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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 0-________
TICKETMASTER ONLINE-CITYSEARCH, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 95-4546874
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
790 E. Colorado Boulevard, Suite 200
Pasadena, California 91101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (626) 405-0050
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Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
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Class B Common Stock, par value $.01 per share Nasdaq
Securities registered pursuant to Section 12 (g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing price of Class B Common Stock on December
31, 1998, as reported by Nasdaq, was approximately $1,093,303,000. Shares of
voting stock held by each officer and director and by each person who owns 5% or
more of the outstanding voting stock have been excluded in that such persons may
be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of outstanding shares of the registrant's Common Stock on
December 31, 1998 was 63,291,653 shares of Class A Common Stock and 8,167,000
shares of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
The discussion in this report 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 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" herein and those set forth under
"Risk Factors" in the Registration Statement on Form S-1 filed by the Company on
December 2, 1998. 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 report reflects the merger of
Ticketmaster Online with a wholly-owned subsidiary of CitySearch, which became
effective on September 28, 1998, with Ticketmaster Online continuing as the
surviving corporation and as a wholly-owned subsidiary of CitySearch (the
"Merger").
ITEM 1. BUSINESS
General
The Company has combined CitySearch and Ticketmaster Online to create a
leading provider of local city guides, local advertising and live event
ticketing on the Internet. CitySearch was incorporated in September 1995 and
launched its first local city guide in May 1996. Ticketmaster Online was formed
in 1993 to administer the online business of Ticketmaster Corp. and began
selling live event tickets and related merchandise online in November 1996.
Prior to the Merger, Ticketmaster Online was operated as a wholly-owned
subsidiary of Ticketmaster Corp. The Company is integrating 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 43 states and in Canada and the United
Kingdom. 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 accelerate the expansion of different versions of
the CitySearch city guides into new local territories in part by working closely
with Ticketmaster Corp.'s local offices. The Company includes 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
increasing the sales of tickets sold online, the Company's Web sites will
increasingly attract local, regional and national advertisers and local
consumers seeking to transact on the Company's Websites.
The Company has two classes of authorized Common Stock (as defined below)
outstanding, Class A Common Stock (the "Class A Common Stock") and Class B
Common Stock (the "Class B Common Stock"). On December 2, 1998, the Company
filed a Registration Statement on Form S-1 for 8,050,000 shares of
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Class B Common Stock. As of December 31, 1998, there were 63,291,653 shares of
Class A Common Stock outstanding and 8,167,000 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.
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 42,480,143 shares of Class A Common
Stock, or approximately 59.4%, of the Company's outstanding Common Stock,
representing approximately 66.4% of the total voting power of the outstanding
Common Stock.
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. Immediately prior to the Merger, all of the
outstanding shares of CitySearch Convertible Preferred Stock were converted into
shares of CitySearch Common Stock and all outstanding options or warrants to
purchase shares of CitySearch Preferred Stock were converted into options or
warrants to purchase shares of CitySearch Common Stock.
Recent Developments
Pending Business Combination with Lycos, Inc. and USAi's Home Shopping Network,
Ticketmaster and Internet Shopping Network/First Auction Businesses
On February 9, 1999, USAi, Lycos, Inc. ("Lycos") and the Company announced
that they had entered into definitive agreements (the "Agreements") relating to
the combination of the Company, Lycos and USAi's Home Shopping Network ("Home
Shopping"), Ticketmaster and Internet Shopping Network/First Auction businesses
(the "Contributed Businesses") in a new company to be named USA/Lycos
Interactive Networks, Inc. ("USA/Lycos"). The transactions will be effected by
mergers of Lycos and the Company with subsidiaries of USA/Lycos and the
contribution by USAi to USA/Lycos of the Contributed Businesses, in exchange for
the consideration summarized below (the "Transactions").
Pursuant to the Agreements, upon consummation of the Transactions:
i) each share of Lycos Common Stock will be converted into the right to
receive (a) 1 share of USA/Lycos Common Stock and (b) 0.2963 of a
share of USA/Lycos Series A Convertible Redeemable Preferred Stock
(the "Series A Preferred Stock");
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(ii) each share of the Company's Class B Common Stock (the publicly traded
Company stock) will be converted into the right to receive (x) 0.4464
of a share of USA/Lycos Common Stock and (y) 0.0584 of a share of
Series A Preferred Stock;
(iii) each share of the Company's Class A Common Stock will be converted
into the right to receive 0.4464 of a share of USA/Lycos Class B
Common Stock; and
(iv) USAi will receive 88,353,398 shares of USA/Lycos Class B Common Stock
and 1,938,853 shares of Series A Preferred Stock in exchange for the
Contributed Businesses.
Both the USA/Lycos Common Stock and the Series A Preferred Stock will be
publicly traded. The USA/Lycos Class B Common Stock will not be publicly traded.
Except as otherwise provided by Delaware law, the USA/Lycos Common Stock will
have one vote per share, and the USA/Lycos Class B Common Stock will have 15
votes per share on all matters submitted to a vote of USA/Lycos' stockholders,
including the election of directors of USA/Lycos.
Upon closing of the Transactions, based on the expected initial ownership
of USA/Lycos on an adjusted fully diluted basis, former Lycos shareholders will
own 30% of the USA/Lycos equity, former Company shareholders (other than USAi)
will own 8.5% of the USA/Lycos equity and USAi will own 61.5% of the USA/Lycos
equity (including 10.9% relating to USAi's controlling interest in the Company).
Upon the closing, USAi will beneficially own shares of USA/Lycos stock
representing approximately 96% of the combined voting power of USA/Lycos,
assuming all holders of the Company's Class A Common Stock, other than USAi,
convert their shares into shares of the Company's Class B Common Stock prior to
the closing.
The terms of the Series A Preferred Stock provide for the issuance in
certain circumstances of additional shares of USA/Lycos Common Stock to the
holders thereof following the 39-month anniversary of the closing of the
Transactions. Each share of Series A Preferred Stock will be, following such
anniversary, automatically converted into the right to receive a number of
shares of USA/Lycos Common Stock based on the "Final Market Price" of the
USA/Lycos Common Stock, which is equal to the sum of (i) .5 times the average of
the 90-day, volume-weighted average closing price (the "Market Price") of the
USA/Lycos Common Stock ending on (x) the 90th day following the closing, (y) the
15-month anniversary of the closing and (z) the 27-month anniversary of the
closing, and (ii) .5 times the Market Price for the 90-day period ending on the
39-month anniversary of the closing (the sum of (i) and (ii), the "Final Market
Price"). If the Final Market Price is equal to or greater than $257.88 (which
would imply a market capitalization, based on USA/Lycos's expected initial
capitalization at closing, of $45 billion), each share of Series A Preferred
Stock will be converted into 1 share of USA/Lycos Common Stock, if the Final
Market Price is equal to or less than $143.27 (which would imply a market
capitalization, based on USA/Lycos' expected initial capitalization at closing,
of $25 billion), each Series A Preferred Stock share will be convertible into no
shares of USA/Lycos Common Stock and the shares of Series A Preferred Stock will
be redeemed by USA/Lycos for $.01 per share. At Final Market Prices between
$143.27 and $257.88, the shares to be issued will vary, on an interpolated
basis. The Series A Preferred Stock will contain customary anti-dilution
adjustments for the Final Market Price and the conversion ratio. The terms of
the Series A Preferred Stock are set forth in Exhibit B to the Agreement and
Plan of Reorganization, filed as an exhibit hereto.
The parties have also entered into option agreements, filed as exhibits
hereto, which under certain circumstances provide USAi and the Company with the
right to acquire, in the aggregate, up to 19.9% of the outstanding Lycos Common
Stock.
The Transactions are subject to Lycos shareholder approval as well as
receipt of required regulatory approvals and other customary conditions.
Upon closing of the Transactions, Barry Diller, Chairman and Chief
Executive Officer of USAi, will be Chairman of the Board of USA/Lycos; Robert J.
Davis, the President and Chief Executive Officer of
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Lycos, will be the President and Chief Executive Officer of USA/Lycos; and
Edward M. Philip, Chief Operating Officer and Chief Financial Officer of Lycos,
will be the Chief Financial Officer of USA/Lycos. In addition to Mr. Diller,
Messrs. Davis and Philip will be directors of USA/Lycos. Lycos will be entitled
to appoint one additional director to serve for a one-year term, and USAi will
appoint the remaining directors of USA/Lycos.
The Agreements summarized above are filed as exhibits hereto, and the
foregoing summary descriptions of such agreements are qualified in their
entirety by reference to such exhibits, which are incorporated herein by
reference.
Pending Acquisition of CityAuction, Inc.
On January 8, 1999, the Company and CityAuction, Inc. ("CityAuction")
entered into an Agreement and Plan of Reorganization (the "CityAuction
Agreement").
Pursuant to the CityAuction Agreement, a newly-formed, wholly-owned
subsidiary of the Company will merge into CityAuction (the "CityAuction
Merger"), resulting in CityAuction's becoming a wholly-owned subsidiary of the
Company. Upon the closing of the CityAuction Merger, each outstanding share of
Common Stock of CityAuction will be converted into 0.279971340 shares of Class B
Common Stock of the Company. The maximum consideration to be paid to
CityAuction shareholders by the Company pursuant to the CityAuction Merger will
be equal to (i) 800,000 shares of Class B Common Stock of the Company (plus any
additional shares of Class B Common Stock exchanged in the CityAuction Merger at
the Exchange Ratio (as defined in the CityAuction Agreement) for shares of
capital stock of CityAuction issued upon exercise of a warrant issued by
CityAuction), plus (ii) an additional 200,000 shares of Class B Common Stock of
the Company to be reserved for issuance upon exercise of options to purchase
Class B Common Stock of the Company to be granted to the employees of
CityAuction.
The CityAuction Agreement is filed as an exhibit hereto, and the foregoing
summary description of the CityAuction Agreement is qualified in its entirety by
reference to the exhibit, which is incorporated herein by reference.
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 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.
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
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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
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<S> <C> <C>
Owned and operated:
Raleigh-Durham-Chapel Hill May 1996 WUNC (public radio station) Capstar Broadcasting
Corporation (4 radio stations) WCHL AM
San Francisco Bay Area October 1996 KGO (ABC) CBS Radio (2 radio stations)
Austin March 1997 KTBC (Fox)
UPN 13
Salt Lake City/Utah April 1997 KUTV (CBS)
Citadel Communications Corporation (6 radio stations)
Nashville May 1997 WZTV (Fox)
UPN 30
Dick Broadcasting (2 radio stations)
Portland June 1997 KATU (ABC)
KKCW FM
(Jacor Communications Inc.)
New York(1) September 1997 New York Daily News
Time Out New York (weekly arts and entertainment
publication)
New York Convention & Visitors Bureau
Denver January 1999
Atlanta February 1999
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 1998 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 November 1998 Schibsted ASA/Scandinavia Online
San Diego February 1999 The San Diego Union-Tribune
Canberra March 1999 John Fairfax, Ltd.
Big Colour Pages
Oslo 1999* Schibsted ASA/Scandinavia Online
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* Estimated launch date
(1) The Company acquired Metrobeat, Inc. ("Metrobeat") 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 $1,000 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 studies conducted for it by a
marketing research firm, 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 $1,000
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, Internet
Business Advisors ("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 expanded e-commerce functionality and other
innovative features allowing businesses to better serve consumers, including
ticketing, reservations, sales events notifications,
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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.
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.
The Company has also reached content sharing and linking agreements with
various companies, including the New York Daily News Online Edition and Time Out
New York. Under these agreements, the Company's city guide sites and content
partners create co-branded areas and host certain content supplied by the
content partners.
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, Inc., 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 44 states,
including 34 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. The agreement
may be terminated effective 2001 by Classified Ventures. 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
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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 American Express Travel Related Services Company, Inc. ("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 e-commerce products. In
addition, American Express is obligated to purchase sponsorships and banner
advertising on the CitySearch sites. The agreement expires in 2002, subject to
certain provisions allowing for early termination in the event of a change of
control of the Company. 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., Planet Direct 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 and Preview Travel, as well as through traditional radio, print
and outdoor media.
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 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 December 31, 1998, the Company employed approximately 135 IBAs in
its 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.
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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.
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 has deployed in all of its markets, CitySearch is employing 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.
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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
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 $854,000 in the quarter ended December 31, 1996 to $41.7 million
in the quarter ended December 31, 1998. Similarly, tickets sold on the
Ticketmaster Online Web site in the quarter ended December 31, 1996 represented
less than 1% of total tickets sold by Ticketmaster Corp., while tickets sold
online in the quarter ended December 31, 1998 represented 6%.
Ticketmaster Corp. Clients
Ticketmaster Corp. is a leading provider of automated ticketing
services in the United States with over 3,750 domestic clients, including many
of the country's foremost entertainment facilities, promoters and sports
franchises. Ticketmaster Corp. established its market position by providing
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 operator-staffed call centers,
independent sales outlets remote to the facility box office, and Ticketmaster
Online's website. Revenue is generated principally from convenience charges
received by Ticketmaster Corp. for tickets sold on its clients' behalf.
Ticketmaster Corp. generally serves as an exclusive agent for its clients and
typically has no financial risk for unsold tickets.
Ticketmaster Corp. has a comprehensive domestic distribution system that
includes approximately 2,700 remote sales outlets, covering many of the major
metropolitan areas in the United States, and 17 domestic call centers with
approximately 2,000 operator positions. Ticketmaster Corp. also operates in
Great Britain, Canada, Ireland, Mexico and Australia and, in 1998, has expanded
into France, Chile and Argentina. The number of tickets sold through
Ticketmaster Corp. has increased from approximately 29 million tickets in 1990
to approximately 70 million tickets in 1998.
The Company believes that the Ticketmaster system for live event ticketing
transactions 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.
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Ticketmaster Corp. generally enters into written agreements with its
clients under 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 five
to seven years. Under its facilities agreements,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.
As part of 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 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 some 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 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
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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). 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 funds 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 (a) Ticketmaster Online an exclusive, perpetual,
irrevocable, worldwide license to use the Ticketmaster trademark and (b) 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, 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 (1) by
telephone; (2) by other voice-to-voice means or voice-to-voice recognition unit
systems; (3) by non-interactive broadcast, cable and satellite television; and
(4) 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 this information to Ticketmaster Online for processing of 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. Ticketmaster Online's rights, contained
in the Ticketmaster License Agreement, are subject to the client 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 which is a 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.
Under the Ticketmaster License Agreement, Ticketmaster Online has also been
granted 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 this
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 will serve 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. The summary descriptions of the Ticketmaster License
Agreement contained in this report are qualified in their entirety by reference
to the copy thereof filed as an exhibit to the Registration Statement on Form S-
1 filed by the Company on December 2, 1998.
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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.
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. Ticketmaster
Online's other advertisers and marketing partners include Palm Computing
Company, United Parcel Service of America, Inc., International Business Machines
Corporation and Sprint Communications Company, Ltd. 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 jointly developed with Intel Corporation and
launched in the first quarter of 1999, 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
has been 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. As of December 31, 1998, the Company had eleven 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 process 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
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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 Corp. host systems where credit cards are processed and
customer accounts are created. 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.
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 as call centers, outlets or box offices.
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, and
Microsoft Corporation (Sidewalk). 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 Yahoo! (Yahoo! Local). In addition, CitySearch competes
against offerings from media companies, including Cox Interactive Media, Inc.,
Knight Ridder, Inc. and Zip2 Corporation, 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
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Area primarily include Microsoft Corporation (Sidewalk), America Online, Inc.
(Digital City) and Yahoo! (SF Bay). Competitors in Raleigh-Durham-Chapel Hill
primarily include 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 Corp.'s and
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 live event ticketing companies which only conduct business
online. Where facilities and promoters decide to utilize the services of a
ticketing company, Ticketmaster Corp. and Ticketmaster Online compete with
international, national and regional ticketing services, including TicketWeb,
Telecharge (Shubert Ticketing Services), NEXT Ticketing, Advantix, ETM
Entertainment Network, Dillard's, Prologue, Capital Tickets, Lasergate
(Lasergate Systems, Inc.) and Tickets.com. Several of Ticketmaster Corp.'s and
Ticketmaster Online's competitors have operations in multiple locations
throughout the United States and compete with Ticketmaster Corp. and
Ticketmaster Online on a national level, while others compete with Ticketmaster
Corp. and Ticketmaster Online principally in one specific geographic region.
Ticketmaster Corp. is a leading provider of live event automated ticketing
services in the United States, with over 3,000 clients, and has a widely
recognized brand name in the live event ticketing business. The Company believes
that its right to act as Ticketmaster Corp.'s exclusive agent for online live
event ticket sales with the exclusive, worldwide right to use the Ticketmaster
trademark for such online sales will enable it to compete effectively with other
online ticketing services. However, 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 Ticketmaster Corp.'s and
Ticketmaster Online's 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. In addition, 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 may 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,
on 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
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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 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 registered 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 initial term of
the license expires in 2001, subject to renewal at the Company's option. 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 December 31, 1998, the Company employed 608 persons with respect to
the CitySearch business, including 301 persons in functions related to cost of
revenue (including 265 persons in design, content collection, editorial and
photography, 27 persons in customer service and nine persons in professional
services), 189 persons in sales and marketing, 56 persons in research and
development and 62 persons in general and administrative areas. As of December
31, 1998, the Company employed 26 persons with respect to the Ticketmaster
Online business, including eleven in advertising and promotion, seven in
operations and technical support, five in graphic design and editorial and
content development and three 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.
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ITEM 2. PROPERTIES
The Company's headquarters are located in Pasadena, California, where the
Company currently leases approximately 30,700 square feet under a lease expiring
in 2002. The Company also leases approximately 4,500 square feet in Austin, 900
square feet in Denver, 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, 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 1,000
square feet of space. The Company believes that its facilities are adequate in
those cities in which the Company currently does business.
ITEM 3. 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. USAi is a defendant (along with
several of USAi's directors) in lawsuits brought in connection with the
Transactions. See "Business Recent Developments Pending Business Combination
with Lycos, Inc. and USAi's Home Shopping Network, Ticketmaster and Internet
Shopping Network/First Auction Businesses." Seven of the lawsuits are brought
on behalf of shareholders of the Company and allege that the non-USAi
shareholders of the Company will receive consideration in the Transactions
that is "grossly inadequate" and unfair and that defendants, including USAi,
breached alleged fiduciary duties to the shareholders of the Company in
negotiating and approving the Transactions. These complaints seek an
injunction against completion of the Transactions, rescission in the event it
is completed, and damages in an unspecified amount. The remaining six lawsuits
are brought on behalf of shareholders of Lycos alleging that USAi aided and
abetted alleged breaches of fiduciary duty by Lycos' directors, in that the
consideration Lycos shareholders will receive in the Transactions is alleged
to be grossly inadequate and unfair. These complaints seek an injunction
against completion of the Transactions, rescission in the event it is
completed, and damages in an unspecified amount. All these actions are pending
in the Court of Chancery of the State of Delaware. The time for defendants to
answer has not yet elapsed, and no discovery has as yet been scheduled. USAi
believes that the allegations against USAi and its directors do not have
merit.
During 1994, Ticketmaster Corp. was named as a defendant in 16 federal
class action lawsuits filed in United States District Courts purportedly on
behalf of consumers who were alleged to have purchased tickets to various events
through Ticketmaster Corp. These lawsuits alleged that Ticketmaster Corp.'s
activities violated antitrust laws. On December 7, 1994, the Judicial Panel on
Multidistrict Litigation transferred all of the lawsuits to the United States
District Court for the Eastern District of Missouri for coordinated and
consolidated 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 District Court granted that motion ruling that the
plaintiffs had failed to state a claim upon which relief could be granted. On
April 10, 1998, the United States Court of Appeals for the Eighth Circuit issued
an opinion affirming the district court's ruling that the plaintiffs lack
standing to pursue their claims for damages under the antitrust laws and held
that the plaintiffs' status as indirect purchasers of Ticketmaster Corp.'s
services did not bar them from seeking equitable relief against Ticketmaster
Corp. Discovery on the plaintiffs' remanded claim for equitable relief is
ongoing in the District Court and a trial date of July 17, 2000 has been set. On
July 9, 1998, the plaintiffs filed a petition for writ of certiorari to the
United States Supreme Court seeking review of the decision dismissing their
damage claims. Plaintiff's petition for writ of certiorari in the United States
Supreme Court was denied on January 19, 1999.
Ticketmaster Corp. has stated that the Court's affirmance of the decision
prohibiting plaintiffs from obtaining monetary damages against Ticketmaster
Corp. eliminates the substantial portion of plaintiffs' claims. With respect to
injunctive relief, the Antitrust Division of the United States Department of
Justice had previously investigated Ticketmaster Corp. for in excess of 15
months and closed its investigation with no suggestion of any form of injunctive
relief or modification of the manner in which Ticketmaster Corp. does business.
In March 1995, MovieFone, Inc. ("MovieFone") and The Teleticketing Company,
L.P. filed a complaint against Ticketmaster Corp. in the United States District
Court for the Southern District of New York. Plaintiffs allege that they are in
the business of providing movie information and teleticketing services, and that
they are parties to a contract with Pacer Cats Corporation, a wholly owned
subsidiary of Wembley plc ("Pacer Cats"), to provide teleticketing services to
movie theaters. Plaintiffs also allege that, together with Pacer Cats, they had
planned to begin selling tickets to live entertainment events, and that
Ticketmaster Corp., by its conduct, frustrated and prevented plaintiffs' ability
to do so. Plaintiffs further allege that Ticketmaster Corp. has interfered with
and caused Pacer Cats to breach its contract with plaintiffs. The complaint
asserts that Ticketmaster Corp.'s actions violate Section 7 of the Clayton Act
and Sections 1 and 2 of the Sherman Act, and that Ticketmaster Corp. tortiously
interfered with contractual and prospective business relationships and seeks
monetary and injunctive relief based on such allegations. Ticketmaster Corp.
filed a motion to dismiss. The court heard oral argument on September 26, 1995.
In March 1997, prior to the rendering of any decision by the Court on
Ticketmaster Corp.'s motion to dismiss, Ticketmaster Corp. received an amended
complaint in which the plaintiffs assert essentially the same claims as in the
prior complaint but have added a RICO claim and tort claims. Ticketmaster Corp.
filed a motion to dismiss the amended complaint in April 1997, which is still
pending. Some of the claims in this litigation are similar to claims that were
the subject of an arbitration award in which MovieFone was a claimant and Pacer
Cats a respondent. Among other things, the award included damages from Pacer
Cats to MovieFone of approximately $22.75 million before interest and an
injunction against some entities, which may include affiliates of Ticketmaster
Corp., restricting or prohibiting their activity with respect to aspects of the
movie teleticketing business for a specified period of time. Neither USAi,
Ticketmaster Corp., nor any entity owned or controlled by Ticketmaster Corp.,
were parties to the arbitration. In May 1998, MovieFone filed a petition in New
York state court to hold an entity affiliated with Ticketmaster Corp. in
contempt of the injunction provision of the arbitration award on the grounds
that such entity is a successor or assignee of, or otherwise acted in concert
with, Pacer Cats. In November 1998, the court ruled that the Ticketmaster Corp.
affiliate is bound by the arbitrators' findings that it is the successor to
Pacer Cats and, as such, liable for breaches committed by Pacer Cats and subject
to the terms of the arbitration award's injunction. The court further found
that the Ticketmaster Corp. affiliate had violated the injunction and awarded
MovieFone approximately $1.38 million for losses it incurred as a result of such
violations. The Ticketmaster Corp. affiliate has filed a notice of appeal of the
court's decision, including to seek reversal of the ruling regarding successor
liability.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 1, 1998, stockholders representing a majority of the total
outstanding voting power of all outstanding shares of capital stock of the
Company as of that date approved (1) the amendment and restatement of the
Company's Certificate of Incorporation, in connection with the Company's initial
public offering of Class B Common Stock, to authorize 2,000,000 shares of "blank
check" preferred stock upon the closing of the offering; the addition of certain
provisions regarding corporate opportunities; and the deletion of certain
provisions that were operative only prior to the offering; (2) the adoption of
the Company's 1998 Employee Stock Purchase Plan, reserving 1,000,000 shares of
Class B Common Stock for issuance thereunder, which amount shall increase each
year by 200,000 shares or a lesser amount as determined by the Board of
Directors; and (3) the adoption of the Company's 1998 Stock Option Plan,
reserving 4,000,000 shares of Class B Common Stock for issuance thereunder.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market for Registrant's Common Stock
The Company's Class B Common Stock is traded on the Nasdaq National Market
under the symbol "TMCS." The following table sets forth the range of the high
and low sale prices by quarter as reported on the Nasdaq National Market since
December 3, 1998, the date the Class B Common Stock commenced trading.
- -----------------------------------------------------------------------------
Quarter High Low
- -----------------------------------------------------------------------------
1998: Fourth Quarter (from December 3, 1998) $80.50 $32.69
- -----------------------------------------------------------------------------
As of December 31, 1998, the number of stockholders of record of the
Company's Class B Common Stock was 41. The Company currently intends to retain
any earnings for use in its business and does not anticipate paying any cash
dividends in the foreseeable future.
On December 8, 1998, the Company completed its initial public offering (the
"IPO") of 8,050,000 shares (including the exercise of the underwriters' over-
allotment option consisting of 1,050,000 shares) of its Class B Common Stock,
$.01 par value per share, at a public offering price of $14.00 per share
pursuant to a registration statement on Form S-1 (file no. 333-64855) filed with
the Securities and Exchange Commission. All of the shares registered were sold.
NationsBanc Montgomery Securities LLC, Allen & Company Incorporated, BancBoston
Robertson Stephens Inc., Bear Stearns & Co., Inc., and Donaldson Lufkin &
Jenrette Securities Corporation were the managing underwriters of the IPO.
Aggregate gross proceeds to the Company from the IPO (prior to deduction of
underwriting discounts and commissions and expenses of the offering) were
$112,700,000. There were no selling stockholders in the IPO.
The Company paid underwriting discounts and commissions of $7,327,000 and
other expenses of approximately $1,319,000 in connection with the IPO. The
total expenses paid by the Company in the IPO were $8,646,000 and the net
proceeds to the Company in the IPO were $104,054,000.
From December 2, 1998, the effective date of the Registration Statement, to
December 31, 1998 (the Company's fiscal year end), approximately $51,151,000 of
net proceeds were used for the repayment of a convertible note (the "Convertible
Note") 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, and
accrued interest thereon. The remainder of the net proceeds was used for general
working capital purposes. None of such payments consisted of direct or indirect
payments to directors, officers, 10% stockholders or affiliates of the Company.
On December 31, 1998, there were 114 shareholders of record of the
Company's Class A Common Stock. There is no public market for the Class A
Common Stock, but each share of Class A Common Stock will be automatically
converted into one share of Class B Common Stock of the Company upon any
transfer of such share, subject to certain exceptions. 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.
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Recent Sales of Unregistered Securities
During the 1998 fiscal year, the Company issued and sold the following
unregistered securities:
(1) From January 1, 1998 to December 31, 1998, the Company granted
options to purchase 2,288,528 shares of the Company Class A Common Stock
pursuant to its 1996 Stock Plan and 650,000 shares of the Company Class B Common
Stock pursuant to its 1998 Stock Plan, respectively, at exercise prices ranging
from $3.00 to $8.67 and $8.67 to $32.69, per share, respectively.
(2) From January 1, 1998 to December 31, 1998, the Company issued and
sold an aggregate of 1,338,998 shares of Class A Common Stock to its employees,
directors and consultants upon exercise of stock options granted pursuant to its
1996 Stock Plan at exercise prices ranging from $.10 to $8.00 per share for an
aggregate consideration of approximately $869,590.
(3) In May 1998, CitySearch issued and sold an aggregate of 1,000,000
shares of its Series E Preferred Stock (or 987,500 shares of Class A Common
Stock pursuant to the conversion of all of the outstanding shares of Series A,
Series B, Series C, Series D and Series E convertible preferred stock of City
Search, which became effective immediately prior to the consummation of the
Merger (the "Conversion") and the reclassification of all outstanding shares of
CitySearch Common Stock into Class A Common Stock, which became effective on
September 28, 1998 (the "Reclassification")) for an aggregate cash consideration
of approximately $7.0 million. The shares were issued to USAi and American
Express.
(4) In June 1998, CitySearch issued an aggregate of 63,644 shares of
Series B Preferred Stock (or 63,644 shares of Class A Common Stock pursuant to
the Reclassification) at $7.00 per share as additional consideration for the
acquisition of Metrobeat. The shares were issued to the following shareholders
of Metrobeat: Mark Davies and Joshua White.
(5) In September 1998, CitySearch issued an aggregate of 37,238,000
shares of CitySearch Common Stock (or 37,238,000 shares of Class A Common Stock
pursuant to the Reclassification) as consideration for the acquisition of
Ticketmaster Multimedia Holdings, Inc. The shares were issued to Ticketmaster
Corp.
(6) In September 1998, pursuant to the Reclassification, each issued and
outstanding share of CitySearch Common Stock, or 62,486,478 shares, was
reclassified into one share of Class A Common Stock of the Company for no
consideration.
(7) In December 1998, the Company issued an aggregate of 7,955 shares of
Class A Common Stock at $14.00 per share as additional consideration for the
Metrobeat acquisition. The shares were issued to the following shareholders of
Metrobeat: Mark Davies and Joshua White.
The sales of the securities described in Items (1) and (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 of 1933, as amended (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 (3) through (5) and (7) 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 (6) was deemed to be exempt from registration under the Securities Act
in reliance on Section 3(a)(9) of the Securities
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<PAGE>
Act as an exchange by the issuer with its existing security holders where no
commission or other remuneration is paid or given directly or indirectly for
soliciting such exchange.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data below as of December 31, 1998 and the eleven
months ended December 31, 1998 are derived from the audited financial statements
of Ticketmaster Online CitySearch, Inc. The selected financial data presented
below at January 31, 1998 and 1997 and for each of the two years in the period
ended January 31, 1998, are derived from audited Financial Statements of
Ticketmaster Online as the predecessor entity. The balance sheet data as of
January 31, 1996 are derived from unaudited financial statements of Ticketmaster
Online that are not included herein. The selected Ticketmaster Online
CitySearch 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 CitySearch and Notes thereto included elsewhere in this
report.
<TABLE>
<CAPTION>
Eleven Months
Ended Year Ended January 31,
December 31, ------------------------------
1998(1) 1998 1997(2) 1996(2)
------------- ------- ------- -------
<S> <C> <C> <C> <C>
(In Thousands, Except Per Share Data)
Statement of Operations Data:
Revenues:
Ticketing operations........................................ $ 15,743 $ 5,972 $ 199 $ --
Sponsorship and advertising................................. 6,754 3,933 997 14
City guide and related...................................... 5,376 -- -- --
-------- ------- ------- -------
Total revenues............................................ 27,873 9,905 1,196 14
Costs and expenses:
Ticketing operations........................................ 9,842 3,522 635 --
City guide and related...................................... 4,021 -- -- --
Sales and marketing......................................... 6,834 490 290 --
Research and development.................................... 1,728 -- -- --
General and administrative.................................. 3,495 1,719 1,260 548
Amortization of goodwill.................................... 16,275 -- -- --
-------- ------- ------- -------
Total costs and expenses.................................. 42,195 5,731 2,185 548
-------- ------- ------- -------
Income (loss) from operations.................................. (14,322) 4,174 (989) (534)
Interest income, net........................................... 54 -- -- --
-------- ------- ------- -------
Income (loss) before income taxes.............................. (14,268) 4,174 (989) (534)
Income tax provision (benefit)................................. 2,951 1,827 (374) (204)
-------- ------- ------- -------
Net income (loss).............................................. $(17,219) $ 2,347 $ (615) $ (330)
======== ======= ======= =======
Basic and diluted net income (loss)
per equivalent share (3)....................................... $ (0.38) $ 0.06 $ (0.02) $ (0.01)
======== ======= ======= =======
Number of shares used to compute basic and diluted
net income (loss) per equivalent share (3)..................... 45,201 37,238 37,238 37,238
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
January 31,
December 31, ----------------------
1998 (4) 1998 1997 1996
------------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................................. $106,910 $ -- $ 3 $ --
Working capital (deficit) (4)......................................... 99,571 (100) 218 223
Total assets (5)...................................................... 416,725 688 554 354
Stockholders' equity (deficit)........................................ 403,588 289 489 354
</TABLE>
- ---------------------------
(1) Includes the operating results of CitySearch from September 29, 1998 to
December 31, 1998 as a result of the Merger. The eleven month period
reflects the Company's change in year end to December 31 from January 31.
Comparable amounts for the prior period are not presented because as a
result of the Merger and continuing growth of the Company such presentation
would not be considered meaningful.
(2) Ticketmaster Online did not incur costs or expenses until June 1995 and
commenced selling live event tickets and merchandise online in November
1996.
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<PAGE>
(3) Basic and diluted net income (loss) per equivalent share is based on the
number of shares of CitySearch Common Stock exchanged in the Merger for all
January 31 ended periods presented, and for the eleven months ended December
31, 1998 includes the outstanding Class A and Class B Common Stock for
period subsequent to the Merger in the calculation of average shares.
(4) The balance sheet data at December 31, 1998 represents the consolidated
assets and liabilities of Ticketmaster Online and CitySearch as a result of
the Merger.
(5) Total assets at December 31, 1998 reflect $299.6 million of goodwill, net of
accumulated amortization of $16.3 million resulting from the Merger and
USAi's acquisition of all of the outstanding equity of Ticketmaster Group in
June 1998 (the "Ticketmaster Transaction") and USAi's acquisition of
1,997,502 shares of Class A Common Stock of CitySearch from holders of such
Class A Common Stock for $17.2 million (the "Tender Offer") pursuant to the
terms of the Merger Agreement on November 3, 1998.
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<PAGE>
ITEM 7. 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 audited
Consolidated Financial Statements of the Company and the related Notes thereto
included elsewhere in this report. 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
below and elsewhere in this report.
Overview
The Company has combined CitySearch and Ticketmaster Online to create a
leading provider of local city guides, local advertising and live event
ticketing on the Internet. The Company is integrating 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.
The Company derives revenues from three sources: online ticketing, sales
of sponsorships and advertising and City guide services. The Company views its
business as being in one segment. Integration of the ticketing and City guide
business models is ongoing.
Ticketing 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. Merchandise sale revenues are recognized
when the products are sold.
Under the Ticketmaster License Agreement, subject to certain limitations,
Ticketmaster Corp. has granted (a) the Company an exclusive, perpetual,
irrevocable, worldwide license to use the Ticketmaster trademark and (b) certain
Ticketmaster Corp. databases to sell live event tickets online for Ticketmaster
Corp.'s clients. In addition, Ticketmaster Corp. has authorized the Company 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 (1) by
telephone; (2) by other voice-to-voice means or voice-to-voice recognition unit
systems; (3) by non-interactive broadcast, cable and satellite television; and
(4) 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 this information to the Company for processing of online ticket sales
and
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<PAGE>
provides all transaction processing and fulfillment services for online live
event ticket sales. The Company is required under the Ticketmaster License
Agreement to comply with the terms of Ticketmaster Corp.'s client agreements.
The Company's rights, contained in the Ticketmaster License Agreement, are
subject to the client agreements. The Ticketmaster License Agreement also
generally restricts the Company 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, the Company pays Ticketmaster
Corp. a royalty which is a percentage of the net profit it derives from online
ticket sales. The Company also reimburses Ticketmaster Corp. for Ticketmaster
Corp.'s direct expenses related to online ticket sales.
Under the Ticketmaster License Agreement, the Company has also been granted
the non-exclusive right to promote and sell online certain merchandise available
through Ticketmaster Corp. Ticketmaster Corp. serves as the Company's exclusive
fulfillment provider for the online sales of this merchandise. As long as
Ticketmaster Corp.'s fees, terms and quality of service are no less favorable
than those available to the Company from third parties, Ticketmaster Corp. or
its affiliates will serve as the Company's exclusive fulfillment provider for
the online sales of all other merchandise available through Ticketmaster Corp.
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 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 Company's Web sites or
otherwise.
Sponsorship and advertising revenues are derived from local and national
advertisers and are primarily recognized ratably over the term of the promotion.
Ticketmaster Corp. may also solicit sponsorship and advertising for the
Company's Web sites in a bundle with other sponsorship and advertising
opportunities offered by Ticketmaster Corp.
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 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 Atlanta, Austin, Denver,
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, San Diego, Washington D.C., Canberra,
Copenhagen, Melbourne, Stockholm, Sydney and Toronto.
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 average monthly revenue from new businesses signed up in its
owned and operated markets in December 1996 was approximately $50 per customer
and in December 1998 was approximately $219 per customer. To a lesser extent,
the Company derives city guide
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<PAGE>
revenue from barter agreements with television, radio and media alliances. 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.
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 is recognized over the term of the license
agreement or the period over which the relevant services are delivered for use
of the Company's business and technology systems. 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. Additionally, the Company derives revenue from providing back office
services, including business Web site design, hosting, customer service and
billing, to certain of its partners. See Note 1 of Notes to Consolidated
Financial Statements of the Company.
Operating Losses
The Company incurred a net loss of $17.2 million for the eleven months
ended December 31, 1998, earned net income of $2.3 million for the year ended
January 31, 1998 and incurred net losses of $615,000 the year ended January 31,
1997. At December 31, 1998, the Company had a retained deficit of $16.0
million.
Goodwill
The Merger and the Tender Offer resulted in $160.6 million of goodwill that
will be amortized over five years and intangibles related to the Non-Competition
Agreements of $500,000, which is being amortized over 2.5 years. The Company
recorded an allocation of goodwill of $154.8 million, which is being amortized
over ten years, resulting from the acquisition of Ticketmaster Group by USAi.
Results of Operations
Ticketing Operations Revenues. Ticketing operations revenues were $15.7
million, $6.0 million and $199,000 for the eleven months ended December 31, 1998
and for the fiscal years ended January 31, 1998 and 1997, respectively. The
increase for the eleven months ended December 31, 1998 over the year ended
January 31, 1998 (the difference of one month's operations is not considered to
materially affect the comparison of the two periods) is primarily attributable
to a significant increase in the number of tickets sold (from 1,062,000 to
2,860,000 tickets), and a 7.7% increase in average convenience charge revenue
per ticket (from $5.06 to $5.45).
Sponsorship and advertising revenues. Sponsorship and advertising revenues
were $6.8 million, $3.9 million and $1.0 million for the eleven months ended
December 31, 1998 and fiscal years ended January 31, 1998 and 1997,
respectively. The increases are primarily attributable to an increase in
sponsorship and promotion activity with strategic marketing partners. In the
eleven months ended December 31, 1998, $3.0 million is attributable to one
promotional agreement.
City Guide and Related Revenue. City guide and related revenues were $5.4
million for the eleven months ended December 31, 1998 representing the
CitySearch city guide and related revenue for the three months subsequent to the
Merger.
Ticketing Operations Expenses. Ticketing operations expenses consist
primarily of expenses associated with ticket fulfillment, Web site design and
layout, service and network infrastructure maintenance
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<PAGE>
and data communications. Ticketing operating expenses were $9.8 million, $3.5
million and $635,000 for the eleven months ended December 31, 1998 and for the
fiscal years ended January 31, 1998 and 1997, respectively. 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 as a result of expenses associated with the Ticketmaster License
Agreement.
City Guide and Related Expenses. City guide and related expenses consist
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. City guide and
related expenses are expended as incurred. City guide and related expense was
$4.0 million for the eleven months ended December 31, 1998 representing the
CitySearch city guide and related expenses for the three months subsequent to
the Merger. City guide and related expenses are primarily variable in nature and
will continue to increase in future periods to the extent City guide and related
revenues increase during such periods.
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 $6.8 million, $490,000
and $290,000 for the eleven months ended December 31, 1998 and the fiscal years
ended January 31, 1998 and 1997, respectively. The increase for the eleven
months ended December 31, 1998 as compared to the fiscal year ended January 31,
1998 is due primarily to the sales and marketing costs of CitySearch for the
three months subsequent to the Merger amounting to $5.8 million and 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.
Research and Development Expenses. Research and development expenses
include the costs to develop, test and upgrade the Company's online service and
the enterprise management systems. These costs consist primarily of salaries
for product development personnel, contract labor expense, consulting fees,
software licenses, hardware costs and recruiting fees. Research and development
expenses were $1.7 million for the eleven months ended December 31, 1998 which
represents the research and development cost of CitySearch for the three months
subsequent to the Merger. The Company believes that timely deployment of new and
enhanced products and technology is critical to attaining its strategic
objectives and to remaining competitive. Accordingly, the Company intends to
continue recruiting and hiring experienced research and development personnel
and making other investments in research and development. As such, the Company
expects that research and development expenditures will increase in absolute
dollars in future periods. The Company has expensed research and development
costs as incurred.
General and Administrative Expenses. General and administrative expenses
consist primarily of administrative and executive personnel costs. General and
administrative expenses were $3.5 million, $1.7 million and $1.3 million for the
eleven months ended December 31, 1998 and fiscal years ended January 31, 1998
and 1997, respectively. The substantial increase for the eleven months ended
December 31, 1998 was due primarily to general and administrative expenses for
CitySearch for the three months subsequent to the Merger amounting to $1.7
million. The Company expects that the general and administrative expenses will
increase in absolute dollars.
Interest Income, Net. Net interest income consists primarily of interest
earned on the Company's cash and cash equivalents, less interest expense on
capital lease obligations. The Company had net interest income of $54,000 for
the eleven months ended December 31, 1998. Included in net interest income is
interest expense of $710,000 on the Convertible Note. The Company invests its
cash balances in short-term investment grade, interest-bearing securities.
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<PAGE>
Income Taxes. The provision (benefit) for income taxes was $2.9 million,
$1.8 million and $(374,000) for the eleven months ended December 31, 1998 and
fiscal years ended January 31, 1998 and 1997, respectively. The provision for
income taxes for the eleven months ended December 31, 1998 primarily consists of
the provision recorded by Ticketmaster Online prior to the Merger. The
Company's effective tax rate differs from the statutory federal income tax rate,
primarily as a result of state income taxes and operating losses not benefitted.
Tax benefits were recorded for the year ended January 31, 1997 as there was no
valuation allowance recognized against the deferred tax asset on a stand-alone
basis for that year. The Company expects that any taxable income 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 the Company.
Liquidity and Capital Resources
Prior to the Merger, the Company's primary sources of liquidity were cash
from operations and funding from Ticketmaster Corp. Consistent with the cash
management policies of Ticketmaster Corp., the Company did not maintain any cash
balances prior to the date of the Merger (September 28, 1998).
Net cash used in operating activities was $438,000 for the eleven months
ended December 31, 1998 and net cash provided from operating activities was $2.9
million for the fiscal year ended January 31, 1998, while net cash used in
operating activities was $556,000 for the year ended January 31, 1997.
Net cash used in investing activities was $1.1 million for the eleven
months ended December 31, 1998, and was $250,000 and $189,000 for the fiscal
years ended January 31, 1998 and January 31, 1997, respectively. Net cash used
in investing activities in these periods consisted primarily of capital
expenditures for computers, software, equipment and leasehold improvements. Net
cash provided in financing activities was $50.6 million for the eleven months
ended December 31, 1998, attributable to the Company's initial public offering
and repayment of the Convertible Note. Net cash used in financing activities
was $2.7 million for the fiscal year ended January 31, 1998, attributable to
repayments to Ticketmaster Corp. for prior financing provided to the Company and
distributions to Ticketmaster Corp. Net cash provided by financing activities
was $748,000 for the fiscal year ended January 31, 1997, attributable to
intercompany funding from Ticketmaster Corp.
At December 31, 1998, the Company's cash and cash equivalents were $106.9
million. 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.
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. The Company has developed a plan to minimize the impact of
this Year 2000 problem. Pursuant to such plan, the Company has established a
Year 2000 Committee consisting of senior managers from relevant functional
areas. The Year 2000 Committee has reviewed all areas of the Company's business
and operations that may be affected and has assigned responsibility for each
area to individuals knowledgeable about their respective areas. The Year 2000
Committee has made these individuals responsible for the initial assessment of
risk and initial estimate of hardware cost, software cost and time required to
achieve compliance. The Company concluded its initial assessment in the fourth
quarter of 1998 and is commencing implementation of remediation necessary to
achieve compliance. Remediation will continue in 1999. The Company estimates
that the dollar cost of Year 2000 compliance is approximately $200,000. However,
the Company has not yet completed its comprehensive assessment of remediation
costs and actual costs could materially differ.
Several systems provided by third parties are required for the operation of
the Company's services, any of which may contain software code that is not Year
2000 compliant. These systems include server software used to operate the
Company's network servers, software controlling routers, switches and other
components of the Company's data network, disk management software used to
control the Company's data disk arrays, firewall, security, monitoring and back-
up software used by the Company, as well as desktop PC applications software. In
most cases, the Company employs widely available software applications and other
products from leading third party vendors, and expects that such vendors will
provide any required upgrades or modifications in a timely fashion. However, any
failure of third party suppliers to provide Year 2000 compliant versions of the
products used by the Company could result in a temporary disruption of the
Company's services or otherwise disrupt the Company's operations. In addition,
the Company's partners may operate their city guide sites in proximity to other
applications that may not be Year 2000 compliant. While the Company intends to
assign an individual to coordinate each partner's compliance efforts to ensure
uninterrupted operations, the Company has limited ability to influence decisions
by its partners. Non-compliant systems that adjoin partners' city guide
applications could result in interruption or disruption of the city guide
service, which in turn could reduce royalties or other amounts due to the
Company. There can be no assurance that the Company, its third party suppliers
or its partners will be Year 2000 compliant at the end of the millennium.
Failure to achieve compliance could result in complete failure or
inaccessibility of the Company's or its partners' services, and could adversely
affect the Company's business, financial condition and results of operations.
Year 2000 compliance problems could also undermine the general
infrastructure necessary to support the Company's operations. For instance, the
Company depends on third party Internet service providers for connectivity to
the Internet. Any interruption of service from the Company's Internet service
providers could result in a temporary interruption of the Company's services.
Moreover, the effects of Year 2000 compliance deficiencies on the integrity and
stability of the Internet are difficult to predict. A significant disruption in
the ability of businesses and consumers to reliably access the Internet or
portions of it would have an adverse effect on demand for the Company's services
and adversely impact the Company's business, financial condition and results of
operations.
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<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market rate risk for changes in interest
rates relates primarily to the Company's investment portfolio. The Company has
not used derivative financial instruments in its investment portfolio. The
Company invests its excess cash in debt instruments of the U.S. Government and
its agencies, and in high-quality corporate issuers and, by policy, limits the
amount of credit exposure to any one issuer. The Company protects and preserves
its invested funds by limiting default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning
instruments carries a degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment
income may fall short of expectations due to changes in interest rates or the
Company may suffer losses in principal if forced to sell securities which have
declined in market value due to changes in interest rates.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements, with notes thereto and
the report of Ernst & Young LLP, the Company's independent auditors,
are set forth as indicated in Item 14.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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<PAGE>
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------------------ ------- --------------------------------------------------------------
<S> <C> <C>
Alan Citron............................... 40 Chairman of the Board
Charles Conn.............................. 37 Chief Executive Officer and Director
Thomas Layton............................. 36 President and Treasurer
David Hagan............................... 38 Chief Operating Officer
Robert Perkins............................ 44 Executive Vice President, Ticketing and Electronic Commerce
Douglas McPherson......................... 37 Chief Legal Officer and Vice President, Business Development
Bradley Ramberg........................... 35 Chief Financial Officer, Vice President, Finance and
Administration and Secretary
Barry Baker............................... 46 Director
Terry Barnes.............................. 47 Director
Eugene L. Cobuzzi......................... 42 Director
Stuart W. DePina.......................... 38 Director
Barry Diller.............................. 57 Director
Joseph Gleberman.......................... 41 Director
William Gross............................. 40 Director
Victor A. Kaufman......................... 55 Director
Robert Kavner(1).......................... 55 Director
William D. Savoy(1)(2).................... 34 Director
Alan Spoon................................ 47 Director
Thomas Unterman(2)........................ 54 Director
</TABLE>
- ------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
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 June 1997 until July 1998, Mr. Citron served as the President
and Chief Operating Officer of Ticketmaster Online. From January 1995 until June
1997, Mr. Citron served as Senior Vice President--New Media of Ticketmaster
Corp. From January 1991 until January 1995, 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 a director of the Company since March 1999, as Chief
Executive Officer since September 1998 and as Chief Executive Officer of
CitySearch since he co-founded CitySearch in September 1995. Mr. Conn also
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 Treasurer 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 November 1995, he was with Score Learning Corporation, a
leading educational learning center,
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<PAGE>
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. Hagan has served as Chief Operating Officer since January 1999. From
April 1994 until December 1998, he served in a variety of senior management
positions with Sprint Canada, a telecommunications company, most recently as
Executive Vice President, Marketing, Sales and Service. While at Sprint Canada,
Mr. Hagan also served as President, Consumer Services Group and as Vice
President, Residential Services.
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 Corp., most recently as Vice President of Ticketmaster Online.
Prior to joining Ticketmaster Corp., 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 1996 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, an 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. Baker has served as a director of the Company since March 1999. Mr.
Baker has been President and Chief Operating Officer of USAi and USANi LLC since
February 1999. Mr. Baker was Executive Vice President of Sinclair Broadcast
Group, Inc. and served as Chief Executive Officer designate and as a director of
Sinclair Communications, Inc. from June 1996 through February 1999. From 1989
through May 1996, he was also Chief Executive Officer of River City
Broadcasting, L.P., which was aquired by Sinclair Broadcasting.
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 September
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 September 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.
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<PAGE>
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
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, a position
which he has held since November 1996. He joined Goldman, Sachs & Co. in 1982
and has served as a partner from November 1990 to November 1996. 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. Since December 1998, Mr. Kavner
has served as General Partner of bill gross' idealab!, and as a consultant to On
Command Corporation, a provider of hotel in-room entertainment and movies. From
September 1996 to December 1998, Mr. Kavner served as the Chief Executive
Officer, President and a director of On Command Corporation 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.
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<PAGE>
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
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.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on the Company's review of copies of reports on Forms 3, 4 and
5 (and amendments thereto) furnished to it or written representations from
reporting persons, the Company believes that, during the 1998 fiscal year, all
filing requirements pursuant to Section 16(a) of the Securities Exchange Act of
1934, as amended, applicable to its officers, directors and beneficial owners of
more than ten percent of its securities were complied with, except that Goldman
Sachs Group LP and American Express Travel Related Services Company, Inc. failed
to timely file a Form 3 during that period.
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<PAGE>
ITEM 11. 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, 1998 by the Company's Chief Executive Officer and the two
executive officers 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
----------------------
Ticketmaster
Annual Online-CitySearch
Compensation Securities
--------------------------------
Other Annual Underlying Options
Name and Principal Position Salary Bonus Compensation (#) (1)
- --------------------------------------------------------- -------- ------- ------------ ----------------------
<S> <C> <C> <C> <C>
Charles Conn
Chief Executive Officer................................. $119,750 $50,000 $ -- 350,000
Thomas Layton
President and Treasurer................................. 116,667 50,000 -- 350,000
Robert Perkins
Executive Vice President................................ 164,167 40,000 -- 25,000
</TABLE>
(1) Options to purchase 200,000, 200,000 and 25,000 shares of Class A Common
Stock of the Company were granted to each of Messrs. Conn, Layton and
Perkins, respectively, pursuant to the Company's 1996 Stock Plan. In
addition, options to purchase 150,000 shares of Class B Common Stock of the
Company were granted to each of Messrs. Conn and Layton pursuant to the
Company's 1998 Stock Plan.
Option Grants in 1998
The following table sets forth certain information regarding option grants
to each of the Named Executive Officers during the year ended December 31, 1998.
<TABLE>
<CAPTION>
Percent of Potential Realizable Value at
Number of Total Assumed Annual Rates of Stock
Securities Options Price Option Appreciation For
Underlying Granted to Exercise Term (5)
Options Employees Price Per Expiration ------------------------------
Name Granted (#) in 1998 (3) Share (4) Date 5% 10%
- -------------------------------- ----------- ------------ ---------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
200,000(1) 8.7% $ 7.00 6/17/08 $16,843,620 $27,649,916
Charles Conn.................... 150,000(2) 23.1% $32.69 12/17/08 8,779,215 16,883,937
200,000(1) 8.7% $ 7.00 6/17/08 16,843,620 27,649,916
Thomas Layton................... 150,000(2) 23.1% $32.69 12/17/08 8,779,215 16,883,937
Robert Perkins.................. 25,000(1) 1.1% $ 8.67 11/24/08 2,105,452 3,456,239
</TABLE>
- ------------------------
(1) All options were granted under the 1996 Stock Plan and are exercisable for
Class A Common Stock of the Company. As of December 31, 1998, 325,000
shares, 275,000 shares, and 1,041 shares subject to the options granted to
Messrs. Conn, Layton and Perkins were vested, respectively.
(2) All options were granted under the 1998 Stock Plan and are exercisable for
Class B Common Stock of the Company. No shares were vested as of December
31, 1998 for Messrs. Conn and Layton.
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<PAGE>
(3) Based on options to purchase 2,288,528 and 650,000 shares granted under the
1996 Stock Plan and the 1998 Stock Plan, respectively, to the Company's
employees, including Messrs. Conn and Layton, during the year ended
December 31, 1998 (excluding options to purchase 419,231 and 0 shares of
the Company's Class A Common Stock and Class B Common Stock, respectively,
that were granted to employees and subsequently canceled during the fiscal
year ended December 31, 1998).
(4) The exercise price per share of each option was equal to the fair market
value of the underlying the Company's Common Stock on the date of grant as
determined by the Company's Board of Directors.
(5) Potential gains are calculated based on the $56.00 closing price per share
of Class B Common Stock on December 31, 1998 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 market price of shares of
Class B Common Stock, the future financial performance of the Company and
overall market conditions.
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, 1998 and the number
of shares covered by both exercisable and unexercisable stock options held by
each of the Named Executive Officers at December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-The-
Options at Year-End (#) Money Options at Year-End (3)
Acquired On Value ----------------------------- -----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- ------------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles Conn............. -- -- 325,000(1) 0 $16,550,000 $ 0
0 150,000(2) 0 $3,496,500
Thomas Layton............ 250,000 $725,000 275,000(1) 0 $13,850,000 $ 0
0 150,000(2) 0 $3,496,500
Robert Perkins........... -- -- 1,041(1) 23,959 $ 49,271 $1,133,979
</TABLE>
- -----------------------------
(1) Options shown were granted under the 1996 Stock Plan and are exercisable
for Class A Common Stock.
(2) Options shown were granted under the 1998 Stock Plan and are exercisable
for Class B Common Stock.
(3) Based on the December 31, 1998 closing price of $56.00 per share, less the
exercise price.
Board Composition
The Board of Directors of the Company is currently comprised of 14
directors, one of whom is an officer of the Company. 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 .
The Board of Directors has a Compensation Committee, comprised of Messrs.
Kavner and Savoy, with Mr. Citron serving as an observer to such Committee. The
Compensation Committee makes 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 has an Audit Committee, comprised of Messrs.
Savoy and Unterman with Mr. DePina serving as an observer, that reviews and
monitors corporate financial reporting and audits of the Company, as well as any
other accounting related matters.
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<PAGE>
Director Compensation
The members of the Board of Directors are not currently 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
the Company's Class A Common Stock under the 1996 Stock Plan at an exercise
price of $0.10 per share, $0.10 per share and $0.25 per share, respectively.
Directors may receive discretionary stock option grants pursuant to the
provisions of the 1998 Stock Plan.
Compensation Committee Interlocks and Insider Participation
The Board of Directors has a Compensation Committee, comprised of Messrs.
Kavner and Unterman, with Mr. Citron serving as an observer to such Committee.
Neither of the members of the Compensation Committee is an officer or employee
of the Company. No interlocking relationship exists between the Company's Board
of Directors or 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.
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 Reclassification)
at a per share price of $6.5251. 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.
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.
In addition, 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 The Los Angeles Times, Inc. 50% of net merchandising revenue
from the co-branded Web site.
Mr. Unterman, a director of the Company, is Executive Vice President and
Chief Financial Officer of The Times Mirror Company.
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.
On November 25, 1998, the Company entered into an employment agreement with
Mr. Perkins. The term of the agreement is January 1, 1999 to December 31, 2000,
unless earlier terminated in accordance with the agreement. Pursuant to the
agreement, in the event the Company terminates Mr. Perkins for cause, he will be
entitled to receive severance payments equal to his full base salary for the
remainder of the term of the agreement.
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<PAGE>
In addition, pursuant to stock option agreements between the Company and
each of Messrs. Conn and Layton, the vesting of such stock options was
accelerated and such stock options fully vested upon completion of the Merger.
Moreover, in connection with the Merger, each of Messrs. Conn and Layton entered
into the Non-Competition Agreements. See "Certain Relationships and Related
Transactions--Acceleration of Stock Options" and "--Non-Competition Agreements."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 December 31, 1998, certain
information regarding the beneficial ownership of the Company's Class B Common
Stock 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 Shares Percentage of Shares Voting
Name and Address of Beneficial Owner (1) Beneficially Owned (2) Beneficially Owned (2) Power (3)
- --------------------------------------------- ----------------------- ---------------------- -------------
<S> <C> <C> <C>
USA Networks, Inc............................ 42,480,143 83.9% 65.8%
152 West 57th Street, 42nd Floor
New York, NY 10019
Barry Diller(4).............................. 42,480,143 83.9 65.8
William Gross(5)............................. 2,828,261 25.7 4.4
Alan Citron.................................. 2,500 * *
Terry Barnes................................. 2,500 * *
Eugene L. Cobuzzi(6)......................... 2,500 * *
Stuart W. DePina(7).......................... 2,500 * *
Joseph Gleberman(8).......................... 2,387,981 22.6 3.7
Victor A. Kaufman............................ 2,000 * *
Alan Spoon(9)................................ 748,692 8.4 1.2
Thomas Unterman(10).......................... 750,413 8.4 1.2
Robert Kavner(11)............................ 237,568 2.8 *
William D. Savoy............................. 10,000 * *
Charles Conn(12)............................. 1,536,249 15.8 2.4
Thomas Layton(13)............................ 971,249 10.6 1.5
All executive officers and directors as a
group (19 persons)(14)....................... 52,094,086 86.4 80.6
</TABLE>
- ------------------
* 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., 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) 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 respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table
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above have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them. 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 December 31, 1998.
(3) Percent of total voting power is based on one vote for each share of Class
B Common Stock and 15 votes for each share of Class A Common Stock,
calculated assuming no conversion of the Class A Common Stock by any
holder.
(4) Includes 42,480,143 shares of Class A Common Stock which are beneficially
owned by USAi. Mr. Diller disclaims beneficial ownership of such shares.(5)
Includes 472,562 shares of Class A Common Stock held by bill gross'
idealab!. Mr. Gross disclaims beneficial ownership of the shares held by
bill gross' idealab!.
(6) Includes 2,500 shares of Class B Common Stock held in custodial accounts
for the benefit of Mr. Cobuzzi's minor children for which Mr. Cobuzzi
serves as custodian.
(7) Includes 2,500 shares of Class B Common Stock which are held by the DePina
Family Trust dated April 8, 1998.
(8) Includes 2,387,981 shares of Clas 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.
(9) 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.
(10) 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.
(11) Includes 115,282 shares of Class A Common Stock and options to purchase
122,286 shares of Class A Common Stock exercisable by Mr. Kavner within 60
days of December 31, 1998.
(12) Includes 1,205,000 shares of Class A Common Stock, and options to purchase
325,000 shares of Class A Common Stock and 6,249 shares of Class B Common
Stock exercisable by Mr. Conn within 60 days of December 31, 1998.
(13) Includes 690,000 shares of Class A Common Stock, and options to purchase
275,000 shares of Class A Common Stock and 6,249 shares of Class B Common
Stock exercisable by Mr. Layton within 60 days of December 31, 1998.
(14) See notes (2) through (13).
Company Class A Common Stock
The following table sets forth, as of December 31, 1998, certain
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.
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<PAGE>
<TABLE>
<CAPTION>
Beneficially Percentage of
Name and Address of Beneficial Owner (1) Owned (2) Class (2)
- ----------------------------------------------------------------- ------------ --------------
<S> <C> <C>
USA Networks, Inc................................................ 42,480,143 67.1%
152 West 57th Street, 42nd Floor
New York, NY 10019
Barry Diller(3).................................................. 42,480,143 67.1
William Gross(4)................................................. 2,828,261 4.5
Alan Citron...................................................... -- --
Terry Barnes..................................................... -- --
Eugene L. Cobuzzi................................................ -- --
Stuart W. DePina................................................. -- --
Joseph Gleberman(5).............................................. 2,387,981 3.8
Victor A. Kaufman................................................ -- --
Alan Spoon(6).................................................... 748,692 1.2
Thomas Unterman(7)............................................... 750,413 1.2
Robert Kavner(8)................................................. 237,568 *
William D. Savoy................................................. -- --
Charles Conn(9).................................................. 1,530,000 2.4
Thomas Layton(10)................................................ 965,000 1.5
All executive officers and directors as a group
(19 persons)(11).............................................. 52,059,588 81.3
</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., 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) 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 63,291,653 shares of Class A Common Stock outstanding as of
December 31, 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
December 31, 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) Includes 42,480,143 shares of Class A Common Stock beneficially owned by
USAi, as to which Mr. Diller disclaims beneficial ownership.
(4) Includes 472,562 shares of Class A Common Stock held by bill gross'
idealab!. Mr. Gross disclaims beneficial ownership of the shares held by
bill gross' idealab!.
(5) Includes 2,387,981 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.
(6) Includes 748,692 shares of Class A Common Stock held by
Washingtonpost.Newsweek Interactive Company, as to which Mr. Spoon
disclaims beneficial ownership.
(7) 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.
(8) Includes 122,286 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 December 31, 1998.
(9) 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 December 31, 1998.
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<PAGE>
(10) 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 December 31, 1998.
(11) See notes (2) through (10).
USAI Common Stock
The following table sets forth, as of December 31, 1998, information
relating to the beneficial ownership of the 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 Total
Name and Address of Beneficial Owner (1) Number of Shares Percent of Class (2) Voting Power (3)
- --------------------------------------------- ---------------- -------------------- -------------------
<S> <C> <C> <C>
Barry Diller(4).............................. 60,071,714 34.7% 75.3%
William Gross................................ -- -- --
Alan Citron(5)............................... 33,781 * **
Terry Barnes(5).............................. 50,000 * **
Eugene L. Cobuzzi(5)......................... 64,452 * **
Stuart W. DePina(5).......................... 39,770 * **
Joseph Gleberman............................. -- -- --
Victor A. Kaufman(6)......................... 495,000 * **
Alan Spoon................................... -- -- --
Thomas Unterman.............................. -- -- --
Robert Kavner................................ -- -- --
William D. Savoy(7).......................... 76,745 * **
Charles Conn................................. -- -- --
Thomas Layton................................ -- -- --
All executive officers and directors as a
group (19 persons)(8)........................ 60,880,503 35.1% 75.4%
</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) The address of Mr. Diller and Mr. Kaufman is: c/o USAi Networks, Inc., 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, as of December 31, 1998, held 4,000,000, 15,618,222,
4,005,182 and 800,000 shares of USAi Class B Common Stock, respectively.
Includes 6,715,000 shares of USAi Class B Common Stock, and 8,490,654
shares of USAi Common Stock as to which Mr. Diller has general voting power
and which are otherwise beneficially owned by Seagram. Includes 378,322
shares of USAi Class B Common Stock, and 4,820,587 shares of USAi Common
Stock as to which Mr. Diller has general voting power and which are
otherwise beneficially owned by Liberty. Mr. Diller also owns through
intermediate entities 1,029,954 shares of USAi Common Stock and vested
options to purchase 14,153,771 shares of USAi Common Stock. Pursuant to the
Stockholders Agreement, Mr. Diller
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<PAGE>
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 solely of vested options to purchase shares of USAi Common Stock.
(6) Consists of 160,000 shares of USAi Common Stock and vested options to
purchase 335,000 shares of USAi Common Stock.
(7) Consists of 29,000 shares of USAi Common Stock and vested options to
purchase 47,745 shares of USAi Common Stock.
(8) Includes Barry Baker, who became a director of the Company in March 1999.
As of December 31, 1998, Mr. Baker owned 4,000 shares of USAi Common Stock.
USAI Class B Common Stock
The following table sets forth, as of December 31, 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 Shares
Beneficially
Name and Address of Beneficial Owner Owned (1) Percentage of Class
- ------------------------------------------------------------------------ -------------------- -------------------
<S> <C> <C>
Barry Diller(2)......................................................... 31,516,726 100%
c/o USA Networks, Inc.
152 West 57th Street 42nd Floor
New York, NY 10019
</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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Private Placements of Securities
On September 22, 1995, CitySearch issued an aggregate of 6,622,857 shares
of CitySearch Common Stock to Mr. 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
CitySearch 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 CitySearch
Common Stock to Messrs. Conn, Layton, Jeffrey Brewer and certain other key
employees (together with shares of CitySearch Common Stock issued to Mr. 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.
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.
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<PAGE>
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 4,714,286 shares of Series E Preferred Stock (or 4,655,347
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, 306,509 shares (or 302,677 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.
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, the Tender
Offer was completed on November 3, 1998. Concurrently with the execution of the
Merger Agreement, USAi loaned $50 million in cash to CitySearch in exchange for
the Convertible Note. See "Business--Ticketmaster Online-CitySearch Merger."
In August 1998, Ticketmaster Online, Ticketmaster Corp. and USAi 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
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<PAGE>
than USAi and its controlled affiliates), on the one hand, and USAi and its
affiliates (other than the Company and its controlled affiliates), on the other
hand, will engage in various transactions, including pursuant to the
Ticketmaster License Agreement. The Company expects that such transactions 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.
In February 1999, the Company entered into an agreement providing for the
combination of the Company, Lycos, Inc. and USAi's Home Shopping Network,
Ticketmaster and Internet Shopping Network/First Auction businesses. See
"Business--Recent Developments--Pending Business Combination With Lycos, Inc.
and USAi's Home Shopping Network, Ticketmaster and Internet Shopping
Network/First Auction Businesses."
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. Mr. 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. Mr. 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.
Acceleration of Stock Options
Messrs. Conn and Layton are parties to stock option agreements under the
1996 Stock Plan pursuant to which Mr. Conn was granted options to purchase
125,000 shares and 200,000 shares of CitySearch Class A 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 the Company's
Class A 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, 277,085 shares subject to unvested options held
by Mr. Conn and 239,584 shares subject to unvested options held by Mr. Layton
immediately vested. Additionally, Mr. Conn is a party to a stock option
agreement under the 1998 Stock Plan, pursuant to which he was granted options
to purchase 150,000 shares of the Company's Class B Common Stock at an exercise
price of $32.69 per share. This stock option agreement provides that in the
event of a substantial merger or a board approved acquisition of the Company,
all outstanding, unvested stock options will vest upon completion of such event.
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.
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<PAGE>
The Non-Competition Agreements provide that each of Messrs. Conn and Layton
will not, for a period of 30 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 "Executive Compensation--Employment Agreements."
-44-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements. The following Consolidated Financial Statements
of Ticketmaster Online-CitySearch, Inc. and Report of Independent Auditors are
being filed as required by Item 8:
Report of Independent Auditors.
Consolidated Balance Sheets at December 31, 1998 and January 31, 1998.
Consolidated Statements of Operations for the Eleven Months Ended December
31, 1998 and the Years Ended January 31, 1998 and January 31, 1997.
Consolidated Statements of Stockholders' Equity for the Eleven Months
Ended December 31, 1998 and the Years Ended January 31, 1998 and January
31, 1997.
Consolidated Statements of Cash Flows for the Eleven Months Ended December
31, 1998 and the Years Ended January 31, 1998 and January 31, 1997.
Notes to Consolidated Financial Statements.
-45-
<PAGE>
2. Financial Statement Schedules. The following consolidated financial
statement schedules of CitySearch, Inc. and Ticketmaster Online are filed as
part of this Report and should be read in conjunction with the Financial
Statements:
Schedule Page
-------- ----
II - Valuation and Qualifying Accounts.................. S-1
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or notes thereto.
3. Exhibits:
<TABLE>
<CAPTION>
Notes:
------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization, among CitySearch, Inc., MB Acquisition (A)*
Corporation, MetroBeat, Inc., Mark Davies and Joshua White, dated May 31, 1996.
2.2 Amended and Restated Agreement and Plan of Reorganization, among CitySearch, (A)
Inc., Tiberius, Inc., USA Networks, Inc., Ticketmaster Group, Inc.,
Ticketmaster Corporation and Ticketmaster Multimedia Holdings, Inc., dated
August 12, 1998.
2.3 Agreement and Plan of Reorganization, dated as of January 8, 1999, by and +
among Ticketmaster Online-CitySearch, Inc., Nero Acquisition Corporation,
CityAuction, Inc., Andrew Rebele and Monica Lee, as amended.
2.4 Agreement and Plan of Reorganization, dated as of February 8, 1999, by and (E)
among USA Networks, Inc., Ticketmaster Online-CitySearch, Inc., Lycos, Inc.,
USA Interactive, Inc., Lemma, Inc. and Tycho, Inc. (the "Merger Agreement"),
including Form of Certificate of Designations, Preferences and Rights of
Series A Convertible Redeemable Preferred Stock of USA/Lycos Interactive
Networks, Inc. (Exhibit B to the Merger Agreement)
2.5 Contribution Agreement, dated as of February 8, 1999, by and among USA (E)
Networks, Inc., USANi LLC and USA Interactive Inc.
2.6 Stock Option Agreement, dated February 8, 1999, between Lycos, Inc. and USA (E)
Networks, Inc. (Exhibit A-1 to the Merger Agreement)
2.7 Stock Option Agreement, dated February 8, 1999, between Lycos, Inc. and (E)
Ticketmaster Online-CitySearch, Inc. (Exhibit A-2 to the Merger Agreement)
3.1 Amended and Restated Certificate of Incorporation, as currently in effect. (A)
3.2 Form of Amended and Restated Certificate of Incorporation, to be effective (C)
immediately prior to the consummation of the offering.
3.3 Amended and Restated Bylaws. (C)
4.1 Specimen Class B Common Stock Certificate. (C)
10.1 Form of Indemnification Agreement for directors and officers. (A)
10.2 1996 Stock Option Plan and form of agreement thereunder. (C)
10.3 1998 Stock Option Plan and form of agreement thereunder. (C)
10.4 1998 Employee Stock Purchase Plan. (D)
10.5 License Agreement between CitySearch, Inc. and Perly, Inc., dated March 9, (A)*
1996.
</TABLE>
-46-
<PAGE>
<TABLE>
<CAPTION>
Notes:
------
<C> <S> <C>
10.6 Marketing Agreement between CitySearch, Inc, and American Express Travel (A)*
Related Services Company, Inc., dated May 26, 1998.
10.7 Employment Agreement between CitySearch, Inc. and Charles Conn, dated May 9, (A)
1996.
10.8 Unanimous Shareholder Agreement between Tele-Direct (Services), Inc., (A)*
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 & (A)*
Distributing Ltd., 1310818 Ontario Inc., CitySearch Canada, Inc., TeleDirect
(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. (A)*
and CitySearch Canada, Inc., dated August 31, 1998.
10.11 Sublicense and Services Agreement between CitySearch Canada, Inc., and (A)*
toronto.com, dated August 31, 1998.
10.12 Non-competition Agreement between Toronto Star Newspapers Ltd., TeleDirect (A)*
(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 (A)
Co., L.P., dated November 7, 1996.
10.14 Standard Form of Lease, Aeriel Center Executive Park, between Pizzagalli (A)
Investment Company and CitySearch, Inc., dated May 8, 1996.
10.15 Standard Office Lease between CitySearch, Inc. and Sage Realty Corporation, (A)
dated May 6, 1997.
10.16 Standard Office Lease between CitySearch, Inc. and H. Naito Corporation, dated (A)
March 6, 1997.
10.17 Standard Office Lease between CitySearch, Inc. and Brazos Austin Centre, Ltd., (A)
dated August 15, 1996
10.18 Standard Office Lease between CitySearch, Inc. and Judge Building Group, dated (A)
September 10, 1996.
10.19 Standard Office Lease between CitySearch, Inc. and Sobel Building Development, (A)
dated May 31, 1996.
10.20 Standard Office Lease between CitySearch, Inc. and BPG Pasadena, L.L.C. (later (A)
assigned to Spieker Properties), dated September 30, 1996.
10.21 Lease Agreement between CitySearch, Inc. and Securities Properties Investors (A)
II, L.P. dated May 13, 1998.
10.22 Employment Agreement between CitySearch, Inc. and Thomas Layton, dated July 2, (A)
1997.
10.23 License and Services Agreement between CitySearch, Inc. and Classified (A)*
Ventures, L.L.C.
10.24 Convertible Promissory Note issued to CitySearch, Inc., by USA Networks, Inc., (A)
dated August 12, 1998.
10.25 Non-Competition Agreement between CitySearch, Inc., Ticketmaster Corporation, (A)
Ticketmaster, Multimedia Holdings, Inc., and Charles Conn, dated August 12,
1998.
10.26 Non-Competition Agreement between CitySearch, Inc., Ticketmaster Corporation, (A)
Ticketmaster, Multimedia Holdings, Inc., and Thomas Layton, dated August 12,
1998.
10.27 Letter Agreement Between N2K Inc. and Ticketmaster Ticketing Co., Inc., dated (B)*
April 23, 1998, as amended by a Letter Agreement by and between the parties,
dated June 16, 1998.
</TABLE>
-47-
<PAGE>
<TABLE>
<CAPTION>
Notes:
------
<C> <S> <C>
10.28 Development and Services Agreement between Ticketmaster Corporation, (A)
Ticketmaster Multimedia Holdings, Inc. and Starwave Corporation, dated June
28, 1996.
10.29 License and Services Agreement between Ticketmaster Corporation, Ticketmaster (A)*
Multimedia Holdings, Inc., and USA Networks, Inc., dated August 12, 1998.
10.30 Employment Agreement between Ticketmaster Online CitySearch, Inc. and Robert +
Perkins dated November 25, 1998.
10.31 Employment Agreement between Ticketmaster Online CitySearch, Inc. and David +
Hagan dated November 27, 1998
21.1 Subsidiaries of the Registrant. (A)
23.1 Consent of Independent Auditors. +
24.1 Power Of Attorney (see page 49). +
27.1 Financial Data Schedule. +
</TABLE>
______________________________
+ Filed herewith.
* Confidential treatment has been granted with respect to portions of this
exhibit.
(A) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
333-64855) filed with the Commission on September 30, 1998.
(B) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
333-64855) filed with the Commission on October 19, 1998.
(C) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
333-64855) filed with the Commission on November 6, 1998.
(D) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
333-64855) filed with the Commission on November 20, 1998.
(E) Incorporated by reference to exhibits filed in response to Item 7,
"Exhibits," of the Report on Form 8-K filed by USA Networks, Inc. (File No.
000-20570) with the Commission on February 26, 1999.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Company during the quarter ended December 31, 1998.
-48-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunder duly authorized.
TICKETMASTER ONLINE-CITYSEARCH, INC.
By: /s/ Charles Conn
-----------------------------------
Charles Conn
Chief Executive Officer
Dated: March 31, 1999
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature appears
below constitutes an appoints Charles Conn and Bradley Ramberg, jointly and
severally, his or her attorney-in-fact, each with the power of substitution for
him or her in any and all capacities, to sign any amendments to this Report on
Form 10-K 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 or her
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> /s/ Charles Conn <C> <C>
- -------------------------------------- Chief Executive Officer (Principal March 31, 1999
Charles Conn Executive Officer) and a Director
/s/ Bradley Ramberg
- -------------------------------------- Chief Financial Officer and March 31, 1999
Bradley Ramberg Vice President, Finance and
Administration and Secretary
(Principal Financial and Accounting
Officer)
- -------------------------------------- Director March __, 1999
Barry Baker
/s/ Terry Barnes
______________________________________ Director March 31, 1999
Terry Barnes
______________________________________ Director March __, 1999
Alan Citron
</TABLE>
-49-
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Eugene L. Cobuzzi
______________________________________ Director March 31, 1999
Eugene L. Cobuzzi
/s/ Stuart W. Depina
______________________________________ Director March 31, 1999
Stuart W. Depina
______________________________________ Director March ____, 1999
Barry Diller
/s/ Joseph Gleberman
______________________________________ Director March 31, 1999
Joseph Gleberman
/s/ William Gross
______________________________________ Director March 31, 1999
William Gross
______________________________________ Director March ____, 1999
Victor A. Kaufman
/s/ Robert Kavner
______________________________________ Director March 31, 1999
Robert Kavner
______________________________________ Director March ____, 1999
William D. Savoy
/s/ Alan Spoon
______________________________________ Director March 31, 1999
Alan Spoon
______________________________________ Director March ____, 1999
Thomas Unterman
</TABLE>
-50-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Ticketmaster Online-CitySearch, Inc.
We have audited the accompanying consolidated balance sheets of Ticketmaster
Online (the Predecessor) and Ticketmaster Online-CitySearch, Inc. (the Company)
as of January 31, 1998 and December 31, 1998, respectively, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended January 31, 1998 and the eleven month
period ended December 31, 1998. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and the
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the schedule 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 Ticketmaster
Online-CitySearch, Inc., as the Predecessor and successor companies at January
31, 1998 and December 31, 1998, and the consolidated results of their operations
and their cash flows for each of the two years in the period ended January 31,
1998 and the eleven month period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Woodland Hills, California
January 29, 1999
F-1
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
Predecessor
----------------
December 31, January 31,
1998 1998
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $106,910 $ --
Accounts receivable (net of allowance for doubtful
accounts of $58 and $0 respectively)..................................... 1,249 167
Related party receivable................................................... 813 --
Due from licensees......................................................... 1,440 --
Prepaid expenses........................................................... 777 124
-------- -------
Total current assets.................................................... 111,189 291
Computers, software, equipment and leasehold improvements, net............... 5,893 397
Goodwill and other intangibles, net.......................................... 299,643 --
-------- -------
Total assets............................................................ $416,725 $ 688
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... $ 2,734 $ 158
Accrued expenses........................................................... 4,551 144
Deferred revenue........................................................... 3,002 89
Current portion of capital lease obligations............................... 1,331 --
-------- -------
Total current liabilities............................................... 11,618 391
Other long-term liabilities.................................................. 437 8
Capital lease obligations, net of current portion............................ 1,082 --
Stockholders' equity:
Preferred stock, $0.01 par value;
Authorized shares--2,000,000 at December 31, 1998
Issued and outstanding--none............................................. -- --
Common stock, no par value;
Authorized shares--1,000 at January 31, 1998 and none
at December 31, 1998
Issued and outstanding--none............................................. -- --
Class A Common Stock, $0.01 par value;
Authorized shares--100,000,000 at December 31, 1998
Issued and outstanding--63,291,653 at December 31, 1998.................. 633 --
Class B Common Stock--$0.01 par value;
Authorized shares--250,000,000 at December 31, 1998
Issued and outstanding--8,167,000 at December 31, 1998................... 82 --
Class C Common Stock--$0.01 par value;
Authorized shares--2,883,506 at December 31, 1998
Issued and outstanding--none............................................. -- --
Due to (from) Ticketmaster Corp............................................ -- (1,113)
Additional paid-in capital................................................. 418,918 --
Retained earnings (deficit)................................................ (16,045) 1,402
-------- -------
Total stockholders' equity.............................................. 403,588 289
-------- -------
Total liabilities and stockholders' equity.............................. $416,725 $ 688
======== =======
</TABLE>
See accompanying notes.
F-2
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Eleven Predecessor
Months -----------------------------
Ended Year Ended January 31,
December 31, ----------------------------
1998 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
Revenues:
Ticketing operations.................................................. $ 15,743 $ 5,972 $ 199
Sponsorship and advertising........................................... 6,754 3,933 997
City guide and related................................................ 5,376 -- --
-------- ------- -------
Total revenues..................................................... 27,873 9,905 1,196
Operating costs and expenses:
Ticketing operations.................................................. 9,842 3,522 635
City guide and related................................................ 4,021 -- --
Sales and marketing................................................... 6,834 490 290
Research and development.............................................. 1,728 -- --
General and administrative............................................ 3,495 1,719 1,260
Amortization of goodwill.............................................. 16,275 -- --
-------- ------- -------
Total costs and expenses........................................... 42,195 5,731 2,185
-------- ------- -------
Income (loss) from operations........................................... (14,322) 4,174 (989)
Interest income......................................................... 867 -- --
Interest expense........................................................ (813) -- --
-------- ------- -------
54 -- --
-------- ------- -------
Income (loss) before income taxes....................................... (14,268) 4,174 (989)
Income tax provision (benefit).......................................... 2,951 1,827 (374)
-------- ------- -------
Net income (loss)....................................................... $(17,219) $ 2,347 $ (615)
======== ======= =======
Basic and diluted net income (loss) per share........................... $(0.38) $0.06 $(0.02)
======== ======= =======
Shares used to compute basic and diluted net income (loss) per share.... 45,201 37,238 37,238
======== ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock Common Stock Due to Additional Retained
-------------- ---------------- -------------- (from) Paid-in Earnings
Shares Amount Shares Amount Shares Amount Ticketmaster Capital (Deficit) Total
------ ------ ------- ------- ------ ------ ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at February 1, 1996... 1 $ -- -- $ -- -- $ -- $ 684 $ -- $ (330) $ 354
Accounts receivable
transferred to Ticketmaster
Corp......................... -- -- -- -- -- -- (1,088) -- -- (1,088)
Operating charges transferred
from Ticketmaster Corp.,
net of federal income tax
allocation................... -- -- -- -- -- -- 1,838 -- -- 1,838
Net loss...................... -- -- -- -- -- -- -- -- (615) (615)
----- ------ ------ ---- ----- ------ ------- -------- -------- --------
Balance at January 1, 1997.... 1 -- -- -- -- -- 1,434 -- (945) 489
Accounts receivable
transferred to Ticketmaster
Corp......................... -- -- -- -- -- -- (9,953) -- -- (9,953)
Operating charges transferred
from Ticketmaster Corp., net
of federal income tax
allocation................... -- -- -- -- -- -- 7,406 -- -- 7,406
Net income.................... -- -- -- -- -- -- -- -- 2,347 2,347
----- ------ ------ ---- ----- ------ ------- -------- -------- --------
Balance at January 31, 1998... 1 $ -- -- $ -- -- $ -- $(1,113) $ -- $ 1,402 $ 289
===== ====== ====== ==== ===== ====== ======= ======== ======== ========
Allocation of initial
capitalization as a result
of the Ticketmaster
Acquisition by USAi......... -- $ -- -- $ -- -- $ -- $ -- $ 22,834 $ 1,174 $ 24,008
Allocation of basis of
Tax-free Merger of
Ticketmaster by USAi........ -- -- -- -- -- -- -- 126,170 -- 126,170
Stock exchanged in connection
with CitySearch Merger
(37,238) and USAi's initial
investment in CitySearch at
cost........................ -- -- 40,483 405 -- -- -- 145,923 -- 146,328
Contribution of tendered
CitySearch Common Stock from
USAi to Ticketmaster........ -- -- -- -- -- -- -- 17,318 -- 17,318
Contribution of CitySearch
Common Stock from USAi to
Ticketmaster................. -- -- 22,003 220 -- -- -- 1,100 -- 1,320
Exercise of stock options and
warrants..................... -- -- 923 9 -- -- -- 1,600 -- 1,609
Initial public offering of
Class B Common Stock......... -- -- -- -- 8,050 81 -- 103,973 -- 104,054
Class A shares converted to
Class B...................... -- -- (117) (1) 117 1 -- -- -- --
Net loss...................... -- -- -- -- -- -- -- -- (17,219) (17,219)
----- ------ ------ ---- ----- ------ ------- -------- -------- --------
Balance at December 31, 1998 -- $ -- 63,292 $633 8,167 $ 82 $ -- $418,918 $(16,045) $403,588
===== ====== ====== ==== ===== ====== ======= ======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Predecessor
Eleven Months ------------------------------
Ended Year Ended January 31,
December 31, ------------------------------
1998 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities
Net income (loss)........................................................ $(17,219) $ 2,347 $(615)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................................... 17,411 268 51
Changes in operating assets and liabilities:
Accounts receivable................................................. (818) (41) (108)
Related parties receivable.......................................... (184) -- --
Due from licensees.................................................. 27 -- --
Prepaid expenses.................................................... (475) 30 51
Accounts payable.................................................... 36 158 --
Accrued expenses.................................................... (196) 87 65
Deferred revenue.................................................... 969 89 --
Deferred rent....................................................... 11 -- --
-------- ------- -----
Net cash provided by (used in) operating activities...................... (438) 2,938 (556)
Investing activities
Capital expenditures..................................................... (1,034) (250) (189)
Deferred purchase price of subsidiary.................................... (112) -- --
-------- ------- -----
Net cash used in investing activities.................................... (1,146) (250) (189)
Financing activities
Net proceeds from (distributions to) Ticketmaster Corp................... (5,549) (2,691) 748
Net proceeds from exercise of options and warrants....................... 1,609 -- --
Net proceeds from initial public offering................................ 104,989 -- --
Payments on capital leases............................................... (324) -- --
Payment on convertible promissory note................................... (50,000) -- --
Other, net............................................................... (108) -- --
-------- ------- -----
Net cash provided by (used in) financing activities...................... 50,617 (2,691) 748
Net cash acquired in CitySearch Merger................................... 57,877 -- --
-------- ------- -----
Net increase (decrease) in cash and cash equivalents..................... 106,910 (3) 3
Cash and cash equivalents at beginning of period......................... -- 3 --
-------- ------- -----
Cash and cash equivalents at end of period............................... $106,910 $ -- $ 3
======== ======= =====
Supplemental statement of cash flow information
Noncash investing and financing information:
Acquisition of CitySearch, Inc.
Fair value of assets acquired (including cash and cash
equivalents of $57,877 and goodwill)................................ $226,339
Less:
Fair value of liabilities assumed................................... 61,373
Issuance of Class A Common Stock.................................... 147,648
Contribution of tendered CitySearch Common Stock
from USAi to Ticketmaster......................................... 17,318
--------
Cash paid......................................................... $ 0
========
</TABLE>
See accompanying notes.
F-5
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. Organization and Business
Basis of Presentation and Merger
Prior to the Merger (as defined below), Ticketmaster Multimedia Holdings, Inc.
(the predecessor company) (Ticketmaster Online) was a wholly owned subsidiary of
Ticketmaster Corporation (Ticketmaster Corp.). Ticketmaster Corp. is a wholly
owned subsidiary of Ticketmaster Group, Inc. (Ticketmaster Group), which is a
wholly owned subsidiary of USA Networks, Inc. (USAi).
In July 1997, USAi acquired a controlling interest in Ticketmaster Group
through the issuance of shares of USAi common stock (Ticketmaster Acquisition by
USAi). In June 1998, USAi completed its acquisition of Ticketmaster Group in a
tax-free merger (Tax-free Merger and collectively with the Ticketmaster
acquisition is the Ticketmaster Transaction), pursuant to which each outstanding
share of Ticketmaster Group common stock not owned by USAi was exchanged for
1.126 shares of USAi common stock. A portion of the Ticketmaster Group
acquisition cost has been allocated to the assets acquired and liabilities
assumed of Ticketmaster Online based on the fair value of the respective portion
of Ticketmaster Online acquired in the Ticketmaster Transaction.
On September 28, 1998, pursuant to an Amended and Restated Agreement and Plan
of Reorganization dated as of August 12, 1998 (the Merger Agreement), by and
among CitySearch, Inc. (CitySearch), USAi, Ticketmaster Group, Ticketmaster
Online and Tiberius, Inc. (Tiberius), a wholly-owned subsidiary of CitySearch,
Tiberius was merged with and into Ticketmaster Online, with Ticketmaster Online
continuing as the surviving corporation and as a wholly-owned subsidiary of
CitySearch (the Merger). In connection with the Merger Agreement, all issued and
outstanding shares of Ticketmaster Online's Common Stock held by Ticketmaster
Corp. were converted into an aggregate of 37,238,000 shares of CitySearch Common
Stock and such shares were subsequently reclassified as Class A Common Stock of
the Company. 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, and the assets acquired and liabilities assumed
of CitySearch were recorded at their respective fair values. The accompanying
financial statements prior to the Merger reflect the financial position, results
of operations and cash flows of Ticketmaster Online. The accompanying financial
statements, subsequent to the Merger, include the assets and liabilities of
CitySearch and the results of operations of CitySearch from September 29, 1998
through December 31, 1998. In connection with the Merger the name of the
combined company was changed from CitySearch, Inc. to Ticketmaster Online-
CitySearch, Inc. (the Company). References throughout these financial statements
to Ticketmaster Online and CitySearch relate to the individual businesses of
Ticketmaster Online and CitySearch, respectively.
The Merger costs and the determination of the excess of Merger costs over net
assets acquired are set forth below (in thousands):
<TABLE>
<S> <C>
Initial investment at cost............................................................................... $ 23,000
Value of portion of CitySearch acquired in the Merger.................................................... 120,864
Tender offer............................................................................................. 17,318
Estimated transaction costs (including non-competition agreements)....................................... 2,464
--------
Total Merger costs.................................................................................... 163,646
Net identifiable assets acquired......................................................................... (2,517)
--------
Excess of Merger cost over net assets acquired........................................................... $161,129
========
</TABLE>
The initial investment at cost represents the previous purchases of shares of
Series E Preferred Stock by USAi, which were converted into 3,244,641 shares of
Class A Common Stock in connection with the Merger, which, prior to the Merger,
represented approximately 11.8% of the CitySearch outstanding equity.
F-6
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
1. Organization and Business (continued)
Merger (continued)
The value of the non-monetary exchange between Ticketmaster Online and
CitySearch was determined by Ticketmaster Online based on the fair value of the
50.7% of CitySearch acquired in the transaction. The fair value of CitySearch
before the Merger was $238.4 million based on an assumed fair value of $8.67 per
share of CitySearch's Common Stock outstanding at September 28, 1998, including
outstanding stock options under the treasury method. The fair value of
CitySearch attributable to outstanding shares of Common Stock at September 28,
1998 was $218.9 million and the fair value of CitySearch attributable to
outstanding stock options at September 28, 1998, under the treasury stock
method, was $19.5 million.
On October 2, 1998 USAi commenced a tender offer (the Tender Offer) to
purchase up to 20% of each CitySearch stockholder's 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 expired on November 3, 1998 and 1,997,502 shares were tendered for
purchase for a total of $17,318,000.
In connection with the Merger Agreement, Ticketmaster Online also entered into
a License and Services Agreement (the License Agreement) with Ticketmaster Corp.
and USAi to remain perpetually in effect unless terminated as allowed 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.
Pro Forma Financial Data (Unaudited)
The following unaudited pro forma information presents a summary of results of
the Company assuming the Merger, Ticketmaster Transaction and the Tender Offer
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 of
the License Agreement, and the related income tax effects. The pro forma
information also gives effect to the Company's change in year end from January
31, to December 31. 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>
Year Ended
December 31,
1998 1997
------------- -------------
(in thousands,
except per share data)
<S> <C> <C>
Revenues................................................................... $ 40,157 $ 15,479
Net loss................................................................... $(72,598) $(80,357)
Net loss per share......................................................... $ (1.16) $ (1.44)
</TABLE>
F-7
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
1. Organization and Business (continued)
Business
Prior to the Merger, Ticketmaster Online was a wholly-owned subsidiary of
Ticketmaster Corp. which is a leading provider of automated ticketing services
in the United States, with clients including many of the country's most well-
known 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 World Wide Web (Web)
which gives users access to live event 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.
CitySearch was organized on September 20, 1995. CitySearch produces and
delivers comprehensive local city guides on the Web, providing up-to-date
information regarding arts and entertainment events, community events, community
activities, recreation, business, shopping, professional services and
news/sports/weather to consumers in metropolitan areas. CitySearch 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.
CitySearch has two primary means of providing its local city guides. In its
"owned and operated" markets CitySearch systematically produces the majority of
its own content, hires and 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 partner-led markets, CitySearch
contracts with a local media company to provide assistance in developing,
designing and launching a city guide. Under these contracts, the partners
license CitySearch's business and technology systems and pay a license fee and
make royalty payments to CitySearch based on certain revenues generated by the
media partners from the operation of their sites and pay CitySearch for
additional consultation and design services not provided for under the license
fee.
Customers include hotels, 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, and San Francisco, CA. Through partnership and licensing
agreements, the Company has an internet presence in Baltimore, MD, Dallas, TX,
Los Angeles, CA, Washington D.C., Melbourne and Sydney, Australia, Toronto,
Canada, Copenhagen, Denmark, and Stockholm, Sweden.
2. Summary of Significant Accounting Policies
Ticketmaster Online Basis of Presentation
Prior to the merger, the accompanying consolidated financial statements
present the financial position, operating results and cash flows of the
predecessor company, Ticketmaster Online, a wholly owned subsidiary of
Ticketmaster Corp. The financial statements include revenues related to the
convenience and handling 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 from Ticketmaster Corp. to Ticketmaster
Online on a per ticket sold basis. The financial statements include operating
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
F-8
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
2. Summary of Significant Accounting Policies (continued)
Ticketmaster Online Basis of Presentation (continued)
believes these allocations are reasonable and that such expenses would not
differ materially had Ticketmaster Online operated on a stand-alone basis for
all periods presented. The financial statements of Ticketmaster Online prior to
the merger do not necessarily reflect the results of operations or financial
position that would have existed had Ticketmaster Online been an independent
company.
Segments
Based on the Company's integration and management strategies, the Company
operates in one business segment.
Change in Year-End
The statements of operations and cash flows for the eleven months ended
December 31, 1998 reflect a change in Ticketmaster Online's year-end as a result
of the purchase of Ticketmaster Group by USAi.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany amounts
have been eliminated.
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
Revenue from advertising and sponsorship agreements is recognized when the
service is provided or over the term of the promotion. Revenue from the sale of
tickets is recognized when tickets are sold.
City guide and related revenues include revenue from the sale of subscriptions
for custom-built business Web sites (designed and developed by CitySearch) in
its owned and operated markets, the performance of consultation and design
services, and licensing and royalty revenues from the sale of licenses for the
use of CitySearch's business and technology systems in its partner-led markets.
License and royalty revenue is less than ten percent of consolidated revenue.
The Company recognizes subscription revenues over the period the services are
provided. Royalty revenues are recognized when earned based on the revenues
generated by the license or based on the minimum royalty provisions in the
contract. Revenues from consultation and design services are recognized as the
services are provided.
Revenues from the sale of licenses for use of the Company's business and
technology systems to its partner-led markets are generally 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 three to
nine years.
F-9
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued)
Deferred revenue primarily consists of prepayments of subscription services
and licensing agreements, 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.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The Company places its
cash deposits with high-credit quality financial institutions.
Accounts Receivable
Concentration of credit risk with respect to trade receivables is limited
based on the size and diversity of Ticketmaster Online's clients and the large
number and geographic dispersion of CitySearch customers. The Company generally
does not require collateral; however, credit losses have generally been within
management's expectations and have not been significant.
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.
Goodwill and Other Intangibles
Goodwill of $154.8 million represents amounts allocated to Ticketmaster Online
from the purchase of Ticketmaster Group by USAi and is being amortized by the
straight-line method over ten years.
As a result of the Merger and the Tender Offer, the Company recorded goodwill
of $160.6 million, which is being amortized using the straight-line method over
five years, and intangibles relating to non-competition agreements of $500,000,
which is being amortized using the straight-line method over 2.5 years.
Accumulated amortization at December 31, 1998 was $16.3 million.
F-10
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
2. Summary of Significant Accounting Policies (continued)
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 were
primarily the result of Ticketmaster Online's participation in Ticketmaster
Corp.'s central cash management system, wherein all of Ticketmaster Online's
cash receipts were collected by Ticketmaster Corp. and all cash disbursements
were 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 prior to the Merger. Such
amounts payable do not have specific repayment terms and do not bear interest.
At January 31, 1998 and 1997, such intercompany balances have been included as a
component of stockholders' equity as it was not the original intention of
Ticketmaster Online or Ticketmaster Corp. to settle such balances in cash. Most
of the due to (from) Ticketmaster Corp. amount was reclassified as additional
paid-in capital in connection with the Merger.
An analysis of transactions in the due to (from) Ticketmaster Corp. account
for each of the two years ended January 31, 1998 and the eleven months ended
December 31, 1998 follows:
<TABLE>
<CAPTION>
January 31,
December 31, --------------------------
1998 1998 1997
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year.......................................... $ (1,113) $ 1,434 $ 684
Ticketing revenues transferred to Ticketmaster Corp.
prior to the merger................................................. (11,551) (9,953) (1,088)
Operating charges transferred from Ticketmaster Corp.
prior to the merger................................................. 6,263 5,579 2,212
Share of Ticketmaster Corp.'s current federal income tax
provision (benefit) prior to the merger............................. -- 1,827 (374)
Balance transferred to additional paid-in capital
in connection with the Merger....................................... 6,013 -- --
Amounts transferred to related party receivable 388 -- --
-------- ------- -------
Balance at end of year................................................ $ -- $(1,113) $ 1,434
======== ======= =======
Average balance during the year....................................... $ (557) $ 161 $ 1,059
======== ======= =======
</TABLE>
Income Taxes
Prior to the Merger, Ticketmaster Online's results have been included in
Ticketmaster Corp.'s consolidated federal and state income tax returns. The
income tax provision was calculated and deferred tax assets and liabilities were
recorded as if Ticketmaster Online had operated as an independent company. Prior
to the Merger Ticketmaster Corp. paid all taxes for Ticketmaster Online and, as
such, income taxes payable and deferred tax assets have been included in due to
(from) Ticketmaster Corp. Subsequent to the Merger, the Company will file its
Federal and State income tax returns on a stand-alone basis.
F-11
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
2. Summary of Significant Accounting Policies (continued)
Income Taxes (continued)
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.
Basic and Diluted Earnings (Loss) per Share
Basic earnings (loss) per share are determined by dividing the net earnings or
(loss) by the weighted average shares of Common Stock outstanding during the
period. Diluted earnings or (loss) per share are determined by dividing the net
earnings or (loss) by the weighted average shares of Common Stock outstanding
plus the dilutive effects of stock options, warrants, and other convertible
securities. Basic and diluted earnings (loss) per share are the same for the
eleven month period ended December 31, 1998 because the effects of outstanding
stock options are antidilutive. Basic and diluted earnings (loss) per share are
the same for the years ended January 31, 1998 and 1997 because there were no
dilutive securities outstanding during those periods.
The number of shares used in computing basic and diluted earnings (loss) per
share for the eleven month period ended December 31, 1998 includes the number of
shares of CitySearch Common Stock exchanged in the Merger plus shares of Class A
Common Stock of City Search outstanding and the number of shares of Class B
Common Stock issued from the date of the Merger through December 31, 1998
calculated on a weighted average basis. The number of shares used in computing
basic and diluted earnings (loss) per share for the years ended January 31, 1998
and 1997 represents the number of shares of CitySearch Common Stock exchanged in
the Merger.
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.
Advertising Costs
Advertising costs are expensed as incurred. For the eleven month period ended
December 31, 1998, advertising costs amounted to $1,540,000. There were no
advertising costs for the years ended January 31, 1998 and 1997.
During 1998 CitySearch maintained 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 is not readily determinable and therefore is not used to
measure the value of the broadcast advertising received. The Company valued
these barter transactions at $349,000 for the period from the date of the Merger
through December 31, 1998, based on the estimated cost of the specific services
provided by the Company. Such amounts are included in City guide and related
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-12
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
2. Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company periodically reviews long-lived assets and certain identifiable
intangibles 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.
Stock-based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123), suggests 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 7). 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. There was no
compensation expense applicable under APB 25.
Reclassifications
Certain reclassifications have been made to the prior years' balances to
conform to the current year presentation.
3. Computers, Software, Equipment and Leasehold Improvements
Computers, software, equipment and leasehold improvements consisted of the
following:
<TABLE>
<CAPTION>
December 31, January 31,
1998 1998
------------ ------------
(in thousands)
<S> <C> <C>
Computers and software.......................................................... $ 6,860 $ 532
Furniture and fixtures.......................................................... 141 20
Leasehold improvements.......................................................... 215 33
------- -----
7,216 585
Less accumulated depreciation and amortization.................................. (1,323) (188)
------- -----
$ 5,893 $ 397
======= =====
</TABLE>
Depreciation and amortization expense was $1,136,000, $124,000 and $49,000 for
the eleven month period ended December 31, 1998 and the years ended January 31,
1998 and 1997, respectively.
F-13
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
4. Income Taxes
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
Predecessor
---------------
Eleven Months Year Ended
Ended January 31,
December 31, ---------------------------
1998 1998 1997
------------ ------------ -------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal............................................................ $2,624 $1,445 $(340)
Foreign............................................................ 82 -- --
State.............................................................. 754 395 (46)
------ ------ -----
3,460 1,840 (386)
------ ------ -----
Deferred:
Federal............................................................ (478) (13) 12
State.............................................................. (31) -- --
------ ------ -----
(509) (13) 12
------ ------ -----
Total income tax provision (benefit).................................. $2,951 $1,827 $(374)
====== ====== =====
</TABLE>
The following is a reconciliation of the statutory federal income tax rate to
the Company's effective income tax rate:
<TABLE>
<CAPTION>
Eleven
Months Ended Years ended January 31,
December 31, --------------------------
1998 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Statutory federal income tax expense (benefit)........................ (35)% 34% (34)%
Tax provision for earnings included in Ticketmaster Corp.
consolidated return................................................. 20 -- --
Non-deductible goodwill amortization.................................. 37 -- --
State income tax expense (benefit).................................... -- 9 (6)
Other................................................................. (1) 1 2
---- ---- ----
21% 44% (38)%
==== ==== ====
</TABLE>
F-14
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
4. Income Taxes (continued)
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax liabilities
Depreciation.................................................................... $ 400
Software development............................................................ 824
--------
Total deferred tax liabilities................................................... 1,224
Deferred tax assets
Net operating loss carryforwards................................................ 31,482
Research and development carryforwards.......................................... 468
Vacation accruals............................................................... 250
Deferred revenue................................................................ 600
Other........................................................................... 124
--------
Total deferred tax assets........................................................ 32,924
Valuation allowance.............................................................. (31,700)
--------
$ --
========
</TABLE>
Deferred taxes at January 31, 1998 were not significant. The valuation
allowance increased by $1.7 million during the eleven month period. The
valuation allowance recorded in connection with the CitySearch Merger was
approximately $30 million. If the related deferred tax assets become realizable
in the future, the reversal of the valuation allowance will be recorded as a
reduction of goodwill. The Company had net operating loss carryforwards for
federal and state income tax purposes at December 31, 1998 of approximately
$78,704,000 which had been generated by CitySearch. The federal carryforwards
expire principally in the period from 2010 to 2018, and the state carryforwards
expire principally in 2003. Utilization of the net operating loss carryforwards
is subject to limitations as a result of ownership changes as defined in the
Internal Revenue Code. Furthermore, the net operating loss carryforwards, to the
extent not otherwise limited, can only be used to offset the future taxable
income of CitySearch.
F-15
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
5. Defined Contribution Plans
Ticketmaster Online participates in the Ticketmaster Corp. 401(k) defined
contribution plan (the 401(k) Plan), covering substantially all Ticketmaster
Online 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 401(k) Plan year ended December 31, 1997 was $12,000.
In July 1997, CitySearch 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.
As a result of the merger, Ticketmaster Online employees will be incorporated
into their balance from the 401(k) plan into the CitySearch plan.
6. Related Party Transactions
Ticketmaster Online was part of a consolidated group and, as such, had
significant transactions with related entities.
In connection with the Merger, the Company entered into a license agreement
with Ticketmaster Corp. (the License Agreement) under which the Company is
required to pay Ticketmaster Corp. a royalty based on a percentage of the net
profit the Company derives from online ticket sales. Ticketing operations cost
includes $1,519,000 of royalty fees incurred under the License Agreement for the
eleven months ended December 31, 1998. Included in related party receivable is
$346,000 representing unpaid ticketing revenue, net of amounts due to
Ticketmaster Corp. for direct expenses and royalty fees under the License
Agreement.
Concurrently with the execution of the Merger Agreement, the Company received
a $50 million loan from USAi in exchange for a convertible promissory note
(Convertible Note). The Convertible Note, in the principal amount of $50
million, bore interest at a rate per annum of 7.00%. On December 10, 1998, the
Company repaid the Convertible Note and paid total interest of $1,151,000
covering the period August 13 to December 31, 1998. Interest expense on the
Convertible Note was $710,000 during the eleven month period ended December 31,
1998.
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. Royalty expense incurred for the eleven month period ended
December 31, 1998 and the years ended January 31, 1998 and 1997 amounted to
$477,000, $138,000 and $50,000, respectively.
Revenues from affiliated companies for the eleven month period ended December
31, 1998 and for the fiscal years January 31, 1998 and 1997, amounted to
$491,000, $583,000 and $21,000, respectively, primarily for Web site development
and support and license fee revenue. Included in related party receivables at
December 31, 1998 was $467,000 receivable from these affiliated companies.
F-16
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
7. Stockholders' Equity and Stock Options
Stockholders' equity reflects the exchange of 1,000 shares of Common Stock of
Ticketmaster Online for 37,238,000 shares of CitySearch Common Stock
(subsequently reclassified as Class A Common Stock of the Company) and the
recording of the predecessor basis and outstanding shares of CitySearch Common
Stock (subsequently reclassified as Class A Common Stock of the Company) in
connection with the Merger. Holders of each share of Class A Common Stock have
15 votes. Each share of Class A Common Stock will automatically convert into one
share of Class B Common Stock upon a "transfer," as defined, of such share
except for transfers to certain parties. Holders of Class B Common Stock have
rights in the Company's Restated Certificate of Incorporation similar to holders
of Class A Common Stock except each share of Class B Common Stock carries one
vote. Holders of Class C Common Stock have no voting rights. In December 1998,
the Company completed its initial public offering of 8,050,000 shares of Class B
Common Stock resulting in the receipt of net proceeds of $104,054,000.
Preferred Stock
The Company is 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.
1996 Stock Option Plan
The CitySearch 1996 Stock Option Plan (1996 Stock Plan) authorized 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, 1998 the maximum number of shares of Common Stock to be issued under the
Plan was 5,500,000 shares. Options granted under the 1996 Stock Plan are
exercisable at various dates over their ten-year life and vest principally 25%
after the first year and ratably over the remaining vesting period which is
generally another three years. At December 31, 1998 there were options to
purchase 3,247,587 shares of the Company's Class A Common Stock outstanding at a
weighted average exercise price of $4.79 per share. Options to purchase 114,432
shares of Class A Common Stock were available for future grants at December 31,
1998.
1998 Stock Option Plan
The Company has adopted the 1998 Stock Plan and reserved 4,000,000 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. At December 31, 1998, there were options to purchase 650,000
shares of the Company's Class B Common Stock outstanding at a weighted average
exercise price of $19.76 per share. Options to purchase 3,350,000 shares of
Class B Common Stock were available for future grants at December 31, 1998.
F-17
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
7. Stockholders' Equity and Stock Options (continued)
1998 Employee Stock Purchase Plan
The Company has adopted the Purchase Plan and reserved an aggregate of
1,000,000 shares of Class B Common Stock thereunder. The number of shares
reserved will be increased automatically each year on the first day of the of
the Company's fiscal year beginning in 2000 by an amount equal to (i) 200,000
shares of Class B Common Stock or (ii) 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 under the Purchase Plan will run for six
months, other than the initial offering period, which commenced in December 1998
and will end on August 14, 1999. Thereafter, new six-month offering periods will
commence each February 15 and August 15.
Stock Option Table
The following table summarizes certain information related to options for
Common Stock:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price Per Share Price
---------------- -------------------------- ------------
(in thousands)
<S> <C> <C> <C>
Options assumed in Merger................................ 3,905 $0.10 to $ 8.67 $ 3.66
Granted during the period September 29
and December 31, 1998............................... 938 8.67 to 32.69 16.35
Forfeited............................................ (124) 0.50 to 8.67 4.23
Exercised............................................ (821) 0.10 to 0.75 9.19
----- --------------- ------
Outstanding at December 31, 1998......................... 3,898 $0.10 to $32.69 $ 7.28
=====
</TABLE>
Additional information with respect to outstanding options as of December 31,
1998 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- -----------------------------------
Weighted-
Weighted- Average Weighted-
Average Remaining Average
Range of Number of Exercise Contractual Number of Exercise
Exercise Prices Shares Price Life Shares Price
- ------------------------ ----------------- ---------------- ---------------- ----------------- ----------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
$0.10 to $2.00 1,111 $ 1.19 8.14 705 $1.14
3.00 to 7.00 1,656 6.15 9.40 692 6.59
8.00 to 32.69 1,131 14.93 9.86 40 8.15
------------- ----- -----
0.10 to 32.69 3,898 1,437
===== =====
</TABLE>
F-18
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
7. Stockholders' Equity and Stock Options (continued)
Stock Option Table (continued)
Pro forma information regarding the effect on operations is required by SFAS
123, and has been determined as if the Company had accounted for its employee
stock options under the fair value method of that statement. Pro forma
information includes options granted subsequent to the Merger using the Black-
Scholes method at the date of grant based on the following assumptions:
<TABLE>
<CAPTION>
1998
----------------
<S> <C>
Expected life (years) 1 year
Risk-free interest rate...................................................... 5.14%
Dividend yield............................................................... --
Volatility................................................................... 75%
</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>
Eleven Months Ended
December 31, 1998
------------------
(in thousands)
<S> <C>
Net loss, as reported............................................................ $(17,219)
Pro forma net loss............................................................... (17,479)
Basic and diluted historical loss per share...................................... $ (0.38)
Pro forma basic and diluted loss per share....................................... (0.39)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts as the options include only three months of grants
from the date of the Merger. Additional awards in future years are anticipated.
The weighted-average fair value of options granted during the eleven month
period ended December 31, 1998 was $8.65, for options granted with an exercise
price equal to the deemed fair market value, at the date of grant, of the
underlying Common Stock.
8. Commitments
Leases
The Company has noncancelable capital lease obligations for computers and
equipment and 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.
F-19
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
8. Commitments (continued)
Leases (continued)
The following is a schedule of future minimum lease payments at December 31,
1998:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
---------- ----------
(in thousands)
<S> <C> <C>
Year ended December 31:
1999 $1,219 $1,599
2000 1,189 967
2001 1,095 207
2002 342 23
2003 252 --
Thereafter...................................................................... 112 --
------ ------
$4,209 2,796
======
Less amount representing interest.................................................. (383)
------
Net present value of net minimum lease payments (including approximately
$1,331 payable currently)........................................................ $2,413
======
</TABLE>
During the eleven month period ended December 31, 1998 and the years ended
January 31, 1998 and 1997, rent expense allocated from Ticketmaster Corp. and
related to other leased facilities amounted to $593,000 and $149,000 and
$42,000, respectively. The total costs and accumulated amortization of equipment
under capital leases amounted to $2,769,000 and $360,000 respectively, as of
December 31, 1998.
9. Subsequent Events
Acquisition of CityAuction, Inc.
On January 8, 1999, the Company agreed to acquire CityAuction, Inc., a person-
to-person online auction community. Under the terms of the agreement, the
Company will issue approximately 800,000 shares of Class B Common Stock in
exchange for all the outstanding capital stock of CityAuction, Inc. The
agreement is subject to certain customary closing conditions, including the
approval of both companies' stockholders.
10. Subsequent Events Unaudited
Merger with Lycos
On February 8, 1999, USAi, Lycos, Inc. (Lycos) and the Company entered into
agreements to combine USAi's electronic commerce and internet capital assets
with the businesses of Lycos and the Company to form a new company to be named
USA/Lycos Interactive Networks, Inc. (USA/Lycos). Under the transaction
agreements, the Company and Lycos will each merge with subsidiaries of USA/Lycos
followed immediately by the contribution by USAi to USA/Lycos of the Home
Shopping Network, Ticketmaster Corporation (excluding TM Realty) and Internet
Shopping Network/First Auction. Upon completion of the transaction, based on the
expected initial ownership of USA/Lycos on an adjusted fully diluted basis,
F-20
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
10. Subsequent Events Unaudited (continued)
Merger with Lycos (continued)
USAi will own 61.5%, former Lycos shareholders will own 30% and the Company's
former shareholders other than USAi will own 8.5% of the USA/Lycos Common
equity. Assuming all holders of Company Class A Common Stock convert their
shares into shares of Company Class B Common Stock prior to the closing, USAi
will own approximately 96% of the USA/Lycos combined voting power.
In addition to USA/Lycos common shares, each party (except for holders of
Company Class A Common Stock) will receive shares of convertible preferred
stock of USA/Lycos. The preferred stock will be convertible into additional
common stock of USA/Lycos at the 39-month anniversary of the closing of the
transaction if the weighted average of the total fair market value of
USA/Lycos exceeds $25 billion. If the weighted average of the total fair
market value of USA/Lycos is equal to $45 billion or more, the preferred stock
would convert into the maximum number of shares of USA/Lycos common stock,
following which the Lycos stockholders would own 35%, the Company stockholders
would own 8.7% and USAi would own 56.3% of the USA/Lycos equity, based on the
expected initial capitalization of USA/Lycos.
The parties have also entered into option agreements, which under certain
circumstances provide USAi and the Company with the right to acquire, in the
aggregate, up to 19.9% of the outstanding Lycos common stock.
The transaction is subject to various approvals, including a vote of the Lycos
shareholders, and is expected to close in the summer of 1999.
F-21
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance
Balance at Transferred Charged to Charged to Balance at
Beginning at the Costs and Other End of
of Period Merger Expenses Accounts Deductions Period
---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eleven months ended December 31, 1998 $ -- $ 68,400 $125,200 $85,900 $221,700(a) $57,800
</TABLE>
- --------------------
(a) Represents amounts written off against the allowance for doubtful accounts,
net of recoveries and reversals.
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Notes:
------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization, among CitySearch, Inc., MB Acquisition (A)*
Corporation, MetroBeat, Inc., Mark Davies and Joshua White, dated May 31, 1996.
2.2 Amended and Restated Agreement and Plan of Reorganization, among CitySearch, (A)
Inc., Tiberius, Inc., USA Networks, Inc., Ticketmaster Group, Inc.,
Ticketmaster Corporation and Ticketmaster Multimedia Holdings, Inc., dated
August 12, 1998.
2.3 Agreement and Plan of Reorganization, dated as of January 8, 1999, by and +
among Ticketmaster Online-CitySearch, Inc., Nero Acquisition Corporation,
CityAuction, Inc., Andrew Rebele and Monica Lee, as amended.
2.4 Agreement and Plan of Reorganization, dated as of February 8, 1999, by and (E)
among USA Networks, Inc., Ticketmaster Online-CitySearch, Inc., Lycos, Inc.,
USA Interactive Inc., Lemma, Inc. and Tycho, Inc. (the "Merger Agreement"),
including Form of Certificate of Designations, Preferences and Rights of
Series A Convertible Redeemable Preferred Stock of USA/Lycos Interactive
Networks, Inc. (Exhibit B to the Merger Agreement)
2.5 Contribution Agreement, dated as of February 8, 1999, by and among USA (E)
Networks, Inc., USANi LLC and USA Interactive Inc.
2.6 Stock Option Agreement, dated February 8, 1999, between Lycos, Inc. and USA (E)
Networks, Inc. (Exhibit A-1 to the Merger Agreement)
2.7 Stock Option Agreement, dated February 8, 1999, between Lycos, Inc. and (E)
Ticketmaster Online-CitySearch, Inc. (Exhibit A-2 to the Merger Agreement)
3.1 Amended and Restated Certificate of Incorporation, as currently in effect. (A)
3.2 Form of Amended and Restated Certificate of Incorporation, to be effective (C)
immediately prior to the consummation of the offering.
3.3 Amended and Restated Bylaws. (C)
4.1 Specimen Class B Common Stock Certificate. (C)
10.1 Form of Indemnification Agreement for directors and officers. (A)
10.2 1996 Stock Option Plan and form of agreement thereunder. (C)
10.3 1998 Stock Option Plan and form of agreement thereunder. (C)
10.4 1998 Employee Stock Purchase Plan. (D)
10.5 License Agreement between CitySearch, Inc. and Perly, Inc., dated March 9, (A)*
1996.
10.6 Marketing Agreement between CitySearch, Inc, and American Express Travel (A)*
Related Services Company, Inc., dated May 26, 1998.
10.7 Employment Agreement between CitySearch, Inc. and Charles Conn, dated May 9, (A)
1996.
10.8 Unanimous Shareholder Agreement between Tele-Direct (Services), Inc., (A)*
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 & (A)*
Distributing Ltd., 1310818 Ontario Inc., CitySearch Canada, Inc., TeleDirect
(Services), Inc., Tele-Direct (Publications), Inc., CitySearch, Inc. and
Torstar Corporation, dated August 31, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Notes:
------
<C> <S> <C>
10.10 Amended and Restated License and Services Agreement between CitySearch, Inc. (A)*
and CitySearch Canada, Inc., dated August 31, 1998.
10.11 Sublicense and Services Agreement between CitySearch Canada, Inc., and (A)*
toronto.com, dated August 31, 1998.
10.12 Non-competition Agreement between Toronto Star Newspapers Ltd., TeleDirect (A)*
(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 (A)
Co., L.P., dated November 7, 1996.
10.14 Standard Form of Lease, Aeriel Center Executive Park, between Pizzagalli (A)
Investment Company and CitySearch, Inc., dated May 8, 1996.
10.15 Standard Office Lease between CitySearch, Inc. and Sage Realty Corporation, (A)
dated May 6, 1997.
10.16 Standard Office Lease between CitySearch, Inc. and H. Naito Corporation, dated (A)
March 6, 1997.
10.17 Standard Office Lease between CitySearch, Inc. and Brazos Austin Centre, Ltd., (A)
dated August 15, 1996
10.18 Standard Office Lease between CitySearch, Inc. and Judge Building Group, dated (A)
September 10, 1996.
10.19 Standard Office Lease between CitySearch, Inc. and Sobel Building Development, (A)
dated May 31, 1996.
10.20 Standard Office Lease between CitySearch, Inc. and BPG Pasadena, L.L.C. (later (A)
assigned to Spieker Properties), dated September 30, 1996.
10.21 Lease Agreement between CitySearch, Inc. and Securities Properties Investors (A)
II, L.P. dated May 13, 1998.
10.22 Employment Agreement between CitySearch, Inc. and Thomas Layton, dated July 2, (A)
1997.
10.23 License and Services Agreement between CitySearch, Inc. and Classified (A)*
Ventures, L.L.C.
10.24 Convertible Promissory Note issued to CitySearch, Inc., by USA Networks, Inc., (A)
dated August 12, 1998.
10.25 Non-Competition Agreement between CitySearch, Inc., Ticketmaster Corporation, (A)
Ticketmaster, Multimedia Holdings, Inc., and Charles Conn, dated August 12,
1998.
10.26 Non-Competition Agreement between CitySearch, Inc., Ticketmaster Corporation, (A)
Ticketmaster, Multimedia Holdings, Inc., and Thomas Layton, dated August 12,
1998.
10.27 Letter Agreement Between N2K Inc. and Ticketmaster Ticketing Co., Inc., dated (B)*
April 23, 1998, as amended by a Letter Agreement by and between the parties,
dated June 16, 1998.
10.28 Development and Services Agreement between Ticketmaster Corporation, (A)
Ticketmaster Multimedia Holdings, Inc. and Starwave Corporation, dated June
28, 1996.
10.29 License and Services Agreement between Ticketmaster Corporation, Ticketmaster (A)*
Multimedia Holdings, Inc., and USA Networks, Inc., dated August 12, 1998.
10.30 Employment Agreement between Ticketmaster Online CitySearch, Inc. and Robert +
Perkins dated November 25, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Notes:
------
<C> <S> <C>
10.31 Employment agreement between Ticketmaster-Online CitySearch, Inc. and David +
Hagan dated November 27, 1998.
21.1 Subsidiaries of the Registrant. (A)
23.1 Consent of Independent Auditors. +
24.1 Power Of Attorney (see page 49). +
27.1 Financial Data Schedule. +
</TABLE>
______________________________
+ Filed herewith.
* Confidential treatment has been granted with respect to portions of this
exhibit.
(A) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
333-64855) filed with the Commission on September 30, 1998.
(B) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
333-64855) filed with the Commission on October 19, 1998.
(C) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
333-64855) filed with the Commission on November 6, 1998.
(D) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
333-64855) filed with the Commission on November 20, 1998.
(E) Incorporated by reference to exhibits filed in response to Item 7,
"Exhibits," of the Report on Form 8-K filed by USA Networks, Inc. (File No.
000-20570) with the Commission on February 26, 1999.
<PAGE>
EXHIBIT 2.3
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JANUARY 8, 1999
================================================================================
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1 THE MERGER 1
1.1 Merger; Effective Time................................................. 1
1.2 Closing................................................................ 1
1.3 Effects of the Merger.................................................. 2
1.4 Articles of Incorporation; Bylaws; Directors; Officers................. 2
1.5 Tax-Free Reorganization................................................ 2
SECTION 2 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES..................... 2
2.1 Effect on Capital Stock................................................ 2
2.2 Exchange of Certificates............................................... 6
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................... 8
3.1 Organization, Standing and Corporate Power............................. 8
3.2 Company Capital Structure.............................................. 8
3.3 Subsidiaries........................................................... 9
3.4 Authority/Noncontravention............................................. 9
3.5 Financial Statements; No Undisclosed Liabilities....................... 11
3.6 Absence of Certain Changes or Events................................... 11
3.7 Litigation............................................................. 12
3.8 Contracts.............................................................. 12
3.9 Compliance With Laws................................................... 12
3.10 Absence of Changes in Benefit Plans; Employment Agreements; Labor
Relations.............................................................. 12
3.11 ERISA Compliance....................................................... 14
3.12 Taxes 14
3.13 No Excess Parachute Payments........................................... 15
3.14 Title to Properties.................................................... 15
3.15 Intellectual Property.................................................. 16
3.16 Year 2000 Compliance................................................... 17
3.17 Voting Requirements.................................................... 17
3.18 Payments............................................................... 17
3.19 Transactions with Related Parties...................................... 18
3.20 Restrictions on Business Activities.................................... 18
3.21 Accounts Receivable; Inventory......................................... 18
3.22 Minute Books........................................................... 19
3.23 Environmental Matters.................................................. 19
3.24 Insurance.............................................................. 20
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.25 Warranties; Indemnities................................................ 20
3.26 Representations Complete............................................... 20
SECTION 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB....................... 20
4.1 Organization, Standing and Corporate Power............................. 21
4.2 Authority/Noncontravention............................................. 21
4.3 SEC Documents; Parent Financial Statements............................. 22
4.4 Parent Common Stock.................................................... 22
SECTION 5 COVENANTS.............................................................. 22
5.1 Conduct of Business of the Company..................................... 22
5.2 No Solicitation........................................................ 24
5.3 Shareholder Approval................................................... 25
5.4 Access to Information.................................................. 25
5.5 Confidentiality........................................................ 26
5.6 Expenses............................................................... 26
5.7 Public Disclosure...................................................... 26
5.8 Consents............................................................... 26
5.9 FIRPTA Compliance...................................................... 26
5.10 Reasonable Efforts..................................................... 27
5.11 Notification of Certain Matters........................................ 27
5.12 Blue Sky Laws.......................................................... 27
5.13 Noncompetition and Employment Agreements............................... 27
5.14 Investment Representation Agreements................................... 27
5.15 Appointment............................................................ 28
5.16 Stock Options.......................................................... 28
SECTION 6 CONDITIONS TO THE MERGER............................................... 28
6.1 Conditions to Obligations of Each Party to Effect the Merger........... 28
6.2 Additional Conditions to the Obligations of Parent and Sub............. 29
6.3 Additional Conditions to Obligations of Company........................ 30
SECTION 7 INDEMNIFICATION........................................................ 31
7.1 General Indemnification................................................ 31
7.2 Limitation and Expiration.............................................. 32
7.3 Indemnification Procedures............................................. 32
7.4 Shareholders' Representative........................................... 36
7.5 Survival of Representations, Warranties and Covenants.................. 37
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 8 TERMINATION, AMENDMENT AND WAIVER...................................... 37
8.1 Termination............................................................ 37
8.2 Effect of Termination.................................................. 38
8.3 Amendment.............................................................. 38
8.4 Extension; Waiver...................................................... 38
8.5 Notice of Termination.................................................. 38
SECTION 9 MISCELLANEOUS.......................................................... 38
9.1 Notices................................................................ 38
9.2 Interpretation......................................................... 40
9.3 Counterparts........................................................... 41
9.4 Entire Agreement; Assignment........................................... 41
9.5 Severability........................................................... 41
9.6 Other Remedies......................................................... 41
9.7 Governing Law.......................................................... 41
9.8 Further Assurances..................................................... 41
9.9 Absence of Third Party Beneficiary Rights.............................. 42
9.10 Mutual Drafting........................................................ 42
9.11 Further Representations................................................ 42
</TABLE>
iii
<PAGE>
INDEX OF EXHIBITS
Exhibit A Agreement of Merger
Exhibit B Allocation of Employee Stock Options
Exhibit C Form of Noncompetition Agreement
Exhibit D Form of Investment Representation Agreement
Exhibit E Form of Legal Opinion of Counsel to the Company
Exhibit F Form of Registration Rights Agreement
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and
entered into as of January 8, 1999 among Ticketmaster Online - CitySearch, Inc.,
a Delaware corporation ("PARENT"), Nero Acquisition Corporation, a California
corporation and a wholly-owned subsidiary of Parent ("Sub"), CityAuction, Inc.,
a California corporation (the "COMPANY"), and Andrew Rebele and Monica Lee,
individuals and principal shareholders of the Company (the "PRINCIPAL
SHAREHOLDERS").
RECITAL
The Boards of Directors of each of the Company, Parent and Sub believe it
is in the best interests of each company and their respective shareholders that
the Company and Sub combine into a single company through the merger of Sub with
and into the Company (the "MERGER") pursuant to the terms of this Agreement and,
in furtherance thereof, have approved the Merger.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
SECTION 1
THE MERGER
1.1 MERGER; EFFECTIVE TIME. Subject to the terms and conditions of this
----------------------
Agreement and the Agreement of Merger attached as Exhibit A (the "MERGER
---------
AGREEMENT"), Sub will be merged into the Company (the "MERGER") in accordance
with the California Corporation Code (the "CALIFORNIA CODE"). The Merger
Agreement provides, among other things, the mode of effecting the Merger and the
manner and basis of converting each issued and outstanding share of capital
stock of the Company into shares of Class B common stock, $.01 par value, of
Parent ("PARENT COMMON STOCK").
Subject to the provisions of this Agreement and the Merger Agreement,
the Merger Agreement, together with required officers' certificates, shall be
filed in accordance with the California Code on the Closing Date (as defined in
Section 1.2). The Merger shall become effective upon confirmation of such
filing of the Merger Agreement and such officers' certificates (the date of
confirmation of such filing is referred to as the "EFFECTIVE DATE" and the time
of confirmation of such filing is referred to as the "EFFECTIVE TIME").
1.2 CLOSING. The closing of the Merger (the "CLOSING") will take place
-------
as soon as practicable on the first business day after satisfaction or waiver of
the latest to occur of the
<PAGE>
conditions set forth in Section 6 (the "CLOSING DATE"), at the offices of Wilson
Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304-1050,
unless a different date or place is agreed to in writing by the parties hereto.
1.3 EFFECTS OF THE MERGER. At the Effective Time, the separate existence
---------------------
of Sub shall cease and Sub shall be merged with and into the Company, and the
effects of the Merger shall be as provided in this Agreement, the Merger
Agreement and the applicable provisions of the California Code. The Company
after the Merger is sometimes referred to as the "SURVIVING CORPORATION."
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Sub shall vest in the Surviving Corporation, and all debts,
liabilities, obligations and duties of the Company and Sub shall become the
debts, liabilities, obligations and duties of the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS; OFFICERS. At the
------------------------------------------------------
Effective Time, (i) the Articles of Incorporation of the Company shall be the
Articles of Incorporation of the Surviving Corporation; (ii) the Bylaws of the
Company as in effect immediately prior to the Effective Time shall be the Bylaws
of the Surviving Corporation until altered, amended or repealed; (iii) the
directors of Sub 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 Articles
of Incorporation and Bylaws of the Surviving Corporation, as the same may be
amended from time to time or otherwise as provided by law; and (iv) the officers
of the Company shall be the initial officers of the Surviving Corporation.
1.5 TAX-FREE REORGANIZATION. The Merger is intended to be a
-----------------------
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE"). The parties have consulted with their own tax
advisors regarding the Merger.
SECTION 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the
-----------------------
Merger and without any action on the part of the holder of any shares of capital
stock of the Company:
(a) Capital Stock of Sub. Each issued and outstanding share of
--------------------
capital stock of Sub shall continue to be issued and outstanding and shall be
converted into one share of validly issued, fully paid and non-assessable Common
Stock 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.
-2-
<PAGE>
(b) Cancellation of Certain Shares of Capital Stock of the Company.
--------------------------------------------------------------
All shares of capital stock of the Company that are owned directly or indirectly
by the Company shall be canceled and no stock of Parent or other consideration
shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of the Company. Subject to Sections
------------------------------------------
2.1(d), (e), (f), (g) and (h) below, each issued and outstanding share of common
stock of the Company, .01 par value ("COMPANY COMMON STOCK") (other than shares
to be canceled pursuant to Section 2.1(b)), that are issued and outstanding
immediately prior to the Effective Time shall automatically be canceled and
extinguished and converted, without any action on the part of the holder
thereof, into the right to receive 0.28195 shares of Parent Common Stock. All
such shares of Company Common Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the shares
of Parent Common Stock to be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with Section 2.2 of this Agreement.
The ratio pursuant to which each share of Company Common Stock will be exchanged
for shares of Parent Common Stock, determined in accordance with the foregoing
provisions, is referred to as the "EXCHANGE RATIO."
(d) Adjustment of Exchange Ratio. If, between the date of this
----------------------------
Agreement and the Effective Time, the outstanding shares of Parent Common Stock
(or, subject to Section 5.1 below, Company Common Stock) shall have been changed
into a different number of shares or a different class by reason of any
reclassification, split-up, stock dividend, stock combination, then the Exchange
Ratio shall be correspondingly adjusted.
(e) Dissenters' Rights. Any shares of Company Common Stock held by a
------------------
holder who has properly exercised dissenters' rights for such shares in
accordance with the California Code and who, as of the Effective Time, has not
effectively withdrawn or lost such dissenters' rights ("DISSENTING SHARES")
shall not be converted into Parent Common Stock but shall 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 California Code. The Company shall
give Parent prompt notice of any demand received by the Company to require the
Company to purchase shares of Company Common Stock, and Parent shall have the
right to participate in all negotiations and proceedings with respect to such
demand. The Company agrees that, except with the prior written consent of
Parent, or as required under the California Code, it will not voluntarily make
any payment with respect to, or settle or offer to settle, any such purchase
demand. Each holder of Dissenting Shares (a "DISSENTING SHAREHOLDER") who,
pursuant to the provisions of the California Code, becomes entitled to payment
of the value of shares of Company Common Stock shall receive payment therefor
(but only after the value therefor shall have been agreed upon or finally
determined pursuant to such provisions). In the event of legal obligation,
after the Effective Time, to deliver shares of Parent Common Stock to any holder
of shares of Company Common Stock who shall have failed to make an effective
purchase demand or shall have lost its status as a
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<PAGE>
Dissenting Shareholder, Parent shall issue and deliver, upon surrender by such
Dissenting Shareholder of such holder's certificate or certificates representing
shares of capital stock of the Company, the shares of Parent Common Stock to
which such Dissenting Shareholder is then entitled under this Section 2.1 and
the Merger Agreement.
(f) Fractional Shares. No fractional shares of Parent Common Stock
-----------------
shall be issued, but in lieu thereof each holder of shares of Company Common
Stock who would otherwise be entitled to receive a fraction of a share of Parent
Common Stock shall receive from Parent an amount of cash equal to the per share
market value of Parent Common Stock (based on the last sales price of Parent
Common Stock as reported on the Nasdaq National Market on the Effective Date)
multiplied by the fraction of a share of Parent Common Stock to which such
holder would otherwise be entitled. The fractional share interests of each
shareholder of the Company shall be aggregated, so that no Company shareholder
shall receive cash in an amount greater than the value of one full share of
Parent Common Stock.
(g) Maximum Merger Consideration. The maximum consideration to be
----------------------------
paid by Parent (including Parent Common Stock to be reserved for issuance upon
exercise of the Company's options assumed by Parent pursuant to Section 5.16)
pursuant to the Merger shall be equal to (i) 800,000 shares of Parent Common
Stock (plus any additional shares of Parent Common Stock exchanged in the Merger
at the Exchange Ratio for shares of capital stock of the Company issued upon
exercise of the Warrant (as defined in section 3.2)) plus (ii) an additional
200,000 shares of Parent Common Stock to be reserved for issuance upon exercise
of options to purchase Parent Common Stock to be granted to the employees of
CityAuction as set forth in Section 2.1 (i)(b) below. No adjustment shall be
made in the aggregate consideration to be paid in the Merger as a result of any
cash proceeds received by the Company from the date of this Agreement to the
Closing Date pursuant to the exercise of currently outstanding options to
acquire Company Common Stock.
(h) Pledged Shares.
--------------
(i) As collateral security for the payment of any
indemnification obligations of the shareholders of the Company (the
"SHAREHOLDERS") pursuant to Section 7 of this Agreement, at the Closing the
Company shall, and by execution hereof does hereby, transfer, pledge and assign
to Parent, for the benefit of Parent, a security interest in the following
assets:
(A) 75,000 shares of Parent Common Stock issuable by
Parent in the Merger pursuant to Section 2.1 (the "PLEDGED SHARES"), as well as
the certificates and instruments representing or evidencing the Pledged Shares,
and all non-cash dividends and other property at any time received or otherwise
distributed in respect of or in exchange or substitution for any or all of the
Pledged Shares; and in the event the Company or any Shareholder receives any
such property, the Company and such Shareholder shall immediately deliver such
property to Parent as part of the Pledged Shares; and
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<PAGE>
(B) all rights, titles, interests, privileges and
preferences appertaining or incident to the foregoing property, except as
provided for in Section 1.2(h)(iii).
The Pledged Shares shall be withheld from the shareholders
in relation to the prorated percentage of shares of Company Common Stock
issuable to such shareholders in the Merger as set forth in Section 2.1 (c).
(ii) Each certificate evidencing the Pledged Shares issued in
the names of the Shareholders in the Merger, shall, at the Closing, be delivered
to Parent, together with an undated stock power duly signed in blank by each
such Shareholder, such certificate bearing no restrictive or cautionary legend
other than those imprinted by the Transfer Agent at Parent's request.
(iii) The Shareholders shall be entitled to exercise any voting
powers incident to the Pledged Shares until such time, if ever, that they are
demanded to be transferred to Parent to satisfy the indemnification obligations
of the Shareholders pursuant to Section 7 hereof.
(i) Stock Options.
-------------
(i) At the Effective Time, all Company Stock Options (as
defined in Section 3.2) then outstanding shall be assumed by Parent in
accordance with Section 5.16 below.
(ii) At the Effective Time, Parent shall grant to the
CityAuction employees stock options under the Parent's 1998 Stock Option Plan
exercisable for an aggregate of 200,000 shares of Parent Common Stock (the
"EMPLOYEE STOCK OPTIONS"). The exercise price for such option shall be equal to
$53.25 per share. The allocation of such options to employees shall be as set
forth on Exhibit B. The Employee Stock Options shall be subject to the following
---------
vesting provisions:
(A) Employee Stock Options to purchase an aggregate of
100,000 shares shall vest over a four year period as follows: 1/48 per month;
provided, however, that no shares shall be exercisable until the first
anniversary of the optionee's employment with the Company.
(B) Employee Stock Options to purchase an aggregate of
100,000 shares shall also vest over a four year period in accordance with the
vesting provisions set forth in subsection (i) above. Such stock options shall
be subject to acceleration in accordance with the following terms:
(1) In the event that aggregate revenues (i.e.
winning bids multiplied by units won whether or not such sales actually occur)
in auctions completed on the Company's web site (the "CITYAUCTION REVENUE")
during the one year period ending on the first anniversary of this Agreement
exceeds $12.0 million (the "YEAR 1 AUCTION TARGET AMOUNT"),
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<PAGE>
then a total of 37,500 options shall be vested as of the first anniversary date
(which total shall include the options which shall otherwise have vested during
such year) and 37,500 options shall vest ratably on a monthly basis for the
twelve months following the first anniversary date (which total shall include
the options which shall otherwise have vested during such year);
(2) In the event that CityAuction Revenue during the
one year period ending on the first anniversary of this Agreement is between 70%
and 99.9% (the "YEAR 1 ACTUAL PERCENTAGE") of the Year 1 Auction Target Amount,
then the total number of options which shall be vested as of such first
anniversary date shall equal 25,000 options plus the Year 1 Actual Percentage
multiplied by 12,500 options (which total shall include the options which
otherwise shall have vested during such year) and 25,000 options plus the Year 1
Actual Percentage multiplied by 12,500 which shall vest ratably on a monthly
basis for the twelve months following such date (which total shall include the
options which shall otherwise have vested during such year);
(3) In the event that CityAuction Revenue during the
one year period ending on the second anniversary of this Agreement exceeds $30.0
million (the "YEAR 2 AUCTION TARGET AMOUNT"), then all remaining unvested
options shall vest as of such second anniversary date; and
(4) In the event that CityAuction Revenue during the
one year period ending on the second anniversary of the Agreement is between 70%
and 99.9% (the "YEAR 2 ANNUAL PERCENTAGE") of the Year 2 Auction Target Amount,
then the number of remaining unvested options multiplied by the Year 2 Annual
Percentage shall vest as of the second anniversary date, and the remainder shall
vest ratably over the next two years.
In the event that there is a material and fundamental change in the
business condition and structure of the Parent (either through an extraordinary
merger, acquisition or similar event involving the Parent which the parties
agree is beyond the scope of what is reasonably contemplated presently as part
of the Parent's growth strategy) prior to the second anniversary of this
Agreement, the parties agree that they shall discuss in good faith whether the
performance criteria set forth in this Section 2.1 (i)(ii)(B) for the
acceleration of the stock options referenced thereunder should be modified in
recognition of such fundamental change in Parent.
(j) Rebele Shares. Fifty percent (50%) shares of Parent Common
-------------
Stock received in the Merger pursuant to Section 2.1(c) by Andrew Rebele shall
be subject to vesting over a two year period following the Closing on a pro rata
monthly basis.
2.2 EXCHANGE OF CERTIFICATES.
------------------------
(a) Exchange Agent. Prior to the Effective Time, Parent shall
--------------
designate a bank or trust company, reasonably acceptable to the Company, to act
as exchange agent (the "EXCHANGE AGENT") in the Merger.
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<PAGE>
(b) Parent to Provide Common Stock. Promptly after the Effective
------------------------------
Time, Parent shall deliver to the Exchange Agent in accordance with this Section
2 and the Merger Agreement, the shares of Parent Common Stock issuable pursuant
to Section 2.1 and the Merger Agreement in exchange for outstanding shares of
capital stock of the Company, and cash in an amount sufficient for payment in
lieu of fractional shares pursuant to Section 2.1(f).
(c) Exchange Procedures. As soon as practicable after the Effective
-------------------
Time, the Surviving Corporation shall cause to be mailed to each holder of
record of a certificate or certificates which immediately prior to the Effective
Time represented outstanding shares of Company Common Stock (the "Certificates")
whose shares are being converted into Parent Common Stock pursuant to Section
2.1 and the Merger Agreement, (i) a letter of transmittal (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 be in such form and have such other provisions as Parent may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for Parent Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor the number of shares of Parent Common Stock to which the
holder of Company Common Stock is entitled pursuant to Section 2.1. The
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Company Common Stock which is not registered on the
transfer records of the Company, the appropriate number of shares of Parent
Common Stock may be delivered to a transferee if the Certificate representing
such capital stock of the Company 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 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent the right to receive
upon such surrender the number of shares of Parent Common Stock as provided by
this Section 2 and the provisions of the California Code.
(d) No Further Ownership Rights in Capital Stock of the Company. All
-----------------------------------------------------------
Parent Common Stock delivered upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof shall be deemed to have
been delivered in full satisfaction of all rights pertaining to such shares of
Company Common Stock, and following the Effective Time, the Certificates shall
have no further rights to, or ownership in, shares of capital stock of the
Company. There shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Common
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 as provided in this Section 2.
(e) Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, the
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<PAGE>
Exchange Agent shall make payment in exchange for such lost, stolen or destroyed
certificates, upon the making of an affidavit of that fact by the holder
thereof, such shares of Parent Common Stock and cash for fractional shares, if
any, as may be required pursuant to Section 2.1(f); provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, 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 Parent or the Exchange Agent with respect to the
certificates alleged to have been lost, stolen or destroyed.
(f) No Liability. Notwithstanding anything to the contrary in this
------------
Section 2.2, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Company Common Stock for any
amount paid to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(g) Dissenting Shares. The provisions of this Section 2.2 shall
-----------------
also apply to Dissenting Shares that lose their status as such, except that the
obligations of Parent under this Section 2.2 shall commence on the date of loss
of such status.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PRINCIPAL SHAREHOLDER
Except as disclosed in writing in a disclosure letter referring
specifically to the representations and warranties in this Agreement that
specifically identifies the section and subsection to which such disclosure
relates and that is delivered to Parent by the Company and the Principal
Shareholders and certified by a duly authorized officer of the Company and the
Principal Shareholder prior to the date of this Agreement (the "COMPANY
SCHEDULES"), each of the Company and the Principal Shareholders represents and
warrants to Parent and Sub as set forth below.
3.1 ORGANIZATION, STANDING AND CORPORATE POWER. The Company 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. The Company is
duly qualified 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. The Company has
delivered to the Parent complete and correct copies of its Articles of
Incorporation and Bylaws.
3.2 COMPANY CAPITAL STRUCTURE.
-------------------------
(a) The authorized capital stock of the Company consists (i) of
10,000,000 shares of Common Stock, of which 2,400,000 shares are issued and
outstanding and (ii) 1,015,000 shares
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<PAGE>
of Preferred Stock, of which 415,000 shares, designated Series A Preferred
Stock, are outstanding. All of such outstanding shares have been duly
authorized, validly issued, fully paid and non-assessable and have been issued
in compliance with all applicable federal and state securities laws. The
outstanding shares of capital stock of the Company are not subject to preemptive
rights created by statute, the Articles of Incorporation or Bylaws of the
Company, or any agreement to which the Company is a party or by which it may be
bound. There are no voting agreements or voting trusts with respect to any of
the outstanding shares of capital stock of the Company. The outstanding shares
of capital stock of the Company are held by the persons and in the amounts set
forth in Section 3.2 of the Company Schedules.
(b) The Company has reserved 300,000 shares of Company Common Stock
for issuance to employees and consultants pursuant to the Company's 1998 Stock
Option Plan (the "COMPANY'S STOCK OPTION PLAN"), of which stock options to
purchase 22,394 shares of Company Common Stock have been granted to date (the
"COMPANY STOCK OPTIONS") and 277,606 shares remain available for future grant
under the plan. Section 3.2 (b) of the Company Schedules sets forth for each
outstanding Company Stock Options the name of the holder of such option, the
number of shares of Company Common Stock subject to such option, the exercise
price of such option and the vesting schedule for such option, including the
extent vested to date. The Company has reserved 600,000 shares of Series A
Preferred Stock issuable upon exercise of a warrant issued to Snap! LLC (the
"WARRANT"). Except for the Company Stock Options described in Section 3.2 (b)
of the Company Schedules and the Warrant, there are no options, warrants, calls,
rights, commitments or agreements of any character, written or oral, to which
the Company is a party or by which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company or
obligating the Company to grant, extend, accelerate the vesting of, change the
price of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. The Company's Stock Options and the Warrant have been
issued in compliance with all applicable federal and state securities laws. The
holders of Company Stock Options and the Warrant have been or will be given, or
shall have properly waived, any required notice prior to the Merger. As a
result of the Merger, Parent will be the record and beneficial owner of all
outstanding capital stock of the Company and, except for stock options granted
pursuant to the Company's Stock Option Plan and the Warrant, rights to acquire
capital stock of the Company.
3.3 SUBSIDIARIES. The Company does not have and has never had any
------------
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
3.4 AUTHORITY/NONCONTRAVENTION. The Company 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 the
Company's shareholders, to consummate the transactions contemplated by this
Agreement. The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions
-9-
<PAGE>
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of the Company and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby, subject, in each case, to the
approval and adoption of this Agreement and approval of the Merger by the
Company's shareholders. This Agreement has been duly executed and delivered by
the Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms. The execution and
delivery of this Agreement do not, and subject to the approval and adoption of
this Agreement and approval of the Merger by the Company's shareholders as
required in connection with this Agreement and the transactions contemplated by
this Agreement, 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 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 the Company under, any provision of (a) the
Articles of Incorporation or Bylaws of the Company, (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 the Company
or its properties or assets (including, without limitation, any of the contracts
of the Company set forth in the Company Schedules) or (c) subject to the
governmental filings and other matters referred to in the following sentence,
any statute, law, ordinance, rule or regulation or judgment, order or decree, in
each case, applicable to the Company or its 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
would not have a Material Adverse Effect on the Company. 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
the Company in connection with the execution and delivery of this Agreement by
the Company or the consummation by the Company of the Merger or the other
transactions contemplated by this Agreement, except for (a) the receipt of a
valid exemption from the registration requirements of the Securities Act of
1933, as amended (the "SECURITIES ACT"), (b) the filing of the Agreement of
Merger with the California Secretary of State and appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business and (c) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made individually or in the aggregate would not have a Material Adverse Effect
on the Company or impair the ability of the Company to perform its obligations
under this Agreement.
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<PAGE>
3.5 FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES.
------------------------------------------------
(a) The unaudited balance sheet (the "COMPANY BALANCE SHEET") of the
Company as of December 31, 1998 (the "BALANCE SHEET DATE") and the related
profit and loss statement for the year then ended (the "COMPANY FINANCIAL
STATEMENTS") are in accordance with the books and records of the Company 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
the Company throughout the periods involved and present fairly the financial
position, results of operations and cash flows of the Company as of the dates
and for the periods specified. True and complete copies of the Company
Financial Statements have previously been supplied to the Parent.
(b) As of the Balance Sheet Date, the Company did not have any
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 Company Balance Sheet that would be required to be disclosed on
a balance sheet prepared as of the Balance Sheet Date in conformity with GAAP
applied on a basis consistent with the Company Financial Statements. Since the
Balance Sheet Date, the Company has not incurred any indebtedness, obligations
or liabilities of any kind (whether accrued, absolute, contingent or otherwise,
and whether due or to become due or asserted or unasserted) that would be
required to be disclosed on a balance sheet prepared as of the date hereof in
conformity with GAAP applied on a basis consistent with the Company Financial
Statements, other than those incurred in the ordinary course of business
consistent with past practice, none of which would have a Material Adverse
Effect on the Company.
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Section
------------------------------------
3.6 of the Company Schedules, since the Balance Sheet Date and until the date
hereof, the Company has conducted its businesses only in the ordinary course
consistent with past practice, and there has not been (a) any Material Adverse
Effect with respect to the Company, (b) any declaration, setting aside or
payment of any dividend on, or other distribution (whether in cash, stock or
property) with respect to any of the Company's capital stock, (c) any split,
combination, reclassification or repurchase of any of the Company'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 the
Company's capital stock, (d) (i) any granting by the Company to any officer of
the Company of any increase in compensation, except in the ordinary course of
business consistent with past practice or as required under employment
agreements in effect as of the date hereof, (ii) any granting by the Company to
any officer of the Company of any increase in severance or termination pay,
except as was required under any employment, severance or termination agreement
in effect as of the date hereof, or (iii) any entry by the Company 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
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<PAGE>
terms of which are materially altered, upon the occurrence of a transaction
involving the Company of the nature contemplated by this Agreement, (e) any
damage, destruction or loss, whether or not covered by insurance, that
individually or in the aggregate would have a Material Adverse Effect on the
Company, (f) any change in accounting methods, principles or practices by the
Company, except insofar as may have been required by a change in GAAP or (g) any
tax election that individually or in the aggregate would have a Material Adverse
Effect on the Company.
3.7 LITIGATION. There is no suit, claim, action, proceeding or, to the
----------
knowledge of the Company, investigation, pending or, to the knowledge of the
Company, threatened, against or affecting the Company, nor is there any
judgment, order, decree or injunction of any Governmental Entity or arbitrator
outstanding against, or, to the knowledge of the Company, investigation by any
Governmental Entity involving, the Company.
3.8 CONTRACTS. Except as set forth in Section 3.8 of the Company
---------
Schedules, as of the date hereof, the Company is not a party to, nor are any of
their properties or assets bound by, any currently binding (i) contracts,
licenses or agreements, with respect to any intellectual property with a value
or cost in excess of $50,000, (ii) any employment or consulting agreement or
contract (or commitment to enter into any such agreement or contract) with an
employee or individual consultant or salesperson or consulting or sales
agreement or contract (or commitment to enter into any such agreement or
contract) with a firm or other organization in excess of $50,000 annually, (iii)
any agreement or plan, including, without limitation, any stock option plan,
stock appreciation rights plan or stock purchase 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 value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement, (iv) any
fidelity or surety bond or completion bond, (v) any lease of personal property
having a value individually in excess of $50,000, (vi) 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, (vii) 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,
(viii) any agreement, contract or commitment relating to capital expenditures
and involving future payments by such party or any of its subsidiaries in excess
of $50,000 in one or in a series of transactions, (ix) 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, (x)
any mortgages, indentures, loans or credit agreements, security agreements or
other agreements or instruments relating to the borrowing of money or extension
of credit, (xi) any purchase order or contract for the purchase of materials
involving in excess of $50,000, (xii) any construction contracts, (xiii)
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 grants any redemption or preemptive
rights or (xiv) any other agreement, contract or commitment that involves
$50,000 or more or is not cancelable without penalty within thirty (30) days
(collectively,
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<PAGE>
the "CONTRACTS"). The Company has delivered or otherwise made available to
Parent true, correct and complete copies of the Contracts listed in Section 3.8
of the Company Schedules, together with all amendments, modifications and
supplements thereto and all side letters to which the Company is a party
affecting the obligations of any party thereunder. The Company is not in
violation of or in default (with or without notice or lapse of time, or both)
under any lease, permit, concession, franchise, license or any other Contract,
commitment, agreement, arrangement, obligation or understanding to which it is a
party or by which it or any of its properties or assets is bound. As of the
Closing, after giving effect to the Merger and the transactions contemplated
hereby, the Surviving Corporation, shall be entitled to all of the benefits
under the agreements (as the same may be amended) set forth on Section 3.8 of
the Company Schedules to which the Company is entitled on the date hereof,
except as may be adversely affected by agreements (as the same may be amended)
to which Parent is a party on the date hereof.
3.9 COMPLIANCE WITH LAWS. The Company is in compliance with all
--------------------
statutes, laws, ordinances, rules, regulations, judgments, orders and decrees of
any Governmental Entity applicable to its business or operations, except for
instances of possible noncompliance that individually or in the aggregate would
not have a Material Adverse Effect on the Company, impair in any material
respect the ability of the Company to perform its obligations under this
Agreement or prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement. The Company has 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 it to
own, lease or operate its properties and assets and to carry on its business 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 would
not have a Material Adverse Effect on the Company.
3.10 ABSENCE OF CHANGES IN BENEFIT PLANS; EMPLOYMENT AGREEMENTS; LABOR
-----------------------------------------------------------------
RELATIONS. Since the 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 the Company any 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 such party or any of
its subsidiaries (collectively, "BENEFIT PLANS"). Except as set forth in
Section 3.10 of the Company Schedules, as of the date hereof there exist no
currently binding employment, severance or termination agreements or consulting
agreements between the Company and any current or former officer of the Company.
There are no collective bargaining or other labor union agreements to which the
Company is a party or by which it is bound. The Company has not encountered any
labor union organizing activity, nor had any actual or threatened employee
strikes, work stoppages, slowdowns or lockouts.
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3.11 ERISA COMPLIANCE.
----------------
(a) Section 3.11(a) of the Company 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 "PENSION PLANS"), "employee welfare benefit plans" (as
defined in Section 3(l) of ERISA) and all other Benefit Plans maintained or
contributed to by the Company or any person or entity that, together with the
Company, is treated as a single employer under Section 414(b), (c), (m) or (o)
of the Code (a "COMMONLY CONTROLLED ENTITY") for the benefit of any current or
former officers, directors or employees of the Company. The Company has made
available to Parent 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 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 would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. The Company and all the Benefit Plans
are all in compliance with applicable provisions of ERISA and the Code, except
for instances of possible noncompliance that would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
(b) Each of the Pension Plans has been the subject of a
determination letter (or its equivalent) from the IRS to the effect that such
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 the Company nor any Commonly Controlled Entity of the
Company has maintained, contributed to or been obligated to contribute to any
Benefit Plan that is subject to Title IV of ERISA.
(d) No officer or employee of the Company 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.
3.12 TAXES. The Company has filed all material tax returns and reports
-----
required to be filed by it and all such returns and reports were true and
correct in all material respects. All taxes that accrue or are payable by the
Company in respect of taxable periods that end on or before the Closing Date and
for any taxable period that begins before the Closing Date and ends thereafter
to the extent such taxes are attributable to the portion of such period ending
on the Closing Date, as
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determined under the closing of the books method of allocation, have been (or
will have been, on or before the Closing Date) timely paid or an adequate
reserve has been established on the Company Balance Sheet. The most recent
financial statements, dated December 31, 1998, (a true, correct complete copy of
which has been delivered to the Parent by the Company) reflect an adequate
reserve for all taxes payable by the Company 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 the Company, and no
requests for waivers of the time to assess any such taxes are pending. As used
in this Agreement, "TAXES" shall include all Federal, state, local and foreign
income, property, sales, excise and other taxes, tariffs or governmental charges
of any nature whatsoever, together with an interest and penalties, whether as
primary obligor or as a result of being a "transferor" (within the meaning of
section 6901 of the Code and any corresponding state and local law) of another
person or a member of an affiliated, consolidated or combined group.
3.13 NO EXCESS PARACHUTE PAYMENTS. No amount that could be received
----------------------------
(whether in cash or property or the vesting of property) in connection with any
of the transactions contemplated by this Agreement by any employee, officer or
director of the Company 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 the Company, 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 the Company has not granted to any officer, director or employee of
the Company any right to receive any Parachute Gross-Up Payment.
3.14 TITLE TO PROPERTIES.
-------------------
(a) The Company has good and marketable title to, or valid leasehold
interests in, all of its properties and assets except for such as are no longer
used or useful in the conduct of its business 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 would not have a Material Adverse Effect on the Company. All such
material assets and properties, other than assets and properties in which the
Company 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 would not have a Material Adverse Effect on the
Company.
(b) The Company has complied in all material respects with the terms
of all leases to which it is a party and under which it is in occupancy, all
such leases are in full force and
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effect and have been made available to the Parent. The Company enjoys peaceful
and undisturbed possession under all such leases.
3.15 INTELLECTUAL PROPERTY.
---------------------
(a) The Company owns, or has the right to use, sell or license all
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 "COMPANY IP RIGHTS").
(b) Section 3.15 of the Company Schedules sets forth with respect to
the intellectual property of the Company: (i) for each patent and patent
application, the number, normal expiration date, title and priority information
for each country in which such patent has been issued, or, the application
number, date of filing, title and priority information for each country, (ii)
for each trademark, trade name or service mark, whether or not registered, the
date first used, and, if registered, the application serial number or
registration number, the class of goods covered, the nature of the goods or
services, the countries in which the names or mark is used and the expiration
date for each country in which a trademark has been registered and (iii) for
each copyright for which registration has been sought, whether or not
registered, the date of creation and first publication of the work, the number
and date of registration for each country in which a copyright application has
been registered.
(c) The Company 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
Company IP Rights.
(d) The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any Company IP Right (the
"COMPANY IP RIGHTS AGREEMENTS"), will not cause the forfeiture or termination or
give rise to a right of forfeiture or termination of any Company IP Right or
impair the right of the Company, the Surviving Corporation or the Parent to use,
sell or license any Company IP Right or portion thereof.
(e) (i) Neither the manufacture, marketing, license, sale or
intended use of any product or technology currently licensed or sold by the
Company violates any license or agreement between the Company and any third
party or infringes any proprietary right of any other party; and (ii) there is
no pending or, to the knowledge of the Company, threatened claim or litigation
contesting the validity, ownership or right to use, sell, license or dispose of
any Company IP Right or operate the Company's Web service.
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3.16 YEAR 2000 COMPLIANCE.
--------------------
(a) All of the current or past products and services offered by the
Company, including each item of hardware, software, or firmware, any system,
equipment, or products consisting of or containing one or more thereof, any and
all enhancements, upgrades, customizations, modifications, maintenance and the
like are Year 2000 Compliant (as defined below). The Company is not subject to
any pending or threatened claim, regulatory action, processing or investigation
concerning the Year 2000 Compliance of its respective products, services or
operations, and, to the best of the Company's knowledge, there is no basis for
any such claim, regulatory action, investigation or proceeding. To the Best of
the Company's knowledge, all of the internal management information systems
(including hardware, firmware, operating system software, utilities, and
applications software) and all facilities and systems used in the ordinary
course of business by or on behalf of the Company, including payroll,
accounting, billing/receivables, customer service, human resources, and e-mail
systems used by the Company, are Year 2000 Compliant. To the best of the
Company's knowledge, all vendors of products or services to the Company, and its
respective products, services and operations, are Year 2000 Compliant, and each
such vendor will continue to furnish its products or services to the Company,
without interruption or material delay, on and after January 1, 2000.
(b) For purposes of this Agreement, "Year 2000 Compliant" means that
(i) the products, services, or other items (s) at issue accurately process,
provide and/or receive all date/time data (including calculating, comparing, and
sequencing) within, from, into, and between centuries (including the twentieth
and twenty-first centuries and the years 1999 and 2000), including leap year
calculations, and (ii) neither the performance nor the functionality nor the
Company's provision of the products, services, and other item (s) at issue will
be affected by any dates/times prior to, on, after, or spanning January 1, 2000.
The design of the products, services, and other item (s) at issue includes
proper date/time data century recognition and recognition of 1999 and 2000,
calculations that accommodate single century and multi-century formulae and
date/time values before, on, after spanning January 1, 2000, and date/time data
interface values that reflect the century, 1999, and 2000.
3.17 VOTING REQUIREMENTS. The affirmative vote of the holders of a
-------------------
majority of the outstanding shares of Company Common Stock and of a majority of
the outstanding Company Preferred Stock, voting as separate classes, are the
only votes of the holders of any capital stock of the Company necessary to
approve and adopt this Agreement and approve the Merger.
3.18 PAYMENTS. Neither the Company nor any of its representatives acting
--------
on its behalf have, directly or indirectly, paid or delivered any fee,
commission or other sum of money or property, however characterized, to any
finder, agent, government official or other party, in the U.S. or any other
country which the Company knows or has reason to believe to have been illegal
under any federal, state or local laws of the U.S. or any other country having
jurisdiction. Neither the Company nor any of its representatives acting on its
behalf, have accepted or received any unlawful contributions, payments, gifts or
expenditures.
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3.19 TRANSACTIONS WITH RELATED PARTIES. Except for compensation
---------------------------------
arrangements in the ordinary course of business, as disclosed on Section 3.18 of
the Company Schedules or for amounts less than $10,000, no Related Party (as
defined below) of the Company has (a) borrowed or loaned money or other property
to the Company which has not been repaid or returned, (b) any currently
enforceable contractual or other claims, express or implied, of any kind
whatsoever against the Company or (c) has or had any material economic interest
in any property currently used by the Company or any subsidiary thereof. For
purposes of this Agreement, (I) "RELATED PARTY" means as to any person, any of
such person's officers and directors, any Affiliate thereof or the respective
officers and directors of any such Affiliate, or any other person in which any
of the foregoing persons have any direct or material indirect interest, (ii)
"AFFILIATE" of a person means any other person which directly or indirectly
controls, is controlled by, or is under common control with, such person and
(iii) "CONTROL" (including, with correlative meaning, the terms "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH"), as used with respect to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities, by contract or otherwise.
3.20 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
-----------------------------------
(noncompete, grant of exclusivity or otherwise), commitment, judgment,
injunction, order or decree to which the Company is a party or otherwise binding
upon the Company which has or reasonably could be expected to have the effect of
prohibiting or impairing any business practice of the Company, any acquisition
of property (tangible or intangible) by the Company or the conduct of business
by the Company.
3.21 ACCOUNTS RECEIVABLE; INVENTORY.
------------------------------
(a) The Company has made available to Parent a list of all accounts
receivable of the Company reflected on the Balance Sheet ("ACCOUNTS RECEIVABLE")
along with a range of days elapsed since invoice.
(b) All Accounts Receivable of the Company are collectible except to
the extent of reserves therefor set forth in the Balance Sheet. No person has
any Lien on any of such Accounts Receivable and no request or agreement for
deduction or discount has been made with respect to any of such Accounts
Receivable.
(c) All of the inventories of the Company reflected on the Balance
Sheet and the Company's books and records on the date of this Agreement were
purchased, acquired or produced in the ordinary and regular course of business
and in a manner consistent with the Company's regular inventory practices and
are set forth on the Company's books and records in accordance with the
practices and principles of the Company consistent with the method of treating
said items in prior periods.
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<PAGE>
3.22 MINUTE BOOKS. The minute books of the Company made available to
------------
counsel for Parent are the only minute books of the Company and contain an
accurate summary of all meetings of directors (or committees thereof) and
shareholders or actions by written consent since the date of incorporation of
the Company.
3.23 ENVIRONMENTAL MATTERS.
---------------------
(a) Except as set forth in Section 3.22 of the Company Schedules, to
the knowledge of the Company, no underground storage tanks and no amount of any
substance that has been designated by any Governmental Entity or by applicable
federal, state, local or other applicable law to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and Recovery
Act of 1976, as amended, and the regulations promulgated pursuant to said laws,
but excluding office and janitorial supplies properly and safely maintained (a
"HAZARDOUS MATERIAL"), are present in, on or under any property, including the
land and the improvements, ground water and surface water thereof, that the
Company has at any time owned, operated, occupied or leased.
(b) To the knowledge of the Company, the Company has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has the Company disposed of, transported, sold,
or manufactured any product containing a Hazardous Material (collectively,
"COMPANY HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect prior to or
as of the date hereof to prohibit, regulate or control Hazardous Materials or
any Hazardous Material Activity.
(c) To the knowledge of the Company, the Company currently holds all
environmental approvals, permits, licenses, clearances and consents (the
"ENVIRONMENTAL PERMITS") necessary for the conduct of the Company's Hazardous
Material Activities and other business of the Company as such activities and
business are currently being conducted other than any Environmental Permits, the
lack of which would not, individually or in the aggregate, have a Material
Adverse Effect. All Environmental Permits are in full force and effect. The
Company (A) is in compliance with all material terms and conditions of the
Environmental Permits and (B) is in compliance in all material respects with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the laws of all
Governmental Entities relating to pollution or protection of the environment or
contained in any regulation, code, plan, order, decree, judgment, notice or
demand letter issued, entered, promulgated or approved thereunder.
(d) No action, proceeding, revocation proceeding, amendment
procedure, writ, injunction or claim is pending, or to the Company's knowledge,
threatened, concerning any
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Environmental Permit, Hazardous Material or any Company Hazardous Materials
Activity. The Company is not aware of any fact or circumstance which could
involve the Company in any environmental litigation or impose upon the Company
any material environmental liability.
3.24 INSURANCE. Section 3.23 of the Company Schedules lists all insurance
---------
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company. There
is no claim by the Company pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies
and bonds have been paid and the Company is otherwise in material compliance
with the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). The Company has not received any
notice that the insurers intend to terminate or materially increase the premiums
payable under any of such policies.
3.25 WARRANTIES; INDEMNITIES. Section 3.24 of the Company Schedules sets
-----------------------
forth a list of all agreements containing warranties and indemnities relating to
products sold or services rendered by the Company, and no warranty or indemnity
has been given by the Company which differs therefrom in any material respect.
Section 3.24 of the Company Schedules also indicates all warranty and indemnity
claims in excess of $5,000 made against the Company.
3.26 REPRESENTATIONS COMPLETE. None of the representations or warranties
------------------------
made by the Company, nor any document, written information, statement, financial
statement, certificate, schedule or exhibit prepared or furnished by the Company
or its representatives pursuant to this Agreement or in connection with the
transactions contemplated hereby, or furnished in or in connection with the
Shareholder Materials (or defined in Section 5.3) mailed or delivered to the
shareholders of the Company in connection with soliciting their consent to this
Agreement and the transactions contemplated hereby, contains or will contain at
the Effective Time, any untrue statement of a material fact, or omits or will
omit at the Effective Time to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which made, not misleading. To the Company's knowledge, there is no
event, fact or condition that has resulted in, or could reasonably be expected
to result in, a Material Adverse Effect that has not been set forth in this
Agreement or in the Company Schedules.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Except as disclosed in writing in a disclosure letter referring
specifically to the representations and warranties in this Agreement that
specifically identifies the section and subsection to which such disclosure
relates and that is delivered to the Company by the Parent and
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certified by a duly authorized officer of the Parent prior to the date of this
Agreement, Parent and Sub represent and warrant to the Company as follows:
4.1 ORGANIZATION, STANDING AND CORPORATE POWER. Each of the Parent and
------------------------------------------
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. Each of
the Parent and Sub is duly qualified 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 would not have
a Material Adverse Effect on Parent.
4.2 AUTHORITY/NONCONTRAVENTION. Each of the Parent and Sub has the
--------------------------
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated by this Agreement. The
execution, delivery and performance of this Agreement by the Company and the
consummation by each of the Parent and Sub of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate action on
the part of each of the Parent and Sub and no other corporate proceedings on the
part of each of the Parent and Sub are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by each of the Parent and Sub and constitutes valid
and binding obligations of Parent and Sub, enforceable against the Parent and
Sub in accordance with its terms. The execution and delivery of this Agreement
do not, and 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 the creation of any Liens
in or upon any of the properties or assets of the Parent under, any provision of
(a) the Certificate of Incorporation or Bylaws of the Parent or the certificates
of incorporation or bylaws (or similar organizational documents) of any of its
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 Parent or its properties or assets or (c) subject to the
governmental filings and other matters referred to in the following sentence,
any statute, law, ordinance, rule or regulation or judgment, order or decree, in
each case, applicable to Parent or its 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 would not
have a Material Adverse Effect on Parent. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to the Parent or Sub in connection with
the execution and delivery of this Agreement by Parent or Sub or the
consummation by Parent or Sub of the Merger or the other transactions
contemplated by this Agreement, except for (a) the receipt of a valid exemption
from the registration requirements of the Securities Act, (b) the filing of the
Agreement of Merger with the California Secretary of State and appropriate
documents with the
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relevant authorities of other states in which Parent is qualified to do business
and (c) such other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made
individually or in the aggregate would not have a Material Adverse Effect on the
Parent or impair the ability of Parent or Sub to perform their obligations under
this Agreement.
4.3 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has furnished or
------------------------------------------
made available to the Company a true and complete copy of its Registration
Statement on Form S-1 dated December 2, 1998 (the "REGISTRATION STATEMENT"),
which Parent filed under the Securities Act with the Securities and Exchange
Commission (the "SEC"). As of its date, the Registration Statement complied in
all material respects with the requirements of the Securities Act and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances in which they were made, not misleading. The
financial statements of Parent, including the notes thereto, included in the
Registration Statement (the "PARENT FINANCIAL STATEMENTS") comply as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP consistently applied (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by applicable rules and regulations of the SEC) and fairly present the
consolidated financial position of Parent at the dates thereof and of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal, recurring audit adjustments). There has been
no change in Parent accounting policies except as described in the notes to the
Parent Financial Statements. Parent has no material obligations other than (i)
those set forth in the Parent Financial Statements and (ii) those not required
to be set forth in the Parent Financial Statements under generally accepted
accounting principles.
4.4 PARENT COMMON STOCK. The shares of Parent Common Stock, when issued
-------------------
in the Merger in compliance with this Agreement, will be validly issued, fully
paid and nonassessable. Such shares will be issued in compliance with
applicable state and federal securities laws.
SECTION 5
COVENANTS
5.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date
----------------------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company 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
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that its goodwill and ongoing business shall be unimpaired at the Effective
Time. The Company shall promptly notify Parent of any event or occurrence not in
the ordinary course of business of the Company. Except as expressly contemplated
by this Agreement or disclosed in the Company Schedules, the Company shall not,
without the prior written consent of Parent:
(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) Accelerate, amend or change the period of exercisability of the
Company Stock Options or authorize cash payments in exchange therefor, except as
contemplated by this Agreement;
(d) Solicit approval for or effect any amendments to the Company's
Articles of Incorporation or Bylaws;
(e) 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 the Company;
(f) 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 without limitation any indebtedness
owed to it or any claims held by it);
(g) Except in the ordinary course of business consistent with past
practice, 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;
(h) Pay, discharge or satisfy in an amount in excess of $10,000 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 Company's Financial Statements
or those incurred after the Balance Sheet in the ordinary course of business;
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(i) 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;
(j) Commence a lawsuit other than for the routine collection of
bills;
(k) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Company IP Rights or
enter into grants to future patent rights, other than in the ordinary course of
business;
(l) Except in the ordinary course of business with prior notice to
Parent, violate, amend or otherwise modify the terms of any of the Company's
contracts binding on the Company as set forth in Section 3.8 of the Company
Schedules;
(m) Revalue any of its assets, including without limitation, 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;
(n) Make any material tax election other than in the ordinary course
of business and consistent with past practice, change any material tax election,
adopt any material tax accounting method other than in the ordinary course of
business and consistent with past practice, change any material tax accounting
method, file any material tax return (other than any estimated tax returns,
payroll tax returns or sale tax returns) or any amendment to a material 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 the
Parent, which consent will not be reasonably withheld;
(o) Engage in any activities or transactions that are outside the
ordinary course of its business consistent with past practice;
(p) 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; 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 the Company 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 NO SOLICITATION. Until the earlier of the Effective Time or the
---------------
termination of this Agreement pursuant to the provisions of Section 8.1, neither
the Company nor the Principal
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Shareholders will (nor will the Company permit any of the Company's officers,
directors, agents, representatives or affiliates to) directly or indirectly,
take any of the following actions with any party other than Parent and its
designees: (a) solicit, conduct discussions with or engage in negotiations with
any person or take any other action intended or designed to facilitate the
efforts of any person, other than Parent, relating to the possible acquisition
of the Company (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise) or any material portion of its capital stock or assets, (b)
provide information with respect to it to any person, other than Parent,
relating to the possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any portion of
its or their capital stock or assets, (c) enter into an agreement with any
person, other than Parent, providing for the acquisition of the Company (whether
by way of merger, purchase of capital stock, purchase of assets or otherwise) or
any portion of its capital stock or assets or (d) make or authorize any
statement, recommendation or solicitation in support of any possible acquisition
of the Company (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise) or any portion of its capital stock or assets by any
person, other than by Parent. In addition to the foregoing, if the Company or
the Principal Shareholder receives any unsolicited bona fide offer or proposal
---- ----
relating to any of the above, the Company or the Principal Shareholder (as the
case may be) shall immediately notify Parent thereof, including information as
to the identity of the offeror or the party making any such offer or proposal
and the specific terms of such offer or proposal, as the case may be.
5.3 SHAREHOLDER APPROVAL. The Company will call a meeting of its
--------------------
shareholders (the "SHAREHOLDERS' MEETING") to be held as promptly as practicable
for the purpose of obtaining the shareholder approval required in connection
with the transactions contemplated hereby and by the Merger Agreement and shall
use all reasonable efforts to obtain such approval. In connection with the
Shareholders Meeting, the Company shall submit materials to its shareholders
(the "SHAREHOLDERS MATERIALS") in compliance with federal and state laws and
shall include information regarding the Company, the terms of the Merger and
this Agreement and the unanimous recommendation of the Board of Directors of the
Company in favor of the Merger. The Shareholder Materials shall further include
an investment representation statement and questionnaire in the form provided to
the Company by Parent, as well as Parent's SEC Documents and other information
regarding the Parent and the Company as may be required to comply with Federal
and state securities laws. The Company shall provide the Shareholder Materials
to Parent for its review and approval prior to distributing the Shareholder
Materials to the Company's shareholders. The Company shall coordinate and
cooperate with the Parent with respect to the timing of the Shareholders'
Meeting. The Company shall not change the date of the Shareholders' Meeting
without the prior written consent of the Parent, nor shall the Company adjourn
the Shareholders' Meeting without the prior written consent of the Parent,
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.
5.4 ACCESS TO INFORMATION. Upon reasonable notice, the Company shall
---------------------
afford Parent and its accountants, counsel and other representatives, reasonable
access during normal business
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hours during the period prior to the Effective Time to (a) all of the Company's
properties, books, contracts, commitments and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of the Company as Parent may reasonably
request, including without limitation access upon reasonable request to the
Company's employees, customers and vendors for due diligence inquiry. The
Company agrees to provide to Parent and its accountants, counsel and other
representatives copies of internal financial statements, business plans and
projections promptly upon request. No information or knowledge obtained in any
investigation pursuant to this Section 5.4 shall 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.
5.5 CONFIDENTIALITY. Each of the parties agrees to keep such information
---------------
or knowledge obtained in any investigation pursuant to Section 5.4, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby, confidential pursuant to the mutual
Nondisclosure Agreement dated as of January 5, 1999 by and between Parent and
the Company (the "CONFIDENTIALITY AGREEMENT").
5.6 EXPENSES. Whether or not the Merger is consummated, all reasonable
--------
and customary fees and expenses incurred in connection with the Merger
including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties incurred by a party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be the
obligation of the respective party incurring such fees and expenses. Such fees
and expenses of the Company and its shareholders shall be incurred entirely by
the Company.
5.7 PUBLIC DISCLOSURE. Unless otherwise required by law, prior to the
-----------------
Effective Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release, provided that such approval
shall not be unreasonably withheld, subject, in the case of Parent, to Parent's
obligation to comply with applicable securities laws.
5.8 CONSENTS. Each of Parent and the Company shall promptly apply for or
--------
otherwise seek, and use its reasonable efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger, and
the Company shall use all reasonable efforts to obtain all consents, waivers and
approvals under any of the Company's agreements, contracts, licenses or leases
in order to preserve the benefits thereunder for the Surviving Corporation and
otherwise in connection with the Merger. All of such Company consents and
approvals are set forth in Section 5.8 of the Company Schedules.
5.9 FIRPTA COMPLIANCE. On the Closing Date, the Company shall deliver to
-----------------
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
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5.10 REASONABLE EFFORTS. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use all reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby to obtain all necessary waivers, consents and approvals and to effect all
necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or the Company or its affiliates, 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.
5.11 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice
-------------------------------
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which may cause any representation or warranty of the Company and Parent,
respectively, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time and (ii) any failure of the
Company or Parent, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.11
- -------- -------
shall not limit or otherwise affect any remedies available to the party
receiving such notice.
5.12 BLUE SKY LAWS. Parent shall take such steps as may be necessary to
-------------
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of Parent Common Stock pursuant hereto. The Company
shall use its best efforts to assist Parent as may be necessary to comply with
the securities and blue sky laws of all jurisdictions which are applicable in
connection with the issuance of Parent Common Stock pursuant hereto.
5.13 NONCOMPETITION AND EMPLOYMENT AGREEMENTS. At the Effective Time (a)
----------------------------------------
the Parent and the Company mangers identified in Section 5.14 of the Company
Schedules shall enter into noncompetition agreements in the form attached as
Exhibit C (the "NONCOMPETITION AGREEMENTS") and (b) Andrew Rebele and Monica Lee
- ---------
shall enter into employment agreements with the Parent in a form satisfactory to
the parties thereto (the "EMPLOYMENT AGREEMENTS"). The Noncompetition
Agreements and the Employment Agreements shall become effective as of the
Effective Time.
5.14 INVESTMENT REPRESENTATION AGREEMENTS. All of the holders of
------------------------------------
outstanding shares of capital stock of the Company shall execute and deliver to
Parent Investment Representation Agreements in the form attached hereto as
Exhibit D.
- ---------
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<PAGE>
5.15 APPOINTMENT. Andrew Rebele shall be appointed by the Parent as an
-----------
Executive Vice President of the Parent and General Manager of the CityAuction
division, effective as of the Effective Time. Mr. Rebele shall report to either
the Chief Executive Officer, the President or the Chief Operating Officer of the
Parent at the discretion of the Board of Directors of the Parent.
5.16 STOCK OPTIONS.
-------------
(a) At the Effective Time, each outstanding Company Stock Option,
whether vested or unvested, shall be assumed by Parent. Accordingly, each
Company Stock Option shall be deemed to constitute an option to acquire, on the
same terms and conditions as were applicable under such Company Stock Option,
the number, rounded down to the nearest whole integer, of full shares of Parent
Common Stock the holder of such Company Stock Option would have been entitled to
receive pursuant to the Merger had such holder exercised such Company Stock
Option in full, including as to unvested shares, immediately prior to the
Effective Time, at a price per share equal to (y) the aggregate exercise price
for the shares of Company Common Stock otherwise purchasable pursuant to such
Company Stock Option divided by (z) the number of full shares of Parent Common
Stock deemed purchasable pursuant to such Company Stock Option with such
exercise price per share rounded up to the nearest whole cent. The term,
vesting schedule, status as an "incentive stock option" under Section 422 of the
Code, if applicable, and all other terms and conditions of the Company Stock
Options will otherwise be unchanged, except that all CityAuction employees, who
held stock options under the Company Stock Option Plan, shall receive 12 months
vesting credit and acceleration effective as of the Effective Time.
(b) Form S-8 Registration. As soon as practicable after the
---------------------
Effective Time, Parent shall file a registration statement on Form S-8 (or any
successor or other appropriate form), or another appropriate form with respect
to the shares of Parent Common Stock subject to such assumed Company Stock
Options (the "ASSUMED OPTIONS") and shall use its reasonable efforts to maintain
the effectiveness of such registration statement (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
Assumed Options remain outstanding.
SECTION 6
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 Effective Time of the
following conditions:
(a) Shareholder Approval. This Agreement, the agreements
--------------------
contemplated hereunder and the Merger and other transactions contemplated hereby
and thereby shall have been approved and adopted by the affirmative vote or
consent of the holders of at least a majority of the
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<PAGE>
outstanding Company Common Stock and at least a majority of the outstanding
Company Preferred Stock present, in person or by proxy, at the Shareholders
Meeting contemplated by Section 5.3, in compliance with applicable law and the
Company's Articles of Incorporation and Bylaws.
(b) Employment Agreements. The Employment Agreements shall have been
---------------------
executed and delivered by the parties thereto.
6.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND SUB. The
----------------------------------------------------------
obligations of Parent and Sub to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Company and the Principal Shareholders in this Agreement
shall be true and correct in all material respects (such that a breach of such
representations and warranties would not have a Material Adverse Effect on the
Company) on and as of the date of this Agreement and as of the Closing Date as
though such representations and warranties were made on and as of such time and
the Company and the Principal Shareholders shall have performed and complied
with all covenants, obligations and conditions of this Agreement required to be
performed and complied with by each of them as of the Closing Date. Parent
shall have been provided with a certificate dated as of the Closing Date
executed on behalf of the Company by its Chief Executive Officer and Chief
Financial Officer to such effect.
(b) Legal Opinion. Parent shall have received a legal opinion from
-------------
General Counsel Associates LLP, legal counsel to the Company, substantially in
the form of Exhibit E.
---------
(c) No Injunctions or Restraints on Conduct of Business. No temporary
---------------------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
provision challenging Parent's proposed acquisition of the Company, or limiting
or restricting Parent's conduct or operation of the business of the Company (or
its own business) following the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending.
(d) Litigation. There shall be no action, suit, claim or proceeding
----------
of any nature pending, or overtly threatened, against the Parent, Sub or the
Company, their respective properties or any of their officers or directors,
arising out of, or in any way connected with, the Merger or the other
transactions contemplated by the terms of this Agreement, or that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of the Company.
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<PAGE>
(e) Due Diligence. The Parent shall be satisfied with the results of
-------------
its due diligence review of the Company.
(f) Investment Representations. Parent shall have received from each
--------------------------
of the shareholders of the Company an executed Investment Representation
Agreement which shall be in full force and effect.
(g) No Dissenters. Holders of more than 5% of the outstanding capital
-------------
stock of the Company shall not have exercised, nor shall they continue to have
the right to exercise, appraisal rights with respect to the transactions
contemplated by this Agreement.
(h) Noncompetition Agreements. The Noncompetition Agreements shall
-------------------------
have been duly executed and delivered by the parties thereto.
(i) Securities Law Compliance. Parent shall have received from the
-------------------------
shareholders of the Company executed investment representation statements and
completed questionnaires in form and substance satisfactory to Parent that the
issuance of the shares of Parent Common Stock pursuant to the Merger is exempt
from the registration requirements of the Securities Act and is exempt from
registration under applicable state securities laws.
(j) Exercise/Conversion. The Warrant shall have been exercised and/or
-------------------
terminated and all outstanding shares of Preferred Stock of the Company shall
have been converted into Company Common Stock prior to the Effective Time.
(k) Board of Directors' Approval. The Board of Directors of Parent
----------------------------
shall have approved the Merger.
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY. The obligations of
-----------------------------------------------
the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of Parent and Sub in this Agreement shall be true and correct in
all material respects (such that a breach of such representations and warranties
would not have a Material Adverse Effect on Parent) on and as of the date of
this Agreement and as of the Closing Date as though such representations and
warranties were made on and as of such time and each of Parent and Sub shall
have performed and complied with all covenants, obligations and conditions of
this Agreement required to be performed and complied with by it as of the
Closing Date. The Company shall have been provided with a certificate dated as
of the Closing Date and executed on behalf of Parent by an executive officer of
Parent to such effect.
(b) Registration Rights Agreement. The Registration Rights Agreement
-----------------------------
in the form of Exhibit F shall have been executed and delivered by Parent.
---------
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<PAGE>
(c) Employee Stock Options. The Employee Stock Options shall have
----------------------
been delivered by Parent.
(d) Litigation. There shall be no action, suit, claim or proceeding
----------
of any nature pending, or overtly threatened, against Parent or Sub, their
respective properties or any of their officers or directors, arising out of, or
in any way connected with, the Merger or the other transactions contemplated by
the terms of this Agreement, or that would materially and adversely affect the
business, assets, liabilities, financial condition, results of operations or
prospects of Parent.
SECTION 7
INDEMNIFICATION
7.1 GENERAL INDEMNIFICATION. The Shareholders covenant and agree to
-----------------------
indemnify, defend, protect and hold harmless Parent and the Surviving
Corporation and their respective officers, directors, employees, shareholders,
assigns, successors and affiliates (individually, an "INDEMNIFIED PARTY" and
collectively, "INDEMNIFIED PARTIES") from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive damages,
courses of actions, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "DAMAGES") suffered,
sustained or incurred by the Indemnified Persons in connection with, resulting
from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of the
Company or the Principal Shareholders set forth in this Agreement or any
certificate, document or instrument delivered by or on behalf of the Company or
the Principal Shareholders in connection herewith;
(ii) any nonfulfillment of any covenant or agreement on the
part of the Company or the Principal Shareholders in this Agreement;
(iii) the business, operations or assets of the Company prior to
the Closing Date, including without limitation all taxes due and payable prior
to the Closing Date, except as otherwise disclosed in the Company Financial
Statements or the Company Schedules; or
(iv) the actions or omissions of the Company's directors,
officers, shareholders, employees or agents prior to the Closing Date; and
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<PAGE>
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 8.1.
7.2 LIMITATION AND EXPIRATION. Notwithstanding the above:
-------------------------
(a) There shall be no liability for indemnification under Section 7.1
unless the aggregate amount of Damages exceeds $100,000 (the "INDEMNIFICATION
THRESHOLD"), in which event the liability for indemnification will apply to the
entire aggregate amount of Damages. The Pledged Shares shall represent the
exclusive means of satisfying any claims under this Section 7 except with
respect to Claims (as defined below) relating to any breach of the
representations and warranties set forth in Section 3.12 (Taxes) and 3.22
(Environmental Matters) or for Claims relating to fraud or willful misconduct.
For purposes of satisfying indemnification obligations pursuant to Section 7.1,
the Pledged Shares shall be valued at the average of the closing price of the
Parent Common Stock as reported on the Nasdaq National Market for the ten
trading days preceding the Closing. Any Damages paid pursuant to this Section 7
shall be paid on a prorated basis by the Shareholders in relation to their
allocable portion of the Pledged Shares; and
(b) The indemnification obligations under this Section 7 shall
terminate as follows:
(i) with respect to claims or demands (a "CLAIM") relating to
a breach of the representations and warranties set forth in Section 3.12 (Taxes)
and 3.22 (Environmental Matters) or fraud or willful misconduct, upon the later
of the expiration of the applicable statute of limitations period or the final
resolution of any and all such Claims pending as of such date; and
(ii) with respect to all other Claims for indemnification under
this Section 7, upon the later of the first anniversary of the Closing Date or
the final resolution of any such claims pending as of the first anniversary.
The term "INDEMNIFICATION DEADLINE DATE" refers to the expiration date
of the applicable statute of limitations period with respect to Claims under
clause (i) above and the first anniversary with respect to claims under clause
(ii) above. The term "PENDING CLAIMS" refers to the pending claims described in
clauses (i) and (ii) above. From and after the applicable Indemnification
Deadline Date, the indemnification obligations under this Section 7 shall
survive only to the extent of Pending Claims.
7.3 INDEMNIFICATION PROCEDURES. All Claims for indemnification under this
--------------------------
Section 7 shall be asserted and resolved as follows:
(a) In the event the Indemnified Party has a Claim hereunder which
does not involve a Claim being asserted against or sought to be collected by a
third party, the Indemnified Party shall with reasonable promptness send a Claim
Notice (as defined in Section 7.3(c) below)
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with respect to such Claim to the Shareholder Representative (as defined in
Section 7.4 below). If the Shareholder Representative does not notify the
Indemnified Party within 45 days from the date of receipt of such Claim Notice
that the Shareholders dispute such Claim, the amount of such Claim shall be
conclusively deemed a liability of the Shareholders hereunder. In case the
Shareholder Representative shall object in writing to any Claim made in
accordance with this Section 7.3(a), the Indemnified Party shall have fifteen
(15) days to respond in a written statement to the objection of the Shareholder
Representative. If after such fifteen (15) day period there remains a dispute as
to any Claims, the parties shall attempt in good faith for sixty (60) days to
agree upon the rights of the respective parties with respect to each of such
Claims. If the parties should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties. If no such agreement can
be reached after good faith negotiation, either party may demand arbitration of
the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration; and in
either such event the matter shall be settled by arbitration conducted by three
arbitrators. Parent and the Shareholders' Representative shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator,
each of which arbitrators shall be independent and have at least ten years
relevant experience. The arbitrators shall set a limited time period and
establish procedures designed to reduce the cost and time for discovery while
allowing the parties an opportunity, adequate in the sole judgment of the
arbitrators, to discover relevant information from the opposing parties about
the subject matter of the dispute. The arbitrators shall rule upon motions to
compel or limit discovery and shall have the authority to impose sanctions,
including attorneys fees and costs, to the extent as a court of competent law or
equity, should the arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected to without
substantial justification. The decision of a majority of the three arbitrators
as to the validity and amount of any Claim in such Claim Notice shall be binding
and conclusive upon the parties to this Agreement. Such decision shall be
written and shall be supported by written findings of fact and conclusions which
shall set forth the award, judgment, decree or order awarded by the arbitrators.
(b) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Los Angeles County, California under the rules then in effect of the American
Arbitration Association. For purposes of this Section 7.3, in any arbitration
hereunder in which any claim or the amount thereof stated in the Claim Notice is
at issue, the Indemnified Party shall be deemed to be the Non-Prevailing Party
in the event that the arbitrators award such Indemnified Party less than the sum
of one-half (1/2) of the disputed amount plus any amounts not in dispute;
otherwise, the Indemnifying Party shall be deemed to be the Non-Prevailing
Party. The Non-Prevailing Party to an arbitration shall pay its own expenses,
the fees of each arbitrator, the administrative costs of the arbitration, and
the expenses, including without limitation, reasonable attorneys' fees and
costs, incurred by the other party to the arbitration.
(c) In the event that any Claim for which the Shareholders would be
liable to an Indemnified Party hereunder is asserted against an Indemnified
Party by a third party, the Indemnified Party shall with reasonable promptness
notify the Shareholder Representative of such
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<PAGE>
Claim, including a copy of the Claim made if the Claim was made in writing,
specifying the nature of such claim and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall not be conclusive of
the final amount of such Claim) (the "CLAIM NOTICE"). The Shareholder
Representative shall have 30 days from the receipt of the Claim Notice (the
"NOTICE PERIOD") to notify the Indemnified Party (i) whether or not the
Shareholder Representative disputes the Shareholders' liability to the
Indemnified Party hereunder with respect to such Claim and (ii) if the
Shareholder Representative does not dispute such liability, whether or not the
Shareholder Representative desires, at the sole cost and expense of the
Shareholders, to defend against such Claim, provided that the Shareholder is
hereby authorized (but not obligated) prior to and during the Notice Period to
file any motion, answer or other pleading and to take any other action which the
Shareholder Representative shall deem necessary or appropriate to protect the
Shareholders' interests. In the event that the Shareholder Representative
notifies the Indemnified Party within the Notice Period that the Shareholder
Representative does not dispute the Shareholders' obligation to indemnify
hereunder and desires to defend the Indemnified Party against such Claim and
except as hereinafter provided, the Shareholder Representative shall have the
right to defend by appropriate proceedings, which proceedings shall be
diligently settled or prosecuted by the Shareholder Representative to a final
conclusion; provided that, unless the Indemnified Party otherwise agrees in
--------
writing, the Shareholder Representative may not settle any matter (in whole or
in part) unless such settlement includes a complete and unconditional release of
the Indemnified Party. If the Indemnified Party desires to participate in, but
not control, any such defense or settlement the Indemnified Party may do so at
the Indemnified Party's sole cost and expense. If the Shareholder Representative
elects not to defend the Indemnified Party against such Claim, whether by
failure of the Shareholder Representative to give the Indemnified Party timely
notice as provided above or otherwise, then the Indemnified Party, without
waiving any rights against the Shareholders, may settle or defend against any
such Claim in the Indemnified Party's sole discretion and the Indemnified Party
shall be entitled to recover from the Shareholders the amount of any settlement
or judgment and, on an ongoing basis, all indemnifiable costs and expenses of
the Indemnified Party with respect thereto, including interest from the date
such costs and expenses were incurred.
(d) Notwithstanding Section 7.4(b) above, the Indemnified Party shall
have the right to control or assume (as the case may be) the defense of any
Claim and the amount of any judgment or settlement and the reasonable costs and
expenses of defense shall be included as part of the indemnification obligations
of the Shareholders hereunder if any Claim seeks material prospective relief
which, in the reasonable opinion of the Indemnified Party, could have a material
adverse effect on the assets, liabilities, financial condition, results of
operations or business prospects of Parent and the Indemnified Party shall have
given the Shareholder Representative written notice of the same. If the
Indemnified Party should elect to exercise such right, the Shareholder
Representative shall have the right to participate in, but not control, the
defense of such claim or demand at the sole cost and expense of the
Shareholders. Notwithstanding the foregoing, the Indemnified Party shall not
settle any Claim without the written consent of the Shareholder Representative,
which consent shall not be unreasonably withheld.
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<PAGE>
(e) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent claims or demands provided the Claim Notice sets forth
the specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such a claim or demand may be made.
(f) The Indemnified Party's failure to give reasonably prompt notice
to the Shareholder Representative of any actual, threatened or possible claim or
demand which may give rise to a right of indemnification hereunder shall not
relieve the Shareholders of any liability which the Shareholders may have to the
Indemnified Party unless the failure to give such notice materially and
adversely prejudiced the Shareholders.
(g) The parties will make appropriate adjustments for any tax
benefits, tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under Section 7, provided that the Shareholder
--------
Representative shall not be obligated to seek any payment pursuant to the terms
of any insurance policy.
(h) The Pledged Shares shall be available to satisfy the
indemnification obligations of the Shareholder pursuant to this Section 7
through the first anniversary of this Agreement; provided however, that in the
event that any Pending Claims are outstanding as of such date, an amount of
Pledged Shares equal to 125% of such Pending Claims shall remain available to
satisfy such Pending Claims until the resolution of such Pending Claims (the
"PLEDGED SHARES EXPIRATION DATE"). As soon as reasonably practicable following
the Pledged Shares Expiration Date, Parent shall distribute all Pledged Shares
not required to satisfy indemnification obligations under this Section 7 to the
Shareholders. The Pledged Shares shall bear a restrictive legend preventing
their transfer pending expiration of such indemnification obligations in
substantially the form set forth below:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN PLEDGED AS COLLATERAL
PURSUANT TO THAT CERTAIN AGREEMENT AND PLAN OF REORGANIZATION DATED JANUARY
8, 1999 BY AND AMONG TICKETMASTER ONLINE-CITYSEARCH, INC., NERO ACQUISITION
CORPORATION AND CITYAUCTION. PRIOR TO THE EXPIRATION OF THE PLEDGE AS SET
FORTH IN SUCH AGREEMENT, SUCH SHARES MAY NOT BE OFFERED, SOLD, EXCHANGED,
TRANSFERRED OR OTHERWISE DISPOSED OF."
Within three (3) business days following the Indemnification Deadline Date,
Parent shall use its reasonable commercial efforts to remove any stop transfer
orders made to the Transfer Agent, shall authorize the Transfer Agent to remove
the restrictive legend relating to the obligations of this Section 7 and shall
release the number of Pledged Shares equal to (i) the total number of Pledged
Shares minus (ii) the number of Pledged Shares having a Value (as defined below)
equal to the amount of all indemnification obligations of the Shareholders
through the Indemnification Deadline Date plus any amount necessary to satisfy
any Pending Claims as of the Indemnification Deadline Date. Upon final
resolution of all Pending Claims, Parent shall remove any stop transfer
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orders made to the Transfer Agent, shall authorize its Transfer Agent to remove
the restrictive legend relating to the indemnification obligations of this
Section 7 and shall release the number of Pledged Shares equal to (i) the number
of Pledged Shares that were retained by Parent on the Indemnification Deadline
Date pursuant to the foregoing sentence minus (ii) the number of Pledged Shares
having a Value equal to the amount of the indemnification obligations of the
Shareholders under this Section 7 as determined upon the resolution of the
Pending Claims. For purposes of this Agreement, the term "Value" per Pledged
Share shall mean the lower of the per share price of Parent Company Common Stock
as reported on the Nasdaq National Market on (i) the Effective Date or (ii) date
of delivery of a Claim.
7.4 SHAREHOLDERS' REPRESENTATIVE.
----------------------------
(a) Upon the closing of the Merger, Andrew Rebele shall be
constituted and appointed as agent and attorney-in-fact (the "SHAREHOLDERS'
REPRESENTATIVE") for and on behalf of each of the Shareholders to give and
receive notices and communications, to authorize delivery to Parent of Pledged
Shares in satisfaction of Claims, to object to such deliveries, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to Claims,
and to take all actions necessary or appropriate in the judgment of the
Shareholders' Representative for the accomplishment of the foregoing. Such
agency may be changed (whether pursuant to vacancy, removal or resignation) by
the vote of a majority of the Shareholders from time to time upon not less than
thirty (30) days prior written notice to Parent. No bond shall be required of
the Shareholders' Representative, and the Shareholders' Representative shall
receive no compensation for its services, except for payment by the Shareholders
of expenses, including fees of counsel, reasonably incurred by the Shareholders'
Representative in connection with the performance of its duties hereunder.
(b) The Shareholders' Representative shall not be liable for any act
done or omitted hereunder as Shareholders' Representative while acting in good
faith, and any act done or omitted pursuant to the advice of counsel shall be
conclusive evidence of such good faith. The Shareholders shall severally
indemnify the Shareholders' Representative and hold such agent harmless against
any loss, liability or expense incurred without bad faith on the part of the
Shareholders' Representative and arising out of or in connection with the
acceptance or administration of the Shareholders' Representative's duties
hereunder.
(c) A decision, act, consent or instruction of the Shareholders'
Representative shall constitute a decision of all Shareholders and shall be
final, binding and conclusive upon each Shareholder, and Parent may rely upon
any decision, act, consent or instruction of the Shareholders' Representative
taken in such manner as being the decision, act, consent or instruction of each
and every Shareholder. The Parent is hereby relieved from any liability to any
person for any acts done by them in accordance with such decision, act, consent
or instruction of the Shareholders' Representative.
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<PAGE>
7.5 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
-----------------------------------------------------
representations, warranties and covenants made by the Company and the Principal
Shareholders in or pursuant to this Agreement or in any document delivered
pursuant hereto will survive the Closing and will remain in effect until, and
will expire upon the Indemnification Deadline Date, provided, however, that the
indemnification obligations with respect to any Pending Claim (and the related
representations, warranties and covenants) will survive until the final
resolution of such Pending Claim.
SECTION 8
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated and the Merger
-----------
abandoned at any time prior to the Effective Time, whether before or after
approval of the Merger by the shareholders of the Company:
(a) by mutual written consent of the Company and Parent;
(b) by Parent or the Company if the Closing has not occurred by March
31, 1998: provided however, that the right to terminate this Agreement under
this Section 8.1(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 Parent or the Company if there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
Merger; or there shall be any action taken, or any statute, rule, regulation or
order enacted, promulgated or issued or deemed applicable to the Merger by any
Governmental Entity which would make the consummation of the Merger illegal;
(d) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity, which would: (i) prohibit Parent's or the
Company's ownership or operation of all or a portion of the business of the
Company or (ii) compel Parent or the Company to dispose of or hold separate all
or a portion of the business or assets of the Company or Parent as a result of
the Merger;
(e) by Parent if it is not in breach of its obligations under this
Agreement and there has been a breach of any representation, warranty, covenant
or agreement contained in this Agreement on the part of the Company or the
Principal Shareholders and such breach has not been cured within five (5)
business days after written notice to the Company and the Principal Shareholder
(provided that no cure period shall be required for a breach which by its nature
cannot be cured); or
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<PAGE>
(f) by the Company if it is not in breach of its obligations under
this Agreement and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of Parent or Sub
and such breach has not been cured within five (5) business days after written
notice to Parent (provided that no cure period shall be required for a breach
which by its nature cannot be cured).
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 (as applicable) of the party taking such action.
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
---------------------
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Sub, the Company or
the Principal Shareholders, or their respective officers, directors or
shareholders, provided that each party shall remain liable for any breaches of
this Agreement prior to its termination; and provided further that, the
provisions of Sections 5.5, 5.6, 8 and 9 of this Agreement shall remain in full
force and effect and survive any termination of this Agreement.
8.3 AMENDMENT. This Agreement may be amended by the parties hereto at any
---------
time prior to the Closing by execution of an instrument in writing signed on
behalf of each of the parties hereto, provided however that no amendment shall
be made which by law requires the further approval of the shareholders of the
Company without obtaining such approval.
8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent
-----------------
and Sub, on the one hand, and the Company, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party 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.
8.5 NOTICE OF TERMINATION. Any termination of this Agreement under
---------------------
Section 8.1 above will be effective immediately upon the delivery of written
notice of the terminating party to the other parties hereto.
SECTION 9
MISCELLANEOUS
9.1 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 mailed by
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registered or certified mail (return receipt requested) or sent via facsimile
(with acknowledgment of complete transmission) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Sub, to:
Ticketmaster Online - CitySearch, Inc.
790 E. Colorado Boulevard, Suite 200,
Pasadena, CA 91101
Attention: Chief Executive Officer
Telephone No.: (626) 405-0050
Facsimile No.: (626) 405-9929
with a copy at the same address to the attention of Douglas
McPherson, Chief Legal Counsel
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Larry W. Sonsini, Esq.
John T. Sheridan, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 496-4088
(b) if to the Company, to:
CityAuction, Inc.
153 Kearney Street, #207
San Francisco, CA 94108
Attention: Andrew Rebele
Telephone No.: (415) 951-0650
Facsimile No.: (415) 781-0256
with a copy to:
General Counsel Associates LLP
1891 Landings Drive
Mountain View, CA 94043
Attention: John Montgomery
Telephone No.: (650) 428-3900
Facsimile No.: (650) 428-3901
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<PAGE>
(c) if to the Principal Shareholders, to:
Andrew Rebele
c/o: CityAuction, Inc.
153 Kearney Street, #207
San Francisco, CA 94108
Monica Lee
c/o: CityAuction, Inc.
153 Kearney Street, #207
San Francisco, CA 94108
9.2 INTERPRETATION.
--------------
(a)iv 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)iv 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.
(c)iv For purposes of this Agreement, the term "MATERIAL ADVERSE
EFFECT" when used in connection with an entity means any change, event,
violation, inaccuracy, circumstance or other matter, if such change, event,
violation, inaccuracy, circumstance or other matter would have a material
adverse effect on the business, assets (including intangible assets),
capitalization or financial condition of (i) such entity and its subsidiaries
taken as a whole, or (ii) the Surviving Corporation, except for those changes,
events and effects that (x) are primarily caused by conditions affecting the
United States or world economy as a whole or affecting the industry in which
such entity competes as a whole, or (y) result from announcement or pendency of
the Merger.
(d)iv 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
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<PAGE>
elect a majority of the board of directors or other persons performing similar
functions are directly or indirectly owned or controlled by such entity.
9.3 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.
9.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the schedules and
----------------------------
Exhibits hereto, the Confidentiality Agreement and the documents and instruments
and other agreements among the parties hereto referenced herein: (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; (b) are not
intended to confer upon any other person any rights or remedies hereunder; and
(c) shall not be assigned by operation of law or otherwise except as otherwise
specifically provided, except that Parent and Sub may assign their respective
rights and delegate their respective obligations hereunder to their respective
affiliates. This Agreement is binding upon and will inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
9.5 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.
9.6 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 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.
9.7 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 laws thereof.
9.8 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.
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<PAGE>
9.9 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provision of this
-----------------------------------------
Agreement is intended, nor will be interpreted, to provide to create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, employee, partner of any party hereto or any
other person or entity.
9.10 MUTUAL DRAFTING. This Agreement is the joint product of the parties
---------------
hereto, and each provision hereof has been subject to the mutual consultation,
negotiation and agreement of each of the parties, and shall not be construed for
or against any party hereto.
9.11 FURTHER REPRESENTATIONS. Each party to this Agreement acknowledges
------------------------
and represents that it has been represented by its own legal counsel in
connection with the transactions contemplated by this Agreement, with the
opportunity to seek advice as to its legal rights from such counsel. Each party
further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences. The Company also represents that it has communicated the
above to its shareholders.
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<PAGE>
IN WITNESS WHEREOF, Parent, Sub, the Company and the Principal Shareholders
have entered into this Agreement as of the date first written above.
CITYAUCTION, INC. TICKETMASTER ONLINE - CITYSEARCH, INC.
By /s/ Andrew Rebele By /s/ Douglas McPherson
------------------------ ---------------------------------------
Name Andrew Rebele Name Douglas McPherson
---------------------- -------------------------------------
Title President Title Chief Legal Officer / V.P.
--------------------- -------------------------------------
PRINCIPAL SHAREHOLDERS NERO ACQUISITION CORPORATION
/s/ Andrew Rebele By /s/ Douglas McPherson
- ---------------------------- ---------------------------------------
Andrew Rebele
Name Douglas McPherson
-------------------------------------
/s/ Monica Lee
- ----------------------------
Monica Lee Title Chief Legal Officer / V.P.
------------------------------------
[SIGNATURE PAGE TO REORGANIZATION AGREEMENT]
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<PAGE>
EXHIBIT A
---------
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (the "Merger Agreement") is made and entered into
as of March 29, 1999, by and between Nero Acquisition Corporation, a California
corporation ("Sub") and CityAuction, Inc., a California corporation (the
"Company" or the "Surviving Corporation"; Sub and the Company are sometimes
referred to as the "Constituent Corporations"). Capitalized terms used herein
and not defined in this Merger Agreement shall have their defined meanings as
set forth in the Agreement and Plan of Reorganization, dated as of January 8,
1999 (the "Reorganization Agreement"), entered into by and among TicketMaster
Online-CitySearch Inc., a Delaware corporation ("Parent"), Sub and the Company.
NOW THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein, Sub and the Company agree as follows:
ARTICLE I
1.1 Merger of Sub With and Into the Company.
---------------------------------------
(a) Agreement to Acquire the Company. Subject to the terms of this
--------------------------------
Merger Agreement and the Reorganization Agreement, the Company shall be acquired
by Parent through a merger (the "Merger") of Sub with and into the Company.
(b) Effective Time of the Merger. The Merger shall become effective upon
----------------------------
the filing of this Merger Agreement and officers' certificates of each
Constituent Corporation with the Secretary of State of the State of California
pursuant to Section 1103 of the California Corporations Code (the "Code"). The
time of such filing is referred to as the "Effective Time."
(c) Surviving Corporation. At the Effective Time, Sub shall be merged
---------------------
into the Company and the separate corporate existence of Sub shall thereupon
cease. The Company shall be the surviving corporation in the Merger and shall
succeed, without other transfer, to all the rights and property of Sub and shall
be subject to all the debts and liabilities of Sub in the same manner as if the
Surviving Corporation had itself incurred them.
1.2 Effect of the Merger; Additional Actions.
----------------------------------------
(a) Effects. The Merger shall have the effects set forth in Section 1107
-------
of the Code.
(b) Additional Actions. If, at any time after the Effective Time, the
------------------
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable (i) to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or
<PAGE>
assets of either Constituent Corporation acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger or (ii)
to otherwise carry out the purposes of this Merger Agreement, each Constituent
Corporation and its officers and directors shall be deemed to have granted to
the Surviving Corporation an irrevocable power of attorney to execute and
deliver all such deeds, bills of sale, assignments and assurances and to take
and do all such other actions and things as may be necessary or desirable to
vest, perfect or confirm any and all right, title and interest in, to and under
such rights, properties or assets in the Surviving Corporation and otherwise to
carry out the purposes of this Merger Agreement; and the officers and directors
of the Surviving Corporation are fully authorized in the name of each
Constituent Corporation or otherwise to take any and all such actions.
ARTICLE II
THE CONSTITUENT CORPORATIONS
2.1 Organization of the Company.
---------------------------
(a) Incorporation. The Company was incorporated under the laws of the
-------------
State of California on April 21, 1998.
(b) Authorized Stock. The Company is authorized to issue an aggregate of
----------------
10,000,000 shares of Common Stock, no par value ("Company Common Stock") and an
aggregate of 1,015,000 shares of Preferred Stock, no par value ("Company
Preferred Stock").
(c) Outstanding Securities.
----------------------
(i) Outstanding Stock. At the close of business on March 29, 1999,
-----------------
2,815,000 shares of Company Common Stock were issued and outstanding.
(ii) Outstanding Options. At the close of business on March 29, 1999,
-------------------
the Company has reserved 300,000 shares of Company Common Stock for issuance to
employees and consultants pursuant to outstanding options (the "Company Stock
Options"), of which 22,394 were issued pursuant to the Company's 1998 Stock
Option Plan and 277,606 shares remain available for future grant.
2.2 Organization of Sub.
-------------------
(a) Incorporation. Sub was incorporated under the laws of the State of
-------------
California on January 8, 1999.
(b) Authorized Stock. Sub is authorized to issue an aggregate of 1,000
----------------
shares of Common Stock, no par value ("Sub Stock").
(c) Outstanding Stock. On the date of this Merger Agreement, an
-----------------
aggregate of 1,000 shares of Sub Stock are outstanding.
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<PAGE>
ARTICLE III
ARTICLES OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
3.1 Articles of Incorporation of the Surviving Corporation. The Articles of
------------------------------------------------------
Incorporation of Sub in effect at the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation unless and until amended as provided
by law and such Articles of Incorporation.
3.2 Bylaws of Surviving Corporation. The Bylaws of Sub as in effect
-------------------------------
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation unless and until amended or repealed as provided by applicable law,
the Articles of Incorporation of the Surviving Corporation and such Bylaws.
ARTICLE IV
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
4.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
-----------------------
Merger and without any action on the part of the holder of any shares of capital
stock of the Company:
(a) Capital Stock of Sub. Each issued and outstanding share of capital
--------------------
stock of Sub shall continue to be issued and outstanding and shall be converted
into one share of validly issued, fully paid and non-assessable Common Stock 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 the Company. All
--------------------------------------------------------------
shares of Common Stock and Preferred Stock of the Company that are owned
directly or indirectly by the Company shall be canceled and no stock of Parent
or other consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of the Company. Subject to Sections
------------------------------------------
4.1(d), (e), (f) and (g) below, each issued and outstanding share of Common
Stock of Company (other than shares to be canceled pursuant to Section 4.1(b)
hereof and the Reorganization Agreement) that is issued and outstanding
immediately prior to the Effective Time shall automatically be canceled and
extinguished and converted, without any action on the part of the holder
thereof, into the right to receive 0.279971340 shares of Class B Common Stock,
$.01 par value, of Parent ("Parent Common Stock"). Each issued and outstanding
share of Preferred Stock of the Company that is issued and outstanding
immediately prior to the Effective Time shall automatically be canceled and
exstinguished and converted, without any action on the part of the holder
thereof, into the right to receive the number of shares of Parent Common Stock
equal to the number of shares of Company Preferred Stock held multiplied by
0.013520482 plus the number of shares of Company Preferred
-3-
<PAGE>
Stock held multiplied by 0.279971340. All such shares of Company capital stock,
when so converted, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of Parent Class B Common Stock
to be issued or paid in consideration therefor upon the surrender of such
certificate in accordance with Section 4.2 hereof and the Reorganization
Agreement. The ratios pursuant to which each share of Company Common Stock and
each share of Company Preferred Stock will be exchanged for shares of Parent
Class B Common Stock, determined in accordance with the foregoing provisions, is
referred to as the "Exchange Ratios."
(d) Dissenters' Rights. Any shares of Company Common or Preferred Stock
------------------
held by a holder who has properly exercised dissenters' rights for such shares
in accordance with the California Code and who, as of the Effective Time, has
not effectively withdrawn or lost such dissenters' rights ("Dissenting Shares")
shall not be converted into Parent Common Stock but shall 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 California Code. The Company shall
give Parent prompt notice of any demand received by the Company to require the
Company to purchase shares of Company Common or Preferred Stock, and Parent
shall have the right to participate in all negotiations and proceedings with
respect to such demand. The Company agrees that, except with the prior written
consent of Parent, or as required under the California Code, it will not
voluntarily make any payment with respect to, or settle or offer to settle, any
such purchase demand. Each holder of Dissenting Shares (a "Dissenting
Shareholder") who, pursuant to the provisions of the California Code, becomes
entitled to payment of the value of shares of Company Common Stock shall receive
payment therefor (but only after the value therefor shall have been agreed upon
or finally determined pursuant to such provisions). In the event of legal
obligation, after the Effective Time, to deliver shares of Parent Common Stock
to any holder of shares of Company Common or Preferred Stock who shall have
failed to make an effective purchase demand or shall have lost its status as a
Dissenting Shareholder, Parent shall issue and deliver, upon surrender by such
Dissenting Shareholder of such holder's certificate or certificates representing
shares of capital stock of the Company, the shares of Parent Common Stock to
which such Dissenting Shareholder is then entitled under this Section 2.1 and
the Reorganization Agreement.
(e) Fractional Shares. No fractional shares of Parent Common Stock shall
-----------------
be issued, but in lieu thereof each holder of shares of Company Preferred Stock
or Common Stock who would otherwise be entitled to receive a fraction of a share
of Parent Common Stock shall receive from Parent an amount of cash equal to the
per share market value of Parent Common Stock (based on the last sales price of
Parent Common Stock as reported on the Nasdaq National Market on the date of
confirmation of the filing of the Merger Agreement, together with the required
officers' certificates, in accordance with the Code on the closing date of the
Merger) multiplied by the fraction of a share of Parent Common Stock to which
such holder would otherwise be entitled. The fractional share interests of each
shareholder of the Company shall be aggregated, so that no Company shareholder
shall receive cash in an amount greater than the value of one full share of
Parent Common Stock.
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<PAGE>
(f) Pledged Shares. Upon the Closing, 75,000 shares (of Parent Common
--------------
Stock) of the purchase price shall be held by Parent and shall be available for
satisfaction of indemnification claims made by Parent under Section 7 of the
Reorganization Agreement and such shares shall bear a restrictive legend to such
effect.
(g) Stock Options. At the Effective Time, all Company Stock Options then
-------------
outstanding shall be assumed by Parent in accordance with Section 5.16 of the
Reorganization Agreement.
4.2 Exchange of Certificates.
------------------------
(a) Exchange Agent. Prior to the Effective Time, Parent shall designate
--------------
a bank or trust company, reasonably acceptable to the Company, to act as
exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective Time,
------------------------------
Parent shall deliver to the Exchange Agent in accordance with Section 4 hereof
and the Reorganization Agreement, the shares of Parent Common Stock issuable
pursuant to Section 4.1 hereof and the Reorganization Agreement in exchange for
outstanding shares of capital stock of the Company, and cash in an amount
sufficient for payment in lieu of fractional shares pursuant to Section 4.1(f)
above.
(c) Exchange Procedures. As soon as practicable after the Effective
-------------------
Time, the Survivin g Corporation shall cause to be mailed to each holder of
record of a certificate or certificates which immediately prior to the Effective
Time represented outstanding shares of Company Preferred Stock or Common Stock
(the "Certificates") whose shares are being converted into Parent Common Stock
pursuant to Section 4.1 hereof and the Reorganization Agreement, (i) a letter of
transmittal (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 be in such form and have such other
provisions as Parent may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for Parent Common Stock.
Upon surrender of a Certificate for cancellation to the Exchange Agent or to
such other agent or agents as may be appointed by Parent, together with such
letter of transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor the number of shares of Parent Common
Stock to which the holder of Company Preferred Stock or Common Stock is entitled
pursuant to Section 4.1 hereof and the Reorganization Agreement. The Certificate
so surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Company Preferred Stock or Common Stock which is not registered on
the transfer records of the Company, the appropriate number of shares of Parent
Common Stock may be delivered to a transferee if the Certificate representing
such capital stock of the Company 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 4.2, each Certificate shall be
deemed at any time after the Effective Time to represent the right to receive
upon such surrender the
-5-
<PAGE>
number of shares of Parent Common Stock as provided by this Section 2 and the
provisions of the California Code.
(d) No Further Ownership Rights in Capital Stock of the Company. All
-----------------------------------------------------------
Parent Common Stock delivered upon the surrender for exchange of shares of
Company Preferred Stock or Common Stock in accordance with the terms hereof
shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares of Company Preferred Stock or Common Stock, and
following the Effective Time, the Certificates shall have no further rights to,
or ownership in, shares of capital stock of the Company. There shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Preferred Stock or Common 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 as provided in this Section 4.
(e) Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
certificates evidencing shares of Company Preferred Stock or Common Stock shall
have been lost, stolen or destroyed, the Exchange Agent shall make payment in
exchange for such lost, stolen or destroyed certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Parent Common Stock
and cash for fractional shares, if any, as may be required pursuant to Section
4.1(f) hereof and the Reorganization Agreement; provided, however, that Parent
may, in its discretion and as a condition precedent to the issuance thereof,
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 Parent or the Exchange Agent with respect to the
certificates alleged to have been lost, stolen or destroyed.
(f) No Liability. Notwithstanding anything to the contrary in this
------------
Section 4.2, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Company Preferred or Common
Stock for any amount paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(g) Dissenting Shares. The provisions of this Section 4.2 shall also
-----------------
apply to Dissenting Shares that lose their status as such, except that the
obligations of Parent under this Section 4.2 shall commence on the date of loss
of such status.
ARTICLE V
TERMINATION
5.1 Termination by Mutual Agreement. Notwithstanding the approval of this
-------------------------------
Merger Agreement by the shareholders of the Company and Sub, this Merger
Agreement may be terminated at any time prior to the Effective Time by mutual
agreement of the Boards of Directors of the Company and Sub.
-6-
<PAGE>
5.2 Termination of Reorganization Agreement. Notwithstanding the approval of
---------------------------------------
this Merger Agreement by the shareholders of the Company and Sub, this Merger
Agreement shall terminate forthwith in the event that the Reorganization
Agreement shall be terminated as therein provided.
5.3 Effects of Termination. In the event of the termination of this Merger
----------------------
Agreement, this Merger Agreement shall forthwith become void and there shall be
no liability on the part of Parent, Sub or the Company or their respective
officers or directors, except as otherwise provided in the Reorganization
Agreement.
ARTICLE VI
GENERAL PROVISIONS
6.1 Amendment. This Merger Agreement may be amended by the parties hereto at
---------
any time before or after approval hereof by the shareholders of the Company or
Sub by execution of an instrument in writing signed on behalf of each of the
parties hereto, provided however that no amendment shall be made which by law
requires the further approval of the shareholders of the Company without
obtaining such approval.
6.2 Counterparts. This Merger Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one agreement.
6.3 Governing Law. This Merger Agreement shall be governed in all respects,
-------------
including validity, interpretation and effect, by the laws of the State of
California.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Merger Agreement as of
the date first written above.
NERO ACQUISITION CORPORATION
By:
-----------------------------
Title:
---------------------------
CITYAUCTION, INC.
By:
-----------------------------
Title:
---------------------------
[SIGNATURE PAGE TO MERGER AGREEMENT]
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<PAGE>
EXHIBIT B
---------
ALLOCATION OF EMPLOYEE STOCK OPTIONS
First 100,000 Options (No acceleration provision)
- ---------------------
======================================================================
Name Number of Options
======================================================================
Andrew Rebele 85,200
- ----------------------------------------------------------------------
Monica Lee 8,500
- ----------------------------------------------------------------------
Steven Walther 4,000
- ----------------------------------------------------------------------
Nikki Martinez 1,500
- ----------------------------------------------------------------------
Noelle Birmingham 800
- ----------------------------------------------------------------------
Second 100,000 Options (Accleration based on performance)
- ----------------------
======================================================================
Name Number of Options
======================================================================
Andrew Rebele 89,000
- ----------------------------------------------------------------------
Monica Lee 9,000
- ----------------------------------------------------------------------
Steven Walther 2,000
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
<PAGE>
EXHIBIT C
---------
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") is entered into as of
___________, 1999 by and among Ticketmaster Online-CitySearch, Inc., a Delaware
corporation ("Parent"), CityAuction, Inc., a California corporation (the
"Company") and ________________________________ (the "Manager").
Background
A. Parent, Caligula Acquisition Corporation ("Sub") and the Company have
entered into an Agreement and Plan of Reorganization dated as of January __,
1999 (the "Reorganization Agreement"), which provides for the merger (the
"Merger") of Sub with and into the Company. Capitalized terms not otherwise
defined in this Agreement have the meanings defined for them in the
Reorganization Agreement.
B. As a condition to the Merger, to preserve the value of the business
being acquired by Parent, the Reorganization Agreement contemplates, among other
things, that the Manager enter into this Agreement effective upon the Effective
Time of the Merger.
NOW THEREFORE, in consideration of the mutual promises made in this
Agreement, Parent, the Company and the Manager agree as follows:
1. Covenant Not to Compete or Solicit.
----------------------------------
(a) For two (2) years after the termination of Manager's employment
with Parent, the Company or any sudsidiary thereof (the "Non-Compete Period"),
the Manager shall not directly or indirectly for himself/herself or on behalf of
or in conjunction with any other person, company, partnership, corporation,
business, group or other entity, without the prior written consent of Parent,
engage anywhere in the world in (whether as an employee, consultant, proprietor,
partner, director or otherwise), or have any ownership interest in (except for
ownership of one percent (1%) or less of the outstanding securities of an entity
whose securities are listed on a national securities exchange), or participate
in the financing, operation, management or control of, any firm, corporation or
business or any business unit of any firm or corporation in any business selling
products or services in direct competition with the Parent's or the Company's
business, including the on-line ticketing, city guide, on-line auctions, and/or
on-line classifieds businesses.
During the Non-Compete Period, the Manager shall not, directly or
indirectly, without the prior written consent of Parent, (i) solicit, encourage,
hire or take any other action which is intended to induce any employee of the
Company or Parent or any subsidiary thereof to terminate his or her
<PAGE>
employment with the Company or Parent or any subsidiary thereof (as the case may
be), or (ii) interfere in any manner with the contractual or employment
relationship between the Company and any employee of the Company or Parent and
any employee of Parent or any subsidiary of the Company or Parent and any
employee of any such subsidiary.
(b) The covenants contained in the preceding paragraphs shall be
construed as a series of separate convents, one of each county, city and state
of any geographic area where any business is presently carried on by Parent or
the Company. Except for geographic coverage, each such separate covenant shall
be identical in terms to the covenant contained in the preceding paragraphs. If,
in any judicial proceeding, a court refuses to enforce any of such separate
covenants (or any part thereof), then such unenforceable covenant (or such part)
shall be eliminated from this Agreement to the extent necessary to permit the
remaining separate covenants (or portions thereof) to be enforced. In the event
that the provisions of this Section 1 are deemed to exceed the time, geographic
or scope limitations permitted by applicable law, then such provisions shall be
reformed to the maximum time, geographic or scope limitations, as the case may
be, permitted by applicable laws.
(c) The Manager acknowledges that the Manager's covenant not to compete
or solicit contained in this Section 1 is a condition precedent to the Merger to
preserve the value of the business being purchased by Parent pursuant to the
Merger. The Manager further acknowledges that breach of this Section 1 would
cause irreparable injury to Parent and the Company and agrees that in the event
of such breach, Parent and the Company shall each be entitled to injunctive
relief without the necessity of proving actual damages.
2. Miscellaneous.
-------------
(a) Severability. If any portion of this Agreement is held by a court of
------------
competent jurisdiction to conflict with any federal, state or local law, such
portion of this Agreement shall be of no force or effect and this Agreement
shall otherwise remain in full force and effect and be construed as if such
portion had not been included in this Agreement.
(b) No Assignment. The Manager shall not assign this Agreement or any
-------------
rights or obligations under this Agreement without the prior written consent of
Parent.
(c) Notice. Any notice or other communication required or permitted
------
under this Agreement shall be made in writing and delivered personally to the
other parties or sent by certified or registered mail, return receipt requested
and postage prepaid to the addresses set forth on the signature page hereto or
such other address as any such party shall have furnished to the other parties
in writing in accordance with this Section 2(c).
(d) Entire Agreement. This Agreement contains the entire agreement and
----------------
understanding of the parties and supersedes all prior discussions, agreements
and understandings relating to the subject matter of this Agreement. This
Agreement may not be changed or modified, except by an agreement in writing
executed by Parent and the Manager.
(e) Effectiveness: Term. This Agreement shall become effective upon the
-------------------
Effective Date and shall continue in full force and effect for two (2) years
from its effectiveness.
-2-
<PAGE>
(f) Other. The waiver of a breach of any term or provision of this
-----
Agreement shall not operate as or be construed to be a waiver of any other
previous or subsequent breach of this Agreement. This Agreement shall be
governed by the laws of the State of California. All captions and section
headings used in this Agreement are for convenient reference only and do not
form a part of this Agreement. This Agreement may be executed in counterparts,
and each counterpart shall have the same force and effect as an original and
shall constitute an effective, binding agreement on the part of each of the
undersigned.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written above.
TICKETMASTER ONLINE-CITYSEARCH, INC. MANAGER
By: ________________________________ _______________________________
Name: Name:
Title: Address:
Address:
CITYAUCTION, INC.
By: ________________________________
Name:
Title:
Address:
[Signature Page to Non-Competition Agreement]
-4-
<PAGE>
EXHIBIT D
---------
INVESTMENT REPRESENTATION AGREEMENT
The undersigned is aware that pursuant to an Agreement and Plan of
Reorganization, dated as of January 8, 1999, (the "Reorganization Agreement"),
entered into by and among Ticketmaster Online - CitySearch, Inc., a Delaware
corporation ("Parent"), Nero Acquisition Corporation, a California corporation
and a wholly owned subsidiary of Parent ("Sub"), CityAuction, Inc., a California
corporation (the "Company"), and Andrew Rebele and Monica Lee, individuals and
principal shareholders of the Company (each, a "Principal Shareholder"), Sub
will merge (the "Merger") with and into the Company and all shares of Company
Capital Stock will be exchanged for shares of Parent Common Stock set forth in
the Reorganization Agreement (the "Merger Consideration"). Unless otherwise
indicated, capitalized terms not defined herein have the meanings set forth in
the Reorganization Agreement.
The undersigned understands that the execution of this Certificate is a
condition precedent to Parent and Sub's obligation to consummate the Merger and
to the receipt of the shares of Parent Common Stock in connection with the
Merger (pursuant to the terms and conditions of the Reorganization Agreement).
The undersigned hereby represents and warrants as follows:
1. The Parent Common Stock issued to the undersigned will be
acquired for investment for the undersigned's own account, not as a nominee or
agent, and not with a view to the sale or distribution of any part thereof in
violation of the Securities Act of 1933, as amended (the "1933 Act"), and the
undersigned has no present intention of selling, granting any participation in,
or otherwise distributing the same. The undersigned represents that the entire
legal and beneficial interest of the Parent Common Stock will be held for the
undersigned's account only, and neither in whole or in part for any other person
other than a wholly owned subsidiary of the undersigned. By executing this
Agreement, the undersigned further represents that the undersigned has no
present contract, undertaking, agreement or arrangement with any person to sell,
transfer, or grant participation to such person or to any third person, with
respect to any of the Parent Common Stock.
2. The undersigned represents that (without limiting or affecting
the representations and warranties of Parent or Sub under the Reorganization
Agreement) it: (i) has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of the undersigned's
prospective investment in the shares of Parent Common Stock; (ii) has received
copies of Parent's Registration Statement on Form S-1 dated December 2, 1998;
(iii) has received all the information it has requested from the Parent and the
Company it considers necessary or appropriate for deciding whether to accept the
Parent Common Stock; (iv) has the ability to bear the economic risks of the
undersigned's prospective investment; and (v) is able, without materially
impairing its financial
<PAGE>
condition, to hold the Parent Common Stock for an indefinite period of time and
to suffer complete loss on its investment.
3. Each certificate representing Parent Company Stock issued
pursuant hereto to the undersigned and any shares issued or issuable in respect
of any such Parent Common Stock upon any stock split, stock dividend,
recapitalization, or similar event, shall be stamped or otherwise imprinted with
legends in the following form (in addition to any legend required under
applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THESE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF
THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING
THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER, AS SET FORTH IN AN AGREEMENT BETWEEN THE
CORPORATION AND THE REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THE CORPORATION. SUCH TRANSFER RESTRICTIONS
ARE BINDING ON TRANSFEREES OF THESE SHARES.
4. The certificates evidencing the Parent Common Stock shall also
bear any legend required pursuant to any state, local or foreign law governing
such securities or the Reorganization Agreement.
5. The undersigned understands and acknowledges that the Parent
Common Stock has not been registered under the 1933 Act and Parent Common Stock
must be held indefinitely unless subsequently registered under the 1933 Act or
an exemption from such registration is available and that the Parent is
obligated to register the Parent Common Stock only in accordance with the terms
of the Registration Rights Agreement.
6. The undersigned acknowledges that the Parent Common stock shall
not be transferable except upon the conditions specified in this Agreement and
the Reorganization Agreement.
7. Prior to any proposed transfer of any Parent Common Stock, unless
there is in effect a registration statement under the 1933 Act covering the
proposed transfer, the undersigned shall
-2-
<PAGE>
give written notice to the Company of its intention to effect such transfer.
Each such notice shall describe the manner and circumstances of the proposed
transfer in sufficient detail, and shall, if the Parent so requests, be
accompanied by either (i) a written opinion of legal counsel who shall be
satisfactory to Parent, addressed to Parent and satisfactory in form and
substance to Parent's counsel, to the effect that the proposed transfer of
Parent Common Stock may be effected without registration under the 1933 Act, or
(ii) a "No Action" letter from the Securities and Exchange Commission (the
"Commission") to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such Parent
Common Stock shall be entitled to transfer such shares of Parent Common Stock in
accordance with the terms of the notice delivered by the holder to Parent. Each
certificate evidencing the shares of Parent Common Stock transferred as above
provided shall bear the appropriate restrictive legend set forth in Section (c)
above, except that such certificate shall not bear such restrictive legend if in
the opinion of counsel for Parent such legend is not required in order to
establish compliance with any provisions of the 1933 Act.
8. The undersigned is familiar with the provisions of Rule 144,
promulgated under the 1933 Act, which in substance, permits limited public
resale of "restricted securities" acquired, directly or indirectly from the
issuer thereof (or from an affiliate of such issuer) in a non-public offering
subject to the satisfaction of certain conditions, including, among other
things: (i) a public trading market then exists for the Parent Common Stock;
(ii) the availability of certain public information about Parent; (iii) the
resale occurring not less than one (1) year after the party has purchased, and
made full payment for, within the meaning of Rule 144, the securities to be
sold; and (iv) the sale being made through a broker in an unsolicited "broker
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934) and the amount of securities
being sold during any three (3) month period not exceeding the specified
limitations stated therein, if applicable. The undersigned further understands
that at the time the undersigned wishes to sell the shares of Parent Common
Stock received from Parent there may be no public market upon which to make such
a sale, and that, even if such a public market then exists, Parent may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, the undersigned would be precluded from selling the shares of Parent
Common Stock received from Parent under Rule 144 even if the one (1) year
minimum holding period had been satisfied. The undersigned further understands
that in the event all of the applicable requirements of Rule 144 are not
satisfied, registration under the 1933 Act, compliance with Regulation A, or
some other registration exemption would be required to sell the shares of Parent
Common Stock received from Parent.
9. The undersigned is the sole record and beneficial owner of
capital stock of the Company in the amount set forth next to its name on the
signature page hereto. Such capital stock is not subject to any claim, lien,
pledge, charge, security interest or other encumbrance or to any rights of first
refusal of any kind, and the undersigned has not granted any rights to purchase
such shares to any other person or entity. The undersigned has the sole right
to transfer such shares. Such shares constitute all of the capital stock owned,
beneficially or of record, by the undersigned, and the undersigned has no other
rights to acquire any capital stock of the Company except as set forth on the
signature page hereto.
-3-
<PAGE>
10. The undersigned has had an opportunity to review with its own tax
advisors the tax consequences to the undersigned of the Merger and the
transactions contemplated by the Reorganization Agreement. The undersigned
understands that it must rely solely on its advisors and not on any statements
or representations by Parent, the Company or any of their agents with respect to
tax matters. The undersigned understands that it (and not Parent or the
Company) shall be responsible for its own tax liability that may arise as a
result of the Merger or the transactions contemplated by the Reorganization
Agreement.
11. The undersigned will have sufficient assets, after completion of
the Merger, to satisfy all of the undersigned's obligations to its creditors, as
the same become due and payable.
12. This Agreement shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of California.
13. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate this ____
day of March, 1999.
-------------------------------------------
Print Name of Stockholder
-------------------------------------------
Signature of Authorized Signatory
Number of Shares and Type of
Capital Stock of the Company:
(indicate class of stock, i.e.,
common, preferred, etc.)
-------------------------------------------
[SIGNATURE PAGE TO INVESTMENT REPRESENTATION STATEMENT]
-5-
<PAGE>
EXHIBIT E
---------
FORM OF OPINION
Reference is made to the Agreement and Plan of Reorganization, dated as of
January 8, 1999 the "Reorganization Agreement"), excluding all listed exhibits
thereto, by and among Ticketmaster Online - CitySearch, Inc., a Delaware
corporation ("Parent"), and CityAuction, Inc., a California corporation (the
"Company"), which provides for the merger (the "Merger") of a wholly-owned
subsidiary of Parent with and into the Company. Reference is also made to the
Registration Rights Agreement, the Employment Agreements, the Non-Competition
Agreements and the Voting Agreement, dated January ___, 1999 by and among Parent
and certain shareholders of the Company (such agreements, including the
Reorganization Agreement, are referred to collectively hereinafter as the
"Agreements"). This opinion is rendered to you pursuant to Section 6.2(b) of the
Agreement, and all terms used herein have the meanings defined for them in the
Agreement unless otherwise defined herein.
Based upon and subject to the foregoing, and except as set forth in the
Company Schedules, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation and is duly qualified
as a foreign corporation and in good standing in each other jurisdiction in
which the failure to so qualify would have a material adverse effect on such
Company's business condition. The Company has no subsidiaries. The Company has
all requisite power and authority to own, operate and lease its properties and
to carry on its business as now being conducted.
2. (a) The authorized capital stock of the Company consists (i) of
10,000,000 shares of Common Stock, of which 2,400,000 shares are issued and
outstanding and (ii) 1,015,000 shares of Preferred Stock, of which 415,000
shares, designated Series A Preferred Stock, are outstanding. All of such
outstanding shares have been duly authorized, validly issued, fully paid and
non-assessable and have been issued in compliance with all applicable federal
and state securities laws. The outstanding shares of Company Capital Stock are
not subject to preemptive rights created by statute, the Articles of
Incorporation or Bylaws of the Company, or any agreement to which the Company is
a party or by which it may be bound. There are no voting agreements or voting
trusts with respect to any of the outstanding shares of capital stock of the
Company. The outstanding shares of capital stock of the Company are held by the
persons and in the amounts set forth in Section 3.2 of the Company Schedules.
(b) The Company has reserved 300,000 shares of Company Common Stock for
issuance to employees and consultants pursuant to outstanding options (the
"Company Stock Options"), of which 15,019 were issued pursuant to the Company's
1998 Stock Option Plan (the "Company's Stock Option Plan") and 284,981 shares
remain available for future grant under the
-1-
<PAGE>
plan. Section 3.2(b) of the Company Schedules sets forth for each outstanding
Company Stock Options the name of the holder of such option, the number of
shares of Company Common Stock subject to such option, the exercise price of
such option and the vesting schedule for such option, including the extent
vested to date. The Company has reserved 600,000 shares of Series A Preferred
Stock issuable upon exercise of a warrant issued to Snap! LLC (the "Warrant").
Except for the Company Stock Options described in Section 3.2(b) of the Company
Schedules and the Warrant, there are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which the
Company is a party or by which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company or
obligating the Company to grant, extend, accelerate the vesting of, change the
price of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. The Company's Stock Options and the Warrant have been
issued in compliance with all applicable federal and state securities laws. The
holders of Company Stock Options and the Warrant have given, or have properly
waived, any required notice prior to the Merger. As a result of the Merger,
Parent will be the record and beneficial owner of all outstanding capital stock
of the Company and, except for stock options granted pursuant to the Company's
Stock Option Plan [and the Warrant], rights to acquire capital stock of the
Company.
3. The execution and delivery of the Reorganization Agreement, the
Agreement of Merger, the Non-Competition Agreement, the Employment Agreement(s)
and the Registration Rights Agreement (the "Agreements") do not, and the
consummation of the transactions contemplated by the Agreements will not,
conflict with or result in any violation of any statute, law, rule, regulation,
judgment, or, to our knowledge, any order, decree or ordinance applicable to the
Company or its properties or assets, or, conflict with or result in any material
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 material benefit under, or result in the creation of
a material lien or encumbrance on any of the properties or assets of the Company
pursuant to (i) any provision of the Articles of Incorporation or Bylaws of the
Company currently in effect or (ii) to the best of our knowledge, except as
disclosed in the Reorganization Agreement and the Company Schedules, any
agreement, contract, note, mortgage, indenture, lease, instrument, permit,
concession, franchise or license to which the Company is a party or by which the
Company or any of its properties or assets may be bound or affected.
4. The Company has all requisite corporate power and authority to enter
into the Agreements, to perform its obligations thereunder and to consummate the
transactions contemplated thereby. The execution and delivery of the Agreements,
the performance by the Company of its obligations thereunder and the
consummation of the transactions contemplated thereby have been duly and validly
authorized by all necessary corporate action on the part of the Company, and
have been approved by the Board of Directors and shareholders of the Company. No
other corporate proceeding on the part of the Company is necessary to authorize
the Agreements by the Company or the performance of the Company's obligations
thereunder or the consummation of the transactions contemplated thereby. The
Agreements to which the Company is a party have been duly executed
-2-
<PAGE>
and delivered by the Company and constitute legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their
respective terms.
5. No consent, approval, authorization or order of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to the Company or in connection with the execution and delivery by the
Company of the Agreements to which it is a party, or the consummation by the
Company of the transactions contemplated thereby, except for (i) the filing of
the Merger Agreement by the California Secretary of State, (ii) such as have
been obtained or accomplished, and (iii) such consents, approvals, orders
authorizations, registrations, declarations and filings as may be required under
the laws of California, which if not obtained or made would not have a material
adverse effect on the business condition of the Company.
6. The Agreements have been duly approved and adopted by the affirmative
vote of a number of outstanding shares of the Company's capital stock that
equals or exceeds the number of such shares required to approve the Agreements,
under the California Corporations Code and the Company's Articles of
Incorporation.
7. There is no action, suit, proceeding, claim or investigation pending
or, to the best of our knowledge, threatened against the Company which could,
individually or in the aggregate, have a material adverse effect on the business
condition of the Company or which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated by the
Agreements.
8. To the best of our knowledge, the Company has not received notice that
it would be, with the passage of time, in default or violation of any material
term, condition or provision of any material judgment, order, injunction or
stipulation applicable to the Company.
-3-
<PAGE>
EXHIBIT F
---------
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), is made as of March
__, 1999, by and among Ticketmaster Online-CitySearch, Inc., a Delaware
corporation ("Parent"), and certain former shareholders of CityAuction, Inc., a
California corporation (the "Company"), listed on the signature pages hereto
(the "Shareholders").
WHEREAS:
A. Pursuant to the terms of the Agreement and Plan of Reorganization dated
as of January 8, 1999 (the "Reorganization Agreement"), by and among Parent, the
Company, and Nero Acquisition Corporation, a California corporation and wholly
owned subsidiary of Parent ("Sub"), Sub is being merged with and into the
Company (the "Merger"), with the Company being the surviving corporation.
B. In connection with the Merger, the Shareholders shall receive shares
(the "Shares") of Class B Common Stock of Parent, par value $.01 per share
("Parent Common Stock").
C. The Reorganization Agreement provides for the execution and delivery of
this Agreement at the closing of the transactions contemplated thereby which
grants the Shareholders certain rights to have their Shares registered under the
Securities Act of 1933, as amended.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. DEFINITIONS.
-----------
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "Lock-up Period" means the time period commencing on the closing
date of Parent's initial public offering and expiring 180 days therefrom.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iii) "Registrable Securities" means the Shares and any shares of
capital stock issued or issuable as a dividend on or in exchange for or
otherwise with respect to the Shares, provided, however, that such securities
shall only be treated as Registrable Securities if and so long as they have not
been (A) sold to or through a broker or dealer or underwriter in a public
distribution
<PAGE>
or a public securities transaction, or (B) sold or are, in the opinion of
counsel for Parent, available for sale in a single transaction exempt from the
registration and prospectus delivery requirements of the 1933 Act so that all
transfer restrictions and restrictive legends with respect thereto are removed
upon the consummation such sale.
(iv) "Registration Statement" means a registration statement of
Parent under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Purchase Agreement.
2. REGISTRATION.
------------
a. Parent shall prepare and file with the SEC a Registration Statement
on Form S-1 (or, another appropriate form in the discretion of Parent as is then
available to effect a registration of the Registrable Securities) covering the
resale of the Registrable Securities as soon as practicable following the
Closing of the Merger.
b. As a condition of Parent's efforts to file a Registration Statement,
the Shareholders shall execute and deliver to Parent, in forms acceptable to
Parent (i) agreements prohibiting the sale or other transfer of the Registrable
Securities until the expiration of the Lock-up Period and (ii) agreements
prohibiting the sale or other transfer of the Registrable Securities during
periods outside of the trading windows applicable to the officers of Parent as
set forth in Parent's Insider Trading Program adopted by Parent's Board of
Directors.
3. OBLIGATIONS OF THE COMPANY.
-------------------------
In connection with the registration of the Registrable Securities, Parent
shall have the following obligations:
a. Parent shall prepare promptly and file with the SEC a Registration
Statement with respect to the Registrable Securities as provided in Section
2(a), and thereafter use its reasonable commercial efforts to cause such
Registration Statement relating to Registrable Securities to become effective,
and keep the Registration Statement effective pursuant to Rule 415 at all times
until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which the Registrable
Securities (in the opinion of counsel to the Shareholders) may be immediately
sold without restriction (including without limitation as to volume by each
holder thereof) without registration under the 1933 Act (the "Registration
Period").
b. Parent shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during such period, comply with the provisions of the
1933 Act with respect to the disposition of all Registrable Securities of the
Company covered by the Registration Statement until such time as all of such
Registrable Securities
-2-
<PAGE>
have been disposed of in accordance with the intended methods of disposition by
the seller or sellers thereof as set forth in the Registration Statement.
c. Parent shall furnish to the Shareholders (i) promptly after the
Registration Statement is prepared and publicly distributed, filed with the SEC,
or received by Parent, one copy of the Registration Statement and any amendment
thereto, each preliminary prospectus and prospectus and each amendment or
supplement thereto and (ii) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents as the Shareholders may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
Shareholders. Parent will immediately notify the Shareholders by facsimile of
the effectiveness of the Registration Statement or any post-effective amendment.
Parent will promptly file an acceleration request as soon as practicable
following the resolution or clearance of all SEC comments or, if applicable,
following notification by the SEC that the Registration Statement or any
amendment thereto will not be subject to review.
d. Parent shall use reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or "blue sky" laws of such jurisdictions in the United States as the
Shareholders reasonably request, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that Parent shall not be
-------- -------
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause the Company undue expense
or burden, or (e) make any change in its charter or bylaws.
e. In the event the Shareholders select underwriters for the offering,
Parent shall enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of such
offering.
f. As promptly as practicable after becoming aware of such event, Parent
shall notify the Shareholders of (x) the issuance by the SEC of a stop order
suspending the effectiveness of the Registration Statement, (y) the happening of
any event, of which Parent has knowledge, as a result of which the prospectus
included in the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, (z)
the occurrence or existence of any pending corporate development that, in the
reasonable discretion of Parent, makes it appropriate to suspend the
availability of the Registration Statement and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement to correct such
untrue statement or omission, and deliver such number of copies of such
supplement or amendment to the Shareholders,
-3-
<PAGE>
as the Shareholders may reasonably request; provided that, for not more than
twenty (20) consecutive trading days (or a total of not more than thirty (30)
trading days in any twelve (12) month period) (or 60 trading days in any 12
month period, in the case of an event described in clause (z) above that arises
from an acquisition or a probable acquisition or financing, recapitalization,
business combination or other similar transaction), Parent may delay the
disclosure of material non-public information concerning Parent (as well as
prospectus or Registration Statement updating) the disclosure of which at the
time is not, in the good faith opinion of Parent, the best interests of Parent
(an "Allowed Delay"); provided, further, that Parent shall promptly (i) notify
the Shareholders in writing of the existence of (but in no event, without the
prior written consent of the Shareholders, shall Parent disclose to such
Shareholder any of the facts or circumstances regarding) material non-public
information giving rise to an Allowed Delay and (ii) advise the Shareholders in
writing to cease all sales under the Registration Statement until the end of the
Allowed Delay. Upon expiration of the Allowed Delay, Parent shall again be bound
by the first sentence of this Section 3(f) with respect to the information
giving rise thereto.
g. Parent shall use its best efforts to prevent the issuance of any stop
order or other suspension of effectiveness of a Registration Statement, and, if
such an order is issued, to obtain the withdrawal of such order at the earliest
possible moment and to notify each Shareholder who holds Registrable Securities
being sold (or, in the event of an underwritten offering, the managing
underwriters) of the issuance of such order and the resolution thereof.
h. Parent shall permit a single firm of counsel designated by the
Shareholders to review the Registration Statement and all amendments and
supplements thereto (as well as all requests for acceleration or effectiveness
thereof) a reasonable period of time prior to their filing with the SEC, and not
file any document in a form to which such counsel reasonably objects and will
not request acceleration of the Registration Statement without prior notice to
such counsel. The sections of the Registration Statement covering information
with respect to the Shareholders, the Shareholders' beneficial ownership of
securities of Parent or the Shareholders' intended method of disposition of
Registrable Securities shall conform to the information provided to Parent by
each of the Shareholders.
i. Parent shall (i) cause all the Registrable Securities covered by the
Registration Statement to be listed on each national securities exchange on
which securities of the same class or series issued by Parent are then listed,
if any, if the listing of such Registrable Securities is then permitted under
the rules of such exchange, or (ii) secure the designation and quotation, of all
the Registrable Securities covered by the Registration Statement on the Nasdaq
or, if not eligible for the Nasdaq on the Nasdaq SmallCap.
4. OBLIGATIONS OF THE SHAREHOLDERS.
-------------------------------
In connection with the registration of the Registrable Securities, the
Shareholders shall have the following obligations:
-4-
<PAGE>
a. It shall be a condition precedent to the obligations of Parent to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities that the Shareholders shall furnish to Parent such
information regarding themselves, the Registrable Securities held by them and
the intended method of disposition of the Registrable Securities held by them as
shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as Parent may reasonably request. At least three (3) business days prior to the
first anticipated filing date of the Registration Statement, Parent shall notify
the Shareholders of the information Parent requires from the Shareholders.
b. The Shareholders, by their acceptance of the Registrable Securities,
agree to cooperate with Parent as reasonably requested by Parent in connection
with the preparation and filing of the Registration Statement hereunder, unless
the Shareholders have notified Parent in writing of the Shareholders' election
to exclude all of their Registrable Securities from the Registration Statement.
c. In the event the Shareholders determine to engage the services of an
underwriter, the Shareholders agree to enter into and perform the Shareholders'
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities.
d. The Shareholders agree that, upon receipt of any notice from Parent
of the happening of any event of the kind described in Section 3(f) or 3(g), the
Shareholders will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until the Shareholders' receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(f) or 3(g) and, if so directed by Parent,
the Shareholders shall deliver to Parent (at the expense of Parent) or destroy
(and deliver to Parent a certificate of destruction) all copies in the
Shareholders' possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice.
e. The Shareholders may not participate in any underwritten registration
hereunder unless they (i) agree to sell their Registrable Securities on the
basis provided in any underwriting arrangements in usual and customary form
entered into by Parent, (ii) complete and execute all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements, and (iii) agree to
pay all underwriting discounts and commissions and any expenses in excess of
those payable by Parent pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
------------------------
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the
-5-
<PAGE>
fees and disbursements of counsel for Parent, and the reasonable fees and
disbursements of one counsel selected by the Shareholders pursuant to Section
3(h) hereof, up to a maximum of [$20,000], shall be borne by Parent.
6. INDEMNIFICATION.
---------------
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, Parent will indemnify, hold harmless
and defend (i) each Shareholder who holds such Registrable Securities, (ii) the
directors, officers, partners, employees, agents and each person who controls
any Shareholder within the meaning of the 1933 Act or the Securities Exchange
Act of 1934, as amended (the "1934 Act"), if any, (iii) any underwriter (as
defined in the 1933 Act) for the Shareholders, and (iv) the directors, officers,
partners, employees and each person who controls any such underwriter within the
meaning of the 1933 Act or the 1934 Act, if any (each, an "Indemnified Person"),
against any joint or several losses, claims, damages, liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any regulatory
or self-regulatory organization, whether commenced or threatened, in respect
thereof, "Claims") to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
Parent files any amendment thereof or supplement thereto with the SEC) or the
omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading; or (iii) any violation or alleged
violation by Parent of the 1933 Act, the 1934 Act, any other law, including,
without limitation, any state securities law, or any rule or regulation
thereunder relating to the offer or sale of the Registrable Securities (the
matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to the restrictions set forth in Section 6(c) with
respect to the number of legal counsel, Parent shall reimburse the Indemnified
Person, promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to Parent by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by Parent
pursuant to Section 3(c) hereof; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of Parent, which consent shall not be unreasonably withheld; and (iii)
with respect to any preliminary prospectus, shall not inure to the benefit of
any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a
-6-
<PAGE>
timely basis in the prospectus, as then amended or supplemented, such corrected
prospectus was timely made available by Parent pursuant to Section 3(c) hereof,
and the Indemnified Person was promptly advised in writing not to use the
incorrect prospectus prior to the use giving rise to a Violation and such
Indemnified Person, notwithstanding such advice, used it. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person.
b. In connection with any Registration Statement in which the
Shareholders are participating, the Shareholders agree to indemnify, hold
harmless and defend, to the same extent and in the same manner set forth in
Section 6(a), Parent, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls Parent within the
meaning of the 1933 Act or the 1934 Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the 1933 Act or the 1934 Act (collectively and
together with an Indemnified Person, an "Indemnified Party"), against any Claim
to which any of them may become subject, under the 1933 Act, the 1934 Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation by
such Shareholder, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished to Parent by such Shareholder expressly for use in connection with
such Registration Statement; and subject to Section 6(c) such Shareholder will
reimburse any legal or other expenses (promptly as such expenses are incurred
and are due and payable) reasonably incurred by them in connection with
investigating or defending any Claim; provided, however, that the indemnity
-------- -------
agreement contained in this Section 6(b) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Shareholder, which consent shall not be unreasonably withheld;
provided, further, however, that the Shareholder shall be liable under this
- -------- ------- -------
Agreement (including this Section 6(b)) for only that amount as does not exceed
the net proceeds to such Shareholder as a result of the sale of Registrable
Securities pursuant to such Registration Statement. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
such Indemnified Party. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
--------
however, that an Indemnified Person or Indemnified Party shall have the right to
- -------
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable
-7-
<PAGE>
opinion of counsel retained by the indemnifying party, the representation by
such counsel of the Indemnified Person or Indemnified Party and the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The indemnifying party shall pay
for only one separate legal counsel for the Indemnified Persons or the
Indemnified Parties, as applicable, and such legal counsel shall be selected by
the Shareholders, if the Shareholders are entitled to indemnification hereunder,
or Parent, if Parent is entitled to indemnification hereunder, as applicable.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
actually prejudiced in its ability to defend such action. The indemnification
required by this Section 6 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as such expense,
loss, damage or liability is incurred and is due and payable.
7. AMENDMENT OF REGISTRATION RIGHTS.
--------------------------------
Provisions of this Agreement may be amended and the observance thereof may
be waived only by the mutual written consent of Parent and the Shareholders.
8. MISCELLANEOUS.
-------------
a. Any notices required or permitted to be given under the terms hereof
shall be sent by certified or registered mail (return receipt requested) or
delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed in
the mail, if mailed by regular U.S. mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. The addresses for such
communications shall be:
If to Parent:
Ticketmaster Online - CitySearch, Inc.
790 E. Colorado Blvd., Suite 200
Pasadena, California 91101
Attention: Chief Executive Officer
Facsimile: (626) 405-9929
With copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: John T. Sheridan
Facsimile: (650) 496-4088
-8-
<PAGE>
If to the Shareholders: to the address set forth immediately below each
Shareholder's name on the signature page to the Purchase Agreement. Each party
shall provide notice to the other party of any change of its address.
b. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
c. This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State. In the event that any provision
of this Agreement is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision hereof.
d. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
e. This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
f. The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
g. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
h. Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
-9-
<PAGE>
IN WITNESS WHEREOF, Parent and the undersigned Shareholder have caused this
Agreement to be duly executed as of the date first above written.
TICKETMASTER ONLINE - CITYSEARCH, INC.
By:
-----------------------------------
Douglas McPherson
Chief Legal Officer
SHAREHOLDER
By:
-----------------------------------
Name:
Title:
Address:
[Signature Page to Registration Rights Agreement]
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<PAGE>
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF REORGANIZATION (this
"Amendment") is entered into as of March 19, 1999, by and between Ticketmaster
Online -CitySearch, Inc., a Delaware corporation ("Parent"), Nero Acquisition
Corporation, a California corporation and wholly-owned subsidiary of Parent
("Sub"), CityAuction, Inc., a California corporation (the "Company"), Andrew
Rebele and Monica Lee (collectively, the "Shareholders").
RECITALS
A. Parent and the Company are parties to that certain Agreement and Plan
of Reorganization, dated as of January 8, 1999 (the "Reorganization Agreement"),
subject to the terms and conditions of which Sub will merge with and into the
Company (the "Merger"). Capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Reorganization Agreement.
B. On February __, 1999, the Company restated its Articles of
Incorporation, changing the liquidation preference of the holders of the Series
A Preferred Stock to an amount equal to $0.50 per share.
C. Parent and the Company wish to amend the Reorganization Agreement upon
the terms set forth in this Amendment.
NOW, THEREFORE, the parties hereby agree as follows:
1. Amended Provisions. Sections 2.1(c), (d) and (e) of the Reorganization
Agreement shall be amended and restated in their entirety as follows:
"(c) Conversion of Capital Stock of the Company. Subject to Sections
------------------------------------------
2.1(d), (e), (f), (g) and (h) below, each issued and outstanding share of
preferred stock of the Company, $0.01 par value ("COMPANY PREFERRED STOCK")
(other than shares canceled pursuant to Section 2.1(b)), and each issued and
outstanding share of common stock of the Company, $0.01 par value, ("COMPANY
COMMON STOCK") (other than shares cancelled pursuant to Section 2.1(b)), that is
issued and outstanding immediately prior to the Effective Time shall
automatically be canceled and extinguished and converted, without any action on
the part of the holder thereof into the right to receive the number of shares of
Parent Common Stock calculated as set forth below.
For purposes of this Section 2.1(c), the following terms shall have the
meanings set forth below:
<PAGE>
"Average Trading Price" shall mean average of the closing prices of
---------------------
the securities on the NASDAQ National Market System over the 30-day period
ending three (3) days prior to the Closing.
"Liquidation Preference Amount" shall mean $207,500.
-----------------------------
"Preference Shares" shall mean the number of shares of Parent Common
-----------------
Stock equal to the Liquidation Preference divided by the Average Trading Price.
"Primary Exchange Ratio" shall equal the Preference Shares divided by
----------------------
415,000 (the number of outstanding shares of Company Preferred Stock).
"Remainder Shares" shall equal the number of shares of Parent Common
----------------
Stock equal to 800,000 shares minus the Preference Shares.
"Secondary Exchange Ratio" shall equal the Remainder Shares divided by
------------------------
2,837,394 (the number of outstanding shares of Parent capital Stock plus
outstanding stock options).
The Primary Exchange Ratio and the Secondary Ratio shall be subject to
recalculation in the manner set forth in the definitions above in the event the
number of outstanding shares of Company Preferred Stock of Common Stock or
outstanding Company Stock options is changed prior to the Effective Time.
Each holder of Company Preferred Stock shall be entitled to receive the
number of shares of Parent Common Stock at the Effective Time equal to the
following:
[Number of shares of Company Preferred Stock held multiplied by the
Primary Exchange Ratio] plus [Number of shares of Preferred Stock held
multiplied by the Secondary Exchange Ratio]
Each holder of Company Common Stock shall be entitled to receive the number
of shares of Parent Common Stock at the Effective Time equal to the following:
[Number of shares of Company Common Stock held multiplied by the
Secondary Exchange Ratio]
FOR EXAMPLE, if the Average Trading Price equaled $45, the Primary Exchange
Ratio would equal 0.01111111 and the Secondary Exchange Ratio would equal
0.280323737. In such event, a holder of 400,000 shares of Company Preferred
Stock would receive 116,574 shares of Parent Common Stock at the Effective Time,
and a holder of 400,000 shares of Company Common Stock would receive 112,129
shares of Parent Common Stock at the Effective Time.
(d) Adjustment of Exchange Ratios. If, between the date of this
-----------------------------
Agreement and the Effective Time, the outstanding shares of Parent Common Stock
(or, subject to Section 5.1 below, Company Preferred Stock or Common Stock)
shall have been changed into a different
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<PAGE>
number of shares or a different class by reason of any reclassification, split-
up, stock dividend, stock combination, then the Primary and Secondary Exchange
Ratios shall be correspondingly adjusted.
(e) Dissenters' Rights. Any shares of Company Preferred Stock or
------------------
Common Stock held by a holder who has properly exercised dissenters' rights for
such shares in accordance with the California Code and who, as of the Effective
Time, has not effectively withdrawn or lost such dissenters' rights ("DISSENTING
SHARES") shall not be converted into Parent Common Stock but shall 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 California Code. The Company
shall give Parent prompt notice of any demand received by the Company to require
the Company to purchase shares of Company Preferred Stock or Common Stock, and
Parent shall have the right to participate in all negotiations and proceedings
with respect to such demand. The Company agrees that, except with the prior
written consent of Parent, or as required under the California Code, it will not
voluntarily make any payment with respect to, or settle or offer to settle, any
such purchase demand. Each holder of Dissenting Shares (a "DISSENTING
SHAREHOLDER") who, pursuant to the provisions of the California Code, becomes
entitled to payment of the value of shares of Company Common Stock shall receive
payment therefor (but only after the value therefor shall have been agreed upon
or finally determined pursuant to such provisions). In the event of legal
obligation, after the Effective Time, to deliver shares of Parent Common Stock
to any holder of shares of Company Preferred Stock or Common Stock who shall
have failed to make an effective purchase demand or shall have lost its status
as a Dissenting Shareholder, Parent shall issue and deliver, upon surrender by
such Dissenting Shareholder of such holder's certificate or certificates
representing shares of capital stock of the Company, the shares of Parent Common
Stock to which such Dissenting Shareholder is then entitled under this Section
2.1 and the Merger Agreement."
The second sentence of Section 2.1(i)(ii) is amended and restated to
read as follows: "The exercise price for such option shall be equal to the
closing price of the Parent Common Stock on the NASDAQ National Market System on
the date of the Closing."
The first sentence of Section 2.1(f) is amended and restated to read
as follows: "No fractional shares of Parent Common Stock shall be issued, but in
lieu thereof each holder of shares of Company Preferred Stock or Common Stock
who would otherwise be entitled to receive a fraction of a share of Parent
Common Stock shall receive from Parent an amount of cash equal to the per share
market value of Parent Common Stock (based on the last sales price of Parent
Common Stock as reported on the Nasdaq National Market on the Effective Date)
multiplied by the fraction of a share of Parent Common Stock to which such
holder would otherwise be entitled."
The first sentence of Section 2.2(g) shall be amended and restated to
read as follows:
The maximum consideration to be paid by Parent (including Parent
Common Stock to be reserved for issuance upon exercise of the Company's options
assumed by Parent
-3-
<PAGE>
pursuant to Section 5.16) pursuant to the Merger shall be equal to (i) 800,000
shares of Parent Common Stock (plus any additional shares of Parent Common Stock
exchanged in the Merger at the Secondary Exchange Ratio for shares of capital
stock of the Company issued upon exercise of the Warrant (as defined in Section
3.2)) plus (ii) an additional 200,000 shares of Parent Common Stock to be
reserved for issuance upon exercise of options to purchase Parent Common Stock
to be granted to the employees of CityAuction as set forth in Section 2.1(i)(b)
below.
The second paragraph of Section 2.1(h)(i)(B) is amended and restated
to read as follows: "The Pledged Shares shall be withheld from the shareholders
in relation to the prorated percentage of shares of Parent Common Stock issuable
to such shareholders in the Merger as set forth in Section 2.1(c)."
Sections 2.2 (c), (d), (e) and (f) shall be amended and restated in their
entirety as follows:
"(c) Exchange Procedures. As soon as practicable after the Effective
-------------------
Time, the Surviving Corporation shall cause to be mailed to each holder of
record of a certificate or certificates which immediately prior to the Effective
Time represented outstanding shares of Company Preferred Stock or Common Stock
(the "Certificates") whose shares are being converted into Parent Common Stock
pursuant to Section 2.1 and the Merger Agreement, (i) a letter of transmittal
(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 be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor the number of shares of Parent Common Stock to
which the holder of Company Preferred Stock or Common Stock is entitled pursuant
to Section 2.1. The Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of Company Preferred Stock or Common Stock
which is not registered on the transfer records of the Company, the appropriate
number of shares of Parent Common Stock may be delivered to a transferee if the
Certificate representing such capital stock of the Company 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 2.2, each Certificate
shall be deemed at any time after the Effective Time to represent the right to
receive upon such surrender the number of shares of Parent Common Stock as
provided by this Section 2 and the provisions of the California Code.
(d) No Further Ownership Rights in Capital Stock of the Company. All
-----------------------------------------------------------
Parent Common Stock delivered upon the surrender for exchange of shares of
Company Preferred Stock or Common Stock in accordance with the terms hereof
shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares of Company Preferred Stock or Common Stock, and
following the Effective Time, the Certificates shall have no further rights to,
or
-4-
<PAGE>
ownership in, shares of capital stock of the Company. There shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Preferred Stock or Common 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 as provided in this Section 2.
(e) Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
certificates evidencing shares of Company Preferred Stock or Common Stock shall
have been lost, stolen or destroyed, the Exchange Agent shall make payment in
exchange for such lost, stolen or destroyed certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Parent Common Stock
and cash for fractional shares, if any, as may be required pursuant to Section
2.1(f); provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, 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 Parent or the Exchange
Agent with respect to the certificates alleged to have been lost, stolen or
destroyed.
(f) No Liability. Notwithstanding anything to the contrary in this
------------
Section 2.2, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Company Preferred or Common
Stock for any amount paid to a public official pursuant to any applicable
abandoned property, escheat or similar law."
2. Agreement of Merger. The parties agree that the Agreement of Merger
shall be revised to reflect the amendments, described above.
3. Authority. The Company represents and warrants that the execution and
delivery of this Amendment by the Company has been duly authorized by all
necessary corporate action on the part of the Company, that this Amendment has
been duly executed and delivered by the Company and that this Amendment is the
valid and binding obligation of the Company, enforceable in accordance with its
terms, except that such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles. Parent represents and warrants that the execution and delivery of
this Amendment by Parent has been duly authorized by all necessary corporate
action on the part of Parent, that this Amendment has been duly executed and
delivered by Parent and that this Amendment is the valid and binding obligation
of Parent, enforceable in accordance with its terms, except that such
enforceability may be subject to (i) bankruptcy, insolvency, reorganization or
other similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) general equitable principles.
4. Governing Law; Counterparts. The internal laws of the State of
California (irrespective of its choice of law principles) will govern the
validity of this Amendment, and this Amendment may be executed in counterparts
each of which shall be deemed an original and all of which shall constitute one
instrument.
-5-
<PAGE>
TICKETMASTER ONLINE - CITYAUCTION, INC.
CITYSEARCH, INC.
By: s/s Douglas McPherson By: /s/ Andrew Rebele
-------------------------------- --------------------------------
Douglas McPherson Andrew Rebele
Chief Legal Officer President
NERO ACQUISITION CORPORATION SHAREHOLDERS
By: /s/ Douglas McPherson By: /s/ Andrew Rebele
-------------------------------- --------------------------------
Douglas McPherson Andrew Rebele
President
By: /s/ Andrew Rebele
--------------------------------
Monica Lee
-6-
<PAGE>
EXHIBIT 10.30
TICKETMASTER ONLINE - CITYSEARCH, INC.
790 East Colorado Boulevard, Ste. 200
Pasadena, California 91010
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of this 25th day of
November 1998, by and between Robert Perkins, an Individual ("Employee"), and
Ticketmaster Online - CitySearch, Inc., a Delaware corporation ("Company").
RECITALS
WHEREAS, the Company desires to employ the Employee, and the Employee
desires to be employed by the Company, on the terms and conditions set forth
herein;
WHEREAS, the Employee's services are considered to be valuable to the
future business and operations of the Company.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties hereto agree as
follows:
AGREEMENT
1. Employment.
----------
By execution of this Agreement, the Company agrees to employ the Employee, and
the Employee agrees to be employed by the Company, upon the terms and subject to
the conditions set forth in this agreement.
2. Positions and Duties.
--------------------
Employee shall serve as the Executive Vice President of the Company, with such
duties and responsibilities as the Company's Board of Directors ("Board") or the
Company's Chief Executive Officer ("CEO") may from time to time assign to him.
Unless otherwise determined by the Board, Employee shall report directly to the
CEO. Employee and the Company agree that the Employee's initial
responsibilities shall include but not be limited to duties commensurate with
Employee's management position. Employee acknowledges and agrees that these
duties and the scope and responsibilities of Employee's position may be modified
from time to time as determined by the Board and/or the CEO.
<PAGE>
3. Term of Agreement.
-----------------
This agreement shall be in effect from January 1, 1999 to December 31, 2000.
The agreement may be terminated as set forth in paragraph 5.
4. Compensation.
------------
As compensation for his services to be performed hereunder, Company shall
provide Employee with the following compensation and benefits:
4.1 Base Salary. Employee's initial base salary shall be $205,000 per
-----------
annum in 1999 and $215,000 per annum in 2000. Employee's base salary shall be
payable in accordance with this Company's payroll practices as in effect from
time to time. The Company may make such deductions, withholdings and other
payments from all sums payable to Employee pursuant to this Agreement which are
required by law or as Employee requests for taxes and other charges.
4.2 Stock Options. (a) Company shall grant to Employee an option to
-------------
purchase a total of 25,000 shares of Common Stock of the Company. The exercise
price of these options shall be $8.67 per share. One-fourth of such options
shall vest on October 1, 1999, and 1/48th of the options would vest at the end
of each of the subsequent 36 months. At the end of four years, all options under
this grant will have vested. A copy of the option agreement is attached hereto
as Exhibit A. (b) Employee shall also have the opportunity to receive an
additional 5,000 options on each first business day following March 31, 1999,
June 30, 1999, September 30, 1999 and December 31, 1999, provided that the
Company has met or exceeded the on-line ticket revenue forecast for each
preceding quarter, as determined by the Company model dated 11/12/98. A copy of
this model is attached as Exhibit B. This model is not subject to any
adjustments. These options will vest ratably over 48 months with no cliff.
4.3 Benefits. Employee will be eligible for participation in all Company
--------
benefits, including medical PPO plan, dental, vision, flexible benefits, long
term disability and 401(k) programs. Employee's dependent will be eligible for
participation in Company's medical PPO, dental and vision plans. Participation
by Employee and Employee's dependent in the Company's medical PPO, dental and
vision plans will be at no expense to Employee. The Company also agrees to
maintain in effect, during the term of employment, a life insurance policy
payable to employee's estate or named beneficiary, in the amount of $200,000.
In addition, the Employee shall be eligible for paid time off benefits including
holiday pay, in accordance with company policies.
4.4 Car Lease. Company shall reimburse payments for the existing lease on
---------
Employee's car, for the term of this agreement. Costs shall not exceed $10,000
per year.
4.5 Expenses. Employee shall be reimbursed for reasonable expenses in
--------
accordance with Company policies for senior management as amended from time to
time.
<PAGE>
5. Termination of Agreement.
------------------------
5.1 Voluntary Termination; Termination for Cause.
--------------------------------------------
(a) No Severance Payment. In the event that Employee voluntarily
--------------------
terminates his employment with the Company or the Company terminates his
employment for "cause" (as defined below), then the Company's sole obligation to
Employee will be (i) to pay Employee any salary, paid time off (PTO) or the like
accrued but not paid as of the date of termination and (ii) to provide Employee
with such right to continue health care benefits (at Employee's expense) as
required by applicable law.
(b) Termination for Cause Defined. For purposes of this Agreement,
-----------------------------
the term "cause" shall mean:
(i) the death or permanent disability of Employee, with the
term "permanent disability" defined as meaning a total or partial physical or
mental disability continuing for a period of not less than three (3) consecutive
months, which prevents Employee from substantially discharging the essential
functions of his position as set forth herein;
(ii) Employee's malfeasance in connection with his employment
or neglect or inadequate performance of his duties as determined at any time in
the sole and absolute discretion of the Board of Directors;
(iii) Employee's material breach of this Agreement;
(iv) Employee's material breach of the inventions and
confidentiality agreement and non disclosure agreement which employee must sign
contemporaneously with the execution of this agreement.
(v) Employee personally engaging in knowing and intentional
illegal conduct which is injurious to the Company or its affiliates.
5.2 Involuntary Termination; Severance.
----------------------------------
(a) In the event the Company shall determine to terminate Employee
for cause, the Company shall provide the Employee, not less than ten business
days prior, written notice of the Company's intention to terminate such
employment, including a statement describing the basis for such termination.
Employee shall then have the opportunity to respond to the Company during the
ten day notice period and cure the breach giving rise to the basis for the
termination. Company will consider Employee's response and cure prior to
reaching a final determination which it shall make in its sole discretion.
(b) In the event that Employee's employment with the Company is
terminated by the Company for any reason other than cause (as defined above),
the Company shall pay to Employee as severance pay, full base salary for the
remainder of the term of this agreement. Termination of employment for any
reason whatsoever, shall not affect employee's ability to
<PAGE>
exercise stock options that have vested prior to date of termination. Nothing
contained herein shall be construed to limit Employee's ability to exercise
options vested prior to termination.
6. Miscellaneous.
-------------
6.1 Arbitration. If any dispute between the parties arises out of this
-----------
agreement, such dispute shall be finally resolved by binding arbitration
conducted in accordance with commercial rules of the American Arbitration
Association then in effect. Any such arbitration shall be conducted before a
single arbitrator at any location mutually agreeable to Employee and the
Company. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof.
6.2 Assignment. This Agreement shall inure to the benefit of and shall be
----------
binding upon the successors and the assigns of the Company. This Agreement is
personal to Employee and may not be assigned by him.
6.3 Severability. If any provision of the Agreement shall be found
------------
invalid by any court of competent jurisdiction, such findings shall not affect
the validity of the other provisions hereof and the invalid provisions shall be
deemed to have been severed herefrom.
6.4 Applicable Law. This Agreement shall be governed in all respects by
--------------
the internal laws of the State of California.
6.5 Entire Agreement. This Agreement expresses the entire understanding
----------------
of the parties with respect to the terms of Employee's employment with the
Company, and supersedes any prior agreement, understanding or the like, whether
written or oral.
6.6 Counterparts. This Agreement may be executed simultaneously in any
------------
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
6.7 Attorney's Fees. In the event any party hereto commences arbitration
---------------
or legal action to enforce this Agreement, the prevailing party shall be
entitled to its reasonable attorneys' fees, costs and expenses incurred in such
action.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth on the first page hereof.
TICKETMASTER ONLINE - CITYSEARCH, INC.
By: /s/ Charles Conn
----------------------------------------
Charles Conn, Chief Executive Officer
EMPLOYEE
By: /s/ Robert Perkins
----------------------------------------
Robert Perkins
<PAGE>
EXHIBIT 10.31
November 27, 1998
David W. Hagan
196 Cottingham Street
Toronto, Ontario
M4V1C5
Dear David:
We are impressed by your background and look forward to you joining the
Ticketmaster Online-CitySearch Team. This letter confirms the terms of our
offer of employment that we have recently discussed.
We would like you to begin employment on November 16, 1998. You will be the
Chief Operating Officer, reporting to Charles Conn, Chief Executive Officer and
Thomas Layton, President.
Your base salary will be $170,000 annually. In addition, you are eligible to
receive an annual bonus of $30,000, paid quarterly. Your bonus will be earned
based on successful achievement of the financial and operating objectives set
out as part of the Company's initial public offering plan. Base salary will be
paid out on the 30th of each month. You have the option of having us deposit
your checks directly to your account or having the checks mailed to you.
You may receive a stock option grant to purchase shares of Ticketmaster Online -
CitySearch Common Stock. We anticipate that the Board of Directors will
consider granting you an option for 175,000 shares (as adjusted for any stock
splits or similar recapitalizations of the company that may occur prior to that
time). The current strike price is $8.67 per share. One-fourth the options
would vest on your one-year anniversary date and 1/48th of the options would
vest at the end of each of the subsequent 36 months. At the end of four years,
all options will have vested. The grant and terms of the options are subject to
modification and approval by the Board of Directors when it considers the
option.
As discussed, we anticipate that you will grow in your leadership role and that
you will assume the additional title of President within 3 to 6 months. In the
case of that eventuality, we would make an additional option grant of no less
than 50,000 option shares of company stock, with a strike price equal to the
then prevailing market price.
You and your dependents will be eligible to participate in the benefits program
on the first of the month following 30 days of employment. The Company will
cover the costs for HMO medical, dental and vision benefits; however, you may
elect to participate in the PPO plan and are able to pay for the incremental
costs through payroll deductions. You will also be enrolled in our long-term
disability (LTD) plan on the first of the month following 3 months of
employment. You are also eligible to participate in the 401(k) plan in the next
quarterly open enrollment period following the completion of 3 months of
employment. In addition, you will accrue 15 days paid time off (PTO) on an
annual basis, and are eligible to take accrued PTO after you have worked at the
company for 3 continuous months. PTO may be requested for any reason, and need
not be explained by the employee at any time. Examples of PTO use are for
vacation, sick days, doctor/dentist appointments, jury duty, personal days or
other miscellaneous reasons.
In addition, the Company will cover reasonable costs of relocating you and your
family, including:
. Transaction costs associated with selling your current home;
. Reasonable costs associated with moving your physical possessions;
. Reasonable travel expenses associated with trips by you to visit your
family, and for them to visit you, up to 7 months after your start
date and before you have relocated your family to the Los Angeles
region. We expect that you will be traveling to Toronto on a bi-weekly
basis and expect your family to visit Los Angeles on a monthly basis;
. Temporary housing in the company corporate apartment prior to the
purchase of a home in the Los Angeles region.
<PAGE>
November 27, 1998
D. Hagan
In the event that you must repay your current Sprint Canada mortgage prior to
closing on the sale of your house, the company will give you a short-term bridge
loan of $250,000, at an interest rate still to be determined, for a period not
to exceed 6 months. Repayment of this amount would be due on the closing of the
sale of your current home.
Your employment with Ticketmaster Online - CitySearch is "at will." This means
that you are free to terminate your employment, at any time, with or without a
reason, and Ticketmaster Online - CitySearch has the right to terminate your
employment at any time, with or without a reason. Although the Company may
choose to terminate employment for cause, cause is not required.
In the event that you are terminated, the Company will continue to pay your base
salary for 9 months, or until you find alternative full-time employment,
whichever comes first. This salary continuation will not be granted in the
event that:
. You have willfully failed to carry out the reasonable directions of
the CEO within 10 business days after written demand for substantial
performance is delivered to you by an Officer of The Company;
. You have committed an act or acts of personal dishonesty which results
in personal enrichment by you at the expense of the company or an act
or acts of personal dishonesty which causes substantial injury to the
business, operations or reputation of The Company;
. You have been convicted of a felony;
. You have violated our alcohol and drug policy.
The United States government requires all U.S. employers to verify that a new
employee is eligible to work in the United States. This law applies to citizens
as well as to non-citizens. You will receive the necessary information and
documentation requirements upon joining Ticketmaster Online - CitySearch. In
addition, you will need to sign the company's standard Non-Disclosure Agreement,
Employment Agreement and Inventions and Confidentiality Agreement on or before
your first day of employment.
This letter covers all aspects of our offer. If you have any questions, please
do not hesitate to get in touch with one of us. We can be reached at (626) 660-
2532. Our fax number is (626) 660-2537.
Sincerely,
/s/ Sharon Smith /s/ Brad Ramberg
- ---------------------------------- -----------------------------------
Sharon Smith Brad Ramberg
Vice President, People Chief Financial Officer
Please confirm acceptance of these terms by signing in the space provided below
and return the original offer letter to our office. A duplicate copy is
enclosed for your records.
I accept the position of Chief Operating Officer with Ticketmaster Online -
CitySearch and will start work on _______________.
/s/ David W. Hagan
- ---------------------------------- ___________________________________
Signature Date
-2-
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-71059) pertaining to the 1996 Stock Option Plan, 1998 Stock Plan
and the 1998 Employee Stock Purchase Plan of Ticketmaster Online-CitySearch,
Inc. of our report dated January 29, 1999, with respect to the consolidated
financial statements and schedule of Ticketmaster Online-CitySearch, Inc.
included in the Annual Report (Form 10-K) for the eleven months ended December
31, 1998.
/s/ Ernst & Young LLP
Woodland Hills, California
March 29, 1999
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JAN-31-1998 DEC-31-1998
<PERIOD-START> FEB-01-1997 FEB-01-1998
<PERIOD-END> JAN-31-1998 DEC-31-1998
<CASH> 0 106,910
<SECURITIES> 0 0
<RECEIVABLES> 167 1,307
<ALLOWANCES> 0 (58)
<INVENTORY> 0 0
<CURRENT-ASSETS> 291 111,189
<PP&E> 585 7,216
<DEPRECIATION> (188) (1,323)
<TOTAL-ASSETS> 688 416,725
<CURRENT-LIABILITIES> 391 11,618
<BONDS> 0 0
0 0
0 0
<COMMON> 0 715
<OTHER-SE> (289) 402,873
<TOTAL-LIABILITY-AND-EQUITY> 688 416,725
<SALES> 9,905 27,873
<TOTAL-REVENUES> 9,905 27,873
<CGS> 3,522 13,863
<TOTAL-COSTS> 5,731 42,195
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 (54)
<INCOME-PRETAX> 4,174 (14,268)
<INCOME-TAX> 1,827 2,951
<INCOME-CONTINUING> 2,347 (17,219)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,347 (17,219)
<EPS-PRIMARY> .06 (.38)
<EPS-DILUTED> .06 (.38)
</TABLE>
