<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1998
REGISTRATION NO. 333-56659
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GEOCITIES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 7310 95-4515867
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
---------------
1918 MAIN STREET, SUITE 300
SANTA MONICA, CALIFORNIA 90405
(310) 664-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
STEPHEN L. HANSEN
CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER
GEOCITIES
1918 MAIN STREET, SUITE 300
SANTA MONICA, CALIFORNIA 90405
(310) 664-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
RICHARD A. FINK, ESQ. DONALD M. KELLER, JR., ESQ.
GREG T. WILLIAMS, ESQ. JEFFREY Y. SUTO, ESQ.
NEEL A. GROVER, ESQ. DAVID R. YOUNG, ESQ.
BROBECK, PHLEGER & HARRISON LLP DAVID T. SOBOTA, ESQ.
38 TECHNOLOGY DRIVE VENTURE LAW GROUP
IRVINE, CALIFORNIA 92618 A PROFESSIONAL CORPORATION
(949) 790-6300 2775 SAND HILL ROAD
MENLO PARK, CALIFORNIA 94025
(650) 854-4488
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
---------------
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. [_]
---------------
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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 7, 1998
4,750,000 SHARES
[LOGO OF GEOCITIES]
GEOCITIES(R)
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
-----------
All of the 4,750,000 shares of Common Stock offered hereby are being sold by
the Company. Prior to the offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
per share will be between $12.00 and $14.00. For factors to be considered in
determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for quotation, upon notice of issuance, on
the Nasdaq National Market under the symbol "GCTY".
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------ -----------
<S> <C> <C> <C>
Per Share............................... $ $ $
Total (3)............................... $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(2) Before deducting estimated expenses of $1,050,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 712,500 shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments. If
such options are exercised in full, the total initial public offering
price, underwriting discount and proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting".
----------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about , 1998, against payment therefor in immediately available
funds.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
HAMBRECHT & QUIST
----------
The date of this Prospectus is , 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH
THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
<PAGE>
[Fold-Out Cover]
Come join the world's largest community of personal Web sites on the Internet.
GeoCities provides a platform for people to express themselves. To share
interests. To bond. GeoCities creates a sense of place and a sense of
belonging. With real community spirit and genuine pride.
So far, over two million Homesteads have been built in the GeoCities
community. Each Homesteader receives a free personal Web site and free e-mail.
Homesteaders engage in lively forums and chats. GeoCities offers powerful,
easy-to-use publishing tools and the support of knowledgeable, neighborly
volunteers and staff.
[GRAPHICS OF FACE PHOTOGRAPHS, SCREEN SHOTS OF WEB SITES, QUOTES AND GEOCITIES
LOGO](R)
"I thought Michelle's page was nice, so I dropped her an e-mail. The rest, as
they say, is history. She accepted my proposal of marriage on January 31st of
this year."
[http://www.geocities.com/SouthBeach/Boardwalk/1038]
Liz and Allen desperately wanted a child to call their own. They created a
site on GeoCities to help them in their search. The Web site caught the eye of
Helen, a mother-to-be who was willing to fulfill the couple's dreams. Their
daughter Emily was born in May 1998.
Come explore the avenues and neighborhoods of GeoCities.
GeoCities Homesteaders create diverse content within themed virtual
neighborhoods. Make a connection with the authors. Share in their passion.
Discover an opportunity. Make a new friend.
Find out why GeoCities is one of the fastest growing communities on the
Internet. GeoCities is active, with more than half a million page edits every
24 hours. And no matter what you're looking for on the Web, chances are good
you'll land on GeoCities during your search.
The personal content drives significant monthly visits and page views.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and the Notes thereto appearing elsewhere
in this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in "Risk Factors" and
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus: (i) reflects, upon the closing of the offering, the automatic
conversion of all outstanding shares of the Company's preferred stock into
shares of Common Stock (the "Preferred Stock Conversion"); (ii) reflects the
Company's reincorporation in Delaware and a concurrent two-for-one stock split
of the Company's capital stock effected in July 1998 (including associated
changes to the Company's Certificate of Incorporation and Bylaws) and
(iii) assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
GeoCities offers the world's largest and one of the fastest growing
communities of personal Web sites on the Internet. GeoCities pioneered the
first large-scale, Web-based community for Internet users to express
themselves, share ideas, interests and expertise, and publish content
accessible to other users with common interests. The mainstay of the Company's
community are its "Homesteaders," Internet users who create their own personal
Web sites or "Homesteads" in themed "neighborhoods" on the GeoCities Web site.
These neighborhoods provide a context for Web users to publish content, to
share experiences and ideas with other users and to access a centralized and
easy-to-navigate destination for user-published content. With thousands of new
Homesteaders joining each day, the GeoCities community has grown from
approximately 10,000 Homesteads in October 1995 to over 2.1 million in July
1998. Homesteaders have created an estimated 17 million pages of personalized
content, attracting over 14.8 million unique visitors to, and generating over
925 million page views on, the GeoCities Web site, according to Relevant
Knowledge in June 1998 and Nielsen I/Pro in May 1998 in a report prepared for
the Company, respectively. GeoCities was the third most trafficked Web site on
the Internet among home users in June 1998, according to Media Metrix, and,
based on this information, the Company believes it was the most popular
community of personal Web sites on the Internet during the first two quarters
of 1998. This combination of GeoCities' distinctive community context, topical
organization and high volume of traffic provides advertisers and businesses
with an attractive platform for targeted Web advertising and Web commerce.
As the Internet continues to grow, Web users, advertisers and businesses are
increasingly seeking online communities. Users are seeking from the Web the
same opportunity for expression, interaction, sharing and recognition that they
seek in the everyday world. To date, a typical Internet user's experience
surfing the Web has been essentially one-way--searching and viewing Web sites
containing professionally created content on topics of general interest, such
as current events, sports, finance, politics and weather. In general, the Web
does not provide a context to publish, promote, search, view and react to
personal content. While Internet search and navigational sites have improved a
user's ability to seek out aggregated Web content, these sites are not
primarily focused on providing a robust platform for publishing or aggregating
the rapidly increasing volume of personalized content created by users with
similar interests, or enabling such users to interact with one another.
Similarly, users browsing the Web are increasingly seeking ways of accessing
unique, personalized content, and interacting and communicating with other
individuals with similar interests. Often the most relevant content for a user
is that generated by other users who share a common interest. Online
communities offer a centralized means of accessing diverse, user-created
content in an easy-to-navigate context
3
<PAGE>
and the ability to interact directly with the author of such personalized
content. For advertisers and businesses, online communities hold the potential
of reaching highly targeted audiences within a more personalized context, thus
providing the opportunity to increase advertising efficiency and improve the
likelihood of a sale.
GeoCities offers Web users the ability to join and become actively involved
in the world's largest Web community of personal Web sites. GeoCities provides
Web users with free disk space and publishing tools to quickly and easily
create their own sites in one of over 40 topically organized neighborhoods,
such as CapitolHill for politics, Colosseum for sports, Hollywood for movies
and television and WallStreet for finance. Homesteaders are encouraged to
become active participants in the GeoCities community by updating their sites
and communicating with others through free e-mail, chat and bulletin-board
services provided by the Company. The Company offers Homesteaders seeking
greater involvement the opportunity to join the ranks of over one thousand
active Community Leaders and Community Liaisons--volunteers who welcome
Homesteaders and provide them with assistance, suggest improvements to
GeoCities and monitor the GeoCities community for compliance with community
guidelines. In addition, the Company seeks to make the GeoCities community a
primary destination point for Internet users seeking personalized, user-created
content. Through the Company's enhanced user interface, GeoCities provides a
central site for Internet users to quickly access and view millions of pages of
topically organized content created by fellow users. This distinct community
context and high volume of traffic attracts advertisers, vendors and third-
party content providers from whom the Company derives revenue from advertising
and online commerce. For the six months ended June 30, 1998, the Company had
161 advertising customers, including Acura, IBM, Microsoft and VISA, and four
premier commerce partners, including Amazon.com, CDnow, First USA and Surplus
Direct/Egghead. The Company's equity investors include Chase Capital Partners,
CMG@Ventures, Intel Corporation, SOFTBANK Holdings Inc. and Yahoo! Inc.
The Company's objective is to be the world's leading member-created online
community for Web users. The Company's strategy includes: (i) expanding its
Homesteader base and strengthening Homesteader affinity through the
introduction of new classes of membership, more advanced and easier-to-use
publishing tools and affinity-building programs; (ii) building the GeoCities
brand; (iii) enhancing the GeoCities site functionality and performance through
continued investments in technology and site infrastructure; (iv) expanding
globally, through initiatives similar to its current GeoCities Japan
Corporation joint venture with SOFTBANK Corporation of Japan and
(v) establishing additional strategic relationships, such as its current
distribution relationship with Yahoo! Inc. The Company believes that this
strategy will result in a highly scalable business platform from which it can
generate revenues from multiple sources, including advertising, commerce and
premium membership services. The Company does not generate revenues from
general Internet access or subscription fees.
The Company was incorporated under the laws of California in December 1994
and reincorporated in Delaware in July 1998. Unless the context otherwise
requires, references in this Prospectus to the "Company" or "GeoCities" refer
to GeoCities, a Delaware corporation and its predecessor California
corporation. The Company's principal executive offices are located at 1918 Main
Street, Suite 300, Santa Monica, California 90405. Its telephone number at that
location is (310) 664-6500.
GeoCities is a registered service mark of the Company. GeoPlus, GeoPoints,
GeoRewards, GeoShops and GeoTickets are service marks of the Company. This
Prospectus contains other product names, trade names, service marks and
trademarks of the Company and of other organizations, all of which are the
property of their respective owners.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company... 4,750,000 shares
Common Stock to be outstanding after
the offering......................... 30,661,000 shares(1)
Use of proceeds....................... For investments in the GeoCities
community site, including enhancements
to the Company's server and networking
infrastructure and the functionality of
its Web site, and general corporate
purposes, including working capital,
expansion of its sales and marketing
capabilities and brand-name promotions.
See "Use of Proceeds".
Nasdaq National Market symbol......... "GCTY"
</TABLE>
SUMMARY FINANCIAL DATA
The following table sets forth certain summary financial data for the
Company. This information should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1995 1996 1997 1997 1998
-------- ------- -------- ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $ 46 $ 314 $ 4,582 $ 1,632 $ 5,542
Gross profit (loss)..... (57) (474) (52) 211 1,605
Loss from operations.... (479) (2,965) (9,019) (3,629) (7,739)
Net loss................ $ (482) $(3,006) $ (8,903) $(3,561) $(7,253)
======== ======= ======== ======= =======
Basic and diluted net
loss per share (2)..... $ (3.40) $ (2.27)
Shares outstanding used
in basic and diluted
net loss per-share
calculation (2)........ 2,620 3,194
Pro forma basic and
diluted net loss per
share (3).............. $ (0.36) $ (0.29)
Shares outstanding used
in pro forma basic and
diluted net loss per
share calculation (3).. 24,850 25,425
<CAPTION>
JUNE 30, 1998
-------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
-------- ------------ --------------
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash
equivalents and short-
term investments....... $ 20,388 $20,388 $76,765
Working capital......... 17,706 17,706 74,083
Total assets............ 28,260 28,260 84,637
Debt and capital lease
obligations, less
current portion........ 780 780 780
Mandatory redeemable
convertible preferred
stock.................. 37,200 -- --
Total stockholders'
equity (deficiency).... (15,868) 21,332 77,709
</TABLE>
- --------
(1) Based on the number of shares of Common Stock outstanding as of June 30,
1998. Excludes (i) 6,531,000 shares of Common Stock issuable upon the
exercise of outstanding stock options, including stock options outstanding
under the Company's 1998 Stock Incentive Plan (the "1998 Stock Incentive
Plan"), at a weighted average exercise price of $1.97 per share; (ii)
2,671,000 shares of Common Stock reserved for future issuance under the
1998 Stock Incentive Plan (which includes an increase of 2,300,000 shares
in the reserve under the 1998 Stock Incentive Plan approved in July); (iii)
427,000 shares issuable upon the exercise of stock options granted under
the predecessor plan to the 1998 Stock Incentive Plan in July 1998, at a
weighted average exercise price of $10.88 per share; (iv) 300,000 shares of
Common Stock reserved for future issuance under the Company's Employee
Stock Purchase Plan (the "Purchase Plan"); (v) 20,304 shares of Common
Stock issuable upon the exercise of an outstanding warrant at an exercise
price of $4.695 per share and (vi) up to 46,154 shares of Common Stock to
be issued pursuant to a technology purchase agreement, assuming an initial
public offering price of $13.00 per share. Includes 15,840 shares of Common
Stock to be issued to the Community Leaders and Liaisons under the 1998
Stock Incentive Plan. See "Capitalization", "Management--Employee Benefit
Plans", "Description of Capital Stock" and Notes 2, 6, 8, 10 and 12 of
Notes to Financial Statements.
(2) See Notes 2 and 10 of Notes to Financial Statements for the determination
of shares used in computing basic and diluted loss per share.
(3) Pro forma gives effect to the Preferred Stock Conversion.
(4) As adjusted to reflect the sale of 4,750,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $13.00 per share
after deducting the estimated underwriting discount and estimated offering
expenses payable by the Company. See "Use of Proceeds" and
"Capitalization".
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information
contained in this Prospectus, should be carefully considered in evaluating the
Company and its business before purchasing the Common Stock offered hereby.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus.
LIMITED OPERATING HISTORY; NO ASSURANCE OF PROFITABILITY; ANTICIPATED LOSSES
The Company was founded in December 1994, but did not begin generating
advertising revenues until mid-1996. For 1997 and the six months ended June
30, 1998, the Company generated revenues of $4.6 million and $5.5 million,
respectively. Accordingly, the Company has a limited operating history upon
which an evaluation of the Company, its current business and prospects can be
based. In addition, the Company's revenue model is evolving and relies
substantially upon the sale of advertising on its Web site. The Company's
business must be considered in light of the risks, expenses and problems
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets such as the
Internet. Specifically, such risks include, without limitation, the inability
of the Company to maintain and increase levels of traffic on the GeoCities Web
site, the failure by the Company to continue to develop and extend the
GeoCities brand, the inability of the Company to meet minimum guaranteed
impressions under advertising agreements, the lack of broad acceptance of the
community model on the Internet, the inability of the Company to attract or
retain members, acceptance by Homesteaders of advertising on Homesteads, the
inability of the Company to generate significant Web-based commerce revenues
or premium service revenues from its members, the failure of the Company to
anticipate and adapt to the developing Internet market, the failure of its
server and networking systems to efficiently handle the Company's Web traffic,
changes in laws that adversely affect the Company's business, competition, the
inability to effectively manage rapidly expanding operations, dependence on
the Internet, the introduction and development of different or more extensive
communities by direct and indirect competitors, particularly in light of the
fact that many of such competitors are much larger and have greater financial,
technical and marketing resources than the Company, the failure of the Web to
achieve broad acceptance as an advertising and commercial medium, reductions
in market prices for Web-based advertising as a result of competition or
otherwise, the inability of the Company to maintain or achieve higher rates
for advertising, the inability of the Company to identify, attract, retain and
motivate qualified personnel, other risks noted in this section of the
Prospectus, and general economic conditions. There can be no assurance that
the Company will be successful in addressing such risks, and any failure to do
so could have a material adverse effect on the Company's business, results of
operations and financial condition.
As of June 30, 1998, the Company had an accumulated deficit of $19.7
million. Although the Company has experienced revenue growth in recent
periods, there can be no assurance that the revenues of the Company will
continue at their current level or increase in the future. The Company has not
achieved profitability on a quarterly or annual basis to date, and the Company
anticipates that it will incur net losses for the foreseeable future. The
extent of these losses will be contingent, in part, on the amount of growth in
the Company's revenues from advertising, commerce and premium membership
service fees. The Company expects its operating expenses to increase
significantly, especially in the areas of sales and marketing and brand
promotion, and, as a result, will need to generate increased quarterly
revenues to achieve profitability. The extremely limited operating history of
the Company makes the prediction of future results of operations difficult or
impossible, and, therefore, the recent revenue growth experienced by the
Company should not be taken as an
6
<PAGE>
indication of the rate of revenue growth, if any, that can be expected in the
future. The Company believes that period-to-period comparisons of its
operating results are not meaningful and that the results for any period
should not be relied upon as an indication of future performance. To the
extent that revenues do not grow at anticipated rates or that increases in its
operating expenses precede or are not subsequently followed by commensurate
increases in revenues, or that the Company is unable to adjust operating
expense levels accordingly, the Company's business, results of operations and
financial condition will be materially and adversely affected. There can be no
assurance that the Company's operating losses will not increase in the future
or that the Company will ever achieve or sustain profitability.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; UNPREDICTABILITY OF FUTURE
REVENUES; SEASONALITY
The Company's operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside of the Company's
control. These factors include demand for Web-based advertising, acceptance of
the Web as an advertising medium, the level of traffic on the GeoCities Web
site, the advertising budgeting cycles of advertisers, the amount and timing
of capital expenditures and other costs relating to the expansion of the
Company's operations, the introduction of new or enhanced services by the
Company or its competitors, the timing and number of new hires, pricing
changes for Web-based advertising as a result of competition or otherwise, the
loss of a key advertising contract or relationship by the Company, changes in
the Company's pricing policy or those of its competitors, the mix of types of
advertisements sold by the Company, engineering or development fees that may
be paid in connection with adding new Web site development and publishing
tools, technical difficulties with the GeoCities Web site, incurrence of costs
relating to future acquisitions, general economic conditions, and economic
conditions specific to the Internet or all or a portion of the technology
sector. As a strategic response to changes in the competitive environment, the
Company may from time to time make certain pricing, service or marketing
decisions or business combinations that could have a material adverse effect
on the Company's business, results of operations and financial condition. In
order to accelerate the promotion of the GeoCities brand, the Company intends
to significantly increase its marketing budget. A substantial increase in
marketing expenditures will have a negative impact on the Company's results of
operations for a number of quarterly periods. The Company has experienced, and
expects to continue to experience, seasonality in its business, with user
traffic on the GeoCities Web site being lower during the summer and year-end
vacation and holiday periods when overall usage of the Web is lower.
Additionally, seasonality may significantly affect the Company's advertising
revenues during the first and third calendar quarters, as advertisers
historically spend less during these periods. Because Web-based advertising is
an emerging market, additional seasonal and other patterns in Web advertising
may develop in the future as the market matures, and there can be no assurance
that such patterns will not have a material adverse effect on the Company's
business, results of operations and financial condition.
As a result of the Company's limited operating history, the Company has
limited meaningful historical financial data upon which to base planned
operating expenses. Accordingly, the Company's expense levels are based in
part on its expectations as to future revenues from advertising, commerce
revenue-sharing arrangements, premium membership service fees and its
anticipated growth in memberships and to a large extent are fixed. There can
be no assurance that the Company will be able to accurately predict its
revenues, particularly in light of the intense competition for the sale of
Web-based advertisements, revenue-sharing opportunities and new members, the
Company's limited operating history and the uncertainty as to the broad
acceptance of the Web as an advertising and commerce medium. Any failure by
the Company to accurately predict revenues in relation to fixed-expense levels
could have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company derives a significant portion of its revenues from the sale of
advertising under short-term contracts, averaging one to two months in length.
As a result, the Company's quarterly
7
<PAGE>
revenues and operating results are, to a significant extent, dependent on
advertising revenues from contracts entered into within the quarter, as well
as on the Company's ability to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. To date, a significant
portion of the Company's revenues in any given period has been derived from a
small group of customers, the composition of which generally changes from
period to period. The Company expects this situation to continue in the
future. The Company's largest customer, Egghead, Inc. ("Surplus
Direct/Egghead"), accounted for approximately 12% and 10% of the Company's net
revenues during 1997 and the six months ended June 30, 1998, respectively. The
Company's four largest customers during 1997 and the six months ended June 30,
1998, including Surplus Direct/Egghead, which were, other than Surplus
Direct/Egghead, different customers in both of such periods, accounted for
approximately 29% and 28%, respectively, of the Company's net revenues in such
periods. The cancellation or deferral of existing advertising or commerce
contracts or the failure to obtain new contracts in any quarter could
materially and adversely affect the Company's business, results of operations
and financial condition for that quarter and future periods. Furthermore, the
Company's advertising revenues are based in part on the amount of traffic on
the GeoCities Web site. Accordingly, any significant shortfall in traffic on
the GeoCities Web site in relation to the Company's expectations or the
expectations of existing or potential advertisers would have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, substantially all of the Company's advertising
contracts require the Company to guarantee a minimum number of impressions. In
the event that these minimum impressions are not met, the Company could be
required to provide credit for additional impressions, the ability of the
Company to sell advertising to new or existing advertisers could be adversely
affected and the Company could be forced to reduce advertising rates.
A key element of the Company's strategy is to generate revenues through
revenue-sharing relationships with commerce partners in addition to selling
standard banner advertising. The Company currently has short-term agreements
with four premier commerce partners: Amazon.com, CDnow, First USA and Surplus
Direct/Egghead. Under the terms of these agreements, the Company has agreed to
limit the number of such premier commerce partners on its Web site to four and
certain other restrictions. Each of these agreements is renewable at the
option of the other party, subject to the payment of certain renewal fees and
rates. To date, the revenues received by the Company under the revenue-sharing
portions of these arrangements have not been material, and there can be no
assurance that the Company will receive a material amount of revenues under
these agreements in the future. The Company's agreement with Surplus
Direct/Egghead allows Surplus Direct/Egghead to terminate its agreement with
the Company upon 30 days notice, subject to the payment of certain termination
fees. Moreover, there can be no assurance that any of these parties will
exercise its renewal right or that Surplus Direct/Egghead will not exercise
its right to terminate its agreement with the Company, either of which events
could have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, under the terms of its
agreement with First USA, the Company is obligated to generate a certain
number of accepted credit-card applications, and, if the Company fails to
generate such applications, it is generally required to increase the amount of
advertising it provides to First USA on its site. There can be no assurance
that this provision will not have a material adverse effect on the Company's
business, results of operations and financial condition.
Due to any of the foregoing factors, in some future quarter or quarters the
Company's operating results may fall below the expectations of securities
analysts and investors. In such event, the trading price of the Company's
Common Stock would likely be materially and adversely affected.
UNPROVEN BUSINESS MODEL; DEPENDENCE ON MEMBERS
The Company's business model depends upon its ability to leverage its
community platform and generate multiple revenue streams. The potential
profitability of this business model is unproven, and, to be successful, the
Company must, among other things, develop and market solutions that achieve
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broad market acceptance by its members, Internet advertisers, commerce vendors
and Internet users. Under the Company's model, the Company is substantially
dependent upon its member-generated content, the grass-roots promotional
efforts of its members, the acceptance by its members of advertising and other
promotional programs of third parties and the Company, including the Company's
recently introduced watermark on Homesteads, and the voluntary involvement of
its Community Leaders and Liaisons to attract Web users to its site and to
reduce the demands on Company personnel. This model has existed for only a
limited period of time, and, as a result, is relatively unproven. There can be
no assurance that the Company's member-generated content or the promotional
efforts of its members will continue to attract users to the Company's Web
site. There can also be no assurance that the Company's Community Leaders and
Liaisons will continue to devote their time voluntarily to improving the
community, or, given the fact that the Company provides free disk space to its
Homesteaders and the Company supports the involvement of its Community Leaders
and Liaisons, that third parties will not attempt to hold the Company
responsible for such content and/or any actions or omissions of such Community
Leaders and Liaisons. There also can be no assurance that the Company's
business, results of operations and financial condition would not be
materially and adversely affected if a substantial number of Homesteaders
became dissatisfied with the Company's services or its focus on the
commercialization of those services. Moreover, there can be no assurance that
community on the Internet or the Company's services and brand will achieve
broad market acceptance. Accordingly, no assurance can be given that the
Company's business model will be successful or that it can sustain revenue
growth or generate significant profits.
RELIANCE ON ADVERTISING REVENUES AND UNCERTAIN ADOPTION OF THE WEB AS AN
ADVERTISING MEDIUM
The Company has derived a substantial majority of its revenues to date from
the sale of advertisements, including banner advertising revenues and
advertising revenues from its premier commerce partners. For 1997 and the six
months ended June 30, 1998, advertising revenues represented 90.6% and 90.2%,
respectively, of the Company's net revenues. The Company's strategy is to
continue to emphasize advertising as a method of generating revenues. The
Company's current business model is therefore highly dependent on the amount
of traffic on the Company's Web site. This type of business model, however, is
relatively unproven. The Internet as an advertising medium has not been
available for a sufficient period of time to gauge its effectiveness as
compared with traditional advertising media. Many of the Company's advertisers
have only limited experience with the Web as an advertising medium, have not
yet devoted a significant portion of their advertising budgets to Web-based
advertising and may not find such advertising to be effective for promoting
their products and services relative to traditional print and broadcast media.
For 1997, advertising on the Web represented less than 0.5% of overall
advertising revenues in the United States according to industry sources. The
Company's ability to generate significant advertising revenues will also
depend on, among other things, the development of a large base of users of the
Company's services possessing demographic characteristics attractive to
advertisers and the ability of the Company to develop or acquire effective
advertising delivery and measurement systems.
The adoption of Web-based advertising, particularly by those entities that
have historically relied upon traditional media for advertising, requires the
acceptance of a new way of conducting business and exchanging information.
Entities that already have invested substantial resources in other methods of
conducting business may be reluctant to adopt a new strategy that may limit or
compete with their existing efforts. There can be no assurance that the market
for Web advertising will continue to emerge or become sustainable. If the
market develops more slowly than expected, the Company's business, results of
operations and financial condition could be materially and adversely affected.
No standards have been widely accepted for the measurement of the
effectiveness of Web-based advertising, and there can be no assurance that
such standards will develop sufficiently to support the Web as an effective
advertising medium. There can be no assurance that advertisers will accept the
Company's or other third-party measurements of impressions, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, there is intense
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competition in the sale of advertising on the Web resulting in a wide variety
of pricing models, rate quotes and advertising services, making it difficult
to project future levels of advertising revenues and rates. It is also
difficult to predict which pricing models, if any, will achieve broad
acceptance among advertisers. The Company has traditionally based its
advertising rates on providing advertisers with a guaranteed number of
impressions, and any failure of the Company's advertising model to achieve
broad market acceptance would have a material adverse effect on the Company's
business, results of operations and financial condition.
The process of managing advertising within a large, high-traffic Web site
such as the Company's is an increasingly important and complex task. The
Company licenses from IMGIS, Inc. ("IMGIS") its advertising management system
(the "AdForce service"). Under the license agreement, IMGIS provides the
Company an Internet advertising administration system to facilitate the
Company's management of advertising on its Web site. The Adforce service is
intended to permit the Company to generate ad tags, schedule advertising to
run in the online environments in which the Company places the ad tags and
generate reports on such advertising. The IMGIS agreement is for a term of two
years and will expire in May 2000, subject to the Company's right to terminate
the agreement with or without cause during the 30-day period following May 4,
1999. Additionally, the Company may terminate the agreement for IMGIS' non-
performance under the agreement. No assurance can be given that the Company
will not elect to terminate the agreement. If it elected to do so, the Company
believes that it could replace the Adforce service with other available
advertising management systems. However, any such termination and replacement
could disrupt the Company's ability to manage its advertising operations for a
period of time. In addition, to the extent that the Company encounters system
failures or material difficulties in the operation of this system, the Company
could be unable to deliver banner advertisements and sponsorships through its
Web site. Any extended failure of, or material difficulties encountered in
connection with, the Company's advertising management system may expose the
Company to "make good" obligations with its advertisers, which, by displacing
saleable advertising inventory, among other consequences, would reduce
revenues and have a material adverse effect on the Company's business, results
of operations and financial condition.
There can be no assurance that current advertisers will continue to purchase
advertising space and services from the Company at current levels or at all,
or that impressions sufficient to generate revenues will be achieved, or that
the Company will be able to successfully attract additional advertisers.
Furthermore, with the rapid growth of available advertising inventory on the
Internet and the intense competition among sellers of advertising space, it is
difficult to project pricing models that will be adopted by the industry or
individual companies. The Company's ability to generate significant
advertising revenues will depend, in part, on the ability of the Company to
leverage additional platforms within its community for new advertising
programs without diluting the perceived value of its existing programs.
Moreover, "filter" software programs that limit or remove advertising from a
Web user's desktop are available; widespread adoption or increased use of such
software by users could have a material adverse effect upon the viability of
advertising on the Web and on the Company's business, results of operations
and financial condition. There can be no assurance that the Company will be
successful in generating significant future advertising revenues or other
source of revenues, and any failure to do so would have a material adverse
effect on the Company's business, results of operations and financial
condition.
MANAGEMENT OF GROWTH AND RELATIONSHIPS; BRIEF TENURE OF MANAGEMENT; DEPENDENCE
ON KEY PERSONNEL
The Company has experienced and may continue to experience rapid growth,
which has placed, and could continue to place, a significant strain on the
Company's managerial, financial and operational resources. The Company is
required to manage multiple relationships with various strategic partners,
technology licensors, members, advertisers and other third parties. These
requirements will be exacerbated in the event of further growth of the Company
or in the number of third party relationships, and there can be no assurance
that the Company's systems, procedures or controls will be adequate to support
the Company's operations or that Company management will be
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able to manage any growth effectively. To effectively manage its potential
growth, the Company must continue to implement and improve its operational,
financial and management information systems and to expand, train and manage
its employee base. As of June 30, 1998, the Company had grown to 148 full-time
employees from 63 on June 30, 1997, and the Company anticipates that the
number of its employees will increase significantly in the next 12 months. The
Company has recently hired a substantial number of its existing executive
officers to establish a management infrastructure to manage the potential
growth of its business, including its Chief Executive Officer (May 1998),
Chief Financial and Chief Operating Officer (November 1997), Vice President,
Advertising Sales (September 1997), Vice President, Marketing (May 1998), Vice
President, Business Development (May 1998) and Vice President, Human Resources
(June 1998). In certain cases, these executives replaced existing executive
officers, but in all other cases were added to fill newly-created positions in
response to the Company's expanding operations. These individuals have not
previously worked together and are in the process of integrating as a
management team, and there can be no assurance that they will be able to work
together effectively or successfully manage any growth experienced by the
Company. Certain of the Company's new executives lack experience in an
Internet industry environment and, accordingly, there can be no assurance that
they will quickly adapt to the Internet marketplace. In addition, the majority
of the Company's sales personnel have recently joined the Company, and there
can be no assurance that they will be successful in increasing the Company's
level of sales.
The Company's performance is substantially dependent on the performance of
its executive officers and other key employees. The Company does not currently
have "key person" life insurance policies on any of its employees, other than
on David Bohnett, the Company's Chairman and founder. The loss of the services
of any of its executive officers or other key employees could have a material
adverse effect on the business, results of operations and financial condition
of the Company. Competition for senior management, experienced media sales and
marketing personnel, qualified Web engineers and other employees is intense,
and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. The Company has experienced
difficulty from time to time in hiring and retaining the personnel necessary
to support the growth of its business, and there can be no assurance that the
Company will not experience similar difficulty in the future. The failure of
the Company to successfully manage its personnel requirements would have a
material adverse effect on the Company's business, results of operations and
financial condition.
INTENSE COMPETITION
The market for members, visitors and Internet advertising is new and rapidly
evolving, and competition for members, visitors and advertisers is intense and
is expected to increase significantly in the future. Barriers to entry are
relatively insubstantial. The Company believes that the principal competitive
factors for companies seeking to create community on the Internet are critical
mass, functionality, brand recognition, member affinity and loyalty, broad
demographic focus and open access for visitors. Other companies who are
primarily focused on creating Web-based community on the Internet are Tripod,
Inc., a subsidiary of Lycos, Inc. ("Tripod/Lycos"), Angelfire Communications
("Angelfire"), Xoom, Inc. ("Xoom") and theglobe.com ("theglobe"). The Company
will likely also face competition in the future from Web directories, search
engines, shareware archives, content sites, commercial online service
providers ("OSPs"), sites maintained by Internet service providers ("ISPs")
and other entities that attempt to or establish communities on the Internet by
developing their own community or acquiring one of the Company's competitors.
In addition, the Company could face competition in the future from traditional
media companies, a number of which, including Disney, CBS and NBC, have
recently made significant acquisitions of or investments in Internet
companies. Further, there can be no assurance that the Company's competitors
and potential competitors will not develop communities that are equal or
superior to those of the Company or that achieve greater market acceptance
than the Company's community. The Company also competes for visitors with many
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Internet content providers and ISPs, including Web directories, search
engines, shareware archives, content sites, commercial online services and
sites maintained by Internet service providers, as well as thousands of
Internet sites operated by individuals and government and educational
institutions. These competitors include free information, search and content
sites or services, such as America Online, Inc. ("AOL"), CNET, Inc. ("CNET"),
CNN/Time Warner, Inc. ("CNN/Time Warner"), Excite, Inc. ("Excite"), Infoseek
Corporation ("Infoseek"), Lycos, Inc. ("Lycos"), Netscape Communications
Corporation ("Netscape"), Microsoft Corporation ("Microsoft") and Yahoo! Inc.
("Yahoo!") some of whom, such as Yahoo! and Lycos, may also have relationships
with GeoCities. The Company also competes with the foregoing companies, as
well as traditional forms of media such as newspapers, magazines, radio and
television, for advertisers and advertising revenues. The Company believes
that the principal competitive factors in attracting advertisers include the
amount of traffic on its Web site, brand recognition, customer service, the
demographics of the Company's members and viewers, the Company's ability to
offer targeted audiences and the overall cost-effectiveness of the advertising
medium offered by the Company. The Company believes that the number of
Internet companies relying on Web-based advertising revenue will increase
substantially in the future. Accordingly, the Company will likely face
increased competition, resulting in increased pricing pressures on its
advertising rates which could in turn have a material adverse effect on the
Company's business, results of operations and financial condition.
Many of the Company's existing and potential competitors, including Web
directories and search engines and large traditional media companies, have
longer operating histories in the Web market, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than the Company. Such competitors are able to undertake more
extensive marketing campaigns for their brands and services, adopt more
aggressive advertising pricing policies and make more attractive offers to
potential employees, distribution partners, commerce companies, advertisers
and third-party content providers. There can be no assurance that Internet
content providers and ISPs, including Web directories, search engines,
shareware archives, sites that offer professional editorial content,
commercial online services and sites maintained by ISPs will not be perceived
by advertisers as having more desirable Web sites for placement of
advertisements. In addition, substantially all of the Company's current
advertising customers and strategic partners also have established
collaborative relationships with certain of the Company's competitors or
potential competitors, and other high-traffic Web sites. Accordingly, there
can be no assurance that the Company will be able to grow its membership base,
traffic levels and advertiser customer base at historical levels or retain its
current members, traffic levels or advertiser customers, or that competitors
will not experience greater growth in traffic than the Company as a result of
such relationships which could have the effect of making their Web sites more
attractive to advertisers, or that the Company's strategic partners will not
sever or will elect not to renew their agreements with the Company. There can
also be no assurance that the Company will be able to compete successfully
against its current or future competitors or that competition will not have a
material adverse effect on the Company's business, results of operations and
financial condition.
RISK OF CAPACITY CONSTRAINTS; SYSTEM FAILURES; TECHNOLOGICAL RISKS
The performance of the Company's server and networking hardware and software
infrastructure is critical to the Company's business and reputation and its
ability to attract Web users, advertisers, new members and commerce partners
to the Company's Web site. Any system failure that causes an interruption in
service or a decrease in responsiveness of the Company's Web site could result
in less traffic on the Company's Web site and, if sustained or repeated, could
impair the Company's reputation and the attractiveness of its brand name. The
Company maintains redundant systems for all critical operational areas. If
necessary, connectivity through a failed router or switch can be restored via
one of the hot standby systems maintained on site. Moreover, the Company
maintains redundant application servers and databases to ensure full
functionality in the event of a system failure. Disk storage is
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configured to survive multiple drive failures without risk of data loss. To
ensure backup and restoration of all production data, the Company's system is
comprised of several dedicated servers and tape libraries with the capacity to
backup the Web site every 24 hours. Backup media is rotated into offsite
archives to ensure data integrity should catastrophic events occur on site.
The Company maintains business interruption insurance to provide coverage due
to systems failures which it believes is adequate for its operations.
The Company entered into a one-year Web-hosting agreement with Exodus
Communications, Inc. ("Exodus") in November 1997. This agreement is
automatically renewed for subsequent one-year terms unless either party
provides notice at least 90 days prior to the expiration of any term. Pursuant
to the agreement, Exodus provides and manages power and environmentals for the
Company's networking and server equipment. Exodus also provides site
connectivity to the Internet via multiple DS-3 and OC-3 links on a 24 hour-a-
day, seven days per week basis. In the event that the Company's Internet
connectivity is interrupted due to reasons within Exodus' reasonable control,
Exodus must in general provide the Company with additional access at no
charge. Under the terms of the agreement, Exodus does not, however, guarantee
that the Company's Internet access will be uninterrupted, error-free or
completely secure. Any disruption in the Internet access provided by Exodus or
any failure of the Company's server and networking systems to handle current
or higher volumes of traffic could have a material adverse effect on the
Company's business, results of operations and financial condition. An increase
in the use of the Company's Web site could strain the capacity of its systems,
which could lead to slower response time or system failures. Slowdowns or
system failures adversely affect the speed and responsiveness of the Company's
Web site and would diminish the experience for the Company's members and
visitors and reduce the number of impressions received by advertisers, and,
thus, could reduce the Company's advertising and commerce revenues. The
ability of the Company to provide effective Internet connections or of its
systems to manage substantially larger numbers of customers at higher
transmission speed is as yet unknown, and, as a result, the Company faces
risks related to its ability to scale up to its expected customer levels while
maintaining superior performance. If GeoCities' usage of bandwidth increases,
GeoCities will need to purchase additional servers and networking equipment
and rely more heavily on its equipment and on Exodus and its services to
maintain adequate data transmission speeds, the availability of which may be
limited or the cost of which may be significant.
The successful delivery of the Company's services is also dependent in
substantial part upon the ability of Exodus and the Company to protect
GeoCities' servers and network infrastructure against damage from human error,
fire, flood, power loss, telecommunications failure, sabotage, intentional
acts of vandalism and similar events. In addition, substantially all of the
Company's servers and network infrastructure are located in Northern
California, an area susceptible to earthquakes, which also could cause system
outages or failures if one should occur. Despite precautions taken by and
planned to be taken by the Company and Exodus, the occurrence of other natural
disasters or other unanticipated problems at their respective facilities could
result in interruption in the services provided by the Company or significant
damage to GeoCities' equipment. Despite the implementation of network security
measures by the Company, its servers are vulnerable to computer viruses,
break-ins, and similar disruptions from unauthorized tampering. The occurrence
of any of these events could result in interruptions, delays or cessations in
service, which could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, the Company's
reputation and the GeoCities brand could be materially and adversely affected.
The market in which the Company competes is characterized by rapidly
changing technology, evolving industry standards, frequent new product and
service announcements and enhancements and changing customer demands.
Accordingly, the Company's success will depend on its ability to adapt to
rapidly changing technologies and industry standards, and its ability to
continually improve the speed, performance, features, ease of use and
reliability of its server and networking system in
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response to both evolving demands of the marketplace and competitive service
and product offerings. Any failure to rapidly adapt in a changing environment
would have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company continually strives to incorporate new technology into its Web
site for the benefit of its members, visitors and advertising and commerce
partners. Introducing new technology into the Company's systems involves
numerous technical challenges, substantial amounts of personnel resources and
often times takes many months to complete. There can be no assurance that the
Company will be successful at integrating such technology into its Web site on
a timely basis or without degrading the responsiveness and speed of its Web
site or that, once integrated, such technology will function as expected.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
GENERAL
The Company is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there
are currently few laws or regulations directly applicable to access to or
commerce on the Internet. However, due to the increasing popularity and use of
the Internet, a number of legislative and regulatory proposals are under
consideration by federal, state, local and foreign governmental organizations,
and it is possible that a number of laws or regulations may be adopted with
respect to the Internet relating to such issues as user privacy, user
screening to prevent inappropriate uses of the Internet by, for example,
minors or convicted criminals, taxation, infringement, pricing, content
regulation, quality of products and services and intellectual property
ownership and infringement. The adoption of any such laws or regulations may
decrease the growth in the use of the Internet, which could in turn decrease
the demand for the Company's community, increase the Company's cost of doing
business, or otherwise have a material adverse effect on the Company's
business, results of operations and financial condition. Moreover, the
applicability to the Internet of existing laws governing issues such as
property ownership, copyright, trademark, trade secret, obscenity, libel and
personal privacy is uncertain and developing. Any new legislation or
regulation, or application or interpretation of existing laws, could have a
material adverse effect on the Company's business, results of operations and
financial condition. For example, although it was held unconstitutional, the
Telecommunications Act of 1996 prohibited the transmission over the Internet
of certain types of information and content. Other nations, including Germany
and China, have taken actions to restrict the free flow of material on the Web
deemed to be objectionable. In addition, although substantial portions of the
Communications Decency Act (the "CDA") were held to be unconstitutional, there
can be no assurance that similar legislation will not be enacted in the
future, and it is possible that such legislation could expose the Company to
substantial liability. Legislation like the CDA could also dampen the growth
in use of the Web generally and decrease the acceptance of the Web as a
communications and commercial medium, and could, thereby, have a material
adverse effect on the Company's business, results of operations and financial
condition. It is also possible that the Company's use of "cookies" to track
demographic information and user preferences and to target advertising may
become subject to laws limiting or prohibiting their use. A "cookie" is a bit
of information keyed to a specific server, file pathway or directory location
that is stored on a user's hard drive, possibly without the user's knowledge.
A user is generally able to remove cookies. Germany, for example, has imposed
laws limiting the use of cookies, and a number of Internet commentators,
advocates and governmental bodies in the United States and other countries
have urged the passage of laws limiting or abolishing the use of cookies.
Limitations on or elimination of the Company's use of cookies could limit the
effectiveness of the Company's targeting of advertisements, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, a number of legislative proposals have been
made at the federal, state and local level that would impose additional taxes
on the sale of goods and services over the Internet and certain states have
taken measures to tax Internet-related activities. Currently, Congress is
considering a number of
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versions of legislation which would place a moratorium of a number of years on
any new taxation of Internet commerce. There can be no assurance that any such
legislation will be adopted by Congress. Moreover, it is likely that, once
such moratorium is lifted, some type of federal and/or state taxes will be
imposed upon Internet commerce, and there can be no assurance that such
legislation or other attempts at regulating commerce over the Internet will
not substantially impair the growth of commerce on the Internet and, as a
result, adversely affect the Company's opportunity to derive financial benefit
from such activities. In addition to the foregoing areas of recent legislative
activities, several telecommunications carriers are currently seeking to have
telecommunications over the Web regulated by the Federal Communications
Commission (the "FCC") in the same manner as other telecommunications
services. For example, America's Carriers Telecommunications Association has
filed a petition with the FCC for this purpose. In addition, because the
growing popularity and use of the Web have burdened the existing
telecommunications infrastructure and many areas with high Web use have begun
to experience interruptions in phone service, local telephone carriers have
petitioned the FCC to regulate ISPs and OSPs in a manner similar to long-
distance telephone carriers and to impose access fees on the ISPs and OSPs. If
either of these petitions is granted, or the relief sought therein is
otherwise granted, the costs of communicating on the Web could increase
substantially, potentially slowing growth in use of the Web, which could in
turn decrease demand for the Company's services or increase the Company's cost
of doing business.
Due to the global nature of the Web, it is possible that, although
transmissions by the Company over the Internet originate primarily in the
State of California, the governments of other states and foreign countries
might attempt to regulate the Company's transmissions or prosecute the Company
for violations of their laws. There can be no assurance that violations of
local laws will not be alleged or charged by state or foreign governments,
that the Company might not unintentionally violate such laws or that such laws
will not be modified, or new laws enacted, in the future. Any of the foregoing
developments could have a material adverse effect on the Company's business,
results of operations and financial condition.
In addition, as the Company's services are available over the Internet in
multiple states and foreign countries, such jurisdictions may claim that the
Company is required to qualify to do business as a foreign corporation in each
such state or foreign country. The Company is qualified to do business only in
California and New York, and failure by the Company to qualify as a foreign
corporation in a jurisdiction where it is required to do so could subject the
Company to taxes and penalties and could result in the inability of the
Company to enforce contracts in such jurisdictions. 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 other online
services could have a material adverse effect on the Company's business,
results of operations and financial condition.
The Company's "GeoRewards" affinity program, which entitles Homesteaders to
receive GeoPoints and GeoTickets redeemable for merchandise, such as T-shirts,
books, music or other merchandise, also exposes the Company to certain
additional risks and expenses including, without limitation, those related to
compliance with consumer protection laws, loss of customer data, disputes over
redemption procedures and rules, product liability, sales taxation and
liabilities associated with any failure in the performance by participating
merchants.
FEDERAL TRADE COMMISSION INVESTIGATION
In September 1997, GeoCities received a letter from the Federal Trade
Commission (the "FTC") requesting that GeoCities voluntarily produce certain
information regarding GeoCities' collection and use of personal identifying
information. GeoCities produced the requested information as well as certain
supplemental information in late 1997. In February 1998, the FTC staff sent a
draft complaint and draft consent order to GeoCities. At that time, the FTC
staff indicated that, if approved by the FTC,
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an administrative suit would be brought against GeoCities alleging that it had
violated Section 5(a) of the Federal Commission Act (the "FTC Act") by
engaging in unfair and deceptive practices in connection with the Company's
collection and use of personal identifying information obtained from
individuals, including children. The FTC staff also offered to settle the
matter under the terms contained in the draft consent order.
After receiving the draft complaint and draft consent order, GeoCities and
the FTC staff engaged in settlement discussions. As a result of these
discussions, on June 11, 1998, the Company and FTC staff attorneys executed an
Agreement Containing Consent Order (the "Proposed Consent Order") which is
subject to FTC approval including a period of public comment, to settle the
matter. The Proposed Consent Order resolves the FTC's allegations (which are
contained in a revised draft complaint to be filed by the FTC with the
Proposed Consent Order) that the Company: (i) disclosed to third parties
personal identifying information collected in its member application process
contrary to what had been represented to consumers by the Company; (ii)
implied that there was an affiliation between the Company and a children's
club operated by a GeoCities Community Leader such that children provided
personal identifying information to the club believing they were disclosing
the information to GeoCities and (iii) failed to disclose to consumers
(including the parents of children) how the Company would use the personal
identifying information it collected from those consumers and children. Under
the Proposed Consent Order, GeoCities would be required to: (i) cease and
desist from the allegedly deceptive practices in the future and (ii) establish
certain procedures to: (a) give adequate notice to consumers regarding
GeoCities' information collection and disclosure practices; (b) provide
consumers with the ability to have GeoCities delete their personal identifying
information from GeoCities' database; (c) more clearly identify its
affiliation (or lack thereof) with third parties which may collect information
or sponsor activities on GeoCities; and (d) obtain express parental consent
prior to collecting and using personal identifying information obtained from
children under 13 years of age. By the terms of the Proposed Consent Order,
GeoCities would not admit any of the allegations contained in the complaint,
nor would it be required to make any monetary payment to the FTC or consumers.
Although the Proposed Consent Order requires that the Company take specific
actions, including those outlined above, GeoCities has been and remains
committed to protecting the privacy rights of all consumers (and, in
particular children) on the Internet. As part of its ongoing efforts to
enhance the protection of the privacy of its members, the Company has
consulted and worked with industry self-regulation groups and has implemented
or intends to implement programs designed to enhance the protection of the
privacy of its members, including children. Such programs include: (i)
publishing a comprehensive, multi-screen, privacy statement that is accessible
from many places on the Company's Web site, including the GeoCities home page
and new member application form; (ii) revamping the new member application
form to make the questions clearer to consumers; (iii) enhancing its training
program for Community Leaders; (iv) suspending certain e-mail marketing
programs of an affiliate and confirming that the affiliate had never sent e-
mails to individuals based on the representation included in the application
form; (v) altering its rules to expressly forbid third parties from collecting
information in connection with promotions for any purpose other than to
fulfill the promotion; (vi) instructing companies that received information
from the Company regarding children under 13 to cease use of such information;
(vii) making changes to the content that appears on the Company's Web site,
such as warnings to children not to give out personal information, and
removing inappropriate advertising and promotions from GeoCities' children and
family-oriented "EnchantedForest" neighborhood and (viii) requiring that
individuals under 13 involve their parents in the process of applying for a
free membership in GeoCities. To confirm the adequacy of its disclosure
practices in the area of information collection and use, the Company submitted
its privacy statement to TRUSTe, an industry self-regulation group. TRUSTe has
certified such statement as an accurate representation to consumers of
GeoCities' information collection practices.
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The Proposed Consent Order has been approved by the Director of Consumer
Protection for the FTC, but remains subject to preliminary and final approval
by the FTC after a period of public comment. There can be no assurance that
the Proposed Consent Offer ultimately will be approved by the FTC. If the
Proposed Consent Order is not approved by the FTC and the FTC ultimately
decides to file suit, the Company intends to vigorously defend itself against
the FTC's allegations. If the FTC files suit, there can be no assurance that
the FTC will not make additional allegations against the Company or seek more
extensive relief than the relief sought by the Proposed Consent Order, or that
any subsequent settlement, or other relief ultimately obtained by the FTC will
not exceed the relief contained in the Proposed Consent Order. If more
extensive relief is obtained by the FTC, there can be no assurance that it
will not have a material adverse effect on the Company's business, results of
operations or financial condition.
LIABILITY FOR INFORMATION RETRIEVED FROM THE WEB
Because materials may be downloaded by members and other users of the
Company's Web site and subsequently distributed to others, there is a
potential that claims will be made against the Company for defamation,
negligence, copyright or trademark infringement, personal injury or other
theories based on the nature, content, publication and distribution of such
materials. Such claims have been brought, and sometimes successfully pressed,
against OSPs for example in the past. The Company has received inquiries on a
regular basis from third parties regarding such matters, all of which have
been resolved to date without any payments or other material adverse effect on
the Company. In addition, the increased attention focused upon liability
issues as a result of these lawsuits and legislative proposals could impact
the overall growth of Internet use. The Company could also be exposed to
liability with respect to the offering of third-party content that may be
accessible through the Company's Web site, or through content and materials
that may be posted by members on their personal Web sites or chat rooms, or
bulletin boards offered by the Company. Such claims might include, among
others, that by directly or indirectly hosting the personal Web sites of third
parties, the Company is liable for copyright or trademark infringement or
other wrongful actions by such third parties through such Web sites. It is
also possible that if any third-party content information provided on the
Company's Web site contains errors, third parties could make claims against
the Company for losses incurred in reliance on such information. The Company
also offers e-mail services, which expose the Company to potential risk, such
as liabilities or claims resulting from unsolicited e-mail (spamming), lost or
misdirected messages, illegal or fraudulent use of e-mail or interruptions or
delays in e-mail service. Even to the extent that such claims do not result in
liability to the Company, the Company could incur significant costs in
investigating and defending against such claims. The imposition on the Company
of potential liability for information carried on or disseminated through its
systems could require the Company to implement measures to reduce its exposure
to such liability, which may require the expenditure of substantial resources
and limit the attractiveness of the Company's services to members and users.
The Company also enters into agreements with commerce partners and sponsors
under which the Company is in general entitled to receive a share of any
revenue from the purchase of goods and services through direct links from the
Company's Web site. Such arrangements may expose the Company to additional
legal risks and uncertainties, including potential liabilities to consumers of
such products and services by virtue of the Company's involvement in providing
access to such products or services, even if the Company does not itself
provide such products or services. While the Company's agreements with these
parties often provide that the Company will be indemnified against such
liabilities, there can be no assurance that such indemnification, if
available, will be adequate. Although the Company carries general liability
insurance, the Company's insurance may not cover all potential claims to which
it is exposed or may not be adequate to indemnify the Company for all
liability that may be imposed. Any imposition of liability that is not covered
by insurance or is in excess of insurance coverage could have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, the increased attention focused upon liability issues
as a result of these lawsuits and legislative proposals could impact the
overall growth of Internet use.
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RISKS ASSOCIATED WITH BRAND DEVELOPMENT
The Company believes that establishing and maintaining the GeoCities brand
is a critical aspect of its efforts to attract and expand its member base, Web
traffic and advertising and commerce relationships, and that the importance of
brand recognition will increase due to the growing number of Internet sites
and the low barriers to entry. In order to attract and retain members,
Internet users, advertisers and commerce partners, and to promote and maintain
the GeoCities brand in response to competitive pressures, the Company intends
to increase substantially its financial commitment to creating and maintaining
distinct brand loyalty among these groups, including through traditional media
advertising campaigns in print, radio, billboards and television. Promotion
and enhancement of the GeoCities brand will also depend, in part, on the
Company's success in providing a high-quality community experience, which
success cannot be ensured. If the Company does not generate a corresponding
increase in revenues as a result of its branding efforts or otherwise fails to
promote its brand successfully, or if the Company incurs excessive expenses in
an attempt to promote and maintain its brand, the Company's business, results
of operations and financial condition, will be materially and adversely
affected. If members, visitors to the GeoCities Web site, advertisers or
businesses do not perceive the Company's existing services to be of high
quality, or if the Company introduces new services or enters into new business
ventures that are not favorably received by such parties, the value of the
Company's brand could be diluted, thereby decreasing the attractiveness of its
Web site to such parties.
SECURITY RISKS
The Company has experienced attempts by experienced programmers or "hackers"
to penetrate the Company's network security, some of which have succeeded, and
expects these attempts to continue to occur from time to time. To date, none
of this activity has had a material adverse effect on the Company's business,
results of operations or financial condition. A party who is able to penetrate
the Company's network security could misappropriate proprietary information or
cause interruptions in the Company's Web site. In addition, in offering
certain payment services through its GeoShops program, the Company could
become increasingly reliant 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. Advances in computer capabilities, discoveries
in the field of cryptography and other discoveries, events, or developments
could lead to a compromise or breach of the algorithms that the Company's
licensed encryption and authentication technology uses to protect such
confidential information. If such a compromise or breach of the Company's
licensed encryption authentication technology occurs, it could have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company may be required to expend significant capital and
resources to protect against the threat of such security, encryption and
authentication technology breaches or to alleviate problems caused by such
breaches. Concerns over the security of Internet transactions and the privacy
of users may also inhibit the growth of the Internet generally, particularly
as a means of conducting commercial transactions. Security breaches or the
inadvertent transmission of computer viruses could expose the Company to a
risk of loss or litigation and possible liability. There can be no assurance
that contractual provisions attempting to limit the Company's liability in
such areas will be successful or enforceable, or that other parties will
accept such contractual provisions as part of the Company's agreements, which
could have a material adverse effect on the Company's business, results of
operations and financial condition.
RELIANCE ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company regards its technology as proprietary and attempts to protect it
by relying on trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. The
Company currently has no patents or patents pending and does not anticipate
that patents will become a significant part of the Company's intellectual
property in the foreseeable future. The Company also generally enters into
confidentiality or license agreements
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with its employees and consultants, and generally controls access to and
distribution of its documentation and other proprietary information. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain and use the Company's proprietary information without authorization or
to develop similar technology independently. The Company pursues the
registration of its service marks in the United States and internationally,
and has applied for and obtained the registration in the United States for a
number of its service marks, including "GeoCities". Effective trademark,
service mark, copyright and trade secret protection may not be available in
every country in which the Company's services are distributed or made
available through the Internet, and policing unauthorized use of the Company's
proprietary information is difficult.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any proprietary rights of the Company or other companies
within this market. There can be no assurance that the steps taken by the
Company will prevent misappropriation or infringement of its proprietary
information. Any such infringement or misappropriation, should it occur, could
have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, litigation may be necessary
in the future to enforce the Company's intellectual property rights, to
protect the Company's trade secrets or to determine the validity and scope of
the proprietary rights of others. Such litigation might result in substantial
costs and diversion of resources and management attention and could have a
material adverse effect on the Company's business, results of operations and
financial condition. Furthermore, there can be no assurance that the Company's
business activities will not infringe upon the proprietary rights of others,
or that other parties will not assert infringement claims against the Company.
From time to time, the Company has been, and expects to continue to be,
subject to claims in the ordinary course of its business including claims of
alleged infringement of the trademarks, service marks and other intellectual
property rights of third parties by the Company and the content generated by
its members. Although such claims have not resulted in any significant
litigation or had a material adverse effect on the Company's business to date,
such claims and any resultant litigation, should it occur, might subject the
Company to significant liability for damages and might result in invalidation
of the Company's proprietary rights and even if not meritorious, could be time
consuming and expensive to defend and could result in the diversion of
management time and attention, any of which might have a material adverse
effect on the Company's business, results of operations and financial
condition.
The Company currently licenses from third parties certain technologies
incorporated into the Company's Web site. As the Company continues to
introduce new services that incorporate new technologies, it may be required
to license additional technology from others. There can be no assurance that
these third-party technology licenses will continue to be available to the
Company on commercially reasonable terms, if at all. The inability of the
Company to obtain any of these technology licenses could result in delays or
reductions in the introduction of new services or could adversely affect the
performance of its existing services until equivalent technology could be
identified, licensed and integrated. See "Business--Intellectual Property and
Proprietary Rights".
DEPENDENCE ON CONTINUED GROWTH IN THE USE OF THE INTERNET; DEPENDENCE ON WEB
INFRASTRUCTURE
The Company's future success is substantially dependent upon continued
growth in the use of the Internet and the Web in order to support the sale of
advertising on the Company's Web site and in the acceptance and volume of
commerce transactions on the Internet. There can be no assurance that the
number of Internet users will continue to grow or that commerce over the
Internet will become more widespread. As is typical in the case of a new and
rapidly evolving industry, demand and market acceptance for recently
introduced services are subject to a high level of uncertainty. The Internet
may not prove to be a viable commercial marketplace for a number of reasons,
including lack of acceptable security technologies, lack of access and ease of
use, congestion of traffic, inconsistent quality of service and lack of
availability of cost-effective, high-speed service, potentially inadequate
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development of the necessary infrastructure, excessive governmental
regulation, uncertainty regarding intellectual property ownership or timely
development and commercialization of performance improvements, including high-
speed modems.
The success of the GeoCities Web site will depend in large part upon the
continued development of a Web infrastructure, such as a reliable network
backbone with the necessary speed, data capacity and security, and timely
development of complementary products such as high speed modems for providing
reliable Web access and services. Because global commerce and online exchange
of information on the Web and other similar open wide area networks are new
and evolving, it is difficult to predict with any assurance whether the Web
will support increasing use or will prove to be a viable commercial
marketplace. The Web has experienced, and is expected to continue to
experience, significant growth in the number of users and the amount of
content. To the extent that the Web continues to experience increased numbers
of users, frequency of use or increased bandwidth requirements of users, there
can be no assurance that the Web infrastructure will continue to be able to
support the demands placed on it by this continued growth or that the
performance or reliability of the Web will not be adversely affected by this
continued growth. In addition, the Web could lose its viability or
effectiveness due to delays and the development or adoption of new standards
and protocols to handle increased levels of activities or due to increased
government regulation. There can be no assurance that the infrastructure or
complementary products or services necessary to make the Web a viable
commercial marketplace will be developed, or, if they are developed, that the
Web will achieve broad acceptance. If the necessary infrastructure standards,
protocols or complementary products, services or facilities are not developed,
or if the Web does not become a viable commercial marketplace, the Company's
business, results of operations and financial condition will be materially and
adversely affected. Even if such infrastructure, standards or protocols or
complementary products, services or facilities are developed and the Web
becomes a viable commercial marketplace, there can be no assurance that the
Company will not be required to incur substantial expenditures in order to
adapt its services to changing Web technologies, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSION
A part of the Company's strategy is to develop the GeoCities community model
in international markets. There can be no assurance that the Internet, the Web
or the Company's community model will become widely accepted in any
international markets. The Company has developed and operates with SOFTBANK
Corporation of Japan ("SOFTBANK"), GeoCities Japan Corporation ("GeoCities
Japan"), a joint venture that is 40% owned by GeoCities. The Company has not
generated a material amount of revenue from its ownership interest in
GeoCities Japan to date. The Company has only limited experience in developing
this localized version of its community model and will be relying heavily on
the efforts and abilities of SOFTBANK in such venture. In addition, the
Company expects that the success of any additional foreign operations it
initiates in the future will also be substantially dependent upon local
partners. If revenues from international ventures are not adequate to cover
the investments in such activities, the Company's business, results of
operations and financial condition could be materially and adversely affected.
The Company may experience difficulty in managing international operations as
a result of difficulty in locating an effective foreign partner, competition,
technical problems, distance and language and cultural differences, and there
can be no assurance that the Company or its international partners will be
able to successfully market and operate the Company's community model in
foreign markets. The Company also believes that in light of substantial
anticipated competition, it will be necessary to move quickly into
international markets in order to effectively obtain market share, and there
can be no assurance that the Company will be able to do so. There are certain
risks inherent in doing business on an international level, such as unexpected
changes in regulatory requirements, trade barriers, difficulties in staffing
and managing foreign operations, fluctuations in currency exchange rates,
longer payment cycles in general, problems in collecting accounts receivable,
difficulty in enforcing contracts, political and economic instability,
seasonal reductions in business activity in certain other parts
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of the world and potentially adverse tax consequences. There can be no
assurance that one or more of such factors will not have a material adverse
effect on the Company's future international operations and, consequently, on
the Company's business, results of operations and financial condition.
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS, CMG@VENTURES AND SOFTBANK
Upon completion of the offering, CMG@Ventures and SOFTBANK, and their
respective affiliates, will, in the aggregate, beneficially own approximately
62.8% of the outstanding Common Stock. In addition, upon completion of the
offering, the directors, executive officers and principal stockholders of the
Company and their respective affiliates will, in the aggregate, beneficially
own approximately 73.2% of the outstanding Common Stock. As a result, these
stockholders will possess significant influence over the Company, giving them
the ability, among other things, to elect a majority of the Company's Board of
Directors and approve significant corporate transactions. Such share ownership
and control may also have the effect of delaying or preventing a change in
control of the Company, impeding a merger, consolidation, takeover or other
business combination involving the Company or discourage a potential acquiror
from making a tender offer or otherwise attempting to obtain control of the
Company which could have a material adverse effect on the market price of the
Company's Common Stock.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently anticipates that the net proceeds of the offering,
together with its existing line of credit and available funds will be
sufficient to meet its anticipated needs for working capital and capital
expenditures for at least the next 12 months. The Company may need to raise
additional funds in the future in order to fund more aggressive brand
promotions and more rapid expansion, to develop newer or enhanced services, to
respond to competitive pressures or to acquire complementary businesses,
technologies or services. If additional funds are raised through the issuance
of equity or convertible debt securities, the percentage ownership of the
stockholders of the Company will be reduced, stockholders may experience
additional dilution and such securities may have rights, preferences or
privileges senior to those of the rights of the Company's Common Stock. There
can be no assurance that additional financing will be available on terms
favorable to the Company, or at all. If adequate funds are not available or
not available on acceptable terms, the Company may not be able to fund its
expansion, promote its brand names as the Company desires, take advantage of
unanticipated acquisition opportunities, develop or enhance services or
respond to competitive pressures. Any such inability could have a material
adverse effect on the Company's business, results of operations and financial
condition.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
As part of its business strategy, the Company expects to review acquisition
prospects that would complement its existing business, augment the
distribution of its community or enhance its technological capabilities.
Although the Company currently has no agreements with respect to any material
acquisitions, the Company may make acquisitions of complementary businesses,
products or technologies in the future. However, there can be no assurance
that the Company will be able to locate suitable acquisition opportunities.
Future acquisitions by the Company could result in potentially dilutive
issuances of equity securities, large and immediate write-offs, the incurrence
of debt and contingent liabilities or amortization expenses related to
goodwill and other intangible assets, any of which could materially and
adversely affect the Company's results of operations. Furthermore,
acquisitions entail numerous risks and uncertainties, including difficulties
in the assimilation of operations, personnel, technologies, products and the
information systems of the acquired companies, diversion of management's
attention from other business concerns, risks of entering geographic and
business markets in which the Company has no or limited prior experience and
potential loss of key employees of acquired organizations. The Company has not
made any material acquisitions in the past. No assurance can be given as to
the ability of the Company to successfully integrate any businesses, products,
technologies or personnel that might be acquired in the future, and the
failure of the Company to do so could have a material adverse effect on the
Company's business, results of operations and financial condition.
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YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or fail. The Company
is in the process of working with its software vendors to ensure that the
software that the Company has licensed from third parties will operate
properly in the year 2000 and beyond. In addition, the Company is working with
its external suppliers and service providers to ensure that they and their
systems will be able to support the Company's needs and, where necessary,
interoperate with the Company's server and networking hardware and software
infrastructure in preparation for the year 2000. Management does not
anticipate that the Company will incur significant operating expenses or be
required to invest heavily in computer systems improvements to be year 2000
compliant. However, significant uncertainty exists concerning the potential
costs and effects associated with any year 2000 compliance. Any year 2000
compliance problems of either the Company, its customers or vendors could have
a material adverse effect on the Company's business, results of operations and
financial condition.
PUBLICITY
In March and April 1998 interviews with the New York Times, certain members
of the Company's management either disclosed or confirmed certain prospective
financial information regarding the Company. Such information was reported in
a July 13, 1998 article in the New York Times regarding the Company.
Specifically, the New York Times article included statements from a March
interview of the then President and Chief Executive Officer that the Company
was hoping to achieve revenues of between $20 million and $25 million in 1998,
and from an April interview of the Chief Financial Officer that the Company
expected to "break even" in 1999. These statements were made prior to the time
the Company began preparing for the offering and were not made in anticipation
of the offering. These statements were not intended to be relied upon by
potential investors in making an investment decision to purchase the Common
Stock offered hereby. The Company disclaims all such statements for purposes
of the offering and prospective investors should not rely on such statements
or any other information not contained in this Prospectus in making any
investment decision to purchase the Common Stock offered hereby. Revenue and
profitability forecasts of any company, especially in the rapidly evolving
Internet market, are forward-looking statements that involve numerous risks
and uncertainties. The Company's actual results could differ materially from
those stated in such forward-looking statements as a result of numerous
factors, including those set forth in these "Risk Factors" and elsewhere in
this Prospectus.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of significant amounts of Common Stock in the public market after the
offering or the perception that such sales will occur could materially and
adversely affect the market price of the Common Stock or the future ability of
the Company to raise capital through an offering of its equity securities. Of
the 30,661,000 shares of Common Stock to be outstanding upon the closing of
the offering (assuming no exercise of the Underwriters' over-allotment option
and based on the number of shares outstanding as of June 30, 1998), the
4,750,000 shares offered hereby will be eligible for immediate sale in the
public market without restriction, unless the shares are purchased by
"affiliates" of the Company within the meaning of Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Securities Act"). The 16,000
shares of Common Stock to be issued to the Community Leaders and Liaisons
under the 1998 Stock Incentive Plan will also be eligible for immediate sale
in the public market without restriction, subject to the filing of the Form S-
8 registration statement with respect thereto as of the date of this
Prospectus. The remaining 25,895,000 shares of Common Stock held by existing
stockholders upon the
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closing of the offering (based on the number of shares of Common Stock
outstanding as of June 30, 1998, and giving effect to the Preferred Stock
Conversion) will be "restricted securities" as that term is defined in Rule
144 under the Securities Act. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act. The Company's directors and officers, and substantially all of its other
stockholders and holders of options to purchase Common Stock, have agreed that
they will not sell, directly or indirectly, any Common Stock without the prior
consent of Goldman, Sachs & Co. for a period of 180 days from the date of this
Prospectus. Subject to the provisions of Rules 144, 144(k) and 701, 25,895,000
shares will be eligible for sale 180 days after the date of this Prospectus
upon the expiration of such lock-up agreements. However, one affiliate of the
Company who is subject to a lock-up agreement and the volume limitations of
Rule 144 will be permitted to sell up to $1.0 million of Common Stock
commencing 91 days after the date of this Prospectus. Any shares of Common
Stock issued pursuant to the technology purchase agreement will be restricted
securities and will also be subject to a 180 day lock-up agreement. In
addition, as of June 30, 1998, there were outstanding options to purchase up
to 6,531,000 shares of Common Stock which will be eligible for sale in the
public market following the offering from time to time subject to becoming
exercisable and the expiration of any lock-up agreements applicable thereto.
There is also a warrant outstanding to purchase up to 20,304 shares of Common
Stock which will be eligible for sale in the public market following the
offering, subject to being exercised and the expiration of the 180-day lock-up
agreement applicable thereto. In addition, subject to the lock-up agreements,
certain stockholders, holding an aggregate of 26,160,128 shares of Common
Stock (including shares issuable upon the exercise of certain options to
purchase Common Stock), have the right, subject to certain conditions, to
include their shares in future registration statements relating to the
Company's securities, and certain stockholders holding an aggregate of
22,230,128 shares of Common Stock have the right, subject to certain
conditions, to cause the Company to register their shares of Common Stock. In
addition, in the event that the Company proposes to register any shares of
Common Stock under the Securities Act to the public in a firm commitment
underwritten public offering, David Bohnett and John Rezner, as well as any
other officer or director designated by the Company's Board of Directors by
unanimous vote, shall be entitled to piggyback registration rights if such
persons who choose to include their shares in such registration shall continue
to serve the Company as an officer or director on the effective date of such
registration statement.
The Company intends to file, as of the date of this Prospectus, Form S-8
registration statements under the Securities Act to register all shares of
Common Stock issuable under certain individual stock option agreements and the
1998 Stock Incentive Plan, the shares of Common Stock that will be issued to
the Community Leaders and Liaisons thereunder immediately following the
execution of the Underwriting Agreement and shares of Common Stock issuable
under the Purchase Plan. Such registration statements are expected to become
effective immediately upon filing, and shares covered by those registration
statements will thereupon be eligible for sale in the public markets, subject
to any lock-up agreements applicable thereto and Rule 144 limitations
applicable to affiliates. See "Management--Employee Benefit Plans",
"Description of Capital Stock--Registration Rights", "Shares Eligible for
Future Sale" and "Underwriting".
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the offering, there has been no public market for the Common Stock.
Accordingly, there can be no assurance that an active trading market for the
Common Stock will develop or be sustained following the closing of the
offering or that the market price of the Common Stock will not decline below
the initial public offering price. The initial public offering price, which
may bear no relationship to the price at which the Common Stock will trade
upon completion of the offering, will be determined by negotiations between
the Company and the representatives of the Underwriters based upon factors
that may not be indicative of future market performance. See "Underwriting".
The trading price of the Company's Common Stock could be subject to wide
fluctuations in response to variations in the Company's quarterly results of
operations, the gain or loss of significant
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advertisers, changes in earnings estimates by analysts, announcements of
technological innovations or new solutions by the Company or its competitors,
general conditions in the technology and Internet sectors and in Internet-
related industries, other matters discussed elsewhere in this section of the
Prospectus and other events or factors, many of which are beyond the Company's
control. In addition, the stock market in general and the technology and
Internet sectors in particular have recently experienced extreme price and
volume fluctuations which have affected the market price for many companies in
industries similar or related to that of the Company and which have been
unrelated to the operating performance of these companies. These market
fluctuations, as well as general economic, political and market conditions,
may have a material adverse effect on the market price of the Company's Common
Stock. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such companies. Such litigation, if instituted, and
irrespective of the outcome of such litigation, could result in substantial
costs and a diversion of management's attention and resources and have a
material adverse effect on the Company's business, results of operations and
financial condition.
BROAD DISCRETION IN USE OF PROCEEDS
The net proceeds of the offering will be added to the Company's working
capital. As of the date of this Prospectus, the Company cannot specify with
certainty the particular uses for the net proceeds to be received upon
completion of the offering. Accordingly, the Company's management will have
broad discretion in the application of the net proceeds. The failure of
management to apply such funds effectively could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Use of Proceeds".
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER, BYLAWS AND DELAWARE LAW PROVISIONS;
POSSIBLE ISSUANCE OF PREFERRED STOCK; PROVISIONS OF 1998 STOCK INCENTIVE PLAN
Following the closing of the offering, the Company's Board of Directors will
have the authority to issue up to 5,000,000 shares of Preferred Stock without
any further vote or action by the stockholders, and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
such shares. Since the Preferred Stock could be issued with voting,
liquidation, dividend and other rights superior to those of the Common Stock,
the rights of the holders of Common Stock would be subject to, and may be
adversely affected by, the rights of the holders of any such Preferred Stock.
The issuance of Preferred Stock 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. Further, certain provisions of the Company's Certificate
of Incorporation and Bylaws and of Delaware law could have the effect of
delaying or preventing a change in control of the Company. In addition,
certain provisions of the Company's 1998 Stock Incentive Plan which become
operative upon a hostile takeover, such as those involving acceleration of
vesting and required cash distributions upon surrender of options, could have
the effect of delaying, deferring or preventing a tender offer or takeover
attempt that might result in a premium over the market price for the Company's
Common Stock. See "Description of Capital Stock--Anti-Takeover Effects of
Certain Provisions of Delaware Law and the Company's Certificate of
Incorporation and Bylaws" and "Management--Employee Benefit Plans".
BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS
The existing stockholders of the Company will recognize significant benefits
from the offering. These benefits include the creation of a public market for
the Company's Common Stock which will afford existing stockholders the ability
to liquidate their investments, subject, in certain cases, to volume
limitations and other limitations and restrictions upon the sale of the Common
Stock, including any lock-up agreements applicable thereto. As of June 30,
1998, existing stockholders held 25,895,000 shares of outstanding Common Stock
(on an as-converted basis to give effect to the Preferred Stock Conversion)
which shares were originally purchased from the Company at prices ranging from
$0.01
24
<PAGE>
to $7.43 per share, with an aggregate consideration paid to the Company of
approximately $40,672,000. Based on an assumed initial public offering price
of $13.00 per share, after the offering (assuming no exercise of the
Underwriters' over-allotment option) the aggregate value of the outstanding
shares owned by the Company's existing stockholders will be approximately
$336,635,000 ($39,525,000 of which is held by current management), reflecting
unrealized gains of approximately $295,963,000 over the aggregate
consideration paid to the Company for such shares (assuming that such shares
continue to be held by the original purchasers thereof). Further, as of June
30, 1998, there were 6,531,000 shares of Common Stock issuable upon exercise
of outstanding options at a weighted average exercise price of $1.97. Such
options have an aggregate potential realizable gain of approximately
$72,037,000 following the offering, based on an assumed initial public
offering price of $13.00 per share. Accordingly, after the offering, existing
stockholders and optionholders will have substantial unrealized gains on their
shares and options. See "Shares Eligible For Future Sale", "Dilution" and
"Principal Stockholders".
DILUTION; ABSENCE OF DIVIDENDS
Investors purchasing shares of Common Stock in the offering will incur
immediate and substantial dilution of $10.47 per share in net tangible book
value per share of the Common Stock from the initial public offering price. To
the extent outstanding options to purchase Common Stock are exercised, there
will be further dilution. In addition, the Company does not anticipate paying
any cash dividends in the foreseeable future. See "Dividend Policy" and
"Dilution".
25
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,750,000 shares of
Common Stock offered hereby are estimated to be $56,377,000 ($64,992,000 if
the Underwriters' over-allotment option is exercised in full) after deducting
the underwriting discount and estimated offering expenses payable by the
Company and assuming an initial public offering price of $13.00 per share. The
primary purposes of the offering are to create a public market for the Common
Stock, to facilitate the Company's future access to public equity markets and
to obtain additional working capital.
The Company intends to use the net proceeds of the offering for investments
in the GeoCities community site, including enhancements to the Company's
server and networking infrastructure and the functionality of its Web site,
and general corporate purposes, including working capital, expansion of its
sales and marketing capabilities and brand-name promotions. As of the date of
this Prospectus, the Company cannot specify with certainty the particular uses
for the net proceeds to be received upon completion of the offering.
Accordingly, the Company's management will have broad discretion in the
application of the net proceeds.
Pending such uses, the net proceeds will be invested in interest-bearing
investment-grade instruments, certificates of deposit or direct or guaranteed
obligations of the United States.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital stock
since inception and does not expect to pay any cash dividends for the
foreseeable future. The Company currently intends to retain future earnings,
if any, to finance the expansion of its business. The Company's line of credit
arrangement prohibits the payment of dividends by the Company without the
lender's prior consent.
26
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998, (i) on an actual basis; (ii) on a pro forma basis to reflect the
Preferred Stock Conversion and (iii) the pro forma capitalization as adjusted
to reflect the receipt by the Company of the estimated net proceeds from the
sale of 4,750,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $13.00 per share.
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term borrowings.......................... $ 301 $ 301 $ 301
======== ======== ========
Long-term debt, less current portion........... $ 780 $ 780 $ 780
-------- -------- --------
Mandatory Redeemable Convertible Preferred
Stock:
Series A through F, $0.001 par value,
26,526,000 authorized, actual and pro forma;
22,230,000 issued and outstanding, actual;
none issued and outstanding, pro forma and
as adjusted................................. 37,200 -- --
-------- -------- --------
Stockholders' equity:
Common Stock, $0.001 par value, 60,000,000
shares authorized; 3,665,000 shares issued
and outstanding, actual; 25,895,000 shares
issued and outstanding, pro forma; and
30,661,000 shares issued and outstanding, as
adjusted(1)................................. 253 26 31
Preferred Stock, $0.001 par value, 5,000,000
shares authorized; none issued and
outstanding, actual, pro forma and as
adjusted ................................... -- -- --
Additional paid-in capital..................... 12,516 49,943 106,315
Unearned deferred compensation................. (8,983) (8,983) (8,983)
Accumulated deficit............................ (19,654) (19,654) (19,654)
-------- -------- --------
Total stockholders' equity (deficiency)........ (15,868) 21,332 77,709
-------- -------- --------
Total capitalization......................... $ 22,112 $ 22,112 $ 78,489
======== ======== ========
</TABLE>
- --------
(1) Based on the number of shares of Common Stock outstanding as of June 30,
1998. Excludes (i) 6,531,000 shares of Common Stock issuable upon the
exercise of outstanding stock options, including options outstanding under
the 1998 Stock Incentive Plan, at a weighted average exercise price of
$1.97 per share; (ii) 2,671,000 shares of Common Stock reserved for future
issuance under the 1998 Stock Incentive Plan (which includes an increase
of 2,300,000 shares in the reserve thereunder approved in July 1998);
(iii) 427,000 shares issuable upon the exercise of stock options granted
under the predecessor plan to the 1998 Stock Incentive Plan, at a weighted
average exercise price of $10.88 per share; (iv) 300,000 shares of Common
Stock reserved for future issuance under the Purchase Plan; (v) 20,304
shares of Common Stock issuable upon the exercise of an outstanding
warrant at an exercise price of $4.695 per share and (vi) up to 46,154
shares of Common Stock to be issued pursuant to a technology purchase
agreement, assuming an initial public offering price of $13.00 per share.
Includes 15,840 shares of Common Stock to be issued to the Community
Leaders and Liaisons under the 1998 Stock Incentive Plan. See
"Management--Employee Benefit Plans", "Description of Capital Stock" and
Notes 2, 6, 8, 10 and 12 of Notes to Financial Statements.
27
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
June 30, 1998, was $21.3 million, or $0.82 per share of Common Stock, after
giving effect to the Preferred Stock Conversion. Pro forma net tangible book
value per share is equal to the amount of the Company's total tangible assets
less total liabilities, divided by the number of shares of Common Stock
outstanding as of June 30, 1998. Assuming the sale by the Company of 4,750,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $13.00 per share and the application of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company as of June 30,
1998, would have been $77.7 million, or $2.53 per share of Common Stock. This
represents an immediate increase in pro forma net tangible book value of $1.71
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $10.47 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $13.00
Pro forma net tangible book value per share as of June 30,
1998....................................................... $0.82
Increase per share attributable to new investors............ 1.71
-----
Pro forma net tangible book value per share after the offer-
ing.......................................................... 2.53
------
Dilution per share to new investors........................... $10.47
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1998,
the differences in total consideration paid and the average price per share
paid to the Company by existing stockholders (including holders of preferred
stock) and by new investors with respect to the number of shares of Common
Stock purchased from the Company, assuming an initial public offering price of
$13.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 25,911,000 84.5% $ 40,672,000 39.7% $ 1.57
New investors.............. 4,750,000 15.5 61,750,000 60.3 13.00
---------- ----- ------------ -----
Total.................... 30,661,000 100.0% $102,422,000 100.0% $ 3.34
========== ===== ============ ===== ======
</TABLE>
The foregoing computations are based on the number of shares of Common Stock
outstanding as of June 30, 1998. These computations exclude (i) 6,531,000
shares of Common Stock issuable upon the exercise of outstanding stock
options, including options outstanding under the 1998 Stock Incentive Plan, at
a weighted average exercise price of $1.97 per share; (ii) 2,671,000 shares of
Common Stock reserved for future issuance under the 1998 Stock Incentive Plan
(which includes an increase of 2,300,000 shares in the reserve thereunder
approved in July 1998); (iii) 427,000 shares issuable upon the exercise of
stock options granted under the predecessor plan to the 1998 Stock Incentive
Plan, at a weighted average exercise price of $10.88 per share; (iv) 300,000
shares of Common Stock reserved for future issuance under the Purchase Plan;
(v) 20,304 shares of Common Stock issuable upon the exercise of an outstanding
warrant at an exercise price of $4.695 per share and (vi) up to 46,154 shares
of Common Stock to be issued pursuant to a technology purchase agreement,
assuming an initial public offering price of $13.00 per share. These
computations also reflect the inclusion under "Existing Stockholders" of
15,840 shares of Common Stock to be issued to Community Leaders and Liaisons
under the 1998 Stock Incentive Plan. See "Capitalization", "Management--
Employee Benefit Plans", "Description of Capital Stock" and Notes 2, 6, 8, 10
and 12 of Notes to Financial Statements.
28
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Company's Financial Statements and related Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The statement of operations data for
each of the years in the three-year period ended December 31, 1997, and the
balance sheet data at December 31, 1996 and 1997, are derived from financial
statements of the Company which have been audited by PricewaterhouseCoopers
LLP, independent accountants, and are included elsewhere in this Prospectus.
The balance sheet data at December 31, 1995, are derived from audited
financial statements of the Company not included herein. The statement of
operations data for each of the six-month periods ended June 30, 1997 and
1998, and the balance sheet data at June 30, 1998, are derived from unaudited
interim financial statements of the Company included elsewhere in this
Prospectus. The unaudited financial statements have been prepared on
substantially the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for such periods. Historical results are not necessarily indicative
of the results to be expected in the future, and results of interim periods
are not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------ -----------------
1995 1996 1997 1997 1998
------ ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $ 46 $ 314 $ 4,582 $ 1,632 $ 5,542
Cost of revenues.................. 103 788 4,634 1,421 3,937
------ ------- ------- -------- -------
Gross profit (loss).............. (57) (474) (52) 211 1,605
Operating expenses:
Sales and marketing.............. 117 764 5,045 2,130 5,072
Product development.............. 72 475 1,021 437 1,325
General and administrative....... 233 1,252 2,901 1,273 2,947
------ ------- ------- -------- -------
Total operating expenses....... 422 2,491 8,967 3,840 9,344
------ ------- ------- -------- -------
Loss from operations.............. (479) (2,965) (9,019) (3,629) (7,739)
Interest income (expense), net.... (2) (40) 117 69 487
------ ------- ------- -------- -------
Loss before provision for income
taxes............................ (481) (3,005) (8,902) (3,560) (7,252)
Provision for income taxes........ (1) (1) (1) (1) (1)
------ ------- ------- -------- -------
Net loss.......................... $ (482) $(3,006) $(8,903) $ (3,561) $(7,253)
====== ======= ======= ======== =======
Basic and diluted net loss per
share............................ $(0.11) $ (1.15) $ (3.40) $ (1.36) $ (2.27)
Weighted average shares
outstanding used in basic and
diluted net loss per-share
calculation...................... 4,431 2,617 2,620 2,617 3,194
Pro forma basic and diluted net
loss per share(1)................ $ (0.36) $ (0.29)
Weighted average shares
outstanding used in pro forma
basic and diluted per-share
calculation(1)................... 24,850 25,425
<CAPTION>
DECEMBER 31,
------------------------
1995 1996 1997 JUNE 30, 1998
------ ------- ------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and
short-term investments........... $ 1 $ 33 $ 3,785 $ 20,388
Working capital................... (135) (1,642) 26,451 17,706
Total assets...................... 105 1,448 32,868 28,260
Debt and capital lease
obligations, less current
portion.......................... -- 437 834 780
Mandatory redeemable convertible
preferred stock.................. -- 2,063 37,200 37,200
Total stockholders' equity
(deficiency)..................... (40) (3,046) (9,109) (15,868)
</TABLE>
- -------
(1) See Note 2 and 10 of Notes to Financial Statements for an explanation of
the method used to determine the number of shares used to compute pro
forma basic and diluted net loss per share.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the related Notes thereto included elsewhere in this
Prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including, but not limited to, those set forth under "Risk
Factors" and elsewhere in this Prospectus.
OVERVIEW
GeoCities offers the world's largest and one of the fastest growing
communities of personal Web sites on the Internet. GeoCities pioneered the
first large-scale, Web-based community for Internet users to express
themselves, share ideas, interests and expertise, and publish content
accessible to other users with common interests. The mainstay of the Company's
community are its "Homesteaders," Internet users who create their own personal
Web sites or "Homesteads" in themed "neighborhoods" on the GeoCities Web site.
These neighborhoods provide a context for Web users to publish content, to
share experiences and ideas with other users and to access a centralized and
easy-to-navigate destination for user-published content.
Founded in December 1994 as Beverly Hills Internet, the Company first
launched an online community of six neighborhoods in January 1995. From
January 1995 through early 1996, the Company's operating activities related
primarily to developing software and hardware infrastructure for the Company's
Web site, recruiting personnel, raising capital and developing programs to
attract Homesteaders. During this period, the Company's revenues were derived
from commercial Web site set-up and maintenance operations which were de-
emphasized in early 1996. The Company changed its name to GeoCities in early
1996, and, for the remainder of 1996 and through 1997, shifted its focus
toward building its Homesteader membership base, broadening the functionality
of the Company's Web site, developing a broader range of neighborhoods and, to
a lesser extent, selling advertising on its Web site. The Company began
focusing on generating advertising revenues in 1996 as a result of the
maturing advertising market on the Internet. Moreover, the Company determined
that it was generating sufficient traffic to support the efforts of a
dedicated advertising sales team. The Company reached one million Homesteads
in October 1997 and over 2.1 million Homesteads in July 1998. From the end of
1997 through May 1998, the Company hired substantially all of its senior
management team and began to focus more strongly on building its revenue base.
To date, the Company's revenues have been derived principally from the sale
of advertisements. Advertising revenues constituted 90.2% of net revenues for
the six months ended June 30, 1998 and 90.6% of net revenues for 1997. The
Company sells banner advertisements, event sponsorships and premium site
locations within the Company's Web site. The Company also receives advertising
revenues from select premier commerce partners in return for preferred banner
advertising locations on, and integration into, the Company's Web site. The
Company has also recently begun receiving advertising revenues from third-
party content providers who pay the Company for displaying their content on
the Company's Web site. Currently, the duration of the Company's banner
advertising arrangements averages between one to two months. Advertising rates
are dependent on whether the impressions are for general rotation throughout
the Company's Web site or for targeted audiences and properties within
specific areas of the GeoCities site. All advertising revenues are recognized
ratably in the period in which the advertisement is displayed, provided that
no significant Company obligations remain and collection of the resulting
receivable is probable. Company obligations typically include guarantees of a
minimum number of "impressions" or times that an advertisement appears in page
views downloaded by users. Payments received from advertisers prior to
displaying their advertisements on the site are recorded as deferred revenues
and are recognized as revenue ratably when the advertisement is displayed.
30
<PAGE>
In addition to advertising revenues, the Company derives other revenues
primarily from its GeoPlus program, and, to a lesser extent, from its GeoShops
program and revenue-sharing arrangements with its premier commerce partners.
The Company's GeoPlus program offers premium services for a monthly fee,
providing Homesteaders additional disk space and enhanced publishing tools for
their Web pages. In March 1998, the Company introduced the GeoShops program, a
commerce service that, for a monthly fee, allows Homesteaders to sell products
and services on their personal Web sites, and, for an additional fee, provides
Homesteaders with transaction authorization and processing capabilities. The
Company's agreements with its premier commerce partners generally provide the
Company with a share of any sales resulting from direct links from the
Company's Web site, subject to certain minimum sales levels. Revenues from the
GeoPlus and GeoShops programs are recognized in the month that the service is
provided. Revenues from the Company's share of the proceeds from its premier
commerce partners' sales are recognized by the Company upon notification from
its premier commerce partners of sales attributable to the Company's Web site.
To date, revenues from such revenue-sharing arrangements have not been
material.
The Company has incurred significant losses since its inception, and as of
June 30, 1998, had an accumulated deficit of approximately $19.7 million.
Also, in connection with the grant of certain stock options to employees
during 1997 and the six months ended June 30, 1998, the Company recorded
unearned deferred compensation of approximately $9.3 million through June 30,
1998 ($9.8 million through July 31, 1998 which takes into consideration
unearned deferred compensation for stock options granted during July 1998),
representing the difference between the deemed value of the Company's Common
Stock for accounting purposes and the exercise price of such options at the
date of grant. Such amount, net of amortization, is presented as a reduction
of stockholders' equity and amortized over the vesting period of the
applicable options. As a result, the Company currently expects to amortize the
following amounts of deferred compensation annually: 1998--$1.4 million;
1999--$2.0 million; 2000--$2.3 million; 2001--$2.4 million; 2002--$1.1
million; 2003--$444,000 and 2004--$148,000. Amortization of deferred
compensation was $290,000 and $24,000 for the six months ended June 30, 1998,
and for 1997, respectively.
The Company and the FTC staff attorneys executed the Proposed Consent Order
in June 1998, in connection with the FTC's investigation into certain past
business practices of the Company. The Proposed Consent Order has been
approved by the Director of Consumer Protection for the FTC, but is subject to
final FTC approval after a period of public comment. There can be no assurance
that the Proposed Consent Order ultimately will be approved. Based on the
scope of the Proposed Consent Order, the Company does not believe that its
compliance with the Proposed Consent Order will have a material adverse effect
on the Company's business, results of operations or financial condition.
31
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the results of operations for the Company
expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
-------------------------- ---------------
1995 1996 1997 1997 1998
-------- ------ ------ ------ ------
(AS A PERCENTAGE OF NET REVENUES)
<S> <C> <C> <C> <C> <C>
Net revenues................ 100% 100% 100% 100% 100%
Cost of revenues............ 224 251 101 87 71
-------- ------ ------ ------ ------
Gross profit (loss)........ (124) (151) (1) 13 29
Operating expenses:
Sales and marketing........ 254 243 110 130 92
Product development........ 157 151 22 27 24
General and
administrative............ 507 399 63 78 53
-------- ------ ------ ------ ------
Total operating expenses.. 918 793 195 235 169
-------- ------ ------ ------ ------
Loss from operations........ (1,042) (944) (196) (222) (140)
Interest income (expense),
net........................ (4) (13) 2 4 9
-------- ------ ------ ------ ------
Loss before provision for
income taxes............... (1,046) (957) (194) (218) (131)
Provision for income taxes.. (2) -- -- -- --
-------- ------ ------ ------ ------
Net loss.................... (1,048)% (957)% (194)% (218)% (131)%
======== ====== ====== ====== ======
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NET REVENUES
Net revenues increased 240% to $5.5 million for the six months ended June
30, 1998, from $1.6 million for the six months ended June 30, 1997. The
increase in net revenues was due primarily to an increase in the number of
advertisers, the addition of the Company's premier commerce partners, the
increase in the Company's Web site traffic and, to a lesser extent, expansion
in GeoPlus memberships and the addition of third-party content providers which
pay the Company for carrying their content within the GeoCities community.
Advertising revenues accounted for approximately 90.2% and 92.2% of net
revenues for the six months ended June 30, 1998 and 1997, respectively. The
Company's four largest customers accounted for approximately 28% and 30% of
net revenues in the six months ended June 30, 1998 and 1997, respectively.
During these periods, the Company's revenues from its GeoPlus and GeoShops
programs and revenue-sharing arrangements with commerce partners were non-
existent or individually insignificant as a percentage of net revenues. At
June 30, 1998, the Company had deferred revenues of $566,000. The Company
anticipates that advertising revenues will continue to account for a
substantial share of net revenues for the foreseeable future.
COST OF REVENUES
Cost of revenues consists primarily of Internet connection charges, Web site
equipment leasing costs, depreciation, salaries of operations personnel and
other related operations costs. During the six months ended June 30, 1998 and
1997, cost of revenues related to the Company's premium service programs were
individually and collectively insignificant. Cost of revenues increased to
$3.9 million or 71% of net revenues for the six months ended June 30, 1998,
from $1.4 million or 87% of net revenues for the six months ended June 30,
1997. The absolute dollar increases in cost of revenues were primarily due to
building the Company's server and networking infrastructure in response to the
growth in number of Homesteads. Cost of revenues decreased as a percentage of
net revenues because of the growth in net revenues. The Company anticipates
that its Internet connection, Web site equipment and related operating costs
will continue to grow in absolute dollars for the foreseeable future.
32
<PAGE>
OPERATING EXPENSES
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of salaries of sales and
marketing personnel, commissions, advertising and other marketing related
expenses. Sales and marketing expenses also include personnel costs related to
editorial content and community management and support. Sales and marketing
expenses increased to $5.1 million or 92% of net revenues for the six months
ended June 30, 1998, from $2.1 million or 130% of net revenues for the six
months ended June 30, 1997. The absolute dollar increase in sales and
marketing expenses was primarily due to increases in the number of sales
personnel, increased sales commissions and increased expenses associated with
promotion and marketing efforts. Sales and marketing expenses as a percentage
of net revenues decreased because of the growth in net revenues. The Company
expects that sales and marketing expenses will grow significantly in absolute
dollars for the foreseeable future as it pursues an aggressive branding
strategy and hires additional sales and marketing personnel.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses consist primarily of salaries of certain
software development and operations personnel and expenditures related to
third party software. Product development expenses increased to $1.3 million
or 24% of net revenues for the six months ended June 30, 1998, from $437,000
or 27% of net revenues for the six months ended June 30, 1997. The absolute
dollar increase in product development expenses was primarily attributable to
increased personnel and associated software costs related to enhancing the
functionality of the Company's Web site. Product development expenses
decreased as a percentage of net revenues because of the growth in net
revenues. To date, all product development expenditures have been expensed as
incurred. The Company believes that significant investments in product
development are required to remain competitive. Therefore, the Company expects
that its product development expenses will continue to increase in absolute
dollars for the foreseeable future.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of salaries and
related costs for general corporate functions, including finance, accounting,
facilities and legal, and fees for professional services. General and
administrative expenses increased to $2.9 million or 53% of net revenues for
the six months ended June 30, 1998, from $1.3 million or 78% of net revenues
for the six months ended June 30, 1997. The absolute dollar increase in
general and administrative expenses was primarily due to increases in the
number of personnel to support the growth of the Company's business, and
increases in recruiting costs related to filling key senior executive
positions. General and administrative expenses decreased as a percentage of
net revenues because of the growth in net revenues. The Company expects that
it will incur additional general and administrative expenses in absolute
dollars as the Company hires additional personnel and incurs additional
expenses related to the growth of the business and its operations as a public
company.
INTEREST INCOME (EXPENSE), NET
Interest income (expense), net includes income from the Company's cash and
investments and expenses related to the Company's financing obligations.
Interest income (expense), net increased to $487,000 for the six months ended
June 30, 1998, from $69,000 for the six months ended June 30, 1997. The
increase in absolute dollars was primarily due to a higher average investment
balance as a result of the receipt of the proceeds of the issuance of shares
of the Company's preferred stock in October and December 1997.
33
<PAGE>
YEAR ENDED DECEMBER 31, 1997, 1996 AND 1995
NET REVENUES
Net revenues were $4.6 million, $314,000 and $46,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. The absolute dollar increases
from year to year were due primarily to an increase in the number of
advertisers, increase in traffic on the Company's Web site and, to a lesser
extent, increase in revenues from expansion of GeoPlus memberships.
Advertising revenues accounted for approximately 90.6%, 89.7%, and 0% of net
revenues in 1997, 1996 and 1995, respectively. The Company's four largest
advertising customers accounted for 29% and 40% of net revenues for the years
ended 1997 and 1996, respectively. For the years ended December 31, 1997 and
1996, the Company's other sources of net revenues, which included revenues
from premium services, were individually insignificant as a percentage of net
revenues. Prior to 1996, the Company's revenues were derived from commercial
Web site set-up and maintenance operations which were de-emphasized in early
1996 as the Company transitioned its business model toward building
advertising revenues.
COST OF REVENUES
Cost of revenues were $4.6 million or 101% of net revenues, $788,000 or 251%
of net revenues and $103,000 or 224% of net revenues for the years ended
December 31, 1997, 1996 and 1995 respectively. Cost of revenues in 1997 and
1996 related to the Company's premium-service programs were individually
insignificant. Cost of revenues in 1995 consisted primarily of salaries of
design personnel and Internet connection charges. The absolute dollar
increases from year to year in cost of revenues were primarily due to the
costs of building the Company's server and networking infrastructure in
response to the growth in Homesteader membership. Cost of revenues as a
percentage of net revenues has decreased because of the growth in net
revenues.
OPERATING EXPENSES
SALES AND MARKETING EXPENSES
Sales and marketing expenses were $5.0 million or 110% of net revenues,
$764,000 or 243% of net revenues and $117,000 or 254% of net revenues for the
years ended December 31, 1997, 1996 and 1995, respectively. The absolute
dollar increases from year to year in sales and marketing expenses were
primarily due to the addition of a direct sales force which the Company began
building in the second half of 1996 and increases in marketing expenses. Sales
and marketing expenses as a percentage of net revenues have decreased because
of the growth in net revenues.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses were $1.0 million or 22% of net revenues,
$475,000 or 151% of net revenues and $72,000 or 157% of net revenues for the
years ended December 31, 1997, 1996 and 1995, respectively. The absolute
dollar increases from year to year in product development expenses were
primarily attributable to increases in the number of personnel and related
costs to support enhancement to the Company's products. Product development
expenses as a percentage of net revenues have decreased because of the growth
in net revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $2.9 million or 63% of net
revenues, $1.3 million or 399% of net revenues and $233,000 or 507% of net
revenues for the years ended December 31, 1997, 1996 and 1995, respectively.
The absolute dollar increases from year to year in general and administrative
expenses were primarily due to increases in the number of general and
administrative personnel, professional services and facility expenses to
support the growth of the Company's operations. General and administrative
expenses as a percentage of net revenues have decreased because of the growth
in net revenues.
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INTEREST INCOME (EXPENSE), NET
Interest income (expense), net was $117,000 for the year ended December 31,
1997. Interest income (expense), net was ($40,000) and ($2,000) for the years
ended December 31, 1996 and 1995, respectively. The increase in interest
income (expense), net for the year ended December 31, 1997 was primarily due
to a higher average investment balance as a result of preferred stock proceeds
from the first quarter and third quarter of 1997.
INCOME TAXES
As of December 31, 1997 the Company had approximately $11.3 million and
$10.7 million of federal and state net operating loss carryforwards,
respectively, for tax reporting purposes available to offset future taxable
income. The Company's federal and state net operating loss carryforwards
expire beginning 2010 and 2002, respectively. Due to the change in the
Company's ownership interests in 1996 and 1997, future utilization of the
Company's net operating loss carryforwards will be subject to certain
limitations or annual restrictions under the tax laws. See Note 9 of Notes to
Financial Statements.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data and such
statement of operations data as a percentage of net revenues for the three
months ended June 30, September 30 and December 31, 1997, and March 31 and
June 30, 1998. The information for each of these quarters has been prepared on
substantially the same basis as the audited financial statements included
elsewhere in this Prospectus and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of operations for such periods. Historical
results are not necessarily indicative of the results to be expected in the
future, and results of interim periods are not necessarily indicative of
results for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1997 1997 1998 1998
-------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues................. $ 1,050 $ 1,271 $ 1,679 $ 2,173 $3,369
Cost of revenues............. 1,050 1,382 1,831 1,565 2,372
------- ------- ------- ------- -------
Gross profit (loss)......... -- (111) (152) 608 997
Operating expenses:
Sales and marketing......... 1,409 1,289 1,626 2,118 2,954
Product development......... 235 264 321 508 817
General and administrative.. 722 649 979 1,083 1,864
------- ------- ------- ------- -------
Total operating expenses... 2,366 2,202 2,926 3,709 5,635
------- ------- ------- ------- -------
Loss from operations......... (2,366) (2,313) (3,078) (3,101) (4,638)
Interest income, net......... 40 5 43 204 283
------- ------- ------- ------- -------
Loss before provision for
income taxes................ (2,326) (2,308) (3,035) (2,897) (4,355)
Provision for income taxes... -- -- -- (1) --
------- ------- ------- ------- -------
Net loss..................... $(2,326) $(2,308) $(3,035) $(2,898) $(4,355)
======= ======= ======= ======= =======
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1997 1997 1998 1998
-------- --------- -------- --------- --------
(AS A PERCENTAGE OF NET REVENUES)
<S> <C> <C> <C> <C> <C>
Net revenues................... 100% 100% 100% 100% 100%
Cost of revenues............... 100 109 109 72 70
---- ---- ---- ---- ----
Gross profit (loss)........... -- (9) (9) 28 30
Operating expenses:
Sales and marketing........... 134 101 97 97 88
Product development........... 23 21 19 23 24
General and administrative.... 69 51 58 50 55
---- ---- ---- ---- ----
Total operating expenses..... 226 173 174 170 167
---- ---- ---- ---- ----
Loss from operations........... (226) (182) (183) (142) (137)
Interest income, net........... 4 -- 2 9 8
---- ---- ---- ---- ----
Loss before provision for
income taxes.................. (222) (182) (181) (133) (129)
Provision for income taxes..... -- -- -- -- --
---- ---- ---- ---- ----
Net loss....................... (222)% (182)% (181)% (133)% (129)%
==== ==== ==== ==== ====
</TABLE>
The Company's net revenues have increased in all quarters presented as a
result of an increase in the number of advertisers, the increase in the
Company's Web site traffic and, to a lesser extent, the expansion of the
Company's GeoPlus program. The increase in net revenues for the quarter ended
June 30, 1998, was due primarily to an increase in the number of advertisers,
an increase in revenues from the Company's premier commerce partners and the
addition of payments from third-party content providers.
Cost of revenues has increased in absolute dollars for each quarter
presented other than the quarter ended March 31, 1998. The increases in cost
of revenues in absolute dollars are the result of expanding the Company's
server and networking infrastructure to accommodate the growth in Homesteads
and increased traffic to the Company's Web site. The increase in cost of
revenues in absolute dollars for the quarter ended December 31, 1997 resulted
from the decision to change the Company's Internet service provider which
resulted in increased expenses during the transition period. The increase in
cost of revenues in absolute dollars for the quarter ended June 30, 1998, was
due to expansion of the Company's infrastructure to accommodate the increase
in the Company's Web site traffic and Homesteads and the costs associated with
increasing disk space available to Homesteads. The decrease in cost of
revenues as a percentage of net revenues for the quarter ended March 31 and
June 30, 1998, is a result of the growth in the Company's net revenues.
Operating expenses have increased in each of the quarters presented
reflecting the growth of the Company's operations. In addition, the increase
in sales and marketing expenses for the quarter ended June 30, 1998, was due
primarily to the addition of sales and marketing personnel, increased
commissions associated with higher sales and expenses related to increased
editorial content and community management and support. The increase in
general and administrative expenses for the quarter ended June 30, 1998,
primarily was due primarily to the expansion of the Company's corporate
infrastructure and legal expenses related to the Proposed Consent Order.
Operating expenses as a percentage of net revenues have decreased as a result
of the growth in net revenues.
The Company's operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside of the Company's
control. These factors include demand for Web-based advertising, advertisers'
market acceptance of the Web as an advertising medium, the level of traffic on
the GeoCities Web site, the advertising budgeting cycles of advertisers, the
amount and timing of capital expenditures and other costs relating to the
expansion of the Company's operations, the introduction of new or enhanced
services by the Company or its competitors, the timing and number of new
hires, pricing changes for Web-based advertising as a result of competition or
otherwise, the loss
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of a key advertising contract or relationship by the Company, changes in the
Company's pricing policy or those of its competitors, the mix of types of
advertisements sold by the Company, engineering or development fees that may
be paid in connection with adding new Web site development and publishing
tools, technical difficulties with the GeoCities Web site, incurrence of costs
relating to future acquisitions, general economic conditions, and economic
conditions specific to the Internet or all or a portion of the technology
sector. As a strategic response to changes in the competitive environment, the
Company may from time to time make certain pricing, service or marketing
decisions or business combinations that could have a material adverse effect
on the Company's business, results of operations and financial condition. In
order to accelerate the promotion of the GeoCities brand, the Company intends
to significantly increase its marketing budget which could materially and
adversely affect the Company's business, results of operations and financial
condition for a number of quarterly periods. The Company has experienced, and
expects to continue to experience, seasonality in its business, with user
traffic on the GeoCities Web site being lower during the summer and year-end
vacation and holiday periods when overall usage of the Web is lower.
Additionally, seasonality may significantly affect the Company's advertising
revenues during the first and third calendar quarters, as advertisers
historically spend less during these periods. Because Web-based advertising is
an emerging market, additional seasonal and other patterns in Web advertising
may develop in the future as the market matures, and there can be no assurance
that such patterns will not have a material adverse effect on the Company's
business, results of operations and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through the private placement of its preferred stock and equipment lease
financing. As of June 30, 1998, the Company had approximately $1.2 million in
cash and cash equivalents and $19.2 million in short-term investments.
Net cash used in operating activities increased to $7.2 million for 1997
from $2.8 million for 1996, and increased to $6.3 million for the six months
ended June 30, 1998, compared to $3.7 million for the six months ended June
30, 1997. The increase in net cash used resulted primarily from increasing net
losses and accounts receivable, partially offset by increases in accrued
expenses.
Net cash used in investing activities increased to $1.3 million for 1997
from $130,000 for 1996, resulting from increased purchases of property and
equipment and the $645,000 investment in 40% of GeoCities Japan, a joint
venture with SOFTBANK. Net cash used in investing activities increased to
$21.3 million for the six months ended June 30, 1998, compared to $258,000 for
the six months ended June 30, 1997, resulting primarily from the purchase of
investments with the proceeds received in January 1998 from the Company's
issuance of shares of its preferred stock. The Company invested these proceeds
in debt securities, primarily U.S. Government and corporate debt securities,
with maturities not exceeding one year. The Company intends to continue to
invest its surplus funds in such securities.
Net cash provided by financing activities increased to $12.3 million for
1997 compared to $2.9 million for 1996 resulting primarily from the $13.0
million of cash proceeds from the sale of shares of the Company's preferred
stock for $38 million. Approximately $25.0 million of such preferred stock
proceeds were not received at December 31, 1997. The resulting $25.0 million
subscription receivable included in the financial statements at December 31,
1997, was subsequently received in January 1998. See Note 8 of Notes to
Financial Statements.
The Company has a bank line of credit for $10.0 million. To date there have
been no borrowings under this line of credit. This credit facility includes a
$7.0 million revolving facility for working capital and a $3.0 million lease
facility. This facility bears interest at the bank's prime rate for the
revolving facility and the bank's prime rate plus 0.75% for the lease
facility. Any borrowings under this line of credit will be collateralized by
substantially all of the Company's assets.
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In July 1998, the Company entered into an agreement to purchase certain Web-
page development technology for $850,000 in cash and, subject to the
technology being successfully installed and becoming operational on the
Company's servers to the Company's satisfaction within 90 days of the date of
the purchase agreement, $455,000 in Common Stock valued at the initial public
offering price. If the offering is not consummated within 90 days of the date
of the purchase agreement, such amount is payable in cash. In addition, if the
technology is successfully installed and becomes operational within an agreed-
upon period prior to the 90-day deadline, the Company will be required to pay
the seller an additional $145,000, payable in Common Stock or cash as set
forth above. If the technology is not successfully installed and does not
become operational on the Company's servers within 90 days of the date of the
agreement to the Company's satisfaction, the seller is obligated to refund to
the Company all but $300,000 of the cash payment.
The Company's capital requirements depend on numerous factors, including
market acceptance of the Company's services, the amount of resources the
Company devotes to investments in the GeoCities community, the resources the
Company devotes to marketing and selling its services and its brand promotions
and other factors. The Company has experienced a substantial increase in its
capital expenditures and operating lease arrangements since its inception
consistent with the growth in the Company's operations and staffing, and
anticipates that this will continue for the foreseeable future. Additionally,
the Company will continue to evaluate possible investments in businesses,
products and technologies, and plans to expand its sales and marketing
programs and conduct more aggressive brand promotions. The Company currently
anticipates that the net proceeds of the offering, together with its existing
line of credit and available funds will be sufficient to meet its anticipated
needs for working capital and capital expenditures for at least the next 12
months. See "Risk Factors--Future Capital Needs; Uncertainty of Additional
Financing".
The Company is in the process of working with its software vendors to ensure
that the Company's systems are prepared for the year 2000. In addition, the
Company is working with its external suppliers and service providers to ensure
that they and their systems will be able to support the Company's needs in
preparation for the year 2000. Management does not anticipate that the Company
will incur significant operating expenses or be required to invest heavily in
computer systems improvements to be year 2000 compliant. However, significant
uncertainty exists concerning the potential costs and effects associated with
any year 2000 compliance. Any year 2000 compliance problems of either the
Company, its customers or vendors could have a material adverse effect on the
Company's business, results of operations and financial condition.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards ("SFAS") 128
"Earnings Per Share", was issued and effective for the Company's year ended
December 31, 1997. As a result, the Company's earnings per share ("EPS") data
for all periods has been presented in accordance with SFAS 128. In March 1997,
SFAS 129, "Disclosure of Information About Capital Structure", was issued and
will be effective for 1998. In June 1997, SFAS 130, "Comprehensive Income" and
SFAS 131, "Disclosure about Segments of an Enterprise", were issued and will
be effective for 1998. The Company is evaluating additional disclosures, if
any, which may result from these pronouncements. See Note 2 of Notes to
Financial Statements.
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<PAGE>
BUSINESS
OVERVIEW
GeoCities offers the world's largest and one of the fastest growing
communities of personal Web sites on the Internet. The Company pioneered the
first large-scale, Web-based community for Internet users to express
themselves, share ideas, interests and expertise, and publish content
accessible to other users with common interests. The mainstay of the Company's
community are its "Homesteaders," Internet users who create their own personal
Web sites or "Homesteads" in themed "neighborhoods" on the GeoCities Web site.
These neighborhoods provide a context for Web users to publish content, to
share experiences and ideas with other users and to access a centralized and
easy-to-navigate destination for user-published content.
INDUSTRY BACKGROUND
THE INTERNET AND WORLD WIDE WEB
The Internet and the World Wide Web ("Web") have emerged as mass
communications and commerce mediums enabling millions of people worldwide to
share information, communicate and conduct business electronically.
International Data Corporation ("IDC") estimates that the number of Web users
worldwide will exceed 95 million by the end of 1998 and will grow to over 170
million users by the end of 2000. Jupiter Communications estimates that the
number of Internet-connected households worldwide will grow from approximately
45 million at the end of 1998 to approximately 66 million by the end of 2000.
The relatively lower costs required to publish content on the Web compared to
traditional media and the availability of powerful new tools for the
development and distribution of multimedia-rich content, including video and
audio, have led to a proliferation of more useful and engaging information and
services on the Internet. As the amount of content and services on the
Internet continues to grow at a rapid pace, greater numbers of Internet users
are attracted, fueling a cycle of growth wherein more users demand more
content and more content attracts more users.
THE NEED FOR ONLINE COMMUNITIES
As the Internet continues to grow, users seek from the Web the same
opportunity for expression, interaction, sharing, support and recognition they
seek in the everyday world. To date, a typical Internet user's experience
surfing the Web has been essentially one-way--searching and viewing Web sites
containing professionally created content on topics of general interest such
as current events, sports, finance, politics and weather. However, the Web in
general does not provide a context for users to publish, promote, search and
view personal Web pages. As a result, users publishing personal Web sites have
had limited means of attracting visitors to their sites or interacting with or
receiving recognition from visitors. Internet search and navigational sites
serve a valuable function for users seeking to navigate the Internet for
aggregated Web content; however, these sites are not primarily focused on
providing a platform for publishing and aggregating the rapidly increasing
volume of personalized content created by users or enabling such users to
interact with each other--unique characteristics that distinguish the Internet
from traditional print, radio and television media. As a result, there is a
significant growing demand by Web users for an online community site in which
they can publish easy-to-find, context-based content for, interact with, and
be recognized by, other Web users.
Similarly, Web users engaged in passive browsing are increasingly seeking
ways of interacting and communicating with other individuals with similar
interests and accessing unique, personalized content. While users are
generally able to obtain relevant professionally created content through
traditional navigational sites such as Web directories and search engines, the
source of such content is usually the media and not fellow Web users. Often,
the most relevant content for a user is generated by other users who share an
interest in what is published; however, most Web sites are not dedicated to
providing a platform for aggregating and accessing user-created content.
Online communities, unlike
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traditional Web navigational or content sites, provide the user with the
ability to directly interact with the author of such personalized content. As
a result, there is a significant and growing demand among users surfing the
Internet for an online community site that offers a centralized means of
accessing diverse, personally created content in an easy-to-navigate
contextual manner.
Online communities also provide advertisers and businesses an attractive
means of promoting and selling their products and services. According to
Jupiter Communications, the amount of advertising dollars spent on the Web is
expected to increase 67% annually over the next three years, reaching
approximately $4.3 billion by 2000. According to IDC, worldwide commerce
revenue on the Internet is expected to increase from approximately $32 billion
in 1998 to approximately $130 billion in 2000. To date, advertisers and
businesses have typically used traditional navigational sites and
professionally created content sites to promote their products and services
online. However, online communities allow advertisers and businesses to reach
highly targeted audiences within a more personalized context, thus providing
the opportunity to increase advertising efficiency and improve the likelihood
of a successful sale.
THE GEOCITIES SOLUTION
Founded by David Bohnett, GeoCities pioneered the first large-scale, Web-
based community for users to express themselves, share ideas, interests and
expertise and publish content accessible to other users with common interests.
The Company believed that user affinity to the Web occurs when users relate
personally to their online experience, and the more active users are in the
creation of that experience, the more personal the experience becomes. To
attract members to its community, the Company established a service enabling
Internet users to create their own Web sites in themed "neighborhoods" on the
GeoCities Web site. These neighborhoods provide a context for Web users to
publish content, to share experiences and ideas with other users and to access
a centralized and easy-to-navigate destination for user-created content.
Since its inception, GeoCities has become the world's largest and one of the
fastest growing communities of personal Web sites on the Internet. With
thousands of Homesteaders joining each day, the GeoCities community has grown
from approximately 10,000 Homesteads in October 1995 to over 2.1 million in
July 1998. Homesteaders have created an estimated 17 million pages of
personalized content, attracting over 14.8 million unique visitors to, and
generating over 925 million page views on, the GeoCities community, according
to Relevant Knowledge in June 1998 and Nielsen I/PRO in May 1998 in a report
prepared for the Company, respectively. GeoCities was the third most
trafficked Web site on the Internet among home users in June 1998, according
to Media Metrix, and, based on this information, the Company believes it was
the most popular community of personal Web sites on the Internet during the
first two quarters of 1998.
The Company believes that its success to date is attributable to its focus
on Homesteaders, visitors and advertising and commerce partners. This focus is
highlighted by the following distinguishing characteristics of the GeoCities
community:
LARGE WEB-BASED COMMUNITY WITH BROAD RANGE OF NEIGHBORHOODS. Homesteaders
are able to join one of 40 themed GeoCities neighborhoods, which are organized
topically, based on themes associated with well-known places. By providing
this broad range of neighborhoods for Homesteaders, GeoCities fosters a
virtual "greenhouse" for a wide range of individual self-expression and
interaction. Web users interested in finance and investing, for example,
Homestead in and create content for WallStreet and those interested in
politics Homestead in and support CapitolHill. Moreover, as the Internet's
largest community of personal Web sites, GeoCities offers on average over
40,000 Homesteads within each of its neighborhoods, providing Homesteaders
with the critical mass and platform to interact with and be recognized by
others.
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ACTIVE OWNERSHIP AND COMMUNITY PARTICIPATION. GeoCities encourages active
participation in its community and offers a number of programs to increase
levels of participation. When Homesteaders first apply to join a GeoCities
neighborhood, they agree to abide by the GeoCities community guidelines.
Homesteaders also agree to begin creation of their Web sites within two weeks
of joining a GeoCities neighborhood or relinquish their Homesteads.
Additionally, the Company welcomes suggestions from its Homesteaders and
implements those ideas that improve the community. As a result, the Company's
Homesteaders develop a keen sense of personal involvement in and ownership of
the GeoCities community, and actively encourage others to join and
participate. Homesteaders seeking greater involvement in their neighborhoods
are given the opportunity to join the active ranks of 40 Community Liaisons
and over one thousand Community Leaders. The Community Liaison and Community
Leaders within each neighborhood welcome new Homesteaders, provide assistance
to other Homesteaders, actively provide GeoCities with suggestions for
improvements and monitor sites. The Company believes that the greater the
involvement of its Homesteaders, the greater the loyalty and affinity of those
Homesteaders to the GeoCities site, and the more successful the GeoCities
community.
FOCUS ON CONTINUALLY IMPROVING THE HOMESTEADER EXPERIENCE. GeoCities
continually strives to improve the online experience of its members.
Homesteaders are provided free of charge with disk space for personal Web
sites, powerful Web-page publishing and communication tools to create their
own fully customized, multimedia-rich content and e-mail, chat and bulletin
board services. The Company offers premium memberships for Homesteaders who
want more utilities, disk space and a personal URL (Uniform Resource Locator
that determines the particular location of a Web page on the Internet).
GeoCities holds a monthly conference call with its Community Liaisons in order
to proactively determine what improvements and suggestions are important to
its GeoCities community. By supplementing this call with a weekly newsletter
for Community Leaders, GeoCities maintains close interaction with its
community on issues and suggestions of a broader group of Homesteaders. In
addition, the Company offers a comprehensive online help function and
encourages volunteerism among its Community Leaders and Liaisons and other
Homesteaders in helping their GeoCities neighbors.
INTUITIVE MEANS OF FINDING PERSONALIZED CONTENT. While Internet users can
generally find Web content aggregated by subject area, aggregated user-created
content is much more challenging to find. GeoCities' topical categorization of
user-created content provides visitors with a central online site for quickly
accessing a critical mass of an estimated 17 million pages of personalized
content. Given their strong affinity for their Homestead and the GeoCities
community, Homesteaders actively promote their Web sites throughout the
Internet with hyperlinks located on other individual sites as well as through
listings on Internet directories and search engines, thereby resulting in
millions of Internet users visiting the GeoCities community site.
UNIQUE PERSONALIZED COMMUNITY ENVIRONMENT FOR ADVERTISING AND
COMMERCE. Online communities of members with common interests and demographics
constitute attractive opportunities for advertisers seeking to promote their
products and services online and businesses desiring to conduct commerce on
the Internet. The combination of GeoCities' unique community context,
intuitive topical organization, high volumes of traffic and Homesteaders'
acceptance of the role of advertising in the community provides an attractive
platform for targeted and cost-effective Web advertising and Web commerce.
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THE GEOCITIES STRATEGY
The Company's objective is to be the world's leading member-created online
community for people on the Web. The Company's strategies to achieve this
objective include:
FOCUS ON HOMESTEADER GROWTH AND AFFINITY. The Company intends to continue to
increase the number of its Homesteaders and concentrate on member affinity to
maintain its position as a leading community of personal Web sites. The
Company intends to continue to grow its membership base by: (i) introducing
additional classes of membership that appeal to a broader range of Internet
users; (ii) offering easier-to-use Web-page publishing tools, allowing
Homesteaders to easily create and enhance personal Web sites; (iii) promoting
GeoCities as a destination point on the Web by augmenting its existing
distribution alliances with Yahoo! and other partners and (iv) launching
brand- name promotional campaigns to drive both growth in membership and
traffic to its members' personal Web sites. In addition, the Company intends
to introduce more value-added member services and strengthen and expand the
number of affinity programs offered by the Company, including its GeoRewards
affinity program. Similar to airline frequent-flyer bonus point programs, the
GeoRewards affinity program is designed to reward Homesteaders with points
based on their level of participation, which they can later redeem for
discounts on purchases within the GeoCities community. The Company believes
that its focus on the needs of its Homesteaders and enhancing their experience
within the GeoCities community will produce continued growth in, and foster
loyalty among its membership base. The Company believes that a large and
growing base of committed Homesteaders organized on a contextual basis
provides advertisers and businesses with an attractive market to target
promotion of their products and services, thereby creating advertising and
commerce revenue opportunities for the Company.
BUILD THE GEOCITIES BRAND. The Company intends to increase its focus on
building the GeoCities brand. Historically, the Company's growth has been
primarily by word of mouth and the informal promotional efforts of its
members. Following the offering, the Company intends to launch an aggressive
promotional campaign to increase awareness of the GeoCities brand through
traditional media, including print, radio, billboard and television. In
addition, the Company intends to pursue additional distribution arrangements
to increase its reach on the Internet and introduce a number of additional
brand awareness programs on the GeoCities site to leverage its large and
growing Homesteader base and visitor traffic. The Company believes that a
well-recognized GeoCities brand will be attractive to existing and potential
advertising customers and commerce partners of the Company.
CONTINUE TO ENHANCE SITE FUNCTIONALITY AND PERFORMANCE. The Company believes
continually providing Homesteaders and visitors with greater functionality and
performance is critical to its continued leadership. The Company introduced a
new user interface in May 1998, which offers substantially improved
presentation of member-generated content in an intuitive topical format and
has been well received by the Company's Homesteaders and visitors to the
GeoCities community. The Company recently integrated third-party news and
editorial content into its site, allowing side-by-side interaction of personal
and professionally published content. In addition, the Company will utilize
proceeds from the offering to continue to upgrade and expand its server and
networking infrastructure, improving its ability to provide fast and reliable
access to the GeoCities community. The Company will also continue to provide
its members with enhanced Web-page publishing and communication tools to
enhance the community experience. The Company believes that continually-
enhancing site functionality and performance foster Homesteader and visitor
growth and affinity to the GeoCities community, thereby providing the Company
with an attractive platform for advertisers and for expansion of its
fee-generating premium membership services.
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ESTABLISH NEW STRATEGIC ALLIANCES. The Company has formed a number of
strategic relationships, including a distribution and equity relationship with
Yahoo! intended to increase traffic and memberships of both partners, in
addition to offering GeoCities' Homesteaders an array of free personalized
member services on Yahoo!. The Company has also formed four premier commerce
relationships with Amazon.com for books, CDnow for compact discs, First USA
for credit cards and Surplus Direct/Egghead for software and computer
hardware, making the products and services of these leading Internet vendors
available throughout the GeoCities community. These relationships provide an
opportunity for the Company to receive monthly payments and share in any
ongoing revenue streams from sales of products and services by these partners.
The Company intends to seek additional strategic relationships with commerce
and distribution partners.
EXPAND GLOBALLY. The Company believes that the anticipated growth of
Internet usage internationally presents significant opportunities to extend
GeoCities globally. According to Jupiter Communications, the number of online
households in the Asia/Pacific Rim and Europe is expected to reach
approximately 15 million at the end of 1998 and is expected to grow to
approximately 26 million by 2000. GeoCities is focused on establishing the
GeoCities community and brand in Japan, a market which, according to Jupiter
Communications, is second only to the United States in terms of Internet use.
Accordingly, the Company has entered into a joint venture with SOFTBANK to
form GeoCities Japan, which is 40% owned by the Company. The Company intends
to pursue additional opportunities for international expansion. The Company
believes that the introduction of localized GeoCities Web communities in
international markets will present many of the same opportunities for
advertising and commerce revenue as those in the United States.
BUILD MULTIPLE REVENUE STREAMS. The Company's large and growing Web
community offers a scalable business platform from which the Company plans to
generate revenue from multiple sources, including advertising, commerce and
premium membership service fees. The Company intends to achieve its revenue
objectives by: (i) increasing its advertising revenues through expansion of
its customer base, increasing the rates it charges advertisers by continuing
to improve its ability to target advertisements to more demographically
distinct groups, increasing its page views, increasing the average size and
length of its advertising contracts, increasing the number of its direct sales
representatives and continuing to invest in improving ad serving and ad
targeting technology; (ii) expanding its revenue-sharing commerce
relationships and its relationships with third-party content providers that
pay the Company for access to its site; (iii) promoting its GeoShops program,
which is designed to provide an effective means for small and home business
owners to leverage the reach of the Internet through a commercial presence
within the GeoCities community and (iv) expanding the number and scope of its
fee-based premium membership services.
HOMESTEADING ON GEOCITIES
GeoCities distinguishes itself from other Web sites by offering Homesteaders
a diverse range of neighborhoods and a critical mass of neighbors with whom to
interact. The Company also promotes active Homesteader participation through
its member-focused editorial philosophy--millions of personal Web pages
created and maintained by the community members themselves--providing Internet
users with a platform for contributing their talents and ideas, meeting and
interacting with others with similar interests and creating their own "home on
the Web". Supporting the editorial efforts of its Homesteaders are
approximately 45 GeoCities employees dedicated exclusively to community
organization, content management and community interaction. GeoCities provides
disk space, powerful Web-page publishing tools, customer support, high-speed,
high-quality site performance and e-mail, chat and bulletin-board services,
all free of charge.
The Company emphasizes a sense of responsibility among community members by
leveraging the characteristics of the Web that users find most attractive--
connection, expression, communication, entertainment and utility. GeoCities
Homesteaders abide by the community values--respect for the
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individual, open and honest communication, encouragement of ethical behavior
and respect for diverse points of view--reflected in the Company's content
guidelines and rules of conduct. GeoCities appeals to people's interest in
others by inviting users to move in, meet their neighbors, share ideas,
communicate, shop, check e-mail and join its growing community.
HOW HOMESTEADERS JOIN
GeoCities' 40 themed neighborhoods--virtual communities of people with
common interests--are based on familiar themes and provide Web users with a
place to connect on the Internet. Homesteading is analogous to moving to a new
community, picking a neighborhood to live in and designing and building a new
home to reflect one's own style and tastes. Each Homesteader is able to join
the neighborhood that most closely matches his or her interests. For example,
Homesteaders interested in music join and contribute to SunsetStrip and those
interested in wine support NapaValley. Homesteading in the GeoCities community
is designed to be easy and fun. After choosing a neighborhood, Homesteaders
find a vacant address, fill out an application, move-in and commence
developing their personal Web site. Homesteaders agree to abide by the
community guidelines and begin construction of their home within two weeks of
moving into a neighborhood. The Homesteading experience makes a user's online
experience expressive, interactive and personal.
PARTICIPATING IN THE GEOCITIES COMMUNITY
After joining a neighborhood, Homesteaders are encouraged to become active
in the community. Members can interact with their neighbors, support community
building initiatives, participate in chat sessions with their neighbors and
collaborate on editorial content. The Company believes that the more
Homesteaders participate, the more attachment they feel to the community and
the higher the quality of their content. Homesteaders seeking greater
involvement apply to become Community Leaders and Community Liaisons.
GeoCities currently has over one thousand Community Leaders, who are elected
by Homesteaders, and 40 Community Liaisons, who represent a neighborhood and
are elected by Community Leaders. The Community Leaders and Community Liaisons
are highly valued community builders who greet and assist new Homesteaders,
mentor other Homesteaders, coordinate neighborhood activities, interface with
the Company's in-house editorial staff and work to foster core community
values. In recognition of this valued service, Community Leaders and Liaisons
will receive a stock grant under the Company's 1998 Stock Incentive Plan. The
Company intends to introduce additional community leadership positions in the
future to increase levels of community participation. The Company also
encourages greater Homesteader involvement through its GeoRewards affinity
program. Homesteaders accrue bonus points based on their level of
participation which they can later redeem for discounts on purchases within
the GeoCities community.
HOW TO SURF THE GEOCITIES COMMUNITY
The Company believes that it provides users surfing the Web with a
comprehensive, high-quality concentration of personal Web sites on the
Internet. The Company strives to improve its site for such users by upgrading
the look and feel of its Web site to provide easier navigation of and to
direct greater levels of traffic to Homesteaders' Web sites. In May 1998, the
Company introduced its new user interface designed to be easier to use and
highly intuitive. The new user interface presents the GeoCities Web site to
visitors in a topical format to facilitate the aggregation of categories of
interests. This format allows easier and more intuitive access to content on
the GeoCities Web site and enhances the integration of Homesteaders' content
with the Company's e-mail, chat, bulletin-board services and selected third-
party content such as news and editorial feeds from Reuters, Women.com and
ZDNet.
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ADVERTISING, COMMERCE AND PREMIUM SERVICES
ADVERTISING
The Company has built a direct sales organization of 18 professionals as of
June 30, 1998, located in New York, San Francisco and Los Angeles, which is
dedicated to maintaining close relationships with top advertisers and leading
advertising agencies nationwide. The Company's direct sales organization is
organized regionally and is focused solely on selling advertising on the
GeoCities Web site. The Company also has arrangements with a number of third-
party advertising sales representatives pursuant to short-term agreements that
in general may be terminated by either party, without notice or penalty. The
Company's sales organization consults regularly with advertisers and agencies
on design and placement of their Web-based advertising, provides customers with
advertising measurement analysis and focuses on providing a high level of
customer service and satisfaction.
Currently, advertisers and advertising agencies enter into short-term
agreements, on average one to two months, pursuant to which they receive a
guaranteed number of impressions for a fixed fee. Advertising in GeoCities
currently consists primarily of banner-style advertisements that are
prominently displayed at the top of pages on a rotating basis throughout the
GeoCities community, including members' personal Web sites. From each banner
advertisement, viewers can hyperlink directly to the advertiser's own Web site,
thus providing the advertiser an opportunity to directly interact with an
interested customer. The Company's standard cost per thousand impressions
("CPM") for banner advertisements currently ranges from $15 to $40, depending
upon location of the advertisement and the extent to which it is targeted for a
particular audience. Discounts from standard CPM rates may be provided for
higher volume, longer-term advertising contracts.
The Company intends to increase its advertising revenues by focusing on a
number of key strategies, including expanding its advertising customer base,
increasing the CPM it charges advertisers by continuing to improve its ability
to target advertisements to demographically distinct groups, increasing page
views, increasing the average size and length of its advertising contracts,
increasing the number of its direct sales representatives and continuing to
invest in improving ad serving and ad targeting technology.
The Company also offers special sponsorship and promotional advertising
programs, such as contests, sampling and couponing opportunities to build brand
awareness, generate leads and drive traffic to an advertiser's site. The
Company also sells sponsorships of special interest pages where topically
focused content is aggregated on a permanent area within a neighborhood. The
Company has also recently entered into relationships with third-party Internet
content providers, many of whom pay GeoCities for integrating their content
within the GeoCities community. The Company will also seek to expand its third-
party content-provider relationships.
The Company has derived a substantial majority of its revenues to date from
the sale of advertisements. For 1997 and the six months ended June 30, 1998,
advertising revenues represented 90.6% and 90.2%, respectively, of the
Company's net revenues.
ADVERTISING CUSTOMERS
During the six months ended June 30, 1998, 161 companies advertised on the
GeoCities Web site compared to approximately 80 advertisers for the same
six-month period in 1997. The following is a selected list of certain of the
Company's advertising customers for the 18-month period ended June 30, 1998:
Amazon.com Hewlett-Packard Surplus
American Express Honda Direct/Egghead
AT&T IBM Toyota
CDnow Microsoft USA Net
Dell Computers SkyTel Visa
General Motors Sony ZDNet
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During 1997 and the six months ended June 30, 1998, the Company's four
largest customers accounted for approximately 29% and 28%, respectively, of
the Company's net revenues. During these same periods, Surplus Direct/Egghead
accounted for approximately 12% and 10%, respectively, of the Company's net
revenues. No other customer accounted for more than 10% of the Company's net
revenues during either of such periods.
COMMERCE PARTNERS
GeoCities believes Web commerce fits naturally into the Company's community
model. Through Web commerce, the Company partners with merchants and service
providers to integrate their products and services into the GeoCities
community, making them available for sale to the Company's Homesteaders and
visitors. In its premier commerce arrangements, the Company generally receives
a fixed monthly fee and a share of the proceeds from any online sales. In
addition, certain of the Company's premier commerce partners pay GeoCities
fees for Homesteader participation in vendor-sponsored sales programs after a
minimum level of participation has been achieved. To date, the Company has
entered into four premier alliances with commerce partners that are given
access to GeoCities' community platform and are provided with premier banner
and other space in permanent locations on select community Web pages. These
premier commerce arrangements typically have one-year terms and, subject to
the payment of certain fees, are renewable at the option of the Company's
commerce partners.
The Company has established premier commerce relationships with the
following entities:
. Amazon.com--providing GeoCities' Homesteaders and visitors with the
opportunity to purchase books throughout the Company's Web site;
. CDnow--providing GeoCities' Homesteaders and visitors with the
opportunity to purchase compact discs and other music-related items;
. Surplus Direct/Egghead--providing GeoCities' members and visitors with
the opportunity to purchase software and computer hardware; and
. First USA--providing GeoCities' members and visitors with an opportunity
to apply for a First USA credit card.
GEOSHOPS
In March 1998, GeoCities introduced GeoShops, its member-focused Web
commerce solution designed to provide a range of services which commerce-
enable Homesteaders' personal Web sites. Homesteaders are able to choose
between two GeoShops options: (i) for a $24.95 monthly fee, GeoShops allows
GeoCities members to sell products and services from their personal Web sites
within the GeoCities community and (ii) for a set-up fee of $120, a per
transaction fee and an additional monthly amount equal to the greater of $80,
or $40 plus a 5% commission on sales, GeoCities provides Homesteaders with a
transaction authentication and processing solution for their Web-based
businesses. With its GeoShops program, the Company enables home-based
businesses to leverage a fast, effective, easy-to-use program for commerce,
and the Company intends to actively promote this service in the future.
GEOPLUS
In addition to its free services, the Company offers a fee-based premium
service for its Homesteaders. For a fee of $4.95 per month, the Company's
GeoPlus service provides enhanced Web-page publishing tools for creating more
robust content, a personalized URL and up to 25 megabytes of disk space for
Homesteaders' personal Web sites. GeoCities intends to introduce additional
features and premium service levels to appeal to a broader range of
Homesteaders. The Company does not generate revenues from general Internet
access or subscription fees.
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MARKETING AND BRAND AWARENESS
Historically, the Company's marketing has been primarily by word of mouth
and the informal promotional efforts of Homesteaders. The Company believes
initiating a formal, aggressive brand promotional campaign will provide the
Company with a significant opportunity for growing its Homesteader membership
base as well as attracting additional advertisers and commerce partners. The
Company intends to use a portion of the net proceeds from the offering to
launch a number of promotional campaigns in traditional media, including
print, radio, billboard and television, all designed to increase traffic and
brand awareness and an understanding of the Company's community model. The
Company also intends to introduce a number of other brand awareness programs
on its own site to leverage its large and growing Homesteader base and visitor
traffic. In addition, the Company plans to launch a number of grassroots
marketing efforts, including, for example, augmenting its existing GeoRewards
affinity program with additional membership affinity programs, as well as
continuing the promotion of its GeoPlus and GeoShops programs.
DISTRIBUTION AGREEMENT WITH YAHOO!
In December 1997, the Company entered into a one-year distribution
relationship with Yahoo! which is renewable for subsequent one-year terms,
subject to the right of either party to terminate the relationship at the end
of any term upon 90-days' notice. In connection with the distribution
agreement, Yahoo! also made a minority equity investment in the Company. As of
June 30, 1998, Yahoo! held 2.6% of the Company's outstanding capital stock.
This agreement was designed to increase traffic and memberships of both
parties in addition to offering GeoCities' Homesteaders an array of free
personalized member services on Yahoo!. Under the terms of the agreement,
GeoCities agreed to provide its community-based, Web services for free to
registered users of Yahoo!. In addition, Yahoo! agreed to market GeoCities'
branded personal publishing programs on select areas throughout Yahoo!, as
well as provide a GeoCities-specific programming module on My Yahoo! for
GeoCities' Homesteaders. There are no minimum marketing or advertising
requirements for either the Company or Yahoo! under the agreement. There can
be no assurance that the agreement with Yahoo! will be renewed.
The Company intends to seek additional strategic alliances with distribution
partners to increase the number of gateways into the GeoCities community and
Homesteader Web sites, thus increasing its overall visibility on the Web.
INFRASTRUCTURE AND OPERATIONS
The Company has developed an open standard hardware and software system that
is designed to be reliable and responsive. The Company's third-generation
architecture is a scalable system which includes over five terabytes of raw
disk space and supports over 170 million hits per day, has a peak bandwidth of
over 340 megabits per second and transfers 1.7 terabytes of data each day. The
Company provides its Homesteaders and visitors with a robust content platform
containing an estimated 17 million pages of user-created content that
generated over 925 million page views in June 1998, according to Nielsen
I/PRO.
The Company provides an efficient, responsive user experience through
network servers housed in Santa Clara, California, third-party and public
domain server software optimized internally by the Company and internally
developed tools and utilities. Requests for files to GeoCities are distributed
to the appropriate servers using Resonate Dispatch load distribution and
balancing software. Member-generated content is stored on a redundant array of
independent disks, is backed up to long-term tape storage devices on a daily
basis and copied on a weekly basis to be stored offsite. User profile
information is stored on multiple disk arrays using Informix Dynamic Server
database software and backed up to long-term tape storage devices on a semi-
hourly basis. The Company will continue to upgrade and expand its server and
networking infrastructure in an effort to improve its fast and reliable access
to the Company's community.
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Site connectivity to the Internet is provided via multiple DS-3 and OC-3
links on a 24 hour-a-day, seven days per week basis by Exodus. Exodus also
provides and manages power and environmentals for the Company's networking and
server equipment. The Company manages and monitors its servers and network
remotely from its headquarters in Santa Monica, California. The Company
strives to rapidly develop and deploy high-quality tools and features into its
system without interruption or degradation in service. Any disruption in the
Internet access provided by Exodus, or any interruption in the service that
Exodus receives from other providers, or any failure of Exodus to handle
higher volumes of Internet users to the GeoCities' site could have a material
adverse effect on the Company's business, results of operations and financial
condition.
COMPETITION
The market for members, visitors and Internet advertising is new and rapidly
evolving, and competition for members, visitors and advertisers is intense and
is expected to increase significantly in the future. Barriers to entry are
relatively insubstantial. The Company believes that the principal competitive
factors for companies seeking to create community on the Internet are critical
mass, functionality, brand recognition, member affinity and loyalty, broad
demographic focus and open access to visitors. Other companies who are
primarily focused on creating Web-based community on the Internet are
Tripod/Lycos, Angelfire, Xoom and theglobe. The Company will likely also face
competition in the future from Web directories, search engines, shareware
archives, content sites, commercial online services, sites maintained by ISPs
and other entities that attempt to or establish communities on the Internet by
developing their own or purchasing one of the Company's competitors. In
addition, the Company could face competition in the future from traditional
media companies, a number of which, including Disney, CBS and NBC, have
recently made significant acquisitions of or investments in Internet
companies. Further, there can be no assurance that the Company's competitors
and potential competitors will not develop communities that are equal or
superior to those of the Company or that achieve greater market acceptance
than the Company's community. The Company also competes for visitors with many
Internet content providers and ISPs, including Web directories, search
engines, shareware archives, content sites, commercial online services and
sites maintained by ISPs, as well as thousands of Internet sites operated by
individuals and government and educational institutions. These competitors
include free information, search and content sites or services, such as AOL,
CNET, CNN/Time Warner, Excite, Infoseek, Lycos, Netscape, Microsoft and
Yahoo!, some of whom, such as Yahoo! and Lycos, also have relationships with
GeoCities. The Company also competes with the foregoing companies, as well as
traditional forms of media such as newspapers, magazines, radio and
television, for advertisers and advertising revenue. The Company believes that
the principal competitive factors in attracting advertisers include the amount
of traffic on its Web site, brand recognition, customer service, the
demographics of the Company's members and viewers, the Company's ability to
offer targeted audiences and the overall cost-effectiveness of the advertising
medium offered by the Company. The Company believes that the number of
Internet companies relying on Web-based advertising revenue will increase
greatly in the future. Accordingly, the Company will likely face increased
competition, resulting in increased pricing pressures on its advertising rates
which could in turn have a material adverse effect on the Company's business,
results of operations and financial condition.
Many of the Company's existing and potential competitors, including Web
directories and search engines and large traditional media companies, have
longer operating histories in the Web market, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than the Company. Such competitors are able to undertake more
extensive marketing campaigns for their brands and services, adopt more
aggressive advertising pricing policies and make more attractive offers to
potential employees, distribution partners, commerce companies, advertisers
and third party content providers. There can be no assurance that Internet
content providers and ISPs, including Web directories, search engines,
shareware archives, sites that offer professional editorial content,
commercial online services and sites maintained by ISPs will not be
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perceived by advertisers as having more desirable Web sites for placement of
advertisements. In addition, substantially all of the Company's current
advertising customers and strategic partners also have established
collaborative relationships with certain of the Company's competitors or
potential competitors, and other high-traffic Web sites. Accordingly, there
can be no assurance that the Company will be able to grow its memberships,
traffic levels and advertiser customer base at historical levels or retain its
current members, traffic levels or advertiser customers, or that competitors
will not experience greater growth in traffic than the Company as a result of
such relationships which could have the effect of making their Web sites more
attractive to advertisers, or that the Company's strategic partners will not
sever or will elect not to renew their agreements with the Company. There can
also be no assurance that the Company will be able to compete successfully
against its current or future competitors or that competition will not have a
material adverse effect on the Company's business, results of operations and
financial condition.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company regards its technology as proprietary and attempts to protect it
by relying on trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. The
Company currently has no patents or patents pending and does not anticipate
that patents will become a significant part of the Company's intellectual
property in the foreseeable future. The Company also generally enters into
confidentiality or license agreements with its employees and consultants, and
generally controls access to and distribution of its documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's proprietary
information without authorization or to develop similar technology
independently. The Company pursues the registration of its service marks in
the United States and internationally, and has applied for and obtained the
registration in the United States for a number of its service marks, including
"GeoCities". Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which the Company's
services are distributed or made available through the Internet, and policing
unauthorized use of the Company's proprietary information is difficult.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any proprietary rights of the Company or other companies
within this market. There can be no assurance that the steps taken by the
Company will prevent misappropriation or infringement of its proprietary
information. Any such infringement or misappropriation, should it occur, might
have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, litigation may be necessary
in the future to enforce the Company's intellectual property rights, to
protect the Company's trade secrets or to determine the validity and scope of
the proprietary rights of others. Such litigation might result in substantial
costs and diversion of resources and management attention and could have a
material adverse effect on the Company's business, results of operations and
financial condition. Furthermore, there can be no assurance that the Company's
business activities will not infringe upon the proprietary rights of others,
or that other parties will not assert infringement claims against the Company.
From time to time, the Company has been, and expects to continue to be,
subject to claims in the ordinary course of its business including claims of
alleged infringement of the copyrights, trademarks, service marks and other
intellectual property rights of third parties by the Company and the content
generated by its members. Although such claims have not resulted in
significant litigation or had a material adverse effect on the Company's
business to date, such claims and any resultant litigation, should it occur,
might subject the Company to significant liability for damages and might
result in invalidation of the Company's proprietary rights and even if not
meritorious, could be time consuming and expensive to defend and could result
in the diversion of management time and attention, any of which might have a
material adverse effect on the Company's business, results of operations and
financial condition.
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The Company currently licenses from third parties certain technologies
incorporated into the Company's Web site, including a site license for its
database software. The Company relies on the licensed software under this site
license to manage the storage and retrieval of Homesteader information,
including Homesteader names, e-mail addresses, passwords and usage
information. This site license remains in effect until it is terminated by
either party. The site license also terminates in certain other circumstances,
including in the event of a breach by either party. Although the Company
believes that it could obtain an alternative site license for its database
software should this site license terminate for any reason, any such
termination would have a disruptive effect on the Company's ability to manage
the storage and retrieval of Homesteader information for a period of time.
As it continues to introduce new services that incorporate new technologies,
it may be required to license additional technology from others. There can be
no assurance that these third-party technology licenses will continue to be
available to the Company on commercially reasonable terms, if at all. The
inability of the Company to obtain any of these technology licenses could
result in delays or reductions in the introduction of new services or could
adversely affect the performance of its existing services until equivalent
technology could be identified, licensed and integrated.
EMPLOYEES
As of June 30, 1998, the Company had 148 full-time employees, including 45
in marketing and sales, 34 in editorial, 23 in finance and administration and
46 in operations and support. The Company's future success will depend, in
part, on its ability to continue to attract, retain and motivate highly
qualified technical and management personnel, for whom competition is intense.
From time to time, the Company also employs independent contractors to support
its research and development, marketing, sales and support and administrative
organizations. The Company's employees are not represented by any collective
bargaining unit, and the Company has never experienced a work stoppage. The
Company believes its relations with its employees are good.
FACILITIES
The Company's headquarters are currently located in a leased facility in
Santa Monica, California, consisting of approximately 13,000 square feet of
office space, a majority of which is under a five-year lease, and has a
renewal option for an additional three years. The Company intends to relocate
its headquarters in the near future to a leased facility in Marina del Rey,
California, consisting of approximately 24,000 square feet of office space.
The new facility will be under a five-year lease and will have two renewal
options, each for an additional three years. The Company has also leased
approximately 5,500 square feet of office space in New York and approximately
1,700 square feet of office space in San Francisco for its East and West Coast
sales offices, respectively.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and the executive and other officers of the Company as of June 30, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
David C. Bohnett(1)..... 42 Chairman of the Board and Secretary
Thomas R. Evans......... 43 Chief Executive Officer, President and Director
Stephen L. Hansen....... 42 Chief Operating Officer and Chief Financial Officer
Michael G. Barrett...... 36 Vice President, Advertising Sales
Kelly L. Boyer.......... 32 Vice President, Human Resources
James G. Glicker........ 44 Vice President, Marketing
Robert K. Kalok......... 33 Vice President, Business Development
William E. Losch........ 37 Vice President, Finance
Edward J. Pierce........ 46 Vice President, Legal Affairs and General Counsel
John C. Rezner.......... 35 Vice President, Operations and Chief Technical Officer
Richard H. Rygg......... 41 Vice President, General Manager
Jerry D. Colonna(2)..... 34 Director
Eric C. Hippeau(1)...... 46 Director
Harry D. Lambert(3)..... 59 Director
Peter H. Mills(1)(3).... 46 Director
David S. Wetherell(2)... 43 Director
</TABLE>
- --------
(1) Member of Nominating Committee
(2) Member of Compensation Committee
(3) Member of Audit Committee
DAVID C. BOHNETT has served as the Company's Chairman of the Board and
Secretary since he founded the Company in November 1994. From November 1994 to
April 1998, Mr. Bohnett also served as the Company's Chief Executive Officer
and President. From November 1994 to November 1997, Mr. Bohnett also served as
the Company's Chief Financial Officer. Prior to founding the Company, from
February 1990 to May 1994, Mr. Bohnett served as Director of Product Marketing
at Goal Systems, which merged with LEGENT, a software company. From 1988 to
1990, Mr. Bohnett was Chief Financial Officer of Essential Software, which
merged with Goal Systems. Mr. Bohnett received his B.S. degree in Business
Administration from the University of Southern California and his M.B.A.
degree in Finance from the University of Michigan.
THOMAS R. EVANS has served as the Company's Chief Executive Officer and
President since April 1998. From 1991 to April 1998, Mr. Evans served as
President and Publisher of U.S. News & World Report, a magazine that reports
on domestic and international current events. From January 1997 to April 1998,
Mr. Evans also served as President and Publisher of The Atlantic Monthly, a
magazine that features articles on art, literature, politics and technology.
In addition, from May 1995 to April 1998, Mr. Evans also served as President
and Publisher of Fast Company, a magazine that showcases business people and
ideas. From 1990 to 1991, Mr. Evans served as Vice President, Advertising
Director of U.S. News & World Report. Mr. Evans received his B.S. degree in
Business Administration from Arizona State University.
STEPHEN L. HANSEN has served as the Company's Chief Operating Officer since
May 1998 and Chief Financial Officer since November 1997. From November 1997
to May 1998, Mr. Hansen also served as the Company's Chief Administrative
Officer. From September 1992 to January 1994, Mr. Hansen served as Senior Vice
President and Chief Financial Officer for Universal Studios Hollywood. From
January 1994 to November 1997, Mr. Hansen served as Senior Vice President and
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Chief Financial Officer for the Recreation Group of Universal Studios, a
studio that produces and distributes films, videos, television shows and
music. From 1979 to 1992, Mr. Hansen was with KPMG Peat Marwick, most recently
as a partner in the Entertainment, Media and Technology Group. Mr. Hansen
received his B.S. degree in Accounting from the University of Southern
California and is a Certified Public Accountant.
MICHAEL G. BARRETT has served as the Company's Vice President, Advertising
Sales since September 1997. From November 1995 to September 1997, Mr. Barrett
served as Vice President, Advertising for Disney Online, the online division
of The Walt Disney Company. From February 1994 to September 1995, Mr. Barrett
served as Associate Publisher at Family PC, a magazine that advises parents on
home computing. Mr. Barrett received his B.A. degree in Economics from College
of the Holy Cross.
KELLY L. BOYER has served as the Company's Vice President, Human Resources
since June 1998. From February 1997 to May 1998, Ms. Boyer was Senior
Director, Human Resources for the strategic catalog marketing start-up
division of EMI-Capitol Music Group. From July 1995 to January 1997, Ms. Boyer
served as Director for the Human Resources/Organizational Development team for
the Coach Leatherware/Personal Products subsidiary of the Sara Lee Corporation
in New York. From August 1993 to July 1995, Ms. Boyer served as Senior
Manager, Employee Relations for The Walt Disney Company's Specialty
Retail/Consumer Products division. Ms. Boyer received her M.S. degree in
Organizational Development from Northwestern University and her B.A. degree in
Advertising/Communications from Michigan State University.
JAMES G. GLICKER has served as the Company's Vice President, Marketing since
May 1998. From November 1997 to May 1998, Mr. Glicker served as Vice
President, Sales & Marketing for 1-800-FLOWERS, an online florist. From 1991
to June 1997, Mr. Glicker held various positions at BMG (music subsidiary of
the Bertelsmann Music Group), including Chief Executive Officer and Managing
Director, BMG Australia/New Zealand and Senior Vice President, WorldWide
Marketing and Sales with BMG Classics. Mr. Glicker received his B.A. degree in
English from Yale University and his M.B.A. degree in Finance/Marketing from
the University of Michigan.
ROBERT K. KALOK has served as the Company's Vice President, Business
Development since May 1998. From 1995 to May 1998, Mr. Kalok was Vice
President, Brand Management and Direct Marketing for Charles Schwab Corp., a
discount brokerage company. From 1988 to 1995, Mr. Kalok was employed by MCI,
a telecommunications company, where he last served as Director of Partnership,
Marketing. Mr. Kalok received his B.A. degree in Marketing and his M.B.A.
degree in Finance from George Washington University.
WILLIAM E. LOSCH has served as the Company's Vice President, Finance since
March 1998. From October 1997 to February 1998, Mr. Losch served as Vice
President, Finance and Planning for Universal City Hollywood, the operations
of Universal CityWalk, Universal Studios and Hollywood theme park. From
November 1995 to October 1997, Mr. Losch served as Vice President, Controller
of Universal City Hollywood. From December 1988 to October 1995, Mr. Losch
served as the Chief Financial Officer of MCA Development, the real estate
division of MCA. From March 1984 to November 1988, Mr. Losch served as a
manager with KPMG Peat Marwick. Mr. Losch received his B.A. degree in
Economics from the University of California, Los Angeles, and is a Certified
Public Accountant.
EDWARD J. PIERCE has served as the Company's Vice President, Legal Affairs
and General Counsel since October 1997. From June 1997 to October 1997, Mr.
Pierce served as General Counsel for the Company. From 1987 through April
1997, Mr. Pierce was a partner with the law firm of Seyfarth, Shaw,
Fairweather & Geraldson. From 1982 through 1987, Mr. Pierce was affiliated
with the law firm of Pollard, Bauman, Slome & McIntosh, as an associate from
1982 through 1984, and as a partner from 1985 through 1987. Mr. Pierce
received his B.A. degree in French literature from Yale University, his M.A.T.
degree in English from Brown University and his J.D. degree from Harvard
University.
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<PAGE>
JOHN C. REZNER has served as the Company's Vice President, Operations and
Chief Technical Officer and co-founder since January 1995. From 1986 to
January 1995, Mr. Rezner served in various capacities at McDonnell Douglas, an
aerospace company, last serving as the Head of Information Systems of the AISF
Group. Mr. Rezner received his B.S. degree in Computer Science from California
State Polytechnic University, Pomona and his M.S. degree in Computer Science
from the University of Southern California.
RICHARD H. RYGG has served as the Company's Vice President, General Manager
since March 1997. In April 1996, Mr. Rygg founded Digital City of Los Angeles,
a joint venture of America Online, an online service provider, and the Tribune
Company, a newspaper publisher and owner of television stations. From April
1996 to March 1997, Mr. Rygg served as the General Manager and "Mayor" of
Digital City of Los Angeles. From January 1995 to April 1996, Mr. Rygg served
as President of the Entertainment Communication Network. Mr. Rygg received his
B.S. degree in Engineering Geology from Brigham Young University and his
M.B.A. degree in Finance with an emphasis on management-information systems
from Pennsylvania State University.
JERRY D. COLONNA has served as a director of the Company since January 1998.
In July 1996, Mr. Colonna founded Flatiron Partners LLC ("Flatiron Partners"),
a venture investment program affiliated with Chase Capital Partners and
SOFTBANK Technology Ventures IV L.P. In February 1995, Mr. Colonna joined
CMG@Ventures as a founding partner and currently remains as a profit partner.
From 1985 to 1993, Mr. Colonna served in a variety of positions at
InformationWeek, a technology magazine, including three years as its Editor.
From 1985 to 1995, Mr. Colonna served in various capacities at CMP Media Inc.,
a technology publishing firm, last serving as its Editorial Director,
Interactive Media Group. Mr. Colonna received his B.A. degree in English
Literature from Queens College, CUNY.
ERIC C. HIPPEAU has served as a director of the Company since January 1997.
Since 1993, Mr. Hippeau has served as Chairman of the Board and Chief
Executive Officer of Ziff-Davis Inc. ("Ziff Davis"), an integrated media and
marketing company focused on computing and internet-related technology. Ziff
Davis is a subsidiary of SOFTBANK Holdings, Inc. From 1989 to 1993, Mr.
Hippeau served in a variety of positions at Ziff-Davis, Inc., including
Executive Vice President, President and Chief Operating Officer. Mr. Hippeau
currently serves as a Director of Yahoo! Inc., an Internet media company. Mr.
Hippeau attended The Sorbonne in Paris.
HARRY D. LAMBERT has served as a director of the Company since January 1997.
Mr. Lambert is a General Partner of InnoCal, L.P. ("InnoCal"). Prior to
joining InnoCal, Mr. Lambert was a General Partner of the Edison Venture Fund.
Prior to that, Mr. Lambert was a General Partner of InnoVen. Mr. Lambert
currently serves as a Director of Motiva Software, SalesLogix, a developer of
sales and support automation software, Thinque Systems, a mobile
communications company, and Trega Biosciences, a biotechnology company.
Mr. Lambert received his B.S. degree from the United States Military Academy
at West Point, and he is a graduate of the Columbia University Graduate
Business Administration, Executive Program in Business Administration and the
Harvard Graduate School of Business Administration Advanced Management
Program.
PETER H. MILLS has served as a director of the Company since January 1996.
Since March 1995, Mr. Mills has been a General Partner of CMG@Ventures. Prior
to joining CMG@Ventures, Mr. Mills served as the Chief Executive Officer of
the United States Display Consortium, a non-profit consortium established to
develop and organize the U.S. manufacturing infrastructure required to support
world-class manufacturing of flat panel displays. Prior to that, Mr. Mills
served as Chief Administrative Officer of SEMATECH, a research and development
consortium of U.S. semiconductor manufacturers. In 1982, Mr. Mills co-founded
Softtrend Inc., a microcomputer software publisher, and, after its merger with
BPI Systems, served as Vice President of BPI Systems. Mr. Mills received his
B.S. degree in Communications from Ithaca College and his M.B.A. degree in
Marketing from the Graduate School of Business at Columbia University.
53
<PAGE>
DAVID S. WETHERELL has served as a director of the Company since June 1996.
Mr. Wetherell serves as the Chairman of the Board, Chief Executive Officer,
President and Secretary of CMG Information Services, Inc. In January 1995, Mr.
Wetherell founded CMG@Ventures, a venture capital firm. In 1994, Mr. Wetherell
founded BookLink Technologies, which was later acquired by America Online. In
1982, Mr. Wetherell co-founded Softtrend Inc., a microcomputer software
publisher. Mr. Wetherell is Chairman of the Board of SalesLink Corporation, a
literature fulfillment business, and is a director of Lycos, Inc. Mr. Wetherell
received his B.S. degree in Mathematics and Education from Ohio Wesleyan
University.
There are no family relationships among any of the Company's directors or
executive officers. Currently, all directors hold office until the next annual
meeting of stockholders or until their successors have been duly elected and
qualified.
BOARD COMMITTEES
The Audit Committee of the Board of Directors reviews and monitors the
corporate financial reporting and the internal and external audits of the
Company, including, among other things, the Company's control functions, the
results and scope of the annual audit and other services provided by the
Company's independent accountants, and the Company's compliance with legal
matters that have a significant impact on the Company's financial condition.
The Audit Committee also consults with the Company's management and the
Company's independent accountants prior to the presentation of financial
statements to stockholders and, as appropriate, initiates inquiries into
aspects of the Company's financial affairs. In addition, the Audit Committee
has the responsibility to consider and recommend the appointment of, and to
review fee arrangements with, the Company's independent accountants. The
current members of the Audit Committee are Messrs. Lambert and Mills.
The Compensation Committee of the Board of Directors reviews and makes
recommendations to the Board regarding the Company's compensation policies and
all forms of compensation to be provided to executive officers and directors
of the Company, including, among other things, annual salaries and bonuses and
stock option and other incentive compensation arrangements of the Company. In
addition, the Compensation Committee reviews bonus and stock compensation
arrangements for all other employees of the Company. The current members of
the Compensation Committee are Messrs. Colonna and Wetherell.
The Nominating Committee of the Board of Directors makes recommendations to
the Board of Directors regarding nominees for the Board of Directors. The
current members of the Nominating Committee are Messrs. Bohnett, Hippeau and
Mills.
DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS
The Company does not currently compensate its directors for attending Board
of Directors or committee meetings, but reimburses directors for their
reasonable travel expenses incurred in connection with attending meetings of
the Board of Directors or committees of the Board of Directors.
EXECUTIVE OFFICERS
Executive officers of the Company are appointed by the Board of Directors on
an annual basis and serve until the next annual meeting of the Board of
Directors or until their successors have been duly appointed and qualified.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Messrs. Colonna and
Wetherell, neither of whom has been an officer or employee of the Company at
any time since the Company's inception.
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<PAGE>
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee. Prior to the formation of the Compensation Committee
in September 1996, the Board of Directors of the Company as a whole made
decisions relating to compensation of the Company's executive officers.
Mr. Colonna is a partner of the Flatiron Fund, a stockholder of the Company
("Flatiron Fund"). The Flatiron Fund is a venture investment program
affiliated with Chase Capital Partners and SOFTBANK Technology Ventures, both
of which are stockholders of the Company. Mr. Colonna is a profit partner and
Mr. Wetherell is a general partner of CMG@Ventures, one of the Company's
stockholders. In January 1996, CMG@Ventures purchased 3,108,000 shares of
Series A Preferred Stock of the Company at a purchase price of $0.3218 per
share. In July 1996, CMG@Ventures purchased 2,900,000 shares of Series B
Preferred Stock of the Company at a purchase price of $0.3793 per share. In
January and February of 1997, CMG@Ventures and certain other current
stockholders of the Company purchased 10,226,718 shares of Series D Preferred
Stock at a purchase price of $0.885 per share. In October 1997, CMG@Ventures
II, LLC, an affiliate of CMG@Ventures and certain other current stockholders
of the Company purchased 1,428,564 shares of Series E Preferred Stock of the
Company at a purchase price of $3.50 per share. All outstanding shares of
Preferred Stock will convert into Common Stock in connection with the
Preferred Stock Conversion upon the closing of the offering. In January 1997,
in connection with the issuance of shares of its preferred stock, the Company
granted CMG@Ventures an immediately exercisable option to purchase up to
1,000,000 shares of Common Stock at an exercise price of $0.885 per share. In
May 1997, the Company entered into a list line management agreement with CMG
Information Services, Inc. ("CMGI"), an affiliate of CMG@Ventures.
See "Principal Stockholders" and "Certain Transactions".
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth for the year ended December 31, 1997, all
compensation received for services rendered to the Company in all capacities
by the Company's Chief Executive Officer and each of the other executive
officers of the Company whose salary and bonus exceeded $100,000 in 1997
(collectively, the "Named Executive Officers"). No executive who would
otherwise have been includable in such table on the basis of salary and bonus
earned for 1997 has resigned or otherwise terminated employment during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
---------------- ------------
SECURITIES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITIONS(1)(2) SALARY BONUS OPTIONS COMPENSATION(3)
------------------------- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C>
David C. Bohnett................. $160,000 -- 600,000 $ 857
Chairman, President and Chief
Executive Officer
John C. Rezner................... 125,000 $22,672 200,000 1,945
Chief Technical Officer
Paul A. De Braccio............... 172,848 -- -- --
Vice President, Sales
</TABLE>
- --------
(1) Mr. Bohnett resigned from his positions as President and Chief Executive
Officer of the Company in April 1998 upon the appointment of Mr. Evans to
such positions. Mr. De Braccio ceased his employment with the Company in
July 1997.
55
<PAGE>
(2) Mr. Evans, the Company's President and Chief Executive Officer, accepted
his employment with and began providing services to the Company in April
1998. His 1998 annual base salary is $200,000, and his bonus for 1998 is
$100,000. Mr. Hansen, the Company's Chief Operating Officer and Chief
Financial Officer, joined the Company in November 1997. His 1998 annual
base salary is $200,000, and his bonus for 1998 is $50,000. In 1997, Mr.
Hansen received $33,333 for services rendered to the Company. Mr. Barrett,
the Company's Vice President, Advertising Sales, joined the Company in
September 1997. His 1998 annual base salary is $200,000 and he was paid a
$25,000 bonus in January 1998. In addition, during the term of his
employment agreement, which expires in September 1998, Mr. Barrett is
eligible in general to receive certain commissions based on the Company's
net revenues, subject to certain conditions. In 1997, Mr. Barrett received
$50,974 for services rendered to the Company. See "--Employment Agreements
and Termination of Employment and Change of Control Arrangements".
(3) Consists of the Company's matching contribution under its 401(k) Plan.
OPTION GRANTS IN LAST YEAR
The following table sets forth certain information concerning options
granted to the Named Executive Officers during 1997.
OPTION GRANTS DURING YEAR ENDED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
POTENTIAL REALIZATION VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(4)
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------------
NAME(1) GRANTED(2) IN 1997(3) PER SHARE DATE 5% 10%
------- ---------- ---------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
David C. Bohnett........ 600,000 21.8% $0.885 1/12/04 $ 216,170 $ 503,769
John C. Rezner.......... 200,000 7.3 0.885 1/12/04 72,057 167,923
Paul A. De Braccio...... -- -- -- -- -- --
</TABLE>
- --------
(1) In April 1998, Mr. Evans was granted two options to purchase up to an
aggregate of 1,632,760 shares of Common Stock at an exercise price of
$2.28 per share. These options expire in April 2005. In November 1997, Mr.
Hansen was granted two options to purchase up to an aggregate of 450,000
shares of Common Stock at an exercise price of $0.825 per share. These
options expire in November 2004. In May 1998, Mr. Hansen was granted an
option to purchase 150,000 shares of Common Stock at an exercise price of
$9.00 per share. This option expires in May 2005. In September 1997, Mr.
Barrett was granted two stock options to purchase up to an aggregate of
280,000 shares of Common Stock at an exercise price of $0.75 per share.
These options expire in September 2004.
(2) Each option represents the right to purchase one share of Common Stock.
The options shown in this column are all nonqualified stock options. The
options become exercisable in four equal annual installments commencing
one year after the date of grant. To the extent not already exercisable,
all of these options will become exercisable in the event of a merger in
which the Company is not the surviving corporation or upon the sale of
substantially all the Company's assets. In addition, upon the termination
of Mr. Bohnett's employment for any reason, his options will, to the
extent not already exercisable, accelerate and become immediately
exercisable.
(3) During 1997, the Company granted employees options to purchase an
aggregate of 2,754,560 shares of Common Stock.
(4) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 5% and
10% assumed annual rates of compounded stock price appreciation are
mandated by rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of the Company's future
Common Stock prices. These amounts represent certain assumed rates of
appreciation in the value of the Company's Common Stock from the exercise
price of such options (which was in excess of the
56
<PAGE>
fair market value of the Common Stock on the date of grant as determined by
the Company's Board of Directors), as determined by the Company's Board of
Directors. Actual gains, if any, on stock option exercises are dependent on
the future performance of the Common Stock and overall stock market
conditions. The amounts reflected in the table may not necessarily be
achieved.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information with respect to the Named
Executive Officers concerning the exercise of options during 1997 and
unexercised options held as of December 31, 1997. No options or stock
appreciation rights were exercised by any Named Executive Officer during such
year, and no stock appreciation rights were outstanding on December 31, 1997.
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1997
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(2)
------------------------------ -------------------------
NAME(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
David C. Bohnett........ -- 600,000 -- $7,269,000
John C. Rezner.......... 777,000 200,000 $10,100,000 2,423,000
Paul A. De Braccio(3)... -- -- -- --
</TABLE>
- --------
(1) Mr. Hansen had 450,000 shares of Common Stock underlying unexercisable
stock options at December 31, 1997. Mr. Barrett had 280,000 shares of
Common Stock underlying unexercisable stock options at December 31, 1997.
(2) There was no public trading market for the Common Stock as of December 31,
1997. Accordingly, these values have been calculated on the basis of an
assumed initial public offering price of $13.00 per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying such options.
(3) Mr. De Braccio ceased his employment with the Company in July 1997, as a
result of which his options terminated unexercised.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
None of the Named Executive Officers of the Company, other than Mr. Bohnett,
has an employment agreement with the Company.
In January 1996, the Company entered into an employment agreement with Mr.
Bohnett which, as amended, continues until December 31, 1998, unless terminated
earlier by the Company, either for cause, death or certain other circumstances.
Mr. Bohnett served as the Company's President and Chief Executive Officer from
the Company's inception to April 1998, and he currently holds the position of
Chairman of the Board. Effective May 1998, Mr. Bohnett voluntarily reduced his
annual base salary under this agreement to $1.00. Mr. Bohnett is eligible to
receive a bonus of up to $199,999 at the discretion of the Board of Directors
of the Company. As of the date of this Prospectus, the Board of Directors of
the Company had not established the specific criteria for granting any bonus to
Mr. Bohnett. Upon the termination of Mr. Bohnett's employment, the options he
holds as of the date of this Prospectus will, to the extent not already
exercisable, become immediately exercisable. In addition, to the extent not
already exercisable, all of such options will become exercisable in the event
of a merger in which the Company is not the surviving corporation or in the
event of a sale of substantially all of the Company's assets.
In November 1997, the Company entered into a two-year employment agreement
with Mr. Hansen providing for his employment as Chief Financial Officer of the
Company. The employment agreement provides for an annual base salary of
$200,000 and an annual bonus of $50,000, payable semi-annually. In connection
with his employment, Mr. Hansen was granted two stock options, the first was
57
<PAGE>
a stock option to purchase up to 300,000 shares of Common Stock at an exercise
price of $0.825 per share which becomes exercisable in four equal annual
installments commencing November 1998, and the second was a stock option to
purchase up to 150,000 shares of Common Stock at an exercise price of $0.825
per share which becomes exercisable in four equal annual installments
commencing on the first anniversary date of the consummation of the offering.
Mr. Hansen was appointed the Company's Chief Operating Officer in May 1998,
and, in connection with such appointment, was granted an additional stock
option to purchase up to 150,000 shares of Common Stock at an exercise price
of $9.00 per share, which option becomes exercisable in four equal annual
installments commencing May 1999. If Mr. Hansen's employment is terminated by
the Company during the term of his agreement other than for cause, including
if Mr. Hansen is terminated other than for cause within 18 months of a change
of control of the Company, the Company, or any successor entity, must pay
Mr. Hansen his base salary for a period of six months and vesting in his
options for 450,000 shares granted in November 1997 shall be partially
accelerated.
In April 1998, Mr. Evans accepted his offer of employment with the Company
as President and Chief Executive Officer. Mr. Evans is paid an annual base
salary of $200,000 and, so long as he remains employed by the Company, will
receive a $100,000 bonus on the first anniversary of his employment. So long
as he remains employed by the Company, Mr. Evans will also be eligible to
receive future annual bonuses of up to $100,000 subject to the Company
achieving certain financial results and certain other conditions. The Company
also agreed to loan Mr. Evans $100,000. The loan to Mr. Evans was made in July
1998 and is payable by Mr. Evans 270 days following the consummation of the
offering. The loan is unsecured and would be forgiven if the Company's net
revenues for 1998 are at or above a certain agreed-upon minimum amount. This
loan was approved by a majority of the stockholders of the Company in May
1998. In connection with his employment, Mr. Evans was also granted two stock
options. The first was an option to purchase up to 979,656 shares of Common
Stock at an exercise price of $2.28 per share which becomes exercisable in
four equal annual installments commencing April 1999 and the second was an
option to purchase up to 653,104 shares of Common Stock at an exercise price
of $2.28 per share which becomes exercisable in four equal annual installments
commencing April 2001; provided, that the commencement of the exercisability
of this option will be accelerated if the Company achieves certain financial
results for 1998. If the Company is acquired during his first year of
employment, Mr. Evans will receive credit for one year of accelerated vesting
in his first option and, subject to the Company's achievement of certain
financial results, in his second option as well. In addition, if Mr. Evans'
employment is terminated by the Company prior to the first anniversary of his
employment, other than for cause, the Company must pay Mr. Evans his base
salary for a period of six months and Mr. Evans will receive credit for one
year of accelerated vesting in his first option and, subject to the Company's
achievement of certain financial results, in his second option as well.
In September 1997, the Company entered into a one-year employment agreement
with Mr. Barrett providing for his employment as Vice President, Advertising
Sales of the Company. The employment agreement provides for an annual base
salary of $200,000 and an annual bonus of $25,000, which was paid in January
1998. In addition, for the one-year term of the agreement, Mr. Barrett is
eligible to receive certain commissions based on the Company's net revenues.
In connection with his employment, Mr. Barrett was granted two stock options.
The first was a stock option to purchase up to 160,000 shares of Common Stock
at an exercise price of $0.75 per share which becomes exercisable in four
equal annual installments commencing in September 1998, and the second was a
stock option to purchase up to 120,000 shares of Common Stock at an exercise
price of $0.75 per share which becomes exercisable in four equal annual
installments commencing September 1999; provided, that the commencement of the
exercisability of the second option will be accelerated if the Company
achieves certain financial results. If Mr. Barrett's employment is terminated
by the Company during the term of his agreement other than for cause,
including if Mr. Barrett is terminated other than for cause within 12 months
of a change of control of the Company, or if the Company elects not to
continue
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<PAGE>
Mr. Barrett's employment beyond the one-year term of his agreement, the
Company, or any successor entity, must pay Mr. Barrett his base salary for a
period of six months.
EMPLOYEE BENEFIT PLANS
1998 STOCK INCENTIVE PLAN
In July 1998, the Company adopted the 1998 Stock Incentive Plan (the "1998
Stock Incentive Plan") as the successor equity incentive program to the
Company's 1997 Stock Option Plan (the "Predecessor Plan"). The 1998 Stock
Incentive Plan was adopted by the Board of Directors of the Company and
approved by the stockholders of the Company in July 1998. The Discretionary
Option Grant and Stock Issuance Programs under the 1998 Stock Incentive Plan
became effective immediately upon the Board's adoption of the plan (the "Plan
Effective Date"). The Automatic Option Grant Program will become effective
immediately upon the execution of the Underwriting Agreement for the offering.
The Common Stock share reserve of 370,940 shares of Common Stock from the
Predecessor Plan and an additional 2,300,000 shares of Common Stock have been
authorized for issuance under the 1998 Stock Incentive Plan. In no event,
however, may any one participant in the 1998 Stock Incentive Plan receive
option grants, separately exercisable stock appreciation rights or direct
stock issuances for more than 500,000 shares of Common Stock in the aggregate
per calendar year.
On the date of the execution of the Underwriting Agreement for the offering,
outstanding options granted under the Predecessor Plan will be incorporated
into the 1998 Stock Incentive Plan, and no further option grants will be made
under the Predecessor Plan. The incorporated options will continue to be
governed by their existing terms, however, unless the Plan Administrator
elects to extend one or more features of the 1998 Stock Incentive Plan to
those options. Except as otherwise noted below, the incorporated options have
substantially the same terms as will be in effect for grants made under the
Discretionary Option Grant Program of the 1998 Stock Incentive Plan.
The 1998 Stock Incentive Plan is divided into five separate components: (i)
the Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers and consultants) may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
Common Stock at an exercise price equal to not less than the fair market value
of the Common Stock on the date of grant, (ii) the Stock Issuance Program
under which such individuals may, in the Plan Administrator's discretion, be
issued shares of Common Stock directly, through the purchase of such shares at
a price not less than their fair market value at the time of issuance or as a
bonus tied to the performance of services, (iii) the Salary Investment Option
Grant Program which may, in the Plan Administrator's sole discretion, be
activated for one or more calendar years and, if so activated, will allow
executive officers and other highly compensated employees the opportunity to
apply a portion of their base salary to the acquisition of special below-
market stock option grants, (iv) the Automatic Option Grant Program under
which option grants will automatically be made at periodic intervals to
eligible, non-employee members of the Board of Directors to purchase shares of
Common Stock at an exercise price equal to their fair market value on the
grant date and (v) the Director Fee Option Grant Program which may, in the
Plan Administrator's sole discretion, be activated for one or more calendar
years and, if so activated, will allow non-employee Board members the
opportunity to apply a portion of the annual retainer fee otherwise payable to
them in cash each year to the acquisition of special below-market option
grants.
The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee, as
Plan Administrator, will have the discretion to determine which eligible
individuals are to receive option grants or stock issuances under those
programs, the time or times when such option grants or stock issuances are to
be made, the number of shares subject to each such grant or issuance, the
status of any granted option as either an incentive stock option or a non-
statutory stock option under the federal tax laws, the vesting schedule to be
in effect for the option grant or stock issuance and the maximum term for
which any
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<PAGE>
granted option is to remain outstanding. The Compensation Committee will also
have the authority to select the executive officers and other highly
compensated employees who may participate in the Salary Investment Option
Grant Program in the event that program is activated for one or more calendar
years, but neither the Compensation Committee nor the Board of Directors will
exercise any administrative discretion with respect to option grants made
under the Salary Investment Option Grant Program or under the Automatic Option
Grant Program or Director Fee Option Grant Program for the non-employee Board
members. All grants under those three latter programs will be made in strict
compliance with the express provisions of each such program.
The exercise price for the shares of Common Stock subject to option grants
made under the 1998 Stock Incentive Plan may be paid in cash or in shares of
Common Stock valued at fair market value on the exercise date. The option may
also be exercised through a same-day sale program without any cash outlay by
the optionee. In addition, the Plan Administrator may provide financial
assistance to one or more optionees in the exercise of their outstanding
options or the purchase of their unvested shares by allowing such individuals
to deliver a full-recourse, interest-bearing promissory note in payment of the
exercise price and any associated withholding taxes incurred in connection
with such exercise or purchase.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from
the Company equal to the excess of (i) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (ii) the
aggregate exercise price payable for such shares. Such appreciation
distribution may be made in cash or in shares of Common Stock. None of the
incorporated options from the Predecessor Plan contain any stock appreciation
rights.
In the event that the Company is acquired by merger or sale of substantially
all of its assets or securities possessing more than 50% of the total combined
voting power of the Company's outstanding securities, each outstanding option
under the Discretionary Option Grant Program which is not to be assumed by the
successor corporation or otherwise continued in effect will automatically
accelerate in full, and all unvested shares under the Discretionary Option
Grant and Stock Issuance Programs will immediately vest, except to the extent
the Company's repurchase rights with respect to those shares are assigned to
the successor corporation or otherwise continued in effect. The Plan
Administrator will have complete discretion to grant one or more options under
the Discretionary Option Grant Program which will become exercisable on an
accelerated basis for all of the option shares upon (i) an acquisition or
other change in control of the Company, whether or not those options are
assumed or continued in effect, or (ii) the termination of the optionee's
service within a designated period (not to exceed 18 months) following an
acquisition or other change in control in which those options are assumed or
continued in effect. The vesting of outstanding shares under the Stock
Issuance Program may be accelerated upon similar terms and conditions. The
Plan Administrator is also authorized under the Discretionary Option Grant and
Stock Issuance Programs to grant options and to structure repurchase rights so
that the shares subject to those options or repurchase rights will immediately
vest in connection with a change in the majority of the Board of Directors of
the Company by reason of one or more contested elections for Board membership,
with such vesting to occur either at the time of such change in control or
upon the subsequent termination of the individual's service within a
designated period following such change in control. Some of the options
incorporated from the Predecessor Plan will also vest on an accelerated basis
under certain circumstances. The Plan Administrator has the discretion to
extend one or more of the other acceleration provisions of the 1998 Stock
Incentive Plan to options incorporated from the Predecessor Plan.
In the event the Plan Administrator elects to activate the Salary Investment
Option Grant Program for one or more calendar years, each executive officer
and other highly compensated employees of the Company selected for
participation may elect, prior to the start of the calendar year, to reduce
his
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<PAGE>
or her base salary for that calendar year by a specified dollar amount not
less than $10,000 nor more than $50,000. If such election is approved by the
Plan Administrator, the individual will automatically be granted, on the first
trading day in January of the calendar year for which that salary reduction is
to be in effect, a non-statutory option to purchase that number of shares of
Common Stock determined by dividing the salary reduction amount by two-thirds
of the fair market value per share of Common Stock on the grant date. The
option will be exercisable at a price per share equal to one-third of the fair
market value of the option shares on the grant date. As a result, the total
spread on the option shares at the time of grant (the fair market value of the
option shares on the grant date less the aggregate exercise price payable for
those shares) will be equal to the amount of salary invested in that option.
The option will become exercisable for the option shares in a series of 12
equal monthly installments over the calendar year for which the salary
reduction is to be in effect and will be subject to full and immediate vesting
upon certain changes in the ownership or control of the Company.
Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member at any time after the completion of the offering,
whether by appointment by the Board of Directors or election of the
stockholders, will automatically receive an option grant for 10,000 shares as
of the date such individual joins the Board, provided such individual has not
been in the prior employ of the Company. In addition, on the date of each
Annual Stockholders Meeting of the Company held after the Plan Effective Date,
each non-employee Board member who is to continue to serve as a non-employee
Board member will automatically be granted an option to purchase 2,500 shares
of Common Stock, provided such individual has served on the Board for at least
six months.
Each automatic grant for the non-employee Board members will have a term of
10 years, subject to earlier termination following the optionee's cessation of
Board service. Each automatic option will be immediately exercisable for all
of the option shares; however, any unvested shares purchased under the option
will be subject to repurchase by the Company, at the exercise price paid per
share, should the optionee cease Board service prior to vesting in those
shares. The shares subject to each initial 10,000-share automatic option grant
will vest over a four-year period in successive equal annual installments upon
the individual's completion of each year of Board service measured from the
option grant date. Each 2,500-share automatic option grant will vest upon the
individual's completion of one year of Board service measured from the option
grant date. However, the shares subject to each automatic grant will
immediately vest in full upon certain changes in control or ownership of the
Company or upon the optionee's death or disability while a Board member.
Should the Director Fee Option Grant Program be activated in the future,
each non-employee Board member will have the opportunity to apply all or a
portion of any annual retainer fee otherwise payable in cash to the
acquisition of a below-market option grant. The option grant will
automatically be made on the first trading day in January in the year for
which the retainer fee would otherwise be payable in cash. The option will
have an exercise price per share equal to one-third of the fair market value
of the option shares on the grant date, and the number of shares subject to
the option will be determined by dividing the amount of the retainer fee
applied to the program by two-thirds of the fair market value per share of
Common Stock on the grant date. As a result, the total spread on the option
(the fair market value of the option shares on the grant date less the
aggregate exercise price payable for those shares) will be equal to the
portion of the retainer fee invested in that option. The option will become
exercisable for the option shares in a series of 12 equal monthly installments
over the calendar year for which the election is to be in effect. However, the
option will become immediately exercisable for all the option shares upon (i)
certain changes in the ownership or control of the Company or (ii) the death
or disability of the optionee while serving as a Board member.
The shares subject to each option under the Salary Investment Option Grant
and Automatic Option Grant and Director Fee Option Grant Programs will
immediately vest upon (i) an acquisition of the Company by merger or asset
sale, (ii) the successful completion of a tender offer for more than 50% of
the Company's outstanding voting stock or (iii) a change in the majority of
the Board effected through one or more contested elections for Board
membership.
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Limited stock appreciation rights will automatically be included as part of
each grant made under the Automatic Option Grant, Salary Investment Option
Grant and Director Fee Option Grant Programs and may be granted to one or more
officers of the Company as part of their option grants under the Discretionary
Option Grant Program. Options with such a limited stock appreciation right may
be surrendered to the Company upon the successful completion of a hostile
tender offer for more than 50% of the Company's outstanding voting stock. In
return for the surrendered option, the optionee will be entitled to a cash
distribution from the Company in an amount per surrendered option share equal
to the excess of (i) the highest price per share of Common Stock paid in
connection with the tender offer over (ii) the exercise price payable for such
share.
The Board of Directors of the Company may amend or modify the 1998 Stock
Incentive Plan at any time, subject to any required stockholder approval. The
1998 Stock Incentive Plan will terminate on the earliest of (i) 10 years after
the Plan Effective Date, (ii) the date on which all shares available for
issuance under the 1998 Stock Incentive Plan have been issued as fully-vested
shares or (iii) the termination of all outstanding options in connection with
certain changes in control or ownership of the Company.
The Board of Directors has approved an issuance of shares of Common Stock to
the Company's Community Leaders and Liaisons under the Company's 1998 Stock
Incentive Plan. Immediately following the execution of the Underwriting
Agreement, each of the Company's Community Leaders and Liaisons as of July 17,
1998, will be issued 10 fully vested shares of Common Stock (15,840 in the
aggregate), contingent upon the closing of the offering.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted
by the Board of Directors and approved by the stockholders of the Company in
July 1998, and will become effective immediately upon the execution of the
Underwriting Agreement for the offering. The Purchase Plan will be designed to
allow eligible employees of the Company and participating subsidiaries to
purchase shares of Common Stock, at semi-annual intervals, through their
periodic payroll deductions under the Purchase Plan, and a reserve of 300,000
shares of Common Stock has been established for this purpose.
The Purchase Plan will be implemented in a series of successive six-month
purchase periods.The first purchase period will begin on the date the
Underwriting Agreement is executed and will end on the last business day in
January 1999.
Individuals who are eligible employees (scheduled to work more than 20 hours
per week for more than five calendar months per year) on the start date of any
purchase period may enter the Purchase Plan on that start date or on any
subsequent semi-annual entry date.
Payroll deductions may not exceed 10% of total compensation, and the
accumulated payroll deductions of each participant will be applied to the
purchase of shares on his or her behalf on each semi-annual purchase date at a
purchase price per share equal to 85% of the lower of (i) the fair market
value of the Common Stock on the start date of the purchase period or (ii) the
fair market value on the semi-annual purchase date. In no event, however, may
any participant purchase more than the number of shares equal to $5,000
divided by the purchase price of the shares, nor may all participants in the
aggregate purchase more than 75,000 shares, on any purchase date.
In the event the Company is acquired by merger or asset sale, all
outstanding purchase rights will automatically be exercised immediately prior
to the effective date of such acquisition. The purchase price will be equal to
85% of the lower of (i) the fair market value per share of Common Stock on the
start date of the purchase period in which such acquisition occurs or (ii) the
fair market value per share of Common Stock immediately prior to such
acquisition.
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<PAGE>
The Purchase Plan will terminate on the earlier of (i) the last business day
of July 2008, (ii) the date on which all shares available for issuance under
the Purchase Plan shall have been sold pursuant to purchase rights exercised
thereunder or (iii) the date on which all purchase rights are exercised in
connection with an acquisition of the Company by merger or asset sale.
After adoption, the Board may at any time alter, suspend or discontinue the
Purchase Plan. However, certain amendments to the Purchase Plan may require
stockholder approval.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Certificate provides that, except to the extent prohibited by DGCL, the
Company's directors shall not be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty as
directors of the Company. Under the DGCL, the directors have a fiduciary duty
to the Company which is not eliminated by this provision of the Certificate
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of nonmonetary relief will remain available. In addition, each
director will continue to be subject to liability under the DGCL for breach of
the director's duty of loyalty to the Company, for acts or omissions which are
found by a court of competent jurisdiction to be not in good faith or which
involve intentional misconduct, or knowing violations of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are prohibited
by DGCL. This provision also does not affect the directors' responsibilities
under any other laws, such as the Federal securities laws or state or Federal
environmental laws. The Company has obtained liability insurance for its
officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out
of their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any
other rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Certificate provides that the Company shall, to the fullest extent permitted
by the DGCL, indemnify any person who was or is 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) by
reason of the fact that such person is or was a director or officer of the
Company, or is or was serving at the request of the Company as a director or
officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding.
The Company has entered into indemnification agreements with its directors
and certain of its officers containing provisions that may require the
Company, among other things, to indemnify such directors and officers against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' liability insurance if maintained for other directors
of officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted.
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CERTAIN TRANSACTIONS
Since January 1, 1995, other than as described elsewhere in this Prospectus
there has not been any transaction or series of similar transactions to which
the Company was or is a party in which the amount involved exceeded or exceeds
$60,000 and in which any director, executive officer, holder of more than 5%
of any class of the Company's voting securities, or any member of the
immediate family of any of the foregoing persons had or will have a direct or
indirect material interest, other than the transactions described below. See
"Management--Employment Agreements and Termination of Employment and Change of
Control Arrangements" and "--Limitation of Liability and Indemnification
Matters".
TRANSACTIONS WITH DIRECTORS, OFFICERS AND 5% STOCKHOLDERS
Since the Company's inception, the Company has raised capital primarily
through the sale of shares of its preferred stock. In December 1995, the
Company issued 1,200,000 shares of Series C Preferred Stock to Mr. Bohnett in
consideration for $0.3217 per share in the form of the cancellation of shares
of Common Stock and a note payable. In January 1996, the Company sold
3,108,000 shares of Series A Preferred Stock to CMG@Ventures at a price of
$0.3218 per share. In July 1996, the Company sold 2,900,000 shares of Series B
Preferred Stock to CMG@Ventures at a price of $0.3793 per share. From January
1997 through February 1997, the Company sold an aggregate of 10,226,718 shares
of Series D Preferred Stock to CMG@Ventures, SOFTBANK Holdings Inc., Chase
Venture Capital Associates, L.P. ("Chase"), the Flatiron Fund, Innocal and
Intel Corporation ("Intel") at a price of $0.885 per share. In October 1997,
the Company sold an aggregate of 1,428,564 shares of Series E Preferred Stock
to CMG@Ventures II, LLC, SOFTBANK Holdings Inc., the Flatiron Fund, Innocal
and Intel at a price of $3.50 per share. In December 1997, the Company sold an
aggregate of 814,270 shares of Series E Preferred Stock to SOFTBANK Holdings
Inc. at a price of $7.4254 per share. Effective December 1997, the Company
sold an aggregate of 2,552,576 shares of Series F Preferred Stock to Yahoo!
and SOFTBANK Holdings Inc. at a price of $7.4254 per share.
The following table summarizes the shares of Common Stock and Preferred
Stock purchased by executive officers, directors, and 5% stockholders of the
Company and persons associated with them since January 1995. All share numbers
reflect the number of shares of Common Stock purchased by the respective party
on an as-converted basis, and reflects subsequent sales of preferred stock and
transfers of Common Stock among stockholders of the Company and among
stockholders and the Company.
<TABLE>
<CAPTION>
PREFERRED STOCK
EXECUTIVE OFFICERS, COMMON -----------------------------------------------------------------
DIRECTORS AND 5% STOCKHOLDERS STOCK SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F
- ----------------------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Entities affiliated with
CMG@Ventures(1)........ -- 3,108,000 2,900,000 -- 2,259,888(2) 504,468 --
Peter H. Mills
David S. Wetherell
Jerry D. Colonna
Entities affiliated with
SOFTBANK Holdings
Inc.(3)................ -- -- -- 1,200,000 4,281,414(4) 1,064,998 2,552,556
Eric C. Hippeau
Entities affiliated with
Chase Venture Capital
Associates, L.P.(4).... -- -- -- -- 1,749,736 -- --
David C. Bohnett........ 2,333,000(5) -- -- 1,200,000(6) -- -- --
</TABLE>
- --------
(1) Represents shares purchased by CMG@Ventures or CMG@Ventures II, LLC, an
affiliate of CMG@Ventures. Messrs. Mills and Wetherell, general partners
of CMG@Ventures, and Mr. Colonna, a profit partner of CMG@Ventures, are
directors of the Company. Messrs. Mills, Wetherell and Colonna disclaim
beneficial ownership of such shares except to the extent of their
pecuniary interest therein.
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(2) Excludes 171,924 shares of Series D Preferred Stock purchased by the
Flatiron Fund, of which Mr. Colonna is a partner. The Flatiron Fund is a
venture investment program affiliated with Chase Capital Partners and
SOFTBANK Technology Ventures IV L.P.
(3) Represents shares purchased by SOFTBANK Holdings Inc., SOFTBANK Technology
Advisors Fund L.P. and SOFTBANK Technology Ventures IV L.P. Mr. Hippeau,
Chairman of the Board and Chief Executive Officer of Ziff-Davis, a
subsidiary of SOFTBANK Holdings Inc., is a director of the Company. Mr.
Hippeau disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest therein.
(4) Includes 171,924 shares of Series D Preferred Stock purchased by the
Flatiron Fund.
(5) Mr. Bohnett originally purchased 4,906,200 shares of Common Stock in
January 1995. In connection with the issuance and sale to Mr. Bohnett of
1,200,000 shares of Series C Preferred Stock in December 1995, Mr. Bohnett
transferred 2,341,000 of Common Stock to the Company.
(6) Represents shares that were subsequently transferred to SOFTBANK Holdings
Inc.
The Company entered into a Joint Venture Agreement in November 1997 (the
"Joint Venture Agreement") with SOFTBANK to form GeoCities Japan, a joint
venture in Japan. SOFTBANK, which owns 60% of GeoCities Japan, is a greater
than five percent stockholder in the Company. Under the terms of the
agreement, the Company purchased a 40% interest in GeoCities Japan for (Yen)80
million or approximately $645,000. SOFTBANK and the Company further agreed not
to engage in any business activities in Japan, other than services or products
in languages other than Japanese, which compete with GeoCities Japan. In
connection with this agreement, the Company agreed to enter into a 20-year
licensing agreement with GeoCities Japan under which the Company is eligible
to receive royalties. In connection with the Joint Venture Agreement, the
Company has entered into a Loan Agreement with SOFTBANK, whereby SOFTBANK
loaned the Company (Yen)80 million or approximately $645,000 for the sole
purpose of purchasing its 40% interest in GeoCities Japan. The loan bears
interest of 5.5% each year and shall be repaid upon GeoCities Japan's non-U.S.
initial public offering or private placement of at least (Yen)1.5 billion. If
neither event occurs by March 31, 2000, then SOFTBANK will forgive the loan on
April 1, 2000. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" and Note 5 of Notes to Financial
Statements.
The Company's 20-year license agreement with GeoCities Japan, entered in
November 1997, grants GeoCities Japan the exclusive right to use the Company's
software, content and trademarks (collectively, the "Materials") to provide
services in Japan. The Company also grants GeoCities Japan a license to
translate the Materials into the Japanese language. In consideration of the
license grant, GeoCities Japan will pay the Company a royalty of three percent
of its total revenue.
In January and February of 1997, CMG@Ventures and certain other current
stockholders of the Company purchased 10,226,718 shares of Series D Preferred
Stock at a purchase price of $0.885 per share. The Company received an
aggregate of $2.0 million from CMG@Ventures in connection with its purchase of
2,259,888 shares of the Series D Preferred Stock. In January 1997, in
connection with the issuance of that preferred stock, the Company granted
CMG@Ventures an immediately exercisable option to purchase up to 1,000,000
shares of Common Stock at a price of $0.885 per share.
In May 1997, the Company entered into a list line management agreement with
CMGI providing for the sharing of certain marketing data between the Company
and CMGI. This agreement may be terminated by either party on 30 days notice.
CMGI is an affiliate of CMG@Ventures, a greater than five percent stockholder
in the Company. In addition, the Company and Engage Technologies ("Engage"), a
subsidiary of CMG@Ventures, have been in discussions for a number of months
regarding a potential consulting arrangement. In May 1998, the Company agreed
to pay Engage $100,000 as an advance on such arrangement. Messrs. Mills and
Wetherell, directors of the Company, are general partners of CMG@Ventures. Mr.
Colonna, a director of the Company, is a profit partner of CMG@Ventures and a
partner of the Flatiron Fund. CMG@Ventures is a greater than five percent
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stockholder in the Company and the Flatiron Fund is a stockholder of the
Company. Mr. Hippeau, a director of the Company, is the Chairman of the Board
and Chief Executive Officer of Ziff-Davis, a subsidiary of SOFTBANK Holdings
Inc. SOFTBANK Holdings Inc. is a greater than five percent stockholder in the
Company.
In connection with his employment with the Company, the Company agreed to
loan Mr. Evans $100,000. The loan to Mr. Evans was made in July 1998 and is
repayable by Mr. Evans 270 days following the consummation of the offering.
The loan is unsecured and will be forgiven if the Company's net revenues for
1998 are at or above a certain agreed-upon minimum amount.
Mr. Losch, the Company's Vice President, Finance, has entered into an
agreement with the Company which, subject to certain limitations, provides for
a severance payment equal to six months of his base salary in the event his
employment with the Company is terminated without cause during the first two
years of his employment. Mr. Pierce, the Company's Vice President, Legal
Affairs and General Counsel, has entered into an agreement with the Company
which provides for partial acceleration of his options if the Company is
acquired and a severance payment equal to six months of his base salary in the
event his employment with the Company terminates following the acquisition of
the Company. In addition, Mr. Glicker, the Company's Vice President,
Marketing, has entered into an agreement with the Company which provides for
partial acceleration of his options if the Company is acquired.
For a description of certain options granted to the executive officers and
directors of the Company since January 1, 1995, see "Management--Executive
Compensation", "--Employment Agreements and Termination of Employment and
Change of Control Arrangements" and "--Employee Benefit Plans".
All future transactions, including loans (if any), between the Company and
its officers, directors and principal stockholders and their affiliates will
be approved by a majority of the Board of Directors, including a majority of
the independent and disinterested outside directors of the Board of Directors,
and will be on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of June 30, 1998,
regarding beneficial ownership of the Company's Common Stock, by (i) each
person (or group of affiliated persons) known by the Company to own
beneficially more than five percent of the outstanding shares of the Company's
Common Stock, (ii) each of the Company's directors and Named Executive
Officers and (iii) the Company's directors and executive officers as a group.
Unless otherwise indicated, the address for each of the following stockholders
is 1918 Main Street, Suite 300, Santa Monica, California 90405.
<TABLE>
<CAPTION>
PERCENT OF OWNERSHIP(1)
SHARES ------------------------
BENEFICIALLY PRIOR TO THE AFTER THE
NAME OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING(2)
- ------------------------ ------------ ------------ -----------
<S> <C> <C> <C>
CMG@Ventures(3).......................... 9,772,356 36.3% 30.9%
Peter H. Mills
David S. Wetherell
Jerry D. Colonna
SOFTBANK Holdings Inc.(4)(5)............. 9,098,968 35.1 29.7
Eric C. Hippeau
Chase Venture Capital Associates, 1,749,736 6.8 5.7
L.P(5)..................................
David C. Bohnett(6)...................... 2,483,000 9.5 8.1
Jerry D. Colonna(7)...................... 171,924 * *
Paul A. De Braccio(8).................... -- * *
Thomas R. Evans(9)....................... -- * *
Harry D. Lambert(10)..................... 1,024,414 4.0 3.3
John C. Rezner(11)....................... 827,000 3.2 2.7
All directors and executive officers as a
group
(16 persons)(12)........................ 23,407,662 86.1% 73.2%
</TABLE>
- --------
*Less than one percent
(1) The shares beneficially owned and percentage of ownership are based on
(i) 25,895,000 shares of Common Stock outstanding and (ii) 30,660,840
shares of Common Stock outstanding upon consummation of the offering.
Gives effect to the shares of Common Stock issuable within 60 days of
June 30, 1998, upon the exercise of all options beneficially owned by the
indicated stockholders on that date. Shares of Common Stock subject to
options which are currently exercisable or exercisable within 60 days of
June 30, 1998, are deemed outstanding for computing the percentages of
the person holding such options, but are not deemed outstanding for
computing the percentages of any other person. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to
shares. Unless otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all shares
beneficially owned.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Includes 1,000,000 shares of Common Stock issuable upon the exercise of a
stock option that is currently exercisable and 504,468 shares of Common
Stock held by CMG@Ventures II, LLC, an affiliate of CMG@Ventures. The
address of CMG@Ventures and CMG@Ventures II, LLC is 2420 Sand Hill Road,
Suite 101, Menlo Park, CA 94025. Messrs. Mills and Wetherell, general
partners of CMG@Ventures, and Mr. Colonna, a profit partner of
CMG@Ventures, are directors of the Company. Messrs. Mills, Wetherell and
Colonna disclaim beneficial ownership of such shares except to the extent
of their pecuniary interest therein.
(4) Includes (i) 1,837,732 shares of Common Stock held by SOFTBANK Technology
Ventures IV L.P., an affiliate of SOFTBANK Holdings Inc. (which number
includes 100,000 shares of Common Stock held by SOFTBANK Holdings Inc.
and subject to an option held by Mr. Hippeau to purchase such shares from
SOFTBANK Holdings Inc., which option vests over a three-year
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<PAGE>
period commencing in January 1998) and (ii) 37,504 shares of Common Stock
held by SOFTBANK Technology Advisors Fund L.P., an affiliate of SOFTBANK
Holdings Inc. The address of SOFTBANK Holdings Inc. and the entities
associated with SOFTBANK Holdings Inc. is 10 Langley Road, Newton Center,
MA 02159-1972. Mr. Hippeau, Chairman of the Board and Chief Executive
Officer of Ziff-Davis, a subsidiary of SOFTBANK Holdings Inc., is a
director of the Company.
(5) Includes 171,924 shares of Common Stock held by the Flatiron Fund. The
Flatiron Fund is a venture investment program affiliated with Chase
Capital Partners, an affiliate of Chase Venture Capital Associates, L.P.,
and SOFTBANK Holdings Inc. The address of Chase Venture Capital
Associates, L.P. and the entities associated with Chase Venture Capital
Associates, L.P. is Chase Capital Partners, 380 Madison Avenue, New York,
NY 10017.
(6) Includes 150,000 shares of Common Stock issuable upon the exercise of
stock options that are currently exercisable.
(7) Consists of 171,924 shares of Common Stock held by the Flatiron Fund, of
which Mr. Colonna is a partner. Mr. Colonna disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein. See also note (3) above.
(8) Mr. De Braccio ceased to be employed by the Company in July 1997.
(9) Excludes options to purchase up to 1,632,760 shares of Common Stock that
were issued to Mr. Evans in connection with his employment and which are
not currently exercisable or exercisable within 60 days of June 30, 1998.
(10) Consists of 1,024,413 shares of Common Stock held by InnoCal, of which
Mr. Lambert is a General Partner. Mr. Lambert disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.
(11) Includes 124,602 shares of Common Stock issuable upon the exercise of
stock options that are currently exercisable.
(12) Includes 1,299,602 shares of Common Stock issuable upon the exercise of
stock options that are currently exercisable or exercisable within 60
days of June 30, 1998.
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DESCRIPTION OF CAPITAL STOCK
The following description of the securities of the Company and certain
provisions of the Company's Certificate of Incorporation (the "Certificate")
and the Company's Bylaws ("Bylaws") are summaries thereof and are qualified by
reference to the Certificate and the Bylaws, copies of which have been filed
with the Commission as exhibits to the Company's Registration Statement, of
which this Prospectus forms a part. The descriptions of the Common Stock and
Preferred Stock reflect changes to the Company's capital structure that will
occur upon the closing of the offering in accordance with the terms of the
Certificate.
The authorized capital stock of the Company consists of 60,000,000 shares of
Common Stock, par value $0.001 per share and 5,000,000 shares of Preferred
Stock, par value $0.001 per share.
COMMON STOCK
As of June 30, 1998, there were 25,895,000 shares of Common Stock
outstanding (on an as-converted basis) and held of record by 29 stockholders.
Based upon the number of shares outstanding as of that date and giving effect
to the issuance of the 4,750,000 shares of Common Stock offered by the Company
hereby and the issuance of 15,840 shares of Common Stock to be issued to
Community Leaders and Liaisons under the 1998 Stock Incentive Plan, there will
be 30,660,840 shares of Common Stock outstanding (on an as-converted basis)
upon the closing of the offering.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and the Certificate provides that
they do not have cumulative voting rights. Accordingly, holders of a majority
of the shares of Common Stock entitled to vote in any election of directors
may elect all of the directors standing for election. Holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared by
the Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of any outstanding Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding Preferred Stock. Holders of the Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are, and the shares offered by the Company in the
offering will be, when issued in consideration for payment thereof, fully paid
and nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future without further stockholder approval. Upon
the closing of the offering, there will be no shares of Preferred Stock
outstanding.
PREFERRED STOCK
Upon the closing of the offering, the Board of Directors will be authorized,
without further stockholder approval, to issue from time to time up to an
aggregate of 5,000,000 shares of Preferred Stock in one or more series and to
fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof,
including the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption (including sinking fund provisions), redemption
price or prices, liquidation preferences and the number of shares constituting
any series or designations of such series. The Company has no present plans to
issue any shares of Preferred Stock. See "--Anti-Takeover Effects of Certain
Provisions of Delaware Law and the Company's Certificate of Incorporation and
Bylaws".
WARRANTS
As of June 30, 1998, the Company had an outstanding warrant to purchase
20,304 shares of Common Stock at an exercise price of $4.695 per share. The
warrant is exercisable in whole or in part at any time on or before September
22, 2004. The warrant contains standard anti-dilution provisions,
69
<PAGE>
including anti-dilution protection if the Company issues any shares of Common
Stock at a price per share less than the exercise price of such warrant at the
time in effect or without consideration, subject to certain exceptions.
OPTIONS
As of June 30, 1998, (i) options to purchase a total of 6,531,000 shares
("Option Shares") of Common Stock were outstanding and (ii) up to 797,000
shares of Common Stock were available for grant under the Predecessor Plan.
See "Underwriting" and "Management--Employee Benefit Plans".
TECHNOLOGY PURCHASE AND SALE AGREEMENT
In July 1998, the Company entered into a Technology Purchase and Sale
Agreement (the "Purchase Agreement") pursuant to which the Company purchased
certain Web-page development technology (the "Technology"). Under the terms of
the Purchase Agreement, in partial consideration for the Technology, the
Company agreed to issue $455,000 of its Common Stock to the seller at the
initial public offering price (assuming the offering is consummated within 90
days of the date of the Purchase Agreement; otherwise, the Company is
obligated to pay this amount in cash), if the Technology is successfully
installed and becomes operational on the Company's servers to the Company's
satisfaction within 90 days of the date of the Purchase Agreement, In
addition, if the Technology is successfully installed and is operational
within an agreed upon period prior to the 90-day deadline, the Company has
agreed to issue the seller an additional $145,000 of its Common Stock at the
initial public offering price. Any shares of the Company's Common Stock issued
under the provisions of the Purchase Agreement are subject to the restrictions
on resale imposed by Rule 144 under the Securities Act. The seller has also
entered into a lock-up agreement prohibiting any sales or transfers of such
shares for a period of 180 days after the date of this Prospectus without the
prior written consent of Goldman, Sachs & Co.
REGISTRATION RIGHTS
Pursuant to the terms of the Third Amended and Restated Rights Agreement, as
amended (the "Registration Rights Agreement"), after the closing of the
offering, the holders of at least 30% of an aggregate of 22,230,128 shares of
Common Stock will be entitled to certain demand registration rights with
respect to the registration of such shares under the Securities Act, subject
to certain limitations, including the inclusion thereon of a minimum number of
shares held by the initiating holders of the demand registration. The Company
is not required to effect (i) more than two such registrations pursuant to
such demand registration rights; (ii) a registration within 90 days following
the determination of the Board of Directors of the Company to file a
registration statement; provided, that the Company is making a good faith
effort to cause such registration statement to become effective; (iii) a
registration for a period not to exceed 90 days, if the Board of Directors of
the Company has made a good faith determination that it would be seriously
detrimental to the Company or the holders of registration rights for a
registration statement to be filed or (iv) a registration within 270 days of
the effective date of any prior registered offering of the Company's
securities, subject to certain exceptions. In addition, pursuant to the terms
of the Registration Rights Agreement, after the closing of the offering, the
holders of 26,160,128 shares of Common Stock will be entitled to certain
piggyback registration rights in connection with any registration by the
Company of its securities for its own account or the account of other
securityholders. In the event that the Company proposes to register any shares
of Common Stock under the Securities Act, the holders of such piggyback
registration rights are entitled to receive notice of such registration and
are entitled to include their shares therein, subject to certain limitations.
In addition, in the event that the Company proposes to register any shares of
Common
70
<PAGE>
Stock under the Securities Act to the public in a firm commitment underwritten
public offering, Mr. Bohnett and Mr. Rezner, as well as any other officer or
director designated by the Company's Board of Directors by unanimous vote
shall be entitled to piggyback registration rights if such persons who choose
to include their shares in such registration shall continue to serve the
Company as an officer or director on the effective date of such registration
statement. Further, at any time after the Company becomes eligible to file a
registration statement on Form S-3, certain holders of demand registration
rights may require the Company to file registration statements on Form S-3
under the Securities Act with respect to their shares of Common Stock. The
Company is not required to effect (i) more than two such registrations in any
12-month period; (ii) a registration if the Company gives notice of its bona
fide intention to effect a registration within 60 days; (iii) a registration
within 180 days of the effective date of any prior registered offering of the
Company's securities (subject to certain exceptions) or (iv) a registration
for a period not to exceed 60 days, if the Board of Directors of the Company
has made a good faith determination that it would be seriously detrimental to
the Company or the stockholders for a registration statement to be filed
(subject to certain exceptions). Each of the foregoing registration rights are
subject to certain conditions and limitations, among them the right of the
underwriters in any underwritten offering to limit the number of shares of
Common Stock held by securityholders with registration rights to be included
in such registration. The registration rights with respect to any holder
thereof terminate when the shares held by such holder may be sold under Rule
144 during any three-month period. The Company is generally required to bear
all of the expenses of all such registrations, except underwriting discounts
and commissions. Registration of any of the shares of Common Stock held by
securityholders with registration rights would result in such shares becoming
freely tradable without restriction under the Securities Act immediately upon
effectiveness of such registration. The Registration Rights Agreement also
contains a commitment of the Company to indemnify the holders of registration
rights, subject to certain limitations.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S
CERTIFICATE OF INCORPORATION AND BYLAWS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (as amended from time to time, the "DGCL"). Subject to
certain exceptions, Section 203 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 of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
such status with the approval of the board of directors or unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's outstanding voting stock. This statute could prohibit or delay
the accomplishment of mergers or other takeover or change in control attempts
with respect to the Company and, accordingly, may discourage attempts to
acquire the Company.
In addition, certain provisions of the Certificate and Bylaws, which
provisions will be in effect upon the closing of the offering and are
summarized in the following paragraphs, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that
a stockholder might consider in its best interest, including those attempts
that might result in a premium over the market price for the shares held by
stockholders.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. The Certificate
provides that stockholders may not take action by written consent, but only at
duly called annual or special meetings of stockholders. The Certificate
further provides that special meetings of stockholders of the Company may be
called only by the Chairman of the Board of Directors or a majority of the
Board of Directors.
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<PAGE>
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company, not less than 120 days nor more than 150 days prior to the first
anniversary of the date of the Company's notice of annual meeting provided
with respect to the previous year's annual meeting of stockholders; provided,
that if no annual meeting of stockholders was held in the previous year or the
date of the annual meeting of stockholders has been changed to be more than 30
calendar days earlier than or 60 calendar days after such anniversary, notice
by the stockholder, to be timely, must be so received not more than 90 days
nor later than the later of (i) 60 days prior to the annual meeting of
stockholders or (ii) the close of business on the 10th day following the date
on which notice of the date of the meeting is given to stockholders or made
public, whichever first occurs. The Bylaws also specify certain requirements
as to the form and content of a stockholder's notice. These provisions may
preclude stockholders from bringing matters before an annual meeting of
stockholders or from making nominations for directors at an annual meeting of
stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of Common
Stock and Preferred Stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of Common Stock and Preferred Stock could
render more difficult or discourage an attempt to obtain control of the
Company by means of a proxy contest, tender offer, merger or otherwise.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage.
LISTING
The Common Stock has been approved for quotation, upon notice of issuance,
on the Nasdaq National Market under the trading symbol "GCTY".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is U.S. Stock Transfer
Corporation. Its telephone number is (818) 502-1404.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices from time to
time. Furthermore, since only a limited number of shares will be available for
sale shortly after the offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price of the Common Stock and the
ability of the Company to raise equity capital in the future.
Upon completion of the offering, the Company will have outstanding an
aggregate of 30,660,840 shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option. Of these shares, the 4,750,000 shares
registered in the offering will be freely tradeable without restriction or
further registration under the Securities Act, unless such shares are
purchased by "Affiliates". The 15,840 shares of Common Stock to be issued to
the Community Leaders and Liaisons under the 1998 Stock Incentive Plan will
also be eligible for immediate sale in the public market without restriction,
subject to the filing of the Form S-8 registration statement with respect
thereto as of the date of this Prospectus. The 25,895,000 shares of Common
Stock outstanding as of June 30, 1998, and held by existing stockholders are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act ("Restricted Shares"). Restricted Shares may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Section 4(1) of the Securities Act or Rules 144, 144(k) or
701 promulgated under the Securities Act, which rules are summarized below. As
a result of the lock-up agreements described below, and subject to the
provisions of Rules 144, 144(k) and 701, the 25,895,000 shares which are
deemed Restricted Shares will be available for sale in the public market 180
days after the date of this Prospectus. Any shares of Common Stock issued
pursuant to the Purchase Agreement will be restricted securities and will also
be subject to a 180 day lock-up agreement. In addition, as of June 30, 1998,
there were outstanding options to purchase up to 6,531,000 shares of Common
Stock which will be eligible for sale in the public market following the
offering from time to time subject to becoming exercisable and, in the case of
certain options, the expiration of the lock-up agreements. There is also a
warrant outstanding to purchase up to 20,304 shares of Common Stock which will
be eligible for sale in the public market following the offering subject to
the expiration of the lock-up agreement applicable thereto.
All officers and directors, and substantially all other stockholders and
holders of options to purchase Common Stock of the Company have agreed not to
sell or otherwise transfer any shares of Common Stock or any other securities
of the Company for a period of 180 days after the date of this Prospectus
without the prior written consent of Goldman, Sachs & Co.; provided, that one
affiliate of the Company who is subject to a lock-up agreement and the volume
restrictions of Rule 144 has been authorized by the representatives of the
Underwriters to sell up to $1.0 million of Common Stock commencing 91 days
after the date of this Prospectus. In addition, Goldman, Sachs & Co. may, in
their sole discretion, and at any time without notice, release all or any
portion of the securities subject to lock-up agreements.
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 the holding period of any prior owner except an
Affiliate) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding (which will equal approximately
307,000 shares immediately after the offering) or (ii) the average weekly
trading volume of the Common Stock on the Nasdaq National Market during the
four calendar weeks preceding the filing of a notice on 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. Under Rule 144(k), 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 the shares proposed to be
sold for at least
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two years (including the holding period of any prior owner except an
Affiliate), is entitled to sell such shares without complying with the manner
of sale, public information, volume limitation or notice provisions of Rule
144; therefore, unless otherwise restricted, and subject to the lock-up
agreements, "144(k) shares" may be sold immediately upon the completion of the
offering. In general, under Rule 701 of the Securities Act as currently in
effect, any employee, consultant or advisor of the Company who purchases
shares from the Company pursuant to Rule 701 in connection with a compensatory
stock or option plan or other written agreement is eligible to resell such
shares, unless contractually restricted, 90 days after the effective date of
the offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period, contained in Rule 144.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, as this will depend on the market price for the Common Stock
of the Company, the personal circumstances of the sellers and other factors.
Prior to the offering, there has been no public market for the Common Stock,
and there can be no assurance that a significant public market for the Common
Stock will develop or be sustained after the offering. Any future sale of
substantial amounts of Common Stock in the open market may adversely affect
the market price of the Common Stock offered hereby.
The Company intends to file, as of the date of this Prospectus, Form S-8
registration statements under the Securities Act to register all shares of
Common Stock issuable under certain individual stock option agreements and the
1998 Stock Incentive Plan, the shares of Common Stock that will be issued to
the Community Leaders and Liaisons thereunder immediately following the
execution of the Underwriting Agreement and shares of Common Stock issuable
under the Purchase Plan. Such registration statements are expected to become
effective immediately upon filing, and shares covered by those registration
statements will thereupon be eligible for sale in the public markets, subject
to any lock-up agreements applicable thereto and Rule 144 limitations
applicable to affiliates. See "Management--Employee Benefit Plans",
"Description of Capital Stock--Registration Rights", "Shares Eligible for
Future Sale" and "Underwriting".
Pursuant to the Registration Rights Agreement, after the closing of the
offering, subject to certain conditions, the holders of 22,230,128 shares of
outstanding Common Stock will be entitled to certain demand registration
rights and the holders of 26,160,128 shares of outstanding Common Stock
(including shares issuable upon the exercise of certain options to purchase
Common Stock) will be entitled to certain piggyback registration rights.
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). During the 180-day period after
the date of this Prospectus, the Company has agreed not to file any
registration statement with respect to the registration of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
into Common Stock, other than registration statements on Form S-8 covering
securities issuable under the Company's 1998 Stock Incentive Plan and the
Purchase Plan, without the prior written consent of Goldman, Sachs & Co. See
"Description of Capital Stock--Registration Rights".
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Brobeck, Phleger & Harrison LLP, Irvine, California.
Certain legal matters relating to the offering will be passed upon for the
Underwriters by Venture Law Group, A Professional Corporation, Menlo Park,
California.
EXPERTS
The balance sheets as of December 31, 1997 and 1996, and the statements of
operations, stockholders' equity (deficiency) and cash flows for each of the
three years in the period ended December 31, 1997, included in this
Registration Statement have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act (the "Registration
Statement") with respect to the Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock, reference is made to the
Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus as to the contents of any contract of
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each statement being qualified in all
respects by such reference. The Registration Statement, including the exhibits
and schedules thereto, may be inspected without charge at the principal office
of the Commission in Washington, D.C., and copies of all or any part thereof
may be inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549
and at the Commission's Regional Offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material may be
obtained at prescribed rates by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Commission maintains an Internet site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants, including the Company, that file electronically with the
Commission. For further information pertaining to the Company and the Common
Stock offered by this Prospectus, reference is hereby made to the Registration
Statement.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by its independent auditors and to make available
to its stockholders quarterly reports containing unaudited financial data for
the first three quarters of each fiscal year.
CHANGE IN ACCOUNTANTS
On September 18, 1997, the Company requested and received the resignation of
Arthur Andersen LLP and engaged PricewaterhouseCoopers LLP as its independent
accountants to audit its financial statements as of, and for the year ended,
July 31, 1997. The decision to change independent accountants from Arthur
Andersen LLP to PricewaterhouseCoopers LLP was approved by the Company's Board
of Directors. Subsequently, the Company changed its fiscal year end from July
31 to December 31.
The Company believes, and has been advised by Arthur Andersen LLP that it
concurs in such belief, that, for the period from December 16, 1994
(inception) through July 31, 1996, and for the period from August 1, 1996
through September 18, 1997, the Company and Arthur Andersen LLP did not have
any disagreement on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Arthur Andersen LLP,
would have caused it to make reference in connection with its report on the
Company's financial statements to the subject matter of the disagreement.
The report of Arthur Andersen LLP on the Company's financial statements for
the period from December 16, 1994 (inception) through July 31, 1995, and the
year ended July 31, 1996, did not contain an adverse opinion or a disclaimer
of opinion, and was not qualified or modified as to uncertainty, audit scope
or accounting principles. During the period from December 16, 1994 to
September 18, 1997, there were no "reportable events" within the meaning of
Item 304(a)(1)(v) of Regulation S-K promulgated under the Securities Act.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Balance Sheets at December 31, 1996 and 1997 and June 30, 1998
(unaudited).............................................................. F-3
Statements of Operations for the years ended December 31, 1995, 1996 and
1997 and the six months ended June 30, 1997 (unaudited) and 1998
(unaudited).............................................................. F-4
Statements of Stockholders' Equity (Deficiency) for the three years in the
period ended December 31, 1997 and the six months ended June 30, 1998
(unaudited).............................................................. F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and the six months ended June 30, 1997 (unaudited) and 1998
(unaudited).............................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of GeoCities
We have audited the accompanying balance sheets of GeoCities (the "Company")
as of December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity (deficiency) and cash flows for each of the three years
in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GeoCities as of December
31, 1996 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
Woodland Hills, California
June 2, 1998, except for
the effects of the stock
split described in Note 2
as to which the date is
July 21, 1998
F-2
<PAGE>
GEOCITIES
BALANCE SHEETS
(ALL INFORMATION AS OF JUNE 30, 1998 IS UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1998 1998
------------ ------------ ------------ ------------
(PRO FORMA)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 33,000 $ 3,785,000 $ 1,169,000 $ 1,169,000
Short-term
investments........... 19,219,000 19,219,000
Accounts receivable,
less allowance for
doubtful accounts of
$98,000 and $270,000
for 1997 and 1998,
respectively.......... 262,000 1,206,000 2,447,000 2,447,000
Prepaids and other
current assets........ 57,000 403,000 1,019,000 1,019,000
Subscription
receivable............ 25,000,000
----------- ------------ ------------ ------------
Total current
assets.............. 352,000 30,394,000 23,854,000 23,854,000
Property and
equipment, net........ 879,000 1,216,000 2,977,000 2,977,000
Deposits............... 217,000 613,000 862,000 862,000
Other assets........... 645,000 567,000 567,000
----------- ------------ ------------ ------------
Total assets......... $ 1,448,000 $ 32,868,000 $ 28,260,000 $ 28,260,000
=========== ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable....... $ 397,000 $ 1,036,000 $ 353,000 $ 353,000
Accrued expenses....... 199,000 2,289,000 4,928,000 4,928,000
Deferred revenue....... 110,000 225,000 566,000 566,000
Capital lease
obligations, current
portion............... 188,000 393,000 301,000 301,000
Note payable........... 1,100,000
----------- ------------ ------------ ------------
Total current
liabilities......... 1,994,000 3,943,000 6,148,000 6,148,000
Capital lease
obligations, net of
current portion....... 437,000 183,000 112,000 112,000
Related party note
payable............... -- 651,000 668,000 668,000
----------- ------------ ------------ ------------
2,431,000 4,777,000 6,928,000 6,928,000
Commitments and
contingencies (Note 7)
Series A, B, C, D, E and
F mandatory redeemable
convertible preferred
stock, $0.001 par
value; authorized
16,245,000 shares in
1996, 26,526,000 shares
in 1997 and 1998;
issued and outstanding
6,008,000 shares in
1996 and 22,230,000
shares in 1997 and
1998; liquidation
preference of
approximately
$2,100,000 and
$39,129,000 at 1996 and
1997, respectively, and
$40,457,000 at June 30,
1998................... 2,063,000 37,200,000 37,200,000 --
Stockholders' equity
(deficiency):
Convertible preferred
stock, $0.001 par
value; 1,200,000 shares
authorized, issued and
outstanding for 1996... 386,000 -- -- --
Common stock, par value
$0.001; authorized
40,000,000 shares for
1996 and 60,000,000
shares for 1997 and
1998; issued and
outstanding 2,617,000
and 2,641,000 shares
for 1996 and 1997,
respectively, 3,665,000
shares at June 30, 1998
and 25,895,000 shares
on a pro forma basis... 43,000 49,000 253,000 26,000
Additional paid-in
capital................ 23,000 3,903,000 12,516,000 49,943,000
Unearned deferred
compensation........... -- (660,000) (8,983,000) (8,983,000)
Accumulated deficit..... (3,498,000) (12,401,000) (19,654,000) (19,654,000)
----------- ------------ ------------ ------------
Total stockholders'
equity
(deficiency)........ (3,046,000) (9,109,000) (15,868,000) 21,332,000
----------- ------------ ------------ ------------
Total liabilities and
stockholders' equity
(deficiency)........ $ 1,448,000 $ 32,868,000 $ 28,260,000 $ 28,260,000
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GEOCITIES
STATEMENTS OF OPERATIONS
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------------- ------------------------
1995 1996 1997 1997 1998
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 46,000 $ 314,000 $ 4,582,000 $ 1,632,000 $ 5,542,000
Cost of revenues........ 103,000 788,000 4,634,000 1,421,000 3,937,000
--------- ----------- ----------- ----------- -----------
Gross profit (loss).. (57,000) (474,000) (52,000) 211,000 1,605,000
Operating expenses:
Sales and marketing... 117,000 764,000 5,045,000 2,130,000 5,072,000
Product development... 72,000 475,000 1,021,000 437,000 1,325,000
General and
administrative....... 233,000 1,252,000 2,901,000 1,273,000 2,947,000
--------- ----------- ----------- ----------- -----------
Loss from operations.... (479,000) (2,965,000) (9,019,000) (3,629,000) (7,739,000)
Other income (expense):
Interest income....... 19,000 238,000 131,000 540,000
Interest expense...... (2,000) (59,000) (121,000) (62,000) (53,000)
--------- ----------- ----------- ----------- -----------
Loss before provision
for income taxes.... (481,000) (3,005,000) (8,902,000) (3,560,000) (7,252,000)
Provision for income
taxes.................. (1,000) (1,000) (1,000) (1,000) (1,000)
--------- ----------- ----------- ----------- -----------
Net loss.............. $(482,000) $(3,006,000) $(8,903,000) $(3,561,000) $(7,253,000)
========= =========== =========== =========== ===========
Historical basic and
diluted net loss per
share.................. $ (0.11) $ (1.15) $ (3.40) $ (1.36) $ (2.27)
Historical weighted
average shares
outstanding used in
per-share calculation.. 4,431,000 2,617,000 2,620,000 2,617,000 3,194,000
Pro forma basic and
diluted net loss per
share.................. $ (0.36) $ (0.29)
Weighted average shares
outstanding used in pro
forma per-share
calculation............ 24,850,000 25,425,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
GEOCITIES
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL UNEARNED STOCKHOLDERS'
CONVERTIBLE PAID-IN DEFERRED ACCUMULATED EQUITY
PREFERRED STOCK COMMON STOCK CAPITAL COMPENSATION DEFICIT (DEFICIENCY)
--------------------- ------------------------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1994............ $ (10,000) $ (10,000)
Issuance of
common stock.... 4,906,000 $ 49,000 49,000
Issuance of
common stock for
services........ 52,000 17,000 17,000
Issuance of
Series C
convertible
preferred stock
in exchange for
common stock and
note payable.... 1,200,000 $ 386,000 (2,341,000) (23,000) $23,000 386,000
Net loss......... (482,000) (482,000)
---------- --------- ---------- ------------ ----------- ----------- ------------ ------------
Balance at
December 31,
1995............ 1,200,000 386,000 2,617,000 43,000 23,000 -- (492,000) (40,000)
Net loss......... (3,006,000) (3,006,000)
---------- --------- ---------- ------------ ----------- ----------- ------------ ------------
Balance at
December 31,
1996............ 1,200,000 386,000 2,617,000 43,000 23,000 -- (3,498,000) (3,046,000)
Additional paid
in capital
related to
issuance of
Series E
mandatory
redeemable
convertible
preferred stock
for cash........ 3,196,000 3,196,000
Conversion of
Series C
convertible
preferred stock
to mandatory
redeemable
convertible
preferred
stock........... (1,200,000) (386,000) (386,000)
Exercise of stock
options......... 24,000 6,000 6,000
Unearned
compensation
related to stock
options
granted......... 684,000 $ (684,000) --
Compensation
related to stock
options
vesting......... 24,000 24,000
Net loss......... (8,903,000) (8,903,000)
---------- --------- ---------- ------------ ----------- ----------- ------------ ------------
Balance at
December 31,
1997............ -- -- 2,641,000 49,000 3,903,000 (660,000) (12,401,000) (9,109,000)
Repurchase of
common stock.... (10,000) (19,000) (19,000)
Exercise of stock
options......... 1,034,000 223,000 223,000
Unearned
compensation
related to stock
options
granted......... 8,613,000 (8,613,000) --
Compensation
related to stock
options
vesting......... 290,000 290,000
Net loss......... (7,253,000) (7,253,000)
---------- --------- ---------- ------------ ----------- ----------- ------------ ------------
Balance at June
30, 1998
(unaudited)..... -- -- 3,665,000 253,000 12,516,000 (8,983,000) (19,654,000) (15,868,000)
Assumed
conversion of
mandatory
redeemable
convertible
preferred
stock........... 22,230,000 40,396,000 (3,196,000) 37,200,000
Delaware
reincorporation
and change in
par value of
common stock.... (40,623,000) 40,623,000 --
---------- --------- ---------- ------------ ----------- ----------- ------------ ------------
Balance at June
30, 1998,
pro forma
(unaudited)..... -- -- 25,895,000 $ 26,000 $49,943,000 $(8,983,000) $(19,654,000) $ 21,332,000
========== ========= ========== ============ =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
GEOCITIES
STATEMENTS OF CASH FLOWS
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------ -------------------------
1995 1996 1997 1997 1998
--------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............. $(482,000) $(3,006,000) $ (8,903,000) $(3,561,000) $ (7,253,000)
Adjustments to
reconcile net loss
to net cash used in
operating
activities:
Depreciation and
amortization...... 7,000 188,000 431,000 177,000 370,000
Issuance of common
stock for
services.......... 17,000
Issuance of warrant
related to note
payable........... 51,000
Deferred
compensation
earned............ 24,000 290,000
Bad debt reserve... 98,000 172,000
Changes in
operating assets
and liabilities:
Accounts
receivable....... (7,000) (255,000) (1,042,000) (735,000) (1,413,000)
Prepaids and other
current assets... 12,000 (56,000) (346,000) (339,000) (616,000)
Deposits and other
assets........... (214,000) (396,000) (166,000) (171,000)
Accounts payable.. 90,000 309,000 639,000 110,000 (683,000)
Accrued expense... 37,000 162,000 2,095,000 684,000 2,656,000
Deferred revenue.. 110,000 115,000 127,000 341,000
--------- ----------- ------------ ----------- ------------
Net cash used in
operating
activities...... (326,000) (2,762,000) (7,234,000) (3,703,000) (6,307,000)
Cash flows used in
investing activities:
Purchase of property
and equipment....... (69,000) (130,000) (674,000) (258,000) (2,131,000)
Investment in
affiliate........... (645,000)
Purchases of
investments......... (19,219,000)
--------- ----------- ------------ ----------- ------------
Net cash used in
investing
activities........ (69,000) (130,000) (1,319,000) (258,000) (21,350,000)
Cash flows from
financing activities:
Payments under
capital-lease
obligations......... (2,000) (239,000) (143,000) (114,000) (163,000)
Proceeds from
exercise of common
stock options....... 49,000 6,000 223,000
Repurchase of common
stock............... (19,000)
Proceeds from
issuance of
mandatory redeemable
convertible
preferred stock..... 2,063,000 37,897,000 8,959,000
Subscription
receivable.......... (25,000,000) 25,000,000
Due to officer....... 349,000
Proceeds from
related-party note
payable............. 645,000
Proceeds from note
payable............. 1,100,000
Repayment on note
payable............. (1,100,000) (1,100,000)
--------- ----------- ------------ ----------- ------------
Net cash provided
by financing
activities........ 396,000 2,924,000 12,305,000 7,745,000 25,041,000
Increase (decrease)
in cash and cash
equivalents....... 32,000 3,752,000 3,784,000 (2,616,000)
Cash and cash
equivalents, beginning
of period............. 1,000 33,000 33,000 3,785,000
--------- ----------- ------------ ----------- ------------
Cash and cash
equivalents, end of
period................ $ 1,000 $ 33,000 $ 3,785,000 $ 3,817,000 $ 1,169,000
========= =========== ============ =========== ============
Supplemental disclosure
of cash-flow
information:
Cash paid during the
period for:
Interest............. $ 1,000 $ 71,000 $ 89,000 $ 53,000 $ 52,000
Income taxes......... $ 1,000 $ 1,000 $ 1,000
Supplemental disclosure
of noncash
transactions:
Equipment under
capital leases...... $ 20,000 $ 844,000 $ 94,000
Conversion of Series
C convertible
preferred stock to
mandatory redeemable
convertible
preferred stock..... $ 386,000
Issuance of Series C
convertible
preferred stock
through conversion
of amount due to
officer............. $ 386,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
GEOCITIES
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1998 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND BUSINESS:
GeoCities (the "Company") was incorporated as a California corporation on
December 16, 1994, and began operations in 1995. In June 1998, the Board of
Directors approved the reincorporation of the Company in the State of Delaware
and changed the par value of the Company's common stock. The Company offers a
community of personal Web sites on the Internet within 40 themed
neighborhoods. The Company's main source of revenue is from advertising, along
with other revenue streams, including fee-based premium services and commerce.
The Company's business is characterized by rapid technological change, new
product development and evolving industry standards.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Initial Public Offering and Unaudited Pro Forma Balance Sheet
In June 1998, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission ("SEC") that would
permit the Company to sell shares of the Company's common stock in connection
with a proposed initial public offering ("IPO"). If the IPO is consummated
under the terms presently anticipated, upon the closing of the proposed IPO
all of the then outstanding shares of the Company's Mandatory Redeemable
Convertible Preferred Stock will automatically convert into shares of common
stock on a one-for-one basis. The conversion of the Mandatory Redeemable
Convertible Preferred Stock has been reflected in the accompanying unaudited
pro forma balance sheet as if it had occurred on June 30, 1998.
Unaudited Interim Financial Information
The interim financial statements of the Company for the six months ended
June 30, 1997 and 1998, included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations relating to interim financial statements. In the opinion
of management, the accompanying unaudited interim financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company at June 30, 1998, and the
results of its operations and its cash flows for the six months ended June 30,
1997 and 1998.
Use of Estimates
In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
At December 31, 1997, certificates of deposit totaling approximately
$255,000 were used to collateralize certain of the Company's lease
obligations, and have been included in deposits on the balance sheet.
F-7
<PAGE>
GEOCITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1998 AND 1997 IS UNAUDITED)
Investments
Investments consist of debt securities, primarily U.S. government and
corporate debt securities. These investments are stated at cost as it is the
intent of the Company to hold these securities until maturity. The investments
are recorded at their amortized cost on the balance sheet which approximates
fair value. The unamortized discount on investments is approximately $348,000
at June 30, 1998.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method based
upon the estimated useful lives of the assets, ranging from three to five
years. Leasehold improvements and equipment under capital leases are amortized
over the shorter of the estimated useful life or the life of the lease. Useful
lives are evaluated regularly by management in order to determine
recoverability in light of current technological conditions. Maintenance and
repairs are charged to expense as incurred while renewals and improvements are
capitalized. Upon the sale or retirement of property and equipment, the
accounts are relieved of the cost and the related accumulated depreciation or
amortization, with any resulting gain or loss included in the Statement of
Operations.
Long-lived Assets
The Company identifies and records impairment losses on long-lived assets
when events and circumstances indicate that such assets might be impaired. To
date, no such impairment has been recorded.
Computation of Historical Net Loss Per Share and Pro Forma Net Loss Per Share
The Company adopted SFAS No. 128, "Computation of Earnings Per Share",
during the year ended December 31, 1997. In accordance with SFAS No. 128,
basic earnings per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Common equivalent shares consist of the incremental common shares issuable
upon the conversion of the Mandatory Redeemable Convertible Preferred Stock
(using the if-converted method) and shares issuable upon the exercise of stock
options and warrants (using the Treasury Stock method); common equivalent
shares are excluded from the calculation if their effect is anti-dilutive.
Pursuant to SEC Staff Accounting Bulletin No. 98, common stock and convertible
preferred stock issued for nominal consideration, prior to the anticipated
effective date of an IPO, are required to be included in the calculation of
basic and diluted net loss per share, as if they were outstanding for all
periods presented. To date, the Company has not had any issuances or grants
for nominal consideration.
Diluted net loss per share for the years ended December 31, 1995, 1996 and
1997, and the six months ended June 30, 1998, does not include the effect of
options to purchase 777,000, 1,113,000, 4,605,000 and 6,531,000 shares of
common stock, respectively, 0, 0, 20,304 and 20,304 common stock warrants,
respectively, or 0, 6,008,000, 22,230,000 and 22,230,000 shares of Mandatory
Redeemable Convertible Preferred Stock on an "as if converted" basis,
respectively, as the effect of their inclusion is antidilutive during each
period.
F-8
<PAGE>
GEOCITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1998 AND 1997 IS UNAUDITED)
Pro forma net loss per share for the year ended December 31, 1997 and for
the six months ended June 30, 1998, assumes that the common stock issuable
upon conversion of the outstanding Mandatory Redeemable Convertible Preferred
Stock had been outstanding during each such period.
Stock-based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation." Under
APB No. 25, compensation cost, if any, is recognized over the respective
vesting period based on the difference, on the date of grant, between the fair
value of the Company's common stock and the grant price.
Income Taxes
The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and the tax bases of assets and
liabilities using enacted tax rates in effect for the period in which the
differences are expected to reverse. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized.
Revenue Recognition
The Company's revenues are derived principally from the sale of banner
advertisements under short-term contracts; advertising rates are dependent on
whether the impressions are for general rotation throughout the Company's Web
site or premier targeted audiences and properties within specific areas of the
Company's Web site. To date, the duration of the Company's advertising
commitments has generally averaged from one to two months. In December 1997,
the Company also began selling a combination of sponsorship and banner
advertising campaign contracts to select premier commerce partners. In
general, these premier commerce partner contracts have longer terms than
standard banner advertising contracts (generally up to one year) and involve
some integration with the Company's Web site. Advertising revenues on both
banner and premier commerce partner contracts are recognized ratably in the
period in which the advertisement is displayed, provided that no significant
Company obligations remain and collection of the resulting receivable is
probable. Company obligations typically include the guarantee of a minimum
number of "impressions" or times that an advertisement appears in pages viewed
by the users of the Company's online properties.
In addition to advertising revenues, the Company derives revenues from its
GeoPlus program, a premium service for its members (introduced in late 1996)
and GeoShops, a commerce service for its members (introduced in March 1998).
These services require the payment of monthly fees by the customers; revenues
are recognized on a monthly basis as the fees become due. GeoPlus revenues
accounted for 4%, 7% and 9% of revenues for the years ended December 31, 1996
and 1997, and the six months ended June 30, 1998, respectively; to date, the
revenues from GeoShops have been immaterial. The Company also has revenue
sharing agreements with its premier commerce partners. These revenues are
recognized by the Company upon notification by the premier commerce partners
of revenues earned by the Company, and to date, have been immaterial.
Barter transactions are recorded at the lower of estimated fair value of the
goods or services received or the estimated fair value of the advertisements
given. To date, barter transactions have been immaterial.
F-9
<PAGE>
GEOCITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1998 AND 1997 IS UNAUDITED)
Advertising
Advertising costs are expensed as incurred, and amounted to approximately
$66,000, $196,000 and $1,742,000 for the years ended December 31, 1995, 1996
and 1997, respectively, and $386,000 for the six months ended June 30, 1998.
Product Development
Product development costs are expensed as incurred. Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed," requires capitalization of certain
software development costs subsequent to the establishment of technological
feasibility. Based upon the Company's product development process,
technological feasibility is established upon completion of a working model.
Costs incurred by the Company between completion of the working model and the
point at which the product is ready for general release have been
insignificant.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income generally represents all changes in
shareholders' equity during the period except those resulting from investments
by, or distributions to, shareholders. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997 and requires restatement of earlier
periods presented. SFAS No. 130 had no impact on the Company's financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that a public enterprise reports information about operating segments
in annual financial statements, and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. SFAS No. 131 is effective for fiscal years beginning
after December 15, 1997 and requires restatement of earlier periods presented.
Management is currently evaluating the requirements of SFAS No. 131.
Stock Split
In January 1996, September 1997 and July 1998, the Company authorized and
implemented 1,443-for-one, two-for-one and two-for-one stock splits,
respectively. The share information in the accompanying financial statements
has been retroactively restated to reflect the effect of these stock splits.
3. CONCENTRATION OF CREDIT RISK:
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents, short-term investments
and trade accounts receivable. The Company maintains cash and cash equivalents
with various domestic financial institutions. The Company performs periodic
evaluations of the relative credit standing of these institutions. From time
to time, the Company's cash balances with any one financial institution may
exceed Federal Deposit Insurance Corporation insurance limits.
F-10
<PAGE>
GEOCITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1998 AND 1997 IS UNAUDITED)
The Company's customers are concentrated in the United States. The Company
performs ongoing credit evaluations, generally does not require collateral and
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of customers, historical trends and other information; to
date, such losses have been within management's expectations.
For the year ended December 31, 1996, two customers accounted for
approximately 14% and 10%, respectively, of all revenues generated by the
Company and 18% and 0%, respectively, of accounts receivable at December 31,
1996.
For the year ended December 31, 1997, one customer accounted for 12% of all
revenues generated by the Company, and 12% of accounts receivable at December
31, 1997.
For the six months ended June 30, 1998, one customer accounted for 10% of
all revenues generated by the Company and 3% of accounts receivable at June
30, 1998.
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment, including assets
under capital leases of $672,000,
$766,000 and $766,000 for 1996, 1997
and 1998, respectively................. $ 794,000 $1,399,000 $3,653,000
Furniture and fixtures, including assets
under capital leases of $172,000,
$172,000 and $172,000 for 1996, 1997
and 1998, respectively................. 200,000 292,000 310,000
Leasehold improvements.................. 80,000 151,000 10,000
---------- ---------- ----------
1,074,000 1,842,000 3,973,000
Less, accumulated depreciation and
amortization, including amounts related
to assets under capital leases of
$145,000, $459,000 and $619,000 for
1996, 1997 and 1998, respectively...... (195,000) (626,000) (996,000)
---------- ---------- ----------
Total............................... $ 879,000 $1,216,000 $2,977,000
========== ========== ==========
</TABLE>
5. RELATED-PARTY TRANSACTIONS:
On November 6, 1997, the Company and SOFTBANK Corporation of Japan
("SOFTBANK"), the parent company of an investor in the Company, formed a joint
venture called GeoCities Japan Corporation ("GeoCities Japan") to create and
manage a Japanese version of GeoCities. In accordance with the joint venture
agreement ("Agreement"), the Company purchased 40% of GeoCities Japan for
approximately $645,000 and licensed certain intellectual properties for the
purpose of localizing the Japanese version of GeoCities to GeoCities Japan.
The Agreement remains in effect perpetually, provided that, if as of April 1,
2001, or any April 1 thereafter; (i) GeoCities Japan has sustained net losses
for the four consecutive fiscal quarters, and (ii) GeoCities and SOFTBANK
differ with respect to the future business plan of GeoCities Japan, then each
party shall have the right to terminate the Joint Venture with 90-days notice.
F-11
<PAGE>
GEOCITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1998 AND 1997 IS UNAUDITED)
The Company's investment of approximately $645,000 was funded through a loan
from SOFTBANK. Pursuant to the terms of the loan agreement, the loan bears
interest at 5.5% per annum and is repayable upon occurrence of a Significant
Financing Event, which is defined as a non-U.S. IPO or private placement that
raises at least 1.5 billion yen for GeoCities Japan. In the event that
GeoCities Japan does not have a Significant Financing Event on or prior to
March 31, 2000, SOFTBANK will forgive the repayment of the loan. Interest
expense and accrued interest for the year ended December 31, 1997, were each
$6,000.
In consideration of the licenses granted, GeoCities Japan is required to pay
the Company an amount equal to 3% of total revenue obtained by GeoCities Japan
within 30 days of the end of each quarter. The license expires 20 years from
the date of the Agreement, unless the Agreement is terminated earlier. Upon
termination, GeoCities Japan will cease to use and distribute all licensed
properties. Royalty payments for the year ended December 31, 1997, were
insignificant.
The investment is being accounted for under the equity method and is
included in other assets at December 31, 1997. The loss on affiliate recorded
for the six months ended June 30, 1998, was approximately $86,000.
Advertising revenues at December 31, 1997 and June 30, 1998, include
$107,000 and $51,000, respectively, in revenues received from an entity that
is controlled by a significant shareholder of the Company. At December 31,
1997 and June 30, 1998, $0 and $35,000, respectively, of these amounts are
included in accounts receivable.
In April 1998, the Board of Directors also approved a loan of $100,000 to an
officer/director of the Company.
In December 1997, in conjunction with its financing activities, the Company
entered into a one-year distribution and commerce agreement ("Agreement") with
Yahoo!, which is automatically renewable for subsequent one-year terms,
subject to the right of either party to terminate the relationship at the end
of any term up to 90-days' notice. In connection with the Agreement, Yahoo!
also made a minority equity investment in the Company. The Agreement was
designed to increase traffic and memberships of both parties in addition to
offering GeoCities' Homesteaders an array of free personalized member services
on Yahoo!. Under the terms of the Agreement, GeoCities agreed to provide its
community-based, Web site and other services for free to registered users of
Yahoo!. In addition, Yahoo! agreed to market GeoCities-branded personal
publishing programs on select areas throughout Yahoo!, as well as provide a
GeoCities-specific programming module on My Yahoo! for GeoCities'
Homesteaders. The Agreement did not involve any cash consideration; any
revenues related to the Agreement will be accounted for in accordance with the
Company's barter revenue recognition policy, as appropriate.
6. LINE OF CREDIT:
In August 1997, the Company executed a $2,000,000 revolving line of credit
(the "Line") with a commercial bank. Pursuant to the agreement, the Line
matures on December 1, 1998, bears interest at the bank's prime rate of
interest, plus 0.50% (8.5% at December 31, 1997), and is collateralized by
substantially all of the Company's assets. The Company is required to comply
with certain financial covenants, as defined in the agreement, which include
tangible effective net-worth and quick-ratio agreements. In connection with
the Line, the Company issued a warrant to the bank to purchase up to 20,304
shares of the Company's common stock at the exercise price of $4.925, which
was higher than
F-12
<PAGE>
GEOCITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1998 AND 1997 IS UNAUDITED)
the then estimated fair market value of a share of the Company's common stock.
The exercise price is subject to adjustment in limited situations involving
antidilution as defined in the agreement. As a result of such dilution, the
exercise price is $4.695 per share at June 30, 1998. The warrant may be
exercised at any time prior to September 22, 2004. The Company has no
obligations to repurchase the warrant from the bank.
In May 1998, the Company negotiated an increase of the Line to $10,000,000,
including a $7,000,000 revolving facility for working capital and $3,000,000
lease facility, extended the maturity to December 31, 1999, and reduced the
interest rate to prime for the revolving facility and prime plus 0.75% for the
lease facility; all other terms substantially remained the same. In addition,
the commitment letter also includes a non-revolving line of credit for
$3,000,000, which bears interest at the bank's prime rate plus 0.75% per year,
and matures on May 12, 1999, if not renewed. At December 31, 1997 and June 30,
1998, there have been no borrowings under either agreement.
7. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases its facilities and certain computer and office equipment
under noncancelable leases for varying periods through 2002. The Company's
lease obligations are collateralized by certain assets at December 31, 1997.
The following are the minimum lease obligations under these leases at December
31, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
1998.................................................... $443,000 $1,442,000
1999.................................................... 172,000 1,038,000
2000.................................................... 10,000 297,000
2001.................................................... -- 207,000
2002.................................................... -- 50,000
-------- ----------
Minimum lease payments.................................... 625,000 $3,034,000
==========
Less: Amount representing interest........................ (49,000)
--------
Present value of minimum lease payments................... 576,000
Less: Current portion..................................... 393,000
--------
Long-term portion......................................... $183,000
========
</TABLE>
Rent expense pertaining to operating leases for the years ended December 31,
1995, 1996 and 1997, was approximately $28,000, $229,000 and $1,100,000,
respectively.
Employment Agreements
The Company maintains employment agreements with certain executive officers
of the Company. The employment agreements provide for minimum salary levels,
incentive compensation and severance benefits, among other items.
GeoRewards Program
During 1996, the Company created a marketing program to reward members of the
Company's online community ("Homesteaders") for various activities, allowing
them to earn GeoPoints.
F-13
<PAGE>
GEOCITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1998 AND 1997 IS UNAUDITED)
Homesteaders may redeem GeoPoints to upgrade their Web site or purchase goods
from the Company's GeoStore. At December 31, 1996 and 1997, the Company has
accrued $38,000 and $463,000 for probable future redemption of GeoPoints;
these amounts are included in Accrued Expenses.
Contingencies
From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising from its operations in
the normal course of business. Management believes that the resolution of
these matters will not have a material adverse effect on the Company's
business, results of operations, financial condition or cash flows.
8. CAPITALIZATION
As of December 31, 1997, the Company had six series of Mandatory Redeemable
Convertible Preferred Stock (collectively "Preferred Stock") authorized and
outstanding. The holders of the various series of Preferred Stock generally
have the same rights and privileges; significant differences are discussed
below.
The holders of the Preferred Stock are entitled to a discretionary
noncumulative dividend as specified below which is mandatory in the event of a
liquidation (not included in the liquidation preference below), and are
entitled to the number of votes equal to the number of shares of common stock
that could be converted on the date of the vote. Upon liquidation, the holders
of the Preferred Stock receive, prior and in preference to the holders of
common stock their liquidation preference plus accrued dividends at the stated
rate, from the date of issuance to the date payment is made available.
Redemption, at the option of the holders of Preferred Stock, may be elected
beginning on January 1, 2001 at which time, the redemption preference plus
seven percent per annum, on a cumulative basis is due. At the option of the
holders of Preferred Stock, each share of Preferred Stock is convertible at
the stated conversion price per share, subject to adjustment as defined in the
Certificate of Incorporation.
During the year ended December 31, 1995, the Company issued 1,200,000 shares
of Convertible Preferred Stock Series C in consideration for $0.3217 per share
in the form of the cancellation of shares of common stock and conversion of a
note payable of $386,000 to the Company's Chairman and Founder. In connection
with the Series F Stock issuance, the Convertible Preferred Stock Series C
became Mandatory Redeemable Convertible Preferred Stock.
During the year ended December 31, 1996, the Company issued 3,108,000 and
2,900,000 shares of Series A Stock and Series B Stock for $1,000,000 and
$1,100,000, respectively. During January and February 1997, the Company issued
10,169,492 shares of Series D Stock for approximately $9,000,000. In October
and December 1997, the Company issued 1,428,564 and 814,270 shares of Series E
Stock at $3.50 and $7.4254 per share, respectively for total cash
consideration of $9,750,000 and 20,242 shares of Yahoo! stock valued at
approximately $1,300,000 which resulted in the recording of a subscription
receivable for approximately $6,000,000 at December 31, 1997. The subscription
receivable was collected in January 1998 and the Yahoo! stock was subsequently
sold.
In December 1997, the Company sold 2,552,576 shares of Series F Stock for
approximately $19,000,000 which resulted in the recording of a subscription
receivable at December 31, 1997. The subscription receivable was collected in
January 1998.
F-14
<PAGE>
GEOCITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1998 AND 1997 IS UNAUDITED)
Rights of Preferred Stock as of December 31, 1997
<TABLE>
<CAPTION>
DIVIDEND LIQUIDATION REDEMPTION
PREFERENCE PREFERENCE PREFERENCE
---------- ----------- ----------
<S> <C> <C> <C>
Series A Stock................................ $0.0225 $0.3218 $0.3218
Series B Stock................................ $0.0275 $0.3793 $0.3793
Series C Stock................................ $ -- $0.3217 $0.3217
Series D Stock................................ $0.0625 $0.885 $0.885
Series E Stock................................ $0.245 $3.50 $3.50
Series F Stock................................ $0.5195 $7.4254 $7.4254
</TABLE>
The shares of Series E Stock sold in December 1997 (814,270 shares at
$7.4254 per share) have a redemption preference of $3.50 per share. The
proceeds received in excess of the redemption preference ($3,196,000) have
been recorded as additional paid-in capital.
As of December 31, 1997, the holders of Series A through F Stock may, at
their option, on each of January 1, 2001, January 1, 2002 and January 1, 2003,
require the Company to redeem shares equal to one-third of the total number of
shares of all Preferred Stock outstanding as of January 1, 2001. Any shares of
Preferred Stock to be redeemed shall be redeemed ratably among all holders of
Preferred Stock, based upon the respective redemption price of such shares.
Additionally, the holders of not less than 80% of the Preferred Stock then
outstanding, voting as a single class, may, at any time on or after December
31, 1998, require the Company to redeem all of the shares of Preferred Stock
in the event that the Company has not by such time consummated (i) a
"Qualified Public Offering" of its securities (as defined in the Certificate
of Incorporation), or (ii) a sale of the Company that meets certain
requirements.
Each share of Series A through F Stock shall be converted into common stock
automatically upon the closing of the sale of the Company's securities in a
firm commitment underwritten public offering from which the Company receives
gross proceeds of not less than $20,000,000 and which is a Qualified Public
Offering as defined in the Certificate of Incorporation.
At December 31, 1997 and June 30, 1998, the Company has reserved
approximately 22,230,000 shares of common stock for the future conversion of
the Series A through F Stock.
Warrants
In connection with the Series D Stock issuance, the Company issued a warrant
to a bank to purchase 64,972 of the Company's Series D Preferred Stock at
$0.885 per share, exercisable at any time prior to January 12, 2002. On
December 31, 1997, the bank converted this warrant (on a net basis), and the
Company issued 57,226 shares of Series D Preferred Stock. The Bank immediately
sold these shares in connection with the Series E and F Preferred Stock
issuances. Also see Notes 6 and 10 of Notes to Financial Statements for a
warrant issued in connection with a line of credit, and options issued to a
Series D Preferred stockholder and others pursuant to stock option agreements.
F-15
<PAGE>
GEOCITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1998 AND 1997 IS UNAUDITED)
9. INCOME TAXES:
The primary components of temporary differences which gave rise to deferred
taxes at December 31 are:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 1,423,000 $ 4,639,000
Bad debt expense................................. -- 40,000
Accrued expenses................................. 7,000 321,000
Other............................................ -- 1,000
----------- -----------
Total deferred tax assets...................... 1,430,000 5,001,000
Valuation allowance.............................. (1,401,000) (4,958,000)
----------- -----------
Net deferred tax assets........................ 29,000 43,000
----------- -----------
Deferred tax liabilities:
Depreciation and amortization.................... (29,000) (43,000)
----------- -----------
Total deferred tax liabilities................. (29,000) (43,000)
----------- -----------
Net............................................ $ -- $ --
=========== ===========
</TABLE>
As a result of the Company's loss history, management believes a valuation
allowance for the entire net deferred tax assets, after considering deferred
tax liabilities, is required. The change in the valuation allowance was an
increase of $3,557,000 in 1997. As of December 31, 1997, the Company had
federal and state net operating loss carryforwards of approximately
$11,250,000 and $10,650,000, respectively. Federal and state net operating
loss expirations begin in 2010 and 2002, respectively. Due to changes in
ownership (See Note 8), the Company will be limited in the annual utilization
of its net operating loss carryforwards.
10. STOCK OPTIONS:
From inception through December 31, 1997, the Company has been authorized to
and has granted a total of 5,555,000 options to purchase its common stock; in
April and May 1998, the Board of Directors approved an increase in the total
number of shares issuable under the plan by 2,233,000 and 600,000,
respectively, increasing the total available to 8,388,000 at June 30, 1998.
In 1997, the Company adopted the 1997 Stock Option Plan (the "Plan"), which
provides for issuance of both non-statutory and incentive stock options to
employees, officers, directors and consultants of the Company. Incentive stock
options may be granted at no less than 100% of the fair market value of the
Company's common stock on the date of grant as determined by the Board of
Directors (110% if granted to an employee who owns 10% or more of the common
stock). Options granted to date generally vest ratably over a four-year period
from the date of grant and are generally exercisable for a period of no longer
than seven years from the date of grant (five years if granted to an
individual who owns 10% or more of the common stock). In the event option
holders cease to be employed by the Company, all unvested options are
forfeited and, provided that the employee's employment has not been terminated
for cause, all vested options may be exercised within a period of up to 90
days after termination; the Company and the Company's preferred stockholders
have rights to repurchase any shares purchased through the exercise of an
option.
F-16
<PAGE>
GEOCITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1998 AND 1997 IS UNAUDITED)
In connection with its Series D stock offering in early 1997, the Company
granted options to purchase 1,000,000 shares of its common stock at an
exercise price of $0.885 per share to CMG@Ventures; these options vested
immediately and are exercisable by January 13, 2004. The exercise price was in
excess of the then estimated fair market value of a common share. The Company
has no obligation to repurchase the option from CMG@Ventures. At that time,
the Company also granted an option to purchase 1,000,000 shares of its common
stock at an exercise price of $0.885 per share to certain officers, directors
and consultants to the Company. These options generally vest over a four year
period from the date of grant and are generally exercisable by January 13,
2004. In certain circumstances, the vesting of these options may accelerate,
and there are certain participation rights in the event of a liquidation.
A summary of the status of the Company's stock options, as of December 31,
1996 and 1997, and the changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1997
-------------------- --------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year..... 777,000 $0.01 1,113,000 $0.16
Granted--price equals fair value... 364,000 $0.25 2,648,000 $0.74
Granted--less than fair value...... -- -- 1,307,000 $0.81
Exercised.......................... -- -- (25,000) $0.25
Canceled........................... (28,000) $0.25 (438,000) $0.35
--------- ---------
Outstanding at year-end.............. 1,113,000 $0.16 4,605,000 $0.66
========= =========
Options exercisable at year-end...... 1,939,000 $0.52
Options available for future grant... 925,000
</TABLE>
At December 31, 1997 and June 30, 1998, the Company had reserved a total of
5,530,000 and 7,329,000 shares of common stock for issuance to its stock
option holders.
In connection with its grants of options, the Company has recognized
unearned deferred compensation expense of $684,000 for the year ended December
31, 1997. This amount will be amortized over the vesting periods ranging from
48 to 72 months from the date of grant; $24,000 and $290,000 was expensed
during the year ended December 31, 1997 and the period ended June 30, 1998,
respectively.
For the six months ended June 30, 1998, the Company granted options to
purchase 3,169,000 shares of its common stock to employees and officers of the
Company. In conjunction with these grants, the Company recognized unearned
deferred compensation expense of $8,613,000 to be amortized over 48 to 72
months from the date of grant.
F-17
<PAGE>
GEOCITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1998 AND 1997 IS UNAUDITED)
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- ---------------------
WEIGHTED
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.01 777,000 5.00 $0.01 777,000 $0.01
$0.25--$0.44 744,000 6.14 $0.32 47,000 $0.26
$0.75--$1.25 3,084,000 6.29 $0.88 1,115,000 $0.89
--------- ---------
4,605,000 1,939,000
========= =========
</TABLE>
The fair value of options granted during 1995, 1996 and 1997 is estimated as
$0, $0 and $47,000, respectively, on the dates of grants using the minimum
value method with the following assumptions: (i) dividend yield of 0%, (ii)
expected volatility of 0%, (iii) weighted-average risk-free interest rate
ranging from 6.04% to 6.8% for 1996 and 5.8% to 6.5% for 1997, (iv) weighted-
average expected life of five years for 1996 and 1997, and (v) assumed
forfeiture rate of 10% for 1996 and 1997.
The Company applies APB No. 25 in accounting for its stock options granted
to employees and accordingly, no compensation expense has been recognized in
the financial statements (except for those options issued with exercise prices
at less than fair market value at date of grant). Had the Company determined
compensation expense based on the fair value at the grant date for its stock
options issued to employees under SFAS No. 123, the Company's net loss would
have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
--------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss..................... As reported $(482,000) $(3,006,000) $(8,903,000)
========= =========== ===========
Pro forma $(482,000) $(3,006,000) $(8,950,000)
========= =========== ===========
Basic net loss per common
share....................... As reported $ (0.11) $ (1.15) $ (3.40)
========= =========== ===========
Pro forma $ (0.11) $ (1.15) $ (3.42)
========= =========== ===========
</TABLE>
Pro forma net loss reflects compensation expense under SFAS No. 123 only for
options granted for the years ended December 31, 1995, 1996 and 1997. The
insignificant impact of applying SFAS No. 123 is not indicative of future
amounts.
11. RETIREMENT PLAN:
Effective July 1, 1997, the Company established a qualified 401(k) Profit
Sharing Plan (the "Plan") available to all employees who meet the Plan's
eligibility requirements. Employees may elect to contribute from 1% to 18% of
their eligible earnings to the Plan. This defined contribution plan provides
that the Company will, at its discretion, make contributions to the Plan on a
periodic basis. Additionally, the employer may match 33 1/3% of the first 6%
of the employees' contributions, which amounts vest over five years.
Terminations and forfeitures from the Plan are allocated to Plan participants
at year-end. The Company made contributions to the Plan of approximately
$10,000 in 1997.
F-18
<PAGE>
GEOCITIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1998 AND 1997 IS UNAUDITED)
12. SUBSEQUENT EVENTS (UNAUDITED):
In July 1998, the Company entered into an agreement to buy certain Web-page
development technology for a total consideration of up to $1.45 million
including $850,000 in cash and $455,000 in Common Stock, valued at the price
of the Common Stock upon the consummation of the Company's Initial Public
Offering. The final payment of $145,000 may be in cash or Common Stock. This
transaction is expected to be completed in August 1998, and is not material to
the financial position, results of operations and cashflows of the Company.
In July 1998, the Board adopted the 1998 Stock Incentive Plan and Employee
Stock Purchase Plan and reserved an additional 2,600,000 shares of Common
Stock for issuance thereunder.
In July 1998, the Company signed a lease for approximately 24,000 square
feet to relocate its corporate headquarters. Monthly lease payments will be
$23,700 commencing September 1, 1998.
F-19
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each
of such Underwriters, for whom Goldman, Sachs & Co., Donaldson, Lufkin &
Jenrette Securities Corporation and Hambrecht & Quist LLC are acting as
representatives, has severally agreed to purchase from the Company, the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Goldman, Sachs & Co...........................................
Donaldson, Lufkin & Jenrette Securities Corporation...........
Hambrecht & Quist LLC.........................................
---------
Total....................................................... 4,750,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the initial public offering price and other selling terms
may from time to time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 712,500
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 4,750,000 shares of Common
Stock offered.
The Company, its directors and officers, and substantially all of its other
stockholders and holders of options to purchase Common Stock, have agreed
that, subject to certain exceptions, during the period beginning from the date
of this Prospectus and continuing to and including the date 180 days after the
date of the Prospectus, they will not offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or of any other securities of
the Company (other than, in the case of the Company, pursuant to the Purchase
Agreement related to the purchase of the Technology, or stock incentive and
employee stock purchase plans existing on the date of this Prospectus) which
are substantially similar to the shares of Common Stock or which are
convertible or exchangeable into securities which are substantially similar to
the shares of Common Stock without the prior written consent of the
representatives, except for the shares of Common Stock offered in connection
with the
U-1
<PAGE>
offering; provided, that one affiliate of the Company who is subject to a
lock-up agreement and the volume restrictions of Rule 144 will be permitted to
sell up to $1.0 million of Common Stock commencing 91 days after the date of
this Prospectus.
Prior to the offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among the
Company and the representatives. Among the factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuations of companies in related businesses.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed 5% of the total number of shares of Common
Stock offered by them.
In connection with the offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created by the Underwriters in connection with the offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Common Stock; and
syndicate short positions created by the Underwriters involve the sale by the
Underwriters of a greater number of shares of Common Stock than they are
required to purchase from the Company in the offering. The Underwriters also
may impose a penalty bid, whereby selling concessions allowed to syndicate
members or other broker-dealers in respect of the securities sold in the
offering for their account may be reclaimed by the syndicate if such shares of
Common Stock are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Common Stock, which may be higher than the price that
might otherwise prevail in the open market in the absence of such activities.
These transactions may be effected on the Nasdaq National Market, in the over-
the-counter market or otherwise, and these activities, if commenced, may be
discontinued at any time.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, subject to
certain limitations.
E Trade Group, Inc., one of the Underwriters, has contracted to purchase
from the Company certain advertising and promotional services.
U-2
<PAGE>
[Inside Back Cover]
40 themed neighborhoods provide the home for millions
[GRAPHIC COLLAGE OF NEIGHBORHOOD SCREEN SHOTS]
Over 14 million unique visitors in one month*
*Relevant Knowledge June 1998
over 925 million page views in one month+
+Nielsen I/PRO May 1998
third most trafficked Web site on the Internet(degrees)
(degrees)Media Metrix Home Users June 1998
[GRAPHIC OF GEOCITIES LOGO](R)
- --------
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 26
Dividend Policy.......................................................... 26
Capitalization........................................................... 27
Dilution................................................................. 28
Selected Financial Data.................................................. 29
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 30
Business................................................................. 39
Management............................................................... 51
Certain Transactions..................................................... 64
Principal Stockholders................................................... 67
Description of Capital Stock............................................. 69
Shares Eligible for Future Sale.......................................... 73
Legal Matters............................................................ 74
Experts.................................................................. 74
Additional Information................................................... 75
Change in Accountants.................................................... 75
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO-
SPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PRO-
SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,750,000 SHARES
GEOCITIES(R)
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
---------------
[LOGO OF GEOCITIES]
---------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
HAMBRECHT & QUIST
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 in connection with the sale
and distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission and NASD fees. All of the
expenses below will be paid by the Company.
<TABLE>
<CAPTION>
ITEM
----
<S> <C>
Registration fee.............................................. $ 22,561
NASD filing fee............................................... 7,745
Nasdaq National Market listing fee............................ 95,000
Blue sky fees and expenses.................................... 5,000
Printing and engraving expenses............................... 250,000
Legal fees and expenses....................................... 350,000
Accounting fees and expenses.................................. 300,000
Transfer Agent and Registrar fees............................. 15,000
Miscellaneous................................................. 4,694
----------
Total..................................................... $1,050,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation (the "Certificate") provides
that, except to the extent prohibited by the Delaware General Corporation Law
(the "DGCL"), the Company's directors shall not be personally liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty as directors of the Company. Under the DGCL, the directors have a
fiduciary duty to the Company which is not eliminated by this provision of the
Certificate and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available. In
addition, each director will continue to be subject to liability under the
DGCL for breach of the director's duty of loyalty to the Company, for acts or
omissions which are found by a court of competent jurisdiction to be not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
prohibited by DGCL. This provision also does not affect the directors'
responsibilities under any other laws, such as the Federal securities laws or
state or Federal environmental laws. The Company has obtained liability
insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out
of their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any
other rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Certificate eliminates the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the DGCL and provides that the
Company shall fully indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (whether civil,
II-1
<PAGE>
criminal, administrative or investigative) by reason of the fact that such
person is or was a director or officer of the Company, or is or was serving at
the request of the Company as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorney's fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
The Company, with the approval of the Board of Directors, intends to obtain
directors' and officers' liability insurance prior to the effectiveness of
this offering.
There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company in which indemnification will be
required or permitted. Moreover, the Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification. The Company believes that the foregoing indemnification
provisions and agreements are necessary to attract and retain qualified
persons as directors and executive officers.
The Underwriting Agreement (the form of which is filed as Exhibit 1.1
hereto) provides for indemnification by the Underwriters of the Company and
its officers and directors, and by the Company of the Underwriters, for
certain liabilities arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Company since January 1,
1995 involving sales of the Company's securities that were not registered
under the Securities Act:
(1) In January 1995, the Company issued and sold an aggregate of
4,906,200 shares of Common Stock to David C. Bohnett at a price per share
of $0.0101.
(2) In December 1995, the Company issued for services rendered an
aggregate of 52,000 shares of Common Stock to certain individuals at a
price per share of $0.3213.
(3) In December 1995, the Company issued 1,200,000 shares of Series C
Preferred Stock to David C. Bohnett in consideration for $0.3217 per share
in the form of the cancellation of shares of Common Stock and a note
payable. Each share of Series C Preferred Stock will convert into one share
of Common Stock upon consummation of the offering.
(4) In January 1996, the Company issued and sold an aggregate of
3,108,000 shares of Series A Preferred Stock to CMG@Ventures at a price per
share of $0.3218. Each share of Series A Preferred Stock will convert into
one share of Common Stock upon consummation of the offering.
(5) In July 1996, the Company issued and sold an aggregate of 2,900,000
shares of Series B Preferred Stock to CMG@Ventures at a price per share of
$0.3793. Each share of Series B Preferred Stock will convert into one share
of Common Stock upon consummation of the offering.
(6) In January 1997, the Company issued a warrant to purchase 64,972
shares of Series D Preferred Stock at a price per share of $0.885 to
Cupertino Bank, of which 57,226 shares of Series D Preferred Stock were
subsequently issued. Each share of Series D Preferred Stock will convert
into one share of Common Stock upon consummation of the offering.
(7) In January 1997 and February 1997, the Company issued and sold an
aggregate of 10,169,492 shares of Series D Preferred Stock to CMG@Ventures,
SOFTBANK Holdings Inc., Chase Venture Capital Associates, L.P., the
Flatiron Fund LLC, InnoCal, L.P. and Intel Corporation at a price per share
of $0.885. Each share of Series D Preferred Stock will convert into one
share of Common Stock upon consummation of the offering.
(8) In September 1997, the Company issued a warrant to purchase 20,304
shares of Common Stock at a price per share of $4.925 (subsequently
adjusted to $4.695) to Comerica Bank-California.
II-2
<PAGE>
(9) In October 1997, the Company issued and sold an aggregate of
1,428,564 shares of Series E Preferred Stock to CMG@Ventures II, LLC,
SOFTBANK Holdings Inc., Chase Venture Capital Associates, L.P., the
Flatiron Fund LLC, InnoCal, L.P. and Intel Corporation at a price per share
of $3.50. Each share of Series E Preferred Stock will convert into one
share of Common Stock upon consummation of the offering.
(10) In December 1997, the Company issued and sold an aggregate of
814,270 shares of Series E Preferred Stock to SOFTBANK Holdings Inc. at a
price per share of $7.425. Each share of Series E Preferred Stock will
convert into one share of Common Stock upon consummation of the offering.
(11) Effective December 1997, the Company sold an aggregate of 2,552,576
shares of Series F Preferred Stock to Yahoo! Inc. and SOFTBANK Holdings
Inc. at a price per share of $7.425. Each share of Series F Preferred Stock
will convert into one share of Common Stock upon consummation of the
offering.
(12) Since January 1, 1995, the Company has granted incentive stock
options and nonqualified stock options to purchase Common Stock under
individual stock option agreements and the Predecessor Plan to eligible
officers, directors, consultants and employees of the Company as described
in the Prospectus. During the period referred to above, the Company issued
1,059,396 shares of Common Stock pursuant to the exercise of options,
including options under each Plan.
(13) In connection with the reincorporation of the Company from
California to Delaware in July 1998, the Company issued 3,463,498 shares of
its Common Stock and 3,108,000, 2,900,000, 1,200,000, 10,226,718,
2,242,834, and 2,552,576 shares of its Series A, B, C, D, E and F Preferred
Stock, respectively, in exchange for the issued and outstanding capital
stock of its predecessor corporation. In addition, in connection with such
reincorporation, all options and warrants to purchase shares of Common
Stock of the Company's California predecessor were converted into options
or warrants to purchase shares of Common Stock of the Company.
(14) In July 1998, the Company entered into a Technology Purchase and
Sale Agreement (the "Purchase Agreement") pursuant to which the Company
acquired certain Web-page development technology (the "Technology"). Under
the terms of the Purchase Agreement, in partial consideration for the
Technology, the Company agreed to issue the seller $455,000 of its Common
Stock at the initial public offering price (assuming the offering is
consummated within 90 days of the date of the Purchase Agreement, otherwise
the Company is obligated to pay this amount in cash) if the Technology is
successfully installed and becomes operational on the Company's servers, to
the Company's satisfaction, within 90 days of the date of the Purchase
Agreement. In addition, if the Technology is successfully installed and is
operational within an agreed upon period prior to the 90-day deadline, the
Company has agreed to issue to the seller an additional $145,000 of its
Common Stock at the initial public offering price.
None of the foregoing transactions involved any public offering, and the
Company believes that each transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof,
Regulation D promulgated thereunder or Rule 701 pursuant to compensatory
benefit plans and contracts relating to compensation as provided under such
Rule 701, or with respect to paragraph (13) above, in reliance on Rule
145(a)(2) under the Securities Act. The recipients in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof,
and appropriate legends were affixed to the share certificates and instruments
issued in such transactions. All recipients had adequate access, through their
relationships with the Company, to information about the Company.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following Exhibits are attached hereto and incorporated herein by
reference:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.**
3.1 Certificate of Incorporation.
3.2 Amended and Restated Certificate of Incorporation of the Company.
3.3 Amended and Restated Certificate of Incorporation of the Company to be
adopted as of the consummation of the offering.
3.4 Bylaws of the Company.
3.5 Amended and Restated Bylaws of the Company.
4.1 Specimen certificate representing shares of Common Stock of the
Company.
4.2 Warrant to purchase Common Stock of the Company dated September 22,
1997.**
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Employment Agreement dated January 1, 1996, as amended, by and between
the Company and David C. Bohnett.
10.2 Employment Agreement dated as of November 3, 1997, between the Company
and Stephen L. Hansen.
10.3 Employment Offer Letter dated as of April 9, 1998, between the Company
and Thomas R. Evans.
10.4 Employment Agreement dated as of September 30, 1997, between the
Company and Michael G. Barrett.
10.5 Advertising Agreement dated November 5, 1997, between the Company and
Amazon.com.+**
10.6 Advertising Agreement dated January 5, 1998, between the Company and
CDnow.+**
10.7 Advertising Agreement dated December 15, 1997, between the Company and
Egghead, Inc.+**
10.8 Advertising Agreement dated February 13, 1998, between the Company and
First Credit Card Services USA L.L.C.+**
10.9 Codistribution Agreement effective as of December 31, 1997, between
the Company and Yahoo! Inc.+**
10.10 Master Services Agreement dated November 7, 1997, between the Company
and Exodus Communications, Inc.+**
10.11 Joint Venture Agreement dated as of November 6, 1997, by and between
the Company and SOFTBANK Corporation.+**
10.12 Third Amended and Restated Rights Agreement dated December 31, 1997,
among the Company and certain of its stockholders, as amended.**
10.13 Form of Indemnification Agreement for Officers and Directors of the
Company.**
10.14 1997 Stock Option Plan, together with Form of Stock Option
Agreement.**
10.15 1998 Stock Incentive Plan, together with Form of Stock Option
Agreement.**
10.16 1998 Employee Stock Purchase Plan.**
10.17 Stock Option Agreement dated January 13, 1997 by and between the
Company and CMG@Ventures.**
10.18 Stock Option Agreement dated January 13, 1997 by and between the
Company and David C. Bohnett.**
10.19 Revolving Credit Loan & Security Agreement dated August 6, 1997, as
modified.
10.20 License Agreement with GeoCities Japan dated November 6, 1997.**
10.21 Promissory Note dated July 24, 1998.+
10.22 Preferred Stock Purchase Agreement dated as of January 10, 1997, as
amended.**
10.23 Preferred Stock Purchase Agreement dated as of October 6, 1997.**
10.24 Stock Purchase Agreement dated as of December 31, 1997.**
10.25 Standard Office lease dated May 13, 1996, as amended, by and between
the Company and Maury Herman, as trustee of the Maury Herman Family
Trust #1.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.26 Adforce Service Agreement dated as of May 4, 1998, between the Company
and IMGIS, Inc.+
10.27 Software License Agreement between the Company and Informix Software,
Inc.
10.28 Technology Purchase and Sale Agreement dated as of July 29, 1998,
between the Company, Compu-Trak, Inc. and Edward E. Byman.
10.29 Lease dated as of July 6, 1998, by and between the Company and Spieker
Properties, L.P.
10.30 Co-Marketing Agreement with E*Trade.
16.1 Letter from Arthur Andersen LLP dated June 5, 1998.**
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP (contained in Exhibit 5.1).
24.1 Power of Attorney (contained on signature page on page II-6).**
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
(B) FINANCIAL STATEMENT SCHEDULES
(1) Report of Independent Accountants on Financial Statement Schedule
(2) Schedule II--Valuation and qualifying accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreements certificates in such denominations
and registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company 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 Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus as filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 3 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Santa
Monica, State of California, on the 6th day of August, 1998.
GeoCities
/s/ Stephen L. Hansen
By: _________________________________
STEPHEN L. HANSEN
CHIEF OPERATING OFFICER AND
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-1 has been signed by the
following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
* Chairman of the August 6, 1998
- ------------------------------------- Board and Secretary
DAVID C. BOHNETT
* Chief Executive August 6, 1998
- ------------------------------------- Officer, President
THOMAS R. EVANS and Director
(principal
executive officer)
/s/ Stephen L. Hansen Chief Operating August 6, 1998
- ------------------------------------- Officer and Chief
STEPHEN L. HANSEN Financial Officer
(principal
financial and
accounting officer)
* Director August 6, 1998
- -------------------------------------
JERRY D. COLONNA
* Director August 6, 1998
- -------------------------------------
ERIC C. HIPPEAU
* Director August 6, 1998
- -------------------------------------
HARRY D. LAMBERT
* Director August 6, 1998
- -------------------------------------
PETER H. MILLS
* Director August 6, 1998
- -------------------------------------
DAVID S. WETHERELL
/s/ Stephen L. Hansen August 6, 1998
*By: __________________________
Stephen L. Hansen
(Attorney-in-fact)
II-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
Board of Directors and Stockholders of GeoCities
We have audited the financial statements of GeoCities as of December 31,
1996 and 1997, and for each of the three years in the period ended December
31, 1997, and have issued our report thereon dated June 2, 1998, except for
Note 2 as to which the date is July 21, 1998 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information required to be
included therein.
PricewaterhouseCoopers LLP
Woodland Hills, California
June 2, 1998, except for the effects of the stock split described in Note 2 as
to which the date is July 21, 1998
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
GEOCITIES
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1995: $ -- $ -- $ -- $ -- $ --
========== ========== ===== ====== ==========
Year ended December 31,
1996:
Deferred tax valuation
allowance............. $ -- $1,401,000 $ -- $ -- $1,401,000
---------- ---------- ----- ------ ----------
Total................ $ -- $1,401,000 $ -- $ -- $1,401,000
========== ========== ===== ====== ==========
Year ended December 31,
1997:
Allowance for doubtful
accounts.............. $ -- $ 99,000 $ -- $1,000 $ 98,000
Deferred tax valuation
allowance............. 1,401,000 3,557,000 -- -- 4,958,000
---------- ---------- ----- ------ ----------
Total................ $1,401,000 $3,656,000 $ -- $1,000 $5,056,000
========== ========== ===== ====== ==========
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
1.1 Form of Underwriting Agreement.**
3.1 Certificate of Incorporation.
3.2 Amended and Restated Certificate of Incorporation of the Company.
3.3 Amended and Restated Certificate of Incorporation of the Company to be
adopted as of the consummation of the offering.
3.4 Bylaws of the Company.
3.5 Amended and Restated Bylaws of the Company.
4.1 Specimen certificate representing shares of Common Stock of the
Company.
4.2 Warrant to purchase Common Stock of the Company dated September 22,
1997.**
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Employment Agreement dated January 1, 1996, as amended, by and between
the Company and David C. Bohnett.
10.2 Employment Agreement dated as of November 3, 1997, between the Company
and Stephen L. Hansen.
10.3 Employment Offer Letter dated as of April 9, 1998, between the Company
and Thomas R. Evans.
10.4 Employment Agreement dated as of September 30, 1997, between the
Company and Michael G. Barrett.
10.5 Advertising Agreement dated November 5, 1997, between the Company and
Amazon.com.+**
10.6 Advertising Agreement dated January 5, 1998, between the Company and
CDnow.+**
10.7 Advertising Agreement dated December 15, 1997, between the Company and
Egghead, Inc.+**
10.8 Advertising Agreement dated February 13, 1998, between the Company and
First Credit Card Services USA L.L.C.+**
10.9 Codistribution Agreement effective as of December 31, 1997, between
the Company and Yahoo! Inc.+**
10.10 Master Services Agreement dated November 7, 1997, between the Company
and Exodus Communications, Inc.+**
10.11 Joint Venture Agreement dated as of November 6, 1997, by and between
the Company and SOFTBANK Corporation.+**
10.12 Third Amended and Restated Rights Agreement dated December 31, 1997,
among the Company and certain of its stockholders, as amended.**
10.13 Form of Indemnification Agreement for Officers and Directors of the
Company.**
10.14 1997 Stock Option Plan, together with Form of Stock Option
Agreement.**
10.15 1998 Stock Incentive Plan, together with Form of Stock Option
Agreement.**
10.16 1998 Employee Stock Purchase Plan.**
10.17 Stock Option Agreement dated January 13, 1997 by and between the
Company and CMG@Ventures.**
10.18 Stock Option Agreement dated January 13, 1997 by and between the
Company and David C. Bohnett.**
10.19 Revolving Credit Loan & Security Agreement dated August 6, 1997, as
modified.
10.20 License Agreement with GeoCities Japan dated November 6, 1997.**
10.21 Promissory Note dated July 24, 1998.+
10.22 Preferred Stock Purchase Agreement dated as of January 10, 1997, as
amended.**
10.23 Preferred Stock Purchase Agreement dated as of October 6, 1997.**
10.24 Stock Purchase Agreement dated as of December 31, 1997.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
10.25 Standard Office lease dated May 13, 1996, as amended, by and between
the Company and Maury Herman, as trustee of the Maury Herman Family
Trust #1.
10.26 Adforce Service Agreement dated as of May 4, 1998, between the Company
and IMGIS, Inc.+
10.27 Software License Agreement between the Company and Informix Software,
Inc.
10.28 Technology Purchase and Sale Agreement dated as of July 29, 1998,
between the Company, Compu-Trak, Inc. and Edward E. Byman.
10.29 Lease dated as of July 6, 1998, by and between the Company and Spieker
Properties, L.P.
10.30 Co-Marketing Agreement with E*Trade.
16.1 Letter from Arthur Andersen LLP dated June 5, 1998.**
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP (contained in Exhibit 5.1).
24.1 Power of Attorney (contained on signature page on page II-6).**
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
GEOCITIES
ARTICLE I.
The name of this Corporation shall be: GeoCities
ARTICLE II.
The address of the registered office of the Corporation in the State
of Delaware is 9 East Loockerman Street, Dover, Delaware 19901 and the name of
the registered agent at that address is National Registered Agents, Inc.
ARTICLE III.
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV.
The name and mailing address of the incorporator of the Corporation
is:
Adrianne Furst
Brobeck, Phleger & Harrison LLP
38 Technology Drive
Irvine, CA 92618-2301
ARTICLE V.
The Corporation is authorized to issue one class of stock designated
"Common Stock." The total number of shares of Common Stock authorized to be
issued is One Thousand (1,000) and each such share shall have a par value of
$.001.
<PAGE>
ARTICLE VI.
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporation action
further eliminating or limiting the personal liability of directors then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation to do business both within and without the
State of Delaware and in pursuance of the General Corporation Law of Delaware,
does make and file this Certificate, hereby declaring and certifying that the
facts herein stated are true, and accordingly has hereunto set her hand this
29th day of May 1998.
/s/ Adrianne Furst
Adrianne Furst
Incorporator
2
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GEOCITIES, INC.
ARTICLE I
The name of the Corporation shall be GeoCities.
ARTICLE II
The address of the registered office of the Corporation in the State
of Delaware is 9 East Loockerman Street, Dover, Delaware 19901 and the name
of the registered agent at that address is National Registered Agents, Inc.
ARTICLE III
The nature of the business or purpose of the Corporation is to engage
in any lawful act or activity for which a corporation may be organized
under the Delaware General Corporation Law.
ARTICLE IV
The Corporation is authorized to issue two classes of shares to be
designated respectively "Preferred Stock" and "Common Stock." The total
number of shares of Preferred Stock authorized is 26,526,406, $0.0025 par
value per share. The total number of shares of Common Stock authorized is
60,000,000, $0.0025 par value per share.
A. Preferred Stock. The first series of Preferred Stock shall be
---------------
comprised of 3,108,000 shares designated as "Series A Preferred Stock." The
second series of Preferred Stock shall be comprised of 2,900,000 shares
designated as "Series B Preferred Stock." The third series of Preferred
Stock shall be comprised of 1,200,000 shares designated as "Series C
Preferred Stock." The fourth series of Preferred Stock shall be comprised
of 10,237,288 shares designated as "Series D Preferred Stock." The fifth
series of Preferred Stock shall be comprised of 5,714,284 shares designated
as "Series E Preferred Stock." The sixth series of Preferred Stock shall be
comprised of 3,366,834 shares designated as "Series F Preferred Stock." The
relative rights, preferences, restrictions and other matters relating to
the Series A Preferred Stock, Series B Preferred
1
<PAGE>
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock are as follows:
1. Dividend Rights of Preferred.
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(a) The holders of Series A Preferred Stock, Series B Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock shall be entitled to receive in any fiscal year, when, as
and if, declared by the Board of Directors, out of any assets at the time
legally available therefor, dividends in cash at the rate per annum of
$0.045 per share of Series A Preferred Stock, $0.055 per share of Series B
Preferred Stock, $0.125 per share of Series D Preferred Stock, $0.490 per
share of Series E Preferred Stock and $1.039 per share of Series F
Preferred Stock, in each case appropriately adjusted for any
recapitalizations, stock splits, stock combinations, stock dividends,
reorganizations and the like, payable in preference and priority to any
payment of any cash dividend on Common Stock. The right to such cash
dividends on the Series A Preferred Stock, Series B Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
(the "Preferred Dividends") shall not be cumulative, and no right shall
accrue to holders of Series A Preferred Stock, Series B Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock by reason of the fact that dividends on such shares are not declared
in any prior year. Notwithstanding the foregoing, dividends shall accrue
and be paid upon a Liquidation as provided in Section 2 below. No dividends
shall be paid on any Common Stock in any year unless the Preferred
Dividends have first been paid as set forth above and an equal dividend is
also paid with respect to all outstanding shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock in
an amount for each such share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock equal to the aggregate
amount of such dividends for all Common Stock into which each such share of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock could then be converted.
(b) Each holder of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock shall be deemed to have
consented, for purposes of the General Corporation Law of the State of
Delaware, to distributions made by the Corporation in connection with the
repurchase of Common Stock issued to or held by employees, directors or
consultants upon termination of their employment or services or their
proposed transfer of any shares of such Common Stock pursuant to agreements
providing for such repurchase.
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2. Preference on Liquidation.
-------------------------
(a) In the event of any liquidation, dissolution or winding up of
the Corporation (a "Liquidation"), distributions to the stockholders of the
Corporation shall be made in the following manner:
(i) The holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock shall be entitled to
receive, pari passu to such holders and prior and in preference to any
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distribution of any of the assets or surplus funds of the Corporation to
the holders of the Common Stock by reason of their ownership of such stock,
the following amounts per share with respect to such Liquidation: $0.6435
per share of Series A Preferred Stock, $0.7585 per share of Series B
Preferred Stock, $0.6425 per share of Series C Preferred Stock, $1.77 per
share of Series D Preferred Stock, $7.00 per share of Series E Preferred
Stock and $14.8507 per share of Series F Preferred Stock (in each case
appropriately adjusted for any recapitalizations, stock splits, stock
combinations, stock dividends, reorganizations and the like), plus in each
such case other than in the case of the Series C and Series E Preferred
Stock accrued dividends from the date of issuance of such shares of
Preferred Stock at the rates provided in Section 1 above, computed to the
date payment thereof is made available. Such amount payable with respect to
each share of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock is sometimes referred to as the "Liquidation
Preference Payment" and collectively as the "Liquidation Preference
Payments." All of the dollar amounts set forth hereinabove shall be
adjusted for stock splits, stock dividends, reorganizations, and the like.
In the event the funds or assets legally available for distribution to
stockholders are insufficient to pay the full Liquidation Preference
Payments to the holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock as described above, then all
funds or assets available for distribution shall be shared ratably by the
holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock in proportion to the full Liquidation Preference
Amounts to which each such holder of such series of Preferred Stock is
entitled.
(ii) After payment has been made to the holders of the Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock of the full Liquidation Preference Payments to which they shall be
entitled, if any, as aforesaid, the holders of the Common Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
shall be entitled to share ratably in all remaining assets to be
distributed, based upon the number of Common Stock then held, with each
share of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred
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Stock and Series F Preferred Stock treated as the number of shares of
Common Stock into which such share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock, respectively, is then
convertible. Such amount payable with respect to any share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock is
sometimes referred to as the "Participation Payment." Notwithstanding the
foregoing, the Participation Payment for any share of any series of
Preferred Stock shall not exceed an amount such that the total of the
Liquidation Preference Payment and the Participation Payment for such share
exceeds, with respect to any share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock,
$5.00, or, with respect to any share of Series E Preferred Stock, $7.00, or
with respect to the Series F Preferred Stock, $14.8507 (in each case as
adjusted for any recapitalizations, stock splits, stock combinations, stock
dividends, reorganizations and the like).
(b) A consolidation or merger of this Corporation with or into any
other corporation or corporations (other than a wholly-owned subsidiary),
or the sale, transfer or other disposition of all or substantially all of
the assets of this Corporation or the consummation of any transaction or
series of related transactions which results in the Corporation's
stockholders immediately prior to such transaction not holding at least 50%
of the voting power of the surviving or continuing entity shall be deemed a
Liquidation within the meaning of this Section 2.
(c) In the event the Corporation shall propose to take any action
of the type described in subsection (a) or (b) of this Section 2, the
Corporation shall, within ten (10) days after the date the Board of
Directors approves such action or twenty (20) days prior to any
stockholders' meeting called to approve such action, whichever is earlier,
give each holder of shares of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock written notice of the
proposed action. Such written notice shall describe the material terms and
conditions of such proposed action, including a description of the stock,
cash and property to be received by the holders of shares of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock,
respectively, upon consummation of the proposed action and the proposed
date of delivery thereof. If any material change in the facts set forth in
the notice shall occur, the Corporation shall promptly give written notice
to each holder of shares of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock of such material change.
(d) The Corporation shall not consummate any proposed action of the
type described in subsection (a) or (b) of this Section 2 before the
expiration of thirty (30) days after the mailing of the initial written
notice or ten (10) days after the mailing of any subsequent written notice,
whichever is later; provided, however, that any such 30-day or 10-day
period may be shortened upon the written consent of the holders of 66-2/3%
of the outstanding shares of all series of Preferred Stock voting together
as a class.
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(e) If the Corporation shall propose to take any action of the type
described in subsection (a) or (b) of this Section 2 which will involve the
distribution of assets other than cash, the Corporation shall promptly
engage independent competent appraisers to determine the value of the
assets to be distributed to the holders of shares of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and the
Common Stock. The Corporation shall, upon receipt of such appraiser's
valuation, give prompt written notice of the appraiser's valuation to each
holder of shares of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Series F Preferred Stock.
3. Redemption.
----------
(a) For so long as any shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock remain outstanding, the
holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock may, at their option, on each of January 1, 2001,
January 1, 2002 and January 1, 2003 (each a "Series A, Series B, Series C,
Series D, Series E and Series F Redemption Date"), require the Corporation
to redeem, on each of the Series A, Series B, Series C, Series D, Series E
and Series F Redemption Dates, a number of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
equal to one-third of the number of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock outstanding as of the first
Series A, Series B, Series C, Series D, Series E and Series F Redemption
Date. The price per share payable upon redemption of the Series A Preferred
Stock (the "Series A Redemption Price") shall be $0.6435 per share plus an
amount equal to seven percent (7%) of such per share amount per annum
determined on a compounded basis from the original issuance date of such
shares of Preferred Stock. The price per share payable upon redemption of
the Series B Preferred Stock (the "Series B Redemption Price") shall be
$0.7585 per share plus an amount equal to seven percent (7%) of such per
share amount per annum determined on a compounded basis from the original
issuance date of such shares of Preferred Stock. The price per share
payable upon redemption of the Series C Preferred Stock (the "Series C
Redemption Price") shall be $0.6425 per share plus an amount equal to seven
percent (7%) of such per share amount per annum determined on a compounded
basis from the original issuance date of such shares of Preferred Stock.
The price per share payable upon redemption of the Series D Preferred Stock
(the "Series D Redemption Price") shall be $1.770 per share plus an amount
equal to seven percent (7%) of such per share amount per annum determined
on a compounded basis from the original issuance date of such shares of
Preferred Stock. The price per share payable upon redemption of the Series
E Preferred Stock (the "Series E Redemption Price") shall be $7.00 per
share plus an amount equal to seven percent (7%) of such per share amount
per annum determined on a compounded basis from the original issuance date
of such shares of Preferred Stock. The price per share payable upon
redemption of the Series F Preferred Stock (the "Series F Redemption
Price") shall be $14.8507 per share plus an amount
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equal to seven percent (7%) of such per share amount per annum determined
on a compounded basis from the original issuance date of such shares of
Preferred Stock. Any shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock to be redeemed shall be
redeemed on a pro rata basis among all holders of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock based upon the
respective Redemption Price of such shares of Preferred Stock. The Series A
Redemption Price, the Series B Redemption Price, the Series C Redemption
Price, the Series D Redemption Price, the Series E Redemption Price and the
Series F Redemption Price shall each be subject to appropriate adjustment
for any recapitalizations, stock splits, stock combinations, stock
dividends, reorganizations and the like.
(b) The holders of not less than 80% of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock then
outstanding, voting as a single class, shall have the further right at any
time on or after December 31, 1998, to require the Corporation to redeem
all of the shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Series F Preferred Stock in the event that the Corporation has
not by such time consummated a Qualified Public Offering (as defined in
Section 5(b) hereof) or a Liquidation in which the consideration to be
received by the holders of Common Stock of the Corporation, calculated on a
fully diluted basis in accordance with generally accepted accounting
principles, is not less than $5.00 per share insofar as such right of
redemption relates to the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, and not less
than $7.00 per share insofar as such right of redemption relates to the
Series E Preferred Stock, and not less than $14.8507 per share insofar as
such right of redemption relates to the Series F Preferred Stock (in each
case, as adjusted for recapitalizations, stock splits, stock combinations,
stock dividends, reorganizations, and the like). The redemption price in
such event shall be the fair market value of such shares as determined by
the Board of Directors of the Corporation. References to the Series A,
Series B, Series C, Series D, Series E and Series F Redemption Dates
hereinafter shall include the redemption dates provided for in this Section
3(b) and references to the Series A Redemption Price, Series B Redemption
Price, Series C Redemption Price, Series D Redemption Price, Series E
Redemption Price and Series F Redemption Price hereinafter shall include
the redemption prices provided for in this Section 3(b).
(c) If the funds of the Corporation legally available for
redemption of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Series F Preferred Stock on any Series A, Series B, Series C,
Series D, Series E and Series F Redemption Date are insufficient to redeem
the total number of shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock to be redeemed on such date,
the Corporation shall use those funds which are legally available to redeem
the maximum possible number of such shares on a pro rata basis among the
holders of such
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shares to be redeemed (based upon the respective Redemption Prices of such
shares of Preferred Stock). The shares of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock not redeemed shall
remain outstanding and entitled to all the rights and preferences provided
herein. At any time thereafter when additional funds of the Corporation are
legally available for the redemption of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock, such funds
will immediately be used to redeem the balance of, or, if not sufficient to
redeem the full balance, redeem on a pro rata basis (based upon the
respective Redemption Prices of such shares of Preferred Stock), the shares
which the Corporation has become obligated to redeem on the relevant Series
A, Series B, Series C, Series D, Series E and Series F Redemption Date but
which it has not redeemed.
(d) At least thirty (30) but not more than sixty (60) days prior to
a Redemption Date, the Corporation shall send a notice (a "Redemption
Notice") to all holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock setting forth (a) the Series A
Redemption Price, Series B Redemption Price, Series C Redemption Price,
Series D Redemption Price, Series E Redemption Price and Series F
Redemption Price, respectively, for the shares to be redeemed and (b) the
place at which such holders may obtain payment of the Series A Redemption
Price, Series B Redemption Price, Series C Redemption Price, Series D
Redemption Price, Series E Redemption Price and Series F Redemption Price
upon surrender of their share certificates. In addition, in the event the
Corporation shall propose to take any action of the types described in
Section 2(a) hereof, the Corporation shall give each holder of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock written notice of the proposed action describing the
material terms and conditions of such proposed Liquidation, including a
description of the stock, cash and property to be received by the holders
of shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series
F Preferred Stock and Common Stock upon consummation of the proposed
Liquidation and the proposed date of delivery thereof. If any material
change in the facts set forth in the initial notice shall occur, the
Corporation shall promptly give written notice to each holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock of
such material change.
(e) On or prior to a Series A, Series B, Series C, Series D, Series
E and Series F Redemption Date, the Corporation shall deposit (to the
extent funds are legally available therefor) an amount equal to the sum of
the Series A Redemption Price, the Series B Redemption Price, the Series C
Redemption Price, the Series D Redemption Price, the Series E Redemption
Price and the Series F Redemption Price for all shares to be redeemed with
a bank or trust company having aggregate capital and surplus in excess of
$100,000,000, as a trust fund, with irrevocable instructions and authority
to the bank or trust company to pay, on and after such Series A, Series B,
Series
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C, Series D, Series E and Series F Redemption Date, the Series A Redemption
Price, the Series B Redemption Price, the Series C Redemption Price, the
Series D Redemption Price, the Series E Redemption Price and Series F
Redemption Price of the shares to their respective holders upon the
surrender of their share certificates. The balance of any funds deposited
by the Corporation pursuant to this Section 3 remaining unclaimed at the
expiration of one year following such Series A, Series B, Series C, Series
D, Series E and Series F Redemption Date shall be returned to the
Corporation promptly upon its written request.
(f) On or after a Series A, Series B, Series C, Series D, Series E
and Series F Redemption Date, each holder of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock or Series F Preferred Stock, as
applicable, shall surrender such holder's certificates representing the
shares to be redeemed and thereupon the Series A Redemption Price, the
Series B Redemption Price, the Series C Redemption Price, the Series D
Redemption Price, the Series E Redemption Price or the Series F Redemption
Price, as applicable, of such shares shall be payable to the order of the
person whose name appears on such certificate or certificates as the owner
thereof. From and after such Series A, Series B, Series C, Series D, Series
E and Series F Redemption Date, unless there shall have been a default in
payment of the Series A Redemption Price, the Series B Redemption Price,
the Series C Redemption Price, the Series D Redemption Price, the Series E
Redemption Price, or the Series F Redemption Price or the Corporation is
unable to pay the Series A Redemption Price, the Series B Redemption Price,
the Series C Redemption Price, the Series D Redemption Price, the Series E
Redemption Price or the Series F Redemption Price due to not having
sufficient legally available funds, all rights of the holders of such
shares as holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock or Series F Preferred Stock (except the right to receive the Series A
Redemption Price, the Series B Redemption Price, the Series C Redemption
Price, the Series D Redemption Price, the Series E Redemption Price or the
Series F Redemption Price (calculated in the manner described in A.3.(a) or
A.3.(b) above, whichever is applicable) through the Series A, Series B,
Series C, Series D, Series E and Series F Redemption Date upon surrender of
their certificates), shall cease and terminate with respect to such shares,
provided that, in the event that shares of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock or Series F Preferred Stock are not redeemed due
to a default in payment by the Corporation or because the Corporation does
not have sufficient legally available funds, such shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock
shall remain outstanding and shall be entitled to all of the rights and
preferences provided herein.
4. Voting Rights.
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(a) Each holder of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock or Series F Preferred Stock shall be entitled to the
number of votes equal to the number of shares of Common Stock into which
such shares of Series A Preferred Stock,
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Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or Series F Preferred Stock could be
converted on the record date for the vote or consent of stockholders and
shall have voting rights and powers equal to the voting rights and powers
of the Common Stock. The holder of each share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or Series F Preferred Stock shall be
entitled to notice of any stockholders' meeting in accordance with the
Bylaws of the Corporation, shall receive all materials delivered to the
holders of the Corporation's Common Stock in connection with such meeting,
and shall vote with holders of the Common Stock upon any matter submitted
to a vote of stockholders, except those matters required by law to be
submitted to a class vote and except as may otherwise be provided in this
Certificate. Fractional votes by the holders of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or Series F Preferred Stock shall not,
however, be permitted and any fractional voting rights resulting from the
above formula (after aggregating all shares into which shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
held by each holder could be converted) shall be rounded to the nearest
whole number.
(b) The Corporation shall not, without the written consent or
affirmative vote of the holders of at least 66-2/3% of the then-outstanding
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock given in writing or by vote at a meeting,
consenting or voting (as the case may be) together as a single class,
increase the maximum number of directors constituting the Board of
Directors to a number in excess of seven (7). So long as any shares of
Series A Preferred Stock and Series B Preferred Stock shall be outstanding,
the holders of Series A Preferred Stock and Series B Preferred Stock,
voting as a single class, shall be entitled to elect two (2) directors to
serve on the Corporation's Board of Directors. The holders of Common Stock
shall be entitled to elect two (2) directors to serve on the Corporation's
Board of Directors. So long as any shares of Series F Preferred Stock shall
be outstanding, the holders of Series F Preferred Stock, voting as a single
class, shall be entitled to elect two (2) directors to serve on the
Corporation's Board of Directors. So long as any shares of Series D
Preferred Stock shall be outstanding, the holders of Series D Preferred
Stock shall be entitled to elect one (1) director, which director shall be
an individual who is not employed by the Corporation but is knowledgeable
about the Corporation's industry. A vacancy in any directorship elected by
a specified group of stockholders shall be filled only by vote or written
consent of the holders of a majority in interest of such specified group.
5. Conversion Rights. The holders of Series A Preferred Stock,
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Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock shall have
conversion rights as follows:
(a) Each share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock shall be convertible, at the
option of the holder thereof, at any
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time at the principal office of the Corporation or any transfer agent for
such shares, into fully paid and nonassessable shares of Common Stock of
the Corporation. The number of shares of Common Stock into which each share
of Series A Preferred Stock may be converted shall be determined by
dividing $0.6435 by the appropriate Series A Conversion Price determined as
hereinafter provided in effect at the time of the conversion. The Series A
Conversion Price per share at which shares of Common Stock shall be
initially issuable upon conversion of any shares of Series A Preferred
Stock shall be $0.6435, subject to adjustment as provided herein. The
number of shares of Common Stock into which each share of Series B
Preferred Stock may be converted shall be determined by dividing $0.7585 by
the appropriate Series B Conversion Price determined as hereinafter
provided in effect at the time of the conversion. The Series B Conversion
Price per share at which shares of Common Stock shall be initially issuable
upon conversion of any shares of Series B Preferred Stock shall be $0.7585,
subject to adjustment as provided herein. The number of shares of Common
Stock into which each share of Series C Preferred Stock may be converted
shall be determined by dividing $0.6425 by the appropriate Series C
Conversion Price determined as hereinafter provided in effect at the time
of the conversion. The Series C Conversion Price per share at which shares
of Common Stock shall be initially issuable upon conversion of any shares
of Series C Preferred Stock shall be $0.6425, subject to adjustment as
provided herein. The number of shares of Common Stock into which each share
of Series D Preferred Stock may be converted shall be determined by
dividing $1.770 by the appropriate Series D Conversion Price determined as
hereinafter provided in effect at the time of the conversion. The Series D
Conversion Price per share at which shares of Common Stock shall be
initially issuable upon conversion of any shares of Series D Preferred
Stock shall be $1.770, subject to adjustment as provided herein. The number
of shares of Common Stock into which each share of Series E Preferred Stock
may be converted shall be determined by dividing $7.000 by the appropriate
Series E Conversion Price determined as hereinafter provided in effect at
the time of the conversion. The Series E Conversion Price per share at
which shares of Common Stock shall be initially issuable upon conversion of
any shares of Series E Preferred Stock shall be $7.000, subject to
adjustment as provided herein. The number of shares of Common Stock into
which each share of Series F Preferred Stock may be converted shall be
determined by dividing $14.8507 by the appropriate Series F Conversion
Price determined as hereinafter provided in effect at the time of the
conversion. The Series F Conversion Price per share at which shares of
Common Stock shall be initially issuable upon conversion of any shares of
Series F Preferred Stock shall be $14.8507, subject to adjustment as
provided herein. The dollar amounts set forth above in this Section 5(a)
and the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price, Series D Conversion Price, Series E Conversion Price and
Series F Conversion Price shall each be subject to appropriate adjustment
for any recapitalizations, stock splits, stock combinations, stock
dividends, reorganizations and the like.
(b) Each share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock shall be converted into
Common Stock automatically in the manner provided herein upon the closing
of the sale of the Corporation's securities pursuant to a firm commitment
underwritten public offering from which the Corporation
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receives gross proceeds of not less than $20,000,000 and in which the
offering price per share (prior to underwriting commissions and expenses)
equals at least $5.00 as it relates to the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
and at least $7.00 as it relates to the Series E Preferred Stock, and at
least $14.8507 as it relates to the Series F Preferred Stock (in each case,
as adjusted for stock splits, stock dividends, reorganizations and the
like) (a "Qualified Public Offering").
(c) Before any holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock or Series F Preferred Stock shall be entitled to convert
the same into Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed in blank or accompanied by proper
instruments of transfer, at the principal office of the Corporation or of
any transfer agent for the Preferred Stock and shall give written notice to
the Corporation at such office that such holder elects to convert the same
and shall state in writing therein the name or names in which such holder
wishes the certificate or certificates for Common Stock to be issued. As
soon as practicable thereafter, the Corporation shall issue and deliver at
such office to such holder's nominee or nominees, certificates for the
number of whole shares of Common Stock to which such holder shall be
entitled. No fractional shares of Common Stock shall be issued by the
Corporation and all such fractional shares shall be disregarded. In lieu
thereof, the Corporation shall pay in cash the fair market value of such
fractional share as determined by the Board of Directors of the
Corporation. Such conversion shall be deemed to have been made as of the
date of such surrender of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock to be converted, and the
person or persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such Common Stock on said date.
(d) In case the Corporation shall at any time (i) subdivide
the outstanding Common Stock without a corresponding subdivision of the
outstanding Series A, B, C, D, E and F Preferred Stock, or (ii) issue a
stock dividend on its outstanding Common Stock without a corresponding
dividend on its outstanding Series A, B, C, D, E and F Preferred Stock, the
number of shares of Common Stock issuable upon conversion of the Preferred
Stock immediately prior to such subdivision or the issuance of such stock
dividend shall be proportionately increased by the same ratio as the
subdivision or dividend (such increase being reflected in appropriate
adjustments in the Conversion Price of each series of Preferred Stock). In
case the Corporation shall at any time combine its outstanding Common Stock
without a corresponding combination of its outstanding Series A, B, C, D,
E, and F Preferred Stock, the number of shares of Common Stock issuable
upon conversion of the Preferred Stock immediately prior to such
combination shall be proportionately decreased by the same ratio as the
combination (such decrease being reflected in appropriate adjustments in
the Conversion Price of each series of the Preferred Stock). All such
adjustments described herein shall be effective at the close of business on
the date of such subdivision, stock dividend or combination, as the case
may be.
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(e) In case of any capital reorganization (other than in
connection with a merger or other reorganization in which the Corporation
is not the continuing or surviving entity) or any reclassification of the
Common Stock of the Corporation, each series of Preferred Stock shall
thereafter be convertible into that number of shares of stock or other
securities or property to which a holder of the number of shares of Common
Stock of the Corporation deliverable upon conversion of the shares of
Preferred Stock immediately prior to such reorganization or
recapitalization would have been entitled upon such reorganization, or
reclassification. In any such case, appropriate adjustment (as determined
by the Board of Directors) shall be made in the application of the
provisions herein set forth with respect to the rights and interests
thereafter of the holders of Preferred Stock, such that the provisions set
forth herein shall thereafter be applicable, as nearly as reasonably may
be, in relation to any share of stock or other property thereafter
deliverable upon the conversion.
(f) In case:
(i) the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend, or any other distribution, payable otherwise than in cash; or
(ii) the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to subscribe
for or purchase any shares of stock of any class or to receive any other
rights; or
(iii) the Corporation shall effect a capital
reorganization of the Corporation, reclassification of the capital stock of
the Corporation (other than a subdivision or combination of its outstanding
Common Stock), consolidation or merger of the Corporation (other than a
merger or other reorganization in which the Corporation is not the
continuing or surviving entity);
then, and in any such case, the Corporation shall cause to be mailed to the
holders of its outstanding Preferred Stock at least twenty (20) days prior
to the date hereinafter specified, a notice stating the date on which a
record is to be taken for the purpose of such dividend, distribution or
rights, or such action is to be taken in connection with such
reorganization, reclassification, merger or consolidation.
(g) The Corporation shall at all times reserve and keep
available, out of its authorized but unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Stock, the full number
of shares of Common Stock deliverable upon the conversion of all Preferred
Stock from time to time outstanding. The Corporation shall from time to
time (subject to obtaining necessary director and stockholder action), in
accordance with the laws of the State of Delaware, increase the authorized
amount of its Common Stock if at any time the authorized number of shares
of Common Stock remaining unissued shall not be sufficient to permit the
conversion of all of the shares of Preferred Stock at the time outstanding.
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6. Adjustment of Conversion Price. The Conversion Price for
-------------------------------
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock from time to time in effect shall be subject to adjustment
from time to time as follows:
(a) In case the Corporation shall at any time
subdivide the outstanding shares of Common Stock without a corresponding
subdivision of the outstanding shares of Series A, B, C, D, E and F
Preferred Stock, or shall issue a stock dividend on its outstanding Common
Stock without a corresponding issuance of a stock dividend on its
outstanding Series A, B, C, D, E and F Preferred Stock, the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price,
Series D Conversion Price, Series E Conversion Price and Series F
Conversion Price in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased, and in case
the Corporation shall at any time combine the outstanding shares of Common
Stock without a corresponding combination of the outstanding shares of
Series A, B, C, D, E and F Preferred Stock, the Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price, Series D Conversion,
Series E Conversion Price and Series F Conversion Price in effect
immediately prior to such combination shall be proportionately increased,
effective at the close of business on the date of such subdivision,
dividend or combination, as the case may be.
(b) Upon the issuance by the Corporation of Equity
Securities (as defined below) without consideration or at a consideration
per share less than the Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price, Series E
Conversion Price or Series F Conversion Price in effect immediately prior
to the time of such issue or sale, other than an issuance of stock or
securities pursuant to Section 6(a) above or the issuance of shares of
Common Stock upon conversion of any Preferred Stock (including any
additional shares of Common Stock issuable as a result of the operation of
the provisions of paragraph (c) below), then forthwith upon such issue or
sale, the Conversion Price for all such series of Preferred Stock, in the
event of an issuance without consideration, and for any such series of
Preferred Stock, in the event of an issuance at a consideration per share
less than the Conversion Price of such series, shall be reduced to a price
(calculated to the nearest hundredth of a cent) determined by dividing:
(i) an amount equal to the sum of (x) the
number of shares of Common Stock outstanding immediately prior to such
issue or sale multiplied by the then existing Conversion Price for such
series of Preferred Stock, (y) the number of shares of Common Stock
issuable upon conversion or exchange of any obligations or of any
securities of the Corporation outstanding immediately prior to such issue
or sale multiplied by the then existing Conversion Price for such series of
Preferred Stock, and (z) an amount equal to the aggregate "consideration
actually received" by the Corporation upon such issue or sale by
(ii) the sum of the number of shares of Common
Stock outstanding immediately after such issue or sale and the number of
shares of Common
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Stock issuable upon conversion or exchange of any obligations or of any
securities of the Corporation outstanding immediately after such issue or
sale.
For purposes of this Section 6(b), the following provisions shall be
applicable:
(A) The term "Equity Securities" as used in this Section
6(b) shall mean any shares of Common Stock, or any obligation, any share of
stock or other security of the Corporation convertible into or exchangeable
for Common Stock except for (i) up to 8,987,760 shares of Common Stock in
the aggregate issuable upon exercise of options previously granted or
currently reserved for grant to officers, directors, employees or
consultants of the Corporation and its subsidiaries either pursuant to any
stock plan approved by the Corporation's Board of Directors or as otherwise
approved by the Corporation's Board of Directors, (ii) up to 500,000 shares
of Common Stock issuable upon exercise of stock options previously granted
to CMG@Ventures and approved by the Corporation's Board of Directors, (iii)
up to 500,000 shares of Common Stock issuable upon exercise of stock
options previously granted to David Bohnett and certain other persons and
approved by the Corporation's Board of Directors, (iv) warrants to purchase
up to 33,898 shares of Series D Preferred Stock granted to Cupertino Bank
and the shares issuable upon exercise thereof, and (v) warrants to purchase
up to 44,444 shares of Common Stock granted or to be granted to Comerica
Bank and the shares issuable upon exercise thereof. The respective numbers
of shares set forth hereinabove shall be subject to appropriate adjustment
for any recapitalizations, stock splits, stock combinations, stock
dividends, reorganizations and the like.
(B) In the case of an issue or sale for cash of shares of
Common Stock, the "consideration actually received" by the Corporation
therefor shall be deemed to be the amount of cash received, before
deducting therefrom any commissions or expenses paid by the Corporation.
(C) In case of the issuance (otherwise than upon conversion
or exchange of obligations or shares of stock of the Corporation) of
additional shares of Common Stock for consideration other than cash or
consideration partly other than cash, the amount of the consideration other
than cash received by the Corporation for such shares shall be deemed to be
the value of such consideration as determined in good faith by the Board of
Directors.
(D) In case of the issuance by the Corporation in any manner
of any rights to subscribe for or to purchase shares of Common Stock, or
any options for the purchase of shares of Common Stock or stock convertible
into Common Stock, all shares of Common Stock or stock convertible into
Common Stock to which the holders of such rights or options shall be
entitled to subscribe for or purchase pursuant to such rights or options
shall be deemed "outstanding" as of the date of the offering of such rights
or the granting of such options, as the case may be, and the minimum
aggregate consideration named in such rights or options for the shares of
Common Stock or stock convertible into Common Stock covered thereby, plus
the consideration, if any, received by the Corporation for such rights or
options, shall be deemed to be the "consideration actually
14
<PAGE>
received" by the Corporation (as of the date of the offering of such rights
or the granting of such options, as the case may be) for the issuance of
such shares.
(E) In case of the issuance or issuances by the Corporation
in any manner of any obligations or of any shares of stock of the
Corporation that shall be convertible into or exchangeable for common
stock, all shares of common stock issuable upon the conversion or exchange
of such obligations or shares shall be deemed issued as of the date such
obligations or shares are issued, and the amount of the "consideration
actually received" by the Corporation for such additional shares of common
stock shall be deemed to be the total of (X) the amount of consideration
received by the Corporation upon the issuance of such obligations or
shares, as the case may be, plus (Y) the minimum aggregate consideration,
if any, other than such obligations or shares, receivable by the
Corporation upon such conversion or exchange, except in adjustment of
dividends.
(F) The amount of the "consideration actually received" by
the Corporation upon the issuance of any rights or options referred to in
subsection (D) above or upon the issuance of any obligations or shares
which are convertible or exchangeable as described in subsection (E) above,
and the amount of the consideration, if any, other than such obligations or
shares so convertible or exchangeable, receivable by the Corporation upon
the exercise, conversion or exchange thereof shall be determined in the
same manner provided in subsections (B) and (C) above with respect to the
consideration received by the Corporation in case of the issuance of
additional shares of Common Stock; provided, however, that if such
obligations or shares of stock so convertible or exchangeable are issued in
payment or satisfaction of any dividend upon any stock of the Corporation
other than Common Stock, the amount of the "consideration actually
received" by the Corporation upon the original issuance of such obligations
or shares or stock so convertible or exchangeable shall be deemed to be the
value of such obligations or shares of stock, as of the date of the
adoption of the resolution declaring such dividend, as determined by the
Board of Directors at or as of that date. On the expiration of any rights
or options referred to in subsection (D), or the termination of any right
of conversion or exchange referred to in subsection (E), or any change in
the number of shares of Common Stock deliverable upon exercise of such
options or rights or upon conversion of or exchange of such convertible or
exchangeable securities, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have been in
effect had the adjustments made upon the issuance of such option, right or
convertible or exchangeable securities been made upon the basis of the
delivery of only the number of shares of Common Stock actually delivered or
to be delivered upon the exercise of such rights or options or upon the
conversion or exchange of such securities.
(G) In the event this Corporation shall declare a
distribution payable in securities of other persons, evidences of
indebtedness issued by this Corporation or other persons or options or
rights not referred to in this Section 6(b), then, in each such case, the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock shall be entitled to the distributions provided
for in Section 1 above, and no adjustment to the Conversion Price provided
for in this Section 6 shall be applicable.
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(c) [Intentionally deleted.]
(d) Subject to the right of the Corporation to amend this
Certificate upon obtaining necessary approvals required by this Certificate
and applicable law, this Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
this Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 6 and in the taking of
all such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock against impairment.
(e) Upon the occurrence of each adjustment or readjustment of the
Conversion Price for each series of Preferred Stock pursuant to this
Section 6, this Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof, and shall
prepare and furnish to each holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock affected thereby a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. This
Corporation shall, upon the written request at any time of any holder of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment or readjustment, (B) the
Conversion Price at the time in effect, and (C) the number of shares of
Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of his shares.
7. Changes.
-------
(a) The Corporation shall not, so long as shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
are outstanding, without first obtaining the approval by vote or written
consent, in the manner provided by law, of the holders of at least 66-2/3%
of the total number of then outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock, voting
together as a single class, (i) create or authorize the creation of any
additional class or series of shares that ranks senior to or pari passu
----------
with the Series A Preferred Stock, the Series B Preferred Stock, the Series
C Preferred Stock, the Series D Preferred Stock, the Series E Preferred
Stock or the Series F Preferred Stock either as to dividends or
distribution of assets on liquidation, or (ii) increase the authorized
amount of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock,
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the Series D Preferred Stock, the Series E Preferred Stock or the Series F
Preferred Stock or increase the authorized amount of any additional class
or series of shares that ranks senior to or pari passu with the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock, the Series E Preferred Stock or the
Series F Preferred Stock as to dividends or distribution of assets on
liquidation, or (iii) create or authorize any obligations or securities
convertible into, or any options or rights to acquire, shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock or
of any other class or series of shares that ranks senior to or pari passu
with the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or
Series F Preferred Stock as to dividends or distribution of assets on
liquidation.
(b) In addition to the foregoing, so long as shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the
approval by vote or written consent, in the manner provided by law, of the
holders of at least 66-2/3% of the total number of then outstanding shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock, voting together as a single class:
(1) consent to any Liquidation or consolidate or merge into
or with any other entity or entities or sell, lease, abandon, transfer or
otherwise dispose of all or substantially all its assets;
(2) amend, alter or repeal this Amended and Restated
Certificate of Incorporation or the Bylaws of the Corporation in a manner
adverse to holders of the Preferred Stock (including, without limitation,
any amendment to, alteration or repeal of Section 1 or Section 7 of this
Amended and Restated Certificate of Incorporation);
(3) purchase or set aside any sums for the purchase of, or
pay any dividend or make any distribution on, any shares of stock other
than the Preferred Stock, except for dividends or other distributions
payable on the Common Stock solely in the form of additional shares of
Common Stock and except for the purchase of shares of Common Stock from
current or former employees of the Corporation who acquired such shares
directly from the Corporation, if each such purchase is made pursuant to
contractual rights held by the Corporation relating to the termination of
employment of a former employee or to the proposed transfer of any such
shares by a current or former employee;
(4) redeem or otherwise acquire any shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock
except as expressly authorized in paragraph A.3 hereof or pursuant to a
purchase offer made pro rata to all holders of the shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock on
the basis of the aggregate number of outstanding shares of such Series of
Preferred Stock then held by each such holder;
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(5) issue any debt which, when aggregated with all
outstanding debt of the Corporation, would exceed the net worth of the
Corporation; or
(6) license all or substantially all of the Corporation's
technology to a third party.
(c) In addition to the foregoing, so long as shares of Series F
Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the approval by vote or written consent, in the manner provided
by law, of the holders of all shares of Series F Preferred Stock
outstanding (1) consolidate or merge into or with any other entity or
entities or sell, lease, abandon, transfer or otherwise dispose of all or
substantially all its assets, in connection with which the net proceeds to
the holders of Series F Preferred Stock would be less than $14.8507 per
share (as adjusted for stock splits, stock dividends, reorganizations and
the like), or (2) make any public offering of the Corporation's Common
Stock at an offering price per share (prior to underwriting commissions and
expenses) of less than $14.8507 per share (as adjusted for stock splits,
stock dividends, reorganizations and the like); provided that the
provisions of this Article IV, Section 7(c) shall terminate and be of no
further effect on the earlier of (i) January 14, 1999 or (ii) such time as
the original holders of the Series F Preferred Stock hold in the aggregate
less than 75% of the Series F Preferred Stock.
ARTICLE V
DIRECTORS' LIABILITY AND INDEMNIFICATION OF AGENTS
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which
the director derived any improper personal benefit. If the Delaware
General Corporation Law is amended after approval by the stockholders of
this Article V to authorize corporate action further eliminating or
limiting the personal liability of directors then the liability of a
director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article
V by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time
of such repeal or modification.
To the fullest extent permitted by applicable law, the Corporation is
also authorized to provide indemnification of (and advancement of expenses
to) its directors and officers (and any other person to which Delaware law
permits the corporation to provide indemnification) through Bylaw
provisions, agreements which such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
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Delaware General Corporation Law, subject only to limits created by
applicable Delaware law (statutory or non-statutory), with respect to
actions for breach of duty to the Corporation, its stockholders, and
others.
Any repeal or modification of any of the foregoing provisions of this
Article V shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal
or modification.
ARTICLE VI
SECTION 203
The Corporation expressly elects not to be governed by the provisions
of Section 203 of the Delaware General Corporation Law.
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EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GEOCITIES
(Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware)
GeoCities (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "General
Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the Corporation was originally incorporated in Delaware
under the name GeoCities, Inc. and the date of its filing of its original
Certificate of Incorporation with the Secretary of State of Delaware was June 2,
1998. On July 31, 1998, the Corporation filed with the Secretary of State of
the State of Delaware an Amended and Restated Certificate of Incorporation in
connection with the filing of an Agreement and Plan of Merger between GeoCities,
a California corporation and the Corporation.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Amended and Restated Certificate of
Incorporation of the Corporation, declaring said amendment and restatement to be
advisable and in the best interests of the Corporation and its stockholders, and
authorizing the appropriate officers of the Corporation to solicit the consent
of the stockholders of the issued and outstanding Common Stock, $0.0025 par
value, and Preferred Stock, $0.0025 par value, voting as a single class and as
separate classes, all in accordance with the applicable provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware and the
Amended and Restated Certificate of Incorporation.
THIRD: That the resolution setting forth the proposed amendment and
restatement is as follows:
"RESOLVED, that the Amended and Restated Certificate of Incorporation
of the Corporation be amended and restated in its entirety as follows:
ARTICLE I.
NAME
The name of the corporation is GeoCities.
<PAGE>
ARTICLE II.
REGISTERED OFFICE
The address of the registered office of the Corporation in the State
of Delaware is 9 East Loockerman Street, Dover, Delaware 19901. The name of its
registered agent at such address is National Registered Agents, Inc.
ARTICLE III.
POWERS/TERM
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law.
ARTICLE IV.
CAPITAL STOCK
A. CLASSES OF STOCK. The Corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the Corporation is authorized to issue
is 65,000,000 shares. 60,000,000 shares, par value $0.001 per share, shall be
Common Stock and 5,000,000 shares, par value $0.001 per share, shall be
Preferred Stock. The consideration for the issuance of the shares shall be paid
to or received by the Corporation in full before their issuance and shall not be
less than the par value per share. The number of authorized shares of Common
Stock may be increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a majority of the
stock of the Corporation entitled to vote, irrespective of the provisions of
Section 242(b)(2) of the General Corporation Law.
B. COMMON STOCK.
(1) GENERAL. All shares of Common Stock will be identical and
will entitle the holders thereof to the same rights, powers and privileges. The
rights, powers and privileges of the holders of the Common Stock are subject to
and qualified by the rights of holders of any then outstanding Preferred Stock.
(2) DIVIDENDS. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as and when determined by the Board
of Directors and subject to any preferential rights of any then outstanding
Preferred Stock.
(3) DISSOLUTION, LIQUIDATION OR WINDING UP. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, each issued and outstanding share of Common
Stock shall entitle the holder thereof to receive an equal portion of the net
assets of the Corporation available for distribution to the holders of Common
Stock, subject to any preferential rights of any then outstanding Preferred
Stock.
(4) VOTING RIGHTS. Except as otherwise required by law or this
Amended and Restated Certificate of Incorporation, each holder of Common Stock
shall have one vote in respect of each share of stock held of record by such
holder on the books of the
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Corporation for the election of directors and on all matters submitted to a vote
of stockholders of the Corporation. Except as otherwise required by law or this
Amended and Restated Certificate, holders of Preferred Stock shall vote together
with holders of Common Stock as a single class, subject to any special or
preferential voting rights of any then outstanding Preferred Stock. There shall
be no cumulative voting.
(5) REDEMPTION. The Common Stock is not redeemable.
C. PREFERRED STOCK. The Board of Directors is authorized, without
further stockholder approval, subject to limitations prescribed by law, by the
rules of any national securities exchange or any body administering any
automated quotation system upon which the Company's capital stock is traded, if
applicable, and by the provisions of this ARTICLE IV, to provide for the
issuance of the shares of Preferred Stock in series, and by filing a certificate
pursuant to the General Corporation Law, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof without a vote of the
holders of Common Stock and/or Preferred Stock. The designation, powers,
preferences, and rights of any such series may be subordinated to, pari passu
---- -----
with (including, without limitation, inclusion in provisions with respect to
dividend rights and liquidation preferences, redemption and/or approval of
matters by vote), or senior to any of those of any present or future class or
series of Preferred Stock or Common Stock. The Board of Directors is also
authorized to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding.
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, determination of the
following:
(1) The number of shares constituting that series and the distinctive
designation of that series;
(2) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series;
(3) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(4) Whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
(5) Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
(6) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
3
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(7) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights or priority, if any, of payment of shares
of that series; and
(8) Any other relative rights, preferences and limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the Common Stock with respect to the same
dividend period.
D. PREEMPTIVE RIGHTS. No holder of any of the shares of any class
or series of stock or of options, warrants or other rights to purchase shares of
any class or series of stock or of other securities of the Corporation shall
have any preemptive right to purchase or subscribe for any unissued stock of any
class or series, or any unissued bonds, certificates of indebtedness, debentures
or other securities convertible into or exchangeable for stock of any class or
series or carrying any right to purchase stock of any class or series; but any
such unissued stock, bonds, certificates or indebtedness, debentures or other
securities convertible into or exchangeable for stock or carrying any right to
purchase stock may be issued pursuant to resolution of the Board of Directors of
the Corporation to such persons, firms, corporations or associations, whether or
not holders thereof, and upon such terms as may be deemed advisable by the Board
of Directors in the exercise of its sole discretion.
ARTICLE V.
DIRECTORS
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The Board of Directors may
exercise all such authority and powers of the Corporation and do all such lawful
acts and things as are not by statute or this Amended and Restated Certificate
of Incorporation directed or required to be exercised or done by the
stockholders.
A. NUMBER. The number of directors of the Corporation shall be such
number, not less than five (5) nor more than ten (10) (exclusive of directors,
if any, to be elected by holders of Preferred Stock of the Corporation, voting
separately as a class), as shall be set forth from time to time in the Bylaws of
this Corporation. Vacancies in the Board of Directors of the Corporation,
however caused, and newly created directorships shall be filled by a vote of a
majority of the directors then in office, whether or not a quorum, and any
director so chosen shall hold office for a term expiring at the next annual
meeting of stockholders and when the director's successor is elected and
qualified.
B. TERM. Each director shall serve for a term ending on the date of
the next annual meeting; provided, that each director shall serve until his
successor is duly elected and qualified or until his death, resignation or
removal.
C. REMOVAL OF DIRECTORS. Notwithstanding any other provisions of
this Amended and Restated Certificate of Incorporation or the Bylaws of the
Corporation, any director or the entire Board of Directors of the Corporation
may be removed, at any time, but only for cause. Notwithstanding the foregoing,
whenever the holders of any one or more series
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of Preferred Stock of the Corporation shall have the right, voting separately as
a class, to elect one or more directors of the Corporation, the preceding
provisions of this ARTICLE V.C. shall not apply with respect to the director or
directors elected by such holders of Preferred Stock.
D. ELECTION BY WRITTEN BALLOT. Election of directors need not be by
written ballot unless the Bylaws
of the Corporation shall so provide.
E. BYLAWS. The Board of Directors is expressly authorized to adopt,
amend or repeal the Bylaws of the Corporation. Any Bylaws made by the directors
under the powers conferred hereby may be amended or repealed by the stockholder;
provided, that notwithstanding the foregoing or anything else contained in this
Amended and Restated Certificate of Incorporation or the Bylaws of this
Corporation to the contrary, the Bylaws shall not be repealed by the
stockholders, and no Bylaw provision inconsistent with a Bylaw provision adopted
by the Board of Directors shall be adopted by the stockholders, without the
affirmative vote of the holders of at least 66.67% of the outstanding shares of
capital stock of the Corporation then entitled to vote generally in the election
of directors (considered for this purpose as one class).
ARTICLE VI.
STOCKHOLDER MEETINGS
A. LOCATION AND BOOKS AND RECORDS. Meetings of stockholders may be
held within or without the State of Delaware, as the Bylaws may provide. The
books of the Corporation may be kept (subject to any provision contained in the
statutes) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the By-laws of the
Corporation.
B. SPECIAL MEETINGS. Special meetings of the stockholders of the
Corporation, for any purpose or purposes, unless otherwise prescribed by
statute, shall be called by the Chairman of the Board (or Secretary at the
request in writing of the Chairman of the Board), or a majority of the members
of the Board of Directors.
C. WRITTEN CONSENTS. Any action required or permitted to be taken
at any annual or special meeting of stockholders may only be taken upon the vote
of the stockholders at an annual or special meeting duly called and may not be
taken by written consent of the stockholders.
ARTICLE VII.
LIMITATION OF DIRECTORS' LIABILITY
Except to the extent that the General Corporation Law prohibits the
elimination or limitation of liability of directors for breaches of fiduciary
duty, no director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, notwithstanding any provision of law imposing such
liability. If the General Corporation Law is amended after approval by the
stockholders of this ARTICLE VII to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State, as so amended. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or
5
<PAGE>
alleged liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment.
ARTICLE VIII.
INDEMNIFICATION
The Corporation may, to the fullest extent permitted by Section 145 of
the General Corporation Law, as amended from time to time, indemnify each person
who was or is 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, by reason of the fact that he is or was, or has
agreed to become, a director or officer of the Corporation, or is or was
serving, or has agreed to serve, at the request of the Corporation, as a
director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan) (all such persons being referred to hereafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with such action, suit or proceeding and any appeal
therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the indemnitee to repay
such payment if it is ultimately determined that such person is not entitled to
indemnification under this ARTICLE VIII, which undertaking may be accepted
without reference to the financial ability of such person to make such
repayment.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
The indemnification rights provided in this ARTICLE VIII (i) shall not
be deemed exclusive of any other rights to which Indemnitees may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this ARTICLE VIII.
ARTICLE IX.
AMENDMENT OF CERTIFICATE
The Corporation reserves the right to repeal, alter, amend or rescind
any provision contained in this Certificate in the manner now or hereafter
prescribed by law, and all rights conferred on stockholders herein are granted
subject to this reservation. Notwithstanding the foregoing, the provisions set
forth in ARTICLES V, VI, VII, VIII, and this ARTICLE IX may not be repealed,
altered, amended or rescinded in any respect unless the same is approved by the
affirmative vote of the holders of not less than 66.67% of the outstanding
shares of capital stock
6
<PAGE>
of the Corporation entitled to vote generally in the election of directors
(considered for this purpose as a single class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
repeal, alteration, amendment or rescission is included in the notice of such
meeting)."
* * *
FOURTH: That said amendments were duly adopted in accordance with the
provisions of Section 242 and 245 of the General Corporation Law.
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<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the President and the Secretary of the
Corporation as of this 3rd day of August, 1998.
/s/ Thomas R. Evans
___________________________________
Thomas R. Evans, President
/s/ David C. Bohnett
___________________________________
David C. Bohnett, Secretary
8
<PAGE>
EXHIBIT 3.4
BY-LAWS
OF
GEOCITIES
A Delaware Corporation
Article I. General Provisions
-----------------------------
Section 1.01 Principal Executive Office. The principal executive office of
---------------------------
the corporation shall be located at 9401 Wilshire Boulevard, Suite 500, Beverly
Hills, California 90210. The Board of Directors shall have the power to change
the principal office to another location and may fix and locate one or more
subsidiary offices within or without the State of Delaware.
Section 1.02 Number of Directors. The number of directors of the
-------------------
corporation shall be seven. This number may be increased only by a by-law
amending this section to be adopted by the vote or written consent of holders of
at least 66-2/3% of the then-outstanding shares of Series A Preferred Stock,
Series B Preferred Stock and Series D Preferred Stock, voting together as a
single class, except as otherwise required by the Delaware General Corporation
Law (the "Code"). In no event, however, shall the number of directors conflict
with any of the terms or provisions with respect to the Series D Preferred
Stock, as provided in the Articles of Incorporation, as amended and restated;
Article II. Shares and Stockholders
-----------------------------------
Section 2.01 Meetings of Stockholders.
------------------------
(a) Place of Meetings. Meetings of stockholders shall be held at any place
-----------------
within or without the State of Delaware designated by the Board of Directors. In
the absence of any such designation, stockholders' meetings shall be held at the
principal executive office of the corporation.
(b) Annual Meetings. An annual meeting of the stockholders of the
---------------
corporation shall be held on the 1st day of April of each year at 10:00 a.m. or
at such other date and time as may be designated by the Board of Directors, in
no case more than 15 months after the organization of the corporation or after
its last annual meeting, in accordance with Section 211 of the Code. If said day
falls upon a legal holiday, the annual meeting of stockholders shall be held at
the same time on the next day thereafter ensuing which is a full business day.
At each annual meeting directors shall be elected, and any other proper business
may be transacted.
(c) Special Meetings. Special meetings of the stockholders may be called
----------------
by any two directors, the president, the holders of shares entitled to cast not
less than 10% of the votes at the meeting, or any holder or holders of at least
1,500,000 shares of Series D Preferred Stock. Upon request in writing to the
president, the chief financial officer or the secretary by any
<PAGE>
person (other than the board) entitled to call a special meeting of
stockholders, the officer forthwith shall cause notice to be given to the
stockholders entitled to vote that a meeting will be held at a time requested by
the person or persons calling the meeting, not less than 35 nor more than 60
days after the receipt of request. If the notice is not given within 20 days
after receipt of the request, the persons entitled to call the meeting may give
the notice.
(d) Notice of Meetings. Notice of any stockholders' meeting shall be given
------------------
not less than 30 nor more than 60 days before the date of the meeting to each
stockholders entitled to vote thereat. Such notice shall state the place, date
and hour of the meeting and (i) in the case of a special meeting, the general
nature of the business to be transacted, and no other business may be
transacted, or (ii) in the case of the annual meeting, those matters which the
Board, at the time of the giving of the notice, intends to present for action by
the stockholders. The notice of any meeting at which directors are to be elected
shall include the names of nominees intended at the time of the notice to be
presented by management for election.
The notice shall also state the general nature of a proposal if the action
proposed to be taken at any meeting is concerned with any of the following:
(i) Section 144 of the Code;
(ii) the vote required by the stockholders of the Corporation to amend
its Certificate of Incorporation and to effectuate any other fundamental
changes;
(iii) the class of effected stockholders whose vote is required to
approve a corporate reorganization;
(iv) voluntary dissolution of the Corporation; and
(v) in the case of a dissolution, the stockholder and board approval
required to adopt a distribution plan that is not consistent with the
liquidation rights of the preferred shares of the Corporation as specified in
its Certificate of Incorporation, the rights of stockholders with liquidating
preferences who dissent from the distribution plan, and the discretion of the
Board to abandon the distribution plan under certain circumstances and the
rights of the stockholders in such an event.
Notice of a stockholders' meeting shall be given either personally or by
first-class mail or telegraphic or other means of written communication, charges
prepaid, addressed to the stockholder at the address of such stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice; or if no such address appears or is
given, at the place where the principal executive office of the corporation is
located or by publication at least once in a newspaper of general circulation in
the county in which the principal executive office is located. The notice shall
be deemed to have been given at the time when delivered personally or deposited
in the mail or sent by telegram or other means of written communication. An
affidavit of mailing of any notice executed by the
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secretary, assistant secretary or any transfer agent shall be prima facie
evidence of the giving of the notice.
(e) Adjourned Meeting and Notice Thereof. Any meeting of stockholders may
------------------------------------
be adjourned from time to time by the vote of a majority of the shares
represented either in person or by proxy whether or not a quorum is present.
When a stockholders' meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting. However, if the adjournment is for more than
45 days or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
(f) Waiver Of Notice. The transactions of any meeting of stockholders,
----------------
however called and noticed, and wherever held, are as valid as though had at a
meeting duly held after regular call and notice, if a quorum is present either
in person or by proxy, and if, either before or after the meeting, each of the
persons entitled to vote, not present in person or by proxy, signs a written
waiver of notice or a consent to the holding of the meeting or an approval of
the minutes thereof. The waiver of notice or consent need not specify either the
business to be transacted or the purpose of any annual or special meeting of
stockholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of
subparagraph (d) of Section 2.01 of this Article II, the waiver of notice or
consent shall state the general nature of the proposal. All such waivers,
consents and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
(g) Quorum. The presence in person or by proxy of the persons entitled to
------
vote a majority of the shares entitled to vote at any meeting shall constitute a
quorum for the transaction of business. If a quorum is present, the affirmative
vote of the majority of the shares represented at the meeting and entitled to
vote on any matter shall be the act of the stockholders, unless the vote of a
greater number or voting by classes is required by law, the Certificate of
Incorporation or the by-laws of the corporation.
The stockholders present at a duly called or held meeting at which a quorum
is present may continue to transact business until adjournment notwithstanding
the withdrawal of enough stockholders to leave less than a quorum, provided that
any action taken (other than adjournment) must be approved by at least a
majority of the shares required to constitute a quorum.
Section 2.02 Action Without a Meeting. Any action which may be taken at
------------------------
any annual or special meeting of stockholders may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding shares having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote
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<PAGE>
thereon were present and voted. Notwithstanding the foregoing, directors may not
be elected by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors, except as provided by Section
2.02 hereof.
Where the approval of stockholders is given without a meeting by less than
unanimous written consent, unless the consents of all stockholders entitled to
vote have been solicited in writing, the secretary shall give prompt notice of
the corporate action approved by the stockholders without a meeting. In the case
of approval of transactions pursuant to Sections 144 or 145 of the Code, or
transactions concerned with corporate reorganizations or dissolution, the notice
shall be given at least ten (10) days before the consummation of any action
authorized by that approval. Such notice shall be given in the same manner as
notice of stockholders' meeting.
Section 2.03 Voting of Shares.
----------------
(a) In General. Except as otherwise provided in the Certificate of
----------
Incorporation and subject to subparagraph (b) hereof, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of stockholders.
(b) Cumulative Voting. At any election of directors, no stockholder shall
-----------------
be entitled to cumulate votes (i.e., cast for any one or more candidates a
----
number of votes greater than the number of the stockholder's shares), unless
such candidate's name or candidates' names have been placed in nomination prior
to the voting and the stockholder has given notice at the meeting prior to the
voting of the stockholder's intention to cumulate the stockholder's votes. If
any one stockholder has given such notice, all stockholders may cumulate their
votes for candidates in nomination, and give one candidate a number of votes
equal to the number of votes to which the stockholder's shares are entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as the stockholder thinks fit. In any election of directors, the
candidates receiving the highest number of votes up to the number of directors
to be elected are elected.
(c) Election by Ballot. Elections for directors need not be by ballot
------------------
unless a stockholder demands election by ballot at the meeting and before the
voting begins.
Section 2.04 Proxies. Every person entitled to vote for directors or
-------
any other matters shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the stockholder or
stockholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the corporation stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and
4
<PAGE>
voting in person by the person executing the proxy; or (ii) written notice of
the death or incapacity of the maker of that proxy is received by the
corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy, unless otherwise provided in the proxy. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the Code. In addition, a
transferee of shares who has no knowledge that an irrevocable proxy has been
given can revoke an irrevocable proxy, unless the existence of the proxy and its
irrevocability appear on the certificate representing the shares; the fact that
the transferee may have paid consideration for the shares does not matter as
long as he/she did not know of the proxy.
Section 2.05 Inspectors of Election.
----------------------
(a) Appointment. In advance of any meeting of stockholders the Board may
-----------
appoint inspectors of election to act at the meeting and any adjournment
thereof. If inspectors of election are not so appointed, or if any persons so
appointed fail to appear or refuse to act, the chairman of any meeting of
stockholders may, and on the request of any stockholder or a stockholder's proxy
shall, appoint inspectors of election (or persons to replace those who so fail
or refuse) at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more stockholders or
proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors are to be appointed.
(b) Duties. The inspectors of election shall determine the number of
------
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum and the authenticity, validity and effect of
proxies, receive votes, ballots or consents, hear and determine all challenges
and questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result and do such acts as may be proper to conduct the election or vote
with fairness to all stockholders. The inspectors of election shall perform
their duties impartially, in good faith, to the best of their ability and as
expeditiously as is practical. If there are three inspectors of election, the
decision, act or certificate of a majority is effective in all respects as the
decision, act or certificate of all. Any report or certificate made by the
inspectors of election is prima facie evidence of the facts stated therein.
Section 2.06 Record Date. In order that the corporation may determine the
-----------
stockholders entitled to notice of any meeting or to vote or entitled to receive
payment of any dividend or other distribution or allotment of any rights or
entitled to exercise any rights in respect of any other lawful action, the Board
may fix, in advance, a record date, which shall not be more than 60 nor less
than 10 days prior to the date of such meeting nor more than 60 days prior to
any action. If no record date is fixed:
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<PAGE>
(a) The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held.
(b) The record date for determining stockholders entitled to give consent
to corporate action in writing without a meeting, when no prior action by the
Board has been taken, shall be the day on which the first written consent is
given.
(c) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board adopts the
resolution relating thereto, or the 60th day prior to the date of such other
action, whichever is later.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board fixes a new record date for the adjourned meeting, but the
board shall fix a new record date if the meeting is adjourned for more than 45
days from the date set for the original meeting.
Stockholders on the record date are entitled to notice and to vote or to
receive the dividend, distribution or allotment of rights or to exercise the
rights, as the case may be, notwithstanding any transfer of any shares
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the Certificate of
Incorporation or by agreement or in the Delaware General Corporation Law.
Section 2.07 Share Certificates.
------------------
(a) In General. The corporation shall issue a certificate or certificates
----------
representing shares of its capital stock. Each certificate so issued shall be
signed in the name of the corporation by the chairman or vice chairman of the
board or the president or vice president and by the chief financial officer or
an assistant treasurer or the secretary or any assistant secretary, shall state
the name of the record owner thereof and shall certify the number of shares and
the class or series of shares represented thereby. Any or all of the signatures
on the certificates may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if such person were an officer, transfer agent or registrar at
the date of issue.
(b) Two or More Classes or Series. If the shares of the corporation are
-----------------------------
classified or if any class of shares has two or more series, there shall appear
on the certificate one of the following:
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(1) A statement of the rights, preferences, privileges, and
restrictions granted to or imposed upon the respective classes or series of
shares authorized to be issued and upon the holders thereof; or
(2) A summary of such rights, preferences, privileges and restrictions
with reference to the provisions of the Certificate of Incorporation and any
certificates of determination establishing same; or
(3) A statement setting forth the office or agency of the corporation
from which stockholders may obtain upon request and without charge, a copy of
the statement mentioned in subparagraph (1).
(c) Special Restrictions. There shall also appear on the certificate
--------------------
(unless stated or summarized under subparagraph (1) or (2) of subparagraph (b)
above) the statements required by all of the following clauses to the extent
applicable:
(1) The fact that the shares are subject to restrictions upon transfer;
(2) If the shares are assessable, a statement that they are assessable;
(3) If the shares are not fully paid, a statement of the total
consideration to be paid therefor and the amount paid thereon;
(4) The fact that the shares are subject to a voting agreement or an
irrevocable proxy or restrictions upon voting rights contractually imposed by
the corporation;
(5) The fact that the shares are redeemable; and
(6) The fact that the shares are convertible and the period for
conversion.
Section 2.08 Transfer of Certificates. Where a certificate for shares is
------------------------
presented to the corporation or its transfer cleric or transfer agent with a
request to register a transfer of shares, the corporation shall register the
transfer, cancel the certificate presented, and issue a new certificate if:
(a) the security is endorsed by the appropriate person or persons;
(b) reasonable assurance is given that those endorsements are genuine and
effective;
(c) the corporation has no notice of adverse claims or has discharged any
duty to inquire into such adverse claims;
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<PAGE>
(d) any applicable law relating to the collection of taxes has been complied
with; and
(e) the transfer is not in violation of any federal or state securities law.
Section 2.09 Lost Certificates. Where a certificate has been lost,
-----------------
destroyed or wrongfully taken, the corporation shall issue a new certificate in
place of the original if the owner:
(a) so requests before the corporation has notice that the certificate has
been acquired by a bona fide purchaser;
(b) files with the corporation a sufficient indemnity bond, if so requested
by the Board of Directors; and
(c) satisfies any other reasonable requirements as may be imposed by the
Board.
Except as above provided, no new certificate for shares shall be issued in
lieu of an old certificate unless the corporation is ordered to do so by a court
in the judgment in an action brought under Section 168(b) of the Delaware
General Corporation Law.
Article III. Directors
----------------------
Section 3.01 Powers. Subject to the provisions of the Delaware General
------
Corporation Law and the Certificate of Incorporation, the business and affairs
of the corporation shall be managed and all corporate powers shall be exercised
by or under the direction of the Board of Directors. The Board may delegate the
management of the day-to-day operations of the business of the corporation to a
management company or other person provided that the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised under
the ultimate direction of the Board.
Section 3.02 Committees of the Board. The Board may, by resolution
-----------------------
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two or more directors, to serve at the
pleasure of the Board. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. Any such committee, to the extent provided in the
resolution of the Board, shall have all the authority of the Board, except with
respect to:
(a) The approval of any action which also requires, under the Delaware
General Corporation Law, stockholders' approval or approval of the outstanding
shares;
(b) The filling of vacancies on the Board or in any committee;
8
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(c) The fixing of compensation of the directors for serving on the Board
on any committee;
(d) The amendment or repeal of by-laws or the adoption of new by-laws;
(e) The amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable;
(f) A distribution to the stockholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the Board;
and
(g) The appointment of other committees of the Board or the members
thereof.
Section 3.03 Election and Term of Office. The directors shall be elected
---------------------------
at each annual meeting of stockholders but, if any such annual meeting is not
held or the directors are not elected thereat, the directors may be elected at
any special meeting of stockholders held for that purpose. All directors shall
hold office until the expiration of the term for which elected and until their
respective successors are elected and qualified.
Section 3.04 Vacancies. Except for a vacancy created by the removal of a
---------
director, vacancies in the Board of Directors may be filled by a majority of the
remaining directors, whether or not less than a quorum, or by a sole remaining
director, and each director so elected shall hold office until the expiration of
the term for which elected and until his successor is elected and qualified. The
stockholders may elect a director or directors at any time to fill any vacancy
or vacancies not filled by the directors, but any such election by written
consent requires the consent of a majority of the outstanding shares entitled to
vote.
The Board of Directors shall have the power to declare vacant the office of
a director who has been declared of unsound mind by an order of court, or
convicted of a felony.
Section 3.05 Removal. Any or all of the directors may be removed without
-------
cause if such removal is approved by the vote of a majority of the outstanding
shares entitled to vote, except that no director may be removed (unless the
entire board is removed) when the votes cast against removal, or not consenting
in writing to such removal, would be sufficient to elect such director if voted
cumulatively at an election at which the same total number of votes were cast
(or, if such action is taken by written consent, all shares entitled to vote
were voted) and the entire number of directors authorized at the time of the
director's most recent election were then being elected.
Section 3.06 Resignation. Any director may resign effective upon giving
-----------
written notice to the chairman of the board, the president, the secretary or the
Board of Directors of the corporation, unless the notice specifies a later time
for the effectiveness of such resignation. If the resignation is effective at a
future time, a successor may be elected to take office when the resignation
becomes effective.
9
<PAGE>
Section 3.07 Meetings of the Board of Directors.
----------------------------------
(a) Regular Meetings. Regular meetings of the Board of Directors shall be
----------------
held at such time and place within or without the State as may be designated
from time to time by resolution of the Board or by written consent of all
members of the Board or in these by-laws. Such regular meetings may be held
without notice.
(b) Annual Meeting. Immediately following each annual meeting of
--------------
stockholders the Board of Directors shall hold a regular meeting for the purpose
of organization, election of officers, and the transaction of other business.
Notice of such meetings is hereby dispensed with.
(c) Special Meetings. Special meetings of the Board of Directors for any
----------------
purpose or purposes shall be called at any time by the chairman of the board,
any two directors, the president, any vice president, the secretary, or any
holder or holders of at least 1,500,000 shares of Series D Preferred Stock.
Special meetings shall be held upon four days' notice by mail or 48 hours'
notice delivered personally or by telephone, including a voice messaging system
or other system or technology designed to record and communicate messages,
telegraph, facsimile, electronic mail or other electronic means. Notice of a
meeting need not be given to any director who signs a waiver of notice, whether
before or after the meeting, or who attends the meeting without protesting,
prior thereto or at its commencement, the lack of notice to such director.
(d) Notice of Adjournment. A majority of the directors present, whether
---------------------
or not a quorum is present, may adjourn any meeting to another time and place.
If the meeting is adjourned for more than 24 hours, notice of such adjournment
to another time and place shall be given prior to the time of the adjourned
meeting to the directors who were not present at the time of adjournment.
(e) Place of Meeting. Meetings of the Board may be held at any place
----------------
within or without the state which has been designated in the notice of the
meeting or, if not stated in the notice or there is no notice, then such meeting
shall be held at the principal executive office of the corporation, or such
other place designated by resolution of the Board.
(f) Presence by Conference Telephone Call. Members of the Board may
-------------------------------------
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another. Such participation constitutes presence in person at such
meeting.
(g) Quorum. A majority of the authorized number of directors constitutes a
------
quorum of the Board for the transaction of business. Every act or decision done
or made by a majority of the directors present at a meeting duly held at which a
quorum is present is the act of the Board of Directors, unless a greater number
be required by law or by the Certificate of Incorporation. A meeting at which a
quorum is initially present may continue to transact
10
<PAGE>
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for such meeting.
(h) Waiver of Notice. The transactions of any meeting of the Board of
----------------
Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice if a quorum is
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding a meeting or an
approval of the minutes thereof. All such waivers, consents and approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
Section 3.08 Action Without Meeting. Any action required or permitted to
----------------------
be taken by the Board of Directors, may be taken without a meeting if all
members of the Board shall individually or collectively consent in writing to
such action. Such written consent or consents shall be filed with the minutes of
the proceedings of the Board. Such action by written consent shall have the same
force and effect as a unanimous vote of such directors.
Article IV. Officers
--------------------
Section 4.01 Officers. The officers of the corporation shall consist of a
--------
president, a vice president, a secretary, a chief financial officer, and such
additional officers as may be elected or appointed in accordance with Section
4.03 of these by-laws and as may be necessary to enable the corporation to sign
instruments and share certificates. Any number of offices may be held by the
same person.
Section 4.02 Elections. All officers of the corporation, except such
---------
officers as may be otherwise appointed in accordance with Section 4.03, shall be
chosen by the Board of Directors, and each shall hold his office until he shall
resign or be removed or is otherwise disqualified to serve, or until his
successor is chosen and qualified.
Section 4.03 Other Officers. The Board of Directors may appoint one or
--------------
more vice presidents, one or more assistant secretaries, a treasurer, one or
more assistant treasurers, or such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as the Board of Directors may from time
to time determine.
Section 4.04 Removal. Any officer may be removed, either with or without
-------
cause, by the Board of Directors, at any regular or special meeting thereof, or,
except in case of an officer chosen by the Board of Directors, by any officer
upon whom such power of removal may be conferred by the Board of Directors.
Section 4.05 Resignation. Any officer may resign at any time by giving
-----------
written notice to the Board of Directors or to the president, or to the
secretary of the corporation without prejudice to the rights, if any, of the
corporation under any contract to which the officer is a
11
<PAGE>
party. Any such resignation shall take effect at the date of the receipt of
such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 4.06 Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these by-laws for regular appointments to such office.
Section 4.07 Chairman of the Board. The chairman of the board, if there
---------------------
shall be such an officer, shall, if present, preside at all meetings of the
Board of Directors and exercise and perform such other powers and duties as may
be from time to time assigned to him by the Board of Directors. If there is no
president, the chairman of the board shall in addition be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 4.08 below.
Section 4.08 President. Subject to such supervisory powers, if any, as
---------
may be given by the Board of Directors to the chairman of the board, if there be
such an officer, the president shall be the general manager and chief executive
officer of the corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business and
affairs of the corporation. He shall preside at all meetings of the stockholders
and, in the absence of the chairman of the board, or if there be none, at all
meetings of the Board of Directors. He shall be ex-officio a member of all the
standing committees, including the executive committee, if any, and shall have
the general powers and duties of management usually vested in the office of
president of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or these by-laws.
Section 4.09 Vice President. In the absence of the president or in the
--------------
event of the president's inability or refusal to act, the vice president, if
any, or in the event there be more than one vice president, the vice presidents
in order of their election, shall perform the duties of the president and when
so acting, shall have all the powers of and be subject to all the restrictions
upon the president. Any vice president shall perform such other duties as from
time to time may be assigned to such vice president by the president or the
Board of Directors.
Section 4.10 Secretary. The secretary shall keep or cause to be kept the
---------
minutes of proceedings and records of stockholders, as provided for and in
accordance with Section 5.01(a) of these by-laws.
The secretary shall give, or cause to be given, notice of all meetings of
stockholders and of the Board of Directors required by these by-laws or by law
to be given, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors.
12
<PAGE>
Section 4.11 Chief Financial Officer. The chief financial officer shall
-----------------------
have general supervision, direction and control of the financial affairs of the
corporation and shall have such other powers and duties as may be prescribed by
the Board of Directors or these by-laws. In the absence of a named treasurer,
the chief financial officer shall also have the powers and duties of the
treasurer as hereinafter set forth and shall be authorized and empowered to sign
as treasurer in any case where such officer's signature is required.
Section 4.12 Treasurer. The treasurer shall keep or cause to be kept the
---------
books and records of account as provided for and in accordance with Section
5.01(a) of these by-laws. The books of account shall at all reasonable times be
open to inspection by any director.
The treasurer shall deposit all moneys and other valuables in the name and
to the credit of the corporation with such depositaries as may be designated by
the Board of Directors. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, shall render to the president and directors,
whenever they request it, an account of all of his transactions as treasurer and
of the financial condition of the corporation, and shall have such other powers
and perform such other duties as may be prescribed by the Board of Directors or
these by-laws. In the absence of a named chief financial officer, the treasurer
shall be deemed to be the chief financial officer and shall have the powers and
duties of such office as hereinabove set forth.
Article V. Miscellaneous
------------------------
Section 5.01 Records and Reports.
-------------------
(a) Books of Account and Proceedings. The corporation shall keep adequate
--------------------------------
and correct books and records of account and shall keep minutes of the
proceedings of its stockholders, Board and committees of the board and shall
keep at its principal executive office, or at the office of its transfer agent
or registrar, a record of its stockholders, giving the names and addresses of
all stockholders and the number and class of shares held by each. Such minutes
shall be kept in written form. Such other books and records shall be kept either
in written form or in any other form capable of being converted into written
form.
(b) Annual Report. An annual report under referred to under the Delaware
-------------
General Corporation Law is expressly dispensed with, but nothing herein shall be
interpreted as prohibiting the Board of Directors from issuing annual or other
periodic reports to the stockholders of the corporation as they consider
appropriate.
(c) Stockholder Requests for Financial Reports. Any stockholder or
------------------------------------------
stockholders holding at least five percent of the outstanding shares of any
class of this corporation may make a written request to the corporation for an
income statement of the corporation for the three-month, six-month or nine-month
period of the current fiscal year ended more than 30 days prior to the date of
the request and a balance sheet of the corporation as of the end of such period
and, in addition, if no annual report for the last fiscal year has been sent to
13
<PAGE>
stockholders, the statements required by Delaware General Corporation Law for
such annual report for the last fiscal year. The statement shall be delivered or
mailed to the person making the request within 30 days thereafter. A copy of the
statements shall be kept on file in the principal office of the corporation for
12 months and they shall be exhibited at all reasonable times to any stockholder
demanding an examination of them or a copy shall be mailed to such stockholder
upon demand. The corporation shall, upon the written consent of any
stockholder, mail to the stockholder a copy of the last annual, semiannual or
quarterly income statement which it has prepared and a balance sheet as of the
end of the period.
Section 5.02 Rights of Inspection.
--------------------
(a) By Stockholders.
---------------
(1) Record of Stockholders. Any stockholder or stockholders holding
----------------------
at least five percent in the aggregate of the outstanding voting shares of the
corporation or who hold at least 1% of such voting shares and have filed a
Schedule 14B with the United States Securities and Exchange Commission relating
to the election of directors of the corporation shall have an absolute right to
do either or both of the following: (i) inspect and copy the record of
stockholders' names and addresses and stockholders during usual business hours
upon five business days' prior written demand upon the corporation, or (ii)
obtain from the transfer agent for the corporation, upon written demand and upon
the tender of its usual charges for such a list (the amount of which charges
shall be stated to the stockholder by the transfer agent upon request), a list
of the stockholders' names and addresses, who are entitled to vote for the
election of directors, and their shareholdings, as of the most recent record
date for which it has been compiled or as of a date specified by the stockholder
subsequent to the date of demand. The list shall be made available on or before
the later of five business days after demand is received or the date specified
therein as the date as of which the list is to be compiled.
The record of stockholders shall also be open to inspection and copying
by any stockholder or holder of a voting trust certificate at any time during
usual business hours upon written demand on the corporation, for a purpose
reasonably related to such holder's interests as a stockholder or holder of a
voting trust certificate.
(2) Corporate Records. The accounting books and records and minutes of
------------------
proceedings of the stockholders and the Board and committees of the board shall
be open to inspection upon the written demand on the corporation of any
stockholder or holder of a voting trust certificate at any reasonable time
during usual business hours, for a purpose reasonably related to such holder's
interests as a stockholder or as the holder of such voting trust certificate.
This right of inspection shall also extend to the records of any subsidiary of
the corporation.
14
<PAGE>
(3) By-laws. The corporation shall keep at its principal executive
-------
office in this state, the original or a copy of its by-laws as amended to date,
which shall be open to inspection by the stockholders at all reasonable times
during office hours.
(b) By Directors. Every director shall have the absolute right at any
------------
reasonable time to inspect and copy all books, records and documents of every
kind and to inspect the physical properties of the corporation of which such
person is a director and also of its subsidiary corporations, domestic or
foreign. Such inspection by a director may be made in person or by agent or
attorney and the right of inspection includes the right to copy and make
extracts.
Section 5.03 Checks, Drafts, Etc. All checks, drafts or other orders for
--------------------
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board of Directors.
Section 5.04 Authority to Execute Contracts. The Board of Directors may
------------------------------
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances; and, unless so
authorized by the Board of Directors, no officer, agent or employee shall have
any power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or to any amount.
Section 5.05 Representation of Shares of Other Corporations. The chairman
----------------------------------------------
of the board, if any, president or any vice president and the secretary or
assistant secretary of this corporation are authorized to vote, represent and
exercise on behalf of this corporation all rights incident to any and all shares
of any other corporation or corporations standing in the name of this
corporation. The authority herein granted to said officers to vote or represent
on behalf of this corporation any and all shares held by this corporation in any
other corporation or corporations may be exercised either by such officers in
person or by any other person authorized to do so by proxy or power of attorney
duly executed by said officers.
Section 5.06 Indemnification and Insurance.
-----------------------------
(a) For the purposes of this Section 5.06, "agent" means any person who is or
was a director, officer, employee, or other agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee,
or agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation; "proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative, or investigative; and
"expenses" includes, without limitation, attorneys' fees and any expenses of
establishing a right to indemnification under subparagraph (d) or (e)(4) of this
Section 5.06.
15
<PAGE>
(b) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any proceeding (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was
an agent of the corporation, against expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with such
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in the best interests of the corporation, and in the
case of a criminal proceeding, had no reasonable cause to believe the conduct of
such person was unlawful. The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which the person reasonably believed to be in the best interests
of the corporation or that the person had reasonable cause to believe that the
person's conduct was unlawful.
(c) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action by
or in the right of the corporation to procure a judgment in its favor by reason
of the fact that such person is or was an agent of the corporation, against
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of such action if such person acted in good faith, in a
manner such person believed to be in the best interests of the corporation and
its stockholders. No indemnification shall be made under this subparagraph for
any of the following:
(1) In respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation in the
performance of such person's duty to the corporation and its stockholders,
unless and only to the extent that the court in which such action was brought
shall determine upon application that, in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for expenses
and then only to the extent that the court shall determine;
(2) Of amounts paid in settling or otherwise disposing of a pending
action without court approval; or
(3) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
(d) To the extent that an agent of the corporation has been successful on
the merits in defense of any proceeding referred to in subparagraph (b) or (c)
or in defense of any claim, issue or matter therein, the agent shall be
indemnified against expenses actually and reasonably incurred by the agent in
connection therewith.
(e) Except as provided in subparagraph (d) above, any indemnification
shall be made by the corporation only if authorized in the specific case, upon a
determination that indemnification of the agent is proper in the circumstances
because the agent has met the applicable standard of conduct set forth in
subparagraph (b) or (c), by any of the following:
16
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(1) A majority vote of quorum consisting of directors who are not
parties to such proceeding;
(2) If such a quorum of directors is not obtainable, by independent
legal counsel in a written opinion;
(3) Approval of the stockholders, with the shares owned by the person
to be indemnified not being entitled to vote thereon; or
(4) The court in which such proceeding is or was pending upon
application made by the corporation or the agent or the attorney or other person
rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by the
corporation.
The burden of proof shall be on the corporation to establish, by a
preponderance of the evidence, that the relevant standards of conduct set forth
in subparagraphs (b) and (c) have not been met.
(f) Expenses incurred in defending any proceeding may be advanced by the
corporation prior to the final disposition of such proceeding upon receipt of an
undertaking by or on behalf of the agent to repay such amount if it shall be
determined ultimately that the agent is not entitled to be indemnified as
authorized in this section.
(g) The indemnification authorized by this Section 5.06 shall not be
deemed exclusive of any additional rights to indemnification for breach of duty
to the corporation and its stockholders while acting in the capacity of a
director or officer of the corporation to the extent the additional rights to
indemnification are authorized in an article provision adopted pursuant to
Section 109 of the Delaware General Corporation Law. The indemnification
provided by this Section 5.06 for acts, omissions, or transactions while acting
in the capacity of, or while serving as, a director or officer of the
corporation but not involving breach of duty to the corporation and its
stockholders shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise, to the extent the
additional rights to indemnification are authorized in the articles of the
corporation. An article provision authorizing indemnification in excess of that
otherwise permitted by Section 145 of the Code or to the fullest extent
permissible under Delaware law or the substantial equivalent thereof shall be
construed to be both a provision for additional indemnification for breach of
duty to the corporation and its stockholders as referred to in, and with the
limitations required by, Section 109 of the Delaware General Corporation law and
a provision for additional indemnification as referred to in the second sentence
of this subdivision (g). The rights to indemnity hereunder shall continue as to
a person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of the person.
Nothing contained in this Section 5.06 shall affect any right to indemnification
to which persons other than the directors and officers may be entitled by
contract or otherwise.
17
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(h) No indemnification or advance shall be made under this Section 5.06,
except as provided in subdivision (d) or paragraph (4) of subdivision (e), in
any circumstance where it appears:
(1) That it would be inconsistent with a provision of the articles, a
resolution of the stockholders or an agreement in effect at the time of the
accrual of the alleged cause of action asserted in the proceeding in which the
expenses were incurred or other amounts were paid, which prohibits or otherwise
limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
(i) The corporation shall have power to purchase and maintain insurance on
behalf of any agent of the corporation against any liability asserted against or
incurred by the agent in such capacity or arising out of the agent's status as
such whether or not the corporation would have the power to indemnify the agent
against such liability under the provisions of this section. The fact that a
corporation owns all or a portion of the shares of the company issuing a policy
of insurance shall not render this subdivision inapplicable if either of the
following conditions are satisfied:
(1) If the articles authorize indemnification in excess of that
authorized in this Section 5.06 and the insurance provided by this subdivision
(i) is limited as indemnification is required to be limited by Section 109 of
the Delaware General Corporation Law; or
(2) (A) The company issuing the insurance policy is organized,
licensed and operated in a manner that complies with the insurance laws and
regulations applicable to its jurisdiction of organization;
(B) The company issuing the policy provides procedures for processing
claims that do not permit that company to be subject to the direct control of
the corporation that purchased that policy; and
(C) The policy issued provides for some manner of risk sharing
between the issuer and purchaser of the policy, on one hand, and some
unaffiliated person or persons, on the other, such as by providing for more than
one unaffiliated person or persons, on the other, such as by providing for more
than one unaffiliated owner of the company issuing the policy or by providing
that a portion of the coverage furnished will be obtained from some unaffiliated
insurer or reinsurer.
(j) This Section 5.06 does not apply to any proceeding against any
trustee, investment manager or other fiduciary of an employee benefit plan in
such person's capacity as such, even though such person may also be an agent as
defined in subparagraph (a) above of the employer corporation. The corporation
shall have the power to indemnify such a trustee, investment manager or other
fiduciary to the extent permitted by Section 122(15) of the
18
<PAGE>
Delaware General Corporation Law. Any repeal or modification of the preceding
sentence of this subparagraph (j) shall not adversely affect any right or
provision hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
Section 5.07 Employee Stock Purchase Plans. The corporation may adopt and
-----------------------------
carry out a stock purchase plan or agreement or stock option plan or agreement
providing for the issue and sale for such consideration as may be fixed of its
unissued shares, or of issued shares acquired or to be acquired, to one or more
of the employees or directors of the corporation or of a subsidiary or to a
trustee on their behalf and for the payment for such shares in installments or
at one time, and may provide for aiding any such persons in paying for such
shares by compensation for services rendered, promissory notes or otherwise.
A stock purchase plan or agreement or stock option plan or agreement may
include, among other features, the fixing of eligibility for participation
therein, the class and price of shares to be issued or sold under the plan or
agreement, the number of shares which may be subscribed for, the method of
payment therefor, the reservation of title until full payment therefor, the
effect of the termination of employment, an option or obligation on the part of
the corporation to repurchase the shares upon termination of employment, subject
to the provisions of the Delaware General Corporation Law, restrictions upon
transfer of the shares and the time limits of and termination of the plan.
Section 5.08 Construction and Definitions. Unless the context otherwise
----------------------------
requires, the general provisions, rules of construction and definitions
contained in the Delaware General Corporation Law shall govern the construction
of these by-laws. Without limiting the generality of the foregoing, the
masculine gender includes the feminine and neuter, the singular number includes
the plural and the plural number includes the singular, and the term "person"
includes a corporation as well as a natural person.
19
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Article VI. Amendments
----------------------
Section 6.01 Power of Stockholders. New by-laws may be adopted or these
---------------------
by-laws may be amended or repealed by the vote of stockholders entitled to
exercise a majority of the voting power of the corporation or by the written
consent of such stockholders, except as otherwise provided by law, by the
Certificate of Incorporation, or by any other provisions of these by-laws.
Section 6.02 Power of Directors. Subject to the right of stockholders as
------------------
provided in Section 6.01 to adopt, amend or repeal by-laws, any by-law may be
adopted, amended or repealed by the Board of Directors other than a by-law or
amendment thereof changing the authorized number of directors, if such number is
fixed, or the maximum-minimum limits thereof, if an indefinite number.
20
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EXHIBIT 3.5
BYLAWS
------
OF
--
GEOCITIES
---------
ARTICLE I
---------
LAW, CERTIFICATE OF INCORPORATION AND BYLAWS
--------------------------------------------
Section 1. These Bylaws are subject to the Certificate of Incorporation of
---------
the corporation. In these Bylaws, references to law, the Certificate of
Incorporation and Bylaws mean the law, the provisions of the Certificate of
Incorporation and the Bylaws as from time to time in effect.
ARTICLE II
----------
STOCKHOLDERS
------------
Section 1. Annual Meetings. The annual meeting of stockholders shall be
--------- ---------------
held at such place, on such date, and at such time as the Board of Directors
shall each year fix, which date shall be within thirteen months subsequent to
the later of the last annual meeting of stockholders, at which meeting they
shall elect a Board of Directors and transact such other business as may be
required by law or these Bylaws or as may properly come before the meeting.
Section 2. Special Meetings. A special meeting of the stockholders may be
--------- ----------------
called at any time by the Chairman of the Board, if any, or a majority of the
Board of Directors. A special meeting of the stockholders shall be called by
the Secretary, or in the case of the death, absence, incapacity or refusal of
the Secretary, by an Assistant Secretary or some other officer. Any such
application shall state the purpose or purposes of the proposed meeting. Any
such call shall state the place, date, hour, and purposes of the meeting.
Section 3. Place Of Meeting. All meetings of the stockholders for the
--------- ----------------
election of Directors or for any other purpose shall be held at such place
within or without the State of Delaware as may be determined from time to time
by the Chairman of the Board, if any, the President or the Board of Directors.
Any adjourned session of any meeting of the stockholders shall be held at the
place designated in the vote of adjournment.
Section 4. Notice Of Meetings. Except as otherwise provided by law, a
--------- ------------------
written notice of each meeting of stockholders stating the place, day and hour
thereof and, in the case of a special meeting, the purposes for which the
meeting is called, shall be given not less then ten (10) nor more than sixty
(60) days before the meeting, to each stockholder entitled to vote thereat, and
to each stockholder who, by law, by the Certificate of Incorporation or by these
Bylaws, is
1
<PAGE>
entitled to notice, by leaving such notice with him or at his residence or usual
place of business, or by depositing it in the United States mail, postage
prepaid, and addressed to such stockholder at his address as it appears in the
records of the corporation. Such notice shall be given by the Secretary, or by
an officer or person designated by the Board of Directors. As to any adjourned
session of any meeting of stockholders, notice of the adjourned meeting need not
be given if the time and place thereof are announced at the meeting at which the
adjournment was taken except that if the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is set for the adjourned
session, notice of any such adjourned session of the meeting shall be given in
the manner heretofore described. No notice of any meeting of stockholders or
any adjourned session thereof need be given to a stockholder if a written waiver
of notice, executed before or after the meeting or such adjourned session by
such stockholder, is filed with the records of the meeting or if the stockholder
attends such meeting without objecting at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the stockholders or any adjourned session thereof need be specified
in any written waiver of notice.
Section 5. Quorum Of Stockholders. At any meeting of the stockholders a
--------- ----------------------
quorum as to any matter shall consist of a majority of the votes entitled to be
cast on the matter, except where a larger quorum is required by law, by the
Certificate of Incorporation or by these Bylaws. Any meeting may be adjourned
from time to time by a majority of the votes properly cast upon the question,
whether or not a quorum is present. If a quorum is present at an original
meeting, a quorum need not be present at an adjourned session of that meeting.
Shares of its own stock belonging to the corporation or to another corporation,
if a majority of the shares entitled to vote in the election of directors of
such other corporation is held, directly or indirectly, by the corporation,
shall neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of any corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary
capacity.
Section 6. Action By Vote. When a quorum is present at any meeting, a
--------- --------------
plurality of the votes properly cast for election to any office shall elect to
such office and a majority of the votes properly cast upon any question other
than an election to an office shall decide the question, except when a larger
vote is required by law, by the Certificate of Incorporation or by these Bylaws.
No ballot shall be required for any election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
Section 7. Proxy Representation. Every stockholder may authorize another
--------- --------------------
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether by waiving notice of any meeting, objecting
to or voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by his
attorney-in-fact. No proxy shall be voted or acted upon after three years from
its date unless such proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and, if, and only as
long as, it is coupled with an
2
<PAGE>
interest sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. The
authorization of a proxy may but need not be limited to specified action,
provided, however, that if a proxy limits its authorization to a meeting or
meetings of stockholders, unless otherwise specifically provided such proxy
shall entitle the holder thereof to vote at any adjourned session but shall not
be valid after the final adjournment thereof.
Section 8. Inspectors. The Directors or the person presiding at the
--------- ----------
meeting may, and shall if required by applicable law, appoint one or more
inspectors of election and any substitute inspectors to act at the meeting or
any adjournment thereof. Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors, if any, shall determine the number of shares of
stock outstanding and the voting power of each, the shares of stock represented
at the meeting, the existence of a quorum, the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspectors shall make a
report in writing of any challenge, question or matter determined by them and
execute a certificate of any fact found by them.
Section 9. List Of Stockholders. The Secretary shall prepare and make, at
--------- --------------------
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at such meeting, arranged in alphabetical order
and showing the address of each stockholder and the number of shares registered
in his name. The stock ledger shall be the only evidence as to who are
stockholders entitled to examine such list or to vote in person or by proxy at
such meeting.
Section 10. Stockholder Proposals. At an annual meeting of stockholders,
---------- ---------------------
only such business shall be conducted, and only such proposals shall be acted
upon, as shall have been properly brought before the annual meeting of
stockholders (i) by or at the direction of the Board of Directors or (ii) by a
stockholder of the corporation who complies with the procedures set forth in
this Section 10. For business or a proposal to be properly brought before an
annual meeting of stockholders by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 120 days nor
more than 150 days prior to the first anniversary of the date of the Company's
notice of annual meeting provided with respect to the previous year's annual
meeting of stockholders; provided that if no annual meeting of stockholders was
--------
held in the previous year or the date of the annual meeting of stockholders has
been changed to be more than 30 calendar days earlier than or 60 calendar days
after such anniversary, notice by the stockholder, to be timely, must be so
received not more than 90 days nor later than the later of (i) 60 days prior to
3
<PAGE>
the annual meeting of stockholders or (ii) the close of business on the 10th day
following the date on which notice of the date of the meeting is given to
stockholders or made public, whichever first occurs.
A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before an annual meeting of stockholders (i) a
description, in 500 words or less, of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as such information appears on the
Corporation's books, of the stockholder proposing such business and any other
stockholders known by such stockholder to be supporting such proposal, (iii) the
class and number of shares of the Corporation that are beneficially owned by
such stockholder and each other stockholder known by such stockholder to be
supporting such proposal on the date of such stockholder's notice, (iv) a
description, in 500 words or less, of any interest of the stockholder in such
proposal and (v) a representation that the stockholder is a holder of record of
stock of the Corporation and intends to appear in person or by proxy at the
meeting to present the proposal specified in the notice.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that any business or proposal was not properly brought
before the meeting in accordance with the procedures prescribed by this Section
10, and if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing, nothing in this Section 10 shall be interpreted
or construed to require the inclusion of information about any such proposal in
any proxy statement distributed by, at the direction of, or on behalf of, the
Board of Directors.
Section 11. Nomination for Election. Nominations of persons for election
---------- -----------------------
to the Board of Directors may be made at an annual meeting of stockholders or
special meeting of stockholders called by the Board of Directors for the purpose
of electing directors (i) by or at the direction of the Board of Directors or
(ii) by any stockholder of the Corporation entitled to vote for the election of
directors at such meeting who complies with the notice procedures set forth in
this Section 11. Such nomination, other than those made by or at the direction
of the Board shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 120 days nor more than 150 days prior to the first anniversary of the
date of the Company's notice of annual meeting provided with respect to the
previous year's annual meeting of stockholders; provided that if no annual
--------
meeting of stockholders was held in the previous year or the date of the annual
meeting of stockholders has been changed to be more than 30 calendar days
earlier than or 60 calendar days after such anniversary, notice by the
stockholder, to be timely, must be so received not more than 90 days nor later
than the later of (i) 60 days prior to the annual meeting of stockholders or
(ii) the close of business on the 10th day following the date on which notice of
the date of the meeting is given to stockholders or made public, whichever first
occurs.
4
<PAGE>
A stockholder's notice to the Secretary shall set forth (i) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director (a) the name, age, business address and residence address of such
person, (b) the principal occupation or employment of such person, (c) the class
and number of shares of the Corporation which are beneficially owned by such
person on the date of such stockholder's notice and (d) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, or any successor statute thereto (including, without limitation, such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (ii) as to the stockholder giving notice
(a) the name and address, as such information appears on the Corporation's
books, of such stockholder and any other stockholders known by such stockholder
to be supporting such nominee(s), (b) the class and number of shares of the
Corporation which are beneficially owned by such stockholder and each other
stockholder known by such stockholder to be supporting such nominee(s) on the
date of such stockholders notice, (c) a representation that the stockholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; and (iii) a description of all
arrangements or understandings between the stockholder and each nominee and
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder.
Subject to the rights, if any, of the holders of any series of Preferred
Stock then outstanding, no person shall be eligible for election as a director
of the Corporation unless nominated in accordance with the procedures set forth
in this Section 11. The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by this Section 11 and if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded.
ARTICLE III
-----------
BOARD OF DIRECTORS
------------------
Section 1. Number. The Board of Directors shall be seven (7) in number.
--------- ------
The number of directors may be fixed at any time by the affirmative vote of a
majority of the directors at a regular or special meeting called for that
purpose, provided, however, that no vote to decrease the number of the directors
of the Corporation shall shorten the term of any incumbent director. Directors
need not be stockholders.
Section 2. Tenure. Except as otherwise provided by law, by the
--------- ------
Certificate of Incorporation or by these Bylaws, each director shall hold office
until the next annual meeting and until his successor is elected and qualified,
or until he sooner dies, resigns, is removed or becomes disqualified.
5
<PAGE>
Section 3. Powers. The business and affairs of the corporation shall be
--------- ------
managed by or under the direction of the Board of Directors who shall have and
may exercise all the powers of the corporation and do all such lawful acts and
things as are not by law, the Certificate of Incorporation or these Bylaws
directed or required to be exercised or done by the stockholders.
Section 4. Vacancies. Vacancies and any newly created directorships
--------- ---------
resulting from any increase in the number of directors may be filled by vote of
the holders of the particular class or series of stock entitled to elect such
director at a meeting called for the purpose, or by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director, in
each case elected by the particular class or series of stock entitled to elect
such directors. When one or more directors shall resign from the Board,
effective at a future date, a majority of the directors then in office,
including those who have resigned, who were elected by the particular class or
series of stock entitled to elect such resigning director or directors shall
have power to fill such vacancy or vacancies, the vote or action by writing
thereon to take effect when such resignation or resignations shall become
effective. The directors shall have and may exercise all their powers
notwithstanding the existence of one or more vacancies in their number, subject
to the Certificate of Incorporation, and to the other provisions of these
Bylaws, as to the number of directors required for a quorum or for any vote or
other actions.
Section 5. Committees. The Board of Directors may, by vote of a majority
--------- ----------
of the whole Board, (a) designate, change the membership of or terminate the
existence of any committee or committees, each committee to consist of one or
more of the directors; (b) designate one or more directors as alternate members
of any such committee who may replace any absent or disqualified member at any
meeting of the committee; and (c) determine the extent to which each such
committee shall have and may exercise the powers of the Board of Directors in
the management of the business and affairs of the corporation, including the
power to authorize the seal of the corporation to be affixed to all papers which
require it and the power and authority to declare dividends or to authorize the
issuance of stock; excepting, however, such powers which by law, by the
Certificate of Incorporation or by these Bylaws they are prohibited from so
delegating. In the absence or disqualification of any member of such committee
and his alternate, if any, the member or members thereof present at any meeting
and not disqualified from voting, whether or not constituting a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Except as the
Board of Directors may otherwise determine, any committee may make rules for the
conduct of its business, but unless otherwise provided by the board or such
rules, its business shall be conducted as nearly as may be in the same manner as
is provided by these Bylaws for the conduct of business by the Board of
Directors. Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors upon request.
Section 6. Regular Meetings. Regular meetings of the Board of Directors
--------- ----------------
may be held without call or notice at such places within or outside of the State
of Delaware and at such times as the Board may from time to time determine;
provided, however, that notice of the first regular meeting following any such
determination shall be given to absent directors. A regular meeting
6
<PAGE>
of the directors may be held without call or notice immediately after and at the
same place as the annual meeting of stockholders.
Section 7. Special Meetings. Special meetings of the Board of Directors
--------- ----------------
may be held at any time and at any place within or outside of the State of
Delaware designated in the notice of the meeting, when called by the Chairman of
the Board, if any, or by one-third or more in number of the directors,
reasonable notice thereof being given to each director by the Secretary or by
the Chairman of the Board, if any, or any one of the directors calling the
meeting.
Section 8. Notice. It shall be reasonable and sufficient notice to a
--------- ------
director to send notice by mail at least forty-eight (48) hours or by telegram
at least twenty-four (24) hours before the meeting addressed to him at his usual
or last known business or residence address or to give notice to him in person
or by telephone or facsimile at least twenty-four (24) hours before the meeting.
Notice of a meeting need not be given to any director if a written waiver of
notice, executed by him before or after the meeting, is filed with the records
of the meeting, or to any director who attends the meeting without protesting
prior thereto or at its commencement the lack of notice to him. Neither notice
of a meeting nor a waiver of a notice need specify the purposes of the meeting.
Section 9. Quorum. Except as may be otherwise provided by law, by the
--------- ------
Certificate of Incorporation or by these Bylaws, at any meeting of the directors
a majority of the directors then in office shall constitute a quorum; a quorum
shall not in any case be less than one-third of the total number of directors
constituting the whole board. Any meeting may be adjourned from time to time by
a majority of the votes cast upon the question, whether or not a quorum is
present, and the meeting may be held as adjourned without further notice.
Section 10. Action By Vote. Except as may be otherwise provided by law,
---------- --------------
by the Certificate of Incorporation or by these Bylaws, when a quorum is present
at any meeting the vote of a majority of the directors present shall be the act
of the Board of Directors.
Section 11. Action Without A Meeting. Any action required or permitted to
---------- ------------------------
be taken at any meeting of the Board of Directors or a committee thereof may be
taken without a meeting if all the members of the Board or of such committee, as
the case may be, consent thereto in writing, and such writing or writings are
filed with the records of the meetings of the Board or of such committee. Such
consent shall be treated for all purposes as the act of the Board or of such
committee, as the case may be.
Section 12. Participation In Meetings By Conference Telephone. Members of
---------- -------------------------------------------------
the Board of Directors, or any committee designated by such Board, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other or by any other means permitted
by law. Such participation shall constitute presence in person at such meeting.
7
<PAGE>
Section 13. Compensation. In the discretion of the Board of Directors,
---------- ------------
each director may be paid such fees for his services as director (including,
without limitation, in the form of cash compensation and stock options to
purchase common stock of the corporation) and be reimbursed for his reasonable
expenses incurred in the performance of his duties as director as the Board of
Directors from time to time may determine. Nothing contained in this section
shall be construed to preclude any director from serving the corporation in any
other capacity and receiving reasonable compensation therefor.
ARTICLE IV
----------
OFFICERS AND AGENTS
-------------------
Section 1. Enumeration; Qualification. The officers of the corporation
--------- --------------------------
shall be a President, a Secretary and such other officers, if any, as the Board
of Directors from time to time may in its discretion elect or appoint,
including, without limitation, a Chairman of the Board and one or more Vice
Presidents. The corporation may also have such agents, if any, as the Board of
Directors from time to time may in its discretion choose. Any officer may be
but none need be a director or stockholder. Any two or more offices may be held
by the same person. Any officer may be required by the Board of Directors to
secure the faithful performance of his duties to the corporation by giving bond
in such amount and with sureties or otherwise as the Board of Directors may
determine.
Section 2. Powers. Subject to law, to the Certificate of Incorporation
--------- ------
and to the other provisions of these Bylaws, each officer shall have, in
addition to the duties and powers herein set forth, such duties and powers as
are commonly incident to his office and such additional duties and powers as the
Board of Directors may from time to time designate.
Section 3. Election. The officers may be elected by the Board of
--------- --------
Directors at their first meeting following the annual meeting of the
stockholders or at any other time. At any time or from time to time the
directors may delegate to any officer their power to elect or appoint any other
officer or any agents.
Section 4. Tenure. Each officer shall hold office at the pleasure of the
--------- ------
Board of Directors or other officers of the corporation authorized by the Board
of Directors until the first meeting of the Board of Directors following the
next annual meeting of the stockholders and until his respective successor is
chosen and qualified unless a shorter period shall have been specified by the
terms of his election or appointment, or in each case until he sooner dies,
resigns, is removed or becomes disqualified.
Section 5. Chairman Of The Board Of Directors, Chief Executive Officer And
--------- ---------------------------------------------------------------
Vice President. The Chairman of the Board, if any, shall have such duties and
- --------------
powers as shall be designated from time to time by the Board of Directors.
Unless the Board of Directors otherwise specifies, the Chairman of the Board, or
if there is none the Chief Executive Officer, shall
8
<PAGE>
preside, or designate the person who shall preside, at all meetings of the
stockholders and of the Board of Directors.
Unless the Board of Directors otherwise specifies, the Chief Executive
Officer, or, in his or her absence, the President, shall be the chief executive
officer of the corporation and shall have direct charge of all business
operations of the corporation and, subject to the control of the Directors,
shall have general charge and supervision of the business of the corporation.
Any Vice Presidents shall have such duties and powers as shall be set
forth in these Bylaws or as shall be designated from time to time by the Board
of Directors or by the officer or officers of the corporation authorized by the
Board of Directors.
Section 6. Chief Financial Officer. Unless the Board of Directors
--------- -----------------------
otherwise specifies, the Chief Financial Officer of the corporation shall be in
charge of its funds and valuable papers, and shall have such other duties and
powers as may be designated from time to time by the Board of Directors or by
the Chief Executive Officer. If no Controller is elected, the Chief Financial
Officer shall, unless the Board of Directors otherwise specifies, also have the
duties and powers of the Controller.
Section 7. Controller And Assistant Controllers. If a controller is
--------- ------------------------------------
elected, he shall, unless the Board of Directors otherwise specifies, be the
Chief Accounting Officer of the corporation and be in charge of its books of
account and accounting records, and of its accounting procedures. He shall have
such other duties and powers as may be designated from time to time by the Board
of Directors, the President or the Chief Executive Officer.
Any Assistant Controller shall have such duties and powers as shall be
designated from time to time by the Board of Directors, the President, or the
Controller.
Section 8. Secretary And Assistant Secretaries. The Secretary shall
--------- -----------------------------------
record all proceedings of the stockholders, of the Board of Directors and of
committees of the Board of Directors in a book or series of books to be kept
therefor and shall file therein all actions by written consent of stockholders
or directors. In the absence of the Secretary from any meeting, an Assistant
Secretary, or if there be none or he is absent, a temporary Secretary chosen at
the meeting, shall record the proceedings thereof. Unless a transfer agent has
been appointed the Secretary shall keep or cause to be kept the stock and
transfer records of the corporation, which shall contain the names and record
addresses of all stockholders and the number of shares registered in the name of
each stockholder. He shall have such other duties and powers as may from time
to time be designated by the Board of Directors or the President.
Any Assistant Secretaries shall have such duties and powers as shall
be designated from time to time by the Board of Directors, the President or the
Secretary.
9
<PAGE>
ARTICLE V
---------
RESIGNATIONS AND REMOVALS
-------------------------
Section 1. Any director or officer may resign at any time by delivering
---------
his resignation in writing to the Chairman of the Board, if any, the President,
or the Secretary or to a meeting of the Board of Directors. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time, and without in either case the necessity of its being accepted unless the
resignation shall so state. Except as may be otherwise provided by law, by the
Certificate of Incorporation or by these Bylaws, a director (including persons
elected by stockholders or directors to fill vacancies) may be removed from
office for cause only. The Board of Directors may at any time terminate or
modify the authority of any agent.
ARTICLE VI
----------
CAPITAL STOCK
-------------
Section 1. Stock Certificates. Each stockholder shall be entitled to a
--------- ------------------
certificate stating the number and the class and the designation of the series,
if any, of the shares held by him, in such form as shall, in conformity to law,
the Certificate of Incorporation and the Bylaws, be prescribed from time to time
by the Board of Directors. Such certificate shall be signed by the Chairman or
Vice Chairman of the Board, if any, or the President or a Vice President and by
the Chief Financial Officer or by the Secretary or an Assistant Secretary. Any
of or all the signatures on the certificate may be a facsimile. In case an
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed on such certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent, or registrar at the time of its issue.
Section 2. Loss Of Certificates. In the case of the alleged theft, loss,
--------- --------------------
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms, including receipt of a bond
sufficient to indemnify the corporation against any claim on account thereof, as
the Board of Directors may prescribe.
ARTICLE VII
-----------
TRANSFER OF SHARES OF STOCK
---------------------------
Section 1. Transfer On Books. Subject to the restrictions, if any,
--------- -----------------
related to such shares of the corporation; shares of stock may be transferred on
the books of the corporation by the surrender to the corporation or its transfer
agent of the certificate therefor properly endorsed
10
<PAGE>
or accompanied by a written assignment and power of attorney properly executed,
with necessary transfer stamps affixed, and with such proof of the authenticity
of signature as the Board of Directors or the transfer agent of the corporation
may reasonably require. Except as may be otherwise required by law, by the
Certificate of Incorporation or by these Bylaws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to receive notice and to vote or to give any consent with respect thereto and to
be held liable for such calls and assessments, if any, as may lawfully be made
thereon, regardless of any transfer, pledge or other disposition of such stock
until the shares have been properly transferred on the books of the corporation.
It shall be the duty of each stockholder to notify the corporation of
his post office address.
Section 2. Record Date. In order that the corporation may determine the
--------- -----------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting. If no such record date is fixed by the Board of Directors, the record
date for determining the stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
In order that the corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted, and which record
date shall be not more than sixty (60) days prior to such payment, exercise or
other action. If no such record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
11
<PAGE>
ARTICLE VIII
------------
CORPORATE SEAL
--------------
Section 1. Subject to alteration by the Board of Directors, the seal of
---------
the corporation shall consist of a flat-faced circular die with the word
"Delaware" and the name of the corporation cut or engraved thereon, together
with such other words, dates or images as may be approved from time to time by
the Board of Directors.
ARTICLE IX
----------
EXECUTION OF PAPERS
-------------------
Section 1. Except as the Board of Directors may generally or in particular
---------
cases authorize the execution thereof in some other manner, all deeds, leases,
transfers, contracts, bonds, notes, checks, drafts or other obligations made,
accepted or endorsed by the corporation shall be signed by the Chairman of the
Board, if any, the President, or a Vice President.
ARTICLE X
---------
FISCAL YEAR
-----------
Section 1. The fiscal year of the corporation shall end on December 31.
---------
ARTICLE XI
----------
AMENDMENTS
----------
Section 1. These Bylaws may be adopted, amended or repealed by vote of a
---------
majority of the directors then in office or by vote of a majority of the voting
power of the stock outstanding and entitled to vote. Any Bylaw, whether
adopted, amended or repealed by the stockholders or directors, may be amended or
reinstated by the stockholders or the directors.
12
<PAGE>
EXHIBIT 4.1
COMMON STOCK [LOGO OF GEOCITIES] COMMON STOCK
INCORPORATED UNDER THE SEE REVERSE FOR
LAWS OF THE STATE OF CERTAIN
DELAWARE DEFINITIONS
CUSIP 37247V 10 6
This Certifies that
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is the record holder of
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FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
GEOCITIES
transferable on the books of the Corporation in person or by duly authorized
attorney on surrender of this certificate properly endorsed. This certificate
shall not be valid until countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the signatures of its duly
authorized officers
Dated:
/s/ /s/
[SEAL OF GEOCITIES]
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF
AND SECRETARY EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE
OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<C> <C> <S> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ............. Custodian .............
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act..................................
in common (State)
COM PROP -- as community property UNIF TRF MIN ACT -- .......... Custodian (until age ....)
(Cust)
..............under Uniform Transfers
to Minors Act .......................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, _____________________________ hereby sell(s), assign(s)
and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
| |
| |
|______________________________________|
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________attorney-in-fact
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated________________________
_____________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATSOEVER.
Signature Guaranteed
__________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
August 5, 1998
GeoCities
1918 Main Street, Suite 300
Santa Monica, California 90405
Re: GeoCities Registration Statement on Form S-1 for
5,462,500 Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to GeoCities, a Delaware corporation (the
"Company"), in connection with the proposed issuance and sale by the Company of
up to 5,462,500 shares of the Company's Common Stock (the "Shares") pursuant to
the Company's Registration Statement on Form S-1 (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act"). This opinion is being furnished in accordance with
the requirements of Item 16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation
S-K.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Shares. Based on such review, we are of the opinion that the Shares have been
duly authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
This opinion letter is rendered as of the date first written above and we
disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
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This Agreement is made and entered into effective as of the 28th day of
December, 1995, by and between GEOCITIES (formerly Beverly Hills Internet), a
California corporation (the "Company"), and DAVID BOHNETT ("Employee").
1. Employment.
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1.1 The Company agrees to employ or continue the employment of Employee on
the terms and conditions of this Agreement commencing as of January 1, 1996, and
continuing for two years thereafter, unless terminated earlier as provided in
Paragraph 4 below.
2. Duties of Employee.
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2.1 Employee shall serve as the President and Chief Executive Officer of
the Company, and head of its management team. In this capacity, Employee shall
do and perform all services, acts or things necessary or advisable to manage and
conduct the business of the Company, including without limitation recruiting
management and staff, developing and managing strategic relationships with third
parties, preparing operating plans and budgets, negotiating contracts and
providing guidance on the Company's overall strategy. Employee's actions shall
be subject at all times to the policies set by the Company's Board of Directors,
and to the consent of the Board of Directors as may be necessary or appropriate.
2.2 Employee agrees to devote Employee's full time, attention, skill, and
efforts to the performance of duties for the Company during the term of this
Agreement.
2.3 Employee shall not engage in any other business duties or pursuits
whatsoever, or directly or indirectly render any services of a business,
commercial or professional nature to any other person or entity, whether for
compensation or otherwise, without the prior written consent of the Company's
Board of Directors.
2.4 This Agreement shall not be interpreted to prohibit Employee from
making passive personal investments or conducting private business affairs if
those activities are not in competition with the Company and do not materially
interfere with the services required under this Agreement.
3. Calculation of Compensation.
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3.1 Salary. The Company shall pay to Employee, as compensation for
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services to be rendered by Employee under this Agreement, salary at the rate of
Seven Thousand Eighty Three Dollars ($7,083) per month, payable semi-monthly on
the fifteenth (15th) and last day of each month during the term of this
Agreement, prorated for any partial employment period, and subject to such
withholding as may be required by law. The Company shall conduct a
<PAGE>
review of Employee's performance on the first anniversary of the date of this
Agreement for the purpose of determining the amount of any increase in
Employee's salary, effective January 1, 1997.
3.2 Bonus. As additional compensation for the services rendered under
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this Agreement, Employee shall be eligible to receive an amount up to twenty-
five percent (25%) of Employee's annual salary, based on Employee's meeting
certain performance targets to be mutually agreed upon by Employee and the
Company's Board of Directors. Such bonus shall increase to an amount up to
fifty percent (50%) of Employee's annual salary, based on Employee's meeting
certain additional performance targets to be mutually agreed upon by Employee
and the Company's Board of Directors. The performance targets described in this
Section 3.2 shall be agreed upon not later than January 31 of each year during
the term of this Agreement.
3.3 Vacation. Employee shall be entitled to a maximum of fifteen (15)
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days of paid vacation during each year of employment. Vacation hours shall
accrue at a rate of 1.25 days per month. Employee shall not be entitled to
carry over more than fifteen (15) accrued, unused vacation days from one year to
the following year. Upon accruing the maximum number of vacation days, Employee
shall accrue no additional vacation days until the amount of accrued vacation is
reduced by actual vacation days taken. Employee shall not be entitled to
vacation pay in lieu of vacation, unless agreed to in writing by the Company.
3.4 Stock Option Plan. During his employment with the Company under this
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Agreement, Employee shall be eligible to participate in the Company's stock
option plan, subject to such plan's requirements, including those regarding
eligibility and vesting.
3.5 Other Benefits. During the term of this Agreement, the Employee shall
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be entitled to receive all other group life, health, medical or disability
insurance or other employee benefits generally available to other employees and
officers of the Company, when and as Employee becomes eligible therefor.
3.6 Business Expenses. The Company shall promptly reimburse Employee for
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all reasonable business expenses incurred by Employee in connection with the
business of the Company. Reimbursement shall be subject to Employee's providing
the Company with reasonable documentation of any expenditures for which Employee
is seeking reimbursement.
4. Termination.
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4.1 Termination for Cause.
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(a) The Company may terminate this Agreement if, in the reasonable
determination of the Board of Directors, Employee wilfully breaches or
habitually neglects the duties which he is required to perform under the terms
of this Agreement, or commits such acts of dishonesty, fraud or
misrepresentation or is convicted of any felony or any other serious crime as
would prevent the effective performance of his duties.
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<PAGE>
(b) The Company may at its option terminate this Agreement for the
reasons stated in this Subparagraph 4.1 by giving written notice to Employee
without prejudice to any other remedy to which the Company may be entitled
either at law or in equity. The notice of termination shall specify the ground
or grounds for termination and shall be supported by a statement of all relevant
facts.
(c) Termination under this Subparagraph 4.1 shall be considered
termination "for cause."
4.2 Termination Without Cause.
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(a) This Agreement shall be terminated upon the death of Employee.
(b) The Company may, at its sole option, terminate this Agreement if
Employee suffers any physical or mental disability which has prevented him from
performing his duties under this Agreement for more than six (6) months. The
Company shall give Employee thirty (30) days' prior written notice of his
termination pursuant to this provision.
(c) Termination under this Subparagraph 4.2 shall not be considered
termination "for cause."
5. Assignment.
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Employee may not, without the prior written consent of the Company, assign
this Agreement or any rights or obligations hereunder. The Company may assign
this Agreement and delegate any of its rights and duties, without the consent of
Employee, to any of its subsidiaries or affiliates or to any person or entity
who purchases the assets or stock of the Company.
6. Miscellaneous.
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6.1 This Agreement supersedes any and all other agreements, either oral or
in writing, between the parties hereto with respect to the employment of
Employee by the Company, and contains all of the covenants and agreements
between the parties with respect to such employment in any manner whatsoever.
Each party to this Agreement acknowledges that no representations, inducements,
promises or agreements, oral or otherwise, have been made by any party or anyone
acting on behalf of any party which are not expressly contained herein.
6.2 This Agreement may not be amended, supplemented, or modified or
extended except by a written agreement which expressly refers to this Agreement
and which is signed by each of the parties hereto.
6.3 This Agreement is made in and shall be governed by the laws of
California.
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<PAGE>
6.4 In the event that any provision of this Agreement is determined to be
illegal, invalid, or void for any reason, the remaining provisions hereof shall
continue in full force and effect.
6.5 To the extent that any portion of this Agreement is deemed
unenforceable by virtue of its scope in terms of area, business activity
prohibited and/or length of time, but could be enforceable by reducing the scope
of area, business activity prohibited and/or length of time, Employee and the
Company agree that same shall be enforced to the fullest extent permissible
under the laws and public policies applied in the jurisdiction in which
enforcement is sought, and that the Company shall have the right, in its sole
discretion, to modify such invalid or unenforceable provision to the extent
required to be valid and enforceable. Employee agrees to be bound by any promise
or covenant imposing the maximum duty permitted by law which is subsumed within
the terms of any provision hereof, as though it were separately articulated in
and made a part of this Agreement, that may result from striking or modifying
any of the provisions hereof.
6.6 Employee represents and warrants to the Company that there is no
restriction or limitation, by reason of any agreement or otherwise, upon
Employee's right or ability to enter into this Agreement and fulfill the
obligations under this Agreement.
6.7 Employee acknowledges, represents and agrees that Employee is not
relying on any inducement, representation, promise, or other statement not
expressly set forth herein in entering into this Agreement and accepting
employment with the Company, including without limitation any representation
regarding the term of employment or any right to continued employment.
6.8 The Company and Employee agree that claims or controversies arising
between them concerning this Agreement, Employee's employment or the termination
of such employment shall be resolved by binding arbitration in accordance with
the provisions of Exhibit "A", except as otherwise provided therein.
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/s/ David Bohnett
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DAVID BOHNETT
GEOCITIES, a California corporation
By: /s/David Bohnett
Name: David Bohnett
Title: President
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<PAGE>
EXHIBIT "A"
Arbitration of Employment Disputes
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1. Exclusive Remedy. The Company and Employee agree that, subject to the
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exclusions set forth in Paragraph 2 below, all claims or controversies arising
out of Employee's employment with the Company, or the termination thereof, shall
be submitted to final and binding arbitration. The foregoing includes any claim
brought against the Company, its parent, subsidiaries or affiliates and their
present and former officers, agents and employees. The Company and Employee
agree that arbitration is in lieu of, and that this Agreement constitutes a
waiver of, any court or jury trial that the Company or Employee might otherwise
be entitled to. The award or decision of the arbitrator shall be final and
judgment may be entered on it in accordance with applicable law in any court
having jurisdiction.
2. Scope of Agreement to Arbitrate. Except as provided below, this
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agreement to arbitrate includes, without limitation, any claims which may be
brought for employment discrimination (including discrimination on any legally
protected basis such as age, color, race, gender, sexual preference or
orientation, marital status, national origin, citizenship, mental or physical
disability, religious affiliation or veteran status) under federal, state or
local law, including, but not limited to, the Age Discrimination in Employment
Act of 1967, as amended, Title VII of the Civil Rights Act of 1964, as amended,
the Equal Pay Act of 1963, the Americans With Disabilities Act and the
California Fair Employment and Housing Act, and any claims for breach of express
or implied contract, breach of the covenant of good faith and fair dealing,
wrongful discharge, promissory estoppel, retaliation, harassment, personal
injury, tort and violation of public policy. This agreement to arbitrate is
subject only to the following exceptions: (1) claims for unemployment
compensation or workers' compensation benefits; (2) claims brought by Employee
during the term of this Agreement other than tort claims and employment
discrimination claims and related retaliation and harassment claims; and (3)
claims brought under the Employee Retirement Income Security Act.
3. Waiver of Punitive Damages and Claims for Attorneys' Fees. Employee
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understands that certain types of claims arising out of employment or
termination of employment, such as claims for employment discrimination, could
allow Employee to seek punitive damages and recover attorneys' fees. By entering
into this Agreement, Employee relinquishes any right to seek or receive punitive
damages or recover attorneys' fees in any forum, for any dispute arising out of
Employee's employment or the termination thereof. The parties agree that the
Arbitrator resolving a dispute is not permitted to award punitive or exemplary
damages or attorneys' fees to the employee for any dispute covered by this
agreement to arbitrate.
4. Arbitration Procedure. Any dispute that is to be resolved by
---------------------
arbitration under this Agreement shall be decided by arbitration held in Los
Angeles County, California, and
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<PAGE>
shall be administered by the American Arbitration Association (or equivalent
dispute resolution organization selected by the Company).
The Employment Dispute Resolution Rules of the American Association shall
apply and govern the arbitration, subject to the following:
(a) A demand for arbitration must be made in writing within the time period
set forth in the Agreement. Notice to the Company of a demand for arbitration
shall be sent to its principal place of business.
(b) The arbitration shall be held before one (1) arbitrator who shall be
selected by mutual agreement of the parties; if agreement is not reached on the
selection of an arbitrator within thirty (30) days after a party's demand for
arbitration, then the parties shall select a single arbitrator from a list of
seven (7) arbitrators designated by the American Arbitration Association. The
arbitrator appointed must be a former or retired judge with experience in
deciding or litigating employment law cases.
(c) All proceedings involving the parties shall be reported by a certified
shorthand court reporter and written transcripts of the proceeding shall be
prepared and made available to the parties.
(d) The arbitrator shall prepare in writing and provide to the parties
findings of fact and conclusions of law sufficient to provide a rationale for
the arbitrator's decision with respect to each matter at issue.
(e) Subject to the limitation in Paragraph 3 above, the prevailing party
shall be awarded reasonable expert and nonexpert witness costs and expenses, and
other reasonable costs and expenses incurred in connection with the arbitration,
unless the arbitrator for good cause determines otherwise.
(f) Costs and fees of the arbitrator shall be borne by the nonprevailing
party, unless the arbitrator for good cause determines otherwise.
(g) The provisions of Title 9 of Part 3 of the California Code of Civil
Procedure, including Section 1283.05, and successor statutes, permitting
expanded discovery proceedings shall be applicable to all disputes that are
arbitrated pursuant to this Agreement.
NOTICE: BY INITIALLING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF EMPLOYMENT
DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW
AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED
IN A COURT OR JURY TRIAL. BY INITIALLING IN THE SPACE BELOW YOU ARE GIVING UP
YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE
SPECIFICALLY INCLUDED IN THE "ARBITRATION OF EMPLOYMENT
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<PAGE>
DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO
THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE
FEDERAL ARBITRATION ACT AND CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1281 ET
SEQ. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT
DISPUTES ARISING OUT OF THE MATTERS DESCRIBED HEREIN TO NEUTRAL
ARBITRATION.
Initials: /s/DCB /s/DCB
----------------------- --------
Company Employee
(Officer should initial
on behalf of Company)
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<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT dated as of January 13, 1997,
by and among GEOCITIES, a California corporation (the "Company"), and DAVID
BOHNETT ("Employee").
W I T N E S S E T H:
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WHEREAS, the Company and Employee are parties to an Employment
Agreement dated as of December 28, 1995 (the "Original Employment Agreement"),
which provides, among other things, for the employment by the Company of
Employee as President and Chief Executive Officer of the Company, on the terms
and subject to the conditions set forth therein; and
WHEREAS, the Company is offering for sale shares of Series D Preferred
Stock to certain investors (the "Series D Investors") pursuant to the terms of a
Preferred Stock Purchase Agreement dated as of January 10, 1997 (the "Purchase
Agreement"); and
WHEREAS, in order to induce the Series D Investors to consummate the
transactions contemplated by the Purchase Agreement, the parties hereto desire
to amend the Original Employment Agreement in the manner hereinafter provided,
on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and subject to and
on the terms and conditions herein set forth, the parties hereto agree as
follows:
1. Capitalized Terms. Capitalized terms used herein and not
-----------------
otherwise defined shall have the meanings ascribed thereto in the Original
Employment Agreement.
2. Amendments to Original Employment Agreement. In accordance with
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Section 6.2 of the Original Employment Agreement, the Original Employment
Agreement is hereby amended as follows:
(a) All references in Sections 2.2, 3.1, 3.2 and 3.5 to the "term of
this Agreement" are replaced by references to the "term of Employee's employment
hereunder", and the reference in Section 4.1(b) to the Company's right to
"terminate this Agreement" is replaced by a reference to the right to "terminate
Employee's employment hereunder."
(b) Section 1.1 of the Original Employment Agreement is hereby amended
and restated in its entirety to read as follows:
"The Company agrees to employ or continue the employment of
Employee on the terms and conditions of this Agreement commencing as
of
<PAGE>
January 1, 1996 and continuing until December 31, 1998, unless earlier
terminated as provided in Paragraph 4 below."
(c) Section 3.1 of the Original Employment Agreement is hereby amended
as follows:
(i) by deleting the phrase and number "Seven Thousand Eighty-Three
Dollars ($7,083)", respectively, and substituting in lieu thereof the
phrase and number "Ten Thousand Dollars ($10,000)," and by deeming the
foregoing amendment as reflecting the increase in Employee's salary that
was to have become effective as of January 1, 1997, as provided in Section
3.1 of the Original Employment Agreement, and
(ii) by deleting the last sentence thereof in its entirety and
substituting the following text in lieu thereof:
"The Company shall conduct a review of Employee's performance on
January 1, 1998 for the purpose of determining the amount of any
increase in Employee's salary, effective as of January 1, 1998."
(d) Section 4.1(a) of the Original Employment Agreement is hereby
amended and restated in its entirety to read as follows:
"The Company may terminate the employment of Employee hereunder
if, in the reasonable determination of the Board of Directors,
Employee (i) materially breaches or habitually neglects the duties
which he is required to perform under this Agreement, (ii) fails to
follow the reasonable and lawful duties assigned to Employee by the
Board of Directors or the reasonable and lawful orders of the Board of
Directors, (iii) wilfully breaches the provisions of Section 2.3 of
this Agreement or the provisions of the Confidential Information and
Inventions Agreement between the Company and Employee, or (iv) commits
any felony or act of dishonesty, fraud or misrepresentation directly
relating to the Company or that would constitute a breach of
Employee's fiduciary duty to the Company, (v) has been convicted of
any felony or (vi) has committed any other serious crime as would
prevent the effective performance of his duties."
(e) Section 4.2(c) of the Original Employment Agreement is hereby
amended and restated in its entirety to read as follows:
"The Company may also terminate Employee's employment under this
Agreement other than pursuant to Section 4.1 above or paragraphs (a)
or (b) of this Section 4.2, in which case, so long as Employee shall
not have breached the provisions of his Confidential Information and
Inventions Agreement with
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<PAGE>
the Company, the Company shall pay to Employee, as severance pay or
liquidated damages or both, an amount equal to Employee's then-current
annual base salary, such amount being payable in equal installments at
regular intervals in accordance with the Company's payroll practices
over the duration of the twelve-month post-termination period.
Notwithstanding anything to the contrary expressed or implied in this
Agreement, except as set forth in this paragraph (c) and except for
amounts payable in connection with the exercise by the Company of its
repurchase right set forth in Section 6 below, the Company shall not
be obligated to make any payments to Employee or on his behalf of
whatever kind or nature by reason of Employee's cessation of
employment, other than (i) such amounts, if any, of his salary as
shall have accrued, and any bonus that shall have become due and
payable, that remain unpaid as of the date of said cessation and (ii)
such other amounts which may be then otherwise payable to Employee
from the Company's benefits plans or reimbursement policies, if any."
(f) The Original Employment Agreement is hereby amended by
redesignating Section 6 and Sub paragraphs 6.1 through 6.8 of the Original
Employment Agreement and references thereto as Section 7 and Subparagraphs 7.1
through 7.8 and references to such revised numeration, and inserting immediately
prior to such redesignated Section the following new Section 6:
"6. Employee's Stock. Employee has purchased from the Company
----------------
583,250 shares of Common Stock and 300,000 shares of Series C
Preferred Stock and has been granted options to purchase up to 150,000
shares of Common Stock (such shares and any shares issuable upon
exercise of said options or conversion of the Series C Preferred Stock
being referred to herein as the "Employee's Shares"). The Employee's
Shares shall be affected as follows upon termination of Employee's
employment with the Company:
6.1 In the event that Employee ceases to be employed by the
Company for any reason (including, without limitation, as a result of
resignation, retirement, dismissal with or without cause, death or
disability), the Company shall have the sole right and option to
repurchase all of the Employee's Shares at their Fair Market Value (as
defined below). The Company agrees to give Employee notice of its
intent to exercise such option within ninety (90) days of the
effective date of such termination and to have paid for such shares in
cash at the end of such 90th day (unless the Fair Market Value has not
been conclusively determined as of such date, in which case the
Company shall pay Employee promptly after the Fair Market Value is
determined in accordance with Section 6.2 below).
6.2 The Fair Market Value of the Employee's Shares to be
repurchased shall initially be proposed by the Board of Directors
within 30 days of the later of the date of termination of his
employment and the date
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<PAGE>
of exercise by Employee of options to purchase Employee Shares. If
Employee objects to the Fair Market Value as so proposed, Employee may
request an appraisal by written notice of objection delivered not
later than ten (10) days after receipt of the Fair Market Value set by
the Company's Board of Directors. If an appraisal is requested,
Employee and the Company shall jointly select an appraiser to
determine the Fair Market Value of the Employee's Shares. If Employee
and the Company cannot agree on an appraiser, each shall select its
own appraiser (each a "Party Appraiser") and the two Party Appraisers
shall jointly select a third appraiser (the "Arbitrating Appraiser").
Each of the Party Appraisers shall submit its appraisal to the
Arbitrating Appraiser, and the Arbitrating Appraiser shall select one
of such appraisals as the Fair Market Value. If any such appraisal
results in a Fair Market Value more than 5% higher than the Board of
Directors' original valuation, then all expenses of such appraisal
shall be paid by the Company; otherwise, the cost of such appraisal
shall be shared equally by Employee and the Company.
6.3 Notwithstanding anything to the contrary set forth in this
Section 6, if (a) Employee's employment with the Company is
involuntarily terminated (a "Termination") other than (i) for cause
(as defined in Subparagraph 4.1 hereof) or (ii) because of Employee's
death, and (b) there is a Liquidation (as such term is defined in the
Second Amended and Restated Articles of Incorporation of the Company)
within one (1) year following such Termination in which the price per
share of Common Stock received by the holders of Common Stock upon the
consummation of the Liquidation (the "Liquidation Price") is greater
than the average price per share for the Employee's Shares received by
Employee from the Company following the Termination (the "Repurchase
Price"), then Employee shall be entitled to receive the following
amounts from the Company concurrently with the consummation of the
Liquidation: (i) if the Liquidation is consummated within the first
six months following Termination, then Employee shall be entitled to
receive an amount equal to the Liquidation Price minus the Repurchase
Price, multiplied by the number of Employee's Shares repurchased by
the Company following such Termination and prorated to reflect the
percentage of holdings of each holder of Common Stock that is being
sold in such Liquidation (the "Differential Amount"); (ii) if the
Liquidation in consummated between the start of the seventh and end of
the ninth month following Termination, then Employee shall be entitled
to receive an amount equal to seventy-five percent (75%) of the
Differential Amount; and (iii) if the Liquidation is consummated
between the start of the tenth and end of the Twelfth month following
Termination, then Employee shall be entitled to fifty percent (50%) of
the Differential Amount. If the Liquidation is consummated following
the end of the twelfth month following Termination, then Employee
shall not be entitled to receive any amounts under this Subparagraph
6.3. Any such amounts payable by the Company under this Subparagraph
6.3 shall be paid to Employee in the same
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<PAGE>
form of consideration, and in the same proportions and at the same
times, as shall have been applicable to all other holders of Common
Stock in such Liquidation.
6.4 The right of repurchase described in this Section 6 shall
expire immediately prior to the consummation by the Company of a firm
commitment public offering of Common Stock with gross proceeds to the
Company of $20,000,000 or more and at a price per share equal to
$10.00 or higher (as adjusted for stock splits, stock dividends,
recapitalizations and the like)."
(g) Exhibit A to the Original Employment Agreement is hereby amended
---------
and restated in its entirety to read as provided in Annex A attached hereto.
-------
3. Original Employment Agreement. Except as specifically amended
-----------------------------
hereby, the Original Employment Agreement shall continue in full force and
effect in accordance with the provisions thereof as in existence on the date
hereof. After the date hereof, any reference to the Original Employment
Agreement and each reference in the Original Employment Agreement to "this
Agreement," "hereunder," "hereof," "herein" or words of like import shall mean
and be in reference to the Original Employment Agreement as amended hereby.
4. Counterparts. This Agreement may be executed in any number of
------------
counterparts, by original or facsimile signature, each of which shall constitute
an original, but all of which, when taken together, shall constitute but one
instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
GEOCITIES
By: /s/ DAVID C. BOHNETT
---------------------
Name: David C. Bohnett
Title: Chairman & CEO
/s/ DAVID C. BOHNETT
-------------------------
David C. Bohnett
-6-
<PAGE>
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT is made and entered into
effective as of the 21st day of May 1998, by and among GeoCities, a California
corporation (the "Company"), and DAVID BOHNETT ("Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and Employee are parties to an Employment
Agreement dated as of December 28, 1995, and amended as of January 13, 1997
(collectively, the "Original Employment Agreement"), which provides, among other
things, for the employment by the Company of Employee as President and Chief
Executive Officer of the Company, on the terms and subject to the conditions set
forth therein; and
WHEREAS, the Employee resigned as President and Chief Executive
Officer of the Company in April 1998, and the Employee is serving the Company as
Chairman of the Board and Secretary;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and subject to and
on the terms and conditions herein set forth, the parties hereto agree as
follows:
1. Capitalized Terms. Capitalized terms used herein and not
-----------------
otherwise defined shall have the meanings ascribed thereto in the Original
Employment Agreement.
2. Amendments to Original Employment Agreement. In accordance with
-------------------------------------------
Section 7.2 of the Original Employment Agreement, the Original Employment
Agreement is hereby amended as follows:
(a) Section 2.1 of the Original Employment Agreement is hereby
amended and restated in its entirety to read as follows:
"Employee shall serve as the Chairman of the Board of Directors
of the Company."
(b) Section 3.1 of the Original Employment Agreement is hereby
amended and restated in its entirety to read as follows:
"Salary. The Company shall pay to Employee, as compensation for
------
services to be rendered by Employee under this Agreement, salary at
the rate of One Dollar ($1.00) per year."
(c) Section 3.2 of the Original Employment Agreement is hereby
amended and restated in its entirety to read as follows:
<PAGE>
"Bonus. As additional compensation for the services rendered under
-----
this Agreement, Employee shall be eligible to receive an amount up
to One Hundred Ninety Nine Thousand Nine Hundred Ninety Nine
Dollars ($199,999), at the discretion of the Board of Directors of
the Company."
3. Original Employment Agreement. Except as specifically amended
-----------------------------
hereby, the Original Employment Agreement shall continue in full force and
effect in accordance with the provisions thereof as in existence on the date
hereof. After the date hereof, any reference to the Original Employment
Agreement and each reference in the Original Employment Agreement to "this
Agreement," "hereunder," "hereof," "herein" or words of like import shall mean
and be in reference to the Original Employment Agreement as amended hereby.
4. Counterparts. This Agreement may be executed in any number of
------------
counterparts, by original or facsimile signature, each of which shall constitute
an original, but all of which, when taken together, shall constitute but one
instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 as
of the date first above written.
GEOCITIES, a California corporation
By: /s/ THOMAS C. EVANS
--------------------
Name: Thomas C. Evans
Title: President and Chief Executive Officer
/s/ DAVID C. BOHNETT
---------------------
David C. Bohnett
-2-
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is made and entered into
effective as of the 3rd day of November, 1997, by and between GeoCities, a
California corporation, whose address is 1918 Main Street, 3rd Floor, Santa
Monica, California 90405-1030 (the "Company"), and Stephen L. Hansen, whose
address is 5872 Spinnaker Bay Drive, Long Beach, California 90803 ("Employee").
1. Employment.
----------
1.1 The Company hereby agrees to employ Employee, and Employee hereby
accepts such employment, on the terms and conditions set forth herein,
commencing November 3, 1997 (the "Effective Date"), and continuing
through November 2, 1999 (such period, the "Term"), unless terminated
earlier as provided in Section 4 below.
2. Duties of Employee.
------------------
2.1 Employee shall serve as the Chief Financial Officer and Chief
Administrative Officer of the Company. In this capacity, Employee
shall perform such customary, appropriate and reasonable executive
duties as are usually performed by a Chief Financial Officer and Chief
Administrative Officer, including such duties as may be reasonably
delegated to him from time to time by the Board of Directors of the
Company (the "Board") or the Chief Executive Officer of the Company.
Employee shall report directly to the Company's Chief Executive
Officer and shall be based at the Company's main headquarters in the
greater Los Angeles Metropolitan area.
2.2 Employee agrees to devote Employee's full time, attention, skill and
efforts to the performance of his duties for the Company during the
Term.
2.3 This Agreement shall not be interpreted to prohibit Employee from
making passive personal investments or managing the business affairs
of Employee's family if those activities are not in competition with
those of the Company and do not materially interfere with the services
required under this Agreement.
3. Compensation and Other Benefits.
-------------------------------
3.1 Base Salary. During the Term, the Company shall pay to Employee a
-----------
base salary of Two Hundred Thousand Dollars ($200,000) per calendar
year (the "Base Salary"), prorated for any portion thereof during the
Term, payable at the rate of Sixteen Thousand Six Hundred Sixty-Six
and 67/100 Dollars ($16,666.67) per month, with payments to be made in
accordance with the Company's standard payment policy and subject to
such withholding as may be required by law.
1
<PAGE>
3.2 Bonus. During the Term, the Company shall also pay to Employee a cash
-----
bonus in a gross amount equal to Fifty Thousand Dollars ($50,000) per
calendar year (the "Annual Bonus"), less withholding required by law,
half of which is payable on the first business day of ______ and
_______ of each year during the Term. Employee shall not be eligible
to receive any unpaid Annual Bonus if his employment hereunder is
terminated pursuant to either Section 4.1 or 4.2, or if Employee
voluntarily quits.
3.3 Vacation. Employee shall be entitled to a maximum of up to fifteen
--------
(15) days of paid vacation during each 12-month period during the
Term. Vacation shall accrue at a rate of 1.25 days per month, up to
the maximum number of accrued days allowed under the Company's policy
with respect to accrued vacation days.
3.4 Other Benefits. During the Term, Employee shall be entitled to
--------------
receive all group life, health, medical, dental or disability
insurance or other employee, health and welfare benefits made
available generally to other officers of the Company, when and as
Employee becomes eligible therefor.
3.5 Business Expenses. The Company shall promptly reimburse Employee for
-----------------
all reasonable and necessary business expenses incurred by Employee in
connection with the business of the Company and the performance of his
duties under this Agreement, subject to Employee providing the Company
with reasonable documentation thereof.
3.6 Option Grants. Employee shall be considered, subject to the sole
-------------
discretion of the Board, for stock option grants under the Company's
stock option plan(s) or any other available equity incentive plan of
the Company.
4. Termination.
-----------
4.1 Termination for Cause.
---------------------
(a) The Company may terminate Employee's employment with the Company
pursuant to this Agreement "for cause" as follows: (1) if
Employee is convicted of (A) a felony or (B) other serious crime
that causes material harm to the Company; (2) for Employee's
gross negligence, or willful misconduct in the performance of his
duties for the Company; (3) for Employee's willful dishonesty
towards or fraud upon, or deliberate injury or attempted injury
to, the Company or (4) for a material breach by Employee of any
other agreement between the Company and Employee, including,
without limitation, Employee's Employee Confidential Information
and Inventions Agreement.
(b) The Company may terminate this Agreement immediately for any of
the reasons stated in Section 4.1(a) by giving written notice to
Employee without prejudice to any other remedy to which the
Company may be entitled. The notice of termination shall specify
the grounds for termination. If Employee's employment hereunder
is terminated "for
2
<PAGE>
cause" pursuant to this Section 4.1., Employee shall be entitled
to receive hereunder his accrued but unpaid Base Salary, and
reimbursement for any expenses as set forth in Section 3.5,
through the date of termination only, and shall not be entitled
to receive any portion of the Annual Bonus or any other amount.
4.2 Termination Without Cause. Subject to Section 4.3, the Company may,
-------------------------
in its sole discretion, terminate Employee's employment with the
Company pursuant to this Agreement for any reason (not including those
reasons set forth in either Section 4.1 or 5), or, for no reason (any
such termination shall be deemed to be "without cause"), by giving
written notice to Executive at least thirty (30) days in advance.
4.3 Severance Payments and Other Benefits Upon Termination Without Cause.
--------------------------------------------------------------------
(a) If the Company terminates Employee's employment hereunder without
cause (i) the Company shall pay to Employee a severance payment
in an amount equal to six (6) months of his Base Salary, payable
in accordance with the Company's standard payment policy, and
subject to withholding as may be required by law, and (ii) the
vesting of Employee's stock option to purchase up to (A) 150,000
shares of the Company's Common Stock granted on the date hereof
(as adjusted for stock splits and reverse stock splits) (the
"150,000 Share Option") shall immediately be accelerated such
that Employee shall, in addition to any previously vested option
shares thereunder, become vested in the number of option shares
thereunder that Employee would have vested in had he remained
employed through the next annual vesting date, and (B) 75,000
shares of the Company's Common Stock granted on the date hereof
(as adjusted for stock splits and reverse stock splits) (the
"75,000 Share Option") shall, assuming a Milestone Event (as
defined below) had occurred previously, immediately be
accelerated such that Employee shall, in addition to any
previously vested option shares thereunder, become vested in the
number of option shares thereunder that Employee would have
vested in had he remained employed through the next annual
vesting date.
(b) If the Company or any successor in interest to the Company, or
assignee of the Company, within eighteen (18) months following a
Change of Control (as defined below), terminates Employee's
employment hereunder without cause (i) the Company or such
successor or assignee shall pay to Employee a severance payment
in an amount equal to six (6) months of his Base Salary, payable
in accordance with the same schedule theretofore followed by the
Company, and subject to withholding as may be required by law,
and (ii) in addition to any option shares previously vested
thereunder (not including pursuant to Section 4.3(a)), the
vesting of Employee's 150,000 Share Option shall be accelerated
such that Employee shall become immediately vested in (A) the
number of option shares thereunder that Employee would have
vested in had he remained employed with the Company through the
end of the then-current month (assuming monthly vesting of the
150,000 Share Option), plus (B) the number of option shares
thereunder that Employee would have vested in had he remained
3
<PAGE>
employed with the Company for the immediately succeeding twelve
(12) month period (assuming monthly vesting of the 150,000 Share
Option), and (iii) if the Change of Control is also a Milestone
Event, or if a Milestone Event had occurred previously, in
addition to any previously vested option shares thereunder (not
including pursuant to Section 4.3(a)), the vesting of Employee's
75,000 share option shall immediately be accelerated such that
Employee shall become immediately vested in (X) the number of
option shares thereunder that Employee would have vested in had
he remained employed with the Company through the end of the
then-current month (assuming monthly vesting of the 75,000 Share
Option), plus (Y) the number of option shares thereunder that
Employee would have vested in had he remained employed with the
Company for the immediately succeeding twelve (12) month period
(assuming monthly vesting of the 75,000 Share Option).
4.4 Voluntary Termination by Employee. Employee shall have the right to
---------------------------------
voluntarily terminate his employment hereunder upon thirty (30) days
advance written notice to the Company.
5. Death or Disability.
-------------------
5.1 This Agreement shall terminate automatically upon the Employee's
death. If Employee's employment hereunder is terminated pursuant to
this Section 5.1, the Company shall pay to Employee's estate (i) all
accrued and unpaid Base Salary, prorated through the date of the
Employee's death and (ii) Employee's Annual Bonus, prorated through
the date of Employee's death. Employee's estate shall also be
reimbursed for all business expenses pursuant to Section 3.5
previously incurred by Employee.
5.2 In the event that Employee, because of an accident, disability or
physical or mental illness, is incapable of performing his duties
hereunder, the Company shall have the right to terminate Employee's
employment hereunder upon thirty (30) days prior written notice to
Employee. For purposes of this Section 5.2, Employee shall be deemed
to have become incapable of performing his duties hereunder if the
Board, in its good faith judgement, shall determine that Employee is,
by reason of any medically-diagnosed physical or mental impairment,
expected to result in death or to be of continuous duration of not
less than six (6) consecutive months, unable to perform his usual
duties for the Company. If Employee's employment hereunder is
terminated pursuant to this Section 5.2, the Company shall pay to
Employee, all accrued and unpaid Base Salary, prorated through the
date of termination as set forth in the written notice and Employee's
Annual Bonus, prorated through the date of termination as set forth in
the notice. Employee shall also be reimbursed for all business
expenses pursuant to Section 3.5 previously incurred by Employee.
4
<PAGE>
6. Assignment. Employee may not assign this Agreement or any rights or
----------
obligations hereunder. The Company may assign this Agreement to any of its
subsidiaries or affiliates or in connection with any Change of Control or
reincorporation of the Company.
7. Miscellaneous.
-------------
7.1 This Agreement supersedes any and all other agreements, either oral or
in writing, between the parties hereto with respect to the employment
of Employee by the Company, including, without limitation, the offer
letter dated October 3, 1997, between the Company and Employee, and
constitutes the entire agreement between the Company and the Employee
with respect to its subject matter.
7.2 This Agreement may not be amended, supplemented, modified or extended,
except by written agreement which expressly refers to this Agreement
and which is signed by of the parties hereto.
7.3 This Agreement is made in and shall be governed by the laws of
California, without giving effect to its conflicts-of-law principles.
7.4 In the event that any provision of this Agreement is determined to be
illegal, invalid or void for any reason, the remaining provisions
hereof shall continue in full force and effect.
7.5 Employee represents and warrants to the Company that there is no
restriction or limitation, by reason of any agreement or otherwise,
upon Employee's right or ability to enter into this Agreement and
fulfill his obligations under this Agreement.
7.6 All notices and other communications required or permitted hereunder
shall be in writing and shall be mailed by first-class mail, postage
prepaid, registered or certified, or delivered either by hand, by
messenger or by overnight courier service, and addressed to the
receiving party at the respective address set forth in the heading of
this Agreement, or at such other address as such party shall have
furnished to the other party in accordance with this Section 7.6 prior
to the giving of such notice or other communication.
7.7. For purposes of this Agreement, the term "Change of Control" shall
mean a change in ownership or control of the Company effected through
any of the following transactions:
(i) a merger, consolidation or reorganization approved by the
Company's stockholders, unless securities representing more than fifty
------
percent (50%) of the total combined voting power of the voting
securities of the successor corporation are immediately thereafter
beneficially owned, directly or indirectly and in substantially the
same proportion, by the persons who beneficially owned the Company's
outstanding voting securities immediately prior to such transaction,
5
<PAGE>
(ii) any stockholder-approved transfer or other disposition of
all or substantially all of the Company's assets, or
(iii) the acquisition, directly or indirectly by any person or
related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Company), of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities pursuant
to a tender or exchange offer made directly to the Company's
stockholders which the Board recommends such stockholders accept.
For purposes of this Agreement, the term "Milestone Event" shall mean
either (i) an initial public offering of the Company Common Stock or
(ii) a Change of Control, which, under either (i) or (ii), occur
during the Term and which transactions establish a value for the
entire Company of $300 million or more.
GEOCITIES
By: ___________________________________
David C. Bohnett, President & Chief
Executive Officer
_______________________________________
Stephen L. Hansen
6
<PAGE>
EXHIBIT 10.3
GEOCITIES
1918 Main Street, Third Floor
Santa Monica, CA 90405-1030
310-664-6500
310-664-6520 (fax)
April 9, 1998
Mr. Tom Evans
Tom:
I am pleased to present this offer for you to become Chief Executive Officer of
GeoCities, and I very much look forward to working with you. This letter, which
incorporates the substance of our most recent conversations, is intended to
supersede any prior letters that I have sent to you and discussions that we have
had.
This letter will summarize the terms of your proposed employment with GeoCities.
Following your confirmation of these terms, we will, following the granting to
you of the stock options described below by the Board of Directors, prepare a
Stock Option Agreement for signature by you and GeoCities not later than April
30, 1997.
You will begin your employment on or before May 4, 1998. You will have the title
of Chief Executive Officer, and you will divide your time between our Santa
Monica and New York offices. Additionally, you will be elected to sit on the
Board of Directors of the Company.
You will be paid a base annual salary of $200,000. You will also be entitled to
an annual bonus of $100,000 in respect of the first year of your employment,
which will be payable on the first anniversary of your employment. As for future
years, you will be eligible for a potential annual bonus of up to $100,000.
These future bonuses would be based on your achievement of certain performance
milestones, as well as the overall performance of the Company. The performance
milestones would be determined by you and approved by the Board of Directors.
Additionally, the Company will provide you with a loan of $100,000, the terms of
which will be jointly agreed upon by you and the Board of Directors. It is
contemplated that this loan (1) would bear a relatively low interest rate
(although one that would be high enough to satisfy applicable legal requirements
so as to avoid imputed interest), (2) would become due and payable six months
following the earlier of an initial public offering of the Company's securities
or an acquisition of the Company, with a mutually agreeable outside due date to
apply in the event that neither of the foregoing events occurs prior to such
date, and (3) would be forgiven to the extent of any unpaid principal upon your
1
<PAGE>
achievement of certain performance milestones to be jointly agreed upon by you
and the Board of Directors. California law also requires that this loan be
approved by the Company's shareholders.
You will also be granted a stock option to purchase not less than 465,418 shares
of the Common Stock of the Company at a price of not more than $4.56 per share.
This option would vest as to 116,354 (i.e., 25%) of such shares as of the first
anniversary of your employment, and would thereafter vest as to the same number
of shares on each successive anniversary of your employment, as a result of
which this option would be fully vested as of the fourth anniversary of your
employment.
Additionally, you will be granted an option to purchase not less than 310,279
shares of Common Stock, also at a price of not more than $4.56 per share. The
vesting of this option would be contingent on the achievement of certain
performance milestones to be determined by you and approved by the Board of
Directors and which would be intended to be achieved not later than the second
anniversary of your employment. Upon the achievement of the milestones, this
option would vest ratably on an annual basis over a four-year period, with the
first portion of this option (i.e., not less than 77,569 shares) to vest as of
----
the first anniversary of the achievement of the milestones.
If GeoCities is acquired by another company during the first year of your
employment, then for purposes of the stock options granted to you as of the date
of such acquisition which are not then subject to the achievement of any
unachieved performance milestones, the vesting of such options shall accelerate
to the extent that you will receive, at the time of such acquisition, vesting
for the first full year of your employment.
If your employment is terminated by GeoCities without cause during the first
year of your employment at a time when the Company would not otherwise be
entitled to terminate your employment for cause, then, for purposes of the stock
options granted to you as of the date of the termination of your employment
which are not then subject to the achievement of any unachieved performance
milestones, the vesting of such options shall accelerate to the extent that you
will receive, at the time of such termination, vesting for the first full year
of your employment. In the event of such a termination of your employment, the
Company shall also waive its right to repurchase your shares of GeoCities Common
Stock at Fair Market Value under the GeoCities Stock Option Plan as a result of
the termination of your employment. In such an event, the Company shall also pay
you severance in an amount equal to six months of your base salary, payable in
installments in the same manner that your salary had been paid prior to your
termination.
On or before the commencement of your employment, you will be required to
execute GeoCities' standard Employee Confidential Information and Inventions
Agreement, a copy of which is enclosed with this letter.
Please indicate your acceptance of employment with GeoCities on the terms
described above by signing the enclosed copy of this letter and returning it to
me at your earliest
2
<PAGE>
opportunity. By accepting this offer of employment, you represent and warrant to
GeoCities that you are free to accept this offer and that you are not a party to
any agreement any provision of which would preclude or limit your ability to
accept this offer and perform your duties as GeoCities' Chief Executive Officer.
On behalf of everyone at GeoCities, we very much look forward to your working
with us and contributing to the continued growth of GeoCities.
Sincerely,
Peter Mills
Director
EMPLOYMENT ACCEPTED:
/s/ Tom Evans
- -------------
Tom Evans
3
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is made and entered into
effective as of the 30th day of September, 1997, by and between GeoCities, a
California corporation, whose address is 1918 Main Street, 3rd Floor, Santa
Monica, California 90405-1030 (the "Company"), and Michael G. Barrett, whose
address is 150 Kelbourne Avenue, Sleepy Hollow, New York 10591 ("Employee").
1. Employment.
----------
1.1 The Company hereby agrees to employ Employee, and Employee hereby
accepts such employment, on the terms and conditions set forth herein,
commencing September 30, 1997 (the "Effective Date"), and continuing
through September 30, 1998 (such period, the "Term"), unless terminated
earlier as provided in Section 4 below.
2. Duties of Employee.
-------------------
2.1 Employee shall serve as the Company's Vice President, Advertising
Sales. In this capacity, Employee shall perform such customary,
appropriate and reasonable duties as are usually performed by a Vice
President of Advertising Sales, including such duties as may be
reasonably delegated to him from time to time by the Board of Directors
of the Company (the "Board") and/or the Chief Executive Officer of the
Company. Employee shall report directly to the Company's Chief
Executive Officer and shall be based at the Company's East Coast
advertising office in the greater New York, New York Metropolitan Area.
Employee's duties will require him to travel regularly to the Company's
headquarters in Los Angeles.
2.2 Employee agrees to devote Employee's full time, attention, skill and
efforts to the performance of his duties for the Company during the
Term.
2.3 This Agreement shall not be interpreted to prohibit Employee from
making passive personal investments or managing the business affairs of
Employee's family if those activities are not in competition with those
of the Company and do not materially interfere with the services
required under this Agreement.
3. Compensation and Other Benefits.
--------------------------------
3.1 Base Salary. During the Term, the Company shall pay to Employee a base
-----------
salary of Two Hundred Thousand Dollars ($200,000) (the "Base Salary"),
payable at the rate of Sixteen Thousand Six Hundred Sixty-Six and
67/100 Dollars ($16,666.67) per month, with payments to be made in
accordance with the Company's standard payment policy and subject to
such withholding as may be required by law.
<PAGE>
3.2 Bonus. During the Term, the Company shall also pay to Employee a cash
-----
bonus in an amount equal to Twenty-Five Thousand Dollars ($25,000) (the
"Annual Bonus"), less withholdings required by law, payable on the last
business day of December, March, June and September during the Term.
Employee shall not be eligible to receive any unpaid Annual Bonus
amount if his employment hereunder is terminated pursuant to either
Section 4.1 or Section 4.2, or if he voluntarily quits.
3.3 Commission. Employee shall also be eligible to receive commissions
----------
based on Net Revenues generated by the Company during the Term of
Employee's employment under this Agreement and actually collected by
the Company in the time period described below. As used herein, "Net
Revenues" shall mean, subject to the last paragraph of this Section
3.3, the net revenues generated by the Company from all categories of
revenue during the Term as set forth on the Company's Statement of
Operations, less the sum of all interest income and other income from
passive investments, and shall be net of (i) all agency and third-party
commissions and (ii) all refunds paid by the Company. Employee shall be
entitled to receive:
(a) a commission equal to One and One-Half Percent (1 1/2%) of Net
Revenues generated by the Company between September 30, 1997, and
September 30, 1998, up to Ten Million Dollars ($10,000,000) in Net
Revenues; provided, that Employee remains employed by the Company
during the Term;
(b) a commission equal to Two Percent (2%) of Net Revenues in excess
of Ten Million Dollars ($10,000,000) and up to Twenty Million
Dollars ($20,000,000) generated by the Company during the same
period; provided, that Employee remains employed by the Company
during the Term; and
(c) a commission equal to Two and One-Half Percent (2 1/2%) of Net
Revenues in excess of Twenty Million Dollars ($20,000,000)
generated by the Company during the same period; provided, that
Employee remains employed by the Company during the Term.
Commissions under this Section 3.3 shall be payable on the last
business day of February, May, August and October 1998. Notwithstanding
anything to the contrary that may be contained elsewhere in this
Agreement, if Employee, at any time during the Term ceases to be
responsible for managing any category or categories of revenue which
constitute Net Revenues, then, as of the date on which Employee ceases
to be responsible for managing such category or categories, any
revenues generated by the Company within such category or categories
from such date going forward shall not constitute Net Revenues. Also
notwithstanding anything to the contrary that may be contained
elsewhere in this Agreement, no commissions shall be payable under this
Section 3.3 unless and until the Net Revenues which would result in
such commissions have been
2
<PAGE>
actually collected by the Company. Any revenues which would otherwise
qualify as Net Revenues which are not collected within 120 days
following September 30, 1998, shall not be considered to be Net
Revenues for purposes of this Agreement and no commissions shall be
payable with respect to such revenue. Employee shall not be eligible to
receive any unpaid commission if his employment hereunder is terminated
pursuant to either Section 4.1 or Section 4.3, or if he voluntarily
quits.
3.4 Vacation. Employee shall be entitled to a maximum of up to fifteen
--------
(15) days of paid vacation during each 12-month period during the Term.
Vacation shall accrue at a rate of 1.25 days per month, up the maximum
number of accrued vacation days allowable under the Company's standard
policy regarding the accrual of vacation.
3.5 Other Benefits. During the Term, Employee shall be entitled to
--------------
receive all group life, health, medical, dental or disability
insurance or other employee, health and welfare benefits made
available generally to other officers of the Company, when and as
Employee becomes eligible therefor.
3.6 Business Expenses. The Company shall promptly reimburse Employee for
-----------------
all reasonable and necessary business expenses incurred by Employee in
connection with the business of the Company and the performance of his
duties under this Agreement, subject to Employee providing the Company
with reasonable documentation thereof.
3.7 Option Grants. Employee shall be considered, subject to the sole
-------------
discretion of the Board, for stock option grants under the Company's
stock option plan(s) or any other available equity incentive plan of
the Company.
4. Termination.
-----------
4.1 Termination for Cause.
---------------------
(a) The Company may terminate Employee's employment with the Company
pursuant to this Agreement "for cause" as follows: (1) if Employee
is convicted of (A) a felony or (B) other serious crime that
causes material harm to the Company; (2) for Employee's gross
negligence, or willful misconduct in the performance of his duties
for the Company; (3) for Employee's willful dishonesty towards or
fraud upon, or deliberate injury or attempted injury to, the
Company or (4) for a material breach by Employee of any other
agreement between the Company and Employee.
3
<PAGE>
(b) The Company may terminate this Agreement immediately for any of
the reasons stated in Section 4.1(a) by giving written notice to
Employee without prejudice to any other remedy to which the
Company may be entitled. The notice of termination shall specify
the grounds for termination. If Employee's employment hereunder
is terminated "for cause" pursuant to this Section 4.1., Employee
shall be entitled to receive hereunder his accrued but unpaid
Base Salary, and reimbursement for any expenses as set forth in
Section 3.5, through the date of termination only, and shall not
be entitled to receive any unpaid commission pursuant to Section
3.3 or any unpaid portion of the Annual Bonus pursuant to Section
3.2 or any other amount.
4.2 Termination Without Cause. Subject to Section 4.3, the Company may,
-------------------------
in its sole discretion, terminate Employee's employment with the
Company pursuant to this Agreement for any reason (not including those
reasons set forth in Sections 4.1 and 5), or, for no reason (any such
termination shall be deemed to be "without cause"), by giving written
notice to Employee at least thirty (30) days in advance.
4.3 Severance Payments and Other Benefits Upon Termination Without Cause.
--------------------------------------------------------------------
(a) If the Company (i) terminates employee's employment hereunder
without cause or (ii) terminates Employee's employment hereunder
at the expiration of the Term, (A) the Company shall pay to
Employee a severance payment in an amount equal to six (6) months
of his Base Salary, payable in accordance with the Company's
standard payment policy, and subject to withholding as may be
required by law, and (B) the vesting of Employee's stock options
to purchase up to 70, 000 shares of the Company's Stock granted
on the date hereof (as adjusted for stock splits and reverse
stock splits) (the "70,000 Share Option") shall immediately be
accelerated such that Employees shall, in addition to any
previously vested option shares thereunder, become vested in the
number of option shares thereunder that Employee would have
vested in had he remained employed through the next annual
vesting date.
(b) If the Company or any successor in interest to the Company, or
assignee of the Company, within twelve (12) months following a
Change of Control (as defined below), terminates Employee's
employment hereunder without cause (i) the Company or such
successor or assignee shall pay to Employee a severance payment
in an amount equal to six (6) months of his Base Salary, payable
in accordance with the same schedule theretofore followed by the
Company, and subject to withholding as may be required by law,
and (ii) in addition to any option shares previously vested
thereunder (not including pursuant to Section 4.3(a)), the
vesting of Employee's 70,000 Share Option shall be accelerated
such that Employee shall become immediately vested in (A) the
number of option shares thereunder that Employee would have
vested in had he remained employed with the Company through the
end of the then-current month
4
<PAGE>
(assuming monthly vesting of the 70,000 Share Option), plus (B) the
number of option shares thereunder that Employee would have vested in
had he remained employed with the Company for the immediately
succeeding twelve (12) month period (assuming monthly vesting of the
70,000 Share Option).
4.4 Voluntary Termination by Employee. Employee shall have the right to
---------------------------------
voluntarily terminate his employment hereunder upon thirty (30) days
advance written notice.
5. Death or Disability.
-------------------
5.1 This Agreement shall terminate automatically upon the Employee's death.
If Employee's employment hereunder is terminated pursuant to this
Section 5.1, the Company shall pay to Employee's estate (i) all accrued
and unpaid Base Salary, prorated through the date of the Employee's
death and, (ii) all accrued and unpaid commissions pursuant to Section
3.3, prorated through the date of the Employee's death and (iii)
Employee's Annual Bonus, prorated through the date of Employee's death.
Employee's estate shall also be reimbursed for all business expenses
pursuant to Section 3.5 previously incurred by Employee.
5.2 In the event that Employee, because of an accident, disability or
physical or mental illness, is incapable of performing his duties
hereunder, the Company shall have the right to terminate Employee's
employment hereunder upon thirty (30) days prior written notice to
Employee. For purposes of this Section 5.2, Employee shall be deemed to
have become incapable of performing his duties hereunder if the Board,
in its good faith judgement, shall determine that Employee is, by
reason of any medically-diagnosed physical or mental impairment,
expected to result in death or to be of continuous duration of not less
than six (6) consecutive months, unable to perform his usual duties for
the Company. If Employee's employment hereunder is terminated pursuant
to this Section 5.2, the Company shall pay to Employee, all accrued and
unpaid Base Salary pursuant to Section 3.1 and commissions pursuant to
Section 3.3, prorated through the date of termination as set forth in
the written notice and Employee's Annual Bonus pursuant to Section 3.2,
prorated through the date of termination as set forth in the notice.
Employee shall also be reimbursed for all business expenses pursuant to
Section 3.5 previously incurred by Employee.
6. Assignment. Employee may not assign this Agreement or any rights or
----------
obligations hereunder. The Company may assign this Agreement to any of its
subsidiaries or affiliates or in connection with any Change of Control or
reincorporation of the Company.
5
<PAGE>
7. Miscellaneous.
-------------
7.1 Entire Agreement. Agreement supersedes any and all other agreements,
----------------
either oral or in writing, between the parties hereto with respect to
the employment of Employee by the Company, including, without
limitation, the offer letter dated August 21, 1997, between the Company
and Employee, and constitutes the entire agreement between the Company
and the Employee with respect to its subject matter.
7.2 Amendment. This Agreement may not be amended, supplemented, modified
---------
or extended, except by written agreement which expressly refers to this
Agreement and which is signed by of the parties hereto.
7.3 Governing Law. This Agreement is made in and shall be governed by the
-------------
laws of California, without giving effect to its conflicts-of-law
principles.
7.4 Severability. In the event that any provision of this Agreement is
------------
determined to be illegal, invalid or void for any reason, the remaining
provisions hereof shall continue in full force and effect.
7.5 No Restrictions. Employee represents and warrants to the Company that
---------------
there is no restriction or limitation, by reason of any agreement or
otherwise, upon Employee's right or ability to enter into this
Agreement and fulfill his obligations under this Agreement.
7.6 Notice. All notices and other communications required or permitted
------
hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, registered or certified, or delivered either by hand,
by messenger or by overnight courier service, and addressed to the
receiving party at the respective address set forth in the heading of
this Agreement, or at such other address as such party shall have
furnished to the other party in accordance with this Section 7.6 prior
to the giving of such notice or other communication.
7.7 Definition. For purposes of this Agreement, the term "Change of
----------
Control" shall mean a change in ownership or control of the Company effected
through any of the following transactions:
(i) a merger, consolidation or reorganization approved by the
Company's stockholders, unless securities representing more than fifty
------
percent (50%) of the total combined voting power of the voting
securities of the successor corporation are immediately thereafter
beneficially owned, directly or indirectly and in substantially the
same proportion, by the persons who beneficially owned the Company's
outstanding voting securities immediately prior to such transaction
(ii) any stockholder-approved transfer or other disposition of
all or substantially all of the Company's assets, or
6
<PAGE>
(iii) the acquisition, directly or indirectly by any person or
related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Company), of beneficial ownership (within the meaning
of Rule 13d-3 of the Securities Exchange Act of 1934) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities pursuant to a tender or
exchange offer made directly to the Company's stockholders which the
Board recommends such stockholders accept.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the date first above written.
GEOCITIES
By:___________________________________
David C. Bohnett, President & Chief
Executive Officer
EMPLOYEE:
___________________________________
Michael G. Barrett
7
<PAGE>
EXHIBIT 10.5
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ADVERTISING AGREEMENT
This Advertising Agreement (this "Agreement"), dated as of November 5,
1997, is made between Amazon.com, Inc., a Delaware corporation ("Amazon.com"),
and GeoCities, a California corporation ("GeoCities"). Amazon.com and
GeoCities sometimes are referred to collectively as the "Parties" and
individually as a "Party". In consideration of the mutual promises contained
in this Agreement, Amazon.com and GeoCities hereby agree as follows:
SECTION 1. DEFINITIONS
The following terms (and all conjugations and declensions thereof) are used
in this Agreement with the respective meanings set forth below:
1.1. "ABOVE-THE-FOLD" means situated within the portion of a page that is
designed to be visible on a standard computer screen with a resolution of 640
pixels by 480 pixels without requiring the user to scroll horizontally or
vertically through the page.
1.2. "AFFILIATE" means, with respect to either Party, any individual or
entity that directly or indirectly controls, is controlled by or is under common
control with that Party. As used in this definition, "control" means either (a)
the ownership of greater than 50% of an entity's voting securities, or (b) the
ability, through contract or otherwise, to determine an entity's operating
activities. For the purposes of clarification, the parties acknowledge that
GeoCities Japan is not an Affiliate of GeoCities.
1.3. "AMAZON.COM SITE" means, collectively, all points of presence and/or
services maintained by Amazon.com or its Affiliates on the Internet or on any
other public data network.
1.4. "ASSOCIATE" means any World Wide Web site that registers and is
accepted as a participant in Amazon.com's Associates Program.
1.5. "COMMENCEMENT DATE" means the date GeoCities first provides
Amazon.com with all links, advertisements and other promotional placements
contained in "Phase 1 ," as more particularly described in Exhibit B to this
Agreement.
1.6. "COMPETITOR" means (a) any of the entities listed on Exhibit A, or
(b) any individual, corporation, corporate division, World Wide Web site or
other entity that either derives more than [***] of its annual gross revenues
from the sale of books or magazines, or is primarily known as a seller of books
or magazines.
1.7. "EXCLUSIVE AREAS" means the portions of the GeoCities Site that will
subject to the exclusivity provisions of Section 7, as more particularly
described in Exhibit C to this Agreement.
1.8. "GEOCITIES SITE" means, collectively, (a) the World Wide Web site
currently located at the URL www.geocities.com (and all successors or
replacements thereto, regardless of network or URL), and (b) all other points of
presence and/or services maintained by or on behalf
[***] Confidential treatment requested for redacted portion.
<PAGE>
of GeoCities or its Affiliates on the Internet or on any other public data
network; provided, however, that "GeoCities Site" does not include any
Homesteader Page or GeoShop Page. Clauses (a) and (b) above will not include any
personal home page community that is co-branded or jointly developed by
GeoCities (or its Affiliates) and any third party to the extent that the
characterization of such community as part of the GeoCities Site would conflict
with or would violate either (i) any agreement between GeoCities and the
relevant third party dated prior to or concurrent with the establishment of the
community, or (ii) any agreement between the third party and any other person or
entity dated prior to or concurrent with the establishment of the community.
GeoCities will provide Amazon.com with reasonable documentary evidence
supporting the exclusion of any personal home page community from the GeoCities
Site pursuant to the preceding sentence.
1.9. "GEOSHOP PAGE" means any commercial home page established by an
individual or entity (other than GeoCities or its Affiliates) pursuant to
GeoCities GeoShop program that resides within a "member neighborhood" on the
GeoCities Site.
1.10. "HOMESTEADER PAGE" means any personal home page established by an
individual or entity (other than GeoCities or its Affiliates) pursuant to the
GeoCities Homesteader program that resides within a "member neighborhood" on the
GeoCities Site.
1.11. "INTERNATIONAL SERVICE" means any Internet or network-based service
that (a) is operated by an individual or entity other than a GeoCities
Affiliate, (b) is hosted on computer servers located outside of the United
States, (c) is substantially similar to all or any services offered via the
GeoCities Site, and (d) is operated either in conjunction with a GeoCities trade
name, trademark, service mark or other proprietary mark, or with material
assistance from GeoCities or its Affiliates.
1.12. "PAGE VIEW" means each instance in which (a) an individual user
requests that a discrete Web page contained within the GeoCities Site be
transmitted to the user's computer, and (b) a GeoCities Site server actually
transmits the page to the user's computer.
1.13. "QUALIFYING REVENUES" means, with respect to any payment period, (a)
the aggregate gross revenues (excluding taxes, gift-wrapping and shipping and
handling charges) derived by Amazon.com from product sales that occur during
Sessions, less (b) any revenues attributable to returned products, if such
revenues previously were included in "Qualifying Revenues."
1.14. "SESSION" means each instance in which a user accesses the Amazon.com
Site via a hypertext link embedded in any link, advertisement or other
promotional placement provided by GeoCities under this Agreement, and then views
one or more consecutive Amazon.com Site pages. A Session terminates when the
user exits the Amazon.com Site by any means.
2
<PAGE>
SECTION 2. PROMOTIONAL PLACEMENTS
GeoCities will provide the advertisements and promotions specified in
Exhibit 8, in accordance with the provisions contained in that Exhibit.
SECTION 3. PROMOTION OF ASSOCIATES PROGRAM
GeoCities will implement a program through which GeoCities will encourage
its members with Homesteader Pages to become active members of Amazon.com's
Associates Program. The Parties will cooperate in the development of such
promotional program, with the goal of launching the program during first
quarter, 1998.
SECTION 4. COMPENSATION
4.1. As full consideration for GeoCities' performance under this
Agreement (including, without limitation, GeoCities' provision of all links,
advertisements and promotions specified in Sections 2 and 3), Amazon.com will
pay GeoCities the fixed placement fees, variable incentive payments and new
Associate bounties specified in this Section 4.
4.2. During the initial term of this Agreement, Amazon.com will pay
GeoCities (a) a fixed development fee of $[***], and (b) fixed placement fees of
$[***]for each [***] that occurs subsequent to the Commencement Date.
4.3. During the term of this Agreement (including any renewal term), for
each [***] that occurs subsequent to the Commencement Date, Amazon.com will pay
GeoCities the applicable percentage(s) of Qualifying Revenues set forth below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CUMULATIVE QUALIFIED REVENUES REVENUE SHARE
(from Commencement Date) PERCENTAGE
- -------------------------------------------------------------------------------
<S> <C>
[***] [***]
- -------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------
</TABLE>
4.4. For each Homesteader Page that becomes an Associate during the term
of this Agreement and, during the [***] following the Homesteader Page's
becoming an Associate is responsible for at least $[***] in referred product
sales (as calculated pursuant to the rules of the Associates Program),
Amazon.com will pay GeoCities a bounty of $[***]. Notwithstanding the foregoing,
Amazon.com will not be obligated to pay any bounties with respect to Homesteader
Pages that joined the Associates Program prior to the Commencement Date. This
provision will
[***] Confidential treatment requested for redacted portion.
3
<PAGE>
survive the expiration or termination of this Agreement with respect to those
Homesteader Pages that became Associates within twelve (12) months prior to such
expiration or termination.
4.5. Amazon.com will pay the fixed development fee promptly following the
execution of this Agreement. Amazon.com will make all other payments under this
Section 4 on a [***] basis, in arrears. Specifically, within 30 days following
the end of each [***] occurring subsequent to the Commencement Date, Amazon.com
will pay GeoCities an amount equal to the fixed placement fee payable under
Section 4.2, plus the revenue share that accrued during the period under Section
4.3, plus any new Associate bounties that accrued during the period under
Section 4.4. At GeoCities' option, GeoCities may submit invoices for the fees
specified in Section 4.2(b) at the beginning of each three-month payment period.
4.6. Amazon.com will deliver, together with each payment made pursuant to
Section 4.5, a written report signed by an authorized representative of
Amazon.com that describes (in reasonable detail) Amazon.com's calculation of the
payment amount.
4.7. GeoCities acknowledges that Amazon.com must implement certain
improvements to its accounting software to accurately track Qualified Revenues.
Amazon.com will use commercially reasonable efforts to implement such
improvements, with the goal of completing the implementation within ninety (90)
days following the date of this Agreement. Until such implementation is
complete, Amazon.com will estimate Qualifying Revenues in good faith, in
accordance with a written methodology to be provided to GeoCities.
SECTION 5. IMPLEMENTATION
5.1. GeoCities and Amazon.com acknowledge that time is of the essence in
the design, development and commencement of the links, advertisements and
promotional placements specified in this Agreement. Accordingly, the Parties
will devote all commercially reasonable efforts to launch each link,
advertisement and promotional placement as soon as reasonably possible, in
accordance with a written development plan to be negotiated by the Parties in
good faith.
5.2. GeoCities, in cooperation with Amazon.com, will test the links,
advertisements and promotional placements required under the Agreement prior to
time that they "go live" on the GeoCities Site (e.g., prior to the time that
they are implemented and enabled on a production version of the GeoCities Site).
5.3. GeoCities will not cause any link, advertisement or promotional
placement under the Agreement to go live on the GeoCities Site prior to the
applicable date agreed by the Parties. Further, at Amazon.com's discretion,
traffic from promotional links and advertising placements will be enabled in
stages; provided, however, that such staging will not delay the Commencement
Date.
[***] Confidential treatment requested for redacted portion.
4
<PAGE>
SECTION 6. TRAFFIC DATA
On a monthly basis, GeoCities will provide Amazon.com with mutually agreed
data concerning search and browsing behavior on the GeoCities Site, to the
extent such behavior reasonably could relate to the online promotion or sale of
books, magazines or other products that Amazon.com may sell from time to time.
Amazon.com will hold such data in confidence and will use it only in accordance
with reasonable guidelines to- be agreed by the Parties. Notwithstanding
anything contained in this Section, GeoCities will not be required to deliver to
Amazon.com any user data in violation of its then-existing policies regarding
the protection of user information.
SECTION 7. EXCLUSIVITY AND OTHER RIGHTS
7.1. GeoCities will not place [***], or permit any Competitor to place
[***], any Competitor's advertising banners, promotional buttons, promotional
links or other promotional materials or content on the GeoCities Site. In
addition, GeoCities will not sell or promote [***], or permit any Competitor or
non-Competitor to sell or promote [***], any books or magazines on the GeoCities
Site.
7.2. Nothing in Section 7.1 will prevent GeoCities from directly selling
a limited number of books through its own store on the GeoCities Site, provided
that GeoCities does not offer to sell more than [***] book titles at any time.
Further, nothing in Section 7.1 will prevent the owner or operator of any
GeoShop Page from selling or promoting books or magazines on its GeoShop Page,
provided that (a) GeoCities first makes a commercially reasonable attempt to
persuade the owner or operator to become an Amazon.com Associate, and (b) the
owner's or operator's gross revenues attributable to the sale or distribution of
books and magazines during the twelve-month period prior to the launch of its
GeoShop Page did not exceed $250,000. At Amazon.com's request, GeoCities will
provide Amazon.com with reasonable documentation demonstrating its continuing
compliance with the preceding sentence.
7.3. If Amazon.com enters into any other product category other than the
sale of books or magazines, GeoCities will offer Amazon.com the opportunity to
participate in good-faith negotiations regarding extending the scope of this
Agreement to include the new category (subject to GeoCities' then-existing
contractual commitments).
7.4. GeoCities will introduce Amazon.com's principal executives to the
principal executives of each International Service. At Amazon.com's request,
GeoCities will use commercially reasonable efforts to facilitate discussions
between such principal executives regarding transactions involving any links,
advertisements, promotional placements or promotional activities that are
similar in nature to those provided under this Agreement.
[***] Confidential treatment requested for redacted portion.
5
<PAGE>
SECTION 8. INDEMNIFICATION
8.1. Amazon.com will defend and indemnify GeoCities and its Affiliates
(and their respective employees, directors and representatives) against any
claim or action brought by a third party, to the extent relating to (a) the
operation of the Amazon.com Site, or (b) the violation of third-party
intellectual property rights by any editorial content or other materials
provided by Amazon.com for display on the GeoCities Site. Subject to GeoCities'
compliance with the procedures described in Section 8.3, Amazon.com will pay any
award against GeoCities or its Affiliates (or their respective employees,
directors or representatives) and any costs and attorneys' fees reasonably
incurred by GeoCities and its Affiliates resulting from any such claim or
action.
8.2. GeoCities will defend and indemnify Amazon.com and its Affiliates
(and their respective employees, directors and representatives) against any
claim or action brought by a third party, to the extent relating to (a) the
operation of the GeoCities, or (b) the violation of third-party intellectual
property rights by any materials provided by GeoCities for display on the
Amazon.com Site. Subject to Amazon.com's compliance with the procedures
described in Section 8.3, GeoCities will pay any award against Amazon.com or its
Affiliates (or their respective employees, directors or representatives) and any
costs and attorneys' fees reasonably incurred by Amazon.com and its Affiliates
resulting from any such claim or action.
8.3. In connection with any claim or action described in this Section, the
Party seeking indemnification (a) will give the indemnifying Party prompt
written notice of the claim, (b) will cooperate with the indemnifying Party (at
the indemnifying party's expense) in connection with the defense and settlement
of the claim, and (c) will permit the indemnifying Party to control the defense
and settlement of the claim, provided that the indemnifying Party may not settle
the claim without the indemnified Party's prior written consent (which will not
be unreasonably withheld). Further, the indemnified party (at its cost) may
participate in the defense and settlement of the claim.
SECTION 9. INTELLECTUAL PROPERTY RIGHTS
9.1. Subject to the limited license granted to GeoCities under section
9.2, Amazon.com reserves all of its right, title and interest in its
intellectual property rights (e.g., patents, copyrights, trade secrets,
trademarks and other intellectual property rights). Subject to the limited
license granted to Amazon.com under Section 9.3, GeoCities reserves all of its
right, title and interest in intellectual property rights. Neither Party grants
any license to the other except as specifically set forth in this Section 9.
9.2. Amazon.com hereby grants to GeoCities, during the term of this
Agreement, a non-exclusive, non-transferable license to use Amazon.com's trade
names, trademarks, service names and similar proprietary marks as is reasonably
necessary to perform its obligations under this Agreement; provided, however,
that any promotional materials containing Amazon.com's proprietary marks will be
subject to Amazon.com's prior written approval.
6
<PAGE>
9.3. GeoCities hereby grants to Amazon.com, during the term of this
Agreement, a non-exclusive, non-transferable license to use GeoCities' trade
names, trademarks, service names and similar proprietary marks as is reasonably
necessary to perform its obligations under this Agreement; provided, however,
that any promotional materials containing GeoCities' proprietary marks will be
subject to GeoCities' prior written approval.
9.4. Neither GeoCities nor Amazon.com will use the other Party's
proprietary marks in a manner that disparages the other Party or its products or
services, or portrays the other Party or its products or services in a false,
competitively adverse or poor light. Each of GeoCities and Amazon.com will
comply with the other Party's requests as to the use of the other Party's
proprietary marks and will avoid any action that diminishes the value of such
marks. Either Party's unauthorized use of the other's proprietary marks is
strictly prohibited.
SECTION 10. TERM AND TERMINATION
10.1. The term of this Agreement will begin on the date of this Agreement
and, unless terminated or renewed in accordance with this Section 10, will end
twelve (12) months following the Commencement Date.
10.2. Either GeoCities or Amazon.com may terminate this Agreement if the
other party (a) materially breaches this Agreement and does not cure the breach
within thirty (30) days following its receipt of written notice from the non-
breaching party, or (b) ceases to carry on the portion of its business that
relates to this Agreement.
10.3. Prior to consummating or concurrently with the consummation of any
merger, acquisition, transfer of control, sale of substantial assets or similar
transaction with any third party, GeoCities will obtain the third party's
written agreement to be bound by all terms and conditions of this Agreement. At
any time following the closing of any such transaction, Amazon.com may terminate
this Agreement without liability by giving written notice to GeoCities if (a)
the third party is a non-Competitor, and Amazon.com reasonably determines that
such transaction has resulted in a material reduction of the benefits of this
Agreement to Amazon.com, or (b) the third party is a Competitor.
10.4. Sections 4.4 (to the extent specified therein), 8, 11, 12, and 13
(together with all other provisions that reasonably may be interpreted as
surviving termination or expiration of this Agreement) will survive the
termination or expiration of this Agreement.
10.5. Amazon.com will have an option to renew the term of this Agreement
for a single twelve-month renewal term by giving GeoCities written notice, at
least thirty (30) days prior to the expiration of the initial term, indicating
Amazon.com's exercise of its option to renew the term of this Agreement. During
any such renewal term, all terms and conditions of this Agreement will remain in
full force and effect, except that the fixed development and placement fees
payable pursuant to Section 4.2 will be increased by a multiple equal to [***].
[***] the Parties will equitability adjust the fixed fees payable during the
renewal period to reflect such reduction in [***] traffic.
[***] Confidential treatment requested for redacted portion.
7
<PAGE>
SECTION 11. DISPUTE RESOLUTION
11.1. In all discussions and activities relating to tiffs Agreement,
Amazon.com and GeoCities will cooperate in good faith to accomplish the
objectives specified in this Agreement. If any dispute arises relating to either
Party's rights or obligations under this Agreement, and the Parties are unable
to resolve the dispute in the ordinary course of business, Amazon.com and
GeoCities will use good-faith efforts to resolve the matter in accordance with
this Section 11.
11.2. Within five (5) days following the written request of either Party
(which will describe the nature of the dispute and other relevant information),
the Parties' managers who are responsible for the Amazon.com. GeoCities
relationship will meet to resolve the dispute at a mutually convenient time and
place. If the relationship managers are unable to resolve the dispute within two
(2) days following their initial meeting, they will refer the matter to the
Parties' divisional executives who are responsible for the administration of
this Agreement, along with a written statement (or statements) describing the
nature of the dispute and other relevant information.
11.3. Within five (5) days following the referral of the matter to the
Parties' divisional executives, the divisional executives will meet to resolve
the dispute at a mutually convenient time and place. Additional representatives
of the parties may be present at the meeting. If the divisional executives are
unable to resolve the dispute within two (2) days following their initial
meeting, they will refer the matter to the Parties' Chief Executive Officers,
along with a written statement (or statements) describing the nature of the
dispute and other relevant information.
11.4. Within five (5) days following the referral of the matter to the
Parties' CEOs, the CEOs will meet to resolve the dispute at a mutually
convenient time and place. Additional representatives of the parties may be
present at the meeting. If the CEOs are unable to resolve the dispute within two
(2) days following their initial meeting (or such later date as they may agree),
the Parties will be free to pursue whatever remedies may be available at law or
in equity.
11.5. All negotiations pursuant to this Section 11 will be confidential
and treated as compromise and settlement negotiations for purposes of applicable
rules of evidence. Any resolution reached under this Section will be reduced to
writing and signed by the Parties. During any dispute resolution procedure
conducted under this Section, the Parties will diligently perform all
obligations hereunder that are not directly related to the dispute.
SECTION 12. DISCLAIMERS, LIMITATIONS AND RESERVATIONS
12.1. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, GEOCITIES DOES NOT
MAKE, AND HEREBY DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES REGARDING THE
GEOCITIES SITE, GEOCITIES' SERVICES OR ANY PORTION THEREOF, INCLUDING (WITHOUT
LIMITATION) IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, GEOCITIES
SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING (A) THE AMOUNT
OF SALES REVENUE THAT AMAZON.COM MAY RECEIVE DURING THE
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TERM, AND (B) ANY ECONOMIC OR OTHER BENEFIT THAT AMAZON.COM MIGHT OBTAIN THROUGH
ITS PARTICIPATION IN THIS AGREEMENT.
12.2. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, AMAZON.COM DOES NOT
MAKE, AND HEREBY DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES REGARDING THE
AAZON.COM SITE, AMAZON.COM'S SERVICES OR ANY PORTION THEREOF, INCLUDING (WITHOUT
LIMITATION) IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AMAZON.COM
SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING (A) THE AMOUNT
OF SALES REVENUES THAT MAY OCCUR DURING THE TERM, AND (B) ANY ECONOMIC OR OTHER
BENEFIT THAT GEOCITIES MIGHT OBTAIN THROUGH ITS PARTICIPATION IN THIS AGREEMENT.
12.3. NEITHER AMAZON.COM NOR GEOCITIES WILL BE LIABLE TO THE OTHER FOR
CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST PROFITS OR LOST DATA)
ARISING OUT OF THIS AGREEMENT. EACH PARTY'S ENTIRE LIABILITY ARISING FROM THIS
AGREEMENT (EXCEPT FOR LIABILITIES ARISING UNDER SECTION 8 OR RESULTING FROM THE
PARTY'S WILLFUL MISCONDUCT), WHETHER IN CONTRACT OR TORT, WILL NOT EXCEED AN
AMOUNT EQUAL TO THE AMOUNTS TO BE PAID BY AMAZON. COM UNDER SECTION 4.
12.4. Amazon.com will remain solely responsible for the operation of the
Amazon.com Site, and GeoCities will remain solely responsible for the operation
of the GeoCities Site. Each Party (a) acknowledges that the Amazon.com Site and
the GeoCities Site may be subject to temporary shutdowns due to causes beyond
the operating Party's reasonable control, and (b) subject to the specific terms
of this Agreement, retains sole right and control over the programming, content
and conduct of transactions over its respective site.
SECTION 13. MISCELLANEOUS
13.1. The Parties are entering this Agreement as independent contractors,
and this Agreement will not be construed to create a partnership, joint venture,
franchise or employment relationship between them. Neither Party will represent
itself to be an employee or agent of the other or enter into any agreement on
the other's behalf of or in the other's name.
13.2. With respect to information received by either party as a result of
this Agreement, the Parties will abide by the terms and conditions of their
Nondisclosure Agreement dated as of August 25, 1997 (but only to the extent that
the information constitutes "Confidential Information," as defined in the
Nondisclosure Agreement). The Parties agree that the terms and conditions of
this Agreement will constitute Confidential Information under their
Nondisclosure Agreement.
13.3. Following the execution of this Agreement, Amazon.com and GeoCities
will prepare and distribute a joint press release (or coordinated press
releases) announcing the
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transaction. The contents and timing of the release (or releases) shall be as
mutually agreed by the Parties. Neither Party will issue any further press
releases or make any other disclosures regarding this Agreement or its terms
without the other Party's prior written consent.
13.4. In its performance of this Agreement, each Party will comply with
all applicable laws, regulations, orders and other requirements, now or
hereafter in effect, of governmental authorities having jurisdiction. Without
limiting the generality of the foregoing, each Party will pay, collect and remit
such taxes as may be imposed upon it with respect to any compensation, royalties
or transactions under this Agreement. Except as expressly provided herein, each
Party will be responsible for all costs and expenses incurred by it in
connection with the negotiation, execution and performance of this Agreement.
13.5. Each Party will keep detailed records of all activities reasonably
relating to its performance under this Agreement ("Records"). Either Party (the
"Auditing Party"), upon thirty (30) days' prior written notice to the other
Party (the "Audited Party"), may conduct an audit of the Audited Party's Records
for the purpose of verifying the accuracy and completeness of any report or
other information provided by the Audited Party under this Agreement. Any such
audit will be conducted (a) in a manner that will not unreasonably interfere
with the Audited Party's operations, and (b) by an independent certified public
accounting firm that is reasonably acceptable to the Audited Party and that has
agreed in writing to protect the confidentiality of the Audited Party's Records
and other information. A Party may conduct an audit under this Section no more
than once during any twelve-month period. The costs of any such audit will be
borne by Auditing Party; provided, however, that if any audit determines that
the report or other information subject to the audit is inaccurate or incomplete
by greater than ten percent (10%) (as measured by an appropriate measure
reasonably determined by the auditor), the Audited Party will promptly reimburse
the Auditing Party for all reasonable expenses incurred to conduct the audit.
13.6. Neither Amazon.com nor GeoCities will be liable for, or will be
considered to be 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 that are beyond such Party's reasonable control and that
such Party is unable to overcome through the exercise of commercially reasonable
diligence. If any force majeure event occurs, the affected Party will give
prompt written notice to the other Party and will use commercially reasonable
efforts to minimize the impact of the event.
13.7. Any notice or other communication under this Agreement given by any
Party to any other Party will be in writing and will be deemed properly given
when sent to the intended recipient by registered letter, receipted commercial
courier, or electronically receipted facsimile transmission (acknowledged in
like manner by the intended recipient) at its address and to the attention of
the individual specified below its signature at the end of this Agreement. Any
Party may from time to time change such address or individual by giving the
other Party notice of such change in accordance with this Section 13.7.
13.8. Neither Amazon.com nor GeoCities may assign this Agreement, in whole
or in part, without the other Party's prior written consent (which will not be
withheld unreasonably),
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except to (a) any corporation resulting from any merger, consolidation or other
reorganization involving the assigning Party, (b) any of its Affiliates, or (c)
any individual or entity to which the assigning Party may transfer substantially
all of its assets; provided that the assignee agrees in writing to be bound by
all the terms and conditions of this Agreement. Subject to the foregoing, this
Agreement will be binding on and enforceable by the Parties and their respective
successors and permitted assigns. Nothing in this Section will limit
Amazon.com's rights under Section 10.3.
13.9. The failure of either party to enforce any provision of this
Agreement will not constitute a waiver of the party's rights to subsequently
enforce the provision. The remedies specified in this Agreement are in addition
to any other remedies that may be available at law or in equity.
13.10. This Agreement (together with the parties' Nondisclosure Agreement)
(a) represents the entire agreement between the parties with respect to the
subject matter hereof and supersedes any previous or contemporaneous oral or
written agreements regarding such subject matter, (b) may be amended or modified
only by a written instrument signed by a duly authorized agent of each party,
and (c) will be interpreted, construed and enforced in all respects in
accordance with the laws of the State of Washington, without reference to its
choice of law rules. If any provision of this Agreement is held to be invalid,
such invalidity will not effect the remaining provisions.
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The parties have executed this Agreement on the date first written above.
AMAZON.COM, INC.
By: /s/Amazon.com
Its: Vice President, Business Development
1516 Second Avenue
Seattle, WA 98101
Facsimile: 206-346-2082
Attn: General Counsel
GEOCITIES
By: /s/James A. Rea
Its: Vice President, Business Development
1918 Main Street. 3rd Floor
Santa Monica, CA 90405-1031
Facsimile: 310-664-6520
Attn: James A. Rea
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EXHIBIT A
COMPETITORS
As used in this Agreement, "Competitors" includes (without limitation) the
following entities:
alt.bookstore
Baker & Taylor
Barnes & Noble, Inc. (including B. Dalton)
Bibliofind
BooksAmerica
Books Now
Bookpages
Bookport
BookServe
Booksamillion
BookSearch
BookSite
Booksmith
Book Stacks Unlimited
BookWeb
BookZone
Borders (including Walden Books)
Cbooks
Computer Literacy Bookshop
Cody's Books
Crown Books
Ingram
Interloc
Internet Book Shop
Intertain Internet Bookstore
Online BookStore
Powell's Books
Simon and Schuster
Tower Books
Waterstone's
WordsWorth Books
<PAGE>
EXHIBIT B
PLACEMENTS AND PROMOTIONS
GeoCities will provide to Amazon.com the placements and promotions
specified in this Exhibit.
1. GENERAL
1.1. GeoCities and Amazon.com will use commercially reasonable efforts to
implement the placements and promotions provided in this Exhibit in a manner
that maximizes click through to, and product sales on, the Amazon.com Site. On
approximately a quarterly basis, the Parties will conduct program reviews to
assess the performance of the placements and promotions. If any placement or
promotion proves ineffective, the Parties will conduct good-faith negotiations
to modify such placement or promotion to improve its performance. As used in
this Exhibit, "strategic sponsor" means one of up to four (including Amazon.com)
premium GeoCities sponsors that, pursuant to agreements similar in nature to
this Agreement, are provided with promotional placements affording the highest
level of visibility offered to any other GeoCities sponsor.
2. PHASE 1 (TARGET START DATE 12/1/97)
2.1. FIXED MEDIA PLACEMENTS. GeoCities will provide Amazon.com with
advertising buttons and banners that yield a minimum of [***]. On a monthly
basis, the Parties will develop a media plan designating such placements from
among GeoCities' available inventory of premium placements. Amazon.com will
reasonably determine the content and appearance of such buttons and banners in
accordance with GeoCities' generally applicable technical specifications.
2.2. POP-UP AND INTERSTITIAL ADVERTISEMENTS. GeoCities will include
Amazon.com in its trials of pop-up and interstitial advertisements. If
following such trials, GeoCities elects to implement pop-ups and/or interstitial
on a commercial basis, GeoCities will provide Amazon.com with a quantity of such
advertisements to be negotiated in good faith (provided that such quantity will
be no less than the quantity provided to any other strategic sponsor).
2.3. GEOCITIES HOMEPAGE. GeoCities continuously will provide Amazon.com
with a prominent promotional button on the GeoCities Homepage. The button (a)
will be presented with the buttons of up to [***], (b) will be no smaller than
[***], and (c) will be no smaller than the button of [***]. The size of all
[***] buttons, taken together, will be at least twice the size of the "Selected
Highlights" bar depicted on Attachment 1 to this Exhibit. Amazon.com will
reasonably determine the content and appearance of its button in accordance with
GeoCities' generally applicable technical specifications.
[***] Confidential treatment requested for redacted portion.
<PAGE>
2.4. NEIGHBORHOOD HOMEPAGES. GeoCities continuously will provide
Amazon.com with a prominent promotional button or other placement on each
GeoCities Neighborhood Homepage. The button or placement (a) will be presented
with the buttons or placements of up to [***], and (b) will be no smaller than
the button or placement of [***]. In addition, GeoCities continuously will
provide a "commerce special" area for the use of its [***], who will be entitled
to post advertisements in such area on a rotating basis. Amazon.com will
reasonably determine the content and appearance of its buttons, placements and
advertisements in accordance with GeoCities' generally applicable technical
specifications.
2.5. NEIGHBORHOOD TOPIC PAGES. GeoCities continuously will provide
Amazon.com with a prominent promotional button on each GeoCities Neighborhood
Topic Page. The button or placement (a) will be presented with the buttons or
placements of up to [***], and (b) will be no smaller than the button or
placement of [***]. In addition, GeoCities will permit Amazon.com to place
targeted advertisements on each Topic Page (or on a Product Page linked to the
Topic Page). Such advertising placements will be no less favorable than those
provided to [***]. Amazon.com will reasonably determine the content and
appearance of its buttons, placements and advertisements in accordance with
GeoCities' generally applicable technical specifications.
3. PHASE 2 (TARGET START DATE 1/1/98)
3.1. MARKETPLACE PAGE. GeoCities continuously will provide Amazon.com with
a prominent advertising placement on the GeoCities Marketplace Page. The
placement (a) will be above-the-fold, (b) will be no smaller than the placement
of [***], and (c) will be larger than the placements of all [***]. Further, the
placement will be no less favorable than the placement depicted on Attachment 2
to this Exhibit. Amazon.com will reasonably determine the content and appearance
of its placement in accordance with GeoCities' generally applicable technical
specifications.
3.2. BOOK GUIDES PROGRAM. At Amazon.com's option, GeoCities will develop
and implement an incentive program for GeoCities homesteaders to host book-
related chat and discussion board sessions on their Homesteader Pages.
3.3. CHAT PROGRAM INTEGRATION. At Amazon.com's option, GeoCities will list
book-related chat sessions in a directory of active chat sessions and will
experiment with placing direct buy buttons on book-related, member-hosted chat
pages. Further, GeoCities will include targeted product offers in chat areas
(e.g., fishing-related books or magazines offered to participants in fishing
chats).
3.4. BOOK PAVILION. At Amazon.com's option, GeoCities will create and host
a "book pavilion" book resource, the specifics of which will be cooperatively
determined by the Parties.
3.5. KEY WORDS. If GeoCities implements a key-word based navigation
system, GeoCities will provide Amazon.com with banners or other placements on
all pages that result when a user enters any key-word that reasonably relates to
Amazon.com, books or magazines.
[***] Confidential treatment requested for redacted portion.
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Amazon.com will reasonably determine the content and appearance of its
placements in accordance with GeoCities' generally applicable technical
specifications.
3.6. WELCOME WAGON. GeoCities will provide a prominent Amazon.com
promotional link or message in each "welcome" message or similar communication
that it sends to new Homesteader or GeoShop members. Amazon.com will reasonably
determine the content and appearance of its link or message in accordance with
GeoCities' generally applicable technical specifications.
4. PHASE 3 (TARGET START DATE 7/1/98)
GeoCities and Amazon.com will experiment with new promotional concepts and
will implement those that appear to provide successful results (subject in each
case to the agreement of both Parties). Areas that may be investigated include
product offers on search result pages, product offers on interest pages, product
offers on neighborhood script pages, product offers within instant messaging,
customized GeoGuides, buyers' clubs, first-time buyers' specials, limited-time
discounts, greeting card/gift certificates and special offers for GeoCities Site
visitors.
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EXHIBIT C
EXCLUSIVITY
1. EXCLUSIVE AREAS. The [***] include the following pages (and any successors
thereof):
[***]
2. ADDITIONAL PROVISIONS. In addition to the restrictions contained in Section
7.1 of the Agreement, if GeoCities implements a key-word based navigation
system, GeoCities will not permit any Competitor to purchase advertisements or
promotional placements on any GeoCities Site page that results when a user
enters any key-word that reasonably relates to Amazon.com, books or magazines.
Further, GeoCities will not permit any Competitor to purchase any [***]
advertising placements (e.g., advertising banners, promotional buttons,
promotional links or other promotional placements [***]).
[***] Confidential treatment requested for redacted portion.
<PAGE>
EXHIBIT 10.6
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ADVERTISING AGREEMENT
This Advertising Agreement ("AGREEMENT"), dated as of January 5, 1998 is
made by and between CDnow, a Pennsylvania corporation, and GeoCities, a
California corporation ("GEOCITIES"). CDnow and GeoCities sometimes are referred
to collectively as the "PARTIES" and individually as a "PARTY."
In consideration of the mutual promises contained in this Agreement and
intending to be legally bound, CDnow and GeoCities hereby agree as follows:
SECTION 1. DEFINITIONS.
The following terms (and all declensions thereof) are used in this
Agreement with the respective meanings set forth below:
1.1 "ABOVE-THE-FOLD" means situated within the portion of a page that is
designed to be visible on a standard computer screen with a resolution of 640
pixels by 480 pixels without requiring the user to scroll horizontally or
vertically through the page.
1.2 "Affiliate" means, with respect to either Party, any individual or
entity that, by virtue of a majority ownership interest, directly controls, is
controlled by or is under common control with that Party.
1.3 "BEYOND THE BANNER" means, any type of promotion which involves
promotional techniques other than the placement of standard advertising banners
or standard advertising buttons.
1.4 "CDNOW ICONS" is defined in Section 2.1 of this Agreement.
1.5 "CDNOW SITE" means, collectively, all points of presence and/or
services maintained by CDnow or its Affiliates on the Internet or on any other
public data network.
1.6 "COMMENCEMENT DATE" means the date GeoCities first provides CDnow with
all links, advertisements and other promotional placements required under Stage
I described in the attached Exhibit B to this Agreement.
1.7 "COMPETITOR" means (a) any of the Entities listed on Exhibit C, (b)
any Entity that either derives more than [***] of its annual gross revenues from
the retail sale of Music or Video Products, or is primarily known as [***] or
(c) any Entity with more than U.S. [***] in annual revenues from the sale of
Music or Video Products, though such entities shall only be construed to be a
Competitor in the event that the advertising or promotion to be placed by such
entity on the GeoCities Site is related to the category of Music or Video
Products. For purposes of this Section 1.7, any commercial homepage
participating in GeoCities' GeoShops Program
[***] Confidential treatment requested for redacted portion.
<PAGE>
and any Entity who exclusively manufactures or distributes, or any Entity that
manufactures or distributes exclusively on behalf of a manufacturer or
distributor of Music or Video Products and also engages in direct selling of
Music or Video Products shall not be construed to be a Competitor. Any Entity
that sells exclusively used media which contain Music or Video Products shall
not be considered a Competitor hereunder.
1.8 "CONFIDENTIAL INFORMATION" is defined in Section 13.2 of this
Agreement.
1.9 "COSMIC CREDIT PROGRAM" means a syndicated selling program of CDnow
that sells Music or Video Products.
1.10 "ENTITY" means any individual, partnership, corporation, or division,
subsidiary or business unit thereof, retail site, World Wide Web site or other
entity
1.11 "EXCLUSIVE AREAS" means the GeoCities neighborhood homepages and the
GeoCities neighborhood topic pages and any materially similar pages or any pages
that supersede or replace these pages.
1.12 "GEOCITIES BASIC COMMERCE PLATFORM" means the collection of links,
advertisements and promotional placements (as specified in Exhibit A to this
Agreement) associated with the GeoCities' neighborhood home pages and
neighborhood topic pages.
1.13 "GEOCITIES GEOSHOPS PROGRAM" means the marketing program operated by
GeoCities which offers its homesteaders the opportunity to create a commercially
oriented homepage within the GeoCities Site. Participants in the GeoCities
GeoShops Program must confirm that their annual revenues are Two Hundred Fifty
Thousand Dollars ($250,000.00) or less upon application to the program..
1.14 "GEOCITIES SITE" means, collectively, and subject to the limitations
set forth in the following sentences of this Section 1.13, all points of
presence and/or services maintained by GeoCities on the Internet as
www.geocities.com or on any other public data network; provided, however, that
"GeoCities Site" does not include any Homesteader Page or GeoShop Page with
revenues annually of Two Hundred Fifty Thousand Dollars ($250,000) or less. To
the extent that GeoCities enters into agreements with third parties relating to
the joint development and/or hosting of co-branded or outsourced personal home
page communities, such co-branded and outsourced communities shall not
constitute part of the GeoCities Site, unless GeoCities determines, in its
reasonable business judgment, that the inclusion of any such co-branded or
outsourced communities does not in any way conflict with or violate any such
agreement with a third party, or any agreements or other arrangements that such
third party may have with any other party, and provided such co-branding or
outsourced communities do not reduce the prominence of the GeoCities Site. If
GeoCities makes such a determination, it shall notify CDnow of such
determination, and the co-branded or outsourced community in question shall
thereupon become part of the "GeoCities Site."
1.15 "GEOSHOP PAGE" means any homepage created by a participant in
GeoCities GeoShops program.
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1.16 "HOMESTEADER PAGE" means any personal homepage, or commercial
homepage participating in GeoCities' GeoShop program (other than a GeoCities
Affiliate) which resides in a "member neighborhood" on the GeoCities Site.
1.17 "IMPRESSIONS" is defined in Section 8.5 of this Agreement.
1.18 "INTELLECTUAL PROPERTY RIGHTS" is defined in Section 10.1 of this
Agreement.
1.19 "KEY COMMERCE PARTNERS" means up to any four (4) primary commerce
partners of the GeoCities Site.
1.20 "MAKE GOOD AMOUNT" is defined in Section 8.6 of this Agreement.
1.21 "MARKS" means a Party's trademarks, tradenames, service marks,
symbols, logos, brand names and other proprietary indicia of a Party under
common law, state law, federal law and laws of foreign countries.
1.22 "MUSIC OR VIDEO PRODUCTS" means all forms and formats of pre-recorded
consumer audio and video products available for retail sale directly to
consumers, excluding used media which contain Music or Video Products.
1.23 "QUALIFYING REVENUES" means, with respect to any monthly period, the
aggregate gross revenues resulting from Sessions less: (a) any shipping and
handling charges associated with the sale, (b) any sales taxes associated with
the sale, (c) any rebates associated with the sale and (d) any Qualifying
Revenues which are attributable to returned products and which have previously
been included in Qualifying Revenues.
1.24 "RETURN ICON" is defined in Section 2.2 of this Agreement.
1.25 "SESSION" means each instance in which a user accesses the CDnow Site
via a hypertext link embedded in any link, advertisement or other promotional
placement provided by GeoCities under this Agreement, and then views one or more
consecutive CDnow Site pages. A Session terminates when the user exits the CDnow
Site by any means.
1.26 "URL" means Uniform Resource Locator.
1.27 "VIEWER" means any user of the GeoCities Site who executes a link and
is connected to the CDnow Site.
SECTION 2. LINKAGE
2.1 (A) The CDnow graphic or other visual cues depicted on the attached
Exhibit A and associated with one or more URLs, which may include CDnow's Marks
and/or other indicia of origin (the "CDnow Icons") shall be included among the
GeoCities Basic Commerce Platform hyperlink icons during the Term. When clicked
upon by a Viewer, the
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CDnow Icon will directly link the Viewer with the CDnow Site. GeoCities shall
implement the link between the CDnow Icon and the CDnow Site.
(B) CDnow shall furnish GeoCities with full color representations of
the CDnow Icons at least ten (10) business days prior to the Commencement Date
for GeoCities' use under this Agreement. If CDnow subsequently modifies one or
more of the CDnow Icons or the URLs associated with the CDnow Icons, it shall
furnish a representation of same to GeoCities which GeoCities shall substitute
for the prior version within twenty (20) business days after receipt.
(C) During the initial term of this Agreement, GeoCities agrees that
CDnow is one of the Key Commerce Partners for the GeoCities Basic Commerce
Platform that will occupy premier positions on such platform, and CDnow will be
displayed and promoted in a manner no less commensurate with the display and
promotion of the other Key Commerce Partners on the GeoCities Basic Commerce
Platform.
(D) GeoCities further agrees that it will display the CDnow Icons in
a manner no less commensurate with its display of other vendor hyperlink icons
within the GeoCities Basic Commerce Platform.
2.2 The GeoCities graphic or other visual cue depicted on the attached
Exhibit A and associated with a single URL, which may include GeoCities' Marks
and/or other indicia of origin (the "Return Icon") shall be displayed by CDnow
on each page of the CDnow Site viewed by a Viewer during the Term (starting when
CDnow provides this capability) in the position within the page layout as shown
on Exhibit A. When clicked upon by a Viewer, the Return Icon will directly link
the Viewer with a specific URL in the GeoCities Basic Commerce Platform. CDnow
shall create the link on the CDnow Site between the Return Icon and the
GeoCities Basic Commerce Platform. GeoCities shall furnish CDnow with full color
representations of the Return Icon at least ten (10) business days prior to the
Commencement Date for CDnow's use under this Agreement. If GeoCities
subsequently modifies the Return Icon, it shall furnish a representation of same
to CDnow which CDnow shall substitute for the prior version within twenty (20)
business days after receipt. The Return Icon shall be visible at the CDnow Site
only to Viewers who link to the CDnow Site via the GeoCities Basic Commerce
Platform and to no other visitors at the CDnow Site.
2.3 CDnow shall ensure that the version of the CDnow Site viewed by
Viewers who link to the CDnow Site through the GeoCities Basic Commerce Platform
shall be substantially similar to the CDnow Site viewed by non-Viewers except
for CDnow co-branded sites with third parties, the Return Icon and as elsewhere
provided for in this Agreement.
SECTION 3. PROMOTIONAL PLACEMENTS
The promotional placements are specified in Exhibit B to this Agreement.
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SECTION 4. PARTICIPATION IN STRATEGIC PROGRAMS
The terms of participation in strategic programs are specified in Exhibit B
to this Agreement.
SECTION 5. COMPENSATION
5.1 As full consideration for GeoCities' performance under this Agreement
(including, without limitation, GeoCities' provision of all links,
advertisements and promotions specified in Sections 2, 3 and 4), CDnow will pay
GeoCities the fixed placement fees and variable incentive payments specified in
this Section 5.
5.2 During the initial term of this Agreement (as specified in Section
11.1 below), CDnow will pay GeoCities a fixed placement fee of [***] Dollars
($[***]) on the Commencement Date and [***] of the Commencement Date.
5.3 For each [***] that occurs subsequent to the Commencement Date during
the term of this Agreement (including any renewal term), CDnow will pay
GeoCities the applicable percentage(s) of Qualifying Revenues set forth opposite
from the range of Qualifying Revenues occurring in the first column of the table
below.
CUMULATIVE REVENUES REVENUE SHARE
(computed from the Commencement Date) PERCENTAGE
$ [***] [***]%
5.4 For each Homesteader Page that (a) participates in the Cosmic Credit
Program during the term of this Agreement and (b) within the [***] following the
Homesteader Page's entering the Cosmic Credit Program, is responsible for at
least $[***] in Qualifying Gross Revenue to CDnow as a result of its
participation in the Cosmic Credit Program, CDnow will pay GeoCities a one-time
bounty of $[***]. This provision will survive the expiration or termination of
this Agreement with respect to those Homesteader Pages that join the Cosmic
Credit Program within twelve (12) months prior to such expiration or
termination.
5.5 With the exception of the fixed placement fee set forth in Section
5.2, CDnow will make payments under this Section 5 on a [***] basis, in arrears.
Specifically, within thirty (30) days following the end of each [***] occurring
subsequent to the Commencement Date, CDnow will pay GeoCities an amount equal to
the revenue share that accrued during such [***] pursuant to Section 5.3 and any
bounties payable pursuant to Section 5.4.
[***] Confidential treatment requested for redacted portion.
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5.6 CDnow will deliver, together with each payment made pursuant to
Section 5.5, a written report signed by an authorized representative of CDnow
that describes (in reasonable detail) CDnow's calculation of the payment amount.
5.7 (A) GeoCities shall have the right, no more frequently than once
during the initial term and each renewal term, at its expense, upon thirty (30)
days advance written notice to CDnow and during CDnow's normal business hours,
to have an independent certified public accountant inspect and audit the books
and records of CDnow directly associated with CDnow's obligations to make
payments under this Agreement, for the purpose of verifying any payments due to
GeoCities under this Agreement. Any information obtained as a result of such
audit shall be the Confidential Information of CDnow, and GeoCities may use such
information only for the purpose of and only in such way as necessary for
collecting any amounts due it under this Agreement. In the event any shortfall
in payment to GeoCities is found which exceeds ten percent (10%) of the total
due GeoCities for the reporting period audited, then CDnow shall promptly pay
GeoCities the shortfall amount and reimburse GeoCities for all reasonable costs
of the audit.
(B) CDnow shall have the right, no more frequently than once during
the initial term and each renewal term, at its expense, upon thirty (30) days
advance written notice to GeoCities and during GeoCities' normal business hours,
to have an independent certified public accountant inspect and audit the books
and records of GeoCities directly associated with GeoCities' obligations under
this Agreement, for the purpose of verifying GeoCities' satisfaction of such
obligations. Any information obtained as a result of such audit shall be the
Confidential Information of GeoCities, and CDnow may use such information only
for the purpose of and only in such way as necessary for CDnow to enforce its
rights under this Agreement. In the event GeoCities' fails to meet any
obligations by more than ten percent (10%) of the total requirement of such
obligations as set forth in this Agreement, then Geo Cities shall promptly pay
CDnow all reasonable costs of the audit.
SECTION 6. IMPLEMENTATION
6.1 GeoCities and CDnow acknowledge that time is of the essence in the
design, development and commencement of the links, advertisements and
promotional placements specified in this Agreement. Accordingly, the Parties
will devote all commercially reasonable efforts to launch each link,
advertisement and promotional placement as soon as reasonably possible, in
accordance with a written development plan to be negotiated by the Parties in
good faith.
6.2 GeoCities, in cooperation with CDnow, will test the links,
advertisements and promotional placements required under this Agreement prior to
the time that they "go live" on the GeoCities Site (e.g., prior to the time that
they are implemented and enabled on a production version of the GeoCities Site)
and will continue to test such links, advertisements and promotional placements
as is reasonable and necessary during the term of this Agreement to ensure that
they function properly and as specified under this Agreement. The Parties will
mutually agree when the program of links, advertisements and promotional
placements will go live on the GeoCities Site.
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6.3 GeoCities will not cause any link, advertisement or promotional
placement under this Agreement to go live on the GeoCities Site prior to the
applicable date agreed by the Parties. Further, at CDnow's discretion, traffic
from promotional links and advertising placements will be enabled in stages;
provided, however, that such staging will not delay the Commencement Date.
SECTION 7. TRAFFIC DATA
7.1 On a monthly basis, GeoCities will provide CDnow with a report in a
form and via a distribution method mutually agreeable to the Parties concerning
search and browsing behavior on the GeoCities Site, to the extent such behavior
reasonably could relate to the online promotion or sale of Music or Video
Products, or other products that CDnow may sell from time to time. CDnow will
hold such data in confidence and will use it only in accordance with reasonable
guidelines to be mutually agreed upon by the Parties. Notwithstanding anything
to the contrary contained in this Section 7.1, GeoCities will not be required to
deliver to CDnow any user data in violation of its then-existing policies
regarding the protection of user information.
7.2 CDnow will provide GeoCities with a report at least once per month of
orders for CDnow's products submitted by GeoCities' users in a form and via a
distribution method mutually agreeable to the Parties. Such report is to be used
by GeoCities to actively track performance of various promotional tools that it
has in service. GeoCities will hold such data in confidence and will use it only
in accordance with reasonable guidelines to be agreed by the Parties.
Notwithstanding anything to the contrary contained in this Section, CDnow will
not be required to deliver to GeoCities any data in violation of its then-
existing privacy policies or policies regarding the protection of actual sales
information.
7.3 GeoCities will provide CDnow with a weekly report of Impressions
delivered to users of the GeoCities Site during the immediately preceding week
in a form and via a distribution method media mutually agreeable to the Parties.
Such report is to be used for CDnow to actively track whether GeoCities is
fulfilling its obligations under this Agreement.
SECTION 8. EXCLUSIVITY AND MEDIA GUARANTEE
8.1 In no event will GeoCities or any Competitor or any third party on
behalf of a Competitor: (a) place any [***] links or promotions for Music or
Video Products or relating to music or video categories on the GeoCities Site;
(b) place advertising banners, buttons or links for Music or Video Products or
relating to music or Video Categories [***]; or (c) run, or allow a Competitor
or any third party on behalf of a Competitor to run, a program similar to the
Cosmic Credit Program for the category of Music or Video Products. [***]
8.2 GeoCities shall be allowed to sell limited quantities of Music or
Video Products through its GeoStore, though the GeoStore shall not offer more
than [***] separate Music or Video Products at any point in time and such Music
or Video Products shall not be sold through a Competitor. Participants in the
GeoCities GeoShops Program shall be allowed to sell products in the category of
Music or Video Products on the GeoCities Site.
8.3 To preserve the benefits provided to CDnow under this Agreement in
the event that GeoCities enters into any merger, acquisition, transfer of
control, sale of substantial assets or similar transaction with any Competitor,
CDnow shall have the right to terminate this Agreement upon thirty (30) days'
written notice.
[***] Confidential treatment requested for redacted portion.
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8.4 GeoCities represents and warrants that (a) it will continue to expend
at least the same amount of resources (e.g., budget, staff) as it is currently
committing as of the time of execution of this Agreement for both the pages in
which the Impressions appear, the GeoCities Site and the GeoCities Basic
Commerce Platform generally; and (b) it will not develop or promote any space on
and/or linked from the GeoCities Site which functions in a substantially similar
manner to or provides the user with a substantially similar experience as the
GeoCities Basic Commerce Platform and which provides a substantially similar
level of integration throughout the GeoCities Site as the GeoCities Basic
Commerce Platform and which would contain any Competitor's advertising or
promotions for the category of Music or Video Products. If Geo Cities fails or
determines not to meet the representations and warranties set forth in this
Section 8.4, then CDnow shall have the right to terminate this Agreement upon
thirty (30) days' written notice.
8.5 As a result of the deployment of the CDnow Icons on the GeoCities
Site, GeoCities will deliver a guaranteed minimum number of Impressions of at
least [***]. For purposes of this Agreement, "IMPRESSIONS" means a user's
viewing of the CDnow ICON on a page on the GeoCities Site.
8.6 If GeoCities fails to deliver the required minimum number of
Impressions in any given month during the initial term or the then current
renewal term, then GeoCities shall, within ten (10) days of the month following
the month in which GeoCities failed to deliver such minimum, make good the
shortfall from the prior month by using its best efforts to deliver additional
Impressions equal to the number of the prior month's shortfall (the "MAKE GOOD
AMOUNT") by providing CDnow with additional advertising and promotional
opportunities at [***] to CDnow, with such additional advertising and
promotional opportunities to be promptly, mutually agreed upon in good faith by
the Parties.
SECTION 9. INDEMNIFICATION
9.1 CDnow will defend and indemnify GeoCities and its Affiliates (and
their respective employees, directors and representatives) against any claim or
action brought by a third party, to the extent relating to (a) the operation of
the CDnow Site, or (b) the violation of third-party intellectual property rights
by any editorial content or other materials provided by CDnow for display on the
GeoCities Site. Subject to GeoCities' compliance with the procedures described
in Section 9.3, CDnow will pay any award against GeoCities or its Affiliates (or
their respective employees, directors or representatives) and any costs and
attorneys' fees reasonably incurred by GeoCities and its Affiliates resulting
from any such claim or action.
9.2 GeoCities will defend and indemnify CDnow and its Affiliates (and
their respective employees, directors and representatives) against any claim or
action brought by a third party, to the extent relating to (a) the operation of
the GeoCities Site, or (b) the violation of any third-party intellectual
property rights by any editorial content or other materials provided by
GeoCities for display on the CDnow Site. Subject to CDnow's compliance with the
procedures described in Section 9.3, GeoCities will pay any award against CDnow
or its Affiliates (or their respective employees, directors or representatives)
and any costs and attorneys' fees reasonably incurred by CDnow and its
Affiliates resulting from any such claim or action.
[***] Confidential treatment requested for redacted portion.
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9.3 In connection with any claim or action described in this Section,
the Party seeking indemnification (a) will give the indemnifying Party prompt
written notice of the claim, (b) will cooperate with the indemnifying Party (at
the indemnifying Party's expense) in connection with the defense and settlement
of the claim, and (c) will permit the indemnifying Party to control the defense
and settlement of the claim, provided that the indemnifying Party may not settle
the claim without the indemnified Party's prior written consent (which will not
be unreasonably withheld). Further, the indemnified Party (at its cost) may
participate in the defense and settlement of the claim.
SECTION 10. INTELLECTUAL PROPERTY RIGHTS
10.1 Subject to the limited license granted to GeoCities under Section
10.2, CDnow reserves all of its ownership rights, title and interest in its
Intellectual Property Rights. Subject to the limited license granted to CDnow
under Section 10.3, GeoCities reserves all of its ownership rights, title and
interest in its Intellectual Property Rights. Neither Party grants any license
to any of the Party's Intellectual Property Rights to the other Party except as
specifically set forth in this Section 10. For purposes of this Agreement,
"Intellectual Property Rights" means all forms of intellectual property rights
and protections) including, without limitation, all right, title and interest in
and to all: (a) letters patent and all filed, pending or potential applications
for letters patent, including any reissue, reexamination, division, continuation
or continuation-in-part applications throughout the world now or hereafter filed
or issued; (b) trade secrets, and all trade secret rights and equivalent rights
arising under the common law, state law, federal law and laws of foreign
countries; (c) mask works, copyrights, other literary property or authors'
rights, whether or not protected by copyright or as a mask work, under common
law, state law, federal law and laws of foreign countries; and (d) Marks.
10.2 CDnow hereby grants to GeoCities, during the term of this Agreement,
a non-exclusive, non-transferable license to use CDnow's Marks as reasonably
necessary to perform its obligations under this Agreement; provided, however,
that any promotional materials containing CDnow's Marks will be subject to
CDnow's prior written approval.
10.3 GeoCities hereby grants to CDnow, during the term of this Agreement,
a non-exclusive, non-transferable license to use GeoCities' Marks as reasonably
necessary to perform its obligations under this Agreement; provided, however,
that any promotional materials containing GeoCities' Marks will be subject to
GeoCities' prior written approval.
10.4 Neither GeoCities nor CDnow will use the other Party's Marks in a
manner that disparages the other Party, its Marks or its products or services,
or portrays the other Party, its Marks or its products or services in a false,
competitively adverse or poor light. Each of GeoCities and CDnow will comply
with the other Party's requests as to the use of the other Party's Marks and
will avoid any action that diminishes the value of such Marks. Either Party's
unauthorized use of the other's Marks is strictly prohibited. Each Party's use
of the other Party's Marks and any and all goodwill associated therewith or that
may accrue as a result of such use will inure solely to the benefit of the other
Party (the owning Party).
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SECTION 11. TERM AND TERMINATION
11.1 The initial term of this Agreement will begin on the date of this
Agreement and will end twelve (12) months following the Commencement Date.
11.2 (A) CDnow will have the option to renew the term of this Agreement
for a single twelve (12) months renewal term beginning on the expiration of the
initial term by giving GeoCities written notice (indicating CDnow's exercise of
its option to renew the term of this Agreement) at least thirty (30) days prior
to the expiration of the initial term.
(B) During such renewal term, all terms and conditions of this
Agreement, except Section 11.2(a), will remain in full force and effect;
provided, however, that the fixed placement fees payable pursuant to Section 5.2
will be increased (or decreased as the case may be) in the renewal term [***].
11.3 Either Party may terminate this Agreement if the other Party (a)
materially breaches this Agreement and does not cure the breach within thirty
(30) days following its receipt of written notice from the non-breaching Party,
or (b) ceases to carry on the portion of its business that relates to this
Agreement. In the event that CDnow terminates this Agreement pursuant to the
terms of this Section 11.3, CDnow's obligation to make any further payments not
yet accrued under this Agreement will be eliminated.
11.4 Sections 1, 9, 10.1, 12 and 13 (together with all other provisions
that reasonably may be interpreted as surviving termination or expiration of
this Agreement) will survive the termination or expiration of this Agreement.
SECTION 12. DISCLAIMERS, LIMITATIONS AND RESERVATIONS
12.1 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, GEOCITIES DOES NOT
MAKE, AND HEREBY DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES REGARDING THE
GEOCITIES SITE, GEOCITIES' SERVICES OR ANY PORTION THEREOF, INCLUDING (WITHOUT
LIMITATION) IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, GEOCITIES
SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING (A) THE AMOUNT
OF SALES REVENUE THAT CDNOW MAY RECEIVE DURING THE TERM, AND (B) ANY ECONOMIC OR
OTHER BENEFIT THAT CDNOW MIGHT OBTAIN THROUGH ITS PARTICIPATION IN THIS
AGREEMENT.
[***] Confidential treatment requested for redacted portion.
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12.2 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, CDNOW DOES NOT MAKE,
AND HEREBY DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES REGARDING THE CDNOW
SITE, CDNOW'S SERVICES OR ANY PORTION THEREOF, INCLUDING (WITHOUT LIMITATION)
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, CDNOW SPECIFICALLY DISCLAIMS
ANY REPRESENTATION OR WARRANTY REGARDING (A) THE AMOUNT OF SALES REVENUES THAT
MAY OCCUR DURING THE TERM, AND (B) ANY ECONOMIC OR OTHER BENEFIT THAT GEOCITIES
MIGHT OBTAIN THROUGH ITS PARTICIPATION IN THIS AGREEMENT.
12.3 NEITHER CDNOW NOR GEOCITIES WILL BE LIABLE TO THE OTHER FOR
CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST PROFITS OR LOST DATA)
ARISING OUT OF THIS AGREEMENT. EACH PARTY'S ENTIRE LIABILITY ARISING FROM THIS
AGREEMENT (EXCEPT FOR LIABILITIES ARISING UNDER SECTION 9 OR RESULTING FROM THE
PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), WHETHER IN CONTRACT OR TORT,
WILL NOT EXCEED THE AMOUNTS TO BE PAID BY CDNOW UNDER SECTION 5.
12.4 CDnow will remain solely responsible for the operation of the CDnow
Site, and GeoCities will remain solely responsible for the operation of the
GeoCities Site. Each Party: acknowledges that the CDnow Site and the GeoCities
Site may be subject to temporary shutdowns due to causes beyond the operating
Party's reasonable control; and (b) subject to the specific terms of this
Agreement, retains sole right and control over the programming, content and
conduct of transactions over its respective site.
SECTION 13. MISCELLANEOUS
13.1 The Parties are entering this Agreement as independent contractors,
and this Agreement will not be construed to create a partnership, joint venture,
franchise or employment relationship between them. Neither Party will represent
itself to be an employee or agent of the other or enter into any agreement on
the other's behalf or in the other's name.
13.2 Each Party agrees that the Confidential Information of the other
Party will be held in confidence to the same extent and the same manner as each
Party protects its own Confidential Information, but each Party agrees that in
no event will less than reasonable care be used. Each Party shall, however, be
permitted to disclose relevant aspects of such Confidential Information to its
officers, employees and consultants on a need-to-know basis for the purpose of
such Party's performance of its obligations under this Agreement, provided such
persons agree to protect the other party's Confidential Information to the same
extent as required under this Agreement. Each Party agrees to use all reasonable
steps to ensure that the other Party's Confidential Information received under
this Agreement is not disclosed in violation of this paragraph. For purposes of
this Agreement, "CONFIDENTIAL INFORMATION" means the terms of this Agreement,
except as otherwise specifically provided in this Agreement; each Party's trade
secrets, financial information, processes, formulas, specifications, programs,
instructions, source code, technical know-how, methods and procedures for
operation, benchmark test results, information about employees, customers,
marketing strategies, services, business or technical plans and proposals,
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in any form; and any other information relating to either Party that is not
generally known to the public at large.
GeoCities agrees that it shall not be deemed a breach of this Agreement for
CDnow to disclose the terms and conditions of this Agreement in any regulatory
filing with the Securities & Exchange Commission, which CDnow in good faith
determines is required, provided CDnow seeks confidential treatment of the
material financial terms and conditions of this Agreement.
Confidential Information shall not include information that (a) is or
becomes generally known or available to the public at large through no negligent
act or omission of either Party; (b) can be demonstrated to have been available
lawfully to either Party prior to the disclosure or had thereafter been
furnished to either Party without restrictions to disclosure or use; or (c) can
be demonstrated to be independently developed by the recipient of Confidential
Information without use of such Confidential Information and such independent
development is proven on the basis of either Party's records related to such
development.
13.3 Following the execution of this Agreement, CDnow and GeoCities will
prepare and distribute a joint press release (or coordinated press releases)
announcing the transaction. The contents and timing of the release (or
releases) shall be as mutually agreed by the Parties. Neither Party will issue
any further press releases or make any other disclosures regarding this
Agreement or its terms without the other Party's prior written consent or except
as may be required by law in the opinion of the Party's counsel.
13.4 In its performance of this Agreement, each Party will comply with all
applicable laws, regulations, orders and other requirements, now or hereafter in
effect, of governmental authorities having jurisdiction. Without limiting the
generality of the foregoing, each Party will pay, collect and remit such taxes
as may be imposed upon it with respect to any compensation, royalties or
transactions under this Agreement. Except as expressly provided herein, each
Party will be responsible for all costs and expenses incurred by it in
connection with the negotiation, execution and performance of this Agreement.
13.5 Neither CDnow nor GeoCities will be liable for, or will be considered
to be 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 that are beyond such Party's reasonable control and that such Party
is unable to overcome through the exercise of commercially reasonable diligence.
If any force majeure event occurs, the affected party will give prompt written
notice to the other Party and will use commercially reasonable efforts to
minimize the impact of the event.
13.6 Notices deliverable under this Agreement shall be given in writing,
addressed to the Parties set forth below and shall be deemed to have been given
either one (1) day after being given to an express overnight carrier with a
reliable system for tracking delivery; or when sent by a confirmed facsimile
with another copy sent by any other means specified in this paragraph; or three
(3) business days after having been mailed postage prepaid by United States
registered or certified mail, return receipt requested:
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For notices to CDnow: For notices to GeoCities:
Name: Rod Parker James A. Rea
Title: Senior Vice President, Marketing Vice President Business Development
Address: Jenkins Court, Suite 310 1918 Main Street, 3rd Floor
610 Old York Road
City: Jenkintown PA 19046 Santa Monica, CA 90405-1030
Facsimile: (215) 517-4499 Facsimile: (310) 664-6520
with a copy to the CDnow General Counsel
13.7 If any litigation is commenced to enforce any provision of this
Agreement or to seek a declaration of rights of the Parties hereunder or as a
result of any breach of any provision of this Agreement, the prevailing Party
will be entitled to recover from the non-prevailing Party all of its costs and
expenses incurred in connection with such litigation, including without
limitation reasonable attorneys' fees.
13.8 Neither CDnow nor GeoCities may assign this Agreement, in whole or in
part, without the other Party's prior written consent (which will not be
withheld unreasonably), except to (a) any corporation resulting from any merger,
consolidation or other reorganization involving the assigning Party, (b) any of
its Affiliates, or (c) any individual or entity to which the assigning Party may
transfer substantially all of its assets; provided that the assignee agrees in
writing to be bound by all the terms and conditions of this Agreement. Subject
to the foregoing, this Agreement will be binding on and enforceable by the
Parties and their respective successors and permitted assigns.
13.9 If any provision of this Agreement is declared null, void or
otherwise unenforceable, such provision will be deemed to have been severed from
this Agreement to the minimal extent if necessary, which Agreement will
otherwise be and remain in full force and effect to its remaining provisions.
13.10 This Agreement (a) represents the entire agreement between the
Parties with respect to the subject matter hereof and supersedes any previous or
contemporaneous oral or written agreements regarding such subject matter and (b)
may be amended or modified only by a written instrument signed by a duly
authorized agent of each Party. If any provision of this Agreement is held to be
invalid, such invalidity will not effect the remaining provisions.
13.11 This Agreement may be executed in any number of counterparts, each of
which shall be an original and all of which shall constitute together one and
the same document.
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IN WITNESS WHEREOF, the Parties have executed this Agreement on the date
first written above by their duly authorized representatives.
CDnow
By: /s/ Jason Olim
---------------------------------------
Jason Olim
Its: President and Chief Executive Officer
Jenkins Court, Suite 310
610 Old York Road
Jenkintown, PA 19046
Facsimile: (215) 517-4399
Attention: Jason Olim
GEOCITIES
By: /s/ James A. Rea
---------------------------------------
James A. Rea
Its: Vice President Business Development
1918 Main Street, 3rd Floor
Santa Monica, California 90405
Facsimile: (310) 664-6520
Attention: James A. Rea
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EXHIBIT A
CDnow ICON
Home page image:
A Graphic depicting a CDnow logo plus tag line (World's Largest Music Store) to
be no less than [***]. CDnow's presence shall be no less than the presentation
of any other key commerce partner.
Example of a CDnow Logo:
Neighborhood Home Page
A Graphic with CDnow Icon (promotional message Product shot or other CDnow
graphical element) with a text message above the graphic promoting CDnow and two
individually hyperlinked text messages below the graphic that can be linked to
unique CDnow pages. CDnow's presence shall be no less than the presentation of
any other key commerce partner.
Image to be no less than [***] or [***]
For example:
[Picture of Logos]
[***] Confidential treatment requested for redacted portion.
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Topic Pages:
CDnow branded text message plus CDnow logo with at least two hyperlinked text
messages that can be linked to unique CDnow pages. CDnow's presence shall be no
less than the presentation of any other key commerce partner.
For Example:
RETURN ICON SPECIFlCATIONS
Size
Total Carry-through Bar Size: [***] as of April 1, 1997 all Carry-through Bar
sizes must be [***] to comply with the Internet Advertising Bureau's (IAB)
banner standards.
Live area for Partner Logo: [***]
Timing
CDnow requires a minimum of five business days from when we receive the Carry-
through bar to implement it on our site.
Carry-through Bar Samples
[***] Confidential treatment requested for redacted portion.
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Color
Bar is black at all times.
Only partner logos/icons can be as many colors as desired with a black
background
"Return to..." copy is mandatory and must be set up as white Helvetica Neue
Black 10pt type, centered and 5 pixels in from the left-hand side of the first
black bar
We recommend all copy to be white
To pick up a template go to http://cdnow.com/cobrand template
Format
Must be saved in a GIF file format
Placement
Carry-through bar is placed on the top and bottom of each CDnow page. Only
those people who visit CDnow from your site will see the Carry-through bar
URL/Address
Partners have the option of 1 to 3 links on their Carry-through bar The URLs
will be provided by the partner
If more than one link is desired, the bar must consist of multiple gif images
that reference previous Carry-through bar specifications. When using multiple
gif images keep two pixels between each bar. No image maps are permitted.
Please see the following page for more examples of possible banner solutions.
Source Code
CDnow will provide the partner with a from equals(from=) tag. This tag allows
us to identify customers coming from the Partners site to CDnow.
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EXHIBIT B
Promotion Placements and Participation in Strategic Programs
Staged Deployment of CDNOW Promotion on GeoCities
STATE I
Target Start Date top bed Implemented as Soon as Possible After Signing
Agreement:
1) Main GeoCities Home Page;
2) Each GeoCities Neighborhood Homepage (currently 39 and growing);
3) Each Neighborhood Topic Page (currently between 500 and 600);
4) Experimentation with Popups and/or Interstitials;
5) Announcement of Relationship in World Report (using a reasonable
announcement that is editorially appropriate);
6) Experimentation with Inclusion in New Member Welcome Package (Welcome
Wagon); and
7) Banners.
STAGE II
GeoCities will make best efforts to implement within two months of the
Commencement Date.
1) Offer Cosmic Credit Program for Homesteaders;
2) Incentive Program for Homesteaders to Host CDnow Sponsored Chat on their
Homepages;
3) Experimentation with Targeted Product Offerings within GeoCities Chat
Sessions; and
4) Senior Positioning in GeoCities Marketplace.
STAGE III
GeoCities to make best efforts to implement within three months of the
Commencement Date. Experimentation with various concepts and deploying those
which appear to provide successful results including:
1) Product Offers on Search Result Pages;
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2) Product Offers on Interest Pages;
3) Product offers within Instant Messaging; and
4) Greeting Card/Gift Certificate Offers.
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EXHIBIT C
Competitors in Music and/or Video Categories
Pursuant to Section 1.7(a) of the Agreement, Competitor includes (i) Music
Boulevard and any other online music retail sites sponsored or promoted by N2K;
(ii) Columbia House, including, without limitation, Total-E; (iii) any online
music store sponsored or promoted buy a record label; (iv) Tower Records; and
(v) any online music store sponsored or promoted by Borders, Amazon or Barnes &
Noble.
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EXHIBIT 10.7
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ADVERTISING AGREEMENT
This Advertising Agreement (this "Agreement"), dated as of December 15,
1997, is made by and between Egghead, Inc., a Washington corporation ("SDE");
and GeoCities, a California corporation ("GeoCities"). SDE and GeoCities
sometimes are referred to collectively as the "Parties" and individually as a
"Party". In consideration of the mutual promises contained in this Agreement,
SDE and GeoCities hereby agree as follows:
SECTION 1. DEFINITIONS
The following terms (and all declensions thereof) are used in this
Agreement with the respective meanings set forth below:
1.1 "ABOVE-THE-FOLD" means situated within the portion of a page that
is designed to be visible on a standard computer screen with a resolution of 640
pixels by 480 pixels without requiring the user to scroll horizontally or
vertically through the page.
1.2 "AFFILIATE" means, with respect to either Party, any individual or
entity that, by virtue of a majority ownership interest, directly controls, is
controlled by or is under common control with that Party.
1.3 "SDE SITE" means, collectively, all points of presence and/or
services maintained by SDE or its Affiliates on the Internet or on any other
public data network.
1.4 "GEOCITIES SITE" means, collectively, and subject to the
limitations set forth in the following sentences of this Section 1.4, all points
of presence and/or services maintained by GeoCities on the Internet as www.
geocities.com or on any other public data network; provided, however, that
"GeoCities Site" does not include any Homesteader Page or GeoShop Page with
revenues annually of Two Hundred Fifty Thousand Dollars ($250,000) or less. To
the extent that GeoCities enters into agreements with third parties relating to
the joint development and/or hosting of co-branded or outsourced personal home
page communities, such co-branded and outsourced communities shall not
constitute part of the "GeoCities Site," unless GeoCities determines, in its
sole discretion, that the inclusion of any such co-branded or outsourced
communities does not in any way conflict with or violate any such agreement with
a third party, or any agreements or other arrangements that such third party may
have with any other party. If GeoCities makes such a determination, it shall
notify SDE of such determination, and the co-branded or outsourced community in
question shall thereupon become part of the "GeoCities Site."
1.5 "GEOCITIES BASIC COMMERCE PLATFORM" means the collection of links,
advertisements and promotional placements associated with the GeoCities' Site.
1.6 "VIEWER" means any user of the GeoCities Site who executes a link
and is connected to the SDE Site.
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1.7 "COMMENCEMENT DATE" means the date GeoCities first provides SDE
with all links, advertisements and other promotional placements required under
Stage IA described in the attached Exhibit B to this Agreement.
1.8 "COMPETITOR" means (a) any of the entities listed on Exhibit C, or
(b) any individual, corporation, corporate division, retail site, World Wide Web
site or other entity that either derives more than [***] of its annual gross
revenues from the retail sale of computer hardware or software, or is primarily
known as a retailer of computer hardware or software. For purposes of this
Section 1.8, any commercial homepage participating in GeoCities' GeoShops
program and any company who manufactures and also engages in direct selling of
computer hardware or software programs shall not be construed to be a
Competitor. For purposes of this Agreement, the term computer hardware and
software shall be construed to include computer peripherals and accessories.
1.9 "HOMESTEADER PAGE" means any personal homepage, or commercial
homepage participating in GeoCities' GeoShop program (other than a GeoCities
Affiliate) which resides in a "member neighborhood" on the GeoCities Site.
1.10 "SESSION" means each instance in which a user accesses the SDE Site
via a hypertext link embedded in any link, advertisement or other promotional
placement provided by GeoCities under this Agreement, and then views one or more
consecutive SDE Site pages. A Session terminates when the user exits the SDE
Site by any means.
1.11 "QUALIFYING GROSS MARGIN REVENUES" means, with respect to any
monthly period, the aggregate gross revenues resulting from Sessions less (a)
any direct costs of goods sold, and less (b) any shipping costs associated with
the sale, and less (c) any credit card service charges associated with the sale
and less (d) any sales taxes associated with the sale, and less (e) any Gross
Margin Revenues which are attributable to returned products which have
previously been included in Gross Margin Revenues.
1.12 "EXCLUSIVE AREAS" means the GeoCities neighborhood homepages and
the GeoCities neighborhood topic pages.
SECTION 2. LINKAGE
2.1 The graphic or other visual cue depicted on the attached Exhibit A,
which may include names, trademarks, servicemarks, designmarks, symbols and/or
other indicia of origin (the "SDE Icon") shall be included among the GeoCities
Basic Commerce Platform hyperlink icons during the Term. When clicked upon by a
Viewer, the SDE Icon will link the Viewer with the SDE Site. GeoCities shall
create and maintain the link between the SDE Icon and the SDE Site. SDE shall
furnish GeoCities with full color representations of the SDE Icon at least ten
(10) business days prior to the Deployment Date for GeoCities' use under this
Agreement. GeoCities agrees that it will display the SDE Icon in a manner agreed
to by the Parties and commensurate with its display of other vendor hyperlink
icons within the GeoCities Basic Commerce Platform. If SDE subsequently modifies
the SDE Icon, it shall furnish a
[***] Confidential treatment requested for redacted portion.
<PAGE>
representation of same to GeoCities which GeoCities shall substitute for the
prior version within twenty (20) business days after receipt.
2.2 The graphic or other visual cue depicted on the attached Exhibit A,
which may include names, trademarks, servicemarks, designmarks, symbols and/or
other indicia of origin as agreed to by the Parties, (the "Return Icon") shall
be displayed by SDE on each page of the SDE Site viewed by a Viewer during the
Term in the position within the page layout as shown on Exhibit A. When clicked
upon by a Viewer, the Return Icon will link the Viewer with the GeoCities Basic
Commerce Platform which was the point of departure prior to linkage with the SDE
Site. SDE shall create the link between the Return Icon and the GeoCities Basic
Commerce Platform. GeoCities shall furnish SDE with full color representations
of the Return Icon at least ten (10) business days prior to the Deployment Date
for SDE use under this Agreement. If GeoCities subsequently modifies the Return
Icon, it shall furnish a representation of same to SDE which SDE shall
substitute for the prior version within twenty (20) business days after receipt.
The Return Icon shall be visible at the SDE Site only to Viewers who link to the
SDE Site via the GeoCities Basic Commerce Platform and to no other visitors at
the SDE Site.
2.3 SDE shall ensure that the version of the SDE Site viewed by Viewers
who link to the SDE Site through the GeoCities Basic Commerce Platform shall be
substantially similar to the SDE Site viewed by non-Viewers except for SDE co-
branded sites with other companies, the Return Icon and as elsewhere provided
for in this Agreement.
SECTION 3. PROMOTIONAL PLACEMENTS
See Exhibit B.
SECTION 4. PARTICIPATION IN STRATEGIC PROGRAMS
See Exhibit B.
SECTION 5. COMPENSATION
5.1 As full consideration for GeoCities' performance under this
Agreement (including, without limitation, GeoCities' provision of all links,
advertisements and promotions specified in Sections 2, 3 and 4), SDE will pay
GeoCities the fixed placement fees and variable incentive payments specified in
this Section 5, and under certain circumstances, a Site Production Fee, as
described in Section 11.5.
5.2 During the initial term of this Agreement, SDE will pay GeoCities a
fixed placement fee of [***] Dollars ($[***]) on the Commencement Date and at
the beginning of each [***] that occurs subsequent to the Commencement Date
until the initial term ends in association with Section 11.1 hereof.
[***] Confidential treatment requested for redacted portion.
<PAGE>
5.3 During the term of this Agreement (including any renewal term),
for each [***] that occurs subsequent to the Commencement Date, SDE will pay
GeoCities the applicable percentage(s) of Qualifying Gross Margin Revenues set
forth opposite from the range of Qualifying Gross Margin Revenues occurring in
the first column.
QUALIFYING GROSS
QUALIFYING GROSS MARGIN REVENUES MARGIN REVENUE
[***] SHARE PERCENTAGE
[***] [***]
For example, if Qualifying Gross Margin Revenues equals $[***] in a given
[***], then GeoCities' share of the Qualifying Gross Margin Revenues earned as a
result of this Section 5.3 would be computed as follows:
[***] of Gross Margin [***] [***]
[***] of Gross Margin [***] [***]
[***] of Gross Margin [***] [***]
Total share earned by GeoCities [***] [***]
[***] Confidential treatment requested for redacted portion.
<PAGE>
5.4 SDE will make payments under this Section 5 on a [***] basis, in
arrears within thirty (30) days following the end of each [***] occurring
subsequent to the Commencement Date.
5.5 SDE organizes their accounting periods around 4 week and 5 week
periods that approximate monthly reporting periods. SDE will provide GeoCities
with a schedule of the [***] periods, which shall be used for purposes of
determining [***] reporting periods for this Agreement.
5.6 SDE will deliver, together with each payment made pursuant to
Section 5.4, a written report signed by an authorized representative of SDE that
describes (in reasonable detail) SDE's calculation of the payment amount.
5.7 GeoCities shall have the right, no more frequently than once during
each term, at its expense, upon thirty (30) days advance written notice to SDE
and during SDE's normal business hours, to inspect and audit the books and
records of SDE, by an independent certified public account, for the limited
purpose of verifying any payments due to GeoCities under this Agreement. In the
event any shortfall in payment to GeoCities is found which exceeds ten percent
(10%) of the total due GeoCities for the reporting period audited, then SDE
shall promptly pay GeoCities the shortfall amount and reimburse GeoCities for
all reasonable costs of the audit. The audit shall be limited to verification of
over-payment or under-payment by SDE. In the event of SDE over-payment,
GeoCities shall promptly remit any over-payment of fees to SDE.
SECTION 6. IMPLEMENTATION
6.1 GeoCities and SDE acknowledge that time is of the essence in the
design, development and commencement of the links, advertisements and
promotional placements specified in this Agreement. Accordingly, the Parties
will devote all commercially reasonable efforts to launch each link,
advertisement and promotional placement as soon as reasonably possible, in
accordance with a written development plan to be negotiated by the Parties in
good faith.
6.2 GeoCities, in cooperation with SDE, will test the links,
advertisements and promotional placements required under this Agreement prior to
the time that they "go live" on the GeoCities Site (e.g., prior to the time that
they are implemented and enabled on a production version of the GeoCities Site).
6.3 GeoCities will not cause any link, advertisement or promotional
placement under this Agreement to go live on the GeoCities Site prior to the
applicable date agreed by the Parties. Further, at SDE's discretion, traffic
from promotional links and advertising placements will be enabled in stages;
provided, however, that such staging will not delay the Commencement Date.
[***] Confidential treatment requested for redacted portion.
<PAGE>
SECTION 7. TRAFFIC DATA
7.1 On a monthly basis, GeoCities will provide SDE with mutually agreed
data, in a form acceptable to SDE, concerning search and browsing behavior on
the GeoCities Site, to the extent such behavior reasonably could relate to the
online promotion or sale of computer hardware and software, or other products
that SDE may sell from time to time. SDE will hold such data in confidence and
will use it only in accordance with reasonable guidelines to be agreed by the
Parties.
7.2 SDE will use its best efforts to provide GeoCities with an online
report, produced on a daily basis, of orders for SDE's products submitted by
GeoCities' users. Such report is to be used by GeoCities to actively track
performance of various promotional tools that it has in service. GeoCities will
hold such data in confidence and will use it only in accordance with reasonable
guidelines to be agreed by the Parties. Notwithstanding anything to the contrary
contained in this Section, SDE will not be required to deliver to GeoCities any
data in violation of its then-existing policies regarding the protection of
actual sales information.
SECTION 8. EXCLUSIVITY AND MEDIA GUARANTEE
8.1 GeoCities will not place [***], or permit any Competitor to place
[***], any Competitor's advertising banners, promotional buttons, promotional
links or other promotional content. [***]
8.2 GeoCities shall be allowed to sell limited quantities of computer
hardware or software through its GeoStore, though the GeoStore shall not offer
more than a combination of twenty five (25) separate computer hardware or
software products at any point in time. GeoCities has an existing agreement with
the Internet Shopping Network, also doing business as First Auction, which
grants them the right to sell computer hardware and software within the
GeoCities Marketplace until the expiration of the agreement on [***]. The
Internet Shopping Network shall continue to be allowed to sell computer hardware
and software within the GeoCities Marketplace until the expiration of the
aforementioned agreement, which agreement shall not be renewed by GeoCities.
8.3 To preserve the benefits provided to SDE under this Agreement, in
the event that GeoCities enters into any merger, acquisition, transfer of
control, sale of substantial assets or similar transaction with any Competitor,
SDE may have the right to terminate this Agreement upon thirty (30) days'
notice.
8.4 As a result of the deployment of SDE's promotion on the GeoCities
website as described in Exhibit B of this Agreement, GeoCities will provide a
guaranteed number of impressions of at least [***].
[***] Confidential treatment requested for redacted portion.
<PAGE>
SECTION 9. INDEMNIFICATION
9.1 SDE shall at all times indemnify and hold harmless GeoCities,
including any director, officer, employee, agent or representative thereof (the
"Indemnified Parties") from and against any and all claims, suits, losses,
damages, costs, expenses and liabilities of whatsoever nature or kind
(including, but not limited to, attorneys' fees, litigation and court costs,
amounts paid in settlement, amounts paid to discharge judgment(s)) directly or
indirectly resulting from, arising out of, or related to (a) the operation of
the SDE Site, or (b) the violation of third-party intellectual property rights
by any editorial content or other materials provided by SDE for display on the
GeoCities Site. Subject to GeoCities' compliance with the procedures described
in Section 9.3, SDE will pay any award against GeoCities or its Affiliates (or
their respective employees, directors or representatives) and any costs and
attorneys' fees reasonably incurred by GeoCities and its Affiliates resulting
from any such claim or action.
9.2 GeoCities shall at all times indemnify and hold harmless SDE,
including any director, officer, employee, agent or representative thereof (the
"Indemnified Parties") from and against any and all claims, suits, losses,
damages, costs, expenses and liabilities of whatsoever nature or kind
(including, but not limited to, attorneys' fees, litigation and court costs,
amounts paid in settlement, amounts paid to discharge judgment(s)) directly or
indirectly resulting from, arising out of, or related to (a) the operation of
the GeoCities Site, or (b) the violation of any third-party intellectual
property rights by any editorial content or other materials provided by
GeoCities for display on the SDE Site. Subject to SDE's compliance with the
procedures described in Section 9.3, GeoCities will pay any award against SDE or
its Affiliates (or their respective employees, directors or representatives) and
any costs and attorneys' fees reasonably incurred by SDE and its Affiliates
resulting from any such claim or action.
9.3 In connection with any claim or action described in this Section,
the Party seeking indemnification (a) will give the indemnifying Party prompt
written notice of the claim, (b) will cooperate with the indemnifying Party (at
the indemnifying party's expense) in connection with the defense and settlement
of the claim, and (c) will permit the indemnifying Party to control the defense
and settlement of the claim, provided that the indemnifying Party may not settle
the claim without the indemnified Party's prior written consent (which will not
be unreasonably withheld). Further, the indemnified Party (at its cost) may
participate in the defense and settlement of the claim.
SECTION 10. INTELLECTUAL PROPERTY RIGHTS
10.1 Subject to the limited license granted to GeoCities under Section
10.2, SDE reserves all of its right, title and interest in its intellectual
property rights (e.g., patents, copyrights, trade secrets, trademarks and other
intellectual property rights). Subject to the limited license granted to SDE
under Section 10.3, GeoCities reserves all of its right, title and interest in
its intellectual property rights. Neither Party grants any license to the other
except as specifically set forth in this Section 10.
<PAGE>
10.2 SDE hereby grants to GeoCities, during the term of this Agreement,
a non-exclusive, non-transferable license to use SDE's trade names, trademarks,
service names and similar proprietary marks as is reasonably necessary to
perform its obligations under this Agreement; provided, however, that any
promotional materials containing SDE's proprietary marks will be subject to
SDE's prior written approval.
10.3 GeoCities hereby grants to SDE, during the term of this Agreement,
a non-exclusive, non-transferable license to use GeoCities' trade names,
trademarks, service names and similar proprietary marks as is reasonably
necessary to perform its obligations under this Agreement; provided, however,
that any promotional materials containing GeoCities' proprietary marks will be
subject to GeoCities' prior written approval.
10.4 Neither GeoCities nor SDE will use the other Party's proprietary
marks in a manner that disparages the other Party or its products or services,
or portrays the other Party or its products or services in a false,
competitively adverse or poor light. Each of GeoCities and SDE will comply with
the other Party's requests as to the use of the other Party's proprietary marks
and will avoid any action that diminishes the value of such marks. Either
Party's unauthorized use of the other's proprietary marks is strictly
prohibited.
SECTION 11. TERM AND TERMINATION
11.1 The term of this Agreement will begin on the date of this Agreement
and will end twelve (12) months following the Commencement Date.
11.2 Within [***] prior to expiration of the term of this Agreement,
GeoCities will provide to SDE written notification of the terms and conditions
under which GeoCities will renew this Agreement with SDE. GeoCities shall at
that time grant to SDE the exclusive option to accept the aforementioned terms
and conditions within [***] of receipt of GeoCities' written notice
communicating such terms and conditions to SDE and thereby renew this Agreement
at its expiration under such new terms and conditions.
11.3 Either GeoCities or SDE may terminate this Agreement if the other
party (a) materially breaches this Agreement and does not cure the breach within
thirty (30) days following its receipt of written notice from the non-breaching
party, or (b) ceases to carry on the portion of its business that relates to
this Agreement. In the event that SDE terminates this Agreement pursuant to the
terms of this Section 11.3, SDE's obligation to make any other payments under
this Agreement will be eliminated.
11.4 Sections 9, 12 and 13 (together with all other provisions that
reasonably may be interpreted as surviving termination or expiration of this
Agreement) will survive the termination or expiration of this Agreement.
11.5 At any time [***] or more after the Commencement Date, SDE shall
have the right to terminate this Agreement prior to its expiration upon
providing GeoCities with thirty (30) days prior written notice. In the event
that SDE elects to terminate this Agreement prior to its expiration, SDE will
pay a Site Production Fee as set forth below and after payment of such Site
Production Fee, SDE's obligation to make any other payments under this Agreement
[***] Confidential treatment requested for redacted portion.
<PAGE>
will be eliminated:
CUMULATIVE FIXED PLACEMENT
FEES PAID PRIOR TO OR AT
TIME OF TERMINATION SITE PRODUCTION FEE PAYABLE
[***] [***]
[***] [***]
[***] [***]
[***] [***]
SECTION 12. DISCLAIMERS, LIMITATIONS AND RESERVATIONS
12.1 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, GEOCITIES DOES
NOT MAKE, AND HEREBY DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES REGARDING THE
GEOCITIES SITE, GEOCITIES' SERVICES OR ANY PORTION THEREOF, INCLUDING (WITHOUT
LIMITATION) IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, GEOCITIES
SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING (A) THE AMOUNT
OF SALES REVENUE THAT SDE MAY RECEIVE DURING THE TERM, AND (B) ANY ECONOMIC OR
OTHER BENEFIT THAT SDE MIGHT OBTAIN THROUGH ITS PARTICIPATION IN THIS AGREEMENT.
12.2 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, SDE DOES NOT
MAKE, AND HEREBY DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES REGARDING THE SDE
SITE, SDE'S SERVICES OR ANY PORTION THEREOF, INCLUDING (WITHOUT LIMITATION)
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SDE SPECIFICALLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY REGARDING (A) THE AMOUNT OF SALES REVENUES THAT MAY
OCCUR DURING THE TERM, AND (B) ANY ECONOMIC OR OTHER BENEFIT THAT GEOCITIES
MIGHT OBTAIN THROUGH ITS PARTICIPATION IN THIS AGREEMENT.
12.3 NEITHER SDE NOR GEOCITIES WILL BE LIABLE TO THE OTHER FOR
CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST PROFITS OR LOST DATA)
ARISING OUT OF THIS AGREEMENT. EACH PARTY'S ENTIRE LIABILITY ARISING FROM THIS
AGREEMENT (EXCEPT FOR LIABILITIES ARISING UNDER SECTION 9 OR RESULTING FROM THE
PARTY'S WILLFUL MISCONDUCT), WHETHER IN CONTRACT OR TORT, WILL NOT EXCEED THE
AMOUNTS TO BE PAID BY SDE UNDER SECTION 5.
[***] Confidential treatment requested for redacted portion.
<PAGE>
12.4 SDE will remain solely responsible for the operation of the SDE
Site, and GeoCities will remain solely responsible for the operation of the
GeoCities Site. Each Party (a) acknowledges that the SDE Site and the GeoCities
Site may be subject to temporary shutdowns due to causes beyond the operating
Party's reasonable control, and (b) subject to the specific terms of this
Agreement, retains sole right and control over the programming, content and
conduct of transactions over its respective site.
SECTION 13. MISCELLANEOUS
13.1 The Parties are entering this Agreement as independent contractors,
and this Agreement will not be construed to create a partnership, joint venture,
franchise or employment relationship between them. Neither Party will represent
itself to be an employee or agent of the other or enter into any agreement on
the other's behalf of or in the other's name.
13.2 Each party agrees that the Confidential Information of the other
party will be held in confidence to the same extent and the same manner as each
party protects its own Confidential Information, but each party agrees that in
no event will less than reasonable care be used. Each party shall, however, be
permitted to disclose relevant aspects of such Confidential Information to its
officers, employees and consultants on a need-to-know basis, provided that they
have undertaken to protect the Confidential Information to the same extent as
required under this Agreement. Each party agrees to use all reasonable steps to
ensure that the other party's Confidential Information received under this
Agreement is not disclosed in violation of this paragraph. "Confidential
Information" means the terms of this Agreement, except as otherwise specifically
provided in the Agreement; each party's trade secrets, including but not limited
to, financial information, processes, formulas, specifications, programs,
instructions, source code, technical know-how, methods and procedures for
operation, benchmark test results, information about employees, customers,
marketing strategies, services, business or technical plans and proposals, in
any form; and any other information relating to either party that is not
generally known to the public at large.
Confidential Information shall not include information that (1) is or
becomes generally known or available to the public at large through no negligent
act or omission of either party; (2) can be demonstrated to have been available
lawfully to either party prior to the disclosure or had thereafter been
furnished to either party without restrictions to disclosure or use; or (3) can
be demonstrated to be independently developed by the recipient of Confidential
Information without use of such Confidential Information and such independent
development is proven on the basis of either party's records related to such
development.
13.3 Following the execution of this Agreement, SDE and GeoCities will
prepare and distribute a joint press release (or coordinated press releases)
announcing the transaction. The contents and timing of the release (or releases)
shall be as mutually agreed by the Parties. Neither Party will issue any further
press releases or make any other disclosures regarding this Agreement or its
terms without the other Party's prior written consent.
13.4 In its performance of this Agreement, each Party will comply with
all applicable laws, regulations, orders and other requirements, now or
hereafter in effect, of governmental authorities having jurisdiction. Without
limiting the generality of the foregoing, each Party will
<PAGE>
pay, collect and remit such taxes as may be imposed upon it with respect to any
compensation, royalties or transactions under this Agreement. Except as
expressly provided herein, each Party will be responsible for all costs and
expenses incurred by it in connection with the negotiation, execution and
performance of this Agreement.
13.5 Neither SDE nor GeoCities will be liable for, or will be
considered to be 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 that are beyond such Party's reasonable control and that
such Party is unable to overcome through the exercise of commercially reasonable
diligence. If any force majeure event occurs, the affected Party will give
prompt written notice to the other Party and will use commercially reasonable
efforts to minimize the impact of the event and all fixed placement fees shall
be suspended until such events are cured.
13.6 Notices deliverable under this Agreement shall be given in
writing, addressed to the parties set forth below and shall be deemed to have
been given either one (1) day after being given to an express overnight carrier
with a reliable system for tracking delivery; or when sent by a confirmed
facsimile with another copy sent by any other means specified in this paragraph;
or three (3) business days after having been mailed postage prepaid by United
States registered or certified mail:
FOR NOTICES TO SDE: FOR NOTICES TO GEOCITIES:
Name: Jeffrey M. Swan James A. Rea
Title: Executive Vice President V.P. - Business Development
Address: 489 North 8/th/ Street 1918 Main Street, 3/rd/ Floor
City: Hood River, Oregon 97031 Santa Monica, CA 90405-1030
Facsimile: (541) 386-5384 (310) 664-6520
13.7 If any litigation is commenced to enforce any provision of this
Agreement or to seek a declaration of rights of the parties hereunder or as a
result of any breach of any provision of this Agreement, the prevailing party
will be entitled to recover from the non-prevailing party all of its costs and
expenses incurred in connection with such litigation, including without
limitation reasonable attorneys' fees.
13.8 Neither SDE nor GeoCities may assign this Agreement, in whole or
in part, without the other Party's prior written consent (which will not be
withheld unreasonably), except to (a) any corporation resulting from any merger,
consolidation or other reorganization involving the assigning Party, (b) any of
its Affiliates, or (c) any individual or entity to which the assigning Party may
transfer substantially all of its assets; provided that the assignee agrees in
writing to be bound by all the terms and conditions of this Agreement. Subject
to the foregoing, this Agreement will be binding on and enforceable by the
Parties and their respective successors and permitted assigns.
<PAGE>
13.9 If any provision of this Agreement is declared null, void or
otherwise unenforceable, such provision will be deemed to have been severed from
this Agreement to the minimal extent if necessary, which Agreement will
otherwise be and remain in full force and effect to its remaining provisions.
13.10 This Agreement (a) represents the entire agreement between the
parties with respect to the subject matter hereof and supersedes any previous or
contemporaneous oral or written agreements regarding such subject matter, (b)
may be amended or modified only by a written instrument signed by a duly
authorized agent of each party, and (c) will be interpreted, construed and
enforced in all respects in accordance with the laws of the State of California,
without reference to its choice of law rules. If any provision of this Agreement
is held to be invalid, such invalidity will not effect the remaining provisions.
The parties have executed this Agreement on the date first written above.
EGGHEAD, INC.
By: /s/George Orban
---------------------------------
George Orban
Its:Chief Executive Officer
489 North 8/th/ Street
Hood River, Oregon 97031
Facsimile: (541)386-5384
Attention: Jeffrey M. Swan
Executive Vice President
With copies to:
12403 Northeast Marx Street
Portland, Oregan 97230
Facsimile: (503) 408-7359
Attention: Jeffrey M. Swan
Executive Vice President
GEOCITIES
By: /s/James A. Rea
---------------------------------
James A. Rea
Its:Vice President - Business Development
1918 Main Street, 3/rd/ Floor
Santa Monica, California 90405
Facsimile: (310) 664-6520
<PAGE>
EXHIBIT A
LINKAGE
SDE Icon
Return Icon
A-1
<PAGE>
EXHIBIT B
STAGED DEPLOYMENT OF SDE PROMOTION ON GEOCITIES
STAGE IA
Target Start Date 11/1/97
1) Fixed Media Placement
[***] exposures/month (buttons/banners)
Plus E-Mail collection from member registration page
This may be modified upon the mutual agreement of the parties
2) Experimentation with Popups and/or Interstitials
3) Placement on GeoCities Homepage
Logo placement, aggregated with other strategic partners situated on main
homepage.
4) Placement on GeoCities Neighborhood Homepage
Logo placement, aggregated with other strategic partners situated on each
neighborhood homepage
5) Placement on GeoCities Neighborhood Topic Pages
Logo placement, aggregated with other strategic partners on each
neighborhood topic page
Specific targeted product placement either on each neighborhood topic page or on
a topic product page associated with each neighborhood topic page.
STAGE IB
Target Start Date 12/1/97
1) Placement on GeoCities Marketplace
Above the fold placement, more prominent in size than non-strategic marketplace
vendors.
[***] Confidential treatment requested for redacted portion.
B-1
<PAGE>
STAGE II
Target Start Date 1/1/98
1) Implement Computer Guides Program
Incentive program for GeoCities homesteaders to host for computer related
chat and discussion board sessions on their personal homepages
2) Integrate with GeoCities Chat Programs
Vendor's Chat - include all computer related chat sessions in directory of
active chat sessions and experiment with placing direct buy buttons on
computer related member hosted chat pages.
Products Within/Under Chat - deliver targeted product offers (fishing
software offers to fishing chat participants) to chat users.
B-2
<PAGE>
STAGE III
Target Start Date 2/1/98
Stage III involves an ongoing process of experimenting with new concepts
and implementing those concepts which appear to provide successful results. Some
of the areas we intend to explore are:
Product Offers on Search Result Pages
Product Offers on Interest Pages
Product Offers within Instant Messaging
Customized GeoGuides
Buyer's Clubs
First Time Buyer's Specials
Special Limited Time Offer Discounts
Greeting Card/Gift Certificate Combinations
GeoCities Site Values (available only to GeoCities Visitors)
B-3
<PAGE>
EXHIBIT C
COMPETITORS IN COMPUTER HARDWARE AND SOFTWARE CATEGORY
Microwarehouse
The multiple Zones (PC Zone, Mac Zone, etc.)
Heartland America
Cyberian Outpost
CDW (Computer Discount Warehouse)
Fry's
Online Interactive
Global Direct
Creative Computers
Cybersale
Internet Shopping Network
Software Spectrum
CompUSA
Computer City
Software.Net
Tiger Direct
Necx
Cnet
FirstAuction
ZAuction
AuctionX
Auction Central
Buydirect.com
Microcenter
The following companies shall be construed as Competitors only when their
advertising creative materials to be run by GeoCities directly address the
Computer Hardware and Software category.
Best Buy
Office Depot
Onsale
Ebay
Circuit City
Office Max
Damark
Staples
Price Costco
Walmart
C-1
<PAGE>
EXHIBIT 10.8
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
BANKCARD ADVERTISING AGREEMENT
This Advertising Agreement (this "Agreement"), dated as of February 13, 1998, is
made by and between FIRST CREDIT CARD SERVICES USA L.L.C., a Delaware limited
liability company ("FCCSU-LLC"), and GeoCities, a California corporation
("GeoCities" or "the Company"). FCCSU-LLC and GeoCities sometimes are referred
to collectively as the "Parties" and individually as a "Party." This Agreement
is made together with the BankCard Issuance and Servicing Agreement by and
between FIRST USA BANK ("FUSA") and the Company of even date herewith (the
"Issuance and Servicing Agreement").
RECITALS:
WHEREAS, FCCSU-LLC assists FUSA in connection with the ongoing efforts of
FUSA to acquire its MasterCard and/or Visa consumer products and related
services (hereinafter referred to as "Credit Card(s)");
WHEREAS, this Agreement has been negotiated and executed by FCCSU-LLC and
the Company in order to document the terms of their agreement concerning the
marketing of Credit Cards to the Company's on-line service members and/or users
(collectively "Company Users" or "Users");
WHEREAS, FCCSU-LLC has agreed, subject to the terms and conditions
hereinafter contained, to market Credit Cards to Company Users on behalf of FUSA
in the manner and to the extent set forth in this Agreement;
WHEREAS, immediately upon the successful completion of the marketing
acquisition efforts of FCCSU-LLC as determined by FUSA and FCCSU-LLC in their
sole and absolute discretion, the underlying Credit Card accounts will be
immediately sold by FCCSU-LLC on an ongoing basis as such Credit Card accounts
are acquired, to FUSA so that the Credit Cards in question may then be issued by
FUSA to the Users in accordance with its then current business practices and
serviced by FUSA in the manner contemplated by the Issuance and Servicing
Agreement and in a manner consistent with the then current business practices of
FUSA;
WHEREAS, the Company is willing to endorse and facilitate the offering of
FUSA's Credit Card(s) to and among the Company Users subject to the terms and
conditions contained in this Agreement and in the Issuance and Servicing
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the Parties herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereby
agree as follows:
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Section 1. Definitions
The following terms (and all declensions thereof) are used in this Agreement
with the respective meanings set forth below:
1.1 "Above Fold" means situated within the portion of a page that is designed
to be visible on a standard computer screen with a resolution of [***] without
requiring the User to scroll horizontally or vertically through the page.
1.2 "Affiliate" means, with respect to either Party, any entity that, by virtue
of a majority ownership interest, directly controls, is controlled by or is
under common control with that Party.
1.3 "FUSA Site" means, collectively, all points of presence and/or services
maintained by FCCSU-LLC or its Affiliates on the Internet or on any other public
data network.
1.4 "GeoCities Site" means, collectively, and subject to the limitations set
forth in the following sentences of this Section 1.4, all points of presence
and/or services maintained by GeoCities on the Internet as www.geocities.com or
on any other public data network; provided, however, that "GeoCities Site" does
not include any Homesteader Page or GeoShop Page. To the extent that GeoCities
enters into agreements with third parties relating to the joint development
and/or hosting of co-branded or outsourced personal home page communities, such
co-branded and outsourced communities shall not constitute part of the
"GeoCities Site," unless GeoCities determines, in its sole and absolute
discretion, that the inclusion of any such co-branded or outsourced communities
does not in any way conflict with or violate any such agreement with a third
party, or any agreements or other arrangements that such third party may have
with any other party. If GeoCities makes such a determination, it shall notify
FCCSU-LLC of such determination, and the co-branded or outsourced community in
question shall thereupon become part of the "GeoCities Site."
1.5 "GeoCities Basic Commerce Platform" means the collection of links,
advertisements and promotional placements associated with the GeoCities'
neighborhood home pages and neighborhood topic pages. The parties understand and
agree that FCCSU-LLC is one of four companies included in the GeoCities Basic
Commerce Platform.
1.6 "Viewer" means any User of the GeoCities Site who executes a link and is
connected to the FUSA Site.
1.7 "Commencement Date" means the date GeoCities first provides FCCSU-LLC with
all links, advertisements and other promotional placements which have been
indicated on Exhibit B to be implemented on or before the Commencement Date.
[***] Confidential treatment requested for redacted portion.
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1.8 "Consumer Card Products" means all forms of credit card and charge card
financial product issued by any bank to any individual consumer, including
Credit Cards as defined above and Co-Branded Credit Card Products as defined
below.
1.9 "Competitor" means (a) any entity (other than FUSA or FCCSU-LLC) which
advertises, markets, issues or otherwise provides access to Consumer Card
Products, including but not limited to the entities now known as [***], or (b)
any individual, corporation, corporate division, retail site, World Wide Web
site or other entity that either derives more than [***] percent ([***%]) of its
annual gross revenues from the issuance of Consumer Card Products, or is
primarily known as an issuer of Consumer Card Products. For purposes of this
Section 1.9, the Visa and MasterCard sponsoring organizations shall not be
construed to be Competitors [***] shall not be construed to be a Competitor so
long as the marketing services provided to [***] by GeoCities do not include
either (i) the ability to complete an application for Consumer Card Products
with [***] by any GeoCities User or (ii) an endorsement by the Company. The term
"endorsement" as used in the previous sentence is intended to portray a
situation where the Company states a preference toward a Competitor over FUSA or
FCCSU-LLC.
1.10 "Homesteader Page" means any personal homepage, or any commercial homepage
participating in GeoCities' GeoShop program (other than a GeoCities Affiliate)
which resides in a "member neighborhood" on the GeoCities Site.
1.11 "Session" means each instance in which a User accesses the FUSA Site via a
hypertext link embedded in any link, advertisement or other promotional
placement provided by GeoCities under this Agreement, and then views one or more
consecutive FUSA Site pages. A Session terminates when the User exits the FUSA
Site by any means.
1.12 "Marketing Acquisition Cost" is agreed to be [***] dollars ($[***]) per
application approved for Credit Cards.
1.13 "Exclusive Areas" means the GeoCities neighborhood homepages and the
GeoCities neighborhood topic pages.
1.14 "Co-branded Credit Card Product" means credit card financial products
which bear the name and logo of the Company and which include a Company funded,
Company-specific value for the consumer.
1.15 "GeoCities GeoShops Program" means the marketing program operated by
GeoCities which offers its homesteaders the opportunity to create a commercially
oriented homepage within the GeoCities Site. Participants in the GeoCities
GeoShops Program must confirm that their annual revenues are Two Hundred Fifty
Thousand Dollars ($250,000.00) or less upon application to the program.
[***] Confidential treatment requested for redacted portion.
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1.16 "Impression" means the successful loading of a FUSA icon onto a page being
viewed by a User on the GeoCities Site.
1.17 "Pageview" means the successful loading of a complete Web page being
viewed by a User on the GeoCities Site.
Section 2. Linkage
2.1 The graphic or other visual cue depicted on the attached Exhibit A, which
may include names, trademarks, servicemarks, designmarks, symbols and/or other
indicia of origin (the "FUSA Icon") shall be included among the GeoCities Basic
Commerce Platform hyperlink icons during the term. When clicked upon by a
Viewer, the FUSA Icon will link the Viewer with the FUSA Site. GeoCities shall
create the link between the FUSA Icon and the FUSA Site. FCCSU-LLC shall
furnish GeoCities with full color representations of the FUSA Icon at least ten
(10) business days prior to the date of intended use. GeoCities agrees that it
will display the FUSA Icon in a manner commensurate with its display of other
vendor hyperlink icons within the GeoCities Basic Commerce Platform. If FCCSU-
LLC subsequently modifies the FUSA Icon, it shall furnish a representation of
same to GeoCities which GeoCities shall substitute for the prior version within
twenty (20) business days after receipt.
2.2 The graphic or other visual cue depicted on the attached Exhibit A, which
may include names, trademarks, servicemarks, designmarks, symbols and/or other
indicia of origin (the "Return Icon") shall be displayed by FCCSU-LLC on each
page of the FUSA Site viewed by a Viewer during the term in the position within
the page layout as shown on Exhibit A. When clicked upon by a Viewer, the Return
Icon will link the Viewer with the GeoCities Basic Commerce Platform which was
the point of departure prior to linkage with the FUSA Site. FCCSU-LLC shall
create the link between the Return Icon and the GeoCities Basic Commerce
Platform. GeoCities shall furnish FCCSU-LLC with full color representations of
the Return Icon at least ten (10) business days prior to the date of intended
use. If GeoCities subsequently modifies the Return Icon, it shall furnish a
representation of same to FCCSU-LLC which FCCSU-LLC shall substitute for the
prior version within twenty (20) business days after receipt. The Return Icon
shall be visible at the FUSA Site only to Viewers who link to the FUSA Site via
the GeoCities Basic Commerce Platform and to no other visitors at the FUSA Site.
2.3 FCCSU-LLC shall ensure that the version of the FUSA Site viewed by Viewers
who link to the FUSA Site through the GeoCities Basic Commerce Platform shall be
substantially similar to the FUSA Site viewed by non-Viewers except for FCCSU-
LLC co-branded sites with other companies, the Return Icon and as elsewhere
provided for in this Agreement.
Section 3. Minimum Advertising Placements
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The Company guarantees to provide a minimum of [***] and guarantees that such
Impressions shall include [***] banner advertisements served Above Fold, [***]
popup banner advertisements served Above Fold and at least [***] Impressions
delivered Above Fold on the combined neighborhood homepages and neighborhood
topic pages. In no event shall placements for FCCSU-LLC within the GeoCities
Basic Commerce Platform be less than that for the Company's other GeoCities
Basic Commerce Platform partners. In order to test the optimal usage of the
aforementioned Impressions and/or to take advantage of information garnered
through FCCSU-LLC's use of each, FCCSU-LLC shall have the right to exchange the
allotment of banner advertisements and popup banner advertisements so long as
the combined number to be provided by the Company pursuant to this Section is
[***].
Section 4. Deployment
See Exhibit B.
Section 5. Issuance of Credit Cards
FCCSU-LLC shall have no obligation to issue Credit Cards to interested Company
Users in connection with the transactions described in this Agreement. Both
FCCSU-LLC and the Company hereby agree that FUSA shall issue Credit Cards to
interested Company Users in accordance with FUSA's standard Credit Card issuing
policies and credit practices, and in accordance with the applicable provisions
of the Issuance and Servicing Agreement. Any decisions concerning the
creditworthiness of any Company User shall be by FCCSU-LLC if made in accordance
with the credit criteria and policies supplied to FCCSU-LLC by FUSA.
Section 6.
Compensation
6.1 As full consideration for GeoCities' performance under this Agreement
(including, without limitation, GeoCities' provision of all links,
advertisements and promotions specified in Sections 2, 3 and 4), FCCSU-LLC will
pay GeoCities the fixed placement fees and variable incentive payments specified
in this Section 6.
6.2 During the initial term of this Agreement, FCCSU-LLC will pay GeoCities a
fixed placement fee of [***] Dollars ($[***]) on the Commencement Date and at
the beginning of each [***] that occurs subsequent to the Commencement Date
during the term.
6.3 During the term of this Agreement (including any renewal term), for each
[***] that occurs beginning with the [***] in which the Commencement Date falls,
and then for each [***] (whether whole or partial) during the term, FCCSU-LLC
wilt pay GeoCities a commission based on the number of applications approved for
Credit Cards from which applications were submitted during Sessions during the
respective [***] and calculated on a cumulative basis. The commission amount
shall be computed by selecting the appropriate
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Marketing Acquisition Cost Percentage found opposite the aggregate number of
applications approved opened and multiplying such Marketing Acquisition Cost
Percentage by the Marketing Acquisition Cost set forth in Section 1.12 times the
number of applications approved during the period.
Cumulative Applications Approved Marketing Acquisition Cost Percentage
- -------------------------------- -------------------------------------
(Computed from [***])
[***] [***]
For example, if [***] applications were accepted for Credit Cards in the [***],
respectively, the commission amount would be computed as follows:
Credit Card AppLications Approved [***]
Cume Applications Approved
Calculation of Commission
Commission calculated by multiplying approved applications times
commission percentage times $[***] per approved application
Approved Applications under tier [***]
Commission Rate for tier [***]
Commission Amount for tier [***]
Approved Applications under tier [***]
Commission Rate for tier [***]
Commission Amount for tier [***]
Approved Applications under tier [***]
Commission Rate for tier [***]
Commission Amount for tier [***]
Total Commission per [***]
6.3.1 As of each anniversary date of the Commencement Date during any renewal
terms of this Agreement, the Cumulative Applications Approved shall be deemed to
be [***] as of such anniversary date and shall thereafter accumulate in the same
manner as during the initial term of this Agreement, and the table set forth in
Section 6.3 shall be used each such successive year to compute the Marketing
Acquisition Cost Percentage as set forth in the example presented in Section
6.3.
[***] Confidential treatment requested for redacted portion.
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6.4 With the exception of the fixed placement fee set forth in Section 6.2
which shall be paid on a [***] basis at the beginning of each [***], FCCSU-LLC
will make payments under this Section 6 on a [***] basis, in arrears.
Specifically, within thirty (30) days following the end of each [***] occurring
subsequent to the Commencement Date, FCCSU-LLC will pay GeoCities an amount
equal to the commissions that accrued during the period under Section 6.3.
6.5 [***]
6.6 FCCSU-LLC will deliver, together with each payment made pursuant to this
Section 6, a written report signed by an authorized representative of FCCSU-LLC
that describes (in reasonable detail) FCCSU-LLC's calculation of the payment
amount. FCCSU-LLC's failure to include such a signature shall not be deemed a
default under this Agreement.
6.7 GeoCities shall have the right, no more frequently than once during each
term, at its expense, upon thirty (30) days advance written notice to FCCSU-LLC
and FUSA and during FCCSU-LLC's normal business hours, to inspect and audit the
books and records of FCCSU-LLC, by an independent certified public accountant
and a GeoCities representative, for the purpose of verifying any payments due to
GeoCities under this Agreement. In the event any shortfall in payment to
GeoCities is found, then FCCSU-LLC shall promptly pay GeoCities the shortfall
amount.
Section 7. Implementation
7.1 GeoCities and FCCSU-LLC acknowledge that time is of the essence in the
design, development and commencement of the links, advertisements and
promotional placements specified in this Agreement. Accordingly, the Parties
will devote all commercially reasonable efforts to launch each link,
advertisement and promotional placement as soon as reasonably possible, in
accordance with a written development plan to be negotiated by the Parties in
good faith.
7.2 GeoCities, in cooperation with First USA, will test the links,
advertisements and promotional placements required under this Agreement prior to
the time that they "go live" on the GeoCities Site (i.e., prior to the time that
they are implemented and enabled on a production version of the GeoCities Site).
7.3 GeoCities will not cause any link, advertisement or promotional placement
under this Agreement to go live on the GeoCities Site prior to the applicable
date agreed by the Parties.
Section 8. Traffic Data
8.1 On a monthly basis, GeoCities will provide FCCSU-LLC with mutually agreed
data concerning search and browsing behavior on the GeoCities Site, to the
extent such behavior reasonably could relate to the online promotion or sale of
Consumer Card Products, or other
[***] Confidential treatment requested for redacted portion.
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products that FCCSU-LLC may sell from time to time. FCCSU-LLC will hold such
data in confidence and will use it only in accordance with reasonable guidelines
to be agreed by the Parties. Notwithstanding anything to the contrary contained
in this Section 8, GeoCities will not be required to deliver to FCCSU-LLC any
User data in violation of its then-existing policies regarding the protection of
User information. Prior to the Commencement Date of this Agreement the Company
shall deliver to both FUSA and FCCSU-LLC its then existing policies regarding
the protection of User information, and to the extent practicable, provide FUSA
and FCCSU-LLC with thirty (30) days notice of any changes to such policies.
8.2 FCCSU-LLC will use commercially reasonable efforts to provide GeoCities
with an online report, produced on a daily basis, of inquiries and/or
applications for FUSA's products submitted by Company Users. Such report is to
be used by GeoCities to actively track performance of various promotional tools
that it has in service. GeoCities will hold such data in confidence and will use
it only in accordance with reasonable guidelines to be agreed by the Parties.
Notwithstanding anything to the contrary contained in this Section, FCCSU-LLC
will not be required to deliver to GeoCities any data in violation of its then-
existing policies regarding the protection of information about consumers and
sales. Prior to the Commencement Date of this Agreement, FCCSU-LLC shall deliver
to the Company its then existing policies regarding the protection of such
information, and to the extent practicable, provide the Company with thirty (30)
days notice of any changes to such policies.
8.3 FCCSU-LLC may maintain separately all information which is submitted and/or
obtained as a result of an application for an account relationship with Company
Users. This information becomes a part of FCCSU-LLC's own files and shall not be
subject to this Agreement; provided that, any use of such information, except
for fulfilling obligations hereunder, will not imply or suggest an endorsement
of such information by the Company.
8.4 FCCSU-LLC and the Company mutually agree that given the nature of the
industry, additional and/or various marketing vehicles not specifically
addressed in this Agreement may require additional User information. As a
result, the Company agrees to use commercially reasonable efforts to provide
such User information upon the reasonable request of FCCSU-LLC which can be used
to assist FCCSU-LLC's efforts to target marketing messages to Users.
Section 9. Exclusivity and Media Guarantee
9.1 GeoCities will not place [***], or permit any Competitor to place [***],
and Competitor's advertising banners, promotional buttons, promotional links or
other promotional content. GeoCities will not permit any Competitor to place any
[***] promotions anywhere on the GeoCities Site. In addition, and in keeping
with the definition set forth in Section 1.9, except for participants in
GeoCities' GeoShops program, GeoCities will not sell or permit any Competitor or
non-Competitor to sell any Consumer Card Products in the GeoCities Site [***].
Any entities not defined as Competitors will be prohibited from placing any
[***] promotions [***] related to Consumer Card Product categories.
9.2 The financial card products now known as "business card(s)" and "corporate
card(s)" which are used by commercial entities (vs. individual consumers) for
business purposes ("Non-Consumer Card(s)") and their successor Non-Consumer Card
products, if any, shall not be deemed [***] for purposes of the limitations
described in Section 9.1 above. However, in the event that the Company intends
to enter into or renew any agreement(s) for
[***] Confidential treatment requested for redacted portion.
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the provision of advertising or otherwise offering Non-Consumer Card(s), the
Company shall first offer FCCSU-LLC, and/or its applicable Affiliate(s), the
opportunity to include such Non-Consumer Card(s) under this agreement or to
otherwise enter into such an agreement with the Company. The Company shall give
FCCSU-LLC notice of any such intent and shall offer each such opportunity to
FCCSU-LLC, and FCCSU-LLC shall promptly notify all of its applicable
Affiliate(s) of the Company's intent and offer. Such notice from the Company
shall include a description of the particular type of Non-Consumer Card
opportunity being offered. If FCCSU-LLC declines the offer or fails to respond
to the offer within ten (10) business days, the Company shall be deemed to have
satisfied and shall have no additional obligations under this Section 9.2 with
respect to the type of Non-Consumer Card referenced aforementioned notice. If
FCCSU-LLC, or one of its Affiliates accepts such offer within the applicable
time period, then Company and FCCSU-LLC (or, if applicable, its Affiliate) shall
negotiate in good faith towards an agreement to include such Non-Consumer Cards
under this Agreement or within a new agreement. If they are unable to reach such
an agreement within fifteen (15) business days following the commencement of
such negotiations, the Company shall be deemed to have no additional obligations
under this Section 9.2 with respect to such Non-Consumer Card.
9.3 To preserve the benefits provided to FCCSU-LLC under this Agreement, in
the event that GeoCities enters into any merger, acquisition, transfer of
control or sale of substantially all of its assets to, or any similar
transaction with, (a) any Competitor or any entity that owns a Competitor, or
(b) any entity that due to its products, services and/or reputation creates a
demonstrable and material conflict of interest for FCCSU-LLC or FUSA, FCCSU-LLC
may have the right to terminate this Agreement upon thirty (30) days' notice.
Section 10. Representations and Warranties
10.1 FCCSU-LLC represents and warrants that (i) it is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware; (ii) the execution and delivery by FCCSU-LLC of this
Agreement, and the performance by FCCSU-LLC of the transactions contemplated
hereby, are within FCCSU-LLC's corporate powers, have been duly authorized by
all necessary corporate action, do not require any consent or other action by or
in respect of, or filing with, any third party or governmental body or agency
(other than informational filings required by MasterCard or Visa), and do not
contravene, violate or conflict with, or constitute a default under, any
provision of applicable law or regulation or of the charter or by-laws of FCCSU-
LLC or of any agreement, judgment, injunction, order, decree or other instrument
binding upon FCCSU-LLC; and (iii) it has the right, power and authority to
execute this Agreement and act in accordance therewith.
10.2 The Company represents and warrants that it is a California corporation
duly organized, validly existing and in good standing under the laws of the
State of California. The Company further represents and warrants that (i) the
execution and delivery by the Company of this Agreement, and the performance by
the Company of the transactions contemplated hereby, are within the Company's
powers, have been duly authorized by all necessary action, do not require any
consent or other action by or in respect of, filing with,
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any third party or any governmental body or agency, and do not contravene,
violate or conflict with, or constitute a default under, any provision of
applicable law, regulation, or under any governing documents, charter or bylaw,
or any agreement, judgment, injunction, order, decree or other instrument
binding on the Company; (ii) it is not aware of any claims, and is not currently
involved in any litigation, challenging the Company's access to the Web and/or
the Internet; and (iii) it has the right, power and authority to execute this
Agreement and act in accordance herewith.
Section 11. Indemnification
11.1 The Company shall not be responsible in any way for any misrepresentation,
negligent act or omission or willful misconduct of FCCSU-LLC, its Affiliates,
officers, directors, agents, or employees in connection with the entry into or
performance of any obligation of FCCSU-LLC under this Agreement. FCCSU-LLC will
defend and indemnify GeoCities and its Affiliates (and their respective
employees, directors and representatives) against any claim or action brought by
a third party, to the extent relating to (a) the operation of the FUSA Site over
which FCCSU-LLC and/or FUSA has control; or (b) the violation of third-party
intellectual property rights by any editorial content or other materials
provided by FCCSU-LLC for display on the GeoCities Site; or (c) in connection
with the use or display of FUSA's or FCCSU-LLC's names, servicemarks, trademarks
and similar property rights supplied to the Company by FCCSU-LLC pursuant to
this Agreement. Subject to GeoCities' compliance with the procedures described
in Section 11.3, FCCSU-LLC will pay any award against GeoCities or its
Affiliates (or their respectiv
third party, to the extent relating to (a) the operation of the GeoCities Site;
(b) rules, regulations, laws, statutes or orders relating to the Company's
business practice as an Internet provider, servicer and administrator; (c) the
violation of any third-party intellectual property rights by any editorial
content or other materials provided by GeoCities for display on the FUSA Site;
or (d) in connection with the editorial content or materials (other than
materials supplied by FCCSU-LLC or FUSA) displayed on the GeoCities Site or any
other use or display of GeoCities' names, servicemarks, trademarks and similar
property rights supplied to FCCSU-LLC or FUSA by the Company pursuant to this
Agreement. Subject to FCCSU-LLC's compliance with the procedures described in
Section 11.3, GeoCities will pay any award against FCCSU-LLC or its Affiliates
(or their respective employees, or representatives) and any costs and attorneys'
fees reasonably incurred by FCCSU-LLC and its Affiliates resulting from any such
claim or action.
11.3 In connection with any claim or action described in this Section, the
Party seeking indemnification (a) will give the indemnifying Party prompt
written notice of the claim, (b) will cooperate with the indemnifying Party (at
the indemnifying Party's expense) in connection with the defense and settlement
of the claim, and (c) will permit the indemnifying Party to control the defense
and settlement of the claim, provided that the indemnifying Party may not settle
the claim without the indemnified Party's prior written consent (which will not
be unreasonably withheld). Further, the indemnified Party (at its cost) may
participate in the defense and settlement of the claim, but may not interfere
with the indemnifying Party's control of the defense and settlement of the
claim(s).
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Section 12. Intellectual Property Rights
12.1 Subject to the limited license granted to GeoCities under Section 12.2,
FCCSU-LLC reserves all of its right, title and interest in its intellectual
property rights (e.g., patents, copyrights, trade secrets, trademarks and other
intellectual property rights). Subject to the limited license granted to FCCSU-
LLC under Section 12.3, GeoCities reserves all of its right, title and interest
in its intellectual property rights (e.g., patents, copyrights, trade secrets,
trademarks and other intellectual property rights). Neither Party grants any
license to the other except as specifically set forth in this Section 12.
12.2 FCCSU-LLC hereby grants to GeoCities, during the term of this Agreement, a
non-exclusive, non-transferable license to use FUSA's trade names, trademarks,
service names and similar proprietary marks as is reasonably necessary to
perform GeoCities' obligations under this Agreement; provided, however, that any
materials containing FUSA's trademarks, tradenames, servicemarks or other
proprietary marks will be subject to FUSA's prior written approval.
12.3 GeoCities hereby grants to FCCSU-LLC, during the term of this Agreement, a
non-exclusive, non-transferable license to use GeoCities' trade names,
trademarks, service names and similar proprietary marks as is reasonably
necessary to perform its obligations under this Agreement; provided, however,
that any materials containing GeoCities' trademarks, tradenames, servicemarks or
other proprietary marks will be subject to GeoCities' prior written approval.
12.4 Neither GeoCities nor FCCSU-LLC will use the other Party's (or FUSA's)
trademarks, tradenames, servicemarks or other proprietary marks in a manner that
disparages the other Party (or FUSA) or its products or services, or portrays
the other Party or its products or services in a false, competitively adverse or
poor light. However, any approvals given and received pursuant to the approval
rights granted herein with respect to the use of each Party's trademarks,
tradenames, servicemarks or other proprietary marks shall constitute a waiver of
that Party's right to indicate such use as false, competitively adverse or in
poor light. Each of GeoCities and FCCSU-LLC will comply with the other Party's
requests as to the use of the other Party's trademarks, tradenames, servicemarks
or other proprietary marks and will avoid any action that diminishes the value
of such marks. Either Party's unauthorized use of the other's (or FUSA's)
trademarks, tradenames, servicemarks or other proprietary marks is strictly
prohibited.
Section 13. Term and Termination
13.1 The initial term of this Agreement will begin on the date first set forth
above and will end twelve (12) months following the Commencement Date.
13.2 No sooner than ninety (90) days after the Commencement Date and no later
than one hundred eighty (180) days after the Commencement Date, the Parties
mutually agree to
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negotiate in good faith over a period of not more than forty-five (45) days
toward an agreement whereby the Parties offer a Company Co-Branded Credit Card
Product.
13.3 In the event that the Parties enter into an agreement to issue a Company
CoBranded Credit Card Product as provided in Section 13.2 of this Agreement,
then no later than nine (9) months after the Commencement Date, the Parties
agree to negotiate in good faith over a period of not more than forty-five (45)
days for the purpose of entering into a combined agreement which serves as a
successor to this Agreement and to the agreement created as a result of Section
13.2.
13.4 In the event that the Parties fail to enter into a successor agreement as
provided in Section 13.3 of this Agreement, then FCCSU-LLC will have the option
to renew the term of this Agreement for a single twelve (12) month renewal term
by giving GeoCities written notice, at least thirty (30) days prior to the
expiration of the initial term, indicating FCCSU-LLC's exercise of its option to
renew the term of this Agreement. During any renewal term, all terms and
conditions of this Agreement, unless explicitly amended in writing and except
this Section 13.4 will remain in full force and effect, and except that the
fixed placement fees payable pursuant to Section 6.2 will be adjusted [***]. The
parties acknowledge and agree that the result of the calculation described in
the preceding sentence may increase or decrease the fixed placement fees payable
by FCCSU-LLC. Further, the Company shall not impose an increase which is in
proportion materially greater than the increases for its other Basic Commerce
Platform partners.
13.5 Either GeoCities or FCCSU-LLC may terminate this Agreement if the other
Party materially breaches this Agreement and does not cure the breach within
thirty (30) days following its receipt of written notice from the non-breaching
Party except that the non-breaching Party may have an additional thirty (30)
days to cure the breach if it can demonstrate that it needs the additional
thirty (30) days to effectuate the cure. In the event that FCCSU-LLC terminates
this Agreement pursuant to the terms of this Section 13.3, FCCSU-LLC's
obligation to make any other payments under this Agreement will be eliminated in
addition to any other remedies at law or in equity available to the non-
breaching party.
13.6 Sections 10, 11, 12, 14 and 15 (together with all other provisions which
by their terms specifically state that they shall survive termination or
expiration of this Agreement) will survive the termination or expiration of this
Agreement.
Section 14. Disclaimers, Limitations and Reservations
14.1 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, GEOCITIES DOES NOT MAKE,
AND HEREBY DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES REGARDING THE GEOCITIES
SITE, GEOCITIES' SERVICES OR ANY PORTION
[***] Confidential treatment requested for redacted portion.
12
<PAGE>
THEREOF, INCLUDING (WITHOUT LIMITATION) IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, GEOCITIES SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY
REGARDING (A) THE AMOUNT OF SALES REVENUE THAT FCCSU-LLC MAY RECEIVE DURING THE
TERM, AND (B) ANY ECONOMIC OR OTHER BENEFIT THAT FCCSU-LLC MIGHT OBTAIN THROUGH
ITS PARTICIPATION IN THIS AGREEMENT.
14.2 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, FCCSU-LLC DOES NOT MAKE,
AND HEREBY DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES REGARDING THE FUSA SITE,
FCCSU-LLC'S SERVICES OR ANY PORTION THEREOF, INCLUDING (WITHOUT LIMITATION)
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, FCCSU-LLC SPECIFICALLY
DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING (A) THE AMOUNT OF SALES
REVENUES THAT MAY OCCUR DURING THE TERM, AND (B) ANY ECONOMIC OR BENEFIT THAT
GEOCITIES MIGHT OBTAIN THROUGH ITS PARTICIPATION IN THIS AGREEMENT.
14.3 NEITHER FCCSU-LLC NOR GEOCITIES WILL BE LIABLE TO THE OTHER FOR
CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST PROFITS OR LOST DATA)
ARISING OUT OF THIS AGREEMENT. EACH PARTY'S ENTIRE LIABILITY ARISING FROM THIS
AGREEMENT (EXCEPT FOR LIABILITIES ARISING UNDER SECTION 11 OR RESULTING FROM THE
PARTY'S WILLFUL MISCONDUCT), WHETHER IN CONTRACT OR TORT, WILL NOT EXCEED AN
AMOUNT EQUAL TO THE TOTAL AMOUNT PAID.
14.4 FCCSU-LLC will remain solely responsible for the operation of the FUSA
Site, and GeoCities will remain solely responsible for the operation of the
GeoCities Site. Each Party (a) acknowledges that the FUSA Site and the GeoCities
Site may be subject to temporary shutdowns due to causes beyond the operating
Party's reasonable control, and (b) subject to the specific terms of this
Agreement, retains sole right and control over the programming, content and
conduct of transactions over its respective site. If temporary shutdowns due to
causes beyond the operating Party's reasonable control continue for a period of
five (5) business days or more, then the term of this Agreement shall be
extended for a period of time equal to the time lost.
Section 15. Miscellaneous
15.1 The Parties are entering this Agreement as independent contractors, and
this Agreement will not be construed to create a partnership, joint venture,
franchise or employment relationship between them. Neither Party will represent
itself to be an employee or agent of the other or enter into any agreement on
the other's behalf or in the other's name.
13
<PAGE>
15.2 (a) The Parties acknowledge and agree that the terms of this Agreement
and all information provided to or in connection with either party's performance
under this Agreement shall be considered confidential and proprietary
information ("Confidential Information") and shall not be disclosed to any third
party without the prior written consent of the Party providing the Confidential
Information (the "Disclosing Party"). Confidential Information shall include,
without limitation: (i) names, addresses, and demographic, behavioral, and
credit information relating to FUSA Cardmembers or potential FUSA Cardmembers;
(ii) Cardmember communication materials and issuance strategies or methods;
(iii) each Party's trade secrets, including but not limited to, financial
business objectives, assets and properties, processes, formulas, specifications,
programs, instructions, source code, technical know-how, methods and procedures
for operation, benchmark test results, information about employees, customers,
strategies, services, business or technical plans and proposals in any form; and
(iv) programming techniques and technical, developmental, cost and processing
information.
(b) The Party receiving such Confidential Information (the "Receiving
Party") shall use Confidential Information only for the purpose of performing
the terms of this Agreement and shall not accumulate in any way or make use of
Confidential Information for any other purpose. The Receiving Party shall ensure
that only its employees, authorized agents, or subcontractors who need to know
Confidential Information to perform this Agreement will receive Confidential
Information and that such persons agree to be bound by the provisions of this
Paragraph and maintain the existence of this Agreement and the nature of their
obligations hereunder strictly confidential.
(c) The obligations with respect to Confidential Information shall not
apply to Confidential Information that: (ii) either Party or its personnel
already know at the time it is disclosed as shown by their written records; (ii)
is publicly known without breach of this Agreement; (iii) either Party received
from a third party authorized to disclose it without restriction; (iv) either
Party, its agents or subcontractors, developed independently without use of
Confidential Information; or (v) either Party is required by law, regulation or
valid court or governmental agency order or request to disclose, in which case
the Party receiving such an order or request, to the extent practicable, must
give notice to the other Party, allowing them to seek a protective order.
(d) Each Party agrees that any unauthorized use or disclosure of
Confidential Information may cause immediate and irreparable harm to the
Disclosing Party for which money damages may not constitute an adequate remedy.
In that event, each Party agrees that injunctive relief may be warranted in
addition to any other remedies the Disclosing Party may have. In addition, the
Receiving Party agrees promptly to advise the Disclosing Party in writing of any
unauthorized misappropriation, disclosure or use by any person of the
Confidential Information which may come to its attention and to take all steps
at its own expense reasonably requested by the Disclosing Party to limit, stop
or otherwise remedy such misappropriation, disclosure or use.
(e) Upon either Party's demand, or upon the termination of this
Agreement, the Parties shall comply with each other's reasonable instructions
regarding the disposition of
14
<PAGE>
Confidential Information which may include return of any and all Confidential
Information (including any copies or reproductions thereof). Such compliance
shall be certified in writing, including a statement that no copies of
confidential information have been kept.
(f) Except as necessary for its performance under this Agreement, Company
shall not use the name of FUSA, its Affiliates or subsidiaries in connection
with any representation, publication or advertisement, or make any public
statement relating to FUSA, its Affiliates or subsidiaries, without the prior
full disclosure of same to FUSA, and the prior written consent of FUSA.
(g) Except as may be required by law, regulation or any governmental
authority, neither the Company, nor any of its Affiliates, shall issue a press
release or make public announcement or any disclosure to any third party related
to the transactions contemplated by this Agreement without the prior consent of
FUSA, which consent shall not be unreasonably withheld or delayed.
(h) The obligations of this Paragraph 15.2 shall survive the termination of
this Agreement for a period of two (2) years.
15.3 Following the execution of this Agreement, FCCSU-LLC and GeoCities will
prepare and distribute a joint press release (or coordinated press releases)
announcing the transaction. The contents and timing of the release (or releases)
shall be as mutually agreed by the Parties. Neither Party will issue any further
press releases or make any other disclosures regarding this Agreement or its
terms without the other Party's prior written consent unless required by law.
15.4 In its performance of this Agreement, each Party will comply with all
applicable laws, regulations, orders and other requirements, now or hereafter in
effect, of governmental authorities having jurisdiction. Without limiting the
generality of the foregoing, each Party will pay, collect and remit such taxes
as may be imposed upon it with respect to any compensation, royalties or
transactions under this Agreement. Except as expressly provided herein, each
Party will be responsible for all costs and expenses incurred by it in
connection with the negotiation, execution and performance of this Agreement.
15.5 Neither FCCSU-LLC nor GeoCities will be liable for, or will be considered
to be 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 that are beyond such Party's reasonable control and that such Party
is unable to overcome through the exercise of commercially reasonable diligence.
If any force majeure event occurs, the affected Party will give prompt written
notice to the other Party and will use commercially reasonable efforts to
minimize the impact of the event.
15.6 Notices deliverable under this Agreement shall be given in writing,
addressed to the Parties set forth below and shall be deemed to have been given
either one (1) day after being given to an express overnight carrier with a
reliable system for tracking delivery; or when sent by a confirmed facsimile
with another copy sent by any other means specified in this
15
<PAGE>
paragraph; or three (3) business days after having been mailed postage prepaid
by United States registered or certified mail:
For notices to First USA: For notices to GeoCities:
James A. Rea
Name:___________________
Title:__________________
Address: 3 Christina Center, 201 N. Walnut St. Vice President Business
Development
City: Wilmington, DE 19801 1918 Main Street, 3rd Floor
Santa Monica, CA 90405-1030
Facsimile:______________
Copy to General Counsel (310) 664-6520
15.7 If any litigation is commenced to enforce any provision of this Agreement
or to seek a declaration of rights of the Parties hereunder or as a result of
any breach of any provision of this Agreement, the prevailing Party will be
entitled to recover from the non-prevailing Party all of its costs and expenses
incurred in connection with such litigation, including without limitation
reasonable attorneys' fees.
15.8 Neither FCCSU-LLC nor GeoCities may assign this Agreement, in whole or in
part, without the other Party's prior written consent (which will not be
withheld unreasonably), except to (a) any corporation resulting from any merger,
consolidation or other reorganization involving the assigning Party, (b) any of
its Affiliates with reasonably comparable resources, or (c) any individual or
entity to which the assigning Party may transfer substantially all of its
assets; provided that the assignee agrees in writing to be bound by all the
terms and conditions of this Agreement. Subject to the foregoing, this Agreement
will be binding on and enforceable by the Parties and their respective
successors and permitted assigns.
15.9 Informal Dispute Resolution. Any controversy or claim between the
---------------------------
Company, on the one hand, and FCCSU-LLC, on the other hand, arising from or in
connection with this Agreement whether based on contract, tort, common law,
equity, statute, regulation, order or otherwise ("Dispute") shall be resolved as
follows:
(a) Upon written request of either the Company, on the one hand, and
FCCSU-LLC, on the other hand, a duly appointed representative(s) of each Party
will meet for the purpose of attempting to resolve such Dispute. Should they be
unable to resolve the Dispute, the Senior Marketing Executive will meet with
FCCSU-LLC's Executive Vice President of Marketing (the "Executives") in an
effort to resolve the Dispute. Said meeting shall be in person or by telephone.
(b) The Executives shall meet as often as the Parties agree to discuss the
problem in an effort to resolve the Dispute without the necessity of any formal
proceeding.
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<PAGE>
(c) Formal proceedings for the resolution of a Dispute may not be
commenced until the earlier of:
i. the Parties concluding in good faith that amicable resolution
through the procedures set forth in subsections (a)-(b) hereof does not appear
likely; or
ii. the expiration of the fifteen (15) business day period
immediately following the initial request to negotiate the Dispute;
provided, however, that this Section 15.9 will not be construed to prevent a
Party from instituting formal proceedings earlier to avoid the expiration of any
applicable limitations period, to preserve a superior position with respect to
other creditors or to seek temporary or preliminary injunctive relief.
15.10 Arbitration.
-----------
(a) If the Parties are unable to resolve any Dispute as contemplated by
Section 15.9, such Dispute shall be submitted to mandatory and binding
arbitration at the election of either the Company, on the one hand, and FCCSU-
LLC, on the other hand (the "Disputing Party"). Except as otherwise provided in
this Section, the arbitration shall be pursuant to the Commercial Arbitration
Rules of the American Arbitration Association ("AAA").
(b) To initiate arbitration, the Disputing Party shall notify the other
Party in writing (the "Arbitration Demand"), which shall (i) describe in
reasonable detail the nature of the Dispute, (ii) state the amount of the claim,
and (iii) specify the requested relief. Within fifteen (15) days after the other
Party's receipt of the Arbitration Demand, such other Party shall file, and
serve on the Disputing Party, a written statement (i) answering the claims set
forth in the Arbitration Demand and including any affirmative defenses of such
Party; (ii) asserting any counterclaim, which shall (A) describe in reasonable
detail the nature of the counterclaim, and (B) state the amount of the
counterclaim, and (C) specify the requested relief.
(c) If the amount of the controversy set forth in either the claim or
counterclaim is less than $100,000, then the matter shall be resolved by a
single arbitrator selected pursuant to the rules of the AAA; provided, however,
that if the arbitration hearing is held in Los Angeles County, the arbitrator(s)
shall be selected from the list of retired Los Angeles County Superior Court
judges who serve as AAA arbitrators.
(d) If the amount of the controversy set forth in either the claim or
counterclaim is equal to exceeds $100,000, then the matter shall be resolved by
a panel of three arbitrators (the "Panel") selected pursuant to the rules of the
AAA. Decisions of a majority of the members of the Panel shall be determinative;
provided, however, that if the arbitration hearing is held in Los Angeles
County, the arbitrator(s) shall be selected from the list of retired Los Angeles
County Superior Court judges who serve as AAA arbitrators.
17
<PAGE>
(e) The arbitration hearing shall be held in such neutral location as the
Parties may mutually agree or, if they cannot agree within five (5) business
days after the date on which the first proposal of a neutral location is made,
in the county in which the principal executive office of the Party that is not
the Disputing Party is located. The Panel is specifically authorized in
proceeding pursuant to Section (d) to render partial or full summary judgment as
provided for in the Federal Rules of Civil Procedure. Unless otherwise agreed by
the Parties, partial or full summary judgment shall not be available in
proceedings pursuant to subsection (c) above. In the event summary judgment or
partial summary judgment is granted, the nonprevailing Party may not raise as a
basis for a motion to vacate an award that the Panel failed or refused to
consider evidence bearing on the dismissed claim(s) or issue(s). The Federal
Rules of Evidence shall apply to the arbitration hearing. The Party bringing a
particular claim or asserting an affirmative defense will have the burden of
proof with respect thereto. The arbitration proceedings and all testimony,
filings, documents and information relating to or presented during the
arbitration shall be deemed to be information subject to the confidentiality
provisions of this Agreement. The Panel will have no power or authority, under
the Commercial Arbitration Rules of the AAA or otherwise, to relieve the Parties
from their agreement hereunder to arbitrate or otherwise to amend or disregard
any provision of this Agreement, including, without limitation, the provisions
of this Paragraph.
(f) Should an arbitrator refuse or be unable to proceed with arbitration
proceedings as tailed for by this Section, the arbitrator shall be replaced
pursuant to the rules of the AAA. If an arbitrator is so replaced after the
arbitration hearing has commenced, then a rehearing shall take place in
accordance with this Section and the Commercial Arbitration Rules of the AAA.
(g) At the time of granting or denying a motion of summary judgment as
provided for in (e) and within fifteen (15) days alter the closing of the
arbitration hearing, the arbitrator or Panel will prepare and distribute to the
Parties a writing setting forth the arbitrator's or Panel's finding of facts and
conclusions of law relating to the Dispute, including the reasons for the giving
or denial of any award. The findings and conclusions and the award, if any,
shall be deemed to be information subject to the confidentiality provisions of
this Agreement.
(h) The arbitrator of Panel is instructed to schedule promptly all
discovery and other procedural steps and otherwise assume case management
initiative and control to effect an expeditious resolution of the Dispute. The
arbitrator or Panel is authorized to issue monetary sanctions against either
Party if, upon a showing of good cause, such Party is unreasonably delaying the
proceeding.
(i) Any award rendered by the arbitrator or Panel will be final, conclusive
and binding upon the Parties and any judgment hereon may be entered and enforced
in any court of competent jurisdiction.
(j) Each Party will bear a pro rata share of all fees, costs and expenses
of the arbitrators, and notwithstanding any law to the contrary, each Party will
bear all the fees,
18
<PAGE>
costs and expenses of its own attorneys, experts and witnesses; provided,
however, that in connection with any judicial proceeding to compel arbitration
pursuant to this Agreement or to confirm, vacate or enforce any award rendered
by the arbitrator or Panel, the prevailing Party in such a proceeding shall be
entitled to recover reasonable attorney's fees and expenses incurred in
connection with such proceedings, in addition to any other relief to which it
may be entitled.
15.11 If any provision of this Agreement is declared null, void or otherwise
unenforceable, such provision will be deemed to have been severed from this
Agreement to the minimal extent if necessary, which Agreement will otherwise be
and remain in full force and effect to its remaining provisions.
15.12 This Agreement (a) represents the entire agreement between the Parties
with respect to the subject matter hereof and supersedes any previous or
contemporaneous oral or written agreements regarding such subject matter and (b)
may be amended or modified only by a written instrument signed by a duly
authorized agent of each Party.
15.13 This Agreement will be interpreted, construed and enforced in all
respects in accordance with the laws of the State of Delaware, without reference
to its choice of law rules. If any provision of this Agreement is held to be
invalid, such invalidity will not effect the remaining provisions.
19
<PAGE>
The parties have executed this Agreement on the date first written above.
First USA
/s/Carter Warren
By: Carter Warren
Its: Executive Vice President
_____________________
_____________________
Facsimile:________________
and
/s/__________________
By: _____________________
Its: Vice President
_____________________
_____________________
Facsimile:________________
GeoCities
/s/James A. Rea
By: James A. Rea
Its: Vice President Business Development
1918 Main Street, 3rd Floor
Santa Monica, California 90405
Facsimile:___________
and
/s/__________________
By: _____________________
Its: _____________________
1918 Main Street, 3rd Floor
Santa Monica, California 90405
Facsimile:___________
20
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EXHIBIT A - Linkage
FUSA Icon
Return Icon
21
<PAGE>
EXHIBIT B
Deployment of minimum FCCSU-LLC Advertising on GeoCities Platform
<TABLE>
<CAPTION>
Above Fold Below Fold Implementation
Imp/[***] Imp/[***] Timeframe
---------- ---------- -----------------
<S> <C> <C> <C>
Guaranteed Ads** [***] Commencement Date
Guaranteed Popups [***] Commencement Date
GeoCities Home Page [***] Commencement Date
Neighborhood Homepages [***] [***] Commencement Date
(currently 39 and growing)
Neighborhood Topic pages [***] [***] Commencement Date
(currently between 500 and 600)
World Report
On Release & Every 2 Months [***] 15 days after
(approx. 900,000 copies/issue) Commencement Date
E-mail Solicitations per Quarter [***] 30 days after
(approx. 600,000 addresses) Commencement Date
Marketplace 30 days after
[***] Commencement Date
Permanent Presence on 90 days after
Registration Pages for Commencement Date
New Users (21+) [***]
Permanent Presence in 90 days after
Financial Center [***] Commencement Date
Grand Total Imp/[***] [***]
Grand Total Imp/[***] [***]
</TABLE>
* Imp/[***] shall mean Impressions per [***]
** Ads shall mean advertisements, type at FCCSU-LLC's discretion (Banner, Popup)
*** Adjusted for monthly volume
[***] Confidential treatment requested for redacted portion.
22
<PAGE>
EXHIBIT 10.9
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
CODISTRIBUTION AGREEMENT
This CODISTRIBUTION AGREEMENT ("Agreement"), effective as of December 31,
1997 (the "Effective Date"), contains the understandings and agreement of
GeoCities ("GeoCities") and Yahoo! Inc. ("Yahoo") with regard to a strategic
alliance between such parties.
SECTION 1: RESPONSIBILITIES OF PARTIES.
- ---------------------------------------
1.1 GeoCities manages and operates a community-based free web page hosting
service and web site, www.geocities.com (the "GeoCities Properties").
GeoCities agrees to offer the GeoCities Properties to registered users of
www.yahoo.com (the "Yahoo Property"). Collectively, registered users of the
Yahoo Property are referred to herein as "Yahooville Members"; registered
users of GeoCities Properties are referred to herein as "Homesteaders", and
registered users of both the Yahoo Property and GeoCities Properties are
referred to herein as "Yahooville Homesteaders". GeoCities will use and
make available to Yahooville Members GeoCities technology, publishing and
community building tools, as set forth in Exhibit A attached hereto, which
---------
shall at all times be at the same level with respect to nature, quality,
feature, functionality and performance that GeoCities makes such
technology, publishing and community building tools available to other
members of GeoCities Properties. At all times GeoCities shall offer free
Web page hosting services reasonably competitive with those offered by
other leading providers of such services.
1.2 GeoCities will be Yahoo's Premier third party, branded partner providing
free, personal, non-commercial web page hosting services to Yahooville
Members from the Yahoo Property. For purposes of this Agreement, the phrase
"Yahoo's Premier", with respect to GeoCities' rights shall mean,
substantially as shown in Exhibit F (as such exhibit may be amended from
---------
time to time at Yahoo's sole discretion and upon notice to GeoCities), but
in no event less than: [***]. Yahoo will have the ability to list other
free web page hosting services [***]. In the event that Yahoo decides to
provide its own, proprietary, personal, non-commercial web page hosting
services to Yahoo users, then GeoCities will have the option of terminating
this Agreement without penalty referenced in Section 6.2, 6.3, or
otherwise.
[***] Confidential treatment requested for redacted portion.
June 29, 1998 1 CONFIDENTIAL
<PAGE>
1.3 Links to Yahoo's thematic content and the Yahoo brand will be displayed in
a GeoCities Premier Location on each of the main "neighborhood" and "topic"
pages, or future manifestations or successors thereof, of the various
GeoCities Properties thematic neighborhoods. For purposes of this
Agreement, the phrase "GeoCities Premier Location" shall mean, at a
minimum, prominently featured, typically in a central location, within the
top two-thirds of each relevant page of the GeoCities Properties, and in
any event consistent with other featured programs offered on GeoCities
Properties, as set forth in Exhibit B attached hereto, as such exhibit may
---------
be amended from time to time at GeoCities' sole discretion, consistent with
the requirements stated above in this Section 1.3, and upon notice to
Yahoo. In addition, as possible, GeoCities and Yahoo will cooperate to
establish Yahoo-branded, value-added programming services in windows on the
GeoCities Properties.
1.4 At the "topic" page of each GeoCities "neighborhood" or future
manifestations or successors thereof, GeoCities will make available a
button or mark (the "Yahooville Button") for dynamic sub-aggregation of
Yahooville Homesteader in the GeoCities Properties. The Yahooville Button
will be mutually agreed by the parties, will include appropriate
identification that the Yahooville Homesteader are registered users of
Yahoo Property, and, at a minimum, will conform to GeoCities'
specifications with respect to placement and size, and to Yahoo's
specifications with respect to graphical design and content. Yahoo will be
responsible for providing the graphical design and content for such
Yahooville Button. Such specifications, placement, size, and graphical
design shall be substantially as set forth in Exhibit C attached hereto.
---------
1.5 Each Yahooville Member who chooses to build a homepage on GeoCities will be
provided, and will retain, a Yahooville Members' mark or designation
substantially similar in size, placement and character to that set forth in
Exhibit D attached hereto.
---------
1.6 GeoCities members will be offered association with Yahoo in two fashions:
[***]. In any event, GeoCities Homesteaders [***].
1.7 GeoCities and Yahoo will mutually agree upon a "Welcome Yahooville Members
to GeoCities" jump page (hosted on Yahoo), that is co-authored and co-
branded by the parties, and which provides a smooth transition from the
Yahooville Members profile page to GeoCities. The parties agree that no
third party advertisements, third party offers,
[***] Confidential treatment requested for redacted portion.
June 29, 1998 2 CONFIDENTIAL
<PAGE>
or third party links will be contained on such jump pages or shall be
presented to Yahooville Members until registration is complete and such
member is part of the GeoCities Community. GeoCities agrees that it will
not specifically target in any way any soliciting, advertising, promotional
or marketing activities or materials to Yahooville Members on GeoCities
Properties on the basis of such person's status as a Yahooville Member.
The parties agree that GeoCities may offer an option to Yahooville
Homesteaders to register for other services and products at the end of the
registration form on GeoCities Properties; provided, however, that such
-------- -------
other products and services are not competitive with Yahoo's services, and
only once such Yahooville Members have completed registration as a
GeoCities Homesteader. To accomplish the foregoing, GeoCities may place a
button or text link that links to an offer for GeoCities services.
1.8 Any substantial reduction in the features, quality, or functionality of the
GeoCities Properties offered to Yahooville Homesteaders will be agreed upon
between the parties.
1.9 GeoCities and Yahoo will jointly agree on an equal "value" of banner
inventory on each respective service to be allocated solely for the purpose
of cross-promotion of the relationship set forth in this Agreement. The
parties agree that the first period to set "value'" will be [***] after the
implementation date. Thereafter, "value" will be determined on a [***]
basis. For purposes of this Agreement, the term "value" shall mean the
value of such banner inventory as reflected in each party's then-current
rate card, as set independently by each party.
1.10 GeoCities will have the ability to sell and retain [***]% of the revenue
from inventory on GeoCities Properties associated with all Yahooville
Members who join GeoCities Properties.
1.11 Each party hereto agrees to identify one to two employees to act as
contacts and to work as reasonably required under this Agreement.
1.12 GeoCities shall submit "featured Homestead Pages" from the GeoCities
Properties to Yahoo for inclusion, subject to Yahoo's ultimate editorial
control, in the Yahoo Property. GeoCities shall also provide suggestions to
Yahoo regarding the appropriate placement of such featured Homestead Pages
in the Yahoo Property, including suggestions for specific categories within
the Yahoo Property. The parties will discuss additional placement of such
featured Homestead pages in the Yahoo Property on a periodic basis.
SECTION 2: ADDITIONAL RESPONSIBILITIES OF YAHOO.
- ------------------------------------------------
2.1 Yahoo will market the GeoCities free web page hosting services in a premier
position from the Yahooville Members Profile page and, at its sole
discretion, from other areas of Yahoo Property, substantially in the manner
set forth in Exhibit F attached hereto. The
---------
[***] Confidential treatment requested for redacted portion.
June 29, 1998 3 CONFIDENTIAL
<PAGE>
parties will discuss additional exposure for GeoCities to the Yahoo members
on a periodic basis.
2.2 Yahoo will become GeoCities' Premier provider of navigational and directory
services (including , without limitation, content buttons/links to specific
content directories or aggregation points). For purposes of this Agreement,
the phrase "GeoCities' Premier", with respect to Yahoo's rights shall mean:
(i) prominently featured within the top two-thirds of each page within
GeoCities Properties (the "Section 2.2 GeoCities Premier Location"); and
(ii) no third party navigational or directory service will be offered in
such Section 2.2 GeoCities Premier Location, except for banner advertising;
------
provided, however, that GeoCities may include Lycos in such Section 2.2
-------- -------
GeoCities Premier Location, solely to the extent that each such reference
or link to Lycos appears below any reference to the Yahoo Property.
GeoCities will have the ability to provide other search and directory
services in a location outside the Section 2.2 GeoCities Premier Location
(i.e., in the lower one third of a page). In the event that GeoCities
obtains a replacement service to Lycos then said service shall appear
outside the GeoCities Premier Location.
2.3 Yahoo will provide a GeoCities-specific value added programming module on
the My Yahoo! content page for GeoCities Homesteaders who elect the My
Yahoo! service, as set forth in Exhibit G attached hereto.
---------
2.4 Both Yahoo and GeoCities will be responsible for tracking the number of
registered users each party has distributed to the other. Within [***]
days after the date that is [***] after the Implementation Date, and within
[***] days after the end of each [***] thereafter, each party shall deliver
to the other party a written report setting forth the number of registered
users distributed to such other party during such reporting period. For
purposes of this Agreement, the "Implementation Date" shall mean the
registration date of the first Yahooville Homesteader.
2.5 Each party hereto shall solely be responsible for providing all levels of
customer support to users of its services and properties.
2.6 Yahoo agrees that it will not knowingly and specifically target in any way
on behalf of any third party any soliciting, advertising, promotional or
marketing activities or materials to Yahooville Homesteaders based on such
person's status as a Yahooville Homesteader.
SECTION 3: INTERNATIONAL; COMMERCIAL OFFERING.
- ----------------------------------------------
3.1 If Yahoo chooses to provide third party international free personal, non-
commercial web page hosting services similar in scope and nature to that
described in this Agreement, in the local language from other than from the
Yahoo Property, Yahoo will, prior to approaching any third party with
respect thereto, deliver to GeoCities a written notice describing such
services and Yahoo's reasonable business requirements for the
[***] Confidential treatment requested for redacted portion.
June 29, 1998 4 CONFIDENTIAL
<PAGE>
opportunity. At GeoCities' discretion, the parties will use good-faith
efforts to negotiate and execute a written amendment to this Agreement to
include such services under reasonable terms and conditions. If GeoCities
declines to commence negotiations regarding any services within fifteen
(15) days after receiving such written notice from Yahoo, or if the parties
fail to reach agreement within thirty (30) days following the commencement
of good faith negotiations (or such later date as is agreed by the
parties), Yahoo may offer such opportunity to any third party.
3.2 If Yahoo chooses to [***]. At GeoCities' discretion, the parties will
[***]. If GeoCities [***] within fifteen (15) days after receiving such
written notice from Yahoo, or if [***], Yahoo may [***].
SECTION 4: OWNERSHIP; CUSTOMER INFORMATION.
- -------------------------------------------
4.1 As between GeoCities and Yahoo, customer information and the content
created or supplied by those customers will be the property of the
respective party. Specifically, as between GeoCities and Yahoo, Yahooville
Members' profiles will be the property of Yahoo, and GeoCities' homepage
content and GeoCities' Homesteaders' profiles will be the property of
GeoCities, regardless of the origination of the member.
4.2 Yahoo and GeoCities will provide an automated mechanism for communicating
registration information (name, zip code, email) to the other service for
members joining the Yahoo Property from GeoCities Properties and for the
members joining GeoCities Properties from the Yahoo Property.
SECTION 5: EXCLUSIVITY.
- -----------------------
5.1 During the Initial Term (as defined below), with respect to the services of
Excite, Infoseek, Hot Mail, C/NET, Microsoft (MSN), and AOL or any successor
thereto or acquiror thereof (the "Exclusion List"), GeoCities will neither: (i)
provide free, non commercial web-page hosting services to the companies on the
Exclusion List; (ii) provide prominent content links [***] to the companies on
the Exclusion List; nor (iii) enter into any distribution arrangements to
provide a prominent link from, any Company on such Exclusion List; [***].
After the Initial Term, GeoCities will consult with Yahoo in good faith
regarding any potential relationship restricted during the Initial Term pursuant
to this Section 5.1 with any member of the Exclusion List.
[***] Confidential treatment requested for redacted portion.
June 29, 1998 5 CONFIDENTIAL
<PAGE>
5.2 [***]
5.3 GeoCities reserves the right to pursue an OEM strategy with any site not on
the Exclusion List set forth in Section 5.1, except with respect to [***],
------
solely under the terms set forth in Section 5.4 hereto. An OEM strategy
would include, but not be limited to, providing free home page community
services to the OEM customer for a fee. GeoCities shall not pursue an OEM
strategy, or provide any free or fee web page creation, hosting, or similar
services to any site or property controlled by, under common control with
or controlling, branded, or co-branded by, any party on the Exclusion List,
except with respect to [***] as set forth in Section 5.4.
------
5.4 As part of the GeoCities OEM strategy, GeoCities will be permitted to
provide free web page hosting services to Lycos, on the Lycos site. Such
service may be provided as a co-branded Lycos/GeoCities service on the
Lycos site, hosted by or for Lycos with the Lycos look and feel; provided,
--------
however, that such service or such Lycos community members is not
-------
integrated with GeoCities Properties, and provided, further, that GeoCities
-------- -------
may provide a link to the Lycos Community from the GeoCities Properties
only after presentation of the GeoCities Properties. In the event that
GeoCities implements an OEM relationship with Lycos, Yahoo shall have the
right to enter into negotiations with GeoCities for the purpose of entering
into an OEM relationship with GeoCities. If the parties successfully
conclude such negotiations, the agreement resulting therefrom shall
supersede this Agreement.
SECTION 6: TERM AND TERMINATION; AUDIT RIGHTS; SURVIVAL.
- --------------------------------------------------------
6.1 The Initial Term of this Agreement shall be through January 15, 1999. The
Agreement shall automatically be renewed for subsequent 1-year renewal
terms (the "Renewal Terms") unless either party delivers to the other party
written termination notice at least ninety (90) days prior to the end of
such Initial Term or any Renewal Term then in effect. Neither party may
terminate this Agreement during the Initial Term or a Renewal Term, except
------
for breach by the other party which remains uncured for thirty (30) days
after written notice to the branching party, or pursuant to Section 6.3.
[***] Confidential treatment requested for redacted portion.
June 29, 1998 6 CONFIDENTIAL
<PAGE>
6.2 If GeoCities directly or indirectly is acquired by, merged or combined
with, or if all of substantially all of the assets of GeoCities are
acquired by, or if more than fifty percent (50%) of the voting power of
GeoCities is acquired by, (any of the above aforementioned events being
referred to as an "Acquisition") [***] or any subsidiaries thereof during
the Initial Term, GeoCities will pay Yahoo a "user factor" of: (i) $[***]
per reasonably identifiable unique user; multiplied by (ii) the total
distribution of Yahooville Members to GeoCities. Thereafter, during any
effective Renewal Term, upon an acquisition by the companies listed in this
Section 6.2 or any subsidiaries thereof, GeoCities will pay Yahoo a "user
factor" of: (a) $[***] per reasonably identifiable unique user; multiplied
by (b) the discrepancy in cross-distribution (rather than the total
distribution)/1/ over the [***] period immediately preceding the effective
date of such Acquisition. Yahoo will have the right to terminate this
agreement if GeoCities is acquired by the above companies, and the payment
will be in effect only if Yahoo elects to terminate the agreement. All
such payments under this Section 6.2 shall be payable net thirty (30) days
after the effective date of such termination, and shall be accompanied by a
written report setting forth the basis for such payments.
6.3 Each party shall maintain complete and accurate records in accordance with
generally accepted methods of accounting relating to the number of unique
users, pursuant to this Agreement, for three (3) years after the last
payment is due under this Agreement. An independent "Big Six" accounting
firm retained by one party (the "Auditing Party") shall have access to such
records of the other party (the "Audited Party"), no more frequently than
once per calendar year, upon reasonable notice and during normal business
hours, for purposes of auditing the number of unique users set forth in
Sections 6.2 hereto, for so long as such records are required to be
maintained. The Auditing Party shall pay the expenses of the accounting
firm, unless the number of unique users determined by the accounting firm
------
varies by an excess of ten percent (10%) of the number of unique users
reported by the Audited Party over the prior twelve (12) month period or
the life of this Agreement (whichever is shorter), in which case the
Audited Party shall promptly pay the Auditing Party the accounting firm's
reasonable fees for such audit, and shall promptly pay any amounts owed by
the Audited Party to the Auditing Party based on such number of unique
users.
6.4 The following terms and conditions shall survive the expiration or
termination of this Agreement: Sections 2.5, 4.1, 6.3 (solely as stated),
7.1, 7.2, 7.3, 7.5, 8, 9.1, and 9.2.
_________________
/1/ By way of example, but not limitation, in the event that 100 more Yahoo
members become Yahooville Members than GeoCities homesteaders become
Yahooville Members then, upon termination under this Section 6.2, GeoCities
shall pay to Yahoo a fee of $[***] (100), or $[***].
[***] Confidential treatment requested for redacted portion.
June 29, 1998 7 CONFIDENTIAL
<PAGE>
SECTION 7: INDEMNITY; REPRESENTATIONS AND WARRANTIES.
- -----------------------------------------------------
7.1 GeoCities, at its expense, will indemnify, defend and hold harmless Yahoo,
its employees, officers, directors, representatives, agents and affiliates,
against any claim, suit, action, or other proceeding brought against Yahoo
or such persons or entities based on or arising from a claim: (i) that any
technology, software, authoring tool, trademark, trade name, service mark,
service name or other brand feature, any material, content, information,
product or service produced, distributed, presented offered or publicized
through or on the GeoCities Properties or any other web site owned or
operated by GeoCities (whether created by GeoCities or any other person,
including, without limitation, homesteaders or other users of GeoCities
Properties) infringes in any manner any patent, copyright, trademark, trade
secret or any other intellectual property right of any third party, is or
contains any material or information that is obscene, defamatory, libelous,
slanderous, or that violates any law or regulation, or that otherwise
violates any rights of any person or entity, including, without limitation,
rights of publicity, privacy or personality, or has otherwise resulted in
any consumer fraud, product liability, tort, breach of contract, injury,
damage or harm of any kind to any third party; or (ii) based on breach of
any representation or warranty set forth in Section 7.3; provided, however,
-------- -------
that such indemnification shall not apply to any claims which arise out of
or result from any claim based on or arising from any data, content, or
other materials provided by Yahoo to GeoCities hereunder; and provided,
--------
further, that in any such case: (x) Yahoo provides GeoCities with prompt
-------
notice of any such claim; (y) Yahoo permits GeoCities to assume and control
the defense of such action upon GeoCities' written notice to Yahoo of its
intention to indemnify; and (z) upon GeoCities' written request, and at no
expense to Yahoo, Yahoo will provide to GeoCities all available information
and assistance necessary for GeoCities to defend such claim. GeoCities
will not enter into any settlement or compromise of any such claim without
Yahoo's prior written consent, which shall not be unreasonably withheld,
unless such settlement or compromise includes a complete release of all
------
claims against and liability for Yahoo. GeoCities will pay any and all
costs, damages, and expenses, including, but not limited to, reasonable
attorneys' fees and costs awarded against or otherwise incurred by Yahoo in
connection with or arising from any such claim, suit, action or proceeding.
7.2 Yahoo, at its expense, will indemnify, defend and hold harmless GeoCities,
its employees, officers, directors, representatives, agents and affiliates,
against any claim, suit, action, or other proceeding brought against
GeoCities or such persons or entities based on or arising from a claim:
(i) that any technology, software, authoring tool, trademark, trade name,
service mark, service name or other brand feature, any material, content,
information, product or service produced, distributed, presented offered or
publicized through or on the Yahoo Property or any other web site owned or
operated by Yahoo (whether created by Yahoo or any other person), infringes
in any manner any patent, copyright, trademark, trade secret or any other
intellectual property right of any
June 29, 1998 8 CONFIDENTIAL
<PAGE>
third party, is or contains any material or information that is obscene,
defamatory, libelous, slanderous, or that violates any law or regulation,
or that otherwise violates any rights of any person or entity, including,
without limitation, rights of publicity, privacy or personality, or has
otherwise resulted in any consumer fraud, product liability, tort, breach
of contract, injury, damage or harm of any kind to any third party; or (ii)
based on breach of any representation or warranty set forth in Section 7.3;
provided, however, that such indemnification shall not apply to any claims
-------- -------
which arise out of or result from any claim based on or arising from any
data, content, or materials provided by GeoCities to Yahoo hereunder; and
provided, however, that in any such case: (x) GeoCities provides Yahoo with
-------- -------
prompt notice of any such claim; (y) GeoCities permits Yahoo to assume and
control the defense of such action upon Yahoo's written notice to GeoCities
of its intention to indemnify; and (z) upon Yahoo's written request, and at
no expense to GeoCities, GeoCities will provide to Yahoo all available
information and assistance necessary for Yahoo to defend such claim. Yahoo
will not enter into any settlement or compromise of any such claim without
Yahoo's prior written consent, which shall not be unreasonably withheld,
unless such settlement or compromise includes a complete release of all
------
claims against and liability for GeoCities. Yahoo will pay any and all
costs, damages, and expenses, including, but not limited to, reasonable
attorneys' fees and costs awarded against or otherwise incurred by
GeoCities in connection with or arising from any such claim, suit, action
or proceeding.
7.3 Each party to this Agreement represents and warrants to the other party
that 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.
7.4 GeoCities agrees that it shall maintain policies that are substantially and
effectively similar to its current policies with respect to publicity,
privacy, libel, slander, obscenity, and any complaints arising out of or
relating to all content on the GeoCities Properties.
7.5 EXCEPT FOR THE OBLIGATIONS PURSUANT TO SECTIONS 7.1, 7.2, AND 8, UNDER NO
CIRCUMSTANCES SHALL GEOCITIES, YAHOO, OR ANY AFFILIATE THEREOF BE LIABLE TO
ANOTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE,
OR EXEMPLARY DAMAGES ARISING FROM THIS AGREEMENT, EVEN IF THAT PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, SUCH AS, BUT NOT LIMITED
TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS.
SECTION 8: CONFIDENTIALITY.
- ---------------------------
8.1 GeoCities and Yahoo hereby acknowledge that each of them may have access to
confidential and proprietary information which relates to the other party's
business (the "Confidential Information"). Such information shall be
------------------------
identified as confidential at the time of disclosure. Each party agrees to
preserve and protect the confidentiality of the
June 29, 1998 9 CONFIDENTIAL
<PAGE>
Confidential Information and not to disclose any applicable Confidential
Information without the prior written consent of the other party; provided,
--------
however, that any party hereto may disclose to any other party any
-------
information which is: (i) already publicly known; (ii) discovered or
created independently of any involvement with such party; (iii) otherwise
learned through legitimate means other than from such party; (iv)
independently created by the receiving party without reference to the other
party's Confidential Information; or (v) required by law or regulation to
be disclosed; provided, however, that the party disclosing such
-------- -------
Confidential Information under this Section 8.1(v) shall provide reasonable
prior notice thereof to the other party. Moreover, any party hereto may
disclose any Confidential Information hereunder to such party's agents,
attorneys and other representatives or any court or competent jurisdiction
or any other party empowered hereunder as reasonably required to resolve
any dispute between the parties hereto. The parties agree that the
existence of this Agreement is not Confidential Information under this
Section 8.1; provided, however, that the terms and conditions of this
-------- -------
Agreement are expressly considered Confidential Information under this
Section 8.1.
SECTION 9: MISCELLANEOUS.
- -------------------------
9.1 Notices. All notices, requests and other communications called for by this
-------
Agreement shall be deemed to have been given immediately if made by
telecopy or electronic mail (confirmed by concurrent written notice sent
first class U.S. mail, postage prepaid), if to Yahoo at 3400 Central
Expressway, Suite 201, Santa Clara, CA 95051, Fax: (408) 731-3301
Attention: Vice President (e-mail: [email protected]), with a copy to its
General Counsel (e-mail:[email protected]), and if to GeoCities at the
physical and electronic mail addresses set forth on the signature page of
this Agreement, or to such other addresses as either party shall specify to
the other. Notice by any other means shall be deemed made when actually
received by the party to which notice is provided.
9.2 Miscellaneous Provisions. All references by name to sections, areas, or
-------------------------
portions of the Yahoo Property refer to such sections, areas, or portions
as of the Effective Date, as well as any revisions, additions,
substitutions, replacements, or reclassifications made thereafter with
respect to such sections, areas, or portions. For purposes of example, and
without limiting the generality of the preceding sentence, a change in
designation of a portion of the Yahoo Property or GeoCities Properties
identified herein shall not relieve Yahoo or GeoCities of any of its
obligations or rights with respect to such portion. This Agreement will
bind and inure to the benefit of each party's permitted successors and
assigns. Neither party may assign this Agreement, in whole or in part,
without the other party's written consent. Any attempt to assign this
Agreement other than in accordance with this provision shall be null and
void. This Agreement will be governed by and construed in accordance with
the laws of the State of California, without reference to conflicts of laws
rules, and without regard to its location of execution or performance. If
any provision of this Agreement is found invalid or unenforceable, that
provision will be enforced to the maximum extent permissible, and the other
provisions of this Agreement will remain in force. Neither this Agreement,
nor any terms and conditions contained herein may be construed as creating
or constituting a partnership, joint venture or agency
June 29, 1998 10 CONFIDENTIAL
<PAGE>
relationship between the parties. No failure of either party to exercise or
enforce any of its rights under this Agreement will act as a waiver of such
rights. This Agreement and its exhibits are the complete and exclusive
agreement between the parties with respect to the subject matter hereof,
superseding and replacing any and all prior agreements, communications, and
understandings, both written and oral, regarding such subject matter,
including without limitation, the Yahoo! Inc. Link Agreement, effective as
of August 1, 1997. This Agreement may only be modified, or any rights under
it waived, by a written document executed by both parties. The prevailing
party in any claim or action brought by one party against the other party
shall be entitled to full reimbursement of all of its reasonable attorneys
fees and expenses incurred in connection with such claim or action.
9.3 The parties will cooperate to create any and all appropriate public
announcements relating to the relationship set forth in this Agreement.
Neither party shall make any public announcement regarding the content of
this Agreement without the other party's prior written approval and
consent.
This Codistribution Agreement has been executed by the duly authorized
representatives of the parties, effective as of the Effective Date.
YAHOO! INC. GEOCITIES
By: /s/ Tim Koogle By: /s/ David Bohnett
------------------------------ ----------------------------
Name: Tim Koogle Name: David Bohnett
Title: President & CEO Title: CEO
Address: Address:
Attn: Senior VP, Business Operations Attn: David Bohnett &
Stephen Hansen
3400 Central Expressway, Suite 201
Santa Clara, CA 95051 1918 Main Street, 3rd Floor
Tel.: (408) 731-3300 Santa Monica, CA 90405
Fax: (408) 731-3302 Tel: (310) 664-6500
e-mail: [email protected] Fax: (310) 664-6521
email: [email protected] &
[email protected]
June 29, 1998 11 CONFIDENTIAL
<PAGE>
EXHIBIT 10.10
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
EXODUS COMMUNICATIONS, INC
MASTER SERVICES AGREEMENT
AGREEMENT NO. ____
THIS MASTER SERVICES AGREEMENT (this "Agreement") is made effective as of
the Acceptance Date (November 7, 1997) indicated in the Services and Price Form
attached hereto as Attachment 1, by and between Exodus Communications, Inc., a
------------
California corporation doing business 2650 San Tomas Expressway, Santa Clara,
California 95051 ("Exodus") and the customer identified below ("Customer").
A. Exodus is in the business of providing certain services to
its customers, including Internet connectivity and the provision and
maintenance of physical space and facilities suitable for the
placement and operation of telecommunications, networking, and other
computer equipment.
B. Customer desires to engage Exodus to provide such services
to Customer, and Exodus desires to provide such services, on the terms
and conditions of this Agreement.
C. Customer and Exodus have agreed to enter into this Agreement
for Exodus's provision of, and Customer's payment to Exodus for such
services.
This Agreement, including all Attachments hereto listed below, which are
incorporated herein by this reference, constitutes the complete and exclusive
agreement between the parties with respect to the subject matter hereof, and
supersedes and replaces any and all prior or contemporaneous discussions,
negotiations, understandings and agreements, written and oral, regarding such
subject matter.
EXODUS COMMUNICATIONS, INC. Customer Name: GEOCITIES
2650 San Tomas Expressway Address: 1918 Main Street, 3rd Floor
Santa Clara, CA 95054 Santa Monica, CA 90405-1030
Phone: (408) 346-2200 Phone: (310) 664-6500
Fax: (408) 346-2206 Fax: (310) 664-6520
Signature: /s/ Dick Stoltz Signature: /s/ John C. Rezner
----------------------- ----------------------------
Print Name: Dick Stoltz Print Name: John C. Rezner
--------------------- ---------------------------
Title: CFO and COO Title: V.P. Operations
-------------------------- --------------------------------
Date: 11/10/97 Date: 11/08/97
--------------------------- ---------------------------------
INCLUDES: X Attachment 1: Services and Price Form
X Attachment 2: Terms and Conditions
X Attachment 3: Rules and Regulations
X Attachment 4: Customer Equipment
X Attachment 5: Registration Form
X Attachment 6: Negotiated Changes
1
<PAGE>
EXODUS
ATTACHMENT 1
PRICE QUOTATION FOR INTERNET DATA CENTER SERVICES
Customer Name: GeoCities Quote No: 0428-1A
Request for Service November 9, 1997 __________________________
Date
GEOCITIES SOLUTION
------------------
Exodus Communications shall provide GeoCities with scaleable bandwidth as
needed, a Virtual Internet Data Center, Tape Back-Up Services, Switch Management
Services, System Administration, Management Services for $[***] per Mbps as
outlined below:
Colocation Connectivity Tiered Pricing:
<TABLE>
<CAPTION>
- ---------------------------- ------------------------------------- ---------- ---------------- ----------------------
Product Number Description Qty Start up Monthly
- ---------------------------- ------------------------------------- ---------- ---------------- ----------------------
<S> <C> <C> <C> <C>
Exo-ColNet-U100 Dedicated Bandwidth as Required, 2 $[***]
Fast Ethernet connection(s), Floor
at 120 Mpbs (See Billing Schedule
Below)
- ---------------------------- ------------------------------------- ---------- ---------------- ----------------------
Exo-ColNet-U100SU Colocation backbone setup, per 100 2 $[***]
Mbps feed
- ---------------------------- ------------------------------------- ---------- ---------------- ----------------------
EXODUS SUBTOTAL $[***] $[***]
- ---------------------------- ------------------------------------- ---------- ---------------- ----------------------
</TABLE>
. Exodus Communications shall provision Full Duplex dedicated 100 Mbps
Fast Ethernet Connection(s) to GeoCities' colocation environment within
Exodus' Santa Clara Data Center as required to meet GeoCities bandwidth
requirements.
Billing Schedule for 120 Mbps Floor
<TABLE>
<CAPTION>
- --------------------------------------------- --------------------------------------------
Time Period Total Due per Month
- --------------------------------------------- --------------------------------------------
<S> <C>
Upon Connectivity through Fifty Month Usage Based @ $[***] per Mbps
- --------------------------------------------- --------------------------------------------
Sixth Month After Connectivity @ 120 Mbps $[***]@ 120 Mbps
- --------------------------------------------- --------------------------------------------
</TABLE>
[***] Confidential treatment requested for redacted portion.
2
<PAGE>
BILLING SCHEDULE TERMS: For the initial 150 Days and based on installation of
two Fast Ethernet Connections to GeoCities colocation environment within Exodus'
Santa Clara Data Center, Exodus shall bill GeoCities $ [***] per Mbps on a usage
basis. At the conclusion of the sixth month and each month thereafter, GeoCities
shall be billed at a floor of 120 Mbps at $[***] per Mbps, minimum, plus any
additional usage over the 120 Mbps at a rate of $[***] per month using the 95th
percentile usage measurement as described below.
[***] Confidential treatment requested for redacted portion.
3
<PAGE>
Additional Products and Services included in rate of $[***] per Mbps per Month:
<TABLE>
<CAPTION>
- ----------------------- --------------------------------------- --------------- --------------- ---------------
PRODUCT NUMBER DESCRIPTION QTY START UP MONTHLY
- ----------------------- --------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Exo-ColNetBU-Tl Private T1 backup access [***]
- ----------------------- --------------------------------------- --------------- --------------- ---------------
Exo-Cage Custom Virtual Data Center Space, 15 1 [***]
Racks
- ----------------------- --------------------------------------- --------------- --------------- ---------------
Exo-Cage Custom VDC Setup 1 $[***]
- ----------------------- --------------------------------------- --------------- --------------- ---------------
Exo-Sup-l0 Bundled 12 hours of on demand support 1 [***]
for customers via Exodus Support Line
- ----------------------- --------------------------------------- --------------- --------------- ---------------
Exo-TpBck-L1 Exodus will manage existing tape 1 $[***] [***]
backup procedures and software. Data
to be backed up to Exodus provided
tape device. This includes Tape
Management service and off-site
storage.
- ----------------------- --------------------------------------- --------------- --------------- ---------------
Exo-Card 24x7 card access deposit ($100 per 3 [***]
card)
- ----------------------- --------------------------------------- --------------- --------------- ---------------
Exodus Subtotal $[***] $[***]
Products & Services
- ----------------------- --------------------------------------- --------------- --------------- ---------------
Exodus Subtotal $[***] $[***]
Colocation
Connectivity
- ----------------------- --------------------------------------- --------------- --------------- ---------------
- ----------------------- --------------------------------------- --------------- --------------- ---------------
EXODUS TOTAL $[***] $[***]
- ----------------------- --------------------------------------- --------------- --------------- ---------------
</TABLE>
Custom Area
- -----------
. Exodus shall provide GeoCities with 17 Racks for initial configuration.
Baseline Ratio, 120 Mbps, 15 Racks, and (2) 20 Amp circuits per Rack.
(310) 664
<TABLE>
<CAPTION>
- ------------------------ ---------------------------------------- ---- ----------------------- ----------------------
Telco (WorldCom) Local loop access to customer cage $[***] $[***]
(T-l)
- ------------------------ ---------------------------------------- ---- ----------------------- ----------------------
<S> <C> <C> <C>
</TABLE>
NOTE 1:
USAGE BASED BANDWIDTH MEASUREMENT:
- ---------------------------------
The Exodus monitoring system will record 5 minute samples of the total line
usage (input and output) of your colocation network line over a period of a
month. At the end of the month the samples are sorted and the top 5% samples of
the total line usage are discarded. The highest remaining value is used as the
basis for the bandwidth usage rate for that month and is referred to as the "95
percentile." This rule allows customer to burst up to the 100 Mbps 5% during the
month without incurring any increase in price.
[***] Confidential treatment requested for redacted potion.
4
<PAGE>
Note 2:
Connectivity Layout:
[Diagram]
Note 3:
For a 3 Yr. term, Monthly fee will be $[***].
<TABLE>
<CAPTION>
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
Equipment
- ---------
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
CISCO Catalyst 5500
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
PRODUCT NO: DESCRIPTION: OTY UNIT PRICE EXTENSION
- ----------
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
<S> <C> <C> <C> <C>
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
WS-C5500 Catalyst 5500 Chassis 1 $ [***] $ [***]
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
WS-C5508 Catalyst 5500 Power 1 $ [***] $ [***]
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
WS-X5508/2 Catalyst5500 Second 1 $ [***] $ [***]
PowerSupply
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
WS-X5509 Catalyst 5500 1 $ [***] $ [***]
Supervisor Engine-TX
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
WS-X5213A Catalyst 5000 10/l00 4 $ [***] $ [***]
BaseTX Fast Ethernet
Switching Module
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
WS-X5302 Catalyst Switch 1 $ [***] $ [***]
Route Switch Module
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
MEM-RSM-64M 64MB DRAM Option 1 $ [***] $ [***]
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
Total $ [***]
- ------------------------------ ---------------------- ----------- ------------------- -------------------------------
</TABLE>
SHIPPING COST AND TAX WILL BE ADDED UPON DELIVERY
ADDITIONAL UNITS MAY BE PURCHASED FOR THE SAME PRICING
[***] Confidential treatment requested for redacted portion.
5
<PAGE>
QUOTATION INCLUDES:
- ------------------
. Managed Services: In addition to other standard descriptions, GeoCities
----------------
shall receive 12 Hours of bundled System Administration on demand on a
monthly, 7 x 24 basis, based on 120 Mbps floor. GeoCities shall receive 1
Hour of System Administration for each 10 Mbps of usage. Any additional
hours shall be billed at $[***] per Hour.
. Virtual Data Center: Exodus Communications shall provide Racks to GeoCities
-------------------
based on their requirements GeoCities reserves the first right of refusal
for current environment at 1605 Wyatt which is approximately 400 square
feet. Exodus shall provide GeoCities future growth and power based on ratio
established in this agreement as follows: for each 8 Mbps used by
GeoCities, GeoCities shall receive up to I Rack and (2) 20 Amp circuits, as
required. If space and power are required beyond this ratio, Exodus and
GeoCities shall negotiate in good faith.
. Tape Back-Up: See Exhibit I below for detailed overview of services. Note:
------------
Exodus and GeoCities shall jointly determine the optimal architecture,
configuration, and equipment to be utilized to implement a tape back-up
system that is an Exodus owned operated and managed DLT tape drive system.
. CISCO Catalyst 5500 Management: Exodus shall manage and monitor the
------------------------------
GeoCities' CAT5500 This service includes SNMP Monitoring and configuration.
. 24 x 7 monitoring services include the following: Continuity between the
Exodus network and the client point-of-presence; router and filter
administration; domain name administration; TCP/IP address assignment; M-
Bone tunneling; and DNS administration. This service includes 24 X 7
systems administration staff.
. Exodus shall power cycle GeoCities systems as necessary based on pre-
determined policies and procedures which include access to root passwords
and security identification procedures for requestor on a 7 x 24 basis. See
Exhibit II for detailed of Basic Operator Services. Exodus also shall allow
GeoCities to power cycle remotely by providing appropriate network devices
to perform these tasks.
. SNMP monitoring of the line and report if line is down.
. GeoCities reserves the right to secure and acquire their own unique set of
Internet IP addresses. Exodus will allow Customer to utilize a separately
contracted T3 line in the Exodus Data Center. Customer and their provider
of line will be responsible for installation and testing of the line
directly to the customer site at the Exodus facility. Exodus will cooperate
with Customer and their provider during installation, testing and servicing
of the line. Exodus will not be responsible for any maintenance, testing or
service of the line, nor will it assume any liability associated with the
line, except for the willful or grossly negligent acts of Exodus and its
employees.
. Exodus will provide a fully integrated CAT 5500 in the data center for
redundancy purposes. For other pertinent product options, see Exhibit III.
[***] Confidential treatment requested for redacted portion.
6
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The terms and conditions of this proposal include and incorporate by reference
Exodus' terms and conditions of service and Rules and Regulation.
GEOCITIES EXODUS COMMUNICATIONS, INC.
Signature: /s/ GeoCities Signature: /s/ Exodus Communications, Inc.
------------------------ --------------------------------
(Authorized Signature) (Authorized Signature)
Title: V.P. Operations Title: CFO and COO
---------------------------- ------------------------------------
Date: 11/08/97 Date: 11/10/97
----------------------------- -------------------------------------
7
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EXHIBIT 1
TAPE MANAGEMENT SERVICE
-----------------------
DESCRIPTION
Under this service offering Exodus operations personnel will remove and insert
backup tapes from a customer designated tape or jukebox device. Exodus personnel
can conduct this procedure according to a predefined schedule or on a on-demand
basis.
TYPICAL ACTIONS SUPPORTED
. Put new or recycled tapes into a jukebox or tape device
. Remove tapes from a jukebox or tape device
. Assist customer as "remote hands onsite" in the event of a tape jam
. Place removed tapes in customer designated tape storage container or
cabinet in colocation space
. Assist in making tapes available for off-site pickup via Exodus contracted
storage provider or customer chose provider
. Weekly off-site tape storage pickup for up to three 4/8mm tapes
RESPONSE TIMES FOR TAPE RETRIEVAL
. 1 hour response for tape insertion or removal requests of tapes located in
customer colocation space.
. 2 hour, 5 hour and 24 hour response times for off-site tapes can be offered
on a on-demand basis and will incur separate per incident charges.
. 1 week response time for off-site tapes is included.
REQUIRED INFORMATION
. Contact Information
Provides all customer contact information address, email, voice mail,
beeper.
A list of authorized people who can make use of tape exchange service
requests.
. Tape Insertion and Removal Procedure
Detail procedures describing how to handle tapes and access tape
device or jukebox.
. Sign in sheet
Log to be signed when Exodus employee enters customers cage
. Off-site storage log (optional service)
To be used as part of managing off-site storage. The log will record
date/time when and which tapes were picked up for off-site storage.
. Daily Email
Daily email will be sent that summarizes information that was backed-
up the previous day
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EXHIBIT II
BASIC OPERATOR SERVICES
-----------------------
DESCRIPTION
Under this service offering Exodus operations personnel can act as your remote
"hands on-site" when you can't physically be near your system. It does not
provide for any system administration level tasks. If a service requiring access
to the customer area or system is requested, it is assumed such permission will
be granted however, Exodus will notify Customer promptly after any such access.
Basic Operator Service shall be on a 24 x 7 basis. The creation and
establishment of this scope of work shall be defined by both GeoCities and
Exodus in best efforts not later than one month after connectivity.
TYPICAL SERVICES SUPPORTED
. Reboot or power-cycle colocated devices (from keyboard or power switch)
. Provide onsite equipment LED status feedback
. Provide console output feedback
. Cable check/swap
. Swap equipment and server components
REQUIRED INFORMATION
The above typical services must be requested on an on-demand basis or agreed
upon prior to installation between Exodus and the customer (i.e. documented with
an operator's manual). Below is some sample information that will be required
documentation for an operator's manual.
. Contact Information
Provides all customer contact information address, email, voice mail,
beeper.
A list of authorized people which can make use of operator service
requests.
. InterNIC Registration Information
Usually provides IP address, domain name...
. Equipment Inventory Information
System/component list for records (including serial numbers, system
name, 0/S revision etc.)
. Network Diagram (if applicable)
LAN diagram with system names and other relevant information
. Operators Guide (if applicable)
Any detailed instructions of procedures that may be requested of Exodus
operators on an on-demand basis.
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EXHIBIT III
OTHER PRODUCT OPTIONS:
---------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Product Number Description Qty Start up Monthly
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ex-ColNet-Dl0 10 Mbps Ethernet connection 1 $[***]
- ---------------------------------------------------------------------------------------------------------------
Exo-ColNet-U1OSU Collocation backbone setup and Configuration 1 $[***]
- ---------------------------------------------------------------------------------------------------------------
Exo-cage-R78 Basic 7x8 cage 1 $[***]
- ---------------------------------------------------------------------------------------------------------------
Exo-Cage-R785U 7x8 cage setup 1 $[***]
- ---------------------------------------------------------------------------------------------------------------
Exo-cage-R148 Basic 14x8 cage 1 $[***]
- ---------------------------------------------------------------------------------------------------------------
Exo-Cage-R148SU 14x8 cage setup 1 $[***]
- ---------------------------------------------------------------------------------------------------------------
Exo-Rack-100 Full Rack 1 $[***] $[***]
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
[***] Confidential treatment requested for redacted portion.
10
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ATTACHMENT 2
TERMS AND CONDITIONS
1 DEFINITIONS.
1.1 "Customer Area" means the portion of the Internet Data Centers made
available to Customer hereunder for the placement of Customer Equipment.
1.2 "Customer's Business" means Customer's services and/or products to be made
available via the Internet in connection with this Agreement.
1.3 "Customer Equipment" means Customer's computer hardware, peripheral, and
other tangible equipment justified in Attachment 4, as amended from time to
------------
time, that Customer places in the Customer Area pursuant to this Agreement. All
changes in Customer Equipment, including but not limited to installation and
removal of Customer Equipment, must be approved by Exodus, which shall not be
unreasonably withheld or delayed. As between Exodus and Customer, the parties
acknowledge and agree that all Customer Equipment is owned by Customer.
1.4 "Customer Materials" means all software, data, information contained in
documentation, and other information and intangibles used by Customer to
operate, install, and/or maintain Customer's Business through the Customer
Equipment or provided to Exodus by Customer for such purposes or otherwise
pursuant to this Agreement. As between Exodus and Customer, the parties
acknowledge and agree that all Customer Materials are owned by Customer.
1.5 "Installation Date" means the date the Customer Equipment is actually
installed and approved by Customer as operational.
1.6 "Internet Data Centers" means the sites owned or leased by Exodus
containing the Customer Area and equipment used by Exodus to provide Internet
Data Center Services.
1.7 "Internet Data Center Services" means the services and other benefits to be
provided by Exodus to Customer under this Agreement, as described in Attachment
----------
1, as amended from time to time, or substantially similar services if, in the
- -
reasonable opinion of Exodus, such substantially similar services would provide
Customer with substantially similar benefits.
1.8 "Representatives" means the individuals identified and authorized by
Customer to have access to the Internet Data Centers and the Customer Area in
accordance with this Agreement, whose names are listed in Section 4.4 herein.
The Representatives may be changed by Customer from time to time by written
notice to Exodus.
1.9 "Rules and Regulations" means the general rules and regulations issued by
Exodus relating to its provision of Internet Data Center Services to its
customers, the current version of which is attached as Attachment 3, which may
------------
be supplemented by Exodus from time to time, provided, however, that Customer
shall not be bound by any changes made by Exodus until Exodus has notified
Customer in writing of any changes and Customer has agreed to be bound thereto.
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2 INTERNET DATA CENTER SERVICES.
Subject to the terms and conditions of this Agreement, including but not limited
to Customer's timely payment to Exodus of all fees specified in this Agreement
and Customer's compliance with the Rules arid Regulations, Exodus will provide
to Customer the Internet Data Center Services.
3 FEES AND BILLING.
3.1 Fees. Customer will pay all fees due hereunder according to the Services
and Price Form attached as Attachment 1, as amended from time to time by the
------------
parties.
3.2 Billing Commencement. Except for any fees required to be paid prior to or
on the Installation Date (as indicated in the Services and Price Form), billing
for Internet Data Center Services indicated in the initial Services and Price
Form shall commence on the Installation Date. In the event that the Services and
Price Form is amended after the Installation Date to include additional Internet
Data Center Services, billing for such services shall commence on the date
Exodus first provides such additional Internet Data Center Services to Customer.
3.3 Billing and Payment Terms. Customer will be billed monthly in advance of
the provision of Internet Data Center Services, and payment of such fees will be
due within thirty (30) days of the date of each Exodus invoice. Customer shall
not be responsible for any fees, costs or any other charges that are not billed
by Exodus and received by Customer within ninety (90) days of the date that such
fees, costs or charges are incurred. In the event of a disputed invoice, the
parties agree to document any dispute settlements in writing. All payments will
be made in U.S. dollars at Exodus' address set forth in this Agreement or at
such other address, or to such other bank account, as Exodus may from time to
time indicate by proper notice to Customer. Late payments hereunder will accrue
interest at a rate of one and one-half percent (1 1/2%) per month, or the
highest rate allowed by applicable law, whichever is lower. If after
consultation with Customer and based on reasonable information Exodus determines
that Customer is not creditworthy or is otherwise not financially secure, Exodus
may, upon written notice to Customer with an adequate opportunity to provide
evidence of credit worthiness, modify the payment terms to require full payment
before the provision of Internet Data Center Services or other assurances to
secure Customer's payment obligations hereunder.
3.4 Taxes. All payments required by this Agreement are exclusive of all
national, state, municipal or other governmental excise, sales, value-added,
use, personal property, and occupational taxes, excises, withholding taxes and
obligations and other levies now in force or enacted in the future, all of which
Customer will be responsible for and will pay in full, except for taxes based on
Exodus' net income.
4 CUSTOMER'S OBLIGATIONS.
4.1 Compliance with Law. Customer agrees that in connection with the exercise
of its rights and performance of its obligations under this Agreement, Customer
will comply in all material respects with all applicable laws and regulations.
Customer acknowledges that Exodus exercises no control whatsoever over the
content of the information passing through its Internet Data Centers, and that,
as between Exodus and Customer, it is the sole responsibility of Customer to
ensure that the information it transmits and receives complies with all
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applicable laws and regulations.
4.2 Compliance with Rules and Regulations. Customer agrees that it will comply
at all times with Exodus' Rules and Regulations in existence from time to time
and of which it has been notified.
4.3 Customer's Costs. CUSTOMER AGREES THAT IT WILL BE SOLELY RESPONSIBLE, AND
AT EXODUS' REQUEST WILL REIMBURSE EXODUS, FOR ALL COST AND EXPENSES (OTHER THAN
THOSE INCLUDED AS PART OF THE INTERNET DATA CENTER SERVICES AND EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED HEREIN) IT INCURS IN CONNECTION WITH THIS
AGREEMENT, SUBJECT TO THE LIMITATIONS SET FORTH IN SECTION 3.3. EXODUS SHALL
NOTIFY CUSTOMER WHEN ANY SUCH EXPENSES ARE EXPECTED TO BE INCURRED. EXODUS WILL
BE SOLELY LIABLE FOR COSTS INCURRED BY EXODUS AT EXODUS' INITIATION THAT ARE NOT
PRE-APPROVED BY CUSTOMER.
4.4 Access and Security. CUSTOMER WILL BE FULLY RESPONSIBLE FOR ANY CHARGES,
COSTS, EXPENSES, AND THIRD PARTY CLAIMS THAT MAY RESULT FROM ITS USE OF, OR
ACCESS TO, THE INTERNET DATA CENTERS AND/OR CUSTOMER AREA, INCLUDING BUT NOT
LIMITED TO ANY UNAUTHORIZED USE OF ANY ACCESS DEVICES PROVIDED TO CUSTOMER BY
EXODUS HEREUNDER, EXCEPT RESULTING DIRECTLY FROM EXODUS' OR ITS EMPLOYEES'
NEGLIGENCE OR WILLFUL MISCONDUCT. EXCEPT WITH THE ADVANCED WRITTEN CONSENT OF
EXODUS, CUSTOMER'S ACCESS TO THE INTERNET DATA CENTERS WILL BE LIMITED SOLELY TO
ITS REPRESENTATIVES LISTED ON THE REGISTRATION FORM ATTACHED HERETO AS
ATTACHMENT 5, AS AMENDED FROM TIME TO TIME.
4.5 No Competitive Services. Customer may not at any time permit any Internet
Data Center Services to be utilized for the provision of any services that
compete with any Exodus services, without Exodus' prior written consent. Exodus
agrees that none of the services currently provided by Customer competes with
any Exodus services.
4.6 Insurance.
(a) Minimum Levels. Each party will keep in force and effect during the
term of this Agreement: (i) comprehensive general liability insurance in an
amount not less than $1 million per occurrence for bodily injury and property
damage; (ii) employer's liability insurance in any amount not less than $1
million per occurrence; and (iii) workers' compensation insurance in any amount
not less than that required by applicable law. Each party also agrees that it
and its agents (including contractors and subcontractors) will maintain other
insurance at levels no less than those required by applicable law and customary
in each party's and its agents' industries.
(b) Certificates of Insurance. Prior to installation of any Customer
Equipment in the Customer Area, or access to the Internet Data Centers, Customer
will furnish Exodus with certificates of insurance which evidence the minimum
levels of insurance set forth above.
(c) Naming the other Party as an Additional Insured. Each party agrees
that prior to the installation of any Customer Equipment, it will cause its
insurance provider(s) to name the other party as an additional insured and
notify the other party in writing of the effective date thereof.
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5 REPRESENTATIONS AND WARRANTIES.
5.1 Warranties by Customer.
(a) Customer Equipment and Customer Materials. Customer represents and
warrants that it owns or has the legal right and authority, and will continue to
own or maintain the legal right and authority during the term of this Agreement,
to place and use the Customer Equipment not purchased from Exodus as
contemplated by this Agreement, and to use, modify, transmit, and distribute the
Customer Materials without infringing, misappropriating, or otherwise violating
any intellectual property rights of any third party. Customer further represents
and warrants that its placement, arrangement, and use of the Customer Equipment
not purchased from Exodus in the Internet Data Centers complies with the
Customer Equipment and Customer Materials Manufacturer's environmental and other
specifications.
(b) Rules and Regulations. Intentionally omitted.
(c) Customer's Business. Customer is familiar with the laws and
regulations applicable to Customer's Business. Customer represents and warrants
that Customer's Business does not as of the Installation Date, and will not
during the term of this Agreement, contain or transmit any material that would
violate any applicable local state, national, foreign or international law. In
the event of any breach, or reasonably anticipated breach, of such warranty, in
addition to any other remedies available at law or in equity, Exodus will have
the right after notice to Customer with an adequate opportunity to cure based on
the specific circumstances, in Exodus' sole discretion: (i) to terminate or
restrict access to any such materials in any manner, and/or (ii) to suspend any
related Internet Data Center Services provided Exodus takes the minimal
action(s) necessary to address the specific violation.
5.2 Warranties and Disclaimers by Exodus.
(a) Service Level Warranty. In the event Customer is unable to transmit
and receive information from Exodus' Internet Data Centers to other portions of
the Internet and Customer notifies Exodus immediately of such event and Exodus
determines in its reasonable judgment that such inability was caused by Exodus'
failure to provide Internet Data Center Services for reasons within Exodus'
reasonable control and not as a result of any actions or inactions of Customer
or any third parties, Exodus will, upon Customer's request, credit Customer's
account as follows: If Exodus failed to provide the Internet Data Center
Services for (i) more than two (2) consecutive hours in a calendar month, Exodus
will credit Customer's account the pro-rata connectivity charges for one (1) day
of service; and (ii) more than eight (8) consecutive hours in a calendar month,
Exodus will credit Customer's account the prorata connectivity charges for one
(1) week of service. Exodus' scheduled maintenance of the Internet Data Centers
and Internet Data Center Services, as described in the Rules and Regulations,
shall not be deemed to be a failure of Exodus to provide Internet Data Center
Services. THIS SECTION 5.2(A) STATES CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR
ANY FAILURE BY EXODUS TO PROVIDE INTERNET DATA CENTER SERVICES.
(b) Internet Data Center Services. Exodus represents and warrants that it
has the legal right and authority, and will continue to maintain the legal right
and authority during the term of this Agreement,
14
<PAGE>
to provide the Internet Data Center Services to Customer as contemplated by this
Agreement, and without infringing, misappropriating, or otherwise violating any
intellectual property rights of any third party. Exodus further represents and
warrants that its provision of Internet Data Center Services complies with the
equipment Manufacturer's environmental and other specifications.
(c) Exodus represents that it exercises no control over the content of the
information passing through its Internet Data Centers.
(d) Exodus represents and warrants that, with respect to Customer
Equipment and Customer Materials sold or otherwise provided to Customer by
Exodus and based solely on Exodus' knowledge and reliance in part on any
manufacturer's and/or licensor's express representations and warranties
regarding such Customer Materials,
(i) Customer owns or has the legal right and authority to place and use
the Customer Equipment as contemplated by this Agreement, and to use, modify,
transmit, and distribute the Customer Materials without infringing,
misappropriating, or otherwise violating any intellectual property rights of any
third party; and
(ii) The placement, arrangement, and use of the Customer Equipment and
Customer Materials in the Internet Data Centers, as permitted by Exodus,
complies with the Customer Equipment and Customer Materials Manufacturer's
environmental and other specifications.
(e) No Other Warranty. EXCEPT FOR THE EXPRESS WARRANTIES SET OUT IN
SUBSECTIONS (A), (B), (C) AND (D) ABOVE, ALL SERVICES PERFORMED AND PRODUCTS
PROVIDED AND SPACE MADE AVAILABLE BY EXODUS HEREUNDER ARE PERFORMED, PROVIDED,
AND MADE AVAILABLE ON AN "AS IS" BASIS, AND CUSTOMER'S USE OF THE INTERNET DATA
CENTERS IS AT ITS OWN RISK. EXODUS DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY AND
ALL OTHER EXPRESS AND/OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO,
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NONINFRINGEMENT, AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE, OR
TRADE PRACTICE. EXODUS DOES NOT WARRANT THAT THE INTERNET DATA CENTER SERVICES
PROVIDED HEREUNDER WILL BE UNINTERRUPTED, ERROR-FREE, OR COMPLETELY SECURE.
(f) Disclaimer of Actions Caused by and/or Under the Control of Third
Parties. WHILE EXODUS' INTERNET DATA CENTER SERVICES PROVIDE CUSTOMERS WITH
CONNECTIVITY TO THE INTERNET, EXODUS DOES NOT AND CANNOT CONTROL THE FLOW OF
INFORMATION TO OR FROM EXODUS' INTERNET DATA CENTERS TO OTHER PORTIONS OF THE
INTERNET. SUCH FLOW DEPENDS IN LARGE PART ON THE PERFORMANCE OF INTERNET
SERVICES PROVIDED OR CONTROLLED BY THIRD PARTIES. AT TIMES, ACTIONS OR
INACTIONS CAUSED BY THESE THIRD PARTIES CAN PRODUCE SITUATIONS IN WHICH EXODUS'
CUSTOMERS' CONNECTIONS TO THE INTERNET (OR PORTIONS THEREOF) MAY BE IMPAIRED OR
DISRUPTED. ALTHOUGH EXODUS WILL USE COMMERCIALLY REASONABLE EFFORTS TO TAKE
ACTIONS IT DEEMS APPROPRIATE TO REMEDY AND AVOID SUCH EVENTS, EXODUS CANNOT
GUARANTEE THAT THEY WILL NOT OCCUR. ACCORDINGLY, EXODUS DISCLAIMS ANY AND ALL
LIABILITY RESULTING FROM OR RELATED TO SUCH EVENTS.
15
<PAGE>
6 LIMITATIONS OF LIABILITY.
6.1 Personal Injury. EACH REPRESENTATIVE, AND ANY OTHER PERSONS, VISITING THE
INTERNET DATA CENTERS DOES SO AT ITS OWN RISK AND EXODUS ASSUMES NO LIABILITY
WHATSOEVER FOR ANY HARM TO SUCH PERSONS RESULTING FROM ANY CAUSE OTHER THAN
EXODUS' GROSS NEGLIGENCE OR WILLFUL MISCONDUCT RESULTING IN PERSONAL INJURY TO
SUCH PERSONS DURING SUCH A VISIT.
6.2 Damage to Customer Equipment or Materials.
(a) CERTAIN CUSTOMER EQUIPMENT, INCLUDING BUT NOT LIMITED TO CUSTOMER
EQUIPMENT LOCATED ON RACKS, MAY BE DIRECTLY ACCESSIBLE BY OTHER CUSTOMERS.
EXODUS ASSUMES NO LIABILITY FOR ANY DAMAGE TO, OR LOSS OF, ANY CUSTOMER
EQUIPMENT RESULTING FROM ANY CAUSE OTHER THAN EXODUS' NEGLIGENCE OR WILLFUL
MISCONDUCT. TO THE EXTENT EXODUS IS LIABLE FOR ANY DAMAGE TO, OR LOSS OF, THE
CUSTOMER EQUIPMENT FOR ANY REASON, SUCH LIABILITY WILL BE LIMITED SOLELY TO THE
THEN-CURRENT VALUE OF THE CUSTOMER EQUIPMENT.
(b) EXODUS ASSUMES NO LIABILITY FOR ANY DAMAGE TO, OR LOSS OF, ANY
CUSTOMER MATERIALS RESULTING FROM ANY CAUSE WHATSOEVER, EXCEPT AS A RESULT OF
EXODUS' GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
6.3 Exclusions. EXCEPT AS SPECIFIED IN SECTIONS 6.1 AND 6.2, IN NO EVENT WILL
EXODUS BE LIABLE TO CUSTOMER, ANY REPRESENTATIVE, OR ANY THIRD PARTY FOR ANY
CLAIMS ARISING OUT OF OR RELATED TO THE CUSTOMER EQUIPMENT, THE CUSTOMER
MATERIALS, THE CUSTOMER'S BUSINESS, OR OTHERWISE.
6.4 No Liability for Consequential Damages. NOTWITHSTANDING ANYTHING TO THE
CONTRARY IN THIS AGREEMENT, IN NO EVENT SHALL EXODUS BE LIABLE FOR ANY LOST
ADVERTISING OR OTHER REVENUE, LOST PROFITS, REPLACEMENT GOODS, LOSS OF
TECHNOLOGY, RIGHTS OR SERVICES, INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL
DAMAGES, LOSS OF DATA, OR INTERRUPTION OR LOSS OF USE OF SERVICE OR OF ANY
CUSTOMER EQUIPMENT OR CUSTOMER MATERIALS, EVEN IF ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES, WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE),
PRODUCTS LIABILITY OR OTHERWISE.
6.5 Maximum Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, EXODUS'S MAXIMUM AGGREGATE LIABILITY TO CUSTOMER RELATED TO OR IN
CONNECTION WITH THIS AGREEMENT WILL BE LIMITED TO THE TOTAL AMOUNT PAID BY
CUSTOMER TO EXODUS HEREUNDER.
6.6 Basis of the Bargain; Failure of Essential Purpose. Customer acknowledges
that Exodus has set its prices and entered into this Agreement in reliance upon
the limitations of liability and the disclaimers of warranties and damages set
forth herein, and that the same form an essential bask of the bargain between
the parties. The parties agree that the limitations and exclusions of liability
and disclaimers specified in this Agreement will survive and apply even if found
to have failed of their essential purpose.
16
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7 INDEMNIFICATION.
7.1 Customer's Indemnification of Exodus.
(a) Customer will indemnity and hold Exodus, its affiliates, shareholders,
officers, directors, employees, agents, representatives, and customers harmless
from and against any and all costs, liabilities, losses, and expenses
(including, but not limited to, reasonable attorneys' fees arid fees of experts)
arising out of any claim, suit, action or proceeding (each, an "Action"), and
Customer will pay any settlement reached or judgment entered thereon against
Exodus or such third party, to the extent such Action arises from an allegation
that any of the following has occurred or will occur:
(i) with respect to the Customer's Business, Customer Materials, or
Customer Equipment: (A) infringement of any intellectual property rights; (B)
misappropriation of any intellectual property rights; (C) defamation, libel,
slander, obscenity, pornography, or violation of the rights of privacy or
publicity; or (D) flaming, spamming, or any other offensive, harassing or
illegal conduct or violation of the Rules and Regulations; or
(ii) any damage or destruction to the Customer Area, the Internet Data
Centers or the equipment of Exodus or any other customer by Customer or
Representative(s) or Customer's designees resulting from Customer's or
Customer's Representative's or Invitee's negligence or willful misconduct; or
(iii) any other damage arising from the Customer Equipment, Customer
Materials, or Customer's Business, except to the extent such damage is caused by
Exodus, its employees or other customers.
(b) Exodus will give Customer prompt written notice of the existence of
any such Action of which Exodus becomes aware, and an opportunity to participate
in the defense thereof at Customer's expense.
7.2 Exodus' Indemnification of Customer.
(a) Exodus will indemnify and hold Customer, its affiliates, shareholders,
officers, directors, employees, agents, and Representatives harmless from and
against any and all reasonable costs, liabilities, losses, and expenses
(including, but not limited to, reasonable attorneys' fees) arising out of (i)
the infringement of any third party registered U.S. copyright or issued U.S.
patent resulting from the provision of Internet Data Center Services pursuant to
this Agreement and (ii) personal injury to Customer's Representatives from
Exodus's negligence or willful misconduct.
(b) Customer will give Exodus prompt written notice upon of the existence
of any such event of which it becomes aware, and an opportunity to participate
in the defense thereof at Exodus' expense.
8 TERM AND TERMINATION.
8.1 Term. This Agreement will be effective for a period of one (1) year from
the Installation Date, unless earlier terminated according to the provisions of
this Section 8. The Agreement will automatically renew for additional terms of
one (1) year each.
8.2 Termination.
(a) For Convenience. Either party may terminate this Agreement for
convenience at any time effective after the first (1st) anniversary of the
Installation Date by providing ninety (90) days' prior written
17
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notice to the other party.
(b) For Cause. Either party will have the right to terminate this
Agreement if: (i) the other party materially breaches any term or condition of
this Agreement, including but not limited to the payment of fees, and fails to
cure such breach within thirty (30) days after written notice of the same; (ii)
the other party becomes the subject of a voluntary petition in bankruptcy or any
voluntary proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors; or (iii) the other party becomes the
subject of an involuntary petition in bankruptcy or any involuntary proceeding
relating to insolvency, receivership, liquidation, or composition for the
benefit of creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing.
8.3 No Liability for Termination. Neither party will be liable to the other for
any termination or expiration of this Agreement in accordance with its terms.
8.4 Effect of Termination. Upon the effective date of expiration or termination
of this Agreement:
(a) Exodus will immediately cease providing the Internet Data Center
Services;
(b) any and all payment obligations of Customer which have accrued as of
such expiration or termination will become due immediately;
(c) within thirty (30) days after such expiration or termination, each
party will return all Confidential Information of the other party in its
possession at the time of expiration or termination and will not make or retain
any copies of such Confidential Information except as required to comply with
any applicable legal, accounting, or administrative record keeping requirement;
and
(d) Customer will remove from the Internet Data Centers all Customer
Equipment, Customer Materials, and any of its other property within the Internet
Data Centers within five (5) business days of such expiration or termination and
return the Customer Area to Exodus in the same condition as it was on the
Installation Date, normal wear and tear excepted. If Customer does not remove
such property within such five-day period, Exodus will have the option to (i)
move any and all such property to secure storage and charge Customer for the
cost of such removal and storage, and/or (ii) after a final notice to Customer,
liquidate the property in any reasonable manner.
(e) Notwithstanding the foregoing, Customer shall be entitled to retain
control over the route of all IP addresses used by Customer during the preceding
ninety (90) days for thirty (30) days following the termination of this
Agreement.
8.5 Survival. The following provisions will survive any expiration or
termination of the Agreement: Sections 3, 4, 5, 6, 7, 8, 9, and 10.
9 CONFIDENTIAL INFORMATION.
9.1 Confidential Information. Each party acknowledges that it will have access
to certain confidential information and materials of the other party concerning
the other party's business, plans, customers, technology, and products,
including the terms and conditions of this Agreement ("Confidential
Information"). Confidential Information will include, but not be limited to,
each party's proprietary software and customer information. Each party agrees
18
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that it will not use in any way, for its own account or the account of any third
party, except as expressly permitted by this Agreement, nor disclose to any
third party (except as required by law or to that party'/s attorneys,
accountants and other advisors as reasonably necessary), any of the other
party's Confidential Information and will take reasonable precautions to protect
the confidentiality of such information.
9.2 Exceptions. Information will not be deemed Confidential Information
hereunder if such information: (i) is known to the receiving party prior to
receipt from the disclosing party directly or indirectly from a source other
than one having an obligation of confidentiality to the disclosing party; (ii)
becomes known (independently of disclosure by the disclosing party) to the
receiving party directly or indirectly from a source other than one having an
obligation of confidentiality to the disclosing party; (iii) becomes publicly
known or otherwise ceases to be secret or confidential, except through a breach
of this Agreement by the receiving party; or (iv) is independently developed by
the receiving party.
9.3 Remedies. Notwithstanding anything to the contrary in this Agreement, in
the event of any intentional breach of this Section 9, the non-breaching party
will be entitled to any remedies available at law and/or in equity.
10 GENERAL PROVISIONS.
10.1 Governing Law. This Agreement is made under and will be governed by and
construed in accordance with the laws of the State of California, United States
of America (except that body of law controlling conflicts of law) and
specifically excluding from application to this Agreement that law known as the
United Nations Convention on the International Sale of Goods.
10.2 Arbitration. The parties will in good faith attempt to resolve any disputes
relating to the terms, interpretation or performance of this Agreement (other
than claims for preliminary injunctive relief or other prejudgment remedies)
through mutual consultation before resorting to any other dispute resolution
mechanisms. If mutual consultation fails to resolve any dispute, such dispute
will be resolved at the request of either party through binding arbitration.
Arbitration will be conducted in Santa Clara County, California, under the rules
and procedures of the Judicial Arbitration and Mediation Society ("JAMS"). The
parties will request that JAMS appoint a single arbitrator possessing knowledge
of online services agreements; however the arbitration will proceed even if such
a person is unavailable.
10.3 Force Majeure. Except for the obligation to pay money, neither party will
be liable for any failure or delay in its performance under this Agreement due
to any cause beyond its reasonable control, including act of war, acts of God,
earthquake, flood, embargo, riot, sabotage, labor shortage or dispute,
governmental act or failure of the Internet, provided that the delayed party:
(a) gives the other party prompt notice of such cause, and (b) uses its
reasonable commercial efforts to correct promptly such failure or delay in
performance.
10.4 No Lease. This Agreement is a services agreement and is not intended to and
will not constitute a lease of any real or personal property. Customer
acknowledges and agrees that it has been granted only a license to occupy the
Customer Space and use the Internet Data Centers in accordance
19
<PAGE>
with this Agreement, Customer has not been granted any real property interest in
the Customer Space or Internet Data Centers, and Customer has no rights as a
tenant or otherwise under any real property or landlord/tenant laws,
regulations, or ordinances. For good cause (eg, violation or threatened
violation of applicable law or Rules and Regulations), Exodus may suspend the
right of any Representative or other Customer personnel to visit the Internet
Data Centers.
10.5 Inherently Dangerous Applications. The Internet Data Center are not
intended nor provided for use in connection with, and Customer will not use them
for, any nuclear, aviation, mass transit, life-support, or any other inherently
dangerous applications or services, the failure of which could result in death,
personal injury, catastrophic damage, or mass destruction.
10.6 Marketing. Customer agrees that Exodus may refer to Customer by trade name
and trademark, and may briefly describe Customer's Business, in Exodus's
marketing materials and web site. Customer hereby grants Exodus a license to use
any Customer trade names, trademarks or service marks solely in connection with
the rights granted to Exodus pursuant to this Section 10.6.
10.7 Government Regulations. Customer will not export, re-export, transfer, or
make available, whether directly or indirectly, any regulated item or
information to anyone outside the U.S. in connection with this Agreement without
first complying with all export control laws and regulations which may be
imposed by the U.S. Government and any country or organization of nations within
whose jurisdiction Customer operates or does business.
10.8 Severability. In the event any provision of this Agreement is held by a
tribunal of competent jurisdiction to be contrary to the law, the remaining
provisions of this Agreement will remain in full force and effect.
10.9 Waiver. The waiver of any breach or default of this Agreement will not
constitute a waiver of any subsequent breach or default, and will not act to
amend or negate the rights of the waiving party.
10.10 Assignment. Neither party may assign its rights or delegate its duties
under this Agreement either in whole or in part without the prior written
consent of the other party, except that this Agreement may be assigned in whole
as part of a corporate reorganization, consolidation, merger, or sale of
substantially all of its assets, provided that it has notified such other party
within thirty (30) days subsequent to the effective date of such event. Any
attempted assignment or delegation without such consent will be void. This
Agreement will bind and inure to the benefit of each party's successors and
permitted assigns.
10.11 Notices. Any notice or communication required or permitted to be given
hereunder may be delivered by hand, mailed by registered or certified mail,
return receipt requested, postage prepaid, or sent by confirmed facsimile, in
each case to the address of the receiving party indicated on the signature page
hereof, or at such other address as may hereafter be furnished in writing by
either party hereto to the other. Such notice will be deemed to have been given
as of the date it is delivered, or confirmed by facsimile, whichever is earlier.
10.12 Counterparts. This Agreement may be executed in two or more counterparts,
each of which will be deemed an original,
20
<PAGE>
but all of which together shall constitute one and the same instrument.
10.13 Relationship of Parties. Exodus and Customer are independent contractors
and this Agreement will not establish any relationship of partnership, joint
venture, employment, franchise or agency between Exodus and Customer. Neither
Exodus nor Customer have the power to bind the other or incur obligations on the
other's behalf without the other's prior written consent, except as otherwise
expressly provided herein.
10.14 Priority. The following order of precedence will govern any conflict or
discrepancy between any portions of this Agreement:
(1) Attachment 6.
(2) Attachment 2.
(3) Attachment 3.
(4) Signature Page.
(5) Attachment 4.
(6) Subsequent Attachment (s) 1.
(7) Initial Attachment 1.
(8) Attachment 5.
21
<PAGE>
ATTACHMENT 3
RULES AND REGULATIONS
Each Exodus Customer and its Representatives, employees, contractors,
customers, agents and users of Customer's online facilities are subject to these
Rules and Regulations in connection with their use of Exodus' Internet Data
Center Services.
ACCESS TO INTERNET DATA CENTERS
. Only those individuals identified by Customer as its Representatives may
access the Internet Data Centers. Customer may not allow any unauthorized
persons to access the Internet Data Centers.
. Customer will notify Exodus in writing of any change in Customer's
Representatives.
. Customer agrees to adhere at all times to security measures that have been
established by Exodus to protect the Internet Data Centers, its equipment
and its Customers' equipment.
USE OF INTERNET DATA CENTER FACILITY
Customer must keep the Customer Area clean at all times. Customer may
not store any paper products or materials of any kind in the Customer Area
(other than equipment manuals).
Customer may not bring, or make use of, any of the following into the
Facility:
. Food or drink. . Alcohol or other intoxicants.
. Tobacco products. . Electro-magnetic devices.
. Explosives. . Radioactive materials.
. Weapons. . Photographic or recording
. Chemicals. equipment of any kind
. Illegal drugs. (other than tape back-up
equipment).
EQUIPMENT AND CONNECTIONS
. All Customer Equipment must be clearly labeled with Customer's name (or
code name provided to Exodus) and individual component identification.
. Customers may not connect or disconnect any Customer Equipment or other
equipment except as specifically pre-approved by an authorized employee of
Exodus, at least 48 hours in advance of proposed installation, except as
otherwise approved by Exodus.
. All connections to and from Customer Equipment must be clearly labeled.
. Customer Equipment must be configured and run at all times in compliance
with the manufacturer's specifications, including clearance requirements.
. Exodus makes available at its Data Centers certain equipment for the
temporary use by Customers at the Internet Data Centers. This equipment is
provided on an "AS IS" basis without any warranties of any kind. Customer
may borrow and/or use any Exodus property or equipment, at its own risk,
after receiving permission from Exodus.
22
<PAGE>
SCHEDULED MAINTENANCE
Periodically, Exodus will conduct routine scheduled maintenance of its Internet
Data Centers and Internet Data Center Services pursuant to a schedule posted on
Exodus' World Wide Web site (http://www.exodus.net/exo maintenance frame.html).
During such time, Customer's Equipment may be unable to transmit and receive
data and Customer may be unable to access its Equipment. Customer agrees to
cooperate with Exodus during the scheduled maintenance so that Exodus may keep
such period or time to a minimum.
MISCONDUCT
Customer and its Representatives may not:
. Misuse or abuse any Exodus property or equipment;
. Make any unauthorized use or interfere with any property or equipment of
any other Exodus customer;
. Harass any individual, including Exodus personnel and representatives of
other customers of Exodus; or
. Engage in any activity that is in violation of the law, or aid in criminal
activity while on Exodus property or in connection with the Internet Data
Center Services.
ONLINE CONDUCT
Customer will not, and will not permit any persons using Customer's
online facilities (including but not limited to Customer's Web site(s) and
transmission capabilities), to do any of the following:
. Send Spam (unsolicited commercial messages or communications in any form)
. Infringe or misappropriate the intellectual property rights of others. This
includes posting copyrighted materials without appropriate permission,
using trademarks of others without appropriate permission or attribution,
and posting or distributing trade secret information of others in violation
of a duty of confidentiality.
. Violate the personal privacy rights of others. This includes using and
distributing information about Internet users without their permission,
except as permitted by applicable law.
. Send, post or host harassing, abusive, libelous or obscene materials or
take any similar actions.
. Intentionally omit, delete, forge or misrepresent transmission information,
including headers, return addressing information and IP addressees or take
any other actions intended to cloak Customer's or its users' identity or
contact information.
. Use the online facilities for any illegal purposes.
. Assist or permit any persons in engaging in any of the activities described
above. If Customer becomes aware of any such activities, Customer will take
all actions necessary to stop such activities immediately, including, if
necessary, terminating Customer's user's access to Customer's online
facilities.
23
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MODIFICATION OF RULES AND REGULATIONS
Exodus reserves the right to change these Rules and Regulations at any
time. Customer is responsible for regularly reviewing these Rules and
Regulations. Continued use of the Internet Data Center Services following any
such changes shall constitute the Customer's acceptance of such changes.
24
<PAGE>
ATTACHMENT 4
CUSTOMER EQUIPMENT
<TABLE>
<CAPTION>
Item Date In/Out Customer Initials Exodus Initials
- ---- ----------- ----------------- ---------------
<S> <C> <C> <C>
1. In:
Out:
2. In:
Out:
3. In:
Out:
4. In:
Out:
5. In:
Out:
6. In:
Out:
7. In:
Out:
8. In:
Out:
9. In:
Out:
10. In:
Out:
11. In:
Out:
12. In:
Out:
13. In:
Out:
14. In:
Out:
</TABLE>
25
<PAGE>
ATTACHMENT 5
REGISTRATION FORM
COMPANY INFORMATION
- --------------------------------------------------------------------------------
Company Name: Date:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
City: State: Zip:
- --------------------------------------------------------------------------------
Contact Name: Title: Email:
- --------------------------------------------------------------------------------
Phone: Fax: Pager:
- --------------------------------------------------------------------------------
BILLING INFORMATION
- --------------------------------------------------------------------------------
Contact Name: Title: Email:
- --------------------------------------------------------------------------------
Phone: Fax: Pager:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
City: State: Zip:
- --------------------------------------------------------------------------------
Purchase Order No.:
- --------------------------------------------------------------------------------
INSTALLATION SITE
- --------------------------------------------------------------------------------
Contact Name: Title: Email:
- --------------------------------------------------------------------------------
Phone: Fax: Pager:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
City: State: Zip:
- --------------------------------------------------------------------------------
Contact Hours and Notes:
- --------------------------------------------------------------------------------
FIRST TECHNICAL CONTACT
- --------------------------------------------------------------------------------
Contact Name: Title: Email:
- --------------------------------------------------------------------------------
Phone: Fax: Pager:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
City: State: Zip:
- --------------------------------------------------------------------------------
Contact Hours and Notes:
- --------------------------------------------------------------------------------
SECOND TECHNICAL CONTACT
- --------------------------------------------------------------------------------
Contact Name: Title: Email:
- --------------------------------------------------------------------------------
Phone: Fax: Pager:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
City: State: Zip:
- --------------------------------------------------------------------------------
Contact Hours and Notes:
- --------------------------------------------------------------------------------
26
<PAGE>
THIRD TECHNICAL CONTACT
- --------------------------------------------------------------------------------
Contact Name: Title: Email:
- --------------------------------------------------------------------------------
Phone: Fax: Pager:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
City: State: Zip:
- --------------------------------------------------------------------------------
Contact Hours and Notes:
- --------------------------------------------------------------------------------
TECHNICAL INFORMATION
- --------------------------------------------------------------------------------
Number of Host Computers or
IP Subnet Address space required: (1)
- --------------------------------------------------------------------------------
Currently assigned IP Subnet
Address or Not Applicable:
- --------------------------------------------------------------------------------
Circuit Demarcation
Information: (2)
- --------------------------------------------------------------------------------
Exists (Yes or No) Exodus DNS Support
(Primary or Secondary)
- --------------------------------------------------------------------------------
First Choice Domain Name:
- --------------------------------------------------------------------------------
Second Choice Domain Name:
- --------------------------------------------------------------------------------
Current Internet Service Provider:
- --------------------------------------------------------------------------------
Notes:
1. This information is used to determine the number of subnets and IP address
space that will be required.
2. A network diagram is required if the number of host computers or requested
address space is greater than 254.
3. Required for point to point circuits, i.e., T1.
For example: Room 105, Jack 34.
27
<PAGE>
ATTACHMENT 6
NEGOTIATED CHANGES
A. The following replaces and supersedes Sect on 5.2(a) of Attachment 2 (Terms
and Conditions):
5.2(a) Efforts to Avoid Customer Service Interruption or Disruption; Remedies
(i) Establishment of a Problem Resolution Committee. The parties
acknowledge and agree that maintaining Internet connectivity at the levels
contracted for by Customer pursuant to the internet Data Center Services is
critical to Customer's business. The parties also recognize that the individual
and joint efforts of both parties are necessary to ensure that such levels are
maintained and any problems relating thereto are addressed and resolved
expeditiously. Accordingly, Exodus and Customer hereby establish a Problem
Resolution Committee (the "Committee") comprised of two representatives each
from Exodus and Customer. Upon execution of this Agreement, each party will
provide the other with the names and contact information of its representatives
to the Committee. The Committee shall meet periodically at times and places
mutually agreed to by both parties to address and resolve any anticipated
problems or other issues that could adversely impact Customer's ability to
receive the Internet Data Center Services, including but not limited to steps
being taken by Exodus to ensure that Exodus can provide Internet Data Center
Services at future levels anticipated by Customer. At least one representative
from each party also shall meet (either in person or by telephone) immediately
upon the occurrence of any event that prevents Customer from receiving Internet
Data Center Services. Exodus and Customer each agrees to take all reasonable
actions, including immediately notifying the other party of any actual or
potential problems relating to the Internet Data Center Services, to resolve any
actual problems and avoid any potential problems. Exodus will not charge
Customer any additional fees for performing its obligations under this Section
5.2(a)(i) unless the problems to be resolved result from Customer's negligence
and require significant time commitments from Exodus.
(ii) Packet Loss and Packet Collision. To prevent packet loss and packet
collision, Exodus to provide to Customer, in connection with every 100 Mbps of
sustained bandwidth or fraction thereof utilized by Customer, Exodus will
provide two (2) connections on two switches to connect Customer's equipment to
Exodus' network.
(iii) Service Level Warranty. In the event Customer experiences any of the
following and Customer notifies Exodus of such event and Exodus determines in
its reasonable judgment that such inability was caused by Exodus' failure to
provide Internet Data Center Services for reasons within Exodus' reasonable
control and not as a result of any actions or inactions of Customer or any third
parties (including Customer Equipment and third party equipment), Exodus will,
upon Customer's request, credit Customer's account as described below:
28
<PAGE>
(A) Inability to Access the Internet (Downtime). If Customer is unable to
transmit and receive information from Exodus' Internet Data Centers (ie, Exodus'
LAN and WAN) to other portions of the Internet because Exodus failed to provide
the Internet Data Center Services for (i) more than [***] in a calendar month,
Exodus will credit Customer's account the pro-rata connectivity charges for
[***] of service, up to an aggregate maximum credit of connectivity charges for
[***] of service in any [***]. Exodus' scheduled maintenance of the Internet
Data Centers and Internet Data Center Services, as described in the Rules and
Regulations, shall not be deemed to be a failure of Exodus to provide Internet
Data Center Services provided the aggregate amount of time that Exodus causes
Customer to be unable to access the Internet as a result of such maintenance
does not exceed [***]. For purposes of the foregoing, "unable to transmit and
receive" shall mean sustained packet loss in excess of 50% based on a sampling
of at least 100 packets per destination per minute.
(B) Packet Loss and Latency. Exodus does not proactively monitor the
packet losses or transmission latency of specific customers. Exodus does,
however, proactively monitor the packet losses and transmission latencies of all
of its customers within its LAN and WAN. In the event that Exodus discovers
(either from its own efforts or after being advised by Customer) that Customer
is experiencing packet loss in excess of 2% (based on a sampling of at least 100
packets per destination) ("Excess Packet Loss") or transmission latency in
excess of 30 milliseconds within Exodus' LAN, 120 milliseconds within Exodus'
WAN within the United States (and 400 milliseconds for the WAN outside the
United States) (collectively, "Excess Latency," and with Excess Packet Loss
"Excess Packet Loss/Latency"), Exodus will take all actions necessary to
determine the source of the Excess Packet Loss/Latency.
(1) Time to Discover Source of Excess Packet Loss/Latency;
Notification of Customer. Within one (1) hour of discovering the existence of
Excess Packet Loss/Latency, Exodus will determine whether the source of the
Excess Packet Loss/Latency is limited to the Customer Equipment and the Exodus
equipment connecting the Customer Equipment to Exodus' LAN ("Customer Specific
Packet Loss Latency"). If the Excess Packet Loss/Latency is not a Customer
Specific Packet Loss/Latency, Exodus will determine the source of the Excess
Packet Loss/Latency within two (2) hours after determining that it is not a
Customer Specific Packet Loss/Latency. In any event, Exodus will notify Customer
of the source of the Excess Packet Loss Latency within thirty (30) minutes after
identifying the source.
(2) Resolution of Cause of Excess Packet Loss/Latency. If the Excess
Packet Loss/Latency is a Customer Specific Packet Loss/Latency, and the remedy
is within the control of Exodus, Exodus will remedy' the Excess Packet
Loss/Latency within two (2) hours of determining the source of the Excess Packet
Loss/Latency. If the Excess Packet Latency is caused from within Exodus' LAN
and/or WAN, Exodus will remedy the Excess Packet Loss/Latency within one (1)
hour of determining the source of the Excess Packet Loss/Latency. If the Excess
Packet Loss/Latency is caused from outside of the Exodus LAN or WAN, Exodus will
notify Customer and will use commercially reasonable efforts to notify the
party(ies) responsible for the source and cooperate with it(them) to resolve the
problem as soon as possible.
[***] Confidential treatment requested for redacted portion.
29
<PAGE>
(3) Failure to Determine Source and/or Resolve Problem. In the event
that Exodus is unable to determine the source of and remedy the Excess Packet
Loss/Latency within the time periods described above (where Exodus was in
control of the source), Exodus will credit Customer's account the pro-rata
connectivity charges for [***] of service for every [***] after the time periods
described above that it takes Exodus to resolve the problem, up to an aggregate
maximum credit of connectivity charges for [***] of service in any [***].
(iv) Remedies Shall Not Be Cumulative; Minimum Credit. In the event that
Customer is entitled to multiple remedies hereunder arising from the same event,
such remedies shall not be cumulative and Customer shall be entitled to receive
only the maximum single remedy available for such event. In no event will Exodus
be required to credit Customer in any [***] connectivity charges in excess of
[***] of service. A credit shall be applied only to the month in which there was
the incident that resulted in the credit. Customer shall not be eligible to
receive any credits for periods in which Customer received any Internet Data
Center Services free of charge. The parties agree that without imposing any
affirmative obligations on Customer and Exodus, if there are any instances where
Customer would be entitled to receive more credits, but for the [***]
limitation, Exodus and Customer shall meet and discuss whether Exodus can
compensate Customer for any losses incurred.
THIS SECTION 5.2(a) STATES CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR ANY FAILURE
BY EXODUS TO PROVIDE INTERNET DATA CENTER SERVICES.
B. Additional Provisions.
Provided Customer continues to purchase Internet Data Center services at
levels not materially less than those described in the initial Service and Price
Order Form, Exodus agrees to provide the following services, for no additional
charge to Customer, and such services shall be deemed Internet Data Center
Services for purposes of this Agreement:
1. Until such time as Exodus commences direct private peering
relationships with MCI, Sprint and ANS, Exodus will provision a direct transit
DS3 circuit (or other level of bandwidth as may be mutually agreed to from time
to time between Exodus and Customer) directly to the Internet Data Center
containing the Customer Area from an Internet Service Provider that has direct
private peering relationships with MCI, Sprint and ANS. Exodus agrees to use its
best efforts to commence private peering relationships with MCI, Sprint and ANS
as soon as possible, and Exodus currently desires to complete such relationships
by the second quarter of 1998.
2. Exodus will provide tape data back-up and restore services for
Customer Materials such that Exodus and Customer will have the capability to
refresh Customer Materials at a rate of not less than 10GB/hour. Exodus will
provide daily logs of back-ups, to include start time, end time, data location,
and total amount backed up.
[***] Confidential treatment requested for redacted portion.
30
<PAGE>
EXHIBIT 10.11
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
JOINT VENTURE AGREEMENT
JOINT VENTURE AGREEMENT, dated as of November 6, 1997, by and between
SOFTBANK Corporation, a Japanese corporation ("SOFTBANK"), and GeoCities, a
California corporation ("GeoCities").
WHEREAS, GeoCities offers in the United States and certain other
geographic areas certain hosting and marketing services on the World Wide Web,
including, without limitation, GeoCities virtual communities.
WHEREAS, SOFTBANK is a leading computer publisher and software
distributor in Japan;
WHEREAS, SOFTBANK indirectly owns a minority interest in GeoCities
through one of its subsidiaries;
WHEREAS, SOFTBANK and GeoCities wish to form a joint venture company
in Japan called GeoCities Japan Corporation to establish and manage in Japan a
Japanese version (using the Japanese language) of the GeoCities virtual
communities on the internet, virtual community services, and conduct other
related businesses and;
WHEREAS, on July 16, 1997, SOFTBANK incorporated GeoCities Japan
Corporation, a Japanese corporation (the "Company") and GeoCities intends to
purchase 40% of the shares thereof in accordance with the procedures stipulated
in this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Objectives of the Company
-------------------------
The objectives of the Company shall be to engage in the businesses set forth
below.
(i) establishment and management in Japan of a Japanese version
of the GeoCities virtual communities on the internet;
(ii) development of related Japanese virtual communities services;
(iii) related sale of virtual communities advertisement space;
(iv) addition of Japanese specific informational content to the
mirror site database in Japan;
(v) other businesses relating to the foregoing as agreed upon by
the parties from time to time.
2. Sale and Purchase of Shares; Ownership of the Company
-----------------------------------------------------
(a) Object to the terms and conditions hereof, SOFTBANK agrees to sell,
and GeoCities agrees to purchase, 1,600 shares of Common Stock of the
Company (the "Shares") at a price of (Yen)50,000 per share so that
after such sale SOFTBANK
<PAGE>
shall own 2,400 shares of Common Stock and GeoCities shall own 1,600
shares of Common Stock of the Company.
(b) Within five (5) days of the execution of this Agreement, SOFTBANK
shall deliver to GeoCities stock certificates representing the Shares
and registered in the name of SOFTBANK, against payment by GeoCities
of (Yen)80,000,000 therefor in immediately available funds to a bank
account designated by SOFTBANK. The completion of the purchase of
1,600 Shares by GeoCities shall be referred to hereafter as the
"Closing". The payment for the Shares shall be made in the currency of
Japanese Yen.
3. Representations and Warranties of SOFTBANK
------------------------------------------
SOFTBANK hereby represents and warrants to GeoCities as follows:
(a) SOFTBANK has been duly incorporated, and is a validly existing
corporation under the laws of Japan and has full power and authority
to enter into and perform its obligations under this Agreement
(b) This Agreement has been duly authorized, executed and delivered by
SOFTBANK and constitutes a valid and binding agreement of SOFTBANK,
enforceable against SOFTBANK in accordance with its terms.
(c) The company has been incorporated on July 16, 1997 as a kabushiki
kaisha (a stock limited company). The registered office of the
Company is at 24-1, Nihonbashi-Hakozakicho, Chuo-ku, Tokyo 103, Japan.
The Company is a corporation under the laws of Japan and has full
power and authority to carry on its business as described in this
Agreement. Attached hereto as Exhibit A is true and correct copy of
the Articles of Incorporation of the Company ("teikan") and true and
complete English translation thereof.
(d) The Company's authorized capital is 16,000 shares of Common Stock, par
value (Yen)50,000 per share, of which 4,000 shares are issued and
outstanding. Prior to the Closing, SOFTBANK purchased such 4,000
shares for a purchase price of (Yen)50,000 per share in cash, and
SOFTBANK owns all of such issued and outstanding shares of the
Company. There are no options, warrants or commitments of any kind
relating to the capital stock of the Company, including any preemptive
or other rights to purchase its capital stock.
(e) The Shares have been duly authorized (including any required approval
by the Board of Directors of the Company) and validly issued and are
fully paid and non-assessable. Title to the Shares will be transferred
from SOFTBANK to GeoCities upon physical delivery of the stock
certificates to GeoCities at the Closing, free and clear of all liens,
encumbrances, equities or claims.
(f) Prior to the Closing, the Company has not been engaged in any business
or activities and has not entered into to any contracts, except as
contemplated by this
2
<PAGE>
Agreement and the Company has net assets of (Yen)200,000,000 in the
form of cash and cash equivalents.
(g) The Company has no mutual liabilities, contingent or otherwise, and
the Company has complied in all material respects with all laws and
regulations. There is no mutual litigation pending or threatened, and
no basis therefor known to the Company, to which the Company is or
would be a party, to which any of the Company's assets are or would be
subject, or which question or challenge this Agreement or the
transactions contemplated hereby.
(h) No consent, approval or authorization of or declaration or filing with
any governmental authority or other person or entity on the part of
SOFTBANK is required in connection with the execution or delivery of
this Agreement or the consummation of the transactions contemplated
hereby other than as described in Section 15 hereof.
(i) A certified copy of the commercial register of the Company ( and a
true and complete English translation thereof) is attached to this
Agreement as Exhibit B, and all information contained therein is
complete and accurate.
4. Representations and Warranties of GeoCities
-------------------------------------------
GeoCities represents and warrants to SOFTBANK as follows:
(a) GeoCities has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of
California, and has full power and authority to enter into and perform
this Agreement.
(b) This Agreement has been duly authorized, executed and delivered by
GeoCities and constitutes a valid and binding agreement of GeoCities,
enforceable against GeoCities in accordance with its terms.
(c) No consent, approval or authorization of or declaration or filing with
any governmental authority or other person or entity on the part of
GeoCities is required in connection with the execution or delivery of
this Agreement or the consummation of the transactions contemplated
hereby other than as described in Section 15 hereof.
5. Licensing Agreement
-------------------
Concurrently with the execution of this Agreement, GeoCities shall enter
into a licensing agreement, in the form of Exhibit C attached hereto (the
"Licensing Agreements"), with the Company.
6. Board of Directors; Statutory Auditors
--------------------------------------
(a) The total number of Directors comprising the Board shall be five.
SOFTBANK shall designate three Directors, and GeoCities shall
designate two Directors.
3
<PAGE>
(b) The Company shall have one Statutory Auditor, which shall be
designated by SOFTBANK.
(c) The Company shall have one Representative Director, who shall be the
President. The President and Representative Director shall be
appointed by SOFTBANK.
(d) In case of a vacancy in the office of Director, Statutory Auditor or
Representative Director during the term of office for whatever reason,
the vacancy shall be filled by the party that nominated the Director,
Statutory Auditor or Representative Director whose office became
vacant.
(e) At any annual or special meeting of shareholders or any meeting of the
Board of Directors called for such purpose, each party shall vote or
cause to be voted all shares owned by it for the election of nominees
designated as Directors, Statutory Auditor or Representative Director
in accordance with this Section 6 and otherwise as may be necessary to
implement the provisions of this Agreement.
(f) No change shall be made in the number and/or allocation of Directors,
Statutory Auditor or Representative Director as stated in this Section
6 or in the Articles of Incorporation of the Company; provided that if
the parties' respective shareholdings change, the parties shall adjust
the number and allocation of Directors and the designation or
nomination of the Statutory Auditor or Representative Director if and
to the extent appropriate so that their respective representation on
the Board and in the Company is generally proportionate to their
respective shareholdings.
7. Management of the Company
-------------------------
(a) The Board of Directors of the Company shall be responsible for
establishing the overall policy and operating procedures with respect
to the business affairs of the Company.
(b) Except as otherwise required by mandatory provisions of law and as
otherwise provided herein, resolutions of the Board of Directors shall
be adopted only by the affirmative vote of a majority of the Directors
present at a meeting duly called at which a quorum is present. A
majority of the Board of Directors shall constitute a quorum for the
transaction of business provided at least one Director designated by
GeoCities is present. Board meetings shall be held in Japan in
accordance with applicable law provided that the Board of Directors
shall meet no less frequently than once in each calendar month.
(c) Notwithstanding the general provisions set forth above, in addition to
any special approval requirements under the Articles of Incorporation
or under law, each of the following corporate actions may be taken by
the Company only (i) in the case of any action that is permitted by
law or under the Articles of Incorporation to be taken by the Board of
Directors alone, upon authorization by affirmative vote of at least
one SOFTBANK director and at least one GeoCities director and (ii) in
the case of actions required by law or the Articles of Incorporation
to be approved
4
<PAGE>
by the Company's shareholders, upon authorization by affirmative vote
of both GeoCities and SOFTBANK as shareholders:
(i) any merger or consolidation, whether or not the Company is
the surviving corporation; any sale, lease, exchange or
other disposition of all or substantially all of the
assets of the Company; any acquisition of all or
substantially all of the capital stock or assets of any
other entity; or the liquidation or voluntary dissolution
of the Company;
(ii) any capital expenditure of (Yen)10 million or more;
(iii) the raising of additional equity capital or the issuance
or sale of any debt or equity securities (including any
shareholder loan or guaranty) and the terms thereof,
whether or not in connection with a call for additional
capital pursuant to Section 8 hereof;
(iv) any declaration or payment of any dividend or other
distribution, directly or indirectly, on account of any
shares of capital stock of the Company, or any redemption,
retirement, purchase or other acquisition, directly or
indirectly, by the Company of any such shares (or of any
warrants, rights or options to acquire any such shares);
(v) the incurrence or guarantee (directly or indirectly) by
the Company with respect to any indebtedness for borrowed
money in excess of (Yen)10 million;
(vi) any amendment, alteration or repeal of any provision of
the Articles of Incorporation of the Company; or
(vii) approval of an annual business plan and operating budget
for the Company (which shall be made no later than thirty
(30) days prior to the commencement of each fiscal year of
the Company), and any deviation in any material respect
from such business plan or budget as so approved;
8. Additional Capital
------------------
(a) In the event that the Company requires capital in excess of two
hundred million yen ((Yen)200,000,000), SOFTBANK will make this
additional capital available to the Company without dilution to
GeoCities equity share. The mechanism by which such additional capital
is made available shall be mutually agreed upon by SOFTBANK and
GeoCities.
(b) Subject to Section 7(c) hereof, the Board may, by written notice to
the parties, call for the parties to subscribe for additional shares
of capital stock of the Company or to make loan guarantees or loans to
the Company in proportion to their
5
<PAGE>
respective holdings of Common Stock at any time. Each party agrees to
provide such additional capital or support in accordance with the
Board's action.
9. Disposition of Common Stock
---------------------------
Neither party shall directly or indirectly sell, assign, transfer or
otherwise dispose of, or pledge or otherwise encumber, any shares of Common
Stock of the Company without the prior consent of the other party; provided
that, at such time as the shares of the Company are publicly traded, either
party shall be entitled to make sales of its shares in the open market to the
extent permitted by applicable law.
10. Accounting; Access to Information
---------------------------------
(a) The fiscal year of the Company shall be from the first day of April of
each year to the 31st day of March of the following year.
(b) The Company shall maintain its accounts and prepare its financial
statements (including, without limitation, a balance sheet, profit and
loss statement and statement of cash flows) in accordance with
generally accepted accounting principles in Japan, and shall cause its
annual financial statements to be audited by an internationally
recognized independent auditing firm reasonably acceptable to each
party, and such financial statements and the auditors' opinion to be
delivered to each party no later than sixty (60) days following the
end of each fiscal year. The Company also shall deliver to each party
unaudited monthly and quarterly financial statements within thirty
days following the end of each month or fiscal quarter, as the case
may be, certified (in the case of quarterly financial statements) by
the chief accounting officer of the Company. All annual and quarterly
financial statements shall be accurately and completely translated
into English at the expense of GeoCities prior to delivery to
GeoCities.
(c) Each party shall, during normal business hours and at all other times
as reasonable, have access to the books and records of the Company and
to the legal, tax and auditing personnel of the Company, internal and
external; provided, however, that the cost and expense necessary for
such inspection shall be borne by the party making the inspection.
11. Term of the Agreement
---------------------
Subject to Section 13, this Agreement shall remain in effect perpetually,
provided that, if as of April 1, 2001, or any April 1 thereafter, (i) the
Company has sustained net losses (determined in accordance with generally
accepted Japanese accounting principles and certified by the Company's
independent auditors) for the [***] preceding such April 1, and (ii) GeoCities
and SOFTBANK, in good faith, differ with respect to the future business plans
and prospects of the Company, then each party shall have the right to terminate
this Agreement, which termination shall be effective ninety (90) days following
notice thereof to the other party.
______________________
[***] Confidential treatment requested for redacted portion.
6
<PAGE>
12. Termination of the Agreement
----------------------------
(a) If either party fails in any material respect to perform or fulfill in
the time and manner herein provided any obligation or condition herein
required to be performed or fulfilled by such party, and if such
default shall continue for sixty (60) days after written notice
thereof from the other party, then the other party shall have the
right to terminate this Agreement by written notice of termination to
the defaulting party at any time after such sixty (60) days, or
longer, if the breach cannot be reasonably cured within sixty (60)
days and the failing party is making diligent efforts to cure it.
Either party may also terminate this Agreement immediately by giving a
written notice to the other party in the event such other party shall
be dissolved or liquidated or declared insolvent or bankrupt.
(b) Upon termination of this Agreement, the parties shall negotiate in
good faith the possible purchase by one party of all the shares in the
Company held by the other party or the sale of the Company to a third
party. If such negotiation fails to result in a mutually acceptable
agreement, the Company shall be dissolved in accordance with Japanese
law.
(c) Termination of this Agreement for any reason shall not release either
party from any liability which at the time of termination has already
accrued to the other party or which thereafter may accrue in respect
of any act or omission prior to such termination.
13. Confidentiality
---------------
Each party shall hold and shall cause its respective representatives to
hold in confidence all confidential information made available to it or its
representatives by the other party, directly or through the Company, and shall
not pass such information on, wholly or partly, to third parties without the
written consent of the other party, unless such information (i) becomes
generally available to the public other than as a result of a disclosure by such
party or its representatives, (ii) becomes available to such party from other
sources not known by such party to be bound by a confidentiality obligation, or
(iii) is independently acquired by such party as a result of work carried out by
any employee or representative of such party to whom no disclosure of such
information has been made.
14. Government Filing
----------------
(a) Within fifteen (15) days following the date of the Closing, GeoCities
will submit the required notification to the Bank of Japan under the
Foreign Exchange and Foreign Trade Control Law.
(b) If any Japanese withholding taxes are imposed on dividends payable to
GeoCities by the Company under Section 11, the Company shall withhold
such amounts, pay the same to the Japanese tax authority, and promptly
furnish GeoCities with appropriate documentation of the amounts so
withheld as soon as practicable. The Company shall cooperate with
GeoCities to make any necessary filings to utilize
7
<PAGE>
the lowest available withholding rate under applicable treaty between
Japan and the United States.
15. Other Ventures
--------------
(a) Neither party will engage directly or indirectly in any business
activities in Japan that compete with the business activities of the
Company in Japan; provided that GeoCities may continue to make
available its services and any other properties or products in
languages other than Japanese.
(b) GeoCities hereby agrees to discuss in good faith with SOFTBANK joint
efforts to establish similar ventures in Europe and other
international markets where SOFTBANK or its affiliates (which term is
intended to be limited to entities controlled by or under common
control with SOFTBANK and/or entities in which SOFTBANK takes an
active role in such entities' management) have operations and are the
appropriate partners; provided that the foregoing shall not obligate
either party to enter into any such arrangement.
16. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with the
laws of Japan.
17. Dispute Resolution
------------------
All disputes between the parties hereto arising directly or indirectly out
of this Agreement shall be settled by the parties amicably through good faith
discussions upon the written request of either party. In the event that any such
dispute cannot be resolved thereby within a period of thirty (30) days after
such notice has been given, such dispute shall be finally settled by arbitration
by three arbitrators. If GeoCities commences such arbitration, it shall be held
in Japan, using the English language, and in accordance with the rules then in
effect of the Japan Commercial Arbitration Association. If SOFTBANK commences
such arbitration, it shall be held in the U.S.A., using the English language,
and in accordance with the rules then in effect of the American Arbitration
Association.
18. Miscellaneous
-------------
(a) This Agreement may be amended only by a written instrument signed by
both parties.
(b) This Agreement may not be assigned by either party hereto except with
the written consent of the other party; provided, however, that this
Agreement may be assigned to a corporation which shall succeed to the
business of a party by merger, consolidation, or the transfer of all
or substantially all of the assets of such party and which shall
expressly assume the obligations of such party hereunder.
8
<PAGE>
(c) Any and all notices, requests, demands and other communications
required or otherwise contemplated to be made under this Agreement
shall be in writing and in English and shall be deemed to have been
duly given (a) if delivered personally, when received, (b) if
transmitted by facsimile, upon receipt of a confirmation of receipt,
(c) if sent by registered airmail, return receipt requested, postage
prepaid, on the sixth business day following the date of deposit in
the mail or (d) if by international courier service, on the second
business day following the date of deposit with such courier service,
or such earlier delivery date as may be confirmed to the sender by
such courier service. All such notices, requests, demands and other
communications shall be addressed as follows;
(i) If to SOFTBANK:
SOFTBANK Corporation
24-1, Nihonbashi-Hakozakicho
Chuo-ku, Tokyo 103, Japan
Attention: Mr. Masayoshi Son
President and Chief Executive Officer
Telephone: (813) 5642-8020
Facsimile: (813) 5641-3400
(ii) If to GeoCities:
GeoCities
1918 Main Street Third Floor
Santa Monica, CA 90403-1030
USA
Attention: David Bohnett
President and Chief Executive Officer
Telephone: (310) 664-6500, Ext. 201
Facsimile: (310) 664-6521
With a copy to:
GeoCities
1918 Main Street Third Floor
Santa Monica, CA 90403-1030
USA
Attention: Ed Pierce, General Counsel
Telephone: (310) 664-6500, Ext. 251
Facsimile: (310) 664-6520
9
<PAGE>
Or in each case to such other address or facsimile number as the party may have
furnished to the other party in writing.
(d) In the event of the invalidity or unenforceability of any part or
provision of this Agreement, such invalidity shall not affect the
validity or enforceability of any other part or provision of this
Agreement.
(e) No waiver by any party of any default in the performance of or
compliance with any provision herein shall be deemed to be a waiver of
the performance and compliance as to any other provision, or as to
such provision in the future; nor shall any delay or omission of any
party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter. No remedy
expressly granted herein to any party shall be deemed to exclude any
other remedy which would otherwise be available.
(f) This Agreement including the exhibits hereto constitutes the entire
agreement among the parties with respect to the subject matter hereof
and shall supersede all prior understandings and agreements between
the parties with respect to such subject matter. This Agreement may
be executed in any number of counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and
the same instrument.
(g) Nothing herein expressed or implied is intended to or shall be
construed to confer upon or give to any person, firm, corporation or
legal entity, other than the parties hereto and their affiliates, any
interests, rights, remedies or other benefits with respect to or in
connection with any agreement or provision contained herein or
contemplated hereby.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly signed this Agreement as
of the day and year first above written.
SOFTBANK CORPORATION
By: /s/ Masayoshi Son
----------------------------------
Name: Masayoshi Son
Title: President
GEOCITIES
By: /s/ David Bohnett
----------------------------------
Name: David Bohnett
Title: President & CEO
Attachments:
Exhibit A Articles of Incorporation of Company.
Exhibit B Commercial Register of the Company.
Exhibit C Licensing Agreement
11
<PAGE>
EXHIBIT 10.19
REVOLVING CREDIT LOAN & SECURITY
AGREEMENT
(ACCOUNTS AND INVENTORY)
- --------------------------------------------------------------------------------
OBLIGOR NOTE # AGREEMENT DATE
August 6, 1997
- --------------------------------------------------------------------------------
CREDIT LIMIT INTEREST RATE OFFICER NO./INITIALS
B+0,50% 48710 GREGORY M. COTE
$2,000,000 9.00%
- --------------------------------------------------------------------------------
THIS AGREEMENT is entered into on AUGUST 6, 1997, between COMERICA BANK
-------------- -------------
CALIFORNIA ("Bank") as secured party, whose Headquarter Office is 333 WEST SANTA
- ---------- --------------
CLARA STREET, SAN JOSE, CA and GEOCITIES ("Borrower"), a CALIFORNIA CORPORATION
- -------------------------- --------- ----------------------
whose sole place of business (if it has only one), chief executive office (if it
has more than one place of business) or residence (if an individual) is located
at 1918 MAIN STREET, SANTA MONICA, CA. The parties agree as follows:
----------------------------------
1. DEFINITIONS
1.1 "Agreement" as used in this Agreement means and includes this Revolving
Credit Loan & Security Agreement (Accounts and Inventory). any concurrent or
subsequent rider to this Revolving Credit Loan & Security Agreement (Accounts
and Inventory) and any extensions, supplements. amendments or modifications to
this Revolving Credit Loan & Security Agreement (Accounts and Inventory) and to
any such rider.
1.2 "Bank Expenses" as used in this Agreement means and includes: all
costs or expenses required to be paid by Borrower under this Agreement which are
paid or advanced by Bank; taxes and insurance premiums of every nature and kind
of Borrower paid by Bank; filing, recording, publication and search fees,
appraiser fees, auditor fees and costs, and title insurance premiums paid or
incurred by Bank in connection with Bank's transactions with Borrower, costs and
expenses incurred by Bank in collecting the Receivables (with or without suit)
to correct any default or enforce any provision of this Agreement. or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
disposing of, preparing for sale and/or advertising to sell the Collateral,
whether or not a sale is consummated; costs and expenses of suit incurred by
Bank in enforcing or defending this Agreement or any portion hereof, including,
but not limited to, expenses incurred by Bank in attempting to obtain relief
from any stay, restraining order, injunction or similar process which prohibits
Bank from exercising any of its rights or remedies; and attorneys' fees and
expenses incurred by Bank in advising, structuring, drafting, reviewing,
amending, terminating, enforcing, defending or concerning this Agreement, or any
portion hereof or any agreement related hereto, whether or not suit is brought.
Bank Expenses shall include Bank's in-house legal charges at reasonable rates.
1.3 "Base Rate" as used in this Agreement means that variable rate of
interest so announced by Bank at its headquarters office in San Jose, California
as its "Base Rate" from time to time and which serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto.
1.4 "Borrower's Books" as used in this Agreement means and includes all of
the Borrower's books and records including but not limited to: minute books;
ledgers; records indicating, summarizing or evidencing Borrower's assets,
liabilities, Receivables, business operations or financial condition, and all
information relating thereto, computer programs; computer disk or tape files;
computer printouts; computer runs; and other computer prepared information and
equipment of any kind.
1.5 "Borrowing Base" as used in this Agreement means the sum of: (1)
SEVENTY percent (70.00%) of the net amount of Eligible Accounts after deducting
- ------- --------
therefrom all payments, adjustments and credits applicable thereto ("Accounts
Receivable Borrowing Base"); and (2) the amount, if any, of the advances against
inventory agreed to be made pursuant to any inventory Rider ("Inventory
Borrowing Base"), or other rider, amendment or modification to this Agreement,
that may now or hereafter be entered into by Bank and Borrower.
1.6 "Cash Flow" as used in this Agreement means, for any applicable period
of determination, the Net Income (after deduction for income taxes and other
taxes of such person determined by reference to income or profits of such
person) for such period, plus, to the extent deducted in computation of such Net
Income, the amount of depreciation and amortization expense and the amount of
deferred tax liability during such period, all as determined in accordance with
GAAP. The applicable period of determination will be N/A ,
---------------------
beginning with the period from to .
------------------ -------------------
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
1.7 "Collateral" as used in this Agreement means and includes each and all
of the following: the Receivables; the intangibles; the negotiable collateral,
the inventory; all money, deposit accounts and all other assets of Borrower in
which Bank receives a security interest or which hereafter come into the
possession. custody or control of Bank: and the proceeds of any of the
foregoing, including, but not limited to, proceeds of insurance covering the
collateral and any and all Receivables, intangibles, negotiable collateral,
inventory, equipment. money, deposit accounts or other tangible and intangible
property of borrower resulting from the sale or other disposition of the
collateral, and the proceeds thereof. Notwithstanding anything to the contrary
contained herein, collateral shall not include any waste or other materials
which have been or may be designated as toxic or hazardous by Bank.
1.8 "Credit" as used in this Agreement means all Obligations, except those
obligations arising pursuant to any other separate contract, instrument, note,
or other separate agreement which, by its terms, provides for a specified
interest rate and term.
1.9 "Current Assets" as used in this Agreement means, as of any applicable
date of determination, all cash, non-affiliated customer receivables, United
States government securities, claims against the United States government, and
inventories.
1.10 "Current Liabilities" as used in this Agreement means, as of any
applicable date of determination, (i) all liabilities of a person that should be
classified as current in accordance with GAAP, including without limitation any
portion of the principal of the indebtedness classified as current, plus (ii) to
the extent not otherwise included, all liabilities of the Borrower to any of its
affiliates whether or not classified as current in accordance with GAAP.
1.11 "Daily Balance" as used in this Agreement means the amount determined
by taking the amount of the Credit owed at the beginning of a given day, adding
any new Credit advanced or incurred on such date, and subtracting any payments
or collections which are deemed to be paid and are applied by Bank in reduction
of the Credit on that date under the provisions of this Agreement.
1.12 "Eligible Accounts" as used in this Agreement means and includes those
accounts of Borrower which are due and payable within thirty (30) days, or less,
from the date of invoice, have been validly assigned to Bank and strictly comply
with all of Borrower's warranties and representations to Bank; but Eligible
Accounts shall not include the following: (a) accounts with respect to which the
account debtor is an officer, employee, partner, joint venturer or agent of
Borrower; (b) accounts with respect to which goods are placed on consignment,
guaranteed sale or other terms by reason of which the payment by the account
debtor may be conditional; (c) accounts with respect to which the account debtor
is not a resident of the United States; (d) accounts with respect to which the
account debtor is the United States or any department, agency or instrumentality
of the United States; (e) accounts with respect to which the account debtor is
any State of the United States or any city, county, town, municipality or
division thereof; (I) accounts with respect to which the account debtor is a
subsidiary of, related to, affiliated or has common shareholders, officers or
directors with Borrower: (g) accounts with respect to which Borrower is or may
become liable to the account debtor for goods sold or services rendered by the
account debtor to Borrower; (h) accounts not paid by an account debtor within
ninety (90) days from the date of the invoice; (i) accounts with respect to
which account debtors dispute liability or make any claim, or have any defense,
crossclaim, counterclaim, or offset; (j) accounts with respect to which any
Insolvency Proceeding is filed by or against the account debtor, or if an
account debtor becomes insolvent, fails or goes out of business; and (k)
accounts owed by any single account debtor which exceed twenty percent (20%) of
all of the Eligible Accounts; and (l) accounts with a particular account debtor
on which over twenty-five percent (25%) of the aggregate amount owing is greater
than ninety (90) days from the date of the invoice.
1.13 "Event of Default" as used in this Agreement means those events
described in Section 7 contained herein below.
1.14 "Fixed Charges" as used in this Agreement means and includes, for any
applicable period of determination, the sum, without duplication of (a) all
interest paid or payable during such period by a person on debt of such person,
plus (b) all payments of principal or other sums paid or payable during such
period by such person with respect to debt of such person having a final
maturity more than one year from the date of creation of such debt, plus (c) all
debt discount and expense amortized or required to be amortized during such
period by such person, plus (d) the maximum amount of all rents and other
payments paid or required to be paid by such person during such period under any
lease or other contract or arrangement providing for use of real or personal
property in respect of which such person is obligated as a lessee, use or
obligor, plus (e) all dividends and other distributions paid or payable by such
person or otherwise accumulating during such period on any capital stock of such
person, plus (f) all loans or other advances made by such person during such
period to any Affiliate of such person. The applicable period of determination
will be N/A , beginning with the period
--------------------------------
from to .
---------------------- ----------------------
2
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
1.15 "GAAP" as used in this Agreement means as of any applicable period,
generally accepted accounting principles in effect during such period.
1.16 "Insolvency Proceeding" as used in this Agreement means and includes
any proceeding or case commenced by or against the Borrower, or any guarantor of
Borrower's Obligations, or any of Borrower's account debtors, under any
provisions of the Bankruptcy Code, as amended, or any other bankruptcy or
insolvency law, including but not limited to assignments for the benefit of
creditors, formal or informal moratoriums, composition or extensions with some
or all creditors, any proceeding seeking a reorganization, arrangement or any
other relief under the Bankruptcy code, as amended, or any other bankruptcy or
insolvency law.
1.17 "Intangibles" as used in this Agreement means and includes all of
Borrower's present and future general intangibles and other personal property
(including, without limitation, any and all rights in any legal proceedings,
goodwill, patents. trade names, copyrights, trademarks, blueprints, drawings,
purchase orders, computer programs, computer disks, computer tapes, literature,
reports, catalogs and deposit accounts) other than goods and receivables, as
well as Borrower's Books relating to any of the foregoing.
1.18 "Inventory" as used in this Agreement means and includes all present
and future inventory in which Borrower has any interest, including, but not
limited to, goods held by Borrower for sale or lease or to be furnished under a
contract of service and all of Borrower's present and future raw materials, work
in process, finished goods, advertising materials, and packing and shipping
materials, wherever located and any documents of title representing any of the
above, and any equipment, fixtures or other property used in the storing,
moving, preserving, identifying, accounting for and shipping or preparing for
the shipping of inventory, and any and all other items hereafter acquired by
Borrower by way of substitution, replacement, return, repossession or otherwise,
and all additions and accessions thereto, and the resulting product or mass, and
any documents of title respecting any of the above.
1.19 "Net Income" as used in this Agreement means the Net Income (or loss)
of a person for any period determined in accordance with GAAP but excluding in
any event:
(a) any gains or losses on the sale or other disposition, not in the
ordinary course of business, of investments or fixed or capital
assets, and any taxes on the excluded gains and any tax deductions or
credits on account on any excluded losses; and
(b) in the case of the Borrower, net earnings of any Person in which
Borrower has an ownership interest, unless such net earnings shall
have actually been received by Borrower in the form of cash
distributions.
1.20 "Judicial Officer or Assignee" as used in this Agreement means and
includes any trustee, receiver, controller, custodian, assignee for the benefit
of creditors or any other person or entity having powers or duties like or
similar to the powers and duties of trustee, receiver, controller, custodian or
assignee for the benefit of creditors.
1.21 "Obligations" as used in this Agreement means and includes any and all
loans, advances, overdrafts, debts, liabilities (including, without limitation,
any and all amounts charged to Borrower's account pursuant to any agreement
authorizing Bank to charge Borrower's account), obligations, lease payments,
guaranties, covenants and duties owing by Borrower to Bank of any kind and
description whether advanced pursuant to or evidenced by this Agreement; by any
note or other instrument; or by any other agreement between Bank and Borrower
and whether or not for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
and including, without limitation, any debt, liability or obligation owing from
Borrower to others which Bank may have obtained by assignment, participation,
purchase or otherwise, and further including, without limitation, all interest
not paid when due and all Bank Expenses which Borrower is required to pay or
reimburse by this Agreement, by law, or otherwise.
1.22 "Person" or "person" as used in this Agreement means and includes any
individual, corporation, partnership. joint venture, association, trust,
unincorporated association, joint stock company, government, municipality,
political subdivision or agency, or other entity.
1.23 "Receivables" as used in this Agreement means and includes all
presently existing and hereafter arising accounts, instruments, documents,
chattel paper, general intangibles, all other forms of obligations owing to
Borrower, all of Borrower's rights in, to and under all purchase orders
heretofore or hereafter received, all moneys due to Borrower under all contracts
or agreements (whether or not yet earned or due), all merchandise returned to or
reclaimed by Borrower and the Borrower's books (except minute books) relating to
any of the foregoing.
3
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
1.24 "Subordinated Debt" as used in this Agreement means indebtedness of
the Borrower to third parties which has been subordinated to the Obligations
pursuant to a subordination agreement in form and content satisfactory to the
Bank
1.25 "Subordination Agreement" as used in this Agreement means a
subordination agreement in form satisfactory to Bank making all present and
future indebtedness of the Borrower to N/A subordinate to the
---------------------
Obligations.
1.26 "Tangible Effective Net Worth" as used in this Agreement means net
worth as determined in accordance with GAAP consistently applied, increased by
Subordinated Debt, if any, and decreased by the following: patents, licenses,
goodwill, subscription lists, organization expenses. trade receivables converted
to notes, money due from affiliates (including officers, directors, subsidiaries
and commonly held companies).
1.27 "Tangible Net Worth" as used in this Agreement means, as of any
applicable date of determination, the excess of
(a) the net book value of all assets of a person (other than patents,
patent rights, trademarks, trade names, franchises, copyrights,
licenses, goodwill, and similar intangible assets) after all
appropriate deductions in accordance with GMP (including, without
limitation, reserves for doubtful receivables, obsolescence,
depreciation and amortization), over
(b) all Debt of such person.
1.28 "Total Liabilities" as used in this Agreement means the total of all
items of indebtedness, obligation or liability which, in accordance with GAAP
consistently applied, would be included in determining the total liabilities of
the Borrower as of the date Total Liabilities is to be determined. including
without limitation (a) all obligations secured by any mortgage, pledge. security
interest or other lien on property owned or acquired, whether or not the
obligations secured thereby shall have been assumed; (b) all obligations which
are capitalized lease obligations; and (c) all guaranties, endorsements or other
contingent or surety obligations with respect to the indebtedness of others,
whether or not reflected on the balance sheets of the Borrower, including any
obligation to furnish funds, directly or indirectly through the purchase of
goods, supplies, services, or by way of stock purchase, capital contribution,
advance or loan or any obligation to enter into a contract for any of the
foregoing.
1.29 "Working Capital" as used in this Agreement means, as of any
applicable date of determination, Current Assets less Current Liabilities.
1.30 Any and all terms used in this Agreement shall be construed and
defined in accordance with the meaning and definition of such terms under and
pursuant to the California Uniform Commercial Code (hereinafter referred to as
the "Code") as amended .
2. LOAN AND TERMS OF PAYMENT
For value received, Borrower promises to pay to the order of Bank such amount,
as provided for below, together with interest, as provided for below.
2.1 Upon the request of Borrower, made at any time and from time to time
during the term hereof, and so long as no Event of Default has occurred, Bank
shall lend to Borrower an amount equal to the Borrowing Base; provided, however,
that in no event shall Bank be obligated to make advances to Borrower under this
Section 2.1 whenever the Daily Balance exceeds, at any time, either the
Borrowing Base or the sum of TWO MILLION AND NO/100 ($2,000,000.00), such amount
--------------------------------------
being referred to herein as an "Overadvance."
OVERFORMULA IN THE AMOUNT OF $750,000.00 IS TO BE ALLOWED ABOVE THE BORROWING
BASE BUT WITHIN THE LINE AMOUNT.
2.2 Except as herein below provided, the Credit shall bear interest, on the
Daily Balance owing, at a rate of 500/1000 ( N/A %) percentage points per annum
----------------
above the Base Rate (the "Rate"). The Credit shall bear interest, from and after
the occurrence of an Event of Default and without constituting a waiver of any
such Event of Default, on the Daily Balance owing, at a rate three (3)
percentage points per annum above the Rate. All interest chargeable under this
Agreement that is based upon a per annum calculation shall be computed on the
basis of a three hundred sixty (360) day year for actual days elapsed.
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The Base Rate as of the date of this Agreement is EIGHT AND 500/1000
----------------------
( 8.500 %) per annum. In the event that the Base Rate announced is, from
- ------------
time to time hereafter changed, adjustment in the Rate shall be made and based
on the Base Rate in effect on the date of such change. The Rate, as adjusted,
shall apply to the Credit until the Base Rate is adjusted again. The minimum
interest payable by the Borrower under this Agreement shall no event be less
than N/A per month. All interest payable by Borrower under the Credit
----------------
shall be due and payable on the first day of each calendar month during the term
of this Agreement and Bank may, at its option, elect to treat such interest and
any and all Bank Expenses as advances under the Credit, which amounts shall
thereupon constitute Obligations and shall thereafter accrue interest at the
rate applicable to the Credit under the terms of the Agreement.
2.3 Without affecting Borrower's obligation to repay immediately any
Overadvance in accordance with Section 2.1 hereof, all Overadvances shall bear
additional interest on the amount thereof at a rate equal to N/A ( N/A %)
----------------
percentage points per month in excess of the interest rate set forth in Section
2.2, from the date incurred and for each month thereafter, until repaid in full.
3. TERM.
3.1 This Agreement shall remain in full force and effect until
DECEMBER 1, 1998, or until terminated by notice by Borrower. Notice of such
- ---------- ----
termination by Borrower shall be effectuated by mailing of a registered or
certified letter not less than thirty (30) days prior to the effective date of
such termination, addressed to the Bank at the address set forth herein and the
termination shall be effective as of the date so fixed in such notice.
Notwithstanding the foregoing, should Borrower be in default of one or more of
the provisions of this Agreement, Bank may terminate this Agreement at any time
without notice. Notwithstanding the foregoing, should either Bank or Borrower
become insolvent or unable to meet its debts as they mature, or fail, suspend,
or go out of business, the other party shall have the right to terminate this
Agreement at any time without notice. On the date of termination all Obligations
shall become immediately due and payable without notice or demand: no notice of
termination by Borrower shall be effective until Borrower shall have paid all
Obligations to Bank in full. Notwithstanding termination, until all Obligations
have been fully satisfied, Bank shall retain its security interest in all
existing Collateral and Collateral arising thereafter, and Borrower shall
continue to perform all of its Obligations.
3.2 After termination and when Bank has received payment in full of
Borrower's Obligations to Bank, Bank shall reassign to Borrower all Collateral
held by Bank, and shall execute a termination of all security agreements and
security interests given by Borrower to Bank, upon the execution and delivery of
mutual general releases.
4. CREATION OF SECURITY INTEREST
4.1 Borrower hereby grants to Bank a continuing security interest in all
presently existing and hereafter arising Collateral in order to secure prompt
repayment of any and all Obligations owed by Borrower to Bank and in order to
secure prompt performance by Borrower of each and all of its covenants and
Obligations under this Agreement and otherwise created. Bank's security
interest in the Collateral shall attach to all Collateral without further act on
the part of Bank or Borrower. in the event that any Collateral. including
proceeds, is evidenced by or consists of a letter of credit, advice of credit,
instrument, money, negotiable documents, chattel paper or similar property
(collectively. "Negotiable Collateral"). Borrower shall, Immediately upon
receipt thereof, endorse and assign such Negotiable Collateral over to Bank and
deliver actual physical possession of the Negotiable Collateral to Bank
4.2 Bank's security interest in Receivables shall attach to all Receivables
without further act on the part of Bank or Borrower. Upon request from Bank,
Borrower shall provide Bank with schedules describing all Receivables created or
acquired by Borrower (including without limitation agings listing the names and
addresses of, and amounts owing by date by account debtors), and shall execute
and deliver written assignments of all Receivables to Bank all in a form
acceptable to Bank, provided, however, Borrower's failure to execute and deliver
such schedules and/or assignments shall not affect or limit Bank's security
interest and other rights in and to the Receivables. Together with each
schedule, Borrower shall furnish Bank with copies of Borrower's customers'
invoices or the equivalent, and original shipping or delivery receipts for all
merchandise sold, and Borrower warrants the genuineness thereof. Bank or Bank's
designee may notify customers or account debtors of collection costs and
expenses to Borrower's account but, unless and until Bank does so or gives
Borrower other written instructions, Borrower shall collect all Receivables for
Bank, receive in trust all payments thereon as Bank's trustee, and, if so
requested to do so from Bank, Borrower shall Immediately deliver said payments
to Bank in their original form as received from the account debtor and all
letters of credit, advices of credit, instruments, documents, chattel paper or
any similar property evidencing or constituting Collateral. Notwithstanding
anything to the contrary contained herein, if sales of inventory are made for
cash, Borrower shall immediately deliver to Bank, in identical form, all such
cash, checks, or other forms of payment which Borrower receives. The receipt of
any check or other item of payment by Bank shall not be considered a payment on
account until such check or other item of payment is honored when
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(ACCOUNTS & INVENTORY)
presented for payment, in which event, said check or other item of payment shall
be deemed to have been paid to Bank TWO ( 2 ) calendar days after the
--------------
date Bank actually receives such check or other item of payment.
4.3 Bank's security interest in inventory shall attach to all inventory
without further act on the part of Bank or Borrower. Upon Bank's request
Borrower will from time to time at Borrower's expense pledge, assemble and
deliver such inventory to Bank or to a third party as Bank's bailee; or hold the
same in trust for Bank's account or store the same in a warehouse in Bank's
name; or deliver to Bank documents of title representing said inventory; or
evidence of Bank's security interest in some other manner acceptable to Bank.
Until a default by Borrower under this Agreement or any other Agreement between
Borrower and Bank, Borrower may, subject to the provisions hereof and consistent
herewith, sell the inventory, but only in the ordinary course of Borrower's
business. A sale of inventory in Borrower's ordinary course of business does not
include an exchange or a transfer in partial or total satisfaction of a debt
owing by Borrower.
4.4 Borrower shall execute and deliver to Bank concurrently with Borrower's
execution of this Agreement, and at any time or times hereafter at the request
of Bank, all financing statements, continuation financing statements, security
agreements, mortgages, assignments, certificates of title, affidavits, reports,
notices, schedules of accounts, letters of authority and all other documents
that Bank may request, in form satisfactory to Bank, to perfect and maintain
perfected Bank's security interest in the Collateral and in order to fully
consummate all of the transactions contemplated under this agreement. Borrower
hereby irrevocably makes, constitutes and appoints Bank (and any of Bank's
officers, employees or agents designated by Bank) as Borrower's true and lawful
attorney-in-fact with power to sign the name of Borrower on any financing
statements, continuation financing statements, security agreement, mortgage,
assignment, certificate of title, affidavit, letter of authority, notice of
other similar documents which must be executed and/or filed in order to perfect
or continue perfected Bank's security interest in the Collateral.
Borrower shall make appropriate entries in Borrower's Books disclosing
Bank's security interest in the Receivables. Bank (through any of its officers,
employees or agents) shall have the right at any time or times hereafter during
Borrower's usual business hours, or during the usual business hours of any third
party having control over the records of Borrower, to inspect and verify
Borrower's Books in order to verify the amount or condition of, or any other
matter, relating to, said Collateral and Borrower's financial condition.
4.5 Borrower appoints Bank or any other person whom Bank may designate as
Borrower's attorney-in-fact, with power to endorse Borrower's name on any
checks, notes, acceptances, money order, drafts or other forms of payment or
security that may come into Bank's possession; to sign Borrower's name on any
invoice or bill of lading relating to any Receivables, on drafts against account
debtors, on schedules and assignments of Receivables, on verifications of
Receivables and on notices to account debtors; to establish a lock box
arrangement and/or to notify the post office authorities to change the address
for delivery of Borrower's mail addressed to Borrower to an address designated
by Bank, to receive and open all mail addressed to Borrower, and to retain all
mail relating to the Collateral and forward all other mail to Borrower; to send,
whether in writing or by telephone, requests for verification of Receivables;
and to do all things necessary to carry out this Agreement. Borrower ratifies
and approves all acts of the attorney-in-fact. Neither Bank nor its attorney-in-
fact will be liable for any acts or omissions or for any error of judgement or
mistake of fact or law. This power being coupled with an interest, is
irrevocable so long as any Receivables in which Bank has a security interest
remain unpaid and until the Obligations have been fully satisfied.
4.6 In order to protect or perfect any security interest which Bank is
granted hereunder, Bank may, in its sole discretion, discharge any lien or
encumbrance or bond the same, pay any insurance, maintain guards, warehousemen
or any personnel to protect the Collateral, pay any service bureau, or, obtain
any records, and all costs for the same shall be added to the Obligations and
shall be payable on demand.
4.7 Borrower agrees that Bank may provide information relating to this
Agreement or relating to Borrower to Bank's parent, affiliates, subsidiaries and
service providers.
5. CONDITIONS PRECEDENT
5.1 Conditions precedent to the making of the loans and the extension of
the financial accommodations hereunder, Borrower shall execute, or cause to be
executed, and deliver to Bank, in form and substance satisfactory to Bank and is
counsel, the following:
(a) This Agreement and other documents required by Bank;
(b) Financing statements (Form UCC-1 ) in form satisfactory to Bank for
filing and recording with the appropriate governmental authorities;
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(c) If Borrower is a corporation, then certified extracts from the minutes
of the meeting of its board of directors, authorizing the borrowings and the
granting of the security interest provided for herein and authorizing
specific officers to execute and deliver the agreements provided for herein;
(d) If Borrower is a corporation, then a certificate of good standing
showing that Borrower is in good standing under the laws of the state of its
incorporation and certificates indicating that Borrower is qualified to
transact business and is in good standing in any other state in which it
conducts business;
(e) If Borrower is a partnership, then a copy of Borrower's partnership
agreement certified by each general partner of Borrower;
(f) UCC searches, tax lien and litigation searches, fictitious business
statement filings, insurance certificates, notices or other similar
documents which Bank may require and in such form as Bank may require, in
order to reflect, perfect or protect Bank's first priority security interest
in the Collateral and in order to fully consummate all of the transactions
contemplated under this Agreement;
(g) Evidence that Borrower has obtained insurance and acceptable
endorsements;
(h) Waivers executed by landlords and mortgagees of any real property on
which any Collateral Is located; and
(i) Warranties and representations of officers.
6. WARRANTIES REPRESENTATIONS AND COVENANTS.
6.1 If so requested by Bank, Borrower shall, at such intervals designated
by Bank, during the term hereof execute and deliver a Report of Accounts
Receivable or similar report, in form customarily used by Bank Borrower's
Borrowing Base at all times pertinent hereto shall not be less than the advances
made hereunder. Bank shall have the right to recompute Borrower's Borrowing Base
in conformity with this Agreement.
6.2 If any warranty is breached as to any account, or any account is not
paid in full by an account debtor within NINETY ( 90 ) days from the date of
-------------
invoice, or an account debtor disputes liability or makes any claim with respect
thereto, or a petition in bankruptcy or other application for relief under the
Bankruptcy Code or any other insolvency law is filed by or against an account
debtor, or an account debtor makes an assignment for the benefit of creditors,
becomes insolvent, fails or goes out of business, then Bank may deem ineligible
any and all accounts owing by that account debtor, and reduce Borrower's
Borrowing Base by the amount thereof. Bank shall retain its security interest in
all Receivables and accounts, whether eligible or ineligible, until all
Obligations have been fully paid and satisfied. Returns and allowances, if any,
as between Borrower and its customers, will be on the same basis and in
accordance with the usual customary practices of the Borrower, as they exist at
this time. Any merchandise which is returned by an account debtor or otherwise
recovered shall be set aside, marked with Bank's name, and Bank shall retain a
security interest therein. Borrower shall promptly notify Bank of all disputes
and claims and settle or adjust them on terms approved by Bank After default by
Borrower hereunder, no discount, credit or allowance shall be granted to any
account debtor by Borrower and no return of merchandise shall be accepted by
Borrower without Bank's consent. Bank may, after default by Borrower, settle or
adjust disputes and claims directly with account debtors for amounts and upon
terms which Bank considers advisable, and in such cases Bank will credit
Borrower's account with only the net amounts received by Bank in payment of the
accounts, after deducting all Bank Expenses in connection therewith.
6.3 Borrower warrants, represents, covenants and agrees that:
(a) Borrower has good and marketable title to the Collateral. Bank has
and shall continue to have a first priority perfected security interest
in and to the Collateral. The Collateral shall at all times remain free
and clear of all liens, encumbrances and security interests (except
those in favor of Bank).
(b) All accounts are and will, at all times pertinent hereto, be bona
fide existing obligations created by the sale and delivery of
merchandise or the rendition of services to account debtors in the
ordinary course of business, free of liens, claims, encumbrances and
security interests (except as held by Bank and except as may be
consented to, in writing, by Bank) and are unconditionally owed to
Borrower without defenses, disputes, offsets, counterclaims, rights of
return or cancellation, and Borrower shall have received no notice of
actual or imminent bankruptcy or insolvency of any account debtor at
the time an account due from such account debtor is assigned to Bank
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(ACCOUNTS & INVENTORY)
(c) At the time each account is assigned to Bank, all property giving
rise to such account shall have been delivered to the account debtor or
to the agent for the account debtor for immediate shipment to, and
unconditional acceptance by, the account debtor. Borrower shall deliver
to Bank, as Bank may from time to time require, delivery receipts,
customer's purchase orders, shipping instruction, bills of lading and
any other evidence of shipping arrangements. Absent such a request by
Bank, copies of all such documentation shall be held by Borrower as
custodian for Bank.
6.4 At the time each eligible account is assigned to Bank, all such
eligible accounts will be due and payable on terms set forth in Section 1.12, or
on such other terms approved in writing by Bank in advance of the creation of
such accounts and which are expressly set forth on the face of all invoices,
copies of which shall be held by Borrower as custodian for Bank, and no such
eligible account will then be past due.
6.5 Borrower shall keep the inventory only at the following locations:
and the owner or mortgagees of the respective locations
- ------------------------
are: .
--------------------------------
(a) Borrower, immediately , upon demand by Bank therefor shall now and
from time to time hereafter at such intervals as are requested by Bank,
deliver to Bank, designations of inventory specifying Borrower's coat
of inventory, the wholesale market value thereof and such other matters
and information relating to the inventory as Bank may request;
(b) Borrower's inventory, valued at the lower of Borrower's cost or
the wholesale market value thereof, at all times pertinent hereto shall
not be less than N/A Dollars ($ N/A ) of which no less than
------------- -------------
N/A Dollars ($ N/A ) shall be in raw materials and
---------------- --------------
finished goods;
(c) All of the inventory is and shall remain free from all purchase
money or other security interests, liens or encumbrances, except as
held by Bank;
(d) Borrower does now keep and hereafter at all times shall keep
correct and accurate records itemizing and describing the kind, type,
quality and quantity of the inventory, its cost therefor and selling
price thereof, and the daily withdrawals therefrom and additions
thereto, all of which records shall be available upon demand to any of
Bank's officers, agents and employees for inspection and copying;
(e) All inventory, now and hereafter at all times, shall be new
inventory of good and merchantable quality free from defects;
(f) Inventory is not now and shall not at any time or times hereafter
be located or stored with a bailee, warehouseman or other third party
without Bank's prior written consent, and, in such event, Borrower will
concurrently therewith cause any such bailee, warehouseman or other
third party to issue and deliver to Bank, in a form acceptable to Bank,
warehouse receipts in Bank's name evidencing the storage of inventory
or other evidence of Bank's prior rights in the inventory. in any
event, Borrower shall instruct any third party to hold all such
inventory for Bank's account subject to Bank's security interests and
its instructions; and
(g) Bank shall have the right upon demand now and/or at all times
hereafter, during Borrower's usual business hours, to inspect and
examine the inventory and to check and test the same as to quality,
quantity, value and condition and Borrower agrees to reimburse Bank for
Bank's reasonable costs and expenses in so doing.
6.6 Borrower represents, warrants and covenants with Bank that Borrower
will not, without Bank's prior written consent:
(a) Grant a security interest in or permit a lien, claim or
encumbrance upon any of the Collateral to any person, association,
firm, corporation. entity or governmental agency or instrumentality;
(b) Permit any levy, attachment or restraint to be made affecting any
of Borrower's assets;
(c) Permit any Judicial Officer or Assignee to be appointed or to take
possession of any or all of Borrower's assets;
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(ACCOUNTS & INVENTORY)
(d) Other than sales of inventory in the ordinary course of Borrower's
business, to sell, lease, or otherwise dispose of, move, or transfer,
whether by sale or otherwise, any of Borrower's assets;
(e) Change its name, business structure, corporate identity or
structure; add any new fictitious names, liquidate, merge or
consolidate with or into any other business organization;
(f) Move or relocate any Collateral;
(g) Acquire any other business organization;
(h) Enter into any transaction not in the usual course of Borrower 5
business;
(i) Make any investment in securities of any person, association,
firm, entity, or corporation other than the securities of the United
States of America;
(j) Make any change in Borrower's financial structure or in any of its
business objectives, purposes or operations which would adversely
effect the ability of Borrower to repay Borrower's Obligations;
(k) incur any debts outside the ordinary course of Borrower's business
except renewals or extensions of existing debts and interest thereon:
(l) Make any advance or loan except in the ordinary course of
Borrower's business as currently conducted;
(m) Make loans, advances or extensions of credit to any Person, except
for sales on open account and otherwise in the ordinary course of
business;
(n) Guarantee or otherwise, directly or indirectly, in any way be or
become responsible for obligations of any other Person, whether by
agreement to purchase the indebtedness of any other Person, agreement
for the furnishing of funds to any other Person through the furnishing
of goods, supplies or services, by way of stock purchase, capital
contribution, advance or loan, for the purpose of paying or discharging
(or causing the payment or discharge of) the indebtedness of any other
Person, or otherwise, except for the endorsement of negotiable
instruments by the Borrower in the ordinary course of business for
deposit or collection.
(o) (a) Sell, lease, transfer or otherwise dispose of properties and
assets having an aggregate book value of more than N/A Dollars ($ N/A )
----- --------
(whether in one transaction or in a series of transactions) except as
to the sale of inventory in the ordinary course of business; (b) change
its name, consolidate with or merge into any other corporation, permit
another corporation to merge into it, acquire all or substantially all
the properties or assets of any other Person, enter into any
reorganization or recapitalization or reclassify its capital stock, or
(c) enter into any sale-leaseback transaction;
(p) Subordinate any indebtedness due to it from a person to
indebtedness of other creditors of such person;
(q) Purchase or hold beneficially any stock or other securities of, or
make any investment or acquire any interest whatsoever in, any other
Person, except for the common stock of the Subsidiaries owned by the
Borrower on the date of this Agreement and except for certificates of
deposit with maturities of one year or less of United States commercial
banks with capital, surplus and undivided profits in excess of
$100,000,000 and direct obligations of the United States Government
maturing within one year from the date of acquisition thereof; or
(r) Allow any fact, condition or event to occur or exist with respect
to any employee pension or profit sharing plans established or
maintained by it which might constitute grounds for termination of any
such plan or for the court appointment of a trustee to administer any
such plan.
6.7 Borrower Is not a merchant whose sales for resale of goods for
personal, family or household purposes exceeded seventy-five percent (75%) in
dollar volume of its total sales of all goods during the 12 months preceding the
filing by Bank of a financing statement describing the Collateral. At no time
hereafter shall Borrower's sales for resale of goods for personal, family or
household purposes exceed seventy-five percent (75 %) in dollar volume of its
total sales.
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(ACCOUNTS & INVENTORY)
6.8 Borrower's sole place of business or chief executive office or
residence is located at the address indicated above and Borrower covenants and
agrees that it will not, during the term of this Agreement, without prior
written notification to Bank, relocate said sole place of business or chief
executive office or residence.
6.9 if Borrower is a corporation, Borrower represents, warrants and
covenants as follows:
(a) Borrower will not make any distribution or declare or pay any
dividend (in stock or in cash) to any shareholder or on any of its
capital stock, of any class, whether now or hereafter outstanding, or
purchase, acquire, repurchase, redeem or retire any such capital stock;
(b) Borrower is and shall at all times hereafter be a corporation duly
organized and existing in good standing under the laws of the state of
its incorporation and qualified and licensed to do business in
California or any other state in which it conducts its business;
(c) Borrower has the right and power and is duly authorized to enter
into this Agreement; and
(d) The execution by Borrower of this Agreement shall not constitute a
breach of any provision contained in Borrower's articles of
incorporation or by-laws.
6.10 The execution of and performance by Borrower of all of the terms and
provisions contained in this Agreement shall not result in a breach of or
constitute an event of default under any agreement to which Borrower is now or
hereafter becomes a party.
6.11 Borrower shall promptly notify Bank in writing of its acquisition by
purchase, lease or otherwise of any after acquired property of the type included
in the Collateral, with the exception of purchases of inventory in the ordinary
course of business.
6.12 All assessments and taxes, whether real, personal or otherwise, due or
payable by, or imposed, levied or assessed against, Borrower or any of its
property have been paid, and shall hereafter be paid in full, before
delinquency. Borrower shall make due and timely payment or deposit of all
federal, state and local taxes, assessments or contributions required of it by
law, and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof. Borrower will make timely payment
or deposit of all F.I.CA payments and withholding taxes required of it by
applicable laws, and will upon request furnish Bank with proof satisfactory to
it that Borrower has made such payments or deposit. If Borrower fails to pay any
such assessment, tax, contribution, or make such deposit, or furnish the
required proof, Bank may, in its sole and absolute discretion and without notice
to Borrower, (i) make payment of the same or any part thereof; or (ii) set up
such reserves in Borrower's account as Bank deems necessary to satisfy the
liability therefor, or both. Bank may conclusively rely on the usual statements
of the amount owing or other official statements Issued by the appropriate
governmental agency. Each amount so paid or deposited by Bank shall constitute a
Bank Expense and an additional advance to Borrower.
6.13 There are no actions or proceedings pending by or against Borrower or
any guarantor of Borrower before any court or administrative agency and Borrower
has no knowledge of any pending, threatened or imminent litigation, governmental
investigations or claims, complaints. actions or prosecutions involving Borrower
or any guarantor of Borrower, except as heretofore specifically disclosed in
writing to Bank. If any of the foregoing arise during the term of the Agreement,
Borrower shall immediately notify Bank in writing.
6.14 a. Borrower, at its expense, shall keep and maintain its assets
insured against loss or damage by fire, theft explosion, sprinklers
and all other hazards and risks ordinarily insured against by other
owners who use such properties in similar businesses for the full
insurable value thereof. Borrower shall also keep and maintain
business interruption insurance and public liability and property
damage insurance relating to Borrower's ownership and use of the
Collateral and its other assets. All such policies of insurance shall
be in such form, with such companies, and in such amounts as may be
satisfactory to Bank. Borrower shall deliver to Bank certified copies
of such policies of insurance and evidence of the payments of all
premiums therefor. All such policies of insurance (except those of
public liability and property damage) shall contain an endorsement in
a form satisfactory to Bank showing Bank as a loss payee thereof, with
a waiver of warranties (Form 438-BFU), and all proceeds payable
thereunder shall be payable to Bank and, upon receipt by Bank, shall
be applied on account of the Obligations owing to Bank. To secure the
payment of the Obligations, Borrower grants Bank a security interest
in and to all such policies of insurance (except those of public
liability and property damage) and the proceeds thereof, and Borrower
shall direct all insurers under such policies of insurance to pay all
proceeds thereof directly to Bank
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(ACCOUNTS & INVENTORY)
b. Borrower hereby irrevocably appoints Bank (and any of Bank's
officers, employees or agents designated by Bank) as Borrower's
attorney for the purpose of making, selling and adjusting claims under
such policies of insurance, endorsing the name of Borrower on any
check, draft, instrument or other item of payment for the proceeds of
such policies of insurance and for making all determinations and
decisions with respect to such policies of insurance. Borrower will
not cancel any of such policies without Bank's prior written consent.
Each such insurer shall agree by endorsement upon the policy or
policies of insurance issued by it to Borrower as required above, or
by independent instruments furnished to Bank, that it will give Bank
at least ten (10) days written notice before any such policy or
policies of insurance shall be altered or cancelled, and that no act
or default of Borrower, or any other person, shall affect the right of
Bank to recover under such policy or policies of insurance required
above or to pay any premium in whole or in part relating thereto.
Bank, without waiving or releasing any Obligations or any Event of
Default, may, but shall have no obligation to do so. obtain and
maintain such policies of insurance and pay such premiums and take any
other action with respect to such policies which Bank deems advisable.
All sums so disbursed by Bank, as well as reasonable attorneys' fees,
court costs, expenses and other charges relating thereto, shall
constitute Bank Expenses and are payable on demand.
6.15 All financial statements and information relating to Borrower which
have been or may hereafter be delivered by Borrower to Bank are true and correct
and have been prepared in accordance with GAAP consistently applied and there
has been no material adverse change in the financial condition of Borrower since
the submission of such financial information to Bank.
6.16 a. Borrower at all times hereafter shall maintain a standard and
modern system of accounting in accordance with GAAP consistently
applied with ledger and account cards and/or computer tapes and
computer disks, computer printouts and computer records pertaining to
the Collateral which contain information as may from time to time be
requested by Bank, not modify or change its method of accounting or
enter into, modify or terminate any agreement presently existing, or
at any time hereafter entered into with any third party accounting
firm and/or service bureau for the preparation and/or storage of
Borrower's accounting records without the written consent of Bank
first obtained and without said accounting firm and/or service bureau
agreeing to provide information regarding the Receivables and
inventory and Borrower's financial condition to Bank; permit Bank and
any of its employees. officers or agents, upon demand, during
Borrower's usual business hours, or the usual business hour of third
persons having control thereof, to have access to and examine all of
the Borrower's Books relating to the Collateral, Borrower's
Obligations to bank, Borrower's financial condition and the results of
Borrower's operations and in connection therewith, permit Bank or any
of its agents, employees or officers to copy and make extracts
therefrom.
b. Borrower shall deliver to Bank within thirty (30) days after the
end of each MONTH , a COMPANY PREPARED balance sheet and profit and
------- ------------------
loss statement covering Borrower's operation and deliver to Bank
within ninety (90) days after the end of which of Borrower's fiscal
years a(n) AUDITED statement of the financial condition of the
---------
Borrower for each such fiscal year, including but not limited to, a
balance sheet and profit and loss statement and any other report
requested by Bank relating to the Collateral and the financial
condition of Borrower, and a certificate signed by an authorized
employee of Borrower to the effect that all reports, statements,
computer disk or tape files, computer printouts, computer runs, or
other computer prepared information of any kind or nature relating to
the foregoing or documents delivered or caused to be delivered to Bank
under this subparagraph are complete, correct and thoroughly present
the financial condition of borrower and that there exists on the date
of delivery to Bank no condition or event which constitutes a breach
or Event of Default under this Agreement.
* INCLUDING A COVENANT COMPLIANCE CERTIFICATE
c. in addition to the financial statements requested above, the
Borrower agrees to provide Bank with the following schedules:
x Accounts Receivable Agings on a MONTHLY basis: within 15
- ----------------- -------
days of month-end
x Accounts Payable Agings on a MONTHLY basis: within 15
- ----------------- -------
days of month-end
Job Progress Reports on a basis:
- ---------------- --------------------
and
x BORROWINGS BASE REPORT on a MONTHLY basis: within 15
- --------------------------------------- -------
days of month-end
11
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS & INVENTORY)
OR AS REQUIRED BY DRAW, IF THE SUM OF THE OUTSTANDING LETTERS OF CREDIT AND
BORROWINGS EXCEED SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000.00).
6.17 Borrower shall maintain the following financial ratios and covenants
on a consolidated and non-consolidated basis:
(a) Working Capital in an amount not less than n/a
--------
(b) Tangible Effective Net Worth in an amount not less than
$1,500,000.00 FROM THE DATE OF THIS AGREEMENT AND THEREAFTER,
-------------------------------------------------------------
NOTWITHSTANDING THE FOREGOING, THE MINIMUM EFFECTIVE TANGIBLE NET
-----------------------------------------------------------------
WORTH WILL INCREASE BY FIFTY PERCENT (50%) OF NEW EQUITY OR
-----------------------------------------------------------
SUBORDINATED DEBT RAISED AFTER LOAN CLOSING.
-------------------------------------------
(c) a ratio of Current Assets to Current Liabilities of not less than
N/A
-------
(d) a quick ratio of cash plus securities plus Receivables to Current
Liabilities of not less than 1.25:1.00 FROM THE DATE OF THIS AGREEMENT
-----------------------------------------
AND THEREAFTER. THE DEFINITION OF CURRENT LIABILITIES USED TO
-------------------------------------------------------------
DETERMINE THE QUICK RATIO SHALL ALSO INCLUDE ALL ISSUED AND
-----------------------------------------------------------
OUTSTANDING LETTERS OF CREDIT AS WELL AS THE FIRST FIVE HUNDRED
---------------------------------------------------------------
THOUSAND DOLLARS ($500,000.00) OUTSTANDING UNDER THE BRIDGE LOAN
----------------------------------------------------------------
FACILITY AS DESCRIBED IN THAT CERTAIN COMMITMENT LETTER DATED JULY 29,
---------------------------------------------------------------------
1997, BY AND BETWEEN THE BANK AND THE BORROWER, BUT WILL NOT INCLUDE
--------------------------------------------------------------------
DEFERRED REVENUE.
----------------
(e) a ratio of Total Liabilities (less debt subordinated to Bank)
to Tangible Effective Net Worth of less than n/a .
-------------
(f) a ratio of Cash Flow to Fixed Charges of not less than n/a .
-------
(g) Net Income after taxes of N/A .
-------
(h) Borrower shall not without Bank's prior written consent acquire
or expend for or commit itself to acquire or expend for fixed assets
by lease, purchase or otherwise in an aggregate amount that exceeds
N/A Dollars ($ N/A ) in any fiscal year; and
--------- ---------
(i) SEMI-ANNUAL A/R AUDITS .
------------------------------------------------------
All financial covenants shall be computed in accordance with GAAP
consistently applied except as otherwise specifically set forth in this
Agreement. All monies due from affiliates (including officers, directors and
shareholders) shall be excluded from Borrower's assets for all purposes
hereunder.
6.18 Borrower shall promptly supply Bank (and cause any guarantor to supply
Bank) with such other information (including tax returns) concerning its
financial affairs (or that of any guarantor) as Bank may request from time to
time hereafter, and shall promptly notify Bank of any material adverse change in
Borrower's financial condition and of any condition or event which constitutes a
breach of or an event which constitutes an Event of Default under this
Agreement.
6.19 Borrower is now and shall be at all times hereafter solvent and able
to pay its debts (including trade debts) as they mature.
6.20 Borrower shall immediately and without demand reimburse Bank for all
sums expended by Bank in connection with any action brought by Bank to correct
any default or enforce any provision of this Agreement, including all Bank
Expenses; Borrower authorizes and approves all advances and payments by Bank for
items described in this Agreement as Bank Expenses.
12
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS & INVENTORY)
6.21 Each warranty, representation and agreement contained in this
Agreement shall be automatically deemed repeated with each advance and shall be
conclusively presumed to have been relied on by Bank regardless of any
investigation made or information possessed by Bank. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements which
Borrower shall give, or cause to be given, to Bank, either now or hereafter.
6.22 Borrower shall keep all of its principal bank accounts with Bank and
shall notify the Bank Immediately in writing of the existence of any other bank
account, deposit account, or any other account into which money can be
deposited.
6.23 Borrower shall furnish to the Bank: (a) as soon as possible, but in no
event later than thirty (30) days after Borrower knows or has reason to know
that any reportable event with respect to any deferred compensation plan has
occurred, a statement of the chief financial officer of Borrower setting forth
the details concerning such reportable event and the action which Borrower
proposes to take with respect thereto, together with a copy of the notice of
such reportable event given to the Pension Benefit Guaranty Corporation, if a
copy of such notice is available to Borrower; (b) promptly after the filing
thereof with the United States Secretary of Labor or the Pension Benefit
Guaranty Corporation, copies of each annual report with respect to each deferred
compensation plan; (c) promptly after receipt thereof a copy of any notice
Borrower may receive from the Pension Benefit Guaranty Corporation or the
lnternal Revenue Service with respect to any deferred compensation plan;
provided, however, this subparagraph shall not apply to notice of general
application issued by the Pension Benefit Guaranty Corporation or the Internal
Revenue Service; and (d) when the same is made available to participants in the
deferred compensation plan, all notices and other forms of information from time
to time disseminated to the participants by the administrator of the deferred
compensation plan.
6.24 Borrower is now and shall at all times hereafter remain in compliance
with all federal, state and municipal laws, regulations and ordinances relating
to the handling, treatment and disposal of toxic substances, wastes and
hazardous material and shall maintain all necessary authorizations and permits.
6.25 Borrower shall maintain insurance on the life of
----------------------
in an amount not to be less than NO/100 Dollars ($ n/a ) under one or
------------- ----------
more policies issued by insurance companies satisfactory to Bank, which policies
shall be assigned to Bank as security for the Obligations and on which Bank
shall be named as sole beneficiary.
6.26 Borrower shall limit direct and indirect compensation paid to the
following employees: , , to an aggregate
--------------------- -----------------
of N/A Dollars ($ N/A ) per
-------------- ----------- --------------------------
7. EVENTS OF DEFAULT
Any one or more of the following events shall constitute a default by
Borrower under this Agreement:
(a) If Borrower fails or neglects to perform, keep or observe any
term, provision, condition, covenant, agreement, warranty or
representation contained in this Agreement, or any other present or
future agreement between Borrower and Bank;
(b) If any representation, statement, report or certificate made or
delivered by Borrower, or any of its officers, employees or agents to
Bank is not true and correct;
(c) If Borrower fails to pay when due and payable or declared due and
payable, all or any portion of the Borrower's Obligations (whether of
principal, interest, taxes, reimbursement of Bank Expenses, or
otherwise);
(d) If there is a material impairment of the prospect of repayment of
all or any portion of Borrower's Obligations or a material impairment
of the value or priority of Bank's security interest in the Collateral;
(e) If all or any of Borrower's assets are attached, seized, subject
to a writ or distress warrant, or are levied upon, or come into the
possession of any Judicial Officer or Assignee and the same are not
released, discharged or bonded against within ten (10) days thereafter;
(f) If any insolvency Proceeding is filed or commenced by or against
Borrower without being dismissed within ten (10) days thereafter;
13
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS & INVENTORY)
(g) If any proceeding is filed or commenced by or against Borrower for
its dissolution or liquidation;
(h) If Borrower is enjoined, restrained or in any way prevented by
court order from continuing to conduct all or any material part of its
business affairs;
(i) If a notice of lien, levy or assessment is filed of record with
respect to any or all of Borrower's assets by the United States
Government, or any department, agency or instrumentality thereof, or by
any state, county, municipal or other government agency, or if any
taxes or debts owing at any time hereafter to any one or more of such
entities becomes a lien, whether choate or otherwise, upon any or all
of the Borrower's assets and the same is not paid on the payment date
thereof;
(j) If a judgment or other claim becomes a lien or encumbrance upon
any or all of Borrower's assets and the same is not satisfied,
dismissed or bonded against within ten (10) days thereafter;
(k) If Borrower's records are prepared and kept by an outside computer
service bureau at the time this Agreement is entered into or during the
term of this Agreement such an agreement with an outside service bureau
is entered into, and at any time thereafter, without first obtaining
the written consent of Bank, Borrower terminates, modifies, amends or
changes its contractual relationship with said computer service bureau
or said computer service bureau falls to provide Bank with any
requested information or financial data pertaining to Bank's
Collateral, Borrower's financial condition or the results of Borrower's
operations;
(l) If Borrower permits a default in any material agreement to which
Borrower is a party with third parties so as to result in an
acceleration of the maturity of Borrower's indebtedness to others,
whether under any indenture, agreement or otherwise;
(m) If Borrower makes any payment on account of indebtedness which has
been subordinated to Borrower's Obligations to Bank;
(n) If any misrepresentation exists now or thereafter in any warranty
or representation made to Bank by any officer or director of Borrower,
or if any such warranty or representation is withdrawn by any officer
or director;
(o) If any party subordinating its claims to that of Bank's or any
guarantor of Borrower's Obligations dies or terminates its
subordination or guaranty, becomes insolvent or an Insolvency
Proceeding is commenced by or against any such subordinating party or
guarantor;
(p) If Borrower is an individual and Borrower dies;
(q) If there is a change of ownership or control of FIFTY ONE
---------
percent (51.0%) or more of the issued and outstanding stock of
------
Borrower; or
(r) If any reportable event, which the Bank determines constitutes
grounds for the termination of any deferred compensation plan by the
Pension Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer any
such plan, shall have occurred and be continuing thirty (30) days after
written notice of such determination shall have been given to Borrower
by Bank, or any such Plan shall be terminated within the meaning of
Title IV of the Employment Retirement income Security Act ("ERISA"), or
a trustee shall be appointed by the appropriate United States District
Court to administer any such plan, or the Pension Benefit Guaranty
Corporation shall institute proceedings to terminate any plan and in
case of any event described in this Section 7.0, the aggregate amount
of the Borrower's liability to the Pension Benefit Guaranty Corporation
under Sections 4062, 4063 or 4064 of ERISA shall exceed five percent
(5%) of Borrower's Tangible Effective Net Worth.
Notwithstanding anything contained in Section 7 to the contrary, Bank shall
refrain from exercising its rights and remedies and Event of Default shall
thereafter not be deemed to have occurred by reason of the occurrence of any of
the events set forth in Sections 7.e, 7,f or 7.j of this Agreement if, within
ten (10) days from the date thereof, the same is released, discharged,
dismissed, bonded against or satisfied; provided, however, if the event Is the
institution of insolvency Proceedings against Borrower, Bank shall not be
obligated to make advances to Borrower during such cure period.
14
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS & INVENTORY)
8. BANK'S RIGHTS AND REMEDIES
8.1 Upon the occurrence of an Event of Default by Borrower under this
Agreement, Bank may, at its election, without notice of its election and without
demand, do any one or more of the following , all of which are authorized by
Borrower:
(a) Declare Borrower's Obligations, whether evidenced by this
Agreement, installment notes, demand notes or otherwise, immediately
due and payable to the Bank;
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, or any other agreement between Borrower
and Bank;
(c) Terminate this Agreement as to any future liability or obligation
of Bank, but without affecting Bank's rights and security interests in
the Collateral, and the Obligations of Borrower to Bank;
(d) Without notice to or demand upon Borrower or any guarantor, make
such payments and do such acts as Bank considers necessary or
reasonable to protect its security interest in the Collateral, Borrower
agrees to assemble the Collateral if Bank so requires and to make the
Collateral available to Bank as Bank may designate. Borrower authorizes
Bank to enter the premises where the Collateral Is located, take and
maintain possession of the Collateral and the premises (at no charge to
Bank), or any part thereof, and to pay, purchase, contest or compromise
any encumbrance, charge or lien which in the opinion of Bank appears to
be prior or superior to its security interest and to pay all expenses
incurred in connection therewith ;
(e) Without limiting Bank's rights under any security interest, Bank
Is hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks and advertising matter, or any
property of a similar nature as it pertains to the Collateral, in
completing production of, advertising for sale and selling any
Collateral and Borrower's rights under all licenses and all franchise
agreement shall inure to Bank's benefit, and Bank shall have the right
and power to enter into sublicense agreements with respect to all such
rights with third parties on terms acceptable to Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sales and sail (1n the manner provided for
herein) the inventory ;
(g) Sell or dispose the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or
on terms, in such manner and at such places (including Borrower's
premises) as is commercially reasonable in the opinion of Bank it is
not necessary that the Collateral be present at any such sale;
(h) Bank shall give notice of the disposition of the Collateral as
follows:
(i) Bank shall give the Borrower and each holder of a security
interest in the Collateral who has filed with Bank a written request
for notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some disposition other than a
public sale is to be made of the Collateral, the time on or after which
the private ale or other disposition is to be made;
(ii) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower's address appearing in this Agreement, at least
five (5) calendar days before the date fixed for the sale, or at least
five (5) calendar days before the date on or after which the private
sale or other disposition is to be made, unless the Collateral is
perishable or threatens to decline speedily in value. Notice to persons
other than Borrower claiming an interest in the Collateral shall be
sent to such addresses as they have furnished to Bank;
(iii) If the sale is to be a public sale, Bank shall also give
notice of the time and place by publishing a notice one time at least
five (5) calendar days before the date of the sale in a newspaper of
general circulation in the county in which the sale is to be held; and
(iv) Bank may credit bid and purchase at any public sale.
15
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS & INVENTORY)
(i) Borrower shall pay all Bank Expenses incurred in connection with
Bank's enforcement and exercise of any of its rights and remedies as
herein provided, whether or not suit is commenced by Bank;
(j) Any deficiency which exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third parties,
to Borrower by Bank, or, in Bank's discretion, to any party who Bank
believes, in good faith, is entitled to the excess; and
(k) Without constituting a retention of Collateral in satisfaction of
an obligation within the meaning of 9505 of the Uniform Commercial Code
or an action under California Code of Civil Procedure 726, apply any
and all amounts maintained by Borrower as deposit accounts (as that
term is defined under 9105 of the Uniform Commercial Code) or other
accounts that Borrower maintains with Bank against the Obligations.
8.2 Bank's rights and remedies under this Agreement and all other
agreements shall be cumulative. Bank shall have all other rights and remedies
not inconsistent herewith as provided by law or in equity. No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of any
default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election or acquiescence by Bank.
9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY.
If Borrower fails to pay promptly when due to another person or entity, monies
which Borrower is required to pay by reason of any provision in this Agreement,
Bank may, but need not, pay the same and charge Borrower's account therefor, and
Borrower shall promptly reimburse Bank. All such sums shall become additional
indebtedness owing to Bank, shall bear interest at the rate hereinabove
provided, and shall be secured by all Collateral. Any payments made by Bank
shall not constitute (i) an agreement by it to make similar payments in the
future; or (ii) a waiver by Bank of any default under this Agreement. Bank need
not inquire as to, or contest the validity of, any such expense, tax, security
interest, encumbrance or lien and the receipt of the usual official notice of
the payment thereof shall be conclusive evidence that the same was validly due
and owing. Such payments shall constitute Bank Expenses and additional advances
to Borrower.
10. WAIVERS.
10.1 Borrower agrees that checks and other instruments received by Bank in
payment or on account of Borrower's Obligations constitute only conditional
payment until such items are actually paid to Bank and Borrower waives the right
to direct the application of any and all payments at any time or times hereafter
received by Bank on account of Borrower's Obligations and Borrower agrees that
Bank shall have the continuing exclusive right to apply and reapply such
payments in any manner as Bank may deem advisable, notwithstanding any entry by
Bank upon its books.
10.2 Borrower waives demand, protest, notice of protest, notice of default
or dishonor, notice of payment and nonpayment, notice of any default, nonpayment
at maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments chattel paper, and guarantees
at any time held by Bank on which Borrower may in any way be liable.
10.3 Bank shall not in any way or manner be liable or responsible for (a)
the safekeeping of the inventory; (b) any 1055 or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof; or (d) any act default of any carrier, warehouseman, ballee, forwarding
agency or other person whomsoever. All risk of loss, damage or destruction of
inventory shall be borne by Borrower,
10.4 Borrower waives the right and the right to assert a confidential
relationship, if any, It may have with any accountant, accounting firm and/or
service bureau or consultant in connection with any information requested by
Bank pursuant to or in accordance with this Agreement, and agrees that a Bank
may contact directly any such accountants. accounting firm and/or service bureau
or consultant in order to obtain such information.
10.5 BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING RELATING TO This AGREEMENT OR ANY TRANSACTION HEREUNDER, OR
CONTEMPLATED HEREUNDER, OR ANY OTHER CLAIM (INCLUDING TORT OR BREACH OF DUTY
CLAIMS) OR DISPUTE HOWSOEVER ARISING BETWEEN BANK AND BORROWER.
10.6 In the event that Bank elects to waive any rights or remedies
hereunder, or compliance with any of the terms hereof, or delays or fails to
pursue or enforce any terms, such waiver, delay or failure to pursue or enforce
shall only be
16
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS & INVENTORY)
effective with respect to that single act and shall not be construed to affect
any subsequent transactions or Bank's right to later pursue such rights and
remedies.
11. ONE CONTINUING LOAN TRANSACTION.
All loans and advances heretofore, now or at any time or times hereafter made by
Bank to Borrower under this Agreement or any other agreement between Bank and
Borrower, shall constitute one loan secured by Bank's security interests in the
Collateral and by all other security interests, liens, encumbrances heretofore,
now or from time to time hereafter granted by Borrower to Bank.
Notwithstanding the above, (i) to the extent that any portion of the Obligations
are a consumer loan, that portion shall not be secured by any deed of trust or
mortgage on or other security interest in the Borrower's principal dwelling
which Is not a purchase money security interest as to that portion, unless
expressly provided to the contrary in another place, or (ii) if the Borrower (or
any of them) has (have) given or give(s) Bank a deed of trust or mortgage
covering real property, that deed of trust or mortgage shall not secure the loan
and any other Obligation of the Borrower (or any of them), unless expressly
provided to the contrary in another place.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by either
party on the other relating to this Agreement shall be in writing and sent by
regular United States mail, postage prepaid, properly addressed to Borrower or
to Bank at the addresses stated in this Agreement, or to such other addresses as
Borrower or Bank may from time to time specify to the other in writing. Requests
to Borrower by Bank hereunder may be made orally.
13. AUTHORIZATION TO DISBURSE.
Bank is hereby authorized to make loans and advances hereunder upon telephonic
or other instructions received from anyone purporting to be an officer,
employee, or representative of Borrower, or at the discretion of Bank if said
loans and advances are necessary to meet any Obligations of Borrower to Bank.
Bank shall have no duty to make inquiry or verily the authority of any such
party, and Borrower shall hold Bank harmless from any damage, claims or
liability by reason of Bank's honor of, or failure to honor, any such
instructions.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
Any documents, schedules, invoices or other papers delivered to Bank, may be
destroyed or otherwise disposed of by Bank six (6) months after they are
delivered to or received by Bank, unless Borrower requests, in writing, the
return of the said documents, schedules, invoices or other papers and makes
arrangements, at Borrower's expense, for their return.
15. CHOICE OF LAW.
The validity of this Agreement, its construction, interpretation and
enforcement, and the rights of the parties hereunder and concerning the
Collateral, shall be determined according to the laws of the State of
California. The parties agree that all actions or proceedings arising in
connection with this Agreement shall be tried and litigated only in the state
and federal courts in the Northern District of California or County of Santa
Clara.
16. GENERAL PROVISIONS.
16.1 This Agreement shall be binding and deemed effective when executed by
the Borrower and accepted and executed by Bank at its Headquarter Office.
16.2 Agreement shall bind and inure to the benefit of the respective
successors and assigns of each of the parties, provided, however, that Borrower
may not assign this Agreement or any rights hereunder without Bank's prior
written consent and any prohibited assignment shall be absolutely void. No
consent to an assignment by Bank shall release Borrower or any guarantor from
their Obligations to Bank, Bank may assign this Agreement and its rights and
duties hereunder. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in Bank's rights
and benefits hereunder. in connection therewith, Bank may disclose all documents
and information which Bank now or hereafter may have relating to Borrower or
Borrower's business.
16.3 Paragraph headings and paragraph numbers have been set forth herein
for convenience only; unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire Agreement.
17
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS & INVENTORY)
16.4 Neither this Agreement nor any uncertainty or ambiguity herein shall
be construed or resolved against Bank or Borrower, whether under any rule of
construction or otherwise; on the contrary, this Agreement has been reviewed by
all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto. When permitted by the context, the singular includes the
plural and vice versa.
16.5 Each provision of this Agreement shall be several from every other
provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
16.6 This Agreement cannot be changed or terminated orally. Except as to
currently existing Obligations owing by Borrower to Bank, all prior agreements,
understandings, representations. warranties, and negotiations. If any, with
respect to the subject matter hereof, are merged into this Agreement.
16.7 The parties intend and agree that their respective rights, duties,
powers liabilities, obligations and discretions shall be performed, carried out,
discharged and exercised reasonably and in good faith.
IN WITNESS WHEREOF, the parties hereto have caused this Revolving Credit
Loan & Security Agreement (Accounts and inventory) to be executed as of the date
first hereinabove written.
ATTEST: BORROWER: GEOCITIES
By: /s/ David Bohnett
- ------------------------------- ---------------------------------
Title: Signature of David Bohnett
Accepted and effective as of Title:
August 6, 1997 at Bank's Headquarter ------------------------------
Office
By:
---------------------------------
Signature of
(Bank) Title:
------------------------------
By: /s/ Thomas M. Hicks for By:
---------------------------- ---------------------------------
Signature of Gregory M. Cote Signature of
Title: Vice President Title:
------------------------- ------------------------------
By:
---------------------------------
Signature of
Title:
------------------------------
18
<PAGE>
EQUIPMENT
RIDER
Borrower(s):
GEOCITIES
Borrower has entered into a certain Revolving Credit and Security
Agreement (Accounts and inventory) or a certain Loan and Security Agreement
(Accounts and inventory) (either hereinafter referred to as "Agreement", dated
August 6, 1997 with Bank (Secured Party). This EQUIPMENT RIDER (hereinafter
referred to as this Rider) dated August 6, 1997 is hereby made a part of and
incorporated into that Agreement.
1. Borrower grants to Bank a security interest in the following (hereinafter
referred to as "Equipment"):
(a) All of Borrower's present machinery, equipment, fixtures, vehicles,
office equipment, furniture, furnishings, tools, dies, jigs and
attachments, wherever located, (including but not limited to, the items
listed and described on the Schedule of Equipment attached hereto and
marked Exhibit "A" and by this reference made a part hereof as though
fully set forth hereat);
(b) all of Borrower's additional equipment, wherever located, of like or
unlike nature, to be acquired hereafter, and all replacements,
substitutes, accessions, additions and improvements to any of the
foregoing; and
(c) all of Borrowers general intangibles, including without limitation,
computer programs, computer disks, computer tapes, literature, reports,
catalogs,. drawings, blueprints and other proprietary items.
2. Bank's security interest in the Equipment as set forth above shall secure
each, any and all of Borrower's Obligations to Bank, as the term "Obligations"
is defined in the Agreement; and, the payment of Borrower's indebtedness in the
principal amount of THREE MILLION FIFTY THOUSAND AND NO/100 DOLLARS
($3,050,000.00) and interest evidenced by REVOLVING LOAN & SECURITY AGREEMENT
AND VARIOUS NOTES.
3. Bank may, in its sole discretion, from time to time hereafter, make loans to
Borrower. Loans made by Bank to Borrower pursuant to this Rider shall be
included as part of the Obligations of Borrower to Bank and at Bank's option,
may be evidenced by promissory note(s), in form satisfactory to Bank. Such
loans shall bear interest at the rate and be payable in the manner specified in
said promissory note(s) in the event Bank exercises the aforementioned option,
and in the event Bank does not, such loans shall bear interest at the rate and
be payable in the manner specified in the Agreement.
4. Borrower represents and warrants to Bank that:
(a) it has good and indefeasible title to the Equipment;
(b) the Equipment is and will be free and clear of all liens, security
interests, encumbrances and claims, except as held by Bank;
(c) the Equipment shall be kept only at the following locations:
-----------------------------------------------------------------------
.
--------------------------------------------------------------------
(d) the owners or mortgages of the respective locations are:
--------------
.
---------------------------------------------------------------------
(e) Bank shall have the right upon demand now and /or at all times
hereafter, during Borrower's usual business hours to inspect and
examine the Equipment and Borrower agrees to reimburse Bank for its
reasonable costs and expenses in so doing.
5. Borrower shall keep and maintain the Equipment in good operating conditions
and repair, make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved.
Borrower shall not permit any items of Equipment to become a fixture to real
estate or accession to other property, and the Equipment is now and shall at all
times remain and be personal property.
6. Borrower, at its expense, shall keep and maintain: the Equipment insured
against loss or damage by fire, theft, explosion, sprinklers and all other
hazards and risks ordinarily insured against by other owners who use such
properties and interest in properties in similar businesses for the full
insurable value thereof; and business interruption insurance and public
liability and property damage insurance relating to Borrowers ownership and use
of its assets. All such policies of insurance shall be in such form, with such
companies and in such amounts as may be satisfactory to Bank. Borrower shall
deliver to Bank be in such form, with such companies and in such amounts as may
be satisfactory to Bank. Borrower shall deliver to Bank certified copies of
such policies of insurance and evidence of the payment of all premiums thereof.
All such policies of insurance (except those of public liability and property
damage) shall contain an endorsement in a form satisfactory to Bank showing loss
payable to Bank and all proceeds payable thereunder shall be payable to Bank and
upon receipt by Bank shall be applied on the account of Borrower's Obligations.
To secure the payment of Borrower's Obligations, Borrower grants Bank a security
interest in and to all
19
<PAGE>
such policies of insurance (except those of public liability and property
damage) and the proceeds thereof and directs all insurers under such policies of
insurance to pay all proceeds thereof directly to Bank. Borrower hereby
irrevocably appoints Bank (and any of Bank's officers, employees or agents
designed by Bank) as Borrower's attorney-in-fact for the purpose of making,
settling and adjusting claims under such policies of insurance and for making
all determinations and decisions with respect to such policies of insurance.
Each such insurer shall agree by endorsement upon the policy or policies of
insurance issued by it to Borrower as required above, or by independent
instruments furnished to Bank that it will give Bank at least ten (10) days
written notice before any such policy or policies of insurance shall be altered
or canceled, and that no act or default of Borrower, or any other person, shall
affect the right of Bank to recover under such policy or policies of insurance
required above or to pay any premium in whole or in part relating thereto. Bank,
without waiving or releasing any obligations to do so, obtain and maintain such
policies of insurance and pay such premiums and take any other action with
respect to such policies which Bank deems advisable. All sums so disbursed by
Bank, including reasonable attorney"s fees, court costs, expenses and other
charges relating thereto, shall be part of Borrower's Obligations and payable on
demand.
7. Until default by Borrower under the Agreement or this Rider, Borrower may,
subject to the provisions of the Agreement and this Rider and consistent
therewith, remain in possession thereof and use the Equipment referred to herein
in the ordinary course of business at the locations or locations hereinabove
designated.
8. All of the terms, conditions, warranties, covenants, agreements and
representations of the Agreement are incorporated herein and reaffirmed.
9. Upon a default by Borrower under the Agreement or this Rider, Borrower upon
request of Bank to do so, agrees to assemble and make the Equipment or any part
thereof available to Bank at a place designated by Bank.
10. Borrower shall upon demand by Bank immediately deliver to Bank and properly
endorse, any and all evidences of ownership, certificates of title or
applications for title to any of the aforesaid items of Equipment.
11. Bank shall not in any way or manner by liable or responsible for (a) the
safekeeping of the Equipment; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof or (d) any act or default by any person whomsoever. All risk of Loss,
damage or destruction of the Equipment shall be borne by Borrower.
Borrower(s): GEOCITIES
By: /s/ David C. Bohnett By:
---------------------------------- -------------------------------
By: By:
---------------------------------- -------------------------------
Accepted this 6th day of August 1997 at Bank's place of business in San Jose, CA
95113.
By: /s/ Thomas M. Hicks for
-------------------------------
GREGORY M. COTE, VICE PRESIDENT
20
<PAGE>
Comerica Bank-California 75 East Trimble Road
San Jose. California 95131
(408) 5565000
MODIFICATION TO REVOLVING CREDIT LOAN & SECURITY AGREEMENT
This First Modification to Revolving Credit Loan & Security Agreement (this
"Modification") is entered into by and between GEOCITIES ("Borrower") and
---------
Comerica Bank-California ("Bank") as of this 12TH day of MAY, 1998, at San Jose,
---- --- ----
California.
RECITALS
--------
A. Bank and Borrower have previously entered into or are concurrently
herewith entering into a Revolving Credit Loan & Security Agreement (Accounts &
Inventory) (the "Agreement") dated August 6, 1997.
--------------
B. Borrower has requested, and Bank has agreed, to modify the Agreement as
set forth below.
AGREEMENT
---------
For good and valuable consideration, the parties agree as set forth below:
Incorporation by Reference. The Agreement as modified hereby and the
--------------------------
Recitals are incorporated herein by this reference.
Section 1.5 "Borrowing Base" as used in this Agreement
means the sum of: (1) Seventy percent
(70.00%) of the net amount of Eligible
Accounts after deducting therefrom all
payments, adjustments and credits applicable
thereto ("Accounts Receivable Borrowing
Base"); and (2) the amount, if any, of the
advances against inventory agreed to be made
pursuant to any Inventory Rider ("Inventory
Borrowing Base"), or other rider, amendment or
modification to this Agreement. NO FORMULA
SHALL APPLY TO BORROWINGS UP TO THE SUM OF
$2,000,000.
Section 1.31 Letter of Credit Sub-Feature - The amount of
$1,750,000.00 for the issuance of Letters of
Credit is to be allowed within the Borrowing
Base and within the line amount.
<PAGE>
Section 2.1 Upon the request of the Borrower, made at any
time and from time to time during the term
hereof, and so long as no Event of Default has
occurred, Bank shall lend to Borrower an
amount equal to the Borrowing Base including
Letter of Credit Sub-feature; provided,
however, that in no event shall Bank be
obligated to make advances to Borrower under
this Section 2.1 whenever the Daily Balance
exceeds, at any time, either the Borrowing
Base including Letter of Credit Sub-Feature or
the sum of SEVEN MILLION AND NO/100 DOLLARS
($7,000,000.00), such amount being referred to
herein as "Overadvance".
Overformula in the amount of $2,000,000.00 is
to be allowed within the Borrowing Base and
within the line amount.
Section 2.2 Except as hereinbelow provided, the Credit
shall bear interest, on the Daily Balance
owing, at a rate of Zero (0.00%) percentage
points per annum above the Base Rate (the
"Rate"). The Credit shall bear interest, from
and after the occurrence of an Event of
Default and without constituting a waiver of
any such Event of Default, on the Daily
Balance owing, at a rate three (3) percentage
points per annum above the Rate. All interest
chargeable under this Agreement that is based
upon a per annum calculation shall be computed
on the basis of a three hundred sixty (360)
day year for actual days elapsed.
The Base Rate as of the date of this agreement
is Eight and One-Half (8.50%) per annum. In
the event that the Base Rate announced is,
from time to time hereafter changed,
adjustment in the Rate shall be made and based
on the Base Rate in effect on the date of such
change. The Rate, as adjusted, shall apply to
the Credit until the Base Rate is adjusted
again. The minimum interest payable by the
Borrower under this Agreement shall in no
2
<PAGE>
event be less than N/A per month. All
interest payable by Borrower under the Credit
shall be due and payable on the first day of
each calendar month during the term of this
Agreement and Bank, may, at its option, elect
to treat such interest and any and all Bank
Expenses as advances under the Credit, which
amounts shall thereupon constitute Obligations
and shall thereafter accrue interest at the
rate applicable to the Credit under the terms
of this Agreement.
Section 3.1 This Agreement shall remain in full force and
effect until DECEMBER 31, 1999, or until
terminated by notice by Borrower. Notice of
such termination by Borrower shall be
effectuated by mailing of a registered or
certified letter not less than thirty (30)
days prior to the effective date of such
termination, addressed to the Bank at the
address set forth herein and the termination
shall be effective as of the date so fixed in
such notice. Notwithstanding the foregoing,
should Borrower be in default of one or more
of the provisions of this Agreement, Bank may
terminate this Agreement at any time without
notice. Notwithstanding the foregoing, should
either Bank or Borrower become insolvent or
unable to meet its debts as they mature, or
fail, suspend, or go out of business, the
other party shall have the right to terminate
this Agreement at any time without notice. On
the date of termination all Obligations shall
become immediately due and payable without
notice or demand; no notice of termination by
Borrower shall be effective until Borrower
shall have paid all Obligations to Bank in
full. Notwithstanding termination, until all
Obligations have been fully satisfied, Bank
shall retain its security interest in all
existing Collateral and Collateral arising
thereafter, and Borrower shall continue to
perform all of its Obligations.
Section 6.16 c In addition to the financial statements
requested above, the Borrower agrees to
provide Bank with the following schedules:
3
<PAGE>
Accounts Receivable Agings on a quarterly
basis within 15 days of each quarter end or
when borrowing on a monthly basis within 15
days of each month end;
Accounts Payable Agings on a quarterly basis
within 15 days of each quarterly end or when
borrowing on a monthly basis within 15 days of
each month end;
Borrowing Base Certificates on a monthly basis
within 15 days of each month end if Letter(s)
of Credit and borrowings exceed $2,00,000.00;
Semi-Annual A/R audits.
Section 6.17 b Tangible Effective Net Worth in an amount not
less than $17,600,000.00, monthly, to be
increased by fifty (50%) percent of new equity
raised.
Section 6.17 d a quick ratio of cash plus securities plus
Receivables to Current Liabilities of not less
than revenue 2.20:1.00. Quick ratio will
include all issued and outstanding letter of
credit, but will not include deferred revenue.
Section 6.17 g Net Income after taxes of greater than $0.00
on a quarterly basis, to begin testing on the
2nd Quarter of fiscal year 1999.
Legal Effect. Except as specifically set forth in this Modification, all
------------
of the terms and conditions of the Agreement remain in full force and effect.
Integration. This is an integrated Modification and supersedes all prior
-----------
negotiations and agreements regarding the subject matter hereof. All amendments
hereto must be in writing
and signed by the parties.
4
<PAGE>
IN WITNESS WHEREOF, the parties have agreed as of the date first set forth
above.
COMERICA BANK-CALIFORNIA BORROWER:
GEOCITIES
By: /s/ Thomas M. Hicks
-------------------
Tom Hicks
Title: Vice President By: /s/ Stephen L. Hansen
--------------------------------
Title: COO & CFO
--------------------------------
5
<PAGE>
EXHIBIT 10.21
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION
PROMISSORY NOTE
$100,000 Dated: July 24, 1998
FOR VALUE RECEIVED, the undersigned, THOMAS R. EVANS (the "Borrower"),
hereby unconditionally promises to pay to the order of GEOCITIES (the "Lender"),
the principal amount of ONE HUNDRED THOUSAND DOLLARS ($100,000), together with
interest from the date hereof on the unpaid principal amount at a fixed rate
equal to 5.56% per annum. All unpaid principal and interest shall be due and
payable on the date that is 180 days following the earlier of (i) the closing of
the Lender's initial public offering, or (ii) the closing of a change in
ownership or control of the Lender effected through any of the following
transactions: (A) a merger, consolidation or reorganization approved by the
Lender's stockholders, unless securities representing more than fifty percent
------
(50%) of the total combined voting power of the voting securities of the
successor corporation are immediately thereafter beneficially owned, directly or
indirectly and in substantially the same proportion, by the persons who
beneficially owned the Lender's outstanding voting securities immediately prior
to such transaction, (B) any stockholder-approved transfer or other disposition
of all or substantially all of the Lender's assets, or (C) the acquisition,
directly or indirectly by any person or related group of persons (other than the
Lender or a person that directly or indirectly controls, is controlled by, or is
under common control with, the Lender), of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934) of securities
possessing more than fifty percent (50%) of the total combined voting power of
the Lender's outstanding securities pursuant to a tender or exchange offer made
directly to the Lender's stockholders which the Board of Directors of the Lender
recommends such stockholders accept, but in no event shall such date be later
than May 11, 2001.
All unpaid principal and accrued interest hereunder will be immediately
forgiven by the Lender if its net revenues for 1998 (as set forth in its audited
Statement of Operations for such year) are greater than or equal to $ [***].
This Promissory Note shall be binding on the Borrower and his successors
and assigns, and shall be binding upon and inure to the benefit of the Lender
and its successors and assigns. The Borrower may not assign or transfer this
Promissory Note or any of its obligations hereunder without the Lender's prior
written consent. This Promissory Note shall be governed by and construed in
accordance with California law.
/s/ Thomas R. Evans
Thomas R. Evans
[***] Confidential Treatment Requested for Redacted Portion.
<PAGE>
EXHIBIT 10.25
STANDARD OFFICE LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
* DATED 9/17/85, AS AMENDED AND CATHERINE POPESCO (COLLECTIVELY "LESSOR")
** SEE ATTACHED ADDENDUM
1. Basic Lease Provisions ("Basic Lease Provisions")
1.1 Parties: This Lease, dated, for reference purposes only, MAY 13,
1996, is made by and between MAURY HERMAN, AS TRUSTEE OF THE MAURY HERMAN
FAMILY TRUST #1*, (herein called "Lessor") and GEOCITIES, A CALIFORNIA
CORPORATION, doing business under the name of GEOCITIES, A CALIFORNIA
CORPORATION, (herein called "Lessee").
** 1.2 Premises: Suite Number(s) 300 WHICH IS THE floors, consisting of
approximately 8,400 square feet, more or less, as defined in paragraph 2 and
as shown on Exhibit "A" hereto (the "Premises").
1.3 Building: Commonly described as being located 1918 MAIN STREET, in
the City of SANTA MONICA County of LOS ANGELES, State of CALIFORNIA, Initials
________ and as defined in paragraph 2.
1.4 Use: GENERAL OFFICE USE OR OTHER LEGALLY PERMITTED USE APPROVED IN
WRITING BY LESSOR, subject to paragraph 6.
** 1.5 Term: FIVE (5) YEARS commencing ** ("Commencement Date") and ending
FIVE YEARS AFTER COMMENCEMENT, as defined in paragraph 3.
** 1.6 Base Rent: $13,260.00 per month, payable on the ___ day of each
month, per paragraph 4.1 SUBJECT TO PARAGRAPH 51, BASE RENT SHALL BE PAYABLE
COMMENCING ON THE COMMENCEMENT DATE.
1.7 Base Rent Increase: On N/A the monthly Base Rent payable under
paragraph 1.6 above shall be adjusted as provided in paragraph 4.3 below.
1.8 Rent Paid Upon Execution: $13,260.00 for SUITE 300 FOR THE FIRST
MONTH.
1.9 Security Deposit: $45,000.00.
1.10 Lessee's Share of Operating Expense Increase: 50% as defined in
paragraph 4.2.
** 2. Premises, Parking and Common Areas.
** 2.1 Premises: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and
improvements thereon or thereunder, are herein collectively referred to as
the "Office Building Project." Lessor hereby leases to Lessee and Lessee
leases from Lessor for the term, at the rental, and upon all of the
conditions set forth herein, the real property referred to in the Basic Lease
Provisions, paragraph 1.2, as the "Premises," including rights to the Common
Areas as hereinafter specified.
** 2.2 Vehicle Parking: So long as Lessee is not in default, and subject
to the rules and regulations attached hereto, and as established by Lessor
from time to time, Lessee shall be entitled to rent and use * parking
spaces in the Office Building Project at the monthly rate applicable from
time to time for monthly parking as set by Lessor and/or its licensee.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove or tow away the vehicle involved and
charge the cost to Lessee, which cost shall be immediately payable upon
demand by Lessor.
2.2.2 The monthly parking rate per parking space will be $ N/A per
month at the commencement of the term of this Lease.
Initials __________ Initials __________
__________ __________
2.3 Common Areas-Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary
line of the Office Building Project that are provided and designated by the
Lessor from time to time for the general non-exclusive use of Lessor, Lessee
and of other lessees of the Office Building Project and their respective
employees, suppliers, shippers, customers and invitees, including but not
limited to common entrances, lobbies, corridors, stairways and stairwells,
public restrooms, elevators, escalators, parkways, ramps, driveways,
landscaped areas and decorative walls.
2.4 Common Areas-Rules and Regulations. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with
respect to the Office Building Project and Common Areas, and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor or such other person(s) as Lessor may appoint shall have the
exclusive control and management of the common Areas and shall have the
right, from time to time, to modify, amend and enforce said rules and
regulations. Lessor shall not be responsible to Lessee for the non-compliance
with said rules and regulations by other lessees, their agents, employees and
invitees of the Office Building Project.
2.5 Common Areas-Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas,
ingress, egress, direction of traffic, decorative walls, landscaped areas and
walkways; provided, however, Lessor shall at all times provide the parking
facilities required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries
of the Office Building Project to be a part of the Common Areas, provided
that such other land and improvements have a reasonable and functional
relationship to the Office Building Project;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Office Building Project as Lessor
may, in the exercise of sound business judgment deem to be appropriate.
** 3. Term.
3.1 Term. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease
or the obligations of Lessee hereunder or extend the terms hereof; but, in
such case, Lessee shall not be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease, except as may otherwise
provided in this Lease, until possession of the Premises is tendered to
Lessee, as hereinafter defined; provided, however, that if Lessor shall not
have delivered possession of the Premises within sixty (60) days following
said Commencement Date, as the same may be extended under the terms of a Work
Letter executed by Lessor and Lessee, Lessee may, at Lessee's option, by
notice in writing to Lessor within ten (10) days thereafter, cancel this
Lease, in which event the parties shall be discharged from all obligations
hereunder; provided, however, that, as to Lessee's obligations,
(C) 1984 American Industrial Real Estate Association
FULL SERVICE-GROSS Initials: _________
_________
PAGE 1 OF 11 PAGES
<PAGE>
Lessee first reimburses Lessor for all costs incurred for Non-Standard
Improvements and, as to Lessor's obligations, Lessor shall return any money
previously deposited by Lessee (less any offsets due Lessor for Non-Standard
Improvements); and provided further, that if such written notice by Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
3.2.1 Possession Tendered-Defined. Possession of the Premises shall be
deemed tendered to Lessee ("Tender of Possession") when (1) the improvements to
be provided by Lessor under this Lease are substantially completed, (2) the
Building utilities are ready for use in the Premises, (3) Lessee has reasonable
access to the Premises, and (4) ten (10) days shall have expired following
advance written notice to Lessee of the occurrence of the matters described in
(1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 Delays Caused by Lessee. There shall be no abatement of rent, and
the sixty (60) days period following the Commencement Date before which Lessee's
right to cancel this Lease accrues under paragraph 3.2, shall be deemed extended
to the extent of any delays caused by acts or omissions of Lessee, Lessee's
agents, employees and contractors.
3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the Lease term is
defined as the completion of the improvements, Lessee and Lessor shall execute
an amendment to this Lease establishing the date of Tender of Possession (as
defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. Rent.
4.1 Base Rent. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as otherwise expressly provided in this Lease, Lessee shall pay
to Lessor the Base Rent for the Premises set forth in paragraph 1.6 of the Basic
Lease Provisions, without offset or deduction. Lessee shall pay Lessor upon
execution hereof the advance Base Rent described in paragraph 1.8 of the Basic
Lease Provisions. Rent for any period during the term hereof which is for less
than one month shall be prorated based upon the actual number of days of the
calendar month involved. Rent shall be payable in lawful money of the United
States to Lessor at the address stated herein or to such other persons or at
such other places as Lessor may designate in writing.
4.2 Operating Expense Increase. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
the amount by which all Operating Expenses, as hereinafter defined, for each
Comparison Year exceeds the amount of all Operating Expenses for the Base Year,
such excess being hereinafter referred to as the "Operating Expense Increase,"
in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of the
Premises by the total approximate square footage of the rentable space contained
in the Office Building Project. It is understood and agreed that the square
footage figures set forth in the Basic Lease Provisions are approximations which
Lessor and Lessee agree are reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Office Building Project.
(b) "Base Year" is defined as the calendar year in which the Lease term
commences.
(c) "Comparison Year" is defined as each calendar year during the term
of this Lease subsequent to the Base Year; provided, however, Lessee shall have
no obligation to pay a share of the Operating Expense Increase applicable to the
first twelve (12) months of the Lease Term (other than such as are mandated by a
governmental authority, as to which government mandated expenses Lessee shall
pay Lessee's Share, notwithstanding they occur during the first twelve (12)
months). Lessee's Share of the Operating Expense Increase for the first and last
Comparison Years of the Lease Term shall be prorated according to that portion
of such Comparison Year as to which Lessee is responsible for a share of such
increase.
(d) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by Lessor in the exercise of its reasonable
discretion, for:
(i) the operation, repair, maintenance, and replacement, in neat,
clean, safe, good order and condition, of the Office Building Project,,
including but not limited to, the following:
(aa) The Common Areas, including their surfaces, coverings,
decorative items, carpets, drapes and window coverings, and including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
stairways, parkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Area lighting facilities, building exteriors and roofs, fences
and gates;
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire detection
systems including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is elsewhere
in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by Lessor
under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies and tools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to Federal income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a useful
life for depreciation purposes according to Federal income tax guidelines of
five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements of
equipment or improvements that have a useful life for Federal income tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d)(viii), in which case their cost shall be included as above
provided.
(f) Operating Expenses shall not include any expenses paid by any lessee
directly to third parties, or as to which Lessor is otherwise reimbursed by any
third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense Increase shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time in advance of Lessee's Share
of the Operating Expense Increase for any Comparison Year, and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each Comparison
Year of the Lease term, on the same day as the Base Rent is due hereunder. In
the event that Lessee pays Lessor's estimate of Lessee's Share of Operating
Expense Increase as aforesaid, Lessor shall deliver to Lessee within sixty (60)
days after the expiration of each Comparison Year a reasonably detailed
statement showing Lessee's Share of the actual Operating Expense Increase
incurred during such year. If Lessee's payments under this paragraph 4.2(g)
during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense Increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between them
by cash payment any balance determined to exist with respect to that portion of
the last Comparison Year for which Lessee is responsible as to Operating Expense
Increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year.
4.3 Rent Increase.
4.3.1 At the times set forth in paragraph 1.7 of the Basic Lease
Provisions, the monthly Base Rent payable under paragraph 4.1 of this Lease
shall be adjusted by the increase, if any, in the Consumer Price Index of the
Bureau of Labor Statistics of the Department of Labor for All Urban Consumers,
(1967 = 100), "All Items," for the city nearest the location of the Building,
herein referred to as "C.P.I.," since the date of this Lease.
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4.3.2 The monthly Base Rent payable pursuant to paragraph 4.3.1 shall
be calculated as follows: the Base Rent payable for the first month of the term
of this Lease, as set forth in paragraph 4.1 of this Lease, shall be multiplied
by a fraction the numerator of which shall be the C.P.i. of the calendar month
during which the adjustment is to take effect, and the denominator of which
shall be the C.P.I. for the calendar month in which the original Lease term
commences. The sum so calculated shall constitute the new monthly Base Rent
hereunder, but, in no event, shall such new monthly Base Rent be less than the
Base Rent payable for the month immediately preceding the date for the rent
adjustment.
4.3.3 In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or [***TEXT
MISSING***].
Initials __________ Initials __________
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5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder.
If Lessee fails to pay rent or other charges due hereunder, or otherwise
defaults with respect to any provisions of this Lease, Lessor may use, apply or
retain all or any portion of said deposit for the payment of any rent or other
charge in default for the payment of any other sum to which Lessor may become
obligated by reason of Lessee's default, or to compensate Lessor for any loss or
damage which Lessor may suffer thereby. If Lessor so uses or applies all or any
portion of said deposit, Lessee shall within ten (10) days after written demand
therefor deposit cash with Lessor in an amount sufficient to restore said
deposit to the full amount then required of Lessee. If the monthly Base Rent
shall, from time to time, increase during the term of this Lease, Lessee shall,
at the time of such increase, deposit with Lessor additional money as a security
deposit so that the total amount of the security deposit held by Lessor shall at
all times bear the same proportion to the then current Base Rent as the initial
security deposit bears to the initial Base Rent set forth in paragraph 1.6 of
the Basic Lease Provisions. Lessor shall not be required to keep said security
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessor with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state existing
on the date that the Lease term commences, but without regard to alterations or
improvements made by Lessee or the use for which Lessee will occupy the
Premises, does not violate any covenants or restrictions of record, or any
applicable building code, regulation or ordinance in effect on such Lease term
Commencement Date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor, after receipt of
written notice from Lessee setting forth with specificity the nature of the
violation, to promptly, at Lessor's sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and their neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee in a clean condition on
the Lease Commencement Date (unless Lessee is already in possession) and Lessor
warrants to Lessee that the plumbing, lighting, air conditioning, and heating
system in the Premises shall be in good operating condition. In the event that
it is determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from Lessee setting forth
with specificity the nature of the violation, to promptly, at Lessor's sole
cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Lessor shall keep the Office building Project,
including the Premises, interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter
in effect which would otherwise afford Lessee the right to make repairs at
Lessor's expense or to terminate this Lease because of Lessor's failure to keep
the Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair any Premises
improvements that are not ordinarily a part of the Building or that are above
then Building standards. Lessor may, at its option, upon reasonable notice,
elect to have Lessee perform any particular such maintenance or repairs the cost
of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall panelling,
ceilings and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additional, Utility Installations or repairs in, on
or about the Premises, or the Office Building Project. As used in this
paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and
wall coverings, power panels, electrical distribution systems, lighting
fixtures, air conditioning, plumbing, and telephone and telecommunication wiring
and equipment. At the expiration of the term, Lessor may require the removal of
any or all of said alterations, improvements, additions or Utility
Installations, and the restoration of the
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Premises and the Office Building Project to their prior condition, at Lessee's
expense. Should Lessor permit Lessee to make its own alterations, improvements,
additions or Utility Installations, Lessee shall use only such contractor as has
been expressly approved by Lessor, and Lessor may require Lessee to provide
Lessor, at Lessee's sole cost and expense, a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such improvements,
to insure Lessor against any liability for mechanic's and materialmen's liens
and to insure completion of the work. Should Lessee make any alterations,
improvements, additions or Utility Installations without the prior approval of
Lessor, or use a contractor not expressly approved by Lessor, Lessor may, at any
time during the term of this Lease, require that Lessee remove any part or all
of the same.
(b) Any alterations, improvements, additions or Utility Installations in
or about the Premises or the Office Building Project that Lessee shall desire to
make shall be presented to Lessor in written form, with proposed detailed plans.
If Lessor shall give its consent to Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in the Premises by Lessee, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises or the
Building provided by law. If Lessee shall, in good faith, contest the validity
of any such lien, claim or demand, then Lessee shall, at its dole expense defend
itself and Lessor against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises, the Building or the Office Building Project, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor a surety
bond satisfactory to Lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
Premises, the Building and the Office Building Project free from the effect of
such lien or claim. In addition, Lessor may require Lessee to pay Lessor's
reasonable attorneys' fees and costs in participating in such action if Lessor
shall decide it is to Lessor's best interest to do so.
(e) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made to the Premises by Lessee, including but not limited to, floor
coverings, panelings, doors, drapes, built-ins, moldings, sound attenuation, and
lighting and telephone or communication systems, conduit, wiring and outlets,
shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the property of Lessor and remain
upon and be surrendered with the Premises at the expiration of the Lease term,
unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided
Lessee is not in default, notwithstanding the provisions of this paragraph
7.3(e), Lessee's personal property and equipment, other than that which is
affixed to the Premises so that it cannot be removed without material damage to
the Premises or the Building, and other than Utility Installations, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and specifications
for any alterations, improvements, additions or Utility Installations.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
8. Insurance; Indemnity.
8.1 Liability Insurance-Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability endorsement (GL0404), or equivalent, in an
amount of not less than $1,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance-Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 Property Insurance-Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance-Lessor. Lessor shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Office Building Project improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies carried by Lessor. Lessee shall
pay the entirety of any increase in the property insurance premium for the
Office Building Project over what it was immediately prior to the commencement
of the term of this Lease if the increase is specified by Lessor's insurance
carrier as being caused by the nature of Lessee's occupancy or any act or
omission of Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior
to the expiration of such policies, furnish Lessor with renewals thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this
Lease shall be endorsed to so provide.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expense arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter, Lessee upon notice from
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Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
Lessee, as a material part of the consideration to Lessor, hereby assumes all
risk of damage to property of Lessee or injury to persons, in, upon or about the
Office Building Project arising from any cause and Lessee hereby waives all
claims in respect thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 No representation. Lessor makes no representation that the limits or
forms of coverage of insurance specified in this paragraph 8 are adequate to
cover Lessee's property or obligations under this Lease.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the building.
(c) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the buildings
on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean if
the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused by
an event required to be covered by the insurance described in paragraph 8. The
fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
9.2 Premises Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is an Insured
Loss and which falls into the classification of either Premises Damage or
Premises Building Partial Damage, then lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is not an
Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense), which
damage prevents Lessee from making any substantial use of the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of the occurrence of such damage of Lessor's intention to cancel
and terminate this Lease as of the date of the occurrence of such damage, in
which event this Lease shall terminate as of the date of the occurrence of such
damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, which falls into the classifications of either (i) Premises
Building Total Destruction, or (ii) Office Building Project Total Destruction,
then Lessor may at Lessor's option either (i) repair such damage or destruction
as soon as reasonably possible at Lessor's expense (to the extent the required
materials are readily available through usual commercial channels) to its
condition existing at the time of the damage, but not Lessee's fixtures,
equipment or tenant improvements, and this Lease shall continue in full force
and effect, or (ii) give written notice to Lessee within thirty (30) days after
the date of occurrence of such damage of Lessor's intention to cancel and
terminate this Lease, in which case this Lease shall terminate as of the date of
the occurrence of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last twelve
(12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Lessee duly exercises
such option during said twenty (20) day period, Lessor shall, at Lessor's
expense, repair such damage, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect. If Lessee fails to exercise such option during said
twenty (20) day period, then Lessor may at Lessor's option terminate and cancel
this Lease as of the expiration of said twenty (20) day period by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of said twenty (20) day period, notwithstanding any term or provision
in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises are
not usable (including loss of use due to loss of access or essential services),
the rent payable hereunder (including Lessee's Share of Operating Expense
increase) for the period during which such damage, repair or restoration
continues shall be abated, provided (1) the damage was not the result of the
negligence of Lessee, and (2) such abatement shall only be to the extent the
operation and profitability of Lessee's business as operated from the Premises
is adversely affected. Except for said abatement of rent, if any, Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises or
the building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively, of such repair or restoration.
In such event this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
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9.6 Termination-Advance Payments. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project. The term
"real property tax" shall also include any tax, fee, levy, assessment or charge
(i) in substitution of, partially or totally, any tax, fee, levy, assessment or
charge hereinabove included within the definition of "real property tax," or
(ii) the nature of which was hereinbefore included within the definition of
"real property tax," or (iii) which is imposed for a service or right not
charged prior to June 1, 1978, or, if previously charged, has been increased
since June 1, 1978, or (iv) which is imposed as a result of a change in
ownership, as defined by applicable local statutes for property tax purposes, of
the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. Utilities.
11.1 Services Provided by Lessor. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately
metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's
Share or a reasonable proportion to be determined by Lessor of all charges
jointly metered with other premises in the Building.
11.3 Hours of Service. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours as
may hereafter be set forth. Utilities and services required at other times shall
be subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall
include the transfer or transfers aggregating: (a) if Lessee is a corporation,
more than twenty-five percent (25%) of the voting stock of such corporation, (b)
if Lessee is a partnership, more than twenty-five percent (25%) of the profit
and loss participation in such partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with lessee, or to any person or entity which acquires
all the assets as a going concern of the business that is being conducted on the
Premises, all of which are referred to as "Lessee Affiliate"; provided that
before such assignment shall be effective, (a) said assignee shall assume, in
full, the obligations of Lessee under this Lease and (b) Lessor shall be given
written notice of such assignment and assumption. Any such assignment shall
not, in any way, affect or limit the liability of Lessee under the terms of this
Lease even if after such assignment or subletting the terms of this Lease are
materially changed or altered without the consent of Lessee, the consent of whom
shall not be necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary liability
of Lessee to pay the rent and other sums due Lessor hereunder including Lessee's
Share of Operating Expense Increase, and to perform al other obligations to be
performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such assignment
or subletting, nor the acceptance of rent, shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
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(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessees.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modification thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent
and such action shall not relieve such persons from liability under this Lease
or said sublease; however, such persons shall not be responsible to the extent
any such amendment or modification enlarges or increases the obligations of the
Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied upon
by Lessor in giving its consent to an assignment or subletting was materially
false shall, at Lessor's election, render Lessor's said consent null and void.
12.4 Additional Terms and Conditions Applicable to Subletting.
(a) Lessee hereby assigns and transfers to lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice form or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublessee as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into a
sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed
and agreed to conform and comply with each an every obligation herein to be
performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(d) No sublease shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented, Lessor
agrees to deliver a copy of any notice of default by Lessee to the sublessee.
Such sublessee shall have the right to cure a default of Lessee within three (3)
days after service of said notice of default upon such sublessee, and the
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such defaults cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys,' architects,' engineers' or other
consultants' fees.
12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation of
the Premises shall include the failure to occupy the Premises for a continuous
period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonments), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quite shall also constitute the notice required by
this subparagraph.
(d) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, then Lessee shall not be deemed to be in default if Lessee
commenced such cure within said thirty (30) day period and thereafter diligently
pursues such cure to completion. To the extent permitted by law, such thirty
(30) day notice shall constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. (S)101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days; (iii) the anointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) the discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of this Lease
by Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary
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renovation and alteration of the Premises, reasonable attorneys' fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease shall
continue in effect whether or not Lessee shall have vacated or abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in o
event later than thirty (30) days after written notice by lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or other
sum due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any
installment of Base Rent, Operating Expense Increase, or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's default with respect to such overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under the
threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first occurs;
provided that if so much of the Premises or the Office Building Project are
taken by such condemnation as would substantially and adversely affect the
operation and profitability of Lessee's business conducted from the Premises,
Lessee shall have the option, to be exercised only in writing within thirty (30)
days after Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within thirty (30) days after the condemning
authority shall have taken possession), to terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent and Lessee's Share of Operating Expense Increase shall be reduced in the
proportion that the floor area of the Premises taken bears to the total floor
area of the Premises. Common Areas taken shall be excluded from the Common
Areas usable by Lessee and no reduction of rent shall occur with respect thereto
or by reason thereof. Lessor shall have the option in its sole discretion to
terminate this Lease as of the taking of possession by the condemning authority,
by giving written notice to Lessee of such election within thirty (30) days
after receipt of notice of a taking by condemnation of any part of the Premises
or the Office Building Project. Any award for the taking of all or any part of
the Premises or the Office Building Project under the power of eminent domain or
any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
separate award for loss of or damage to Lessee's trade fixtures, removable
personal property and unamortized tenant improvements that have been paid for by
Lessee. For that purpose the cost of such improvements shall be amortized over
the original term of this Lease excluding any options. In the event that this
Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of severance damages received by Lessor in connection with such
condemnation, repair any damage to the Premises caused by such condemnation
except to the extent that Lessee has been reimbursed therefor by the condemning
authority. Lessee shall pay any amount in excess of such severance damages
required to complete such repair.
15. Broker's Fee.
(a) The brokers involved in this transaction are **
--------------------------
as "listing broker" and **
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as "cooperating broker," licensed
- ------------------------------------------
real estate broker(s). A "cooperating broker" is defined as any broker other
than the listing broker entitled to a share of any commission arising under this
Lease. Upon execution of this Lease by both parties, Lessor shall pay to said
brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate agreement between Lessor and said
broker(s), or in the event there is no separate agreement between Lessor and
said broker(s), the sum of $ ** , for
-------------------------------------------
brokerage services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that (i) If Lessee exercises any Option, as defined
in paragraph 39.1 of this Lease, which is granted to lessee under this Lease, or
any subsequently granted option which is substantially similar to an Option
granted to Lessee under this Lease, or (ii) if Lessee acquires any rights to the
Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (iii) if Lessee remains in possession of the Premises
after the expiration of the term of this Lease after having failed to exercise
an Option, or (iv) if said broker(s) are the procuring cause of any other lease
or sale entered into between the parties pertaining to the Premises and/or any
adjacent property in which Lessor has an interest, or (v) if the Base Rent is
increased, whether by agreement or operation of an escalation clause contained
herein, then as to any of said transactions or rent increases, Lessor shall pay
said broker(s) a fee in accordance with the schedule of said broker(s) in effect
at the time of execution of this Lease. Said fee shall be paid at the time such
increased rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Each listing and cooperating
broker shall be a third party beneficiary of the provisions of this paragraph 15
to the extent of their interest in any commission arising under this Lease and
may enforce that right directly against Lessor; provided, however, that all
brokers having a right to any part of such total commission shall be a necessary
party to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that neither
has had any dealings with any person, firm, broker or finder (other than the
person(s), if any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less than
ten (10) days' prior written notice from the other party ("requesting party")
execute, acknowledge and deliver to the requesting party a statement in writing
(i) certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date to which the
rent and other charges are paid in advance, if any, and (ii) acknowledging that
there are not, to the responding party's knowledge, any uncured defaults on the
part of the requesting party, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Office Building Project or of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except
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as may be represented by the requesting party, (iii) there are no uncured
defaults in the requesting party's performance, and (iii) if Lessor is the
requesting party, not more than one month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest of the Office Building Project, and except as expressly provided in
paragraph 15, in the event of any transfer of such title or interest, Lessor
herein named (and in case of any subsequent transfers then the grantor) shall be
relieved from and after the date of such transfer of all liability as respects
Lessor's obligations thereafter to be performed, provided that any funds in the
hands of Lessor or the then grantor at the time of such transfer, in which
Lessee has an interest, shall be delivered to the grantee. The obligations
contained in this Lease to be performed by Lessor shall, subject as aforesaid,
be binding on Lessor's successors and assigns, only during their respective
periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral
or written warranties or representations to Lessee relative to the condition or
use by Lessee of the Premised or the Office Building Project and Lessee
acknowledges that Lessee assumes all responsibility regarding the Occupational
Safety Health Act, the legal use and adaptability of the Premises and the
compliance thereof with all applicable laws and regulations in effect during the
term of this Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24. Waivers. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provisions hereof, other than the failure of Lessee to pay the particular rent
so accepted, regardless of Lessor's knowledge of such preceding breach at the
time of acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be two hundred percent (200%) of the rent payable immediately preceding
the termination date of this Lease, and all Options, if any, granted under the
terms of this Lease shall be deemed terminated and be of no further effect
during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. Subordination.
(a) This Lease, and any Option or right of first refusal granted hereby, at
Lessor's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Lessee's right to quiet possession
of the Premises shall not be disturbed if Lessee is not in default and so long
as Lessee shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. If
any mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. Attorneys' Fees.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection therewith, whether or not a legal transaction is
subsequently commenced in connection with such default.
32. Lessor's Access.
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32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
Premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and sales,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forcible or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in
violation of this paragraph shall constitute a material default of this Lease.
34. Signs. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. Options.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing on
the day after a monetary obligation to Lessor is due from Lessee and unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligation is paid, or (iii) in the event that Lessor has given to Lessee three
or more notices of default under paragraph 13.1(c), or paragraph 13.1(d),
whether or not the defaults are cured, during the 12 month period of time
immediately prior to the time that Lessee attempts to exercise the subject
Option, (iv) if Lessee has committed any non-curable breach, including without
limitation those described in paragraph 13.1(b), or is otherwise in default of
any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessor gives to Lessee three or more notices of default under paragraph
13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if
Lessee has committed any non-curable breach, including without limitation those
described in paragraph 13.1(b), or is otherwise in default of any of the terms,
covenants and conditions of this Lease.
40. Security Measures-Lessor's Reservations.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the office Building Project or
any part thereof, in which event the cost thereof shall be included within the
definition of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90 days
prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business
as long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas.
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building
or the Office Building Project or their names) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof
of the Building.
41. Easements.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of parcel Maps and restrictions, so long a such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
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42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. Authority. If Lessee is a corporation, trust or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten provisions.
45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. Lender Modification. Lessee agrees to make such reasonable modifications
to this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. Work Letter. This Lease is supplemented by that certain Work Letter of
even date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. Attachments. Attached hereto are the following documents which constitute
a part of this Lease:
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR
OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
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LESSOR LESSEE
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/s/ Maury Herman /s/ David Bohnett
- ---------------------------------------------- -----------------------------------------------
By Maury Herman Trustee of the Mary Herman By David Bohnett/GeoCities
------------------------------------------- --------------------------------------------
Family Trust #1
-------------------------------------------
Dated 7/17/85
Its Its CEO
---------------------------------------- --------------------------------------------
By /s/ By
-------------------------------------------- --------------------------------------------
Its Power of Attorney Co-Owner Its
--------------------------------------- -------------------------------------------
Executed at Executed at
----------------------------------- ------------------------------------
on 7/29/96 on July 29, 1998
-------------------------------------------- ---------------------------------------------
Address Address
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For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa Street, Suite 276, Los Angeles, CA 90071, (213) 687-8777. (C)
1984-By American Industrial Real Estate Association. All rights reserved. No
part of these words may be reproduced in any form without permission in writing.
<PAGE>
LEASE ADDENDUM
Dated: May 13, 1996
Lessor: Maury Herman, as Trustee of the Maury Herman Family Trust #1, dated
9/17/85, as amended and Catherine Popesco (collectively "Lessor")
Lessee: GeoCities, a California Corporation
Paragraphs 50 through 83:
50) Prior to delivery of premises to Lessee, Lessor will install operable
windows along the western window line. Prior to commencement of the lease term,
Lessor will put the HVAC in good working condition and Lessor will maintain the
system during the terms of the lease. All other alterations required by Lessee
will be done at Lessee's expense.
51) TERM. With reference to paragraph 1.5 of the lease, the commencement
date shall be September 1, 1996 or upon substantial completion of Lessor's
Tenant Improvement work, whichever is later; however, Lessee shall have access
to the premises upon execution of the lease for the purpose of installing a
telephone system, furniture, and other leasehold improvements, at its expense,
provided said access does not interfere with Lessor's completion of the windows.
52) With reference to paragraphs 1.6 and 2 of the lease, the base rent will
be as noted in the following schedule plus fifty percent (50%) of all operating
cost increases over the base year 1996 and fifty percent (50%) of all utilities,
hereafter "Other Monthly Payments".
PERIOD MONTHLY RENT OTHER MONTHLY PAYMENTS
- ----------------------------------------------------------------------------
Years 1 - 3 $13,260.00 50% of costs noted above per lease.
- ----------------------------------------------------------------------------
Years 4 - 5 $14,100.00 50% of costs noted above per lease.
- ----------------------------------------------------------------------------
Lessee will make all payments payable to Coast and Mountain Management, Inc. All
correspondence and payments will be mailed to: 3 N. Leroux Street, Suite 201,
Flagstaff, AZ 86001. The office telephone number is (520) 779-6211.
53) OPTION. With reference to paragraphs 1.5 and 39 of the lease, provided
Lessee has met all of its obligations in a timely manner, is not otherwise in
default on its lease obligations, and no material breach of Lessee obligations
occurred during the initial term of the lease, Lessee will have the option to
extend this lease for one (1) additional three-year (3) option period. The
option will start at the end of the initial lease term. The option must be
exercised in writing by Lessee at least one hundred eighty (180) days before the
start of the respective option period or Lessee's rights shall automatically
terminate.
54) OPTION PERIOD RENT. With reference to paragraphs 1.5 and 39 of the
lease, if Lessee chooses to exercise its option, the monthly rent will be the
greater of the monthly rent in the twelve (12) month period prior to the option
period or the fair market rent.
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LEASE ADDENDUM PAGE 2
55) OPTION PERIODS-RENT CALCULATION. For purposes of paragraph 54 above, the
term "fair market rent" shall mean the most probable rental rate in terms of
money which a property should bring in a competitive and open market under all
conditions requisite to a fair lease, assuming the following:
(a) The Lessor and Lessee are each acting prudently and knowledgeably,
and are typically motivated.
(b) The rent is not affected by undue stimulus.
(c) Both parties are well informed or well advised, and each is acting
in what they consider their own best interest.
(d) A reasonable time has been allowed for exposure in the open market.
(e) Payment is made in terms of cash in US dollars or in terms of
financial arrangements comparable thereto.
(f) The rental rate represents a normal consideration for the property
leased, unaffected by special financing or lease concessions granted by
anyone associated with the lease.
(g) The rental rate is to be determined as of the last day Lessee is
permitted to exercise its option to extend the lease.
(h) The rental rate will reflect all relevant market conditions.
The following factors in the lease will also be deemed relevant to the
determination of fair market rent:
(aa) The monthly obligation to pay rent.
(bb) Lessee's and Lessor's maintenance and repair obligations.
(cc) Lessee's and Lessor's obligation to provide insurance and pay
taxes.
(dd) The duration of the respective option period.
(ee) The parking and other amenities available to Lessee as a part of
this lease.
56) ARBITRATION. In the event the parties cannot agree on the fair market
rent one hundred twenty-five (125) days prior to the start of the option period,
the dispute will be submitted to the American Arbitration Association for
arbitration. The decision of the American Arbitration Association will be
binding and conclusive upon all parties. The cost of the arbitration shall be
equally divided between Lessor and Lessee.
57) With reference to paragraph 2.2 of the lease, Lessor will allow Lessee
to use only the entire lower level parking area as shown on the attached parking
lot plan, known as "Exhibit B".
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LEASE ADDENDUM Page 3
Lessee will refrain from using those other parking spaces that are not assigned
for its use. Upon Lessor's request, Lessee shall furnish Lessor with vehicle
descriptions and state automobile license numbers assigned to Lessee's vehicles
and those of its employees and agents within two (2) days of Lessor's request.
In the event that Lessee or its employees park their vehicles in restricted
parking areas, damages will result to Lessor which Lessee and Lessor agree are
extremely difficult and impractical to determine and that, therefore, the sum of
Twenty-five Dollars ($25.00) per day, per car, parked in any space in a
restricted area, is hereby agreed to be liquidated damages resulting therefrom
which Lessor, at its option, may collect as additional rent due hereunder and as
its sole monetary damage for such breach.
58) With reference to paragraph 7 of the lease:
(a) Lessor will provide janitorial/cleaning service for the common
areas only. Lessee will be responsible for janitorial/cleaning service
inside its premises.
(b) Lessee will not make any penetrations through the roof without
Lessor's consent. Repair of the roof penetrations made by or for Lessee,
by Lessee, its contractor, agent or representative must be performed by
Lessor's roofing contractor at Lessee's expense. Lessee, its employees,
agents, representatives and successors will comply with Lessor's
reasonable rules pertaining to the roof.
59) With reference to paragraph 7.3 of the lease, Lessee will complete all
tenant improvements at its expense subject to written approval of Lessor, under
the following conditions:
(a) Lessee will complete all work within sixty (60) days. Lessee's
contractor will provide Lessor with certificates of liability insurance
and workman's compensation naming Lessor to the policies as an
additional insured.
(b) Lessee acknowledges receipt of the asbestos assessment report dated
December 2, 1993. Lessee agrees to abide by the recommendations of said
report. In particular, Lessee will not remove or disturb any asbestos
containing floor tiles or other materials containing asbestos except
through a qualified, insured and licensed contractor in a manner that
complies with applicable laws and the recommendations of Lessor's
consultant. Furthermore, if removal of the carpet pad would disturb the
mastic below the carpet pad, Lessee will replace the carpet and leave
the carpet pad in place. If Lessee needs access to a hard floor surface,
Lessor will have up to a 2,000 square foot area designated by Lessee in
a square or rectangular pattern removed in a manner that complies with
the applicable governmental laws and regulations at Lessor's expense.
60) With reference to paragraph 11 of the lease, Lessee will attempt to
conserve water and diligently attempt to comply with all governmental
regulations and targets relating to water conservation.
61) With reference to paragraph 12 of the lease, in the event of that Lessee
should sublease the premises with Lessor's written approval no unreasonably
withheld, Lessee and Lessor will
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LEASE ADDENDUM Page 4
equally divide (50/50) any consideration received in excess of the current rent
paid by Lessee to Lessor collected as monthly rent by Lessee as Sublessor.
Profits shall be calculated after deducting all costs incurred by Lessee in
connection with the sublease, which shall include, but not be limited to, tenant
improvements, leasing commissions, and remodeling premises.
62) With reference to paragraph 13 of the lease, Lessee shall pay Lessor a
charge of $30.00 for all checks returned from the bank unpaid for any reason
plus appropriate late charge from the due date until good funds are received.
These additional charges shall be collectable as rent. If a check has been
returned from the bank for any reason, the Lessor reserves the right to demand
that all sums due under this lease be paid in the form of a cashier's check or
money order and to return any personal or company check previously accepted by
Lessor and demand a cashier's check or money order in its place.
63) With reference to paragraph 15 of the lease, the commission due from
Lessor will be paid pursuant to a separate agreement dated February 27, 1996, by
and between Lessor and Broker, except that the commission will be increased to
six and one half percent (6.5%) in the first thirty (30) months and five and one
half percent (5.5%) in the second thirty (30) months with two and one half
percent (2.5%) going to Lessor's agent and the balance going to Lessee's agent.
Both Lessor and Lessee acknowledge that WESTMAC Commercial Brokerage Company is
the broker representing the Lessor and Metrospace is the broker representing the
Lessee. Lessor will pay WESTMAC Commercial Brokerage Company; Lessee will pay
Metrospace.
64) Hazardous Substances. Lessee will comply with the terms of the attached
Exhibit "C".
65) Counterpart and Facsimile. This lease, as amended, any attached exhibits
and any addenda or supplements signed by the parties shall constitute the entire
lease between Lessor and Lessee, and shall supersede any other written or oral
lease between Lessor and Lessee. This lease can be modified only by a written
Addendum, signed by Lessor and Lessee. A fully executed facsimile copy of the
entire lease shall be treated as an original lease. This lease may be signed in
counterpart.
66) With reference to paragraph 34 of the lease, at Lessee's expense, Lessee
will be permitted to have conforming exterior signage and interior signage
subject to Lessor's written approval, which shall not be unreasonably withheld,
and in accordance with the applicable rules and regulations of the City of Santa
Monica.
67) California law will apply to this lease as amended.
68) As a matter of disclosure, one of the owners is a licensed real estate
broker in the State of California.
69) Upon receipt of an executed lease, Lessor will give a thirty (30) days
notice to the existing month to month tenant who is painting boxes. Lessor will
not allow the use of any paint, solvent or other materials within Lessor's
building which create odors or fumes within the common area or Lessee's space
and those areas outside of the building which Lessor controls.
<PAGE>
LEASE ADDENDUM Page 5
70) Lessor agrees to comply with any mandated physical modifications
required by the Americans with Disabilities Act at Lessor's sole cost. Lessee
shall be responsible for ensuring that their premises configuration and
operation meets the Americans with Disabilities Act code requirements. In the
event a trade-off exists, wherein Lessor might avoid making physical
modifications, if Lessee makes minor and reasonable changes in its floor plans
and procedures, Lessee will cooperate by implementing said modifications and
procedures.
71) With reference to paragraphs 8.1 and 8.2 of the lease, Lessor and Lessee
will each maintain $3,000,000 of liability insurance.
72) Notwithstanding anything to the contrary in the lease, Operating
Expenses shall not include any of the following:
(a) Capital expenditures associated with retrofitting or renovating the
Building or required by Lessor's failure to comply with law enacted or
governmental regulations promulgated on or before the Commencement Date;
(b) Expenses for capital improvements made to reduce Operating Costs
where the present value of the projected costs of the improvements
(including original purchase cost, installation and subsequent repair
and replacements) exceed the present value of the amount reasonably
anticipated to be saved as a result of such capital improvements.
(c) Expenses, including permit, license and inspection costs, incurred
by Lessor with respect to the installation of tenant improvements made
for tenants in the Building or incurred in renovating or otherwise
improving, decorating, painting or redecorating vacant space for tenant
or other occupants of the Building;
(d) Depreciation, amortization and interest payments, except as
specifically provided herein;
(e) Leasing commissions, attorneys' fees, space planning costs and
other costs and expenses included in connection with negotiations or
disputes with present or prospective tenants of the Building;
(f) Expenses incurred by Lessor due to the violation by Lessor or any
other tenant of the terms and conditions of any other lease in the
Building; and
(g) Expenses arising from the presence of Hazardous Substances in or
about the Office Building Project or the Building which were not placed
there by Lessee or persons under Lessee's control, including without
limitation, Hazardous Substances in the ground, water or soil. However,
if Lessor has disclosed the existence of certain asbestos-containing
materials and Lessee or persons under Lessee's control disturb said
materials, then Lessee will bear the costs and liabilities associated
with said disturbance.
73) With reference to paragraph 4.2(g) of the lease, at any time within six
(6) months after its receipt of a statement, Lessee shall have the right to
examine Lessor's books and records for the Building for the calendar year
covered by such statement to determine the accuracy of Lessor's
<PAGE>
LEASE ADDENDUM Page 6
calculation of Lessee's Share of Operating Expense Increase. Such examination
shall be conducted at Lessor's place of business during customary business
hours, and Lessor shall reasonably cooperate with Lessee's examination. If
Lessee's examination establishes that Lessor's calculation of Lessee's Share of
Operating Expense Increase (which shall be due and payable in accordance with
the lease notwithstanding the predency of any such examination by Lessee) was
erroneous, Lessee shall have thirty (30) days following the conclusion of such
examination to pay any deficiency, if Lessee's Operating Expense Increase was
less than that established to be properly payable, or, if Lessee's Operating
Expense Increase exceeds the amount established as correct, Lessor shall grant
Lessee a credit in the amount of the overpayment, to be applied against the next
payment(s) of Basic Rent becoming due, and adjust (if required) the monthly
estimated Operating Expenses paid by Lessee.
74) With reference to paragraph 6.3 of the lease, except as disclosed in
that certain Asbestos Assessment dated December 2, 1993 and provided to Lessee,
Lessee represents and warrants to Lessee that
(a) Lessor is aware of no known or suspected release to the environment
of a Hazardous Substance at the Office Building Project for which notice
would be required pursuant to California Health and Safety Code Section
25359.7(a),
(b) Lessor is unaware of the presence of asbestos as the Office
Building Project for which notice would be required under California
Health and Safety Code Section 25915.2,
(c) Lessor is aware of no notices of health, safety or building
violations having been received or, to Lessor's knowledge, threatened
against Lessor, and
(d) Lessor is not aware of any litigation pending with respect to the
Office Building Project, nor (to Lessor's knowledge) is any such
litigation threatened.
75) With reference to paragraph 7.1 of the lease, after the first sentence,
the following language shall be inserted, "Notwithstanding anything to the
contrary herein, Landlord shall be solely liable for any costs associated with
the existence of Hazardous Substances on or around the Office Building Project
which were present on or before the Commencement Date, including without
limitation remediation and containment costs and expenses, investigation costs,
damage to property and persons, claims by other tenants or third parties and
statutory non-compliance. However, if Lessor has disclosed the existence of
certain asbestos-containing materials and Lessee or persons under Lessee's
control disturb said materials, then Lessee will bear the costs and liabilities
associated with said disturbance." The provisions of Exhibit C will govern
Lessor's obligation to abate or remediate.
76) With reference to paragraph 8.7 of the lease, each party shall defend,
indemnify and hold the other harmless from and against all claims, causes of
action, liabilities, losses, costs and expenses arising from or in connection
with any injury or other damage to any person or property to the extent that
such injury or damage arises out of acts or omissions of the indemnifying party
<PAGE>
LEASE ADDENDUM Page 7
(or its agents) relating to the performance of such party's planning,
development, construction and/or other obligations under the lease.
77) With reference to paragraph 10.3 of the lease, Lessee shall not pay any
increase in property taxes due to Lessor's sale, refinance assessment, or any
such other occurrence which may give rise to any increase in property taxes. In
the alternative, at Lessor's option, Lessor may provide Lessee with an immediate
rental abatement equivalent to such increase in real property taxes as
calculated over the remainder of Lessee's lease term, and thereafter pass-
through such tax increases to Lessee. Moreover, Lessor shall not reduce
Lessee's base year threshold if the building's taxable value is reduced through
reassessment during such base year period.
78) With reference to paragraph 12.1 of the lease, line 6, substitute "fifty
percent (50%)" for "twenty-five percent."
79) With reference to paragraph 19 of the lease, line 1 and line 2, "at the
rate of eighteen percent (18%) per annum," shall be used in the place of "at the
maximum rate then allowable by law."
80) With reference to paragraph 26 of the lease, line 3, "one hundred
twenty-five percent (125%)" shall be used in the place of "two hundred percent
(200%)."
81) With reference to paragraph 30(a) of the lease, the following language
is added after the second sentence: "In addition, no such subordination shall
be effective unless and until Lessor obtains from the holder of any such
encumbrance placed against the Building a non-disturbance agreement in
recordable form, providing that in the event of a foreclosure, sale under a
power of sale, ground or master lease termination or transfer in lieu of the
foregoing, or any exercise of any other remedy under any such encumbrance:
(i) Lessee's use, possession and quiet enjoyment of the
Premises under this Lease shall continue in full force and
effect; and
(ii) This lease shall automatically become a lease directly
between any successor to Lessor's interest, as lessor, and
Lessee, as if that successor were in the lessor originally named
in this lease.
Lessor shall make its best efforts to secure and deliver to Lessee non-
disturbance agreements executed by all trust deed holders and ground lessors of
the Building, if applicable.
82) With reference to paragraph 40.3 of the lease, Lessee is aware that the
roof deck was developed by a prior Lessee for its own use and may or may not
have been issued a permit by the governing authorities. In the event that City
of Santa Monica or any other governmental agency should regulate or restrict
said roof deck usage, Lessee will comply with same. Lessee is allowed to use the
deck with the following understanding:
Lessee will designate two of its employees to be responsible for the locking the
roof deck entrance. On a daily basis, one of these employees will be responsible
for the following:
<PAGE>
LEASE ADDENDUM Page 8
(a) Daily cleanup and garbage removal from the roof top area.
(b) Open the deck at a pre-set time.
(c) Close and lock the deck at a pre-set time.
(d)Inspect the deck on a daily basis to verify that:
(aa) All chairs and tables have rubber protectors on the feet.
(bb) All access points to the rest of the roof are locked with
limited access by authorized maintenance people only.
(e) Verify that adequate lighting is available inside the stairwell and
outside (Lessor will provide the bulbs).
(f) Verify that a sufficient number of fire extinguishers and exit
signs are available.
(g) Inspect the hallways.
(h) The rules for use of the deck are visibly posted and maintained in
two places on the deck. The list of deck rules are considered as part of
the lease and attached and known as 'Rules for Deck Usage".
Lessee will have a non-exclusive right to use the deck between 7:00 am. and
dusk.
In the event Lessee, invitees, or other individuals whose use of the deck is
permitted by Lessee, violate any of the rules for use of the deck, Lessor
reserves the right, at Lessor's sole discretion to suspend or terminate the use
of the deck. Lessor may amend the rules.
Lessee will have the deck usage included in the coverage of its liability
insurance policy.
Lessor will have all other authorized users include the deck in their policies
and agree in writing to the rules. Lessor will provide Lessee with a list of
authorized users. Lessor is permitting Lessee additional access to the deck
strictly as an accommodation to Lessee's request. Lessee agrees to be strictly
responsible for maintenance of the cleanliness and security of the deck.
Lessee will indemnify and defend Lessor against any claim that arises from the
deck or its usage thereof.
Before any of Lessee's employees may use the deck, each employee must initial
the rules. A copy of the rules will be supplied to all new employees at the
premises. A file of initialed copies of the rules will be maintained by Lessee
for Lessor's inspection.
<PAGE>
LEASE ADDENDUM Page 9
83) As a matter of disclosure, Lessor has received a notice from the City of
Santa Monica instructing Lessor not to hose down the sidewalks, driveways,
patios, alleys, and parking areas, Lessor will pursue discussions with the City
of Santa Monica as to the appropriate way to clean these areas.
<PAGE>
LEASE AMENDMENT
Dated: October 23, 1996
The lease dated May 13, 1996, hereafter "Original Lease", by and between Maury
Herman as Trustee of the Maury Herman Family Trust #1, dated 9/17/86, as
amended, and Catherine Popesco, hereafter collectively "Lessor", and GeoCities,
a California Corporation, hereafter . "Lessee", for the premises commonly known
as 1918 Main Street, Suite 300 which is the entire third floor, is hereby
extended and amended as follows:
1) PREMISES. The demised premises is amended and expanded to include
approximately 442 gross rentable square feet including common area allocation on
the second floor, hereafter "Suite 230" which is shown on the attached floor
plan, known as "Exhibit F." Lessee accepts the premises in its "as-is"
condition without any warranty from Lessor as to its fitness for Lessee's
purposes or any other purpose. With fifteen (15) day written notice, Lessor
reserves the right to relocate Lessee to other office area within the building
that is reasonably comparable to Suite 230. Lessor will reasonably compensate
Lessee for the expense and inconvenience of the move.
2) OPERATING EXPENSE CALCULATION. With reference to paragraph 1.10 of the
original lease, the addition of Suite 230 will increase Lessee's share of
operating expense by 2.63%. Accordingly, Lessee's share o(Pounds) operating
expense will be amended to reflect a new percentage of 52.63%.
3) TERM. The lease term for Suite 230 will commence October 15, 1996 and will
expire on the same date as the original lease. Pursuant to the attached letter
from Ron Williams of Williams Glass, the original lease term for the third floor
will start September 19, 1996, and a prorated third floor rent amount of
$5,304.00 will be charged for September 1996.
4) RENT. With reference to paragraphs 1.6 and 2 of the original lease, the
rent for Suite 230 will be $1.50 per square foot. The new base rent for the
third floor and Suite 230 (combined) will be as noted in the following schedule
(except for the months of October and November 1996 as noted below) plus 52.63%
of all operating cost increase over the base year 1996 and 52.63% of all
utilities, hereafter "Other Monthly Payments."
MONTHLY OTHER MONTHLY PAYMENTS
PERIOD RENT
- ---------------------------------------------------------------------------
Years 1-3 $13,923.00* 52.63% of costs noted in lease
- ---------------------------------------------------------------------------
Years 4-5 $14,805.00 52.63% of costs noted in lease
- ---------------------------------------------------------------------------
* Upon execution of this lease amendment and in addition to the rent for the
third floor, Lessee will remit a payment of $663.00 as rent for Suite 230 in
October 1996. Lessee's rent for Suite 230 in November 1996 will be a prorated
amount of $331.50. Thereafter, Lessee will follow the rent schedule as noted
above.
5) With referenced to paragraphs 2.2 and 57 of the original lease, Lessor will
allow Lessee to use one (1) assigned parking space on the street level parking
lot in addition to the lower level parking area as shown on the attached parking
lot plan, known as "Exhibit G."
<PAGE>
6) With referee to paragraph 1.9 of the original lease, upon execution of this
lease addendum Lessee will remit an additional security deposit payment for
the amount of $663.00 to Lessor. Upon receipt of the payment, Lessee's security
deposit amount will be amended to reflect a total of $45,663.00.
7) With reference to paragraph 15 of the original lease, the commission due
from Lessor will be paid pursuant to a separate agreement dated February 27,
1996, by and between Lessor and Broker in addition to three percent (3%)
commission paid to Metrospace. Both Lessor and Lessee acknowledge that WESTMAC
Commercial Brokerage Company is the broker representing the Lessor and
Metrospace is the broker representing the Lessee. Lessor will pay WESTMAC
Commercial Brokerage Company and Metrospace.
8) All other terms, conditions and covenants of the original lease will remain
in full force and effect.
LESSOR:
/s/ Maury Herman 11/8/96
- -------------------------------------------------- ----------------------
By: Maury Herman, as Trustee of the Date
Maury Herman Family Trust #1, dated 9/17/85, as amended.
LESSOR:
/s/ Catherine Popesco 11/8/96
- -------------------------------------------------- ---------------------
By: Catherine Popesco Date
LESSEE:
GeoCities, a California corporation
/s/ David Bohnett 10/30/96
- --------------------------------------------------- ---------------------
By: David C. Bohnett Date
Its: Chief Executive Officer
2
<PAGE>
EXHIBIT
1918 MAIN STREET
STREET LEVEL PARKING
<PAGE>
SECOND AMENDMENT TO LEASE
Dated: February 14, 1997
The lease dated May 13, 1996, hereafter "Original Lease", as amended on October
23, 1996, by and between Maury Herman as Trustee of the Maury Herman Family
Trust #1, dated 9/17/86, as amended, and Catherine Popesco, hereafter
collectively "Lessor", and GeoCities, a California Corporation, hereafter
"Lessee", for the premises commonly known as 1918 Main Street, Suite 300 which
is the entire third floor, and Suite 203 on the second floor, is hereby further
amended as follows:
1) PREMISES. The demised premises is amended and expanded to include
approximately 3,190 gross rentable square feet including common area allocation
on the second floor, hereafter "Suite 200", as shown on the attached "Exhibit A
of the Second Amendment to Lease". Lessee accepts the premises in its "as-is"
condition without any obligation for Lessor to remodel or redocorate. Lessor
will have the right to make minor modifications to the deck fence configuration.
2) OPERATING EXPENSE CALCULATION. With reference to paragraph 1.10 of the
original lease, the addition of Suite 200 will increase Lessee's share of
operating expense and utility cost by 19%.
3) TERM. The lease term for Suite 200 will commence March 1, 1997 and will
expire on February 28, 1998.
4) RENT. With reference to paragraphs 1.6 and 2 of the original lease, the
additional rent for Suite 200 will be $1.50 per square foot or $4,785.00/month.
Lessees additional obligations for Suite 200 is summarized as follows:
- ------------------------------------------------------------------------
MONTHLY OTHER MONTHLY PAYMENTS
PERIOD RENT
- ------------------------------------------------------------------------
Year 1 $4,785.00 19% of costs noted in lease
- ------------------------------------------------------------------------
5) With referenced to paragraphs 2.2 and 57 of the original lease, Lessor will
allow Lessee to use five (5) additional assigned parking space on the street
level parking lot for a total of six (6) street level parking spaces.
6) Upon execution of this lease, Lessee will remit a security deposit payment
of $4,785.00 to Lessor. Upon Lessor's receipt of payment, Lessee's security
deposit amount will be amended to reflect a total of $50,448.00.
7) OPTION PERIOD. With reference to paragraph 39 of the lease, provided Lessee
has met all of its obligations in a timely manner, and is not otherwise in
default on its lease obligations, Lessee will have the option to extend this
lease for one (1) additional year option period with the same rent and terms as
year one. The option must be exercised in writing at least ninety (90) days
before the start of the option period or Lessee's option rights shall
automatically terminate.
<PAGE>
8) With reference to paragraph 15 of the original lease, the commission due
from Lessor will be paid by and between Lessor and Broker, in addition to three
percent (3%) commission paid to Metrospace. Both Lessor and Lessee acknowledge
that WESTMAC Commercial Brokerage Company is the broker representing the Lessor
and Metrospace is the broker representing the Lessee. Lessor will pay WESTMAC
Commercial Brokerage Company and Metrospace as per agreement between Lessor and
its broker. Commission will be paid on the option term at the start of the
option period. The option term commission will be 3% to Metrospace and to
WESTMAC pursuant to Lessor's agreement with WESTMAC.
9) All other terms, conditions and covenants of the original lease will remain
in full force and effect.
LESSOR:
/s/ CATHERINE POPESCO 3/7/97
- ----------------------------------------------- ----------------------
By: Catherine Popesco Date
LESSOR:
/s/ MAURY HERMAN 3/6/97
- ----------------------------------------------- ----------------------
By: Maury Herman, as Trustee of the Date
Maury Herman Family Trust #1, dated 9/17/85, as amended.
LESSEE:
GeoCities, a California corporation
/s/ DAVID C. BOHNETT 3/10/97
- ----------------------------------------------- ----------------------
By: David C. Bohnett Date
Its: Chief Executive
2
<PAGE>
THIRD AMENDMENT TO LEASE
Dated: October 24, 1997
The lease dated May 13, 1996, hereafter "Original Lease", as amended on October
23, 1996, and as amended on February 14, 1997, by and between Maury Herman as
Trustee of the Maury Herman Family Trust #1, dated 9/17/86, as amended, and
Catherine Popesco, hereafter collectively "Lessor", and GeoCities, Inc., a
California Corporation, hereafter "Lessee", for the premises commonly known as
1918 Main Street, Suite 300 which is the entire third floor, and Suite 203 on
the second floor, and Suite 200 on the second floor, is hereby further amended
as follows:
1) PREMISES. The demised premises is amended and expanded to include
approximately 786 gross rentable square feet including common area allocation on
the second floor, hereafter "Suites 267 and 268", as shown in the attached
"Exhibit A of Third Amendment to Lease". Lessee accepts the premises in its
"as-is" condition without any obligation for Lessor to remodel or redecorate.
2) OPERATING EXPENSE CALCULATION. With reference to paragraph 1.10 of the
original lease, the addition of Suites 267 and 268 will increase Lessee's share
of operating expense and utility cost by 468% to a total of 76.31%.
3) TERM. The lease term for Suites 267 and 268 will commence October 27, 1997
and will expire on February 28, 1999, and the rent for Suites 267 and 268 will
commence November 15, 1997.
4) RENT. With reference to paragraphs 1.6 and 2 of the original lease, the
additional rent for Suites 267 and 268 will be $1.50 per square foot or
$1,179.00/month. Lessees additional obligations for Suites 267 and 268 is
summarized as follows:
================================================================================
MONTHLY
PERIOD RENT OTHER MONTHLY PAYMENTS
- --------------------------------------------------------------------------------
11/15/97 - 2/28/99 $1,179.00 additional 4.68% of costs noted in lease
================================================================================
5) With referenced to paragraphs 2.2 and 57 of the original lease. Lessor will
allow Lessee to use two (2) additional assigned parking spaces on the street
level parking lot for a total of eight (8) street level parking spaces.
6) Upon execution of this lease, Lessee will remit a security deposit payment
of $1,179.00 to Lessor. Upon Lessor's receipt of payment, Lessee's security
deposit amount will be amended to reflect a total of $51,627.00.
7) OPTION PERIOD. With reference to paragraph 39 of the lease, provided Lessee
has met all of its obligations in a timely manner, and is not otherwise in
default on its lease obligations, Lessee will have the option to extend the
lease for Suites 200, 267 and 268 for one (1) additional one (1) year option
period at fair market rent as defined in paragraph 55 of the lease, but in no
case shall the rent be lower than $1.50 per square foot. The option must be
exercised in writing at least one hundred twenty (120) days before the start of
the option period or Lessee's option rights shall automatically terminate.
<PAGE>
8) With reference to paragraph 15 of the original lease, the commission due
from Lessor will be paid by and between Lessor and Broker, in addition to three
percent (3%) commission paid to Metrospace. Both Lessor and Lessee acknowledge
that WESTMAC Commercial Brokerage Company is the broker representing the Lessor
and Metrospace is the broker representing the Lessee. Lessor will pay WESTMAC
Commercial Brokerage Company and Metrospace as per agreement between Lessor and
its broker. Commission will be paid on the option term at the start of the
option period. The option term commission will be 3% to Metrospace and to
WESTMAC pursuant to Lessor's agreement with WESTMAC.
9) Lessee is exercising its option for Suite 200 as per the Second Amendment
to Lease dated February 14, 1997. The lease term for Suite 200 is extended until
February 28, 1999. The rent and terms will remain the same.
10) All other terms, conditions, and covenants of the original lease will
remain in full force and effect through the expiration of the lease for Suite
300 on August 31, 2001, or as it may be extended.
LESSOR:
- ----------------------------------------- --------------------------
By: Maury Herman, as Trustee of the Maury Date
Herman Family Trust #1, dated 9/17/85, as amended.
- ----------------------------------------- --------------------------
By: Catherine Popesco Date
LESSEE:
GeoCities, Inc, a California Corporation
/s/ David C. Bohnett 11/3/97
- ----------------------------------------- --------------------------
By: David C. Bohnett Date
Its: Chief Executive Officer
<PAGE>
EXHIBIT 10.26
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION
ADFORCE/TM/SERVICE GEOCITIES AGREEMENT
- --------------------------------------------------------------------------------
This service agreement for the AdForce service (the "Agreement") is entered into
between IMGIS, Inc., a California corporation ("IMGIS"), with offices at 10101
N. DeAnza Blvd., Suite 210, Cupertino, CA 95014 and GEOCITIES, a California
corporation ("GEOCITIES") with offices at 1918 Main Street, 3rd Floor, Santa
Monica, CA 90405.
1. ADFORCE SERVICE DEFINITION. The AdForce service is an Internet advertising
--------------------------
administration system that will allow GEOCITIES to manage advertising on its
Web site and/or similar on-line service. As part of the AdForce service,
IMGIS will provide GEOCITIES with the AdForce "client" software application
("Application Software"), with which GEOCITIES will be able to (a) generate
ad tags, (b) schedule advertising to run in the online environments in which
GEOCITIES places those ad tags and (c) generate reports on such advertising.
IMGIS will maintain an AdForce server complex from which IMGIS will
electronically deliver advertising scheduled by GEOCITIES to the online
environments containing the ad tags placed by GEOCITIES. IMGIS will complete
development of, and will make available to GEOCITIES by [***], a "Hybrid
Service" which will allow GEOCITIES to direct Impressions (defined below) to
be delivered from the AdForce server complex ("Central Delivery") or IMGIS
servers located on GEOCITIES' site ("Local Delivery"). As part of the Hybrid
Service, IMGIS will provide GEOCITIES with the client and server software
needed to use the Hybrid Service ("Hybrid Service Software," collectively
the "Hybrid Service Software" and the "Application Software" are referred to
herein as the "Licensed Software"). The "Hybrid Service" is part of the
AdForce Service as defined in this Section 1 and referred to in this
Agreement. In addition, the Hybrid Service will be capable of
instantaneously providing Local Delivery of ads to all ad tags in the event
that the AdForce server complex becomes disabled, inoperative, or otherwise
inaccessible to GEOCITIES. GEOCITIES recognizes that certain functions
available as part of the Central Delivery service will not be available in
the Local Delivery service. IMGIS acknowledges and agrees that its failure
to make the Hybrid Service available to GEOCITIES by [***] will
significantly reduce the benefits GEOCITIES' expects to receive under this
Agreement. Because it would be impracticable and extremely difficult to
determine the exact amount of GEOCITIES' damages in such event, IMGIS and
GEOCITIES agree that, as compensation to GEOCITIES for any such loss of the
benefit of its bargain hereunder, rather than as a penalty to IMGIS, the
fees of the AdForce service (Local Delivery and Central Delivery) set forth
in Schedule A shall be reduced $[***] for each day, up to a maximum of [***]
or $[***] total reduction, after [***] that IMGIS fails to make available to
GEOCITIES the Hybrid Service in the form described in this Section 1. Fees
will return to the amounts specified in Schedule A as soon as the Hybrid
Service is made available to GEOCITIES. Additionally, if IMGIS fails to make
the Hybrid Service available by [***], GEOCITIES may terminate this
Agreement and GEOCITIES shall be entitled to recover from IMGIS all damages
that GEOCITIES incurs, due to such failure, provided that IMGIS' liability
for such damages shall not exceed the amount in aggregate paid by GEOCITIES
for the AdForce service during the [***] of prior to termination. The
foregoing reduction in AdForce Service fees and early termination privilege
shall be GEOCITIES' sole remedy for failure by IMGIS to make the Hybrid
Service available by [***] and [***], respectively. The delivery of
"Impressions," defined as the transmission of advertisements from the
AdForce server complex or an IMGIS server located on GEOCITIES' site to an
AdForce ad tag, will be verified by [***] third-party audits of the AdForce
service, conducted by the Audit Bureau of Verification Services, Inc. or
another independent third party chosen by IMGIS. This audit is included in
all levels of the AdForce service and, upon completion of an audit, IMGIS
will provide GEOCITIES with the results of the audit. Central Delivery
includes targeting features as listed in Exhibit B. Central Delivery
includes the capability of generating a suite of standard reports listed in
Exhibit B, but do not include custom reports that may be requested by
GEOCITIES. Local Delivery service includes targeting features as listed in
Exhibit D. Local Delivery service includes the capability of generating a
suite of standard reports listed in Exhibit D, but do not include custom
reports that may be requested by GEOCITIES. New features of the AdForce
service will, at the sole discretion of IMGIS, either be incorporated into
the then-current level of the AdForce service provided to GEOCITIES
hereunder, or will be offered to GEOCITIES as an additional service subject
to additional fees. IMGIS will notify GEOCITIES of new AdForce service
features. IMGIS will implement and make available to GEOCITIES, within [***]
following the Effective Date, the AdForce+ service. AdForce+ will enable
GEOCITIES to target advertising to specific end users based upon end-user
demographic characteristics, as further described in Exhibit C, which is
incorporated herein by this reference. The terms and conditions of the
AdForce+ service will be set forth in a separate written agreement to be
entered into by the parties.
2. LEVEL OF ADFORCE SERVICE. IMGIS will provide the functionality for the
------------------------
AdForce service as described in section 1 and Exhibits B and C, as well as
live telephone customer support from the hours of 6am to 6pm Pacific Time,
Monday-Friday, excluding major holidays and 7-day-a-week, 24-hour-a-day
access to IMGIS technical support via pager.
2.1 LEVELS OF MAINTENANCE AND SUPPORT. IMGIS will exercise its reasonable
---------------------------------
efforts, but not less than the level of effort that IMGIS uses for other
customers receiving the AdForce Service without payment of additional
consideration specifically for purposes of such maintenance and support,
to correct errors in the Application Software, other software used to
operate the AdForce server complex or the IMGIS servers located on
GEOCITIES' site or hardware provided or used by IMGIS to provide the
AdForce service at the following Response Times: (i) Support Call (Level
1); response time [***], patch or work-around [***], fixed or documented
in [***], (ii) Support Call (Level 2); response time [***], patch or
work-around within [***], fixed or documented in [***]; (iii) Support
Call (Level 3); [***], problem documented and input for consideration in
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ADFORCE/TM/SERVICE GEOCITIES AGREEMENT
- --------------------------------------------------------------------------------
[***]. For purposes of this Agreement, "Response Time" means the elapsed
-------------
time between the receipt of a service call and the time when IMGIS
begins work on a fix or workaround for the error.
2.2 SERVICE LEVEL WARRANTY.
----------------------
(i) INABILITY TO ACCESS THE ADFORCE SERVICE (DOWNTIME). In the event
--------------------------------------------------
(i) of a material failure of the AdForce service (either Local
Delivery or Central Delivery) to deliver images to ad requests
within the GEOCITIES Website for more than [***] in a calendar
month or (ii) the elapsed time from receipt of an ad request to
delivery of an image by the AdForce service (via either Local
Delivery or Central Delivery) in response to such ad request is
greater than [***], taken as an average over any [***] period, (a
"Failure") and GEOCITIES notifies IMGIS of such Failure and IMGIS
determines in its reasonable judgment that such Failure was caused
by IMGIS' inability to provide the AdForce service for reasons
within IMGIS' reasonable control and not as a result of any actions
or inactions of GEOCITIES or any third parties (including
GEOCITIES' equipment and third party equipment), IMGIS will not
charge GEOCITIES, and GEOCITIES shall have no obligation to pay any
AdForce service fees during the [***] period immediately following
resumption of the AdForce service. Notwithstanding the foregoing,
the occurrence of a Failure over a [***] period for (a) [***] or
more [***] or (b) [***] during any [***] period shall be deemed a
material breach of this Agreement and, in such event, GEOCITIES may
terminate this Agreement pursuant to Section 9 below.
Notwithstanding the foregoing, if IMGIS provides GEOCITIES with not
less than [***] notice of a proposed cessation of the AdForce
service for the purpose of making specified improvements thereto (a
"Cessation") and GEOCITIES consents in writing to such proposed
Cessation, then such Cessation shall not be deemed to constitute a
Failure, provided that (1) the Cessation does not exceed [***] in
duration and (2) no more than [***] occurs in any [***] period.
(ii) DEGRADATION OF CENTRAL DELIVERY: In the event that the elapsed time
--------------------------------
from initial access of the AdForce server complex to accurate
selection of an advertisement for Central Delivery ("Access Time")
is greater than [***], taken as an average over any [***] period
("Degraded Service"), then IMGIS shall not charge GEOCITIES, and
GEOCITIES shall have no obligation to pay, any AdForce service fees
for such [***] period. Access Time shall be monitored by a
designated IMGIS server configured to model the AdForce Service's
access and transmission of advertisements to IMGIS' Internet
service provider ("Designated Server"). The results of such
monitoring shall be provided to GEOCITIES as part of the AdForce
reporting service. Additionally, if the elapsed time from initial
access of the AdForce server complex to accurate selection of an
advertisement for Central Delivery is greater than [***], taken as
an average over any [***] period ("Degraded Service"), IMGIS shall
not charge GEOCITIES, and GEOCITIES shall have no obligation to
pay, any AdForce service fees for a period of [***] beginning with
such [***] period. If the elapsed time from the accurate selection
of an advertisement, based upon a test 10 kilobyte advertisement,
from the AdForce server complex to the Designated Server is greater
than [***], taken as an average over a [***] period ("Degraded
Service"), IMGIS shall not charge GEOCITIES, and GEOCITIES shall
have no obligation to pay, any AdForce service fees for a period of
[***] beginning with such [***] period. Notwithstanding the
foregoing, the occurrence of Degraded Service over a [***] period
for (a) [***] or more [***] or (b) [***] during any [***] period
shall be deemed a material breach of this Agreement and, in such
event, GEOCITIES may terminate this Agreement pursuant to Section 9
below.
(iii) TIME TO DISCOVER FAILURE OF ADFORCE SERVICES; NOTIFICATION OF
-------------------------------------------------------------
GEOCITIES. Within [***] of discovering the existence of a Failure
---------
of the AdForce service, IMGIS will use reasonable efforts to
determine whether the source of the Failure is limited to
GEOCITIES' equipment ("GEOCITIES Specific Failure"). If the failure
is not a GEOCITIES Specific Failure, IMGIS will use reasonable
efforts to determine the source of the failure within [***] after
determining that it is not a GEOCITIES Specific Failure. In any
event, IMGIS will use reasonable efforts to notify GEOCITIES of the
source of the Failure within [***] after first identifying the
source.
(iv) RESOLUTION OF FAILURE. IMGIS will use reasonable efforts to remedy
---------------------
GEOCITIES Specific Failures within [***] of determining the source
of the GEOCITIES Specific Failure provided that GEOCITIES provides
reasonable cooperation and access to equipment and software located
on GEOCITIES site. IMGIS will use reasonable efforts to remedy
failures caused within the IMGIS server complex or the IMGIS
servers on GEOCITIES' site or other IMGIS hardware or software
("IMGIS Specific Failure") within [***] of determining the source
of the failure provided that GEOCITIES provides reasonable
cooperation and access to equipment and software located on
GEOCITIES site. IMGIS will use reasonable efforts to notify
GEOCITIES if the Failure is caused by other than an IMGIS Specific
Failure and IMGIS will use commercially reasonable efforts to
notify the party(ies) responsible for the source of the Failure and
will cooperate with it (them) to resolve the Failure as soon as
possible.
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ADFORCE/TM/SERVICE GEOCITIES AGREEMENT
- --------------------------------------------------------------------------------
(v) FAILURE TO DETERMINE SOURCE AND/OR RESOLVE FAILURE. IMGIS will
--------------------------------------------------
credit GEOCITIES' account for every [***] after the time periods
described above that it takes IMGIS to provide a remedy for an
IMGIS Specific Failure. The amount of credit shall be [***]
incurred by GEOCITIES [***] during the [***].
3. OBLIGATIONS OF GEOCITIES. GEOCITIES agrees to implement the ad tags as
------------------------
described in the AdForce User Guide and Help documentation provided to
GEOCITIES. GEOCITIES also agrees to schedule all advertising for GEOCITIES'
Web sites or on-line properties using the IMGIS-provided "Application
Software." If GEOCITIES chooses to have IMGIS execute insertion and change
orders on behalf of GEOCITIES, GEOCITIES agrees to supply IMGIS with the
information necessary to schedule GEOCITIES' ad campaigns at least [***] in
advance of campaign initiation or modification. Should the average file size
of GEOCITIES' Central Delivery advertisements exceed [***], as determined by
IMGIS on a monthly basis, GEOCITIES agrees to pay the incremental fee listed
in Exhibit A to compensate for higher bandwidth costs. GEOCITIES agrees to
provide IMGIS with non-binding, 12-month volume forecasts of the number of
Impressions anticipated by GEOCITIES to be delivered using the AdForce
service on a rolling monthly basis. GEOCITIES agrees to provide IMGIS with
reasonable access to GEOCITIES' facilities for purposes of implementing and
supporting the Hybrid Service. GEOCITIES shall not export or re-export, or
allow the export or re-export of the Licensed Software, without complying
with all applicable export laws, restrictions, national security controls
and regulations of the United States and all applicable foreign agencies and
authorities.
4. OWNERSHIP/LIMITATIONS ON USE. Subject to the terms and conditions of this
----------------------------
Agreement, IMGIS hereby grants to GEOCITIES, contingent on timely payment of
monies due to IMGIS hereunder, a non-exclusive, non-transferable (except as
expressly permitted under section 10) license for the term of this Agreement
to use the Licensed Software in connection with the AdForce service. IMGIS
shall have the sole and exclusive ownership of all right, title and interest
in and to the Licensed Software and the AdForce service, any enhancements
thereto and in any materials and data provided to GEOCITIES by IMGIS.
GEOCITIES may not sublicense the AdForce service. GEOCITIES may not copy
(other than copying into RAM), modify, alter, sell, distribute or sublicense
the Licensed Software or reverse assemble, reverse compile or otherwise
attempt by any other method to create or derive the source programs of the
AdForce service or the Licensed Software, nor authorize or contract with
third parties to do the same. During the course of providing the AdForce
Service, IMGIS will collect and maintain general statistical information,
including but not limited to information pertaining to the number of
advertisements delivered, response times, user's IP address, cookie, browser
type and operating system, as well as the time, date and ad tag of a
request, but excluding information revealing the identity of individual
users, individual credit card, debit card, bank account, electronic currency
or similar information and other transaction or user specific data ("User
Information"). IMGIS may include User Information in IMGIS' logs and
databases and use such User Information, as aggregated with other data and
information collected by IMGIS and maintained in such logs or databases, for
its internal business purposes only. IMGIS will provide GEOCITIES with raw
data of the User Information, upon GEOCITIES' request, and will provide
GEOCITIES with reports, included with GEOCITIES' selected level of service,
of the User Information. Notwithstanding anything to the contrary contained
elsewhere in this Agreement, IMGIS agrees that it shall not, either during
the term of this Agreement, or thereafter, disclose to third parties or
otherwise disseminate, publish, reproduce, or use or permit the
dissemination, publication, reproduction or use of any of the User
Information in a manner that is in any respect inconsistent with the terms
and conditions pursuant to which GEOCITIES obtained the User Information, as
such terms and conditions may be set forth in GEOCITIES' privacy statement
(as it exists from time to time) or elsewhere.
5. CONFIDENTIALITY. It is agreed that all GEOCITIES' passwords used in
---------------
connection with AdForce user guides, the Licensed Software, and the AdForce
"help" documentation, whether on-line or in printed form, are the
confidential information of IMGIS. It is also agreed that any account
information relating to GEOCITIES' business, customers, products, technology
and information and data input into the AdForce service by GEOCITIES,
including, without limitation, advertiser contact and billing information,
and any and all confidential or proprietary information disclosed to or
learned by IMGIS while IMGIS employees or implementation of the Hybrid
Service is confidential information of GEOCITIES. Each party shall not use,
disclose or reproduce any confidential information of the other party
without the consent of the party providing said information, except for any
information, data or material which: (a) at the time of disclosure to the
receiving party was known or in the possession of the receiving party
without restriction; (b) is independently developed by the receiving party;
(c) is generally available to the public without any breach of this
Agreement by the receiving party. GEOCITIES acknowledges and agrees that
disclosure of the terms of this Agreement to anyone outside of GEOCITIES
(except attorneys and accountants of GEOCITIES) may create substantial
business damage to IMGIS and hereby agrees to keep the terms of this
Agreement strictly confidential .
6. INDEMNIFICATION. (a) Subject to subsection (b), GEOCITIES shall defend,
---------------
indemnify and hold harmless IMGIS from any and all third party claims and
liability and damages and costs (including reasonable court costs and
attorney's fees) arising out of or relating to advertising placed by
GEOCITIES using the AdForce service, including, without limitation, libel,
invasion of privacy, and rights of publicity claims arising from the content
of such advertising, provided that: (i) IMGIS promptly notifies GEOCITIES of
such claims; (ii) GEOCITIES has sole control of the defense and settlement
of such claims and is not responsible for any settlement that it does not
approve in writing; and (iii) IMGIS renders all reasonable assistance
required at GEOCITIES' expense, (b) IMGIS shall defend, indemnify and hold
harmless GEOCITIES from any and all third party claims and liabilities and
damages and costs (including
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ADFORCE/TM/SERVICE GEOCITIES AGREEMENT
- --------------------------------------------------------------------------------
reasonable court costs and attorneys fees) for infringement of third party
intellectual property rights arising out of or relating to GEOCITIES' use of
the Licensed Software and/or the AdForce service pursuant to this Agreement,
provided that: (i) GEOCITIES promptly notifies IMGIS of such claims; (ii)
IMGIS has sole control of the defense and settlement of such claims and is
not responsible for any settlement that it does not approve in writing; and
(iii) GEOCITIES renders all reasonable assistance required at IMGIS'
expenses. If an injunction is entered against GEOCITIES' use of the Licensed
Software or the AdForce service or GEOCITIES' use of the Licensed Software
or the AdForce service is likely to be enjoined, IMGIS will, at its option
and sole expense, (A) obtain a license permitting such use, (B) modify the
Licensed Software or the AdForce service to avoid the infringement but
maintaining equivalent performance, functionality and compatibility, or (C)
if it cannot reasonably do either of the foregoing, terminate GEOCITIES'
licensing to the Licensed Software and promptly refund fees paid by
GEOCITIES for the last thirty days of service, but not to exceed the cost in
aggregate incurred by GEOCITIES in obtaining replacement ad delivery
services from another provider.
7. WARRANTY. GEOCITIES warrants that GEOCITIES is free to enter into this
--------
Agreement and that this Agreement constitutes the valid and binding
obligation of GEOCITIES, enforceable in accordance with its terms. IMGIS
represents and warrants that IMGIS is free to enter into and perform this
Agreement and, except for events beyond IMGIS' control including but not
limited to Internet access outages and other events of force majeure, (a)
the AdForce service (excluding components of the GEOCITIES network and third
party hardware and software not provided by IMGIS) will materially conform
to the functionality described in section 1 except to the extent that the
performance of the AdForce service is materially affected by components of
the GEOCITIES network and third party hardware and software not provided to
IMGIS; (b) IMGIS either owns, has, or will otherwise acquire the right (and
will, during the term hereof maintain such right) to use all hardware and
software components of the AdForce service and the Licensed Software and
will not infringe on any right or interest (intellectual property or
otherwise) of any third party.
EXCEPT AS SPECIFIED IN THIS SECTION 7, IMGIS HEREBY DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY AND ALL
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-
INFRINGEMENT, IN CONNECTION WITH THIS AGREEMENT.
8. LIABILITY. NEITHER PARTY WILL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL,
---------
SPECIAL OR EXEMPLARY DAMAGES, EVEN IF IT HAS BEEN WARNED OF THE POSSIBILITY
OF SUCH DAMAGES.
9. TERMINATION. GEOCITIES shall select the term and level of service for this
-----------
Agreement in Section 12. Either party may terminate the Agreement if the
other party fails to perform any of its obligations in any material respect,
and such failure continues uncured for a period of thirty (30) days (except
in the event of a breach of section 5, in which case termination shall be
effective immediately) after receipt by the breaching party of written
notice from the non-breaching party specifying such default. Either party
may terminate this Agreement in the event that the other party ceases to do
business, undergoes a bankruptcy or insolvency proceeding, or an assignment
for the benefit of creditors. Upon the expiration or termination of the
Agreement for any reason, the parties will immediately return all
Confidential Information of the other party in their possession. All accrued
payment obligations of GEOCITIES shall survive expiration or termination of
the Agreement, as shall the parties' rights and obligations under Sections 4
through 9, as well as sections 11 through 13.
10. ASSIGNMENT. This Agreement is not assignable or transferable by either
----------
party without the prior written consent of the other party, except that a
party may assign the Agreement (a) by operation of law or (b) to any entity
acquiring all or substantially all of assignor's assets, stock or business
without the other party's consent.
11. PAYMENT TERMS. GEOCITIES shall pay to IMGIS the dollar amounts determined
-------------
from the pricing schedule set forth in Exhibit A, within [***] from date of
GEOCITIES' receipt of invoice. All payments to IMGIS shall be remitted in U.
S. Dollars. Fees for the AdForce service are subject to change at the
expiration of the initial term and upon renewal of this Agreement. IMGIS
shall provide GEOCITIES, not less than [***] prior to expiration of the
initial term or any renewal term, written notice of any change in the fees
for the AdForce service.
12. TERM. The term shall commence on the Effective Date indicated below and
----
shall continue for a period of two (2) years, except that GEOCITIES may
terminate the Agreement with or without cause during the [***] period
following the first anniversary of the Effective Date upon receipt by IMGIS
of written notice of GEOCITIES' intent to terminate. In addition, if: (i)
IMGIS fails within [***] following the Effective Date to enter into a
written agreement with [***] pursuant to which IMGIS receives demographic
data pertaining to [***] or (ii) IMGIS fails to make AdForce+ available to
GEOCITIES within [***] following the Effective Date, GEOCITIES, may as its
sole remedy, elect to terminate this Agreement upon written notice to IMGIS.
GEOCITIES agrees to pay IMGIS for all Impressions delivered through the
AdForce service, according to the pricing schedule in Exhibit A, subject to
change upon renewal of this Agreement.
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ADFORCE/TM/SERVICE GEOCITIES AGREEMENT
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13. GENERAL. This Agreement is the complete and exclusive statement of the
-------
mutual understanding of the parties and supersedes and cancels all previous
written and oral agreements and communications relating to the subject
matter of this Agreement. No failure or delay in exercising any right
hereunder will operate as a waiver thereof, nor will any partial exercise of
any right or power hereunder preclude further exercise. Any waivers or
amendments shall be effective only if made in writing. All notices shall be
in writing and effective upon receipt when personally delivered, delivered
by a major commercial rapid delivery courier service or mailed by certified
or registered mail (postage prepaid, return receipt requested) to a party at
its address set forth above or amended by notice. If not received sooner,
notice by mail shall be deemed received five (5) days after deposit in the
U.S. mails. If any provision of this Agreement shall be adjudged by any
court of competent jurisdiction to be unenforceable or invalid, that
provision shall be limited or eliminated to the minimum extent necessary so
that this Agreement shall otherwise remain in full force and effect and
enforceable. This Agreement shall be governed by the law of the State of
California without regard to the conflicts of law provisions thereof. The
prevailing party in any action to enforce this Agreement will be entitled to
recover its attorney's fees and costs in connection with such action.
Nothing contained herein shall be construed as establishing a partnership,
joint venture, employment or other business relationship between the parties
hereto other than that of independent contractors. This Agreement may be
executed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement as of: 5/4/98
(Effective Date).
By: /s/ Stephen Hansen Accepted: /s/ Chad Steelberg
Print Name: Stephen Hansen Name: Chad Steelberg
Title: CFO/CAO Title: EVP/Founder
GEOCITIES: (GEOCITIES) IMGIS, Inc. (IMGIS)
-----------------------
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<PAGE>
ADFORCE/TM/SERVICE GEOCITIES AGREEMENT
- --------------------------------------------------------------------------------
SCHEDULE A
FEES
Following IMGIS' release and GEOCITIES' acceptance of the Hybrid Service,
pricing for the AdForce service will be as shown below:
Local Delivery CENTRAL DELIVERY
-------------- ----------------
[***] [***]
. There will be [***] for ads served locally until IMGIS makes the Hybrid
Service available to GEOCITIES, anticipated to occur by [***]. Prior to IMGIS'
release and GEOCITIES' acceptance of the Hybrid Service, pricing of the AdForce
service prior to [***] will be $[***] CPM for Central Delivery and $[***] CPM
for Central Delivery during the period commencing on [***] and ending on [***].
GEOCITIES agrees to continue to operate the StarPoint servers under the terms of
the Agreement between StarPoint and GEOCITIES dated, 5/4/98 until the Hybrid
Service is available, including, but not limited to, paying monthly support
costs when due.
. AdForce+ pricing and fees for processing and using GEOCITIES data for
targeted advertising will be covered in a separate Data Agreement.
. Incremental fee for Centrally Delivered ads only, of $[***] for every [***]
increase in average file size above an average of [***].
. If GEOCITIES elects to have IMGIS manually insert or modify campaigns,
GEOCITIES will pay IMGIS $[***] for each insertion or modification.
IN THE EVENT OF A MATERIAL FAILURE OF LOCAL DELIVERY SERVICE CAUSED BY A FAILURE
WITHIN THE DIRECT CONTROL OF IMGIS, THE FEE FOR LOCAL DELIVERY SERVICE SHALL
APPLY, UNTIL LOCAL DELIVERY AGAIN BECOMES AVAILABLE TO GEOCITIES, TO THE
PERCENTAGE OF ADS SERVED BY CENTRAL DELIVERY BASED UPON THE AVERAGE PERCENTAGE
OF ADS SERVED BY THE LOCAL DELIVERY SERVICE DURING THE IMMEDIATELY PRECEDING
TWENTY-FOUR (24) HOUR PERIOD.
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ADFORCE/TM/SERVICE GEOCITIES AGREEMENT
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EXHIBIT B
ADFORCE TARGETING
AdForce Central Delivery service includes targeting on the following parameters,
when AdForce databases allow the parameter to be resolved:
[***]
There may be additional charges for additional targeting parameters added in the
future, as well as for customization of the targeting algorithms for keywords
and site data.
ADFORCE REPORTING
The following reports are currently available with the AdForce Central Delivery
service:
NETWORK REPORTS WEBSITE REPORTS ADVERTISER REPORTS
- --------------------------------------------------------------------------------
[***] [***] [***]
There will be additional charges for reports customized or designed to
GEOCITIES' specifications. There may also be additional charges for reports
added in the future.
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ADFORCE/TM/SERVICE GEOCITIES AGREEMENT
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EXHIBIT C
ADFORCE+
AdForce+ is IMGIS' proprietary database targeting service, designed to provide
one-to-one addressable on-line advertising. IMGIS has secured multi-year,
exclusive data agreements with both Marketing Information Technologies, a leader
in targeted print advertising, and Metromail, a $400 million, consumer
demographic data compiler. These relationships position IMGIS to exclusively
leverage the unique, one-to-one marketing capabilities of the Internet.
Traditional consumer databases alone, however, do not provide the key to unlock
the demographic information on the Internet because there is no mapping from
terrestrial world data to the Internet. AdForce+ provides this map by linking
on-line registration files and ISP login information to IMGIS' 3rd party
demographic databases.
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ADFORCE/TM/SERVICE GEOCITIES AGREEMENT
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EXHIBIT D
ADFORCE TARGETING
AdForce Local Delivery service include targeting on the following parameters,
when AdForce databases allow the parameter to be resolved:
[***]
There may be additional charges for additional targeting parameters added in the
future, as well as for customization of the targeting algorithms for keywords
and site data.
ADFORCE REPORTING
The following reports are currently available with the AdForce Local Delivery
service:
NETWORK REPORTS WEBSITE REPORTS ADVERTISER REPORTS
- --------------------------------------------------------------------------------
[***] [***] [***]
There will be additional charges for reports customized or designed to
GEOCITIES' specifications. There may also be additional charges for reports
added in the future.
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EXHIBIT 10.27
SOFTWARE LICENSE AGREEMENT
--------------------------
Informix Software, Inc. ("Informix"), and the person or entity listed in
the signature block below ("Licensees") hereby agree that, after execution of
this agreement (this "Agreement") by Licensee and acceptance by Informix, the
terms and conditions of the following sections A through G and those of any
Informix Schedules shall apply to the use of the Products. All capitalized terms
used herein and not otherwise defined are defined in section G.
A. LICENSEE'S RIGHTS, REPRESENTATIONS AND OBLIGATIONS. 1. Informix hereby
--------------------------------------------------
grants and Licensee hereby accepts the nonexclusive, nontransferable, royalty
bearing right and license within the United States ("Territory"), in accordance
with the User Documentation and this Agreement and only in conjunction with the
Computer System(s), to:
(a) use the Products for internal business purposes;
(b) copy object code of a Product into any computer readable form for back-up
purposes in support of Licensee's use of the Products;
(c) distribute the Products to Affiliate who have agreed to be bound by
provisions substantially similar to those contained in this Agreement for their
internal business purposes on the Computer Systems.
2. Use of the Products is restricted to the number of users, and the Computer
Systems which correspond to the machine class, if applicable, for which license
fees have been paid.
3. Except as specifically permitted by this Agreement, Licensee shall not
directly or indirectly (a) use any Confidential Information of Informix to
create any computer software program or user documentation which is
substantially similar to any Product; (b) reverse engineer, disassemble or
decompile, or otherwise attempt to derive the source code for, any Product; (c)
encumber, time-share, rent, or lease the rights granted by this Agreement; (d)
copy, manufacture, adopt, create derivative works of, translate, localize, port
or otherwise modify any Products or other Confidential Information of Informix
or grant anyone a license to engage in similar conduct. Results of any benchmark
or other performance tests run on the Products may not be disclosed to any third
party without Informix's prior written consent.
4. Licensee does not have, and shall not claim that it has, any right in or to
any of the Products or the Confidential Information received from Informix other
than as specifically granted by this Agreement. Licensee shall promptly notify
Informix of any actual or suspected unauthorized use of the Products or use or
disclosure of the Confidential Information received from Informix, and shall
provide reasonable assistance to Informix (at Informix's expense) in the
investigation and prosecution of such unauthorized use or disclosure.
5. Licensee shall comply with the Export Laws, Licensee hereby assures
Informix that it will not export or re-export directly or indirectly (including
via remote access) any part of the Product(s) or any Confidential Information to
any country for which a validated license is required under the Export Laws
without first obtaining a validated license. If at any time Informix determines
that the laws of any country in the Territory are or become insufficient to
protect Informix's intellectual or proprietary rights in the Products, both
parties will in good faith work with each other to protect Informix's
intellectual or proprietary rights in that country.
6. Products acquired with United States Federal Government funds or intended
for use within or for any United States federal agency are provided with
"Restricted Rights" as defined in DFARS 252.227-7013(c)(1)(ii) or FAR 52.227-19.
- -------------------------------------------------------------------------------
The following Schedules which are attached hereto, are initialed by Licensee
and made a part of this Agreement by this reference
Informix Schedule for
Product Licensing
- ------------------------ --------------------------- -------------------------
- ------------------------ --------------------------- -------------------------
- ------------------------ --------------------------- -------------------------
- --------------------------------------------------------------------------------
LICENSEE: LICENSEE ACCEPTANCE:
/s/ JOHN REZNER
GEOCITIES ----------------------------
SANTA MONICA, CALIFORNIA 90405-1030 Signature
ATTN: ANDRE DELOSSANTOS John Rezner
PHONE: (310) 664-6500 ----------------------------
Printed Name and Title
6/30/98
----------------------------
Date
- --------------------------------------------------------------------------------
INFORMIX: LICENSEE ACCEPTANCE:
/s/ GARY LLOYD
INFORMIX SOFTWARE, INC. ----------------------------
4100 BOHANNON DRIVE Signature
MENLO PARK, CALIFORNIA 94025
ATTN: GENERAL COUNSEL Gary Lloyd, Vice President,
PHONE: (650) 926-6300 Legal General Counsel and
Secretary
----------------------------
Printed Name and Title
6/30/98
----------------------------
Effective Date
1
<PAGE>
B. CONFIDENTIALITY. 1. Except for the specific rights granted by this
---------------
Agreement, neither party shall use or disclose any Confidential Information of
the other party. A party receiving Confidential Information from the other
shall use the highest commercially reasonable degree of care to protect that
Confidential Information, including ensuring that its employees with access to
such Confidential Information have agreed in writing not to disclose the
confidential Information have agreed in writing not to disclose the Confidential
Information. Within 15 days of the request of the disclosing party, and in its
sole discretion, the receiving party shall either return to the disclosing party
originals and copies of any Confidential Information and all information,
records and materials developed from them by the receiving party, or destroy the
same. Either party may only disclose the general nature, but not the specific
financial terms, of this Agreement without the prior consent of the other party,
provided Informix may provide a copy of this Agreement to any financial
institution in conjunction with a receivables financing transaction if such
financial institution agrees to keep this Agreement confidential.
2. Notwithstanding the foregoing, nothing therein shall prevent a receiving
party from disclosing all or part of the Confidential Information which is
necessary to disclose pursuant to the lawful requirement of a governmental
agency or when disclosure is required by operation of law, provided, however,
that prior to any such disclosure, the receiving party shall use reasonable
efforts to (a) promptly notify the disclosing party in writing of such
requirements to disclose, and (b) cooperate fully with the disclosing party in
protecting against any such disclosure and/or obtaining a protective order.
3. Money or damages will not be an adequate remedy if this section B is
breached and therefore, either party may, in addition to any other legal or
equitable remedies, seek an injunction or similar equitable relief against such
breach.
C. LIMITED WARRANTIES AND REMEDIES. 1. Informix warrants that (a) use of
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unmodified Products, will not violate the intellectual property rights of any
third party under U.S. patent copyright trademark or trade secret law of the
United States; (b) it has full power and right to enter into this Agreement and
(c) during the first 90 days from the date Licensee receives an unmodified
Products ("Warranty Period") manufactured by Informix, the ;media for those
Products will, under normal use, be free of defects in materials and workmanship
and the Development Products will substantially conform to the User
Documentation.
2. EXCEPT FOR THESE EXPRESS LIMITED WARRANTIES, LICENSEE ACCEPTS THE PRODUCTS
"AS IS," WITH NO OTHER EXPRESS OR IMPLIED WARRANTIES OR CONDITIONS OF ANY KIND,
INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. INFORMIX MAKES NO WARRANTIES REGARDING THE APPLICATION(S)
OR THE MEDIA OF THE PRODUCTS MANUFACTURED BY LICENSEE. Some jurisdictions do
not allow limitations on how long an implied warranty last, so the above
limitation may not apply to Licensee.
3. In the case of an alleged breach of sections C.1(a) or (b), Informix shall,
at its expense, indemnify, defend, save and hold harmless Licensee from and
against any claim, loss, expense or judgment (including reasonable attorney
fees) provided (a) Licensee promptly gives Informix written notice of the claim;
(b) Licensee provides all reasonable assistance at Informix's expense to defend
against the claim; and (c) Informix has the right to control the defense or
settlement of the claim provided that Informix does not enter into any
settlement or compromise that imposes any obligation or liability upon Licensee
without Licensee's prior written consent.
4. Licensee's sole remedy for Informix's breach of section C.1.(c) shall be
that during the Warranty Period, Informix shall, in its sole discretion, provide
modifications to keep the Products in substantial conformance with the User
Documentation, replace the Products, or refund the license fees paid to Informix
for the defective Products.
5. (A) EXCEPT FOR A BREACH OF SECTION A.3 OR B.1 OR WITH RESPECT TO INFORMIX'S
INDEMNITY OBLIGATION UNDER SECTION C.3, EACH PARTY'S LIABILITY TO THE OTHER OR
ANY THIRD PARTY FOR A CLAIM OF ANY KIND RELATED TO THIS AGREEMENT, ANY PRODUCT
OR ANY PRODUCT SERVICE, WHETHER FOR BREACH OF CONTRACT OR WARRANTY, STRICT
LIABILITY, NEGLIGENCE OR OTHERWISE, SHALL NOT EXCEED THE AGGREGATE OF FEES PAID
TO INFORMIX (IN THE CASE OF INFORMDO OR (IN THE CASE OF LICENSEE) PAID OR OWED
BY LICENSEE HEREUNDER FOR THE PRODUCT OR SERVICE INVOLVED IN THE CLAIM. (B)
EXCEPT FOR A BREACH OF SECTION A.3 OR B.1, IN NO EVENT CONSEQUENTIAL DAMAGES
(INCLUDING, WITHOUT LIMITATION, LOST REVENUES OR PROFITS, LOST DATA, WORK
STOPPAGE, COMPUTER FAILURE OR MALFUNCTION), EVEN IF ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. Some jurisdictions do not allow the exclusion or limitation of
incidental or consequential damages, so the above limitation or exclusion may no
apply to Licensee. NO ACTION, REGARDLESS OF FORM, ARISING OUT OF THE
TRANSACTIONS UNDER THIS AGREEMENT MAY BE BROUGHT BY EITHER PARTY MORE THAN 1
YEAR AFTER THE EVENTS WHICH GAVE RISE TO THE CAUSE OF ACTION OCCURRED.
7. Licensee shall, at its expense, indemnify defend, save and hold harmless
Informix from any claim brought or filed by a third party against Informix
solely due to any failure by Licensee, its employees or agents to act in
accordance with the terms of this Agreement, provided (a) Informix promptly
gives Licensee written notice of the claim; (b) Informix provides all reasonable
assistance as Licensee's expense to defend against the claim; and (c) Licensee
has the right to control the defense or settlement of the claim provided that
Licensee does not enter into any settlement or compromise that imposes any
obligation or liability upon Informix without Informix's prior written consent.
D. RECORDS, AUDITS AND PAYMENTS. 1. Licensee shall maintain complete and
----------------------------
accurate records indicating where each Product has been installed and the number
of users for each Product and, if applicable, the machine class ("Copy
Records"). If Licensee has been granted, manufacturing rights or Licensee's
Territory extends beyond the United States and Canada, then within 10 business
days of the end of every other month, Licensee shall deliver to Informix the
Copy Records applicable to the prior two-month period, accompanied by any
payment due to Informix relating to such Copy Records.
2. No more than once each year, at Informix's expense and with 5 days' prior
written notice, Informix may appoint an independent auditor reasonably
acceptable to Licensee, with such expense to be shared equally between Informix
and Licensee, to audit all records of Licensee relating to this Agreement during
Licensee's normal business hours. If an audit reveals that the amount which
should have been paid to Informix is 5% or more greater than the amount reported
by Licensee, Licensee shall pay the cost of the audit to Informix. Any shortfall
uncovered as a result of an audit, as well as the cost of the audit, if required
by the preceding sentence, shall be paid by Licensee to Informix within 30 days
of the date Informix notifies Licensee that an amount is due.
3. Notwithstanding section D.2 above, if Informix reasonably suspects that
Licensee has breached sections A.3., B.1. or D.1, Informix may audit Licensee's
Product related activities upon 24 hours' notice.
4. Unless otherwise specified, Licensee shall pay to Informix a license fee
for Products ("License Fee") and fees for maintenance and support services at
the price set forth in the Price List.
5. Licensee shall have the right to finance its payment obligations hereunder
through financing arranged through a financing company reasonably satisfactory
to Informix. Licensee's failure to obtain such financing, however, shall not
defer or otherwise relive Licensee of such payment obligations.
6. Licensee shall pay any amounts owed to Informix on the date specified in
and according to the terms of this Agreement and any applicable Informix
Schedule. If a due date is not specified, the related payment shall be made by
Licensee in accordance with Informix's invoice. If Informix reasonably
determines that Licensee's credit rating does not support "net-30" terms,
Licensee shall prepay all fees. Each party is solely responsible for its own
expenses incurred in the performance of this Agreement. If Licensee fails to
make any payment when due, Informix may suspend delivery of Products or services
until the past due payment is made. Any payment which falls due on a weekend or
public holiday shall be due on the business day immediately preceding the
weekend day or public holiday.
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7. If a receiver or other liquidating officer is appointed for substantially
all of the assets or business of Licensee, if Licensee makes an assignment for
the benefit of creditors. If Licensee becomes insolvent or bankrupt or the
rights or interest of Licensee under this Agreement become an asset under any
bankruptcy, insolvency or reorganization proceeding, then Licensee must prepay
all fees, and this Agreement and any Informix Schedules shall be governed by the
then current, applicable bankruptcy and insolvency laws.
8. Payments shall be in United States dollars. Any overdue amount shall bear
interest at the maximum rate allowed by law. Costs of conversion, outside
collection and related bank charges shall be paid by Licensee. Licensee shall
be responsible for all taxes, tariffs and transportation costs related to this
Agreement (including any value added or sales taxes) other than taxes on
Informix's income. All shipments by Informix shall be F.O.B. origin.
E. TERMINATION. 1. This Agreement shall be effective until terminated. This
-----------
Agreement shall terminate: (a) for cause or for failure to pay any amount when
due, upon 30 days prior written notice by either party to the other, unless the
cause is susceptible of being and is cured within the 30 day notice period; or
(b) immediately upon written notice to Licensee in the event Licensee breaches
section A.3. The date termination becomes effective is called the "Termination
Date." Termination of this Agreement terminates all Informix Schedules.
2. (a) If this Agreement is terminated because of a breach of section A.3, all
rights granted under this Agreement will terminate. (b) If this Agreement is
terminated for any other reason, all rights granted under this Agreement will
terminate, except for Licensee's continued right to use Products for which the
license fees have been paid to Informix. Use after the Termination Date shall
be subject to those provisions of this Agreement which survive termination.
3. Subject to section E.2.(b), within 30 days of the Termination Date, all
products, related materials and Confidential Information in Licensee's
possession or control shall be returned to Informix or, upon Informix's written
request, destroyed by Licensee.
4. If Licensee's breach is the cause of termination, no additional Product
shall be provided to Licensee on account of any remaining balance of any
prepayment and such amount shall be retained by Informix.
5. Sections A.3, 4. (first sentence only), and 5.; B; C; D. (for a two (2) year
period following termination); E; and F5. and 7, will survive any termination of
this Agreement.
F. GENERAL PROVISIONS. 1. Informix and Licensee are independent contractors
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and will so represent themselves in all regard. Neither party may bind the other
in any way.
2. Licensee may not assign this Agreement without the prior written consent of
Informix, which consent will not be unreasonably withheld. Notwithstanding the
foregoing, Licensee may assign its rights under this Agreement to an acquirer of
all or substantially all of its stock, assets or business or by operation of law
resulting from a reincorporation of Licensee without Informix's consent provided
such entity agrees in writing to be bound by the provisions of this Agreement
and further provided that such entity is not a direct competitor of Informix.
Any purported assignment in contravention of this section is null and void. A
transfer of a controlling interest in the equity of Licensee shall be deemed an
assignment for purposes of this subsection. Subject to the foregoing, this
Agreement will bind and inure to the benefit of any successors or assign.
3. Neither party will be responsible for failure of performance, other than for
an obligation to pay money, due to causes beyond its control, including, without
limitation, acts of God or nature; labor disputes; sovereign acts of any
federal, state or foreign government or shortage of materials.
4. Notices will be delivered to a party's address stated in the signature block
of this Agreement, or to another address which a party properly notified the
other that notices should be sent.
5. This Agreement is the complete and exclusive statement of the parties to
this Agreement on these subjects, and supersedes all prior written or oral
proposals and understandings relating thereto, including the End User Agreement
enclosed with the "shrink-wrap" version of a Product This Agreement may only be
modified by a writing signed by an officer of Informix and an authorized
representative of Licensee. This Agreement takes precedence over any purchase
order issued by Licensee, which is accepted by Informix for administrative
convenience only. If any court of competent jurisdiction determines that any
provision of this Agreement is invalid, the remainder of the Agreement will
continue in full force and effect. The offending provision shall be interpreted
to whatever extent possible to give effect to its stated intent.
6. Failure to require performance of any provision or waiver of a breach of a
provision does not waive a party's right to subsequently require full and proper
performance of that provision. Singular terms will be construed as plural, and
vice versa, Section headings are for convenience only and will not be considered
part of this Agreement.
7. This Agreement is governed by the laws of the State of California, without
giving effect to its conflict of law provisions. The United Nations Convention
on Contracts for the International Sale of Goods will not apply to this
Agreement. Each party submits to the jurisdiction of the appropriate state or
federal courts in California. Informix may seek to specifically enforce or
prevent a breach of any term of this Agreement in the appropriate couts of any
state or country in which the Products are deployed by Licensee or in which
Licensee maintains an office. The prevailing party in any suit under this
Agreement shall recover all costs, expenses and reasonable attorney fees
incurred in such action. Nothing in this Agreement will be deemed a waiver by
either party of any and all available legal or equitable remedies.
8. Informix agrees to add Licensee's name to the Informix Licensee list
respecting Informix's standard source code escrow agent, Brambles NSD, Inc. This
procedure will provide Licensee with the source code to Payment Products on
restricted basis as described below. Such copy will be placed in escrow and
updated at Informix's expense and made available to Licensee on a restricted
basis for use only in connection with Licensee's internal maintenance and
support purposes. Licensee shall obtain said source code pursuant to the terms
and conditions of the Informix Software Deposit Agreements with Brambles NSD,
Inc. as amended from time to time, and Licensee agrees to execute and return the
"Licensee of Record Acceptance" form upon receipt by Brambles NSD, Inc. Licensee
shall pay the then current applicable source code license fee for its use of the
source code.
G. DEFINITIONS. "Affiliate" means any person, corporation or other entity
-----------
which, directly or indirectly, through one or more intermediaries, controls or
is controlled by, or is under common control with another person, corporation or
entity.
"Computer Systems" means the computer systems on which Informix has made the
Products generally commercially available.
"Confidential Information" means Informix pricing or information concerning new
Informix products, trade secrets and other property rights; and any business,
marketing or technical information disclosed by Informix or Licensee in relation
to this Agreement and identified in writing as confidential by, or proprietary
to, the disclosing party. Confidential Information does not include information
(a) already in the possession of the receiving party without an obligation of
confidentiality, (b) hereafter rightfully furnished to the receiving party by a
third party without a breach of any separate nondisclosure obligation, (c)
publicly available without breach of this Agreement (i.e., information in the
public domain), (d) furnished by the disclosing party to a third party without
restriction on subsequent disclosure, or (e) independently developed by the
receiving party without reliance on the Confidential Information.
"Development Product" means the standard proprietary Informix computer software
packages made generally commercially available by Informix within the Territory,
which include the object code form of the computer programs on magnetic media,
User Documentation and an End User Agreement.
"Effective Date" means the date reflected in the signature block of this
Agreement.
"End User" means, as appropriate, either Licensee or any third party individual,
business or governmental entity which acquires one or more copies of the
Products for personal or internal business use, and not for transfer to others.
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"End User Agreement" means the standard Informix agreement accompanying each
copy of the Products which specifies the terms and conditions by which an End
User may use the Products.
"Export Laws" means all laws, administrative regulations, and executive orders
of any applicable jurisdiction relating to the control of imports and exports of
commodities and technical data, including, without limitation, the Export
Administration. Regulations of the U.S. Department of Commerce, the
International Traffic in Arms Regulations of the U.S. Department of Commerce,
the International Traffic in Arms Regulations of the U.S. Department of State,
and the Enhanced Proliferation Control Initiative.
"Informix Schedule" means a form containing additional terms and connections of
this Agreement which is (i) attached to this Agreement or, (ii) when placed
after the Effective Date, refers to this Agreement and initialed by Licensee.
"New Product" means a release and any associated User Documentation which
Informix in its sole discretion designates as a New Product is made generally
commercially available by Informix; and is marketed by Informix as a New Product
even if it is capable of being integrated with a Product.
"Price List" means the Informix price list for the United States and Canada, in
effect at the time Licensee orders Products from Informix. The price of
Products deployed within the United States and Canada shall be as set forth in
the Price List. The price for Products deployed outside the United States and
Canada shall be 1.25 times the price set forth in the Price List.
"Product" means, as applicable, the Development Products, the Runtime Products
or all such products as Informix makes generally commercially available.
"Runtime Product" means a portion of the Development Product which is composed
of various modules and libraries made generally commercially available by
Informix within the Territory as either runtime files or files which are
included only in a linked form. Runtime Products include an End User Agreement
but do not include User Documentation.
"Schedule Effective Date: means the date reflected on the front of an Informix
Schedule.
"User" as defined in the Price List, and as of the Effective Date, means for
User-based Products, the maximum number of concurrent Users at any one instance
in time. using this definition, Informix counts a batch process or an individual
as one User. however, when an individual has multiple connections to a User-
based Product, Informix counts these connections as multiple Users. When
customers use a multiplexing front end, such as a transaction manager, to reduce
the number of direct connections to the database, Informix counts the number of
front-end connections as Users, rather than counting the smaller number of
backend connections.
"User Documentation" means the Informix user manual(s) and other written
materials on proper installation and use of, and which are normally distributed
with, the software portion of the Products.
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EXHIBIT 10.28
TECHNOLOGY PURCHASE AND SALE AGREEMENT
THIS TECHNOLOGY PURCHASE AND SALE AGREEMENT (the "Agreement") is made and
entered into as of the date signed below by GeoCities (the "Effective Date") by
and between Compu-Trak, Inc., a North Carolina corporation, having a principal
place of business at 2201-104 Brentwood Road, Raleigh, North Carolina 27601
("Seller"), Edward E. Byman, the owner of Seller ("Owner") and GeoCities, a
California corporation, having a principal place of business at 1918 Main
Street, third floor, Santa Monica, California 90405-1030 ("Buyer").
RECITALS
WHEREAS, Seller has created certain proprietary Web page development
technology that enables end users to design, create and edit Web pages and Web
sites, as more particularly described in Exhibit A attached hereto and
incorporated herein (as such technology exists on the Effective Date, the
"Technology"); and
WHEREAS, Seller desires to sell and assign to Buyer all of Seller's right,
title and interest in and to the Technology and all of Seller's development
resources relating to the Technology, and Buyer desires to purchase and acquire
the Technology and such development resources, in accordance with the terms and
conditions of this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the premises and covenants set forth
herein, the parties hereby agree as follows:
1. DEFINITIONS
1.1 "Assigned Properties" means, collectively, (i) the Technology
(including, without limitation, computer programming code for both the server
side and client side in source code and object code forms), (ii) all copies of
computer software embodying the Technology, all technical data, drawings,
prototypes, engineering files, flow charts, design specifications, inventions
(whether or not patentable), discoveries, improvements, trade secrets, know-how,
works of authorship, ideas and confidential or proprietary information created
by or for Seller relating to the Technology and (iii) all documentation
(including all application programmer interface documentation in printed and
electronic format), manuals, tools and other materials owned by Seller and used
to develop, enhance, modify, support and maintain the Technology.
1.2 "Confidential Information" means technical, business, financial,
customer and product development plans, strategies and information relating to
Buyer, or any
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affiliate, customer or strategic partner of or content provider to Buyer,
including, without limitation, the Assigned Properties and Assigned Rights (as
defined below).
1.3 "Intellectual Property Rights" means copyright rights, trademark
rights, patent rights, trade secret rights, moral rights and all other
proprietary and intellectual property rights anywhere in the world; provided,
that the mark "WebSmith" shall not be included within the definition of
Intellectual Property Rights.
1.4 "Source Code" means the human-readable form of computer software,
together with all documentation and comments relating thereto sufficient for a
reasonably skilled computer programmer to understand, use, support and modify
such computer software.
2. SALE, ASSIGNMENT AND TRANSFER
2.1 Sale and Assignment. Subject to the terms and conditions of this
Agreement, Seller hereby irrevocably sells, assigns, conveys and transfers to
Buyer, and its respective successors and assigns, all of Seller's right, title
and interest anywhere in the world in and to the Assigned Properties, including,
but not limited to, all Intellectual Property Rights relating to the Assigned
Properties and any and all causes of action heretofore accrued in Seller's
favor, whether now known or hereafter to become known, with respect to any of
the foregoing (collectively, such Intellectual Property Rights and causes of
action, the "Assigned Rights"). In the event any right (including, without
limitation, moral rights) in the Assigned Rights cannot be assigned, Seller
hereby waives enforcement anywhere in the world of such right against Buyer, its
distributors, affiliates, licensees and customers and agrees to exclusively
license such right (with the right to sublicense) worldwide to Buyer and its
respective successors and assigns any and all such rights Seller may have in and
to the Assigned Properties or any portion thereof. The parties acknowledge and
agree that the mark "WebSmith" is not being sold or transferred hereunder and
Buyer is not assuming any obligation or liability with respect thereto, and any
such liability shall be retained by Seller.
2.2 Recordation of Assignment. Seller shall simultaneously herewith
sign the Memorandum of Assignment of Copyright in the form of Exhibit B attached
hereto. An executed copy of such Memorandum of Assignment of Copyright may be
filed with the United States Copyright Office by either party at any time.
2.3 Further Assurances. At any time, and from time to time hereafter,
Seller shall, upon Buyer's written request and at Buyer's expense, take any and
all action and execute, acknowledge and deliver to Buyer any and all further
instruments and assurances necessary or expedient in order to fully vest in
Buyer the Assigned Properties and Assigned Rights and to facilitate Buyer's
enjoyment, defense and enforcement thereof. Seller hereby irrevocably designates
and appoints Buyer, and its duly authorized officers and agents, with full power
of substitution, as Seller's agents and attorneys-in-fact to act for and in
behalf and instead of Seller, to take any and all actions, including proceedings
at law, in equity or otherwise, to execute, acknowledge and deliver any and all
instruments and assurances necessary or expedient in order to fully vest in
Buyer or perfect the sale, transfer and assignment of the Assigned Properties
and Assigned Rights or to protect the same or to enforce any claim or right
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of any kind with respect thereto. This includes, but is not limited to any
rights with respect to the Assigned Properties that may have accrued in Seller's
favor from the date of creation of the Assigned Properties to the Effective
Date. Seller hereby declares that the foregoing power is coupled with an
interest and is irrevocable.
2.4 Transfer of Assigned Properties. Seller shall promptly deliver to
Buyer all manifestations of the Assigned Properties (including all copies
thereof) in Seller's possession or control; provided, that Seller may retain one
copy of the Assigned Properties at its counsel's office for archival legal
purposes only. Within five days of the Effective Date, Seller shall, through the
services of Ethan Nicholas, commence work to install the Technology (including,
without limitation, the core editor) on Buyer's servers. Buyer shall pay for all
accommodation expenses for Mr. Nicholas while he is performing such work as an
employee or contractor of Seller, for a period of up to 30 days.
2.5 Hiring of Seller's Employees or Contractors. Buyer may, in its
sole discretion, offer employment to certain employees and contractors of Seller
as Buyer may determine in its sole discretion. Seller shall assist Buyer in its
efforts to hire employees and contractors identified by Buyer, including,
without limitation, Ethan Nicholas and, if Buyer chooses to hire such person as
an employee or contractor of Seller, Glenn Mersereau; provided, that Buyer
agrees not to employ Mr. Nicholas or engage him as a contractor until Successful
Installation (defined below) has been completed. If Buyer hires any employees or
contractors of Seller, Buyer shall not assume any obligation of Seller to any
such employee or contractor which arose, or relates to any acts or omissions of
Seller which occurred, on or prior to the date any such employee becomes an
employee or contractor of Buyer, including any obligation to Mr. Nicholas or, if
Buyer chooses to hire such person, Mr. Mersereau. Seller acknowledges and agrees
that Buyer would suffer damages, the amount of which would be impracticable and
extremely difficult to determine, if Mr. Nicholas becomes employed or is engaged
as a contractor by Buyer and should (i) resign from his employment or terminate
his relationship with Buyer within 180 days of the Effective Date, or (ii) fails
in all material respects to perform services for Buyer as an employee, other
than by reason of death ("Early Resignation"). Each of Seller and Owner agrees
that, in the event of such Early Resignation, Seller and Owner shall pay Buyer
liquidated damages in the form of, and the escrow agent under the Escrow
Agreement (defined below) shall release to Buyer, the Escrow Amount (defined
below) existing at the time of such Early Resignation, as a measure of Buyer's
anticipated harm resulting from Early Resignation and not as a penalty, and the
release of such Escrow Amount to Buyer shall be Buyer's sole and exclusive
remedy for any such Early Resignation.
3. REPRESENTATIONS AND WARRANTIES. (A) Each of Seller and Owner
hereby represents and warrants to Buyer that:
(i) Seller is the sole and exclusive owner of the entire
right, title and interest in and to all tangible and intangible forms of the
Assigned Properties and Assigned Rights;
(ii) The Assigned Properties and Assigned Rights were created
solely by Seller and all personnel, including employees, agents, consultants and
contractors, who have contributed to or participated in the conception or
development of the Assigned Properties
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and Assigned Rights; either (a) were employees of Seller acting within the scope
of their employment such that Seller has been accorded full, effective and
exclusive ownership of all tangible and intangible property with respect to the
Assigned Properties and Assigned Rights; or (b) have executed enforceable
written agreements assigning to Seller full, effective and exclusive ownership
of all tangible and intangible property with respect to the Assigned Properties
and Assigned Rights;
(iii) Buyer will receive, pursuant to this Agreement as of the
Effective Date, sole and exclusive right, title and interest in and to all
tangible and intangible property rights existing in the Assigned Rights and the
Assigned Properties, both of which are free and clear of all encumbrances
including, without limitation, security interests, pledges, licenses, liens,
charges and other restrictions;
(iv) The Assigned Properties and Assigned Rights do not infringe
any right (including, without limitation, any Intellectual Property Rights) of
any third party (the parties acknowledge and agree that no representation set
forth in this paragraph (iv) shall be made with respect to the "WebSmith" mark);
(v) No claim of infringement or violation of the rights of any
third party has been threatened or asserted with respect to any of the Assigned
Properties or Assigned Rights, and, to the best of Seller's knowledge, no such
claim is pending against Seller;
(vi) No claim has ever been asserted, and to the best of Seller's
knowledge, no claims are pending, challenging or questioning the validity or
enforceability of any of the Intellectual Property Rights relating to any of the
Assigned Properties;
(vii) The execution, delivery and performance of this Agreement by
Seller does not and will not violate any agreement with any third party; and
(viii) All software included in the Technology shall be "Year 2000
Compliant," meaning that such software will (a) not be materially affected by
any inability to completely and accurately address, present, display, sort,
compare, produce, store, and calculate data involving dates beginning with
January 9, 1999 through January 1, 2002, and will not produce abnormally ending
or incorrect results involving such dates as used in any forward or regression
date-based function; or (b) function in such a way that all "date" related
functionalities and data fields include the indication of century and
millennium, and will perform calculations that involve a four-digit year field.
(ix) Each of Seller and Owner acknowledges that the Shares (as
defined below) are not being registered under the Securities Act of 1933, as
amended (the "1933 Act"), based in part, on reliance that the issuance of the
Shares is exempt from registration under Section 4(2) of the 1933 Act as not
involving any public offering. Each of Seller and Owner further acknowledges
that the Buyer's reliance on such exemption is predicated, in part, on the
representations set forth below made by Seller and Owner to the Buyer;
(a) Seller is acquiring the Shares solely for Seller's own
account, for investment purposes only, and not with an intent to sell, or for
resale in connection with any distribution of all or any portion of the Shares
within the meaning of the 1933 Act;
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(b) The Seller is an "Accredited Investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the Securities
Act of 1933;
(c) In evaluating the merits and risks of an investment in the
Shares, the Seller has relied upon the advice of Seller's legal counsel, tax
advisors, and/or other investment advisors;
(d) Seller is experienced in evaluating and investing in
companies such as the Buyer. Seller has been given access to all books, records
and other information of the Seller which Buyer has desired to review and
analyze in connection with Buyer's purchase of the Shares hereunder;
(e) Seller is aware that an investment in securities of a
closely held corporation such as the Buyer is non-marketable, non-transferable
and will require Seller's capital to be invested for an indefinite period of
time, possibly without return. Seller has no need for liquidity in this
investment has the ability to bear the economic risk of this investment, and can
afford a complete loss of the entire purchase price paid for the Shares;
(f) Seller understand that the Shares being purchased hereunder
are characterized as "restricted securities" under the federal securities laws
since the Shares are being acquired from the Buyer in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the 1933 Act only in
certain limited circumstances. Seller understands that the Buyer has no
obligation to file a registration statement under the 1933 Act for the Shares or
to otherwise assist Seller in complying with any exception from registration.
Seller represents that Seller is familiar with Rule 144 promulgated under the
1933 Act, as presently in effect, and understands the resale limitations imposed
thereby and by the 1933 Act; and
(g) At no time was an oral representation made to Seller
relating to the purchase of the Shares or was Seller presented with or solicited
by any leaflet, public or promotional material, newspaper or magazine article,
radio or television advertisement or any other form of general advertising
relating to the purchase hereunder.
(x) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of North Carolina. Seller has the
requisite corporate power and corporate authority to carry on its business as
now being conducted and is entitled to own, lease or operate the property and
assets now owned, leased or operated by it. Seller is qualified to do business,
is in good standing and has all required and appropriate licenses in each
jurisdiction in which its failure to obtain or maintain such qualification, good
standing or licensing would, individually or in the aggregate, have or
reasonably could be expected to have a material adverse effect on the assets,
liabilities, business, financial condition, results of operations, or prospects
of Seller. Seller has all requisite corporate power and authority to enter into
this Agreement and all other agreements to which it is a party and documents to
be entered into in connection herewith and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Seller, has been authorized by all requisite corporate and other action of the
shareholders of Seller and Seller and constitutes the valid and
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binding obligations of each of the Owner and Seller, enforceable against each
such party in accordance with its terms, as applicable.
(xi) There are no tax liabilities of any kind whatsoever related
to the Assigned Properties or Assigned Rights.
(xii) The execution, delivery and performance of this Agreement do
not, and the consummation of the transactions contemplated hereby will not
result in or constitute a default or an event that with notice and/or lapse of
time, would be a default, breach or violation of the Articles of Incorporation
or Bylaws of Seller or of any material contract, lease, license or other
agreement to which Seller is a party or by which Seller is bound.
(B) Buyer hereby represents and warrants to Seller and Owner that:
(i) Buyer is corporation duly organized, validly existing and in good
standing under the laws of the State of California. Buyer has the requisite
corporate power and corporate authority to carry on its business as now being
conducted and is entitled to own, lease or operate the property and assets now
owned, leased or operated by it. Buyer is qualified to do business, is in good
standing and has already required appropriate licenses in each jurisdiction in
which its failure to obtain or maintain such qualification, good standing or
licensing would, individually, or in the aggregate, have or reasonably could be
expected to have a material adverse affect on the assets, liabilities, business,
financial condition, results of operations, or prospects of Buyer. Buyer has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Buyer, has been authorized by all requisite corporate
action of Buyer and constitutes the valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms.
(ii) As of June 30, 1998, the authorized capital stock of Buyer
consists of 30,000,000 shares of Common Stock, $0.005 par value per share, of
which 1,731,749 shares were issued and outstanding; and 13,263,203 shares of
Preferred Stock, $0.005 par value per share, 11,115,064 shares of which were
issued and outstanding and are convertible into shares of Common Stock of the
Buyer on a one-for-one basis. The Shares (as defined below), if any, when
issued in accordance with the terms of this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable. Except as set forth above or on
Exhibit C hereto, as of June 30, 1998, there are no outstanding rights, options
or warrants to purchase any shares of Buyer's capital stock or securities
convertible into shares of capital stock of the Buyer.
(iii) Neither the execution, delivery or performance of this
Agreement, nor the consummation of the transactions contemplated hereby will
result in or constitute a default or an event that, with notice and/or lapse of
time, would be a default, breach or violation of the Articles of Incorporation
or Bylaws of Buyer or of any material contract, lease, license or other
agreement to which Buyer is a party or by which Buyer is bound.
4. CONFIDENTIAL INFORMATION
4.1 Confidentiality. (A) The terms and existence of this
Agreement and all Confidential Information that Seller may learn in connection
with its performance under
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this Agreement, including its delivery of the Assigned Properties to Buyer shall
be treated as strictly confidential by Seller and shall not be disclosed to any
third party by Seller without Buyer's prior written consent. Seller shall use
such Confidential Information only to perform its obligations under this
Agreement and shall disclose such Confidential Information within its
organization only to those of its employees who, and only to the extent such
employees, need to know such Confidential Information in order to perform
Seller's obligations under this Agreement and who have entered into written
agreements under which such employees have agreed to keep confidential and not
to disclose the Confidential Information. Subject to Seller's right to retain
one archival copy of the Assigned Properties pursuant to Section 2.4, upon
completion of Seller's delivery of the Assigned Properties to Buyer and the
Successful Installation, Seller shall deliver to Buyer, or destroy if requested
by Buyer, all records (electronic, written, or in any other tangible or
intangible medium of expression) containing Confidential Information.
(B) The financial information and other confidential information contained
in that certain Offering Memorandum of Seller dated as of June 19, 1998 shall be
treated as strictly confidential by Buyer and shall not be disclosed to any
third party by Buyer without Seller's prior written consent.
4.2 Exceptions. The parties hereto shall have no obligation under
Section 4.1 with respect to: (i) information that is in the public domain or
enters the public domain through no fault of the receiving party of such
information, (ii) information rightfully disclosed to the receiving party of
such information by a third party without continuing restrictions on its use, or
(iii) information known to the receiving party of such information prior to the
activities and negotiations of the parties in anticipation of or preparation for
this Agreement. It shall not be a violation of Section 4.1 for either party to
disclose information as required by law if the receiving party of such
information gives Buyer written notice of such disclosure in sufficient time for
Buyer to object to such disclosure or seek an appropriate protective order. The
exception set forth in clause (iii) above shall not apply to information and
data (in tangible or intangible form) known to Seller or in Seller's possession
on the Effective Date relating to or embodied in the Assigned Properties and
Assigned Rights, which shall be deemed Confidential Information disclosed to
Seller by Buyer pursuant to this Agreement.
5. INDEMNIFICATION
5.1 Indemnity. (A) Seller and Owner shall, jointly and severally,
defend, indemnify and hold Buyer and its officers, directors, employees,
shareholders, agents, and affiliates harmless from and against any and all
claims, demands of any kind whatsoever, suits, losses, damages, liabilities,
costs and expenses (including the cost of investigating any claim and reasonable
attorneys' fees and court costs) (i) arising from Seller's breach of this
Agreement (including, without limitation, a breach of any of Seller's
representations or warranties set forth in Section 3 above), or (ii) based on
any assertion that any of the Assigned Properties or Assigned Rights infringe,
misappropriate or violate any Intellectual Property Right of any third patty.
(B) Buyer shall defend, indemnify and hold Seller and its
officers, directors, employees, shareholders (including Owner), agents, and
affiliates harmless from and against any all claims, demands of any kind
whatsoever, suits, losses, damages, liabilities, costs
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and expenses (including the costs of investigating any claim and reasonable
attorneys' fees and court costs) arising from Buyer's breach of this Agreement
(including without limitation, a breach of any of Buyer's representations or
warranties set forth in Section 3 above.)
5.2 Indemnification Procedures. Whenever any claim shall arise for
indemnification hereunder, the party entitled to indemnification (the
"indemnified party") shall promptly notify in writing the other party or parties
- ------------------
(the "indemnifying party") of the claim and, when known, the amount of such
------------------
claim and the facts constituting the basis for such claim; provided, that the
indemnified party's failure to give such written notice shall not affect any
rights or remedies of an indemnified party hereunder with respect to
indemnification for damages except to the extent that the indemnifying party is
materially prejudiced thereby. In the event of any claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third party, the written notice to the indemnifying party shall specify, if
known, the amount or an estimate of the amount of the liability arising
therefrom. The indemnified party shall not settle or compromise any claim by a
third party for which it is entitled to indemnification hereunder, without the
prior written consent of the indemnifying party (which shall not be unreasonably
withheld) unless suit shall have been instituted against it and the indemnifying
party shall not have taken control of and conducted in a diligent manner such
suit after notification thereof as provided in this Section 5.2. In connection
with any claim giving rise to indemnity hereunder or resulting from or arising
out of any claim or legal proceeding by a person who is not a party to this
Agreement, the indemnifying party at its sole cost and expense may, upon written
notice to the indemnified party given within thirty (30) days of its receipt of
notice of the claim from the indemnified party, assume the defense of any such
claim or legal proceeding if it acknowledges to the indemnified party in such
written notice its obligations to indemnify the indemnified party with respect
to all elements of such claim and thereafter diligently conducts the defense
thereof with counsel reasonably acceptable to the indemnified party. If the
indemnifying party acknowledges in writing as specified above and within the
thirty (30) day period specified above that it shall assume the defense of any
such action, then the indemnifying party shall keep the indemnified party
informed with respect to the defense of such action and the indemnified party
shall be entitled to participate in (but not control) the defense of such
action, with its counsel and at its own expense. If (A) the indemnifying party
does not acknowledge in writing as specified above and within the thirty (30)
day period specified above that it shall assume or fails to conduct in a
diligent manner the defense of any such claim or litigation resulting therefrom,
or (B) the indemnified party shall have reasonably concluded that there may be
one or more legal defenses available to it which are different from, or,
additional to those available to the indemnifying party or other indemnified
parties with respect to such claim or litigation, then, (i) the indemnified
party may defend against such claim or litigation, in such manner as it may deem
appropriate, including, without limitation, settling such claim or litigation,
after giving notice of the same to the indemnifying party, on such terms as the
indemnified party may deem appropriate, and (ii) the indemnifying party shall be
entitled to participate in (but not control) the defense of such action, with
its counsel and at its own expense. If the indemnifying party thereafter seeks
to question the manner in which the indemnified party defended such third party
claim or the amount or nature of any such settlement, the indemnifying party
shall have the burden to prove by a preponderance of the evidence that the
indemnified party did not defend or settle such third party claim in a
reasonably prudent manner. Each party agrees to cooperate fully with the other,
such cooperation to include, without limitation, attendance at depositions and
the provision of relevant
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documents as may be reasonably requested by the indemnifying party; provided,
that the indemnifying party will hold the indemnified party harmless from all of
its expenses, including reasonable attorneys' fees, incurred in connection with
such cooperation by the indemnified party.
6. PURCHASE PRICE; PAYMENT; ESCROW
6.1 Purchase Price. In consideration of the sale, assignment
and transfer of the Assigned Properties and Assigned Rights by Seller hereunder,
Buyer agrees to pay Seller (a) $850,000 in cash by wire transfer within three
days following the Effective Date, and (b) an additional $455,000 (the
"Additional Payment") in either Buyer's Common Stock or cash, as provided
hereinbelow, if installation of the Technology is completed and the core editor
becomes operational on Buyer's servers to Buyer's satisfaction (which shall be
determined reasonably and in good faith, and shall not be based on the
availability for acquisition by Buyer, now or in the future, of a server-side
web page authoring and editing software that is superior to the Technology)
within 90 days of the Effective Date (a "Successful Installation"). If the
Additional Payment is payable pursuant to (b) of the preceding sentence and an
initial public offering of Buyer's Common Stock (the "IPO") is completed within
90 days of the Effective Date, then the Additional Payment shall be made upon
the earlier of the consummation of the IPO and the 90th day following the
Effective Date (the "Transfer Payment Date") by Buyer's issuance to Seller,
subject to the escrow requirements of Section 6.3, of a number of shares of
Buyer's Common Stock (the "Shares") equal to the quotient obtained by dividing
(i) $455,000 by (ii) the initial public offering price of Buyer's Common Stock
in the IPO (the "IPO Price"). If the Additional Payment is payable pursuant to
(b) above and the IPO is not consummated within 90 days of the Effective Date,
then Buyer shall pay such Additional Payment in cash by wire transfer within two
business days of such 90th day (the "Additional Wire Transfer Date"), with
$273,500 payable directly to Seller and $181,500 (the "Escrow Cash") to be paid
to and held in escrow pursuant to Section 6.3. If there is not a Successful
Installation, (A) $550,000 of the cash payment shall be returned to Buyer within
15 days of written notice by Buyer to Seller that there has not been a
Successful Installation within 90 days following the Effective Date, (B) Seller
may retain $300,000 of the cash payment and (C) all other provisions of this
Agreement shall survive, including, without limitation, the transfer and
assignment of the Assigned Properties and Assigned Rights pursuant to Section
2.1. Buyer shall provide commercially reasonable assistance to Mr. Nicolas in
connection with achieving a Successful Installation within 90 days of the
Effective Date; provided, that Buyer is not, by this provision, assuring a
Successful Installation and the parties hereto acknowledge and agree that Buyer
shall not be required to expend an extraordinary amount of money or resources
(including man-hours) in connection with such assistance.
6.2 Bonus Payment. If a Successful Installation occurs
within 30 days of the Effective Date, Buyer shall pay to Seller, as a one-time
bonus, an additional $145,000 (the "Bonus Payment") in either Buyer's Common
Stock or cash, as provided hereinbelow. If the Bonus Payment is payable and an
IPO is completed within 30 days of the Effective Date, then the Bonus Payment
shall be made on the 30th day following the Effective Date by Buyer's issuance
to Seller of a number of shares of Buyer's Common Stock equal to the quotient
obtained by dividing (i) $145,000 by (ii) the IPO Price. If the Bonus Payment is
payable and an
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IPO is not consummated within 30 days of the Effective Date, then Buyer shall
pay $145,000 in cash by wire transfer within two (2) business days of such 30th
day.
6.3 Escrow. If the Additional Payment is payable, a portion of
the Shares, equal in number to the quotient by dividing (i) $363,000 by (ii) the
IPO Price (the "Escrow Shares") shall be reserved from the Shares otherwise
transferable to Seller on the Transfer Payment Date and shall be deposited by
Buyer into escrow within five days of the Transfer Payment Date. Any Escrow Cash
payable by Buyer shall be deposited by Buyer into escrow within five days of the
Additional Wire Transfer Date. The Escrow Shares and the Escrow Cash, as the
case may be, (the "Escrow Amount") shall be held in escrow as a source of
payment for and to secure, without limitation on any legal right or remedy
otherwise available to Buyer (other than as set forth in the last sentence of
Section 2.5), (A) the liquidated damages amount potentially payable by Seller
pursuant to Section 2.5 and (B) the indemnification obligations of Seller
pursuant to Section 5 of this Agreement. As of the date that the Additional
Payment is payable, the parties shall enter into an agreement regarding the
terms under which the Escrow Amount shall be held and paid to Seller in the form
attached hereto as Exhibit D (the "Escrow Agreement"), which form shall be
amended to include any changes reasonably requested by the Escrow Agent
thereunder; provided, that such changes are reasonably acceptable to the parties
hereto. The Escrow Agreement will provide that (i) one-half of any Escrow Shares
shall be released to Seller 90 days following the Effective Date and that all
the remaining Escrow Shares shall be released 181 days following the Effective
Date and (ii) that any Escrow Cash shall be released to Seller 181 days
following the Effective Date.
7. MISCELLANEOUS
7.1 No Waiver. No waiver of any breach or condition of this
Agreement shall be deemed to be a waiver of any other or subsequent breach or
condition, whether of like or different nature. Waivers must be in writing.
7.2 Publicity. Neither party shall issue any press release or
other public announcement relating to this Agreement without the prior written
approval of the other party.
7.3 Headings. The headings contained in this Agreement are for
reference only and shall not be used to construe or interpret any of the terms
or provisions herein.
7.4 Severability. If any part of this Agreement shall be
adjudged by any court of competent jurisdiction to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall in no way be affected or impaired thereby and shall be enforced
to the maximum extent permitted by applicable law.
7.5 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon, the parties hereto, together with their
respective legal representatives, successors and assigns. This Agreement is not
assignable by Seller or Owner.
7.6 Governing Law; Legal Actions. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
California without regard
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to conflicts of laws provisions thereof. The exclusive jurisdiction and venue of
all actions relating to or arising out of this Agreement shall be the state and
federal courts located in Los Angeles County, California and each of the parties
hereto consents to the jurisdiction of such courts and hereby waives all venue
objections it may have with respect to such courts. The prevailing party in any
legal action to enforce this Agreement and the Escrow Agreement shall be
entitled to recover all attorneys' fees and court costs incurred.
7.7 Entire Agreement; Amendment. Each party acknowledges that
it has read this Agreement, understands it, and agrees to be bound by its terms.
The parties further agree that this Agreement, together with the recitals hereto
(all of which are expressly incorporated into this Agreement by reference) and
all Exhibits hereto, is the complete and exclusive statement of the agreement of
the parties with respect to the subject matter hereof and that it supersedes and
merges all prior proposals, understandings, and agreements, whether oral or
written, between the parties with respect to the subject matter hereof
including, without limitation that certain Letter of Intent executed by the
parties, dated June 22, 1998. This Agreement may not be modified except by a
written instrument duly executed by the parties hereto.
7.8 Release of Liens. All liens on the Assigned Properties and
Assigned Rights shall be terminated or released on or prior to the Effective
Date, including, without limitation, the security interest of Owner in the
Assigned Properties and Assigned Rights. Owner shall execute an appropriate UCC
termination statement related to his security interest and shall file the same
(and provide a copy to Buyer) on or prior to the Effective Date.
7.9 Survival of Representations and Warranties. The
representations and warranties contained herein shall survive until the second
anniversary of the Effective Date.
IN WITNESS WHEREOF, the parties hereunder have caused this Agreement to
be executed and delivered as of the Effective Date.
GEOCITIES
By: /s/ ROBERT KALOK
-------------------------
Name: Robert Kalok
-------------------------
Title: V.P. Business Development
-------------------------
Date: 7/29/98
-------------------------
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COMPU-TRAK, INC.
By: /s/ EDWARD E. BYMAN
-------------------------
Name: Edward E. Byman
-------------------------
Title: President
-------------------------
Date: 7/15/98
-------------------------
OWNER
/s/ EDWARD E. BYMAN
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Edward E. Byman
Acknowledged and Agreed to:
/s/ CATHY C. BYMAN
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[Signature of Spouse of Owner]
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EXHIBIT 10.29
LEASE
THIS LEASE is made as of the 6nd day of July, 1998, by and between Spieker
Properties, L.P., a California limited partnership (hereinafter called
"Landlord"), and GeoCities, a California corporation (hereinafter called
"Tenant").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the terms and
conditions hereinafter set forth, those premises (the "Premises") outlined in
red on Exhibit B and described in the Basic Lease Information. The Premises
shall be all or part of a building (the "Building") and of a project (the
"Project"), which may consist of more than one building and additional
facilities, as described in the Basic Lease Information. The Building and
Project are outlined in blue and green respectively on Exhibit B. Landlord and
Tenant acknowledge that physical changes may occur from time to time in the
Premises, Building or Project, and that the number of buildings and additional
facilities which constitute the Project may change from time to time, which may
result in an adjustment in Tenant's Proportionate Share, as defined in the Basic
Lease Information, as provided in Paragraph 7.A.
2. POSSESSION AND LEASE COMMENCEMENT
A. Construction of Improvements. The term commencement date ("Term
Commencement Date") shall be the earlier of the date on which: (1) Tenant first
commences business operations from the Premises, or (2) the improvements to be
constructed or performed in the Premises by Landlord (if any) shall have been
substantially completed in accordance with the plans and specifications, if any,
described on Exhibit C . If for any reason Landlord cannot deliver possession
of the Premises to Tenant on the scheduled Term Commencement Date, Landlord
shall not be subject to any liability therefor, nor shall Landlord be in default
hereunder nor shall such failure affect the validity of this Lease, and Tenant
agrees to accept possession of the Premises at such time as such improvements
have been substantially completed, which date shall then be deemed the Term
Commencement Date. Tenant shall not be liable for any Rent for any period prior
to the Term Commencement Date (but without affecting any obligations of Tenant
under any improvement agreement appended to this Lease). Substantial
completion shall have occurred notwithstanding Tenant's submission of a
punchlist to Landlord, which Tenant shall submit, if at all, within ten (10)
business days after the Term Commencement Date or otherwise in accordance with
any improvement agreement appended to this Lease. Upon Landlord's request,
Tenant shall promptly execute and return to Landlord a "Start-Up Letter" in
which Tenant shall agree, among other things, to acceptance of the Premises and
to the determination of the Term Commencement Date, in accordance with the terms
of this Lease, but Tenant's failure or refusal to do so shall not negate
Tenant's acceptance of the Premises or affect determination of the Term
Commencement Date.
3. TERM
The term of this Lease (the "Term") shall commence on the Term Commencement
Date and continue in full force and effect for the number of months specified as
the Length of Term in the Basic Lease Information or until this Lease is
terminated as otherwise provided herein. If the Term Commencement Date is a
date other than the first day of the calendar month, the Term shall be the
number of months of the Length of Term in addition to the remainder of the
calendar month following the Term Commencement Date.
4. USE
A. General. Tenant shall use the Premises for the permitted use specified in
the Basic Lease Information ("Permitted Use") and for no other use or purpose
without the prior written consent of Landlord, which may be withheld in
Landlord's sole discretion. Tenant shall control Tenant's employees, agents,
customers, visitors, invitees, licensees, contractors, assignees and subtenants
(collectively, "Tenant's Parties") in such a manner that Tenant and Tenant's
Parties cumulatively do not exceed the occupant density (the "Occupancy
Density") or the parking density (the "Parking Density") specified in the Basic
Lease Information at any time. Tenant shall pay the Parking Charge specified in
the Basic Lease Information as Additional Rent (as hereinafter defined)
hereunder, as such Parking Charge may change from time to time. So long as
Tenant is occupying the Premises, Tenant and Tenant's Parties shall have the
nonexclusive right to use, in common with other parties occupying the Building
or Project, the parking areas, driveways and other common areas of the Building
and Project, subject to the terms of this Lease and such rules and regulations
as Landlord may from time to time prescribe. Landlord reserves the right,
without notice or liability to Tenant, and without the same constituting an
actual or constructive eviction, to alter or modify the common areas from time
to time, including the location and configuration thereof, and the amenities and
facilities which Landlord may determine to provide from time to time provided
Landlord agrees to use its commercially reasonable efforts to minimize any
interference to Tenant's business operations from the Premises as a result
thereof.
B. Limitations. Tenant shall not permit any unreasonable odors, smoke, dust,
gas, substances, noise or vibrations to emanate from the Premises or from any
portion of the common areas as a result of Tenant's or any Tenant's Party's use
thereof, nor take any action
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which would constitute a nuisance or would disturb, obstruct or endanger any
other tenants or occupants of the Building or Project or elsewhere, or
unreasonably interfere with their use of their respective premises or common
areas. Storage outside the Premises of materials, vehicles or any other items is
prohibited. Tenant shall not use or allow the Premises to be used for any
immoral or unlawful purpose, nor shall Tenant cause or maintain or permit any
nuisance in, on or about the Premises. Tenant shall not commit or suffer the
commission of any material waste in, on or about the Premises. Tenant shall not
allow any sale by auction upon the Premises, or place any loads upon the floors,
walls or ceilings which could endanger the structure, or place any harmful
substances in the drainage system of the Building or Project. No waste,
materials or refuse shall be dumped upon or permitted to remain outside the
Premises, except in designated refuse containers. Landlord shall not be
responsible to Tenant for the non-compliance by any other tenant or occupant of
the Building or Project with any of the above-referenced rules or any other
terms or provisions of such tenant's or occupant's lease or other contract.
C. Compliance with Regulations. By entering the Premises and except as
otherwise provided herein, Tenant accepts the Premises in the condition existing
as of the date of such entry. Tenant shall at its sole cost and expense
materially comply with all existing or future applicable municipal, state and
federal and other governmental statutes, rules, requirements, regulations, laws
and ordinances, including zoning ordinances and regulations, and covenants,
easements and restrictions of record governing and relating to the use,
occupancy or possession of the Premises, to Tenant's use of the common areas, or
to the use, storage, generation or disposal of Hazardous Materials (hereinafter
defined) (collectively "Regulations"). Except to the extent required by
Tenant's particular use of the Premises, or any alterations performed by or on
behalf of Tenant in the Premises, Tenant shall not be responsible for making
physical alterations to the Building required by Regulations enacted after the
date hereof. Tenant shall at its sole cost and expense obtain any and all
licenses or permits necessary for Tenant's Permitted Use of the Premises.
Tenant shall at its sole cost and expense promptly comply with the requirements
of any board of fire underwriters or other similar body now or hereafter
constituted. Tenant shall not do or permit anything to be done in, on, under or
about the Project or bring or keep anything which will in any way materially
increase the rate of any insurance upon the Premises, Building or Project or
upon any contents therein or cause a cancellation of said insurance or otherwise
affect said insurance in any material manner. Tenant shall indemnify, defend
(by counsel reasonably acceptable to Landlord), protect and hold Landlord
harmless from and against any loss, cost, expense, damage, reasonable attorneys'
fees or liability to the extent arising out of the failure of Tenant to comply
with any Regulation. Tenant's obligations pursuant to the foregoing indemnity
shall survive the expiration or earlier termination of this Lease.
D. Hazardous Materials. As used in this Lease, "Hazardous Materials" shall
include, but not be limited to, hazardous, toxic and radioactive materials and
those substances defined as "hazardous substances," "hazardous materials,"
"hazardous wastes," "toxic substances," or other similar designations in any
Regulation. Tenant shall not cause, or allow any of Tenant's Parties to cause,
any Hazardous Materials to be handled, used, generated, stored, released or
disposed of in, on, under or about the Premises, the Building or the Project or
surrounding land or environment in violation of any Regulations. Tenant must
obtain Landlord's written consent prior to the introduction of any Hazardous
Materials onto the Project. Notwithstanding the foregoing, Tenant may handle,
store, use and dispose of products containing small quantities of Hazardous
Materials for "general office purposes" (such as toner for copiers) to the
extent customary and necessary for the Permitted Use of the Premises; provided
that Tenant shall always handle, store, use, and dispose of any such Hazardous
Materials in a safe and lawful manner and never allow such Hazardous Materials
to contaminate the Premises, Building, or Project or surrounding land or
environment. Tenant shall immediately notify Landlord in writing of any
Hazardous Materials' contamination of any portion of the Project of which Tenant
becomes aware, whether or not caused by Tenant. Landlord shall have the right
at all reasonable times to inspect the Premises and to conduct such reasonable
tests and investigations to determine whether Tenant is in compliance with the
foregoing provisions, the costs of all such inspections, tests and
investigations to be borne by Tenant. Tenant shall indemnify, defend (by
counsel reasonably acceptable to Landlord), protect and hold Landlord harmless
from and against any and all claims, liabilities, losses, costs, loss of rents,
liens, damages, injuries or expenses (including reasonable attorneys' and
consultants' fees and court costs), demands, causes of action, or judgments
directly or indirectly arising out of or related to the use, generation,
storage, release, or disposal of Hazardous Materials by Tenant or any of
Tenant's Parties in, on, under or about the Premises, the Building or the
Project or surrounding land or environment, which indemnity shall include,
without limitation, damages for personal or bodily injury, property damage,
damage to the environment or natural resources occurring on or off the Premises,
losses attributable to diminution in value or adverse effects on marketability,
the cost of any investigation, monitoring, government oversight, repair,
removal, remediation, restoration, abatement, and disposal, and the preparation
of any closure or other required plans, whether such action is required or
necessary prior to or following the expiration or earlier termination of this
Lease. Neither the consent by Landlord to the use, generation, storage, release
or disposal of Hazardous Materials nor the strict compliance by Tenant with all
laws pertaining to Hazardous Materials shall excuse Tenant from Tenant's
obligation of indemnification pursuant to this Paragraph 4.D. Tenant's
obligations pursuant to the foregoing indemnity shall survive the expiration or
earlier termination of this Lease.
E. Landlord shall indemnify, defend and hold Tenant , its affiliates, their
respective directors, officers, employees and agents harmless from and against
any and all claims, judgments, damages, penalties, fines, costs, liabilities,
losses, injuries or expenses and attorneys' fees arising out of any Hazardous
Material in, on or about the Project or the Premises which was generated,
handled, placed, stored, used, transported or disposed of by Landlord, or any of
Landlord's employees, agents, licensees or contractors excluding however, any
Hazardous Material whose presence was caused by Tenant or its affiliates or
their respective agents.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the building rules and
regulations attached hereto as Exhibit A and any other rules and regulations and
any modifications or additions thereto which Landlord may from time to time
prescribe in writing for the purpose of maintaining the proper care,
cleanliness, safety, traffic flow and general order of the Premises or the
Building or Project; provided such rules and regulations are generally
applicable to all tenants in the Project. Tenant shall cause Tenant's Parties
to comply with such rules and regulations. Landlord shall not be responsible to
Tenant for the non-compliance by any other tenant or occupant of the Building or
Project with any of such rules and regulations, any other tenant's or occupant's
lease or any Regulations, provided that Landlord shall use its commercially
reasonable efforts to enforce said Regulations against all Tenants.
6. RENT
A. Base Rent. Tenant shall pay to Landlord and Landlord shall receive, without
notice or demand throughout the Term, Base Rent as specified in the Basic Lease
Information, payable in monthly installments in advance on or before the first
day of each calendar month, in lawful money of the United States, without
deduction or offset whatsoever (except as otherwise provided herein), at the
Remittance Address specified in the Basic Lease Information or to such other
place as Landlord may from time to time designate in writing. Base Rent for the
first full month of the Term shall be paid by Tenant upon Tenant's execution of
this Lease. If the obligation for payment of Base Rent commences on a day other
than the first day of a month, then Base Rent shall be prorated and the prorated
installment shall be paid on the first day of the calendar month next succeeding
the Term Commencement Date. The Base Rent payable by Tenant hereunder is
subject to adjustment as provided elsewhere in this Lease, as applicable. As
used herein, the term "Base Rent" shall mean the Base Rent specified in the
Basic Lease Information as it may be so adjusted from time to time.
B. Additional Rent. All monies other than Base Rent required to be paid by
Tenant hereunder, including, but not limited to, Tenant's Proportionate Share of
Operating Expenses, as specified in Paragraph 7 of this Lease, charges to be
paid by Tenant under
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Paragraph 15, the interest and late charge described in Paragraphs 26.C. and D.,
and any monies spent by Landlord pursuant to Paragraph 30, shall be considered
additional rent ("Additional Rent"). "Rent" shall mean Base Rent and Additional
Rent.
7. OPERATING EXPENSES
A. Operating Expenses. In addition to the Base Rent required to be paid
hereunder, Tenant shall pay as Additional Rent, Tenant's Proportionate Share of
the Building , as defined in the Basic Lease Information, of Operating Expenses
(defined below) in the manner set forth below. Tenant shall pay the applicable
Tenant's Proportionate Share of each such Operating Expenses. Landlord and
Tenant acknowledge that if physical changes are made to the Premises or Building
or the configuration of any thereof, Landlord will adjust Tenant's Proportionate
Share of the Building to reflect the change. "Operating Expenses" shall mean all
expenses and costs of every kind and nature which Landlord shall pay or become
obligated to pay, because of or in connection with the ownership, management,
maintenance, repair, preservation, replacement and operation of the Building and
its supporting facilities and such additional facilities now and in subsequent
years as may be determined by Landlord to be necessary or desirable to the
Building (as determined in a reasonable manner) other than those expenses and
costs which are specifically attributable to Tenant or which are expressly made
the financial responsibility of Landlord or specific tenants of the Building or
Project pursuant to this Lease. Operating Expenses shall include, but are not
limited to, the following:
1) Taxes. All real property taxes and assessments, possessory interest
taxes, sales taxes, personal property taxes, business or license taxes or
fees, gross receipts taxes, service payments in lieu of such taxes or fees,
annual or periodic license or use fees, excises, transit charges, and other
impositions, general and special, ordinary and extraordinary, unforeseen as
well as foreseen, of any kind (including fees "in-lieu" of any such tax or
assessment) which are now or hereafter assessed, levied, charged,
confirmed, or imposed by any public authority upon the Building or Project,
its operations or the Rent (or any portion or component thereof), or any
tax, assessment or fee imposed in substitution, partially or totally, of
any of the above. Operating Expenses shall also include any taxes,
assessments, reassessments, or other fees or impositions with respect to
the management, maintenance, alteration, repair, use or occupancy of the
Premises, Building or Project or any portion thereof, including, without
limitation, by or for Tenant, and all increases therein which are generally
assessed over time or reassessments thereof whether the increases or
reassessments result from increased rate and/or valuation (whether upon a
transfer of the Building or Project or any portion thereof or any interest
therein or for any other reason). Operating Expenses shall not include
inheritance or estate taxes imposed upon or assessed against the interest
of any person in the Project, taxes computed upon the basis of the net
income of the Building or the Project or any owners of any interest in the
Project. In addition to the foregoing exclusions, Taxes shall not include
(i) any environmental assessments, charges or liens arising in connection
with the remediation of Hazardous Materials from the Building pursuant to
applicable laws in effect on or before Tenant's initial occupancy of the
Premises; (ii) costs or fees payable to public authorities in connection
with any future construction, renovation and/or improvements to the
Building other than (A) to the extent such construction, renovation and/or
improvements are required by any applicable laws not in effect as of this
Lease, and (B) any alterations or improvements to the Premises made by or
for Tenant, including fees for transit, housing, schools, measures,
environmental impact reports, traffic studies, and transportation system
management plans; (iii) reserves for future Taxes; or (iv) any personal
property taxes attributable to sculptures, paintings or other objects of
art (except for objects of art installed in the Common Areas pursuant to
requirements of public authority). If, by applicable law, any taxes or
assessments may be paid in installments at the option of the taxpayer, then
whether or not Landlord elects to pay taxes and assessments in such
installments, Tenant's liability for such taxes and assessments shall be
computed as if such election had been made, and only the installments
thereof which would have become due during the Term shall be included in
Tenant's tax obligations. If it shall not be lawful for Tenant to reimburse
Landlord for all or any part of such taxes, the monthly rental payable to
Landlord under this Lease shall be revised to net Landlord the same net
rental after imposition of any such taxes by Landlord as would have been
payable to Landlord prior to the payment of any such taxes.
Proposition 13 Protection. Despite any other provision of this Lease,
if during the first three (3) years of the Term, any sale, refinancing, or
change in ownership of the Building is consummated and, as a result, all or
part of the Building is reassessed (Reassessment) for real estate tax
purposes by the appropriate government authority under the terms of
Proposition 13 (as adopted by the voters of the State of California in the
June 1978 election), the terms of this Paragraph 7(A)(1) shall apply.
(a) For purposes of Paragraph 7(A)(1), the term "Tax Increase"
shall mean that portion of the Tax Expenses, as calculated immediately
following the Reassessment, that is attributable solely to the
Reassessment. Accordingly, a Tax Increase shall not include any portion of
the Tax Expenses, as calculated immediately following the Reassessment,
that is:
(1) Attributable to the initial assessment of the value of
the Building, the Base Building, or the tenant
improvements located in the Building;
(2) Attributable to assessments pending immediately before
the Reassessment that were conducted during, and
included in, that Reassessment or that were otherwise
rendered unnecessary following the Reassessment;
(3) Attributable to the annual inflationary increase in
real estate taxes; or
(4) Part of Tax Expenses incurred or considered to be
incurred during the Base Year as determined under this
Lease.
(b) During the first three (3) years of the Term, Tenant shall
not be obligated to pay any portion of the Tax Increase relating to a
Reassessment occurring during the first three (3) years of the Term.
(c) The amount of Tax Expenses that Tenant is not obligated to
pay or shall not be obligated to pay during the Lease Term in connection
with a particular Reassessment under the terms of this Paragraph 7(A)(1)
shall be referred to as the Proposition 13 Protection Amount. If a
Reassessment is reasonably foreseeable by Landlord and the Proposition 13
Protection Amount attributable to that Reassessment may be reasonably
quantified or estimated for each Lease Year beginning with the Lease Year
in which the Reassessment will occur, the terms of this Paragraph 7(A)(1)
shall apply to each such Reassessment. On notice to Tenant, Landlord shall
have the right to purchase the Proposition 13 Protection Amount relating to
the applicable Reassessment (Applicable Reassessment), at any time during
the Lease Term, by paying to Tenant an amount equal to the Proposition 13
Purchase Price, as defined below, as long as the right of any successor of
Landlord to exercise its right of repurchase under this Lease shall not
apply to any Reassessment that results from the event under which that
successor became Landlord under this Lease. As used in this Lease, the term
"Proposition 13 Purchase Price" shall mean the present value of the
Proposition 13 Protection Amount remaining during the Lease Term, as of the
date of payment of the Proposition 13 Purchase Price by Landlord. The
present value shall be calculated by:
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(1) Using the portion of the Proposition 13 Protection
Amount attributable to each remaining Lease Year (as
though the portion of that Proposition 13 Protection
Amount benefited Tenant at the end of each Lease Year)
as the amounts to be discounted; and
(2) Using discount rates for each amount to be discounted
equal to:
(A) The average rates of yield for United States
Treasury Obligations with maturity dates as close as reasonably possible to the
end of each Lease Year during which the portions of the Proposition 13
Protection Amount would have benefited Tenant, using the rates in effect as of
Landlord's exercise of its right to purchase, as set forth in this Paragraph
7(A)(1); plus
(B) Two percent (2%) per annum.
(d) On payment of the Proposition 13 Purchase Price, subparagraph, graph
(b) of this Paragraph 7(A)(1) shall not apply to any Tax Expenses attributable
to the Applicable Reassessment. Because Landlord is estimating the Proposition
13 Purchase Price because a Reassessment has not yet occurred, an adjustment
shall be made when a Reassessment occurs. If Landlord has underestimated the
Proposition 13 Purchase Price, Landlord shall, on notice to Tenant, credit
Tenant's Rent next due with the amount of that underestimation. If Landlord has
overestimated the Proposition 13 Purchase Price, Landlord shall, on notice to
Tenant, increase Tenant's Rent next due by the amount of the overestimation.
2. Insurance. All reasonable insurance premiums and costs, including, but not
limited to, any deductible amounts, premiums and other costs of insurance
incurred by Landlord, including for the insurance coverage set forth in
Paragraph 8.A. herein.
3. Common Area Maintenance.
a) Repairs, replacements, and general maintenance of and for the Building
and public and common areas and facilities of and comprising the Building ,
including, but not limited to, the roof and roof membrane, windows,
elevators, restrooms, conference rooms, health club facilities, lobbies,
mezzanines, balconies, mechanical rooms, building exteriors, alarm systems,
pest extermination, landscaped areas, parking and service areas, driveways,
sidewalks, loading areas, fire sprinkler systems, sanitary and storm sewer
lines, utility services, heating/ventilation/air conditioning systems,
electrical, mechanical or other systems, telephone equipment and wiring
servicing, plumbing, lighting, and any other items or areas which affect
the operation or appearance of the Building or Project, which determination
shall be at Landlord's discretion, except for: those items expressly made
the financial responsibility of Landlord pursuant to Paragraph 10 hereof;
those items to the extent paid for by the proceeds of insurance; and those
items attributable solely or jointly to specific tenants of the Building or
Project.
b) Repairs, replacements, and general maintenance shall include the cost
of any capital improvements made to or capital assets acquired for the
Project or Building that Landlord reasonably anticipates may reduce any
other Operating Expenses, including present or future repair work, are
reasonably necessary for the health and safety of the occupants of the
Building or Project, or are required to comply with any Regulation, such
costs or allocable portions thereof to be amortized over the useful life of
the capital item, as determined in accordance with GAAP (with interest on
any unamortized portion thereof at twelve percent 12% per annum).
c) Payment under or for any easement, license, permit, operating
agreement, declaration, restrictive covenant or instrument relating to the
Building or Project.
d) All expenses and rental related to services and costs of supplies,
materials and equipment to the extent used in operating, managing and
maintaining the Premises, Building and Project, the equipment therein and
the adjacent sidewalks, driveways, parking and service areas, including,
without limitation, expenses related to service agreements regarding
security, fire and other alarm systems, janitorial services, window
cleaning, elevator maintenance, Building exterior maintenance, landscaping
and expenses related to the administration, management and operation of the
Project, including without limitation salaries, wages and benefits of
individuals to the extent of the percentage of said individuals duties
which relate to the operations and management of the Building or Project
and management office rent.
e) The cost of supplying any services and utilities which benefit all or
a portion of the Premises or Building , including without limitation
services and utilities provided pursuant to Paragraph 15 hereof.
f) Legal expenses and the cost of audits by certified public accountants;
provided, however, that legal expenses chargeable as Operating Expenses
shall not include the cost of negotiating leases, collecting rents,
evicting tenants nor shall it include costs incurred in legal proceedings
with or against any tenant or to enforce the provisions of any lease, or
any legal expenses associated with Landlord's gross negligence, willful
misconduct or breach of this Lease or any other lease of the Project.
g) A management and accounting cost recovery fee equal to five percent
(5%) of the sum of the Project's base rents and Operating Expenses (other
than such management and accounting fee).
h) The deductible portion of any repair costs covered by earthquake
insurance, provided that said deductible portion shall be amortized over a
ten (10) period.
If the rentable area of the Building and/or Project is not at least ninety five
percent (95%) occupied during all or a significant portion of any fiscal year of
the Term as determined by Landlord, an appropriate adjustment shall be made by
Landlord in computing the Operating Expenses for such fiscal year to determine
what the Operating Expenses would have been for such year as if the Project had
been 95% occupied, and the amount so
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determined shall be deemed to be the amount of the Operating Expenses for such
year. Such adjustment shall be made by Landlord by increasing those variable
components of those variable costs included in the Operating Expenses which vary
based upon the level of occupancy of the Project (e.g., janitorial, electricity
and management fees).
Operating Expenses shall also include the Building Proportionate Share of the
Project Operating Expenses (defined below). The term "Project Operating
Expenses" shall mean all costs and expenses incurred in connection with the
maintenance, operations, replacement, ownership and repair of the Project which
are not included as either an Operating Expense of the Building or an Operating
Expense which is directly and separately identifiable with any other building in
the Project. The term "Building Proportionate Share" shall mean a fraction, the
numerator of which is the total square footage of the Building and the
denominator of which is the rentable square footage of the Project.
Operating Expenses shall not include the cost of providing tenant
improvements or other specific costs incurred for the account of, separately
billed to and paid by specific tenants of the Building or Project, the initial
construction cost of the Building, or debt service on any mortgage or deed of
trust recorded with respect to the Project other than pursuant to Paragraph
7.A.(3)(b) above. Notwithstanding anything herein to the contrary, in any
instance wherein Tenant uses excessive services of the Project or otherwise
creates a greater burden on the operations of the Project than other tenants
(such determination to be adjusted based on relative square footage of the space
leased by Tenant and other tenants) Landlord shall have the right to allocate
any such additional cost in any manner Landlord deems reasonably appropriate. If
any other tenant of the Building uses excessive services or otherwise creates a
greater burden on the operations of the Building, Landlord shall allocate any
such additional cost to such tenant as reasonably determined by Landlord.
Notwithstanding anything in the definition of Operating Expenses in this
Lease to the contrary, Operating Expenses shall not include the following,
except to the extent specifically permitted by a specific exception to the
following:
(i) Any ground lease rental;
(ii) Costs of capital improvements, replacements or equipment
except as specifically set forth above;
(iii) Rentals for items (except when needed in connection with
normal repairs and maintenance of permanent systems) which if
purchased, rather than rented, would constitute a capital improvement
which is specifically excluded in Subsection (ii) above (excluding,
however, equipment not affixed to the Building or Project which is
used in providing janitorial or similar services);
(iv) Costs incurred by Landlord for the repair of damage to the
Building or Project, to the extent that Landlord is reimbursed by
insurance proceeds;
(v) Costs, including permit, license and inspection costs,
incurred with respect to the installation of tenant or other occupant
improvements made for tenants or other occupants in the Building or
incurred in renovating or otherwise improving, decorating, painting or
redecorating vacant space for or the premises of other tenants or
other occupants of the Building;
(vi) Marketing costs, including leasing commissions, attorneys'
fees in connection with the negotiation and preparation of letters,
deal memos, letters of intent, leases, subleases and/or assignments,
space planning costs, and other costs and expenses incurred in
connection with lease, sublease and/or assignment negotiations and
transactions with present or prospective tenants or other occupants of
the Building;
(vii) Costs incurred by Landlord due to the violation by Landlord of
the terms and conditions of any lease of space in the Building;
(viii) Interest, principal, points and fees on debt or amortization
payments on any mortgage or deed of trust or any other debt instrument
encumbering the Building or Project or the land on which the Building
or Project is situated; (ix) Except for making repairs or keeping
permanent systems in operation while repairs are being made, rentals
and other related expenses incurred in leasing air conditioning
systems, elevators or other equipment ordinarily considered to be of a
capital nature, except to the extent (A) any such capital expenditure
is specifically included above, and (B) of equipment not affixed to
the Building which is used in providing janitorial or similar
services;
(x) Advertising and promotional expenditures;
(xi) Costs incurred in connection with upgrading the Building or
Project to comply with disability, life, fire and safety codes in
effect prior to the issuance of the temporary certificate of occupancy
for the Building;
(xii) Interest, fines or penalties incurred as a result of
Landlord's failure to make payments when due unless such failure is
commercially reasonable under the circumstances;
(xiii) Costs arising from Landlord's charitable or political
contributions;
(xiv) Costs for acquisition of sculpture, paintings or other objects
of art;
(xv) The depreciation of the Building and other real property
structures in the Project;
(xvi) Landlord's general corporate overhead and general
administrative expenses not related to the operation of the Project,
except as specifically set forth above;
(xvii) Any bad debt loss, rent loss or reserves for bad debts or rent
loss, or reserves for equipment or capital replacement.
(xviii) Expenses in connection with services or other benefits (e.g.,
tenant improvements) provided to another tenant or occupant which are
not provided or offered to Tenant;
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(xix) Any cost or expense related to the removal, cleaning,
abatement or remediation of Hazardous Materials in the Building
and/or about the Project including, without limitation, Hazardous
Materials in the soil or ground water;
(xx) Any costs, fines, penalties or interest resulting from
the negligence or willful misconduct of the Landlord, its agents,
employees or contractors
The above enumeration of services and facilities shall not be deemed
to impose an obligation on Landlord to make available or provide such services
or facilities except to the extent if any that Landlord has specifically agreed
elsewhere in this Lease to make the same available or provide the same. Without
limiting the generality of the foregoing, Tenant acknowledges and agrees that it
shall be responsible for providing adequate security for its use of the
Premises, the Building and the Project and that Landlord shall have no
obligation or liability with respect thereto, except to the extent if any that
Landlord has specifically agreed elsewhere in this Lease to provide the same.
B. Payment of Estimated Operating Expenses. "Estimated Operating Expenses" for
any particular year shall mean Landlord's estimate of the Operating Expenses for
such fiscal year made with respect to such fiscal year as hereinafter provided.
Landlord shall have the right from time to time to revise its fiscal year and
interim accounting periods so long as the periods as so revised are reconciled
with prior periods in a reasonable manner. During the last month of each fiscal
year during the Term, or as soon thereafter as practicable, Landlord shall give
Tenant written notice of the Estimated Operating Expenses for the ensuing fiscal
year. Tenant shall pay Tenant's Proportionate Share of the Estimated Operating
Expenses with installments of Base Rent for the fiscal year to which the
Estimated Operating Expenses applies in monthly installments on the first day of
each calendar month during such year, in advance. Such payment shall be
construed to be Additional Rent for all purposes hereunder. If at any time
during the course of the fiscal year, Landlord determines that Operating
Expenses are projected to vary from the then Estimated Operating Expenses by
more than five percent (5%), Landlord may, by written notice to Tenant, revise
the Estimated Operating Expenses for the balance of such fiscal year, and
Tenant's monthly installments for the remainder of such year shall be adjusted
so that by the end of such fiscal year Tenant has paid to Landlord Tenant's
Proportionate Share of the revised Estimated Operating Expenses for such year,
such revised installment amounts to be Additional Rent for all purposes
hereunder.
C. Computation of Operating Expense Adjustment. "Operating Expense Adjustment"
shall mean the difference between Estimated Operating Expenses and actual
Operating Expenses for any fiscal year determined as hereinafter provided.
Within one hundred twenty (120) days after the end of each fiscal year, or as
soon thereafter as practicable, Landlord shall deliver to Tenant a statement of
actual Operating Expenses for the fiscal year just ended, accompanied by a
computation of Operating Expense Adjustment. If such statement shows that
Tenant's payment based upon Estimated Operating Expenses is less than Tenant's
Proportionate Share of Operating Expenses, then Tenant shall pay to Landlord the
difference within twenty (20) days after receipt of such statement, such payment
to constitute Additional Rent for all purposes hereunder. If such statement
shows that Tenant's payments of Estimated Operating Expenses exceed Tenant's
Proportionate Share of Operating Expenses, then (provided that Tenant is not in
default under this Lease) Landlord shall pay to Tenant the difference within
twenty (20) days after delivery of such statement to Tenant. If this Lease has
been terminated or the Term hereof has expired prior to the date of such
statement, then the Operating Expense Adjustment shall be paid by the
appropriate party within twenty (20) days after the date of delivery of the
statement. Should this Lease commence or terminate at any time other than the
first day of the fiscal year, Tenant's Proportionate Share of the Operating
Expense Adjustment shall be prorated based on a month of 30 days and the number
of calendar months during such fiscal year that this Lease is in effect.
Notwithstanding anything to the contrary contained in Paragraph 7.A or 7.B,
Landlord's failure to provide any notices or statements within the time periods
specified in those paragraphs shall in no way excuse Tenant from its obligation
to pay Tenant's Proportionate Share of Operating Expenses.
D. Net Lease. This shall be a triple net Lease and Base Rent shall be paid to
Landlord absolutely net of all costs and expenses, except as specifically
provided to the contrary in this Lease. The provisions for payment of Operating
Expenses and the Operating Expense Adjustment are intended to pass on to Tenant
and reimburse Landlord for all costs and expenses of the nature described in
Paragraph 7.A. incurred in connection with the ownership, management,
maintenance, repair, preservation, replacement and operation of the Building
and/or Project and its supporting facilities and such additional facilities now
and in subsequent years as may be determined by Landlord to be necessary or
desirable to the Building and/or Project.
E. Tenant Audit. If Tenant shall dispute the amount set forth in any statement
provided by Landlord under Paragraph 7.B. or 7.C. above, Tenant shall have the
right, not later than sixty (60) days following receipt of such statement and
upon the condition that Tenant shall first deposit with Landlord the full amount
in dispute, to cause Landlord's books and records with respect to Operating
Expenses for such fiscal year to be audited by certified public accountants
selected by Tenant who are not paid on a contingency basis . The Operating
Expense Adjustment shall be appropriately adjusted on the basis of such audit.
If such audit discloses a liability for a refund in excess of ten percent (10%)
of Tenant's Proportionate Share of the Operating Expenses previously reported,
the cost of such audit shall be borne by Landlord; otherwise the cost of such
audit shall be paid by Tenant. If Tenant shall not request an audit in
accordance with the provisions of this Paragraph 7.E. within sixty (60) days
after receipt of Landlord's statement provided pursuant to Paragraph 7.B. or
7.C., such statement shall be final and binding for all purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. Landlord's Insurance. All insurance maintained by Landlord shall be
for the sole benefit of Landlord and under Landlord's sole control.
1. Property Insurance. Landlord agrees to maintain property
insurance insuring the Building against damage or destruction due to
risk including fire, vandalism, and malicious mischief in an amount
not less than the full replacement value thereof, in the form and with
deductibles and endorsements as selected by Landlord. At its election,
Landlord may instead (but shall have no obligation to) obtain "All
Risk" coverage, and may also obtain earthquake, pollution, and/or
flood insurance in amounts selected by Landlord.
2. Optional Insurance. Landlord, at Landlord's option, may also (but
shall have no obligation to) carry insurance against loss of rent, in
an amount equal to the amount of Base Rent and Additional Rent that
Landlord could be required to abate to all Building tenants in the
event of condemnation or casualty damage for a period of twelve (12)
months. Landlord may also (but shall have no obligation to) carry such
other insurance as Landlord may deem prudent or advisable, including,
without limitation, liability insurance in such amounts and on such
terms as Landlord shall determine. Landlord shall not be obligated to
insure, and shall have no responsibility whatsoever for any damage to,
any furniture, machinery, goods, inventory or supplies, or other
personal property or fixtures which Tenant may keep or maintain in the
Premises, or any leasehold improvements, additions or alterations
within the Premises.
B. Tenant's Insurance.
1. Property Insurance. Tenant shall procure at Tenant's sole cost
and expense and keep in effect from the date of this Lease and at all
times until the end of the Term, insurance on all personal property
and fixtures of Tenant and all improvements,
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additions or alterations made by or for Tenant to the Premises on an "All Risk"
basis (excluding earthquake), insuring such property for the full replacement
value of such property.
2. Liability Insurance. Tenant shall procure at Tenant's sole cost
and expense and keep in effect from the date of this Lease and at all
times until the end of the Term Commercial General Liability insurance
covering bodily injury and property damage liability occurring in or
about the Premises or arising out of the use and occupancy of the
Premises and the Project, and any part of either, and any areas
adjacent thereto, and the business operated by Tenant or by any other
occupant of the Premises. Such insurance shall include contractual
liability insurance coverage insuring all of Tenant's indemnity
obligations under this Lease. Such coverage shall have a minimum
combined single limit of liability of at least One Million Dollars
($1,000,000.00 ), and a minimum general aggregate limit of Two Million
Dollars ($2,000,000.00 ), with an "Additional Insured Managers or
Lessors of Premises Endorsement." All such policies shall be written
to apply to all bodily injury (including death), property damage or
loss, personal and advertising injury and other covered loss, however
occasioned, occurring during the policy term, shall be endorsed to add
Landlord and any party holding an interest to which this Lease may be
subordinated as an additional insured, and shall provide that such
coverage shall be "primary" and non-contributing with any insurance
maintained by Landlord, which shall be excess insurance only. Such
coverage shall also contain endorsements including employees as
additional insureds if not covered by Tenant's Commercial General
Liability Insurance. All such insurance shall provide for the
severability of interests of insureds; and shall be written on an
"occurrence" basis, which shall afford coverage for all claims based
on acts, omissions, injury and damage, which occurred or arose (or the
onset of which occurred or arose) in whole or in part during the
policy period.
3. Workers' Compensation and Employers' Liability Insurance. Tenant
shall carry Workers' Compensation Insurance as required by any
Regulation, throughout the Term at Tenant's sole cost and expense.
Tenant shall also carry Employers' Liability Insurance in amounts not
less than One Million Dollars ($1,000,000) each accident for bodily
injury by accident; One Million Dollars ($1,000,000) policy limit for
bodily injury by disease; and One Million Dollars ($1,000,000) each
employee for bodily injury by disease, throughout the Term at Tenant's
sole cost and expense.
4. General Insurance Requirements. All coverages described in this
Paragraph 8.B. shall be endorsed to (i) provide Landlord with thirty
(30) days' notice of cancellation or change in terms; and (ii) waive
all rights of subrogation by the insurance carrier against Landlord.
If at any time during the Term the amount or coverage of insurance
which Tenant is required to carry under this Paragraph 8.B. is, in
Landlord's reasonable judgment, materially less than the amount or
type of insurance coverage typically carried by owners or tenants of
properties located in the general area in which the Premises are
located which are similar to and operated for similar purposes as the
Premises or if Tenant's use of the Premises should change with or
without Landlord's consent, Landlord shall have the right to require
Tenant to increase the amount or change the types of insurance
coverage required under this Paragraph 8.B. All insurance policies
required to be carried by Tenant under this Lease shall be written by
companies rated A X or better in "Best's Insurance Guide" and
authorized to do business in the State of California. In any event
deductible amounts under all insurance policies required to be carried
by Tenant under this Lease shall not exceed Five Thousand Dollars
($5,000.00) per occurrence. Tenant shall deliver to Landlord on or
before the Term Commencement Date, and thereafter at least thirty (30)
days before the expiration dates of the expired policies, certified
copies of Tenant's insurance policies, or a certificate evidencing the
same issued by the insurer thereunder; and, if Tenant shall fail to
procure such insurance, or to deliver such policies or certificates,
Landlord may, at Landlord's option after providing Tenant five (5)
days prior written notice and in addition to Landlord's other remedies
in the event of a default by Tenant hereunder, procure the same for
the account of Tenant, and the cost thereof shall be paid to Landlord
as Additional Rent.
C. Indemnification. Tenant shall indemnify, defend by counsel reasonably
acceptable to Landlord, protect and hold Landlord harmless from and against any
and all claims, liabilities, losses, costs, loss of rents, liens, damages,
injuries or expenses, including reasonable attorneys' and consultants' fees and
court costs, demands, causes of action, or judgments, directly or indirectly
arising out of or related to: (1) claims of injury to or death of persons or
damage to property occurring or resulting directly or indirectly from the use or
occupancy of the Premises, Building or Project by Tenant or Tenant's Parties, or
from activities or failures to act of Tenant or Tenant's Parties; (2) claims
arising from work or labor performed, or for materials or supplies furnished to
or at the request or for the account of Tenant in connection with performance of
any work done for the account of Tenant within the Premises or Project; (3)
claims arising from any breach or default on the part of Tenant in the
performance of any covenant contained in this Lease (which breach or default is
not timely cured as provided hereunder); and (4) claims arising from the
negligence or intentional acts or omissions of Tenant or Tenant's Parties. The
foregoing indemnity by Tenant shall not be applicable to claims to the extent
arising from the negligence, gross negligence or willful misconduct of Landlord.
Landlord shall not be liable to Tenant and Tenant hereby waives all claims
against Landlord for any injury or damage to any person or property in or about
the Premises, Building or Project by or from any cause whatsoever (other than
Landlord's negligence, gross negligence or willful misconduct) and, without
limiting the generality of the foregoing, whether caused by water leakage of any
character from the roof, walls, basement or other portion of the Premises,
Building or Project, or caused by gas, fire, oil or electricity in, on or about
the Premises, Building or Project. The provisions of this Paragraph shall
survive the expiration or earlier termination of this Lease. Landlord shall
indemnify, defend by counsel acceptable by Tenant, protect and hold Tenant
harmless from and against any and all liabilities, losses, costs, damages,
injuries or expenses, including reasonable attorneys' fees and court costs,
arising out of or related to the gross negligence or willful misconduct of
Landlord.
9. WAIVER OF SUBROGATION
To the extent permitted by law and without affecting the coverage
provided by insurance to be maintained hereunder or any other rights or
remedies, Landlord and Tenant each waive for themselves and on behalf of their
officers, partners, agents and employees any right to recover against the other
for: (a) damages for injury to or death of persons; (b) damages to property,
including personal property; (c) damages to the Premises or any part thereof;
and (d) claims arising by reason of the foregoing due to hazards covered by
insurance maintained or required to be maintained pursuant to this Lease to the
extent of proceeds recovered therefrom, or proceeds which would have been
recoverable therefrom in the case of the failure of any party to maintain any
insurance coverage required to be maintained by such party pursuant to this
Lease. This provision is intended to waive fully, any rights and/or claims
arising by reason of the foregoing, but only to the extent that any of the
foregoing damages and/or claims referred to above are covered or would be
covered, and only to the extent of such coverage, by insurance actually carried
or required to be maintained pursuant to this Lease by either Landlord or
Tenant. This provision is also intended to waive fully, and for the benefit of
each party, any rights and/or claims which might give rise to a right of
subrogation on any insurance carrier. Subject to all qualifications of this
Paragraph 9, Landlord waives its rights as specified in this Paragraph 9 with
respect to any subtenant that it has approved pursuant to Paragraph 21 but only
in exchange for the written waiver of such rights to be given by such subtenant
to Landlord upon such subtenant taking possession of the Premises or a portion
thereof. Each party shall cause each insurance policy obtained by it to provide
that the insurance company waives all right of recovery by way of subrogation
against either party in connection with any damage covered by any policy.
10. LANDLORD'S REPAIRS AND MAINTENANCE
Landlord shall at Landlord's expense maintain in good repair,
reasonable wear and tear excepted, the structural soundness of the roof, roof
membrane, foundations, and exterior walls of the Building. The term "exterior
walls" as used herein shall not include windows,
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glass or plate glass, doors, special store fronts or office entries installed by
or at the request of Tenant. Any damage caused by or repairs necessitated by any
negligence or act of Tenant or Tenant's Parties may be repaired by Landlord at
Landlord's option and Tenant's expense. Tenant shall immediately give Landlord
written notice of any defect or need of repairs in such components of the
Building for which Landlord is responsible, after which Landlord shall have a
reasonable opportunity and the right to enter the Premises at all reasonable
times to repair same. Landlord's liability with respect to any defects, repairs,
or maintenance for which Landlord is responsible under any of the provisions of
this Lease shall be limited to the cost of such repairs or maintenance, and
there shall be no abatement of rent and no liability of Landlord by reason of
any injury to or interference with Tenant's business arising from the making of
repairs, alterations or improvements in or to any portion of the Premises, the
Building or the Project or to fixtures, appurtenances or equipment in the
Building, except as provided in Paragraph 24 or if (i) Landlord fails to
diligently correct such defects or makes such repairs within a reasonable period
of time after receiving written notice from Tenant, and (ii) such failure
materially and adversely interferes with Tenant's ability to conduct business
from the Premises. Notwithstanding anything to the contrary contained herein,
Landlord shall, at its expense, as soon as reasonably practicable, repair any
damage to the Premises or the Building resulting from or caused by any sole
negligence of Landlord or Landlord's agents, employees or contractors. By taking
possession of the Premises, Tenant accepts them "as is," as being in good order,
condition and repair and the condition in which Landlord is obligated to deliver
them and suitable for the Permitted Use and Tenant's intended operations in the
Premises, whether or not any notice of acceptance is given, subject to latent
defects.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain all
parts of the Premises and such portions of the Building as are within the
exclusive control of Tenant in a good, clean and secure condition reasonable
wear and tear excepted and promptly make all necessary repairs and replacements,
as reasonably determined by Landlord, with materials and workmanship of the same
character, kind and quality as the original. Notwithstanding anything to the
contrary contained herein, Tenant shall, at its expense, promptly repair any
damage to the Premises or the Building or Project resulting from or caused by
any negligence or act of Tenant or Tenant's Parties.
12. ALTERATIONS
A. Tenant shall not make, or allow to be made, any alterations, physical
additions, improvements or partitions, including without limitation the
attachment of any fixtures or equipment, in, about or to the Premises
("Alterations") without obtaining the prior written consent of Landlord, which
consent shall not be unreasonably withheld with respect to proposed Alterations
which: (a) comply with all applicable Regulations; (b) are, in Landlord's
reasonable opinion, compatible with the Building or the Project and its
mechanical, plumbing, electrical, heating/ventilation/air conditioning systems,
and will not by their installation or operation cause the Building or Project or
such systems to be required to be modified to comply with any Regulations
(including, without limitation, the Americans With Disabilities Act); and (c)
will not interfere with the use and occupancy of any other portion of the
Building or Project by any other tenant or its invitees. Specifically, but
without limiting the generality of the foregoing, Landlord shall have the right
of written consent for all plans and specifications for the proposed
Alterations, construction means and methods, all appropriate permits and
licenses, any contractor or subcontractor to be employed on the work of
Alterations, and the time for performance of such work, and may impose
reasonable rules and regulations for contractors and subcontractors performing
such work. Tenant shall also supply to Landlord any documents and information
reasonably requested by Landlord in connection with Landlord's consideration of
a request for approval hereunder. Tenant shall cause all Alterations to be
accomplished in a first-class, good and workmanlike manner, and to comply with
all applicable Regulations and Paragraph 27 hereof. Tenant shall at Tenant's
sole expense, perform any additional work required under applicable Regulations
due to the Alterations hereunder. No review or consent by Landlord of or to any
proposed Alteration or additional work shall constitute a waiver of Tenant's
obligations under this Paragraph 12, nor constitute any warranty or
representation that the same complies with all applicable Regulations, for which
Tenant shall at all times be solely responsible. Tenant shall reimburse
Landlord for all reasonable third party costs which Landlord may incur in
connection with granting approval to Tenant for any such Alterations, including
any costs or expenses which Landlord may incur in electing to have outside
architects and engineers review said plans and specifications, and shall pay
Landlord an administration fee of five percent (5%) of the cost of the
Alterations as Additional Rent hereunder. All such Alterations shall remain the
property of Tenant until the expiration or earlier termination of this Lease, at
which time they shall be and become the property of Landlord; provided, however,
that Landlord may, at Landlord's option as long as Landlord gave written notice
to Tenant prior to the construction of the Alterations regarding its intent to
exercise this option,, require that Tenant, at Tenant's expense, remove any or
all Alterations made by Tenant and restore the Premises by the expiration or
earlier termination of this Lease, to their condition existing prior to the
construction of any such Alterations. All such removals and restoration shall
be accomplished in a good and workmanlike manner so as not to cause any damage
to the Premises or Project whatsoever. If Tenant fails to remove such
Alterations or Tenant's trade fixtures or furniture or other personal property,
Landlord may keep and use them or remove any of them and cause them to be stored
or sold in accordance with applicable law, at Tenant's sole expense. In
addition to and wholly apart from Tenant's obligation to pay Tenant's
Proportionate Share of Operating Expenses, Tenant shall be responsible for and
shall pay prior to delinquency any taxes or governmental service fees,
possessory interest taxes, fees or charges in lieu of any such taxes, capital
levies, or other charges imposed upon, levied with respect to or assessed
against its fixtures or personal property, on the value of Alterations within
the Premises, and on Tenant's interest pursuant to this Lease, or any increase
in any of the foregoing based on such Alterations. To the extent that any such
taxes are not separately assessed or billed to Tenant, Tenant shall pay the
amount thereof as invoiced to Tenant by Landlord provided Landlord provides
Tenant reasonable documentation supporting such charges.
B. In compliance with Paragraph 27 hereof, at least ten (10) business days
before beginning construction of any Alteration, Tenant shall give Landlord
written notice of the expected commencement date of that construction to permit
Landlord to post and record a notice of non-responsibility. Upon substantial
completion of construction, if the law so provides, Tenant shall cause a timely
notice of completion to be recorded in the office of the recorder of the county
in which the Building is located.
13. SIGNS
Tenant shall not place, install, affix, paint or maintain any signs,
notices, graphics or banners whatsoever or any window decor which is visible in
or from public view or corridors, the common areas or the exterior of the
Premises or the Building, in or on any exterior window or window fronting upon
any common areas or service area without Landlord's prior written approval which
Landlord shall not be unreasonably withheld or delayed ; provided that Tenant's
name shall be included in any Building-standard door and directory signage, if
any, in accordance with Landlord's Building signage program, including without
limitation, payment by Tenant of any fee charged by Landlord for maintaining
such signage, which fee shall constitute Additional Rent hereunder. Any
installation of signs, notices, graphics or banners on or about the Premises or
Project approved by Landlord shall be subject to any Regulations and to any
other requirements imposed by Landlord. Tenant shall remove all such signs or
graphics by the
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expiration or any earlier termination of this Lease. Such installations and
removals shall be made in such manner as to avoid injury to or defacement of the
Premises, Building or Project and any other improvements contained therein, and
Tenant shall repair any injury or defacement including without limitation
discoloration caused by such installation or removal.
Provided Tenant is not in default under any of the terms or conditions of
this Lease which remains uncured, Tenant, at Tenant's sole cost and expense,
shall have the right to install a sign on the exterior of the Building in a
location mutually acceptable to Landlord and Tenant ("Tenant's Signage'").
Tenant's Signage shall be subject to Landlord's approval which approval shall
not be unreasonably withheld or delayed as to size, design, graphics, materials,
method of attachment, colors and similar specifications and shall be consistent
with the exterior design, materials and appearance of the Project and the
Project's signage program, if any, and shall be further subject to all
applicable local governmental laws, rules, regulations, codes and other
approvals. Tenant's Signage shall be personal to the original Tenant and may not
be assigned to any assignee or sublessee of the Premises (other than to an
Affiliate of Tenant), or any other person or entity. Landlord has the right, but
not the obligation, to oversee the installation of Tenant's Signage. The cost to
operate, if any, Tenant's Signage shall be paid for by Tenant, and Tenant shall
be separately metered for such expense (the cost of separately metering any
utility usage shall also be paid for by Tenant). Upon the expiration of the
Lease Term, or other earlier termination of this Lease, Tenant shall be
responsible for any and all costs associated with the removal of Tenant's
Signage, including, but not limited to, the cost to repair and restore the
Building to its original condition, normal wear and tear excepted.
14. INSPECTION/POSTING NOTICES
After reasonable notice, except in emergencies where no such notice shall be
required, Landlord and Landlord's agents and representatives, shall have the
right to enter the Premises to inspect the same, to clean, to perform such work
as may be permitted or required hereunder, to make repairs, improvements or
alterations to the Premises, Building or Project or to other tenant spaces
therein, to deal with emergencies, to post such notices as may be permitted or
required by law to prevent the perfection of liens against Landlord's interest
in the Project or to exhibit the Premises to prospective tenants, purchasers,
encumbrancers or to others, or for any other purpose as Landlord may deem
necessary or desirable; provided, however, that Landlord shall use reasonable
efforts not to unreasonably interfere with Tenant's business operations. Tenant
shall not be entitled to any abatement of Rent by reason of the exercise of any
such right of entry. Tenant waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss occasioned thereby.
Landlord shall at all times have and retain a key with which to unlock all of
the doors in, upon and about the Premises, excluding Tenant's vaults and safes
or special security areas (designated in advance), and Landlord shall have the
right to use any and all means which Landlord may deem necessary or proper to
open said doors in an emergency, in order to obtain entry to any portion of the
Premises, and any entry to the Premises or portions thereof obtained by Landlord
by any of said means, or otherwise, shall not be construed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or an eviction, actual or
constructive, of Tenant from the Premises or any portions thereof. At any time
within six (6) months prior to the expiration of the Term or following any
earlier termination of this Lease or agreement to terminate this Lease, Landlord
shall have the right to erect on the Premises, Building and/or Project a
suitable sign indicating that the Premises are available for lease.
15. SERVICES AND UTILITIES
C. Provided Tenant shall not be in default hereunder, and subject to the
provisions elsewhere herein contained and to the rules and regulations of the
Building, Landlord shall furnish to the Premises during ordinary business hours
of generally recognized business days, to be determined by Landlord (but
exclusive, in any event, of Saturdays, Sundays and legal holidays), water for
lavatory and drinking purposes and electricity, heat and air conditioning as
usually furnished or supplied for use of the Premises for reasonable and normal
office use as of the date Tenant takes possession of the Premises as determined
by Landlord (but not including above-standard or continuous cooling for
excessive heat-generating machines, excess lighting or equipment), janitorial
services during the times and in the manner that such services are customarily
furnished in comparable office buildings in the immediate market area, and
elevator service, which shall mean service either by nonattended automatic
elevators or elevators with attendants, or both, at the option of Landlord.
Tenant acknowledges that Tenant has inspected and accepts the water,
electricity, heat and air conditioning and other utilities and services being
supplied or furnished to the Premises as of the date Tenant takes possession of
the Premises, as being sufficient for use of the Premises for reasonable and
normal office use in their present condition, "as is," and suitable for the
Permitted Use, and for Tenant's intended operations in the Premises. Landlord
shall provide additional or after-hours electricity, heating or air
conditioning at Tenant's request and Tenant shall pay to Landlord a reasonable
charge for such services as determined by Landlord. Tenant agrees to keep and
cause to be kept closed all window covering when necessary because of the sun's
position, and Tenant also agrees at all times to cooperate fully with Landlord
and to abide by all of the regulations and requirements which Landlord may
prescribe for the proper functioning and protection of electrical, heating,
ventilating and air conditioning systems. Wherever heat-generating machines,
excess lighting or equipment are used in the Premises which affect the
temperature otherwise maintained by the air conditioning system, Landlord
reserves the right to install supplementary air conditioning units in the
Premises and the cost thereof, including the cost of installation and the cost
of operation and maintenance thereof, shall be paid by Tenant to Landlord upon
demand by Landlord.
D. Tenant shall not without written consent of Landlord use any apparatus,
equipment or device in the Premises, including without limitation, computers,
electronic data processing machines, copying machines, and other machines, using
excess lighting or using electric current, water, or any other resource in
excess of or which will in any way increase the amount of electricity, water, or
any other resource being furnished or supplied for the use of the Premises for
reasonable and normal office use, in each case as of the date Tenant takes
possession of the Premises as determined by Landlord, or which will require
additions or alterations to or interfere with the Building power distribution
systems; nor connect with electric current, except through existing electrical
outlets in the Premises or water pipes, any apparatus, equipment or device for
the purpose of using electrical current, water, or any other resource. If
Tenant shall require water or electric current or any other resource in excess
of that being furnished or supplied for the use of the Premises as of the date
Tenant takes possession of the Premises as determined by Landlord, Tenant shall
first procure the written consent of Landlord which Landlord may refuse, to the
use thereof, and Landlord may cause a special meter to be installed in the
Premises so as to measure the amount of water, electric current or other
resource consumed for any such other use. Tenant shall pay directly to Landlord
as an addition to and separate from payment of Operating Expenses the cost of
all such additional resources, energy, utility service and meters (and of
installation, maintenance and repair thereof and of any additional circuits or
other equipment necessary to furnish such additional resources, energy, utility
or service). Landlord shall not be liable for any damages directly or
indirectly resulting from nor shall the Rent or any monies owed Landlord under
this Lease herein reserved be abated by reason of: (a) the installation, use or
interruption of use of any equipment used in connection with the furnishing of
any such utilities or services, or any change in the character or means of
supplying or providing any such utilities or services or any supplier thereof;
(b) the failure to furnish or delay in furnishing any such utilities or services
when such failure or delay is caused by acts of God or the elements, labor
disturbances of any character, or any other accidents or other conditions beyond
the reasonable control of Landlord or because of any interruption of service due
to Tenant's use of water, electric current or other resource in excess of that
being supplied or furnished for the use of the Premises as of the date Tenant
takes possession of the Premises; (c) the inadequacy, limitation, curtailment,
rationing or restriction on use of water, electricity, gas or any other form of
energy or any other service or utility whatsoever serving the Premises or
Project, whether by Regulation or otherwise; or (d) the partial or total
unavailability of any such utilities or services to the Premises or the
Building, whether by Regulation or otherwise; nor shall any such occurrence
constitute an actual or constructive eviction of Tenant. Landlord shall further
have no obligation
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to protect or preserve any apparatus, equipment or device installed by Tenant in
the Premises, including without limitation by providing additional or after-
hours heating or air conditioning. Landlord shall be entitled to cooperate
voluntarily and in a reasonable manner with the efforts of national, state or
local governmental agencies or utility suppliers in reducing energy or other
resource consumption. The obligation to make services available hereunder shall
be subject to the limitations of any such voluntary, reasonable program. In
addition, Landlord reserves the right to change the supplier or provider of any
such utility or service from time to time. Tenant shall have no right to
contract with or otherwise obtain any electrical or other such service for or
with respect to the Premises or Tenant's operations therein from any supplier or
provider of any such service. Tenant shall cooperate with Landlord and any
supplier or provider of such services designated by Landlord from time to time
to facilitate the delivery of such services to Tenant at the Premises and to the
Building and Project, including without limitation allowing Landlord and
Landlord's suppliers or providers, and their respective agents and contractors,
reasonable access to the Premises for the purpose of installing, maintaining,
repairing, replacing or upgrading such service or any equipment or machinery
associated therewith.
E. Tenant shall pay, upon demand, for all utilities furnished to the Premises,
or if not separately billed to or metered to Tenant, Tenant's Proportionate
Share of all charges jointly serving the Project in accordance with Paragraph 7.
All sums payable under this Paragraph 15 shall constitute Additional Rent
hereunder.
16. SUBORDINATION
Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination, the Lease shall be and is hereby
declared to be subject and subordinate at all times to: (a) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Premises and/or the land upon which the Premises and Project are situated, or
both; and (b) any mortgage or deed of trust which may now exist or be placed
upon the Building, the Project and/or the land upon which the Premises or the
Project are situated, or said ground leases or underlying leases, or Landlord's
interest or estate in any of said items which is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. If any ground lease or underlying lease terminates for any
reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the successor in interest to
Landlord provided that Tenant shall not be disturbed in its possession under
this Lease by such successor in interest so long as Tenant is not in default
under this Lease. Within ten (10) days after request by Landlord, Tenant shall
execute and deliver any additional documents evidencing Tenant's attornment or
the subordination of this Lease with respect to any such ground leases or
underlying leases or any such mortgage or deed of trust, in the form requested
by Landlord or by any ground landlord, mortgagee, or beneficiary under a deed of
trust, subject to such nondisturbance requirement. Landlord shall use
commercially reasonable efforts to obtain a subordination, nondisturbance and
attornment agreement for the benefit of Tenant reflecting the foregoing from any
ground landlord, mortgagee or beneficiary, at Landlord's expense, subject to
such other terms and conditions as the ground landlord, mortgagee or beneficiary
may require.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time, Tenant shall provide to
Landlord Tenant's and any guarantor's current financial statements or other
information discussing financial worth of Tenant and any guarantor, which
Landlord shall use solely for purposes of this Lease and in connection with the
ownership, management, financing and disposition of the Project.
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within ten (10) business days after request
of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this Lease is in full force and effect, that this Lease
has not been modified (or stating all modifications, written or oral, to this
Lease), the date to which Rent has been paid, the unexpired portion of this
Lease, that there are no current defaults by Landlord or Tenant under this Lease
(or specifying any such defaults), that the leasehold estate granted by this
Lease is the sole interest of Tenant in the Premises and/or the land at which
the Premises are situated, and such other matters pertaining to this Lease as
may be reasonably requested by Landlord or any mortgagee, beneficiary, purchaser
or prospective purchaser of the Building or Project or any interest therein.
Notwithstanding anything to the contrary, Tenant's execution of an estoppel
certificate shall not be a waiver of Tenant's rights to audit or challenge the
Operating Expenses as described in Section 7. Failure by Tenant to execute and
deliver such certificate shall constitute an acceptance of the Premises and
acknowledgment by Tenant that the statements included are true and correct
without exception. Tenant agrees that if Tenant fails to execute and deliver
such certificate within such ten (10) business day period, Landlord may execute
and deliver such certificate on Tenant's behalf and that such certificate shall
be binding on Tenant. Landlord and Tenant intend that any statement delivered
pursuant to this Paragraph may be relied upon by any mortgagee, beneficiary,
purchaser or prospective purchaser of the Building or Project or any interest
therein. The parties agree that Tenant's obligation to furnish such estoppel
certificates in a timely fashion is a material inducement for Landlord's
execution of the Lease, and shall be an event of default (without any cure
period that might be provided under Paragraph 26.A(3) of this Lease) if Tenant
fails to fully comply or makes any material misstatement in any such
certificate.
19. SECURITY DEPOSIT
A. Delivery of Letter of Credit. In lieu of depositing a security deposit with
Landlord, Tenant shall, on execution of this Lease, deliver to Landlord and
cause to be in effect for a period expiring no earlier than thirty (30)
days after the expiration of the Lease Term, an unconditional, irrevocable
letter of credit ("LC") in the amount of $556,000.00, as may be reduced as
provided in the Lease (the "LC Amount"). The LC shall be in a form
acceptable to Landlord and shall be issued by an LC bank selected by Tenant
and reasonably acceptable to Landlord. An LC Bank is a bank that accepts
deposits, maintains accounts, has a local office that will negotiate a
letter of credit, and the deposits of which are insured by the Federal
Deposit Insurance Corporation. Tenant shall pay all expenses, points or
fees incurred by Tenant in obtaining the LC.
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B. Replacement of Letter of Credit. Tenant may, from time to time, replace any
existing LC with a new LC if the new LC (a) becomes effective at least
thirty (30) days before expiration of the LC that it replaces; (b) is in the
required LC amount; (c) is issued by an LC bank reasonably acceptable to
Landlord; and (d) otherwise complies with the requirements of this Paragraph
19.
Landlord's Right to Draw on Letter of Credit. Landlord shall hold the LC as
security for the performance of Tenant's obligations under this Lease. If,
after notice and failure to cure within any applicable period provided in
the Lease, Tenant defaults on any provision of this Lease, Landlord may,
without prejudice to any other remedy it has, draw on that portion of the LC
necessary to (a) pay Rent or other sum in default; (b) pay or reimburse
Landlord for any amount that Landlord may reasonably spend or become
obligated to spend in exercising Landlord's rights under Paragraph 30 (Right
of Landlord to Perform Tenant's Covenant); and/or (c) compensate Landlord
for any reasonable expense, loss, or damage that Landlord may suffer because
of Tenant's default. If Tenant fails to renew or replace the LC at least
thirty (30) days before the expiration, Landlord may, without prejudice to
any other remedy it has, draw on the entire amount of the LC.
C. LC Security Deposit. Any amount of the LC that is drawn on by Landlord but
not applied by Landlord shall be held by Landlord as a security deposit
(the "LC Security Deposit"). Although the Security Deposit shall be deemed
the property of Landlord, any remaining balance of such deposit shall be
returned by Landlord to Tenant within sixty (60) days after termination of
this Lease, reduced by such amounts as may be required by Landlord to
remedy defaults on the part of Tenant in the payment of Rent or other
obligations of Tenant under this Lease, to repair damage to the Premises or
Building caused by Tenant or any Tenant's Parties and to clean the
Premises. Landlord may use and commingle the Security Deposit with other
funds of Landlord.
D. Restoration of Letter of Credit and LC Security Deposit. If Landlord draws
on any portion of the LC and/or applies all or any portion of such draw,
Tenant shall, within five (5) business days after demand by Landlord,
either (a) deposit cash with Landlord in an amount that, when added to the
amount remaining under the LC and the amount of any LC Security Deposit,
shall equal the LC Amount then required under this Paragraph 19; or (b)
reinstate the LC to the full LC Amount.
E. Reduction in LC. Tenant shall have the right to reduce the LC at the end of
each twelve (12) month period by $101,500.00 (see schedule below), so long
as Tenant is not in Default (per Paragraph 26 of this Lease) during each of
the preceding twelve (12) month periods. If Tenant is in default (per
Paragraph 26 of this Lease) and such default has not been cured by Tenant
prior to the anniversary of the Commencement Date within any twelve (12)
month period, the LC shall not be reduced for the following twelve (12)
month period; provided, however, that upon effective cure of such default
all future reductions shall be made as set forth herein.
Months LC Amount
1 through 12 $556,000.00
13 through 24 $454,500.00
25 through 36 $353,000.00
37 through 48 $251,500.00
49 through 60 $150,000.00
thirty (30) days thereafter $100,000.00
20. LIMITATION OF TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by Landlord
under the terms of this Lease are not personal obligations of the individual or
other partners of Landlord or its or their partners, directors, officers, or
shareholders, and Tenant agrees to look solely to Landlord's interest in the
Project and any net sales proceeds from the sale of the Project for the recovery
of any amount from Landlord, and shall not look to other assets of Landlord nor
seek recourse against the assets of the individual or other partners of Landlord
or its or their partners, directors, officers or shareholders. Any lien
obtained to enforce any such judgment and any levy of execution thereon shall be
subject and subordinate to any lien, mortgage or deed of trust on the Project.
21. ASSIGNMENT AND SUBLETTING
A. General. Tenant may assign or pledge this Lease or sublet the Premises, or
any part thereof, with Landlord's prior written consent as provided herein. If
Tenant desires to assign this Lease or sublet any or all of the Premises, Tenant
shall give Landlord written notice (the "Transfer Notice") at least thirty (30)
days prior to the anticipated effective date of the proposed assignment or
sublease, which shall contain all of the information reasonably requested by
Landlord to address Landlord's decision criteria specified hereinafter.
Landlord shall then have a period of thirty (30) days following receipt of the
Transfer Notice to notify Tenant in writing that Landlord elects either: (i) if
the transfer is not a Permitted Transfer (as defined herein) to terminate this
Lease as to the space so affected as of the date so requested by Tenant
("Landlord's Termination Notice"); or (ii) to consent to the proposed assignment
or sublease, subject, however, to Landlord's prior written consent of the
proposed assignee or subtenant and of any related documents or agreements
associated with the assignment or sublease. Notwithstanding the foregoing, if
Tenant revokes its request of Landlord to consent to a proposed sublease or
assignment within forty-eight (48) hours after Tenant's receipt of Landlord's
Termination Notice, Landlord's termination pursuant to the preceding sentence
shall be null and void and of no force or effect. If Landlord should fail to
notify Tenant in writing of such election within said period, Landlord shall be
deemed to have consented to the proposed assignee or subtenant . If Landlord
does not exercise option (i) above, Landlord's consent to a proposed assignment
or sublease shall not be unreasonably withheld or delayed. Consent to any
assignment or subletting shall not constitute consent to any subsequent
transaction to which this Paragraph 21 applies.
B. Conditions of Landlord's Consent. Without limiting the other instances in
which it may be reasonable for Landlord to withhold Landlord's consent to an
assignment or subletting, Landlord and Tenant acknowledge that it shall be
reasonable for Landlord to withhold Landlord's consent in the following
instances: if the proposed assignee does not agree to be bound by and assume the
obligations of Tenant under this Lease in form and substance reasonably
satisfactory to Landlord; the use of the Premises by such proposed assignee or
subtenant would not be a Permitted Use or would violate any exclusivity or other
arrangement which Landlord has with any other tenant or occupant or any
Regulation or would materially increase the Occupancy Density or Parking Density
of the Building or Project, or
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would otherwise result in an undesirable tenant mix for the Project as
reasonably determined by Landlord; the proposed assignee or subtenant is not of
sound financial condition as reasonably determined by Landlord ; the proposed
assignee or subtenant is a governmental agency; the proposed assignee or
subtenant does not have a good reputation as a tenant of property or a good
business reputation; the proposed assignee or subtenant is a person with whom
Landlord is negotiating to lease space in the Project or is a present tenant of
the Project; the assignment or subletting would entail any Alterations which
would lessen the value of the leasehold improvements in the Premises or use of
any Hazardous Materials or other noxious use or use which may disturb other
tenants of the Project; or Tenant is in default of any material obligation of
Tenant under this Lease, or Tenant has defaulted under this Lease on three (3)
or more occasions during any twelve (12) months preceding the date that Tenant
shall request consent. Failure by or refusal of Landlord to consent to a
proposed assignee or subtenant shall not cause a termination of this Lease. Upon
a termination under Paragraph 21.A.(1)(i), Landlord may lease the Premises to
any party, including parties with whom Tenant has negotiated an assignment or
sublease, without incurring any liability to Tenant. At the option of Landlord,
a surrender and termination of this Lease shall operate as an assignment to
Landlord of some or all subleases or subtenancies. Landlord shall exercise this
option by giving notice of that assignment to such subtenants on or before the
effective date of the surrender and termination. In connection with each request
for assignment or subletting, Tenant shall pay to Landlord Landlord's third
party costs incurred for approving such requests, and effecting any such
transfer, including, without limitation, reasonable attorneys' fees.
C. Bonus Rent. Any Rent or other consideration realized by Tenant under any
such sublease or assignment in excess of the Rent payable hereunder, after
amortization of a reasonable brokerage commission, reasonable marketing costs,
reasonable tenant improvement expenses and other reasonable, out-of-pocket
economic concessions incurred by Tenant, shall be divided and paid, ten percent
to Tenant, ninety percent to Landlord. In any subletting or assignment
undertaken by Tenant, Tenant shall diligently seek to obtain the maximum rental
amount available in the marketplace for comparable space available for primary
leasing.
D. Corporation. If Tenant is a corporation, a transfer of corporate shares by
sale, assignment, bequest, inheritance, operation of law or other disposition
(including such a transfer to or by a receiver or trustee in federal or state
bankruptcy, insolvency or other proceedings) resulting in a change in the
present control of such corporation or any of its parent corporations by the
person or persons owning a majority of said corporate shares, shall constitute
an assignment for purposes of this Lease. Any provision in this Lease to the
contrary notwithstanding, Landlord's consent shall not be required for any of
the following transfers (each of which shall be a "Permitted Transfer"): (a) to
any person(s) or entity who controls, is controlled by or is under common
control with Tenant, (b) to any entity resulting from the merger, consolidation
or other reorganization with Tenant, whether or not Tenant is the surviving
entity or (c) to any person or legal entity which acquires all or substantially
all of the assets or stock of Tenant (each of the foregoing is hereinafter
referred to as a "Tenant Affiliate"); provided that before such assignment shall
be effective, (w) such assignment or sublease shall not be a subterfuge by
Tenant to avoid its obligations under this paragraph 21, (x) said Tenant
Affiliate shall assume, in full, the obligations of Tenant under this Lease, (y)
Landlord shall be given written notice of such assignment and assumption and (z)
the use of the Premises by the Tenant Affiliate shall be as set forth in Article
4A. For purposes of this paragraph, a public or private offering of Tenant
stock is a Permitted Transfer and the term "control" means possession, directly
or indirectly, of the power to direct or cause the direction of the management,
affairs and policies of anyone, whether through the ownership of voting
securities, by contract or otherwise. The bonus rental provisions of Paragraph
21B of this Lease shall not apply to an assignment or sublease by Tenant to a
Tenant Affiliate.
E. Unincorporated Entity. If Tenant is a partnership, joint venture,
unincorporated limited liability company or other unincorporated business form,
a transfer of the interest of persons, firms or entities responsible for
managerial control of Tenant by sale, assignment, bequest, inheritance,
operation of law or other disposition, so as to result in a change in the
present control of said entity and/or of the underlying beneficial interests of
said entity and/or a change in the identity of the persons responsible for the
general credit obligations of said entity shall constitute an assignment for all
purposes of this Lease.
F. Liability. No assignment or subletting by Tenant, permitted or otherwise,
shall relieve Tenant of any obligation under this Lease or alter the primary
liability of the Tenant named herein for the payment of Rent or for the
performance of any other obligations to be performed by Tenant, including
obligations contained in Paragraph 25 with respect to any assignee or subtenant.
Landlord may collect rent or other amounts or any portion thereof from any
assignee, subtenant, or other occupant of the Premises, permitted or otherwise,
and apply the net rent collected to the Rent payable hereunder, but no such
collection shall be deemed to be a waiver of this Paragraph 21, or the
acceptance of the assignee, subtenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of the obligations of Tenant under
this Lease. Any assignment or subletting which conflicts with the provisions
hereof shall be void.
22. AUTHORITY
Landlord represents and warrants that it has full right and authority to enter
into this Lease and to perform all of Landlord's obligations hereunder and that
all persons signing this Lease on its behalf are authorized to do. Tenant and
the person or persons, if any, signing on behalf of Tenant, jointly and
severally represent and warrant that Tenant has full right and authority to
enter into this Lease, and to perform all of Tenant's obligations hereunder, and
that all persons signing this Lease on its behalf are authorized to do so.
23. CONDEMNATION
A. Condemnation Resulting in Termination. If the whole or any substantial part
of the Premises should be taken or condemned for any public use under any
Regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and the taking would prevent or materially interfere with the Permitted
Use of the Premises, either party shall have the right to terminate this Lease
at its option. If any material portion of the Building or Project is taken or
condemned for any public use under any Regulation, or by right of eminent
domain, or by private purchase in lieu thereof, Landlord may terminate this
Lease at its option. In either of such events, the Rent shall be abated during
the unexpired portion of this Lease, effective when the physical taking of said
Premises shall have occurred.
B. Condemnation Not Resulting in Termination. If a portion of the Project of
which the Premises are a part should be taken or condemned for any public use
under any Regulation, or by right of eminent domain, or by private purchase in
lieu thereof, and the taking prevents or materially interferes with the
Permitted Use of the Premises, and this Lease is not terminated as provided in
Paragraph 23.A. above, the Rent payable hereunder during the unexpired portion
of the Lease shall be reduced, beginning on the date when the physical taking
shall have occurred, to such amount as may be fair and reasonable under all of
the circumstances. Notwithstanding anything to the contrary contained in this
Paragraph, if the temporary use or occupancy of any part of the Premises shall
be taken or appropriated under power of eminent domain during the Term, this
Lease shall be and remain unaffected by such taking or appropriation and Tenant
shall continue to pay in full all Rent payable hereunder by Tenant during the
Term; in the event of any such temporary appropriation or taking, Tenant shall
be entitled to receive that portion of any award which represents compensation
for the use of or occupancy of the Premises during the Term, and Landlord shall
be entitled to receive that portion of any award which represents the cost of
restoration of the Premises and the use and occupancy of the Premises outside of
the Term.
C. Award. Landlord shall be entitled to (and Tenant shall assign to Landlord)
any and all payment, income, rent, award or any interest therein which may be
paid or made in connection with such taking or conveyance solely as it relates
to the loss in value to the
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Premises and Tenant shall have no claim against Landlord or otherwise for any
sums paid by virtue of such proceedings, whether or not attributable to the
value of any unexpired portion of this Lease, except as expressly provided in
this Lease. Notwithstanding the foregoing, any compensation specifically and
separately awarded Tenant for Tenant's personal property and moving costs, shall
be and remain the property of Tenant.
D. Waiver of CCP(S)1265.130. Each party waives the provisions of California
Civil Code Procedure Section 1265.130 allowing either party to petition the
superior court to terminate this Lease as a result of a partial taking.
24. CASUALTY DAMAGE
A. General. If the Premises or Building should be damaged or destroyed by
fire, earthquake, tornado, or other casualty (collectively, "Casualty"), Tenant
shall give immediate written notice thereof to Landlord. Within sixty (60) days
after Landlord's receipt of such notice, Landlord shall notify Tenant whether in
Landlord's contractor's estimation material restoration of the Premises can
reasonably be made within one hundred eighty (180) days from the date of such
notice and receipt of required permits for such restoration.
B. Within 180 Days. If the Premises or Building should be damaged by Casualty
to such extent that material restoration can in Landlord's contractor's
estimation be reasonably completed within one hundred eighty (180) days after
the date of such notice and receipt of required permits for such restoration,
this Lease shall not terminate. Provided that insurance proceeds are received
by Landlord to fully repair the damage, Landlord shall diligently proceed to
rebuild and repair the Premises, except that Landlord shall not be required to
rebuild, repair or replace any part of the Alterations which may have been
placed on or about the Premises by Tenant. If the Premises are untenantable in
whole or in part following such damage, the Rent payable hereunder during the
period in which they are untenantable shall be abated proportionately.
C. Greater than 180 Days. If the Premises or Building should be damaged by
Casualty to such extent that rebuilding or repairs cannot in Landlord's
contractor's estimation be reasonably completed within one hundred eighty (180)
days after the date of such notice and receipt of required permits for such
rebuilding or repair, then Landlord shall have the option of either: (1)
terminating this Lease effective upon the date of the occurrence of such damage,
in which event the Rent shall be abated during the unexpired portion of this
Lease; or (2) electing to rebuild or repair the Premises diligently. Landlord
shall notify Tenant of its election within sixty (60) days after Landlord's
receipt of notice of the damage or destruction. Notwithstanding the above,
Landlord shall not be required to rebuild, repair or replace any part of any
Alterations which may have been placed, on or about the Premises by Tenant. If
the Premises are untenantable or cannot be used for the operation of Tenant's
business in whole or in part following such damage and Tenant in fact does not
use the Premises, the Rent payable hereunder during the period in which they are
untenantable shall be abated proportionately.
D. Tenant's Fault. Notwithstanding anything herein to the contrary, if the
Premises or any other portion of the Building are damaged by Casualty resulting
from the fault, negligence, or breach of this Lease by Tenant or any of Tenant's
Parties, Base Rent and Additional Rent shall not be diminished during the repair
of such damage and Tenant shall be liable to Landlord for the cost and expense
of the repair and restoration of the Building caused thereby to the extent such
cost and expense is not covered by insurance proceeds.
E. Insurance Proceeds. Notwithstanding anything herein to the contrary, if the
Premises or Building are damaged or destroyed and are not fully covered by the
insurance proceeds received by Landlord or if the holder of any indebtedness
secured by a mortgage or deed of trust covering the Premises requires that the
insurance proceeds be applied to such indebtedness, then in either case Landlord
shall have the right to terminate this Lease by delivering written notice of
termination to Tenant within thirty (30) days after the date of notice to
Landlord that said damage or destruction is not fully covered by insurance or
such requirement is made by any such holder, as the case may be, whereupon this
Lease shall terminate.
F. Waiver. This Paragraph 24 shall be Tenant's sole and exclusive remedy in
the event of damage or destruction to the Premises or the Building. As a
material inducement to Landlord entering into this Lease, Tenant hereby waives
any rights it may have under Sections 1932, 1933(4), 1941 or 1942 of the Civil
Code of California with respect to any destruction of the Premises, and Tenant's
right to make repairs and deduct the expenses of such repairs, or under any
similar law, statute or ordinance now or hereafter in effect.
G. Tenant's Personal Property. In the event of any damage or destruction of
the Premises or the Building, under no circumstances shall Landlord be required
to repair any injury or damage to, or make any repairs to or replacements of,
Tenant's personal property, except if the damage or injury results from the
fault, negligence or breach of this Lease by Landlord (subject to the terms of
paragraph 9 above).
25. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding over, Tenant
shall be unlawfully and illegally in possession of the Premises, whether or not
Landlord accepts any rent from Tenant or any other person while Tenant remains
in possession of the Premises without Landlord's written consent. If Tenant
shall retain possession of the Premises or any portion thereof without
Landlord's consent following the expiration of this Lease or sooner termination
for any reason, then Tenant shall pay to Landlord for each day of such retention
one hundred fifty percent (150%) of the amount of daily rental as of the last
month prior to the date of expiration or earlier termination for the first three
months following expiration and two hundred percent (200%) of the amount of
daily rental as of the last month prior to the date of expiration or earlier
termination for every month thereafter. Tenant shall also indemnify, defend,
protect and hold Landlord harmless from any loss, liability or cost, including
consequential and incidental damages and reasonable attorneys' fees, incurred by
Landlord resulting from delay by Tenant in surrendering the Premises, including,
without limitation, liability of Landlord to the succeeding tenant founded on
such delay. Acceptance of Rent by Landlord following expiration or earlier
termination of this Lease, or following demand by Landlord for possession of the
Premises, shall not constitute a renewal of this Lease, and nothing contained in
this Paragraph 25 shall waive Landlord's right of reentry or any other right.
Additionally, if upon expiration or earlier termination of this Lease, or
following demand by Landlord for possession of the Premises, Tenant has not
fulfilled its obligation with respect to repairs and cleanup of the Premises or
any other Tenant obligations as set forth in this Lease, then Landlord shall
have the right to perform any such obligations as it deems necessary at Tenant's
sole cost and expense, and any time required by Landlord to complete such
obligations shall be considered a period of holding over and the terms of this
Paragraph 25 shall apply. The provisions of this Paragraph 25 shall survive any
expiration or earlier termination of this Lease.
26. DEFAULT
A. Events of Default. The occurrence of any of the following shall constitute
an event of default on the part of Tenant:
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(1) Abandonment. Abandonment or vacation of the Premises for a continuous
period in excess of five (5) days. Tenant waives any right to notice Tenant
may have under Section 1951.3 of the Civil Code of the State of California,
the terms of this Paragraph 26.A. being deemed such notice to Tenant as
required by said Section 1951.3.
(2) Nonpayment of Rent. Failure to pay any installment of Rent or any other
amount due and payable hereunder upon the date when said payment is due and
such failure continues for three (3) days after receiving notification from
Landlord (which notice shall be in lieu of, and not in addition to, the
notice requirement of Section 1161 of the California Code of Civil
Procedures or any similar or successor law.
(3) Other Obligations. Failure to perform any obligation, agreement or
covenant under this Lease other than those matters specified in
subparagraphs (1) and (2) of this Paragraph 26.A., such failure continuing
for fifteen (15) days after written notice of such failure, provided,
however, that if such failure cannot be reasonably cured in such time
period, Tenant shall have such time is reasonably required, provided Tenant
diligently seeks to cure such failure.
(4) General Assignment. A general assignment by Tenant for the benefit of
creditors.
(5) Bankruptcy. The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of an involuntary petition by Tenant's creditors,
which involuntary petition remains undischarged for a period of thirty (30)
days. If under applicable law, the trustee in bankruptcy or Tenant has the
right to affirm this Lease and continue to perform the obligations of
Tenant hereunder, such trustee or Tenant shall, in such time period as may
be permitted by the bankruptcy court having jurisdiction, cure all defaults
of Tenant hereunder outstanding as of the date of the affirmance of this
Lease and provide to Landlord such adequate assurances as may be necessary
to ensure Landlord of the continued performance of Tenant's obligations
under this Lease.
(6) Receivership. The employment of a receiver to take possession of
substantially all of Tenant's assets or Tenant's leasehold of the Premises,
if such appointment remains undismissed or undischarged for a period of
fifteen (15) days after the order therefor.
(7) Attachment. The attachment, execution or other judicial seizure of all
or substantially all of Tenant's assets or Tenant's leasehold of the
Premises, if such attachment or other seizure remains undismissed or
undischarged for a period of fifteen (15) days after the levy thereof.
(8) Insolvency. The admission by Tenant in writing of its inability to pay
its debts as they become due.
(9) Remedies Upon Default.
(10) Termination. In the event of the occurrence of any event of default,
Landlord shall have the right to give a written termination notice to
Tenant, and on the date specified in such notice, Tenant's right to
possession shall terminate, and this Lease shall terminate unless on or
before such date all Rent in arrears and all costs and expenses incurred by
or on behalf of Landlord hereunder shall have been paid by Tenant and all
other events of default of this Lease by Tenant at the time existing shall
have been fully remedied to the satisfaction of Landlord. At any time
after such termination, Landlord may recover possession of the Premises or
any part thereof and expel and remove therefrom Tenant and any other person
occupying the same, including any subtenant or subtenants notwithstanding
Landlord's consent to any sublease, by any lawful means, and again
repossess and enjoy the Premises without prejudice to any of the remedies
that Landlord may have under this Lease, or at law or equity by any reason
of Tenant's default or of such termination. Landlord hereby reserves the
right, but shall not have the obligation, to recognize the continued
possession of any subtenant. The delivery or surrender to Landlord by or
on behalf of Tenant of keys, entry codes, or other means to bypass security
at the Premises shall not terminate this Lease.
(11) Continuation After Default. Even though an event of default may have
occurred, this Lease shall continue in effect for so long as Landlord does
not terminate Tenant's right to possession under Paragraph 26.B.(1) hereof,
and Landlord may enforce all of Landlord's rights and remedies under this
Lease and at law or in equity, including without limitation, the right to
recover Rent as it becomes due, and Landlord, without terminating this
Lease, may exercise all of the rights and remedies of a landlord under
Section 1951.4 of the Civil Code of the State of California or any
successor code section. Acts of maintenance, preservation or efforts to
lease the Premises or the appointment of a receiver under application of
Landlord to protect Landlord's interest under this Lease or other entry by
Landlord upon the Premises shall not constitute an election to terminate
Tenant's right to possession.
(12) Increased Security Deposit. If Tenant is in default under Paragraph
26.A.(2) hereof and such default remains uncured for ten (10) days after
such occurrence or such default occurs more than three times in any twelve
(12) month period, Landlord may require that Tenant increase the Security
Deposit to the amount of three times the current month's Rent at the time
of the most recent default.
C. Damages After Default. Should Landlord terminate this Lease pursuant to the
provisions of Paragraph 26.B.(1) hereof, Landlord shall have the rights and
remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State
of California, or any successor code sections. Upon such termination, in
addition to any other rights and remedies to which Landlord may be entitled
under applicable law or at equity, Landlord shall be entitled to recover from
Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts
which had been earned at the time of termination, (2) the worth at the time of
award of the amount by which the unpaid Rent and other amounts that would have
been earned after the date of termination until the time of award exceeds the
amount of such Rent loss that Tenant proves could have been reasonably avoided;
(3) the worth at the time of award of the amount by which the unpaid Rent and
other amounts for the balance of the Term after the time of award exceeds the
amount of such Rent loss that the Tenant proves could be reasonably avoided; and
(4) any other amount and court costs necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease or which, in the ordinary course of things, would be likely to
result therefrom. The "worth at the time of award" as used in (1) and (2) above
shall be computed at the Applicable Interest Rate (defined below). The "worth
at the time of award" as used in (3) above shall be computed by discounting such
amount at the Federal Discount Rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent (1%). If this Lease provides for any
periods during the Term during which Tenant is not required to pay Base Rent or
if Tenant otherwise receives a Rent concession, then upon the occurrence of an
event of default, Tenant shall owe to Landlord the full amount of such Base Rent
or value of such Rent concession, plus interest at the Applicable Interest Rate,
calculated from the date that such Base Rent or Rent concession would have been
payable.
D. Late Charge. In addition to its other remedies, Landlord shall have the
right without notice or demand to add to the amount of any payment required to
be made by Tenant hereunder, and which is not paid and received by Landlord on
or before the fifth day of each calendar month, an amount equal to five percent
(5%) of the delinquency for each month or portion thereof that the delinquency
remains outstanding to compensate Landlord for the loss of the use of the amount
not paid and the administrative costs caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such delinquencies would be
extremely difficult and impracticable to compute and the amount stated herein
represents a reasonable estimate thereof. Any waiver by Landlord of any late
charges or failure to claim the same shall not constitute a waiver of other late
charges or any other remedies available to Landlord.
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E. Interest. Interest shall accrue on all sums not paid when due hereunder at
the lesser of fifteen percent (15%) per annum or the maximum interest rate
allowed by law ("Applicable Interest Rate") from the due date until paid.
F. Remedies Cumulative. All rights, privileges and elections or remedies of
the parties are cumulative and not alternative, to the extent permitted by law
and except as otherwise provided herein.
27. LIENS
Tenant shall at all times keep the Premises and the Project free from liens
arising out of or related to work or services performed, materials or supplies
furnished or obligations incurred by or on behalf of Tenant or in connection
with work made, suffered or done by or on behalf of Tenant in or on the Premises
or Project. If Tenant shall not, within ten (10) days following the imposition
of any such lien, cause the same to be released of record by payment or posting
of a proper bond, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but not the obligation, to cause the same
to be released by such means as Landlord shall deem proper, including payment of
the claim giving rise to such lien. All sums paid by Landlord on behalf of
Tenant and all expenses incurred by Landlord in connection therefor shall be
payable to Landlord by Tenant on demand with interest at the Applicable Interest
Rate as Additional Rent. Landlord shall have the right at all times to post and
keep posted on the Premises any notices permitted or required by law, or which
Landlord shall deem proper, for the protection of Landlord, the Premises, the
Project and any other party having an interest therein, from mechanics' and
materialmen's liens, and Tenant shall give Landlord not less than ten (10)
business days prior written notice of the commencement of any work in the
Premises or Project which could lawfully give rise to a claim for mechanics' or
materialmen's liens to permit Landlord to post and record a timely notice of
non-responsibility, as Landlord may elect to proceed or as the law may from time
to time provide, for which purpose, if Landlord shall so determine, Landlord may
enter the Premises. Tenant shall not remove any such notice posted by Landlord
without Landlord's consent, and in any event not before completion of the work
which could lawfully give rise to a claim for mechanics' or materialmen's liens.
28. SUBSTITUTION
A. At any time after execution of this Lease, Landlord may substitute for the
Premises other premises in the Project (the "New Premises") upon not less than
sixty (60) days prior written notice, in which event the New Premises shall be
deemed to be the Premises for all purposes hereunder and this Lease shall be
deemed modified accordingly to reflect the new location and shall remain in full
force and effect as so modified, provided that:
(1) The New Premises shall be similar in area and in function for Tenant's
purposes and contain usable square footage no less than five percent (5%)
less than the usable square footage of the Premises; and
(2) If Tenant is occupying the Premises at the time of such substitution,
Landlord shall pay the expense of physically moving Tenant, Tenant's
property and equipment to the New Premises. Landlord shall also pay all
reasonable out-of-pocket expenses for telephone and computer installation
and cabling (consistent with that existing in the Premises as of the date
of Landlord's Relocation Notice), net stationery, business cards and change
of address notices required as a result of such move. Landlord shall
furthermore pay the expense to improve the New Premises with improvements
substantially similar to those the Landlord has committed to provide or has
provided in the Premises.
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or a
foreclosure by any creditor of Landlord, the same shall operate to release
Landlord from any liability upon any of the covenants or conditions, express or
implied, herein contained in favor of Tenant, to the extent required to be
performed after the passing of title to Landlord's successor-in-interest. In
such event, Tenant agrees to look solely to the responsibility of the successor-
in-interest of Landlord under this Lease with respect to the performance of the
covenants and duties of "Landlord" to be performed after the passing of title to
Landlord's successor-in-interest. This Lease shall not be affected by any such
sale and Tenant agrees to attorn to the purchaser or assignee. Landlord's
successor(s)-in-interest shall not have liability to Tenant with respect to the
failure to perform any of the obligations of "Landlord," to the extent required
to be performed prior to the date such successor(s)-in-interest became the owner
of the Building.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of the terms of
this Lease shall be performed by Tenant at Tenant's sole cost and expense and
without any abatement of Rent. If Tenant shall fail to pay any sum of money,
other than Base Rent, required to be paid by Tenant hereunder or shall fail to
perform any other act on Tenant's part to be performed hereunder, including
Tenant's obligations under Paragraph 11 hereof, and such failure shall continue
for fifteen (15) days after notice thereof by Landlord, in addition to the other
rights and remedies of Landlord, Landlord may make any such payment and perform
any such act on Tenant's part. In the case of an emergency, no prior
notification by Landlord shall be required. Landlord may take such actions
without any obligation and without releasing Tenant from any of Tenant's
obligations. All sums so paid by Landlord and all incidental costs incurred by
Landlord and interest thereon at the Applicable Interest Rate, from the date of
payment by Landlord, shall be paid to Landlord on demand as Additional Rent.
31. WAIVER
If either Landlord or Tenant waives the performance of any term, covenant or
condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition contained herein, or constitute a course of dealing contrary to the
expressed terms of this Lease. 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 decrease the right of Landlord to insist
thereafter upon strict performance by Tenant. Waiver by Landlord of any term,
covenant or condition contained in this Lease may only be made by a written
document signed by Landlord, based upon full knowledge of the circumstances.
32. NOTICES
Each provision of this Lease or of any applicable governmental laws, ordinances,
regulations and other requirements with reference to sending, mailing, or
delivery of any notice or the making of any payment by Landlord or Tenant to the
other shall be deemed to be complied with when and if the following steps are
taken:
A. Rent. All Rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at Landlord's Remittance Address set
forth in the Basic Lease Information, or at such other address as Landlord may
specify from time to time by written notice delivered in accordance herewith.
Tenant's obligation to pay Rent and any other amounts to Landlord under the
terms of this Lease shall not be deemed satisfied until such Rent and other
amounts have been actually received by Landlord.
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B. Other. All notices, demands, consents and approvals which may or are
required to be given by either party to the other hereunder shall be in writing
and either personally delivered, sent by commercial overnight courier, mailed,
certified or registered, postage prepaid or sent by facsimile with confirmed
receipt (and with an original sent by commercial overnight courier), and in each
case addressed to the party to be notified at the Notice Address for such party
as specified in the Basic Lease Information or to such other place as the party
to be notified may from time to time designate by at least fifteen (15) days
notice to the notifying party. Notices shall be deemed served upon receipt or
refusal to accept delivery. Tenant appoints as its agent to receive the service
of all default notices and notice of commencement of unlawful detainer
proceedings the person in charge of or apparently in charge of occupying the
Premises at the time, and, if there is no such person, then such service may be
made by attaching the same on the main entrance of the Premises.
C. Required Notices. Tenant shall immediately notify Landlord in writing of
any notice of a violation or a potential or alleged violation of any Regulation
that relates to the Premises or the Project, or of any inquiry, investigation,
enforcement or other action that is instituted or threatened by any governmental
or regulatory agency against Tenant or any other occupant of the Premises, or
any claim that is instituted or threatened by any third party that relates to
the Premises or the Project.
33. ATTORNEYS' FEES
If Landlord places the enforcement of this Lease, or any part thereof, or the
collection of any Rent due, or to become due hereunder, or recovery of
possession of the Premises in the hands of an attorney, Tenant shall pay to
Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs,
whether incurred without trial, at trial, appeal or review. In any action which
Landlord or Tenant brings to enforce its respective rights hereunder, the
unsuccessful party shall pay all costs incurred by the prevailing party
including reasonable attorneys' fees, to be fixed by the court, and said costs
and attorneys' fees shall be a part of the judgment in said action.
34. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord, its
successors and assigns, and shall be binding upon and inure to the benefit of
Tenant, its successors, and to the extent assignment is approved by Landlord as
provided hereunder, Tenant's assigns.
35. FORCE MAJEURE
If performance by a party of any portion of this Lease is made impossible by any
prevention, delay, or stoppage caused by strikes, lockouts, labor disputes, acts
of God, inability to obtain services, labor, or materials or reasonable
substitutes for those items, government actions, civil commotions, fire or other
casualty, or other causes beyond the reasonable control of the party obligated
to perform, performance by that party for a period equal to the period of that
prevention, delay, or stoppage is excused. Tenant's obligation to pay Rent,
however, is not excused by this Paragraph 35.
36. SURRENDER OF PREMISES
Tenant shall, upon expiration or sooner termination of this Lease, surrender the
Premises to Landlord in the same condition as existed on the date Tenant
originally took possession thereof, including, but not limited to, all interior
walls cleaned, all interior painted surfaces repainted in the original color,
all holes in walls repaired, all carpets shampooed and cleaned, and all floors
cleaned, waxed, and free of any Tenant-introduced marking or painting, all to
the reasonable satisfaction of Landlord. Tenant shall remove all of its debris
from the Project. At or before the time of surrender, Tenant shall comply with
the terms of Paragraph 12.A. hereof with respect to Alterations to the Premises
and all other matters addressed in such Paragraph. If the Premises are not so
surrendered at the expiration or sooner termination of this Lease, the
provisions of Paragraph 25 hereof shall apply. All keys to the Premises or any
part thereof shall be surrendered to Landlord upon expiration or sooner
termination of the Term. Tenant shall give written notice to Landlord at least
thirty (30) days prior to vacating the Premises and shall meet with Landlord for
a joint inspection of the Premises at the time of vacating, but nothing
contained herein shall be construed as an extension of the Term or as a consent
by Landlord to any holding over by Tenant. In the event of Tenant's failure to
give such notice or participate in such joint inspection, Landlord's inspection
at or after Tenant's vacating the Premises shall conclusively be deemed correct
for purposes of determining Tenant's responsibility for repairs and restoration.
Any delay caused by Tenant's failure to carry out its obligations under this
Paragraph 36 beyond the term hereof, shall constitute unlawful and illegal
possession of Premises under Paragraph 25 hereof.
37. PARKING
So long as Tenant is occupying the Premises, Tenant and Tenant's Parties shall
have the right to use up to the number of parking spaces, if any, specified in
the Basic Lease Information on an unreserved, nonexclusive, first come, first
served basis, for passenger-size automobiles, in the parking areas in the
Project designated from time to time by Landlord for use in common by tenants of
the Building.
To the extent available, Tenant shall have the right to lease additional
parking spaces on a month-to-month unreserved and nonexclusive basis (unless
otherwise agreed in writing by Landlord), and subject to the then prevailing
parking rates such terms and conditions as Landlord may require.
Tenant shall at all times comply and shall cause all Tenant's Parties and
visitors to comply with all Regulations and any rules and regulations
established from time to time by Landlord relating to parking at the Project,
including any keycard, sticker or other identification or entrance system, and
hours of operation, as applicable.
Landlord shall have no liability for any damage to property or other items
located in the parking areas of the Project, nor for any personal injuries or
death arising out of the use of parking areas in the Project by Tenant or any
Tenant's Parties, unless caused by Landlord's gross negligence or willful
misconduct. Without limiting the foregoing, if Landlord arranges for the
parking areas to be operated by an independent contractor not affiliated with
Landlord, Tenant acknowledges that Landlord shall have no liability for claims
arising through acts or omissions of such independent contractor. In all
events, Tenant agrees to look first to its insurance carrier and to require that
Tenant's Parties look first to their respective insurance carriers for payment
of any losses sustained in connection with any use of the parking areas.
Landlord reserves the right to assign specific spaces, and to reserve spaces for
visitors, small cars, disabled persons or for other tenants or guests, and
Tenant shall not park and shall not allow Tenant's Parties to park in any such
assigned or reserved spaces. Tenant may validate visitor parking by such method
as Landlord may approve, at the validation rate from time to time generally
applicable to visitor parking. Landlord also reserves the right to alter,
modify, relocate or close all or any portion of the parking areas in order to
make repairs or perform maintenance service, or to restripe or renovate the
parking areas, or if required by casualty, condemnation, act of God, Regulations
or for any other reason deemed reasonable by Landlord.
Tenant shall pay to Landlord (or Landlord's parking contractor, if so directed
in writing by Landlord), as Additional Rent hereunder, the monthly charges
established from time to time by Landlord based upon prevailing market rates for
parking in such parking areas (which shall initially be the charge specified in
the Basic Lease Information, as applicable). Such parking charges shall be
payable in advance
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with Tenant's payment of Basic Rent. No deductions from the monthly parking
charge shall be made for days on which the Tenant does not use any of the
parking spaces entitled to be used by Tenant.
38. MISCELLANEOUS
A. General. The term "Tenant" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their respective successors, executors,
administrators and permitted assigns, according to the context hereof.
B. Time. Time is of the essence regarding this Lease and all of its
provisions.
C. Choice of Law. This Lease shall in all respects be governed by the laws of
the State of California.
D. Entire Agreement. This Lease, together with its Exhibits, addenda and
attachments and the Basic Lease Information, contains all the agreements of the
parties hereto and supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made between the parties
other than those set forth in this Lease and its Exhibits, addenda and
attachments and the Basic Lease Information.
E. Modification. This Lease may not be modified except by a written instrument
signed by the parties hereto. Tenant accepts the area of the Premises as
specified in the Basic Lease Information as the approximate area of the Premises
for all purposes under this Lease, and acknowledges and agrees that no other
definition of the area (rentable, usable or otherwise) of the Premises shall
apply. Tenant shall in no event be entitled to a recalculation of the square
footage of the Premises, rentable, usable or otherwise, and no recalculation, if
made, irrespective of its purpose, shall reduce Tenant's obligations under this
Lease in any manner, including without limitation the amount of Base Rent
payable by Tenant or Tenant's Proportionate Share of the Building and of the
Project.
F. Severability. If, for any reason whatsoever, any of the provisions hereof
shall be unenforceable or ineffective, all of the other provisions shall be and
remain in full force and effect.
G. Recordation. Tenant shall not record this Lease or a short form memorandum
hereof.
H. Examination of Lease. Submission of this Lease to Tenant does not
constitute an option or offer to lease and this Lease is not effective otherwise
until execution and delivery by both Landlord and Tenant.
I. Accord and Satisfaction. No payment by Tenant of a lesser amount than the
total Rent due nor any endorsement on any check or letter accompanying any check
or payment of Rent shall be deemed an accord and satisfaction of full payment of
Rent, and Landlord may accept such payment without prejudice to Landlord's right
to recover the balance of such Rent or to pursue other remedies. All offers by
or on behalf of Tenant of accord and satisfaction are hereby rejected in
advance.
J. Easements. Landlord may grant easements on the Project and dedicate for
public use portions of the Project without Tenant's consent; provided that no
such grant or dedication shall materially interfere with Tenant's Permitted Use
of the Premises. Upon Landlord's request, Tenant shall execute, acknowledge and
deliver to Landlord documents, instruments, maps and plats necessary to
effectuate Tenant's covenants hereunder.
K. Drafting and Determination Presumption. The parties acknowledge that this
Lease has been agreed to by both the parties, that both Landlord and Tenant have
consulted with attorneys with respect to the terms of this Lease and that no
presumption shall be created against Landlord because Landlord drafted this
Lease. Except as otherwise specifically set forth in this Lease, with respect
to any consent, determination or estimation of Landlord required or allowed in
this Lease or requested of Landlord, Landlord's consent, determination or
estimation shall be given or made solely by Landlord in Landlord's good faith
opinion, whether or not objectively reasonable. If Landlord fails to respond to
any request for its consent within the time period, if any, specified in this
Lease, Landlord shall be deemed to have disapproved such request.
L. Exhibits. The Basic Lease Information, and the Exhibits, addenda and
attachments attached hereto are hereby incorporated herein by this reference and
made a part of this Lease as though fully set forth herein.
M. No Light, Air or View Easement. Any diminution or shutting off of light,
air or view by any structure which may be erected on lands adjacent to or in the
vicinity of the Building shall in no way affect this Lease or impose any
liability on Landlord.
N. No Third Party Benefit. This Lease is a contract between Landlord and
Tenant and nothing herein is intended to create any third party benefit.
O. Quiet Enjoyment. Upon payment by Tenant of the Rent, and upon the
observance and performance of all of the other covenants, terms and conditions
on Tenant's part to be observed and performed, Tenant shall peaceably and
quietly hold and enjoy the Premises for the term hereby demised without
hindrance or interruption by Landlord or any other person or persons lawfully or
equitably claiming by, through or under Landlord, subject, nevertheless, to all
of the other terms and conditions of this Lease. Landlord shall not be liable
for any hindrance, interruption, interference or disturbance by other tenants or
third persons, nor shall Tenant be released from any obligations under this
Lease because of such hindrance, interruption, interference or disturbance.
P. Counterparts. This Lease may be executed in any number of counterparts,
each of which shall be deemed an original.
Q. Multiple Parties. If more than one person or entity is named herein as
Tenant, such multiple parties shall have joint and several responsibility to
comply with the terms of this Lease.
R. Prorations. Any Rent or other amounts payable to Landlord by Tenant
hereunder for any fractional month shall be prorated based on a month of 30
days. As used herein, the term "fiscal year" shall mean the calendar year or
such other fiscal year as Landlord may deem appropriate.
39. ADDITIONAL PROVISIONS
A. Option to Renew. Tenant shall, provided this Lease is in full force and
effect and Tenant is not and has not been in default under any of the terms
and conditions of this Lease which remains uncured, have two (2) successive
option(s) to renew this Lease for a term of three (3) year(s) each, for the
Premises on the same terms and conditions set forth in this Lease, except as
modified by the terms, covenants and conditions set forth below:
(1) If Tenant elects to exercise such option, then Tenant shall provide
Landlord with written notice no earlier than the date which is 360
days prior to the expiration of the then current term of this Lease,
but no later than 5:00 p.m. (Pacific
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Standard Time) on the date which is 270 days prior to the expiration
of the then current term of this Lease. If Tenant fails to provide
such notice, Tenant shall have no further or additional right to
extend or renew the term of this Lease.
(2) The Base Rent in effect at the expiration of the then current term
of this Lease shall be increased to reflect the current fair market
rental for comparable space in the Building or Project and in other
similar buildings in the same rental market as of the date the
renewal term is to commence, taking into account the specific
provisions of this Lease which will remain constant, and the
Building amenities, location, quality, age, term of lease, tenant
improvements, services provided, and other pertinent items. Such
fair market rental shall be in addition to Tenant's obligation to
pay any Elevator Payment (as defined in Exhibit C attached hereto)
to Landlord.
(3) Landlord shall advise Tenant of the new Base Rent for the Premises
for the applicable renewal term based on Landlord's determination of
fair market rental value, as well as additional terms and conditions
for the renewal term, no later than fifteen (15) days after receipt
of notice of Tenant's exercise of its option to renew.
(4) Landlord and Tenant shall negotiate in good faith to agree on the
fair market rental value of the Premises and other terms and
conditions for each renewal term. If Tenant and Landlord are unable
to agree on a mutually acceptable rental rate for any renewal term
within thirty (30) days after notification by Landlord to Tenant of
Landlord's determination of the new Base Rent for the applicable
renewal term, but in any event no later than the date which is
ninety (90) days prior to the expiration of the then current term,
then on or before such date Landlord and Tenant shall each appoint a
licensed real estate broker with at least ten (10) year's experience
in leasing office space in the area in which the Building is located
to act as arbitrators. The two (2) arbitrators so appointed shall
determine the fair market rental value for the Premises for the
applicable renewal term based on the above criteria and each shall
submit his or her determination of such fair market rental value to
Landlord and Tenant in writing, within thirty (30) days after his or
her appointment.
If the two (2) arbitrators so appointed cannot agree on the fair
market rental value for the applicable renewal term within such 30-
day period, the two (2) arbitrators shall within five (5) days
thereafter appoint a third arbitrator who shall be a licensed real
estate broker with at least ten (10) year's experience in leasing
office space in the area in which the Building is located. The third
arbitrator so appointed shall determine the fair market rental value
for the Premises for the renewal term within thirty (30) days after
appointment, by selecting from the proposals submitted by each of
the first two arbitrators the one that most closely approximates the
third arbitrator's determination of such fair market rental value.
The third arbitrator shall have no right to adopt a compromise or
middle ground or any modification of either of the proposals
submitted by the first two arbitrators. The proposal chosen by the
third arbitrator as most closely approximating the third
arbitrator's determination of the fair market rental value shall
constitute the decision and award of the arbitrators and shall be
final and binding on the parties.
Each party shall pay the fees and expenses of the arbitrator
appointed by such party and one-half (1/2) of the fees and expenses
of the third arbitrator. Notwithstanding the foregoing, in the event
the Base Rent is found to be within fifteen percent (15%) of the
original rate quoted by Landlord, then Tenant shall bear the full
cost of the arbitration process.
If either party fails to appoint an arbitrator, or if either of the
first two arbitrators fails to submit his or her proposal of fair
market rental value to the other party, in each case within the time
periods set forth above, then the decision of the other party's
arbitrator shall be considered final and binding.
(5) Notwithstanding anything to the contrary contained in this
Paragraph, in no event shall the Base Rent for any renewal term be
less than the Base Rent in effect at the expiration of the previous
term plus Operating Expense escalations over the previous years, In
addition, Landlord shall have no obligation to provide or pay for
any tenant improvements or brokerage commissions during any renewal
term.
(6) Tenant's right to exercise any option(s) to renew under this
Paragraph shall be conditioned upon Tenant occupying the entire
Premises and the same not being occupied by any assignee, subtenant
or licensee other than Tenant or its affiliate at the time of
exercise of any option and commencement of the renewal term.
Tenant's exercise of the option to renew shall constitute a
representation by Tenant to Landlord that as of the date of exercise
of the option and the commencement of the renewal term, Tenant does
not intend to seek to assign this Lease in whole or in part, or
sublet all or any portion of the Premises.
(7) Any exercise by Tenant of any option to renew under this Paragraph
shall be irrevocable. If requested by Landlord, Tenant agrees to
execute a lease amendment or, at Landlord's option, a new lease
agreement on Landlord's then standard lease form for the Building,
reflecting the foregoing terms and conditions, prior to the
commencement of the renewal term. The option(s) to renew granted
under this Paragraph is/are not transferable; the parties hereto
acknowledge and agree that they intend that each option to renew
this Lease under this Paragraph shall be "personal" to the specific
Tenant named in this Lease and that in no event will any assignee or
sublessee have any rights to exercise such option(s) to renew.
(8) If more than one renewal option is provided above, the exercise of
each renewal option shall be contingent upon Tenant exercising the
prior renewal option. Only one renewal option may be exercised at a
time. As each renewal option provided for above is exercised, the
number of renewal options remaining to be exercised is reduced by
one and upon exercise of the last remaining renewal option Tenant
shall have no further right to extend the term of this Lease.
B. Right of First Notice. Landlord hereby grants to Tenant a right of
notice with respect to any available space in the Building (the "Right of Notice
Space"). Notwithstanding the foregoing, (i) such Right of Notice of Tenant
shall commence only following the expiration or earlier termination of (A) any
existing lease pertaining to the Right of Notice Space, and (B) as to any Right
of Notice Space which is vacant as of the date of this Lease, the first lease
pertaining to any portion of such Right of Notice Space entered into by Landlord
after the date of this Lease (collectively, the "Superior Leases"), including
any renewal of such existing or future lease, whether or not such renewal is
pursuant to an express written provision in such lease, and regardless of
whether any such renewal is consummated pursuant to a lease amendment or a new
lease, and (ii) such Right of Notice shall be subordinate and secondary to all
currently existing rights of expansion, first refusal, first offer or similar
rights granted to (A) the tenants of the Superior Leases and (B) any other
tenant of the Project (the rights described in items (i) and (ii), above to be
known collectively as "Superior Rights").
Procedure for Offer. Provided Tenant is not in default under any of the terms
or conditions of this Lease which remains uncured, upon Tenant's prior written
request to Landlord, Landlord shall notify Tenant (the "Notice") when Landlord
determines that Landlord shall
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commence the marketing of any Right of Notice Space because such space shall
become available for lease to third parties, where no holder of a Superior Right
desires to lease such space. The Notice shall describe the Right of Notice
Space.
40. JURY TRIAL WAIVER
EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR HEIR OR PERSONAL
REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY WAIVES TRIAL BY
JURY, AND HEREBY FURTHER WAIVES ANY OBJECTION TO VENUE IN THE COUNTY IN WHICH
THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO PERSONAL JURISDICTION OF THE
COURTS OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IN ANY ACTION OR
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER ON ANY
MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE
RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES,
OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY
STATUTE, EMERGENCY OR OTHERWISE, WHETHER ANY OF THE FOREGOING IS BASED ON THIS
LEASE OR ON TORT LAW. EACH PARTY REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO
CONSULT WITH LEGAL COUNSEL CONCERNING THE EFFECT OF THIS PARAGRAPH 40. THE
PROVISIONS OF THE PARAGRAPH 40 SHALL SURVIVE THE EXPIRATION OR EARLIER
TERMINATION OF THIS LEASE.
IN WITNESS WHEREOF, the parties hereto have executed this lease as of the day
and the year first above written.
LANDLORD
Spieker Properties, L.P.,
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By:
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Its:
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Date:
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TENANT
GeoCities, a California corporation
By:
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Its:
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By:
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Its:
-----------------------------------
Date:
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EXHIBIT A
Rules and Regulations
1. Sidewalks, halls, passages, exits, entrances, elevators, escalators and
stairways shall not be obstructed by tenants or used by tenants for any
purpose other than for ingress to and egress from their respective premises.
The halls, passages, exits, entrances, elevators and stairways are not for
the use of the general public and Landlord shall in all cases retain the
right to control and prevent access thereto by all persons whose presence,
in the judgment of Landlord, shall be prejudicial to the safety, character,
reputation and interests of the Building, the Project and its tenants,
provided that nothing herein contained shall be construed to prevent such
access to persons with whom any tenant normally deals in the ordinary course
of such tenant's business unless such persons are engaged in illegal
activities. No tenant, and no employees or invitees of any tenant, shall go
upon the roof of any Building, except as authorized by Landlord. No tenant,
and no employees or invitees of any tenant shall move any common area
furniture without Landlord's consent.
2. No sign, placard, banner, picture, name, advertisement or notice, visible
from the exterior of the Premises or the Building or the common areas of the
Building shall be inscribed, painted, affixed, installed or otherwise
displayed by Tenant either on its Premises or any part of the Building or
Project without the prior written consent of Landlord in Landlord's sole and
absolute discretion. Landlord shall have the right to remove any such sign,
placard, banner, picture, name, advertisement, or notice without notice to
and at the expense of the Tenant, which were installed or displayed in
violation of this rule. If Landlord shall have given such consent to Tenant
at anytime, whether before or after the execution of Tenant's Lease, such
consent shall in no way operate as a waiver or release of any of the
provisions hereof or of the Lease, and shall be deemed to relate only to the
particular sign, placard, banner, picture, name, advertisement or notice so
consented to by Landlord and shall not be construed as dispensing with the
necessity of obtaining the specific written consent of Landlord with respect
to any other such sign, placard, banner, picture, name, advertisement or
notice.
All approved signs or lettering on doors and walls shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person or vendor
approved by Landlord and shall be removed by Tenant at the time of vacancy
at Tenant's expense.
3. The directory of the Building will be provided exclusively for the display
of the name and location of tenants only and Landlord reserves the right to
charge for the use thereof and to exclude any other names therefrom.
4. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, awnings, hangings or decorations shall be attached to, hung or
placed in, or used in connection with, any window or door on the Premises
without the prior written consent of Landlord. In any event with the prior
written consent of Landlord, all such items shall be installed inboard of
Landlord's standard window covering and shall in no way be visible from the
exterior of the Building. All electrical ceiling fixtures hung in offices or
spaces along the perimeter of the Building must be fluorescent or of a
quality, type, design, and bulb color approved by Landlord. No articles
shall be placed or kept on the window sills so as to be visible from the
exterior of the Building. No articles shall be placed against glass
partitions or doors which Landlord considers unsightly from outside Tenant's
Premises.
5. Landlord reserves the right to exclude from the Building and the Project,
between the hours of 6 p.m. and 8 a.m. and at all hours on Saturdays,
Sundays and legal holidays, all persons who are not tenants or their
accompanied guests in the Building. Each tenant shall be responsible for all
persons for whom it allows to enter the Building or the Project and shall be
liable to Landlord for all acts of such persons.
Landlord and its agents shall not be liable for damages for any error
concerning the admission to, or exclusion from, the Building or the Project
of any person.
During the continuance of any invasion, mob, riot, public excitement or
other circumstance rendering such action advisable in Landlord's opinion,
Landlord reserves the right (but shall not be obligated) to prevent access
to the Building and the Project during the continuance of that event by any
means it considers appropriate for the safety of tenants and protection of
the Building, property in the Building and the Project.
6. All cleaning and janitorial services for the Building and the Premises shall
be provided exclusively through Landlord. Except with the written consent of
Landlord, no person or persons other than those approved by Landlord shall
be permitted to enter the Building for the purpose of cleaning the same.
Tenant shall not cause any unnecessary labor by reason of Tenant's
carelessness or indifference in the preservation of good order and
cleanliness of its Premises. Landlord shall in no way be responsible to
Tenant for any loss of property on the Premises, however occurring, or for
any damage done to Tenant's property by the janitor or any other employee or
any other person.
7. Tenant shall see that all doors of its Premises are closed and securely
locked and must observe strict care and caution that all water faucets or
water apparatus, coffee pots or other heat-generating devices are entirely
shut off before Tenant or its employees leave the Premises, and that all
utilities shall likewise be carefully shut off, so as to prevent waste or
damage. Tenant shall be responsible for any damage or injuries sustained by
other tenants or occupants of the Building or Project or by Landlord for
noncompliance with this rule. On multiple-tenancy floors, all tenants shall
keep the door or doors to the Building corridors closed at all times except
for ingress and egress.
8. Tenant shall not use any method of heating or air-conditioning other than
that supplied by Landlord. As more specifically provided in the Tenant's
lease of the Premises, Tenant shall not waste electricity, water or air-
conditioning and agrees to cooperate fully with Landlord to assure the most
effective operation of the Building's heating and air-conditioning, and
shall refrain from attempting to adjust any controls other than room
thermostats installed for Tenant's use.
9. Landlord will furnish Tenant free of charge with two keys to each door in
the Premises. Landlord may make a reasonable charge for any additional keys,
and Tenant shall not make or have made additional keys. Tenant shall not
alter any lock or access device or install a new or additional lock or
access device or bolt on any door of its Premises, without the prior written
consent of Landlord. If Landlord shall give its consent, Tenant shall in
each case furnish Landlord with a key for any such lock. Tenant, upon the
termination of its tenancy, shall deliver to Landlord the keys for all doors
which have been furnished to Tenant, and in the event of loss of any keys so
furnished, shall pay Landlord therefor.
10. The restrooms, toilets, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown into them. The
expense of any breakage, stoppage, or damage resulting from violation of
this rule shall be borne by the tenant who, or whose employees or invitees,
shall have caused the breakage, stoppage, or damage.
11. Tenant shall not use or keep in or on the Premises, the Building or the
Project any kerosene, gasoline, or inflammable or combustible fluid or
material.
12. Tenant shall not use, keep or permit to be used or kept in its Premises any
foul or noxious gas or substance. Tenant shall not allow the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Building by reason of noise,
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odors and/or vibrations or interfere in any way with other tenants or those
having business therein, nor shall any animals or birds be brought or kept
in or about the Premises, the Building, or the Project.
13. No cooking shall be done or permitted by any tenant on the Premises, except
that use by the tenant of Underwriters' Laboratory (UL) approved equipment,
refrigerators and microwave ovens may be used in the Premises for the
preparation of coffee, tea, hot chocolate and similar beverages, storing and
heating food for tenants and their employees shall be permitted. All uses
must be in accordance with all applicable federal, state and city laws,
codes, ordinances, rules and regulations and the Lease.
14. Except with the prior written consent of Landlord, Tenant shall not sell, or
permit the sale, at retail, of newspapers, magazines, periodicals, theater
tickets or any other goods or merchandise in or on the Premises, nor shall
Tenant carry on, or permit or allow any employee or other person to carry
on, the business of stenography, typewriting or any similar business in or
from the Premises for the service or accommodation of occupants of any other
portion of the Building, nor shall the Premises be used for the storage of
merchandise or for manufacturing of any kind, or the business of a public
barber shop, beauty parlor, nor shall the Premises be used for any illegal,
improper, immoral or objectionable purpose, or any business or activity
other than that specifically provided for in such Tenant's Lease. Tenant
shall not accept hairstyling, barbering, shoeshine, nail, massage or similar
services in the Premises or common areas except as authorized by Landlord.
15. If Tenant requires telegraphic, telephonic, telecommunications, data
processing, burglar alarm or similar services, it shall first obtain, and
comply with, Landlord's instructions in their installation.
16. Landlord will direct electricians as to where and how telephone, telegraph
and electrical wires are to be introduced or installed. No boring or cutting
for wires will be allowed without the prior consent of Landlord. The
location of burglar alarms, telephones, call boxes and other office
equipment affixed to the Premises shall be subject to the written approval
of Landlord.
17. Tenant shall not install any radio or television antenna, satellite dish,
loudspeaker or any other device on the exterior walls or the roof of the
Building, without Landlord's consent. Tenant shall not interfere with radio
or television broadcasting or reception from or in the Building, the Project
or elsewhere.
18. Tenant shall not mark, or drive nails, screws or drill into the partitions,
woodwork or drywall or in any way deface the Premises or any part thereof
without Landlord's consent. Tenant may install nails and screws in areas of
the Premises that have been identified for those purposes to Landlord by
Tenant at the time those walls or partitions were installed in the Premises.
Tenant shall not lay linoleum, tile, carpet or any other floor covering so
that the same shall be affixed to the floor of its Premises in any manner
except as approved in writing by Landlord. The expense of repairing any
damage resulting from a violation of this rule or the removal of any floor
covering shall be borne by the tenant by whom, or by whose contractors,
employees or invitees, the damage shall have been caused.
19. No furniture, freight, equipment, materials, supplies, packages, merchandise
or other property will be received in the Building or carried up or down the
elevators except between such hours and in such elevators as shall be
designated by Landlord.
Tenant shall not place a load upon any floor of its Premises which exceeds
the load per square foot which such floor was designed to carry or which is
allowed by law. Landlord shall have the right to prescribe the weight, size
and position of all safes, furniture or other heavy equipment brought into
the Building. Safes or other heavy objects shall, if considered necessary by
Landlord, stand on wood strips of such thickness as determined by Landlord
to be necessary to properly distribute the weight thereof. Landlord will not
be responsible for loss of or damage to any such safe, equipment or property
from any cause, and all damage done to the Building by moving or maintaining
any such safe, equipment or other property shall be repaired at the expense
of Tenant.
Business machines and mechanical equipment belonging to Tenant which cause
noise or vibration that may be transmitted to the structure of the Building
or to any space therein to such a degree as to be objectionable to Landlord
or to any tenants in the Building shall be placed and maintained by Tenant,
at Tenant's expense, on vibration eliminators or other devices sufficient to
eliminate noise or vibration. The persons employed to move such equipment in
or out of the Building must be acceptable to Landlord.
20. Tenant shall not install, maintain or operate upon its Premises any vending
machine without the written consent of Landlord.
21. There shall not be used in any space, or in the public areas of the Project
either by Tenant or others, any hand trucks except those equipped with
rubber tires and side guards or such other material handling equipment as
Landlord may approve. Tenants using hand trucks shall be required to use the
freight elevator, or such elevator as Landlord shall designate. No other
vehicles of any kind shall be brought by Tenant into or kept in or about its
Premises.
22. Each tenant shall store all its trash and garbage within the interior of the
Premises. Tenant shall not place in the trash boxes or receptacles any
personal trash or any material that may not or cannot be disposed of in the
ordinary and customary manner of removing and disposing of trash and garbage
in the city, without violation of any law or ordinance governing such
disposal. All trash, garbage and refuse disposal shall be made only through
entry-ways and elevators provided for such purposes and at such times as
Landlord shall designate. If the Building has implemented a building-wide
recycling program for tenants, Tenant shall use good faith efforts to
participate in said program.
23. Canvassing, soliciting, distribution of handbills or any other written
material and peddling in the Building and the Project are prohibited and
each tenant shall cooperate to prevent the same. No tenant shall make room-
to-room solicitation of business from other tenants in the Building or the
Project, without the written consent of Landlord.
24. Landlord shall have the right, exercisable without notice and without
liability to any tenant, to change the name and address of the Building and
the Project.
25. Landlord reserves the right to exclude or expel from the Project any person
who, in Landlord's judgment, is under the influence of alcohol or drugs or
who commits any act in violation of any of these Rules and Regulations.
26. Without the prior written consent of Landlord, Tenant shall not use the name
of the Building or the Project or any photograph or other likeness of the
Building or the Project in connection with, or in promoting or advertising,
Tenant's business except that Tenant may include the Building's or Project's
name in Tenant's address.
27. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
28. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
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29. The requirements of Tenant will be attended to only upon appropriate
application at the office of the Building by an authorized individual.
Employees of Landlord shall not perform any work or do anything outside of
their regular duties unless under special instructions from Landlord, and no
employees of Landlord will admit any person (tenant or otherwise) to any
office without specific instructions from Landlord.
30. Landlord reserves the right to designate the use of the parking spaces on
the Project. Tenant or Tenant's guests shall park between designated parking
lines only, and shall not occupy two parking spaces with one car. Parking
spaces shall be for passenger vehicles only; no boats, trucks, trailers,
recreational vehicles or other types of vehicles may be parked in the
parking areas (except that trucks may be loaded and unloaded in designated
loading areas). Vehicles in violation of the above shall be subject to tow-
away, at vehicle owner's expense. Vehicles parked on the Project overnight
without prior written consent of the Landlord shall be deemed abandoned and
shall be subject to tow-away at vehicle owner's expense. No tenant of the
Building shall park in visitor or reserved parking areas. Any tenant found
parking in such designated visitor or reserved parking areas shall be
subject to tow-away at vehicle owner's expense. The parking areas shall not
be used to provide car wash, oil changes, detailing, automotive repair or
other services unless otherwise approved or furnished by Landlord.
31. No smoking of any kind shall be permitted anywhere within the Building,
including, without limitation, the Premises and those areas immediately
adjacent to the entrances and exits to the Building, or any other area as
Landlord elects. Smoking in the Project is only permitted in smoking areas
identified by Landlord, which may be relocated from time to time.
32. If the Building furnishes common area conferences rooms for tenant usage,
Landlord shall have the right to control each tenant's usage of the
conference rooms, including limiting tenant usage so that the rooms are
equally available to all tenants in the Building. Any common area amenities
or facilities shall be provided from time to time at Landlord's discretion.
33. Tenant shall not swap or exchange building keys or cardkeys with other
employees or tenants in the Building or the Project.
34. Tenant shall be responsible for the observance of all of the foregoing Rules
and Regulations by Tenant's employees, agents, clients, customers, invitees
and guests.
35. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify, alter or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of any premises in the
Project.
36. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any
such Rules and Regulations against any or all tenants of the Building.
37. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for safety
and security, for care and cleanliness of the Building and the Project and
for the preservation of good order therein. Tenant agrees to abide by all
such Rules and Regulations herein stated and any additional rules and
regulations which are adopted.
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EXHIBIT C
OFFICE LEASE IMPROVEMENT AGREEMENT
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This Office Lease Improvement Agreement ("Improvement Agreement") sets
forth the terms and conditions relating to construction of the initial tenant
improvements described in the Plans to be prepared and approved as provided
below (the "Tenant Improvements") in the Premises. Capitalized terms used but
not otherwise defined herein shall have the meanings set forth in the Lease (the
"Lease") to which this Improvement Agreement is attached and forms a part.
1. Base Building Work. The "Base Building Work" described on Schedule 1 to this
-------------------
Exhibit C, if any, has been or will be performed by Landlord at Landlord's sole
cost and expense. To the extent the performance of the Tenant Improvements
triggers the requirement by any local or regulatory agency that an elevator be
installed in the Building to service the mezzanine level, Landlord shall
furthermore be responsible, at its expense, for the installation of such an
elevator to service the mezzanine level of the Building. Tenant shall be
responsible for the payment to Landlord, on the first day of each month during
the lease term, of an amount equal to the Elevator Payment (defined below). The
term 'Elevator Payment' shall mean all of the costs incurred by Landlord in
connection with the installation of such elevator, amortized on a monthly basis
over a fifteen (15) year period, with interest accrued thereon at twelve percent
(12%) per annum. If this Lease is canceled or terminated for any reason prior to
the expiration of the initial Lease Term or any applicable renewal term, the
unamortized Elevator Payment (for the initial Lease Term or any applicable
renewal term) shall become immediately due and payable to Landlord.
2. Plans and Specifications.
------------------------
A. Landlord shall retain the services of the space planner/architect
designated by Landlord (the "Space Planner") to prepare a detailed space plan
(the "Space Plan") mutually satisfactory to Landlord and Tenant for the
construction of the Tenant Improvements in the Premises. Tenant shall approve or
disapprove the Space Plan and any proposed revisions thereto in writing within
three (3) business days after receipt thereof, which approval shall not be
unreasonably withheld.
B. Based on the approved Space Plan, Landlord shall cause the Space Planner
and Landlord's engineering consultant to prepare detailed plans, specifications
and working drawings, including engineering drawings, for the construction of
the Tenant Improvements (the "Plans"). Landlord and Tenant shall diligently
pursue the preparation of the Plans. Tenant shall approve or disapprove the
Plans and any proposed revisions thereto, including the estimated cost of the
Tenant Improvements, in writing within three (3) business days after receipt
thereof. If Tenant fails to approve or disapprove the Space Plan or Plans or any
revisions thereto within the time limits specified herein, Tenant shall be
deemed to have approved the same. Landlord and Tenant shall use diligent efforts
to cause the final Plans and the cost estimate to be prepared and approved no
later than thirty (30) days after the execution of the Lease.
C. Notwithstanding Landlord's preparation, review and approval of the Space
Plan and the Plans and any revisions thereto, Landlord shall have no
responsibility or liability whatsoever for any errors or omissions contained in
the Space Plan or Plans, or to verify dimensions or conditions, or for the
quality, design or compliance with applicable Regulation of any improvements
described therein or constructed in accordance therewith except to the extent
that Landlord's participation is required in order to bring an action against
the Space Planner for its error and omissions, in which case Landlord shall
bring such action at Tenant's request (at no cost or expense to Landlord).
Landlord hereby assigns to Tenant all warranties and guarantees by the Space
Planner or the contractor who constructs the Tenant Improvements relating to the
Tenant Improvements and to the extent not expressly provided in the appropriate
contract, shall obtain the Space Planner's and contractor's written consent to
such assignment, and Tenant hereby waives all claims against Landlord relating
to, or arising out of the design or construction of, the Tenant Improvements.
3. Specifications for Standard Tenant Improvements.
-----------------------------------------------
A. Specifications and quantities of standard building components which will
comprise and be used in the construction of the Tenant Improvements
("Standards") are set forth in Schedule 2 to this Exhibit C. As used herein,
"Standards" or "Building Standards" shall mean the standards for a particular
item selected from time to time by Landlord for the Building, including those
set forth on Schedule 2 of this Exhibit C, or such other standards of equal or
better quality as may be mutually agreed between Landlord and Tenant in writing.
B. No deviations from the Standards are permitted.
4. Tenant Improvement Cost.
-----------------------
A. The cost of the Tenant Improvements shall be paid for by Tenant,
including, without limitation, the cost of: Standards; space plans and studies;
architectural and engineering fees; permits, approvals and other governmental
fees; labor, material, equipment and supplies; construction fees and other
amounts payable to contractors or subcontractors; taxes; off-site improvements;
remediation and preparation of the Premises for construction of the Tenant
Improvements; taxes; filing and recording fees; premiums for insurance and
bonds; attorneys' fees; financing costs; and all other costs expended or to be
expended in the construction of the Tenant Improvements, including those costs
incurred for construction of elements of the Tenant Improvements in the
Premises, which construction was performed by Landlord prior to the execution of
the Lease or for materials comprising the Tenant Improvements which were
purchased by Landlord prior to the execution of the Lease; and an administration
fee of five percent (5%) of the total cost of the Tenant Improvements.
B. Provided Tenant is not in default under the Lease, including this
Improvement Agreement, Landlord shall contribute a one-time tenant improvement
allowance not to exceed $237,290.00 ($10.00 per square foot) ("Tenant
Improvement Allowance") to be credited by Landlord toward the cost of the
initial Tenant Improvements. If the cost of the Tenant Improvements exceeds the
Tenant Improvement Allowance, Tenant shall pay Landlord such excess cost within
three (3) business days after Landlord's notice to Tenant of such excess cost.
No credit shall be given to Tenant if the cost of the Tenant Improvements is
less than the Tenant Improvement Allowance.
C. At Tenant's request and subject to the terms of this Section 4(C),
Landlord shall expend an additional amount up to $237,290.00 (hereinafter, the
"Additional Amount") over and above the Tenant Improvement Allowance to pay for
that portion of the cost of the Tenant Improvements, if any, that exceeds the
Tenant Improvement Allowance. In the event that the Tenant Improvement Allowance
plus the Additional Amount exceeds the cost of the Tenant Improvements, Tenant
shall not be entitled to such excess or to a credit against future rent due and
owing under the Lease in the amount of such excess, but rather said excess funds
shall belong to and be the sole property of Landlord. Tenant agrees to reimburse
Landlord for the portion of the cost of the Tenant Improvements paid for by
Landlord hereunder, but only to the extent said costs exceed the Tenant
Improvement Allowance ("Landlord's Costs"), as follows: concurrently with its
payments to Landlord of monthly Base Rent, Tenant shall pay to Landlord an
amount equal to the Monthly Amortized Landlord's Costs (defined below). The term
"Monthly Amortized Landlord's Costs" shall mean Landlord's Costs, amortized over
the initial five (5) years of the Term on a monthly basis, with interest
accruing on Landlord's Costs at twelve percent (12%) per
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annum. If the Lease shall be canceled or terminated for any reason prior to the
expiration of the full initial Term, the unamortized Landlord's Costs shall
become immediately due and payable to Landlord.
D. If the cost of the Tenant Improvements increases after the
Tenant's approval of the Plans due to the requirements of any governmental
agency or applicable Regulation or any other reason, Tenant shall pay Landlord
the amount of such increase within three (3) business days after notice from
Landlord of such increase.
E. If Tenant requests any change(s) in the Plans after approval of the
estimate of the cost of the Tenant Improvements and any such requested changes
are approved by Landlord in writing in Landlord's sole discretion, Landlord
shall advise Tenant promptly of any cost increases and/or delays such approved
change(s) will cause in the construction of the Tenant Improvements. Tenant
shall approve or disapprove any or all such change(s) within three (3) business
days after notice from Landlord of such cost increases and/or delays. To the
extent Tenant disapproves any such cost increase and/or delay attributable
thereto, Landlord shall have the right, in its sole discretion, to disapprove
Tenant's request for any changes to the approved Plans. If the cost of the
Tenant Improvements increases due to any changes in the Plan(s) requested by
Tenant, Tenant shall pay Landlord the amount of such increase within three (3)
business days after notice from Landlord of such increase and Tenant's approval
thereof in accordance with this Paragraph 4.4.
5. Construction of Tenant Improvements.
-----------------------------------
A. Upon Tenant's approval of the Plans including the estimate of the cost
of the Tenant Improvements and Landlord's receipt of payment of any such
estimated cost exceeding the amount of the Tenant Improvement Allowance,
Landlord shall cause a contractor, mutually acceptable to Landlord and Tenant
and identified through a competitive bid process, to proceed to secure a
building permit and commence construction of the Tenant Improvements provided
that Tenant shall cooperate with Landlord in executing permit applications and
performing other actions reasonably necessary to enable Landlord to obtain any
required permits or certificates of occupancy; and provided further that the
Building has in Landlord's discretion reached the stage of construction where it
is appropriate to commence construction of the Tenant Improvements in the
Premises.
B. Without limiting the provisions of Paragraph 35 of the Lease, Landlord
shall not be liable for any direct or indirect damages suffered by Tenant as a
result of delays in construction beyond Landlord's reasonable control,
including, but not limited to, delays due to strikes or unavailability of
materials or labor, or delays caused by Tenant (including delays by the Space
Planner, the contractor or anyone else performing services on behalf of Landlord
or Tenant).
C. If any work is to be performed on the Premises by Tenant or Tenant's
contractor or agents:
i) Such work shall proceed upon Landlord's written approval,
which approval shall not be unreasonably withheld or delayed, of Tenant's
contractor, public liability and property damage insurance carried by Tenant's
contractor, and detailed plans and specifications for such work, shall be at
Tenant's sole cost and expense and shall further be subject to the provisions of
Paragraphs 12 and 27 of the Lease.
ii) All work shall be done in conformity with a valid building
permit when required, a copy of which shall be furnished to Landlord before such
work is commenced, and in any case, all such work shall be performed in
accordance with all applicable Regulations. Notwithstanding any failure by
Landlord to object to any such work, Landlord shall have no responsibility for
Tenant's failure to comply with all applicable Regulations.
iii) If required by Landlord or any lender of Landlord, all work
by Tenant or Tenant's contractor or agents shall be done with union labor in
accordance with all union labor agreements applicable to the trades being
employed.
iv) All work by Tenant or Tenant's contractor or agents shall be
scheduled through Landlord.
v) Tenant or Tenant's contractor or agents shall arrange for
necessary utility, hoisting and elevator service with Landlord's contractor and
shall pay such reasonable charges for such services as may be charged by
Tenant's or Landlord's contractor.
vi) Tenant's entry to the Premises for any purpose, including,
without limitation, inspection or performance of Tenant construction by Tenant's
agents, prior to the date Tenant's obligation to pay rent commences shall be
subject to all the terms and conditions of the Lease except the payment of Rent.
Tenant's entry shall mean entry by Tenant, its officers, contractors, licensees,
agents, servants, employees, guests, invitees, or visitors.
vii) Tenant shall promptly reimburse Landlord upon demand for any
reasonable expense actually incurred by the Landlord by reason of faulty work
done by Tenant or its contractors or by reason of any delays caused by such
work, or by reason of inadequate clean-up.
6. Completion and Rental Commencement Date.
---------------------------------------
A. Tenant's obligation to pay Rent under the Lease shall commence on the
applicable date described in Paragraph 2 of the Lease. However:
i) If Tenant delays in preparing or approving the Space Plans
or the Plans, or fails to approve the estimate of the cost of the Tenant
Improvements or any other matter requiring Tenant's approval, or to pay the
excess cost of Tenant Improvements, in each case within the time limits
specified herein; or
ii) If the construction period is extended because Tenant
requests any changes in construction, or modifies the approved Plans or if the
same do not comply with applicable Regulations; or
iii) If Landlord is otherwise delayed in the construction of the
Tenant Improvements for any act or omission of or breach by Tenant or anyone
performing services on behalf of Tenant or on account of any work performed on
the Premises by Tenant or Tenant's contractors or agents,
then the date described in Paragraph 2 of the Lease shall be deemed to be
accelerated by the total number of days of Tenant delays described in (a)
through (c) above (each, a "Tenant Delay"), calculated in accordance with the
provisions of Paragraph 6.B. below.
B. If the Term of the Lease has not already commenced pursuant to the
provisions of Paragraph 2 of the Lease and substantial completion of the Tenant
Improvements has been delayed on account of any Tenant Delays, then upon actual
substantial completion of the Tenant Improvements (as defined in Paragraph 2 of
the Lease), Landlord shall notify Tenant in writing of the date substantial
completion of the Tenant Improvements would have occurred but for such Tenant
Delays, and such date shall thereafter be deemed to be the Term Commencement
Date for all purposes under the Lease. Tenant shall pay to Landlord, within
three (3) business days after receipt of such written notice (which notice shall
include a summary of Tenant Delays), the per diem Base Rent times the
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number of days between the date the Term Commencement Date would have otherwise
occurred but for the Tenant Delays (as determined by the Space Planner or
Landlord's contractor), and the date of actual substantial completion of the
Tenant Improvements.
C. Promptly after substantial completion of the Tenant Improvements,
Landlord shall give notice to Tenant and Tenant shall conduct an inspection of
the Premises with a representative of Landlord and develop with such
representative of Landlord a punchlist of items of the Tenant Improvements that
are not complete or that require corrections. Upon receipt of such punchlist,
Landlord shall proceed diligently to remedy such items at Landlord's cost and
expense provided such items are part of the Tenant Improvements to be
constructed by Landlord hereunder and are otherwise consistent with Landlord's
obligations under this Improvement Agreement and provided Tenant has fully paid
Landlord for the cost of the Tenant Improvements exceeding the Tenant
Improvement Allowance (with any dispute between Landlord and Tenant pertaining
thereto to be resolved by the Space Planner or Landlord's general contractor).
Substantial completion shall not be delayed notwithstanding delivery of any such
punchlist.
D. A default under this Improvement Agreement shall constitute a default
under the Lease, and the parties shall be entitled to all rights and remedies
under the Lease in the event of a default hereunder by the other party
(notwithstanding that the Term thereof has not commenced).
E. Without limiting the "as-is" provisions of the Lease, except for the
Tenant Improvements, if any, to be constructed by Landlord pursuant to this
Improvement Agreement, Tenant accepts the Premises in its "as-is" condition and
acknowledges that it has had an opportunity to inspect the Premises prior to
signing the Lease.
25
<PAGE>
SCHEDULE 1
TO EXHIBIT C
BASE BUILDING WORK
------------------
1. Install new roof membrane.
2. Restore twelve (12) existing rooftop air conditioning equipment to
operational status, excluding distribution system and thermostatic controls
within the Premises.
26
<PAGE>
SCHEDULE 2
TO EXHIBIT C
BUILDING STANDARDS
------------------
The following constitutes the Building Standard tenant improvements
("Standards") in the quantities specified:
(to be provided)
27
<PAGE>
EXHIBIT 10.30
CO-MARKETING AGREEMENT
----------------------
This Co-Marketing Agreement ("Agreement") is made and entered into
June ___, 1998 ("Effective Date"), by and between GeoCities, a California
corporation located at 1918 Main Street, 3rd Floor, Santa Monica, California
90405-1030 ("GeoCities") and E*TRADE Group, Inc., a Delaware corporation located
at Four Embarcadero Place, 2400 Geng Road, Palo Alto, CA 94303 ("E*TRADE").
1. Definitions.
-----------
a. "E*TRADE Services" means E*TRADE's electronic brokerage
services and related products available at the E*TRADE Site.
b. "E*TRADE Site" means E*TRADE's web site located at
//http://www.etrade.com// (or any replacement or successor address).
c. "GeoCities Services" means GeoCities' on-line Internet content
and information services and related products available through the GeoCities
Site.
d. "GeoCities Site" means GeoCities' web site located at
//http://www.geocities.com// (or any replacement or successor address) and all
third party co-branded or mirrored addresses or sites thereof.
2. Co-Marketing Obligations.
------------------------
a. Scope. The parties shall undertake and perform the
-----
obligations for the marketing and promotion of the GeoCities Services along with
the E*TRADE Services on the GeoCities Site, to the extent specified in Exhibit A
attached hereto. All such promotional activity shall be subject to the prior
approval of both parties, such approval not to be unreasonably withheld.
b. Restrictions. Other than by engaging in the activities
------------
described in Section 2.a above and Exhibit A, GeoCities and its employees will
not (i) describe E*TRADE's brokerage services (other than disseminating or
posting promotional or advertising materials approved in each case by E*TRADE
pursuant to Section 3 below); (ii) recommend or endorse specific securities
(other than by disseminating publications or information prepared by third
parties that are responsible for such content); (iii) become involved in the
financial services offered by E*TRADE, including, without limitation, by: (A)
opening, maintaining, administering, or closing customer brokerage accounts with
E*TRADE; (B) soliciting, processing, or facilitating securities transactions
relating to customer brokerage accounts with E*TRADE; (C) extending credit to
any customer for the purpose of purchasing securities through, or carrying
securities with, E*TRADE; (D) answering E*TRADE customer inquiries or engaging
in negotiations involving brokerage accounts or securities transactions; (E)
accepting customer securities orders, selecting among broker-dealers or routing
orders to markets for E*TRADE execution; (F) handling funds or securities of
E*TRADE customers, or effecting clearance or settlement of customer securities
trades; or (G) resolving or attempting to resolve any problems, discrepancies,
or disputes involving E*TRADE customer accounts or related
<PAGE>
transactions. GeoCities acknowledges that engaging in any of the above
activities may subject GeoCities to broker-dealer registration requirements
under the Securities Exchange Act of 1934 and applicable state law.
3. Licensed Marks.
--------------
a. License to E*TRADE Marks. Subject to all the terms and
------------------------
conditions of this Agreement, E*TRADE hereby grants GeoCities a nonexclusive,
non-transferable, non-sublicensable license to use the E*TRADE Marks solely on
the GeoCities Site and solely in connection with the marketing and promotion of
the GeoCities Services and the E*TRADE Services. "E*TRADE Marks" shall mean
solely the E*TRADE name and logo specified in Exhibit B hereto; provided,
however, that E*TRADE, in its sole discretion from time to time, may change the
appearance and/or style of the E*TRADE Marks or add or subtract from the list in
Exhibit B, provided that, unless required earlier by a court order or to avoid
potential infringement liability, GeoCities shall have fourteen (14) days'
notice to implement any such changes. GeoCities hereby acknowledges and agrees
that (i) the E*TRADE Marks are owned solely and exclusively by E*TRADE, (ii)
except as set forth herein, GeoCities has no rights, title or interest in or to
the E*TRADE Marks and (iii) all use of the E*TRADE Marks by GeoCities shall
inure to the benefit of E*TRADE. GeoCities agrees not to apply for registration
of the E*TRADE Marks (or any mark confusingly similar thereto) anywhere in the
world. GeoCities agrees that it shall not engage, participate or otherwise
become involved in any activity or course of action that diminishes and/or
tarnishes the image and/or reputation of any E*TRADE Mark.
b. Use and Display of E*TRADE Marks. GeoCities acknowledges and
--------------------------------
agrees that the presentation and image of the E*TRADE Marks should be uniform
and consistent with respect to all services, activities and products associated
with the E*TRADE Marks. Accordingly, GeoCities agrees to use the E*TRADE Marks
solely in the manner which E*TRADE shall specify from time to time in E*TRADE's
sole discretion. All usage by GeoCities of the E*TRADE Marks shall include the
registered trademark symbol and shall be in the following form, as appropriate:
[E*TRADE Mark](R). All literature and materials printed, distributed or
electronically transmitted by GeoCities and containing the E*TRADE Marks shall
include the following notice:
[E*TRADE Mark] is a registered trademark
of E*TRADE Group, Inc.
4. Payment; Reports; Audit Rights.
------------------------------
a. Payment and Reports. Subject to the terms and conditions
-------------------
of this Agreement, all payments made under this agreement shall made in
accordance with terms specified in Exhibit C attached hereto.
b. Audit Rights. All records relating to payment obligations
------------
hereunder, and inspection and audits thereof, shall be kept and made available
in accordance with terms specified in Exhibit C.
5. Ownership. Each party or their respective licensors and third
---------
party information and content providers retain all rights, title and interest in
and to all of the
<PAGE>
information, content, data, designs, materials and all copyrights, patent rights
trademark rights and other proprietary rights thereto provided by it pursuant to
this Agreement. Except as expressly provided herein, no other right or license
with respect to any copyrights, patent rights, trademark rights or other
proprietary rights is granted under this Agreement. All rights not expressly
granted hereunder by a party are expressly reserved to such party and its
licensors and information and content providers.
6. Term and Termination.
--------------------
a. This Agreement shall commence on the Effective Date and
shall remain in full force and effect (unless terminated earlier as provided
below) for an initial term of one (1) year which shall be renewable for
additional one (1) year periods upon mutual agreement of the parties as to the
terms of renewal. E*TRADE shall have the right to terminate this Agreement for
any reason at any time after six (6) months after the Effective Date, upon sixty
(60) days' notice to GeoCities.
b. This Agreement may be terminated by a party for cause
immediately by written notice upon the occurrence of any of the following
events:
i) If the other ceases to do business, or otherwise
terminates its business operations, except as a result of an assignment
permitted under Section 13.a below; or
ii) If the other shall fail to promptly secure or renew any
license, registration, permit, authorization or approval for the conduct of its
business in the manner contemplated by this Agreement or if any such license,
registration, permit, authorization or approval is revoked or suspended and not
reinstated within sixty (60) days; or
iii) If the other materially breaches any material provision
of this Agreement and fails to cure substantially such breach within thirty (30)
days of written notice describing the breach; or
iv) Effective immediately and without notice if the other
becomes insolvent or seeks protection under any bankruptcy, receivership, trust
deed, creditors arrangement, composition or comparable proceeding, or if any
such proceeding is instituted against the other (and not dismissed within ninety
(90) days).
c. Survival. Sections 4.b and 5 through and including 13,
--------
any accrued payment obligations and, except as otherwise expressly provided
herein, any right of action for breach of this Agreement prior to termination
shall survive any termination of this Agreement. Furthermore, upon termination
or expiration of this Agreement, the licenses and obligations in Sections 2 and
3 shall cease.
7. Warranty Disclaimer. NEITHER PARTY MAKES ANY WARRANTIES TO ANY
-------------------
PERSON OR ENTITY WITH RESPECT TO ANY INFORMATION, CONTENT OR OTHER MATERIALS
PROVIDED OR MADE AVAILABLE BY IT HEREUNDER AND DISCLAIMS ALL IMPLIED WARRANTIES,
INCLUDING WITHOUT LIMITATION
<PAGE>
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
8. Indemnification. Each party (the "Indemnitor") shall defend or
---------------
settle at its expense a claim or suit against the other party (the
"Indemnitee"), its sublicensees, distributors, and end users arising out of or
in connection with an assertion that the information, content or other materials
or services provided or made available by the Indemnitor or the use thereof as
specifically authorized by the Indemnitor, infringe any patent, copyright or
trademark rights of any third party, or are a misappropriation of any third
party's trade secret, or contain any libelous, defamatory, disparaging,
pornographic or obscene materials. The Indemnitor shall indemnify and hold
harmless the Indemnitee against and from damages, costs, and attorneys' fees, if
any, incurred in defending and/or resolving such claim or suit; provided that
(a) the Indemnitor is promptly notified in writing of such claim or suit, (b)
the Indemnitor shall have the sole control of the defense and/or settlement
thereof, (c) the Indemnitee furnishes to the Indemnitor, on request, information
available to the Indemnitee for such defense, and (d) the Indemnitee cooperates
in any defense and/or settlement thereof as long as the Indemnitor pays all of
the Indemnitee's reasonable out of pocket expenses and attorneys' fees. The
Indemnitee shall not admit any such claim without prior consent of the
Indemnitor and the Indemnitor shall not enter into any settlement or compromise
which would require the Indemnitee to make any payment or bear any obligation
other than those set forth herein without the Indemnitee's prior written
consent.
9. Limited Liability. EXCEPT AS OTHERWISE PROVIDED BELOW, AND
-----------------
NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, NEITHER PARTY
SHALL BE LIABLE OR OBLIGATED UNDER ANY SECTION OF THIS AGREEMENT OR UNDER
CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR
ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS OR COST OF PROCUREMENT
OF SUBSTITUTE GOODS OR SERVICES OR FOR ANY AMOUNT IN EXCESS OF THE AMOUNTS IN
AGGREGATE PAID TO IT (IN THE CASE OF GEOCITIES) OR (IN THE CASE OF E*TRADE) PAID
OR OWED BY IT HEREUNDER DURING THE TWELVE (12) MONTH PERIOD PRIOR TO THE DATE
THE CLAIM OR CAUSE OF ACTION GIVING RISE TO SUCH LIABILITY AROSE. THE
LIMITATIONS IN THIS SECTION 9 SHALL NOT APPLY TO ANY BREACH OF SECTION 10 OR TO
EITHER PARTY'S OBLIGATIONS OF INDEMNITY UNDER SECTION 8.
10. Confidential Information.
------------------------
a. Each party ("Receiving Party") agrees to keep confidential
and not disclose or use except in performance of its obligations under this
Agreement, confidential or proprietary information related to the other party's
("Disclosing Party") technology or business that the Receiving Party learns in
connection with this Agreement and any other information received from the
other, including without limitation, to the extent previously, currently or
subsequently disclosed to the Receiving Party hereunder or otherwise:
information relating to products or technology of the Disclosing Party or the
properties, composition, structure, use or processing thereof, or systems
therefor, or to the Disclosing Party's business (including, without limitation,
computer programs, code, algorithms, schematics, data, know-how, processes,
ideas,
<PAGE>
inventions (whether patentable or not), names and expertise of employees and
consultants, all information relating to customers and customer transactions and
other technical, business, financial, customer and product development plans,
forecasts, strategies and information), all of the foregoing, "Confidential
Information"). Neither party shall disclose the terms of this Agreement to any
third party without the prior written consent of the other party. Each party
shall use reasonable precautions to protect the other's Confidential Information
and employ at least those precautions that such party employs to protect its own
confidential or proprietary information. "Confidential Information" shall not
include information the Receiving Party can document (a) is in or (through no
improper action or inaction by the Receiving Party or any affiliate, agent or
employee) enters the public domain (and is readily available without substantial
effort), or (b) was rightfully in its possession or known by it prior to receipt
from the Disclosing Party, or (c) was rightfully disclosed to it by another
person without restriction, or (d) was independently developed by it by persons
without access to such information and without use of any Confidential
Information of the Disclosing Party. Each party, with prior written notice to
the Disclosing Party, may disclose such Confidential Information to the minimum
extent possible that is required to be disclosed to a governmental entity or
agency in connection with seeking any governmental or regulatory approval, or
pursuant to the lawful requirement or request of a governmental entity or
agency, provided that reasonable measures are taken to guard against further
disclosure, including without limitation, seeking appropriate confidential
treatment or a protective order, or assisting the other party to do so.
b. The Receiving Party acknowledges and agrees that due to
the unique nature of the Disclosing Party's Confidential Information, there can
be no adequate remedy at law for any breach of its obligations hereunder, that
any such breach may allow the Receiving Party or third parties to unfairly
compete with the Disclosing Party resulting in irreparable harm to the
Disclosing Party, and therefore, that upon any such breach or any threat
thereof, the Disclosing Party shall be entitled to seek appropriate equitable
relief in addition to whatever remedies it might have at law and to be
indemnified by the Receiving Party from any loss or harm, including, without
limitation, lost profits and attorney's fees, in connection with any breach or
enforcement of the Receiving Party's obligations hereunder or the unauthorized
use or release of any such Confidential Information. The Receiving Party will
notify the Disclosing Party in writing immediately upon the occurrence of any
such unauthorized release or other breach. Any breach of this Section 10 will
constitute a material breach of this Agreement.
11. Relationship of Parties. The parties hereto expressly understand
-----------------------
and agree that each party is an independent contractor in the performance of
each and every part of this Agreement, is solely responsible for all of its
employees and agents and its labor costs and expenses arising in connection
therewith. Neither party nor its agents or employees are the representatives of
the other party for any purpose and neither party has the power or authority as
agent, employee or any other capacity to represent, act for, bind or otherwise
create or assume any obligation on behalf of the other party for any purpose
whatsoever.
12. Notices. Notices under this Agreement shall be sufficient only
-------
if personally delivered, delivered by a major commercial rapid delivery courier
service or mailed, postage or charges prepaid, by certified or registered mail,
return receipt requested to a party at its addresses set forth on the first page
above or as amended by notice pursuant to this Section. If
<PAGE>
not received sooner, notice by mail shall be deemed received five (5) days after
deposit in the U.S. mails.
13. Miscellaneous.
-------------
a. Prohibition Against Assignment. Neither this Agreement
------------------------------
nor any rights, licenses or obligations hereunder, may be assigned by either
party without the prior written approval of the non-assigning party.
Notwithstanding the foregoing, either party may assign this Agreement to any
acquiror of all or of substantially all of such party's equity securities,
assets or business relating to the subject matter of this Agreement. Any
attempted assignment in violation of this Section will be void and without
effect. Subject to the foregoing, this Agreement will benefit and bind the
parties' successors and assigns.
b. Applicable Law; Attorneys' Fees. This Agreement shall be
-------------------------------
governed by and construed in accordance with the laws of the State of California
without reference to conflict of law principles thereof. In any action to
enforce this Agreement the prevailing party will be entitled to costs and
attorneys' fees.
c. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties with respect to the subject matter hereof and
supersedes all prior discussions, documents, agreements and prior course of
dealing, and shall not be effective until signed by both parties.
d. Amendment and Waiver. Except as otherwise expressly
--------------------
provided herein, any provision of this Agreement may be amended or modified and
the observance of any provision of this Agreement may be waived (either
generally or any particular instance and either retroactively or prospectively)
only with the written consent of the parties. The failure of either party to
enforce its rights under this Agreement at any time for any period shall not be
construed as a waiver of such rights.
e. Severability. In the event that any of the provisions of
------------
this Agreement shall be held by a court or other tribunal of competent
jurisdiction to be unenforceable, such provisions shall be limited or eliminated
to the minimum extent necessary so that this Agreement shall otherwise remain in
full force and effect and enforceable.
f. Publicity. Any press releases in connection with this
---------
Agreement shall be subject to the prior written mutual approval of the parties.
g. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but both of which together shall
constitute one and the same instrument.
h. Third Party Beneficiaries. E*TRADE's third party licensors
-------------------------
and information providers are intended beneficiaries of this Agreement.
i. Headings. Headings and captions are for convenience only
--------
and are not to be used in the interpretation of this Agreement.
<PAGE>
j. Force Majeure. A party shall not be liable for
-------------
nonperformance or delay in performance (other than of obligations regarding
payment of money or confidentiality) caused by any event reasonably beyond the
control of such party including, but not limited to wars, hostilities,
revolutions, riots, civil commotion, national emergency, strikes, lock-outs,
unavailability of supplies, epidemics, fire, flood, earthquake, force of nature,
explosion, embargo, or any other Act of God, or any law, proclamation,
regulation, ordinance, or other act or order of any court, government or
governmental agency.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date. All signed copies of this Agreement shall be deemed originals.
GEOCITIES
By: /s/ Michael Barrett
Name: Michael Barrett
Title: VP Sales
E*TRADE GROUP, INC.
By: /s/ E*TRADE
Title: SVP.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333-56659) of our report dated July 2, 1998, except for Note 2 as to which
the date is July 21, 1998, on our audits of the financial statements and
financial statement schedule of GeoCities. We also consent to the references
to our firm under the captions "Experts" and "Selected Financial Data".
PricewaterhouseCoopers LLP
Woodland Hills, California
August 5, 1998
