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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the period ended June 30, 1999
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 0-25041
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TICKETMASTER ONLINE - CITYSEARCH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4546874
(State or other (I.R.S. Employer
jurisdiction of Identification
Incorporation or Number)
organization)
790 E. COLORADO BOULEVARD, SUITE 200, PASADENA, CA 91101
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(Address of principal executive offices)
TELEPHONE NUMBER (626) 405-0050
(Registrant's telephone number, including area code)
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
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As of June 30, 1999, there were 13,946,015 shares of the Registrant's Class B
Common Stock outstanding.
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TICKETMASTER ONLINE - CITYSEARCH, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
No.
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<S> <C>
PART I-FINANCIAL INFORMATION.................................................................................... 3
Item 1. Financial Statements (unaudited).............................................................. 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................... 12
PART II-OTHER INFORMATION....................................................................................... 13
Item 2. Changes in Securities and Use of Proceeds..................................................... 14
Item 6. Exhibits and Reports on Form 8-K.............................................................. 14
SIGNATURES...................................................................................................... 15
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TICKETMASTER ONLINE-CITYSEARCH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1999 DECEMBER 31, 1998
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(unaudited) (see note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 88,494 $ 106,910
Accounts receivable (net of allowance for doubtful accounts of $346 and $58,
respectively)........................................................... 2,151 1,249
Related party receivable.................................................... 1,512 813
Due from licensees.......................................................... 2,975 1,440
Prepaid expenses............................................................ 1,702 777
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Total current assets.................................................... 96,834 111,189
Computers, software, equipment and leasehold improvements, net................... 9,135 5,893
Goodwill and other intangibles, net.............................................. 344,715 299,643
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Total assets............................................................ $ 450,684 $ 416,725
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 2,864 $ 2,734
Accrued expenses............................................................ 7,366 4,551
Deferred revenue............................................................ 2,677 1,882
Current portion of capital lease obligations................................ 1,125 1,331
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Total current liabilities............................................... 14,032 10,498
Other long-term liabilities...................................................... 1,314 1,557
Capital lease obligations, net of current portion................................ 766 1,082
Stockholders' equity:
Class A Common Stock, $0.01 par value:
Authorized shares --100,000,000 at June 30, 1999
Issued and outstanding-- 60,727,223 and 63,291,653 at June 30, 1999 and
December 31, 1998, respectively......................................... 607 633
Class B Common Stock--$0.01 par value:
Authorized shares--250,000,000 at June 30, 1999
Issued and outstanding--13,946,015 and 8,167,000 at June 30, 1999 and
December 31, 1998, respectively......................................... 139 82
Class C Common Stock--$0.01 par value:
Authorized shares--2,883,506 at June 30, 1999
Issued and outstanding--none............................................ -- --
Additional paid-in capital.................................................. 490,527 418,918
Accumulated deficit......................................................... (56,701) (16,045)
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Total stockholders' equity.............................................. 434,572 403,588
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Total liabilities and stockholders' equity.......................... $ 450,684 $416,725
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</TABLE>
See accompanying notes.
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TICKETMASTER ONLINE-CITYSEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
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1999 1998 1999 1998
--------------- ----------- ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Ticketing operations.................................. $ 17,792 $ 3,710 $ 27,178 $ 5,947
Sponsorship and advertising........................... 1,177 1,527 2,209 2,444
City guide and related................................ 6,559 -- 12,112 --
--------------- ----------- ------------ ------------
Total revenues...................................... 25,528 5,237 41,499 8,391
Operating costs and expenses:
Ticketing operations.................................. 13,455 2,074 20,307 3,451
City guide and related................................ 5,861 -- 10,468 --
Sales and marketing................................... 9,379 245 15,578 470
Research and development.............................. 1,605 -- 3,538 --
General and administrative............................ 3,291 492 5,907 1,007
Amortization of goodwill.............................. 13,713 -- 25,689 --
Merger and other transactions costs................... 2,100 -- 2,771 --
--------------- ----------- ------------ ------------
Total costs and expenses............................ 49,404 2,811 84,258 4,928
--------------- ----------- ------------ ------------
Income (loss) from operations........................... (23,876) 2,426 (42,759) 3,463
Interest income (expense) net........................... 1,037 -- 2,237 --
--------------- ----------- ------------ ------------
Income (loss) before income taxes....................... (22,839) 2,426 (40,522) 3,463
Income tax provision.................................... 77 1,059 134 1,511
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Net income (loss)....................................... $ (22,916) $ 1,367 $ (40,656) $ 1,952
--------------- ----------- ------------ ------------
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Basic and diluted net income (loss) per share........... $ (0.31) $ 0.04 $ (0.56) $ 0.05
--------------- ----------- ------------ ------------
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Shares used to compute basic and diluted net income
(loss) per share........................................ 72,926 37,238 72,249 37,238
--------------- ----------- ------------ ------------
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</TABLE>
See accompanying notes.
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TICKETMASTER ONLINE-CITYSEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
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1999 1998
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(unaudited)
<S> <C> <C>
Operating activities
Net income (loss)................................................................ $ (40,656) $ 1,952
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization........................................... 27,537 78
Changes in operating assets and liabilities:
Accounts receivable................................................ (721) (16)
Related party receivable........................................... (699) --
Due from licensees................................................. (1,535) --
Prepaid expenses................................................... (694) 60
Accounts payable................................................... (898) 42
Accrued expenses................................................... 2,524 191
Deferred revenue................................................... 576 2,395
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Net cash provided by (used in) operating activities............ (14,566) 4,702
Investing activities
Capital expenditures............................................................. (3,228) (121)
Deferred purchase price of subsidiary............................................ (223) --
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Net cash used in investing activities.......................... (3,451) (121)
Financing activities
Net distributions to Ticketmaster Corp...................................... -- (4,581)
Net proceeds from exercise of options and warrants.......................... 1,132 --
Payment of costs of initial public offering................................. (836) --
Payments on capital leases.................................................. (726) --
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Net cash used in financing activities.......................... (430) (4,581)
Net cash acquired in CityAuction Merger.......................................... 13 --
Net cash acquired in Match.com Merger............................................ 18 --
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Net decrease in cash and cash equivalents........................................ (18,416) --
Cash and cash equivalents at beginning of period................................. 106,910 --
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Cash and cash equivalents at end of period....................................... $ 88,494 $ --
--------------- -----------
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</TABLE>
See accompanying notes.
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TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Ticketmaster Online-CitySearch, Inc. (the "Company") 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
has integrated 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.
BASIS OF PRESENTATION
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 (the "Ticketmaster
Acquisition"). In June 1998, USAi completed its acquisition of Ticketmaster
Group in a tax-free merger (collectively with the Ticketmaster Acquisition, 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., 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.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals)
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considered necessary for a fair presentation have been included. Operating
results for the six month period ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1999.
The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1998.
PRO FORMA FINANCIAL DATA (UNAUDITED)
The following unaudited pro forma information presents a summary of the
results of the Company assuming the Merger, the Ticketmaster Transaction and the
tender offer by USAi to purchase shares of Common Stock from CitySearch
stockholders in connection with the Merger had all occurred as of January 1,
1998, with pro forma adjustments to give effect to amortization of goodwill,
certain other adjustments to conform to the terms of the License and Services
Agreement dated August 12, 1998 by and among Ticketmaster Corp., Ticketmaster
Online and USAi (the "Ticketmaster 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 occurred as of January 1, 1998.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998
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(in thousands)
<S> <C>
Revenues............................................... $ 15,189
Net loss............................................... $ (37,417)
Basic and diluted net loss per share................... $ (.61)
</TABLE>
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are determined by dividing the net
earnings (loss) by the weighted average shares of Common Stock outstanding
during the period. Diluted earnings (loss) per share are determined by dividing
the net earnings (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 six months ended June 30, 1999 because the effects of outstanding stock
options are antidilutive. Basic and dilutive earnings (loss) per share are the
same for the six months ended June 30, 1998 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 six months ended June 30, 1998 represent the number of
shares of CitySearch Common Stock exchanged in the Merger.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's balances to conform
to the current year presentation.
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NOTE 2 -- BUSINESS COMBINATIONS
Acquisition of CityAuction, Inc.
On March 29, 1999, the Company completed the acquisition of
CityAuction, Inc. ("CityAuction"), a person-to-person online auction
community. In connection with the acquisition, the Company issued an
aggregate of approximately 800,000 shares of its Class B Common Stock for all
the outstanding capital stock of CityAuction, Inc. representing an aggregate
purchase price of $27.2 million. The acquisition was accounted for using the
purchase method of accounting which resulted in approximately $28.1 million
of goodwill which is amortized over five years. The results of operations of
CityAuction are included in the accompanying statement of operations from the
date of acquisition.
Acquisition of Match.com, Inc.
On June 14, 1999, the Company completed the acquisition of
Match.com, Inc ("Match.com"), an Internet personals company. In connection
with the acquisition, the Company issued 1,924,777 shares of Class B Common
Stock to the former owners of Match.com representing a total purchase price
of approximately $43.3 million. The acquisition was accounted for using the
purchase method of accounting which resulted in approximately $42.6 million
of goodwill which is amortized over five years. The results of operations of
Match.com are included in the accompanying statement of operations from the
date of acquisition.
Pending Acquisition of Web Media
On June 10, 1999, the Company, Web Media Ventures, L.L.C. ("Web
Media"), a Texas limited liability company (d/b/a One & Only Network),
William Bunker, David Kennedy and Glenn Wiggins entered into a Reorganization
Agreement pursuant to which the Company will purchase all the outstanding
limited liability company units ("Units") of Web Media for shares of the
Company's Class B Common Stock. Web Media is an Internet personals company
distributing its services through a network of affiliated Internet sites. The
Company has the option to pay cash or issue shares of Class B Common Stock in
exchange for all of the Web Media Units. The initial target purchase price
for the Web Media Units is $40.6 million of the Company's Class B Common
Stock, of which $30.0 million of Class B Common Stock is payable upon the
closing of the transaction and $2.2 million of Class B Common Stock is
payable in two quarterly installments with the remainder of the target
purchase price due 270 days after the closing of the transaction. The target
purchase price is subject to a 10% increase or decrease based on, among other
things, the achievement of certain 1999 calendar revenue targets by Web
Media. The number of shares of Class B Common Stock to be issued in the
acquisition will be determined by dividing the portion of the purchase price,
as adjusted, currently payable under the terms of the agreement, by the
average closing price of the Class B Common Stock shortly before the closing
of the acquisition and shortly before each subsequent payment date, subject
to certain minimum and maximum share prices. The final purchase price to be
recorded will also depend on the price of the Class B Common Stock at the
date of closing. The closing of the acquisition is subject to several
conditions, including but not limited to the effectiveness of a registration
statement filed by the Company with respect to the Class B Common Stock to be
issued in the transaction. The acquisition will be accounted for using the
purchase method of accounting. It is expected that the acquisition will
result in goodwill in an amount approximating the purchase price that will be
amortized by the Company over a period of five years. This transaction is
expected to close during the third quarter of 1999.
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NOTE 3-- SUBSEQUENT EVENT
Pending Transaction Regarding Sidewalk.com
On July 19, 1999, the Company entered into an agreement to acquire
certain assets associated with the entertainment city guide (A&E) portion of
the Sidewalk.com web site ("Sidewalk") from Microsoft Corporation
("Microsoft"). The Company also entered into a four year distribution
agreement with Microsoft pursuant to which the Company will become the
exclusive provider of local city guide content on the Microsoft Network
("MSN") and the Company's internet personals Web sites will become the
premier provider of personals content to MSN. In addition, the Company and
Microsoft entered into additional cross-promotional arrangements. The
transaction is expected to close during the third quarter 1999 following
regulatory approval. In connection with these transactions, the Company
agreed to issue 7,000,000 shares of its Class B Common Stock and two warrants
to purchase an aggregate of 4,500,000 shares of its Class B Common Stock. The
first warrant for 3,000,000 shares has an initial exercise price of $30 per
share, which adjusts downward by $1/16 for each $1/16 increase in the price
of the Class B Common Stock over $30 at the time the warrant is exercised.
The second warrant for 1,500,000 shares has a fixed exercise price of $60 per
share of Class B Common Stock. The Company granted Microsoft certain
registration rights in connection with the transaction.
ITEM 2. 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 CONDENSED
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.
CAPITALIZED TERMS USED BELOW HAVE THE MEANING ASCRIBED TO THEM IN THE
SECTIONS ABOVE.
OVERVIEW
The Company 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 has integrated 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.
OPERATING LOSSES
The Company incurred a net loss of $40.7 million for the six months
ended June 30, 1999 and earned net income of $2.0 for the six months ended June
30, 1998. At June 30, 1999, the Company had an accumulated deficit of $56.7
million.
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RESULTS OF OPERATIONS
TICKETING OPERATIONS REVENUES. Ticketing operations revenues were $17.8
million and $27.2 million for the three months and six months ended June 30,
1999, respectively, as compared to $3.7 million and $5.9 million for the
corresponding periods of the preceding year. The increase is primarily
attributable to a significant increase in the number of tickets sold (from
677,000 to 2,604,000 tickets for the three months ended June 30, 1998 and 1999,
respectively and from 1,110,000 to 4,219,000 tickets for the six months ended
June 30, 1998 and 1999, respectively). Additionally, there was an increase in
average convenience charge revenue per ticket of 23.4% from the three months
ended June 30,1998 to June 30, 1999 and 18.8% from the six months ended June 30,
1998 to June 30, 1999, respectively.
SPONSORSHIP AND ADVERTISING REVENUES. Sponsorship and advertising
revenues were $1.2 million and $2.2 million for the three months and six months
ended June 30, 1999, respectively, as compared to $1.5 million and $2.4 million
for the corresponding periods of the preceding year. The decrease was primarily
attributable to a decrease in sponsorship and promotion activity with a
strategic marketing partner.
CITY GUIDE AND RELATED REVENUES. City guide and related revenues were
$6.6 million and $12.1 million for the three months and six months ended June
30, 1999, respectively, representing the CitySearch city guide and related
revenue of the CitySearch business acquired.
TICKETING OPERATIONS EXPENSES. Ticketing operations expenses consist
primarily of expenses associated with ticket fulfillment, licenses and
royalties, Web site design and layout, service and network infrastructure
maintenance and data communications. Ticketing operations expenses were $13.5
million and $20.3 million for the three months and six months ended June 30,
1999, respectively, as compared to $2.1 million and $3.5 million for the
corresponding periods of the preceding year. 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.
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 and network
infrastructure maintenance. This category also includes the costs of consulting
services in partner-led markets. City guide and related expenses were $5.9
million and $10.5 million for the three months and six months ended June 30,
1999, respectively. City guide and related expenses are expensed as incurred.
City guide and related expenses will continue to increase in future periods as
city guide and related sales increase and as new cities are added to the network
in future 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 $9.4 million and $15.6
million for the three months and six months ended June 30, 1999, respectively,
as compared to $.2 million and $.5 million for the corresponding periods of the
preceding year. The increase for the six months ended June 30, 1999 as compared
to the six months ended June 30, 1998 is due primarily to the sales and
marketing costs of CitySearch for the six months ended June 30, 1999 amounting
to $14.6 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
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as the Company continues to roll out its nationwide network of city guide
cities.
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 $1.6 million and $3.5 million for the three months and six months ended
June 30, 1999, respectively, which represents primarily the research and
development cost of CitySearch. 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 senior management personnel
costs. General and administrative expenses were $3.3 million and $5.9 million
for the three months and six months ended June 30, 1999, respectively, as
compared to $.5 and $1.0 million in the corresponding periods of the preceding
year. The substantial increase for the six month period ended June 30, 1999 was
due primarily to general and administrative expenses of CitySearch amounting to
$5.4 million. The Company expects that general and administrative expenses will
increase in absolute dollars.
AMORTIZATION OF GOODWILL. Amortization of goodwill consists of
goodwill associated with the Ticketmaster Acquisition, the Merger and the
acquisitions of CityAuction and Match.com. Amortization of goodwill was $13.7
million and $25.7 million for the three months and six months ended June 30,
1999, respectively, primarily relating to the Merger and the Ticketmaster
Acquistion. There was no associated amortization of goodwill in the prior
year periods as the Ticketmaster Acquisition did not occur until the end of
June 1998. Amortization of goodwill is expected to increase as the pending
acquisitions are completed.
MERGER AND OTHER TRANSACTIONS COSTS. Merger and other transaction
costs were $2.1 million and $2.8 million for the three month and six month
periods ended June 30, 1999. These costs are primarily as a result of
advisory fees, regulatory filing fees and legal and accounting costs related
to the terminated merger between the Company, certain assets owned by the
Company's majority shareholder and Lycos, Inc.
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
$1.0 million and $2.2 million for the three months and six months ended June
30, 1999 and had no interest expense in the corresponding periods of the
preceding year. The Company invests its cash balances in short-term,
investment grade, interest-bearing securities.
INCOME TAXES. The provision for income taxes was $.1 million and $.1
million for the three months and six months ended June 30, 1999, respectively
as compared to $1.1 million and $1.5 million for the corresponding periods in
the preceding year. The Company's effective tax rate differs from the
statutory federal income tax rate, primarily as a result of state income
taxes, operating losses not benefited and non-deductible goodwill. The Company
expects that its tax provision will remain nominal for the balance of 1999
and 2000 due to the availability of net operating losses of CitySearch.
However, certain net operating loss carryforwards, existing at the Merger
date, will not be available to further offset taxable income of the Company.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $14.6 million for the six
months ended June 30, 1999 and net cash provided by operating activities was
$4.7 million for the six months ended June 30, 1998.
Net cash used in operating activities for the six months ended June
30, 1999 arose primarily from the difference between net loss from
operations, the change in working capital and the amortization of goodwill
relating to the Ticketmaster Acquisition and Merger. The cash provided by
operating activities for the six month period ended June 30, 1998 arose
primarily from the net income from operations offset partially by the
prepayment of revenue associated with advertising activities.
Net cash used in investing activities was $3.5 million and $.1
million for the six months ended June 30, 1999 and June 30, 1998,
respectively, and consisting primarily of capital expenditures for computers,
software, equipment and leasehold improvements. Net cash used in financing
activities was $.4 million and $4.6 million for the six month periods ended
June 30, 1999 and 1998, respectively. The $4.2 million reduction in the cash
used in financing activities arose as the relationship between Ticketmaster
Online and Ticketmaster Corp. changed as a result of the Merger.
At June 30, 1999, the Company's cash and cash equivalents were $88.5
million. Existing cash and cash equivalents are expected to be sufficient to
meet 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
and an independent Year 2000 professional consultant. 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 $300,000. However, the
Company continues to review and update its assessment of remediation
requirements and costs including those associated with its recent and pending
acquisitions and actual costs could materially differ.
-12-
<PAGE>
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 and could tarnish the Company's public image as
a technology 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market 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.
-13-
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Unregistered Securities
In June 1999, the Company issued an aggregate of 1,924,777
shares of Class B Common Stock as consideration for the Match.com
acquisition. The shares were issued to the former shareholder of Match.com.
The issuance of these securities was deemed to be exempt from registration
under the Securities Act of 1933 (the "Securities Act") in reliance on
Section 4(2) of the Securities Act, or Regulation D promugated thereunder, as
transactions by an issuer not involving a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.7 Agreement and Plan of Merger by and among Sidewalk.com, Inc., Microsoft
Corporation and the Registrant, dated as of July 19, 1999.
4.2 Form of Class B Common Stock Purchase Warrant of the Registrant to be
delivered upon closing of the Sidewalk acquisition (3,000,000 shares).
4.3 Form of Class B Common Stock Purchase Warrant of the Registrant to be
delivered upon closing of the Sidewalk acquisition (1,500,000 shares).
10.38 Form of Registration Rights Agreement to be entered into between the
Registrant and Microsoft Corporation upon closing of the Sidewalk
acquisition
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On April 29, 1999, the Company filed a Report on Form 8-K relating to the
CityAuction acquisition.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 13, 1999 TICKETMASTER ONLINE - CITYSEARCH, INC.
By: /s/ Charles Conn
-------------------------------------------------
Charles Conn
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Thomas McInerney
-------------------------------------------------
Thomas McInerney
Chief Financial Officer and Executive Vice
President
(Principal Financial and Accounting Officer)
-15-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
2.7 Agreement and Plan of Merger by and among Sidewalk.com, Inc.,
Microsoft Corporation and the Registrant, dated as of July 19,
1999
4.2 Form of Class B Common Stock Purchase Warrant of the Registrant to
be delivered upon closing of the Sidewalk acquisition (3,000,000
shares).
4.3 Form of Class B Common Stock Purchase Warrant of the Registrant to
be delivered upon closing of the Sidewalk acquisition (1,500,000
shares).
10.38 Form of Registration Rights Agreement to be entered into between
the Registrant and Microsoft Corporation upon closing of the
Sidewalk acquisition
27.1 Financial Data Schedule
</TABLE>
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<PAGE>
EXHIBIT 2.7
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SIDEWALK.COM, INC.,
MICROSOFT CORPORATION,
TICKETMASTER ONLINE-CITYSEARCH, INC.
AND
TICKETMASTER ACQUISITION, INC.
DATED AS OF JULY 19, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.01 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.02 Index of Other Defined Terms . . . . . . . . . . . . . . . . . . . . . . .6
ARTICLE II. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.01. The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.02. Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.03. Closing of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.04. Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.05. Articles of Incorporation and Bylaws. . . . . . . . . . . . . . . . . . .8
2.06. Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.07. Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.08. Conversion of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND MICROSOFT . . . . . .9
3.01 Existence and Power; Capitalization. . . . . . . . . . . . . . . . . . . .9
3.02 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.03 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . 10
3.04 Non-Contravention. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.05 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . 10
3.06 Properties; Material Leases; Tangible Assets . . . . . . . . . . . . . . 11
3.07 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.08 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.09 Permits; Required Consents . . . . . . . . . . . . . . . . . . . . . . . 12
3.10 Compliance with Applicable Laws. . . . . . . . . . . . . . . . . . . . . 13
3.11 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.12 Labor and Employment Matters . . . . . . . . . . . . . . . . . . . . . . 13
3.13 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.14 Advisory Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.15. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.16. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.17 Investment Representations . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION . . . . . . . 20
4.01 Organization and Existence . . . . . . . . . . . . . . . . . . . . . . . 20
4.02 Corporate Authorization. . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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<TABLE>
<S> <C>
4.03 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . 20
4.04 Non-Contravention. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.05 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.06 SEC Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.07 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.08 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.09 Acquisition's Operations . . . . . . . . . . . . . . . . . . . . . . . . 22
4.10 Tax Representations. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V. COVENANTS OF MICROSOFT. . . . . . . . . . . . . . . . . . . . . . . . . 22
5.01 Conduct of the Business. . . . . . . . . . . . . . . . . . . . . . . . . 22
5.02 Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . 23
5.03 Sidewalk Content Agreements. . . . . . . . . . . . . . . . . . . . . . . 24
5.04 Release of Moral Rights. . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VI. COVENANTS OF ALL PARTIES . . . . . . . . . . . . . . . . . . . . . . . 25
6.01 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.02 Confidentiality; Public Announcements. . . . . . . . . . . . . . . . . . 26
6.03 Distribution Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.04 Transition Services Agreement. . . . . . . . . . . . . . . . . . . . . . 26
6.05 License Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.06 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.07 Lock-up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.08 Cash Adjustment to Merger Consideration. . . . . . . . . . . . . . . . . 27
ARTICLE VII. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . 28
7.01 Conditions to Obligation of Parent and Acquisition . . . . . . . . . . . 28
7.02 Conditions to Obligation of Microsoft and the Company. . . . . . . . . . 29
ARTICLE VIII. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.01 Agreement to Indemnify . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.02 Survival of Representations, Warranties and Covenants. . . . . . . . . . 32
8.03 Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.04 Claims for Indemnification . . . . . . . . . . . . . . . . . . . . . . . 33
8.05 Defense of Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE IX. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.01 Grounds for Termination. . . . . . . . . . . . . . . . . . . . . . . . . 34
9.02 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<TABLE>
<S> <C>
ARTICLE X. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.01 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.02 Amendments; No Waivers. . . . . . . . . . . . . . . . . . . . . . . . . 36
10.03 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.04 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . 37
10.05 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.06 Counterparts; Effectiveness . . . . . . . . . . . . . . . . . . . . . . 37
10.07 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.08 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.09 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.10 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.11 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.12 Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.13 Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.14 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
iii
<PAGE>
EXHIBITS
Exhibit A Microsoft Tax Representation Letter
Exhibit B Parent Tax Representation Letter
Exhibit C Distribution Agreement
Exhibit D License Agreement
SCHEDULES
<TABLE>
<S> <C>
Schedule I. . . . . . . . . . . . .Knowledge of Microsoft and the Company
Schedule 3.04 . . . . . . . . . . .Non-Contravention
Schedule 3.05 . . . . . . . . . . .Absence of Certain Changes
Schedule 3.06(a). . . . . . . . . .Encumbrances on Property
Schedule 3.06(c). . . . . . . . . .Owned Real Property
Schedule 3.07 . . . . . . . . . . .Litigation
Schedule 3.08(b). . . . . . . . . .Valid and Binding Contracts
Schedule 3.13(b). . . . . . . . . .Marks
Schedule 3.13(c). . . . . . . . . .Sidewalk Content
Schedule 3.13(e). . . . . . . . . .Infringement
Schedule 3.13(f). . . . . . . . . .Employee Assignment Agreements
Schedule 5.01(a)(iv). . . . . . . .Capital Expenditures
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), is dated
as of July 19, 1999, by and among MICROSOFT CORPORATION, a Washington
corporation ("MICROSOFT"), SIDEWALK.COM, INC., a Nevada corporation and
wholly-owned subsidiary of Microsoft (the "COMPANY"), TICKETMASTER
ONLINE-CITYSEARCH, INC., a Delaware corporation ("PARENT"), and TICKETMASTER
ACQUISITION, INC., a Nevada corporation and wholly-owned subsidiary of Parent
("ACQUISITION").
R E C I T A L S
WHEREAS, the Boards of Directors of the Company, Parent and
Acquisition have each (i) determined that the Merger (as defined below) is
advisable and fair and in the best interests of their respective stockholders
and (ii) approved the Merger upon the terms and subject to the conditions set
forth in this Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises, and the
mutual representations, warranties, covenants and agreements hereinafter set
forth, the parties hereto agree as follows.
ARTICLE I.
DEFINITIONS
1.01 DEFINITIONS. The following terms, as used herein, have
the following meanings:
"AFFILIATE" means, with respect to any Person, any Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with such other Person, through the ownership of all or part
of any Person.
"ANCILLARY AGREEMENTS" means the Distribution Agreement, the
Transition Services Agreement and the License Agreement (all as defined
below).
"APPLICABLE LAW" means, with respect to any Person, any
domestic or foreign, federal, state or local statute, law, ordinance, policy,
guidance, rule, administrative interpretation, regulation, order, writ,
injunction, directive, judgment, decree or other requirement, of any
Governmental Authority (including any Environmental Law) applicable to such
Person or any of its Affiliates or Plan Affiliates or any of their respective
properties, assets, officers, directors, employees or agents (in connection
with such officer's, director's, employee's or agent's activities on behalf
of such Person or any of its Affiliates).
"BUSINESS" means the creation, modification, maintenance and
other operations of the Arts & Entertainment portion of Sidewalk.com (as
defined below), but does not include the
1
<PAGE>
MSN Yellow Pages, MSN Buyer's Guide portion of Sidewalk.com as it is
presently operated or any assets or activities in the Excluded Territory (as
defined below).
"BUSINESS DAY" means a day other than a Saturday, Sunday or other
day on which commercial banks in Los Angeles, California are authorized or
required by law to close.
"CITYSEARCH" shall have the meaning set forth in the Distribution
Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY ASSETS" means the assets owned by the Company and those
additional assets which Microsoft has agreed to transfer to the Company.
"CONTRACTS" means all contracts, agreements, options, leases,
licenses, sales and accepted purchase orders, commitments and other instruments
of any kind, whether written or oral, to which Microsoft, in connection with the
Business, is a party on the Closing Date, including the Material Contracts and
the Subsequent Material Contracts.
"DAMAGES" means all demands, claims, actions or causes of action,
assessments, losses, Damages, costs, expenses, Liabilities, judgments, awards,
fines, sanctions, penalties, charges and amounts paid in settlement (net of
insurance proceeds actually received), including (i) interest on cash
disbursements in respect of any of the foregoing at the Reference Rate in effect
from time to time, compounded quarterly, from the date each such cash
disbursement is made until the Person incurring the same shall have been
indemnified in respect thereof and (ii) reasonable costs, fees and expenses of
attorneys, accountants and other agents of such Person.
"EMPLOYEE PENSION BENEFIT PLAN" means any employee pension benefit
plan, as defined in Section 3(2) of ERISA, that is subject to Title IV of ERISA,
other than a Multiemployer Plan.
"EMPLOYEE PLAN" means any health care plan; life insurance or
other death benefit plan; deferred compensation or other pension or retirement
plan; stock option, bonus or other incentive plan; severance or early retirement
plan; or other fringe or employee benefit plan; or any employment or consulting
contract or executive compensation agreement; whether the same are written or
otherwise, formal or informal, voluntary or required by law or by Microsoft's or
the Company's policies or practices, for the benefit of or relating to any
present or former employees, leased employees, agents, directors, and/or their
dependents, of Microsoft or the Company in connection with the Business;
including, without limitation, any Employee Pension Benefit Plan and any Welfare
Plan (whether or not any of the foregoing is funded), (i) to which Microsoft or
the Company is a party or by which Microsoft or the Company is bound, (ii) that
Microsoft or the Company has at any time established or maintained for the
benefit of or relating to any present or former employees, leased employees,
agents, directors, and/or their dependents, of the Company or Microsoft in
connection with the Business, or (iii) with respect to which Microsoft or the
Company has made any payments or contributions, or otherwise has any liability
(including any such plan or other arrangement formerly maintained by the Company
or
2
<PAGE>
Microsoft in connection with the Business). "WELFARE PLAN" means an
"employee welfare benefit plan" as defined in Section 3(1) of ERISA.
"ENVIRONMENT" means any ambient, workplace or indoor air, surface
water, drinking water, groundwater, land surface, subsurface strata, river
sediment, plant or animal life, natural resources, workplace, and real property
and the physical buildings, structures, improvements and fixtures thereon.
"ENVIRONMENTAL LAWS" means all Applicable Laws relating to
Hazardous Substances, toxic torts, occupational health and safety, or the
Environment.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA AFFILIATE" of any Person means any other Person that,
together with such Person as of the relevant measuring date under ERISA, was or
is required to be treated as a single employer under Section 414 of the Code.
"FISCAL YEAR" means a twelve month period commencing on January 1
of each calendar year.
"GAAP" means generally accepted accounting principles in the
United States as in effect on the date hereof and applied on a consistent basis.
"GOVERNMENTAL AUTHORITY" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.
"HAZARDOUS SUBSTANCE" means any substance or material: (i) the
presence of which requires investigation or remediation under any Applicable
Law; or (ii) that is defined as a "pollutant or contaminant," "solid waste,"
"hazardous waste" or "hazardous substance" under any Applicable Law; or
(iii) that is toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic or mutagenic or otherwise hazardous and is regulated by any
Governmental Authority having or asserting jurisdiction over the Business; or
(iv) the presence of which causes a nuisance, trespass or other tortious
condition; (v) the presence of which poses a hazard to the health or safety of
Persons; or (vi) without limitation, that contains gasoline, diesel fuel or
other petroleum hydrocarbons, polychlorinated biphenols (PCBs) or asbestos.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.
"INDEMNIFYING PARTY" means: (i) with respect to any Parent
Indemnitee asserting a claim under SECTIONS 8.01 or 10.11, Microsoft; and
(ii) with respect to any Company Indemnitee asserting a claim under
SECTIONS 8.01 or 10.11, Parent.
3
<PAGE>
"INDEMNITEE" means: (i) each of the Parent and its Affiliates
with respect to any claim for which Microsoft is an Indemnifying Party under
SECTIONS 8.01 or 10.11; and (ii) Microsoft and its Affiliates with respect to
claims for which the Parent is an Indemnifying Party under SECTIONS 8.01 or
10.11.
"KNOWLEDGE OF," "BEST OF KNOWLEDGE OF," or other derivations of
"KNOW" with respect to Microsoft or the Company means the knowledge of the
individuals identified on SCHEDULE I, after reasonable inquiry directly or by
representatives on such Person's behalf.
"LIABILITY" means, with respect to any Person, any liability or
obligation of such Person of any kind, character or description, whether known
or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise and whether
or not the same is required to be accrued on the financial statements of such
Person or is disclosed on any schedule to this Agreement.
"LIEN" means, with respect to any asset, any mortgage, title
defect or objection, lien, pledge, charge, security interest, hypothecation,
restriction, encumbrance or charge of any kind in respect of such asset.
"MATERIAL ADVERSE EFFECT" means a change in, or effect on, the
operations, affairs, prospects, financial condition, results of operations,
assets, Liabilities, reserves or any other aspect of the Business that results
in a material adverse effect on, or a material adverse change in, the Business,
or a material adverse effect on the Surviving Corporation's ownership of the
Business after the Closing.
"MATERIAL CONTRACTS" means all material existing written
contracts, leases, commitments and obligations of Microsoft or the Company that
are part of the Company Assets.
"MSN BUYER'S GUIDE" shall have the meaning set forth in the
Distribution Agreement.
"MSN YELLOW PAGES" shall have the meaning set forth in the
Distribution Agreement.
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in
Section 3(37) and 4001(a)(3) of ERISA.
"PERMITTED LIENS" means (i) Liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet due, or for Taxes
the validity of which are being contested in good faith by appropriate
proceedings; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other Liens
imposed by Applicable Law incurred in the ordinary course of business for sums
not yet delinquent or being contested in good faith; (iii) Liens relating to
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or to
secure the performance of leases, trade contracts or other
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similar agreements; (iv) Liens and Encumbrances specifically identified in
the Financial Statements; (v) Liens securing executory obligations under any
Lease that constitutes an "operating lease" under GAAP.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, trust, estate or other entity or organization,
including a Governmental Authority.
"REFERENCE RATE" means the per annum rate of interest publicly
announced from time to time by the Bank of America as its prime rate (or
reference rate). Any change in the Reference Rate shall take effect at the
opening of business on the day specified in the public announcement of such
change. Notwithstanding the foregoing, in no event shall the rate of interest
payable by any party hereto under this Agreement exceed the maximum rate
permitted by Applicable Law with respect to such payments under this Agreement.
"REQUIRED CONTRACTUAL CONSENT" means, with respect to any Material
Contract or Subsequent Material Contract, any consent of any party thereto that
is required by the terms thereof or Applicable Law by reason of the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby in order to avoid any default thereunder, breach of the
terms thereof or material alteration of the terms thereof.
"SIDEWALK.COM" means Microsoft's World Wide Web site operated
under the name "sidewalk.com" which is accessible at www.sidewalk.com.
"SUBSIDIARY" means, with respect to any Person, (i) any
corporation as to which more than 10% of the outstanding stock having ordinary
voting rights or power (and excluding stock having voting rights only upon the
occurrence of a contingency unless and until such contingency occurs and such
rights may be exercised) is owned or controlled, directly or indirectly, by such
Person and/or by one or more of such Person's Subsidiaries and (ii) any
partnership, joint venture or other similar relationship between such Person (or
any Subsidiary thereof) and any other Person (whether pursuant to a written
agreement or otherwise).
"TAX" (including "TAXES") means (i) all federal, state, local,
foreign and other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (ii) any liability
for payment of amounts described in clause (i) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law, including joint and
several liability under Section 1.1502-6 of the Treasury Regulations and (iii)
any liability for the payment of amounts described in clauses (i) or (ii) as a
result of any tax sharing, tax indemnity or tax allocation agreement or any
other express or implied agreement to indemnify any other person
"TAX RETURN" means all returns, reports, forms or other
information required to be filed with any taxing authority.
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"WARRANTS" means (i) a Warrant to purchase 1,500,000 shares of
Class B Common Stock, par value $.01 per share, of Parent (the "PARENT CLASS B
STOCK") and (ii) a Warrant to purchase 3,000,000 shares of Parent Class B Stock.
1.02 INDEX OF OTHER DEFINED TERMS. In addition to these terms
defined above, the following terms shall have the respective meanings given
thereto in the sections indicated below:
<TABLE>
<CAPTION>
DEFINED TERM SECTION
<S> <C>
AAA 10.11(a)
Acquisition Preamble
Agreement Preamble
Articles of Merger 2.02
Assignment Agreement 8.01(a)
Audited Financial Statements 5.02(a)
Cash 6.08(b)
Closing 2.03
Closing Date 2.03
Company Preamble
Company Indemnitees 8.01(b)
Content 3.13(a)
Content License Agreements 3.13(c)
Copyrights 3.13(a)
Disposition 6.07
Disputing Party 10.11(a)
Distribution Agreement 6.03
Effective Time 2.02
Encumbrances 3.06(a)
Exchange Act 4.06
Excluded Territory 3.13(a)
Financial Statements 5.02(a)
Intellectual Property Rights 3.13(a)
Interim Period 6.08(a)
License Agreement 6.05
Lock-up Period 6.07
Marks 3.13(a)
Merger 2.01
Merger Consideration 2.08
Microsoft Preamble
NGCL 2.01
Other IP Rights 3.13(a)
Outside Date 9.01(d)
Owned Content Copyrights 3.13(c)
Parent Preamble
Parent Common Stock 2.08
Parent Indemnitees 8.01(a)
Parent SEC Documents 4.06
</TABLE>
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<TABLE>
<S> <C>
Parent Shares 3.17
Parent Tax Representation Letter 4.10
Patents 3.13(a)
Payables 6.08(a)
Permits 3.09(a)
Proceedings 3.07
Real Property 3.06(c)
Required Consents 3.09(b)
Required Governmental Approval 3.09(b)
SEC 4.06
Securities Act 4.06
Shares 2.08
Sidewalk Content 3.13(a)
Sidewalk Mark 3.13(a)
Subsequent Material Contract 5.01(a)
Surviving Corporation 2.01
Trade Secrets 3.13(a)
Transition Services Agreement 6.04
</TABLE>
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ARTICLE II.
THE MERGER
2.01 THE MERGER. At the Effective Time (as defined below) and
upon the terms and subject to the conditions of this Agreement and in accordance
with the Nevada General Corporation Law (the "NGCL"), Acquisition shall be
merged with and into the Company (the "MERGER"). Following the Merger, the
Company shall continue as the surviving corporation (the "SURVIVING
CORPORATION") and the separate corporate existence of Acquisition shall cease.
2.02 EFFECTIVE TIME. Subject to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined below), Articles of
Merger, in proper form and mutually acceptable to the parties (the "ARTICLES OF
MERGER") shall be duly executed and acknowledged by Acquisition and the Company
and thereafter delivered to the Secretary of State of the State of Nevada for
filing pursuant to Section 92A.200 of the NGCL. The Merger shall become
effective at such time as a properly executed copy of the Articles of Merger is
duly filed with the Secretary of State of the State of Nevada in accordance with
Section 92A.200 of the NGCL or such later time as Parent and the Company may
agree upon and as set forth in the Articles of Merger (the time the Merger
becomes effective being referred to herein as the "EFFECTIVE TIME").
2.03. CLOSING OF THE MERGER. The closing (the "CLOSING") of the
transactions contemplated by this Agreement shall take place at the offices of
Preston Gates & Ellis LLP, 701 Fifth Avenue, Suite 5000, Seattle, WA 98104, on
the second Business Day after the last of the conditions to Closing set forth in
SECTIONS 7.01 and 7.02 have been satisfied or waived by the party or parties
entitled to waive the same or such other date as to which the parties may agree
(the "CLOSING DATE").
2.04. EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in the NGCL. Without limiting the generality of the foregoing and
subject thereto, at the Effective Time, all the properties, rights, privileges,
powers and franchises of the Company and Acquisition shall vest in the Surviving
Corporation and all debts, liabilities and duties of the Company and Acquisition
shall become the debts, liabilities and duties of the Surviving Corporation.
2.05. ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation of Acquisition in effect at the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation until amended in
accordance with applicable law. The bylaws of Acquisition in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
2.06. DIRECTORS. The directors of Acquisition at the Effective
Time shall be the initial directors of the Surviving Corporation, each to hold
office in accordance with the Articles of Incorporation and bylaws of the
Surviving Corporation until such director's successor is duly elected or
appointed and qualified.
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2.07. OFFICERS. The officers of Acquisition at the Effective
Time shall be the initial officers of the Surviving Corporation, each to hold
office in accordance with the Articles of Incorporation and bylaws of the
Surviving Corporation until such officer's successor is duly elected or
appointed and qualified.
2.08. CONVERSION OF SHARES.
(a) At the Effective Time, all of the shares of common stock,
without par value, of the Company issued and outstanding immediately prior to
the Effective Time (the "SHARES") shall, by virtue of the Merger and without any
action on the part of Acquisition, the Company or the holder thereof, be
converted into and shall become Seven Million (7,000,000) shares of Class B
Common Stock ("PARENT COMMON STOCK"), par value $.01 per share, of Parent (the
"MERGER CONSIDERATION"). Notwithstanding the foregoing, if, between the date of
this Agreement and the Effective Time, the outstanding shares of Parent Common
Stock or the Shares shall have been changed into a different number of shares or
a different class by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares
then the Merger Consideration shall be correspondingly adjusted to reflect such
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares.
(b) At the Effective Time, each outstanding share of the common
stock, without par value, of Acquisition shall be converted into one share of
common stock, without par value, of the Surviving Corporation.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND MICROSOFT
Except as disclosed in this Agreement, the Schedules or the
Exhibits, Microsoft and the Company hereby represent and warrant to Parent and
Acquisition as follows:
3.01 EXISTENCE AND POWER; CAPITALIZATION.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada and has all
corporate power and all governmental licenses, governmental authorizations,
governmental consents and governmental approvals required to carry on the
Business as now conducted by it and to own and operate the Business as now owned
and operated by it. The Company is, or will be at Closing, duly licensed or
qualified and in good standing as a foreign corporation in each jurisdiction in
which the ownership of its property or the nature of the business conducted by
it is such as to require it to be so license or qualified, except where the
failure to be so qualified, whether singly or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(b) The authorized capital stock of the Company consists
solely of 25,000 shares of common stock, without par value, of which, as of the
Closing Date, 1,000 Shares will be issued and outstanding and owned by
Microsoft. All of the Shares have been duly authorized and are validly issued,
fully paid and non-assessable. There are outstanding no
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securities convertible into, exchangeable for, or carrying the right to
acquire, equity securities of the Company, or subscriptions, warrants,
options, rights, calls, agreements, demands or other arrangements or
commitments of any character obligating the Company to issue or dispose of
any of its equity securities or any ownership interest therein or otherwise
relating to the capital stock of the Company.
3.02 AUTHORIZATION. The execution, delivery and performance by
the Company and Microsoft of this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby are within the
powers of the Company and Microsoft and have been duly authorized by all
necessary corporate action on its part. This Agreement and the Ancillary
Agreements have been duly and validly executed by the Company and Microsoft and
constitute the legal, valid and binding agreement of the Company and Microsoft
each enforceable against the Company and Microsoft in accordance with its terms,
(i) as rights to indemnity hereunder may be limited by federal or state
securities laws or the public policies embodied therein, (ii) as such
enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the enforcement of creditors' rights
generally and (iii) as the remedy of specific performance and other forms of
injunctive relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
3.03 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by the Company and Microsoft of this Agreement and the Ancillary
Agreements require no material action by, consent or approval of, or filing
with, any Governmental Authority other than actions in compliance with any
applicable requirements of the HSR Act.
3.04 NON-CONTRAVENTION. Except as set forth on SCHEDULE 3.04,
the execution, delivery and performance of this Agreement and the Ancillary
Agreements by the Company and Microsoft do not and will not (a) contravene or
conflict with the Charters or Bylaws of the Company and Microsoft; (b) assuming
receipt of the Required Consents, contravene or conflict with or constitute a
material violation of any provision of any Applicable Law binding upon or
applicable to the Company, Microsoft, the Business or the Shares; or (c) result
in the creation or imposition of any Lien on any of the assets of the Business.
3.05 ABSENCE OF CERTAIN CHANGES. Except as set forth on
SCHEDULE 3.05, or as otherwise disclosed in this Agreement, since June 1, 1999,
the Business has been conducted in the ordinary course, and there has not been:
(a) any event, occurrence, state of circumstances or
facts or change in the Business that has had or that may be reasonably expected
to have, either alone or together, a Material Adverse Effect;
(b) any incurrence, assumption or guarantee of any
indebtedness for borrowed money by the Company or Microsoft in connection with
the Business;
(c) any (i) payments by the Company in respect of Debt
or in satisfaction of any Liabilities of the Company, other than in the ordinary
course of business or
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(ii) creation, assumption or sufferance of the existence of (whether by
action or omission) any Lien on any Company Asset, other than Permitted Liens;
(d) any (i) commitment made, or any Contract entered
into, by Microsoft or the Company, including any capital expenditures or
commitments for additions to property, plant, equipment or intangible capital
assets which exceed One Hundred Thousand Dollars ($100,000) individually,
(ii) waiver, amendment, termination or cancellation of any Contract by the
Company or Microsoft in connection with the Business or (iii) any relinquishment
of any rights thereunder by the Company or of any other right or debt owed to
the Company, other than, in each such case, actions taken in the ordinary course
of business consistent with past practice;
(e) any sale, assignment, transfer, lease or other
disposition of or agreement to sell, assign, transfer, lease or otherwise
dispose of any asset or property having a value of One Hundred Thousand Dollars
($100,000) in the aggregate other than in the ordinary course of business; or
(f) any labor dispute or any activity or proceeding by a
labor union or representative thereof to organize any full time employees
(excluding contingent, temporary or part time employees) hired by Microsoft or
the Company for the Business, who were not subject to a collective bargaining
agreement at June 1, 1999, or any lockouts, strikes, slowdowns, work stoppages
or threats thereof by or with respect to any such employees.
3.06 PROPERTIES; MATERIAL LEASES; TANGIBLE ASSETS.
(a) Except as set forth on SCHEDULE 3.06(A), (i) the
Company has, or will have, as of the Closing, a good and valid title to or, in
the case of leased properties or properties held under license, a good and valid
leasehold or license interest in, all of the Company Assets and (ii) the Company
holds title to each such property and asset free and clear of all Liens, adverse
claims, or any other rights of others or other adverse interests of any kind
(collectively, "ENCUMBRANCES"), except Permitted Liens. The representations in
this SECTION 3.06(A) do not apply to the Marks, Content or Intellectual Property
Rights as to which only the representations in SECTION 3.13 shall apply.
(b) All material tangible assets of the Company, are, or
will be as of the Closing, in all material respects in reasonably serviceable
operating condition and repair and are adequate for the conduct of the Business
in substantially the same manner as the Business has heretofore been conducted.
(c) SCHEDULE 3.06(C) sets forth a true and complete list
of all real property owned or leased by the Company in connection with the
Business (collectively, the "REAL PROPERTY"), including the location of, and a
brief description of the nature of the activities conducted on, such Real
Property.
3.07 LITIGATION. Except as disclosed on SCHEDULE 3.07,
(i) there are no actions, suits, claims, hearings, arbitrations, proceedings
(public or private) or governmental
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investigations pending that have been brought by or against Microsoft or the
Company by or against any Governmental Authority or any other Person
(collectively, "PROCEEDINGS") pending or, to the knowledge of Microsoft or
the Company, threatened, against or by Microsoft or the Company with respect
to the Business or which seeks to enjoin or rescind the transactions
contemplated by this Agreement; and (ii) there are no existing orders,
judgments or decrees of any Governmental Authority naming Microsoft or the
Company with respect to the Business as an affected party.
3.08 MATERIAL CONTRACTS.
(a) All Material Contracts which are located at the
offices of Microsoft in Redmond, Washington have been made available to Parent.
(b) Except as disclosed in SCHEDULE 3.08(b), each
Material Contract is a legal, valid and binding obligation of Microsoft or the
Company and each other party thereto, enforceable against each such party
thereto in accordance with its terms, and neither the Company nor, to the
knowledge of Microsoft or the Company, any other party thereto is in material
default thereunder.
(c) The consummation of the transactions contemplated
hereby does not and will not constitute a material default on the part of
Microsoft or the Company under any of the Material Contracts.
(d) The representations in this SECTION 3.08 do not
apply to the Marks, Content or Intellectual Property Rights as to which only the
representations in SECTION 3.13 shall apply.
3.09 PERMITS; REQUIRED CONSENTS.
(a) The Company has, or will have at Closing, all
material approvals, authorizations, certificates, consents, licenses, orders and
permits and other similar authorizations of all Governmental Authorities
necessary for the operation of the Business in substantially the same manner as
currently operated or affecting or relating in any way to the Business (the
"PERMITS"). Each Permit is, or will be as of the Closing, valid and in full
force and effect in all material respects, and none of the material Permits will
be terminated or become terminable or impaired in any material respect as a
result of the transactions contemplated hereby.
(b) The Company has, or will have as of the Closing,
(i) each material governmental or other registration, filing, application,
notice, transfer, consent, approval, order, qualification and waiver required
under Applicable Law to be obtained by Microsoft or the Company by virtue of the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby to avoid the loss of any material Permit or otherwise (each,
a "REQUIRED GOVERNMENTAL APPROVAL" and collectively with the Required
Contractual Consents, the "REQUIRED CONSENTS").
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3.10 COMPLIANCE WITH APPLICABLE LAWS. Microsoft and the Company
have not violated or infringed, and are not in violation or infringement of, any
Applicable Law relating to the operation of the Business or any order, writ,
injunction or decree of any Governmental Authority relating to the Business.
3.11 EMPLOYEE BENEFITS. None of the Company, Microsoft and any
ERISA Affiliates of Microsoft currently sponsors or has ever sponsored,
maintained, contributed to, or incurred an obligation to contribute to, any
Employee Pension Benefit Plan (other than Employee Pension Benefit Plans that
will remain the full responsibility of Microsoft) on behalf of or with respect
to any employee of the Business. Neither Microsoft nor the Company currently
sponsors, maintains or contributes to any Multiemployer Plan covering employees
of the Business.
3.12 LABOR AND EMPLOYMENT MATTERS.
(a) No collective bargaining agreement exists that is
binding on the Company and no petition has been filed or proceedings instituted
by an employee or group of employees with any labor relations board seeking
recognition of a bargaining representative.
(b) (i) there is no labor strike, slow down or stoppage
pending or, to the knowledge of Microsoft or the Company, threatened, against or
directly affecting the Business, (ii) no grievance or arbitration proceeding
arising out of or under any collective bargaining agreement is pending, and, to
the knowledge of Microsoft or the Company, no claims therefor exist; and
(iii) none of Microsoft, the Company and any of their Affiliates has received
any notice or has any knowledge of any threatened labor or employment dispute,
controversy or grievance or any other unfair labor practice proceeding or breach
of contract claim or action with respect to claims of, or obligations to, any
employee or group of employees of the Business.
3.13 INTELLECTUAL PROPERTY.
(a) CERTAIN DEFINITIONS. When used in this SECTION
3.13, the following capitalized terms shall have the following meanings:
(i) "CONTENT" means content and information
(including editorial and advertising content and information) of whatever type
and in whatever medium, including without limitation, all text, graphics
(including JPEG and GIF files), images, artwork and audiovisual materials, in
each case whether in analog or digital format, displayed on a website, excluding
executable software programs. The following are examples of items that
constitute "Content" of a website.
(A) text displayed on a website in the
form of reviews, features, listings,
event calendars, promotional and
descriptive text (such as headlines
and teasers), site taxonomy and
nomenclature;
(B) audio and video (both streaming and
downloadable) clips;
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(C) animations;
(D) format and structure and overall
design and appearance of the user
interface;
(E) archival and original materials, such
as text documents, uncompressed images
(such as Photoshop or Illustrator
artwork), and uncompressed audio and
video clips; and
(F) artwork for banners and other images
designed to promote content and
functionality.
(ii) "EXCLUDED TERRITORY" means Australia, New
Zealand and Papua/New Guinea.
(iii) "INTELLECTUAL PROPERTY RIGHTS" means
intellectual property rights arising from or in respect of the following,
whether protected, created or arising under the laws of the United States or any
other jurisdiction:
(A) fictional business names, trade names,
trademarks and service marks (whether
registered or unregistered, including any
applications for registration of any of the
foregoing), logos, Internet domain names,
trade dress rights and general intangibles of
a like nature, together with the goodwill
associated with any of the foregoing
(collectively, "MARKS");
(B) patents and applications therefor, including
continuation, divisional, continuation-in-
part, or reissue patent applications and
patents issuing thereon (collectively,
"PATENTS");
(C) copyrights and registrations and applications
therefor (collectively, "COPYRIGHTS");
(D) proprietary and confidential information
which constitute trade secrets such as
proprietary and confidential know-how,
inventions, discoveries, concepts, ideas,
methods, processes, designs, formulae,
technical data, drawings, specifications, and
data bases in each case excluding any of the
foregoing to the extent the rights therein
comprise or are protected by Copyrights or
Patents (collectively, "TRADE SECRETS"); and
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(E) moral rights, publicity rights and any other
intellectual, proprietary or similar
intangible rights of any kind or nature that
do not comprise or are not protected by
Marks, Patents, Copyrights, or Trade Secrets
(collectively, "OTHER IP RIGHTS").
(iv) "SIDEWALK MARK" means the mark, Sidewalk,
together with the goodwill of the business symbolized thereby, and all
Intellectual Property Rights therein or thereto, outside the Excluded Territory.
(V) "SIDEWALK CONTENT" means Content used or
acquired for use exclusively in connection with the Business.
(b) MARK. Except as may be set forth in
SCHEDULE 3.13(b), Microsoft makes the following representations and warranties
with respect to the Sidewalk Mark:
(i) Attached hereto as SCHEDULE 3.13(b)-REG.
STATUS is a summary of the registration status of the Sidewalk Mark in each
country where Microsoft has registered the Sidewalk Mark and the Company is the
owner of all right, title and interest in and to the Sidewalk Mark in the
countries in which such registrations were obtained or applications are pending
within the scope of use set forth in such registrations or applications (as
applicable), free and clear of any and all Liens, covenants, conditions or other
adverse claims or interests of any kind or nature, and Microsoft has not
received any notice or claim (whether written or oral) challenging Microsoft's
complete and exclusive ownership of such rights in the Sidewalk Mark or
suggesting that any other Person has any claim of legal or beneficial ownership
with respect thereto.
(ii) Microsoft has not received any notice or
claim (whether written or oral) challenging the validity or enforceability of
the Sidewalk Mark, and, to the knowledge of Microsoft, the Sidewalk Mark is
legally valid and enforceable without material qualification, limitation or
restriction on its use in the classifications and applicable jurisdictions
covered by the registrations referred to in SCHEDULE 3.13(b) - Reg. Status;
(iii) Microsoft has not taken any action (or failed
to take any action), or used or enforced (or failed to use or enforce) the
Sidewalk Mark, in each case in a manner that would result in the abandonment,
cancellation, forfeiture, relinquishment, or unenforceability of the Sidewalk
Mark, or any of Microsoft's rights therein, in connection with the uses of the
Sidewalk Mark made by Microsoft as of the Closing Date;
(iv) Microsoft has taken reasonable steps to
protect its rights in and to the Sidewalk Mark and to prevent the unauthorized
use thereof by any other Person, in each case in accordance with standard
industry practice, and has adequately policed the Sidewalk Mark against third
party infringement of which it is aware;
(v) Microsoft has not granted to any Person any
right, license or permission to use the Sidewalk Mark;
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(vi) all maintenance fees, annuities, and the like
due on the Sidewalk Mark have been timely paid;
(vii) the Sidewalk Mark has not been and is not now
involved in any opposition or cancellation proceeding and, to the knowledge of
Microsoft, no such action is threatened with the respect to the Sidewalk Mark;
(viii) to the knowledge of Microsoft, there is no
trademark or service mark or application therefor of any other Person that is
conflicting with the Sidewalk Mark and the use of the Sidewalk Mark in the
manner used by Microsoft as of the Closing Date does not create a likelihood of
confusion with any trade name, trademark or service mark of any other Person;
(ix) to the knowledge of Microsoft, there has been
no prior use of the Sidewalk Mark by any third party which would confer upon
such third party superior rights in the Sidewalk Mark vis-a-vis the uses of the
Sidewalk Mark by Microsoft as of the Closing Date; and
(X) the Sidewalk Mark has been continuously used
in the form appearing in, and in connection with the goods and services listed
in, its registration certificate.
(c) SIDEWALK CONTENT. Microsoft has not registered
(with the united states copyright office or in the appropriate office in any
foreign jurisdiction outside the excluded territory) any copyrights that relate
to sidewalk content, nor has microsoft filed any pending applications for
registration of such copyrights anywhere in the world outside the excluded
territory. Except as may be set forth on SCHEDULE 3.13(c):
(i) Microsoft has not received any written notice
or claim challenging or questioning the validity or enforceability of any
Copyright covering material Sidewalk Content or indicating an intention on the
part of any Person to bring a claim that any such copyright is invalid, is
unenforceable or has been misused and, to the knowledge of Microsoft, no such
Copyright otherwise has been challenged or threatened in any way;
(ii) As to any Copyright covering any Sidewalk
Content that is owned exclusively by Microsoft (collectively, "OWNED CONTENT
COPYRIGHTS"), to the knowledge of Microsoft, Microsoft has not taken any action
or failed to take any action, or used or enforced (or failed to use or enforce)
any of the Owned Content Copyrights, in each case in a manner that would result
in the unenforceability of any of the Owned Content Copyrights;
(iii) To the knowledge of Microsoft, Microsoft has
taken all reasonable steps to protect its rights in and to the Owned Content
Copyrights, in each case in accordance with standard industry practice (it being
agreed and acknowledged that the lack of registration of any such Owned Content
Copyrights does not constitute the failure by Microsoft to so take such
reasonable steps);
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(iv) Microsoft has not granted to any Person
any right, license or permission to exercise any rights under any of the
Owned Content Copyrights, including without limitation any exclusive or
non-exclusive right to display, distribute, develop, prepare derivative works
based on, or otherwise commercially exploit any Sidewalk Content, other than
(A) non-exclusive licenses granted to end users in the ordinary course of
business, and (B) non-exclusive licenses that do not include the right to use
or exploit such Owned Content Copyrights in connection with a business
substantially similar to the Business or to the Citysearch website maintained
by Parent or that otherwise competes with the Business in any material
respect and that, in the case of any such non-exclusive licenses,
individually or in the aggregate would not have a Material Adverse Effect;
(v) To the knowledge of Microsoft, Microsoft has
acquired all rights and licenses necessary to display, publish, distribute and
otherwise commercially exploit in connection with the Business as of the Closing
all Sidewalk Content as to which Microsoft is not the exclusive owner,
including, without limitation, all Sidewalk Content licensed under currently
effective and material agreements and arrangements pertaining to the licensing
of Sidewalk Content licensed by any third party to Microsoft other than any such
agreements and arrangements that relate solely to content used in a single local
site on Sidewalk.com (collectively, "CONTENT LICENSE AGREEMENTS") or otherwise
licensed from third parties, and no claims have been made by the owners of such
licensed Sidewalk Content or any third party questioning or challenging
Microsoft's right so to exploit such Sidewalk Content;
(vi) all Content License Agreements are, and until
the Closing will remain, in full force and effect in accordance with their
terms, and Microsoft is not in material breach thereof, nor is it aware of any
claim or information to the contrary;
(vii) there are no outstanding and, to the
knowledge of Microsoft, no threatened material disputes or disagreements with
respect to any Content License Agreement or to the knowledge of Microsoft any
other material licensing agreement under which Sidewalk Content is licensed by
Microsoft from a third party;
(viii) the rights licensed under each Content
License Agreement shall be exercisable by Parent on and after the Closing to the
same extent as exercisable by Microsoft prior to the Closing (subject to any
consent requirement applicable to the assignment thereof);
(ix) the Content License Agreements together
expressly confer on Microsoft valid and enforceable rights under or in respect
of all of the Intellectual Property Rights purportedly licensed under the
respective Content License Agreements that are not owned exclusively by
Microsoft and that cover or protect Sidewalk Content; and
(x) subject to any required third party consent,
neither the execution and delivery of this Agreement, nor the consummation of
the transactions contemplated hereby, will conflict with or result in a breach
of any of the terms, conditions or provisions of, or constitute a default under,
or result in the impairment of any rights under, any Content License Agreement.
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(d) OWNERSHIP. Outside the Excluded Territory, the
Company is the owner of all right, title and interest in and to the Owned
Content Copyrights free and clear of any and all Liens, covenants, conditions or
other adverse claims or interests of any kind or nature, and Microsoft has not
received any written notice or claim challenging Microsoft's complete and
exclusive ownership of the Owned Content Copyrights or suggesting that any other
Person has any claim of legal or beneficial ownership with respect thereto
outside the Excluded Territory.
(e) INFRINGEMENT. Except as may be set forth in
SCHEDULE 3.13(e), Microsoft is not a party to any legal action or proceeding,
nor is, or during one-year period prior to date hereof has been, any legal
action or proceeding been threatened in writing, that involves or involved a
claim of infringement, misappropriation or other wrongful use or exploitation
(excluding any claims which, even if true, would not be material, and, in the
case of threatened claims, claims for which to the knowledge of Microsoft there
is no reasonable basis), either (i) by Microsoft against any other Person or
(ii) by any Person against Microsoft, of any Intellectual Property Right used or
exploited by Microsoft solely in the conduct of the Business. To the knowledge
of Microsoft, no other Person has infringed, misappropriated, violated or
otherwise wrongfully exploited any Owned Content Copyright in any material
manner. Except as may be set forth in SCHEDULE 3.13(e), to the knowledge of
Microsoft, the use or other exploitation by Microsoft outside the Excluded
Territory of the Sidewalk Mark, the Sidewalk Content or any other Content owned
by Microsoft and displayed on Sidewalk.com immediately prior to the Closing, do
not conflict with, infringe upon, violate, result in a misappropriation of, or
otherwise involve any material wrongful use or exploitation of, any patent,
copyright, trade secret or other Intellectual Property Right or other right of
any Person, nor is any of the foregoing subject to any outstanding order,
judgment, decree, stipulation or agreement materially restricting the use
thereof by Microsoft in connection with the Business or, in the case of the
Sidewalk Mark and the Owned Content Copyrights, restricting the sale, transfer,
assignment or licensing thereof by Microsoft to any Person. Except as may be
set forth in SCHEDULE 3.13(e), Microsoft has the exclusive right to bring
actions against any Person that is infringing the Sidewalk Mark or any Owned
Content Copyrights outside the Excluded Territory, and to retain for itself any
damages recovered in any such action.
(f) EMPLOYEE ASSIGNMENT AGREEMENTS. Except as set forth
in SCHEDULE 3.13(f), to the knowledge of Microsoft and Company all current and
former employees and consultants of Microsoft whose duties or responsibilities
relate to the development of Content have entered into assignment and
proprietary information agreements with Microsoft in substantially the form
provided to Buyer. To the knowledge of Microsoft, no employee or consultant of
Microsoft whose duties or responsibilities relate to the development of Content
is obligated under any agreement (including licenses, covenants or commitments
of any nature) or subject to any judgment, decree or order of any court or
administrative agency, or any other restriction that would interfere with the
use of his or her best efforts to carry out his or her duties for Microsoft or
to promote the interests of Microsoft or that would conflict with the Business.
The carrying on of the Business by such employees and contractors of Microsoft
and the conduct of the Business as presently proposed, will not, to the
knowledge of Microsoft, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees or consultants or
Microsoft
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is now obligated. Except as set forth in SCHEDULE 3.13(f), to the knowledge
of Microsoft, it will not be necessary to utilize any intellectual property
of any employees of Microsoft (or Persons Microsoft currently intends to
hire) acquired prior to their employment by Microsoft in order to continue to
use, display and exploit any Sidewalk Content.
3.14 ADVISORY FEES. There is no investment banker, broker,
finder or other intermediary or advisor that has been retained by or is
authorized to act on behalf of the Company or Microsoft who is entitled to any
fee, commission or reimbursement of expenses from the Company or Microsoft upon
consummation of the transactions contemplated by this Agreement or otherwise.
3.15. TAX MATTERS.
(a) There are no liens for Taxes on any of the assets of
the Company, except for liens arising from Taxes which are due but not yet
payable.
(b) The representations of Microsoft and the Company to
be provided in the Microsoft Tax Representation Letter in substantially the form
set forth in EXHIBIT A hereto shall have the same force and effect as if such
representations of Microsoft and the Company were set forth in this Section of
the Agreement.
3.16. ENVIRONMENTAL MATTERS. Microsoft and the Company are in
material compliance with all Environmental Laws in connection with the Business,
including, without limitation, all permits required thereunder to conduct its
business as currently being conducted.
3.17 INVESTMENT REPRESENTATIONS. Microsoft is acquiring the
shares of Parent Common Stock received as Merger Consideration (the "PARENT
SHARES") for investment solely for its own account and not with a view to, or
for resale in connection with, any distribution thereof and is aware that Parent
is relying upon the bona fide nature of Microsoft's investment intent as
expressed herein. Microsoft further understands that the Parent Shares to be
acquired have not been registered under the Securities Act (as defined below)
and have not been qualified under applicable state securities laws and that any
subsequent disposition thereof must be registered under the Securities Act and
qualified under applicable state securities laws or be exempt from such
registration and qualification. Microsoft confirms that in making the decision
to acquire the Parent Shares, Microsoft and its advisors have been given the
opportunity to examine all documents and to ask questions of, and to receive
answers from, Parent's management and advisors concerning the terms and
conditions of the transactions contemplated by this Agreement and other matters
set forth in any schedule or attachment hereto. Such examination shall not
render any representation or warranty ineffective except to the extent that
Microsoft has actual knowledge (without any duty of inquiry) of any breach in
the representations or warranties of Parent made herein.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION
As an inducement to Microsoft and the Company to enter into
this Agreement and to consummate the transactions contemplated herein, Parent
and Acquisition hereby represent and warrant to Microsoft and the Company
that:
4.01 ORGANIZATION AND EXISTENCE. Each of Parent and
Acquisition is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all corporate power
and authority to enter into this Agreement and the Ancillary Agreements and
consummate the transactions contemplated hereby and thereby. Each of Parent
and Acquisition is duly qualified to do business as a foreign corporation in
each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary to carry
on its business as now conducted, except for those jurisdictions where in the
aggregate the failure to be so qualified is not, and is not reasonably
expected to become, material.
4.02 CORPORATE AUTHORIZATION. The execution, delivery and
performance by each of Parent and Acquisition of this Agreement and the
Ancillary Agreements and the consummation by Parent and Acquisition of the
transactions contemplated hereby are within the corporate powers of Parent
and Acquisition and have been duly authorized by all necessary corporate
action on the part of Parent and Acquisition. This Agreement and the
Ancillary Agreements constitute a legal, valid and binding agreement of
Parent and Acquisition, each enforceable in accordance with its terms, except
(a) as rights to indemnity hereunder may be limited by federal or state
securities laws or the public policies embodied therein, (b) as such
enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the enforcement of creditors' rights
generally and (c) as the remedy of specific performance and other forms of
injunctive relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
4.03 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance of this Agreement and the Ancillary Agreements by Parent and
Acquisition require no action by, consent or approval of, or filing with,
any Governmental Authority other than any actions, consents, approvals or
filings otherwise expressly referred to in this Agreement.
4.04 NON-CONTRAVENTION. The execution, delivery and
performance by the Parent and Acquisition of this Agreement and the Ancillary
Agreements does not and will not (a) contravene or conflict with the Charters
or Bylaws of Parent and Acquisition, (b) contravene or constitute a default
under any material agreement to which Parent or Acquisition is a party or
(c) assuming compliance with the matters referred to in SECTION 4.03,
contravene or conflict with or constitute a violation of any provision of any
Applicable Law binding upon or applicable to Parent or Acquisition.
4.05 LITIGATION. There is no Proceeding pending against, or
to the best knowledge of Parent and Acquisition, threatened against or
affecting, Parent or Acquisition
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before any court or arbitrator or any governmental body, agency or official
that challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement.
4.06 SEC DOCUMENTS. Since December 2, 1998, Parent has made
all filings required by the Securities Act of 1933 (the "SECURITIES ACT") and
the Securities Exchange Act of 1934 (the "EXCHANGE ACT"), including for each
act all amendments, rules and regulations (the "PARENT SEC DOCUMENTS").
Except to the extent that information contained in any SEC Report has been
revised or superseded by a later filing, none of the Parent SEC Documents
contains any untrue statement of a material fact or omits to state any
material fact required to be stated wherein or necessary in order to make the
statements therein, in light of the circumstances under which they were made
not misleading. Since January 1, 1998, as of their respective dates, all
Parent SEC Documents filed under the Securities Act and the Exchange Act
complied in all material respects with the published rules and regulations of
the Securities and Exchange Commission ("SEC") with respect thereto.
4.07 CAPITALIZATION. As of the Closing Date, the authorized
capital stock of Acquisition will consist of 25,000 shares of common stock,
without par value, of which 1,000 shares are outstanding, all of which are
owned by Parent.
4.08 FINANCIAL STATEMENTS. The financial statements of
Parent (including, in each case, any notes and schedules thereto) included in
the Parent SEC Documents (a) were prepared from the books and records of
Parent and its Subsidiaries, (b) comply as to form in all material respects
with all applicable accounting requirements and the rules and regulations of
the SEC with respect thereto, (c) are in conformity with applicable
accounting principles applied on a consistent basis and (d) fairly present
the consolidated financial position of Parent at the dates thereof and of its
operations and cash flows for the periods then ended (except in the case of
unaudited statements, as permitted by the rules and regulations of the SEC).
There has been no change in Parent accounting policies except as described in
the notes to the financial statements included in Parent SEC Documents.
Parent has no material liabilities or obligations other than (i) those set
forth in such financial statements and (ii) those not required to be set
forth in such financial statements under generally accepted accounting
principles.
4.09 ACQUISITION'S OPERATIONS. Acquisition was formed solely
for the purpose of engaging in the transactions contemplated hereby and has
not (a) engaged in any business activities, (b) conducted any operations
other than in connection with the transactions contemplated hereby or (c)
incurred any liabilities other than in connection with the transactions
contemplated hereby.
4.10 TAX REPRESENTATIONS. The representations of Parent and
Acquisition to be provided in the Tax Representation Letter in substantially
the form set forth in EXHIBIT B hereto (the "PARENT TAX REPRESENTATION
LETTER") shall have the same force and effect as if such representations of
Acquisition and Parent were set forth in this Section of the Agreement.
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ARTICLE V.
COVENANTS OF MICROSOFT
Microsoft hereby covenants and agrees with Parent and
Acquisition as follows:
5.01 CONDUCT OF THE BUSINESS. From the date hereof until the
Closing Date, Microsoft will cause the Company to conduct the Business in the
ordinary course and use its commercially reasonable efforts, without paying
or increasing the compensation, payments, remuneration or fees payable to any
Person other than in the ordinary course of business, to preserve intact the
business organizations and relationships and goodwill with third parties
PROVIDED, HOWEVER, that with respect to Microsoft's employees and contingent
staff, Microsoft shall have no obligation other than as set forth in the
Transition Services Agreement (as defined below). Without limiting the
generality of the foregoing, from the date hereof until the Closing Date:
(a) without Parent's prior consent (which consent shall
not be unreasonably withheld), Microsoft will not allow the Company to and will
not agree to allow the Company to:
(i) purchase or otherwise acquire assets from any other
Person, or sell or transfer any assets of the Business, other than in the
ordinary course of business;
(ii) incur any Liability, except Liabilities (A) incurred
in the ordinary course of business where the aggregate dollar amount of
all such Liabilities incurred by the Business does not exceed One Hundred
Thousand Dollars ($100,000), (B) incurred pursuant to existing
obligations of the Company or Microsoft in connection with the Business
that are disclosed in the Schedules hereto or (C) expressly contemplated
by the terms of this Agreement;
(iii) amend or modify in any material respect or terminate
any Material Contract or any other Contract entered into by the Company
or Microsoft in connection with the Business after the date hereof which,
if in existence on the date hereof, would be considered a Material
Contract (each, a "SUBSEQUENT MATERIAL CONTRACT"); or
(iv) make or commit to make any capital expenditure, or
group of related capital expenditures, in excess of One Hundred Thousand
Dollars ($100,000) for the Business, other than (y) capital expenditures
set forth on SCHEDULE 5.01(a)(iv) and (z) capital expenditures expressly
required under any Material Contract.
(b) In connection with the Business, Microsoft shall
cause the Company to:
(i) (A) maintain its assets in the ordinary course of
business in reasonably serviceable operating order and condition,
reasonable wear and tear, damage by fire and other casualty excepted,
(B) promptly repair, restore or replace any material assets in the
ordinary course of business and (C) upon any damage, destruction or loss
to
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any of such assets, apply any and all insurance proceeds received with
respect thereto to the prompt repair, replacement and restoration thereof
to the condition of such assets before such event to the extent
reasonably practicable;
(ii) comply with all material Applicable Laws;
(iii) not allow any liens for Taxes to be placed on any of
the assets of the Company, except for liens arising from Taxes which are
due but not yet payable;
(iv) use its commercially reasonable efforts to obtain,
prior to the Closing Date, all Required Consents;
(v) take all actions within its reasonable control to be
in compliance with, and to maintain the effectiveness of, all material
Permits;
(vi) promptly notify Parent in writing if the Company or
Microsoft has knowledge of any action, event, condition or circumstance,
or group of actions, events, conditions or circumstances that results in,
or could reasonably be expected to result in, a Material Adverse Effect,
other than changes in general economic conditions;
(vii) promptly notify Parent in writing of the
commencement of any Proceeding by or against the Business, or of becoming
aware of any material claim, action, suit, inquiry, proceeding, notice of
violation, subpoena, government audit or disallowance that could
reasonably be expected to result in a Proceeding; and
(viii) pay accounts payable and pursue collection of its
accounts receivable in the ordinary course of business.
5.02 AUDITED FINANCIAL STATEMENTS.
(a) In order to enable Parent to comply with its
obligation to file with the SEC financial statements with a Current Report on
Form 8-K or any other document required by the SEC, Microsoft and Company agree
to, as soon as practical upon the execution of this Agreement, prepare and
complete such financial statements for the Business (the "FINANCIAL STATEMENTS")
and to have Deloitte & Touche LLP audit said Financial Statements (as audited,
the "AUDITED FINANCIAL STATEMENTS"). Within two Business Days of the completion
of the audit, and, in any event, within sixty (60) days after the Closing Date,
the Company shall deliver such audited Financial Statements to Parent. In
addition, Parent shall have the right to review and copy, promptly upon request,
the workpapers of Microsoft, the Company and Deloitte & Touche LLP utilized in
the preparation of the Audited Financial Statements for purposes of verifying
the accuracy thereof.
(b) Microsoft and Company covenant and agree that the
Audited Financial Statements (i) will be prepared based on the books and records
of the Business in accordance with GAAP and present fairly the financial
condition, results of operations and statements of cash flow of the Business as
of the dates indicated or the periods indicated and
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(ii) will contain and reflect all necessary adjustments, accruals, provisions
and allowances for a fair presentation of the financial condition of the
Business and the results of operations of the Business for the periods
covered by such financial statement.
(c) Parent and Microsoft each agree to pay fifty percent
(50%) of the fees and costs of Deloitte & Touche LLP in preparing the Audited
Financial Statements and Microsoft and the Company shall bear their own costs in
preparing the Financial Statements; PROVIDED, HOWEVER, that the total amount to
be paid by Parent pursuant to this SECTION 5.02(C) will not exceed Seventy Five
Thousand Dollars ($75,000).
(d) Parent, Microsoft and Company agree to cooperate in
an effort to (i) complete the Audited Financial Statements as soon as
practicable upon the execution of this Agreement and (ii) minimize the burden
imposed upon Microsoft and Company under SECTION 5.02 to provide the Audited
Financial Statements to Parent. Parent will use its best commercially
reasonable efforts to obtain permission from the SEC to file only audited
statements of assets and liabilities acquired and statements of revenues and
direct expenses in lieu of the full financial statements required by Regulation
S-X, and will include an explanation of the impracticality of providing such
full financial statements in any filing on a Current Report on Form 8-K.
5.03 SIDEWALK CONTENT AGREEMENTS. Promptly following the date
hereof, Microsoft agrees to provide to Parent copies of each and every agreement
and arrangement involving the supply by third parties to Microsoft of Sidewalk
Content, including without limitation all "work made for hire" agreements with
independent contractors that supply Sidewalk Content used in a local site and,
to the extent available, make commercially reasonable efforts to provide the
name of the contact person and phone number of the individual within the
organization of the other contracting party that is responsible for
administering such agreement or arrangement. Microsoft will use commercially
reasonable efforts to provide all such information sufficiently in advance of
the Closing Date to afford an adequate opportunity for Parent to review such
information, contact the other contracting parties and, if desired by Parent,
negotiate new arrangements for the provision of additional content with such
parties, and Microsoft otherwise will cooperate with Parent to ensure, to the
extent practicable, a smooth and efficient transfer to Parent of the Sidewalk
Content together with the Business.
5.04 RELEASE OF MORAL RIGHTS. Microsoft irrevocably waives and
relinquishes, and agrees never to assert or bring, any claim, action or
proceeding in which Microsoft asserts any "moral rights" or their equivalent
arising under the law of any country anywhere in the world that Microsoft may
possess with respect to any Sidewalk Content owned by Microsoft or the Company.
5.05 CERTAIN PROCEEDINGS.
(a) With respect to the oppositions to Microsoft's
applications for registration in Argentina and Brazil described in SCHEDULE
3.13(b)(2), Microsoft agrees that if such oppositions at any time result in
claims by Universal Studios or any other third party against the Company or
Parent, Microsoft will indemnify and hold Parent and the Company harmless from
and against any and all Damages incurred or to be incurred arising from or in
connection
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with such claims and will defend against such third party claims at
Microsoft's sole cost and expense.
(b) With respect to the two patent infringement
lawsuits described on SCHEDULE 3.13(E)(3), Microsoft agrees to indemnify and
hold Parent and the Company harmless from and against any and all Damages
incurred or to be incurred arising from or in connection with such lawsuits
and to continue to defend such lawsuits at Microsoft's sole cost and expense.
(c) The obligations of Microsoft set forth in this
SECTION 5.05 shall not be subject to the limitations of SECTION 8.03.
ARTICLE VI.
COVENANTS OF ALL PARTIES
The parties hereto hereby covenant and agree as follows:
6.01 FURTHER ASSURANCES. The parties hereto shall execute
and deliver such other documents, certificates, agreements and other writings
and shall take such other actions as may be reasonably necessary or desirable
(including, without limitation, obtaining the Required Consents and making
necessary filings with all Governmental Authorities) in order to consummate
or implement expeditiously the transactions contemplated by this Agreement.
Each of the parties hereto shall comply with the notification and reporting
requirements of the HSR Act and use its reasonable best efforts to obtain
early termination of the waiting period under the HSR Act. Notwithstanding
the foregoing, no party hereto shall have any obligation to expend any funds
or to incur any other obligation in connection with the consummation of the
transactions contemplated hereby (including, by way of illustration only, any
payment in connection with obtaining the Required Consents) other than normal
out-of-pocket expenses (such as fees and expenses of counsel and accountants)
reasonably necessary to consummate such transactions.
6.02 CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS. The parties
hereto shall use their best efforts to keep this Agreement and the execution
and terms hereof confidential, and shall consult with each other before
issuing any press release or making any public statement with respect to this
Agreement or the transactions contemplated hereby. The parties may, however,
disclose such matters to its directors, officers, executive employees and
professional advisors and those of prospective financing sources to such
extent as may be reasonable for the negotiation, execution and consummation
of this Agreement. Each party shall keep confidential all information
concerning the other obtained pursuant to this Agreement and shall not use
such information except in connection with the transactions set forth herein.
If for any reason such transactions shall not be consummated, each party
will return all such information (including all copies thereof) regarding the
other, to the other party. The foregoing obligations of confidentiality in
this SECTION 6.02 do not pertain to the disclosure of information which is
available publicly, is required to be disclosed by any court or any party
discloses, upon advice of counsel, in order to comply with Applicable Law.
The parties hereto recognize and agree that in the event of a breach by a
party of this section, money damages would not be an adequate remedy to the
injured party for such breach and, even if money damages were adequate, it
would
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be impossible to ascertain or measure with any degree of accuracy the damages
sustained by such injured party therefrom. Accordingly, if there should be a
breach or threatened breach by a party of the provisions of this section, the
injured party shall be entitled to an injunction restraining the breaching
party from any breach without showing or proving actual damage sustained by
the injured party. Nothing in the preceding sentence shall limit or
otherwise affect any remedies that a party may otherwise have under
Applicable Law. The parties agree to jointly prepare and to distribute
(singly or jointly) a press release disclosing the execution and delivery of
this Agreement and the substance of the transactions contemplated hereby.
6.03 DISTRIBUTION AGREEMENT. On or before the Closing Date,
Parent and Microsoft will enter into that certain MSN/CitySearch Distribution
and Cross Promotion Agreement in the form attached hereto as EXHIBIT C (the
"DISTRIBUTION AGREEMENT").
6.04 TRANSITION SERVICES AGREEMENT. Concurrently herewith,
Parent and Microsoft will enter into that certain Transition Services
Agreement of even date herewith (the "TRANSITION SERVICES AGREEMENT"),
pursuant to which Microsoft will provide transitional services to Parent on
the terms provided therein.
6.05 LICENSE AGREEMENT. On or before the Closing Date,
Parent and Microsoft will enter into that certain License Agreement in the
form attached hereto as EXHIBIT D (the "LICENSE AGREEMENT).
6.06 TAX MATTERS.
(a) Parent, Microsoft and Acquisition will report the
Merger on their U.S. federal income tax returns in a manner consistent with
the Merger constituting a reorganization within the meaning of Code Section
368(a) and will comply with all reporting obligations of such a
reorganization set forth in the Code and the Treasury Regulations promulgated
thereunder, unless any of the parties to this Agreement are required,
pursuant to a "determination" within the meaning of Code Section 1313(a), to
treat the Merger in a different manner.
(b) Microsoft shall arrange to have all Tax Returns
of the Company with respect to periods ending on or prior to the Closing Date
prepared and filed, and signed by a current officer of the Company.
Microsoft, Parent and the Company shall cooperate in good faith in the
preparation of such Tax Returns and in any tax audit or examination of the
Company, and shall retain and make available to any other party any
documentation which is necessary or required for the preparation of such Tax
Returns or in connection with any such audit or examination.
(c) Following the Closing, from time to time as the
Company may reasonably request, Microsoft will provide to the Company
information regarding the tax basis and other tax attributes of the assets of
the Company sufficient to enable Parent and the Company to comply with their
Tax reporting obligations. Thereafter, Microsoft shall inform Parent on a
timely basis of any adjustments to the tax basis of the assets or other tax
attributes of the Company as a result of any audit, examination or other Tax
proceedings.
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6.07 LOCK-UP. Microsoft agrees that it will not offer to
sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant
any rights with respect to (collectively, a "DISPOSITION") any Parent Shares
for a period commencing on the Closing Date and continuing to a date 180 days
after the Closing Date (the "LOCK-UP PERIOD"); PROVIDED, HOWEVER, that
nothing in this SECTION 6.07 will prevent Microsoft from engaging in certain
"hedging transactions" so long as Microsoft uses commercially reasonable
efforts to affect such hedging transactions in a manner that will minimize
any adverse effects on the trading price of Parent Common Stock on the Nasdaq
National Market. Microsoft also consents to the entry of stop transfer
instructions by Parent's transfer agent and registrar prohibiting the
transfer of Parent Shares by Microsoft except in compliance with the
foregoing restrictions; PROVIDED, HOWEVER, that, upon the reasonable request
of Microsoft, the Parent Shares shall be released from such stop transfer
instructions and issued without legends to permit Microsoft to lend such
Parent Shares to counterparties in connection with hedging transactions, but
only insofar as any such transaction is conducted in accordance with the
covenants set forth in the immediately preceding sentence.
6.08 CASH ADJUSTMENT TO MERGER CONSIDERATION.
(a) Microsoft and Parent understand and agree that
Microsoft will be responsible for, and will reimburse Parent for, or pay
directly, any and all operating expenses of the Company incurred during the
period ending on the Closing Date (the "INTERIM PERIOD"). Such operating
expenses shall include, without limitation, (i) salaries, wages and other
employee expenses, (ii) rental payments, (iii) utility payments, (iv) Taxes
and (v) Liabilities or commitments incurred in violation of SECTIONS
5.01(A)(ii) and (iv), in each case whether or not then due and payable and
prorated through the Closing Date (collectively, the "PAYABLES").
(b) Without limiting the generality of the foregoing,
within ten (10) Business Days following the Closing Date (i) to the extent
that the Payables exceed the cash on hand of the Company, net of any
outstanding checks or bank drafts (the "CASH"), Microsoft shall pay to Parent
an amount in cash equal to such excess and (ii) to the extent that the Cash
exceeds the Payables, then Parent shall pay to Microsoft an amount in cash
equal to such excess.
(c) Parent will, from time to time, tender to
Microsoft payments in respect of accounts receivable relating exclusively to
the Interim Period received by the Company after the Closing Date.
ARTICLE VII.
CONDITIONS TO CLOSING
7.01 CONDITIONS TO OBLIGATION OF PARENT AND ACQUISITION. The
obligations of Parent and Acquisition to consummate the Closing are subject to
the satisfaction of each of the following conditions:
(a) (i) Each of Microsoft and the Company shall have
performed and satisfied each of its obligations hereunder and in the Ancillary
Agreements required to be performed and satisfied by it on or prior to the
Closing Date, (ii) each of the representations and warranties of Microsoft and
the Company contained herein and in the Ancillary Agreements
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shall have been true, correct and complete when made and shall be true,
correct and complete at and as of the Closing with the same force and effect
as if made as of the Closing, except for breaches that (x) do not have a
Material Adverse Effect on the benefits of the transaction reasonably
anticipated by this Agreement or (y) result from or arise out of actions
taken or avoided at the direction of Parent which Microsoft or the Company
would not have otherwise taken or avoided and (iii) Parent shall have
received certificates signed by duly authorized executive officers of
Microsoft and the Company to the foregoing effect and to the effect that the
conditions specified within this SECTION 7.01 have been satisfied.
(b) All Required Consents shall have been obtained
without condition, and shall be in full force and effect, except to the
extent that the failure to obtain such consents does not have a Material
Adverse Effect on the benefits of the transaction reasonably anticipated by
this Agreement. All waiting periods under the HSR Act (and any extension
thereof) applicable to the transactions contemplated by this Agreement shall
have expired or terminated. No Proceedings shall have been instituted or
threatened by any Governmental Authority with respect to any Required
Governmental Approval as to which there is a material risk of a determination
that would terminate the effectiveness of, or otherwise materially and
adversely modify the terms of, any such Required Governmental Approval. All
conditions and requirements prescribed by Applicable Law or any Required
Consent to be satisfied on or prior to the Closing Date shall have been
satisfied to the extent necessary such that all such Required Consents are,
and will remain, in full force and effect assuming continued compliance with
the terms thereof after the Closing, except to the extent that the failure to
satisfy such conditions and requirements does not have a Material Adverse
Effect on the benefits of the transaction reasonably anticipated by this
Agreement.
(c) The transactions contemplated by this Agreement
and the Ancillary Agreements and the consummation of the Closing shall not
materially violate any Applicable Law. There shall be no actions or
Proceedings underway or threatened by any Governmental Authority (or
determinations by any Governmental Authority) or by any other Person
challenging or in any manner seeking to materially restrict or prohibit the
transactions contemplated hereby or the consummation of the Closing, or to
impose conditions that would be reasonably likely to have a Material Adverse
Effect; PROVIDED, HOWEVER, that Parent and Acquisition shall be deemed to
automatically waive this condition if Microsoft agrees to indemnify, defend
and hold harmless Parent and Acquisition against any such action.
(d) Microsoft shall have duly executed and delivered
to Parent the Distribution Agreement.
(e) Microsoft shall have duly executed and delivered
to Parent the Transition Services Agreement.
(f) Microsoft shall have duly executed and delivered
to Parent the License Agreement.
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7.02 CONDITIONS TO OBLIGATION OF MICROSOFT AND THE COMPANY.
The obligations of Microsoft and the Company to consummate the Closing are
subject to the satisfaction of each of the following conditions unless waived
by Microsoft:
(a) (i) Each of Parent and Acquisition shall have
performed and satisfied each of its obligations hereunder and in the
Ancillary Agreements required to be performed and satisfied by it on or prior
to the Closing Date; (ii) each of the representations and warranties of
Parent and Acquisition contained herein and in the Ancillary Agreements shall
have been true, correct and complete when made and shall be true, correct and
complete at and as of the Closing with the same force and effect as if made
as of the Closing, except for breaches that (x) do not have a Material
Adverse Effect on the benefits of the transaction reasonably anticipated by
this Agreement or (y) result from or arise out of actions taken or avoided at
the direction of Microsoft which Parent or Acquisition would not have
otherwise taken or avoided and (iii) Microsoft shall have received a
certificate signed by duly authorized executive officers of Parent and
Acquisition to the foregoing effect and to the effect that the conditions
specified within this SECTION 7.02 have been satisfied.
(b) All Required Consents shall have been obtained
without condition, and shall be in full force and effect, except to the
extent that the failure to obtain such consents does not have a Material
Adverse Effect on the benefits of the transaction reasonably anticipated by
this Agreement. All waiting periods under the HSR Act (and any extension
thereof) applicable to the transactions contemplated by this Agreement shall
have expired or terminated. No Proceedings shall have been instituted or
threatened by any Governmental Authority with respect to any Required
Governmental Approval as to which there is a material risk of a determination
that would terminate the effectiveness of, or otherwise materially and
adversely modify the terms of, any such Required Governmental Approval. All
conditions and requirements prescribed by Applicable Law or any Required
Consent to be satisfied on or prior to the Closing Date shall have been
satisfied to the extent necessary such that all such Required Consents are,
and will remain, in full force and effect assuming continued compliance with
the terms thereof after the Closing, except to the extent that the failure to
satisfy such conditions and requirements does not have a Material Adverse
Effect on the benefits of the transaction reasonably anticipated by this
Agreement.
(c) The sale and transfer contemplated by this
Agreement and the Ancillary Agreements and the consummation of the Closing
shall not materially violate any Applicable Law. There shall be no
Proceedings underway or threatened by any Governmental Authority (or
determinations by any Governmental Authority) or by any other Person
challenging or seeking to materially restrict, prohibit or condition the
transactions contemplated hereby or the consummation of the Closing.
(d) Parent shall have duly executed and delivered to
Microsoft the Distribution Agreement.
(e) Parent shall have duly executed and delivered to
Microsoft the Transition Services Agreement.
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(f) Parent shall have duly executed and delivered to
Microsoft the License Agreement.
(g) Parent shall have issued the Warrants to Microsoft.
(h) Parent and Acquisition shall have duly executed and
delivered to Microsoft and Microsoft's counsel the Parent Tax Representation
Letter.
(i) Parent shall have duly executed and delivered to
Microsoft that certain Registration Rights Agreement, dated as of the Closing
Date, by and between Microsoft and Parent.
ARTICLE VIII.
INDEMNIFICATION
8.01 AGREEMENT TO INDEMNIFY.
(a) Parent and its Affiliates (collectively, the "PARENT
INDEMNITEES") shall each be indemnified and held harmless to the extent set
forth in this ARTICLE VIII by Microsoft in respect of any and all Damages
reasonably and proximately incurred by any Parent Indemnitee:
(i) as a result of any inaccuracy or
misrepresentation in or breach of any representation, warranty, covenant or
agreement made by Microsoft or the Company in this Agreement as of the Closing;
and
(ii) arising from a claim by a third party that:
(A) any of the Sidewalk Content or any other Content
used or displayed by Microsoft or the Company on or in connection with
Sidewalk.com at any time prior to the Closing Date, or the Sidewalk Mark
or any other Mark used or displayed by Microsoft or the Company on or in
connection with Sidewalk.com at any time prior to the Closing Date, or
the exercise of any Intellectual Property Rights in connection with the
conduct of the Business prior to the Closing Date, or
(B) any of the Owned Content Copyrights or the
Sidewalk Mark, or the use, display or exploitation of the Sidewalk Mark
in the same manner as used by Microsoft as of the Closing Date or of any
of the Owned Content Copyrights, by any Parent Indemnities in connection
with the conduct on and after the Closing Date of (1) the Business, (2)
the business of Parent relating to Parent's Citysearch online business or
(3) any similar online city guide business launched by any Parent
Indemnitee (including without limitation any successor to the Business or
the Citysearch online business),
infringes, violates, misappropriates or otherwise wrongfully exploits any
Intellectual Property Rights of any third party, excluding any such claim to the
extent it is based on, or would not have arisen but for, modifications made
following the Closing Date by any person other than
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Microsoft, or otherwise violates any rights of any third party (including by
giving rise to libel or defamation cause of action).
(b) Microsoft shall indemnify Parent and the Company
(i) for all Taxes of Microsoft and the Microsoft affiliated group, and for
all Taxes of the Company for all periods ending on or before the Closing
Date, (ii) for all Excluded Liabilities (as defined in SCHEDULE II) and (iii)
for any Damages resulting from claims by third parties that Microsoft or the
Company breached any obligations to such third party on or before the Closing
Date or as a result of the transactions contemplated hereby (it being
understood that Microsoft shall not be responsible for, and shall not
indemnify Parent for Damages resulting from, the inability to assign certain
contracts relating to the Business to the Company).
(c) The Company and its Affiliates (collectively, the
"COMPANY INDEMNITEES") shall be indemnified and held harmless to the extent
set forth in this ARTICLE VIII by Parent in respect of any and all Damages
reasonably and proximately incurred by any Company Indemnitee as a result of
any inaccuracy or misrepresentation in or breach of any representation,
warranty, covenant or agreement made by the Parent in this Agreement.
(d) Except as set forth in SECTIONS 8.01(a), (b) and
(c) and except to the extent of confidentiality provisions in this Agreement,
no Person shall have any claim or cause of action as a result of any
inaccuracy or misrepresentation in or breach of or failure to perform any
representation, warranty, covenant, agreement or obligation of any
Indemnifying Party referred to in this SECTION 8.01 against any Affiliate,
stockholder, director, officer, employee, consultant or agent of such
Indemnifying Party. Nothing set forth in this ARTICLE VIII shall be deemed
to prohibit or limit any Parent Indemnitee's or Company Indemnitee's right at
any time before, on or after the Closing Date, to seek injunctive or other
equitable relief for the failure of any Indemnifying Party to perform any
covenant or agreement contained herein.
8.02 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Except as hereinafter provided in this SECTION
8.02, all representations, warranties, covenants, agreements and obligations
of each Indemnifying Party contained herein and all claims of any Parent
Indemnitee or Company Indemnitee in respect of any breach of any
representation, warranty, covenant, agreement or obligation of any
Indemnifying Party contained in this Agreement, shall survive the Closing and
shall expire on April 30, 2001, except for covenants or obligations which by
their terms shall be performed after the Closing which shall survive the
Closing and not expire unless otherwise provided in this Agreement.
Notwithstanding anything herein to the contrary, indemnification for claims
for which written notice as provided in SECTION 8.05 has been timely given
shall not expire until the final resolution of such claim in accordance with
SECTION 10.11.
(b) Notwithstanding SECTION 8.02(a), each of the
following representations, warranties, covenants, agreements and obligations
of Microsoft as Indemnifying Party shall survive the Closing Date until the
thirty (30) days after the expiration of any applicable statute of
limitations, including extensions thereof: (i) the inaccuracy or
misrepresentation in or breach of any representation, warranty, covenant or
agreement made by
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Microsoft at any time in this Agreement arising out of fraud; (ii) any
inaccuracy or misrepresentation in or breach of any representation or
warranty made in SECTIONS 3.01, 3.02, 3.14 or 3.15 or any breach of any
covenant contained in SECTION 10.03 regardless of whether such inaccuracy or
misrepresentation or breach arises out of fraud, gross negligence or willful
misconduct; (iii) any obligation of Microsoft as Indemnifying Party under
SECTION 8.01(b)(i); and (iv) the breach or failure to perform by Microsoft or
the Company after the Closing Date of any of the covenants, agreements or
obligations of Microsoft contained in this Agreement or in the Exhibits
attached hereto which by their terms shall be performed after the Closing.
(c) Notwithstanding SECTION 8.02(a), each of the
following representations, warranties, covenants, agreements and obligations
of Parent as an Indemnifying Party shall survive the Closing Date until the
expiration of the applicable statute of limitations, including extensions
thereof: (i) any inaccuracy or misrepresentation in or breach of any
representation, warranty, covenant or agreement made by Parent in this
Agreement arising out of fraud; (ii) any inaccuracy or misrepresentation in
or breach of any representation or warranty made in SECTIONS 4.01 and 4.02,
regardless of whether such inaccuracy or misrepresentation or breach arises
out of fraud, gross negligence or willful misconduct; and (iii) the breach or
failure to perform by Parent after the Closing Date of any of the covenants,
agreements or obligations of Parent contained in this Agreement or in the
Exhibits attached hereto which by their terms shall be performed after the
Closing.
8.03 LIMITATION. The Parent Indemnitees shall be entitled to
indemnification pursuant to SECTION 8.01(a) only if the total aggregate
Damages under SECTION 8.01(a) exceeds One Million Five Hundred Thousand
Dollars ($1,500,000). The aggregate amount which the Parent Indemnitees
shall be entitled to be indemnified for under SECTION 8.01(a) will not exceed
Sixty Million Dollars ($60,000,000). The sole remedy of the Parent
Indemnities for breaches of this Agreement shall be claims made in accordance
with and subject to the limitations of this ARTICLE VIII.
8.04 CLAIMS FOR INDEMNIFICATION. If any Indemnitee shall
believe that such Indemnitee is entitled to indemnification pursuant to this
ARTICLE VIII in respect of any Damages, such Indemnitee shall give the
appropriate Indemnifying Party prompt written notice thereof. Any such
notice shall set forth in reasonable detail and to the extent then known the
basis for such claim for indemnification. The failure of such Indemnitee to
give notice of any claim for indemnification promptly, but within the periods
specified by SECTION 8.02(A), (b) or (c), as the case may be, shall not
adversely affect such Indemnitee's right to indemnity hereunder except to the
extent that such failure adversely affects the right of the Indemnifying
Party to assert any reasonable defense to such claim. Each such claim for
indemnity shall expressly state that the Indemnifying Party shall have only
the twenty (20) Business Day period referred to in the next sentence to
dispute or deny such claim. The Indemnifying Party shall have twenty (20)
Business Days following its receipt of such notice either (y) to acquiesce in
such claim and its respective responsibilities to indemnify the Indemnitee in
respect thereof in accordance with the terms of this ARTICLE VIII by giving
such Indemnitee written notice of such acquiescence or (z) to object to the
claim by giving such Indemnitee written notice of the objection. If the
Indemnifying Party does not object thereto within such twenty (20) Business
Day period, such Indemnifying Party
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shall be deemed to have acquiesced in such claim and their respective
responsibilities to indemnify the Indemnitee in respect thereof in accordance
with the terms of this ARTICLE VIII.
8.05 DEFENSE OF CLAIMS. In connection with any claim which
may give rise to indemnity under this ARTICLE VIII resulting from or arising
out of any claim or Proceeding against an Indemnitee by a Person that is not
a party hereto, the Indemnifying Party may (unless such Indemnitee elects not
to seek indemnity hereunder for such claim), upon written notice sent at any
time to the relevant Indemnitee, assume the defense of any such claim or
Proceeding if the Indemnifying Party with respect to such claim or Proceeding
acknowledges to the Indemnitee the Indemnitee's right to indemnity pursuant
hereto in respect of the entirety of such claim (as such claim may have been
modified through written agreement of the parties or arbitration hereunder)
and provide assurances, reasonably satisfactory to such Indemnitee, that the
Indemnifying Party will be financially able to satisfy such claim in full if
such claim or Proceeding is decided adversely. If the Indemnifying Party
assumes the defense of any such claim or Proceeding, the Indemnifying Party
shall select counsel reasonably acceptable to such Indemnitee to conduct the
defense of such claim or Proceeding, shall take all steps reasonably
necessary in the defense or settlement thereof and shall at all times
diligently and promptly pursue the resolution thereof. If the Indemnifying
Party shall have assumed the defense of any claim or Proceeding in accordance
with this SECTION 8.05, the Indemnifying Party shall be authorized to consent
to a settlement of, or the entry of any judgment arising from, any such claim
or Proceeding, without the prior written consent of such Indemnitee;
PROVIDED, HOWEVER, that the Indemnifying Party shall pay or cause to be paid
all amounts arising out of such settlement or judgment either concurrently
with the effectiveness thereof or shall obtain and deliver to such
Indemnitees prior to the execution of such settlement a general release
executed by the Person not a party hereto, which general release shall
release such Indemnitee from any liability in such matter; PROVIDED, FURTHER,
that the Indemnifying Party shall not be authorized to encumber any of the
assets of any Indemnitee or to agree to any restriction that would apply to
any Indemnitee or to its conduct of business; and PROVIDED, FURTHER, that a
condition to any such settlement shall be a complete release of such
Indemnitee and its Affiliates, officers, employees, consultants and agents
with respect to such claim. Such Indemnitee shall be entitled to participate
in (but not control) the defense of any such action, with its own counsel and
at its own expense. Each Indemnitee shall, and shall cause each of its
Affiliates, officers, employees, consultants and agents to, cooperate fully
with the Indemnifying Party in the defense of any claim or Proceeding being
defended by the Indemnifying Party pursuant to this SECTION 8.05. If the
Indemnifying Party does not assume the defense of any claim or Proceeding
resulting therefrom in accordance with the terms of this SECTION 8.05, such
Indemnitee may defend against such claim or Proceeding in such manner as it
may deem appropriate, including settling such claim or Proceeding after
giving notice of the same to the Indemnifying Party, on such terms as such
Indemnitee may deem appropriate. If the Indemnifying Party seeks to question
the manner in which such Indemnitee defended such claim or Proceeding or the
amount of or nature of any such settlement, the Indemnifying Party shall have
the burden to prove by a preponderance of the evidence that such Indemnitee
did not defend such claim or Proceeding in a reasonably prudent manner.
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ARTICLE IX.
TERMINATION
9.01 GROUNDS FOR TERMINATION. This Agreement may be terminated
at any time prior to the Closing:
(a) by mutual written agreement of all of the parties
hereto;
(b) by either Parent or Microsoft at any time by
written notice if there shall have been (1) any one or more material
inaccuracies or material misrepresentations in or material breaches of the
representations or warranties made by another party hereto contained herein
which have had or, if not cured prior to the Closing Date, could be
reasonably expected to have, a Material Adverse Affect when taken into
account with all other uncured inaccuracies or misrepresentations in or
breaches of such representations or warranties or (2) a failure by another
party hereto to perform and satisfy in any material respect and in a timely
fashion any of its obligations under this Agreement required to be performed
and satisfied on or prior to the Closing Date, or a failure by such party to
perform and satisfy any other obligations under this Agreement if the
aggregate of all such other failures shall be material; PROVIDED, HOWEVER,
that a termination pursuant to this SECTION 9.01(b) shall become effective
(i) fifteen (15) days after notice with respect to a misrepresentation or
breach that is not capable of being cured on or prior to the Closing Date is
given, or (ii) immediately prior to the Closing with respect to a
misrepresentation or breach that is capable of being cured, but is not cured,
on or immediately prior to the Closing Date;
(c) by Parent or Microsoft if any Federal, state or
foreign law or regulation thereunder shall hereafter be enacted or become
applicable that makes the transactions contemplated hereby or the
consummation of the Closing illegal or otherwise prohibited, or if any
judgment, injunction, order or decree enjoining either party hereto from
consummating the transactions contemplated hereby is entered, and such
judgment, injunction, order or decree shall become final and nonappealable;
and
(d) by Parent or Microsoft, if the Closing shall not
have been consummated by November 1, 1999 or, only if a Governmental
Authority has made a second request for information under the HSR Act,
January 1, 2000 (the "OUTSIDE DATE"); PROVIDED, HOWEVER, that neither Parent
or Microsoft may terminate this Agreement pursuant to this SECTION 9.01(d) if
the Closing shall not have been consummated within such time period by reason
of the failure of such party or any of its Affiliates to perform in all
material respects any of its or their respective covenants or agreements
contained in this Agreement.
9.02 EFFECT OF TERMINATION. If this Agreement is terminated
as permitted by SECTION 9.01 such termination shall be without liability of
any party to any other party to this Agreement except as hereinafter
expressly provided in this SECTION 9.02. If one party to this Agreement (i)
willfully fails to fulfill a condition to the other's performance of its
obligations hereunder, (ii) fails to perform a covenant contained herein,
(iii) willfully breaches this Agreement or (iv) materially breaches any of
its representations and warranties contained herein, such party shall be
fully responsible for all damages and expenses incurred by the other party to
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this Agreement as a result of such breach or failure. The provisions of
SECTIONS 6.02, 10.03, 10.05 and 10.11 shall survive any termination of this
Agreement pursuant to ARTICLE IX, and each party hereto shall be fully
responsible for any breach of any such provision, whether or not such breach
occurs prior to the termination of this Agreement.
ARTICLE X.
MISCELLANEOUS
10.01 NOTICES. All notices, requests, demands, claims and
other communications hereunder shall be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly given
(i) if personally delivered, when so delivered, (ii) if mailed, two Business
Days after having been sent by registered or certified mail, return receipt
requested, postage prepaid and addressed to the intended recipient as set
forth below, (iii) if given by telex or telecopier, once such notice or other
communication is transmitted to the telex or telecopier number specified
below and the appropriate answer back or telephonic confirmation is received,
PROVIDED that such notice or other communication is promptly thereafter
mailed in accordance with the provisions of clause (ii) above or (iv) if sent
through an overnight delivery service in circumstances to which such service
guarantees next day delivery, the day following being so sent:
If to Microsoft or the Company:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attn: Keith R. Dolliver
Telecopier No: (425) 829-1327
with a copy to:
Preston Gates & Ellis LLP
701 Fifth Avenue, Suite 5000
Seattle, WA 98104-7078
Attn: Richard B. Dodd
Telecopier No: (206) 623-7022
If to Parent or Acquisition:
Ticketmaster Online-CitySearch, Inc.
790 E. Colorado Blvd., Suite 200
Pasadena, CA 91101
Attn: Bradley K. Serwin
Telecopier No.: (626) 405-9929
with a copy to:
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Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attn: Kenneth M. Doran
Telecopier No.: (213) 229-7520
Any party may give any notice, request, demand, claim or other
communication hereunder using any other means (including ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party
may change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties
notice in the manner herein set forth.
10.02 AMENDMENTS; NO WAIVERS.
(a) Any provision of this Agreement may be amended or
waived if, and only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by all parties hereto, or in the case of a waiver,
by the party against whom the waiver is to be effective.
(b) No waiver by a party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
occurrence. No failure or delay by a party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
10.03 EXPENSES. Except as provided in SECTION 5.02(C), all
costs and expenses incurred in connection with this Agreement and in closing
and carrying out the transactions contemplated hereby shall be paid by the
party incurring such cost or expense. This section shall survive the
termination of this Agreement.
10.04 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. No party hereto may assign either this
Agreement or any of its rights, interests or obligations hereunder without
the prior written approval of each other party.
10.05 GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the internal laws (without reference to
choice or conflict of laws) of the State of Delaware.
10.06 COUNTERPARTS; EFFECTIVENESS. This Agreement may be
signed in any number of counterparts and the signatures delivered by
telecopy, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same
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instrument and delivered in person. This Agreement shall become effective
when each party hereto shall have received a counterpart hereof signed by the
other parties hereto.
10.07 ENTIRE AGREEMENT. This Agreement (including the
Schedules and Exhibits referred to herein which are hereby incorporated by
reference and the other agreements executed simultaneously herewith)
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter of this Agreement. Neither this Agreement nor any provision
hereof is intended to confer upon any Person other than the parties hereto
any rights or remedies hereunder.
10.08 CAPTIONS. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof. All references to an Article or Section include all
subparts thereof.
10.09 SEVERABILITY. If any provision of this Agreement, or
the application thereof to any Person, place or circumstance, shall be held
by a court of competent jurisdiction to be invalid, unenforceable or void,
the remainder of this Agreement and such provisions as applied to other
Persons, places and circumstances shall remain in full force and effect only
if, after excluding the portion deemed to be unenforceable, the remaining
terms shall provide for the consummation of the transactions contemplated
hereby in substantially the same manner as originally set forth at the later
of the date this Agreement was executed or last amended.
10.10 CONSTRUCTION. The parties hereto intend that each
representation, warranty, and covenant contained herein shall have
independent significance. If any party has breached any representation,
warranty or covenant contained herein in any respect, the fact that there
exists another representation, warranty or covenant relating to the same
subject matter (regardless of the relative levels of specificity) that the
party has not breached shall not detract from or mitigate the fact that the
party is in breach of the first representation, warranty or covenant.
10.11 ARBITRATION.
(a) Any dispute or difference between or among the
parties (such parties being referred to individually as a "DISPUTING PARTY,"
and, together, as the "DISPUTING PARTIES") arising out of this Agreement or
the transactions contemplated hereby, including without limitation any
dispute between an Indemnitee and any Indemnifying Party under ARTICLE IX,
which the parties are unable to resolve themselves shall be submitted to and
resolved by arbitration as herein provided. Any Disputing Party may request
the American Arbitration Association (the "AAA") to designate one arbitrator,
who shall be qualified as an arbitrator under the standards of the AAA, and
who shall have been engaged in the private practice of law for not less than
fifteen (15) years immediately prior to appointment as arbitrator pursuant to
this Agreement, who, in any such case, (i) is not affiliated with any party
in interest to such arbitration, (ii) is not a law firm that has within the
last three years rendered, or is then rendering, services to any party
hereto, (iii) has not appeared, or is not then appearing, as counsel of
record in opposition to any party hereto and (iv) is qualified to serve by
training for and experience in the matters for which such arbitrator is
designated to serve.
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(b) The arbitrator shall consider the dispute at
issue in Portland, Oregon, at a mutually agreed upon time within one hundred
twenty (120) days (or such other period as may be acceptable to the Disputing
Parties or as directed by the arbitrator) of the designation of the
arbitrator. The arbitration proceeding shall be held in accordance with the
rules for commercial arbitration of the AAA in effect on the date of the
initial request by the Disputing Party, that gave rise to the dispute to be
arbitrated (as such rules are modified by the terms of this Agreement or may
be further modified by mutual agreement of the Disputing Parties) and shall
include an opportunity for the parties to conduct discovery in advance of the
proceeding using all of the authorized methods of discovery allowed by the
Federal Rules of Civil Procedure in effect on the date of the initial request
by the Disputing Party. Notwithstanding the foregoing, the Disputing Parties
shall agree that they will attempt, and they intend that they and the
arbitrator should use its best efforts in that attempt, to conclude the
arbitration proceeding and have a final decision from the arbitrator within
one hundred twenty (120) days from the date of selection of the arbitrator;
PROVIDED, HOWEVER, that the arbitrator shall be entitled to extend such one
hundred twenty (120) day period for a total of two one hundred twenty (120)
day periods. The arbitrator shall be bound to follow the laws of the State
of Delaware, both decisional and statutory, in reaching any decision and
making any award and shall deliver a written award, including written
findings of fact and conclusions of law, with respect to the dispute to each
of the parties, who shall promptly act in accordance therewith. Each
Disputing Party to such arbitration agrees that any award of the arbitrator
shall be final, conclusive and binding and that they will not contest any
action by any other party thereto in accordance with an award of the
arbitrator; PROVIDED, HOWEVER that any party may appeal based on statutory
grounds. It is specifically understood and agreed that any party may enforce
any award rendered pursuant to the arbitration provisions of this SECTION
10.11 by bringing suit in any court of competent jurisdiction.
(c) All costs and expenses attributable to the
arbitrator shall be allocated among the parties to the arbitration in such
manner as the arbitrator shall determine to be appropriate under the
circumstances.
(d) The arbitrator chosen in accordance with these
provisions shall not have the power to alter, amend or otherwise affect the
terms of these arbitration provisions or the provisions of this Agreement or
any other documents that are executed in connection therewith.
(e) Arbitration under this Section shall be the sole
and exclusive remedy of the parties for any dispute arising out of this
Agreement.
10.12 CONTRIBUTIONS. Parent covenants that Parent shall not,
nor shall Parent cause the Company to, take any action inconsistent with the
treatment of Microsoft's contributions of assets to the Company prior to the
date hereof as a tax-free exchange pursuant to Code Section 351 and the
Regulations promulgated thereunder, unless any of the parties to this
Agreement are required, pursuant to a "determination" within the meaning of
Code Section 1313(a), to treat the transaction in a different manner. Parent
will cause its Affiliates to comply with this covenant.
38
<PAGE>
10.13 CUMULATIVE REMEDIES. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
10.14 THIRD PARTY BENEFICIARIES. Except as specifically
provided in Article XI with respect to indemnification provided to the
Indemnitees identified therein, no provision of this Agreement shall create
any third party beneficiary rights in any Person, including any employee of
Parent or employee or former employee of Microsoft in connection with the
Business (including any beneficiary or dependent thereof).
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement and Plan of Merger to be duly executed by their respective
authorized officers as of the day and year first above written.
MICROSOFT CORPORATION, A WASHINGTON
CORPORATION
By: /s/ Gregory Maffei
------------------------
Name: Gregory Maffei
------------------------
Title: Chief Financial Officer
------------------------
SIDEWALK.COM, INC., A NEVADA CORPORATION
By: /s/ Gregory Stanger
------------------------
Name: Gregory Stanger
------------------------
Title:
------------------------
TICKETMASTER ONLINE-CITYSEARCH, INC., A
DELAWARE CORPORATION
By: /s/ DANIEL C. MARRIOTT
--------------------------
Name: Daniel C. Marriott
Title: Executive Vice President
TICKETMASTER ACQUISITION, INC., A NEVADA
CORPORATION
By: /s/ DANIEL C. MARRIOTT
--------------------------
Name: Daniel C Marriott
Title: Executive Vice President
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
<PAGE>
SCHEDULE I
Matt Kursh
Jim Barr
Michelle Glasser
Brian Selner
Kevin Wueste
<PAGE>
SCHEDULE II
"EXCLUDED LIABILITIES" means, with respect to actions, inactions,
events and circumstances arising or in existence on or before the Closing Date,
all of the following:
(a) Any liability or obligation of Microsoft based on
third party claims relating to the Business arising out of (i) any pending or
threatened litigation or (ii) any negligent, reckless or unlawful action or
inaction of Microsoft;
(b) Any accrued or other liability or obligation arising
out of or related to any Employee Plans of Microsoft;
(c) Any liabilities or obligations of Microsoft (whether
absolute, contingent or otherwise) relating to workers' compensation claims made
by any employee of the Business to the extent such claims relate to incidents
prior to the Closing Date;
(d) Any obligation or liability of Microsoft relating to
the Business under any applicable Environmental Laws;
(e) any liability or obligation of Microsoft, whether
currently in existence or arising hereafter, that is not attributable to, or
that does not arise out of the normal conduct of, the Business; or
(f) Any other obligation or liability of Microsoft
relating to the Business, of any kind or nature whatsoever, that is not
expressly assumed by the Company.
PROVIDED, HOWEVER, that any obligations liabilities related to, or any licenses
transferred subject to, any Company Assets shall not be Excluded Liabilities to
the extent that they relate to obligations to be performed after the Closing or
liabilities which relate to actions, inactions, events or circumstances which
occur after the Closing.
<PAGE>
EXHIBIT 4.2
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THIS WARRANT OR
OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF SHALL BE VALID OR EFFECTIVE
UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES
LAW OR (B) THE HOLDER SHALL DELIVER TO THE COMPANY AN OPINION OF COUNSEL IN FORM
AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE
STATE SECURITIES LAW.
WARRANT NO. 1 _____ __, 1999
CLASS B COMMON STOCK PURCHASE WARRANT OF
TICKETMASTER ONLINE-CITYSEARCH, INC.
Ticketmaster Online-CitySearch, Inc., a Delaware corporation (the
"Company"), hereby grants to Microsoft Corporation, a Washington corporation
("Holder"), or its permitted assigns or transferees (Holder and each such
permitted assignee or transferee being referred to herein as a "holder" and
collectively as the "holders") the right to purchase, from time to time on and
after the date hereof until the Expiration Date (as defined below), up to One
Million Five Hundred Thousand (1,500,000) fully paid and non-assessable shares
of Class B Common Stock of the Company, $.01 par value per share (the "Common
Stock"), on the terms and subject to the conditions set forth below.
This Class B Common Stock Purchase Warrant (hereinafter, this "Warrant") was
originally issued on ____ __, 1999 (the "Original Issue Date"). This Warrant
shall expire and be of no further force or effect on the date (the "Expiration
Date") five (5) years from the Original Issue Date.
1. EXERCISE OF WARRANT.
1.1 VOLUNTARY EXERCISE. Subject to the terms of this Warrant
and subject to adjustment as hereinafter provided, the rights represented by
this Warrant are exercisable from the date hereof until the Expiration Date, at
a price per share (the "Exercise Price") of the Common Stock issuable hereunder
(hereinafter, "Warrant Shares") equal to Sixty Dollars ($60.00).
1.2 CASHLESS EXERCISE. Subject to the terms of this
Warrant, after the 18 month anniversary of the Original Issue Date, in lieu
of payment of the Exercise Price in cash, holder may elect to exercise this
Warrant by invoking the cashless exercise procedure set forth in
<PAGE>
this Section by noting such election on the Notice of Exercise in the form of
ANNEX A. If the cashless exercise procedure is elected by holder, holder
shall be entitled to receive the number of shares of Common Stock equal to
the quotient of (a) the product of (i) the difference of the Fair Market
Value (as defined below) of one share of Common Stock minus the Exercise
Price of one share of Common Stock as applicable on the date of such
exercise, multiplied by (ii) the number of Warrant Shares as to which this
Warrant is being converted, divided by (b) the Fair Market Value of one share
of Common Stock on the date of such exercise. For the purpose of this
Warrant, "Fair Market Value" of a share of Common Stock as of a particular
date shall mean:
(a) If traded on a securities exchange or the Nasdaq
National Market, the Fair Market Value shall be deemed to be the average of
the closing prices of the Common Stock of the Company on such exchange or
market over the 20 trading days ending immediately prior to the applicable
date of valuation;
(b) If actively traded over-the-counter, the Fair Market
Value shall be deemed to be the average of the closing bid prices over the
30-day period ending immediately prior to the applicable date of valuation;
and
(c) If there is no active public market, the Fair Market
Value shall be the value as determined in good faith by the Company's Board
of Directors upon a review of relevant factors, including due consideration
of holder's determination of the value of the Company.
1.3 LEGAL RIGHT TO WARRANT SHARES. Upon surrender of this
Warrant with a duly executed Notice of Exercise in the form of ANNEX A
hereto, together with payment, if applicable, of the Exercise Price for the
Warrant Shares purchased, at the Company's principal executive offices
presently located at 790 E. Colorado Blvd., Suite 200, Pasadena, CA 91101,
Attn: Bradley K. Serwin, Telecopier No.: (626) 405-9929 or at such
other address as the Company shall have advised the holder in writing (the
"Designated Office"), the holder shall be entitled to receive a certificate
or certificates for the Warrant Shares so purchased. The Company agrees that
the Warrant Shares shall be deemed to have been issued to the holder as of
the close of business on the date on which this Warrant shall have been
surrendered together with the Notice of Exercise and payment, if applicable,
for such Warrant Shares.
2. TRANSFER; ISSUANCE OF STOCK CERTIFICATES; RESTRICTIVE LEGENDS.
2.1. TRANSFER. Subject to compliance with applicable law,
this Warrant shall be freely assignable by the holder thereof. Each transfer
of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose,
upon surrender of this Warrant at the Designated Office, together with a
written assignment of this Warrant in the form of ANNEX B hereto duly
executed by the holder or its agent or attorney. Upon such surrender and
delivery, the Company shall execute and deliver a new Warrant or Warrants in
the name of the assignee or assignees and in the denominations specified in
such instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, if any. A Warrant,
if properly assigned in
2
<PAGE>
compliance with the provisions hereof, may be exercised by the new holder for
the purchase of Warrant Shares without having a new Warrant issued. All
Warrants issued upon any assignment of Warrants shall be the valid
obligations of the Company, evidencing the same rights, and entitled to the
same benefits as the Warrants surrendered upon such registration of transfer
or exchange. Holder agrees that prior to any proposed transfer of the
Warrant or of the Warrant Shares, if such transfer is not made pursuant to an
effective Registration Statement under the Securities Act of 1933, as amended
(the "Securities Act"), Holder will, if requested by the Company, deliver to
the Company:
(a) an investment representation letter reasonably satisfactory
to the Company signed by the proposed transferee;
(b) an agreement by such transferee to the impression of the
restrictive investment legend set forth below in Section 2.4 on the Warrant
Shares;
(c) an agreement by such transferee that the Company may place
a notation in the stock books of the Company or a "stop transfer order" with any
transfer agent or registrar with respect to the Warrant Shares;
(d) an agreement by such transferee to be bound by the
provisions of this Section 2.1 relating to the transfer of the Warrant or
Warrant Shares and Section 2.3 relating to the lock-up of Warrant Shares; and
(e) except in the case of a transfer pursuant to Rule 144
promulgated pursuant to the Securities Act, or any successor rule, prior to
consummating any private sale or transfer of the Warrant or the Warrant Shares,
the written opinion of reputable legal counsel in form reasonably acceptable to
the Company that such sale or transfer is being made in compliance with
applicable federal securities laws.
2.2 STOCK CERTIFICATES. Certificates for the Warrant Shares
shall be delivered to the holder within a reasonable time after the rights
represented by this Warrant shall have been exercised pursuant to Section 1, and
a new Warrant representing the share, shares or fraction of a share of Common
Stock, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder within such time. The issuance of
certificates for Warrant Shares upon the exercise of this Warrant shall be made
without charge to the holder hereof including, without limitation, any tax that
may be payable in respect thereof; PROVIDED, HOWEVER, that the Company shall not
be required to pay any income tax to which the holder hereof may be subject in
connection with the issuance of this Warrant or the Warrant Shares.
2.3 LOCK-UP OF WARRANT SHARES. Holder agrees that it will not
offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any Warrant Shares for a period commencing on
the Original Issue Date and continuing to a date 180 days after the Original
Issue Date; PROVIDED, HOWEVER, that nothing in this Section 2.3 will prevent
Holder from engaging in certain "hedging transactions" so long as Holder uses
commercially reasonable efforts to affect such hedging transactions in a manner
that will
3
<PAGE>
minimize any adverse effects on the trading price of Common Stock of the
Company on the Nasdaq National Market. Holder also consents to the entry of
stop transfer instructions by the Company's transfer agent and registrar
prohibiting the transfer of Warrant Shares by Holder except in compliance
with the foregoing restrictions; PROVIDED, HOWEVER, that upon the reasonable
request of Holder the Warrant Shares shall be released from such stop
transfer instructions and issued without legends to permit Holder to lend
such shares to counterparties in connection with hedging transactions (but
only in so far as any such transaction is conducted in accordance with the
covenants set forth in the immediately preceding sentence).
2.4. RESTRICTIVE LEGENDS. Except as otherwise provided in this
Section 2, each certificate for Warrant Shares initially issued upon the
exercise of this Warrant, and each certificate for Warrant Shares issued to any
subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY
TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE
IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
Notwithstanding the foregoing, the legend requirements of this Section 2.4
shall terminate as to any particular Warrant Share when the Company shall
have received from the holder thereof an opinion of counsel in form and
substance reasonably acceptable to the Company that such legend is not
required in order to ensure compliance with the Securities Act. Whenever the
restrictions imposed by this Section 2.4 shall terminate, the holder of
Warrant Shares shall be entitled to receive from the Company without cost to
such holder a new certificate for Warrant Shares of like tenor, as the case
may be, without such restrictive legend.
3. ADJUSTMENT OF NUMBER OF SHARES; EXERCISE PRICE; NATURE OF
SECURITIES ISSUABLE UPON EXERCISE OF WARRANTS.
3.1 EXERCISE PRICE; ADJUSTMENT OF NUMBER OF SHARES. The
Exercise Price set forth in Section 1 hereof and the number of shares
purchasable hereunder shall be subject to adjustment from time to time as
hereinafter provided.
4
<PAGE>
3.2 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE. If any capital reorganization or reclassification of the capital
stock of the Company, or any consolidation or merger of the Company with
another entity, or the sale of all or substantially all of the Company's
assets to another person or entity (collectively referred to as a
"Transaction") shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities, cash or assets with respect
to or in exchange for Common Stock, then, as a condition of such Transaction,
reasonable, lawful and adequate provisions shall be made whereby the holder
of this Warrant shall thereafter have the right to purchase and receive upon
the basis and upon the terms and conditions specified in this Warrant, upon
exercise of this Warrant and in lieu of the Warrant Shares immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such number, amount and like kind of shares of stock,
securities, cash or assets as may be issued or payable pursuant to the terms
of the Transaction with respect to or in exchange for the number of shares of
Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby as if such shares were outstanding
immediately prior to the Transaction, and in any such case appropriate
provision shall be made with respect to the rights and interest of the
holders to the end that the provisions hereof (including, without limitation,
provisions for adjustments of the Exercise Price and of the number of Warrant
Shares purchasable and receivable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be practicable, in relation to any
shares of stock or securities thereafter deliverable upon the exercise hereof.
3.3 STOCK SPLITS, STOCK DIVIDENDS AND REVERSE STOCK SPLITS.
In case at any time the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, or shall declare and pay any
stock dividend with respect to its outstanding stock that has the effect of
increasing the number of outstanding shares of Common Stock, the Exercise
Price in effect immediately prior to such subdivision or stock dividend shall
be proportionately reduced and the number of Warrant Shares purchasable
pursuant to this Warrant immediately prior to such subdivision or stock
dividend shall be proportionately increased.
3.4 DISSOLUTION, LIQUIDATION OR WIND-UP. In case the
Company shall, at any time prior to the exercise of this Warrant, dissolve,
liquidate or wind up its affairs, the holder hereof shall be entitled, upon
the exercise of this Warrant and payment of the Exercise Price for the
Warrant Shares, to receive, in lieu of the Warrant Shares which the holder
would have been entitled to receive, the same kind and amount of assets as
would have been issued, distributed or paid to such holder upon any such
dissolution, liquidation or winding up with respect to such Warrant Shares,
had such holder hereof been the holder of record of the Warrant Shares
receivable upon the exercise of this Warrant on the record date for the
determination of those persons entitled to receive any such liquidating
distribution.
3.5 ACCOUNTANT'S CERTIFICATE. In each case of an adjustment
in the Exercise Price, number of Warrant Shares or other stock, securities or
property receivable upon the exercise of this Warrant, the Company shall
compute, and upon the holder's request shall at the Company's expense cause
independent public accountants of recognized standing selected by the Company
and reasonably acceptable to the holder to certify such computation, such
adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such
5
<PAGE>
adjustment and showing in detail the facts upon which such adjustment is
based, including a statement of (i) the number of shares of Common Stock of
each class outstanding or deemed to be outstanding, (ii) the adjusted
Exercise Price and (iii) the number of Warrant Shares issuable upon exercise
of this Warrant. The Company will forthwith mail a copy of each such
certificate to the holder hereof. In the event that the holder disputes such
adjustment, the holder shall be entitled to select an additional firm of
independent certified public accountants of national standing and paid for by
the holder to certify such adjustment and the Company and the holder shall
use their good faith best efforts to agree on such adjustment based on the
reports of the two accounting firms. In the event that the Company and the
holder are still unable to reach agreement as to such adjustment, the Company
and the holder agree to submit such determination to binding arbitration.
Upon determination of such adjustment, the Board of Directors shall forthwith
make the adjustments described therein.
3.6 DEFINITION OF COMMON STOCK. As used in this Section 3 and
Section 4, the term "Common Stock" shall mean and include the Company's
authorized Common Stock and any securities or rights convertible or exercisable
into or otherwise entitling the holder thereof, directly or indirectly, to
receive additional shares of Common Stock.
4. ADJUSTMENT FOR DIVIDENDS OR DISTRIBUTIONS OF STOCK OR OTHER
SECURITIES OR PROPERTY. In case the Company shall make or issue, or shall fix a
record date for the determination of eligible holders entitled to receive, a
dividend or other distribution with respect to all shares of Common Stock (or
any shares of stock or other securities at the time issuable upon exercise of
the Warrant) other than in the ordinary course of business payable in (a)
securities of the Company or (b) assets (other than (i) a distribution to which
the provisions of Section 3.2 apply or (ii) a stock dividend subject to the
provisions of Section 3.3 above), then, in each such case, Holder, on exercise
of this Warrant at any time after the consummation, effective date or record
date of such dividend or other distribution, shall receive, in addition to the
Warrant Shares (or such other stock or securities) issuable on such exercise
prior to such date, and without the payment of additional consideration
therefor, the securities or such other assets of the Company to which Holder
would have been entitled upon such date if Holder had exercised this Warrant on
the date immediately prior to the date thereof and had thereafter, during the
period from the date thereof to and including the date of such exercise,
retained such shares and/or all other additional stock available by it as
aforesaid during such period giving effect to all adjustments called for by
Section 3.
5. REGISTRATION; EXCHANGE AND REPLACEMENT OF WARRANT; RESERVATION OF
SHARES.
5.1 REGISTRATION. The Company shall keep at the Designated
Office a register in which the Company shall provide for the registration,
transfer and exchange of this Warrant. The Company shall not at any time,
except upon the dissolution, liquidation or winding-up of the Company, close
such register so as to result in preventing or delaying the exercise or transfer
of this Warrant.
5.2 REGISTERED HOLDER. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
for all purposes and shall
6
<PAGE>
not be affected by any notice to the contrary, until presentation of this
Warrant for registration or transfer as provided in this Section 5.
5.3 REPLACEMENT OF WARRANT. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new Warrant of
like tenor, in lieu of this Warrant.
5.4 RESERVATION OF SHARES. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of this Warrant, such
number of shares of Common Stock as shall be issuable upon the exercise
hereof. The Company covenants and agrees that, upon exercise of this Warrant
and payment of the Exercise Price therefor, if applicable, all Warrant Shares
issuable upon such exercise shall be duly and validly issued, fully paid and
non-assessable.
6. COMPANY INFORMATION. Until the Expiration Date, the Company
shall deliver to each holder hereof or of Warrant Shares one copy of each of
the following items:
(a) as soon as available, the Company's Form 10-Q as filed
with the Commission for each fiscal quarter of the Company or if
the Company is not publicly traded its unaudited interim
consolidated balance sheets of the Company and its subsidiaries as
at the end of such quarter and the related consolidated statements
of income, cash flow and stockholders' equity of the Company and
its subsidiaries for the period from the beginning of the current
fiscal year to the end of such quarter, all in reasonable detail
and certified by a principal financial officer of the Company, as
prepared in accordance with GAAP consistently applied (subject to
year end adjustments and the absence of footnotes), and fairly
presenting the consolidated financial position and results of
operations of the Company and its subsidiaries for such periods;
(b) as soon as available, the Company's Form 10-K as filed
with the Commission for each fiscal year of the Company or if the
Company is not publicly traded its consolidated balance sheets of
the Company and its subsidiaries as at the end of such year and
the related consolidated statements of income, cash flow and
stockholders' equity of the Company and its subsidiaries for such
fiscal year, setting forth in each case in comparative form the
consolidated figures for the previous fiscal year, all in
reasonable detail and accompanied by a report thereon of
independent public accountants of recognized national standing
selected by the Company, which report shall state that such
consolidated financial statements present fairly the financial
position of the Company and its subsidiaries as at the dates
indicated and the results of their operations and changes in their
financial position for the periods indicated in conformity with
GAAP applied on a basis consistent with prior years (except as
otherwise specified in such report) and that the audit by such
accountants in connection with such consolidated financial
7
<PAGE>
statements has been made in accordance with generally accepted
auditing standards; and
(c) promptly upon their becoming available, copies of all
financial statements, reports, proxy statements, notices,
documents or other communications sent or made available generally
by the Company to any class of its security holders or by any
subsidiary of the Company to any class of its security holders.
7. DELIVERY OF NOTICE. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered personally, or mailed by registered or certified mail,
return receipt requested, or telecopied or telexed and confirmed in writing and
delivered personally or mailed by registered or certified mail, return receipt
requested:
(i) If to the holder of this Warrant, to the address of such
holder as shown on the books of the Company; or
(ii) If to the Company, to the address set forth in Section 1 of
this Warrant;
or at such other address as the holder or the Company may hereafter have advised
the other.
8. SUCCESSORS.
All the covenants, agreements, representations and warranties
contained in this Warrant shall bind the parties hereto and their respective
heirs, executors, administrators, distributees, successors, assigns and
transferees.
9. LAW GOVERNING.
This Warrant shall be construed and enforced in accordance with,
and governed by, the laws of the State of Delaware (not including the choice of
law rules thereof) regardless of the jurisdiction of creation or domicile of the
Company or its successors or of the holder at any time hereof.
8
<PAGE>
10. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.
This Warrant sets forth the entire understanding of the parties
with respect to the transactions contemplated hereby. The failure of any
party to seek redress for the violation or to insist upon the strict
performance of any term of this Warrant shall not constitute a waiver of such
term and such party shall be entitled to enforce such term without regard to
such forbearance. This Warrant may be amended, and any breach of or
compliance with any covenant, agreement, warranty or representation may be
waived, only if the Company has obtained the written consent or written
waiver of the holder, and then such consent or waiver shall be effective only
in the specific instance and for the specific purpose for which given.
11. SEVERABILITY; HEADINGS.
If any term of this Warrant as applied to any person or to any
circumstance is prohibited, void, invalid or unenforceable in any jurisdiction,
such term shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or invalidity without in any way affecting any other term of this
Warrant or affecting the validity or enforceability of this Warrant or of such
provision in any other jurisdiction. The Section headings in this Warrant have
been inserted for purposes of convenience only and shall have no substantive
effect.
12. HSR ACT.
The Company shall cooperate with Holder, promptly after receipt of
notice from Holder of its intention to exercise the Warrant, in making all
filings required to be made under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") in connection with such exercise;
PROVIDED, HOWEVER, that in no event shall such cooperation include payment of
any fee which may be required to be paid. The applicable waiting period,
including any extension thereof, under the HSR Act shall have expired or been
terminated prior to the issuance of any Warrant Shares upon exercise of the
Warrant.
[remainder of page intentionally blank]
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of the date first written above.
TICKETMASTER ONLINE-CITYSEARCH, INC.
By:________________________________
[Name]
[Title]
Accepted and agreed:
MICROSOFT CORPORATION
By:_______________________________
Gregory B. Maffei
Vice President and Chief Financial Officer
10
<PAGE>
ANNEX A
NOTICE OF EXERCISE
(To be executed upon exercise of Warrant)
TICKETMASTER WARRANT NO. 1
ONLINE-CITYSEARCH, INC.
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
the securities of Ticketmaster Online-CitySearch, Inc., as provided for therein,
and (check the applicable box):
/ / Tenders herewith payment of the exercise price in full in the form of
cash or a certified or official bank check in same-day funds in the
amount of $____________ for _________ such securities.
/ / Elects the Cashless Exercise option pursuant to Section 1.2 of the
Warrant, and accordingly requests delivery of a net of ______________ of
such securities.
Please issue a certificate or certificates for such securities in the name of,
and pay any cash for any fractional share to (please print name, address and
social security number):
Name: ________________________________
Address: ________________________________
Signature: ________________________________
Note: The above signature should correspond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee appearing in
the assignment form below.
If said number of shares shall not be all the shares purchasable under the
within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher whole number of shares.
<PAGE>
EXHIBIT 2
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate) WARRANT NO. 1
For value received, hereby sells, assigns and transfers unto
________________________ the within Warrant Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ____________________________ attorney, to transfer said Warrant
Certificate on the books of the within-named Company with respect to the
number of Warrants set forth below, with full power of substitution in the
premises:
NAME(s) OF ASSIGNEE(s) ADDRESS # OF WARRANTS
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
And if said number of Warrants shall not be all the Warrants represented by the
Warrant Certificate, a new Warrant Certificate is to be issued in the name of
said undersigned for the balance remaining of the Warrants registered by said
Warrant Certificate.
Dated: ____________________________
Signature: ____________________________
Notice: The signature to the foregoing Assignment must correspond to the name
as written upon the face of this security in every particular, without
alteration or any change whatsoever; signature(s) must be guaranteed by an
eligible guarantor institution (banks, stock brokers, savings and loan
associations and credit unions with membership in an approved signature
guarantee medallion program) pursuant to Securities and Exchange Commission
Rule 17Ad-15.
<PAGE>
EXHIBIT 4.3
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THIS WARRANT OR
OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF SHALL BE VALID OR EFFECTIVE
UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES
LAW OR (B) THE HOLDER SHALL DELIVER TO THE COMPANY AN OPINION OF COUNSEL IN FORM
AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE
STATE SECURITIES LAW.
WARRANT NO. 2 _____ __, 1999
CLASS B COMMON STOCK PURCHASE WARRANT OF
TICKETMASTER ONLINE-CITYSEARCH, INC.
Ticketmaster Online-CitySearch, Inc., a Delaware corporation (the
"Company"), hereby grants to Microsoft Corporation, a Washington corporation
("Holder"), or its permitted assigns or transferees (Holder and each such
permitted assignee or transferee being referred to herein as a "holder" and
collectively as the "holders") the right to purchase, from time to time on and
after the date hereof until the Expiration Date (as defined below), up to Three
Million (3,000,000) fully paid and non-assessable shares of Class B Common Stock
of the Company, $.01 par value per share (the "Common Stock"), on the terms and
subject to the conditions set forth below.
This Class B Common Stock Purchase Warrant (hereinafter, this "Warrant") was
originally issued on _____ __, 1999 (the "Original Issue Date"). This Warrant
shall expire and be of no further force or effect on the date (the "Expiration
Date") five (5) years from the Original Issue Date.
1. EXERCISE OF WARRANT.
1.1 VOLUNTARY EXERCISE. Subject to the terms of this Warrant
and subject to adjustment as hereinafter provided, the rights represented by
this Warrant are exercisable from the date hereof until the Expiration Date, at
a price per share (the "Exercise Price") of the Common Stock issuable hereunder
(hereinafter, "Warrant Shares") equal to Thirty Dollars ($30.00).
1.2 CASHLESS EXERCISE. Subject to the terms of this Warrant,
after the 18 month anniversary of the Original Issue Date, in lieu of payment of
the Exercise Price in cash, holder may elect to exercise this Warrant by
invoking the cashless exercise procedure set forth in
<PAGE>
this Section by noting such election on the Notice of Exercise in the form of
ANNEX A. If the cashless exercise procedure is elected by holder, holder
shall be entitled to receive the number of shares of Common Stock equal to
the quotient of (a) the product of (i) the difference of the Fair Market
Value (as defined below) of one share of Common Stock minus the Exercise
Price of one share of Common Stock as applicable on the date of such
exercise, multiplied by (ii) the number of Warrant Shares as to which this
Warrant is being converted, divided by (b) the Fair Market Value of one share
of Common Stock on the date of such exercise. For the purpose of this
Warrant, "Fair Market Value" of a share of Common Stock as of a particular
date shall mean:
(a) If traded on a securities exchange or the Nasdaq
National Market, the Fair Market Value shall be deemed to be the average of
the closing prices of the Common Stock of the Company on such exchange or
market over the 20 trading days ending immediately prior to the applicable
date of valuation;
(b) If actively traded over-the-counter, the Fair Market
Value shall be deemed to be the average of the closing bid prices over the
30-day period ending immediately prior to the applicable date of valuation;
and
(c) If there is no active public market, the Fair Market
Value shall be the value as determined in good faith by the Company's Board
of Directors upon a review of relevant factors, including due consideration
of holder's determination of the value of the Company.
1.3 LEGAL RIGHT TO WARRANT SHARES. Upon surrender of this
Warrant with a duly executed Notice of Exercise in the form of ANNEX A
hereto, together with payment, if applicable, of the Exercise Price for the
Warrant Shares purchased, at the Company's principal executive offices
presently located at 790 E. Colorado Blvd., Suite 200, Pasadena, CA 91101,
Attn: Bradley K. Serwin, Telecopier No.: (626) 405-9929 or at such other
address as the Company shall have advised the holder in writing (the
"Designated Office"), the holder shall be entitled to receive a certificate
or certificates for the Warrant Shares so purchased. The Company agrees that
the Warrant Shares shall be deemed to have been issued to the holder as of
the close of business on the date on which this Warrant shall have been
surrendered together with the Notice of Exercise and payment, if applicable,
for such Warrant Shares.
2. TRANSFER; ISSUANCE OF STOCK CERTIFICATES; RESTRICTIVE LEGENDS.
2.1. TRANSFER. Subject to compliance with applicable law,
this Warrant shall be freely assignable by the holder thereof. Each transfer
of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose,
upon surrender of this Warrant at the Designated Office, together with a
written assignment of this Warrant in the form of ANNEX B hereto duly
executed by the holder or its agent or attorney. Upon such surrender and
delivery, the Company shall execute and deliver a new Warrant or Warrants in
the name of the assignee or assignees and in the denominations specified in
such instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, if any. A Warrant,
if properly assigned in
2
<PAGE>
compliance with the provisions hereof, may be exercised by the new holder for
the purchase of Warrant Shares without having a new Warrant issued. All
Warrants issued upon any assignment of Warrants shall be the valid
obligations of the Company, evidencing the same rights, and entitled to the
same benefits as the Warrants surrendered upon such registration of transfer
or exchange. Holder agrees that prior to any proposed transfer of the
Warrant or of the Warrant Shares, if such transfer is not made pursuant to an
effective Registration Statement under the Securities Act of 1933, as amended
(the "Securities Act"), Holder will, if requested by the Company, deliver to
the Company:
(a) an investment representation letter reasonably
satisfactory to the Company signed by the proposed transferee;
(b) an agreement by such transferee to the impression of the
restrictive investment legend set forth below in Section 2.4 on the Warrant
Shares;
(c) an agreement by such transferee that the Company may
place a notation in the stock books of the Company or a "stop transfer order"
with any transfer agent or registrar with respect to the Warrant Shares;
(d) an agreement by such transferee to be bound by the
provisions of this Section 2.1 relating to the transfer of the Warrant or
Warrant Shares and Section 2.3 relating to the lock-up of Warrant Shares; and
(e) except in the case of a transfer pursuant to Rule 144
promulgated pursuant to the Securities Act, or any successor rule, prior to
consummating any private sale or transfer of the Warrant or the Warrant
Shares, the written opinion of reputable legal counsel in form reasonably
acceptable to the Company that such sale or transfer is being made in
compliance with applicable federal securities laws.
2.2 STOCK CERTIFICATES. Certificates for the Warrant Shares
shall be delivered to the holder within a reasonable time after the rights
represented by this Warrant shall have been exercised pursuant to Section 1,
and a new Warrant representing the share, shares or fraction of a share of
Common Stock, if any, with respect to which this Warrant shall not then have
been exercised shall also be issued to the holder within such time. The
issuance of certificates for Warrant Shares upon the exercise of this Warrant
shall be made without charge to the holder hereof including, without
limitation, any tax that may be payable in respect thereof; PROVIDED,
HOWEVER, that the Company shall not be required to pay any income tax to
which the holder hereof may be subject in connection with the issuance of
this Warrant or the Warrant Shares.
2.3 LOCK-UP OF WARRANT SHARES. Holder agrees that it will
not offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any Warrant Shares for a period
commencing on the Original Issue Date and continuing to a date 180 days after
the Original Issue Date; PROVIDED, HOWEVER, that nothing in this Section 2.3
will prevent Holder from engaging in certain "hedging transactions" so long
as Holder uses commercially reasonable efforts to affect such hedging
transactions in a manner that will
3
<PAGE>
minimize any adverse effects on the trading price of Common Stock of the
Company on the Nasdaq National Market. Holder also consents to the entry of
stop transfer instructions by the Company's transfer agent and registrar
prohibiting the transfer of Warrant Shares by Holder except in compliance
with the foregoing restrictions; PROVIDED, HOWEVER, that upon the reasonable
request of Holder the Warrant Shares shall be released from such stop
transfer instructions and issued without legends to permit Holder to lend
such shares to counterparties in connection with hedging transactions (but
only in so far as any such transaction is conducted in accordance with the
covenants set forth in the immediately preceding sentence).
2.4. RESTRICTIVE LEGENDS. Except as otherwise provided in
this Section 2, each certificate for Warrant Shares initially issued upon the
exercise of this Warrant, and each certificate for Warrant Shares issued to
any subsequent transferee of any such certificate, shall be stamped or
otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY
TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE
IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
Notwithstanding the foregoing, the legend requirements of this Section 2.4
shall terminate as to any particular Warrant Share when the Company shall
have received from the holder thereof an opinion of counsel in form and
substance reasonably acceptable to the Company that such legend is not
required in order to ensure compliance with the Securities Act. Whenever the
restrictions imposed by this Section 2.4 shall terminate, the holder of
Warrant Shares shall be entitled to receive from the Company without cost to
such holder a new certificate for Warrant Shares of like tenor, as the case
may be, without such restrictive legend.
4
<PAGE>
3. ADJUSTMENT OF NUMBER OF SHARES; EXERCISE PRICE; NATURE OF
SECURITIES ISSUABLE UPON EXERCISE OF WARRANTS.
3.1 EXERCISE PRICE; ADJUSTMENT OF NUMBER OF SHARES. The
Exercise Price set forth in Section 1 hereof and the number of shares
purchasable hereunder shall be subject to adjustment from time to time as
hereinafter provided.
3.2 ADJUSTMENT FOR CHANGE IN STOCK PRICE. At the applicable
time of exercise, and with respect to only that portion of this Warrant being
exercised, the Exercise Price of this Warrant shall be decreased by $1/16
(the "Ratchet Trigger") (but not below $1/16, the "Ratchet Floor") for each
increment of $1/16 by which the Fair Market Value (as defined in Section 1.2)
of a share of Common Stock exceeds $30.00 (the "Ratchet Base" and,
collectively with the Ratchet Trigger and the Ratchet Floor, the "Ratchet
Values").
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE. If any capital reorganization or reclassification of the capital
stock of the Company, or any consolidation or merger of the Company with
another entity, or the sale of all or substantially all of the Company's
assets to another person or entity (collectively referred to as a
"Transaction") shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities, cash or assets with respect
to or in exchange for Common Stock, then, as a condition of such Transaction,
reasonable, lawful and adequate provisions shall be made whereby the holder
of this Warrant shall thereafter have the right to purchase and receive upon
the basis and upon the terms and conditions specified in this Warrant, upon
exercise of this Warrant and in lieu of the Warrant Shares immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such number, amount and like kind of shares of stock,
securities, cash or assets as may be issued or payable pursuant to the terms
of the Transaction with respect to or in exchange for the number of shares of
Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby as if such shares were outstanding
immediately prior to the Transaction, and in any such case appropriate
provision shall be made with respect to the rights and interest of the
holders to the end that the provisions hereof (including, without limitation,
provisions for adjustments of the Exercise Price and of the number of Warrant
Shares purchasable and receivable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be practicable, in relation to any
shares of stock or securities thereafter deliverable upon the exercise hereof.
3.4 STOCK SPLITS, STOCK DIVIDENDS AND REVERSE STOCK SPLITS.
In case at any time the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, or shall declare and pay any
stock dividend with respect to its outstanding stock that has the effect of
increasing the number of outstanding shares of Common Stock, the Exercise
Price and Ratchet Values in effect immediately prior to such subdivision or
stock dividend shall be proportionately reduced and the number of Warrant
Shares purchasable pursuant to this Warrant immediately prior to such
subdivision or stock dividend shall be proportionately increased.
5
<PAGE>
3.5 DISSOLUTION, LIQUIDATION OR WIND-UP. In case the
Company shall, at any time prior to the exercise of this Warrant, dissolve,
liquidate or wind up its affairs, the holder hereof shall be entitled, upon
the exercise of this Warrant and payment in full of the Exercise Price for
the Warrant Shares, to receive, in lieu of the Warrant Shares which the
holder would have been entitled to receive, the same kind and amount of
assets as would have been issued, distributed or paid to such holder upon any
such dissolution, liquidation or winding up with respect to such Warrant
Shares, had such holder hereof been the holder of record of the Warrant
Shares receivable upon the exercise of this Warrant on the record date for
the determination of those persons entitled to receive any such liquidating
distribution.
3.6 ACCOUNTANT'S CERTIFICATE. In each case of an adjustment
in the Exercise Price, number of Warrant Shares or other stock, securities or
property receivable upon the exercise of this Warrant, the Company shall
compute, and upon the holder's request shall at the Company's expense cause
independent public accountants of recognized standing selected by the Company
and reasonably acceptable to the holder to certify such computation, such
adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment and showing in detail the facts
upon which such adjustment is based, including a statement of (i) the number
of shares of Common Stock of each class outstanding or deemed to be
outstanding, (ii) the adjusted Exercise Price and (iii) the number of Warrant
Shares issuable upon exercise of this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder hereof. In the event that
the holder disputes such adjustment, the holder shall be entitled to select
an additional firm of independent certified public accountants of national
standing and paid for by the holder to certify such adjustment and the
Company and the holder shall use their good faith best efforts to agree on
such adjustment based on the reports of the two accounting firms. In the
event that the Company and the holder are still unable to reach agreement as
to such adjustment, the Company and the holder agree to submit such
determination to binding arbitration. Upon determination of such adjustment,
the Board of Directors shall forthwith make the adjustments described therein.
3.7 DEFINITION OF COMMON STOCK. As used in this Section 3
and Section 4, the term "Common Stock" shall mean and include the Company's
authorized Common Stock and any securities or rights convertible or
exercisable into or otherwise entitling the holder thereof, directly or
indirectly, to receive additional shares of Common Stock.
4. ADJUSTMENT FOR DIVIDENDS OR DISTRIBUTIONS OF STOCK OR OTHER
SECURITIES OR PROPERTY. In case the Company shall make or issue, or shall
fix a record date for the determination of eligible holders entitled to
receive, a dividend or other distribution with respect to all shares of
Common Stock (or any shares of stock or other securities at the time issuable
upon exercise of the Warrant) other than in the ordinary course of business
payable in (a) securities of the Company or (b) assets (other than (i) a
distribution to which the provisions of Section 3.3 apply or (ii) a stock
dividend subject to the provisions of Section 3.4 above), then, in each such
case, Holder, on exercise of this Warrant at any time after the consummation,
effective date or record date of such dividend or other distribution, shall
receive, in addition to the Warrant Shares (or such other stock or
securities) issuable on such exercise prior to such date, and without the
payment of additional consideration therefor, the securities or such other
assets of the
6
<PAGE>
Company to which Holder would have been entitled upon such date if Holder had
exercised this Warrant on the date immediately prior to the date thereof and
had thereafter, during the period from the date thereof to and including the
date of such exercise, retained such shares and/or all other additional stock
available by it as aforesaid during such period giving effect to all
adjustments called for by Section 3.
5. REGISTRATION; EXCHANGE AND REPLACEMENT OF WARRANT; RESERVATION OF
SHARES.
5.1 REGISTRATION. The Company shall keep at the Designated
Office a register in which the Company shall provide for the registration,
transfer and exchange of this Warrant. The Company shall not at any time,
except upon the dissolution, liquidation or winding-up of the Company, close
such register so as to result in preventing or delaying the exercise or
transfer of this Warrant.
5.2 REGISTERED HOLDER. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner
hereof for all purposes and shall not be affected by any notice to the
contrary, until presentation of this Warrant for registration or transfer as
provided in this Section 5.
5.3 REPLACEMENT OF WARRANT. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new Warrant of
like tenor, in lieu of this Warrant.
5.4 RESERVATION OF SHARES. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of this Warrant, such
number of shares of Common Stock as shall be issuable upon the exercise
hereof. The Company covenants and agrees that, upon exercise of this Warrant
and payment of the Exercise Price therefor, if applicable, all Warrant Shares
issuable upon such exercise shall be duly and validly issued, fully paid and
non-assessable.
6. COMPANY INFORMATION. Until the Expiration Date, the Company shall
deliver to each holder hereof or of Warrant Shares one copy of each of the
following items:
(a) as soon as available, the Company's Form 10-Q as filed
with the Commission for each fiscal quarter of the Company or if
the Company is not publicly traded its unaudited interim
consolidated balance sheets of the Company and its subsidiaries as
at the end of such quarter and the related consolidated statements
of income, cash flow and stockholders' equity of the Company and
its subsidiaries for the period from the beginning of the current
fiscal year to the end of such quarter, all in reasonable detail
and certified by a principal financial officer of the Company, as
prepared in accordance with GAAP consistently applied (subject to
year end adjustments and the absence of footnotes), and fairly
presenting the consolidated financial position and results of
operations of the Company and its subsidiaries for such periods;
7
<PAGE>
(b) as soon as available, the Company's Form 10-K as filed
with the Commission for each fiscal year of the Company or if the
Company is not publicly traded its consolidated balance sheets of
the Company and its subsidiaries as at the end of such year and
the related consolidated statements of income, cash flow and
stockholders' equity of the Company and its subsidiaries for such
fiscal year, setting forth in each case in comparative form the
consolidated figures for the previous fiscal year, all in
reasonable detail and accompanied by a report thereon of
independent public accountants of recognized national standing
selected by the Company, which report shall state that such
consolidated financial statements present fairly the financial
position of the Company and its subsidiaries as at the dates
indicated and the results of their operations and changes in their
financial position for the periods indicated in conformity with
GAAP applied on a basis consistent with prior years (except as
otherwise specified in such report) and that the audit by such
accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted
auditing standards; and
(c) promptly upon their becoming available, copies of all
financial statements, reports, proxy statements, notices,
documents or other communications sent or made available generally
by the Company to any class of its security holders or by any
subsidiary of the Company to any class of its security holders.
7. DELIVERY OF NOTICE. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered personally, or mailed by registered or certified mail,
return receipt requested, or telecopied or telexed and confirmed in writing and
delivered personally or mailed by registered or certified mail, return receipt
requested:
(i) If to the holder of this Warrant, to the address of such
holder as shown on the books of the Company; or
(ii) If to the Company, to the address set forth in Section 1 of
this Warrant;
or at such other address as the holder or the Company may hereafter have advised
the other.
8. SUCCESSORS.
All the covenants, agreements, representations and warranties
contained in this Warrant shall bind the parties hereto and their respective
heirs, executors, administrators, distributees, successors, assigns and
transferees.
8
<PAGE>
9. LAW GOVERNING.
This Warrant shall be construed and enforced in accordance
with, and governed by, the laws of the State of Delaware (not including the
choice of law rules thereof) regardless of the jurisdiction of creation or
domicile of the Company or its successors or of the holder at any time
hereof.
10. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.
This Warrant sets forth the entire understanding of the parties
with respect to the transactions contemplated hereby. The failure of any
party to seek redress for the violation or to insist upon the strict
performance of any term of this Warrant shall not constitute a waiver of such
term and such party shall be entitled to enforce such term without regard to
such forbearance. This Warrant may be amended, and any breach of or
compliance with any covenant, agreement, warranty or representation may be
waived, only if the Company has obtained the written consent or written
waiver of the holder, and then such consent or waiver shall be effective only
in the specific instance and for the specific purpose for which given.
11. SEVERABILITY; HEADINGS.
If any term of this Warrant as applied to any person or to any
circumstance is prohibited, void, invalid or unenforceable in any
jurisdiction, such term shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or invalidity without in any way affecting any
other term of this Warrant or affecting the validity or enforceability of
this Warrant or of such provision in any other jurisdiction. The Section
headings in this Warrant have been inserted for purposes of convenience only
and shall have no substantive effect.
12. HSR ACT.
The Company shall cooperate with Holder, promptly after receipt
of notice from Holder of its intention to exercise the Warrant, in making all
filings required to be made under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") in connection with such
exercise; PROVIDED, HOWEVER, that in no event shall such cooperation include
payment of any fee which may be required to be paid. The applicable waiting
period, including any extension thereof, under the HSR Act shall have expired
or been terminated prior to the issuance of any Warrant Shares upon exercise
of the Warrant.
[remainder of page intentionally blank]
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of the date first written above.
TICKETMASTER ONLINE-CITYSEARCH, INC.
By:________________________________
[Name]
[Title]
Accepted and agreed:
MICROSOFT CORPORATION
By:_______________________________
Gregory B. Maffei
Vice President and Chief Financial Officer
10
<PAGE>
ANNEX A
NOTICE OF EXERCISE
(To be executed upon exercise of Warrant)
TICKETMASTER WARRANT NO. 2
ONLINE-CITYSEARCH, INC.
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase
thereunder, the securities of Ticketmaster Online-CitySearch, Inc., as
provided for therein, and (check the applicable box):
/ / Tenders herewith payment of the exercise price in full in the form of
cash or a certified or official bank check in same-day funds in the
amount of $____________ for _________ such securities.
/ / Elects the Cashless Exercise option pursuant to Section 1.2 of the
Warrant, and accordingly requests delivery of a net of ______________ of
such securities.
Please issue a certificate or certificates for such securities in the name of,
and pay any cash for any fractional share to (please print name, address and
social security number):
Name: ___________________________________
Address: ___________________________________
Signature: ___________________________________
Note: The above signature should correspond exactly with the name on the
first page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
If said number of shares shall not be all the shares purchasable under the
within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher whole number of shares.
<PAGE>
EXHIBIT 2
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate) WARRANT NO. 2
For value received, hereby sells, assigns and transfers unto
________________________ the within Warrant Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ____________________________ attorney, to transfer said Warrant
Certificate on the books of the within-named Company with respect to the
number of Warrants set forth below, with full power of substitution in the
premises:
NAME(s) OF ASSIGNEE(s) ADDRESS # OF WARRANTS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
And if said number of Warrants shall not be all the Warrants represented by
the Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the Warrants registered
by said Warrant Certificate.
Dated: __________________________________
Signature: __________________________________
Notice: The signature to the foregoing Assignment must correspond to the name
as written upon the face of this security in every particular, without
alteration or any change whatsoever; signature(s) must be guaranteed by an
eligible guarantor institution (banks, stock brokers, savings and loan
associations and credit unions with membership in an approved signature
guarantee medallion program) pursuant to Securities and Exchange Commission
Rule 17Ad-15.
<PAGE>
EXHIBIT 10.38
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of _______ ___, 1999, between
Microsoft Corporation, a Washington corporation ("Holder"), and Ticketmaster
Online-CitySearch, Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Company, the Holder, Ticketmaster Acquisition, Inc., a
Nevada corporation ("Sub") and Sidewalk.com, Inc., a Nevada corporation
("Sidewalk"), have entered into that certain Agreement and Plan of Merger
dated as of July 19, 1999 (the "Merger Agreement") providing, among other
things, for the merger of Sidewalk with and into Sub;
WHEREAS, in connection with the transactions contemplated in the
Merger Agreement (i) the Company has issued to the Holder 7,000,000 shares of
Class B Common Stock, par value $.0001 per share of the Company ("Common
Stock") and (ii) the Company has granted to the Holder certain warrants to
purchase an aggregate of 4,500,000 shares of Common Stock (the "Warrants");
and
WHEREAS, it is a condition to the closing of the transactions
contemplated by the Merger Agreement that the parties hereto enter into this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
agree as follows:
AGREEMENT
1. DEFINITIONS.
The following capitalized terms, as used in this Agreement, have the
following meanings:
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in Los Angeles, California are authorized by law to
close.
"COMMISSION" means the Securities and Exchange Commission.
"REGISTRABLE SECURITIES" means shares of Common Stock of the Company
issuable to Holder upon (A) the Effective Time, as such term is defined in
the Merger Agreement and (B) exercise of the Warrants at any time owned,
either of record or beneficially, by Holder unless and until (i) a
registration statement covering all such shares has been declared effective
by the Commission and the shares have been issued by the Company to Holder
upon the Effective Time, as such term is defined in the Merger Agreement or
conversion of the Warrants pursuant to the effective registration statement
<PAGE>
or have been sold or transferred by Holder to another person pursuant to the
effective registration statement, (ii) such shares are sold pursuant to the
provisions of Rule 144 under the Securities Act (or any similar provisions
then in force) ("Rule 144"), (iii) such shares are held by a holder who is
not an affiliate of the Company within the meaning of Rule 144 (a "Rule 144
Affiliate") and may be sold pursuant to Rule 144(k) under the Securities Act
or (iv) all of such shares have been otherwise transferred in a transaction
that would constitute a sale under the Securities Act and such shares may be
resold without subsequent registration under the Securities Act.
"S-3 AVAILABILITY DATE" means any date on which Form S-3 (or a similar
successor form of registration statement) is available to the Company for the
registration of Registrable Securities pursuant to the Securities Act.
"S-3 EXPIRATION DATE" means the date subsequent to the S-3
Availability Date on which Form S-3 (or a similar successor form of
registration statement) is not available to the Company for the registration
of Registrable Securities pursuant to the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
2. SHELF REGISTRATION.
Subject to the provisions of Section 3, the Company shall file with
the Commission a registration statement on Form S-3 (the "Shelf") for an
offering to be made on a delayed or continuous basis pursuant to Rule 415
under the Securities Act (or any similar rule that may be adopted by the
Commission) covering the resale of Registrable Securities, such filing to be
made as soon as practicable following the S-3 Availability Date. The Company
shall use its reasonable efforts to cause the registration statement filed
with the Commission pursuant to this Section 2 to be declared effective by
the Commission as soon as practicable following the filing. The registration
of the Registrable Shares so effected by the Company pursuant to this Section
2 is referred to herein as a "Shelf Registration." The Company shall use its
reasonable efforts to keep the registration statement relating to the Shelf
Registration continuously effective (a) until the earlier of (i) the S-3
Expiration Date, (ii) the date on which all of the shares of Common Stock
issuable to Holder upon the Effective Time (as such term is defined in the
Merger Agreement) and upon Exercise of the Warrants owned, either of record
or beneficially, by Holder and registered pursuant to the Shelf Registration
are sold (the "Full Sale Date") and (iii) the date on which all of the shares
of Common Stock issuable to Holder upon the Effective Time (as such term is
defined in the Merger Agreement) and upon Exercise of the Warrants no longer
constitute Registrable Securities by reason of clause (iii) or (iv) of the
definition of "Registrable Securities" above and (b) during any Reinstatement
Period (as defined below).
3. REGISTRATION RIGHTS IF FORM S-3 IS NOT AVAILABLE.
The following provisions shall apply with respect to Registrable
Securities during the period, if any, beginning on the S-3 Expiration Date
and ending on the Full Sale Date
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(the "Supplemental Rights Period"); PROVIDED, HOWEVER, that the Supplemental
Rights Period shall commence on the six month anniversary of the Closing Date
(as such term is defined in the Merger Agreement) in the event that the S-3
Availability Date has not occurred prior to such date; PROVIDED, FURTHER,
that the Supplemental Rights Period shall not include (x) any period during
which the Shelf Registration is effective and (y) any period following the
S-3 Expiration Period and prior to the Full Sale Date if during that period
(the "Reinstatement Period") the Company shall again be entitled to use Form
S-3 (or a similar successor form of registration statement) for registration
of the Registrable Securities. During the Supplemental Rights Period, the
Holder shall have the following rights:
3.1 DEMAND RIGHT. Holder or any permitted assignee of Holder who
holds in excess of 1,000,000 Registrable Securities may make a written
request to the Company for registration of a minimum of 1,000,000 of the
Registrable Shares under the Securities Act and the securities or "blue sky"
laws of any jurisdictions designated by the holder of Registrable Securities
making such request (the "Demand"). Each Demand shall specify the number of
Registrable Shares proposed to be sold and shall also specify the intended
method of disposition thereof. Upon receipt of a Demand, the Company shall,
as promptly as possible (but in no event later than 14 days prior to the
filing of the registration statement relating to such Demand), give written
notice of such Demand to all holders of Registrable Securities. Within 14
days after receipt of such notice, each holder of Registrable Securities
shall notify the Company of the number of Registrable Shares, if any, that
such holder wishes to have included in the Demand Registration. Promptly
upon receiving the Demand and in accordance with the procedures set forth in
Section 4 of this Agreement, the Company shall use its reasonable commercial
efforts to effect the registration under the Securities Act of all
Registrable Shares requested to be registered so as to permit the disposition
thereof (in accordance with the methods described in the Demand). The
registration of the Registrable Shares so effected by the Company pursuant to
this Section is referred to herein as a "Demand Registration."
Notwithstanding the foregoing, the Company shall not be required to (i)
effect more than two (2) Demand Registrations with respect to the Registrable
Shares in the aggregate for Holder and all permitted assignees who are
holders of Registrable Securities, (ii) effect any registration in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration unless
the Company is already subject to service of process in such jurisdiction or
(iii) effect a Demand Registration pursuant to a request for such received by
the Company until ninety (90) days shall have elapsed following the effective
date of a registration statement previously filed by the Company pursuant to
this Section 3.1. In addition, if (i) counsel to the Company (which counsel
shall be experienced in securities law matters and of national reputation)
has determined in good faith that the Company then is unable to comply with
its disclosure obligations (because it would otherwise need to disclose
material information which the Company has a BONA FIDE business purpose for
preserving as confidential) or Commission requirements in connection with a
registration statement and (ii) the Company shall have provided Holder
notice of the determination contemplated by clause (i) above within five (5)
Business Days of such determination,
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then the Company shall not be required to file a registration statement
pursuant to this Section 3.1 for a period expiring upon the earlier to occur
of (x) the date on which such material information is disclosed to the public
or ceases to be material or the Company is able to comply with its disclosure
obligations and Commission requirements or (y) 60 days after counsel to the
Company makes such good faith determination.
(1) EFFECTIVE REGISTRATION. A Demand Registration shall not
be deemed to be effective unless the registration statement relating thereto
has been declared effective by the Commission. Additionally, a Demand
Registration shall not be deemed to have been effected for the purpose of the
limitation on the number of Demand Registrations set forth in Section 3.1 if:
(a) the registration statement relating thereto does
not remain effective, current and usable by Holder until the earlier of (A)
the 90th day following the date on which such registration statement became
effective, subject to the last sentence of Section 4.1 herein and (B) the
date on which all of the Registrable Shares requested in the Demand to be
sold pursuant to such registration statement are sold;
(b) after the registration statement relating thereto
has become effective, such registration statement is interfered with by any
stop order, injunction or other order or requirement of the Commission or
other governmental agency or court for any reason prior to the earlier of (A)
the 90th day following the date on which such registration statement became
effective, subject to the last sentence of Section 4.1 herein and (B) the
date on which all of the Registrable Shares requested in the Demand to be
sold pursuant to such registration statement are sold;
(c) in an underwritten offering, the number of
securities to be included in such offering is reduced as required by the
managing underwriting thereof pursuant to Section 3.1(b) to a number which is
less than all of the Registrable Shares requested in the Demand to be sold
pursuant to the registration statement relating thereto; or
(c) the conditions to closing specified in any
purchase agreement or underwriting agreement entered into in connection with
such Demand Registration are not satisfied, unless the failure to satisfy
such conditions to closing is due to some act or failure to act of Holder.
(2) UNDERWRITTEN OFFERINGS.
(a) If in any Demand, Holder proposes to dispose of
the Registrable Shares in an underwritten offering, Holder shall notify the
Company and the Company and Holder shall agree, with each party acting in
good faith, to jointly appoint the investment banking firm to act as the
manager that will administer the offering. The Company will enter into an
underwriting agreement with the underwriters for such offering (such
agreement to be reasonably satisfactory to both the Company and Holder),
which agreement will contain such representations and warranties by the
Company and
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such other terms as are generally prevailing in agreements of this type,
including without limitation, indemnities at least to the effect and to the
extent provided in Section 6 hereof. The Company and Holder will cooperate
with each other in good faith in the negotiation of the underwriting
agreement; PROVIDED, HOWEVER, that nothing contained herein shall diminish
the foregoing obligations of the Company. Holder shall not be required to
make any representations or warranties or agreements, other than
representations regarding Holder, the Registrable Shares and Holder's
intended method of distribution.
(b) If the managing underwriter of an underwritten
offering pursuant to Section 3.1 delivers a written statement to Holder that
the total amount of securities requested to be included in such offering is
sufficiently large so as materially and adversely to affect the distribution
thereof, then the number of securities that may be included in the
underwriting shall be reduced as required by the managing underwriter and
allocated first, to Holder and second, to the Company with respect to shares
being registered by the Company for its own account and/or by other holders
of shares in such manner and amounts and by the Company or such other
holders, as the Company may determine.
(3) PRICE DETERMINATION. Holder shall have the sole right
to determine the offering price per share and underwriting discounts, if
applicable, in connection with any resales of Registrable Securities by it
pursuant to Section 3.1, after consultation with the Company and due regard
for the Company's views relating thereto. The Company shall have the sole
right to determine the offering price per share and underwriting discounts,
if applicable, in connection with any sales of shares of Common Stock by the
Company for its own account in connection with an offering made pursuant to
Section 3.1.
3.2 PIGGYBACK RIGHTS. If at any time during the Supplemental
Rights Period the Company proposes to register under the Securities Act an
offering of Common Stock, then, as promptly as possible (but in no event
later than 14 days prior to the filing of the registration statement relating
to such offering), the Company shall give to Holder a written notice
describing in detail the proposed registration (including the intended method
of distribution and the jurisdictions in which registration under the
securities or blue sky laws is intended). Within 14 days after receipt of
such notice, Holder shall notify the Company of the number of Registrable
Shares, if any, that Holder wishes to have included in such registration
statement. The Company will use its reasonable commercial efforts to effect
the registration under the Securities Act of the number of Registrable Shares
that Holder shall have requested, to the extent required to permit the
disposition of such Registrable Shares upon the same terms (including the
method of distribution), as any other Company equity securities to be
included in such offering. The registration of the Registrable Shares so
effected by the Company pursuant to this Section 3.2 is referred to herein as
a "Piggy-back Registration."
(1) UNDERWRITTEN OFFERINGS. If the securities proposed to
be registered by the Company pursuant to Section 3.2 are to be disposed of in
an underwritten public
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offering, the notice of the Company's intention to effect such registration
shall designate the proposed managing underwriters of such offering (which
shall be one or more underwriting firms of recognized national standing) and
shall contain the Company's agreement to use its reasonable commercial
efforts to arrange for such underwriters to include in such underwriting any
Registrable Shares that Holder requests the Company to register pursuant to
Section 3.2. Notwithstanding the foregoing, if the managing underwriter
determines that marketing factors require limitations on the number of shares
to be underwritten, the managing underwriter may limit (or exclude entirely)
the Registrable Shares to be included in such registration. The Company
shall advise Holder and any other holders distributing their securities
through such underwriting of any such limitation, and the number of
Registrable Shares and other securities that may be included in the
registration shall be allocated among Holder and such other holders in
proportion as nearly as practicable to the respective amounts of securities
proposed to be sold by each such person in the registration; PROVIDED,
HOWEVER, that such allocation need not be made proportionately among Holder
and such other holders if the offering is made pursuant to a demand
registration by a holder or holders other than Holder.
(2) EXCEPTIONS. Notwithstanding the provisions of Section
3.2, the Company (i) shall not be required to give notice or effect a
Piggy-back Registration if the Company's proposed registration is (a) a
registration of an employee stock ownership, stock option, stock purchase or
other employee incentive plan or arrangement adopted in the ordinary course
of business on Form S-8 (or any successor or other appropriate form) or (b) a
registration of securities on Form S-4 (or any successor or other appropriate
form) proposed to be issued in exchange for securities or assets of, or in
connection with a merger or consolidation with, another corporation or (ii)
may withdraw, without the consent of Holder, a registration statement that
the Company had filed as contemplated by Section 3.2 and abandon the proposed
offering in which Holder had requested to participate.
(3) PRICE DETERMINATION. The Company shall have the sole
right to determine the offering price per share and underwriting discounts in
connection with any resale by Holder of Registrable Shares pursuant to an
underwritten offering in connection with a Piggy-back Registration, after
consultation with Holder and due regard for Holder's view relating thereto.
(4) EFFECT OF PIGGY-BACK REGISTRATION. Subject to
compliance with the terms of Section 3.1, no Piggy-back Registration effected
by the Company shall relieve the Company from its obligations to effect any
Demand Registration or a Shelf Registration.
4. GENERAL PROVISIONS.
4.1 REGISTRATION PROCEDURES. If and whenever the Company is
required to effect a Demand Registration, a Shelf Registration or a
Piggy-back Registration, the Company shall:
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(1) (a) in the case of a Demand Registration or a Piggy-back
Registration, promptly (but in no event, with respect to a Demand
Registration only, later than 45 days following the delivery of the Demand)
prepare and file with the Commission a registration statement on a form for
which the Company then qualifies or which counsel for the Company shall deem
appropriate with respect to such Registrable Shares (and which form shall be
available for the sale of the Registrable Shares in accordance with the
intended methods of distribution thereof); (b) use its reasonable commercial
efforts to cause such registration statement to become effective as soon as
practicable following the delivery of the Demand or request for Piggy-back
Registration, as the case may be, or on the date of filing in the case of a
Shelf Registration and (c) furnish to Holder prior to the filing of such
registration statement copies of drafts and final conformed versions of such
registration statement as is proposed to be filed;
(2) (a) promptly prepare and file with the Commission such
amendments, post-effective amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary
to keep such registration statement effective and to comply with the rules,
regulations or instructions of the registration form utilized by the Company,
the Securities Act and the rules and regulations thereunder with respect to
the disposition of all Registrable Shares and other securities covered by
such registration statement until such time as Holder shall have disposed of
all such Registrable Shares in accordance with the intended methods of
disposition or, in the case of a Shelf Registration, as provided in Section
2; PROVIDED, HOWEVER, notwithstanding the foregoing of this Section
4.1(2)(a), in all events the Company shall keep the registration statement
effective as required by the Securities Act; (b) Company shall promptly
furnish to Holder, in the case of a Demand Registration, Piggyback
Registration or a Shelf Registration prior to the filing thereof, a copy of
any amendment, post-effective amendment or supplement to such registration
statement or prospectus; and (c) Company shall not file any such amendment,
post-effective amendment or supplement with respect to a Demand Registration
or a Shelf Registration to which Holder shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or of the rules and
regulations thereunder; and in connection therewith, Holder agrees to respond
with any such objection as promptly as practical;
(3) promptly prior to the filing of any document that is to
be incorporated by reference into the registration statement or the
prospectus (after initial filing of the registration statement), with respect
to a Demand Registration, provide copies of such documents to counsel for
Holder;
(4) immediately notify Holder and confirm such notice in
writing (a) when or if the prospectus or any prospectus supplement or
post-effective amendment has been filed, and with respect to the registration
statement or any post-effective amendment, when the same has become
effective, (b) of any request by the Commission for amendments or supplements
to the registration statement or the prospectus or for additional
information, (c) of the issuance by the Commission of any stop order
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suspending the effectiveness of the registration statement or the initiation
of any proceedings for that purpose, (d) of the receipt by the Company of any
notification with respect to the suspension of the qualification of
Registrable Shares for sale in any jurisdiction or the initiation or threat
of any proceeding for such purpose, (e) of the existence of any fact that
makes any statement made in the registration statement, the prospectus or any
document incorporated therein by reference untrue or that requires the making
of any changes in the registration statement, the prospectus or any document
incorporated therein by reference to make the statements therein not
misleading and (f) of the occurrence or existence of any pending material
corporate development that, in the reasonable discretion of the Company,
makes it appropriate to suspend the availability of the registration
statement; PROVIDED that, for not more than 75 days, the Company may delay
the disclosure of material nonpublic information concerning the Company (as
well as prospectus or registration statement updating) the disclosure of
which at the time is not, in the good faith opinion of the Company, in the
best interests of the Company (an "Allowed Delay"); PROVIDED FURTHER that the
Company shall promptly (i) notify Holder in writing of the existence of (but
in no event shall the Company disclose to Holder any of the facts or
circumstances regarding) material nonpublic information giving rise to an
Allowed Delay and (ii) advise Holder in writing to cease all sales under the
registration statement until the end of the Allowed Delay. Holder agrees it
shall cease all sales under the registration statement following receipt of
the notification set forth in (i) above until the end of the Allowed Delay.
Upon expiration of the Allowed Delay, the Company shall again be bound by the
provisions of Section 4.1(5) with respect to the information giving rise
thereto with such actions contemplated by Section 4.1(5) being taken in
connection therewith on or prior to the expiration of the Allowed Delay;
(5) if any fact contemplated by clause (4)(e) above shall
exist, promptly (a) prepare and file a supplement or post-effective amendment
to the registration statement or the related prospectus or any document
incorporated therein by reference or (b) file any required document so that,
as thereafter delivered to the purchasers of Registrable Shares, the
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not
misleading;
(6) if requested by the underwriter or underwriters or
Holder in connection with an underwritten offering of Registrable Shares,
immediately incorporate in a prospectus supplement or post-effective
amendment such information as the underwriters and Holder agree should be
included therein relating to the plan of distribution with respect to such
Registrable Shares, including, without limitation, information with respect
to the principal amount of Registrable Shares being sold to such
underwriters, the purchase price being paid therefor by such underwriters and
with respect to any other terms of such underwritten offering of Registrable
Shares, and the Company shall make all required filings of the prospectus
supplement or post-effective amendment promptly upon being notified of the
matters to be incorporate in such prospectus supplement or post-effective
amendment;
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(7) use its reasonable commercial efforts to obtain the
withdrawal of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(8) in connection with any underwritten offering,
participate in a reasonable manner in any "roadshow" marketing efforts
reasonably requested by the underwriters; and
(9) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make available to its
securities holders, as soon as reasonably practicable, an earnings statement
that satisfies the provisions of Section 11(a) of the Securities Act and
covers the period beginning with the first month of the first fiscal quarter
after the effective date of the registration statement and ending between
twelve months and eighteen months thereafter.
In determining the 90 day period for purposes of clauses (1)(a) and (1)(b) of
Section 3.1, any day for which a stop order is in effect or has been
initiated as contemplated by clause (4)(c) above, any day on which any fact
contemplated by clause 4(d) or 4(e) above exists or any Allowed Delay
pursuant to clause 4(f) above shall not be counted, and the period shall
correspondingly be extended by the number of such uncounted days.
4.2 BLUE SKY QUALIFICATION. The Company shall use its reasonable
commercial efforts to cause the Registrable Shares that are the subject of a
Demand Registration, a Shelf Registration or a Piggy-back Registration to be
qualified for sale under the securities or blue sky laws of such
jurisdictions as Holder may reasonably request and shall cause such
registration or qualification to remain in effect in such jurisdictions until
such time as Holder shall have disposed of all of the Registrable Shares in
accordance with the intended methods of disposition or, in the case of a
Shelf Registration, as provided in Section 2. The Company shall do any and
all other acts and things that may be necessary or advisable to enable Holder
to consummate the disposition of Registrable Shares in such jurisdictions.
Notwithstanding the foregoing, the Company shall not be required to effect
any registration in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration unless the Company is already subject to service of process in
such jurisdiction.
4.3 COPIES PROVIDED. The Company shall furnish to Holder the
number of copies of the applicable registration statement and of each
amendment and supplement thereto (in each case, including all exhibits), the
number of copies of the prospectus contained in such registration statement
(including each preliminary prospectus) in conformity with the requirements
of the Securities Act, such documents, if any, incorporated by reference in
such registration statement or prospectus and any other documents that Holder
may reasonably request to facilitate the disposition of the Registrable
Shares.
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4.4 REQUESTED INFORMATION. The registration rights granted to
Holder by this Agreement are subject to the condition that Holder shall
provide the Company with information about the Registrable Shares to be sold
including the plans for the proposed disposition thereof, and other
information that is necessary, in the reasonable opinion of counsel for the
Company, to enable the Company to include in a registration statement all
material facts required to be disclosed with respect to the offering.
4.5 OTHER GENERAL OBLIGATIONS OF THE COMPANY. With respect to any
registration statement pursuant to Section 2, 3.1 or 3.2 herein, the Company
shall:
(1) make such representations and warranties to the
underwriters, if any, and agree to such indemnification and contribution
agreements, in form, substance and scope as are customarily made by issuers
to underwriters in comparable underwritten offerings;
(2) furnish Holder with (a) an opinion (and updates thereof)
of the Company's counsel (which shall be a law firm of national reputation)
to the effect that the registration statement complies as to form with the
Securities Act and any other securities or blue sky laws that Holder requests
pursuant to Section 4.2 hereof and that such counsel has no knowledge or
reason to know of any material misstatement or omission in the registration
statement and (b) a "comfort" letter (and updates thereof) signed by the
independent public accountants (which shall be an accounting firm of national
reputation) that have certified the Company's financial statements included
or incorporated by reference in such registration statement covering
substantially the same matters with respect to such registration statement
(and the prospectus included therein) and with respect to events subsequent
to the date of such financial statements, as are customarily covered in
accountants' letters delivered to underwriters in underwritten public
offerings of securities;
(3) if requested, provide the indemnification in accordance
with the provisions and procedures of Section 6 hereof to all parties to be
indemnified pursuant to such Section;
(4) deliver such documents and certificates as may be
reasonably requested by Holder and the underwriters, if any to evidence
compliance with Section 4.1(4) hereof and with any customary conditions
contained in any underwriting agreement or other agreement entered into by
the Company; and
(5) make available for inspection by Holder, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by Holder or underwriter,
all financial and other records and other information, pertinent corporate
documents and properties of the Company and its subsidiaries and affiliates,
as shall be reasonably necessary to enable them to exercise their due
diligence responsibility.
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4.6 PARTICIPATION IN UNDERWRITTEN REGISTRATION. Subject to the
provisions of Section 3.2, Holder may not participate in any underwritten
registration under Section 3.2 of this Agreement unless Holder (i) agrees to
sell its Registrable Shares on the basis provided in any underwriting
arrangements entered into by the Company and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
4.7 LISTING. The Company shall cause all Registrable Shares
covered by any registration statement to be listed on each securities
exchange or inter-dealer quotation system on which similar securities issued
by the Company are listed.
4.8 HOLDBACK. In connection with any underwritten registered
offering pursuant to Section 3.1 or 3.2, the Company agrees to enter into an
agreement with the underwriters of such offering not to effect any public
sale or distribution of its equity securities during the period commencing
seven days prior to and continuing until 60 days after the registration
statement for such offering has become effective, except as part of such
underwritten registered offering, which agreement shall be subject to waiver
by the underwriters of such offering in their sole discretion; PROVIDED that
the foregoing shall not apply to registrations on Form S-8, Form S-4 or any
successor or other appropriate forms.
4.9 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any capital reorganization or reclassification of the capital stock
of the Company, or any consolidation or merger of the Company with another
entity, or the sale of all or substantially all of the Company's assets to
another person or entity (collectively referred to as a "Transaction") shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock or other securities ("New Securities") with respect to or in
exchange for Common Stock, then reasonable, lawful and adequate provisions
shall be made whereby the Holder shall be provided with rights with respect
to such New Securities that are substantially similar to the rights to Demand
Registration, Shelf Registration and Piggyback Registration, upon the basis
and upon the terms and conditions specified in this Agreement, and in any
such case appropriate provision shall be made with respect to the rights and
interest of the Holder to the end that the provisions hereof shall thereafter
be applicable, as nearly as may be practicable, in relation to any New
Securities thereafter deliverable in such Transaction; PROVIDED, HOWEVER,
that to the extent that the granting of rights to Holder pursuant to this
Section 4.9 would be inconsistent with contractual obligations of the issuer
of the New Securities, Holder will be granted such rights to the extent
practicable and not inconsistent with such contractual obligations.
5. REGISTRATION EXPENSES.
The Company shall pay all expenses arising from or incident to the
performance of, or compliance with, the Shelf Registration and any Piggyback
Registration or Demand Registration, including without limitation: (i) all
registration, filing, listing and stock
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exchange fees; (ii) all fees and expenses incurred in complying with
securities or blue sky laws; (iii) all printing, messenger and delivery
expenses; (iv) all fees and disbursements of counsel and accountants for the
Company, including the expenses of any "comfort" letters; (v) all expenses
incurred in connection with making "roadshow" presentations and holding
meetings with potential investors to facilitate the distribution and sale of
Registrable Securities in an underwritten offering pursuant to Section 3
above; and (vi) all of the internal expenses incurred by the Company,
including, without limitation, salaries and expenses of officers and
employees performing legal and accounting duties, expenses of conducting the
annual audit of the Company's financial statements by its independent
accountants, costs in obtaining liability insurance on behalf of the Company,
its officers and directors, and the reasonable fees and expenses of any
special experts retained in connection with any registration statement
pursuant to the terms of this Agreement, regardless of whether such
registration statement is declared effective. . In all cases, Holder will be
responsible for underwriters discounts, selling commissions and fees and
disbursements of counsel for Holder with respect to the Registrable Shares
being sold by it.
6. INDEMNIFICATION AND CONTRIBUTION.
6.1 INDEMNIFICATION BY THE COMPANY. In connection with each Demand
Registration, Shelf Registration or Piggy-back Registration effected by the
Company hereby, the Company will indemnify and hold harmless Holder, its
officers and directors, each underwriter of the securities registered, and
each person who controls, within the meaning of Section 15 of the Securities
Act, Holder or any underwriter against any and all losses, claims, damages,
liabilities or expenses to which they or any of them may become subject under
the Securities Act or any other statute or common law, including any amount
paid in settlement of any commenced or threatened litigation after giving
notice of and opportunity to defend such commenced or threatened litigation
to the indemnifying party (collectively, the "Damages"), insofar as any such
Damages arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus (and anything incorporated therein by reference)(as amended or
supplemented) or any preliminary prospectus or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made. The Company shall not be bound by
the indemnification provision of the preceding sentence with respect to
Holder or any underwriter if such Damages arise solely out of or are based
upon any untrue statement or alleged untrue statement, or any omission or
alleged omission that was made in reliance upon and in conformity with
information furnished in writing to the Company by Holder or such
underwriter, as the case may be, for use in connection with the preparation
of the registration statement, any preliminary prospectus, any prospectus
contained in the registration statement, or any such amendment thereof or
supplement thereto. In addition, the indemnification provided in this
Section 6.1 shall not inure to the benefit of any underwriter from whom the
person asserting any such Damages purchased the securities that are the
subject hereof (or to the benefit of any person controlling such
12
<PAGE>
underwriter), if the underwriter failed to send or give a copy of the final
prospectus or any such amendment thereof or supplement thereto, whichever is
most recent, to such person at or prior to the written confirmation of the
sale of the securities to such person if there would have been no liability
if the final prospectus had been delivered.
6.2 INDEMNIFICATION BY HOLDER. In connection with each Demand
Registration, Shelf Registration or Piggy-back Registration effected by the
Company hereby, Holder agrees to indemnify and hold harmless the Company,
each person, if any, who controls, within the meaning of Section 15 of the
Securities Act, the Company, its directors and its officers against all
Damages based upon or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus (as amended or supplemented) or any preliminary prospectus or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, only if such statement
or omission was made in reliance upon and in conformity with information
furnished in writing to the Company by Holder for use in connection with the
registration statement or any post-effective amendment thereof or any
preliminary prospectus or prospectus contained in such registration statement
or any such amendment thereof or supplement thereto.
6.3 NOTICE OF CLAIM TRIGGERING AN INDEMNITY; WAIVER. Promptly
after the receipt of notice of the commencement of any action, proceeding,
claim or investigation or other similar event against any party entitled to
indemnity under Section 6.1 or 6.2 (an "Indemnified Party") in respect of
which indemnity may be sought from any other party (an "Indemnifying Party")
on account of an indemnity agreement contained in Section 6.1 or 6.2 (an
action triggering the liability under Section 6.1 or 6.2, an "Action"), the
Indemnified Party will notify the Indemnifying Party in writing of the
commencement thereof. The failure of any Indemnified Party to notify an
Indemnifying Party of any Action shall not relieve the Indemnifying Party
from any liability in respect of such Action, unless and to the extent the
failure to provide prompt notice prejudices the Indemnifying Party in its
ability to defend against or settle such Action. In addition, any failure to
give such notice shall not relieve the Indemnifying Party from any other
liability that it may have to the Indemnified Party. If any Action is
brought against any Indemnified Party and the Indemnified Party notifies an
Indemnifying Party of the commencement thereof, the Indemnifying Party will
be entitled to participate therein and to assume the defense of the Action
(the "Assumed Action") with counsel satisfactory to the Indemnified Party,
provided that the Indemnifying Party promptly notifies in writing the
Indemnified Party of its election to assume the defense of the Action and
acknowledges in writing that the claim in question is one for which the
Indemnifying Party is obligated to indemnify the Indemnified Party. Upon
receipt by the Indemnified Party of this written notice and acknowledgment,
the Indemnifying Party will not be liable to the Indemnified Party for any
legal or other expenses that the Indemnified Party subsequently incurs in
connection with the Assumed Action, other than reasonable costs of
investigation; however, if the Indemnified Party has a reasonable basis to
believe and does in fact believe that its interests in such Assumed Action
conflict with those of the
13
<PAGE>
Indemnifying Party, then the Indemnified Party may so notify the Indemnifying
Party and the Indemnifying Party will remain liable to the Indemnified Party
for all legal or other expenses that the Indemnified Party incurs in
connection with the Assumed Action. The Indemnifying Party may not
compromise or settle any Assumed Action without the prior written consent
ofthe Indemnified Party, unless such settlement or compromise releases and
forever holds harmless the Indemnified Party from all Damages and any
culpability in connection with or arising out of the Assumed Action. The
Indemnified Party may not compromise or settle any Action without the prior
written consent of the Indemnifying Party, which may not unreasonably
withhold its consent.
6.4 CONTRIBUTION. To provide for contribution in circumstances in
which the indemnification provided for in Section 6.1 or 6.2 is for any
reason held to be unavailable from the Indemnifying Party, after deducting
any contribution received by either the Company or Holder, including from
persons who control, within the meaning of Section 15 of the Securities Act,
either the Company or Holder, officers of the Company who signed the
registration statement, and directors of either of them who may also be
liable for contribution, the Company and Holder shall each contribute to the
aggregate Damages of the nature contemplated by the indemnification
provisions set forth in Sections 6.1 and 6.2 herein (including any
investigation, legal, and other expenses incurred in connection with and any
amount paid in settlement of any action, suit, proceeding or asserted claims)
to which either the Company or Holder may be subject. The Company and Holder
each shall contribute an amount that shall reflect the relative fault of the
parties in connection with the statement or omission that resulted in such
Damages. The relative fault of a party shall be determined by reference to
whether any matter in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
party. The amount paid or payable by a party as a result of the Damages
referred to above shall be deemed to include, subject to the limitations set
forth in Section 6.3 hereof, any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.4 were determined by pro rata
allocation or by any other method of allocation that does not take into
account the considerations referred to in the immediately preceding
paragraph. Notwithstanding the foregoing provisions of this Section 6.4, in
accordance with Section 11(f) of the Securities Act, no person guilty of
fraudulent misrepresentation shall be entitled to obtain contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 6.4, each person, if any, who controls, within the
meaning of Section 15 of the Securities Act, the Company or Holder, each
officer of the Company who shall have signed the registration statement, and
each director of the Company or Holder shall have the same rights to
contribution as the Company or Holder, subject in each case to the provisions
of the preceding sentence.
14
<PAGE>
7. FILING REQUIREMENTS; COOPERATION.
The Company covenants that it will file any reports required to
be filed by it under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations adopted by the Commission
thereunder and that it shall take such further action as Holder may
reasonably request, to the extent required from time to time to enable Holder
to sell Registrable Shares without registration under the Securities Act
within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such rule may be amended from time to time, (ii) Rule 144A
under the Securities Act, as such rule may be amended, from time to time or
(iii) any similar rule or regulation hereafter adopted by the Commission.
Upon Holder's request, the Company shall deliver to Holder a written
statement as to whether it has complied with such requirements.
8. MISCELLANEOUS.
8.1 SPECIFIC PERFORMANCE. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of
the terms hereof and immediate injunctive relief, without the necessity of
proving the inadequacy of money damages as a remedy, in addition to any other
remedy at law or equity.
8.2 AMENDMENTS AND WAIVERS. Any waiver of any right or default
hereunder will be effective only in the instance given and will not operate
as or imply a waiver of any other or similar right or default on any
subsequent occasion. No waiver, modification or amendment of this Agreement
or of any provision hereof will be effective unless in writing and signed by
the party against whom such waiver, modification or amendment is sought to be
enforced.
8.3 NOTICES. Any notice required or permitted by this Agreement
must be in writing and must be sent by facsimile, by nationally recognized
commercial overnight courier, or mailed by United States registered or
certified mail, addressed to the other party at the address below or to such
other address for notice (or facsimile number, in the case of a notice by
facsimile) as a party gives the other party written notice of in accordance
with this Section 8.3. Any such notice will be effective as of the date of
receipt:
Mailed notices should be addressed as follows:
15
<PAGE>
(i) If to Holder, to:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attn: Keith R. Dolliver
Telecopier No: (425) 829-1327
with a copy to:
Preston Gates & Ellis LLP
701 Fifth Avenue, Suite 5000
Seattle, WA 98104-7078
Attn: Richard B. Dodd
Telecopier No: (206) 623-7022
(ii) If to the Company, to:
Ticketmaster Online-CitySearch, Inc.
790 E. Colorado Blvd., Suite 200
Pasadena, CA 91101
Attn: Bradley K. Serwin
Telecopier No.: (626) 405-9929
with a copy to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071
Attention: Kenneth M. Doran, Esq.
Telecopier No.: (213) 229-7520
8.4 SUCCESSORS AND ASSIGNS. The registration rights granted to
Holder under this Agreement shall be non-transferable; provided that such
registration rights may be assigned to any person to whom at least 1,000,000
Registrable Securities (or the right to acquire 1,000,000 Registrable
Securities) shall have been transferred; PROVIDED, FURTHER, that this
Agreement may be assigned to the purchaser of all or substantially all of the
assets of Holder. The rights and obligations created by this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of
each of the parties and to transferees of Registrable Securities (or the
right to acquire Registrable Securities) as provided in the immediately
preceding sentence.
8.5 COUNTERPARTS. This Agreement may be signed in counterparts and
all signed copies of this Agreement will together constitute one original of
this Agreement.
16
<PAGE>
8.6 HEADINGS. The descriptive headings herein are inserted for
convenience of reference only and shall in no way be construed to define,
limit, describe, explain, modify, amplify, or add to the interpretation,
construction or meaning of any provision of, or scope or intent of, this
Agreement nor in any way affect this Agreement.
8.7 GOVERNING LAW; JURISDICTION. This Agreement shall be governed
by, enforced under and construed in accordance with the laws of the State of
Delaware without giving effect to any choice or conflict of law provision or
rule thereof. Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the non-exclusive jurisdiction of the
courts of the State of Oregon and of the United States of America in each
case located in the County of Multnomah for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any litigation relating thereto except in such
courts), and further agrees that service of any process, summons, notice or
document by U.S. registered mail to its respective address set forth in
Section 8.3 (or to such other address for notice that such party has given
the other party written notice of in accordance with Section 8.3) shall be
effective service of process for any litigation brought against it in any
such court. Each of the parties hereto hereby irrevocably and
unconditionally waives any objection to the laying of venue of any litigation
arising out of this Agreement or the transactions contemplated hereby in the
courts of the State of Oregon or of the United States of America in each case
located in the County of Multnomah and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court
that any such litigation brought in any such court has been brought in an
inconvenient forum.
8.8 SEVERABILITY. Any provision of this Agreement that is held by
a court of competent jurisdiction to violate applicable law shall be limited
or nullified only to the extent necessary to bring the Agreement within the
requirements of such law.
8.9 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties relating to the subject matter hereof and supersedes
other prior agreements and understandings between the parties both oral and
written regarding such subject matter.
8.10 INTERPRETATION. References herein to a specified number of
Registrable Shares are subject to equitable adjustment for shares of Common
Stock issued as a dividend or distribution on account of Registrable Shares
and for any combination or subdivision of outstanding Registrable Shares into
a less or greater number of securities (by reclassification, stock split or
otherwise). In the event that shares of Common Stock deemed to be Registrable
Shares are exchanged for any other securities issued by the Company, such
other securities shall constitute Registrable Shares and the provisions of
this Agreement shall be interpreted and construed in order to provide
registration rights with respect to such other securities constituting
Registrable Shares that are substantially identical to the registration
rights granted hereunder with respect to the exchanged shares of Common
Stock. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the
parties and no
17
<PAGE>
presumption or burden of proof shall arise favoring or disfavoring any party
by virtue of the authorship of any provisions of this Agreement.
[SIGNATURE PAGE FOLLOWS]
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
MICROSOFT CORPORATION
By: ________________________
Name: ________________________
Title: ________________________
TICKETMASTER ONLINE-CITYSEARCH, INC.
By: ________________________
Name: ________________________
Title: ________________________
19
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<PAGE>
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<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 DEC-31-1998
<CASH> 88,494 106,910
<SECURITIES> 0 0
<RECEIVABLES> 6,984 3,502
<ALLOWANCES> (346) (58)
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<CURRENT-ASSETS> 96,834 111,189
<PP&E> 16,576 11,487
<DEPRECIATION> (7,441) (5,594)
<TOTAL-ASSETS> 450,684 416,725
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0 0
0 0
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<TOTAL-COSTS> 84,258 42,195
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (2,237) (54)
<INCOME-PRETAX> (40,522) (14,268)
<INCOME-TAX> 134 2,951
<INCOME-CONTINUING> (40,656) (17,219)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (40,656) (17,219)
<EPS-BASIC> (.56) (.38)
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