited in the United States mail for mailing by
certified mail, postage prepaid, and addressed as follows:
If to Lender: USA Networks, Inc.
152 West 57th Street
42nd Floor
New York, NY 10019
Telephone: (212) 314-7322
Facsimile: (212) 314-7329
Attn.: Thomas J. Kuhn, Esq.
7
<PAGE>
If to Company: CitySearch, Inc.
790 East Colorado Boulevard
Suite 200
Pasadena, CA 91101
Telephone: (626)405-0050
Facsimile (626) 405-9929
Attn.: Douglas McPherson
Each of the above addressees may change its address for purposes of this
paragraph by giving to the other addressee notice of such new address in
conformance with this paragraph.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
(c) The Company and Lender each hereby irrevocably submit to the
jurisdiction of any New York State or Federal Court sitting in the city and
county of New York in respect of any suit, action or proceeding arising out of
or relating to this Agreement and irrevocably accepts for itself and in respect
of its property, generally and unconditionally jurisdiction of the aforesaid
courts. The Company and Lender each irrevocably waives, to the fullest extent
such party may effectively do so under applicable law trial by jury and any
objection that such party may now or hereafter have to the laying of venue of
any such suit action or proceeding brought in any such court and any claim that
any such suit, action or proceeding brought in any such court has been brought
in an inconvenient forum. Nothing herein shall. affect the right, of any party
hereto to serve process in any manner permitted by law or to commence legal
proceedings or otherwise proceed against the other party in any other
jurisdiction.
7. The Company represents, warrant that as of the date of this Note that:
(a) The Company is a corporation duty incorporated validly existing and in
good standing under the laws of the State of Delaware;
(b) The execution delivery and performance by the Company of this Note are
within the Company's corporate powers, have been duly authorized by all
necessary Corporate action on the part of the Company, require no action by or
in respect of, or filing with, any person and do not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
certificate of incorporation or bylaws of the Company or of any argument,
judgment, injunction, order, decree or other instrument binding upon or
affecting the Company or any of its properties or assets; and
This Note has been duly and validly executed and delivered by the Company,
and constitutes a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms.
8
<PAGE>
8. Miscellaneous. The Company hereby waives presentment demand for
-------------
performance, notice of non-performance, protest, notice of protest and notice of
dishonor. This Note is being delivered in and shall be construed in accordance
with the laws of the State of New York, without regard to the conflicts of laws
provisions thereof. In tile event any interest or other forbearance is paid on
this Note which is deemed to be in excess of the then legal maximum rate, then
that portion of the interest payment representing an amount in excess of the
then legal maximum rate shall be deemed a payment of principal and applied
against the principal of this Note.
CITYSEARCH, INC.
By: /s/ Douglas McPherson
---------------------------------------------
Name: Douglas McPherson
-------------------------------------------
Title: Chief Legal Officer
------------------------------------------
Accepted and agreed:
USA NETWORKS, INC.
By: /s/ Thomas J. Kuhn
---------------------------------------------
Name: Thomas J. Kuhn
-------------------------------------------
Title: Senior Vice President and General Counsel
------------------------------------------
9
<PAGE>
EXHIBIT 10.25
NON-COMPETITION AGREEMENT
-------------------------
THIS NON-COMPETITION AGREEMENT (the "Agreement") is made and entered
into this 12th day of August, 1998, by and among CitySearch, Inc., a Delaware
corporation (the "Company"), Ticketmaster Corporation, an Illinois corporation
("Ticketmaster"), Ticketmaster Multimedia Holdings, Inc., a Delaware corporation
("TMOL"), and Charles Conn ("Executive"), with reference to the following facts:
A. TMOL and CitySearch are agreeing to combining their businesses
pursuant to an Agreement and Plan of Reorganization (the "Merger
Agreement") dated as of the date hereof.
B. Executive is the Chief Executive Officer and a stockholder of the
Company.
C. It is a condition to Ticketmaster's and TMOL's willingness to agree to
proceed with the business combination that TMOL and Executive enter
into this Agreement.
D. It is a condition to Executive's willingness to enter into this
Agreement that Ticketmaster agree to be bound by the terms hereof.
NOW, THEREFORE, in consideration of the premises, mutual covenants,
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. COVENANT NOT TO COMPETE: For the period from and including the
date of this Agreement to the date that is two years and six
months from the date of this Agreement, Executive will not,
without prior written consent of TMOL and the Company, directly
engage in or assist any activity that is the same as or that
materially competes with the Business (other than on behalf of
the Company, TMOL or any of their respective affiliates)
including, without limitation, whether such engagement or
assistance is as an officer, director, proprietor, employee,
partner, investor (other than as a holder of less than 5% of the
outstanding capital stock of a publicly traded corporation or
other entity), guarantor, consultant, advisor, agent, sales
representative or other participant, anywhere in the world;
provided that if such activity of Executive is with Digital City,
Inc. or the Sidewalk division of Microsoft Corporation, such
period shall extend to the date three years and sixth months from
the date of this Agreement (such two and one-half or three and
one-half year periods, as applicable, being referred to herein as
the "Term"). The "Business" shall mean (i) the production and
delivery of local city guides on the World Wide Web (or its
equivalent) providing arts and entertainment, food and drink, or
yellow pages business information and (ii) sale of tickets to
live events through any distributed channels. As consideration
for this Agreement,
<PAGE>
Ticketmaster shall pay to Executive in cash (the "Payment") the
sum of $ 250,000 immediately upon the signing of this Agreement;
provided, that, in the event that the Merger Agreement is
--------------
terminated prior to the Effective Time (as such term is defined
in the Merger Agreement), Executive shall, as soon as reasonably
practicable, repay to Ticketmaster that portion of the Payment
actually received by Executive (i.e., less any withholding taxes
or other amounts deducted or withheld). Executive acknowledges
and agrees that the Payment constitutes adequate independent
consideration for Executive's obligations hereunder.
2. SOLICITATION OF EMPLOYEES: For a period of one year following
the date of termination of Executive's employment with the
Company for any reason, Executive shall not directly or
indirectly solicit or attempt to solicit any senior employee of
the Company, or TMOL, or any of their respective subsidiaries to
leave the employ of the Company or TMOL or to cease providing or
otherwise alter the services then provided to the Company, TMOL
or any of their respective subsidiaries or affiliates in
connection with the operation of any business (whether or not the
same as or similar to the Business).
3. NON-SOLICITATION OF CUSTOMERS: For a period of one year
following the date of termination of Executive's employment with
the Company for any reason, Executive shall not, directly or
indirectly, on his own behalf or otherwise, solicit any
customers, advertisers, or other clients of the Company or TMOL
or any of their respective subsidiaries or affiliates or
encourage any such customers, advertisers, or clients to use the
facilities or services of any competitor of the Company, TMOL or
any of their respective subsidiaries.
4. EQUITABLE RELIEF: Executive acknowledges that the covenants
contained in Paragraphs 1, 2 and 3, hereof are reasonable and
necessary to protect the legitimate interests of TMOL and the
Company, that in the absence of such covenants, TMOL would not
have agreed to proceed with the Merger, that any breach or
threatened breach of such covenants will result in irreparable
injury to TMOL, and the Company and that the remedy at law for
such breach or threatened breach would be inadequate.
Accordingly, the Executive agrees that each or either of TMOL or
the Company, in addition to any other rights or remedies which it
may have, shall be entitled to seek such equitable and injunctive
relief as may be available from any court of competent
jurisdiction to restrain the Executive from any breach or
threatened breach of such covenants.
5. COMPLETE AGREEMENT; MODIFICATIONS: Except as specifically
provided herein, this Agreement and any documentation referred to
herein
<PAGE>
constitute the parties' entire agreement with respect to the
subject matter hereof and supersede all agreements,
representations, warranties, statements, promises, and
understandings, whether oral or written with respect to the
subject matter hereof. This Agreement may be executed in
counterparts and may not be amended, altered, or modified except
by a writing signed by the parties; provided that this Agreement
may be terminated at the Executive's discretion if the Payment is
not made within two days following the execution of the Merger
Agreement.
6. GOVERNING LAW; JURISDICTION: All questions with respect to this
Agreement and the rights and liabilities of the parties will be
governed by the laws of the State of Delaware. Any and all
disputes between the parties which may arise pursuant to this
Agreement will be heard and determined before an appropriate
federal court in Delaware, or, if not maintainable therein, then
in an appropriate Delaware State Court. The parties hereto
acknowledge that such courts, as applicable, have jurisdiction to
interpret and enforce the provisions of this Agreement, and the
parties consent to, and waive any and all objections that they
may have as to, personal jurisdiction and/or venue in any such
court.
<PAGE>
7. SEVERABILITY: The validity, legality, or enforceability of the
remainder of this Agreement will not be affected even if one or
more of the provisions of this Agreement is held invalid,
illegal, or unenforceable in any respect. Further, if the period
of time, the extent of the geographic area, or the scope of
proscribed activities covered by this Agreement should be deemed
unenforceable, then this Agreement shall be construed to cover
the maximum period of time, geographic area or scope of
proscribed activities (not to exceed the maximum period of time
or scope set forth herein) as may be valid under the applicable
law, and each of the parties hereto shall request any court
considering the enforceability of this Agreement to construe
and/or reform it so as to render it enforceable to the maximum
extent as provided above.
TICKETMASTER TMOL
By:/s/ Eugene L. Cobuzzi By:/s/ Eugene L. Cobuzzi
--------------------------- -------------------------
Name: Eugene L. Cobuzzi Name: Eugene L. Cobuzzi
Title:C.O.O Title:
COMPANY EXECUTIVE
By: /s/ Bradley Ramberg /s/ Charles Conn
--------------------------- ----------------------------
Name: Bradley Ramberg
Title: CFO
* * * NON-COMPETITION AGREEMENT * * *
<PAGE>
EXHIBIT 10.26
NON-COMPETITION AGREEMENT
-------------------------
THIS NON-COMPETITION AGREEMENT (the "Agreement") is made and entered
into this 12th day of August, 1998, by and among CitySearch, Inc., a Delaware
corporation (the "Company"), Ticketmaster Corporation, an Illinois corporation
("Ticketmaster"), Ticketmaster Multimedia Holdings, Inc., a Delaware corporation
("TMOL"), and Thomas Layton ("Executive"), with reference to the following
facts:
A. TMOL and CitySearch are agreeing to combining their businesses
pursuant to an Agreement and Plan of Reorganization (the "Merger
Agreement") dated as of the date hereof.
B. Executive is the President and a stockholder of the Company.
C. It is a condition to Ticketmaster's and TMOL's willingness to agree to
proceed with the business combination that TMOL and Executive enter
into this Agreement.
D. It is a condition to Executive's willingness to enter into this
Agreement that Ticketmaster agree to be bound by the terms hereof.
NOW, THEREFORE, in consideration of the premises, mutual covenants,
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. COVENANT NOT TO COMPETE: For the period from and including the
date of this Agreement to the date that is two years and six
months from the date of this Agreement, Executive will not,
without prior written consent of TMOL and the Company, directly
engage in or assist any activity that is the same as or that
materially competes with the Business (other than on behalf of
the Company, TMOL or any of their respective affiliates)
including, without limitation, whether such engagement or
assistance is as an officer, director, proprietor, employee,
partner, investor (other than as a holder of less than 5% of the
outstanding capital stock of a publicly traded corporation or
other entity), guarantor, consultant, advisor, agent, sales
representative or other participant, anywhere in the world;
provided that if such activity of Executive is with Digital City,
Inc. or the Sidewalk division of Microsoft Corporation, such
period shall extend to the date three years and sixth months from
the date of this Agreement (such two and one-half or three and
one-half year periods, as applicable, being referred to herein as
the "Term"). The "Business" shall mean (i) the production and
delivery of local city guides on the World Wide Web (or its
equivalent) providing arts and entertainment, food and drink, or
yellow pages business information and (ii) sale of tickets to
live events through any distributed channels. As consideration
for this Agreement,
<PAGE>
Ticketmaster shall pay to Executive in cash (the "Payment") the
sum of $ 250,000 immediately upon the signing of this Agreement;
provided, that, in the event that the Merger Agreement is
--------------
terminated prior to the Effective Time (as such term is defined
in the Merger Agreement), Executive shall, as soon as reasonably
practicable, repay to Ticketmaster that portion of the Payment
actually received by Executive (i.e., less any withholding taxes
or other amounts deducted or withheld). Executive acknowledges
and agrees that the Payment constitutes adequate independent
consideration for Executive's obligations hereunder.
2. SOLICITATION OF EMPLOYEES: For a period of one year following
the date of termination of Executive's employment with the
Company for any reason, Executive shall not directly or
indirectly solicit or attempt to solicit any senior employee of
the Company, or TMOL, or any of their respective subsidiaries to
leave the employ of the Company or TMOL or to cease providing or
otherwise alter the services then provided to the Company, TMOL
or any of their respective subsidiaries or affiliates in
connection with the operation of any business (whether or not the
same as or similar to the Business).
3. NON-SOLICITATION OF CUSTOMERS: For a period of one year
following the date of termination of Executive's employment with
the Company for any reason, Executive shall not, directly or
indirectly, on his own behalf or otherwise, solicit any
customers, advertisers, or other clients of the Company or TMOL
or any of their respective subsidiaries or affiliates or
encourage any such customers, advertisers, or clients to use the
facilities or services of any competitor of the Company, TMOL or
any of their respective subsidiaries.
4. EQUITABLE RELIEF: Executive acknowledges that the covenants
contained in Paragraphs 1, 2 and 3, hereof are reasonable and
necessary to protect the legitimate interests of TMOL and the
Company, that in the absence of such covenants, TMOL would not
have agreed to proceed with the Merger, that any breach or
threatened breach of such covenants will result in irreparable
injury to TMOL, and the Company and that the remedy at law for
such breach or threatened breach would be inadequate.
Accordingly, the Executive agrees that each or either of TMOL or
the Company, in addition to any other rights or remedies which it
may have, shall be entitled to seek such equitable and injunctive
relief as may be available from any court of competent
jurisdiction to restrain the Executive from any breach or
threatened breach of such covenants.
5. COMPLETE AGREEMENT; MODIFICATIONS: Except as specifically
provided herein, this Agreement and any documentation referred to
herein
<PAGE>
constitute the parties' entire agreement with respect to the
subject matter hereof and supersede all agreements,
representations, warranties, statements, promises, and
understandings, whether oral or written with respect to the
subject matter hereof. This Agreement may be executed in
counterparts and may not be amended, altered, or modified except
by a writing signed by the parties; provided that this Agreement
may be terminated at the Executive's discretion if the Payment is
not made within two days following the execution of the Merger
Agreement.
6. GOVERNING LAW; JURISDICTION: All questions with respect to this
Agreement and the rights and liabilities of the parties will be
governed by the laws of the State of Delaware. Any and all
disputes between the parties which may arise pursuant to this
Agreement will be heard and determined before an appropriate
federal court in Delaware, or, if not maintainable therein, then
in an appropriate Delaware State Court. The parties hereto
acknowledge that such courts, as applicable, have jurisdiction to
interpret and enforce the provisions of this Agreement, and the
parties consent to, and waive any and all objections that they
may have as to, personal jurisdiction and/or venue in any such
court.
<PAGE>
7. SEVERABILITY: The validity, legality, or enforceability of the
remainder of this Agreement will not be affected even if one or
more of the provisions of this Agreement is held invalid,
illegal, or unenforceable in any respect. Further, if the period
of time, the extent of the geographic area, or the scope of
proscribed activities covered by this Agreement should be deemed
unenforceable, then this Agreement shall be construed to cover
the maximum period of time, geographic area or scope of
proscribed activities (not to exceed the maximum period of time
or scope set forth herein) as may be valid under the applicable
law, and each of the parties hereto shall request any court
considering the enforceability of this Agreement to construe
and/or reform it so as to render it enforceable to the maximum
extent as provided above.
TICKETMASTER TMOL
By:/s/ Eugene L. Cobuzzi By:/s/ Eugene L. Cobuzzi
--------------------------- -------------------------------
Name:Eugene L. Cobuzzi Name:Eugene L. Cobuzzi
Title:C.O.O. Title:
COMPANY EXECUTIVE
By:/s/ Douglas McPherson /s/ Thomas Layton
--------------------------- ----------------------------------
Name: Douglas McPherson
Title:Chief Legal Officer
* * * NON-COMPETITION AGREEMENT * * *
<PAGE>
EXHIBIT 10.28
DEVELOPMENT AND SERVICES AGREEMENT
This Development and Services Agreement (the "Agreement") is made and
entered into as of June 28, 1996 by and between Ticketmaster Multimedia
Holdings, Inc., a Delaware corporation, with offices at 3701 Wilshire Blvd., Los
Angeles, California 90010 ("Company") and Starwave Corporation, a Washington
corporation with offices at 13810 S.E. Eastgate Way, Suite 400, Bellevue,
Washington 98005 ("Provider"), upon the following terms and conditions:
1.0 BACKGROUND; THE PROJECT
1.1 Company desires to have delivered and implemented a custom, turnkey,
integrated, multi-user network, transactional web site (hereinafter referred to
as the "System") for use by Company on the TM Web Site. The System must, among
other things, effectively interface with Company's ticketing system (the "TM
System").
1.2 In its consultations with Company and after a mutual determination of
system requirements, Provider has represented, among other things, that, with
Company's cooperation, it could provide Company with the System, defined in
Section 1.1 above, that would meet Company's requirements, and that Provider
would deliver, install and test the System, and provide conversion, training,
and support services (the "Project"), all as defined and described herein.
1.3 In reliance upon Provider's recommendations, and subject to the terms and
conditions of this Agreement, Company engages Provider to perform the Project
and to provide other software and services as Company may request from time to
time on an ongoing basis during the term of this Agreement.
2.0 DEFINITIONS
The following definitions shall apply to this Agreement:
2.1 "Company Net Profits" means gross revenues actually received by Company
and the other TM Subsidiaries directly from the on-line sale of merchandise to
consumers on the TM Web Site, less (a) any shipping/handling charges (including
insurance) collected by Company and the other TM Subsidiaries in connection with
the sale of such merchandise and (b) direct costs of the sale of such
merchandise, including, without limitation, the invoiced cost of such
merchandise, costs of developing, operating and maintaining the TM Web Site,
packaging costs, chargebacks, returns, refunds, credit card company charges,
selling incentives and commissions directly connected with the sale of the
merchandise, billing errors, doubtful accounts, marketing costs directly and
exclusively associated with the sale of the merchandise and applicable taxes;
provided that such direct costs shall not include overhead charges such as the
general and administrative expenses of Ticketmaster Corporation.
<PAGE>
2.2 "Company Source Content" means all content delivered by the Company in
connection with or related to the TM Web Site, including, without limitation,
all text, photographs, sound audio and video segments, animation, databases,
screen displays, graphics, charts, tables or any other content or documents
(including all literary and statutory rights thereto).
2.3 "Confidential Information" means all financial records and financial
information regarding the parties, technical information regarding the parties'
products or business, design, development, production, and sales processes
(provided they can be shown to be unique and proprietary), consumer and
distributor lists, all Company's business records, all Company's consumer
records, all Company's sales data and history, Provider's proprietary software,
Company's proprietary software, and any other information or documentation
covered by Section 17.1 below.
2.4 "Copyrights" shall mean any of the copyrights owned by Provider or
Company for use on or with the Software, whether registered or unregistered.
2.5 "Documentation" shall mean all information including, but not limited to,
user manuals, handbooks, operating instructions, technical data or other
materials (whether in human or machine-readable form) relating to the Licensed
Software, including any updates or revisions to such materials.
2.6 "Domain Name" means a name associated with a specific address for a
computer server registered with InterNIC for use on the Internet.
2.7 "Existing TM Web Site" means the web site currently available on the
World Wide Web portion of the Internet through the Company and/or a TM
Subsidiary, which web site is or was operated and maintained by Provider on
behalf of one or more of the TM Subsidiaries on the Web Server.
2.8 "Hardware" shall mean the equipment recommended by Provider necessary to
run the Software. The term "Hardware" shall also include all related operating
system software.
2.9 "Inventions" shall mean any idea, design, concept, technique, inventi on,
discovery, or improvement, regardless of patentability.
2.10 "Know How" shall mean all trade secrets and information relating to the
Licensed Software in the possession of Provider, including that comprised in
designs, drawings, specifications, manuals or materials that enable one to use
technology and used by Company to carry out its obligations under this
Agreement.
2.11 "Licensed Materials" means any materials or elements not owned by
Provider or Company, of whatever nature (including computer programs) created
for or furnished to Provider by third parties and that are used by Provider to
create the TM Web Site.
- 2 -
<PAGE>
2.12 "Licensed Software" shall mean any and all software related to the TM
Web Site, in object code and/or in source code form, which was or is developed
by Provider and/or its licensors (if applicable), and is provided to the Company
by Provider as Works for Hire (as described in Title 18 USC et. seq., "The
United States Copyright Act") for use in connection with and/or on the TM Web
Site and all functions contained therein. All Software documentation and support
materials shall be deemed part of the Licensed Software. Provider Technology
shall be owned though licensed by the Provider to Company as limited by
paragraph 2.18 below. In no event shall Provider have any right, title or
interest in or to any TM procedures and/or methodologies incorporated in any
programs at the Company's direction including, but not limited to, transactional
protocols.
2.13 "Marks" means the marks "TICKETMASTER" and any other trademarks or
service marks or Domain Names or URLs used on or in connection with or
associated with the Web Pages or the TM Web Site or owned by Ticketmaster Group,
Inc. and/or the TM Subsidiaries.
2.14 "Nonconformity" means a design error, design defect, functional defect,
programming error or anomaly and/or deviation.
2.15 "On-Line Revenue" means gross service charge revenues actually received
by Company and the other TM Subsidiaries directly from service charges collected
by Company and the other TM Subsidiaries from selling tickets to the public on
line on the TM Web Site, less (a) applicable taxes, (b) refunds, (c) rebates,
(d) credit card processing fees, and (e) shipping and handling charges.
2.16 "Proprietary Rights" shall mean the Trademarks, Copyrights, trade
secrets, Know-how, Inventions (whether patentable or not) and Confidential
Information, collectively.
2.17 "Provider Royalty Period" means the period during which Provider is
entitled to royalty payments of the Agreement, as set forth in Section 9.0.
2.18 "Provider Technology" means those programs of the Licensed Software and
any and all intellectual proprietary rights contained in and related thereto to
which are listed in Exhibit "A" attached hereto and incorporated by reference in
this Agreement. Notwithstanding this provision or any other provision contained
in this Agreement, the Company may modify, enhance and maintain the Provider
Technology for use in conjunction with the TM Web Site. In no event shall
Provider Technology include any Company Source Content.
2.19 "Software" shall mean all programming in object code, source code or any
other format in accordance with the Specifications, and shall be deemed to
include all Documentation that supports or relates to any or all of the
foregoing.
2.20 "Specifications" means the definition of the scope and functional
characteristics of the Web Pages and TM Web Site prepared by the Company in
reliance upon the Provider's recommendations and as generally described in
Exhibit B.
- 3 -
<PAGE>
2.21 "Subsidiary" of a person (a "Parent") means any corporation or other
entity with respect to which at least a majority of the outstanding voting power
at the time is controlled, directly or indirectly, by the Parent, one or more
Subsidiaries or by the Parent and one or more Subsidiaries.
2.22 "Trademarks" shall mean, whether registered or unregistered, the trade
names of each party and any other trade name, trade dress, trademarks or service
marks owned by or licensed by each party for use on or with the Software, the
System or the Services.
2.23 "TM Subsidiary" or "TM Subsidiaries" means one or more Subsidiaries of
Ticketmaster Group, Inc.
2.24 "URL" means a Uniform Resource Locator, namely, an address associated
with each Web Page on the Internet.
2.25 "Web Pages" means those materials created and developed pursuant to this
Agreement or in connection with the Existing TM Web Site containing Company
Source Content or other materials furnished by Company to Provider for the
purpose of providing a site for such files on the World Wide Web portion of the
Internet via a server furnished by Provider, Company or another party.
2.26 "Web Server" means a computer operated by Provider for making the TM Web
Site and/or the Existing TM Web Site available on the Internet.
2.27 "TM Web Site" means Company's Web Pages available on the World Wide Web
portion of the Internet.
2.28 "Works" means all of the results and proceeds of Provider's services and
any materials created or developed by or on behalf of Provider pursuant to this
Agreement or in connection with the Existing TM Web Site, any information or
data derived or resulting from or relating to the use of the TM Web Site on the
Web Server (or any other web server operated by Provider), and any copies or
derivative works of any of the foregoing, in whatever physical form in which any
of the foregoing may exist, but specifically excluding the Provider Technology
and the Licensed Materials.
3.0 ENGAGEMENT, DURATION
3.1 Company hereby engages Provider to provide the services and related
materials and equipment hereinafter described at Provider's facility in
Bellevue, Washington or at Company's facility in Los Angeles, California (as the
parties mutually agree) and subject to all of the terms and conditions of this
Agreement. Provider has commenced engagement prior to the date hereof and agrees
that such prior activity, as well as, the activities it will undertake
hereinafter were and shall be subject to the terms of this Agreement, and hereby
accepts such engagement and agrees to make itself available and to render the
services under this Agreement in a professional, high-quality and timely manner,
consistent with the highest computer software development industry professional
standards. Provider agrees to provide services, as reasonably
- 4 -
<PAGE>
requested, during the Provider Royalty Period for changes (including, but not
limited to, updates and upgrades) reasonably requested by Company.
4.0 DEVELOPMENT AND TM WEB SITE OPERATIONS
4.1 Development.
4.1.1 Provider has in the past provided and shall continue to
provide professional consulting, creative, writing, design and computer
programming services in connection with the development of Company's Web Pages
and the TM Web Site, as well as such other services, materials, and equipment as
are customarily provided in connection with such consulting, creative, design
and programming activities or as may be required or directed by the Company from
time to time; provided, that all creative and design work shall be subject to
the prior written approval of Company and provided, further, that all new
creative and design work requested by Company after Final Acceptance shall be
subject to the prior approval of each of the parties. Such services, materials
and equipment shall include, without limitation:
4.1.1.1 Designing, creating and testing Web Pages and the TM Web
Site, which shall contain, without limitation, the content of the site, menus,
cross-references, hypertext, other organizational features, screen layouts,
screen displays, operational control features, security features and the other
features, and computer source code and object code related to the development
and implementation of these elements;
4.1.1.2 Providing technical and creative assistance, materials and
services to upgrade or modify Web Pages and TM Web Site;
4.1.1.3 Developing and implementing plans to promote and publicize
the TM Web Site in appropriate forums, such as indexing services and USENET
groups;
4.1.1.4 Providing general technical and support services for the
operation of the TM Web Site on the Internet on the Web Server;
4.1.2 If any Nonconformities are discovered, Provider will immediately
correct such Nonconformities at Provider's cost and expense.
4.2 TM Web Site Operations. Provider has in the past provided and shall
continue to provide all services and equipment necessary to install, maintain,
and support the TM Web Site over the Web Server and make the TM Web Site
available to Internet users. Such service and equipment shall include:
4.2.1 Installing and, if necessary, converting, Company's Web Pages for
use on the Web Server such that Company's Web Pages are readily available on the
World Wide Web portion of the Internet utilizing all regularly used versions of
all major commercially available browsers;
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4.2.2 Furnishing a Web Server running SPARC 20 connected to a T1 or
faster communications link provided to Company with sufficient minimum disk
space for storage of the TM Web Site and Web Pages on the Web Server;
4.2.3 Providing all computer, communications and other equipment
necessary for the Web Server to access the Internet on a continual basis;
4.2.4 Training of Company personnel at Company's Los Angeles, California
facility for the purpose of internal content creation and updates;
4.2.5 Forwarding to the E-mail address specified by Company on a daily
basis any comments or other communications from the TM Web Site designated for
Company;
4.2.6 Correcting any errors to the TM Web Site caused by Provider within
twenty-four (24) hours of Provider's knowledge of such errors; and
4.2.7 Creating an environment (a working Web Page) for Company to be able
to send and receive documents (such as by Standard Internet File Transfer
Protocol [FTP]) as well as for the purpose of Company updating Web Pages and the
TM Web Site.
4.3 Transitioning of Development and Operations to the Company. Provider
shall transition and migrate responsibility for the development, operation and
maintenance of the Web Pages, the TM Web Site and the Existing TM Web Site to
Company in an orderly and efficient manner, without interruption or disruption
of service to the end-user (the "Transition"). Such Transition responsibilities
shall include, without limitation:
4.3.1 provide training to Company personnel at Company's Los Angeles,
California facility necessary to effect the Transition;
4.3.2 migrate the TM Web Site to Company's web server(s);
4.3.3 provide general technical and support services for the operation of
the TM Web Site on the Internet on Company's web server(s);
4.3.4 provide technical services to upgrade or modify Company's Web Pages
on the TM Web Site or web pages;
4.3.5 promptly upon request of Company, deliver to Company all Works and
all Company Source Content;
4.3.6 cooperate with Company in conducting tests of any hardware or
software; and
4.3.7 provide all then-current user guides, installation guides,
narrative descriptions, specifications, file lay-outs, logic flow diagrams, test
or other data, test programs
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and other information that is owned, used or held by Provider in connection with
performance of its obligations under this Agreement.
Company will use reasonable best efforts to cooperate with Provider in
connection with Provider's obligations under this Section 4.3.
5.0 PROJECT MANAGEMENT
5.1 Company and Provider have each designated one individual to serve as
"Project Manager" and may from time to time designate in writing replacement
Project Managers. Except as otherwise described herein, the Project Managers
will be deemed to have authority to perform the management duties described in
this Agreement, and give and receive any notices or other communications
required hereunder. All communications relating to Sections 4.0 through 8.0
shall initially be conducted through the parties' Project Managers.
5.2 In addition to the foregoing, Provider's and Company's Project Managers
and other appropriate personnel as necessary will meet to discuss any matters
that relate to the performance of this Agreement, as might reasonably be
requested from time to time by either party.
6.0 PERSONNEL; RESOURCES
6.1 Provider shall exercise due diligence to maintain an adequate number of
trained, competent personnel to perform its duties under this Agreement and for
future support.
6.2 During the course of the Project and during the Provider Royalty Period,
if Company notifies Provider that an employee of Provider or any third party
personnel who perform services in connection with the Project at Company's
premises, does not adequately perform responsibilities assigned to that
individual or lacks the ability or skills (including, without limitation,
interpersonal skills) needed to fulfill his or her tasks related to the Project,
then Provider shall take such actions as necessary to substantially improve such
person's conduct or performance, or at Company's request, and at no cost to
Company, Provider shall replace such individual with an individual who
reasonably meets Company's qualifications.
6.3 When a party's personnel are located at the other party's facilities, the
hosting party will, at no charge to the other party, provide such personnel with
a work environment reasonably suitable for those persons to perform their
assigned responsibilities. Each party shall provide the other party with
reasonable advance notice of any visiting personnel.
7.0 PROJECT CHANGE
7.1 During the Project and the Provider Royalty Period, if either party
wishes to make changes to the Licensed Software, or change any component thereof
(collectively referred to as a "Change"), both parties shall comply with the
procedures set forth in Sections 7.2 through 7.5 inclusive.
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7.2 The Company Project Manager, when requesting a Change, will submit in
writing to the Provider's Project Manager the requested Change and any other
information to be provided thereon for the consideration and implementation of
such Change.
7.3 If the Change is initiated by Company:
7.3.1 Provider will evaluate such Change Request and will respond to
Company's Project Manager in writing within five (5) days following receipt of
the Change Request. Provider's response will include a statement of the
availability of Provider's personnel and resources and any required adjustment
to the Project. There shall be no further costs or charges for reasonably
requested changes during the Provider Royalty Period.
7.3.2 Should Company elect to pursue such Change Request, Company will,
within five (5) days after receiving Provider's response and Resulting Changes,
authorize Provider to implement the Change by returning to Provider's Project
Manager a copy of the Change Request and Provider's response with the Resulting
Changes executed by Company's Project Manager. Upon such authorization by
Company, Provider will commence performance in accordance with such Change
Request and Resulting Changes.
7.4 In addition to any Change, the parties may utilize the procedure set
forth in these Sections 7.1 through 7.5 inclusive to amend the Project as a
result of any unforeseen Project problem.
7.5 Each Change Request fully executed by both Project Managers shall be
deemed incorporated into, and will constitute a formal amendment to, this
Agreement.
8.0 FINAL ACCEPTANCE
8.1 After Project completion, Provider shall install the Software on the
Hardware and demonstrate and test the Software in accordance with the objective
performance criteria to determine whether or not the Software or the applicable
part thereof is free of material defects and operates in all respects in
conformity with the Specifications.
8.2 If the Software is not free of material defects or does not operate in
all respects in conformance with the Specifications, then Company shall promptly
notify Provider of any Nonconformity. Provider shall exercise due diligence to
correct any Nonconformity, and shall again demonstrate and test the Software
until it is free of defects and operates in all material respects in conformance
with the Specifications. This process shall continue until Company accepts the
Project. Unless specific notice is delivered to Provider by Company by September
1, 1996, setting forth nonacceptance, then Company shall be deemed to have
accepted the Project as of said date, subject to latent defects and the terms
and conditions of this Agreement.
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9.0 COMPENSATION
In exchange for all services, materials and equipment and all rights
and licenses granted by Provider to Company under this Agreement, Company agrees
to compensate Provider as follows:
9.1 A royalty payment of five percent (5%) of On-Line Revenues of Company
during the period of time beginning on the date of the first commercial on-line
transaction consummated through the TM Web Site (i.e.August 1, 1996) and ending
on July 31, 2003 (the "Provider Royalty Period").
9.2 A royalty payment of ten percent (10%) of Company Net Profits actually
received by Company during the Provider Royalty Period.
9.3 A royalty payment in the amount of twenty percent 20% of the service
charges, not to exceed $0.75 per ticket, for all tickets for sporting events
sold on-line in Provider's ESPNET Sportszone web site during the Provider
Royalty Period.
9.4 During the period commencing on August 1, 1996 and ending on January 31,
1997 (the "Stub Period"), Provider shall be entitled to receive from Company on
the last day of the Stub Period a minimum royalty payment equal to $50,000.00.
During each contract year hereof, beginning with August 1, 1996 and ending on
July 31, 2003, Provider shall be entitled to receive from Company minimum
royalty payments of One Hundred Thousand Dollars ($100,000.00), payable to
Provider (except as set forth in the prior sentence) in quarterly installments
of Twenty-Five Thousand Dollars ($25,000.00) on the last day of each fiscal
contract quarter commencing on March 31, 1997. All amounts due pursuant to this
Section 9.4 will be paid as provided in this Section . Any amounts paid by
Company to Provider pursuant to this Section 9.4 shall be credited against
amounts otherwise payable by Company to Provider pursuant to Sections 9.1 and
9.2 hereof, so that if, for example, in any contract year during the Provider
Royalty Period, the amount of royalty payments to which Provider is entitled
pursuant to Sections 9.1 and 9.2 above total $150,000.00, then Company shall be
required to make a payment of $50,000 to Provider in addition to the payments it
has made to Provider under Section 9.4 hereof.
9.5 At Provider's written request, delivered to Company within thirty (30)
days following the end of any fiscal year of the term hereof, and at Provider's
sole cost, Company shall deliver to Provider a letter from Company's auditor
validating that Company's calculation of the royalty payments due to Provider
for said fiscal year is accurate in all material respects.
10.0 OWNERSHIP AND ASSIGNMENT OF RIGHTS
10.1 Company acknowledges that except as otherwise provided herein, it shall
have no right, title or interest in or to the Provider Technology.
10.2 The Works and all rights therein (including title to the physical
objects), of whatever nature, including, without limitation, any patent, trade
secret, trademark or service mark rights (and any goodwill appurtenant thereto),
any rights of publicity, and any right, title
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and interest in any copyright and any right that may affix under any copyright
law now or hereinafter in force and effect in the United States or in any other
country or countries, shall be owned by Company immediately from inception
subject to the license granted in Section 11.1 and shall constitute works
specially ordered or commissioned as works made for hire under the United States
Copyright Act. Without limiting any of the foregoing, Provider hereby assigns
and transfers to Company all rights that Provider may have, of whatever nature,
including, without limitation, any patent, trade secret, trademark or service
mark rights (and any goodwill appurtenant thereto), any rights of publicity, and
any right, title and interest in any copyright and any right that may affix
under any copyright law now or hereinafter in force and effect in the United
States or in any other country or countries, in and to the Works, together with
ownership of all physical copies thereof, without condition, limitation, or
reservation. Company may add to, subtract from, arrange, rearrange, revise,
modify, change, and adapt the Works and any part or element thereof in its sole
and absolute discretion and Provider hereby irrevocably waives all of its rights
under the United States Copyright Act, including any rights provided in 17
U.S.C. Section 106, for any and all purposes for which the Works may be used,
and any rights of attribution and integrity conferred by 17 U.S.C. Section 106A
or any other "moral rights of authors" with respect to the Works and any uses
thereof to the full extent now or hereafter permitted by the laws of the United
States or the laws of any other country or countries for any and all purposes
for which the Works may be used. Notwithstanding the foregoing, Company
acknowledges that Provider may incorporate the Provider Technology in the Works
and Company's ownership of the Works shall not abrogate Provider's interest in
such Provider Technology.
10.3 Subject to paragraph 12.1.12 of this Agreement, Provider agrees to
obtain and furnish to Company all appropriate assignments, licenses, waivers and
releases from all persons who created or furnished the Licensed Materials or who
otherwise might claim any rights in the Licensed Materials, which assignments,
licenses, waivers and releases shall assign and transfer to Company all rights
that such persons may have, of whatever nature (and in no event less than the
equivalent rights granted by Provider to Company in paragraph 10.2 above), in
and to such Licensed Materials, or Provider otherwise shall have secured from
each person a paid up, royalty-free nonexclusive right and license granting to
Company irrevocably and unconditionally and in perpetuity the right throughout
the universe to copy, distribute, transmit, display, perform, create derivative
works, and otherwise use and exploit the Licensed Materials in whole or in part,
including, without limitation, the right to add to, subtract from, arrange,
rearrange, revise, modify, change and adapt the Licensed Materials and any part
or element thereof, and the right to permit others to do any of the foregoing,
in connection with Company's Web Pages and TM Web Site and any modification,
upgrade or version thereof, and their use on any server, and any promotion,
advertising or marketing relating thereto.
10.4 Provider agrees that the Marks and any goodwill appurtenant thereto
shall be owned exclusively by Company and shall inure solely to the benefit of
Company. Nothing in this Agreement shall give Provider any right, title or
interest in the Marks, and Provider will not at any time challenge or take any
action inconsistent with Company's ownership of the Marks or any registration
thereof anywhere in the world.
10.5 Company shall have the right, in its sole discretion, to prosecute and
control any dispute or litigation involving any claims that a third party has
infringed any of the Works or
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the Marks. Provider shall have the right, in its sole discretion, to prosecute
and control any dispute or litigation involving any claims that a third party
has infringed any of the Provider Technology, expect to the extent that any such
claim affects Company's rights in, or to the use of, the Provider Technology,
the Licensed Software and/or the TM Web Site.
10.6 Each party agrees that, upon the other party's request and expense, that
it will promptly execute, acknowledge, and deliver to such other party or its
designee such documents as such other party may deem necessary to evidence,
record, or effectuate any of such other party's rights or registrations or any
of the agreements, assignments, licenses, releases and waivers hereunder.
10.7 Neither party shall dispute or impugn the validity or enforceability of,
or the other party's right to use and control the use of, any of the other
party's Proprietary Rights, nor shall either party act or permit action in any
way that would impair the rights of the other party in and to such Proprietary
Rights.
10.8 Neither party shall apply for registration of any of the other party's
Proprietary Rights or of any mark confusingly similar thereto. Should a party
elect to apply for registration of one or more of its Proprietary Rights, and,
in such event, the other party will assist and cooperate with the applying
party's application in connection therewith.
11.0 LICENSES
11.1 Provider hereby irrevocably and unconditionally grants to Company in
perpetuity, and the Company hereby accepts, a nonexclusive limited right and
license throughout the universe to copy, distribute, transmit, display, perform,
and otherwise use and exploit the Provider Technology, in whole or in part, in
connection with the TM Web Site, for itself, its affiliates and its agents and
clients linked to the Company's Web Server with respect to the ordering, sale
and distribution of the Company's and its clients' products and services,
including, without limitation, the right to arrange, rearrange, revise, change,
adapt, alter, modify and create derivative works of the Provider Technology.
11.2 Company hereby grants to Provider from the date hereof through
acceptance, and Provider hereby accepts, the limited, nonexclusive right and
license to copy, distribute, transmit, display, perform, create derivative works
and modify the Works, any Company Source Content or other materials furnished by
Company to Provider pursuant to this Agreement, provided, however, such license
is limited and is valid solely for the purpose of rendering Provider's services
under this Agreement. Such limited right and license shall extend to no other
materials, including but not limited to transactional protocols, or for any
other purpose and shall terminate automatically upon the termination of this
Agreement for any reason. Any such modification or use shall inure solely to
Company's interest and Company shall have sole right, title and interest in and
to any such modifications and/or use.
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12.0 REPRESENTATIONS, WARRANTIES AND OTHER OBLIGATIONS
12.1 Provider represents and warrants to and covenants with Company as
follows:
12.1.1 All services rendered by Provider in connection with the Project
(defined herein), including but not limited to, the recommendation, selection
and procurement of third-party software and third-party hardware; custom
software development; system integration, and system implementation, will be
performed by qualified personnel (Provider Project Personnel) with the highest
degree of care and skill, in a diligent and professional manner.
12.1.2 Provider Project Personnel shall have the requisite expertise and
ability to perform the tasks assigned to them under this Agreement.
12.1.3 The Licensed Software, the Software and the System, and all
portions or components thereof, shall be free of material defects, malfunctions
or Nonconformities and operate in all respects in conformance with the
Specifications to acceptance and for a period of three years from the date of
acceptance.
12.1.4 The Licensed Software, the Software and all components thereof
will operate on the Hardware and all components of the System, will be fully
compatible with each other, and shall operate together as a fully integrated
turnkey System. Further, Company's data and information as it currently exists
on Company's data processing information system is capable of being converted to
operate with the Software.
12.1.5 The System will have the functions, features, and capabilities,
and meet Company performance requirements.
12.1.6 Provider has full corporate authority to execute and deliver this
Agreement and to consummate the transactions hereby in the manner contemplated
herein and this Agreement will not violate any other agreement to which Provider
is a party. Provider shall not enter into any agreement that would be
inconsistent with the terms hereof.
12.1.7 The Licensed Software, the Software, the System, or any portion
thereof, does not contain any timer, clock, counter or other limiting design or
routine which causes the Licensed Software, the Software, the System (or any
portion thereof), to become erased, inoperable, impaired, or otherwise incapable
of being used in the full manner for which it was designed and licensed
(including without limitation any design or routine that would impede copying
thereof) after being used or copied a certain number of times, or after the
lapse of a certain period of time, or after the occurrence or lapse of any other
triggering factor or event. Furthermore, none of the Software, the System, or
any portion thereof, contains any limiting design or routine which causes any of
the same to be erased, become inoperable, impaired, or otherwise incapable of
being used in the full manner for which it was designed and licensed pursuant to
this Agreement solely because any of the same has been installed on or moved to
a
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central processing unit or system which has a serial number, model number, or
other identification different from that on which the Software was originally
installed.
12.1.8 No broker's fees or commission fees are due or payable to any
third party in connection with this Agreement.
12.1.9 The Licensed Software, Software, System, Hardware, and third
party software provided, and the services rendered in connection with this
Agreement will not violate or in any way infringe any rights of third parties
including without limitation, property, contractual, employment, proprietary
information or non-disclosure rights, or any copyright, patent, trademark, trade
secret, any Proprietary Rights or other proprietary rights. Provider and Company
agree to cooperate and exchange such information as necessary to defend against
such claims.
12.1.10 The System will be (a) capable of generating such reports as to
enable Company to comply with all applicable federal and state regulatory and
reporting requirements, and (b) when necessary, permit Company to add language
to such reports and forms in order to comply with any such requirements.
12.1.11 Provider owns or has the right to use the Provider Technology in
the manner contemplated by this Agreement and, to Provider's actual knowledge,
neither the Works nor the Provider Technology violates or infringes any
copyright, patent, trademark or service mark, or trade secret right, any right
of privacy or publicity, or any other right, of whatever nature, of anyone, or
violates any applicable law.
12.1.12 Whenever Provider intends or proposes to use any materials or
elements which, if used, would constitute Licensed Materials, Provider shall,
prior to any such use, notify Company in writing of such intended use and
describe in detail in such notice the nature of the proposed materials or
elements and the terms of any license or conditions for the use of such
materials or elements. If Company does not object to the use of the materials or
elements described in the notice within 7 business days of Company's actual
receipt of such notice, Provider may use such materials or elements as Licensed
Materials for purposes of this Agreement. Company, at its sole option and in its
sole discretion, may elect to waive all or part of the provisions of Sections
10.3 or 12.1.12 of this Agreement with respect to any particular Licensed
Materials or otherwise set terms for the conditions of the use of such Licensed
Materials that are less than those specified in Sections 10.3 and 12.1.12.
12.1.13 All goods and services provided pursuant to this Agreement will
operate and will meet the Specifications and will be new.
12.1.14 Provider shall furnish to Company from time to time promptly
upon Company's request copies of the Web Pages, the Works, and any supporting
documentation relating to the same, in Provider's possession, custody or
control.
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12.1.15 If at any time Provider has actual knowledge that anyone is
infringing or violating any rights in or to the Works, the Web Pages and/or the
Marks, Provider shall promptly notify Company in writing of all facts known to
it giving rise to such belief.
12.2 The provisions of this Section shall survive the termination or
expiration of this Agreement.
12.3 Company represents and warrants to and covenants with Provider as
follows:
12.3.1 Company is free and able to enter into this Agreement, to
furnish the materials and to grant the rights and licenses provided for in this
Agreement, and Company is not subject to any conflicting obligations that will
or might prevent Company from furnishing such materials or to grant the rights
and licenses provided for in this Agreement.
12.3.2 All of the Company Source Content or materials or elements
(including, without limitation, film clips, music, narration, text, illustration
software and all other elements) furnished by Company to Provider under this
Agreement will not violate or infringe any copyright, patent, trademark or
service mark, or trade secret rights or right of privacy or publicity or any
other personal, moral, contract or property right, of whatever nature, of
anyone, or violate any applicable law.
12.3.3 Company has full corporate authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby and this
Agreement will not violate any other agreement to which Company is a party.
Company shall not enter into any agreement that would be inconsistent with the
terms hereof.
12.3.4 No broker's fees or commission fees are due or payable to any
Third Party or any other third party, in connection with this Agreement.
13.0 INDEMNIFICATION
13.1 The parties agree that, upon the other's written request, to defend,
indemnify and hold harmless the other and any of the other's officers,
directors, employees, agents, successors and assigns from and against any and
all liabilities, losses, damages, claims, demands, costs, judgments and expenses
(collectively, "Claims"), including reasonable attorneys' fees, arising out of
or relating to any breach or alleged breach of any of its own representations
and warranties, covenants or agreements contained in this Agreement.
13.2 The parties agree to (a) promptly notify the indemnifying party in
writing of any Claim of which the indemnified party is aware that is subject to
indemnification by the indemnifying party, (b) give the indemnifying party the
opportunity to defend or negotiate a settlement of any such Claim at the
indemnifying party's sole expense, and (c) reasonably cooperate with the
indemnifying party, at the indemnifying party's sole expense, in defending or
settling such Claim. If the indemnifying party does not assume the defense of a
Claim after being
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given notice of the existence thereof within ten (10) days from the date of
receipt of such notice, the indemnified party may assume the defense and
settlement of that Claim.
14.0 TERMINATION
This Agreement will expire at the conclusion of the Provider Royalty
Period (and warranty periods, as applicable), unless earlier terminated as
follows:
14.1 Company may terminate this Agreement (including the obligation of
Company to make any further payments to Provider under Section 9.0 hereof) upon
written notice to Provider if Provider has materially breached this Agreement
and such breach has not been cured within 15 days after actual receipt by
Provider of a written notice from Company specifying the particulars of the
alleged material breach.
14.2 Provider may terminate this Agreement upon written notice to Company if
Company has materially breached this Agreement and such breach has not been
cured within 15 days after actual receipt by Company of a written notice from
Provider specifying the particulars of the alleged material breach.
14.3 A party may terminate this Agreement upon written notice to the other in
the event the other party (a) makes an assignment for the benefit of creditors,
(b) files or has filed against it a petition in bankruptcy, reorganization,
insolvency or similar proceeding (and if filed against it, such petition is not
removed within sixty (60) days), (c) discontinues its business, or (d) a
receiver is appointed for the benefit of creditors.
14.4 The provisions of Sections 9.0 (subject to Section 14.1 above), 10.0,
11.1, 12.0, 13.0, 15.0, 16.0, 17.0, 18.0 and 19.0 shall survive the expiration
or termination of this Agreement.
15.0 RIGHTS ON TERMINATION
15.1 In the event of the discontinuance of any of Provider's services or of
this Agreement for any reason, Company may take possession of all copies of the
Web Pages and the Works and at least one copy of the Provider Technology and the
Licensed Materials, all of which Provider agrees to deliver to Company promptly
upon Company's request, notwithstanding any dispute between Company and
Provider. This obligation of Provider shall be in addition to, and not in lieu
or limitation of, any other obligation Provider may have and shall not limit any
other right or remedy that Company may have, including, but limited to, an
action for specific performance due to the uniqueness of the Licensed Software
and the Software and Documentation and the irreparable harm that would be caused
all hereby acknowledged by Provider.
15.2 Upon the termination of this Agreement for any reason, any rights and
licenses granted by Company to Provider shall immediately terminate and revert
to Company.
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16.0 LIMITATION ON REMEDIES
16.1 In the event Company fails to pay any amount due to Provider under this
Agreement or otherwise breaches this Agreement, Provider's sole remedy for such
failure to pay or such breach shall be an action at law for damages, if any.
Under no circumstances shall Provider be entitled to any injunctive relief
against Company or to enjoin or restrain any use of the Works or any derivative
works thereof or any of Company's Web Pages or the TM Web Site, as the result of
any such failure to pay or breach, nor shall such failure to pay or breach,
rescind, cancel, void, terminate, or affect in any way Provider's agreements,
assignments, releases, and waivers in this Agreement.
16.2 Notwithstanding the provisions of Section 13.0, no party hereto shall be
liable to the other for any indirect, consequential or special or exemplary
damages such as loss of revenue or anticipated profits or lost business arising
from any interruption or delays in operation or transmission of the Web Server
caused by either party's inadvertent acts or caused by events beyond either
party's reasonable control, including, but not limited to, communications line
failures or theft.
16.3 Company acknowledges and agrees that the Internet is not an error free
network and that transmissions made on the Internet may not be completed or may
contain errors or omissions. The Internet, or portions thereof, may also become
inaccessible or inoperable, in whole or in part, at any time or from time to
time.
16.4 No party hereto shall be responsible for the accuracy of completeness of
any information furnished to it by the other party hereto or for inaccuracies or
omissions which are the result of inaccurate or incomplete information furnished
to one party hereto by the other party hereto.
17.0 CONFIDENTIALITY
17.1 The parties acknowledge and agree that it will be necessary for each of
them to disclose or make available to the other party information and materials
which are confidential and proprietary and contain valuable trade secrets
relating to their respective businesses, and are critical to their competitive
positions in the marketplace (collectively, the "Confidential Information").
Without limitation, Confidential Information includes all financial records and
financial information regarding the parties, technical information regarding the
parties' products or business, design, development, manufacturing, and sales
processes, customer and distributor lists, all Company's business records, all
Company's customer records, and all Company sales data and history.
17.2 Both during and after the course of performance of this Agreement, each
party agrees: (a) to use its best efforts to protect the Confidential
Information of the other party from unauthorized use or disclosure and to use at
least the same degree of care it uses to protect its own Confidential
Information of a like nature; (b) to use the Confidential Information of the
other party only as permitted under this Agreement; (c) not to reproduce the
Confidential Information of the other party in any form except as permitted
under this Agreement; (d) not to
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disclose or otherwise permit access to the Confidential Information of the other
party to any third party, without the other party's prior written consent and
then only to the extent reasonably required to accomplish the intent of this
Agreement; (e) to ensure that its employees participating in the performance of
this Agreement are advised of the confidential nature of the Confidential
Information of the other party, that they are prohibited from using or copying
the Confidential Information of the other party for any purpose other than
performing their obligations under this Agreement, from revealing the
Confidential Information of the other party for any purpose whatsoever and from
taking any action prohibited to either party under this Section 17.0.
17.3 Neither party shall disclose the terms and conditions of this Agreement
to any third party except as permitted under Section 17.2 above, required by
law, or by governmental regulations, requirement or order, or as may be
necessary to establish or assert its rights hereunder, or unless mutually agreed
u pon by the parties.
17.4 Information will not be considered to be Confidential Information if it:
(a) is already, or otherwise becomes, publicly known by third parties other than
by an act or omission of the receiving party; (b) subsequent to disclosure
hereunder, is lawfully received from a third party having the right to
disseminate the information without restriction on disclosure; (c) is furnished
to others by the disclosing party without restriction on disclosure; or (d) can
be shown by the Receiving Party (as defined below) to have been independently
developed by such party (without the use of the other party's Confidential
Information) prior to the execution of this Agreement.
17.5 Each party will notify the other promptly in writing of any
circumstances of which it has knowledge surrounding any possession, use or
knowledge of the Confidential Information of the other party, or any part
thereof, by any person or entity other than those authorized hereunder.
17.6 Upon the request of the disclosing party, the other party will promptly
return to the disclosing party the Confidential Information of such party unless
expressly authorized to make use of such Confidential Information under this
Agreement.
17.7 Provider will promptly place a copy of the Licensed Software in its
source code format into escrow subject to the terms of an escrow agreement,
which document shall govern the maintenance and release of such source code. The
exact terms of said escrow agreement shall be agreed upon by Company, Provider
and the escrow agent, and said agreement shall be executed as soon as possible
following the Effective Date. Provider agrees to update, enhance, or otherwise
modify such escrowed source code promptly upon its release of a new version of
the Licensed Software to its other licensees.
17.8 No public statements concerning the existence or terms of this Agreement
shall be made or released in any medium except with the prior approval of
Company and Provider or as required by law which approvals will not be
unreasonably withheld or delayed.
17.9 Subject to Section 11.1 hereof, any party hereto which receives (the
"Receiving Party") Confidential Information from a disclosing party (the
"Disclosing Party"),
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<PAGE>
agrees that it shall, at the request of the Disclosing Party, or after
termination of this Agreement (and except as otherwise stated herein to the
contrary): (a) promptly return all Confidential Information held or used by the
Receiving Party in note, memorandum, print, letter, report, tape, diskette or
other form, or (b) at the election of the Disclosing Party, promptly destroy all
such Confidential Information, including all copies thereof.
17.10 In view of the difficulties of placing a monetary value on the
Confidential Information, the Disclosing Party shall be entitled to a
preliminary and final injunction without the necessity of posting any bond or
undertaking in connection therewith to prevent any further breach of the
provisions of this Section 17.0 or further unauthorized use of its Confidential
Information. This remedy is separate from any other remedy the Disclosing Party
may have under this Agreement, at law or otherwise.
18.0 INTELLECTUAL PROPERTY RIGHTS
18.1 All Proprietary Rights will remain the exclusive property of such
party, whether or not specifically recognized or registered under applicable
law. Neither party will acquire any right to the Proprietary Rights of the other
party. In particular, Provider acknowledges that it has received no license in
any Company trademarks or copyrighted material incorporated into the System or
otherwise used to complete this contract. Provider will not use any such
trademarks or reproduce any such copyrighted material.
18.2 In addition to the other rights and remedies set forth herein, Provider
agrees to defend, indemnify, and hold Company harmless from liability arising
solely out of any claim that Company's use of the Software or the System as
authorized by this Agreement infringes upon a United States copyright or
violates the trade secret of any third party, provided Company shall promptly
notify Provider in writing of such action and Provider authority, information,
and assistance for the defense of such suit or proceeding. In the event that any
such claim of infringement is made or threatened, or injunctive relief is
granted to claimant, Provider shall, at its sole option, use reasonable efforts:
(a) to obtain the right for Company to continue the use of the Software and the
System; (b) to substitute other software of like capability; or (c) to modify
the Software or the System to render it noninfringing while retaining like
capability.
18.3 Provider shall not make available to any customer or other third party
its TM Web Site software or any similar software which incorporates or includes
any technology specifically developed for Company pursuant to this Agreement.
Further, Provider agrees that at no time following acceptance of the Project
shall Provider make available for general use by any customer or other third
party its TM Web Site software or any other software except as listed in Exhibit
A to this Agreement.
19.0 MISCELLANEOUS PROVISIONS
19.1 This Agreement cancels and supersedes all prior agreements and
understandings between Company and Provider relating to the subject matter
hereof, and contains all of the terms, conditions, and promises agreed to by
Company and Provider relating to the
- 18 -
<PAGE>
subject matter hereof. No modification of any provision of this Agreement shall
be valid or binding unless made in writing and signed by the party whose rights
and obligations will be affected by the modification. The parties explicitly
acknowledge and agree that neither has executed this Agreement in reliance upon
any representation or statement made by the other that is not expressly
contained in this Agreement.
19.2 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permissible assigns.
19.3 Neither party may assign any of its rights and obligations herein to
anyone without receiving the prior written permission of the other.
19.4 The failure of a party to exercise the rights granted to it upon the
occurrence of any default or breach shall not constitute a waiver of any such
right by such party upon a reoccurrence of the same or a similar breach or
default or the occurrence of any other default or breach.
19.5 Any notice, request or communication required or provided to be given
under this Agreement shall be in writing and shall be sufficiently given and
shall be deemed given when delivered personally, when mailed by certified or
registered mail return receipt requested, postage prepaid or by facsimile
transmission (with electronic acknowledgment of receipt), addressed as follows:
To Company: Ticketmaster Multimedia Holdings, Inc.
3701 Wilshire Blvd., 6th Floor
Los Angeles, California 90010
Attention: Fredric D. Rosen
Ned S. Goldstein
Facsimile: 213/382-1146
With a copy to: Neal, Gerber & Eisenberg
Two North LaSalle Street, Suite 2200
Chicago, Illinois 60602
Attention: Michael A. Pucker
Facsimile: 312/269-1747
To Provider: Starwave Corporation
13810 S.E. Eastgate Way, Suite 400
Bellevue, Washington 98005
Attention: Michael B. Slade
Facsimile: 206/957-2009
- 19 -
<PAGE>
With a copy to: Starwave Corporation
13810 S.E. Eastgate Way, Suite 400
Bellevue, Washington 98005
Attention: Alex Alben
Facsimile: 206/957-0364
or to such other party at such other address as such party, by notice given as
herein provided, shall designate. Any notice given in any other manner shall be
effective only upon actual receipt by the addressee.
19.6 This Agreement shall be governed by and interpreted in accordance with
and pursuant to the laws of the State of California applicable to agreements
made and wholly to be performed therein (except as to any applicable federal
intellectual property laws or bankruptcy laws). The parties hereby submit to the
jurisdiction of, and waive any venue objections against, the trial courts in Los
Angeles, California or in the United States District Court for the Central
District of California and each party unconditionally agrees that it is
personally subject to the jurisdiction of any such court for purposes of this
Agreement, including entry or enforcement of any judgment.
19.7 The prevailing party in any dispute with respect to the meaning or
enforceability of this Agreement, or the enforcement of any provisions thereof
shall recover from the other party all reasonable costs and expenses, including,
without limitation, reasonable attorneys' fees. Without limiting the generality
of the foregoing, any reasonable costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred in enforcing any judgment,
shall be recoverable by the prevailing party as a separate item of recovery. The
second sentence of this Section 19.7 is intended to be severable from the other
provisions of this Agreement and shall survive any judgment and shall not be
deemed to be merged into the judgment.
19.8 The captions or titles of this Agreement or any paragraph hereof are
inserted for purposes of convenience only and shall not be deemed to limit
affect the scope, meaning or intent of this Agreement, nor shall they otherwise
be given any legal effect.
19.9 In the event any term or provision of this Agreement or any application
thereof shall be deemed to be illegal, void, or unenforceable, then the same
shall not affect the remaining portions of this Agreement or any other
application of the same which are not determined to be illegal, void or
unenforceable, which remaining provisions and any other such application shall
survive and constitute the agreement of the parties.
19.10 If any of a party's obligations or performances hereunder are
materially interrupted or interfered with by reason of fire, flood, casualty,
lockout, strike, labor conditions, unavoidable accident, national calamity,
interruption or delays in operation or transmission of the Web Server,
communications line failures, mechanical or other breakdown of electrical or
sound equipment or plant, riot, so-called "act of God", or by any enactment of
law, or by order of any legally constituted authority, or by any other similar
cause (collectively, "Unavoidable Delay"), its obligations hereunder, as the
case may be, shall be suspended during the period of such
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<PAGE>
interruption or interference, and a period of time equivalent to the period or
periods of suspension shall be added to the time of performance of this
Agreement.
19.11 The parties expressly acknowledge and agree that the provisions of this
Agreement which by their express or implied terms extend beyond the termination
of this Agreement shall continue in full force and effect notwithstanding the
termination of this Agreement.
19.12 The parties agree to execute acknowledge and deliver from time to time
such instruments as may be necessary and proper to evidence, maintain,
effectuate, or defend any and all of their respective rights, as the case may
be, under any provision of this Agreement.
19.13 Nothing in this Agreement constitutes a partnership among or joint
venture between the parties hereto or constitute any party an agent of the
other. No party shall hold itself out contrary to the terms of this Section
19.13, and no party shall become liable by any representation, act or omission
of another party which is contrary to the terms of this Section 19.13.
IN WITNESS WHEREOF, the parties acknowledge, represent and warrant that they
have read and understand the terms of this Agreement and agree to be bound
thereby.
STARWAVE CORPORATION TICKETMASTER MULTIMEDIA
HOLDINGS, INC.
By: /s/ Mike Slade By: /s/ Ned S. Goldstein
----------------------------- --------------------------
Title: Chief Executive Officer Title: Senior Vice President
--------------------------- ------------------------
- 21 -
<PAGE>
Exhibit "A"
<TABLE>
<CAPTION>
NAME FUNCTION
<S> <C>
sssd* Handles the receipt of files from
Ticketmaster's canal data feed.
adanal.pl* Analyzes clickthrough on the ads.
fixdbm.pl* Programs to repair the DBM files.
forcead.pl* Forces updates of the
advertisements and
forcecityads.pl* other ad-related activities.
makeaddirs.pl*
fullactiist.pl* Generates the list of all the acts
in the database.
wktopacts.pl* Generates top acts for the
topacts.pl* week/day.
topvenues.pl*
cvt.pl The program that handles the event
calendar creation and maintenance.
wired_ads.pl*
wired_globals.pl
wired_hierarchy.pl*
wired_indexing.pl*
wired_records.pl
wired_utils.pl*
squirrel* Analyze the server logs and
squirerl_driver.pl* generates usage reports.
ticket_browsers.pl*
clubjoin.pl* TMO Plus Signup programs
clubjoinonline.pl
clubconfirm.pl
clubjoincomplete.pl
start.pl Main Ticketing programs.
seat.pl
bestavall.pl
purchase.pl
close.pl
adaseat.pl
purchaseADA.pl
closeADA.pl
</TABLE>
- 22 -
<PAGE>
Exhibit B
SPECIFICATIONS
PROJECT DEFINITION
Ticketmaster Online (TMO) is an online service that allows consumers to access
Ticketmaster information and conduct transactions. The service will reside on
an Internet Server as a World Wide Web (WWW) Site, accessible by anyone with
access to the Internet using a web browser. The content will be developed by
Ticketmaster, with Starwave handling the initial production and technology
issues. Starwave will also create the user interface within TMO for the purpose
of allowing consumers to purchase tickets and merchandise.
SERVICE REQUIREMENTS AND FEATURES
1. TMO is a WWW site.
2. TMO content and features are designed to be read by most browsers at a
reasonable speed.
3. TMO resides on one or more WWW servers.
4. Service contains a dynamic event calendar sortable by location, genre,
venue, artist, date.
5. Service contains venue information pages and venue seating charts.
6. Service contains charge by phone numbers and ticket center locations.
7. TMO allows consumer to conduct ticket transactions and purchase
merchandise.
8. Service contains an area for artists, performers, sports personalities,
etc. to be featured.
9. Service contains an area for TM clients to be featured.
10. Service contains an area for users to participate in discussions about
tours, venues, and concerts.
TRANSACTION FEATURE REQUIREMENTS
1. Starwave will create a user interface within TMO utilizing HTML, CGI and
other programming techniques for the purpose of allowing consumers to
purchase tickets and merchandise. The user interface will include the
following functions:
a) Allow the user to create a permanent on-line consumer account with a unique
user name and personal identification number, mailing address and payment
information. This account will reside on the on-line consumer database
server and can be referenced by users when making ticket or merchandise
purchases.
b) Allow consumers to select an event then select the best available seat, the
best available seat by price level and/or the best available seat by
location.
c) Allow for upselling of merchandise or publications.
d) Accommodate special seating requests per the Americans With Disabilities
Act.
e) Provide a cost summary will all of the breakdowns for ticket price,
merchandise price, convenience charge, handling fees, taxes etc.
f) Allow the consumer to enter their name, shipping address and payment
information.
g) Confirm either the success or failure of the order to be received and
processed by Ticketmaster.
<PAGE>
2. Starwave will create a custom protocol to interface with the Ticketmaster
ticketing system for the purpose of processing ticketing data feeds and
making them available to the web site.
3. Ticketmaster will create ticketing data feeds and Dynamic Link Library
routines from the Ticketmaster ticketing system which contain information
about specific events such as ticket price, available seat locations, seat
location description, ticket text, etc. and consumer information and make
them available to the web server.
4. Ticketmaster will create a consumer data base server which is integrated
for use with the TMO WWW site and the Ticketmaster ticket system.
<PAGE>
EXHIBIT 10.29
License and Services Agreement ("Agreement") is made and
entered into as of August 12, 1998, by and between
Ticketmaster Corporation, an Illinois corporation ("TM
Corp"); Ticketmaster Multimedia Holdings, Inc., a Delaware
corporation ("TMOL") and USA Networks, Inc. ("USAi").
----------------------------------------------------------
Introduction
------------
The parties have entered into an Agreement and Plan of Reorganization
("Reorganization Agreement") of even date herewith under which TMOL became a
wholly-owned subsidiary of CitySearch, Inc. ("CitySearch"). TMOL was,
immediately prior to the effective date of the merger consummated pursuant to
the Reorganization Agreement, a wholly-owned subsidiary of TM Corp, serving as
Online (as defined below) distribution agent for TM Corp and, upon effectiveness
of the merger, remains an indirect subsidiary of TM Corp.
As part of the transaction described in the Reorganization Agreement
and pursuant to this Agreement, Ticketmaster Companies are formally designating
TMOL as their exclusive agent for Online distribution of TM Tickets serving TM
Corp's Client Venues and are granting to TMOL the right to use the
"Ticketmaster" logos and related trademark and service mark rights in connection
with the online sales of tickets and merchandise.
In consideration of the foregoing premises and the respective
representations, warranties, covenants and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms shall have the meanings set
-----------
forth below for all purposes under this Agreement.
"Affiliate" of an entity means (i) any entity controlled by,
controlling, or under common control with such first entity, where "control"
means ownership, either direct or indirect, of more than 50% of the equity
interest entitled to vote for the election of directors or equivalent governing
body and/or (ii) any entity of which such first entity has possession, either
direct or indirect, of the power to direct or cause the direction of management
and policies of the second entity through ownership of voting securities, by
contract or otherwise. Notwithstanding the foregoing, neither TMOL, CitySearch
nor either of their majority-owned subsidiaries will be considered to be an
Affiliate of TM Corp or any of the Ticketmaster Companies for the purposes of
this Agreement.
<PAGE>
"Client Venue Agreement" means a contract, agreement or arrangement
for the distribution of tickets on behalf of a Venue to which any Ticketmaster
Company is a party.
"Client Venues" means Venues which are parties to Client Venue
Agreements.
"Confidential Information" means any information disclosed by one
party to the other pursuant to this Agreement, either orally or in writing,
which is designated "Confidential," "Proprietary" or in some similar manner.
"Consumers" means parties buying Tickets or Merchandise.
"Fees" means any fees or charges (including without limitation
convenience charges, shipping and handling charges, TMOL Inside Charges, license
fees and sales and use taxes) payable to a Ticketmaster Company in respect of
Online Ticket sales.
"Merchandise" means goods or services other than tickets.
"Online" means electronic interactive services that are available via
public or private computer networks such as the Internet (e.g. the World Wide
Web), proprietary online services such as America Online and hybrid Internet
services such as WebTV and @Home. In the event that other electronic
interactive services emerge that would facilitate the sale of Tickets, the
parties pledge to make a good faith effort to integrate those services into this
Agreement, where appropriate. "Online" does not mean media such as non-
interactive cable television, satellite television, broadcast television, or the
like. The parties acknowledge that this definition also does not include voice-
to-voice or VRU based telephone services, kiosks dedicated exclusively to ticket
sales or retail ticket outlets.
"Online Ticketing and Sales" means the portion of any sale or
attempted sale of Tickets or Merchandise by Online means during which (a) the
Consumer provides specific transaction information such as quantity and type of
Tickets or Merchandise requested for purchase; (b) Inventory Data is accessed,
utilized, manipulated or displayed; (c) the Consumer provides personal data such
as name, billing and shipping address, and credit card or other payment
information; (d) the Consumer becomes bound to the purchase of the Tickets or
Merchandise; or (e) steps in an attempted or completed purchase and sale
transaction occur that are substantially equivalent to any of (a) through (d).
"Online Promotion" means the portion of any sale, attempted sale or
promotion of Tickets or Merchandise by Online means which does not constitute
Online Ticketing and Sales.
"Territory" means the United States, Canada and the United Kingdom,
their territories and possessions.
"Ticket" means tickets or reservations for individual (not group or
season) sale to the general public for any event or attraction, that may be
sold, distributed or promoted under a Trademark, excluding only travel and
lodging, for which a convenience charge has been received and retained, not sold
at a box office for the Client Venue.
-2-
<PAGE>
"ticketmaster.com" means all Web sites and pages located at the domain
name ticketmaster.com or any subdomains thereof and successors consistent with
the definition of Online.
"Ticketmaster Companies" means USAi, Ticketmaster Group, Inc., TM
Corp, and all their respective Affiliates, whether existing now or in the
future, other than CitySearch or TMOL or any of the majority-owned subsidiaries
of CitySearch or TMOL.
"TM Data" means the database maintained by TM Corp or its subsidiaries
containing, among other things, publicly available data regarding Client Venues
("Venue Data"); confidential data regarding Consumer Online sales, demographic
and other data relating to Online sales ("Consumer Data"); publicly available
data regarding performances, events and attractions ("Event Data"); publicly
available data regarding TM Merchandise ("Merchandise Data"); and confidential
data regarding inventories of Tickets for Client Venues or TM Merchandise
("Inventory Data").
"TM Domain Names" means the domain names listed on Exhibit F.
"TM Merchandise" means any goods or services that TM Corp or its
subsidiaries may sell or have the right to sell to Consumers in any manner,
including without limitation through Online distribution.
"TM Ticket" means any Ticket that any Ticketmaster Company may sell or
provide to Consumers pursuant to a Client Venue Agreement.
"TMOL Inside Charges" means per Ticket during any year the "Online
Percentage" of the excess of inside charge per Ticket in such year over the
inside charge per Ticket in 1998 escalating at 5% per year thereafter where (i)
the inside charge per Ticket is determined for this clause only based on
telephone, box office, Online and outlet Ticket sales and (ii) "Online
Percentage" is the number of TM Tickets sold Online as a percentage of total TM
Tickets sold for such year.
"Trademarks" means the marks identified in Exhibit D incorporating the
word "Ticketmaster," and any other logos, trademarks, service marks, and the
like incorporating the word "Ticketmaster" that the Ticketmaster Companies may
adopt from time to time using the Ticketmaster name in connection with the
distribution of Tickets.
"Venues" means entities that own or control the sale of Tickets.
1.2 Interpretations. Except as otherwise expressly provided in this
---------------
Agreement, the following rules of interpretation apply to this Agreement: (i)
the singular includes the plural and the plural includes the singular; (ii) "or"
and "any" are not exclusive and "include" and "including" are not limiting;
(iii) a reference to any agreement or other contract includes permitted
supplements and amendments; (iv) a reference to a law includes any amendment or
modification to such law and any rules or regulations issued thereunder; (v) a
reference to a person includes its permitted successors and assigns; (vi) a
reference to generally accepted accounting principles refers to United States
generally accepted accounting
-3-
<PAGE>
principles; and (vii) a reference in this Agreement to an Article, Section,
Annex, Exhibit or Schedule is to the Article, Section, Annex, Exhibit or
Schedule of this Agreement.
ARTICLE II
LICENSE, AGENCY
2.1 Licenses; Agencies. Subject to the continued compliance by TMOL
------------------
with all of the material terms and conditions of this Agreement:
(a) Trademark License. TM Corp, on behalf of Ticketmaster Companies,
-----------------
hereby grants to TMOL as follows:
(i) the exclusive, perpetual, irrevocable, worldwide right to
use the Trademarks to designate the source or origin of TM Tickets in connection
with Online Ticketing and Sale of TM Tickets;
(ii) the exclusive, perpetual, irrevocable right to use the
Trademarks to designate the source or origin of TM Merchandise in connection
with the Online Ticketing and Sale of TM Merchandise to shipping addresses
within the Territory;
(iii) the non-exclusive, perpetual, irrevocable right to use the
Trademarks to designate the source or origin of TM Merchandise in connection
with the Online Ticketing and Sale of TM Merchandise to shipping addresses
outside the Territory;
(iv) the non-exclusive, perpetual, irrevocable, worldwide right
to use the Trademarks in connection with Online Promotion of TM Tickets and TM
Merchandise, including without limitation the right to display the Trademarks on
Web sites of TMOL and the right to use the Trademarks on promotional and
advertising materials in connection with Online Ticketing and Sale and Online
Promotion of TM Tickets and TM Merchandise; and
(v) the exclusive, perpetual, irrevocable right to use the TM
Domain Names.
(b) Use of TM Data. TM Corp, on behalf of Ticketmaster Companies,
--------------
hereby grants to TMOL the exclusive (to the extent set forth below in
subparagraph (v)), worldwide, perpetual, irrevocable license to use the TM Data
in connection with the operation of the TMOL business as follows:
(i) Inventory Data is confidential and may be used by TMOL
solely in connection with Online Ticketing and Sales to individual
Consumers, and may not otherwise be used by TMOL. In particular, TMOL may
not on its own behalf systematically access, or permit any third party
systematically to access, the Inventory Data in order to view or duplicate
any portion of the Inventory Data database other than as necessary in
connection with individual bona fide Online Ticketing and Sales.
-4-
<PAGE>
(ii) Consumer Data is confidential and may be used by TMOL solely
in connection with bona fide Online Ticketing and Sales, advertising,
direct mail and Online Promotion conducted by TMOL on its own behalf.
(iii) Except as required pursuant to Client Venue Agreements
and the Agreements listed on Exhibit G, Venue, Event and Merchandise Data
may be used by TMOL on its own behalf but not licensed, sold or leased to
third parties. TMOL may use such Venue, Event and Merchandise Data solely
in connection with use of one or more appropriate Trademarks branding the
web page, display or advertisement in which such Venue, Event and
Merchandise Data is used or otherwise in connection with the proximate use
of one or more appropriate Trademarks.
(iv) The restrictions contained in subparagraphs (i) through
(iii) above shall not apply to the extent that any TM Data that becomes
known to TMOL from a source other than TM Corp or its Affiliate and is
subject to less restrictive usage requirements.
(v) Except as may be provided for in any Client Venue Agreements
or any agreements to which the Ticketmaster Companies are party as of the
date hereof that are listed in Exhibit G, the Ticketmaster Companies shall
not authorize any third party to use TM Data Online.
(c) TM Tickets. TM Corp, on behalf of Ticketmaster Companies, hereby
----------
appoints TMOL as worldwide, exclusive, perpetual agent for the Online Ticketing
and Sale and Online Promotion of TM Tickets in accordance with the terms of the
Client Venue Agreements. Except as required under this Agreement, TM Corp
agrees on behalf of Ticketmaster Companies that Ticketmaster Companies shall not
engage in Online Ticketing and Sale and Online Promotion of TM Tickets, or grant
to any other party the right to engage in such actions, or use the Trademarks in
connection with such actions or cooperate with in any way or grant to any other
party the right to use the Trademarks in connection with Online Ticketing and
Sale and Online Promotion of TM Tickets. In the case of any country in which
there is a Client Venue for which TM Corp or an Affiliate has acquired rights to
conduct Online Ticketing and Sales and Online Promotion of TM Tickets for such
Client Venue, upon the request of TM Corp, TMOL shall use commercially
reasonable efforts to develop a Web site or similar Online content, as TM Corp
may request, enabling the Online Ticketing and Sale of TM Tickets in a form and
language appropriate to such country.
(d) Merchandise. TM Corp, on behalf of Ticketmaster Companies, hereby
-----------
appoints TMOL as non-exclusive, worldwide agent for the Online Ticketing and
Sale and Online Promotion of TM Merchandise. TMOL may sell Other Merchandise,
subject to Sections 2.2. TM Corp agrees on behalf of Ticketmaster Companies
that Ticketmaster Companies shall not grant to any other party the right to
serve as agent for, or cooperate with in any way or grant to any other party the
right to use the Trademarks in connection with, the Online Ticketing and Sale of
TM Merchandise for shipping addresses in the Territory.
-5-
<PAGE>
2.2 Other Agreements. TMOL's rights under Section 2.1 and this
----------------
Agreement are subordinated and subject to any rights retained by such Client
Venues under any Client Venue Agreement, and subordinated and subject to all
other agreements to which the Ticketmaster Companies are subject as of the date
hereof that are listed in Exhibit G. TMOL shall not breach the terms and
provisions of any Client Venue Agreements or other agreements to which the
Ticketmaster Companies are party provided or made available to TMOL by the
Ticketmaster Companies that are applicable to TMOL's activities under this
Agreement, nor breach the terms or provisions of such agreements about which TM
Corp has given TMOL notice; provided, however, that TMOL will not be deemed in
breach of this provision unless such breach remains uncured for the cure period
in the underlying contract provided that TM Corp gives notice to TMOL (including
notice of the relevant cure period) thereof describing such breach and the
relevant contract terms.
2.3 TMOL Marketing Partners and Affiliates. Subject to the consent
--------------------------------------
of TM Corp, which consent shall not be unreasonably withheld, TMOL may
sublicense the rights granted above and appoint distribution agents to perform
Online Ticketing and Sale and Online Promotion of TM Tickets and TM Merchandise
to any TMOL business associates operating city guide Web sites and approved by
TM Corp, in connection with the operation of such sites. Any such sublicense or
distribution arrangement shall be on terms approved by TM Corp, whose approval
shall not be unreasonably withheld. TMOL may also allow any TMOL Affiliate
agreeing to comply with the terms of this Agreement to exercise any right
hereunder.
ARTICLE III
MARKETING AND USE OF TRADEMARKS
3.1 ticketmaster.com. At all times during the term of this
----------------
Agreement, TMOL shall conduct Online Ticketing and Sales solely by means of the
ticketmaster.com domain or subdomains thereof, including
ticketing.ticketmaster.com, or in the case of Consumers making use of Online
communications not part of the World Wide Web, such as America Online and other
proprietary Online services, solely by means of technology authorized by TM
Corp, which authorization shall not be unreasonably withheld. Without limiting
Article II, TMOL may conduct Online Promotion by means of ticketmaster.com and
subdomains thereof. TMOL shall consult with TM Corp regarding Online Promotion
by other Online means. TMOL shall perform any Online Promotion by other Online
means in good faith, and subject to Section 2.2.
3.2 TMOL Sponsorships. TMOL shall comply with the trademark use
-----------------
guidelines in Exhibit C regarding sponsorships, advertising or promotions
arranged and sold by TMOL to third parties involving ticketmaster.com. Any use
not allowed by such guidelines will be subject to the prior approval of TM Corp,
which will not be unreasonably delayed or withheld. TM Corp and TMOL will
develop a working relationship for daily review of the content of
ticketmaster.com for uses requiring prior approval.
3.3 Compliance with Laws. Each party shall comply with all
--------------------
applicable laws, statutes and regulations with respect to such parties'
obligations under this Agreement.
-6-
<PAGE>
3.4 Ownership. TMOL acknowledges and admits the validity of the
---------
Trademarks and covenants that it will not directly or indirectly contest the
validity of the Trademarks or the right and title of TM Corp therein and
thereto. All uses to be made by TMOL or its permitted sublicensees, if any, of
the Trademarks shall inure to the benefit of TM Corp. TMOL and its permitted
sublicensees, if any, shall acquire no right, title or interest in the
Trademarks or any goodwill associated therewith apart from the rights granted to
TMOL herein. This Agreement shall not affect TM Corp's right to enjoin or
obtain relief against any acts by third parties of trademark infringement or
unfair competition. At the request of TM Corp, TMOL shall, and shall cause any
of its permitted sublicensees to, execute and deliver any and all documents
necessary to enter TMOL or its permitted sublicensees thereof as registered
users of the Trademarks in each country of use to the extent required by
applicable law.
3.5 Quality Control. All uses by TMOL of the Trademarks shall meet
---------------
commercially reasonable standards of quality, which includes but is not limited
to the quality of the services and products heretofore distributed or provided
by TM Corp, or shall meet such other reasonable standards and specifications as
may be set by TM Corp and communicated to TMOL from time to time, including but
not limited to any fair practices requirements that TM Corp may reasonably
promulgate, such as prohibitions on brokering, scalping and unauthorized release
of Tickets, and similar requirements appropriate to the Online environment.
Upon TM Corp's request from time to time, TMOL shall provide to TM Corp
representative samples of its uses of the Trademarks or permit TM Corp to
inspect TMOL's places of business where the Trademarks are used.
3.6 Maintenance and Protection of Trademarks.
----------------------------------------
(a) Maintenance of Trademarks. TM Corp shall use commercially
-------------------------
reasonable efforts to maintain all registrations and prosecute all applications
for registration in the Trademarks. TM Corp shall include, to the extent
legally permissible and commercially reasonable, Online Ticketing and Sale of
TM Tickets and TM Merchandise in connection with any descriptions of use in any
applications to be filed for trademark registrations. At TM Corp's reasonable
request, TMOL, at TMOL's expense, shall furnish evidence of use as may be
reasonably required for such maintenance, and shall execute all documents as TM
Corp reasonably requests in order to maintain a registration or establish or
maintain TM Corp's ownership of the Trademarks.
(b) Trademark Legends. TMOL shall use any trademark notice that TM
-----------------
Corp deems advisable. In connection herewith, TMOL may use the encircled R
("(R)"), service mark ("?") or trademark ("") designations, as appropriate, the
first and most prominent time each Trademark is used, and may use the following
legend:
"[Trademark(s)] [is a/are] [federally-] [registered trademark(s)]
owned by Ticketmaster Corporation and [is/are] used under license."
(c) Infringement. Each party will notify the other party of any and
------------
all infringements, imitations or illegal uses of the Trademarks that come to
such party's attention. TM Corp shall have the right, and to the extent
commercially reasonable, the obligation, to
-7-
<PAGE>
prosecute, defend and conduct, at the expense of the party on whose behalf such
actions are being taken, all proceedings or actions involving the Trademarks and
to take any actions that it may deem proper or necessary for the protection of
the Trademarks. Upon TM Corp's request, TMOL and its permitted sublicensees, if
any, shall cooperate fully with TM Corp in connection with any such actions. The
proceeds, if any, of any such actions shall be paid to the party at whose
expense such actions were taken. TMOL shall have no right to prosecute, defend
or conduct any such proceedings or actions.
3.7 Reservation of Rights. TM Corp hereby reserves all rights,
---------------------
including title, to trademarks, domain names, URLs and data not expressly
granted in this Agreement and the right to continue to use as E-mail addresses
@ticketmaster.com.
ARTICLE IV
SERVICES
4.1 TM Corp Services. TM Corp shall provide the following services:
----------------
(a) Ticket and Merchandise Fulfillment Services. TM Corp, directly or
-------------------------------------------
through any Ticketmaster Company, shall provide the services described in
Exhibit A to TMOL, with no less than the same level of service generally as
currently provided by TM Corp to TMOL for Online Ticketing and Sales and Online
Promotion (subject to appropriate adjustments for changes in market conditions).
(b) Other Merchandise Fulfillment. One or more of the Affiliates of
-----------------------------
TM Corp, to be designated by TM Corp (the "TM Fulfillment Entity"), shall
provide to TMOL services for the fulfillment of orders for Merchandise other
than TM Merchandise sold through the TMOL City Guide Web sites or other Web
sites to be operated or owned by TMOL ("Other Merchandise"). TMOL will
reimburse TM Corp for the direct cost of the Other Merchandise and pay to TM
Corp a fee at competitive prices. TMOL shall reimburse TM Corp or the TM
Fulfillment Entity for actual direct expenses relating to these services.
4.2 TMOL Services. TMOL agrees to act as the Ticketmaster Companies'
-------------
agent for Online distribution of Tickets, and in connection with such agreement
to promote the Online sale of Tickets.
4.3 Exclusivity. Subject to TM Corp's performance of its obligations
-----------
under Sections 4.1.(a) and 4.1(b), TMOL shall not use any party other than the
TM Fulfillment Entity to provide services to TMOL for the fulfillment of orders
for TM Merchandise and Tickets. Provided that the TM Fulfillment Entity's fees,
aggregate terms, and quality of service for fulfillment of orders for Other
Merchandise are no worse than those available from third parties, TMOL shall not
use any party other than the TM Fulfillment Entity to provide services to TMOL
for the fulfillment of orders for Other Merchandise.
4.4 TM Database Services. TM Corp shall make the TM Data available
--------------------
for TMOL in the same manner TM Corp currently provides such TM Data to TMOL. TM
Corp
-8-
<PAGE>
will use commercially reasonable efforts to provide other data base services
requested by TMOL, such as data mining of the TM Data and data warehousing, on
mutually acceptable terms and conditions, at TMOL's expense at reasonable rates.
ARTICLE V
REVENUES AND PAYMENTS
5.1 Revenue Recognition. The parties agree that Fees are intended to
-------------------
be recognizable revenue of TMOL. If this Article does not accomplish the
intended purposes, the parties will negotiate in good faith to make appropriate
revisions to achieve the intended purpose.
5.2 Payment of Fees. TM Corp shall pay to TMOL all Fees collected by
---------------
TM Corp or any Ticketmaster Company during such week for all sales from Monday
through Sunday for a given week, on the subsequent Friday, in respect of Online
Ticket sales less (i) all Client Venues' share of such Fees, (ii) royalties to
TM Corp in respect of such Fees on an average basis, and (iii) reimbursement for
direct expenses in respect of Online Ticket sales for the services as provided
in Section 5.3.
5.3 Expenses. TM Corp shall provide TMOL monthly invoices showing
--------
direct expenses according to the Expense Guidelines set forth in Exhibit B. TMOL
shall reimburse TM Corp (or the appropriate Ticketmaster Company described in
Section 4.1(a) or the TM Fulfillment Entity described in Section 4.1(b)) for
such expenses not previously reimbursed, no later than 15 days after receipt of
such invoice; provided, however, that in no event shall TMOL be obligated to pay
expenses under this Section 5.3 in excess of Fees received under Section 5.2.
5.4 Royalties. Royalties for the purposes of Section 5.2 shall equal
---------
[*]% of "Profit," where Profit for any period means Fees payable to TMOL under
Section 5.2 (including without limitation convenience charges with respect to
Ticket sales and shipping and handling revenue related to Tickets) minus all
direct expenses related to Ticket sales (including without limitation all direct
expenses such as third party royalties, direct operations costs for operation
and maintenance of TM Corp's gateway servers and communications links from TM
Corp's database to TMOL's Web servers, data line costs, the reasonable costs of
creating, maintaining, operating and upgrading (other than costs that are
capitalized in accordance with generally accepted accounting procedures) the
ticketmaster.com Web site, costs associated with lost Tickets, secondary
commissions, credit card and other payment
processing expense, credit card charge-backs, shipping and handling costs for TM
Ticket sales, sales and use taxes, and refunds payable under Section 5.5)
incurred by TMOL, including
_____________________________
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
-9-
<PAGE>
without limitation those expenses reimbursed to TM Corp under Section 5.3. The
parties acknowledge that such royalties will be deductible expenses of TMOL.
5.5 Returns and Refunds. TMOL shall return to TM Corp any amount
-------------------
received in respect of tickets that subsequently are refunded or for which TM
Corp does not receive a convenience charge. TM Corp will have the right to
offset from its remittances of Fees any amounts due Consumers for return of
tickets and any amounts due TM Corp or its Client Venues, including charge-
backs.
5.6 Quarterly True-Up. At the end of each calendar quarter, TM Corp
-----------------
will calculate all amounts estimated for the purposes of Sections 5.2, 5.3 and
5.4 including the actual cost incurred of providing to TMOL the services
eligible for reimbursement and royalties due TM Corp, and the parties shall,
within 30 days, true-up any differences between actual costs and allocations.
Royalties and expenses estimated for the purposes of Sections 5.2, 5.3 and 5.4
shall be estimated at no more than the actual amounts on a per ticket basis for
the prior quarter.
5.7 Audits. Each party shall deliver, along with its payments due
------
under this Article V, a report showing in reasonable detail the basis for such
payment. Each party shall keep and maintain complete and accurate records of
the transactions underlying the reports to be furnished hereunder, and shall
allow the other party's representative (a third party certified public
accountant), during office hours and at reasonable intervals, to inspect and
make extracts or copies of such records solely for the purpose of ascertaining
the correctness of such statements, at the expense of the party conducting such
inspection.
ARTICLE VI
SPONSORSHIPS AND ADVERTISING
6.1 Advertising. Subject to the terms of this Article VI, TM Corp
-----------
may arrange advertising for TMOL Web sites, to be sold in a bundle with other
advertising sold by TM Corp. TMOL shall provide TM Corp the opportunity to
solicit sales of advertising on terms no less favorable than those it provides
to other agencies soliciting advertising in similar quantity and quality. TMOL
shall accommodate any advertising agreements of TM Corp existing as of the
effective date of this Agreement that are listed on Exhibit E.
6.2 TM Corp Sponsors. As to credit card, shipping and handling,
----------------
technology and telephone sponsors at TM Corp, TM Corp shall use commercially
reasonable efforts to cause such sponsorship arrangements to include Online
advertising on ticketmaster.com. If such sponsorship arrangements include
advertising on ticketmaster.com, TM Corp shall pay to TMOL a reasonable
allocation of sponsorship revenue, consistent with previous methods of
allocation in Exhibit E but subject to changes in market conditions, after
deduction of a reasonable allocation of costs and rebates, if any, made to
Client Venues and any direct costs associated with the production of such
revenue. Exhibit E describes such allocation with respect to any sponsorship
agreements of TM Corp existing as of the effective
-10-
<PAGE>
date of this Agreement. TM Corp shall keep TMOL apprised of all actual or
anticipated sponsorships arranged or being sought by TM Corp.
ARTICLE VII
ONLINE RIGHTS AND VENUE AGREEMENTS
7.1 Online Distribution Rights. In the event any Ticketmaster
--------------------------
Company assigns, transfers, or otherwise encumbers any rights of a Ticketmaster
Company to generate Fees or permits the transfer of control of any Ticketmaster
Company (by merger, consolidation, sales of equity interests or assets, or any
other means) (a) the Ticketmaster Companies shall obtain from the assignee or
transferee for the benefit of TMOL terms no less favorable than those granted by
the Ticketmaster Companies to TMOL under this Agreement, or the Ticketmaster
Companies shall otherwise provide TMOL substantially equivalent economic
benefits on an ongoing basis and (b) the parties agree to negotiate in good
faith alternative arrangements to give full effect to TMOL's rights and
obligations hereunder.
7.2 Client Venue Agreements. TM Corp shall use reasonable best
-----------------------
efforts to ensure that, under each Client Venue Agreement entered into or
renewed after the effective date of the Agreement, TM Corp will maintain the
Online distribution rights in a manner that TMOL can enjoy the benefits of this
Agreement. TM Corp shall use reasonable best efforts to enter into or renew
Client Venue Agreements on or after the effective date of this Agreement on
terms (including with respect to charges constituting Fees) no less favorable to
TMOL than the terms pertaining to Ticket distribution conducted by telephone.
Notwithstanding the foregoing, TM Corp may in lieu of the requirements of this
provision provide TMOL the economic equivalent of the inclusion of such rights.
ARTICLE VIII
NON-COMPETITION
8.1 In consideration for the exclusive arrangements of this
Agreement, (a) TMOL shall not enter into any arrangements with any Venues, and
Ticket sales agents or sellers of Tickets other than Ticketmaster Companies to
provide Online promotion or sales of Tickets during the term of the Agreement;
and (b) USAi, on behalf of Ticketmaster Companies, agrees that, except to
perform their obligations under this Agreement, Ticketmaster Companies shall not
engage in, enter into any arrangements or cooperate with any third party for
Online Ticketing and Sales or Online Promotion of TM Tickets. Nothing in this
Agreement shall be construed to prevent the TMOL CitySearch Web sites from
incorporating links to a Web site owned or operated by a Venue (other than a
Client Venue, a Ticket sales agent or a reseller of Tickets) through which
Online promotion and sales of the Tickets of such Venue occur, provided that TM
Corp reasonably does not deem such Venue to be a material part of the potential
market for TM Corp's ticketing or other services to Venues in the locality of
such Venue.
-11-
<PAGE>
ARTICLE IX
REPRESENTATIONS AND WARRANTIES; INDEMNITIES
9.1 TM Corp Representations and Warranties. TM Corp hereby
--------------------------------------
represents and warrants that:
(i) TM Corp has the right to enter into this Agreement and to grant
the rights being granted under this Agreement and has granted no rights that
would prohibit or materially interfere with the rights granted or agreements
made under this Agreement; and
(ii) The Ticketmaster Companies hold a valid trademark registration in
the word mark "TICKETMASTER" for use in connection with the respective goods and
services in each of the countries listed in Exhibit D with status "Registered"
for such word mark; as to all other Trademarks, except to an extent that would
not have a material adverse effect on TMOL's rights under this Agreement, and
except in connection with Trademarks identified in Exhibit D with status other
than "Registered," the Ticketmaster Companies hold a valid trademark
registration in such Trademarks for use in connection with the respective goods
and services, in each case in the country listed in Exhibit D pertaining to such
Trademark.
9.2 Copyright and Trade Secret Indemnities. Each party will be
--------------------------------------
performing its obligations under this Agreement using certain technology in
connection with Online Ticketing and Sales and Online Promotion ("Technology").
Each party shall defend or settle any third party claim, proceeding or suit
("Claim") brought against the other party to the extent such Claim alleges
infringement of any copyright or trade secret in the Territory which
infringement arises from use of the Technology in connection with Online Ticket
distribution.
9.3 Indemnity. Each party shall indemnify and hold harmless the
---------
other party against any and all Claims, losses, liabilities, and expenses
arising out of any breach by such party of Article II or Article III of this
Agreement.
9.4 Limitations. Neither party will have any obligations for Claims
-----------
under this Article IX unless (a) the indemnified party notifies the indemnifying
party promptly in writing of the Claim, (b) the indemnified party gives the
indemnifying party sole control over the defense and settlement of such Claim,
and (c) the indemnified party gives the indemnifying party full information and
assistance to defend or settle such Claim. The foregoing states the entire
liability and obligations of each party, and the sole remedy of each party, with
respect to any alleged infringement of patents, copyrights, or trade secrets
with respect to the Technology.
-12-
<PAGE>
ARTICLE X
CONFIDENTIALITY
10.1 Confidentiality. Each party shall treat as confidential all
---------------
Confidential Information of the other party, shall not use such Confidential
Information except in connection with performing its obligations and exercising
its rights under this Agreement and shall not disclose such Confidential
Information to any third party. This Section 10.1 will not apply to any
Confidential Information which is or becomes generally known and available in
the public domain through no fault of the receiver.
ARTICLE XI
TERM AND TERMINATION
11.1 Term. This Agreement will commence on the Effective Time, as
----
such term is defined in the Reorganization Agreement and continue perpetually
unless and until terminated as set forth below.
11.2 No Injunctive Relief. Notwithstanding anything to the contrary
--------------------
herein, no breach of this Agreement will entitle any party to terminate or
rescind this Agreement, or entitle TM Corp or Ticketmaster Companies to
injunctive or other equitable relief to terminate the licenses in this
Agreement. However, TMOL may terminate the provisions of Sections 4.1 and 4.3
regarding fulfillment services in the event of a material breach by TM Corp of
Section 4.1 that is uncured after 60 days written notice thereof to TM Corp.
11.3 Effect of Termination. The rights and obligations of the parties
---------------------
under Article X will survive any termination of this Agreement.
ARTICLE XII
GENERAL PROVISIONS
12.1 Amendment. Subject to applicable law, this Agreement may be
---------
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of each party; however, prior to an initial
public offering of TMOL, this Agreement may not be modified without the approval
of a majority of the City Directors (as defined in the Reorganization
Agreement).
12.2 Extension; Waiver. Any party hereto may, to the extent legally
-----------------
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if
-13-
<PAGE>
set forth in an instrument in writing signed on behalf of such party. Delay in
exercising any right under this Agreement will not constitute a waiver of such
right.
12.3 Notices. All notices and other communications hereunder must be
-------
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via facsimile (receipt confirmed) to the parties at
the following addresses or facsimile numbers (or at such other address or
facsimile numbers for a party as shall be specified by like notice):
(a) if to TMOL, to:
c/o CitySearch, Inc.
790 East Colorado Boulevard
Suite 200
Pasadena, CA 91101
Attention: Doug McPherson
Telephone No.: (626) 660-2510
Facsimile No.: (626) 405-9929
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Larry W. Sonsini
John T. Sheridan
Marty Korman
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to TM Corp, or any Ticketmaster Company, to:
Ticketmaster Group, Inc.
8800 Sunset Boulevard
West Hollywood, CA 90069
Attention: General Counsel
Telephone No.: (310) 360-6000
Facsimile No.: (310) 360-6509
-14-
<PAGE>
USA Network, Inc.
152 West 57th Street
New York, NY 10019
Attention: General Counsel
Telephone No.: (212) 314-7322
Facsimile No.: (212) 314-7329
with a copy to:
Howard, Smith & Levin LLP
1330 Avenue of the Americas
New York, New York 10019
Attention: Scott F. Smith
Telephone No.: (212) 841-1000
Facsimile No.: (212) 841-1010
12.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
12.5 Entire Agreement; Third Party Beneficiaries. This Agreement, its
-------------------------------------------
Exhibits, and the documents and instruments and other agreements among the
parties hereto as contemplated by or referred to herein, or such other documents
that may be entered into by the parties referring to this Agreement, constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
12.6 Severability. In the event that any provision of this Agreement
------------
or the application thereof becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
12.7 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof. Each of the parties hereto irrevocably consents to the jurisdiction of
any state or federal court within the Central District of California in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
-15-
<PAGE>
12.8 Rules of Construction. The parties hereto agree that they have
---------------------
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
12.9 Assignment. No party may assign either this Agreement or any of
----------
its rights, interests, or obligations hereunder without the prior written
approval of the other parties. Notwithstanding the above, (a) TM Corp may
assign all of its rights and obligations under this Agreement to any entity that
is a controlled subsidiary of TM Corp, provided such party agrees in writing to
be bound to the terms of this Agreement; and (b) TMOL may assign all of its
rights and obligations under this Agreement to any entity that acquires control
of TMOL by means of a sale or merger of TMOL or a sale of all or substantially
all of TMOL's assets, provided such entity agrees in writing to be bound to the
terms of this Agreement. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
12.10 Effectiveness. This Agreement shall become effective upon the
-------------
consummation of the Merger contemplated by the Reorganization Agreement. Prior
to that time, this Agreement shall have no force and effect. In the event the
Reorganization Agreement terminates, this Agreement shall be null and void, and
of no further force and effect.
12.11 USAi Undertaking. USAi and TM Corp shall cause Ticketmaster
----------------
Companies to comply with all obligations of this Agreement.
* * * *
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized respective officers as of the date first
written above.
TICKETMASTER MULTIMEDIA HOLDINGS, INC.
By: /s/ Eugene L. Cobuzzi
--------------------------------------
Name: Eugene L. Cobuzzi
------------------------------------
Title: E.V.P.
-----------------------------------
TICKETMASTER CORPORATION
By: /s/ Eugene L. Cobuzzi
--------------------------------------
Name: Eugene L. Cobuzzi
------------------------------------
Title: C.O.O.
-----------------------------------
USA NETWORKS, INC.
By: /s/ Thomas J. Kuhn
--------------------------------------
Name: Thomas J. Kuhn
------------------------------------
Senior Vice President and General
Title: Counsel
-----------------------------------
ACKNOWLEDGED AND AGREED:
CITYSEARCH, INC.
By: /s/ Thomas H. Layton
------------------------
Name: Thomas H. Layton
----------------------
Title: President
---------------------
* * * LICENSE AND SERVICES AGREEMENT * * *
<PAGE>
EXHIBIT A - SERVICES
TM Corp will provide the following services, providing the same level of service
generally as currently provided (subject to appropriate adjustments for changes
in market conditions):
. all order processing, payment processing, and fulfillment services for TM
Merchandise and TM Tickets following Online Ticketing and Sale, including
shipping and handling
. consumer service inquiries
. merchandising services for entertainment-related TM Merchandise (Concert,
Sports, Theater, Family and Fine Arts) that TMOL sells
. collection of all proceeds of TM Ticket sales and remittance by TM Corp to
Client Venues
. collection of all Fees and remittance by TM Corp to TMOL of such amounts as
are due pursuant to this Agreement
. collection and remittance of merchandising revenue for TM Merchandise
access to TM Data necessary to engage in Online Ticketing and Sale and
Online Promotion, meeting at least the following performance standards:
. 7 days per week, approximately, 7:00am to 11:00pm, for each U.S. time
zone, real time access
. responses to requests made to the TM Corp gateway will be consistent
with current practices or TM Corp shall use its commercially
reasonable efforts to minimize the response time for requests made to
the TM Corp gateway
. volume handling sufficient to process 3,500,000 Ticket sales in year
ended 1998; 7,200,000 Ticket sales in year ended December 31, 1999;
11,100,000 Ticket sales in year ended December 31, 2000; and
15,300,000 Ticket sales in year ended December 31, 2001
. data base services (data mining, data warehousing)
<PAGE>
EXHIBIT B - EXPENSE GUIDELINES
The following are comprehensive, and by way of limitation, not example:
. fulfillment cost, including shipping and handling
. direct costs associated with sales of TM Merchandise
. call center costs for consumer service inquiries shall be reasonably
allocated but not to exceed [*] per ticket
. third-party royalties (to the extent owed by Ticketmaster Companies) under
the Agreements set forth on Exhibit H
. secondary commissions to Client Venues
. credit card processing expenses
. credit card charge-backs
The costs outlined above that involve allocated costs (such as fulfillment
costs, call center costs and customer service costs) will be charged on a basis
no less favorable to TMOL than similar charges by TM Corp to other third parties
(taking into account any cost savings associated with Online Ticket distribution
as compared to other Ticket distribution). TMOL will have rights to review the
calculation of such costs.
TM Corp will use commercially reasonable efforts to charge TMOL's consumers the
same shipping charge and handling fees charged to TM Corp's telephone customers.
Such fees will be based on an actual or average cost per order.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT C - TRADEMARK USE GUIDELINES
1. These trademark usage guidelines apply to the authorized use of all of the
Trademarks in connection with the Online Ticketing and Sale and Online
Promotion of TM Tickets and TM Merchandise, whether in advertisements,
labels, product guides, catalogs, brochures, instruction manuals, customer
communications, press releases, packaging, electronic communications and
all other uses of the Trademarks.
2. The following general rules apply:
. Spell the trademark correctly and do not abbreviate it.
. Use capitalization consistently.
. Use a standard appearance for the trademark.
. Use a proper trademark notice at least once, the first time the Trademark
appears: we prefer you to use the notice each time the trademark is used.
Use (R) for registered trademarks and service marks, "TM" for unregistered
trademarks, and "SM" for unregistered service marks. If you have any
questions about which marks are registered, ask us.
. Use the Trademark only as a brand name in conjunction with a specific
product or service, e.g., Productname Tickets. "Productname " alone is not
appropriate. Use the trademark only as an adjective modifying a generic
product ("the Productname Tickets"), and never as a noun or a verb ("the
Productname ").
. Always give Ticketmaster Corporation attribution as the trademark owner any
time the Trademarks are used, e.g., " Productname is a trademark or
registered trademark of Ticketmaster Corporation".
3. TM Corp shall from time to time supply reasonable guidelines regarding
appearance of its logos in permitted uses, such as color, appearance, size,
clear space and fonts.
4. Restrictions:
Do not use the Trademarks in connection with any erotic or adult content,
content of an overtly sexual nature, or content containing profanity or
obscenity.
<PAGE>
EXHIBIT D - TRADEMARKS
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT E
EXISTING ADVERTISING AGREEMENTS
<TABLE>
<CAPTION>
CALENDAR 1998 CALENDAR 1999
ALLOCATION TO ALLOCATION TO
ADVERTISER DATE OF AGREEMENT EXPIRATION DATE ONLINE ONLINE
- ------------------- ----------------- ------------------ ------------- --------------
<S> <C> <C> <C> <C>
Acura June 1, 1998 September 30, 1998 [*] --
Amtrak June 16, 1998 September 23, 1998 [*] --
BASEketball June 17, 1998 July 31, 1998 [*] --
Bell South March 19, 1998 May 12, 1998 [*] --
Bell South December 30, 1997 March 31, 1998 [*] --
CD Now December 29, 1997 January 31, 1998 [*] --
CD Now January 28, 1998 February 28, 1998 [*] --
City Search April 18, 1997 June 30, 1998 [*] --
Columbia Tri-Star December 19, 1997 February 6, 1998 [*] --
Columbia Tri-Star March 19, 1998 April 24, 1998 [*] --
Columbia Tri-Star May 29, 1998 July 17, 1998 [*] --
Columbia Tri-Star August 7, 1998 August 21, 1998 [*] --
ESPN Sportszone June 1, 1998 December 31, 1998 [*]* --
eToys June 1, 1998 June 23, 1998 [*] --
Excite June 3, 1997 June 30, 1998 -- --
Ford Motor Media December 17, 1997 January 31, 1998 [*] --
Ford Motor Media January 30, 1998 April 30, 1998 [*] --
Ford Motor Media March 26, 1998 June 30, 1998 [*] --
Ford Motor Media July 1, 1998 September 30, 1998 [*] --
Gap, The November 12, 1997 May 15, 1998 [*] --
Gibson Guitars March 9, 1998 March 24, 1998 [*] --
Infoseek August 3, 1998 August 16, 1998 [*] --
Intel July 2, 1998 July 15, 1998 [*] --
Internet Shopping Network May 12, 1998 May 31, 1998 [*] --
Jam TV June 8, 1997 June 30, 1999 -- --
Kenwood August 3, 1998 October 31, 1998 [*] --
Lexus April 1, 1998 May 10, 1998 [*] --
Lexus April 1, 1998 May 31, 1998 [*] --
Los Angeles Times September 11, 1997 August 31, 1998 -- --
Mastercard October 23, 1995 November 30, 2000 [*]**
Microsoft June 9, 1998 September 23, 1998 [*] --
Music Boulevard January 14, 1998 February 15, 1998 [*] --
Music Boulevard February 11, 1998 March 16, 1998 [*] --
N2K April 23, 1998 April 30, 2000 [*] [*]
Nabisco June 16, 1998 August 16, 1998 [*] --
Nestle (Stouffers) October 23, 1997 May 31, 1998 [*] --
NY Times November 4, 1997 One year from availability -- --
Pillsbury December 11, 1997 February 28, 1998 [*] --
Red Lobster July 27, 1998 August 10, 1998 [*] --
Sonicnet February 13, 1998 March 31, 1998 [*] --
Sprint September 19, 1996 August 31, 2001 [*] pending
Sprint (May Movie Promo) May 4, 1998 June 7, 1998 [*] --
</TABLE>
- ------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
<TABLE>
<CAPTION>
CALENDAR 1998 CALENDAR 1999
ALLOCATION TO ALLOCATION TO
ADVERTISER DATE OF AGREEMENT EXPIRATION DATE ONLINE ONLINE
- ------------------- ----------------- ------------------ ------------- --------------
<S> <C> <C> <C> <C>
Tangueray May 26, 1998 June 30, 1998 [*] --
Tribune Interactive November 16, 1997 November 30, 1998 [*] --
UBL March 17, 1998 March 31, 1999 [*] [*]
UPS October 28, 1998 October 27, 1999 [*] [*]
Yahoo! June 1, 1998 August 13, 1999 [*] [*]
</TABLE>
* Potential to earn $[*] based upon amount of click thrus.
** Represents [*]% of the monthly pro rata revenue from the annual
MasterCard Sponsorship Agreement, net of costs to venues. The amount
reflected in this schedule represents allocations from August 1998 (the
projected start of the merged entity) through October 1998 (the end of
the existing MasterCard Agreement), (i.e., $[*] - $[*] = $[*] / [*] =
$[*] / [*] * [*] = [*]).
- --------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
23. Joint Development Agreement between Ticket New Ventures, Ltd. and CIE
Internatcional, S.A. de C.V. dated June 27, 1997
24. Joint Venture Agreement between Ticketmaster Australasia Holdings Inc. and
Victorian Arts Centre Trust dated June 16, 1995.
25. Shareholders Agreement among CANAL+ SA, Ticketmaster Ticketing Co., Inc.,
in the name and on behalf of Ticketmaster France Holdings, Co., and
Ticketmaster Ticketing Co., Inc., dated April 30, 1998.
26. Joint Venture Agreement between Ticketmaster Bass Australasia Holdings Pty
Ltd. and Ticketmaster Australasia Investments Pty Ltd. dated December 1,
1995
<PAGE>
EXHIBIT H
CONTRACTS PROVIDING FOR FEE SHARING
1. Content Manager Agreement between Ticket Corp. and Intel Corporation dated
February 12, 1998
2. Development and Services Agreement with Starwave Corporation dated June 28,
1996
3. Cross-promotional, marketing, advertising and retail agreement with N2K
Inc. dated April 23, 1998
4. Content License, Promotion and Link Agreement with Yahoo!, Inc. dated June
1, 1998
5. Cross-promotional agreement with Knight Ridder New Media dated October 15,
1997
6. Cross-promotional agreement with Tribune Interactive, Inc. dated November
18, 1997
7. Cross-promotional agreement with The New York Times Electronic Media
Company dated November 4, 1997
8. Joint promotional agreement with The Los Angeles Times, a division of The
Times Mirror Company dated September 11, 1997
9. Cross-promotional agreement with JAM TV Corp. dated June 6, 1997
10. Distribution Agreement with Universal Studios Online, Inc. dated December
17, 1997
11. Cross-promotional agreement with DR Partners d/b/a Las Vegas Review Journal
dated March 6, 1998
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Ticketmaster Multimedia Holdings, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Historical Financial Data" and to the use of our report dated
September 3, 1998 with respect to the financial statements of Ticketmaster
Multimedia Holdings, Inc., included in the Registration Statement Form S-1 and
related Prospectus of Ticketmaster Online-CitySearch, Inc. dated September 30,
1998.
/s/ Ernst & Young LLP
Los Angeles, California
September 29, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Historical Financial Data" and to the use of our report dated March
11, 1998 (except Note 10, as to which the date is August 12, 1998), in the
Registration Statement Form S-1 and related Prospectus of Ticketmaster Online-
CitySearch, Inc. dated September 30, 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, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
Los Angeles, California
September 29, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> JAN-31-1998 JUN-30-1998
<PERIOD-START> FEB-01-1997 JAN-01-1998
<PERIOD-END> JAN-31-1998 JUN-30-1998
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 167 121
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 291 185
<PP&E> 585 711
<DEPRECIATION> (188) (261)
<TOTAL-ASSETS> 688 155,424
<CURRENT-LIABILITIES> 391 3,103
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (289) 152,309
<TOTAL-LIABILITY-AND-EQUITY> 688 155,424
<SALES> 9,905 7,423
<TOTAL-REVENUES> 9,905 7,423
<CGS> 3,522 3,027
<TOTAL-COSTS> 5,731 4,258
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 4,174 3,165
<INCOME-TAX> 1,827 1,459
<INCOME-CONTINUING> 2,347 1,706
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,347 1,706
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
