<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
PREVIEW TRAVEL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CONSTITUTION)
---------------
DELAWARE 4724 94-2965892
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
ORGANIZATION) CODE NUMBER)
---------------
747 FRONT STREET
SAN FRANCISCO, CA 94111
(415) 439-1200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
KENNETH J. ORTON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
747 FRONT STREET
SAN FRANCISCO, CA 94111
(415) 439-1200
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
MARK A. MEDEARIS JAMES N. STRAWBRIDGE
SONYA F. ERICKSON JOSE F. MACIAS
EDWARD Y. KIM ROBERT M. TARKOFF
VENTURE LAW GROUP WILSON SONSINI GOODRICH & ROSATI
A PROFESSIONAL CORPORATION PROFESSIONAL CORPORATION
2800 SAND HILL ROAD 650 PAGE MILL ROAD
MENLO PARK, CA 94025 PALO ALTO, CA 94304
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.001................. 2,875,000 Shares $11.00 $31,625,000 $9,584
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</TABLE>
(1) Includes 375,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 1997
PROSPECTUS
2,500,000 SHARES
[LOGO OF PREVIEW TRAVEL(SM)]
PREVIEW TRAVEL, INC.
COMMON STOCK
All of the 2,500,000 shares of Common Stock offered hereby are being sold by
the Company. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be $11.00 per share. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
The Company has applied to have the Common Stock listed on the Nasdaq National
Market under the symbol PTVL.
--------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share............. $ $ $
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Total (3)............. $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $850,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock solely to cover over-
allotments, if any. If all such shares are purchased, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1997, at the offices of the agent of Hambrecht
& Quist LLC in New York, New York.
HAMBRECHT & QUIST NATIONSBANC
MONTGOMERY SECURITIES, INC.
, 1997
<PAGE>
[PREVIEW TRAVEL LOGO] [AOL LOGO]
[EXCITE LOGO]
Preview Travel is a leading provider of branded online travel services for
leisure and small business travelers. The Company operates its own Web sites,
the primary travel service on America Online and a co-branded travel Web site
with Excite. The Company is also a leading producer of travel-related
programming for broadcast and cable television.
TRAVEL ON YOUR TERMS
Preview Travel's easy-to-use online travel services empower consumers with
the information and tools they need to plan and purchase their own travel 24
hours a day, seven days a week. The Company's online services are enhanced by
round-the-clock customer service and personalized communications.
[GRAPHICS DEPICTING THREE SCREENS ON PREVIEW TRAVEL WEB SITE]
ONLINE TRAVEL RESERVATIONS
Preview Travel provides its customers with real-time access to schedule,
pricing and availability information for over 500 airlines, access to rooms at
more than 13,000 hotels worldwide and access to rental cars from all the major
agencies. Complete vacation packages, cruises and specialty tours are also
available. The Company's services are designed to enable customers to make
informed choices about their travel purchases.
AWARD-WINNING CONTENT
Preview Travel's destination information features award-winning editorial
content supported by a wide variety of multimedia. The Company's travel experts
constantly search for the latest travel trends and bargains and produce a wide
range of news and feature articles for online distribution, updated each
business day.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and will
make available copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
Preview Travel, Farefinder, Preview Vacations and Travel Update are
trademarks and service marks of the Company. This Prospectus also contains the
trademarks of other companies.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. The Common Stock offered hereby
involves a high degree of risk. See "Risk Factors."
THE COMPANY
Preview Travel, Inc. ("Preview Travel" or the "Company") is a leading
provider of branded online travel services for leisure and small business
travelers. The Company operates its own Web sites (www.previewtravel.com,
www.reservations.com and www.vacations.com), the primary travel service on
America Online, Inc. ("AOL") (AOL keyword: previewtravel) and a co-branded
travel Web site with Excite, Inc. ("Excite") (City.Net). The Company offers
one-stop travel shopping and reservation services, providing reliable, real-
time access to schedule, pricing and availability information for over 500
airlines, 13,000 hotels and all major car rental companies. The Company's
proprietary technology and user-friendly interface enable customers to easily
and quickly access travel information 24 hours a day, seven days a week, to
make informed choices about their travel purchases. In addition to its
reservation and ticketing service, the Company offers vacation packages,
discounted and promotional fares, travel news and destination content. The
Company complements its compelling content and user-friendly interface with a
high level of customer service.
Through its News Travel Network, Inc. division ("NTN"), Preview Travel
produces entertainment programming for broadcast and cable television and the
in-flight market. NTN also produces 90 second news inserts for local television
station newscasts. NTN has compiled and continually updates an extensive
library of over 6,000 hours of proprietary, broadcast quality footage with over
2,000 destinations around the world. NTN employs an in-house sales staff that
syndicates this programming to television stations worldwide and sells the
commercial airtime within these programs to national advertisers.
To broaden its online presence and build brand recognition, the Company
entered into long-term agreements with AOL, the leading online service provider
with over nine million members, and Excite, a leading search engine provider
with over two million visitors per day. The Company is AOL's primary and
preferred provider of online travel services and the exclusive provider of
travel reservations services on the Company's co-branded Web site for Excite's
Travel Channel (City.Net) in the U.S. and the WebCrawler Travel Channel.
Through such long term agreements, the Company's travel services are
prominently featured on the AOL and Excite travel channels and contextually
integrated throughout the AOL and Excite services.
Since launching its online booking service in May 1996, the Company has
experienced significant growth in its gross bookings. As of September 30, 1997,
over two million users had registered on the Company's online site, and over
$70 million in gross bookings of travel services had been purchased by over
114,000 customers, of which approximately 35% were repeat customers.
Preview Travel's objective is to be the leading provider of branded online
travel services for leisure and small business travelers. The Company plans to
attain this goal by delivering compelling value to customers, building customer
loyalty and brand recognition, enhancing and expanding strategic relationships
and broadening existing offerings.
Preview Travel, Inc. (formerly Preview Media, Inc.) was incorporated in March
1985 under the laws of the State of California. Prior to completion of this
offering, the Company intends to reincorporate under the laws of the State of
Delaware. The Company's principal executive offices are located at 747 Front
Street, San Francisco, California 94111. Its telephone number at that location
is (415) 439-1200. As used in this Prospectus, the "Company" refers to Preview
Travel, Inc. and its subsidiaries.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company................... 2,500,000 shares
Common Stock to be out-
standing after the offer-
ing....................... 11,616,973 shares (1)
Use of proceeds............ Working capital, payment of obligations and general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National
Market symbol............. PTVL
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER 31, ---------------------------------------------------------
---------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1996 1996 1996 1996 1996 1997 1997
---- ---- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Online revenues......... $ 579 $ 2,573 $ 167 $ 424 $ 745 $ 1,237 $ 1,496 $ 1,174
Television revenues..... 9,564 9,801 2,390 2,875 2,805 1,731 2,023 2,033
------- ------- ------- ------ ------- ------- ------- -------
Total revenues......... 10,143 12,374 2,557 3,299 3,550 2,968 3,519 3,207
Gross profit............ 672 3,066 577 1,098 1,073 319 1,223 851
Loss from operations.... (4,667) (5,501) (1,231) (574) (1,182) (2,513) (1,526) (1,540)
Net loss................ $(4,933) $(5,592) $(1,299) $ (650) $(1,159) $(2,484) $(1,505) $(1,542)
Pro forma net loss per
share (2).............. $ (0.70) $ (0.65) $ (0.16) $(0.08) $ (0.13) $ (0.27) $ (0.16) $ (0.17)
Weighted average shares
used in pro forma net
loss per share calcula-
tion (2)................ 7,043 8,573 7,939 7,989 9,175 9,189 9,201 9,212
SUPPLEMENTAL FINANCIAL
DATA (UNAUDITED):
Gross bookings (3)..... $ 2,043 $20,263 $ 537 $2,786 $ 6,207 $10,733 $14,117 $17,816
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------
ACTUAL AS ADJUSTED(4)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $1,136 $43,788
Total assets............................................. 8,468 57,120
Long-term obligations (5)................................ 3,634 2,884
Total stockholders' equity............................... 1,516 44,918
</TABLE>
- ------------------
(1) Includes an aggregate of 849,814 shares and 340,909 shares issuable upon
exercise or conversion of warrants and convertible subordinated notes,
respectively, outstanding as of September 30, 1997, substantially all of
which are expected to be exercised or converted upon completion of this
offering. Excludes (a) 1,158,164 shares issuable upon exercise of
outstanding options at a weighted average exercise price of $3.54 per share
as of September 30, 1997, (b) 31,666 shares issuable upon exercise of
outstanding warrants at a weighted average exercise price of $5.97 per
share as of such date and (c) an aggregate of 2,362,905 shares available
for future issuance under the Company's 1988 Stock Option Plan, 1997 Stock
Option Plan, 1997 Directors' Stock Option Plan and 1997 Employee Stock
Purchase Plan. See "Management--Stock Plans" and Note 9 of Notes to
Consolidated Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing pro forma net loss per
share.
(3) Represents the total purchase price of all travel services booked through
the Company's online reservation system. This presentation of gross
bookings does not affect the Company's operating results, nor are gross
bookings included in revenues. Management believes that gross bookings
provide a more consistent comparison between historical periods than do
online revenues. Gross bookings are not required by generally accepted
accounting principles ("GAAP") and should not be considered in isolation or
as a substitute for other information prepared in accordance with GAAP, and
period-to-period comparisons of gross bookings are not necessarily
meaningful due to, among other things, changes in commission rates, and, as
with operating results, should not be relied upon as an indication of
future performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(4) As adjusted to reflect (a) the sale of 2,500,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $11.00 per
share after deduction of the estimated underwriting discounts and offering
expenses payable by the Company, (b) the items described in footnote (1)
above and (c) the issuance of the Series E Preferred Stock in September
1997. See "Use of Proceeds" and "Capitalization."
(5) Long-term obligations include capital lease obligations, long-term notes
payable, line of credit, subordinated convertible notes payable,
subordinated notes payable and bank equipment note.
------------------
Except as otherwise noted herein, all information in this Prospectus assumes
no exercise of the Underwriters' over-allotment option and gives effect to: (i)
the reincorporation of the Company in Delaware pursuant to a merger at an
exchange ratio of one share of Common Stock of the Delaware corporation for
each two shares of Common Stock and common stock equivalents of the California
corporation to be effected prior to completion of this offering, (ii) the
automatic conversion of all outstanding shares of Preferred Stock into Common
Stock upon completion of this offering and (iii) the filing of the Company's
Amended and Restated Certificate of Incorporation, authorizing a class of
5,000,000 shares of undesignated Preferred Stock upon completion of this
offering. See "Description of Capital Stock" and "Underwriting."
4
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results and timing of certain events could
differ materially from those discussed in the forward-looking statements as a
result of certain factors, including those set forth below and elsewhere in
this Prospectus. The following risk factors should be considered carefully in
evaluating the Company and an investment in the shares of Common Stock offered
hereby.
Limited Operating History of Online Business; Accumulated Deficit;
Anticipated Losses. The Company's television programming operations, which
represented 60% of its revenues for the six-month period ended June 30, 1997,
have incurred net operating losses in each of the last four years, and the
Company anticipates that its television programming operations will continue
to incur net operating losses for the foreseeable future. As a result, the
Company believes that its future success depends on its ability to
significantly increase revenues from its Internet and commercial online
service operations, for which it has a limited operating history. The Company
initiated its online operations in 1994, first recognized revenues from its
online operations in the first quarter of 1995 and booked its first airline
ticket reservations online in the second quarter of 1996. Accordingly, the
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in an early stage of
development, particularly companies engaged in new and rapidly evolving
markets such as online commerce. There can be no assurance that the Company
will be successful in addressing such risks, and the failure to do so could
have a material adverse effect on the Company's business, operating results
and financial condition.
The Company has incurred a net operating loss in each of the last four years
and, as of June 30, 1997, had an accumulated deficit of approximately $18.7
million. The Company believes that its success will depend in large part on,
among other things, its ability to generate sufficient sales volume to achieve
profitability and effectively maintain existing relationships and develop new
relationships with travel suppliers, strategic partners and advertising
customers. Accordingly, the Company intends to expend significant financial
and management resources in brand development, marketing and promotion, site
and content development, strategic relationships and technology and operating
infrastructure. As a result, the Company expects to incur additional losses
and continued negative cash flow from operations for the foreseeable future,
and such losses are anticipated to increase significantly from current levels.
There can be no assurance that the Company's revenues will increase or even
continue at their current level or that the Company will achieve or maintain
profitability or generate cash from operations in future periods. In view of
the rapidly evolving nature of the Company's business and its limited
operating history in the online business, the Company believes that period-to-
period comparisons of its operating results are not necessarily meaningful and
should not be relied upon as an indication of future performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Unpredictability of Future Revenues; Fluctuations in Quarterly Results. As a
result of the Company's limited operating history in online commerce and the
emerging nature of the markets in which the Company competes, the Company is
unable to accurately forecast its revenues. The Company's current and future
expense levels are based predominantly on its operating plans and estimates of
future revenues and are to a large extent fixed. The Company may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues would likely
have an immediate material adverse effect on the Company's business, operating
results and financial condition. Further, the Company currently intends to
substantially increase its operating expenses to develop and offer new and
expanded travel services, to fund increased sales and marketing and customer
service operations, and to develop its technology and transaction-processing
systems. To the extent such expenses precede or are not subsequently followed
by increased revenues, the Company's operating results will fluctuate and net
anticipated losses in a given quarter may be greater than expected.
The Company expects that it will experience seasonality in its business,
reflecting seasonal fluctuations in the travel industry, Internet and
commercial online service usage and advertising expenditures. The Company
5
<PAGE>
anticipates that travel bookings will typically increase during the second
quarter in anticipation of summer travel and will typically decline during the
fourth quarter. Internet and commercial online usage and the rate of growth of
such usage may be expected typically to decline during the summer. In
addition, advertising sales in traditional media, such as broadcast and cable
television, generally decline in the first and third quarters of each year.
Depending on the extent to which the Internet and commercial online services
are accepted as an advertising medium, seasonality in the level of advertising
expenditures could become more pronounced for Internet-based advertising.
Seasonality in the travel industry, Internet and commercial online service
usage, and advertising expenditures is likely to cause quarterly fluctuations
in the Company's operating results and could have a material adverse effect on
the Company's business, operating results and financial condition.
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of other factors, many of which
are outside the Company's control. Factors that may adversely affect the
Company's quarterly operating results include, but are not limited to, (i) the
Company's ability to retain existing customers, attract new customers at a
steady rate and maintain customer satisfaction, (ii) changes in inventory
availability from third party suppliers or commission rates paid by travel
suppliers, such as the reduction in commissions paid by major airlines for
online bookings implemented during the first half of 1997, (iii) the
announcement or introduction of new or enhanced sites, services and products
by the Company or its competitors, (iv) general economic conditions and
economic conditions specific to the Internet, online commerce or the travel
industry, (v) the level of use of online services and consumer acceptance of
the Internet and commercial online services for the purchase of consumer
products and services such as those offered by the Company, (vi) the Company's
ability to upgrade and develop its systems and infrastructure and to attract
new personnel in a timely and effective manner, (vii) the level of traffic on
the Company's online sites, (viii) technical difficulties, system downtime or
Internet brownouts, (ix) the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business, operations and
infrastructure, (x) governmental regulation and (xi) unforeseen events
affecting the travel industry.
Gross margins may be impacted by a number of different factors, including
the mix of television revenues versus online revenues, the mix of online
commission revenues versus online advertising revenues, the mix of travel
services sold, the mix of revenues from AOL, Excite and the Company's Web
site, the mix of airline ticket commissions (which vary from airline to
airline) and the amount of override commissions. The Company typically
realizes higher gross margins on advertising revenues than commission
revenues, higher commissions on vacation packages than hotel rooms and car
rentals, higher commissions on hotel rooms and car rentals than airline
tickets, higher gross margins on advertising revenues from the Company's own
Web site than through AOL or Excite, higher commissions from certain airlines
than others, and higher gross margins in periods of higher overrides. Any
change in one or more of the foregoing factors could materially adversely
affect the Company's gross margins and operating results in future periods.
As a result of the foregoing factors, the Company's annual or quarterly
operating results may be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially and adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Dependence on the Travel Industry. The Company derives a significant portion
of its revenues directly or indirectly from the travel industry, and the
Company's future growth is dependent on the travel industry. The travel
industry, especially leisure travel, which is dependent on personal
discretionary spending levels, is sensitive to changes in economic conditions
and tends to decline during general economic downturns and recessions. The
travel industry is also highly susceptible to unforeseen events, such as
political instability, regional hostilities, fuel price escalation, travel-
related accidents, unusual weather patterns or other adverse occurrences. Any
event that results in decreased travel generally would likely have a material
adverse effect on the Company's business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
6
<PAGE>
Uncertain Acceptance of the Preview Travel Brand; Dependence on Increased
Bookings. The Company believes that establishing, maintaining and enhancing
the Preview Travel brand is a critical aspect of its efforts to attract and
expand its online traffic. The number of Internet sites that offer competing
services, many of which already have well-established brands in online
services or the travel industry generally, increase the importance of
establishing and maintaining brand name recognition. Promotion of the Preview
Travel brand will depend largely on the Company's success in providing a high-
quality online experience supported by a high level of customer service, which
cannot be assured. In addition, to attract and retain online users, and to
promote and maintain the Preview Travel brand in response to competitive
pressures, the Company may find it necessary to increase substantially its
financial commitment to creating and maintaining a strong brand loyalty among
customers. If the Company is unable to provide high-quality online services or
customer support, or otherwise fails to promote and maintain its brand, or if
the Company incurs excessive expenses in an attempt to promote and maintain
its brand, the Company's business, operating results and financial condition
would be materially adversely affected.
The Company's future success, and in particular its revenues and operating
results, depends upon its ability to successfully execute several key aspects
of its business plan. The Company must increase the dollar volume of
transactions booked through its online sites, either by generating
significantly higher and continuously increasing levels of traffic to its
online sites or by increasing the percentage of visitors to its online sites
who purchase travel services, or through some combination thereof. The Company
must also increase the number of repeat purchasers of travel services through
its online sites. In addition, the Company must deliver world-class customer
service and compelling content in order to attract users with demographic
characteristics valuable to advertisers. Although the Company has implemented
strategies, including relationships with AOL and Excite, designed to
accomplish these objectives, there can be no assurance that the Company will
be able to increase the dollar volume of transactions booked through its
online sites, increase traffic to its online sites, increase the percentage of
visitors who purchase travel services, increase the number of repeat
purchasers or increase its advertising revenues. The failure to do one or more
of the foregoing would likely have a material adverse effect on the Company's
business, operating results or financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Reliance on Distribution Agreements with America Online and Excite. In
September 1997, the Company entered into agreements with AOL and Excite
establishing the Company as the primary and preferred provider of travel
services on AOL and the exclusive provider of travel reservations services on
Excite's Travel Channel (City.Net) in the U.S. and the WebCrawler Travel
Channel until September 2002. Under these agreements, both AOL and Excite are
obligated to promote the Company and to deliver minimum numbers of annual page
views to the online areas featuring the Company's travel services. In
addition, the Company is eligible to receive payments from Excite representing
a share of advertising revenues received by Excite in connection with the
online areas featuring the Company's travel services; however, there can be no
assurance that such payments, if any, will be significant. Over the next five
years, the Company is obligated to make minimum payments totaling $56 million
to AOL and Excite, as well as pay to AOL and Excite a percentage of certain
commissions earned by the Company in excess of specified thresholds. The
Company is also obligated to share certain advertising revenues with each of
AOL and Excite, as specified in their respective agreements. Moreover, the
Company's agreements with AOL are conditioned upon the Company achieving
specified levels of travel services bookings. There can be no assurance that
the Company will achieve sufficient online traffic, travel bookings or
commissions to realize economies of scale that justify the Company's
significant fixed financial obligations to AOL and Excite or that the Company
will satisfy the minimum levels of travel services bookings required to
maintain the AOL agreement, and failure to do so would likely have a material
adverse effect on the Company's business, operating results and financial
condition.
In addition, the Company entered into a database services agreement with AOL
to develop and manage a travel-related destinations database for AOL with
content that is reasonably satisfactory to AOL. The Company has committed to
an aggressive schedule to develop and maintain the destinations database which
will require significant efforts and resources on the Company's part. There
can be no assurance that the
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Company will be able to fulfill its commitments to AOL on the agreed upon
schedule, and failure to do so could result in a breach of the distribution
agreement with AOL, as well as the database services agreement, which would
likely have a material adverse effect on the Company's business, operating
results and financial condition.
Furthermore, the Company's significant investment in the AOL and Excite
relationships is based on the continued positive market presence, reputation
and anticipated growth of AOL and Excite, as well as the commitment by each of
AOL and Excite to deliver specified numbers of annual page views. Any decline
in the significant market presence, business or reputation of AOL or Excite, or
the failure of either or both of AOL and Excite to deliver the specified
numbers of annual page views, will reduce the value of these strategic
agreements to the Company and will likely have a material adverse effect on the
business, operating results and financial condition of the Company. In
addition, while the Company and Excite have agreed to cooperate on advertising,
AOL and the Company have the right to separately pursue and sell advertising in
the Company's content areas distributed through AOL. There can be no assurance
that the Company and AOL will not compete for limited travel supplier
advertising revenues. Travel services sold through AOL accounted for 92% and
79% of the Company's online revenues for the three-month periods ended March
31, 1997 and June 30, 1997, respectively. Travel services sold through Excite
accounted for 8% of the Company's online revenues for the three-month period
ended June 30, 1997. Accordingly, the AOL agreement represents and will
continue to represent, and the Excite agreement will represent, significant
distribution channels for the Company's travel services, and any termination of
either or both of the Company's agreements with AOL and Excite would likely
have a material adverse effect on the Company's business, operating results and
financial condition.
Except for its arrangements with AOL and Excite, the Company has no other
long-term distribution arrangements with any other service provider on the
Internet or commercial online services, and accordingly must rely on search
engines, directories and other navigational tools which significantly affect
traffic to the Company's online sites. There can be no assurance that such
cooperation will be available to the Company on acceptable commercial terms or
at all or that such relationships will not already be established with the
Company's competitors. If the Company is unable to maintain satisfactory
relationships with AOL or Excite, or if the Company is unable to develop and
maintain satisfactory relationships with additional third parties on acceptable
commercial terms, or if the Company's competitors are better able to leverage
such relationships, the Company's business, operating results and financial
condition could be materially adversely affected. See "Use of Proceeds,"
"Business--Strategic Relationships" and Note 15 of Notes to Consolidated
Financial Statements.
Reliance on Travel Suppliers; Potential Adverse Changes in Commission
Payments. The Company is dependent on airlines, hotels and other providers of
travel services ("travel suppliers") in order to offer its customers
comprehensive access to travel services and products. Consistent with industry
practices, the Company currently has no agreements with its travel suppliers
that obligate such suppliers to sell services or products through the Company
for any extended period of time. In addition, travel suppliers may be unable or
choose not to make their inventory of services and products available through
online distribution, including those services offered by the Company.
Accordingly, travel suppliers could elect to sell exclusively through other
sales and distribution channels or to restrict the Company's access to their
inventory, which could significantly decrease the amount or breadth of the
Company's inventory of available travel offerings and could have a material
adverse effect on the Company's business, operating results and financial
condition.
In addition, a substantial majority of the Company's online revenue is
dependent on the commissions customarily paid by travel suppliers for bookings
made through the Company's online travel service. Consistent with industry
practices, these travel suppliers are not obligated to pay any specified
commission rate for bookings made through the Company or to pay commissions at
all. Accordingly, travel suppliers can reduce current industry commission rates
or eliminate such commissions entirely, which would likely have a material
adverse effect on the Company's business, operating results and financial
condition.
For example, in 1995, most of the major airlines placed a cap on per-ticket
commissions payable to all travel agencies for domestic airline travel. In the
first half of 1997, the major airlines reduced the commission
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rate and maximum per-ticket commissions payable for online reservations, which
had a material adverse affect on the Company's results of operations for the
quarter ended June 30, 1997. More recently, in September 1997, most of the
major airlines, including American Airlines, Delta Airlines and United
Airlines, reduced the commission rate payable to traditional travel agencies
from 10% to 8%. There can be no assurance that airlines or other of the
Company's travel suppliers will not further reduce the amount of commissions
payable to the Company.
In addition, certain travel suppliers have initiated direct online
distribution channels and, in some cases, have offered negotiated rates
directly to major corporate customers. Further, the Company's travel service
offerings are limited to those travel suppliers whose services and products
are available through the global distribution services ("GDS") systems
accessed by the Company, namely, the Apollo GDS system operated by Galileo
International Partnership ("Galileo") for airlines and car rentals and the GDS
system operated by Pegasus Systems, Inc. ("Pegasus") for hotel reservations.
For example, Southwest Airlines is currently unavailable in Galileo's GDS
system, and, therefore, the Company is unable to offer access to Southwest
Airline's inventory. There can be no assurance that the Company's current
travel suppliers will continue to sell services or products through Galileo or
Pegasus on current terms with adequate compensation to the Company, or at all,
or that the Company will be able to establish new or extend current travel
supplier relationships to ensure uninterrupted access to a comprehensive
supply of the travel services. The Company's failure to do so would likely
result in a material adverse effect on its business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Reliance on Third Party Systems. The Company is dependent upon certain third
party service providers, including, without limitation, the following: AOL and
AOL's ANS Communications subsidiary (which AOL has agreed to sell to WorldCom
Inc.), which provide AOL customers with access to the Company's online
services; GeoNet Communications, which provides the Company with access to
multiple Internet connections; Pegasus, which provides the Company with access
to a global hotel reservation system and which operates an online travel
service competitive with the Company; and Galileo, which provides the Company
with access to Galileo's Apollo GDS system.
The Company is dependent on these third party providers to continue to offer
and maintain these services. Any discontinuation of such services, or any
reduction in performance that requires the Company to replace such services,
would be disruptive to the Company's business. In particular, if the Company
were required to replace services provided by the Galileo GDS system, the
Company believes it could take up to one year and require substantial
expenditures to fully transition the Company's travel services to an
alternative service provider. In the past, these third party providers have
experienced interruptions or failures in their systems or services, which have
temporarily prevented the Company's customers from accessing or purchasing
certain travel services through the Company's online sites. Any reduction in
performance, disruption in Internet or online access or discontinuation of
services provided by AOL, ANS Communications, GeoNet Communications or any
other Internet service provider, or any disruption in the Company's ability to
access the GDS systems of Galileo, Pegasus or any other travel reservation
systems, could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, the Company is
dependent on Galileo and Pegasus to ensure that all software used in
connection with their GDS systems will manage and manipulate data involving
the transition of dates from 1999 to 2000 without functional or data
abnormality and without inaccurate results related to such dates. Any failure
by Galileo or Pegasus to ensure that such software complies with year 2000
requirements could have a material adverse effect on the Company's business,
operating results and financial condition. The Company's agreements with its
third party service providers have terms of, or expire within, one year or
less and in some cases are subject to cancellation for any reason or no reason
upon short notice. Any cancellation of services, or failure to renew such
services upon expiration, by any of such third party providers without notice
sufficient to allow the Company to transition to a new service provider in a
timely and cost-effective manner would have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Strategic Relationships" and "--Technology."
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Competition. The online travel services market is new, rapidly evolving and
intensely competitive, and the Company expects such competition to intensify
in the future. The Company competes primarily with traditional travel agency
and online travel reservation services. In the online travel services market,
the Company competes with other entities that maintain similar commercial Web
sites, such as Expedia (operated by Microsoft Corporation), Travelocity
(operated by SABREGroup Holdings Inc., a majority-owned subsidiary of American
Airlines), CUC International, Inc., TravelWeb (operated by Pegasus) and
Internet Travel Network, among others. Several traditional travel agencies,
including larger travel agencies such as American Express Travel Related
Services Co. Inc., Uniglobe Travel and Carlson Wagonlit Travel, have
established, or may establish in the future, commercial Web sites offering
online travel services.
In addition to the traditional travel agency channel, most travel suppliers
also sell their services directly to customers, typically by telephone. As the
market for online travel services grows, the Company believes that the range
of companies involved in the online travel services industry, including travel
suppliers, traditional travel agencies and travel industry information
providers, will increase their efforts to develop services that compete with
the Company's services. Many airlines and hotels offer travel services
directly through their own Web sites, eliminating the need to pay commissions
to third parties such as the Company. The Company is unable to anticipate
which other companies are likely to offer competitive services in the future.
There can be no assurance that the Company's online operations will compete
successfully with any current or future competitors.
In the television and in-flight programming markets, the Company's News
Travel Network division competes for airtime for its programs with news and
entertainment programming produced by local stations, broadcast and cable
networks, infomercial producers and third party syndicators. NTN competes for
national advertising sales with networks, national advertising firms and
syndicators.
Many of the Company's current and potential competitors have longer
operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources than the
Company and may enter into strategic or commercial relationships with larger,
more established and well-financed companies. Certain of the Company's
competitors may be able to secure services and products from travel suppliers
on more favorable terms, devote greater resources to marketing and promotional
campaigns and devote substantially more resources to Web site and systems
development than the Company. In addition, new technologies and the expansion
of existing technologies may increase competitive pressures on the Company. In
particular, Microsoft Corporation has publicly announced its intent to invest
heavily in the area of travel technology and services. Increased competition
may result in reduced operating margins, as well as loss of market share and
brand recognition. There can be no assurance that the Company will be able to
compete successfully against current and future competitors, and competitive
pressures faced by the Company could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Competition."
Dependence on Continued Growth of Online Commerce. The Company's future
revenues and any future profits are substantially dependent upon the
widespread acceptance and use of the Internet and commercial online services
as an effective medium of commerce by consumers. For the Company to be
successful, these consumers must accept and utilize novel ways of conducting
business and exchanging information. Convincing consumers to purchase travel
services online may be particularly difficult, as such consumers have
traditionally relied on travel agents for advice and recommendations as to
destinations and accommodations as well as bookings, and are accustomed to a
high degree of human interaction in purchasing travel services. Rapid growth
in the use of and interest in the Web, the Internet and commercial online
services is a recent phenomenon, and there can be no assurance that acceptance
and use will continue to develop or that a sufficiently broad base of
consumers will adopt, and continue to use, the Internet and commercial online
services as a medium of commerce, particularly for purchases of travel
services.
Demand for recently introduced services and products over the Internet and
commercial online services is subject to a high level of uncertainty and there
exist few proven services and products. The development of
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the Internet and commercial online services as a viable commercial marketplace
is subject to a number of factors, including continued growth in the number of
users of such services, concerns about transaction security, continued
development of the necessary technological infrastructure and the development
of complementary services and products. If the Internet and commercial online
services do not become a viable commercial marketplace, the Company's
business, operating results and financial condition would be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Risks Associated with Advertising Revenues. During the year ended December
31, 1996 and the six-month period ended June 30, 1997, approximately 58% and
40%, respectively, of the Company's total revenues were derived from the sale
of advertising in connection with its television programming and, to a much
lesser extent, its online sites. The Company's advertising customers may
terminate their advertising commitments at any time without penalty.
Consequently, the Company's advertising customers may move their advertising
to competing online sites or television programs or to other traditional media
quickly and at low cost, thereby increasing the Company's exposure to
competitive pressures and fluctuations in net revenues and operating results.
In particular, to support its television operations, which are substantially
dependent on advertising revenues that historically have been derived from a
very limited customer base, the Company must overcome significant competition
from national syndicators and broadcast stations and cable networks to obtain
advertising commitments. If the Company loses advertising customers, fails to
attract new customers or is forced to reduce advertising rates in order to
retain or attract advertising customers, the Company's business, operating
results and financial condition could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Marketing and Sales."
Management of Potential Growth. The Company has rapidly and significantly
expanded its operations, and anticipates that further significant expansion
will be required to address potential growth in its customer base and market
opportunities. The Company has also recently added a number of key managerial
and technical employees, and the Company expects to add additional key
personnel in the future. This expansion has placed, and is expected to
continue to place, a significant strain on the Company's management,
operational and financial resources. To manage the expected growth of its
operations and personnel, the Company will be required to improve existing and
implement new transaction-processing, operational, customer service and
financial systems, procedures and controls, implement a formal disaster
recovery program and expand, train and manage the Company's growing employee
base. The Company also will be required to expand its finance, administrative
and operations staff. Further, the Company's management will be required to
maintain and expand its relationships with various travel service suppliers,
other Web sites and other Web service providers, Internet and commercial
online service providers and other third parties necessary to the Company's
business. There can be no assurance that the Company's current and planned
personnel, systems, procedures and controls will be adequate to support the
Company's future operations, that management will be able to hire, train,
retain, motivate and manage required personnel or that Company management will
be able to successfully identify, manage and exploit existing and potential
market opportunities. If the Company is unable to manage growth effectively,
its business, operating results and financial condition could be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business--Employees" and "Management."
Dependence on Attraction and Retention of Key Employees. The Company's
performance is substantially dependent on the continued services and on the
performance of its senior management and certain other key personnel. The loss
of the services of any of its executive officers or other key employees could
have a material adverse effect on the Company's business, operating results
and financial condition. The Company does not have long-term employment
agreements with any of its key personnel. The Company's future success also
depends on its ability to identify, attract, hire, train, retain and motivate
other highly skilled technical, managerial, editorial, marketing and customer
service personnel. Competition for such personnel is intense, and there can be
no assurance that the Company will be able to successfully attract, assimilate
or
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retain sufficiently qualified personnel. In particular, the Company may
encounter difficulties in attracting a sufficient number of qualified software
developers for its online services and transaction-processing systems, and
there can be no assurance that the Company will be able to retain and attract
such developers. The failure to retain and attract necessary technical,
managerial, editorial, merchandising, marketing and customer service personnel
could have a material adverse effect on the Company's business, operating
results and financial condition.
Although none of the Company's employees is represented by a labor union, it
is common for employees in the television industry to belong to a union, and
there can be no assurance that the Company's employees will not join or form a
labor union or that the Company, for certain purposes, will not be required to
become a union signatory. See "Business--Employees" and "Management."
Risk of Capacity Constraints; Reliance on Internally Developed Systems;
System Development Risks. The Company's revenues depend on the number of
customers who use its online travel sites to book their travel reservations.
Accordingly, the satisfactory performance, reliability and availability of the
Company's online sites, transaction-processing systems and network
infrastructure are critical to the Company's operating results, as well as its
ability to attract and retain customers and maintain adequate customer service
levels. Any system interruptions that result in the unavailability of the
Company's online sites or reduced performance of the reservation system would
reduce the volume of reservations and the attractiveness of the Company's
service offerings, which could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company uses an internally developed system for its online sites and
substantially all aspects of transaction processing, including customer
profiling, making reservations, credit card verification and confirmations.
The Company has experienced periodic system interruptions, which it believes
will continue to occur from time to time. Any substantial increase in the
volume of traffic on the Company's online sites or the number of reservations
made by customers will require the Company to expand and upgrade further its
technology, transaction-processing systems and network infrastructure. The
Company has experienced and expects to continue to experience temporary
capacity constraints due to sharply increased traffic during "fare wars" or
other promotions, which may cause unanticipated system disruptions, slower
response times, degradation in levels of customer service, impaired quality
and speed of reservations and confirmations, and delays in reporting accurate
financial information.
There can be no assurance that the Company's transaction-processing systems
and network infrastructure will be able to accommodate such increases in
traffic in the future, or that the Company will, in general, be able to
accurately project the rate or timing of such increases or upgrade its systems
and infrastructure to accommodate future traffic levels on its online sites.
In addition, there can be no assurance that the Company will be able in a
timely manner to effectively upgrade and expand its transaction-processing
systems or to successfully integrate any newly developed or purchased modules
with its existing systems. Any inability to do so could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business--Technology."
Risk of System Failure; Single Site. The Company's success, in particular
its ability to successfully receive and fulfill orders online and provide
high-quality customer service, largely depends on the efficient and
uninterrupted operation of its computer and communications hardware systems.
Substantially all of the Company's computer and communications systems are
located at a single facility in San Francisco, California. The Company's
systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-ins, earthquake and
similar events. The Company currently does not have redundant systems or a
formal disaster recovery plan and does not carry sufficient business
interruption insurance to compensate it for losses that may occur. Despite the
implementation of network security measures by the Company, its servers are
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions, which could lead to interruptions, delays, loss of data or the
inability to accept and confirm customer reservations. The occurrence of any
of the foregoing risks could have a material adverse effect on
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the Company's business, operating results and financial condition. See
"Business--Technology" and "--Facilities."
Risks Associated with Television Operations. The Company's ability to
generate revenues from its television operations, as well as its ability to
use its television and in-flight programming to promote and enhance its online
services and brand recognition, depends upon its ability to reflect in its
programming the changing tastes of consumers, news directors and program
directors, and to secure and maintain distribution for its television and in-
flight programming on acceptable commercial terms through local stations,
domestic and international cable and broadcast networks and airlines. These
syndication agreements typically have durations of one year or less, and there
can be no assurance that such stations, networks and airlines will continue to
renew syndication agreements for the Company's programs. In addition, the
Company's ability to cost effectively update and expand its film library is
essential to its ability to continue to offer compelling content.
Although the Company maintains a back-up of its film library in offsite
storage, both the film library and the back-up library are vulnerable to
damage from fire, flood, break-ins, earthquake and similar events. Loss of
access to the Company's film library for an extended period of time could have
a material adverse effect on the Company's business, operating results and
financial condition.
Although the Company's television operations have had positive cash flow
from operations in the past, the Company has experienced negative cash flow
from television operations in each of the last two years and expects to
experience negative cash flow from television operations for the foreseeable
future. The Company must generate substantial revenues from sales of its
television programs, and, in particular, advertising sales for such programs,
in order to offset the significant fixed costs associated with its television
operations. The Company historically has derived advertising revenues from a
limited customer base. In particular, a single customer, MCI
Telecommunications Corporation ("MCI"), accounted for 49% and 58% of the
Company's television advertising revenues in 1995 and 1996, respectively. In
the fourth quarter of 1996, MCI canceled its sponsorship of Travel Update, the
Company's nationally syndicated television program. The Company does not
expect to receive significant additional revenues from MCI for the foreseeable
future. In addition, the Company faces significant competition from national
syndicators and broadcast and cable networks in its efforts to expand its
customer base and obtain sufficient levels of advertising sales to achieve
profitability in its television operations. In certain market conditions, the
Company could be required to substantially lower its advertising rates in
order to sell its available inventory of television time and Web advertising
space. There can be no assurance that the Company will generate sufficient
revenues from the licensing of its television programs and sale of advertising
to achieve profitability, and the failure to do so could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business--Preview Travel Television Operations."
Rapid Technological Change. The Internet and the online commerce industry
are characterized by rapid technological change, changes in user and customer
requirements and preferences, frequent new product and service introductions
embodying new technologies and the emergence of new industry standards and
practices that could render the Company's existing online sites and
proprietary technology and systems obsolete. The emerging nature of these
products and services and their rapid evolution will require that the Company
continually improve the performance, features and reliability of its online
services, particularly in response to competitive offerings. The Company's
success will depend, in part, on its ability to enhance its existing services,
to develop new services and technology that address the increasingly
sophisticated and varied needs of its prospective customers and to respond to
technological advances and emerging industry standards and practices on a
cost-effective and timely basis. The development of online sites and other
proprietary technology entails significant technical and business risks and
requires substantial expenditures and lead time. There can be no assurance
that the Company will successfully use new technologies effectively or adapt
its online sites, proprietary technology and transaction-processing systems to
customer requirements or emerging industry standards. If the Company is
unable, for technical, legal, financial or other reasons, to adapt in a timely
manner in response to changing market conditions or customer requirements, its
business, operating results and financial condition could be materially
adversely affected. See "Business--Technology."
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Online Commerce and Database Security Risks. A fundamental requirement for
online commerce and communications is the secure transmission of confidential
information over public networks. The Company relies on encryption and
authentication technology licensed from third parties to provide the security
and authentication necessary to effect secure transmission of confidential
information, such as customer credit card numbers. In addition, the Company
maintains an extensive confidential database of customer profiles and
transaction information. There can be no assurance that advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments will not result in a compromise or breach of the algorithms used
by the Company to protect customer transaction and personal data contained in
the Company's customer database. If any such compromise of the Company's
security were to occur, it could have a material adverse effect on the
Company's reputation, business, operating results and financial condition. A
party who is able to circumvent the Company's security measures could
misappropriate proprietary information or cause interruptions in the Company's
operations. The Company may be required to expend significant capital and
other resources to protect against such security breaches or to alleviate
problems caused by such breaches. Concerns over the security of transactions
conducted on the Internet and commercial online services and the privacy of
users may also inhibit the growth of the Internet and commercial online
services, especially as a means of conducting commercial transactions. To the
extent that activities of the Company or third-party contractors involve the
storage and transmission of proprietary information, such as credit card
numbers or other personal information, security breaches could expose the
Company to a risk of loss or litigation and possible liability. There can be
no assurance that the Company's security measures will prevent security
breaches or that failure to prevent such security breaches will not have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business--Technology."
Need for Additional Capital. The Company requires substantial working
capital to fund its business and expects to use a portion of the net proceeds
of this offering to fund its operating losses. In the last two years, the
Company has experienced negative cash flow from operations and expects to
continue to experience significant negative cash flow from operations for the
foreseeable future. The Company currently anticipates that the net proceeds of
the offering, together with its existing capital resources, will be sufficient
to meet the Company's capital requirements through at least the next 12
months. Thereafter, the Company may be required to raise additional funds, in
part to fund its financial obligations to AOL and Excite. There can be no
assurance that such financing will be available in sufficient amounts or on
terms acceptable to the Company, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Risks Associated with Offering New Services. The Company plans to introduce
new and expanded services and to enter into new relationships with third
parties in order to generate additional revenues, attract more consumers and
respond to competition. For example, the Company may offer travel insurance,
travel financing services and travel-related merchandise. There can be no
assurance that the Company would be able to offer such services in a cost-
effective or timely manner or that any such efforts would be successful.
Furthermore, any new service launched by the Company that is not favorably
received by consumers could damage the Company's reputation or its brand name.
Expansion of the Company's services in this manner would also require
significant additional expenses and development and may strain the Company's
management, financial and operational resources. The Company's inability to
generate revenues from such expanded services or products sufficient to offset
their cost could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business--Strategy."
Liability for Internet and Television Content. As a publisher and
distributor of online and television content, the Company faces potential
liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that the Company publishes or distributes. Such claims have been brought, and
sometimes successfully pressed, against online services. In addition, the
Company does not and cannot practically screen all of the content generated by
its users on the bulletin board system on the Company's online sites, and the
Company could be exposed to liability with respect to such content. Although
the Company carries general liability insurance, the Company's insurance
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may not cover claims of these types or may not be adequate to indemnify the
Company for all liability that may be imposed. Any imposition of liability,
particularly liability that is not covered by insurance or is in excess of
insurance coverage, could have a material adverse effect on the Company's
reputation and its business, operating results and financial condition.
Uncertain Protection of Intellectual Property; Risks of Third Party
Licenses. The Company regards its copyrights, service marks, trademarks, trade
dress, trade secrets and similar intellectual property as critical to its
success, and relies on trademark and copyright law, trade secret protection
and confidentiality and/or license agreements with the Company's employees,
customers, partners and others to protect its proprietary rights. The Company
pursues the registration of certain of its key trademarks and service marks in
the United States and internationally. Effective trademark, service mark,
copyright and trade secret protection may not be available in every country in
which the Company's products and services are made available online. The
Company has licensed in the past, and expects that it may license in the
future, certain of its proprietary rights, such as trademarks or copyrighted
material, to third parties. While the Company attempts to ensure that the
quality of its brand is maintained by such licensees, there can be no
assurance that such licensees will not take actions that might materially
adversely affect the value of the Company's proprietary rights or reputation,
which could have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that the
steps taken by the Company to protect its proprietary rights will be adequate
or that third parties will not infringe or misappropriate the Company's
copyrights, trademarks, trade dress and similar proprietary rights. In
addition, there can be no assurance that other parties will not assert
infringement claims against the Company. The Company may be subject to legal
proceedings and claims from time to time in the ordinary course of its
business, including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties by the Company and its
licensees. Such claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources. See "Business--
Legal Proceedings."
The Company also intends to strategically license certain content for its
online sites from third parties, including content which is integrated with
internally developed content and used on the Company's online sites to provide
key services. There can be no assurance that these third party content
licenses will be available to the Company on commercially reasonable terms or
that the Company will be able to successfully integrate such third party
content. Such content licenses may expose the Company to increased risks,
including risks associated with the assimilation of new content, the diversion
of resources from the development of the Company's content, the inability to
generate revenues from new content sufficient to offset associated acquisition
costs and the maintenance of uniform, appealing content. The inability to
obtain any of these licenses could result in delays in site development or
services until equivalent content can be identified, licensed and integrated.
Any such delays in site development or services could have a material adverse
effect on the Company's business, operating results and financial condition.
Governmental Regulation and Legal Uncertainties. Certain segments of the
travel industry are heavily regulated by the United States and international
governments, and accordingly, certain services offered by the Company are
affected by such regulations. For example, the Company is subject to United
States Department of Transportation ("DOT") regulations prohibiting unfair and
deceptive practices. In addition, DOT regulations concerning the display and
presentation of information that are currently applicable to the GDS services
accessed by the Company could be extended to the Company in the future, as
well as other laws and regulations aimed at protecting consumers accessing
online travel services or otherwise. In California, under the Seller of Travel
Act, the Company is required to register as a seller of travel, comply with
certain disclosure requirements and participate in the State's restitution
fund. The television industry is also subject to extensive regulation at
federal, state and local levels, including the Federal Communications Act and
rules and regulations of the Federal Communications Commission. In addition,
legislative and regulatory proposals under ongoing consideration by Congress
and federal agencies may materially affect the television industry and the
Company's ability to obtain distribution for its television programming.
15
<PAGE>
The Company is also subject to regulations applicable to businesses
generally and laws or regulations directly applicable to access to online
commerce. Although there are currently few laws and regulations directly
applicable to the Internet and commercial online services, it is possible that
a number of laws and regulations may be adopted with respect to the Internet
or commercial online services covering issues such as user privacy, pricing,
content, copyrights, distribution, antitrust and characteristics and quality
of products and services. Furthermore, the growth and development of the
market for online commerce may prompt calls for more stringent consumer
protection laws that may impose additional burdens on those companies
conducting business online. The adoption of any additional laws or regulations
may decrease the growth of the Internet or commercial online services, which
could, in turn, decrease the demand for the Company's products and services
and increase the Company's cost of doing business, or otherwise have a
material adverse effect on the Company's business, operating results and
financial condition.
Moreover, the applicability to the Internet and commercial online services
of existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. For example, tax authorities in a number of states
are currently reviewing the appropriate tax treatment of companies engaged in
online commerce, and new state tax regulations may subject the Company to
additional state sales and income taxes. Any such new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to the Company's business, or the application of
existing laws and regulations to the Internet and commercial online services
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Government Regulation."
Risks Associated with International Expansion. A key component of the
Company's strategy is to expand its operations into international markets. The
Company anticipates that it will expend significant financial and management
resources to establish local offices overseas, create localized user
interfaces and comply with local customs and regulations. If the revenues
generated by these international operations are insufficient to offset the
expense of establishing and maintaining such operations, the Company's
business, operating results and financial condition could be materially
adversely affected. To date, the Company has no experience in developing
localized versions of its online sites and marketing and distributing its
travel services internationally. There can be no assurance that the Company
will be able to successfully market or sell its services in these
international markets. In addition to the uncertainty as to the Company's
ability to expand its international presence, there are certain risks inherent
in conducting business on an international level, such as unexpected changes
in regulatory requirements, tariffs and other trade barriers, difficulties in
staffing and managing foreign operations, political instability, currency rate
fluctuations, seasonality in leisure travel in certain countries and
potentially adverse tax consequences. There can be no assurance that one or
more of the foregoing factors will not have a material adverse effect on the
Company's future international operations and, consequently, on its business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Risks Associated with Potential Acquisitions. The Company's current strategy
is to broaden the scope and content of its online sites through the
acquisition of existing online services and businesses specializing in travel-
related content, as well as through internally developed new travel services
offerings. Although no such acquisitions are currently being negotiated, any
future acquisitions would expose the Company to increased risks, including
risks associated with the assimilation of new operations, sites and personnel,
the diversion of resources from the Company's existing businesses, sites and
technologies, the inability to generate revenues from new sites or content
sufficient to offset associated acquisition costs, the maintenance of uniform
standards, controls, procedures and policies and the impairment of
relationships with employees and customers as a result of any integration of
new management personnel. Acquisitions may also result in additional expenses
associated with amortization of acquired intangible assets or potential
businesses. There can be no assurance that the Company would be successful in
overcoming these risks or any other problems encountered in connection with
such acquisitions, and its inability to overcome such risks could have a
material adverse effect on the Company's business, operating results and
financial condition.
16
<PAGE>
Lack of Prior Market and Possible Volatility of Stock Price. Prior to the
offering, there has been no public market for the Company's Common Stock, and
there can be no assurance that an active trading market will develop or be
sustained. The initial public offering price for the Common Stock to be sold
by the Company will be established by negotiations among the Company and the
Representatives of the Underwriters and may bear no relationship to the price
at which the Common Stock will trade after completion of the offering. See
"Underwriting" for factors to be considered in determining such offering
price. The market price of the Common Stock could be subject to significant
fluctuations in response to quarter-to-quarter variations in the Company's
operating results, announcements of technological innovations or new products
by the Company or its competitors, and other events or factors. For example, a
shortfall in revenue or net income, or increase in losses from levels expected
by securities analysts, could have an immediate and significant adverse effect
on the market price of the Company's Common Stock. In addition, the stock
market in recent years has experienced extreme price and volume fluctuations
that have particularly affected the market prices of many high technology
companies and that have often been unrelated or disproportionate to the
operating performance of companies. These fluctuations, as well as general
economic and market conditions, may adversely affect the market price for the
Common Stock.
Antitakeover Effect of Certain Charter Provisions. After completion of the
offering, the Board of Directors will have the authority to issue up to
5,000,000 shares of Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change of control of the Company without further
action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock, which could have an adverse impact on
the market price of the Common Stock. The Company has no present plans to
issue shares of Preferred Stock. Further, certain provisions of the Company's
charter documents, including provisions eliminating the ability of
stockholders to take action by written consent and limiting the ability of
stockholders to raise matters at a meeting of stockholders without giving
advance notice, may have the effect of delaying or preventing changes in
control or management of the Company, which could have an adverse effect on
the market price of the Company's Common Stock. See "Description of Capital
Stock."
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market after the offering or the anticipation of such
sales could have a material adverse effect on then-prevailing market prices.
All of the 2,500,000 shares offered hereby, as well as approximately 137,668
additional shares may be resold immediately in the public market. Beginning 90
days after the date of this Prospectus, approximately 94,522 additional shares
may be resold in the public market. Beginning 180 days after the date of this
Prospectus, upon expiration of pre-existing lock-up agreements and lock-up
agreements between the representatives of the Underwriters and officers,
directors and certain stockholders of the Company, approximately 1,944,261
additional shares will be eligible for sale without restriction under Rule
144(k) under the Securities Act of 1933, as amended (the "Securities Act") and
5,257,539 additional shares (as well as an additional 1,158,164 shares
issuable upon exercise of outstanding options) will be eligible for sale
subject to compliance with the restrictions of Rule 144 and, under certain
circumstances, Rule 701 under the Securities Act. Any early release of the
lock-up agreement by the Underwriters, which, if granted, could permit sales
of a substantial number of shares and could adversely affect the trading price
of the Company's shares, may not be accompanied by an advance public
announcement by the Company. In addition, the Company intends to file a
registration statement on Form S-8 under the Securities Act approximately 30
days after the date of this Prospectus to register approximately 2,362,905
shares of Common Stock reserved for issuance under the Company's 1997 Employee
Stock Purchase Plan, 1997 Directors' Stock Option Plan and 1988 and 1997 Stock
Option Plans and 1,158,164 shares subject to outstanding options granted under
the 1988 Stock Option Plan. Holders of approximately 7,895,263 shares of
Common Stock (the "Registrable Securities"), including 881,480 shares issuable
upon exercise of warrants and 340,909 shares issuable upon conversion of
convertible subordinated notes, also will have the right to include such
shares in any future registration of securities
17
<PAGE>
effected by the Company and to require the Company to register their shares for
future sale, subject to certain exceptions. See "Description of Capital Stock--
Registration Rights of Certain Holders" and "Shares Eligible for Future Sale."
Dilution. The initial public offering price is expected to be substantially
higher than the book value per share of the outstanding Common Stock. Investors
purchasing shares of Common Stock in the offering will therefore incur
immediate, substantial dilution. In addition, investors purchasing shares of
Common Stock in the offering will incur additional dilution to the extent
outstanding options are exercised. See "Dilution."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company (after deducting underwriting discounts and
estimated offering expenses) from the sale of the 2,500,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering price
of $11.00 per share are estimated to be $24,725,000 ($28,850,000 if the
Underwriters' over-allotment option is exercised in full).
The principal purposes of this offering are to obtain additional capital, to
create a public market for the Common Stock, to facilitate future access by the
Company to public equity markets, and to provide increased visibility and
credibility in a marketplace in which many of the Company's current and
potential competitors are or will be publicly held companies. The Company
intends to use a portion of the net proceeds to pay a portion of its
obligations to AOL and Excite pursuant to the Company's agreements with AOL and
Excite and to acquire redundant computer and communications systems. In
particular, the Company intends to use a portion of the net proceeds of this
offering to make a required $6.4 million prepayment of its obligations to AOL.
In addition, the Company may, when the opportunity arises, use a portion of the
net proceeds to license and acquire content for its online sites, to establish
additional distribution channels, to expand into international markets and to
acquire or invest in complementary businesses, products, services or
technologies. The Company has no specific plan for use of the remaining
proceeds and expects to use the net proceeds for general corporate purposes,
including working capital to fund anticipated operating losses and capital
expenditures.
Pending such uses, the Company intends to invest such funds in short-term,
investment grade, interest-bearing obligations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock or other securities. The Company currently anticipates that its will
retain all of its future earnings for use in the expansion and operation of its
business and does not anticipate paying cash dividends in the foreseeable
future. Under the terms of the Company's current bank line of credit, the
Company's ability to pay dividends is restricted. See Note 4 of Notes to
Consolidated Financial Statements.
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 (i) on an actual basis, (ii) on a pro forma basis, giving effect to
the conversion of all shares of Preferred Stock into shares of Common Stock
and (iii) as adjusted to give effect to the sale by the Company of the
2,500,000 shares of Common Stock offered hereby at an assumed offering price
of $11.00 per share, after deducting underwriting discounts and commissions
payable by the Company and the conversion of convertible subordinated notes,
the exercise of certain warrants and the conversion of shares of Series E
Preferred Stock issued in September 1997. This table should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED(1)
-------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Total debt.................................. $ 1,939 $ 1,939 $ 1,189
Shareholders' equity:
Preferred Stock, $0.001 par value,
6,134,563 shares authorized; 4,483,166
shares issued and outstanding (actual);
5,000,000 shares authorized; none issued
or outstanding (pro forma and as
adjusted)................................ 5 -- --
Common Stock, $0.001 par value, 11,550,000
shares authorized, 1,716,537 shares
issued and outstanding (actual);
50,000,000 shares authorized; 6,199,703
shares issued and outstanding (pro
forma); 11,616,973 shares issued and
outstanding (as adjusted)................ 2 7 2,510
Additional paid-in capital................ 20,228 20,228 61,127
Other..................................... (57) (57) (57)
Accumulated deficit....................... (18,662) (18,662) (18,662)
-------- -------- --------
Total shareholders' equity.............. 1,516 1,516 44,918
-------- -------- --------
Total capitalization................... $ 3,455 $ 3,455 $ 46,107
======== ======== ========
</TABLE>
- ---------------------
(1) Includes an aggregate of 849,814 shares and 340,909 shares issuable upon
exercise or conversion of warrants and convertible subordinated notes,
respectively, outstanding as of September 30, 1997, substantially all of
which are expected to be exercised or converted upon completion of this
offering. Excludes (a) 1,158,164 shares issuable upon exercise of
outstanding options at a weighted average exercise price of $3.54 per
share as of September 30, 1997, (b) 31,666 shares issuable upon exercise
of outstanding warrants at a weighted average exercise price of $5.97 per
share as of such date and (c) an aggregate of 2,362,905 shares available
for future issuance under the Company's 1988 Stock Option Plan, 1997 Stock
Option Plan, 1997 Directors' Stock Option Plan and 1997 Employee Stock
Purchase Plan. See "Management--Stock Plans" and Note 9 of Notes to
Consolidated Financial Statements.
20
<PAGE>
DILUTION
As of June 30, 1997, the Company had a pro forma net tangible book value of
approximately $20,193, or $2.21 per share of Common Stock. Pro forma net
tangible book value represents total tangible assets less total liabilities,
including the effect of the conversion of convertible subordinated notes, the
exercise of certain warrants and the issuance of Series E Preferred Stock in
September 1997, divided by the number of shares of Common Stock outstanding at
that date including shares of Common Stock from the conversion of the Preferred
Stock immediately prior to the consummation of the offering. Without taking
into account any other changes in the pro forma net tangible book value after
June 30, 1997, other than to give effect to the receipt by the Company of the
net proceeds from the sale of the 2,500,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $11.00 per
share, the pro forma net tangible book value at June 30, 1997 would have been
approximately $44,918, or $3.87 per share. This represents an immediate
increase in net tangible book value of $1.65 per share to existing stockholders
and an immediate dilution of $7.13 per share to new investors purchasing shares
of Common Stock in this offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $11.00
Pro forma net tangible book value per share as of June 30,
1997........................................................ $2.21
Increase per share attributable to new investors............. 1.65
-----
Pro forma net tangible book value per share after the offering. 3.87
------
Dilution per share to new investors............................ $ 7.13
======
</TABLE>
The following table summarizes, on a pro forma basis, as of June 30, 1997,
the differences between the number of shares of Common Stock purchased from the
Company, the aggregate consideration paid and the average price per share paid
by existing stockholders and new investors purchasing shares of Common Stock in
this offering:
<TABLE>
<CAPTION>
SHARES AVERAGE PRICE
PURCHASED TOTAL CONSIDERATION PER SHARE
-------------- --------------------- -------------
NUMBER PERCENT AMOUNT PERCENT
------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1).................... 9,117 78.5% $ 38,912 58.6% $ 4.27
New investors (1)....... 2,500 21.5 27,500 41.4 11.00
------ ----- ---------- --------
Total................. 11,617 100.0% $ 66,412 100.0%
====== ===== ========== ========
</TABLE>
- ---------------------
(1) The foregoing tables includes an aggregate of 849,814 shares and 340,909
shares issuable upon exercise or conversion of warrants and convertible
subordinated notes, respectively, outstanding as of September 30, 1997,
substantially all of which are expected to be exercised or converted upon
completion of this offering and the sale of 1,562,806 shares of Series E
Preferred Stock in September 1997. Excludes (a) 1,158,164 shares issuable
upon exercise of outstanding options at a weighted average exercise price
of $3.54 per share as of September 30, 1997, (b) 31,666 shares issuable
upon exercise of outstanding warrants at a weighted average exercise price
of $5.97 per share as of such date and (c) an aggregate of 2,362,905 shares
available for future issuance under the Company's 1988 Stock Option Plan,
1997 Stock Option Plan, 1997 Directors' Stock Option Plan and 1997 Employee
Stock Purchase Plan. See "Management--Stock Plans" and Note 9 of Notes to
Consolidated Financial Statements.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the years ended
December 31, 1994, 1995 and 1996 and as of December 31, 1994, 1995 and 1996
have been derived from the Company's consolidated financial statements
included elsewhere in this Prospectus which have been audited by Coopers &
Lybrand L.L.P., independent public accountants, whose report thereon is also
included elsewhere in this Prospectus. The following selected consolidated
financial data for the years ended December 31, 1992 and 1993 and as of
December 31, 1992 and 1993 have been derived from the audited consolidated
financial statements of the Company not included in this Prospectus. The
selected consolidated financial data for the six-month periods ended June 30,
1996 and 1997 and as of the six-month period ended June 30, 1997 have been
derived from unaudited financial statements of the Company that include, in
the opinion of management, all normal and recurring adjustments that
management considers necessary for a fair statement of the interim results.
Results of operations for interim periods are not necessarily indicative of
results to be expected for the entire year. The following information is
qualified by reference to, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Online................. $ -- $ -- $ -- $ 579 $ 2,573 $ 591 $ 2,670
Television............. 7,944 12,309 9,598 9,564 9,801 5,265 4,056
----- ------ ------------ ------------ ------------ ------- --------
Total revenues........ 7,944 12,309 9,598 10,143 12,374 5,856 6,726
----- ------ ------------ ------------ ------------ ------- --------
Cost of revenues:
Online................. -- -- -- 1,078 2,308 872 1,763
Television............. 5,491 9,972 9,103 8,393 7,000 3,310 2,889
----- ------ ------------ ------------ ------------ ------- --------
Total cost of reve-
nues................. 5,491 9,972 9,103 9,471 9,308 4,182 4,652
----- ------ ------------ ------------ ------------ ------- --------
Gross profit............ 2,453 2,337 495 672 3,066 1,674 2,074
----- ------ ------------ ------------ ------------ ------- --------
Operating expenses:
Marketing and sales.... -- -- 2,759 2,687 4,373 1,752 2,516
Research and develop-
ment.................. -- -- -- 626 1,314 487 701
General and administra-
tive.................. -- -- 1,162 2,026 2,880 1,239 1,923
Loss on cancelled pro-
gramming (1).......... -- -- 2,166 -- -- -- --
----- ------ ------------ ------------ ------------ ------- --------
Total operating ex-
penses (2)........... 2,268 2,617 6,087 5,339 8,567 3,478 5,140
----- ------ ------------ ------------ ------------ ------- --------
Income (loss) from oper-
ations................. 185 (280) (5,592) (4,667) (5,501) (1,804) (3,066)
----- ------ ------------ ------------ ------------ ------- --------
Interest income (ex-
pense) (2)............. -- -- (246) (264) (89) (143) 20
----- ------ ------------ ------------ ------------ ------- --------
Income (loss) before in-
come taxes............. 185 (280) (5,838) (4,931) (5,590) (1,947) (3,046)
Income benefit (loss)... (74) (23) 420 (2) (2) (1) (1)
----- ------ ------------ ------------ ------------ ------- --------
Net income (loss)....... $ 111 $ (303) $ (5,418) $ (4,933) $ (5,592) $(1,948) $ (3,047)
===== ====== ============ ============ ============ ======= ========
Historical net income
(loss) per share (3)... $0.02 $(0.10) $ (1.82) $ (1.61) $ (1.61) $ (0.57) $ (0.86)
===== ====== ============ ============ ============ ======= ========
Weighted average shares
used in historical net
income (loss) per share
calculation............ 4,917 2,914 2,978 3,065 3,469 3,417 3,545
===== ====== ============ ============ ============ ======= ========
SUPPLEMENTAL FINANCIAL
DATA (UNAUDITED):
Gross bookings (4)...... $ -- $ -- $ -- $ 2,043 $ 20,263 $ 3,323 $ 31,933
===== ====== ============ ============ ============ ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA: (IN THOUSANDS)
Cash and cash equivalents........ $ 490 $ 765 $ 138 $1,064 $6,016 $1,136
Total assets..................... 10,829 13,011 8,593 9,066 12,554 8,468
Long-term obligations (5)........ 3,819 6,197 6,164 4,993 4,656 3,634
Total shareholders' equity....... 4,613 4,336 (1,027) 1,249 4,411 1,516
</TABLE>
- ------------------
(1) Effective September 30, 1994, the Company cancelled all further
development of environmental-related programming, primarily IMPACT
Environmental Reports, a series of daily 90-second environmental news
inserts licensed to local broadcast television stations.
(2) Prior to 1994, the Company did not classify operating expenses, interest
income or interest expense. As a result, only total operating expenses
(including interest income and interest expense) are presented for 1992
and 1993.
(3) See Note 1 of Notes to Consolidated Financial Statements for a description
of the method used to determine the number of shares used in computing net
loss per share.
(4) Represents the total purchase price of all travel services booked through
the Company's online reservation system. This presentation of gross
bookings does not affect the Company's operating results, nor are gross
bookings included in revenues. Management believes that gross bookings
provide a more consistent comparison between historical periods than do
online revenues. Gross bookings are not required by GAAP and should not be
considered in isolation or as a substitute for other information prepared
in accordance with GAAP, and period-to-period comparisons of gross
bookings are not necessarily meaningful due to, among other things,
changes in commission rates, and, as with operating results, should not be
relied upon as an indication of future performance. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(5) Long-term obligations include capital lease obligations, long-term notes
payable, line of credit, subordinated convertible notes payable,
subordinated notes payable and bank equipment note.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. This
Prospectus contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results and the timing of certain events
could differ materially from those discussed in the forward-looking statements
as a result of certain factors, including those set forth under "Risk Factors"
and elsewhere in this Prospectus.
OVERVIEW
Preview Travel is a leading provider of branded online travel services for
leisure and small business travelers. Since its inception in 1985, the Company
has operated as a producer of travel-related programming for broadcast
television stations and cable networks around the world. In 1994, the Company
began offering travel services by developing television programs
("infomercials") designed to generate interest in vacation packages offered by
the Company. The Company sold these vacation packages directly to consumers by
telephone. At the time, the commercial online services industry was beginning
to develop as a new medium to entertain, inform and transact with consumers.
In response to strong interest in travel from its television audience and in
recognition of new opportunities presented by the online market, the Company
adopted a new business model to address this demand in a more cost-effective
manner. Consequently, the Company shifted its business focus and resources
from infomercials to online travel services. The Company launched its online
service on AOL in January 1995 and on the Web in December 1995, providing
users with access to travel information and the ability to book travel
services by telephone. In May 1996, the Company launched its online airline
reservation service and, in the first half of 1997, enhanced its online
reservation service to include hotels and car rentals. In April 1997, the
Company launched its co-branded Web site for Excite's Travel Channel
(City.Net). In the third quarter of 1997, the Company expanded and extended
its relationships with Excite and AOL, respectively, by entering into new
five-year distribution agreements. See "Business--Strategic Relationships."
Overview of Television Operations. From inception through 1994, the Company
derived all of its revenues from its television operations. In 1995, 1996 and
the six-month period ended June 30, 1997, the Company's television operations
accounted for approximately 94%, 79% and 60% of the Company's total revenues,
respectively. Television revenues are derived primarily from fees associated
with the licensing of travel-related news and entertainment programming and
sales of advertising time. Program license revenues are recognized when all of
the following conditions are met: (i) the license period begins; (ii) the
license fee and the production costs are known; and (iii) the program has been
accepted by the licensee and is available for telecast. Advertising revenues
are recognized when all the terms of the advertising agreement are met, and
advertising is shown on various media as designated by the agreement.
The Company produces travel-related news inserts and news and entertainment
programs that are syndicated in exchange for either cash or commercial
advertising time. The Company also syndicates third party news inserts. The
local commercial advertising time earned for providing these programs is
aggregated and sold to advertisers seeking to reach a national audience. To
fulfill such advertisers' requirements to reach a national audience, the
Company purchases commercial advertising time for resale in selected markets.
In addition, the Company produces in-flight programs for several airlines,
primarily Northwest Airlines. In 1996, the Company discontinued its practice
of exchanging commercial advertising time on its news and entertainment
programming for travel services such as airline tickets, hotel rooms and car
rentals ("travel inventory"). During the year ended December 31, 1996, the
Company significantly reduced its travel inventory and wrote off the remaining
balance of unused travel inventory.
In 1995 and 1996, advertising revenue from MCI comprised 49% and 58%,
respectively, of the Company's total television revenues. In the fourth
quarter of 1996, MCI canceled its sponsorship of Travel Update, the Company's
nationally syndicated television program. The Company does not expect to
receive significant additional revenues from MCI for the foreseeable future.
23
<PAGE>
The Company's television operations historically have generated positive
operating cash flows with respect to such operations; however, there can be no
assurance that the Company's television operations will generate positive
operating cash flows in future periods. As a result of the amortization of the
Company's film library as well as depreciation and other factors, the
Company's television operations have incurred net operating losses in each of
the last four years, and the Company anticipates that its television
operations will continue to incur net operating losses for the foreseeable
future. As a result of these losses and the Company's anticipated increase in
operating expenses primarily for its online operations, the Company believes
that its future success depends on its ability to maintain its current level
of television revenues and to significantly increase revenues from its online
operations, for which it has a limited operating history. See "Risk Factors--
Limited Operating History of Online Business; Accumulated Deficit; Anticipated
Losses," "--Dependence on the Travel Industry," "--Uncertain Acceptance of the
Preview Travel Brand; Dependence on Increased Bookings," "--Dependence on
Continued Growth of Online Commerce," "--Risks Associated with Advertising
Revenues," "--Management of Potential Growth," "--Risks Associated with
Television Operations" and "--Risks Associated with International Expansion."
Overview of Online Operations. The Company's online revenues are
predominantly comprised of commissions paid by airlines, hotels, rental car
agencies, cruise lines and vacation packagers (collectively "travel
suppliers") for travel services booked through the Company and, to a much
lesser extent, the sale of advertisements on the Company's online sites. In
addition, certain travel suppliers pay performance-based compensation known as
"override commissions" to travel agencies. Commission revenues for air travel,
hotel rooms, car rentals and travel packages, net of allowances for
cancellations, are recognized upon the confirmation of the reservation.
Overrides are recognized on a cash basis, which reflects the performance in
the prior monthly or quarterly period.
The Company's online travel services have experienced substantial growth
since the Company first enabled customers to book travel services online in
May 1996. Gross bookings of travel services online increased from
approximately $2.8 million in the second quarter of 1996 to $17.8 million in
the second quarter of 1997, which resulted in online revenues of approximately
$424,000 and $1.2 million, respectively, for the corresponding periods. The
commission rates paid by travel suppliers, in addition to overrides, are
determined by individual travel suppliers and are subject to change.
Historically, typical standard base commission rates paid by travel suppliers
have been approximately 10% for hotel reservations and car rentals and 10% to
15% for cruises and vacation packages. During the quarter ended June 30, 1997,
the commissions paid by most of the major airlines for online reservations was
changed from a typical base rate of 10% to approximately 5% (excluding
overrides). Accordingly, travel suppliers can reduce current industry
commission rates or eliminate such commissions entirely, which would likely
have a material adverse effect on the Company's revenues and operating
results. See "Risk Factors--Reliance on Travel Suppliers; Potential Adverse
Changes in Commission Payments."
Since launching its online operations, the Company's cost of revenues and
operating expenses have grown substantially and are expected to continue to
grow substantially in absolute dollars for the foreseeable future. In
particular, the Company's new agreements with AOL and Excite require minimum
aggregate payments of approximately $56 million over the next five years in
exchange for their providing distribution, marketing and other services. There
can be no assurance that the Company will achieve sufficient online traffic,
travel bookings or commissions to realize economies of scale that justify the
Company's significant fixed financial obligations to AOL and Excite or that
the Company will satisfy the minimum levels of travel services bookings
required to maintain the AOL agreement, and failure to do so would likely have
a material adverse effect on the Company's business, operating results and
financial condition. See "Risk Factors--Reliance on Distribution Agreements
with American Online and Excite."
Gross Margins. Gross margins may be impacted by a number of different
factors, including the mix of television revenues versus online revenues, the
mix of online commission revenues versus online advertising revenues, the mix
of travel services sold, the mix of revenues from AOL, Excite and the
Company's Web site, the mix of airline ticket commissions (which vary from
airline to airline) and the amount of override
24
<PAGE>
commissions. The Company typically realizes higher gross margins on
advertising revenues than commission revenues, higher commissions on vacation
packages than hotel rooms and car rentals, higher commissions on hotel rooms
and car rentals than airline tickets, higher gross margins on advertising
revenues from its own Web site than through AOL or Excite, higher commissions
from certain airlines than others, and higher gross margins in periods of
higher overrides. Any change in one or more of the foregoing factors could
materially adversely affect the Company's gross margins and operating results
in future periods. See "Risk Factors--Unpredictability of Future Revenues;
Fluctuations in Quarterly Results."
Anticipated Losses. The Company has incurred significant operating losses
and, as of June 30, 1997, had an accumulated deficit of $18.7 million. The
Company believes that its success will to a large part depend on its ability
to greatly increase sales volume to realize economies of scale. The Company
expects to continue to incur significant operating losses on a quarterly and
annual basis for the foreseeable future, and the rate at which such losses
will be incurred is expected to increase significantly from current levels,
resulting in corresponding decreases in working capital, total assets and
shareholders' equity. In particular, the Company's operating expenses are
expected to increase substantially in the third and fourth quarters of 1997 as
compared to the second quarter of 1997, primarily due to commencement of the
Company's payment obligations to AOL and Excite and promotional and marketing
expenses for the Company's online travel services, resulting in corresponding
increases in operating losses and decreases in working capital, total assets
and stockholders' equity. See "Risk Factors--Limited Operating History of
Online Business; Accumulated Deficit; Anticipated Losses."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's consolidated statement of
operations to total revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
--------------------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
---------------------- --------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Online................................ --% 5.7% 20.8% 10.1% 39.7%
Television............................ 100.0 94.3 79.2 89.9 60.3
------ ------ ------ ------ ------
Total revenues...................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Online................................ -- 10.6 18.7 14.9 26.2
Television............................ 94.8 82.8 56.6 56.5 43.0
------ ------ ------ ------ ------
Total cost of revenues.............. 94.8 93.4 75.3 71.4 69.2
------ ------ ------ ------ ------
Gross profit............................ 5.2 6.6 24.7 28.6 30.8
Operating expenses:
Marketing and sales................... 28.8 26.4 35.3 29.9 37.4
Research and development.............. -- 6.2 10.6 8.3 10.4
General and administrative............ 12.1 20.0 23.3 21.2 28.6
Loss on cancelled programming......... 22.6 -- -- -- --
------ ------ ------ ------ ------
Total operating expenses............ 63.5 52.6 69.2 59.4 76.4
Loss from operations.................... (58.3) (46.0) (44.5) (30.8) (45.6)
------ ------ ------ ------ ------
Interest income (expense)............... (2.6) (2.6) (0.7) (2.4) 0.3
------ ------ ------ ------ ------
Loss before income taxes................ (60.9) (48.6) (45.2) (33.2) (45.3)
Income tax benefit...................... 4.4 -- -- -- --
------ ------ ------ ------ ------
Net loss................................ (56.5)% (48.6)% (45.2)% (33.2)% (45.3)%
====== ====== ====== ====== ======
</TABLE>
25
<PAGE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1997
Revenues
Online Revenues. Online revenues increased from $591,000 for the first six
months of 1996 to $2.7 million for the first six months of 1997, due primarily
to greater bookings and the offering of new online services, offset in part by
the reduction by most of the major airlines in 1997 in the commission rates
paid for online bookings. The Company commenced its online airline reservation
service in May 1996 and enhanced the service to include hotels and car rentals
in the first half of 1997. As a result, online revenues for the first six
months of 1996 included only two months of airline commissions and no
commissions on hotels or car rentals. Gross bookings increased from $3.3
million for the first six months of 1996 to $31.9 million for the first six
months of 1997, as a result of the expansion of the Company's travel service
offerings, strategic relationships and customer base, as well as repeat
purchases by existing customers. The Company's database of customer profiles
grew from approximately 105,000 profiles as of June 30, 1996 to over 1.6
million profiles as of June 30, 1997. Repeat purchases from the Company's
existing customer base represented approximately 35% of the number of online
transactions during the six months ended June 30, 1997. In 1996, the Company
marketed its travel services primarily through AOL. During the first six
months of 1997, the Company expanded its online presence beyond AOL by
marketing its own Web site and by entering into a strategic relationship with
Excite. The Company's gross bookings from Excite and the Web comprised
approximately 24% of the Company's total gross bookings for the month of June
1997.
Television Revenues. Television revenues decreased 23% from $5.3 million for
the first six months of 1996 to $4.1 million for the first six months of 1997,
primarily due to the loss of MCI in December 1996 as an advertising sponsor
for the Company's nationally syndicated television program, Travel Update,
price reductions for programs licensed to cable networks and reduced
advertising revenues from the Company's in-flight programs. The reduction in
advertising revenues from the Company's in-flight programs was caused by a
reduction by Northwest Airlines in the number of flights on which such
programs were shown. For the first six months of 1996 and 1997, 74% and 66% of
television revenues, respectively, were derived from the sale of advertising.
Cost of Revenues
Cost of Online Revenues. Cost of online revenues includes equipment and
staffing costs associated with operating the Company's transaction system and
customer reservation service center, GDS charges and printing and delivery
costs for tickets and other documents. Cost of online revenues increased from
approximately $872,000 for the first six months of 1996 to $1.8 million for
the first six months of 1997. As a percentage of online revenues, cost of
online revenues fell from 148% for the first six months of 1996 to 66% for the
first six months of 1997, reflecting efficiencies associated with the increase
in transaction volume in the first six months of 1997.
Cost of Television Revenues. Cost of television revenues includes
advertising agency commissions, staffing costs, costs of custom productions
that have a limited useful life, amortization costs relating to the Company's
film library and the costs of purchasing commercial advertising time to
fulfill advertiser requirements. Expenditures relating to non-custom program
production are capitalized and amortized over a period not to exceed five
years, and expenditures relating to custom programs are expensed in the same
period as revenues are recognized. Cost of television revenues decreased from
$3.3 million for the first six months of 1996 to $2.9 million for the first
six months of 1997, primarily reflecting reduced costs for commercial
advertising time purchased by the Company in the first six months of 1997. As
a percentage of television revenues, cost of television revenues rose from 63%
for the first six months of 1996 to 71% for the first six months of 1997,
primarily reflecting the fixed costs associated with the television operations
and the decrease in television revenues in the first six months of 1997. Film
library amortization was approximately $757,000 for the first six months of
1996 and $642,000 for the first six months of 1997.
26
<PAGE>
Operating Expenses
Marketing and Sales. Marketing and sales expenses consist primarily of
payroll and related expenses, consulting fees, advertising, public relations
and promotional expenditures and costs relating to the development and
acquisition of content and distribution for the Company's online sites.
Marketing and sales expenses increased 44% from $1.8 million for the first six
months of 1996 to $2.5 million for the first six months of 1997. As a
percentage of total revenues, marketing and sales expenses rose from 30% for
the first six months of 1996 to 37% for the first six months of 1997. The
increase in marketing and sales expenses was attributable primarily to the
Company's development of new content and services, as well as increased
expenditures for public relations, advertising and promotional programs. The
Company intends to pursue an aggressive branding and marketing campaign,
including significant advertising expenditures. In addition, the Company is
obligated to make minimum payments totalling $56 million to AOL and Excite
over the next five years, which payments will be accounted for as marketing
and sales expense. As a result, the Company expects marketing and sales
expenses to increase significantly in absolute dollars in future periods.
Research and Development. Research and development expenses consist
principally of personnel and equipment expenses and consulting fees for
development and enhancement of the Company's transaction processing system and
online services, costs of content development in connection with the Company's
strategic relationships with Excite and AOL and costs associated with network
operations, systems and telecommunications infrastructure. Research and
development expenses increased 44% from approximately $487,000 for the first
six months of 1996 to $701,000 for the first six months of 1997. As a
percentage of total revenues, research and development expenses rose from 8%
for the first six months of 1996 to 10% for the first six months of 1997. The
increase in research and development expenses was attributable primarily to
expansion of the Company's online services and content. The Company believes
that continued investment in research and development is critical to attaining
the Company's strategic objectives and, as a result, expects research and
development expenses to increase significantly in absolute dollars in future
periods.
General and Administrative. General and administrative expenses consist of
payroll and related expenses for management, accounting and administrative
personnel, recruiting, professional services, facilities and other general
corporate expenses. General and administrative expenses increased 55% from
$1.2 million for the first six months of 1996 to $1.9 million for the first
six months of 1997. As a percentage of total revenues, general and
administrative expenses rose from 21% for the first six months of 1996 to 29%
for the first six months of 1997. The increase in general and administrative
expenses was due primarily to the expansion of facilities and the addition of
staff for the Company's online operations. The Company expects general and
administrative expenses to increase in absolute dollars in future periods as
the Company expands its staff and incurs additional costs related to the
growth of its business and being a public company.
Deferred Compensation. The Company grants stock options to hire and retain
employees. With respect to the grant of certain stock options to employees in
1997, the Company recorded aggregate deferred compensation of $251,000 in June
1997 and $320,000 in September 1997. Deferred compensation is recorded as a
reduction of shareholders' equity and is amortized ratably over the vesting
period of the applicable options, generally four years. The Company currently
expects to record amortization of deferred compensation for options granted of
approximately $62,000, $143,000, $143,000, $143,000 and $80,000 for 1997,
1998, 1999, 2000 and 2001, respectively. The amortization of deferred
compensation will be recorded as operating expenses in such periods.
Interest Expense
Interest expense, net of interest income, was approximately $143,000 for the
first six months of 1996 and interest income, net of interest expense, was
approximately $20,000 for the first six months of 1997. The decrease in net
interest expense was attributable to the retirement of $2.0 million in
subordinated debt, a reduction in borrowings under the Company's line of
credit and interest income earned on higher cash balances in 1997, primarily
from an equity financing completed in June 1996.
27
<PAGE>
Income Taxes
The provision for income taxes recorded in the first six months of 1997
represents minimum state tax expense. The Company expects to incur a net loss
for 1997; therefore, no provision for federal income taxes has been recorded
in the first six months of 1997.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Revenues
Online Revenues. In 1994, no online revenues were recorded. In 1995, online
revenues consisted entirely of the sale of vacation packages by telephone. In
May 1996, the Company began to book airline tickets through its online
services, and commissions from these bookings constituted the majority of
online revenues for the year. Online revenues increased from $579,000 in 1995
to $2.6 million in 1996 due to the introduction of online airline
reservations. The number of airline transactions grew from approximately 2,000
in the second quarter of 1996 to over 32,000 in the fourth quarter of 1996. In
1996, the Company's online gross bookings were $20.3 million.
Television Revenues. From 1994 to 1995, television revenues remained flat at
$9.6 million and increased 3% to $9.8 million from 1995 to 1996. Advertising
revenues constitute a majority of the Company's television revenues and
comprised 45%, 75% and 73% of television revenues in 1994, 1995 and 1996,
respectively.
Cost of Revenues
Cost of Online Revenues. No cost of online revenues was recorded in 1994.
Cost of online revenues increased from $1.1 million in 1995 to $2.3 million in
1996, due to the increased volume of transactions in 1996. As a percentage of
online revenues, cost of online revenues fell from 186% in 1995 to 90% in
1996, due to start-up costs incurred in 1995 and efficiencies associated with
the increased transaction volume in 1996.
Cost of Television Revenues. Cost of television revenues decreased from $9.1
million in 1994 to $8.4 million in 1995, and decreased to $7.0 million in
1996. As a percentage of television revenues, cost of television revenues fell
from 95% in 1994 to 88% in 1995 and 71% in 1996. The reduction in cost of
television revenues from 1994 to 1995 was due primarily to a decrease in the
amortization of the Company's film library in 1995. From 1995 to 1996, the
decrease in the cost of television revenues was a result of lower film library
amortization in 1996 and decreased purchases of media advertisement time in
1995. Film library amortization was $2.5 million, $1.7 million and $1.5
million in 1994, 1995 and 1996, respectively.
Operating Expenses
Marketing and Sales. Marketing and sales expenses were relatively flat at
$2.8 million in 1994 and $2.7 million in 1995, and increased 63% to $4.4
million in 1996. As a percentage of total revenues, marketing and sales
expenses fell from 29% in 1994 to 26% in 1995, and rose to 35% in 1996. The
increase in marketing and sales expenses from 1995 to 1996 was attributable
primarily to expenses associated with the Company's online operations,
including the hiring of additional personnel for development of online content
and expenditures related to the Company's initial strategic agreement with
AOL.
Research and Development. No research and development expense was recorded
in 1994. Research and development expenses increased 110% from $626,000 in
1995 to $1.3 million in 1996. As a percentage of total revenues, research and
development expenses rose from 6% in 1995 to 11% in 1996. The increase from
1995 to 1996 was attributable primarily to increased staffing and consulting
fees, as well as increased costs related to enhancing the features, content
and functionality of the Company's online services and enhancing or updating
transaction-processing systems.
28
<PAGE>
General and Administrative. General and administrative expenses increased
74% from $1.2 million in 1994 to $2.0 million in 1995, and increased 42% to
$2.9 million in 1996. As a percentage of total revenues, general and
administrative expenses rose from 12% in 1994 to 20% in 1995 to 23% in 1996.
The increase in general and administrative expenses in all three years was due
primarily to increased salaries and expenses associated with the hiring of
personnel related to the Company's online operations.
Loss on Cancelled Programming. Loss on cancelled programming consists of
unamortized production costs written off in September 1994 as a result of the
Company's cancellation of its IMPACT Environmental Reports television program.
Interest Income (Expense)
Interest expense, net of interest income, was approximately $246,000,
$264,000 and $89,000 in 1994, 1995 and 1996, respectively. The decrease in net
interest expense from 1995 to 1996 was attributable to a reduction in
borrowings under the Company's line of credit and interest income earned on
higher cash balances in 1996, primarily from an equity financing completed in
June 1996.
Income Taxes
No provision for income taxes has been recorded in 1995 or 1996 as a result
of net operating losses incurred in each of these years. In 1994, the Company
recorded a deferred tax benefit totalling $420,000. As of December 31, 1996,
the Company had net operating loss carryforwards of approximately $14.5
million and $7.3 million for federal and state income tax purposes,
respectively. These carryforwards, if not utilized to offset future taxable
income and income taxes payable, will expire from 2001 through 2011 for
federal taxes and from 1998 through 2001 for state taxes. Due to changes in
the Company's ownership in 1995 and 1996, future utilization of the Company's
net operating loss carryforwards will be subject to certain limitations or
annual restrictions as defined by the Tax Reform Act of 1986. Due to the
uncertainty surrounding the realization of these favorable tax attributes in
future tax returns, the Company has recorded a valuation allowance against its
otherwise recognizable net deferred tax asset. See Note 3 of Notes to
Consolidated Financial Statements.
29
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statement of
operations data for the six quarters ended June 30, 1997, as well as such data
expressed as a percentage of the Company's total revenues for the periods
indicated. This data has been derived from unaudited consolidated financial
statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information when read in conjunction with the Company's
annual audited consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1996 1996 1997 1997
-------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Online................. $ 167 $ 424 $ 745 $ 1,237 $ 1,496 $ 1,174
Television............. 2,390 2,875 2,805 1,731 2,023 2,033
------- ------ ------- ------- ------- -------
Total revenues........ 2,557 3,299 3,550 2,968 3,519 3,207
Cost of revenues:
Online................. 386 471 602 848 910 853
Television............. 1,595 1,730 1,875 1,801 1,386 1,503
------- ------ ------- ------- ------- -------
Total cost of
revenues............. 1,981 2,201 2,477 2,649 2,296 2,356
------- ------ ------- ------- ------- -------
Gross profit............ 577 1,098 1,073 319 1,223 851
Operating expenses:
Marketing and sales.... 871 881 1,122 1,499 1,335 1,181
Research and
development........... 312 176 406 420 405 296
General and
administrative........ 625 615 727 913 1,009 914
------- ------ ------- ------- ------- -------
Total operating
expenses............. 1,808 1,672 2,255 2,832 2,749 2,391
------- ------ ------- ------- ------- -------
Loss from operations.... (1,231) (574) (1,182) (2,513) (1,526) (1,540)
Interest income
(expense), net......... (68) (75) 23 30 21 (1)
Loss before income
taxes.................. (1,299) (649) (1,159) (2,483) (1,505) (1,541)
------- ------ ------- ------- ------- -------
Income taxes............ -- (1) -- (1) -- (1)
------- ------ ------- ------- ------- -------
Net loss................ $(1,299) $ (650) $(1,159) $(2,484) $(1,505) $(1,542)
======= ====== ======= ======= ======= =======
Pro forma net loss per
share (1).............. $ (0.16) $(0.08) $ (0.13) $ (0.27) $ (0.16) $ (0.17)
Weighted average shares
used in pro forma net
loss per share
calculation (1)........ 7,939 7,989 9,175 9,189 9,201 9,212
SUPPLEMENTAL FINANCIAL
DATA:
Gross bookings (2)...... $ 537 $2,786 $ 6,207 $10,733 $14,117 $17,816
======= ====== ======= ======= ======= =======
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Online................. 6.5% 12.9% 21.0% 41.7% 42.5% 36.6%
Television............. 93.5 87.1 79.0 58.3 57.5 63.4
------- ------ ------- ------- ------- -------
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Online................. 15.1 14.3 17.0 28.6 25.9 26.6
Television............. 62.4 52.4 52.8 60.7 39.4 46.9
------- ------ ------- ------- ------- -------
Total cost of
revenues............. 77.5 66.7 69.8 89.3 65.3 73.5
Gross profit............ 22.5 33.3 30.2 10.7 34.7 26.5
Operating expenses:
Marketing and sales.... 34.1 26.7 31.6 50.5 37.9 36.8
Research and
development........... 12.2 5.3 11.4 14.2 11.5 9.2
General and
administrative........ 24.4 18.6 20.5 30.8 28.7 28.5
------- ------ ------- ------- ------- -------
Total operating
expenses............. 70.7 50.6 63.5 95.5 78.1 74.5
Loss from operations.... (48.2) (17.3) (33.3) (84.7) (43.4) (48.0)
Interest income
(expense), net......... (2.7) (2.3) 0.6 1.0 0.6 0.0
------- ------ ------- ------- ------- -------
Loss before income
taxes.................. (50.9) (19.6) (32.7) (83.7) (42.8) (48.0)
Income taxes............ -- -- -- -- -- --
------- ------ ------- ------- ------- -------
Net loss................ (50.9)% (19.6)% (32.7)% (83.7)% (42.8)% (48.0)%
======= ====== ======= ======= ======= =======
</TABLE>
- ---------------------
See footnote on following page.
30
<PAGE>
(1) See Note 1 of Notes to Consolidated Financial Statements for a description
of the method used to determine the number of shares used in computing pro
forma net loss per share.
(2) Represents the total purchase price of all travel services booked through
the Company's online reservation system. This presentation of gross
bookings are not required by GAAP and does not affect the Company's
operating results, not are gross bookings included in revenues. Management
believes that gross bookings provide a more consistent comparison between
historical periods than do online revenues. Gross bookings are not
required by GAAP and should not be considered in isolation or as a
substitute for other information prepared in accordance with GAAP, and
period-to-period comparisons of gross bookings are not necessarily
meaningful due to, among other things, changes in commission rates, and,
as with operating results, should not be relied upon as an indication of
future performance. See Note 1 of Notes to Consolidated Financial
Statements.
The Company's gross bookings have increased significantly in all quarters
presented due to expansion of the Company's distribution channels, travel
services and customer base and due to repeat purchases by existing customers.
Online revenues grew in conjunction with the growth of gross bookings except
for the second quarter of 1997, which was negatively impacted by the reduction
in the commission rate paid by most of the major airlines for online bookings.
Television revenues decreased in the fourth quarter of 1996 primarily as a
result of the Company's decision to write-off certain travel inventory.
Television revenues continued to be adversely impacted through the first half
of 1997 due to the loss of MCI as a sponsor for the Company's Travel Update
program. Operating expenses have fluctuated in absolute dollars on a quarter-
to-quarter basis, but have generally increased from the first quarter of 1996
to the second quarter of 1997, reflecting increased spending on developing the
Company's online operations and expanding its AOL relationship.
As a result of the Company's limited operating history in online commerce
and the emerging nature of the markets in which the Company competes, the
Company is unable to accurately forecast its revenues. The Company's current
and future expense levels are based predominantly on its operating plans and
estimates of future revenues and are to a large extent fixed. The Company may
be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. Accordingly, any significant shortfall in
revenues would likely have an immediate material adverse effect on the
Company's business, operating results and financial condition. Further, the
Company currently intends to substantially increase its operating expenses to
develop and offer new and expanded travel services, to fund increased sales
and marketing and customer service operations and to develop its technology
and transaction-processing systems. To the extent such expenses precede or are
not subsequently followed by increased revenues, the Company's operating
results will fluctuate and net anticipated losses in a given quarter may be
greater than expected.
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of other factors, many of which
are outside the Company's control. Factors that may adversely affect the
Company's quarterly operating results include, but are not limited to (i) the
Company's ability to retain existing customers, attract new customers at a
steady rate and maintain customer satisfaction, (ii) changes in inventory
availability from third party suppliers or commission rates paid by travel
suppliers, such as the reduction in commissions paid by major airlines for
online bookings implemented during the first half of 1997, (iii) the
announcement or introduction of new or enhanced sites, services and products
by the Company or its competitors, (iv) general economic conditions and
economic conditions specific to the Internet, online commerce or the travel
industry, (v) the level of use of online services and consumer acceptance of
the Internet and commercial online services for the purchase of consumer
products and services such as those offered by the Company, (vi) the Company's
ability to upgrade and develop its systems and infrastructure and to attract
new personnel in a timely and effective manner, (vii) the level of traffic on
the Company's online sites, (viii) technical difficulties, system downtime or
Internet brownouts, (ix) the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business, operations and
infrastructure, (x) governmental regulation and (xi) unforeseen events
affecting the travel industry.
31
<PAGE>
In addition, the Company expects that it will experience seasonality in its
business, reflecting seasonal fluctuations in the travel industry, Internet
and commercial online service usage and advertising expenditures. The Company
anticipates that travel bookings will typically increase during the second
quarter in anticipation of summer travel and will typically decline during the
fourth quarter. Internet and commercial online usage and the rate of growth of
such usage may be expected typically to decline during the summer. In
addition, advertising sales in traditional media, such as broadcast and cable
television, generally decline in the first and third quarters of each year.
Depending on the extent to which the Internet and commercial online services
are accepted as an advertising medium, seasonality in the level of advertising
expenditures could become more pronounced for Internet-based advertising.
Seasonality in the travel industry, Internet and commercial online service
usage, and advertising expenditures is likely to cause fluctuations in the
Company's operating results and could have a material adverse effect on the
Company's business, operating results and financial condition.
Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast, and the Company believes that period-to-period
comparisons of its operating results will not necessarily be meaningful and
should not be relied upon as an indication of future performance. It is likely
that the Company's future quarterly operating results from time to time will
not meet the expectations of security analysts or investors. In such event,
the price of the Company's Common Stock would likely be materially and
adversely affected. See "Risk Factors--Unpredictability of Future Revenues;
Fluctuations in Quarterly Results."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of common stock and convertible preferred stock, which totaled
$34.3 million in aggregate net proceeds through September 30, 1997. The
Company has also financed its operations through equipment lease lines and
convertible notes, which totaled approximately $2.0 million and $750,000,
respectively, in principal amount at June 30, 1997. As of June 30, 1997, the
Company also had a $2.0 million line of credit, of which $865,000 was
available at June 30, 1997, based on 80% of the Company's accounts receivable.
See Note 4 of Notes to Consolidated Financial Statements.
Net cash provided by operating activities of $2.1 million in 1994 was
attributable primarily to an increase in accounts payable and accrued
liabilities of $1.2 million, depreciation of $602,000, amortization of film
library of $2.5 million, a noncash loss of $2.2 million from the cancellation
of the IMPACT Environmental Reports television program and a decrease in
accounts receivable and prepaid production and other assets, offset by a net
loss of $5.4 million. Cash used in operating activities in 1995 of $2.3
million was attributable primarily to a net loss of $4.9 million and a
decrease in accounts payable and accrued liabilities, partly offset by
decreases in accounts receivable, travel inventory, prepaid production and
other assets and deferred revenues, as well as depreciation of $671,000 and
amortization of film library of $1.7 million. For 1996, cash used in operating
activities of $1.3 million was primarily attributable to a net loss of $5.6
million and increases in accounts receivable, partly offset by an increase in
accounts payable and accrued liabilities and decreases in prepaid production
and other assets and travel inventory, as well as depreciation of $828,000 and
amortization of film library of $1.5 million. Net cash used by operating
activities in the first six months of 1997 was attributable primarily to a net
loss of $3.0 million.
Cash used in investing activities was $2.5 million in 1994, $1.9 million in
1995, $977,000 in 1996 and $917,000 for the first six months of 1997. Cash
used in investing activities in all periods was primarily for acquisition of
equipment and additions to the film library.
In 1994, cash used by financing activities was approximately $281,000, which
consisted primarily of payments of obligations under capital leases. In 1995,
cash provided by financing activities of $5.1 million consisted primarily of
proceeds from the issuance of preferred stock, warrants and equipment
financing notes, as well as proceeds from the exercise of stock options,
partly offset by repayment of long-term debt and payments under capital
leases. In 1996, cash provided by financing activities totalled $7.2 million
consisting primarily of proceeds from the issuance of preferred stock and a
convertible note, partly offset by repayment
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of long-term debt and payments under capital leases. In the six-month period
ended June 30, 1997, cash used by financing activities of $1.0 million
consisted primarily of repayment of long-term debt and an equipment note and
payments of obligations under capital leases, offset in part by proceeds from
the sale of preferred stock.
As of June 30, 1997, the Company had $1.1 million of cash and cash
equivalents. As of that date, the Company's principal commitments consisted of
obligations outstanding under capital and operating leases, a bank equipment
loan, shareholder notes payable and a bank line of credit. See Note 4 of Notes
to Consolidated Financial Statements for a summary of the principal terms of
these commitments. Although the Company has no material commitments for
capital expenditures, it anticipates an increase in its capital expenditures
and lease commitments consistent with anticipated growth in operations,
infrastructure and personnel. The Company may establish additional operations
as it expands globally. In addition, pursuant to its arrangement with AOL, the
Company is obligated to make minimum payments totaling $32 million to AOL, as
well as pay a percentage of commissions earned by the Company in excess of
certain thresholds. Pursuant to its arrangement with Excite, the Company is
obligated to make minimum payments totaling $24 million to Excite, as well as
pay a percentage of commissions earned by the Company in excess of certain
thresholds. In addition, the Company is required to develop a content areas
featured on AOL and Excite, sponsored primarily by advertising revenues, of
which the Company will be entitled to receive a share. However, there can be
no assurance that the Company will receive significant revenues, if any, from
such payments. See "Risk Factors--Reliance on Distribution Agreements with
America Online and Excite" and Notes 4, 5 and 15 of Notes to Consolidated
Financial Statements.
In September 1997, the Company issued and sold Series E Preferred Stock in
the aggregate principal amount of $14.1 million.
The Company believes that the net proceeds from this offering, together with
its current cash and cash equivalents, will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for at
least twelve months. If cash generated from operations is insufficient to
satisfy the Company's liquidity requirements, the Company may seek to sell
additional equity or debt securities or to obtain a credit facility. The sale
of additional equity or convertible debt securities could result in additional
dilution to the Company's stockholders. There can be no assurance that
financing will be available in sufficient amounts or on terms acceptable to
the Company, if at all. See "Risk Factors--Need for Additional Capital."
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," encourages, but does not require, companies to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. The Company has elected to account for stock-
based compensation in accordance with the provisions of Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. As such, compensation expense for stock-based awards
is recorded on the date of grant only if the current fair value of the
underlying stock exceeds the exercise price.
In February 1997, SFAS No. 128, "Earnings Per Share," was issued and is
effective for the Company's year ending December 31, 1997. In March 1997, SFAS
No. 129, "Disclosure of Information About Capital Structure," was issued and
is effective for the Company's year ending December 31, 1998. In June 1997,
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures
About Segments of an Enterprise and Required Information," were issued and are
effective for the year ended December 31, 1998. The Company has not determined
the impact of the implementation of these pronouncements.
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BUSINESS
OVERVIEW
Preview Travel is a leading provider of branded online travel services for
leisure and small business travelers. The Company operates its own Web sites
(www.previewtravel.com, www.reservations.com and www.vacations.com), the
primary travel service on America Online, Inc. ("AOL") (AOL keyword:
previewtravel) and a co-branded travel Web site with Excite, Inc. ("Excite")
(City.Net). The Company offers one-stop travel shopping and reservation
services, providing reliable, real-time access to schedule, pricing and
availability information for over 500 airlines, 13,000 hotels and all major
car rental companies. The Company's proprietary technology and user-friendly
interface enable customers to easily and quickly access travel information 24
hours a day, seven days a week, to make informed choices about their travel
purchases. In addition to its reservation and ticketing service, the Company
offers vacation packages, discounted and promotional fares, travel news and
destination content. The Company complements its compelling content and user-
friendly interface with a high level of customer service.
Through its News Travel Network, Inc. division ("NTN"), Preview Travel
produces entertainment programming for broadcast and cable television and the
in-flight market. NTN also produces 90 second news inserts for local
television station newscasts. NTN has compiled and continually updates an
extensive library of over 6,000 hours of proprietary, broadcast quality
footage with over 2,000 destinations around the world. NTN employs an in-house
sales staff that syndicates this programming to television stations worldwide
and sells the commercial airtime within these programs to national
advertisers.
To broaden its online presence and build brand recognition, the Company
entered into long-term agreements with AOL, the leading online service
provider with over nine million members, and Excite, a leading search engine
provider with over two million visitors per day. The Company is AOL's primary
and preferred provider of online travel services and the exclusive provider of
travel reservations services on the Company's co-branded Web site for Excite's
Travel Channel (City.Net) in the U.S. and the WebCrawler Travel Channel.
Through such long term agreements, the Company's travel services are
prominently featured on the AOL and Excite travel channels and contextually
integrated throughout the AOL and Excite services.
Since launching its online booking service in May 1996, the Company has
experienced significant growth in its gross bookings. As of September 30,
1997, over two million users had registered on the Company's online site, and
over $70 million in gross bookings of travel services had been purchased by
over 114,000 customers, of which approximately 35% were repeat customers.
INDUSTRY BACKGROUND
Growth of the Internet and Online Commerce
The Internet and commercial online services such as AOL are emerging as
significant global communications media enabling millions of people to share
information and conduct business electronically. A number of factors have
contributed to the growth in the Internet and commercial online services
usage, including the large and growing installed base of advanced personal
computers in the home and workplace, improvements in network infrastructure,
easier, faster and cheaper access to the Internet and commercial online
services, the introduction of alternative Internet access devices and
increased awareness of the Internet and commercial online services among
consumer and business users. International Data Corporation ("IDC") estimates
that the number of World Wide Web (the "Web") users will grow from
approximately 28 million in 1996 to approximately 129 million by 2000.
The functionality and accessibility of the Internet and commercial online
services have made them an increasingly attractive commercial medium by
providing features that historically have been unavailable through traditional
channels. For example, the Internet and commercial online services provide
users with convenient access to large volumes of dynamic data to support their
investment, purchase and other decisions.
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Online retailers are able to communicate effectively with customers by
providing frequent updates of featured selections, content, pricing and visual
presentations and provide tailored services by capturing valuable data on
customer tastes, preferences, shopping and buying patterns. Unlike most
traditional distribution channels, online retailers do not have the burden of
managing and maintaining numerous local facilities to provide their services
on a global scale. In contrast, online retailers benefit from the relatively
low cost of reaching and electronically serving customers worldwide from a
central location. Because of these advantages, an increasingly broad base of
products and services are being sold online, including books, brokerage
services, computers and music as well as travel services. IDC estimates that
the total value of services and products purchased over the Web grew from $296
million in 1995 to approximately $2.6 billion in 1996, and will increase to
approximately $123 billion by 2000.
Moreover, as the number of online content, commerce and service providers
has expanded, strong brand recognition and strategic alliances have become
critical to the success of such companies. Brand development is especially
important for online retailers due to the need to establish trust and loyalty
among consumers in the absence of face-to-face interaction. In addition, some
online retailers have begun to establish long-term strategic partnerships and
alliances with content, commerce and service providers to rapidly build brand
recognition and trust, enhance their service offerings, stimulate traffic,
build repeat business, take advantage of cross-marketing opportunities and
create barriers to entry.
The Traditional Travel Industry
The travel industry is large and growing, with travelers in the United
States spending over $470 billion on travel and tourism in 1996, according to
the Travel Industry Association of America. Historically, airlines, hotels,
rental car agencies, cruise lines and vacation packagers (collectively,
"travel suppliers") have relied on internal sales departments and travel
agencies as their primary distribution channels. According to the American
Society of Travel Agents ("ASTA"), travel agency sales in the United States
grew from $86 billion in 1991 to $101 billion in 1995, of which approximately
half was spent on leisure travel. The traditional travel agency channel is
highly fragmented, with few nationally recognized brands. According to ASTA,
there are over 23,000 travel agencies operating in more than 33,000 locations
in the United States, with the average travel agency generating less than $3
million in annual gross bookings per location. Furthermore, in 1995, the top
50 travel agencies accounted for less than 33% of all airline bookings.
Travel agents are compensated primarily through commissions paid by travel
suppliers on services booked. Some travel agencies also charge service fees to
their customers. Traditionally, typical standard base commission rates paid by
travel suppliers to travel agents have been approximately 10% for airline
tickets (subject to a maximum of $25 and $50 for one-way and round trip
tickets, respectively), 10% for hotel reservations and car rentals, and 10% to
15% for cruises and vacation packages. In addition, travel agencies can earn
significant performance-based incentive compensation ("override commissions")
from travel suppliers, which can substantially impact financial performance.
These commission rates and override commissions are determined by travel
suppliers and are subject to frequent change. For example, in a move to lower
distribution costs, in September 1997, most major airlines, including American
Airlines, Delta Airlines and United Airlines, reduced the commission rate
payable to traditional travel agencies from 10% to 8%, following a similar
move by the major airlines in the first half of 1997 reducing the commission
rate payable to online travel services from 10% to 5%. Due to the limited
profitability of many traditional travel agencies, the Company believes that
the downward pressure on commission rates paid to traditional travel agencies,
such as the recent reduction imposed by most major airlines, may cause these
agencies to charge service fees to their customers, shift their focus to
higher margin non-air travel services or reduce the level of customer service
in an effort to lower costs.
Travel agencies typically book reservations through electronic global
distribution services ("GDS") such as Galileo International Partnership's
Apollo system ("Apollo") and SABREGroup Holdings Inc.'s SABRE system ("SABRE")
that provide real-time access to voluminous data on fares, availability and
other travel information. The GDS data is constantly changing, with as many as
one million airfare changes being made
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daily. Customers traditionally have relied on travel agents to access and
interpret such rapidly changing information via complex and proprietary
interfaces to GDS systems. As a result, the ability of customers to obtain the
most favorable schedules and fares has been subject to the skill and
experience of individual travel agents, whose availability may be limited.
The Online Travel Opportunity
Recent trends in the traditional travel industry have contributed to a need
for a more effective and efficient means of purchasing and distributing travel
services to address the changing needs of consumers and travel suppliers. The
increasing complexity and time-sensitivity of pricing structures for travel
services have generally outpaced traditional means of delivering accurate and
reliable information to customers. Moreover, at a time when many traditional
travel agencies may be experiencing pressure to reduce levels of service as a
result of recent reductions in commission rates, many customers are demanding
greater convenience and flexibility in how, where and when they shop for
travel services. In an effort to reduce their distribution costs and develop
more direct relationships with their customers, travel suppliers seek ways to
distribute their services outside of the traditional travel agency channel. In
addition, the fragmentation of the travel agency channel often limits the
ability of travel suppliers to quickly implement effective marketing programs
targeted to specific customer segments.
As a result of these trends, the Internet and commercial online services
have emerged as an attractive medium through which travel services can be
purchased. According to Jupiter Communications, online travel bookings were
$274 million in 1996 and are expected to grow from $816 million in 1997 to
$8.6 billion in 2002, representing a projected compounded annual growth rate
of 77% for the period 1996 through 2002. The electronic nature of the online
medium enables participants to automate the processing and confirmation of
travel reservations, thus facilitating lower cost fulfillment of services and
reducing the need for investment in local facilities. The online medium also
provides travel suppliers with an effective advertising and promotional
vehicle. According to Competitive Media Reporting, in 1995 the travel industry
purchased over $2.3 billion in advertising through traditional vehicles such
as broadcast and cable television, radio, print and outdoor media to reach and
influence customers. Jupiter Communications reported that advertising revenue
on online travel-related sites was $2.3 million in 1996 and is expected to
grow from $11.0 million in 1997 to $281.5 million in 2002, representing a
projected compounded annual growth rate of 129% for the period 1996 through
2002.
Notwithstanding the attractive opportunities presented by the online travel
service market, significant barriers exist which make it increasingly
difficult to cost-effectively enter the online travel marketplace. In order to
succeed in the online travel service industry, entrants must establish broad
distribution to drive online traffic and achieve economies of scale to
overcome the following barriers: (1) required investments in technology and
technical infrastructure, (2) reduced level of commissions paid on airline
bookings made online, (3) cost of building a brand, and (4) challenges of
creating compelling content. Further, the Company believes that the largest
traditional travel agencies that sell services through franchisee or
representative networks may be hesitant to engage in online sales of travel
services, which would directly compete with their networks and result in lower
average commissions.
PREVIEW TRAVEL SOLUTION
Preview Travel is a leading provider of branded online travel services for
leisure and small business travelers, offering one-stop travel shopping for
airline tickets, hotel rooms, car rentals and vacation packages. The Company
operates its own Web sites (www.previewtravel.com,www.reservations.com and
www.vacations.com), the primary travel service on America Online (AOL keyword:
previewtravel) and a co-branded travel Web site with Excite (City.Net).
Preview Travel has already become one of the most widely known, used and cited
online services for travel. As of September 30, 1997, over two million users
had registered on the Company's online site, and over $70 million in gross
bookings of travel services had been purchased by over 114,000 customers, of
which approximately 35% were repeat customers.
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Preview Travel's online reservation service was launched in May 1996 to
respond to its customers' needs for consistent and more immediate access to
rapidly changing travel-related information, and to capitalize on
opportunities created by the emergence of online commerce and the existing
inefficiencies of the traditional travel industry. The Company's full-featured
reservations and ticketing services enable customers to book their own travel
arrangements 24 hours a day, seven days a week. Preview Travel provides
reliable, real-time access to relevant schedule, pricing and availability
information for over 500 airlines, 13,000 hotels worldwide and all major car
rental companies. The Company's technology and proprietary interface enable
customers to easily and quickly access this information to make informed
choices about their travel purchases. Customers also can find extensive
destination information, photos, streaming video and Web links, providing them
with valuable resources for planning their travel.
The Company believes that, in addition to benefiting consumers, its online
travel services benefit travel suppliers by providing them with an efficient
channel to reach travel-oriented consumers. In effect, Preview Travel creates
an electronic marketplace that matches the purchasing needs of consumers with
the available inventory of travel suppliers. Travel suppliers also can realize
cost savings from distributing their services through the Company. In the
airline industry, for example, a higher percentage of tickets booked online
are issued as electronic tickets, representing a substantial savings in
transaction costs for the airlines. Through customer profiles, the Company
compiles demographic and behavioral data about its customers, which data can
be analyzed and used in cooperation with the Company's travel supplier
partners to develop personalized marketing and services for individual
customers and groups of customers.
Key features of the Preview Travel solution include:
Easy-to-Find. The Company's online travel services can be accessed through
AOL as well as the Web 24 hours a day, seven days a week, enabling customers
to shop for and purchase travel services at their convenience. Through its
long-term agreements with AOL, the leading online service provider with over
nine million members, and Excite, a leading search engine provider with over
two million visitors per day, the Company's travel services are prominently
featured on the AOL and Excite travel channels and also contextually
integrated throughout the AOL and Excite services. According to Media Metrix,
the Company's Web sites, combined with Excite's Travel Channel (City.Net),
generated more Internet traffic than all other branded consumer online travel
sites combined in July 1997.
Easy-to-Use. The Company has developed a graphical user interface with a
unique "look and feel" emphasizing ease of use. The Company continually
enhances its interface based on feedback from regularly conducted focus groups
and market research conducted on the Company's behalf. In addition, the
Company provides online help and assistance designed to ensure that consumers
get the full benefit of Preview Travel's services, including tips on how to
find the best available rates and fares. The Company's customer service
center, staffed by travel professionals, provides toll-free telephone support
and fulfillment services 24 hours a day, seven days a week.
Comprehensive, Up-to-Date Selection. The Company provides comprehensive,
accurate and timely travel information to enable customers to prioritize among
price, convenience and services without going through a traditional travel
agent intermediary. Through a computerized search and retrieval process,
customers are presented with a wide array of travel service options available
in the GDS, updated on a real-time basis. For example, the Company's
Farefinder service presents the lowest fares available in the GDS for
roundtrip airline travel to key cities selected by the user.
Personalized Service. By compiling a profile of each online customer who
purchases travel services from the Company and tracking the preferences and
behavioral patterns of its customers, the Company obtains key customer
information that enables Preview Travel to tailor value-added services for its
customers, such as e-mail notifications for schedule changes and flight
cancellations, last-minute travel opportunities and other targeted marketing
programs developed in conjunction with travel suppliers.
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Compelling Content. The Company produces and acquires compelling content for
its online areas, including developing an easy-to-use interface with a
customer-oriented "look and feel" and links to numerous other travel-related
sites. In addition, the Company leverages the resources of its editorial and
production staff to deliver entertaining and informative content in connection
with its online travel services. The Company provides daily travel news
reports online that are produced by NTN's News Programming group.
Transaction Security. The Company believes that account and transaction
security are critical factors in the success of the online travel industry.
The Company uses a combination of proprietary and industry-standard encryption
and authentication measures designed to protect its customers' information. As
an added level of protection for its customers, the Company neither retains
credit card information nor sells the information in its customer database to
third parties.
STRATEGY
Preview Travel's objective is to be the leading provider of branded online
travel services for leisure and small business travelers. The Company plans to
attain this goal through the following key strategies:
Deliver Compelling Value to Customers. The Company seeks to deliver
comprehensive, accurate and easily accessible information, innovative tools
and high levels of personalized service to enable customers to make informed
purchases of travel services based on their preferred combination of
convenience, price, class of service and amenities. In addition, the Company
seeks to offer its customers a high-quality online experience through
relevant, informative and entertaining content, as well as simple and
efficient navigation and search capabilities.
Build Customer Loyalty and Brand Recognition. By focusing on customer
service and striving to deliver the highest-quality online experience to its
customers, the Company seeks to expand its customer base and build strong
customer loyalty. The Company also seeks to build global brand recognition by
combining world-class customer service with the Company's distinctive online
presence, as well as by employing a variety of marketing and promotional
efforts, including public relations activities, targeted advertising across a
variety of electronic and print media and strategic distribution arrangements.
In addition, the Company intends to continue promoting its online services
through its national and international television programs.
Enhance and Expand Strategic Relationships. The Company intends to continue
to leverage its strategic relationships with AOL, Excite and travel suppliers
to increase awareness of the Company's online travel services through a
variety of joint marketing programs, including targeted e-mail, online
promotions, booking incentives and interactive and co-op advertising. The
Company also intends to broaden its online visibility and expand its customer
base by entering into relationships with additional domestic and international
Internet access providers, content and commerce providers, search engines and
other Web sites.
Broaden Existing Offerings and Pursue Incremental Revenue Opportunities. The
Company intends to capitalize on its brand, online commerce experience,
operating infrastructure and customer base to broaden its online travel
offerings to include a broader selection of hotels and cruises, vacation
packages and special interest tours. The Company plans to aggressively pursue
media sales to targeted advertisers based on increased traffic to its online
sites. The Company also plans to offer additional services and products to
meet its customers' needs, such as travel insurance, travel financing services
and travel-related merchandise.
Leverage Travel Programming and Television Relationships. The Company
leverages the editorial, syndication and advertising resources of its
television operations to enhance its online sites. Consistent with this
strategy, Preview Travel sells online advertising bundled with television
advertising to targeted sponsors, promotes its online travel services on its
television programs and adapts television content for the Company's online
sites. For example, the Company uses content from its extensive travel film
library to present vacation destinations to customers online via streaming
video technology.
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Continue Investment in Technology. The Company uses scaleable, industry-
standard hardware and software that enable rapid deployment of additional
capacity. In addition, the Company intends to continue to invest substantial
resources in developing, acquiring and implementing technology-driven
enhancements to its online services and sites, including continuing to make
its user interface faster, more user-friendly and intuitive, providing
increasingly valuable personalized information and incorporating multimedia
content.
Expand into International Markets. The Company intends to expand its brand,
operating infrastructure and strategic relationships globally. To achieve this
objective, the Company intends to localize the user interface and its customer
service operations to offer native language capability, travel services and
content that complies with local regulations and customs.
PREVIEW TRAVEL ONLINE SERVICE
Through the Company's Web sites or on AOL, customers can easily access the
wide selection of Preview Travel online travel services in order to shop for
and book airline tickets, car rentals and hotel reservations.
The Preview Travel Experience. Visitors to the Company's online sites are
presented with a wide variety of travel information, including airline ticket
prices for popular destinations (Farefinder), travel specials, travel news and
vacation get-away contests. To use the Company's reservation services or
purchase a ticket, each customer completes a profile that includes required
information such as name, street address, e-mail address and telephone number,
as well as optional information such as preferred home airport, seating
assignment, special meals, airline, car and hotel preferences, club
memberships and frequent flier information. This information is stored in the
Company's database and is used solely by the Company to customize its
services.
By completing personal travel profiles, customers can automatically access
the Company's reservation system on subsequent visits, thus expediting the
reservation process. Once a customer accesses the reservation system, fares
and schedules of over 500 airlines, 13,000 hotels and the major car rental
companies may be searched and reservations booked through the Company's
system. Guided by an easy-to-use interface, the customer selects travel
options such as departure and destination cities, airline preference, class of
service and hotel and car selection. A key feature of the Company's service is
the ability to shop and compare many combinations of prices and schedules,
enabling customers to maximize their travel dollar. For domestic air travel,
the Company's Best Fare Finder service automatically finds the lowest
published fares available in the GDS on the dates of travel selected by the
customer.
To complete a transaction, the customer enters a credit card number, which
is validated and transmitted to the GDS system. The customer receives an e-
mail confirmation soon thereafter. Depending on the departure date and method
of ticketing, tickets and itineraries are sent to the customer at no
additional charge by express delivery or through regular mail. Prior to the
date of departure, another e-mail message is sent automatically to the
customer which highlights links to Web sites with relevant information
regarding the customer's destination. Upon returning from his or her trip, the
customer automatically receives another e-mail that includes a thank-you
message and a customer satisfaction survey.
Online Travel Services Content. In addition to accessing the Company's
reservation services, customers can use the following travel-related services
to make better informed travel purchase decisions:
. Farefinder. This service provides quick and easy access to the lowest
airfares available in the GDS system from a customer's home city to
destinations around the world. Farefinder searches the GDS system four
times daily to update the posted fares.
. Find-a-Trip. This feature allows the customer to select from a variety
of vacation packages options matching the customer's preferences as to
activities, location and price. In addition, Find-a-Trip provides the
customer with extensive information about hotels and destinations, which
in many instances is illustrated by photos and streaming video.
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. Travel Specials and Low Fares. This feature provides customers with
timely information on the latest travel bargains by highlighting daily
listings of discounted airfares, special hotel rates and car rental
offers.
. Vacations. This service offers complete vacation packages (airline,
hotel and car rental), cruises and specialty tours, with an emphasis on
providing value to customers. Customers can also find extensive
destination information, photos, video and links to relevant Web sites.
. Travel News and Content. Preview Travel's destination information
features up-to-date editorial content enhanced by extensive multimedia
content. The Company's travel experts search for the latest travel
trends and bargains so that customers can take advantage of special
opportunities offered by travel suppliers and produces a wide range of
news and feature articles for online distribution.
. Close-Ups. This service features weekly reports on different vacation
destinations, events and activities, with photos and links to relevant
Web sites.
. Resources. The Company's online Traveler Resource Center offers helpful
information and tips for the traveler. Customers can review pending
itineraries and complete feedback surveys.
Customer Service. The Company has invested and will continue to invest in
systems, personnel and training to maintain a premier in-house customer
service operation, which the Company believes is essential to establishing and
maintaining long-term customer relationships. In addition to extensive online
help, Preview Travel's customers have access to e-mail support and 24-hour
toll-free telephone support to help them with any problems or changes before,
during or after their travel.
STRATEGIC RELATIONSHIPS
Preview Travel pursues strategic relationships to increase its access to
online customers, to build brand recognition and to expand the Company's
online presence. To date, the Company has established the following alliances,
among others, for distribution and product enhancement:
America Online. Preview Travel and America Online, the leading Internet
online service provider with over nine million members, have entered into an
agreement establishing Preview Travel as AOL's primary and preferred provider
of travel services through a Preview Travel content area on the AOL network
and AOL's Web site (aol.com) (the "AOL Online Area"). The Company's original
agreement with AOL was entered into in November 1995 and was restated to
expand the relationship in September 1997. In addition to establishing the
Company as AOL's primary and preferred provider of travel services, AOL has
agreed to exclusively promote and advertise Preview Travel in online areas
controlled by AOL and to deliver a minimum number of annual page views to the
online areas promoting Preview Travel. Over the next five years, the Company
is obligated to make minimum payments totaling $32 million to AOL, as well as
pay a percentage of commissions earned by the Company in excess of certain
thresholds. The Company has also agreed to deliver content through the AOL
Online Area, provide travel services that are competitive in price and
performance and manage, operate and support such content and travel services.
The Company and AOL both have the right to sell advertising in the Company's
content areas distributed through AOL, subject to the Company's obligation to
pay a percentage of advertising revenues above certain threshold amounts to
AOL after the second year of the arrangement. Under a separate agreement, the
Company has agreed to develop and manage a travel-related destination database
for AOL in exchange for the right to receive all advertising revenues
generated from such database up to a certain threshold, and share in
advertising revenues thereafter. The Company's agreements with AOL expire in
September 2002, or earlier in the event of a material breach or the Company's
failure to deliver satisfactory content to the database or achieve specified
annual levels of travel services bookings. See "Certain Transactions" for a
description of the Company's relationship with AOL. Travel services sold
through AOL accounted for 92% and 79% of the Company's total online revenues
for the three-month periods ended March 31, 1997 and June 30, 1997,
respectively. Accordingly, the AOL arrangement represents a significant
distribution channel for the Company's travel services and any
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termination of the Company's agreements with AOL would likely have a material
adverse effect on the Company's business, operating results and financial
condition. See "Risk Factors--Reliance on Distribution Arrangements with
America Online and Excite."
Excite. Preview Travel and Excite, a leading search engine provider with
over two million visitors a day, have entered into an agreement under which
Preview Travel will be the exclusive provider of travel reservations services
for Excite's Travel Channel (City.Net) in the U.S. and the WebCrawler Travel
Channel. In addition, Preview Travel and Excite have agreed to create co-
branded content for the Excite Travel Channel and Preview Travel's online
sites that will leverage the Company's substantial library of travel news and
information. Excite has agreed to exclusively promote and advertise the Excite
Travel Channel throughout the Excite network and to deliver a minimum number
of annual page views to the Excite Travel Channel. In addition, the Company is
eligible to receive payments from Excite representing a share of advertising
revenues received by Excite in connection with the online areas featuring the
Company's travel services; however, there can be no assurance that such
payments, if any, will be significant. Over the next five years, the Company
is obligated to make minimum payments totaling $24 million to Excite as well
as pay a percentage of commissions earned by the Company in excess of certain
thresholds. The Company has agreed to promote the Excite service and has
agreed not to enter into any comparable agreements with any competitors of
Excite. The Company and Excite will cooperate in selling, and share revenues
from, advertising on the Excite Travel Channel. The Company's arrangement with
Excite expires in September 2002, or earlier in the event of a material
breach. The Company plans to make a significant investment in the Excite
Travel Channel, as it will represent an important distribution channel for the
Company's travel services.
There can be no assurance that the Company will achieve sufficient online
traffic, travel bookings or commissions to realize economies of scale that
justify the Company's significant fixed financial obligations to AOL and
Excite or that the Company will satisfy the minimum levels of travel services
bookings and content delivery required to maintain the AOL agreements, and
failure to do so would likely have a material adverse effect on the Company's
business, operating results and financial condition. See "Risk Factors--
Reliance on Distribution Arrangements with America Online and Excite."
MARKETING AND SALES
Preview Travel's marketing strategy is to strengthen the Company's brand
name, enhance customer awareness, develop loyalty programs to better serve the
Company's customers, continue to add new customers to the Company's database
and pursue complementary revenue opportunities by leveraging the Company's
distribution capabilities, compelling content and extensive customer database.
The Company's sales strategy is focused in part on generating advertising and
promotional revenue from sponsors who seek a cost-effective way to reach a
travel-oriented audience online.
The Company maintains a proprietary customer database comprised of
demographic profiles, customer preferences, shopping and buying patterns and
other key customer attributes. This data enables the Company to create and
quickly implement marketing programs targeted to specific customer segments.
The Company also employs a variety of traditional media programs and
promotional activities to enhance the effectiveness of the Company's marketing
initiatives:
Advertising. To supplement its strategic relationships with AOL and Excite,
the Company invests in online advertising to drive traffic to its online
sites. By placing advertisements on selected high volume sites, as well as
purchasing targeted keywords on several popular search engines such as Yahoo!,
Lycos, Infoseek and others, the Company seeks to cost-effectively generate
traffic to the Preview Travel online site. Preview Travel also plans to
continue to advertise in traditional media such as print, radio and broadcast
to increase the awareness of its services.
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Public Relations. Preview Travel proactively pursues public relations
opportunities to build brand awareness. The Company targets traditional print,
radio, syndicated news services and broadcast outlets with its public
relations programs and has been covered widely by the travel, business,
technology and consumer press. The Company also pursues coverage by online
publications, search engines and directories. More than 300 independent Web
sites have hyperlinks to the Company's Web sites, helping to increase brand
awareness and generate traffic to its online sites. Preview Travel also
actively participates in industry events and conferences.
Co-marketing/Promotions. The Company has established a number of significant
co-marketing relationships to promote its service and to sponsor contests that
offer travel-related prizes. These programs typically involve participation
with airlines, hotels, car rental agencies and online service providers. The
Company intends to enter into additional co-marketing relationships in support
of its marketing strategy.
From time to time, the Company offers various incentives and awards to its
customer base. These incentives are designed to increase customer loyalty and
awareness of Preview Travel's brand and travel services. For example, the
Company has provided customers with bonus frequent flier miles and special
companion fares during targeted promotional periods. The Company also engages
in promotional programs with hotels and car rental agencies.
Online Media Sales. The Company believes that the sale of online advertising
will become an increasingly important source of revenue. Accordingly, the
Company intends to increase its investment in media sales that target key
advertisers who seek to reach a travel-oriented online audience. Client
advertisements are incorporated into the Company's online sites in the form of
banners, links and buttons that encourage viewers to click through for
additional information. In addition, Preview Travel can develop extensive
editorial and marketing content to support the various marketing initiatives
of sponsors. In conjunction with the NTN media sales team, the Company offers
integrated media programs that incorporate presence on the Company's online
sites, participation in targeted e-mail programs and advertising time in the
Company's broadcast television and in-flight programs. Recent online
advertisers include AT&T, American Airlines, American Tourister Luggage, AVIS
Rental Car, Celebrity Cruises, Hilton Hotels and Resorts, InterContinental
Hotels, MasterCard and Northwest Airlines.
TECHNOLOGY
The Company's transaction-processing system automates the processing of
customer orders, interacts with the systems of third party travel suppliers,
searches and filters travel information and provides real-time operational
reports to management. The Company has developed proprietary applications that
interact with third party systems such as GDS systems to present an integrated
easy-to-use interface to the Company's customers, accessible by either
standard Web browsers or AOL client software to access travel reservation
information and make purchases. In addition, the Company's systems support
automated e-mail communications with customers to facilitate confirmations of
orders, provide customer support, obtain customer feedback and engage in
targeted marketing programs. The Company's online sites also utilize a number
of proprietary search, screen-scraping and database tools. While the system is
built on a combination of proprietary and commercial software and hardware,
the Company seeks to utilize industry-standard technology whenever possible
and focuses its development efforts on creating and enhancing proprietary
software that is unique to its business, as well as enhancing its existing
service offerings and creating new products.
Preview Travel maintains a relational database containing information
compiled from customer profiles, shopping patterns and sales data. The Company
has developed, and continues to develop, techniques for analyzing the
information in this database to develop targeted marketing programs, to
provide personalized and enhanced customer service and to take advantage of
short-term opportunities in the travel marketplace. The Company does not
retain credit card information from its customers and has committed to its
customers not to sell or rent customer data to third parties. The Company's
complex database was designed to be
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scaleable to permit large transaction volumes with no significant software
changes. In most circumstances, capacity is increased through the addition of
new servers or the addition of processing boards to existing servers. The
Company believes that the scaleability of its architecture has been
demonstrated by serving over two million registered users since May 1996.
Internet users are linked to the Company's servers over multiple T1 lines
from the Company's Internet access provider, GeoNet Communications, and AOL
users are linked to the servers through a single T1 line from AOL's ANS
Communications unit. Additional 56 Kbp leased lines are used for data
communications between the servers and systems run by third party reservation
systems such as Galileo's Apollo GDS system and the global hotel reservation
system operated by Pegasus. The Company has significantly expanded its data
communications capacities in recent months and anticipates implementing
substantial increases in data communications bandwidth in the near future to
support increased growth. The Company maintains an Internet firewall to
protect its internal systems and all credit card transactions are processed
using encryption and authentication technology, including public key
cryptography technology and secure socket layer technology. There can be no
assurance that the Company's security measures will prevent security breaches
or that failure to prevent such security breaches will not have a material
adverse effect on the Company's business, operating results and financial
condition. See "Risk Factors--Online Commerce and Database Security Risks."
Any reduction in performance, disruption in the Internet access or
discontinuation of services provided by AOL ANS Communications, GeoNet
Communications or any other Internet service provider, or any disruption in
the Company's ability to access the systems of Galileo, Pegasus or any other
travel reservation systems, could have a material adverse effect on the
Company's business, operating results and financial condition. See "Risk
Factors--Reliance on Third Party Systems." There can be no assurance that the
Company's transaction-processing systems and network infrastructure will be
able to accommodate increases in traffic in the future, or that the Company
will, in general, be able to accurately project the rate or timing of such
increases or upgrade its systems and infrastructure to accommodate future
traffic levels on its online sites. In addition, there can be no assurance
that the Company will be able in a timely manner to effectively upgrade and
expand its transaction-processing systems or to successfully integrate any
newly developed or purchased modules with its existing systems. See "Risk
Factors--Risk of Capacity Constraints; Reliance on Internally Developed
Systems; System Development Risks." There can be no assurance that the Company
will successfully utilize new technologies or adapt its online sites,
proprietary technology and transaction-processing systems to customer
requirements or emerging industry standards. See "Risk Factors--Rapid
Technological Change."
Substantially all of the Company's computer and communications hardware is
located at a single facility in San Francisco, California. The Company's
systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-ins, earthquake and
similar events. The Company currently does not have redundant systems or a
formal disaster recovery plan and does not carry sufficient business
interruption insurance to compensate it for losses that may occur. Despite the
implementation of network security measures by the Company, its servers are
vulnerable to computer viruses, physical or electrical break-ins and similar
disruptions, which could lead to interruptions, delays, loss of data or the
inability to accept and confirm customer reservations. See "Risk Factors--Risk
of System Failure; Single Site."
PREVIEW TRAVEL TELEVISION OPERATIONS
In addition to its online service, Preview Travel owns and operates its
television programming division, NTN. NTN is an independent producer of
travel-related programming for broadcast and cable television and the in-
flight market. NTN clients include affiliates of all major broadcast networks
in the United States and broadcast, cable and satellite networks in over 100
countries around the world. NTN handles program production, domestic program
syndication and media sales in-house.
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NTN's video library, built up over 16 years, has grown to over 6,000 hours of
proprietary, broadcast-quality footage of over 2,000 destinations around the
world. Through the efforts of a staff of award-winning producers, writers and
editors, this library is updated and expanded by over 50 new on-location
productions per year. The library has been logged and indexed in a searchable
text database allowing easy access to the library content for use by the
Company.
Program Production. NTN's News Programming group produces five 90-second
travel-related news inserts per week for distribution to local broadcast
stations for use in local newscasts. The Company's Consumer Travel Reports is
shown daily in over 60 markets throughout the United States. In addition, the
News Programming group produces a weekly half-hour newscast titled Travel News
Now which is seen nine times per week on The Travel Channel, a subsidiary of
Paxon Communications, Inc., five to ten daily text stories for Preview Travel's
online news service and fifty-minute documentaries for the sell-through video
market. The first of these documentaries was titled "Civil War River Journey,"
and a three-part series titled "America's Lakes and Rivers" is currently in
production.
NTN's Entertainment Programming group produces a variety of half-hour
specialty programs for the domestic and international television and in-flight
markets. Included in these programs is a weekly half-hour magazine-style
program called Travel Update that can be seen in over 90 markets throughout the
United States. Travel Update features travel news and destination features with
links to online resources including travelupdate.com to enable users to easily
find additional information online. NTN's international programming portfolio
includes Globe-Trotter, World's Weirdest Places, Earth Journeys, the e-Report,
Holiday USA and Bon Voyage. The Company also licenses certain video content
from its library to third parties for use in non-competitive programs. In-
flight programs include Northwest World Update, On Arrival and Northwest
Network Business Channel produced under an agreement with Northwest Airlines.
Program Syndication. The Company employs an in-house staff of sales
professionals that syndicates Travel Update and Consumer Travel Reports, as
well as two other news insert series produced by third parties: Dr. Dean
Edell's Medical Reports and CNET Technology Reports. These news inserts are
syndicated to local broadcast television stations in exchange for either cash
or commercial time during their local newscasts. These local commercial time
slots are packaged and sold to national advertisers. Travel Update is
syndicated to local stations in exchange for a portion of the total commercial
time within the program, which is then sold by the Company to national
advertisers. Internationally, programs are licensed for specific uses and
limited times for cash fees negotiated with the broadcast or cable network.
The Company's ability to generate revenues from its television operations, as
well as its ability to use its television programming to promote and enhance
its online services and brand recognition, depends upon its ability to reflect
in its programming the changing tastes of consumers, news directors and program
directors, and to secure and maintain distribution for its television
programming on acceptable commercial terms through local stations, and domestic
and international cable and broadcast networks. These syndication agreements
typically have durations of one year or less, and there can be no assurance
that such stations and networks will continue to renew syndication agreements
for the Company's programs. In addition, the Company's ability to cost-
effectively update and expand its film library is essential to its ability to
continue to offer compelling content. Although the Company maintains a back-up
of the film library in offsite storage, both the film library and the back-up
library are vulnerable to damage from fire, flood, break-ins, earthquake and
similar events. Loss of access to its film library for an extended period of
time could have a material adverse effect on the Company's business, operating
results and financial condition. See "Risk Factors--Risks Associated with
Television Operations."
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COMPETITION
The online travel services market is new, rapidly evolving and intensely
competitive, and the Company expects such competition to intensify in the
future. The Company competes primarily with traditional travel agency
reservation methods and online travel reservation services. In the online
travel services market, the Company competes with other entities that maintain
similar commercial Web sites, such as Expedia (operated by Microsoft
Corporation), Travelocity (operated by SABREGroup Holdings Inc., a majority-
owned subsidiary of American Airlines), CUC International, Inc., TravelWeb
(operated by Pegasus) and Internet Travel Network, among others. Several
traditional travel agencies, including larger travel agencies such as American
Express Travel Related Services Co. Inc., Uniglobe Travel and Carlson Wagonlit
Travel, have established, or may establish in the future, commercial Web sites
offering online travel services.
In addition to the traditional travel agency channel, most travel suppliers
also sell their services directly to customers, typically by telephone. As the
market for online travel services grows, the Company believes that the range of
companies involved in the online travel services industry, including travel
suppliers, traditional travel agencies and travel industry information
providers, will increase their efforts to develop services that compete with
the Company's services. Many airlines and hotels offer travel services directly
through their own Web sites, eliminating the need to pay commissions to third
parties such as the Company. The Company is unable to anticipate which other
companies are likely to offer competitive services in the future. There can be
no assurance that the Company's online operations will compete successfully
with any current or future competitors.
In the television and in-flight programming markets, the Company's News
Travel Network division competes for airtime for its programs with news and
entertainment programming produced by local stations, broadcast and cable
networks, infomercial producers and third party syndicators. NTN competes for
national advertising sales with networks, national advertising representation
firms and syndicators.
Many of the Company's current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than the Company and may enter
into strategic or commercial relationships with larger, more established and
well-financed companies. Certain of the Company's competitors may be able to
secure services and products from travel suppliers on more favorable terms,
devote greater resources to marketing and promotional campaigns and devote
substantially more resources to Web site and systems development than the
Company. In addition, new technologies and the expansion of existing
technologies may increase competitive pressures on the Company. In particular,
Microsoft Corporation has publicly announced its intent to invest heavily in
the area of travel technology and services. Increased competition may result in
reduced operating margins, loss of market share and brand recognition. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors, and competitive pressures faced by the
Company may have a material adverse effect on the Company's business, operating
results and financial condition. See "Risk Factors--Competition."
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PROPRIETARY RIGHTS
The Company regards its copyrights, service marks, trademarks, trade dress,
trade secrets and similar intellectual property as critical to its success,
and relies on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with the Company's employees,
customers, partners and others to protect its proprietary rights. The Company
pursues the registration of certain of its key trademarks and service marks in
the United States and internationally. Effective trademark, service mark,
copyright and trade secret protection may not be available in every country in
which the Company's products and services are made available online. The
Company has licensed in the past, and expects that it may license in the
future, certain of its proprietary rights, such as trademarks or copyrighted
material, to third parties. While the Company attempts to ensure that the
quality of its brand is maintained by such licensees, there can be no
assurance that such licensees will not take actions that might materially
adversely affect the value of the Company's proprietary rights or reputation,
which could have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that the
steps taken by the Company to protect its proprietary rights will be adequate
or that third parties will not infringe or misappropriate the Company's
copyrights, trademarks, trade dress and similar proprietary rights. In
addition, there can be no assurance that other parties will not assert
infringement claims against the Company. The Company may be subject to legal
proceedings and claims from time to time in the ordinary course of its
business, including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties by the Company and its
licensees. Such claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources. See "Business--
Legal Proceedings."
The Company also intends to strategically license certain content for its
online sites from third parties, including content which is integrated with
internally developed content and used on the Company's online sites to provide
key services. There can be no assurance that these third party content
licenses will be available to the Company on commercially reasonable terms or
that the Company will be able to successfully integrate such third party
content. Such content licenses may expose the Company to increased risks,
including risks associated with the assimilation of new content, the diversion
of resources from the development of the Company's content, the inability to
generate revenues from new content sufficient to offset associated acquisition
costs and the maintenance of uniform, appealing content. The inability to
obtain any of these licenses could result in delays in site development or
services until equivalent content could be identified, licensed and
integrated. Any such delays in site development or services could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Risk Factors--Uncertain Protection of Intellectual
Property; Risks of Third Party Licenses."
GOVERNMENT REGULATIONS
Certain segments of the travel industry are heavily regulated by the United
States and international governments, and accordingly certain services offered
by the Company are affected by such regulations. For example, the Company is
subject to United States Department of Transportation ("DOT") regulations
prohibiting unfair and deceptive practices. In addition, DOT regulations
concerning the display and presentation of information that are currently
applicable to the GDS services accessed by the Company could be extended to
the Company in the future, as well as other laws and regulations aimed at
protecting consumers accessing online travel services or otherwise. In
California, under the Seller of Travel Act, the Company is required to
register as a seller of travel, comply with certain disclosure requirements
and participate in the State's restitution fund. The television industry is
also subject to extensive regulation at the federal, state and local levels,
including the Federal Communications Act and rules and regulations of the
Federal Communications Commission. In addition, legislative and regulatory
proposals under ongoing consideration by Congress and federal agencies may
materially affect the television industry and the Company's ability to obtain
distribution for its television programming.
The Company is also subject to regulations applicable to businesses
generally and laws or regulations directly applicable to access to online
commerce. Although there are currently few laws and regulations
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directly applicable to the Internet and commercial online services, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet or commercial online services covering issues such as user
privacy, pricing, content, copyrights, distribution, antitrust and
characteristics and quality of products and services. Furthermore, the growth
and development of the market for online commerce may prompt calls for more
stringent consumer protection laws that may impose additional burdens on those
companies conducting business online. The adoption of any additional laws or
regulations may decrease the growth of the Internet or commercial online
services, which could, in turn, decrease the demand for the Company's products
and services and increase the Company's cost of doing business, or otherwise
have a material adverse effect on the Company's business, operating results
and financial condition.
Moreover, the applicability to the Internet and commercial online services
of existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. For example, tax authorities in a number of states
are currently reviewing the appropriate tax treatment of companies engaged in
online commerce, and new state tax regulations may subject the Company to
additional state sales and income taxes. Any such new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to the Company's business, or the application of
existing laws and regulations to the Internet and commercial online services
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Risk Factors--Governmental Regulation
and Legal Uncertainties."
EMPLOYEES
As of August 31, 1997, the Company employed 146 full-time employees and 23
part-time employees, of whom 114 where involved in online travel service
operations and 55 were involved in television operations. Of these employees,
21 were involved in sales and marketing, 44 were involved in customer service,
21 were involved in technology and development and 83 were involved in
finance, administration and operations. The Company's ability to attract and
retain highly qualified employees will be the principal determinant of its
success in maintaining online leadership. The Company has a policy of using
equity-based compensation programs to reward and motivate significant
contributors among its employees. Competition for qualified personnel in the
Company's industry is intense. There can be no assurance that the Company's
current and planned staffing will be adequate to support the Company's future
operations or that management will be able to hire, train, retain, motivate
and manage required personnel. Although none of the Company's employees is
represented by a labor union, it is common for employees in the television
industry to belong to a union, and there can be no assurance that the
Company's employees will not join or form a labor union or that the Company,
for certain purposes, will not be required to become a union signatory. The
Company has not experienced any work stoppages and considers its relations
with its employees to be good. See "Risk Factors--Management of Potential
Growth" and "--Dependence on Attraction and Retention of Key Employees."
FACILITIES
The Company is headquartered in San Francisco, California, where it leases
an aggregate of approximately 34,000 square feet of space, housing its
principal administrative, sales and marketing, customer service, computer and
communications systems and product development facilities. The Company's lease
for such space expires on June 30, 2001, with an option to renew such lease
for an additional five-year term. The Company anticipates that it will require
additional space within the next 12 months, and there can be no assurance that
such additional space will be available on commercially reasonable terms, if
at all.
LEGAL PROCEEDINGS
The Company is not currently subject to any material legal proceedings. The
Company may from time to time become a party to various legal proceedings
arising in the ordinary course of its business.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Executive officers and directors of the Company and their ages as of
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Kenneth J. Orton............ 46 President, Chief Executive Officer and
Director
James J. Hornthal........... 43 Chairman and Director
David E. Lambert............ 45 Executive Vice President and President of
Preview Travel Online, Inc.
Kenneth R. Pelowski......... 38 Executive Vice President of Finance and
Administration,
Chief Financial Officer and Secretary
Christopher Lee McAndrews... 33 Senior Vice President of Online Media Sales
John M. Petrone............. 35 Senior Vice President of Technology
Barrie Seidenberg........... 32 Senior Vice President of Online Services
Roy F. Walkenhorst.......... 54 President of News Travel Network, Inc.
Thomas W. Cardy (1)......... 41 Director
Thomas A. Cullen (1)........ 38 Director
William R. Hearst, III...... 48 Director
Theodore J. Leonsis......... 40 Director
Douglas J. Mackenzie (2).... 37 Director
James E. Noyes.............. 51 Director
David S. Pottruck (2)....... 49 Director
</TABLE>
- ---------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Kenneth J. Orton joined the Company in April 1994 as President and Chief
Operating Officer, and in June 1997, was appointed to serve as the President
and Chief Executive Officer and a director of the Company. From September 1989
to March 1994, Mr. Orton was Vice President and General Manager of the San
Francisco division of Epsilon, a database marketing firm and a wholly owned
subsidiary of American Express Company. Prior to his employment with Epsilon,
Mr. Orton was Vice President of M/A/R/C Inc., a market research and database
marketing company, and Vice President of Sales and Marketing for Future
Computing. Mr. Orton also serves as a director of ONSALE, Inc. Mr. Orton
received a B.A. degree from California State University, Fullerton.
James J. Hornthal founded the Company in 1985 and has served as Chairman
since inception. Mr. Hornthal also served as President of the Company until
April 1994 and as Chief Executive Officer until June 1997. Prior to starting
Preview Travel, Mr. Hornthal was a General Partner at Oak Grove Ventures, a
venture capital firm, and a Consultant for The Boston Consulting Group, a
management consulting firm. Mr. Hornthal also serves as a director of several
privately held technology-based and media companies. Mr. Hornthal received an
A.B. degree from Princeton University and an M.B.A. degree from Harvard
Business School, where he was a Baker Scholar.
David E. Lambert joined the Company in June 1995 and served as Senior Vice
President of Finance and Administration, Chief Financial Officer, Secretary
and Treasurer until September 1997, when he was appointed Executive Vice
President of the Company and President of Preview Travel Online, Inc., a
wholly owned subsidiary of the Company. From December 1992 to June 1995, Mr.
Lambert was Executive Vice President, Chief Financial Officer, Treasurer and
Secretary of Excalibur Technologies Corp., a software company. From April 1985
to May 1991, he was President and Chief Executive Officer of Grand American
Fare, Inc., a restaurant company, and from October 1981 to April 1985, he
served as Executive Vice President
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and Chief Operating Officer of Colony Hotels, Inc., a resort hotel subsidiary
of Radisson Hotels. Mr. Lambert serves as a director of Sunstone Hotel
Investors, Inc., a publicly traded real estate investment trust. Mr. Lambert
received a B.A. degree from Occidental College and an M.B.A. degree from the
University of California at Los Angeles.
Kenneth R. Pelowski joined the Company as Executive Vice President of
Finance, Chief Financial Officer and Secretary in September 1997. From June
1996 to September 1997, he was Vice President, Corporate Development of
General Instrument Corporation. From May 1995 to June 1996, Mr. Pelowski was
Vice President, Corporate Planning and Development of Quantum Corporation, and
from 1989 to 1995, he was Senior Director, Corporate Planning and Development
at Sun Microsystems, Inc. Mr. Pelowski received B.S.E. and M.B.A. degrees from
the University of Michigan and an M.S.E. degree from Wayne State University.
Roy F. Walkenhorst joined the Company in 1986 when News Travel Network, Inc.
("NTN") was acquired by the Company. Mr. Walkenhorst founded NTN in July 1981
and has served as its President since such time. Prior to founding NTN, Mr.
Walkenhorst served as a reporter and news anchor with KCRA-TV, a television
station in Sacramento, California, and was a reporter with Newsday and the St.
Louis Globe- Democrat. Mr. Walkenhorst received a B.A. degree from Washington
University and an M.S. degree in Journalism from Columbia University.
Christopher Lee McAndrews joined the Company as Senior Vice President of
Online Media Sales in September 1997. From 1994 to 1997, he held a series of
executive marketing and sales positions, including Vice President of National
Accounts, at International Data Group ("IDG"), an information technology media
and research company. Mr. McAndrews received a B.A. degree from Harvard
University and an M.B.A. degree from Stanford University.
John M. Petrone joined the Company in August 1995 as Vice President of
Technology and in September 1997 was promoted to the position of Senior Vice
President of Technology. From August 1993 to August 1995, he was a Practice
Manager at Oracle Corporation, a database software company, from April 1993 to
August 1993, he was a Consulting Engineer at Lotus Development Corporation, a
software company, and from September 1992 to April 1993, he was a Consulting
Manager with Marathon Systems, a software consulting firm. Mr. Petrone
received a B.S. degree from the University of Maryland.
Barrie Seidenberg joined the Company as Director of Consumer Marketing in
April 1995. In November 1995, she became Vice President of Online Services and
was promoted to the position of Senior Vice President of Online Services in
September 1997. From January 1994 to March 1995, she was an Account Manager at
Epsilon, a database marketing company. From July 1992 to January 1994, she was
a Customer Acquisition Planner at Williams-Sonoma, Inc., a catalog and retail
company. Ms. Seidenberg received a B.A. degree from Yale University and an
M.B.A. degree from Stanford University.
Thomas W. Cardy has been a director of the Company since December 1991.
Since September 1988, Mr. Cardy has been employed with Communications Equity
Associates, Inc. ("CEA"), an investment banking firm, and is currently
Executive Vice President, Entertainment and New Media at CEA. Prior to joining
CEA in 1988, Mr. Cardy was Senior Manager with Arthur Andersen & Co., a public
accounting firm. Mr. Cardy received a B.A. degree from the University of
Florida and is a certified public accountant.
Thomas A. Cullen has been a director of the Company since April 1997. Since
August 1989, Mr. Cullen has served in various senior management positions with
U S WEST, Inc., a telecommunications and media company, and, since April 1997,
he has been President of the Interactive Services Group of U S WEST Media
Group, a subsidiary of U S WEST, Inc. Mr. Cullen also serves as a director of
SportsLine USA, Inc. Mr. Cullen received a B.S.B.A. degree from Northern
Arizona University and an M.B.A. degree from the University of Colorado.
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William R. Hearst, III has been a director of the Company since February
1995. Since January 1995, Mr. Hearst has served as a general partner of
Kleiner Perkins Caufield & Byers, a venture capital firm. From May 1995 to
July 1995, he was the Chief Executive Officer of At Home Corporation, an
Internet services company. Mr. Hearst has been a director of At Home
Corporation since August 1995 and has served as the Vice Chairman of its Board
of Directors since July 1996. Prior to joining Kleiner Perkins Caufield &
Byers, Mr. Hearst was Editor and Publisher of the San Francisco Examiner
newspaper. Mr. Hearst also serves as a director of Hearst-Argyle Television,
Inc. He is a Fellow of the American Association for the Advancement of Science
and a Trustee of the Carnegie Institute of Washington and the California
Academy of Sciences. Mr. Hearst received an A.B. degree from Harvard
University.
Theodore J. Leonsis has been a director of the Company since June 1985.
Since November 1996, Mr. Leonsis has served as President and Chief Executive
Officer of AOL Studios, an operating division of America Online, Inc., an
online services company ("AOL"), and from September 1994 to November 1996, he
served as President of America Online Services Company. Prior to joining AOL,
Mr. Leonsis was the founder and President of Redgate Communications
Corporation, a media marketing company he founded in 1986, which was
subsequently acquired by AOL in May 1994. Mr. Leonsis also serves as a
director of several privately held companies. Mr. Leonsis received a B.A.
degree from Georgetown University.
Douglas J. Mackenzie has been a director of the Company since February 1995.
Since June 1989, Mr. Mackenzie has been employed with Kleiner Perkins Caufield
& Byers, a venture capital firm, of which he has been a general partner since
1994. Mr. Mackenzie serves as a director of Visio Corporation and several
private technology-based companies. Mr. Mackenzie received a B.A. degree in
Economics and an M.S. degree in Industrial Engineering from Stanford
University, and an M.B.A. degree from Harvard University.
James E. Noyes has been a director of the Company since January 1996. Since
July 1996, Mr. Noyes has served as a director and Executive Vice President of
Signature Resorts, Inc., a developer and operator of vacation ownership
resorts. From 1988 to June 1996, Mr. Noyes served as President of The Trase
Miller Group, a travel technology services company and previously served as
its Vice President of Marketing and Sales since 1980. Mr. Noyes also serves as
a director of Ball Horticultural, Inc. Mr. Noyes received a B.A. degree from
Dartmouth College and an M.B.A. degree from Stanford University.
David S. Pottruck has been a director of the Company since September 1997.
Since 1984, Mr. Pottruck has served in various senior management positions
with The Charles Schwab Corporation ("Schwab"), a financial services company,
and is currently the President and Chief Operating Officer and a director of
Schwab. He is also President and Chief Executive Officer of Charles Schwab &
Co., Inc., the brokerage subsidiary of Schwab. Mr. Pottruck serves as a
director of McKesson Corporation and Decibel Instruments, Inc. Mr. Pottruck
received B.A. and M.B.A. degrees from the University of Pennsylvania.
BOARD COMPOSITION
The Company's Bylaws currently provide for a Board of Directors consisting
of nine members. All directors hold office until the next annual meeting of
stockholders of the Company and until their successors have been elected and
qualified. The officers of the Company are appointed annually and serve at the
discretion of the Board of Directors. Mr. Cullen was elected to the Board of
Directors by holders of the Company's Series E Preferred Stock pursuant to the
Company's Certificate of Incorporation in effect immediately prior to this
offering. Such special voting rights will terminate upon completion of this
offering. Messrs. Hearst, Leonsis and Mackenzie were elected to the Board of
Directors pursuant to a voting agreement by and among the Company and certain
principal stockholders of the Company. Such voting agreement will terminate
upon completion of this offering.
BOARD OF DIRECTORS COMMITTEES
The Audit Committee of the Board of Directors reviews the internal
accounting procedures of the Company and consults with and reviews the results
and scope of the audit and other services provided by the Company's
independent auditors. The Committee is currently comprised of Messrs. Cardy
and Cullen.
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<PAGE>
The Compensation Committee of the Board of Directors reviews and approves
the compensation and benefits for the Company's executive officers,
administers the Company's stock purchase and stock option plans and makes
recommendations to the Board of Directors regarding such matters. The
committee is currently comprised of Messrs. Mackenzie and Pottruck. Except as
set forth in "Certain Relationships and Related Transactions," no interlocking
relationship exists between the Company's Board of Directors or Compensation
Committee and the board of directors or compensation committee of any other
company, nor has any such interlocking relationship existed in the past.
BOARD COMPENSATION
Except for reimbursement for reasonable travel expenses relating to
attendance at Board meetings and the grant of stock options, directors are not
compensated for their services as directors. Directors who are employees of
the Company are eligible to participate in the Company's 1988 and 1997 Stock
Option Plans and will be eligible to participate in the Company's 1997
Employee Stock Purchase Plan. Directors who are not employees of the Company
will be eligible to participate in the Company's 1997 Stock Option Plan and
1997 Directors' Stock Option Plan. See "Stock Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of
Directors are currently Messrs. Mackenzie and Pottruck, both of whom were
appointed to the Compensation Committee in September 1997. Prior to September
1997 and during the year ended December 31, 1996, Messrs. Hearst and Leonsis
comprised the Compensation Committee. None of Messrs. Mackenzie, Pottruck,
Hearst or Leonsis has at any time been an officer or employee of the Company
or any subsidiary of the Company. See "Certain Relationships and Related
Transactions" for a description of certain transactions and relationships with
Messrs. Mackenzie, Hearst and Leonsis and entities affiliated with such
persons.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that a
director of a corporation will not be personally liable for monetary damages
for breach of such individual's fiduciary duties as a director except for
liability (i) for any breach of such director's duty of loyalty to the Company
or to its stockholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law or (iv) for
any transaction from which a director derives an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its officers, employees and other
agents to the full extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross
negligence on the part of an indemnified party. The Company's Bylaws also
permit the Company to advance expenses incurred by an indemnified party in
connection with the defense of any action or proceeding arising out of such
party's status or service as a director, officer, employee or other agent of
the Company upon an undertaking by such party to repay such advances if it is
ultimately determined that such party is not entitled to indemnification.
The Company has entered into separate indemnification agreements with each
of its directors and officers. These agreements require the Company, among
other things, to indemnify such director or officer against expenses
(including attorney's fees), judgments, fines and settlements (collectively,
"Liabilities") paid by such individual in connection with any action, suit or
proceeding arising out of such individual's status or service as a director or
officer of the Company (other than Liabilities arising from willful misconduct
or conduct that is knowingly fraudulent or deliberately dishonest) and to
advance expenses incurred by such individual in connection with any proceeding
against such individual with respect to which such individual
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<PAGE>
may be entitled to indemnification by the Company. The Company believes that
its Certificate of Incorporation and Bylaw provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers. The Company also maintains directors' and officers' liability
insurance.
At present the Company is not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of the Company in which
indemnification will be required or permitted. The Company is not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded to, earned by,
or paid to the Company's Chief Executive Officer and the Company's five other
most highly compensated executive officers whose total cash compensation
exceeded $100,000 during the year ended December 31, 1996 (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
NAME AND PRINCIPAL -------------------- UNDERLYING ALL OTHER
POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1)
------------------ ---------- --------- ------------ ------------------
<S> <C> <C> <C> <C>
Kenneth J. Orton,
President and Chief
Executive Officer...... $ 157,125 $25,000 30,000 $1,323
James J. Hornthal,
Chairman............... 167,425 -- -- 1,440
David E. Lambert,
Executive Vice
President, President of
Preview Travel Online,
Inc.................... 132,761 -- 25,000 486
Roy F. Walkenhorst,
President, News Travel
Network, Inc........... 123,481 41,680 3,125 2,737
John M. Petrone, Senior
Vice President of
Technology............. 98,000 47,500 10,000 --
Barrie Seidenberg,
Senior Vice President
of Online Services..... 90,000 27,500 10,000 --
</TABLE>
- ---------------------
(1) Consists of travel benefits and life insurance premiums paid by the
Company.
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<PAGE>
The following table shows certain information regarding stock options
granted to the Named Executive Officers during the year ended December 31,
1996. No stock appreciation rights were granted to these individuals during
the year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
NUMBER OF OF STOCK PRICE
SHARES PERCENTAGE OF APPRECIATION FOR
UNDERLYING TOTAL OPTIONS EXERCISE OPTION TERM(2)
OPTIONS GRANTED TO PRICE PER EXPIRATION ---------------------
NAME GRANTED(1) EMPLOYEES SHARE DATE 5% 10%
---- ---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth J. Orton........ 30,000 11.79% $2.40 5/16/2001 $ 19,892 $ 43,957
David E. Lambert........ 25,000 9.83 $2.60 6/6/2001 17,958 39,683
Roy F. Walkenhorst...... 3,125 1.23 $2.60 6/6/2001 2,245 4,960
John M. Petrone......... 10,000 3.93 $2.40 4/15/2001 6,631 14,652
Barrie Seidenberg....... 10,000 3.93 $2.40 4/15/2001 6,631 14,652
</TABLE>
- ---------------------
(1) These stock options, which were granted under the 1988 Stock Option Plan,
become exercisable at a rate of 25% of the total number of shares of
Common Stock subject to the option on the first anniversary of the date of
grant, and 2.083% of the total number of shares monthly thereafter, as
long as the optionee remains an employee with, consultant to, or director
of the Company.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the Securities and Exchange Commission. There is no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the 10-
year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates
over the option term, no value will be realized from the option grants
made to the executive officers.
OPTION EXERCISES AND HOLDINGS
The following table provides certain summary information concerning the
shares of Common Stock represented by outstanding stock options held by each
of the Named Officers as of December 31, 1996.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES VALUE AT DECEMBER 31, 1996(#) AT DECEMBER 31, 1996($)(2)
ACQUIRED ON REALIZED ------------------------- ------------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth J. Orton........ -- -- 72,222 77,778 $ 28,889 $ 25,111
James J. Hornthal....... -- -- 190,000 -- 34,200 --
David E. Lambert........ -- -- 24,375 65,625 9,750 16,250
Roy F. Walkenhorst...... 10,000 $19,000 4,687 10,312 1,875 2,875
John M. Petrone......... -- -- 13,333 36,667 5,333 12,667
Barrie Seidenberg....... -- -- 17,394 62,606 3,479 10,521
</TABLE>
- ---------------------
(1) The amount set forth represents the difference between the fair market
value of the shares on the date of exercise as determined by the Board of
Directors and the exercise price of the option.
(2) Based on the fair market value as of December 31, 1996, as determined by
the Board of Directors, minus the exercise price, multiplied by the number
of shares underlying the option.
In addition, subsequent to December 31, 1996, the Company has granted
options to certain of the Named Executive Officers as follows: In January
1997, the Company granted options to purchase 5,000 shares and 10,000 shares
to John Petrone and Barrie Seidenberg, respectively. In February 1997, the
Company
53
<PAGE>
granted options to purchase 25,000 shares, 15,000 shares and 15,000 shares to
James J. Hornthal, Kenneth J. Orton and David E. Lambert, respectively. In
June 1997, the Company granted an additional option to purchase 105,000 shares
to Mr. Orton. In September 1997, the Company granted options to purchase
125,000 shares, 12,500 shares, 5,000 shares and 10,000 shares to Kenneth
Pelowski, Roy Walkenhorst, Mr. Petrone and Ms. Seidenberg, respectively.
In March 1997, the Company entered into an agreement with Mr. Orton pursuant
to which, in the event of the involuntary termination of Mr. Orton's
employment with the Company (other than for cause) prior to February 26, 1998,
Mr. Orton will be retained as a consultant to the Company for a period of up
to 12 months, for which Mr. Orton will receive a monthly consulting fee equal
to one-twelfth of his most recent annual compensation. In addition, each of
Mr. Orton's then outstanding stock options were amended to provide that Mr.
Orton may pay the exercise price under such options by executing a promissory
note for the applicable exercise price.
STOCK PLANS
1988 Stock Option Plan
The Company's 1988 Stock Option Plan (the "1988 Stock Option Plan") was
adopted by the Board of Directors and approved by the stockholders of the
Company in April 1988. As of September 30, 1997, options to purchase a total
of 410,680 shares of Common Stock had been exercised, options to purchase a
total of 1,158,164 shares at a weighted average exercise price of $3.54 per
share were outstanding, and 112,905 shares remained available for future
option grants.
The 1988 Stock Option Plan provides for the grant to employees of the
Company (including officers and employee directors) of "incentive stock
options" within the meaning of Section 422 of the Code, for the grant of
nonstatutory stock options to employees, officers, directors and consultants
of the Company; provided, however, that non-employee directors shall not be
eligible for option grants after the effective date of this offering. To the
extent an optionee would have the right in any calendar year to exercise for
the first time one or more incentive stock options for shares having an
aggregate fair market value (under all plans of the Company and determined for
each share as of the date the option to purchase the share was granted) in
excess of $100,000, any such excess options shall be treated as nonstatutory
stock options.
The 1988 Stock Option Plan is administered by the Board of Directors or a
committee of the Board of Directors (the "Administrator"). The Administrator
determines the terms of options granted under the 1988 Stock Option Plan,
including the number of shares subject to the option, exercise price, term and
exercisability. The exercise price of all incentive stock options granted
under the 1988 Stock Option Plan must be at least equal to the fair market
value of the Common Stock of the Company on the date of grant. The exercise
price of any stock option granted to an optionee who owns stock representing
more than 10% of the voting power of the Company's outstanding capital stock
(a "10% Stockholder") must equal at least 110% of the fair market value of the
Common Stock on the date of grant. The exercise price of all nonstatutory
stock options granted to persons who are not 10% Stockholders cannot be less
than 85% of the fair market value of the Common Stock of the Company on the
date of grant. Payment of the exercise price may be made in cash, delivery of
shares of the Company's Common Stock or other consideration determined by the
Administrator. The Administrator determines the term of options. The term of
an incentive stock option granted under the 1988 Stock Option Plan may not
exceed 10 years; provided, however, that the term may not exceed five years
for 10% Stockholders. No option may be transferred by the optionee other than
by will or the laws of descent or distribution. Each option may be exercised
during the lifetime of the optionee only by such optionee. Options granted to
each employee under the 1988 Stock Option Plan prior to March 1995 generally
become exercisable at the rate of 1/36th of the total number of shares subject
to the options monthly following a six-month waiting period after the date of
grant, and options granted after March 1995 generally become exercisable at
the rate of 25% of the total number of shares subject to the options after the
first anniversary following the date of grant, with 2.083% vesting monthly
thereafter.
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<PAGE>
In the event of certain changes in control of the Company, the 1988 Stock
Option Plan requires that each outstanding option be assumed or an equivalent
option substituted by the successor corporation. In the event that a successor
corporation refuses to assume each option or substitute an equivalent option,
the Administrator shall provide for the optionee to have the right to exercise
the option as to all of the shares covered by the option, including shares as
to which the option would not otherwise be exercisable, in which case each
option will be exercisable for 30 days from the date of such determination.
The Administrator has the authority to amend or terminate the 1988 Stock
Option Plan as long as such action does not adversely affect any outstanding
option and provided that stockholder approval shall be required for an
amendment to increase the number of shares subject to the 1988 Stock Option
Plan, or any change in the designation of the class of persons eligible to be
granted options, or a material increase in benefits accruing to participants
under the 1988 Stock Option Plan if the Company is registered under Section 12
of the Exchange Act. If not terminated earlier, the 1988 Stock Option Plan
will terminate in 1998.
1997 Stock Option Plan
The Company's 1997 Stock Option Plan (the "1997 Stock Option Plan") was
adopted by the Board of Directors in October 1997 and will be submitted for
approval by the stockholders of the Company prior to completion of this
offering. A total of 1,500,000 shares of Common Stock has been reserved for
issuance under the 1997 Stock Option Plan, and, as of September 30, 1997, no
options had been granted under such plan.
The 1997 Stock Option Plan provides for the grant to employees of the
Company (including officers and employee directors) of "incentive stock
options" within the meaning of Section 422 of the Code, for the grant of
nonstatutory stock options to employees, officers, directors (including non-
employee directors) and consultants of the Company. To the extent an optionee
would have the right in any calendar year to exercise for the first time one
or more incentive stock options for shares having an aggregate fair market
value (under all plans of the Company and determined for each share as of the
date the option to purchase the share was granted) in excess of $100,000, any
such excess options shall be treated as nonstatutory options.
The 1997 Stock Option Plan is administered by the Board of Directors or a
committee of the Board of Directors (the "Administrator"). The Administrator
determines the terms of options granted under the 1997 Stock Option Plan,
including the number of shares subject to the option, exercise price, term and
exercisability; provided, however, the maximum number of shares which may be
subject to options granted to any one person for any fiscal year of the
Company shall be 1,500,000. Such limitation shall not take effect until the
earliest date required under Section 162(m) of the Code. The exercise price of
all incentive stock options granted under the 1997 Stock Option Plan must be
at least equal to the fair market value of the Common Stock of the Company on
the date of grant. The exercise price of any incentive stock option granted to
an optionee who owns stock representing more than 10% of the voting power of
the Company's outstanding capital stock (a "10% Stockholder") must equal at
least 110% of the fair market value of the Common Stock on the date of grant.
The exercise price of all nonstatutory stock options cannot be less than 85%
of the fair market value of the Common Stock of the Company on the date of
grant. Payment of the exercise price may be made in cash, delivery of shares
of the Company's Common Stock or other consideration determined by the
Administrator. The Administrator determines the term of options. The term of
an incentive stock option granted under the 1997 Stock Option Plan may not
exceed 10 years; provided, however, that the term may not exceed five years
for 10% Stockholders. An option may not be transferred by the optionee other
than by will or the laws of descent or distribution, provided, however, that
the Administrator may in its discretion grant transferable nonstatutory stock
options. Each option may be exercised during the lifetime of the optionee only
by such optionee or by a permitted transferee. Options granted to each
employee under the 1997 Stock Option Plan generally become exercisable at the
rate of 25% of the total number of shares subject to the options after the
first anniversary following the date of grant, with 2.083% vesting monthly
thereafter.
In the event of certain changes in control of the Company, the 1997 Stock
Option Plan requires that each outstanding option be assumed or an equivalent
option substituted by the successor corporation, unless the Administrator
determines in the exercise of its sole discretion and in lieu of such
assumption or
55
<PAGE>
substitution, that the optionee will have the right to exercise the option as
to some or all of the shares covered by the option, including shares as to
which the option would not otherwise be exercisable, in which case each option
will be exercisable for 30 days from the date of such determination. The
Administrator has the authority to amend or terminate the 1997 Stock Option
Plan as long as such action does not adversely affect any outstanding option
and provided that stockholder approval shall be required for an amendment to
increase the number of shares subject to the 1997 Stock Option Plan, or any
change in the designation of the class of persons eligible to be granted
options, or an increase in the annual limitation on grants to employees, or
any other amendment requiring stockholder approval under the federal
securities laws. If not terminated earlier, the 1997 Stock Option Plan will
terminate in 2007.
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in October 1997 and will be submitted for
approval by the stockholders prior to completion of the offering. A total of
500,000 shares of Common Stock has been reserved for issuance under the
Purchase Plan. The Purchase Plan, which is intended to qualify under Section
423 of the Code, generally will be implemented in a series of offering periods
of 24 months duration with new offering periods (other than the first offering
period) commencing on or about February 1 and August 1 of each year. Each
offering period will consist of four consecutive purchase periods of six
months duration, with the last day of each period being designated a purchase
date. However, the first such offering period is expected to commence on the
date of the offering and continue through January 31, 1999, with the first
purchase date occurring on July 31, 1998, and subsequent purchase dates to
occur every six months thereafter. The Purchase Plan will be administered by
the Board of Directors or by a committee appointed by the Board of Directors.
Employees (including officers and employee directors) of the Company, or of
any majority owned subsidiary designated by the Board of Directors, are
eligible to participate if they are employed by the Company or any such
subsidiary for at least 20 hours per week and more than 5 months per year. The
Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions, which may not exceed 15% of an employee's compensation, at
a price equal to the lower of 85% of the fair market value of the Company's
Common Stock at the beginning of the offering period or the purchase date. If
the fair market value of the Common Stock on a purchase date is less than the
fair market value at the beginning of the offering period, a new 24-month
offering period will automatically begin on the first business day following
the purchase date with a new fair market value. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the
Company. In addition, participants may decrease their level of payroll
deductions once during an offering period.
The Purchase Plan provides that in the event of a merger of the Company with
or into another corporation or a sale of substantially all of the Company's
assets, each right to purchase stock under the plan will be assumed or an
equivalent right substituted by the successor corporation unless the Board of
Directors shortens the offering period so that employees' rights to purchase
stock under the plan are exercised prior to the merger or sale of assets. The
Board of Directors has the power to amend or terminate the Purchase Plan as
long as such action does not adversely affect any outstanding rights to
purchase stock thereunder. If not terminated earlier, the Purchase Plan will
have a term of 20 years.
1997 Directors' Stock Option Plan
The 1997 Directors' Stock Option Plan (the "Directors' Plan") was adopted by
the Board of Directors in October 1997 and will be submitted for approval by
the stockholders prior to completion of the offering. A total of 250,000
shares of Common Stock has been reserved for issuance under the Directors'
Plan. The Directors' Plan provides for the automatic grant of nonstatutory
stock options to nonemployee directors of the Company. The Directors' Plan is
designed to work automatically without administration; however, to the extent
administration is necessary, it will be performed by the Board of Directors.
The Directors' Plan becomes effective on the effectiveness of the registration
statement relating to this offering.
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<PAGE>
The Directors' Plan provides that each person who first becomes a
nonemployee director of the Company after the date of the offering shall be
granted a nonstatutory stock option to purchase 20,000 shares of Common Stock
(the "First Option") on the date on which the optionee first becomes a
nonemployee director of the Company. The First Option will not be granted to
individuals serving as nonemployee directors as of the date of the offering.
Thereafter, on the date of each annual meeting of the Company's stockholders
following which a nonemployee director is serving on the Board of Directors,
each nonemployee director (including directors who were not granted a First
Option prior to the date of such annual meeting) shall be granted an option to
purchase 5,000 shares of Common Stock (a "Subsequent Option") if, on such
date, he or she has served on the Company's Board of Directors for at least
six months.
The Directors' Plan sets neither a maximum nor a minimum number of shares
for which options may be granted to any one nonemployee director, but does
specify the number of shares that may be included in any grant and the method
of making a grant. No option granted under the Directors' Plan is transferable
by the optionee other than by will or the laws of descent or distribution or
pursuant to a qualified domestic relations order, and each option is
exercisable, during the lifetime of the optionee, only by such optionee or by
a permitted transferee. The Directors' Plan provides that the First Option
shall become exercisable in installments cumulatively as to 25% of the total
number of shares subject to the First Option on each of the first, second,
third and fourth anniversaries of the date of grant of the First Option; each
Subsequent Option shall become exercisable in full on the first anniversary of
the date of grant of that Subsequent Option. The exercise price of all stock
options granted under the Directors' Plan shall be equal to the fair market
value of a share of the Company's Common Stock on the date of grant of the
option. The fair market value of any option granted concurrently with the
initial effectiveness of the Plan shall be the Price to Public set forth in
the final prospectus relating to this offering. Options granted under the
Directors' Plan have a term of ten years.
In the event of the dissolution or liquidation of the Company, a sale of all
or substantially all of the assets of the Company, the merger of the Company
with or into another corporation in which the Company is not the surviving
corporation or any other capital reorganization in which more than 50% of the
shares of the Company entitled to vote are exchanged, the Company shall give
to each nonemployee director either (i) a reasonable time within which to
exercise the option, including any part of the option that would not otherwise
be exercisable, prior to the effectiveness of any such transaction at the end
of which time the Option shall terminate, or (ii) the right to exercise the
option, including any part of the option that would not otherwise be
exercisable (or receive a substitute option with comparable terms) as to an
equivalent number of shares of stock of the corporation succeeding the Company
or acquiring its business by reason of any such transaction. The Board of
Directors may amend or terminate the Directors' Plan; provided, however, that
no such action may adversely affect any outstanding option, and the provisions
regarding the grant of options under the plan may be amended only once in any
six-month period, other than to comport with changes in the Code or the
Employee Retirement Income Security Act of 1974, as amended. If not terminated
earlier, the Directors' Plan will have a term of ten years.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain stock option grants to directors and executive officers of the
Company are described herein under the caption "Management--Executive
Compensation."
Since January 1, 1994, the Company has issued, in private placement
transactions (collectively, the "Private Placement Transactions"), shares of
Preferred Stock as follows: an aggregate of 1,492,976 shares of Series D
Preferred Stock at $4.20 per share in January 1995 and an aggregate of
2,518,675 shares of Series E Preferred Stock at $9.00 per share in June 1996
and September 1997. The following table summarizes the shares of Preferred
Stock purchased by Named Executive Officers, directors and 5% stockholders of
the Company and persons and entities associated with them in the Private
Placement Transactions:
<TABLE>
<CAPTION>
SERIES D SERIES E
PREFERRED PREFERRED
INVESTOR(1) STOCK STOCK
----------- --------- ---------
<S> <C> <C>
America Online, Inc. (Theodore Leonsis) (2)............. 595,238 27,333
General Electric Capital Corporation (2)................ -- 555,555
KLAS, Inc. (2).......................................... 119,047 --
Kleiner Perkins Caufield & Byers (William R. Hearst, III
and Douglas J. Mackenzie) (2) (3)...................... 714,285 27,077
U S WEST Interactive Services, Inc. (Thomas A. Cullen)
(2).................................................... -- 922,540
Thomas W. Cardy (4)..................................... -- 1,666
James J. Hornthal (2) (5)............................... 2,500 6,145
David E. Lambert........................................ -- 1,477
James E. Noyes.......................................... -- 222
David S. Pottruck....................................... -- 22,222
</TABLE>
---------------------
(1) Shares held by affiliated persons and entities have been aggregated.
See "Principal Stockholders."
(2) Holder is a 5% stockholder.
(3) Includes shares held by KPCB Information Sciences Zaibatsu Fund II and
KPCB VII Founders Fund.
(4) Includes shares held by the Thomas W. Cardy Family Trust.
(5) Includes shares held by the Hornthal Living Trust.
58
<PAGE>
In May 1996, the Company issued and sold convertible subordinated notes in
the aggregate principal amount of $1,000,000 to certain investors, which
investors included certain of the Named Executive Officers, directors and 5%
stockholders. The entire principal balances under such notes, together with
accrued and unpaid interest, were converted into shares of Series E Preferred
Stock in connection with the sale and issuance of Series E Preferred Stock in
June 1996. In connection with the issuance of such notes, the Company also
issued warrants to purchase an aggregate of 19,076 shares of Common Stock at
an exercise price of $2.40 per share. The Company expects that substantially
all of such warrants will be exercised upon completion of the offering. The
following table summarizes the shares of Preferred Stock purchased by Named
Executive Officers, directors and 5% stockholders of the Company and persons
and entities associated with them in the Private Placement Transactions:
<TABLE>
<CAPTION>
COMMON
STOCK
INVESTOR (1) WARRANT
------------ -------
<S> <C>
America Online, Inc. (Theodore J. Leonsis) (2)..................... 4,692
Kleiner Perkins Caufield & Byers VII (William R. Hearst, III and
Douglas J. Mackenzie) (2) (3) 4,648
Thomas W. Cardy (4)................................................ 381
James J. Hornthal (2) (5).......................................... 953
David E. Lambert................................................... 253
James E. Noyes..................................................... 38
</TABLE>
- ---------------------
(1) Warrants held by affiliated persons and entities have been aggregated. See
"Principal Stockholders."
(2) Holder is a 5% stockholder.
(3) Includes warrants held by KPCB Information Sciences Zaibatsu Fund II and
KPCB VII Founders Fund.
(4) Includes warrants held by the Thomas W. Cardy Family Trust and
Communications Equity Associates, Inc.
(5) Includes warrants held by the Hornthal Living Trust.
In February 1995, the Company issued and sold convertible subordinated notes
in the aggregate principal amount of $750,000 to Kleiner Perkins Caufield &
Byers VII and KPCB VII Founders Fund. The outstanding principal amount under
such notes will be converted into 340,909 shares of Common Stock upon
completion of this offering.
Since July 1994, the Company has maintained a relationship with AOL pursuant
to which the Company developed and launched online travel services through a
Preview Travel content area on the AOL network and AOL's Web site (aol.com)
(together, the "AOL Online Area") in January 1995. Theodore J. Leonsis
currently serves as President and Chief Executive Officer of AOL Studios, an
operating division of AOL, and previously served as President of America
Online Services Company. In September 1997, the Company entered into an
agreement with AOL pursuant to which the Company serves as AOL's primary and
preferred provider of travel services on the AOL Online Area. In addition, AOL
has agreed to exclusively promote and advertise Preview Travel in online areas
controlled by AOL and to deliver a minimum number of annual page views to the
online areas promoting the Company. Over the next five years, the Company is
obligated to make minimum payments totaling $32 million to AOL, as well as pay
a percentage of commissions earned by the Company in excess of certain
quarterly thresholds. The Company has also agreed to deliver content through
the AOL Online Area and to provide travel services that are competitive in
price and performance. The Company and AOL both have the right to sell
advertising in the Company's content areas distributed through AOL, subject to
the Company's obligation to pay a percentage of advertising revenues above
certain threshold amounts to AOL after the second year of the agreement. Under
a separate agreement, the Company has agreed to develop and manage a travel-
related destination database for AOL in exchange for the right to receive all
advertising revenues generated from such database up to a certain threshold,
and share in advertising revenues thereafter. The Company's agreements with
AOL expires in September 2002, or earlier in the event of a material breach or
the Company's failure to deliver satisfactory content to the database or
59
<PAGE>
achieve specified annual levels of travel services bookings. Frank J.
Caufield, a director of AOL, is a general partner of KPCB VII Associates, the
general partner of each of Kleiner Perkins Caufield & Byers VII, KPCB VII
Founders Fund and KPCB Information Sciences Zaibatsu Fund II.
In addition, the Company has issued the following warrants to AOL in
connection with this relationship: a warrant to purchase 160,000 shares of
Common Stock at an exercise price of $2.20 per share, a warrant to purchase
377,619 shares of Series D Preferred Stock at an exercise price of $4.20 per
share, and a warrant to purchase 75,000 shares of Series E Preferred Stock at
an exercise price of $9.00 per share. In connection with the Company's
strategic agreement with AOL, the Company and AOL agreed to amend the terms of
AOL's warrant for Series D Preferred Stock to accelerate the exercisability of
such warrant and to provide that the warrant would expire upon the occurrence
of certain events, including the completion of this offering. The Company
anticipates that the warrants to purchase Common Stock, Series D Preferred
Stock and Series E Preferred Stock will be exercised by AOL upon completion of
this offering.
Until February 1997, the Company retained travel-related fulfillment and
consulting services from The Trase Miller Group ("Trase Miller"). Mr. Noyes, a
member of the Company's Board of Directors, served as the President of Trase
Miller from 1989 to June 1996. Total amounts paid to Trase Miller in
connection with such services were approximately $558,000 in 1996 and $84,000
in 1997.
In August 1997, the Company entered into an agreement with Excite, pursuant
to which Excite has agreed to use Preview Travel as the exclusive provider of
travel reservation services for Excite's Travel Channel (City.Net) in the U.S.
and the WebCrawler Travel Channel, and to deliver a minimum number of annual
page views to the Excite Travel Channel. The Company is obligated to make
minimum payments to Excite totaling $24 million over five years, as well as to
pay a percentage of commissions earned by the Company in excess of certain
thresholds. In addition, the agreement provides for the sharing of revenues
from advertising on co-branded areas of the Excite Travel Channel and, under
certain circumstances, requires the Company to pay a portion of commissions
derived from such co-branded areas. Vinod Khosla, a director of Excite, is a
limited partner of KPCB VII Associates, the general partner of each of Kleiner
Perkins Caufield & Byers VII, KPCB VII Founders Fund and KPCB Information
Sciences Zaibatsu Fund II (the "KPCB Funds"). In addition, the KPCB Funds and
AOL are principal stockholders of Excite.
In September 1997, the Company entered into an agreement with an affiliate
of The National Broadcasting Company ("NBC"), pursuant to which the Company
has issued to such affiliate a warrant to purchase 94,500 shares of Series E
Preferred Stock at a purchase price of $9.00 per share. The Company expects
that such warrant will be exercised upon completion of this offering. NBC is
an affiliate of General Electric Capital Corporation.
The Company's Restated Certificate of Incorporation filed in connection with
the reincorporation of the Company in Delaware provides that the holders of
the Company's Series E Preferred Stock, voting as a separate class, have the
right to elect one member of the Company's Board of Directors. Pursuant to its
terms, this provision will expire upon the closing of this offering. In
addition, in September 1997 the Company and certain stockholders entered into
a voting agreement pursuant to which such stockholders have agreed to vote
their shares in any election so as to elect one designee of U S WEST
Interactive Services, Inc. to the Board of Directors. Pursuant to its terms,
such agreement will automatically terminate upon the completion of this
offering. In addition, Messrs. Hearst, Leonsis and Mackenzie were elected to
the Board of Directors pursuant to a voting agreement dated as of January 31,
1995, by and among the Company and certain principal stockholders of the
Company. Such voting agreement will terminate upon completion of this
offering.
The Company has entered into indemnification agreements with each of its
officers and directors containing provisions which may require the Company,
among other things, to indemnify its officers and directors against certain
liabilities that may arise by reason of their status or service as officers or
directors (other than liabilities arising from willful misconduct of a
culpable nature) and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
60
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of September 30, 1997,
and as adjusted to reflect the sale of Common Stock offered hereby, as to (i)
each person (or group of affiliated persons) known by the Company to own
beneficially more than 5% of the Company's outstanding Common Stock, (ii) each
of the Company's directors, (iii) each of the Named Executive Officers, and
(iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
OWNED(1)
-----------------
NUMBER OF BEFORE AFTER
NAME AND ADDRESS SHARES(1) OFFERING OFFERING
---------------- --------- -------- --------
<S> <C> <C> <C>
America Online, Inc.(2)............................ 1,317,982 15.4% 11.9%
8619 Westwood Center Drive
Vienna, Virginia 22182-2285
Entities affiliated with Kleiner Perkins Caufield & 1,251,419 15.1 11.6
Byers(3)..........................................
2750 Sand Hill Road
Menlo Park, CA 94025
U S WEST Interactive Services, Inc................. 932,540 11.8 8.9
9000 East Nichols Avenue, Suite 100
Englewood, CO 80112
General Electric Capital Corporation(4)............ 650,055 8.1 6.2
60 Long Ridge Road
Stamford, CT 06927
KLAS, Inc.......................................... 635,457 8.0 6.1
3228 Channel 8 Drive
Las Vegas, NV 89114
Kenneth J. Orton (5)............................... 118,611 1.5 1.1
James J. Hornthal (6).............................. 1,075,000 13.2 10.1
David E. Lambert (7)............................... 49,854 * *
Barrie Seidenberg (8).............................. 19,530 * *
Roy F. Walkenhorst (9)............................. 81,349 * *
John M. Petrone (10)............................... 26,458 * *
Thomas W. Cardy (11)............................... 207,047 2.6 2.0
Thomas A. Cullen (12).............................. 932,540 11.8 8.9
William R. Hearst, III (3)......................... 1,251,419 15.1 11.6
Theodore J. Leonsis (2)............................ 1,317,982 15.4 11.9
Douglas J. Mackenzie (3)........................... 1,251,419 15.1 11.6
James E. Noyes (13)................................ 45,974 * *
David S Pottruck................................... 22,222 * *
All directors and executive officers as a group (15 5,147,985 55.4 43.6
persons) (14).....................................
</TABLE>
- ---------------------
* Less than 1%.
(1) Applicable percentage of beneficial ownership is based on 7,926,290
shares of Common Stock outstanding as of September 30, 1997, together
with applicable options and warrants for such stockholder. Beneficial
ownership is determined in accordance with the rules of the Securities
and Exchange Commission. The number of shares beneficially owned by a
person includes shares of Common Stock subject to options held by that
person that are currently exercisable or exercisable within 60 days of
September 30, 1997. Such shares issuable pursuant to such options are
deemed outstanding for computing the percentage ownership of the person
holding such options but are not deemed outstanding for the purposes of
computing the percentage ownership of each other person. To the Company's
knowledge, the persons named in this table have sole voting and
investment power with respect to all shares of Common Stock shown as
owned by them, subject to community property laws where applicable and
except as indicated in the other footnotes to this table. Unless
otherwise indicated, the address of each of the individuals named above
is: c/o Preview Travel, Inc., 747 Front Street, San Francisco, California
94111.
61
<PAGE>
(2) Includes 617,311 shares issuable upon exercise of warrants held by
America Online, Inc. ("AOL"), all of which are expected to be exercised
by AOL upon completion of the offering. Also includes 78,100 shares held
by Theodore J. Leonsis, a director of the Company. Mr. Leonsis is
President and Chief Executive Officer of AOL Studios, an operating
division of AOL. Mr. Leonsis disclaims beneficial ownership of the shares
held by AOL, except to the extent of his pecuniary interest therein.
(3) Includes 820,708 shares, 84,477 shares and 677 shares held by Kleiner
Perkins Caufield & Byers VII, KPCB VII Founders Fund and KPCB Information
Sciences Zaibatsu Fund II, respectively. Also includes 4,086 shares, 446
shares and 116 shares issuable upon exercise of warrants held by Kleiner
Perkins Caufield & Byers VII, KPCB VII Founders Fund and KPCB Information
Sciences Zaibatsu Fund II, respectively, all of which are expected to be
exercised upon completion of the offering. Also includes 306,818 shares
and 34,091 shares issuable upon conversion of convertible subordinated
notes held by Kleiner Perkins Caufield & Byers VII and KPCB VII Founders
Fund, respectively. Both of such notes are expected to be converted into
shares of Common Stock upon completion of the offering. William R.
Hearst, III and Douglas J. Mackenzie, both directors of the Company, are
limited partners of KPCB VII Associates, the general partner of each of
Kleiner Perkins Caufield & Byers VII, KPCB VII Founders Fund and KPCB
Information Sciences Zaibatsu Fund II. Each of Messrs. Hearst and
Mackenzie disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest therein.
(4) Includes 94,500 shares issuable upon exercise of a warrant held by an
affiliate of The National Broadcasting Company, an affiliate of General
Electric Capital Corporation.
(5) Includes 118,611 shares issuable upon exercise of outstanding options
exercisable within 60 days of September 30, 1997.
(6) Includes 190,000 shares issuable upon exercise of outstanding options
exercisable within 60 days of September 30, 1997. A portion of the shares
issuable upon exercise of such stock options is subject to repurchase by
the Company at the original exercise price in the event of termination of
employment, which repurchase right lapses over time. Also includes
793,758 shares held by Hornthal Living Trust and an aggregate of 68,384
shares held in trusts of which Mr. Hornthal is a trustee and has voting
power.
(7) Includes 48,124 shares issuable upon exercise of outstanding options
exercisable within 60 days of September 30, 1997.
(8) Includes 19,530 shares issuable upon exercise of outstanding options
exercisable within 60 days of September 30, 1997.
(9) Includes 8,849 shares issuable upon exercise of outstanding options
exercisable within 60 days of September 30, 1997.
(10) Includes 26,458 shares issuable upon exercise of outstanding options
exercisable within 60 days of September 30, 1997.
(11) Includes 2,500 shares held by Eugenia C. Cardy, 11,666 shares held by
Thomas W. Cardy Family Trust and 381 shares issuable upon a warrant held
by Thomas W. Cardy Family Trust, which warrant is expected to be
exercised upon completion of the offering. Also includes 172,500 shares
held by CEA Preview Investors Ltd. Mr. Cardy is a limited partner of CEA
Preview Investors Ltd. and disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein.
(12) Includes 932,540 shares held by U S WEST Interactive Services, Inc., of
which Mr. Cullen is President. Mr. Cullen disclaims beneficial ownership
of such shares except to the extent of his pecuniary interest therein.
(13) Includes 38 shares issuable upon exercise of a warrant, which warrant is
expected to be exercised upon completion of the offering.
(14) Includes 411,572 shares issuable upon exercise of stock options
exercisable within 60 days of September 30, 1997. A portion of the shares
issued or issuable upon exercise of such stock options is subject to
repurchase by the Company at the original exercise price in the event of
termination of employment, which repurchase right lapses over time. Also
includes 622,378 shares and 340,909 shares issuable upon exercise of
warrants and conversion of convertible subordinated notes, respectively.
Such warrants and notes are expected to be exercised or converted upon
completion of the offering.
62
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Following the closing of the sale of the shares offered hereby, the
authorized capital stock of the Company will consist of 50,000,000 shares of
Common Stock, $0.001 par value, and 5,000,000 shares of Preferred Stock,
$0.001 par value.
COMMON STOCK
As of September 30, 1997, there were 7,926,290 shares of Common Stock
outstanding that were held of record by approximately 175 stockholders after
giving effect to the conversion of the Company's Preferred Stock into Common
Stock at a one-to-one ratio and assuming no exercise or conversion of
outstanding convertible securities after September 30, 1997. There will be
10,426,290 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option and no exercise or conversion of
outstanding options, warrants or convertible subordinated notes after
September 30, 1997) after giving effect to the sale of the shares of Common
Stock offered hereby.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
rights of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions available to the Common Stock. All
outstanding shares of Common Stock are fully paid and non-assessable.
PREFERRED STOCK
Effective upon the closing of the offering, the Company will be authorized
to issue 5,000,000 shares of undesignated Preferred Stock. The Board of
Directors will have the authority to issue the undesignated Preferred Stock in
one or more series and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series of undesignated Preferred Stock and to fix the number
of shares constituting any series and the designation of such series, without
any further vote or action by the stockholders. The issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company without further action by the stockholders and may
adversely affect the voting and other rights of the holders of Common Stock.
At present, the Company has no plans to issue any shares of Preferred Stock.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
The holders of 7,895,263 shares of Common Stock (the "Registrable
Securities"), including 881,480 shares issuable upon exercise of warrants and
340,909 shares issuable upon conversion of convertible subordinated notes, or
their transferees are entitled to certain rights with respect to the
registration of such shares under the Securities Act. These rights are
provided under the terms of an agreement between the Company and the holders
of Registrable Securities. Subject to certain limitations in the agreement,
the holders of the Registrable Securities may require, on two occasions at any
time after four months from the effective date of the offering, that the
Company use its best efforts to register the Registrable Securities for public
resale, provided that the proposed aggregate offering price is at least
$5,000,000. If the Company registers any of its Common Stock either for its
own account or for the account of other security holders, the holders of
Registrable Securities are entitled to include their shares of Common Stock in
the registration. A holder's right to include shares in an underwritten
registration is subject to the ability of the underwriters to limit the number
of shares included in the offering. All fees, costs and expenses of such
registrations must be borne by the Company and all selling expenses (including
underwriting discounts, selling commissions and stock transfer taxes) relating
to Registrable Securities must be borne by the holders of the securities being
registered.
63
<PAGE>
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware Law.
In general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved
in a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale or other transaction resulting in a financial benefit to
the stockholder, and an "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior, did own)
15% or more of the corporation's outstanding voting stock. This provision may
have the effect of delaying, deferring or preventing a change in control of
the Company without further action by the stockholders. In addition, upon
completion of the offering, certain provisions of the Company's charter
documents, including a provision eliminating the ability of stockholders to
take actions by written consent, may have the effect of delaying or preventing
changes in control or management of the Company, which could have an adverse
effect on the market price of the Company's Common Stock. The Company's stock
option and purchase plans generally provide for assumption of such plans or
substitution of an equivalent option of a successor corporation or,
alternatively, at the discretion of the Board of Directors, exercise of some
or all of the options stock, including non-vested shares, or acceleration of
vesting of shares issued pursuant to stock grants, upon a change of control or
similar event. The Board of Directors has authority to issue up to 5,000,000
shares of Preferred Stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares without any further
vote or action by the stockholders. The rights of the holders of the Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company, thereby delaying, deferring or
preventing a change in control of the Company. Furthermore, such Preferred
Stock may have other rights, including economic rights senior to the Common
Stock, and, as a result, the issuance of such Preferred Stock could have a
material adverse effect on the market value of the Common Stock. The Company
has no present plan to issue shares of Preferred Stock.
WARRANTS, CONVERTIBLE SUBORDINATED NOTES AND OTHER RIGHTS
As of September 30, 1997, warrants were outstanding to purchase an aggregate
of 881,477 shares of Common Stock at a weighted average exercise price of
$4.66 per share. Of such warrants, warrants to purchase an aggregate of
849,811 shares of Common Stock at a weighted average exercise price of $4.61
per share are expected to be exercised upon the completion of the offering. In
addition, as of September 30, 1997, convertible subordinated notes were
outstanding in the aggregate principal amount of $750,000. Such notes will be
converted into an aggregate of 340,909 shares of Common Stock upon completion
of the offering.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is U. S.
Stock Transfer Corporation.
LISTING
The Company has applied to list its Common Stock on the Nasdaq National
Market under the trading symbol "PTVL."
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have outstanding
10,426,250 shares of Common Stock, assuming no exercise of outstanding
warrants, no conversion of outstanding convertible subordinated debentures and
no exercise of options after September 30, 1997. Of these shares, the shares
sold in the offering will be freely tradeable without restriction or further
registration under the Securities Act unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 of the Securities Act.
The remaining 7,926,250 shares outstanding upon completion of the offering
will be "restricted securities" as that term is defined under Rule 144 (the
"Restricted Shares") and may not be sold publicly unless they are registered
under the Securities Act or are sold pursuant to Rule 144 or another exemption
from registration. All directors and executive officers and certain other
stockholders of the Company, holding in the aggregate 7,694,060 of the shares
of Common Stock outstanding prior to the offering, have agreed not to sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus (the "Lockup Period") without the prior written
consent of Hambrecht & Quist LLC. See "Underwriting." The number of shares of
Common Stock available for sale in the public market is further limited by
restrictions under the Securities Act.
Because of the restrictions noted above, on the date of this Prospectus and
until 180 days after the effective date of the offering (assuming no release
of the Lockup Period by the Company or by Hambrecht & Quist LLC), no shares
other than the 2,500,000 shares offered hereby and 137,668 currently
outstanding shares will be eligible for sale in the public market. Beginning
90 days after the date of this Prospectus, approximately 94,522 additional
shares may be resold in the public market. Beginning 180 days after the date
of this Prospectus, upon expiration of the Lockup Period, approximately
1,944,261 additional shares will be eligible for sale without restriction
under Rule 144(k) under the Securities Act, and approximately 5,257,539
Restricted Shares (as well as an additional 1,158,164 shares of Common Stock
issuable upon exercise of currently outstanding options) will be eligible for
sale in the public market, subject in some cases to certain volume
limitations. The remaining 492,260 shares held by stockholders will become
eligible for sale at various times over a period of less than one year,
subject on some cases to volume and manner of sale limitations.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least one year, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the number of shares of
Common Stock then outstanding or the average weekly trading volume of the
Common Stock as reported through the Nasdaq National Market during the four
calendar weeks preceding the filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information
about the Company. In addition, a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned for at least two years the shares proposed to be
sold, would be entitled to sell such shares under Rule 144(k) without regard
to the requirements described above.
In general, Rule 701 permits resales of shares issued pursuant to certain
compensatory benefit plans and contracts commencing 90 days after the issuer
becomes subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended, in reliance upon Rule 144 but without compliance with
certain restrictions, including the holding period requirements, contained in
Rule 144. In addition, the Company intends to file a registration statement on
Form S-8 under the Securities Act approximately 30 days after the date of this
Prospectus to register approximately 2,362,905 shares of Common Stock reserved
for issuance under the Company's 1997 Employee Stock Purchase Plan, 1997
Directors' Stock Option Plan and 1988 and 1997 Stock Option Plans and
1,158,164 shares subject to outstanding options granted under the 1988 Stock
Option Plan. Such registration will permit the resale of shares so registered
by non-affiliates in the public market without restriction under the
Securities Act.
65
<PAGE>
Prior to the offering, there has been no public market for securities of the
Company. No prediction can be made as to the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock of the Company in the public market after the lapse of the
restrictions described below could adversely affect the prevailing market
price and the ability of the Company to raise equity capital in the future at
a time and price which it deems appropriate. In addition, after the offering,
the holders of 7,895,263 shares of Common Stock (the "Registrable
Securities"), including 881,480 shares issuable upon exercise of warrants and
340,909 shares issuable upon conversion of convertible subordinated notes,
will be entitled to certain demand and piggyback rights with respect to
registration of such shares under the Securities Act. Registration of such
shares under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by affiliates of the Company) immediately upon the effectiveness of
such registration. See "Description of Capital Stock--Registration Rights of
Certain Holders." If such holders, by exercising their demand registration
rights, cause a larger number of securities to be registered and sold in the
public market, such sales could have an adverse effect on the market price for
the Company's Common Stock. If the Company were to include in a Company
initiated registration any Registrable Securities pursuant to the exercise of
piggyback registration rights, such sales may have an adverse effect on the
Company's ability to raise needed capital.
66
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their representatives, Hambrecht & Quist LLC
and NationsBanc Montgomery Securities, Inc., have severally agreed to purchase
from the Company the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Hambrecht & Quist LLC..............................................
NationsBanc Montgomery Securities, Inc.............................
---------
Total.............................................................. 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if
any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $ per share to certain other
dealers. After the offering, the offering price and other selling terms may be
changed by the Representatives. The Representatives have informed the Company
that the Underwriters do not intend to confirm sales to accounts over which
they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock at the offering price, less the underwriting
discount, set forth on the cover page of this Prospectus. To the extent the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the above
table bears to the total number of shares of Common Stock offered hereby. The
Company will be obligated, pursuant to the option, to sell such shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
The officers and directors who are stockholders of the Company and certain
of the other stockholders of the Company, who will own in the aggregate
7,694,060 shares of Common Stock after the offering, have agreed,
67
<PAGE>
subject to certain exceptions, that they will not, without the prior written
consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any
shares of Common Stock, options or warrants to acquire shares of Common Stock
or securities exchangeable for or convertible into shares of Common Stock
owned by them during the 180-day period following the date of this Prospectus.
The Company has agreed that it will not, without the prior written consent of
Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock during
the 180-day period following the date of this Prospectus, except that the
Company may issue shares upon the exercise of options granted prior to the
date hereof, and may grant additional options under its Plans, provided that,
without the prior written consent of Hambrecht & Quist LLC, such additional
options shall not be exercisable during such period.
Prior to the offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price are prevailing
market and economic conditions, revenues and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant. The estimated initial public offering price set forth
on the cover of this preliminary prospectus is subject to change as a result
of market conditions and other factors.
Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase, for the purpose of pegging,
fixing or maintaining the price of the Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with the offering. A penalty bid means an arrangement that
permits the Underwriters to reclaim a selling concession from a syndicate
member in connection with the offering when shares of Common Stock sold by the
syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq Stock Market, in the over-the-
counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by its counsel, Venture Law Group, A Professional Corporation, 2800
Sand Hill Road, Menlo Park, California 94025. Mark A. Medearis, a director of
Venture Law Group, is the Assistant Secretary of the Company. Mr. Medearis
beneficially owns an aggregate of 904 shares of Common Stock, and certain
attorneys employed by Venture Law Group beneficially own an aggregate of 1,905
shares of Common Stock. Certain legal matters will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
650 Page Mill Road, Palo Alto, California 94304. Certain members of Wilson
Sonsini Goodrich & Rosati beneficially own an aggregate of 6,073 shares of
Common Stock.
EXPERTS
The consolidated balance sheets as of December 31, 1995 and 1996 and the
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996, included in
this Prospectus, have been included herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
68
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement, of which this Prospectus constitutes a
part, under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus omits certain information contained in the
Registration Statement, and reference is made to the Registration Statement
and the exhibits and schedules thereto for further information with respect to
the Company and the Common Stock offered hereby. Statements contained herein
concerning the provisions of any documents are not necessarily complete, and
in each instance reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference. Copies of the Registration Statement, including
exhibits and schedules filed therewith, may be inspected without charge at the
Commission's principal office in Washington, D.C. or obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission maintains a World Wide Web site
on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding companies that file
electronically with the Commission. The Company has filed the Registration
Statement, including the exhibits and schedules thereto, electronically with
the Commission via the Commission's Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) system. The Company intends to distribute to its
stockholders annual reports containing audited financial statements and will
make available copies of quarterly reports for the first three quarters of
each fiscal year containing unaudited interim financial information.
69
<PAGE>
PREVIEW TRAVEL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Shareholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Preview Travel,
Inc.:
We have audited the accompanying consolidated balance sheets of Preview
Travel, Inc. and Subsidiaries (the Company) as of December 31, 1995 and 1996,
and the related consolidated statements of operations, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Preview Travel, Inc. and Subsidiaries as of December 31, 1995 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its
presentation of the balance sheets for all periods presented.
San Francisco, California
February 3, 1997, except as
to Note 4 for which the date
is March 1, 1997, and Notes
7 and 15 for which the date
is
- ---------------------
The foregoing report is in the form that will be signed upon the completion of
the reincorporation of the Company in Delaware and the related exchange of
common and preferred shares as described in Note 15 to the Consolidated
Financial Statements.
San Francisco, California
October 3, 1997
F-2
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, JUNE 30,
------------------ JUNE 30, 1997
1995 1996 1997 (NOTE 1)
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 1,064 $ 6,016 $ 1,136
Accounts receivable, net........... 928 1,259 1,563
Travel inventory................... 602 -- --
Prepaid production costs and other
assets............................ 877 212 415
-------- -------- --------
Total current assets......... 3,471 7,487 3,114
Film library, net of accumulated
amortization of $2,496, $4,023,
and $4,665, respectively.......... 3,756 2,967 2,652
Property and equipment, net........ 1,839 2,100 2,702
-------- -------- --------
Total assets................. $ 9,066 $ 12,554 $ 8,468
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable................... 832 938 655
Accrued liabilities................ 1,171 1,951 2,025
Deferred revenues.................. 820 598 387
Convertible notes payable.......... 750 750 750
Current portion of notes payable
and line of credit................ 2,754 2,136 986
Current portion of capital lease
obligations....................... 605 722 642
Current portion of deferred
compensation...................... -- -- 62
-------- -------- --------
Total current liabilities.... 6,932 7,095 5,507
Capital lease obligations, less
current portion................... 478 776 1,053
Notes payables, long term.......... 407 272 203
Deferred compensation.............. -- -- 189
-------- -------- --------
Total liabilities............ 7,817 8,143 6,952
-------- -------- --------
Commitments (Notes 5 and 15).
Shareholders' equity:
Series A through E Convertible
Preferred Stock; $0.001 par value:
Authorized: 3,984,536 shares in
1995, 6,134,563 shares in 1996
and 1997 and 5,000,000 shares
pro forma;
Issued and outstanding:
3,366,797 shares in 1995,
4,322,666 shares in 1996 and
4,483,166 at June 30, 1997 and
no pro forma shares (unaudited). 4 5 5
(Liquidation preference:
$19,292,221)
Common stock, $0.001 par value:
Authorized: 7,300,000 shares in
1995 and 10,000,000 shares in
1996 and 1997 and 50,000,000
shares pro forma; Issued and
outstanding: 1,564,380 shares in
1995, 1,701,731 shares in 1996,
1,716,537 shares in 1997, and
11,616,973 shares pro forma...... 1 2 2 7
Additional paid-in capital......... 10,991 19,796 20,228 20,228
Other.............................. 276 223 (57) (57)
Accumulated deficit................ (10,023) (15,615) (18,662) (18,662)
-------- -------- -------- --------
Total shareholders' equity... 1,249 4,411 1,516 1,516
-------- -------- -------- --------
Total liabilities and
shareholders' equity............ $ 9,066 $ 12,554 $ 8,468
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE FOR THE SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- -----------------------
1994 1995 1996 1996 1997
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Online..................... $ -- $ 579 $ 2,573 $ 591 $ 2,670
Television................. 9,598 9,564 9,801 5,265 4,056
------- ------- ------- ------- -------
Total revenues............ 9,598 10,143 12,374 5,856 6,726
Costs of revenues:
Online..................... -- 1,078 2,308 872 1,763
Television................. 9,103 8,393 7,000 3,310 2,889
------- ------- ------- ------- -------
Total cost of revenues...... 9,103 9,471 9,308 4,182 4,652
Gross profit.............. 495 672 3,066 1,674 2,074
Operating expenses:
Marketing and sales........ 2,759 2,687 4,373 1,752 2,516
Research and development... -- 626 1,314 487 701
General and administrative. 1,162 2,026 2,880 1,239 1,923
Loss on cancelled
programming (Note 11)..... 2,166 -- -- -- --
------- ------- ------- ------- -------
Total operating expenses.... 6,087 5,339 8,567 3,478 5,140
Loss from operations...... (5,592) (4,667) (5,501) (1,804) (3,066)
Interest income (expense),
net........................ (246) (264) (89) (143) 20
------- ------- ------- ------- -------
Loss before income taxes.. (5,838) (4,931) (5,590) (1,947) (3,046)
Income tax benefit
(expense).................. 420 (2) (2) (1) (1)
------- ------- ------- ------- -------
Loss from operations...... (5,418) (4,933) (5,592) (1,948) (3,047)
------- ------- ------- ------- -------
Net loss.................... $(5,418) $(4,933) $(5,592) $(1,948) $(3,047)
======= ======= ======= ======= =======
Net loss per share.......... $ (1.82) $ (1.61) $ (1.61) $ (0.57) $ (0.86)
======= ======= ======= ======= =======
Weighted average shares
outstanding used in per
share calculation.......... 2,978 3,066 3,469 3,417 3,545
======= ======= ======= ======= =======
Net loss per share, pro
forma (Note 1)............. $ (0.65) $ (0.33)
======= =======
Weighted average shares
outstanding used in pro
forma per share
calculation................ 8,573 9,207
======= =======
SUPPLEMENTAL INFORMATION
(UNAUDITED) (NOTE 1)
Gross bookings.............. $ -- $ 2,043 $20,263 $ 3,323 $31,933
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RETAINED
CONVERTIBLE EARNINGS TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL (ACCUMU- SHAREHOLDERS'
----------------- ------------- PAID-IN LATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL OTHER DEFICIT) (DEFICIT)
-------- ------- ------ ------ ---------- ----- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993.................... 1,874 $ 2 1,100 $ 1 $ 4,075 $ (74) $ 328 $4,331
Issuance of common
stock.................. 97 66 66
Issuance of warrants... 4 4
Interest on notes
receivable............. (11) (11)
Net loss............... (5,418) (5,418)
-------- ------ ----- --- ------- ----- -------- ------
Balance, December 31,
1994.................... 1,874 2 1,197 1 4,141 (81) (5,090) (1,027)
Issuance of common
stock.................. 367 692 692
Repayment of note...... 77 77
Issuance of Series D
preferred stock........ 1,492 2 6,158 6,160
Issuance of common
stock warrants......... 1 1
Issuance of Series D
preferred stock
warrants............... 279 279
Net loss............... (4,933) (4,933)
-------- ------ ----- --- ------- ----- -------- ------
Balance, December 31,
1995.................... 3,366 4 1,564 1 10,991 276 (10,023) 1,249
Issuance of common
stock.................. 138 1 244 (234) 11
Repayment of note...... 8 8
Issuance of Series E
preferred stock........ 956 1 8,561 8,562
Issuance of common
stock warrants......... 11 11
Issuance of Series E
preferred stock
warrants............... 162 162
Net loss............... (5,592) (5,592)
-------- ------ ----- --- ------- ----- -------- ------
Balance, December 31,
1996.................... 4,322 5 1,702 $ 2 $19,796 $(223) $(15,615) $4,411
Issuance of common
stock.................. 15 26 (35) (9)
Exercise of warrants to
Series C preferred
stock.................. 161 406 406
Deferred compensation
in connection with
issuance of stock
options................ (243) (243)
Net loss............... (3,047) (3,047)
-------- ------ ----- --- ------- ----- -------- ------
Balance, June 30, 1997
(unaudited)............. 4,483 $ 5 1,717 $ 2 $20,228 $ (57) $(18,662) $1,516
======== ====== ===== === ======= ===== ======== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- -----------------------
1994 1995 1996 1996 1997
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss................... $(5,418) $(4,933) $(5,592) $(1,948) $(3,047)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation.............. 602 671 828 414 434
Amortization of film
library.................. 2,539 1,724 1,527 757 642
Loss on disposal of fixed
assets................... -- -- 188 188 --
Unearned compensation..... -- -- -- -- 8
Charges related to
issuance of warrants..... -- -- 172 172 --
Loss on cancelled
programming.............. 2,166 -- -- -- --
Changes in assets and
liabilities:
Accounts receivable...... 1,208 486 (330) (352) (304)
Travel inventory......... (159) 191 602 253 --
Prepaid production and
other assets............ 199 215 664 240 (203)
Accounts payable and
accrued liabilities..... 1,196 (1,090) 886 270 (209)
Deferred income taxes.... (422) -- -- -- --
Deferred revenue......... 203 457 (222) (274) (211)
Interest expense......... -- -- -- -- (26)
------- ------- ------- ------- -------
Net cash provided by
(used in) operating
activities............. 2,114 (2,279) (1,277) (281) (2,916)
------- ------- ------- ------- -------
Cash flows from investing
activities:
Acquisition of equipment... (71) (841) (239) (461) (590)
Additions to film library.. (2,389) (1,072) (738) (309) (337)
------- ------- ------- ------- -------
Net cash used in
investing activities... (2,460) (1,913) (977) (770) (917)
------- ------- ------- ------- -------
Cash flows from financing
activities:
Net repayment of long-term
debt...................... 176 (1,382) (618) (18) (1,150)
Proceeds from equipment
note...................... -- 543 -- -- --
Repayments on equipment
note...................... -- -- (135) (68) (68)
Payments on obligations
under capital leases...... (523) (596) (623) (277) (250)
Proceeds from repayment of
shareholder notes......... -- 77 8 -- --
Proceeds from issuance of
convertible bridge loans
.......................... -- -- 1,000 1,000 --
Proceeds from issuance of
common stock.............. 66 37 11 11
Proceeds from issuance of
preferred stock........... -- 6,160 7,562 7,562 421
Issuance of stock
warrants.................. -- 279 1 -- --
------- ------- ------- ------- -------
Net cash provided by
(used in) financing
activities............. (281) 5,118 7,206 8,210 (1,047)
------- ------- ------- ------- -------
Net increase (decrease)
in cash............... (627) 926 4,952 7,159 (4,880)
Cash and cash equivalents,
beginning of year.......... 765 138 1,064 1,064 6,016
------- ------- ------- ------- -------
Cash and cash equivalents,
end of the year............ $ 138 $ 1,064 $ 6,016 $ 8,223 $ 1,136
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Preview Travel, Inc. ("Preview Travel" or the "Company") is a leading
provider of branded online travel services for leisure and small business
travelers. The Company operates its own Web sites (www.previewtravel.com,
www.reservations.com and www.vacations.com), the travel service on America
Online, Inc. ("AOL") (AOL keyword: previewtravel) and a co-branded travel Web
site with Excite, Inc. ("Excite") (City.Net). The Company offers travel
shopping and reservation services, providing access to schedule, pricing and
availability information. The Company is also engaged in the production,
syndication and distribution of travel-related news and entertainment
programming for the television and in-flight markets.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Preview Travel Online, Inc. and News Travel
Network, Inc.. All significant intercompany balances and transactions have
been eliminated in the consolidated financial statements.
Revenue Recognition:
Online Revenues:
Commission revenues for airline travel, hotel rooms, car rentals and travel
packages, net of allowances for cancellations, are recognized upon
confirmation of the reservation. Overrides are recognized on a cash basis
which reflects the performance in the prior monthly or quarterly period.
Television Revenues:
Program license revenues are recognized when all of the following conditions
are met: 1) the license period begins, 2) the license fee and the production
costs are known, and 3) the program has been accepted by the licensee and is
available for telecast.
Advertising Revenues:
Advertising revenues are recognized when all the terms of the advertising
agreement are met and advertising is shown on various media as designated by
the agreement.
Computation of Historical Net Loss Per Share and Pro Forma Net Loss Per
Share:
Net loss per share is computed using the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares, comprising the incremental common shares issuable upon the exercise of
stock options and warrants and upon conversion of convertible preferred stock,
except as provided below, have not been included as such shares are anti-
dilutive.
The Company has computed common and common equivalent shares in determining
the number of shares used in calculating net loss per share for all periods
presented pursuant to the Securities and Exchange
F-7
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Commission Staff Accounting Bulletin (SAB) No. 83. SAB 83 requires the Company
to include all common shares and all common share equivalents issued during
the twelve month period preceding the filing date of an initial public
offering in its calculation of the number of shares used to determine net loss
per share as if the shares had been outstanding for all periods presented.
Pro forma net loss per share for the year ended December 31, 1996 and the
six months ended June 30, 1997 assumes the common shares issuable upon
conversion of the outstanding convertible preferred stock had been outstanding
during such period.
Change in Balance Sheet Presentation and Prior Period Reclassifications:
The Company previously reported the consolidated balance sheets of the
Company without separately classifying current and non-current assets and
liabilities. The consolidated balance sheets included herein classify current
assets and current liabilities based on those assets which are reasonably
expected to be realized or obligations whose liquidation is expected within a
year. Also, the 1994 consolidated statement of operations has been
reclassified to conform to the 1995 and 1996 presentation.
Cash and Cash Equivalents:
Cash equivalents consist of short-term investments with original maturities
of 90 days or less and are recorded at cost, which approximates fair value.
Travel Inventory:
Travel inventory consists of barter credits earned as compensation for the
Company's television program production services rendered and advertising time
provided. Travel inventory includes airline tickets, hotel accommodations,
rental cars, and other travel-related products. Barter credits are recorded
based on various percentages of wholesale rates and do not exceed estimated
realizable value. During the year ended December 31, 1996, the Company greatly
reduced its acquisition of travel inventory and wrote off the remaining
balance of unused travel inventory.
Film Library and Prepaid Production Costs:
Direct costs of producing travel programs and travel film are capitalized.
These costs are amortized on the basis of management's estimate of the
program's or film's useful life in generating future revenue. Such estimates
are revised periodically, and adjustments, if any, are recorded. Based on the
Company's past experience and estimates for future projects, such costs are
currently being amortized over a period of three to five years. Expenditures
relating to custom travel programs which have a limited useful life are
charged to expense in the same period as revenues are recognized. It is
reasonably possible that these estimates of anticipated gross revenues,
remaining economic life, or both, may be significantly reduced.
Property and Equipment:
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets,
typically five years. Any gains or losses on the disposal of property and
equipment are recorded in the year of disposition.
Income Taxes:
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109) which
requires recognition of deferred tax liabilities and assets for
F-8
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. Income tax expense is the tax
payable for the period and the change during the period in deferred tax assets
and liabilities.
Deferred Revenues
Deferred revenues primarily represents prepayments by vendors for television
or film advertising.
Supplemental Information (unaudited):
Gross bookings represent the total purchase price of all travel services
booked through the Company's online sites. This information does affect the
Company's operating results. Gross bookings are not required by generally
accepted accounting principles ("GAAP"), are not included in revenues, and
should not be considered in isolation or as a substitute for other information
prepared in accordance with generally accepted accounted principles.
Business Risk and Credit Concentration:
The Company operates in the online travel services industry, which is new,
rapidly evolving and intensely competitive. The Company competes primarily
with traditional travel agency reservation methods and online travel
reservation services. In the online travel services market, the Company
competes with other entities that maintain similar commercial Web sites. There
can be no assurance that the Company will achieve sufficient online traffic,
travel bookings or commissions to realize economies of scale that justify its
significant commitments to third parties.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
(including money market accounts) and accounts receivable. The Company places
its temporary cash investments with one major financial institution.
The majority of the Company's customers for travel programs and related
productions are located across the United States and are primarily in travel-
related industries and television broadcast businesses. The Company performs
ongoing credit evaluations of customers and generally does not require
collateral. Allowances are maintained for potential credit losses, and such
losses have been within management's expectations. In 1996, revenues from one
customer approximated $5.7 million and accounted for approximately 46% of
total revenues, and 33% of accounts receivable at December 31, 1996. The
majority of the contract with this customer has subsequently been terminated.
For the six month periods ended June 30, 1996 and 1997, revenues from the
same customer approximated $2.9 million and $1.5 million, respectively, and
accounted for approximately 49% and 22% of total revenues and 37% and 36% of
accounts receivable, respectively.
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate fair value due to the
short-term maturities of these instruments.
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the carrying value of the
borrowings under the capital lease obligations, bank line of credit and notes
payable approximate their fair value.
F-9
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Unaudited Interim Financial Information:
The accompanying interim consolidated balance sheet as of June 30, 1997 and
the consolidated statements of operations and cash flows for the six months
ended June 30, 1996 and 1997 together with the related notes are unaudited but
include all adjustments, consisting of only normal recurring adjustments,
which the Company considers necessary to present fairly, in all material
respects, the consolidated financial position, the results of operations and
cash flows for the six month periods ended June 30, 1996 and 1997. Results for
the six months ended June 30, 1997 are not necessarily indicative of results
for the entire year.
Recently Issued Accounting Pronouncements:
In February 1997, FAS No. 128, "Earnings Per Share" was issued and is
effective for the Company's year ending December 31, 1997. In March 1997, FAS
No. 129, "Disclosure of Information About Capital Structure" was issued and is
effective for the Company's year ending December 31, 1998. In June 1997,
FAS No. 130 "Reporting Comprehensive Income" and FAS No. 131, "Disclosure
About Segments of an enterprise and Required Information" were issued and are
effective for the year ending December 31, 1998. The Company has not
determined the impact of the implementation of these pronouncements.
2. PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures................. $ 553 $ 311 $ 701
Production equipment................... 2,849 1,782 2,550
Leasehold improvements................. 142 275 358
Computer equipment..................... 922 1,827 1,620
------- ------- -------
4,466 4,195 5,229
Less accumulated depreciation.......... (2,627) (2,095) (2,527)
------- ------- -------
Property and equipment, net............ $ 1,839 $ 2,100 $ 2,702
======= ======= =======
</TABLE>
Equipment under capital leases included in property and equipment amounted
to $1,506,000 (net of $1,422,000 accumulated amortization), $1,264,000 (net of
$1,104,000 accumulated amortization) and $1,754,000 (net of $1,431,000
accumulated amortization) at December 31, 1995 and 1996 and June 30, 1997,
respectively.
F-10
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INCOME TAXES:
During the year ended December 31, 1994, deferred income tax benefits for
federal and state taxes were $357,000 and $63,000, respectively. For December
31, 1995, and 1996 and June 30, 1997, the provision for income taxes comprised
minimum state tax expense.
Deferred tax assets (liabilities) comprised the following (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Film library.............................................. $ (182) $ (264)
Property and equipment.................................... (103) 86
Other..................................................... 45 55
Warrants.................................................. 112 179
Deferred rent............................................. 103 140
Net operating loss carryforwards.......................... 3,473 5,382
------- -------
3,448 5,578
Less valuation allowance.................................. (3,448) (5,578)
------- -------
-- --
======= =======
</TABLE>
Due to the uncertainty surrounding the realization of the deferred tax asset
in future tax returns, the Company has placed a valuation allowance against
its net deferred tax assets. The valuation allowance has increased by
$1,777,000 and $2,130,000 during 1995 and 1996, respectively.
At December 31, 1996, the Company had available net operating loss
carryforwards for federal and state income tax purposes of approximately
$14,516,000 and $7,271,000, respectively. These carryforwards expire from 2001
to 2011.
Due to changes in the Company's ownership in 1995 and 1996, future
utilization of these net operating loss carryforwards will be subject to
certain limitations on annual utilization as defined by the Tax Reform Act of
1986.
F-11
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. NOTES PAYABLE AND LINE OF CREDIT:
Notes payable and line of credit consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Line of credit (1).................... $ 618 $ -- $ 850
Subordinated convertible shareholder
notes payable (2).................... 750 750 750
Subordinated notes payable (3)........ 2,000 2,000 --
Bank equipment note (4)............... 543 407 339
------- ------- -------
$ 3,911 $ 3,157 $ 1,939
Less current portion.................. (3,504) (2,886) (1,736)
------- ------- -------
$ 407 $ 272 $ 203
======= ======= =======
</TABLE>
- ---------------------
(1) The Company has a bank line of credit collateralized by accounts
receivable, equipment and inventories. The line requires monthly payments
of interest only at prime plus 1.5% (9.5% and 9.75% at December 31, 1995
and 1996, respectively, and 10% at June 30, 1997), and any unpaid
principal and interest will be due on May 5, 1998. The line has a maximum
amount available of $2,000,000 and limits borrowing to 80% of qualified
receivables (as defined). At December 31, 1996 and June 30, 1997 the
Company had borrowed $0 and $850,000 against a qualified line of $801,000
and $865,000, respectively. The bank credit agreement requires the
Company's compliance with certain financial covenants related to tangible
net worth and quarterly profitability and restricts the payment of
dividends. As of December 31, 1996 and June 30, 1997, the Company was in
compliance with these financial covenants.
(2) The notes to shareholders bear interest at the rate of 8% per annum
payable semi-annually on June 30 and December 31, starting June 30, 1995.
The entire unpaid principal and interest is due and payable on the earlier
of demand by the note holders or January 31, 2000. The notes can be
converted to common stock at a rate of one share per $2.20 of principal
amount of such notes at the note holders' option. In addition, the notes
will be automatically converted into shares of common stock upon the
closing of a public offering of the Company's common stock with aggregate
proceeds to the Company in excess of $7,500,000 and at a price of not less
than $10.00 per share. The notes are subordinated to the bank line of
credit and bank equipment note described in (4) below. The Company has
reserved 340,909 shares of common stock for issuance upon conversion of
the notes.
(3) Subordinated notes payable to various shareholders, trusts and
partnerships at December 31, 1995 and 1996 required semiannual interest
payments at a rate of 8% per annum beginning July 14, 1993. The entire
principal and remaining interest due on the notes was paid on March 1,
1997. The notes were collateralized by all Company assets excluding
equipment. The notes were subordinated to the bank line of credit and bank
equipment note, capital lease obligations and the debt described in (2)
above, in an amount not to exceed $5,000,000.
(4) The bank equipment note is payable in equal monthly payments of $11,300
plus interest at 2% over the bank's prime rate (8.5% and 8.25% at December
31, 1995 and 1996, respectively, and 8.5% at June 30, 1997) through
December 1999. The agreement restricts the payment of dividends.
F-12
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS:
The Company leases its office space under a noncancelable operating lease
expiring in 2001. Certain operating expenses and property taxes related to the
leased office space are paid by the Company. The Company also leases certain
production and office equipment and computers under capital leases expiring
through 2000.
Future minimum annual lease payments for both capital and operating leases
are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
<S> <C> <C>
Year ending December 31:
1997..................................................... $ 407 $ 723
1998..................................................... 473 505
1999..................................................... 536 367
2000..................................................... 580 120
2001..................................................... 300 16
------ ------
Total minimum lease payments............................... $2,296 1,731
======
Less amounts representing interest......................... 233
------
Present value of minimum lease payments.................... $1,498
======
</TABLE>
Total rent expense for office space was $272,000, $434,000 and $479,000 for
the years ended December 31, 1994, 1995 and 1996, respectively, and $220,000
and $221,000 for the six months ended of June 30, 1996 and 1997, respectively.
6. PREFERRED STOCK:
As of December 31, 1996 and June 30, 1997, the Company had five series of
convertible preferred stock authorized and outstanding. The holders of all
preferred stock have the same voting rights as common shareholders. Voting
rights are equal to the number of shares of common stock into which such
shares of preferred stock could be converted on the record date for the vote.
The Series A, B, C, D, and E preferred stockholders are entitled to receive,
when and as declared by the Board of Directors, noncumulative dividends at the
rate of $0.12, $0.12, $0.168, $0.252, and $0.54 per share per annum,
respectively. No dividends were declared in 1995 or 1996 or the first six
months of 1997. The preferred stock is convertible, at the option of the
holder, at any time into common stock on a one for one basis, subject to
adjustment resulting from certain future capital transactions. In addition,
each preferred share automatically converts into common stock upon the earlier
of (a) consummation of any public offering of common stock by the Company,
provided the net proceeds to the Company of such offering exceed $7,500,000
and the price to the public is at least $10.00 per share, or (b) the date
specified by written consent from at least 80% of the holders of each series
of preferred stock. The Company has reserved 4,322,661 shares of common stock
for the conversion of preferred stock. In the event of any voluntary or
involuntary liquidation of the Company, the Series A, B, C, D, and E holders
receive a liquidation preference of $2.00, $2.00, $2.80, $4.20 and $9.00 per
share, respectively.
F-13
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. STOCK WARRANTS:
In 1995 and 1996, the Company issued warrants to purchase common and
preferred stock to an online service provider, holders of certain debt, and an
equipment lease provider. At December 31, 1996, such warrants were as follows:
<TABLE>
<CAPTION>
AGGREGATE
EXERCISE
SHARES PRICE EXPIRATION DATES
------- ---------- ----------------
<S> <C> <C> <C>
Common stock............ 160,000 $ 352,000 The earlier of January 1999 or upon closing
of an initial public offering
Common stock............ 51,202 $ 170,000 March 1998
Common stock............ 19,076 $ 46,000 May 2001
Series C Preferred
stock.................. 160,500 $ 406,000 December 1996
Series D Preferred
stock.................. 377,619 $1,586,000 Upon the closing of an initial public
Series D Preferred offering, as amended in September 1997
stock.................. 20,000 $ 84,000 The later of December 2005 or five years
from the closing of an initial public
Series E Preferred offering
stock.................. 75,000 $ 675,000 The earlier of July 2001 or the closing of
an initial public offering
</TABLE>
The Company estimated the fair value of these warrants and charged such
amounts to expense at the time of issuance. The amounts charged to expense
were not significant.
The Company has reserved 1,113,612 shares of common stock for the exercise
of common stock warrants and exercise and conversion of preferred stock
warrants.
In January, 1997, a warrant for 160,500 shares of Series C Preferred Stock
was exercised for aggregate proceeds of $406,000. In addition, additional
warrants were issued to various lenders and strategic partners as described in
Note 15.
8. OTHER SHAREHOLDERS' EQUITY:
Other shareholders' equity comprise the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Unearned compensation................ -- -- (243)
Shareholder note receivable.......... (8) (234) (269)
Stock warrants....................... 284 457 455
--- ---- ----
276 223 (57)
=== ==== ====
</TABLE>
F-14
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. STOCK OPTION PLAN:
Under the Company's stock option plan, as amended, the Board of Directors
may grant options for common stock to employees, directors, and consultants
either as incentive stock options or nonstatutory options. Options granted as
incentive stock options are at an exercise price not lower than the fair
market value of the stock at the date the options are granted. Nonstatutory
options are issued at between 85% and 100% of fair market value. Options
granted generally become exercisable over fours years (three years for options
granted prior to 1995). At December 31, 1995 and 1996, 1,056,750 and 1,306,750
shares of common stock, respectively, were reserved for the exercise of stock
options.
The following table summarizes activity under the Company's stock option
plan for the periods ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF AGGREGATE AVERAGE
SHARES OPTION PRICE PRICE EXERCISE
(IN THOUSANDS) PER SHARE (IN THOUSANDS) PRICE
-------------- --------------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
December 31, 1993...... 247 $.050 - $2.20 $ 206 $0.84
Granted............... 57 2.20 126 2.20
Exercised............. (97) 0.50 - 2.00 (66) 0.68
Terminated............ (11) 0.50 - 2.20 (24) 0.99
---- ----- ----- ------ -----
Options outstanding at
December 31, 1994...... 196 0.50 - 2.20 242 1.22
Granted............... 586 2.20 1,290 2.20
Exercised............. (70) 0.50 - 2.20 (37) 0.54
Terminated............ (35) 0.50 - 2.20 (73) 2.04
---- ----- ----- ------ -----
Options outstanding at
December 31, 1995...... 677 0.50 - 2.20 1,422 2.10
Granted............... 277 2.20 - 2.60 701 2.52
Exercised............. (137) 0.50 - 2.20 (246) 1.78
Terminated............ (82) 0.50 - 2.60 (211) 2.56
---- ----- ----- ------ -----
Options outstanding at
December 31, 1996...... 735 1.20 - 2.60 1,666 2.28
==== ===== ===== ====== =====
Options exercisable at
December 31, 1996...... 279 $1.20 - $2.60 $ 602 $2.16
==== ===== ===== ====== =====
</TABLE>
At December 31, 1996, 212,698 shares remain available for issuance.
The following table summarizes information with respect to stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF AT 12/31/96 CONTRACTUAL LIFE EXERCISE AT 12/31/96 EXERCISE
EXERCISE PRICES IN THOUSANDS (YEARS) PRICE (IN THOUSANDS) PRICE
--------------- ------------ ---------------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$1.20--
$2.20 367 3.15 $2.18 190 $2.04
$2.40--
$2.60 368 3.76 $2.48 89 $2.42
</TABLE>
The following information concerning the Company's stock option plan is
provided in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company accounts for the plan in accordance with APB No. 25
and related Interpretations.
F-15
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of each option grant has been estimated on the date of grant
using the minimum value method with the following weighted average assumptions
used for grants in 1995 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Risk-free Interest Rates......................... 6.75% 6.15%
Expected Life.................................... 5 years 5 years
Dividends........................................ 0 0
</TABLE>
The weighted average fair value per option granted in 1995 and 1996 was
$0.64.
The following pro forma income information has been prepared as if the
Company had followed the provisions of SFAS 123 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Net loss--pro forma................................ $5,026 $5,732
</TABLE>
These pro forma amounts may not be representative of the effects on reported
net income (loss) for future years as options vest over several years and
additional awards are generally made each year.
The Company has accounted for the fair value for the warrants issued in
connection with the various financing and purchase transactions (Note 7) using
the following assumptions for 1995 and 1996:
<TABLE>
<S> <C>
Risk-free Interest Rate.............................................. 5.50%
Expected Life........................................................ 5 years
</TABLE>
The weighted average fair value of those purchase rights granted in 1996 was
$0.29 through $1.08 per share.
In connection with the filing of the Company's proposed initial public
offering, see Note 15, certain options granted in 1997 have been considered to
be compensatory. The charges associated with such options as of June 30, 1997
were $251,000. Of that amount, $8,000 has been charged to operations in the
six months ended June 30, 1997 and $243,000 has been recorded as deferred
compensation and will be charged to operations over the period to 2001.
10. SHAREHOLDER NOTES RECEIVABLE:
Shareholder notes receivable represent the amounts due from directors and
officers in exchange for issuance of common stock together with accrued
interest. The notes bear interest at rates from 6%-8% and are due five years
from the date of issuance but may be repaid earlier.
11. EMPLOYEE BENEFIT PLAN:
The Company sponsors a defined contribution 401(k) plan which covers
substantially all employees. Employer contributions are made at the discretion
of the Company. The Company made no contributions to the plan during the years
ended December 31, 1994, 1995 or 1996 or the six months ended June 30, 1997.
12. LOSS ON CANCELLED PROGRAMMING:
Effective September 30, 1994, the Company cancelled all further development
of environmental related programming. Unamortized production costs totaling
$2,166,000 were written off in 1994.
F-16
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During each of the years ended December 31, 1994, 1995 and 1996, and each of
the two six month periods ended June 30, 1996 and 1997, the Company made cash
payments for interest of approximately $485,000, $372,000, $260,000, $132,000
and $138,000, respectively, and payments for state franchise taxes of $1,600
for the year ended December 31, 1994 and $2,400 for each of the years ended
1995 and 1996.
The following noncash investing and financing transactions occurred during
the periods presented (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------- -----------
1994 1995 1996 1996 1997
---- ----- ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Property and equipment obtained through capital
leases.......................................... $394 $ 266 $1,039 $ 276 $ 446
==== ===== ====== ===== =====
Common stock issued for licensing and development
costs........................................... -- $ 655 $ -- -- --
==== ===== ====== ===== =====
Common stock issued for notes and interest
receivable...................................... -- -- $ 234 $ 181 $ 26
==== ===== ====== ===== =====
Series E Preferred Stock issued upon conversion
of bridge loans................................. -- -- $1,000 -- --
==== ===== ====== ===== =====
</TABLE>
14. RELATED PARTY TRANSACTION:
During the year ended December 31, 1996, the Company recorded $1,537,040,
$233,139 and $372,971 of airline ticketing, booking, and connect time
revenues, respectively, pursuant to an agreement with America Online, Inc.
(AOL), a shareholder of the Company. The Company also recorded marketing
expense of $107,563 for services in connection with the agreement.
15. SUBSEQUENT EVENTS:
Future Commitments and Contingencies:
In September 1997 the Company entered into agreements with AOL and Excite,
Inc. (Excite) under which these companies are obligated to deliver minimum
numbers of annual page views to the Company through the online areas featuring
the Company's travel services. In connection with those services, the Company
is obligated to make aggregate payments to AOL and Excite totaling $8.5
million in 1997 (assuming completion of the Company's initial public offering
in 1997), $4.1 million in 1998, $10.9 million in 1999, $12.4 million in each
of 2000 and 2001 and $7.7 million in 2002.
The Company is also obligated to pay a percentage of commissions earned by
the Company in excess of certain thresholds and, to retain the right to be the
primary provider of travel services on AOL, must achieve specified levels of
annual travel service bookings.
Stock Split:
In October 1997, subject to stockholder approval, the Board of Directors
approved the reincorporation of the Company in Delaware having the effect of a
2:1 reverse stock split. All share and per share information in the
accompanying consolidated financial statements and notes thereto have been
restated for such stock split.
F-17
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition, the Board of Directors authorized management of the Company to
file a Registration Statement with the Securities and Exchange Commission
covering the proposed sale of shares of its common stock to the public. Upon
completion of this proposed sale, all outstanding shares of the Company's
convertible preferred stock will automatically convert into common stock.
Unaudited pro forma stockholders' equity, as adjusted for the assumed
conversion of the convertible preferred stock, is disclosed in the
accompanying unaudited pro forma balance sheet.
Additional Warrants:
In July 1997, the Company issued a warrant to purchase Series E Preferred
Stock convertible into 11,666 shares of common stock at an exercise price of
$9.00 per share in connection with an equipment leasing facility. The warrant
is exercisable immediately and expires upon the earlier of July 22, 2007 or
the date five years following the effective date of the Company's initial
public offering. The value of the warrants will be charged to expense over the
period of the lease.
In September 1997, the Company issued a warrant to purchase shares of Series
E Preferred Stock convertible into 94,500 shares of Common Stock at an
exercise price of $9.00 per share. This warrant is immediately exercisable and
expires the earlier of September 26, 2002 or the closing of the Company's
initial public offering. The fair value will be charged to expense during the
quarter ended September 30, 1997.
Series E Preferred Stock Financing:
On September 26, 1997, the Company issued 1,562,806 shares of Series E
Preferred Stock at $9.00 per share ($13,990,000, net of expenses).
F-18
<PAGE>
[GRAPHIC DEPICTING FAREFINDER SCREEN]
SHOPPING FEATURES
[GRAPHIC DEPICTING FIND-A-TRIP SCREEN]
Preview Travel has created several special services designed to help
consumers make better travel decisions. With Farefinder, users have quick and
easy access to the lowest airfares from their home cities to destinations
around the world. With Find-a-Trip, users can locate a vacation package
designed to meet their specific needs and interests and retrieve hotel and
destination information, including photos and streaming video.
EASY-TO-USE AND CONVENIENT SERVICES
[GRAPHICS DEPICTING AIRLINE RESERVATION AND BOOKING SCREENS]
Preview Travel's friendly interface makes it easy for customers to make
their travel plans online. The Company's services are designed to help
consumers shop for travel based on price, convenience and other criteria. In
addition, Preview Travel enables consumers to store personal profiles and
travel preferences, making their travel planning faster and more convenient.
[GRAPHIC DEPICTING E-MAIL SCREEN]
PERSONALIZED COMMUNICATIONS
Each purchase on Preview Travel is followed by a series of personalized e-
mail notifications. Online transactions are confirmed via e-mail and are
followed by Bon Voyage and Welcome Home e-mails, which provide a summary of
the travel itinerary as well as an opportunity to thank customers and solicit
valuable feedback. Preview Travel also delivers targeted newsletters and
notifications to its members on a regular basis.
KNOWLEDGEABLE CUSTOMER SERVICE
Preview Travel is committed to delivering world-class customer service,
including complete online help, free delivery of travel documents, 24-hour,
toll-free customer service and e-mail support. Preview Travel's mission is to
fully assist customers before, during and after their travel. The Company
handles all aspects of customer service and fulfillment in-house, with a staff
of cyber-literate travel professionals.
[PICTURE OF CUSTOMER SERVICE CENTER]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................................... 3
Risk Factors............................................................ 5
Use of Proceeds......................................................... 19
Dividend Policy......................................................... 19
Capitalization.......................................................... 20
Dilution................................................................ 21
Selected Consolidated Financial Data.................................... 22
Management's Discuss and Analysis of Financial Condition and Results of
Operations............................................................. 23
Business................................................................ 34
Management.............................................................. 48
Certain Relationships and Related Transactions.......................... 58
Principal Stockholders.................................................. 61
Description of Capital Stock............................................ 63
Shares Eligible for Future Sale......................................... 65
Underwriting............................................................ 67
Legal Matters........................................................... 68
Experts................................................................. 68
Additional Information.................................................. 69
Index to Consolidated Financial Statements.............................. F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,500,000 SHARES
[LOGO OF PREVIEW TRAVEL]
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
NATIONSBANC
MONTGOMERY SECURITIES, INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
--------
<S> <C>
SEC Registration Fee.................................................. $ 9,584
NASD Filing Fee....................................................... 3,663
Nasdaq National Market Listing Fee.................................... 50,000
Printing Fees and Expenses............................................ 175,000
Legal Fees and Expenses............................................... 300,000
Accounting Fees and Expenses.......................................... 200,000
Blue Sky Fees and Expenses............................................ 5,000
Transfer Agent and Registrar Fees..................................... 15,000
Miscellaneous......................................................... 91,753
--------
Total............................................................... 850,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for certain
expenses incurred) arising under the Securities Act of 1933, as amended (the
"Act"). The Registrant's Amended and Restated Certificate of Incorporation
(Exhibit 3.1 hereto) provides for indemnification of its directors and
officers to the maximum extent permitted by the Delaware General Corporation
Law and the Registrant's Bylaws (Exhibit 3.2 hereto) provides for
indemnification of its directors, officers, employees and other agents to the
maximum extent permitted by the Delaware General Corporation Law. In addition,
the Registrant has entered into Indemnification Agreements (Exhibit 10.1
hereto) with its directors and officers containing provisions which are in
some respects broader than the specific indemnification provisions contained
in the Delaware General Corporation Law. The indemnification agreements may
require the Company, among other things, to indemnify its directors against
certain liabilities that may arise by reason of their status or service as
directors (other than liabilities arising from willful misconduct of culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors'
insurance if available on reasonable terms. Reference is also made to the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Company against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Since September 30, 1994, the Registrant has issued and sold (without
payment of any selling commission to any person) the following unregistered
securities (as adjusted to reflect the Registrant's reincorporation under the
laws of Delaware and the automatic conversion of its outstanding Preferred
Stock into Common Stock upon completion of this offering):
(1) In connection with the reincorporation of the Registrant under the
laws of Delaware to be effected prior to completion of this offering,
the Registrant will exchange shares of its capital stock for the
outstanding shares of capital stock of Preview Travel, Inc., a
California corporation.
II-1
<PAGE>
(2) As of September 30, 1997, 410,680 shares of Common Stock had been
issued upon exercise of options and 1,158,164 shares of Common Stock
were issuable upon exercise of outstanding options under the
Registrant's 1988 Stock Option Plan.
(3) In January 1995, the Registrant issued and sold to eight investors
shares of Series D Preferred Stock convertible into an aggregate of
1,492,976 shares of Common Stock for an aggregate purchase price of
$6,270,500.
(4) In February 1995, the Registrant issued to two investors convertible
subordinated notes in the aggregate principal amount of $750,000,
which notes are convertible into 340,909 shares of Common Stock.
(5) In May 1996, the Registrant issued to 20 investors convertible
subordinated notes in the aggregate principal amount of $999,959,
which notes were converted into shares of Series E Preferred Stock in
June 1996.
(6) In June 1996, the Registrant issued and sold shares of Series E
Preferred Stock convertible into an aggregate of 955,869 shares of
Common Stock to 21 investors for an aggregate purchase price of
$8,602,821. In September 1997, the Registrant issued and sold to 31
investors additional shares of Series E Preferred Stock convertible
into an aggregate of 1,562,806 shares of Common Stock for an aggregate
purchase price of $14,065,258.
(7) In January 1997, the Registrant issued Series C Preferred Stock upon
exercise of warrants held by 13 holders for an aggregate exercise
price of $414,999. Such shares of Series C Preferred Stock are
convertible into an aggregate of 148,214 shares of Common Stock.
(8) The Registrant has issued to America Online, Inc. the following
warrants in connection with certain commercial agreements between the
Registrant and America Online, Inc.: (A) in January 1995, a warrant to
purchase 160,000 shares of Common Stock for an aggregate purchase
price of $352,000; (B) in November 1995, a warrant to purchase shares
of Series D Preferred Stock convertible into 377,619 shares of Common
Stock for an aggregate purchase price of $1,586,000; and (C) in June
1996, a warrant to purchase shares of Series E Preferred Stock
convertible into 75,000 shares of Common Stock for an aggregate
purchase price of $675,000.
(9) The Registrant has issued to an equipment lease provider the following
warrants: (A) in December 1995, a warrant to purchase shares of Series
D Preferred Stock convertible into 20,000 shares of Common Stock for
an aggregate purchase price of $84,000; and (B) in July 1997, a
warrant to purchase shares of Series E Preferred Stock convertible
into 11,666 shares of Common Stock for an aggregate purchase price of
$104,994.
(10) In September 1997 the Registrant issued to a strategic partner a
warrant to purchase shares of Series E Preferred Stock convertible
into 94,500 shares of Common Stock at an aggregate exercise price of
$850,500.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
The issuance described in Item 15(a)(1) was or will be exempt from
registration under Section 2(3) of the Securities Act on the basis that such
transaction did not involve a "sale" of securities. The issuances described in
Items 15(a)(3) through 15(a)(10) were deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) thereof as transactions
by an issuer not involving any public offering. The issuances described in
Items 15(a)(2) were deemed to be exempt from registration under the Securities
Act in reliance upon Rule 701 promulgated thereunder in that they were offered
and sold either pursuant to written compensatory benefit plans or pursuant to
a written contract relating to compensation, as provided by Rule 701. In
addition, such issuances were deemed to be exempt from registration under
Section 4(2) of the Securities Act as transactions by an issuer not involving
any public offering. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends where affixed to the securities issued in such
transactions. All recipients had adequate access, through their relationships
with the Company, to information about the Registrant.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
2.1* Form of Agreement and Plan of Merger between the Registrant and Preview
Travel, Inc., a Delaware corporation.
3.1* Certificate of Incorporation of the Registrant.
3.2* Form of Bylaws of the Registrant, to be effective upon completion of
the offering.
3.3* Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and effective upon completion of the offering.
4.1* Form of the Registrant's Common Stock Certificate.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1 Form of Indemnification Agreement.
10.2 1988 Stock Option Plan, as amended.
10.3 1997 Stock Option Plan.
10.4 1997 Employee Stock Purchase Plan.
10.5 1997 Directors' Stock Option Plan.
10.6 Third Amended and Restated Registration Rights Agreement, dated June
28, 1996, by and among the Registrant and certain holders of the
Registrant's capital stock.
10.7 Amendment No. 1 to the Third Amended and Restated Registration Rights
Agreement, dated September 26, 1997, by and among the Registrant and
certain holders of the Registrant's capital stock.
10.8+ Travel Channel Agreement, dated September 30, 1997, by and between the
Registrant and Excite, Inc.
10.9+ Interactive Services Agreement, dated September 1, 1997, by and between
the Registrant and America Online, Inc.
10.10* Subscriber Services Agreement, dated October 1997, by and between the
Registrant and Apollo Travel Partnership.
10.11 Warrant Agreement to Purchase Shares of Series D Preferred Stock, dated
December 15, 1995, by and between the Registrant and Comdisco, Inc.
10.12 Warrant Agreement to Purchase Shares of Series E Preferred Stock, dated
July 22, 1997, by and between the Registrant and Comdisco, Inc.
10.13 Office Lease, dated September 15, 1990, by and between the Registrant
and Blum's Building Associates.
10.14 Severance Agreement, dated March 1997, by and between the Registrant
and Kenneth Orton.
11.1 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants (see page II-7).
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------------
* To be supplied by amendment.
+ Certain information in these exhibits has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.406
(b) Financial Statement Schedules
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1), or (4),
or 497(h) under the Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Francisco, State of California, on October 3, 1997.
PREVIEW TRAVEL, INC.
By: /s/ Kenneth J. Orton
-----------------------------------
KENNETH J. ORTON, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kenneth J. Orton and Kenneth Pelowski, and each
one of them, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any and all amendments to this
Registration Statement (including post-effective amendments), and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his substitute or substitutes, may do
or cause to be done by virtue hereof. This Power of Attorney may be signed in
several counterparts.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE CAPACITY DATE
/s/ Kenneth J. Orton President, Chief October 3, 1997
- ------------------------------------- Executive Officer
(KENNETH J. ORTON) and Director
(Principal
Executive Officer)
/s/ Kenneth Pelowski Executive Vice October 3, 1997
- ------------------------------------- President, Finance
(KENNETH PELOWSKI) and Administration
and Chief Financial
Officer (Principal
Financial Officer)
/s/ James J. Hornthal Chairman and October 3, 1997
- ------------------------------------- Director
(JAMES J. HORNTHAL)
/s/ Thomas W. Cardy Director October 3, 1997
- -------------------------------------
(THOMAS W. CARDY)
II-5
<PAGE>
SIGNATURE CAPACITY DATE
/s/ Thomas A. Cullen Director October 3, 1997
- -------------------------------------
(THOMAS A. CULLEN)
/s/ William R. Hearst, III Director October 3, 1997
- -------------------------------------
(WILLIAM R. HEARST, III)
/s/ Theodore J. Leonsis Director October 3, 1997
- -------------------------------------
(THEODORE J. LEONSIS)
/s/ Douglas J. Mackenzie Director October 3, 1997
- -------------------------------------
(DOUGLAS J. MACKENZIE)
/s/ James E. Noyes Director October 3, 1997
- -------------------------------------
(JAMES E. NOYES)
/s/ David S. Pottruck Director October 3, 1997
- -------------------------------------
(DAVID S. POTTRUCK)
II-6
<PAGE>
EXHIBIT 23.1
CONSENT OF COOPERS & LYBRAND L.L.P., INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 2-0000) of our report dated February 3, 1997, except as to Note 4 for
which the date is March 1, 1997, and Notes 7 and 15 for which the date is
October 2, 1997, on our audits of the financial statements of Preview Travel,
Inc. We also consent to the reference to our firm under the caption "Experts"
and "Selected Financial Data."
Coopers & Lybrand L.L.P.
San Francisco, CA
October 3, 1997
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
2.1* Form of Agreement and Plan of Merger between the Registrant and Preview
Travel, Inc., a Delaware corporation.
3.1* Certificate of Incorporation of the Registrant.
3.2* Form of Bylaws of the Registrant, to be effective upon completion of
the offering.
3.3* Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and effective upon completion of the offering.
4.1* Form of the Registrant's Common Stock Certificate.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1 Form of Indemnification Agreement.
10.2 1988 Stock Option Plan, as amended.
10.3 1997 Stock Option Plan.
10.4 1997 Employee Stock Purchase Plan.
10.5 1997 Directors' Stock Option Plan.
10.6 Third Amended and Restated Registration Rights Agreement, dated June
28, 1996, by and among the Registrant and certain holders of the
Registrant's capital stock.
10.7 Amendment No. 1 to the Third Amended and Restated Registration Rights
Agreement, dated September 26, 1997, by and among the Registrant and
certain holders of the Registrant's capital stock.
10.8+ Travel Channel Agreement, dated September 30, 1997, by and between the
Registrant and Excite, Inc.
10.9+ Interactive Services Agreement, dated September 1, 1997, by and between
the Registrant and America Online, Inc.
10.10* Subscriber Services Agreement, dated October 1997, by and between the
Registrant and Apollo Travel Partnership.
10.11 Warrant Agreement to Purchase Shares of Series D Preferred Stock, dated
December 15, 1995, by and between the Registrant and Comdisco, Inc.
10.12 Warrant Agreement to Purchase Shares of Series E Preferred Stock, dated
July 22, 1997, by and between the Registrant and Comdisco, Inc.
10.13 Office Lease, dated September 15, 1990, by and between the Registrant
and Blum's Building Associates.
10.14 Severance Agreement, dated March 1997, by and between the Registrant
and Kenneth Orton.
11.1 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants (see page II-7).
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------------
* To be supplied by amendment.
+ Certain information in these exhibits has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.406
<PAGE>
Exhibit 10.1
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made as of---------
____________, 199__. by and between Preview Travel, Inc., a Delaware
corporation (the "Company"), and ____________________ (the "Indemnitee").
RECITALS
--------
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
---------
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
---------------
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee
-----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee
<PAGE>
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or proceeding, that Indemnitee
had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has
-----------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended
--------------------
to create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
-----------------------------------
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section l(a) or Section 1(b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
--------------------------------
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in
-2-
<PAGE>
writing as soon as practicable of any claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company and
shall be given in accordance with the provisions of Section 12(d) below. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
(c) PROCEDURE. Any indemnification and advances provided for in
---------
Section 1 and this Section 3 shall be made no later than twenty (20) days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company's Certificate of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within twenty (20) days after a written request for payment thereof
has first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also
be entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Section 3(a) unless and until
such defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the
Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) that Indemnitee has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of
------------------
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated
--------------------
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any
-3-
<PAGE>
fees of counsel subsequently incurred by Indemnitee with respect to the same
proceeding, provided that (i) Indemnitee shall have the right to employ counsel
in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment
of counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense
or (C) the Company shall not, in fact, have employed counsel to assume the
defense of such proceeding, then the fees and expenses of Indemnitee's counsel
shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
-------------------------------------------------
(a) SCOPE. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be deemed to be within
the purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit or proceeding, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission
-4-
<PAGE>
(the "SEC") has taken the position that indemnification is not permissible for
---
liabilities arising under certain federal securities laws, and federal
legislation prohibits indemnification for certain ERISA violations. Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time
----------------------------------------
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
-5-
<PAGE>
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses
--------------------------
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
-------
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
-----------------
shall include employee benefit plans; references to "fines" shall include any
-----
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
-------------------------------------
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
---
opposed to the best interests of the Company" as referred to in this Agreement.
- --------------------------------------------
11. ATTORNEYS' FEES. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the
-6-
<PAGE>
name of the Company under this Agreement or to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all court costs
and expenses, including attorneys' fees, incurred by Indemnitee in defense of
such action (including with respect to Indemnitee's counterclaims and cross-
claims made in such action), unless as a part of such action the court
determines that each of Indemnitee's material defenses to such action were made
in bad faith or were frivolous.
12. MISCELLANEOUS.
-------------
(a) GOVERNING LAW. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflict of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) CONSTRUCTION. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) NOTICES. Any notice, demand or request required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(e) COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
(g) SUBROGATION. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
to effectively bring suit to enforce such rights.
-7-
<PAGE>
[Signature Page Follows]
-8-
<PAGE>
The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
PREVIEW TRAVEL, INC.,
a Delaware Corporation
By:_____________________________________
Name:___________________________________
Title:__________________________________
Address: 747 Front Street
San Francisco, California 94111
AGREED TO AND ACCEPTED:
Name: __________________________
________________________________
(Signature)
Address:
________________________________
________________________________
________________________________
9
<PAGE>
Exhibit 10.2
PREVIEW TRAVEL, INC.
1988 STOCK OPTION PLAN
(as amended on December 12, 1991)
(as further amended on February 24, 1994)
(as further amended on October 13, 1994)
(as further amended on January 24, 1995)
(as further amended on June 1, 1996)
(as further amended on November 13, 1996)
(as further amended on September 12, 1997)
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written option agreement.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Committee, if one has been appointed, or
-----
the Board of Directors of the Company, if no Committee is appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Committee" shall mean the Committee appointed by the Board of
---------
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(d) "Common Stock" shall mean the Common Stock of the Company.
------------
(e) "Company" shall mean Preview Travel, Inc., a California
-------
corporation.
(f) "Consultant" shall mean any person who is engaged by the Company
----------
or any Parent or Subsidiary to render consulting services and is compensated for
such consulting services, and any director of the Company whether compensated
for such services or not; provided that if and in the event the Company
registers any class of any equity security pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the term
Consultant shall thereafter not include directors who are not compensated for
their services or are paid only a director's fee by the Company.
(g) "Continuous Status as an Employee or Consultant" shall mean the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military
<PAGE>
leave, or any other leave of absence approved by the Board; provided that such
leave is for a period of not more than 90 days or reemployment upon the
expiration of such leave is guaranteed by contract or statute.
(h) "Employee" shall mean any person, including officers and
--------
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(i) "Incentive Stock Option" shall mean an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422A of the Code.
(j) "Nonstatutory Stock Option" shall mean an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(k) "Option" shall mean a stock option granted pursuant to the Plan.
------
(1) "Optioned Stock" shall mean the Common Stock subject to an Option.
--------------
(m) "Optionee" shall mean an Employee or Consultant who receives an
--------
Option.
(n) "Parent" shall mean a "parent corporation", whether now or
------
hereafter existing, as defined in Section 425(e) of the Code.
(o) "Plan" shall mean this 1988 Stock Option Plan.
----
(p) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 425(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 3,363,500 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. Notwithstanding any other provision of the Plan,
shares issued under the Plan and later repurchased by the Company shall not
become available for future grant or sale under the Plan.
4. Administration of the Plan.
--------------------------
-2-
<PAGE>
(a) Procedure. The Plan shall be administered by the Board of Directors of
---------
the Company.
(i) Subject to subparagraph (ii), the Board of Directors may appoint
a Committee consisting of not less than two members of the Board of Directors to
administer the Plan on behalf of the Board of Directors, subject to such terms
and conditions as the Board of Directors may prescribe. Once appointed, the
Committee shall continue to serve until otherwise directed by the Board of
Directors. Members of the Board who are either eligible for Options or have been
granted Options may vote on any matters affecting the administration of the Plan
or the grant of any Options pursuant to the Plan, except that no such member
shall act upon the granting of an Option to himself, but any such member may be
counted in determining the existence of a quorum at any meeting of the Board
during which action is taken with respect to the granting of Options to him.
(ii) Notwithstanding the foregoing subparagraph (i), if and in any
event the Company registers any class of any equity security pursuant to Section
12 of the Exchange Act, from the effective date of such registration until six
months after the termination of such registration, any grants of Options to
officers or directors shall only be made by the Board of Directors; provided,
however, that if a majority of the Board of Directors is eligible to participate
in this Plan or any other stock option or other stock plan of the Company or any
of its affiliates, or has been eligible at any time within the preceding year or
(if shorter) during the period following the initial registration of the
Company's equity securities pursuant to Section 12 of the Exchange Act, any
grants of options to directors must be made by, or only in accordance with the
recommendation of, a Committee consisting of three or more persons, who may but
need not be directors or employees of the Company, appointed by the Board of
Directors and having full authority to act in the matter, none of whom is
eligible to participate in this Plan or any other stock option or other stock
plan of the Company or any of its affiliates or has been eligible at any time
within the preceding year or (if shorter) during the period following the
initial registration of the Company's equity securities pursuant to Section 12
of the Exchange Act. Any Committee administering the Plan with respect to
grants to officers who are not also directors shall conform to the requirements
of the preceding sentence. Once appointed, the Committee shall continue to
serve until otherwise directed by the Board of Directors.
(iii) Subject to the foregoing subparagraphs (i) and (ii), from time
to time the Board of Directors may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies however caused, or
remove all members of the Committee and thereafter directly administer the Plan.
(b) Powers of the Board. Subject to the provisions of the Plan, the
-------------------
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options or Nonstatutory Stock Options; (ii) to determine, upon review of
relevant information and in accordance with Section 8(b) of the Plan, the fair
market value of the Common Stock; (iii) to determine the exercise price per
share of Options to be granted, which exercise price shall be determined in
accordance with Section 8(a) of the Plan; (iv) to determine the Employees or
Consultants to
-3-
<PAGE>
whom, and the time or times at which, Options shall be granted and the number of
shares to be represented by each Option; (v) to interpret the Plan; (vi) to
prescribe, amend and rescind rules and regulations relating to the Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical) and, with the consent of the holder thereof, modify or amend each
Option; (viii) to accelerate or defer (with the consent of the Optionee) the
exercise date of any Option, consistent with the provisions of Section 5 of the
Plan; (ix) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted by
the Board; and (x) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options may be granted only to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) No Incentive Stock Option may be granted to an Employee which,
when aggregated with all other incentive stock options granted to such Employee
by the Company or any Parent or Subsidiary, would result in Shares having an
aggregate fair market value (determined for each Share as of the date of grant
of the Option covering such Share) in excess of $100,000 becoming first
available for purchase upon exercise of one or more incentive stock options
during any calendar year.
(c) Section 5(b) of the Plan shall apply only to an Incentive Stock
Option evidenced by an "Incentive Stock Option Agreement" which sets forth the
intention of the Company and the Optionee that such Option shall qualify as an
incentive stock option. Section 5(b) of the Plan shall not apply to any Option
evidenced by a "Nonstatutory Stock Option Agreement" which sets forth the
intention of the Company and the Optionee that such Option shall be a
Nonstatutory Stock Option.
(d) The Plan shall not confer upon any Optionee any right with respect
to continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with his right or the Company's right to terminate
his employment or consulting relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
-4-
<PAGE>
7. Term of Option. The term of each Incentive Stock Option shall be ten
--------------
(10) years from the date of grant thereof or such shorter term as may be
provided in the Incentive Stock Option Agreement. The term of each Nonstatutory
Stock Option shall be ten (10) years and one (1) day from the date of grant
thereof or such shorter term as may be provided in the Nonstatutory Stock Option
Agreement. However, in the case of an Option granted to an Optionee
who, at the time the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, (a) if the Option is an Incentive Stock Option, the term
of the Option shall be five (5) years from the date of grant thereof or such
shorter term as may be provided in the Incentive Stock Option Agreement, or (b)
if the Option is a Nonstatutory Stock Option, the term of the Option shall be
five (5) years and one (1) day from the date of grant thereof or such shorter
term as may be provided in the Nonstatutory Stock Option Agreement.
8. Exercise Price and Consideration.
--------------------------------
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the fair
market value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the fair market value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the fair market value per
Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the fair market value per Share on the date of
grant.
(iii) In the case of an Option granted on or after the effective
date of registration of any class of equity security of the Company pursuant to
Section 12 of the Exchange Act and prior to six months after the termination of
such registration, the per Share exercise price shall be no less than 100% of
the fair market value per Share on the date of grant.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market
-5-
<PAGE>
value per Share shall be the mean of the bid and asked prices (or the closing
price per share if the Common Stock is listed on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") National Market System) of the
Common Stock for the date of grant, as reported in the Wall Street Journal (or,
if not so reported, as otherwise reported by the NASDAQ System) or, in the event
the Common Stock is listed on a stock exchange, the fair market value per Share
shall be the closing price on such exchange on the date of grant of the Option,
as reported in the Wall Street Journal.
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Board and may consist entirely of cash, check, promissory note, other Shares
of Common Stock having a fair market value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised, or any combination of such methods of payment, or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under Sections 408 and 409 of the California General Corporation Law.
In making its determination as to the type of consideration to accept, the Board
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company (Section 315(b) of the California General Corporation Law).
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan; provided, however, that an Incentive Stock Option granted prior to January
1, 1987 (the "Sequential Option") shall not be exercisable while there is
outstanding any Incentive Stock Option which was granted, before the granting of
the Sequential Option, to the same Optionee to purchase stock of the Company,
any Parent or Subsidiary, or any predecessor corporation of such corporations.
For purposes of this provision, an Incentive Stock Option shall be treated as
outstanding until such option is exercised in full or expires by reason of lapse
of time.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
-6-
<PAGE>
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee or Consultant. In the event
--------------------------------------------------
of termination of an Optionee's Continuous Status as an Employee or Consultant
(as the case may be), such Optionee may, but only within thirty (30) days (or
such other period of time, not exceeding three (3) months in the case of an
Incentive Stock Option or six (6) months in the case of a Nonstatutory Stock
Option, as is determined by the Board, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) after the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise his
Option to the extent that he was entitled to exercise it at the date of such
termination. To the extent that he was not entitled to exercise the Option at
the date of such termination, or if he does not exercise such Option (which he
was entitled to exercise) within the time specified herein, the Option shall
terminate.
(c) Disability of Optionee. Notwithstanding the provisions of section
----------------------
9(b) above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his disability, he may, but only within
six (6) months (or such other period of time not exceeding twelve (12) months as
is determined by the Board, with such determination in the case of an Incentive
Stock Option being made at the time of grant of the Option) from the date of
such termination (but in no event later than the date of expiration of the term
of such Option as set forth in the Option Agreement), exercise his Option to the
extent he was entitled to exercise it at the date of such termination. To the
extent that he was not entitled to exercise the Option at the date of
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
-----------------
(i) during the term of the Option who is at the time of his
death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised, at any time within six (6) months following
the date of death (but in no event later than the date of expiration of the term
of such Option as set forth in the Option Agreement), by the Optionee's estate
or by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that would have
accrued had the Optionee continued living and remained in Continuous Status as
an Employee or Consultant six (6) months after the date of death, subject to the
limitation set forth in Section 5(b); or
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) after the termination of Con
-7-
<PAGE>
tinuous Status as an Employee or Consultant, the Option may be exercised, at any
time within six (6) months following the date of death (but in no event later
than the date of expiration of the term of such Option as set forth in the
Option Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of termination.
10. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger. Subject to any
----------------------------------------------------
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. In the event of a merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation (or a parent or subsidiary of such
successor corporation). In the event that such successor corporation refuses to
assume the Option or to substitute an equivalent option, the Board shall, in
lieu of such assumption or substitution, provide for the Optionee to have the
right to exercise the Option as to all of the Optioned Stock, including Shares
as to which the Option would not otherwise be exercisable. If the Board makes
an Option fully exercisable in lieu of assumption or substitution in the event
of a merger, the Board shall notify the Optionee that the Option shall be fully
exercisable for a period of thirty (30) days from the date of such notice, and
the Option will terminate upon the expiration of such period.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the
-8-
<PAGE>
determination shall be given to each Employee or Consultant to whom an Option is
so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval of
the shareholders of the Company in the manner described in Section 17 of the
Plan:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 11 of the Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options; or
(iii) if the Company has a class of equity securities registered
under Section 12 of the Exchange Act at the time of such revision or amendment,
any material increase in the benefits accruing to participants under the Plan.
(b) Shareholder Approval. If any amendment requiring shareholder
--------------------
approval under Section 13(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such shareholder approval shall be solicited as described
in Section 17 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
-9-
<PAGE>
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
17. Shareholder Approval.
--------------------
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted. If such shareholder approval is obtained at a duly held
shareholders' meeting, it must be obtained by the affirmative vote of the
holders of a majority of the outstanding shares of the Company, or if such
shareholder approval is obtained by written consent, it must be obtained by the
unanimous written consent of all shareholders of the Company; provided, however,
that approval at a meeting or by written consent may be obtained by a lesser
degree of shareholder approval if the Board determines, in its discretion after
consultation with the Company's legal counsel, that such a lesser degree of
shareholder approval will comply with all applicable laws and will not adversely
affect the qualification of the Plan under Section 422A of the Code.
(b) If and in the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the shareholders of the Company obtained after such registration shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
(c) If any required approval by the shareholders of the Plan itself or
of any amendment thereto is solicited at any time otherwise than in the manner
described in Section 17(b) hereof, then the Company shall, at or prior to the
first annual meeting of shareholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act of (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information which would be required (if proxies to
be voted with respect to approval or disapproval of the Plan or amendment were
then being solicited) by the rules and regulations in effect under Section 14(a)
of the Exchange Act at the time such information is furnished; and
-10-
<PAGE>
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to shareholders.
18. Information to Optionees. The Company shall provide to each Optionee,
------------------------
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information. The Company shall not be
required to provide such information if the issuance of Options under the Plan
is limited to key employees whose duties in connection with the Company assure
their access to equivalent information.
-11-
<PAGE>
Exhibit 10.3
PREVIEW TRAVEL, INC.
1997 STOCK OPTION PLAN
----------------------
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, at the
discretion of the Board and as reflected in the terms of the written option
agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" shall mean the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Affiliate" shall mean an entity other than a Subsidiary (as
---------
defined below) in which the Company owns an equity interest.
(c) "Applicable Laws" shall have the meaning set forth in Section
---------------
4(a) below.
(d) "Board" shall mean the Board of Directors of the Company.
-----
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(f) "Committee" shall mean the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan, if one is appointed.
(g) "Common Stock" shall mean the Common Stock of the Company.
------------
(h) "Company" shall mean Preview Travel, Inc, a Delaware corporation.
-------
(i) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any Director of the Company whether
compensated for such services or not.
(j) "Continuous Status as an Employee or Consultant" shall mean the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Administrator; provided that such leave is for
--------
a period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute. For purposes of this Plan, a change
in status from an Employee to a Consultant or from a Consultant to an Employee
will not constitute a termination of employment.
<PAGE>
(k) "Director" shall mean a member of the Board.
--------
(l) "Employee" shall mean any person (including any Named Executive,
--------
Officer or Director) employed by the Company or any Parent, Subsidiary or
Affiliate of the Company. The payment by the Company of a director's fee to a
Director shall not be sufficient to constitute "employment" of such Director by
the Company.
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(n) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
price for such stock as quoted on such system on the date of determination (if
for a given day no sales were reported, the closing bid on that day shall be
used), as such price is reported in The Wall Street Journal or such other source
as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the bid and asked prices for the Common Stock or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" shall mean an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.
(p) "Named Executive" shall mean any individual who, on the last day
---------------
of the Company's fiscal year, is the chief executive officer of the Company (or
is acting in such capacity) or among the four highest compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(q) "Nonstatutory Stock Option" shall mean an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(r) "Officer" shall mean a person who is an officer of the Company
-------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
-2-
<PAGE>
(s) "Option" shall mean a stock option granted pursuant to the Plan.
------
(t) "Optioned Stock" shall mean the Common Stock subject to an
--------------
Option.
(u) "Optionee" shall mean an Employee or Consultant who receives an
--------
Option.
(v) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" shall mean this 1997 Stock Option Plan.
----
(x) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
----------
Act as the same may be amended from time to time, or any successor provision.
(y) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 14 of the Plan.
(z) "Subsidiary" shall mean a "subsidiary corporation," whether now
----------
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 14 of
-------------------------
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 1,500,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares that were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan. Notwithstanding any other provision of the Plan, shares
issued under the Plan and later repurchased by the Company shall not become
available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
--------------------------
(a) COMPOSITION OF ADMINISTRATOR.
----------------------------
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3,
------------------------------
and by the legal requirements relating to the administration of incentive stock
option plans, if any, of applicable securities laws and the Code (collectively,
the "Applicable Laws"), grants under the Plan may (but need not) be made by
---------------
different administrative bodies with respect to Directors, Officers who are not
directors and Employees who are neither Directors nor Officers.
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With
-----------------------------------------------------
respect to grants of Options to Employees or Consultants who are also Officers
or Directors of the Company, grants under the Plan shall be made by (A) the
Board, if the Board may make grants under the Plan in compliance with Rule 16b-3
and Section 162(m) of the Code as it applies so as to qualify grants of Options
to Named Executives as performance-based
-3-
<PAGE>
compensation, or (B) a Committee designated by the Board to make grants under
the Plan, which Committee shall be constituted in such a manner as to permit
grants under the Plan to comply with Rule 16b-3, to qualify grants of Options to
Named Executives as performance-based compensation under Section 162(m) of the
Code and otherwise so as to satisfy the Applicable Laws.
(iii) ADMINISTRATION WITH RESPECT TO OTHER PERSONS. With respect
--------------------------------------------
to grants of Options to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or (B)
a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws.
(iv) GENERAL. If a Committee has been appointed pursuant to
-------
subsection (ii) or (iii) of this Section 4(a), such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of any Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws and, in the case of a Committee
appointed under subsection (ii), to the extent permitted by Rule 16b-3, and to
the extent required under Section 162(m) of the Code to qualify grants of
Options to Named Executives as performance-based compensation.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;
(ii) to select the Employees and Consultants to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any vesting
acceleration or waiver of forfeiture restrictions regarding any Option and/or
the shares of Common Stock relating thereto, based in each case on such factors
as the Administrator shall determine, in its sole discretion);
-4-
<PAGE>
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. ELIGIBILITY.
-----------
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options may be granted
--------------------
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees, provided, however, that Employees of an Affiliate shall not be
-------- -------
eligible to receive Incentive Stock Options. An Employee or Consultant who has
been granted an Option may, if he or she is otherwise eligible, be granted an
additional Option or Options.
(b) TYPE OF OPTION. Each Option shall be designated in the written
--------------
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Incentive Stock
Options are exercisable for the first time by an Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(c) NO EMPLOYMENT RIGHTS. The Plan shall not confer upon any Optionee
--------------------
any right with respect to continuation of employment or consulting relationship
with the Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the stockholders of the
Company as described in Section 20 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 16 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that in the case of an Incentive Stock
-------- -------
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Incentive Stock Option granted to an Optionee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.
-5-
<PAGE>
8. LIMITATION ON GRANTS TO EMPLOYEES. Subject to adjustment as provided
---------------------------------
in this Plan, the maximum number of Shares which may be subject to options
granted to any one Employee under this Plan for any fiscal year of the Company
shall be 1,500,000. This Section 8 shall not apply prior to the date upon which
the Company becomes subject to the Exchange Act and following such date, shall
not apply until the (i) earliest of: (A) the first material modification of the
Plan (including any increase to the number of shares reserved for issuance under
the Plan in accordance with Section 3); (B) the issuance of all of the shares of
common stock reserved for issuance under the Plan; (C) the expiration of the
Plan; or (D) the first meeting of shareholders at which directors are to be
elected that occurs after the close of the third calendar year following the
calendar year in which occurred the first registration of any equity security
under Section 12 of the Exchange Act; or (ii) such other date required by
Section 162(m) of the Code and the rules and regulations promulgated thereunder.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
---------------------------------------
(a) EXERCISE PRICE. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be such price as is determined by
the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant; or
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, is a Named Executive of the Company, the per share Exercise Price
shall be no less than 100% of the Fair Market Value on the date of grant; or
(B) granted to any person other than a Named Executive, the
per Share exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant.
(iii) Notwithstanding anything to the contrary in subsections
9(a)(i) or 9(a)(ii) above, in the case of an Option granted on or after the
effective date of registration of any class of equity security of the Company
pursuant to Section 12 of the Exchange Act and prior to six months after the
termination of such registration, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
-6-
<PAGE>
(b) PERMISSIBLE CONSIDERATION. The consideration to be paid for the
-------------------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(1) cash, (2) other Shares that (x) in the case of Shares acquired upon exercise
of an Option either have been owned by the Optionee for more than six months on
the date of surrender or were not acquired, directly or indirectly, from the
Company, and (y) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised, or (3) such other consideration and method of payment for the
issuance of Shares to the extent permitted under Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
10. EXERCISE OF OPTION.
------------------
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 14 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. In the event
--------------------------------------------------
of termination of an Optionee's Continuous Status as an Employee or Consultant,
such Optionee may, but only within thirty (30) days (or such other period of
time, not exceeding three (3) months in the case of an Incentive Stock Option or
six (6) months in the case of a Nonstatutory Stock Option, as is determined by
the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) after the date of such
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise his or her Option to
the extent that he or she was
-7-
<PAGE>
entitled to exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise the Option at the date of such
termination, or if the optionee does not exercise such Option (which he or she
was entitled to exercise) within the time specified herein, the Option shall
terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 10(b) above, in
----------------------
the event of termination of an Optionee's Continuous Status as an Employee or
Consultant as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within six (6) months
(or such other period of time not exceeding twelve (12) months as is determined
by the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) from the date of such
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise his or her Option to
the extent he or she was entitled to exercise it at the date of such
termination. To the extent that he or she was not entitled to exercise the
Option at the date of termination, or if he does not exercise such Option (which
he was entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee:
-----------------
(i) during the term of the Option who is at the time of his
death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised, at any time within six (6) months (or such
other period of time, not exceeding twelve (12) months, as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
being made at the time of grant of the Option) following the date of death (but
in no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance but only to
the extent of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee or Consultant
three (3) months (or such other period of time as is determined by the
Administrator as provided above) after the date of death, subject to the
limitation set forth in Section 5(b); or
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) after the termination of Continuous Status as an Employee
or Consultant, the Option may be exercised, at any time within six (6) months
following the date of death (but in no event later than the date of expiration
of the term of such Option as set forth in the Option Agreement), by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of termination.
(e) RULE 16B-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
-8-
<PAGE>
11. WITHHOLDING TAXES. As a condition to the exercise of Options granted
-----------------
hereunder, the Optionee shall make such arrangements as the Administrator may
require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection with the exercise, receipt or
vesting of such Option. The Company shall not be required to issue any Shares
under the Plan until such obligations are satisfied.
12. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash payment, or (b) out of Optionee's current
compensation, or (c) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (ii) have a fair market value on the date
of surrender equal to or less than Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option that number of Shares having
a fair market value equal to the amount required to be withheld. For this
purpose, the fair market value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined (the "Tax
---
Date").
- ----
Any surrender by an Officer or Director of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
-9-
<PAGE>
13. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution; provided that the Administrator
--------
may in its discretion grant transferable Nonstatutory Stock Options pursuant to
option agreements specifying (i) the manner in which such Nonstatutory Stock
Options are transferable and (ii) that any such transfer shall be subject to the
Applicable Laws. The designation of a beneficiary by an Optionee will not
constitute a transfer. An Option may be exercised, during the lifetime of the
Optionee, only by the Optionee or a transferee permitted by this Section 13.
14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
------------------------------------------------------------------
(a) ADJUSTMENT. Subject to any required action by the stockholders of
----------
the Company, the number of shares of Common Stock covered by each outstanding
Option, the number of shares of Common Stock that have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, the maximum number of shares of Common Stock for which Options may be
granted to any employee under Section 8 of the Plan, and the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) CORPORATE TRANSACTIONS. In the event of the proposed dissolution
----------------------
or liquidation of the Company, the Option will terminate immediately prior to
the consummation of such proposed action, unless otherwise provided by the
Administrator. The Administrator may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a date fixed by
the Administrator and give each Optionee the right to exercise his or her Option
as to all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to some or all of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable. If the Administrator makes an
Option exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee that the
Option shall be
-10-
<PAGE>
exercisable for a period of thirty (30) days from the date of such notice, and
the Option will terminate upon the expiration of such period.
15. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option or such other date as is determined by the Administrator;
provided however that in the case of any Incentive Stock Option, the grant date
- -------- -------
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option
is so granted within a reasonable time after the date of such grant.
16. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval of
the stockholders of the Company in the manner described in Section 20 of the
Plan:
(i) any increase in the number of Shares subject to the Plan,
other than an adjustment under Section 14 of the Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options; or
(iii) any change in the limitation on grants to employees as
described in Section 8 of the Plan or other changes which would require
stockholder approval to qualify options granted hereunder as performance-based
compensation under Section 162(m) of the Code.
(b) STOCKHOLDER APPROVAL. If any amendment requiring stockholder
--------------------
approval under Section 16(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such stockholder approval shall be solicited as described
in Section 20 of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
17. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
-11-
<PAGE>
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
19. OPTION AGREEMENT. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
20. STOCKHOLDER APPROVAL.
--------------------
(a) Continuance of the Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is adopted. Such stockholder approval shall be obtained in the manner
and to the degree required under applicable federal and state law and the rules
of any stock exchange upon which the Shares are listed.
(b) In the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the stockholders of the Company obtained after such registration shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
(c) If any required approval by the stockholders of the Plan itself
or of any amendment thereto is solicited at any time otherwise than in the
manner described in Section 20(b) hereof, then the Company shall, at or prior to
the first annual meeting of stockholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information that would be required (if proxies to be
voted with respect to approval or disapproval of the Plan or amendment were then
being solicited) by the rules and regulations in effect under Section 14(a) of
the Exchange Act at the time such information is furnished; and
-12-
<PAGE>
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to stockholders.
-13-
<PAGE>
Exhibit 10.4
PREVIEW TRAVEL, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1997 Employee Stock Purchase
Plan of Preview Travel, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal
Revenue Code of 1986, as amended. The provisions of the Plan shall,
accordingly, be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Preview Travel, Inc., a Delaware
-------
corporation.
(e) "Compensation" shall mean all regular straight time gross
------------
earnings and bonuses and shall not include overtime, shift premiums, payments
for incentive compensation, incentive payments, commissions and other
compensation.
(f) "Continuous Status as an Employee" shall mean the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(g) "Contributions" shall mean all amounts credited to the account of
-------------
a participant pursuant to the Plan.
(h) "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(i) "Employee" shall mean any person, including an Officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
<PAGE>
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(k) "Purchase Date" shall mean the last day of each Purchase Period
-------------
of the Plan.
(l) "Offering Date" shall mean the first business day of each
-------------
Offering Period of the Plan.
(m) "Offering Period" shall mean a period of twenty-four (24) months
---------------
commencing on February 1 and August 1 of each year, except for the first
Offering Period as set forth in Section 4(a).
(n) "Officer" shall mean a person who is an officer of the Company
-------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "Plan" shall mean this Employee Stock Purchase Plan.
----
(p) "Purchase Period" shall mean a period of six (6) months within an
---------------
Offering Period, except for the first Purchase Period as set forth in Section
4(b).
(q) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
3. Eligibility.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any subsidiary of the Company, or (ii) if such option would permit
his or her rights to purchase stock under all employee stock purchase plans
(described in Section 423 of the Code) of the Company and its Subsidiaries to
accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair
market value of such stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time.
4. Offering Periods and Purchase Periods.
--------------------------------------
(a) Offering Periods. The Plan shall be implemented by a series of
----------------
Offering Periods of twenty-four (24) months duration, with new Offering Periods
commencing on or
-2-
<PAGE>
about February 1 and August 1 of each year (or at such other time or times as
may be determined by the Board of Directors). The first Offering Period shall
commence on the beginning of the effective date of the Registration Statement on
Form S-1 for the initial public offering of the Company's Common Stock (the "IPO
Date") and continue until July 31, 1999. The Plan shall continue until
terminated in accordance with Section 19 hereof. The Board of Directors of the
Company shall have the power to change the duration and/or the frequency of
Offering Periods with respect to future offerings without shareholder approval
if such change is announced at least fifteen (15) days prior to the scheduled
beginning of the first Offering Period to be affected. Eligible employees may
not participate in more than one Offering Period at a time.
(b) Purchase Periods. Each Offering Period shall consist of two (2)
----------------
consecutive purchase periods of six (6) months duration. The last day of each
Purchase Period shall be the "Purchase Date" for such Purchase Period. A
Purchase Period commencing on February 1 shall end on the next July 31. A
Purchase Period commencing on August 1 shall end on the next January 31. The
first Purchase Period shall commence on the IPO Date and shall end on July 31,
1998. The Board of Directors of the Company shall have the power to change the
duration and/or frequency of Purchase Periods with respect to future purchases
without shareholder approval if such change is announced at least fifteen (15)
days prior to the scheduled beginning of the first Purchase Period to be
affected.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given offering. The
subscription agreement shall set forth the percentage of the participant's
Compensation (which shall be not less than 1% and not more than 15%) to be paid
as Contributions pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the last
Purchase Period of the Offering Period to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.
6. Method of Payment of Contributions.
----------------------------------
(a) The participant shall elect to have payroll deductions made on
each payday during the Offering Period in an amount not less than one percent
(1%) and not more than fifteen percent (15%) of such participant's Compensation
on each such payday. All payroll deductions made by a participant shall be
credited to his or her account under the Plan. A participant may not make any
additional payments into such account.
(b) A participant may discontinue his or her participation in the
Plan as provided in Section 10, or, on one occasion only during the Offering
Period, may decrease the
-3-
<PAGE>
rate of his or her Contributions during the Offering Period by completing and
filing with the Company a new subscription agreement. The change in rate shall
be effective as of the beginning of the next calendar month following the date
of filing of the new subscription agreement, if the agreement is filed at least
ten (10) business days prior to such date and, if not, as of the beginning of
the next succeeding calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased to 0% at such time during any Offering
Period which is scheduled to end during the current calendar year that the
aggregate of all payroll deductions accumulated with respect to such Offering
Period and any other Offering Period ending within the same calendar year equal
$21,250. Payroll deductions shall re-commence at the rate provided in such
participant's subscription Agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10.
7. Grant of Option.
---------------
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the lower of (i) eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date, or (ii) eighty-five
percent (85%) of the fair market value of a share of the Company's Common Stock
on the Purchase Date; provided however, that the maximum number of shares an
Employee may purchase during each Offering Period shall be determined at the
Offering Date by dividing $25,000 by the fair market value of a share of the
Company's Common Stock on the Offering Date, and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 13.
The fair market value of a share of the Company's Common Stock shall be
determined as provided in Section 7(b).
(b) The option price per share of the shares offered in a given
Offering Period shall be the lower of: (i) 85% of the fair market value of a
share of the Common Stock of the Company on the Offering Date; or (ii) 85% of
the fair market value of a share of the Common Stock of the Company on the
Purchase Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion based on the closing
price of the Common Stock for such date (or, in the event that the Common Stock
is not traded on such date, on the immediately preceding trading date), as
reported by the National Association of Securities Dealers Automated Quotation
(Nasdaq) National Market or, if such price is not reported, the mean of the bid
and asked prices per share of the Common Stock as reported by Nasdaq or, in the
event the Common Stock is listed on a stock exchange, the fair market value per
share shall be the closing price on such exchange on such date (or, in the event
that the Common Stock is not traded on such date, on the immediately preceding
trading date), as reported in The Wall Street Journal. For purposes of the
Offering Date under the first Offering Period under the Plan, the fair market
value of a share of the Common Stock of the Company
-4-
<PAGE>
shall be the Price to Public as set forth in the final prospectus filed with the
Securities and Exchange Commission pursuant to Rule 424 under the Securities Act
of 1933, as amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in paragraph 10, his or her option for the purchase of shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full shares subject to the option will be purchased at the
applicable option price with the accumulated Contributions in his or her
account. The shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on the Purchase Date. No
fractional shares shall be purchased. Any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full share shall be
retained in the participant's account for the subsequent Purchase Period or
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10. Any other monies left over in a participant's account after a
Purchase Date shall be returned to the Participant. During his or her lifetime,
a participant's option to purchase shares hereunder is exercisable only by him
or her.
9. Delivery. As promptly as practicable after each Purchase Date of each
--------
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the shares purchased upon exercise of
his or her option or the deposit of such number of shares with the broker
selected by the Company for administration of Plan stock purchases, as
determined by the Company.
10. Voluntary Withdrawal; Termination of Employment.
-----------------------------------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time at least
ten (10) business days prior to each Purchase Date by giving written notice to
the Company. All of the participant's Contributions credited to his or her
account will be paid to him or her promptly after receipt of his or her notice
of withdrawal and his or her option for the current period will be automatically
terminated, and no further Contributions for the purchase of shares will be made
during the Offering Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
-5-
<PAGE>
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. Automatic Withdrawal. If the fair market value of the shares on the
--------------------
first Purchase Date of an Offering Period is less than the fair market value of
the shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period.
12. Interest. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
13. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 500,000 shares subject
to adjustment upon changes in capitalization of the Company as provided in
Section 18. If the total number of shares which would otherwise be subject to
options granted pursuant to Section 7(a) on the Offering Date of an Offering
Period exceeds the number of shares then available under the Plan (after
deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares
subject to the option to each Employee affected thereby and shall similarly
reduce the rate of Contributions, if necessary.
(b) The participant will have no interest or voting right in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. The composition of the committee shall be in accordance with the
requirements to obtain or retain any available exemption from the operation of
Section 16(b) of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him
-6-
<PAGE>
or her of such shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to the
Purchase Date of an Offering Period. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
16. Transferability. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 14) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
17. Use of Funds. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
18. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees
promptly following the Purchase Date, which statements will set forth the
amounts of Contributions, the per share purchase price, the number of shares
purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the shareholders of
----------
the Company, the number of shares of Common Stock covered by each option under
the Plan which has not yet been exercised and the number of shares of Common
Stock which have been authorized for issuance under the Plan but have not yet
been placed under option (collectively, the "Reserves"), as well as the price
per share of Common Stock covered by each option under the Plan which has not
yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Board, whose determination in that respect shall
be final,
-7-
<PAGE>
binding and conclusive. Except as expressly provided herein, no issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Corporate Transactions. In the event of the proposed dissolution
----------------------
or liquidation of the Company, the Offering Period will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Board. In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, each option under the Plan shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless the Board determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution, to shorten the
Offering Period then in progress by setting a new Purchase Date (the "New
Purchase Date"). If the Board shortens the Offering Period then in progress in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify each participant in writing, at least ten (10) days prior
to the New Purchase Date, that the Purchase Date for his or her option has been
changed to the New Purchase Date and that his or her option will be exercised
automatically on the New Purchase Date, unless prior to such date he or she has
withdrawn from the Offering Period as provided in Section 10. For purposes of
this paragraph, an option granted under the Plan shall be deemed to be assumed
if, following the sale of assets or merger, the option confers the right to
purchase, for each share of option stock subject to the option immediately prior
to the sale of assets or merger, the consideration (whether stock, cash or other
securities or property) received in the sale of assets or merger by holders of
Common Stock for each share of Common Stock held on the effective date of the
transaction (and if such holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
shares of Common Stock); provided, however, that if such consideration received
in the sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation and the participant, provide
for the consideration to be received upon exercise of the option to be solely
common stock of the successor corporation or its parent equal in fair market
value to the per share consideration received by holders of Common Stock and the
sale of assets or merger.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, and in the event of the Company being consolidated with or merged into
any other corporation.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time terminate
or amend the Plan. Except as provided in Section 19, no such termination may
affect options previously granted, nor may an amendment make any change in any
option theretofore granted
-8-
<PAGE>
which adversely affects the rights of any participant. In addition, to the
extent necessary to comply with Rule 16b-3 under the Exchange Act, or under
Section 423 of the Code (or any successor rule or provision or any applicable
law or regulation), the Company shall obtain shareholder approval in such a
manner and to such a degree as so required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan; Effective Date. The Plan shall become effective upon
----------------------------
the earlier to occur of its adoption by the Board of Directors or its approval
by the shareholders of the Company. It shall continue in effect for a term of
twenty (20) years unless sooner terminated under Section 20.
24. Additional Restrictions of Rule 16b-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the shares issued upon exercise thereof
-9-
<PAGE>
shall be subject to, such additional conditions and restrictions as may be
required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of
the Exchange Act with respect to Plan transactions.
-10-
<PAGE>
Exhibit 10.5
PREVIEW TRAVEL, INC.
1997 DIRECTORS' STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Directors' Stock Option
--------------------
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be "nonstatutory stock options".
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Preview Travel, Inc., a Delaware
-------
corporation.
(e) "Continuous Status as a Director" shall mean the absence of any
-------------------------------
interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
--------
(g) "Employee" shall mean any person, including officers and
--------
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(i) "Option" shall mean a stock option granted pursuant to the Plan.
------
All options shall be nonstatutory stock options (i.e., options that are not
intended to qualify as incentive stock options under Section 422 of the Code).
(j) "Optioned Stock" shall mean the Common Stock subject to an
--------------
Option.
(k) "Optionee" shall mean an Outside Director who receives an Option.
--------
(l) "Outside Director" shall mean a Director who is not an Employee.
----------------
(m) "Parent" shall mean a "parent corporation", whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
<PAGE>
(n) "Plan" shall mean this 1997 Directors' Stock Option Plan.
----
(o) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation", whether now
----------
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 250,000 Shares (the "Pool") of Common Stock. The Shares may
be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. If Shares which were acquired upon exercise of an
Option are subsequently repurchased by the Company, such Shares shall not in any
event be returned to the Plan and shall not become available for future grant
under the Plan.
4. Administration of and Grants of Options under the Plan.
------------------------------------------------------
(a) Administrator. Except as otherwise required herein, the Plan
-------------
shall be administered by the Board.
(b) Procedure for Grants. All grants of Options hereunder shall be
--------------------
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 20,000 Shares (the "First Option") on the date on which such
person first becomes an Outside Director after the effective date of the Plan,
whether through election by the shareholders of the Company or appointment by
the Board of Directors to fill a vacancy.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 5,000 Shares (a "Subsequent Option") on the date of each
Annual Meeting of the Company's shareholders following which such Outside
Director is serving on the Board, provided that, on such date, he or she shall
have served on the Board for at least six (6) months prior to the date of such
Annual Meeting.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, in the event that a grant would cause the number of Shares subject
to outstanding Options plus the number of Shares previously purchased upon
exercise of Options to exceed the Pool, then each such automatic grant shall be
for that number of Shares determined by dividing the total number of
-2-
<PAGE>
Shares remaining available for grant by the number of Outside Directors on the
automatic grant date. Any further grants shall then be deferred until such time,
if any, as additional Shares become available for grant under the Plan through
action of the shareholders to increase the number of Shares which may be issued
under the Plan or through cancellation or expiration of Options previously
granted hereunder.
(v) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any grant of an Option made before the Company has obtained
shareholder approval of the Plan in accordance with Section 17 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 17 hereof.
(vi) The terms of each First Option granted hereunder shall be
as follows:
(1) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof.
(2) the exercise price per Share shall be 100% of the fair
market value per Share at the beginning of the date of grant of the First
Option, determined in accordance with Section 8 hereof.
(3) the First Option shall become exercisable in
installments cumulatively as to 25% of the Shares subject to the First Option on
each of the first, second, third and fourth anniversaries of the date of grant
of the First Option.
(vii) The terms of each Subsequent Option granted hereunder shall
be as follows:
(1) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof.
(2) the exercise price per Share shall be 100% of the fair
market value per Share at the beginning of the date of grant of the Subsequent
Option, determined in accordance with Section 8 hereof.
(3) the Subsequent Option shall become exercisable as to
one hundred percent (100%) of the Shares subject to the Subsequent Option on the
first anniversary of the date of grant of the Subsequent Option.
(c) Powers of the Board. Subject to the provisions and restrictions
-------------------
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 8(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option
-3-
<PAGE>
previously granted hereunder; and (vi) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
(e) Suspension or Termination of Option. If the President or his or
-----------------------------------
her designee reasonably believes that an Optionee has committed an act of
misconduct, the President may suspend the Optionee's right to exercise any
option pending a determination by the Board of Directors (excluding the Outside
Director accused of such misconduct). If the Board of Directors (excluding the
Outside Director accused of such misconduct) determines an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation
owed to the Company, breach of fiduciary duty or deliberate disregard of the
Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his or her estate shall be
entitled to exercise any option whatsoever. In making such determination, the
Board of Directors (excluding the Outside Director accused of such misconduct)
shall act fairly and shall give the Optionee an opportunity to appear and
present evidence on Optionee's behalf at a hearing before the Board or a
committee of the Board.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. Term of Plan; Effective Date. The Plan shall become effective on the
----------------------------
effectiveness of the registration statement under the Securities Act of 1933, as
amended, relating to the Company's initial public offering of securities. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 13 of the Plan.
7. Term of Option. The term of each Option shall be ten (10) years from
--------------
the date of grant thereof.
8. Exercise Price and Consideration.
--------------------------------
(a) Exercise Price. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be 100% of the fair market value
per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value shall be determined by
-----------------
the Board in its discretion; provided, however, that where there is a public
market for the Common Stock, the
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<PAGE>
fair market value per Share shall be the mean of the bid and asked prices of the
Common Stock in the over-the-counter market on the date of grant, as reported in
The Wall Street Journal (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotation ("NASDAQ" System)
or, in the event the Common Stock is traded on the NASDAQ National Market or
listed on a stock exchange, the fair market value per Share shall be the closing
price on such system or exchange on the date of grant of the Option (or, in the
event that the Common Stock is not traded on such date, on the immediately
preceding trading date), as reported in The Wall Street Journal. With respect to
any Options granted hereunder concurrently with the initial effectiveness of the
Plan, the fair market value shall be the Price to Public as set forth in the
final prospectus relating to such initial public offering.
(c) Form of Consideration. The consideration to be paid for the
---------------------
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised (which, if acquired from the Company, shall have been
held for at least six months), or any combination of such methods of payment
and/or any other consideration or method of payment as shall be permitted under
applicable corporate law.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) hereof; provided, however, that no Options shall be exercisable prior to
shareholder approval of the Plan in accordance with Section 17 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
-5-
<PAGE>
(b) Termination of Status as a Director. If an Outside Director
-----------------------------------
ceases to serve as a Director, he or she may, but only within ninety (90) days
after the date he or she ceases to be a Director of the Company, exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. Notwithstanding the foregoing, in no event may the Option
be exercised after its term set forth in Section 7 has expired. To the extent
that such Outside Director was not entitled to exercise an Option at the date of
such termination, or does not exercise such Option (which he or she was entitled
to exercise) within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
9(b) above, in the event a Director is unable to continue his or her service as
a Director with the Company as a result of his or her total and permanent
disability (as defined in Section 22(e)(3) of the Internal Revenue Code), he or
she may, but only within six (6) months from the date of such termination,
exercise his or her Option to the extent he or she was entitled to exercise it
at the date of such termination. Notwithstanding the foregoing, in no event may
the Option be exercised after its term set forth in Section 7 has expired. To
the extent that he or she was not entitled to exercise the Option at the date of
termination, or if he or she does not exercise such Option (which he or she was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
-----------------
(i) During the term of the Option who is, at the time of his or
her death, a Director of the Company and who shall have been in Continuous
Status as a Director since the date of grant of the Option, the Option may be
exercised, at any time within six (6) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
would have accrued had the Optionee continued living and remained in Continuous
Status as Director for six (6) months after the date of death. Notwithstanding
the foregoing, in no event may the Option be exercised after its term set forth
in Section 7 has expired.
(ii) Within three (3) months after the termination of Continuous
Status as a Director, the Option may be exercised, at any time within six (6)
months following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
Notwithstanding the foregoing, in no event may the option be exercised after its
term set forth in Section 7 has expired.
10. Nontransferability of Options. The Option may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
-6-
<PAGE>
11. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustments. Subject to any required action by the shareholders
-----------
of the Company, the number of shares of Common Stock covered by each outstanding
Option, the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, and the number of shares of Common Stock to be granted under the
provisions set forth in Section 4 of the Plan, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Corporate Transactions. In the event of (i) a dissolution or
----------------------
liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation in which the Company is not
the surviving corporation, or (iv) any other capital reorganization in which
more than fifty percent (50%) of the shares of the Company entitled to vote are
exchanged, the Company shall give to the Optionee, at the time of adoption of
the plan for liquidation, dissolution, sale, merger, consolidation or
reorganization, either a reasonable time thereafter within which to exercise the
Option, including Shares as to which the Option would not be otherwise
exercisable, prior to the effectiveness of such liquidation, dissolution, sale,
merger, consolidation or reorganization, at the end of which time the Option
shall terminate, or the right to exercise the Option, including Shares as to
which the Option would not be otherwise exercisable (or receive a substitute
option with comparable terms), as to an equivalent number of shares of stock of
the corporation succeeding the Company or acquiring its business by reason of
such liquidation, dissolution, sale, merger, consolidation or reorganization.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain approval of the shareholders of the Company to Plan amendments to
the extent and in the manner required by such law or regulation.
-7-
<PAGE>
Notwithstanding the foregoing, the provisions set forth in Section 4 of this
Plan (and any other Sections of this Plan that affect the formula award terms
required to be specified in this Plan by Rule 16b-3) shall not be amended more
than once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares, if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
16. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
17. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
If such shareholder approval is obtained at a duly held shareholders' meeting,
it may be obtained by the affirmative vote of the holders of a majority of the
outstanding shares of the Company present or represented and entitled to vote
thereon. If such shareholder approval is obtained by written consent, it may be
obtained by the written consent of the holders of a majority of the outstanding
shares of the Company. Options may be granted, but not exercised before such
shareholder approval.
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<PAGE>
PREVIEW TRAVEL, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the PREVIEW
TRAVEL, INC. 1997 Employee Stock Purchase Plan (the "Plan") for the Offering
Period ______________, _____ to _______________, _____, and subscribe to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of _____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 15% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can decrease the rate of my Contributions to not less than 1%
of my Compensation on one occasion only during any Offering Period by completing
and filing a new Subscription Agreement with such decrease taking effect as of
the beginning of the calendar month following the date of filing of the new
Subscription Agreement, if filed at least ten (10) business days prior to the
beginning of such month. Further, I may change the rate of deductions for
future Offering Periods by filing a new Subscription Agreement, and any such
change will be effective as of the beginning of the next Offering Period. In
addition, I acknowledge that, unless I discontinue my participation in the Plan
as provided in Section 10 of the Plan, my election will continue to be effective
for each successive Offering Period.
<PAGE>
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "PREVIEW TRAVEL, INC. 1997 Employee Stock
Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
_____________________________________
_____________________________________
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) _____________________________________
(First) (Middle) (Last)
_____________________ _____________________________________
(Relationship) (Address)
_____________________________________
8. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Offering Date (the first day of the Offering
Period during which I purchased such shares) or within 1 year after the Purchase
Date, I will be treated for federal income tax purposes as having received
ordinary compensation income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares on the Purchase Date over
the price which I paid for the shares, regardless of whether I disposed of the
shares at a price less than their fair market value at the Purchase Date. The
remainder of the gain or loss, if any, recognized on such disposition will be
treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after
--------------------------------------------------------------------
the date of any such disposition, and I will make adequate provision for
- ------------------------------------------------------------------------
federal, state or other tax withholding obligations, if any, which arise upon
- -----------------------------------------------------------------------------
the disposition of the Common Stock. The Company may, but will not be obligated
- -----------------------------------
to, withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid for
the shares under the option, or (2) 15% of the fair market value of the
<PAGE>
shares on the Offering Date. The remainder of the gain or loss, if any,
recognized on such disposition will be treated as capital gain or loss.
I understand that this tax summary is only a summary and is subject to
----------------------------------------------------------------------
change. I further understand that I should consult a tax advisor concerning the
- ------
tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
SIGNATURE: _________________________
SOCIAL SECURITY #: _________________
DATE: ______________________________
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
____________________________________
(Signature)
____________________________________
(Print name)
<PAGE>
PREVIEW TRAVEL, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, __________________________, hereby elect to withdraw my participation in
the PREVIEW TRAVEL, INC. 1997 Employee Stock Purchase Plan (the "Plan") for the
Offering Period _________. This withdrawal covers all Contributions credited to
my account and is effective on the date designated below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:___________________ ___________________________________
Signature of Employee
___________________________________
Social Security Number
<PAGE>
Exhibit 10.6
PREVIEW MEDIA, INC.
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Third Amended and Restated Registration Rights Agreement (this
"Agreement") is made effective as of June 28, 1996 by and among Preview Media,
Inc., a California corporation (the "Company"), and (1) the persons who
purchased Series B Preferred Stock ("Series B Preferred") pursuant to the
Company's Series B Preferred Stock Purchase Agreement (the "Series B Agreement")
dated March 7, 1988, (2) the persons who purchased Series C Preferred Stock
("Series C Preferred") pursuant to the Company's Series C Preferred Stock
Purchase Agreement (the "Series C Agreement") dated July 31, 1991, (3) the
persons who purchased Series D Preferred Stock ("Series D Preferred") pursuant
to the Company's Series D Preferred Stock Purchase Agreement (the "Series D
Agreement") dated January 31, 1995, (4) Trase Miller Solutions, Inc., a Delaware
corporation ("Trase Miller"), which purchased Series D Preferred (the "Trase
Miller Preferred") and was issued Common Stock (the "Trase Miller Common")
pursuant to the Company's Series D Preferred Stock and Common Stock Purchase
Agreement (the "Trase Miller Agreement") dated as of December 29, 1995, (5) the
holders (the "Common Warrant Holders") of certain warrants (the "Common
Warrants") to purchase up to 922,405 shares of Common Stock, originally issued
July 14 and August 9, 1993, January 31, 1995 and February 26, 1996, (6) the
entities that are purchasing Series E Preferred Stock ("Series E Preferred")
pursuant to the Company's Series E Preferred Stock Purchase Agreement dated June
28, 1996, (7) the holders (the "Series C Warrant Holders") of certain warrants
(the "Series C Warrants") to purchase up to 321,430 shares of Series C Preferred
Stock, originally issued December 22, 1992, (8) the holders (the "Convertible
Note Holders") of certain convertible promissory notes (the "Convertible Notes")
issued pursuant to a Secured Note Exchange Agreement dated as of January 31,
1995, (9) the holders (the "Series D Warrant Holders") of warrants (the "Series
D Warrants") to purchase up to 795,238 shares of Series D Preferred Stock and
(10) the holders (the "Common Stock Warrant Holders") of certain warrants (the
"Common Stock Warrants") to purchase up to 39,156 shares of Common Stock issued
pursuant to a Convertible Note and Warrant Purchase Agreement made and entered
into as of May 21, 1996. The Common Warrants, the Common Stock Warrants, the
Series C Warrants and the Series D Warrants are collectively referred to herein
as the "Warrants." The Common Warrant Holders, the Common Stock Warrant
Holders, the Series C Warrant Holders and the Series D Warrant Holders are
collectively referred to herein as the "Warrant Holders." The Series B
Preferred, the Series C Preferred, the Series D Preferred, the Trase Miller
Preferred and the Series E Preferred are collectively referred to herein as the
"Preferred." The purchasers of Series B Preferred (the "Series B Purchasers"),
the purchasers of Series C Preferred (the "Series C Purchasers"), the purchasers
of Series D Preferred (the "Series D Purchasers"), the purchasers of Series E
Preferred (the "Series E Purchasers"), the Convertible Note Holders, the Warrant
Holders and Trase Miller are collectively referred to herein as the
"Purchasers."
The Company desires to sell, and the Series E Purchasers desire to buy,
shares of Series E Preferred. As an inducement to the Series E Purchasers to
purchase the Series E Preferred, the Company and the Purchasers desire to enter
into this Agreement. The Company, the Series B
<PAGE>
Purchasers, the Series C Purchasers, the Series D Purchasers, Trase Miller and
the Warrant Holders (but not the Common Stock Warrant Holders) have previously
entered into a Second Amended and Restated Registration Rights Agreement dated
December 29, 1995 (the "Existing Rights Agreement"). By their execution hereof,
the holders of at least a majority of the Registrable Securities (as defined in
the Existing Rights Agreement), or a majority of any combination of securities
convertible into or exercisable for Registrable Securities, hereby amend and
restate the Existing Rights Agreement to read as set forth herein.
The Series B Purchasers, the Series C Purchasers, the Series D Purchasers
and Trase Miller, respectively, were granted certain information rights pursuant
to Section 7 of the Series B Agreement, the Series C Agreement, the Series D
Agreement and the Trase Miller Agreement, respectively. Furthermore, the Series
D Purchasers and Trase Miller were granted certain rights of first offer under
Section 7 of the Series D Agreement and the Trase Miller Agreement,
respectively, and are obligated under a special covenant under Section 8 of each
of such agreements. By their execution hereof, the holders of at least a
majority of the Series B Preferred, Series C Preferred and Series D Preferred,
and Trase Miller, respectively, hereby terminate/terminates and waive/waives the
provisions of Section 7 of each of the Series B Agreement, Series C Agreement,
Series D Agreement and Trase Miller Agreement, respectively, and the information
rights and, with respect to the Series D Purchasers and Trase Miller, the rights
of first offer set forth therein. By their execution hereof, the holders of at
least a majority of the Series D Preferred and Trase Miller, respectively, also
hereby terminate/terminates Section 8 of the Series D Agreement and the Trase
Miller Agreement. This Agreement shall supersede Section 7 of the Series B
Agreement, the Series C Agreement, the Series D Agreement and the Trase Miller
Agreement, respectively, and this Agreement shall be controlling with respect to
the information rights granted pursuant to the Series B Agreement, the Series C
Agreement, the Series D Agreement and the Trase Miller Agreement, respectively,
and with respect to the rights of first offer granted pursuant to the Series D
Agreement and the Trase Miller Agreement, respectively. This Agreement shall
also supersede Section 8 of the Series D Agreement and the Trase Miller
Agreement, respectively, and shall be controlling with respect to the special
covenants set forth in such sections. Except as set forth herein, the Series B
Agreement, Series C Agreement, Series D Agreement and Trase Miller Agreement
shall each remain in full force and effect.
In consideration of the mutual promises contained herein, the parties
hereby agree as follows:
SECTION 1.
Restrictions on Transferability of Securities;
-----------------------------------------------
Compliance with Securities Act
------------------------------
1.1 Restrictions on Transferability. The Preferred, the Preferred Stock,
--- -------------------------------
if any, issuable upon exercise of the Warrants, the Trase Miller Common, the
Common Stock, if any, issuable upon exercise of the Warrants or upon conversion
of the Notes, and the Common Stock issuable upon conversion of any of the
aforementioned Preferred Stock (collectively, the
-2-
<PAGE>
"Restricted Securities") shall not be sold, assigned, transferred or pledged
except upon the conditions specified in this Section 1, which conditions are
intended to ensure compliance with the provisions of the Securities Act (as
defined below). Each Purchaser will cause any proposed purchaser, assignee,
transferee, or pledgee of the Restricted Securities held by a Purchaser to agree
to take and hold such securities subject to the provisions and upon the
conditions specified in this Section 1.
1.2 Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Registrable Securities" shall mean (i) the Company's Common Stock
----------------------
(the "Stock") issued or issuable pursuant to the conversion of the Preferred or
the Preferred Stock issuable upon exercise of the Warrants, or issued or
issuable upon exercise of the Warrants or conversion of the Convertible Notes,
(ii) the Trase Miller Common, and (iii) any other shares of Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, the Stock, excluding
in all cases, however, any Registrable Securities sold by a person in a
transaction in which his or her rights under this Agreement are not assigned,
provided, however, that Common Stock or other securities shall only be treated
as Registrable Securities if and so long as (A) they have not been sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, (B) they have not been sold in a transaction exempt from
the registration and prospectus delivery requirements of the Securities Act
under Section 4(1) thereof so that all transfer restrictions and restrictive
legends with respect thereto are removed upon the consummation of such sale, or
(C) the registration rights associated with such securities have not been
terminated pursuant to Section 1.14.
The terms "register", "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in complying with Sections 1.5 and 1.6 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).
-3-
<PAGE>
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes, if any, applicable to the securities
registered by the Holders and all fees and disbursements of counsel for the
Holders (as limited by Section 1.7).
"Holder" shall mean any Purchaser holding Registrable Securities and
------
any person holding Registrable Securities or Shares to whom the rights under
this Section 1 have been transferred in accordance with Section 1.12 hereof.
"Initiating Holders" shall mean any Purchasers or transferees of
------------------
Purchasers under Section 1.12 hereof who in the aggregate are Holders of not
less than thirty (30) percent of the Registrable Securities.
1.3 Restrictive Legend. Each certificate representing (i) the Restricted
------------------
Securities and (ii) any other securities issued in respect of, or upon
conversion of, the Restricted Securities shall (unless otherwise permitted by
the provisions of Section 1.4 below) be stamped or otherwise imprinted with a
legend in the following form (in addition to any legend required under
applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION
OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. COPIES
OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING
THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
Each Purchaser and Holder consents to the Company making a notation on
its records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in
this Section 1. Such legend shall be removed by the Company from any
certificate at such time as the holder of the shares represented by the
certificate satisfies the requirements of Rule 144(k) under the Securities Act,
provided that Rule 144(k) as then in effect does not differ in any respect which
is material for the purposes of the restrictions set forth in this Section 1.3
from Rule 144(k) as in effect as of the date of this Agreement, and provided
further that the Company has received from the holder a written representation
that (i) such holder is not an affiliate of the Company and has not been an
-4-
<PAGE>
affiliate during the preceding three months, (ii) such holder has beneficially
owned the shares represented by the certificate for a period of at least three
years, (iii) such holder otherwise satisfies the requirements of Rule 144(k) as
then in effect with respect to such shares, and (iv) such holder will submit the
certificate for any such shares to the Company for reapplication of the legend
at such time as the holder becomes an affiliate of the Company or otherwise
ceases to satisfy the requirements of Rule 144(k) as then in effect.
1.4 Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 1.4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities, unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied at such holder's expense by either (i) a written opinion of legal
counsel who shall, and whose legal opinion shall be, reasonably satisfactory to
the Company addressed to the Company, to the effect that the proposed transfer
of the Restricted Securities may be effected without registration under the
Securities Act, or (ii) a "no action" letter from the Commission to the effect
that the transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by the holder to the Company. Notwithstanding the foregoing, no
such opinion or "no action" letter shall be required in connection with (1) a
transfer not involving a change in beneficial ownership, or (ii) in transactions
involving the distribution without consideration of Restricted Securities by any
Purchaser to any of its partners, retired partners or to the estate of any of
its partners or retired partners if such Purchaser is a partnership, or (iii) a
transfer by a Purchaser that is a corporation to a wholly-owned subsidiary of
such Purchaser or to another corporation of which such Purchaser is a wholly-
owned subsidiary ("Parent") or to another wholly-owned subsidiary of such
Parent, or (iv) in transactions involving the transfer without consideration of
Restricted Securities by Purchaser during his or her lifetime by way of gift or
on death by will or in intestacy). Each certificate evidencing the Restricted
Securities transferred as above provided shall bear, except if such transfer is
made pursuant to Rule 144, the appropriate restrictive legend set forth in
Section 1.3 above, except that such certificate shall not bear such restrictive
legend if in the opinion of counsel for such holder and the Company such legend
is not required in order to establish compliance with any provisions of the
Securities Act.
1.5 Requested Registration.
----------------------
(a) Request for Registration. In case the Company shall receive from
------------------------
Initiating Holders a written request that the Company effect any registration,
qualification or compliance with respect to the Registrable Securities, the
anticipated aggregate offering price, net of underwriting discounts and
commissions, of which would exceed $5,000,000, the Company will:
-5-
<PAGE>
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect such
registration, qualification or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within 30 days after receipt of such written notice from the
Company;
Provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 1.5:
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(B) Prior to September 30, 1997;
(C) During the period starting with the date sixty (60) days prior to
the Company's estimated date of filing of, and ending on the date four (4)
months immediately following, the effective date of any registration statement
pertaining to securities of the Company (other than a registration of securities
in a Rule 145 transaction or with respect to an employee benefit plan), provided
that the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective and that the Company's
estimate of the date of filing such registration statement is made in good
faith; or
(D) After the Company has effected two such registrations pursuant to
this subparagraph 1.5(a), such registrations have been declared or ordered
effective and the securities offered pursuant to such registration have been
sold; and further provided that
(E) if the Company shall furnish to such Holders a certificate and
further provided that signed by the President of the Company stating that in the
good faith judgment of the Board of Directors it would be seriously detrimental
to the Company or its shareholders for a registration statement to be filed in
the near future, then the Company's obligation to use its best efforts to
register, qualify or comply under this Section 1.5 shall be deferred for a
period not to exceed 120 days.
-6-
<PAGE>
Subject to the foregoing clauses (A) through (E), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable, after receipt of the request or
requests of the Initiating Holders.
(b) Limitations on Subsequent Demand Registration Rights. From and
----------------------------------------------------
after the effective date of this Agreement, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the Company
which would allow such holder or prospective holder to require the Company to
include shares or securities in any registration initiated under this Section
1.5, nor shall the Company include any shares or securities for its own account,
without the written consent of the Holders of a majority of the shares of
Registrable Securities for which registration has been requested, unless such
shares or securities are entitled to be included in such registration only to
the extent that the inclusion of such securities will not diminish the amount of
Registrable Securities of the Holders which are included in such registration.
(c) Underwriting. The right of any Holder to registration pursuant to
------------
Section 1.5 shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 1.5 and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent requested to
the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders (which managing underwriter
shall be reasonably acceptable to the Company). Notwithstanding any other
provision of this Section 1.5, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Initiating Holders shall so advise
all holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement. No Registrable Securities excluded
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration.
If any Holder of Registrable Securities disapproves of the terms of
the underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration; provided, however, that, if by the withdrawal of
such Registrable Securities a greater number of Registrable Securities held by
other Holders may be included in such registration (up to the maximum of any
limitation imposed by the underwriters), then the Company shall offer to all
Holders who have included Registrable Securities in the registration the right
to include additional Registrable Securities in the same proportion used in
determining the underwriter limitation in this Section 1.5(c).
1.6 Company Registration.
--------------------
-7-
<PAGE>
(a) Notice of Registration. If at any time or from time to time, the
----------------------
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders exercising their
respective demand registration rights, other than (i) a registration relating
solely to employee benefit plans, or (ii) a registration relating solely to a
Securities and Exchange Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved therein,
all the Registrable Securities specified in a written request or requests, made
within 30 days after receipt of such written notice from the Company by any
Holder, except as limited by Section 1.6(b).
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.6(a)(i). In such event the right of any Holder to
registration pursuant to Section 1.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company (or by the
holders who have demanded such registration). Notwithstanding any other
provision of this Section 1.6, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities to
be included in such registration. The Company shall so advise all Holders and
the other holders distributing their securities through such underwriting
pursuant to piggyback registration rights similar to this Section 1.6, and the
number of shares of Registrable Securities and other securities that may be
included in the registration and underwriting shall be allocated among all
Holders and other holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders and other
securities held by other holders at the time of filing the registration
statement. If any Holder or other holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration.
(c) Right to Terminate Registration. The Company shall have the right
-------------------------------
to terminate or withdraw any registration initiated by it under this Section 1.6
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.
(d) Limitations on Subsequent Piggyback Registration Rights. From and
-------------------------------------------------------
after the effective date of this Agreement, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the Company
which would allow such holder or prospective holder to require the Company to
include shares or securities in any registration
-8-
<PAGE>
under this Section 1.6, without the written consent of the Holders of a majority
of the shares of Registrable Securities, unless such shares or securities are
entitled to be included in such registration only to the extent that the
inclusion of such securities will not diminish the amount of Registrable
Securities which are included or unless such agreement is entered into in
connection with the issuance of securities to (i) investors purchasing such
securities from the Company in a financing transaction or (ii) to lenders or
lessors in connection with a loan or lease financing transaction, in each such
case described in clause (i) or (ii), so long as such shares or securities are
entitled to be included in such registration on no more than a pari passu basis
with the Registrable Securities hereunder based upon the number of such shares
or other securities held by such other holders at the time of filing of the
registration statement.
1.7 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration pursuant to Sections 1.5 and 1.6 and the
reasonable cost of one special legal counsel to represent all of the Holders
together shall be borne by the Company, provided that the Company shall not be
required to pay the Registration Expenses of any registration proceeding begun
pursuant to Section 1.5, the request of which has been subsequently withdrawn by
the Initiating Holders, unless the Holders of a majority of the Registrable
Securities agree to forfeit the right to a demand registration pursuant to
Section 1.5. The Holders of Registrable Securities to have been registered
shall bear all such Registration Expenses pro rata on the basis of the number of
Registrable Securities to have been registered. Notwithstanding the foregoing,
however, if at the time of the withdrawal, the Holders have learned of a
material adverse change in the condition, business or prospects of the Company
from that known to the Holders at the time of their request, then the Holders
shall not be required to pay any of said Registration Expenses. Unless
otherwise stated, all other Selling Expenses relating to securities registered
on behalf of the Holders shall be borne by the Holders of the registered
securities pro rata on the basis of the number of shares so registered.
1.8 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to Section 1.5 or
1.6, the Company will keep each Holder advised in writing as to the initiation
of each registration, qualification and compliance and as to the completion
thereof, including any stop order or other proceeding initiated with respect to
such offering. At its expense, the Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for at least 120 days or until the
distribution described in the registration statement has been completed,
whichever first occurs;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
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<PAGE>
(c) Furnish to the Holders participating in such registration such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such Holders may
reasonably request;
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions; and
(e) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of circumstances then existing.
1.9 Indemnification.
---------------
(a) The Company will indemnify each Holder, each Holder's officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation (or alleged violation) by
the Company of any rule or regulation promulgated under the Securities Act or
the Securities and Exchange Act of 1934 applicable to the Company in connection
with any such registration, qualification or compliance, and the Company will
reimburse each such Holder, each Holder's officers and directors, and each
person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder, controlling person or underwriter and stated to be
specifically for use therein.
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<PAGE>
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein; provided that the total amount for
which any Holder shall be liable under this subsection 1.9(b) shall not in any
event exceed the aggregate proceeds received by such Holder from the sale of
Registrable Securities in such registration.
(c) Each party entitled to indemnification under this Section 1.9 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, provided that an Indemnified Party (together with all other
Indemnified Parties which may be represented without conflict by one counsel)
shall have the right to retain one separate counsel, with the fees and expenses
to be paid by the Indemnifying Party, if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential conflicts of interest between such Indemnified Party
and any other party represented by such counsel in such proceeding; and,
provided further, that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 1 unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
-11-
<PAGE>
1.10 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.
1.11 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
90 days after the effective date of the first registration filed by the Company
for an offering of its securities to the general public under the Securities
Act;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Securities
Exchange Act of 1934, as amended (at any time after it has become subject to
such reporting requirements);
(c) So long as a Purchaser owns any Restricted Securities, to furnish
to the Purchaser forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after 90 days after the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public under the
Securities Act), and of the Securities Act and the Securities Exchange Act of
1934 (at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as a Purchaser may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Purchaser to sell any such securities without
registration.
1.12 Transfer of Registration Rights. The rights to cause the Company to
-------------------------------
register securities granted Purchasers under Sections 1.5 and 1.6 may be
assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by a Purchaser (together with any
affiliate) provided that: (a) such transfer may otherwise be effected in
accordance with applicable securities laws, (b) notice of such assignment is
given to the Company, and (c) such transferee or assignee (i) is a wholly-owned
subsidiary or Parent (or another wholly-owned subsidiary of the Parent) or
constituent partner (including limited partners) of such Purchaser, or (ii)
holds, immediately after such transfer, at least 100,000 shares of Registrable
Securities, as appropriately adjusted for stock splits and the like.
1.13 Standoff Agreement. Each Holder agrees in connection with any
------------------
registration of the Company's securities (whether for its own account or for the
account of a shareholder) that, upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any Registrable Securities (other than those included in the
-12-
<PAGE>
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters; provided, however, that:
(a) Such agreement shall be applicable only to the first such
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) All officers and directors of the Company and all other persons
with registration rights, if any, whether or not pursuant to this Agreement and
whether or not applicable to such registration enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.14 Termination of Rights. The rights of any particular Holder to cause
---------------------
the Company to register securities under Sections 1.5 and 1.6 shall terminate
with respect to such Holder following a bona fide, firmly underwritten public
offering of shares of Common Stock registered under the Securities Act (provided
that the aggregate gross proceeds to the Company, net of underwriting discounts
and commissions, exceed $7,500,000, and the price to the public is at least
$5.00 per share (subject to adjustment for stock splits, stock dividends,
recapitalizations and the like)) at such time as such Holder is able to dispose
of all of his or its Registrable Securities in one three-month period, pursuant
to the provisions of Rule 144, provided that such Holder holds Registrable
Securities constituting less than 1% of the outstanding voting stock of the
Company.
SECTION 2.
Affirmative Covenants of the Company
------------------------------------
The Company hereby covenants and agrees as follows:
2.1 Financial Information. The Company will mail the following reports to
---------------------
each Purchaser for so long as such Purchaser is a holder of Preferred or Common
Stock issued upon conversion of such Preferred:
(a) As soon as practicable after the end of each fiscal year, and in
any event within 90 days thereafter, consolidated balance sheets of the Company
and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of changes in
financial position of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and audited by independent public accountants of
national standing selected by the Company.
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<PAGE>
(b) Contemporaneously with delivery to holders of Common Stock, a copy
of each report of the Company delivered to holders of Common Stock.
(c) For so long as a Purchaser is eligible to receive reports under
this Section 2.1, it shall also have the right, at its expense, to visit and
inspect any of the properties of the Company or any of its subsidiaries, to
examine its books of account and records, and to discuss their affairs, finances
and accounts with their officers, all at such reasonable times and as often as
may be reasonably requested, provided, however, that the Company shall not be
obligated to provide any information that it reasonably considers to be a trade
secret or to contain confidential information.
2.2 Additional Information. As long as a Purchaser (together with any
----------------------
affiliates) holds not less than 100,000 shares of Preferred (or an equivalent
number of shares consisting of Preferred and/or Common Stock issued upon
conversion of such Preferred), as adjusted for recapitalizations, stock splits,
stock dividends and the like, the Company will mail to such Purchaser, as soon
as practicable after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company and in any event within 45 days
thereafter, a consolidated balance sheet of the Company and its subsidiaries, if
any, as of the end of each such quarterly period, and consolidated statements of
income and consolidated statements of changes in financial condition of the
Company and its subsidiaries for such period and for the current fiscal year to
date, prepared in accordance with generally accepted accounting principles
(other than for accompanying notes), all in reasonable detail and signed,
subject to changes resulting from year-end audit adjustments, by the principal
financial or accounting officer of the Company and will provide a copy of the
Company's annual (and, if made available to the Board of Directors, quarterly)
budget as approved by the Company's Board of Directors.
2.3 Transfer of Information Rights. The information rights set forth in
------------------------------
Sections 2.1 and 2.2 may be transferred in any non-public transfer of Preferred
(or Common Stock issued upon conversion of such Preferred), provided that the
Company is given written notice of such transfer, and provided further that the
right to receive the information set forth in Section 2.2 may only be
transferred to a holder of, or affiliated holders who in the aggregate hold, at
least 100,000 shares of Preferred (or an equivalent number of shares consisting
of shares of Preferred and/or Common Stock issued upon conversion of such
Preferred, as appropriately adjusted for recapitalizations, stock splits, stock
dividends and the like). In the event that the Company reasonably determines
that provision of information to a transferee pursuant to this Section 2.3 would
materially adversely impact its proprietary position, such information may be
edited in the manner necessary to avoid such impact.
2.4 Termination of Covenants. The covenants set forth in Sections 2.1 and
------------------------
2.2 shall terminate and be of no further force or effect upon the earlier of (a)
such time as the Company is required to file reports with the Securities and
Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, or (b) the closing of the Company's initial
sale of Common Stock pursuant to a registration statement under the Securities
Act of 1933, as amended, pursuant to an underwritten firm commitment public
offering, provided that the aggregate gross proceeds to the Company, net of
underwriting discounts and commissions,
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<PAGE>
exceed $7,500,000 and the price to the public is not less than $5.00 per share
(as adjusted to reflect subsequent stock dividends, stock splits,
recapitalizations and the like).
2.5 Right of First Offer. Subject to the terms and conditions specified
--------------------
in this Section 2.5, the Company hereby grants to each Series D and Series E
Purchaser so long as such Series D or Series E Purchaser (together with any
affiliates) holds at least 100,000 shares of Series D and/or Series E Preferred
(or an equivalent number of shares consisting of Preferred and/or Common Stock
issued upon conversion of such Preferred, as appropriately adjusted for
recapitalizations, stock splits, stock dividends and the like) (a
"Rightholder"), a right of first offer with respect to future sales by the
Company of its New Securities (as hereinafter defined). For purposes of this
Section 2.5, the term Rightholder includes any partners, shareholders or
affiliates of a Rightholder. A Rightholder shall be entitled to apportion the
right of first offer hereby granted among itself and its partners, shareholders
and affiliates in such proportions as it deems appropriate.
(a) In the event the Company proposes to issue New Securities, it
shall give each Rightholder written notice (the "Notice") of its intention,
including (i) a description of the New Securities it proposes to issue, (ii) the
number of shares of New Securities it proposes to offer, (iii) the price per
share at which, and other terms on which, it proposes to offer such New
Securities and (iv) the number of shares that the Rightholder has the right to
purchase under this Section 2.5, based on the Rightholder's Percentage (as
defined in Section 2.5(d)(ii)).
(b) Within 30 days after the Notice is given (in accordance with
Section 9.5), the Rightholder may elect to purchase, at the price specified in
the Notice, up to the number of shares of the New Securities proposed to be
issued that the Rightholder has the right to purchase as specified in the
Notice. An election to purchase shall be made in writing and must be given to
the Company within such 30 day period (in accordance with Section 9.5). The
closing of the sale of New Securities by the Company to the participating
Rightholder upon exercise of its rights under this Section 2.5 shall take place
simultaneously with the closing of the sale of New Securities to third parties.
(c) The Company shall have 90 days after the last date on which the
Rightholder's right of first offer lapsed to enter into an agreement (pursuant
to which the sale of New Securities covered thereby shall be closed, if at all,
within 45 days from the execution thereof) to sell the New Securities that the
Rightholder did not elect to purchase under this Section 2.5, at or above the
price and upon terms not materially more favorable to the purchasers of such
securities than the terms specified in the initial Notice given in connection
with such sale. In the event the Company has not entered into an agreement to
sell the New Securities within such 90 day period (or sold and issued New
Securities in accordance with the foregoing within 45 days from the date of said
agreement), the Company shall not thereafter issue or sell any New Securities
without first offering such New Securities to the Rightholder in the manner
provided in this Section 2.5.
(d) (i) "New Securities" shall mean any shares of, or securities
convertible into or exercisable for any shares of, any class of the Company's
capital stock;
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<PAGE>
provided that "New Securities" does not include: (A) Preferred or the Common
Stock issuable upon conversion thereof; (B) securities issued pursuant to the
acquisition of another business entity by the Company by merger, purchase of
substantially all of the assets of such entity, or other reorganization which
results in the Company owning not less than a majority of the voting power of
such entity; (C) shares, or options to purchase shares, of the Company's Common
Stock and the shares of Common Stock issuable upon exercise of such options,
issued pursuant to any arrangement approved by the Board of Directors to
employees, officers and directors of, or consultants, advisors or other persons
performing services for, the Company; (D) shares of the Company's Common Stock
or Preferred Stock of any series issued in connection with any stock split,
stock dividend or recapitalization of the Company; (E) Common Stock issued upon
exercise of warrants, options or convertible securities if the issuance of such
warrants, options or convertible securities was a result of the exercise of the
right of first offer granted under this Section 2.5 or was subject to the right
of first offer granted under this Section 2.5; (F) capital stock or warrants or
options for the purchase of shares of capital stock issued by the Company to a
lender or equipment lessor in connection with any loan or lease financing
transaction; (G) securities sold to the public in an offering pursuant to a
registration statement filed with the Securities and Exchange Commission under
the Act, (H) shares of Common Stock or other securities issued or issuable upon
exercise of warrants issued prior to the effective date of this Agreement; and
(J) shares of Common Stock or other securities issued or issuable upon
conversion of promissory notes issued prior to the effective date of this
Agreement.
(ii) The applicable "Percentage" for each Rightholder shall be the
number of shares of New Securities calculated by dividing (i) the total number
of shares of Common Stock owned by the Rightholder (assuming conversion,
exercise and/or exchange of all shares of Preferred and other securities
exercisable, exchangeable or convertible for securities of the Company owned by
the Rightholder) by (ii) the total number of shares of Common Stock outstanding
at the time the Notice is given (assuming conversion, exercise and/or exchange
of all shares of the Company's Preferred Stock and other securities exercisable,
exchangeable or convertible for securities of the Company)
(e) The right of first offer granted under this Section 2.5 shall
expire upon the consummation of the Company's sale of its Common Stock in a bona
fide, firm commitment underwriting pursuant to a registration statement under
the Securities Act of 1933, as amended, that results in aggregate gross proceeds
to the Company in excess of $7,500,000 and the public offering price of which is
not less than $5.00 per share (as adjusted to reflect subsequent stock
dividends, stock splits, recapitalizations and the like) (other than a
registration statement relating either to the sale of securities to employees of
the Company pursuant to a stock option, stock purchase or similar plan or an SEC
Rule 145 transaction).
(f) The right of first offer granted under this Section 2.5 may be
assigned by a Rightholder to a transferee or assignee of the Rightholder's
shares of the Company's capital stock acquiring the lesser of (a) at least
100,000 shares of Series D and/or Series E Preferred (or an equivalent number of
shares consisting of shares of Series D and/or Series E Preferred and/or Common
Stock issued upon conversion of such Series D and/or Series E Preferred, as
appropriately adjusted for recapitalizations, stock splits, stock dividends and
the like) or (b) all of
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<PAGE>
the Rightholder's remaining shares of the Company's capital stock. In the event
that a Rightholder shall assign its right of first offer pursuant to this
Section 2.5 in connection with the transfer of less than all of its shares of
the Company's Series D and/or Series E Preferred (or an equivalent number of
shares consisting of shares of Series D and/or Series E Preferred and/or Common
Stock issued upon conversion of such Series D and/or Series E Preferred, as
appropriately adjusted for recapitalizations, stock splits, stock dividends and
the like), such Rightholder shall also retain its right of first offer.
SECTION 3.
Special Covenants of Purchasers
-------------------------------
3.1 Ownership Restrictions.
--- ----------------------
(a) Without the prior written consent of the Company, Trace Miller,
each Series D Purchaser and each Series E Purchaser (each, for purposes of this
Section 3.1, a "Special Purchaser") will not, and will not permit any of its
subsidiaries or affiliates to, directly or indirectly, authorize or make a
tender, exchange or other offer for, or purchase or otherwise acquire, or agree
to acquire, or obtain, directly or indirectly, beneficial ownership of any
shares of the Company's Common Stock (including the Trace Miller Common),
Preferred Stock (including the Series D, Series E and Trase Miller Preferred),
and any other securities issued by the Company entitled to vote generally for
the election of directors of the Company, whether currently outstanding or
hereafter issued (collectively, "Voting Stock") or beneficial ownership of any
(i) non-voting securities of the Company which are convertible in Voting Stock,
whether currently outstanding or hereafter issued, and/or (ii) options, warrants
and other rights to acquire Voting Stock whether currently outstanding or
hereafter granted (collectively, "Rights to Acquire Voting Stock"), if the
effect of such acquisition would be to increase the number of shares of Voting
Stock then owned by such Special Purchaser and its subsidiaries and affiliates
to an amount equal to more than twenty percent (20%) of all Voting Stock or more
than 50% of any class of Voting Stock outstanding at such time, assuming for the
purposes of determining each such percentage the exercise and/or conversion of
all Rights to Acquire Voting Stock, whether owned by such Special Purchaser or
otherwise.
(b) Notwithstanding Section 3.1(a), a Special Purchaser shall not be
obligated to dispose of any shares of Voting Stock or any Rights to Acquire
Voting Stock if the percentage ownership of such Special Purchaser is increased
as a result of a recapitalization of the Company, a repurchase of securities of
the Company, any other action taken by the Company, or any termination or
expiration of Rights to Acquire Voting Stock (each, a "Percentage Increase
Event"). If a Percentage Increase Event results in a Special Purchaser owning
more than the percentages allowed under this Section 3, such Special Purchaser
shall not thereafter acquire any additional Voting Stock or Rights to Acquire
Voting Stock unless such acquisition would otherwise be permitted under this
Section 3.
(c) Nothing in Sections 3.1(a) and 3.1(b) shall prevent a Special
Purchaser from exercising or converting any Rights to Acquire Voting Stock held
by a Special Purchaser.
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<PAGE>
3.2 Termination of Covenants. The covenants set forth in Section 3.1
------------------------
shall terminate and be of no further force or effect upon the earlier of (a)
such time as the Company is required to file reports with the Securities and
Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, or (b) the closing of the Company's initial
sale of Common Stock pursuant to a registration statement under the Securities
Act of 1933, as amended, pursuant to an underwritten firm commitment public
offering, provided that the aggregate gross proceeds to the Company, net of
underwriting discounts and commissions, exceed $7,500,000 and the price to the
public is not less than $5.00 per share (as adjusted to reflect subsequent stock
dividends, stock splits, recapitalizations and the like).
SECTION 4.
----------
Miscellaneous
-------------
4.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California.
4.2 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
4.3 Entire Agreement; Amendment. This Agreement constitutes the full and
---------------------------
entire understanding and agreement between the parties with regard to the
subject hereof, and no party shall be liable or bound to any other party in any
manner by any warranties, representations or covenants except as specifically
set forth herein or therein. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought; provided,
however, that Holders of at least a majority of the Registrable Securities may,
with the written consent of the Company, waive, modify or amend on behalf of all
Holders, any provisions hereof so long as the effect thereof will be that all
such Holders will be treated equally.
4.4 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to a Purchaser, at such Purchaser's address set forth in the
records of the Company, or at such other address as such Purchaser shall have
furnished to the Company in writing, or (b) if to any other holder of any
Registrable Securities, at such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Registrable
Securities who has so furnished an address to the Company, or (c) if to the
Company, one copy should be sent to its address set forth below and addressed to
the attention of the Corporate Secretary, or at such other address as the
Company shall have furnished to the Purchasers.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by
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<PAGE>
mail, at the earlier of its receipt or 72 hours after the same has been
deposited in a regularly maintained receptacle for the deposit of the United
States mail, addressed and postage prepaid as aforesaid.
4.5 Expenses. The Company and each Purchaser shall bear its own expenses
--------
incurred on its behalf with respect to this Agreement and the transactions
contemplated hereby.
4.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which may be executed by less than all of the Purchasers,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
4.7 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
4.8 Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not considered in construing or
interpreting this Agreement.
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<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
PREVIEW MEDIA, INC.,
a California corporation
By: /s/David Lambert
----------------
Title: Chief Financial Officer
-----------------------
"PURCHASERS"
US WEST Interactive Services, Inc.
By: /s/US West Interactive Services, Inc
------------------------------------
Title: President
---------
"PURCHASERS"
Kleiner Perkins Caufield & Byers VII
By: /s/Kleiner Perkins Caufied & Byers VII
--------------------------------------
Title: General Partner
---------------
"PURCHASERS"
KPCB VII Founders Fund
By: /s/ KPCB VII Founders Fund
--------------------------
Title: General Partner
---------------
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
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<PAGE>
"PURCHASERS"
KPCB Information Sciences Zaibatsu Fund II
By: /s/ KPCB Information Sciences Zaibatsu Fund II
----------------------------------------------
Title: General Partner
---------------
"PURCHASERS"
America Online, Inc.
By: /s/Theodore J. Leonsis
----------------------
Title:
----------------------
"PURCHASERS"
KLAS, Inc.
By: /s/KLAS, Inc.
-------------
Title: President and General Manager
-----------------------------
"PURCHASERS"
Trase Miller Solutions, Inc.
By: /s/ Trase Miller Solutions, Inc.
--------------------------------
Title: President
---------
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
-21-
<PAGE>
"PURCHASERS"
CEA-Preview Investors, Ltd.
By: /s/ CEA-Preview Investors, Ltd.
-------------------------------
Title: SR VP of its G.P.
-----------------
"PURCHASERS"
James J. Hornthal and Bethany S. Hornthal,
Trustees of the Hornthal Living Trust dated
12/23/92
By: /s/J. Hornthal
--------------
Title: Trustee
-------
"PURCHASERS"
Draper Associates, a CA Ltd Partnership
By: /s/Draper Associates, a CA Ltd Partnership
------------------------------------------
Title:
------------------------------------------
"PURCHASERS"
Polaris Fund, L.P.
By: /s/Polaris Fund, L.P.
---------------------
Title:
---------------------
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
-22-
<PAGE>
"PURCHASERS"
The Timothy C. Draper Living Trust
By: /s/The Timothy C. Draper Living Trust
-------------------------------------
Title:
-------------------------------------
"PURCHASERS"
Polly C. Draper
By: /s/ Polly C. Draper
-------------------
Title:
-------------------
"PURCHASERS"
Edmund & Mary Shea Real Property Trust
By: /s/Edmund H. Shea, Jr.
----------------------
Title: Trustee
-------
"PURCHASERS"
Edmund & Mary Shea Family Foundation
By: /s/Edmund H. Shea, Jr.
----------------------
Title: Trustee
-------
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
-23-
<PAGE>
"PURCHASERS"
Tahoe Partnership I
By: /s/Edmund H. Shea, Jr.
----------------------
Title: Partner
-------
"PURCHASERS"
Siam Partners II
By: /s/Edmund H. Shea, Jr.
----------------------
Title: Partner
-------
"PURCHASERS"
Thomas W. Cardy Family Trust dated
November 1, 1991
By: /s/T. W. Cardy
--------------
Title: Trustee
-------
"PURCHASERS"
KIM Enterprises, L.P.
By: /s/KIM Enterprises, L.P.
------------------------
Title: Chairman
--------
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
-24-
<PAGE>
"PURCHASERS"
Moldaw Variable Fund
By: /s/Stuart S. Moldaw
--------------------
Title: General Partner
----------------
"PURCHASERS"
H & Q Preview Media Investors, L.P.
By: /s/Jackie Berterretche
-----------------------
Title: Attorney-In-Fact
-----------------
"PURCHASERS"
/s/J. Noyes
---------------------------
James Noyes
"PURCHASERS"
/s/David Lambert
---------------------------
David E. Lambert
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
-25-
<PAGE>
EXHIBIT 10.7
AMENDMENT NO. 1 TO
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Amendment No. 1 (the "Amendment") to the Third Amended and
---------
Restated Registration Rights Agreement (the "Agreement") dated as of June 28,
---------
1996 by and among Preview Travel, Inc., a California corporation (the
"Company"), and certain of the Company's investors, is made this 26th day of
-------
September, 1997 by and among the Company, the investors listed on Schedule A
----------
hereto (the "Investors") and the undersigned holders of at least a majority of
---------
the Registrable Securities (as defined in the Agreement), who shall hereinafter
be referred as the "Consenting Holders."
------------------
The Company has granted to the holders of its Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock registration and other rights under the
Agreement;
The Company proposes to sell and issue to the Investors shares of
Series E Preferred Stock pursuant to that certain Series E Preferred Stock
Purchase Agreement, dated June 28, 1996, as amended by that certain Amendment
No. 1 to the Series E Preferred Stock Purchase Agreement dated of even date
herewith (the "Series E Amendment"); and
------------------
As a condition of entering into the Series E Amendment, the Investors
have requested that the Company extend to them the registration and other rights
that were extended to the holders of the Registrable Securities.
The Consenting Holders have agreed to the extension of such rights to
the Investors.
In consideration of the mutual covenants set forth herein and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby consent and agree as follows:
1. All terms not defined herein shall have the meaning set forth in
the Agreement.
2. Each Investor shall be deemed a party to the Agreement and shall
be deemed a "Holder" for purposes of the Agreement and shall be entitled to all
------
of the rights, benefits and privileges of, and subject to all of the
restrictions on, a "Holder" under the Agreement.
------
3. Each Investor shall be deemed to be both a "Series E Purchaser"
------------------
and a "Purchaser" for purposes of the Agreement.
---------
4. Each share of Series E Preferred Stock acquired by an Investor
shall be deemed to be both "Series E Preferred" and "Preferred" for purposes of
------------------ ---------
the Agreement.
5. This Amendment shall become effective upon the execution of this
Amendment by the Company and the holders of at least a majority of the
Registrable Securities.
<PAGE>
6. Except as otherwise specifically provided herein, the Agreement
shall remain in full force and effect, and the undersigned shall be entitled to
all the rights and subject to all the restrictions thereunder.
7. This Amendment may be executed in one or more counterparts, each
of which shall be an original but all of which, taken together, shall constitute
one and the same.
8. This Amendment shall be governed in all respects by the laws of
the State of California.
[SIGNATURE PAGES FOLLOW]
-2-
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
COMPANY
PREVIEW TRAVEL, INC.,
a California corporation
By: /s/ David Lambert
----------------------------------------
Name: David Lambert
----------------------------------------
Title: Executive Vice President
----------------------------------------
CONSENTING HOLDER AND INVESTOR
US WEST Interactive Services, Inc.
By: /s/ US WEST Interactive Services, Inc.
----------------------------------------
Title: President
-------------------------------------
CONSENTING HOLDERS
Kleiner Perkins Caufield & Byers VII
By: /s/ Kleiner Perkins Caufield & Byers VII
----------------------------------------
Title: General Partner
-------------------------------------
KPCB VII Founders Fund
By: /s/ KPCB VII Founders Fund
----------------------------------------
Title: General Partner
----------------------------------------
SIGNATURE PAGE TO AMENDMENT NO.1 TO
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
<PAGE>
KPCB Information Sciences Zaibatsu Fund II
By: /s/ KPCB Information Sciences
------------------------------------------
Zaibatsu Fund II
------------------------------------------
Title: General Partner
--------------------------------------
CONSENTING HOLDER
America Online, Inc.
By: /s/ America Online, Inc.
-----------------------------------------
Title: President & CEO - AOL Studios
-----------------------------------------
Trase Miller Solutions, Inc.
By: /s/ Trase Miller Solutions, Inc.
-----------------------------------------
Title: Senior Vice President
-----------------------------------------
SIGNATURE PAGE TO AMENDMENT NO.1 TO
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
<PAGE>
CONSENTING HOLDER AND INVESTOR
James J. Hornthal and Bethany S. Hornthal,
Trustees of the Hornthal Living Trust dated
12/23/92
By: /s/ J. J. Hornthal
------------------------------------------
Title: Trustee
------------------------------------------
CONSENTING HOLDERS AND INVESTORS
Edmund & Mary Shea Real Property Trust
By: /s/ Edmund Shea
------------------------------------------
Title: Trustee
------------------------------------------
Edmund & Mary Shea Family Foundation
By: /s/ Edmund Shea
------------------------------------------
Title: President
----------------------------------------
Tahoe Partnership I
By: /s/ Peter O. Shea
------------------------------------------
Title: Custodian
------------------------------------------
SIGNATURE PAGE TO AMENDMENT NO.1 TO
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
<PAGE>
Siam Partners II
By: /s/ Edmund Shea
-------------------------------------
Title: General Partner
-------------------------------------
INVESTOR
Chris Anderson
/s/ C. Anderson
--------------------------------------------
The Sapling Foundation
By: /s/ C. Anderson
-------------------------------------
Title: _____________________________________
Robert Senoff
/s/ Robert Senoff
--------------------------------------------
CONSENTING HOLDER AND INVESTOR
Moldaw Variable Fund
By: /s/ Stuart S. Moldaw
-------------------------------------
Title: General Partner
-------------------------------------
SIGNATURE PAGE TO AMENDMENT NO.1 TO
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENTS
<PAGE>
H & Q Preview Media Investors, L.P.
By: /s/ J. Berterretche
-------------------------------------
Title: Attorney-in-Fact
-------------------------------------
INVESTOR
The Rogers Family Trust
By: /s/ Roy L. Rogers
-------------------------------------
Title: Trustee
-------------------------------------
INVESTORS
Spitfire Capital Partners, L.P.
By: /s/ Spitfire Capital Partners, L.P.
-------------------------------------
Title: Chairman
-------------------------------------
Montgomery Associates 1992 L.P.
By: /s/ Montgomery Associates 1992 L.P.
-------------------------------------
Title: Managing Partner
-------------------------------------
SIGNATURE PAGE TO AMENDMENT NO.1 TO
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
<PAGE>
INVESTOR
Douglas A. Berl
/s/ Douglas A. Berl
--------------------------------------------
INVESTORS
Pequot Private Equity Fund L.P.
By: /s/ Pequot Private Equity Fund L.P.
-------------------------------------
Title: CFO, DSCMI, Investment Advisor
-------------------------------------
Pequot Offshore Private Equity Fund, L.P.
By: /s/ Pequot Offshore Private Equity
-------------------------------------
Fund, L.P.
-------------------------------------
Title: CFO, DSCMI, Investment Advisor
-------------------------------------
Olympus Growth Fund II, L.P.
By: /s/ James A. Conroy
-------------------------------------
Title: General Partner
-------------------------------------
Olympus Executive Fund, L.P.
By: /s/ James A. Conroy
-------------------------------------
Title: General Partner
-------------------------------------
SIGNATURE PAGE TO AMENDMENT NO.1 TO
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
<PAGE>
INVESTOR
Stefan Sanktjohanser
/s/ Stefan Sanktjohanser
--------------------------------------------
The Homer Luther, Jr. IRA Rollover
By: /s/ Homer L. Luther
-------------------------------------
Title: _____________________________________
Bill Luby
/s/ William Luby
--------------------------------------------
Annabel J. Montgomery Revocable Trust
/s/ Annabel J. Montgomery - Trustee
--------------------------------------------
American National Bank and Trust Company of
Chicago as Trustee of the
Ronald L. Chez IRA
By: /s/ American National Bank and
-------------------------------------
Trust Company of Chicago
-------------------------------------
Title: Vice President
-------------------------------------
SIGNATURE PAGE TO AMENDMENT NO.1 TO
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
<PAGE>
INVESTORS
Lamoreaux Partners
By: /s/ Phillip A. Lamoreaux
--------------------------------------
Title: General Partner
--------------------------------------
Phillip A. Lamoreaux
/s/ Phillip A. Lamoreaux
---------------------------------------------
INVESTOR
David S. Pottruck CRT No. 3 UTD 7/27/97
By: /s/ David S. Pottruck
--------------------------------------
Title: ______________________________________
Thomas Unterman
/s/ Thomas Unterman
---------------------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Tony V. Pantuso
--------------------------------------
Name: Tony V. Pantuso
--------------------------------------
Title: SVP - Equity Capital
--------------------------------------
SIGNATURE PAGE TO AMENDMENT NO.1 TO
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
<PAGE>
INVESTOR
/s/ David V. Crowder
---------------------------------------
David V. Crowder
INVESTOR
/s/ Richard Friedman
---------------------------------------
Richard Friedman
SIGNATURE PAGE TO AMENDMENT NO.1 TO
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT A
US WEST Interactive Services, Inc.
James J. Hornthal and Bethany S. Hornthal, Trustees of the Hornthal Living Trust
dated 12/23/92
Edmund & Mary Shea Real Property Trust
Edmund & Mary Shea Family Foundation
Tahoe Partnership I
Siam Partners II
Chris Anderson
The Sapling Foundation
Robert Senoff
Moldaw Variable Fund
H & Q Preview Media Investors, L.P.
The Rogers Family Trust
Spitfire Capital Partners, L.P.
Montgomery Associates 1992 L.P.
David Crowder
Rick Friedman
Douglas A. Berl
Pequot Private Equity Fund L.P.
Pequot Offshore Private Equity Fund, Inc.
Olympus Growth Fund II, L.P.
Olympus Executive Fund, L.P.
Stefan Sanktjohanser
The Homer L. Luther, Jr. IRA Rollover
Bill Luby
Annabel J. Montgomery Revocable Trust
Ronald L. Chez IRA
Lamoreaux Partners
Phillip A. Lamoreaux
David S. Pottruck CRT No. 3 UTD 7/27/97
Thomas Unterman
General Electric Capital Corporation
<PAGE>
CONFIDENTIAL
EXHIBIT 10.8
EXCITE/PREVIEW TRAVEL - TRAVEL CHANNEL AGREEMENT
This agreement ("Agreement") is entered into as of the 30th day of September,
1997 ("Effective Date"), by and between Excite, Inc., a California corporation,
located at 555 Broadway, Redwood City, California 94063 ("Excite"), and Preview
Travel, Inc., a Delaware corporation, located at 747 Front Street, San
Francisco, California 94111 ("Preview Travel").
RECITALS
A. Excite maintains a site on the Internet at http://www.excite.com and owns
and/or manages related Web sites worldwide (collectively, the "Excite
Network") which, among other things, allow its users to search for and
access content and other sites on the Internet.
B. Within the Excite Network, Excite currently organizes certain content into
topical channels, including a travel and destinations channel (the "Excite
Travel Channel").
C. Excite also maintains and/or manages certain Web pages which may be
delivered to users via email, desktop "channels" or Internet "push"
technologies (collectively, "Broadcast Pages") which may incorporate
content supplied to Excite by third parties for the purpose of providing
value to Excite users and providing access to the content, products and/or
services of such third parties.
D. Preview Travel is engaged in the business of online travel reservations and
owns or has the right to distribute certain travel-related content. Preview
Travel owns and maintains a Web site or sites (collectively, the "Preview
Travel Sites") through which it conducts online travel reservations and
makes its content available to its users.
E. Excite and Preview Travel wish to combine their travel-related content to
create co-branded travel content and reservations services and to make the
content and services available through the Excite Network, the Broadcast
Pages and the Preview Travel Sites.
Therefore, the parties agree as follows:
1. CREATION OF CO-BRANDED TRAVEL CONTENT AND RESERVATIONS SERVICES
a) Preview Travel and Excite will cooperatively create and program co-
branded areas containing travel and destinations content and providing
access to Preview Travel's online reservations services (the
________________________________________________________________________________
Excite / Preview Travel Agreement 1
<PAGE>
CONFIDENTIAL
"Co-Branded Areas"). Excite and Preview Travel each will have
dedicated staff creating and programming the Co-Branded Areas. The
parties will mutually determine the appropriate level of staffing
assigned to these tasks.
b) Preview Travel and Excite will each contribute content ("Content") to
the Co-Branded Areas mutually selected from that which resides on the
Preview Travel Sites and the Excite Travel Channel. The parties may
elect to collaborate on the development of additional content to be
included in the Co-Branded Areas during the term of this Agreement.
c) Content license agreements with third parties applicable to third
party content to be incorporated into the Co-Branded areas will be
handled in separate agreements and subject to mutual agreement of the
parties. Excite and Preview Travel will each make good faith efforts
to obtain the approval of such third parties to allow the distribution
of any licensed third party content through the Co-Branded Areas.
d) Preview Travel will make good faith efforts to ensure that the Excite
Travel Channel will at all times have the option to feature the full
array of content and functionality as made generally available by
Preview Travel via other third-party relationships or via its own
branded service, subject to agreement of the applicable third parties.
e) Preview Travel will be solely responsible for its direct costs
associated with creating and programming the Co-Branded Area,
excluding the licensing of third party content, which will be
apportioned between Excite and Preview Travel subject to mutual
agreement by the parties.
f) Preview Travel will be the premier provider and default reservations
service for the Excite Travel Channel. No other provider of consumer
travel reservations services will be promoted or advertised within the
Excite Travel Channel for the duration of this Agreement. Preview
Travel will provide Excite with a list of competing providers of
consumer travel reservations services to which this exclusion will
apply (Exhibit A). Preview Travel may update Exhibit A once per
quarter.
g) Preview Travel will have a right of first refusal to negotiate with
Excite to provide Excite with travel reservations services and/or
travel-related functionality in the Excite Travel Channel not provided
by Preview Travel under this Agreement. In the event that Excite
intends to provide new travel reservations services and/or travel-
related functionality in the Excite Travel Channel, Excite will
promptly notify Preview Travel of its intent in writing and invite
Preview Travel to
________________________________________________________________________________
Excite / Preview Travel Agreement 2
<PAGE>
CONFIDENTIAL
exercise its right of first refusal. In providing notice to Preview
Travel of its intent to make available any new travel reservations
services and/or travel-related functionality in the Excite Travel
Channel, Excite will provide Preview Travel with the proposed material
terms relevant to the new travel reservations services and/or travel-
related functionality.
h) Within five (5) business days of its receipt of a notice under Section
1(g), Preview Travel will deliver to Excite a written response stating
whether Preview Travel wishes to exercise its right of first refusal.
If Preview Travel informs Excite that it intends to exercise its right
of first refusal, the parties will use good faith efforts to quickly
negotiate and execute a written agreement regarding the new travel
reservations services and/or travel-related functionality based, to
the fullest extent possible, on the terms of this Agreement. For
fifteen (15) business days after Preview Travel's affirmative response
(or such longer period as is agreed by the parties in writing), Excite
will conduct negotiations regarding the new travel reservations
services and/or travel-related functionality exclusively with Preview
Travel. Thereafter, Excite may conduct negotiations with third parties
to obtain the travel reservations services and/or travel-related
functionality concurrently with its negotiations with Preview Travel
on terms (including, without limitation, terms related to carriage,
revenue share and programming requirements) substantially identical
to, and not more favorable to such third parties than, the terms last
offered to Preview Travel.
i) The Co-Branded Areas will display with equal prominence the name
and/or brands of both Preview Travel and Excite. Preview Travel and
Excite will collaborate on the "look and feel" of the Co-Branded Areas
including, but not limited to, the display, appearance and placement
of the parties' respective names and/or brands and of advertising
displayed on the Co-Branded Areas. Subject to the other provisions of
this Agreement, Excite will have final approval over the "look and
feel" and programming of the Co-Branded Area displayed in the Excite
Travel Channel. Subject to the other provisions of this Agreement,
Preview Travel will have final approval over the "look and feel" and
programming of the Co-Branded Area displayed in the Preview Travel
sites.
j) Preview Travel and Excite will each use reasonable efforts to
implement the Co-Branded Areas promptly after the execution of this
Agreement. The parties will meet and confer as soon as possible after
the execution of this Agreement to prepare an implementation schedule.
________________________________________________________________________________
Excite / Preview Travel Agreement 3
<PAGE>
CONFIDENTIAL
2. DISTRIBUTION OF THE CO-BRANDED AREAS
a) The Co-Branded Areas will be made available through the Excite Travel
Channel and the Preview Travel Site. The Co-Branded Areas may be made
available, as deemed appropriate in Excite's sole discretion, through
Web sites in the Excite Network marketed primarily to users in the
United States and Canada.
b) Reasonable excerpts or portions of the Excite Travel Channel may be
incorporated by Excite into Broadcast Pages. Excite will determine the
"look and feel" of the Broadcast Pages.
3. TRAVEL-RELATED BULLETIN BOARDS AND CHAT EVENTS
a) Preview Travel will monitor and moderate Excite's travel-related
bulletin boards on a schedule to be determined by the parties.
b) Excite will provide, at its expense, a chat auditorium as the venue
for a regular series of travel-related chat "events" to be hosted by
Preview Travel no less frequently than three times per month. Hosts
will be individuals with recognized expertise in the travel field. The
events will afford participants an opportunity to interact with the
hosts. A moderator, provided by Preview Travel, will select questions
from the audience for the host to answer.
4. PROMOTION
a) Excite will undertake all reasonable efforts to promote the Excite
Travel Channel throughout the Excite Network. Excite will use such
vehicles as promotion on Excite's home page or Excite Search results
pages, inclusion of the Excite Travel Channel in the "Try These First"
listing of Web sites displayed on Excite Search results pages, cross-
linking within channels and other appropriate means to promote and
drive traffic into the Excite Travel Channel.
b) Excite and Preview Travel will promote the Excite Travel Channel on
their respective Web sites through mutually-determined, comparable
numbers of unsold advertising banner impressions.
c) Preview Travel will conduct, at its expense and on a minimum monthly
basis, give-aways to be displayed on the Excite Network promoting the
Excite Travel Channel as mutually determined by the parties.
d) Excite will promote the travel-related chat event series on its chat
events page, as well as on the front page of the People and Chat
Channel (http://www.excite.com/channel/chat). At its discretion,
Excite
________________________________________________________________________________
Excite / Preview Travel Agreement 4
<PAGE>
CONFIDENTIAL
may promote high profile hosts on the Excite home page and/or the
front page of the Excite Travel Channel.
e) Preview Travel will undertake reasonable efforts to promote the chat
events and Excite's services throughout the Preview Travel Sites. The
promoted Excite Services will include, at a minimum (subject to
Preview Travel's existing agreements with third parties):
i) Excite Search will be the exclusive Internet search and
navigation service on all Web pages in the Preview Travel
Sites in which Preview Travel displays links to Internet
search and navigation services.
ii) My Excite Channel will be one of the personalized Internet
information service on all Web pages in the Preview Travel
Sites in which Preview Travel displays links to personalized
Internet information services.
iii) Excite NewsTracker will be one of the personalized Internet
news clipping service on all Web pages in the Preview Travel
Sites in which Preview Travel displays links to personalized
Internet news clipping services.
iv) Preview Travel will create a Web page or pages in the
Preview Travel Sites promoting the distribution of the
Excite PAL "buddy list" application to Preview Travel's
users. The promotional page or pages will be linked to
Excite's FTP server to allow downloads of the Excite PAL
client. Excite and Preview Travel will collaborate on the
"look and feel" of the Excite PAL promotional page or pages.
Other than paid advertisements from other vendors and/or
distributors of buddy list applications, Preview Travel will
not promote buddy list applications other than Excite PAL.
v) Preview Travel will create a Web page or pages in the
Preview Travel Sites promoting registration for the
MailExcite free email service to Preview Travel's users. The
promotional page or pages will be linked to Excite's
registration page for MailExcite. Excite and Preview Travel
will collaborate on the "look and feel" of the MailExcite
promotional page or pages. Other than paid advertisements
from other vendors and/or distributors of free email
services, Preview Travel will not promote free email
services other than MailExcite.
________________________________________________________________________________
Excite / Preview Travel Agreement 5
<PAGE>
CONFIDENTIAL
vi) The parties will determine the appropriate promotion of
additional Excite services as they become commercially
available.
a) Preview Travel will promote Excite in all print and packaging
materials associated with ticket delivery and/or reservation
confirmations for Excite Travel Channel transactions.
b) Preview Travel will promote, equal to or greater than any other
partner (excluding promotions under agreements between Preview Travel
and America Online, Inc. ("AOL")), Excite's services (including the
Excite Travel Channel), in any Preview Travel publications and radio
and TV programming, subject to Excite's agreement to participate in
such off-Web promotions at a cost no greater than Preview Travel's
"most favored nation" media rates charged to Preview Travel's
strategic partners, excluding promotions covered by agreements with
AOL.
1. SET-UP FEE, REVENUE GUARANTEE PAYMENTS AND PAGE VIEW GUARANTEES
e) One million dollars ($1,000,000) will be due from Preview Travel to
Excite upon execution of this Agreement as compensation for costs of
initiating access to the Excite Network, programming costs associated
with the incorporation of the Co-Branded Area into the Excite Network,
set-up costs and other expenses associated with Excite's initiation of
the links, placements, advertisements and promotions contemplated by
this Agreement. This set-up fee will be paid in four equal
installments of [*] each,
commencing on the three-month anniversary of the execution of this
Agreement and continuing thereafter every three months until the
entire set-up fee has been paid.
f) Separate and apart from the set-up fee, Preview Travel will pay
revenue guarantee payments to Excite as follows:
Year 1: [ * ]
Year 2: [ * ]
Year 3: [ * ]
Year 4: [ * ]
Year 5: [ * ]
TOTAL: TWENTY-THREE MILLION DOLLARS ($23,000,000)
g) In each year, revenue guarantee payments will be made in equal
quarterly installments commencing on the three month anniversary of
the execution of this Agreement and continuing thereafter every three
________________________________________________________________________________
Excite / Preview Travel Agreement 6
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
CONFIDENTIAL
months until all of the annual guarantees have been paid in full,
subject to the other provisions of this Agreement.
h) Excite guarantees Preview Travel that it will deliver the following
annual page views to the Excite Travel Channel:
Year 1: [*]
Year 2: [*]
Year 3: [*]
Year 4: [*]
Year 5: [*]
i) At the conclusion of each twelve (12) month period following the
launch of the Co-Branded Areas (which shall be deemed to be the
earlier of (i) the actual launch of the Co-Branded Areas or (ii)
October 1, 1997), the parties will compare the actual page views
delivered to the Excite Travel Channel against the page view
guarantees set forth above.
v) In the event that the actual annual page views are less than
the applicable annual guarantee, the difference will be
added to the next year's page view guarantee.
vi) In the event that the total of the actual page views over
the five-year term of the Agreement is less than the total
of the five years' guaranteed page views, the Agreement will
be continued without additional guarantee payments on the
part of Preview Travel until the total of the five years'
guaranteed page views has been delivered. This make good
period is to be delivered by Excite in the shortest possible
period, not to exceed [*], given the available page views at
the time.
vii) In the event that actual annual page views in any applicable
year differ from the applicable annual page view guarantee
by [*] or more, the parties will negotiate
in good faith to increase or decrease the remaining annual
page view guarantees and revenue guarantee payments to
reflect the increase or decrease in the value of the
Agreement created by the higher- or lower-than-expected page
views. If the parties are unable to negotiate an appropriate
amendment to the annual page view guarantees and revenue
guarantee payments after ninety (90) days following notice
from a party that it desires to commence such negotiations,
Excite will be entitled to terminate the Agreement upon
notice to Preview Travel if the applicable annual page views
have exceeded the applicable annual guarantee by [*] or
more, and Preview
________________________________________________________________________________
Excite / Preview Travel Agreement 7
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
CONFIDENTIAL
Travel will be entitled to terminate the Agreement upon
notice to Excite if the applicable annual page views have
been less than the applicable annual guarantee by [ * ] or
more. Reviews of the delivery of actual page views against
the annual page view guarantees will take place on an annual
basis.
6. ADVERTISING AND SPONSORSHIP REVENUE AND COMMISSION SHARING
a) The parties' respective sales forces will cooperatively sell
advertising and sponsorships for the Co-Branded Areas that appear on
both the Excite Travel Channel and the Preview Travel Sites without
creating confusion in the marketplace. Within ninety (90) days of the
execution of this Agreement, the parties will evaluate the optimal
sales force structure to maximize the mutual revenue opportunity.
b) Preview will receive [*]of the "Net Advertising Revenue" that accrues
during the term of this Agreement from advertising banners that appear
on the Co-Branded Areas on both sites. "Net Advertising Revenue" means
the gross revenue from banner advertising that accrues to the parties
during the applicable payment period, minus (i) each party's actual
sales agency discounts and commissions, both internal and external, in
an amount not to exceed twenty percent (20%) of the gross revenue,
(ii) any royalties paid by either party for content displayed in the
Co-Branded Areas from sources other than Preview (if applicable) and
(iii) any portion of the banner advertising revenue required to be
shared by either party with content providers other than Preview for
content displayed in the Co-Branded Areas (if applicable).
c) Sharing of Net Advertising Revenue will commence thirty (30) days
after the launch of the Co-Branded Areas. Payments of shared Net
Advertising Revenue will be due within twenty (20) days of the end of
each calendar quarter with respect to revenue recognized by either
party during such calendar quarter.
d) Preview Travel will share standard commissions earned by Preview
Travel through the Co-Branded Areas, subject to the following
conditions:
i) If in any calendar quarter during the term of this Agreement
the total of [*] of such standard commissions earned by
Preview Travel cumulatively from the inception of this
Agreement plus [*]of the Net Advertising Revenue derived
from the Co-Branded Areas cumulatively from the inception of
this Agreement exceeds the pro rata share of
________________________________________________________________________________
Excite / Preview Travel Agreement 8
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
CONFIDENTIAL
the revenue guarantees applicable to the same cumulative
period, Preview Travel will pay Excite [*] of the standard
commissions earned thereafter during such calendar quarter
by Preview Travel through the Co-Branded Areas.
ii) If the total of [*] of such standard commissions earned by
Preview Travel cumulatively from the inception of this
Agreement plus [*]of the Net Advertising Revenue derived
from the Co-Branded Areas cumulatively from the inception of
this Agreement is equal to or less than the pro rata share
of the revenue guarantees applicable to the same cumulative
period, Preview Travel will not be obligated to pay Excite
any share of the standard commissions earned by Preview
Travel through the Co-Branded Areas during the same
cumulative period.
iii) Payments of shared commissions will be due to Excite within
twenty (20) days of the end of each calendar quarter in
which the commission revenue is recognized by Preview
Travel.
iv) Nothing in this Section 6(d) shall be construed to require
the return or refund of any portion of commissions paid by
Preview Travel to Excite in the event that, subsequent to
such payment, the total of [*] of such standard commissions
earned by Preview Travel cumulatively from the inception of
this Agreement plus [*] of the Net Advertising Revenue
derived from the Co-Branded Areas cumulatively from the
inception of this Agreement is equal to or less than the pro
rata share of the revenue guarantees applicable to the same
cumulative period.
7. NEW BUSINESS OPPORTUNITIES
a) Preview Travel and Excite will cooperate in the development of a
program to acquire and rapidly promote to Excite's users "distressed",
"opportunistic" or other travel-related opportunities made available
by travel vendors on short notice. The parties will negotiate in good
faith to implement appropriate expense allocations and revenue sharing
for any such opportunities.
b) The parties will jointly explore additional travel-related online
commerce opportunities and will negotiate in good faith to implement
appropriate compensation for any such activities.
8. EXCLUSIVITY
________________________________________________________________________________
Excite / Preview Travel Agreement 9
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
CONFIDENTIAL
a) During the term of this Agreement, Excite will not enter into a
similar travel content agreement with any of Preview Travel's direct
competitors listed in Exhibit A. Preview Travel may reasonably update
the list of its direct competitors in Exhibit A on a quarterly basis.
b) During the term of the Agreement, Preview Travel will not enter into a
similar agreement with any of Excite's competitors including, but not
limited to, [*].
9. TERM
The term of this Agreement will be five (5) years, commencing on the
Effective Date.
10. TERMINATION
a) Either party may terminate this Agreement if the other party
materially breaches its obligations hereunder and such breach remains
uncured for thirty (30) days following the notice to the breaching
party of the breach.
b) All payments that have accrued prior to the termination or expiration
of this Agreement will be payable in full within thirty (30) days
thereof.
c) The provisions of Section 14 (Confidentiality), Section 15 (Warranty
and Indemnity), Section 16 (Limitation of Liability) and Section 17
(Dispute Resolution) will survive any termination or expiration of
this Agreement.
11. PUBLICITY
Neither party will make any public statement, press release or other
announcement relating to the terms of or existence of this Agreement
without the prior written approval of the other. Notwithstanding the
foregoing, the parties agree to issue an initial press release
regarding the relationship between Excite and Preview Travel, the
timing and wording of which will be mutually agreed upon.
12. CONTENT OWNERSHIP AND LICENSE
a) Preview Travel will retain all right, title and interest in and to its
Content worldwide (including, but not limited to, ownership of all
copyrights, moral rights and other intellectual property rights
therein). Subject to the terms and conditions of this Agreement,
Preview Travel hereby
________________________________________________________________________________
Excite / Preview Travel Agreement 10
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED TO THE OMITTED
PORTIONS.
<PAGE>
CONFIDENTIAL
grants to Excite a royalty-free, non-exclusive, worldwide license to
use, reproduce, distribute, transmit and publicly display Preview
Travel's Content in accordance with this Agreement and to sub-license
Preview Travel's Content to Excite's wholly-owned subsidiaries or to
joint ventures in which Excite participates (excluding Preview
Travel's direct competitors then listed in Exhibit A) for the sole
purpose of using, reproducing, distributing, transmitting and publicly
displaying Preview Travel's Content in accordance with this Agreement
to the extent permitted by Preview Travel's third party Content
licensors.
b) Preview Travel will retain all right, title, and interest in and to
the Preview Travel Sites worldwide (including, but not limited to,
ownership of all copyrights, look and feel and other intellectual
property rights therein).
c) Excite will retain all right, title and interest in and to its Content
worldwide (including, but not limited to, ownership of all copyrights,
moral rights and other intellectual property rights therein). Subject
to the terms and conditions of this Agreement, Excite hereby grants to
Preview Travel a royalty-free, non-exclusive, worldwide license to
use, reproduce, distribute, transmit and publicly display Excite's
Content in accordance with this Agreement
d) Excite will retain all right, title, and interest in and to the Excite
Network, the Excite Travel Channel and the Broadcast Pages worldwide
(including, but not limited to, ownership of all copyrights, look and
feel and other intellectual property rights therein).
13. TRADEMARK OWNERSHIP AND LICENSE
a) Preview Travel will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to the
limited license granted to Excite hereunder.
b) Excite will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to the
limited license granted to Preview Travel hereunder.
c) Each party hereby grants to the other a non-exclusive, limited license
to use its trademarks, service marks or trade names only as
specifically described in this Agreement. All such use shall be in
accordance with each licensor's reasonable policies regarding
advertising and trademark usage as established from time to time.
________________________________________________________________________________
Excite / Preview Travel Agreement 11
<PAGE>
CONFIDENTIAL
d) Upon the expiration or termination of this Agreement, each party will
cease using the trademarks, service marks and/or trade names of the
other except:
i) As the parties may agree in writing; or
ii) To the extent permitted by applicable law.
14. CONFIDENTIALITY
a) For the purposes of this Agreement, "Confidential Information" means
information about the disclosing party's (or its suppliers') business
or activities that is proprietary and confidential, which shall
include all business, financial, technical and other information of a
party marked or designated by such party as "confidential or
"proprietary"; or information which, by the nature of the
circumstances surrounding the disclosure, ought in good faith to be
treated as confidential.
b) Confidential Information will not include information that (i) is in
or enters the public domain without breach of this Agreement, (ii) the
receiving party lawfully receives from a third party without
restriction on disclosure and without breach of a nondisclosure
obligation or (iii) the receiving party knew prior to receiving such
information from the disclosing party or develops independently.
c) Each party agrees (i) that it will not disclose to any third party or
use any Confidential Information disclosed to it by the other except
as expressly permitted in this Agreement and (ii) that it will take
all reasonable measures to maintain the confidentiality of all
Confidential Information of the other party in its possession or
control, which will in no event be less than the measures it uses to
maintain the confidentiality of its own information of similar
importance.
d) Notwithstanding the foregoing, each party may disclose Confidential
Information (i) to the extent required by a court of competent
jurisdiction or other governmental authority or otherwise as required
by law or (ii) on a "need-to-know" basis under an obligation of
confidentiality to its legal counsel, accountants, banks and other
financing sources and their advisors.
e) The terms and conditions of this Agreement will be deemed to be the
Confidential Information of each party and will not be disclosed
without the written consent of the other party.
15. WARRANTY AND INDEMNITY
________________________________________________________________________________
Excite / Preview Travel Agreement 12
<PAGE>
CONFIDENTIAL
a) Preview Travel warrants that it owns, or has obtained the right to
distribute and make available as specified in this Agreement, its
online reservations service and any and all content provided to Excite
or made available to third parties in connection with this Agreement.
b) Preview Travel will indemnify, defend and hold harmless Excite, its
affiliates, officers, directors, employees, consultants and agents
from any and all third party claims, liability, damages and/or costs
(including, but not limited to, attorneys fees) arising from:
i) The breach of any warranty, representation or covenant in
this Agreement;
ii) Any claim that Preview Travel's online reservations service
or content infringes or violates any third party's
copyright, patent, trade secret, trademark, right of
publicity or right of privacy or contains any defamatory
content; or
iii) Any claim arising from content displayed on the Preview
Travel Site (other than Excite's).
Excite will promptly notify Preview Travel of any and all such claims
and will reasonably cooperate with Preview Travel with the defense
and/or settlement thereof; provided that, if any settlement requires
an affirmative obligation of, results in any ongoing liability to or
prejudices or detrimentally impacts Excite in any way and such
obligation, liability, prejudice or impact can reasonably be expected
to be material, then such settlement shall require Excite's written
consent (not to be unreasonably withheld or delayed) and Excite may
have its own counsel in attendance at its own expense at all
proceedings and substantive negotiations relating to such claim.
c) Excite warrants that it owns, or has obtained the right to distribute
and make available as specified in this Agreement, any and all content
provided to Preview Travel or made available to third parties in
connection with this Agreement.
d) Excite will indemnify, defend and hold harmless Preview Travel, its
affiliates, officers, directors, employees, consultants and agents
from any and all third party claims, liability, damages and/or costs
(including, but not limited to, attorneys fees) arising from:
i) The breach of any warranty, representation or covenant in
this Agreement;
________________________________________________________________________________
Excite / Preview Travel Agreement 13
<PAGE>
CONFIDENTIAL
ii) Any claim that Excite's content infringes or violates any
third party's copyright, patent, trade secret, trademark,
right of publicity or right of privacy or contains any
defamatory content; or
iii) Any claim arising from content displayed on the Excite
Network or Broadcast Pages (other than Preview Travel's).
Preview Travel will promptly notify Excite of any and all such claims
and will reasonably cooperate with Excite with the defense and/or
settlement thereof; provided that, if any settlement requires an
affirmative obligation of, results in any ongoing liability to or
prejudices or detrimentally impacts Preview Travel in any way and such
obligation, liability, prejudice or impact can reasonably be expected
to be material, then such settlement shall require Preview Travel's
written consent (not to be unreasonably withheld or delayed) and
Preview Travel may have its own counsel in attendance at its own
expense at all proceedings and substantive negotiations relating to
such claim.
e) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT AND
HEREBY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING ALL IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
REGARDING SUCH SUBJECT MATTER.
16. LIMITATION OF LIABILITY
EXCEPT UNDER SECTIONS 15(b) AND 15(d), IN NO EVENT WILL EITHER PARTY
BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGE. THE LIABILITY OF EITHER PARTY FOR
DAMAGES OR ALLEGED DAMAGES HEREUNDER, WHETHER IN CONTRACT, TORT OR ANY
OTHER LEGAL THEORY, IS LIMITED TO, AND WILL NOT EXCEED, THE AMOUNTS
ACTUALLY PAID BY PREVIEW TRAVEL TO EXCITE HEREUNDER.
17, DISPUTE RESOLUTION
a) The parties agree that any breach of either of the parties'
obligations regarding trademarks, service marks or trade names and/or
confidentiality would result in irreparable injury for which there is
no adequate remedy at law. Therefore, in the event of any breach or
________________________________________________________________________________
Excite / Preview Travel Agreement 14
<PAGE>
CONFIDENTIAL
threatened breach of a party's obligations regarding trademarks,
service marks or trade names or confidentiality, the aggrieved party
will be entitled to seek equitable relief in addition to its other
available legal remedies in a court of competent jurisdiction. For the
purposes of this section only, the parties consent to venue in either
the state courts of the county in which Excite has its principal place
of business or the United States District Court for the Northern
District of California.
b) In the event of disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement, other
than disputes arising from or concerning trademarks, service marks or
trade names and/or confidentiality, the parties will first attempt to
resolve the dispute(s) through good faith negotiation. In the event
that the dispute(s) cannot be resolved through good faith negotiation,
the parties will refer the dispute(s) to a mutually acceptable
mediator for hearing in the county in which Excite has its principal
place of business.
c) In the event that disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement, other
than disputes arising from or concerning trademarks, service marks or
trade names and/or confidentiality, cannot be resolved through good
faith negotiation and mediation, the parties will refer the dispute(s)
to the American Arbitration Association for resolution through binding
arbitration by a single arbitrator pursuant to the American
Arbitration Association's rules applicable to commercial disputes. The
arbitration will be held in the county in which Excite has its
principal place of business.
18. GENERAL
a) Assignment. Neither party may assign this Agreement, in whole or in
----------
part, without the other party's written consent (which will not be
unreasonably withheld), except that no such consent will be required
in connection with (i) a merger, reorganization or sale of all, or
substantially all, of such party's assets or (ii) Excite's assignment
and/or delegation of its rights and responsibilities hereunder to a
wholly-owned subsidiary or joint venture in which Excite holds a
controlling interest (other than to a Preview Travel competitor then
listed in Exhibit A). Any attempt to assign this Agreement other than
as permitted above will be null and void.
b) Governing Law. This Agreement will be governed by and construed in
-------------
accordance with the laws of the State of California, notwithstanding
the actual state or country of residence or incorporation of Preview
Travel.
________________________________________________________________________________
Excite / Preview Travel Agreement 15
<PAGE>
CONFIDENTIAL
c) Notice. Any notice under this Agreement will be in writing and
------
delivered by personal delivery, express courier, confirmed facsimile,
confirmed email or certified or registered mail, return receipt
requested, and will be deemed given upon personal delivery, one (1)
day after deposit with express courier, upon confirmation of receipt
of facsimile or email or five (5) days after deposit in the mail.
Notices will be sent to a party at its address set forth below or such
other address as that party may specify in writing pursuant to this
Section.
d) No Agency. The parties are independent contractors and will have no
---------
power or authority to assume or create any obligation or
responsibility on behalf of each other. This Agreement will not be
construed to create or imply any partnership, agency or joint venture.
e) Force Majeure. Any delay in or failure of performance by either party
-------------
under this Agreement will not be considered a breach of this Agreement
and will be excused to the extent caused by any occurrence beyond the
reasonable control of such party including, but not limited to, acts
of God, power outages and governmental restrictions.
f) Severability. In the event that any of the provisions of this
------------
Agreement are held by to be unenforceable by a court or arbitrator,
the remaining portions of the Agreement will remain in full force and
effect.
g) Entire Agreement. This Agreement is the complete and exclusive
----------------
agreement between the parties with respect to the subject matter
hereof, superseding any prior agreements and communications (both
written and oral) regarding such subject matter. This Agreement may
only be modified, or any rights under it waived, by a written document
executed by both parties.
Preview Travel, Inc. Excite, Inc.
By: /s/ Ken Orton By: /s/ Robert C. Hood
-------------------- ---------------------
Name: Kenneth J. Orton Name: Robert C. Hood
-------------------- ---------------------
Title: President & CEO Title: EVP - CAO
-------------------- ---------------------
Date: September 30, 1997 Date: September 30, 1997
-------------------- ---------------------
[ADDRESS] 555 Broadway
Redwood City, California 94063
415.568.6000 (voice)
415.568.6030 (fax)
________________________________________________________________________________
Excite / Preview Travel Agreement 16
<PAGE>
Exhibit 10.9
Confidential EXECUTIION COPY
INTERACTIVE SERVICES AGREEMENT
------------------------------
This Interactive Services Agreement (the "Agreement"), dated as of
September 1, 1997 (the "Effective Date"), is between America Online, Inc.
("AOL"), a Delaware corporation, with offices at 22000 AOL Way, Dulles, Virginia
20166, and Preview Travel, Inc. ("Preview"), a California corporation, with
offices at 747 Front Street, San Francisco, California 94111. AOL and Preview
may be referred to individually as a "Party" and collectively as "Parties."
INTRODUCTION
------------
AOL and Preview each desires that Preview make the Online Area (and the Res
System therein) available through the AOL Network, subject to the terms and
conditions set forth in this Agreement. Defined terms used but not defined in
the body of the Agreement shall be as defined on Exhibit A attached hereto.
TERMS
-----
1. ONLINE AREA - PROGRAMMING; ADVERTISING. The Parties shall have the
--------------------------------------
following duties and rights with respect to the Content and programming of
the Online Area:
1.1 Online Area. Preview shall work diligently to maintain the Online
-----------
Area, consisting of the Content contained within the Online Area as of
the Effective Date. Consistent with the Parties' joint goal that the
Online Area be rich and robust and substantially consistent with any
other version of the area (or similar Content of Preview) made
available directly by Preview or through any third party or via any
Interactive Site including, without limitation, any features, offers,
contests, functionality or technology (such other versions
collectively, the "Additional Preview Channels"), Preview shall ensure
that the Online Area shall include all of the Content that is then
included in the Additional Preview Channels; provided, however, that
(a) such inclusion shall not be required where it is commercially or
technically impractical to either Party and (b) the specific changes
in scope, nature and/or offerings required by such inclusion shall be
subject to AOL's review and approval and the terms of this Agreement.
Prior to the Transition (if any) (as defined in Section 1.10) the
inclusion in the Online Area of (a) any material amounts of additional
Content not contained within the Online Area as of the Effective Date
or (b) any additional Content that is inconsistent in any manner with
the scope and purpose of the Online Area as of the Effective Date
(including, without limitation, in each case, any features,
functionality or technology) shall be subject to AOL's prior written
approval. Subsequent to the Transition, all Content, including without
limitation, all links, advertising, transaction types and
functionality, shall be subject to the prior written approval of AOL.
Preview shall develop any redesign of the Online Area in consultation
with AOL and in accordance with any standard design and content
publishing guidelines provided to Preview by AOL (including, without
limitation, any HTML publishing guidelines). Preview shall not
authorize or permit any third party to distribute any Content of
Preview through the AOL Network absent AOL's prior written approval.
Preview shall reasonably consider AOL's views on any redesign of the
Online Area
1.2 Links. Preview shall not be permitted to establish any links between
-----
the Online Area and any other area on or outside of the AOL Network,
including, without limitation, sites on the World Wide Web portion of
the Internet, without the prior written approval of AOL. In the event
that AOL approves any such links, such approval shall, in each case,
be subject to Preview's compliance with the then-current standard
terms and conditions for such links, as such terms and conditions may
be amended by AOL from time to time.
1
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Confidential
1.3 Contests. Preview shall take all commercially reasonable steps
--------
necessary to ensure that any contest, sweepstakes or similar promotion
conducted or promoted through the Online Area (a "Contest") complies
with all applicable federal, state and local laws and regulations.
Preview shall provide AOL with at least thirty (30) days prior written
notice (or less as applicable given the legal requirements relating to
such Contest) of any Contest.
1.4 Navigational Icons. AOL shall be entitled to establish navigational
------------------
icons, links and pointers connecting the Online Area (or portions
thereof) with other content areas on or outside of the AOL Network.
In addition, upon AOL's reasonable request, Preview shall create
contextual links in the Online Area to appropriate Content outside of
the Online Area.
1.5 Lowest Price Commitment; Special Offers. Preview shall ensure that
---------------------------------------
the prices for Products offered to AOL Users through the Online Area
(a) do not exceed prices for substantially similar Products offered by
or on behalf of Preview through any other Interactive Site and (b) are
competitive in all material respects with prices for substantially
similar Products offered by other travel services in any other online
or offline medium. In addition, Preview shall, on a reasonably
periodic basis, promote (a) any special or promotional offers made
available by or on behalf of Preview on any other Interactive Site or
through any Additional Preview Channel and (b) in addition, a
reasonable number (at least [*] per Contract Year, with best efforts
to make each of the [*] offers an airline offer and to create
additional offers in each Contract Year) of special exclusive offers
for AOL Users through the Online Area (e.g., discounted fares, free
upgrades (collectively, the "Special Offers"). Preview shall provide
AOL with reasonable prior notice of Special Offers so that AOL can
market the availability of such Special Offers in the manner AOL deems
appropriate in its editorial discretion. In addition, on an annual
basis, Preview will offer a mutually agreeable number of Special
Offers as part of the AOL Member Benefits program, which offers shall
be available exclusively to AOL Members. Preview and AOL will
regularly work together to create other effective and mutually
agreeable promotions for AOL Users.
1.6 Res System. Preview will maintain the Core Systems and the Res System
----------
accessible through the Online Area and will be responsible for
arranging for the connection of the Res System to the Airline Systems
(through the Core Systems). Preview's management of the Res System
shall also be subject to the obligations set forth in Sections 2.8 and
2.9 and Exhibits C and D.
1.7 Disclaimers. Preview agrees that a product disclaimer in
------------
substantially the following form will be displayed in a legal notice
screen to be placed in a mutually agreed upon area in the Online Area:
"AOL AND ITS AFFILIATES WILL NOT BE A PARTY TO ANY TRANSACTION
BETWEEN ANY PURCHASER AND PREVIEW, AND, EXCEPT AS EXPRESSLY
PROVIDED IN AOL'S SHOPPING CHANNEL SATISFACTION GUARANTEE
(AVAILABLE AT KEYWORD "GUARANTEE"), ALL ASPECTS OF SUCH
TRANSACTIONS INCLUDING BUT NOT LIMITED TO PURCHASE TERMS, PAYMENT
TERMS, WARRANTIES, GUARANTEES, MAINTENANCE, AND DELIVERY ARE
SOLELY BETWEEN PURCHASER AND PREVIEW. AOL AND ITS AFFILIATES
PROVIDE NO GUARANTEES OR WARRANTIES, EXPRESS OR IMPLIED,
REGARDING THE QUALITY, MAKE, OR PERFORMANCE OF THE PRODUCTS OR
SERVICES AVAILABLE THROUGH THIS AREA. ALL SUCH GUARANTEES OR
WARRANTIES, IF ANY, ARE DIRECTLY BETWEEN PREVIEW AND THE
PURCHASER."
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
2
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Confidential
1.8 Licenses. Preview hereby grants AOL during the Term a non-exclusive
--------
worldwide license to market, license, distribute, display, perform,
transmit and promote the Online Area and the Licensed Content
contained therein through the AOL Network solely for the purposes
described herein. Preview also grants AOL during the Term a non-
exclusive worldwide license to use any Preview software (and all
modifications and enhancements thereto) necessary for use of the
Online Area by AOL and/or AOL Users (the "Preview Software"). During
the Term, AOL Users shall have the right to access and use the Online
Area and to use the Preview Software, each free of charge. Subject to
such licenses, Preview retains all right, title to and interest in the
Licensed Content and the Preview Software.
1.9 AOL Look and Feel. Preview acknowledges and agrees that AOL shall own
-----------------
all right, title and interest in and to the AOL Look and Feel, subject
to Preview's ownership rights in the Licensed Content.
1.10 Transition of Online Area. In the event that Parties mutually agree
-------------------------
in writing that the Online Area should be reformatted in HTML and
placed on a customized Interactive Site instead of within the
"Rainman" portion of the AOL Network (the "Transition"), (a) the
Transition shall occur according to a written transition plan agreed
upon by the Parties which includes specific responsibilities for each
Party and timetables for completion of such responsibilities, (b)
Preview shall pay all production and communications costs associated
with the Transition and (c) the Online Area after the Transition will
be an Interactive Site customized for use solely by users of the AOL
Service and AOL.com and will contain links only to AOL Content areas,
unless expressly agreed upon in writing in advance by the Parties.
Prior to the Transition, AOL must be reasonably satisfied that
Preview's customized Interactive Site fully complies with the
"Customized Interactive Site Requirements" set forth in Exhibit C.
1.11 Advertising Sales. Both Parties shall have the right to license or
-----------------
sell promotions, advertisements, links, pointers or similar services
or rights through the Online Area ("Advertisements"), subject to the
Advertising Minimum, AOL's then-applicable advertising policies and
AOL's prior approval. The specific advertising inventory within the
Online Area shall be as reasonably determined by the Parties. In
connection with the sale by Preview of an Advertisement, Preview
shall, in each instance, provide AOL with a completed standard
Advertising Registration Form relating to such Advertisement. Preview
shall take all reasonable steps necessary to ensure that any
Advertisement sold by Preview or its agents complies with all
applicable federal, state and local laws and regulations. When selling
advertising associated with any Preview Interactive Site, Preview
shall use commercially reasonable efforts to sell related advertising
within the Online Area. To the extent a Party sells an Advertisement
as part of an advertising package including multiple placement
locations (e.g., both the Online Area and a Preview Interactive Site),
such Party shall allocate the payment for such advertising package
between or among such locations in an equitable fashion, subject to
the Advertising Minimum. To the extent an Advertisement is delivered
through a dynamic mechanism primarily linked to the AOL Members
viewing the advertisement (rather than a defined space within the
Online Area) (e.g., delivery using "ad server" technology), the amount
of revenue from the advertisement allocable to Advertising Revenues
shall be determined based on the number of Impressions to the
Advertisement generated by AOL Users while viewing Content within the
Online Area relative to the total Impressions to the Advertisement
during the given period (or such other formula as AOL may reasonably
implement across the AOL Service given the then-existing advertising
models). Preview shall be responsible for calculating the Internet
Advertising Quotient related to Internet Advertising Revenues. To the
extent AOL is caching any Preview Interactive Site, AOL will provide
Preview with the Impressions information related to any cached sites
necessary for Preview to calculate the Internet Advertising Quotient.
For any period
3
<PAGE>
Confidential
during which Preview fails to calculate the Internet Advertising
Quotient, such quotient shall be deemed to be one hundred percent
(100%). In the event Preview or its Affiliates receives or desires to
receive, directly or indirectly, any barter advertising (or similar
compensation that does not meet the definition of Advertising Revenues
pursuant to Exhibit A) in connection with the Online Area ("Barter
Ads"), Preview shall be entitled to sell such Barter Ads solely from
Preview's unsold inventory on the Online Area; provided that (a)
Barter Ads shall not during any month constitute more than [*] of the
advertising inventory on the Online Area or more than [*] of the
advertising inventory on any screen and (b) sales of Advertisements
shall always preempt placement of Barter Ads. Preview will work with
AOL to incorporate AOL's ad-serving technology, subject to the
specific limitations of that technology. Preview has not yet received
documentation regarding this technology, and therefore cannot
guarantee specific functionality. In no event shall Preview use a
third party provider of ad-serving technology in the AOL Database
without AOL's prior written approval.
2. ONLINE AREA - MANAGEMENT AND MAINTENANCE.
----------------------------------------
2.1 Management of Online Area. Preview shall manage, review, delete,
-------------------------
edit, create, update and otherwise manage all content and services
available on or through the Online Area, including but not limited to
the Licensed Content and message boards (if any), in a timely and
professional manner and in accordance with the terms of this Agreement
and AOL's applicable Terms of Service. Preview shall keep the Online
Area current, accurate and well-organized. Preview warrants that no
portion of the Online Area which is proprietary to Preview (i) will
infringe on or violate any copyright, U.S. patent, trademark or trade
secret; or (ii) will contain any Content which violates any applicable
law or regulation. AOL shall have no obligations with respect to the
Content available on or through the Online Area, including, but not
limited to, any duty to review or monitor any such Content. Preview
acknowledges and agrees that in the event any Content made available
through the Online Area creates material adverse legal and/or public
relations consequences for AOL ("Adverse Content"), as reasonably
determined by AOL, AOL shall be entitled to (a) restrict access to the
Adverse Content in an agreed-upon manner or (b) in the event such
access cannot be restricted, direct Preview to remove the Adverse
Content. In the event that any Adverse Content remains in serious
violation of any copyright, U.S. patent, trademark or trade secret or
of any applicable law or regulation and has not been removed from the
Online Area more than 72 hours following discovery of the violation by
Preview or notice of the violation to Preview, AOL shall have the
right to terminate the Agreement on ten (10) days prior written notice
to Preview.
2.2 Access Equipment. Preview shall provide all computer, telephone and
----------------
other equipment or resources necessary for Preview and the Online Area
to access the AOL Network (including, without limitation, high-speed
dedicated data connections capable of handling AOL peak traffic
loads), except for the AOL proprietary client software necessary to
access the AOL Network and the publishing and commerce tools to be
provided by AOL pursuant to Section 2.6.
2.3 Duty to Inform. Preview shall use all reasonable efforts to promptly
--------------
inform AOL of any information related to the Online Area which could
reasonably lead to a claim, demand, or liability of or against AOL
and/or its Affiliates by any third party.
2.4 Overhead Accounts. Preview shall be granted a reasonable number of
-----------------
Overhead Accounts, as mutually determined by AOL and Preview, for the
exclusive purpose of enabling it and its agents to perform Preview's
duties under this Agreement. Preview shall be responsible for the
actions taken under or through its Overhead Accounts, which
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actions are subject to AOL's applicable Terms of Service and for any
surcharges, including, without limitation, all premium charges,
transaction charges, and any applicable communication surcharges
incurred by any Overhead Account issued to Preview, but Preview shall
not be liable for charges incurred by any Overhead Account relating to
AOL's standard monthly usage fees and standard hourly charges, which
charges AOL shall bear. Upon the termination of this Agreement, all
Overhead Accounts, related screen names and any associated usage
credits or similar rights, shall automatically terminate. AOL shall
have no liability for loss of any data or content related to the
proper termination of any Overhead Account.
2.5 Production Work. In the event that Preview requests AOL's production
---------------
assistance in connection with (i) ongoing programming and maintenance
related to the Online Area, (ii) a redesign of or addition to the
Online Area (e.g., a change to an existing screen format or
construction of a new custom form), (iii) production to modify work
performed by a third party provider or (iv) any other type of
production work, Preview shall work with AOL to develop a detailed
production plan for the requested production assistance (the
"Production Plan"). Following receipt of the final Production Plan,
AOL shall notify Preview of (i) AOL's availability to perform the
requested production work, (ii) the proposed fee or fee structure for
the requested production and maintenance work and (iii) the estimated
development schedule for such work. To the extent the Parties reach
agreement regarding implementation of agreed-upon Production Plan,
such agreement shall be reflected in a separate work order signed by
the Parties. To the extent Preview elects to retain a third party
provider to perform any such production work, work produced by such
third party provider must generally conform to AOL's production
Standards & Practices (a copy of which will be supplied by AOL to
Preview upon request). The specific production resources which AOL
allocates to any production work to be performed on behalf of Preview
shall be as determined by AOL in its sole discretion.
2.6 Publishing and Commerce Tools. AOL grants Preview a non-exclusive,
-----------------------------
royalty-free license during the term of the Agreement to use AOL's
publishing tools and its commerce tools which are then made generally
available by AOL to its interactive content providers, solely in
connection with Preview's construction and/or maintenance and
operation of its Online Area. Preview recognizes that (i) AOL
provides all such publishing tools on an "as is" basis, without
warranties of any kind and (ii) AOL may withdraw or modify its
publishing tools at any time. Preview shall be required to complete
AOL's then-standard technical production training classes prior to
receiving access to the AOL publishing tools.
2.7 Training. AOL shall make available to Preview standard AOL training
--------
programs related to Preview's management and maintenance of the Online
Area (including, without limitation, the technical production classes
for AOL publishing tools described below). In addition, Preview will
pay its own travel and lodging costs associated with its participation
in any AOL training programs (including AOL's reasonable travel and
lodging costs when training is conducted at Preview's offices).
2.8 Performance Standards. Except as provided in this Agreement or
---------------------
otherwise mutually agreed, Preview shall comply with the performance
standards (the "Performance Standards") set forth in Exhibit C. To
the extent Performance Standards are not established for any portion
of the services provided by Preview hereunder, Preview will perform
those services at a level of accuracy, quality, completeness, and
responsiveness which meets or exceeds prevailing industry standards.
Upon any discovery by Preview, or receipt by Preview of notification
by AOL, of failure by Preview to meet a Performance Standard, (a)
Preview shall promptly investigate the failure and inform AOL in
writing of such failure and the "root causes" thereof (to the extent
they can be determined) no later than five (5) days after Preview
discovers the failure or receives such notification by AOL, (b)
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AOL shall consult with Preview to develop an action plan for remedying
the failure within five (5) days thereafter and (c) within thirty (30)
days of development of such action plan, Preview shall fully institute
such plan and reach compliance with the applicable Performance
Standard. In the event Preview has not complied with the Performance
Standard at the end of such 30-day period, AOL may, at its sole
option, terminate either the Agreement or Sections 3.1, 3.3 and 3.4
upon written notice to Preview.
2.9 Preview Services. Preview shall provide the services set forth in
----------------
Exhibit D.
2.10 Certified Merchant Program. Preview shall participate in any
--------------------------
generally applicable "Certified Merchant" program operated by AOL or
its authorized agents or contractors. Such program may require
merchant participants on an ongoing basis to meet certain reasonable,
generally applicable standards relating to provision of electronic
commerce through the AOL Network and may also require the payment of
certain reasonable certification and/or monitoring fees to AOL or its
authorized agents or contractors operating the program.
3. PLACEMENT AND PROMOTION; [*]; CROSS-PROMOTION.
-----------------------------------------------------
3.1 Promotional Plan. AOL shall provide online promotion for the Online
----------------
Area across the AOL Network using promotional placements chosen from
time to time by AOL in its reasonable discretion from the list of
placements set forth in Exhibit B (the "Promotional Plan"). The
Parties shall also mutually agree on the extent to which Preview may
be entitled to Travel Channel pop-ups, subject to AOL's internal
testing regarding the efficacy and consumer acceptance of such pop-ups
for partners in the Travel Channel. On a periodic basis, no less than
quarterly, the parties shall review and modify these placements, as
applicable and mutually agreed, with the intent of maintaining a
current and effective plan. In addition to the specific placements
and distribution agreed upon in the promotional plan, AOL shall have
the right, but not the obligation, to promote and distribute the
Online Area throughout the AOL Network beyond the AOL Service and
AOL.com (e.g., Greenhouse, Instant Messenger, Digital City, etc.). If
AOL is unable to deliver any particular promotional placement
described in Exhibit B (e.g., if the area in which the placement was
to occur is redesigned), the Parties will cooperate in good faith to
develop a replacement program that will include providing Preview with
a substitute promotion of similar quality, nature and value. AOL's
performance of its promotional commitments in the Travel Channel
(including any Impressions commitments pursuant to Section 3.2) is
contingent upon Preview's delivery of the "Destinations Database"
pursuant to the terms and conditions of the Database Agreement between
the parties dated as of September 25, 1997 (the "Database Agreement").
Until such date, AOL shall make commercially reasonable efforts to
satisfy any commitments with respect to the Travel Channel. Any delay
in delivery after such date will reduce AOL's commitments on a pro-
rata basis. In addition, in the event of non-delivery of such
database, AOL may elect to terminate the Agreement pursuant to Section
10.3.
3.2 Impressions. The online promotional placements within certain areas
-----------
of the AOL Network, as required by Section 3.1 above, shall result in
at least the total amount of annual Impressions indicated on the
Promotional Plan; provided that AOL shall not be obligated to provide
in excess of any required amount of Impressions in any year. AOL will
use commercially reasonable efforts to deliver the Impressions in
roughly proportionate quarterly amounts based on the annual target
levels. Except as set forth below in this Section 3.2, any shortfall
in Impressions at the end of a Contract Year shall not be considered a
breach hereof by AOL; such amount shall instead be added to the target
level in the subsequent Contract Year. AOL's failure to provide an
agreed upon percentage (the "Shortfall Percentage") of the number of
total Impressions due to Preview
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during any Contract Year as set forth in Exhibit B shall be deemed a
material breach of the Agreement, unless such failure is substantially
attributable to Preview. The Shortfall Percentage shall be [*] for the
first and second Contract Years and [*] for the third, fourth and
fifth Contract Years. Preview's sole remedy for such breach shall be
to terminate the Agreement on thirty (30) days prior written notice to
AOL. In the event there is a shortfall in total Impressions as of the
anticipated Expiration Date (a"Final Shortfall"), AOL shall elect in
its sole discretion one of the following options to provide to Preview
as its sole remedy following the Expiration Date: (a) AOL shall pay
Preview an amount equal to the Final Shortfall divided by [*] (the
"Shortfall Dollar Value"), or (b) commencing on the Expiration Date,
AOL shall provide Preview with advertising placements at a mutually
agreed upon discount from AOL's then-current rate card in the Travel
Channel, the Shopping Channel and other mutually agreed upon areas
with a total value equal to the Shortfall Dollar Value; provided that
in the case of clause (b), the Parties shall negotiate an appropriate
promotional plan for such period prior to the Expiration Date, and
AOL's promotional commitment shall expire upon provision of the total
value due to Preview during the period, which shall not exceed nine
(9) months. In the event AOL has over-delivered Impressions as of the
end of the first four (4) Contract Years for either AOL.COM or the
"Other AOL Network Placements" category set forth in Exhibit B, AOL's
Impressions commitment for either area in the fifth Contract Year
shall be reduced by the amount of such over-delivery (AOL to determine
allocation of such reductions between such areas). In the event AOL
has over-delivered Impressions as of the end of the first four (4)
Contract Years for the Travel Channel, AOL's Impressions commitment
for the Travel Channel (and only the Travel Channel) in the fifth
Contract Year shall be reduced by the amount of such over-delivery. In
the event that at any point during the Term, the aggregate amount of
Commissions earned by Preview as of such date equals or exceeds [*],
AOL's entire Impressions commitment for the remainder of the Term will
be deemed satisfied as of the date on which such hurdle was met.
Subject to Preview's reasonable approval, AOL will have the right to
fulfill Impressions commitments in any promotional area by
substituting incremental Impressions from alternative areas of the AOL
Network. In the event the Database Agreement is terminated, the
numbers of Impressions to be delivered by AOL in the Travel Channel
pursuant to Exhibit B shall be reduced to [*]. In the event delivery
of the database is delayed by Preview in any phase pursuant to the
Database Agreement, the numbers of Impressions to be delivered by AOL
in the Travel Channel pursuant to Exhibit B shall be reduced on a pro-
rata basis. Pursuant to Section 11.11, the remedies available to AOL
set forth in this Section 3.2 are not AOL's exclusive remedies
hereunder.
3.3 [*]. Subject to the terms of this Section 3.3, AOL agrees that the Res
---
System shall be the [*] Reservations Engine that is (a) contextually
integrated across the "Travel Channel" on the AOL Service (i.e.,
threaded throughout the promotional areas listed on Schedule B) and
(b) expressly promoted by AOL in any areas on the AOL Service or on
AOL.com over which AOL exercises complete or substantially complete
programming control (the "AOL-Controlled Areas"). For purposes of this
Agreement, areas managed by [*] or any third party content providers,
among other areas, shall not be deemed AOL-Controlled Areas. The
foregoing [*] shall not apply to (a) Last Minute Travel, Business
Travel, Airline Ticket Consolidation or Cruises [*] or (b) Vacations
Packages. In addition, notwithstanding the foregoing [*], no provision
of this Agreement shall limit AOL's ability (in the AOL-Controlled
Areas or elsewhere on or off the AOL Network) to:
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(a) promote, market or distribute (i) the Content of any other
travel-related interactive content provider that may link to a
Reservations Engine (so long as AOL does not expressly promote
the availability of such Reservation Engine through such
provider and does not promote the Content of any entity meeting
the definition of a Preview Competitor) or (ii) [*] travel
offerings or any discount travel club/membership service (e.g.,
Traveler's Advantage);
(b) sell advertising (e.g., banners, buttons, links) to any travel-
related company (other than a Preview Competitor), including
without limitation, any airline, hotel or rental car company
that may link to and promote a Reservations Engine ;
(c) perform its duties pursuant to arrangements with other parties
entered into prior to the Effective Date.
Preview acknowledges that AOL does not and cannot guarantee that users
will not be able to access alternative Reservations Engines through
the AOL Service or AOL.com (e.g., using an Internet browser).
3.4 Specific Travel Categories.
3.4.1 Rights of First Offer. Preview shall have a right of first
offer to be the [*] provider on the AOL Service and AOL.com for
each of [*], as follows (any service in each such category, an
"Additional Service"). In the event AOL elects to provide an
Additional Service on the AOL Service and/or AOL.com, AOL shall
provide Preview with written notice of the terms on which AOL
generally desires to distribute the Additional Service (the
"Terms"); provided that in the case of [*], AOL hereby
acknowledges its intent to provide such service and to provide
such Terms (including a written specification reasonably
designed to be created within the AOL structure within 45 days)
to Preview promptly following AOL's decision to offer the
applicable service. If Preview desires to provide the
Additional Service, Preview shall provide AOL with written
notice of its desire to provide such service within five (5)
business days of its receipt of written notice from AOL as set
forth above and shall execute a written agreement with AOL
setting forth the Terms within thirty (30) business days of its
receipt of notice from AOL describing the Terms. In such case,
Preview will work diligently to provide to AOL a viable version
of the Additional Service which is suitable for distribution
generally on the AOL Network and which is reasonably
satisfactory to AOL, in accordance with the Terms agreed to by
Preview; provided that Preview shall provide such version
within a reasonable period of time following Preview's notice
of agreement on the Terms, not to exceed ninety (90) days (45
days in the case of [*]). The right of first offer shall expire
and AOL will be entitled to pursue negotiations with third
parties on terms (including, without limitation, terms relating
to carriage, revenue share and programming requirements)
substantially identical to the Terms (a) if Preview informs AOL
in writing that it does not desire to participate in such
Additional Service or does not otherwise respond to the Terms
within the five (5) business days allowed above; or (b) at any
point (i) following the 30 days in which Preview is allowed to
enter into an agreement with AOL regarding the Additional
Service or (ii) following the 90/45 day period in which Preview
must provide the Additional Service; provided that AOL shall
not in bad faith rely on the foregoing to deprive Preview of
the opportunity to provide any Additional Service. In the event
AOL is entitled pursuant to the foregoing to pursue
negotiations with third parties regarding [*], AOL shall not be
prohibited from
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negotiating with BizTravel.com and Trip.com; in the event
such negotiations result in an arrangement whereby either
entity provides Business Travel to AOL, such entity shall not
be deemed a Preview Competitor hereunder. In the event AOL
offers Cruises to Preview and Preview does not agree to offer
Cruises, all pursuant to this Section, Preview shall be
entitled to mutually agreed upon placement in the Cruises area
that may be developed by AOL. Absent the written agreement
described above between Preview and AOL setting forth the Terms
or a duly authorized and executed written agreement between AOL
and a third party with respect to an Additional Service, under
no circumstances shall AOL be obligated to distribute such
Additional Service, whether provided by Preview or any other
party. In the event that, in accordance with the foregoing, AOL
uses another provider for Business Travel, Preview agrees to
cooperate (as long as it is technically feasible) with such
provider in the development of any Business Travel applications
that are dependent on information from the Res System. This
includes, but is not limited to, frequent flyer programs,
mileage-optimization utilities, email and instant-message
travel updates, and integrated merchandizing. The Parties
acknowledge that more than one Additional Service may be
established with respect to any category (e.g., Last Minute
Travel) and, therefore, each such Additional Service shall be
subject to the terms and conditions of this Section 3.4.1.
3.4.2 Vacation Packages. AOL shall provide Preview the following
-----------------
promotional placements with respect to Vacation Packages (to
the extent Preview offers such packages): (a) on the front
screen of the AOL "Vacations Area", the top third-party
promotional button (currently anticipated to appear on the
right side of such screen), (b) the second from the top third-
party programming button (currently anticipated to appear on
the left side of the screen) and (c) in instances in both the
Vacations Area and the vacations database that may be created
by AOL in which AOL Users are allowed to search for Vacation
Packages in a particular category or subcategory (e.g.,
adventure), the first 2 search results will list packages
offered by Preview in such category (if Preview offers packages
in such category) (and no results will list packages offered by
a Preview Competitor).
3.5 Cross-Promotion by Preview. In general, Preview shall use
--------------------------
commercially reasonable efforts to market the Online Area.
Notwithstanding the generality of the foregoing, Preview shall, at a
minimum, perform the following obligations:
3.5.1 Preview shall cooperate with and reasonably assist AOL in
supplying material for AOL's marketing and promotional
activities which relate to the Online Area. For instance,
Preview shall make its video archives available to AOL and
shall produce six (6) video segments per Contract Year for use
by AOL in its "slideshow" promotions.
3.5.2 Preview shall prominently and regularly promote the Online
Area, making specific mention (verbally, where possible) of
its availability through the America Online(R) service), in
television, radio or print advertisements that are produced
after the Effective Date. In addition, in any instances when
Preview makes promotional reference to any Preview Interactive
Site (each reference, a "Site Reference"), Preview shall
include a specific reference to the Online Area's availability
through the America Online(R) brand service and/or AOL.com, as
applicable, of at least equal prominence to the Site
Reference. Any listings of the applicable "URL(s)" (or similar
address) for such Interactive Site(s) (each an "URL
Reference") shall include a listing of the AOL "keyword" for
the Online Area of at least equal prominence to the URL
Reference and prior to the URL Reference. Preview shall
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also include at least 2 editorial features regarding America
Online per Contract Year in its television-related properties.
In addition, the Parties shall in good faith discuss member or
subscriber acquisition programs; provided that neither Party
shall be required to enter into any such program with the other
Party. Preview shall be required to perform the foregoing
obligations in this Section 3.5.2 only in promotional areas
over which Preview exercises complete or substantially complete
programming control (e.g., a television ad purchased solely by
or on behalf of Preview or its Affiliates).
3.5.3 Preview shall include each of the following promotions for AOL
and the Online Area (as the case may be) within each Preview
Interactive Site during the term of the Agreement: (i) a
prominent "Try America Online(R)" feature in the primary area
where Preview mentions its business partners from which users
can obtain promotional information about AOL products and
services and, at AOL's option, download or order AOL's then-
current version of client software for the AOL Service and
AOL's other branded software (e.g., Instant Messenger) and (ii)
a prominent link on the front screen of each Preview
Interactive Site to AOL's primary site on the World Wide Web.
3.5.4 Preview shall not agree to perform obligations similar to the
commitments stated above in Sections 3.5.2 and 3.5.3 for any
AOL Competitor subsequent to execution hereof. In addition,
Preview shall promote AOL exclusively as Preview's Internet
online access provider of choice and shall not promote, market
or distribute the products or services of any AOL Competitor.
3.5.5 Notwithstanding the foregoing obligations in this Section 3.5,
no provision of this Agreement shall limit Preview's ability to
perform certain promotional obligations pursuant to any
existing written agreement with Excite, Inc. (provided that
Preview shall disclose the specific nature and extent of such
duties to AOL subject to the applicable confidentiality
restrictions in such agreement). Preview hereby represents that
it does not owe any obligations to Excite which compete with
the promotions made available to AOL or any service provided by
AOL (other than Netfind).
3.6 Promotional Materials/Press Releases. Each Party will submit to the
------------------------------------
other Party, for its prior written approval, which shall not be
unreasonably withheld or delayed, any marketing, advertising, press
releases and all other promotional materials related to the Online
Area and/or referencing the other Party and/or its trade names,
trademarks, and service marks (the "Materials"); provided, however,
that either Party's use of screen shots of the Online Area for
promotional purposes shall not require the approval of the other Party
so long as the AOL Network is clearly identified as the source of such
screen shots. Each Party shall solicit and reasonably consider the
views of the other Party in designing and implementing such Materials.
A Party whose approval is sought shall respond within five (5)
business days of its receipt of the Materials. If such Party fails to
respond within such five-day period, then its consent shall be deemed
given. Once approved, the Materials may be used during the term of
this Agreement by a Party and its Affiliates for the purpose of
promoting the Online Area and the Content contained therein and reused
for such purpose until such approval is withdrawn with reasonable
prior notice. No press release, public announcement, confirmation or
other public statement regarding this Agreement or the contents hereof
shall be made without the prior written consent of the other Party,
which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, either Party may issue a press release or other disclosure
without the consent of the other Party, if such disclosure is required
pursuant to Section 6 (and in accordance therewith). In addition, the
Parties agree that they will issue a mutually agreed initial
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press release announcing this Agreement and the Database Agreement on
a mutually agreed date no earlier than September 29, 1997, and no
later than October 15, 1997; provided that in the event no such
release has been issued as of October 15, 1997, neither Party shall be
deemed in breach of the Agreement, and either Party shall be entitled
to issue its own release pursuant to the terms of this Agreement.
3.7 Trademark License. In designing and implementing the Materials and
-----------------
subject to the other provisions contained herein, Preview shall be
entitled to use the following trade names, trademarks, and service
marks of AOL: the "America Online" brand service, "AOL"
service/software and AOL's triangle logo; and AOL and its Affiliates
shall be entitled to use the following trade names, trademarks, and
service marks of Preview solely in connection with this Agreement:
Preview Media, Preview Media, Inc., Travel Update, Weekend Travel
Update, Preview Vacation Bargains, Preview Vacations, Preview Travel,
Consumer Travel Guides and Consumer Travel Reports (collectively,
together with the AOL marks listed above, the "Marks"); provided that
each Party: (i) does not create a unitary composite mark involving a
Mark of the other Party without the prior written approval of such
other Party; (ii) displays symbols and notices clearly and
sufficiently indicating the trademark status and ownership of the
other Party's Marks in accordance with applicable trademark law and
practice; and (iii) uses the other Party's Marks in accordance with
written guidelines provided to such Party by the other Party.
3.7.1 Ownership of Trademarks. Each Party acknowledges the ownership
-----------------------
of the other Party in the Marks of the other Party and agrees
that all use of the other Party's Marks (including all goodwill
associated with the Marks) shall inure to the benefit, and be
on behalf, of the other Party. Each Party acknowledges that its
utilization of the other Party's Marks will not create in it,
nor will it represent it has, any right, title, or interest in
or to such Marks other than the licenses expressly granted
herein. Each Party agrees not to do anything contesting or
impairing the trademark rights of the other Party, including,
without limitation, seeking to register the other Party's Marks
as part of a composite Mark.
3.7.2 Quality Standards. Each Party agrees that the nature and
-----------------
quality of its products and services supplied in connection
with the other Party's Marks shall conform to quality standards
reasonably set by the other Party. Each Party agrees to supply
the other Party, upon request, with a reasonable number of
samples of any Materials publicly disseminated by such Party
which utilize the other Party's Marks. Each Party shall comply
with all applicable laws, regulations, and customs and obtain
any required government approvals pertaining to use of the
other Party's marks.
3.7.3 Infringement Proceedings. Each Party agrees to promptly notify
------------------------
the other Party of any unauthorized use of the other Party's
Marks of which it has actual knowledge. Each Party shall have
the sole right and discretion to bring proceedings alleging
infringement of its Marks or unfair competition related
thereto; provided, however, that each Party agrees to provide
the other Party with its reasonable cooperation and assistance
with respect to any such infringement proceedings.
3.8 Marketing Surveys. PM and AOL shall jointly conduct an annual
------------------
marketing survey that is designed, among other reasons, to determine
the level of customer satisfaction. The Parties shall mutually agree
upon the design of the surveys and shall meet to discuss the results
of the surveys and determine any actions required in response to such
results.
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4. PAYMENTS; REPORTS; WARRANTS.
---------------------------
4.1 FIXED PAYMENTS. Preview shall pay AOL a guaranteed amount of Thirty
--------------
Two Million Dollars (US$32,000,000) across the five Contract Years of
the initial term, as follows. Prior to the Financing Event, Preview
shall pay AOL [*] due and payable in arrears on the last day of each
month during the Term, with the first payment to be paid on September
30, 1997. On the first monthly due date following the Financing Event,
Preview shall pay AOL [*], representing advance payment of Preview's
monthly payment commitments for the next twelve (12) months (the "Pre-
Paid Year"). Following the Pre-Paid Year, Preview shall pay AOL in
advance [*] on the first day of each quarter following the
Pre-Paid Year.
4.2 REVENUE SHARING PAYMENTS.
------------------------
4.2.1 Quarterly Hurdle; High Hurdle. If at any time during the first
-----------------------------
and second Contract Years, the amount of Commissions and
Advertising Revenues (the "Total Revenues") generated as of
such date equals or exceeds [*] the cumulative amount of
payments to be made by Preview to AOL pursuant to Section 4.1
(the "Earnout Hurdle") as of such date (the "Earnout Date"),
then: (a) for the quarter in which the Earnout Date occurs,
Preview shall pay AOL [*] of the Commissions generated in such
quarter following the Earnout Date, and (b) if the Total
Revenues generated in any subsequent quarter during the first
and second Contract Years equal or exceed [*] (the "Quarterly
Hurdle"), Preview shall pay AOL [*] of the Commissions
generated in such quarter following the date on which the
Quarterly Hurdle is met. In the event that the Total Revenues
generated during any quarter of the third, fourth and fifth
Contract Years equal or exceed the Quarterly Hurdle, Preview
shall pay AOL [*] of the Commissions generated in such quarter
following the date on which the Quarterly Hurdle is met.
Preview shall make all of the foregoing payments in this
Section 4.2 within thirty (30) days of the end of the quarter
in which the Quarterly Hurdle is met. The foregoing provisions
in this Section 6.2 shall cease to apply in the event that the
Total Revenues generated during the Term equals or exceeds [*]
(the "High Hurdle"), in which case, Preview shall pay AOL [*]
of Commissions generated during the remainder of the Term
following the date on which the High Hurdle is exceeded. In
such event, Preview shall make such payments within thirty (30)
days of the end of each quarter, commencing with the quarter in
which the High Hurdle is exceeded.
4.2.2 Renegotiation of Amounts. In the event the weighted average
------------------------
Commissions percentage received by Preview from its airline
partners is at any point during the Term less than [*], Preview
shall promptly notify AOL in writing and, upon AOL's request,
shall negotiate in good faith regarding an equitable
alternative compensation structure to the structure set forth
above in this Section 4.2. Such alternative structure shall, at
a minimum, be designed to maintain the level of AOL's
compensation prior to the reduction in Commissions percentage
and shall satisfy the Parties' joint goal that AOL receive its
equitable share of revenues generated by Preview (including any
new or incremental revenues) in connection with the Online
Area; in that regard, during such negotiation, Preview shall
seriously consider sharing Overrides with AOL without regard to
the conditions limiting such sharing set forth in Section 4.4.
In the event the Parties
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTD WITH RESPECT TO THE OMITTED PORTIONS.
12
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cannot in good faith reach agreement regarding such alternative
structure within fifteen (15) days of AOL's request to
negotiate, AOL shall have the right to terminate the Agreement
immediately on written notice to Preview.
4.3 ADVERTISING REVENUES. Preview shall be entitled to retain [*]
--------------------
of all Advertising Revenues generated during the first and second
Contract Years and [*] of all Advertising Revenues below certain
threshold amounts (the "Ad Thresholds") generated during the third,
fourth and fifth Contract Years. In the third, fourth and fifth
Contract Years, the respective Threshold Amounts shall be [*]. In the
event that total Advertising Revenues in any of these three (3) years
equal or exceed the applicable Ad Threshold, Preview shall pay AOL [*]
of all Advertising Revenues in excess of the Ad Threshold during the
remainder of such Contract Year, paid quarterly within thirty (30)
days of the end of each quarter, commencing with the quarter in which
the Ad Threshold was exceeded.
4.4 OVERRIDES; ADDITIONAL REVENUES. Except as expressly provided
------------------------------
hereunder, Preview shall not share Overrides with AOL; provided that
in the event the total amount of Overrides as of the end of any
quarter exceeds [*] of the total amount of Commissions generated in
such quarter, then the total amount of Overrides generated in such
quarter shall be included in (a) the calculation of whether the
Commissions hurdles in Sections 3.2 ([*] hurdle), 4.2.1 (Earnout
Hurdle and High Hurdle) and 10.3 ([*] hurdle) have been reached and
(b) the calculation of any Commissions payment relating to such
quarter which is to be made to AOL pursuant to the Agreement (e.g.,
pursuant to Section 4.2.1). In the event Preview or its Affiliates
receives or desires to receive, directly or indirectly, any
compensation in connection with the Online Area other than Advertising
Revenues, Commissions and Overrides or otherwise restructures the
nature of its transactions with AOL Users (e.g., establishment of club
memberships) (collectively, "Additional Revenues"), Preview shall
promptly inform AOL in writing, and the Parties shall negotiate in
good faith regarding whether Preview shall be allowed to collect such
Additional Revenues, and if so, the equitable portion of such
Additional Revenues that shall be shared with AOL. In the event the
Parties cannot in good faith reach agreement regarding such Additional
Revenues within fifteen (15) days of AOL's request to negotiate, AOL
shall have the right to terminate the Agreement immediately on written
notice to Preview. Any portion shared with AOL shall, at a minimum,
satisfy the Parties' joint goal that AOL receive its equitable share
of revenues generated by Preview (including any new or incremental
revenues) in connection with the Online Area.
4.5 WIRED PAYMENTS; LATE PAYMENTS. All payments required under this
--------------- -------------
Section 4 shall be paid in immediately available funds wired to AOL's
account. All amounts owed hereunder not paid when due and payable
will bear interest from the date such amounts are due and payable at
the rate of 8% per year, or the highest legally permissible rate if
below 8%.
4.6 AUDITING RIGHTS. Each Party shall maintain complete, clear and
---------------
accurate records of all expenses, revenues and fees in connection with
the performance of this Agreement. For the sole purpose of ensuring
compliance with this Agreement (including, without limitation,
Sections 4.1, 4.2, 4.3 and 4.4), each Party shall have the right, at
its expense, to direct an independent certified public accounting firm
to conduct a reasonable and necessary inspection of portions of the
books and records of the other Party which are relevant to amounts
payable to the auditing Party pursuant to this Agreement. Any such
audit may be conducted once per year after twenty (20) business days
prior written notice. Any audit shall be at the auditing Party's sole
cost and expense unless a discrepancy of the greater of five percent
(5%) or Ten Thousand Dollars (US$10,000) is found, in which case
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTD WITH RESPECT TO THE OMITTED PORTIONS.
13
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CONFIDENTIAL
the other Party will pay all reasonable costs and expenses related to
the audit. No such audit of AOL shall occur during the period
beginning on June 1 and ending October 1.
4.7 REPORTS. Each Party shall each provide the other Party with certain
-------
reports evidencing the reporting Party's compliance with its
obligations under the Agreement and detailing certain information, all
as set forth below, which may be mutually amended from time to time by
the parties.
4.7.1 Sales Reports. Preview shall provide AOL in an automated
-------------
manner with a monthly report accompanying the payments to be
made pursuant to this Section 4 (as applicable) in a mutually
agreeable format consistent with the reports provided to AOL by
its other interactive content providers, detailing the
following activity in such period (and any other information
mutually agreed upon by the Parties or reasonably necessary for
measuring revenue activity by Preview through the Online Area):
Commissions, Advertising Revenues, Overrides, number of
profiles created, transactions by type (air, hotel, car) and by
source (Travel Channel, AOL.com, other channels), chargebacks
and credits for returned or cancelled goods or services (and,
where possible, an explanation of the type of reason therefor,
e.g., bad credit card information, poor customer service,
etc.), and credit card processing fees charged and/or collected
by the credit card issuer.
4.7.2 Promotional Reports. Each Party shall provide the other Party
-------------------
with a quarterly report documenting its compliance with any
promotional commitments it has undertaken pursuant to the
Agreement. In reporting any promotion, the Party should
describe the nature of promotion, its duration and any other
relevant information regarding the promotion, including any
required information set forth in the description of each
promotion.
4.7.3 Fraudulent Transactions. To the extent permitted by applicable
-----------------------
laws, Preview shall provide AOL with an prompt report of any
fraudulent order, including the date, screenname and amount
associated with such order, following Preview obtaining
knowledge that the order is, in fact, fraudulent.
4.7.4 AOL Reports. AOL shall provide Preview with monthly reports
-----------
specifying for the prior month aggregate hourly usage within
the Online Area (as applicable) and other mutually agree-upon
information relating to the Online Area.
4.8 TAXES. Preview shall collect and pay and indemnify and hold AOL
-----
harmless from, any sales, use, excise, import or export value added or
similar tax or duty not based on AOL's net income, including any
penalties and interest, as well as any costs associated with the
collection or withholding thereof, including reasonable attorneys'
fees, in the event litigation or any regulatory proceeding,
investigation or action is commenced.
5. REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants to the
------------------------------
other Party that: (i) such Party has the full corporate right, power and
authority to enter into this Agreement and to perform the acts required of
it hereunder; (ii) the execution of this Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder, do not
and will not violate any agreement to which such Party is a party or by
which it is otherwise bound; (iii) when executed and delivered by such
Party, this Agreement will constitute the legal, valid and binding
obligation of such Party, enforceable against such Party in accordance with
its terms; and (iv) such Party acknowledges that the other Party makes no
representations, warranties or agreements related to the subject matter
hereof that are not expressly provided for in this Agreement.
14
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6. CONFIDENTIALITY. Each Party acknowledges that Confidential Information may
---------------
be disclosed to the other Party during the course of this Agreement. Each
Party agrees that it shall take reasonable steps, at least substantially
equivalent to the steps it takes to protect its own proprietary
information, during the term of this Agreement and thereafter, to prevent
the duplication or disclosure of Confidential Information of the other
Party, other than duplication by or disclosure to its employees or
Affiliates who must have access to such Confidential Information to perform
such Party's obligations hereunder, who shall each be subject to
restrictions substantially similar to this Section 6. Notwithstanding the
foregoing, either Party may issue a press release or other disclosure
containing Confidential Information without the consent of the other Party,
to the extent such disclosure is required by law, rule, regulation or
government or court order. In such event, the disclosing Party shall
provide at least five (5) business days prior written notice of such
proposed disclosure to the other Party. Further, in the event such
disclosure is required of either Party under the laws, rules or regulations
of the Securities and Exchange Commission or any other applicable governing
body, such Party shall (i) redact mutually agreed-upon portions of this
Agreement to the fullest extent permitted under applicable laws, rules and
regulations and (ii) submit a request to such governing body that such
portions and other provisions of this Agreement receive confidential
treatment under the laws, rules and regulations of the Securities and
Exchange Commission or otherwise be held in the strictest confidence to the
fullest extent permitted under the laws, rules or regulations of any other
applicable governing body.
7. SOLICITATION/PROMOTION; USER INFORMATION
----------------------------------------
7.1 SOLICITATION OF SUBSCRIBERS. During the term of this Agreement, and
---------------------------
for the one-year period following the expiration or termination of
this Agreement, neither Preview nor its Affiliates or agents will use
the AOL Network to promote, solicit, or participate in the
solicitation of AOL Users when that promotion or solicitation is for
the benefit of any AOL Competitor. In addition, Preview may not send
any AOL User e-mail communications through the AOL Network without a
"Prior Business Relationship." For purposes of this Agreement, a
"Prior Business Relationship" shall mean that the AOL User has either
(i) engaged in a transaction with Preview through the AOL Network or
(ii) voluntarily provided information to Preview through a contest,
registration, or other communication, which, in the case of clause
(ii), included notice therein to the AOL User that the information
provided by the AOL User could result in an e-mail being sent to that
AOL User by Preview or its Affiliates or agents. A Prior Business
Relationship does not exist by virtue of an AOL User's visit to the
Online Area (absent the additional elements described above).
7.2 COLLECTION OF USER INFORMATION. Preview is prohibited from collecting
------------------------------
AOL User screennames from public or private areas of the AOL Network,
except as specifically provided below. Preview shall ensure that any
survey, questionnaire or other means of collecting AOL User names,
screennames, addresses or other identifying information ("User
Information") including, without limitation, requests directed to
specific AOL User screennames and automated methods of collecting
screennames (an "Information Request") complies with (i) all
applicable laws and regulations, (ii) AOL's applicable Terms of
Service and (iii) any privacy policies which have been issued by AOL
in writing during the Term and made available to Preview (the "AOL
Privacy Policies") (currently found in Section 5 of the Terms of
Service). Each Information Request shall clearly and conspicuously
specify to the AOL Users at issue the purpose for which User
Information collected through the Information Request shall be used
(the "Specified Purpose").
7.3 USE OF USER INFORMATION. Preview shall restrict use of the User
-----------------------
Information collected through an Information Request to the Specified
Purpose. In no event shall Preview (i) provide User Information to
any third party (except to the extent specifically (a) permitted
15
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CONFIDENTIAL
under the AOL Privacy Policies or (b) authorized by the members in
question), (ii) rent, sell or barter User Information, (iii) identify,
promote or otherwise disclose AOL User names, screennames, addresses
or other identifying information in a manner that identifies AOL Users
as end-users of the AOL Service or AOL.com or (iv) otherwise use any
User Information in contravention of Section 7.1 above. Nor shall
Preview use any User Information for any purpose (including any
Specified Purpose) not directly related to online travel.
7.4 CUSTOMER DATA; AOL DATA. [*] Preview agrees that
-----------------------
AOL may use the Customer Data subject to the terms of this Agreement
and AOL's then-applicable privacy policies; provided that AOL shall
not use destination-specific reservation information on a customer-by-
customer basis unless agreed to by both Parties to implement
programming objectives or "smart agent" type services as reasonably
required by prevailing market conditions. AOL agrees that during the
Term, Preview may use the Customer Data subject to the terms of this
Agreement and AOL's then-applicable privacy policies; provided that
Preview (a) shall comply with the foregoing Sections 7.1 through 7.3,
(b) shall provide users the right to have their Customer Data deleted
from any database created by or on behalf of Preview, and (c) shall
not have the right to use the Customer Data to market or promote any
consumer direct airline travel information and reservations systems
reasonably construed to be in competition with the Res System. Any
data provided by AOL to Preview (e.g., usage reports) (the "AOL Data")
shall be and remain the property of AOL, and the AOL Data will be
promptly returned to AOL by Preview in the form in which such data is
maintained by Preview or, if AOL so elects, will be destroyed, upon
(i) AOL's request, (ii) expiration or termination of this Agreement
for any reason, or (iii) with respect to any particular AOL Data, on
such earlier date that the same is no longer required by Preview in
order to provide the services required hereunder. Preview will not use
the AOL Data for any purpose other than that of providing such
services, nor will the AOL Data, or any part thereof, be disclosed,
sold, assigned, leased, or otherwise disposed of to third parties by
Preview or commercially exploited by or on behalf of Preview, its
employees or agents. Preview will not possess or assert any lien or
other right against or to the AOL Data.
8. LIMITATION OF LIABILITY; DISCLAIMER; INDEMNIFICATION.
----------------------------------------------------
8.1 LIABILITY. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO
---------
THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR
EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES), ARISING FROM BREACH OF THE AGREEMENT,
THE SALE OF PRODUCTS, THE USE OR INABILITY TO USE THE AOL NETWORK, THE
AOL SERVICE, THE ONLINE AREA OR THE RES SYSTEM, OR ARISING FROM ANY
OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS
OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS ("COLLECTIVELY,
"DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY SHALL REMAIN LIABLE TO
THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A
THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT TO SECTION
8.3. EXCEPT AS PROVIDED IN SECTION 8.3, NEITHER PARTY SHALL BE LIABLE
TO THE OTHER PARTY FOR MORE THAN [*] PROVIDED THAT EACH PARTY
SHALL REMAIN LIABLE FOR THE AGGREGATE AMOUNT OF ANY PAYMENT
OBLIGATIONS OWED TO THE OTHER PARTY PURSUANT TO SECTION 4.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
16
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8.2 NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS
------------------------
AGREEMENT, NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY
DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED,
REGARDING THE AOL NETWORK, THE AOL SERVICE OR THE ONLINE AREA,
INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF
DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, AOL SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING THE
PROFITABILITY OF THE ONLINE AREA.
8.3 INDEMNITY. Either Party will defend, indemnify, save and hold
---------
harmless the other Party and the officers, directors, agents,
Affiliates, distributors, franchisees and employees of the other Party
(the "Covered Parties") from any and all third party claims, demands,
liabilities, costs or expenses, including reasonable attorneys' fees
("Liabilities"), resulting from the indemnifying Party's material
breach of any duty, representation, or warranty of this Agreement,
except to the extent Liabilities result from the negligence or
misconduct of, or material breach of any duty, representation, or
warranty of this Agreement by, the other Party. In addition, Preview
will defend, indemnify, save and hold harmless AOL and the Covered
Parties of AOL from any and all Liabilities resulting from any claim
that any Third Party Content in the Online Area infringes on or
violates any copyright, U.S. patent, trademark or trade secret, or
(ii) violates any applicable law or regulation. "Third Party Content"
is any Content that is licensed (or otherwise made available for use
or distribution) to Preview by a third party.
8.4 CLAIMS. Each Party agrees to (i) promptly notify the other Party in
------
writing of any indemnifiable claim and give the other Party the
opportunity to defend or negotiate a settlement of any such claim at
such other Party's expense, and (ii) cooperate fully with the other
Party, at that other Party's expense, in defending or settling such
claim. Each Party reserves the right, at its own expense, to assume
the exclusive defense and control of any matter otherwise subject to
indemnification by the other Party hereunder, and in such event, such
other Party shall have no further obligation to provide
indemnification for such matter hereunder.
8.5 ACKNOWLEDGEMENT. AOL and Preview each acknowledges that the
---------------
provisions of this Agreement were negotiated to reflect an informed,
voluntary allocation between them of all risks (both known and
unknown) associated with the transactions contemplated hereunder. The
limitations and disclaimers related to warranties and liability
contained in this Agreement are intended to limit the circumstances
and extent of liability. The provisions of this Section 8 shall be
enforceable independent of and severable from any other enforceable or
unenforceable provision of this Agreement.
9. AOL TERMS OF SERVICE; UNSPECIFIED CONTENT. AOL shall have the right to
-----------------------------------------
remove, or direct Preview to remove, any Content which, as reasonably
determined by AOL (i) violates AOL's then-standard Terms of Service (as set
forth on the AOL Service) or the terms of this Agreement or (ii) is
inconsistent in any manner with the scope and purpose of the Online Area as
of the Effective Date (including, without limitation, in each case, any
features, functionality or technology) or with AOL's programming
objectives.
10. TERM, RENEWAL AND TERMINATION.
-----------------------------
10.1 TERM. The term of this Agreement (the "Term") will commence on the
----
Effective Date and, unless earlier terminated or extended in
accordance with this Agreement, will continue in effect until August
31, 2002. The date on which this Agreement expires due to the passage
of time (of the initial term and any renewal term(s)) is referred to
herein as the "Expiration
17
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Date." The date on which this Agreement is terminated pursuant to
Section 10.3 is referred to herein as the "Termination Date."
10.2 RENEWAL. At least six (6) months prior to the expiration of the
-------
initial term or any renewal term(s), as the case may be, Preview will
give notice to AOL of the pending Expiration Date. Within three (3)
months of receipt of Preview's notice (or at least thirty (30) days
prior to the Expiration Date, if Preview fails to provide such
notice), AOL will notify Preview whether AOL desires to: (a) renew
this Agreement for successive one-year renewal terms in perpetuity
[*] (i.e., without regard to Sections 3.3 or 3.4) and receive, in lieu
of the payment amounts set forth in Section 4.2, [*] of Commissions
and [*] of Advertising Revenues or (b) elect not to renew this
Agreement, in which case this Agreement will expire on the applicable
Expiration Date. In the event AOL elects in its sole discretion to
renew the Agreement pursuant to clause (a) above, the Agreement shall
so renew, Sections 3.2 and 4.1 shall not apply, and AOL shall elect at
the beginning of such renewal term one of the following two options
with respect to such renewal term: (i) AOL shall not be required to
perform its obligations pursuant to Section 3.1 (promotional
placements) and Preview shall not be required to perform its
obligations pursuant to Sections 1.10 (customization), 2.8
(performance standards) and 3.5 (cross-promotion) or (ii) both Parties
shall perform their respective obligations listed in the foregoing
clause (i).
10.3 TERMINATION. Either Party may terminate this Agreement at any time
-----------
in the event of a material breach by the other Party which remains
uncured after thirty (30) days written notice thereof.
Notwithstanding the foregoing, in the event either Party fails to make
any payment required hereunder as of the due date, the other Party may
terminate the Agreement on the date thirty (30) days following such
due date. In addition, either Party may terminate this Agreement
immediately following written notice to the other Party if the other
Party ceases to do business, becomes or is declared insolvent or
bankrupt, is the subject of any proceeding related to its liquidation
or insolvency which is not dismissed within ninety (90) days or makes
an assignment for the benefit of creditors. In addition, in the event:
(a) Gross Bookings in any Contract Year are less than the Gross
Bookings Hurdle; (b) an AOL Direct Competitor acquires Preview, or all
or substantially all of the assets of Preview, through merger, asset
acquisition, stock acquisition or otherwise; (c) the Financing Event
does not occur prior to September 30, 1998; (d) as of the end of the
fourth Contract Year, the cumulative amount of Commissions equals or
exceeds [*] and Preview has received [*] cumulative Impresssions; or
(e) AOL is eligible to exercise any of its rights to terminate the
Database Agreement pursuant to the terms and conditions thereof, then
AOL shall have the right to terminate the Agreement upon thirty (30)
days written notice to Preview. In addition, in the event that AOL is
eligible to exercise any of its termination rights pursuant to this
Agreement, AOL may elect instead to renew the Agreement consistent
with the terms of Section 10.2 above as of the date such termination
would have taken effect.
10.4 EFFECT OF TERMINATION. Except in the event of termination by Preview
---------------------
based on a material breach of the Agreement by AOL during any Contract
Year, Preview shall pay AOL within thirty (30) days of the date of
termination all amounts otherwise due pursuant to Section 4 during the
quarter of such Contract Year in which termination occurs; provided
that if such termination occurs prior to the Financing Event, Preview
shall continue to owe payments to AOL for any unpaid Impressions
delivered to Preview in the month in which termination occurs but
shall not owe AOL for any fixed payment amounts relating to subsequent
months. In the event of termination by Preview based on a material
breach of the Agreement by AOL during any Contract Year, Preview shall
not be required to pay AOL the amounts otherwise due to AOL pursuant
to Section 4.1 for such
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
18
<PAGE>
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Contract Year. Notwithstanding the foregoing, each Party shall be
entitled upon termination due to breach of the Agreement by the other
Party to seek all additional remedies for such breach which the Party
may possess at law or in equity.
11. GENERAL PROVISIONS.
------------------
11.1 EXCUSE. Neither Party shall be liable for, or be considered in
------
breach of or default under this Agreement on account of, any delay or
failure to perform as required by this Agreement as a result of any
causes or conditions which are beyond such Party's reasonable control
and which such Party is unable to overcome by the exercise of
reasonable diligence; provided: (i) the delayed Party gives the other
Party written notice of such cause or condition promptly and (ii) uses
its reasonable best efforts to promptly correct such failure or delay.
For purposes of this provision, a delay or non-performance shall not
be deemed beyond the reasonable control of the Party affected if such
delay or non-performance would not have occurred had the affected
Party been performing in accordance with the provisions of the
Agreement.
11.2 INDEPENDENT CONTRACTORS. The Parties to this Agreement are
-----------------------
independent contractors. Neither Party is an agent, representative,
or partner of the other Party. Neither Party shall have any right,
power or authority to enter into any agreement for or on behalf of, or
incur any obligation or liability of, or to otherwise bind, the other
Party. This Agreement shall not be interpreted or construed to create
an association, agency, joint venture or partnership between the
Parties or to impose any liability attributable to such a relationship
upon either Party.
11.3 NOTICE. Any notice, approval, request, authorization, direction or
------
other communication under this Agreement shall be given in writing and
shall be deemed to have been delivered and given for all purposes (i)
on the delivery date if delivered by electronic mail on the AOL
Network; (ii) on the delivery date if delivered personally to the
Party to whom the same is directed; (iii) one business day after
deposit with a commercial overnight carrier, with written verification
of receipt, or (iv) five business days after the mailing date, whether
or not actually received, if sent by U.S. mail, return receipt
requested, postage and charges prepaid, or any other means of rapid
mail delivery for which a receipt is available, to the address of the
Party to whom the same is directed as such addresses are set forth
below.
AMERICA ONLINE PREVIEW TRAVEL
Attn: David M. Colburn Attn: Ken Orton
America Online, Inc. Preview Travel, Inc.
22000 AOL Way 747 Front Street
Dulles, VA 20166 San Francisco, CA 94111
[email protected] [email protected]
With copies to:
Senior Vice President, Business Affairs
and
Vice President and General Counsel
America Online, Inc.
22000 AOL Way
Dulles, VA 20166
19
<PAGE>
CONFIDENTIAL
11.4 NO WAIVER. The failure of either Party to insist upon or enforce
---------
strict performance by the other Party of any provision of this
Agreement or to exercise any right under this Agreement shall not be
construed as a waiver or relinquishment to any extent of such Party's
right to assert or rely upon any such provision or right in that or
any other instance; rather, the same shall be and remain in full
force and effect.
11.5 RETURN OF INFORMATION. Upon the expiration or termination of this
---------------------
Agreement, each Party shall, upon the other Party's written request,
either return or destroy (at the option of the Party receiving the
request) all Confidential Information, documents, manuals and other
materials specified by the other Party.
11.6 SURVIVAL. Sections 3.2, 4, 6, 7, 8, 10.4, 11.5, 11.6, 11.11, 11.14,
--------
11.15 and any provisions that reasonably contemplate survival thereof
and all payment obligations incurred during the Term shall survive
the completion, expiration, termination or cancellation of this
Agreement.
11.7 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement,
----------------
and supersedes any and all prior agreements of the Parties with
respect to the transactions set forth herein. Neither Party shall be
bound by, and each Party specifically objects to, any term, condition
or other provision which is different from or in addition to the
provisions of this Agreement (whether or not it would materially
alter this Agreement) and which is proffered by the other Party in
any correspondence or other document, unless the Party to be bound
thereby specifically agrees to such provision in writing.
Notwithstanding the foregoing, Preview shall also be bound by the
Terms of Service except as such Terms of Service are specifically
amended by this Agreement.
11.8 EXPIRATION OF PRIOR AGREEMENT. Upon the Effective Date, the
-----------------------------
Development and Management Services Agreement, dated as of November
3, 1995 between the Parties (and any amendments thereto) and the
Online Services Agreement dated as of July 20, 1994 between the
Parties (and any amendments thereto) shall each be deemed to be
terminated and of no further force and effect.
11.9 AMENDMENT. No change, amendment or modification of any provision of
---------
this Agreement shall be valid unless set forth in a written
instrument signed on behalf of each Party hereto, and in the case of
AOL, by a senior vice president.
11.10 FURTHER ASSURANCES. Each Party shall take such action (including,
------------------
but not limited to, the execution, acknowledgment and delivery of
documents) as may reasonably be requested by any other Party for the
implementation or continuing performance of this Agreement.
11.11 RESERVATION OF REMEDIES. Except where otherwise expressly
-----------------------
specified, the rights and remedies granted to a Party under this
Agreement are cumulative and in addition to, and not in lieu of, any
other rights or remedies which the Party may possess at law or in
equity; provided that, in connection with any dispute hereunder,
neither Party shall be entitled to offset any amounts that such Party
claims to be due and payable from the other Party against amounts
otherwise payable by the claiming Party to the other Party.
11.12 HEADINGS. The headings in this Agreement are for reference only,
--------
and shall not affect the interpretation of this Agreement.
11.13 ASSIGNMENT. Except for assignment, transfer or delegation by
----------
Preview to an Affiliate or successor by way of merger, consolidation
or sale of all or substantially all of Preview's outstanding voting
securities or assets, Preview shall not assign (voluntarily, by
operation of law or otherwise) this Agreement or any right, interest
or benefit under this Agreement
20
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CONFIDENTIAL
without the prior written consent of AOL. AOL shall not assign
(voluntarily, by operation of law or otherwise) this Agreement or any
right, interest or benefit under this Agreement to any Preview
Competitor, or any other party whose primary business is in the
nature of a Preview Competitor, without the prior written consent of
Preview. Subject to the foregoing, this Agreement shall be fully
binding upon, inure to the benefit of and be enforceable by the
Parties hereto and their respective successors and assigns.
11.14 CONSTRUCTION. In the event that any provision of this Agreement
------------
conflicts with the law under which this Agreement is to be construed
or if any such provision is held invalid by a court with
jurisdiction over the Parties to this Agreement, such provision
shall be deemed to be restated to reflect as nearly as possible the
original intentions of the Parties in accordance with applicable
law, and the remainder of this Agreement shall remain in full force
and effect.
11.15 APPLICABLE LAW. This Agreement shall be interpreted, construed and
--------------
enforced in all respects in accordance with the laws of the
Commonwealth of Virginia except for its conflicts of laws
principles.
11.16 COUNTERPARTS. This Agreement may be executed in facsimile
------------
counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same document.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the Effective Date.
AMERICA ONLINE, INC. PREVIEW TRAVEL, INC.
By: /s/ David M. Colburn By: /s/ Ken Orton
-------------------------------- --------------------------------
Print Name: David M. Colburn Print Name: Ken Orton
------------------------- ------------------------
Title: Sr. V.P., AOL Networks Title: President & CEO
------------------------------ ----------------------------
22
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EXHIBIT A
Confidential
DEFINITIONS. The following definitions shall apply to this Agreement:
- -----------
1.1 ADVERTISING MINIMUM. (i) [*] per thousand entries
-------------------
per month by AOL Users into the Online Area or (ii) such different
rate or rates as AOL may establish based upon market conditions
and publish during the Term.
1.2 ADVERTISING REVENUES. The combination of AOL Advertising Revenues
--------------------
and Internet Advertising Revenues:
(A) AOL ADVERTISING REVENUES. Aggregate amounts collected plus
------------------------
the fair market value of any other compensation received
(excluding barter advertising except as provided in Section
1.11) by Preview, AOL or either Party's agents, as the case
may be, arising from the license or sale of Advertisements,
less applicable Advertising Sales Commissions; provided
that, in order to ensure that AOL receives fair value in
connection with Advertisements, Preview shall be deemed to
have received no less than the Advertising Minimum in
instances when Preview makes an Advertisement available to a
third party at a cost below the Advertising Minimum.
(B) INTERNET ADVERTISING REVENUES. For each Advertisement on any
Preview Interactive Site linked to the Online Area, the
product of: (a) the amount collected plus the fair market
value of any other compensation received (excluding barter
advertising except as provided in Section 1.11) by Preview
or its agents arising from the license or sale of such
Advertisement attributable to a given period of time and (b)
the quotient of (i) Impressions on the page containing such
Advertisement by AOL Users for such period of time divided
by (ii) total Impressions on the page containing such
Advertisement by all users for such period of time (the
"Internet Advertising Quotient") (or such other percentage
or formula as is mutually agreed upon in writing by the
Parties). For example, if (a) Preview is paid five thousand
dollars ($5,000) by a third party to include an
Advertisement within a linked Preview Interactive Site
during a given month and (b) during such month AOL Users
generate twenty percent (20%) of the Impressions to such
Advertisement, then (c) the Internet Advertising Revenue
relating to such advertisement would be one thousand dollars
($1,000) and such amount would be subject to the revenue
sharing described in Section 4.3.
1.3 ADVERTISING SALES COMMISSION. In the case of an Advertisement, (i)
---------------------------
actual amounts paid as commission to third party agencies in
connection with sale of the AOL Advertisement or (ii) [*], in the
event the Party has sold the Advertisement directly and will not
be deducting any third party agency commissions.
1.4 AFFILIATE. (i) in the case of AOL, any agent, distributor, or
---------
franchisee of AOL, or an entity controlled by, in common control
with, or in which AOL holds, directly or indirectly, at least a
19.9% equity interest and (ii) in the case of any other party, an
entity controlling, controlled by, or in common control with,
directly or indirectly, such party.
1.5 ANCHOR TENANCY. A prominent placement on a screen or form which is
--------------
no less favorable in size and position on the screen than any
other third party on such screen.
1.6 AIRLINE SYSTEMS. The computerized reservations systems providing
---------------
flight and fare information (and the ability to make reservations)
on all airlines whose information is general available through
industry airline systems (i.e., ABACUS, AMADEUS, APOLLO,
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
23
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GALILEO, GEMINI, GETS, SYSTEM ONE, SABRE and WORLDSPAN), that will
interface with the Core Systems. Airline Systems also provide hotel
and car rental information (and, as applicable, the ability to make
reservations).
1.7 AIRLINE TICKET CONSOLIDATION. Any service that aggregates unsold
----------------------------
airline seats and sells them directly to consumers.
1.8 AOL COMPETITOR. Any entity which could reasonably be construed to be
--------------
or become in competition with AOL (including, without limitation,
[*].
1.9 AOL DIRECT COMPETITOR. Any online or Internet interactive services
---------------------
providers, including, without limitation, any online service
providers, Internet service providers, @Home or other broadband
providers, any search, directory or other large-scale aggregators of
Internet content, any off-line content providers (e.g., PointCast) or
any provider of open standard (e.g., HTML) distribution platforms
(e.g., the Microsoft Active Desktop).
1.10 AOL LOOK AND FEEL. The elements of graphics, design, organization,
-----------------
presentation, layout, user interface, navigation and stylistic
convention (including the digital implementations thereof) which are
generally associated with online areas within the AOL Service.
1.11 AOL MEMBER. Any authorized user of the AOL Service, including any
----------
sub-accounts using the AOL Service under an authorized master
account.
1.12 AOL NETWORK. The AOL Service and any other information,
-----------
communication, transaction or other related service owned, operated,
distributed or authorized to be distributed by or through AOL or its
Affiliates throughout the world through which AOL elects to offer the
Online Area (including, without limitation, any CD-ROM merchandising
products which may be distributed by AOL).
1.13 AOL SERVICE. The U.S. version of the America Online (R) brand service
-----------
(specifically excluding Digital City, AOL.COM, NetFind, WorldPlay,
other sites or services not wholly owned by AOL that may be
distributed by or through the U.S. version of the America Online
brand service, and other sites or services distributed by AOL wholly
or partially outside the U.S. version of the America Online brand
service).
1.14 AOL USER. Any AOL Member or any authorized user of AOL.com.
--------
1.15 AOL.COM. AOL's Internet-based Interactive Site referred to as
-------
AOL.COM.
1.15a BUSINESS TRAVEL. Any business travel service that comprises a
---------------
combination of targeted content offerings and a business-oriented
reservations engine and service and which has access to the GDS
systems and fares, schedules, and other reservations services.
1.16 COMMISSIONS. The aggregate amount of standard commissions (based on
-----------
commission schedules published in the GDS and available for review by
all approved ARC agencies). paid to or received by Preview or its
agents which are generated from (a) AOL Users using the Online Area
through either the AOL Service or AOL.com and (b) AOL Users using any
Preview Interactive Site who have either (i) created a profile on the
Online Area after September 1, 1997 or (ii) created a profile prior
to such date using only an AOL e-mail address (or addresses, as the
case may be); provided that to the extent Preview is able during the
Term to identify whether an AOL User is using the AOL Network when
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
24
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Confidential
accessing any Preview Interactive Site (e.g., using the standard AOL
Service browser to visit such site), revenues from such users shall
also be included hereunder. Commissions shall, in certain instances
set forth in Section 4.4, include Overrides.
1.17 CONFIDENTIAL INFORMATION. Any information relating to or disclosed
------------------------
in the course of the Agreement, which is or should be reasonably
understood to be confidential or proprietary to the disclosing Party,
including, but not limited to, the material terms of this Agreement,
information about AOL Users and Preview customers, technical
processes and formulas, source codes, product designs, sales, cost
and other unpublished financial information, product and business
plans, projections, and marketing data. "Confidential Information"
shall not include information (a) already lawfully known to or
independently developed by the receiving Party, (b) disclosed in
published materials, (c) generally known to the public, or (d)
lawfully obtained from any third party.
1.18 CONTENT. Information, materials, features, Products, advertisements,
promotions, links, pointers and software, including any
modifications, upgrades, updates, enhancements and related
documentation.
1.19 CONTRACT YEAR. Any twelve (12) month period commencing on the
-------------
Effective Date or any anniversary thereof.
1.20 CORE SYSTEMS. The systems between the RMG and the Airline Systems,
------------
that serve as the back-end systems for the Res System, and that shall
be managed and maintained by Preview pursuant to this Agreement.
1.20a CRUISE. Any offer solely relating to travel by ocean liner which is
------
offered directly by a travel agent and reserved through a CRS.
1.21 FINANCING EVENT. (i) the closing of the initial public offering of
---------------
Preview's common stock registered under the Securities Act of 1933,
as amended, pursuant to an underwritten firm commitment public
offering from a prominent underwriter, in which the aggregate gross
proceeds to Preview, net of underwriting discounts and commissions,
exceed $25,000,000 for listing on a major exchange (the "IPO") or
(ii) the closing of a private equity investment in Preview which,
when compared with the IPO, creates for Preview the same or greater
amount of net proceeds, provides Preview with access to cash and has
the same or greater overall value (e.g., market perception), as
determined by AOL in its reasonable discretion.
1.22 GROSS BOOKINGS. The aggregate amounts paid to or received by Preview
--------------
or its agents for all travel bookings (e.g., air, car, hotel,
vacation packages, etc.) generated from (a) AOL Users using the
Online Area through either the AOL Service or AOL.com and (b) AOL
Users using any Preview Interactive Site who have either (i) created
a profile on the Online Area after September 1, 1997 or (ii) created
a profile prior to such date using only an AOL e-mail address (or
addresses, as the case may be); provided that to the extent Preview
is able during the Term to identify whether an AOL User is using the
AOL Network when accessing any Preview Interactive Site (e.g., using
the standard AOL Service browser to visit such site), revenues from
such users shall also be included hereunder.
1.23 GROSS BOOKINGS HURDLE. An amount equal to (i) [*]
---------------------
in the first Contract Year and (ii) in all Contract Years subsequent
to the first Contract Year, [*] of the Gross Bookings Hurdle for the
prior Contract Year.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
25
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Confidential
1.24 IMPRESSIONS. A user's viewing of any screen containing an
-----------
advertisement, promotion or other similar placement required under
this Agreement, as determined by AOL from time to time.
1.25 INTERACTIVE SITE. Any interactive site or area, including, by way of
----------------
example and without limitation, (i) a Preview-operated site or area
on the World Wide Web portion of the Internet or (ii) a channel, site
or area delivered through a "push" product such as the Pointcast
Network or interactive environment such as Microsoft's proposed
"Active Desktop."
1.26 LAST MINUTE TRAVEL. Any service that sells distressed travel
------------------
supplier inventory at deep discounts to regular tariffs.
1.27 LICENSED CONTENT. All Content offered through the Online Area
------------------
pursuant to this Agreement, including any modifications, upgrades,
updates, enhancements, and related documentation.
1.28 ONLINE AREA. The specific area within the AOL Network where Preview
------------
can market and complete transactions regarding Preview's Products.
The Online Area shall be developed, managed and marketed by Preview
pursuant to this Agreement, including but not limited to the Licensed
Content, message boards, chat and other AOL User supplied content
areas.
1.29 OVERHEAD ACCOUNTS. Accounts of AOL Users for which AOL does not
-----------------
require payment of standard AOL subscription and usage charges.
1.30 OVERRIDES. The aggregate amounts received from airlines by Preview
---------
or its agents for performance over and above standard sales targets
set by such airlines, including without limitation, any amounts based
on percentage of target volume, flat fee arrangements, or other non-
cash incentives.
1.31 PREVIEW COMPETITOR. [*] solely to the extent each of the
------------------
foregoing entities makes available through its Interactive Site a
Reservations Engine and Travel Information/Reservations; provided
that in the event any of the foregoing entities utilizes Preview's
Reservations Engine or does not have a Reservations Engine integrated
into the version of its Interactive Site (or portion thereof) which
AOL desires to distribute through the AOL Network, such entity shall
not be deemed a Preview Competitor hereunder.
1.32 PRODUCTS. Any product, good or service which Preview offers, sells
--------
or licenses to AOL Users through the Online Area.
1.33 RES SYSTEM. The Preview Media brand computerized reservations
----------
system, which includes a screen interface and programming behind the
screen that is connected to the Core Systems that is connected to the
Airline Systems.
1.34 RESERVATIONS ENGINE. A computerized reservations system that
-------------------
provides consumers with flight and fare information and the ability
to make reservations and purchase tickets on all airlines whose
information is general available through industry airline systems
(i.e., ABACUS, AMADEUS, APOLLO, GALILEO, GEMINI, GETS, SYSTEM ONE,
SABRE and WORLDSPAN) and also provides hotel and car rental
reservation information (and the ability to make those reservations).
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
26
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1.35 RMG. The remote managed gateway connecting the AOL Network to the
---
Core Systems and the Airline Systems. Preview will be responsible for
maintenance of the the part of the RMG connecting the Core Systems up
to the RMG Focal Point. In the event the Parties agree to transition
from the RMG to a Web gateway, as described in Section 1.10, each
reference to the RMG in this Exhibit A shall be read as a reference
to such Web gateway.
1.36 RMG FOCAL POINT. The focal point within the RMG in which Preview's
---------------
and AOL's equipment and software directly interface (i.e., connect).
1.37 TRAVEL INFORMATION/RESERVATIONS. Travel information, pricing and
-------------------------------
reservations for, among other things, airlines, hotels, and car
rentals, all as generally available through the major Airline
Systems.
1.38 VACATION PACKAGES. Any leisure travel offer involving two or more of
-----------------
the following travel features: air, hotel (or other lodging), car (or
other land transportation), Cruises, adventure, which is offered
directly by a travel agent and reserved through a CRS.
27
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Confidential
EXHIBIT B
Promotional Plan
----------------
[*]
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
28
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EXHIBIT C
Performance Standards
---------------------
General. The Online Area (including the Res System) will be in the top [*]
- -------
in performance and quality averages or standards for the online travel
reservations industry, including, without limitation, the following specific
standards: (i) pricing of Products made available through AOL, (ii) scope and
selection of Products, (iii) quality of Products, (iv) customer service and
fulfillment associated with the marketing and sale of Products; and (v) ease of
use of the Online Area shall, with respect to each measure, be competitive with
that offered by any Preview Competitor.In addition, the Online Area (including
the Res System) will be in the top [*] in the online travel reservations
industry with respect to gross travel sales to consumers and small businesses.
Each of the performance standards contained in this paragraph shall apply only
to the extent it can be validated by a third party that is prominent and
generally accepted within the online travel reservations industry.
Capacity. Preview will maintain sufficient servers, software and other
- --------
technical infrastructure necessary for Preview to receive and support traffic
from the AOL Service on a timely basis, without producing material delays. In
the event Preview fails to satisfy this requirement AOL will have the right (in
addition to any other remedies available to AOL hereunder) to regulate the
promotions it provides to Preview hereunder to the extent necessary to minimize
user delays until such time as Preview corrects its infrastructure deficiencies.
To the extent AOL fails to make necessary adjustments to the AOL technical
infrastructure for capacity increases, Preview will not be penalized pursuant to
the foregoing.
Speed; Accessibility. Preview shall ensure that the performance and
- --------------------
availability of the Online Area (a) is monitored on a continuous, 24/7 basis
and (b) remains competitive in all material respects with the performance and
availability of other similar sites based on similar form technology. In the
event that any or all portions of the Online Area are contained within HTML-
based World Wide Web forms (or any other forms created using a technology other
than AOL's proprietary form technology) ("Web Forms"), Preview shall take all
commercially reasonable steps to ensure that the Web Forms are designed and
populated in a manner that minimizes delays when AOL Users attempt to access
such Web Forms.
Functionality. Preview shall ensure that the features and functionality of the
- -------------
Online Area remains competitive in all material respects with the features and
functionality of other similar sites based on similar form technology. Preview
shall ensure that the features and functionality within any Web Forms are
optimized for the AOL client software then in use by AOL Users. AOL shall be
entitled to require reasonable changes to the content, features and/or
functionality within any screen or form created using AOL's proprietary form
technology (a "Rainman Area") to the extent such Rainman Area will, in AOL's
good faith judgment, adversely affect operation of any portion of the AOL
Network.
User Interface. Preview shall maintain a graphical user interface within the
- --------------
Online Area that is competitive in all material respects with interfaces of
other similar sites based on similar form technology. AOL reserves the right to
conduct focus group testing to assess Preview's competitiveness in this regard.
Service Level Response. Preview agrees to use commercially reasonable efforts
- ----------------------
to provide the following service levels in response to problems with or
improvements to the software/functionality associated with the Online Area.
1. For material functions of the software that are or have become entirely or
substantially inoperable, Preview will provide a bug fix or workaround
within two business days after the first report of such error.
2. For functions of the software that are impaired or that otherwise fail to
operate in accordance with agreed upon specifications, Preview will provide
a bug fix or workaround within three business days after the first report
of such error.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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3. Degraded operations: for errors disabling only certain non-essential
functions, Preview will provide a bug fix or workaround within sixty days
after the first report of such error.
4. Minimal impact: for all other errors, Preview will address these requests
on a case-by-case basis as soon as reasonably feasible.
Additional Standards. Preview shall diligently monitor the Online Area,
- --------------------
especially the Res System for fraud and abuse and shall provide adequate
staffing for maintenance of both the Rainman Areas and any Web Forms contained
in the Online Area. In the event that fraudulent activity associated with use of
the Online Area exceeds two times AOL's average occurrence of fraud for a
similar time frame across its credit card transaction activities through the AOL
Service (as measurable by AOL) (the "Average Fraud Level"), then the Parties
shall make such modifications to any and all applicable operations, systems,
information flows related to fraud prevention and billing as are necessary to
reduce such fraudulent activity to no greater than two times the Average Fraud
Level. Preview shall also work with AOL in developing policies (not otherwise
addressed herein) that are designed to combat any repeated customer service
complaints and to prevent deceptive selling practices.
Customized Interactive Site Requirements. In the event the Transition occurs
- ----------------------------------------
pursuant to Section 1.10, Preview shall comply with all of the following:
Technical Performance:
- ---------------------
1. Preview will design the customized Interactive Site to support the Windows
version of the Microsoft Internet Explorer 3.0 browser, and make
commercially reasonable efforts to support all other AOL browsers listed
at: http://webmaster.info.aol.com/BrowTable.html.
2. Preview will configure the server from which it serves the site to examine
the HTTP User-Agent field in order to identify the AOL User-Agents listed
at: http://webmaster.info.aol.com/Brow2Text.html (the "AOL User-Agents").
3. Preview will design its site to support HTTP 1.0 or later protocol as
defined in RFC 1945 (available at http://ds.internic.net/rfc/rfc1945.text)
and to adhere to AOL's parameters for refreshing cached information listed
at http://webmaster.info.aol.com/CacheText.html.
4. Preview will provide continuous navigational ability for AOL Members to
return to an agreed-upon point on the AOL Service (for which AOL shall
supply the proper address) from the Online Area.
Testing and Integration: Preview shall test the site in accordance with
- ------------------------
standard diagnostic practices, to ensure to the extent reasonably possible that
the site conforms to a mutually agreed upon technical specification, including
but not limited to ensuring that the site works without significant program
errors under a variety of test conditions that reasonably reflect the actual
environments in which the site has been designed to be used. In addition,
Preview will work with AOL to enable integration of the site with the AOL
Service and to provide any reasonable assistance necessary to AOL engineers to
ensure the level of integration called for in the product specification.
Acceptance Testing and Quality Assurance Testing: The prototype and launch
- -------------------------------------------------
versions of the site shall be subjected to acceptance by AOL based on
satisfaction of such tests as AOL will reasonably construct in order to
determine whether such versions operate in accordance with the AOL's standard
quality assurance assistance program, which is designed to provide assistance
and resources to AOL partners during the development and testing of integrated
web sites.
30
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31
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EXHIBIT D
Preview Services
----------------
1. INTRODUCTION
This Exhibit D describes certain services, functions and responsibilities
of Preview (the "Services"). Preview shall be fully responsible for all
services (including, without limitation, for equipment and software) from
the connection to the Airline Systems to the Core Systems to the RMG Focal
Point (such area shall be known as the "Preview Responsibility Area").
Included in such responsibilities, Preview shall operate and maintain the
Core Systems and part of the RMG up to the RMG Focal Point, and arrange for
the connection of the Core Systems to the Airline Systems, and then manage
and operate the equipment, software and any other resources within the
Preview Responsibility Area. Preview shall also be fully responsible for
providing support and back-end services in connection with travel
reservations support and ticket processing, including, without limitation,
call center operation and management services and fulfillment services and
other general support functions.
Preview anticipates that the provision of Services will improve over the
Term based on Preview's knowledge of and access to state-of-the-art
resources and technology, implementation of improved methods and procedures
for providing the Services, and efficiencies arising from Preview's
provision of the Services.
2. MANAGEMENT AND OPERATION SERVICES
2.1 Management and Operation of the Equipment. Preview will assume
------------------------------------------
full management and operational responsibility for the equipment
within the Preview Responsibility Area. Such responsibilities
include, at a minimum, acquiring, installing, upgrading, managing,
maintaining, repairing and replacing all equipment in order to provide
the Services.
. Preview shall assume full management and operational
responsibility for host processor(s) functions and services
within the Preview Responsibility Area. Preview's
responsibilities during the term of the Agreement will include,
at a minimum: console monitoring and operations; tape and storage
management; and all technical system support operations. Preview
will maintain proper and adequate facilities, equipment and
supplies, and a properly trained and adequately staffed
operations center, including necessary management and support
staff. The hours of operation of the operations center will be 24
hours per day, 7 days per week.
. Preview will assume full management and operational
responsibility for network functions and services within the
Preview Responsibility Area. Preview's responsibilities will
include, at a minimum, acquiring, installing, upgrading,
managing, maintaining, repairing and replacing all equipment,
software, lines and cabling, as required to perform the network
services as the network may change during the Term. Preview shall
implement measures necessary to ensure confidentiality and
protect against unauthorized access and fraudulent use.
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2.2 Software Management and Maintenance. Preview will assume full
-----------------------------------
management and operational responsibility for the software within the
Preview Responsibility Area, i.e., the "Back-End Systems". Such
responsibilities include, at a minimum, acquiring, installing,
upgrading, managing, maintaining, repairing and replacing all software
in order to provide the Services. Software management and maintenance
will include, at a minimum, the following:
. Corrective maintenance, including correction of systems defects
in accordance with applicable specifications;
. Preventative maintenance, including prevention of systems
problems by, where appropriate, improving systems documentation,
source code restructuring to the extent the code is accessible,
database/index reorganization, system re-engineering, tool
construction and re-writing un-maintainable modules.
. Upgrading the Back-End Systems: (i) so that the Back-End Systems
are always kept current and competitive (including cost-
competitive) with the major airline reservations systems in the
industry, (ii) pursuant to Preview's normal maintenance
practices, (ii) in a manner that ensures continued eligibility
for support and maintenance by any third-party for such Software,
and (iii) so as to maintain connectivity with the Airline
Systems.
. Tuning of systems to improve operational performance and minimize
resource usage to the extent practicable;
. Development and maintenance of current documentation for the
Back-End Systems, including changes to reflect any modifications
to the Back-End Systems; and
. Implementation of any regulatory requirements.
2.3 Other Management and Operational Responsibilities. Preview shall
-------------------------------------------------
be responsible for other management and operation services related to
the Preview Responsibility Area, including, without limitation, the
following:
. Disaster Recovery. Preview will assume management and operational
-----------------
responsibility, as applicable, for the provision of disaster
recovery services in a manner at least consistent with industry
standards. Such services include the management and interface
with third party disaster recovery service providers, and the
development, management and, as applicable, operation of a
disaster recovery plan.
. Security Management. Preview will manage and monitor access to
-------------------
computer system resources, including system level accounts,
groups, users and passwords and will maintain the security
software. AOL shall have the right to perform a and end-to-end
security audit of the Preview Responsibility Area at AOL's sole
option and expense.
3. SUPPORT AND BACK-END SERVICES
3.1 Call Center Services. Preview shall be responsible for the management
---------------------
of a call center to answer inquiries from users of the Res System
related to information and reservations on all airlines that are
generally available on major airline reservations systems (the "Call
Center"). Preview shall manage and operate the Call Center, providing
the resources necessary to respond promptly to inquiries and customer
support related to information and reservations on all airlines that
are generally available on major airline reservations
33
<PAGE>
Confidential
systems. Without limiting the generality of the foregoing, Preview's
services shall include, without limitation:
. Supporting both toll free (800) voice service and online, real-
time assistance to users through instant messages and/or (as
commercially reasonable and necessary) chat/conference room(s).
. Providing hours of operation that will mirror periods of highest
user activity over all time zones, which, unless mutually agreed,
at a minimum will be between 6:00 am to 10:00 p.m. Pacific Time.
. Staffing the Call Center as necessary to meet or exceed customer
demand for customer support.
. Acknowledging customer complaints within 24 hours of receipt of
complaint and promptly resolving the same, but no later than
within five (5) business days after receipt. Preview shall log
all such complaints and will note the date/time of the complaint,
escalation (if any) and resolution. Preview shall maintain files
on all complaints and resolutions.
. Responding to AOL requests for information on Call Center
operations. Preview understands that from time to time AOL shall
make surprise test calls to the Call Center in order to determine
provision of Call Center services. In the event that AOL
discovers a problem with the services, AOL shall notify Preview,
and the Parties shall meet to discuss the problem. Preview shall
take the steps necessary to correct any problems.
3.2 Fulfillment Services. Preview shall be responsible for the
---------------------
management of fulfillment services in which Preview shall receive
ticket reservation orders made by customers through the Res System and
then print out the tickets and distribute (i.e., mail) them to
customers ("Fulfillment"). Preview shall manage and operate the
Fulfillment services, providing the resources necessary to receive
ticket reservation orders made by customers through the Res System and
then printing out the tickets and distributing them to customers.
Without limiting the generality of the foregoing, Preview's services
shall include:
. Using commercially reasonable best efforts to ensure that all
travel documentation is delivered to customers on a timely basis.
Preview shall document all missed deliveries and will keep such
documentation on file for AOL review.
. Acknowledging customer complaints within 24 hours of receipt of
complaint and promptly resolving the same, but no later than
within five (5) business days after receipt. Preview shall log
all such complaints and will note the date/time of the complaint,
escalation (if any) and resolution. Preview shall maintain files
on all complaints and resolutions.
34
<PAGE>
Exhibit 10.11
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series D Preferred Stock of
PREVIEW MEDIA, INC.
Dated as of December 15, 1995 (the "Effective Date")
WHEREAS, Preview Media, Inc., a California corporation (the "Company") has
entered into a Master Lease Agreement dated as of December 15, 1995, Equipment
Schedule No. VL-1 dated as of December 15, 1995, and related Summary Equipment
Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware
corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series D Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 40,000 fully paid and non-
assessable shares of the Company's Series D Preferred Stock ("Preferred Stock")
at a purchase price of $2.10 per share (the "Exercise Price"). The number and
purchase price of such shares are subject to adjustment as provided in Section 8
hereof.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) ten (10) years
or (ii) five (5) years from the effective date of the Company's initial public
offering, whichever is longer; provided, however, that in the case of (A) any
acquisition of the Company by means of merger or other form of corporation
<PAGE>
reorganization in which outstanding shares of the Company are exchanged for
securities or other consideration issued, or caused to be issued, by the
acquiring corporation or its subsidiary (other than a mere reincorporation
transaction), (B) any transaction or series of transactions within any three-
month period pursuant to an agreement to which the Company is a party (other
than a registered public offering) in which greater than fifty percent (50%) of
the Company's voting securities shall be transferred, or (C) a sale of all or
substantially all of assets of the Company, ((A), (B) and (C) a "Termination
Event") this Warrant Agreement shall terminate upon the consummation of such
Termination Event. In the event of any Termination Event, the Company shall
notify the Warrantholder at least twenty (20) days prior to the closing thereof.
Such notice shall contain such details of the proposed transaction as are
reasonable in the circumstances and a statement that this Warrant Agreement is
expected to expire upon the closing of such transaction.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Preferred Stock issuable upon exercise
of this Warrant Agreement ("Net Issuance") as determined below. If the
Warrantholder elects the Net Issuance method, the Company will issue Preferred
Stock in accordance with the following formula:
X= Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of Preferred
Stock shall mean with respect to each share of Preferred Stock:
-2-
<PAGE>
(a) if the exercise is in connection with an initial public offering
of the Company's Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the SEC, then
the fair market value per share shall be the product of (x) the initial "Price
to Public" specified in the final prospectus with respect to the offering and
(y) the number of shares of Common Stock into which each share of Preferred
Stock is convertible or into which this Warrant Agreement is exercisable at the
time of such exercise;
(b) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(i) if the Company's Common Stock is traded on a securities exchange,
the fair market value shall be deemed to be the product of (x) the average of
the closing prices over a twenty-one (21) day period ending three days before
the day the current fair market value of the securities is being determined and
(y) the number of shares of Common Stock into which each share of Preferred
Stock is convertible or into which this Warrant Agreement is exercisable at the
time of such exercise; or
(ii) if the company's Common Stock is actively traded over-the-
counter, the fair market value shall be deemed to be the product of (x) the
average of the closing bid and asked prices quoted on the NASDAQ system (or
similar system) over the twenty-one (21) day period ending three days before the
day the current fair market value of the securities is being determined and (y)
the number of shares of Common Stock into which each share of Preferred Stock is
convertible or into which this Warrant Agreement is exercisable at the time of
such exercise:
(c) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Preferred Stock shall be at the highest price per
share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Preferred Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board of
Directors unless the Company shall become subject to a merger, acquisition or
other consolidation pursuant to which the Company is not the surviving party, in
which case the fair market value of Preferred Stock shall be deemed to be the
value received by the holders of the Company's Preferred Stock pursuant to such
merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall promptly
issue an amended Warrant Agreement representing the remaining number of shares
purchasable hereunder. All other terms and conditions of such amended Warrant
Agreement shall be identical to those contained herein, including, but not
limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of
-3-
<PAGE>
shares of its Preferred Stock to provide for the exercise of the rights to
purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock
-----------------------
required to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the Securities Act of 1933, as amended (the "1933 Act"), as
then in effect, or any similar Federal statute then enforced, or any state
securities law, required by reason of any transfer involved in such conversion),
or listing on any domestic securities exchange, before such shares may be issued
upon conversion, the Company will, at its expense and as expeditiously as
possible, use its best efforts to cause such shares to be duly registered,
listed or approved for listing on such domestic securities exchange, as the case
may be.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange, a subdivision of securities or
otherwise, including, but not limited to any capital reorganization, change any
of the securities as to which purchase rights under this Warrant Agreement exist
into the same or a different number of securities of any other class or classes,
this Warrant Agreement shall thereafter represent the right to acquire such
number and kind of Securities as would have been issuable as the result of such
change with respect to the securities which were subject to the purchase rights
under this Warrant Agreement immediately prior to such combination,
reclassification, exchange, subdivision or other change.
-4-
<PAGE>
(b) Subdivision or Combination of Shares. If the Company at any time
------------------------------------
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(c) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution.
The Warrantholder shall thereafter be entitled to purchase, at the Exercise
Price resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(d) Antidilution Rights. Additional antidilution rights applicable to
-------------------
the Preferred Stock purchasable hereunder are as set forth in the Company's
Amended and Restated Articles of Incorporation, as amended through the Effective
Date, a true and complete copy of which is attached hereto as Exhibit ___ (the
"Charter"). The Company shall promptly provide the Warrantholder with any
restatement, amendment, modification or waiver of the Charter.
(e) Notice of Adjustments. If: (i) the Company shall declare any
---------------------
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; (iv) there shall be an initial public offering; or (v) there shall be any
voluntary or involuntary dissolution, liquidation or winding up of the Company;
then, in connection with each such event, the Company shall send to the
Warrantholder: (A) at least twenty (20) days' prior written notice of the date
on which the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights (specifying the date on which
the holders of Preferred Stock shall be entitled thereto) or for determining
rights to vote in respect of such Merger Event, dissolution, liquidation or
winding up; (B) in the case of any such Merger Event, dissolution, liquidation
or winding up, at least twenty (20) days' prior written notice of the date when
the same shall take place (and specifying the date on which the holders of
Preferred Stock shall be entitled to exchange their Preferred Stock for
securities or other property deliverable upon such Merger Event, dissolution,
liquidation or winding up); and (C) in the case of a public offering, the
Company shall give the Warrantholder at least twenty (20) days written notice
prior to the effective date hereof.
-5-
<PAGE>
Each such written notice shall set forth, in reasonable detail, (i)
the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(f) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (e) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing
all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
and the issuance and delivery of any certificate in a name other than that of
the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of
----------------------
notice to, registration with, or taking of any other action in respect of any
state, Federal or other governmental authority or agency is required with
respect to the execution, delivery and performance by the Company of its
obligations under this Warrant Agreement, except for the
-6-
<PAGE>
filing of notices pursuant to Regulation D under the 1933 Act and any filing
required by applicable state securities law, which filings will be effective by
the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common
-----------------
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition:
(i) The authorized capital of the Company consists of (A) 14,600,000
shares of Common Stock, of which 3,128,760 shares are issued and outstanding
and, (B) 7,969,073 shares of Preferred Stock, of which 472,500 shares are
designated Series A Preferred Stock (all of which are issued and outstanding)
1,596,821 shares are designated Series B Preferred Stock (all of which are
issued and outstanding) 1,999,752 shares are designated Series C Preferred Stock
(of which 1,678,321 shares are issued and outstanding) and 3,900,000 shares are
designated Series D Preferred Stock (of which 2,985,952 shares are issued and
outstanding).
(ii) The Company has reserved 1,668,139 shares of Common Stock for
future issuance to employees under the Company's 1988 Stock Option Plan, under
which options to purchase 1,364,663 shares of Common Stock are outstanding.
(iii) There are (a) warrants to purchase an aggregated of 820,000
shares of Common Stock outstanding (b) warrants to purchase an aggregate of
321,430 shares of Series C Preferred Stock outstanding and (c) warrants to
purchase an aggregate of 795,238 shares of Series D Preferred Stock outstanding.
There are subordinated convertible secured promissory notes in the aggregate
principal amount of $750,000 outstanding, which principal amount is convertible
into up to 681,818 shares of Common Stock.
(iv) There are 102,410 shares of common Stock reserved for issuance in
connection with the proposed extension of certain outstanding indebtedness of
the Company.
(v) There are no other options, warrants, conversion privileges or
other rights presently outstanding to purchase or otherwise acquire any
authorized but unissued shares of the Company's capital stock or other
securities of the Company.
(vi) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock, other than outstanding contractual rights of first
refusal.
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
-7-
<PAGE>
(f) Other Commitments to Register Securities. Except as set forth in
----------------------------------------
this Warrant Agreement and as set forth in the Amended and Restated Investor
Rights Agreement dated as of December ____ 1995, the Company is not, pursuant to
the terms of any other agreement currently in existence, under any obligation to
register under the 1933 Act any of its presently outstanding securities or any
of its securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the
------------------
Warrantholder's representations in Section 10 hereof; the issuance of the
Preferred Stock upon exercise of this Warrant will constitute a transaction
exempt from (i) the registration requirements of Section 5 of the 1933 Act, in
reliance upon Section 4(2) thereof, and (ii) the qualification requirements of
the applicable state securities laws.
(h) Compliance with Rule 144. At the written request of the
------------------------
Warrantholder, if the Warrantholder proposes to sell Preferred Stock issuable
upon the exercise of the Warrant in compliance with Rule 144 promulgated by the
Securities and Exchange Commission, the Company shall furnish to the
Warrantholder, within ten days after receipt of such request, a written
statement confirming the Company's compliance with the filing requirements of
the Securities and Exchange Commission as set forth in such Rule, as such Rule
may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the
-------------
Preferred Stock issuable upon exercise of this Warrant is not registered under
the 1933 Act or qualified under applicable state securities laws on the ground
that the issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the
-8-
<PAGE>
registration requirements of the 1933 Act is available. Notwithstanding the
foregoing, the restrictions imposed upon the transferability of any of its
rights to acquire Preferred Stock or Preferred Stock issuable on the exercise of
such rights do not apply to transfers from the beneficial owner of any of the
aforementioned securities to its nominee or from such nominee to its beneficial
owner, and shall terminate as to any particular share of Preferred Stock when
(1) such security shall have been effectively registered under the 1933 Act and
sold by the holder thereof in accordance with such registration or (2) such
security shall have been sold without registration in compliance with Rule 144
under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder
at its request by the staff of the Securities and Exchange Commission or a
ruling shall have been issued to the Warrantholder at its request by such
Commission stating that no action shall be recommended by such staff or taken by
such Commission, as the case may be, if such security is transferred without
registration under the 1933 Act in accordance with the conditions set forth in
such letter or ruling and such letter or ruling specifies that no subsequent
restrictions on transfer are required. Whenever the restrictions imposed
hereunder shall terminate, as hereinabove provided, the Warrantholder or holder
of a share of Preferred Stock then outstanding as to which such restrictions
have terminated shall be entitled to receive from the Company, without expense
to such holder, one or more new certificates for the Warrant or for such shares
of Preferred Stock not bearing any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and
--------------
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment, and has the ability to bear the economic
risks of its investment.
(e) Risk of No Registration. The Warrantholder understands that if
-----------------------
the Company does not register with the Securities and Exchange Commission
pursuant to Section 12 of the 1933 Act, or file reports pursuant to Section
15(d), of the Securities Exchange Act of 1934 (the "1934 Act"), or if a
registration statement covering the securities under the 1933 Act is not in
effect when it desires to sell (i) the rights to purchase Preferred Stock
pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon
exercise of the right to purchase, it may be required to hold such securities
for an indefinite period. The Warrantholder also understands that any sale of
its rights of the Warrantholder to purchase Preferred Stock or Preferred Stock
which might be made by it in reliance upon Rule 144 under the 1933 Act may be
made only in accordance with the terms and conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor"
-------------------
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
---------
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at
its principal offices
-9-
<PAGE>
and the payment to the Company of all transfer taxes and other governmental
charges imposed on such transfer.
12. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall
be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court
---------------
proceeding between the Company and the Warrantholder relating hereto, the
prevailing party shall be entitled to attorneys' fees and expenses and all costs
of proceedings incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
California.
(d) Counterparts. This Warrant Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be
-------
given in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at 6111 North River Road, Rosemont, Illinois 60018, attention: James Labe,
Venture Group, cc: Legal Department, attn: General Counsel, (and/or, if by
facsimile, (708) 518-5466 and (708) 518-5088) and (ii) to the Company at 747
Front Street, San Francisco, California 94111, attention: (and/or if by
facsimile, (415) 421-4982) or at such other address as any such party may
subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-
--------
defaulting party may proceed to protect and enforce its rights either by suit in
equity and/or by action at law, including but not limited to an action for
damages as a result of any such default, and/or an action for specific
performance for any default where Warrantholder will not have an adequate remedy
at law and where damages will not be readily ascertainable. The Company
expressly agrees that it shall not oppose an application by the Warrantholder or
any other person entitled to the benefit of this Agreement requiring specific
performance of any or all provisions hereof or enjoining the Company from
continuing to commit any such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of
-----------------------
its Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all
-10-
<PAGE>
such terms and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the Warrantholder against
impairment.
(h) Survival. The representations, warranties, covenants and
--------
conditions of the respective parties contained herein or made pursuant to this
Warrant Agreement shall survive the execution and delivery of this Warrant
Agreement.
(i) Severability. In the event any one or more of the provisions of
------------
this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be
----------
amended by a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions
authorizing the officers of the Company to enter into this Warrant Agreement.
The Company shall also supply such other documents as the Warrantholder may from
time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: PREVIEW MEDIA, INC.
By: /s/Preview Media, Inc.
-----------------------------
Title: Chief Financial Officer
--------------------------
Warrantholder: COMDISCO, INC.
By: /s/Comdiso, Inc.
-----------------------------
Title:
--------------------------
-11-
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To:
----------------------------
(1) The undersigned Warrantholder hereby elects to purchase shares of
---------
the Series D Preferred Stock of Preview Media, Inc., pursuant to the terms
of the Warrant Agreement dated the day of
------------- ---------------------
19 (the "Warrant Agreement") between Preview Media, Inc. and the
--
Warrantholder, and tenders herewith payment of the purchase price for such
shares in full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series D Preferred Stock of
Preview Media, Inc., the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series D Preferred Stock in the name of the undersigned or in such other
name as is specified below.
- ----------------------------
(Name)
- ----------------------------
(Address)
Warrantholder: COMDISCO, INC.
By:
-----------------------------
Title:
--------------------------
Date:
---------------------------
-12-
<PAGE>
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned , hereby
-----------------------------------------------
acknowledges receipt of the "Notice of Exercise" from Comdisco, Inc., to
purchase shares of the Series D Preferred Stock of Preview Media, Inc.,
------
pursuant to the terms of the Warrant Agreement, and further acknowledges that
shares remain subject to purchase under the terms of the Warrant
- --------
Agreement.
Company:
Preview Media, Inc.:
By:
----------------------------------
Title:
-------------------------------
Date:
--------------------------------
-13-
<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED the foregoing Warrant Agreement and all rights evidenced
thereby are hereby transferred and assigned to
- --------------------------------------------------------------------------------
(Please Print)
whose address is
----------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated
---------------------------------------------------------
Holder's Signature
--------------------------------------------
Holder's Address
----------------------------------------------
--------------------------------------------------------------
Signature Guaranteed:
-------------------------------------------
NOTE: The signature to this Transfer Notice must correspond with the name as
it appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and
those acting in a fiduciary or other representative capacity should
file proper evidence of authority to assign the foregoing Warrant
Agreement.
-14-
<PAGE>
EXHIBIT 10.12
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series E Preferred Stock of
PREVIEW TRAVEL, INC.
Dated as of July 22, 1997 (the "Effective Date")
WHEREAS, Preview Travel, Inc., a California corporation (the "Company") has
entered into a Master Lease Agreement dated as of December 15, 1995, Equipment
Schedule No. VL-2 dated as of July 22, 1997, and related Summary Equipment
Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware
corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series E Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 23,333 fully paid and non-
assessable shares of the Company's Series E Preferred Stock ("Preferred Stock")
at a purchase price of $4.50 per share (the "Exercise Price"). The number and
purchase price of such shares are subject to adjustment as provided in Section 8
hereof.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) ten (10) years
or (ii) five (5) years from the effective date of the Company's initial public
offering, whichever is longer; provided, however, that in the case of (A) any
acquisition of the Company by means of merger or other form of corporation
<PAGE>
reorganization in which outstanding shares of the Company are exchanged for
securities or other consideration issued, or caused to be issued, by the
acquiring corporation or its subsidiary (other than a mere reincorporation
transaction), (B) any transaction or series of transactions within any three-
month period pursuant to an agreement to which the Company is a party (other
than a registered public offering) in which greater than fifty percent (50%) of
the Company's voting securities shall be transferred, or (C) a sale of all or
substantially all of assets of the Company, ((A), (B) and (C) a "Termination
Event") this Warrant Agreement shall terminate upon the consummation of such
Termination Event. In the event of any Termination Event, the Company shall
notify the Warrantholder at least twenty (20) days prior to the closing thereof.
Such notice shall contain such details of the proposed transaction as are
reasonable in the circumstances and a statement that this Warrant Agreement is
expected to expire upon the closing of such transaction.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Preferred Stock issuable upon exercise
of this Warrant Agreement ("Net Issuance") as determined below. If the
Warrantholder elects the Net Issuance method, the Company will issue Preferred
Stock in accordance with the following formula:
X= Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of Preferred
Stock shall mean with respect to each share of Preferred Stock:
-2-
<PAGE>
(a) if the exercise is in connection with an initial public offering
of the Company's Common Stock, assuming conversion of this Preferred Stock
Warrant to Common, and if the Company's Registration Statement relating to such
public offering has been declared effective by the SEC, then the fair market
value per share shall be the initial "Price to Public" specified in the final
prospectus with respect to the offering;
(b) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(i) if the Company's Common Stock is traded on a securities exchange,
the fair market value shall be deemed to be the product of (x) the average of
the closing prices over a twenty-one (21) day period ending three days before
the day the current fair market value of the securities is being determined and
(y) the number of shares of Common Stock into which each share of Preferred
Stock is convertible or into which this Warrant Agreement is exercisable at the
time of such exercise; or
(ii) if the company's Common Stock is actively traded over-the-
counter, the fair market value shall be deemed to be the product of (x) the
average of the closing bid and asked prices quoted on the NASDAQ system (or
similar system) over the twenty-one (21) day period ending three days before the
day the current fair market value of the securities is being determined and (y)
the number of shares of Common Stock into which each share of Preferred Stock is
convertible or into which this Warrant Agreement is exercisable at the time of
such exercise:
(c) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Preferred Stock shall be at the highest price per
share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Preferred Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board of
Directors unless the Company shall become subject to a merger, acquisition or
other consolidation pursuant to which the Company is not the surviving party, in
which case the fair market value of Preferred Stock shall be deemed to be the
value received by the holders of the Company's Preferred Stock pursuant to such
merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall promptly
issue an amended Warrant Agreement representing the remaining number of shares
purchasable hereunder. All other terms and conditions of such amended Warrant
Agreement shall be identical to those contained herein, including, but not
limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
-3-
<PAGE>
(b) Registration or Listing. If any shares of Preferred Stock
-----------------------
required to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the Securities Act of 1933, as amended (the "1933 Act"), as
then in effect, or any similar Federal statute then enforced, or any state
securities law, required by reason of any transfer involved in such conversion),
or listing on any domestic securities exchange, before such shares may be issued
upon conversion, the Company will, at its expense and as expeditiously as
possible, use its best efforts to cause such shares to be duly registered,
listed or approved for listing on such domestic securities exchange, as the case
may be.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange, a subdivision of securities or
otherwise, including, but not limited to any capital reorganization, change any
of the securities as to which purchase rights under this Warrant Agreement exist
into the same or a different number of securities of any other class or classes,
this Warrant Agreement shall thereafter represent the right to acquire such
number and kind of Securities as would have been issuable as the result of such
change with respect to the securities which were subject to the purchase rights
under this Warrant Agreement immediately prior to such combination,
reclassification, exchange, subdivision or other change.
(b) Subdivision or Combination of Shares. If the Company at any time
------------------------------------
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
-4-
<PAGE>
(c) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution.
The Warrantholder shall thereafter be entitled to purchase, at the Exercise
Price resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(d) Antidilution Rights. Additional antidilution rights applicable to
-------------------
the Preferred Stock purchasable hereunder are as set forth in the Company's
Amended and Restated Articles of Incorporation, as amended through the Effective
Date, a true and complete copy of which is attached hereto as Exhibit ___ (the
"Charter"). The Company shall promptly provide the Warrantholder with any
restatement, amendment, modification or waiver of the Charter.
(e) Notice of Adjustments. If: (i) the Company shall declare any
---------------------
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; (iv) there shall be an initial public offering; or (v) there shall be any
voluntary or involuntary dissolution, liquidation or winding up of the Company;
then, in connection with each such event, the Company shall send to the
Warrantholder: (A) at least twenty (20) days' prior written notice of the date
on which the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights (specifying the date on which
the holders of Preferred Stock shall be entitled thereto) or for determining
rights to vote in respect of such Merger Event, dissolution, liquidation or
winding up; (B) in the case of any such Merger Event, dissolution, liquidation
or winding up, at least twenty (20) days' prior written notice of the date when
the same shall take place (and specifying the date on which the holders of
Preferred Stock shall be entitled to exchange their Preferred Stock for
securities or other property deliverable upon such Merger Event, dissolution,
liquidation or winding up); and (C) in the case of a public offering, the
Company shall give the Warrantholder at least twenty (20) days written notice
prior to the effective date hereof.
Each such written notice shall set forth, in reasonable detail, (i)
the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail.
-5-
<PAGE>
postage prepaid, addressed to the Warrantholder, at the address as shown on the
books of the Company.
(f) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (e) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing
all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
and the issuance and delivery of any certificate in a name other than that of
the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of
----------------------
notice to, registration with, or taking of any other action in respect of any
state, Federal or other governmental authority or agency is required with
respect to the execution, delivery and performance by the Company of its
obligations under this Warrant Agreement, except any filing required by
applicable state securities law, which filings will be effective by the time
required thereby.
(d) Issued Securities. All issued and outstanding shares of Common
-----------------
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly
-6-
<PAGE>
issued and are fully paid and nonassessable. All outstanding shares of Common
Stock, Preferred Stock and any other securities were issued in full compliance
with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of (A) 20,000,000
shares of Common Stock, of which 3,433,075 shares are issued and outstanding
and, (B) 12,269,073 shares of Preferred Stock, of which 472,500 shares are
designated Series A Preferred Stock (all of which are issued and outstanding)
1,596,821 shares are designated Series B Preferred Stock (all of which are
issued and outstanding) 1,999,752 shares are designated Series C Preferred Stock
(of which 1,974,749 shares are issued and outstanding) and 3,900,000 shares are
designated Series D Preferred Stock (of which 2,985,952 shares are issued and
outstanding) and 4,300,000 shares are designated Series E Preferred Stock (of
which 1,911,738 shares are issued and outstanding).
(ii) The Company has reserved 1,863,824 shares of Common Stock for
future issuance to employees under the Company's 1988 Stock Option Plan, under
which options to purchase 1,645,506 shares of Common Stock are outstanding.
(iii) There are (a) warrants to purchase an aggregated of 960,548
shares of Common Stock outstanding (b) warrants to purchase an aggregate of
795,238 shares of Series D Preferred Stock outstanding and (c) warrants to
purchase an aggregate of 150,000 shares of Series E Preferred Stock outstanding.
There are subordinated convertible secured promissory notes in the aggregate
principal amount of $750,000 outstanding, which principal amount is convertible
into up to 681,818 shares of Common Stock.
(iv) There are no other options, warrants, conversion privileges or
other rights presently outstanding to purchase or otherwise acquire any
authorized but unissued shares of the Company's capital stock or other
securities of the Company.
(v) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock, other than outstanding contractual rights of first
refusal.
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in
----------------------------------------
this Warrant Agreement and as set forth in the Amended and Restated Investor
Rights Agreement dated as of December ____ 1995, the Company is not, pursuant to
the terms of any other agreement currently in existence, under any obligation to
register under the 1933 Act any of its presently outstanding securities or any
of its securities which may hereafter be issued.
-7-
<PAGE>
(g) Exempt Transaction. Subject to the accuracy of the
------------------
Warrantholder's representations in Section 10 hereof; the issuance of the
Preferred Stock upon exercise of this Warrant will constitute a transaction
exempt from (i) the registration requirements of Section 5 of the 1933 Act, in
reliance upon Section 4(2) thereof, and (ii) the qualification requirements of
the applicable state securities laws.
(h) Compliance with Rule 144. At the written request of the
------------------------
Warrantholder, if the Warrantholder proposes to sell Preferred Stock issuable
upon the exercise of the Warrant in compliance with Rule 144 promulgated by the
Securities and Exchange Commission, the Company shall furnish to the
Warrantholder, within ten days after receipt of such request, a written
statement confirming the Company's compliance with the filing requirements of
the Securities and Exchange Commission as set forth in such Rule, as such Rule
may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the
-------------
Preferred Stock issuable upon exercise of this Warrant is not registered under
the 1933 Act or qualified under applicable state securities laws on the ground
that the issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder
-8-
<PAGE>
thereof in accordance with such registration or (2) such security shall have
been sold without registration in compliance with Rule 144 under the 1933 Act,
or (3) a letter shall have been issued to the Warrantholder at its request by
the staff of the Securities and Exchange Commission or a ruling shall have been
issued to the Warrantholder at its request by such Commission stating that no
action shall be recommended by such staff or taken by such Commission, as the
case may be, if such security is transferred without registration under the 1933
Act in accordance with the conditions set forth in such letter or ruling and
such letter or ruling specifies that no subsequent restrictions on transfer are
required. Whenever the restrictions imposed hereunder shall terminate, as
hereinabove provided, the Warrantholder or holder of a share of Preferred Stock
then outstanding as to which such restrictions have terminated shall be entitled
to receive from the Company, without expense to such holder, one or more new
certificates for the Warrant or for such shares of Preferred Stock not bearing
any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and
--------------
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment, and has the ability to bear the economic
risks of its investment.
(e) Risk of No Registration. The Warrantholder understands that if
-----------------------
the Company does not register with the Securities and Exchange Commission
pursuant to Section 12 of the 1933 Act, or file reports pursuant to Section
15(d), of the Securities Exchange Act of 1934 (the "1934 Act"), or if a
registration statement covering the securities under the 1933 Act is not in
effect when it desires to sell (i) the rights to purchase Preferred Stock
pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon
exercise of the right to purchase, it may be required to hold such securities
for an indefinite period. The Warrantholder also understands that any sale of
its rights of the Warrantholder to purchase Preferred Stock or Preferred Stock
which might be made by it in reliance upon Rule 144 under the 1933 Act may be
made only in accordance with the terms and conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor"
-------------------
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
---------
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the
-9-
<PAGE>
Company on the date hereof. This Warrant Agreement shall be binding upon any
successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court
---------------
proceeding between the Company and the Warrantholder relating hereto, the
prevailing party shall be entitled to attorneys' fees and expenses and all costs
of proceedings incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
California.
(d) Counterparts. This Warrant Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be
-------
given in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at 6111 North River Road, Rosemont, Illinois 60018, attention: James Labe,
Venture Group, cc: Legal Department, attn: General Counsel, (and/or, if by
facsimile, (708) 518-5466 and (708) 518-5088) and (ii) to the Company at 747
Front Street, San Francisco, California 94111, attention: (and/or if by
facsimile, (415) 421-4982) or at such other address as any such party may
subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-
--------
defaulting party may proceed to protect and enforce its rights either by suit in
equity and/or by action at law, including but not limited to an action for
damages as a result of any such default, and/or an action for specific
performance for any default where Warrantholder will not have an adequate remedy
at law and where damages will not be readily ascertainable. The Company
expressly agrees that it shall not oppose an application by the Warrantholder or
any other person entitled to the benefit of this Agreement requiring specific
performance of any or all provisions hereof or enjoining the Company from
continuing to commit any such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of
-----------------------
its Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and
--------
conditions of the respective parties contained herein or made pursuant to this
Warrant Agreement shall survive the execution and delivery of this Warrant
Agreement.
-10-
<PAGE>
(i) Severability. In the event any one or more of the provisions of
------------
this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be
----------
amended by a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions
authorizing the officers of the Company to enter into this Warrant Agreement.
The Company shall also supply such other documents as the Warrantholder may from
time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: PREVIEW TRAVEL, INC.
By: /s/ Preview Travel, Inc.
------------------------
Title: Chief Financial Officer
------------------------
Warrantholder: COMDISCO, INC.
By: /s/ James P. Labe
------------------------
Title: President, Comdisco Ventures Division
-------------------------------------
-11-
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To: _____________________________
(1) The undersigned Warrantholder hereby elects to purchase ________ shares of
the Series E Preferred Stock of Preview Travel, Inc., pursuant to the terms
of the Warrant Agreement dated the ________ day of
__________________________ 19___ (the "Warrant Agreement") between Preview
Travel, Inc. and the Warrantholder, and tenders herewith payment of the
purchase price for such shares in full, together with all applicable
transfer taxes, if any.
(2) In exercising its rights to purchase the Series E Preferred Stock of
Preview Travel, Inc., the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series E Preferred Stock in the name of the undersigned or in such other
name as is specified below.
_____________________________________
(Name)
_____________________________________
(Address)
Warrantholder: COMDISCO, INC.
By:__________________________________
Title:_______________________________
Date:________________________________
-12-
<PAGE>
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned _______________________________________, hereby
acknowledges receipt of the "Notice of Exercise" from Comdisco, Inc., to
purchase _____ shares of the Series E Preferred Stock of Preview Travel, Inc.,
pursuant to the terms of the Warrant Agreement, and further acknowledges that
________ shares remain subject to purchase under the terms of the Warrant
Agreement.
Company:
Preview Travel, Inc.:
By: _________________________________
Title: ______________________________
Date: _______________________________
-13-
<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED the foregoing Warrant Agreement and all rights evidenced
thereby are hereby transferred and assigned to
_______________________________________________________________________________
(Please Print)
whose address is ______________________________________________________________
_______________________________________________________________________________
Dated __________________________________________________________
Holder's Signature _____________________________________________
Holder's Address _______________________________________________
Signature Guaranteed: _________________________________________________________
NOTE: The signature to this Transfer Notice must correspond with the name as
it appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and
those acting in a fiduciary or other representative capacity should
file proper evidence of authority to assign the foregoing Warrant
Agreement.
-14-
<PAGE>
Exhibit 10.13
LEASE
BETWEEN
BLUM'S BUILDING ASSOCIATES
LANDLORD
AND
PREVIEW MEDIA, INC.
TENANT
EFFECTIVE SEPTEMBER 15, 1990
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. PARTIES................................................................. 1
1.1 Names............................................................. 1
2. PREMISES................................................................ 1
2.1 Description....................................................... 1
3. TERM.................................................................... 1
3.1 Period............................................................ 1
3.2 Possession........................................................ 1
3.3 Cancellation...................................................... 1
(a) Code Requirements............................................ 1
(b) Embarcadero Freeway.......................................... 1
4. RENT.................................................................... 2
4.1 Amount and Payment................................................ 2
4.2 Late Charge....................................................... 2
5. RENTAL ADJUSTMENT....................................................... 2
5.1 General........................................................... 2
5.2 Adjustment for Operating Expenses................................. 3
(a) Adjustment.................................................... 3
(b) Operating Expenses............................................ 3
(c) Calculation................................................... 4
(d) Payment....................................................... 4
5.3 Adjustment for Taxes.............................................. 4
6. CONSTRUCTION ON PREMISES................................................ 5
6.1 Condition of Premises............................................. 5
6.2 Construction...................................................... 6
6.3 Cost of Construction.............................................. 6
6.4 Landlord's Improvements........................................... 6
6.5 Fourth Floor Improvements......................................... 7
6.6 Personal Property on Premises..................................... 7
7. USES.................................................................... 7
7.1 Third Floor....................................................... 7
7.2 Use of Roof....................................................... 8
8. SERVICES AND UTILITIES.................................................. 8
8.1 Landlord's Obligation to Furnish.................................. 8
8.2 Payment........................................................... 9
</TABLE>
<PAGE>
TABLE OF CONTENTS
-----------------
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.3 Interruptions..................................................... 9
9. TAXES PAYABLE BY TENANT................................................. 10
10. COMPLIANCE WITH LAW.................................................... 10
11. ALTERATIONS............................................................ 10
12. REPAIR................................................................. 11
13. LIENS.................................................................. 11
14. INDEMNIFICATION........................................................ 12
15. INSURANCE.............................................................. 12
16. SUBROGATION............................................................ 13
17. ASSIGNMENT AND SUBLETTING.............................................. 13
18. RULES AND REGULATIONS.................................................. 14
19. ENTRY BY LANDLORD...................................................... 14
20. INSOLVENCY OR BANKRUPTCY............................................... 14
21. DEFAULT................................................................ 15
22. LANDLORD'S RIGHT TO CURE DEFAULT....................................... 16
23. DAMAGE BY FIRE OR CASUALTY............................................. 16
23.1 Partial Damage - Insured......................................... 16
23.2 Partial Damage - Uninsured....................................... 17
23.3 Total Destruction................................................ 17
23.4 Damage Near End of the Term...................................... 17
23.5 Landlord's Obligations........................................... 17
24. EMINENT DOMAIN......................................................... 18
25. SURRENDER OP PREMISES.................................................. 18
26. HOLDING OVER........................................................... 18
27. SALE BY LANDLORD....................................................... 19
28. ESTOPPEL CERTIFICATE................................................... 19
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
-----------------
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
29. SUBORDINATION AND ATTORNMENT........................................... 19
30. WAIVER................................................................. 20
31. LANDLORD'S DEFAULT..................................................... 21
32. ATTORNEYS' FEES........................................................ 21
33. NOTICES................................................................ 21
34. DEFINED TERMS AND HEADINGS............................................. 21
35. TIME AND APPLICABLE LAW................................................ 21
36. SUCCESSORS AND ASSIGNS................................................. 22
37. ENTIRE AGREEMENT....................................................... 22
38. SEVERABILITY........................................................... 22
39. QUIET ENJOYMENT........................................................ 22
40. LIGHT AND AIR.......................................................... 22
41. OPTION TO RENEW........................................................ 23
41.1 Option to Renew.................................................. 23
41.2 Fair Market Rental Value......................................... 23
42. OFFER.................................................................. 24
44. BUILDING IDENTITY...................................................... 24
45. HAZARDOUS MATERIAL..................................................... 24
</TABLE>
EXHIBIT C - TENANT'S IMPROVEMENTS
- ---------
-iii-
<PAGE>
L E A S E
---------
1. PARTIES:
-------
1.1 Names. This Lease is made and entered into on the date below
-----
written in San Francisco, California, by and between CECILIA DODGE MACKIE;
EDWARD J. CONNER; HERBERT P. McLAUGHLIN, JR.; and DAVID D. DODGE AND STEPHEN W.
DODGE, AS TRUSTEES UNDER THE WILL OF H. NEWELL DODGE, d/b/a BLUM'S BUILDING
ASSOCIATES, Landlord, and PREVIEW MEDIA, INC., Tenant.
2. PREMISES:
--------
2.1 Description. Landlord hereby leases to Tenant and Tenant hereby
-----------
rents from Landlord the real property, hereinafter called "premises," consisting
of approximately 16,789 rentable square feet the third floor of 747 Front
Street, San Francisco, California. The term "Building" for purposes of this
lease shall include common areas and the structure at 747 Front Street, San
Francisco, California.
3. TERM:
----
3.1 Period. The term of this lease shall be for a period of five (5)
------
years, commencing on September 15, 1990.
3.2 Possession. If Landlord is unable to deliver possession of the
----------
premises as of September 15, 1990 as a result of causes beyond its reasonable
control, Landlord shall not be liable for any damage caused for failing to
deliver possession, and this lease shall not be void or voidable. Tenant shall
not be liable for rent until Landlord delivers possession of the premises to
Tenant.
3.3 Cancellation. Notwithstanding anything herein to the contrary,
------------
Tenant may cancel this lease upon the happening of either of the following
events:
(a) Code Requirements. In the event that the City of San
-----------------
Francisco requires installation of sprinklers, handicapped access or Title 24
energy compliance improvements in the third floor by reason of Tenant's proposed
use, Tenant may cancel this lease provided that such option may be exercised by
Tenant by written notice to Landlord no later than November 15, 1990, such
improvements specified in this subparagraph cost in excess of $100,000, and
Landlord, though requested by written notice from Tenant to pay for such
additional improvements, has not within fifteen (15) days after such request
agreed to assume such cost.
(b) Embarcadero Freeway. In the event that the Embarcadero
-------------------
Freeway in the area bounded by Broadway, Front, Vallejo and Battery Streets is
removed, restored, substantially repaired or reconfigured during the term of
this lease, Tenant shall have an option to cancel this lease if the vibration
and/or noise caused by such work during normal working hours
-1-
<PAGE>
(8:00 a.m. to 5:00 p.m.) over an extended period of time (at least more than one
month) exceeds the noise regulations in the SAN FRANCISCO POLICE CODE, Article
29 and substantially interfere with the film/video production and recording
operations of Preview Media, Inc. and/or prevent access to the Building by
Preview Media, Inc. for such extended period. This cancellation provision shall
apply only to that portion of the premises occupied by Preview Media, Inc.,
itself and any of its subtenants with which it shares non-separately demised
space and is personal to Preview Media, Inc. and is not for the benefit of any
subtenant or assignee. It is the interference with the business of Preview
Media, Inc. only to which this subparagraph applies. If Tenant cancels this
lease it shall at Landlord's option assign to Landlord any subleases of the
whole premises or separately demised subleased portions of the premises and
agrees to include a provision allowing such assignments in any such sublease.
The parties intend this cancellation provision to be the sole remedy for Tenant
in the event of such freeway work. Tenant's cancellation shall be effective on
the date of such notice and shall be treated in the same manner as an expiration
on the normal expiration date of this lease.
4. RENT:
----
4.1 Amount and Payment. Tenant shall pay to Landlord as rent, in
------------------
advance, without deduction, setoff, prior notice or demand, the sum of
$12,591.75 per month for the period October 15, 1990 through September 14, 1991;
$14,500 per month for the period September 15, 1991 through September 14, 1992;
$18,500 per month for the period September 15, 1992 through September 14, 1993;
$22,500 per month for the period September 15, 1993 through September 14, 1994;
and $23,784.42 per month for the period September 15, 1994 through September 14,
1995. Notwithstanding the foregoing, if possession shall not be delivered to
Tenant by September 15, 1990, the first free month's rental shall be moved from
September 15 to October 14, 1990, to the first 30 days after delivery of the
premises. All rental shall be paid at Suite 250, 27 Maiden Lane, San Francisco
or in such other place or to such other person as Landlord may from time to time
designate in writing. If the date of commencement or expiration of the term of
this lease occurs on a day other than on the first day of a calendar month,
rental for the first and last month shall be prorated upon the number of lease
days in that particular month. The payments referred to in this Paragraph 4.1
shall be known as "base rental." All payments of any sums due from Tenant to
Landlord under this lease shall be considered rental.
4.2 Late Charge. Failure to pay rental hereunder more than 5 days
-----------
after date when it is due shall result in a late charge to Tenant of $300 for
each monthly rental not paid when due, in addition to interest thereon at the
rate of twelve per cent (12%) per annum.
5. RENTAL ADJUSTMENT:
-----------------
5.1 General. The parties hereto recognize that taxes and other
-------
operating expenses of the Building and common areas may vary from year to year,
and agree that if there should be an increase in taxes and/or operating
expenses, Tenant shall pay, as additional rent, a proportionate share of any
such increase, and if there should be a decrease therein, Tenant's additional
rental shall be reduced by the proportionate share of the decrease, all as set
forth
-2-
<PAGE>
below; provided, however, that despite any decreases allowed to Tenant
hereunder, the rental paid by Tenant shall never be less than the base rental
set forth in Paragraph 4.1.
5.2 Adjustment for Operating Expenses.
---------------------------------
(a) Adjustment. Commencing with the calendar year 1992, the rent
----------
payable by Tenant for each calendar year shall be adjusted upward or downward by
the amount that Tenant's proportionate share of operating expenses for each
calendar year referred to as the "comparison year" increases or decreases from
Tenant's proportionate share of the operating expenses for the immediately
preceding calendar year, referred to as the "base year," provided that in no
event shall there be any adjustment below the amount of Tenant's proportionate
share of operating expenses for the first base year. The first base year shall
be the calendar year 1991. If in any base year or comparison year the average
of the rentable square feet of the Building actually occupied by tenants is less
than 95% of the total rentable square feet of the Building, operating expenses
shall be adjusted to equal Landlord's reasonable estimate of operating expenses
had there been average occupancy of 95% of the total rentable square feet of the
Building for the year. Landlord's reasonable estimate of such expenses shall be
final and binding on Tenant.
(b) Operating Expenses. The term "operating expenses" as used
------------------
herein shall include all actual direct costs of operation, maintenance and
management of the Building, including common areas serving the Building, as
determined by generally accepted accounting practices. By way of illustration
but not limitation, operating expenses shall include the cost or charges for the
following items: heat; light; water and sewer charges; power; waste disposal;
janitorial services; window cleaning; materials and supplies for the building;
equipment and tools; security; elevators; service agreements on equipment and
their maintenance and repairs; insurance premiums for the same type of coverage
as presently carried in commercially reasonable amounts; licenses, permits and
inspection fees; wages and salaries of employees and agents for work related to
the Building; employee benefits and payroll taxes; ground rent increases;
management fees (which may, however, be paid to Landlord at commercially
prevailing rates); maintenance of the Building and grounds; depreciation on
personal property; the cost of contesting the validity or applicability of any
governmental enactments which may affect operating expenses; capital
expenditures required to comply with governmental laws, rules and regulations
for energy, conservation or environmental purposes; accounting expenses related
to the ownership, operation and maintenance of the Building, but not related
solely to the ownership entity; legal expenses, but not including those for
disputes with other tenants, negotiations regarding other leases, or those
associated with the sale or financing of the Building. Such expenses shall not
include capital expenses, fines (except those caused by Tenant or its agents,
employees or invitees); expenses for which Landlord is directly reimbursed by
another tenant or third party; real estate commissions and tenant improvements
for other tenants; excess energy costs resulting from other tenants' use after
normal business hours; deductible portions of any insured loss and any
underlying ground rent, and costs of correcting any Code violations not caused
by Tenant or Tenant's use.
-3-
<PAGE>
For the purposes of this Lease, operating expenses shall not include
taxes covered under subparagraph 5.3 below, interest expenses, advertising
costs, leasing commissions, depreciation on the Building itself, or the cost of
capital expenditures, provided, however, that in the event Landlord makes
capital improvements which have the effect of reducing operating expenses during
the lease term, Landlord may amortize its investment in said improvements as an
operating expense in accordance with GAAP provided that such amortization is not
at a rate greater than the anticipated savings in the operating expenses.
(c) Calculation. Tenant's proportionate share of the operating
-----------
expenses shall be twenty-five percent (25%).
For purposes of this paragraph and rental calculation, Tenant's
rentable square feet shall be 16,789 and no subsequent calculation which
discloses any variation therefrom in the Premises or the Building shall alter
rental due hereunder or otherwise affect any calculation or provision of this
lease.
(d) Payment. Within a reasonable time after the end of each
-------
calendar year, Landlord shall compute the amount of adjustment, if any, for the
prior year. The difference between the amount of the adjustment and the amount
of rent adjustment actually paid by Tenant for the prior year shall be payable
in full at the time the next monthly rent payment is due. If there is an amount
owing by Tenant, the amount owing shall be added to the monthly rent payment and
if there is an amount owing by Landlord it shall be offset against the next
monthly rent payment coming due; and if Landlord has estimated more than 10%
greater expenses than actually experienced, Landlord shall pay Tenant interest
at 12% on the sums so offset. In addition, at the time of the next monthly rent
payment after the amount of adjustment is computed, 1/12 of the amount of the
adjustment multiplied by the number of monthly rent payments made to date in the
then current calendar year shall be added to the next monthly payment if the
adjustment is upward or subtracted from the next rent payment coming due if the
adjustment is downward. The next monthly rent payment also shall be adjusted by
1/12 of the amount of the adjustment, with the amount of monthly rent as
adjusted to continue each month thereafter until the rent is adjusted the
following year pursuant to this paragraph. Tenant or its representatives at
Tenant's expense may review Landlord's operating records for the Building no
more than once each calendar year. If such review discloses an overcharge to
Tenant of more than 5%, Landlord will pay the reasonable charges of such review.
5.3 Adjustment for Taxes. Tenant shall pay to or receive a credit
--------------------
from Landlord for an amount equal to its proportionate share of any increase or
decrease in direct taxes paid or incurred by Landlord in any tax year above or
below the direct taxes paid or incurred by Landlord during the base year, said
base year being that tax year in which the lease begins. On or after November
1st of any tax year subsequent to the base year, Landlord shall provide notice
to Tenant of the amount of direct taxes for said tax year and the amount of any
increase or decrease over the base tax year payable by Tenant. In the event of
any increase in such direct taxes, Tenant shall pay one-half of its share of
such increase to Landlord on or before December 10th of the same tax year, and
Tenant shall pay the remaining one-half of its share of such increase on or
before April 10th of the same tax year. In the event of a decrease in the
-4-
<PAGE>
amount of direct taxes for such tax year over the base tax year, Tenant shall be
entitled to a credit for its share of the amount of such decrease against the
rental next becoming due (unless Tenant is in default in the performance of any
of the terms, covenants or conditions of this Lease or in the payment of any
rental hereunder). The determination and statement of the direct taxes payable
by Tenant shall be made and certified by Landlord. Tenant shall have the right
to audit such statement at its expense.
The term "direct taxes" as used herein shall include all real property
taxes on the Building, the land on which the Building is situated, and the
various estates in the Building and the land, including, but not limited to, all
taxes payable by Landlord by reason of its ownership of the Building and the
leases (other than net income taxes) whether or not now customary or within the
contemplation of the parties hereto, all real estate taxes or personal property
taxes and other taxes, charges and assessments which are levied solely with
respect to the Building and any improvements, fixtures and equipment and all
other property of Landlord, real or personal, located in the Building used in
connection with the operation of the Building and the land upon which they are
situated, and shall also include any taxes which shall be in lieu of real estate
or personal property taxes. Tenant shall not be required to pay any municipal,
county, state or federal income or franchise taxes of Landlord, or any
succession, inheritance or transfer taxes of Landlord. If at any time after
execution of this Lease and during the term the laws concerning the methods of
real property taxation prevailing at the commencement of the term are changed so
that a tax or excise on rents or any other such tax, however described, is
levied or assessed against Landlord as a direct substitution in whole or in part
for any real property taxes, tenant shall pay before delinquency (but only to
the extent that it can be ascertained that there has been a substitution and
that as a result Tenant has been relieved from the payment of real property
taxes it would otherwise have been obligated to pay) the substitute tax or
excise on rents. "Direct Taxes" shall include the cost to Landlord of
contesting the amount or validity or applicability of any of the above-mentioned
taxes. Net recoveries through protest, appeals or other actions taken by
Landlord in its discretion, after deduction of all costs and expenses, including
reasonable attorneys and other fees, shall be deducted from direct taxes for the
year of receipt. Tenant shall not be obligated to pay Landlord's estate,
inheritance or death taxes or taxes due to internal sale, refinance or voluntary
restructure of the entity owning the Building.
6. CONSTRUCTION ON PREMISES:
------------------------
6.1 Condition of Premises. Tenant acknowledges that it has
---------------------
thoroughly inspected the premises with the assistance of a licensed general
contractor and such other experts as it deems necessary and accepts the premises
"as is." Landlord makes no warranty whatsoever with respect to the condition of
the premises or that any utility services provided to the premises are in form
or amount suitable for Tenant's use except as follows: (a) the electrical,
heating, ventilation and air conditioning services shall be in working order
upon delivery of the premises and with such capacity as would be adequate for
general office use; (b) the premises will be delivered broom clean; (c) fallen
tiles will be replaced; (d) all light lenses will be repaired and lights and
light bulbs (40 watt) in working order; and (e) will have all windows washed
inside and out within 60 days after Tenant's occupancy. Any punch list items
will be completed by Landlord upon notice by Tenant. Tenant acknowledges that
it has received reviewed and
-5-
<PAGE>
approved a report from Peter Culley & Associates, structural engineers, with
reference to the Building, but that Landlord shall have no responsibility for
the accuracy, completeness or contents of that report. Landlord will remove the
existing MOJO sign on the outside of the Building.
6.2 Construction. The parties acknowledge that Tenant intends to
------------
improve the premises after the delivery of possession. All such improvements
shall be made by a licensed general contractor. Prior to the commencement of
any construction or demolition on the premises, Tenant shall submit to Landlord
for its reasonable approval: (i) the name of its proposed licensed general
contractor, (ii) plans and specifications for all proposed work, and (iii) any
change orders. Prior to the commencement of any construction, Tenant's general
contractor shall furnish a full payment and performance bond in form and by a
bonding company reasonably satisfactory to Landlord, which bond shall name
Landlord as an additional insured. Landlord's approval of such plans and
specifications expresses no opinion or warranty that same are suitable,
practical or in conformity with Code. Within 15 days of Tenant's receipt of
bills, invoices and statements, Tenant shall pay the same in full directly to
the contractor or subcontractors to whom payment is due, and Tenant shall take
all steps reasonably necessary to obtain appropriate mechanic's lien releases
when making such payments; provided, however, Tenant shall have the right to
reasonably contest the accuracy or legitimacy of said bills, invoices and
statements by refusing to make payment when in good faith it determines that
payment is not due in whole or in part. In the event that Tenant does dispute
or contest such bills, it shall, promptly upon the written request of Landlord,
record at Tenant's sole cost and expense a Mechanic's Lien Release Bond to free
the premises from the applicable mechanic's lien. Any improvements or
alterations commenced by Tenant shall be diligently pursued to completion.
Landlord may require Tenant to remove its improvements except those improvements
outlined on Exhibit C and restore the premises to their present condition,
normal wear and tear excepted, at the end of the lease term, all such work to be
completed prior to the last day of the term, if Landlord notifies Tenant that
such improvement may need to be removed at the time Landlord approves plans
therefor. Tenant may remove any heating, water, ventilation, electrical or air
conditioning machinery or systems it installs provided that upon such removal
Tenant shall repair any damage caused by such removal and shall restore the
remaining Building system to a coherent usable system in the condition it was in
at commencement of the term hereof, including balancing any system left
unbalanced by such removal.
6.3 Cost of Construction. All cost of construction shall be borne
--------------------
by Tenant. Construction costs shall include all direct and indirect costs of
construction including, without limitation, permits, contractors' fees,
materials, architects' fees (except for Landlord's in-house architect),
utilities' fees and charges, any additional air conditioning capacity, all costs
of complying with Code and the San Francisco Commercial Energy Conservation
Ordinance for work within the premises, and all other costs associated with
improving the premises from their present state or making any other change or
improvement to the Building or its services required by Tenant's use or
improvements.
6.4 Landlord's Improvements. Landlord may enter upon the premises
-----------------------
from time to time to make those improvements to the premises or the Building
which it is obligated or
-6-
<PAGE>
wishes to make including improvements for the benefit of other tenants. Landlord
will make such improvements outside of normal business hours at Tenant's request
if Tenant pays for all additional costs occasioned thereby. Landlord may place
columns or ducts in the premises and Tenant's rental shall be reduced
proportionately on a per square foot basis for any space in the premises taken
by Landlord. Notwithstanding the foregoing, Landlord may not take more than a
total of 200 square feet nor make any such improvements if such would
substantially interfere with Tenant's use of the premises after their
improvement by Tenant. Any such improvements shall be made by Landlord in a
manner such as is reasonably calculated to disturb Tenant's use and occupancy of
the premises the least and upon Tenant's reasonable approval as to location.
Landlord shall finish such columns or ducts in a manner consistent with Tenant's
decor.
6.5 Fourth Floor Improvements. The parties acknowledge that Landlord
-------------------------
is in the process of leasing the fourth floor of the building and that some
demolition and construction involving disruptive noise may occur in the future
from such construction devices as jackhammers and concrete guns. Landlord and
Tenant will cooperate reasonably so as to schedule such work and Tenant's
production recording so as to interfere as little as reasonably possible with
Tenant's use of the Premises. Landlord will schedule such disruptive work as
jackhammers and concrete guns for no more than four hours per day during normal
working hours for no more than 25 week days and will attempt to coordinate such
work with Tenant's reasonable requirements. Such work in addition to those
hours shall be done outside of normal working hours. Tenant may require all
such work to be done outside of normal working hours if it pays all costs
occasioned thereby including increased labor costs. One elevator of the
Building may be dedicated to construction during such work.
6.6 Personal Property on Premises. Landlord cannot warrant title to
-----------------------------
any personal property on the premises which was abandoned by the previous
tenant, but Tenant may use and incorporate into its construction or demolish any
existing fixtures on the premises. Any such demolition of any portion of the
premises or fixtures shall be undertaken only as part of construction by Tenant
of its improvements.
7. USES:
----
7.1 Third Floor. The premises shall be used solely for general
-----------
office purposes and film and video production and recording and for no other use
or purpose without the prior written consent of Landlord. Tenant shall not do or
suffer anything to be done in or about the premises, nor shall Tenant bring or
allow anything to be brought into the premises, which will in any way increase
the rate of any fire insurance or other insurance upon the Building or its
contents, cause a cancellation of said insurance or otherwise affect said
insurance in any manner. Tenant also shall not do or suffer anything to be done
in or about the premises which will in any way obstruct or interfere with the
rights of other occupants of the Building or injure or annoy said occupants, nor
shall Tenant use or suffer the premises to be used for any unlawful purposes.
In no event shall Tenant cause or suffer to be caused any nuisance in or about
the premises, and no loudspeakers or similar devices except a paging system
shall be used without the prior written approval of Landlord. Tenant further
agrees not to commit or suffer to be committed any waste
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in or upon the premises. The provisions of this paragraph are for the benefit of
Landlord only and shall not be construed to be for the benefit of any other
tenant or occupant of the Building.
7.2 Use of Roof. Tenant is hereby granted the right to use that
-----------
portion of the roof outlined in red on Exhibit A hereto for use solely for the
---------
installation, maintenance and use of a communications antenna/dish, the
dimensions of which shall be no larger than six feet in diameter and the height
of which shall be no greater than 10 feet, including all supporting structures.
Landlord makes no representation or warranty as to whether the roof of the
building is suitable for construction and support of such an intended use, nor
whether such an intended use is in compliance with all applicable governmental
regulations or could be objected to by any member of the public or adjoining
landowners. Prior to the commencement of any construction with respect to such
an antenna/dish, Tenant shall obtain and keep in force throughout its use of the
roof area all necessary permits, approvals and permissions of any and all
governmental and regulatory agencies and authorities and any other persons
necessary for such maintenance, use and operation of such facilities on the roof
and shall provide Landlord with written evidence of such compliance upon
Landlord's request. Prior to commencement or any construction for use of the
roof as contemplated herein, Tenant shall submit plans and specifications to
Landlord for Landlord's approval, which approval shall not be unreasonably
withheld; provided, however, at Landlord's option Tenant shall pay the fee of
Landlord's structural engineer to review such plans for Landlord, not to exceed
$1,000.
Tenant shall also have the right at its sole expense to run electrical
conduits from its premises on the third floor to the roof through the existing
stack of electrical, telephone or janitorial stacks or closets in the Building.
Such installation shall be done only in compliance with all applicable codes and
with Landlord's prior written approval, which shall not be unreasonably
withheld. At the termination of the lease for any reason, Tenant shall remove
any and all installations on the roof, repair the roof, and remove any and all
electrical or other installations as described above, returning the premises and
all portions of the Building and the roof to their condition prior to any
installation by Tenant. Tenant shall paint the roof installations in such color
as directed by Landlord provided paint does not interfere with these
installations. Tenant shall be responsible for the cost of any electricity used
or consumed in connection with the use of the roof premises. Tenant shall be
responsible for any damage to the roof or Building caused by its use,
maintenance, construction or service of these facilities, and for that of its
employees, agents, contractors, and invitees, and Tenant shall use due care and
its best efforts to prevent damage and/or leaks from occurring in the roof by
reason of its activities. Tenant does hereby expressly indemnify, hold
harmless, protect and defend Landlord for and against any and all costs,
expenses, liabilities, claims and attorneys' fees suffered or claimed against
Landlord by reason of Tenant's installation and use on the roof, including,
without limitation, claims by third parties of leaks caused by Tenant's use of
the roof.
8. SERVICES AND UTILITIES:
----------------------
8.1 Landlord's Obligation to Furnish. Provided that Tenant is not in
--------------------------------
default under the terms and conditions of this Lease, and subject to the
provisions elsewhere herein contained and to the rules and regulations of the
Building, Landlord agrees to furnish the
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premises with heat, water, air conditioning and electricity Monday through
Friday 7:00 a.m. through 6:00 p.m. (holidays excepted) in an amount reasonably
required in Landlord's judgment for the comfortable occupation of the premises.
Landlord shall supply elevator service, which shall mean service by non-attended
automatic elevator around the clock, and janitorial service Monday through
Friday (holidays excepted). Janitorial services will be provided pursuant to
minimum specifications or their equivalent as attached as Exhibit B hereto and
---------
shall include window washing twice each year. Landlord shall furnish Tenant with
chilled water not to exceed [quantity and rate of flow to be reasonably mutually
agreed upon], provided that Tenant shall be responsible for all costs and
construction necessary for the delivery of the water to the premises but not for
the cost of the water itself. Tenant shall not interfere with the normal
operation of the Building systems by tapping into such water supply. Tenant may
at its expense operate either an after hours chilled water pump or operate
Landlord's system.
Landlord will maintain the common areas in a clean and efficient
manner. Tenant acknowledges that Landlord will not provide lobby guard or
security service outside normal working hours and assumes the risk of using the
Building outside such hours in the absence of a guard. At Tenant's request and
expense, Landlord will provide guard service for expanded hours. Landlord will
cause the windows of the premises to be washed at least annually.
8.2 Payment. In the event any Building services or utilities are
-------
used in excess of the above by reason of longer hours, more days, or use
different than other general office tenants of the Building, Tenant shall pay
monthly for such upon presentation of invoice. Tenant shall pay to Landlord the
cost of any meters and their installation and maintenance, any additional cost
incurred by Landlord in accounting for the resources consumed, and for the
amount of the additional resources consumed at the rates charged by the local
public utility or agency furnishing the same. Any sums payable under this
paragraph shall be considered additional rent and may be added to any
installment of rent thereafter becoming due, and Landlord shall have the same
remedies for a default in payment of such sum as for a default in the payment of
rent. At Landlord's option, Tenant will either pay the reasonable cost for
installation of separate meters for consumption of utilities on the premises or
will reimburse Landlord for the cost of an annual audit of such use by an
electrical engineer, whose determination shall be binding as to Tenant's
additional usage. Tenant shall pay the cost or estimated cost thereof monthly.
8.3 Interruptions. Landlord shall use reasonable efforts to remedy
-------------
any interruption in the furnishing of services and utilities. However, Landlord
shall not be liable for any failure to provide or any reduction in any of the
above services or utilities if such failure or reduction is caused by the making
of repairs or improvements to the premises or to the Building, the installation
of equipment, Acts of God or the elements, labor disturbances of any character,
or any other accidents or conditions whatsoever beyond the reasonable control of
Landlord, or rationing or restrictions on the use of said services and utilities
due to energy shortages or other causes, whether or not any of the above result
from acts or omissions of Landlord; provided, however, that if such interruption
makes it impossible for Tenant to occupy and use the premises for its business
for more than five consecutive business days, Tenant may thereafter be entitled
to a pro rata rental reduction until such interruption is remedied.
--- ----
Furthermore, Landlord shall be
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entitled to cooperate voluntarily in a reasonable manner with the efforts of
national, state or local governmental bodies or utilities suppliers in reducing
energy or other resources consumption and such cooperation shall under no
circumstances allow Tenant to rental reduction.
9. TAXES PAYABLE BY TENANT:
-----------------------
Tenant shall pay before delinquency any and all taxes levied or
assessed and which become payable by Landlord (or Tenant) after execution of and
during the term of this Lease (excluding, however, state and federal personal or
corporate income taxes measured by the income of Landlord from all sources,
capital stock taxes, and estate and inheritance taxes), whether or not now
customary or within the contemplation of the parties hereto, which are based
upon, measured by or otherwise calculated with respect to: (a) the gross or net
rental income of Landlord under this Lease, including, without limitation, any
gross receipts tax levied by any taxing authority, or any other gross income tax
or excise tax levied by any taxing authority with respect to the receipt of the
rental payable hereunder; (b) the value of Tenant's equipment, furniture,
fixtures or other personal property located in the premises; (c) the possession,
lease, operation, management, maintenance, alteration, repair, use or occupancy
by Tenant of the premises or any portion thereof; (d) the value of any leasehold
improvements, alterations or additions made in or to the premises regardless of
whether title to such improvements, alterations or additions shall be in Tenant
or Landlord; or (e) this transaction or any document to which Tenant is a party
creating or transferring an interest or an estate in the premises.
10. COMPLIANCE WITH LAW:
-------------------
Tenant shall not do or suffer anything to be done in or about the
premises which will in any way conflict with any law, statute, ordinance or
other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated. At its sole cost and expense, Tenant shall
promptly comply with all said governmental measures and also with the
requirements of any board of fire underwriters or inspectors or other similar
body now or hereafter constituted to deal with the condition, use or occupancy
of the premises by Tenant, excluding changes not related to or affected by
Tenant's alterations, use, additions or improvements. The judgment of any court
of competent jurisdiction or the admission of Tenant in any judicial action,
regardless of whether Landlord is a party thereto, that Tenant has violated any
of said governmental measures or requirements shall be conclusive of that fact
as between Landlord and Tenant.
11. ALTERATIONS:
-----------
Other than the construction specified in paragraph 6.2, Tenant shall
not make or suffer to be made any alterations, additions or improvements to the
premises or any part thereof, including the attachment of any fixtures or
equipment, without obtaining Landlord's prior written consent, which consent
shall not be unreasonably withheld. When applying for such consent, Tenant
shall furnish complete plans and specifications for such alterations, additions
or improvements. All alterations, additions, fixtures and improvements, whether
temporary or permanent in character, made in or upon the premises either by
Landlord or Tenant, shall at once become part of the realty and belong to
Landlord and, at the end of the term hereof, shall remain
-10-
<PAGE>
on the premises without compensation of any kind to Tenant except as herein
provided in this Lease, except as otherwise provided in this Lease. Movable
furniture and equipment shall remain the property of Tenant. Notwithstanding any
other provision contained in this Lease, Tenant agrees that it shall, upon
Landlord's written request, at its sole cost and expense, promptly remove any
alterations, additions, fixtures or improvements designated by Landlord to be
removed and repair any damage to the premises resulting from such removal if
Landlord has designated that such items may need to be removed at the time it
gives approval for their installation. Such removal shall be made prior to the
expiration or termination of this lease if Landlord gives Tenant such written
request no less than thirty (30) days prior to the expiration or termination of
this Lease. All work done by or for Tenant costing in excess of $10,000 per set
of improvements shall be performed by a licensed general contractor who shall
provide a full payment and performance bond naming both Landlord and Tenant as
insured.
12. REPAIR:
------
By taking possession of the premises, Tenant accepts the premises as
being in the condition in which Landlord is obligated to deliver them. Tenant
shall at all times during the term of this Lease, at its sole cost and expense,
keep the premises in good and sanitary order, condition and repair, damage
thereto by fire, earthquake, Act of God or the elements excepted. To the extent
allowed by law, Tenant hereby waives all benefits of and rights under California
Civil Code Sections 1932(1), 1941 and 1942 and under any similar law, statute,
or ordinance now or hereafter in effect. Except as provided for in this Lease,
upon the expiration or sooner termination of this Lease, Tenant shall surrender
the premises to Landlord, together with all alterations, additions, fixtures,
improvements and repairs which have been made thereto, in the same condition as
delivered, ordinary wear and tear and damage by fire, earthquake, Act of God or
the elements excepted. Landlord has no obligation to alter, add to, improve,
repair, remodel or paint the premises. Tenant also acknowledges that Landlord
has made no representations regarding the condition of the premises or the
Building and, without limiting the generality of the foregoing, Tenant
acknowledges that Landlord has made and is making no representation or warranty,
either expressed or implied with respect to sound transfer for any reason.
13. LIENS:
-----
Tenant shall not permit any mechanics', materialmen's or other liens
to be filed against the real property of which the premises form a part nor
against the Tenant's leasehold interest in the premises. The Landlord shall have
the right at all reasonable times to post and keep posted on the premises any
notices which it deems necessary for protection from such liens and Tenant shall
give Landlord at least ten (10) days' prior notice of the date of commencement
of any construction on the premises in order to permit the posting of such
notices. If any such liens are filed, Landlord may after notice, without
waiving its rights and remedies based on such breach by Tenant and without
releasing Tenant from any obligations, cause such liens to be released by any
means it deems proper, including payment in satisfaction of the claim giving
rise to such lien. Tenant shall pay to Landlord at once, without notice or
demand, any sum paid by Landlord to remove such liens together with Landlord's
costs and attorneys' fees and interest at the rate of fifteen percent (15%) per
annum from the date of payment.
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<PAGE>
14. INDEMNIFICATION:
---------------
As material part of the consideration for this Lease, Tenant hereby
assumes all risks and waives all claims against Landlord for any damage to any
property or any injury to or death of any person in or about the premises or the
Building arising at any time and from any cause whatsoever other than by reason
of the negligent or willful act of Landlord, or its agents, or employees or
contractors. Tenant agrees to hold Landlord harmless against all claims or
liability for any injury or damage to any person or property whatsoever: (a)
occurring in, on, or about the premises or any part thereof; and (b) occurring
in, on, or about any facilities (including without limitation to the generality
of the term "facilities," elevators, stairways, passageways or hallways) the use
of which Tenant may have in conjunction with other tenants of the Building, when
such injury or damage shall be caused in part or in whole by the act, neglect,
fault of, or omission of any duty with respect to the same, by Tenant, its
agents, servants, employees or invitees. Tenant further agrees to indemnify and
save harmless the Landlord against and from any and all claims by or on behalf
of any person, firm or corporation, arising from the conduct or management of
any work or thing whatsoever done by the Tenant in or about or from transactions
of the Tenant concerning the premises, and will further indemnify and save the
Landlord harmless against and from any and all claims arising from any breach or
default on the part of Tenant in the performance of any covenant or agreement on
the part of the Tenant to be performed pursuant to the terms of this Lease, or
arising from any act or negligence of the Tenant, or any of its agents,
contractors, servants, employees or licensees, and from and against all costs,
counsel fees, expenses and liabilities incurred in connection with any such
claim or action or proceeding brought thereon. Furthermore, in case any action
or proceeding is brought against Landlord by reason of any such claims or
liability, Tenant agrees to defend such action or proceeding at Tenant's sole
expense. The provisions of this paragraph shall survive the expiration or
termination of this Lease with respect to any claims or liability arising prior
to such expiration or termination. Landlord shall indemnify Tenant against all
claims for injury to persons or property arising out of the negligence or
willful act of Landlord.
15. INSURANCE:
---------
Tenant shall to purchase at its own expense and keep in force during
the term of this Lease a policy of comprehensive liability insurance, including
public liability and property damage, in the amount of $500,000 for property
damage and $500,000 per person and $1,000,000 per occurrence for personal
injuries or deaths of persons occurring in or about the premises. Said policy
shall: (a) name Landlord as an additional insured; (b) be issued by an
insurance company which is reasonably acceptable to Landlord and licensed to do
business in the State of California; and (c) provide that said insurance shall
not be cancelled unless ten (10) days' prior written notice shall have been
given to Landlord. Said policy or certificates thereof shall be delivered to
Landlord by Tenant upon commencement of the term of this Lease and upon each
renewal of said insurance. No more often than every three years, Landlord may
require Tenant to increase the amount of such coverage if the amount of such
coverage is no longer equal to prevailing standards. Tenant's insurance may be
pursuant to a blanket policy with such limits applicable to each location.
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<PAGE>
16. SUBROGATION:
-----------
Landlord and Tenant hereby waive any right that each may have against
the other on account of any loss or damage arising in any manner which is
covered by policies of insurance for fire and extended coverage, theft, public
liability, workmen's compensation or other insurance now or hereafter existing
during the term hereof. The parties each agree to use their reasonable best
efforts to have their respective insurance companies waive any rights of
subrogation that such companies may have against Landlord or Tenant, as the case
may be.
17. ASSIGNMENT AND SUBLETTING:
-------------------------
Tenant shall not sell, assign, encumber or otherwise transfer by
operation of law or otherwise this Lease or any interest herein, sublet the
premises or any part thereof, or suffer any other person to occupy or use the
premises or any portion thereof, without the prior written consent of Landlord,
which consent shall not be unreasonably withheld. Any subletting or assignment
hereunder by Tenant shall not result in Tenant being released or discharged from
any liability under this Lease. As a condition to Landlord's prior written
consent as provided for in this paragraph, the subtenant or assignee, as the
case may be, shall agree in writing to comply with and be bound by all of the
terms, covenants, conditions, provisions and agreements of this Lease, and
Tenant shall deliver to Landlord, promptly after execution, an executed copy of
each sublease or assignment, as the case may be, and an agreement of said
compliance by each sublessee. Landlord's consent to one sale, assignment,
encumbrance, subletting, occupation, lien or other transfer shall not be deemed
to be a consent to any subsequent occurrence and any such transaction which does
not comply with the provisions of this paragraph 17 shall be void. Any sale or
other transfer, including by consolidation, merger or reorganization, of a
majority of the voting stock of Tenant, if a Tenant is a corporation, at any
time in the aggregate during the term of this lease, or any sale or other
transfer of a majority of the partnership interests in Tenant (other than a
public stock offering), if Tenant is a partnership, at any time in the aggregate
during the term of this lease shall be an assignment for purposes of this
paragraph 17. Notwithstanding the foregoing, Tenant may assign or sublet
without Landlord's permission to a subsidiary or parent corporation.
Tenant shall pay all costs of any subletting or assignment, including
without limitation, real estate commissions and Landlord's reasonable attorneys
fees expended in connection therewith not to exceed $500. Any net profit from
any subletting or assignment shall be paid one-half to Landlord and one-half to
Tenant by any assignee or subtenant after payment of expenses. Such net profit
shall include, without limitation, any increase in rental, payable either in
cash or other consideration such as services (exclusive of rendered services),
over that paid by Tenant under this Lease and any other consideration (or its
cash equivalent) for execution of the assignment or sublease. Net profit shall
be determined by taking into account Tenant's reasonable and customary out of
pocket expenses in subleasing and, for any physical subtenant improvements paid
for by Tenant in excess of $25,000, interest on such sums at twelve percent
(12%) over the term of the sublease. As a condition to any subletting or
assignment, all assignees and subtenants shall verify in writing to Landlord all
consideration paid or given or to be paid or given for such sublease or
assignment. Notwithstanding the foregoing, Tenant shall
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<PAGE>
not be required to account for any profit it makes from subtenants for up to a
total of 4,000 square feet whose premises are not separately demised and who pay
all or a substantial portion of their rent by rendering services for Preview
Media, Inc.
18. RULES AND REGULATIONS:
---------------------
Tenant shall faithfully comply with the rules and regulations,
together with all modifications and additions thereto applying to the a Building
and other tenants thereof adopted by Landlord from time to time in writing.
Landlord shall not be responsible for the non-performance by any other tenant or
occupant of the Building of any of said rules and regulations. A copy of
Landlord's Rules are attached to this lease. Such Rules shall not enlarge the
obligations of the parties hereto nor reduce their rights hereunder.
19. ENTRY BY LANDLORD:
-----------------
Upon reasonable notice, or in an emergency without notice, Landlord
shall have the right to enter the premises: (a) to inspect them, (b) to supply
any service provided to Tenant hereunder, (c) to show the premises to
prospective purchasers, lenders or tenants; provided that showing to prospective
tenants shall be only during the last nine months of the term hereof unless
Tenant has cancelled this lease or is in default hereunder, (d) to post notices
of nonresponsibility, (e) to alter, improve or repair the premises and any
portion of the Building, and (f) to erect scaffolding and other necessary
structures, where required by the work to be performed, all without reduction of
rent. Tenant hereby waives any claims for damages for any injury to or
interference with Tenant's business or quiet enjoyment of the premises or any
other loss occasioned by such entry, but Landlord shall use reasonable efforts
to avoid interrupting Tenant's quiet enjoyment of the premises. Landlord shall
at all times have a key to unlock all of the doors in and about the premises,
excluding Tenant's vaults and safes, and Landlord shall have the right to use
any means which Landlord deems proper to open said doors in any emergency, and
any such entry to the premises shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into the premises or a detainer of the
premises or an eviction of Tenant from any portion of the premises.
20. INSOLVENCY OR BANKRUPTCY:
------------------------
The appointment of a receiver to take possession of all or
substantially all of the assets of Tenant, or any assignment by Tenant for the
benefit of creditors, or any action taken or suffered by Tenant under any
insolvency, bankruptcy, or reorganization act, shall at Landlord's option
constitute a breach of this lease by Tenant if not released within 180 days. On
the happening of any such event or at any time thereafter this lease shall
terminate 30 days after written notice of termination from Landlord to Tenant.
In no event shall this lease be assigned or assignable by operation of law or by
voluntary or involuntary bankruptcy proceedings or otherwise and in no event
shall this lease or any rights or privileges hereunder be an asset of Tenant
under any reorganization proceedings. In the event that any provisions of this
paragraph are not enforceable as a matter of law, Landlord shall retain its
rights under paragraph 17 above. Nothing contained herein shall be deemed to
diminish Landlord's rights in the event of
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<PAGE>
bankruptcy or enlarge the time of Tenant as bankrupt or the trustee in
bankruptcy to elect to assume or reject the lease.
21. DEFAULT:
-------
The failure to perform or honor each covenant, condition and
representation made under this Lease shall constitute a default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of three (3) business days from the date of written
notice from Landlord within which to cure any default in the payment of rental
or adjustment thereto or any other sums hereunder. Tenant shall have a period
of ten (10) days, after written notice from Landlord within which to cure any
other default under this Lease; provided, however, that with respect to defaults
which cannot be reasonably cured within ten (10) days, the default shall not be
deemed to be uncured if Tenant commences to cure within ten (10) days from
Landlord's notice and continues to prosecute diligently the curing thereof.
Said written notices shall constitute those required under CCP (S) 1161 et seq.
-- ---
Upon an uncured default of this Lease by Tenant, Landlord shall have the
following rights and remedies in addition to any other rights or remedies
available to Landlord at law or in equity:
(a) The rights and remedies provided by California Civil Code Section
1951.2, including but not limited to, recovery of the worth at the time of award
of the amount by which the unpaid rent for the balance of the term after the
time of award exceeds the amount of rental loss for the same period that the
Tenant proves could be reasonably avoided, as computed pursuant to Section
1951.2(b);
(b) The rights and remedies under the Lease, including the right to
recover rent as it becomes due, for so long as Landlord does not terminate
Tenant's right to possession. Acts of maintenance or preservation, efforts to
relet the premises, or the appointment of a receiver upon Landlord's initiative
to protect its interest under this Lease shall not constitute a termination of
Tenant's right to possession;
(c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law;
(d) The right and power, as attorney-in-fact for Tenant, to enter the
premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the cost of and for the account of Tenant,
and to sell such property and apply the proceeds therefrom pursuant to
applicable California law. Landlord, as attorney-in-fact for Tenant, may from
time to time sublet the premises or any part thereof for such term or terms
(which may extend beyond the term of this Lease) and at such rent and such other
terms as Landlord in its sole discretion may deem advisable, with the right to
make alterations and repairs to the premises. Upon each such subletting, (i)
Tenant shall be immediately liable to pay to Landlord, in addition to
indebtedness other than rent due hereunder, any real estate commissions paid by
Landlord in connection with such subletting and the cost of such subletting and
such alterations and repairs incurred by Landlord and the amount, if any, by
which the rent hereunder for the period of such subletting (to the extent such
period does not exceed the term hereof) exceeds the amount agreed to be paid as
rent for the premises for such period or (ii) at the option
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of Landlord, rents received from such subletting shall be applied first, to
payment of any indebtedness other than rent due hereunder, from Tenant to
Landlord; second, to the payment of any costs of such subletting and of such
alterations and repairs; third, to payment of rent due and unpaid hereunder; and
the residue, if any, shall be held by Landlord and applied in payment of future
rent as the same becomes due hereunder. If Tenant has been credited with any
rent to be received by such subletting under option (i) and such rent shall not
be promptly paid to Landlord by the subtenant(s), or if such rentals received
from such subletting under option (ii) during any month be less than that to be
paid during that month by Tenant hereunder, Tenant shall pay any such deficiency
to Landlord. Such deficiency shall be calculated and paid monthly. For all
purposes set forth in this subparagraph (d), Landlord is hereby irrevocably
appointed attorney-in-fact for Tenant, with power of substitution. No taking
possession of the premises by Landlord, as attorney-in-fact for Tenant shall be,
construed as an election on its part to terminate this Lease unless a written
notice of such intention be given to Tenant. Notwithstanding any such subletting
without termination, Landlord may at any time thereafter elect to terminate this
lease for such previous breach; and
(e) The right to have a receiver appointed for Tenant, upon
application by Landlord, to take possession of the premises and to apply any
rental collected from the premises and to exercise all other rights and remedies
granted to Landlord as attorney-in-fact for Tenant pursuant to subparagraph (d)
above.
(f) All sums due from Tenant to Landlord not paid when due shall bear
interest at twelve (12%) percent per annum.
22. LANDLORD'S RIGHT TO CURE DEFAULT:
--------------------------------
All covenants and agreements to be kept or performed by Tenant under
the terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any reduction of rent. If Tenant shall be in default on its
obligations under this Lease to pay any sum of money other than payment of rent
or perform any other act hereunder, and if such default is not cured within the
applicable grace period provided in paragraph 21 hereof, Landlord may, but shall
not be obligated to, make such payment or perform any such act on Tenant's part
without waiving its right based upon default of Tenant and without releasing
Tenant from any obligations hereunder. All sums so paid by Landlord and all
incidental costs, together with interest thereon at the rate of twelve (12%)
percent per annum from the date of such payment or the incurrence of such cost
by Landlord, whichever occurs first, shall be paid to Landlord on demand. In
the event of nonpayment by Tenant, Landlord shall have, in addition to any other
rights or remedies hereunder, the same rights and remedies as in the case of
default.
23. DAMAGE BY FIRE OR CASUALTY:
--------------------------
23.1 Partial Damage - Insured. In the event the Premises or the
------------------------
Building are damaged by any casualty which is covered under fire and extended
coverage insurance carried by Landlord, then Landlord shall restore such damage
provided insurance proceeds are available to pay eighty percent (80%) or more of
the cost of restoration and provided such restoration can be completed within
sixty (60) days after the commencement of the work in the opinion of a
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<PAGE>
registered architect or engineer appointed by Landlord. In such event this Lease
shall continue in full force and effect, except that Tenant shall be entitled to
proportionate reduction of rent while such restoration takes place, such
proportionate reduction to be based upon the extent to which the restoration
efforts interfere with Tenant's business in the Premises. Notwithstanding the
foregoing, if partial damage is not substantially repaired within 150 days of
the occurrence of the damage, insured or uninsured, Tenant can cancel the lease.
23.2 Partial Damage - Uninsured. In the event the Premises or the
--------------------------
Building are damaged by a risk not covered by Landlord's insurance or the
proceeds of available insurance are less than eighty (80%) of the cost of
restoration, or if the restoration cannot be completed within sixty (60) days
after the commencement of work in the opinion of the registered architect or
engineer appointed by Landlord, then Landlord shall have the option either to
(1) repair or restore such damage, this Lease continuing in full force and
effect, but the rent to be proportionately abated as hereinabove provided, or
(2) give notice to Tenant at any time within thirty (30) days after such damage
terminating this Lease as of a date to be specified in such notice, which date
shall be not less than thirty (30) nor more than sixty (60) days after giving
such notice. In the event of the giving of such notice, this Lease shall expire
and all interest of Tenant in the Premises shall terminate on such date so
specified in such notice and the rent, reduced by any proportionate reduction
based upon the extent, if any, to which said damage interfered with the use and
occupancy of Tenant, shall be paid to the date of such termination; Landlord
agrees to refund to the Tenant any rent theretofore paid in advance for any
period of time subsequent to such date. Notwithstanding the foregoing, if
partial damage is not substantially repaired within 150 days of the occurrence
of the damage, insured or uninsured, Tenant can cancel the lease.
23.3 Total Destruction. In the event the Premises are totally
-----------------
destroyed or the Premises cannot be restored as required herein under applicable
laws and regulations, notwithstanding the availability of insurance proceeds,
this Lease shall be terminated effective the date of the damage.
23.4 Damage Near End of the Term. Notwithstanding anything to the
---------------------------
contrary contained in this Section 23, Landlord shall not have any obligation
whatsoever to repair, reconstruct or restore the Premises when the damage
resulting from any casualty covered under this Section 23 occurs during the last
twelve (12) months of the term of this Lease or any extension thereof.
23.5 Landlord's Obligations. The Landlord shall not be required to
----------------------
repair any injury or damage by fire or other cause or to make any restoration or
replacement of any panelings, decorations, partitions, railings, floor
coverings, office fixtures or any other improvements or property installed in
the Premises by Tenant or at the direct or indirect expense of Tenant. Tenant
shall be required to restore or replace same in the event of damage. Except for
abatement or rent, if any, Tenant shall have no claim against Landlord for any
damage suffered by reason of any such damage, destruction, repair or
restoration; nor shall Tenant have the right to terminate this Lease as a result
of any statutory provision now or hereafter in effect pertaining to the damage
and destruction of the Premises or the Building, except as expressly
-17-
<PAGE>
provided herein. Landlord shall maintain fire and extended coverage and
liability policies in such form and in such amounts and with such companies as
Landlord shall determine in its sole discretion.
24. EMINENT DOMAIN:
--------------
If any part of the premises or access thereto shall be taken or
appropriated under the power of eminent domain or conveyed in lieu thereof,
either party shall have the right to terminate this lease at its option. If any
part of the Building shall be taken or appropriated under power of eminent
domain or conveyed in lieu thereof, Landlord may terminate this Lease at its
option. In either of such events, Landlord shall receive the condemnation
award, except that Tenant may receive any relocation expenses payable and sums
attributable to tenant fixtures and improvements for which it has paid. If a
part of the premises shall be so taken or appropriated or conveyed and neither
party hereto shall elect to terminate this Lease and the premises have been
damaged as a consequence of such partial taking or appropriation or conveyance,
the Landlord shall restore the premises continuing under this Lease at the
Landlord's cost and expense; provided, however, that Landlord shall not be
required to repair or restore any injury or damage to the property of Tenant or
to make any repairs or restoration of any alterations, additions, fixtures or
improvements installed on the premises by or at the expense of Tenant.
Thereafter the rent to be paid under this Lease for the remainder of its term
shall be proportionately reduced, such reduction to be based upon the extent to
which the partial taking or appropriation or conveyance shall interfere with the
business carried on by Tenant on the premises.
25. SURRENDER OP PREMISES:
---------------------
A voluntary surrender or other surrender of this Lease by Tenant or
the mutual cancellation of this Lease shall not work a merger. Any surrender or
mutual cancellation of this Lease shall operate as an automatic assignment to
Landlord of any subleases or subtenancies.
26. HOLDING OVER:
------------
Any holding over after the expiration of the term of this Lease with
the written consent of Landlord shall be a tenancy from month to month upon the
same terms, covenants and conditions herein, the monthly rental shall be
determined by Landlord and contained in the written consent, subject to
adjustment as provided in paragraph 5 herein. Landlord may thereafter terminate
such consensual tenancy on 30 days written notice. Acceptance by Landlord of
rent after such expiration shall not result in any other tenancy or any renewal
of the term of this Lease, and the provisions of this paragraph are in addition
to and do not affect Landlord's right of re-entry or other rights provided under
this Lease or by applicable law.
If Tenant shall retain possession of the premises or any part thereof
without Landlord's written consent following the expiration or sooner
termination of this Lease for any reason, then Tenant shall pay to Landlord for
each day of such retention double the amount of the daily rental for the last
period prior to the date of such expiration or termination. Tenant shall also
indemnify and hold Landlord harmless from any loss or liability resulting from
delay by Tenant in surrendering the premises, including, without limitation, any
claims made by any
-18-
<PAGE>
succeeding tenant founded on such delay. Alternatively, if Landlord gives notice
to Tenant of Landlord's election thereof, such holding over shall constitute
renewal of this Lease for a period from month to month or for one year,
whichever shall be specified in such notice.
27. SALE BY LANDLORD:
----------------
In the event that Landlord sells or conveys the premises, Landlord
shall be released from any liability arising thereafter based upon any of the
terms, covenants or conditions, express or implied, which are contained in this
Lease if the new owner agrees to assume obligations hereunder thereafter. In
such event, Tenant agrees to look solely to Landlord's successor in interest for
any liability under this Lease. If any security has been given by Tenant to
secure the faithful performance of any of the covenants of this Lease, Landlord
shall transfer or deliver said security, as such, to Landlord's successor in
interest and thereupon Landlord shall be discharged from any further liability
with regard to said security. Except as set forth in this paragraph, this Lease
shall not be affected by any sale or conveyance of the premises by Landlord, and
Tenant agrees to attorn in writing to Landlord's successor in interest.
28. ESTOPPEL CERTIFICATE:
--------------------
Within ten (10) days after notice from Landlord, Tenant shall execute
and deliver to Landlord, in recordable form, a certificate stating that this
Lease is unmodified and in full force and effect, or in full force and effect as
modified, and stating the modifications. The certificate also shall state the
amount of minimum monthly rent, the dates to which the rent has been paid in
advance, the amount of any security deposit or prepaid rent, the fact that there
are no current defaults under the Lease by either Landlord or Tenant except as
specified in such statement, and such other matters requested by Landlord.
Tenant acknowledges that any statement delivered pursuant to this paragraph may
be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser
of the Building or any interest therein. Failure to deliver the certificate
within said ten (10) days shall be conclusive upon Tenant that this Lease is in
full force and effect and has not been modified except as may be represented by
Landlord. If Tenant fails to deliver the certificate within the ten (10) days,
Tenant irrevocably constitutes and appoints Landlord as its special attorney-in-
fact to execute and deliver the certificate to any third party.
29. SUBORDINATION AND ATTORNMENT:
----------------------------
This Lease is and shall be subject and subordinate at all times to all
ground or underlying leases which now exist or may hereafter be executed or
amended affecting the Building or the land upon which the Building is situated,
or both, and to the lien of any mortgages or deeds of trust in any amount or
amounts whatsoever which now exist or may hereafter be executed or amended on or
against the land and Building or either of them, of which the premises are a
part, or on or against Landlord's interest or estate therein, without the
necessity of the execution and delivery of any further instruments on the part
of Tenant to effectuate such subordination. Notwithstanding the foregoing,
Tenant covenants and agrees to execute and deliver upon demand to Landlord such
further instruments in recordable form evidencing such subordination of this
Lease to such ground or underlying leases and to the lien of
-19-
<PAGE>
any such mortgages or deeds of trust as may be reasonably required by Landlord,
including a statement from Tenant as to any claimed offsets of Tenant. In the
event of the failure of Tenant to supply such writing within ten (10) days after
request by Landlord, Tenant irrevocably appoints Landlord as its special
attorney-in-fact to execute such instruments and record same for the benefit of
any third party. As to any mortgages, deeds of trust or ground leases hereafter
executed that affect Landlord's estate or any interest of Landlord in the real
property or any part thereof of which the premises form a part or any renewals,
modifications, replacements or extensions of existing mortgages, deeds of trust
or ground leases, they shall not be effective to disturb the terms hereof or
Tenant's occupancy hereunder so long as Tenant is not in default under the terms
and conditions of this Lease.
Upon the written request of the Landlord or any mortgagee or
beneficiary of Landlord, Tenant will in writing attorn to any such mortgagee or
beneficiary. Said agreement of attornment shall provide, among other things,
(a) that this Lease shall remain in full force and effect, (b) that Tenant shall
pay rent to said mortgagee or beneficiary from the date of said attornment, (c)
that mortgagee or beneficiary shall not be responsible to Tenant under the Lease
except for obligations accruing subsequent to the date of such attornment, (d)
that Tenant, in the event of foreclosure or deed in lieu thereof, will enter
into a new lease with the lien holder acquiring title on the same terms and
conditions as the existing Lease and for the balance of the term hereof, and (e)
that Tenant shall be entitled to continued possession hereunder so long as it is
not in default hereunder. In the event that Tenant fails to deliver such
writing within 10 days after demand by Landlord, Tenant irrevocably appoints
Landlord as its special attorney-in-fact to execute such document for Tenant.
The provisions of this Lease may require approval by financial
institutions which make the loans herein contemplated. If any such institution
should require as a condition of such financing any modification of the
provisions of this Lease, Tenant will approve and execute any such
modifications, provided no such modifications shall relate to the rent payable
hereunder, the length of the term or materially change the rights or obligations
of Landlord or Tenant to each other.
30. WAIVER:
------
If either party waives the performance of any term, covenant or
condition contained in this Lease, such waiver shall not be deemed to be a
waiver of the term, covenant or condition itself or a waiver of any subsequent
breach of the same or any other term, covenant or condition contained herein.
Furthermore the acceptance of rent by Landlord shall not constitute a waiver of
any preceding breach by Tenant of any term, covenant or condition of this Lease,
regardless of Landlord's knowledge of such preceding breach at the time Landlord
accepted such rent. Failure by Landlord to enforce any of the terms, covenants
or conditions of this Lease for any length of time shall not be deemed to waive
or to decrease the right of Landlord to insist thereafter upon strict
performance by Tenant. Waiver by either party of any term, covenant or
condition contained in this Lease may only be made by a written document signed
by Landlord.
-20-
<PAGE>
31. LANDLORD'S DEFAULT:
------------------
If Tenant obtains a money judgment against Landlord resulting from any
default or other claim, including any obligation of Landlord to carry insurance,
arising under this Lease, such judgment shall be satisfied only out of the
rents, profits and income received by Landlord with respect to its right, title
and interest in the Building and the underlying real property. No other real,
personal or mixed property of Landlord (or of any of the individuals who
comprise Landlord) shall be subject to levy to satisfy any such judgment.
32. ATTORNEYS' FEES:
---------------
In the event that any action or proceeding is brought to enforce any
term, covenant or condition of this Lease on the part of Landlord or Tenant, the
prevailing party in such litigation shall be entitled to reasonable attorneys'
fees to be fixed by the Judge presiding in such action or proceeding.
33. NOTICES:
-------
Notices will be deemed to have been delivered upon the sooner of
personal delivery or forty-eight (48) hours after they have been deposited in
the United States mail, postage prepaid, registered or certified mail, return
receipt requested, addressed to the Tenant at the premises and to Landlord at
the Building office and to either of them at such other places as they may from
time to time designate by written notice. Either may request duplicate notices
to themselves or third parties. Any deed of trust holders shall have a
reasonable opportunity after receipt of each such notice in which to cure all
defaults on the part of Landlord. In the event it is necessary for said first
deed of trust holders to enter upon the premises in order to effect said cure,
the right of entry shall be deemed to have been granted by this provision.
Landlord shall invoice Tenant for sums due hereunder as a convenience to Tenant
but the failure of Landlord to send an invoice shall not be deemed an excuse for
later payment.
34. DEFINED TERMS AND HEADINGS:
--------------------------
The words "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular. Words used in masculine gender include the
feminine and neuter, where applicable. If there is more than one Tenant, the
obligations imposed under this Lease upon Tenant shall be joint and several.
The headings and titles to the paragraphs of this Lease are used for convenience
only and shall have no effect upon the construction or interpretation of the
Lease. No party other than Landlord and Tenant and their successors and assigns
shall be entitled to the benefits of this Lease: there are no third party
beneficiaries to this Lease.
35. TIME AND APPLICABLE LAW:
-----------------------
Time is of the essence of this Lease and all of its provisions. This
Lease shall in all respects be governed by the laws of the State of California.
-21-
<PAGE>
36. SUCCESSORS AND ASSIGNS:
----------------------
Subject to the provisions of paragraph 17 hereof, the terms, covenants
and conditions contained herein shall be binding upon and inure to the benefit
of the heirs, successors, executors, administrators and assigns of the parties
hereto.
37. ENTIRE AGREEMENT:
----------------
This Lease, together with its exhibits, contains all the agreements of
the parties hereto and supersedes any previous negotiations. There have been no
representations made by the Landlord, or anyone on its behalf including any
brokers or professionals or contractors, or understandings made between the
parties other than those set forth in this Lease and its exhibits. This Lease
may not be modified except by a written instrument duly executed by the parties
hereto. There shall be no third party beneficiaries of any term of this Lease.
No person is authorized to make any representations on behalf of Landlord
concerning the premises, the Building, Code or construction, and all discussions
with any consultants or professionals, even if the same are employed by
Landlord, may not be relied upon by Tenant.
38. SEVERABILITY:
------------
If any provision of this Lease or the application thereof to any
person or circumstance shall be invalid or unenforceable to any extent, the
remainder of this Lease and the application of such provision to other persons
or circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law. If any payments or interest hereunder shall
at any time be in violation of any California usury laws or otherwise in
violation of law, they shall be reduced to an amount equal to the maximum
permitted under California law.
39. QUIET ENJOYMENT:
---------------
Landlord agrees to and shall in the commencement of this Lease place
Tenant in quiet possession of the premises and shall secure it in the quiet
possession thereof against all persons, including the previous tenant, lawfully
claiming the same during the lease term. If Tenant should be ousted from the
premises by a previous tenant despite Landlord's best efforts to prevent same,
Landlord shall as Tenant's exclusive remedy pay Tenant four (4) months rental
hereunder plus the amount of any unamortized out of pocket tenant improvements
plus Tenant's reasonable moving costs.
40. LIGHT AND AIR:
-------------
Tenant covenants and agrees that no diminution of light, air or view
by any structure which may hereafter be erected (whether or not by Landlord)
shall entitle Tenant to any reduction of rent under this lease, result in any
liability of Landlord to Tenant, or in any other way affect this lease or Ten
ant's obligations hereunder.
-22-
<PAGE>
41. OPTION TO RENEW:
---------------
41.1 Option to Renew. Provided Tenant is not in default under the
---------------
terms of this Lease either at the time of exercise of this option or at
commencement of the option periods, Tenant shall have an option to renew this
Lease for two (2) additional period of one (1) year each commencing upon the
expiration of the initial term of the Lease. The second option may be exercised
only if the first option is exercised. Said option shall be on the same terms,
covenants and conditions contained herein except that the Base Rent shall be
fixed in the manner set forth below. This option may be exercised only by
written notice to Landlord delivered no later than 180 days prior to expiration
of the initial term or of the first option period, as the case may be. The Base
Rent during the option period shall be the fair market rental value of the
Premises as of the first day of the option period. "Fair market rental value"
shall be established in accordance with section 42.2 below. Notwithstanding the
foregoing, the Base Rent shall not be less than the Base Rent payable
immediately prior to the commencement of the option period.
41.2 Fair Market Rental Value. Fair market rental value shall be
------------------------
determined in the following manner. At least 135 days prior to the commencement
of the option period, Landlord shall notify Tenant of its determination of fair
market rental value for comparable renewal rental for a comparable term in
comparable space in a comparable building. Tenant shall have 15 days from the
date of such notice to notify Landlord that it disagrees with such determination
and such notice shall either state that Tenant elects arbitration as set forth
below or cancels its notice of exercise of option. In the event Tenant does not
so timely notify Landlord, the fair market rental value shall be as established
in Landlord's notice. In the event Tenant does notify Landlord of its election
to arbitrate; Landlord and Tenant shall each specify the name and address of a
person to act as the appraiser on its behalf. The appraiser shall be a licensed
real estate appraiser or licensed real estate broker familiar with prevailing
market rentals in the area and shall have at least 5 years commercial downtown
San Francisco experience. The two appraisers so appointed shall appoint a third
appraiser who shall be a competent and impartial person with qualifications
similar to those required of the first two appraisers. If either party fails to
appoint an appraiser, or the two appraisers fail to appoint a third, in either
case, within 15 days after demand by either party, the necessary appraiser shall
be appointed by the Presiding Law and Motion Judge of the San Francisco Superior
Court or, in his failure or refusal to act, the then Dean of the Graduate School
of Business of the University of California at Berkeley.
If the two appraisers selected by Landlord and Tenant can not reach
agreement on the fair market rental value, the rental shall be established by
the three appraisers in accordance with the following procedure. The appraiser
selected by each of the parties shall state in writing his determination of the
fair market rental value. The appraisers shall arrange for a simultaneous
delivery of such determinations to the third appraiser. The role of the third
appraiser shall be to select which of the two proposed determinations most
closely approximates his determination of the fair market rental value. The
third appraiser shall have no right to propose a middle ground or any
modification of either of the two proposed determinations. The determination he
chooses as most closely approximating his determination shall constitute the
decision of the appraisers and be final and binding upon the parties. Each
party shall pay the cost of its own appraiser and shall share the cost of the
third appraiser, if any.
-23-
<PAGE>
In the event the appraisers have not determined the fair market rental
value as of the date for the rental adjustment, Tenant shall on an interim basis
pay Landlord Base Rent based on the Landlord's determination of fair market
rental value. In the event the appraisers' determination is less than
Landlord's determination, Tenant shall be entitled to a credit against the next
rental payment payable by Tenant hereunder in the amount of such difference.
Alternatively, if the appraisers' determination is more than Landlord's
determination, Tenant shall pay such difference with the next rental payment
owing. The appraisers shall take into account setting a new base year for
operating expenses and taxes.
42. OFFER:
-----
Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease. This Lease shall
become binding upon Lessor and Lessee only when fully executed by Lessor and
Lessee.
43. BROKER:
------
Landlord has a real estate brokerage agreement with Grubb & Ellis and
will pay a commission thereunder to it. Landlord recognizes Cushman & Wakefield
as the procuring broker for Tenant so far as Landlord is aware.
44. BUILDING IDENTITY:
-----------------
If Landlord causes the address of the Building to be changed during
the term hereof, Landlord shall pay Tenant's cost of redoing its stationery and
the printing of announcements.
45. HAZARDOUS MATERIAL:
------------------
(a) Landlord has not made an investigation of the Building or premises
for hazardous or toxic materials, asbestos or other materials constituting
health hazards ("Hazardous Materials"), but represents and warrants that it has
no knowledge of the presence of any Hazardous Materials in the Building or of
any violation of any environmental laws related to the Building. Tenant
warrants and represents that it has not in the past and will not in the future
in the Building use any Hazardous Materials.
(b) Landlord and Tenant shall notify each other as soon as either
learns of or receives notices of any release of any toxic or Hazardous Materials
on the property, the Building, the premises and/or the property adjacent to the
property.
(c) The cost or expense of any kind paid or incurred by Landlord in
connection with the testing, removal or clean-up of Hazardous Materials on the
property or the premises (unless caused by Tenant, its agents, employees or
invitees) or otherwise in connection with the suspected violation or actual
violation of any environmental laws, or any investigation in connection with the
foregoing, or the compliance by Landlord with any environmental laws, shall not
be passed through to Tenant as an operating expense or otherwise.
-24-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on
September 12, 1990.
LANDLORD:
BLUM'S BUILDING ASSOCIATES
/s/Cecilia Dodge Mackie
------------------------------------
CECILIA DODGE MACKIE
/s/Edward J. Conner
------------------------------------
EDWARD J. CONNER
/s/Herbert P. McLaughlin
------------------------------------
HERBERT P. McLAUGHLIN, JR.
/s/David D. Dodge
------------------------------------
DAVID D. DODGE
/s/Stephen W. Dodge
------------------------------------
STEPHEN W. DODGE
AS TRUSTEES UNDER THE WILL OF
H. NEWELL DODGE
TENANT:
PREVIEW MEDIA, INC.
a California Corporation
-----------------------------------
By: /s/J. J. Hornthal
---------------------------------
Its: President
------------------------------
-25-
<PAGE>
ADDENDUM TO LEASE
The following shall constitute an Addendum to the Lease between BLUM
BUILDING ASSOCIATES, Landlord, and PREVIEW MEDIA, INC., Tenant covering the
third floor of the building at 747 Front Street, San Francisco, California.
1. Liability Insurance. Section 15 of the Lease is clarified by
-------------------
providing that the deductible portion of Tenant's comprehensive liability
insurance policy shall not exceed $1,000.00.
2. Landlord's Insurance. Section 23.5 of the Lease is clarified by
--------------------
adding that Landlord shall not be required to provide fire and extended coverage
insurance for Tenant's improvements, fixtures, equipment or personal property
and Tenant shall be responsible for providing its own insurance for those items.
In addition, the fact that Landlord may provide liability insurance shall not
limit the liability insurance to be provided by Tenant under Section 15 of the
Lease and Tenant's insurance shall be primary to any insurance provided by
Landlord.
3. Option. Section 41 is clarified to provide that Base Rent shall be
------
adjusted at the commencement of both the first and second option periods in
accordance with the method for adjusting Base Rent as set forth in Section 41,
provided, however, that Base Rent during the second option period shall not be
less than Base Rent payable during the first potion period.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Addendum to
lease on September 15, 1990.
LANDLORD:
BLUM'S BUILDING ASSOCIATES
/s/Cecilia Dodge Mackie
------------------------------------
CECILIA DODGE MACKIE
/s/Edward J. Conner
------------------------------------
EDWARD J. CONNER
/s/Herbert P. McLaughlin
------------------------------------
HERBERT P. McLAUGHLIN, JR.
<PAGE>
/s/David D. Dodge
------------------------------------
DAVID D. DODGE
/s/Stephen W. Dodge
------------------------------------
STEPHEN W. DODGE
AS TRUSTEES UNDER THE WILL OF
H. NEWELL DODGE
TENANT:
PREVIEW MEDIA, INC.
a California Corporation
-----------------------------------
By: /s/J. J. Hornthal
---------------------------------
Its: President
-----------------------------
-2-
<PAGE>
SECOND ADDENDUM TO LEASE
This Second Addendum to Lease (the "Addendum") is made and entered into as
of the date below written by and between BLUM'S BUILDING ASSOCIATES, Landlord,
and PREVIEW MEDIA, INC., Tenant.
RECITALS
- --------
A. Landlord and Tenant are parties to that certain lease dated September
15, 1990 for the third floor of the building located at 747 Front Street, San
Francisco, California, as amended pursuant to an Addendum to Lease
(collectively, the "Lease").
B. The parties are not prepared to consummate the transaction
contemplated by the Lease without the modifications set forth in this Addendum.
AGREEMENT
- ---------
NOW, therefore, the parties agree as follows:
1. Paragraph 3.3 of the Lease is hereby amended to add the following at
the end thereof:
As a condition precedent to Tenant exercising its right to cancel
under this paragraph 3.3, concurrently with the notice to Landlord of
its election to cancel this Lease Tenant shall pay to Landlord a
cancellation fee in the amount set forth on Exhibit A attached hereto.
The reference to "month" in the attached Exhibit A means the month of
the lease term in which the Lease is canceled and the "amount" is the
amount payable by Tenant to Landlord.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Addendum to
Lease on November __, 1990.
LANDLORD:
BLUM'S BUILDING ASSOCIATES
/s/Cecilia Dodge Mackie
------------------------------------
CECILIA DODGE MACKIE
/s/Edward J. Conner
------------------------------------
EDWARD J. CONNER
-1-
<PAGE>
/s/Herbert P. McLaughlin
------------------------------------
HERBERT P. McLAUGHLIN, JR.
/s/David D. Dodge
------------------------------------
DAVID D. DODGE
/s/Stephen W. Dodge
------------------------------------
STEPHEN W. DODGE
AS TRUSTEES UNDER THE WILL OF
H. NEWELL DODGE
TENANT:
PREVIEW MEDIA, INC.
a California Corporation
By: /s/J. J. Hornthal
---------------------------------
Its: President
-----------------------------
-2-
<PAGE>
SCHEDULE A
Amount remaining in month of effective termination
--------------------------------------------------
<TABLE>
<CAPTION>
MONTH AMOUNT MONTH AMOUNT
-------- ---------- ----- ----------
<S> <C> <C> <C>
1 $35,666.63 38 $13,672.21
2 $35,072.18 39 $13,077.76
3 $34,477.74 40 $12,483.32
4 $33,883.29 41 $11,888.88
5 $33,288.85 42 $11,294.43
6 $32,694.41 43 $10,699.99
7 $32,099.96 44 $10,105.54
8 $31,505.52 45 $ 9,511.10
9 $30,911.08 46 $ 8,916.66
10 $30,316.63 47 $ 8,322.21
11 $29,722.19 48 $ 7,727.77
12 $29,127.74 49 $ 7,133.33
13 $28,533.30 50 $ 6,538.88
14 $27,938.86 51 $ 5,944.44
15 $27,344.41 52 $ 5,349.99
16 $26,749.97 53 $ 4,755.55
17 $26,155.53 54 $ 4,161.11
18 $25,561.08 55 $ 3,566.66
19 $24,966.64 56 $ 2,972.22
20 $24,372.19 57 $ 2,377.78
21 $23,777.75 58 $ 1,783.33
22 $23,183.31 59 $ 1,188.89
23 $22,588.86 60 $ 594.44
24 $21,994.42
25 $21,399.96
26 $20,805.53
27 $20,211.09
28 $19,616.64
29 $19,022.20
30 $18,427.76
31 $17,833.31
32 $17,238.87
33 $16,644.43
34 $16,049.98
35 $15,455.54
36 $14,861.09
37 $14,266.65
</TABLE>
<PAGE>
THIRD LEASE AMENDMENT
This Lease Amendment is entered into on the date below written, at San
Francisco, California, by and between BLUM'S BUILDING ASSOCIATES, Landlord, and
PREVIEW MEDIA, INC., Tenant, with reference to the Lease between the parties for
the premises located at 747 Front Street, San Francisco, California. The
parties wish to amend the Lease in the following particulars:
1. Tenant hereby waives, and the parties delete from the lease, all right
to cancellation or termination of the Lease contained in paragraph 3.3(a) and
(b) of the Lease and the entire Second Amendment to the lease.
2. Tenant shall have a rental credit as follows: Tenant shall be
required to pay only one-half of the rental specified in paragraph 4.1 of the
lease for a period of six weeks beginning May 1, 1991. At the end of that six-
week period, rental shall return to the amount as specified in the Lease.
The parties reaffirm and ratify all the other terms and conditions of the
Lease.
BLUM'S BUILDING ASSOCIATES
Dated: March 28, 1991 By: /s/Edward J. Conner
-------------------------------
Edward J. Conner
PREVIEW MEDIA, INC.
Dated: March 31, 1991 By: /s/J. J. Hornthal
-------------------------------
Its: President
---------------------------
<PAGE>
FOURTH AMENDMENT TO LEASE
THIS FOURTH AMENDMENT TO LEASE (the "Amendment") is made and entered into
as of the date below written by and between BLUM'S BUILDING ASSOCIATES
("Landlord") and PREVIEW MEDIA, INC. ("Tenant").
RECITALS
- --------
A. Landlord and Tenant are parties to that certain lease dated September
15, 1990 for certain premises located at 747 Front Street, San Francisco,
California, as amended pursuant to an Addendum to Lease dated September 15,
1990, a Second Addendum to Lease dated November __, 1990, and a Third Lease
Amendment dated March 31, 1991. The lease as so amended is referred to herein
as the "Lease."
B. Landlord and Tenant desire to amend the Lease on the terms set forth
below.
AGREEMENT
- ---------
NOW, THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the parties hereby agree as follows:
1. Premises. Commencing upon the Commencement Date, the Premises shall
--------
include the approximately 3,000 square feet on the fourth floor of the building
as marked on Exhibit A to this Amendment (the "Expansion Space").
---------
2. Rent. The base rent shall remain as provided in the Lease through the
----
Commencement Date. As of the Commencement Date, the base rent payable under
paragraph 4.1 of the Lease shall be increased as follows:
<TABLE>
<CAPTION>
Amount of Increase
Period in Monthly Rent
------ ------------------
<S> <C>
through September 14, 1992 $2,590
September 15, 1992-September 14, 1993 $3,300
September 15, 1993-September 14, 1994 $4,020
September 15, 1994-September 14, 1995 $4,250
</TABLE>
Landlord shall forbear form demanding the payment of the foregoing
additional base rent for the period of time from the Commencement Date through
eleven (11) months following the Commencement Date (the "Expansion Space
Suspended Rent") provided that as of the date of signing this amendment there
exists no uncured event of default under this Lease.
3. Condition of Expansion Space. Landlord shall undertake at its expense
----------------------------
the improvements to the Expansion Space as set forth on Exhibit B. Except as
---------
set forth on Exhibit B, Tenant shall take the Expansion Space in its "as is"
---------
condition.
<PAGE>
4. Commencement Date. The Commencement Date shall be later of June 15,
-----------------
1992 or the date that Landlord substantially completes the improvements set
forth on Exhibit B. In the event that the Commencement Date has not occurred by
---------
August 1, 1992, Tenant shall have the right to cancel this Fourth Amendment.
Tenant may exercise such right by giving Landlord written notice of its election
no later than August 15, in which case this Fourth Amendment shall be null and
void and the Lease shall continue in full force and effect.
5. Miscellaneous. Defined terms in the Lease shall have the same meaning
-------------
in this Amendment. The provisions of paragraph 7.1 shall apply to the Expansion
Space. Except as amended by this Amendment, the Lease remains in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment to lease
as of the _____ day of June, 1992.
Landlord: BLUM'S BUILDING ASSOCIATES
By: /s/Blum's Building Associates
---------------------------------------
Tenant: PREVIEW MEDIA, INC.
By: /s/Preview Media, Inc.
---------------------------------------
Its: Vice President
-----------------------------------
-2-
<PAGE>
FIFTH AMENDMENT TO LEASE
THIS FIFTH AMENDMENT TO LEASE (the "Amendment") is made and entered into as
of the date below written by and between BLUM'S BUILDING ASSOCIATES ("Landlord")
and PREVIEW MEDIA, INC. ("Tenant").
RECITALS
- --------
A. Landlord and Tenant are parties to that certain lease dated September
15, 1990 for certain premises located at 747 Front Street, San Francisco,
California, as amended pursuant to an Addendum to Lease dated September 15,
1990, a Second Addendum to Lease dated November __, 1990, a Third Lease
Amendment dated March 31, 1991, and a Fourth Amendment to Lease dated June __,
1992. The lease as so amended is referred to herein as the "Lease."
B. Landlord and Tenant desire to amend the Lease on the terms set forth
below.
AGREEMENT
- ---------
NOW, THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the parties hereby agree as follows:
1. Term. The initial term of the Lease is hereby extended to June 30,
----
2001.
2. Premises. Commencing upon the Commencement Date, the Premises shall
--------
include the approximately 13,789 rentable square feet on the fourth floor of the
building as marked on Exhibit A to this Amendment (the "Expansion Space").
3. Rent. The base rent shall remain as provided in the Lease through the
----
Commencement Date. As of the Commencement Date, the base rent payable under
paragraph 4.1 of the Lease shall be as follows:
<TABLE>
<CAPTION>
Amount of
Month Monthly Rent
----- ------------
<S> <C>
1 - 7 $19,000
8 - 12 $24,000
13 - 36 $27,500
37 - 48 $33,000
49 - 50 $38,500
51 - 72 $44,000
73 - 84 $48,000
84 - June 30, 2001 $50,000
</TABLE>
The parties shall execute a letter acknowledging the Commencement Date as soon
as it has been determined in accordance with paragraph 5. If the Commencement
Date occurs on a day other than the first day of a calendar month, rental for
the first month shall be prorated between the old
<PAGE>
base rent and the new base rent based upon the number of days during such month
that each such rental was in effect. In addition, the initial base rental set
forth above shall run through the last day of the calendar month in which month
7 ends and all remaining rental months shall commence as of the first day of the
calendar month. The base year for determining rental adjustments under paragraph
5.2 of the Lease shall be 1993. Prior to January 1, 1994, the Expansion Space
shall not be included a part of the Premises for purposes of determining the
rental adjustments under paragraph 5.2 of the lease.
4. Condition of Expansion Space.
----------------------------
4.01 Initial Tenant Improvements.
---------------------------
(a) Landlord shall construct the improvements to approximately
2,000 square feet of the Expansion Premises as set forth on Exhibit B, with the
---------
cost of such work to be charged against the Tenant Improvement Allowance as
provided below in paragraph 4.04. Such costs shall include the hard and soft
costs incurred by Landlord in constructing such improvements; provided, however,
that Landlord shall not charge any supervision fee for supervising said
construction. Landlord shall solicit fixed-price bids for the job from Porter
Construction, Casey Construction and Dome Construction. The bids shall include
all of the hard costs necessary to complete the improvements except any
additional hard costs resulting from subsequent changes approved by Tenant. Upon
receipt of the bids, Tenant shall within five (5) days select one of the
foregoing contractors to perform the work. Landlord shall construct such tenant
improvements using the approved contractor in a first-class manner, free of
defects, using all new materials, in compliance with all applicable building,
fire and underwriter's codes and requirements. Upon substantial completion,
Tenant shall provide to Landlord a "punch list" setting forth the respects in
which Landlord has failed to complete its work in accordance with the provisions
of this Lease, and Landlord shall promptly correct all deficiencies set forth in
such punch list.
(b) Except as provided above in subparagraph (a) and as set forth
on Exhibit B and paragraph 4.02 below, Tenant shall be responsible to construct
---------
the leasehold improvements in the Expansion Space, and Tenant shall take the
Expansion Space in its "as is" condition.
4.02 Landlord's Base Building Obligations. Landlord shall at its
------------------------------------
expense: (i) provide electrical and HVAC service to the edge of the Expansion
Space with a capacity sufficient to service normal office use; (ii) repair any
leaks in the roof and/or skylights; (iii) demolish the existing improvements in
the Expansion Space; (iv) level the floor of the Expansion Space so that
flooring may be laid on the same; (v) fill in the third floor skylight; and (vi)
make any changes to the base building security and light systems required by the
City and County of San Francisco for code compliance purposes. Landlord shall
complete its base building obligations as set forth in this paragraph in a
timely manner so as not to impede Tenant's installation of improvements.
Landlord shall do such work in a first-class manner, in compliance with all
applicable building, fire, and under-writer's codes and requirements free of
-2-
<PAGE>
defects, and Tenant's acceptance of the same shall be subject to Landlord's
obligation to remedy punch list items and otherwise perform its obligations
under this Lease.
4.03 Tenant Improvements. The terms of paragraph 6.2 of the Lease
-------------------
shall apply with respect to all improvements by Tenant to the Expansion Space
except Tenant shall not be required to restore the Premises to its current,
original condition.
4.04 Tenant Improvement Allowance. Landlord shall provide Tenant
----------------------------
with: (i) an architectural allowance in the amount of Two Thousand Sixty Eight
Dollars ($2,068) (the "Architectural Allowance"); and (ii) a tenant improvement
allowance in the amount of Three Hundred Fifty Thousand Dollars ($350,000) less
the costs incurred by Landlord provided in paragraph 4.01(a), without any
reduction for costs incurred by Landlord for the work done pursuant to paragraph
4.02 (the "Tenant Improvement Allowance"). The Tenant Improvement Allowance
shall be used exclusively to pay for the cost of the tenant improvements
(including the supervising, installing, design, signage, engineering and bonding
thereof; provided that the cost of the design and signage does not exceed $2.00
per square foot) and no portion thereof shall be used for furnishings and/or
trade fixtures that are removable by Tenant upon the expiration of the term of
the Lease except the signage as described in paragraph 9. In the event the cost
of the improvements exceeds the Tenant Improvement Allowance, the excess shall
be paid by Tenant. In the event construction occurs in phases, said allowance
may be used as set forth until the allowance has been used up; provided,
however, that in the event projected cost of the phase than being constructed by
Tenant exceeds the remaining balance of the Tenant Improvement Allowance, Tenant
shall either: (i) deposit into an account requiring the signature of Landlord
and Tenant with a financial institution reasonably acceptable to Landlord an
amount equal to the difference; or (ii) at its expense, provide a dual obligee
full payment and performance bond, naming Landlord as an obligee, on a form
supplied by Landlord. The Tenant Improvement Allowance shall be used
exclusively for the purposes set forth above and any unused portion thereof
shall not be credited or otherwise paid to Tenant. Landlord shall pay the
Architectural Allowance upon presentation of appropriate invoices. Landlord
shall, at Tenant's request, pay advances of the Tenant Improvement Allowance to
Tenant as work progresses, upon reasonable terms and conditions imposed by
Landlord and subject to a ten percent holdback. Landlord may condition the
final payment of the Tenant Improvement Allowance upon receipt of invoices from
Tenant in an amount equal to or in excess of the amount requested and final lien
waivers and releases from Tenant's general contractor and each subcontractor
that has performed work, which waivers and releases may be conditional if Tenant
requests that payment be made by joint check. If Landlord shall fail to pay the
Tenant Improvement Allowance when due, Tenant shall have the right, in addition
to its other remedies, to offset and deduct the amount owing from the rentals
and charges payable under this lease until the allowance is paid in full or has
been deducted in full.
5. Commencement Date. The Commencement Date shall be the date that
-----------------
Landlord substantially completes the improvements set forth on Exhibit B.
---------
Landlord's architect shall reasonably determine when the improvements are
substantially complete. In the event that the Commencement Date has not
occurred by October 1, 1993, Tenant shall have the right to cancel this Fifth
Amendment. Tenant may exercise such right by giving Landlord written notice of
its
-3-
<PAGE>
election no later than October 15, in which case this Fifth Amendment shall be
null and void and the Lease shall continue in full force and effect.
6. Option to Expand.
----------------
6.01 Option to Expand. Provided Tenant is not in default under the
----------------
terms of this Lease beyond the expiration of any applicable cure or grace
period, Tenant shall have a one-time option during the term of this Lease to
lease the space on the second floor of the Building shown on Exhibit C attached
hereto (the "MasterType Space") as such space becomes available to lease. The
parties acknowledge that the existing lease for the MasterType Space is
scheduled to terminate on or about March 31, 1996. Such option shall be
exercised only by compliance with the terms of this paragraph. Landlord shall
not enter into a lease for such space without first offering such space to
Tenant as follows. Landlord shall notify Tenant that space in the second floor
has become available and Tenant shall have ten (10) days after receipt of such
notice in which to exercise its option. Tenant's option shall be to lease all
or some portion of the space (subject to the requirement set forth below that
any remaining space be commercially and economically rentable) so identified
upon the terms and conditions set forth in this Lease, including, without
limitation, the term, except with respect to Base Rent. Base Rent shall be the
lower of the per square foot rental under this Lease or the fair market rental
value for such premises as determined in paragraph 6.02 below and shall commence
after any applicable "build out" period. The space shall be offered to and
accepted by Tenant in its "as is" condition as of the date thereof and the
commencement of the rent for such space shall be upon delivery of possession by
Landlord. If within ten (10) days of the date of such notice Landlord has
received written notice from Tenant of its election to lease such space on the
terms and conditions set forth in Landlord's notice, Landlord and Tenant shall
within thirty (30) days enter into an amendment to this Lease incorporating the
additional space as part of the Premises. If Tenant fails to respond to said
notice within said ten (10) day period, Tenant's rights under this paragraph
shall be deemed to have been waived, and Landlord shall be free to lease the
space without any further obligation to Tenant; provided, however, that in the
event said notice is given prior to July 31, 1994, Tenant's rights under this
paragraph shall not lapse and Tenant shall continue to have an option to expand
in accordance with the terms of this paragraph as the MasterType Space becomes
available to lease upon the expiration of the lease with the tenant occupying
the space after the current tenant. Tenant's rights with respect to the
MasterType lease space are subject and subordinate to the existing rights of
MasterType and Bank of America with respect thereto. Nothing contained herein
shall require Landlord to lease to Tenant any portion of the second floor which
would leave Landlord with any remaining portion of the floor which was not
commercially and economically rentable to third parties. Should Tenant decline
to take any space offered it pursuant to this paragraph, this option shall lapse
and become void thereafter. If MasterType or Bank of America takes the space,
Tenant's option to lease the space shall continue during the term of this lease
until such time as the space becomes available.
6.02 Fair Market Rental Value. For purposes of this paragraph, fair
------------------------
market rental value shall mean the rental rate for comparable space in a
comparable building in the area with consideration given to the space, term,
improvement allowance and rental concessions, if any, such as free rent, moving
allowances and the like then being offered for such space. Fair
-4-
<PAGE>
market rental value shall be determined in the following manner. With its
notification that the space is available, Landlord shall notify Tenant of its
determination of fair market rental value. In the event Tenant exercises its
option and does not concurrently notify Landlord that it disagrees with such
determination, the fair market rental value shall be as established in
Landlord's notice. In the event Tenant does notify Landlord that it disagrees
with such determination, Landlord and Tenant shall each specify the name and
address of a person to act as the appraiser on its behalf. The appraiser shall
be a licensed real estate appraiser or licensed real estate broker familiar with
prevailing market rentals in the area. The two appraisers so appointed shall
appoint a third appraiser who shall be a competent and impartial person with
qualifications similar to those required of the first two appraisers. If either
party fails to appoint an appraiser, or the two appraisers fail to appoint a
third, in either case, within 15 days after demand by either party, the
necessary appraiser shall be appointed by the Presiding Law and Motion Judge of
the San Francisco Superior Court or, in his failure or refusal to act, the then
Dean of the Graduate School of Business of the University of California at
Berkeley.
If the two appraisers selected by Landlord and Tenant cannot reach
agreement on the fair market rental value, the value shall be established by the
three appraisers in accordance with the following procedure. The appraiser
selected by each of the parties shall state in writing his determination of the
value. The appraisers shall arrange for a simultaneous delivery of such
determinations to the third appraiser. The role of the third appraiser shall be
to select which of the two proposed determinations most closely approximates his
determination of the fair market rental value. The third appraiser shall have
no right to propose a middle ground or any modification of either of the two
proposed determinations. The determination he chooses as most closely
approximating his determination shall constitute the decision of the appraisers
and be final and binding upon the parties. Each party shall pay the cost of its
own appraiser and shall share the cost of the third appraiser, if any.
In the event the appraisers have not determined the fair market rental
value as of the date for the commencement of rent with respect to such space,
Tenant shall on an interim basis pay Landlord Base Rent based on the Landlord's
determination of fair market rental value. In the event the appraisers'
determination is less than Landlord's determination, Tenant shall be entitled to
a credit against the next rental payment payable by Tenant hereunder in the
amount of such difference. Alternatively, if the appraisers' determination is
more than Landlord's determination, Tenant shall pay such difference with the
next rental payment owing.
7. Right of First Refusal. Provided Tenant is not in default under the
----------------------
terms of this Lease beyond the expiration of any applicable cure or grace
period, Tenant shall have a one-time right of first refusal during the term of
this Lease to lease the remaining space in the Building other than the second
floor as such space becomes available. Such right of first refusal shall be
exercised only by compliance with the terms of this paragraph. Landlord shall
not enter into a lease with any third party tenant for such space without first
offering such space to Tenant as follows. Landlord shall provide Tenant with a
ten (10) day right of first refusal to lease such space by notifying Tenant in
writing of the proposed terms and conditions on which Landlord is willing to
lease such space, or, at Landlord's option, submitting to Tenant a copy of a
proposed lease. If within ten (10) days of the date of such notice Landlord has
received written notice
-5-
<PAGE>
from Tenant of its election to lease such space on the terms and conditions set
forth in Landlord's notice, Landlord and Tenant shall within thirty (30) days
enter into an amendment to this Lease setting forth the terms by which Tenant is
leasing such space, including, without limitation, the rent, size of the
premises, tenant improvement allowance and the commencement date. If Tenant
fails to respond to said notice within said ten (10) day period, Tenant's rights
under this paragraph shall be deemed to have been waived, and Landlord shall be
free to lease the space to anyone upon terms not more favorably than those
offered to Tenant without any further obligation to Tenant. As used herein,
"third-party tenant" excludes any tenant or party then in possession of any
portion of the premises subject to this right of first refusal which may desire
to exercise a right expressly provided in its lease to expand its premises or
which may desire to extend or renegotiate its lease or rental agreement or any
tenant of the Building with existing expansion rights to said premises. Nothing
contained herein shall require Landlord to lease to Tenant any portion of any
floor which would leave Landlord with any remaining portion of the floor which
was not commercially and economically rentable to third parties. Should Tenant
decline to take any space offered it pursuant to this paragraph, this right of
first refusal shall lapse and become void thereafter.
8. Option to Renew. Provided Tenant is not in default under the terms of
---------------
this Lease either at the time of exercise of this option or at commencement of
the option period, Tenant shall have an option to renew this Lease for one (1)
additional period of five (5) years commencing upon the expiration of the
initial term of the Lease. Said option shall be on the same terms, covenants
and conditions contained herein except that the Base Rent shall be fixed in the
following manner. The Base Rent for the option period shall be the fair market
rental value of the Premises as of the first day of the option period. "Fair
market rental value" shall be established in accordance with section 6.02 above
except that the initial notice of Landlord's determination of fair market rental
value shall be given by Landlord no later than 90 days prior to expiration of
the initial term and Tenant shall have 30 days of receipt of such notice in
which to disagree. This option may be exercised only by written notice to
Landlord delivered no later than January 1, 2001. Paragraph 6.01 (Option to
Expand) and paragraph 7 (Right of First Refusal) shall not apply during the
option period.
9. Signage. Tenant shall have the right at its expense, to install
-------
exclusive signage on the exterior of the Building and one sign in the lobby to
the Building, both with its corporate identity. The exact design, size and
location of such signage shall be subject to Landlord's prior written approval
which shall not be unreasonably withheld. Any signage installed by Tenant shall
comply with all applicable laws, regulations or ordinances governing the same.
At its expense, Tenant shall maintain such signage in good condition, and shall
remove the same no later than thirty (30) days following the termination or
expiration of this Lease. Tenant shall repair any damage to the building caused
by such signage or its removal. Nothing in this paragraph shall preclude
Landlord from permitting a ground floor retail tenant to install exterior
signage adjacent to its premises.
10. Miscellaneous. Defined terms in the Lease shall have the same meaning
-------------
in this Amendment. The provisions of paragraph 7.1 shall apply to the Expansion
Space. Except as amended by this Amendment, the Lease remains in full force and
effect.
-6-
<PAGE>
11. Brokers. Cushman & Wakefield shall be recognized as the procuring
-------
broker in connection with this Fifth Amendment and will be paid a commission by
Landlord based solely upon the incremental rental payable by Tenant hereunder.
"Incremental rental" shall mean the difference between the base rent payable by
Tenant hereunder for the remainder of the initial term of the lease less the
amount Tenant was previously obligated to pay under the Lease, as amended. The
commission payable to Cushman & Wakefield shall be based upon the incremental
rental payable commencing as of the Commencement Date as though said rental was
payable under a new lease, with the amount and other terms of the commission
determined in accordance with the listing agreement between Landlord and the
listing broker, Grubb & Ellis.
IN WITNESS WHEREOF, the parties have executed this Fifth Amendment to Lease
as of the 24th day of July, 1993.
Landlord: BLUM'S BUILDING ASSOCIATES
By: /s/Blum's Building Associates
-----------------------------------
Tenant: PREVIEW MEDIA, INC.
By: /s/Preview Media, Inc.
-----------------------------------
Its: Vice President - Finance
----------------------------------
-7-
<PAGE>
SIXTH AMENDMENT TO LEASE
THIS SIXTH AMENDMENT TO LEASE (this "Amendment") is entered into as of
April 1,1997, by and between BLUM'S BUILDING ASSOCIATES ("Landlord"), and
PREVIEW TRAVEL, INC. ("Tenant")
RECITALS
--------
A. Landlord and Tenant entered into that certain lease dated September
15,1990 for certain premises located at 747 Front Street, San Francisco,
California, as amended pursuant to an Addendum to lease dated September 15,
1990, a second Addendum to lease dated November __, 1990, a Third lease
Amendment dated March 31, 1991, a Fourth Amendment to leased dated June __,
1992, and a Fifth Amendment to lease dated November 11,1992. The "Lease," as
amended by this Sixth Amendment to lease, (as so amended, the "Lease"), for
certain premises in the office building, as more fully described in the Lease.
B. Landlord and Tenant now desire to amend the Lease, subject to and upon
the terms and conditions of this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
1. Definitions. As used herein, terms shall have the same meanings
-----------
as in the Lease, except as otherwise defined herein.
2. Storage Space. Landlord hereby grants to Tenant the right to use
-------------
the area audited on the floor plan attached hereto and marked Attachment 1 (the
------------
"Storage Space") [on a non-exclusive basis, together with other tenants of the
Building). The Storage Space is agreed to be an area of approximately 2,000
square feet situated on the basement floor of the Building. Tenant shall have
access to the Storage Space during normal Building hours upon notice to Landlord
or the Building Manager, unless otherwise agreed in writing by Landlord and
Tenant. Landlord or Landlord's agents have made no representations or promises
with respect to the Storage Space except as herein expressly set forth. The
taking of possession of the Storage Space by Tenant shall be conclusive evidence
that Tenant accepts the same "as is" and that the Storage Space is suited for
the use intended by Tenant as storage for normal office materials and items and
was in good and satisfactory condition at the time such possession was taken.
Tenant represents to Landlord that Tenant's sole intended use of the Storage
Space is for storage of normal office materials and items, which has no special
requirements, including but not limited to, special security requirements. As
of the Storage Space Commencement Date, the Premises shall be deemed to include
the Storage Space for all purposes of the Lease, except for purposes of
calculating Tenant's share of operating expenses or taxes.
3. Term. The term of the Lease with respect to the Storage Space (the
----
"Storage Space
-1-
<PAGE>
Term") shall be for a period commencing on April 1, 1997 (the "Storage Space
Commencement Date") and ending on expiration or early termination of the term of
the Lease (the "Storage Space Expiration Date").
4. Rent. Tenant agrees to pay Landlord as Rent for the Storage Space the
----
sum of Sixteen Thousand Three Hundred Sixty Five and 00/100 Dollars ($16,356.00)
payable in twelve (12) equal monthly installments of One Thousand Three Hundred
Sixty Three and 00/100 Dollars ($1,363.00) each, in advance on the first day of
each calendar month during the Storage Space Term.
5. Uses. Tenant agrees that it will use the Storage Space for storage of
----
normal office materials and items, and for no other business or purpose.
Tenant, at its sole cost and expense, shall promptly comply with all local,
state or federal laws, statutes, ordinances and governmental rules, regulations
or requirements now in force or which may hereinafter be in force. Tenant shall
not use or permit the Storage Space to be used in any manner nor do any act
which would increase the existing rate of insurance on the Building or cause the
cancellation of any insurance policy covering the Building, nor shall Tenant
permit to be kept, used or sold, in or about the Storage Space, any article
which may be prohibited by the standard form of fire insurance policy, unless
Tenant obtains an endorsement to the policy allowing such activity. Tenant
shall not use, manufacture, keep, store, refine, release, discharge or dispose
of any hazardous substances, hazardous materials and hazardous wastes listed by
the U.S. Environmental Protection Agency or the State of California, including,
without limitation, PCBs, petroleum products, asbestos and asbestos-containing
materials (collectively, "Hazardous Substances"), on, under or near the Storage
Space or the Building. Tenant shall not cause or permit any waste material or
refuse to be dumped upon or remain upon any part of the Building outside the
Storage Space, nor shall Tenant cause or allow any materials, supplies,
equipment, finished products or semi-finished products or articles of any nature
to be stored upon or remain upon the Building outside the Storage Space.
6. Alterations. Tenant shall not make any alterations, additions or
-----------
improvements (collectively, "Alterations") in or to the Storage Space without
obtaining the prior written consent of Landlord, which consent shall not be
unreasonably withheld provided that the Alterations do not affect the Building's
structure, safety or systems.
7. Damage to Tenant's Property. Tenant acknowledges that the Storage
---------------------------
Space is not a secured space and may be accessible to third parties.
Nonetheless, Tenant agrees that Landlord and its agents shall not be liable for
(i) any damage to any property entrusted to employees of the Building, (ii) loss
or damage to any property by theft or otherwise, (iii) any injury or damage to
persons or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water or rain which may leak from any part of the Building or from
the pipes, appliances or plumbing work therein or from the roof, street or sub-
surface or from any other place or resulting from dampness or any other cause
whatsoever, or (iv) any damage or loss to the business or occupation of Tenant
arising from the acts or neglect of co-tenants or other occupants of the
Building. Tenant shall give prompt notice to Landlord in case of fire or
accident in the Storage Space.
-2-
<PAGE>
8. No Assignment or Subletting. Tenant shall not directly or indirectly,
---------------------------
voluntarily or by operation of law, sell, assign, encumber, pledge, or otherwise
transfer or hypothecate all of its interest in or rights with respect to the
Storage Space, or permit all or any portion of the Storage Space to be occupied
by anyone other than Tenant or sublet all or any portion of the Storage Space or
transfer a portion of its interest in or rights with respect to the Storage
Space.
9. Services. Landlord shall have no obligation to provide any services
--------
or utilities to the Storage Space except for lighting.
10. Building Planning. If Landlord requires the Storage Space for use in
-----------------
conjunction with another suite or other reasons connected with the Building
planning program, upon notifying Tenant in writing, Landlord shall have the
right to move Tenant to other storage space in the Building at Landlord's sole
cost and expense, and the terms and conditions of this Amendment shall remain in
full force and effect, except that a revised Attachment 1 shall become part of
this Amendment reflecting the location of the new space. However, if the new
space does not meet with Tenant's approval, Tenant shall have the right to
cancel the Lease with respect to the Storage Space upon giving Landlord notice
within ten (10) days of receipt of Landlord's notification.
11. Ratification. Except as modified herein, all of the terms and
------------
conditions of the Lease are hereby ratified and confirmed in all respects and
shall he applicable to the Storage Space as though such space was originally
included as part of the original Premises, except to the extent stated herein.
12. Successor and Assigns. This Amendment shall bind and inure to the
---------------------
benefit of Landlord and Tenant and their respective legal representatives and
successors and assigns.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
"LANDLORD" BLUM'S BUILDING ASSOCIATES
/s/ Cecilia Dodge Mackie
-------------------------------------
Cecilia Dodge Mackie
/s/ Edward J. Conner
-------------------------------------
Edward J. Conner
/s/ Herbert P. McLaughlin, Jr.
-------------------------------------
Herbert P. McLaughlin, Jr.
/s/ David D. Dodge
-------------------------------------
David D. Dodge
/s/ Stephen W. Dodge
-------------------------------------
Stephen W. Dodge
AS TRUSTEES UNDER THE WILL OF H. NEWELL DODGE
"TENANT" PREVIEW TRAVEL INC., A CALIFORNIA CORPORATION
(Formerly "PREVIEW MEDIA, INC.")
By: /s/Preview Travel, Inc.
-----------------------
Its: Chief Financial Officer
-----------------------
-4-
<PAGE>
EXHIBIT 10.14
PREVIEW TRAVEL, INC.
SEVERANCE AGREEMENT
This Severance Agreement (the "Agreement"), dated March __, 1997, is made
---------
and entered into by and between Kenneth Orton (the "Employee") and Preview
--------
Travel, Inc., a California corporation (the "Company").
-------
RECITALS
A. The Board has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the continued
dedication and objectivity of the Employee.
B. The Board believes that it is in the best interests of the Company and
its shareholders to provide the Employee with an incentive to continue his or
her employment and to motivate the Employee to maximize the value of the Company
for the benefit of its shareholders.
C. Certain capitalized terms used in the Agreement are defined in Section
5 below.
The parties hereto agree as follows:
1. TERM OF AGREEMENT. This Agreement shall terminate upon the date that
all obligations of the parties hereto with respect to this Agreement have been
satisfied.
2. AT-WILL EMPLOYMENT. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to the Measurement Date (as
defined below in Section 3(a)), the Employee shall not be entitled to any
payments, benefits, damages, awards or compensation other than as provided by
this Agreement, or as may otherwise be available in accordance with the
Company's established employee plans and practices or pursuant to other
agreements with the Company.
3. CONSULTING ARRANGEMENT.
(a) TERMINATION PRIOR TO MEASUREMENT DATE. If the Employee's
employment terminates as a result of Involuntary Termination other than for
Cause at any time prior to February 26, 1998 (the "Measurement Date"), then the
----------------
Employee and the Company shall enter into a consulting arrangement on the
following terms:
(1) CONSULTING ENGAGEMENT.
(a) Effective as of the Termination Date, the Company agrees to
retain the Employee as a consultant to perform such services (the "Consulting
----------
Services") for the Company as may be reasonably requested from time to time by
- --------
an officer of the Company (the "Consulting Arrangement"). The term of this
----------------------
Consulting Arrangement shall commence on the Termination
<PAGE>
Date and expire on the earlier of (i) the date the Employee commences work as a
consultant or employment as a salaried employee of another person, company or
entity which is actually or potentially in competition with any business
conducted by the Company, as determined by the Company in its sole discretion,
or (ii) 12 months following the Termination Date. As consideration for the
Employee's services under the Consulting Arrangement, the Company shall pay in
cash to Employee an amount equal to 1/12th of the Employee's Annual Compensation
on the last day of each full month following the Termination Date during which
the Consulting Arrangement is in effect. The Employee's stock options and/or
restricted stock shall continue to vest during the term of the Consulting
Arrangement to the extent provided in the applicable stock option or restricted
stock purchase agreement. Notwithstanding the foregoing, the Consulting
Arrangement may be terminated earlier by either party upon five days written
notice of termination if the other party fails to cure any material breach of
its obligations hereunder within 10 days after receipt of notice specifying such
breach.
(b) Upon the date of this Agreement, the Company shall amend each of
the option agreements pursuant to which Employee was granted options to purchase
the Company's Common Stock to provide that the exercise prices of such options
may be payable through the delivery by Employee of a promissory note in
substantially the form attached hereto as Exhibit A.
---------
(2) CONTINUED INSURANCE COVERAGE. Subject to the provisions of this
Section 3(a)(2), the Employee shall be entitled to one hundred percent (100%)
Company-paid health, disability, dental and life insurance coverage at the same
level of coverage as was provided to such Employee immediately prior to the
Termination Date (the "Company-Paid Coverage"). If such coverage includes the
---------------------
Employee's dependents immediately prior to the Termination Date, such dependents
shall also be covered at Company expense. Company-Paid Coverage shall continue
until the earlier of (i) termination of the Consulting Arrangement or (ii) the
date that the Employee and his or her dependents become covered under another
employer's group health, dental or life insurance plans that provide Employee
and his or her dependents with comparable benefits and levels of coverage. For
purposes of Title X of the Consolidated Budget Reconciliation Act of 1985
("Cobra"), the date of the "qualifying event" for Employee and his or her
- -------
dependents shall be the date upon which the Company-Paid Coverage terminates.
(b) VOLUNTARY RESIGNATION; TERMINATION FOR CAUSE. If the Employee's
employment terminates by reason of the Employee's voluntary resignation (and is
not an Involuntary Termination), or if the Employee is terminated for Cause,
then the Employee shall not be entitled to receive payments for consulting
services or other benefits under Section 3(a) except for those (if any) as may
then be established under the Company's then existing severance and benefits
plans and practices or pursuant to other agreements with the Company.
(c) DISABILITY; DEATH. If the Company terminates the Employee's
employment as a result of the Employee's Disability, or such Employee's
employment is terminated due to the death of the Employee, then the Employee
shall not be entitled to receive payments for consulting services or other
benefits under Section 3(a) except for those (if any) as
-2-
<PAGE>
may then be established under the Company's then existing severance and benefits
plans and practices or pursuant to other agreements with the Company.
(d) TERMINATION AFTER MEASUREMENT DATE. In the event the Employee's
employment is terminated for any reason after the Measurement Date, then the
Employee shall not be entitled to receive payments for consulting services or
other benefits under Section 3(a) except for those (if any) as may then be
established under the Company's existing severance and benefits plans and
practices or pursuant to other agreements with the Company.
4. ATTORNEY FEES, COSTS AND EXPENSES. The Company shall promptly
reimburse Employee, on a monthly basis, for the reasonable attorney fees, costs
and expenses incurred by the Employee in connection with any action brought by
Employee to enforce his or her rights hereunder. In the event Employee is not
the prevailing party, determined without regard to whether or not the action
results in a final judgment, Employee shall repay such reimbursements.
5. LIMITATION ON PAYMENTS. In the event that the payments and other
benefits provided for in this Agreement or otherwise payable to the Employee (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this
Section 5, would be subject to the excise tax imposed by Section 4999 of the
Code (or any corresponding provisions of state income tax law), then the
Employee's benefits under Section 3(a) shall be either
(a) delivered in full, or
(b) delivered as to such lesser extent which would result in no
portion of such benefits being subject to excise tax under Section 4999 of the
Code,
whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by Section
4999, results in the receipt by the Employee on an after-tax-basis, of the
greater amount of benefits, notwithstanding that all or some portion of such
benefits may be taxable under Section 4999 of the Code. Unless the Company and
the Employee otherwise agree in writing, any determination required under this
Section 5 shall be made in writing by the Company's independent public
accountants (the "Accountants"), whose determination shall be conclusive and
binding upon the Employee and the Company for all purposes. For purposes of
making the calculations required by this Section 5, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. The Company and the Employee shall furnish
to the Accountants such information and documents as the Accountants may
reasonably request in order to make a determination under this Section. The
Company shall bear all costs the Accountants may reasonably incur in connection
with any calculations contemplated by this Section 5. In the event that
subsection (a) above applies, then Employee shall be responsible for any excise
taxes imposed with respect to such benefits. In the event that subsection (b)
above applies, then each benefit provided hereunder shall be proportionately
reduced to the extent necessary to avoid imposition of such excise taxes.
-3-
<PAGE>
6. DEFINITION OF TERMS. The following terms used in this Agreement shall
have the following meanings:
(a) ANNUAL COMPENSATION. If the Employee's employment terminates as a
result of Involuntary Termination other than for Cause at any time prior to the
Measurement Date, "Annual Compensation" shall mean an amount equal to
$16,833.33.
(b) CAUSE. "Cause" shall mean (i) any act of personal dishonesty
taken by the Employee in connection with his or her responsibilities as an
employee and intended to result in substantial personal enrichment of the
Employee, (ii) Employee's committing and being convicted of a felony, (iii) a
willful act by the Employee which constitutes gross misconduct and which is
injurious to the Company or an act of fraud by Employee against the Company, or
(iv) following delivery to the Employee of a written demand for performance from
the Company which describes the basis for the Company's belief that the Employee
has not substantially performed his or her duties, continued violations by the
Employee of the Employee's obligations to the Company which are demonstrably
willful and deliberate on the Employee's part.
(c) DISABILITY. "Disability" shall mean that the Employee has been
unable to perform his or her Company duties as the result of his or her
incapacity due to physical or mental illness, and such inability, at least 26
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the Employee
or the Employee's legal representative (such Agreement as to acceptability not
to be unreasonably withheld). Termination resulting from Disability may only be
effected after at least 30 days' written notice by the Company of its intention
to terminate the Employee's employment. In the event that the Employee resumes
the performance of substantially all of his or her duties hereunder before the
termination of his or her employment becomes effective, the notice of intent to
terminate shall automatically be deemed to have been revoked.
(d) INVOLUNTARY TERMINATION. "Involuntary Termination" shall mean (i)
without the Employee's express written consent, the significant reduction of the
Employee's duties, authority or responsibilities, relative to the Employee's
duties, authority or responsibilities as in effect immediately prior to such
reduction, or the assignment to Employee of such reduced duties, authority or
responsibilities; (ii) without the Employee's express written consent, a
substantial reduction, without good business reasons, of the facilities and
prerequisites (including office space and location) available to the Employee
immediately prior to such reduction; (iii) a reduction by the Company in the
[base salary] of the Employee as in effect immediately prior to such reduction;
(iv) a material reduction by the Company in the kind or level of employee
benefits, including bonuses, to which the Employee was entitled immediately
prior to such reduction with the result that the Employee's overall benefits
package is significantly reduced; (v) the relocation of the Employee to a
facility or a location more than thirty (30) miles from the Employee's then
present location, without the Employee's express written consent; (vi) any
purported termination of the Employee by the Company which is not effected for
Disability or for Cause, or any purported termination for which the grounds
relied upon are not valid; (vii) the failure of the Company to obtain the
assumption of this Agreement by any successors contemplated in Section 7(a)
below; or (viii) any act or set of facts or
-4-
<PAGE>
circumstances which would, under California case law or statute, constitute a
constructive termination of the Employee.
(e) TERMINATION DATE. "Termination Date" shall mean (i) if this
Agreement is terminated by the Company for Disability, thirty (30) days after
notice of termination is given to the Employee (provided that the Employee shall
not have returned to the performance of the Employee's duties on a full-time
basis during such thirty (30)-day period), (ii) if the Employee's employment is
terminated by the Company for any other reason, the date on which a notice of
termination is given, provided that if within thirty (30) days after the Company
gives the Employee notice of termination, the Employee notifies the Company that
a dispute exists concerning the termination or the benefits due pursuant to this
Agreement, then the Termination Date shall be the date on which such dispute is
finally determined, either by mutual written agreement of the parties, or by a
final judgment, order or decree of a court of competent jurisdiction (the time
for appeal therefrom having expired and no appeal having been perfected), or
(iii) if the Agreement is terminated by the Employee, the date on which the
Employee delivers the notice of termination to the Company.
7. SUCCESSORS.
(a) COMPANY'S SUCCESSORS. Any successor to the Company (whether
direct or indirect and whether by purchase, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Agreement and agree expressly to
perform the obligations under this Agreement in the same manner and to the same
extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this Section
7(a) or which becomes bound by the terms of this Agreement by operation of law.
(b) EMPLOYEE'S SUCCESSORS. The terms of this Agreement and all rights
of the Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. NOTICE.
(a) GENERAL. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or five (5) days after being mailed by U.S. registered
or certified mail, return receipt requested and postage prepaid. In the case of
the Employee, mailed notices shall be addressed to him or her at the home
address which he or she most recently communicated to the Company in writing.
In the case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
(b) NOTICE OF TERMINATION. Any termination by the Company for Cause
or by the Employee as a result of a voluntary resignation and any Involuntary
Termination shall be
-5-
<PAGE>
communicated by a notice of termination to the other party hereto given in
accordance with Section 8(a) of this Agreement. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the termination
date (which shall be not more than 30 days after the giving of such notice). The
failure by the Employee to include in the notice any fact or circumstance which
contributes to a showing of Involuntary Termination shall not waive any right of
the Employee hereunder or preclude the Employee from asserting such fact or
circumstance in enforcing his or her rights hereunder.
9. MISCELLANEOUS PROVISIONS.
(a) NO DUTY TO MITIGATE. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Employee may receive from any
other source, subject to the termination provisions of Section 3(a)(1).
(b) WAIVER. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(c) WHOLE AGREEMENT. This Agreement represents the entire agreement
between the Employee and the Company with respect to the matters set forth
herein. No agreements, representations or understandings (whether oral or
written and whether express or implied) which are not expressly set forth in
this Agreement have been made or entered into by either party with respect to
the subject matter hereof.
(d) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California as applied to agreements entered into and performed within California
solely by residents of that state.
(e) SEVERABILITY. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(f) WITHHOLDING. All payments made pursuant to this Agreement will be
subject to withholding of applicable income and employment taxes.
-6-
<PAGE>
(g) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
[Signature Page Follow]
-7-
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the date set forth
above.
COMPANY: PREVIEW TRAVEL, INC.
By: /s/J. Hornthal
----------------------
Title:
----------------------
EMPLOYEE: /s/Ken Orton
--------------------
Kenneth Orton
-8-
<PAGE>
EXHIBIT A
---------
PROMISSORY NOTE
$ ______________ San Francisco, California
_______________, 199__
For value received, the undersigned promises to pay Preview Travel, Inc., a
California corporation (the "Company"), at its principal office the principal
-------
sum of $_________________ with interest from the date hereof at a rate of ___%
per annum, the lowest applicable federal rate necessary to avoid the imputation
of increase under the Internal Revenue Code of 1986, compounded semi-annually,
on the unpaid balance of such principal sum. Such principal and interest shall
be due and payable on _______________, 200__.
Principal and interest are payable in lawful money of the United States of
America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
INTEREST OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such sum
as the Court may deem reasonable shall be added hereto as attorneys' fees. The
makers and endorsers have severally waived presentment for payment, protest,
notice of protest, and notice of non-payment of this Note.
This Note, which is full recourse, is secured by a pledge of ___________
shares of Common Stock of the Company.
-----------------------------------
Signature
-----------------------------------
Name
-9-
<PAGE>
EXHIBIT 11.1
PREVIEW TRAVEL, INC.
STATEMENT RE: COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- -------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Weighted average common
shares outstanding.......... 1,140,366 1,227,979 1,630,803 1,579,150 1,707,145
Common equivalent shares
pursuant to Staff Accounting
Bulletin No. 83............. 1,837,824 1,837,824 1,837,824 1,837,824 1,837,824
--------- --------- --------- --------- ---------
Shares used in computing net
income (loss) per share..... 2,978,189 3,065,802 3,468,627 3,416,973 3,544,968
========= ========= ========= ========= =========
Shares used in computing pro
forma net loss per share:
Shares from above.......... 2,978,189 3,065,802 3,468,627 3,416,973 3,544,968
Assumed conversion of
preferred stock at the
date of issuance.......... 1,873,822 3,185,854 3,849,970 3,377,273 4,470,881
Assumed exercise warrants
and conversion of debt(1). 290,909 791,818 1,254,187 1,169,437 1,190,723
--------- --------- --------- --------- ---------
Shares used in computing
pro forma net income
(loss) per share.......... 5,142,920 7,043,475 8,572,784 7,963,683 9,206,572
========= ========= ========= ========= =========
</TABLE>
- ---------------------
(1) Required or expected to be exercised or converted as the effective of the
initial public offering.
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<C> <S>
NAME JURISDICTION OF INCORPORATION
Preview Travel Online, Inc. California
News Travel Network, Inc. California
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AT DECEMBER 31, 1996 AND JUNE 30, 1997 AND STATEMENTS OF OPERATIONS FOR
THE FISCAL YEAR AND SIX MONTHS THEN ENDED, RESPECTIVELY, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 6,016 1,136
<SECURITIES> 0 0
<RECEIVABLES> 1,284 1,588
<ALLOWANCES> (25) (25)
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,487 3,114
<PP&E> 4,195 5,229
<DEPRECIATION> (2,095) (2,527)
<TOTAL-ASSETS> 12,554 8,468
<CURRENT-LIABILITIES> 7,095 5,507
<BONDS> 0 0
0 0
5 5
<COMMON> 2 2
<OTHER-SE> 4,404 1,509
<TOTAL-LIABILITY-AND-EQUITY> 12,554 8,468
<SALES> 12,374 6,726
<TOTAL-REVENUES> 12,374 6,726
<CGS> 9,308 4,652
<TOTAL-COSTS> 8,567 5,140
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (89) 20
<INCOME-PRETAX> (5,590) (3,046)
<INCOME-TAX> (2) (1)
<INCOME-CONTINUING> (5,592) (3,047)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,592) (3,047)
<EPS-PRIMARY> (1.61) (0.86)
<EPS-DILUTED> N/A N/A
</TABLE>
